Book Review: The World’s First Stock Exchange

Imagine going out in 1600s and getting a glimpse of a world of finance in a country like Netherlands. Even more so, the world is not very different from the world today in the area of finance. One critical difference between the two times is role of technology and ready availability of information (too much now a days perhaps).

This book (Amazon India link here) by Dutch scholar Lodewijk Petram is a must read for finance scholars and followers. It is encouraging (for someone like me) that this book emerged as the scholar’s thesis. This is just amazing as getting such a readable book and that too out of a finance thesis of all things. In times, when most finance thesis are just algebraic representations of some fancy idea, such work is like a breath of fresh air. The book is highly lucid and accessible as well.

The book is based on World’s first stock exchange in Amsterdam and how it actually evolved during the 17th century. The book centres its attention on formation of Dutch East India Company or VOC (Vereenigde Oost-Indische Compagnie) and explains the stock exchange transactions through the company as well. This book is partly a history of VOC as well. And yes, this Dutch EIC is different from British EIC which came to dominate India for many years before giving control to British government.

In the process of this history, the author explains how things like options, forwards etc came to life. Infact this book also says what most books of financial history narrate.  if finance people from the past came to today’s world, they would be able to relate with most of today’s instruments and players (provided if we remove the jargons). Things like repo transactions were also quite common during that time. There are chapters on fraud and crisis as well again telling you how history keeps repeating itself in area of finance.

The book has excellent description of how VOC was listed; its share traded and speculated during that time. The way shareholders tried to be ahead of the curve by knowing more than others is thrilling to read. The way information travelled about whether ships will come back and with what kind of goods is absorbing as well.

In a chapter on Jewish traders, the author explains how Jews (Portugese Jews to be more explicit) took up share trading. Most professions during that time were like guilds. Jews being migrants were not members of these guilds and hence took onto this profession of share-trading which did not have any such guilds. Jews also had similar experience related to banking/finance in other countries and could easily fit into share trading.

The book also gets into a bit of geography and has some maps/pictures to show buildings/trading places where stocks were traded.

In the last chapter author explains how the book is different from thesis. The thesis was more around the stock exchange and the thesis more around VOC (discussed later). It also gives you a flavor of what goes into such kind of research sitting with centuries old archives and trying to connect stories.

The book got me thinking. India’s BSE is Asia’s oldest stock exchange if not the World’s. But there is hardly a historical account of this exchange (atleast not I am aware of and even if there is we could look at it from so many angles). It is sure to have a fascinating tale of its own. Things like what were the differences and similarities of BSE formation compared to ASE is going to be an interesting story by itself. What was the role of British in building this exchange and whether examples were drawn from LSE are important questions to look at. The scholars in economics and finance in India are hardly encouraged to look into these really important historical issues.

There should be an effort by scholars in India to come out with such historical thesis on Indian financial markets.

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