Who Invented the Stock Market?


Greetings readers! I'm actually on my way to Amsterdam today - not staying for a long time unfortunately, am on my way to Northern Germany - but I thought this would be a very appropriate since I'm actually passing through the city where the stock market originated...wait, it wasn't New York?

Nope, but New York City was founded by the Dutch and they brought along this interesting concept of making money...faults and all.

When I was in 12th grade, my European history teacher must have had a premonition that I was destined to work in the stock market. He hand-selected individual book assignments for each of us, and for me he selected "Tulipomania: The Story of the World's Most Coveted Flower & the Extraordinary Passions it Aroused" by Mike Dash. Below is a photo of the book from modern times and the originally Dutch paper that derived the history.

What do tulips have to do with the stock market?

Many people don't know that the Dutch were responsible for the creation of the stock market back in the 1630's. Average, everyday people were caught up in a new frenzy of buying and selling, in this case, the first stock futures. The book delves primarily into the history of the tulip itself, and how it made its way across Asia, to the Middle East, and ultimately to Europe and the Netherlands - where it is most prominently popular.

In creating the first "tulip futures" the Dutch in turn were responsible for creating the first "stock bubble" in history. The Dutch brought back the first tulip bulbs from Turkish palaces, and there was such a frenzy and such demand for tulip bulbs that people began investing all of their life savings into pieces of paper that entitled them to partial ownership of a tulip bulb. The demand, and hence the perceived value, for tulip bulbs got so high that a single bulb was worth as much as a house!

Sounds silly right? This is precisely what a bubble is - when something is perceived to have exceptional value when in reality, it's true value really only lies in what someone is willing to pay for it. Tulips are hearty, they grow virtually everywhere in the spring, and the bulbs replicate themselves rather quickly. Once the public started to realize that tulip bulbs really had no intrinsic value at all, the entire market for them collapsed.

It's a very interesting read if you get the chance! Below is a chart of the tulip craze and collapse and even though we should have learned our lesson over 400 years ago, the same mistakes are being made in the stock market today.

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