Book Reviews Dyman Associates Publishing Inc The World\u2019s First Stock Exchange
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In his famous book Confusión de confusions Joseph Penso de la Vega wrote: \u201cIf one were to lead a stranger through the streets of Amsterdam and ask him where he was, he would answer \u2018among speculators,\u2019 for there is no corner where one does not talk shares.\u201d And, Lodewijk Petram adds, \u201cthe people of Amsterdam were talking about options, too, and forward selling, quotations and prices, risk and speculation\u2014all relating to the trade in the shares of the Dutch East India Company (the Vereenigde Oost-Indische Compagnie, VOC), which had been established in 1602. Fortunes were made and lost, and the men who engaged in this trade were wholly in thrall to it.\u201d
Petram did extensive archival research, including mining the records of active traders, to shed new light on de la Vega\u2019s account of the Amsterdam stock market. The Dutch edition of his book appeared in 2011. Columbia Business School Publishing/Columbia University Press has just released the English edition, The World\u2019s First Stock Exchange, skillfully translated by Lynne Richards. It\u2019s an engrossing tale.
Traders in Amsterdam occasionally used questionable strategies--strategies that have endured, in both legal and illegal manifestations. They engaged in \u201cshort selling through forward contracts, spreading rumors, buying even more shares.\u201d These \u201cvile practices\u201d were decried in petitions to the government by the directors of VOC, who argued that they were \u201cvery disadvantageous to the investors and particularly the many widows and orphans.\u201d Petram notes that \u201cthe number of widows and orphans who were dependent on an investment in the Company would have been very small indeed, but playing on their painful situation pricked the puritanical conscience of the authorities.\u201d In February 1610 the government issued an edict banning naked short selling, a ban that share dealers blithely ignored.
Large numbers of VOC investors had no direct experience in trading. \u201cIf these shareholders wanted to sell their shares \u2026 they had to [travel to Amsterdam and] brave the bear pit of the exchange, where they were complete novices.\u201d (p. 102) By 1633, however, they were offered an alternative\u2014to do business with a market maker (initially, the Raphoen brothers) who would make \u201ca small margin on every deal because they always offered a little under the market price when buying and asked for slightly more when selling.\u201d
The Raphoen brothers also played a major role in standardizing the VOC share at 3,000 guilders, a huge sum at the time. \u201cAnd as the share price rose, the amount that actually had to be paid for a share became even larger. In the 1640s the price of a Company share stood almost continuously at above 400, which meant that over 12,000 guilders had to be paid for a share with a nominal value of 3,000 guilders. To put this in perspective, in 1645 the substantial and prestigious canal-side mansion (with a rear annex) at 105 Herengracht was sold for 5,100 guilders.\u201d The always shrewd Raphoen brothers bought up odd lots of VOC stock and combined them into 3,000-guilder shares, which could be sold for a better price.
In his famous book Confusión de confusions Joseph Penso de la Vega wrote: \u201cIf one were to lead a stranger through the streets of Amsterdam and ask him where he was, he would answer \u2018among speculators,\u2019 for there is no corner where one does not talk shares.\u201d And, Lodewijk Petram adds, \u201cthe people of Amsterdam were talking about options, too, and forward selling, quotations and prices, risk and speculation\u2014all relating to the trade in the shares of the Dutch East India Company (the Vereenigde Oost-Indische Compagnie, VOC), which had been established in 1602. Fortunes were made and lost, and the men who engaged in this trade were wholly in thrall to it.\u201d
Petram did extensive archival research, including mining the records of active traders, to shed new light on de la Vega\u2019s account of the Amsterdam stock market. The Dutch edition of his book appeared in 2011. Columbia Business School Publishing/Columbia University Press has just released the English edition, The World\u2019s First Stock Exchange, skillfully translated by Lynne Richards. It\u2019s an engrossing tale.
Traders in Amsterdam occasionally used questionable strategies--strategies that have endured, in both legal and illegal manifestations. They engaged in \u201cshort selling through forward contracts, spreading rumors, buying even more shares.\u201d These \u201cvile practices\u201d were decried in petitions to the government by the directors of VOC, who argued that they were \u201cvery disadvantageous to the investors and particularly the many widows and orphans.\u201d Petram notes that \u201cthe number of widows and orphans who were dependent on an investment in the Company would have been very small indeed, but playing on their painful situation pricked the puritanical conscience of the authorities.\u201d In February 1610 the government issued an edict banning naked short selling, a ban that share dealers blithely ignored.
Large numbers of VOC investors had no direct experience in trading. \u201cIf these shareholders wanted to sell their shares \u2026 they had to [travel to Amsterdam and] brave the bear pit of the exchange, where they were complete novices.\u201d By 1633, however, they were offered an alternative\u2014to do business with a market maker (initially, the Raphoen brothers) who would make \u201ca small margin on every deal because they always offered a little under the market price when buying and asked for slightly more when selling.\u201d
The Raphoen brothers also played a major role in standardizing the VOC share at 3,000 guilders, a huge sum at the time. \u201cAnd as the share price rose, the amount that actually had to be paid for a share became even larger. In the 1640s the price of a Company share stood almost continuously at above 400, which meant that over 12,000 guilders had to be paid for a share with a nominal value of 3,000 guilders. To put this in perspective, in 1645 the substantial and prestigious canal-side mansion (with a rear annex) at 105 Herengracht was sold for 5,100 guilders.\u201d The always shrewd Raphoen brothers bought up odd lots of VOC stock an
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