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HISTORY

OF

THE STOCK MARKET

BY

BERNARD F. MC MAHON

COLUMBIA PUBLISHING COMPANY

* * * * * * * * *

COPYRIGHT 1998 BY COLUMBIA PUBLISHING COMPANY

(ALL RIGHTS RESERVED)

NO PART OF THIS HISTORY PUBLICATION, "HISTORY OF THE STOCK MARKET" MAY BE REPRODUCED OR TRANSMITTED IN ANY FORM OR BY ANY MEANS, ELECTRONIC OR MECHANICAL, INCLUDING PHOTOCOPYING, RECORDING OR BY ANY INFORMATION STORAGE AND RETRIEVAL SYSTEM WITHOUT WRITTEN PERMISSION FROM THE AUTHOR, EXCEPT THE INCLUSION OF BRIEF QUOTATIONS IN A REVIEW.

ALL RIGHTS RESERVED UNDER INTERNATIONAL AND PAN-AMERICAN COPYRIGHT CONVENTIONS, SPECIFICALLY INCLUDING TRANSLATIONS INTO FOREIGN LANGUAGES.

ISBN: 0-944005-25-x

LIBRARY OF CONGRESS CATALOGUE CARD NUMBER 96-73947

        NOTICE: Periodically additional chapters will be added to the "History Of The Stock Market".  It is estimated that the entire book will be published herein by December of 2001, at which time the completed book will be available to the public in soft-cover for $19.95.   Orders for "History Of The Stock Market" can be placed at this time.   Please make checks payable to Columbia Publishing Company.   Residents of N.Y. State - - - please include sales tax - - - no extra charge for shipping and handling if purchase is made prior to December 2001.   Many engravings and historic illustrations will be included in the final publication. Place your order now!

HISTORY

OF THE

STOCK MARKET

CHAPTER ONE

THE FIRST INVESTORS

        By obvious logical deduction one can assuredly realize that the first investors of civilization did not use the medium of money. There was no money in early civilizations - - - time and physical effort were the initial investments. One or more persons physically worked to clear away land, either for living quarters, holding domesticated breeding animals, or for agricultural purposes.

THE PARTNERSHIP

        Partnership was most probably the initial form of joint investments - - - starting within the family unit and/or tribal groups of prehistoric peoples.  They had to work cooperatively for mutual benefits, security, and survival. Even in protecting themselves from the environment and other hazards at the time, group participation was essential.

LEADERSHIP

        Leadership, - - - the next step in social evolution.  Above all, there always had to be a leader.  The strongest, the more daring, and the cleverest was the leader,  a chief to lead and organize the group.  Here we have our first C E O. Members of the group either submitted to the leader's wishes (THE INVESTMENT) through fear or expectation of rewards (THE DIVIDEND) from the leader for services rendered.

THE STOCKHOLDERS

        Everyone shared in the kill, i.e., the members of the tribe or family unit who participated (THE STOCKHOLDERS). Certain rights and privileges were granted to those who supported (INVESTED) in the leader. From the tribes and feudalistic groupings of peoples evolved the initial forms of government.   Most of the members of society invested through loyalty and service to their group for the mutual benefit of all. Step by step society advanced, and without realizing it, through investing in each other succeeded towards a civilization.

MONOPOLIES BEFORE PEOPLE WERE GRANTED

FREEDOM AND FREE ENTERPRISE

        Investment opportunities were not always available to the average person.  As royalty and imperial forms of government evolved, special monopolies and privileges were granted to certain individuals or groups.  In the sixteen hundreds massive parcels of land control were granted to favored subjects of the King of England. King James I in 1606 divided the east coast of North America between The London Company and the Plymouth Company.

THE EAST INDIA COMPANY

        In the late 1500's the King of England granted certain rights to Sir Thomas Smythe, a wealthy entrepreneur who was the first Governor of the East India Company. The company was composed of a number of very rich stockholders. Silver, gold and bartering of commodities was the main media of value exchanged at the time.

AFTER THE AMERICAN REVOLUTION

        The open market and free enterprise as we know it to be today had its beginnings after the American Revolution. Without the American people winning the right to self government and freedom, the world's economy as we know it today could not have come to be. The founding fathers of the United States laid the foundation upon which the future progress of the world's economy rests. The Declaration of Independence and the Constitution of the United States laid the foundation for a modern humane civilization.

CHAPTER TWO

IN THE BEGINNING

        It was in 1791, under a buttonwood tree at the base of Manhattan, where the beginnings of the now New York Stock Exchange started. Forty years prior, merchants and brokers gathered under a tile roof in lower Manhattan to auction off a wide variety of commodities. During these initial 40 years the group was known as "The Royal Exchange". They primarily traded in wheat, tobacco, cotton, sugar, and sometimes even in slaves. Selling of shares of stock of a company was not common in those days as there were few businesses worthy of public investments in the Colonies at the time.

AMERICA'S FEDERAL DEBT

        In 1790, however, the Federal Government declared that it was redeeming the SCRIP MONEY that was issued during the Revolutionary War in the amount of $80,000,000 dollars. SCRIPT was the promissory notes that were issued to the soldiers and the firms and merchants that supplied the military with food and equipment during the war. As a result of this Federal action, these certificates created by the U.S. Government became the first stock certificates traded in America.

AMERICA'S FIRST BANK

        About this time, the Government announced the creation of the first bank of the United States in conjunction with the sale of $10,000,000 dollars in shares of stock. Gradually other securities were also issued in connection with the Federal Debt. Subsequently, new additional shares were issued in establishing The Bank of New York. Immediately, public interest in stocks and bonds trading ensued.

FROM ONCE A DAY TRADING,

TO TWICE A DAY TRADING,

TO CONTINUOUS ALL DAY TRADING

        Auctions were held once daily. As substantial sales activities increased, it was decided by the group to hold sales twice daily to cover the demand on the market. Many years later, after the Civil War, a continuous all day system of trading was started. From 1790 on, a significant change came about, with some commodities dealers and auctioneers beginning to sell stocks and bonds as a side line. It was rapidly realized that selling stocks and bonds required full time brokering in these securities that proved profitable. 

ORGANIZERS OF THE

EXCLUSIONARY TRADING GROUP

        On May 17th, 1792 twenty-four broker/auctioneers met under the famous BUTTONWOOD TREE on Wall Street, where they had been already transacting business for about a year or so. At this location they established a trading group that was an exclusionary trading organization. These twenty-four individuals started what was to eventually evolve into The New York Stock Exchange.

"THE BUTTONWOOD AGREEMENT"

        A mutual beneficial agreement was created by these broker/auctioneers, called "THE BUTTONWOOD AGREEMENT", as follows:

        "We the subscribers, brokers for the purchase and sale of public stock do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day on for any persons whatsoever any kind of public stock at a less rate than one-quarter percent commission on the specie value of, and that we will give preference to each other in our negotiations."

THE TONTINE COFFEE HOUSE ON WALL STREET

        In the following year the group moved to a private room in the Tontine Coffee House on Wall Street to conduct its business. With no management structure, this very simple organization began its operations, without even a formal name. With hardly a noticeable overhead, or even an official name, the organization grew in leaps and bounds, into today's modern computerized financial center of the world.

CIRCUMVENTION OF THE LAW

        It is interesting to note that the initial organization was created to circumvent the law, a law that outlawed public stock auctions. The initial group transformed what had been public transactions into private transactions by their so-called private organization. This was a form of capitalism for the few - - - the insiders.

THE WAR OF 1812

        The War of June 18th, 1812 with England was called THE SECOND WAR FOR INDEPENDENCE. In the same year, America ultimately failed in its invasion of Canada. As a result of this War effort, the U.S. Government debt incurred was increased and excited greater market activity in certificate trading. In addition, the development and establishment of forty new banks in the United States greatly affected Wall Street. Venture capital was required to fund these new banking enterprises. Wall Street eagerly provided the means of raising the much needed capital through the sale of securities.

        At this time Wall Street operations were becoming more and more lucrative and attracted many individuals as a source of earning big money.

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