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Planet Money

Summer School 3: The first stock and perpetual life

Jul 26, 2024
Anne Carlos, an economic historian from the University of Colorado, dives into the fascinating origins of modern finance. She explores how the stock market began in 1600s Amsterdam, the role of the Dutch East India Company, and innovative practices like short selling. The conversation touches on the significance of perpetual bonds and how they shape contemporary finance. Carlos also highlights the delicate balance between market growth and instability, illuminating the historical lessons that still impact investors today.
34:14

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Quick takeaways

  • The development of stock trading in the 1600s fundamentally transformed businesses by enabling capital raising through shared ownership, reducing the reliance on personal loans.
  • The introduction of perpetual bonds and limited liability in finance allowed for sustainable investments and broadened participation in economic growth while mitigating individual investor risks.

Deep dives

The Birth of Modern Finance

The emergence of modern finance can be traced back to the early 1600s in the Netherlands when businesses began to sell ownership shares, known as stocks. This fundamental change allowed corporations to gather capital from a large number of investors, enabling them to take significant risks and pursue expansive opportunities. This shift from small businesses, often run by families relying on personal loans, to companies with directors and dividends marked a major leap in economic structure. As a result, this new financial system provided businesses not just with money, but also a platform to share both risks and rewards among numerous investors.

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