Using personal resources to create additional wealth has been a critical element of global development since the days of Ancient Mesopotamia, spurring the growth of countless trades and industries. While we now possess the ability to pick up our smartphones and invest in a growing company, without needing to speak to other people, it is interesting to review the ways in which citizens of more ancient civilizations allocated and invested their resources.
Mesopotamian Roots
Investing made its first notable appearance approximately 8,000 years ago in Ancient Mesopotamia, when agricultural land was introduced as an investable asset. However, a written framework for laws related to creating wealth was not put in place until the Code of Hammurabi in 1700 BC. Although this code acted as the first legal treatise for investing, land ownership, and using possessions as collateral, this type of active investing was largely in the domain of only the wealthiest citizens.
European Development
Public markets did not begin to materialize until 1531, when the first large financial exchange was established in Antwerp, Belgium. While no “stocks” were traded on this exchange, transactions involving the government, local businesses and individual debt took place in this public forum. This catalyzed the rapid development in the economic sector, leading to the formation of joint-stock companies in 1600, which were the first companies that sold shares to the public, as well as the creation of the Amsterdam Stock Exchange in 1787.
However, due to disparities in resources among classes, including low wages and economic uncertainty, many common workers were still excluded from the process of investing in and trading stocks, a trend that would continue until the end of the 18th century.
Impacts of the Industrial Revolutions
The First Industrial Revolution, which took place between 1760 and 1840, ushered in an entirely new era of technological advancement, namely steam power and enhanced iron production. With prosperity on the rise, many countries experienced a large economic surplus, which influenced a number of political leaders to reevaluate, and ultimately overhaul, their respective banking systems. This allowed access by the working class to banking and investing, an unprecedented shift that influenced the global economy.
By the time the Second Industrial Revolution began in 1860, the idea of international investing began to spread, especially after major financial institutions saw exceptional returns from providing capital for projects like the Transcontinental Railroad and the expansion of the American Colonies. This led individual investors to scoop up similar opportunities, including supporting the federal government during the American Civil War by purchasing war bonds.
The Introduction of the Modern Stock Market
With so many investment-based projects being executed around the globe, the need for a method of tracking the market became apparent. In 1884, finance journalist Charles H. Dow took it upon himself to craft an index that was comprehensible for experienced bankers and the general public alike.
This initial stock average contained nine railroads and two industrial companies, and was distributed in the form of a daily, two-page news bulletin — the precursor to the Wall Street Journal. Dow’s creation was a success, and swiftly evolved from an average of several small stocks to an overview of the original 12 industrial companies — now known as the Dow Jones Industrial Average. Today, this average is a part of the larger S&P Dow Jones Indices, which is the very basis of investable products, including exchange-traded funds (ETFs) and mutual funds.
The current global economy has evolved far past its Mesopotamian beginnings. It will certainly be intriguing to witness the ways in which it continues to change, especially as alternative methods of investing and cryptocurrencies rise to popularity.