how and why did the stock market begin?

[cady]

why did the stock market begin in 1792?

[raysor]

One reason was to finance wars. (I am talking LSE here, don't know about US) The government raised money by issuing gilts. Otherwise it was used for sharing the risk of shipping trade. A valuable cargo travelling across the oceans was very vulnerable so the risk of loss was offset by selling shares. The shareholders who took the risk would benefit from the profit if the cargo reached its destination.

[zuma]

It started on the street corner..an auction to some how solve the problem of too many buyers for too little product..

[John W]

Financing wars was how bonds got started. Prior to that, there was a strict religious against usury, making money through interest was a sin, it still is in Islamic religions which despite what the public would think is really the same religion as Christianity except they took a different path along the way, both religions are offshoots of judaism. What happened with bonds was the government of the city state of Venice required it's citizens to all purchase a bond to assist with their war efforts, as the investment was mandated, the church ruled that it was not a sin. The bonds were then sold on the secondary market and therefore became elective but still allowed by the church so interest was no longer a sin. Until that time, only the jews were willing to charge or give interest as the interpreted the same passage to imply that it's only a sin if done to a fellow Jew. Hence Jews became the bankers of Europe but due to the sin of their practice, they were required to live in ghettoes and their movements were limited.

Shares started because of the pepper trade. It's fairly expensive to buy a boat and hire a crew to sail to China and there's the potential for disaster so it was too risky except for the richest of families to undertake, especially since the only defense against a lost ship was to send more than one ship. Hence with corporations and shares, smaller investors could partake of the venture and pool their resources to where the ventures could survive disasters. The insurance market also came from the pepper trade as insurance could allow smaller ventures to indemnify themselves against loss without having to scale up enough to send multiple ships.

Where the stock market came about was that investors then had shares, but some investors would decide they didn't want the shares anymore and other investors would decide they wanted more after the issue. However all trade required each individual to find a willing buyer or seller. They would do so amongst their social circles but this is a very limited market, however their were individuals that had broader social circles and could more easily broker a trade between individuals and they started to do so for a commission. However as their business picked up, even their social circles were insufficient for the business they had so they started frequently various locales such as street cafes, news stands, and bars much as a bookie would and those locations came to be known as the location to trade in specific stocks. Usually this would happen along the outskirts of town, in New York, it was the street outside the palisade walls hence the term wallstreet. This was quite unsightly to have all these men hawking their wares literally on street corners so an exchange building would be built, memberships sought and trade in public became loitering and solicitations. That's how the stock market began.