Written By: Milja Mieskolainen

The history of investing is divided into three parts: This blog post covers the early stages, the second part focuses on the 20th century and the emergence of modern theories, and the third part reflects on the history of individual companies.

Located in what is now Iraq, Syria and Turkey, Mesopotamia is known as the cradle of civilization. It is no coincidence, then, that it is in this area that the first features of investment are also known. In the years 3000-500 BC, there were several different peoples and civilizations in the area, the most important property of which was the lands. For this reason, the investment targets were practically only areas and buildings suitable for agriculture, as these had the most value in the culture of that time. Although most of the land was owned by a temple or other administration, private ownership began to grow over the decades as several civilizations were destroyed and new ones emerged in their place. Thus, the social structure developed, and over time, farmers gained land in private ownership.

It is important to remember that in Mesopotamia as well as in other ancient societies, investing was only an opportunity for a very small upper class elite. Most of the people either did forced labor or worked on rented land, so their own property was very minimal.

Between 800 and 300 BC, Greek civilization in the Mediterranean was a concentration of civilization. In the territory of ancient Greece, land and buildings remained the main property, but alongside it, newer methods of trade developed. Cooperation with more distant trading partners became easier as, for example, a kind of banking system developed. Borrowing was common, although most of the loans were friend-based and interest-free. Interest-bearing loans also appeared, especially when granted for the duration of the voyage, as the sea voyage was often used to seek wealth and the lender wanted to take advantage of this opportunity. In Greece, investments were usually handled by elite slaves. Some investment managers were able to move up to the upper social classes with their success, although this was very rare.

The power of ancient Rome (500 BC-400 BC) in the Mediterranean and throughout southern Europe was so great that it was common for the elite to own land as well as buildings around the kingdom. As a result, investment activities also developed, as the properties had to be monitored in the absence of the owner. Interest-bearing loans, third-party investment management, and the higher position of investment managers were no longer rare. Still, investing was only a privilege of the highest class, but the direction began to change even before common era.

The Middle Ages were a time of stagnation in the economy and technology. Conservative values and the glorification of the past also halted a promising start to investing. In the 1000s and 1200s, the economy and the functioning of society were developed and modernized, with which the population and wealth grew. As cities formed, trade was concentrated in those centers where, for example, capital was readily available.

In the 1200s and 1500s, the Renaissance accelerated economic development and the formation of banking, accounting, and trading relations. These factors would later develop into a stock market base and bring about unprecedented economic growth. The foundations of the modern financial world were already laid during the Renaissance, and according to some historians, the first stock markets also emerged in Venice at this time. Borrowers filled in the gaps left by large banks and traded loans with each other. If a borrower wanted to get rid of a high-risk loan, he looked for another borrower and switched to the one he preferred. As the business developed, borrowers began selling for example government loans to private buyers.

In 1531, the first stock exchange was established in Antwerp, Belgium. Brokers and lenders met there to discuss loans from governments, businesses, and sometimes even individuals. In the 16th century, the focus was on bonds, and today’s most common stocks did not yet exist. However, this marked the beginning of the organization of investment activities, which soon became more common in other countries as well.

The business we know today and its characteristics of shared ownership, permanence, and the movement of property received the initial impetus as colonial rule became more widespread. Muscovy Company (1600), Dutch East India Company (1602) and London Company (1606) were some of the first companies to change the business world after their establishment and to generalize investment diversification. The purpose of these companies was to finance the voyages of colonial powers such as England and the Netherlands to the colonies and the rest of the world. Financiers usually invested their funds in several voyages so that in the event of an accident, all the assets would not sink with the ship.

What made investing difficult was that, in addition to the Belgian stock exchange, there was no single place in other countries where sellers and buyers could find each other. The public market thus emerged over several centuries, but eventually investors and opportunities were brought together. Thus, liquidity and lower trading costs finally entered the game in 1787, when the Amsterdam Stock Exchange was opened. Here, for the first time in history, it was also possible to sell and buy shares in one common place.

The first pension fund was established as early as 1759 in Philadelphia by the Presbyterian Church. Its purpose was to provide insurance-like pension security for the highest-paying ministers and their families. In the following decades, industrial revolutions increased the number of pension funds. Industrialization made access to capital available to a larger section of the population, and as savings accumulated, investing became more common. A modern banking institution evolved and large banks such as JP Morgan and Goldman Sachs were established in the 19th century.

The London Stock Exchange was founded in 1773 and the New York Stock Exchange 19 years later. At the same time, stock indices began to form for the first time. Initially, indices were invented to make it easier for investors and the entire nation to measure how they fared in the market. The Dow Jones was the world’s first index and measured the 12 most successful industrial companies. The roots of the Standard & Poor’s Index go back to the 1860s, when Henry Vanrum Poor published his book “History of the Railroads and Canals of the United States,” which described the historical economic success of companies operating in the railways and canals. The book was sold out and between 1913-141 three companies merged: Standard Statistics, Moody’s Manual Co. and the company affiliated with the book eventually produced an index of 90 shares, one of the most well-known indices in the world.

More information on the topic:

Book: Investment - A History / Jesse Downing and Norton Reamer