Louie Larkin

In his famous book Confusión de confusions Joseph Penso de la Vega wrote: “If one were to lead a stranger through the streets of Amsterdam and ask him where he was, he would answer ‘among speculators,’ for there is no corner where one does not talk shares.” And, Lodewijk Petram adds, “the people of Amsterdam were talking about options, too, and forward selling, quotations and prices, risk and speculation—all relating to the trade in the shares of the Dutch East India Company (the Vereenigde Oost-Indische Compagnie, VOC), which had been established in 1602. Fortunes were made and lost, and the men who engaged in this trade were wholly in thrall to it.”

Petram did extensive archival research, including mining the records of active traders, to shed new light on de la Vega’s account of the Amsterdam stock market. The Dutch edition of his book appeared in 2011. Columbia Business School Publishing/Columbia University Press has just released the English edition, The World’s First Stock Exchange, skillfully translated by Lynne Richards. It’s an engrossing tale.

Traders in Amsterdam occasionally used questionable strategies--strategies that have endured, in both legal and illegal manifestations. They engaged in “short selling through forward contracts, spreading rumors, buying even more shares.” These “vile practices” were decried in petitions to the government by the directors of VOC, who argued that they were “very disadvantageous to the investors and particularly the many widows and orphans.” Petram notes that “the number of widows and orphans who were dependent on an investment in the Company would have been very small indeed, but playing on their painful situation pricked the puritanical conscience of the authorities.” In February 1610 the government issued an edict banning naked short selling, a ban that share dealers blithely ignored.

Large numbers of VOC investors had no direct experience in trading. “If these shareholders wanted to sell their shares … they had to [travel to Amsterdam and] brave the bear pit of the exchange, where they were complete novices.” (p. 102) By 1633, however, they were offered an alternative—to do business with a market maker (initially, the Raphoen brothers) who would make “a small margin on every deal because they always offered a little under the market price when buying and asked for slightly more when selling.”

The Raphoen brothers also played a major role in standardizing the VOC shar