Daniel sent us this one, and it's a good one. He's asking about the history of stock markets — specifically, how long publicly traded companies have actually existed, how many stock exchanges there are globally right now, and where the whole concept of floating a company on a market to let public trading determine its value actually came from. That last part especially. The idea that a company's worth isn't set by its founders or a banker in a back room, but by millions of strangers buying and selling pieces of it. Where does that even come from?
It's one of those questions that sounds simple until you start pulling on it, and then you realize the answer reaches back further than most people expect, and the mechanisms involved are genuinely strange when you look at them fresh. Like, the more you understand about how it actually works, the more surprising it is that it works at all.
By the way, today's episode is powered by Claude Sonnet four point six. Our friendly AI down the road doing the heavy lifting on the script.
Good to know. Right, so — imagine, for a second, that this model never existed. Not the AI, I mean the stock market model. Companies can't raise capital from the public. You want to fund a major venture, you go to a king, a merchant family, a wealthy patron. That's it. The circle of capital is tiny, and the risks are concentrated in very few hands.
Which means most of the ventures that shaped the modern world probably don't happen. Or they happen much more slowly, and much more brutally for the people carrying the financial exposure.
The entire architecture of how we build things, fund things, scale things — it traces back to one conceptual breakthrough that most people couldn't date within two centuries. And with everything happening in decentralized finance, with new trading platforms reshaping who gets access to markets and how valuation actually works, understanding where all of this started feels urgent rather than just academically interesting.
Let's go back to the beginning — or as close as we can get with the historical record — because that's where we find the first publicly traded companies.
And at its core, a publicly traded company is one that has sold ownership stakes — shares — to the general public, and those shares can be freely bought and sold on an exchange. That's the whole mechanism. You slice ownership into units, you sell those units to whoever wants them, and from that point on the market decides what they're worth on any given day.
Which sounds almost obvious when you say it like that. And then you remember that for most of human history, that sentence would have been incomprehensible.
Right, because the alternative — which was the default for millennia — is that ownership stays with whoever founded the thing, or whoever lent them money. Wealth creation was a closed loop. And what stock markets did, structurally, is blow that loop open.
The scale of what that unleashed is hard to overstate. We're talking about a mechanism that now underpins something north of a hundred trillion dollars in global market capitalization. That's not a metaphor for "a lot of money." That's the actual combined value of publicly traded companies sitting on exchanges right now.
That figure matters because it represents real productive capacity. Factories, research pipelines, infrastructure, software platforms — all of it capitalized through public markets. When economists talk about stock markets as a cornerstone of modern capitalism, they're really pointing at this: the market doesn't just price companies, it funds the activity of building them.
It's also a signal system. Which is the part people underestimate. Prices aren't just outputs, they're inputs. They tell companies whether to expand or contract, they tell investors where risk-adjusted returns look most promising, they aggregate millions of individual judgments into something that functions like collective intelligence. But it functions.
That's exactly why the origin story matters. Because whoever figured out this mechanism first didn't just start a company — they invented a new way for economies to organize themselves.
That person was Dutch. Or at least, the institution was.
The Dutch East India Company. Vereenigde Oostindische Compagnie — the VOC. Founded in 1602, and it issued the first shares ever offered to the general public. Not to wealthy merchants only, not to a closed guild. A carpenter in Amsterdam could buy in.
Which raises the obvious question of why. Why did the VOC need this? Why not just do what every other major trading venture had done before?
Because the spice trade was extraordinarily capital-intensive and extraordinarily dangerous. You're financing fleets of ships sailing to the other side of the world. The journey takes two years. Half the ships might not come back. No single merchant family, however wealthy, wants to absorb that exposure alone. So the VOC's solution was to distribute the risk across thousands of investors by selling them fractional ownership.
Spread the downside, share the upside. That's the whole pitch.
The Dutch government gave the VOC a monopoly on trade east of the Cape of Good Hope, which made the upside attractive. So you had this combination — a legally protected market position, enormous capital requirements, and catastrophic risk — that almost forced the invention of public shareholding as a practical solution.
It's not idealism. It's logistics.
And here's the part that gets underappreciated: the VOC didn't just issue shares, it issued shares that were tradeable on a secondary market. That's the crucial second step. You could buy in, and you could sell out. You didn't have to wait for the company to wind down to recover your investment. And that secondary market became the Amsterdam Stock Exchange, which opened the same year the VOC was founded — sixteen oh two — and is generally recognized as the world's first official stock exchange.
The company and the market that traded it essentially bootstrapped each other into existence.
Almost simultaneously, yes. And what the Amsterdam exchange looked like in those early years is almost nothing like what we'd recognize today. There was no building at first — trading happened in the open air, in courtyards, on bridges. Brokers would gather, shout prices, make deals by handshake. There were no real-time tickers, no clearing houses, no regulatory bodies in any meaningful sense.
Chaotic is probably an understatement.
There were short sellers operating within a decade of the exchange opening. There was a speculative bubble in VOC shares in the sixteen thirties that bears a striking resemblance to dynamics we've seen in modern markets. And there was essentially no oversight. If someone manipulated prices, there was very little recourse.
What did that manipulation actually look like back then? Because I think people assume it was cruder, but I'm not sure it was.
It really wasn't. One of the most documented early cases involved a merchant named Isaac le Maire, who was actually a former VOC director. He organized a group of investors to short VOC shares — betting on the price falling — while simultaneously spreading negative rumors about the company's prospects. Ship losses, cargo problems, that kind of thing. The VOC lobbied the Dutch government to ban short selling entirely in 1610. The ban was largely ignored, but the fact that regulators were already trying to intervene less than a decade after the exchange opened tells you something about how quickly the dysfunction emerged alongside the mechanism itself.
The first short squeeze was in sixteen ten.
The human behavior around markets is remarkably stable across four centuries. The instruments change, the speed changes, the scale changes — the psychology doesn't move much.
Which punctures one of the myths people carry about markets — the idea that heavy regulation is some modern imposition on an originally clean system. Early markets were the Wild West. Oversight came later, reluctantly, after repeated disasters.
Much later, and much more reluctantly than the textbooks usually suggest. The other thing worth noting about the VOC model is who actually participated. In the early years, the investor base was broader than you might expect — artisans, small tradespeople alongside wealthy merchants. But access still had friction. You had to be in Amsterdam, you had to know how to navigate the system, you had to have disposable capital.
Democratized relative to what came before, but not democratized in any modern sense.
The trajectory toward genuine broad access takes centuries. The physical trading floor era — which persists well into the twentieth century — still requires geographic proximity, professional intermediaries, minimum capital thresholds. The real democratization moment is electronic trading, which begins in earnest in the nineteen eighties and nineties, and then accelerates sharply with internet brokerage in the late nineties and mobile trading platforms after that.
At which point a carpenter in Amsterdam becomes a day trader in Nairobi with a smartphone.
Which would have been entirely unimaginable to the VOC's founders. But the underlying mechanism — fractional ownership, secondary market trading, price discovery through public exchange — that's four hundred and twenty-four years old and essentially unchanged.
The wrapper changes completely. The logic underneath doesn't move.
There's actually a fun footnote to the democratization story that I think is worth mentioning. When Charles Schwab launched discount brokerage in the United States in 1975, the commission to buy a hundred shares of stock at a traditional broker could run you forty or fifty dollars. Schwab charged a fraction of that. The industry called it a race to the bottom. What it actually was, was the beginning of retail investing as a mass phenomenon in America. And then when Robinhood introduced zero-commission trading in 2013, the same argument happened again — existing brokers said it was irresponsible, that it would encourage reckless speculation. Maybe it did. But it also meant that the VOC's original promise — anyone can buy in — got meaningfully closer to literal.
The incumbents always frame access as danger.
Every single time. And sometimes they're not entirely wrong. But the direction of travel has been consistently toward more access, and the sky hasn't fallen in any permanent way.
— sixty-plus exchanges now. That's the number Daniel's asking about, and it's worth sitting with for a second. Because the VOC and Amsterdam were the proof of concept, but the model proliferates in ways that are remarkable once you start mapping it.
Sixty major exchanges is a lot of reinventions of essentially the same idea.
They're not all equivalent. The New York Stock Exchange, founded in 1792 under a buttonwood tree on Wall Street — literally, the brokers signed their agreement under a buttonwood tree — that's the largest by market capitalization, currently sitting somewhere around twenty-five trillion dollars in listed company value. The Shanghai Stock Exchange, which only reopened in 1990 after being shut down for decades under Mao, is now consistently in the top five globally by cap. Two very different political economies, two very different relationships between the state and the market, and yet the underlying mechanism is recognizably the same thing the Dutch invented.
The Shanghai comparison is interesting because it exposes something about what a stock market actually is in different contexts. In New York, the market is theoretically independent of government. In Shanghai, the state retains enormous influence over which companies list, at what price, and sometimes whether trading continues at all.
The circuit breakers they implemented after the 2015 crash are a good example of that. Chinese regulators could halt trading market-wide in ways that would be politically unthinkable in the United States. Different theory of what price discovery is for.
Yet capital still flows. Companies still raise money. Investors still speculate. The surface mechanics are similar enough that you'd recognize it.
How does that compare to something like the London Stock Exchange? Because London is often cited as the second major hub historically, and it feels like a different animal from both New York and Shanghai.
It really is. The London Stock Exchange traces its formal origins to 1801, though the coffee house trading culture that preceded it goes back to the late sixteen hundreds — Jonathan's Coffee House in Exchange Alley was effectively an informal stock market for decades before anyone formalized it. And what London developed that was distinctive was its role as the center of colonial and imperial capital flows. A huge proportion of the infrastructure built across the British Empire — railways in India, utilities in South America, telegraph cables across the Atlantic — was financed through London listings. So the LSE's history is inseparable from the history of how capital moved across empires, which is a different story from Wall Street's domestic industrial capitalism or Shanghai's state-directed development model.
Three exchanges, three different theories of what markets are actually for.
All three are recognizably descended from the same Dutch experiment. Which is either a testament to the flexibility of the mechanism or evidence that the mechanism is neutral enough to serve almost any political economy that adopts it.
Which brings us to the IPO question, because that's really where the VOC model shows up in its most modern form. An initial public offering is the moment a private company crosses the threshold — it sells shares to the public for the first time, and from that point on the market determines its value daily rather than whatever the founders or venture capitalists last agreed on in a term sheet.
The gap between those two numbers can be extraordinary.
The SpaceX situation is probably the most-watched current example. The company has been trading on secondary markets — meaning private share transactions between investors — at valuations that have climbed past three hundred billion dollars. Whether and when a formal public listing happens has been a genuine open question for years, with Elon Musk historically resistant to the scrutiny and quarterly reporting obligations that come with being public. But the market has been pricing SpaceX as if it were public anyway, through those secondary trades.
Which is itself a fascinating wrinkle. The mechanism has leaked outside the official exchanges. You don't need to be listed to have a market-determined valuation anymore.
That's a real structural shift. Private markets have become liquid enough, and information has spread enough, that the sharp line between private and public is blurring. But the IPO still matters because it dramatically widens the investor base. Secondary market trades in private companies are still restricted to accredited investors — people meeting certain wealth or income thresholds. A public listing opens the stock to anyone.
The democratization logic from the VOC is still doing work in the IPO structure. You're still asking the same question: who gets access to the upside?
There's a specific moment in the IPO process that I think most people don't know about, which is the roadshow. Before a company actually lists, the investment bankers take the executives on a tour — sometimes literally flying city to city, though increasingly it's virtual — and they pitch institutional investors on why the company is worth buying at the proposed price. And those conversations are what actually set the IPO price. It's not an algorithm, it's not a model. It's a series of rooms where fund managers tell bankers how many shares they'd want at what price, and the bankers synthesize that into a number.
The first price is still negotiated in rooms. Just bigger rooms with more participants than the VOC's merchant circles.
Then the second the stock opens for trading, the market takes over and often immediately disagrees with that negotiated number in one direction or the other.
The psychological dimension of public trading is something that doesn't get enough credit in the economic literature. When a company goes public, its valuation stops being a negotiated figure between sophisticated parties and becomes a real-time referendum. Every trade is a vote. And that introduces dynamics that are only loosely connected to fundamental business value.
Loosely is doing some work in that sentence.
Sometimes very loosely. The gap between what a company earns and what the market says it's worth can stretch to absurd lengths in either direction. But the interesting thing is that the market isn't just wrong when it diverges from fundamentals — it's often pricing something real that the earnings figures don't capture. Future optionality, competitive moats, brand value, the probability distribution of outcomes that haven't happened yet.
Early-stage valuation especially. Which is less math and more collective storytelling about what a company might become.
The public market makes that storytelling continuous. It never stops. Which is both the genius and the danger of the mechanism.
Where does that leave someone actually trying to make sense of this from the outside? Because the history is useful — not as trivia, but as a frame.
It really is. The pattern that repeats across four hundred years is that markets overshoot in both directions, and they do it most aggressively when a new mechanism appears that nobody fully understands yet. The VOC bubble in the sixteen thirties, the South Sea bubble, the dot-com collapse, the meme stock frenzy — every one of those followed the same basic shape. New access, new participants, collective narrative overtakes fundamentals, correction.
The South Sea bubble is worth pausing on for a second because it's almost cartoonishly extreme. The South Sea Company was granted a monopoly on trade with South America in 1711, and its shares went from around a hundred pounds to over a thousand pounds in the space of a few months in 1720. Isaac Newton lost a significant amount of money in it. He reportedly said he could calculate the motions of heavenly bodies, but not the madness of people. Which is a remarkable thing for Isaac Newton to admit.
The aftermath was catastrophic in ways that shaped British financial regulation for a century. Parliament passed the Bubble Act in 1720, which essentially banned the formation of joint-stock companies without a royal charter. The intention was to prevent future speculative disasters. The effect was to freeze British corporate structure in place for over a hundred years, at a time when the industrial revolution was just getting started. So overcorrection from a bubble created its own set of problems.
Which doesn't mean avoid markets. It means understand the cycle you're in.
One practical implication of the sixty-plus exchanges point is that geographic diversification is protective in ways that single-market investors underestimate. When the Shanghai exchange froze trading in 2015, the New York market barely flinched. When American markets were in free fall in 2008, some emerging market exchanges had already been declining for months and others recovered faster. Correlation exists, but it's not one.
The global structure of markets is a feature, not just a fact.
For IPOs specifically — and this is something worth watching — the indicators that historically matter most aren't the ones that get the most coverage. The headline valuation number is almost the least useful signal. What matters is the lockup expiration period, which is typically ninety to one hundred and eighty days after listing, when insiders can finally sell. That's often when real price discovery happens.
Because before that, the float is artificially constrained.
Also watch the use-of-proceeds section in the prospectus. If a company is going public primarily so early investors can exit rather than to raise growth capital, that tells you something important about who the IPO is actually for.
The VOC raised money to fund ships. If you're raising money to let the founders cash out, that's a different proposition entirely.
Same mechanism, very different alignment of interests. And there's a third signal that gets even less attention than those two, which is the underwriter. The investment bank running the IPO has a reputation that travels with them across every deal they do. Banks that consistently price IPOs fairly — meaning the stock doesn't immediately crater or immediately triple, either of which suggests mispricing — build track records you can look up. Banks that are known for dumping overpriced deals on retail investors have track records too. The prospectus will tell you who's running the book.
The information is public. It's just buried in a document most people never read.
That's basically the story of financial markets in one sentence. The information is there. It's just not designed to be easy to find.
Which is the question that keeps pulling at me as we get to the end of this. Because the mechanism is four hundred and twenty-four years old and it's survived everything — bubbles, crashes, world wars, the shift from open-air courtyards to electronic matching engines. What actually threatens it now?
AI and blockchain are the two forces I'd watch most closely. Not because either one is obviously going to replace exchanges, but because they attack different parts of the structure simultaneously. Blockchain-based tokenization of assets could, in theory, allow continuous fractional trading of almost anything without a centralized exchange intermediary. AI is already reshaping price discovery — algorithmic trading now accounts for the majority of volume on most major exchanges.
The exchange as a physical or institutional center of gravity becomes less necessary.
Though I'd note that every previous technology that was supposed to make exchanges obsolete — electronic trading, internet brokerages, dark pools — ended up being absorbed into the existing structure rather than replacing it. The exchanges adapted. Whether that pattern holds with decentralized finance is an open question. I don't think anyone knows.
The speed dimension with algorithmic trading is worth flagging because it's hard to wrap your head around. We're talking about trading systems that execute in microseconds — millionths of a second. The fastest human reaction time is somewhere around two hundred milliseconds. So by the time a human trader has even registered that a price moved, an algorithmic system has already made and closed dozens of trades on that movement. The exchange floor trader with a loud voice and good instincts is not competing in that environment. That person's job essentially doesn't exist anymore.
What replaced it is a competition over physical proximity to exchange servers. There are firms that pay enormous amounts of money to colocate their computers as close as possible to the matching engines at the NYSE or NASDAQ — because the speed of light over a few extra meters of fiber cable is a measurable disadvantage at that scale.
The VOC would probably find the whole thing baffling and then immediately try to get in early.
They were not shy about new mechanisms.
Big thanks to Hilbert Flumingtop for producing this one, and to Modal for the serverless GPU time that keeps our pipeline running. This has been My Weird Prompts. If you've got a moment, a review on Spotify goes a long way — it helps people find the show. Until next time.
