Abstract and Keywords
Where did stock markets come from? Stock exchanges and the rules and regulations that make stock markets possible were not invented by government but instead emerged from the market. From the world’s first major stock market in seventeenth-century Amsterdam to the world’s second and third major stock markets in the eighteenth and nineteenth centuries in London and New York, the markets developed over a long period when government officials did not understand them and refused to enforce most contracts in them. Officials viewed most of what went on in stock markets as forms of gambling and passed various prohibitions, yet brokers ignored the prohibitions and developed amazingly sophisticated contracts, including forward contracts, short sales, securitization, hypothecation, and options. Similar to the evolution of money, the stock markets grew out of a series of private choices and can be seen as a quintessential example of spontaneous market order.
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