The dream of quick profit

In the Middle Ages, large commodity fairs and fairs were held at strategically important traffic junctions. In addition to goods, currencies were also exchanged there. Sea trade also became increasingly important over time. In northern Italy, for example in Venice or Florence, and in Bruges in Flanders, important international trade centers emerged from the 14th century.

Bruges thus became the warehouse of the Northern European ports. Goods, money and information flow into the Hanseatic city from all sides. Bruges thus plays an important role in the development of trade and payments.

East Indian spices, English fabrics, sugar, raw materials were stored, traded and sold on the European mainland. Actors included the merchants who traveled to these centers or abroad to get the best deals. One of these places was the inn of the «van der Beurs» family in Bruges. Three wallets are aptly depicted in the family coat of arms: “Going to the Stock Exchanges” had established itself as a metaphor and, according to legend, the term “scholarship” contributed. Thus, in 1409, a form of the first stock exchange was created. “Beurs” still means fair in Dutch.

Over time, traders realized that not all goods had to be transported to exchanges to be sold. Goods received more or less fixed prices if a stable quality was guaranteed. They began meeting on the sidelines of the established trade exchanges and transacted without exchanging specific goods or money. This commodity-free trade was subject to binding rules and contractual deadlines.

The Antwerp Stock Exchange of 1531 is believed to have been the first place where these transactions took place and was institutionalized as a commodity exchange. Financial instruments such as bills of exchange, promissory notes and letters of credit were the order of the day and were linked to bank transactions. A bill of exchange is a written undertaking by a debtor to repay a specified amount to the bill holder at the agreed time.

Initially, the bills of exchange were still tied to the trader as a person and directly linked to the trade in goods. However, this would change over time: the financial instruments became transferable or could be sold with interest and costs deducted. Merchants who were intensively involved in money transactions increasingly became financiers and bankers. A new profession was born.

Bills and bonds were now bought and sold, and it was no longer just the prices of goods and raw materials that were fixed. These processes are centralized in specific locations. Scholars disagree on where the world’s first stock exchange was located: one dissertation says the first was the Amsterdam stock exchange in the 17th century, where shares of the Dutch East India Company (VOC) were traded. Another thinks the Royal Exchange in London about 30 years earlier was the first – it went up in flames in the middle of the 17th century.

the VOC Incidentally, it was the first public limited company in the world, because from its foundation on March 20, 1602, it served all the elements of a public limited company as we know it today: the shares represent co-ownership, a right to profit sharing and limitation of liability to face value.

By trading stocks in companies such as the VOC or for example the Eastern Indian Society (the French East India Company), the stock exchanges in Europe increasingly specialized in securities trading. The Paris Stock Exchange was established in the latter’s headquarters in 1724 by order of the royal authorities. The wild trade speculation must be countered.

the Eastern Indian Society itself was founded on August 27, 1664 by the Sun King Louis XIV on the initiative of the French Minister of Finance Jean-Baptiste Colbert. The earlier small companies have been merged into one large company, entirely based on the model VOC.

Individuals, investors or even cities started to buy more shares in companies. For example, in 1727 the city of Zurich acquired 120 shares in the Seehandelsgesellschaft founded in London in 1711 South Sea Society. It was worth 100,000 Zurich guilders to invest the Zurich Seckelamt in English society. For the municipality of Zurich, this is a safe and interest-bearing investment.

Nearly a decade earlier, the city of Bern had invested in a much larger share of 1,300 shares. Despite the so-called “South Sea Bubble” (in German: Südseeblase), the price collapse that went down in world history, Bern profited.

The core of this South Seas bubble was that the South Sea Society 1719 took over much of England’s national debt. In return, the company obtained a monopoly on the economic use rights of the English colonies. This plan seemed to work as the share prices of the South Sea Society skyrocketed.

However, the incredible trade and profits promised by the company never fully materialized. It began to act almost exclusively as a bank of sorts, lending money to potential buyers, maintaining demand for its stock and artificially inflating the price. A “bubble” formed. At the end of May, 1720 shares were sold at a price of £900, up from £350 in April. The bubble finally burst in late summer when share prices fell to £190.

The “South Sea Bubble” was one of the heaviest bubbles of the early modern period. Parallel to the South Sea bubble, it happened in France in 1720 in connection with the Eastern Indian Society to the so-called Mississippi Bubble, which led to a similar price collapse. Although the city of Zurich and Bern did not feel the effects of the South Sea bubble, merchants from St. Gallen, Zurich, Bern, Basel and Lausanne fared differently.

In the course of industrialization, the number of joint-stock companies increased exponentially. The capital of the general population was needed to finance them. Accordingly, securities trading activities increased. Conversely, people who owned shares also wanted the certainty that they would get back their invested money at a fixed price. It needed places like stock exchanges where stock prices were neatly monitored.

Stock trading would not be institutionalized in Switzerland until a century later. In the course of the 18th century and with the establishment of the Confederacy in 1848, stock exchanges became inevitable for the financial business. This was followed in Geneva in 1850 by the establishment of the “Société des Agents de Change reunis”, an exchange-based trade. As a result, the Ring-Börse was created “à la criée” with the Stock Exchange Act of 1856. The Basel Stock Exchange followed in 1876 and the Zurich Stock Exchange in 1884, both of which were under cantonal supervision.