The Origins of the New York Stock Exchange

Origins of the New York Stock Exchange

The first central bank was established in 1791. The main office was located in Philadelphia, Pennsylvania. Organizing a national bank was one of the first orders of business for the new nation. The original capital of the bank was ten million dollars. The government held two million as reserves and let the remaining eight million dollars be used for public institutions. Unfortunately for the United States, seven million out of the eight was invested by foreigners (mostly British). This coupled with the frustration expressed by local state banks caused a general disapproval for the central bank when it came up for vote in 1811. The state banks were upset that the Central bank operated in every state and it took away from their business. This was the same generation of people who fought for less government, so people were very much so anti-government at the time. In its twenty year lifespan, it yielded a 57% return, and netted over $600,000 on its initial investment for the federal government. Despite the bank’s success it was dissolved in 1811. British investors had their funds returned just before the War of 1812, and that proved to be vital, because it showed that the United States was willing to do business on an impartial basis.

Between 1790 and 1817 there was no pertinent central location for the New York Stock Exchange. Traders often met at Tontine’s Coffee House, but was not the official location. In 1812 four new bank stocks became publically traded. They were Franklin Bank, City Bank, Phoenix Bank and The Bank of America. Shortly after this expansion of financial companies being traded the first non-financial companies stocks appeared. After that the first life insurance company was traded and this became a hot commodity among investment traders.

During the War of 1812, the government needed funds to help fight the war, but lacked a central bank. So, the government offered bonds in hopes of raising sixteen million dollars. They were only able to rear six million, so three investors; John Jacob Astor, Stephan Girad, and David Parish purchased the remaining ten million. This proved to be a great financial investment, because the war took a toll on most investors and businesses, but those three investors profited 4.2 million dollars.

In 1817 the New York Stock exchange was officially established. Nathan Prime was the president and his secretary was John Benson. They came up with different policies and members or brokers of the New York Stock and Exchange Board had minimal commission rates, while nonmembers paid a high commission rate. It cost twenty-five dollars to become a member. Prices of stock were recorded each day, but were not made public, so it proved to be a little sketchy. The curb market was the leader in over-the-counter trades, and they met right on the curb, outside of Wall Street.

The second central bank became an idea after the War of 1812, and it came into fruition in 1816. Astor and Girad were two of the biggest advocates for the second central bank. Girad was its largest shareholder, with approximately three million of its capital stock. The capital was set at thirty-five million this time and the government held twenty percent again in reserves. Once again state banks were not in favor, but the British investors returned, because of their experience with the first bank. In 1819, the state of Maryland tried to tax the central bank for doing business in Maryland, and the government did not pay, so the case eventually made its way to the Supreme Court. Chief Justice John Marshall ruled in favor of the central bank, stating that allotting the ruling towards the state would prove that the federal government was not as powerful as the states. This ruling was highly influential and proved the federal government’s power.

Nicholas Biddle became the president of the second central bank in 1823. He had a great financial reputation and led the bank to new heights. The bank was coined “Biddle’s Bank”. He and Andrew Jackson did not get along as their perspectives of the bank’s necessity were polar opposites. Biddle openly and financially supported Jackson’s opponents during the general election, but in 1828 Jackson became the president. After his election the bank lost all of its power and was vetoed when it was up for renewal in 1831.

The New York stock exchange did not take off until later in the nineteenth century, but the things that deterred the success of the stock market. The United States at this time faced a lot of turmoil internally. The government at the time had to deal with the manifest destiny, slavery, and trying to find a way to please states and the rights’ that they wanted. This would leave financers the ability to operate freely from government intervention. Before, any type of financial gain could be obtained there needed to be some kind economic activity to perpetuate.

The railroad and canal industry was the birth of new business models and facilitated how fast shipping methods between economic entities. These companies that made these new advances in transportation understood that it would take a lot of capital