Wall Street
“Wall Street” is a street in New York City, near the southern end of Manhattan Island. It’s the home of the New York Stock Exchange, and the biggest center of stock trading and finance in the world.
History
The first European colony in what we now know as New York was actually controlled by the Dutch. The city’s original name was New Amsterdam.
New Amsterdam was tiny by today’s standards, it was only a few streets and farms on the corner of Manhattan Island. To protect this small community, the Dutch East India company built a 12-foot wall at the edge of the town in 1653. Along this wall ran a street, which they called Wall Street, until they could think of something better (hint: they never did).
Over time, New Amsterdam became New York, and the city expanded rapidly. Even after the wall was torn down, the street kept its original name. Wall Street remained a part of the new business district that continues to this day.
Wall Street and the United States
Wall Street also had an important government function. In 1700, a new City Hall for New York City was built on Wall Street. As the American Revolution drew near, this building was also where the Freedom of the Press was established along with the lawsuit of the British government against a newspaper printer for libel. He was found not guilty because what he published was true.
This is also where delegates from nine of the colonies met to draft a letter to King George and the British Parliament in response to the Stamp Act, making the famous claim of, “No Taxation without Representation”.
After The Revolution
During the American Revolution, the colonial governments sold bonds to finance the war effort. Investors bought these bonds, but nobody was completely sure if the new government would ever be able to pay them back. This led to investors buying and selling the bonds among each other based on how likely the government was going to pay them back. Sellers thought the new government was bankrupt, buyers thought they would pay at least something back.
A small group of businessmen would meet occasionally at the intersection of Broad Street (named “Broad Street” because it was wide, there’s wasn’t a lot of creativity with the early city planners) and Wall Street under a buttonwood tree to buy and sell bonds based on the latest news and how likely they thought the government would pay them back. This location was also close to where the old City Hall was made into the Federal Hall. For 4 years, between 1785 to 1789, this became the capital of the United States, so these businessmen were just a few blocks away from where government policy was being decided that would determine if these bonds would ever get repaid.
A few of these businessmen also started to trade stocks with each other from early American companies, like the Bank of New York. This started a trend of stock trading too.
The New York Stock Exchange
In 1792, 24 of the businessmen that were meeting under the buttonwood tree decided to set down some formal rules, creating the Buttonwood Agreement. This agreement founded what we now call the New York Stock Exchange. A few years later in 1817, the group of investors continued to grow, and were tired of standing out in the cold and rain to do business. They rented the building across the street, which became the first New York Stock Exchange proper.
During the 1800s, the industrial revolution began sweeping across the country and the NYSE was at the center of financing its growth. Thousands of businesses were started and needed access to cash to finance their growth. Many of them sold stock on the NYSE to raise capital to build factories and expand. The first half of the 19th century also saw a huge boom in canal building.
At that time, the construction of canals was usually financed partly through government funding (which was raised by selling bonds) and by the canal companies selling shares to investors. The shares were sold as stocks that paid dividends based on the tolls that would be earned once the canals were completed. Both the bonds and stocks were traded on the New York Stock Exchange. By the 1840s, the canal companies were replaced with railroad construction, which was almost entirely funded through the sale of stocks.
The Railroad Boom
It was during the railroad boom that the NYSE transitioned from being mostly centered around bond trading to the buying and selling of stocks. However, it was not just because of the railroads that this transition took place. The invention of the telegraph allowed the news of stock prices to reach investors immediately. Up until then, investors had to wait for newspapers and other publishers to compile lists at the end of the day or week; which often didn’t include a complete list of all the stocks available. The telegraph also allowed buyers and sellers across large distances to trade relatively easily, since it could be done through brokers in their respective cities who specialized in trading.
The massive growth of these companies were the biggest reason why investors on Wall Street began to move into stock trading instead of bonds. With a bond, the yield is usually based on the likelihood that whoever is borrowing the money will default, and fail to pay it back.
On the contrary, stock prices are based on the expected future profits of the business they represent ownership of. Before the industrial revolution, most businesses outside of very large trading organizations grew very slowly and usually did not issue any public stock at all.
For most investors, buying bonds was either risky (because of the risk of default) or had low yields, and now it wasn’t the only option available. Industrial companies often promised big growth and big profits and were eager to sell shares to the public to raise capital quickly and get their businesses started faster. This encouraged new investors to take part, and created a huge boom of growth in canal and railroad projects. This carried over to other industries, and the stock market has continued to grow ever since.
The NYSE Today
The NYSE is still the largest stock exchange in the world and will likely continue to be for awhile. Traders from around the world still meet to trade on the NYSE floor. But as large financial firms conduct their trading online, and more individuals are trading stocks using their online brokerage accounts, the NYSE and Wall Street have become a global symbol for investors and the financial markets.