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Toward Rational Exuberance

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Toward Rational Exuberance

The Evolution of the Modern Stock Market


15 min read
10 take-aways
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What's inside?

The U.S. stock market has steadily grown since its inception, with just a few minor interruptions along the way, like depression, panic and war.

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Editorial Rating



  • Innovative


Since it now appears that the laws of economics do indeed still apply to the U.S. stock market, it seems a good time to brush up on the history of Wall Street. Such a look back is especially important to the millions of investment bankers, brokers and individual investors who cut their teeth in the "irrational exuberance" of the ’90s and are now catching their first real glimpse of the bear. B. Mark Smith’s comprehensive history of the U.S. equity market demonstrates, if nothing else, that this ain’t the first time a bubble’s burst and it sure won’t be the last. The beauty of Smith’s book derives from his ability to link the development of the market with the history of the times. He begins with the founding of the first exchange in the late 1700s and traces the market’s increasingly powerful role through the last century, when it helped fuel modern technological and economic growth. The book is especially intriguing when it discusses the relatively unknown early years of the market, before its big crash in 1929. getAbstract recommends this fascinating history to executives, financiers and academics, as well as to a broad audience of history buffs, even those with little knowledge about stocks.


The Birth of A Market

The stock market today is vastly different than it was a century ago. Today millions of Americans participate in a regulated and open marketplace, whereas 100 years ago, the market was controlled by a small group of insiders. The public was mostly unaware of what went on and distrusted the market, especially after it crashed in 1929. To understand today’s modern stock market, you need to look at how it evolved from fairly primitive beginnings.

The first marketplace took root at the eastern end of Wall Street in the earliest days of the 1600s, but it traded in commodities and slaves, not stocks. In the 1790s - after the U.S. Constitution established a strong federal government - trading in financial instruments emerged, dominated by U.S. government bonds and by bonds sold by different states to fund improvements. Stock trading was limited to shares in a few bank and insurance companies. In 1792, 24 merchants signed the Buttonwood Agreement, the first formal agreement creating an association to sell public stocks. This important precursor to the stock market required brokers to agree to charge customers a minimum commission and to give each other...

About the Author

B. Mark Smith  was a professional stock trader for nearly two decades, first with CS/First Boston Corporation, where he became director, then as vice president of Goldman, Sachs & Company. He has since retired from the stock market.

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