One of the greatest assets to the United States is our robust capital markets system.
But what does the term “capital markets” mean?
Quite simply, capital markets are concerned with the raising of capital.
Capital markets are long-term in nature. They are focused on either equity-backed securities (such as owning shares) or long-term debt.
When we save money by buying stocks, bonds, etc., we’re investing in the capital markets. By pooling together capital and investing in companies, we’re delaying gratification for a better future outcome in the world.
America having a robust capital market system means it’s easier for businesses that need capital to find it in America than anywhere else, which is a big part of why the American economy is the most productive and resilient in the world.
How was the American capital market system established to be the super power that it is today?
The First Public Company & Stock Exchange
The Dutch East India Company is considered to be the world’s first publicly traded company by first offering their shares in 1602 on the Amsterdam Stock exchange which is also widely considered to be the first modern stock exchange. The company offered shareholders an 18% dividend over the course of the company’s 200 years of existence. The Dutch pioneered stock futures, stock options, and many other financial instruments that are used today.
U.S. Stock Market History
Some years later, the U.S. began to established their own capital market infrastructure.
I’ve provided a brief timeline of events for some of the key aspects of our financial system that you may be familiar with:
1790: The Philadelphia Stock Exchange is formed, helping spur the development of the U.S.’s financial sectors and the country’s expansion west.
1896: The Dow Jones Industrial Average is created. It initially has 12 components that were mainly industrial companies.
1923: The early version of the S&P 500 is created by Henry Barnum Poor’s company, Poor’s Publishing. It begins by tracking 90 stocks in 1926.
1971: Trading begins on another U.S. stock exchange, the National Association of Securities Dealers Automated Quotations, otherwise known as the NASDAQ.
Source: SoFi Learn
Our ability for capital to come together in sophisticated ways to fund research, development and infrastructure is the backbone of our society. By using capital now, we can create things that hadn’t existed before and provide tangible benefits back to society. Whether that is Costco scaling grocery stores to lower costs for consumers, Amazon providing goods to your door to save you time, or Apple providing a supercomputer in your pocket, our capital market system improves the human experience.