The idea of buying shares, or investing in a business venture for partial ownership, dates back to ancient Rome. Private businesses called “publicani” sold shares to generate capital. The publicani also served as a lending association, which commonly advanced money to the Roman government, in exchange for protection. Investors were limited by the law, and excluded freemen, slaves and all governmental officials.
During the Middle Ages, the expense and financial risk of sea trade was exponential. As a result, the cost of a ship's construction was divided into shares. Investing in the ship's construction guaranteed the investor a share of the ship's profits, if the voyage was successful, and spread out the loss if it was not.
In 1602, the Dutch East India Co. was formed, when granted a royal charter for the government of the Netherlands. The charter granted the company full control of trade with the East for a period of 20 years. The company sold shares to generate the funds needed for a fleet of ships, and to travel, and began paying out dividends to investors later the same year. The company issued the first-ever paper stock certificates to investors in 1606.
The Mississippi Company was formed in 1715 by the French government and John Law. The company was given control over the assets in the territory of Louisiana, and was designed to generate funds to repair the French national economy. Law devised a system that encouraged speculation investment, and it inflated the price of shares. In 1719, speculation investment had led to gross inflation of the company's share price, despite the company's few colonial assets. This led to the first economic bubble, and the company's ruin.
The Revolutionary War inspired the first investment banking in the United States. The colonial war bond was developed by the Continental Congress to finance the Revolution. After the Revolutionary War, shares were sold to finance American development. Westward expansion, invention and business development were all funded by selling stock in the venture.
In 1792, 24 merchants met daily on a street corner to trade stocks and bonds with one another. These men formed the first, basic, New York Stock Exchange, though it was not formally organized until 1817. The stock exchange was carried on outdoors, until it moved into a more permanent indoor location in 1921. In 1929, speculation investments and inflation of value lead to the Stock Market Crash and subsequent Great Depression. The long-term effect of this was government involvement in stock market activity.