Investment

The History of Investing

The act of investing is central to economic development, production and trade, all of which call for spending money in order to produce or supply something that will reward the spender at a later date. Investing encompasses ownership claims, valuation, profit seeking, credit and the allocation of resources among alternative opportunities. It began in ancient times to fund trade across Asia, Mesopotamia, Greece and Rome. Even back then, people used insurance contracts, borrowed against collateral and engaged in profit sharing. But only the wealthy and powerful participated and benefited. A “democratization of investment” – opening investing and its rewards to a wider population – led to the creation of the contemporary financial system.

The process of democratization began in the 1600s with the establishment of “joint-stock companies” like the Dutch East India Company. These firms marked a watershed development in the modern corporate model, in that managers ran them, directors oversaw them, and many limited-liability, passive shareholders owned them. The fact that shares of a company could change hands without altering the business’s internal...