THE STOCK EXCHANGE: ITS ROLE AT VARIOUS STAGES OF CAPITALIST DEVELOPMENT*

Abstract

THE PROCESS OF CAPITAL accumulation-the transformation of savings into real capital assets-is a crucial issue in any economic system. In a capitalistic economy the capital market and the stock exchange are the agencies which connect the savers in the society, the sources of funds, with the users of funds. This study examines the performance of the stock exchange and the capital market at various periods in English and American history. The principal conclusion is that the role of the stock market and the capital market in economic affairs has undergone great changes. The causes of the observed changes in the role of the markets are rooted in fundamental changes that have occurred in the underlying economic organization that the capital market and stock exchange are organized to serve. The shift from a commercial to an industrial economy, the particular problems involved in financing internal improvements and a national transportation system in the United States, and especially the shifting position of government in economic affairs have seriously affected the role of the stock exchange and the capital market. The first three chapters analyze the origins and early development of the stock exchange and the capital market in England and the United States. In both countries the initial impetus for the development of the market was the necessity of meeting the financial needs of the state. The construction of a national railroad system and the attendant problems of railroad finance became the basis for the American capital market and stock exchange and also helped give the markets their orientation toward speculation and purely private financial transactions. With the completion of the essential parts of the railroad network in the late 1880's, American finance capitalism shifted its attention to the opportunities for merger and combination in industrial units. While the orientation of the financial hierarchy shifted, the opera-