Amsterdam was the first city in the world with an active stock market. In some respects, it was a minor market, with a small number of participants and few publicly-traded shares. However, the practices of participants and the instruments with which they traded would be surprisingly familiar to us today. Documenting the functioning of this early stock market was Joseph de la Vega, who wrote the first book on the subject of the market, titled Confusion de Confusiones.
Joseph de la Vega
Joseph de la Vega was a Sephardic Jewish speculator and broker in Amsterdam, born around 1650. He was one among a community of perhaps about 7,500 in the city whose ancestors left Spain and Portugal. Joseph de la Vega’s father, a banker, may have hailed from near Córdoba in Spain and was a victim of the Inquisition there. Joseph was one of four brothers, two of whom went to London; Joseph stayed in Amsterdam.
There were restrictions placed on Jews in the city; they were prohibited from professions protected by local guilds and this drove many to the Amsterdam stock market. There, de la Vega became active in Amsterdam’s commercial life starting from about 1683 and lost a lot of money trading in shares of the Dutch East India Company. Besides participating in speculations like this, de la Vega was also a writer of plays and poems in Spanish and Hebrew.
Amsterdam
De la Vega’s city possessed the first stock market in the world and an exchange building was constructed in Amsterdam in 1631. There were not many companies whose shares were traded on that exchange; it was mostly shares in the Dutch East India Company and Dutch West India Company that changed hands but commodities and bonds traded there as well. The commodity prices set in Amsterdam were used as reference prices all over Europe. Prices on the exchange gyrated with news from Europe and abroad though sometimes for seemingly no reason at all.
“take note and realize that there are three causes of a rise in the prices on the exchange and three of a fall: the conditions in India, European politics, and opinion on the stock exchange itself. For this last reason the news is often of little value, since counteracting forces operate in the opposite direction.” – Confusion de Confusiones, paragraph 65
The stock market was accessed by persons of different means and intentions. There were wealthy investors and bigger merchants who traded through brokers buying and selling on their behalf. There were also smaller merchants who traded on the exchange without a broker, saving on commissions but still staying above the fray of speculation. Then there were the pure speculators who took the riskiest bets, often with borrowed money. A fourth category were arguably the brokers themselves since many traded for their own accounts besides those of their clients.
Confusion de Confusiones
Joseph de la Vega wrote Confusion de Confusiones in 1688, perhaps the first book published on the topic of the stock market anywhere in the world. It was a timely publication since there was a stock market crash in Amsterdam that very year, taking place just as de la Vega was completing his book. For those interested in learning about the market that had just crashed, Confusion de Confusiones provided a useful education. That said, de la Vega’s work was not so much an economic or legal analysis of the stock market as a practical guide.
The book was so titled because, according to de la Vega, “in this stock-exchange business, one moved in a world of darkness which nobody wholly understood and no pen was able really to describe in all its intricacies”. Confusion de Confusiones was perhaps a handbook for de la Vega’s younger brothers, David and Rafael, who were young brokers in London, where trading in shares was just beginning to take off. This limited audience may explain why the book was written in Spanish and not Dutch.
De la Vega wrote a dialogue, a now rare but then commonplace form for an educational text. The three interlocutors in the book are a shareholder, a merchant, and a philosopher and the first introduces the others to the stock market, with mixed results. In any case, hardly helping matters for modern readers, the work is full of references to Greek and Roman mythology and financial terminology that usually differs from the modern names for the same concepts.
Workings of the Stock Market
The first dialogue in the series introduced readers to shares and options, the second covered stock price volatility, the third how prices were agreed and contracts signed, and the fourth covered speculation. De la Vega noted that shares may trade at the physical stock exchange or not; the market may not exist in any particular place. That may be familiar today but some differences are quickly noted. Unlike on a modern stock exchange, where trades settle every business day, on Amsterdam’s 17th century stock market, settlements took place only on the 20th of each month for trades conducted in the prior month.
Though the frequency of settlements may have been low, the market was not all that primitive. Already in the 17th century, de la Vega describes the existence of a forward market in which “shares must be delivered and be paid for on the twentieth and twenty-fifth of the month which is specified in the contract”. He also describes options, called ‘opsies’ from the Latin term ‘optio optionis’ which means ‘choice’; de la Vega describes them just like modern options contracts.
“I, however, decide not to buy shares, for I fear that should these predictions prove false, I might suffer a loss or meet with an embarrassment. I therefore turn to those who tell me that they will take these Opsies and ask them how much they want in return for the obligation to deliver 600 for each share at a later date. I agree upon the premium, transfer this sum immediately to the bank and I know that I cannot lose more than that which I have spent, so that I gain the entire amount by which the shares exceed 600” – Confusion de Confusiones, paragraph 47
Speculations
De la Vega also described the antics of speculators on the exchange to his readers. By this point, Amsterdam had already seen one major speculative episode, the tulip mania of 1634-37. De la Vega explains that speculators did not tend towards contrarian positions by closely researching matters. Indeed, speculators did not form their own opinions of what was true or false at all, but would anticipate the opinions of others. De la Vega understood why; he agreed that it was prudent to anticipate, or merely follow, the market trend.
“Despite all these absurdities, this confusion, this madness, these doubts and uncertainties of profit, means are not lacking to recognize what political or business opinions are held by persons of influence. He who makes it his business to watch these things conscientiously, without blind passion and irritating stubbornness, will hit upon the right thing innumerable times, though not always. At the conclusion of his observations, however, he will find that no perspicacity will divine the game and no science is sufficient here.” – Confusion de Confusiones, paragraph 79
The specific tactics of speculators are also detailed. For example, de la Vega notes that those betting against a stock employed techniques like publicizing their selling but being quiet about their purchases, borrowing large sums of money just so those looking to bid up the prices of shares cannot borrow money with which to buy, selling call options at large scale, et cetera.
De la Vega explains that these bearish speculators would also make loans secured by shares, sell those shares, and use the proceeds to buy put options. Those who sold the put options, committing to purchase so many shares in the future, would then be unlikely to buy shares in the short-run, feeling over-extended as things stood. This would allow the speculators to drive share prices lower to their liking without the bidding of those parties already obligated to take delivery in the near future under the put options.
De la Vega paints the market as a psychological museum; speculators are tormented by all sorts of emotions. He says that those hoping for rising prices, the bulls or liefhebberen (‘lovers’ in Flemish), “love everything, they praise everything, they exaggerate everything … When attacked by serpents, they, like the Indians, regard them as both a delicate and a delicious meal … They are not impressed by a fire nor perturbed by a debacle.” By contrast, the bears, or contremine as de la Vega calls them, “are completely ruled by fear, trepidation, and nervousness. Rabbits become elephants, brawls in a tavern become rebellions, faint shadows appear to them as signs of chaos.”
The shareholder in the dialogue, educating the merchant and philosopher, has a confession to make. Confusion de Confusiones’s final dialogue starts with the shareholder admitting to losing a lot of money on the stock market. This is after the merchant and philosopher had already been let down at the start of the third dialogue. Just as with all speculators, it was difficult for these three not to be distressed by their losses.
“I sought to demonstrate my opinion by bidding 586 for a share to a bear, who was proclaiming the ruin of the state. Hardly had I made the bid, when I was told just as quickly as excitedly that the share was mine. … This morning at dawn I inquired about the value of this paper, when a scoundrel informed me (I don’t know if with seriousness or merely in order to torture me) that the price stood at [5]64 and would sink very soon to [5]20. It was a miracle that I did not fall down dead or at least in a faint” – Confusion de Confusiones, paragraph 159
Lesson
After activity in Amsterdam’s stock market grew large enough, it was certain that someone would be keen on writing about the market to inform those unfamiliar with it, whether they were from abroad, engaged in other professions, or simply the next generation of brokers, investors, and speculators. Joseph de la Vega was the first to write a book about the functioning of this new kind of institution. However, he was not the only person and not even the first person to have something to say about the markets. A year before Confusion de Confusiones was written, a Dutch jurist Nicolaas Muys van Holy had already published a work condemning speculation and there were many others. No venue where so much money changed hands in public view was going to be met with disinterest.
More from the Tontine Coffee-House
Read about the markets at Bruges where bonds, bills, commodities and insurance were traded, the IPO of the Dutch East India Company, and the orphan chambers that managed the inheritances of Dutch orphans. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
Further Reading
1. Cardoso, José Luís. “Confusion De Confusiones: Ethics and Options on Seventeenth-century Stock Exchange Markets.” Financial History Review, vol. 9, no. 2, Oct. 2002, pp. 109–23.
2. Corzo, Teresa, et al. “Behavioral Finance in Joseph De La Vega’s Confusion De Confusiones.” Journal of Behavioral Finance, vol. 15, no. 4, 2014, pp. 341–50.
3. De La Vega, Joseph. Confusion De Confusiones: Portions Descriptive of the Amsterdam Stock Exchange. 1688. Translated by Hermann Kellenbenz, Harvard University Printing Office, 1957.
4. Dumez, Hervé. “The Description of the First Financial Market: Looking Back on Confusion of Confusions by Joseph De La Vega.” Gérer & Comprendre, no. 1, 2016, pp. 5–9.
5. Held, Paul. “The Confusion of Confusions: Between Speculation and Eschatology.” Concentric. Literary and Cultural Studies., vol. 32, no. 2, Sept. 2006, pp. 111–45.
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