Chapter 1 The Beginning T he actual Wall Street, in downtown Manhattan, near the island''s southern tip, is just seven--tenths of a mile long and runs from Broadway and Trinity Church to the west and to South Street to the east. It used to be the thoroughfare that connected the East River to the Hudson. (The interstitial role played by Wall Street remains as essential as ever.) Wall Street was named after an actual wall---composed of twelve--foot--high wooden logs---that the Dutch inhabitants started building in April 1653, with the help of African slaves, as the northern border of their relatively small enclave. North of the wall was danger and hilly wilderness---the name Manhattan derives from Mannahatta, the Lenape Indian term for "island of hills." The Dutch built the wall to protect themselves from the unknown. Indeed, years of fighting between the Dutch and various Native American tribes would be devastating to both sides. The "palisades," as the Dutch referred to the wall, separated what is today Wall Street from everything else to its north.

It was 2,340 feet long, nearly half a mile. But by 1664, the Dutch had run out of gas in New Amsterdam and turned their colony over to the British, who promptly renamed it New York. In 1685, the British surveyors designed a street to run the length of the wall, from the East River to the Hudson, and by 1699 the British---now less fearful of the Native Americans than the Dutch had been---ordered the actual wall removed, leaving only a thoroughfare that stretched from one side of the island to the other, at one of its particularly narrow parts. The new street---now known as Wall Street---became New York''s central artery of commerce. "Few streets in the world are entitled to equal fame," Frederick Trevor Hill wrote in his 1908 gem, The Story of a Street . "In the annals of American history, it holds a place apart." Small merchants established themselves along the street to sell their wares, and over time this came to include the sale of stocks and bonds, a form of borrowed money that was still a new concept at the time, of fledgling local companies. Also for sale on Wall Street were slaves.

According to the New--York Historical Society, the slave trade in New Amsterdam began in the 1620s---1626 to be exact, less than two years after the Dutch landed in New Amsterdam---after a Dutch ship captured a Spanish or Portuguese vessel, with a largely African crew. Often the crews of captured ships were killed, but in this instance the Dutch brought the crew to New Amsterdam, where it was placed in servitude to the Dutch West India Company. The company''s calculus was a simple and cruel one, alas. It needed laborers to build out the colony of New Amsterdam, to build the fort that is now Battery Park, to build homes, and to build the wall that became Wall Street. But New Amsterdam was not a particularly hospitable place to live, and so attracting Dutch workers to cross the Atlantic was not so easy. The better way, it seemed, to get the labor the Dutch West India Company needed was to enslave it. Charitably, the New--York Historical Society described the Dutch''s enslavement of Africans as New Amsterdam''s first public works department. "They cut the road that became Broadway," it explained.

"They built the wall for which Wall Street is named. Without their work, the colony of New Amsterdam might not have survived." Soon enough, individual colonists owned slaves. In fact, according to the historical society, the colony became the largest "slave--holding city" in the northern colonies. For fifty--one years, between 1711 and 1762, Wall Street housed the colony''s well--established slave market, in a wooden shed, hard on the East River, allowing for immediate trading once boats carrying the people from Africa or the Caribbean tied up at the docks. At any one time, fifty slaves could be found being bought and sold in the structure. The sordid practice was ended in 1762 and the shed eventually torn down, apparently because the structure was blocking views to the river and lowering property values. Wall Street housed the colony''s more noble aspirations as well.

In 1699, stones removed from the footings of the original wall were used for the foundation of what became, a year later, New York''s first City Hall, at 26 Wall Street. Not surprisingly, City Hall, built at a cost of more than £4,000, was at the heart of Wall Street. In it, there was a courtroom, a jury room, the Common Council chamber, a jail, a library---the first in New York, consisting of 1,642 books that had once been the collection of the Reverend John Millington---a debtors'' prison, and the offices of the fire department, whose water was supplied from two wells, also dug on Wall Street. Directly across from City Hall, on Broad Street, lay the stockade, meant to be a living, breathing symbol to the colonists of the fate that awaited bad behavior. In short order, as incredible as this may seem today, Wall Street also became a center of revolutionary fervor. It''s where the copies of John Peter Zenger''s New--York Weekly Journal ---in which Zenger criticized the royal governor---were burned by the colonial masters and where, on August 4, 1735, inside the City Hall courthouse, Zenger won a resounding legal victory for freedom of the press that has since been dubbed "the dawn of American liberty." Wall Street was where, in 1765, the so--called Stamp Act Congress convened to vigorously---and successfully---oppose the British imposition of a stamp tax on New Yorkers. It was where Paul Revere arrived in May 1774 to announce the first stirrings of the American Revolution.

But in the years after the Revolutionary War, Philadelphia, rather than New York, was the locus of the nation''s financial power. New York was a mess, having suffered mightily during the war itself. It was in Philadelphia, not New York, that Robert Morris, the financier and great friend of George Washington''s, sought to create the first private, commercial bank in the United States, in the vein of those that had been in existence for centuries in Europe. Following a detailed proposal to the Continental Congress for the bank on May 17, 1781, the Congress chartered it nine days later. Within weeks, Morris was sending letters to potential investors, in effect creating the country''s first IPO, or initial public offering, of stock. In a letter on June 11 to the likes of Thomas Jefferson, then governor of Virginia, and John Hancock, then governor of Massachusetts, Morris made his case. He saw it as his duty to create the bank as a way of restoring the financial reputation of the new republic, which had been incurring debts to pay for its revolutionary war but could not afford to repay them. He promised a desirable rate of return on any investment in the stock of the bank.

He said investors would feel both pride and patriotism and that the bank would last as long as the United States. (The remnants of Morris''s first bank are now part of Wells Fargo.) The bank began operating the following January after its successful IPO, and its investors believed the stock would become more valuable over time as the bank did more and more profitable business. Eight years later, in 1790, Philadelphia, by then the most populous and prosperous city in the country, created the nation''s first stock exchange, some two years before New York embarked on its own version. At about the same time, Alexander Hamilton proposed to Congress that a second bank---the Bank of the United States---be established in Philadelphia. And in 1791, Hamilton succeeded, also through an IPO, in creating the bank, with the U.S. government buying 20 percent of the bank''s stock using a loan from the bank itself.

Soon enough, brokers and merchants along the Eastern Seaboard of the United States were buying and selling the stock of the two Philadelphia banks. By then, the practice was nearly two centuries old. The first modern IPO occurred in 1604, with the public sale of stock of the Dutch East India Company, to which a monopoly had been given to harvest the riches of the faraway Spice Islands: nutmeg, cloves, cinnamon, pepper, and ginger. No different than we do today, the founders of the company wanted to raise capital from investors to finance its business---the building and the sending of ships on the long voyage to the other side of the world to obtain the spices it would sell to its customers. The IPO was a watershed moment in the history of capitalism: It proved that capital could be raised from people having nothing to do with the founding or management of a company and that investors would be willing to take what they hoped would be prudent risks in exchange for an expected return. It''s an idea that changed the world and remains as vibrant today as it was more than four hundred years ago. At the same time, the Amsterdam Stock Exchange was created to allow for the trading of the East India Company''s stock. For more than one hundred years, East India''s stock performed well---at one point in 1720, it was trading for twelve times its IPO price---until New Year''s Eve 1799, when the company was suddenly dissolved after nearly two hundred years, an important reminder that investing in a company''s equity has always been a risky proposition and that even a corporate lifetime of nearly two centuries is no guarantee of survival.

Despite being trumped by Philadelphia for years as the nation''s financial center, Wall Street was slowly recovering from the Revolutionary War. The first so--called golden age of Wall Street lasted for seven years in the 1780s, during which brief time New York City was.