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Sunday Reads

Describing the allure of speculation on Amsterdam’s stock exchange in the 17th century, Joseph de la Vega stated:

“It is foolish to think that you can withdraw from the Exchange after you have tasted [the sweetness of the honey]…”

In that same vein, this 1882 cartoon depicts speculators as a group of moths swirling around the flame of Wall Street speculation:

These descriptions liken speculating to an addiction that keeps the afflicted returning for more. It is this negative interpretation of speculating as “degenerate gambling” that has persisted for centuries. In fact, de la Vega later argues that “gamblers and speculators belong to the third class [of three classes]”.

For better or for worse, however, America has always been a nation of speculators. A British man traveling across America in the 1790s wrote “were I to characterize the United States, it should be by the appellation of the Land of Speculation.” Similarly, another European argued in 1854:

“The real capital of the country is in the energy and the enterprise of its people; and with these elements of success everywhere and always active, difficulties are only the stimulus of endeavor.

The Americans have been over-trading and over-speculating ever since they were a nation; their liabilities have always been, more or less, a mortgage on futurity; but they have never yet failed to find a way, wherever they had a will to force them forward in search of it…” (The New York Herald)

Regardless, speculation and the associated manias it produces are constantly derided by financial professionals and society as a whole. Of course, there are many downsides to speculative manias – like bad actors finding it easier to commit fraud as a gullible public pours money into the “hot new thing”. However, the positive outcomes of speculative manias are largely ignored. History shows that speculation benefits society by drawing in new retail investors that may not have otherwise taken an interest in markets or investing.

Perhaps nowhere is this more apparent than in the case of bucket shops.

Democratizing Finance? The Bucket Shop

Robinhood has a public relations problem today, but bucket shops in the late 19th/early 20th centuries were a PR disaster. What were bucket shops? Well, to many, bucket shops were simply gambling dens that represented the decaying morality of American society.

The name originated from 19th century England, when poor children would empty beer kegs discarded by English pubs and re-sell these kegs in abandoned stores. However, within the sphere of finance, this term was applied to “shops” where paying customers could gamble on the direction of stock / commodity prices. Similar to “paper trading” apps today, bucket shops used real time price quotations from the stock-exchange floors via telegraph, but customers’ “trades” were not real. That is, someone buying shares of ABC Railroad Stock in a bucket shop never actually owned shares of ABC Railroad, but merely speculated on the movement of its share price.

So just like sports betting parlors or horse racetracks, the bucket shop became another location for speculative individuals to come wager their money. Amidst all the degenerate gambling, however, something more profound was transpiring within America’s bucket shops: democratization (yuck, buzzword I know). A financial commentator wrote in 1917 that bucket shops were “a sort of democratized Board of Trade, where the common people could speculate.”

One particularly ironic aspect of this whole saga was that the most vocal critics of bucket shops were also those responsible for their creation. Bucket shops started because smaller investors were priced out of traditional stock exchanges and unable to access the financial services industry as a whole.

“Exchanges such as the New York Stock Exchange required minimum margins of around ten percent and minimum trades of approximately 100 shares; transactions such as these involved hundreds or even thousands of dollars. These financial requirements effectively prevented the common citizen from playing a part in the stock market, allowing only the wealthy to partake in the business of investing and speculating.

In order to overcome this financial barrier, an illegitimate financial institution began to emerge, which offered average citizens an affordable opportunity to seemingly play the market as any wealthy investor would.(Sapien)

As you can see, bucket shops were the smaller investor’s response to stock exchange’s prohibitively high trading requirements (in the hundreds of thousands of dollars). Yet, bucket shops became increasingly problematic for traditional financial institutions as the lines between fictitious bucket shop trades and those on the legitimate stock exchange blurred. Owners of bucket shops would try to move the price of stocks that there customers were gambling on by placing large orders on the real stock exchange. These wild swings were not welcomed by stock exchange officials, who quickly sought to rid society of these “gambling dens”.

From Bucket Shop Gambler to Stock Exchange Investor

In the early 20th century this war against bucket shops culminated with a series of bans at the state and federal level. By 1915, NYSE officials proudly proclaimed that the bucket shop was dead. Yet, the important question – and lesson of today’s post – was how the thousands of small bucket shop speculators would participate in financial markets. This excerpt from the New York Times in 1908 answers that question:

Yes, after the bucket shops were banned, Wall Street changed its tune and welcomed these previously degenerate bucket shop gamblers with open arms after realizing the business opportunity at hand. Another New York Times article stated:

So what? Well, I think that the story of bucket shops encapsulates the broader theme of speculation and associated frenzies leading to a wave of longer-term investors as many “evolve” from a bucket shop mentality to more mature investors. For while it may be the “get rich quick” aspect of speculating on meme stocks that initially draws in a smaller investor, that experience with the market may lead to their developing a more serious and longer-term interest in investing. For myself, I’ve mentioned before that when I was fresh out of college one of the first stocks I purchased was MoviePass (lol), and while I managed to make a profit before everything imploded, that initial experience of investing (okay, gambling) heightened my interest in investing overall.

What This Means Today

During the pandemic there has been an abundance of speculative frenzies and manias in assets both within and outside the stock market. Whether it be NFTs, cryptocurrencies, meme stocks, sports cards or something else, the last two years have witnessed  a strong resurgence in the speculative culture that embodied previous manias like the Dot Com bubble. While it is easy to label these speculative episodes as ludicrous and look down upon them, I think that we should remember the potentially positive outcome in which smaller and younger speculators become interested in investing. Investing should not be restricted to those of wealthier means, and if it requires speculating on NFTs for a smaller investor to become interested in investing then by all means buy that JPEG. I’ll leave you with this tidbit before diving into today’s links:

There were less than 1 million American citizens owning corporate stocks in 1910, but by the early 1930s that figure had risen to more than 10 million (Hilt, Jaremski, Rahn).

World War I & The Culture of Investing

Why This is Relevant:

In addition to the proliferation of bucket shops drawing in speculators of smaller means, the Liberty Loan Drives of World War I were pivotal to the growth of stock ownership in the United States. This paper shows that regions with higher subscription rates to Liberty Bonds had a higher rate of stock ownership in the following years.


“We study the effects of the liberty bond drives of World War I on financial intermediation in the 1920s and beyond. Using panel data on U.S. counties, and an instrument that captures differences in the approaches used to market the bonds, we find that higher liberty bond subscription rates led to an increase in investment banks and a contraction in commercial bank assets. We also find that in the late 1930s, individuals residing in states where liberty bond subscription rates had been higher were more likely to report owning stocks or bonds. Although they were conducted to support the American effort in World War I, the liberty loan drives reshaped American finance.”

Visualizing History:

Notable Quote:

“Similar to other examples of how wars contributed to the financial development of nations, the results of this paper suggest that the American effort in World War I introduced millions of households to bond ownership, and in doing so, contributed to the expansion of securities investing in the 1920s that likely helped fuel the large-scale expansion in American industry of the mid-twentieth century.”


The Ticker, Bucket Shops & Origins of Popular Participation in Financial Markets

Why This is Relevant:

As the introduction of today’s post outlined, many bucket shop speculators eventually “graduated” to the traditional stock exchanges and became longer-term investors.


“The history of the bucket shops and of the exchanges’ efforts to stamp them out reframes our understanding of the development of modern finance capitalism by showing how one of its key features—broad public participation in financial markets—emerged. Business and social historians have shown that the rise of modern financial institutions depended on innovations in banking, currency, and corporate organization, and cultural historians have explained Americans’ ambivalent embrace of gambling and risk taking and their complex relationship to the market. But neither business nor cultural history has explained how ordinary Americans became market participants nor how their increased participation exposed and redefined the troublesome moral and economic connections between gambling and the marketplace.”

Visualizing History:

Notable Quote:

“The eradication of bucket shops, the Liberty Bond drives, and employee stock ownership plans propelled an ongoing shift in popular participation in the nation’s financial markets, from speculation in bucket shops to investment through legitimate brokers. That shift presented both an opportunity and an obligation for the organized exchanges. While brokers and exchange officials welcomed the increased business, they also sought to protect the unwary investor from predatory dealers. Newspapers, magazines, and exchange officials all warned investors of a new breed of swindlers who tried to prise away customers’ Liberty Bonds in exchange for bogus stocks. Exchange officials proclaimed their newfound responsibility to protect investors. President Seymour Cromwell of the New York Stock Exchange, noting that small lots constituted a third of the transactions on his exchange, pledged to offer “inexperienced investors,” particularly those who entered the financial markets through Liberty Bond ownership, “even greater protection” than that afforded to larger investors who, “through skill or experience, are better able to take care of themselves.”

Independent Women: Investing in British Railways (1870-1922)

Why This is Relevant:

An example of specific under-represented demographics (women, in this case) becoming increasingly involved in markets during periods of speculation – railways.


“The early twentieth century saw the British capital market reach a state of maturity before any of its global counterparts. This coincided with more women participating directly in the stock market. In this paper, we analyze whether these female shareholders chose to invest independently of men. Using a novel dataset of almost 500,000 shareholders in some of the largest British railways, we find that women were much more likely to be solo shareholders than men. There is also evidence that they prioritized their independence above other considerations such as where they invested or how diversified they could be.”

Visualizing History:

Notable Quote:

“Our evidence therefore indicates that, during the period 1915-1922, women were exercising independence in their own financial affairs, taking full control of the risks and rewards of share ownership. The increasing prominence and independence of female investors is reflective of the broader changes in social perceptions, demographics and legal restrictions occurring at the end of the nineteenth century which subsequently influenced women’s investment behaviour moving into the early part of the twentieth century.”




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