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Wall Street refers to the geographical concentration of financial service providers that constitutes New York’s financial district. Its heart is the narrow thoroughfare of the same name in Lower Manhattan that is home to the New York Stock Exchange. The term carries a wide spectrum of meanings that intersect geography, finance, and political economy.

The origins of Wall Street can be traced to the brushwood barricade erected by Peter Stuyvesant along the northern boundary of the New Amsterdam community of Dutch settlers in Lower Manhattan in 1653. The “wall” was meant to protect the early settlers against attack from Lenape Indians, New England colonists, and the British (who dismantled it in 1699). The subsequent growth and lore of local merchants and financiers imbued this simple geographic setting with its modern significance—the story of the formation of a world financial center, the powerful headquarters of U.S. financial capital.

The Rise Of A Financial Center: Finance And Geography

Wall Street’s early history as a financial market began with gatherings of securities and commodities traders during the Revolutionary War. These curbstone and coffeehouse traders first developed financial techniques for loans and shares out of the needs of mercantile trade, a rudimentary copy of the 1600s Dutch exchanges. The consolidation of the New York exchange accelerated with U.S. government demands for new sources of capital to bail out securities issued to finance the Revolutionary War. The first Continental Congresses in New York issued $80 million in government bonds under Alexander Hamilton to redeem war debts at face value. Speculators seeking to profit on leaked news of the bailout plan set up operations at the east end of the street to broker insider trading of the government paper.

Wall Street’s development during the eighteenth century was shaped by trade in government debt and state-licensed monopolies. During the nineteenth century, railroad shares and bonds fueled the market and its proliferation of trading instruments. Early institutional development was characterized by the monopolization of trading activity that excluded informal curb participants and curtailed the growth of rival exchanges. On May 17, 1792, twenty-four stockbrokers signed the “Buttonwood Agreement” (so named for the sycamore tree on Wall Street under which the signing is said to have taken place). The accord restricted membership and formalized rules for the loosely associated “Brokers for the Purchase and Sale of Public Stock” who conducted their exchange auctions out of the Tontine Coffee House. The financial turbulence of the War of 1812 prompted creation of the New York Stock and Exchange Board (NYSEB) in 1817. The board turned a handsome profit by financing the Erie Canal. It further restricted membership, enforced full commissions and secrecy, and moved member brokers into rented office space. The measures served to snuff out competition from rival curbstone exchanges, such as the 1835 Commercial Exchange Association.

The 1840s to the 1860s produced growth in securities issues associated with railroad stock (first listed in 1830). A major speculative boom driven by Civil War finance (1861—1865) spawned demand for new manufacture and mining and a swelling trade in government debt. This activity fueled persistent attempts to establish rival exchanges to the NYSEB, which culminated in the formation of the Open Regular Board in 1864. Unable to remove the Open Board from the trading arena, the NYSEB was forced to merge with it in 1869. This merger created the New York Stock Exchange as it is now known, with its 1,060 founding members. Subsequent challenges by rival exchanges, such as the Consolidated Stock and Petroleum Exchange (CSPE) founded in 1885, provoked aggressive response by the NYSE, which outlawed CSPE dealings and in 1900 ordered Western Union to stop supplying quotation services to all rival exchanges in New York City (Doede 1967, p. 14).

Financial turbulence in conjunction with the growing concentration of wealth on Wall Street prompted congressional reaction with the Pujo hearings in 1907. Wall Street was implicated in the monopolistic practices of the money trusts that facilitated industrial concentration under the control of a small number of corporations. During the 1920s, Wall Street flourished as a financial center, promoting the rise of large corporations with dispersed ownership and professional management along with a dramatic concentration of capital.

The fragile foundation of this accumulation of financial claims became apparent with the Black Thursday stock market crash of October 24, 1929, and the Black Tuesday sell-off panic that began on October 29. The collapse in equity prices came at the height of Wall Street’s reputation and prompted a wave of regulatory legislation, from the 1933 Bank Act to the creation of the Securities and Exchange Commission in 1934. In the world of finance, Wall Street’s characteristic business activity had produced a speculative financial frenzy that put short-term capital gains before enterprise, setting the stage for a debt-deflation crisis that brought down more than nine thousand banks and triggered the onset of the Great Depression in the 1930s. From this historical episode, major debates ensued about the role of financial markets in the development process.

Viewed from the perspective of the efficient markets hypothesis, Wall Street is the archetype of a highly competitive, efficient capital market whose prices reflect all relevant information. It is impossible to beat the market, and capital is optimally allocated to productive firms. Viewed from the financial instability school of thought, however, Wall Street is predisposed to speculative excess, where the larger constellation of private credit-creating institutions serve the interests of financial accumulation, distorting the allocation of productive capital in debilitating waves of crisis and bankruptcy. Contemporary reference to the “Wall Street View,” coined by Hyman Minsky, derives from this interpretation of the Great Depression’s speculative overleveraging and collapse in world capital markets. Laissez-faire finance, absent regulation and supervision, produces destabilizing real economic performance.

Throughout the 1930s Wall Street exchanges shrunk from losses. Trading during the post-World War II golden age was lackluster until the end of the 1950s. In perspective, NYSE trading for all of 1950 was 525 million shares, which was equivalent to just two hours of an average day’s trading volume in 2005. Wall Street emerged by securing its geographic and financial monopoly over U.S. capital markets. The dense area of real estate demarked by Wall and Broad Streets came to include the New York and American stock exchanges, member firms, over-the-counter firms, government securities dealers, major banks and trust companies, the New York Federal Reserve Bank, and countless insurance, utility, mercantile, and commodity exchanges. The NYSE became the symbolic hub for U.S. financial capital. The amount of new capital Wall Street actually provisioned for “Main Street,” however, proved to be quite low—less than 1 percent of gross domestic product (GDP). It is not new capital but retrading existing capital that defines Wall Street’s key development role. Following the 1970s, speculative financial leveraging of accumulation returned to Wall Street, exploding trading volumes, where the banking system was engaged to secure profits on capital gains from asset price run-ups on financial claims. The resulting market volatility made more observers receptive to the financial instability hypothesis.

The Political Economy Of Finance Capital

In the world of political economy, Wall Street signifies the epicenter of U.S. and global financial capital. In the tradition of imperialist extension, Wall Street is seen as having the power to create or undermine nations in accordance with U.S. national interest. Wall Street speculators, most notably J. P. Morgan, played a decisive role in Panama’s secession from Colombia and its birth as a nation in 1903 to ensure huge profits from the construction of the Panama Canal and U.S. controlling interest in the Canal Zone (Diaz Espinoza 2001). Morgan’s Wall Street partnership bought up the worthless stock of the failed French Canal Company in 1900 and dispatched Nelson Cromwell to convince the U.S. government to purchase the company’s rights and equipment at an exorbitant price. When Colombia’s refusal to ratify the Hay-Herran Treaty threatened Washington’s rights to build the canal, Wall Street financiers funded an uprising by Panamanian nationalists, causing President Theodore Roosevelt to deploy U.S. troops to the region.

Nineteenth-century political critique faulted Wall Street for advancing the monopoly powers of national capital and imperialist extension. Modern variants of this viewpoint examine in greater detail the evolving technology of financial institutions in promoting “accumulation by dispossession” (Harvey 2003, p. 147), where predatory asset redistributions are produced in the context of speculation-induced economic crises. Attention concentrates on the wave of financialization that occurred after 1973. Transactions involved stock promotions, Ponzi schemes, international debt-pushing and repayment servitude alongside speculative raiding conducted by hedge funds. The global reach of Wall Street’s agenda and contribution to financial instability is captured in the reference to the “Wall Street-Treasury-IMF complex.” This highlights the desire of large brokerage firms to have access to capital markets throughout the world through enforcement of complete capital account convertibility, while the International Monetary Fund (IMF) asserts its role as an international lender of last resort in the wake of impending crises.

The destruction of Manhattan’s World Trade Towers on September 11, 2001, made evident that Wall Street’s financial nexus had assumed symbolic dimensions as the center of U.S. financial power and was vulnerable to attack. A previous episode had occurred on September 6, 1920, when a bomb was exploded outside the NYSE building, killing thirty-three people. The post 9/11 geography of money produced a diaspora of the financial industry out of its concentrated center in Lower Manhattan. The disaster dislocated fifty thousand financial service employees to new office space in Midtown Manhattan and nineteen thousand across the river to New Jersey. Over thirteen million square feet of class A office space were completely destroyed, and insurance industry claims from property and life topped $40 billion.

Wall Street’s financial dominance continues despite encroaching competition by rival exchanges trading with new electronic technologies. In 2006 the NYSE acquired Archipelago Holdings, a rival exchange based entirely on electronically traded funds. The resultant public corporation, NYSE Group, took on the all-electronic NASDAQ to consolidate its control in the Internet trading world, where member “seats” and “trading floor” no longer signify geographic reference when accounting for revenue streams. The NYSE Group’s subsequent merger with Euronext produced the first transatlantic bourse.

Bibliography:

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Diaz Espinoza, Ovidio. 2001. How Wall Street Created a Nation: J. P. Morgan, Teddy Roosevelt, and the Panama Canal. New York: Four Walls Eight Windows.
Doede, Robert W. 1967. The Monopoly Power of the New York Stock Exchange. PhD diss., University of Chicago.
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Harvey, David. 2003. The New Imperialism. Oxford and New York: Oxford University Press.
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