The stock exchange developed from markets, after that both the goods and the money became replaceable. The culture of stock-broking was already born in the 17th century, and the stock exchanges in the 18th -19th centuries, but the international turnover of shares was livened up by the appearance of railway company shares.

Mill Co., Chain Bridge Co. and the Balaton Steamship Company

The Hungarian story of public limited companies is related to István Széchenyi. The first company that built the first steamship of Balaton, the steamship Kisfaludy, already operated as a company limited by shares. Ferenc Deák was one of their shareholders. Mills and banks – the crucial operators of the Hungarian securities market for a hundred years – appeared after the 1830s. In 1836, the Pest Roller Mill Co. was established, and then an act was adopted that Lánchíd (Chain Bridge) had to be built in the frame of a “shareholder company” as well.

"The national assembly of 1832-36 elected a national delegation after a long debate, and they made a contract with Baron György Sina on 27 September 1838. The baron was contractually bound to “build the chain bridge with the shareholder company created under his leadership and open it to the public as soon as possible”. – Fővárosi Hírlap, 1917.

A year later, the Pozsony-Nagyszombat Railway Company was established, and in 1841, the Hungarian Commercial Bank of Pest Plc. was founded. At the start of the Budapest stock exchange in 1864, seventeen companies’ shares were quoted, including four banks, three mines, two mills, two insurance companies, and the Chain Bridge Co. and Alagút (Tunnel) Co. After the Compromise, a real public limited company establishing fever broke out.

Balloon, mass hysteria, panic and crash

Although stock-broking became less dangerous by now, owing to state regulations that began at the end of the 19th century, it is still connected to a special mob psychology that is characterised by trends, bubbles and panic. This latter is often followed by a period of painful disenchantment. This happened during the first global stock market crash too, in the 1850s:

“However, in the epidemic of the stock market game of 1854-56, the stock issue fever and jobbing anger reached such a fabulous climax in Paris that we should smile on it nowadays, if its many miserable victims were not still suffer from the outcome of their wondrous credulity.”- Ötevényi, 1862.

Compared to the stock-broking habits of certain societies, for example to the United States of America, where one in two people have some stocks nowadays, the stock market participation of the Hungarians is low. This is unfavourable, because the value loss of uninvested savings due to inflation, as money not spent nor invested, disappears in the “slot” of the economy as net deficit.

Small fish, speculators and stock sharks

The fact that online stock-broking is already available for everybody – not only via broker firms but also through banks – makes brokers’ lives of our time much easier. What is the difference between a simple investor and a speculating shark? Speculators are driven by the opportunity of fast enrichment; they count on different expectations, insider information and share price changes. While simple investors expect profits in longer term, from dividend mainly.

If you choose to start stock-broking, for any reasons, you do good not only to yourselves, but also to the domestic economy, because among others, you also contribute to (in your own way, in a small compass) decreasing the dependency of the country from foreign capital (that usually flees in a crisis). Naturally, simple investors – even if they are not stock sharks – are also driven by self-interest in the good sense. But how did the traditional opinion on self-interest and greed changed in our culture and where did it come from?

During history, many people, theologues of world religions and also Greek philosophers dealt with the question of greed. The latter regarded it a taboo, due to wise consideration and their faith in balance. Later in 27 BC, Horace thought that the curse of endless yearning is the consequence of greediness and said, “The more you acquire, the more you desire.” Later, greed got into the Christian dogmatics as one of the seven deadly sins, which came from monk Evagrius Ponticus originally as the seven temptations, and was brought into notoriety by Pope Gregory I in 590.

Later on, two important and popular literary works were born, which had great impacts on the western Christian civilisation. One of them was Psychomachia (Battle of spirits), in which Aurelius Prudentius personified greed in the image of an old horrifying witch, and the other was Dante’s Divine Comedy. The famous Flemish painter Pieter Bruegel’s critical pen sketch (1557) that depicted greed as a big fish engorging small fish had a great influence as well. In the 18th century, capitalism resulted in revaluating opinions on greediness in the western world. In 1776, Scottish economist Adam Smith changed people’s approach to self-interest in a radical way by his work “Wealth of Nations”. As its doctrine, Smith identified self-interest as the drive of trade and called it the “invisible hand”.

Acting against speculators successfully

It is true that the tricks of people having too big influence can be harmful (to the whole economy) sometimes. In contrast with the popular belief, the majority of the speculative capital on the stock markets is not harmful basically, because it has an important role in maintaining the big turnover and animation of the commodity market and the liquidity of stock markets. Besides this “beneficial” speculation, there are harmful kinds of speculations too. A good example for that is when domestic capital flows abroad with speculative aims. The damage of that was recognised in the past as well, for example in 1935, when the Hungarian government banned the security business with foreigners in order to hinder speculations appealing to stock price differences that were very intense between Budapest and Vienna that time. They enacted the registration of the most-involved 6 million shares. The measure was rather successful, because by keeping domestic capital at home, the demand for Hungarian papers increased and the prices of certain securities rose by 30-40 percent!

Károly Erdélyi

Translated by Zita Aknai