The Amsterdam Stock Exchange is the oldest in the world. It was established in 1602 by the Vereenigde Oost-Indische Compagnie (Dutch East India Company) to aide in the trading of shares in the company. Amsterdam was the first exchange to begin trading securities and was the location of the tulipmania bubble of 1636 to 1637, the first bubble in financial history. Global Financial Data has collected data for three companies that traded on the Amsterdam Stock exchange in the 1600s and the 1700s, the Vereenigde Oost-Indische Compagnie (Dutch East India Company) which had a monopoly over trade in Asia, the Geoctroyeerde Westindische Compagnie (Dutch West India Company) which had a monopoly over trade in the Americas, and the Sociëteit von Berbice which established a colony in Guyana which ultimately failed.

Dutch East India Company, 1601 to 1794

  Data for the East India Company (VOC1-AM) goes from 1601 to 1794 when the company fell into bankruptcy. Data for the West India Company (WIC1-AM) goes from 1628 to 1792 and data for the Society of Berbice (SBRB1-AM) goes from 1734 to 1752. Most of the data from the 1700s is bi-weekly or even daily during the 1720 bubble.  

Dutch West India Company, 1628 to 1793

  This data provides an insight into the behavior of stocks over a period of two centuries when the Dutch West India Company and the Dutch East India Company were one of the few stocks traded in the world. The Society of Berbice illustrates the performance of an attempt at colonization in the Americas that ultimately failed. Berbice included 12 plantations owned by the society, 93 private plantations along the Berbice River and 20 plantations along the Canje River. The colony suffered a severe blow in 1763 when 2,500 slaves rebelled and the leader of the rebellion, Coffy, temporarily become Governor of Berbice. The history of the Dutch East India Company and the Dutch West India are also imbedded in their stock price history. The rise of the companies in the 1600s, the impact of the Mississippi Bubble in France in 1719 and the South Sea Bubble in London in 1720 is clearly visible. The slow but steady decline in the price of the stock of the Dutch East India Company and the Dutch West India Company as each slowly slid into bankruptcy can also be traced. To better understand the history of the Dutch East India Company, read the blog, The First and the Greatest: The Rise and Fall of the Vereenigde Oost-Indische Compagnie

 

Society of Berbice, 1734-1752

  To truly understand the performance of stocks over the past 400 years, these three companies cannot be ignored. The data is available to all subscribers to the Equity Microverse. If you would like access to this data, please feel free to call Global Financial Data today to speak to one of our sales representatives at 877-DATA-999 or 949-542-4200.

Global Financial Data has calculated the market cap of the United States stock market from 1791 until 2018. These calculations include not only the New York Stock Exchange, American Stock Exchange and NASDAQ, but regional exchanges, such as Philadelphia and Boston and over-the-counter stocks, such as Standard Oil. We have divided the total market cap by GDP to examine how the stock market has grown relative to the economy over the past 200 years. The graph below illustrates the results. There were two periods when there was a dramatic increase in the ratio of market capitalization to GDP over the past two hundred years. Both of these shifts occurred during communication revolutions which enabled the market to both build the infrastructure for these changes and enabled investors to have greater access to the stock market. In both cases, the communication revolutions that occurred encouraged globalization and the growth of the stock market. Given this, we break down the growth of the stock market into four periods:

1. Antebellum America (1791-1865) in which the stock market grew with the economy and the market cap/GDP ratio stayed around 10%,
2. Globalization (1865-1914) during which the United States raised capital from Europe to help build its economy and the market cap/GDP ratio rose from 10% to 50%. During this period of time the telegraph and telephone linked the world’s stock exchanges together creating a global market for shares,
3. Regulation (1914-1980) during which the market cap/GDP ratio fluctuated around 50% as regulation, war, inflation and nationalization constrained the growth in the market cap/GDP ratio, and
4. Deregulation (1980-2018) in which the market cap/GDP ratio grew to over 100% of the economy. The introduction of computers and the internet enabled traders to reduce the time a trade could take place from minutes to nanoseconds and enabled the stock exchange to move from a trading floor to computers

Although these four periods are not generally recognized as parameters that can be used to analyze changes in American financial markets, we feel they should be. In each case, the government’s attitude toward corporations changed, allowing the market cap of listed corporations to grow or remain constant relative to the rest of the economy. Other factors such as war, inflation, nationalization and regulation also influenced this ratio. The final change occurred at the end of the twentieth century, deregulating the financial sector which produced a shift upward in the market cap/GDP ratio to over 100%.  

Data Sources

Global Financial Data has collected data on 50,000 securities that have traded in the United States over the past 225 years. GFD has data on the prices of stocks, the dividends and corporate actions, and the shares outstanding for each company. By multiplying the market price of each stock times the number of shares outstanding, we can calculate the market cap for each company, and by summing these numbers, we can calculate the total market capitalization for the United States. Our data set is limited to companies that operated in the United States. Companies that operated sugar plantations in Cuba before 1959, for example, are excluded as are American Depository Receipts (ADRs) and other foreign corporations. Although the number of foreign companies that listed in the United States was almost non-existent in the nineteenth century, the number grew rapidly during the twentieth century and today thousands of ADRs trade on U.S. exchanges. The market cap data we have collected only includes American companies. We took the calculations of GDP for the United States from the Bureau of Economic Analysis to determine how the ratio of market capitalization to GDP has changed over time. The result is provided in the graph below. A value of 100 means that the stock market capitalization was equal to 100% of GDP.

United States Market Capitalization as a Share of GDP, 1791 to 2018

Three major shifts in the ratio of market cap/GDP are readily apparent. The first occurred after the Civil War when international capital flowed into the United States to fund the growth of railroads, communications and other industries. The telegraph connected American cities in the 1840s and in 1866, a transatlantic cable linked New York to London and the rest of Europe. By the end of the century, the telephone began displacing the telegraph. The market cap/GDP ratio more than tripled from around 15% in the 1860s to 50% by the 1900s. During this period of time many industries amalgamated into Trusts that attempted to run their industry as a monopoly. Antitrust laws and other regulations put an end to these shifts. When World War I began, regulation, inflation and war kept the market cap/GDP ratio from growing. Between 1915 and 1980, the ratio fluctuated up and down, hitting a high during the bull market of the 1920s and the economic growth of the 1950s and 1960s, and reaching low points after World War I and World War II. There are several reasons why regulation, inflation and war limit growth in the market cap/GDP ratio. Government regulations can restrict corporations from growing in size or limit corporations’ ability to issue new capital. Higher rates of inflation discount the present value of future corporate cash flows. The bouts of inflation in the United States that occurred after World War I, World War II and the Vietnam War clearly drove the market cap/GDP ratio down. War affects the ratio both indirectly through higher inflation and directly because resources are reallocated from funding the growth of new companies to funding the war. New issues of securities are discouraged by the government so resources can be reallocated to pay for the war. During the 1980s, a third shift in the market cap/GDP ratio occurred when the ratio more than doubled, increasing from around 50% in the early 1980s to over 100% by the end of the 1990s. The introduction of computers and the internet made the old trading floor obsolete. Traders could place their orders online and the orders were filled in nanoseconds. The Reagan administration deregulated the economy and shifted the regulatory burden of proof on the government, not on corporations. With the exception of the financial crisis of 2008, the market cap/GDP ratio has stayed above 100% during the past 20 years. We argue that as a result of this second communications revolution, the increase in the market cap/GDP ratio over 100% is a permanent shift that will probably keep the ratio above 100% for the rest of the century.  

Antebellum America

It is surprising that the market cap of United States stayed around 10% consistently from 1791 until the 1860s despite the rapid changes in the American economy. However, it is important to differentiate between growth in the American economy and changes in the capitalization of corporations in the United States. Although the market cap of the stock market grew in line with the economy before the civil war, its growth did not exceed that of the economy until after the Civil War. When the Bank of the United States was capitalized at $10 million in 1791, the GDP of the United States was only $200 million and the market cap of the three banks and one industrial firm that were listed totaled $17 million. Initially, virtually all the companies that listed in New York, Philadelphia, Boston or other exchanges were in insurance or banking, but gradually other industries appeared. Transport stocks started trading in 1801. First there were turnpikes, most of which were too small to trade on the exchanges, then there were canals which did trade on exchanges and in the 1830s, railroads made their appearance. Railroads dominated the stock market of the United States throughout the 1800s. Utilities started trading in 1804, and in the 1830s, hundreds of mills were established in Massachusetts producing textiles and clothing for the country. The mills traded primarily on the Boston stock exchange, and by the 1840s, these mills represented over 10% of U.S. stock market capitalization. Over the next couple decades, energy companies started producing coal, industrial manufacturers appeared, mining companies started mining for copper, silver and gold, and the first real estate companies issued shares. Despite all of these changes, the stock market could barely keep up with the growing American economy. Between 1791 and 1861, the market cap of the United States grew twentyfold, from $17 million to $345 million, but America’s GDP grew at a similar pace, increasing from $200 million to $4 billion. Then the Civil War changed the American economy forever.  

The Gilded Age and Globalization

Once the Civil War was over, the pace of growth in the United States and the stock market quickened dramatically. Between 1865 and 1901, the American economy grew from $6 billion to $20 billion, but the market cap of companies listed in the United States grew from $635 million to over $10 billion. The ratio of stock market cap to GDP grew from 10% to over 50% as hundreds of companies raised capital by issuing shares. Once the war was over, the robber barons of the gilded age built the railroads, steel and other industries that built America. The telegraph enabled traders in different American cities to connect directly with brokers at the stock exchange, and the telephone enabled investors to speak directly to brokers in New York. By 1866, a transatlantic cable had been laid, linking the American and European continents. By the end of the century, a global system of telecommunications connected all the stock exchanges of the world together, laying the foundations for the globalization of international finance. Not only did this communications revolution enable investors to buy and sell stocks more, but corporations had to raise the capital to fund the growth in America’s infrastructure. This combination of factors pushed the market capitalization of companies listed on the stock exchanges to half of GDP by the end of the century. The period from 1865 to 1914 was the height of globalization. Railroads in the United States took advantage of this and marketed their stocks and bonds in London, Amsterdam, Paris, Berlin and other European stock exchanges. The United States raised huge amounts of capital and in the process became a net debtor to the rest of the world, but in the process, it was able to build the infrastructure for the American economy. Railroads raised over one-third of their capital in Europe. As was true in antebellum America, the American economy underwent rapid changes after the Civil War. The chart below illustrates how the sectoral composition of the American stock market changed over the past 200 years. Although the largest share of market capitalization in the 1800s was concentrated in the railroads, their share shrank between 1865 and 1914, Other sectors, especially energy and industrials grew even more dramatically than railroads with Standard Oil, AT&T and U.S. Steel becoming some of the biggest companies in the world.  

Sectoral Allocations in the United States, 1800 to 2018

  Between 1865 and 1901 railroads shrank from 58% of the total market cap to 40%, finance shrank slightly from 23% to 19%, but the real growth was in materials and energy. In 1865 the Illinois Central Railroad was the largest company in the United States, but in 1901 Standard Oil was over twice the size of the next largest company, Penn Central. The third largest sector by market cap in 1865 was consumer discretionary, primarily made up of the mills in New England, but in 1901, communications, consumer staples, energy, industrials, materials and utilities were all larger than consumer discretionary. In 1901, energy was the third largest sector in the United States, having grown from 2% in 1865 to 10% by 1901. Even more impressive was the growth in Communications. There were no communications companies listed in the United States in 1861, but between the telegraph and telephone, communications grew to almost 6% of the total market cap in the United States by 1901. The leaders of industry in the last third of the 1800s played an essential role in converting corporations into capital that could be owned by investors. By the end of the nineteenth century, the Gilded Age was over and the era of trusts in which industries amalgamated to create single companies that oversaw the production of oil, cigarettes, sugar and other goods dominated the economy. Without the conversion of companies into shares that could be bought and sold, the conversion of the economy into a collection of industrial trusts would not have been possible.  

Government Regulation

Globalization came to an end on July 31, 1914 when the world’s stock exchanges closed down at the beginning of World War I. The U.S., U.K. and French stock markets reopened by the end of 1914, but the German and Russian stock markets didn’t reopen until 1917. When the October Revolution began in Russia, the St. Petersburg bourse closed for the next 75 years. The period between 1914 and 1980 was one of financial repression in which government regulation of financial markets and the economy prevented the stock market from increasing its share of GDP. There were periods such as the 1920s, 1950s and 1960s in which financial markets operated relatively freely and grew, but there were also periods of regulation (1930s), inflation (1920s and 1970s) and war (1910s, 1940s, 1970s) during which market cap’s share of GDP declined. When the United States entered World War I, capital shifted from investing in new companies to funding the war, and the flow of capital from Europe to America came to an abrupt halt. After the war, one of the primary enemies of investors raised its head: inflation. Although inflation has never wiped out American investors as it did in Germany during the 1920s, inflation has reduced the return to investors and shrank the market cap/GDP ratio in the 1920s, 1940s and 1970s. Inflation is the greatest enemy of investors. Higher inflation leads to higher interest rates which reduces the price of bonds. High inflation also means lower stock prices. The value of a company depends upon the discounted value of future cash flows. As inflation rises, interest rates increase and the discounted value of future cash flows declines causing stock prices to decrease. When inflation increases, as it did after World War I and in the 1970s, the market cap/GDP ratio declines. Whenever, disinflation occurs, as it did in the 1920s and after 1981, the market cap/GDP ratio rises. The 1920s, of course, led to a bull market that is still remembered, and by the summer of 1929, for the first time in its history, the market cap of all stocks listed in the United States exceeded national GDP. In September 1929, the market cap of stocks listed in the United States reached $125 billion while nominal GDP was at $106 billion. Although GDP fell to $60 billion by 1932, the stock market cap fell to $25 billion. Market cap did not exceed GDP again until the 1990s when a new communications revolution, the dotcom bubble, deregulation and disinflation drove this ratio to the highest level it has ever been. Once the United States entered World War II in 1939, capital was directed toward the war effort and the market cap/GDP ratio fell to 23% during the war. Even as late as 1948 the market Cap/GDP ratio was under 25%, but in 1948 as the cold war broke out, and the United States focused on growing the economy once again, the ratio began to rise. Growth in the stock market affected all the sectors in the economy. In 1968, the market cap/GDP ratio reached 87%, the highest it had been since 1929. The Nifty Fifty became the benchmark for the stock market and just as it looked like the market cap would exceed GDP, OPEC upended the market. The price of oil went from $3 in 1972 to $39 by 1982 and stagflation became the dominant theme of the economy. Interest rates had been slowly rising since the 1940s until they reached double digits in 1982. Since the value of companies depends upon the discounted value of future cash flows, stock prices were hit badly, and the market cap/GDP ratio fell from 87% in 1968 to 37% in 1974. As in most cases in stock market history, when things looked the darkest, it was the best point to invest.  

Deregulation

Ronald Reagan was elected president in 1980 and he deregulated the economy to promote economic growth. At the same time, Paul Volcker fought inflation and initiated the beginning of a 35-year decline in interest rates. Moreover, technology in the form of computers, the internet and biotechs began to dominate the stock market as a new communications revolution began. The yield on the 10-year bond fell from over 15% to under 5% between 1981 and 1999. The market cap/GDP ratio rose from 38% in 1981 to 163% in 1999 more than quadrupling the ratio. All the stars were aligned to move capital into the stock market. Once again, a communications revolution broke over the stock market. Computers enabled trading times to shrink from minutes to nanoseconds. The internet enabled investors to place trades directly with the stock exchange without having to use a human broker. Information technology and communication stocks grew in size rapidly and contributed to the growth in the size of the market. It was in large part because of this communications revolution that the financial world became globalized once again. Deregulation became a world-wide phenomenon. Margaret Thatcher and Ronald Reagan promoted the growth of the economy through deregulation. The Big Bang opened up financial markets in London. The Berlin Wall and the Soviet Union fell. The four Asian tigers (Japan, Taiwan, Korea and Singapore) were able to achieve rapid growth through exports and both China and Russia opened up stock markets in formerly communist countries. The global market cap/GDP ratio rose from around 25% in 1980 to over 100% by 2000, mirroring the trend in the United States as is illustrated below.

Global Market Capitalization as a Share of GDP, 1900 to 2018

  Deregulation, falling interest rates, disinflation and rapid growth created a stock market bubble in 1999 and a financial crisis in 2008. The dotcom bubble was one of the primary factors driving growth in the economy and in the stock market. The market cap of information technology grew from only $200 billion in 1990 to over $4.5 trillion by 1999. The market cap of the entire U.S. stock market in 1990 was only $2.8 trillion. With the growth of the internet, products went global. By 2018, a website like Facebook had over 2 billion active monthly users, bringing over 25% of the global population together on a single website. Nevertheless, the financial crises of the twenty-first century have created a rollercoaster ride. The dotcom bubble burst in 2000. September 11 and other market crises, such as the bankruptcy of Enron and Worldcom, caused the market to lose almost half of its market cap. The market bounced back during the growth engendered by the attempt to convert mortgages into tradable capital, but the financial crisis of 2008 and the Great Recession that followed caused the market to lose half of its capitalization, briefly pushing the market cap/GDP ratio below 100%. Since then, the market has bounced back, and now this ratio is pushing back toward the highs of 1999.  

The Future of the Stock Market

Where do we go from here? Will the market cap/GDP ratio reach 200% in the near future, or will it fall back below 100% in the next financial crisis? Although we can’t answer that question, it does appear that the deregulation and disinflation at the end of the twentieth century has permanently pushed the market cap/GDP ratio in the United States above 100% and it is likely to stay above that ratio for decades to come. The current communications revolution is not over and will continue to transform the economy and the financial sector. However, there is no guarantee the market cap/GDP ratio will stay above 100%. One question this survey raises is what would have happened if World War I had not begun in 1914? Would globalization have continued and the 70 years of financial repression and inflation which held back the growth of the market cap/GDP ratio not have occurred? The great reversal in the growth of the market cap/GDP ratio was a global phenomenon, not just an American phenomenon as the global capitalization/GDP graph above shows. The rise of nationalism in politics in the United States, United Kingdom, Russia and China certainly makes one wonder how much longer the growth in market cap can continue to grow relative to GDP. With interest rates close to zero in Europe, Japan and the United States, disinflation is more likely to reverse than continue. The other two nemeses of the market cap/GDP ratio, war and regulation are less predictable. Although war is unlikely, it also seemed unlikely in 1913 when the 70 years of financial repression began. The biggest threat today is probably that nationalism could lead to trade wars which could threaten economic growth. This article shows how the cost of inflation, regulation, war and nationalism over the past 200 years constrained the growth in the market cap/GDP ratio while deregulation, communication revolutions and globalization helped it grow. The optimal situation is one of globalization and low inflation with minimal regulation of financial markets; however, a lack of regulation also generates periodic financial crisis leading to reregulation. Let us hope we have learned the lessons of the past 200 years and that the growth of financial markets can continue in the decades to come.

Global Financial Data has added over 1200 new series on debt from the BIS. These series track the outstanding debt by country and category. All data are quarterly and will be updated on a regular basis. The data covers 138 countries and breaks the data down by several categories. The data are first broken down into Total Outstanding Debt, Government Debt, Financial Corporation debt and Non-Financial Corporation Debt. In addition to this, the debt is broken down according to the currency it is issued, differentiating between the total amount issued, the amount issued in US Dollars and the amount issued in Euros. Data begins in the 1960s for most OECD countries. Data from emerging markets begins in the 1970s. This addition provides a rich source of data that allows users to track changes in national debt at the corporate, the government and the national level. With interest rates at all-time lows, both governments and corporations are adding on debt to fund their operations. In 2018, for example, even though the United States is in a booming economy and government debt already exceeds GDP, the government expects to run a deficit of $1 trillion adding on to an already mushroom level of debt. A graph of government debt relative to GDP in the United States is provided below.     Global Financial Data also offers separate annual files that track national debt going back several centuries. Data for the United States goes back to the 1790s and data for the United Kingdom goes back to the 1690s. Global Financial Data provides historical debt data for most major countries back to the 1800s. A graph of government debt relative to GDP in the United Kingdom over the past 300 years is provided below.     If you would like a list of the additions to Global Financial Data’s debt data, or a list of all the debt files currently in the Global Financial Database, please feel free to call Global Financial Data today to speak to one of our sales representatives at 877-DATA-999 or 949-542-4200.

Apple is fast approaching a market capitalization of $1 trillion. Their current market cap is about $900 million and an 11% increase in their stock price will make Apple the first $1 trillion company. It was only back in 1970 that the capitalization of the entire United States stock market hit $1 trillion and soon a single company may be worth that much. Actually, one company did briefly break the trillion-dollar market cap several years ago. When PetroChina had its IPO in November 2007, it stock price tripled from 16.7 yuan to 43.96 yuan on its first day of trading giving it a market cap of $1 trillion. However, only 2% of the company’s shares were floated during the IPO. During the 2007 China market bubble, China had five of the ten largest companies in the world. The other four were China Mobile, Industrial and Commercial Bank of China, China Life Insurance and Sinopec. However, two weeks later, PetroChina fell below the trillion-dollar market cap, and by 2017, PetroChina had lost $800 billion in market cap, turning China’s Biggest winner into the world’s biggest loser. This raises the question, what was the first company to be worth $1 billion? By all rights, the winner of that award should have been U.S. Steel. When it went public in February of 1901, it issued $508 million in common stock and $510 million in preferred stock, but the common traded around $50 and the preferred around $100 in 1901 so the total capitalization of the common and the preferred was around $765 million. Shares of U.S. Steel fell to below $10 by 1904 and didn’t break $100, pushing the company’s capitalization over $1 billion, until 1916. If you look outside of the United States, no company was able to break through the $1 billion barrier until the 1920s, but there was one company that reached $1 billion in value in 1911, and the story of how it happened is quite interesting.  

United States Steel 1901-1920

Break ‘Em Up!

Although the United States encourages private enterprise as much as any other country, it also has a history of cutting large firms down to size. In the early part of the 1800s, the first Bank of the United States and the second Bank of the United States were as big as the rest of the banks in the country put together, but neither Bank of the United States had its charter renewed. The United States broke up AT&T in 1984, threatened to break up General Motors, IBM and Microsoft, and is now threatening to regulate Apple, Google, Amazon and Facebook in one way or another. ExxonMobil is one of the largest companies in the world, and back when it was known as Standard Oil, it was broken up by the Supreme Court when it ruled that Standard Oil was in violation of the Sherman Anti-Trust Act on May 15, 1911. On the same day, the Supreme Court also ordered the dissolution of the American Tobacco Co. Standard Oil was established as a partnership by John D. Rockefeller and others in Ohio in 1863, and incorporated in Ohio in 1870. Through a series of aggressive acquisitions, Standard Oil slowly took over the production of oil in the United States. By 1890, Standard Oil controlled 88% of the nation’s refined oil flows. The state of Ohio successfully sued the Standard Oil Trust in 1890 to compel its dissolution, but the Trust avoided full dissolution by separating Standard Oil of Ohio from the rest of the Trust. When New Jersey changed its incorporation laws to allow corporations to own companies incorporated in other states, Standard Oil reincorporated in New Jersey as a holding company with a controlling interest in over 40 companies. By 1904, Standard Oil controlled 91 percent of oil production and 85 percent of final sales in the United States. The United States government sued Standard Oil under the Sherman Anti-Trust Act on March 22, 1909. The government argued that Standard Oil had obtained its dominance of the market through unfair practices. The government identified four illegal patterns: (1) secret and semi-secret railroad rates, (2) discrimination in the open arrangement of rates, (3) discrimination in classification and rules of shipment, and (4) discriminations in the treatment of private tank cars to justify prosecution under the Sherman Antitrust law. On May 15, 1911, the Supreme Court upheld the lower court ruling that Standard Oil was an “unreasonable” monopoly and ordered it to be broken up into 34 different companies. Each shareholder was to receive a fraction of each company according to the number of shares of Standard Oil company stock that they owned. Shareholders received 1 share of Standard Oil Co. of New Jersey (Exxon), but 249995/983383 share of Standard Oil Co. of California (Chevron) and 149996/983383 share of Standard Oil Co. of New York (Mobil). Fractions were determined for each company based upon the number of shares outstanding of that company and Standard Oil of New Jersey.  

Standard Oil Prepares for the Break Up

One of the more interesting aspects of the dissolution was that even though Standard Oil was the biggest corporation in the world in 1911, its shares were not traded on the New York Stock Exchange. Shares only traded over the counter or on the New York Curb. The reason for this was that the New York Stock Exchange passed a rule in 1896 requiring that any company applying for membership had to provide financial statements to the NYSE and the public. Standard Oil was a tightly-owned company with John D. Rockefeller owning about one-fourth of the outstanding shares and was secretive about its operations, in part because of the government’s actions against the company. In 1911, Standard Oil had no need to raise capital and no need to list on the New York Stock Exchange. What is even more interesting is that between the time when the Supreme Court passed its ruling in May 1911 and Standard Oil was broken up in September 1912, not only did Standard Oil stock increase in value, but shares traded ex-subsidiaries (i.e. Standard Oil of New Jersey only) and with-subsidiaries (i.e. all 34 companies that would be distributed to shareholders). Although Standard Oil was secretive, and full and accurate accounts of all the subsidiaries were not available, investors still had to determine what the ultimate value of Standard Oil of New Jersey and all of its subsidiaries was. The Ex-subsidiaries shares began trading at 325 in September 1911 and when the stock was split up in September 1912, shares for Standard Oil of New Jersey were trading around 410, increasing in price by one-third during the intervening year. The impact on the subsidiary shares was even greater. These shares began trading at 275 in September 1911. Initially, the market thought the subsidiaries were worth less than Standard Oil of New Jersey, but as the date for the dissolution drew closer, the shares moved up in price sharply. When Standard Oil broke up in September 1912, the shares were trading at 675, and by the time the subsidiary shares stopped trading in February 1914, they were at 990. The steady increase in the price of stock in the subsidiaries is illustrated below.  

Standard Oil Subsidiaries 1911-1914

Standard Oil had 1 million shares outstanding giving it a capitalization of $100 million when the shares were issued in 1882. Shares peaked at 842 in May 1901 right after U.S. Steel went public, giving Standard Oil a capitalization of $842 million. Shares fell to 395 during the Panic of 1907, but rose to 650 by March 1909 when the antitrust lawsuit was filed. Shares were still at that level when the Supreme Court ordered Standard Oil to be dissolved. By the time shares in Standard Oil that included all of its subsidiaries stopped trading in August 1912, shares were at 1100 giving Standard Oil a capitalization of $1.1 billion, making it the first company to be worth over $1 billion in history. It had only been in 1871 that all the stocks in the United States were valued at $1 billion, and now a single company had reached that valuation. In 1911, the entire stock market of the United States was valued at $16 billion so Standard Oil represented 6% of the capitalization all shares traded in the United States. For one brief month, Standard Oil was worth over $1 billion, but when the company was broken up, the value of Standard Oil fell from $1.1 billion to $400 million overnight. The aggregate value of Standard Oil and its subsidiaries remained over $1 billion, but the company was no more. The course of Standard Oil stock between 1890 and 1920 is illustrated below. The shares moved up between 1895 and 1901 as Standard Oil established its control over the oil market. Its decline during the Panic of 1907 and recovery thereafter, as well as the strong move up to 1100 in the year following the decision of the Supreme Court are plainly visible. The collapse from 1100 to 400 occurred when its subsidiaries were spun off. Standard Oil did not become the first billion-dollar company because the government broke it up; however, the impending break up forced investors to investigate the true value of Standard Oil and its subsidiaries causing investors to re-evaluate shares in the company.  

Standard Oil of New Jersey 1890-1920

The Race to $1 Billion Begins Again

In 1912, several companies were similar in size to Standard Oil of New Jersey. Penn Central and American Telephone and Telegraph were both worth around $500 million. Canadian Pacific was the largest non-US company in the world at $530 million and the Suez Canal was the largest European company valued at around $450 million. It took Standard Oil of New Jersey until 1925 to regain a $1 billion market cap, in part because Standard Oil had issued $100 million in preferred stock when it finally listed on the NYSE on March 1, 1920. U.S. Steel reached $1 billion in 1916, but half of its valuation was preferred stock. American Telephone and Telegraph reached the $1 billion mark in 1924, General Motors reached it in 1926, and by 1929 ten companies in the United States had a market cap over $1 billion. General Motors became the first company to be worth $10 billion in 1955, and General Electric became the first company to be worth $100 billion in 1995. By 2017, 75 companies world-wide had a market cap over $100 billion.  

Are the FANG Stocks Next?

The only survivors of the 34 companies that were born of the dissolution of Standard Oil are ExxonMobil (Standard Oil of New Jersey) and Chevron (Standard Oil of California). Every other subsidiary has been absorbed by another company at one point in time as illustrated by the fact that Exxon changed its name to ExxonMobil when it absorbed Mobil Oil (Standard Oil of New York) in 1999. Amoco (Standard Oil of Indiana) and Atlantic Richfield were acquired by British Petroleum in 1998 and 2000 respectively. Today, only six U.S. companies are larger than ExxonMobil: Apple, Alphabet, Microsoft, Amazon.com, Berkshire Hathaway and Facebook. History has shown that the government has broken up or tried to break up large companies in the past for better or for worse. Which of these will the government go after next? We shall see.