Confusión de confusiones (1688): a historical stock exchange drama

Confusión de confusiones, published in Amsterdam in 1688, is the world’s first book on the stock trade. Ever since the Financial Times included it in its list of ‘Ten Best Books Ever Written on Investment’ (January 28, 1995), interest in this book has soared. It is certainly a very special book, and it definitely stands out from the titles that are usually picked for such lists. But can it serve as a guide to modern investors, as the Financial Times suggested?

Dialogues between a merchant, a philosopher and a share trader

There are three characters in Confusión de confusiones. Two of them, a merchant and a philosopher, have heard about the trade in shares and sometimes even watch the traders in the Amsterdam exchange, but they do not really understand how it works and are afraid to take part in it themselves. They call upon the assistance of an experienced share trader, the third character. In four imagined dialogues—a popular device for structuring a book in the seventeenth century—the share trader explains to the others how trading is conducted, tells them about the different types of transactions, and warns them of the tricks and deceptions they must watch out for if they enter the fray.

After some time the philosopher and the merchant dare to do their first trades—but with little success. When the merchant first mingled with share traders on the exchange, so he relates, he asked what the premium was for an option for the supply of a VOC share on a particular day at a particular price—a put option, in modern parlance. He was promptly misled by a dealer:

One of the rogues retorted cunningly that he would not bind himself to any rate, but would estimate the premium as 20 per cent; I offered him 15 per cent, whereupon he accepted my proposition with the remark that he would take the risk as a favor to me. And whereas I was at the time grateful for this courtesy, I was informed today that the premium amounted to 9 [per cent] at most.

Cheating and deceit

Joseph de la Vega (a member of a Jewish family with roots in Spain who, although he was probably born in Amsterdam in 1650, spoke and wrote in Spanish) gave three motives for writing the book. ‘The first was to fill my empty hours with a diversion which, although modest, is not a disgrace.’ The second was to describe trading for people who were not familiar with it. ‘And the third, to paint with the brush of truth the trickery that the rogues, who thus make it a disgrace, engage in, so that some may be amused by it, others be warned by it, and many denounced by it.’

A book intended to warn and to entertain—that certainly seems to be in line with the contents of Confusión de confusiones. After the share trader castigates the merchant for not listening to his lessons and for being stupid enough to let himself be cheated in his option deal, he embarks on a long discourse about all the different forms of deception that occurred on the exchange. He warns the merchant and the philosopher about the practices of brokers who pretend to have received big orders in order to influence the price, about dealers who deliberately circulate letters on the exchange containing fictitious news (80 years after Isaac le Maire famously spread false rumors to increase his profits), and about many other types of cheating and deceit.

The many references to Old Testament stories and classical mythology in the book reinforce the cautionary effect of the dialogues. Comparison with biblical and mythological sources was a very common storytelling technique in the seventeenth century, and de la Vega used it in his description of share trading to interpret the behavior of share dealers. Readers who could not easily fathom the gravity of the chicanery because they knew nothing about this type of business were helped by references to well-known stories.

Financial drama

The book will definitely have provided entertainment, not to mention a little opportunity for gloating. It was published shortly after the stock exchange crisis of 1688, caused by fear of the consequences of Dutch stadholder William III’s invasion of England, which evolved into the Glorious Revolution. Everyone in Amsterdam—and particularly the members of the Portuguese Jewish community, for whom Confusión de confusiones was intended—must have known people who lost money in the 1688 crisis. Speculation about how big a hit certain dealers had taken would have been on everyone’s lips. De la Vega jumped on this bandwagon very cleverly. The wailing of the merchant, the philosopher, and the share trader, who all suffered losses when the price plummeted in 1688, would have sounded very familiar to the readers. When it came to the unfortunate transactions of the merchant, philosopher, and shareholder, people who were not personally active on the exchange and who in previous years had seen businessmen grow rich without needing to make much effort, could chuckle to themselves about the greed of the dealers and the bruising fall that many of them subsequently took.

Joseph de la Vega described the beginning of the crisis as follows: ‘The bears sounded the trumpet, and shouted that war would be declared, and they roared so loudly that the bulls were appalled by the reverberations.’ Everyone wanted to sell in the panic that ensued.

But, as some people wanted to sell in order not to lose still more [than they already stood to lose], others to avoid any loss at all, others again in order still to gain something, the selling became general, and dejection supervened everywhere. Those who were compelled to take delivery [of shares contracted for earlier], sold again in order to be able to cover their obligations. He who was in the possession of hypothecated shares sold them because their value had sunk under the amount of the sum borrowed [to carry them]. He who had bought sold lest he should lose even more, and sold still more in order to make up for the [earlier] loss. The few sellers who had already sold short [purposefully] caused a further fall of the prices, encouraged by the prospect of a profit and seeking to exploit their luck. In the end people went begging with the shares [as it were], as if one asked alms of the [prospective] purchaser. Such a panic, such an inexplicable shock was produced that the whole world seemed to crumble, the earth to be submerged, and the heavens to fall.

The bits of advice in Confusión de confusiones are general, somewhat shallow truths. For example, the share trader says that people should ‘take every gain without showing remorse about missed profits, because an eel may escape sooner than you think. It is wise to enjoy that which is possible without hoping for the continuance of a favorable conjuncture and the persistence of good luck.’ Further on he adds: ‘Whoever wishes to win in this game must have patience and money, since the values are so little constant and the rumors so little founded on truth.’

The main selling point of Confusión de confusiones clearly was, and still is, the financial drama it renders. This places the work in the same genre as movies like Wall Street (1987) and, more recently, Money Never Sleeps (2010) and The Wolf of Wall Street (2013). These movies about today’s stock markets do not present a balanced picture of the business either, but what draws people are the suspense, the drama, and the intriguing stories of the trading floor.

Online editions

An abbreviated English-language edition of Confusión de confusiones, selected and translated by Hermann Kellenbenz, is available from HathiTrust. This book also features a good introduction on de la Vega’s work.

You can browse through the original 1688 edition on Google Books (see below).