Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

Invention of Capitalism (1600s) Beginning with the Dutch, the development of publicly available and popularly used equity markets allowed savers to effectively transfer their buying power to entrepreneurs who could put that buying power to productive and profitable use. This significantly improved the allocation of resources and was stimulative to economies because it produced new buying power. It also produced the capital markets cycles. While there were many elements involved in the creation of capitalism, a series of related economic and financial developments—most notably the developments of publicly traded stock and bond markets such as the opening of the Amsterdam Stock Exchange in 1602 and the Bank of England’s first government bond issuance (to fund the war with France) in 1694—are associated with it. Along with the advances of the Scientific Revolution, the invention of capitalism was a key reason behind the shift from slow real GDP growth to the faster growth, as seen in the chart I showed in Chapter 1.