Hello, welcome to the Investor’s Bookshelf. In this session, we are going to review The Great Game. This book uses Wall Street as its main thread to showcase the entire development process of the U.S. capital markets. Through the history of Wall Street told in the book, we can see that economic development cannot be separated from the support of capital markets. The history of Wall Street is also a microcosm of American financial and economic history.
Today, Wall Street is undoubtedly the most important financial center in the world, and the United States is recognized as a leading global power. But if we roll the clock back 350 years, Wall Street was just an ordinary street, and the U.S. was merely a colony striving for independence. After more than three centuries of development, the U.S. became a global superpower, and Wall Street, along with the nation, stepped onto the world stage. What was once a small street evolved into a force that could influence not only the U.S. economy but the entire world. In America’s rise as a superpower, the capital power represented by Wall Street played an indispensable role. Whether it was financing for the Union during the Civil War, or fueling the first wave of heavy industrialization brought by railway construction, Wall Street made immense contributions. In the 1980s, when the U.S. successfully transitioned to the new economy, Wall Street again played a crucial role. We can say that the development of a nation’s economy is inseparable from capital markets. To deeply understand America’s rise, one must understand the development of Wall Street.
The Great Game mainly tells the story of the ups and downs of various players on Wall Street over more than three centuries, as well as the evolution of its rules. There were ugliness and nobility, bitterness and glory. Through this great game, Wall Street grew from an ordinary street into the world’s financial center. Its development is not only financial history and economic history, but also a living textbook for understanding and building capital markets.
The author, John Steele Gordon, comes from a family deeply tied to Wall Street—both his grandfather and great-grandfather were Wall Street players—and he himself has a passion for financial history. In this book, he adopts a chronological style, carefully laying out more than 300 years of Wall Street history. The advantage of this approach is systematic clarity, but the downside is that it can feel fragmented, with no obvious focus. If you miss the key points, you may feel as though you’ve read a series of stories without understanding why Gordon calls this the “Great Game.” But don’t worry, I will highlight the main points for you. In fact, though 350 years is a long time, once we uncover the underlying logic, the trajectory of Wall Street’s development becomes much clearer. Following this thread, we can understand what great struggles Wall Street has gone through, how it rose alongside the United States to become the global capital market center, and why Gordon considers this game “great.”
In general, Wall Street’s development can be divided into three stages:
- From nothing to something, from small to large, paralleling America’s rise from wilderness to world power.
- Transformation into the world’s financial center, while the U.S. solidified its position as a global superpower.
- Continuous self-revolution and innovation, allowing Wall Street and the U.S. to maintain their leadership in the world.
Part One
Let’s begin with the first stage: the birth and growth of Wall Street, and the role it played in America’s early rise.
We all know that the United States was once a wild, untamed new continent. This nation does not have a very long history, but by the early 20th century—around 1900—the U.S. had already become a major world power. Wall Street’s growth was not only rapid but also a kind of “barbaric expansion.” By “barbaric,” it doesn’t mean there were no restraints at all, but rather that there were very few rules and a high degree of freedom. Since America was a brand-new nation, it didn’t have the many barriers to economic freedom that existed in European countries. At that time in the U.S., if there wasn’t already a law explicitly forbidding you from doing something, you could go ahead and do it—until the government passed a law to ban it. Wall Street’s early development followed the same logic: initially, there were no rules at all; everyone competed freely. Only as the market grew did certain rules gradually emerge. Let’s now look at how Wall Street developed from nothing into something, from small beginnings into a large force.
Wall Street was born in 1653. At that time, the United States had not yet won independence, and New York was not even called New York—it was called New Amsterdam and was still a Dutch colony. The Netherlands was then the unquestioned pioneer of finance. Many professional financial terms that we still hear today—such as short selling, short squeeze, wash sales, matched orders, auctions, and market-making—were invented by the Dutch. Of course, they also created the “Tulip Mania,” the first financial crisis in human history. Thus, New Amsterdam was a colony with financial DNA. Later, when the British and the Dutch competed for territory in North America, the Dutch built a wall on the northern side of the settlement to defend the city. The little street next to that wall became known as “Wall Street.” Eventually, New Amsterdam fell into British hands and was renamed New York. The wall as a defensive fortification lost its significance, but Wall Street, which started from there, eventually became a world-class financial center.
From the very beginning, financial transactions on Wall Street mainly involved raising capital from the public. This was somewhat similar to what we now call “going public”—once listed, shares could be traded. But back then, there weren’t modern-day stocks; what people traded was closer to bonds. Since trading was possible, brokers soon emerged as a profession. But transactions were cumbersome—unlike today, when a few keyboard clicks suffice. At that time, investors had to rely on brokers to represent them in face-to-face trades. As trading activity increased, brokers naturally gathered at central meeting spots. To prevent ruinous competition, they agreed on standardized commissions. Under a buttonwood tree where they often met, they signed the famous Buttonwood Agreement, fixing brokerage commissions at 0.25%. This was Wall Street’s first game rule, and for more than a hundred years, it was almost the only binding rule. This reflected Wall Street’s free-wheeling, almost lawless growth. Incidentally, many funds today use the name “Buttonwood Fund” to honor this historic agreement.
From those trades beneath the buttonwood tree began the legendary story of Wall Street and the American economy. With Wall Street, capital from the public could quickly be mobilized into promising projects, investment and construction gained financing channels, and economic development accelerated.
For example, the first true bull market in U.S. history was sparked by the rise of canal projects. At that time, America was still a young continent with almost no transportation network. New York, situated in the East, wanted to benefit from the great westward expansion, but it depended on waterways. Yet the rivers around New York were too narrow and unsuitable for large ships. What to do? The solution was to build the Erie Canal. Building such a canal was a massive project. If completed successfully, it promised great economic growth—but the funding gap was huge. The answer was to raise money publicly on Wall Street and essentially let the canal project “go public.” In this canal bull market, Wall Street demonstrated its powerful financing ability. As soon as the project began, even before the economy was stimulated, canal-related stocks soared. Shipping companies and canal operators went public, their stock prices rose, and any company tied to the canal benefited by attracting funds and expanding operations. This canal boom greatly increased Wall Street’s trading volume, turning it into one of America’s financial hubs. Meanwhile, the successful construction of the canal boosted New York’s population and economy, propelling it into the ranks of America’s leading cities.
After that, this cycle of mutual promotion between Wall Street and the economy repeated again and again. Especially after the First Industrial Revolution, the railroads boomed. Just like the canal era, railroad stocks led a new bull market. Wall Street grew busier, and the railroad network lifted both New York’s and America’s economy to new heights. After the railroad frenzy came the rise of manufacturing, with steel stocks becoming Wall Street’s new favorite. Later, as telephones and automobiles entered households, communication stocks and automobile stocks led fresh bull runs. Again and again, Wall Street allocated capital to fuel economic progress. From its birth in 1653 through nearly 250 years afterward, this pattern continued.
Through public fundraising, people voted with their capital. Chasing profits, investors always focused on the industries and enterprises with the greatest future potential. Over two and a half centuries, bull markets came and went, but Wall Street continuously pumped blood into the most advanced technologies. In this sense, Wall Street accelerated the realization of the American Dream and served as a catalyst and a key driving force of prosperity. As Wall Street’s trading volume grew and its ties to the world deepened, New York not only became America’s financial center but also gradually the world’s most important one. The U.S. itself rose from an obscure colony to a frontline global power.
Part Two
Did the United States then sail smoothly forward, advancing unimpeded on the road to becoming a world power? Not at all. Behind great development lurked great risks. Capital’s pursuit of profit meant that prosperity was always shadowed by crisis. Economic booms sparked speculative frenzy; after over-speculation came collapse; after panic and recovery, the cycle began anew. Both Wall Street and the U.S. economy went through round after round of alternating prosperity and crisis. Though the themes of speculation changed, the cycle itself remained constant.
Next, let us turn to the second stage of Wall Street’s development: how it transformed from freewheeling growth into a more regulated system, and how America leapt forward under this transformation.
As mentioned earlier, as a new nation, the U.S. had a natural instinct for free competition. Even after becoming a global financial center, it still had no central bank. Wall Street’s capital markets, aside from the minimal rule of the Buttonwood Agreement, essentially evolved through self-regulation and self-adjustment. For 150 years, America had no means of controlling monetary policy. When financial crises first appeared, early Treasury Secretary Alexander Hamilton advocated for active government intervention. Historically, both the First Bank of the United States and the Second Bank of the United States were established—institutions with central-bank-like functions. Unfortunately, Jeffersonian advocates of laissez-faire dismantled Hamilton’s system, preventing the establishment of a lasting central financial mechanism. Gordon comments that while Thomas Jefferson was an outstanding statesman, in economic affairs he was much less capable. Both the First and Second Banks of the United States were shut down by Jeffersonians. Thus, for 150 years, the U.S. lacked monetary-policy tools, leading to more violent economic swings than those seen in other countries.
When Wall Street was still just a street and the American economy not yet so vast and complex, those repeated cycles were manageable. But as Wall Street developed into a complex system and America became an essential player in the global economy, each boom-and-bust cycle turned into a storm. Each crash was worse than the last. Finally, in 1907, the country faced an unprecedented financial panic. Bank runs spread like wildfire, stock prices plunged, and both Wall Street and the nation teetered on the edge of the abyss. Laissez-faire no longer worked. Wall Street faced a life-or-death crisis. With no central bank, the U.S. government was helpless. It had to turn to the one man with the power to stabilize the situation—J. Pierpont Morgan, the “Son of Wall Street.”
Morgan’s influence at the time came not just from his immense wealth but also from his wisdom and integrity, which exceeded that of ordinary players. In the cutthroat market of Wall Street, he maintained that “credit is the most important asset,” and thus earned wide respect. In the face of the 1907 panic, Morgan stepped forward without hesitation. He acted as a de facto central bank, injecting liquidity into the market and organizing financial institutions to respond effectively. With his wisdom and authority, he managed to avert disaster. But this episode made both Wall Street and the U.S. government realize that depending on private financiers in moments of crisis was not a viable system. A true central bank was needed—to supervise institutions in normal times and to act quickly in crises. Thus, in 1913, the Federal Reserve was established. Incidentally, Morgan died that very year. Within twelve hours of the news of his death, more than 3,700 telegrams poured in from around the globe—testimony to his, and Wall Street’s, influence.
Not long after, World War I broke out. America became the rear base for Europe, and in this reshuffling of the world order, the U.S. enjoyed unprecedented opportunity and prosperity. Wall Street, too, became the center of the global financial system. But prosperity was followed by an equally unprecedented crisis: the crash of 1929, the most famous collapse in U.S. and even world economic history.
To understand it, we must first discuss the era’s “margin trading.” What did that mean? It meant you didn’t need to pay the full 100% for stocks. With just 10% down as margin, you could buy. The other 90% was borrowed from financial institutions, which charged only daily interest, while all stock gains were yours. For example, with $100,000, you could buy $1 million worth of stock. After WWI, the U.S. economy was booming. The stock market soared. Between 1921 and 1929, the Dow Jones rose more than 400%. Even mediocre stocks rose 40%. On $1 million worth of stock, that meant $400,000 profit—four times your $100,000 initial margin—while interest costs were negligible compared to bull-market gains. Like a lever, a small amount of force could move great weight.
But what if prices fell? Then you lost your real money first. Once losses hit the margin line, brokers would call you to put up more margin. If you couldn’t, they’d forcibly sell your stock—“forced liquidation.” In a bull market, few worried about this. Margin buying inflated trading volumes, making bull peaks far higher than without leverage. But as the saying goes, “the higher you climb, the harder you fall.” When such a leveraged bull market inevitably turned into a bear, the crash was far worse.
On October 24, 1929—“Black Thursday”—the bull turned to bear. At the open, stocks plummeted. In the past, a market dip wasn’t fatal. But now, with almost everyone leveraged, things spiraled. As prices fell, many investors couldn’t meet margin calls, forcing brokers to liquidate. Forced selling drove prices further down, triggering more forced sales—a vicious cycle. Financial institutions dumped stocks, and other investors panicked, rushing to sell in a stampede. Prices went into free fall. In just two weeks, $30 billion in wealth evaporated—equal to the U.S.’s entire WWI expenditure.
The crash was swift and brutal. The Federal Reserve, just a few years old, lacked experience. And unlike 1907, there was no Morgan-like titan to rescue the market. Disaster was inevitable.
After the crash, chaos engulfed Wall Street and the U.S. economy. Banks collapsed, factories shut down, workers lost jobs. America entered the largest, longest, and deepest depression in modern history. From 1929 to 1933, 5,000 banks failed, at least 130,000 businesses went bankrupt, and the economy fell back by a decade. This was the Great Depression. Economists still debate whether the stock crash caused the depression or was merely part of it. But the undeniable fact is that this disaster taught Wall Street a heavy lesson.
If there was a silver lining, it was that Wall Street and the government now recognized both the immense power and the fragility of capital markets. They realized that even a central bank alone was not enough. Comprehensive, sustained regulation of Wall Street was urgent. After much pain, a series of laws was enacted: the Emergency Banking Act, the Securities Act, the Trust Indenture Act, and the Investment Company Act. This flurry of legislation brought comprehensive regulation. These laws profoundly shaped Wall Street, and many became models for other nations. With WWII bringing fresh opportunities, Wall Street prospered again.
With clear rules, Wall Street’s status as world financial center was solidified. Over the following decades, it evolved steadily within a regulated framework. Two names must be mentioned. One is Charles Merrill, founder of Merrill Lynch. Seeing that Wall Street was becoming more orderly, he pioneered professional consulting services for clients. Merrill Lynch soon became the world’s largest brokerage. The other is Benjamin Graham, the famed “Father of Wall Street” and Warren Buffett’s teacher. His books Security Analysis and The Intelligent Investor remain classics. Their success showed that on regulated Wall Street, speculation was giving way to rational investment. Investing became a systematic science. With Wall Street leaving its barbaric phase behind, America too entered new development. By the late 20th century, with WWII scars fading and the Cold War easing, the U.S. was the strongest nation on earth, and Wall Street stood as the unrivaled capital center.
Part Three
Now, if we compare the capital market to the solar system, then Wall Street is the sun. Having stepped into the center of the world stage alongside the United States, how could Wall Street maintain its leading position? Let’s look at how it evolved further, and how it became a crucial factor in America’s continued dominance.
To talk about Wall Street’s evolution, we must mention the rise of the fund industry and the institutionalization of capital markets. As markets became increasingly standardized and scientific, making money required more professional knowledge. Individual investors—what we call retail investors—became less and less important. Gradually, Wall Street gave birth to a new sub-industry: “funds.” More and more individuals invested through funds, entrusting their money to professionals. Instead of directly buying stocks, ordinary people bought fund shares. Fund managers pooled this capital and managed it collectively.
Since retail investors were generally no match for professionals, the more funds there were, the harder it was for individuals to compete. More people turned to professionals. This feedback loop strengthened the trend: more funds, more institutional investors, fewer influential individuals. Gradually, the mainstream players in the stock market became institutional investors such as fund managers, who held far larger pools of capital and made decisions more scientifically.
This institutionalization showed that Wall Street had reached maturity. On one hand, a more professional investor base and a more mature market attracted companies from around the globe to list and trade there. On the other hand, new financial products and investment strategies flourished. Finance began to integrate with engineering and mathematics, giving rise to “financial engineering,” a new science of investment. Wall Street became the frontier of financial innovation, reinforcing its role as the global center.
In this new stage, Wall Street continued its embrace of science and technology—just as it once backed canals, railroads, steel, and manufacturing. Investors still favored future-oriented technologies and innovative companies with huge potential. Why did IBM, Microsoft, Apple, and Google grow so large and strong, so quickly transforming technologies into products? Wall Street played a major role. At the dawn of the information revolution, it was Wall Street and the capital markets that kept channeling funds into companies like Microsoft and IBM. These firms attracted enormous investment, their stock prices climbing year after year.
In the 1990s, as the Internet wave surged, new players like Amazon, Yahoo, and Google raised capital on Wall Street, fueled by investors’ fervor, and rose to the top of the era. Though The Great Game ends in 1999, in the 21st century Wall Street has continued to innovate and reinvent itself. Apple, Facebook, and even China’s Alibaba have all demonstrated astonishing growth—again, with Wall Street’s capital support behind them.
Conclusion
That brings us to the end of 350 years of Wall Street history. Let’s recap. From its birth, Wall Street experienced a period of “barbaric growth,” transforming from a small street into a financial center, as America rose into a world power. Then, financial crises forced regulation; Wall Street became the sun of the global financial galaxy, and America became a superpower. Finally, in the regulated, orderly era, institutional investors replaced retail traders as the market mainstream, and Wall Street continued to evolve, embracing science and technology.
In this history, we clearly see the great role finance has played in economic development. Without finance to fund canals, railroads, and steel, how many decades longer would it have taken America, once a wilderness, to industrialize? Without finance, how could telephones, automobiles, and other electrical products have spread so quickly, electrifying the nation? Without finance, could giants like Microsoft or IBM have emerged at the dawn of the information age? Without finance, could Amazon, Apple, or Facebook have risen so fast in the Internet era?
Indeed, finance never directly creates wealth. But it is the lubricant, the catalyst, the fuel for economic development. It channels resources into the industries of the future, making dreams real sooner. Every era has its frontier technologies and dreams—be it canals, railroads, steel, automobiles, Microsoft in the 1970s, Google in the 1990s, or Facebook after 2000.
Finance’s tireless pursuit of profit may make the game feel cold and ruthless. Yet its “money never sleeps” nature ensures that it remains most sensitive to future technologies and innovations that drive social progress. This exciting game ensures that capital always flows to the cutting edge, powering dreams, accelerating technological advance, and pushing society forward. In this sense, finance deserves its crown, and Wall Street its place as the jewel in that crown.
As Gordon wrote in The Great Game: “Despite countless beaches, humanity still sails to sea. In the same way, despite countless market crashes, people will continue to enter the market, diligently buying low and selling high, investing their capital with hope for a better future, to take part in this great game.”