Why is New York City the “financial capital of the world”?

eco : Why-is-New-York-City-the-financial-capital-of-the-world – balaji

Answer by Balaji Viswanathan:

Money follows trade – as in physical goods. World's great financial centers are all amazing ports – New York, London, Singapore, Amsterdam, Mumbai, Hong Kong, Tokyo and Shanghai. The ports brought a lot of trade minded people and commerce grew out of this. Banks were then found to help the traders, finance their trips & consignments. Stock markets then were founded later for traders to not just trade physical goods, but whole companies.

You don't create a financial system without a port. Never.

The port town

New York Harbor is one of the largest natural harbors in the world. Such ports are rare and very important as it allowed large ships to come and drop their stuff & pick up new stuff.  New York quickly grew as the main entry point into the US after a permanent settlement was made in 1624. By the time US became independent from Britain, New York was already the commercial capital. In fact, it was the national capital between 1785 and 1790 and saw the inauguration of George Washington.

Then in 1825, the Erie Canal was constructed from New York to Chicago that allowed ships directly to come to the great lakes. This was a watershed event in US history that dramatically changed its economy. New York used this growth to become the largest city, eclipsing Philadelphia.

The Banking Industry

As the merchants were busy shipping goods, they needed financing. One of the oldest banks in the US, Bank of New York, was founded in 1784. Then in 1792, 24 traders entered into an agreement under a buttonwood tree in a street named Wall Street. Until then, it was a street for trading slaves. This Buttonwood Agreement allowed for freer trade with minimal commissions. This arrangement grew to be to the New York Stock Exchange & the street became the world famous "Wall Street".

As the shipping sometimes was risky, an insurance industry was needed. In the middle of the 19th century, insurance industry started getting created around New York.

Jewish Immigration from Bavaria

Complementing the commercial banks created by JP Morgan and others, were the investment banks founded by the immigrant jews.  In the early 1800s, Jewish people were pushed out of Bavaria in Germany due to a series of discriminatory laws. 

These Jewish people headed off to the US in large numbers and many of these new immigrants were well versed in finance. The ones immigrated from Bavaria was specially very good at this. Many of them set shop in New York City – their entry point into the US and where the discrimination was relatively less than the rural areas. History of the Jews in New York City

There was this guy named Marcus Goldman, who came as a poor immigrant peddling goods on a horse cart. He was then joined by his son in law Samuel Sachs to create a major investment bank. Then there was a cattle merchant named Henry Lehman, who started an investment bank with his brother Emmanuel.
History of investment banking in the United States

After this point, things started spiralling. Having the stock market, harbor, investment banks and traders made New York the place to be for anyone looking to raise money or invest money.

Why is New York City the "financial capital of the world"?


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