Stock Market Capitalization over the Past 250 Years:
The Dominance of the Anglo Countries
Bryan Taylor, Chief Economist, Global Financial Data
Global Financial Data has collected information on stock market capitalization over the past 250 years. We have aggregated this data for 20 of the largest countries in the world to analyze how their share of global market cap has changed over time. Figure 1 shows each country’s share of GDP as a percent of the world’s total market capitalization since 1782. What we have discovered is that geopolitics and capital controls directly impact private investment and production. Market capitalization increases when entrepreneurs are free to invest in markets and falls when they are not.
The two countries which have represented the majority of global stock markets during the past 250 years are the United Kingdom (orange) and the United States (yellow). Other countries that have represented a significant portion of world market cap are India in the early part of the 1800s, France and Germany before World War I, Canada after World War II, Japan at the end of the 1900s and China in the 2000s. Let’s discuss these countries and discuss how their share has changed over time.
Figure 1. Distribution of Market Capitalization by Country from 1784 to 2023
Stock Market Capitalization in the 1800s
Before the Napoleonic Wars (1793-1815), there were only four countries with active stock exchanges: the United Kingdom, France, the Netherlands and Denmark. During the Napoleonic Wars, France forced all corporations to close down, and the Dutch East India declared bankruptcy in the 1790s after it had dominated global trade for almost two centuries. At the same time that stock exchanges closed in France and the Netherlands, they opened in Ireland and the United States. The first corporation, the Bank of North America, was founded in the United States in 1782, but trading on exchanges didn’t begin until the 1790s when the Bank of the United States was founded.
When Figure 1 begins in 1800, the United Kingdom was almost the only country in Europe with stocks trading on a regular basis. Although India represented about 10% of market cap, this was the British East India Co. which traded in London. If you combine the United Kingdom and India (and Ireland) as a single country, they would represent 90% of global stock market capitalization. The only other country with any significant market cap was the United States.
During the early 1790s, the first canal bubble occurred in England, bringing over 100 new canals into existence in Britain, and pushing some canal stocks up to four times par before the market collapsed. A second canal bubble occurred in 1811. In 1825, the South American Bubble occurred and in the 1840s, railway mania struck Britain and the rest of Europe. Each of these events increased the number of companies that was listed and the market cap of those companies, both in absolute terms and as a share of GDP.
In 1815, Britain and India represented 82% of global market cap and the United States 13%. After Napoleon was defeated in 1815, Europe enjoyed 100 years of peace during which government debt declined and stock market capitalization rose. After the Napoleonic Wars, government debt in Britain was over twice GDP while stock market capitalization was one-tenth of that. By 1914 when World War I began, market cap in Britain was over twice GDP while government debt was 40% of GDP. This is shown in Figure 2. Market cap increased from £339 million in 1815 to £14,320 million in 1914. However, as can be seen in Figure 1, Britain’s share of global market cap shrank from 70% of global market cap to 40% between 1814 and 1914. This occurred because the market cap of non-British companies, especially the United States, France and Germany, grew even faster than British market cap. Since 1914, Britain’s share of global market cap has continually shrunk until today, it is less than 5% of global market cap.
Figure 2. United Kingdom Market Capitalization and Government Debt as a Share of GDP, 1694-2023
In 1801, the Banque de France was established, and French stocks began trading once again after the stock exchanges had been closed during the French Revolution. During the next few decades, stock exchanges were established in most European countries. Banks were established in most countries, and then in the 1830s, railroads were built to link European markets together. The market cap of railroads exploded in the 1840s, but then collapsed after 1845. European countries began to encourage corporations to form and expand, and by the time that World War I began, stock market cap exceeded government debt in most European countries. Both Germany and France showed large increases in the size of their markets. Austria-Hungary and Russia also grew rapidly. By 1873, most European countries were on the gold standard and exchange rates were fixed between each country. This enabled the United States, Russia and other countries to issue stocks and bonds to build the infrastructure of their economy using capital from other European countries to enable their countries to grow. When gold was discovered in South Africa at the end of the 1800s, capital flowed into South Africa as well.
Almost every country in the world saw rapid growth in stock markets in the decades prior to the outbreak of World War I. Most countries were on the gold standard and capital could flow freely from one country to another, in part by buying and selling stocks and bonds. There was truly a global market where returns were similar between countries because capital sought out the best companies to invest in. In 1914, the United Kingdom represented about 38% of global market cap and the United States about 28%. Both France and Germany represented about 9% of global market cap each. Russia, Austria, Belgium and Canada each represented between 2% and 3% of global market cap. All other countries represented less than 1%.
The Growth of the United States Stock Market
Then World War I began. Stock markets closed in almost every country in the world. During the next 65 years, market cap as a percent of GDP would hardly budge. In many countries, especially among those countries that participated in World Wars I and II, market cap as a share of GDP declined, as can be seen in Figure 3. Countries that became Communist, such as Russia, eliminated their stock market entirely. Between 1914 and 1945, the world suffered two world wars and the Great Depression. Attempts to return the world to its pre-World War I condition failed and by 1950, most of the major industries in Europe had been nationalized by the government, and markets were closed down in Eastern Europe. Many European governments rationalized that they had successfully managed the economy during World War II, so why shouldn’t they be able to do so during peace?
Figure 3. Stock Market Capitalization as a Share of Global GDP, 1800 to 2023
On the other hand, the market cap of the United States has continually increased over time, both in absolute terms and as a percentage of global market cap. At the end of 2021, it was over $50 trillion. The US market cap grew rapidly between the Civil War and the 1920s when not only were railroads built to unite the country, but new companies were founded in every sector of the economy. After World War I, American companies expanded overseas to increase their profits and the size of their market cap. Coca Cola became a global brand as did many other American companies. Even with the expansion in emerging markets and Asia during the twenty-first century, and US GDP shrinking to one-quarter of global GDP, the United States still represents over half of the global market cap. The internet and technological change have enabled the United States to expand its markets to the entire world. One would have thought that the United States’ share of global market cap would shrink over time, but instead it has remained fairly steady during the past 100 years.
The Anglo countries (the United States, the United Kingdom, Canada, Australia and New Zealand) continued to favor financial markets as a way of running the economy, but this was not true in continental Europe. During the 1950s and the 1960s, the Anglo countries represented between 85% and 90% of global market cap. In the 1970s, Anglo countries’ share of global market cap began to decline, in part because of the rise of Japan. Japan’s share of global market cap rose from 4% in 1970, to 15% in 1980 and to 42% in 1988. At that point, Japan’s market cap was greater than that of the United States. However, its market cap steadily declined from there as the Japanese market bubble burst. Today, Japan represents around 6% of global market cap, outranked only by the United States. China’s share of global market cap has risen from zero in 1990 to 14% today; however, many of China’s shares are not investible outside of China, and China represents only 3% of S&P’s Broad Market Index, about half of Japan’s share and about 5% of the United States’ share.
Figure 1 makes it obvious why an index of the World excluding the United States is so important. The United States represents about 50% of global market cap. The United States has outperformed the rest of the world during the twenty-first century, returning 2.51% per annum while the World excluding the United States has lost 2.28%. Although emerging markets have returned 3.98% in real terms since 2000, all of this gain came between 2000 and 2008.
Into the Twenty-First Century
The United States’ market cap is almost 200% of its GDP. The United States has a number of technology companies that have grown as a result of the spread of the internet and will take advantage of the spread of AI or any other new technology which comes along. The rest of the world benefits from this growth as the products developed in the United States are shared with the rest of the world. During the coming century, corporations from emerging markets will have a larger impact on the global economy and will spread throughout the world as American companies did in the twentieth century.
The lesson of the past two hundred years is that free markets foster growth. Restrictions on markets, as occurred between 1914 and 1981 in Europe limit growth. The United States has maintained its 50% share of global market cap despite all predictions to the contrary of America’s share of the global stock market shrinking. China’s recent efforts to control the stock market will limit its growth in the future. If other emerging markets want to continue to grow their stock markets and their economies, they should not place restrictions on their markets. With population shrinking in most of the developed world, it will be even more difficult to grow economies in the future. There was no growth in stock markets as a percentage of GDP between 1880 and 1980. We can only hope that, because of government restrictions, this will not be true of stock markets between 2000 and 2100.
