Since the very beginning of financial time, since the very concept of shares trading bubbled up in the inspired minds of would-be traders and investors, there has been, somewhere within arm’s reach of that inspired mind, a hot cup of caffeine. History doesn’t seem to care whether that caffeine is tea or coffee or some other incantation of the stuff; the important lesson seems to be simply that it was there, in a cup, within reach. Yet while we take our Darjeeling and espresso quite for granted, it is well to remember that these products arrived on the European scene rather recently, compared with other equally popular brewed beverages. Yet for all the hops or grapes in the western world, one is hard put to place, with any precision, any single event whereby the hops or grape brews were integral to any revolution in the world’s financial markets.

Scotch has certainly had its place at many an important table. Treaties have been signed, battles have been waged and deals have been made by politicians the world over with wee drams of the stuff, caffeine having been nowhere in sight. And it’s an easy guess that the merchant adventurers who brought Europe the spice trades probably weren’t swigging cappuccino to keep warm in the roaring sixties round Cape Horn. Nevertheless, there exists a deep relationship between the consumption of caffeine, coffeehouses, and the creation of the modern financial markets.

The Chinese, throughout antiquity and present day, have surpassed the west in many things, one of which is apparently restaurants and teahouses. China had a booming tea house business as early as the Sung Dynasty (in Western years, that’s 960 to 1200ad).At about that time, the idea of selling shares to finance business may have had it’s first appearance in written record, in the formation of a trade delegation to Sri Lanka. But that bud didn’t reach full bloom until Europe, some 600 years later.

In the West, coffeehouses didn’t reach their modern form until the late 1600’s. Prior to that there was the odd inn or tavern, serving ale, mead or beer, which served a similar function to the modern coffeehouse; that of being a place of gathering and gossip, in addition to purveying of certain beverages. But we don’t see any real sort of leap toward modern financial markets occurring at the ale houses or beer gardens. Not until the advent of the spice trades do the principles of a modern market structure emerge — and then, in coffeehouses, over cups of coffee and tea.

Something special happens in coffeehouses. They have a certain life all their own. In a coffeehouse, all are welcome; and the price of admission is only a cup of joe. Anyone can sit and read, or talk, or play chess or whatever — away from the cares of the world, if only for a little while. There is a spirit of open communication in coffeehouses — and you’ll often hear political/religious/social topics argued about openly, sometimes heatedly, sometimes heatedly in many languages. Rarely do these conversations devolve into bukowski-esque melees. Writers write. Poetry readings happen. Musicians play. In short, coffeehouses have a sort of “spiritual life” that bars don’t come close to having. Arguably, coffee shops got their start and tradition from the merchant maritime folks who frequented them during lay overs working the ships of the spice trade.

The growth of successful merchant shipping in the 16th and 17th centuries meant the sudden availability of spices and teas. There was an explosion of interest in these commodities, particularly the drinkable ones, and some several thousand “coffee houses” opened in Europe between 1650 and the end of the century. They served coffee, tea, and hot cocoa, and were not unlike today’s trendy coffee shops — minus Internet terminals, frothy milk and acid jazz.

Notably in London there was Edward Lloyd’s Coffeehouse on Tower Street. It became a major hangout for merchant ship owners and maritime insurance agents, who would arrive in the morning, order a wake-me-up, and spend the day conducting business from their seats in the coffeehouse.

Around the same time in what would become the United States, several coffee houses opened in lower Manhattan — Notably the Merchant House Coffee House, and the Tontine Coffee House, several doors down. Merchant ship owners and maritime insurance agents frequented the two coffee houses, as did traders of bonds and stock. Traders, it is said, favored the Tontine.

Amidst the buzz of the coffee houses and passers by, a tree stood across the street. Beneath that tree, on May 17, 213 years ago, some 24 caffeine-addled street merchants got together and reached an extraordinary agreement: to regulate the nascent speculative markets. The Buttonwood Agreement, as it is called (named for the buttonwood tree), consisted of two sentences – and the honor and fidelity of the 24 merchant traders — sealed with hot shots of Tontine caffeine.

“We the subscribers, brokers for the purchase and sale of public stock do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day on for any persons whatsoever any kin of public stock at a less rate than one-quarter percent commission on the specie value of, and that we will give preference to each other in our negotiations.”

That the agreement has stood the test of time, and still exists today — albeit in much evolved form — is a testimony to the power and Esprit d’ Coeur found by those sharing mutual admiration of the caffeinated brew.

Several months later, in 1793, the group of 24 decided to make the Tontine Coffee House their official place of exchange. Later they formed the New York Stock & Exchange Board, and eventually changed its name to what it is now, the New York Stock Exchange.

Around this same time in London, Edward Lloyd’s Coffee House on Tower Square came up for sale. A consortium of customers, aficionados of the caffeinated brew (they were also professional insurance underwriters in the merchant maritime trade) bought it, and changed the name of the coffeehouse to Lloyd’s of London.

That these venerable institutions still exist today is a testament to the vision of the founders. Or is it really a testament to the power of caffeine?

The irony is of course that these institutions no longer serve the stuff. Now one would be hard pressed to find hot caffeine for sale in any financial institution, whereas the Starbucks of this world gather like locusts on every corner, their incessant buzz driving one to distraction. Conducting business in a Starbucks is nigh impossible; they are machines designed to get you in and out, with an average of $6 spent. Clearly, in this market, those who might revolutionize the structure of the financial marketplace have better places to be.

But in those intervening years — the time since the coffeehouses stopped selling their wares, became exchanges and now — there has been curiously little market structure evolution. Until very recently, the market structure has continued upon the course set by those original founders some 200 years ago.

Recent events, however, have thrown the traditional market structure on its ear. I am of course referencing the sudden rise of electronic, automated, internationally networked markets. And here, in the new networked electronic markets, we can smell the caffeine yet again. One has only to look at the very start of modern networking to understand.

The early network programmers and engineers were indeed aficionados of the brew. In fact, one of the original and earliest implementations of the Internet was a live camera, set up in the computer lab at MIT, monitoring the coffeepot located downstairs. That way, the budding engineers wouldn’t waste valuable moments going downstairs only to find the pot empty. These computer engineers, who considered the maintenance of their caffeine consumption so important, became the very architects of the modern financial markets. It is their legacy that today drives the NYSE to merge with Archipelago, not to mention the NASDAQ and all the pools of liquidity it has consolidated. Perhaps the latest caffeine-driven financial marketplace revolution will, like the structural marketplace revolutions of the past, cross the pond in the very near future. When the NYSE Group merges with the London Stock Exchange. There is no evidence whatsoever that this will happen, of course, just this single author’s caffeine addled imagination.