Look at the chart below. Which of these two countries was the better investment?
The chart shows the returns on the St. Petersburg Stock Exchange and the New York Stock Exchange from 1865 to 1917 (the data is in U.S. dollar terms and excludes dividends). During that period, Russia clearly outperformed the United States.
Russia was a big â??emerging marketsâ?ť development story in the late 1800s and early 1900s. It had around the sixth-largest stock market in the world and was a major recipient of foreign loans and investment, especially from France.
Then the Great War occurred between 1914-1919.Â Wall Street closed for six months and European markets shut down. The St. Petersburg Stock Exchange opened briefly in 1917, but when the Communists under Lenin took over, the old St. Petersburg Stock Exchange building, founded in 1865, was closed and eventually became a naval museum.
Karl Marx labeled publicly traded securities â??fictitious capital,â?ť and one of the first things the Bolsheviks did when they took over was to close the stock exchange as a case of the â??vulgarâ?ť economy of the â??reactionaryâ?ť bourgeoisie. Russian citizens, rich and poor, lost millions.
To read the rest of “What Happens to the Stock Market When the Communists Take Over,” please click here.