Curious about who set the foundation for one of the most recognized benchmarks in the financial world? This article dives into the creators behind the Dow Jones Industrial Average, explores its original purpose, and traces its transformation over time. Along the way, I’ll walk you through real-world examples, reveal some behind-the-scenes industry stories, and even compare how "verified trade" standards differ worldwide, all from a practical, hands-on perspective.
Let’s be honest, before I got into finance, “Dow Jones” sounded more like a person’s name than a financial index. But when I started working at a boutique investment firm, I quickly realized everyone—from the ultra-rich to my neighbor’s dog walker—talked about “the Dow” as if it were some magical number. But where did this number come from, and who was the mastermind behind it?
Turns out, the story is way more human and quirky than you might expect, and it says a lot about how we measure economic health and business confidence today.
Back in the late 19th century, Wall Street was a chaotic place. Financial information was slow, spotty, and packed with rumors. Into this environment stepped Charles Dow and his business partner Edward Jones. Both were journalists—yes, journalists—who believed that ordinary investors deserved reliable, digestible market data.
Charles Dow, the more well-known of the pair, saw an opportunity to synthesize all the market noise into a single, trustworthy number. Edward Jones, his quietly brilliant colleague, handled much of the behind-the-scenes analysis. Together, they started The Wall Street Journal (WSJ) in 1889, which quickly became the go-to source for business news.
The first Dow Jones Industrial Average (DJIA) was published on May 26, 1896, consisting of just 12 stocks, mostly industrial—think railroads, cotton, tobacco, gas, sugar. The average started at 40.94 points. Here’s the original lineup (I once tried to recreate this portfolio for fun—turns out, only General Electric would be familiar to modern investors!).
If you want to geek out and calculate the original DJIA by hand, it’s simple: add up the closing prices of the 12 stocks and divide by 12. That’s it. No fancy math, just a straight average. Of course, over time, stock splits and substitutions made it more complicated, but the core idea remains: create a snapshot of industrial America.
Here’s a quick breakdown:
At first, the DJIA was mainly about heavy industry, which made sense as America was building its infrastructure. But over time, as the economy shifted towards services and technology, the index evolved. Companies like IBM, Apple, and Microsoft eventually replaced old names like American Sugar and U.S. Leather.
I once interviewed a market historian, Dr. Lisa Campbell (you can hear her on the Marketplace radio show), who pointed out that the DJIA is “less about what’s hot right now, and more about what defines American business leadership over the long haul.” She explained how the index committee (now managed by S&P Dow Jones Indices) carefully selects companies to reflect large, influential sectors.
A memorable moment: when Apple replaced AT&T in 2015, and later, General Electric—the last original member—was dropped in 2018. This wasn’t just a numbers game. It was a heated debate within the index committee, reflecting America’s shift from manufacturing to tech and services.
I followed this story through Reuters reports and industry forums. Some traders cheered, others worried it meant the DJIA was losing its “industrial” soul. But the data was clear: by then, tech firms were driving market growth, and it would have been out of touch not to include them.
Since the DJIA’s creation, definitions of "verified trade" (think: how different countries confirm and report official transactions for indices or trade statistics) have evolved dramatically. Here’s a table I pulled together after comparing regulations for a compliance project:
| Country/Region | Standard Name | Legal Basis | Enforcement Body | Notable Features |
|---|---|---|---|---|
| USA | Securities Exchange Act (1934) | SEA 1934 | SEC | Strict reporting for public companies; indices like DJIA rely on SEC-verified data |
| EU | Markets in Financial Instruments Directive (MiFID II) | Directive 2014/65/EU | ESMA | Harmonized standards for trade reporting; pan-European databases |
| China | Securities Law of the PRC | Revised 2019 | CSRC | Centralized review, government-led data verification |
| Japan | Financial Instruments and Exchange Act | FIEA 2006 | FSA | Stringent auditing, frequent public disclosures |
What’s fascinating (and sometimes frustrating) is how a U.S.-centric index like the DJIA depends on SEC-verified trades, which can differ from European MiFID II requirements. Market data vendors have to harmonize these for global investors—something I learned the hard way during a cross-border reporting project!
I once asked industry veteran Mark Hanley (who’s worked at S&P Dow Jones Indices) about the DJIA’s relevance. He admitted it’s “not the most scientific gauge” by modern standards—after all, it’s price-weighted, not market cap-weighted like the S&P 500. But as he put it, “There’s a reason CNBC and Bloomberg flash the Dow every hour—it’s a cultural touchstone. It tells a story about American business, even if the story has plot holes.”
And honestly, after years of tracking indices for clients, I agree: The DJIA is a living, evolving symbol, not just a mathematical formula.
So, to circle back: Charles Dow and Edward Jones weren’t just creating a number—they were building a bridge between Wall Street and Main Street. Their index has survived economic crashes, booms, wars, and revolutions in technology. Even if you don’t trade stocks, understanding its origins helps you see how financial information shapes public perception.
If you’re digging deeper into indices, my advice is to always ask: Who’s behind the numbers, what standards are being used, and how do they stack up globally? If you want to see the raw data or compare verification rules, the official sources above are a goldmine. And if you ever mess up a calculation, like I did, just remember: even the pros started with pencil and paper.
Next steps? Dive into the world of indices—compare the DJIA to the S&P 500 or the Nikkei 225, or check out how different countries define and verify “official” trades. The story’s still being written, and you’re part of it every time you check the markets.