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The Emergence of the London Stock Exchange as a Self- Policing Club

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  • Stringham, Edward

Abstract

In the early stock market in London there were substantial risks of non-payment and fraud. (Mortimer, 1801) According to Hobbesian theory, we would expect stock markets to develop only after government has implemented rules and regulations to eliminate these problems. The historical account, however, provides evidence that solutions to these problems did not come from the state. This article outlines the emergence of the London Stock Exchange, which was created by eighteenth century brokers who transformed coffeehouses into private clubs that created and enforced rules. Rather than relying on public regulation to enforce contracts and reduce fraud, brokers consciously found a way to solve their dilemmas by forming a self-policing club.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25415.

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Date of creation: 2002
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Handle: RePEc:pra:mprapa:25415

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Keywords: financial history; self-governance; self-regulation;

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References

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  1. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
  2. Jan Allen Kregel, 1994. "The Evolution of Securities Market Organisation," Working Papers 189, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Benson, B.L., 1993. "The Impetus for Recognizing Private Poverty and Adopting Ethical Behavior in a Market Economy: Natural Law, Government Law, or Evolving Self- Interest," Working Papers 1993_04_02, Department of Economics, Florida State University.
  4. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.
  5. Bryan Caplan & Edward Stringham, 2003. "Networks, Law, and the Paradox of Cooperation," The Review of Austrian Economics, Springer, vol. 16(4), pages 309-326, December.
  6. Cowen, Tyler, 1992. "Law as a Public Good: The Economics of Anarchy," Economics and Philosophy, Cambridge University Press, vol. 8(02), pages 249-267, October.
  7. Edward Glaeser & Simon Johnson & Andrei Shleifer, 2001. "Coase Versus The Coasians," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 853-899, August.
  8. Macey, Jonathan R & O'Hara, Maureen, 1999. "Regulating Exchanges and Alternative Trading Systems: A Law and Economics Perspective," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 17-54, January.
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Citations

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Cited by:
  1. Powell, Benjamin & Stringham, Edward, 2009. "Public choice and the economic analysis of anarchy: a survey," MPRA Paper 26097, University Library of Munich, Germany.
  2. Bryan Caplan & Edward Stringham, 2003. "Networks, Law, and the Paradox of Cooperation," The Review of Austrian Economics, Springer, vol. 16(4), pages 309-326, December.
  3. Boettke, Peter, 2011. "An Anarchist's reflection on the political economy of everyday life," MPRA Paper 32374, University Library of Munich, Germany.
  4. Paul Aligica, 2007. "Uncertainty, human action and scenarios," The Review of Austrian Economics, Springer, vol. 20(4), pages 293-312, December.
  5. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.
  6. Edward Stringham & Todd Zywicki, 2011. "Rivalry and superior dispatch: an analysis of competing courts in medieval and early modern England," Public Choice, Springer, vol. 147(3), pages 497-524, June.
  7. Virgil Storr, 2011. "On the hermeneutics debate: An introduction to a symposium on Don Lavoie's “The Interpretive Dimension of Economics—Science, Hermeneutics, and Praxeology”," The Review of Austrian Economics, Springer, vol. 24(2), pages 85-89, June.
  8. Paul Aligica & Anthony Evans, 2009. "Thought experiments, counterfactuals and comparative analysis," The Review of Austrian Economics, Springer, vol. 22(3), pages 225-239, September.
  9. Solomon Stein & Virgil Storr, 2013. "The difficulty of applying the economics of time and ignorance," The Review of Austrian Economics, Springer, vol. 26(1), pages 27-37, March.
  10. Boettke, Peter, 2011. "Anarchism and Austrian economics," MPRA Paper 33069, University Library of Munich, Germany.
  11. Norberg, Peter, 2006. "From Passive Aristocracy to Ethical Activity: Self-regulation in the Swedish Financial Market," Working Paper Series in Business Administration 2006:4, Stockholm School of Economics, revised 10 May 2006.

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