The Rise (and Retreat) of a Market: English Joint Stock Shares in the Eighteenth Century

The market for joint stock shares in eighteenth-century England is often portrayed as an underdeveloped and flawed mechanism for resource allocation, which in turn is cited to explain the paucity of shares actually traded. This article questions that interpretation, both by inquiring whether the requisite institutions for a functional market were present, and by constructing a new time series of eighteenth-century share prices and exposing them to a test of the efficient markets hypothesis. Because the stock exchange is found to exhibit most of the conventionally defined characteristics of an effective market, the article concludes by outlining the case for skepticism with respect to a common theme in economic history: the idea that the purported superiority of market resource allocation over alternative non-market forms (in the absence of rigidities due to underdevelopment or government interference) is an unambiguous conclusion in every historical context.