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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.

Suggested Citation

  • Stringham, Edward, 2002. "The Emergence of the London Stock Exchange as a Self- Policing Club," MPRA Paper 25415, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25415
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    Cited by:

    1. Paul Aligica, 2007. "Uncertainty, human action and scenarios," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 20(4), pages 293-312, December.
    2. Edward Stringham, 2014. "Extending the Analysis of Spontaneous Market Order to Governance," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(2), pages 171-180, June.
    3. Peter Boettke, 2012. "An anarchist’s reflection on the political economy of everyday life," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 25(1), pages 1-7, March.
    4. Andrew Young, 2015. "From Caesar to Tacitus: changes in early Germanic governance circa 50 BC-50 AD," Public Choice, Springer, vol. 164(3), pages 357-378, September.
    5. Benjamin Powell & Edward Stringham, 2009. "Public choice and the economic analysis of anarchy: a survey," Public Choice, Springer, vol. 140(3), pages 503-538, September.
    6. Boettke, Peter, 2011. "Anarchism and Austrian economics," MPRA Paper 33069, University Library of Munich, Germany.
    7. Stringham, Edward Peter, 2011. "Embracing morals in economics: The role of internal moral constraints in a market economy," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 98-109, April.
    8. Bryan Caplan & Edward Stringham, 2003. "Networks, Law, and the Paradox of Cooperation," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 16(4), pages 309-326, December.
    9. Norberg, Peter, 2006. "From Passive Aristocracy to Ethical Activity: Self-regulation in the Swedish Financial Market," SSE/EFI Working Paper Series in Business Administration 2006:4, Stockholm School of Economics, revised 04 Jan 2008.
    10. Solomon Stein & Virgil Storr, 2013. "The difficulty of applying the economics of time and ignorance," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 26(1), pages 27-37, March.
    11. G. Marcus Cole, 2007. "Law and Order Without Coercion," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 22(Spring 20), pages 37-70.
    12. 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;Society for the Development of Austrian Economics, vol. 24(2), pages 85-89, June.
    13. Peter Leeson, 2014. "Pirates, prisoners, and preliterates: anarchic context and the private enforcement of law," European Journal of Law and Economics, Springer, vol. 37(3), pages 365-379, June.
    14. Booth Philip, 2014. "Stock Exchanges as Lighthouses," Man and the Economy, De Gruyter, vol. 1(2), pages 1-17, December.
    15. Craig J. Richardson, 2012. "How Firms Can Build Trust When Products Have Hidden Characteristics," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 28(Fall 2012), pages 1-22.
    16. Sarah Skwire & Steve Horwitz, 2015. "Lady Pecunia at the Punching Office: Two Poems on Early Modern Monetary Reform," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 30(Spring 20), pages 107-120.
    17. Boettke Peter J. & Candela Rosolino A., 2014. "Alchian, Buchanan, and Coase: A Neglected Branch of Chicago Price Theory," Man and the Economy, De Gruyter, vol. 1(2), pages 1-20, December.
    18. 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.
    19. Walter BLOCK, 2016. "Anti-aircraft Missiles and Gun Control," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(2), pages 77-82, June.
    20. 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.
    21. Maria Eugénia Mata & J. R. Costa & David Justino, 2015. "Darwinian Natural Selection or Political Interference? A Political Economic History of the Lisbon Stock Exchange," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 30(Spring 20), pages 89-105.
    22. Paul Aligica & Anthony Evans, 2009. "Thought experiments, counterfactuals and comparative analysis," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 22(3), pages 225-239, September.

    More about this item

    Keywords

    financial history; self-governance; self-regulation;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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