The Emergence of the London Stock Exchange as a Self-Policing Club
by Edward P. StringhamTags: financial history, self-governance, self-regulation
Edward Peter Stringham. The Emergence of the London Stock Exchange as a Self-Policing Club. Journal of Private Enterprise 17.2 (Spring 2002):1-19.
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.JEL Classification: MPRA paper