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

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  • Edward Stringham

    (George Mason University)

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Edward Stringham, 2002. "The Emergence of the London Stock Exchange as a Self-Policing Club," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 17(Spring 20), pages 1-19.
    • Handle: RePEc:jpe:journl:126
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    References listed on IDEAS

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    More about this item

    Keywords

    Law enforcement; Contracts; Financial market; Institutional evolution; Stock exchange; Private ownership; Freedom; Competition; Government policy;
    All these keywords.

    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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