The Emergence of the London Stock Exchange as a Self-Policing Club
Journal of Private Enterprise, Vol. 17, No. 2, pp. 1-19, Spring 2002
17 Pages Posted: 16 Sep 2010 Last revised: 27 Jan 2021
Date Written: 2002
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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