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

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 Peter, The Emergence of the London Stock Exchange as a Self-Policing Club (2002). Journal of Private Enterprise, Vol. 17, No. 2, pp. 1-19, Spring 2002, Available at SSRN: https://ssrn.com/abstract=1676253

Edward Peter Stringham (Contact Author)

Trinity College ( email )

Hartford, CT 06106
United States

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