1

From Market to Exchange,

1693–1801

Market Place
There existed in London a securities market long before a formal stock
exchange was ever established. As far back as the sixteenth century there
is evidence of the buying and selling of shares, belonging to the few joint-
stock companies then in existence. Though private negotiation between
owner and purchaser was the normal means by which sales were accom-
plished, the growth in both the capital and the investors involved did lead
to the use of public auctions. However, the ownership of shares remained
concentrated within a very small group of wealthy individuals, and so there
was little need for intermediaries to bring buyers and sellers together, and
no justification for expensive and elaborate markets where business could
be conducted on a frequent and regular basis. Typifying the time was the
existence of the scrivener who combined in himself all the functions that
would be performed later by the banker, lawyer, accountant, estate agent,
and stockbroker. Land not securities formed the basis of investment before
1700, and credit not capital the principal object of finance.1
It was really not until the late seventeenth century that changes began to
occur in the London securities market. There had already come into exis-
tence such substantial joint-stock companies as the East India Company
before a flurry of activity in the 1690s transformed both the number and
the capital. Before 1689 there were only around 15 major joint-stock com-
panies in Britain, with a capital of £0.9m., and their activities were focused
on overseas trade, as with the Hudson’s Bay Company or the Royal African
Company. In contrast, by 1695 the number had risen to around 150 with
a capital of £4.3m. Though foreign trade remained significant, there had
been a significant broadening of areas of interest, with domestic projects
rising to the fore, as with banking and water supply. It was in 1694 that
the Bank of England was formed.2
1
W. R. Scott, The Constitution and Finance of English, Scottish and Irish Joint-Stock Com-
panies to 1720 (Cambridge 1910–12), i. 44, 155, 161; A. C. Coleman, ‘London Scriveners
and the Estate Market in the Later Seventeenth Century’, Ec. H. R. 4 (1951/2), 230.
2
K. G. Davies, ‘Joint-Stock Investment in the Later Seventeenth Century’, Ec. H. R. 4
(1951/2), 288, 291–2; Scott, Constitution and Finance, i. 460.
16 FROM MARKET TO EXCHANGE, 1693– 1801

As a result of these developments there was a substantial increase in both

the number of investors and the value of their holdings. Whereas before
1690 most joint-stock companies possessed a small capital provided by a
closely connected group of shareholders, in that decade there did appear a
number of well-capitalized concerns whose securities were widely held. The
Bank of England, for example, obtained its capital of £1.2m. from 1,509
investors in 1694, or an average of £795 from each, whereas the Royal
African Company, formed in 1671, raised £0.1m. from 200 subscribers, or
£500 from each. Though individuals had already begun to appear who took
a particular interest in the buying and selling of securities, either for others
or on their own behalf, it was the 1690s that saw the emergence of spe-
cialized brokers and jobbers. Previously, with the number of securities in
existence limited, and those held by a small number of people, turnover was
both too low and too intermittent to justify the attentions of specialized
intermediaries such as stockbrokers, or more than the occasional attentions
of a dealer, or stockjobber, trading on his own account.3
Clearly the development in joint-stock company formation at the end of
the seventeenth century had placed the securities market on a permanent
and more substantial basis than before, and the focus of that market was
London. It was in London that the richest members of society were con-
centrated, whether their wealth came from land or trade. Even the Scottish
Company—the Company of Scotland trading to Africa and the Indies
(Darien Company)—which was formed in 1695 expected to raise half its
capital there.4
Similarly, of the first 500 subscribers for the shares being issued by the
Bank of England, some 450 lived in London, and this was typical of the
position for other major joint-stock companies at the time. There now
existed a small number of companies that were fundamentally different in
scale and nature from the joint-stock undertakings of the past. They had
been, essentially, large partnerships with only a limited turnover in their
nominally transferable securities. Instead there now existed stocks and
shares that were regularly bought and sold publicly in sufficient amount,
to justify the publication of current price lists and to attract the attentions
of those willing to carry out such transactions on commission or be willing
to buy or sell in the expectation of reversing the deal at a profit. For
example, it was estimated that in 1704 turnover in the shares of the Bank
of England and the East India Company totalled £1.8m., or 85 per cent of
the combined paid-up capital of the two concerns.5
3
Davies, ‘Joint-Stock Investment’, 292, 294–6.
4
Scott, Constitution and Finance, ii. 210, iii. 478–9.
5
E. V. Morgan and W. A. Thomas, The Stock Exchange: Its History and Functions,
(London 1961), 14, 17; P. Mirowski, The Birth of the Business Cycle (New York 1985), 272;
L. Neal, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason
(Cambridge 1994), i. 275, 279, 281; P. G. M. Dickson, The Financial Revolution in England:
A Study in the Development of Public Credit (London 1967), 466, 490, 529–30; L. D.
FROM MARKET TO EXCHANGE, 1693 –1801 17

In the early eighteenth century company shares continued to be an

important driving force behind the expansion of the securities market in
London. New companies were formed, expanding the amount of securities
to be traded and the number of interested investors. During the speculative
mania of 1719/20—the South Sea Bubble—some 190 new joint-stock
companies were proposed. They expected to raise £220m. from an
investing public convinced that the application of the joint-stock form
to all areas of the economy would bring untold riches to their sharehold-
ers. Though most came to nothing, before the belief was shattered
there was great activity in the securities market as shares changed hands
at greatly inflated prices. Share prices more than doubled between 1719
and 1720 before collapsing by two-thirds by 1722. More lasting were
the longer established concerns such as the Bank of England, which had
attracted 4,837 investors by 1726.6 However, corporate securities were
not to be the foundation upon which the London Stock Exchange was
built, despite their early significance. The problem was that business
required to be both financed and managed and the joint-stock form, where
ownership and operation were divorced, was inappropriate for most
areas of the economy at that time. In such major sectors as agriculture and
manufacturing the level of individual capital required was low but the
need for personal involvement was high. The use and supervision of
labour rather than the mobilizing of capital was what was crucial, and
this was best achieved on an individual, family, or partnership basis. It was
only in novel areas, like the development of trade to distant and unknown
lands, like India, Africa, or Canada, that the joint-stock company could
make a special contribution by raising a substantial capital and spreading
the risk. Consequently, though the late seventeenth and early eighteenth
century did see the widespread experimentation with the use of the
joint-stock form in business, few of the companies survived outside
trade and banking. Subsequently, the use made of joint-stock companies
remained very low until the late eighteenth century. Though the Bubble Act,
passed in 1720 and not repealed until 1825, did outlaw joint-stock
companies, unless specifically permitted by Parliament, it is most unlikely
that this was the explanation for the unpopularity of joint-stock companies
after 1720. In Scotland, for example, where the Bubble Act was considered
not to apply, the joint-stock company was also little in evidence outside
banking and trade. Also when an area of business did appear in the
late eighteenth century, for which the joint-stock company was ideal,
namely the canal, many were promoted, obtained a charter, and attracted
the interest of investors. Similarly, many businesses were operated as large-
Schwartz, London in the Age of Industrialisation: Entrepreneurs, Labour Force and Living
Conditions, 1700–1850 (Cambridge 1992), 226, 233.
6
J. H. Clapham, The Bank of England, 1694–1914 (Cambridge 1944), 281; B. R. Mitchell,
British Historical Statistics (Cambridge 1988), 687.
18 FROM MARKET TO EXCHANGE, 1693– 1801

scale partnerships no different in form from joint-stock companies but

lacking any form of legal recognition.7
The real foundation of the securities market, that eventually led to the
formation of the London Stock Exchange, took place in the year 1693 when
the government, for the first time, borrowed by creating a permanent
debt that was transferable. Previous to that the government’s borrowings
had been on a short-term basis, with the debt being either redeemed or
refinanced, depending on the state of national finances, when it became due.
Those who held this permanent debt now required a market where they
could sell it, if they wanted to realize the funds that they had invested, in
the same way as holders of joint-stock company shares did. The success of
this issue was quickly followed by a series of private-sector initiatives in
which joint-stock companies swapped the capital they raised from their
shareholders for largely unmarketable government debt. As a result the gov-
ernment got its debt permanently funded, in return for regular interest pay-
ments, and so avoided the possibility of crisis when it tried to renew its
borrowings. Conversely, the investor got a safe and remunerative invest-
ment that was readily saleable, in the form of shares in a joint-stock
company whose principal asset was its holdings in government debt. The
Bank of England, when formed in 1694, paid over its entire capital of
£1.2m. to the government in return for a regular payment of £50,000 every
six months, as well as exclusive banking privileges. Similarly, the East India
Company lent its entire paid-up capital of £3.2m. to the government in
1708, as did the South Sea Company in 1711.
Altogether, by the middle of the eighteenth century the Bank of England,
East India Company, and the South Sea Company had lent some £42.8m.
to the government. As a result their shares were being valued by investors
not so much for their banking or trading success and prospects but simply
as a variety of government debt. From 1717 onwards the government itself
was increasingly conscious of the advantages to be gained from having all
its borrowings in a fully funded form, as the need to finance a succession
of wars placed a continuing burden on normal government finances. A
major cause of the South Sea Bubble was the climate of speculation fos-
tered by the conversion in 1717 of government debt from a floating to a
permanent basis, as this was then imitated by joint-stock companies. Even-
tually, in 1749 the government consolidated most of its remaining bor-
rowings into one single loan, paying a fixed rate of interest of 3 per cent
per annum, known as 3 per cent consols. The result was that, whereas in
7
P. Mirowski, ‘The Rise (and Retreat) of a Market: English Joint-Stock Shares in the Eight-
eenth Century’, J. Ec. H. 41 (1981), 577; M. Patterson and D. Reiffen, ‘The Effect of the
Bubble Act on the Market for Joint-Stock Shares’, J. Ec. H. 40 (1990), 163, 171; R. C. Michie,
Money, Mania and Markets: Investment, Company Formation and the Stock Exchange in
Nineteenth Century Scotland (Edinburgh 1981), 7; A. B. Dubois, The English Business
Company after the Bubble Act, 1720–1800 (New York 1938), 11–12, 34, 36, 38–40, 217,
219, 222, 225.
FROM MARKET TO EXCHANGE, 1693 –1801 19

1691 the government owed £3.1m., none of which was funded, by 1750 it
owed £78.0m., 93 per cent of which was permanently funded.8
As short-term government debt was little traded, being kept for redemp-
tion, but long-term debt was regularly bought and sold as the only means
of disposing or acquiring it, the effect on the securities market was
enormous. There now existed a large and permanent mass of securities in
which there was a substantial and regular turnover. It is calculated that
registered transfers in Bank of England, East India Company, and Govern-
ment Stock, which fluctuated at between 1,000 and 6,000 per annum
between 1694 and 1717, rose to 17,172 in 1718—the year after the con-
version—and then reached 21,811 in 1720, before collapsing as the specu-
lative boom died away. Even then transfers averaged between 4,000 and
7,000 per annum for the rest of the 1720s, through the 1730s, and into the
1740s, before peaking at the 25,000 level in 1749/50. It then fell back again
but by then 20,000 transfers a year had become standard, suggesting a solid
underlying volume of trading in the London securities market. Clearly this
was the bedrock upon which an organized and established securities market
could be built.9
With government consistently honouring its debts, and the payments it
had to make upon them, and a market in existence whereby this debt
could be bought or sold with little difficulty, transferable securities were an
increasingly desirable investment in the eighteenth century. They attracted
the interest of wealthy individuals like the Marlborough family or institu-
tions such as the emerging insurance companies. Insurance companies or
societies, for example, increased their investments from c.£0.3m. in 1720
to c.£4m. in 1800, by which time around 80 per cent was in securities,
largely those issued by the government.10 As Fairman, the accountant for
Royal Exchange Assurance, explained in the 1790s:
The regular payment of the interest on the government funds, and the number of
persons in this country preferring the interest they afford to the hazardous profits
of trade, occasion continual purchasers for those shares in them which are brought
to market for sale. The facility, also, and trifling expense, with which transfers are

8
Dickson, Financial Revolution, 466–7, 529–30; Mirowski, ‘Rise and Retreat’ 560–2;
Clapham, Bank of England, i. 19–20; A. C. Carter, Getting, Spending and Investing in Early
Modern Times (Assen 1975), 127; H. V. Bowen, ‘Investment and Empire in the Later
Eighteenth Century: East India Stockholding, 1756–1791’, Ec. H. R. 42 (1989), 188; H. V.
Bowen, ‘The Bank of England During the Long Eighteenth Century, 1694–1800’, in R. Roberts
and D. Kynaston (eds.), The Bank of England: Money, Power and Influence 1694–1994
(Oxford 1995), 9.
9
Dickson, Financial Revolution, 529–30; A. C. Carter, The English Public Debt in the
Eighteenth Century (London 1968), 4–5, 18, 23; R. D. Richards, ‘The Bank of England and
the South Sea Company’, Economic History, 2 (1930–3), 357–8; A. H. John, ‘Insurance
Investment and the London Money Market of the Eighteenth Century’, Economica, ns 20
(1953), 138–40.
10
Dickson, Financial Revolution, 482, 489, L. S. Pressnell, Country Banking in the
Industrial Revolution (Oxford 1956), 417; Carter, Getting, Spending, 17.
20 FROM MARKET TO EXCHANGE, 1693– 1801

made in these funds, are inducements to prefer vesting money in them to laying it
out on mortgages or other private security, which, though probably yielding a
greater interest, is frequently attended with trouble and uncertainty.11

Generally, by 1760, when the National Debt stood at £101.7m. there were
an estimated 60,400 holders, of whom the great majority were to be found
in and around London. Around 69 per cent of all transfers of government
and Bank of England stock in 1755 were on behalf of Londoners, with
a further 10 per cent being done for those resident in the immediate
vicinity.12

Organization
Within London this securities market had a definite location as early as the
1690s. Having begun in the Royal Exchange, where all manner of com-
modities were traded and deals struck, it had gravitated to the street and
coffee houses of the neighbouring Exchange Alley. Here in coffee houses
such as Jonathan’s or Garraways potential buyers and sellers could meet
and agree terms. However, with the growing number and type of securities,
the likelihood of matching exactly the requirements of both buyer and seller
at one particular time receded. One solution to this was the use of an
auction, where all interested could bid for the securities on offer. These
appear to have been a regular occurrence at Garraways. The problem with
an auction was that it suited the needs of the vendor—to dispose of what
they owned—but it did not allow a potential purchaser to make known his
requirements.13
Another solution was intermediation, with individuals being entrusted
with the task of finding buyers or sellers on behalf of clients who wished
to dispose of or purchase securities. In return the intermediary received
payment for the time and effort involved. Clearly by 1700 such inter-
mediaries—or stockbrokers—had come into existence though it is doubt-
ful if any wholly specialized in the business. They were easily recruited,
frequently combining stockbroking with the other tasks that they conducted
for wealthy customers. Bankers, goldsmiths, or the clerks who registered
changes of ownership in the Bank of England or the East India Company,
were all obvious candidates to add the new profession of stockbroking to
their list of activities. Certainly, whatever the occupation they came from
the number of stockbrokers appeared to have grown rapidly in the 1690s
as the government tried to restrict the total to 100 by a law passed in 1697.
11
W. Fairman, The Stocks Examined and Compared (London 1798, 3rd edn.), 2.
12
Carter, Getting, Spending, 19, 67, 76; Dickson, Financial Revolution, 489, 514, 529–30;
Bowen, ‘Investment and Empire’, 201; Neal, Financial Capitalism, 93, 96.
13
Dickson, Financial Revolution, 490–4, 499, 507–11; Neal, Financial Capitalism, 33;
Carter, Getting, Spending, 73, 91, 125, 127, 134, 136; S. R. Cope, ‘The Stock Exchange
Revisited: A New Look at the Market in Securities in London in the Eighteenth Century’,
Economica, 45 (1978), 2–3.
FROM MARKET TO EXCHANGE, 1693 –1801 21

This proved completely ineffective and the number of brokers continued to

grow along with the market itself, with individuals being attracted either
from other occupations in London or from other parts of Britain and
abroad. Benjamin Cope, a stockbroker in London from 1733 had been a
hosier while George Middleton arrived from Aberdeen and acted as a stock-
broker in London in 1720, along with being a banker and goldsmith.
Edmund and Philip Antrobus came from Congleton in Cheshire, and set up
as stockbrokers in London in the 1770s. There was also a significant Dutch
contingent who brought great expertise to London as Amsterdam was the
leading securities market in the world at the time. One such was Abraham
Ricardo who arrived in London around the year 1759, having been sent
there by his father—Joseph—who was a successful stockbroker in Amster-
dam. At the same time the profession of stockjobber or dealer became
increasingly professional as wealthy individuals used their money or hold-
ings of securities to buy and sell in the expectation of quickly reversing the
deal at a profit. Samson Gideon, for example, the son of a London West
India Merchant became a jobber in 1719 with a capital of £1,500 which
had grown to £350,000 by 1759.14
Thus, fairly early in the eighteenth century there existed a group of indi-
viduals in London who made at least part of their living by handling the
buying and selling of stocks and shares, on behalf of those who had neither
the time, knowledge, opportunity, or inclination to do it for themselves.
Nevertheless, stockbrokers could only arrange sales or purchases on behalf
of clients when willing buyers or sellers could be found. For many secur-
ities this was no easy matter as the number of existing shareholders or
interested investors were small, so restricting the potential to arrange a deal.
In turn, this would reduce the incentive of individuals to specialize in
stockbroking, rather than the other opportunities available to them in
finance or trade. However, in the securities issued by the Bank of England,
East India Company, or South Sea Company, plus the funded debt of the
government, the possibility of easily and continually matching buyers and
sellers was much greater because of the amount in existence and the number
of investors involved. Furthermore, as it was the government that provided
the final guarantee of payment, whether interest or dividend, all these
securities were, to an extent, interchangeable. Hence investors looking for
a safe and remunerative investment, secured on a trust in the government
to service its borrowings, could be satisfied by any one of a number of
securities that might be offered for sale. Consequently, as more and more
14
E. Healey, Coutts and Company, 1692–1992: The Portrait of a Private Bank (London
1992), 45, 51; M. C. Reed, A History of James Capel and Company (London 1975), 1–3,
11–12: D. Wainwright, Government Broker: The Story of an Office and of Mullens and
Company (East Molesey 1990), 1, 9; C. Wilson, Anglo-Dutch Commerce and Finance in the
Eighteenth Century (Cambridge 1941), 97, 111, 116, 195; D. Weatherall, David Ricardo: A
Biography (The Hague 1976), 3; Scott, Constitution and Finance, i. 345; L. Sutherland,
Politics and Finance in the Eighteenth Century (London 1984), 387–9.
22 FROM MARKET TO EXCHANGE, 1693– 1801

of the business of the securities market was composed of the buying and
selling of government or related securities, it encouraged individuals not
only to enter stockbroking but to specialize in it because of the steady
income available, as well as the occasional bonus during a speculative
boom. Despite that situation, when Edmund Antrobus was offered a
partnership in the West End banking firm of Coutts & Co. in 1777 he gave
up the stockbroking business he had established, leaving it to his
brother Philip.15
This securities market became increasingly sophisticated in the eighteenth
century, stimulated not only by the underlying growth of turnover but also
by the arrival of Dutch Jews and French Huguenots who introduced con-
tinental practices. Even before 1700 buy/sell options were in use as was
dealing for time. This became more refined in the eighteenth century with
the custom of making deals for a month or more ahead, encouraged by a
government attempt to reduce speculation by banning options in 1734. The
ban on options had little effect but the use of a fixed date in the fixture, by
which all stock had to be delivered and paid for, became standard practice
in the London securities market. By the 1780s six-weekly settlements
appear to have been in use, though by no means all bargains were done for
time. Many transactions were also for cash or for varying periods depend-
ing on the preferences of buyer and seller. Nevertheless, the popularity of
dealing for time also led to the use of other techniques such as continua-
tion and backwardation. With continuation—or rescounters—a purchase
could be continued from one settlement to the next by the payment of
the difference in price between that prevailing when the deal was struck
and that at the settlement date. Thus the buyers could delay payment of
the purchase price at small cost until either the requisite funds became avail-
able or the price rose so as to make a profitable sale possible. Conversely,
with backwardation the delivery of the stock whose sale had been agreed
could be delayed until the next settlement date, for the similar payment of
the price difference. The vendor could thus postpone handing over the
securities in question until they became available, either from the client
or through a price fall so that they could be bought in the market at a
favourable price. Essentially, as these techniques and practices evolved in
the eighteenth century, the securities market became better at meeting the
varied needs of investors, ranging from those who simply wanted to buy
or sell for immediate effect to those who sought to profit from a cycle of
either rising or falling prices.16
Greatly assisting the flexibility of the market was the appearance, from

15
Reed, Capel and Company, 1–3; Healey, Coutts and Company, 110.
16
Cope, ‘The Stock Exchange Revisited’, 8–10, 12, 15, 17; C. F. Smith, ‘The Early History
of the London Stock Exchange’, American Economic Review, 19 (1929), 207–8, 213; Dickson,
Financial Revolution, 507, 510; S. R. Cope, ‘The Goldsmids and the Development of the
London Money Market during the Napoleonic Wars’, Economica, ns (1942), 181, 201.
FROM MARKET TO EXCHANGE, 1693 –1801 23

about 1700 onwards, of specialized dealers or jobbers, who bought and

sold securities on their own account, and not for clients. Jobbers either
employed their own money to buy securities in the expectation that the
price would rise—and they could be sold at a profit—or had extensive hold-
ings of stocks and shares available, which could be sold in the expectation
that the price would fall, and they could be repurchased at a lower price—
hence a profit would be generated. Between 1708 and 1755 a total of some
43 dealers in securities operated in the London market at various times.
One, for example, was William Sheppard, a banker and goldsmith, who
operated in Bank of England stock. In 1700 his 278 purchases and 371
sales of bank stock amounted to c.£0.5m. and represented a fifth of all such
registered transfers. Similarly in 1754 William Cotsford made 870 pur-
chases and 868 sales of 3 per cent consols, worth £0.6m. in total, and
accounting for over one-third of all such transfers.17
These actions of the jobber, which were governed simply by self-interest
and the desire for profit, made a major contribution to the London
securities market. By being willing to either purchase or sell securities,
without the prospect of immediate repurchase or resale, these jobbers were
instrumental in creating a ready market for both securities and money in
London. Those investors who wished to sell stocks could find a willing
buyer—if the price was right—while those who wished to invest their
money met with an available supply of securities—if the price was right.
Naturally enough, jobbers were only willing to operate in the largest and
most actively traded securities, like those issued by the government, as only
in these could they have the expectation of reversing the deal reasonably
quickly and safely, and so turn over their money and securities enough to
generate a worthwhile return without accepting undue risks. Consequently,
unlike many other types of investments, like property or mortgages, secur-
ities were more akin to short-term investments like bank deposits or
30- to 90-day bills of exchange, when they possessed an active secondary
market serviced by jobbers.
It was this continuous buying and selling that astonished, and even
appalled, contemporaries as they could not understand what lay behind it.
As early as 1716 one anonymous contemporary had written a vitriolic
attack on the securities market in general and stockjobbers in particular.
From this corruption of companies in Trade, breeds the vermin called stockjobbers,
who prey upon, destroy, and discourage all Industry and honest gain, for no sooner
is any Trading Company erected, or any villainous project to cheat the public set
up, but immediately it is divided into shares, and then traded for in Exchange Alley,
before it is known whether the project has any intrinsic value in it, or no, . . . If a
design was never so solid to promote Industry and Trade, stockjobbing will even-
tually damn it in its infancy.

17
Dickson, Financial Revolution, 494, 497, 511; Davies, ‘Joint-Stock Investment’, 294–5.
24 FROM MARKET TO EXCHANGE, 1693– 1801

This writer even went so far as to demand the banning of transferable

securities as the ‘Buying and selling of shares, transferring or stockjobbing,
ruins, and is a bane to all Honesty and Industry’.18 Familiarity with the
securities market did not necessarily lead to greater understanding.
Thomas Mortimer, writing in 1761 could see no role for either stock-
brokers, apart ‘for the conveniency of the ladies . . .’, or the even worse
stockjobbers, on whom he blamed the fluctuations in the value of
government stock.19
Even at the end of the eighteenth century it is doubtful if most contem-
poraries had any greater knowledge of the function of the securities market,
and its intermediaries, than was possessed at the beginning.
In The Picture of London, published in 1802, the curious stranger was
encouraged to visit the rotunda of the Bank of England ‘. . . for the throng,
the hurry, the seeming confusion, and the busy eager countenances, he will
perceive there . . . although he comprehends nothing of the detail . . .’.20 To
most interested observers securities were no different from other forms of
property, which were sold through extended negotiation and with little vari-
ation of price from year to year. Land or property for example, were sold
for the rent they would bring, and that was fixed by the terms of the leases
that the farmers or occupants had signed. In these cases a lawyer was of
more value than a broker or dealer. However, those who bought, held, or
sold securities in the eighteenth century did so for a variety of reasons, and
only one of these was long-term investment for a permanent income.
Clearly, for many eighteenth-century investors the transferable nature of
stocks and shares was of little significance as they bought and held their
securities for either the regular and safe return it brought, as with govern-
ment debt, or the prospects of windfall gains it offered, such as in the case
of the small number of joint-stock companies. Among investors in East
India Company Stock, for example, there were many who were content to
receive their annual dividend payment without altering their holding by
sales or purchases. An estimate for January 1767 suggested that as many
as 44 per cent of those holding East India Company Stock were of this kind.
To the passive investor government or related securities were very attract-
ive as they could be easily acquired in variable amounts and when needed,
and required no subsequent management. During the eighteenth century
there developed an inverse relationship between investments in landed
property and the purchase of government debt. When government bor-
rowing was high as a result of foreign wars and military expenditure, as in
the 1740s and 1770s, investors switched away from purchases of land
and, instead, bought national debt. In contrast, in periods of peace, when
18
Thoughts on Trade and a Public Spirit (London 1716), 4, 16–17.
19
Thomas Mortimer, Everyman His Own Broker or A Guide to Exchange Alley (London
1761, 2nd edn.), pp. xi, 17, cf. Carter, English Public Debt, 23.
20
The Picture of London (London 1802), 107.
FROM MARKET TO EXCHANGE, 1693 –1801 25

government borrowing was low, there was strong interest amongst investors
in the yield offered by land holdings, and so purchases and prices increased.
Gains made, for example, as government securities rose in prices after a
war, encouraged holders to sell out and switch their funds into land.
Increasingly, investors came to regard government debt and landed prop-
erty as alternatives to each other. Increasingly, the safety, convenience, and
liquidity of National Debt attracted investors who, in the past, might have
placed their funds into land. London insurance companies gradually turned
away from mortgages and land, towards government debt because of the
greater ease of realizing securities when a shipping loss or major fire
required a large and immediate payment to a policy-holder.21
While the yield on government debt was low it was both almost risk-free
and easily realizable. Land and property could offer a higher rate of return
but sales could take time to arrange, which was completely unsuitable
if money was required quickly, as could be the case with a bank or insur-
ance company. Similarly, sums lent by way of mortgages on property were
not immediately recoverable if the owner was not able to repay and the
assets had to be sold. Bank deposits also offered great flexibility but they
were not without risks. During the 1720–1790 period a total of 82 private
banks went bankrupt, or more than one every year, and this included 58 in
London itself.22
To long-term investors all that was required was a means by which acqui-
sitions or disposals could be made with little trouble or expense and as
expeditiously as possible. Options, continuations, backwardations, and
fluctuating prices, were of little concern to them. If investors had all been
of this kind then there would have been little pressure for the development
of a large and sophisticated securities market in London. Brokers would
have been needed to match buyers and sellers at an acceptable price, con-
sidering the growing number of investors, but there would have been little
scope for jobbers as the volume of turnover would be too low to provide
them with an income. In turn, without jobbers the ability to buy or sell
stocks and shares, at the time and in the amount required, would have been
seriously affected, so undermining the attractions of securities to investors
compared to other investments. Thus, though long-term investors made
only infrequent and partial use of the ready market for securities the very
existence of that market was an important influence in persuading them to
place their savings in stocks and shares in the first place. The fluctuating
21
Bowen, ‘Investment and Empire’, 199; Carter, English Public Debt, 18; C. Clay, ‘The
Price of Freehold Land in the Later 17th and 18th Centuries’, Ec. H. R. 27 (1974), 184, 186;
B. A. Holderness, ‘The English Land Market in the 18th Century: The Case of Lincolnshire’,
Ec. H. R. 27 (1974), 559, 562–3; C. G. A. Clay, ‘Henry Hoare, Banker, His Family and the
Stourhead Estate’, in F. M. L. Thompson (ed.), Landowners, Capitalists and Entrepreneurs
(Oxford 1994), 117, 132; P. K. O’Brien, ‘The Political Economy of British Taxation,
1660–1815’, Ec. H. R. 41 (1988), 2, 4; John, ‘Insurance Investment’, 147.
22
Pressnell, Country Banking, 536.
26 FROM MARKET TO EXCHANGE, 1693– 1801

prices emanating from the market were a public manifestation to all that
securities could be readily bought and sold, and thus an inducement to
either subscribe to new issues or to purchase additional or different stocks
being sold by others.
Luckily for the development of the market the transferable nature of
securities was attractive to other investors. Obviously there were those who
were always willing to speculate by buying for a rise or selling for a fall.
However large-scale activities of this kind were of a spasmodic nature, as
with the South Sea Bubble of 1720, and were hardly the basis upon which
professionals like brokers and jobbers could expect to make a permanent
and prosperous living. Instead, there were other investors who saw in trans-
ferable securities not some form of permanent investment but a temporary
home for available funds. Merchants in London, for example, could employ
funds released through sales, and not yet tied up in new stock, in buying
securities which would be later sold when the funds were required. As
securities reached the date at which interest and dividends were paid they
rose in value to take account of the money their holders would receive. By
buying for cash and selling for time it would be possible to take advantage
of this fact on a relatively risk-free basis, and receive a modest profit as a
result. That was only one of the ways that the ability to buy and sell quickly
in the securities market, and at little cost, made it attractive to investors
who were not in a position to lock savings away for a long period, as with
property and mortgages.
Before the eighteenth century, temporarily idle funds would not have been
attracted to long-term debt. Instead merchants, bankers, and others with
cash not yet tied up in business or loans would purchase short-term
bills or bonds with the expectation of holding them until the date when
payment became due. Bonds issued by the East India Company to finance
its trade, as well as the variety of short-term securities created by govern-
ment to meet its differing financial needs, were ideal homes for tempor-
arily idle funds. However, as the government increasingly converted its
debt from a short- to a long-term basis, and provincial banks appeared pro-
viding credit for their local business communities, many of the obvious
openings for temporary funds disappeared. This was where the transferable
nature of the National Debt, and the market that existed to facilitate its
buying and selling, became all important. To the issuer of the securities
the debt created was permanent, but to the holder the ability to sell quickly
rendered it temporary, and thus a suitable and remunerative home for
short-term funds.23
What made this a widespread occurrence in the eighteenth century
23
John, ‘Insurance Investment’, 140; D. M. Joslin, ‘London Private Bankers, 1720–1785’,
Ec. H. R. 7 (1954/5), 171, 184–6; D. Hancock, ‘ “Domestic Bubbling”: Eighteenth-Century
London Merchants and Individual Investment in the Funds’, in Ec. H. R. 47 (1994), 682–3,
690, 695–6.
FROM MARKET TO EXCHANGE, 1693 –1801 27

was the development of the banking system as it greatly increased the

volume of funds that were available for only short-term investment. Depos-
itors expected to be able to withdraw their savings from a bank at their
own convenience. However, banks could not force repayment of loans from
those to whom they had lent the money. Loans could be tied up in unsold
stocks of goods, for example, or in payments for raw materials. Conse-
quently, banks had to maintain a margin between the funds they attracted
in as deposits and those they lent out by way of loans. Unfortunately
for the bank this margin—or idle balance—generated no income, making
it necessary to charge a higher rate of interest on the amount that was
lent and accept a higher level of risk as borrowers sought to service
that debt. If the idle balance could be remuneratively employed, while at
the same time remaining readily available to repay depositors, not only
would banks charge lower rates of interest but the level of risk would
be lower. In turn, fewer banks would collapse due to bad debts and
panic withdrawals by depositors, and so more savings would be placed in
the hands of bankers, greatly expanding the supply of credit available in
the economy.
During the eighteenth century the practice grew up of banks, directly or
indirectly, employing part of their idle balance in transferable securities.
Either by investing directly in government or allied debt or lending to
those that did, banks increasingly provided the funds that underpinned
the growth of the London securities market. The stockbroker Edmund
Antrobus, for instance, was largely employed by the West End bank of
Coutts & Co. to buy and sell government stock on behalf of the bank
and its customers from 1777. In 1786 around half of his firm’s
business, totalling £413,624, was from Coutts. Also it was not just
London bankers who employed London brokers, for even provincial
banks did so. The Worcester bankers, Berwick & Co., employed
James Pilliner, a London stockbroker, from 1782. Between 1782 and
1787 Pilliner’s buying and selling operations in, mainly, government stock
averaged c.£150,000 per annum for that bank. More commonly, provin-
cial banks deposited part of their idle balances at short notice with a
London private banker, who paid interest upon it. In turn London
bankers employed part of those funds in the securities market, through
their broking connections there. As deposits that could be withdrawn
at short notice paid a lower rate of interest than the irredeemable
National Debt, the London banker could profit by purchasing government
securities with depositors’ funds. Without the existence of a market where
these securities could be readily bought and sold, plus the growing
sophistication of the operations conducted there, the risk involved in
holding permanent debt with near-liquid funds would not have been sus-
tainable. Consequently, what developed in the eighteenth century was the
practice of banks but also of insurance companies and others, investing
28 FROM MARKET TO EXCHANGE, 1693– 1801

short-term funds in securities or lending to brokers and jobbers so that

they could.24
Consequently, much of what the public saw as unnecessary speculation—
and dismissed as such—was but the means necessary to ensure that bankers
and others could employ short-term funds in long-term loans. As with a
bank itself, where there was a continuous ebb and flow of funds as differ-
ent customers deposited and borrowed, so the securities market witnessed
continuous buying and selling of the most popular securities, reflecting
supply and demand conditions in the money market.25 Thus, though the
London securities market was not directly involved in the provision of
finance for economic growth in the eighteenth century, its ability to provide
a large and remunerative outlet for short-term funds, for which it would
be difficult to find an alternative use, did contribute to the maintenance of
relatively low interest rates at the time and did give some partial stability
to the emerging banking system. It also meant that the government could
obtain the finance it required to wage war without putting such a strain on
the capital market that productive areas of the economy would be disad-
vantaged. In the course of the eighteenth century, the London securities
market thus became an integral part of both the nation’s capital market,
through the finance of the National Debt, and the money market, with the
home it provided for bankers’ balances. By expanding the supply of
credit and capital, and facilitating the financial integration of the economy,
the securities market made a significant contribution to eighteenth-century
economic growth, though never central to the process.26
Internationally, the London securities market also played a role. During
the eighteenth century it was the Dutch who were the major international
investors, as well as large traders, and so it was through Amsterdam that
flowed the currents of the world’s payments system. The European economy
was continuously moving away from a system where international pay-
ments were only in gold and silver currency and goods had all to be taken
to and from specific locations where they could be traded. Instead, multi-
lateral systems of payments and the use of credit were becoming standard
practice. Inevitably this involved the continuous adjustment of balances
between countries. At a time when internal currencies were denominated
in terms of gold and/or silver this could be done in terms of the movement
of metal. This was an expensive and time-consuming procedure much of

24
Reed, Capel and Company, 11–12; Healey, Coutts and Company, 113; Pressnell, Country
Banking, 36, 18, 76, 83, 85–6, 259–60, 264, 401, 412, 415, 417, 428, 431–2.
25
Fairman, Stocks Examined, 20; R. W. Wade, The Stock-holder’s Assistant, (London
1806), pp. iii, vi.
26
J. Hoppit, Risk and Failure in English Business (Cambridge 1987), 63–4, 69–70, 133–4;
M. Buchinsky and B. Polak, ‘The Emergence of a National Capital Market in England,
1710–1880’, J. Ec. H. 53 (1993), 18; B. L. Anderson, ‘Provincial Aspects of the Financial Rev-
olution of the Eighteenth Century’, B. H. 2 (1969), 11, 18, 21; B. L. Anderson, ‘Money and
the Structure of Credit in the Eighteenth Century’, B. H. 12 (1970), 85, 91.
FROM MARKET TO EXCHANGE, 1693 –1801 29

which could be unnecessary as the balance of payments ebbed and flowed

with shipments made and received. Instead, if a mechanism was in place
which would match international credits and debits, even on a bilateral
basis, then the transport of precious metals would only be required to settle
the final balance, not every transaction. It was this service that merchant
bankers, with connections and operations in two or more countries sought
to provide. Essentially, a merchant banker not only provided the credit
that international trade required, as payment was awaited on goods
shipped, but also made available the means of payment at the place where
it was required.
Thus, a market developed in the credits and debits arising from interna-
tional commerce, and the securities market became a part of it by at least
the middle of the eighteenth century. Foreign holdings of the National Debt,
for instance, rose from 9 per cent in 1723/4 to 15 per cent in 1750, and
most of this was Dutch. By then there was an active market in British gov-
ernment and related securities in Amsterdam as well as in London. As a
result of this debt, and the market it produced, debits and credits could be
produced in either London or Amsterdam which could be used to meet the
needs of those merchants wanting to make payment in either country. If
British government stock was sold in London to a British investor, but on
behalf of a Dutch holder, the right to a payment in sterling in London would
be created. This right could be sold to a Dutch merchant wanting to make
a payment in London. Conversely, if the same stock was sold in Amster-
dam, but on behalf of a British holder and to a Dutch investor, the right
to payment in Holland would result. By the later eighteenth century the
same procedure was in existence between London and New York. United
States securities were being sent to Britain in order to pay debts incurred
by American importers.
Thus, what contemporaries like Thomas Mortimer saw as unwelcome
and undesirable speculation by the Dutch in the National Debt was, in
reality, an integral part of the world’s monetary system whereby the ability
to make payments between countries was both facilitated and rendered
less expensive by sales and purchases of securities in different markets.
Inevitably this generated much activity in the securities market as prices of
stocks rose and fell not only due to domestic monetary conditions but also
those abroad, especially in Holland. Increasingly in the eighteenth century,
until the French Revolution, London and Amsterdam interest rates were
closely aligned, and the existence of active securities markets in both
centres was of major importance in achieving this high degree of monetary
integration. It was also becoming a transatlantic phenomenon with the
inclusion of New York.27
27
R. V. Eagly and V. K. Smith, ‘Domestic and International Integration of the London
Money Market, 1731–1789’, J. Ec. H. 36 (1976), 207, 210–11; L. Neal, ‘Integration of Inter-
national Capital Markets: Quantitative Evidence from the 18th to 20th Centuries’, J. Ec. H.
30 FROM MARKET TO EXCHANGE, 1693– 1801

Consequently, in terms of turnover what was driving the growth of the

London securities market was much less the general rise in the number of
investors and the volume of stock—important as that was—but the con-
stant need to buy and sell as money-market conditions altered at home and
abroad. Mortimer, for example, castigated those who transacted
more business in the several government securities in one hour, without having a
shilling of property in any one of them, than the real proprietors of thousands trans-
act in several years.28

The requirements of those closely involved with the money market were
also different from those acting on behalf of private investors. In particu-
lar, the brokers acting for private investors usually had ample time to
arrange payment or delivery. In contrast, those acting on behalf of domes-
tic banks, insurance companies, bill brokers, or foreign clients were required
to act quickly before the opportunity was lost. This necessitated a much
greater degree of understanding and trust among the participants in
the market as they had to be certain that payment would be made and
stock delivered, and they could not wait for evidence that that would be
the case. It was for this reason that the Amsterdam stockbroker, Joseph
Ricardo, sent his son David to London, as he was familiar with the way
business was conducted and could be trusted. The clearest difference
between the two types of market participant was that those using the
market for long-term investment tended to buy and sell for cash, having
the money or securities to hand, while the professionals, buying and selling
for themselves or for money-market clients, dealt for time and did so fre-
quently. The risk for them was that one default in the chain of operations
could endanger their ability to pay or deliver in turn, and thus undermine
the market itself. 29

45 (1985), 225; L. Neal, ‘The Integration and Efficiency of the London and Amsterdam Stock
Markets in the Eighteenth Century’, J. Ec. H. 47 (1987), 115; S. E. Oppers, ‘The Interest Rate
Effect of Dutch Money in Eighteenth Century Britain’, J. Ec. H. 53 (1993), 40; E. S. Schu-
bert, ‘Arbitrage in the Foreign Exchange Markets of London and Amsterdam During the Eight-
eenth Century’, Explorations in Economic History, 26 (1989), 17; Neal, Financial Capitalism,
21, 43, 90, 146, 151; Carter, Getting, Spending, 57, 77; Morgan and Thomas, The Stock
Exchange, 20, 23, 49, 52; Bowen, ‘Investment and Empire’, 201; J. C. Riley, International
Government Finance and the Amsterdam Capital Market, 1740–1815 (Cambridge 1980), 122,
280; S. R. Cope, ‘Bird, Savage and Bird of London, Merchants and Bankers, 1782–1803’,
Guildhall Studies in London History, 4 (1981), 209–12. Sutherland, Politics and Finance,
381–2; S. Quinn, ‘Gold, Silver and the Glorious Revolution: Arbitrage Between Bills of
Exchange and Bullion’, Ec. H. R. 49 (1996), 473–4, 487–8; E. J. Perkins, American Public
Finance and Financial Services, 1700–1816 (Columbus, Ohio 1994), 200; G. Yoveb, Dia-
monds and Coral: Anglo-Dutch Jews and the Eighteenth-Century Trade (Leicester 1978), 55,
58, 194–5, 201, 204, 213; J. De Vries and A. Van der Woude, The First Modern Economy:
Success, Failure, and Perseverance of the Dutch Economy, 1500–1815 (Cambridge 1997),
142–4; M. Hart, J. Jonker, and J. L. Van Zanden, A Financial History of the Netherlands
(Cambridge 1997), 55–8.
28
Mortimer, Everyman his own Broker, 34.
29
Cope, ‘Stock Exchange Revisited’, 17; Weatherall, David Ricardo, 3.
FROM MARKET TO EXCHANGE, 1693 –1801 31

Therefore, it was not enough for the securities market to develop in terms
of intermediation and technique in the eighteenth century. Also required
was a system of control which guaranteed that sales and purchases would
be honoured when they became due. This could not be done in law as
Barnards Act, passed in 1734, had made time bargains illegal, regarding
them as a form of gambling. It was thus left to the market participants
themselves to create a code of conduct that enforced the conditions neces-
sary for trade. Even without the legal impediments it was most likely that
those who participated actively in the market would seek to find a solution
to their own problems among themselves, without the use of either the law
of the land or the government. London bankers, for example, set up the
London Clearing House in 1773, with 31 members, in order to deal with
inter-bank business while marine underwriters set up an organization—
New Lloyds—in 1774 to meet the particular requirements of their busi-
ness.30 Essentially, what the professionals wanted so as to ensure speed and
trust was a market in which all present were active participants, ready to
buy or sell when the opportunity arose, and each possessing a reputation
for honouring their part of a bargain. In turn, those who did not fit these
criteria or meet the standards set would be excluded from the market. It
was this that 150 brokers and jobbers attempted to establish in 1761 when
they offered to pay Jonathan’s Coffee House £8 each per annum for the
exclusive use of the premises for about three hours every day in order to
transact business. Though Jonathan’s accepted the offer those who were
excluded as a result objected, and in 1762 they obtained a court ruling
declaring the action illegal. As Jonathan’s had, by custom, been used as a
market for buying and selling government securities, they could not refuse
permission to anyone who wanted to participate.
The next attempt to develop an exclusive organization was in 1772 when
a group of stockbrokers decided to construct a new building in Sweetings
Alley which was to be called a Stock Exchange. This was opened on the 12
July 1773. Mindful of the legal rebuff that had been delivered some 10
years earlier, admission to this building was on payment of 6d. per day, so
that all could participate if they wished. This payment would also remu-
nerate the owners of the building for the cost of construction and mainten-
ance. Interestingly, if a broker attended six days a week all year the cost
would be £7.80 per annum, which was remarkably similar to the £8 which
was to be paid to Jonathan’s. Clearly that offer had made a group of
the wealthier stockbrokers realize that they could personally profit by
setting up an establishment for the use of their fellow intermediaries and
then charging them a fee for its use. However, this new building was not
an outright success as trading in securities continued to take place in a
number of locations throughout the city of London. In particular, the
30
John, ‘Insurance Investment’, 184; A. H. John, ‘The London Assurance Company and
the Marine Insurance Market in the 18th Century’, Economica, ns 25 (1958), 129.
32 FROM MARKET TO EXCHANGE, 1693– 1801

Rotunda of the Bank of England, which had been opened in 1765, was
a very popular venue as it was there that transfers of both Bank of England
and government stock had to be registered in any case. All these alterna-
tive locations were also free, and so attractive to those with only a limited
business to transact. Consequently, the new Stock Exchange building
failed to control the London securities market as it was neither exclusive
not dominant. This Stock Exchange building appeared to have replaced
Jonathan’s to become an important centre for securities trading but without
altering to any great degree the way the market was organized and con-
trolled. It is thus difficult to date the origins of the London Stock Exchange
to the opening of this building in 1773 as it appeared to offer little
that was different from the securities market that had been developing
throughout the century.
Until near the end of the eighteenth century the London securities market
continued to be served in this way. The professionals could pay their
daily entrance fee and conduct business with fellow professionals at the
Stock Exchange building. They could also frequent other buildings, espe-
cially the Rotunda of the Bank of England, where they could deal directly
with investors or with more casual intermediaries, like bankers or solici-
tors. Throughout, the size of the National Debt, and hence turnover in
the London market continued to grow. The government’s indebtedness
rose from £130.6m. in 1770, when 98 per cent was funded, to £244m. in
1790 (96 per cent funded), again driven by the costs of foreign wars, such
as the American War of Independence. This growth appears to have
been easily accommodated within the London market, occasioning no
substantial change, though the doubling, in nominal terms, of govern-
ment debt during the American conflict did strain the market for public
securities in London. Clearly investors were worried about accepting a
never-ending increase in the National Debt especially when the military
engagements that created them resulted in the loss of a major part of the
Empire. In fact, in this period it was outside London that the new
developments were taking place. In the provinces there was a growing inter-
est in joint-stock companies and their securities. This focused especially
on canal projects from the 1780s, reaching a mania in the early 1790s.31
Though London investors were interested in the shares issued by these
new canal companies, the focus for trading activity was in the towns
and cities of Britain where they were being built and operated. In
London the buying and selling of canal shares was very much a fringe
activity within a securities market that remained completely dominated
by the National Debt. Between 1780 and 1793 some 87 per cent of the
31
Mortimer, Everyman his own Broker, p. xiv; S. R. Cope, ‘The Stock-brokers Find a
Home: How the Stock Exchange Came to be Established in Sweetings Alley in 1773’, Guild-
hall Studies in London History, 2 (1977), 213, 217–18; Morgan and Thomas, The Stock
Exchange, 52; Smith, ‘London Stock Exchange’, 206; O’Brien, ‘British Taxation’, 21.
FROM MARKET TO EXCHANGE, 1693 –1801 33

holders of the National Debt were to be found in London and the Home
Counties.32
The event that was to push the London securities market towards that
final step of creating a stock exchange did not take place within Britain at
all. That was the Revolution in France in 1789 and the subsequent period
of instability and war that was to effect continental Europe until Napoleon’s
defeat at Waterloo in 1815. With the overthrow of the established order in
France, and the terror that followed, the financial system in Paris was
thrown into chaos. Bankers and others with wealth to lose fled to other
centres, such as Amsterdam and London. Finally in 1793 the Paris Stock
Exchange was closed down, leading to people such as Walter Boyd, a promi-
nent Paris banker, transferring his operations to London. Worse was to
follow for continental Europe for revolution in France was followed by war
and revolution in other countries. Of crucial importance was the occupa-
tion of Amsterdam by French troops in 1795 and the disruption that caused
to what had been the financial centre of Europe. Prominent bankers and
brokers, such as Henry Hope, Raphael Raphael, and Samuel de Zoete, all
left Amsterdam at that time and set up business in London as best they
could. The German states were also engulfed by the turmoil, producing their
own flow to London, including Johan Schroder from Hamburg and Nathan
Rothschild from Frankfurt.33
The implications for London were twofold—simultaneous removal of
rival financial centres, principally Paris and Amsterdam, and an influx
of wealth and talent. As a consequence London was thrust into a position
of financial leadership. Those bankers, brokers, and merchants who had
fled to London brought with them their expertise and connections and
now directed their affairs from London rather than the Continent. London
was well placed to take advantage of this opportunity as it was already a
centre of major importance, and this was further enhanced by Britain’s
ability to capture much of Europe’s trade with the rest of the world. All
this was bound to have repercussions for the London securities market
considering its well-established links to the money and foreign exchange
markets. The instability alone, coming from political and military events,
created a very volatile environment within which securities trading had to
take place, as prices responded to changing circumstances and prospects at
home and abroad.
32
J. R. Ward, The Finance of Canal Building in Eighteenth-Century England (Oxford
1974), 82, 100–6, 142; D. Wainwright, Government Broker: The Story of an Office and of
Mullens and Company (East Molesey 1990), 1; Anderson, ‘Provincial Aspects’, 18; Mirowski,
Business Cycle, 248–9.
33
S. R. Cope, Walter Boyd: A Merchant Banker in the Age of Napoleon (Gloucester 1983),
3, 26, 29; S. D. Chapman, Raphael Bicentenary 1787–1987 (London 1987), 5–7; H. Janes,
de Zoete and Gorton: A History (London 1963), 6; R. Roberts, Schroders: Merchants &
Bankers (London 1992), 3; Riley, International Government Finance, 8, 294; Neal, Financial
Capitalism, 171, 180, 200, 217; A. Elon, Founder: Meyer Amschel Rothschild and His Time
(London 1996), 84, 89, 130; Hart, Jonker, and Van Zanden Financial History, 51.
34 FROM MARKET TO EXCHANGE, 1693– 1801

At the same time the amount of securities to be traded expanded enor-

mously as the government sought to fund its greatly enlarged army and
navy expenditure. By 1815 the National Debt stood at £744.9m. (92 per
cent funded), having grown by some £500m. since 1790. This massive
expansion of government debt sucked in investors from all over the country,
ending the provincial flirtation with canal shares. In 1815 there were
an estimated 250,000 holders of the National Debt, compared to the
60,000 of 1760. Also the only market for this debt was London, as Ams-
terdam no longer possessed a functioning securities market, though for-
eigners still held around 10 per cent of the total in 1806. One illustration
of the increasing activity in the market was the business done by Benjamin
Cole, the stockbroker who acted for the government. In 1786 he was hand-
ling £250,000 per annum but this had doubled to £550,000 by 1798 and
reached £8m. in 1806. The consequence of all this was that the London
securities market was being placed under greater and greater pressure as
the volume and volatility of business increased, attracting in ever more
participants—from home and abroad—who saw the daily fluctuations in
prices as an ideal opportunity to make a quick fortune for themselves.
Inevitably, this left the market professionals very exposed as it was difficult
to know what trust to place in the new people with whom they were
doing business.34
By the late 1790s a crisis had been reached in the London securities
market. In December 1798 the Committee (Committee for General Pur-
poses) responsible for the day-to-day running of the market in the
Stock Exchange building were pressing for greatly increased powers so as
to enforce discipline. In particular they wanted the authority to exclude
from the building those who had defaulted on deals, unless there were
clear and acceptable reasons why this had taken place. Generally, this
committee was being forced to take more and more decisions on disputes
between members concerning such matters as the penalty for non-delivery
of stock or the acceptable commission on a deal. As all these committee
members were practising brokers and jobbers this was becoming a serious
diversion from their own business, through which they earned an income.
Eventually, on 15 December 1798 they appointed a secretary to the
committee. To this secretary could be devolved the administrative tasks
related to the work that the committee carried out. However, this raised
the matter of costs, for the secretary was to have a salary of 10 guineas per
annum. The solution was the decision in January 1799 to charge those who
frequented the Stock Exchange building 5s. each, which would meet the
salary of the secretary and the other costs of the committee. Modest as this
sum was, many who used the building on a casual basis would have
34
Carter, Getting, Spending, 136; Neal, Financial Capitalism, 211; Wainwright, Mullens,
6, 8, 14, 17. For the experience of the Dublin securities market at this time see W. A. Thomas,
The Stock Exchanges of Ireland (Liverpool 1986), 44, 48–9.
FROM MARKET TO EXCHANGE, 1693 –1801 35

resented being expected to pay it. The result was a real dilemma for the
committee—how were decisions to be enforced when the expansion of
business was drawing into the market ever more new brokers who were
unwilling to abide by accepted customs; and how was the necessary admin-
istration of the market to be financed if not all those using it would pay,
voluntarily, the annual fee.35
On 7 January 1801 the Committee of Proprietors, representing those
who owned the Stock Exchange building, suggested that it should be
converted into a Subscription Room. These proprietors were also major
users of the market like John Capel and David Ricardo. The proprietors
calculated that they would get an acceptable return on their investment in
the building if a minimum of 200 subscribers were recruited, with each
paying 10 guineas per annum. The income of £2,100 per annum that would
result was deemed sufficient to pay an acceptable return on their capital
investment as well as to meet all running and administrative expenses.
Clearly, the expansion of business and the appearance of an increasing
number of full-time brokers and jobbers created sufficient optimism
that those numbers would sign up as members. On 12 January 1801 the
Committee for General Purposes, representing the users, met and endorsed
the plan. On the following day, the following notice was posted in the
Stock Exchange building under the signature of E. Wetenhall, secretary to
the proprietors.
The Proprietors of the Stock Exchange, at the solicitation of a very considerable
number of the Gentlemen frequenting it, and with the unanimous concurrence of
the Committee appointed for General Purposes, who were requested to assist them
in forming such regulations as may be deemed necessary, have resolved unanimously,
that after 27 February next this House shall be finally shut as a Stock Exchange,
and opened as a Subscription Room on Tuesday 3 March at ten guineas per Annum
ending 1 March in each succeeding year. All persons desirous of becoming
subscribers are requested to signify the same in writing to E. Whitford, Secretary to
the joint committees on or before 31 inst. in order to their being balloted for by the
said committees.36

Thus, on 3 March 1801 a London Stock Exchange formally came into

existence that not only provided a market for securities but also incorpor-
ated regulations on how business was to be conducted. Furthermore adher-
ence to these rules and regulations was monitored and adjudicated by a
committee, including full-time administrative staff, and enforced by the
threat of expulsion from the market. By this act the trading of securities in
London had moved, decisively, from an open to a closed market as the only
way of ensuring that all those who participated both obeyed the rules and

35
Minutes of the Committee of the Old Stock Exchange, 19 Dec. 1798, 3 Jan. 1799, 9 Jan.
1799, 3 Apr. 1799, 8 Aug. 1799.
36
Old Stock Exchange minutes, 12 Jan. 1801; Wainwright, Mullens, 8.
36 FROM MARKET TO EXCHANGE, 1693– 1801

paid for the necessary administration. With 363 members by February 1802
the move did appear to have been a successful one.37
Though those who were members of this new Stock Subscription Room
in 1802 traced their origins back to the opening of the Stock Exchange
building in 1773, that was but a stage in the transition of a securities market
into a stock exchange.38 Close as they were to what was taking place they
were unaware that by controlling admission, introducing full-time admin-
istration, and enforcing rules and regulations, they had actually formed an
institution that was far more than the collective actions of those who traded
in securities. Certainly, the development of a securities market in London
can be traced back to the seventeenth century, with the creation of a
permanent government debt in 1693 being of fundamental importance.
Certainly the opening of a building in 1773 which was dedicated to the
provision of a market for securities was of importance in furthering that
market. However, so were a series of other developments and improvements
such as the appearance of brokers and jobbers and the use made of options,
time bargains, and settlement dates. Taken together it can be suggested that
the creation of the Stock Subscription Room in March 1801 was not simply
another milestone in the progress of the London securities market but the
beginning of a formally organized institution which was to have an impor-
tant influence on the way the securities market itself developed at home and
abroad, in the years to come.

37
Old Stock Exchange minutes, 13 Jan. 1801, 23 Feb. 1801; LSE: Committee for General
Purposes, minutes, 2 Mar. 1801, 4 Mar. 1801, 27 Mar. 1801, 17 Feb. 1802.
38
LSE: General Purposes, 24 Feb. 1802.