The Emergence of the London Stock Exchange as a Self-Policing Club
Edward Peter Stringham
Fayetteville State University - School of Business and Economics; Texas Tech University - Rawls College of Business
Journal of Private Enterprise, Vol. 17, No. 2, pp. 1-19, Spring 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.
Number of Pages in PDF File: 17Accepted Paper Series
Date posted: September 16, 2010
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