Rise of the Stock Exchange

Throughout the early modern period, moneylenders had sold debts to other lenders and to individual investors. Major trade centres such as Venice – which had a monopoly on the spice trade through India thanks to Arab merchants – developed sophisticated accounting technologies like double-entry bookkeeping to maintain control over increasingly complex trade systems. In 1530s Antwerp, brokers and money lenders would meet at the Bourse to deal with business, government, and debt issues, exchanging promissory notes and bonds rather than stocks.

In the 1600s, merchant companies were established in the Netherlands, Britain, and France in order to expand these profitable systems even further, exploiting the riches of America, Africa, and the East through increased exploration. These were known as ‘joint-stock companies’: they issued stock and encouraged investments for various ventures or projects. This limited the risk of a ship lost to pirates, weather, or poor navigation, protecting its owners and investors, and allowing the companies themselves to increase their shares and build larger fleets.

There was a boom of these kinds of companies in the late seventeenth and early eighteenth century. Investors could commit capital to an ever-broadening range of projects, from the invention of new scientific instruments to the recovery of lost treasures on sunken ships to the large-scale manufacture of cider. The widespread popularity of joint-stock investments also influenced the creation of secondary financial markets for insurance, equities, and derivatives.

In 1571, the English financier Thomas Gresham and Sir Richard Clough had founded the Royal Exchange in London on the model of the Antwerp Bourse. But stockbrokers tended to operate from surrounding coffeehouses such as Jonathan’s and Garraway’s, where the prices of commodities such as salt, paper and coal were listed on the walls along with daily exchange rates. The financial press thus expanded alongside the growth of newspapers and magazines, obtained and debated in coffeehouses and other public spaces, which catered to the expanding public demand for profitable information of all kinds. Navigating the flows of rumour and opinion in these spaces was a treacherous task.

Cultural writers criticised the ‘Projecting Humour’ of the age for, as Daniel Defoe said, it was increasingly difficult to distinguish between ventures that ‘tend to the Improvement of Trade, and the Employment of the Poor, and the Circulation and Increase of the publick Stock of the Kingdom’ and those ‘fram’d by subtle Heads… to bring People to run needless and unusual hazards.’[1] There was a lot of deliberate fraud alongside general experience, and a lack of resources required for adequate analysis of activity. Those who made their fortunes in speculation and ‘stock-jobbing’, even if they became fantastically wealthy, were treated with disdain and suspicion.

The government made various attempts to regulate the stock market in this period. In 1697, Parliament passed an act placed heavy penalties on those brokering without a license. The Bubble Act of 1720 supposedly sought to prevent instability in the market as hundreds of joint-stock companies rose rapidly and then fell, declaring ‘illegal and void’ all business that raised money or offered shared in the manner of a chartered company without the royal government’s position. Ultimately, however, such attempts were lacklustre or deliberately disingenuous, merely paying lip service to the political and economic criticisms of the time. The British state was propped up by the stock exchange through individual association and mutual agreement, and members of the English government were personally making too much money from such practices to give them up.