The Global Securities Market: A History

By Ranald C. Michie | Go to book overview
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6
Crisis, Crash, and Control: 1914–39

SECURITIES MARKETS DURING THE FIRST WORLD WAR

Despite the possibility that a major European war could have broken out at any time in the 10 years before 1914, neither national governments nor financial markets had made any provisions for such an eventuality.1 Governments had no plans to deal with a financial crisis resulting from the imminent threat of war or with the complex international transactions that linked national securities markets together on a minute-by-minute basis.2 They had certainly not consulted those running the stock exchanges even though they could not have been unaware of how integrated such markets had become, as exhibited by the global nature of speculative booms, collapses, and crises. Consequently the approach to war and its actual outbreak came as an enormous shock to those dealing on the securities markets, and one for which all involved were totally unprepared. An expert on stock exchange law, Schwabe, writing in 1915, recounted what had happened from the perspective of an observer in London.

During July, owing to the European crisis and the great demand for money, enormous
selling orders were received on the stock exchange, prices fell heavily, and many
persons, including a large number of foreign clients of London, brokers with large
accounts open, defaulted. On July 28th war was declared between Austria and Serbia.
In the last three days of the month several foreign exchanges were closed, and there
were several failures on the London Stock Exchange. Unless steps had been taken to
prevent it, there would have been a number of further failures among the members of
the stock exchange, and a large number of other persons would have been inevitably
ruined. The stock exchange met the situation by closing its doors on July 31st and
keeping them closed, and by passing emergency regulations and rules. On August 3rd
there was passed the Postponement of Payments Act, giving power to His Majesty by
Proclamation to declare a moratorium. On August 4th Great Britain notified the
German Government that a state of war existed between the two countries. Since that
date the moratorium has been extended, the Courts (Emergency Powers) Act has been
passed, trading with the enemy has been dealt with by statutes and proclamation, and
the Government has propounded a scheme for the assistance of both lenders and
borrowers of money on the stock exchange. The Committee of the stock exchange has

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