The London Stock Exchange: A History

By Ranald C. Michie | Go to book overview

Conclusion

As both a market and an institution the London Stock Exchange occupied a central position within the British financial system. As Britain was such a key component of the world economy from 1700 the result was to make the London Stock Exchange central to the operation of the international financial system, for much of the period. Thus, in dealing with the history of the London Stock Exchange one is examining an institution of immense importance and influence. Unfortunately, the role it performed went largely unrecognized by both contemporaries and later historians. The raising of capital for governments and business is largely attributed to those who actively mobilized the funds, such as the investment banks, with little comprehension of the role played by the existence of a market where the resulting securities could be traded. The provision of the credit required by industry and trade is attributed to the commercial banks, who collected and lent the savings of the nation. There is limited understanding of how the existence of transferable securities and an organized market blurred the distinctions between the short- and long-term use of such funds. The successful operation of an international monetary system before 1914, and its collapse and its reconstruction thereafter, is identified with the functioning of the gold standard and the guiding influence of central banks and not the presence of an exchange where the international ownership of assets could be traded. Throughout its history the prime function of the London Stock Exchange, as an organized market for existing securities, has been down- played because of its association with speculation. Instead of trying to investigate the causes and consequences of this constant buying and selling, the assumption is made that, because it is rooted in the individual's desire to sell--not produce--for a profit, it does not perform a function within the wider economy. Consequently, the existence of the London Stock Exchange can only be justified by attributing to it the activities of others, such as those issuing securities and the use government and business made of the finance so obtained.

At the same time there is a tendency to see the entire period, until the more recent past, as one when markets, of whatever kind, operated autonomously. Markets were neither organized nor regulated by governments but left to the free operation of Adam Smith's hidden hand, through

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