Shattered Dominance: The First World War, 1914-1918
On the eve of the First World War the London Stock Exchange was the dominant institution of its kind in the world, whether measured by activity, variety, connections, or sophistication. Its members were at the heart of a world-wide network linking the most important individual and institutional investors with the largest corporate and state borrowers. Simultaneously, the relationship with the numerous and thriving provincial stock exchanges ensured that the contribution of London to the development of a global securities market was not at the expense of its domestic counterpart. The functions performed by the London Stock Exchange also made it central to the operation of the world's money and capital markets. Dealings in securities gave to the money market the liquidity and mobility that ensured that crises were diffused before they could threaten the stability of the entire financial system, whether within Britain or internationally. Similarly, the range and depth of trading in securities made that form of finance the preferred option throughout the world as both governments and business sought long-term funding for capital intensive projects. By the end of the First World War all these accomplishments of the previous century had been damaged in some way, to the detriment not only of the Stock Exchange itself but also the stability and flexibility of the entire world economy. Inevitably a major and prolonged conflict, involving the principal economies in the world, would have serious repercussions for an institution that was both open and international in its orientation and operations. However, the Stock Exchange was not simply an innocent bystander but an important player in the events as they unfolded and the reactions they produced.
Certainly the outbreak of war, on 1 August 1914, came as a shock to the members and management of the London Stock Exchange. Rumours of war had always been an influence on market sentiment but no thinking, let alone planning, had been carried out on what to do if a major conflict did break out. Kirkaldy noted in 1915 that '. . . the outbreak of war took the financial world by surprise . . .', while Hartley Withers view, in the same year was