Financialization of the Early Victorian Economy and the London Stock Exchange

Abstract

Previously unknown basic statistics are obtained about the operations of the London Stock Exchange (LSE) in early Victorian times. Integration of data from the Bank of England Archive with price reports, press coverage, and other sources produces estimates for volume of transactions, distribution of earnings among dealers, efficiency of the market, and the coverage of available price lists. For example, it is found that for some securities, prices were reported for under 20% of transactions. The LSE was surprisingly small and by some measures also surprisingly efficient. Much of its efficiency appears to have come from its deep involvement in the “shadow banking system” of that era, a connection that appears to have been misunderstood and almost completely neglected in the past. The low levels of activity, the dominance of small investors, and low cost of the system show the very early stages of the “financialization” of the modern economy and provide interesting perspectives on modern developments.