The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 35

Financial Fluctuations in the 18th Century? You Can Bank on It!

Did the pre-New York Stock Exchange era have financial markets that fluctuated violently? Of course, but recorded history gets a bit gray back then. London was the center of the financial world, and there were no indexes like the Dow Jones. What investors did have were individual stocks, which traded six days a week. (Stocks traded on Saturdays in the U.S., too, until the 1950s.) Stocks were speculative and prone to wild gyrations tied to company rumors.

A useful measure of the timing and approximate magnitude of fluctuations can be found in the stock price of the Bank of England, often referred to merely as “Bank stock.” The “Bank” was England's central bank and in many ways similar to the U.S. Federal Reserve System. But the Bank also competed directly with other, lesser banks, creating profit opportunities. While we can't buy stock in the Federal Reserve, in those days you could buy the Bank. Folks bought Bank stock for a safe yield with appreciation potential. What could be safer? The mentality was like that of Americans who bought prebreak-up AT&T preferred stock, when stock in a regulated monopoly-utility seemed like the world's safest stock.

But there were violent fluctuations anyway. This chart is based on Joseph Francis's 19th-century book, History of the Bank of England. It shows yearly high and low prices for Bank stock from 1732 until 1846. Look at 1769. In less than two years, Bank stock plummeted ...