Commerce and the Royal Exchange

Merchants involved in long distance trade needed to raise large sums to stock their ships at the beginning of voyages, which they might not recover until months later when the ships returned.  They sustained losses, from shipwreck and piracy but also made substantial profits when a voyage succeeded. From an early date they had advanced loans to each other, pooled resources to spread risks, and negotiated deals for the purchase of commodities that had not yet arrived in port.  Large merchants also maintained factors in foreign ports to manage their business interests, while foreign merchants did the same in London. Through these factors merchants were able to negotiate complex exchanges involving suppliers and retailers in more than one country.  But until the late sixteenth century, there was no single place in which to engage in these business activities. 

In 1565 a wealthy merchant named Thomas Gresham offered to erect a building to serve this function, modeled after the Bourse of Antwerp, then the leading commercial center of northern Europe.  The City accepted his offer and a few years later year Queen Elizabeth dedicated Gresham's new edifice along Cornhill and Threadneedle streets.  

The Royal Exchange, as it became known, was a large building with an arcaded interior courtyard that served as the hub of London commerce until the Fire destroyed it in 1666.  Within three years a replacement, designed by the City's Surveyor, Edward Jerman, had been built, with a courtyard similar to its predecessor and the large clock tower shown in the illustration at right.  A handsome building embellished with statues, it was described by a French tourist manual of 1693 as "the first thing to see" in London.(1)  Merchants dealing in specific commodities or trade with particular parts of the world met by custom in designated spaces within the courtyard, exchanging information and concluding agreements.  Sometimes they adjourned to a nearby coffee houses to continue negotiating in more comfortable surroundings.  Foreign merchants also frequented the Exchange, giving it a cosmopolitan and exotic atmosphere that some Londoners relished.  Joseph Addison commented in 1711 that on his visits, "sometimes I am jostled among a body of Armenians; sometimes I am lost in a crowd of Jews; and sometimes make one in a group of Dutchmen.  I am a Dane, Swede or Frenchman at different times, or rather fancy myself like the old philosopher, who upon being asked what countryman he was, replied that he was a citizen of the world."(2)

In the late seventeenth century, especially after the creation of a funded national debt in 1693, a new category of stockbrokers emerged in London.  Instead of dealing in commodities they bought and sold shares in large trading and financial companies, which were expanding in size and number in this period. In 1689 a total of fifteen joint stock companies had a combined value of £900,000, while by 1695 there were 150 companies, worth £4,300,000.  The number of investors buying and selling shares in these ventures increased many times over: according to modern estimates between 1,000 and 6,000 changed hands each year between 1694 and 1717, rising to 17,172 in 1718 as the South Sea Bubble ran its course.  Brokers were not allowed within the Royal Exchange, so they instead settled into nearby coffee houses, consolidating the position of the neighborhood around the Exchange as London's financial district.

1.  F. Clsoni, Le Guide de Londres, ed. Walter Godfrey (Cambridge, 1951), pp. 7-8. 

2.  The Spectator 69 (May 19, 1711) quoted in Cynthia Wall, The Literary and Cultural Spaces of Restoration London (Cambridge, 1998), p. 170.

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