Anglo-American Securities Regulation--Cultural and Political Roots, 1690-1860 (review)

Anglo-American Securities Regulation--Cultural and Political Roots, 1690-1860. By Stuart Banner (Cambridge, Cambridge University Press, 1998) 318 pp. $69.95

The fascination of Americans with the stock market is hardly new. But not many know how far back in history this fascination extends or how deep are its roots in American culture. It began, Banner's book makes clear, with Alexander Hamilton's financial policies, 1790-1792, which compressed into just three years the full range of securities market and regulatory developments that took three decades, 1690-1720--or even longer--to unfold in Britain. Each country had a financial revolution, but although books have been written about Britain's, America's happened so neatly and quickly, and at the dividing line of the Constitution, that most historians have missed it.

One of Banner's goals is to study whether legal change, specifically securities regulation, results from external developments in the larger society, from internal developments in the legal profession, or--as he finds--from both. This leitmotif, however, is relatively unintrusive. The book is truly a work of interdisciplinary history, combining legal scholarship, insights from economics and finance, forays into British and American history, and many snippets from English and American literature. All of this interdisciplinary firepower is directed at the issues of how a new species of property--namely, securities (stocks and bonds)--were introduced to traditional British and American society and how each society quickly developed a love-hate relationship with securities speculation. Banner also discusses how regulation was used to preserve the new wealth-generating powers and curb the fraud and trickery of "stockjobbers," the corruption of politics by wealthy securities holders, the supposedly unproductive diversion of resources into speculation, and the bad effect on society that was thought to result when such undeserving market participants as lucky plungers and Jews became wealthy. Although indictments along these lines were made in both countries, the fact that they were far more muted in America than in Britain may well explain why the United States became, and remained, the premier "equity" (stock-market) culture. Americans were less class-conscious than Britons, and more aware that their initially poorer but faster-growing economy depended on capital mobilized by securities issues and the liquidity of capital furnished by securities markets.

Legislatures in both countries, Banner shows, passed laws against customary stockjobber practices. The practices persisted anyway, tolerated, or even encouraged, by the court decisions of judges who often owned securities. Supposedly illegal practices were permitted contractually by private stock-exchanges, and were enforced by exchange sanctions when redress in the public courts would have been impossible. The tension between such industry self-regulation and regulation by public authorities still remains.

Banner drops his examination of Britain c. 1790, treating it as background for the U.S. developments that began at that time. Hence, his title is somewhat misleading; his study leaves room for further comparative work. Moreover, his contention that securities markets were much less important in his period than they are today is debatable. Others would argue that these markets were significant advantages possessed by Britain and the United States in their rise to world economic and political leadership. Nonetheless, Banner's is an excellent book, partly for showing that most of the issues concerning modern securities regulation were raised, if not always resolved, before 1860.

Richard Sylla
New York University

...