At the Early Dawn of the Modern Regulation of Financial Markets: The Villainy of Stock-Jobbers (1701) and The Anatomy of Exchange Alley (1719) by Daniel Defoe

In the same year Robinson Crusoe (1719) is delivered to the press, Defoe publishes a truly magnificent pamphlet (titled ‘The Anatomy of Exchange Alley: or a System of Stock Jobbing’) in which he mercilessly exposes the serious embezzlement he observes on the London stock market, throwing himself—with tones that are at times sarcastic, at times vehement—against the speculative activities of that time. Just like Robinson Crusoe’s cannibals pounce on their poor victims, so the stock-jobbers devastate the market, manipulating it, and, in doing so, damage the stock exchange, the national economy, the Parliament, the Crown, and all the citizens of the Kingdom. The result is an apocalyptic vision of what, in the future, would become the most important financial market in Europe and that, in 1719—just before the South-Sea Bubble of 1720—was still an infant, albeit a somewhat developed one.

The text of 1719 is not a monad in Defoe’s production, nor does it represent a one-off case of grievances against the vibrant speculations on the securities market, at the time allegedly perpetrated by the jobbers. In a previous pamphlet of 1701—‘The Villainy of Stock Jobbers Detected and the Causes of the Late Run after the Bank and the Bankers Discovered and Considered’—Defoe had already harshly stigmatized the conduct of London jobbers, thus becoming part of a larger literary vein of the time.

Both in 1701 and in 1719—as I discuss in my paper—the look that Defoe throws on the London market is no less astonished than the one that poor Robinson Crusoe had at the sight of the cannibals, on the deserted island that unwillingly hosted him, for over 25 years. Instead of the horrific meal of the cannibals, in this case Defoe assists, equally terrified, to expose the feast of inveterate and unscrupulous speculators.

From the two texts—that I recently edited, fully annotated and published together with a new, original translation in Italian (F. Annunziata, A Robinson Crusoe at the London Exchange, Milano, La Vita Felice, 2019)—emerge surprising affinities with issues that, even today, are at the heart of the debate on the principles and rules that should govern the proper and efficient functioning of exchanges and financial markets. The recent, tremendous impact of the Pandemic crisis has once again placed those same topics at the center of the debate.

At the time when the two pamphlets were published, the English financial market already showed signs of considerable evolution, in many ways more significant than those of the Amsterdam  exchange, albeit both markets suffered from evident lack of rules and transparency, as can also be gathered from one of the very first texts to discuss these issues (Joseph de la Vega, Confusion de Confusiones, published in Amsterdam in 1688). This was also due to the fact that the development of that market was framed in the wider context of the so-called Financial Revolution of the late Seventeenth Century, made urgent by the need to finance the enormous efforts of the British Crown and its allies in their wars against Louis XIV. 

For a contemporary reader, the central aspects of the two pamphlets concern the importance that information plays for the good functioning of the market. This statement is more than obvious today: to assume that it was equally perceived in early Eighteenth Century in England is far from obvious. The merit of Defoe’s work lies precisely in having shown how the correct, or distorted use of information can determine the fate of markets; in having grasped that the asymmetric use of information leads to the danger of insider trading, and market manipulation, of which Defoe presents several examples, not devoid of satirical and even comical remarks. In a truly visionary passage, Defoe also anticipates markets efficiency theories by complaining that the price of the securities diverges from their (in Defoe’s wording) ‘intrinsick value’: to read this, in a document written in 1701, is truly astonishing.

Nowadays, the words used to stigmatize market abuse are perhaps less rough than the ones employed by Defoe, but the judgment of reprobation is analogous, and the reaction of the law is very harsh. If Defoe had had the possibility to read certain Recitals of Directive 2014/57/EU of 16 April 2014 on criminal sanctions against market abuse, he might have been satisfied with the awareness that the EU legislator shows in treating these issues, which, to some, may seem dense with technicalities but which, if not properly addressed, can truly compromise the proper functioning of the economy, and thereby damage ordinary citizens, just as Defoe had anticipated in his writings. The aim of making markets more transparent remains clear, but enforcement requires considerable efforts. Sometimes, fighting cannibals, as Robinson Crusoe did, might indeed be easier than fighting market abuse.

Filippo Annunziata is an Associate Professor at the Department of Law at Bocconi University.