Published almost a hundred years ago now, Reminiscences of a Stock Operator by Edwin Lefèvre is more than an investment book. It is something of a novel, set in fin de siècle New York and revolving around a certain stock trader named Larry Livingston. This Larry Livingston did not exist, at least by that name, having been Lefèvre’s creation though based on a real man, the successful yet anguished stock trader Jesse Livermore. The book is an account of the success of a speculator, though one cultivated in the questionable practices of market participants in his time.
Though the type of novelistic exposé employed by Lefèvre is a modern genre, similar accounts in different forms are decades, even generations, older. Across the sea in London, crises in 18th century British finance encouraged many to write about the seedy operations of the London markets. These included large multinational financial crises in 1720 and 1772. The terminology may differ, London’s stockjobbers take the place of Lefèvre’s stock operator, but the foul setting is not altogether different.
Stockjobbers
In 18th century London, the financial markets, or at least the trade in shares of stock, were centered around Exchange Alley (known at the time as ‘Change Alley’). This narrow path connected Cornhill and Lombard Streets in central London; the Bank of England, the Royal Exchange, and other important institutions were close at hand. Operating here were the stockjobbers, traders dealing in stocks and bonds. The stockjobbers traded both in shares of private companies and, more importantly, in the bonds issued by the British state, the Bank of England, the South Sea Company and the East India Company, the largest borrowers in London’s markets.
It may sound like a curious term, stockjobber. ‘Jobbing’ referred to frequent changes in employment. So, just as an itinerant worker who changed employers often might be called a ‘jobber’ so to would a trader frequently adjusting the employment of his capital instead of his labor. The stockjobbers were traders, the 18th century ancestors to Livingston and Livermore. They also had their own share of dubious practices and public dislike. Among the exposés written about the stockjobbers was Every Man His Own Broker by Thomas Mortimer, first published in 1761. It was written for those investors looking to protect themselves from the unscrupulous stockjobbers. Thus, like Lefèvre’s Reminiscences, it was part exposé and part investment guide.
“… the iniquitous art of stock-jobbing has sprung, like a great many other abuses, out of the best of blessings, Liberty …” – Every Man His Own Broker, Thomas Mortimer
The Iniquitous Art
Thomas Mortimer called stockjobbing an “iniquitous art” for the various abuses it inflicted on the investing public. Among these was the pervasive spreading of rumors. Both Lefèvre and Mortimer reveal the power of mere gossip in the markets. Lefèvre’s Reminiscences detail how company insiders spread “a flood of bull rumors” about a firm called Tropical Trading in order to bring about a short squeeze, a situation where those having sold borrowed stock are forced to repurchase it at higher prices to return it to their creditor. A short squeeze favors those who want the stock to go higher. Spreading falsehoods was just a part of the trader’s toolkit. In Every Man His Own Broker, Mortimer frequently points out the stockjobbers’ proclivity for spreading false news and the gullibility of the investing public.
“if a magistrate of a renowned city, whose government is in alliance or at peace with us, sends over a letter to his correspondent at London, in which he assures him, that on such a day, and at such a place, the French gained a considerable advantage over the allied army, … those who want the stocks to fall, take the utmost pains to propagate the intelligence, and to enlarge on the authority, credit, and veracity of the letter-writer” – Every Man His Own Broker, Thomas Mortimer
Thomas Mortimer’s depiction of the markets resembles that of Lefèvre in still other respects. In both 18th century London and turn-of-the-century New York, financial speculation was regarded as a form of refined gambling. Lefèvre’s Reminiscences likened old “bucket shops” to casinos and depicted the common speculator as little more than a gambler, placing bets based on hope with little to no sound logic behind predictions for the movement of stocks. The book was rife with the language of gambling and games. Mortimer likewise explained the appeal of stockjobbing as a quicker path to riches than trade or industry, like gambling but with higher stakes than any card game and with fewer rules.
“The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity.” – Reminiscences of a Stock Operator, Edwin Lefèvre
“… let it be considered, that in some, at least, of our grand card assemblies, all foul play is excluded; and the chances are equal, except where superior skill in the game gives the advantage. Now no superior skill in any game at cards can give an advantage equal to that, which the crafts and subtilties practiced by the old standards in the Alley give them over the young and unexperienced …” – Every Man His Own Broker, Thomas Mortimer
It is worth noting that Mortimer unfavorably compared stockjobbing to gambling; the former was even worse than the latter. Unlike a game of cards where some may have the advantage of skill but no player has an advantage in information, the markets were rife with insider trading. The foreign magistrate in the earlier quote from Every Man His Own Broker not only spreads inside information about a military setback to his brokers but also goes on to trade for himself on the news. Such was the ethics of the markets in those days that even Mortimer does not reprimand the magistrate for this action but rather focuses on the rumor mongering of the speculators.
“… a man who enjoys any considerable post in the nation, by which he may be supposed to have the earliest intelligence of all events that can tend either to raise, or fall the stocks, … if he happens to be a jobber, and, in order to settle a great account in the Alley to his advantage, should for once swerve from the truth, and, upon his honor, report a piece of news to be true, which is absolutely false …” – Every Man His Own Broker, Thomas Mortimer
The ‘insiders’ in Lefèvre’s Reminiscences are not public officials but company executives though they and their associates are similarly depicted as not just opportunistic but conniving. They scheme constantly to, and benefit shamelessly from, manipulating the market for shares of their own companies.
A Deceitful Trade
When Mortimer was measuring the power of stockjobbers’ “crafts and subtilties” over “the young and unexperienced” in the earlier excerpt, he was echoing an older warning. In 1713, an anthology of essays published in London titled “The Young Man’s Counsellor” warned of the evils of stockjobbers in a section on “the deceits used in particular trades and professions”. Indeed, 18th century dealers and speculators were thought by many to belong to a deceitful profession; they were listed in this work alongside quack doctors and astrologers. The description of the profession made it out to be particularly self-serving and devoid of compassion; the author was quick to the point.
“Ask him what Religion he professes, he cries, He’ll fell you as cheap as any body … Tho’ he is Wicked himself, you can’t say his Principles are so, for he has none … tho’ he has devour’d many a Trader, yet at last himself becomes a Prey to his Brethren” – The Young Man’s Counsellor, S.H. Misodolus
Lesson
Historical accounts of the operations of the financial markets in the days before meaningful regulation paint an unflattering portrait. Of course, some of this may be the product of hyperbole and prejudices that the ethics of stock operators and stockjobbers could do nothing to entirely stop. Regardless, the similarity of accounts generations apart reveals something meaningful about the markets. That the differences between the trading professions of the 18th and early 20th centuries are so little in comparison to the differences between either of those and the profession of today is a testament to how much markets have cleansed themselves in the past hundred years.
More from the Tontine Coffee-House
Learn more about Exchange Alley and one of Britain’s 18th century financial crises, that of 1772.
Further Reading
1. Lefèvre Edwin. Reminiscences of a Stock Operator. The Sun Dial Press, Inc, 1923.
2. Misodolus, S. H. The Young-Man’s Counsellor, or the Way of the World. Display’d; in Several Profitable Essays, Serious and Comical: Discovering I. The Treachery of False-Friends. II. The Tricks and Cheats … III. The Deceits Us’d in Particular Trades and Professions. Printed for Robert Gifford, 1713.
3. Mortimer, Thomas. Every Man His Own Broker: or, a Guide to Exchange-Alley. In Which the Nature of the Several Funds, Vulgarly Called the Stocks, Is Clearly Explained. … With a Supplement … with Accurate Tables of Interest … The Sixth Edition, Improved. Printed for S. Hooper, 1765.
