London, Telegraph, and the World

Improvements in infrastructure had tremendous effects on both trade and finance, perhaps most notably in the 19th century. Canals and railways first connected cities within countries and then connected continents. These improvements made trade in merchandise and commodities more efficient, creating opportunities for exchange that did not previously exist.

Even communications technology, like the telegraph, which did not facilitate the physical movement of goods could still make trade more efficient. The telegraph allowed markets to become more globalized and better informed; markets could reflect reality much more closely than they could before. In the second half of the 19th century, telegraphy increasingly kept London abreast of events in the country and the world and kept inquiring financiers and investors informed of movements on the stock exchange sooner than a newspaper could.

News

The most obvious consequence of the telegraph was quicker dissemination of news. In Britain, this meant a newspaper in the provinces could receive the latest news from the capital as quickly as a London paper could. Before then, London newspapers could pick up on a story first and smaller papers often received word of the same only when newspapers from the capital arrived by mail train, giving them an extraordinary disadvantage.

Further, no newspaper, especially a provincial paper, could rival the ability of the Times of London to supply foreign news, as they had a network of foreign correspondents difficult to replicate. The advent of the telegraph leveled the playing field and this may have helped encourage the launch of new papers. Whereas in 1846, there were just fourteen daily newspapers in Britain; by 1880, there were nearly one hundred forty and over two hundred by 1900.

To make access to the technology more equal, the government nationalized telegraphy by the Telegraph Bill of 1868. Delivering news had been an afterthought of the private telegraph companies as they prioritized specific ‘paid-for’ telegram messages over subscription news services. News was transmitted over lines on otherwise off-peak hours. At the same time, postal reformers had been motivated by a desire to better connect the country, especially the country outside London, and saw nationalized telegraphy as an extension of their earlier efforts with post. After nationalization, the General Post Office was required to offer all customers equal access to news.

Central Telegraph Office, General Post Office, London (Source: Illustrated London News, 12 December 1874)

Britain

Besides newspapers, the telegraph had other effects on the country. Among the first applications of telegraphy was to alert port cities of incoming ships approaching a channel, so telegraph lines were laid between Liverpool and Holyhead in Wales and from Hull to Spurn Head, the southernmost point on the Yorkshire coast.

Elsewhere, cities with important markets for the same commodities could be linked by cables with benefits to commerce. Fishermen and fish traders could keep abreast of catches, which made prices more reflective of current conditions, itself particularly important for perishable commodities like fish. Pairs of cities like Glasgow and Middlesborough which both had markets for iron, became linked in similar ways. Eventually, the prices for corn and cotton at the point of export, like New York, would be known in places of import, like Liverpool, almost instantaneously. So, the integration of markets was a notable effect of telegraphy, not just within Britain but also between Britain and the world.

The World

A small handful of companies and press associations drove the communications revolution that telegraphy facilitated. Paul Julius Reuter established Reuters in 1851, as soon as England and France had become linked by telegraph. Before the days of telegraph, Paul Julius Reuter had resorted to conducting business on the continent with carrier pigeons.

Reuter used his connections to build a network of agents to supply news to Reuters in London, which would act as clearinghouse for news delivered from abroad by telegraph, deciphering it, translating the text into English, arranging the news into bulletins, re-encoding it, and selling this on to customers, delivering the product by telegraph. Reuters supplied Britain with foreign news and distributed British news abroad. It was essentially a monopoly in this area, a monopoly the company obtained from the private telegraph firm, Electric and International Telegraph Company, itself a private monopoly before the nationalization of 1868.

Paul Julius Reuter had previously worked in Paris with Bernhard Wolff and Louis Havas who founded what would become the other great press firms of Europe, Wolffs Telegraphisches Bureau and Agence France-Presse. Reuters also had contracts with other news agencies such as New York’s Associated Press, a syndicate of New York newspapers leveraging a relationship with telegraph companies to sell news to other newspapers. To organize against this monopoly, the Press Association, was formed to represent the interests of provincial papers in negotiations with London newspapers and Reuters. However, eventually the Press Association would merge with Reuters in 1925.

In any case, since businessmen would be willing to pay more for news, Reuters served financial and merchant firms in London and its reporting focused on events affecting trade. In the week after the assassination of Abraham Lincoln, which just barely preceded the completion of a functional telegraph cable beneath the Atlantic, Reuters could not report news beyond Europe so quickly. So, Reuters’ distributions to London newspapers that week instead focused largely on wars and politics, shipping and commercial news from the British Empire and elsewhere, and stock, bond, and commodity prices on European markets. In this period, news from Africa, Australia, and South America and much of Asia was light.

Just over fifteen years later, during the week of the assassination of Tsar Alexander II, the Reuters news dispatches to London newspapers reveal a faster relay of information and a much more connected globe. News could now arrive to London from Europe, Africa, and North America almost instantly and be disseminated with the next edition of the newspapers. By now, news from New York could be in the pages of London newspapers within two days as compared to fourteen days in 1866.

The focus of the Reuters telegrams continued to be commercial and political news from the principal cities of Europe and the United States. The New York markets were now of greater importance, no doubt in large part because of the timeliness of that information as compared to in the past. By 1900, Reuters had about 260 offices and correspondents. However, telegraphy was not just useful in connecting distant cities, the technology also connected nodes within cities and these had importance to the financial system as well.

The City

To London financiers and investors, one of the most important telegraph operators was the Exchange Telegraph Company, or Extel, established in 1872. A stock ticker service had been established in New York four years earlier by Western Union and Extel offered the equivalent in London.

Reporters working out of a small hall just off of the London Stock Exchange’s main trading floor would relay prices to telegraph operators. They would send the prices to a relay station at Bartholomew House, on the northwest corner of the stock exchange. From there, prices would be sent by overhead wires run from the stock exchange, along the roof of the Royal Exchange to the south, and then west to Extel’s central office at 17 and 18 Cornhill where there were batteries strong enough to relay the information to different circuits connecting the stock ticker machines of clients. Stockbrokers invested in these stock ticker machines for their business.

Compared to the Western Union business in New York, Extel was required to restrict access to the stock price data as a condition for entry to the London Stock Exchange. The exchange feared that dissemination of price information would reduce the usefulness of exchange membership or facilitate the creation of markets elsewhere. Telegraphy in the United Kingdom was also shaped by the monopoly of the General Post Office over telegraphy. The GPO required that Extel only transmit prices within a nine-hundred-yard radius of the stock exchange and to do so equally to all subscribers.

Further, Extel relied on stockjobbers, the market makers on the stock exchange, to report prices to their reporters and in turn their telegraph operators. The jobbers though were accused of manipulating the reported prices of securities. Prices recorded on the tape were often simply bids or offers and not necessarily the prices of completed trades. Subject to restrictions and dependent on questionable sources of data, many in London lamented that their stock ticker service was so poor compared to the system in New York.

Nonetheless, soon after Extel’s launch, the London Stock Exchange loosened the rules that restricted the service to exchange members. The General Post Office also allowed Extel to set up a new office near Charing Cross to extend access to its services to various West End clubs and hotels. In 1876, Extel was given still further access to the public in exchange for the GPO receiving larger royalties. The GPO also noted that as a one-way service, Extel’s operations actually brought more business to the Post Office as users sent orders to the Stock Exchange after receiving price updates from Extel.

In 1887, Extel opened offices far from London, from Brighton to Glasgow and Edinburgh. Extel reporters also relayed news and prices from New York, Paris, Berlin, and Frankfort. Around 1900, the London Stock Exchange intervened in favor of a reformer among Extel’s staff by demanding that prices reported on Extel’s system be verified by a second person, typically the broker who placed the order to the jobber in the first place.

Overall, Extel made it easier for the general public and brokers who were not members of the London Stock Exchange to trade in listed shares. These investors could now react to market sentiment in a timely way. However, this arguably did not make markets more sensible even if they were more efficient. The telegraph made it easier to chase the momentum of the market, perhaps causing even more irrational behavior. In any case, the investor itself certainly hadn’t become any more rational.

Lesson

The telegraph changed finance not only by connecting distant markets, such as London and New York; telegraphy also connected closer cities and sites within a city. These connections were also critical to bringing institutions like the London Stock Exchange into the modern era. Now, prices could become global in nature. The price of a security in London could be the same as the price in Paris. Except for transportation costs and very short-term dislocations, the price of a commodity in New York could match closely its price in Liverpool. As the first such long distance medium of exchanging information, telegraphy did more for finance than telephony and the internet. However, this is not to say markets were made more rational, if they were more efficient.

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Read about the stock ticker machine and how despite the advances in telegraphy, including wireless telegraphy, there was still much confusion in the aftermath of the sinking of the Titanic, keeping insurers on their toes. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.