Abstract: After the Glorious Revolution of 1688, the exchanges that took place in London coffee-houses contributed significantly to the growing economy of England. News was shared and business practices were born during the late 17th and early 18th century. People saw an opportunity to conduct business by exploiting this spread of information and using it to engage in the trading of stocks and handling of money. As a result, the stock market was created. Men used this exchange of information to spread news of stocks and attract people to invest into businesses to further individual economic achievement.
Keywords: Stock Market; Coffee-houses; Stocks; News, Jobbers; South Sea Bubble, Jürgen Habermas.
Habermas' Concept Definitions
Habermas defines the public sphere as “a realm of our social life…” (198). The definition of public sphere also presupposes that “a sphere which mediates between society and state, in which the public organizes itself as the bearer of public opinion” (198). This supports his claim that the public sphere must be separate from the government.
Habermas asserts that “access is guaranteed to all citizens” regardless of their gender, social class, race, age, or religious belief (198). He also claims that the public sphere fosters rational debate through political, economic, artistic, and literature disputes (33). The public sphere is a place where public opinion can be created through the “realm of social life in which something approaching public opinion could be formed” (198).
The public sphere, according to Habermas (1980), is a place where people can put aside their private interests for the collective good (198). Habermas further establishes that a transparent government that provides accessible information to the public allows the political public sphere to gain an institutionalized win over the government (198).
People gain information through the media and Habermas states that, “today newspapers and magazines, radio and television are the media of the public sphere” (198). Habermas believes that a key concept of the public sphere allows for people to express their own opinions and tolerate others’. He argues that “citizens behave as a public body when they confer in an unrestricted fashion- that is, with the guarantee of freedom of assembly and association and the freedom to express and publish their opinions—about matters of general interest” (198).
The Influence of London Coffeehouses
London coffee-houses became the center of the London’s public sphere during their Golden Age between 1680 and 1730 (Habermas 33). The city’s political and economic atmosphere was changing during this period because of social gatherings in coffee-houses (Ellis 175).
These coffee-houses altered how citizens conversed with one another and were critical to changing the social scene throughout London. The foundations of a stock market was born in these coffee-houses, where business took place and people traded information (175).
In the course of the second half of the 17th century, Londoners started to rely increasingly on coffee-houses when they were conducting business or seeking information about political developments – both domestic and international. London’s financial institutions, specifically the stock market, grew as a result of coffeehouses and their ability to spread news of stocks by different means such as social interactions, newspaper printings, and stock jobbers (174).
Fresh Off the Press: Hot Coffee, Hot News
Coffeehouses located near the Exchange Alley, right across the street from the Royal Exchange, were known for the gatherings of businessmen. Ellis claims that by 1700 they became a de facto “extension of the trading floor of the Exchange itself, offering a warm and dry place where business could continue after the official hours had finished” (169). The convivial sociability that the coffeehouses created was conducive for business and the spread of information, gossip, and news.
News was essential for business, and Samuel Pepys concluded in his diary written during the 1660s-1670s that with the possession of information people could become rich. During this time in London, the Republic ended in 1959 and the Restoration period began. The Restoration was a period of growth for London in which coffeehouses grew as well. Coffeehouses became a place for civil discourse and lively debates to be held.
Pepys visits a coffee club called The Rota, located in New Palace Yard, where he met Mr. Harrington, the chairman of Gold. Harrington would debate issues related to his theory that property owners should form the legislative bodies (50). “I went to the Coffee club and heard very good discourse,” wrote Pepys (cited in Ellis) in his diary on January 14, “it was in answer to Mr. Harrington’s answer, who said that the state of the Roman government was not a settled government, and so it was no wonder that the balance of propriety was in one hand and the command in another” (50).
Pepys valued the information he overheard during his increasingly frequent visits of various coffee-houses. According to Ellis, Samuel Pepys “had to learn by experience that a successful performance in the market depended upon the knowledge and information he could collect” (171). Through his experiences, Pepys discovered the mutual relationship between news and business.
The Big Bang: The Explosion of London's Economy
During the Restoration period, Charles II ruled over England. He brought high fashion, art, exuberant festivities back to the London citizens who had been deprived of this during the Republic. The Great Plague and the Great Fire devasted London in 1665 and 1666. King Charles II held power until he died in 1685 when his brother King James II then became England's new ruler.
During the Glorious Revolution in 1688 King James II was overthrown and his Protestant daughter, Mary II, took the throne. This switching over of power during the Glorious Revolution resulted in London changing from an absolutist monarchy to a constitutional monarchy (Augustyn et al.).
After the Glorious Revolution (1688), London underwent a “financial revolution” and became the largest market for international trade (Ellis 171). Beginning in the 1690s coffeehouses began to focus on spreading news of financial information (173). The Exchange Alley became a place that was known for its trading of stocks and shares (173). Three coffeehouses in the Exchange Alley that played an essential role in the dissemination of information were Johnathan’s, Garraway’s, and Lloyd’s, which “became central to the spatial organization of the commercial activity of the London financial markets” (171).
Johnathan’s coffeehouse underwent changes in 1765 initiated by the brokers that led to a new coffee-house by the name of New Johnathan being established (180). New Johnathan’s was located behind the Royal Exchange on Threadneedle Street, at the end of Sweetings Alley (180). The name, however, did not stick and the building was soon after renamed The Stock Exchange (180).
Mr. Spectator and the Normative Ideal
Joseph Addison and Richard Steele were two gentleman writers who began the newspaper The Spectator in London during 1711. The Spectator reflected a normative ideal of what these two men believed society ought to be—and they believed coffeehouses were the place to make a man more refined and polite.
In the 69th issue of The Spectator, published on Saturday, May 19, a fictitious character called Mr. Spectator visits the Royal Exchange and records what he sees. In this issue Mr. Spectator believes that the Royal Exchange is a good thing, and in fact the empire of Britain was created due to trade like this (422).
Mr. Spectator recounts all that he observes in the Royal Exchange. First, he comments on the diversity seen in the Exchange as people all over the world are engaged in trade. “Nature seems to have taken a particular care to disseminate her blessings among the different regions of the world, with an eye to this mutual intercourse and traffic among mankind, that the natives of the several parts of the globe has a kind of dependence on one another and be united together by their common interest,” Mr. Spectator claimed. (420).
There are people of all different nationalities present that Mr. Spectator sees—Danish, Armenian, Portuguese, Russian people all are connecting through trade in the Exchange. Mr. Spectator then stands in the center of the Exchange and stares at the effigies of previous English Kings, where he imagines them “looking down upon the wealthy concourse of people with which that place is every day filled” (422).
Mr. Spectator’s account of the Royal Exchange is, however, only a normative ideal often presented by The Spectator. “The Spectator sets out an argument about what society should be like, not what it is like: like many satires, it is both critical of the present state of affairs, and reformist and utopian about the future it desires,” Ellis cites (198).
Stock Jobbers and Their Shady Practices
There is another account, written by Daniel Defoe, however, that reflects the social reality of the Royal Exchange. The author describes the physical layout of the Exchange as well as the tricks stockjobbers utilize in order to sell stocks.
The Center of the Jobbing is in the Kingdom of Exchange Alley, and it’s Adjacencies, the Limits, are easily surrounded in a Minute and a half stepping out of Johnathan’s into the Alley, you turn your Face full South, moving on a few Paces, turning Due East, you advance to Garraway’s, from thence going out at the other Door, you go on still East into Birchin-Lane, and then halting a little at the Sword-Blade Bank to do much Mischief in fewest Words, you immediately face to the North, enter Cornhill, visit two or three petty Provinces there in your way West: And this having Box’d your Compass, and sail’d round the whole Stock-jobbing Globe, you turn into Johnathan’s, and so, as most of the great Follies of Life obliged us to do, you end just where you began. (Defoe 35)
Defoe also records the practice of the stock jobbers, the men who deceive and trick in order to sell stocks. These jobbers look for a way to make money and Defoe records the social reality of their exchange with men. Defoe states that “if they met with a cull, a young dealer who has money to lay out, they catch him at the door, whisper to him, Sir, here is a great piece of news… but it must be as secret as the black side of your soul, for they nothing of it yet in the coffee-house” (4).
This is one way they would use to make money; the jobbers would pick out an inexperienced man who wants to get into trading stocks and prey on him by exaggerating claims of a certain stock.
Another example Defoe provides of a jobber who uses the spread of news for his personal gain is Sir Josiah Child. Child was the governor of the East India Company, English merchant, and an economist who lived from 1630 to 1699 (Augustyn et al.). Defoe claims that Child started this practice of tricking other traders in the 1690s.
Child would obtain a report from the East India Company about the condition of a ship and the arrival of the ship to its final destination. Child would collect this news and calculate whether or not to buy or sell the stock (13). If Child wished to buy the stock, he and his brokers would fib about the condition of the ship and its contents and devalue it. This would lower the price, so Child and his brokers are buying the stock at ten or twenty thousand pounds cheaper (14).
The third trick the jobbers utilize when they are selling stock is to mention the Pretender and spread rumors about his capture. The Pretender is really James Stuart III, son of King James II. The English refused to accept his claim to throne and so Stuart fled to Rome where he was seen as a legitimate member of nobility (Augustyn et al.).
Jobbers mention the Pretender when they are selling stock because if the Pretender dies or is captured then the English stock value increases. There are rumors spread that English spies capture the Pretender in order to raise the stock’s value (6).
The South Sea Bubble Crash
Until the beginning of the 17th century most investments were in real estate (Dale 26). However, companies began to float subscriptions in larger volumes that initiated the craziness of the stock market in 1720. If people wished to buy stocks, there were two options that allowed them to do so.
They could either go through a broker, “or deal directly, in either case by going into one of the coffee houses where shares were traded” (26). The first style of trading was a system called “matching”. Dale explains that matching is where “each share purchase was matched against a corresponding sale, the role of the broker (if a broker was used) being to match individual buyers against individual sellers (26).
There were five different transactions investors could use when investing in the stock market. The five different transactions were, “spot transactions for immediate delivery of shares; ‘time bargains’ for future delivery and settlement (‘forward’ contracts in today’s parlance); ‘refusals’ or call options which allowed the purchaser to buy (but also to ‘refuse’) stock at a stated price at some future date in return for payment of a premium; ‘put’ options which allowed the purchaser to sell stock in a similar manner; and simultaneous buy/sell or sell/buy transactions which today we would call repurchase agreements or ‘repos' (Dale 28).
These techniques were used during the emergence of the Bubble. The South Sea Bubble grew along with the growth of the stock market. The South Sea Company was connected to government debts and “evolving market for government obligations” (Dale 22).
In the year 1720, the stock market became too strained because the market valuations were so great. Dale writes that, “South Sea shares were trading in the range 900–1000 which translated into a market capitalization, assuming shares to be fully paid up, of £340– 380 million or £210–£230 million if the company’s holdings of its own shares are excluded” (132).
The Exchange Alley for example in 1720 was dealing with capitalizations that were around £300 million. The value of the shares being traded around the Exchange Alley was so great that a stock market collapse was inevitable, Dale argues. This influx of wealth into the market that had been building was what led to the downfall of the South Sea Bubble and its crash (132).
1720 brought along the market crash in Paris, London, and Amsterdam. In the case of the London market, too much capital controlled by the South Sea Company began pumping money into the market at values that couldn’t be sustained (137).
Final Analysis
The late 16th and early 17th century in London reflected both the social reality and normative ideal that was being circulated by newspapers and in coffeehouses at that time. Jürgen Habermas suggested that for the first time the public sphere was created, and for the first time that public sphere was created in the environment the London coffeehouses provided.
Habermas defines public sphere as being a place separate from the government where access is guaranteed to all citizens, rational debate is fostered, people set aside their private interests, public opinion can be created with a transparent government, a person could gain information through media, and expressing one’s opinion is tolerated.
However, while Habermas’s public sphere reflected the normative ideal, his philosophy did not completely reflect the social reality of coffeehouses from 1680-1730. The normative ideal, like the one printed in The Spectator, reflected an idea that Addison and Steele believed society ought to be, instead of what it was actually like. This did not accurately demonstrate what the social reality of the coffeehouses were like.
Writers like Defoe and Pepys wrote about the social reality of the Exchange Alley and coffeehouses. Habermas’ concept of the public sphere was correct in some of its assumptions about the coffeehouse lifestyle, but other assumptions were incorrect.
Yet, one correct concept Habermas proposed was that a person could gain information through the media. As printed news and the exchange of news increased in London, citizens collected news and educated themselves on what was happening by word of mouth at the coffeehouses.
As seen in Pepys’ diary, men would discuss politics and trade news. Pepys believed that the dissemination of news equated to becoming a rich man (Ellis 50). Later, Defoe also writes about different tactics that were used by brokers and jobbers to spread financial news and share information of stocks.
One other concept of Habermas’ public sphere that was reflected in coffeehouses was the creation of public opinion. With news traveling and being spread at each coffeehouse, people were able to create opinions and debate over them. Pepys’ writes in his diary about his experience at James Harrington’s club, The Rota.
The Rota was known for its political debates that were held and being a place where men could engage in civil discourse. Pepys’ journal entries support the concept that not only can public opinion can be created through the discussions held at coffeehouses, but it was also a place where people were able to hold rational debates as well.
However, Habermas’ concept of private interests being set aside in coffeehouses was an incorrect assumption. Defoe printed about the social reality of the coffeehouse and one of those reality’s was the way brokers and jobbers traded stocks.
By utilizing coffee-houses and their network of information, jobbers and men like Sir Josiah Child were able to manipulate the market for personal economic gain. These shifty practices were entirely executed for the jobbers’ own personal accumulation of wealth, and these dealings eventually led to the creation of the Stock Market.
The market relied on social interactions and the spread of news to function and employ jobbers. Those jobbers were crucial in expanding the number of investors and growing the influence of the Stock Market.
Overall, while Habermas’ concept of the public sphere wasn’t entirely precise in its assumption that people were able to set aside private interests, he was correct in how media and the spread of news played a role in the public sphere.
The spread of news was essential to the identity of the coffeehouses and the creation of the stock market. Ellis writes that around the Exchange Alley, news and gossip were an integrated network that led to the convivial sociability of the coffeehouses (171).
Those conversations and debates held in the coffeehouse later impacted the price of certain stocks on the market. The trading floor and coffeehouses were a manifestation of different aspects of the public sphere, both correct and incorrect, as news was shared, debates were held, and selfish brokers and jobbers played the system to increase their own personal gain.
Bibliography
Augustyn, Adam et al. “Glorious Revolution” Encyclopedia Britannica, November 5, 2019, https://www.britannica.com/event/Glorious-Revolution.
Augustyn, Adam et al. “James Edward, the Old Pretender.” Encyclopedia Britannica, January 1, 2020, https://www.britannica.com/biography/James-Edward-the-Old-Pretender.
Augustyn, Adam et al. “Sir Josiah Child, 1st Baronet.” Encyclopedia Britannica, January 1, 2020, https://www.britannica.com/biography/Sir-Josiah-Child-1st-Baronet.
Dale, Richard. The First Crash: Lessons from the South Sea Bubble. Princeton University Press,
2004.
Defoe, Daniel. The Anatomy of Exchange-Alley: or, a System of Stock-Jobbing, 2nd edition.
London: Smith, 1719.
Habermas, Jürgen. “The Public Sphere.” Communication and Class Struggle, edited by Armand Mattelart and Seth Sieglaub, International General, 1980, pp. 198-201.
Markman, Ellis. The Coffee House: A Cultural History. London: Weidenfield & Nicolson, 2004.
Addison Joseph and Richard Steele, The Spectator, edited by Alexander Chalmers, vol. 1. New York: Appleton & Co., 1853.
About the Author
My name is Jenny L'Hommedieu and I am an 18 year old freshman at St. Lawrence University. I am one of four daughters with an older sister, Natalie (20 y.o.), and two younger sisters, Suzy (16 y.o.) and Christina (12 y.o.). I live in Columbus, Ohio with my dad, mom, sisters, and pet fish.
When I'm not engaged in classes, I play field hockey for St. Lawrence's team and love watching sports. My favorite teams are the Ohio State Buckeyes, Cleveland Browns, Cleveland Cavaliers, and Cleveland Indians. Other than schoolwork and sports, I also have created a podcast, Bring the Heat, with my friends where we talk about anything and everything that is on our minds.
Just like London Coffeehouses promoted convivial sociability, I love to socialize with friends in any way (but over a meal is one of my favorites). Some of my favorite foods include sushi, pasta, pizza, taco and queso.