Odd Lots - This Is How Finance and Banking Worked Before Computers

Episode Date: June 22, 2023

We're used to thinking of modern finance as practically synonymous with computers. Banks are basically just big collections of Excel spreadsheets, keeping track of who owes what to whom. And most trading nowadays is done by clicking a button on a screen. But how did all this work before we had this type of technology? And what can previous technological revolutions tell us about the direction of new ones, such as the potential deployment of artificial intelligence? In this episode, we speak with Anne Murphy, history professor at the University of Portsmouth and the author of Virtuous Bankers: A Day in the Life of the Eighteenth-Century Bank of England, as well as John Handel, postdoctoral fellow at the University of Virginia McIntire School of Commerce. They walk us through just how banking and finance was done in the days before computers, telephones and even the telegraph.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Oddlots podcast. I'm Tracy Alloway. And I'm Joe Wisenthal. Joe, do you remember the episode we did with Stewart Butterfield, the founder of Slack? I do. Great episode. Software, tech. I like when we have tech and software episodes that aren't about just like the markets, but like how technology actually works. How it actually functions. Yes. All right. Well, that's a good jumping off point because there was a moment in that episode where I think it was Stuart. asked a very innocent question, which is he basically said he had no idea how banking worked

before the advent of computers. I'm glad he said that because I have no idea either. And when I, you know, when I think about money, by this point, we all sort of know like, oh, like money is, it should do a database entry, right? Well, that makes a lot of sense to me at a world of Excel. But how did like databases work? How did money as a database creation work before databases? Well, that's exactly it.

Because nowadays, I think money is almost synonymous. with an electronic database. Like that's basically what it is at this point. But of course, for hundreds and hundreds of years, we did not have things like Excel spreadsheets. So how did banking and finance and trade actually work in those conditions? Yeah, and like I just don't understand

how like people traded stocks or people went into a bank and said, I want to get my money or without like, how are they not just like always losing track of how much money people had? How are they always not just like forgetting, oh, you bought that stock? Like it's what, on pen and paper, like type? Like, in my mind, they must have been losing track of stuff all the time.

Well, I think I said this in the Stewart episode, but there were a lot of bank failures. There were a lot of trading blowups. So maybe they, you know, maybe the lack of technology was actually bad. But we do actually have the perfect guests to discuss this topic. We are going to be speaking with Anne Murphy. She is a professor of history and executive dean over at the University of Portsmouth. She just wrote a new book. It's called Virtuous Bankers, A Day in the Life of the 18th Century.

Bank of England. So the perfect person to talk about pre-computerized banking. We're also going to be speaking, this is a double feature. We're going to be speaking with John Handel, postdoctoral fellow at the McIntyre School of Commerce at the University of Virginia. He's written a lot about trade and technology in the 1800s, early 1900s. So we're going to take a journey through the history of finance. I can't wait. I'm really excited about this. I have so many questions. All right. Ann and John, thank you so much for coming. on our thoughts. Well, thank you for inviting me. It's lovely to be here. As they say in sports talk radio, a long-time listener, first-time caller. Awesome. Great to be here. Nice. So maybe I should

start in sort of, I'm going to attempt chronological order here. But why don't we start with you, Anne? I mean, you know, the clue is in the title of your book. What was it actually like a day in the life of the Bank of England in the 1700s? So it was a very busy place. The time I'm writing about is the 1780s. So it's just after the War of American Independence. And the British are having a moment of real introspection about their finances and trying to figure out whether everything is working well, which is one of the reasons that

the Bank of England kind of looks inward at itself at this time and really tries to figure out what it's doing and how it's doing it and whether it's doing it well or not. But the bank at this time, it's a 24 hour a day place. It opens at dawn. You've got customers kind of milling around from about nine o'clock onwards. And it's doing everything you would expect a bank to do. But without those excels for a cheats, you know, it's doing them all with ledgers and quill and ink. And it's my view that it does it well and it doesn't lose its customers money. It has a pretty good grasp of where everybody is and whether there's money to trade and how it does all this stuff. You said it's 24 hours. Even like the Fed, I don't think, is 24 hours, or at least

some of its operations have a certain window or the closes or certain things don't happen on weekend. So are you, is it, uh, were there certain aspects of banking that from a 24 hour standpoint were more advanced, I don't know, a few hundred years ago than there are today? So it's not necessarily operating 24 hours a day. So it's standard business day is around about nine to five. But because it can't just press an update button at the end of the day to make sure all of the accounts are updated for the start of the next working day, the, the process of updating accounts takes place in the evening. So from about four o'clock, all the way through sometimes to kind of 10, 11 o'clock in the evening,

there are clocks updating the physical ledgers so that next day when the brokers walk in or when those business owners who are there regularly walk in, their account is up to date and they're ready to go for the new business day. But the other reason it's 24 hours is because it's a vulnerable place. So it's at risk of fire. It's at risk of riot. It's at risk of people sort of wanting to break in. So it has night watchmen who are there and active throughout the night to make sure that

the bank is safe. I have a really basic question, which is what are people doing at the Bank of England in 1780? You mentioned customers sort of milling outside of the building. What are they waiting to actually do? So one thing they're not doing so much is borrowing money from the bank. So the bank's private lending is not very well advanced. They have a little bit of private lending early in the late 1600s, early 1700s, but it doesn't really take off.

What a lot of people there are doing is discounting bills of exchange. so they're borrowing money in that way and facilitating trade also in that way. They are managing notes. So they're coming to the bank to exchange ready money for bank notes, other bank notes for Bank of England notes, or their banknotes that they have back to ready money again. And the note business is huge and occupies a lot of everybody's time.

But they're also there to buy and sell government debt. So you could buy and sell government debt at the bank. It's probably the main place where you could do that throughout most of the 18th century. So that's one of the things they're there to do. So I want to get more into the sort of like pen and paper and the actual physical operations. But John, what do you come in? Talk to us a little bit about your area of focus and just sort of you're a little bit more on the trading and financial activities side. What do you talk a little bit about your specific years and area of focus in this sort of like finance and trading pre-computers? So my work is essentially the sequel to Anne's work. I pick up in the early 1800s

around when her book on the Bank of England finishes. And what's happening, I focus primarily in the London Stock Exchange. And what's happening in this period is a lot of the trading that had gone on during the 1700s went on in dispersed, often open locations, the lobby of the bank. of England, in alleyways, in coffee shops, in taverns even. But beginning in the early 1800s, there's this move to enclose financial markets and make them their own discrete spaces that would be governed by the association of brokers who are members of those exchanges. And so the London Stock Exchange adopts a new set of rules and begins to build its own premises starting in 1801 and essentially stops allowing members of the public clients.

investors, whomever, to enter the exchange. The exchange becomes solely the province of brokers. But much like what Anne was saying, the London Stock Exchange is also a 24-7 institution. It's not just the brokers who are there on the trading floor from 11 to 4, but there are armies of clerks who are responsible for settling and clearing trades after hours because the London Stock Exchange is global and it's trading with markets in North America, in Australia and Asia during the 19th century, members are there working at telegraph offices,

basically late into the night, as late as 8 or 9 p.m. And then one of the other things that's often overlooked is that there is a whole army of household servants, basically live-in servants who actually lived at the London Stock Exchange. They brought their families. They were called waiters, but they were essentially the equivalent of porters. And they worked to guard the entrances of the exchange, deliver telegrams and letters to the brokers,

keep the exchange clean, and they lived there 24-7 for most of the 19th century. So the London Stock Exchange, too, was a 24-7 institution with a very complex human ecosystem. Tracy, do you think, you know what I really want to say? I want a Netflix show that takes place in the lobby of the Bank of England.

I think like a big series of over the years. I just like, now I really want that show to exist. I think that would be perfect for like a sorkin treatment. Yes. All right. But actually, this reminds me, I was having lunch just last week with a couple of traders who were active in the 80s and the 90s. And they were talking about board boys. So they used to have board boys who would write down trades on a blackboard or a whiteboard.

I don't know. You know, who owes what to whom when there was active trading activity on the floor. But this leads nicely into my next question, which is it sounds like a lot of the record keeping or the distribution of money, the movement of money, was just. just being done by people in the 1700s and the 1800s as well. That's absolutely right. And one of the things we don't really know is how those individual stock brokers were keeping their ledgers. So if you look at images of the bank's lobby, the kind of brokers exchange,

you don't see much evidence of people writing things down. So it probably looks like a lot of people were keeping a sense of what they were doing in their head until such time as they went and registered with the Bank of England's clerks. The other really interesting thing is the Bank of England is operating an inscribed stock ledger system in which they keep the only legally binding record of stock ownership. So individuals didn't have a receipt that they would take away with them that would be legally binding. In fact, the receipt that they were given was worthless. And thus, they had to completely trust that the Bank of England could keep their ledgers straight and that could keep the sense of ownership within those ledgers, you know, completely trustworthy. I'm so glad you brought that up because I was going to go to this question of the receipt, right?

Like, we place a trade online or do some transaction. Usually these days we'll get like some email that comes from the financial entity. It might have some string of 11 numbers and letters or something that we don't really care about unless there's something that we need to go back and dispute whether something has happened. But talk to us a little bit more if like there's just these one entities in the background and they're working overnight and they're humans and they're writing things down, possibly making mistakes. Maybe both of you could talk about this a little bit. that role of trust in the institution and what happens if, you know, there's a dispute? So it's trust, but with checks and balances. So when a transaction happens, there's a buyer and there's a seller.

Both the buyer and the seller are supposed to be there to sign off on the trade, so one to sell and one to accept. It's also signed off by a clerk. There's a whole process of checking between the stock transfer. books and the stock ledgers. And also, any individual could go into the Bank of England, either them or their representatives, and they could look at the stock ledgers to check that their account stood as they understood it. So there are, trust happens, but there's with checks and balances also. So I would say in the 19th century, again, this begins to change

this process of how you've established trust in a financial market. So it was actually, quite difficult to create something like a receipt for a stock transaction, especially if you were far away from London. So if you, for instance, lived in the provinces of England, you sent an order down by mail to your broker in London. Finding a broker would be its own problem. But let's say you find one. How do you know that he got you a good market price? One of the big issues was that the rule for marking prices, for putting a price on the blackboard that would then be, you know, included in the daily price list. It was by agreement of the brokers doing the deal. So you had to actually agree with the person that you either bought or sold stock for that you would mark the price

officially. You could often not mark the price. So often the financial press calls the price list that the London Stock Exchange produce a record of bad bargains because it was essentially brokers who would be covering themselves if they got something outside of a market price for their client, they would rush to have it marked on the board so that it would show up in the newspapers or show up in a price list the next day. And they could go back to their client and say, oh, look, I got you the market price. It's here in the newspaper. It's here in the price list. Even though for most of the people that were immediate in the market, that were in the vicinity of the market that day, it was oftentimes not actually the real price or the fair price that was predominant.

So this actually sounds like the ultimate opportunity for arbitrage, right? Because you have different sources of information operating at different latencies, really slow latencies where, you know, someone is running from one location to the other location. Literally mailing your broker in London as trade request. Sending your servant to get the latest price of something. I mean, how did that feed into trading activity? Were there a lot of people trying to take advantage of that? Yeah, so the 19th century sees the emergence of the first specialty arbitrage firms that are pricing gaps in dual listed securities between different markets. But then there was also just a lot of taking advantage of sort of slow retail orders that showed up in the market.

So one of the things that happened, there's a recent paper on this, is that the introduction of something like the ticker tape, rather than making stock trading more efficient, it actually exacerbated irrational sort of trend chasing in numbers. because the ticker tape numbers that were sent out to investors far away were on a slight delay. It took some time to even via a ticker tape send out numbers. But then if you think about it, the order has to be routed back towards the initial exchange after you see a number on the ticker tape. And so oftentimes the people who are trading on ticker tape prices are smaller investors.

They send their order back to their broker. and per the name of the show, the broker would not want to place these small lots. They would wait until they had aggregated a number of orders from smaller investors that were trading off the ticker tape and only then go back into the stock exchange and place a larger block order. And so there were all of these complaints that the prices on the ticker tape were never actually accurate. You can execute a price on a ticker tape.

And so there is all of these issues with matching up the time and the latency of when information was produced, whether it was the price list after the fact, whether it was the ticker tape during the day, it was very hard to get those to actually match what an accurate market price was. So the firms that tended to do better were ones that used the telegraph and the telephone and were more professional arbitrage traders that took advantage of these prices, again, rather than retail traders that had to rely on things like the price list or the ticker tape. Anne? So in the late 1700s, I guess it was a somewhat different environment. There was less,

I think, obvious room for arbitrage, but there were a few people who dominated in the market and therefore the number of transactions that they could command gave them a pretty good return on the investment of their time. So they're spending a lot of time in the Bank of England's lobby in various different coffee houses. They're picking up business with a lot of people and therefore having a lot of turnover. There's not enough, I think, movement very often for arbitrage to be particularly easy for them, but their dominance in the market certainly gives them a real kind of command of information, a real command of the market as a whole. And just that sort of turnover definitely yields them profits. The other thing that they're really picking up profits from is the initial

issues from the government. So what the government is doing is issuing to trusted contractors and prominent businessmen. So they're getting that initial issue at very easy prices, which they're then selling into a much wider market. So there's a real profit to be had there. And the government's very conscious of that expense, but really, up until the early 19th century, can't figure out how to do that, how to make that operation work better. It's so interesting.

Once again, like all of these things that are like, what's the term in the US for like the bevy or like the 10 banks that get to bid on the treasury? Oh, primary dealers. Yeah, the primary dealers. Like all of these things. And a new issue premium as well. The new issue premium, exactly the same.

And then the idea of like the ticker tape exacerbating trend following as opposed to making the market more efficient. And like all these things just like, we talk about it all the time. They come up over and over. again. You know, since both of you talked about this, the need for 24-7 trade or transaction reconciliation. So the markets or the banking day closes at some time, and then all the clerks get to work and make sure all the books are settled. Can you talk a little bit more about what happened overnight,

maybe both of you and starting for in terms of, like, are we talking about handwriting down pieces of paper, erasing pens? Like, can you talk a little bit more about what the overnight clerks and all these different institutions did overnight to get ready for the next day? Sure. So the Bank of England's records actually preserve this in a great amount of details. So we kind of know precisely what they're doing. So there are books that are worked in the banking hall, so the environment where most of the customers would be.

And there are books that are worked in the accounts department as well. So the evening clocks, they're kind of taking the books that work, are worked in the banking hall, and they are transferring those records against customers' accounts so that the customers' accounts are updated. Not only are they transferring them, but they're also checking them. So it goes through a process of making sure that the books that are worked in the banking hall are adding up in the same way as the books that are worked in the accounts department, and then the customer's ledgers are adding up in the same way as the books that are worked in the accounts department,

then somebody else checks it. The other thing that they're doing is making sure that they're really regular customers are kept on a separate account. So they would work up particular accounts for certain customers because they knew that they would be in early the next morning and they knew that they would come and trade very often. So they knew that those accounts had to be updated. early and they really needed to make sure that they understood where those customers accounts sat. Protection of the records is another thing that's really interesting. We can go on to talk about that as well, if that would be interesting.

Yeah, actually, why don't you just talk about that? You mentioned the fire aspect. I imagine that if it all caught on fire, it would be absolutely disastrous for everyone to be able to like. So talk a little bit about that aspect, just preserving the physical records. So the bank is doing a variety of things to make sure that it's not at risk of fire. It's really worried about fire throughout most of its existence through the sort of 18th century and into the 19th century. So it's a really aggressive landlord.

It kind of does a slum clearance operation, particularly to create a firebreak around its buildings. It sort of pushes out resident population. It pushes out all the old wooden buildings. It makes duplicates. of a lot of its accounts and sends them out of the bank every night to the house of one of its directors so that they know that if records are lost by fire, there is a duplicate sitting out in another office. They have kind of technological solutions, so they have wheeled trucks in which they put the most important ledgers so that they can wheel them out overnight. They keep

their own fire engines and they train the watchmen to operate. those fire engines. And from the 1760s or so, they create a kind of archive building. They call it a library. And they attempt to fireproof that library by lining the building with copper. So there's a really elaborate set of protection against attack and fire. Yeah, I remember when I was living in London, actually working at Bloomberg, way back in the day, I used to walk past the Bank of England building every day on my way to work.

And it's just this enormous, imposing building with these famously thick walls. Was that for fire prevention or was that for fear of theft? So probably not so much for fear of theft, but it was for fear of unrest and rioting. Mops in 18th century London would very often, even if they weren't interested in attacking a building, they would sort of, they would go into the building and sort of pull things apart, particularly buildings that hadn't lit their windows. So, you know, putting lights in your window indicated to the mob that you were, you were supportive of whatever they were protesting against or what they were, they were rioting against. If you didn't put lights in your windows,

then your property was at risk. So one of the things that the bank does very early on is has these sort of windowless walls at the ground floor level. So it doesn't have to, to light its windows, but also it protects itself against that possibility of people sort of coming in through the windows or breaking the windows. The other thing it does, so there's a church next door to the bank, which during the Gordon riots in 1780, the rioters try to get into the bank through the church. So almost the next day, the Bank of England's directors take the decision that the church has to go. And they eventually managed to buy up the church and they buy out the churchyard. But if you ever go into the Bank of England today, you'll see, one of the first

things you see as you walk through the door is that there's a nice garden, which the governor's office looks out onto this garden. That garden is the graveyard of the old St. Christopher St. Christopher Stock's Church. So when the governor is looking out onto his garden, he's actually looking out onto a graveyard. John, why don't you come in and talk to us about the overnight clerks and the trade reconciliation and how it advanced at the point of your research? Yeah, so in the 19th century, the brokers start to be more organized than they were in Anne's period. In her period, it's mostly the clerks at the Bank of England that are doing the lion's share of work on behalf of most of the rest of the system. But by the 19th century, individual firms, brokerage firms, have developed a pretty advanced system of bookkeeping.

And, again, an army of clerks. There's probably at least five clerks for every one broker, I would say. That may be a high estimate, but there's quite a few. So just to give a quick instance here, there would be one clerk who would be responsible for checking the bargains every day. So he would get a series of slips or tickets from the principal broker about all of the deals that had been done. This clerk would record them in a daybook and then go back over and check with the counterparties the next day, the next morning before the open, just to make sure that they were on the same page about having executed a deal the night before. The second aspect of this is that settlements, the actual exchange of cash or checks for securities,

whether they're bonds or stocks, only happened every two weeks at the London Stock Exchange. T plus 14. Yes, yes. We can talk about settlement time. It was very complicated in the 19th century because different exchanges had wildly different settlement procedures and settlement times. The New York Stock Exchange settled overnight. So it was T-minus-0, while London settled every two weeks.

And this gave London brokers a lot more opportunity to balance out their books, to operate with less capital, whereas a lot of firms that were operating in London and New York would have to have pretty large margin accounts parked in New York just to meet any obligations that would come up in overnight settlement, which was, again, not the case in London. Settlement in London tended to be viewed as much easier. And what would happen is at the end of the two weeks, you would have hundreds of clerks cram into the basement of the London Stock Exchange. It was the settlement room, and they would reconcile all of the transactions that had happened the previous two weeks. Often what happened is that they would pass around a ticket, so someone would write the name of a primary security, like Union Pacific,

and they would pass around the ticket, and you would write how many shares you either bought or sold of Union Pacific and at what price over those two weeks. And it would get passed around until everyone had written their transaction on the ticket. And then it would be essentially translated into a balance sheet and netted out so that there only needed to be one payment of differences and shares if things had been sort of like shuffled back and forth on the books without actually netting out if that makes sense. So that was how they dealt with this very company.

some large process of settlement was by slowly recreating all of these individual transactions that took place on the floor once every two weeks. So, John, you know, we were talking about the actual design of the Bank of England. Talk to us about the design of the London Stock Exchange, because of course, you know, that was also a building that was built for a specific purpose. Sort of. So one of the financial journalists in the early 1900s calls the London Stock Exchange a monument to the Middle Ages in the middle of the city.

I love how people were complaining about infrastructure even back then, right? Nothing changes. Oh, this is from the Middle Ages. And the London Stock Exchange, as opposed to say the Bank of England was very, there's a sociologist Juan Pablo Pardo Guerra who calls it opportunistic bricolage, which is it was just sort of thrown together based on what they needed at a particular moment. And so it becomes this sort of strange agglomeration of buildings for most of the the 1800s, it's just one wooden building that they slowly add other buildings around to it.

It's not until the 1880s that they finally enclose it. It's marbled and it's like actually looks like something more real and steady and has one continuous trading floor. That doesn't happen until quite late in the 19th century. The one part that is quite consciously designed, however, is the settlement room in the basement and its connection to the big safe room that they have. So one of the problems with settlement in the 1800s and the 1700s in Anne's period is that if you were walking around to settle up your deals, you had to carry a lot of, especially if you were a stockbroker that was doing a large amount of business, you had to carry a lot of share certificates, a lot of cash and money with you. And it was very easy to lose it in the traffic of city life

let alone the bustle of an extremely crowded stock exchange. So what the London Stock Exchange did was that they connected their settlement room where deals were actually netted and cleared and settled out. And right next door in the basement, they had a safe room where brokers could rent essentially small lockers and safes and store their securities and money in the basement so that they didn't have to transport it out in the street of the city. The one complication to this was that one of these waiters,

these live-in servants that I talked about earlier. One of them was in charge of the safe room, and it was very common for them. This happened on a couple of occasions. It was a very cool room, and so they would show their friends the safe room. And these are lower-class guys who would sneak their friends in after hours at London Stock Exchange and show them the safe room, show them all the cool aspects of the building. And this really irked the brokers. And so there was a lot of tension between these sort of lower-classes. class workers who were responsible for maintaining a lot of the exchanges critical infrastructure and the brokers who depended on, you know, safely storing their securities and money in the

exchange. So we've been talking a lot about how finance used to operate in the 1700s, 1800s, and we've been mostly focusing on how it was supposed to work. Were there any famous or interesting examples of things going wrong? So, you know, a ledger gets lost or a certain. that's supposed to go from one place to another doesn't show up. Settlement doesn't work. Any examples? So one of my favorite stories is the story of Francis Fonton. And he's a very ordinary clerk in the late 18th century.

But sooner or later, his marriage seems to break down. And he finds himself a lady friend who has antinomian tendencies. So the Antenomians believed that they were saved by grace. So it didn't really matter how they behaved because they were saved anyway. So this lady convinced Francis that they could sin all day and they could sin all night as long as they rose early in the morning and went to the chapel run by a kind of itinerant preacher who was a friend of this lady. So Francis clearly enjoys this opportunity.

but his new lifestyle costs him quite a bit of money. So he uses his position as a transfer clerk in the Bank of England to transfer shares from people he knows who are dead to himself. So he makes a fair bit of money out of that until, of course, inevitably he gets caught. And the Bank of England at this point is exacting the ultimate penalty from its clerks who it catches transgressing in this way. so poor old Francis Fonton is condemned to death and is hung for his crimes. And there were several other incidents like this.

And the Bank of England, no matter how well the clerk had behaved up until that point, it always extracts the ultimate penalty. So it always seeks the death penalty against them, you know, as an example to the others. Penalties for financial crimes in general were really more severe back then, weren't they? Yeah. And there's some really interesting work, particularly by a scholar called Carl Wenerland, who really equates that sort of the gallows as monetary policy in 18th century Britain, that Britain is a commercial nation.

And a commercial nation needs to be able to trust paper and trust the integrity of paper. And therefore, the death penalty becomes part of that process of protecting the integrity of paper. and making sure that fraud is limited. And John, what about in the 1800s? Oh, man, there are a ton I could choose from. I'll stay with two on this theme of the waiters. So one of the main points that I think is important to understand is that as financial markets became more complicated and larger

as things like the telegraph and the ticker tape were introduced to financial markets, This actually made the brokers, the principles, more dependent on an army of secondary laborers to execute trades profitably and quickly, whether it was telegraph operators, whether it was their clerks, whether it was telegraph messenger boys or waiters who delivered the messages. And so the London Stock Exchange is this really massive place. By the end of the 19th century, there are 2,500 member brokers, and that's not including any of their clerks. So it was very hard to keep track of where messages needed to be delivered and to whom. Often one of the ways that this was organized was there would be waiters stationed at the different doors at the London Stock Exchange.

And if you entered and exited one door each day, you sort of had your waiter who knew you, who knew your schedule, who knew where he could find you if he needed to get you a message. But oftentimes there was one order that was sent and a messenger boy ran, ran. to the wrong door, delivered it to the wrong waiter, and the waiter looked at the message and said, I don't know this guy, he's not here, and sent it back. And the broker never got his order for days after the fact, and then dragged this waiter in front of the managers of London Stock Exchange and complained that he should have just directed it to another door. But again, there were 2,500 brokers in the exchange, and so they let the waiter off the hook because they excused his ignorance of this random broker who operated on the other side of the exchange.

They didn't send him to the gallows. No, they did not. It was very nice of him. The only other thing I'd add to this as well is that there was still a prevalence for these waiters needed to have a lot of independence in order to do their job well. So one of the waiters was always responsible for going and collecting the mail from the general post office early in the morning, and then making sure it was distributed to brokers in a timely manner before the market opened so that they could place any order. they'd received in the mail. One of the waiters tended to abuse this privilege, and he was gone for long periods of time. He claimed that he was delayed at the dead letter office, where they would

ask for the names of letters that hadn't been delayed or delivered at the stock exchange. But really, he was out drinking and visiting pubs, and he finally gets caught when they find him passed out in the London Stock Exchange's bathroom with letters spewn everywhere. So, Anne, you know, you talked about the scene at the Bank of England with the bustling lobby and the clerks and 24-7. Can you talk a little bit more about, like, was that scene replicated at other banks around the country, whether it was private banks or regional banks? And how much was that sort of just like is that scene at the Bank of England reflective of what other banks were like at that time? So the Bank of England has a monopoly at this time. And it deliberately seeks this monopoly in order to keep other banks small.

So banks in London are allowed to have no more than six partners. So, you know, they are very small, very discreet and elite set of customers very often. You get many more provincial banks emerging from the 1780s onwards. But often they're quite small as well and relatively unstable because they're very reliant on the regional economy. and if the regional economy becomes problematic in some way or goes into recession, then the banks are immediately affected. So you get a lot of growth of banks and then a decline of banks. You do see banks represented in the banker's lobby, though,

and you do see a lot of their work being done there. But they're not a huge force to be reckoned with. So the Bank of England is dominant. throughout this period and it exercises that dominance. As far as I can see, also, the Bank of England's clerks are not taking their skills out to other banking environments. So they come into the Bank of England and they pretty much stay there until they die. So let me ask a big picture question now, which is, you know, we started this discussion talking about the episode we did with Stuart Butterfield. that was a conversation largely about technological revolution, the introduction of artificial intelligence

and what it might mean for technology in particular. But as both of you look in the past through your work at previous technological developments or revolutions in the world of finance and banking, what can history tell us about these sort of developmental arcs? What should our takeaway be as we look at how things worked in the 1700s and 1800s to how they might work in the future. I think my big takeaway is that most technological revolutions never really replace human labor. They just transformed the relationships of it. So what I mean by that, again, I mentioned like the introduction of something like the telegraph or the ticker tape didn't actually replace a lot of the functions of people in the stock exchange.

The paper price list was still a really important check that was sent out to invest. at the end of each day. And it created this influx of new laborers into financial markets to help operate the telegraph and the ticker tape. And then you see this sort of similar thing happen in the 20th century with the move to automated systems as well. Even though the waiters of the London Stock Exchange

are essentially put out of business by the automation of stock trading, you no longer need these guys to deliver messages in a world of computers and telephones. You get an influx of computer code and electrical engineers into exchanges in the 1960s through the 80s to begin implementing new technological systems. So the relationship between human work and technology shifts around, it ends up the crucial locus of it changes. But there's always a human element that emerges and there is critical human labor in maintaining and implementing these technological systems

whenever they are introduced. So Joe, you know I love financial history episodes. That was like the ultimate finance history episode. There was so much in there that I really liked. And all these light bulbs go off about like, okay, what is the connection between like T plus two and T. The fact that like they had T minus one. Well, they had T minus one. And like people think like, why do we have T plus zero? And as John explained, like, well, you have to keep more money. And there's like a financial inefficiency aspect of that. Like all of the, every time we talk finance history, like all of these things like just suddenly make more sense. Right. And also it feels. It feels. feels like we often talk about things and we think the restraints are technological. Like, well, why don't

we settle things faster? But so often they're actually about, you know, preferences, habits, incentives that people have built up over time and not the actual underlying technology. Yeah. And, you know, even like we talked about, like, we framed this as like before computers. But we remember, like, both of us, like, remember floor trading, right? And that seems crazy. And I wonder how that worked. And why would they weren't losing, how could you trust that person you were talking to? And even that sort of like blows in my mind. And you know, it's interesting. I never really thought about this before.

But I remember reading in history about how like the death penalty was often applied and finding. And it kind of makes sense like not to be an apologist for, you know, hanging clerks. Hanging white collar criminals in the 1700s. You know, hanging clerks in the 1700s. But like, okay, like this is like that you have to have some sort of like, you know, this is everyone trusts the Bank of England. Well, this is right. And this right. Anne's whole point is that like so much of what the Bank of England does is mixed in with Britain's reputation as an empire, trust in the financial system. And like ultimately all that political power is built on that foundation. Right. And so you could imagine if you have like any sort of like lenience and you're a little slipping and, you know, too many pages lost or too. And you could see how easy it was. Also the part about architecture and clearing the space around the bank of England so that no fire is going to.

come in. Duplicates, like sending someone home with records. You know, again, like, they do the same thing today with, like, storing things in multiple data centers. Yeah. Also, the dead letter office. That sounds fascinating. Nothing ever changes.

All right. Well, we could go on. But shall we leave it there? Let's leave it there. All right. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Allaway.

And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guests on Twitter. Professor Anne Murphy, she's at 18C underscore finance. John Handel, he's at John Handel. Follow our producers, Carmen Rodriguez at Carmen Armin and Dashel Bennett at Dashbot. And check out all of our podcasts at Bloomberg under the handle at podcasts. And for more Oddlots content, go to Bloomberg.com slash oddlots, where we have a blog, transcripts, and a newsletter.

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