1 00:00:08,800 --> 00:00:12,559 Speaker 1: Hello, and welcome to another edition of the Odd Thoughts podcast. 2 00:00:12,640 --> 00:00:16,840 Speaker 1: I'm Tracy Alloway and I'm Joe wisnal So Joe. We 3 00:00:16,920 --> 00:00:19,840 Speaker 1: obviously talk a lot about markets on the show, and 4 00:00:19,920 --> 00:00:23,520 Speaker 1: we talk a lot about stock markets, but do we 5 00:00:23,720 --> 00:00:28,440 Speaker 1: ever stop and consider how stock markets came into being. 6 00:00:29,040 --> 00:00:32,959 Speaker 1: We really don't talk about the origins of these markets 7 00:00:33,040 --> 00:00:37,320 Speaker 1: all that much, why the stock market created was created. 8 00:00:37,440 --> 00:00:40,040 Speaker 1: We sort of take it for granted. I'm very interested 9 00:00:40,040 --> 00:00:43,080 Speaker 1: in the subject because I often wonder, you know, if 10 00:00:43,080 --> 00:00:46,040 Speaker 1: you were to go around to market participants and ask them, 11 00:00:46,080 --> 00:00:48,479 Speaker 1: why do we have a stock market in the first place? 12 00:00:48,720 --> 00:00:51,239 Speaker 1: Why did we invent this thing? I'm always curious what 13 00:00:51,240 --> 00:00:53,199 Speaker 1: the answers would be, because I still don't think I 14 00:00:53,240 --> 00:00:56,880 Speaker 1: have a stelid grip on why they exist. Yeah, and 15 00:00:56,920 --> 00:00:59,600 Speaker 1: if you think about it, if you think real hard 16 00:00:59,640 --> 00:01:02,920 Speaker 1: about it, it's kind of a weird construction, right, the 17 00:01:03,040 --> 00:01:05,440 Speaker 1: idea that a bunch of strangers are going to get 18 00:01:05,480 --> 00:01:11,480 Speaker 1: together and share or sell each other shares in particular companies, 19 00:01:11,720 --> 00:01:14,920 Speaker 1: or things like why do we do that? And why 20 00:01:15,000 --> 00:01:19,920 Speaker 1: do we trust the other participants involved? Totally? Like every 21 00:01:19,959 --> 00:01:22,479 Speaker 1: time there's an I P O or something and It's like, wait, 22 00:01:22,520 --> 00:01:25,840 Speaker 1: if you're selling and you know more about the company, 23 00:01:26,280 --> 00:01:28,800 Speaker 1: If you think the insiders and the company are selling, 24 00:01:29,040 --> 00:01:31,240 Speaker 1: why should I be buying? I guess of that a 25 00:01:31,280 --> 00:01:35,960 Speaker 1: bad sign. And of course there's various mechanisms that we've 26 00:01:36,000 --> 00:01:41,399 Speaker 1: built to learn about companies, mandatory regulatory disclosures, quarterlia reports, 27 00:01:41,440 --> 00:01:46,600 Speaker 1: earnings calls, presentations, outside auditors, but we're still essentially buying 28 00:01:46,720 --> 00:01:50,880 Speaker 1: into companies that at best we only have partial information 29 00:01:50,880 --> 00:01:53,680 Speaker 1: of what's really going on. Right, So that's the other 30 00:01:53,720 --> 00:01:56,280 Speaker 1: side of the story, Right, There's two things. There's trust 31 00:01:56,760 --> 00:02:00,440 Speaker 1: and there's information involved. So we are going to take 32 00:02:00,480 --> 00:02:04,040 Speaker 1: a journey back in time for this particular edition of 33 00:02:04,080 --> 00:02:07,440 Speaker 1: Odd Lots and figure out how those two things kind 34 00:02:07,440 --> 00:02:11,520 Speaker 1: of came together at a particular moment in time to 35 00:02:11,720 --> 00:02:16,440 Speaker 1: create some of the first modern markets. Really, I can't wait, 36 00:02:16,480 --> 00:02:19,040 Speaker 1: because as hard as it is right now to really 37 00:02:19,080 --> 00:02:21,239 Speaker 1: have a grip on what's going on with the companies 38 00:02:21,639 --> 00:02:24,600 Speaker 1: we invest in, you know, you think back to hundreds 39 00:02:24,600 --> 00:02:28,760 Speaker 1: of years ago and how much worse disclosure would have been, 40 00:02:28,880 --> 00:02:33,040 Speaker 1: and auditing and standards of data reporting. Right now, we 41 00:02:33,120 --> 00:02:36,760 Speaker 1: all basically all counting think about accounting in like the 42 00:02:36,800 --> 00:02:41,360 Speaker 1: sixteen hundreds accounting and P and L statements and balance sheets. 43 00:02:41,400 --> 00:02:43,600 Speaker 1: We have the we have machines that can part this 44 00:02:43,639 --> 00:02:46,120 Speaker 1: in very standard ways of reporting this stuff. But at 45 00:02:46,120 --> 00:02:49,919 Speaker 1: the beginning, how did anyone believe anything exactly? All right? 46 00:02:50,080 --> 00:02:52,880 Speaker 1: So I'm glad you're on board. So to discuss all 47 00:02:52,919 --> 00:02:56,799 Speaker 1: of this, we have Partique Raj for our guest. He 48 00:02:57,000 --> 00:03:00,359 Speaker 1: is a PhD student over at the University College London. 49 00:03:00,400 --> 00:03:03,640 Speaker 1: He's also a research fellow at the Stickler Center for 50 00:03:03,720 --> 00:03:06,520 Speaker 1: the Study of the Economy and the State at the 51 00:03:06,600 --> 00:03:09,800 Speaker 1: University of Chicago Booth School of Business. And he is 52 00:03:09,840 --> 00:03:14,520 Speaker 1: also the author of a paper called the Origins of 53 00:03:14,680 --> 00:03:20,960 Speaker 1: Impersonal Markets in Commercial and Communication Revolutions of Europe. And 54 00:03:21,000 --> 00:03:23,560 Speaker 1: it's going to be really interesting, I promise. Let's bring 55 00:03:23,639 --> 00:03:32,280 Speaker 1: him on all right, Critique, thanks for joining us today. Hi, 56 00:03:32,320 --> 00:03:35,480 Speaker 1: Tracy and Joe. Great to be here. So, uh, did 57 00:03:35,520 --> 00:03:41,160 Speaker 1: we get the intro? Right? Were trust and information kind 58 00:03:41,240 --> 00:03:44,320 Speaker 1: of the two pillars of importance when it came to 59 00:03:44,440 --> 00:03:48,240 Speaker 1: creating the first modern market? So when you think about trust, 60 00:03:48,320 --> 00:03:53,520 Speaker 1: trust is generally a much more complicated construct, right, because 61 00:03:53,760 --> 00:03:55,880 Speaker 1: you can have trust in your family members and you 62 00:03:55,880 --> 00:04:00,200 Speaker 1: can have trust in strangers. So I think trust it's 63 00:04:00,240 --> 00:04:05,400 Speaker 1: created when you have one some incentives to really trust strangers. 64 00:04:05,400 --> 00:04:07,840 Speaker 1: So if you don't have any incentive to go out 65 00:04:07,920 --> 00:04:11,040 Speaker 1: and do business with people who you don't know, why 66 00:04:11,120 --> 00:04:14,800 Speaker 1: why would you need to trust them? So incentives really mattered. 67 00:04:15,160 --> 00:04:17,120 Speaker 1: And then on the other hand, of course, you need 68 00:04:17,160 --> 00:04:21,520 Speaker 1: to know about something about them, something about the markets 69 00:04:21,560 --> 00:04:23,960 Speaker 1: they work in. You need to have certain trust in 70 00:04:24,000 --> 00:04:27,839 Speaker 1: the markets and so forth. So yes, trust is really important, 71 00:04:28,240 --> 00:04:30,719 Speaker 1: but then the key question is how do you create 72 00:04:30,760 --> 00:04:34,800 Speaker 1: that trust. So in your paper, and before we talk 73 00:04:34,880 --> 00:04:39,960 Speaker 1: about how impersonal markets or stock markets were created, you 74 00:04:40,000 --> 00:04:43,200 Speaker 1: talk about the pre existing structures that were in place 75 00:04:43,520 --> 00:04:47,560 Speaker 1: to essentially solve the trust problem or to partially solve it, 76 00:04:47,839 --> 00:04:50,240 Speaker 1: and you talk about the role of I think trade 77 00:04:50,240 --> 00:04:53,920 Speaker 1: guilds in this. So can you explain what these guilds were, 78 00:04:54,000 --> 00:04:58,160 Speaker 1: what they did and they're important to comers. So not 79 00:04:58,279 --> 00:05:01,720 Speaker 1: just in Europe but around the world. Traditionally business has 80 00:05:01,760 --> 00:05:07,320 Speaker 1: happened through networks. So you have kabilahs in Arabic world, 81 00:05:07,400 --> 00:05:12,240 Speaker 1: you have jattas in India, you have guangs or clans 82 00:05:12,279 --> 00:05:15,800 Speaker 1: in China, and you have had guilds in Europe. And 83 00:05:15,839 --> 00:05:19,520 Speaker 1: the central role that they play is that one you 84 00:05:19,720 --> 00:05:23,239 Speaker 1: generally are interacting with people you know, or at least 85 00:05:23,320 --> 00:05:27,640 Speaker 1: people you know who know other people. So what it 86 00:05:27,680 --> 00:05:30,960 Speaker 1: does is that it creates a repeated interaction and that 87 00:05:31,080 --> 00:05:36,400 Speaker 1: kind of creates trust. So that's the simplest reason why 88 00:05:36,480 --> 00:05:39,560 Speaker 1: you can have you want to do business in networks. 89 00:05:39,960 --> 00:05:43,039 Speaker 1: Can you give an example to really help us understand 90 00:05:43,080 --> 00:05:45,560 Speaker 1: it of an industry you know, a lot of your 91 00:05:45,560 --> 00:05:48,040 Speaker 1: writing is in europe An industry that would have been 92 00:05:48,080 --> 00:05:51,640 Speaker 1: dominated by a guild and how specifically it would have 93 00:05:51,640 --> 00:05:55,920 Speaker 1: facilitated trade within that area. Basically all sorts of trading 94 00:05:56,000 --> 00:05:59,640 Speaker 1: industries would be dominated by guilds or networks. I think 95 00:05:59,640 --> 00:06:03,080 Speaker 1: an sample in the modern world is like these taxi 96 00:06:03,120 --> 00:06:07,800 Speaker 1: associations you are These are associations where basically entering is 97 00:06:07,920 --> 00:06:11,479 Speaker 1: rather difficult. You need to have a high license fee 98 00:06:11,520 --> 00:06:14,680 Speaker 1: to pay if you wanted to enter these taxi associations. 99 00:06:14,720 --> 00:06:17,279 Speaker 1: And one of the reasons you have these was because 100 00:06:17,279 --> 00:06:21,400 Speaker 1: you wanted reliable people to enter the taxi industry, because 101 00:06:22,040 --> 00:06:24,279 Speaker 1: who knows if you have a taxi driver who is 102 00:06:24,320 --> 00:06:28,359 Speaker 1: not very reliable. So taxi associations are an example of 103 00:06:28,400 --> 00:06:32,320 Speaker 1: a good modern day guild. And then you have something 104 00:06:32,360 --> 00:06:36,839 Speaker 1: like Uber or Lift disrupting that. So in a modern world, 105 00:06:36,920 --> 00:06:40,919 Speaker 1: I think taxi associations are like a favorite example that 106 00:06:40,960 --> 00:06:45,680 Speaker 1: I like to use. So in the sixteen hundreds in Europe, 107 00:06:45,720 --> 00:06:49,360 Speaker 1: you have these powerful merchant guilds and there's a lot 108 00:06:49,440 --> 00:06:53,279 Speaker 1: of influence and a lot of money presumably tied to 109 00:06:53,360 --> 00:06:56,600 Speaker 1: them because it's almost a monopoly. I suppose that they 110 00:06:56,640 --> 00:07:00,520 Speaker 1: have over particular areas of trade in a similar way 111 00:07:00,560 --> 00:07:04,240 Speaker 1: to the taxi medallions have a monopoly nowadays, with the 112 00:07:04,279 --> 00:07:07,440 Speaker 1: exception of the disruptive forces that are Uber and Left. 113 00:07:08,240 --> 00:07:13,720 Speaker 1: What happened in the sixteen hundreds to dislodge the power 114 00:07:14,040 --> 00:07:18,800 Speaker 1: of the merchant guilds. So generally, when people think about 115 00:07:19,560 --> 00:07:22,680 Speaker 1: guilts or any of such network institutions, there tends to 116 00:07:22,720 --> 00:07:26,280 Speaker 1: be these two extreme views. The one view is that 117 00:07:26,320 --> 00:07:31,400 Speaker 1: all guilts were really nice institutions which were building, which 118 00:07:31,400 --> 00:07:34,160 Speaker 1: were communities in which people would do business and rely 119 00:07:34,240 --> 00:07:38,880 Speaker 1: on each other, and um kind of capitalism came in 120 00:07:39,040 --> 00:07:43,480 Speaker 1: and created this very atomist world. That's one way of 121 00:07:43,800 --> 00:07:46,240 Speaker 1: looking at guilts. And then the other way of looking 122 00:07:46,280 --> 00:07:49,280 Speaker 1: at gils is that, well, these guilts were these networks 123 00:07:49,280 --> 00:07:53,400 Speaker 1: of nepotism and monopoly, and basically free market comes in 124 00:07:53,520 --> 00:07:57,960 Speaker 1: and rains in their power, and you have people who 125 00:07:58,000 --> 00:08:00,560 Speaker 1: can come from anywhere or any background can enter a 126 00:08:00,640 --> 00:08:04,800 Speaker 1: business and excel in it. So when you want to 127 00:08:04,880 --> 00:08:09,120 Speaker 1: understand why the guilts deadline, we have to identify the 128 00:08:09,160 --> 00:08:12,240 Speaker 1: things that they were really good at, which is providing 129 00:08:12,280 --> 00:08:17,320 Speaker 1: information to people or basically protecting people from a lot 130 00:08:17,360 --> 00:08:20,400 Speaker 1: of risks because you were basically trading with people who 131 00:08:20,480 --> 00:08:24,360 Speaker 1: if they cheated on you, you could kind of ostracize 132 00:08:24,400 --> 00:08:29,960 Speaker 1: them or make their reputation go bad. So this kind 133 00:08:30,000 --> 00:08:33,880 Speaker 1: of reliability and information helped guilts survive for so long. 134 00:08:34,240 --> 00:08:37,520 Speaker 1: So when you think about how would guilds deadline, you 135 00:08:37,559 --> 00:08:40,280 Speaker 1: have to go back and look at situations where people 136 00:08:40,320 --> 00:08:44,200 Speaker 1: had suddenly a new incentive to start to do business 137 00:08:44,240 --> 00:08:47,400 Speaker 1: with new people, because guilts were not very good at 138 00:08:47,880 --> 00:08:51,559 Speaker 1: providing you with new opportunities or situations where you could 139 00:08:51,600 --> 00:08:54,200 Speaker 1: get new information. So you have to look at the 140 00:08:54,240 --> 00:08:58,320 Speaker 1: interaction between incentives to go outside of guilts and the 141 00:08:58,559 --> 00:09:01,839 Speaker 1: need to they wily did to get information. And so 142 00:09:01,960 --> 00:09:05,800 Speaker 1: in your paper you identify two key factors that sort 143 00:09:05,800 --> 00:09:09,800 Speaker 1: of demonstrated grand unified theory, and you look at where 144 00:09:09,800 --> 00:09:13,480 Speaker 1: these impersonal networks took off, and the two factors seemed 145 00:09:13,520 --> 00:09:17,479 Speaker 1: to be a in the cities that had an opportunity 146 00:09:17,640 --> 00:09:21,520 Speaker 1: to trade with the outside world, so key trading ports, 147 00:09:21,880 --> 00:09:25,200 Speaker 1: geographic exposure to trade routes, and then the other thing 148 00:09:25,480 --> 00:09:31,160 Speaker 1: is proximity to the town where Guttenberg invented the printing press. 149 00:09:31,520 --> 00:09:34,319 Speaker 1: And so the combination of places that sort of had 150 00:09:34,360 --> 00:09:37,720 Speaker 1: access to printing press the new vector of information and 151 00:09:37,800 --> 00:09:42,120 Speaker 1: places that were on these trade routes. Combining those two 152 00:09:42,360 --> 00:09:47,559 Speaker 1: is where you see the first impersonal networks germinated, yes, exactly. 153 00:09:47,720 --> 00:09:50,679 Speaker 1: So that's that's the story. The big question is that 154 00:09:50,920 --> 00:09:54,920 Speaker 1: why is it that it's northwestern Europe where the first 155 00:09:54,920 --> 00:09:58,520 Speaker 1: stock markets or the first joint stock companies immerged. Why 156 00:09:58,559 --> 00:10:01,600 Speaker 1: not Spain or why not in Italy or why not 157 00:10:01,800 --> 00:10:06,360 Speaker 1: in Germany? And that's where you want to look at 158 00:10:06,440 --> 00:10:10,000 Speaker 1: this combination of factors. For example, Spain had all the 159 00:10:10,040 --> 00:10:12,760 Speaker 1: benefits of Atlantic trade. So when it comes to the 160 00:10:12,800 --> 00:10:15,880 Speaker 1: incentive to go out of gills and do business, I 161 00:10:15,920 --> 00:10:20,720 Speaker 1: think like Amsterdam, even in southern cities of Spain, you 162 00:10:20,800 --> 00:10:24,440 Speaker 1: had such incentives. On the other hand, if you want 163 00:10:24,440 --> 00:10:26,840 Speaker 1: to go after a theory that oh, well, access to 164 00:10:26,840 --> 00:10:29,319 Speaker 1: information made it easier for people to talk to each 165 00:10:29,360 --> 00:10:31,480 Speaker 1: other and to talk to strangers. Then you would have 166 00:10:31,520 --> 00:10:34,560 Speaker 1: to ask why did this not happen in Germany where 167 00:10:34,600 --> 00:10:38,400 Speaker 1: basically that's the hub for the printing press. And so 168 00:10:38,559 --> 00:10:40,880 Speaker 1: it is the combination of these two things that, well, 169 00:10:40,920 --> 00:10:42,880 Speaker 1: you need to have incentives to go out and do 170 00:10:42,960 --> 00:10:45,520 Speaker 1: business with people you don't know, and you need to 171 00:10:45,520 --> 00:10:49,920 Speaker 1: have information about the markets and the commodities you're trading 172 00:10:49,960 --> 00:10:54,240 Speaker 1: and somewhat the people you're working with. That's really important. 173 00:10:54,559 --> 00:10:56,760 Speaker 1: So it's the two things when they come together that 174 00:10:57,440 --> 00:11:00,480 Speaker 1: at least in this paper, I argue, create the uh 175 00:11:00,640 --> 00:11:04,280 Speaker 1: conditions that are favorable for the rise of such markets. Okay, 176 00:11:04,320 --> 00:11:08,000 Speaker 1: so if I'm a trader in Antwerp or Amsterdam and 177 00:11:08,040 --> 00:11:12,000 Speaker 1: I'm looking at all these opportunities taking place in the 178 00:11:12,040 --> 00:11:15,000 Speaker 1: new world, is the basic idea that in addition to 179 00:11:15,160 --> 00:11:18,720 Speaker 1: having that exposure to new types of trade or new 180 00:11:18,720 --> 00:11:22,720 Speaker 1: potential businesses, I can now pick up a printed book 181 00:11:22,960 --> 00:11:26,040 Speaker 1: or pamphlet and I can learn how to trade or 182 00:11:26,080 --> 00:11:30,600 Speaker 1: I can learn more information about those particular businesses. Yes, 183 00:11:31,080 --> 00:11:34,640 Speaker 1: so that's sort of the idea. So obviously, when the 184 00:11:34,640 --> 00:11:37,760 Speaker 1: printing press came in, all sorts of things were being printed. UM. 185 00:11:38,160 --> 00:11:41,880 Speaker 1: A lot of it was religious books, and the smallest 186 00:11:41,880 --> 00:11:45,720 Speaker 1: part of it was things like merchant manuals and books 187 00:11:45,720 --> 00:11:49,760 Speaker 1: in economics, etcetera, etcetera. And what was happening is that 188 00:11:49,760 --> 00:11:52,920 Speaker 1: when you happen to be at a place where trade 189 00:11:53,080 --> 00:11:56,360 Speaker 1: is really desirable, the content that gets produced in these 190 00:11:56,400 --> 00:11:59,840 Speaker 1: kind of places are related to those which helped trade 191 00:11:59,920 --> 00:12:04,520 Speaker 1: or out. For example, Amsterdam was emerging as a good 192 00:12:04,600 --> 00:12:08,920 Speaker 1: hub where a lot of navigation related UM books were 193 00:12:08,960 --> 00:12:13,960 Speaker 1: being printed. Or for example, in Antwerp, uh there was 194 00:12:14,120 --> 00:12:19,120 Speaker 1: a lot of printing of economics books, or it emerged 195 00:12:19,160 --> 00:12:23,720 Speaker 1: as a hub for double entry bookkeeping. So basically the 196 00:12:23,800 --> 00:12:27,760 Speaker 1: incentives to do trade was driving once you had the 197 00:12:27,840 --> 00:12:30,760 Speaker 1: access to printing, it was driving the content that was 198 00:12:30,800 --> 00:12:35,160 Speaker 1: helpful for creation of information that could help with trade. 199 00:12:37,520 --> 00:12:40,120 Speaker 1: What happened to the merchant guilds in these areas, in 200 00:12:40,160 --> 00:12:43,280 Speaker 1: areas like Antwerp and Amsterdam, did they try to fight 201 00:12:43,360 --> 00:12:46,120 Speaker 1: the change or was it just sort of a slow 202 00:12:46,200 --> 00:12:49,600 Speaker 1: dissolving of the role that they played in facilitating trade. 203 00:12:50,040 --> 00:12:53,240 Speaker 1: So it could differ from place to place. Like one 204 00:12:53,280 --> 00:12:58,400 Speaker 1: of the interesting historical stories that I learned while doing 205 00:12:58,400 --> 00:13:03,360 Speaker 1: this research was this virgence between Hamburg and Lubeck, and 206 00:13:03,520 --> 00:13:06,240 Speaker 1: which kind of tells you how. For example, in Lubek, 207 00:13:06,679 --> 00:13:09,679 Speaker 1: guilts tried to push back on the idea of opening 208 00:13:09,679 --> 00:13:13,960 Speaker 1: of impersonal markets, while in Hamburg they were not able 209 00:13:14,040 --> 00:13:18,280 Speaker 1: to have that kind of resistance. And the reason why 210 00:13:18,360 --> 00:13:20,560 Speaker 1: I think that was the case is because these two 211 00:13:20,559 --> 00:13:23,760 Speaker 1: cities happened to be at a very interesting geography. So 212 00:13:23,800 --> 00:13:27,079 Speaker 1: they are on two sides of the Jutland Peninsula in 213 00:13:27,120 --> 00:13:31,240 Speaker 1: the northern Germany, and Hamburg is on the Atlantic coast 214 00:13:31,400 --> 00:13:35,560 Speaker 1: while Luebeck is on the Baltic coast. So the basic 215 00:13:35,640 --> 00:13:38,720 Speaker 1: idea is that because Hamburg was at the Atlantic coast, 216 00:13:38,760 --> 00:13:43,320 Speaker 1: so this side of the of the Jutland Peninsula had 217 00:13:43,440 --> 00:13:47,319 Speaker 1: greater incentives to basically or exposure to the Atlantic trade 218 00:13:47,320 --> 00:13:51,520 Speaker 1: and its benefits. While Luebeck, while it was a major city, 219 00:13:51,840 --> 00:13:54,880 Speaker 1: it didn't get that kind of exposure because it was 220 00:13:54,920 --> 00:13:58,199 Speaker 1: on the Baltic side of the sea. And these two 221 00:13:58,200 --> 00:14:01,520 Speaker 1: cities were just sixty five apart from each other. So 222 00:14:01,760 --> 00:14:04,760 Speaker 1: in Lubec you have a lot of resistance to new 223 00:14:04,800 --> 00:14:08,760 Speaker 1: merchants coming in and they start to proper privileges, they 224 00:14:08,800 --> 00:14:11,920 Speaker 1: start to fight against the Danish and the Dutch who 225 00:14:11,920 --> 00:14:15,560 Speaker 1: are giving them competition. So yes, um, the guilts in 226 00:14:16,080 --> 00:14:19,400 Speaker 1: more established cities fight to fight back, while in a 227 00:14:19,440 --> 00:14:22,960 Speaker 1: place like Hamburg this slowly basically dissolved a way. You know, 228 00:14:23,000 --> 00:14:27,520 Speaker 1: I noticed particularly kind of introduced this as talking about 229 00:14:27,560 --> 00:14:30,840 Speaker 1: the origins of the stock market. You've been very specific 230 00:14:31,040 --> 00:14:34,400 Speaker 1: using this term in personal markets. Can you talk just 231 00:14:34,480 --> 00:14:37,400 Speaker 1: a little bit about what sort of the distinction is. 232 00:14:37,480 --> 00:14:41,320 Speaker 1: I mean, I imagine that the early impersonal markets aren't 233 00:14:41,400 --> 00:14:45,000 Speaker 1: really recognizably what we would call stock markets today. So 234 00:14:45,320 --> 00:14:49,080 Speaker 1: what precisely was being traded here? So the first stock 235 00:14:49,120 --> 00:14:53,800 Speaker 1: market was the Amsterdam Stock Exchange, which was specifically just 236 00:14:54,000 --> 00:14:58,360 Speaker 1: made to raise capital for the Dutch East India Company. 237 00:14:58,440 --> 00:15:00,760 Speaker 1: So it was for this one giant end company that 238 00:15:01,120 --> 00:15:04,920 Speaker 1: essentially a stock market was created. Before that, there existed, 239 00:15:04,960 --> 00:15:08,760 Speaker 1: for example, these commodity bourses where so for example in Antwerp, 240 00:15:09,000 --> 00:15:12,600 Speaker 1: where people would basically trade commodities in start uh in 241 00:15:12,720 --> 00:15:16,840 Speaker 1: spot kind of situations. So the key, the reason why 242 00:15:16,880 --> 00:15:19,920 Speaker 1: I like to use the term in personal markets is 243 00:15:19,960 --> 00:15:23,720 Speaker 1: because from a historical point of view, Um, my view 244 00:15:23,840 --> 00:15:27,920 Speaker 1: is that sixteenth century and thereafter was a major historical 245 00:15:28,040 --> 00:15:31,720 Speaker 1: break in terms of how the world was doing business, 246 00:15:31,760 --> 00:15:35,360 Speaker 1: which was that while until now you had relationships that 247 00:15:35,480 --> 00:15:39,520 Speaker 1: drove how business was done, but now suddenly at least 248 00:15:39,560 --> 00:15:44,080 Speaker 1: an opportunity emerged that somebody from some part of the 249 00:15:44,120 --> 00:15:46,640 Speaker 1: world could just come in and start to do business 250 00:15:46,640 --> 00:15:50,600 Speaker 1: in some other city. So basically this kind of lowered 251 00:15:50,640 --> 00:15:53,560 Speaker 1: the entry barriers for people who might not have been 252 00:15:53,600 --> 00:15:57,120 Speaker 1: privileged enough in the prior centuries to do trade. So 253 00:15:58,040 --> 00:16:01,560 Speaker 1: it is a major part of this sorry that how 254 00:16:01,600 --> 00:16:06,960 Speaker 1: impersonal markets, by making things more individualistic, make it easier 255 00:16:07,000 --> 00:16:10,680 Speaker 1: for people who are probably more motivated to come and 256 00:16:11,200 --> 00:16:14,200 Speaker 1: do business. So for example, in case of Hamburg, it 257 00:16:14,320 --> 00:16:17,360 Speaker 1: was a major hub for foreign merchants, but Lubec had 258 00:16:17,400 --> 00:16:20,080 Speaker 1: this problem that they didn't want to have foreign merchants 259 00:16:20,080 --> 00:16:23,280 Speaker 1: because they wanted to keep all their privileges for the locals. 260 00:16:23,320 --> 00:16:25,360 Speaker 1: So that's why I like to use the term in 261 00:16:25,440 --> 00:16:29,200 Speaker 1: personal markets, because the rise of stock market can be 262 00:16:29,320 --> 00:16:32,320 Speaker 1: like a side effect of this broader change in history. 263 00:16:33,080 --> 00:16:35,840 Speaker 1: But so for example, when you think about the Wall Street, 264 00:16:36,360 --> 00:16:38,400 Speaker 1: people from all parts of the world just come in 265 00:16:38,480 --> 00:16:40,640 Speaker 1: and then work at these banks, and it's not that 266 00:16:40,800 --> 00:16:44,840 Speaker 1: you have to be it's a pretty diverse place, and 267 00:16:44,840 --> 00:16:48,320 Speaker 1: and it's because your networks don't necessarily need to be 268 00:16:48,440 --> 00:16:52,400 Speaker 1: so important as long as you are really good making money. 269 00:16:52,760 --> 00:16:57,000 Speaker 1: So how much of the rise of impersonal markets had 270 00:16:57,040 --> 00:17:02,960 Speaker 1: to have happened along with strengthening of legal and governmental institutions, 271 00:17:03,000 --> 00:17:05,359 Speaker 1: because I imagine that that took care a part of 272 00:17:05,359 --> 00:17:11,640 Speaker 1: the trust problem as well. Right, Yes, So there's sort 273 00:17:11,640 --> 00:17:13,840 Speaker 1: of a code of evolution that is happening that you 274 00:17:13,880 --> 00:17:17,960 Speaker 1: especially see in cities like Antwerp in Amsterdam and also 275 00:17:18,080 --> 00:17:23,000 Speaker 1: Hamburg and London, where basically, when you already have an 276 00:17:23,000 --> 00:17:27,200 Speaker 1: incentive to attract new people whom you don't have any 277 00:17:27,280 --> 00:17:31,400 Speaker 1: historical or you know, familial ties with to your city, 278 00:17:31,720 --> 00:17:34,240 Speaker 1: then in order to attract these new merchants, you start 279 00:17:34,280 --> 00:17:38,880 Speaker 1: to make your institutions better. You essentially say, well, okay, 280 00:17:39,400 --> 00:17:43,280 Speaker 1: until now, our courts were so designed that you would 281 00:17:43,320 --> 00:17:47,520 Speaker 1: only allow for you will only do provide these legal 282 00:17:47,560 --> 00:17:50,480 Speaker 1: services to a certain group of merchants coming from a 283 00:17:50,520 --> 00:17:53,920 Speaker 1: specific group places, so you will give out privileges. Now 284 00:17:53,960 --> 00:17:58,000 Speaker 1: suddenly you started to build these institutions which were more generalized. 285 00:17:58,640 --> 00:18:01,880 Speaker 1: What it means is that instead of giving legal services 286 00:18:01,920 --> 00:18:04,520 Speaker 1: to a specific set of merchants, all your laws would 287 00:18:04,560 --> 00:18:07,840 Speaker 1: now apply to all merchants that come there, and there 288 00:18:07,960 --> 00:18:12,400 Speaker 1: is no special privilege that exists too a few set 289 00:18:12,480 --> 00:18:15,639 Speaker 1: of merchants. So there's this sort of a democratization of 290 00:18:15,800 --> 00:18:20,359 Speaker 1: institutions where you could simply get the legal services of 291 00:18:20,640 --> 00:18:23,240 Speaker 1: of that particular city if you happen to be a merchant. 292 00:18:23,280 --> 00:18:26,160 Speaker 1: So legal institutions start to evolve, and obviously it takes 293 00:18:26,200 --> 00:18:28,960 Speaker 1: a long time before they start to look the way 294 00:18:28,960 --> 00:18:32,720 Speaker 1: they look now, but that's in my view of time 295 00:18:32,800 --> 00:18:36,240 Speaker 1: when there's a big start of this legal evolution as well. 296 00:18:36,920 --> 00:18:40,720 Speaker 1: So listening to all this, it's pretty obvious that the 297 00:18:40,840 --> 00:18:43,879 Speaker 1: lessons that you drew out from this period there are 298 00:18:44,040 --> 00:18:47,320 Speaker 1: so many that apply to markets today and some of 299 00:18:47,359 --> 00:18:51,240 Speaker 1: the changes that we're saying. You already mentioned uber and 300 00:18:51,359 --> 00:18:54,480 Speaker 1: now I could get in someone's car without knowing who 301 00:18:54,480 --> 00:18:55,840 Speaker 1: they are, and I don't have to see that they're 302 00:18:55,880 --> 00:18:58,159 Speaker 1: part of some taxi guild, and I could have a 303 00:18:58,160 --> 00:19:00,439 Speaker 1: pretty good trust that they're going to get me to 304 00:19:00,480 --> 00:19:02,639 Speaker 1: where they are. So that's a big change. But it's 305 00:19:02,680 --> 00:19:05,480 Speaker 1: funny you mentioned Wall Street, which is of course highly 306 00:19:05,480 --> 00:19:09,159 Speaker 1: relevant to us. And even though the stock market and 307 00:19:09,200 --> 00:19:11,679 Speaker 1: all the markets we talk about are on in some sense, 308 00:19:11,840 --> 00:19:15,160 Speaker 1: in personal markets for a long time. Even still there's 309 00:19:15,200 --> 00:19:19,200 Speaker 1: been this important personal element, and people on Wall Street, 310 00:19:19,320 --> 00:19:22,720 Speaker 1: financial advisors, brokers, they're always talking about it. We bring 311 00:19:22,760 --> 00:19:26,159 Speaker 1: you the personal element and we have a personal relationship 312 00:19:26,160 --> 00:19:29,360 Speaker 1: with clients. And if there's one of the biggest tensions 313 00:19:29,880 --> 00:19:32,960 Speaker 1: that we're seeing right now on finance, it's this question 314 00:19:33,080 --> 00:19:36,080 Speaker 1: of whether that's overrated and will we still need financial 315 00:19:36,080 --> 00:19:40,280 Speaker 1: advisors or whether it'll all be robo advisors. So it 316 00:19:40,359 --> 00:19:43,280 Speaker 1: seems to me there's still this very big personal element 317 00:19:43,359 --> 00:19:45,479 Speaker 1: to it, and the same you know, this build up 318 00:19:45,480 --> 00:19:49,159 Speaker 1: of new information is once again, you know, really threatening that. 319 00:19:49,920 --> 00:19:54,000 Speaker 1: So I think relationships are always going to matter. Um, 320 00:19:54,080 --> 00:19:57,280 Speaker 1: that's just always going to be the case, because there 321 00:19:57,359 --> 00:20:00,520 Speaker 1: is always going to be some informational advantage that you're 322 00:20:00,560 --> 00:20:05,200 Speaker 1: going to have with building relationships and building personal trust 323 00:20:05,240 --> 00:20:09,680 Speaker 1: with people. But I think this issue becomes relevant when 324 00:20:09,680 --> 00:20:13,399 Speaker 1: you want to build Wall Street kind of institutions in 325 00:20:13,480 --> 00:20:16,920 Speaker 1: other parts of the world. So, for example, there is 326 00:20:16,960 --> 00:20:20,840 Speaker 1: an interesting paper by Raguram Rajan and Luigi's in Galis 327 00:20:20,840 --> 00:20:24,520 Speaker 1: about the Asian banking crisis in the late nineties where 328 00:20:24,560 --> 00:20:28,760 Speaker 1: they basically talk about how this relationship based nature of 329 00:20:29,440 --> 00:20:34,080 Speaker 1: uh of trade or business in the in Asian stock 330 00:20:34,119 --> 00:20:39,120 Speaker 1: markets was responsible partly for the weakness of the financial 331 00:20:39,119 --> 00:20:43,160 Speaker 1: institutions in that region. And what they need is better 332 00:20:43,200 --> 00:20:46,359 Speaker 1: contract through institutions to make sure that the overreliance on 333 00:20:46,440 --> 00:20:50,200 Speaker 1: relationship kind of goes away. So it is a spectrum 334 00:20:50,200 --> 00:20:56,080 Speaker 1: where certain societies kind of have too much of reliance 335 00:20:56,160 --> 00:21:00,359 Speaker 1: on the relationships versus some which have were limited. So 336 00:21:00,560 --> 00:21:02,440 Speaker 1: it would never be the case that they will all 337 00:21:02,480 --> 00:21:05,520 Speaker 1: go away, but you could be in a world where 338 00:21:05,560 --> 00:21:08,600 Speaker 1: relationships really really matter and you could do nothing without 339 00:21:08,640 --> 00:21:13,080 Speaker 1: having them. What about the information side of things, because 340 00:21:13,200 --> 00:21:16,760 Speaker 1: quite a few people have drawn an analogy between what 341 00:21:16,800 --> 00:21:19,800 Speaker 1: we've seen recently with the power and rise of the 342 00:21:19,840 --> 00:21:24,000 Speaker 1: Internet and fake news and the ability of basically everyone 343 00:21:24,080 --> 00:21:29,480 Speaker 1: to disseminate information at will with the revolution that was 344 00:21:29,720 --> 00:21:33,159 Speaker 1: the printing press. Um So if we have another big 345 00:21:33,200 --> 00:21:37,960 Speaker 1: spurt in the democratization of information or the dissemination of information, 346 00:21:38,680 --> 00:21:41,360 Speaker 1: what does that mean for the development of markets this 347 00:21:41,400 --> 00:21:44,880 Speaker 1: time around? So when you think about the Internet, it's 348 00:21:44,920 --> 00:21:47,960 Speaker 1: obviously has already and the mobile phone it has already 349 00:21:48,040 --> 00:21:51,200 Speaker 1: kind of democratized information for a lot of people. For example, 350 00:21:51,200 --> 00:21:54,600 Speaker 1: in India, um landline phones were available to like a 351 00:21:54,720 --> 00:21:59,480 Speaker 1: very small fraction of people, but now about like a 352 00:21:59,640 --> 00:22:02,719 Speaker 1: lot of majority of Indians have a mobile phone and 353 00:22:02,880 --> 00:22:07,680 Speaker 1: with it access to basic internet spacilities. So there's already 354 00:22:07,760 --> 00:22:11,800 Speaker 1: this democratization of information happening. But one of the conclusions 355 00:22:11,800 --> 00:22:15,359 Speaker 1: that I drew, especially after the last year, of the 356 00:22:15,400 --> 00:22:19,280 Speaker 1: way political economy has evolved, is that there is no 357 00:22:19,359 --> 00:22:23,919 Speaker 1: such thing that information technology would have a blanket positive 358 00:22:24,040 --> 00:22:26,880 Speaker 1: or a negative effect. And once again it goes back 359 00:22:26,880 --> 00:22:30,920 Speaker 1: to the question of incentives. So what kind of content 360 00:22:31,040 --> 00:22:36,040 Speaker 1: people develop once they have Internet in their hands depends 361 00:22:36,080 --> 00:22:38,800 Speaker 1: a lot on other things that is around them. So 362 00:22:38,920 --> 00:22:43,879 Speaker 1: if in case you have economic opportunities, opportunities to do business, etcetera, etcetera, 363 00:22:44,400 --> 00:22:47,960 Speaker 1: you will basically try to seek information that is financially 364 00:22:47,960 --> 00:22:50,840 Speaker 1: relevant for you. But I guess if in case you 365 00:22:50,920 --> 00:22:54,560 Speaker 1: would you are in a place which is economically not growing, 366 00:22:55,040 --> 00:22:57,600 Speaker 1: the same information technology can be used for other stuff. 367 00:22:57,640 --> 00:23:01,400 Speaker 1: For example, in sixteenth century europ most of the places 368 00:23:01,440 --> 00:23:07,160 Speaker 1: were primarily printing stuff about old religious texts or analysis 369 00:23:07,200 --> 00:23:10,399 Speaker 1: of something that was happening in the past. So the 370 00:23:10,560 --> 00:23:13,880 Speaker 1: incentives drive your content in the end, and the same 371 00:23:14,000 --> 00:23:18,480 Speaker 1: is true today. Was there fake news and Antwerp. So 372 00:23:19,359 --> 00:23:23,040 Speaker 1: what I know is that there's this new book by 373 00:23:23,119 --> 00:23:26,840 Speaker 1: Jared Rubin who talks about the fact that, for example, 374 00:23:26,960 --> 00:23:30,879 Speaker 1: in the Ottoman Empire, they didn't really like the printing 375 00:23:30,920 --> 00:23:34,840 Speaker 1: press a lot because they basically thought that printing would 376 00:23:34,920 --> 00:23:38,800 Speaker 1: lead to a lot of fake religious books and would 377 00:23:38,880 --> 00:23:44,240 Speaker 1: kind of corrupt the existing pristine religious materials. So certainly 378 00:23:44,240 --> 00:23:50,639 Speaker 1: there existed people who would have this concern for fake 379 00:23:50,720 --> 00:23:54,479 Speaker 1: news in a different version, and they were rumors and 380 00:23:54,520 --> 00:23:57,640 Speaker 1: there were things like that, and so yeah, so that's 381 00:23:57,680 --> 00:24:00,800 Speaker 1: something that I got really interested in the last year 382 00:24:01,480 --> 00:24:05,399 Speaker 1: because I honestly didn't really think that fake news and 383 00:24:05,560 --> 00:24:09,560 Speaker 1: this kind of fraudulent information would be so relevant. But 384 00:24:09,800 --> 00:24:12,280 Speaker 1: looking at the way things have moved over time, I 385 00:24:12,320 --> 00:24:15,600 Speaker 1: think that's something which is probably a topic of a 386 00:24:15,600 --> 00:24:18,920 Speaker 1: future paper, that how do institutions deal with our people. 387 00:24:19,000 --> 00:24:21,440 Speaker 1: People trust the media itself, so why did people trust 388 00:24:21,480 --> 00:24:23,760 Speaker 1: the printing present the books being printed in the first place. 389 00:24:23,960 --> 00:24:26,480 Speaker 1: That's an interesting research topic in itself. In my view, 390 00:24:27,200 --> 00:24:29,479 Speaker 1: We'll have to have you back on once you publish 391 00:24:29,520 --> 00:24:35,000 Speaker 1: that paper. Critique. I'll be happy to come, all right. Critique. 392 00:24:35,280 --> 00:24:38,880 Speaker 1: Raja PhD student over at the University College London. Thank 393 00:24:38,920 --> 00:24:41,240 Speaker 1: you so much for joining us today. Thanks a lot, 394 00:24:41,680 --> 00:24:52,200 Speaker 1: Thank you. Critique. That was great, So Joe, I thought 395 00:24:52,240 --> 00:24:57,480 Speaker 1: that was a really fascinating conversation with so many modern parallels, 396 00:24:57,640 --> 00:25:01,119 Speaker 1: especially when it comes to the idea of trust of 397 00:25:01,160 --> 00:25:05,920 Speaker 1: course and of course disseminating information, because the Internet has 398 00:25:06,200 --> 00:25:10,360 Speaker 1: really revolutionized both those things, and so has new technology. Absolutely. 399 00:25:10,400 --> 00:25:13,920 Speaker 1: I mean, I think, like, intuitively, it's not a surprise 400 00:25:14,280 --> 00:25:17,600 Speaker 1: that the rise of the Internet and new communication technologies 401 00:25:18,040 --> 00:25:22,399 Speaker 1: would have a profound effect on trade and disintermediation of trust, 402 00:25:22,520 --> 00:25:25,879 Speaker 1: networks and all that that we sort of get. But 403 00:25:26,040 --> 00:25:31,480 Speaker 1: I think that what's really interesting about critiques research is 404 00:25:31,680 --> 00:25:35,560 Speaker 1: the sort of rigor with which he demonstrates the mechanism 405 00:25:35,600 --> 00:25:40,800 Speaker 1: between the new information technology and the evolution of trade. 406 00:25:40,840 --> 00:25:43,280 Speaker 1: And if you look at his paper, you could see 407 00:25:43,280 --> 00:25:46,639 Speaker 1: that there's sort of some very statistical meat on the bones, 408 00:25:46,880 --> 00:25:50,080 Speaker 1: you could say, in terms of really establishing where these 409 00:25:50,160 --> 00:25:54,600 Speaker 1: impersonal markets flourished and these towns and where they were 410 00:25:54,680 --> 00:25:57,720 Speaker 1: in proximity to the printing press and trade. So it 411 00:25:57,760 --> 00:26:01,480 Speaker 1: really sort of bolsters and really strengthens this sort of 412 00:26:01,520 --> 00:26:05,199 Speaker 1: intuitive idea. Yeah, and there's a really nice map in 413 00:26:05,240 --> 00:26:07,439 Speaker 1: it as well. Where he sort of overlays a lot 414 00:26:07,480 --> 00:26:10,520 Speaker 1: of these ideas on seventeenth century Europe. So it's well 415 00:26:10,560 --> 00:26:14,240 Speaker 1: worth reading that paper when you have a chance. You 416 00:26:14,280 --> 00:26:17,400 Speaker 1: know what, what, I'm surprised about that we didn't go 417 00:26:17,480 --> 00:26:21,959 Speaker 1: over to the blockchain conversation, because blockchain, of course, is 418 00:26:22,000 --> 00:26:25,920 Speaker 1: both about trust and information. Yeah, you know what, I'm 419 00:26:25,960 --> 00:26:29,720 Speaker 1: actually impressed you say that you're surprised that we didn't 420 00:26:30,240 --> 00:26:33,400 Speaker 1: go there. I'm actually impressed with us for not going there, 421 00:26:33,440 --> 00:26:39,040 Speaker 1: because so many conversations do ultimately go back these days 422 00:26:39,080 --> 00:26:41,960 Speaker 1: to something related to block chains or whatever. So we 423 00:26:42,000 --> 00:26:45,240 Speaker 1: actually showed a little bit of restraint. But no, absolutely, 424 00:26:45,280 --> 00:26:48,080 Speaker 1: I'm sorry I ruined it. No, yeah, you did ruin it. No, 425 00:26:48,200 --> 00:26:52,320 Speaker 1: but you're totally right and thinking about the importance of 426 00:26:52,720 --> 00:26:57,240 Speaker 1: bookkeeping and being able to actually believe what a network 427 00:26:57,359 --> 00:27:00,159 Speaker 1: is doing. It seems like a lot of these the 428 00:27:00,320 --> 00:27:03,359 Speaker 1: problems that a lot of people are still looking to solve, 429 00:27:03,640 --> 00:27:07,479 Speaker 1: and a good reminder that for his impersonal as markets 430 00:27:07,480 --> 00:27:10,760 Speaker 1: have gotten, as Partique mentioned, there's still a pretty big 431 00:27:10,800 --> 00:27:14,520 Speaker 1: personal relationship and a lot of these things. Yeah. Absolutely, Okay, 432 00:27:14,840 --> 00:27:16,760 Speaker 1: you know what I'm gonna say, Let's let's leave it there, 433 00:27:16,800 --> 00:27:19,040 Speaker 1: because otherwise we really are going to start doing a 434 00:27:19,080 --> 00:27:22,159 Speaker 1: blockchain episode and then I'll feel really bad. Yeah, we 435 00:27:22,200 --> 00:27:24,920 Speaker 1: got it. We gotta ended there. All right. This has 436 00:27:24,960 --> 00:27:27,960 Speaker 1: been another edition of the Odd Lots Podcast. You can 437 00:27:28,040 --> 00:27:31,760 Speaker 1: follow me on Twitter at Tracy Alloway, and you can 438 00:27:31,840 --> 00:27:34,960 Speaker 1: follow me on Twitter at the Stalwart, and you should 439 00:27:35,000 --> 00:27:40,280 Speaker 1: follow Critique on Twitter at Critique Raj Underscore, and I 440 00:27:40,280 --> 00:27:43,159 Speaker 1: want to thank our producers to for Foreheads. You can 441 00:27:43,200 --> 00:27:46,760 Speaker 1: follow him on Twitter at Foreheast and the head of 442 00:27:46,800 --> 00:27:50,760 Speaker 1: podcast at Bloomberg, Francescallip, Thanks for listening.