The Company of Proprietors of the Grand Junction Canal was incorporated by Special Act of Parliament on April 30, 1793 to build a canal from Braunston to the River Thames. The stock for the canal went through three bubbles, in the 1790s, the 1810s and the 1820s, before settling down once the railroads were built, providing competition to the canal. Unfortunately, there is almost no data for the Canal Mania of the 1790s. The number of canals authorized by Act of Parliament in 1790 was one, but by 1793 twenty were authorized. The capital authorized in 1790 was £90,000, but had risen to £2,824,700 by 1793. Most of the canals raised their money locally, mainly in the Midlands, and there were few transactions in the stocks as a result. Though a stock exchange was established in Liverpool to trade shares, actual values are hard to come by and must be tracked down through newspapers. Nevertheless, some of the stock increases were impressive. The Birmingham and Fazeley showed the greatest increase, trading at a premium of £1170 in 1793. The first bubble occurred in 1792 and 1793 and we only have two prices for Grand Junction Canal Shares, one at £472.75 in October 1792, a premium of 355 guineas, even before the company had started to dig the canal or gotten approval from Parliament! Talk about a speculative bubble. Shares had fallen to £441 by the time the approval was provided by Parliament, and the prices collapsed after 1795 when shares returned to their par level of around 100. The London Stock Exchange wasn’t formally established until 1801, so until then the opportunity to trade canal stocks and keep track of the price fluctuations was limited. Even once the London Stock Exchange was established in 1801, most of the prices we have from the Gentlemen’s Magazine and other sources. The data are bid and ask quotes rather than actual prices since the shares still traded infrequently. Nevertheless, these data are sufficient to outline the three bubbles in shares of the Grand Junction Canal. The next price we have for Grand Junction Canal shares after 1793 is of £94 in April 1806. The bubble began in May 1808 when the shares still traded at £96, but the price steadily rose to £313.5 by June 1808, whence they declined to £179 by August 1811, stabilized around 200 until 1815 when the Napoleonic War ended, then fell to £103 by September 1816. The second Canal Mania of the 1810s was not as wild as the one of the 1790s, since share prices tripled rather than quadrupled, but the difference was that the Canal Mania of the 1810s was not limited to the Midlands. Shareholders in London also participated as a result of the establishment of the Stock Exchange. The next move up in the shares began soon after the post-war plummet. Shares moved up steadily from September 1816 to hit £200 by the end of 1817, stabilized around £200 through the end of 1820, then hit £383 by April 1824. The canal stocks shared in the bubble of the 1820s even though that bubble mainly revolved around South American stocks and the mining companies that were established following the independence of the South American countries. Unfortunately, Grand Junction Canal shares did not benefit from the railway mania of the 1840s since the railways were in direct competition with the canals and shareholders sold their canal shares to invest in railways. Shares traded steadily between £200 and £300 between 1825 and 1845, but fell along with the Railway Mania crash, with shares falling to £51 by 1853. Shares generally rose for the rest of the nineteenth century, hitting £150 in 1897 before declining until the 1920s bull market. The Regent’s Canal bought the Grand Junction Canal and the three Warwick canals, and from January 1, 1929 they became part of the (new) Grand Union Canal. The Grand Junction Canal took the proceeds and became a REIT which was renamed the Grand Junction Co., Ltd. The company was acquired by the Amalgamated Investment & Property Co. Ltd. in 1971. Between 1793 and 1818, the UK government debt rose from £243 million to £843 million in 1818. The brief hiatus in the increase in debt between 1808 and 1812 could help to explain the canal mania of 1810-1812 as the Continental Blockade forced investors to put their money to work internally, but once Napoleon invaded Russia, the source of funding dried up. 1819 was when the UK government debt peaked at £844 million, declining from there in absolute terms, much less as a share of GDP, until 1914. It should be remembered that more than anything else, Napoleon made London the financial center of the world. The French Revolution both destroyed the rich in France through driving wealthy financiers out of Paris and to London, and through inflation, which destroyed the value of the assets the rich had held. The other financial center in the eighteenth century in Europe was Amsterdam, but it never really recovered from the occupation of French troops in 1795. Both financial expertise and capital flowed to London as a result of the French Revolution and the wars that followed, and the laissez-faire approach England took to markets ensured that London would be the financial center of the world until World War I. As capital flowed into London during and after the Napoleonic Wars, and investors were allowed to trade freely, stocks benefited. Anyone who questions the impact of the government on the price of financial assets, both positively and negatively, need only look at the Grand Junction Canal’s history as well as that of the London stock exchange to see the impact the government can have.

With Google and Priceline surpassing $1000 (much less Berkshire Hathaway A shares trading at $175,000), people are amazed that stocks can trade at such high levels without being overvalued or losing liquidity, but in reality, compared with the past, most stocks are cheap nowadays. In fact, the further you go back in time, the higher was the price of average stocks to most investors. In terms of purchasing power, stocks are as cheap and as liquid as they have ever been. Not only was the average price of stocks 200 years higher than they are today, but they were higher in terms of personal income. Shares of the First Bank of the United States were issued at $400 in 1791 and shares of the Massachusetts Bank of Boston were issued at $500 in 1792. One share was equivalent to the average annual income of most people back then. Most shares sold for $100, and some for $50 or $25, so how could investors afford stocks that make Google and Priceline look cheap? Even if a stock was at $100, this was equivalent to $10,000 today in terms of earning power. Were there really that many rich people back then? The answer is no, but the difference is in the way shares were issued and traded. First, shares were rarely bought in round lots of 100 shares as they are today, but shares were traded individually. This means that even though the prices of individual shares has fallen, the average transaction size has not fallen as significantly. Second, and most importantly, shares were often bought on the installment plan, at a discount, or in fractions in order to reduce the total cost of investing. It is this second point I want to concentrate on. To see how this worked, let’s go back to the South Sea Bubble of 1720. It should be remembered that South Sea shares traded around £100 before the bubble began, which was equivalent to about $500 in 1720. One factor that allowed the Bubble to occur was that “investors” were allowed to pay for their shares in installments. The initial purchase required only 10% down with the rest of the payments spread over the rest of 1720. This was the eighteenth-century version of buying on margin. It encouraged buying because speculators, as always, thought they could make a profit before the next payment was due. It was the eighteenth-century equivalent of flipping houses. Many of them, no doubt, knew they didn’t have the full amount of money for a share, but they did have enough to get in the game. Unfortunately, the game got them. Without the speculative allure of buying in down payments, trading remained quiet in London for the next 100 years. Speculation only returned during the Canal Bubble of the 1810s, the South America and Mining boom of the 1820s and the railroad boom of the 1840s. The difference between how stocks traded in the 1840s and today is particularly striking. Again, the difference is what I call, buying on the installment plan. The par value of most stocks was £100 or about $486 using the fixed, gold exchange rate. This was almost a year’s income for the average person. Of course, the average person wasn’t investing, and most investors were people who had an endowment they had to live off of. The problem was, if you want to build a railroad and raise large amounts of money, how do you get people to part with their money? As in 1720, the answer was to pay on the installment plan. A railroad stock would be issued at £100 par. This was the amount investors were expected to put into the company; however, the company would only ask for the money as needed. The amount actually paid in was the Paid amount, and this could differ significantly from the par value. The agreement was that as the building of the railroad progressed, the corporation could assess shareholders for additional money, which they would then be required to pay in, or lose their shares. This allowed shareholders to get in on the cheap and spread out their £100 in payments over a period of several years, starting off at £10 and working their way up. As always, the hope was that if the railroad were successful, investors could use the profits to pay for the shares, and if the railroad were not successful, this process would minimize their losses. In theory, after several years, the £100 would be paid in full, and the shareholder would have made a successful investment. In reality, this created a number of complications. First, there was always the problem that someone might not have the cash ready when an assessment was due. For this reason, shareholders began to resent the fact that at any point in time the corporation could ask them for more money with the threat of the loss of shares if the shareholder did not pay. The goal was to receive money from the corporation, not pay money into it. Shareholders especially resented this when the railroad ran into unexpected problems creating a need for the investors to share the burden. It is one thing to lose money on a stock; it is another to have to pay money into the company in addition to losing your capital. This is why all shares today are non-assessable, meaning companies cannot ask shareholders for more money. The oddest result of this system was that some shares might actually trade at a negative value! In other words, someone would pay you to take their shares in the company, and we have recorded negative values for shares from the London SE. Let’s say that a share is trading at £5 and a £10 assessment is due, but you don’t have the £10, then you might pay someone £5 to take the shares off your hands and avoid the £10 assessment. Having to pay someone to take shares of a company you invested and lost money on would certainly add insult to injury. Another problem this system created was that several shares could trade simultaneously. You might have shares with £30, £40 and £50 trading at the same time reflecting the amount paid in and creating confusion. For this reason, prices were often quoted in the London Times at a premium or discount to the par value, so the same amount would be paid regardless of which shares you were buying. So if the shares were trading at a £5 discount, you would pay £25 for the £30 shares or £35 for the £40 shares. Up until the mid-nineteenth century, most shares on the London Stock Exchange that were not at their fully paid value were listed this way. There was another problem this created. When the railroad boom got going in the 1840s, stocks increased in value dramatically. If a railroad needed to raise more capital, and the shares were already fully paid in at 100 and had risen in price since then because the railroad was profitable, it became difficult to raise additional capital because the price of the shares was so high. So how do you raise additional capital? The answer was simple, you issue fractional shares. Shares were issued in halves, thirds, fourths, fifths, eighths, tenths, sixteenths, and most points in between. At any given point, a company might have a half-dozen fractional shares issued and trading. This allowed smaller investors to jump on the bandwagon and make money along with their richer friends. In addition to this, the railroad might issue shares specifically for specific routes along the railroad which would be separate from the main line. This allowed the railroad to issue new shares at lower prices on the installment plan, and since money is fungible, use the money as they best saw fit. Of course, most shareholders wanted to receive income on their shares in the form of dividends. After the railroad mania of the 1840s was over with, profits were lower and shares had declined in value. It became more difficult to raise money from this sector of the investing public, so some of the railroads began issuing “preferred” shares which were paid ahead of the common stocks. In fact, it was the London and Greenwich Railway which was the first to do this, issuing a 5% preferred in April 1842. By the time the railway mania of the 1840s was over, the result was that the outstanding securities of some railroads were a mess. Most railroads never made it to the full £100 paid in, so the paid in value was only a portion of their par value. In addition to that, fractional shares were outstanding, and there were the shares from extension lines of the railroad as well as shares in railroads taken over during the boom, which usually traded separately from the parent shares. To eliminate the confusion, railroads consolidated shares once the building boom was over with. If a £100 par share was at £20 paid, the company would do a 1:5 reverse split turning the stock into a £100 par share. If there were half shares or quarter shares outstanding, they would do a 1:10 or 1:20 reverse so all the fractional shares were eliminated. If an extension rail line was at £10 par, it would have a 1:10 reverse. Consequently, all the shares would be consolidated into a single security. By the late 1800s, capital was flowing freely enough that all the measures that had been used to make shares “affordable” were no longer needed, and new shares were issued at £100 and the whole system of downpayments, fractional shares, and other half-measures weren’t necessary anymore. Nevertheless, there was a final interesting phenomenon which occurred in London to make shares more accessible to the public. When the bull market of the 1920s occurred, the high price of stocks kept most shareholders out of the market, even though punters wanted in. Companies found a quick solution to making their shares more liquid and bringing in more capital. In the US, companies would split their stocks 4:1 or 5:1 as the price rose to make the shares more affordable, and speculators could go to bucket shops to trade on margin, but in London, shares were sometimes split 100:1 to get the par value down from £100 to £1, and there are even cases of stocks splitting 400:1 to get the par value down to 5 shillings (or about $1). This helped to feed the bull market in stocks in London, but as we all know, the 1920s bull market ended in the crash of the Great Depression, though stocks fell around 50% in London, as opposed to 90% in the United States. The bottom line is, companies will always find a way to make their shares available to the public to raise money and maintain liquidity in their stocks. Some may criticize high-frequency trading, but it has made the markets more liquid. It is easier and cheaper to trade odd lots than ever, so if you only want to buy 10 shares of Google, then do so. Markets have always accommodated investors, and always will.

As with many financial panics, this one began when unexpected events in one part of the Roman world spread to the rest of the Empire. To quote Otto Lightner from his History of Business Depressions, “The important firm of Seuthes and Son, of Alexandria, was facing difficulties because of the loss of three richly laden ships in a Red Sea storm, followed by a fall in the value of ostrich feather and ivory. About the same time the great house of Malchus and Co. of Tyre with branches at Antioch and Ephesus, suddenly became bankrupt as a result of a strike among their Phoenician workmen and the embezzlements of a freedman manager. These failures affected the Roman banking house, Quintus Maximus and Lucious Vibo. A run commenced on their bank and spread to other banking houses that were said to be involved, particularly Brothers Pittius. “The Via Sacra was the Wall Street of Rome and this thoroughfare was teeming with excited merchants. These two firms looked to other bankers for aid, as is done today. Unfortunately, rebellion had occurred among the semi civilized people of North Gaul, where a great deal of Roman capital had been invested, and a moratorium had been declared by the governments on account of the distributed conditions. Other bankers, fearing the suspended conditions, refused to aid the first two houses and this augmented the crisis.” At the same time, agriculture had been on the decline for several years, and Tiberius required that one-third of every senator’s fortune be invested in Italian land. The senators had 18 months to make this adjustment, but by the time the period was up, many senators had failed to make the proper adjustment. This deadline occurred at the same time as the events above occurred, placing a further squeeze on the financial sector. When Publius Spencer, a wealthy noblemen, requested 30 million sesterces from his banker Balbus Ollius, the firm was unable to fulfill his request and closed its doors. Over the next few days, prominent banks in Corinth, Carthage, Lyons and Byzantium announced they had to “rearrange their accounts,” i.e. they had failed. This led to a bank panic and the closure of several banks along the Via Sacra in Rome. The confluence of these seemingly unrelated events led to a financial panic. To protect themselves, banks began calling in some of their loans. When debtors could not meet the demands of their creditors, they were forced to sell their homes and possessions, and with money unavailable even at the legal limit of 12%, prices of real estate and other goods collapsed since there were so few buyers. A full scale panic followed. The panic occurred not only in Rome, but throughout the Empire. If anyone thinks that it is only in recent times that financial markets have been so fully integrated that the failure of the Creditanstalt in 1931 or Lehman in 2008 could precipitate a panic, they clearly have not read their history. By their nature, financial markets have always been integrated, and failure in one part can create the domino effect which created the Great Depression and was witnessed in 2008. Tiberius had retired from Rome. Although a great general, some felt Tiberius never wanted to be emperor, and he became reclusive in his later years. It took time to contact him and get a response. Several days later, he sent a letter to Rome with measures to alleviate the crisis. The decrees which had precipitated the problem were suspended. 100 million sesterces were to be taken from the imperial treasury and distributed among reliable bankers, to be loaned to the neediest debtors. (A loaf of bread sold for half a sestertius and soldiers earned around 1000 sesterces, so if you take an average soldier’s salary of around $20,000, you could say that one sestertius was equal to about $20 today.) The 100 million sesterces was equivalent to around $2 billion. No interest was to be collected for three years; but security was to be offered at double value in real property. This enabled many people to avoid selling their estates at low prices, stopping the fall in prices and ensuring that the lack of liquidity never occurred. Though a few banks never recovered from the panic, most continued business as usual, and the financial panic ended as quickly as it began. If you think about Tiberius’s response, it is little different from what Bagehot would have recommended in Lombard Street, written in1873, or what Bernanke did in 2008. Just as Bernanke expanded the balance sheet of the Fed, Tiberius increased liquidity by a huge amount, an early version of the TARP. Tiberius lowered interest rates to zero for three years to alleviate any additional pain, again, little different from the quantitative easing the Fed has carried out to keep both short- and long-term interest rates low. The financial crisis of 33 AD also illustrates how integrated all parts of the Roman Empire were since it involved not only Rome, but Egypt, Greece and France. The financial panic took place over a period of a few weeks, one collapse precipitating the other, just as problems at Lehman, AIG and Morgan Stanley quickly led to problems in other parts of the financial sector and the real economy. The financial crisis was resolved with Tiberius’s measures, and the downward spiral was stopped. When Tiberius died in 37 AD, he had a fortune of 2.7 billion sesterces, or over $50 billion. Unfortunately, his successor was his son Caligula, who was, to say the least, not as refined in his judgments as Tiberius was.