Saturday Morning Muse with Dr. Andrew Temte

Episode: Chaos at Jonathan's Coffee House

Date: October 25, 2025
Host: Dr. Andrew Temte

Main Theme

In this episode of Saturday Morning Muse, Dr. Andrew Temte explores the evolution of financial markets in London during the late 17th and 18th centuries. Focusing on Jonathan's Coffee House, the informal birthplace of what would become the London Stock Exchange, Dr. Temte uses storytelling and historical analysis to illustrate how informal trading customs gave rise to formal institutions. The episode underscores the importance of organized markets, the risks of unregulated speculation, and how lessons from financial history shape modern economic systems.

Key Discussion Points & Insights

1. The Aftermath of Amsterdam’s Innovation

• Following last week’s discussion on the Dutch East India Company's creation of transferable shares (00:15), Dr. Temte examines how English commerce learned from Dutch successes.
• Transferable shares created both new opportunities and new problems:
  • “Where do buyers and sellers find each other? How do they agree on fair prices? And who ensures that transactions are completed honestly?” (00:32)

2. London’s Search for an Organized Marketplace

• In the 1690s, English merchants, inspired by Amsterdam's wealth, adopted the joint-stock model:
  • The English East India Company reorganized in 1657 to allow permanent capital and transferable shares (01:20).
  • Other companies like the Royal African Company and Hudson’s Bay Company followed suit (01:33).
• However, “London had no organized marketplace. Buyers and sellers met haphazardly, prices varied wildly, and fraud was rampant.” (01:40)

3. The Emergence of Jonathan’s Coffee House

• Coffee houses in 17th-century London served as key social gathering spots for different professional communities.
• “Lloyd’s [Coffee House] drew insurance underwriters, while Jonathan’s became the gathering place for equity share traders.” (02:08)
• At Jonathan’s, trading was informal—brokers matched buyers and sellers, and transactions were recorded by signed memoranda (02:25).
• Notable quote:
  • “If you owned shares and wanted to sell, you’d visit Jonathan’s and find a broker.” (02:35)

4. Weaknesses of Informal Trading

• Absence of regulation led to systemic problems:
  • “There were no rules about who could become a broker, no standards for recording transactions, and no enforcement mechanism if someone failed to deliver shares or payment.” (03:03)

5. The South Sea Bubble Crisis (1720)

• The South Sea Company created investor mania by promising lucrative trade with South America (03:20).
• Share prices soared from £128 in January to £1,050 in June 1720—a more than eightfold increase (03:37).
• Social effects: “People mortgaged their homes to buy shares. Servants quit their positions to become stock traders. New companies sprouted daily with impossible schemes.” (03:50)
• Jonathan’s was “the epicenter of this madness. Crowds packed the establishment, shouting bids and celebrating paper fortunes.” (04:06)
• Crash: When profits failed to materialize, prices collapsed to £175 in September, below the original price by December—“thousands of investors were financially ruined” (04:23).

6. Regulatory Response and Lessons Learned

• Aftermath: Parliament’s Bubble Act made joint-stock formation difficult, demanding Royal charters or Acts of Parliament (04:36).
• Side effects:
  • “It made it harder for legitimate businesses to raise capital and didn’t prevent future bubbles. Speculation… is a human tendency no law can fully eliminate.” (04:50)

7. From Informal Gathering to Formal Exchange

• The crash highlighted the inadequacy of informal trading. Gradually, brokers established rules and customs—standard hours, recording methods, behavioral norms (05:08).
• In 1773, 150 brokers formed a subscription club, requiring fees, good reputations, and internal dispute arbitration—an early blueprint of the London Stock Exchange (05:30).
• By 1801, the London Stock Exchange was formally established with systematic rules, standardized procedures, and enforcement mechanisms (05:52).

8. Enduring Principles of Modern Stock Markets

• Dr. Temte outlines principles that emerged and persist today (06:13):
  • Centralized marketplaces
  • Professional intermediaries (brokers)
  • Standardized trade recording/completion
  • Fraud and manipulation rules
  • Membership requirements
  • Dispute resolution
• “Financial markets naturally evolve from informal to formal as trading volume increases. Informal arrangements work fine when trading is occasional, but sustained activity demands organization, standardization and oversight.” (06:36)

Memorable Quotes & Moments

• On the origins of stock markets:
  “Buyers and sellers met haphazardly, prices varied wildly, and fraud was rampant.” (01:40)

• On the South Sea Bubble:
  “People mortgaged their homes to buy shares. Servants quit their positions to become stock traders… One company sought capital to develop a wheel for perpetual motion.” (03:50)

• On regulation and its limits:
  “Speculation, as we’ll find out, is a human tendency that no law can fully eliminate.” (04:53)

• On evolution toward organization:
  “Financial markets naturally evolve from informal to formal as trading volume increases.” (06:36)

Important Timestamps

• 00:15 — Recap of Dutch East India Company innovation
• 01:20 — English East India Company adopts transferable shares
• 02:08 — Jonathan's Coffee House as the nexus of trading
• 03:20 — The beginnings of the South Sea Bubble
• 04:36 — Bubble Act and its unintended effects
• 05:30 — Early stock exchange clubs set up membership and conduct rules
• 05:52 — Formal founding of the London Stock Exchange
• 06:13 — Fundamental principles of organized stock markets
• 06:36 — Insight on the natural evolution of markets

Outro/Looking Forward

Dr. Temte teases the next episode’s focus on how 19th-century American railroad booms brought stock ownership to the middle class and turned the market into a barometer of economic health.

This concise, story-driven episode delivers practical historical lessons on the necessity for structure, rules, and professionalism in financial markets—timeless insights for anyone pursuing greater financial literacy.