The Telegraphic Transmission of Financial Asset Prices and Orders to Trade : Implications for Economic Growth, Trading Volume, and Securities Market Regulation

This paper delineates how the telegraph was used in the financial services sector in the United States, and considers the implications of this use for U.S. economic growth, New York Stock Exchange trading volume, and securities market regulation. The parallel implementation of two separate dedicated telegraphic networks facilitated the emergence of a technological/institutional trading regime that endured for the better part of a century, beginning in the 1870s, and breaking down decisively only in the second half of 1968. There is little evidence that communications innovation per se made volume or asset prices either more or less volatile. The telegraph did permit a reduction in per share transactions costs, which given the elasticity of demand for such services, resulted in an upward drift over time in the real resources consumed by the secondary exchanges, the brokerage industry, and individuals and institutions engaged in short term trading. It is unlikely that the benefits of enhanced trading in secondary markets, in relation to the costs needed to realize them, and in comparison with a posited world without the telegraph, created a social return that came close to that realized in the other major business application of the telegraph: logistical control