Dumb Networks and Smart Capital

Wriston, Walter B.


The Advent of a Network Economy


Today's global markets, which we now take for granted, did not arrive without some serious problems along the way. Immediately after the war, all markets and payment systems relied on manual systems. There were a few hand-cranked adding machines around and one of the largest departments in most banks was the messengers. In New York all interbank payments were settled by exchanging official checks at the New York Clearing House. By 1969, as the volume of payments increased, this system bogged down as there were simply not enough officers to sign the checks or messengers to deliver them. All this was long before the advent of the computer chip, and windows were something you looked out of. To solve this problem a whole new system had to be invented and put in place.

In those days, before the advent of our current network economy, innovation was not thought to be as important as refining current practice, but the explosion of world trade and capital movements overwhelmed the old system, and no amount of refinement to a manual system could keep up with the growth of transactions. A new and innovative system was required, but old values and concepts die hard and often leave behind words that no longer describe what is happening in the real world today. In his book , Albert Einstein [1]  wrote, "We have ... forgotten what features in the world of experience caused us to frame [prescientific] concepts ... There is the further difficulty that our language is compelled to work with words which are inseparably connected with those primitive concepts."

By today's standards, the markets that existed immediately after World War II and for some 20 odd years thereafter were primitive. Few even remember that in 1968 the New York Stock Exchange choked and ground to a halt on 16 million shares a day. There were more than $100 million of unclaimed dividends floating in the market with no clear record of who owned them. Over 100 member firms, many of which were household names, went bankrupt and disappeared forever. We had to close the market on Wednesdays for six months and shorten the trading day by one hour on the other days. Those drastic restrictions gave a little group of six people, called BASIC, time to devise and implement fixes like the Depository Trust Company, the jumbo certificate, the placement of CUSIP numbers, and many other things that now constitute a good part of the modern stock market. When its work was done, the group being entirely private and unaffiliated with government, self-destructed. Interesting enough, no governmental agency was involved in this successful redesign. Today the talking heads on TV mention in passing that "trading was moderate" as 450 million shares changed hands. And the market today is capable of handling two-billion-share days.

Not only is the sheer volume of turnover today an order of magnitude different from yesterday, but telecommunications has so closely linked the world's nervous system that distant markets often move in sympathy with one another. On what has been called Black Monday (October 17, 1987), the New York Stock Exchange index dropped 22.6 percent, the Chicago Mercantile Exchange S&P Futures plummeted 28.6 percent, Japan's market dropped about 15 percent, Britain's stocks fell 11 percent, Sydney's were off 25 percent, and Hong Kong's free fall caused the authorities to close the market altogether.


[1] Einstein, A. (1934) The World As I See It. New York: Covici Friede: 83-84.