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52 Financial History | Spring/Summer 2011 | www.MoAF.org
the Difference Engine, invented by the
famously brilliant, eccentric and obnoxious Charles Babbage. 10 11
Babbage was stunningly smart, and
even more stunningly insufferable. He lost
his government funding, and the idea of
automatic computing languished for many
years. It was not used in financial markets
or anywhere else in the 19th century. Babbage only built pieces of his machine; but
when the Royal Museum in London put
a whole one together from his designs in
1995, it worked perfectly. The world could
have been a very different place if Babbage
had had better manners. Instead, traders
were still signaling each other with their
hands, dancing and dressing up in bear
suits, and there was still a problem: they
had to be present to participate in the market. This problem was solved with more
technology, namely telegraphy. The earliest telegraphs weren’t the electric variety.
They were guys standing on hills waving
flags, like the ones used at sea. 12
There were lots of problems with the flag
system. For one, it was hard to see a little
guy way up on a hill. In most places, people
starting building big mechanical guys like
this one, with large wooden arms, and put
them up on the hill instead. 13
There were a few variations on this
theme, such as the smoke-and-fire telegraph tower 14 , which had a problem
with burning down mid-message … and
the decoder-ring-on-a-stick design. 15
These towers are the reason so many
cities have a place called “Telegraph Hill.”
Around the world, the builders and first
users of these early telegraph systems
were the military, for obvious reasons. The
second users were traders disseminating
market information. The third users typically were con men perpetrating financial
frauds on the traders by sending out false
signals or front-running the real ones.
There were many problems with the flag
system, namely privacy, bad weather and
darkness. It took about half an hour for
a price change to work its way from New
York to Philadelphia.
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