Murphy A. (2006) The Financial Revolution: a supply-side story (for real)

Murphy, Anne L. (2006) “Dealing with Uncertainty: Managing Personal Investment in the Early English National Debt”, History, 91/302, 200-17.

Picture 4

The sums involved in the so-called English Financial Revolution following the arrival on the throne of William III were altogether not that important: £6.9m from 1688 to 1702 while the government budget over the period reached £72m. However, “the impact of those novel methods of fund-raising was considerable”. In particular because small wealth-owners represented a large share of these early investors (p.201). Samuel Jeake, a merchant from Rye (East Sussex) was one of those small investors. He recorded his thought and his transactions in a diary and a few letters (p.202).

With a view to hold

Jeake was a local trader also involved in the money business. The most profitable of his activities came from the retail of overseas products. As a result, the outbreak of the Nine Years War had a dramatic impact on his finance (p.204). As it was also the case for many other merchants, the war forced his capital into idleness and created a urgent need for fresh income that could be matched by the government’s fund raising scheme (p.205).

Table 1, p.211

Table 1, p.209

Two events proved crucial in Jeake’s decision to invest in the national debt: a trip to London and the relatively easy to understand for first-time investors Million Adventure lottery. His portfolio was made of £500 of Bank of England shares, £300 of government annuities, £200 of lottery tickets and a participation in a syndicate of Rye townsfolk participating to the lottery (p.206). He could expect a yearly return from 14 to 8% on his investments. He was also representative of the “buy and hold” strategy adapted by the majority of the shareholders of the BoE (p.207). Amongst the reasons that drove him to invest in government debt, Jeake mentions patriotism, (p.208), the fear of a French invasion and his attachment to the new regime which, as a nonconformist, guaranteed his religious freedom (p.208).

The devil’s touch

Despite his initial ambition, Jeake soon tried to benefit from short-term fluctuation… with little success. He was also often unable to liquidate his assets in time to pursue new investments and was forced to borrow at a higher rate than the return he could expect. Anne Murphy identifies this less-than-effective behaviour with the modern tendency of using different ‘mental accounts’ to value different action (p.210).

When in Rye, it seems that Jeake did not use the prices lists published by the recently invented financial press. He relied on the information sent by his London business partner, which could take two days and thus often cost him – as other provincial investors – dearly in terms of missed opportunities. Jeake finally decided to move to London (p.211). But this was not a perfect solution either, living in London was expensive, his business back in Rye suffered from his absence and in the City he was often influenced by the mood of a highly volatile market (p.212).

“[His] experience demonstrate that the costs associated with managing investment in the early English National Debt must have frequently eroded any potential profit”.

Not so revolutionary

Unlike what has often been advanced (cf. North and Weingast), the government failed to honour his commitment in 1696-8.  The situation was made worse by the monetary crisis going on at the time (p.213). Pamphlets reflects the spirit of the time: the credit of the king was low. So much so that when the government floated the Malt Lottery in 1697, barely 1% of the tickets could be sold. Few had any faith indeed in the government’s ability and commitment to meet his future obligations (p.214).

However the secondary markets that had been created in the early days of the Glorious Revolution remained strong, meaning that the securities that had been bought did not loose liquidity over the decade. Besides, the image of BoE was not affected by the general distrust in the government (p.215). Jeake himself had invested £500 in order to have a vote at the general court of the bank (as did 64% of the investors). He could thus trust the institution’s integrity (which included turning down the government demand for a new £2.5m loan). His strategy was rewarded after the war ended as the value of his shares tripled (p.216).


Investors seem to have trusted the BoE and the financial markets more than the state itself. However it seems that the early investors were unlikely to make a significant profit. Emotions are likely to have played a great role in one’s decision to enter or exit the market and thus in the rise of financial modernity (p.127).

Disclaimer: this summary is written by the contributors of the blog and not by the author of the article. Any mistake is Manuel’s fault (and he shall be punished).

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