Murphy A. (2009) The smartest boys in the alley, early derivatives on the London stock market

October 24, 2009

Murphy, Anne L. (2009) Trading options before Black-Scholes: a study of the market in late seventeenth-century London. Economic History Review, 62/1: 8-30.

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The ledger of the financial broker Charles Blunt contains the details of some 1,500 transactions realized between 1692 and 1695, about a third of which regard the then novel trade in equity options (p.9). The technique had arisen in the 1620s in the commodity market and was proving very useful in the decade following the Glorious Revolution, when some 100 joint-stock companies were floated in London  (p.10). During the boom of the early 1690s, it is likely that “several thousand derivatives were transacted each year”.

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

October 9, 2009

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

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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). Read the rest of this entry »

Frehen R., Goetzmann W. and Rouwenhorst G. (2009) Why invest in the bubbles?

August 31, 2009

Frehen, Rik, William Goetzmann and Geert Rouwenhorst (2009) “New Evidence on the First Financial Bubbles”, Yale international Center for Finance, Working Paper 04, 24p.

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This article is available online.

Why did investors decide to bet on the various companies that would form the three 1720 bubbles in France, England and the Netherlands? (p.1). How did these bubbles affect companies which unlike the Compagnie des Indes and the South Sea Company were neither involved in the Atlantic trade nor in public finance?

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Flandreau M. et al. (2009) The question was not how to develop finance

August 30, 2009

Flandreau, Marc, Christophe Galimard, Clemens Jobst and Pilar Nogués-Marco (2009) “The bell-jar: commercial interest rates betwee two revolutions” in The Origin and Development of Financial Markets and Institutions. From the Seventeenth Century to the Present, eds. Jeremy Atack and Larry Neal, Cambridge: Cambridge University Press, 161-208.

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An earlier version of this paper is available here.

For institutionalist economists as well as for contemporary commentators, the wealth of nations in 18th century Europe was rooted in their political system which influenced the level of interest rates and thus trade (p.165). The confidence investors had in the government’s credit was thus seen as critical (tellingly John Law’s primary aim was to bring interest rates down; p.166). Read the rest of this entry »

Velde F. (2009) Eighteenth-century France’s one-man-bubble

August 21, 2009

Velde, François R. (2009) “Was John Law’s System a bubble? The Mississipi Bubble revisited” in The Origin and Development of Financial Markets and Institutions. From the Seventeenth Century to the Present, eds. Jeremy Atack and Larry Neal, Cambridge: Cambridge University Press, 99-120.

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A slightly different version of this paper is available online.

The shares of the Compagnie des Indes created by John Law to manage the colonization of Louisiana, public finances and monopolies went from 250 Livres in July 1718 when the initial offering closed to just under 10,000 L days before Christmas 1719 and finally to 50 L in March 1721 (p.108). Can this jump followed by an even more impressive collapse in under 3 years be described as a bubble? (p.109) Read the rest of this entry »

Quinn S. and Roberds W. (2006) When financial innovation’s good for the economy

August 18, 2009

Quinn, Stephen and Willam Roberds (2006) “An Economic Explanation of the Early Bank of Amsterdam, Debasement, Bills of Exchange and the Emergence of the First Central Bank”, Federal Bank of Atlanta. Working Papers Series, 13: 50p.*

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This paper is available online.


The United Provinces suffered from what Adam Smith termed the “small state” problem: it was awash in foreign coin and had little control over their quality, thus suffered from their constant debasement (p.1). Debtors always have an incentive to pay their due with debased coins. But this practice is only viable if the seigniorage he pays to the mint is lower than the amount of silver he saves in the operation. De facto, there is collusion between the mint and the debtor against the creditor (p.4). Read the rest of this entry »

Quinn S. (2001) Public debt to private finance: “Drop dead”

August 12, 2009

Quinn, Stephen (2001) “The Glorious Revolution’s Effect on English Private Finance: A Microhistory 1680-1705”, The Journal of Economic History, 61/3: 593-615.

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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).


According to North and Weingast’s famous thesis, the investiture of William III of England in 1688, the “Glorious Revolution”, triggered a quick modernization of the British financial system – prompting in turn a fall of the interest rates. But the arrival of the new king also led the realm into a new war against France which lasted nine years and increased public debt from £1 million to £19 million (⅓ of the national income; p.593). Read the rest of this entry »