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

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.

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”.

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.

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).

Flandreau M. et al. (2009) Financiers without borders

Flandreau, Marc, Christophe Galimard, Clemens Jobst and Pilar Nogués-Marco (2009) “Monetary Geography Before the Industrial Revolution”, CEPR, DP7169, 25p.

Introduction

Some argue that national moneys have been constructed by states, but not before the 19th century. Prior, during the 18th century, there were no monetary borders to speak of and local markets were integrated by the ubiquitous bills of exchange; regulation remaining at a sub-national level (cities; p.1). Others have pointed out that the financial geography was not that seamless and that a shape arose from endogenous elements (transaction costs, agglomeration economies, etc.). Finally, institutionalist economists have argued that factors such as parliaments and constitutions were critical in the dawn of international finance (p.2).

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

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

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?

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

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.

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).

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

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.

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).

Introduction

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).

Carlos A., Key J. and Dupree J. (1998) Early finance’s learning curve

Carlos, Ann M., Jennifer Key and Jill L. Dupree (1998) “Learning and the Creation of Stock-Market Institutions: Evidence from the Royal African and Hudson’s Bay Companies, 1670-1700”, The Journal of Economic History, 58/2: 318-344.

Disclaimer: this summary is written by the blog and not by the authors of the article. Any mistake is Manuel’s fault.

Introduction

“England’s emergence as an international trading nation in the seventeenth century can be linked to the growth of trading arrangements that allowed for a longer life of capital either […] as a joint-stock trading company” (p.318).

According to North and Weingast’s famous thesis this emergence was made possible by the reforms brought by the 1688 Glorious Revolution. However the authors underline the fact that markets don’t grow instantaneously and it takes some times for the actors to learn how to use the market (p.319).

Temin P. and Voth H.-J. (2008) A case for deregulation… in 18th-century Britain

Temin, Peter and Voth, Hans-Joachim (2008) “Private borrowing during the financial revolution: Hoare’s Bank and its customers, 1702-24”, Economic History Review, 61/3, 541-564.

Introduction

The Financial Revolution is said to have allowed the British government to borrow widely and cheaply. Famously, North and Weingast added that it also had a profound and beneficial effect on private businesses (p.541). To assess the latter claim, the authors use data collected from the archives of a small London goldsmith bank, Hoare’s (p.542). It is likely that their sample is fairly representative since there were only a dozen such establishments around 1700s. The key event of the period is the lowering of the legal maximum interest rate from 6 to 5% in 1714 by the heavily indebted British government at the end of the War of Spanish Succession (p.543).

Hoppit J. (1986) Financial crises in 18th-century England

Hoppit, Julian (1986) “Financial Crises in Eighteenth-Century England”, The Economic History Review, 39/1, 39-58.

Introduction

“Because the financial system in the 18th century was evolving and becoming more sophisticated, […] the nature of crises developed and changed”. Historians have long disagreed on the very definition of what constituted a crisis in early modern England (p.40). The author defines a crisis as a moment when expectations change leading owners of wealth to abandon a type of asset for another leading to the falls in prices of the former. The more widely available the newly-sought asset is, the lesser the crisis.