Neal 1990 - The Rise of Financial Capitalism.

The rise of
financial capitalism
Studies in Monetary and Financial History
EDITORS: Michael Bordo and Forrest Capie
Barry Eichengreen, Elusive Stability: Essays in the History of

International Finance, 1919-1939
Larry Neal, The Rise of Financial Capitalism: International Capital
Markets in the Age of Reason
The rise of
financial capitalism
International capital markets
in the Age of Reason
Larry Neal
University of Illinois at Urbana-Cbampaign
CAMBRIDGE
UNIVERSITY PRESS
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© Cambridge University Press 1990

First published 1990
First paperback edition 1993
Library of Congress Cataloging-in-Publication Data available.
A catalogue record for this book is available from the British Library.
ISBN 0-521-38205-X hardback
ISBN 0-521-45738-6 paperback
Transferred to digital printing 2002

To Peg, Kathy,
Liz, and Chris
Contents
Acknowledgments page ix
1 Historical background for the rise of financial
capitalism: commercial revolution, rise of nation-states,
and capital markets i
2 The development of an information network and the
international capital market of London and Amsterdam 20
3 The early capital markets of London and Amsterdam 44
4 The Banque Roy ale and the South Sea Company: how
the bubbles began 62
Appendix: Were the Mississippi and South Sea bubbles
rational? 80
5 The Bank of England and the South Sea Company:
how the bubbles ended 89
6 The English and Dutch East Indies companies: how the
East was won 118
7 The integration of the English and Dutch capital
markets in peace and war 141
8 The English and Dutch capital markets in panics 166
9 The capital markets during revolutions, war, and peace 180
10 A tale of two revolutions: international capital flows,
1792-1815 201
22
11 The Amsterdam and London stock markets, 1800-25 3
Appendix: End-of-month share prices 2 31
Bibliography 259
Index 271
vn
Acknowledgments
The origins of this book date back to 1975, when Robert Eagly told me of
his data source for a paper on the integration of the London and Amsterdam
capital markets: the then elusive Course of the Exchange, by John Cas-
taing. I acquired my own copy of the microfilm made by the British
Library during a sabbatical leave in 1976. Since then, various research
assistants have toiled at the task of transcription: Barry Stregevsky, Eugene
White, Rick Cheney, Eric Schubert, Xiao-Lei Zuo, David Wheelock, Es-
ther Ogden, Daniel Barbezat, and Alan Dye. Each research assistant has
benefited from the programs and files created by his or her predecessor, but
the major advances have come from the improved computer technology
achieved over the past decade. From a portable Texas Instruments terminal
with an external modem to link with a CYBER mainframe computer using
a series of FORTRAN programs to enter and clean data to an IBM-AT with
VGA monitor using dBase III+ customized screens and programs for entry
and cleaning is a revolution in scholarly technology that has to be experi-
enced to be appreciated. Financial support from the University of Illinois
Research Board and from the Bureau of Economic and Business Research
in the College of Commerce and Business Administration was essential to
get the project under way and to bring it to the productive phase, when it
became funded by the National Science Foundation (grants SES 83-09211
and SES 85-20223).
Several of these chapters have appeared in abbreviated form in various
journals or edited volumes: Chapter 2 as "The Rise of a Financial Press:
London and Amsterdam, 1681-1810," Business History, 3O(April 1988),
pp. 163-78; Chapter 5 as "How the South Sea Bubble Was Blown Up and
Burst," in Eugene White, ed., Financial Panics in Historical Perspective
(New York: Dow-Jones-Irwin, 1990); Chapter 6 as "The Dutch and En-
glish East India Companies Compared: Evidence from the Stock and For-
eign Exchange Markets," in James Tracy, ed., The Rise of Merchant Em-
pires (Cambridge University Press, 1989); Chapter 7 as "The Integration
and Efficiency of the London and Amsterdam Stock Markets in the Eigh-
ix
x Acknowledgments
teenth Century," Journal of Economic History, 47(March 1987), pp. 9 7 -

115; Chapter 8 as "Integration of International Capital Markets: Quan-
titative Evidence from the Eighteenth to Twentieth Centuries," Journal of
Economic History, 45(June 1985), pp. 219-26.
Preliminary versions of these papers and the remainder of the chapters
have been presented at various conferences and numerous seminars, in-
cluding workshops at Bielefeld University, the University of Chicago,
Colby College, Columbia University, Harvard University, Indiana Univer-
sity, Northwestern University, University of South Carolina, University of
Trier, Vanderbilt University, Washington University at St. Louis, and Yale
University. Participants at those workshops helped improve the current
version as much by their puzzled questions as by their interest in the topics.
The help of various archivists and librarians has been critical at various
stages in acquiring supplemental materials, especially Cora Gravesteijn,
then at the Economische-Historische Bibliotheek in Amsterdam, Henry
Gillett, archivist at the Bank of England, John Hodgson, chief of the
Roehampton repository for the Bank of England, and P. Balachandran in
the Commerce Library of the University of Illinois. Counsel and encour-
agement from members of the hardy band of historians who study the
eighteenth century have been very important also, especially Jan de Vries,
P. G. M. Dickson, John McCusker, James C. Riley, and James Tracy.
Advice and tutoring on principles of finance were freely provided by my
colleagues in finance: Josef Lakonishok, Louis Scott, and David Whitford.
It is always a pleasure to acknowledge the generous support of other
economic historians that was tendered at various stages: Charles Calomiris,
Lance Davis, David Galenson, Henry Gemery, Charles Kindleberger,
A. J. H. Latham, Peter Lindert, Donald McCloskey, Philip Mirowski, Joel
Mokyr, Douglass North, Herman van der Wee, Eugene White, Jeffrey G.
Williamson, and especially the editors of this series, Michael Bordo and
Forrest Capie. A special word of thanks is due to Stanley Engerman, who
read the first draft in its entirety with his usual care and intelligent advice
and is responsible for some major improvements in argument and exposi-
tion. Finally, I have to acknowledge the contributions of my colleagues and
students in the Economic History Workshop at the University of Illinois,
who endured and critiqued most of the chapters in their imperfect early
form: Lee J. Alston, Jeremy Atack, Royall Brandis, John McKay, Salim
Rashid, Thomas Ulen, and Paul Uselding. No doubt errors and deficien-
cies remain, but these friends and colleagues have done their best to protect
the reader.
1. Historical background for the rise of
financial capitalism: commercial
revolution, rise of nation-states, and
capital markets
The decade of the 1980s saw the emergence of international capital move-
ment as a dominant feature of the economic relations among nation-states.
The resulting pressures on exchange rates, balances of payments, and trade
patterns have disconcerted all participants - those who make national
economic policy, as well as international financiers and ordinary citizens.
Perhaps the most striking episode was the collapse of the world's stock
markets during the week of 19 October 1987, the suddenness, sharpness,
and inclusiveness of which took all observers by surprise. Some, trying to
determine if computer-driven sales in New York or in Tokyo had led to the
collapse of international stock markets in 1987, were disoriented on find-
ing that Tokyo prices for 20 October preceded, rather than followed, New
York quotes for 19 October. They were forced by this circumstance to
confront once again the mystery of the international date line, a phe-
nomenon first detected by the chronicler of Magellan's voyage to circle the
earth.
Antonio Pigafetta recorded his amazement that, according to the Por-
tuguese inhabitants of the Cape Verde Islands, it was Thursday, 10 July
1522, when his ship returned to the European settlement there, not
Wednesday, 9 July, as indicated in his diary.l He finally reasoned correctly
what had happened,2 but nearly two centuries later the English buccaneer
and explorer William Dampier remarked on the discrepancy of dates in
East Asia. The Portuguese, Dutch, and English who settled in the Pacific
islands by going east from Asia were a day ahead of the Spanish settlers
who arrived by going west from the Americas. The accidents of European
1
Derek Howse, Greenwich Time and the Discovery of the Longitude (Oxford University
Press, 1980), pp. 160-1.
2
" . . . as we had always sailed towards the west, following the course of the sun, and had
returned to the same place, we must have gained twenty-four hours, as is clear to any one
who reflects upon it." Antonio Pigafetta, "Diary," quoted by Lord Stanley of Alderley, ed.,
The First Voyage round the World (London: Hakluyt Society, 1874), p. 161, and Howse,
Greenwich Times, p. 161.
2 The rise of financial capitalism
settlement, whether from west or east, in the Pacific Basin during the Age
of Exploration have determined to this day the zigzags of the international
date line, which is not embodied in a formal agreement but is merely a way
to show the differences in dates that exist among the islands of the Pacific.3
Perhaps each age has to discover certain fundamental truths such as the
international date line in its own way, but historical precedents for such
discoveries are reassuring evidence that the patterns revealed are indeed
fundamental truths. Moreover, they usually are more easily discerned in a
historical context rather than a contemporary context. In the case of finan-
cial markets, for example, in the eighteenth century there were many fewer
well-organized marketplaces and fewer groups of active traders than now.
Moreover, government regulations and taxes were much less onerous and
diverse. The financial trauma of 19 October 1987 reaffirmed that we live in
a new era of closely integrated international bond, equity, and money
markets. The financial innovations, as well as the technological innova-
tions, that have led to this new era are still being put into place. It is already
clear that they will not be adopted and perfected smoothly. The remainder
of this book argues that eighteenth-century Europe provides a historical
precedent that can be examined to give us some useful perspective, a sense
of the potential dangers as well as the possible advantages of our new
financial system.
In the course of investigating the origins of international capital markets
in Europe in the late seventeenth century and their operation throughout the
eighteenth century, I have become increasingly impressed with the moder-
nity of their operations. Whereas the capital flows and price movements of
that era have no direct bearing on today's events (although they can be used
to test and refine modern economic and financial theories), the background
conditions that led to the development of the international capital markets
of the eighteenth century do have some striking similarities to our modern
adventures. There were wars, revolutions, religious persecutions, political
upheavals, and displacements of wealthy elites at the end of the seven-
teenth century as there are at the end of the twentieth. There were also
investments (and disinvestments) on a large scale by foreigners in the
government debts of the leading nations, changes in trade patterns that
yielded immense profit opportunities for the most knowledgeable interna-
tional entrepreneurs, and insider trading, takeover attempts, and financial
3
Howse, Greenwich Times, p. 163.
Historical background 3
disturbances that destroyed and created private fortunes in apparent chaos.

Because the eventual outcomes in these early markets were largely bene-
ficial for the participating countries and their private citizens, it is encour-
aging to review their history. Encouragement is always welcome in times
of rapid change and uncertainty, and history may give its students a sense
of confidence and even direction when they turn to coping with the de-
mands of the present.
The history of financial capitalism begins, it now appears, with the
"price revolution" of sixteenth century in Europe, which could more aptly
be termed the "first financial revolution." Traditionally, the price revolu-
tion has been associated with the influx into Europe first of gold from the
Portuguese trade with Africa and then silver from the Spanish mines in
Peru and Mexico. Price levels throughout Europe more than doubled and
remained at the higher levels through the next century of economic crisis.4
The classic work of Earl Hamilton offered powerful evidence that the
increase in silver imports into Spain and from there to the rest of Europe
led to the increase in prices. 5 He further argued that in countries where
profit inflation occurred because money wages lagged behind the rise in
final prices, there was a powerful impetus for the rise of capitalism.6 Later
historians have disputed almost every aspect of Hamilton's famous thesis,
but two points are particularly pertinent to the case for a financial revolu-
tion. First, prices rose more rapidly than did the supply of specie, implying
that it was used ever more efficiently. Moreover, nominal rates of interest
appear to have fallen in the most active commercial centers, whereas
persistent inflation alone would have tended to raise them. Second, the
major units of account throughout Europe tended to depreciate in terms of
silver over the sixteenth century, whereas the influx of silver alone should
have led them to appreciate. This indicates that governments' supplies of
bullion, rising more rapidly than ever before, still did not keep pace with
governments' demands. Their demands depended on the rise in prices, as
well as more grandiose military goals, whereas their supplies depended on
4
The standard treatment of the price revolution is Fernand Braudel and Frank Spooner,
"Prices in Europe from 1450 to 1750," in E. E. Rich and Charles Wilson, eds., The
Cambridge Economic History of Europe, Vol. 4 (Cambridge University Press, 1967), pp.
374-486.
5
Earl J. Hamilton, American Treasure and the Price Revolution in Spain, 1501-1650
(Cambridge, MA: Harvard University Press, 1934).
6
Earl J. Hamilton, "American Treasure and the Rise of Capitalism (1500-1700)," Eco-
nomica, 9(November 1928), pp. 338-57.
their taxing power, as well as the greater numbers of tax sources becoming
available.
What were the main elements of the financial revolution that was respon-
sible for these anomalies of sixteenth-century inflation? The Portuguese
and Spanish discoveries in the East and West Indies at the end of the
fifteenth century required merchants throughout northwestern Europe to
develop new financial techniques in order to exploit the opportunities of
long-distance trade. The new profit opportunities were realized only after
protracted waiting periods, and the longer delays before receiving returns
on overseas investments required new forms of finance. The greater variety
of trade goods available for Eastern merchants and the increased dispersion
of their markets required financial intermediaries capable of mobilizing
larger sums, waiting for longer periods, and dealing with greater numbers
of clients spread over greater distances than ever before. The increased
demand for financial intermediation arising from the possibilities of profit
was met in large part by the projection of power by the emerging nation-
states of Europe. Especially influential was the Habsburg Empire of
Charles V and Philip II. These two Habsburg monarchs, in their imperial
endeavors, stimulated the rise of financial intermediaries throughout Eu-
rope - individuals and firms who could operate across market boundaries,
whether defined by geography, language, religion, or political authority.
Corresponding to the stocks of fixed capital embodied in the thousands
of oceangoing vessels constructed during the sixteenth century and to the
stocks of inventory capital carried in their cargo holds, then, were trans-
ferable and negotiable claims on these physical stocks - financial capital.
As markets developed for the exchange of these financial claims indepen-
dent of the markets for the exchange of goods, the possibilities for shifts in
ownership, use, size, location, and composition of physical capital were
enlarged enormously. This phenomenon of financial markets directing the
outcome of goods and factor-of-production markets has been termed finan-
cial capitalism. The origins of the term appeared at the end of the nine-
teenth century, when it was clear that the capital markets of the industrial
world were directing the course of the second industrial revolution associ-
ated with automobiles, chemicals, and electricity.7 But it is clear that
capital markets with many of the characteristics of those of the late nine-
teenth century arose much earlier in western Europe. And it may well be,
7
Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Develop-
ment, translated by Morris Watnick and Sam Gordon, edited by Tom Bottomore (London:
Routledge & Kegan Paul, 1981).
as argued at the end of this book, that they directed the course of the first
industrial revolution as well.
The origins of financial innovations

The first financial revolution in early modern Europe, according to James
Tracy, arose from the wartime demands that Charles V levied on the
provinces of the Habsburg Netherlands in 1542.8 The imposition of
provincewide excise and property taxes pledged to service annuities, both
life annuities (for the duration of one or two lives, nominated by the
purchaser) and heritable annuities (perpetual, but redeemable by the
States-General), led to the creation of a large and growing market for these
long-term securities. They were heritable, transferable, and therefore suit-
able for resale, although the resale market seems to have been limited.9 It
is noteworthy in light of subsequent developments that a large part of the
annuities sold by the County of Holland went to "foreigners," primarily
residents of the surrounding provinces in the north.
Herman van der Wee believes that a financial revolution arose in late-
sixteenth-century Antwerp.10 The key innovation was the perfection of the
negotiability of the foreign bill of exchange in this multinational, multi-
lingual marketplace of the emerging world economy. Domestic bills were
less flexible, because they had a more limited number of potential clients
and because they were typically repaid in installments, so that the backs
of domestic promissory notes were devoted to recording the repay-
ments. Foreign bills of exchange were paid in full at the time stated, and
so the back of the bill was available for a series of endorsements to third
parties.
The foreign bill of exchange took advantage of offsetting balances that
merchants accumulated with each other in different ports, so that local
currency could be used only for local payments, whereas bills drawn
against balances held abroad would be used for foreign payments. The
8
James D. Tracy, A Financial Revolution in the Habsburg Netherlands: Renten and
Renteniers in the County of Holland, 1515-1565 (Berkeley: University of California
Press, 1985).
9
Tracy mentions notes in the inscription lists concerning annuities that had been trans-
ferred, but not to transfer books. Tracy, A Financial Revolution, p. 90, fh. 50.
10
Herman van der Wee, The Growth of the Antwerp Market, 3 vols. (The Hague: Nijhoff,
1963), and "Monetary, Credit and Banking Systems," in E. E. Rich and Charles Wilson,
eds., The Cambridge Economic History of Europe. Vol. 5: The Economic Organization of
Early Modern Europe (Cambridge University Press, 1977), pp. 290-392.
The rise of financial capitalism
LONDON AMSTERDAM
Drawee Payee
(Remitter, Importer) (Possessor, Exporter)
Goods
Debt
Drawer Payer, Accepter
(Merchant Banker) (Merchant Banker)
Legend: Goods
Money
Debt
Bills
Figure i. i. The foreign bill of exchange and the international flows of money,
goods, and capital.
buyer of a bill (drawee, or remitter) purchased it from the drawer, a

merchant with foreign correspondents, paying in local currency (Figure
I . I , London side). He could then remit it to pay for imports he had
received from abroad. So the bill was drawn in foreign currency to be paid
out by the acceptor of the bill in the foreign city to the final possessor of the
bill (the payer and payee on the Amsterdam side, Figure I . I ) , who either
was the foreign exporter or had been assigned it. The ability of the London
importer to pay the Amsterdam exporter in a bill of exchange depended, of
course, on the willingness of the Amsterdam merchant banker who had to

accept the bill to extend credit to the London merchant banker. In place of a
shipment of bullion in payment for the goods imported, the existence of the
bill of exchange allowed payment to occur by an export of short-term
capital from Amsterdam to London. So there were typically four parties to
the bill, shown in Figure 1.1 as the drawer and drawee on the London side
and the payer and payee on the Amsterdam side, although the eighteenth-
century usage was to refer to the drawee as the remitter of the bill, the
payee as the possessor of the bill, and the payer as the accepter.11 The
payee could assign the bill to another party, but in so doing assumed
responsibility for its eventual payment along with the drawer and accepter.
Multiple assignments or endorsements therefore increased the security of
this negotiable instrument and its liquidity.
This revolution in means of payment originated in Antwerp, where the
negotiability of the long-established foreign bill of exchange was created
by introducing serial endorsements. This innovation was transferred to
Amsterdam with the Portuguese Jews and various Protestants expelled
from Antwerp in 1585 and was perfected with the establishment of the
Amsterdam Wisselbank in 1609. Using the Wisselbank, merchant bankers
could transfer payments denominated in bank money (called banco)
rapidly and securely among themselves without the delays and uncertain-
ties caused when a bill was extinguished by sending it back to the original
drawee. For example, the flow of new debt from the London merchant
banker to the Amsterdam merchant banker shown at the bottom of Figure
1.1 could occur by transfers from one account to another within the
Wisselbank, as could the subsequent extinguishment of the bill. This actu-
ally improved the negotiability of the bill, because the time delay in pro-
testing bills refused by the designated accepter was then reduced, as was
the risk to the accepter of default by the drawer. Moreover, it allowed so-
called dry bills, or short-term lending by merchant bankers to local mer-
chants, to become more efficient, reducing the rate of interest on short-
term credit. Under this variant, the flows shown in Figure 1.1 were re-
versed: The merchant banker bought a foreign bill from the local merchant
as the basis for lending him money (Figure 1.2, London side) and sent the
bill to his correspondent, who had it accepted by a colleague by promising
immediate "rechange" - purchase of a bill drawn on London with the
11
Malachy Postlethwayt, The Universal Dictionary of Trade and Commerce, 2 vols. (Lon-
don: 1774; reprinted New York: Augustus M. Kelley, 1971), s.v. "Acceptances," "Ac-
cepter," "Bills of exchange," and "Drawer."
LONDON AMSTERDAM
Drawer Rechanger
(Borrower) (Correspondent of Lender)
CD
n
Credit
5
Drawee Payee
(Lender) (Merchant Banker)
Legend: Rechange
Money
Debt
Bills
Figure 1.2. The foreign bill of exchange as a means of credit.
proceeds of the bill drawn on Amsterdam (Figure 1.2, Amsterdam side).

This bill then would be sent to the merchant banker in London and accept-
ed by the local merchant there, who in paying it off two months later would
also have repaid his original loan from the merchant banker, including an
undisclosed amount of interest.
The key features of these early financial innovations - safe and rapid
international movement of funds in the bill of exchange, and safe and
liquid long-term investment in the perpetual annuity - were successfully
blended by 1609 in the shares of the Dutch East India Company (VOC
hereafter, from the initials for Vereenigte Oost-Indische Compagnie). At
that time, the directors of the company (known as the Heeren XVII)
converted the initial investments that had been made into the first three
voyages into a permanent capital fund. Investors could not recover their
capital from the company, but were entitled only to whatever dividends
might be declared each year, as well as the right to transfer their shares to
another investor. The dividends were made high and stable, however, and
so the resale market was made attractive. Operating control of the Heeren
XVII was independent of shareholders, because it derived from the politi-
cal compromise among the six cities written into the original charter. This
allowed, indeed encouraged, foreign investors, because their participation
would increase the working capital available to the Dutch without infring-
ing on their power to control the far-flung enterprise.12 The combination of
a permanent capital and the separation of operating control from ordinary
stockholders made these shares ideal for active trading in the secondary
market that arose on the Amsterdam Beurs. That they were inscribed in the
ledger books at each city chamber made them secure, and transfers could
be made very quickly and cheaply in special transfer books. 13
These features of the Dutch company were only gradually adopted by
the English East India Company (EIC). The EIC made its capital perma-
nent in 1650 and allowed foreign ownership at the time of renewal of the
charter in 1698. Throughout the eighteenth century the management of the
EIC was liable to stockholder revolt and pressure, even though foreigners
were excluded from positions as directors. Whereas trade in Dutch shares
was active at dividend time as shrewd investors moved in to strip the
dividends,14 trade in English shares was especially active during the elec-
tion of new directors.15
Diffusion of financial innovations

The origins of these assorted financial innovations in western Europe de-
rive fundamentally from the overseas discoveries and the emergence of
12
J. R. Bruijn, F. S. Gaastra, and I. Schdffer, Dutch-Asiatic Shipping in the 17th and 18th
Centuries, Vol. 1, Introductory Volume, Grote Serie of Rijks Geschiedkundige Publica-
tien, Vol. 165 (The Hague: Nijhoff, 1987).
13
This is described in detail by M. F. J. Smith, Tijd-Ajfaires in Effecten aan de Amster-
damsche Beurs (The Hague: Nijhoff, 1919), pp. 30-7.
14
Ibid., p. 27. This is Smith's interpretation of the observed increase in activity, but the point
deserves further research, because a cosmopolitan pool of share owners and the require-
ment to be present locally to receive dividends could create the same phenomenon.
15
Lucy S. Sutherland, The East India Company in Eighteenth-Century Politics (Oxford:
Clarendon Press, 1952), pp. 144-6.
io The rise of financial capitalisir
long-distance trade. Not only were the mental horizons of Europeans

broadened by the discoveries, but also their time horizons were lengthened
by the duration of the voyages. Moreover, the pursuit of the conflicting
goals of power by the monarchs and profit by the merchants forced innova-
tions by each. But equally important to our story was the process of
diffusion. The innovations described earlier were adopted only fitfully by
other European states over the course of the seventeenth century. In the
case of Holland and England, the innovations were implemented in im-
proved, more efficient form, because the process of transplantation elimi-
nated the legal restrictions and encumbrances that had been imposed in the
country of origin. This was especially true for the bill of exchange when
brought to Amsterdam from Antwerp at the end of the sixteenth century
and perfected in the first decade of the seventeenth. It was true also of the
transferable share when brought from Amsterdam to London at the end of
the seventeenth century and perfected, in the decade after the South Sea
Bubble, with the transferable annuity obligation of the state.
The initial impetus for the spread of these particular innovations derived
from the wars and the underlying religious conflicts that led to mass
migrations and countermigrations of religious minorities. The forced dis-
placement of merchant elites began with the expulsion of the Sephardic
Jews from Granada in 1492 by Ferdinand and Isabella. It continued in the
sixteenth century with the persecution of Ashkenazic Jews in central Eu-
rope, as well as the emerging Protestant groups, and culminated in the
seventeenth century. In that century, the flight of refugee elites began with
the Spanish expulsion of the Moors from Valencia,16 spread through cen-
tral Europe with the Thirty Years' War,17 and climaxed in the 1680s with
the expulsion of the Huguenots from France,18 the importation of Dutch
Jewish communities and other religious dissidents into England with
William III, 19 and the "flight of the wild geese" from Ireland (which
included Richard Cantillon).20 All these groups took with them their tal-
16
Earl J. Hamilton, "The Decline of Spain," Economic History Review, 8(1937-8), pp.
168-79.
17
Geoffrey Parker, The Thirty Years' War (London: Routledge & Kegan Paul, 1984).
18
Warren Scoville, The Persecution of the Huguenots and French Economic Development,
1680-1720 (Berkeley: University of California Press, i960).
19
William Cunningham, Alien Immigrants in England, 2nd ed. (London: Cass, 1969), and
Harold Pollins, Economic History of the Jews in England (London: Associated University
Presses, 1982).
20
Antoin E. Murphy, Richard Cantillon: Entrepreneur and Economist (Oxford: Clarendon
Press, 1986).
ents and skills and as much of their treasure as they could; they left behind
them contacts that could be called on again and again.
From the time of Henry VIII (1509-47), England benefited from receiv-
ing numbers of the most skilled and adept of these religious minorities who
had been persecuted in their homelands, although England was never the
dominant destination of any group, and it constrained those who arrived to
live in well-defined settlements and limited them to trades and skills that
were noncompetitive with those pursued by the native English.21 Edward
VI (1547-53) continued his father's policy of protecting these dissident
communities, but Mary (1553-8) expelled all of them. Many went to
Frankfurt, where they mingled with Huguenot refugees from Wallonia.
German Anabaptists and Arians who had been established at Austin Friars
in the City of London by Edward VI were also dispersed by Mary. All these
groups were encouraged to return by Elizabeth (1558-1603), and their
numbers were augmented by an influx of Spanish Netherlanders. Crom-
well (1648-58) was responsible for allowing the reentry of Jews into
England, for a price, of course. The encouragement of these refugees to
alight in England with their flight capital was continued in the Restoration
(1660-88). Lucy Sutherland reported that "in 1681 those managing the
affairs of the French Protestant refugees petitioned the Company to help
those who had fled bringing their fortunes with them by 'accepting such
monies as they should pay into the Company's Cashier at moderate interest
. . . until they could find out other ways of improving their estates.' The
Company agreed to accept any money so offered at 4 per cent, for three
months and then at 3 per cent, until the owners wished to withdraw it,
when they undertook to pay capital and interest without waiting for the
bonds to mature."22
But it was William III (1689-1702) who first raised foreigners to high
status. Daniel Defoe is credited with authoring a piece of doggerel that
lamented the dominating role of Dutch advice in guiding William's affairs:
We blame the King that he relies too much
On Strangers, Germans, Huguenots, and Dutch
And seldom does his just affairs of State
To English Councillors communicate.23
21
Cunningham, A lien Immigrants, pp. 1 4 0 - 1 .
22
Sutherland, The East India Company, p. 11. She cites as her source the company's Court
Book (32, p. 179, 16 December 1681).
23
Quoted in David Ormrod, The Dutch in London (London: HMSO, 1973), p. 17.
These forced movements of tightly knit communities repeatedly along

well-established routes of trade can be seen as movements of flight capital
as well as of skilled labor. Such movements also resulted in the establish-
ment of a network of correspondents who repeatedly conveyed information
about political conditions and, more important to them and to economic
history, economic and commercial circumstances. That laid the ground-
work for the future transfers of technology, labor, and capital that would
benefit England and Holland enormously.
The dispersions of religious and political communities because of re-
peated persecutions also provided the basis for the continued flow of
financial capital in response to investment opportunities. In the first in-
stance, this was a matter of necessity for the immigrant groups. They had
to liquidate their capital stocks at their places of origin into portable form to
be carried with them to their eventual destinations. Once there, they had to
invest quickly to establish themselves anew in their trades. But these
stringencies placed on flight capital were quickly relieved by opportunities
for war profiteering that arose in the wake of the persecutions. Starting
with the Thirty Years' War (1618-48), the wars of the seventeenth and
eighteenth centuries were increasingly international in their scope, even
worldwide, because armed conflicts could occur anywhere that citizens of
the warring nations came into contact. Within Europe, men and arms on a
large scale had to be moved quickly to distant battle sites, and military
success usually depended on the success of merchant bankers in moving
funds to purchase and sustain mercenaries near the enemy's strongpoints.
These wartime needs, climaxing with the War of the League of Augsburg
(1688-97) and the War of the Spanish Succession (1702-13), gave emigre
bankers opportunities for large profits. The introduction of the Dutch sys-
tem of finance to Britain by Gilbert Burnet, bishop of Salisbury, made
British public securities at last favorable objects of investment by emigres
throughout Europe,24 and the volume of these securities outstanding was
enlarged enormously during the war years from 1689 through 1713. The
Protestant refugees ensconced in Geneva as early as 1730 probably held 30
million livres tournois in the public funds of France, chiefly in the form of
rentes, and another 30 million livres tournois (£1.35 million) in the
"stock" of England, primarily the transferable shares of the Bank of En-
24
Jonathan Swift, Works, Vol. 8, edited by H. Davis (Oxford: Clarendon Press, 1951), p. 68,
gives credit to Burnet, but ascribes to him far baser motives; cf. P. G. M. Dickson, The
Financial Revolution in England: a Study in the Development of Public Credit, 1688-
1756 (London: Macmillan, 1967), p. 17.
gland, the EIC, and the South Sea Company. These all enjoyed a high
reputation, were easily negotiable, and were always quoted above par. 25
The large scale of these turn-of-the-century wars encumbered both
Prance and England with their first major national debts, 26 mostly in the
form of annuities at high rates of interest ranging from 8% to 10%. The rate
of interest implicit in these annuities, issued during the wars and especially
at their conclusion, was much higher than the rates of 5% to 6% that
prevailed in the peaceful years of recovery that followed. Because of the
awkwardness of transferring title on these securities from one owner to
another, however, annuity holders could not easily realize their implied
capital gains. Both governments, in making the annuities irredeemable at
the time of issue and thereby guaranteeing potential investors that their
annual payments would continue undisturbed for up to 99 years, gave up
the possibility of reducing their debt service after the wars by issuing
replacement debt at lower, peace time interest rates. The Mississippi Bub-
ble and South Sea Bubble arose precisely from the competing efforts by
France and England to convert fixed-interest irredeemable debt into vari-
able-yield securities that could be more easily traded and retired. The
premium paid by investors for the improved liquidity of these alternative
financial assets translated into lower debt service for the government. Both
the English and French governments seized on the weakened position of
the once mighty Spanish Empire after the War of the Spanish Succession to
convert their annuity debts into equity in large monopoly trading com-
panies that would exploit the riches of the Spanish Empire. In this endeavor
they took inspiration from the success of the VOC and the EIC in their
successful exploitation of the riches of the Portuguese Empire in the Far
East.
Placing the shares of these huge new companies on the relatively small
stock markets of the time led to the famous bubbles of 1719 and 1720. In
these episodes, the promises of financial gains from implementing proven
innovations on a truly grand scale led to speculative excesses in which the
prices of all shares rose quickly to unsustainable heights, collapsed, and
left the markets in a disarray that invited political intervention and re-
criminations. 27 Whereas those bubbles traditionally have been seen as
25
Herbert Luethy, La Haute Banque Protestante en France de la Revocation de I'Edit de
Nantes a la Revolution. Vol. 2: De la Banque awe Finances (Paris: SEVPEN, 1961), p. 57.
26
Earl J. Hamilton, "Origin and Growth of the National Debt in Western Europe," American
Economic Review, 37(May 1947), pp. 1 1 8 - 3 0 .
27
These are analyzed in Chapters 4 and 5.
disasters that effectively forestalled the rise of financial capitalism for over
a century,28 they had an important effect in internationalizing the European
investment community of the eighteenth century to an unprecedented and
irreversible extent.29 Instead of equity in perpetual joint-stock companies
or debt in the form of annuities, however, the new financial instrument
became the perpetual and redeemable annuity: the "Three Per Cent Bank
Annuity" of 1726, the precursor of the "Three Per Cent Consol," created
in 1751. Financial investment activity thereafter focused on this nearly
ideal security, which essentially gave the holder an equity position in the
financial fortunes of the state. But its attractiveness to the investing public
depended on the relative ease by which it could be acquired and disposed
of, the clear terms of the interest payments, and the readily available
information about its current price and the military and political events
likely to affect its price.
The financial revolution in England

This achievement in financial innovation in English government securities
took over 30 years from the first issue of government-backed annuities in
1693 and 1694. These turned out to be not as popular as prior experience
with them in the Netherlands and France had led William Ill's advisors to
expect. Indeed, rather than annuities, the most successful financial innova-
tions proved to be the state lotteries, beginning with the Million Lottery of
1694. This built on the triumphs of private lotteries, in which prodigious
numbers of tickets at relatively low prices had been made available from
reasonably large numbers of outlets. For example, Thomas Neale's lottery
of 1693 had £25,000 of 10s. tickets available at 11 different goldsmiths,
with 250 prizes at stake. 30 The success of the Million Lottery must be
traced in large part to the low denominations in which the lottery tickets
could be purchased, their ease of transfer, and the clear-cut (if uncertain
and unfavorable) terms on which their returns were gained. They were sold
in large numbers by ticket offices set up at major pubs.
All this stood in contrast to the restrictive conditions for purchasing,
trading, and receiving the income of the annuities. The transfer of annuities
28
William R. Scott, The Constitution and Finance of English, Scottish and Irish Joint-Stock
Companies to 1720, Vol. 1 (Cambridge University Press, 1910), pp. 4 3 6 - 8 .
29
Dickson makes this point for England (The Financial Revolution, pp. 311-12), and it is
made as well for Holland by F. P. Groeneveld, Economische Crisis van het jaar 1720,
(Grdningen: Noordhof, 1940).
30
Dickson, The Financial Revolution, p. 45.
was entrusted to the Exchequer and remained very cumbersome until the
process was taken over increasingly by the Bank of England through
issuance of its own annuities after the South Sea Bubble. The subscriber to
an annuity made his payment to the Exchequer and named the nominee
whose life was being insured. In return, he received a tally of receipt and a
paper "Standing Order," which was assignable, for the future payment of
the annuity. 31 At each semiannual payment of the interest, the annuitant,
his agent, or his assignee had to present proof that the nominee was still
living. This usually was an affidavit signed by the parish rector of the
nominee, or, after 1694, simply a declaration by the annuitant notarized by
a justice of the peace. But because the Standing Orders were liable to every
imaginable vicissitude over the course of the term of the annuity, transfers
were made very elaborate. Titles to annuities had to be examined as care-
fully as titles to land. As a consequence, transfers were much less frequent
than were transfers of shares in the joint-stock companies. 32
Transfers of these shares, though still cumbersome by modern standards,
were effected much more quickly and inexpensively. The companies used a
double-entry system with two sets of books: the transfer books equivalent
to the journal or flow accounts of merchants of the time, and the ledger
books equivalent to the ledger or balance sheets in mercantile accounting.
Each proprietor's initial holding was recorded in the ledger book on the
left-hand side under the "Per" heading. Proprietors were arranged alpha-
betically and under each letter by size of holding. Additional shares pur-
chased would be entered on successive lines under the initial entry. New
proprietors would have entries created for them in rough alphabetical order
at the end of the folios devoted to the original proprietors. Sales of stock by
any proprietor would be entered under a "Contra" heading on the right-
hand side. At the time of semiannual dividend payments, the Per entries
would be totaled, and the Contra entries subtracted, and the balance would
be the basis for payment of the dividend. Each entry in the ledger book, Per
and Contra, was initiated by a transfer-book entry. Here printed forms,
three to a page, were filled out in sequence and numbered so that each
ledger entry, Per for the buyer and Contra for the seller, could be identified
by a uniquely numbered transfer. On the transfer forms were entered the
folio numbers for the ledger accounts of the seller (top) and of the buyer
(bottom) to complete the cross-referencing. The transfer form itself was
filled in by a clerk, who also witnessed the transfer and gave, in order, the
31
Ibid., p. 76.
32
Ibid., pp. 4 5 8 - 9 -
name, status, and place of residence of the transferor, the date of the trans-
action, the nominal amount of shares in pounds sterling being transferred,
and the name, status, and place of residence of the transferee. The transfer
was complete when signed by both parties, witnessed by the clerk, and its
margin embossed on payment of the required nominal transfer fee.33
According to Dickson, these transfer and ledger books used by the Bank
of England were virtually identical with those of the VOC. 34 The transfer
books of both were available four to five days each week for transfers to be
made, and the transfer fees were quite low in both cases. But it appears that
transfers were nevertheless more cumbersome and difficult for the Dutch.
Complaints were made about the sloppiness of the clerks, the need to have
two witnesses, and the delays in verifying that the seller had full title to at
least the number of shares being transferred. Moreover, three-sevenths of
the shares of the VOC could be transferred only in the six chambers of the
other VOC cities. The registration of transfers was continuous and reliable
in the English case, tedious and uncertain in the Dutch, and that difference
accounted for the prevalence of spot transactions in the London stock
market as opposed to the dominance of term or futures transactions in the
Amsterdam market.35
The origins of international capital markets

The first treatise on speculation, futures contracts, hedging, "bulls,"
"bears," options for puts and refuses - in short, all the paraphernalia of
viable markets in contingent claims - was Joseph de la Vega's Confusion
de Confusiones, published in Amsterdam in 1688. 36 That work, written in
Spanish and translated into German only in 1919, into Dutch in 1939,37
and into English in 1957, was clearly intended for the edification of the
Jewish community of Amsterdam, largely Portuguese, who had become
active in trading shares of the VOC after 1650.38 De la Vega ascribed the
33
This describes the original transfer books and ledgers of the Bank of England, which were
used to detail the speculative transactions during the South Sea Bubble (see Chapter 4).
34
Dickson, The Financial Revolution, p. 459, fn. 6.
35
Smith, Tijd-Affaires, pp. 37~45-
36
Joseph de la Vega, Confusion de Confusiones, translated by Hermann Kellenbenz (Amster-
dam: 1688; reprinted Cambridge, MA: Harvard University Press, 1957).
37
Otto Pringsheim, trans., Confusion de Confusiones van Josseph de la Vega {Die Verwir-
rung der Verwirrungen: Vier Dialoge u'ber die Borse in Amsterdam) (Breslau: 1919), and
M. F. J. Smith, trans. (Verwarring der Verwarringen) (The Hague: Nijhoff, 1939).
38
Johann de Vries, Een Eeuw vol Effecten, Historische schets van de Vereiniging voor de
Effectenhandel en de Amsterdamse Effecten beurs, 1876-1976 (Amsterdam: Vereniging
voor de Effecten handel, 1976), p. 22.
rise of an active, well-organized stock market in Amsterdam to the nature

of the VOC. With its capital of nearly 6.5 million florins divided into
transferable shares of 3,000 florins each, and with dividends that averaged
22.5% annually on the original share capital for the next 120 years, 39 the
VOC provided continuing opportunities for investment and profit taking
for shareholders. An envious French author in 1664 claimed that, indeed,
"there are few years, wherein they get lesse, then [sic] 30 per Cent." 40 The
authoritative modern reckoning is that even after the disastrous years of the
1780s, by the time the company wound up its affairs as a private enterprise
in 1796, it had averaged an annual payout of 18% on its original capital for
nearly two centuries.41
References in the secondary literature to the financial innovations
brought into England by the Dutch financiers and advisors who flocked
into London with William of Orange after the Glorious Revolution of 1688
all seem to derive from the remarkable description of London's stock
market by John Houghton in 1694.42 Houghton, a fellow of the Royal
Society, determined to bridge the gap between pure science and applied
technology in all fields of human endeavor in a weekly series of pamphlets
entitled "A Collection for Improvement of Husbandry and Trade," which
began to appear in 1691. Between a series on wheat and another on cattle,
Houghton decided to relax from his Augean labors by describing the tech-
niques of trading shares in joint-stock companies in the coffeehouses of
Exchange Alley. His description of "refuses" is a model of clarity and
merits reproduction:
. . . when India shares are at seventy-five, some will give three guineas a share,
action, a hundred pound, down for refuse at seventy-five, any time within three
months, by which means the acceptor of the guineas, if they be not called for in that
time, has his share in his own hand for his security and the three guineas . . . so in
plain English, one gives three guineas for all the profits if they should rise, the
other for three guineas runs the hazard of all the loss if they should fall. 43
39
Jean-Pierre Ricard, La Negoce a"Amsterdam: contenant tout ce que doivent savoir les
marchands et banquiers etc. (Rouen: J. B. Machuel, 1723), p. 400.
40
A Treatise touching the East-Indian Trade (London: 1664), p. 17, [Hollander 169; Massie
797]
41
J. P. de Korte, De Jaarlijkse Financiele Verantwoording in de Verenigde Oostindische
Compagnie (The Hague: Nijhoff, 1983), p. 93.
42
John Houghton, A Collection for Improvement of Husbandry and Trade, 9 vols. (London:
Randall Taylor et al., 1692-1703; republished Westmead, Farnborough, Hants.: Gregg,
1969), p. 264.
43
Ibid., p. 264. The terms "action" and "hundred pound" were used interchangeably with
"share," because "action" was the French term, and share prices were quoted as the
number of pounds needed to purchase a nominal value of 100 pounds in the capital stock of
the company.
Houghton appended copies of a "Course of the Exchange" (22 May

1694) sheet, which showed prices of shares for 52 joint-stock companies,
as well as exchange rates on various European cities and prices of gold in
various forms. W. R. Scott reproduced one of these lists, but he stated that
Houghton's venture lapsed after a few issues.44 In fact, it was but the
precursor of one of the most remarkable instances of a continuously pub-
lished periodical known to scholars: John Castaing's Course of the Ex-
change. This unsurpassed data source began publication in March 1697
and continued to appear twice weekly, on Tuesdays and Fridays, through
the entire eighteenth century under a variety of publishers.45 Each issue
gave the closing exchange rates on the major European cities at the Royal
Exchange in London on Tuesdays and Fridays just before the mail for the
foreign packet boats was posted from the London Post Office. That was
followed by prices of gold and silver in various forms. Then came price
quotations for the past three trading days on each of the major securities
traded by the brokers in Exchange Alley. The list was headed by the shares
in the three leading joint-stock companies, but included the other chartered
companies, as well as quotations on various issues of government debts
and annuities. It concluded with a listing of the numbers of the various
short-term government bills that were in the course of being paid off at the
Exchequer.
The major statistical findings reported in the remainder of this book are
derived from analysis of data encoded directly from Castaing and supple-
mented by price quotes from contemporary newspapers in London and
Amsterdam for the early eighteenth century and by Lloyd's List and the
Amsterdamsche Effectenpryslist for the early nineteenth century. This
unique data base provides many opportunities for a fresh approach to
important questions posed by historians about the operation of the govern-
ments and joint-stock companies of the eighteenth century. We shall see,
for example, how intertwined were the Mississippi and South Sea bubbles
of 1719-20, what determined the outcome of the continued competition
among the East India companies of the English, French, and Dutch, the
effects of the major wars of the century on international economic activity,
44
Scott, The Constitution and Finance, Vol. 1, p. 329.
45
John J. McCusker, Money and Exchange in Europe and America, 1600-1775: A Hand-
book (Chapel Hill: University of North Carolina Press, 1978), p. 31. A full history of the
publication can be found in Larry Neal, "The Rise of a Financial Press: London and
Amsterdam, 1681-1810," Business History, 30(April 1988), pp. 163-78. In 1811, when
the Course was published by Wetenhall, it became the official price list of the London
Stock Exchange.
and the intricate economic and financial interplay between the French
Revolution and the British industrial revolution. For modern finance schol-
ars, the data provide unusual opportunities to examine the operation of
capital markets unencumbered by income taxes or direct regulation and to
explore the properties of various time-series modeling procedures when
applied to an unusually long run of data. These issues will all be covered in
the chapters that follow. We begin by taking a closer look at the origins and
development of our primary source of data: John Castaing's Course of the
Exchange.
2. The development of an information
network and the international capital
markets of London and Amsterdam
The religious and dynastic wars that convulsed Europe in the quarter cen-
tury 1688-1713 were fought on a larger scale than the earlier wars of the
seventeenth century, and arguably with less result. Moreover, in the course
of the War of the League of Augsburg (1689-97) a n d the War of the
Spanish Succession (1702-13), communities of religious and political mi-
norities, not to mention deposed dynastic households, were dispersed in
greater numbers than ever before. These dispersed communities kept in
touch with one another through regular correspondence, facilitated during
wartime by the movements of troops and supplies for those troops and
during peacetime by the packet boats and stagecoaches that were regularly
carrying post among the ports and capital cities of Europe.
The emerging network of information in Europe in the seventeenth
century centered on Amsterdam. The various reasons for this were well
analyzed by Woodruff Smith, who focused on the reporting innovations
made by the Dutch East India Company in order to maintain central control
of its far-flung operations.1 From this invaluable internal source of infor-
mation were derived the linkages to merchants dealing with the Dutch East
India Company and even to the rival English and French companies and to
the governments of all the European powers. As more merchants, consular
agents, and newspaper publishers congregated at Amsterdam, the amount
of information available increased, and the bits of information being ex-
changed increased geometrically. Amsterdam's natural monopoly as an
information center was confirmed.
London, however, grew rapidly in importance both as a commercial
center and as an information center. It very likely rivaled Amsterdam by
the end of the eighteenth century and surpassed both Amsterdam and Paris
during the Napoleonic Wars. Smith's analysis, based on a combination of
Woodruff D. Smith, "The Function of Commercial Centers in the Modernization of Euro-

pean Capitalism: Amsterdam as an Information Exchange in the Seventeenth Century,"
Journal of Economic History, 44(December 1984), pp. 985-1005.
20
Development of an information network 21
Douglass North's theory of transactions costs and George Stigler's theory

of information,2 does not explain how one center can eventually be dis-
placed by another. Some exogenous change in technology or in trade
patterns is required that will establish a new and more vigorous network
with greater potential than the existing network. The success of the Dutch
East India Company clearly was the exogenous shock that led to the rise of
Amsterdam. What was the comparable force that promoted the rise of
London as a competing center of an information network? There are many
possibilities, but one that seems worth exploring is the greater proliferation
of newspapers and other periodicals that occurred in England under
William and Mary. Despite the earlier origins of both newspapers and a
stock exchange in Amsterdam, it was in London, as far as we can now tell,
that the first regularly printed stock price list appeared.
The earliest stock price lists in London

For the London Stock Exchange, the earliest printed evidence of price
quotations of which we are aware comes from a weekly price list: Whis-
ton's The Merchants Remembrancer, for 4 July 1681. That date is not
likely to be pushed back much further in the British press. The Printing Act
of 1663 had eliminated all newspapers in England, except for the official
London Gazette. When that act, also known as the Licensing Act, lapsed in
1679, a number of newspapers arose "to arouse and exploit the passions of
the dreaded London mob." 3 The emergence of a free press also encouraged
experiments with new forms of business news periodicals. It is likely that
Whiston was thereby encouraged to produce a "price current," a sheet
listing current prices of goods available from abroad in the London market,
in competition with a price current already being published by Robert
Woolley.
Woolley did not include any information on the stock market in his price
current; so Whiston's inclusion of this additional information may have
given him a competitive edge. But Whiston did not give the actual prices
for the shares of the East India Company and the Royal African Company
(the only two listed), but rather symbols denoting that the East India shares
2
Douglass C. North, Structure and Change in Economic History (New York: Norton, 1981),
pp. 33-44; George Stigler, The Organization of Industry (Homewood, IL: Irwin, 1968), p.
176.
3
S. R. Cope, "The Stock Exchange Revisited: A New Look at the Market in Securities in
London in the Eighteenth Century," Economica, 45(February 1978), p. 5.
were at their highest level and the Royal African shares at their lowest. A
marginal note stated that "the author, J. W. will buy or sell." The first
listing of actual prices came in the 3 January 1682 issue of Woolley's price
current. Jacob Price considered this to be Woolley's innovation, one that he
introduced in his French-language edition of 25 October 1681.4 It was very
likely introduced by Woolley as a response to the new competition he was
facing from Whiston.
It is striking that we should find not one but at least two competing price
currents that began at nearly the same time to print information on the
markets for financial assets in their infancy. It appears that both did this for
the benefit of overseas merchants, who found these assets to be an interest-
ing means of investing their trade credits in England while awaiting return
cargoes. In fact, a third publication, John Houghton's A Collection for
Improvement of Husbandry and Trade, also began in 1681. 5 It quickly
failed, but 10 years later Houghton began again, at a time when the new
government of William III was considering the possibility of passing a new
printing act. In his first issue of this second run, Houghton explained his
intention to give weekly accounts of agricultural prices, London shipping
movements, London bills of mortality, and, "for whom it might concern, it
was design'd to give weekly from hence an Account of the value of
Actions of the East-India, Guinea, Hudsons-Bay, Linnen, and Paper Com-
panies." 6 In his next issue, he felt it necessary to explain further the
inclusion of stock prices:
Altho they that live at London, may, every Noon and Night on Working days, go to
Garraway's Coffee House, and see what prices the Actions bear of most Companies
trading in Joynt-Stocks, yet for those whose Occasions permit not there to see, they
may be satisfi'd once a Week how it is, and thereby the whole Kingdom may reap
Advantage by those Trades: Also they may learn hence some of the Cunning of
Merchandizing, and have this Advantage, by laying their Monies there, in one or
two days time they may sell, and have their Money to supply their wants at any
time. Without doubt, if those Trades were better known, 'twould be a great Advan-
tage to the Kingdom; only I must caution Beginners to be very wary, for there are
many cunning Artists among them.7
4
Jacob M. Price, "Notes on Some London Price-Currents, 1667-1715," Economic History
Review, 2nd series, 7(1954), p. 244.
5
This has been reprinted in full. John Houghton, A Collection for Improvement of Husband-
ry and Trade, 9 vols. (London: Randall Taylor et al., 1692-1703); republished Westmead,
Farnborough, Hants.: Gregg, 1969).
6
Houghton, A Collection (30 March 1692).
7
Ibid. (6 April 1692).
Houghton made it clear that his primary audience lived in London or

nearby, and he was only hoping to interest readers who lived in the
provinces. No mention of foreign readers was made. So this price list was
clearly intended for the domestic market.
Houghton tried several devices in an effort to supplement his London
audience with a provincial profit margin, but none succeeded; so Houghton
ceased publication of the weekly at the end of June 1692.8 When he
resumed publication of his weekly on 20 January 1693, he reduced the
price from id. to id. and announced that his papers "may be had as easy as
Gazettes." 9 The new run of Houghton's weekly continued to include the
paragraph with the stock prices, and the issue for Friday, 11 May 1694,
suddenly expanded the number of companies listed from 10 to 55. Prices of
the shares, however, still were given only for the original 10, but a note
was inserted stating that "a great many desire a list of Stocks; and those
that desire the Values of them to be published may have them on very
reasonable terms." The remainder of the year 1694 saw a number of
articles inserted by Houghton on the history and current practices of the
London Stock Exchange, and in the issue for 17 August 1694 appeared the
first quotation for the Bank of England. The year 1694 apparently was
quite favorable for printers of specialized stock price lists.
In Houghton's initial issue of 1695 appeared for the first time an adver-
tisement stating that "John Castaing at Jonathan's Coffee-house, or Ex-
change, buys and sells all Blank and Benefit Tickets; and all other Stocks
and Shares." That advertisement continued to run until the issue for 11
December 1696, when it disappeared. Houghton's next issue, 22 January
1697, then consolidated the Exchequer funds table, the exchange-rate
table, and the list of share prices and placed them all on the front page, top
right. That version of the consolidated "Course of the Exchange" con-
tinued through his last issue: 10 September 1703. But the dates for prices
were no longer for the preceding Wednesday of that week; rather, they
varied, but were always for a preceding Tuesday or Friday. That makes it
appear that during that period they were merely copied from what was by
then the definitive stock price list: John Castaing's The Course of the
Exchange (Figure 2.1), which began publication in March 1697. 10
The first issue of Castaing's publication that appears in the microfilm
copy used in this study is that for 4 January 1698. At the bottom appears
8
Ibid. (27 June 1692).
9
Ibid. (10 February 1692).
10
According to the British Union-Catalogue of Periodicals.
\ The rise of financial capitalism
(3 )
The Courle of the ii*-
p, and other things.
London, Tuefday nth January, 1698. /h //tf Exch cqu. Advanced. Paid off.
Amftcrdara 3 5 9310 id 4Shill.Aid—1896874 181457$
Rotterdam 35 11336 3d 4 Shill. Aid-1800000 1392377
Antwerp— 35 9 a i o 4tli4 Shill.Aid-i8coooo 889492
Hamburgh 35 1335 •} Cuflom 96798$ 764328
NcwCuftom —i2$ocoo 655200
Lyons 47 | a 4 7 Tobacco, &c.—1500000 119400
Cadiz 51 • •J Excifc 999815 864260
Madrid • 51 I'oll-Tax • 569293 479328
Leghorn .52 \ Paper, e$rr.- 324114
Genoua- 51 ; a; Salt Aft— 1904519 7377*
Low Wines, iyc. 699 59 11100
Lisbon 5 7J CoalAft&Leath. 564700 17162
Porto - — • .— 5 6-J Births and Marr. 650000 2000
Dublin 16 J 3 Shi!!. Aid——1500000 613458
Gold— 4 /. 00 /. 6 / . Malt Aft. 200000 I63745
Ditto Ducats 4 5 6 Exchequer Notes, funk 6190C0/L
Silver Sta. 5/. id.\*id. Coyn'd in thc73iw,laftWcck, 7500/*
Foreign Bars— •• 5 4
Pieces of Eight 5 4 Sy John Caftaing, Bnktr^u his
Saturd. Monday " fuefd. Office at Jomt\\Ui9C(fc^houji.
Bank Stocl^ 86-} a ' Z6 • 86
India —— . 52 528514
African 12 12 12
Hudfon Bay unccrt. unccrt. unccrt.
Orphans Chamb. $3
Blank Tick.M.L. 6 15 * 15 6 15
to trantfer in Bank tat Tuefdays 4n</

Thurfdays.
Figure 2.1. Castaing's Course of the Exchange, 11 January 1698.
this notice: "By John Castaing, Broker, at his Office at Jonathans Coffee-
House." In the last half of the year 1699, that simple notice underwent a
series of experimental changes that very likely reflected Castaing's efforts
to develop sources of income complementary to his earnings from sales of
the Course of the Exchange, The first expanded on his brokerage business:
"He Buys and Sells Bank Stock and other Stocks or Shares, &c. and Daily
attends at his Office for the Same" (5 May 1699). That was shortly dropped
and replaced with an effort to expand circulation of the price list itself:
"Any Body that will have this Paper, it shall be deliver'd every Tuesday
and Friday, within the City of London, and as far as Whitehall, for 3 s. per
quarter" (26 May 1699). He also mentioned a complementary publication:

"The Copies of the East-India Sales are also sold at the said Office." That
proved successful, but the longest-lived and most successful publication
proved to be his interest book:
Note, There is a Convenient Interest-Book, not Five Inches Long, from 10001. to
11. for 1 Day to 92 Days, and 3, 6, 9, 12 Months, at 4, 5, 6, 7, 8, per Cent. Sold by
John Castaing, Broker, at his Office at Jonathans Cofifee-House.11
The interest book went through many editions over the following decades,
adding tables for lower interest rates of 3% and 3.5% in 1732. Other items
that were advertised from time to time included sales lists of the East India
Company, tables for calculating premiums and discounts, and, for only a
brief period in 1704, a "choice of Orange-Trees"!12
From these various notices and the format of the price list itself we may
infer the nature of the market for Castaing's publication. The emphasis on
foreign exchange rates implies that the primary market was composed of
merchants engaged in foreign trade, either foreigners themselves or British
merchants dealing with foreign traders. This observation also holds for the
commodity price currents discussed by Jacob Price, who noted that they
were "not primarily for immediate use by the City merchant, who had
more exact ways of determining the prices of goods in which he was
seriously concerned, but rather as a convenience for those City merchants
who wished to keep their country and foreign correspondents informed of
the general state of the London market with the least possible trouble and
expense." 13 The publication of copies of the East India sales by Castaing,
goods destined in large part to be reexported to the European continent,
strengthens this supposition. Even the mention of an exotic product such as
orange trees implies a cosmopolitan clientele for the stock price sheet.
Moreover, all the securities listed by Castaing could be owned by for-
eigners, although they usually could not participate in governing the com-
pany in the case of shares in joint-stock companies. So Castaing's listing,
like Houghton's, was not intended to be complete but to concentrate on
those he thought useful for his potential subscribers. The lists of subscrib-
ers for the two publications overlapped in London, but Houghton's ex-
tended to the provinces, whereas Castaing's went overseas.
Castaing's practice of giving daily prices for the securities, but only
semi weekly quotes for exchange rates, is striking. According to Duguid,
11
Castaing, The Course of the Exchange (London: 4 June 1700).
12
Castaing, Course (23 June-29 September 1704).
13
Price, "Notes," p. 243.
the Royal Exchange set its exchange rates only on Tuesdays and Fridays,14
which were also the days when the mail left London for the packet boats at
Harwich that went to Holland. So this explains the frequency of the ex-
change rates, as well as the days when the Course itself appeared. But why
give daily prices for the past three days in each issue? Even when
Houghton apparently was copying his data from Castaing, he found it
useful to give only one day's quotations. The answer may be that foreign
merchants, as well as British merchants dealing with foreigners, wished to
have an independent record of the prices of securities in which their agents
invested temporarily or which they accepted as means of payment. Be-
cause they did their business daily, they needed daily prices, whereas
Houghton's country gentlemen invested only periodically and would have
been content with weekly information. If these gentlemen were ac-
customed to a lag time of three days or more in receiving reports on the
activities of their agents, the twice-weekly summary of daily trading results
would have sufficed. More active speculators in the securities as such, on
the other hand, would have required daily, or even hourly, updates, and
they would have had to be located in London City. And because they were
many fewer in number, the likelihood is much less that their demands for
information would have made a regularly printed daily publication profit-
able. Further, speculators would have been most interested in prices of
options to put or refuse, and the exercise dates for these varied from broker
to broker. So the most likely explanation is that the daily prices in Cas-
taing's Course were intended as an independent record against which could
be checked the terms on which foreign and domestic merchants' or inves-
tors' contracts were made. It was this growing clientele of foreign mer-
chants and English merchants with foreign clients who gave Castaing's
price list the subscriber network of the critical size needed to make it the
eventual monopolist.
The earliest stock price lists in Amsterdam

A similar history may remain to be told for an Amsterdam price list of
securities. Castaing's network of foreign merchants and investors certainly
included the Dutch, given their preeminence in European finance and their
influence in England at that time, and it most likely included as well
14
Charles Duguid, The Story of the Stock Exchange (London: Grant Richards, 1901), p. 29;
Cope, "The Stock Exchange Revisited," p. 18.
Huguenots throughout the Continent, given Castaing's origins.15 It is pos-

sible that Castaing's price list was modeled on a preexisting Dutch list.
There is no hard evidence for this, but according to Folke Dahl, the first
English newspaper was printed in Amsterdam and sent to London. There-
after, each succeeding periodical, coranto, gazette, or price current that
appeared in England was modeled directly on a Dutch antecedent.16 Why
should that not have been the case as well for the British stock list? Dahl
also makes the interesting observation that the most characteristic dif-
ference between English and Continental periodicals was the large number
of "editorial notices" that appeared in the English versions, but were
unknown in Dutch periodicals.17 That was precisely the striking contrast
between Houghton and Castaing.
As attractive as the hypothesis may be that Castaing's publication was
modeled on a Dutch precursor, the indications are merely circumstantial;
there is no firm evidence that such a Dutch publication existed. The official
price list for the Amsterdam stock exchange first began publication in
August 1796.18 That was in the second year of the Batavian Republic and
was no doubt an expression of the desire of the new, revolutionary govern-
ment to control, rather than to inform, the market for securities and its
participants.19 It was printed by Nicolaas Cotray, a Huguenot (like Cas-
taing a century earlier in London), whose office was next to the General
Post-Comptoir, and it was available from booksellers in Amsterdam, The
Hague, Rotterdam, and Dord, as well as booksellers and post offices in the
remaining provinces. The large quarto sheet printed on both sides listed
securities of the Batavian Republic, the individual cities and provinces, and
foreign countries, as well as exchange rates, prices of English funds (but in
15
I owe this point to Francois Crouzet, who noted that Castaing is a common surname in the
Bordeaux region. John McCusker has discovered the naturalization papers for the elder
Castaing, confirming indeed that he came from Bordeaux.
16
Folke Dahl, A Bibliography of English Corantos and Periodical Newsbooks, 1620-1642
(Stockholm: Almqvist & Wiksell, 1953), p. 18; cf. his "Amsterdam - Cradle of English
Newspapers," The Library, 4(1949), pp. 166-78.
17
Dahl, A Bibliography, p. 20.
18
Effectenhandel en de Amsterdamse Effecten beurs, 1876-1976 (Amsterdam: Vereniging
voor de Effectenhandel, 1976), p. 2.
19
Johann de Vries makes this argument. It is developed in detail by H. J. Hoes, "Voorge-
schiedenis en Ontstaan van het Financieele Dagblad, 1796-1943," Economisch- en So-
ciaal-Historisch Jaarboek, 49(1986), pp. 4 - 5 . But it may as well have been part of the
breaking down of the power of the printing guild in Amsterdam, whose monopoly of
Dutch-language printing could be infringed only by printing a periodical in another
language.
London, two weeks earlier), and prices of American securities (but priced
in New York, 10 weeks earlier). The Amsterdam publication, like the
London Course of the Exchange, appeared semiweekly on Tuesdays and
Fridays.20
There is some circumstantial evidence that earlier versions of a price list,
not officially sanctioned, may have appeared regularly. In the 1720s there
appeared printed forms for the use of Dutch brokers on which the names of
all the traded securities were given, but the actual date and the prices were
left blank to be filled in for each client. Many of these have been preserved
in the Amsterdam archives. Van Dillen has reproduced a form with space
for price quotes for each of the next two rescounter dates for both receiving
and delivering the given stock.21 It seems unlikely that this would have
been the general form used for a regularly published price list. But van
Dillen was not justified in inferring that this was the preferred form of price
lists and that no lists were published regularly. It is more likely that this
was a special form used by a few brokers to give particular price informa-
tion to special clients. The price list forms that van Dillen thought that
Dutch brokers used as substitutes for printed price lists had their counter-
parts in forms originating from London brokers and sent to customers in
Holland. Cope, for example, cited one case in which prices for puts and
refusals for 12 months, 6 months, and 3 months were given for East India
and South Sea stocks and another in which prices of these and Bank of
England stock were given for money and settlement in one month's time,
as well as prices in guineas for three- and six-month refusals of the same
stocks.22 This clearly was very specialized information worth presenting to
only a very important and active customer. In general, personalized and
specialized services were complements, not substitutes, for general infor-
mation sources.
In 1747, two issues of a fully printed price list appeared, 9 October and 6
November (exactly 28 days apart), giving prices for short-term annuities,
shares in the Dutch East India Company and West India Company, all the
English securities listed by Castaing, and then a number of life annuities.
Van Dillen believed that these were specially published on the occasion of
20
From the copy in the library of the Amsterdam Economic History Institute. Nicolaas
Cotray's father, Pieter Cotray, was the owner and publisher of the French courant Gazette
a"Amsterdam. Hoes, "Voorgeschiedenis," p. 6.
21
J. G. van Dillen, "Effectenkoersen aan de Amsterdamsche Beurs, 1723-1794," Econo-
mische-Historische Jaarboek, 17(1931), p. 3.
22
Ibid., p. 19.
the "Liberate Gift," a voluntary capital levy, of that year.23 It is at least as

likely that these were copies of a regular publication that were specially
preserved for that year because of the continued relevance of their contents
for both tax collectors and taxpayers. Hoes noted two lists published by H.
Diederiks in Amsterdam, 30 September 1788 and 3 April 1793. 24 And he
cited another five copies of lists published by assorted printers from 1 May
1793 to 19 August 1796. In fact, in the years 1797-1804, another dozen
imitators of Cotray's official publication appeared in other Dutch cities.25
Evidence from the Dutch newspapers also indicates the possibility that
there had been earlier price lists of stocks in Amsterdam. The Maande-
lijksche Nederlandsche Mercurius began publishing an abbreviated price
list in 1792, and by September 1792 it had grown to half a page. Hoes
thinks their figures came from the newly formed Collegie tot Nut des
Obligatiehandels,26 but they could have been taken from a specialized
publication. The long-term experience of the price quotes printed in the
Amsterdamsche Courant indicates the existence of such a source. The
Courant began to print a short paragraph of financial news in July 1723
that continued throughout the eighteenth century. The Courant appeared
three times each week, Tuesday, Thursday, and Saturday, and every issue in
the last three months of 1723 contained the financial paragraph. The para-
graph was always for the preceding day, and it concluded with prices of the
Dutch shares traded on the Amsterdam Effectenbeurs. In August, the
prices of the leading English stocks - Bank of England, East India Com-
pany, and South Sea Company - were included as well. In the later years
of the 1720s, the paragraph typically appeared only once a week, in the
Saturday issue, and often was irregular in appearing. In the early 1730s,
however, the financial paragraph began to appear once again in each issue,
23
Ibid., p. 2.
24
Hoes, "Voorgeschiedenis," p. 40, fn. 9. Unfortunately for my thesis that these might be
random examples of a regular periodical, the first date is a Tuesday, the second a
Wednesday.
25
Ibid., p. 7. I have also found in the card catalogue of the Erasmus University library in
Rotterdam an entry for a serial publication, Prijs-Courant der effecten, for Amsterdam,
1741-1809. The card notes that three numbers are present for 1741 and 1788, two for
1801; some numbers are missing for 1808, and one number is present for 1809. None of
the issues can be found on the shelves. But the catalogue card is important because it
shows that at one time three issues did exist in the library for 1741 and 1788, years that
were not mentioned by either van Dillen or de Vries, and Hoes mentioned only 1788.
26
This "Group to Benefit the Trade of Securities" was in existence by at least 1787. Hoes,
"Voorgeschiedenis," p. 4.
perhaps reflecting the renewed interest by Dutch investors in English se-

curities that developed in the 1730s.27
The question must be raised whether the Courant gathered this informa-
tion on its own or took it from a general trade publication distributed from
the Beurs itself. The English experience with financial paragraphs or ta-
bles, described earlier in connection with John Houghton, was that special-
ty sheets distributed as ephemera for the mercantile and trading community
were the sources for these features. Houghton's experience was replicated
by a growing number of English periodicals and newspapers over the
course of the eighteenth century. Cope mentions that in addition to
Houghton, the London Post was giving share prices by the start of 1699.28
Gentleman's Magazine gave monthly prices for an extensive list of stocks
from its first issue in 1731. In the mid-1730s, Lloyd's List began duplicat-
ing its version of the entire Course on the front page. Why should that not
have been the case for Dutch newspapers as well? It makes sense that the
Amsterdamsche Courant, a general newspaper devoted to foreign political
news, would extract price information from a specialized source. The
previously cited examples of price lists that appeared sporadically through
the eighteenth century may be the remnants of such a regular, but
ephemeral, publication. But unless runs of it are found, scholars will have
to be content with the coverage provided by the Amsterdamsche Courant
and perhaps the courants of other Dutch cities.
The rise and fall of competing price lists in London

The logic of one source becoming the center, or monopolist, of commercial
information, used earlier to explain the rise of Amsterdam and then its
displacement by London, may also be applied to competing sources of
printed information within a given information center. That logic would
predict that competition among several printed sources of the same infor-
mation should eventually lead to the emergence of a single, authoritative,
"standard" source: a monopoly. The logic depends on the costs and bene-
fits of information to different users. Users who are frequent investors
demand the latest information and consider the widest range of pos-
sibilities. For them, specialized information delivered quickly is valuable,
and their needs can be met by a variety of fairly expensive services, such as
27
P. G. M. Dickson, The Financial Revolution in England: A Study in the Development of
Public Credit, 1688-1756 (London: Macmillan, 1967), pp. 3 2 1 - 4 .
28
Cope, "The Stock Exchange Revisited," pp. 1 - 2 1 .
market newsletters and investment services tailored to specific groups of

investors. In the seventeenth century and especially the eighteenth century
it was common practice for merchants to send letters by ship, just before
sailing, in order to convey the latest commodity prices to their correspon-
dents in the next port of call. Users who are less frequent investors, by
contrast, are concerned only about making occasional trades and so are
content with older information, if it is reliable. They are not willing to pay
nearly as much as are the active traders for this information, and they will
stay with the most reliable source. Their needs can be met by a fairly
limited, standard set of prices as long as these appear regularly.
But such a standardized and regularly updated set of information also
serves a very useful function for the active traders. It helps them to cali-
brate and confirm the specific data they are receiving from a variety of
sources, some of which may be tapped only one time. The implication is
that both sets of users may be served by the same standardized source of
information. If the information is supplied by a firm, that firm is likely to
be a monopoly, not because of declining average costs for the firm but
because its product, the "standard" information, faces fewer and less
suitable substitutes the more people are using it. When a new group of
participants comes into a given market, there may arise temporarily two or
more competing firms, supplying much the same information. But because
there can be only one standard, eventually one must win out over the other.
This is a characteristic of "network technologies," where the usefulness of
a given technology or product depends in large part on how many con-
sumers are using it. 29
Standards for comparison, or, more precisely, standards for calibrating
one's evaluation of a product, arise wherever consumption requires knowl-
edge, and the purchase of financial assets on an active stock market such as
those in Amsterdam and London in the eighteenth century certainly re-
quired knowledge on a daily basis by the participants, and more frequent
information the more frequent their participation. Because it is expensive
29
The conditions for adoption of a particular standard for networks of users have been
analyzed by Paul David for a variety of new technologies, including electric power and
typewriter keyboards: "Clio and the Economics of QWERTY," American Economic Re-
view, 75(May 1985), pp. 332-7; Some New Standards for the Economics of Standardiza-
tion in the Information Age, Center for Economic Policy Research Publication No. 79,
Stanford, CA, 1986; and (with Julie Bunn) "'The Battle of the Systems' and the Evolu-
tionary Dynamics of Network Technologies," unpublished manuscript, Stanford Univer-
sity, 1986. But no one, to my knowledge, has applied the network technology theory to an
"information product," as discussed here.
to acquire knowledge, consumers are likely to concentrate on one kind of

financial asset and to evaluate it with a consistent source of information.
Moreover, if the information is to be used to enforce contracts made with
other investors or with one's broker, it is important that the source be
accepted as a standard by other participants. So a given stock price list has
the addictive quality of increasing marginal utility with increased use.
Investors will want to keep informed on the values of their holdings, but
will not want to keep increasing the resources they devote to gathering
information.
The choice of a particular stock price list as the standard may be largely
a matter of luck once the basic qualities that a price list must have are
established.30 If any version of a stock price list has a market share just a
bit larger than the share of any other, the share of the former should
increase steadily. Consumers of the "wrong" price list may continue to use
it for some time because of its original addictive qualities, but eventually, if
they continue to trade in financial assets, they will find it beneficial to
switch to the medium used by the larger number of traders or investors.
This pattern helps explain the rise of printed price lists for the earliest stock
exchanges. The form and speed with which information on prices was
transmitted for any financial market at any time in history also tell us
something about the nature of the market in that period, particularly who
might have been the most active participants.
In the year 1714, Castaing's Course of the Exchange made a number of
changes in delivery and subscription policy, probably in response to the
emergence of a competitor: John Freke. At this remove, we can only
speculate why a competitor should have arisen well after Houghton had
ceased publication. Because Freke was a lawyer and secretary and a "hot
whig," which caused him to be selected as one of the objects of the ironical
Tory tract The Taunton-Dean Letter, from E.C. to J.F. at the Grecian
Coffee-House in 1701, 31 it is probable that he was appealing to the City
brokers associated with the South Sea Company and the new political
constituency that they, and Robert Harley, were trying to develop. Freke's
price list was called The Price Of the Several Stocks, Annuities, And other
30
This is similar to the argument made by Robert A. Jones, "The Origin and Development
of Media of Exchange," Journal of Political Economy, 84(August 1976), pp. 7 5 7 - 7 5 ,
regarding what particular form of money arises as the standard currency in the absence of
government fiat.
31
J. A. Downie, Robert Harley and the Press: Propaganda and Public Opinion in the Age of
Swift and Defoe (Cambridge University Press, 1979), p. 50.
Publick Securities, Ec. with the Course of Exchange, and it lasted at least
until 1722, its demise coinciding with the breakup of the South Sea Com-
pany, described in Chapter 5. In 1714, the original Course of the Exchange
was published by John Castaing, Jr., and his office had been moved from
Jonathan's to Garraway's coffeehouse. The only change that had been
made in delivery and subscription policy to that date was the announce-
ment in 1706 that the Course would no longer be delivered any farther than
Temple-Bar.32 The first change made by Castaing Jr. in response to the
competition posed by Freke was to include a note that "Gentlemen, &c.
may have this Paper deliver'd at their Houses at 3s. per Quarter" (2 April
1714). That was shortly after the appearance of Freke's first issue (26
March 1714), which had contained the same offer. The next change by
Castaing was to reduce the price at the beginning of 1715 from 3 shillings
to half a crown (2.5 shillings), a belated response to Freke, who had
already dropped his price to 2.5 shillings at the end of April 1714.33
Castaing's notice of a matching price continued to run throughout that year,
and then was dropped. The next printed mention of the delivery price in the
Course was at the beginning of 1721, when it was raised again to 3
shillings. In January 1722, delivery was again limited to only as far as
Temple-Bar, and it appears that, the competitor Freke having been dis-
patched, Castaing could again exercise premium pricing and restricted
service.34 The last issue of Freke's The Price Of the Several Stocks was 22
June 1722.
By that time, Castaing's price list was available at his office "at the
Stationer's, next the General Post-House in Lombard Street" (13 and 20
January 1719). From there it could be quickly mailed to both country and
foreign subscribers. This combination of low price, inexpensive delivery,
and rapid posting to the countryside and abroad must have made Castaing
the natural monopolist of the business of publishing stock price lists.
With his rival safely out of the way, Castaing's Course of the Exchange
continued to be published on Tuesdays and Fridays for the remainder of the
eighteenth century as a family enterprise. Various new names appeared as
the primary publisher, but under each new publisher reference was always
32
"This Paper, after New-years-day will be delivered no further than Temple-Bar at the
Rainbow Coffee-House: Where any Body may send for them Tuesdays and Fridays" (24
December 1706).
33
Castaing, Course (30 November 1714), and John Freke, The Price Of the Several Stocks,
Annuities, And other Publick Securities, Ec. with the Course of Exchange (London: 23
April 1714).
34
Castaing, Course (6 January 1721, 19 January 1722).
made, directly or indirectly, to Castaing or his brother-in-law, Edward

Jackson, or Castaing's sister, who was Jackson's wife.
The first new name to appear was that of Edward Jackson, who joined
John Castaing, Jr., with the issue of 4 May 1725. In the first issue of 1730,
the name of Castaing was dropped, and "Edward Jackson, Broker," alone
was cited as the publisher. In 1735, a new publisher, Richard Shergold,
appeared, and the next issue explained as follows:
By Richard Shergold, Broker, And the Widow, Sister of the late Mr. Castaing,
Administratrix to Mr. Edward Jackson, deceased. At the Stationers, next the Gener-
al Post-Office in Lombard Street. Where all Persons may have a Reference to the
Papers published by Mr. Castaing and Mr. Jackson. [24 October 1735]
The year 1735 marked the emergence of a major competitor, and per-
haps other lesser competitors. It was in mid-March of that year that Lloyd's
List enlarged its format from being merely a "marine list" to including as
well the full contents of the Course of the Exchange.35 John McCusker has
reported the existence of several copies of another competitor in the years
1736-9, The London Course of the Exchange, published by Francis Viouja
and Benjamin Cole, found in the library of the Economic History Institute
in Amsterdam.36 No copies of Castaing's paper have been turned up by
McCusker in the Dutch archives; so it appears that he was serving the
Huguenot community on the Continent, whereas Viouja and Cole may
have been supplying the needs of the Low Countries. It does appear that
the price quotes for securities in Lloyd s List, though presented in the same
format as in Castaing, were taken from different brokers. Often there were
small differences in prices for a given security, and occasionally there were
days when one had quotes for a security and the other did not. Those
differences persisted into the nineteenth century.
In October 1749 the Course was published by George Shergold, "son of
Richard Shergold, deceased" (24 October 1749), and, of course, the sister
of Mr. John Castaing, who continued to be identified as Castaing's sister
rather than Jackson's widow. Early in 1751, George Shergold was able to
add to his name the title "Broker," and the price list became available both
at the stationer's office and at his broker's office, back in Popes-Head
Alley. In 1753, however, all business was transferred to Shergold's bro-
kerage office. It appears that in this period the authoritative status of the
35
John J. McCusker, European Bills of Entry and Marine Lists: Early Commercial Publica-
tions and the Origins of the Business Press (Cambridge, MA: Harvard University Library,
1985), PP- 6 2 - 4 .
36
Ibid., p. 63, fn. 99.
Course was eroded, but it does not seem to have been supplanted, or even
seriously challenged, by any competitor.
This situation continued through the Seven Years' War and the American
War for Independence. The first issue of 1764 replaced George Shergold
with a new name: "Peter Smithson, Broker." However, the long-lived
sister of the late John Castaing continued to be listed as co-publisher. This
arrangement endured another 16 years, until 1780, when the publishing
notice was dropped entirely, even though the price list continued to appear
faithfully every Tuesday and Friday. This state of anonymous publishing
remained the case for seven years, until the end of 1786, when a new
notice appeared:
Published Tuesdays and Fridays, by EDWARD WETENHALL, Stock-Broker ap-
pointed by the unanimous Vote of the Gentlemen of the Stock-Exchange, October
30, 1786. [3 November 1786]
From that date on, the Course of the Exchange took on an increasingly
official character. With the first issue of 1811, the character of the price list
changed dramatically, even though it continued to appear only on Tuesdays
and Fridays and to bear the name of Wetenhall as publisher until the end of
the nineteenth century. The list was more than doubled in size. In addition
to the quotations of British funds and other securities, only 20 in number,
there were added American securities, canals, docks, insurance, and
waterworks.
One motive for this detailed history of the continuity of Castaing's
Course of the Exchange over the period 1698-1810 is the stunning neglect
to date of this invaluable source of data by economic and financial histo-
rians. McCusker stated that he knew of only four uses of it before the
publication in 1978 of his handbook on exchange rates. 37 Each, including
his own use, had been limited to a very small range of the data available.
Since McCusker's statement, others have used this source, but they still
have been limited in number and in the extent to which the data have been
utilized. Part of the explanation for this unseemly neglect by scholars is the
overwhelming amount of data available and the difficulty facing a single
researcher attempting to transcribe it to computer-readable form. It is pos-
sible that individual scholars who encountered it while researching the
eighteenth century felt overwhelmed and simply passed it by.
But for scholars with a desire to study issues requiring the use of quan-
37
John J. McCusker, Money and Exchange in Europe and America 1600-1775: A Handbook
(Chapel Hill: University of North Carolina Press, 1978), pp. 30-31.
titative materials, the more likely reason for the neglect was the extraordi-
nary difficulty of finding full runs of the periodical. The British Union-
Catalogue of Periodicals lists only a few locations, and each has only a
very limited run. 38 Contemporary users probably saw no reason to pre-
serve, much less bind, copies of this data source for the use of later
generations, whether in Britain or abroad. However, the copies once in the
library of the London Stock Exchange, now in the Guildhall Library, are
bound in leather for each year, and the numeration begins anew with each
year, rather than with each publisher as was the case with Lloyd's List
during the early years of the eighteenth century.39 So bound annual vol-
umes may have been provided for reference, advertisement, or limited
markets overseas.
The reliability of the Course of the Exchange

and the Amsterdamsche Courant
In 1934, the Dutch economic historian J. G. van Dillen published a table of
stock prices on the Amsterdam Beurs from 1723 to 1794, extracted from
the Amsterdamsche Courant. He included prices for all the securities men-
tioned, as well as the rate of agio on bank money at the Wisselbank, but he
limited his observations to, on average, every two weeks.40 At the time
van Dillen wrote, he was aware of other long runs of the Dutch share prices
that had been published, but none were for as long a period, and each was
limited to high and low prices for the year rather than the biweekly quota-
tions he published.41 For the English prices, van Dillen was aware of
limited runs of English stock price currents that had been used by Rogers
and Scott.42 Although those gave more frequent quotes, they were for very
short periods of time. Van Dillen was unaware of Castaing's Course of the
38
James D. Steward, ed., British Union-Catalogue of Periodicals, Vol. I (London: Butter-
worth, 1955), p. 668, and Supplement to i960 (London: Butterworth, 1962), p. 237.
39
The Guildhall Library has the Course of the Exchange for the years 1698-1720, 1727,
1732, 1734, 1 7 3 6 - 9 , 1742-1810, 1819, 1821, and 1837-89.
40
J. G. van Dillen, "Effectenkoersen."
41
J. G. van Dillen referred to a series of the Dutch prices for the period 1723-63 in the 10th
edition of Le Moine de l'Espine's De Koophandel van Amsterdam, 10th ed. (Amsterdam:
J. de Groot, 1801-2).
42
Rogers had used Houghton, and Scott had used Freke, a short-lived competitor of Cas-
taing's publication from 1714 to 1722: James E. T. Rogers, The First Nine Years of the
Bank of England (Oxford University Press, 1887); William R. Scott, The Constitution and
Finance of English, Scottish and Irish Joint-Stock Companies to 1720, 3 vols. (Cambridge
University Press, 1910).
Exchange. Nevertheless, his recapitulation of 1,676 observations on as

many as nine variables over two-thirds of the eighteenth century represents
a major and lasting accomplishment.
The value of newspaper accounts, especially in Dutch newspapers, as
opposed to institutional and archival sources, has been reasserted recently
by Michel Morineaux. 43 Morineaux has been able to improve both the
quality and frequency of Earl Hamilton's figures for silver imports to
Seville by using contemporary newspaper reports. Indeed, he has found
that for the entire seventeenth century and most of the eighteenth century
(until 1778) it was the Dutch newspapers, rather than French, Italian, or
Spanish, that contained the greatest detail and most accurate accounts of
the annual or biannual treasure fleets arriving in Spain from Mexico or
South America. 44
The data from Castaing's Course of the Exchange can be used to check
and compare the prices reported in the Amsterdamsche Courant. This
provides an interesting check on the reliability of this newspaper source for
other data. Not only has it been used by Morineaux for imports of silver
and gold into Spain, and by van Dillen for Amsterdam share prices, but in
addition the Paris dispatches usually included prices for Compagnie des
Indes shares, and the Amsterdam column concentrated on ship movements
and cargo contents of the East India fleet when it returned. Further, the
operation of the Amsterdam stock market compared with the London mar-
ket can now be analyzed not only in terms of the differences in trading
practices, 45 but also in terms of the information flow coming to Amster-
dam from London, because each issue had not only the Amsterdam prices
from the previous day but also the London prices from three to six days
earlier.
Two conclusions emerge from an analysis of the thousands of observa-
tions recorded to date from the Amsterdamsche Courant for the 15-year
period 1720-35. First, printed stock exchange currents began to be en-
closed with the twice-weekly dispatches from London to Amsterdam at the
time of the end of the South Sea Bubble, and these led to a remarkable
improvement in the accuracy of reporting of the prices of major securities
on the London Stock Exchange in the Amsterdamsche Courant. Second,
43
Michel Morineaux, Ces Incroyables Gazettes et Fabuleux Metaux (Cambridge University
Press, 1985).
44
Ibid., p. 55.
45
Amsterdam prices were time prices, whereas London prices were spot prices, and at the
semiannual dividend payment times the London prices were ex dividend, but Amsterdam
prices were consistently with dividend. See Chapter 7.
the price movements of these securities on the Amsterdam Beurs closely

followed those on the London Stock Exchange, with a lag of three days or
less. It is likely that this lag was constant for the remainder of the eigh-
teenth century. The implications of this for our understanding of the capital
markets of the time will be pursued in later chapters. But the implications
for economic historians in their quest for more and more data from an age
in which government statistical "services" had not yet begun to make a
contribution are immediately obvious and very heartening: Essentially pri-
vate sources (usually, but not always, under municipal license) provided a
continuing flood of frequent and reliable data. 46
Throughout the century, one or two issues each week of the Amster-
damsche Courant also had a separate paragraph from London giving the
prices of the main English funds as quoted on the London Stock Exchange
three to six working days previously. The London data were always for a
preceding Tuesday or Friday. For example, the lead paragraph for the
Thursday, 19 November 1733, issue was dated "London den 13
November," that is, six days earlier in the New Style calendar, and ended
with a listing of share prices for the Bank of England, the East India
Company, the South Sea Company, and the old and new annuities of the
South Sea Company. That is to say, the London paragraph in van Dillen's
newspaper source carried direct information from the London Stock Ex-
change that presumably was superior to his information on Amsterdam
prices for his purposes!
The practice of listing share prices at the end of the London dispatch
began earlier than the summer of 1723, when the Amsterdamsche Courant
began listing the Amsterdam prices. 47 The practice may well have predated
1720, but there can be little doubt that 1720 was a critical year for raising
the interest of the Courant in financial reporting. In those years the Cou-
rant not only reported the share prices regularly in the London paragraph
but also devoted most of the dispatch to analysis of the stock market bubble
taking place. The London paragraph of 22 February 1720 mentioned that
the South Sea stock was currently trading at 161 and was expected to rise to
46
Contrast one gloomy assessment of the age that preceded government statistics: Phyllis
Deane, "The Implications of Early National Income Estimates for the Measurement of
Long-Term Economic Growth in the United Kingdom," Economic Development and
Cultural Change, (3 January 1955), pp. 3-38.
47
Van Dillen gave the first quote as 14 July 1723 (p. 19). In fact, the first quote appeared for
7 July 1723 in the 8 July issue. Van Dillen asserted that the English security prices were
not given in the Amsterdam paragraph until 9 August. However, they first appeared in the
31 July issue.
200 and stay up to encourage people to trade their annuities in for shares. 48
The next week, the paragraph from Paris reported that a crash was due in
the price of the shares of John Law's company.49 As we know, that was the
time at which simultaneously the Mississippi Bubble ended and the South
Sea Bubble began. In the issue for Saturday, 30 November 1720, the
London dispatch ended with a description of a printed list of share prices
that had been rushed over from London and showed the prices for Tuesday.
Moreover, hearsay regarding the fall in South Sea stock on Wednesday was
mentioned.50
Table 2.1 summarizes the comparison of prices for the stocks of the
Bank of England, East India Company, and South Sea Company as re-
ported in both Castaing's and Freke's Course of the Exchange in London
and in the London paragraph of the Amsterdamsche Courant on the days
such prices were reported in the Courant. Because of the large number of
observations available for each year, only 1720, 1725, and 1730 are
shown. By far the fewest observations are available for 1720, because the
Courant did not include stock prices in each London paragraph until the
time of the end of the bubble. Even in 1730 the number was only 86,
because the London paragraph appeared only once or twice a week, and
each had only one day's quote in it. The three sources are compared by
calculating the average absolute difference in prices for a given stock51 and
48
" . . . en de liefhebbers geven voor dat ze wel tot 200 zullen reyzen; maer veele zyn van
gedachten dat men ze so hoog dryft, om de menschen haere Annuiteyten in actien te doen
veranderen." [". . . and the devotees give odds it could well rise to 200; yet many think
that it has been heated up so high in order to get people to convert their Annuities into
shares."]
49
"Sommige zeggen dat de straer Quinquenpoix van Parys herwaerds is overgebragt; maer
al dit werk wil aen de houders van de Obligationen, waer van gedurende zekere jaeren
interesten moesten werden betaelt, echter geen genoegen geeven" {Amsterdamsche
Courant, 27 February 1720). ["Some say that Quincampoix Street has been brought over
here from Paris; but everyone says it works well on the Obligation holders, who want to be
sure that several years' interest are paid, before they will give satisfaction."] The same
sentence was repeated in the next issue.
50
"Deezen day zyn hier expressens van Londen gearriveert, meede brengende her gedrukte
Feuillet van de Pryzen der actien, so als die Dingsdag tot Londen waren . . . ook zegt men
dat 'er reeds tyding van Woensday zoude zyn, dat de Zuydzee tot onder de 150, en
d'andere fondsen na proportie waren gedaelt" {Amsterdamsche Courant, 30 November
1720). ["This day the express mail arrived from London, bringing with it a printed leaflet
of share Prices, as they were in London on Tuesday . . . also one says that the news from
Wednesday should be that South Sea stock was traded under 150 and the other funds in
proportion."]
51
Because the levels of prices for shares of the Bank of England, South Sea Company, and
East India Company were quite different, percentage differences would vary by stock
TABLE 2.1
Summary comparison of prices reported in the Course of the Exchange and the
Amsterdamsche Courant for shares in the Bank of England, East India Company, and
South Sea Company, 1720, 1725, and 1730
A. 1720
Amsterdamsche Courant - Castaing's Course of Exchange
BofE EIC SSC
301
2
1.81 3.61 7.57
(2.89)3 (6.45) (20.54)
Amsterdamsche Courant - Freke's Course of Exchange
BofE EIC SSC
32
2.40 3.88 9.44
(3.42) (5.40) (19.78)
Castaing - Freke's Course of Exchange

BofE EIC SSC
30
1.33 3.06 9.46
(2.37) (4.77) (22.17)
B. 1725
Amsterdamsche Courant — Castaing's Course of Exchange
BofE EIC SSC
80
0.11 0.25 0.10
(0.34) (0.70) (0.37)
C. 1730
Amsterdamsche Courant - Castaing's Course of Exchange
BofE EIC SSC
86
0.10 0.29 0.08
(0.30) (1.00) (0.24)
1
Number of observations.
2
Absolute mean.
3
Standard deviation.
then the standard deviation of the actual price difference for each possible
pair of sources. The smaller the average absolute difference or the standard
deviation, the more likely it is they used the same source. Because the
Amsterdamsche Courant price was from London, all three represented
London sources, and the purpose of this exercise is to see if the Courant's
source was the price list of Castaing, of Freke, or of yet another.
without telling us anything about market integration. Using absolute differences keeps
negative differences from canceling out positive differences in calculating the average.
For 1720, all three comparisons are quite erratic. For all three stocks, the
absolute means favor Castaing as the information source for Amster-
damers, but the standard deviations in two of three cases favor Freke. The
comparison between Castaing and Freke shows that even close competitors
varied considerably during the manic year of 1720. Examination of the raw
data reveals that the largest divergences occurred during the bubble period,
late February through August, and were most dramatic in South Sea stock.
Brian Parsons found similar problems in comparing the daily prices re-
ported in the London Daily Courant and John Freke's Course of the Ex-
change. Because the largest divergences occurred when price movements
were most violent, he suggested that they could have arisen because the
prices were reported for different times of the trading day.52 It is also
possible that different brokers could have advertised different prices during
hectic trading, reflecting different expectations. It is striking that the days
of the week for the reported prices in the Courant were always Tuesday or
Friday, the same days that both Castaing's list and Freke's list were printed.
The explanation for this coincidence is certainly that those were the days
when the mail packet boats left London for Amsterdam.
Also striking is the nearly perfect coincidence of the prices after
November 30, the date for which we first learn that a printed price list had
been sent from London to Amsterdam. The comparisons of the Courant
and Castaing for 1725 and 1730 show the remarkable convergence that is
obtained. Examining the raw data in this case shows that small differences
did appear and were maintained for two or more weeks at a time. These
usually were the times when dividends were paid by the companies in
question, and the difference usually was in favor of the report in the
Courant. This indicates that the Courant chose to print the price with
dividend, whereas Castaing chose to print the price without dividend. In
short, it appears that the intense interest in Amsterdam regarding the spec-
ulation in London during the South Sea Bubble promoted the use of a
consistent and authoritative source for London prices, although the price
reported to Amsterdamers was adjusted for their practice of including the
dividend in the sale price of any share.
Table 2.2 takes a systematic approach to the question that naturally
follows: Did information flow to both stock markets at the same time, or
did it systematically flow from one market to the other? The Amster-
damsche Courant data for the English stocks being traded in Amsterdam
52
Brian Parsons, "The Behavior of Prices on the London Stock Market in the Early Eigh-
teenth Century," Ph.D. dissertation, University of Chicago, 1974.
TABLE 2.2
Prices in London of shares in Bank of England, East India Company, and South Sea
Company compared to prices in Amsterdam, with no lag, lagged 3 days, and lagged 6
days, 1725, 1730, and 1735
Lag BofE EIC SSC

(Days) (A-L) (A-L) (A-L)
A. 1725
0 0.711 1.98 0.75
(1.06)2 (2.74) (1.13)
3 0.64 1.73 0.72

(1.03) (2.34) (0.97)
6 0.60 1.38 0.77

(0.94) (2.37) (0.98)
B. 1730
0 0.44 0.83 0.36
(0.72) (1.28) (0.60)
3 0.44 0.72 0.27

(0.62) (1.05) (0.37)
6 0.43 0.84 0.35

(0.79) (1.15) (0.49)
C. 1735
0 1.18 1.77 0.80
(1.44) (2.34) (1.16)
3 1.00 1.86 0.73

(1.26) (2.55) (1.05)
6 1.09 1.57 0.54
(1.26) (2.07) (0.70)
1
Absolute mean.
2
Standard deviation.
are adjusted for the difference in calendars at that time [the English were
still on the Old Style (O.S.) or Julian calendar, but the Dutch were on the
New Style (N.S.) or Gregorian calendar] by subtracting n days from the
Amsterdam date. The Amsterdam data are then compared with the London
data for those dates they had in common. A second comparison is shown
for the Amsterdam data lagged three days, and a third for a lag of six days.
The possibility of Amsterdam price movements leading London price
movements certainly exists, but it has not been explored.
Typically, the two sets of prices are very close, regardless of the lag, and
generally the difference is negative, indicating that Amsterdam prices were
higher on average. This is because Amsterdam prices were time prices

rather than spot prices and because the Amsterdam prices included divi-
dends, whereas London prices did not, at dividend payment times (see
Chapter 6). In general, it appears that the three-day lag yields the smallest
average differences. For 1725, that is the case for Bank of England and
South Sea stock, but the zero-lag condition yields the smallest average
difference for East India stock. For 1730, the zero-lag differences are
smallest for Bank of England and East India Company stock, whereas the
three-day-lag difference is smallest for South Sea stock. For 1735, just to
complete the array of possibilities, the three-day-lag differences are small-
est for Bank of England and East India stock, whereas for South Sea stock
the zero-lag difference is nearly zero, and the three-day-lag difference is
positive rather than the expected negative figure. In no case is the six-day-
lag difference smallest on average.
If we make allowances for differences in pricing practices in the two
markets, it appears that the Amsterdam market was tracing much more
closely the actual prices on the London market on the same trading day as
in Amsterdam, rather than following with a lag of three days or more the
prices reported from London. This is yet another piece of evidence to add
to the growing evidence that those early capital markets were as efficient
and effective in their use of information as are our modern capital markets.
It is likely that those market relations were long-lived and relatively stable,
because there were no major improvements in the speed of communication
between London and Amsterdam in the eighteenth century.
3. The early capital markets of London
and Amsterdam
The origins of the joint-stock companies that arose in the great long-
distance trades of the seventeenth century in western Europe lie at least as
far back as the medieval societas maris and commenda. These were forms
of limited-liability partnerships used extensively in merchant shipping to
reduce risks by making specific arrangements regarding the sharing of
profit (or loss) for each voyage. Partners were divided into investors, who
stayed on land, and travelers, who went with the ship. In the commenda,
the voyager risked no capital, only his life, and received one-fourth of the
profits, whereas in the societas the voyager put up one-third of the capital
and shared equally in the profits.1 The commenda is believed to have
derived from the practices of Arab shipping fleets in the Mediterranean
during the Islamic expansion of the eighth to fifteenth centuries. W. R.
Scott, in his classic work The Constitution and Finance of English, Scot-
tish and Irish Joint-Stock Companies to 1720, distinguished three pro-
cesses that led to the joint-stock companies of seventeenth-century En-
gland. One was to divide up among member merchants the corporate
purchases made by the early regulated companies used by the British to
carry on foreign trade (i.e., to share in the overhead costs). Examples are
the Merchant Adventurers (export of cloth), the Staple (export of wool),
and the Levant Company. The second was to extend the societas used by
the Italian financiers in England during the thirteenth and fourteenth cen-
turies to divide up and pay out profits to partners on a regular basis (i.e., to
monitor and manage the activities of far-flung partners). The third was to
transplant a joint-stock constitution from the Continent. Although Scott
argued that this was the least important of the three, he noted the existence,
if not the significance, of foreign influence in a number of early English
joint-stock companies.2 For us, the significance of foreign influence in
1
Raymond de Roover, "The Organization of Trade," in M. M. Postan, E. E. Rich, and
Edward Miller, eds., Cambridge Economic History of Europe, Vol. 3 (Cambridge Univer-
sity Press, 1971), pp. 49-53-
2
Companies to 1720, 3 vols. (Cambridge University Press, 1910), Vol. 1, pp. 13-14.
44
Capital markets of London and Amsterdam 45
"points of detail" in the organization of these companies lies in whether or

not they increased the scale and scope of the secondary market for trading
shares in the companies. In this perspective, the key development was the
concept that the capital paid in by the original subscribers was permanently
ceded to the company, which had undertaken a continuing series of ven-
tures and was not invested merely for the duration of one or more ventures
(e.g., a voyage, in the case of merchant shipping and the early English East
India Company). The Dutch East India Company, as early as 1609, decided
that subscribers could not demand their capital back from the company
itself, but they could retrieve their funds by selling their shares to third
parties. By contrast, the English East India Company did not make its
capital permanent until the reorganization under Cromwell in 1650. Prior
to that, the English compensated in part for the reduced marketability of a
short-term and risky equity by making shares smaller in denomination, by
not fixing the total number of shares to be sold, and by selling shares to the
assembled merchants during the semiannual auctions of East India goods in
London.3
Each period of peace and prosperity that followed in the seventeenth
century tended to promote the creation of new joint-stock enterprises and to
provide incredibly large profits to those trading companies already in exis-
tence. Such periods, however, were few and short-lived during that tur-
bulent century. The apparent explosion of economic activity, new enter-
prises, and stock market activity at the end of the century, however, was
destined to survive the major wars that followed. That episode may have
begun with the infusion of Huguenot capital from France after the revoca-
tion of the Edict of Nantes by Louis XIV in 1685. The wealth brought to
London by these merchants and noble families is reputed to have been
worth over £3 million, but the new trades and skills brought by the artisans
and craftsmen were worth far more. 4 The importance of these merchant
families, particularly in the international trade and finance network matur-
ing in England, is indicated by the decision of the General Court of the East
India Company to pay 5% on the funds deposited there by the Huguenots
who had fled France until such time as they withdraw those funds to begin
permanent capital investments.5 The Dutch capital and skills brought in the
train of William III were equally impressive and reinforced the importance
3
Ibid., p. 161.
4
Ibid., pp. 313-14-
5
Clarendon Press, 1952), p. 1 1 .
of the Huguenot connections. A stock market boom occurred in the

years 1692-5, despite the increased financial pressures of the War of
the League of Augsburg. We know that by the end of 1695, a t least 150
joint-stock companies were in existence, with shares traded in the cof-
feehouses, especially Jonathan's and Garroway's, that lay in Exchange
Alley. Scott grouped the listings by Houghton into categories of new and
old types of enterprises. The new enterprises dealt with (1) new products,
chiefly those brought by the Huguenot artisans, such as white paper and
lustrings, (2) armaments, such as saltpeter, sword blades, and guns, and
(3) banking and finance companies, such as the Bank of England, the
Million Bank, and the Orphans' Bank. The old enterprises concentrated on
mines, salvage of shipwrecks, fishing, waterworks, manufacturers of iron
and metals, and assorted miscellaneous schemes destined to be short-lived
under any form of financing.6 Scott estimated a total of £4,250,083 of
paid-up capital in all these, with three-fourths being concentrated in the
chartered companies: the Bank of England, the Million Bank, the African
Company, the East India Company, Hudson's Bay Company, and the New
River Company.
A general crisis occurred in 1695 as the finances of the state and the
reverses of war had their effect. The disarray of the financial markets was
compounded by the uncertainty surrounding the recoinage of 1696. By the
beginning of 1698, however, a period of relative peace and prosperity set
in, lasting until the financial obligations incurred by the government in the
War of the Spanish Succession (1702-13) finally caught up with the capital
markets in the crisis of 1708. There followed reorganizations of the East
India Company and the founding of the South Sea Company. This inaugu-
rated a new period of relatively undisturbed stock market activity that
lasted until the great trauma of the bubble year of 1720. The resulting
disorder was finally cleared away by the reorganization of the South Sea
Company and the engrafting of new stock onto the Bank of England. But
the key innovation likely was the creation of a new form of easily trans-
ferred annuities by both the South Sea Company and the Bank of England
in 1723.
These periods of relatively stable operation of the stock market (there
was little regulation except to license stockbrokers) enable us to analyze
this early stock market in three 11-year spans: 1698 through 1708, 1709
through 1719, and 1724 through 1734. For each period we have con-
6
Scott, The Constitution and Finance, Vol. 1, pp. 330-3.
150
50 50
1698 1700 1702 1704 1706 1708
Figure 3.1. London stock price index, end-of-month prices, 1698-1708.
structed an index that traces the fluctuations of the entire market or, more
precisely, the value of a balanced portfolio composed in exact proportion as
the nominal capital of the constituent companies available for an investor
in each interval. The monthly index is shown in Figures 3.1-3.3 for the
successive stages. The missing period, 1720-3, was characterized by great
disturbances in prices of all stocks, occasioned by the South Sea Bubble,
and by wholesale reorganization of the structure of government debt. De-
tailed analysis of this period is deferred to Chapter 5.
Bank of England stock was the first stock to appear on a permanent basis
and the one that has constituted our longest-lived security traded on the
London Stock Exchange for two and a half centuries. According to Scott,
"the ten years from July 1697 to July 1708 constitute a new epoch in the
history of the Bank. . . . It was now to experience the benefits of peace
and the mitigation of rivalry."7 This period began with an engrafting of
£1,001,171.5 onto the bank's original £1,200,000, the result of the bank
funding for a limited period an equivalent amount of government debt. At
intervals over the next 10 years, this engrafted stock was gradually paid off
as the government repaid its debt to the bank. In March 1707, however, in
7
50 •
1709 1711 1713 1715 1717 1719
Figure 3. 2. London stock price index, end-of-month prices, 1709-19.
150-p --150
140 - June 33 - 140

Aug 25
130 - -130
120 - ' '-120
Oct 33
5 HO- -110
o Dec 26
-100
|) 100 -
C - 90
S 90 - - 80
80- - 70
70 - - 60
60 - 50
1724 1726 1728 1730 1732 1734
50-f
Figure 3.3. London stock price index, end-of-month prices, 1724-34.
order to meet fresh demands upon it by the government, the bank declared
a 50% call on the original stock plus the engrafted stock, paid out nearly
£100,000 to the existing stockholders, and ended up with a new permanent
capital of, once again, £2,201,171.5. At the height of the pressures caused
by the war in the years 1709-11, the bank successively doubled its stock,
added 15%, and then added another 10%, so that it entered our next period
of analysis with a capital stock of £5,559,995.75. In the aftermath of the
South Sea Bubble, the bank, in order to purchase £4 million of South Sea
stock, increased its own capital by another £3.4 million in 1722.8 So in our
third period of analysis, the bank's capital was £8,959,995.75, where it
remained until 1742.
The companies trading in the East Indies were the next major sources of
tradeable shares on the London Stock Exchange. The Old East India Com-
pany, also known as the London East India Company, began with a capital
of £1,574,608.5, which it maintained during the entire first period, 1698-
1708.9 It was joined at the outset by the English East India Company, or
New East India Company, which began in 1698 with a capital stock of
£1,662,000, its share of a £2 million loan provided to the government. An
additional stock of £581,700 was called up to provide working capital for
carrying on the actual trade with the East Indies. These were traded and
quoted separately on the London Stock Exchange. Both capital sums were
reduced in July 1702 in the form of sales to the Old Company in order to
equalize the roles of the two in carrying out the joint administration of trade
to the East Indies until they were to be formally merged by 1709. So from
July 1702 until the merger, the capital of the New Company was £988,500,
and that of the "Additional Shares" was £332,400, both of which were
traded actively on the exchange, along with shares of the Old Company.10
Par value for the New Company shares was £100, whereas that for the
8
There is some uncertainty over this figure, which is cited by both Scott and John Clapham
[The Bank of England: A History, 2 vols. (Cambridge University Press, 1945)] via the
authoritative "History of the Earlier Years of the Funded Debt, from 1694 to 1786."
British Parliamentary Papers, Command Paper 9010 (1898), pp. 70-2. Fairman, how-
ever, gave a figure of £610,169.5 [William Fairman, The Stocks Examined and Com-
pared . . . , 7th ed. (London: John Richardson, 1824), p. 52] and Adam Anderson
asserted that in 1727 the bank's stock was reduced by £500,000 to £4,875,027 175. io^d.
[An Historical and Chronological Deduction of the Origin of Commerce, from the earliest
accounts, 4 vols. (London, 1764, continued to 1788 by William Combe and published for
the last time in 1801; reprinted New York: Augustus M. Kelley, 1967), Vol. 3, p. 147]. We
have chosen to stay with Scott and Clapham.
9
10
Ibid., p. 188.
Additional Shares was £20. There is no record of dividends being paid on

either set of shares, although £2 per share on the Additional Shares was
returned annually in quarterly installments. But this was intended by the
directors, and apparently treated as such by investors, as a reduction in the
par value of the shares. By June 1707, £10 had been returned, and over
the next year another £11 was returned, with some assets still to be real-
ized, which amounted to a total of £66,005 4^- id.11
The Royal African Company suffered greatly from the misfortunes of
war and the pressures on the London financial markets during the years
1693-7. A new issue of stock intended to double the existing nominal
capital was authorized in October 1697, but by the time of its conclusion
one year later, only £475,800 had been taken up, and that at a price of £12
per £100 of original capital. From October 1698 on, then, the nominal
capital of the African Company was £1,101,050. 12 Various calls were
made upon the stock, and bonds given in exchange. To encourage share-
holders to pay up, very modest dividends were declared and paid over the
years 1702 to 1707, but these were paid out of capital, as in all probability
was the interest on the bonds. Scott concluded that "this mode of finance
as well as the pressure of loans generally on the company at a critical
period of its history was a more serious hindrance to its prosperity than the
losses of the war or the competition of the separate traders." 13 The most
recent analysis of the company's operations, however, concluded that the
shareholders were largely well-informed merchants who were deliberately
making a risky investment, but not investing very heavily in this particular
venture. Although disappointed in the outcome, they likely were not sur-
prised and certainly were not ruined. 14
The Royal African Company's financial distress was not relieved even
with the capital reorganization of 1712. Indeed, that was accomplished
only after legal obstacles had prevented reorganizations proposed each year
from 1709 until 1712.15 At that time the existing nominal capital was
written down to 10% of its face value, reflecting its market value, a call of
£50 was made upon each share, and new stock was given in exchange for
the old bonds, for a total of £451,350. Even that was gradually written
11
Ibid., p. 187.
12
Ibid., p. 27. Scott dates the new capital from October 1697, but this seems to be but
another misprint.
13
Ibid., p. 29.
14
David W. Galenson, Traders, Planters, and Slaves: Market Behavior in Early English
America (Cambridge University Press, 1986), p. 150.
15
K. G. Davies, The Royal African Company (New York: Atheneum, 1970), pp. 92-5.
down over the next few years as shareholders failed to meet either the
original call of £50 or the additional one of £25 in 1714. So one of the
quoted stocks was a financial "basket case" throughout our initial two
periods: 1698-1708 and 1709-19. 16 During the bubble year of 1720, the
company made a fresh issue of engrafted stock that quickly rose in price
and apparently encouraged the directors to revitalize the company's
trade. 17 Anderson tells us that in 1727 the general court of the company
"came to various resolutions for carrying on their trade, and for preventing
the separate trades from interfering with them," among which was a pro-
posal to reduce "their then nominal capital stock, so as every 800 pounds
be reduced to one hundred pounds. . . . All which, however, came to
nothing." 18 Despite Anderson's disavowal of the importance of these reso-
lutions, the stock of the Royal African Company was quoted at 8 when the
transfer books were closed in April, but traded at 67 when they reopened in
May. So in our third period, the par value of a share is taken as £800
through April 1727, and £100 thereafter.
The Million Bank provides a counterpoint to the Bank of England and
indeed to all the other stocks. Scott found it interesting for two reasons:
First, it was the first example of a reverse-leveraged buy-out of government
debt, that is, an operation in which underpriced government debt was
directly exchanged at a favorable price for shares in a joint-stock company.
(These kinds of debt-for-equity swaps are being used today by U.S. banks
to reduce their loans to Latin America). The greatest, and last, example of
this practice in the eighteenth century was to be the South Sea Company's
scheme of 1720. Second, it was essentially a well-managed mutual fund in
government annuities, and as such it gives us as accurate an account of the
average rate of return on risk-free assets as we can find before the innova-
tion of the South Sea annuities in 1723. According to Scott, the quotations
on the stock of the Million Bank provide us "prices of a standard State
security, which would occupy the same position in relation to the money-
market then as Consols do at the present time." 19 We shall use its holding-
period rate of return as our basic risk-free return.
Originally founded in 1695 to even out the risks and returns available to
holders of lottery tickets on the Million Lottery Loan of 1694, the Million
16
Davies (ibid., p. 80) noted that African stock fell almost continuously for 20 years after
1692.
17
Ibid., pp. 344-5-
18
Anderson, Origin of Commerce, Vol. 3, p. 144.
19
Scott, The Constitution and Finance, Vol. 3, pp. 279-80.
Bank was intended to lapse in 1710, when the last payment was due on the
lottery tickets. In fact, it lasted until 1796 because of a decision made in
late 1699 by the directors to begin systematic purchase of reversions of
single life annuities that had been issued in 1693 a n d 1694. These annuities
could be extended from the term of the life of the single nominee to 95
years upon additional payment of four to five years' purchase, and this
"reversion" could be purchased by new participants, such as the Million
Bank. To generate income in the uncertain interval between purchase of the
reversion and death of the nominee, the Million Bank also purchased life
annuities directly. To carry out these purchases, new capital was issued,
with the total nominal amount fixed at £500,000 at the end of 1700. The
dividend was a uniform 5% in the period up to 1728, according to the final
account rendered by the Million Bank to Parliament in 1796. However, we
shall use Scott's surmise that the dividend was in fact 6% through 1716,
5% from 1717 through 1727, and 4% thereafter.20
The South Sea Company began its existence in May 1711 with a capital
stock of £9,177,967 15s. 4<i. created to buy up the existing short-term debt
of the government, which had risen to enormous sums in the course of the
War of the Spanish Succession. The stock was issued and trade begun in it
in September 1711. At the end of 1715 its capital was raised to an even
£10,000,000. The primary motivation for the company from the beginning
was to fund a major part of the total national debt, accepting a lower
interest rate on its share of the national debt than had been paid by the
government previously. This interest received from the government, plus
an annual management fee, provided the cash flow for dividend payments
to shareholders, whose shares were more easily transferable than the short-
term debt they had replaced. In addition, there was the prospect for lu-
crative trade with the Spanish Empire, now opened up by English naval
successes in the West Indies. The charter of the South Sea Company
granted it a monopoly of English trade from the Orinoco River on the east
coast of South America on south to Tierra del Fuego and then north up the
entire west coast. It was never made clear how this trade was to be carried
on and what was to be traded. The Treaty of Utrecht assigned the asiento
for carrying Negro slaves from Africa to Spanish America to the South Sea
Company, but the fabled possibilities of this trade were quickly constrained
by price and quantity restrictions imposed and strictly enforced against the
company by the Spanish government. The remaining profits in the "black
20
Ibid., p. 287, fn. 1.
market" that those restrictions created were exploited by outsiders, as had

long been the case for the Royal African Company. So from the beginning,
the South Sea Company was a financial giant hobbled within the re-
strictions of the asiento contract. In 1718, this trade was halted, a brief war
with Spain was waged, and the company began to apply its resources to
funding even more of the national debt. The culmination was its proposal,
approved by the House of Commons in February 1720, to assume all the
national debt not held by the Bank of England or the East India Company.
That led to the South Sea Bubble, treated in detail in Chapter 5, during
which the capital of the company was raised to the extraordinary figure of
£38,564,180 (according to the company) or £37,802,203 (according to the
government). Given the uncertainties over when the new stock would be
transferable, however, combined with the daily volatility of all stock
prices, any weighting scheme for that period would be arbitrary.
So the index is not calculated for years after 1719, until 1723, when the
company was finally reorganized with a trading capital of £16,901,243
12s. 4<i., with transferable shares, and a so-called joint stock of
£16,901,240 is. 4d. composed of transferable annuities. So even in dis-
grace, and broken in half, the South Sea Company was a financial goliath,
outweighing by far any other organization in our stock index for the period
1723-33. In the years 1727, 1729, and 1732 the trading capital (and the
annuity stock) was reduced, consummating in 1733, when the trading
capital, down to £14,651,103 85. id., was reduced to one-fourth that
amount, and the remaining three-fourths was converted into the New South
Sea Annuities bearing even lower interest.21 It was clearly the prospect of
receiving conversion rights into safe, if low-yielding, annuities that drove
valuation of the South Sea stock in this latter period, rather than its dismal
prospect for commercial successes, which at that time depended on whal-
ing in the Greenland fishery.
The final company included in our index, appearing only in the last
period, is the Royal Exchange Assurance Company. This was the larger
(with £500,000 paid-up capital) of the two marine insurance companies
chartered in the middle of the bubble year 1720. Both it and its companion,
the London Assurance Company, received their charters in June 1720, and
their stocks were quoted in the Course of the Exchange beginning July 1.
The change in name on receipt of the charter did not alter at all the quoted
price for either company from what it had been before. The Royal Ex-
21
Fairman, The Stocks Examined, p. 97.
change Assurance was the continuation of the Assurance of Ships joint-

stock corporation begun in 1718 as the Mines Royal company and enlarged
under the vigorous leadership of Lord Onslow. This was called "Ships" by
Castaing, but Scott asserted that it was called "Old Company" by Freke
and was listed as "Onslow's Insurance" or "Onslow's Bubble" in the
newspapers. The London Assurance Company was the chartered version of
Lord Chetwynd's marine insurance company promoted by Stephen Ram
and listed by Castaing as "New Company" and by Freke as "Ram and
Colebrooke," but known in the newspapers as "Chetwynd's Insurance" or
"Chetwynd's Bubble." 22 Both the London Assurance Company, cap-
italized at £258,314 to £414,315 in the period 1724-34, and the York
Buildings Company, with a nominal capital of £1 million in 1724, which
was steadily reduced in the manner of the African Company, have been
omitted from the index. But whereas the York Buildings Company was
subject to two great speculative surges in this decade, both marine as-
surance companies enjoyed steady growth in the price of their shares. That
growth occurred in the context of regular dividend payments and a steady
insurance business, although neither company's shares reached par in this
period (£100 for the Royal Exchange Assurance and £12.5 for the London
Assurance), and it appears the two together underwrote only about 10% of
the marine insurance written in London. The rest was underwritten by the
great mass of individual brokers and partnerships who increasingly came to
be loosely affiliated as Lloyd's of London.
Figures 3.1-3.3 show the aggregate stock market index calculated on
the equivalent of the "blue-chip" stocks of the London stock market in its
early years. It began depressed at 60% of par value in 1698, but enjoyed a
spectacular rally in 1699, followed by a relapse in 1700, and then sustained
growth until the middle of 1704. This latter period was untroubled by the
outbreak of the War of the Spanish Succession and was not seriously
affected by the uncertainties of war finance until the change of ministries in
1708. The second period began with a rally as the East India Company
resolved its internal problems, but quickly ran into the accumulated prob-
lems of war finance. The reorganization of the African Company and the
founding of the South Sea Company helped to initiate a more or less steady
advance of the market from March 1712 until the fresh outbreak of war
with Spain in 1718. We pass over the interlude of the South Sea Bubble and
its aftermath until Chapter 5. The period after the reorganization of 1723
22
was astonishingly dull by any standard, with only a mild disturbance in

mid-1733 when the final reorganization of the South Sea Company was
carried out in rather brutal form. The market, on average, remained above
par, and the Walpole years were remarkable for the serenity indicated by
the mild fluctuations from May 1727 until June 1733.
Overall, the index constructed here gives us a sensitive indicator of the
reactions of the capital markets of Europe to the financial reorganizations,
the new regulations, and the strains from military and naval demands in
wartime experienced by England. Did the fledgling secondary, or resale,
market for securities that had arisen in the London of William III as a
private, entrepreneurial response to government innovations perform as we
would expect a modern stock market to perform? To test this, we can
inspect the market's performance in modern terms by calculating the
monthly holding-period rates of return (HPR) for a balanced portfolio as
well as the component stocks. The market index and the dividend paid out
semiannually for each stock can be used to construct a monthly holding-
period rate of return for the entire market. The holding-period rate of return
is calculated by the formula
HPR, = [(P, + 1 - P , ) + D , + 1 ] / P ,
where P is the price per average share as a percentage of par, and D is the
dividend as a percentage of par.
This formula is also used to calculate the monthly HPR for each compo-
nent stock. Figures 3.4-3.6 show the monthly HPRs for the market index.
Although the graphs for the individual stocks are not presented here, they
show substantial variance in the earliest years, 1698 through 1701, and
then very mild fluctuations in the next two periods, as the graphs of the
index indicate. The average rate of return remains positive, however,
throughout. Table 3.1 summarizes the means, highs, lows, and standard
deviations of the monthly holding-period rates of return in each period for
each stock and for the market as a whole.
In the first decade, the market showed an average 0.9% monthly return
(11.35% annual yield if compounded monthly). That was subject to wide
swings, however, because the extremes observed in that period (from
+0.33 to —0.20) were much greater than in the following two decades
(from +0.18 to —0.077). ^ was the period 1709-19, however, from the
reorganization of the East India Companies and the founding of the South
Sea Company, that was truly spectacular and prosperous. The mean HPR
was over 2% monthly (26.8% annual yield if compounded monthly), and
0.2 - 0.2
SO.,-
-0.2 -0.2
1698 1700 1702 1704 1706 1708
Figure 3.4. Holding-period returns for balanced portfolio, 1698-1708.
0.2 0.2
- 0.1
- -0.1
-0.2 -0.2
1709 1711 1713 1715 1717 1719

0.2 0.2
- 0.1
--0.1
-0.2 -0.2
1724 1726 1728 1730 1732 1734
the extremes were much reduced from the preceding period. The standard
deviation was less than double the mean, compared with six times the
mean in the first decade, and seven times in the third. It is small wonder
that overconfidence in the strength and resilience of that market might have
led to speculative mania. By the start of 1724 it was a much chastened
market, very sedate in its performance, with an annualized holding rate of
return of a bit over 3.5%. Despite its disappointing nature for speculative
spirits, this was an appropriate environment in which to introduce the so-
called Three Per Cent Annuities, to pay back more expensive government
debt, and to encourage continued foreign investment in the public funds of
Britain.
There is another way we can appraise the performance of the market in
those early years, using modern techniques. It is customary for financial
analysts today to regress monthly HPRs calculated over five-year intervals
against the HPR for the stock market as a whole. The slope coefficient of
such a regression is called the beta coefficient. Beta coefficients normally
range from 0.5 to I.5. 2 3 The lower values indicate that the stock has
returns, on average, only half those of the market as a whole and must
23
Eugene F. Brigham, Financial Management, 4th ed. (New York: Dryden Press, 1985), p.
TABLE 3.1
Return and risk measures for London stocks
(monthly holding period rates of return)
1698-1708, 1709-19, 1724-34
1698 -1708 1709 - 19 1724 - 34

Bank of England
Mean HPR (monthly) 0.009 0.008 0.004
HighHPR 0.130 0.128 0.065
Low HPR -0.122 -0.101 -0.075
Standard Deviation HPR 0.039 0.035 0.018
East India Company (Old)

Mean HPR (monthly) 0.014
High HPR 0.992
Low HPR -0.311
Standard Deviation HPR 0.118
East India Company (New)
High HPR 0.350
Low HPR -0.474
Royal African Company
Mean HPR (monthly) 0.001 0.007 -0.005
High HPR 0.639 0.704 1.443
Low HPR -0.319 -0.345 -0.609
Million Bank
Mean HPR (monthly) 0.001 0.009 0.004
High HPR 0.270 0.110 0.050
Low HPR -0.232 -0.049 -0.052
East India Company (United)
Mean HPR (monthly) 0.009 0.005
High HPR 0.149 0.123
Low HPR -0.070 -0.095
Standard Deviation HPR 0.037 0.031
South Sea Company
Mean HPR (monthly) 0.010 0.002
High HPR 0.138 0.089
Low HPR -0.061 -0.178
Standard Deviation HPR 0.033 0.029
Ships Assurance Company
High HPR 0.242
Low HPR -0.103
MARKET
Mean HPR (monthly) 0.009 0.020 0.003
High HPR 0.330 0.181 0.077
Low HPR -0.201 -0.068 -0.077
therefore compensate by being a very secure investment, whereas the

higher figures reflect a much better return than the market, but usually
much more volatility as well. The stocks with low beta coefficients are
favored by widows, orphans, and institutions with fiduciary respon-
sibilities. The stocks with beta coefficients close to 1.5 are especially
favored by speculators with good sources of information who are able to act
very quickly to buy in or sell out. The calculations underlying this exercise
are rather tedious, if simple conceptually, but they are important to carry
out to see if the appurtenances of the London stock market at that early
time, which we have described in very modern terms, really provided an
efficient, operationally sound market for international capital. Table 3.2
summarizes these results.
As we would expect, the Bank of England's beta coefficient is well
below 1, indeed below 0.5, for the first period. As a less volatile stock, its
return can be expected to move less than proportionately with that of the
market as a whole. This is consistently so for the Million Bank (Table 3.2).
The beta is a very low 0.56 for the first period, during which it switches
from being a closed-end to being an open-end mutual fund in government
perpetual annuities. For the last two periods the beta sinks to 0.4, but from
Table 3.1 we observe that its volatility is also substantially less than that for
the market as a whole for those periods. The period 1698-1708 was
dominated by the disputes between the two East India Companies. Their
beta coefficients, by contrast to the two banks, are well above 1, as should
be expected given the added risk each bore until they were consolidated in
1709. The so-called Additional Shares, issued as part of the transition to
the final merger date, have lower beta coefficients than do the shares of
either company. But one might expect this, because they are the outcomes
of a negotiated settlement between the two companies and were systemat-
ically retired as the final merger date drew near in 1709. The beta coeffi-
cients for the Royal African Company in the first two periods seem too
low. Subject to repeated attempts at bankruptcy settlements, which kept
failing for want of clear legal precedence or act of Parliament, it should
have had a beta coefficient higher than any other stock, instead of being
close to 1. But the coefficient of determination (R2) for the regressions in
those periods is also very low; so not much confidence can be placed in the
estimate. The beta coefficient of 1.51 for the last period, when it was in the
process of being dissolved, seems more reasonable, but still it is unreliably
estimated.
To summarize these indicators of market behavior, companies that were
6o The rise of financial capitalism
TABLE 3.2
Estimated beta coefficients for London stocks,
1698-1708, 1709-19, 1724-34
1698 -1708 1709 - 19 1724 - 34

Bank of England
R2 0.499 0.645 0.747
No. of observations 131 131 131
Constant 0.005 -0.007 0.002
Beta coefficient 0.47 0.73 0.74
Standard error of beta 0.04 0.04 0.05
East India Company (Old)
R2 0.607
No. of observations 131
Constant 0.001
Beta coefficient 1.56
Standard error of beta 0.11
East India Company (New)
R2 0.630
Constant -0.001
Royal African Company
R2 0.262 0.060 0.031
Constant -0.008 -0.015 -0.009
Million Bank
R2 0.303 0.275 0.350
Constant -0.000 0.001 0.002
East India Company (United)

R2 0.668 0.729
No. of observations 129 131
Constant -0.006 0.000
Beta coefficient 0.81 1.28
Standard error of beta 0.05 0.07
Royal Exchange Assurance

R2 0.366
Constant 0.007
subject to nonmarket forces arising from negotiated settlements or pro-

tracted disputes, as would be expected, did not correlate well at all with the
market rate of return. But for companies that did correlate well, their beta
coefficients lie within a typical range and reflect a reasonable risk/return
trade-off - stocks that fluctuated more usually had higher rates of return
than those that fluctuated less. Moreover, these relationships held up con-
sistently over the three decades of start-up, speculative boom, and reorgan-
ization.
4. The Banque Royale and the South Sea
Company: how the bubbles began
We are now to enter upon the year 1720; a year remarkable beyond any
other which can be pitched upon by historians for extraordinary and
romantic projects, proposals, and undertakings, both private and na-
tional; . . . and which, . . . ought to be had in perpetual remembrance,
not only as being what never had its parallel, nor, it is to be hoped, ever
will hereafter; but, likewise, as it may serve for a perpetual memento to
the legislators and ministers . . . never to leave it in the power of any,
hereafter, to hoodwink mankind into so shameful and baneful an imposi-
tion on the credulity of the people, thereby diverted from their lawful
industry.
Adam Anderson, Origin of Commerce, Vol. 3, pp. 91-2.
The Mississippi Bubble in France, the South Sea Bubble in England, and
similar bubbles in Holland and Germany during the years 1719 and 1720
were parts of the first international stock market speculative boom and bust
in capitalist Europe. The legacy of those episodes was substantial. The
Bubble Act of 1720 in England limited the use of joint-stock corporations
until well into the nineteenth century, and the French collective memory of
John Law and his Banque Royale meant that "there was hesitation even in
pronouncing the word 'bank' for 150 years thereafter,"1 and, of course,
they gave us the word "bubble" for describing purely speculative move-
ments in asset prices. It is useful to present and analyze as clearly as
possible these classic bubbles, useful not only for better understanding the
economic history of the eighteenth century but also for grasping its signifi-
cance for economic theory. It is intrinsically interesting for economic theo-
ry to observe the activities on capital markets when they were in a rela-
tively pristine state.
The task of quantitative analysis and theoretical understanding is greatly
aided by using the data set developed here for the London capital market.
It is unfortunate that nothing comparable has yet been found for France or
1
Charles P. Kindleberger, A Financial History of Western Europe (London: George Allen &
Unwin, 1984), p. 98.
62
How the bubbles began 63
the Netherlands. Financial initiatives in both countries help explain the

peculiar course of the South Sea Bubble in England throughout its dura-
tion. Moreover, the repercussions of the South Sea Bubble for those two
countries were, if anything, more important for European economic history
than were the bubble's effects within England. France had the largest
domestic economy in Europe, and the Netherlands dominated the overseas
enterprises of Europe. Despite the absence of a data source for either of
these two mercantile and financial powers comparable to Castaing's Course
of the Exchange, there do exist data resources for them that modern eco-
nomic historians have just begun to exploit. Moreover, much more can
be inferred about events in France and Holland from the data available in
England.
The bubbles in France, in England, and then later in the Netherlands and
Portugal that occurred in the years 1719-21 were part of the same histor-
ical process. The governments in all those cases were in the beginning
stages of political modernization, with more limited monarchies and more
powerful parliaments, but at the same time financially encumbered with
antiquated tax systems and debt instruments. Political advantages were
readily apparent to whichever party could tap directly into the financial
markets and foreign trade opportunities emerging for northwestern Europe.
The boldest initiatives were taken, as might be expected, by France, the
most backward of the mercantile states. The greatest long-run success was
enjoyed, as might also be expected, by England, the best endowed of the
mercantile states in terms of both financial markets and foreign markets.
In this chapter, explicit linkages are drawn between the two major stock
market crises of 1719-20 and the aftershocks in Amsterdam and Hamburg,
using semiweekly exchange-rate data that were published regularly
throughout that period. These have never been used before to analyze
either the dynamics of the two major bubbles or the linkages between
them. Though there has been extensive study of the two bubbles indi-
vidually, there has been little investigation of the links between them,
much less the links with the later bubbles in the Netherlands.2 So the data
2
William R. Scott, The Constitution and Finance of English, Scottish, and Irish Joint-Stock
Companies to 1720, 3 vols. (Cambridge University Press, 1910), Vol. 3, pp. 288-362, and
John Carswell, The South Sea Bubble (London: Cresset Press, i960), cited subjective
statements about the movement of the speculation in Europe. Charles Kindleberger, Mani-
as, Panics and Crashes (New York: Basic Books, 1978), mentioned briefly a transmission
of the speculative mania. T. S. Ashton, Economic Fluctuations in England, iyoo-1800
(Oxford: Clarendon Press, 1959), took a short but close look at the transfer of capital
between London and Paris and Amsterdam and the resulting effects on English exchange
we present in the various charts from both Paris and London provide a
unique overview of each stock market bubble and the direct linkages be-
tween them. 3 The statistical analysis to be presented regarding the daily
price data from the Mississippi and South Sea cases also represents the first
empirical effort at characterizing the course of these bubbles in terms of the
events in the foreign exchanges.4
Using quotations from the Course of the Exchange for information on
exchange rates, gold and silver prices, and stock prices on the London
market, we can chart the progress of this first pan-European stock mania.
The stock prices are daily for the six trading days in London, whereas the
exchange rates and gold and silver prices occur as twice-weekly quotes
rates. Adam Anderson, a clerk for the South Sea Company during the bubble, wrote his
account much later in the century. He mentioned the presence of foreigners in both Paris
and London during the height of each bubble, but he drew only parallels between the two,
making no explicit links: Adam Anderson, An Historical and Chronological Deduction of
the Origin of Commerce, from the earliest accounts, 4 vols. (London, 1764, continued to
1788 by William Combe and published for the last time in 1801; reprinted New York:
Augustus M. Kelley, 1967), Vol. 3, pp. 79-126. John Law explicitly compared the two
episodes in 1721, drawing conclusions very much to his favor, but he never addressed the
issue of direct financial linkages between them: Paul Harsin, ed., John Law: Oeuvres
completes, 3 vols. (Paris: Sirey, 1934), Vol. 3, pp. 198-235. Herbert Luethy, La Haute
Banque Protestante en France de la Revocation de I'Edit de Nantes a la Revolution. Vol. 2:
De la Banque aux Finances," (Paris: SEVPEN, 1961), discussed the role of Geneva
investors in both bubbles. Andre Sayous, "Les Repercussions de 1'affaire de Law et du
South Sea Bubble dans les Provinces Unies," Bijdragen voor vaderlandsche Geschiednenis
en Oudheidkunde, 8:2(1940), pp. 57-86, described the role of Dutch investors in each and
the effects of the bubbles on the Netherlands. F. P. Groeneveld, Economische Crisis van het
jaar 1720 (Groningen: Noordhof, 1940), and Charles Wilson, Anglo-Dutch Commerce and
Finance in the Eighteenth Century (Cambridge University Press, 1941) detailed the role of
Dutch investors in English funds during this period and after. P. G. M. Dickson, The
Financial Revolution in England: A Study in the Development of Public Credit, 1688—1756
(London: Macmillan, 1967), did the most thorough job of making the links, but he relied on
contemporary newspaper reports of bullion shipments and exchange-rate movements for his
quantitative data. Though he reproduced fortnightly prices of stocks from Castaing (p.
139), the only exchange rate he gave was that on Amsterdam.
3
This chapter is based on an unpublished paper by Larry Neal and Eric Schubert, "The First
Rational Bubbles: A New Look at the Mississippi and South Sea Schemes," Urbana, IL,
1985. The exchange-rate movements during the Mississippi and South Sea bubbles were
analyzed in detail by Eric Schubert: "The Ties That Bound: Eighteenth Century Market
Behavior in Foreign Exchange, International Goods, and Financial Assets," unpublished
Ph.D. dissertation, University of Illinois, Urbana-Champaign, 1986.
4
teenth Century," unpublished Ph.D. dissertation, University of Chicago, 1974, analyzed
daily movements of stock prices on the London Stock Exchange in terms of weak tests of
market efficiency during the South Sea Bubble, but ignored the foreign exchanges or
questions of rational bubbles.
How the bubbles began
120
110 - -110
100 -
90 - - 90
80-
70- - 70
60-
50- - 50
Amsterdam/London
40 - (schellingen banco/pound)
30 - - 30
o o Paris/Amst
20 - (denier/groot)
000000 000 00 0000 o
10 I I I I i I I I I 10
Jan 19 Apr 19 J u l 19 Oct 19 Jan 20 Apr 20 J u l 20 Oct 20 Jan 21
Figure 4.1. Paris exchange rates on Amsterdam and London, 1719-20.
(Tuesday and Friday) in the Course of the Exchange. We begin our cover-
age with January 1719, four months before the Mississippi Bubble started,
and end it after December 1720, when the South Sea and Amsterdam
bubbles had collapsed. Because the dates in the Course of the Exchange
were quoted from the Old Style (O.S.) or Julian calendar, all dates listed in
this book will be based on that calendar, even though both Amsterdam and
Paris were using the New Style (N.S.) or Gregorian calendar.
Shown in Figures 4.1-4.3 are four exchange rates (three from London
and one from Paris) and the price of gold. The exchange rates are as
follows: the London-on-Paris exchange rate, which was given in pence
sterling per French ecu or crown (equal to three livres tournois), but is
converted here to be French deniers per English pence; the London-on-
Amsterdam rate, in schellingen banco per pound sterling; the Paris-on-
Amsterdam rate, measured in schellingen banco per French ecu; and the
London-on-Hamburg rate, in schillingen banco per pound sterling. Unless
otherwise stated, these are two-month usance rates. Although each ex-
change-rate series has its peculiarities, all show periods of sustained rises
or falls, and all are marked by occasional "blips" (a sudden rise or fall
followed quickly by a reversal). A sudden appreciation of a particular
40
39-
- 38
Amsterdam
37- schellingen banco/pound
- 36
35-
- 34
Hamburg
33- Flemish shillings/pound
- 32
31-
1 1 1 1 1 1 1 1 r—1- 30
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
Figure 4.2. London exchange rates on Amsterdam and Hamburg, 1719-20.
4.16
4.12 - 4.12
Aug 2
4.08- 4.08
-4.04
•~ 4.00 - 4.00
3.96
-3.92
July 1 Oct 7-21

-3.88
3.84
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21
Figure 4.3. Price of gold in bars, London, 1719-20.

currency, followed by a full depreciation back to the normal exchange rate,

usually signaled a scramble for liquidity in the country of that currency.
Because short-term liquid assets were few, the scramble would focus on
existing bills of exchange. That is to say, for any movement from one
capital asset to another in any of the European countries at that time, bills
of foreign exchange were the dominant devices used to make the transfer,
rather than, say, specie, gems, or trade goods. As soon as letters from the
country scrambling for liquidity had reached the merchant correspondents
abroad and fresh bills had been authorized, the exchange rate would revert
to its equilibrium level (which might, of course, not be the previous level,
given the currency and credit manipulations of that period). Thanks to the
sedate pace of business correspondence relative to the posting of exchange
rates semi weekly at the Royal Exchange in London, the time series for
each currency for that period show characteristic "signatures" when capital
market disturbances occurred.
This may be called the "Ashton effect," because T. S. Ashton described
it in detail as one of the statistical indicators of financial crises in the
eighteenth century.5 Whereas one sign of an impending crisis often was an
adverse movement in the foreign exchanges, a sure sign of an actual
scramble for liquidity was a sudden, short-lived appreciation in a country's
currency. Ashton noted that the same thing occurred in the summer of
1914, when, briefly, there appeared to be a flight from the dollar to the
pound, when in reality the outbreak of World War I had caused a sudden
liquidity crisis in London. A depreciation in a currency's rate following the
Ashton effect may overshoot the previous rate, in which case it indicates a
capital outflow. The overshooting of the exchange rate may be called a
"Kindleberger effect," because it indicates a transmission of the liquidity
scramble in the first country to its closest trading partners. When the
Kindleberger effect is confined to particular currencies, it enables us, in
combination with the Ashton effect, to state where foreign capital flows are
going and from whence they are coming at the end of any particular
speculative episode. Kindleberger placed special emphasis on the de-
stabilizing consequences of speculative capital movements from one finan-
cial center to another and illustrated his argument with historical episodes
dating from the 1719-20 bubbles through the late 1970s.6
Examining the London-Paris series in Figure 4.1, we first note a small
5
Ashton, Economic Fluctuations, p. 113. Ashton gave credit, however, to Jacob Viner for
the explanation of this nonintuitive result.
6
Kindleberger, Manias, gave the best exegesis of his argument in the historical perspective.
blip in the spring of 1719. This is easily overlooked, given the violent
fluctuations to come, but it is interesting that this coincides with the start of
Law's system in May 1719, with the formation of the Compagnie des
Indes, the general trading monopoly company for France, on the basis of
Law's existing Compagnie d'Occident. The historical literature suggests
that money left London and Amsterdam for Paris in the late summer of
1719. Scott wrote that "Paris became the Mecca of speculators of Eu-
rope." 7 Cars well cited a report that 30,000 foreign speculators had entered
Paris in the fall of 1719.8 The graph of the London-Paris exchange rate
shows a slight appreciation of the livre in mid-August, but the increase was
small relative to the "background noise" of the previous two months. In
September, at the height of the capital flow to Paris, the exchange rate
actually depreciated!
The answer to the apparent paradox is that Law fostered the boom
through a systematic money inflation (Table 4.1). The Paris exchange rate
started to depreciate in late October 1719, and that continued to March
1720, when a brief period of stability began before the final burst of paper
inflation. That depreciation was due to a slowing down and reversal of the
capital inflow, along with the continued increase in the issue of bank notes
and debasement of the livre by Law. In late November and early December
1719 the pound appreciated sharply with respect to the guilder and the
livre. Because of the suddenness of the movements and the sharp drop in
the price of French stock, we infer that a fair number of speculators took
their profits and departed for England. Scott estimated that 500 million
livres in bullion had been carried out in late 1719.9 When the share quota-
tions for the Compagnie des Indes had reached Law's target level of 10,000
livres (a 20-fold increase) in the middle of November (O.S.), the issuance
during the next week of 30 million livres worth of new shares stabilized the
price. 10 At the end of that week, stock market speculators left Paris for
London.
7
8
Carswell, The South Sea Bubble, p. 101.
9
10
Edgar Faure, Le Banqueroute de Law (Paris: Gallimard, 1977), p. 269, said there were 30
million new shares (titres) issued, but that would imply nearly 300 billion livres worth.
His source, Paul Harsin, ed., Dutot: Reflexions politiques sur les finance et le commerce,
2 vols. (Paris: Les Belles Lettres, 1935), Vol. 2, pp. 257-8, on the other hand, said only
"30 millions," without specifying titres or livres. Dutot's summary of the total value of
Compagnie des Indes stock at the end of November, however, was only 4.782 billion
livres. The number of new shares issued in mid-November, therefore, must have been only
3,000, with approximate market value of 30 million livres.
TABLE 4.1
Issues of notes by Banque Royale from December 1718 to April 1720
(millions of livres)
Date of commission Notes added Total note issue
25 December 1718 18 18
31 January 1719 20 38
21 March 1719 21 59
11 April 1719 51 110
30 May 1719 50 160
14 July 1719 221 381
1 September 1719 120 501
13 October 1719 120 621
18 December 1719 360 981
26 January 1720 200 1,181
15 March 1720 300 1,481
25 March 1720 437 2,195
20 April 1720 362 2,557
Note: At the start of this period there was an estimated 1 billion livres in specie in the country,
and 148 million livres in Banque Generate notes outstanding.
Source: Paul Harsin, Doctrines Monetaires et Financieres en France du XVIe au XVIIIe Siecle
(Paris: Libraire Felix Alcan, 1928).
Another exit of speculators' capital from Paris occurred in early Febru-

ary. On 12 February 1720, Law halted all dealings in France in stock,
foreign exchange, and bank notes in an attempt to combat inflation and
speculation. The price of Mississippi shares plummeted. At the same time,
the English Parliament approved the South Sea Company's proposal for
funding a large part of the national debt. So money left France and headed
for England.
Popular pressure forced Law to reopen the Paris stock market on 23
February, with the purchase and sale of unlimited quantities of shares
priced at 9,000 livres, and to reopen the offices where the paper currency,
billets de banque, could be converted to silver. That restored the stock
market boom, but speculation then took place in the billets de banque. The
reaction of the Paris-London exchange rate at first was a case of the
Ashton effect. Because speculators could not convert their shares of Mis-
sissippi stock directly into specie, but only into depreciating paper curren-
cy on the French market, the uncertainty of the situation led to an apprecia-
tion of the livre as holders of English bills of exchange on Paris sold their
assets at a discount. Once the stock market in Paris reopened, the livre
depreciated sharply, signaling the exodus of speculators.
jo The rise of financial capitalism
The stock market gyrations continued in France with mostly domestic

speculators until the middle of May 1720. On 10 May, in a fit of despera-
tion, Law announced a deflationary decree, again in an attempt to save his
system. Convertibility of bank notes to specie was to end. The official
price of shares of the Compagnie des Indes was dropped to 8,000 livres,
with a target price of 5,000 livres by 1 December. In response, the French
exchange rate moved as it had in February, with an initial appreciation,
followed by a sharp depreciation. However, the graph overstates the appre-
ciation of the livre, because the quotes in London from 13 May through 20
May were "at sight" instead of the customary usance of two months.
Therefore, they incorporated the sight premium as well as any appreciation
during that week. Afterward, the quotes were again at usance, but the
Kindleberger effect, or overshooting of the previous level for the exchange
rate, shows up clearly nonetheless. Whether the remaining speculators,
French and/or foreigners, took their money from France and put it in
England for more profits or whether the French nobility took their specie to
safer quarters, this depreciation signaled a capital outflow.
From the deflationary decree in May (which Law lifted a week later,
again under public pressure) onward, currency debasements and increased
bank-note issues resulted in a continued depreciation of the livre. The
bankruptcy of 6 July (O.S.) of the Banque Royale shifted speculation in
France from shares in the Compagnie des Indes to billets de banque, which
declined in value until the exchange market in France closed in September
1720. The sharp appreciation of the livre in late September was the result
of more traditional bankers regaining power and causing a repatriation of
gold into France.
Turning to Figure 4.2 and the London-Hamburg and London-Amster-
dam exchange rates, we can pick out the repercussions of the French
speculative movements as the relative importance of London and Amster-
dam shifted either as sources for capital inflows to France or as destinations
for capital outflows from France. Cars well linked the speculative fever of
the Mississippi and South Sea bubbles only in the late spring of 1720:
Buying orders for South Sea stock poured into London from Holland, 200,000
pistoles arriving in one consignment from Amsterdam towards the end of April.11
And to London that spring were coming a great many of those who, only a few
months before, had been crowding the rue Quincampoix [French stock market].12
11
Carswell, The South Sea Bubble, pp. 147-8.
12
Ibid., p. 143.
Looking at the London-Amsterdam exchange rate (Figure 4.2) and the

graph of South Sea stock prices (Figure 4.5), however, we can see an influx
of foreign speculators into England in March. Both the price of South Sea
shares and the English pound appreciated throughout the spring of 1720.
By the first half of May, both South Sea stock and the London-Amsterdam
and London-Hamburg exchange rates leveled off. That was the lull before
the next storm, however. On 20 May the South Sea Company announced
more conversions of the government debt, both long-term and short-term
annuities, at £375, and granted loans to aid buyers of additional stock. The
pound appreciated sharply as foreigners entered the market. After those
large capital inflows in the spring of 1720, the pound began to depreciate in
the summer. That signaled a reversal of the capital flow, first to Amster-
dam, then to Hamburg. Cars well stated that "Amsterdam [in] June and
July saw a crop of native promotions. . . . Others were on the way to
Hamburg, where the Exchange was crowded from morning to night." 13
One can explain the sharp fluctuations that highlight this June-July
depreciation of the pound as temporary slowings in the capital outflow.
Two events in the story of the South Sea Bubble seem to be responsible.
The first sharp rise came as the result of another group of subscriptions of
South Sea stock sold between 16 June and 22 June. The company offered
£5 million in stock at £1,000 per £100 share. This issue pumped £4.75
million into the market, running the total to £11.4 million since April. The
second rise, found for early July, was not associated with an issuance of
stock, but may have been due to the French connection. The price of South
Sea stock was hovering around £850 or more and had not yet begun its
final plummet. Whereas the bankruptcy of the Banque Roy ale on 6 July
(O.S.) in France caused both the pound and the guilder to appreciate
relative to the livre, it appears that flight capital from France headed more
toward London than toward Amsterdam.
The timing of the capital flows to Amsterdam and Hamburg are illus-
trated by the convergence of the London-Amsterdam and London-Ham-
burg rates for June. The pound depreciated relative to the Dutch schel-
lingen banco, but the pound fluctuated around the pre-bubble level relative
to the German schillingen banco. This implies a capital outflow directed
toward Amsterdam. For July, the spread between the rates widened as the
pound depreciated relative to the schillingen banco, signaling a capital
flow increasingly headed toward Hamburg.
13
Ibid., pp. 164-5.
The sharp rise and fall in Amsterdam and Hamburg rates in mid-August
reflected the Ashton effect, signaling the financial panic that had begun.
We shall take up in greater detail in Chapter 5 the exact circumstances that
caused this panic that marked the end of the South Sea Bubble. Our
interpretation differs from the traditional accounts only in terms of the
underlying source of the panic, not in regard to its timing. The price of
South Sea stock dropped sharply from the last half of August through the
middle of October. On 24 September the Sword Blade Company (the bank
for the South Sea Company) suspended payments, which intensified the
scramble for cash in London's tight money market.
A brief respite came in mid-October as the pound appreciated sharply
and gold prices plummeted. Those movements reflected the collapse of the
Dutch boom in October and the arrival of 100,000 guineas in gold from
Holland at that time. 14 That easing was short-lived. The English financial
system faltered and remained precariously weak for the last three months
of the year. As can be seen in the London-Amsterdam exchange rate
(Figure 4.2) and the London gold price (Figure 4.3), a depreciated pound
and high gold prices indicated sharp depreciations in bills of exchange and
bank notes, respectively. A substantial widening between sight and usance
exchange rates on Amsterdam, over 10 times higher in October 1720 than
in 1723, indicated that interest rates in the international money market
were very high. The major cause of this was the resumption of a gold
standard in France after the fall and expulsion of John Law.
This brief history of the effects of the English South Sea Bubble on the
London exchange rates shows clearly that the influence of Law's system in
France was paramount at all stages - beginning, speculative boom, in-
creasing liquidity crunch, and final collapse, as well as the protracted
period required for recovery. The summary of the system that follows relies
essentially on the data and analysis presented by Faure. Faure's study, in
turn, drew heavily on the previous work by Harsin, but supplemented it
with important new data on the share prices of the Compagnie des Indes,
exchange rates in Paris on both Amsterdam and London, and the market
values of bank notes issued by the Banque Royale.15 These data are incor-
porated into Figure 4.4 and Table 4.1. Those studies, however, emphasized
the singularity of the French experience, rather than its linkages to the
14
15
Faure, Le Banqueroute de Law, added his own delightful appraisal of the high politics of
the era, as acted out by principals possessing an amazing variety of sexual idiosyncrasies!
2000 n 1 2000
1800 - Filles
1600 - -1600
£ 1400 -
1200 - -1200
s
1000 - Meres / V -
"" /" '" Petites-filles

B 0 0 _i - 800
600 -
400 - - 400
200
Aug 1719 Sep 1719 Oct 1719 Nov 1719 Dec 1719
Figure 4.4. Mississippi Bubble, Compagnie des Indes shares.
British experience, which we emphasized earlier. The role of foreigners in

their accounts was to come to Paris and marvel, rather than to transmit
French economic disturbances elsewhere.
After a large-scale cancellation of government debt at the beginning of
the regency of Louis XV, the crown still found it impossible to pay interest
on the remaining debt, already discounted 75%. Desperate for solutions,
the regent, the duke of Orleans, fell under the sway of the brilliant Scottish
financier John Law. In May 1716, Law founded the Banque Generate, the
success of which laid the basis for the greater enterprises to come. In
August 1717, Law formed the Compagnie d'Occident, which, like the
South Sea Company in its original charter of 1711, took over some of the
national debt for special overseas trading privileges. Citizens and for-
eigners could exchange their holdings of government debt for stock in the
company. The original nominal capital, par value 500 livres per share, was
100 million livres. The initial market value of the stock was below par at
300 livres. In December 1718, Law converted the Banque Generate into
the Banque Royale, whose notes, denominated either in gold ecus or in
silver livres, then became the medium for tax payments. In May, the louis
d'or was devalued relative to the livre, so that the billets-livre became the
preferred form of money for the public to hold. Also, in May 1719, the
Compagnie d'Occident was expanded to include the monopoly of trade

with India and China and was renamed the Compagnie des Indes, with a
new issue of 50,000 shares. In the summer of 1719, Law put the remaining
elements of the system into place, acquiring the right for the company to
mint coins and assuming the farming of the indirect taxes.
The decrees of 16-20 August 1719 (O.S.) completed the formation of
the system with a bold step toward fiscal reform: the suppression and
reimbursement of the rentes and many of the offices that had been sold in
the previous two decades in order to raise money. The reimbursement took
place in billets de banque at the offices of the company, which had to offer
to the reimbursees as well as all other holders of existing government debt
either bearer shares in the company with 4% annual dividends or contrats
de constitution de rente, which carried a fixed return of 3%, the same
reduced rate the government paid the company on the debt it held. Luethy
considered that the fatal flaw in the system, because the reimbursements
required large new issues of paper money.16 Faure, on the other hand,
believed that the reimbursees would have used their billets de banque to
purchase one or the other of the company's obligations to avoid further
depreciation of their assets. Based on the increased revenues projected
from the tax farm on indirect taxes that had been given to the company for
the next seven years, as well as revenues from the monopoly of the mint,
these obligations, actions rentieres, could have been very attractive, blue-
chip investments. In effect, the elimination of direct taxes, offices, and the
rentes could have been funded into the permanent capital stock of the
company.17 As it was, Law proceeded to his plan fou with three successive
new issues of capital stock (the fourth, fifth, and six issues) in the company
on 2, 17, and 21 September 1719 (O.S.).
These shares were issued at a face value of 5,000 livres each, with a
promised dividend of 4%. Because the first three issues of shares had had
face values of 500, 550, and 1,000 livres, the possessors of these meres,
filles, and petites-filles, as they were popularly called, profited from enor-
mous capital gains. Those who already held government debt, however,
were not accorded any priority in purchasing these new shares, but were
forced to buy them at existing market value. This meant that they had to
hope for further capital gains on their shares in the company if they were to
offset some of the losses they had already suffered on government debts.
16
Luethy, La Haute Banque, Vol. 2, p. 317.
17
Faure, Le Banqueroute de Law, pp. 225-8.
The third step in Law's plan was to raise the market value of the shares to
10,000 livres - this in order to reduce the effective rate of interest to 2%. 18
To facilitate speculation, or, in his view, to mobilize the necessary cap-
ital, Law took the following steps:
1. He divided shares into fractions small enough so that modest investors would be
able to purchase them.
2. He provided for installment payments, 10% per month, and further provided
that the first two months could be deferred to the third. That meant that De-
cember and March were the months of reckoning.
3. He provided loans from the Banque Royale on the security of shares, even if
only partially paid for.
To stabilize the price of Compagnie d'Occident stock after it had reached
the desired level of 10,000 livres, Law took these additional steps:
4. Starting on 19 December (O.S.), he opened an office for the purchase and sale
of shares in the company.
5. He later fixed the price of each share at 9,000 livres.19
All these steps can be seen as establishing the rules for a game whose
object was to increase the price of shares of the Compagnie des Indes to
10,000 livres, later reduced in light of international pressures to 9,000
livres.
Law, in other words, manufactured the conditions necessary for a price
bubble to occur in the stock of the Compagnie des Indes by encouraging
foreign investors, mainly from England and Holland, as well as wealthy
Frenchmen, to buy in while the price was being forced up. At the top of the
bubble, when the price per share had reached his target level of 10,000
livres, the challenge to Law was to lock-in the foreigners or to offset their
exit from the Paris market by bringing in a broader range of French partici-
pants. In other words, Law was creating the conditions necessary for a
short-lived "rational bubble." This is defined in the current economics
literature as a continuing rise in the price of an asset that is generated by
market participants anticipating that rises in its price will continue to occur.
By their actions, they make these anticipations self-fulfilling, at least for a
limited period. The process must end, usually quickly, and when it does the
price must return to the underlying fundamental level determined by long-
run determinants of supply and demand. The challenge that Law posed for
18
Ibid., pp. 232-3. Faure cited a number of Law's writings from 1715 to 1724 in which he
repeated this sacrosanct number of 2%.
19
Ibid., pp. 233-4.
himself, and for the French state, was to sustain the high price of Com-
pagnie des Indes stock at the top of the bubble so that the French economy
might benefit from a higher degree of monetization and a lower long-term
rate of interest. He failed that challenge - a result considered inevitable by
Richard Cantillon and his cosmopolitan clients.20
The appendix to this chapter provides some statistical tests to determine
if the price of Mississippi stock in the fall of 1719 followed a pattern
consistent with such a "rational bubble." The statistical results are mixed,
one set indicating that Law had generated a complex form of such a
rational bubble if only for the three months from mid-August to mid-
November 1719, the other indicating that he was exercising the enormous
power he possessed at that time (efiFectively controlling singlehandedly the
fiscal, monetary, and exchange-rate policies of the largest economy in
Europe) to shift market fundamentals in an unpredictable way.
These statistical results are not really surprising from a historical view-
point. The system of John Law contained such a great mixture of elements
and controlled directly so many of the conceivable policy variables that it
has remained a fascinating question whether or not it could have worked,
either in part or with some minor modification. Faure distinguished two
parts to it - le plan sage and le planfou - and argued that the "wise plan"
could have worked very well if left on its own, but the "mad plan" that
ensued prevented that. These two "plans" correspond, perhaps, to the
"rational" and "irrational" bubbles discussed in finance literature today.
Irrational bubbles are those in which the relationship of an asset to its
market fundamental simply breaks down because of overzealous trading or
an unrealistic appraisal of the value of the stock. Kindleberger espouses
this view of market bubbles. In this scenario, a shock to the economic
system changes the perceived profitability of a particular enterprise. When
that is coupled with easy credit, a boom ensues. Speculation spreads to
sectors of society whose members normally avoid playing the market.
These new entrants have little knowledge of the market and thus add an
element of irrationality into it. Kindleberger's analysis suggests a mania
that spreads from the market for the original asset to other assets - shares
in all sorts of joint-stock companies, real estate, and a madcap variety of
alternative assets. The South Sea Bubble fits his analysis as if tailor-made,
especially if we rely solely on the analysis of Adam Anderson, who listed
20
See Antoin E. Murphy, Richard Cantillon, Entrepreneur and Economist (Oxford: Claren-
don Press, 1986), chap. 5-8.
all the frivolous schemes that arose during the height of the speculation on
South Sea stock.
The motivation for the South Sea scheme was essentially the same as for
the Mississippi Bubble: to refinance the immense debts accumulated by the
government during the War of the Spanish Succession.21 And the mechan-
ics of the two schemes were very similar. In exchange for their annuities,
holders of the existing government debt were offered new South Sea Com-
pany stock that promised capital gains. Two-thirds of the annuity owners
made the exchange, in response to increasingly attractive terms offered by
the directors of the South Sea Company. W. R. Scott, in his classic analy-
sis, divided these directors into two groups: (1) an inner ring of prime
movers privy to most of the details of each successive stage of the scheme
and (2) the remainder of the directors, who probably were not. This creates
the two classes of traders needed for a rational bubble to arise.
The operations consisted of four new issues of stock that were made on
14 April, 29 April, 17 June, and 24 August 1720 (O.S.). These could be
purchased for one-fifth down (first and fourth issues) or one-tenth down
(second and third issues), with the balance due in equal installments spread
over 16 months (first issue), 32 months (second issue), 54 months (third
issue), or 36 months (fourth issue). For the last two issues, loans could be
obtained from the South Sea Company itself for the market value of the
South Sea shares held by a purchaser.22 According to Dickson, the rise in
price of the shares occurred in three spurts: the second half of March, the
second half of May, and during June. He argues that the first was due
primarily to foreign speculation shifting from Paris to London, the second
was due to increased participation by Dutch investors and the beginning of
loans by directors of the company on security of South Sea stock, and the
third was due to an immense increase in loans on stock, on subscription
receipts, and even on subscriptions made verbally.23
The conclusion from our statistical tests, described fully in the appendix,
is that a rational bubble in South Sea stock occurred, but only during the
period 23 February through 15 June, precisely the period identified by
Dickson as the interval when foreign participation was most active. In the
periods before the entry of foreigners and after their exit, a rational bubble
21
Dickson, The Financial Revolution in England, pp. 9 1 - 2 . Cf. Earl J. Hamilton, "Origin
and Growth of the National Debt in Western Europe," American Economic Review,
37(May 1947), pp. 1 1 8 - 3 0 .
22
Dickson, The Financial Revolution in England, pp. 1 2 3 - 5 .
23
Ibid., pp. 1 4 0 - 3 .
does not appear, nor, using the same statistical techniques, do we find a
rational bubble in the price of shares of either the Bank of England or the
East India Company at any time, despite the sympathetic rise and fall in
their prices during the South Sea Bubble.
In deciding which periods to examine for evidence of rational bubbles,
we have used the movements in the foreign exchange rates when there were
sudden rises and relapses to mark the entry and exit of outsiders - their
exchange-rate signatures. Although the "outsider" category can be further
distinguished between "speculators" and "suckers," implicitly we usually
put foreign outsiders into the speculator group and domestic outsiders into
the sucker group. In fact, of course, foreigners and natives could be either
speculators or suckers, and as the earlier discussion of the Ashton effect
demonstrated, both foreign and domestic speculators would have found it
most convenient to enter and exit the capital markets of the eighteenth
century through the medium of foreign bills of exchange.
The dominant foreigners mentioned at the time in both bubbles were the
Dutch, and contemporary accounts credited them with being extraor-
dinarily shrewd in picking their moments to enter and to leave. In fact,
English and Irish investors played an important role in the Mississippi
Bubble. Luethy mentioned the case of Jean Lambert, a director of the
South Sea Company who came to Paris in August 1779 and who was
expelled by Law in March 1720 under the charge that he had remitted £20
million to London in order to break the French exchange rate. 24 French
investors were active in the South Sea episode. Luethy described the role
of the Oglethorpe family, members of which moved freely between Lon-
don and the New World and the Jacobite court in Paris. 25 Hamilton gave
details of the most amazing example of all: John Law's short sale of
£100,000 of East India stock in late summer 1719 at £180,000 for delivery
in August 1720. That had to be covered in the summer of 1720 by buying
East India stock at nearly double the agreed sale price. Law lost a fortune
in doing that, and his London banker failed by the end of 1720. And all this
arose, apparently, from a bet he made with Thomas Pitt in the summer of
1719 when he was initiating his system. The probable basis was to show
his assurance that his Compagnie d'Occident would cause the fortunes of
the British competitor to suffer.26
24
Luethy, La Haute Banque, Vol. 2, p. 291.
25
Ibid., pp. 2 9 4 - 5 .
26
Earl J. Hamilton, "John Law of Lauriston: Banker, Gamester, Merchant, Chief?" Ameri-
can Economic Review, 57(May 1967), pp. 2 7 5 - 6 .
The depreciation of the exchange rate of the pound on Amsterdam and

Hamburg in the summer of 1720 shows that speculators, whatever their
nationality, first took their money to Amsterdam in June and increasingly
headed toward Hamburg in July. Groeneveld dated the first joint-stock
company proposal in the Netherlands as 10 June 1720 (30 May O.S.).
Another scheme was presented in late July, and the remainder after 12
September (i.e., after the collapse of the South Sea Bubble). Although the
Dutch schemes followed as hard upon the English bubble as the South Sea
had followed the French, this does not mean that all the Dutch withdrew
their funds from abroad and invested at home. Groeneveld gave many
examples in the inventories of Amsterdam bankruptcies of holdings of
South Sea as well as other English securities.27 There are even orders dated
10 and 13 September 1720 (N.S.) from Portuguese Jews in Amsterdam,
reputedly the shrewdest speculators of all, authorizing Joseph Henriques,
Jr., in London to buy shares in the South Sea Company without limit. 28
Nevertheless, our evidence from the exchanges indicates that in September
and October 1720, the speculators went home to Amsterdam and Paris.
There was only one brief respite in the decline of the London exchange in
mid-October, apparently in response to an effort by the Bank of England to
draw on its debtors in Amsterdam.29
In sum, in all three episodes, French, English, and Dutch, our exchange-
rate data have confirmed the importance of international movements of
capital marked by Ashton-Kindleberger "signatures" in dating periods of
price explosion, stagnation, and collapse. The suspicions of Dickson and
Kindleberger that the bubbles were linked and that the stock mania was
international in scope appear to be verified by quantitative techniques,
although Kindleberger's argument that this was eventually irrational in the
sense of becoming a general mania is not fully supported. The bubbles
were serial, not compounding, as his argument would imply. A final note
of caution must be sounded. Although the individual bubbles may have had
significant periods of rationality, these did not coincide or even overlap.
Given the disarray evident in the exchange rates for all three financial
centers by the fall of 1720, it is clear that the immediate aftermath of the
bubbles was disruptive to the international flow of capital among the
European mercantile states, but it appears that the longer-run effects on
their domestic economies were minimal and even beneficial, because all
27
Groeneveld, Economische Crisis, pp. 79-80.
28
Ibid., pp. 124-5.
29
Dickson, The Financial Revolution in England, p. 151.
three countries enjoyed prosperity and expanding foreign trade for the next
15-20 years. More ironic is that the effects of these disruptions served to
anchor firmly the financial links that had arisen between Amsterdam and
London.
Appendix: Were the Mississippi and South Sea

bubbles rational?
The statistical tests of the rational-bubble arguments in this chapter were
performed using Faure's data for France and the Course of the Exchange
data for England. In both cases, we ask if the prices of the shares of the
Mississippi Company or the South Sea Company in fact followed a dis-
counted martingale30 during the period we believe outside speculators
entered and left using foreign exchange as their intervention asset. The
present value of the return above the market fundamental expected by
speculators willing to bet that observed price increases will continue can be
represented by the following difference equation:31
ct = [(1 + r)qt]ct_l + zt (with probability q)
ct = z t (with probability 1 — q)
E(z, I / , _ , ) = <>
where c is the return above the market fundamental, r is the period dis-
count, zt is the deviation of price from the market fundamental in the
absence of market rigging, and It is the information available at time t.
This model defines a rational bubble. The participants will see a capital
gain above the market fundamental in the next period if the bubble con-
tinues, or a return to zero expected speculative gain if the bubble bursts. If
speculators are certain that the price will rise, we can see that an explosive
process is under way. In each successive investment period, the price of the
speculative object will rise even further, in a geometric growth process,
above the fundamental price. But the longer the bubble lasts, the more
probable it is that even the most avid speculators must realize that q, the
probability of the bubble continuing, is falling. The speed with which q
30
A martingale is a repeated series of bets where the stakes are raised after each loss, so that
with a positive probability of winning on each bet, the gambler may eventually win. The
original term refers not to a bird, but to a piece of horse harness designed to keep the
horse's head down while running or pulling a load.
31
Oliver J. Blanchard and Mark W. Watson, "Bubbles, Rational Expectations, and Financial
Markets," in Paul Wachtel, ed., Crises in the Economic and Financial Structure (Lex-
ington, MA: Lexington Books, 1982), pp. 297-8.
Appendix: Were the bubbles rational? 81
falls determines in the empirical analysis the duration of the bubble, and
therefore its final height. So long as the parameter q does not fall too
rapidly, a so-called rational bubble can occur in the price of the underlying
asset. According to Tirole, a rational bubble with a finite horizon must
meet two further stipulations. First, expectations must be myopic; sequen-
tial traders look only at the expected trading options in this period and the
subsequent period, always believing they are not locked in for any longer
time. Law initiated, and the South Sea directors imitated, the practice of
paying for stock subscriptions in monthly installments, later changed to
quarterly installments. That had the desired effect of creating precisely this
kind of myopia by the first purchasers of the new stock issues. Second,
there must be several "generations" of traders entering the market.32 The
device of issuing several subscriptions of additional stock was an essential
element in the capital expansion of both the Compagnie des Indes and the
South Sea Company. That also created, as we noted on the foreign ex-
change graphs, successive "generations" of outside speculators. From the
theoretical viewpoint, then, sufficient conditions appear to have been in
place to warrant asking whether or not each episode was a rational bubble.
For the Mississippi Bubble, the effective period during which we might
find a rational bubble, or the "wise plan" in Faure's words, turns out to be
from mid-July 1719 to the end of November (N.S.). However, Faure's
daily price data do not begin until 1 August; so that determines the start of
our test period for the French episode. Our empirical exercise is to take the
first differences of the natural log transforms of the daily price quotes
available from Faure and then to search for a detectable time-series pattern
that is significantly different from "white noise" or a "random walk." This
is equivalent to a weak test for market efficiency in the sense of Fama.33
For purposes of claiming market efficiency, such searches for time-series
patterns should yield (o, o) autoregressive, moving-average (ARMA) mod-
els (i.e., there is only white noise or random, unpredictable movements in
the price changes). Formally,
d In Pt = o(d In Pt_ x) + o{et) + ut

so that each period's proportional change in price is just the random vari-
able ut with zero mean and a fixed variance and does not reflect the
32
Jean Tirole, "On the Possibility of Speculation Under Rational Expectations," Econo-
metrica, 50(September 1982), pp. 1170, 1175.
33
Eugene Fama, "Efficient Capital Markets: A Review of Theory and Empirical Work,"
Journal of Finance, 25(May 1970), pp. 3 8 3 - 4 2 3 .
previous period's proportional change in price, in which case it would be

autoregressive, or the deviation from the mean proportional change in price
(et), in which case it would be a moving average.
This is what we hope to find during periods before and after bubbles.
During the bubbles, however, we should find a predictable movement,
preferably described as an autoregressive movement with positive coeffi-
cients. Formally,
d In Pt = ax(d In Pt_ x) + o(et) + ut
This would be consistent with two or more classes of traders anticipating
further price increases with some probability greater than zero. It may also
be consistent with a steady growth process in market fundamentals, but
changes in market fundamentals during the brief periods we are analyzing
here are more likely to show up as moving-average processes. Formally,
d In Pt = o(d In Pt_ x) + bx(et__ x) + ut
A predictable pattern that is best described as a moving-average process,
then, may be consistent with a rational bubble, but it probably indicates
instead an innovation in market fundamentals.34
Table 4A. 1 summarizes the statistical results for the Mississippi Bubble.
Taking the period from 1 August through 29 November 1719 (N.S.) for
prices of the second subscription of shares of the Compagnie d'Occident
(the so-called/j/Zes), we find that the best-fitting ARM A model is a (5, o),
meaning that the log of the change in price had a statistically significant
dependence on the log of the change in price in each of the previous five
periods. This is with daily data, but ignoring gaps that occurred frequently,
not only regularly for each Sunday but also irregularly for religious and
state holidays. If missing values for the holidays are filled in either by
naive extrapolation from the last quoted price or by linear interpolation in
the logarithms of the prices before and after the holidays, then a (o, 2)
ARM A is selected. Checking for the best model on the run of prices from
20 November 1719 to 1 March 1720, we find it to be a (o, o), or a random
walk.
If we take the first results, ARM A (5, o), they may indicate that a
rational bubble with as many as five separate classes of traders was in
progress during the period of the significant price rise in the shares of the
Compagnie d'Occident and that an efficient market ruled until the system
34
Moving-average processes are generally found, for example, when ARM As are estimated
on data series with missing entries, entry errors, or outliers.
TABLE 4A.1
Estimated ARMA models for Compagnie des Indes stock
during the Mississippi Bubble
Time period Version I 1 Version 22 Version 3 3

(n=78) (n=103) (n=103)
1 August to
29 November 1719 (5,0) (0,2) (0,2)
1
All missing observations (each Sunday, plus all holidays) were omitted, giving a compressed
time series. This may be a valid representation if traders simply halted their expectations or if
no new information occurred on nontrading days.
2
The missing observations for holidays were interpolated naively by setting each equal to the
last observation.
3
The missing observations for holidays were interpolated linearly in logs.
began its collapse in the spring of 1720. This would conform with Faure's
judgment that "la folie de Law . . . est une folie raisonnee et raison-
nante." 35 If we prefer to take the (o, 2) ARM As, however, we find, when
some allowance is made for the missing observations during holidays, that
they indicate that Law's frequent interventions in the market to create the
rise in prices acted as erratic shifts in market fundamentals to which partici-
pants reacted at different speeds. This interpretation conforms better to the
more traditional analyses of Luethy and especially Levasseur.36
The same efficiency test used for the stock of Law's Compagnie d'Occi-
dent can be used for the major three English stocks - Bank of England,
East India Company, and South Sea Company - using the daily price data
from the Course of the Exchange (Figure 4.5). The results are listed in
Table 4A.2. The best models are found for each stock in each of five
separate subperiods that can be distinguished by exchange-rate move-
ments. The first is the pre-bubble period for England, but the height of the
Mississippi Bubble in France. Both the South Sea stock and the Bank of
England stock show evidence of disturbances, but East India stock does
not. The next period, 19 January to 5 April, continues to show nothing for
35
"Law's madness was a reasoned and reasoning madness." Faure, Le Banqueroute de Law,
P. 233.
36
E. Levasseur, Recherches Historiques sur le Systeme de Law (Paris: Guillaumin et Cie,
1854); Luethy, La Haute Banque.
- 150
100 I i i 100
Jan 19 Apr '19 Jul '19 Oct '19 Jan '20 Apr '20 Jul '20 Oct '20 Jan '21
Figure 4.5. London stock prices for Bank of England, East India Company, and
South Sea Company, 1719-20.
TABLE 4A.2
Estimated ARMA models for Bank of England, East India Company,
and South Sea Company during the South Sea Bubble1
Time Period BofE 2 EIC SSC3
4 September -
18 November 1719 (0, 3) (0, 0) (0, 1)
(n = 65)
19 January -
5 April 1720 (-, -) (0,0) (2,0)
(n = 67)
20 April -
22 June 1720 (0,0) (0,0) (1,0)
(n = 55)
29 June -
31 August 1720 (0,3) (0,2) (0,2)
(n = 55)
4 September -
15 December 1720 (-, -) (0, 5) (0, 0)
(n = 89)
1
The program searched for the "best" autoregressive (AR) model up to 5 lags on first
differences of the natural logarithms of the stock prices. Then the addition of moving-average
models up to 5 terms for each AR model was compared. The one that minimized the expression
log [ a2k + 2kln ]
where a2^ is the sum of squared residuals for the given model, k is the sum of terms in the AR
and MA models, and n is the number of observations, was then selected as the best model. E. J.
Hannan and J. Rissanen, "Recursive Estimation of Mixed Autoregressive-Moving Average
Order," Biometrika, 69 (January 1982), pp. 81-94; "Correction," 70 (January 1983), p. 303.
2
One missing observation for 18 September 1719 was set equal to previous observation. At
this point there is a one-time drop in price of Bank of England stock; without this, the estimated
ARMA would be (0, 0). No ARMA was run for the period of the bubble, 19 January - 5 April
1720, or the post-bubble period, 4 September - 15 December 1720 because many observations are
missing (5 - 23 March; 16 - 30 September) during those periods when the transfer books were
closed for payment of dividends. There was a run on the bank in the period 29 June - 31 August
1720 [ARMA = (0, 3)].
3
The (2, 0) ARMA during the 5 January - 20 April phase had parameter values of 0.097 and
0.313. The (1, 0) ARMA during the 20 April - 22 June phase had a parameter value of 0.48.
East India stock, but a strong second-order autoregressive process occurs

for South Sea stock. This implies that different groups of market partici-
pants were using the same information at different times - a bandwagon
effect with different players for different sets. This conforms to the type of
situation Tirole posits as necessary for a bubble period, as well as Scott's
portrayal of the market rigging performed by the inner circle of South Sea
Company directors. (No model was picked for the Bank of England stock,
because 2.5 weeks of observations were missing during the period they
closed the transfer books to pay dividends.) In the following period, which
is regarded as the height of the madness, according to the historical ac-
counts, neither East India nor Bank of England stock shows anything but
white noise, and though the South Sea stock continues to have a strong
autoregressive movement in its growth rate, it is a first-order rather than
second-order process. However, the fourth period, which is taken as the
lull before the storm in the traditional accounts, shows marked distur-
bances for each stock. The post-bubble period shows continued distur-
bances for East India stock, perhaps because the directors of that company
began to make loans on the security of East India shares, but none for the
South Sea Company stock. During that period, everyone knew that a
reorganization and settlement of accounts would take place for the com-
pany, but no one knew what it would be until 1721.
Table 4 A. 3 shows the best ARM A models for South Sea stock and their
estimated coefficients during various subperiods of the bubble period when
exchange-rate signatures occurred (sudden rises and relapses in the value of
the pound sterling). The strongest bubble process appears to involve the
period 23 February through 15 June, in the sense that the coefficients are
highest in this period for both lagged terms. An anomaly does appear in the
period 23 February to 16 May, when the best model is a (o, 2) or second-
order moving-average process rather than an autoregressive process. The
explanation technically is that the first-order term is very small in the AR
process as well as in the MA process, and the selection technique takes the
lowest-order AR model before it begins mixing in MA models. The expla-
nation economically may be that in the early stages of the bubble, the
second-generation investors were more important for getting the bubble
under way. The "insiders" were clearly trying to get the "outsiders" into
the game. Their maneuvers to accomplish this may be seen in theoretical
terms as shifts in market fundamentals - and therefore are as likely to
create an MA process as an AR process. It is interesting that the coefficient
for the second-order term in the AR process estimated for the various
subperiods is relatively constant, ranging from 0.28 to 0.31, whereas the
first-order term is as low as 0.07 and as high as 0.21. This appears to be the
statistical counterpart of the phenomenon reported by Dickson - that the
bubble kept gathering its own momentum, so that the last two issues of
stock were not at the initiative of the inner ring of the directors, but rather
TABLE 4A.3
Comparison of ARMA models for South Sea
stock price changes in different bubble periods
Time Period Best Model Estimated Coefficients1
19 January - 5 April 17202 (2, 0) [0.099, 0.31]

(n = 67)
23 February -16 May 17203 (0, 2) [0.095, 0.32]
(n = 71)
23 February - 15 June 17204 (2, 0) [0.200, 0.31]
(n = 97)
23 February - 22 June 17205 (2, 0) [0.210, 0.28]
(n = 103)
5 July -17 August 17206 (0, 0)
(n = 37)
1
The coefficients of the ARMAs were estimated with constant term suppressed. The exact-
likelihood method of Ansley was used. Craig F. Ansley, "An Algorithm for the Exact Likelihood
of a Mixed Autoregressive-Moving Average Process," Biometrika, 66 (1979), pp. 59-65.
2
Bubble period between exchange-rate signatures, the sudden rises and relapses described
earlier as the combined Ashton-Kindleberger effect.
3
Bubble period between exchange-rate signatures. Linear interpolation of natural logs for
missing data on 15, 18, and 19 April. When a (2, 0) ARMA process [a close second choice to the
(0, 2)] was estimated for this episode, its parameters were [0.07, 0.29].
4
Bubble period between exchange-rate signatures. Linear interpolation of natural logs for
missing data on 15, 18, and 19 April.
5
Bubble period from exchange-rate signature to data break. Linear interpolation of natural
logs for missing data on 15, 18, and 19 April.
6
Post-bubble period marked with exchange-rate signatures. When a (2, 0) ARMA process was
estimated for this episode, its parameters were [-0.65, -0.32].
were their responses to the tremendous demand for new stock. 37 Our
confidence in our finding that the South Sea Bubble was rational is
strengthened by the fact that despite using the same procedures for identify-
ing a rational bubble in Bank of England or East India Company stock,
none was found for either in any of the five subperiods before, during, and
after the South Sea Bubble. Although we have not examined prices of other
assets, such as land or buildings, Dickson makes the interesting observa-
37
Dickson, The Financial Revolution in England, pp. 126-8.
tion that greatly inflated prices sometimes quoted for real assets during the
height of the bubble were generally for payment in South Sea stock,
implying that the price would have been much less if payment had been
made in cash or bank deposits. 38 If this is correct, then it is further evi-
dence that the South Sea Bubble, meaning simply the accelerating rise in
price of South Sea stock that occurred in the spring and summer of 1720
and nothing more, was a rational bubble. That is, it was not just a response
to changes in market fundamentals, at least during the period that foreign
money was entering the London market, nor was it irrational in the nar-
rowest sense that our specific definition of "rational bubble" implies.
38
Ibid., p. 147.
5, The Bank of England and the South
Sea Company: how the bubbles ended
Adam Anderson's detailed description of the events of the South Sea Bub-
ble has remained the authoritative source for all subsequent analysis of this
fascinating episode at the dawn of financial capitalism.l Anderson's theme
was simply that an inner ring of the South Sea directors had bribed the
government into allowing them to hoodwink the holders of the existing
government debt. That was the immediate, politically palatable, verdict
reached as well by Robert Walpole. Because of his leadership in the finan-
cial reconstruction that followed the collapse of the bubble, Walpole be-
came prime minister, and his term of office (1720-42) remains the longest
in British history. All subsequent historians have echoed his verdict, with
minor variations of emphasis on the political intrigues of the time, general
corruption in the government and the society, the peculiar nature of the
South Sea Company, or the infections from international speculative
fevers.2
It is clear that the South Sea episode included a swindle by a subset of
the directors of the company, as well as widespread bribes to high officials,
court favorites, and members of Parliament that were in some cases quite
large. It is not clear, however, that swindling and bribery were the primary
elements in the situation. Although the directors of the company were fined
severely, all of their estates being expropriated save for the £5,000 to
£10,000 capital necessary for an eighteenth-century London gentleman,
1
Adam Anderson, An Historical and Chronological Deduction of the Origin of Commerce,
from the earliest accounts, 4 vols. (London, 1764, continued to 1788 by William Combe
and published for the last time in 1801; reprinted New York: Augustus M. Kelley, 1967),
Vol. 3, pp. 91-126.
2
In addition to Adam Anderson, the standard accounts are John Cars well, The South Sea
Bubble (London: Cresset Press, i960), P. G. M. Dickson, The Financial Revolution in
England: A Study in the Development of Public Credit, 1688-1756 (London: Macmillan,
1967), Viscount Erleigh, The South Sea Bubble (New York: G. P. Putnam's Sons, 1933),
Companies to 1720, 3 vols. (Cambridge University Press, 1910), and John G. Sperling, The
South Sea Company: An Historical Essay and Bibliographical Finding List (Boston: Har-
vard Graduate School of Business Administration, 1962).
89
go The rise of financial capitalism
the company retained its charter, the government debt exchanged from
South Sea stock remained converted, and foreign investors who had been
attracted to the London stock market during the bubble continued to invest
in English securities on a much larger scale after the end of the bubble. If
the shrewd foreigners sold out before the bubble burst and took their gains
with them abroad, as tradition has it, it is odd that investments by the
Dutch and other foreigners in the English funds rose sharply in the next
quarter century.
My interpretation, based on analysis of the daily stock prices, transfers
and mortgages of Bank of England stock, and exchange rates, emphasizes,
by contrast, the technical aspects of the bubble and the structural features
of the securities and money markets of the time. In my interpretation, a
good deal of the traditional evidence on the South Sea Bubble takes on a
different meaning. It appears to be a tale less about the perpetual folly of
mankind and more about the continual difficulties of the adjustments of
financial markets to an array of innovations.
After the Glorious Revolution of 1688, British government finances
were gradually reorganized during the next 25 years of wars on the Conti-
nent, and the London capital market responded to these changes. A new
financial system based on large-scale use of foreign bills of exchange,
easily transferable shares of joint-stock corporations, and securely serviced
long-term government debt grew up to accommodate the government's
financial needs. But its inadequacies and innovational vigor led directly to
the South Sea Bubble. What this financial system required was another
financial instrument to complete the existing structure. But such an instru-
ment was created only in the aftermath of the bubble in the form of "South
Sea Annuities." These were the first perpetual, as opposed to term or life,
annuities issued to individuals as government debt.
Starting a bubble: the pipe, bowl, and soap

The motivation for the South Sea scheme in England was essentially the
same as for the Mississippi Bubble in France that began in 1719: to refi-
nance the immense debts accumulated by the governments during the War
of the Spanish Succession (1702-13). 3 That war increased the British
national debt from £16.4 million to £53.7 million.4 For the British, the new
3
Dickson, The Financial Revolution, pp. 91-2. Cf. Earl F. Hamilton, "Origin and Growth
of the National Debt in Western Europe," American Economic Review, 37(May 1947), pp.
118-30.
4
Hamilton, "Origin and Growth," p. 127.
How the bubbles ended 91
long-term debts were accumulated largely as the £10 million capital of the
South Sea Company, formed in 1711, and the £13.33 million of "long
annuities."5
The South Sea Company was proposed in 1710 by George Caswall, a
London merchant, financier, and stockbroker, and John Blunt, a London
scrivener turned stockbroker. These two individuals remained the leading
forces in the company until the collapse of the bubble in October 1720. In
1710 they proposed to the new government of Robert Harley that the £9.47
million of outstanding short-term war debts not secured by a specific tax be
converted into equity in a new joint-stock company. This was the South
Sea Company, which would enjoy the future profits anticipated from a
monopoly on English trade to the Spanish Empire and the current cash
flow on a perpetual annuity from the government paying £576,534 an-
nually.6 This was the same technique that underlay the founding of the
Bank of England in 1694 and the New East India Company in 1698. The
intention was to relieve the government's debt burden by substituting an-
nual payments of 6% on long-term debt for redemption of an overwhelm-
ing amount of short-term debt. The new company could raise working
capital on the security of its annuity from the government to exploit its
monopoly privileges. The stockholders of the company thus exchanged
their short-term government debentures, which were written in odd sums,
deeply discounted, and difficult to transfer, for fungible and easily trans-
ferred shares in the company. These new shares were worth at least the
annuity held by the company and promised further gains if the company
made profits from its trade monopoly. The South Sea Company proved to
be a success as a long-term funding operation of the government debt -
97% of the short-term debt was subscribed into its stock by the end of
1711. However, the government quickly fell into arrears on its payment of
the annuity to the company, and so its stock did not reach par until October
1716.7 It is clear that from the start the value of the stock was driven by the
expected value of the annuity payments. These were simply 6% on the
nominal capital of the company, which in turn paid a 6% dividend to its
stockholders. But while the original short-term debt was selling at one-
third discount, the shares of the South Sea Company gradually rose to a
5
These required annual payments of £666,566 by the government until the end of the
century. Evaluating the payments at 20 years' purchase gives the capital sum of £13.33
million.
6
This annuity from the government yielded 6.09% to the company on its nominal capital of
£9,471,324.
7
Sperling, The South Sea Company, pp. 1-3, 25.
premium of one-third. The implied difference in yields to public holders of

government debt, 9% on annuities versus 4.5% on South Sea shares,
measures in large part the advantages of liquidity that the South Sea Com-
pany shares provided to the public holders of government debt.
By contrast, the company's trade with the Spanish Main was not suc-
cessful, and the company failed to turn a profit on this monopoly. Trade did
not begin until 1714 and was severely restricted in the years 1714-16 by
Spanish officials in the New World. By mid-1716, negotiations with Spain
directly had resolved most issues in favor of the company, but hostilities
quickly arose between the English and Spanish governments. Although
these culminated in a decisive English naval victory in the battle of Cape
Passero in late 1718, some of the South Sea Company's ships and assets
were seized by Spain.8 The directors subsequently turned their attention
fully to the further conversion of government debt, the one thing they could
do well.
The second form of government debt incurred during the War of the
Spanish Succession concerned annuities. These financial instruments had
been introduced into British finance by William III in 1694. A stated
amount of pounds sterling, which could be set at any level by the purchaser
at the time of sale, was guaranteed to be paid to the registered owner of the
annuity. These fixed payments were made so long as the nominee was
alive, in the case of life annuities, or so long as the stated term of the
annuity, in the case of term annuities. The owner of either was given a
"Standing Order" to be presented at the Exchequer to claim the semian-
nual payments. In the case of life annuities, each time the owner, or the
owner's agent, generally one of the London goldsmiths, collected the
payment, evidence had to be presented that the nominee was alive. This
usually was a note from the parish priest or local justice of the peace. All
the life annuities created during the War of the Grand Alliance (1688-97)
had a reversionary clause that enabled annuitants to convert to a fixed-term
annuity on payment of an additional lump sum. Because the life annuities
required semiannual notes that the nominee was alive, they were all volun-
tarily converted to long-term annuities within a few years. Only term
annuities were offered to the public during the War of the Spanish
Succession.
The Standing Orders for any annuity, life or term, at the Exchequer were
assignable, but only in whole, not in part. That made them awkward to
8
Ibid., p. 24.
handle as legacies in cases involving more than one heir. It also meant that
they were not easily traded, a defect made worse by the variety of odd and
often large sums in which they were denominated. Moreover, the assign-
ments or transfers of the Standing Orders were not recorded by the Exche-
quer. The Exchequer maintained only the initial subscription ledgers and
recorded the payments made against the Standing Orders presented at each
payment period. So while transfers were possible, they were very cumber-
some, and it was expensive to prove title after a transfer or assignment had
been made. As a result, transfers of Exchequer annuities were few com-
pared with transfers of shares in the joint-stock companies, occurring prob-
ably at one-tenth the rate.9
After the Treaty of Utrecht in 1713, a substantial boom occurred in the
London stock market that affected the shares of all the joint-stock corpora-
tions and raised the average price of a share from 100% to 120% of par by
early 1717.10 Consequently, the government expected that it could reduce
its debt service by buying up high-interest, but difficult-to-trade, debt with
new issues of low-interest, readily marketable debt. It began that operation
with the Conversion Acts of 1717, initiated by Walpole, then chancellor of
the Exchequer. The final legislation enacted after he left office in 1717 per-
mitted the conversion of several minor types of government obligations -
the "Lottery Loans" of 1711-12 and the "Banker's Annuities" of 1705 -
to redeemable annuities yielding 5%. These were managed by the Bank of
England instead of the Exchequer. That meant that transfers were recorded,
and the annuities could be assigned in part as well as in whole. Overall, the
floating debt of Exchequer bills was reduced substantially, a sinking fund
was established for reducing the national debt, and annual debt service was
reduced 1 3 % . n
Walpole had originally proposed that the long annuities, with terms of 99
years, issued during the War of the Spanish Succession, also be converted
into the new redeemables, but that part of his proposal was dropped after
he was forced to resign from the government in April 1717.12 The long
annuities could not be redeemed without the consent of the holders, and so
9
Dickson, The Financial Revolution, pp. 457-67. Based on the only remaining transfer
books from the Exchequer for that period, those of bankers' annuities created in 1705,
only 4% of the nominal capital was transferred annually, compared with 44-50% of
capital transferred for the Bank of England, the East India Company, or the government
stock of 1717 administered by the bank in the same manner as its own stock.
10
Dickson, The Financial Revolution, chap. 3.
11
Ibid., p. 87.
12
Ibid., p. 85.
they were known as the "irredeemables." Because these annuitants re-

ceived nearly 7% yield on the original capital lent, they needed a guarantee
of substantial capital appreciation to compensate for the lower interest of
5% that the government was proposing to pay. But it still is not clear why
that part of Walpole's conversion proposal was dropped. Much has been
made of the high interest received by the annuitants, but more, it seems,
should be made of the annuitants' relative inability to cash in on the capital
gains that other asset holders were enjoying in the rising market of the
time. The new 5% redeemable annuities managed by the Bank of England
had risen 4% above par by the end of 1717, and their owners could readily
cash in, as contrasted with the difficulties faced by the holders of irre-
deemables. It may be that the London goldsmiths who held so many of the
Standing Orders saw conversion as a loss of the substantial fees they
charged to the owners and were able to muster enough political force to
block conversion. Or it may be that the supporters of the former Tory
government were especially concentrated among the annuitants and re-
sisted having parts of their portfolios administered by Whig institutions. At
any rate, the failure to convert the irredeemables was a major piece of
unfinished business that became more irksome as the stock market con-
tinued to advance (to between 130% and 140% of par by the end of 1719).
It even became a source of strategic weakness relative to France when the
success of John Law's "system" for converting France's debt became
apparent.
From its beginning, the South Sea Company was primarily an organiza-
tion for the conversion of government debt. It resumed its activities in that
arena after Walpole was removed from office. In 1719, it carried out a
conversion of the Standing Orders from the 1710 Lottery Loan into new
stock issued by the company. That was a simpler version, indeed a trial
run, of the grandiose operations the company was to attempt the following
year. It is outlined in Table 5.1. In early 1719, the Treasury proposed to the
company that payments of £135,000 annually on the annuities created by
the Lottery Loan of 1710 should be capitalized at 11.5 years' purchase
(i.e., the various annuities, being in different sums, would all be priced at
11.5 times the annual sum they paid to their annuitants) and an equivalent
£1,552,250 of South Sea stock offered instead to the annuitants. The
annuitants would gain only a small percentage (3.48%) over their original
investment of £1.5 million. But that was a higher price than they could get
on the market for their annuities, because the annuity payments had fallen
into arrears. Moreover, they would gain a permanent asset in exchange for
TABLE 5.1
The South Sea conversion of Lottery Loan Annuities to company shares in 1719
Before After
Public debtholders (actual conversion)

Initial investment (1710)
£1,048,111 £1,048,111
Annual receipts (for next 23 3/4 years) (perpetual)
£94,330 £54,221
Present value (1719)
(@9%) £912,139 £1,236,666
(@5%) £1,294,447 (£94,330 x l l . 5 x l . 1 4 )
Gain (@ 9%) £324,527
(@ 5.48%) £-0-
Government (actual 69.85% conversion)

Initial receipts (1710) (1719)
£1,048,111 £1,048,111
Annual payout (until 1742) (perpetual)
£94,330 £54,221
Present value (1719)
(@9%) £912,139 £602,456
(©5%) £1,294,447 £1,084,420
Gain (@ 9%) £309,683
(@5%) £268,458
South Sea Company (actual 69.85% conversion)

Initial capital (Jan. 1719) (Dec. 1719)
£10,000,000 £11,746,844
Annual receipts from government
£508,000 £596,739
Present value
(@9%) £5,644,444 £6,630,436
(@5%) £10,160,000 £11,934,784
Capital increase (@9%) £985,982
(06%) £1,774,784
Receipts
(sale of 95.56% of excess stock) £592,800
Less payments to Exchequer £544,142
Net £48,658
Value of 4.44% excess stock £27,522
Immediate gain £76,180
one due to expire in 23.75 years, and they would be able to sell it more
easily whenever it rose in value. In fact, South Sea stock was selling at
114% of par when the annuitants who converted received it in December
1719. Nearly 70% of the Lottery Loan was converted on those terms. By
that voluntary conversion, the government reduced its annual payments of
£94,330 on the Standing Orders to £54,240, and moreover it could then
repurchase the debt it owed the South Sea Company whenever it chose.
That gave the government the prospect of eventually retiring all its debt,
which was seen as a great virtue at the time. But it also gave the govern-
ment the power to undo the South Sea Company if its trade monopoly or
financial influence was abused.
The South Sea Company benefited as well. It had contracted to increase
its capital by £2.5 million if all the annuities were converted (by adding to
the £1,552,500 of annuities converted a sum of £168,750 for arrears, and
by a permanent loan to the government of £778,750). Because only 69% of
the annuities were turned in, all these amounts were scaled down propor-
tionately: The company's capital was increased by £1.75 million; £1.08
million went to the former annuitants, along with another £117,912 for
arrears of interest; and the Treasury was paid £544,142. The latter sum was
obtained by selling £520,000 of new stock at the current price of 114%,
realizing £592,800. So the company was left with an immediate profit of
£76,i8o. 13
Everybody - proprietors, government, and the company - seems to
have gained, and substantially, considering the modest amount of debt
converted. If we compare the present value of the gains of all the partici-
pants using a 9% discount rate (Table 5.1), the proprietors gained £324,527
(the excess of the market value of their South Sea stock over the old value
of their annuities), the government saved £309,683 (the difference in pre-
sent values of their annual payments), and the company gained an increase
in its minimum fundamental value (that derived solely from the annual
payments received from the government) of £985,982, with an immediate
gain of £76,180. No one was worse off, save perhaps the London gold-
smiths, part of whose income had been derived from helping the former
annuitants extract their annual payments from the intricacies of the
Exchequer.
Part of the overall gain was due to a general rise in the securities market of
the time, but it was achieved principally by substituting a more modern
financial instrument - the perpetual, funded, and easily transferable share in
a government chartered joint-stock company - for an instrument equally
recent but encumbered by antiquated procedures for payment and transfer -
the term annuity administered by the Exchequer. The improved liquidity of
13
This is derived by subtracting the £544,142 paid to the Treasury from the £592,800
realized from the sale of the £520,000 stock (£48,658) and then adding the value of the
remaining £24,142 stock at 114% of par (£27,522). Dickson (p. 89) gave a figure of
£242,240 for profit on the whole operation, but he included £193,583 of claims the
company had against the government that the company wrote off as part of its payment.
That would be appropriate only if the company had already written off its claims pre-
viously and then had found a way to realize them.
government debt provided a gain that was shared by all parties. Neverthe-
less, that left the great bulk of the annuities outstanding. Therefore, much
larger opportunities for financial improvement were still present, and the
South Sea Company intended to exploit them in the plan it offered the
government in late 1719.
Blowing up bubbles
The mechanics of the new scheme were very similar to the 1719 conver-
sion, only on a much grander scale, with much greater possibilities of
profit for the South Sea Company. All the government's remaining debt,
except that owed to the Bank of England and to the East India Company,
the other two chartered companies entrusted with administering the na-
tional debt, was to be subscribed into South Sea stock - provided the
annuitants would accept the terms offered by the company. Holders of the
£16,546,202 of redeemable government stock handled by the Bank of
England would have no choice but to subscribe or else be bought out by the
government on worse terms. The annuitants holding £15,034,688 worth of
irredeemables would have to see the same attractions in the new South Sea
Company stock they would receive as had the Lottery Loan annuitants in
the new stock they received in 1719. The South Sea Company was autho-
rized to issue new stock up to the nominal par value of the redeemable
government debt they converted and whatever proportion of the long an-
nuities (value nominally set at 20 years' purchase) and short annuities
(value nominally set at 14 years' purchase) they induced to convert.14
14
There is historiographic dispute on this point. My interpretation agrees with those of Scott
(The Constitution and Finance, Vol. 3, p. 308) and Adam Anderson. Eli F. Heckscher, "A
Note on South Sea Finance," Journal of Economic and Business History, 3(1931), pp.
321-4, however, asserted that Scott was mistaken and that the South Sea Company could
have increased its capital stock without limit. Dickson (The Financial Revolution, p. 129,
fn. 4) apparently agreed with Heckscher. Heckscher's argument was based on his reading
of the authorizing statute: 6 George I, c. 4, section 48. That section allowed the company
to raise "any Sums" it might need by calls on existing stockholders. That followed section
47, which stated the penalty to be paid by the company if it failed to take in long annuities
and clearly referred to the recourse available to pay the penalty. That was not an issue of
new capital stock but a call, or tax, to be levied on existing stock and was a feature also of
the East India Company and the Bank of England. Section 30 of the act clearly set the limit
on the new capital stock that could be issued. Section 58 went further and specified that the
government could cancel the augmented capital from section 30 in whole or in part after 24
June 1727: The Statutes at Large from the Fifth to the Ninth Year of King George I, Vol.
14 (Cambridge: Joseph Bentham, 1765). It appears that Heckscher's English, though no
doubt better than Scott's Swedish, was not as good as Scott's English.
TABLE 5.2
Key dates during the South Sea Bubble
1 February Parliament passes the South Sea bill

LLJ
2 14 April First money subscription (£2,250,000)
28 April Registration of two-thirds of irredeemable annuities

3
29 April Second money subscription (£1,500,000)

4
19 May Announcement of terms for registrants (£400 per share)

5
17 June Third money subscription (£5,000,000)

6
22 June Books closed for two months to pay £10 dividends per share
7
14 July Registration of redeemable annuities (at Bank of England)

8
4 August Registration of remainder of irredeemable and redeemable annuities

9
(at Exchequer)
10 12 August Announcement of terms for registrants of 14 July and 4 August
11 14 August Fourth money subscription (£1,250,000 at £1,000 per £100 share)
15&17 Notification to South Sea directors of the amounts registered

12
October on 14 July and 4 August
The fatal attraction and duplicity of the scheme lay in the fact that the
South Sea Company could set whatever conversion price it wished for
the shares given to the debtholders in exchange for the old annuities. The
higher the price the company could charge without discouraging the irre-
deemables from converting, the more of the new capital issue would be left
to the directors to be used as they wished. If, for example, they set the
conversion price of South Sea stock at the current market price of 135, £20
million of debt could be converted by issuing only £14,814,815 of new
stock, leaving £5,185,185 for other uses. In the initial proposal presented
22 January 1720, they envisaged enough profit to warrant paying the
government up to an additional £1,500,000 on the redeemables, and an-

other £1,578,752 if all the irredeemables were turned in, for the privilege
of carrying out the scheme. The Bank of England, on 27 January, coun-
tered with an even more generous proposal. The South Sea Company, in its
response on 1 February, raised its ante to over £7,500,000. 15 The competi-
tion from the bank had forced the South Sea Company into committing
well beyond its initial offer to a level that only its most optimistic calcula-
tions of what the market could bear could justify. The House of Commons
accepted the South Sea Company's proposal, and it was enacted into law 7
April 1720.
The formal operation of the conversion operation began with the first
subscription of stock on 14 April. That issue of new stock was intended to
raise some working capital for the company, and so only money payments
were accepted. None of the annuities were converted in this operation. The
intended amount of new stock was £2 million, but it was quickly over-
subscribed - the first quantitative sign of the extent of public enthusiasm
for the scheme based on the proven advantages of increased liquidity and
the prospect of monopoly profits. It was also the first indication of the
inadequacy of the company's bookkeeping facilities for carrying out the
conversion scheme. The amount of new stock issued was small relative to
the total that was foreseen, but it was large enough to pay the bribes that
had been promised to members of Parliament and officials in the govern-
ment and to buy up enough redeemables to satisfy the government's re-
quirement. Converting the redeemables purchased into new equity would
increase the value of the company so long as the new shares commanded a
premium. That could be maintained if the old shares maintained a premium
over par, and that was likely, because the working capital obtained from the
first subscription could be used to support the price of the existing stock.
The new stock was not actually entered into the ledgers and available for
transfer until December 1720; so only demand for the existing stock was
increased, not the supply. The price rose correspondingly, from 288 on 13
April to 335 by 27 April.16
On 28 April the company held the first registration of the irredeemables.
These were in two categories: the long annuities that had been issued for
15
The clearest description of the proposals is given by Sperling, The South Sea Company, p.
28.
16
These figures are in percentage of par value or, in the convention of the time, as the pounds
sterling required to purchase £100 par value of stock. Stock could, however, be purchased
in smaller units or even fractions, because all transfers were made simply by recording
ledger entries under the accounts of both buyer and seller.
ioo The rise of financial capitalism
terms of 99 years and the short annuities issued for terms of 30 years. The
government had agreed it would owe the company 20 years' purchase (20
times the annual annuity amount) on all the longs it converted and 14 years'
purchase on the shorts. In its turn, the company offered the long annuitants
32 years' purchase, and the short annuitants 17 years' purchase, meaning
that it offered both classes better terms than it was getting from the govern-
ment, but with much better terms to the longs. However, it then took away
that concession by charging both classes of annuitants £375 for each £100
of new South Sea stock subscribed. On that day, however, shares in the
existing South Sea stock were selling between £335 and £343 for each
£ioo; 17 so the price charged the annuitants for their new South Sea stock
was reasonable if the current market price could be expected to rise further.
So it is not surprising that £9,454,744 of the irredeemables, or 63%, were
subscribed, nearly the same proportion as with the Lottery Loan conver-
sion the year before. That was an overwhelming response, and the re-
deemables were still awaiting their deliverance!
A second "money subscription" was held the day after the first registra-
tion of annuities, 29 April, and it was quickly oversubscribed, even though
the price per £100 share was raised to £400, whereas the current price of
original stock was only £340. The announced issue was only £1 million,
but the amount actually issued came to £1.5 million. The enthusiasm of
investors (or speculators) for the South Sea conversion was mounting, and
rightly so. The amount of new capital, at a minimum, would be the amount
of redeemable debt outstanding plus the irredeemables subscribed, or £25
million. The first two money subscriptions were together only £3,750,000,
well below the eventual total of new stock that would be created. The terms
of purchase for the money subscriptions were very generous and amounted
to buying on margin, albeit with fixed margin calls at regular intervals.
Only one-tenth to one-fifth of the sale price was paid at the time of
subscription, and the remaining payments were stretched up to three years.
So these subscriptions would have been most attractive to speculators
anticipating further rises in the price of South Sea stock and wanting to
leverage their purchases as much as possible. But because the total sold on
margin at that time amounted to only slightly over 10% of the total capital
that would be in existence at the end of the debt conversion, it does not
17
Castaing, The Course of the Exchange (London: 1720), no. 36. Ereke's competing price
list, used by Scott in his classic history of the bubble, shows the range to be £332 to £344:
The Price Of the Several Stocks, Annuities, And other Publick Securities, Ec. with the
Course of Exchange (London), no. 89.
seem plausible that the money subscriptions were the primary contrivance
used to blow up the bubble. They were the main device for speculators, but
not the primary cause of the bubble itself.
Yet bubble there was. The price of South Sea stock continued to rise
sharply, while the price of the underlying annuities remained stable. The
bubble seems to have reached its peak just after the third money subscrip-
tion on 17 June. The highest price, often quoted, was 1,050, found for 24
June in Ereke's Price of All Stocks, but the more reliable source, Castaing's
Course of the Exchange, gave a peak of 950 on 1 July. Ereke's price
included the dividend, which had been announced as 10% in stock,18
whereas Castaing's price did not include it. But the jump was remarkable
in both sources, and we can have no doubt that a new element was operat-
ing in the market. The new factor was that the transfer books for existing
South Sea stock were closed on 23 June to prepare to pay the midsummer
(29 June) dividend. So the price from 24 June until 22 August, when the
transfer books were reopened, was not the spot price, as before, but rather
the price "for the open[ing]" of the transfer books.
If we imagine that the spot price was unchanged throughout the summer,
the difference between the time price (for delivery two months hence) and
the spot price reflects the implicit interest rate or expected dividend rate. If
the spot price was constant throughout, this gives a truly enormous forward
premium by any standards, modern or historical, which cannot be accepted
easily. But it seems not unreasonable that the spot price was constant,
given that the next spot price on 23 August (740) was only slightly less
than the last spot price on 22 June (765), and that the final sums to be
converted were known within very narrow limits after the registration of
irredeemables on 28 April. 19 Moreover, the prices of the underlying an-
nuities began to sag at that time (Figure 5.1), and the prices of Bank of
England and East India stock also began to fall (Figures 5.3 and 5.4). So it
is likely that one of the most dramatic parts of the bubble, the final leap
upward after 22 June, was in large part illusory and reflected not so much a
buying mania as a desperate credit crunch in the London money market.
The foreign exchange rates of the period give us other evidence that a
liquidity squeeze of unprecedented magnitude was pressing upon the bub-
18
Anderson, Origin of Commerce, Vol. 3, pp. 95, 97.
19
Whereas the first registration of the redeemables on 14 July brought in only £11,240,145
of them, or two-thirds of the total possible, the second registration of both the redeemables
and the irredeemables on 4 August brought in together £5,371,071 of additional govern-
ment debt, only slightly more than the £5,306,057 possible if all the remaining redeema-
bles (mostly held at the Exchequer) had been forced to convert.
Percentage of par (South Sea stock)
00
Dec 15~
o o o o
Years purchase (nines and longs)
1
36 - - 36
35 - - 35
c
o
CD
Q. 1. bill passed
O
a 34 - 2. 1st subscr. - 34
c 3. annuities
(0
4. 2nd subscr.
c 5. terms
a)
6. 3rd subscr.
c
7. books closed
- 3 3 - 8. redeemables - 33
CD
JZ 9. remainder
CJ
(f) 10. terms
11. 4th subscr.
12. notification
32 -rTn +- 32
O CT)
OJ OJ
c d
CD c_ c CD U >
~3 O O 0)
Figure 5.2. London-Amsterdam exchange rate.

ble in the price of South Sea Company stock. The rates of London on
Amsterdam plotted in Figure 5.2 indicate a credit crunch in London from
the time of the third money subscription on. Comparing the London-
Amsterdam exchange rate and the graph of South Sea stock prices, it
appears that there was an influx of foreign speculators to England in
March. Both the price of South Sea shares and the English pound appreci-
ated throughout the spring of 1720. By the first half of May, both South
Sea stock and the London-Amsterdam exchange rates leveled off. There
then followed a marked decline in the pound sterling from 365. 3d. on 22
April to 325. 4J. 2 0 on 8 and 11 November, the lowest level of the century.
Note that the first major fall of the pound sterling occurred just before the
third money subscription, and the pound reached a very low level at that
time. This dates the beginning of the credit crunch in the London market.
The prolonged fall of the pound was interrupted by at least five sudden
appreciations of the pound, including one at the time of the third money
subscription. Those appreciations, however, were always followed by
equally sudden depreciations back to the original exchange rate or lower.
Such shocks in eighteenth-century exchange rates usually signaled a
scramble for liquidity in the country whose currency appreciated, dis-
cussed as the Ashton effect in Chapter 4. So the foreign exchanges provide
us strong evidence that credit became increasingly tight at the peak of the
South Sea Bubble. This supports our thesis that the sharp increase in the
forward price of South Sea stock on 24 June was due to an inward shift of
the supply of credit to the South Sea Company caused by external drains to
promotion schemes in the Low Countries and internal drains due not so
much to alternative promotions in the bubble companies, as the South Sea
directors suspected, as to the withdrawal of loans made on their stock by
the Bank of England, the East India Company, and the Million Bank.
Those reversals will be discussed in detail later. It was this inward supply
shift of credit that caused the forward premium on South Sea stock to rise
enormously at the end of June. An alternate explanation is that it was due
to continued outward demand shifts for South Sea stock. But that is incon-
sistent with the exchange-rate evidence, which shows scrambles for liquid-
ity occurring at each call made on the subscribers to the first, second, and
third subscriptions.
20
These are the amounts of Dutch bank money at two months usance that could be purchased
for £1 in London. See John J. McCusker, Money and Exchange in Europe and America,
1600-1775: A Handbook (Chapel Hill: University of North Carolina Press, 1978), pp. 4 2 -
5, for a full discussion.
Before 23 June, however, there undoubtedly were demand shifts for

South Sea stock, fueled, according to most accounts, by the increasing
amounts the company loaned on its stock. It was that injection of fresh
funds into the stock market that apparently caused the bubble in South Sea
stock that occurred in the preceding month of May, before the transfer
books were closed, and while prices were still based on spot transactions.
The first lending on stock began 21 April, or as soon as cash became
available from the first money subscription on 14 April. The terms were
that for each £100 of stock deposited, £250 would be loaned, repayable in
four months at 5% interest. A limit of £500,000 was set to be loaned, but
the actual amount loaned was nearly £1 million.21 That, according to
Scott, had a double-barreled effect. It withdrew some £400,000 of stock
from the supply available to the market, and it pumped another £1 million
of purchasing power into the demand for South Sea stock.22 Dickson
emphasized the demand aspect more than the supply - the stock mortgaged
clearly was unlikely to be sold in any event - but lacked specific evidence
on stockjobbing by the South Sea directors or their agents. On 19 May the
South Sea Company announced the next conversions of debt and the very
favorable terms that were being given to the long-term and short-term
irredeemables registered on 28 April. The company continued to grant
more loans to aid buyers of additional stock. Those fresh loans were made
at £400 for each £100 of shares. It was no doubt the demand for those loans
that caused the third money subscription of 17 June to be taken. That was
the bubble mania at its peak. Five millions of stock were subscribed (but,
as in the first two subscriptions, not actually delivered) at 1,000%. Be-
cause 10% was required as down payment, the company took in exactly £5
million of cash. According to Anderson, of that sum, "the managers lent
out in one day three millions, for supplying the stock market with cash." 23
By the end of June, another £1,750,000 was loaned out, and by 1 August
the total that had been loaned by the South Sea Company on its stock and
on its subscription receipts amounted to over £11,200,000.24
It is important to note here that the South Sea Company was forbidden
by its charter from engaging in banking activities; so those loans had to be
financed somehow by the South Sea Company. The Sword Blade Company
21
Scott, The Constitution and Finance, Vol. 3 , p. 318. But Anderson puts the amount
actually loaned at £900,000 {Origin of Commerce, Vol. 3, p. 95).
22
23
Anderson, Origin of Commerce, Vol. 3 , p. 97.
24
Sperling, The South Sea Company, p. 32.
had been taken over by Elias Turner, George Caswall, and Jacob
Sawbridge in 1712. The latter two were directors of the South Sea Com-
pany during the bubble. Sword Blade became the major stockbrokerage
firm of the period, issuing its own notes and bonds, which were accepted
by the South Sea Company as cash payment. So the Sword Blade Com-
pany became the bank lending on demand to the South Sea Company to
support its loans. But whereas the South Sea Company would accept
Sword Blade promissory notes as cash payment, they were certainly not
legal tender or bank notes. They should not be considered money, either,
because they had little use as means of payment outside Exchange Alley.25
When the Sword Blade Company failed on 24 September under the pres-
sure of the Bank of England demanding redemption of its notes in specie or
Bank of England notes, the South Sea scheme came to an end. It is
doubtful that the bank ended the scheme deliberately in that way, because it
had received the Sword Blade's notes as payment for new shares the bank
intended to issue to take on part of the debt that the South Sea Company
had converted. But it was that action that revealed to all participants that
credit was indeed very tight.
To recap, the bubble blowing to 23 June was driven primarily by the
lending of money on the mortgage of existing stock, and partly by the third
money subscription. We can see the effects of these devices in Figures 5.3
and 5.4, which compare the prices of South Sea shares with those for East
India Company and Bank of England shares. Each rose in three spurts: the
second half of March, the second half of May, and during June. The first
was due primarily to international speculators moving from Paris to Lon-
don. The second was due to increased participation by Dutch investors and
the beginning of loans by directors of the company on security of South
Sea stock. The third arose from an immense increase in loans on stock, on
subscription receipts, and on subscriptions made verbally.26
Bursting bubbles: an early scramble for liquidity

There are two things that bear emphasis from this account: (1) the impor-
tance of the market's expectation of the proportion of the irredeemables
that would be converted and (2) the importance of knowing the premium
over par that South Sea stock would command in the market. Also evident
25
See the excellent discussion by Antoin E. Murphy, Richard Cantillon: Entrepreneur and
Economist (Oxford: Clarendon Press, 1986), p. 168.
26
Dickson, The Financial Revolution, pp. 1 4 0 - 3 .
1000 1000
South Sea (time)
900-
800- - 800
ID 700-
d
600- - 600
c
0)
u EIC
- 400
South Sea (spot)
- 200
Bank South Sea (spot) EIC

South Sea (time)
Figure 5.3. Castaing's share prices for Bank of England, East India Company, and
South Sea Company.
1100 -1100
' South Sea (time)
1000
900 - 900
800
700 - 700
South Sea (spot)
600
a>
O)
(O 500 - 500
c
a>
u South Sea (spot)
c_
a) 400
o.
300 - 300
200
100 - 100
c
in
Bank — South Sea (spot) EIC

- South Sea (time)
Figure 5.4. Freke's share prices for Bank of England, East India Company, and
South Sea Company.
is the importance of timing, which all accounts have emphasized. My

reinterpretation comes from asserting that the very favorable proportion of
the irredeemables that were subscribed very early in the bubble and the
favorable terms given to those annuitants removed most of the uncertainty
about the market fundamental. Those terms were markedly more favorable
than had been foretold, and they created a mob-like impulse to participate
among a rapidly growing community of investors. The actions of the South
Sea directors from the third money subscription on can be interpreted as an
effort to limit participation. But it appears that in midsummer the General
Court of the South Sea Company reflected more the urges of the mob than
the machinations of Blunt, Caswall, and Sawbridge. The third money
subscription was a mistake, unlike the first and second subscriptions,
which were appropriate steps at the time and very conservative compared
with the third. And the third was a mistake primarily because the very high
price that was demanded for the stock, which may have been intended to
discourage the mob from further participation, backfired by draining £5
million from an already overextended money market. Even lending out as
soon as possible all the proceeds failed to offset the liquidity scramble that
had been caused. By that time, new investment opportunities had arisen in
competition with the South Sea Company: the so-called bubble companies
that began to be promoted in the London stock market. The most important
of these were two marine insurance companies that received their charters
in June and began to be traded on 1 July. And then payments on the first
and second subscriptions in South Sea stock - the equivalent of margin
calls - came due as well. My evidence on this point comes not only from
the high forward premium on South Sea stock from 23 June to 22 August
but also from the jolts experienced in the foreign exchanges.
The sharp rise and fall in Amsterdam rates in mid-August gave a clear
signal of the financial panic that had begun. It had been produced uninten-
tionally by the directors of the South Sea Company when they invoked a
writ of scire facias on 18 August against the York Buildings Company and
the New River Company. They were old chartered companies, like the
Sword Blade Company, that had changed activities from building water-
works to underwriting insurance. They had been attracting speculators
away from the South Sea Company, which then charged them with violat-
ing the Bubble Act enacted in June, which prohibited any chartered joint-
stock company from engaging in activities outside those authorized in its
original charter. That was ironic, because the charter of the Sword Blade
Company, which had long acted as banker for the South Sea Company,
i io The rise of financial capitalism
authorized it only to make sword blades. So it, too, was technically operat-
ing in violation of the Bubble Act. The price of South Sea stock dropped
sharply from the last half of August through the middle of October. On 24
September the Sword Blade Company bank suspended payments, inten-
sifying the scramble for cash in a tight money market. That marked the
final collapse of the South Sea Bubble.
The interpretation of the South Sea Bubble offered here tries to remove a
good part of the irrationality of the participants, as characterized by most
previous accounts, but it does not go so far as to argue that it was not a
bubble at all, but just an example of a venal government manipulating
market fundamentals. The argument that the bubble was really a reflection
of shifts in market fundamentals supposes that the South Sea Company was
being allowed by the English government to pursue by private funds the
achievement of a general trade monopoly in England that the Compagnie
d'Occident had been assigned by government decree in France. Antoin E.
Murphy has justly noted that the excess capital stock the South Sea Com-
pany could ofifer to the public after the conversion of government debt into
shares priced at 4 to 10 times par value did not constitute a current "profit"
to the company, as argued by Scott and Dickson. Rather, it was a huge
capital fund, a potential pool of credit amounting to £75 million, that
would enable the company to exploit quickly any new profit opportunities
that might arise in foreign trade or exploitation of marine resources -
fishing, salvaging shipwrecks, insurance, and so on. 27 Its competitors
nervously petitioned the House of Commons on 23 March 1720 to limit the
future activities of the South Sea Company to the trading areas named in
the act of 1 February so that it would not "oppress all private merchants in
any branch of trade." 28 But the future fund of credit would have had to
have been raised by selling the excess stock on the London stock market in
competition with other uses of loanable funds. Without an enormous infla-
tion in the economy, the South Sea Company's fund of credit could never
have amounted to £75 million (derived by selling the stock at 10 times par).
It seems even less likely that the general rise in stock prices of other
companies and the proliferation of new bubble companies had been caused
by the attempts of the South Sea Company to buy them out. A hostile
takeover of the Bank of England and the East India Company by the South
Sea Company could have been a possible future use of the fund of credit it
27
Murphy, Richard Cantillon, pp. 161-2.
28
How the bubbles ended m
was trying to create, but in mid-1720 it still was only a potential fund, not
one currently disposable.
The question still may be asked whether or not we can measure to what
degree the South Sea Bubble was a movement in fundamentals, a rational
bubble, and an irrational surge. In fact, we cannot do that in the broadest
sense implied by such a question: How many participants were gullible,
how many shrewd investors, and how many sly manipulators, and what
were the amounts invested by each? But we can refer back to Figure 5.1
and divide up the price movements into five phases. The first lasted from 1
February (131) through 19 May (355), or from the first acceptance by the
House of Commons of the South Sea Company's proposal to its first
announcement of terms for the debt conversion. The first phase was basi-
cally an upward shift in fundamentals caused by a proven financial innova-
tion to be implemented on an unprecedented scale. The corresponding
upward movement in the price of the long annuities, with a lag, helps
confirm this assessment. The second phase, 19 May (365) to 22 June
(765), was a rational bubble driven mainly by foreign investors providing
an external infusion of credit to the London stock market and prompted
precisely by the announcement of terms on 19 May that showed shrewd
speculators what market rigging the South Sea directors were attempting.
The third phase, 23 June (950) through 23 August (740), was the period
when the South Sea Company's transfer books were closed and the prices
were forward prices, or time prices, rather than the spot prices given before
23 June and after 23 August. The sudden jump from 765 to 950 was not
part of the rational bubble, but rather a shift from spot to forward prices
that revealed an enormous forward premium that reflected the pressures of
the tightening credit market on the manipulators of the South Sea stock.
The decline over the next two months merely reflected the convergence of
the forward price to the spot price as the time of delivery shrank to zero.
The fourth phase, 24 August (820) through 24 September (370), was the
collapse of the bubble, caused by the unwinding of speculative positions
taken during the run-up of prices under the pressure of very tight credit
conditions. The final phase, 26 September (300) through the end of the
year (200), reflected the uncertainties of the reorganization schemes being
proposed for the company and what protection would be given various
classes of subscribers and stockholders so that the price would sink below
the fundamental level achieved in mid-May. Despite the collapse of the
bubble and the volatility of the stock's price in the aftermath, however, it is
useful to recall that the stock had begun the year at the level of 128. Any
stockholders who had ignored the whole episode and simply held on to
their original holdings would have realized a 56% annual yield if they had
awakened 31 December 1720 and sold.
Cleaning up: the Bank of England's final victory

What role was played by the Bank of England in all this? Most accounts
simply say that the bank was fortunate that its counterproposal to Parlia-
ment was not accepted on 1 February and that it withdrew in the nick of
time from taking over a large part of the South Sea stock in mid-Sep-
tember. It was not until 1723 that the bank engrafted part of the South Sea
stock into its own capital on much more favorable terms. But bank stock
participated in the general stock market rise, even if the bubble in its price
was very mild compared with that in South Sea stock (Figure 5.3). And on
10 May the bank allowed its stockholders to borrow on security of their
shares. The terms were conservative, compared with those imposed by the
South Sea Company, but were quickly liberalized, so that eventually a total
of 962 mortgages were made, amounting to 29% of the bank's transferable
stock.29
An analysis of the pattern of mortgaged stock indicates that the heaviest
demanders of credit were stockbrokers. The leader far and away was
Samuel Strode, with a total of £75,000 mortgaged. Another major bor-
rower was Matthew Wymondesold, infamous as the broker for John
Aislabie, chancellor of the Exchequer, who bought heavily into South Sea
stock at the outset of the bubble and took £20,000 of South Sea stock as
late as the third subscription.30 The striking thing about the large sums
borrowed by the brokers, however, is that they were all repaid promptly
upon the calls made by the bank in late September (25%), despite evidence
that a large number of borrowers failed to respond in a timely fashion and
had 25% of their stock sold off from the end of October through the next
April.31
Legend, incorporated into the standard accounts of the South Sea Bubble,
has it that the knowledgeable and canny investors, meaning wealthy City of
London men, represented by the Bank of England's directors and wealthy
29
Computer analysis of Bank of England transfer books M and S, 2nd series, no. 35 and 4 1 .
For transferable capital, see William Fairman, The Stocks Examined and Compared . . . ,
7th ed. (London: John Richardson, 1824), p. 5 1 .
30
31
Bank of England, General Court book H; entries for 29 September, 13 October, and 25
October 1720 and 6 April 1721.
Dutch merchants, sold their South Sea stock at high prices and invested their
speculative gains in safe, staid Bank of England stock.32 The transfer
records of stock in the Bank of England, however, tell a different story. To
analyze how the South Sea Bubble was burst, it is most relevant to view the
trading activities of the directors of the bank and the 163 individuals who
gave addresses in the Netherlands. For these two groups, I have calculated
the number and value of their purchases and their sales on a daily basis. The
trading activities of the directors are summarized in Figure 5.5. The direc-
tors took longer positions in the stock of the bank immediately before the
closing of the transfer books on 8 March and up to 20 May, after the transfer
books were reopened on 8 April. After that, it appears that they reduced their
holdings, perhaps to increase their purchases of South Sea stock or an-
nuities. After the end of August, they reduced their holdings considerably,
presumably to cover speculative losses in other assets. In sum, the directors
of the bank stayed with their investment in bank stock in the early stages of
the South Sea Bubble, abandoning it only in the most exciting period of the
bubble, and then were forced to liquidate increasingly after August as the
final collapse of South Sea prices and the other bubble companies occurred.
Legend also has it that the canny Dutch bought into South Sea stock at
later stages of the bubble and sold out at the peak. That is consistent with
their behavior on the bank stock, as they bought during the price rise, sold
during the price plateau of early summer, and then bought back heavily
during the low prices of the autumn. In fact, they ended up with cumulated
holdings exceeding those of the directors. Does this mean that as a group
they were even smarter than the bank's directors, or even the South Sea
directors, because they did not get fined for illegal participation in the
South Sea fraud or in any of the dubious bubble companies? Perhaps, but it
seems more likely that they found themselves as a group locked into
holding South Sea stock because of the paper losses they had sustained.
The sales of bank stock could have been to cover subscription calls on
South Sea stock. We saw earlier that fluctuations in the Amsterdam-
London exchange rate coincided with subscription payment dates on South
Sea stock, and the buildup of bank stock may have been in anticipation of
the engrafting of South Sea stock onto the bank's capital, a scheme sug-
gested in September 1720 but not realized until 1723, and then on much
32
Fairman, The Stocks Examined, p. 51: "Amidst the general speculation excited by the
subscription scheme, some of the more cautious persons sold out of South Sea Stock at
very high prices, and bought into Bank Stock; this naturally caused a considerable rise of
the latter, which got up to 260 per cent."
3
- 3
-3
- 2
- 2
- 2
- 2
-2
- 1
- 1
Price c! +++ Directors c

(O
Figure 5.5. Bank directors' holdings of bank stock.

better terms for the bank than for the company. The bulk of the Amster-
damers' purchases were in units of £1,000, exactly that amount required to
vote in the semiannual General Court that would decide what role the bank
should play with respect to the South Sea Company and the remainder of
the government's debt conversion. By the end of November, the accumu-
lated shares of the Dutch exceeded the total held by the bank's directors
(Figure 5.6). That pattern was less consistent with cautious or canny behav-
ior on the stock market than with investors feeling that they were locked
into a dubious investment and resolving to influence the eventual outcome
by voting on decisions then being made by the strongest institution to
emerge from the collapse: the Bank of England.
The minutes of the directors' meeting in the General Court show that the
bank's relation with the South Sea Company was generally accommodating
before the bubble and most likely until the suspension of payments by the
Sword Blade Company bank on 24 September. There is no mention of
the South Sea Company as such in the year 1720 until the minutes of the
emergency meeting of 24 September. The bank was then taking in pay-
ments for subscribing £3,775,000 of new stock that would be used to buy
up part of the South Sea Company's stock valued at 400%. Notes taken in
payment drawn on Turner and Caswall and company, when presented to the
Sword Blade Company, were not accepted, and notice of that turn of events
was given to the General Court. A note was written in the margin of the
General Court's minutes: "Sword Blade Company don't pay"!
During the next week, the bank's directors took action on all fronts to
confront the obvious liquidity crisis caused by the failure of the South Sea
Company's banking affiliate, but they did so by accumulating their own
resources, and in the process made the crisis worse. By 10 November the
bank had gained strength, and the directors made a bold move. They
agreed to advance to the South Sea Company the deposit money remaining
from their mid-September subscription, but the bank governor, John Hang-
er, reported that he "did not think fit for the proposal to proceed further in
that manner." By 17 November a formal offer to the South Sea Company
was approved that insisted on much stiffer terms to the South Sea directors.
Part of the bank's aggressiveness appears to have stemmed from large
loans arranged in November through Andrew Pels & Sons in Amsterdam,
the leading Dutch merchant bankers. Dutch influence was being exerted
from the much larger presence of Dutch merchants or their attorneys in the
General Court at that time.
The next two years were given over to extended negotiations between
300 -
1. bill passed
280- 2. 1st subscr.
3. annuities
4. 2nd subscr.
260- 5. terns
6. 3rd subscr.
7. books closed
240-
8. redeeaables
9. reminder
c 220- 10. terra
(0 11. 4th subscr.
Q.
12. notification
100- •
—r~
cn
3 O
"3 O
Price +++ Amsterdamers
Figure 5.6. Amsterdamers' holdings of bank stock.

the bank and the South Sea Company. It was not until the end of 1722 that
the new set of directors of the South Sea Company could bring themselves
to acknowledge the control then being exercised by the bank. The bank's
capital was increased by £3,409,000, and that of the South Sea Company
was further reduced by £4 million. The final step in reconstruction was to
split the £32 million of capital stock in half in midsummer 1723. One half
remained the trading stock of the company, but the other half became
fixed-interest stock, called the "South Sea Annuities." These were, in fact,
perpetual annuities and were greatly favored by conservative Dutch inves-
tors over the next quarter century. That was the final financial innovation to
emerge, and it completed a structure of financial instruments for the British
government that proved its worth in each war for the next two centuries.
Henceforth, the Exchequer and the army and navy could issue bills in times
of emergency, and the bills could then be retired from the proceeds of
selling new issues of perpetual annuities, which in turn could be retired at
the government's discretion or left in circulation. The Bank of England
created its first perpetual annuities in the Three Per Cents of 1726, but they
were still irredeemable. The bank followed up with issues of redeemable,
perpetual 3% annuities in 1727, 1731, 1742, 1743, 1744, 1745, 1750, and
1751. The latter issues were the basis for the most popular government
security of the next 150 years when they were combined into the Three Per
Cent Consol by the Consolidating Act of 1751.
6. The English and Dutch East India
companies: how the East was won
The East India companies of the Dutch and of the English represented the
most successful examples of merchant organization in the early modern
era. Both exploited the possibilities of long-distance trade in highly valued
exotic goods from the Orient to western Europe as well as seaborne traffic
in the Asian trading world and, eventually, the potential for extracting
taxes and tribute within Asia. Both confronted the problems of long voy-
ages, delays in communications, political and commercial competitors in
both Europe and Asia, and uncertain control over their agents. It was most
likely the combination of the large scale of their operations, the long
distances, and the lengthy transit times that led to the most important
institutional innovation made by the two companies: the transformation of
merchant trading or working capital committed initially to the duration of a
particular voyage into fixed or permanent capital committed perpetually to
the enterprise. The transformation was effected quickly by the Dutch com-
pany, apparently by 1612, whereas the English company had certainly
made the transition by 1659.
After that transformation, both companies were joint-stock corporations
whose shares were actively traded in surprisingly modern stock exchanges
in both Amsterdam and London. The daily prices for the English com-
pany's shares are available from 1698 on, and the every-other-day prices
for the Dutch shares are available for at least the period 1723-94. These
are used later to weigh the relative importance of organizational, commer-
cial, and political factors in determining the fortunes of each company over
the course of the eighteenth century, when the English company overtook
the Dutch. Consistent with Steensgaard's thesis, the conclusion emerges
that the two companies shared in much the same way the profits arising
from changing commercial possibilities and differed primarily in the way
they confronted the problems of internalizing protection costs created by
political conflicts. Because of differences in internal organization, the
political events in Asia were more important for the Dutch, and those in
Europe more important for the English.
118
How the East was won 119
The financial information discussed here has been used in summary

form by modern historians, as well as by contemporary analysts in eigh-
teenth-century Europe. Jean-Pierre Ricard, in the early eighteenth century,
remarked on "the Dutch East India Company's average yearly divided
distribution of 22.5 percent on the original subscribed capital," a dazzling
figure that, according to the careful research of J. P. de Korte, had been
reduced only to 18% by the end of the century, when the company had
completed its life as a private enterprise.1 Malachy Postlethwayt's entry on
the Dutch East India Company in his 1751 Universal Dictionary explained
that "one of the reasons why the Dutch East India company flourishes, and
is become the richest and most powerful of all others we know of, is its
being absolute, and invested with a kind of sovereignty and dominion, [it]
makes peace and war at pleasure, and by its own authority; administers
justice to all; settles colonies, builds fortifications, levies troops, maintains
numerous armies and garrisons, fits out fleets, and coins money." On the
English company, he remarked that "[it] is the most flourishing trading
company in the kingdom, as likewise one of the greatest in Europe for
wealth, power, and immunities; which appears by the ships they constantly
employ, the beneficial settlements they have abroad, their large magazines
and storehouses for merchandizes, and sales of goods at home, with the
particular laws and statutes made in their favour."2
Thanks to Steensgaard's path-breaking study, we appreciate better the
political significance of these new organizational forms of trade, as well as
their economic significance. The studies of the Dutch East India Company
(VOC) by Kristof Glamann, J. P. de Korte, and J. R. Bruijn and associates
have added immensely to our knowledge of the economics of that great
enterprise over the nearly two centuries of its existence as a private corpo-
ration. Likewise, the monumental efforts of K. N. Chaudhuri have made
readily available a wealth of quantitative information on the trade and
profits of the English East India Company (EIC), particularly in the hun-
dred years 1659-1760, during which it displaced the VOC as the preemi-
nent trading power between Asia and Europe.3
1
Jean-Pierre Ricard, La Negoce a"Amsterdam: contenant tout ce que doivent savoir les
marchands et banquiers, etc. (Rouen: J. B. Machuel, 1723), p. 400; J. P. de Korte, De
Jaarlijkse Financiele Verantwoording in de Verenigde Oostindische Compagnie (The
Hauge: Nijhoff, 1983), p. 93.
2
Malachy Postlethwayt, The Universal Dictionary of Trade and Commerce, 4th ed., 2 vols.
(London: 1774; reprinted New York: Augustus M. Kelley, 1971), s.v. "Dutch East India
Company" and "East India Company."
3
Niels Steensgaard, The Asian Trade Revolution of the Seventeenth Century (University of
How can we organize the results of these impressive studies into a

direct, quantitative comparison of the two companies? This would be
useful so that we could determine the relative influences of each similarity
and contrast on the progress of the two companies within the context of the
northern European economy. Because of differences in internal organiza-
tion, the bookkeeping practices of the two were sufficiently different that
direct comparisons from the detailed records of their trading and financial
activities are as difficult now as they were then. The answer, I argue here,
is to be found in the quantitative price data left from the operations of
highly integrated and reasonably efficient stock markets and foreign ex-
change markets in London and Amsterdam during the eighteenth century.
Prices from the stock markets

It was argued in Chapter 3 that the evaluations of the equity of each joint-
stock company made by investors trading and speculating in their shares on
the stock exchanges of London and Amsterdam were much the same as the
evaluations of corporate enterprises that are seen in modern stock mar-
kets. 4 Modern finance theory suggests that modern stock markets are effi-
cient in the sense that all information available each day to stock market
traders is used fully in the determination of stock prices each day. Rumor
and misinformation, as well as mistakes, will affect short-run price move-
ments, but over the not so very long run the best information available on
"fundamentals," the usual determinants of a company's profitability, will
dominate the movements in share prices. If eighteenth-century stock mar-
kets were efficient in the same way, the information their price movements
convey on market fundamentals will be very useful to modern historians.
Figure 6.1 shows the dramatic changes in the relative values of shares of
the two trading companies as they were traded on the Amsterdam stock
Chicago Press, 1974); Kristof Glamann, Dutch-Asiatic Trade, 1620-1740 (The Hague:
Nijhoff, 1981); de Korte, De Jaarlijkse Financiele Verantwoording; J. R. Bruijn, F. S.
Gaastra, and I. Schdffer, Dutch-Asiatic Shipping in the iyth and 18th Centuries, 3 vols.,
Grote Serie of Rijks Geschiedkundige Publicatien, Vols. 165-7 (The Hague: Nijhoff,
1979-87); K. N. Chaudhuri, The Trading World of Asia and the English East India
Company, 1660-1760 (Cambridge University Press, 1978); K. N. Chaudhuri, Trade and
Civilisation in the Indian Ocean (Cambridge University Press, 1985).
Larry Neal, "Efficient Markets in the Eighteenth Century? The Amsterdam and London
Stock Exchanges," Business and Economic History, 11(1982), pp. 81-100; Larry Neal,
"Integration of International Capital Markets: Quantitative Evidence from the Eighteenth to
Twentieth Centuries," Journal of Economic History 45 (June 1985), pp. 219-26.
800 -
400 -
200 -
100
Figure 6.1. Share prices for English and Dutch East India companies, 1723-94.
market and reported irregularly in the Amsterdamsche Courant.5 Although

the EIC share prices varied a bit between the London and Amsterdam
prices, the movements were very similar and the levels nearly identical.6
Throughout the period 1723-94, the price of the VOC fell absolutely and
relative to the price of the EIC. These are prices of individual shares. We
must multiply these by the nominal capital stock in each year to get the
total market evaluation of each company. The capital stock of the VOC
remained constant at 6,440,220 florins throughout the period 1650-1790,7
and the share capital of the English United East India Company remained
at £3,194,080 from 1717 through 1785. In 1786, 1789, and again in 1793,
its capital stock was raised in stages of £800,000, £1,000,000, and
£1,000,000 to a total of £5,994,080. So the decline in share prices for the
Dutch company shows precisely the relative decline in total market evalua-
5
mische-Historische Jaarboek, 17(1931), pp. 1-46.
6
See the analysis of the prices of EIC stock in the two markets in Larry Neal, "The
Integration and Efficiency of the London and Amsterdam Stock Markets in the Eighteenth
Century," Journal of Economic History, 47(March 1987), pp. 97-115.
7
de Korte, De Jaarlijkse Financiele Verantwoording, Bijlage 13. Divide the "Dividend
bedrag" (total dividends paid) by "Dividend perc." (the dividend yield) to get the nominal
capital stock.
30%
-30%
Figure 6.2. English and Dutch East India companies' deviations from trend, 1723-
94-
tion. And the fluctuations in share prices for the English company show
precisely the rise and fall in the market's evaluation of its total anticipated
worth until 1786, when the recurring additions to capital meant that the
share price understated the total equity by increasing amounts.8
In addition to this striking difference in trends, the noteworthy feature in
the graph is the existence of long-period fluctuations in the price of each.
To analyze the correlations of these between the two companies, Figure 6.2
shows the fluctuations as deviations from a simple linear, arithmetic trend
for each series. This indicates that the fluctuations from the trend were
roughly similar in timing, with the notable exception of the 1730s. It was
in that period that the share prices of the VOC not only dropped most
dramatically relative to those of the EIC but also moved inversely to, rather
than directly with, those of the EIC. Figure 6.2 also shows that the vol-
atilities in the price fluctuations of the two stocks were roughly the same.
8
In addition to the usual cautionary statements about short-term fluctuations in "the mar-
ket's" evaluation of a corporation, we should note that the price of VOC stock was really
that of stock in the Amsterdam chamber, which represented only half the total enterprise.
By the time our coverage begins, however, the variation of share values among the several
chambers was likely unimportant.
Can these data be used to make stronger inferences about the historical
forces that drove each company's profitability? Critics of modern eflficient-
market theory note that stock prices may reflect not only information about
future profit possibilities but also information about current battles for
control of company decisions that changes in ownership of stock may
bring. Much the same arguments have been made about the behavior of
stock prices in the eighteenth century.9
Josiah Child, for example, in his Treatise Concerning the East-India
Trade, in 1681, observed that English investors were wary of buying into
the EIC:
Because when we tell Gentlemen, or others, they may buy Stock, and come into the
Company when they please: They presently reply, They know that, but then they
must also pay 280 /. for 100 /. And when we say the intrinsic Value is worth so
much; which is as true as 2 and 2 makes 4, yet it is not so soon Demonstrated to
their apprehensions, notwithstanding it is no hard task to make out, that the quick
stock of the English East India Company is at this time more than the Dutch quick
stock, proportionable to their respective first subscriptions; and yet their Actions
now are current at 440 /. or 450 /. per Cent.10
If Child was correct in thinking that stock in the EIC at that time was a
better buy than stock in the VOC (and there is no reason to suppose he was
correct), the difference in values reflected market imperfections. The ex-
clusion of foreigners from purchase of English stock, even though the VOC
gave foreigners the right to own stock from the beginning, may be an
explanation. By the time the United East India Company merged the Old
Company and the New Company in 1709, however, foreigners clearly
were given the right to buy and hold stock in the English company. From
that time, certainly, and probably from the time the New Company was
chartered with permission for foreigners to hold its stock, the likelihood
was small that such large differences in valuation could be maintained
among the informed merchant community.
Although Child, in the seventeenth century, and all mercantilist writers
in the eighteenth century (with the notable exception of Daniel Defoe)
regarded the stock markets as reliable arbiters of the relative evaluations of
the giant joint-stock companies of the time, modern scholars have ex-
pressed some doubts. The Mississippi and South Sea bubbles are under-
9
For a critique of the efficiency of both eighteenth- and twentieth-century markets, see
Philip Mirowski, "What Do Markets Do? Efficiency Tests of the Eighteenth Century
London Stock Market," Explorations in Economic History, 24(April 1987), pp. 107-29.
10
Josiah Child, A Treatise Concerning the East-India Trade (London: Robert Boulter,
1681). By "quick stock," Child presumably meant Asian goods in warehouses in Europe.
stood by modern scholars, as they were by contemporaries, as evidence of

unbounded credulity by the investing classes and the ultimate irrationality
of the primitive asset markets of the time. 11 Recent historians, however,
have tended to upgrade their assessments of these early markets and to
emphasize failures of government policy rather than institutional weak-
nesses in the markets. 12 I have gone so far as to argue that the South Sea
Bubble was an original example of a rational bubble of the same nature as
the rational bubbles occasionally observed in modern financial markets.13
For our purposes, this debate boils down to the question whether the
course of stock market evaluations of the joint-stock companies repre-
sented merely irrational responses by a few large investors to rumors and
suspicions, some ad hoc pricing rule adopted in the absence of reliable
information, or some rational evaluation of the shares relative to other
possible investments. The first position was stated most forcefully by
Philip Mirowski, who found no evidence that share prices of the EIC were
shaped by profit rates. That contrasted with his evidence that the profits of
the London Assurance Company and the Million Bank determined in large
part the market evaluation of their shares. It is anomalous that the London
stock market could do a good job of evaluating the shares of two com-
panies, but not of a third, larger company. Mirowski explained that anoma-
ly by asserting that
both contemporaries and present-day historians identify East India shares as pri-
marily a speculative purchase, due to their dependence upon such imponderables as
the state of Indian politics and the relative strength of interlopers in the trade. The
effect of the news must have been so extreme upon speculators in the India stock
that it spoiled their ability to translate news into prospects of profitability.14
Mirowski used the contemporary account books of the three companies

to determine their measures of profit rates, arguing that that was what the
most rational investors would have had available to guide their investment
decisions. In equation form,
11
Burton Malkiel, A Random Walk Down Wall Street (New York: Norton, 1973); Charles P.
Kindleberger, Manias, Panics and Crashes (New York: Basic Books, 1978).
12
See Edgard Faure, Le Banqueroute de Law (Paris: Gallimard, 1977), on the Mississippi
Bubble and P. G. M. Dickson, The Financial Revolution in England: A Study in the
Development of Public Credit, 1688-1756 (London: Macmillan, 1967), on the South Sea
Bubble.
13
Larry Neal and Eric Schubert, "The First Rational Bubbles: A New Look at the Mississip-
pi and South Sea Schemes," unpublished paper, Urbana, IL, 1985.
14
Philip Mirowski, "The Rise (and Retreat) of a Market: English Joint Stock Shares in the
Eighteenth Century," Journal of Economic History, 41 (September 1981), p. 575.
S P = / ( P R , , PR,_,)
where SP is the price per share, and PR is the rate of profit per share.
Historians of both the Dutch and English companies, however, have been
impressed by the extraordinary difficulties faced in calculating true profits,
given the problems of goods in transit and of measuring working capital
employed in the Asian trading world. If contemporaries were aware of
these problems (and, of course, they were, because these were fundamen-
tal conditions of long-distance trade in the entire sailing era), they would
have been more sensible to capitalize only the actual dividends paid out by
the directors, and not take account of longer term capital gains that might
be anticipated from believing dubious profit reports. Changes in a govern-
ment's control over the finances of a company or in its control over trade
routes and tax collections in Asia would, of course, change the assessments
of the risks faced by the company.
I have performed my own tests on the performance of the markets by
estimating a version of the standard capital-asset pricing model (CAPM)
used in modern finance. In its simplest form, which is most likely applica-
ble to the eighteenth century, the CAPM argues that the market value of a
company's equity is the capitalized value of its annual payouts in the form
of dividends. The discount rate used to capitalize the annual payouts can be
adjusted to account for the risk factor that investors attach to the financial
asset, as well as their expectations about future growth of dividends.15 In
equation form, this can be written
Po = Dxl{kx - g)
where Po is the price per share of the company's equity in time period o,
Dx is the dividend paid out in the next time period (period 1), kx is the
required rate of return investors demand on the stock in the next time
period, and g is the expected rate of growth of dividends over time.
In the regression results presented in Table 6.1, I have calculated the
expression on the right-hand side as the single independent variable, which
has an expected coefficient of 1.0. In calculating this expression, I have
consistently taken g, the expected growth rate of dividends, to be zero,
because the period of analysis in each case is well past the initial rapid-
growth phase of the company in question. The required rate of return
investors demand on the stock, k, is a varying discount rate. In modern
15
The model used is adapted from the discussion in the finance textbook by Eugene F.
Brigham, Financial Management, 4th ed. (New York: Dryden Press, 1985), chap. 5-6.
TABLE 6.1
Regression results of the capital-asset-pricing model
for the Bank of England, the East India Company,
and the Dutch East India Company
Bank of England
Independent variable Coefficient Standard error t value Significance level

CAHadU.) 0.999 0.015 67.72 0.0000
0.99; SE= 5.82; MAE= 4.1; DW= 1.77; rho = .667; 70 observations (1724-94)
English East India Company

CAHacU.) 0.925 0.045 20.67 0.0000
R2 (acU.) = 0.86; SE = 17.39; MAE = 12.78; DW= 1.93; rho = .75; 70 observations fitted
(1724-94)
Dutch East India Company

CAHadj.) 0.913 0.038 24.35 0.0000
R2(&6j.) = 0.92; SE = 45.24; MAE= 32.813; DW=1.62; rho = .675; 54 observations fitted
(1724-58)
English East India Company1
Independent variable Coefficient Standard error

CONSTANT 164.73 21.36
PR 0.190 0.37
PR-1 0.246 0.48
WAR3 425635.4 0.317
R2 = 0.001; F = .20; 100 observations fitted (1710-1810)
Note: The dependent variable in each regression is the average annual share price; CAP(adj.) ig
the calculated average based on dividend rates, risk-free interest rates, and risk factors,
as described in the text; SE = standard error of the regression; MAE = mean absolute
error; DW is the Durbin-Watson statistic.
1
Philip Mirowski, "The Rise (and Retreat) of a Market: English Joint Stock Shares in the
Eighteenth Century," Journal of Economic History, 41 (September 1981), p. 575.
finance, it is a composite of the short-term return on a risk-free asset

actively traded in the capital markets plus a risk factor based on the vol-
atility of the capital markets plus a risk factor for the stock in question that
takes into account its volatility relative to that of the entire market. I used
the one-year holding return on Three Per Cent Consols in the London
220
-1-220
200- - - Calculated
180 -
-180
160 I
Z "i
a) 140 -
en - 140
120
gu ~
i,SJ i
L
a> 100 - Actual 1-100
80- I-
I
60 -» j - 60
40-j
20-1 I- 20
4
1723 1733 1743 1753 1763 1773 1783 1793
Figure 6.3. Bank of England shares, CAPM. The calculated price is annual divi-
dends divided by the annual holding-period yield on consols. It has no risk
adjustments.
market as my measure of the one-period return on a risk-free asset.16 The

data necessary to calculate the market's volatility as a whole are not avail-
able for periods after 1733 (see Chapter 3); so an arbitrary risk factor, the
beta coefficient in the opaque terms of modern finance, was added into the
calculation for each company's stock at certain periods. The graphs in
Figures 6.3 through 6.5 plot the annual average share price against the
CAPM-calculated share price without adding any risk factors. They show
clearly which periods had greater risks for shareholders, because in those
periods the actual share prices were consistently below the calculated share
prices, even though the annual movements were very similar.
For the Bank of England's share prices (Figure 6.3), the model shows
good tracking ability of the fluctuations throughout the 72-year period. In
16
That required extrapolating the actual Three Per Cent Consol returns back from 1753,
when they began to be quoted in the Course of the Exchange, to 1723, when the price
quotes for the VOC began in the Amsterdamsche Courant. That was done by using the
return on the Bank of England's Three Per Cent Annuity, the precursor of the famed Three
Per Cent Consol, until 1726, when the bank issued its first annuity. For the remaining three
years, the return on the South Sea Annuities issued in the aftermath of the bubble was
used, because that was the largest single issue of security and was the most stable in price
of any asset in that period.
the years 1728-45, however, there clearly was an additional risk factor
attached by investors to the bank's stock, a risk factor that was consider-
ably reduced over the next period, 1746-76. Thereafter, bank stock ap-
pears to have been as risk-free as the Three Per Cent Consols. The first
period perhaps reflects the uncertainty attached to the bank's attempt to
take up the functions of the moribund South Sea Company as financier to
the government. Not only had the bank engrafted part of the stock of the
South Sea Company to its own in 1723, but from 1726 onward it also
issued annuities that turned out to be the precursors of the Three Per Cent
Consols. In 1742 its services to the government were rewarded by renewal
of its charter to 1764 and a strengthening of its monopoly position as the
nation's only joint-stock bank. The effect of that was delayed by the panic
caused in 1745 by the advance of the Stuart pretender to the throne to
within 127 miles of London. The bank's charter was renewed in 1764 and
again in 1782. It benefited in 1774 from the recoinage, which reduced the
price of gold from £4 is. to £3 17s. 6d.17 So the deviations of the CAPM-
calculated share prices from the actual share prices appear to be consistent
with the changed risks to shareholders as a result of the periodic changes in
the bank's relation to the government. In the regressions reported in Table
6.1, a risk adjustment factor of 1.3 was applied during the first period, and
1.1 during the third.
In the case of the EIC (Figure 6.4), a comparable risk factor evidently
was in play during the period 1723-56. During the first few years follow-
ing the Seven Years' War, the model tracks very closely indeed and then
begins to diverge erratically from 1767 to 1772. Thereafter, although the
levels predicted by the model are close to those actually realized, the
annual movements are erratic. Fairman's account of the financial history of
the company explains convincingly the source of these deviations of the
model:
Early in 1764, the receipt of very unpleasant news from Bengal immediately caused
India stock to fall 14 per cent. The general administration of the Company's affairs,
both at home and abroad, became afterwards the subject of much discussion; and,
on the 29th August, 1766, the Court of Directors received a notice from the
Secretaries of State, that an investigation would take place in the next Session of
Parliament; in consequence of which the price of their stock fell from 230 . . .to
206, but . . . the dividend being increased to 10 per cent., it got up considerably,
the average price of the whole year being 254.18
17
A. Andreades, History of the Bank of England, 1640-1903, 4th ed. (New York: Augustus
M. Kelley, 1966), pp. 143-59-
18
William Fairman, The Stocks Examined and Compared . . . , 7th ed. (London: 1824), p.
125.
400 - r 400
350 -
300 - 300
a. 250 -
200
- Actual
100 - - 100
50
<H
1723 1733 1743 1753 1763 1773 1783
*-
1793
0
Figure 6.4. East India Company shares, CAPM. The calculated price is annual
dividends divided by the annual holding-period yield on consols. It has no risk
adjustments.
The Regulating Act of 1772 followed, which brought the company

under the uncertain control of the government. The political uncertainties
and financial consequences of that transition of the EIC - from a profit-
making holding company operated for the benefit of participating mer-
chants and shipowners to an instrument of the power of the British state in
Asia - have been admirably discussed and analyzed by Lucy Sutherland.19
The vicissitudes of the company's financial dealings with the state, which
required annual payments of £400,000 by the company to the Treasury,
while the Treasury guaranteed the assumption of Indian debts by the com-
pany, have been detailed by Fairman. These are clearly beyond the capacity
of the model to capture. So the regression results reported for the EIC in
Table 6.1, which include the observations for the entire period 1723-94,
are less compelling than the results for the other companies.
The data for the VOC (Figure 6.5) show marked divergence from the
model at the outset in the mid-1720s and then track fairly well until a risk
factor appears to be at work from 1743 until 1757. It was in that period that
the state was paid yearly an amount equal to 3% of the annual dividend as
the price for extending the charter of the VOC from 1740 to 1756. There-
after, the data track well until 1776. In the period 1755-74 the VOC was
19
Clarendon Press, 1952).
900 - 900
- 700
- 500
- 300
100 - - 100
1723 1733 1743 1753 1763 1773 1783 1793
Figure 6.5. Dutch East India Company shares, CAPM. The calculated price is
annual dividends divided by the annual holding-period yield on consols. It has no
risk adjustments.
able to settle its pledge of 1,200,000 florins to the government by deliver-

ing saltpeter.20 After that, chaos sets in for the model, but as in the case of
the English company just discussed, this reflects the growing financial
difficulties of both the company and the government, which led to formal
control of the company by the state in 1785, after several years of skipped
dividends. As with the Bank of England and the EIC, the deviations of the
CAPM-calculated stock value from the actual prices of the VOC stock
appear quite explainable in terms of the changes in the financial constraints
placed on the company by the Dutch government. The first five years and
the period after 1782 are omitted in the regression results reported in Table
6.1, and a risk factor of 1.3 is applied during the interval 1745-56.
The regression results are very encouraging to proponents of the idea
that participants in the stock markets of the Age of Reason were rational in
their economic behavior. The independent variable in each regression is the
calculated value of the share price, assuming that the markets were effi-
cient and that our measures of the risk factors are correct.21 The coefficient
20
Bruijn, Gaastra, and Schoffer, Dutch-Asiatic Shipping, Vol. I, pp. 7 - 8 .
21
The regression estimates were done using generalized least squares, and the rho values
shown for first-order autocorrelation were used to correct for serial correlation. The
coefficient of determination was adjusted for first-order serial correlation in the residuals.
on the CAPM independent variable is statistically significant in each case

and is very close to the theoretical value of 1.0 for the Bank of England and
the two East India companies. The total variance explained by the simple
regressions is quite high. For the EIC shares, the CAPM results provide a
market contrast to the dismal results found by Mirowski. But they are all
the more convincing because the CAPM also does well for the VOC and
gives nearly perfect results for the Bank of England.
For our present purpose, relating merchant activity to the course of
empire, these results imply that the financial markets of the time gave us
important, and reliable, information. The stock prices for each company
reflected regularly not only the economic calculations of European mer-
chants but also their assessments of the political role played by the manage-
ment of each company. We have a good retrospective understanding of the
profits of each company (even if we are not sure how well the directors of
each company understood these at the time) and a good comprehension of
the political pressures placed on each company, both in Europe and in Asia.
The course of stock prices for each company over time tells us how these
economic and political events were comprehended by the stockholders of
each company. This allows us, in principle, to determine which events were
most important in determining the ultimate replacement of the VOC by the
EIC as the preeminent trading entity between Asia and Europe.
The summary picture we can draw here is that during the eighteenth
century the initial preeminence of the Dutch in the trading nexus between
Asia and Europe was being eroded, primarily by the English, but no doubt
also by others. The French company continued to do a large business in
Asia until the defeats of the Seven Years' War. The Spanish strengthened
their role in the Philippines, and the Portuguese continued to play an
important entrepot role in the Asian trading world. Meanwhile, the Aus-
trian, Danish, and Swedish companies made inroads in the Baltic-Asian
trade previously monopolized by the Dutch. That may be the inevitable lot
of the pioneer profiteer, but the decline took a long time and had an
interesting history during its course. When the stock prices of the two
companies moved in similar patterns relative to the trend, we may infer
that both were experiencing the effects of changed marketing conditions in
either Europe or Asia. That clearly was the case during most of the century.
However, there were several intervals when the two price series moved
inversely, indicating that one company was gaining on the other, at least
, relative to the trend. For example, the EIC lost relative to the VOC from
f mid-1731 to 1733, and then from 1736 until 1743 it gained sharply, with
only a brief setback in 1739. From 1750 through the end of the Seven
Years' War in 1763, the VOC gained relative to the EIC, especially during
the war years. After the disturbances at the end of the war, the EIC did
marginally better than its Dutch competitor until the Regulating Act of
1772. Thereafter, the VOC again gained relative to the EIC until it began
its final collapse, leading to takeover by the Dutch government in 1787.
The inverse episodes before the battle of Plassey deserve special attention,
especially those in the early and late 1730s and early 1740s, a period of
peace in Europe and internal stability in each company's organization.
Exchange rates
Figures 6.6 and 6.7 plot the fluctuations in the exchange rate between
London and Amsterdam for the periods 1698-1722 and 1723-50. The rate
is the two-month usance rate in London or Amsterdam. In that period,
exchange rates were always quoted the same way in each city for ease of
calculation; so the Amsterdam rates would also be somewhere near 35.5
schellingen banco per pound sterling, which was approximately 1 Flemish
shilling below the mint par ratio. 22 Because these are usance rates, they
include an implicit interest rate that covered the cost of waiting two months
for payment in the foreign city after the bill of exchange was bought in the
city of origin. The implicit interest rate meant that the quoted exchange rate
would be slightly lower in Amsterdam, say 35$., and slightly higher in
London, say 365. That is to say, the guilder was worth more in Amsterdam
than in London, because the guilders were paid currently, whereas the
pounds were received only two months later. Likewise, the pound was
worth more in London than in Amsterdam, because the pounds were paid
currently, whereas the guilders were to be received two months later. Sight
rates, which began in Amsterdam on London around 1706 and in London
on Amsterdam at the end of 1720, included a premium paid at the city of
origin for the right to obtain the foreign currency at the city of destination
more promptly. So sight rates in Amsterdam typically were 2 grooten
22
The mint par ratio between London and Amsterdam for that period was 36.59 Flemish
shillings (Fl. s.) (Postlethwayt, Universal Dictionary, s.v. "Coin," 4th page of entry).
That appears to have been in terms of bank money as opposed to current money (the
exchange rates given in the exchange currents were for bills of exchange in bank money
payable at the Bank of Amsterdam), but even so the rate appears too high for most of our
period. But the actual rates observed in Figures 6.3 and 6.4 were seldom below 34.76 Fl.
s., which would be approximately the specie export point in peacetime. The rate could
obviously fall lower in wartime, as it did during the War of the Spanish Succession.
- 37
- 36
- 35
h 34
- 33
32
* * «O ,0 „ „
Figure 6.6. Exchange rate of London on Amsterdam, 1698-1722.
Feb 1746
37- -37
Mint Par Ratio
Dec 1748
-36
34
Jan 23 Jan 28 Jan 33 Jan 38 Jan 43 Jan 48
Figure 6.7. London exchange rates on Amsterdam, two months' usance, 1723-50.
higher than the usance rate, and sight rates in London were a standard 2
grooten lower than the usance rate, save during liquidity crises.
The rates seem to center about the 35,?. level, but show prolonged
swings between the mint par ratio of 36.59 Flemish shillings and the
approximate specie point for export from London, 34.76 shillings. In the
period 1698-1722, the pound fell relative to the guilder during the War of
the Spanish Succession, and the fluctuations reflected accurately and
promptly the exigencies of war finance. Note the especially low levels of
the British pound during the crisis years of 1709-10. The South Sea
Bubble shows up as a period of sharp fluctuations reflecting first capital
inflows and then capital flight. In the next period, 1723-50, the fluctua-
tions were much smaller, especially in the 1720s and 1730s. The War of the
Austrian Succession had a similar but less pronounced depressing effect on
the pound as had the War of the Spanish Succession in the earlier period.
That reflected well the relatively smaller scale of the British effort in the
latter war.
The foreign exchange markets operated on a larger scale and with a
broader range of more experienced participants than did the stock markets
of either Amsterdam or London; so the reliability of their market prices is
much greater. However, they reflected different and broader economic
forces. Obviously, the balance of total trade between the two countries
could affect the relative demand for their currencies in the foreign ex-
change markets. But, more generally, it would be changes in the relative
trade balances of the two countries with the rest of the world, not just with
each other, that would alter the exchange rate of their currencies.
Particularly interesting for the 1720s and 1730s is the possibility of
capital movements affecting the exchange rates. The price differences for
EIC stock between the Amsterdam and London markets over the entire
period 1723-94 are analyzed in the following chapter. There it is found
that only in the period 1723-38 was a higher price in Amsterdam than in
London strongly associated with a higher value of the pound sterling in
terms of Dutch currency.23 In the rest of the periods, higher prices in
Amsterdam were strongly associated with a higher value of the Dutch
currency. This suggested that in 1723-38, Dutch demand for English se-
curities drove up the value of the English currency, whereas in succeeding
periods a rise in the English exchange rate would drive up the value of
English securities held in the Netherlands. It is interesting that it was
23
Neal, "Integration and Efficiency," p. 112.
precisely that period that P. G. M. Dickson identified as the most important

period for foreign investment, especially Dutch, in the English public
securities, including stock of the EIC. 24
I have formalized and tested these ideas elsewhere.25 Unfortunately, the
econometric results were disappointing for the thesis that capital move-
ments accounted for much of the exchange-rate fluctuations in that period.
Nevertheless, it remains the case that the Amsterdam-London exchange-
rate data show an unusual relationship to the mint par ratio for the 1730s,
just as the price deviations from the trend of the English and Dutch com-
panies show an unusual divergence from each other for the 1730s. What
could have caused this disturbance in the foreign exchange markets and the
offsetting price movements in the shares of the two companies, given the
absence of war or major economic policy change?
Treasure and tea

The explanation for the dramatic rise in the fortunes of the English com-
pany and the equally dramatic decline in the anticipated fortunes of the
Dutch in the 1720s and 1730s lies, according to both Glamann and Chau-
dhuri, in the way the two companies handled the tea trade with China.
Glamann noted that the Dutch had the favored position until 1718, based
on selling in European markets the tea brought to Batavia by Chinese
junks. In that year, the VOC's governor general and council in Batavia
decided to offer the Chinese fixed prices much lower than previously. That
appears to have been a response by Batavia to orders from the Netherlands
to charge higher prices to the Chinese for pepper (so that they would not be
able to resell at a profit to European competitors of the Dutch). The Chi-
nese were outraged and refused to come to Batavia at all for the next five
years. The net result was that the European competitors of the Dutch began
to buy tea directly from the Chinese instead of black pepper. Moreover,
they found an exploding market in Europe for the better varieties of tea that
were available to them in Canton. By the time the junks finally resumed
voyages to Batavia in 1723, the market for their traditional green teas had
been surpassed in Europe by the demand for black teas. 26 The EIC began
importing tea directly from Canton on a regular basis in 1717, and each
24
Dickson, The Financial Revolution, pp. 312, 321.
25
Larry Neal, "The Dutch and English East India Companies Compared: Evidence from the
Stock and Foreign Exchange Markets," in Tracy, ed., The Rise of Merchant Empires.
26
Glamann, Dutch-Asiatic Trade, pp. 216-43.
succeeding decade until 1760 saw an accelerating rate of growth in the

volume of its imports.27 The Dutch eventually adjusted to the new market-
ing situation generated by European demand and different conditions of
supply from China, but at a position distinctly inferior to that of the
English.28
Tangible evidence of the relative failure of the Dutch in the new tea trade
was the rise in bullion shipments relative to total exports that occurred in
the 1720s and 1730s. Glamann did not give annual figures for shipments
from the Netherlands to Batavia in the way that Chaudhuri did for the
English company, because by that time an increasing amount of bullion
could come on private account with passengers. That was especially so in
the period 1724-35, when the turnover of ducatons (the Dutch-minted
silver trading coin) in the general-commerce ledgers of the VOC in Batavia
showed a remarkable increase from 948,739 florins in 1724-5 to over 7
million in 1733-4. Much of that arose from ducatons being shipped on
private account by Dutch money dealers to Batavia and then turned in to
the VOC to purchase bills of exhange payable in bank money in Amster-
dam. Because the VOC in Batavia was paying a premium for ducatons in
order to ship them to Canton or Bengal, speculators in the Netherlands
could realize a profit of over 20% plus a 4% premium that the VOC
regularly gave on bills of exchange for the interest lost during the time of
transfer from Indonesia to Europe.29 In sum, the VOC began in the eigh-
teenth century to ship much larger sums of silver and (to a lesser extent)
gold to Asia, both directly on its own account and indirectly by encourag-
ing its passengers to smuggle silver coins to Batavia. Nevertheless, it
appears from the analysis of Gaastra that it was not so much the increase in
demand for silver by tea merchants in Canton that accounted for this rise,
but rather the drying up of Asian sources of bullion that the Dutch had been
able to tap in the seventeenth century. Preeminent was the loss of Japanese
silver, but Spanish silver was no longer available to the Dutch from Ma-
nila, being used directly in Chinese trade, and even the northwestern
Indian and Persian supplies were lost in the eighteenth century.30
27
Chaudhuri, Trading World of Asia, p. 388.
28
An excellent summary of the successful rise of the English tea trade and the failure by the
Dutch is given by Holden Furber, Rival Empires of Trade in the Orient, 1600-1800
(Minneapolis: University of Minnesota Press, 1976), pp. 129-35, 140-4.
29
Glamann, Dutch-Asiatic Trade, p. 72.
30
F. S. Gaastra, "The Exports of Precious Metal from Europe to Asia by the Dutch East
India Company, 1602-1795," in J. F. Richards, ed., Precious Metals in the Later Medi-
eval and Early Modern Worlds (Durham: Carolina Academic Press, 1983), pp. 447-76.
- 1.0
- 0.8
m
- 0.6
II
s - 0.4
- 0.2
1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760
Figure 6.8. English East India Company exports of treasure and goods, I66O-
1760.
By contrast, the EIC was shipping ever smaller amounts of bullion, both
in absolute quantities and relative to commodity exports, during the 1730s
(Figure 6.8). The apparent reason for the success of the English company
relative to the Dutch was the salability of Indian goods transported by the
English (mainly cotton textiles, but apparently also some opium, even at
that early date) in the Chinese market. By contrast, the Dutch no longer
had the textiles of the Coromandel coast of southeast India to ship to
China, because of the increasing success of the French East India Company
in that region. The encroachment of the English and others in the Spice
Islands trade meant that fine spices could be provided in China by Amster-
dam's competitors. In sum, it was not so much the loss of the tea trade in
the early 1720s that damaged the Dutch relative to the English. The Dutch
recovered from that setback rather quickly. But it was significant in fore-
telling the greater difficulty that would be faced by the VOC compared with
the EIC in adjusting to competition from new companies, particularly the
French.31
Our stock prices, it should be recalled, are from the Amsterdam market
31
See the discussion of the growing success of the French company in the 1730s and 1740s
by Paul Butel in James Tracy, ed., The Rise of Merchant Empires, Vol. 1 (Cambridge
University Press, 1990), chap. 4.
for both the VOC and the EIC; so they show that the Dutch merchant
community was well aware of the implications of these movements of
bullion by each company from Europe to Asia and of the sale of each
company's goods in China. The exchange-rate movements between Lon-
don and Amsterdam indicated a strengthening of the pound due to the
favorable effects on English trade balances of English success in the
China-Europe tea trade and the India-China textile trade. That movement
of the pound encouraged and abetted financial adjustments that led to a
sharp fall in VOC equity valuation and a corresponding rise in the valuation
of the EIC in the early 1730s and again in the early 1740s.
Conclusion
This exercise in statistical analysis of the financial data left in the historical
record of northwest Europe in the eighteenth century should increase our
appreciation, first, of the modernity of the financial markets of that time,
second, of the rationality of the merchant community, which for the first
time was trading and investing on a pan-European scale and responding to
global economic developments, and, third, of the possibilities of using this
overwhelming data legacy to illuminate other episodes in the course of
trade and empire during that pivotal epoch.
For example, each company relied primarily on the shipment of bullion
and specie, especially silver specie, to the Far East in order to effect payment
for the Asian products it brought back to Europe. It appears from our stock
market data that whichever company had the best access to sources of silver
specie in a particular period also enjoyed at that time the greatest returns on
its investments in Europe. The disturbances to trading opportunities and
profits of each caused by the repeated outbreaks of war in Europe and Asia
seemed to affect each company's profitability much the same way. The
major exceptions were the early years of the War of the Austrian Succession
and the French revolutionary wars at the end of the century. Both the Dutch
and the English profited from the defeat of the French in the Seven Years'
War.
The institutional structure that linked the home merchants in control of
the finances of the overall enterprise with the merchants stationed in the
East who had control over the trading activities of the company varied
greatly between the two companies. These structural differences reflected
the distinctive strategies of each company in dealing with "country," or
intra-Asian, trade. 32 The Dutch controlled these activities strictly from the
headquarters in Batavia, whereas the English were much looser. The Dutch
company was rigidly divided into six chambers, with Amsterdam provid-
ing half the capital, but only 8 of the 17 Heeren (directors) who directed the
overall afifairs of the united company. The remaining Heeren were divided
as follows: four from Zeeland, one each from Delft, Rotterdam, Hoorn,
and Enkhuisen, and the final member rotated among the last four cham-
bers. The charter of the English company, by contrast, was up for renewal
at relatively short intervals, although those became increasingly longer as
time went on. Even when the charter was not in question, stockholder
revolts could easily occur, as in 1732 and again in 1763. 33 Because stock-
holders in the VOC delegated their powers to the Heeren XVII, their only
effective means of influence was exit, rather than voice. The charter of the
VOC did come up for renewal at intervals of 20 to 40 years, and at those
times powerful stockholders could assert more influence. But during the
Nine Years' War (War of the League of Augsburg, 1689-97) the charter
due to expire in 1700 was extended to 1740 in return for a one-time
payment of 3 million guilders.34 For that critical period during which the
value of the VOC declined markedly relative to the EIC, there was no
threat of stockholder revolt or state control. It was perhaps that protection
from internal innovation that made the VOC more vulnerable than the EIC
to the external encroachment of competing European enterprises in Asia.
The greater rigidity of the VOC, and hence greater vulnerability to
competitive pressures, also held true in the way it organized shipping
between Europe and Asia. The Dutch ships were built and owned by the
respective chambers. The EIC, by contrast, hired its ships each year until
the large buildup of its own fleet during the Seven Years' War, when the
Royal Navy was occupied in the Atlantic and Mediterranean war of block-
ade with the French navy. J. R. Bruijn argued that one cannot tell which of
the two systems was more expensive. The English system appeared more
flexible in form, but in fact "hereditary bottoms" appeared that were
owned by a self-perpetuating shippers' group. That group exercised mo-
nopoly power over ships suitable for the East India trade and enforced it by
32
The inference of corporate strategies from their organizational structures is now standard
procedure in business history, but it was pioneered by Alfred D. Chandler, Strategy and
Structure: Chapters in the History of Industrial Enterprise (Cambridge, MA: Harvard
33
For 1732, see Chaudhuri, Trading World of Asia, p. 448. For 1763, see Sutherland, East
India Company in Politics, pp. 141-91.
34
Bruijn, Gaastra, and Schoffer, Dutch-Asiatic Shipping, Vol. 1, p. 7.
using their large holdings of EIC stock to elect a significant number of

directors. The modal number of voyages for the English ships was four; for
the Dutch it was six to seven. 35 Nevertheless, it is clear that the English led
in innovations in navigation and construction (especially copper
sheathing), resulting in shorter trips and fewer losses en route. The Dutch
chambers, by contrast, were prevented from adopting foreign innovations
because of the requirement for shallow-draft ships to gain access to their
increasingly silted ports. 36 So although shipping prime costs per voyage
may well have been less for the Dutch because of tight internal controls, it
appears that the English likely enjoyed superior profits per voyage, es-
pecially after the middle of the eighteenth century, when the pace of ship-
ping innovations began to quicken.
The marketing areas of the VOC were always continental Europe,
whereas the EIC concentrated on its growing home market, and reexports
of its imports were directed increasingly to the growing Atlantic empire of
the British. Country trade within Asia was undoubtedly more important in
quantity and value for each company than was the intercontinental trade,
however. The Dutch dominated the southern Asian seas and the trade in
exotic spices, whereas the English developed trade at the very edge of the
Muslim world, where religious wars were always a possibility even in
the absence of Christians. Finally, it is interesting to note the rallying of the
VOC relative to the EIC in the peacetime period (in Europe) of the early
1770s. That clearly was due to the increasing control over the English
company by its home government and its continued obligation to remit
large sums as tax revenues.
The greater success of the English company in meeting the economic
competition of the French, Austrians, and Scandinavians during the 1730s
and 1740s enabled it eventually to achieve military victories over the
French in India as well as in the Atlantic during the course of the Seven
Years' War. It is ironic, but in accord with Steensgaard's thesis, that it was
precisely the military success of Clive that in the next 20 years enabled the
Dutch company to become a free rider on the naval security provided by
the EIC. Until the fourth Anglo-Dutch war in the 1780s, the Dutch enjoyed
the protection of the English from the competition of the French and other
upstarts without paying nearly as much as the English were paying to
maintain their military gains. And the stock and foreign exchange markets
of the time reflected that turnabout.
35
Ibid., pp. 9 4 - 5 .
36
Ibid., pp. 1 0 5 - 6 .
7. The integration of the English and
Dutch capital markets in peace and war
The preceding chapters have described a special form of economic integra-

tion that occurred in the first quarter of the eighteenth century between
Europe's two leading mercantile cities: Amsterdam and London. An inter-
national capital market developed that led to increasingly wider-ranging
capital markets for each center over the succeeding centuries. It also would
have facilitated the progress of economic integration for northwestern Eu-
rope in terms of markets in goods and labor, had it not been for its use in
the service of the rising nation-states and their exercise of national power.
That early international capital market, however, seems to have been treat-
ed by historians mainly as an economic curiosity, largely because its opera-
tions have been viewed from the perspective of a particular center or
nation, never as a whole. This chapter lays the basis for a greater apprecia-
tion of the international dimensions of financial capital in the eighteenth
century by examining the operations of the London and Amsterdam stock
markets in theoretical terms and analyzing the results in quantitative terms.
Shares of the great chartered joint-stock corporations in England were
traded simultaneously on the stock exchanges of London and Amsterdam
at least by the summer of 1723. We know this from the Amsterdamsche
Courant, which began giving prices of English shares on the Amsterdam
Beurs in its issue of 9 August 1723. However, we know also that trade in
the shares of the Dutch East and West India companies was active from
their foundation in the seventeenth century, but the Courant began report-
ing the prices only in its issue of 14 July 1723. So trade in English shares
on the Amsterdam exchange probably occurred earlier as well. Amsterdam
continued to trade English shares through peace, war, and revolution con-
tinuously into the twentieth century. A great quantity of evidence remains
of this activity, including the daily prices of the shares in London, the
prices of the same shares in Amsterdam (up to thrice weekly), the nearly
daily transfers of those shares in the ledger books maintained in London,
and the twice-weekly rates on foreign bills of exchange. Using modern
141
theory and quantitative techniques, a great deal that is of interest can be

inferred from the price data alone.
A crucial element in the set of financial practices brought to England by
William III and his retinue was the resale of shares in joint-stock corpora-
tions, in other words, the modern stock exchanges. Although chartered
joint-stock companies existed in England prior to the arrival of William, it
appears that trade in their shares increased considerably in the early 1690s,
and certainly the number of companies increased markedly in that decade.
That growth of activity followed a very active period of stock trading in the
Amsterdam Beurs in the 1680s.1 To aid him in raising money for his
participation in the War of the League of Augsburg against Catholic
France, William brought with him numerous financial advisors and mili-
tary contractors from Holland. Many were Jews and Huguenots who were
eager to apply in a relatively backward England the financial techniques
and institutions that had been developed over the preceding century in
Amsterdam, as described in Chapter I. 2
Their activities in London came to concentrate on shares of the Bank of
England (founded in 1694), the New East India Company (1698), the
United East India Company (a consolidation of the Old and New East India
companies that occurred in 1702), and the South Sea Company (1711). The
early history of these companies was summarized in Chapter 3. The charter
of each company permitted foreigners to own shares, and that right was
1
On England, see K. G. Davies, "Joint Stock Investment in the Later Seventeenth Century,"
Economic History Review, 2nd series, 4:3(1952), pp. 283-301. On Holland, see the intro-
duction by Hermann Kellenbenz, "Portions Descriptive of the Amsterdam Stock Exchange
Selected and Translated by Professor Hermann Kellenbenz," in the Kress Library's edition
of Joseph de la Vega, Confusion de Confusiones (Boston: Harvard Graduate School of
Business Administration, 1957), p. xiii.
2
Van Dillen gives a few of the more noteworthy examples of the Jewish financial investors.
Moses Machado went with the king to England in 1688 and became his prime contractor for
the campaign in Ireland; Joseph de Medina had a large contract as military supplier in 1713;
Sir Solomon de Medina was the greatest army contractor of his day, financing in particular
the campaigns of the duke of Marlborough. J. G. van Dillen, "De economische positie en
beteknis der Joden in de Republiek en in de Nederlandse koloniale wereld," in H. Brug-
mans and A. Frank, eds., Geschiednis der Joden in Nederland (Amsterdam: Van Holkema
& Warendorf, 1940), p. 584. Further, our earliest description of the operation of the
Amsterdam stock exchange, Joseph de la Vega's Confusion de Confusiones, appears to be a
highly florid elaboration of an earlier technical manual that he had prepared on the various
techniques and regulations employed in the Effectenbeurs. The purpose of this manual most
likely was to inform his countrymen who had gone to London and who wished to partici-
pate in the speculation that was beginning there. Hermann Kellenbenz, introduction to de la
Vega, Confusion de Confusiones, p. xiv.
The integration of capital markets 143
upheld by the crown and the companies despite occasional challenges from
members of Parliament.3 The shares of the three great companies were
liquid assets for both English and foreign owners, because an active resale
market existed for them in the London stock market and in the Amsterdam
Beurs.
The early history of the information network connecting these two mar-
ketplaces was covered in Chapter 2. There the importance of the Amster-
damsche Courant as a source for the prices on the Amsterdam Beurs was
discussed and its reliability analyzed. In the 1930s, the Dutch economic
historian J. G. van Dillen recorded the prices given in the Courant every
two weeks beginning 9 August 1723 (N.S.) and ending 19 December
1794. That effort resulted in 1,676 observations of Amsterdam prices for
shares in each of the English companies over that period, the last three-
quarters of the eighteenth century. For the same period there are over
30,000 observations from the London market; so van Dillen's reduced
sample may be accepted with gratitude. For each date in van Dillen's
Amsterdam series, I took the London quotation on the same trading day for
each of the three stocks.4 When I graphed the prices of each company in
the two markets against each other, it was evident that the two markets
were very closely correlated from the beginning of the period. This was
clear from both the graphs of the price levels and the graphs of their first
differences. Figures 7.1-7.3 show the differences between the Amsterdam
and London prices for each stock on a magnified scale that exaggerates the
apparent size and persistence of the actual differences, which were quite
small. Table 7.1 indicates the nearly perfect congruence of the various
price series. It shows the correlation coefficients between the levels (first
line) and the first differences (second line) of the share prices in Amster-
dam and London for the Bank of England, the East India Company, and the
South Sea Company. The correlation coefficients are quite consistent for
the levels across the four peacetime periods that occurred between 1723
3
For details, see Larry Neal, "Efficient Markets in the Eighteenth Century? The Amsterdam
and London Stock Exchanges," Business and Economic History, 11(1982), pp. 81-100.
4
This exercise was complicated by two features: (1) The Dutch had been on the Gregorian
calendar since the middle/end of December 1582, but the British did not shift until 2/13
September 1752. (2) The Amsterdam market traded Sunday through Friday, but the London
market traded Monday through Saturday. To deal with the first feature, I counted back 11
days to find the corresponding London quotes before 13 September 1752; the second
feature was dealt with by matching the Saturday quote in London to a Sunday quote in
Amsterdam whenever one appeared.
- 9
-1
-3
1735 1745 1755 1765 1775 1785

Figure 7.1. Bank of England share prices, Amsterdam-London, 1723-94.
-3
1735 1745 1755 1765 1775 1785
Figure 7.2. East India Company share prices, Amsterdam-London, 1723-94.

-3
1735 1745 1755 1765 1775 1785
Figure 7.3. South Sea Company share prices, Amsterdam-London, 1723-94.
and 1794,5 and they are consistently high for each of the three companies.
The correlations for the first difiFerences are naturally much lower, and they
also show much more variation by company and by time period. Finding
two such distinct price series for the same financial asset raises the question
whether or not the two markets were closely integrated. If one looks only at
the levels, the answer is a resounding yes. The first differences, however,
raise more interesting questions about the sources of the varied patterns
that occurred. The striking thing is the absence of any trend in any of the
three stocks toward closer integration over the course of the century.
The apparently close and stable integration of the two capital markets
will not surprise historians studying the eighteenth century, enamored as
they are of the leisurely modernity of the Age of Enlightenment. Mail
packet boats left London twice a week for Amsterdam, and four- to seven-
day-old dispatches from London appeared each week in the Amsterdam
and other Dutch newspapers. Dutch investors were represented among
5
From Helen Keller's The Dictionary of Dates (New York: 1934) I chose 19 October 1739 as
the start of the first war period (War of Jenkins' Ear) and October 1748 as the end (Treaty of
Aix-la-Chapelle). The Seven Years' War began in August 1756, and for financial purposes
in the capitals it ended with the Treaty of Paris signed 10 February 1763. I took 13 March
1778 as the effective date of hostilities in Europe arising from the American War for
Independence, because that was when the treaty of alliance between France and the United
States was communicated to England. The war ended with the Preliminary treaty signed in
Paris on 30 November 1782.
TABLE 7.1
Correlation coefficients, London and Amsterdam stock prices
Period Bank of England East India South Sea

Company Company
Entire Period 1723-94

Levels 0.994 0.993 0.989
Changes 0.589 0.624 0.394
Peace Periods
8/09/23 - 10/19/39
Levels 0.977 0.990 0.936
Changes 0.416 0.550 0.069
11/11/48 - 7/14/56
Levels 0.983 0.988 0.983
Changes 0.326 0.378 0.361
2/18/63 - 3/04/78
Levels 0.993 0.997 0.974
Changes 0.649 0.711 0.337
12/06/82 - 9/22/90
Levels 0.996 0.987 0.969
Changes 0.563 0.585 0.132
War Periods
10/21/39 - 10/23/48
Levels 0.988 0.978 0.945
Changes 0.534 0.604 0.168
8/04/56 - 2/05/63
Levels 0.976 0.963 0.979
Changes 0.640 0.600 0.407
3/02/78 - 11/20/82
Levels 0.828 0.943 0.908
Changes 0.465 0.536 -0.004
10/08/90 - 12/19/94
Levels 0.983 0.978 0.986
Changes 0.769 0.580 0.686
Note: This table presents levels (adjusted for differences in means) and first differences of
actual prices.
Source: John Castaing, The Course of the Exchange (London: 1698-1795) and J. G. van Dillen,
"Effectenkoersen aan de Amsterdamsche Beurs, 1723-1794," Economische-Historische
Jaarboek, 17 (1931), pp. 1-34.
major holders of Bank of England stock from the beginning. Their hold-
ings grew until 1751, with a "Dutch rush" occurring between 1721 and
1726. The Dutch continued to receive dividends and capital bonuses even
when the Netherlands had become the Republic of Batavia in 1795 and
then departments within the Napoleonic empire in the first decade of the
nineteenth century.6
6
John Clapham, The Bank of England, A History. Vol. 1: 1694-1797 (Cambridge Univer-
sity Press, 1945), pp. 278-89.
How large were the Dutch investments in the English public debt? In the
most recent summary of the available studies, Wilson relied on P. G. M.
Dickson's benchmark figures for 1723-4 and 1750.7 Dickson found that in
1723-4 the total foreign holdings of stock in the "big three" companies
amounted to 9.3% of the total capital, but by 1750 the total foreign hold-
ings in the same companies (by then, South Sea Annuities had replaced the
original stock) amounted to I9.2%. 8 Looking more closely at the growth
of foreign holdings in Bank of England stock, Dickson found that it was
not until the time of the South Sea Bubble that foreigners, especially the
Dutch, began to invest. He concluded that
as a result of the South Sea Bubble this trend was markedly accentuated [toward
holdings of government and company stock]. By 1723-24 foreign holdings of
English government securities had reached - for the first time - a really substantial
size. They were to go on increasing in amount until the massive foreign disinvest-
ment of the last twenty years of the eighteenth century.9
Even though modern scholarship has reduced the proportion of English
funds held by foreigners from the heights of 40% or more estimated to
Lord North in 1776, 10 the new lower percentages still exceed the propor-
tions of foreign trade and foreign labor in the English economy of the
eighteenth century.11 The evidence is persuasive that economic integration
between these two great mercantile powers occurred first through the
movements of capital.
The more interesting question about Dutch investments in the English
securities, whether they were destabilizing and speculative, as contempo-
rary English opinion had it, or whether they were passive and on the whole
stabilizing, remains unanswered. Evidence regarding these questions lies
7
Charles Wilson, "Dutch Investment in Britain in the 17th-19th Centuries," in Credit
Communal de Belgique, Collection Histoire Pro Civitate. No. 5S: La Dette Publique awe
XVIIIe etXIXe Siecles (Brussels: 1980), p. 201.
8
Public Credit, 1688-1756 (London: Macmillan, 1967), pp. 312, 321.
9
Ibid., pp. 311-12.
10
Alice Clare Carter, "The Dutch and the English Public Debt in 1777," Economica,
20(May 1953), pp. 159-61.
11
N. F. R. Crafts, "British Economic Growth, 1700-1813: A Review of the Evidence,"
Economic History Review, 36(May 1983), p. 197, puts exports as a proportion of national
income for Great Britain between 8% and 12% during the eighteenth century and not over
15% until 1801. Neil Tranter, "The Labour Supply, 1780-1860," in R. Floud and D. N.
McCloskey, eds., The Economic History of Britain since 1700 (Cambridge University
Press, 1981), Vol. 1, p. 211, puts the maximum share of foreign immigrants, mainly Irish,
in the labor force at much lower levels.
primarily in the price data for the two markets.12 These data can be used to
see if either of the markets for English securities - the Amsterdam and the
London stock exchanges - was less than efficient in setting prices.
Table 7.2 shows the initial results from time-series analysis of the four
main time series of interest: the cash prices for Bank of England and East
India Company stock quoted in London and the forward prices for the same
two stocks quoted in Amsterdam. Basically, I test the proposition that the
following equations accurately describe price movements in each case:
L
tt+\ " Ln = u
t+\ (« = 1, 3; * = time
) (7-0
A
h+\ ~ Au = u
t+\ 0' = 1, 3; * = time) (7.2)
where L is the London price and A is the Amsterdam price.

The standard technique is to estimate autoregressive moving-average
(ARMA) models for the changes in prices. If some combination of auto-
regressive and moving-average processes yields consistently good descrip-
tions of price changes, then presumably interested speculators could have
discovered these processes and used them to make profits in the markets.
For efficient markets to have existed, the models should show ( 0 , 0 ) - that
is, that last period's price alone remains the best predictor of the current
period's price. Table 7.2 shows the results from two different techniques
for estimating ARM A models.13
12
Quantity data are available as well because the Bank of England was responsible for
recording transfers of ownership in "government stock," which included shares of the
bank itself, as well as shares of the East India Company, annuities, and Consols. In
principle, the records could be used to link foreign movements of capital to sustained rises
or falls in the market price of British company shares, but the records are overwhelming in
volume. To date, only Alice Carter has used the records, and that for only a three-month
period at the beginning of 1755. Alice Clare Carter, "Transfer of Certain Public Debt
Stocks in the London Money Market from 1 January to 31 March 1755," Bulletin of the
Institute of Historical Research, 28(November 1955), pp. 202-12.
13
This is a test of "weak-form" efficiency, as contrasted with "strong" or "semistrong"
forms. The stronger forms require the market to respond or anticipate movements in fun-
damental determinants of the asset's price. Such tests were not performed, because data on
fundamentals comparable to prices were not available. See, however, Philip Mirowski,
"What Do Markets Do? Efficiency Tests of the Eighteenth Century London Stock Mar-
ket," Explorations in Economic History, 24(April 1987), pp. 107-29. Both the "B-J" and
"H-R" methods are strictly mechanical procedures that estimate the autocorrelation coeffi-
cients and the partial-correlation coefficients for up to 10 lags over the time series. The B-
J, or standard Box-Jenkins, method determines which of these coefficients are statistically
significantly different from zero, and then the investigator selects the most plausible
model. G. E. P. Box and G. M. Jenkins, Time Series Analysis: Forecasting and Control
(San Francisco: Holden-Day, 1970). The H-R Method is a recursive process in which each
TABLE 7.2
Estimated ARMA models, London and Amsterdam
Time Period London Amsterdam
H-R B-J H-R B-J
Bank of England
Entire period
1723-94 0,0 0,0 0,0 0,0
Pre- and post-Barnard

1723-37 0,0 0,0 0,0 0,0
1738-94 0,0 0,0 0,0 0,0
Peace periods
1748-56 0,5 0,0 0, 1 0, 1
1763-78 2,0 2,0 0,0 0,0
1782-92 0,0 0,0 0,0 0,0
War periods
1739-48 3,0 3,0 0,0 0,0
1756-63 0,0 0,0 0,0 0,0
1778-82 0,0 0,0 0,1 1,0
East India Company
Entire period
1723-94 0,0 0,0 0,3 0,3
Pre- and post-Barnard

1723-37 0,0 0,0 2,0 0,0
1738-94 0,0 0,0 3,0 3,0
Peace periods
1748-56 0,0 0,0 0,0 0,0
1763-78 0,0 0,0 0,0 0,0
1782-92 0,0 0,0 0,0 0, 1
War periods
1739-48 0,0 0,3
CD <O o"
o o o
0,3
1756-63 0,0 0,0 0,0
1778-82 0,0 0, 1 0,1
Source: Same as Table 7.1.
(note 13 continued)
autoregressive process up to order 10 is estimated, and then the residuals of each estimate
are used to calculate variances. The process minimizes the expression
vl + 2kln
where k is the order of autoregressive process and n is the number of observations. Then,
using ordinary least-squares regressions, ARMA models are estimated up to order (p, 5),
For the period as a whole, the two methods are consistent in showing
market efficiency in both markets for Bank of England stock and in the
London market for East India Company stock. Both methods indicate that
a (o, 3), in other words, a third-order moving-average process, existed in
the Amsterdam prices of the East India Company. This appears to have
been in place only after 1737, however. The remainder of the table shows
the estimated results from the ARMA models for each period of war and
peace after Barnard's Act (1734), which forbade any dealings in options or
forward contracts by stockbrokers on the London Stock Exchange. Here
the results are mixed, although most cases are clear random walks, that is,
ARMA (o, o). But it is only for the London market for East India stock that
we find consistent evidence for an efficient market in each subperiod. In
the two markets for Bank of England stock, we find subperiods when some
kind of ARMA process seems to have been at work. It is interesting,
however, that that never occurs in both markets for any given subperiod.
The only subperiod when a (o, 3) ARMA appears for East India Company
stock on the Amsterdam exchange was 1739-48, during the War of the
Austrian Succession. For the same period, an anomalous (3, o) ARMA is
found for Bank of England stock on the London market. Because only the
coefficient on the third term was significantly different from zero in each
case, I suspected some data error. I found none, but did detect another
possible cause of the anomaly.
Table 7.3 shows the average interval between Amsterdam quotes from
the Amsterdamsche Courant, as well as the variance of the intervals and
the number of observations in each wartime and peacetime period. The
mean ranges from 15 to 16 days, as one expects for a fortnightly sample
with occasional gaps for religious holidays. But the variance is especially
high for the period of the War of the Austrian Succession and the peacetime
between the Seven Years' War and the American War for Independence,
when three of the six exceptions to random walks occur. This is reassuring
for the validity of the remaining (o, o) processes, because if a regular time-
(note 13 continued)
where p is the order of AR model selected earlier. Finally, the residuals of the estimated
ARMA models are used to calculate sample variances, and (p, q) are selected to minimize
log (Tp2q + (log nln){p + q)
where q is the order of MA process. E. J. Hannan and J. Rissanen, "Recursive Estimation
of Mixed Autoregressive-Moving Average Order," Biometrika, 69(January 1982), pp.
81-94, and their "Correction," 7O(January 1983), p. 303. The tests are repeated for the
various peacetime and wartime periods.
TABLE 7.3
Regularity of observations,
Amsterdamsche Courant
Period Mean Variance Number of

observations
1723-39 (peace) 15.10 28.55 391
1739-48 (war) 16.01 43.87 207
1748-56 (peace) 15.35 19.05 185
1756-63 (war) 15.72 25.90 153
1763-78 (peace) 15.94 97.34 357
1778-82 (war) 14.98 10.16 115
1782-92 (peace) 15.17 21.94 189
Source: J. G. van Dillen, "Effectenkoersen aan de Amsterdamsche Beurs 1723-1794,"

Economische-Historische Jaarboek, 17 (1931), pp. 1-34.
series process exists, but is sampled at irregular intervals, the bias will
produce a random-walk process. If a random walk exists in a series, on the
other hand, but is sampled at irregular intervals, the possibility of finding a
deterministic process arises. 14
To reach a preliminary conclusion, efficient markets for the leading
British financial securities appear to have been in place in both Amsterdam
and London after the South Sea Bubble of 1720. Moreover, they appar-
ently operated efficiently up to the outbreak of the French Revolutionary
Wars near the end of the century. Various episodes of market inefficiencies
leading to speculative profit possibilities probably did arise at times, but
they appear to have been confined to the Amsterdam market. The anoma-
lous periods merit closer examination, especially in terms of possible dif-
ferences in the ways the two markets operated.
The key to understanding the (o, 1) and ( 1 , 0 ) processes lies in the
finding that the London prices were spot, or money, prices, whereas the
14
Time-series purists will object that any irregularity in the timing of the observations
violates the assumptions of the statistical technique, and so the irregular appearance of the
Courant rules it out for time-series analysis. Given the frequency of religious holidays in
the eighteenth century, even in Protestant Amsterdam and London, however, a case can be
made that the irregularities in its appearance reflect precisely irregularities in trading
activity on the Effectenbeurs. It is the market activity, after all, that is the underlying
process, not the appearance of the newspaper.
Amsterdam prices were forward, or time, prices. The London practice

likely arose as a matter of convenience, because no fixed settlement days
among brokers existed originally, and time contracts could vary widely.
But in 1734, Barnard's Act (7 Geo. II, cap. 8) forbade all dealings in
options and future deliveries of stocks, with a fine of £500 to be levied on
each person party to such a contract. 15
According to one authority, Barnard's Act was persistently violated. 16
Dickson, on the other hand, believed that the act may have been effective
in transferring options business to Amsterdam and encouraging London
traders to deal on margins. 17 Castaing's price list was consistent in show-
ing prices at money, although S. R. Cope speculated that the curious
practice of printing the names of the Bank of England and the East India
Company in capital letters may have developed to indicate securities in
which dealings in time were possible. 18 Because the Bank of England
came to handle the transfers of stocks for the chartered companies, pur-
chases could in principle be made for a forward date at which the transfer
would be made at the bank. Hence, the illegality of dealing in futures and
options may not have eliminated the practice in the London market -
indeed, the introduction of stiffer bills in the House of Commons in 1745,
1756, 1771, and 1773 suggests that futures trading continued - but it no
doubt did eliminate the printed quotation of future prices for those con-
tracts.
Amsterdam, by contrast, always dealt in time contracts, because legally
binding possession of shares in the Dutch East India Company was not
possible until the actual transfer of the share or shares was entered in the
company's books. Entry, however, had to wait until the books were opened
15
Malachy Postlethwayt, "Stock-Jobbing," in The Universal Dictionary of Trade and Com-
merce, 2 vols. (London: 1774; reprinted New York: Augustus M. Kelley, 1971).
16
Thomas Mortimer, Every Man His Own Broker: Or a Guide to Exchange Alley, 3rd ed.
(London: 1761).
17
Dickson, The Financial Revolution in England, p. 508, quoted a letter by an Amsterdam
broker to a Haarlem merchant in 1735 stating that ". . . i n London only cash purchases
and sales can be made."
18
S. R. Cope, "The Stock Exchange Revisited: A New Look at the Market in Securities in
London in the Eighteenth Century," Economica, 45(February 1978), p. 18. On this point it
is interesting that Houghton followed the same practice in his early listings of stock, but
clearly stated that the companies whose names were printed in "Great Letters" were those
that had charters, whereas those that had asterisks in front of them were patent monopo-
lies. John Houghton, A Collection for Improvement of Husbandry and Trade, 9 vols.
(London: Randall Taylor et al., 1692-1703; republished Westmead, Famborough, Hants.:
Gregg, 1969). The list of stocks in No. 106 (Friday, 10 August 1694) has this note: "Great
Letters by Charter, (*) by Patent."
for the payment of dividends. Joseph de la Vega's original description of

the Amsterdam Beurs, in fact, described "putts" and "refuses" in very
modern terms for options trading. The extensive trading of dealers with
one another on both hedging and speculative contracts in the same stock
required regular "rescounter" settlement dates to settle the net differences
and straighten out the accounts among the various brokers. Such settle-
ments occurred quarterly, on the 15th of February, May, August, and
November.19 The quarterly rescounters may have been for the English
funds only, because de la Vega reported monthly rescounters, on the 20th
of the month for real stock, with payment due the 25th, and on the first of
the month for "ducaton" shares.20 (Ducaton shares were small fractions of
actual Dutch East India Company shares that were devised to enable small-
er investors to trade; the cash value of each original share had increased to
very high levels indeed.)
Van Dillen noted the difficulties in deciding whether the figures in the
Amsterdamsche Courant were cash or time prices:
Until 1747 this is not mentioned, but in comparing them with those found in
brokers' notes preserved from 1725 to 1737 it appears that in that period the
quotations are cash prices. In the year 1737 both prices are sometimes mentioned.
After this year we find generally the forward rates. From 1759 onwards the quota-
tions are often followed by the name of the next settlement month, e.g., "all of
February." The difference between the cash price and the next paying month is,
however, not more than a few percent.21
If the Amsterdam prices quoted on the English securities were for future
delivery, then in general they should lie above the London cash prices
quoted on the same day. Figure 7.4 illustrates why.22 At regular intervals,
dividends are paid on each security. If nothing else happens to disturb the
price of the shares from time 0 to time A on the graph, the nominal value of
each share will be fixed at the level of the horizontal axis. When the
dividend is paid at time A, the value of the dividend is added to the nominal
value of the share. Cash transactions in the shares between time o and time
A will take into account the forthcoming dividend payment, which the
buyer of the share will receive. So the cash prices between time o and time
A will show a gradual upward trend along line oB. A contract made at time
19
Isaac da Pinto, Traite de la Circulation et du Credit (Amsterdam: 1771), p. 305.
20
de la Vega, Confusion, introduction by H. Kellenbenz, p. xviii.
21
mische-Historische Jaarboek, 17(1931), p. 13.
22
Louis le Bachelier, "Theory of Speculation," translated by Paul Cootner, ed., The Ran-
dom Character of Stock Market Prices (Cambridge, MA: M.I.T. Press, 1964).
E1 Forward g
>•
_.
Time
Figure 7.4. Effects of regular dividend payments on spot and forward prices (the Le
Bachelier effect).
o for future delivery of the share at time A, however, will require the buyer
to pay a "contango" to the seller, equal, in the absence of disturbances, to
the price of the share plus the dividend. The need for such a payment arises
because the seller will hold the share until the delivery date, but will then
yield possession of the stock, and its dividend, to the buyer, who only then
will make full payment. This means that the forward price equivalent for
the cash price that runs along line oB will be line CB, which always lies
above the cash price, but gradually converges to it at the dividend payment
date.
If the differences between Amsterdam and London prices arose because
Amsterdam prices were always time, or forward, prices, whereas London
prices were time prices until Barnard's Act in 1734 and spot prices there-
after, then the Amsterdam prices should have been the same as the London
prices, with only small random disturbances, until 1734 or until 1737,
when Barnard's Act was made a perpetual law. Tables 7.4 and 7.5 present
results for linear regression of the difference between the Amsterdam price
and London price at a given date on three variables: (1) DAYSDIVD, the
number of days from the date of the observation to payment of the next
dividend; (2) PAYTIME, a dummy variable set equal to unity during the
times London prices were quoted ex dividend; (3) AMEXPREM, the number
of penningen banco23 the English pound sterling was worth less its mint
23
The Amsterdam-on-London exchange rate was given in Dutch schellingen and penningen
banco per English pound. Each Dutch schelling contained 12 penningen.
par ratio. Only the Bank of England and East India Company stocks are
analyzed, because the South Sea Company stock was essentially dormant
for most of the period after 1730.
The variable DAYSDIVD is intended to capture the declining difference
between future and spot prices as the dividend date approaches. Its coeffi-
cient should be positive, because the dependent variable is the Amsterdam
price minus the London price. On average, it should be equal to one-half
the annual dividend, because dividends were paid semiannually. For each
subperiod, its effect is estimated separately in the third equation. The
second equation in each panel adds the effect of AMEXPREM, whereas the
first equation has all three explanatory variables. Comparing the third
equation in each panel over the two tables, one notices that only for the
pre-Barnard Act period does the constant term in the regressions become
statistically different from zero, and it does so for both the Bank of England
and the East India Company. For the entire period from 1738 to 1794, and
for the three peacetime periods within, the constant terms are insignifi-
cantly different from zero. This implies that the contango rate was, on
average, the same as the dividend rate, which one should expect in the
absence of persistent expectations for things to improve or to deteriorate.
The finding also means that no serious barriers existed to equalizing the
rates of return on the same financial assets in the two different countries.
The presence of a constant term that is negative and significantly differ-
ent from zero for the pre-Barnard Act period could imply either segmented
capital markets or exuberant speculators, if in fact the Amsterdam prices
were consistently future prices. Inspecting the pattern of residuals and
estimating the regression for subperiods within the period from 1723 to
1738 leads me to believe that speculators were generally bullish. On aver-
age, the Amsterdam price was higher than the London price even in the
period from 1723 to 1737, although the difference was much less than it
became after 1737. This holds for both stocks. If the Amsterdam prices in
this pre-Barnard Act period were spot prices like the London prices, then
the negative constant term in the regression implies optimistic expectations
by investors. The evidence of the exchange-rate variable further strength-
ens this presumption.
There remain differences between the regression estimates for the Bank
of England stock and the East India Company stock. On average, the price
difference was 1.6 points for bank stock and 2.5 points for East India
stock. The point difference reflects the generally higher dividend rates paid
by the East India Company stock. In sum, the regression results, combined
TABLE 7.4
Summary of regression results, Bank of England,
Amsterdam-London price difference
DAYSDIVD 2 AMEXPM 3 PAYTIME 4 Constant R2 DW

Observations
1723-395
.005 .002 1.999 -.140 .30 1.78
(4.37)6 (0.24) (8.84) (-0.52) 387
.010 .003 -.397 .16 1.63
(8.77) (0.31) (-1.35) 388
.009 -.480 .16 1.63
(8.78) (-4.01) 389
1739-48 5
.009 .056 1.141 1.284 .31 1.55
(5.34) (4.95) (3.55) (4.02) 203
.012 .056 1.118 .28 1.40
(7.86) (4.84) (3.44) 204
.011 -.233 .20 1.25

(7.16) (-1.32) 205
1748-56 5
.010 .003 .758 -.137 .34 1.51
(7.15) (0.25) (2.73) (-0.47) 181
.012 .002 -.275 .32 1.32
(9.39) (0.16) (-0.94) 182
.012 -.316 .32 1.32
(9.42) (-2.18) 183
1756-63 5
.011 -.014 .515 -.193 .19 1.40
(4.69) (-1.08) (1.14) (-0.50) 149
.012 -.013 -.250 .19 1.38
(5.95) (-1.02) (-0.65) 150
.012 .071 .19 1.36
(5.99) (0.32) 151
1763-78 5
.016 -.008 .243 -.537 .32 1.44
(10.95) (-1.21) (0.87) (-2.30) 353
.017 -.009 -.577 .32 1.42
(13.04) (-1.22) (-2.52) 354
.017 -.353 .32 1.42

(13.07) (-2.56) 355
TABLE 7.4 (cont.)
DAYSDIVD2 AMEXPM3 PAYTIME4 Constant R2 DW

Observations
1778-825
.010 -.025 .567 -.14 .21 1.60
(3.79) (-2.68) (1.10) (-0.43) 111
.011 -.025 -.223 .21 1.53

(4.95) (-2.67) (-0.68) 112
.011 .364 .16 1.42

(4.82) (1.44) 113
1782-905
.017 -.033 .492 -.122 .35 1.72
(7.56) (-4.31) (1.11) (-0.52) 185
.018 -.032 -.196 .35 1.70

(9.08) (-4.28) (-0.87) 186
.019 -.166 .29 1.55

(8.90) (-0.71) 187
1790-45
.009 -.002 1.761 .568 .20 1.58
(2.21) (-0.18) (2.46) (1.14) 75
.015 -.002 .253 .15 1.44

(3.90) (-0.17) (0.51) 76
.015 .207 .16 1.44

(3.93) (0.50) 77
Note: All regressions are ordinary least squares.

1
Outliers removed and set to regression plane.
2
DAYSDIVD = days to next dividend payment.
3
AMEXPM = changes in the exchange rate.
4
PAYTIME = whether the London price was with (0)
or ex dividend (1).
5
Subperiods:
1723-39 [Peace, pre-Barnard]
1739-48 [War of Austrian Succession]
1748-56 [Peace, no financial crises]
1756-63 [Seven Years1 War]
1763-78 [Peace, panics of 1763 and 1772]
1778-83 [War for American Independence]
1783-90 [Peace]
1790-94 [French Revolution, war]
6
^-statistics are in parentheses under respective coefficients.

TABLE 7.5
Regression results, East India Company,
Amsterdam-London price difference
DAYSDIVD2 AMEXPM3 PAYTIME4 Constant DW

Observations
1723-395
.006 -.001 2.884 -.477 .24 1.90
(3.21)6 (-0.11) (7.93) (-1.07) 387
.012 -.005 -1.00 .12 1.69

(7.28) (-0.34) (-2.10) 388
.012 -.851 .12 1.69

(7.29) (-4.43) 389
1739-485
.015 .068 1.383 1.251 .29 1.54
(5.74) (3.95) (2.75) (2.52) 203
.018 .069 1.072 .27 1.38
(7.93) (3.95) (2.14) 204
.018 -.633 .22 1.28

(7.61) (-2.44) 205
1748-565
.016 .028 2.032 .427 .41 1.69
(7.05) (1.40) (4.51) (0.93) 181
.016 2.024 -.137 .41 1.68

(7.07) (4.48) (-0.62) 182
.021 -.416 .35 1.40

(9.91) (-1.85) 183
1756-635
.013 -.044 .872 -.800 .27 1.43
(5.15) (-2.99) (1.72) (-1.78) 149
.015 -.046 -.959 .26 1.38

(6.69) (-3.07) (-2.16) 150
.015 .156 .22 1.29

(6.56) (0.60) 151
1763-785
.021 -.063 .835 -1.42 .19 1.56
(6.57) (-3.83) (1.35) (-2.75) 353
.023 -.063 -1.55 .19 1.55

(8.17) (-3.84) (-3.03) 354
.023 .016 .16 1.49

(8.15) (0.05) 355
TABLE 7.5 (cont.)
DAYSDIVD 2 AMEXPM 3 PAYTIME 4 Constant R2 DW

Observations
1778-83 5
.028 -.036 .684 -1.40 .41 1.93
(7.16) (-2.71) (0.91) (-2.83) 111
.029 -.036 -1.51 .41 1.91

(8.64) (-2.76) (-3.18) 112
.029 -.66 .38 1.77

(8.38) (-1.78) 113
1782-90 5
.020 -.028 .839 .359 .33 1.79
(7.33) (-2.99) (1.55) (1.34) 185
.022 -.028 .244 .32 1.73

(9.15) (-3.01) (0.94) 186
.022 .320 .29 1.65

(8.90) (1.22) 187
1790-45
.016 -.010 1.776 .709 .19 1.69
(2.82) (-0.50) (0.71) (1.11) 75
.021 -.012 .495 .17 1.66
(4.24) (-0.60) (0.78) 76
.021 .267 .18 1.65

(4.27) (0.53) 77

1
Outliers removed and set to regression plane.
2
3
4
or ex dividend (1).
5
Subperiods:
1723-39 [Peace, pre-Barnard]
1739-48 [War of Austrian Succession]
1748-56 [Peace, no financial crises]
1756-63 [Seven Years' War]
1763-78 [Peace, panics of 1763 and 1772]
1778-83 [War for American Independence]
1783-90 [Peace]
1790-94 [French Revolution, war]
6

with the evidence of market integration presented earlier, demonstrate that

the small but persistent differences in prices that remained between the
Amsterdam and London markets for the British securities were due to the
fact that the London prices were cash, or spot, prices, whereas the Amster-
dam prices were forward prices.
When the semiannual dividend payment dates approached, the transfer
books for the particular stock would be closed so that the sums due to each
owner could be calculated and made ready. During that period, which
usually lasted two weeks, the stock would be quoted ex dividend. Any
deliveries of stock taking place during that period would not include the
dividend about to be paid, because the clerks would be making the pay-
ment ready for the currently registered owner. So I calculated the variable
DAYSDIVD as the number of days from the given date to the day the first ex
dividend quote appeared in the Course of the Exchange. In Amsterdam, on
the other hand, it appears that the quoted price always included the divi-
dend. A printed form that Dickson cited for sales of stock made in Amster-
dam for delivery (and payment) in London made explicit provision that if
the receiver of the stock did not get the current dividend, then he deducted
that dividend from the stated price he had agreed to pay. That arrangement
was stated clearly in a contract dated 4 April 1730 between Jacob Reynst
and David Leeuw, both of Amsterdam, which Dickson translated:
I the undersigned acknowledge to have Bought from Heer David Leeuw One
Thousand Pounds Sterling Capital Share of the Bank of England at London, at a
price of a Hundred and Forty Five and a Quarter per Cent remaining after the
Dividend paid last October, for settlement on next 15 May, the which £1000 I
oblige myself to receive in London at the stated Price. And in case in the interim
any Dividend is paid, it shall be to my profit and to reduction of the above Price.
Contrary wise all supplementations and Calls shall be at my expense, in the usual
way. All done in good faith at Amsterdam the Fourth April Seventeen hundred and
thirty.24
To capture the difference in quoting prices during the period dividends

were being calculated, I set up a dummy variable, PAYTIME, which is set to
unity for the first observation after the ex dividend quotes began in Lon-
don. It proves to be positive, as expected, and usually significant, es-
pecially for the earlier years. It also has the felicitous effect of reducing
substantially the serial correlation in the regressions.
Because transfers of stock had to take place in London, where the actual
24
Dickson, The Financial Revolution in England, p. 335. This quotes a preprinted form, on
which the items shown in italics were entered by hand.
stock had to be paid for in pounds sterling, one would expect some effect in
the Amsterdam market from fluctuations in the exchange rate with Lon-
don. Taking deviations in the observed sight rate from the mint par ratio as
the measure of changes in the exchange rate (AMEXPREM), what effect
should one expect on the Amsterdam price of an English stock (in English
pounds sterling) of, say, an increase in the value of the English pound
relative to the Dutch guilder? Recognizing that any effect would be merely
transitory until prices were equalized on the basis of the new exchange
rate, one might expect the demand for English stock in Amsterdam to be
shifted downward (any given price in pounds sterling would then be felt to
be more expensive by a Dutch purchaser), while the supply of the English
stock in Amsterdam would be shifted outward (any given price in pounds
sterling would then be more attractive to a Dutch supplier). This is illus-
trated in panel (a) of Figure 7.5. The joint effect of the shifts in demand and
in supply would be to reduce the price of the English stock in Amsterdam
relative to its price in London. Because the dependent variable in the re-
gressions is the Amsterdam price minus the London price, while the inde-
pendent variable for the effect of the exchange rate is the price of the pound
sterling in terms of Dutch bank money less the mint par ratio, the expected
sign on the exchange-rate variable is negative. That is, the higher the value
of the pound on the foreign exchanges, the lower one expects the price of a
British security to be in Amsterdam relative to London.
In fact, the estimated coefficient for the exchange-rate variable does not
prove to be statistically different from zero in the earliest period, and when
it does become significant, it has a positive sign! For periods after midcen-
tury, however, it always has the expected sign and often is significantly
different from zero as well, especially in the regressions from which out-
liers have been removed. The anomaly that needs to be explained, then, is
the positive sign and significant effect before 1750, especially during the
War of the Austrian Succession. The most likely explanation stems from
the fact that 1723 to 1750 was precisely the period when the Dutch built up
their holdings in the English joint-stock companies and long-term govern-
ment debt most rapidly. Dickson found that Dutch holdings of Bank of
England stock rose from 10.5% of the total capital in 1723-4 to 30.3% in
1750, while their share of East India Company stock rose from 13.4% to
21.4% over the same period.25 It would appear, then, that before 1750 the
25
Dickson, The Financial Revolution in England. Calculated from Tables 47 and 48, pp.
312-13, for 1723-4 and from Tables 50 and 51, p. 321 and p. 324, for 1750.
(a) Rise in pound sterling
Demand
• Supply
m Quantity of English assets held in Amsterdam

Q)
0)
Jg (b) Rise in demand for English assets
Supply
Quantity of English assets held in Amsterdam
Figure 7.5. Effects of a rise in the London rate of exchange on prices of English
securities traded in Amsterdam.
massive inflows of Dutch capital to the English long-term securities market

were sufficient to drive up the value of the English pound whenever surges
of Dutch demand lifted the Amsterdam price above the level predicted by
the purely technical factors embodied in the variables PAYTIME and
DAYSDIVD. This phenomenon is illustrated in panel (b) of Figure 7.5.
My final step in the regression analysis was to remove outliers. The
graphs of predicted versus actual values of the Amsterdam-London price
differences reveal a very close clustering of the actual value to the regres-
sion plane, with a few (less than 2%) of the observations causing much of
the unexplained variance. Setting the outliers equal to the predicted value
(or the actual value in the few cases where it turned out that an error had
been made in the data entry) greatly improved the goodness of fit, without
altering the size or significance of the estimated coefficients. (An exception
is the AMEXPREM variable, which did prove responsive in some time peri-
ods to the removal of outliers.) Some of the outliers may be due to errors of
transcription in the original data source. Some of the numbers in van
Dillen's table, for example, appear to be in error - two digits are reversed,
or two columns are reversed. But most of the anomalies in the van Dillen
table appear to occur in the Amsterdamsche Courant as well. 26
It is essential to confront as well the second source of transcription error -
that from the original source on the actual trading day in London or
Amsterdam to the printed source now used by historians. How much error
occurred must remain a matter of speculation, but extensive use of the
Course of the Exchange during the preparation of this book revealed very
few typographical errors - such as inconsistencies in the date headings
(which had to be altered with each issue) or reversal of data entries. But such
errors would, of course, have been easier for the original typesetters to
locate.
Studying the pattern of residuals for the period from 1763 to 1778, for
which the largest number of outliers occurs, suggests another explanation:
that the outliers appeared as a result of very short term sharp movements on
the London Stock Exchange. If one observes the London price for three
days prior to the outlier, in most cases the difference from the Amsterdam
quote largely disappears. If the next observation is also an outlier, it nearly
always has the opposite sign. This suggests that information of great influ-
ence on the price of English stocks reached London before it reached
Amsterdam. Because my observations are taken from the same day for
both markets, ephemeral information of the kind associated with panics
(the panics of 1763 and 1772 fell within the period) that reached one
market before the other would not be reflected in the price difference. In
anything other than panic situations, ephemeral fluctuations are not a prob-
lem, because the Amsterdam prices were taken only every two weeks, and
most information would have reached both markets. It is not surprising,
then, that the worst fits occur between 1763 and 1778 and again between
1790 and 1794.
The regression results strengthen the conclusion that the London and
Amsterdam markets were efficient and well integrated from the second
quarter of the eighteenth century onward. The spot prices quoted in the
26
I checked the 10 most dubious numbers from van Dillen against photocopies of the
Amsterdamsche Courant I obtained from the New York Public Library. Only three, those
for East India stock on 16 November 1733 and 3 April 1789 and that for South Sea stock
on 25 November 1793, proved to be van Dillen's mistake in transcribing.
London market followed a random-walk process consistent with efficient

markets. The forward prices in the Amsterdam market were highly corre-
lated with them. The semiannual dividend payments in London then pro-
duced regular patterns in the Amsterdam prices, both because of the le
Bachelier effect and because of the practice in London of quoting prices ex
dividend during the preparation of dividend payments, whereas Amster-
dam quoted them with dividend. Those regular patterns, however, were
sometimes masked by unusual expectations (during the War of the Austrian
Succession, for instance), fluctuations in exchange rates, or panics. For
those unusual periods, one finds random walks in general, although the
time of the War of the Austrian Succession remains an anomaly.
Economists and historians will regard these findings differently. For
historians, they will simply confirm in large part the authoritative work of
Dickson on the operation of the London capital markets in that period and
his perceptive comments on the Dutch influence. Dickson's work on the
Dutch, in turn, relied heavily on the earlier work done by Carter, van
Dillen, and Wilson.27 All were agreed on the importance and effectiveness
of the integration of the two capital markets at the dawn of modern cap-
italism. After all, even Karl Marx regarded the establishment of the na-
tional debt in England as the single most effective device in the "primitive
accumulation of capital." 28
For economists, the quantitative results should strengthen their confi-
dence in doing analytical work on the financial relations between London
and Amsterdam.29 The pioneer work in this regard was done by Robert
27
Alice Clare Carter, "Dutch Foreign Investment, 1738-1800," Economica, 2O(November
1953), pp. 3 2 2 - 4 0 ; "Dutch Foreign Investment, 1738-1800, in the Light of the Amster-
dam 'Collateral Succesion' Inventories," Tijdschrift voor Geschiednis, 66(1953), pp. 2 7 -
38; "The Huguenot Contribution to the Early Years of the Funded Debt, 1694-1714,"
Proceedings of the Huguenot Society of London, 19:3(1955), pp. 2 1 - 3 1 ; "Financial
Activities of the Huguenots in London and Amsterdam in the mid-Eighteenth Century,"
Proceedings of the Huguenot Society of London, 19:6(1955), pp. 3 1 3 - 3 3 . All these are
reprinted and summarized in her book Getting, Spending and Investing in Early Modern
Times (Assen: Van Gorcum, 1975). Cf. Charles Wilson, Anglo-Dutch Commerce and
Finance in the Eighteenth Century (Cambridge University Press, 1941), and his "Dutch
Investment in Eighteenth Century England," Economic History Review, 2nd series,
i2(April i960), pp. 4 3 4 - 9 . Van Dillen's works were cited earlier.
28
Karl Marx, Capital (London: Lawrence & Wishart, 1970), Vol. 1, pp. 7 5 4 - 6 .
29
teenth Century," Ph.D. dissertation, University of Chicago, 1974, concentrated on the
daily course of prices during the South Sea Bubble and found that the market operated
efficiently, although he found unexplained differences in the price quotes from different
sources. Philip Mirowski, "The Rise (and Retreat) of a Market: English Joint Stock Shares
Eagly and V. Kerry Smith, who used interest-rate and foreign-exchange-

rate data in the framework of an interest-rate arbitrage model. They as-
serted that their results "support the general hypothesis of a trend towards
increased integration among money markets during the course of the cen-
tury, but at the same time they show that during individual subperiods there
was considerable variation in this trend." 30 The results reported here show
that as well, but their most interesting feature is the high level of integra-
tion that existed at the beginning of the second quarter of the eighteenth
century and the continuing efficiency of both stock markets, rather than a
trend toward improved integration.
True, the operations were disturbed by repeated wars (each marked by
different financial techniques and consequences), by trade disturbances,
and by occasional financial panics, much as operations on financial mar-
kets continue to be disturbed today. Nevertheless, the disturbances of the
eighteenth century never changed the fundamental economic charac-
teristics of the two markets in the way that modern policy measures of
sovereign nation-states manage to do. Neither country attempted an inde-
pendent national monetary policy between 1723 and 1794 - they did not
control capital movements, withhold taxes on dividend or interest pay-
ments to foreigners (or even tax dividends and interest until Pitt's income
tax of 1798), change monetary standards, manage exchange rates, or at-
tempt to regulate the size of the money supply. There was an absence,
therefore, of the modern impediments to efficient operation of multiple-
listing markets. (Witness, by comparison, the current difficulties in ex-
panding multiple listings of stocks among the members of the European
Community.) In other words, two remarkably modern capital markets were
permitted to interact in an unfettered (and hence unmodern) fashion. That
may be why economic integration occurred between the two countries first
in the capital markets, well before comparable degrees of integration could
be achieved in good markets or labor markets.
in the Eighteenth Century," Journal of Economic History, 4i(September 1981), pp. 559-
77, compared internal accounts of profitability for several joint-stock companies with the
pricing of their equity on the stock market. He found increasing discrepancies for the latter
part of the century. But see my discussion of his results on the East India Company in
Chapter 6.
30
Robert Eagly and V. Kerry Smith, "Domestic and International Integration of the London
Money Market, 1731-1789," Journal of Economic History, 36(March 1976), p. 210.
8. The English and Dutch
capital markets in panics
Measuring the degree of integration in financial markets is difficult both

theoretically and empirically. The theoretical difficulties are well illustrated
in the literature dealing with U.S. capital markets in the late nineteenth
century.l This literature takes advantage of the plentiful data that can be
found for regional interest rates, but it confronts an inherent theoretical
problem by trying to measure an economic phenomenon - integration of
capital markets - with a variable measuring rod. The measuring rod, the
short-term interest rates earned by banks on a broad class of loans, must
vary as local regulations vary, as the riskiness and duration of the loans
within the category vary, and as monopoly rents vary. All these variations
must be allowed for if a consistent measuring instrument is to be obtained.
If they are not, then the possibility always remains that divergences or
convergences of interest rates between two capital markets may be due to
factors other than integration or separation of the two markets. These
difficulties of interpretation are inherent in the use of the interest-rate
arbitrage model to derive a measuring standard.
In this chapter we can take advantage of the price series developed in the
preceding chapter to measure the difference in the prices of a share of stock
as quoted on the same day in the domestic exchange for the company and
in a foreign exchange. Fritz Machlup referred to this as the simplest test of
1
The literature begins with Lance Davis, "The Investment Market, 1870-1914: The Evolu-
tion of a National Market," Journal of Economic History, 25(September 1965), pp. 355-99
(commercial paper market), and continues with Richard Sylla, "Federal Policy, Banking
Market Structure, and Capital Mobilization in the United States, 1863-1913," Journal of
Economic History, 29(December 1969), pp. 657-86 (national banks), Larry Neal, "Trust
Companies and Financial Innovation, 1897-1914," Business History Review, 45(Fall
1971), pp. 35-51 (trust companies), John James, "The Development of the National Money
Market, 1893-1911," Journal of Economic History, 36(December 1976), pp. 878-97
(local monopoly), Richard Keehn, "Federal Bank Policy, Bank Market Structure, and Bank
Performance: Wisconsin, 1863-1914," Business History Review, 48(Spring 1974), pp. 1-
47 (local regulations), and Marie E. Sushka and W. B. Barrett, "Banking Structure and the
National Capital Market, 1869-1914," Journal of Economic History, 44(June 1984), pp.
463-77 (risk premia).
166
Capital markets in panics 167
all for market integration, because the product is standardized, identical in

the two markets, and the cost of transport between the two markets is
essentially zero. 2 Oskar Morgenstern went so far as to assert "on different
national stock markets the prices of the same shares are as a rule not at
variance, owing to perfect arbitrage."3 Because the same shares have the
same risk of default by definition, and the legal terms of the underlying
contract are the same for all shareholders, we avoid all the problems
mentioned earlier that are associated with using interest rates on short-term
or long-term securities as measures of financial integration.
But even in regard to the price of a given stock, dififerences in the two
markets still may arise from delays in information and from dififerences in
investor preferences in response to the information, which will be reflected
in price dififerences. These price dififerences provide a measure of the
separation or lack of integration of the two markets. The absolute level of
these price dififerences will depend only on the transactions costs between
the two markets. (However, because the largest portion of transactions
costs turns out to be brokers' fees, and these are charged as percentages of
the sale value in each market examined in this chapter, it is the ratio of the
price dififerences to the average values of the shares in the two markets that
is the best measure of transactions costs.) The duration of a given price
discrepancy between the two markets will depend on the length of time
required for the transmission of information between the two markets. The
average difference in price between the two markets will normally depend
on dififerences in quoting prices (e.g., money prices usually are lower than
term or on-account prices) and dififerences in transactions costs of all kinds
(taxes on transfers, brokers' fees, implicit interest rates for trading on
account times the normal length of settlement) between the two markets, as
well as on the typical premium or discount ruling in the exchange rate for
the two currencies involved. But these kinds of transactions costs are trivial
compared with the problems of risk and legal enforcement that plague
measures of interest rates across national boundaries. Moreover, they also
exist and must be taken into account for interest-bearing securities.
How can we best use these stock price series to measure the integration
of financial markets? If perfect arbitrage, in the words of Morgenstern,
occurs within the constraints of transactions costs, information delays, and
2
Fritz Machlup, A History of Thought on Economic Integration (New York: Columbia
University Press, 1977), p. 26.
3
Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton
University Press, 1959), p. 508.
price movements in the intervening foreign exchange market, there should

exist no detectable time-series pattern in the price dififerences between the
two markets. That is, the random-walk behavior of efficient markets (in the
weak sense of Fama) should be observed not only for the price movements
in each market but also for the dififerences in prices between the two
markets. If something other than a random walk is observed, then unex-
ploited arbitrage opportunities remain between the two markets, and they
cannot be considered fully integrated. In other words, using prices of
mutually traded securities in two markets, we expect the usual tests of
financial integration - high correlations in price levels or price movements
(as found in the preceding chapter), or low coefficients of variation (standard
deviations divided by the mean) - to be passed with flying colors. We need a
more sensitive test that can indicate differences in the timing and impact of a
given information set on traders operating in the two markets. The test
proposed and implemented here is to see if we can find ARM A (o, o)
models, not in the price levels observed on each market, as is usually done in
studies of individual markets, but in the price differences between the two
markets.
In the preceding chapter we analyzed data on the prices of shares of the
major British joint-stock companies as traded on both the London and the
Amsterdam exchanges, starting in the second quarter of the eighteenth
century. For the period beginning at the end of the nineteenth century, we
have daily data on the prices of American railroad shares as traded in each
of the major European stock exchanges. At that time, each market was
informed within hours of prices in the other markets via multiple sub-
marine cables. Moreover, forward orders were regularly placed by London
traders for particular securities and foreign exchange in the New York
market to take effect after the London market closed. There still were no
formal taxes, regulations, or controls on capital movements. Further, each
country was formally on a full gold standard; so there were no uncertainties
associated with the acceptability of a means of payment across national
boundaries. In short, all the conditions for the perfect arbitrage of Mor-
genstern were in place and working.
We have, then, in these historical data on share prices across two or
more national markets, the possibility of measuring the integration of
European capital markets against the standards set just before World War I
and involving nearly two centuries of experience, the very centuries that
witnessed the budding and full flowering of the world capitalist economy.
Did integration proceed at a steady pace, or in fits and starts? How did it
respond to political divisions, wars, changes in trade policies, changes in
monetary standards, and periods of inflation and depression? These are

some of the questions that in principle can be tackled using these data, but
in this exploratory effort they will have to be ignored. First must come the
work of developing this alternative standard of measurement.
The interest-rate arbitrage model, used in previous studies, has proved
difficult to specify correctly in theoretical terms and more difficult, even
treacherous, to implement empirically. Morgenstern found it to work as
expected during the late nineteenth and early twentieth centuries only dur-
ing periods of financial crisis. Those were periods when interest rates
changed sharply in the financial market that originated the crisis, creating
large interest-rate differentials internationally. Only for those periods could
Morgenstern find the sequence he expected in the interest-rate arbitrage
model: gold flowing into the market with higher interest rates, its exchange
rate rising, and then its prices rising. By contrast, the asset-pricing model
described earlier might be expected to work least well during such epi-
sodes. A liquidity scramble in one center should drive down prices of all
financial assets, and if the crisis had not yet appeared in the other market
where the security was traded, we would expect a gap larger than normal to
emerge between the prices in the two markets. (This would be the corollary
of an unusual widening of the interest-rate differential in the interest-rate
arbitrage model.) For our present purposes, we may as well measure capital
market integration with the asset-pricing model during successive financial
crises that were propagated from one of the financial centers to the other
(i.e., in the "worst-case scenario"). The crises have been selected on the
grounds of their availability of data and their characteristics as truly inter-
national crises that affected both markets, but with differences in intensity
and timing. The crises that met these joint criteria were the crises of 1745,
1763, 1772, and 1793 for the capital markets of London and Amsterdam,
the crises of 1825, 1873, and 1907 for the London and Paris markets, the
crises of 1873 and 1907 for the New York and London markets in Ameri-
can railroad stocks, and the crisis of 1907 for the Amsterdam market once
again.
The panic of 1745

According to T. S. Ashton,4 this crisis was confined to London, and its
interest really lay only in the sharp fall of British government security
prices with the brief but surprising success of the Jacobite rebellion in
4
T. S. Ashton, An Economic History of England: The Eighteenth Century (London: Meth-
eun, 1966).
Scotland from September 1745 to April 1746. Both East India Company
stock and Bank of England stock were in the category of government
securities, however. Because the War of the Austrian Succession (1740-8)
included England in the 1745 period, it is interesting that Ashton found no
particular influence from the financial requirements of the larger war on the
English capital markets. That war, however, was a major source of finan-
cial disturbances for the Amsterdam market. James Riley dated the start of
Dutch interest in lending to foreign governments as beginning with the
activities of Dutch investors on the London market in that period.5 The
Dutch Republic became a belligerent at the end of that war, during 1747
and 1748.6 Finally, Austrian obligations to Dutch investors had been based
on revenues from Silesia. When that province was lost to Prussia early in
the war, the Austrians stopped paying interest to their Dutch creditors on
the Silesian bonds, and the Prussians saw no point to assuming them. That
was a continuing source of financial pressure on the Dutch markets,
therefore.7
The panic of 1763

A panic confined to the London market had occurred in 1761. In
mid-1763, however, a crisis began in Amsterdam with the failure of the
financial house of De Neuvilles. As a scramble for liquidity began in both
Amsterdam and Hamburg, bankruptcies occurred in other northern Euro-
pean cities. Prices of British securities fell as the foreign holders cashed
them in, and the pound sterling fell as bullion was shipped out. Ashton
claimed the crisis was most severe in Amsterdam in August and September
and worst in London in October of 1763. 8 To capture both panics, I have
taken the quotations from June 1761 to June 1764 for analysis.
The panic of 1772-3

In June 1772, a panic occurred in Scotland when Alexander Fordyce, a
partner in the London house of Neale, James, Fordyce, and Down, who
had been speculating on East India stock, absconded to France.9 From
5
James C. Riley, International Government Finance and the Amsterdam Capital Market,
1740-1815 (Cambridge University Press, 1980), p. 14.
6
Ibid., p. 78.
7
Ibid., pp. 88-9.
8
T. S. Ashton, Economic Fluctuations in England, iyoo-1800 (Oxford: Clarendon Press,
1959), PP- 126-7.
9
Ibid., p. 128.
Scotland, the liquidity scramble spread to London and then to Amsterdam

by October, when a Dutch firm, Clifford & Sons, went bankrupt. Accord-
ing to Riley, international support was mobilized quickly on behalf of other
firms in Amsterdam, but the longer-term consequences were the formation
of a cooperative fund organized among the firms in Amsterdam to dome to
the aid of firms that were solvent but illiquid, and a substantial contraction
of the acceptance credit business in Amsterdam. Complaints of a shortage
of coin in Amsterdam continued through 1773; so I have taken the period
January 1772 to January 1775 for analysis. Kindleberger saw this as a
classic example of a crisis spreading from one center to another, but pre-
vented from becoming more general and severe by the ad hoc formation of
a lender of last resort.10
The panic of 1791-4

The War for American Independence and the French Revolution each
caused disturbances on the London Stock Exchange and in the foreign
exchange markets for sterling. But in each case the disturbance was limited
either in duration or to the British market alone. Far more serious were the
disturbances that led up to the formal declaration of war between Britain
and France in February 1793 and the military successes of the French
armies that led eventually to the occupation of Amsterdam in 1795. The
establishment of the Batavian Republic in 1795 under revolutionary rules
of the game also led to the publication of an official price list for the Am-
sterdam Effectenbeurs that began in 1795. n According to Ashton, the war
crisis in the exchanges preceded the actual war, as was usually the case,
and by summer 1793 the financial crisis was over.12 I have taken
the period December 1791 to December 1794 for analysis of this episode,
which really began in France, was transmitted equally to Amsterdam and
London, and finally was terminated in Amsterdam by French occupation.
This completes the list of panics for the eighteenth century for which we
have data only on the Amsterdam and London exchanges. It is interesting
to see how they compare with the various panics of the nineteenth century,
which were truly international, because that is when integration of capital
markets is traditionally supposed to have begun, and to have continued
10
Charles Kindleberger, Manias, Panics and Crashes (New York: Basic Books, 1978), pp.
48, 123.
11
Johann de Vries, Een Eeuw vol Effecten, Historische schets van de Vereniging voor de
Effectenhandel en de Amsterdamse Effectenbeurs, 1876-1976 (Amsterdam: Vereniging
12
Ashton, Economic Fluctuations, pp. 133-4.
until World War I. In the nineteenth century, the variety of securities that
were quoted on separate national stock markets increased, the number of
stock markets that participated in cross-national listings increased, and
enormous improvements in communication among the various markets
occurred.
The panic of 1825

According to William Smart, the panic of 1825 was a sharp, unexpected
reversal of the boom of 1824. The root cause, in Smart's analysis, was the
anticipatory export of goods to South America by British merchants count-
ing on payment eventually from the great loans that were made in 1824 to
Latin American countries. When the Latin American ventures proved to be
little more than empty mine shafts (literally the case in some of the major
investments), a readjustment was in order.13 Because the Latin American
stocks and bonds were issued in London and the recipient countries had no
developed stock exchanges at that time, the best security for examination is
the French rente. The chief security traded in the London Stock Exchange
was the French 5% rente of 1817. A conversion scheme, however, was
enacted in the course of 1825 to replace these with new 3% rentes. (The
Times carried a report of the debate in the Chamber of Deputies over the
conversion plan in May 1825.14) The Times could not make up its mind
which security, or both or neither, to report in its daily listings of the prices
on the exchange. At one point during the panic of December, the two
rentes were quoted with different exchange rates for the franc! The impor-
tance of the British holdings of the French rente for the British capital
market, as well as for the French government, can be gauged from the
following report in the Times on 3 January 1826: "An express from Paris,
which arrived yesterday morning, with information of a rise of 1 per cent in
the French 3 per Cent Stock, contributed to give a tone of cheerfulness to
the money transactions of the Exchange." The data for the London market
were collected from the London Times, and the data for the Paris market
were taken from Le Moniteur Universal.
The panic of 1873

The panic of 1873 was perhaps the most uniform and widespread financial
panic of the nineteenth century. Its origins in the United States have been
13
William Smart, Economic Annals of the Nineteenth Century, 1801-1820 (New York:
Augustus M. Kelley, 1964), Vol. 1, p. 295.
14
London Times, 13 May 1825.
traced to gold-corner attempts by Jay Gould or to stock manipulation in the

Northern Pacific Railway by James J. Hill, and in Europe to excessive
German speculation in railroad issues during the boom set off by the receipt
of French reparations after the Franco-Prussian War of 1870. It initiated a
long period of falling prices in all the major countries, and security prices
in all financial centers were sharply affected.
Complicating our measurement of stock prices in separate national mar-
kets for this crisis is the fact that it occurred during the "greenback" period
for the United States, when paper money issued by the U.S. Treasury was
legal tender. However, gold currency was also legal tender; so the two
circulated together, with, typically, a premium paid for the gold dollar in
terms of the greenback dollar. That varied daily. A further complication
was that the gold dollar also fluctuated daily in relation to the British pound
sterling. It turns out that American securities were quoted on the London
market in terms of the gold dollar, but they were quoted on the New York
market in terms of the greenback dollar.15
Offsetting the multiplicative uncertainties of a fluctuating foreign ex-
change rate and a fluctuating internal conversion rate of two legal curren-
cies was the development of transatlantic telegraphic cables that permitted
the daily exchange of information between the New York and European
markets. This episode helps distinguish the effects of speedier communica-
tions from those of increased uncertainties in monetary regimes on the
integration of capital markets.
To establish this, I have examined the London and Paris markets again in
terms of the French 3% and 5% rentes and added a comparison of the
London and New York markets in terms of two well-known but separately
managed railroads - the infamous Erie, whose mismanagement by Gould
was becoming evident at that time, and the Illinois Central, which was
actively traded in the London market, but not in New York.
The panic of 1907

The panic of 1907 has its main interest now as the milder earthquake that
preceded the crash of 1929. It was not equally felt everywhere in the
capitalist world economy. London had experienced its financial stringency
in 1906, and a few, but very few, observers linked that to the subsequent
problems in New York. In the London market, however, events in New
15
Lawrence H. Officer, "The Floating Dollar in the Greenback Period: A Test of Theories of
Exchange-Rate Determination," Journal of Economic History, 41 (September 1981), p.
633.
York during the panic of October 1907 were followed closely, and it is
clear that efforts to stabilize prices in New York were persistently under-
mined by sell orders from London and Amsterdam. Paris was affected only
briefly and with a delay, but Germany participated fully. Italy, it turns out,
experienced much the same kind of investment boom, monetary growth,
and stock market speculation before the 1907 panic as the United States,
because its monetary base was enlarged by emigrants' remittances from the
United States. 16
The cross-tides of information among the capital markets over the sub-
marine cables had developed by that time to the extent that each day the
London Times carried a list of the previous day's prices on the New York
Stock Exchange of some 50 American securities, including not only the
opening, closing, and previous day's closing prices but also the London
price of the security as stated in New York. Then, of course, these same
American securities as traded on the London Stock Exchange were listed
with their spot and term prices. Finally, shorter lists of securities traded on
the "Continental Bourses" were printed, including Paris, Berlin, Vienna,
and Amsterdam, and, on occasion, St. Petersburg and other remote capital
markets of Europe. Eight American railroads were quoted from the
Amsterdam Beurs, one (the Baltimore & Ohio) from Berlin, but none from
Vienna or Paris. Some 25 American railroads were carried daily in the
London Times report for the London stock market. With this wealth of data
available, our comparisons are confined to Erie railroad stock and Southern
Pacific stock as priced each day on the London, Amsterdam, and New
York stock exchanges at weekly intervals over the period October 1906 to
June 1908.
The results of measuring the price differences for the various securities
across the several markets in these financial crises spanning nearly two
centuries are shown in Table 8.1. This shows the average and the variance
of the absolute price differences as a percentage of the average of each pair
of prices in order to compare the effects of transactions costs in each
market and between the two markets on price differences. The remaining
statistics - the standard deviation, the maximum difference that was ob-
served, the minimum difference, the range of the differences, and then, for
good measure, the autoregressive moving-average time-series model that
best describes the dynamic pattern of the differences - are calculated for
16
Franco Bonelli, "The 1907 Financial Crisis in Italy: A Peculiar Case of the Lender of Last
Resort in Action," in C. Kindleberger and P. Lafifargue, eds., Financial Crises: Theory,
History, and Policy (Cambridge University Press, 1982), pp. 51-3.
the percentage actual price differences. These are the precise statistical
measures that reflect the concepts of transaction costs, delays in informa-
tion, and the degree to which arbitrage is carried out. Other measures
might be devised to reflect other aspects of integration (e.g., longest run of
observations greater than one standard deviation from the average dif-
ference), but these seem to cover the most obvious dimensions of integra-
tion across each pair of markets.17
Panels A-D for the eighteenth century show essentially the same values
in each crisis episode for the averages, variances, standard deviations,
ranges, and ARMA patterns. The exceptions to this observation are that the
ranges were always greater for East India stock than for Bank of England
stock and that the ranges for both were noticeably greater in the 1793
crisis. This is evidence that market integration may, in fact, have been
breaking down at the end of the eighteenth century in the face of the
political disturbances that disrupted trade and communications between the
two markets. Otherwise, little change occurred in the degree of integration
of these two markets.
Only one case of an ARMA process of (o, o) order occurs for the
eighteenth-century panics: Bank of England stock in the 1763 crisis. Be-
cause that crisis was focused on speculation in East India Company stock,
it is not surprising that the ARMA for price differences in East India shares
is not (o, o) but (1, o), indicating a one-period lag process at work in the
price differences. Is this evidence of well-integrated markets by the middle
of the eighteenth century? In the preceding chapter, an ARMA model other
than (o, o) was considered an indicator of lack of market integration; so by
that standard the prevalence of ARMA (1,0) models is an indicator that
market integration was not complete in the eighteenth century. But perhaps
different standards should be applied to the case of price differences be-
tween two markets for a stock under speculative attack in a financial panic
17
The Amsterdam prices were adjusted before taking the difference from the London price.
The adjustment arises from the discovery that Amsterdam prices were consistently higher
than London prices. This led to the determination that the Amsterdam prices were time
prices, and the London prices were spot. Larry Neal, "Efficient Markets in the Eighteenth
Century? The Amsterdam and London Stock Exchanges," Business and Economic Histo-
ry, 11(1982), pp. 81-100. A regression equation was estimated relating the excess of the
Amsterdam price over the London price to the number of days until the next payment of
dividends. This equation was then used to calculate Amsterdam prices adjusted to their
"spot" equivalents. The adjustment reduced the average difference found (Amsterdam
spot prices were lower on average than Amsterdam time prices for both stocks) and
reduced the order of the estimated ARMA models. But the variance, standard deviation,
and range of differences were largely unaffected by this adjustment.
TABLE 8.1
Summary statistics on stock market integration
in the eighteenth- and nineteenth-century crises
Eighteenth Century: Bank of England and East India Company shares quoted on the
Amsterdam and London stock exchanges (average and variance are for percentage absolute price
differences; remaining statistics are for percentage actual differences)
A. The crisis of 1745 (biweekly, June 1744 - June 1747)

Name Avg Var SD Max Min Range ARMA
Bank 1.00 0.52 1.19 3.78 -2.92 6.71 (3,0)
E.India 1.35 1.29 1.71 7.01 -4.62 11.63 (1,0)
B. The crisis of 1763 (biweekly, June 1761 - June 1764)

Bank 1.06 0.87 1.36 4.93 -2.29 7.23 (0,0)
E.India 1.45 1.37 1.82 4.99 -3.38 8.37 (1,0)
C. The crisis of 1772 (biweekly, January 1772 - January 1775)

Bank 0.71 0.27 0.80 1.57 -2.60 4.17 (1,0)
E.India 1.59 1.53 1.95 5.61 -4.58 10.19 (1,1)
D. The crisis of 1793 (biweekly, December 1791 - December 1794)

Bank 1.180 1.822 1.671 8.751 -2.685 11.436 (1,1)
E. India 1.342 2.706 2.078 9.156 -8.923 18.079 (1,1)
Source: For London, The Course of the Exchange (appearing semi weekly, with daily prices); for
Amsterdam, J. G. van Dillen, "Effectenkoersen aan de Amsterdamsche Beurs 1723-
1794," Economische-Historische Jaarboek, 17 (1931), pp. 1-46 (from the Amsterdamsche
Courant, sampled fortnightly).
that is spreading from one market to the other. It would seem reasonable
that in these specially selected episodes, a panic spreading from one center
to another would mean that information was flowing from one to the other,
so that price differences, especially in the shares under the severest attack
by investors scrambling to cover speculative positions, might be auto-
regressive. Finding an ARMA model with a non-zero moving-average
process [such as the ( i , i) model in 1793], on the other hand, would imply
that some element other than lagged information flows was at work. The
(1,1) model for the 1793 crisis implies that markets were less well inte-
grated then than in the earlier three crises, on this reasoning. Our other,
traditional, indicators of market integration also indicate that the 1793
crisis was more disruptive; so this helps support the interpretation that, in
the context of variables used and the episodes chosen here, (1,0) models
demonstrate a greater degree of market integration than do (1, 1) models.
But this interpretation can be checked another way, namely, by calibrat-
TABLE 8.1 (continued)

Summary statistics on stock market integration
in the eighteenth- and nineteenth-century crises
Nineteenth Century: French rentes and American railroad stocks quoted on the Amsterdam,
London, New York, and Paris stock exchanges (average and variance are for absolute percentage
differences of prices in the two markets compared; remaining statistics are for percentage actual
differences.)
E. The crisis of 1825 (weekly, July 1824 - July 1826)

(French rentes, 5% and 3%, compared in London and Paris)
5 % rente 0.58 0.53 0.92 4.68 -3.51 8.18 (0,1)
3 % rente 0.84 0.83 1.18 3.92 -1.48 5.41 (0,1)
F. The crisis of 1873 (weekly, July 1872 - July 1874)

i) French rentes, 5% and 3%, compared in London and Paris
5% rente 1.50 1.00 1.10 1.48 -5.19 6.67 (1,2)
3 % rente 1.76 1.03 1.05 0.51 -4.18 4.69 (3,0)
ii) American railroad stocks, the Erie and the Illinois Central, compared in London and New
York
Erie 2.10 4.85 2.85 9.68 -4.49 14.17 (3,0)
Dl. Cen. 1.80 3.36 2.56 9.80 -7.78 17.58 (1,1)
G. The crisis of 1907 (weekly, July 1906 - July 1908)

i) Stock of the Erie railroad, compared in London, Amsterdam, and New York
Pair Avg Var SD Max Min Range ARMA
L-NY 3.19 4.73 2.75 11.58 -8.83 20.41 (4,1)
Am-NY 2.25 5.84 2.78 15.46 -3.13 18.59 (2,2)
L-Am 1.82 1.48 1.99 5.00 -5.71 10.71 (2,1)
ii) Stock of the Southern Pacific railroad, compared in London, Amsterdam, and New York
Pair Avg Var SD Max Min Range ARMA
L-NY 2.56 1.73 1.41 7.62 -0.93 8.54 (1,1)
Am-NY 1.10 0.88 1.44 4.89 -4.82 9.72 (0,0)
L-Am 2.64 1.73 1.42 9.29 -0.93 10.21 (1,1)
Source: 1825: London: The Times, Thursday issue or closest match to Paris quote. Paris: he
Moniteur Universel, Thursday issue or closest business day.
1873: London: The Times, Thursday issue or closest match to either Paris or New York
quote. Paris: Le Figaro, Thursday issue or closest business day. New York: The
Commercial and Financial Chronicle, monthly summary.
1907: London, Amsterdam, and New York: The Times, Thursday issue or closest match
to New York or Amsterdam quote.
ing our measures of the eighteenth-century panics against comparable mea-

sures for the nineteenth century. Those results are shown in panels E-G of
Table 8.1, and they make the mid-eighteenth-century results look quite
respectable, indeed. The average differences in price levels between the
various markets of the nineteenth century were much the same right
through to 1907. In fact, the largest difference found occurred in 1907 (for
Erie stock compared on the London and New York exchanges). The vari-
ances are also similar, except that those for American railroad stocks in the
nineteenth century are substantially higher. The standard deviations (recall
that these are for the absolute percentage diiferences) are also quite uni-
form by security and time period, save for the American railroad stocks.
Their standard deviations are double the levels for French rentes in the
1873 crisis and remain high for Erie stock in the 1907 panic. The range of
differences for the nineteenth-century securities were also much the same
as in the eighteenth century, with the exception of those for American
railroad stocks in the 1873 crisis and Erie stock in 1907. The possible range
of differences should decrease as the speed of communication of prices
between two markets increases; so our quantitative evidence indicates that
only the speeding up of communications over the nearly two centuries
under consideration had any effect in improving the integration of Euro-
pean capital markets. And that improvement could be easily offset in the
case of volatile stocks (Erie in 1907) and uncertainties of exchange rates
when governmental policies changed (American securities in 1873). But
the improvement of communications did not improve integration to the
extent that all possible profit opportunities from arbitrage were eliminated.
In the ARMA models calculated for the nineteenth century, we find no
random walk until we get to the 1907 panic. Even there the random walk
appears in only one of the six possible cases (three markets and two stocks
are compared). Even worse is the finding that for the 1873 crisis the
estimated coefficients for the ARMA models (not shown in the table) for
each security - French 3% and 5% rentes, Erie and Illinois Central stock -
indicate that the ARMA process was explosive, rather than dampened!
That might be conceivable if a rational bubble were in progress in one
market and not in the other for the same stock, but that situation hardly
seems likely if the markets were better integrated than in the eighteenth
century.
In sum, the evidence is that the Amsterdam and London capital markets
of the eighteenth century were closely integrated, even by the standards of
the early twentieth century, and they were well integrated even during
financial crises that affected one market more severely than the other,
according to contemporary accounts. That was true, of course, only for the
securities that were listed in both markets. For other securities that were
listed and actively traded in one market, but not in the other, integration
obviously could have taken place through trading first in one of the com-
monly listed securities and then in any of the locally traded securities. The
ease of integration would then be improved by increasing the number of
commonly listed securities. Those did begin to grow in the nineteenth

century, especially after the middle of the century, with first London and
then Paris joining Amsterdam as markets where foreign securities could be
locally traded.18 But the degree of integration does not seem to have made
much progress in terms of decreasing the average difference in prices and
eliminating systematic patterns of price differences.
Fritz Machlup noted that use of the term "integration" in economic
discussion did not occur regularly until 1948; previous references to the
concept in the twentieth century normally spoke of "disintegration," be-
cause that was the dominant feature of the international economy after
World War I. 19 Today, the European Community has made only limited
progress toward its initial goal of capital market integration. Even when
capital movements across national boundaries are permitted with relatively
certain exchange rates, the acquisition of foreign securities or the sale of
domestic securities to foreigners may be subject to governmental re-
strictions and controls. 20 The situation has progressed little since the Segre
report of 1966 found that very few European securities were even listed on
stock exchanges outside the home country for the European company and
concluded that little progress had been made toward the desirable goal of
pan-European capital markets.21 The latest assessment of European capital
markets was very negative, by contrast with the New York market: "Bloc
trades (10,000 shares or more) in European markets often have to be
implemented over days or even weeks to avoid disrupting the market. And
because of fixed commissions and stamp duties or bourse taxes, transac-
tions can be very expensive."22 All this, of course, is but a specific exam-
ple of the uniqueness of the international economic integration that had
been achieved by the outbreak of World War I and how far we remain from
that condition today.
18
In 1855, the Amsterdam Beurs listed officially 87 securities, only 14 of which were
domestic, and 2 colonial; three-fourths of those, however, were government bonds. By
January 1914, the number had grown prodigiously to 1,796, of which 691 were domestic,
840 foreign, and 265 colonial. Of the foreign securities, 194 were issued by North
American railroads. Ludger Brenninkmeyer, Die Amsterdamer Effektenboerse (Berlin:
Emil Ebering, 1920), pp. 1 7 8 - 8 3 . By contrast, we may note that in 1983, only 294 foreign
stocks were listed in the United States, up sharply from 99 in 1979. Business Week, 24
July 1984, p. 101.
19
Machlup, A History of Thought, pp. 4 - 1 2 .
20
Ibid., p. 17.
21
European Economic Community, The Development of a European Capital Market
(Brussels: EEC, 1966.)
22
Business Week, 24 July 1984, p. 102.
9. The capital markets during revolutions,
war, and peace
In February 1793, after war had been declared by the French revolutionary
government against both England and Spain, and the Dutch "patriot" party
was attempting its own revolution in Amsterdam in sympathy, the great
Anglo-Dutch merchant banker Henry Hope removed himself from Amster-
dam to London. He returned briefly in December when it appeared that the
first invasion of the Austrian Netherlands had been defeated. But on 17
October 1794, as French troops were poised at the River Maas for the final
offensive into Holland, he crossed over to England permanently, with John
Williams Hope, while other members of the firm fled to Germany. The two
remaining members, Pierre Labouchere and Alexander Baring, made their
escape on 18 January 1795. Henry Hope carried with him 372 valuable
paintings, insured for £26,000. Without selling his recently completed
country seat at Welgelegen or his warehouse and office in central Amster-
dam, he arranged for purchase of the East Sheen estate near Richmond and
a palatial London residence that he began to expand in order to accommo-
date his collection of art.1
This is only one example, albeit one of the largest and best-documented
examples, of the displacement of capital from the European continent in
front of the advancing French Revolution and its armies. The revolution-
aries had abolished traditional property rights, including feudal obligations
and seigneurial dues, and they disrupted customary channels of trade.
Hope and his family, already having strong financial ties with England,
were able to transfer their movable wealth nearly intact. So, too, we should
imagine, were most merchant bankers able to avoid the capital losses
implied by the revolution, and perhaps many were able eventually, as were
the Hopes, to profit from the new opportunities provided by war finance.
Other merchants were less favorably placed and did less well. Certainly the
nobility were desperate to liquidate and salvage what they could of their
estates, as well as to save their lives. The emigres had to turn to the
1
Marten J. Buist, At Spes Non Fractra, Hope & Co. 1770-1815 (The Hague: Nijhoff,
1974), pp. 48-50, passim.
180
Capital markets in war and peace 181
international merchant bankers of the time and use the existing interna-
tional capital markets to remove the liquid part of their property beyond the
reach of French Revolutionary arms.
There is good reason to believe that they were successful to a much
greater degree than previously suspected, largely because the international
capital markets of the time were larger and better organized than previously
thought. Moreover, these capital movements from the Continent to Britain
explain succinctly why the British industrial revolution took place during
that period, despite the significant pressures of war expenditures and Brit-
ish government subsidies to Continental allies taking place at the same
time. The return of emigre capital to the Continent from England when
peace was restored also helps explain the depression of British industry and
incomes from 1815 through the financial crisis of 1825, although the role
of British speculators also was important.
This thesis is by no means new - it is perhaps impossible to say anything
new about these epochal events without being foolish - but it has been
ignored increasingly as political history and economic history have become
more and more nationalistic in interest and focus. As we have become
more impressed in the 1980s by the transmission of international financial
disturbances in increasingly well integrated capital markets, it is clearly
time to review and reassess the importance that international capital move-
ments may have had in the past. But even at the time of the "Bullion
Report" in 1811, evidence was noted regarding the significance of capital
movements by those who would defend the Bank of England from the
barbs of the Bullion Committee. The sizes of anticipated capital flows out
of Great Britain played a key role in the Bank of England's restriction on
the specie convertibility of its notes in 1797. The large and sudden move-
ments of foreign capital out of British government funds in 1817 were the
major concerns of the Bank officials who wished to delay resumption of
full convertibility in 1819. Those concerns about the early role of capital
movements deserve to be taken more seriously than they traditionally have
been by economic historians.
To make the argument, it is useful to examine a few examples of how
specific individuals managed to liquidate at least some of their assets on the
Continent and to invest them abroad. This will show that their concerns
were compelling and that they were able to use the existing network for
remittances effectively and to modify it as the governments of France and
England changed monetary regimes, introduced exchange controls, and
altered property rights. Then we shall review the evidence provided by
twice-weekly foreign exchange rates and daily government security prices

to show the possible effects (and lack of effects at times) of those capital
movements. Finally, I shall argue that this evidence links together the
British industrial revolution and the French Revolution in a logical and
compelling way, helping to explain the paper pound in 1797, the "Conti-
nental System" that Napoleon created from 1803 to 1813, and the resump-
tion of the gold standard by Britain from 1819 to 1821.
Business historians have recently published several case studies showing
the ability of individuals and firms of uncertain nationality to move their
fortunes surreptitiously or overtly in those perilous and (for some) profit-
able times. Four of the more striking cases that illustrate the process and
indicate its possible importance are, in chronological order, the move of
the banker Walter Boyd from Paris to London on 23 September 1792,2 the
flight of Henry Hope, as described earlier, in October 1794,3 the plans of
the Du Pont family in 1797 to migrate from France to the United States, a
move that eventually was completed at the end of 1799,4 and, finally, the
arrival of the young Nathan Meyer Rothschild in Manchester from Frank-
furt in 1799.5 These are but a few of the most famous and best-documented
cases of the cosmopolitan bourgeoisie of the late eighteenth century. These
prosperous, intelligent, and energetic individuals who became displaced by
the effects of revolution, war, and recovery from 1789 to 18256 responded
by developing new ways to transfer their claims on capital in real terms and
to maintain control of distant assets. 7
Walter Boyd
Walter Boyd was a Scot. Like John Law a century earlier, he migrated first
to London, where he made useful contacts, then moved to the Low Coun-
2
S. R. Cope, Walter Boyd, A Merchant Banker in the Age of Napoleon (London: Alan
Sutton, 1983).
3
Buist, At Spes Non Fractra.
4
Ambrose Saricks, Pierre Samuel Du Pont de Nemours (Lawrence: University of Kansas
Press, 1965).
5
Richard Davis, The English Rothschilds (London: Collins, 1983).
6
The latter date is determined by the dates of the Latin American revolutions for indepen-
dence from Spain and the speculative surge that took place in both the Paris and London
stock markets in that year, as well as the changes in the Bank of England's financial role
that followed.
7
For more examples and a fascinating discussion of the role of this class in nineteenth-
century economic history, see Charles A. Jones, International Business in the Nineteenth
Century: The Rise and Fall of a Cosmopolitan Bourgeoisie (New York University Press,
1987).
tries to begin his business career (but in Brussels rather than Amsterdam),
and then founded a very successful bank in Paris - Boyd, Ker & Cie -
whereby he made his fortune. The bank's prosperity was based on remit-
tance facilities in London (through the firms of Robert and Charles Her-
ries), Brussels (through Edouard Walckiers and the firm of Veuve Nettine
& Fils), Amsterdam (Henry Hope), and Hamburg (John Parish). As the
revolution took its course, Boyd's facilities were utilized more and more by
the aristocracy to rearrange and relocate their assets. 8
In March 1791 he saw the former Austrian ambassador to France, Count
Mercy-Argenteau, draw down most of his balance of 871,000 livres in
Boyd, Ker & Cie to finance the purchase of Three Per Cent Consols
through the house of Harman, Hoare & Co. in London. Mercy-Argenteau
had left Paris at the end of 1790, his royalist sympathies being well known,
and from Brussels was trying to salvage what property he could. Income
from his French estates fell because of the suppression of feudal rights, and
the French paper currency known as the assignat was falling on the foreign
exchanges. 9 Count Mercy-Argenteau was a very wealthy man, with estates
in France, holdings in the Austrian Netherlands, and a plantation in Santo
Domingo. He also owned large amounts of French securities. His actions
to convert his French assets into British assets certainly were not limited to
the direct purchase of British consols, but could take a variety of indirect
routes as well. At the end (he died in August 1794 while on a trip to
London to negotiate on behalf of the "Imperial Loans" being promoted by
Boyd), only his purchase of English consols was an unqualified success.
His failures in other ventures were due to his inexperience in managing
financial and mercantile assets and his reluctance to accept his losses in
assignats or to rely on commodity merchants to handle his affairs in a blind
trust. His principal French financial advisor, the marquis de Laborde, was
beheaded on 18 April 1794.
Boyd also had English customers who during April to July 1792 specu-
lated on a rise in the assignat by purchasing either French securities or
assignats directly. The British authorities thought that was weakening the
sterling exchange, and in January 1793 they made assignats void in Brit-
ain. 1 0 Boyd, in fact, managed to raise capital for his new London firm,
Boyd, Benfield & Co., begun on 15 March 1793, by selling Paul Benfield
8
Cope, Walter Boyd, chap. 1-2, passim.
9
The efforts of Mercy-Argenteau to liquidate his French wealth and move it to London or
Belgium are described in H.E.B., "Flight of Capital from Revolutionary France," Ameri-
can Historical Review, 4i(July 1936), pp. 710-23.
10
Cope, Walter Boyd, p. 25.
three blocks of French life annuities held by his Paris bank for nearly
£80,000. Benfield, in turn, was an outstanding example of the wealthy
nabob returning from a career of dubious morality but undoubted prof-
itability in India. His return to England was prompted by the arrival of
Cornwallis in India and the tightened control over country trade imposed
on freewheeling English merchants who were not in the East India Com-
pany's formal structure. But much like Hope in Amsterdam, confronted
with a new, hostile regime, Benfield had difficulties in transferring his
Indian wealth back to England without using the exchange facilities of the
East India Company. He may have been ill-advised in the long run to take
Boyd's offer of French assets, but that may have seemed less risky than
trying to maintain his claim on assets in India.
Boyd's experience in facilitating international transfers and his
awareness of the eagerness of Continental investors to deal in the London
market no doubt underlay his arguments to William Pitt in 1794 that the
British government should underwrite a £6 million loan to Austria. He
argued that a considerable part of the loan would be remitted to London
from foreign countries, presumably from merchants and nobles throughout
the territories ruled by the Habsburgs. The firm of Veuve Nettine & Fils in
Brussels, where Boyd had begun his career, was the leading firm engaged
in remittances from the Austrian Netherlands to Vienna.11 Boyd argued
that the loan should be issued in London rather than abroad because no
other place had such important connections with every other country, and
because remittance of the proceeds to the Austrian armies would be easier
from London than from elsewhere.12 The taking up of the loan by for-
eigners acting through their attorneys in London would be identical with
the case of capital flight illustrated in Figure 9.1, and the remittance of
proceeds could operate exactly as in Figure 10.1, with the British govern-
ment becoming the drawee, using bills drawn by Boyd and Benfield to
make payments in the Habsburg Empire for the military services they were
importing.
In December 1794, Pitt signed the agreement as Boyd wished, and by
February 1795 he was using against his critics, especially the Bank of
England, 13 Boyd's arguments about Continental investors taking up a large
part of the so-called Imperial Loans. The Austrians signed off in May
11
P. G. M. Dickson, Finance and Government under Maria Theresa, 1740-1780 (Oxford
University Press, 1987), Vol. 2, pp. 182-3.
12
Cope, Walter Boyd, p. 48.
13
Ibid., p. 63.
LONDON AMSTERDAM
Payee Drawee
(Possessor. Capital Importer) (Remitter. Capital Exporter)
Payer, Accepter Drawer

(Merchant Banker) (Merchant Banker)
Legend: Claims
Money
Debt
Bills
Figure 9.1. The foreign bill of exchange as a means of payment in capital flight.
1795, and remittances then began. The scale those remittances reached in a
few months no doubt accounted for the 7% fall of the British pound relative
to Hamburg in the summer of 1795. 14
Boyd then became the major contractor, or entrepreneur, in the termi-
nology of the time, for the large loans that Pitt was forced to float for the
British government in 1795, 1796, and 1797. The inability of the market to
support the issues of 1796 and 1797 meant liquidity constraints for Boyd
14
Ibid., p. 70 (cf. Figure 9.2).
and eventual failure of Boyd, Benfield & Co. in March 1799. After the
Peace of Amiens (March 1802), Boyd returned to Paris to negotiate for
recovery of the assets of his Paris firm. A fresh outbreak of war put an end
to those efforts and further confined him to the Continent without re-
sources. When peace did come, he was able to recover a good part of his
French assets, which had risen in value, and eventually to pay off his
English creditors. Returning to England at the end of 1814, his fortunes
recovered sufficiently that by the time of his death in 1837 he had acquired
an estate worth over £200,000. Such were the vagaries of fortune for one
of the more unlucky participants in the new era of government finance.15
Henry Hope
Henry Hope had written to Boyd in the summer of 1794 inquiring if Boyd
would assist in urging the British government to open its ports to Dutch
ships returning with colonial goods and allow them to reexport without
penalty. That would avoid the risk of capture of their cargoes by the French
in the event the Revolutionary forces captured Holland. The grand pension-
ary of Holland, when asked his opinion of that proposal by the British
government, replied that it would be better for the English to seize Dutch
cargoes "in order to leave to the Hopes and other over-grown capitalists of
this country no other chance for saving their property than the giving or at
least lending a part of it to supply the wants of the Government."16 Though
removed to London, where English business had to be done through the
Baring firm, and reduced to a minimal staff in Amsterdam, Hope managed
to continue his underwriting business. That was done through partners who
remained in Amsterdam, through contacts in Hamburg, and through com-
missioning merchants such as Robert Voute to act on Hope's behalf.
Following the Peace of Amiens, the firm of Henry Hope remained in
London, but furnished part of the capital for a new firm, Hope & Co.,
which was operated in Amsterdam by John Williams Hope and Pierre
Labouchere. That created a unique combination of underwriting facilities
for government loans and remittance services in both the London and
Amsterdam financial centers. That combination frequently led to anoma-
lous and, to a modern observer, amusing confusions over the sources of
savings for financing all the belligerents. For example, Henry Hope & Co.
15
Ibid., chap. 13-14.
16
Buist, At Spes Non Fractra, p. 49.
handled the Spanish loan when Spain was fighting against France in 1792-
3, but Hope & Co. handled the Spanish loan of 1807 when Span was allied
with France.17
In the fall of 1807 those tangled connections led to a bizarre incident
involving the British warship Diana, carrying more than 3.5 million Mex-
ican piastres from Vera Cruz to Portsmouth, coins useful for payment to
Wellington's troops and for the English East India Company. Even though
the insurance on the Diana and its cargo was the largest single risk covered
by Lloyd's during the Napoleonic Wars, that transaction accounted for only
a small part of the 52.5 million piastres that Hope and Baring managed to
take from the Mexican mint over the period 1804-8. The bulk of that
treasure ended up in the hands of the French government, through the
intermediation of G. J. Ouvrard, Napoleon's financial genius, who relied
on the Hope companies to move the Mexican coins from Vera Cruz to
Antwerp. Ouvrard himself then managed the transfer from Antwerp to
Paris, at least until his imprisonment by Napoleon in 1806.18 Hope's
connections with Baring were useful for getting the use of British warships
to transport some of the piastres safely to Europe; their connections with
David Parish in Philadelphia (originally from Hamburg) were valuable in
establishing an American-Antwerp link in the web of remittances, and the
use of their agents Vincent Nolte and A. P. Lestapis, in New Orleans and
Vera Cruz, completed the complicated network.19
Alexander Baring played a key role in those transactions, convincing the
British government that it was an economical way to provide Wellington
with his supplies on the Iberian Peninsula. In 1815, Baring was the leading
figure in the syndicate of underwriters that marketed the £30 million issue
of Three Per Cent Consols (bought by Baring and by Smith, Payne &
Smith at 77% of par) needed to subsidize the allies against a Napoleon
returned from Elba. Only £1 million of the subsidies raised by that issue
was said to have been transferred from London. All the remainder came by
remitting from the payments made by eager investors in the British se-
curities located in Amsterdam, Basel, Frankfurt, Hamburg, St. Petersburg,
17
Buist, At Spes Non Fractra, chap. 9-11, gives full details of these various operations.
18
Ibid., p. 329.
19
Vincent Nolte, The Memoirs of Vincent Nolte: Reminiscences in the Period of Anthony
Adverse (New York: G. Howard Watt, 1934), chap. 2-8, gives a colorful account of a
junior member of the scheme stationed primarily in New Orleans. Ralph Hidy, The House
of Baring in American Trade and Finance: English Merchant Bankers at Work, 1763-
1861 (Cambridge, MA: Harvard University Press, 1949), pp. 35-7, gives a somewhat
different account than Buist.
i88 The rise of financial capitalism
and Vienna. 20 Baring reappeared as a leading witness before the secret

committee opposing resumption (and Ricardo) in 1819. His testimony was
valued because he had played the leading role in underwriting the first
large loan to France in 1817.21
Pierre Samuel Du Pont de Nemours and sons

The Du Pont migration was decided on in 1797, and for two years the
family prepared for the move, though the elder Du Pont also retained hope
for a political role in Napoleon's Consulate. To finance the move, Du Pont
started a joint-stock land company to operate in the United States and
offered shares in it up to 4 million francs. It appears that he raised only
214,347 francs, and that primarily from the sale of various pieces of real
estate - two farms, two houses in Rouen, and the print shop in Paris. 22 In
1801, the younger son, Eleuthere Irenee, returned to France for three
months to raise capital for his gunpowder enterprise. He had little difficulty
in obtaining the $36,000 he estimated to be necessary, especially because a
good part of that was spent on the purchase of machines built in France at
the Arsenal to French government specifications and then exported to
America.23 That was a nice example of French capitalists establishing a
claim on property abroad even at the end of the Revolutionary period and
well past the Reign of Terror.
Nathan Rothschild
The most famous war financier of the period, Nathan Rothschild, arrived in
Manchester in 1799 with some £20,000 of capital from his firm and his
father's firm in Frankfurt. He quickly prospered in the cotton trade, order-
ing goods specifically for the central German market served by Frankfurt.
In 1806 his marriage to Hannah Cohen allied him with the Anglo-Jewish
society that included the Goldsmids and Salomons, wealthy stockjobbers
who had been associated with Walter Boyd in the underwriting of Pitt's war
20
Hidy, The House of Baring, p. 53.
21
See D. C. M. Platt, Foreign Finance in Continental Europe and the United States, 1815-
1870: Quantities, Origins, Functions, and Distribution (London: Allen & Unwin, 1984),
and Stanley Chapman, The Rise of Merchant Banking (London: Allen & Unwin, 1984),
chap. 2.
22
Saricks, Pierre Samuel Du Pont de Nemours, p. 273.
23
B. G. du Pont, E. I. du Pont de Nemours and Company, A History 1802-1902 (Boston:
Houghton Mifflin, 1920), p. 12.
loans described earlier.24 In 1808 he moved to London. It may be that one

reason was to oversee the investments of Wilhelm, elector of Hesse, in the
British funds. It is known that the elector bought at least £150,000 of Three
Per Cent Consols on 18 December 1809, representing reinvestment of the
interest due him on his existing holdings!25 As early as June 1803, Nathan
Rothschild had written to Harman & Co. inquiring their opinion on the
future price of Three Per Cents and placing an order for £5,000 for his
father's account. But his father at that time was managing more and more
of the elector's financial dealings, and that order may well have been for
the elector's account. As one of the major providers of mercenaries for the
British forces on the Continent, the elector was in constant receipt of
sterling payments, payments that were sequestered when Napoleon's
troops took over direct control of Hesse in 1806.26
In 1811, Nathan's younger brother James moved to Paris, apparently to
be the recipient of gold smuggled across from England, presumably by
Nathan.27 Thus began the development of a unique linking of remittance
paths across the belligerent states of Europe. By 1814, Nathan Rothschild
was in fact playing the role in the British government's war finances that
Walter Boyd had sought to play for Pitt in the early stages of the wars. John
Robert Herries, the commissary general for Wellington's army (and son of
Charles Herries, who was a partner in the firm that originally employed
Walter Boyd), reported that "through the agency of Mr Rothschild . . . the
Chest in the South of France was furnished with French gold from Holland
by shipments at Helvoetsluys so rapidly and completely that the Commis-
sary General was abundantly supplied for all his wants without having to
negotiate a bill; and from that time no Military Debt [the source] of so
much loss and embarrassment [in the Peninsula] was created on the Conti-
nent." 28 From Herries's testimony it appears that Rothschild was the en-
trepreneur and merchant banker who succeeded at the end of the
Napoleonic Wars in accomplishing what Walter Boyd had attempted and
failed to do at the start of the French Revolutionary Wars - finance the war
24
Davis, The English Rothschilds, pp. 2 3 - 5 .
25
Egon Corti, The Rise of the House of Rothschild, translated from German by Brian and
Beatrix Lunn (New York: Grosset & Dunlap, 1928), p. 79.
26
Davis, The English Rothschilds, p. 28.
27
Anka Muhlstein, James de Rothschild, Une metamorphose, une legende (Paris: Gal-
limard, 1981), pp. 1 7 - 1 8 .
28
Davis, The English Rothschilds, p. 30, quoting from BL Add. Mss. 57367, ff. 1 2 - 2 6 , a
memorandum from J. C. Herries to Lord Liverpool and Nicholas Vansittart on 12 June
1816.
igo The rise of financial capitalism
against France with the resources of the Continent mobilized through the
London capital market.
The transfer problem of Britain

in the Napoleonic Wars
In an intervention made during the Bullion Report debate, Herries went
much further than simply lauding the efforts of one man; he described in
more general, analytical terms the technique of British war finance:
Although it is by no means an ordinary case, it is certainly a possible one, that a
nation may expend abroad much more than it can immediately repay by the export
of Bullion, or of any other commodities. It may, on the credit of its Government,
raise money in other countries [emphasis added], to a larger amount, by Bills of
Exchange, than the purchasers of those Bills can immediately procure returns for. If
the foreign markets are glutted with the produce of the borrowing nation, and
Bullion is very scarce and dear in its market (as in such a state of things it would
probably be), the foreign purchaser of its bills must expect considerable delay and
inconvenience, in bringing back his funds to his own country: still, however, he
might advance the money at a corresponding rate of exchange. This is, probably,
the case, with respect to our drafts from abroad at this time: - we are borrowing
money to carry on our foreign expenditure, at a high rate of interest. It is, however,
an advantage, in some degree compensating this extraordinary expence, that the
debt, so created, must, ultimately, be discharged in British produce or merchan-
dize; and it is, therefore, so much foreign capital invested in British industry
[emphasis added].29
In other words, the book credit built up by the Amsterdam merchant

banker depicted in Figure 9.1 was seen by Herries to be a form of direct
investment in British industry, because the only way he could see for the
debts of London bankers to be discharged eventually was by the export of
British goods. That was a very clever, if self-serving, argument, but it had
the merit of being testable against the movements of the exchange rates of
the pound against the various currencies on the Continent. The exchange
rates were clearly recognized by the merchants and bankers of the time to
be determined by fluctuations in Britain's balance of payments. The bal-
ance of payments, in turn, was determined both by the balance of trade and
by the movements of capital.30
29
J. M. Herries, Review of the Controversy reflecting the High Price of Bullion and the State
of our Currency (London: J. Budd, 1811), pp. 4 4 - 5 .
30 Great Britain, "Reports from the Secret Committee on the Expediency of The Bank
resuming Cash Payments," British Parliamentary Papers (London: House of Commons, 5
Both those determinants were influenced sharply at times by the policy

measures undertaken by Great Britain or France, whether for economic
purposes or for military purposes. At least three factors were recognized by
contemporaries: (1) the suspension of gold or silver convertibility by the
belligerent powers, with the paper assignat of the French Revolution and
the paper pound of 1797-1821 being the dominant examples, (2) the
provisioning of large armies at a distance, both by France on the Continent
and by England after war resumed in 1803, and (3) the disruption of
normal channels of trade by the victories of the French armies and the
British navy and, most notably, the Continental Blockade experiment of
Napoleon. But contemporaries understandably saw those as transitory dis-
ruptions, not as fundamental alterations in the structure of the international
financial system of Europe. A fourth factor should be added that even
contemporaries saw as fundamental: (4) the alteration of property rights
created by the French Revolution and its spread throughout continental
Europe. The network of international finance was also altered in as funda-
mental a fashion as the national economic and political structures of the
new nation-states of Europe.
Throughout the period 1793-1825, the exchange rates give us the net
outcome, regarding both current and capital accounts, that resulted from
public and private actions taken in response to the great events occurring in
the political and military spheres, thereby allowing us to gauge the relative
importance of public and private initiatives in the international markets.
They may also allow us to gauge, in the international sector at least, the
relative weight of the British war effort on the private economy. And the
perpetual question of the relationship between the industrial revolution
taking place in the British economy and the war effort against the French
Revolution can also be posed in terms of these data.
The evidence comes from Castaing's Course of the Exchange, from the
beginning of 1789 through the end of 1810. For the period from 1811
through 1823, the semiweekly usance rates on Hamburg and Paris and
prices of gold are taken from Lloyds List. The same sources are used for
the prices of Bank of England and East India Company stock, as well as the
prices of Three Per Cent Consols and the premia or discounts on East India
bonds. These prices of the prime securities of the period provide the most
sensitive and detailed barometer possible by which to gauge the financial
April and 6 May 1819), p. 263, "Minutes of the Court of Directors of the Bank of
England, 25th March 1819."
pressures created by revolution and war. The courses of the exchanges,

both the foreign exchange and the stock exchange, are displayed in Figures
9.2 and 9.3. These are drawn for end-of-month observations from 1789
through 1823. 31
The exchanges of London on Amsterdam and Hamburg remained imper-
vious to the excitement of the Irench Revolution until the fall of 1791,
when the pound began to weaken gradually on both mercantile centers.
The ecu, by contrast, gradually weakened in terms of the pound (and, by
inference, in terms of both schellingen and schillingen banco in Amster-
dam and Hamburg) from the beginning of 1789 until November 1791. Its
decline became increasingly disturbed in 1790 and 1791, until it reached its
lowest value in February and March 1792. Thereafter, until the course of
the exchange with Paris was halted in April 1793, the French money of
account appreciated erratically, whereas the Amsterdam and Hamburg
rates began to show some slight signs of varying in response to the French
stimuli.
The weakening of the livre tournois in terms of the pound at a time when
the pound itself was weakening relative to Amsterdam and Hamburg re-
flected persistent balance-of-payments deficits in France. Those could have
been caused by either a balance-of-trade deficit or a deficit on capital
account or both. Given the expropriation of Church lands and those of the
emigres and the movement of many emigres in the first instance to Holland
or Hamburg, it seems most likely that it was continued capital flight that
31
The units for the Amsterdam rates are schellingen and penningen banco at the Bank of
Amsterdam per British pound sterling. The mint par of exchange was 365. Sd. banco. To
get the rate in terms of circulating coin in Amsterdam, one must then multiply by a factor
of one plus the agio - the banco money was a money of account, kept at a slight premium,
referred to as the agio, over the money of circulation. The agio, however, was maintained
at a constant 5% after 1802. The units for the Hamburg rates were schillingen and pfennig
banco Flemish per pound sterling. Their mint par of exchange was a slightly lower 34s.
3.5J. Flemish banco. The French currency began as pence per ecu, with the ecu equal to 3
livres tournois and the mint par of exchange 29. id. after 15 June 1726. After the franc
germinal was established in April 1803, the mint par became 25 francs, 20 centimes per
pound sterling. On 27 February 1797, the Bank of England announced to the public the
suspension of convertibility of its bank notes into specie and the exchanges thereafter
reflected the evaluation by the markets of the paper pound in terms of its previous gold
equivalent, which then became, practically, a money of account. Finally, we must note the
interruption of the course of the exchange with Paris from 2 April 1793, when Britain
reciprocated France's declaration of war, until 2 April 1802, when the Treaty of Amiens
was finally approved, and the interruption of the exchange with Amsterdam from 20
January 1795 until 30 March 1802. Despite the resumption of hostilities in 1803, the
course of the exchanges on both Amsterdam and Paris continued to be reported regularly
after March 1802.
45 45
Amsterdam (schellingen banco/pound)
40- -40
35- -35
30- Hamburg -30

(schillingen banco/pound)
25- -25
20 - -20
15- Paris (francs/pound) - 15
10 - - 10
Paris
5- pence/ecu (=3 livres) - 5
I i
1790 1795 1800 1805 1810 1815 1820
Figure 9.2. London exchange rates on Amsterdam, Hamburg, and Paris, 1789-
1823.
300
- Bank J\
EIC
<D
r-i
(0
200 -
/"vu i vA
r IX' -200
U
CO f
O)
o
150- EIC -150
II
(0
d
\ J Rani/
DdnK
100 - -100
0) _ _
Threes
CD
0)
O 75- - 75
f
/A
\
1
1
\ 1/ • t , -. J VA /
Threes 1 Vv
1
50- - 50
i i i i i 1 1
1790 1795 1800 1805 1810 1815 1820
Figure 9.3. London Stock Exchange: Bank of England, East India Company, and
Threes, 1798-1823.
was driving down the livre tournois in the initial phase of the French
Revolution. Note that the assignat, made legal tender in April 1790, did not
affect the exchanges dramatically until its rate of issue accelerated with the
exigencies of war finance in April 1792. 32
The strengthening of the Hamburg exchange in the first months of 1793
may have reflected the destination of some of the emigre capital, but it
seems more likely to have reflected the movement of Spanish silver coins
from London to Hamburg, where they could be disbursed to Hanover as
part of Pitt's subsidization program. The movements of silver to Hamburg
in 1794 to pay the Prussian subsidy, on the other hand, had little effect on
the Hamburg exchange rate. 33
The great excitement of 1794 was the bubble in the Amsterdam ex-
change rate in late September and early October. The decision of the
Prussian general Mollendorf in early October to withdraw his troops across
the Rhine rather than join up with either the Austrian army or the troops of
the duke of York in Holland confirmed the victories of the French general
Pichegru and the eventual demise of Holland. In fact, it is not clear that
that represented entirely a flight of Dutch capital to England and Hamburg.
The few rates we have for the agio in that period show a sharp change to a
negative agio on the order of io%. 3 4 That implies a run on the Bank of
Amsterdam to withdraw accounts and convert them to specie. Even the
highest disagio rates observed did not offset the depreciation of banco on
the London exchange, however, and so the presumption must be that most
of the specie withdrawn from the Bank of Amsterdam left the country for
London and, to a lesser extent, Hamburg. But the British funds were also
falling in price at that time, as they usually did in times of military
adversity.
For the period from February 1795 until April 1802 we have only the
usance rate at 2\ months on Hamburg to track the fortunes of war, revolu-
tion, and peace. The pound was clearly weaker in Hamburg from late
summer 1795 until late spring 1796, when it strengthened greatly, before
32
Florin Aftalion, L'economie de la Revolution frangaise (Paris: Hachette/Pluriel, 1987),
PP. 3 8 5 - 7 -
33
John M. Sherwig, Guineas and Gunpowder: British Foreign Aid in the Wars with France,
iygS-1815 (Cambridge, MA: Harvard University Press, 1969), p. 365, and discussion in
Chapters 1 and 2.
34
J. G. van Dillen's table in "Effectenkoersen aan de Amsterdamsche Beurs, 1723-1794,"
Economische-Historische Jaarboek, 17(1931), shows only six dates in the latter half of
1794: July 7, T^ to J; September 3 , - 2 ; November 7, - 9 ! ; November 21, - 1 2 to - 1 1 £;
December 5, - i o £ to - i o i ; and December 19, -9% (p. 46).
lapsing in May. The pound was then fairly stable, until it began to rise in
December 1796, continuing well into January 1797. The fall that began in
mid-January appears to have been very mild by the standards of previous
fluctuations, a tribute perhaps to the effectiveness of the Bank of England's
payments of gold in maintaining the stability of the exchanges. Neverthe-
less, the Bank of England carried out its famous suspension of convert-
ibility of its bank notes into specie in late February 1797.
That suspension of convertibility in late February 1797 was not foreseen
in the Hamburg exchange rate, and its response, after fluctuating uncer-
tainly in March through May, was to value the paper pound increasingly
above the mint par for the gold pound. Indeed, the international financial
pressure caused by the war, according to the exchange-rate barometer, did
not affect the British economy until the spring and summer campaigns of
1799. At that time the paper pound fell to permanently lower levels, which
were sustained through 1800 and 1801. By contrast, the "funds" fell
sharply on announcement of the suspension, probably reflecting the de-
preciation of the paper pound. They recovered partially in June 1797, but
the presuspension levels were not achieved again until the autumn of 1798.
The reasons for the suspension of convertibility in February and its confir-
mation by act of Parliament in May appear obscure. Although there was a
run on country banks in Newcastle and Scotland, that could have been met
by a fresh issue of Exchequer bills, as had been done successfully in 1793.
The 1793 episode, however, had been seen as an internal drain, as depos-
itors in country banks converted to holdings of Bank of England notes and
from those bank notes to specie. The 1797 run, by contrast, was clearly
seen as risking an external drain of specie abroad, even though the report to
Parliament described the crisis in terms of an internal drain arising from the
"alarm of Invasion" threatened by the French. 35
But we should recall that British remittances on the Imperial Loans to
Austria were continuing. Although they had caused the exchange on Ham-
burg to fall below the gold export point in May 1795, the use of offsetting
credits in England and bills of exchange by Boyd had restored the ex-
change rate above the gold export point by March 1796. It was then rising
above the gold import point. 36 Perhaps the bank anticipated more pressure
on gold reserves when remittances to Austria began again. What is clear is
that the return of the French monetary system to a metallic basis in early
35
Great Britain, "Third Report, 21 April 1797 of Committee of Secrecy on the Outstanding
Demands of the Bank of England,''' British Parliamentary Papers, 1797.
36
Ibid., p. 7.
February, when France eliminated the use of paper currency entirely, was
going to increase French demand for gold. That obviously would place
additional pressure on British gold supplies and on the British techniques
of war finance. There is little doubt that that was the intent, in part, of the
French authorities. In other words, the paper money experiment of the
assignats, which had repeated John Law's experiment of 1719-20, was
going to be succeeded by a restoration of gold convertibility, repeating the
French experience of 1720-1. The Bank of England anticipated sharp
pressure on the London exchanges, similar to that experienced in
November 1720. It is useful to note that in both cases, the pressure came
hardly at all from English investors shifting their assets to Paris, but mainly
from Continental merchants shifting their credits out of London and into
Paris.
All three exchange rates showed a slight rise in the value of the paper
pound during the resumption of peacetime trading in 1802, and that con-
tinued to be the case until the disturbances of 1805. (French currency was
then the franc germinal and was quoted in francs and centimes per pound;
so its rate moved directly, instead of inversely, with those of Amsterdam
and Hamburg.37) It appears that resumption of the course of exchange
between London and Amsterdam was at the initiative of the Dutch. A
report in the London Times of 1802 commented as follows:
The Dutch have already taken advantage of the termination of hostilities, so far as
to send hither gin, flax, butter, cheese, rags, skins, tanned leather, madder, and
Rhenish wines in large quantities. . . . The exports from London to Holland are
few. . . . A regular course of the exchange does not yet take place between the two
countries, but the Dutch receive immediate payment in hard cash for a great part of
the articles of provisions, &c. which we purchase from them.38
The rates all slipped in the fall of 1805 and remained low in 1806 and
1807. The next major decline in the paper pound occurred in the fall of
1808, when the massive expenditures of the Peninsular Campaign were
added to the subsidies to the Continental allies, which continued despite
37
In 1802 only, the Amsterdam exchange was on "current florins," because the Bank of
Amsterdam had not returned to full operation. From the start of 1803 onward there was no
special notation on the Amsterdam quotes, and the levels indicate they were again in
schellingen banco. It is interesting that Posthumus shows the rates in Amsterdam for bills
drawn on London to be in florins as early as 16 February 1801 and to switch to schellingen
banco by 29 November 1802. Nicholas Posthumus, Inquiry into the History of Prices in
Holland (Leiden: E. J. Brill, 1946), Vol. 1, p. 614.
38
London Times, 1 February 1802, p. 3, col. 2.
19B The rise of financial capitalism
TABLE 9.1
Mint pars of exchange
Paris on London 25 francs and 21 cents for one pound in standard gold
Paris on Amsterdam 56 1/2 deniers Dutch currency in Amsterdam for 3 francs
in Paris
Paris on Hamburg 100 marks banco in Hamburg for 188 francs in Paris
London on Paris 25 francs and 20 cents for one pound in standard gold
London on Amsterdam, banco 36 shillings and 8 pence Flemish per pound sterling
London on Amsterdam, current 11florinsand 4.5 stivers per pound sterling
London on Hamburg 34 shillings and 3.5 pence Flemish banco per pound
sterling
Source: Great Britain, "Reports from the Secret Committee on the Expediency of The Bank
resuming Cash Payments," British Parliamentary Papers (London: House of Commons, 5
April and 6 May 1819), second report, pp. 363-4, appendix C.7, C.8.
their ineffectiveness. The rates continued to fall in 1809, but firmed up in

the period April through September of 1810.
The final trade crisis precipitated by Napoleon's harsh enforcement of
the Continental Blockade then appeared clearly in the fall of 1810. Es-
pecially pronounced was the fall of the rate on Hamburg, which continued
to plummet until April 1811. Thereafter, it was clearly the altering fortunes
of war that determined the exchanges, because Paris and Hamburg moved
in unison. Especially remarkable was the depression of the pound in both
cities during Napoleon's Hundred Days in the spring of 1815.
What can we conclude from these foreign-exchange-rate data for some
of the larger issues that have occupied the attention of economic historians
studying this period? First, we must recognize that these data are in-
complete, because they give only the exchange rates among the monies of
account traditionally used in international trade, omitting the intermediate
rates that determined rates of exchange between circulating monies. For
example, the price of gold in terms of the paper pound changed peri-
odically in the interval 1797-1821, as did the price of silver relative to
gold in London and Hamburg. The agio rate (the premium of bank deposits
over circulating coins) at the Bank of Amsterdam fluctuated violently in
1794. The assignat depreciated at an accelerating rate relative to the livre
tournois, even during the interval when it was made legal tender. But after
1802 the agio remained a constant 5% at the Bank of Amsterdam, the
250-
• Schumpeter-Gilboy
210-
1789 1799 1809 1819
Figure 9.4. British price indexes, 1789-1823 (data of Schumpeter-Gilboy and

Williamson).
assignat had been eliminated, and the Bank of England maintained the
price of gold at fairly constant rates. So the omission of those intermediate
rates may not materially affect our general impressions.
Second, we must recognize that the domestic price level in Britain was
affected by the vicissitudes of war finance as well and may have played an
independent role in causing the fluctuations we have described in the stock
market and in the foreign exchange rates. Figure 9.4 shows two of the
general price indexes developed by economic historians for this period -
the Schumpter-Gilboy and the Williamson indexes. Advocates of the im-
portance of inflationary forces in this period note the rise from 1792 to
1813 - nearly 3% annually. That was a low rate by our modern standards,
and a low rate compared with any other paper-currency regime of the
eighteenth century. But it was a high rate by British standards for previous
wars of the eighteenth century, all conducted under a de facto gold stan-
dard. Doubters of the importance of war inflation for the period 1789-
1815 as a whole note the importance of two episodes in creating the price
rise, and they note that both episodes, one at the turn of the eighteenth
century during a succession of bad harvests, and one at the peak of Well-
ington's campaigns on the Continent, were associated with real supply
shocks and were short-lived. This view of the course of domestic inflation
is consistent with the view expressed here that fluctuations in the exchange
rates were episodic and tended to disappear in the absence of major rever-
sals in military or political events - until 1808. Thereafter, the fluctuations
were larger and showed no tendency to dampen quickly. There definitely
was a change in the effect of British war financing on the exchanges - or a
change in the British financial techniques, as will be argued in the next
chapter.
Moreover, that kind of volatility continued after the war and dominated
in the testimony of the witnesses before the secret committees of the House
of Commons and House of Lords in 1819. The bullionist argued that the
volatility was due to excessive issues of notes by the Bank of England, but
a large part, as the leading merchant bankers testified, must have been due
to deliberate movements of large sums of capital back and forth between
London and the Continent as political opportunities shifted and provisions
for the funding of government debts and reparations were altered. That was
the continuing legacy in the financial sphere of the operations of the
Continental subsidies begun by Pitt and continued at increasingly higher
levels by his successors. It would be very strange if the military shocks and
financial innovations imposed by the British and French governments on
the international capital markets that had arisen over the course of the
eighteenth century had no repercussions for the real economy of Britain as
it entered the nineteenth century.
The evidence of the stock and foreign exchanges, combined with our
qualitative evidence from the activities of the financiers and international
middlemen of the era, indicates that the capital flows during the period of
the Napoleonic Wars were on a much larger scale than ever before and were
predominantly from the Continent to England, at least until the Continental
System was imposed by Napoleon in 1806. What effects did the events of
Continental revolution, war on a global scale, diversion of foreign trade,
peace, and restoration have on the direction and dimensions of capital
flows within the European economy? How did the deteriorating assignat,
the innovation of the paper pound, and the creation of the franc germinal
affect the capital flows? And what effect did all those have on the course of
British industrialization under way at the time? Clearly, a more determined
analytical effort is required than has yet been undertaken by economic
historians.
10. A tale of two revolutions: international
capital flows, 1792-1815
The key historical event for the transformation of the international financial
system in the period 1789-1825 was the success of Napoleon's Continental
System, which disrupted the traditional British techniques for financing
wars on the European continent, as it was intended to do. After 1808, when
Napoleon perfected his Continental System, the exchanges of Britain with
the Continent fluctuated violently, and from then on the government funds
behaved quite differently. Instead of all three major stocks declining gradu-
ally in concert, the stocks of the Bank of England and the East India
Company began to rise, with sharp fluctuations, whereas the Three Per
Cents remained stable. How did the Continental System cause that regime
change in the British financial markets?
The British success in fighting European wars had begun with the aid of
William Ill's Dutch financiers in the War of the Grand Alliance (1688-
97) 1 and continued through the Seven Years' War (1756-63). 2 Figure 10.1
shows how the network of trade credit created by widespread use of the
foreign bill of exchange was exploited by the British government to finance
its armies on the European continent during the eighteenth century. The
Exchequer purchased from London merchants bills of exchange that were
drawn on their correspondents abroad, then sent the bills to the British
quartermaster abroad, who used them locally to hire troops and purchase
supplies. Because British manufactured goods and colonial reexports were
in high demand in Europe, the bills drawn in London were accepted readily
by the European merchants, who used them to pay for imports from Brit-
ain. British woolens were thus transformed into Hessian mercenaries fight-
ing the French, at least when the British war effort was successful. 3 That
1
Public Credit, 1688-1756 (London: Macmillan, 1967).
2
Larry Neal, "Interpreting Power and Profit in Economic History: A Case Study of the
Seven Years War," Journal of Economic History, 37(March 1977), pp. 20-35.
3
Adam Smith, Wealth of Nations (London: 1776; reprinted New York: Random House,
1937), described this system at the outset of Book IV, "Principle of the Mercantile System"
(pp. 410-14 in the Modern Library edition of 1937).
201
LONDON AMSTERDAM
Drawee Payee
(Government - Exchequer) (British Quartermaster)
Claims Military
Dutch
specie
u
CD
Q.
CO
Exports ( v i c t o r ^
or
Specie (defeat)
Drawer Payer, Accepter
(Bank of England) (Merchant Banker)
Legend: Claims
Money
Goods
Bills
Figure 10. i. The foreign bill of exchange as a means of payment on the Continent
in time of war.
sequence describes well the initial stages of the finance techniques em-
ployed by Britain in the war against Revolutionary France, 1793-1802,
with the major difference that Britain's Continental allies were continually
losing. As they lost battles against the French armies, so British merchants
lost markets for their exports, and the bills of exchange drawn on London
had to be extinguished increasingly by means of specie.
Pitt began his "First Coalition" against the French by hiring mercenaries
from Hesse and subsidizing troops from Prussia, calculating his sums in
A tale of two revolutions 203
TABLE 10.1
Trade balances during war and revolution
(annual averages in millions of pounds)
Date Imports Exports Reexports Balance

of trade
1784-86 20.4 12.7 2.7 -5.0

1794-96 34.3 21.8 6.9 -5.6
1804-06 50.6 37.5 8.3 -4.8
1814-16 64.7 44.5 16.1 -4.1
1824-26 57.0 35.3 8.1 -13.6
Source: Ralph Davis, The Industrial Revolution and British Overseas Trade (Leicester, UK:
Leicester University Press, 1979), p. 86. Davis did not give the calculated balance of
trade (exports + reexports - imports) stating "The differences of 5 per cent or more that
appear in carefully calculated aggregates of import and export totals made by different
scholars are so large that the possible error swamps the balancing figure that is aimed
at" (p. 85). Caveat lector!
terms of a fixed number of pounds sterling per soldier provided.4 British

exports and reexports rose (Table 10.1). The loss of Holland at the end of
1794 made that traditional form of conducting war on the Continent im-
practicable, and the conclusion of a separate peace by Austria, in which the
French were ceded Belgium in exchange for Austria's annexation of Ven-
ice, brought the war to a humiliating close. The continued defeats of
British allies and mercenaries meant loss of markets for British goods, as
well as military losses. The loss of markets shows up in Table 10.1 as a
slackened rate of exports until the Treaty of Amiens in 1802. That provided
a breathing spell for Britain and its sometime allies, and the volume of
trade increased sharply between Britain and the Continent. But the peace
treaty also allowed Napoleon to consolidate his political power.
The fresh outbreak of war in 1803 brought new subsidies from Britain to
the Continent, the real transfer of which relied on increasing trade with
Hamburg. That, however, was brought to an ignominious halt by the
Continental Blockade, as Napoleon pursued a policy designed to under-
mine British financing of the Third Coalition in much the way the First
4
Foot soldiers were rented in 1793 from Hesse-Kassel at £7 14s. each, and cavalrymen at
£19 55. each. John M. Sherwig, Guineas and Gunpowder: British Foreign Aid in the Wars
with France, 1793-1815 (Cambridge, MA: Harvard University Press, 1969), p. 18.
1795 1800 1805 1810 1815
Figure 10.2. British subsidy payments to the Continent, 1793-1816.
Coalition had been undone. 5 In terms of Figure 10. i , Napoleon sought to

undermine the acceptance on the Continent of bills of exchange drawn on
London by making it very difficult to import British goods to the Conti-
nent. He could think of no other reason why merchant bankers on the
Continent would be willing to accept London bills. Napoleon made his
blockade efiFective by occupying Hamburg in November 1806. The British
subsidies to the Continent (Figure 10.2) virtually ceased. 6 The pound
weakened relative to the franc, the Dutch guilder, and the Hamburg pound
Flemish, although the dramatic fall did not occur until 1808. (See Figure
9.2, where the fall in 1808 is seen to have been preceded by a short
appreciation in the pound sterling, a sign of a liquidity scramble in Lon-
don, as discussed in Chapter 4.) All this is evidence that the intended
5
Cunningham gave an extended argument that this was done consciously by Napoleon on the
basis of the analysis provided by J. H. Marniere, the chevalier de Guer, whose pamphlet,
"Etat de la situation des finance de I'Angleterre et de la banque de Londres aujuin 1802,"
is reprinted at the end of her work. Audrey Cunningham, British Credit in the Last
Napoleonic War (Cambridge University Press, 1910).
6
Sherwig, Guineas and Gunpowder, pp. 366-7, recorded the low point of subsidies at only
£83,303 to Hesse-Kassel in 1804, and thereafter subsidies were paid in an ever wider arc,
including eventually Sweden, Sicily, and Spain. (Note the inconsistency with his graph on
p. 369, which shows lows in 1804 and 1806.)
effects of the blockade on British trade were occurring. Contemporary

observers recognized that as well. In his testimony to the Bullion Commit-
tee in 1810, J. L. Greffulhe argued that the interruption of trade with the
Continent had caused the exchanges to fall, not excessive issues of note by
the Bank of England.7
If the Continental Blockade worked as intended to hamper British ex-
ports to the Continent, it did not succeed in halting Britain's financial
support for its allied armies against Napoleon. The eventual failure of
Napoleon's economic attack on the financial structure of Britain is evident
from the continued strength of the government stocks on the London Stock
Exchange (see Figure 9.3). The causes of that failure have been attributed
to Britain's renewed overseas trade in 1811 (mainly to new markets in
Spanish America) and to alternate routes to European markets through the
Baltic and the Mediterranean.8 In the preceding chapter we saw that Her-
ries attributed the failure basically to the willingness of Continental mer-
chant bankers to build up their credits on London, anticipating eventual
victory by Britain and its allies and a resumption of British exports. The
ultimate failure of the Continental System, of course, lay in the eventual
military defeat of France, but that was due less to a resurgence in British
trade than to strictly military factors, especially Napoleon's disastrous 1812
campaign in Russia.
Rather than the rise of illicit trade, or the increase in short-term trade
credit given to Britain, then, it seems more reasonable to attribute the
blockade's failure in financial terms to offsetting capital movements -
investment by Continental merchants and aristocrats in the British funds.
The blockade failed in economic terms because of a shift of resources
within the British manufacturing sector away from light industry devoted to
exports of consumer goods and into heavy industry devoted to production
of military goods for Wellington's army in the Peninsular Campaign. The
reallocation of manufacturing effort within the British economy was surely
aided, if perhaps only indirectly, by the infusion of foreign capital. The
structural change in British manufacturing that resulted was necessary to
accomplish the eventual military victory on the Continent. British (mostly
Scottish, Irish, and Welsh) troops, not Hessians, had to be recruited,
7
See S. Cock, An Examination of the Report of the Bullion Committee (London: J. Dennett,
1810). Cock, a Liverpool agent, argued that far from driving up the price of gold, the
bank's increased issue of notes helped keep down its price, because the notes substituted for
gold as a means of payment in domestic trade.
8
Eli R Heckscher, The Continental System: An Economic Interpretation (Oxford University
Press, 1922).
equipped, sent abroad, and resupplied from home. The financial side of the
new British military policy began in 1808 with massive direct payments to
Wellington's troops in the Peninsular Campaign. As we saw in the preced-
ing chapter, that transformation of military financing had nearly as great an
impact on the foreign exchanges as did the more famous trade crisis of
1810-11. Not until the resumption of the gold standard in 1821 were the
foreign exchanges to regain the stability they had displayed from 1721
through 1789.
That sea change in the British economy, caused by the failure of the
eighteenth-century financial strategy of Britain for European wars, was
reflected as well in the reorganization of the London stock market that
followed the crisis of 1810. The Course of the Exchange expanded its
listings beyond government stocks to include stocks of waterworks, canals,
toll roads, and mines. The London Stock Exchange adopted its first rule
book for member brokers and jobbers in 1812.9 Afterward, the entire
financial payments network of the British Empire became established in a
much more cosmopolitan way, providing the basis for the British imperium
of the nineteenth century.
The French Revolution and the Continental System

Tables 10.2 and 10.3 present data on the importance of the foreign holdings
of that part of the British national debt administered by the Bank of En-
gland - which was the overwhelming part of the debt, because it included
all the new debt issues, especially of the Three Per Cent Consols. These
were the holdings of foreigners still resident on the Continent or in Amer-
ica in areas under French occupation or French Revolutionary rule. That is,
they were the holdings that were sequestered by the bank, which held the
dividends due as well. The origins of these holdings go back to February
1794, when Parliament passed an act that prevented any money or effects
owned by residents of France that were currently "in the hands of His
Majesty's subjects" from being given to them. 10 The justification was that
the French Revolutionary government had just passed an act to expropriate
all foreign goods belonging to French residents in order to help finance the
9
E. Victor Morgan and W. A. Thomas, The Stock Exchange: Its History and Functions
(London: Elek Books, 1962), p. 75.
10
34 Geo. Ill, cap. 9. The act was reprinted by Sheila Lambert, ed., House of Commons
Sessional Papers of the Eighteenth Century. Vol. 92: Bills, 1794 (Wilmington, DE:
Scholarly Resources, 1975), pp. 1-16.
TABLE 10.2
Foreign holdings of English national debt
(nominal value in pounds sterling)
A. May 1801
DEBT DUTCH N'LANDS SWISS ITALIAN FRENCH GERMANY TOTAL
Threes 7,278,312 717,987 627,017 517,681 135,897 3,553,463 12,830,357

Reduced 3% 1,407,364 289,016 82,089 38,649 6,890 107,402 1,931,410
Fours 520,966 56,998 50,852 9,025 3,075 169,975 810,891
3%, 1726 75,183 22,137 1,600 1,000 0 2,500 102,420
Navy, 5% 32,804 2,505 15,060 2,011 0 89,265 141,645
Fives, 1797 80,830 4,814 8,182 2,457 776 15,682 112,741
Imperial, 3% 15,550 13,900 9,648 17,059 0 60,079 116,236
Irish, 5% 1,600 0 7,500 0 0 0 9,100
Bank Stock 1,127,748 71,537 58,127 42,153 5,372 82,719 1,387,656
Total 10,540,357 1,178,894 860,075 630,035 152,010 4,081,085 17,442,456
Total Annuity 4,084 276 1,710 1,432 226 1,811 9,539
Source. Bank of England, "Amount of Stock and Annuities in the Names of Foreigners. May 1801," in Accounts Presented to Parliament, 1802-1819,
SED/8395, Bank of England Archives, p. 20.
B. December 1806
DEBT DUTCH N'LANDS FRENCH SWISS ITALIAN GERMANY RUSSIA HANOVER TOTAL
Threes 5,887,591 550,351 230,653 612,819 636,532 2,434,094 239,010 367,955 10,959,005
Reduced 3% 1,580,809 159,287 6,537 68,709 44,825 139,630 50,863 19,239 2,069,899
Fours 376,231 48,535 11,897 38,850 6,745 322,869 2,800 4,915 812,842
3%, 1726 92,484 1,000 0 700 0 6,193 0 0 100,377
Navy, 5% 64,146 7,782 6,470 15,046 4,642 110,880 7,000 562 216,528
Fives, 1797 29,847 512 72 4,355 416 5,193 2,445 625 43,465
Imperial, 3% 8,350 12,066 1,860 13,648 459 23,138 8,000 0 67,521
Irish, 5% 2,100 0 0 1,000 0 5,112 0 0 8,212
Bank Stock 800,019 52,503 3,203 63,646 32,098 77,590 3,000 555 1,032,614
Total 8,841,577 832,036 260,692 818,773 725,717 3,124,699 313,118 393,851 15,310,463
Total Annuity 3,355 819 57 696 525 2,786 200 0 8,438
Source. Bank of England, Accounts Presented to Parliament, 1802-1819, SED/8395, Bank of England Archives, p. 21. Title of account is "Amount of Stock
and Annuities in the Names of Foreigners, 17 December 1806." Eight nationalities are distinguished: Dutch, Netherlands, French, Swiss, Italian,
Russian, Hanover, Germany, and Other Powers. Nine stocks are mentioned: "3 per cent Cons., Reduced, 4 per Cent, 3 pCent 1726, 5 pCent Navy, 5
pCent 1797, Imperial 3 pCent, Irish 5pCent, and Bank Stock." Four annuities: "Long arms., 28 years Ann., Imp. Ann. 25 Yrs, and Irish Annuities
15 Years." The account is noted as "By order of and for the Governor," with no mention of being submitted to Parliament or being ordered by
Parliament. There is a note on "3 per Cent" total for Hanover that £1,100,000 "on the Account of the Lords of the Regency of Hanover not
included."
C. November 1810
DEBT DUTCH FRENCH GERMANY HANOVER SWISS SPAIN RUSSIA AMERICA TOTAL
Threes 5,265,354 1,205,234 1,129,647 354,203 725,932 863,607 246,633 348,660 10,139,270
Reduced 3% 1,403,503 347,079 54,038 18,689 60,352 316,920 60,873 24,363 2,285,817
Fours 310,151 51,074 178,843 4,443 35,230 205,621 2,700 8,125 796,187
3%, 1726 61,436 7,588 0 0 700 0 0 100 69,824
Navy, 5% 56,291 32,438 6,670 700 4,815 100,115 3,911 47,501 252,441
Fives, 1797 27,268 5,018 3,639 425 4,256 0 0 428 41,034
Imperial, 3% 7,083 13,904 0 0 13,903 53,500 0 5,280 93,670
Irish, 5% 0 0 0 0 4,600 0 0 2,000 6,600
Bank Stock 643,523 65,567 55,138 200 64,671 26,979 0 1,998 858,076
Total 7,774,609 17,279,902 1,427,975 378,660 914,459 1,566,742 314,117 438,455 14,542,919
Total Annuity 3,050 588 336 21 827 866 0 75 5,763
Source: Bank of England, Accounts Presented to Parliament, 1802-1819, SED/8395, Bank of England Archives, p. 78.
2io The rise of financial capitalism
TABLE 10.3
An account of the total amount of foreign property in the British funds, on 24 November
1810, and also a half yearly account on 28 February and 31 August in each year, to 31
August 1818, inclusive
Date Total of Terminable

stocks annuities
1810: 24 November 14,566,994 5,763
1811: 31 August 14,707,527 5,786
1812: 29 February 14,862,676 5,797

30 August 14,919,997 5,717
1813: 27 February 15,217,705 5,558

31 August 15,319,107 5,758
1814: 28 February 15,839,176 5,758
31 August 15,900,341 5,832
1815: 28 February 15,878,290 6,111

31 August 16,629,959 6,427
1816: 29 February 17,334,458 6,363

31 August 17,235,150 6,511
1817: 1 March 15,892,711 6,130

30 August 13,305,397 5,583
1818: 28 February 12,729,618 5,764
31 August 12,486,913 5,791
Source. Great Britain, "Reportsfromthe Secret Committee on the Expediency of The Bank
resuming Cash Payments," British Parliamentary Papers (London, House of Commons, 5
April and 6 May 1819), appendix to second report, No. 43, p. 354.
war against England and Austria. So if their monies or effects were re-
turned to them in the course of normal trade, they would be confiscated by
the Revolutionary government. The British confiscation, by law-abiding
contrast, preserved title to the monies or effects of the private individuals
resident in France "or in any Country, territory, or place" under the control
of the French Revolutionary government so that they could eventually have
the benefit of their property.
In the meantime, however, special commissioners appointed for the task
had control of their assets. An act passed in April 1794 "for more ef-
fectually preserving the money or effects . . . for the benefit of the indi-
vidual owners" required these commissioners to pay the assets so acquired
into an account at the Bank of England. The commissioners were then
ordered that "all the monies to arise . . . shall from time to time be laid
out in the purchase of Three Pounds per centum Consolidated Annuities, or

in any other of the Public Funds transferrable at the Bank of England." 11
The "effects" of foreigners so applied to the purchase of the national debt
for the duration of the hostilities included the payments of marine insur-
ance claims on ships and cargoes lost since the outbreak of hostilities by
merchants under the rule of French Revolutionaries. The scope of that act
widened as the success of the French troops continued on the Continent and
as other powers took up alliances with Napoleon.
The holdings of Americans, for example, had grown considerably after
the Seven Years' War, especially among wealthy Americans in the southern
colonies. (George Washington held stock in the Bank of England through-
out the War for American Independence.) But American holdings were not
included in the bank's accounts until the "Jefferson embargo" took effect
in January 1808. At that time, their remaining investments in English
government stocks were frozen as well and added to the total. The chang-
ing pattern of the sequestered holdings of British national debt by for-
eigners, reflecting the shifts in the fortunes of war from 1801 to 1810, is
displayed in Figures 10.3-10.5. One notes the overwhelming importance
of the Dutch holdings in each period and the increasing number of na-
tionalities represented in 1806 and 1810 as Napoleon's armies spread over
the Continent and his influence extended to Russia and the United States.
Figure 10.6 shows the changing totals sequestered from 1801 to 1819,
expressed both in the book values reported by the bank to Parliament and in
the current market values determined by the price of Three Per Cent Con-
sols on the London Stock Exchange.
But the preceding discussion demonstrates that the investments by for-
eigners in English government stocks were primarily by those not yet
subject to expropriation of their capital by the forces of the French Revolu-
tion. So the figures in Table 10.2 must be scaled up by some unknown
factor, perhaps three or five for the early years, but surely not less than two
at any time. In January 1807, the principal of the unredeemed debt admin-
istered by the bank was calculated at £550,441,393. So the December 1806
sequestered holdings of foreigners were merely 2.8% of the total debt, and
only a bit under 3.2% of the Three Per Cents. Scaling these up by a factor
of three, we arrive at a rough guess that 8% to 10% of British national debt
was held by foreigners.
Moreover, to these numbers must be added holdings acquired by recent
11
Ibid., p. 161.
12
11 -
10-
9-
8
6-
5-
4 -
3-
2-
1-
0 >oo
Dutch N* lands French Swiss I t a l i a n Hanover Germany Russia Spain Alterica
Figure 10.3. Foreign holdings of English national debt, 1801 (transfer books at
Bank of England).
12
11-
10-
9-
5-
4-
3-
2-
1-
0 NNNSM
Dutch N*lands French Swiss I t a l i a n Hanover Gerwany Russia Spain America
Bank of England).
12
11-
10-
9-
8
S " 7
hj -
U e-
i 4-
3
2-
/A
1-
0 M
Dutch N'lands French Swiss I t a l i a n Hanover Germany Russia Spain America
Bank of England).
18 -i-18
17 -17
16 Nominal value -16
15 -15
-14
-13
-12
11 -11
10 -10
9 - 9
1801 1806 1810 1813 1816
Figure 10.6. Foreign holdings of English national debt, 1801-18 (transfer books at
Bank of England).
immigrants, whose flight from the Revolution took them to English ports.
On becoming resident in England, their holdings would earn dividends
without restriction, and so they would not be included in the bank's ac-
counting of foreign owners. The immigrants in England who had come
directly from France were few in number (fewer than 10,000 were counted
in London in 1797, and over half of those were clergy), 12 but the argument
really applies more to Dutch and German merchants and aristocrats than to
French.
Another element of British war finance that reduced the burden of debt
was the importance of unpaid dividends. Parliament received a full ac-
counting from the bank, shortly after the revolution, of the amounts due but
not paid to owners of the government securities transferable at the bank
(which was all debt except that owed to the East India Company and the
South Sea Company). In the year ending 31 December 1789, the bank paid
out over £8 million in quarterly dividends. But it left unpaid another
£2,624,709. 1 3 Most of those had arisen from the estates of deceased indi-
viduals who apparently died intestate, and some dated back to the first half
of the eighteenth century.14 Needless to say, the government quickly took
advantage of those accumulated forfeitures to reduce its debt service to the
bank.
Finally, we must return to the point made by Herries (see footnote 29 in
Chapter 9) that bills of exchange drawn on London and held by foreign
merchants who could not obtain British goods with them, for whatever
reason, represented so much investment in British industry. That view of
the transfer process allows us to reinterpret the shocks to London exchange
rates in terms of their effects on foreign investment in British industry.
Herries's argument was that if Britain initiated its transfer of real resources
to its Continental allies by selling bills of exchange to them, so long as they
deferred realizing those bills by purchasing imports from Britain with
them, they had invested in Britain. So, by that argument, the initial finan-
cial transfer of bills on London by the British government to Continental
quartermasters in 1793 using the remittance facilities of Walter Boyd,
12
Lambert, House of Commons. Vol. 104: Reports and Papers, 1796-97, p. 339.
13
Lambert, House of Commons. Vol. 81: Reports and Papers, 1790-91, pp. 1-3.
14
The bulk of Volume 81 is devoted to a listing of the names and addresses of the "pro-
prietors" in the funds transferred at the Bank of England and the South Sea House whose
dividends had not been paid at the last dividend date, when the first dividend was missed,
an how many times the dividend had been missed. The number of accounts at the bank was
7479 (p- 201). The total of unpaid dividends that year was £77,527, and at the South Sea
House another £70,249 (p. 179).
instead of increasing British exports of consumer goods to the Continent,

led to foreign merchants building up their accounts with London merchant
bankers. When the pound was made inconvertible in 1797, those foreign
balances held in Britain were locked in, for if they had been withdrawn
through foreign bills of exchange they would have lost value by the result-
ing fall in the London exchange rate. The British "Orders in Council"
blockaded the French ports and the Continental ports the French occupied.
The French, for their part, confiscated any foreign goods found at their
ports. The two warring powers combined forces to keep foreign merchants
from realizing their British investments by imports to the Continent.
The foreign merchants most affected were precisely those located in the
prosperous regions north and east of Revolutionary France - the United
Provinces of the Netherlands, the Austrian Netherlands, the conglomera-
tion of political units that made up the Rhineland, Hesse, Switzerland,
Hanover, and so on. As the French troops moved successively into those
regions, they brought not only liberty, equality, and fraternity but also
higher taxes, conscription, loss or uncertainty of existing property rights,
and secularization. The economic effect was devastating in the short run
and did not ameliorate much when the initial Revolutionary governments
were replaced by more conservative authorities concerned to maintain the
new set of property rights. The reason was the increasing pressure of
Napoleon's military enterprise on the lands outside France proper. Those
territories continually saw their taxes increased and remitted to France and
their real transfer burden magnified by the high tariffs France imposed even
against its satellite kingdoms. 15 The benefits of the Continental System to
some of the French manufacturing sectors were not shared by the rest of the
Continent under French suzerainty. Moreover, they suffered, as did ftance,
from the disruption caused by the British blockade of the Atlantic and
Asian trade that had brought great prosperity to the port cities of north-
western Europe in the eighteenth century. 16
After the Treaty of Amiens in 1802, British exports to the Continent
15
See T. C. W. Blanning, The French Revolution in Germany: Occupation and Resistance in
the Rhineland, 1792-1802 (Oxford: Clarendon Press, 1983), for an enlightening contrast
of a prosperous, lightly taxed ancien regime in the Rhineland with a depopulated, heavily
taxed, and rebellious area actually incorporated within the French tariff wall, which cut it
off from its natural markets on the right bank of the Rhine.
16
Points made by Francois Crouzet, "Wars, Blockade, and Economic Change in Europe,
1792-1815," Journal of Economic History, 24(December 1964), pp. 567-88. Crouzet did
not inquire, however, how merchants and manufacturers in the rest of Europe might have
protected themselves, other than by migrating to France.
rose, and the paper pound strengthened. That could imply a return of
foreign capital, and a real transfer through the trade account. If so, the
fresh outbreak of war in 1803 hampered that return flow, and the Continen-
tal Blockade in 1805 put an end to it. Despite the reigning orthodoxy of
Heckscher 17 and Crouzet 18 that the blockade hurt France more than Brit-
ain, there is mounting evidence that that interpretation has been over-
drawn. Jeffrey Frankel, for example, has shown that the American embar-
go of 1808, which was complementary to (and perhaps coordinated with)
the Continental Blockade, affected the British terms of trade much more
adversely than it did the American terms of trade. 19 Geoffrey Ellis has
shown that downriver traffic on the upper Rhine rose dramatically during
the blockade period, whereas upriver traffic fell, which is consistent with a
rise in the upper Rhine's gross barter terms of trade. 20 So the blockade was
effective in limiting British trade with the Continent, but that turned out not
to be effective in limiting British finance. The ineffectiveness, however,
was not due to the inability of Napoleon's measures to restrict trade flows.
Rather, it was due to the substitution of capital flows for the previous trade
flows.
Foreign capital in Britain, locked in because of the Continental Block-
ade, could be directed to investments in ironworks, canals, port improve-
ments, toll roads, and the like. In fact, Herries continued his testimony in
1810 by pointing out the large increase in the number of bills approved by
Parliament for creation of toll roads, canals, docks, waterworks, and the
like since the suspension of convertibility. Rather than British government
spending crowding out private investment, it was redirecting it. The evi-
dence of asset price movements in the capital markets (see Figure 9.3)
indicates that there is a prima facie case that rather than British government
war expenditures crowding out private domestic investment, the dominant
effect at times was that revolutionary measures by the French government
"crowded in" flight capital to Britain. 21 Especially marked was the rise in
17
Heckscher, The Continental System.
18
Francis Crouzet, VEconomie Britannique et le Blocus Continental, 1806-1813, 2 v<>ls.
(Paris: Presses Universitaires de France, 1958).
19
Jeffrey A. Frankel, "The 1808-1809 Embargo Against Great Britain/* Journal of Eco-
nomic History, 42(June 1982), pp. 291-307.
20
Geoffrey Ellis, Napoleon's Continental Blockade: The Case ofAlsace (Oxford: Clarendon
Press, 1981), pp. 276-7.
21
This ties into the current debate over the effects of war finance on the course of British
industrialization, renewed by Jeffrey G. Williamson, "Why Was British Growth So Slow
During the Industrial Revolution?" Journal ofEconomic History, 44(September 1984), pp.
the Three Per Cent Consols after the French Revolution took a turn to
radicalism in 1791 and before the outbreak of war in 1793. The failure of
the subsidized troops of Britain's Continental allies to stop the advances of
the French Revolutionary armies led to continued falls in all three stocks.
That was dramatically interrupted in December 1794, but that is merely
evidence that the wealthy Dutch, and foreign merchants liquidating their
stores in Amsterdam, were investing in the English funds as a first haven
for their flight capital.
For the period after February 1797 and the advent of the paper pound
("paper pound" refers to the restriction of convertibility of Bank of En-
gland notes into gold bullion or coin during the period 1797-1821), we
find no more evidence of prolonged decline in any of the three stocks
shown. Rather, the picture is of gradual improvement in each, with severe
setbacks on two occasions: (1) the resumption of hostilities with France in
1803 and (2) the crisis caused by the Continental Blockade imposed in
1807 and completed with the Jefferson embargo in 1808. This picture
conforms well with that already noted by Norman Silberling in his classic
article on British war finance in that period. 22 Silberling noted that the
yield on consols rose from slightly under 4% in 1793 to nearly 6% when
the bank suspended convertibility. Thereafter the yield was always lower,
falling rapidly until 1802 and then fluctuating between 4.5% and 5.25% to
the end of the war. Interest rates on Exchequer bills and yields on stock of a
London dock company followed much the same course.
The stability of the price of consols and the rise in price of Bank of
England and East India Company stock not only aided the financing of the
war effort but also promoted the shift from rural to urban factories in
consumer goods, mechanization in agriculture, and the rise of heavy indus-
try in South Wales, Scotland, and the Midlands. The anomaly that such
rapid structural change was accompanied by only slow rates of growth of
per capita product was due to the disruptions of demobilization on British
labor markets and the postwar return of both foreign capital and British
speculative capital to the Continent. But the return flow of capital was
687-712, and rebutted by Carol E. Heim and Philip Mirowski, "Interest Rates and
Crowding-Out During Britain's Industrial Revolution/' Journal of Economic History,
47(March 1987), pp. 117-39. Compare the significant reduction in the amount of British
borrowing calculated by Joel Mokyr, "Has the Industrial Revolution Been Crowded Out?
Some Reflections on Crafts and Williamson/' Explorations in Economic History, 24(July
1987), PP- 293-319.
22
Norman J. Silberling, "British Financial Experience, 1790-1830," Review of Economics
and Statistics, 1(1919), pp. 282-97.
much less than the original outflow, mainly because as capital left to be
invested in underpriced assets on the Continent (or to reacquire emigre
property), the pound, still inconvertible, would depreciate. D. C. M. Platt
found as well that most of the French debt issues after the war to pay
reparations and restore the monarchy was taken up in France, even though
the Barings took the lead in underwriting it on the London market.23 By
the time the pound was restored to full convertibility in 1821, the net
movement of foreign capital over the previous quarter century of revolution
and war had left Britain supreme in terms of industrialization, international
trade, and capital concentration until the end of the nineteenth century.
The British industrial revolution

The changes in the patterns of international capital movements that oc-
curred under the impact of wars and revolutions two centuries ago had a
larger significance, however, than simply setting the stage for the nine-
teenth-century drama of financial imperialism, for it is precisely that period
of economic development that must be understood in order to unravel the
mystery of the industrial revolution in Great Britain. According to earlier
economic historians, that occurred much earlier and was brought to fruition
by the war effort,24 or it occurred immediately after the War for American
Independence and continued during the Napoleonic Wars,25 or it occurred
immediately after 1815. 26 According to the most recent economic histo-
rians, however, it occurred after 1830 and perhaps was delayed by the wars
of 1793-1815. I shall argue, on the contrary, that it occurred precisely
during and because of the Napoleonic Wars. The argument depends, of
course, on assigning a much larger role to the international capital markets
of the time than had previously been reported.27
23
D. C. M. Platt, Foreign Finance in Continental Europe and the United States, 1815-
1870: Quantities, Origins, Functions, and Distribution (London: Allen & Unwin, 1984),
chap. 1.
24
T. S. Ashton, The Industrial Revolution, 1760-1830 (Oxford University Press, 1948);
David Landes, The Unbound Prometheus (Cambridge University Press, 1969).
25
W. W. Rostow, The Stages of Economic Growth (Cambridge University Press, 1961);
Brinley Thomas, "Escaping from Constraints: The Industrial Revolution in a Malthusian
Context," Journal of Interdisciplinary History, i5(Spring 1985), 7 2 9 - 5 3 .
26
N. F. R. Crafts, British Economic Growth during the Industrial Revolution (Oxford:
Clarendon Press, 1985); Jeffrey G. Williamson, Did British Capitalism Breed Inequality?
(London: Allen & Unwin, 1985).
27
Although there is an implicit appreciation of the role they must have played in the little-
known treatment by Fritz Machlup, "The Transfer Problem: Theme and Four Variations,"
in F. Machlup, ed., International Payments, Debts, and Gold, 2nd ed. (New York Univer-
sity Press, 1975), pp. 374-95-
TABLE 10.4
British economic growth during war and revolution
A. Real output (% per year)
Date Real output Real output Real commodity Real private

per head output sector output
1700-1760 0.69 0.31 0.64 0.60
1760-1780 0.70 0.01 0.61 0.66

1780-1801 1.32 0.35 1.35 1.26
1801-1831 1.97 0.52 2.18 2.07
B. Savings and investment
I
Date Sgp/Y gpdcf{ If/Y
1761-1770 10.0 5.9 0.64
1771-1780 11.6 6.4 0.51
1781-1790 15.3 7.7 1.34
1791-1800 20.5 8.3 0.88

1801-1810 13.5 8.0 -1.12
1811-1820 19.7 9.7 2.55
1821-1830 12.1 11.0 2.66
Notes: Sgp = gross private saving; Igpdcf = g1"088 private domestic capital formation;
If = private foreign investment by Great Britain.
Source: N. F. R. Crafts, "British Economic Growth, 1700-1850; Some Difficulties of

Interpretation," Explorations in Economic History, 24 (July 1987), pp. 246, 248.
The current weight of evidence is that the rate of growth of the British
economy was respectable, but slow, by the standards of modern economic
growth, until 1820 or 1830. Nicholas Crafts's summary of the evidence is
given in Table 10.4. 2 8 This shows that real output per capita grew at
respectable, but clearly low, preindustrial rates in the first half of the
eighteenth century, stagnated during the 1760-80 period, recovered to
preindustrial rates during 1780-1801, and then accelerated noticeably in
the period 1 8 0 1 - 3 1 . The rates of 1% annually that are associated with
28
N. F. R. Crafts, "British Economic Growth, 1700-1850: Some Difficulties of Interpreta-
tion," Explorations in Economic History, 24(July 1987), pp. 246, 248.
modern economic growth, however, did not appear until after 1830. Crafts
regarded that as a natural maturation process given the low weight of
cotton textiles in the manufacturing sector until after 1830 and the absence
of productivity growth in the rest of the manufacturing sector. Moreover,
he found continued increases in labor productivity in the agricultural sector
that released labor to the more productive leading sectors in manufactur-
ing. There are problems with Crafts's explanation, and it has been attacked
by Jeffrey Williamson 29 and Joel Mokyr 30 on different grounds. The diffi-
culty worth mentioning here is that Crafts did not explain how resources
were shifted from traditional manufacturing into the new leading sectors
that were emerging in heavy industry. Investment in heavy industry clearly
got a major boost from wartime demands, and its existence after the war
provided the basis for ever cheaper capital goods. Those, in turn, facili-
tated the spread of modern manufacturing techniques throughout the Brit-
ish manufacturing sector, and to an increasing extent those techniques were
reaching the American and Continental manufacturing sectors as well.
How did that happen in Crafts's portrayal of the transformation process?
Panel B of Table 10.4 shows the course of the savings and investment
ratios during that critical period, as calculated by Crafts. Savings includes
all real domestic capital formation, net foreign investment, and change in
government indebtedness. Investment is just domestic capital formation.
On the basis of these calculations, the investment behavior showed a
steady rise throughout the period, whereas the savings ratio fluctuated
wildly. Most of the fluctuation was in government debt, but some was
caused by variations in the ratio of net foreign investment by the British.
Crafts did not consider the possibility of variations in foreign absorption of
British government indebtedness as an explanation for the erratic course
of the savings rate, preferring to relate it to the equally erratic course of
inflation (see Figure 9.4). But once we recognize the importance of foreign
savings in absorbing the British government indebtedness, then the shocks
to foreign investors from the misfortunes of revolution and war make
plausible the fluctuations in their contribution to British savings on that
scale. The net foreign investment figures, on the other hand, make it
appear that Britain had net foreign disinvestment only in the period 1 8 0 1 -
10, and the preceding decade of revolution and war had caused only a
slowing down of British net investment abroad, which resumed on a large
29
Jeffrey G. Williamson, "Debating the Industrial Revolution," Explorations in Economic
History, 24(July 1987), pp. 269-92.
30
Mokyr, "Has the Industrial Revolution Been Crowded Out?"
scale in the decades 1811-20 and 1821-30. These are unreliable figures,
to say the least, because they were calculated on very rough estimates of
the current trade balance and the equally rough assumption that the current
trade balance was offset by net capital flows. Other items that might offset
the trade balance were loss of reserves, unrecorded specie flows, services,
short-term capital flows in the form of trade credits, and, of course, "errors
and omissions"! But because these estimates of net capital formation have
been made, it is useful to refer back to another set of unreliable figures,
shown in Table 10.1. These are Ralph Davis's careful calculations of trade
flows in current prices at benchmark intervals within that period. The table
also presents the implied balance of trade, something Davis refused to do.
But such as they are, these do indicate persistent balance-of-trade deficits
for Britain in that period, although they fell relative to growing national
income. The odd thing was the sharp rise in the trade deficit in 1824-6,
which may not seem so odd if we recall the stock market boom of 1824-5,
which was led by speculation on Latin American mining stocks, fueled by
capital imports from the former Spanish colonies (see Chapter 8).
Wartime demands were mentioned earlier as a possible explanation for
the structural transformation of British industry that Crafts did not explain.
Jeffrey Williamson, however, argued that those government requirements
crowded out private investment and therefore slowed down the overall
investment process.31 The impact of crowding out may have been less than
he calculated originally, a point he conceded to Joel Mokyr's recalcula-
tions, and it may not have affected the real interest rate on government
securities, a point he conceded to Heim and Mirowski,32 but Williamson
nevertheless maintained that crowding out of private investment by rising
government debt still was substantial. If nothing else, it may have driven
up the risk premium attached to nongovernmental debt, so that real interest
rates for private investment still increased and slowed down economic
growth. Moreover, Williamson pointed out that the more other scholars
discredited his crowding-out thesis, the more burden they took on for
themselves to explain why British growth was so slow during the period
1760-1820. 33 That is precisely a challenge we can accept using our under-
standing of the extent, depth, and resilience of the international capital
markets of the time. The crowding-out thesis of Ashton-Mill-Williamson is
31
Williamson, "Why Was British Growth So Slow During the Industrial Revolution?"
32
Heim and Mirowski, "Interest Rates and Crowding-Out During Britain's Industrial
Revolution."
33
Williamson, "Debating the Industrial Revolution," pp. 287-90.
constrained by the extent of foreign investment in British debt during the

wars, and the slow growth is explained by the effectiveness of the trade
restrictions imposed by Napoleon's Continental System and Jefferson's
embargo from 1808 to 1814 and the return of capital to the Continent from
1815 to 1825.
To sum up, the purported crowding-out effect of increased British gov-
ernment debt to finance the wars against France has been greatly reduced
from the figure first given by Williamson. Most important in reducing its
size is the fact that the Three Per Cent Consols consistently sold at less than
60% of par throughout the war period; so the nominal size of the debt used
by Williamson overstated the actual money sums by over two-thirds. Next
in importance is the phenomenon of intestate individuals forfeiting their
dividends and de facto reducing the government's debt. Next we must take
into account that the effects of foreigners resident in France or territory
controlled by French armies were systematically invested in Three Per
Cents. The effect of alert merchants and rentiers liquidating their Continen-
tal assets and placing them in secure and liquid British government se-
curities was of unknown magnitude, but it probably had a greater effect
than the actual expropriations.
A critical role in producing these asymmetrical effects of the beginning
of war and the ending of war on capital flows between Britain and the
Continent was played by the financial innovation of the "paper pound" in
1797. That innovation was initially merely a technical response to the
fundamental changes in property rights being wrought on the Continent by
the French Revolution. Its persistence well past the postwar shocks of
reparations and reconstruction, until 1821, however, gave it a significance
that is worth pondering anew in our current era of flexible exchange rates
and pressures for stabilizing them. Moreover, the quarter century of a
floating pound sterling from 1797 to 1821 helps us discern an economically
logical link between the French Revolution and the British industrial
revolution.
11. The Amsterdam and London stock
markets, 1800-25
London definitively replaced Amsterdam as the financial center of Europe

during the period of war and revolution discussed in the preceding two
chapters. Acworth described it thusly:
In 1792, Great Britain held a subordinate position in the financial system of
Europe, the London money-market had yet to come into its own, and the movement
of capital was still into and not out of England. In 1815, though the fact was
scarcely appreciated at the time, the situation had radically changed. Amsterdam
had fallen; and London had not only taken its place as the predominant financial
market of Europe, but was able to play the part in a way that dwarfed the earlier
efforts of the Dutch city.1
Not surprisingly, the stock exchanges in both cities underwent substan-

tial reorganizations in that period. Those in London reflected not only the
growth in the volume of the traditional assets traded, the government
funds, but also the growth in the number of traders and in a variety of new
assets. New buildings were constructed to house the exchange's activities.
Amsterdam, by contrast, found its numbers reduced, its financial assets
reduced in number and quality, and its activities devoted increasingly to
real estate transactions. In the course of that historic transformation of the
two markets, it is not surprising that the tight links that had been estab-
lished and maintained for a century between the two markets were substan-
tially loosened. And it is not surprising that a rampant and expanding
London market should forge new links that would secure its dominance in
world finance through the next century.
The London Stock Exchange, 1792-1825

The loan contracting for each successive year's issue of new government
debt after 1796, when Boyd and Benfield received preferential treatment,
pitted competing syndicates of underwriters against each other. They com-
1
William Acworth, Financial Reconstruction in England, 1815-1822 (London: P. S. King
& Son, 1925), pp. 81-2.
223
peted by steadily increasing their respective numbers, so that when David

Ricardo's group finally won the contract for the 1807 loans, his subscrip-
tion list had 222 names. 2 The successful bidder received the loan on terms
less than the market price of the separate securities and could make a very
large "contractor's bonus" if the market price were depressed before the
subscription and rose afterward. Although the members of the losing syn-
dicates might want to sell short and launch a "bear" attack against the
government stocks after the loan was awarded, whereas the members of the
winning group would try to stimulate a "bull" market to increase their
profits, all members of the competing syndicates wanted to depress the
stock before the new subscription. The activities of the "Commissioners
for the Reduction of the National Debt" played a useful role in keeping up
the price of the old stocks in the face of concerted, but short-lived, bear
attacks. They were charged to buy £1 million (cash) of government debt
annually in 1786 when they were established, and £16 million by 1815.
Although their purchases in total were quite steady (a daily limit was
imposed that was only marginally above the average purchase needed to
fulfill their annual quota), they were shifted toward the particular stock or
stocks that were selling at the lowest price. So their role in promoting the
liquidity and the efficiency of the London market in government debt
should not be minimized. 3
On 7 January 1801 the Committee of Proprietors of the group of brokers
who had been using the London Stock Exchange building in Threadneedle
Street since 1773 resolved to convert it into a "Subscription Room" and
restrict access to elected members. That was followed by a move by other
brokers, not fortunate enough to be on the Committee of Proprietors, to
construct a new, larger building and move the stock exchange there. The
foundation stone has this inscription:
On the 18th of May in the year 1801, . . . the first stone of this building, erected
by private subscription for transaction of business in the public funds, was
laid. . . . At this year, the first of the union between Great Britain and Ireland, the
public funded debt had accumulated in five successive reigns to £552,730,924. The
inviolate faith of the British nation, and the principles of the constitution, sanction
and ensure the property embarked in this undertaking. May the blessing of the
constitution be secured to the latest posterity.4
2
E. Victor Morgan and W. A. Thomas, The Stock Exchange: Its History and Functions
(London: Elek Books, 1962), p. 50.
3
Ibid., pp. 54-6. Morgan and Thomas minimized the "grooming effect** the commissioners
had, but did not take into account the effect of shifting purchases among the various
annuities.
4
Ibid., p. 71.
The Amsterdam and London stock markets 225
The new building began operation in March 1802, but it was not until
1811 that the Committee for General Purposes decided to codify the reg-
ulations of the stock exchange, producing the first rule book in 1812. It
was also after the new building was put in use that the Course of the
Exchange, then being published by Wetenhall and Sheffield, was issued
"by authority of the Stock Exchange Committee," apparently replacing the
"Gentlemen of the Stock-Exchange" who had appointed Wetenhall to
publish the official price list in 1786.5 With the first issue of 1811, the
character of Wetenhall's price list changed dramatically, even though it
continued to appear only on Tuesdays and Fridays and to bear the name of
Wetenhall as publisher until the end of the nineteenth century. The list was
more than doubled in size, and in addition to the quotations of British funds
and other securities, only 20 in number, there were added American se-
curities, canals, docks, insurance, and waterworks. Before 1824, however,
the combined paid-up capital of the domestic companies traded on the
London Stock Exchange was only £34 million, compared with the public
debt of over £800 million. It was not until the speculative years of 1824
and 1825 that the capital of joint-stock companies rose sharply, and that
movement was cut short by the crash of 1825.6
At the end of the war in 1815, the return flow of capital began nearly at
once from Britain to the Continent. The two famous merchant banking
houses of Baring and Rothschild were preeminent at the start. The Barings
handled the finance for the army of occupation and for the reparations
payments by France to the allies. They absorbed the London firm of Henry
Hope when he died, but largely ignored the Amsterdam firm.7 Meanwhile,
Nathan Rothschild, in London, became the financier to the Holy Alliance,
utilizing as he saw fit his brothers in Frankfurt, Paris, Vienna, and Naples.
The Rothschilds greatly outdistanced the Barings in the scale of their
foreign loans, and they bypassed Amsterdam entirely.8
The Amsterdam stock exchange, 1792-1825

The decline of the Amsterdam capital market became visible to all in 1793,
when the French declared war on the Dutch Republic. In truth, it does not
5
See Chapter 2, this volume; Course of the Exchange (3 November 1786 and 29 July 1803).
6
Morgan and Thomas, The Stock Exchange, p. 83, who took their information from Henry
English, A Complete View of the Joint Stock Companies formed during 1824 and 1825
(London: Boosey & Sons, 1827).
7
Marten J. Buist, At Spes Non Fractra: Hope & Co., 1700-1815, Merchant Bankers and
Diplomats at Work (The Hague: Nijhoff, 1974), chapters 12 and 13.
8
Stanley Chapman, The Rise of Merchant Banking (London: Allen & Unwin, 1984), chap.
seem to have recovered well from the shock of the financial panic of 1772-
3. Under the pressure of a declining Dutch East India Company (see
Chapter 6), and especially the disastrous effects of the fourth Anglo-Dutch
war (1780-4), the market in financial assets stagnated, much like the rest
of the Dutch economy in that period. The establishment of the Batavian
Republic in 1795, though it elicited the publication of the Amsterdam stock
market's official price list, also increased the demands of the domestic
government on participants in the securities market, squeezing out, in the
process, the amounts available to foreign governments. The remaining
foreign loans were earmarked for Napoleonic France, even when they were
issued nominally on behalf of one of the satellite states. 9 The Batavian and
French periods completed the reorientation of the Amsterdam stock ex-
change from foreign to domestic securities. 10
Amsterdam suffered from the annulment of debts contracted under the
ancien regime governments, especially by France, inflation in Austria, and
increased taxation and resort to capital levies in the kingdom of Holland.
The new, improved tax systems in place throughout Europe after 1815, the
legacy of a quarter century of war and revolution, were to be exploited by
lenders operating in the capital markets of London and Paris, not Amster-
dam. Worse, the transference of Dutch techniques of finance to industrial
capitalism were to take place elsewhere. 11
Moreover, the operation of the Amsterdam market was inhibited by the
continuation under Willem I of regulations imposed under the Batavian
Republic. So far as we know, the first attempt at self-regulation in Amster-
dam was the formation of the Collegie tot Nut des Obligatiehandels at
some time around 1787. But even that seems to have been desultory,
because the publication of a price current under its direction is not known
until 1795 - under the newly formed Batavian Republic. Even then, the
motivation appears to have been more to verify to all debtholders that the
wild swings in the traded values of their securities were, in fact, occur-
ring.12 Under such wide price ranges, brokers could engage in gross
abuses of the fiduciary trust given them by their clients. It was not until
1833 that enough business was again being directed through the Amster-
9
James C. Riley, International Government Finance and the Amsterdam Capital Market,
1740-1815 (Cambridge University Press, 1980), pp. 195-8.
10
Effectenhandel en de Amsterdamse Effectenbeurs, 1876-1976 (Amsterdam: Vereniging
11
Riley, International Government Finance, pp. 242-9.
12
de Vries, Een Eeuw vol Effecten, pp. 45-6.
dam exchange that some members of the Collegie tot Nut des Obli-
gatiehandels decided to start the Nieuwe Handel-Societeit, which also is-
sued standard price quotes, rather than the uncertain ranges favored by the
collegie.13 And it was not until 1848 that a new building was completed to
house the exchange. In 1824 the old building of Henrik de Keyser, which
had housed the Amsterdam exchange since 1611, was observed to be
settling dangerously. The brokers moved to a wooden auxiliary market
building, where they did business while exposed to wind and weather. The
new building plan was not approved until 1840, and even though it was
occupied in 1845, it remained without a roof until 1848.14 There could not
be a more appropriate metaphor to evoke the decline of the Amsterdam
capital market.
Integration of the London and Amsterdam

stock exchanges
Nevertheless, the Amsterdam exchange did resume in 1802, with the sign-
ing of the Treaty of Amiens, the termijnhandel or forward purchases of
English securities. It was a pathetic reminder of a once-blooming traffic.
Nevertheless, it remained in place even as the war resumed and continued
steadily on to the end of our period. The results of this diminished trade
were reported faithfully in the Amsterdamsche Prys-courant der effecten.
These quotes, combined with the spot quotations we have from Wetenhall's
Course of the Exchange (through 1810) and Lloyd's List (through 1823),
enable us to replicate for that period of disruption the tests of market
integration we used earlier for the eighteenth century (see Chapter 7).
Table 11.1 summarizes the results in a form analogous to that used in
Tables 7.4 and 7.5. Two striking differences appear immediately: One
concerns the very low coefficients of determination (R2) for each subperiod
from 1802 to 1825 compared with those in the periods from 1723 to 1794,
despite roughly comparable numbers of observations in the two cases.
More disturbing is the presence of serial correlation, which requires some
major adjustments in each case to estimate the coefficients. (The size of the
adjustment in each case can be gauged by the first-order autocorrelation
coefficient, r, which is given below the summary statistics for each peri-
od.) Both features indicate that our specification of the differences between
the Amsterdam prices (time) and London prices (spot), which captures
13
Ibid., p. 46.
14
Ibid., pp. 20, 38.
228 The rise offinancialcapitalism
TABLE 11.1
Summary of regression results, Three Per Cent Consols, Amsterdam-London price
differences1
DAYSDIVD2 AMEXPM3 PAYTIME4 Constant R2 DW

Observations
1802-075
.006 -.046 .002 .052 .02 2.31

(2.32)6 (-1.17) (1.05) (0.38) 301
(adjusted for serial correlation, rho=0.525)
1808-095
.003 -.018 -0.003 0.019 -.02 2.15

(0.50) (-0.38) (-1.05) (0.11) 103
1814-185
.008 -.013 0.007 -.171 .07 2.12

(3.77) (-1.22) (2.90) (-.93) 240
1819-255
.005 -.028 -.001 .232 .02 2.12

(2.92) (-1.22) (-.36) (1.53) 373

1
Dependent variable is Amsterdam • London price on same day.
2
3
4
or ex dividend (1).
5
Subperiods:
1802-07 [Peace of Amiens, Continental Blockade]
1808-09[Peninsular War]
1814-18[Peace, war, final peace]
1819-25 [Resumption of gold standard]
6
Source: See text.
only the strictly technical reasons for time-spot differentials, is sadly

inadequate for the Napoleonic period. Other factors, less technical but
more important, were moving the differentials. Clearly, the difficulties of
communication were greater with the disruption of mail service, and the
uncertainties of a war characterized by major battles in distant arenas
created irregular and large shocks in the information flows to each market.
Examination of the residuals from each regression indicates that the major
battles did create clusters of positive residuals, meaning that the Am-
sterdam prices of the English securities rose well above their predicted
levels on receiving news of most battles. But they also rose above the
predicted level at rescounter dates, indicating that when the Amsterdam
traders cleared their accounts with each other, there remained excess de-
mand for British securities.
It may be worth remarking that the best regression results are not for the
postwar period, when mail service was resumed and the battles were over,
but are found for the most disturbed period, 1814-18. Perhaps this is due
to regression bias caused by extreme observations in 1815, when Napoleon
terrorized the allies for the famous Hundred Days before Waterloo. But it is
possible that the weakness of the government in Amsterdam in the early
years of Willem I (installed as monarch of both the United Provinces and
the Austrian Netherlands by the first Congress of Vienna in 1814) permit-
ted the Amsterdam market to operate more effectively than when it was
under French rule. Ironically, the stabilization of his rule, and of the
foreign exchanges with England, served to impair rather than improve the
integration of the two capital markets.
Conclusion
These regression results reinforce our impressions from the divergent his-
tories of the world's two leading stock exchanges during the first quarter of
the nineteenth century. The great financial conflict, as well as military and
political conflict, between France and Great Britain that occurred during
the Napoleonic period caused disintegration of the cosmopolitan markets in
goods and securities that had arisen in western Europe at the end of the
seventeenth century. The postwar period, with Great Britain dominant in
industrial and financial capabilities and a German nation emerging from
the welter of political units that had existed under the ancien regime, saw
the start of a gradual process of reintegration of those markets. But the
process was not one of simply returning to prewar and prerevolution prac-
tices of cosmopolitan merchants, bankers, and brokers. Rather, interna-
tional markets gradually emerged. In those markets, the enhanced fiscal
powers of the secular states on the Continent could be used to guarantee
their financial obligations and to place them with investors, both domestic
and foreign, through the facilities of the London and Paris capital markets.
Gradually, those national markets became integrated, especially after the
communications revolution brought by the telegraph and then the tele-
phone. But that did not occur until the second half of the nineteenth
century.
Today's movement from recently integrated international capital markets
to an emerging global and cosmopolitan capital market seems to be re-
creating, three centuries later, the conditions for the free transfer of private
assets that existed for most of the eighteenth century in western Europe.
And today's innovations are being implemented by the activities of multi-
national joint-stock companies, linking the lives and fortunes of bankers,
merchants, and industrialists across the capitalist world. The multinational
firms of the United States, Japan, Great Britain, and Europe are the inher-
itors of the East India companies of the English, Dutch, and French, whose
activities in the seventeenth century began the cosmopolitan capital mar-
kets described in this book. They are only now fulfilling that legacy.
Appendix: End-of-month share prices
Bank of England
30 April 1709 to 31 December 1823
close of day, last trading day of month
East India Company

30 April 1709 to 31 December 1823
South Sea Company

29 September 1711 to 31 December 1789
Three Per Cent Consols

31 August 1753 to 31 December 1789
Note: Daily prices for these and a number of other stocks, as well as the exchange
rates and all other stock market data used in this book, are available on magnetic
tape from Inter-University Consortium for Political and Social Research, P. O.
Box 1248, Ann Arbor, MI 48106, U.S.A.
231
«3* Appendix: End-of-roonth share prices
mo dd year Bank EIC SSea Consols modd year Bank EIC SSea Consols
4 30 1709 119.250 117.250 9 30 1713 124.750 124.000 92.625

5 31 1709 134.000 129.000 10 31 1713 123.000 123.000 92.000
6 30 1709 128300 126300 11 30 1713 124.625 126.000 93.875
7 30 1709 128.000 131.250 12 31 1713 124.750 123.250 91.000
8 31 1709 128.750 131.250 1 30 1714 121.250 119.000 86.250
9 30 1709 128300 133300 2 27 1714 121.000 117.750 85300
10 31 1709 119300 130.750 3 31 1714 117.750 118.000 84.250
11 30 1709 118.250 131.250 4 30 1714 121.000 123.000 87.250
12 31 1709 112.000 127.000 5 31 1714 120.750 123300 87.750
1 31 1710 118.000 131.000 6 30 1714 123.750 123300 86.000
2 28 1710 127.000 140.000 7 31 1714 122300 124.000 85.250
3 31 1710 122.250 136.250 8 31 1714 132.750 134.750 97.000
4 29 1710 122.250 135.000 9 30 1714 129.750 135300 95.875
5 31 1710 124.000 137.250 10 30 1714 127.2S0 136.000 95.625
6 30 1710 118.750 136.250 11 30 1714 128.000 138.000 97.000
7 31 1710 113.750 126300 12 31 1714 129.750 134.000 97.375
8 31 1710 111.750 124.250 1 31 1715 133.000 134.000 95.875
9 30 1710 109.250 124.250 2 28 1715 133.750 134.250 94.000
10 31 1710 98.250 113300 3 31 1715 129.250 135300 95.000
11 30 1710 105.750 124.000 4 30 1715 130.750 141.000 99.375
12 30 1710 101.000 118.000 5 31 1715 131.700 142300 101.000
1 31 1711 103.000 121.250 6 30 1715 131.750 138.250 98.875
2 28 1711 103.750 120.750 7 30 1715 128.000 132300 94.250
3 31 1711 102.750 121.750 8 31 1715 131300 137.000 97.625
4 30 1711 101300 118300 9 30 1715 125300 134.000 93300
Appendix: End-of-month share prices 233
5 31 1711 104.250 117.250 10 31 1715 119300 129.2S0 89.250

6 30 1711 105.000 125.250 11 30 1715 123.250 135300 94.750
7 31 1711 103.750 116.750 12 31 1715 127.250 134.250 94.000
8 31 1711 101300 109.250 1 31 1716 124.250 131.750 92.750
9 29 1711 110300 121.000 72.000 2 29 1716 130300 136.250 95.750
10 31 1711 108.750 124.000 75300 3 31 1716 129.250 139.250 97.000
11 30 1711 111.250 128.250 78.250 4 30 1716 131.000 144.000 101.000
12 31 1711 108300 123.000 75.000 5 31 1716 133300 147.750 102.250
1 31 1712 110300 120300 75.000 6 30 1716 134.000 144.000 96.125
2 29 1712 112.750 118.750 74.000 7 31 1716 137.125 144.250 97.375
3 31 1712 108.000 114300 72.000 8 31 1716 138.625 149.750 98.625
4 30 1712 111300 117.000 74300 9 29 1716 139300 159300 100.875
5 31 1712 117.000 118.000 80.000 10 31 1716 141.750 172300 106.250
6 30 1712 112.700 110.750 78.750 11 30 1716 135.000 171.250 104.125
7 31 1712 113.000 108.250 78.250 12 31 1716 137.625 165300 103.625
8 30 1712 116.000 114.000 77.250 1 31 1717 137300 168.250 103.125
9 30 1712 113.750 114300 76300 2 28 1717 136.000 166.000 100.625
10 31 1712 115.000 116.000 78300 3 30 1717 132300 169.000 101.000
11 29 1712 115.750 119.000 79.250 4 30 1717 135.000 174.000 104300
12 31 1712 123.2S0 126300 86.250 5 31 1717 139.000 186.750 107.750
1 31 1713 121.750 123.000 84.000 6 29 1717 147300 187300 109300
2 28 1713 122300 120.750 83.250 7 31 1717 149300 196.000 111.000
3 31 1713 124.750 124.250 86.750 8 31 1717 150300 196.000 112.375
4 30 1713 122300 122300 91.000 9 30 1717 147.700 196.000 111300
5 30 1713 123.750 123300 92.250 10 31 1717 146.000 197.250 112300
6 30 1713 126300 124.000 95.000 11 30 1717 140.750 199.000 114.000
7 31 1713 127300 123.250 93300 12 31 1717 156.250 207300 118.875
8 31 1713 130.000 127.000 93.750 1 31 1718 156.250 208.2S0 119.000
234 Appendix: End-of-month share prices
2 28 1718 159.750 216.000 118.375 7 31 1722 117.250 137.500 91.000

3 31 1718 151.250 210.000 112.875 8 31 1722 117.000 136.500 89.125
4 30 1718 151.000 212.750 116.875 9 29 1722 115.500 125300 85.750
5 31 1718 149.500 211.000 116.750 10 31 1722 115300 133300 93.625
6 30 1718 147.250 204.000 112.625 11 30 1722 114300 132300 94.000
7 31 1718 150.750 203.000 113.000 12 31 1722 116300 134.000 100300
8 30 1718 150.250 194.750 108.875 1 31 1723 117.000 128300 95.625
9 30 1718 144.000 191.000 107300 2 28 1723 118.000 125.750 97.000
10 31 1718 142.250 188.000 106300 3 30 1723 116.000 129.000 101.375
11 29 1718 145300 197.000 109.875 4 30 1723 117.250 127.750 97300
12 31 1718 155300 212.000 118.750 5 31 1723 117.000 132300 101300
1 31 1719 157.250 213.250 118.625 6 29 1723 118.000 134.000 100.875
2 28 1719 156.750 210.250 117300 7 31 1723 119.750 129.000 105300
3 31 1719 144.000 195300 110.375 8 31 1723 121300 131300 108.625
4 30 1719 145300 199300 115300 9 30 1723 120.000 137.000 111300
5 30 1719 147300 197300 114.875 10 31 1723 120.000 136.000 111.250
6 30 1719 152.750 197.000 117.000 11 30 1723 121.250 138.000 113.375
7 31 1719 143.250 191.250 113300 12 31 1723 128.000 141300 116.750
8 31 1719 148.000 194.000 115.625 1 31 1724 126.750 144.000 114300
9 30 1719 142.250 192.000 116300 2 29 1724 129.2S0 148.000 116.625
10 31 1719 141300 191.200 116.125 3 31 1724 128300 149.750 118.125
11 30 1719 149.000 196:000 122.750 4 30 1724 126300 146.000 117300
12 31 1719 150.250 200.000 128.000 5 30 1724 128.250 149.000 120.000
1 30 1720 153.750 205.250 130300 6 30 1724 130300 150.750 121.750
2 29 1720 153300 212.000 173.250 7 31 1724 132.750 145.250 118300
3 31 1720 150.000 230.000 310.000 8 31 1724 131.625 144.500 116.625

4 ?0 1720 156.000 235.000 342.000 9 30 1724 129.250 148.000 118.000
i> 31 1720 210.000 290.000 595.000 10 31 1724 129.250 149.750 119.125
6 30 1720 240.000 420.000 950.000 11 30 1724 132.750 152300 121.625
7 30 1720 233.000 365.000 850.000 12 31 1724 132300 152.000 121.875
8 31 1720 226.000 345.000 810.000 1 30 1725 132.250 147.750 118.375
9 30 1720 215.000 180.000 310.000 2 27 1725 133.250 150300 118.875
10 31 1720 142.000 165.000 210.000 3 31 1725 129.875 150.750 118.750
11 30 1720 145.000 165.000 194.000 4 30 1725 133.000 159.000 122.000
12 31 1720 147.000 170.000 200.000 5 31 1725 133.375 165.000 122300
1 31 1721 141.000 142.000 200.000 6 30 1725 135.000 168.000 122.750
2 28 1721 138.000 142.000 200.000 7 31 1725 135.750 169300 120.750
3 31 1721 129.000 139.000 140.000 8 31 1725 138.250 179300 123.250
4 29 1721 131300 137.000 139.000 9 30 1725 132.750 166.000 120.125
5 31 1721 129300 134300 130.000 10 30 1725 133.000 167.750 121.250
6 30 1721 129300 140300 124300 11 30 1725 131.250 166.750 121.250
7 31 1721 135.000 150.000. 146.000 12 31 1725 128.250 159.000 117.750
8 31 1721 138.000 144.000 140.000 1 31 1726 124.000 149.750 108.750
9 30 1721 125300 136300 95.250 2 28 1726 124.000 145.750 103.000
10 31 1721 123.000 141300 96.000 3 31 1726 123300 150300 105300
11 30 1721 124300 141.250 96.750 4 30 1726 124.000 149300 103.625
12 30 1721 125.000 143.750 98300 5 31 1726 122.250 148.250 102.000
1 31 1722 122300 141300 99.000 6 30 1726 125.000 150.000 104.000
2 28 1722 120.000 140.750 96.750 7 30 1726 126.750 148300 103.875
3 31 1722 115300 138.750 90.250 8 31 1726 126.750 147300 104.250
4 30 1722 113.750 139.000 90.000 9 30 1726 127.250 147.000 104.250
5 31 1722 116.000 138300 90.750 10 31 1726 120.750 133.000 99.000
6 30 1722 118.250 142.000 91.000 11 30 1726 119300 132.000 98300
12 31 1726 118.000 130.750 96300 5 31 1731 145300 195.875 101.750

1 31 1727 124.250 138.750 100.875 6 30 1731 146.750 197.000 102.875
2 28 1727 125.250 142500 100.125 7 31 1731 147.000 194.750 103.250
3 31 1727 125300 138.750 98500 8 31 1731 149.000 194.2S0 103500
4 29 1727 126.250 151.000 104500 9 30 1731 148.750 186.000 103.250
5 31 1727 131500 169500 113.750 10 30 1731 145.750 174500 102.000
6 30 1727 131.750 168.250 113.625 11 30 1731 148.000 179500 103500
7 31 1727 133.000 164.750 110.875 12 31 1731 149.000 181.750 102500
8 31 1727 133.125 162500 110.000 1 31 1732 149500 178.000 102.000
9 30 1727 133.000 162.000 109.750 2 29 1732 149.625 177.000 98.250
10 31 1727 129.000 159.000 108.250 3 31 1732 150500 175.250 98.250
11 30 1727 130500 162500 108.000 4 29 1732 147.750 178.000 98.625
12 30 1727 131.000 160500 106.125 5 31 1732 147.750 178.125 98.750
1 31 1728 139500 173.000 108.125 6 30 1732 148.250 169.000 97.750
2 29 1728 138.750 170.250 105.625 7 31 1732 151.000 165500 100.000
3 30 1728 138.250 173.250 106.625 8 31 1732 152.750 157.250 104.875
4 30 1728 136.250 174.250 107.375 9 30 1732 151.000 156.875 104500
5 31 1728 136.000 172.750 106500 10 31 1732 149.875 155.250 104.000
6 29 1728 133.750 169500 104.625 11 30 1732 149.875 154.000 104.375
7 31 1728 133.250 161500 100500 12 30 1732 150.000 156.750 105.125
8 31 1728 137.250 171.000 103500 1 31 1733 151.250 160.750 105.125
9 30 1728 137.000 171.000 103.000 2 28 1733 151.000 159.625 102.375
10 31 1728 134.000 171500 102.875 3 31 1733 150.750 158.37S 102500
11 30 1728 133500 167.000 100.625 4 30 1733 149.000 160.750 102500
12 31 1728 131.750 163.750 98.125 5 31 1733 150.875 162500 104500
1 31 1729 134.500 164.250 99.250 6 30 1733 151.000 167300 106.375

2 28 1729 136.000 165.000 97.375 7 31 1733 149300 158300 104.625
3 31 1729 136300 165300 97.625 8 31 1733 145.2S0 152.000 84.000
4 30 1729 135.000 169.000 98.375 9 29 1733 144.000 150300 80.000
5 31 1729 136.000 171.250 100.125 10 31 1733 130300 139300 72300
6 30 1729 137.250 178.250 102.625 11 30 1733 131300 137.000 74.125
7 31 1729 139.000 176300 101300 12 31 1733 136.000 138.750 79.750
8 30 1729 139250 177.250 102.000 1 31 1734 133.000 136.000 77.000
9 30 1729 139.375 177300 101.750 2 28 1734 132300 136.250 75.250
10 31 1729 137.000 179.250 102.2S0 3 30 1734 132300 135.875 73.875
11 29 1729 138.000 183250 103.250 4 30 1734 131.250 137.250 75300
12 31 1729 139.000 187.250 105.250 5 31 1734 134.000 142300 76.000
1 31 1730 139.750 182300 104.875 6 29 1734 137.000 147.000 81.000
2 28 1730 139300 180300 101.375 7 31 1734 137.250 141300 79.750
3 31 1730 145.000 186.750 102.750 8 31 1734 138.250 143.000 79.750
4 30 1730 141.250 188.250 102.875 9 30 1734 140.000 146.000 81.750
5 30 1730 140.750 189.12S 103.125 10 31 1734 135.750 142.000 79300
6 30 1730 143.375 192300 104.375 11 30 1734 137.000 144300 81300
7 31 1730 142.000 184300 103.625 12 31 1734 139300 149.000 83300
8 31 1730 144.000 183.750 102.750 1 31 1735 139300 145.000 84.000
9 30 1730 144300 189.250 103.375 2 28 1735 140.750 148.250 82.750
10 31 1730 142.625 189.125 103.625 3 31 1735 141.250 149.750 82.875
11 30 1730 143.625 190300 104.000 4 30 1735 138.000 149.000 83.250
12 31 1730 144.000 190.875 104.000 5 31 1735 138.250 149.000 82.750
1 30 1731 144.000 188300 103300 6 30 1735 136.250 147.000 80.250
2 27 1731 144.750 192.000 101.000 7 31 1735 139.250 146.000 83.125
3 31 1731 147.750 197.250 103.000 8 30 1735 140.250 146.750 81.750
4 30 1731 147.000 199.000 103.375 9 30 1735 142.375 149300 83.000
mo dd year Bank EIC SSea Consols mo dd year Bank EIC SSea Consols
10 31 1735 142.250 159.000 86.500 3 31 1740 141.500 158.750 99.125

11 29 1735 146.750 167.000 93.125 4 30 1740 140.250 159.000 99.500
12 31 1735 146.500 169.000 93.500 5 31 1740 142.000 162.000 101.000
1 31 1736 148.000 169.000 95.000 6 30 1740 143.125 163.000 100.000
2 28 1736 149.000 174.500 95.875 7 31 1740 143.250 159.250 101.500
3 31 1736 150300 175.500 98.250 8 30 1740 144.000 160.250 101.000
4 30 1736 147300 174300 97300 9 30 1740 140.000 153300 95300
5 31 1736 148.000 176300 99.000 10 31 1740 138.000 153300 96.000
6 30 1736 149.125 177300 99.750 11 29 1740 139.000 155300 98.250
7 31 1736 149.625 171.750 99.000 12 31 1740 138.750 155300 98.750
8 31 1736 151.250 178300 99300 1 31 1741 140300 155.000 101.750
9 30 1736 151300 181300 100.000 2 28 1741 143.000 156300 101.125
10 30 1736 148.750 178300 100.000 3 31 1741 142.000 156.000 101.750
11 30 1736 149.250 179.000 100.000 4 30 1741 143.000 163.250 104.250
12 31 1736 148.250 178300 100.250 5 30 1741 140.375 159.000 102.625
1 31 1737 149.125 177300 101300 6 30 1741 141300 159300 103.000
2 28 1737 151.625 179.750 102.625 7 31 1741 141.375 156300 103.750
3 31 1737 143.000 176300 98.000 8 31 1741 141.000 156.000 101.875
4 30 1737 145.125 182.250 104.000 9 30 1741 141.750 157300 103.750
5 31 1737 147.250 181300 103.750 10 31 1741 140.750 159.000 104300
6 30 1737 145.750 182.000 103.750 11 30 1741 138300 160.000 105.250
7 30 1737 144.000 174300 103.000 12 31 1741 135300 159.250 104.250
8 31 1737 145300 177300 101300 1 30 1742 136.250 156300 104.375
9 30 1737 145.750 177.000 101.750 2 27 1742 136.250 157300 103.125
10 31 1737 143.000 177300 102.000 3 31 1742 139300 159.000 10S300
11 30 1737 142.750 177.250 102.250 4 30 1742 138.000 159.250 106.000

12 31 1737 142.875 177.000 101.750 5 31 1742 139.750 162.000 113.125
1 31 1738 142.250 175.500 102.500 6 30 1742 142.500 172.000 109.000
2 28 1738 142.250 176.000 101.250 7 31 1742 142.000 174.000 110300
3 31 1738 141.750 173.750 100.125 8 31 1742 142.000 171.000 108.500
4 29 1738 139.000 169.500 99.000 9 30 1742 142.250 171.750 109.125
5 31 1738 142300 173J00 101300 10 30 1742 140300 174.750 110.250
6 30 1738 141.625 169300 100300 11 30 1742 143.000 179300 111.125
7 31 1738 138300 161.000 97.250 12 31 1742 143.000 179.750 111.750
8 31 1738 143.750 171300 102.000 1 31 1743 145.250 176.000 112.250
9 30 1738 145.000 171300 103.000 2 28 1743 146.000 178.000 110300
10 31 1738 142.750 172300 103300 3 31 1743 147.000 180.250 110.000
11 30 1738 143.000 173.750 103.875 4 30 1743 146300 186.000 112.000
12 30 1738 142.625 173.250 104.000 5 31 1743 148.250 194300 115.250
1 31 1739 143375 170.250 103300 6 30 1743 144300 188300 113.000
2 28 1739 143300 168300 99.875 7 30 1743 147.875 189.000 114.750
3 31 1739 144300 169.250. 100.750 8 31 1743 147.250 186.000 111.000
4 30 1739 141.000 166300 99.250 9 30 1743 148.625 188.000 111300
5 31 1739 142.125 169.000 99.625 10 31 1743 146300 194.000 113.250
6 30 1739 137300 158300 94300 11 30 1743 146300 194.000 112.000
7 31 1739 137.000 153.000 94.000 12 31 1743 147300 197300 113.250
8 31 1739 138.250 153.750 93.000 1 31 1744 148.250 194.000 113300
9 29 1739 139.250 155.000 94.000 2 29 1744 146.000 181.000 106.000
10 31 1739 135300 152300 93.000 3 31 1744 143.000 169.750 103.000
11 30 1739 138300 158.000 96300 4 30 1744 141.625 171300 105.000
12 31 1739 139.000 159.000 97.250 5 31 1744 142300 172.250 105.750
1 31 1740 138.750 154.000 96.750 6 30 1744 144.000 179.000 108.000
2 29 1740 139.750 155.000 95.125 7 31 1744 147.000 178.250 109.750
8 31 1744 147.000 176.875 108300 1 31 1749 128.000 174.250 107.250

9 29 1744 148.000 178300 108500 2 28 1749 129.625 174.750 107.000
10 31 1744 144.62S 180.750 109500 3 31 1749 131300 176.750 106.750
11 30 1744 145.000 184.750 112.000 4 29 1749 129.000 177.000 107300
12 31 1744 145.000 184.000 112.000 5 31 1749 135.000 188.000 114.750
1 31 1745 144.750 179300 109500 6 30 1749 136.250 186500 115.250
2 28 1745 146.625 182.000 106.250 7 31 1749 137.375 185.750 116.000
3 30 1745 147.000 182.750 107.000 8 31 1749 140.250 190.250 116.000
4 30 1745 145500 186.750 110500 9 30 1749 140300 190.875 116.750
5 31 1745 146.875 187300 109.000 10 31 1749 137.625 190300 115.250
6 29 1745 146.875 186300 109.750 11 30 1749 134.000 187.000 109.250
7 31 1745 144500 178.250 107.750 12 30 1749 133.000 188.250 110.250
8 31 1745 143.000 174.000 103.000 1 31 1750 134.000 187.000 111.125
9 30 1745 141500 169500 100.000 2 28 1750 133.375 188.000 110.000
10 31 1745 138500 172500 100300 3 31 1750 134.250 187.000 110.000
11 30 1745 133.750 169300 98.000 4 29 1750 131.750 185500 109500
12 31 1745 125.750 163300 91.000 5 31 1750 133.250 184.000 112.000
1 31 1746 123.000 155300 94.125 6 30 1750 133.875 187.000 113.000
2 28 1746 119500 155.750 89.750 7 31 1750 134.000 184.000 112.250
3 31 1746 117500 156300 91.000 8 31 1750 135.265 185300 111.750
4 30 1746 124.750 166.000 97500 9 29 1750 135.750 184.750 112500
5 31 1746 125.250 168.000 97.250 10 31 1750 133500 185.750 113.750
6 30 1746 127500 174.000 100.125 11 30 1750 135.250 187500 113.750
7 31 1746 133.250 177.750 105500 12 31 1750 136500 188.750 112.000
8 30 1746 136500 183.000 106.000 1 31 1751 135500 184500 111.750
9 30 1746 134.750 183300 106.750 2 28 1751 136.750 185.750 110.000

10 31 1746 131.000 180.500 103.000 3 30 1751 139.250 187.500 112.125
11 29 1746 126.500 175300 102.000 4 30 1751 137.125 188.750 113.000
12 31 1746 128.750 180.000 105.000 5 31 1751 138.250 193.000 115.000
1 31 1747 127.000 175.750 103.000 6 29 1751 141500 195.000 115500
2 28 1747 128.000 174500 101.000 7 31 1751 139.750 182.750 113.000
3 31 1747 128500 173500 101.250 8 31 1751 141.000 186500 114.750
4 30 1747 126.750 154.000 105.000 9 30 1751 142.000 187.250 115500
5 30 1747 126500 152.750 102.000 10 31 1751 139.250 188.000 115.125
6 30 1747 12S.250 159.750 102500 11 30 1751 140.750 190.250 117.000
7 31 1747 125.750 156.250 103500 12 31 1751 141.875 190.750 117.250
8 31 1747 125500 161.000 102500 1 31 1752 143.750 187.250 117.625
9 30 1747 125500 160.000 100.250 2 29 1752 144.125 186.250 116.000
10 31 1747 121.625 159.875 99.375 3 31 1752 145.000 186.750 117.000
11 30 1747 119500 161500 100500 4 30 1752 143.750 188.750 118.125
12 31 1747 120.750 163500 100.000 5 30 1752 146.250 190.000 120.000
1 30 1748 120.000 160.000 100.000 6 30 1752 147.000 193.000 120.750
2 29 1748 119.2S0 160.750 94500 7 31 1752 147.375 187.000 122.000
3 31 1748 117.750 157500 91.000 8 31 1752 146.250 189.000 121.125
4 30 1748 125.000 173500 105500 9 30 1752 147.250 192.000 122500
5 31 1748 126.000 178.000 107.000 10 31 1752 143.250 192.000 122500
6 30 1748 128500 184.000 110.250 11 30 1752 142.250 194500 122.750
7 30 1748 127.000 178500 110.000 12 30 1752 143.875 196.875 123500
8 31 1748 127.625 179.875 107.000 1 31 1753 143.750 192.000 122500
9 30 1748 129.000 182.000 106.250 2 28 1753 143500 193500 120.875
10 31 1748 127.000 177500 105500 3 31 1753 143.250 194.000 120.750
11 30 1748 126.750 178500 107.250 4 30 1753 140500 194.000 120.875
12 31 1748 125.750 177.000 105.250 5 31 1753 139.875 196.000 120.750
6 30 1753 138.000 197.000 121.750 11 30 1757 119.000 141.500 103.500 91.250

7 31 1753 137.500 192300 122300 12 31 1757 117.000 139300 103.000 90.750
8 31 1753 137300 192.250 120.250 105.125 1 31 1758 118.750 138300 103.000 90300
9 29 1753 138.750 192300 120.250 104.750 2 28 1758 121.000 149.000 104.000 92300
10 31 1753 135.750 191.750 119300 104.125 3 31 1758 124.000 148.000 106.2S0 94.000
11 30 1753 136.000 193.250 120300 104300 4 29 1758 119300 147.250 105.375 94.000
12 31 1753 135.62S 193.875 121.625 103.875 5 31 1758 121300 147.000 105.250 95.625
1 31 1754 133300 189.000 121.000 103.625 6 30 1758 122.000 146.000 108.000 96.750
2 28 1754 134.125 187.750 119.000 102.625 7 31 1758 119300 137.000 108.000 92.750
3 30 1754 134.125 186300 118.000 102.250 8 31 1758 118.750 133.250 102.000 91.875
4 30 1754 132.750 191.250 119.000 103.250 9 30 1758 118.625 135300 102300 90.750
5 31 1754 134.250 190.750 119.125 104.250 10 31 1758 117.000 134.250 100.250 89.750
6 29 1754 134.000 193.000 119300 104300 11 30 1758 117.250 136300 100.250 90.750
7 31 1754 133.750 187300 119300 104.625 12 30 1758 116.750 136.000 100300 89.750
8 31 1754 134.000 187.750 117.875 104.125 1 31 1759 117.000 134.000 100300 88300
9 30 1754 133.750 187300 116300 103.000 2 28 1759 116.750 134.250 97.000 86.750
10 31 1754 130.875 185300 116300 102.875 3 31 1759 116300 132.000 95.250 83.750
11 30 1754 132.250 183.750 116.250 103.000 4 30 1759 113.000 129.250 94.000 81.250
12 31 1754 133.250 185.250 117.000 103.875 5 31 1759 111.250 128300 93.000 79300
1 31 1755 130.000 175300 114.000 102.000 6 30 1759 111.000 125.750 93.000 79.250
2 28 1755 130.625 177.000 113.000 100.250 7 31 1759 110.125 121300 92.000 77.875
3 31 1755 129.250 173.000 112.250 98.625 8 31 1759 112.750 125.000 93.750 81.750
4 30 1755 126.250 172.750 110.000 97.625 9 29 1759 112.750 126.250 94300 82.125
5 31 1755 127.250 175.000 111300 99.750 10 31 1759 111375 130300 94.000 81.750
6 30 1755 126.375 175.000 111.000 98.875 11 30 1759 113.250 134300 96.000 86.000
7 31 1755 123300 167.000 103.875 93.125 12 31 1759 114.000 141.000 97.000 84300
8 30 1755 122.625 166.000 103.000 92.125 1 31 1760 111.000 133500 95.000 80.000
9 30 1755 123300 167.250 104.250 93300 2 29 1760 110.000 133.750 90.250 80.250
10 31 1755 120.000 165.750 104300 90.625 3 31 1760 111.250 137.000 91300 82.125
11 29 1755 122300 148300 104.000 91.250 4 30 1760 109.625 137300 92300 82300
12 31 1755 122300 148.750 105300 92.750 5 31 1760 109.750 137.000 92.750 82300
1 31 1756 120.000 141.750 104.750 88.875 6 30 1760 110.750 140.000 94.625 84.250
2 28 1756 120300 142.750 101300 89.250 7 31 1760 111.000 136.000 94300 83.750
3 31 1756 120300 142300 101300 89300 8 30 1760 111.750 139.000 93.750 83.625
4 30 1756 118.000 142.000 102300 90.750 9 30 1760 111.750 140300 93.000 82.750
5 31 1756 117.000 138.750 101.250 89300 10 31 1760 110.000 142.250 93300 83.000
6 30 1756 116300 137.000 100.250 89.250 11 29 1760 107300 139.000 91.000 78.750
7 31 1756 117.000 133.750 101.000 88.750 12 31 1760 106.750 140.000 90.000 75.625
8 31 1756 117300 133.250 99.000 89.250 1 31 1761 106.000 136.750 87.250 73.250
9 30 1756 117.750 133.250 99.750 89300 2 28 1761 104300 134300 85300 73.625
10 30 1756 115.250 133.750 99.750 88.37S 3 31 1761 107300 137.000 87.000 77.625
11 30 1756 115.250 134300. 100.250 88300 4 30 1761 115.000 143.000 98.250 88.000
12 31 1756 115300 136.000 100.375 88300 5 30 1761 116.000 144.250 97.000 88.000
1 31 1757 116.000 133.000 101.000 86.750 6 30 1761 114.750 143.000 96.000 85.750
2 28 1757 118.000 136.250 99300 87.750 7 31 1761 113.250 141300 95.000 79300
3 31 1757 119.250 139.250 101.000 90.125 8 31 1761 110.000 134.000 95.000 77300
4 30 1757 117.000 139300 100.250 89.125 9 30 1761 111.250 133.000 89300 73.250
5 31 1757 119.750 142.000 101300 90.000 10 31 1761 104.250 128300 84300 71.875
6 30 1757 119300 133.000 102.250 90.000 11 30 1761 102300 125.000 83.000 70.375
7 30 1757 119300 133300 102.000 88.875 12 31 1761 95.750 123300 77.000 66300
8 31 1757 120.250 134300 102.250 89.625 1 30 1762 93.750 112.000 76.000 61.875
9 30 1757 121.250 141.750 103.000 91300 2 27 1762 95.250 114300 74.250 68.000
10 31 1757 119.750 140300 104.000 91.000 3 31 1762 96.750 117.000 77.000 70.000
4 30 1762 97.000 117.250 78.000 69300 9 30 1766 138300 223300 104.000 89.375
5 31 1762 97.000 118300 79300 72300 10 31 1766 136.750 221.250 104.125 89.000
6 30 1762 97300 118.000 80.000 72.000 11 29 1766 136.250 219300 103300 89.375
7 31 1762 99.250 122.000 80.000 75.250 12 31 1766 137.250 223.750 104.000 90.125
8 31 1762 109.000 140.000 87.000 85.750 1 31 1767 143.000 230.750 103.000 89.250
9 30 1762 112300 142.000 90.000 83300 2 28 1767 142300 233.000 103300 89.000
10 30 1762 108300 140.000 90300 81.125 3 31 1767 142.250 246.000 101.750 88.875
11 30 1762 114.000 153300 98.000 86.250 4 30 1767 142.000 259.000 104.000 89.000
12 31 1762 119.250 161.750 102.750 92300 5 30 1767 145.000 244300 104300 88.625
1 31 1763 119300 158.000 101300 89.750 6 30 1767 148.000 251.000 106.000 89.125
2 28 1763 129300 173.000 103.000 94.375 7 31 1767 145.750 252.750 103.250 87.375
3 31 1763 131300 170.000 106.250 94.875 8 31 1767 148.000 271.000 103.750 88.250
4 30 1763 125.000 172.000 106300 94.375 9 30 1767 159.250 264.250 104.750 88.375
5 31 1763 124.750 170300 104.000 93.625 10 31 1767 156300 269.000 105300 88.875
6 30 1763 122.125 173300 104.000 93300 11 30 1767 158.000 262300 108.000 90.375
7 30 1763 118.750 163.000 104.000 90.250 12 31 1767 160.250 265.250 109.000 92.625
8 31 1763 117.000 162.000 95300 87.250 1 30 1768 162.750 262.250 106.750 90.625
9 30 1763 116.000 156300 93.750 81300 2 29 1768 164.000 266300 108.000 91300
10 31 1763 111.000 154300 92.000 83300 3 31 1768 167.125 274.750 109.000 92.750
11 30 1763 113.375 155.250 94.000 8S.875 4 30 1768 167.000 268.250 109.000 93.750
12 31 1763 113.250 162.000 93300 85300 5 31 1768 169300 273.000 111.000 94.375
1 31 1764 113300 156.750 93.250 83.875 6 30 1768 169.000 277.750 109.250 94300
2 29 1764 116300 157.250 94.000 85.125 7 30 1768 164.750 266.000 105300 89.750
3 31 1764 118.250 152300 95.000 85.250 8 31 1768 167.000 274300 105.750 90.250
4 30 1764 116300 153300 95300 87300 9 30 1768 163300 274300 104.000 88.375
5 31 1764 114.250 148.000 96.000 86.000 10 31 1768 159.000 272.500 104.500 87.750
6 30 1764 113.000 151.000 95.250 86.250 11 30 1768 160.250 270.000 104.500 88.625
7 31 1764 113.375 146.000 95.000 84.875 12 31 1768 161.625 276.500 106.000 90.000
8 31 1764 113.500 146.500 93.000 83.000 1 31 1769 162.500 274.500 103.250 88.250
9 29 1764 122.500 145.750 92.000 83.000 2 28 1769 164.500 275.000 103.250 88.125
10 31 1764 122.000 148.250 94.000 84.125 3 31 1769 165.750 276.500 103.750 89.000
11 30 1764 122.375 1S0300 95.375 84.250 4 29 1769 164.250 273.750 103.125 88.625
12 31 1764 127.000 1S6300 96.500 88.250 5 31 1769 167.250 230.000 105.250 89.625
1 31 1765 126.750 151.750 96.500 85.625 6 30 1769 166.500 241.000 105.000 89.750
2 28 1765 129.750 151.000 97.250 87.125 7 31 1769 167.125 230.250 105.000 89.750
3 30 1765 130.500 153.000 98.125 88.000 8 31 1769 168.500 228.000 104.000 89.250
4 30 1765 127.875 154300 100.250 87.625 9 30 1769 162300 226.000 103300 88.000
5 31 1765 128.000 155.000 100.000 87.37S 10 31 1769 160.625 224.250 103.250 88.375
6 29 1765 129.750 159300 103.000 88.625 11 30 1769 151300 219.000 102.000 85300
7 31 1765 133.250 156300 102.000 87.875 12 30 1769 153300 219.000 102300 86.375
8 31 1765 136300 160.000 104.000 89.750 1 31 1770 150.000 205300 99.000 83.875
9 30 1765 137300 164300. 105300 92.250 2 28 1770 153300 219.750 99.250 85300
10 31 1765 136.250 164.250 104.750 91.875 3 31 1770 152.750 226.750 97.750 85.875
11 30 1765 135.250 165.000 104.750 91300 4 30 1770 151.750 226300 98.000 86.750
12 31 176S 135.125 167.000 105.250 91.875 5 31 1770 154.000 229300 100.000 87.000
1 31 1766 13S.2S0 165300 104.000 89375 6 30 1770 149.750 222.750 99300 85.250
2 28 1766 134.750 164.750 102.000 88.250 7 31 1770 149.875 217300 99.750 84.000
3 31 1766 136.250 163.000 102300 89.125 8 31 1770 153.000 218300 98.875 84.875
4 30 1766 132.750 178300 102300 89.375 9 29 1770 139.250 196.250 98.875 78300
5 31 1766 136.000 188.750 102300 90.000 10 31 1770 136300 194.000 92.000 79.000
6 30 1766 136.250 187.375 102.250 90.750 11 30 1770 133.000 183300 89.000 78.000
7 31 1766 135.000 214.000 100.750 87.875 12 31 1770 131.750 185300 91.000 78.2S0
8 30 1766 138.000 206.000 104.000 89.87S 1 31 1771 148.000 214.000 91.000 84.375
2 28 1771 155.500 231.000 96.000 88.000 7 31 1775 141.875 151.000 95.250 87.750
3 30 1771 147.250 218.000 96.250 85.500 8 31 1775 143.125 153.500 97.750 88.875
4 30 1771 152.500 228.000 96.250 87300 9 30 1775 144.000 155.750 98.000 89.125
5 31 1771 155300 226300 100.000 88.750 10 31 1775 141.000 156.750 97500 89.000
6 29 1771 155.250 225.750 100.750 89.000 11 30 1775 143500 165.000 98.625 89.750
7 31 1771 155.750 216.000 100500 87.250 12 30 1775 143.000 166.000 98.250 89500
8 31 1771 155.250 216500 100.000 87.375 1 31 1776 142.250 165.000 96.000 86.875
9 30 1771 150.250 213.750 100.125 86.625 2 29 1776 142.000 163.250 94.750 86.125
10 31 1771 149.125 217500 100.000 86.875 3 30 1776 142.125 161.250 94.875 86.000
11 30 1771 148.000 218.000 99.000 87.000 4 30 1776 139500 162.000 94.625 85500
12 31 1771 150.750 225.000 100.250 88.375 5 31 1776 136.875 160500 94.250 84.625
1 31 1772 152.125 218.250 102.000 87.750 6 29 1776 138500 162.750 95500 84.750
2 29 1772 152500 214500 99.750 87.875 7 31 1776 137.750 159.750 92.000 84.125
3 31 1772 153.375 216.000 100.250 88.750 8 31 1776 140500 166.250 93500 83.750
4 30 1772 149.750 213.250 99.750 89.125 9 30 1776 140.250 169.000 94.000 83.625
5 30 1772 151.375 226.000 99.625 90.000 10 31 1776 135.250 164500 94.750 81.875
6 30 1772 149.375 213.750 97.000 89500 11 30 1776 137.250 171500 91.750 82.125
7 31 1772 149.000 212.000 97.625 88.250 12 31 1776 138.000 173.000 91.875 81.875
8 31 1772 148500 207.750 97500 88500 1 31 1777 138.000 168500 90.000 80.625
9 30 1772 148375 191.000 97.250 88.125 2 28 1777 136500 167500 90.125 79.375
10 31 1772 143.62S 182.000 96.000 87.375 3 31 1777 136.750 166.000 89500 78.625
11 30 1772 144500 166.000 96.625 88.125 4 30 1777 134.750 165500 90500 79.625
12 31 1772 143.000 163500 95.750 88.875 5 31 1777 134.125 167500 93.250 79.250
1 30 1773 143.375 161500 94.000 87.250 6 30 1777 132.250 166500 94.000 79.000
2 27 1773 143.750 163.000 94.250 87.375 7 31 1777 130.000 157.000 88.250 76.250
3 31 1773 143.000 153.000 94.000 86.500 8 30 1777 131.000 161300 87.750 77.625
4 30 1773 139300 147.000 93.000 85.750 9 30 1777 132.000 164.000 88300 78.000
5 31 1773 139.250 143.000 93300 86.250 10 31 1777 130.125 166.250 90.000 79.000
6 30 1773 141.125 147.250 93.750 87.000 11 29 1777 128.750 167.000 88.750 78.375
7 31 1773 142.000 150.000* 93.750 86300 12 31 1777 125.000 161.000 83.000 75.125
8 31 1773 143.250 152.000 94.000 87.000 1 31 1778 119.750 154.000 79.000 71300
9 30 1773 143.625 152300 94.375 87300 2 28 1778 117.250 144.000 78.250 69.125
10 30 1773 141300 146300 94.125 87.875 3 31 1778 108.250 128300 70.000 60.250
11 30 1773 140.250 139300 94300 87300 4 30 1778 106.750 128300 70.250 60.750
12 31 1773 140.125 140.250 95.250 87.375 5 30 1778 108.250 134300 72300 61300
1 31 1774 140.250 139.000 93.250 86.375 6 30 1778 109.250 135.250 73300 61.750
2 28 1774 140.625 139.2S0 93.750 86.625 7 31 1778 109375 132.250 73300 61.625
3 31 1774 140375 141.750 94.750 86.875 8 31 1778 114.000 137.000 73300 63.875
4 30 1774 139.750 145.000 94.625 87.875 9 30 1778 116.000 138.000 73.000 65.875
5 31 1774 140.625 154300 95.750 88.000 10 31 1778 113.000 144.000 73300 65.250
6 30 1774 142.125 154.000 97.000 88.625 11 30 1778 109.750 140.000 72300 62300
7 30 1774 144.000 149.000 96.250 89.000 12 31 1778 107.750 138.000 71.250 61300
8 31 1774 144300 147300 96.750 88.375 1 30 1779 109.125 139300 69300 61.750
9 30 1774 145.125 148.000 96.750 89.000 2 27 1779 110.000 140.000 69.750 59.250
10 31 1774 141300 147.000 96300 88.750 3 31 1779 115.000 153300 70.625 62.000
11 30 1774 142.875 149300 98.250 89.875 4 30 1779 115.250 155300 72300 63.62S
12 31 1774 145.000 153.750 98.2S0 91.125 5 31 1779 112.875 151.750 72.7S0 62.875
1 31 1775 143.250 153.000 100.000 87.125 6 30 1779 108.000 141.750 72.750 60.750
2 28 1775 144.625 155.750 98300 88300 7 31 1779 108.750 139.250 69300 60.000
3 31 1775 144.750 156.250 99300 88300 8 31 1779 111.375 140.000 70.750 61.125
4 29 1775 142375 155.000 99.250 89.125 9 30 1779 111.750 143.750 71.000 61.250
5 31 1775 142.625 154300 98.750 88.750 10 30 1779 110.250 144300 71300 61.750
6 30 1775 141.750 155.000 97.125 88.875 11 30 1779 109.750 144300 71.000 61.250
mo dd year Bank EIC SSca Consols modd year Bank EIC SSca Consols.
12 31 1779 110.000 145.750 71.500 62.000 5 31 1784 115.250 123.000 66.500 58.125
1 31 1780 113.000 147.000 71.500 60.750 6 30 178* 115300 122.750 65.000. 59.000
2 29 1780 114.750 153.250 69.750 60.625 7 3i 1784 115.750 122.250 65.000 57.250
3 31 1780 114300 155.250 70.500 60.750 8 31 1784 117.375 127.000 64300 55.875
4 29 1780 112.000 156.250 72.000 60.750 9 30 1784 114.000 126.250 62.000 54.625
5 31 1780 111.625 152.000 70.750 61.375 10 30 1784 110.750 128.000 62300 54.875
6 30 1780 113300 153.250 70.250 63.375 11 30 1784 112.750 131.000 62.750 56.000
7 31 1780 116.250 151.250 71.375 62.250 12 31 1784 112.875 136300 62.750 56375
8 31 1780 115.000 151300 71300 61.625 1 31 1785 117.250 135.000 64.000 56.250
9 30 1780 114.250 149.250 71.000 61.125 2 28 1785 115.250 131.000 64.000 55.375
10 31 1780 111.250 152.750 71.000 61.125 3 31 1785 115.000 133.000 64.000 55.000
11 30 1780 110.750 153.250 69300 61.125 4 30 1785 115300 133.000 64300 57300
12 30 1780 108.750 152.750 69300 60.250 5 31 1785 116.750 133.250 66300 57.625
1 31 1781 105.750 148.250 69300 58.125 6 30 1785 118300 136.250 66300 58.625
2 28 1781 108.000 147.000 66.750 58.875 7 30 1785 120.750 132300 66300 58.125
3 31 1781 111.000 147300 67.000 58.375 8 31 1785 122.750 136300 68.250 58.750
4 30 1781 112.000 146300 68.875 58.625 9 30 1785 124300 143300 69300 59.875
5 31 1781 113.250 144.250 67300 58.750 10 31 1785 130.750 150.000 71300 65.375
6 30 1781 113.625 149.000 69.000 59.125 11 30 1785 139.750 156.250 78300 70.000
7 31 1781 114.125 133.250 66.250 57.250 12 31 1785 139.000 161.000 79.000 71.625
8 31 1781 113.750 140.000 66.250 57.000 1 31 1786 140300 155300 81.000 70300
9 29 1781 116.000 138300 66.000 56.625 2 28 1786 140.000 157300 78.000 70.125
10 31 1781 108300 139300 65.000 55.875 3 31 1786 139.750 159.000 78.000 69.250
11 30 1781 112.000 140.250 63300 57300 4 29 1786 137300 159300 78.000 69.875
12 31 1781 110300 139300 64.000 57.750 5 31 1786 146.000 162.750 80.250 74.250
1 31 1782 111.625 134.500 63.000 55.750 6 30 1786 145.250 160.750 81.250 74.375
2 28 1782 111.000 132.250 62.250 54375 7 31 1786 150.750 160300 84.250 75.875
3 30 1782 113.250 134.750 62.000 55.625 8 31 1786 159.000 167.750 87.500 77.750
4 30 1782 114300 139.000 63.750 59300 9 30 1786 156.000 165300 85300 77.375
5 31 1782 114300 138.000 65300 59.750 10 31 1786 149.250 166300 85300 76.250
6 29 1782 114.750 137300 65.250 59.875 11 30 1786 145300 166.000 83300 73.875
7 31 1782 113300 128.250 65.000 57.875 12 30 1786 151.000 168.000 82300 75.375
8 31 1782 113.875 127.750 63300 56.625 1 31 1787 151.625 163.250 82.000 73.750
9 30 1782 116300 129.250 64.750 57.750 2 28 1787 153.875 164.750 83.250 75.000
10 31 1782 114300 133.250 65.750 57.875 3 31 1787 155.250 169.250 85300 76.250
11 30 1782 116.000 133.000 68.000 60.000 4 30 1787 154.250 170.250 86.000 77.250
12 31 1782 123300 141.000 68.250 64.875 5 31 1787 155300 171.250 85.750 76.875
1 31 1783 133300 144300 69300 68.000 6 30 1787 150.000 165.000 85300 73.750
2 28 1783 134.750 142.000 74.000 68.125 7 31 1787 147.750 159.000 79.250 70.625
3 31 1783 136.750 139.750 76.000 67.875 8 31 1787 150.000 159.750 80300 72300
4 30 1783 133.000 139.000 76.000 67575 9 29 1787 149300 158.250 80300 72.250
5 31 1783 131.750 139.000 75.000 67375 10 31 1787 152300 166.000 77.875 75300
6 30 1783 127.250 139.250 75.000 66300 11 30 1787 157.250 176.000 85.2S0 76.875
7 31 1783 127300 134.250 75.000 62.875 12 31 1787 158.000 175300 86.250 77.375
8 30 1783 128.000 139.000 71.000 64300 1 31 1788 161.000 170.250 84300 75300
9 30 1783 122.250 140.000 71.000 59.625 2 29 1788 158300 167300 84.625 75.250
10 31 1783 117.875 138.000 71.000 58.875 3 31 1788 176.750 175.250 84.250 75.625
11 29 1783 114300 120.000 68.000 58.000 4 30 1788 172.750 173.000 86300 75.125
12 31 1783 111.750 124300 68.000 57.000 5 31 1788 171.875 170.750 85300 75300
1 31 1784 112.750 121300 68.000 56.000 6 30 1788 172.000 171.750 85.000 75.250
2 28 1784 116.000 124.000 66.000 57.250 7 31 1788 174.000 169.000 82300 74.375
3 31 1784 118.750 125300 65.250 58.000 8 30 1788 175.625 166300 83.125 74.125
4 30 1784 116.000 124.000 66.000 58.125 9 30 1788 176.250 168.000 82.750 74.625
10 31 1788 173.750 170.750 83.2S0 75.625 3 1793 172.500 207.250 76300

11 29 1788 170.000 167.750 82.625 73.875 4 1793 167.750 214.000 77.375
12 31 1788 170.250 166.250 82300 74.000 5 1793 168.250 213500 77.000
1 31 1789 169.750 162.250 80500 71.750 6 1793 171500 211.750 77.625
2 28 1789 175.625 167500 83500 74.000 7 1793 177.125 210.750 77.625
3 31 1789 175.125 168.000 83.750 74.250 8 1793 174500 208.250 76.000
4 30 1789 173.875 168.750 85.750 75.000 9 1793 172.250 204500 74.875
5 30 1789 177.000 169500 86.250 76.125 10 1793 166.375 206.750 74.125
6 30 1789 179.000 173500 86.750 77.125 11 1793 168500 211.250 75375
7 31 1789 185.250 174500 87500 78.875 12 1793 165.750 208500 73.625
8 31 1789 189500 175.000 88.625 79.250 1 1794 156.250 199500 67.375
9 30 1789 190.250 177.750 89375 80.250 2 1794 160500 200.750 66.000
10 31 1789 184.000 179.750 88.125 79.125 3 1794 161.750 201500 67.62S
11 30 1789 181.750 175.000 87.750 77.875 4 1794 168.750 207.000 71.250
12 31 1789 183.125 173500 87.750 78.750 5 1794 167.000 208.750 70.625
1 1790 187500 171.000 78.875 6 1794 161.250 204.000 68.000
2 1790 185.000 171500 77.375 7 1794 165500 199.7S0 67.375
3 1790 187.250 173500 79.375 8 1794 164.625 198.000 67.000
4 1790 185.125 174.250 79.750 9 1794 158.000 192500 64.625
5 1790 169500 155.000 74.750 10 1794 155.750 190500 66.750
6 1790 170.125 158.750 74.000 11 1794 157.625 193500 68500
7 1790 173.750 158500 73.875 12 1794 156.000 189.250 65.000
8 1790 181500 164500 76.750 1 1795 153.250 182.750 62.625
9 1790 180.000 162.000 76.250 2 1795 152.750 181500 62.750
10 1790 172.000 156.250 74.250 3 1795 153.000 181.750 62.000
11 1790 184.000 168.750 79.375 4 1795 159.750 192.750 65.625

12 1790 186.375 171.250 81.125 5 1795 163.000 195.500 66300
1 1791 187.000 168.750 80.625 6 1795 165.000 199300 67.875
2 1791 187.875 167300 80300 7 1795 168300 196.250 66.750
3 1791 178300 160.000 76.250 8 1795 168.375 198300 67.625
4 1791 185.750 166300 81.125 9 1795 169.875 200.000 68.750
5 1791 186.125 166.250 81.625 10 1795 166.125 199.250 68.625
6 1791 186.250 166300 81.750 11 1795 165.750 204.000 68.250
7 1791 190.000 171.750 83.000 12 1795 176.000 216.000 70.125
8 1791 200.750 185300 88.875 1 1796 175.250 212.250 68.250
9 1791 203.375 193.250 89.250 2 1796 173.000 212.750 67.750
10 1791 .194.750 192.750 87.250 3 1796 175.000 216300 69.125
11 1791 196.000 187.000 88.125 4 1796 164.000 209.000 66.625
12 1791 200.875 186.750 90300 5 1796 155.750 199300 64.375
1 1792 209.250 192.000 93.375 6 1796 154300 194.250 63.750
2 1792 215300 212.000 96.125 7 1796 151.250 183.250 60.375
3 1792 217300 216.000. 96300 8 1796 141.000 175300 55300
4 1792 206300 207.000 92.875 9 1796 146.250 176300 57.750
5 1792 204.000 208.000 93.375 10 1796 146.000 175.750 57.375
6 1792 203.250 212.000 92.750 11 1796 143.000 177.000 56.375
7 1792 207300 208.2S0 93.625 12 1796 138.250 171300 55.125
8 1792 201300 200300 89300 1 1797 145.000 166300 55.375
9 1792 204.625 209.000 90.125 2 1797 135.250 151.750 51.875
10 1792 200.375 209300 90.375 3 1797 128.000 148.000 50.125
11 1792 173300 182.000 78.750 4 1797 121.750 150300 48.250
12 1792 175.000 184300 78.875 5 1797 115300 144300 47.875
1 1793 173.000 181.000 75.750 6 1797 126300 163300 54.375
2 1793 163.625 195.000 73.250 7 1797 131.000 159300 53.000
8 1797 131.000 159.000 52.375 1 1802 190300 213.000 68.625

9 1797 126500 152300 49500 2 1802 190.750 214.750 69.125
10 1797 119.000 150500 49.250 3 1802 191500 215500 70.625
11 1797 118.250 148.7S0 49.250 4 1802 195.000 226.000 76.875
12 1797 118.000 150.750 49500 5 1802 183.000 218.000 75.875
1 1798 119.000 146500 47.625 6 1802 189.250 220.750 75.250
2 1798 122.750 147.250 49.875 7 1802 186.000 209.000 71.750
3 1798 122.250 149.000 49.875 8 1802 183500 204.000 67.250
4 1798 116.750 148500 48.250 9 1802 187.000 208.000 69.375
5 1798 118.000 149500 49500 10 1802 179500 205.000 68.250
6 1798 118500 149.000 49.250 11 1802 178.750 202500 67.375
7 1798 125500 146.250 50.000 12 1802 187.000 216.750 73.375
8 1798 130.000 148.000 50.000 1 1803 187.000 210.250 70.750
9 1798 130.000 150.250 50500 2 1803 189500 215500 71.125
10 1798 139500 163500 56.125 3 1803 175.000 201.750 62.125
11 1798 132.000 160.000 52.625 4 1803 170500 206.750 63.125
12 1798 136.250 166.000 54.625 5 1803 150.000 178.000 60.000
1 1799 139.250 162.000 5Z875 6 1803 144.000 173500 57.250
2 1799 139.000 166.000 54.000 7 1803 137.000 157.000 52.125
3 1799 134.750 164.250 53500 8 1803 142500 164.000 54.125
4 1799 137500 170.000 55500 9 1803 142500 162.000 52500
5 1799 140.250 170500 56.000 10 1803 141500 163500 53.625
6 1799 154.000 182.750 61.875 11 1803 144 000 168500 54500
7 1799 168.000 191.000 63.375 12 1803 146.250 171.250 56.125
8 1799 173500 200.750 66.625 1 1804 154500 172500 55.750
9 1799 163.000 195.000 60.625 2 1804 154.000 170.000 55.625

10 1799 159.000 194.000 60.750 3 1804 154300 170.000 56300
11 1799 158.000 197.000 63.375 4 1804 149300 170300 56.000
12 1799 155.000 198.250 63.000 5 1804 152^50 169300 56.000
1 1800 155.750 194300 60.375 6 1804 155.000 174.750 57.125
2 1800 161.000 202.000 63.125 7 1804 161.000 177.000 58.625
3 1800 163.000 209300 63.375 8 1804 160300 176300 57.000
4 1800 161.2S0 208300 63.250 9 1804 161.750 177300 57.250
5 1800 161.000 210300 64.000 10 1804 163.000 177.750 57300
6 1800 161.750 211.250 64.875 11 1804 167300 181300 58.625
7 1800 166.000 206.000 65.000 12 1804 168.250 185.000 59300
8 1800 172.000 203300 65.750 1 1805 179.000 188.000 61.000
9 1800 175.000 208300 66.000 2 1805 179.250 184.000 58.000
10 1800 165.750 205.000 63.750 3 1805 178.000 180.750 58.125
11 1800 165.250 205.750 63.500 4 1805 172300 179.000 58.125
12 1800 160.750 205.250 62.875 5 1805 172300 181300 59.250
1 1801 153.000 188300 57.625 6 1805 179.250 182.500 59.750
2 1801 152300 185300 55.875 7 1805 182.750 182300 58.625
3 1801 160.000 194.000 57.875 8 1805 178300 177.000 58.2S0
4 1801 165300 199.000 61.250 9 1805 196.000 181.000 58.750
5 1801 167300 200.000 61.125 10 1805 190300 187.000 59.250
6 1801 167.750 201.000 61.875 11 1805 195.000 189.250 61.000
7 1801 166.250 192.750 58300 12 1805 194300 192.250 60.250
8 1801 169.000 198.000 60300 1 1806 197300 186.000 60.875
9 1801 168.000 193.250 58.750 2 1806 203.000 183.000 59.875
10 1801 189300 216.000 68.125 3 1806 208.000 183.000 60.625
11 1801 187.000 215.000 67300 4 1806 212300 179.750 60.125
12 1801 187.250 218300 68.875 5 1806 209.000 183.750 61.375
6 1806 211.000 192.000 0.000 63300 11 1810 244.000 184.000 0.000 66.875
7 1806 212.000 185300 0.000 64.000 12 1810 243.000 183.250 0.000 67.125
8 1806 219.000 188.000 0.000 62.875 1 1811 242.250 178.000 0.000 65.875
9 1806 222300 187.000 0.000 63.125 2 1811 241.000 176300 0.000 65.625
10 1806 213.250 183.000 0.000 61.250 3 1811 245.250 178500 0.000 64300
11 1806 212.000 179300 0.000 59.250 4 1811 245.000 182.250 0.000 64.750
12 1806 208300 182.250 0.000 60.375 5 1811 240300 183.000 0.000 64.625
1 1807 218.000 181500 0.000 62.000 6 1811 233.000 182.000 0.000 64375
2 1807 225.000 185500 0.000 62375 7 1811 241.000 175.000 0.000 62500
3 1807 228.750 183.000 0.000 62.125 8 1811 236.000 184.000 0.000 64.250
4 1807 233.000 187500 0.000 63.375 9 1811 238.000 182300 0.000 63.62S
5 1807 230500 187500 0.000 63.625 10 1811 232.000 183.000 0.000 64.000
6 1807 233.250 187.750 0.000 63.875 11 1811 231.000 184500 0.000 63.375
7 1807 231500 175.000 0.000 62.000 12 1811 230.000 183.000 0.000 63.375
8 1807 232300 177.000 0.000 62300 1 1812 232.000 182.000 0.000 62.750
9 1807 231500 174.250 0.000 62.750 2 1812 230300 177500 0.000 61500
10 1807 224.000 174.000 0.000 62.750 3 1812 230.000 176500 0.000 59.625
11 1807 225500 179.000 0.000 63.875 4 1812 228.750 176500 0.000 61.750
12 1807 224.250 179.000 0.000 64.250 5 1812 224.000 175500 0.000 61.250
1 1808 227500 171500 0.000 63500 6 1812 215.000 176.250 0.000 61.000
2 1808 232.000 172500 0.000 63.875 7 1812 212500 164.750 0.000 56.250
3 1808 233.000 172.000 0.000 64.625 8 1812 222.000 169.000 0.000 59.375
4 1808 234500 182.250 0.000 66.625 9 1812 226.000 167.000 0.000 57.875
5 1808 239.000 177500 0.000 68.125 10 1812 214.750 163.250 0.000 58.750
6 1808 240500 182500 0.000 69.750 11 1812 216.250 163.000 0.000 58.375
7 1808 243.000 185.000 0.000 68.000 12 1812 223.000 163.250 0.000 58.37S
8 1808 239.500 179.000 0.000 65.750 1 1813 221.000 164.000 0.000 S9.2S0
9 1808 240.750 179.000 0.000 66.000 2 1813 219.000 161.000 0.000 58.500
10 1808 23S.0OO 180.250 0.000 67.125 3 1813 219.250 161.000 0.000 59.000
11 1808 236.000 181300 0.000 66.375 4 1813 217.000 166300 0.000 59.750
12 1808 235.000 185500 0.000 66.875 5 1813 214300 170.000 0.000 58.375
1 1809 244.000 183300 0.000 66.625 6 1813 213500 169.000 0.000 57.750
2 1809 245.750 184.750 0.000 67.750 7 1813 218300 168.000 0.000 57.750
3 1809 247.000 183.750 0.000 67.375 8 1813 219.000 165.000 0.000 56.875
4 1809 245300 185.750 0.000 67.750 9 1813 217500 173.000 0.000 58.750
5 1809 249300 188.750 0.000 68.125 10 1813 219.000 172300 0.000 58.000
6 1809 260.000 195.000 0.000 69.250 11 1813 228.000 182.000 0.000 61.250
7 1809 260.750 187300 0.000 68.000 12 1813 237.000 182.000 0.000 61500
8 1809 267.000 187.000 0.000 68.250 1 1814 262.000 194.000 0.000 66.875
9 1809 268.000 188.000 0.000 68.250 2 1814 263.000 199.000 0.000 70.375
10 1809 277.000 194.000 0.000 69.250 3 1814 261300 199.000 0.000 62.750
11 1809 279:000 196.000 0.000 70.000 4 1814 252500 196.000 0.000 67500
12 1809 277.000 195.250 0.000 70.750 5 1814 249500 194500 0.000 67500
1 1810 276.000 188300 0.000 67.875 6 1814 256.000 192300 0.000 67500
2 1810 275500 185500 0.000 67.875 7 1814 2S8.250 194.000 0.000 67.250
3 1810 276.000 186.000 0.000 68.875 8 1814 256.250 194.000 0.000 65.250
4 1810 269300 185.000 0.000 70.125 9 1814 254.000 190500 0.000 65.250
5 1810 262500 192.000 0.000 70.375 10 1814 246300 189.000 0.000 64.250
6 1810 258.000 193.000 0.000 71.250 11 1814 249500 187500 0.000 66.000
7 1810 269.000 186.000 0.000 68.750 12 1814 250.000 187500 0.000 66.125
8 1810 257500 181.000 0.000 68.125 1 1815 257.750 192.000 0.000 65.250
9 1810 255.000 175500 0.000 64.000 2 1815 257500 192.750 0.000 63.875
10 1810 254.000 182.000 0.000 66.000 3 1815 257.000 191.250 0.000 58.250
25® Appendix: End-of-monih share prices
4 1815 230.000 175.500 0.000 57.125 9 1819 230.500 219.000 0.000 69.500
5 1815 228-500 176.500 0.000 59.375 10 1819 213.500 206.500 0.000 66.500
6 1815 230.000 177.000 0.000 59.000 11 1819 216.250 209.000 0.000 67.625
7 1815 229.000 175.000 0.000 56.750 12 1819 217.000 209.000 0.000 67.000
8 1815 225.500 171.500 0.000 56.375 1 1820 222300 208.500 0.000 67.875
9 1815 255.000 171.000 0.000 57.125 2 1820 223.000 214.000 0.000 68.250
10 1815 242300 178.000 0.000 61.000 3 1820 224500 214500 0.000 68.625
11 1815 237500 189500 0.000 61.125 4 1820 223500 218500 0.000 69.500
12 1815 238.000 189500 0.000 60.875 5 1820 224500 219500 0.000 69.625
1 1816 251.000 186500 0.000 61.750 6 1820 219500 221.000 0.000 69.875
2 1816 252.000 181500 0.000 61.750 7 1820 226.000 217.750 0.000 68500
3 1816 251.000 181.000 0.000 60.125 8 1820 221.000 215500 0.000 67500
4 1816 261.750 184.000 0.000 62.375 9 1820 221500 215.000 0.000 66.250
5 1816 224.000 191500 0.000 64.250 10 1820 215500 221.750 0.000 67.875
6 1816 219:000 188.000 0.000 64.250 11 1820 219.000 224500 0.000 69.375
7 1816 220.000 180500 0.000 63.250 12 1820 221.000 224500 0.000 69.625
8 1816 216500 179500 0.000 61.625 1 1821 228.000 228500 0.000 71500
9 1816 216500 182.000 0.000 61500 2 1821 226500 230500 0.000 72.875
10 1816 216500 181500 0.000 61.875 3 1821 226.000 230.000 0.000 71.875
11 1816 218.250 189.000 0.000 63.000 4 1821 223500 230500 0.000 72.375
12 1816 219500 193.000 0.000 63.000 5 1821 232.750 235.000 0.000 76.750
1 1817 225.000 193500 0.000 63500 6 1821 229.750 236.000 0.000 76.625
2 1817 244.000 199.000 0.000 67375 7 1821 230.000 230.000 0.000 74.375
3 1817 247.250 202.000 0.000 71.625 8 1821 236.000 232500 0.000 76.000
4 1817 251500 208.000 0.000 72.125 9 1821 237.000 234.250 0.000 76.375
5 1817 256.000 213.000 0.000 73.125 10 1821 238.500 241.000 0.000 77500
6 1817 274.000 217500 0.000 73.000 11 1821 239.000 240.000 0.000 77500
7 1817 280.000 230.000 0.000 77.750 12 1821 235.000 240.000 0.000 77.250
8 1817 281.250 231500 0.000 79.000 1 1822 238.250 238500 0.000 76.125
9 1817 280.250 239.000 0.000 81.000 2 1822 249.000 247.000 0.000 78.625
10 1817 285.750 239500 0.000 82.375 3 1822 249500 247.000 0.000 79500
11 1817 289500 246500 0.000 83.375 4 1822 237.000 242.000 0.000 78.500
12 1817 290500 247.000 0.000 83.375 5 1822 240.000 239.000 0.000 79.375
1 1818 287.000 240.000 0.000 78.875 6 1822 242500 239500 0.000 79500
2 1818 289500 240.750 0.000 79.750 7 1822 251500 251.000 0.000 80.375
3 1818 284.000 240.750 0.000 78.750 8 1822 252500 251.000 0.000 80.375
4 1818 282.000 236500 (X000 79500 9 1822 252500 252.250 0.000 81.375
5 1818 278500 231500 0.000 79.000 10 1822 251.000 257.000 0.000 82.375
6 1818 279500 232.000 0.000 79.000 11 1822 246.750 257500 0.000 81.125
7 1818 277.000 233500 0.000 77.250 12 1822 246500 252.000 0.000 79.625
8 1818 270.000 225500 0.000 74.000 1 1823 241500 245.000 0.000 76.875
9 1818 268500 225500 0.000 74.625 2 1823 239.000 235500 0.000 73.000
10 1818 274500 233500 0.000 77.625 3 1823 236.000 233.000 0.000 74.375
11 1818 268500 232.000 0.000 78.250 4 1823 214.750 243500 0.000 77.375
12 1818 268.000 233.000 0.000 79.125 5 1823 219.250 251500 0.000 80.750
1 1819 272500 232.750 0.000 78500 6 1823 221.250 251500 0.000 80.875
2 1819 266.000 229.000 0.000 73.000 7 1823 222.250 252.000 0.000 80.750
3 1819 261.000 222.000 0.000 74.250 8 1823 226500 264.250 0.000 82.875
4 1819 250500 220.000 0.000 72.000 9 1823 226.750 265.750 0.000 83.125
5 1819 220.000 211.000 0.000 67.125 10 1823 221.750 263.750 0.000 82.250
6 1819 216.000 210.000 0.000 66.250 11 1823 224.000 268.000 0.000 84.250
7 1819 233.000 222.000 0.000 71.375 12 1823 230500 269.000 0.000 84.125
8 1819 230500 219.000 0.000 71.625
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Index
accepter (of bill of exchange), 6-7, 185, Asia, 118-19, 125, 129, 131, 136, 138-
202 40
actions, 22, 123; actions rentiires, 74 asiento, 52-3
Acworth, William, 223 assignats, 183, 191, 195, 198-200
advertisement, 23, 36 Assurance of Ships, 54
agio, 36, 19211, 195, 298 Austria, 184, 196, 210, 226
agricultural sector, 220 Austrian Netherlands, 183-4, 215, 229
Aislabie, John, 112 Autoregressive Moving-Average (ARMA)
allies, Continental, of Great Britain, 202- models, 81-3, 85-7, 148-50, 168,
3, 205, 214, 217, 225, 229 174-6, 178
Amsterdam, 6-8, 10, 16-18, 20-1, 26-
31, 37-8, 41-4, 63, 65, 68, 70-2, 79-
80, 103-4, 109, 113, 115, 120-1, 132- balance of payments, 190, 192
9, 141-64, 169-71, 174, 177-80, 183- balance of trade, 221
4, 186-7, 190, 192-3, 195, 197, 202, Baltic trade, 131, 205
217, 223, 225-9 Baltimore & Ohio Railway, 174
Amsterdam market (Beurs), 9, 16, 30, 36, banco, 7, 195
38, 43, 141-3, 148, 150-1, 153, 163, bank notes, 69-70
168, 170, 174, I79n Bank of Amsterdam, 195, 198; see also
Amsterdam prices, 152-3, 229 Wisselbank
Amsterdam stock exchange (Effectenbeurs), Bank of England, 12, 15-16, 23, 28-9,
27, 29, 37, 118, 120, 137, 171, 225-7; 38-9, 43, 46-7, 49, 5i, 53, 59, 78-9,
official price list, 226 83, 86, 89-94, 97, 99-101, 104, 106-
Amsterdamers, 115-16 8, n o , 112-13, 115, 117, 126-31,
Amsterdamsche Courant, 29-30, 36-41, 142-4, 146-8, 150, 152, 155-7, 160,
121, 141, 143, 150-1, 153, 163 175, 181, 184, 191, 194, 196-7, 199-
Amsterdamsche Effectenpryslist, 18, 227 202, 205-6, 2 1 0 - n , 214, 217
Anderson, Adam, 51, 62, 76, 89, 105 Bank of England stock, 83-4, 86-7, 113-
annuitants, 92, 94-7, 100, 109 14, 116, 150, 155, 161, 170, 231-57
annuities, 5, 10, 13-15, 18, 28, 38-9, 46, bankers* annuities, 93
51-3, 71, 77, 91-4, 96-101, i n , 113, Banque Generate, 73
128; fixed-term, 92; irredeemable, 94, Banque Royale, 62, 69-73, 75
97-101, 105-6, 109, 117; life, 90, 92; Baring, Alexander, 180, 187
long, 91-3, 97, 99, 102; New South Baring firm, 186-8, 218, 225
Sea, 53, I27n; perpetual, 8, 59, 90-1, Barnard's Act (1734), 150, 152, 154-5
117; redeemable, 93-4, 97, 99-101, Batavia, 135-6, 139
117; short, 97, 100, 102; South Sea, 90, Batavian Republic, 27, 171, 226
102, 117, 147; term, 90, 92, 96; Three "bears," 16, 22, 35, 224-5
Per Cent, 57; transferable, 53 Benfield, Paul, 183-4, 223
annulment of debts, 226 Bengal, 128, 136
Antwerp, 5, 7, 10, 187 beta coefficients, 57, 59-61, 127
arbitrage, 165-9, *75, 178 billets de banque, 69-70, 74
Ashton, T. S., 67, 69, 79, 169-71, 221; billets-livret 73
Ashton effect, 67, 72, 78, 104 bills of exchange, 5-8, 10, 67, 69, 72, 78,
271
272 Index
bills of exchange (cont.) Chetwynd's Bubble (Insurance), 54

90, 132, 136, 141, 184-5, 189-90, Child, Josiah, 123
196, 201-2, 204, 214-15 China, 74, 135-8
Blunt, John, 91, 109 Clifford & Sons, 171
bonds, 50, 106, 170, 172 Cock, S., 2O5n
book credit, 190 Cohen, Hannah, 188
Boyd, Benfield & Co., 183, 186 coins, 74, 136, 187, 195, 217
Boyd, Ker & Cie, 183 Cole, Benjamin, 34
Boyd, Walter, 182-9, 196, 214, 223 Collection for Improvement of Husbandry
British economic growth, 219 and Trade, 17, 22
British Empire, 206 Collegie tot Nut des Obligatiehandels, 29,
British Union-Catalogue of Periodicals, 36 226-7
brokers, 24-6, 28, 32, 34-5, 41, 54, 112, commenda, 44
167, 206, 226 commerce, 136
Bruijn, J. R., 119, 139 communications, 29, 175, 178, 228-9
Brussels, 183-4 Compagnie d' Occident, 68, 73-5, 78, 82-
Bubble Act of 1720, 62, 109 3, n o
bubble companies, 104, 109-10, 113 Compagnie des Indes, 37, 68, 70, 72-6,
bubbles, 13, 62-5, 67, 75-6, 78-9, 82, 81, 83
85-6, 88-90, 97, 101, 105-6, 109, Confusion de Confusiones, 16
i n , 115, 178, 195 consolidated annuities, 211; see also Three
bullion, 68, 136-8, 170, 190, 217 Per Cent Consols
Bullion Committee (1810), 181, 190, 200, Consolidating Act of 1751, 117
205 consols, see Three Per Cent Consols
"bulls," 16, 224 contango, 154-5
Burnet, Bishop Gilbert, 12 Continent, 211, 215, 218, 222, 225, 229
Continental Blockade, 191, 198, 203, 205,
cables, 173-4 216-17
calendar, 38; Gregorian, 42, 65, 14311; Continental System, 182, 200-1, 205-6,
Julian, 42, 65 215, 222
canals, 35, 206, 216, 225 contractor's bonus, 224
Cantillon, Richard, 76 Conversion Acts of 1717, 93
Capital Asset Pricing Model (CAPM), Cope, S. R., 28, 30, 152
125-31, 169 copper, 140
capital levies, 226 Cornwallis, Lord, 184
capital markets, 1-2, 4, 16, 19-20, 38, Cotray, Nicolaas, 27, 29
43-4, 46, 55, 62, 78, 126, 141, 145, cotton, 220
155, 164-6, 168-71, 173-4, 178-81, cotton trade, 137, 188
184-5, 192, 200, 216, 218, 221, 223, country banks, 196
226, 229-30; London, 62, 64, 90, 104, country trade, 140, 184
190 Course of the Exchange, 18-19, 23-4, 26,
capital movements, 71, 147, 162, 168, 28, 30, 32-3, 35-7, 53, 63-5, 80, 83,
179, 181-2, 190, 195, 200, 216, 218, 101, 160, 163, 191, 206, 225, 227
221, 223 Crafts, N. F. R., 219-21
capital stock, 121 Cromwell, Oliver, n , 45
Carswell, John, 68, 70-1 Crouzet, Francois, 2711, 216
Carter, Alice Clare, 164 crowding out, 216, 221
cash prices, see spot prices, 153 currencies, 132, 134, 167, 173, 183, 190,
Castaing, John, 18-19, 23-8, 32-7, 39- 197, 199
41, 54, 63, 101, 107, 152, 191
Castaing, John, Jr., 34 Dahl, Folke, 27
Caswall, George, 91, 106, 109, 115 Daily Courant, 41
centimes, 197 Dampier, William, 1
Charles V, 4-5 David, Paul, 3m
charters (of joint-stock corporations), 52-3, Davis, Ralph, 221
73, 90, 105, 109, 128-9, 139, 142, 152 De la Vega, Joseph, 16, I42n, 153
Chaudhuri, K. N., 119, 135-6 debasement, 68
Index
debentures, 91 Effectenbeurs (Amsterdam), see Amster-

debt, government, 47, 71, 73-4, 77, 89- dam stock exchange
92, 94-6, 105, 110-11, 115, 161, 205, efficient markets, 120, 123, 130, 148,
214, 220-1, 223-5; foreign holdings of, 150-1, 163-4, 168, 224
207-13; short-term, 52, 91 Elector of Hesse, Wilhelm, 189
debtholders, 98, 226 Elizabeth I, 11
Defoe Daniel, 11, 123 emigre's, 181, 192, 195, 218
depreciation, 67-8, 70-1, 74, 79, 195-6 endorsements, 5, 7
Diana (warship), 187 England, 10-14, *7, 26, 44, 55, 62-3,
Dickson, P. G. M., 16, 77, 79, 86-7, 68-71, 75, 80, 83, 90, 104, n o , 141-
105, n o , 135, 147, 152, 160-1, 164 2, 164, 170, 180-1, 184, 186, 189,
Diederiks, Hans, 29 191, 195-6, 200, 210, 214, 223, 229
disagio, 195 equity, 45, 51, 91, 99, 120, 122, 125, 138
discount rate, 125, 167 Erie railroad stock, 173-4, 178
disintegration, 179, 229 Europe, 20, 44, 55, 62-3, 68, 76, 118-
dividends, 9, 15, 17, 41, 43, 50, 52, 54- 19, 131, 132, 135-6, 138-41, 173-4,
5, 74, 86, 91, 101, 125, 128-9, 146, 187, 189, 191, 201, 215, 223, 226,
153-5* 160, 164-5, 206, 214, 222 229-30
docks, 35, 216, 225 Exchange Alley, 17-18, 46, 106
dollar, 173 exchange rates, 18, 23, 25-7, 35, 63-70,
drawee, 6, 7, 184-5, 202 72, 78-9, 83, 90, 103-4, 113, 132-5,
drawer, 6, 7, 185, 202 138, 161-2, 164-5, 167, 169, 172-3,
dry bills, 7 178-9, 182, 190-3, 195-200, 214-15,
Du Pont de Nemours, Eleuthere Ir£n6e, 222
188 Exchequer, 15, 18, 23, 92-3, 96, 112,
Du Pont de Nemours, Pierre Samuel, 182, 117, 201-2
188 Exchequer bills, 196, 217
ducaton, 136 exports, 134, 172, 190, 202-3, 215
ducaton shares, 153
Duguid, Charles, 25 Fairman, William, 128-9
Duke of York, 195 Fama, Eugene, 81, 168
Dutch East India Company, 8, 13, 16-17, Faure, Edgar, 72, 74, 76, 80-1, 83
20-1, 28, 37, 45, 118-41, 152-3, 226 feudal obligations, 180
Dutch investments, 135, 147 filles (Compagnie des Indes shares), 74, 82
Dutch newspapers, 145 financial capitalism, 1, 3-4, 14, 89, 141,
Dutch West India Company, 28, 141 226
financial crises, 163, 166, 169-78; of
Eagly, Robert, 165 1695, 46; of 1708, 46; of 1709-10, 134;
East India bonds, 191 1719-20, 63, 67, 72, 109, 115; of 1745,
East India companies, 18, 230 128, 169-70, 176; of 1763, 169-70,
East India Company (English), 9, n , 13, 175-6; of 1772-3, 169-70, 176, 226; of
21-2, 25, 28-9, 38-9, 43, 45-6, 49, 1793, 169, 171, 176; of 1810, 198, 206;
53-5, 59, 78, 83, 86, 97, 104, 106-8, of 1825, 169, 172, 177, 181; of 1873,
n o , 118-40, 143-4, 148, 150, 152, 169, 172-3, 177-8; of 1907, 169, 177-
155, 158-9, 175, 184, 187, 191, 194, 8
201, 214, 217 financial innovations, 2, 5, 8-9, 14, 17,
East India Company (French), 131 i n , 117, 200, 222
East India Company stock, 43, 78, 83-7, financial integration, 167-8
101, 150, 155, 161, 170, 175, 231-57; financial intermediaries, 4
Additional Shares, 49-50, 59 financial markets, 2, 4, 46, 63, 90, 124,
East Indies, 4, 49 131, 138, 165-7, 201; London, 50
Economic History Institute (Amsterdam), financial revolution, 3-4, 14
34 First Coalition, 202-3
economic integration, 141, 147, 165 Flemish shillings, 132, 134
ecu (crown), 65, 73, 192-3 florins, 121, 136
Edict of Nantes, 45 Fordyce, Alexander, 170
Edward VI, 11 foreign exchange, 25, 69, 80-1, 101, 120,
274 Index
foreign exchange (cont.) Groeneveld, F. P., 79

I34~5» I4O» 165, 168, 171, 183, 192, guilder, 68, 134, 204
206, 229 Guildhall Library, 36
foreign holdings, of English national debt, Guinea Company, 22
211-13
foreign investment, 57, 135, 190, 205, Habsburg Empire, 4, 184
207-10, 211-14, 216-18, 220 Hamburg, 65, 70-2, 79, 170, 183, 185-7,
forward prices, i n , 148, 150, 152-4, I9I-3, 195-8, 203-4
160, 164, 227 Hamilton, Earl J., 3, 37, 78
Fourth Anglo-Dutch war (1780-4), 226 Hanger, John, 115
Franc germinal, 172, 197, 200, 204 Hanover, 195, 215
France, 10, 12-14, 45, 62-3, 68-72, 80, Harley, Robert, 32, 91
83, 90, 94, n o , 142, 170-1, 181-3, Harman & Co., 189
187-92, 197, 202, 205-6, 210, 214-18, Harman, Hoare & Co., 183
222, 225-6, 229 Harsin, Paul, 72
Franco-Prussian War of 1870, 173 Heckscher, Eli F., 9811, 216
Frankel, Jeffrey, 216 Heeren XVII, 9, 139
Frankfurt, 182, 187-8, 225 Heim, Carol, 221
Reke, John, 32-3, 40-1, 54, ioon, 101, Henriques, Joseph, Jr., 79
108; Frcke's Course of the Exchange, Henry VIII, 11
39, 41 Herries, Charles, 183, 189-90
French debt, 218 Herries, John Robert, 183, 189, 205, 214,
French life annuities, 184 216
French Revolution, 19, 171, 180, 182-3, Hesse, 189, 202, 215
191-2, 195, 206, 211, 214, 217, 222; Hessian mercenaries, 201
French revolutionary wars, 138, 151, Hill, James J., 173
181, 189 Hoes, H. J., 29
French Revolutionaries, 211, 215 holding-period returns, 51, 55-8
fundamentals, market, 75-6, 80, 96, 109, Holland, 5, 10, 12, 26, 28, 62-3, 70, 72,
H I , 120, 165 75, 142, 180, 186, 189, 192, 195, 197,
funds (British), 45, 57, 79, 105, n o , 147, 203
153, 181, 189, 195-6, 201, 205, 207- Holy Alliance, 225
n , 217, 224-5 Hope, Henry, 180, 182-4, 186-8, 225;
future prices, 16, 152, 155 Henry Hope & Co., 186; Hope & Co.,
187
Gaastra, F. S., 136 Hope, John Williams, 180, 186
Garraway's Coffee House, 22, 33, 46 Houghton, John, 17-18, 22-3, 25-7, 30,
gazettes, 23, 27 32, 46
General Post-Comptoir, 27 House of Commons, 99, n o - i , 152, 206
General Post-Office, 34 House of Lords, 200
Gentleman's Magazine, 30 Hudson's Bay Company, 22, 46
Germany, 62, 71, 174, 180, 188, 214, 229 Huguenots, 10-11, 27, 34, 45-6, 142
Glamann, Kristof, 119, 135-6
Glorious Revolution of 1688 (England), 17, Illinois Central railroad, 173, 178
90 "Imperial Loans," 183-4, 196
gold, 18, 64, 66, 70, 72, 128, 136, 169, imports, 140, 201, 214-5
173, 189, 191, 196-9, 217; export and India, 74, 184
import points, 196 Indian debts, 129
gold standard, 168, 182, 199, 206 Industrial revolution, 5, 19, 181-2, 191,
Goldsmids family, 188 218, 222
goldsmiths, 14, 92, 94, 96 inflation, 3-4, 68-9, no, 169, 199, 220,
Gould, Jay, 173 226
Great Britain, 181-3, 190-1, 199-203, information network, 30-2, 143
205-6, 214-18, 220-5, 229-30 insurance, 35, 54, 109-10, 187, 225
greenback dollar, 173 integration (market), 145, 163-6, 168,
Greenland fishery, 53 173, 175, 178-9, 229-30
Greffiilhe, J. L., 205 interest book, 25
Index
interest, rates of, 3, 7-8, 11, 13-15, 5 2 - London Assurance Company, 53-4, 124
3, 72-3, 75-6, 93-4, 96, 101, 105, London Course of the Exchange, 34
117, 132, 136, 165-7, 169-70, 173, London dock company, 217
189-90, 217, 221 London East India Company, 49
international date line, 1-2 London Gazette, 21
investment, 80, 94, 113, 124, 174, 190, London Post, 30
205, 214, 216, 219-22 London Stock Exchange, 150, 163, 168-
investors, 44, 75, 78, i n , 220, 229; 74, 178, 197, 205-6, 211, 223-5, 227;
Dutch, 30, 106, 113, 115, 117, 145, Committee for General Purposes, 225;
170, 201 Committee of Proprietors, 224; regula-
Ireland, 10, 224 tions of, 225
iron, 46, 216 London Times, 172, 174, 197
irrational bubbles, 76 Lord Chetwynd's marine insurance com-
irredeemables, see annuities, irredeemable pany, 54
Islamic expansion, 44 Lord North, 147
Italian financiers, 44 Lottery Loans: annuities, 95; of 1710, 94,
97, 100; of 1711-12, 93
Jackson, Edward, 34 lottery tickets, 23, 51-2
Jefferson embargo of 1808, 211, 217, 222 Louis d'or, 73
Jews, 7, i o - n , 16, 142 Louis XIV, 45
joint-stock companies, 14-15, 17-18, 25, Low Countries, 104, 182
44-6, 51, 62, 76, 79, 90-1, 93, 96, Luethy, Henri, 74, 78, 83
109, 118, 120, 123-4, 141-2, 161, lustrings, 46
168, 225, 230
joint-stock land company, 188 Maandelijksche Nederlandsche Mercurius,
Jonathan's Coffee-house, 23-5, 33, 46 29
Machado, Mose, 14m
Keyser, Henrik de, 227 Machlup, Fritz, 166, 179
Kindleberger, Charles P., 67, 76, 79, 171; mail, 20, 26, 33, 229; packet boats, 20,
Kindleberger effect, 67, 70 26, 41, 145
Korte, J. P. de, 119 manufacturing sector, 220
marine insurance, 211; marine assurance
Laborde, marquis de, 183 companies, 53-4, 109
Labouchere, Pierre, 180, 186 market fundamentals, 82-3, 86, 88, n o ,
Lambert, Jean, 78 120
Latin America, 18211, 221 market integration, 160, 167, 169, 175-6
Law, John, 39, 62, 68, 70, 72-6, 78, 81, martingale, 80
83, 94, 154, 182, 197, 210 Marx, Karl, 164
Le Moniteur Universel, 172 Mary I, 11
ledger books, 9, 15, 93, 99, 141 MCusker, John J., 27n, 34-5
Lestapis, A. P., 187 Medina, Joseph de and Solomon de, 14211
Levant Company, 44 Mediterranean, 44, 139, 205
Levasseur, Emile, 83 mercenaries, 202
"Liberate Gift," 29 Merchant Adventurers company, 44
Licensing Act (1663), 21 merchant bankers, 7-8, 12, 180, 185,
limited-liability partnerships, 44 189-90, 205, 215
liquidity, 169-71, 204, 224 merchants: British, 172, 202; Dutch, 214;
livre tournois, 65, 68-71, 73, 192, 195,198 London, 152, 168, 201
Lloyd's List, 18, 30, 34, 36, 191, 227 Merchants Remembrancer, The, 21
Lloyd's of London, 54, 187 Mercy-Argenteau, Count, 183
London, 6-8, 10, 17-18, 20-8, 30, 37- mires (Compagnie des Indes shares), 74
4i, 43-5, 54-5, 64-5, 67-72, 77-80, Million Bank, 46, 51-2, 59, 104, 124
101, 103-4, 106, 112-13, 118, 120-1, Million Lottery Loan of 1694, 14, 51
128, 132-5, 138, 141-64, 169-74, Mines Royal Company, 54
177-80, 182-4, 186-9,192-3, 195, mint, Mexican, 187
197-8, 200-2, 204-5, 214-15, 223, mint par ratios, 132-5, 155, 161, 19211,
225-9 196, 198
276 Index
Mirowski, Philip, 124, 131, 164-50, 221 Parish, John, 183

Mississippi Bubble, 13, 18, 39, 62, 65, Parliament, 52, 59, 69, 89, 99, 112, 128,
69-70, 73, 77, 80-1, 83, 90, 123 143, 196, 206, 211, 214, 216
Mississippi Company, 80 Parsons, Brian, 41
Mississippi stock, 76 partnerships, 54
Mokyr, Joel, 220-1 payee, 6-7, 185, 202
Mollendorf, General, 195 payer, 6-7, 185, 202
money prices, 167 Peace of Amiens (March 1802), 186
money subscriptions, 100 Pels, Andrew, & Sons, 115
Moors, 10 Peninsular Campaign, 197, 205-6
Morgenstern, Oskar, 167-9 pepper, 135
Morineaux, Michel, 37 petites-filles (Compagnies des Indes
mortgages, 90, 106, 112 shares), 74
Murphy, Antoin E., n o Philip II, 4
Pichegru, General, 195
Napoleon, 182, 187-9, 191. 198, 200-1, Pigafetta, Antonio, 1
203-5, 211, 215-16, 222, 229 Pitt, Thomas, 78
Napoleonic period, 146, 226, 228-9 Pitt, William, 184-5, 188-9, 195, 200,
Napoleonic Wars, 187, 189-90, 200, 218 202; income tax of 1798, 165
national debt, 52-3, 73, 90, 147, 164; Plassey, Battle of, 132
British, 206, 211, 222 Platt, D. C. M., 218
Neale, James, Fordyce, and Down (firm Portuguese, 3, 13, 16, 131
of), 170 Portuguese Jews, 79
Neale, Thomas, 14 possessor, 6-7, 185
Netherlands, 5, 63, 79, 113, 134-6, 146, post offices, 27
180, 215, 229 Postlethwayt, Malachy, 119
network technologies, 31 pound Flemish, 204
New Company, 49, 123 pound sterling, 68, 71-2, 79, 104, 132,
New East India Company, 49, 91, 142 134, 138, 154, 161-2, 170, 173, 185,
New River Company, 46, 109 190, 192, 195-8, 200, 203-4, 215,
New York, 28, 169, 173-4, 177 217-18, 222; see also paper pound
New York Stock Exchange, 168, 174, premium, 167
178-9 price currents, 21-2, 27, 226
newspapers, 54; Dutch, 27-30, 37; En- price indexes: J. G. Williamson, 199;
glish, 27, 30 Schumpeter-Gilboy, 199
Nieuwe Handel-Societeit, 227 price lists, 23, 26, 28-30,35,152,171,225
Nolte, Vincent, 187 Price of All Stocks, 101
North, Douglass C , 21 Price Of the Several Stocks, Annuities, And
Northern Pacific Railway, 173 Other . . . , 32
notes, 106 price revolution, 2
Price, Jacob, 22, 25
obligations, 229 prices, share, see stock, prices of
Oglethorpe family, 78 Prijs-Courant der effecten, 29n
Old Company, 123 Printing Act of 1663, 21
Old East India Company, 49 profit inflation, 3
Onslow, Lord, 54; see also Royal Ex- profit rates, 123-5, 148, 178
change Assurance Protestants, 7, 10, 12
options, 16, 81, 150, 152-3 Prussia, 170, 202
orphans, 46, 59 puts, 16, 26, 28, 153
Ouvrard, G. J., 187
Quincampoix, rue de, 70
paper pound, 181-2, 191, 196, 198, 216-
17, 222 railroad shares, 168-9, 173-4
Paris, 20, 37, 39, 64-5, 67-9, 72-3, 75, Ram, Stephen, 54
77-9, 106, 169, 172-4, 177, 179, 182- random walks, 150-1, 164, 168, 178
9, 191-3, 197-8, 225-6, 229 rational bubbles, 75-8, 80-2, 87-8, i n ,
Parish, David, 187 124
Index 277
rechange, 7 shareholders, 127-8, 167

recoinage, 128 shares, 8-10, 12-13, 15-18, 22-4, 39,
redeemables, see annuities, redeemable 45-6, 49, 51-2, 54, 59, 68-70, 74-8o,
reexports, 140, 203 82, 90-1, 93, 96, 98-9, 104, 106, n o ,
refugees, 11-12 115, 118, 120-1, 124, 131, 135, 141-
refuses, 16-17, 26, 28, 153 3, 152-3, 160, 167-8, 176, 179, 188,
Regency of Louis XV, 73 224
registration of annuities, 100 Shergold, George, 34-5
Regulating Act of 1772, 129 Shergold, Richard, 34
religious minorities, 10-11 sight rates, 132
remittances, 181, 184-5, 1%1> l9& Silberling, Norman J., 217
remitter, 6, 7, 185 silver, 3, 18, 37, 64, 69, 73, 136, 138,
rentes, 12, 74, 172-3, 178 191, 195, 198
reparations, 200, 218, 222, 225 slaves, 52
Republic of Batavia, 146 Smart, William, 172
rescounter, 28, 153, 229 Smith, Payne & Smith, 187
Restoration, 11 Smith, V. Kerry, 165
Restriction of 1797, see paper pound Smith, Woodruff, 20
resumption of convertibility, 181-2, 188, Smithson, Peter, 35
206 societas maris, 44
Ricard, Jean-Pierre, 119 South America, 37, 52, 172
Ricardo, David, 188, 224 South Sea Bubble, 10, 13, 15, 18, 37, 39,
Riley, James G., 170-1 41, 47, 49, 53-4, 62-3, 65, 70-2, 76,
risk, 44, 51, 59, 61, 125-30, 167, 186-7, 78-80, 85, 87-90, 104, 110-13, 124,
221 134, 147, 151
Rogers, J. E. T., 36 South Sea Company, 13, 29, 32-3, 38-9,
Rothschild, James, 189 46, 51-5, 62, 69, 71-3, 77-8i, 83,
Rothschild, Nathan Meyer, 182, 188-9, 85-6, 89, 91-2, 94-9, 104-12, 115,
225 117, 128, 142-3, 145, 155, 214; stock,
Rotterdam, 27, 139 28, 41, 43, 49, 53, 70-2, 77, 83-6, 88,
Royal African Company, 21-2, 46, 50-1, 90, 92, 94-8, 100-2, 104-6, 109, n i -
53-4, 59 13; subscriptions, 99-101, 104-6, 109,
Royal Exchange, 18, 26, 67 112, 115, 123
Royal Exchange Assurance Company, 53-4 Southern Pacific Railway, 174
Russia, 205, 211 Spain, 3, 37, 92, 180, 187
Spanish Empire, 13, 52, 91, 205
Salomon family, 188 specie, 67, 69-70, 106, 138, 181, 195-6,
savings, 219-20 202, 221
Sawbridge, Jacob, 106, 109 specie points, 134
schellingen banco, 65, 71, 132, 192-3, speculation, 41, 67, 69-70, 75-7, 151,
I97n 163, 173-6, 217, 221
schillingen banco, 65, 71, 192-3 speculators, 26, 59, 68-71, 78-81, 100-1,
scire facias, 109 104, 106, 109, i n , 124, 136, 148, 155,
Scotland, 171, 196 181
Scott, W. R., 18, 36, 44, 46-7, 50-2, 54, spices, 137, 140
68, 77, 85, 105, n o spot (money) prices, 101, i n , 151, 154-
secularization, 215 5, 160, 163, 174, 227-8
securities, 32, 55, 79, 90, 134-5, 147, St. Petersburg, 174, 187
152-3, 167-8, 170, 172-4, 178-9, Standing Orders, 15, 92-5
183, 191, 222, 224-6, 229; American, Staple company, 44
28, 35, 173, 178, 225; British, 27-8, Stationer's Office, 33-4
30, 35, 41, 90, 147-8, 151, 160, 162- Steensgaard, Niels, 118-19, I4°
3, 170, 187, 227, 229; French, 183 Stigler, George J., 21
seigneurial dues, 180 stock market index (London), 47-8, 54-5
sequestration, 189, 206, 211 stock markets, 1, 13, 17, 32, 41, 45-6,
Seven Years' War, 35, 128, 131-2, 138- 55, 57, 62-4, 68-70, 94, 96, 105, 112,
40, 150, 201, 211 115, 120, 130, 134, 138, 140, 142, 165,
278 Index
stock markets (cont.) transfer books, 9, 15-16, 51, 86, 90-1,

167-8, 172, 174, 179, 192, 199-200, 93, 96, 99, 101, 105, i n , 113, 136,
221, 223, 226, 229; French (see also I48n, 152, 160
Quincampoix, rue de), 70, 179; London, treasure, 135, 137, 187
16-17, 21, 23, 35-8, 43, 47, 49, 54, Treasury, British, 129
59, 90, 93, 109-11, 118, 124, 126, Treasury, U.S., 173
141, 143, 148, 150, 152, 163-4, 172, Treaty of Amiens, 203, 215, 227
184, 194, 206, 218, 223-4 tribute, 118
stock price lists, 23, 26-7, 32-3 Turner, Elias, 106, 115
stock, mortgaged, 105
stock, prices of, 22-3, 36-9, 64, 90, 120- United East India Company, 142
1, 123, 127-8, 130-1, 141, 143, 146, United States of America, 174, 182, 187-
151, 163, 169, 174, 182, 227, 231-57 8, 206, 211, 216, 220, 230
stockbrokers, 46, 91, 112, 150 usance, 65, 70, 72, 132, 134, 191, 195
stockholders, 139 Utrecht, Treaty of, 52, 93
stockjobbing, 105, 188, 206
Strode, Samuel, 112
subscription, 224 van der Wee, Herman, 5
subsidies, 181, 187, 195, 197, 200, 203-4 van Dillen, J. G., 28, 36-8, 143, 153,
suspension of convertibility, see paper 163-4
pound Veuve Nettine & Fils, 183-4
Vienna, 174, 184, 188, 225, 229
Sutherland, Lucy, 11, 129
Viouja, Francis, 34
Sword Blade Company, 72, 105-6, 109-
volatility, 122, 126-7, 200
10, 115
Voute, Robert, 186
syndicates, 224
tariffs, 215 Walckiers, Edouard, 183

Taunton-Dean Letter, 32 Walpole, Robert, 55, 89, 93-4
taxes, 2, 5, 19, 125, 140, 165, 167-8, war finance, British, 201, 214, 217
179, 215, 226 War for American Independence, 35, 150,
tea, 135-7 171, 211, 218
telegraph, 229 War of the Austrian Succession, 134, 138,
telephone, 229 150, 161, 164, 170
term prices, 167, 174; see also time prices War of the Grand Alliance, 92, 201
termijnhandel, 227 War of the League of Augsburg, 12, 20,
textiles, 138 46, 142
Third Coalition, 203 War of the Spanish Succession, 12-13, 20,
Thirty Years' War, 10, 12 46, 52, 54, 77, 90, 92-3, 134
Three Per Cent Bank Annuity, 14 waterworks, 35, 46, 109, 206, 216, 225
Three Per Cent Consols, 14, 51, 117, 126, Wellington, Duke of, 187, 189, 199, 205-
128, 183, 187, 189, 191, 194, 201, 206, 6
211, 217, 222, 228 West Indies, 4, 52
Three Per Cents of 1726, 117 Wetenhall, Edward, 35, 225, 227
time prices, 101, 104, 111, 152, 227-8; Whiston, James {Merchants Re-
see also forward prices membrancer), 21—2
Tirole, Jean, 81, 85 Willem I, 226, 229
toll roads, 216 William III, 10-11, 14, 17, 45, 55, 92,
Tracy, James, 5 142, 201
trade, 118-19, 124-5, 131» 134-41, 147, Williamson, J. G., 220-2
165, 175, 180, 190-1, 198, 200, 203, Wilson, Charles, 147, 164
205, 210, 215-16, 218, 221-2, 227 Wisselbank (Amsterdam), 7, 36
trade credit, 201, 205 Woolley, Robert, 21-2
transactions costs, 167, 175 Wymondesold, Matthew, 112
transfer (international), 67, 152, 180, 182,
184, 187, 190, 203, 214-16, 230 York Buildings Company, 54, 109

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The rise of

EDITORS: Michael Bordo and Forrest Capie

Barry Eichengreen, Elusive Stability: Essays in the History of

© Cambridge University Press 1990

Library of Congress Cataloging-in-Publication Data available.

Transferred to digital printing 2002

teenth Century," Journal of Economic History, 47(March 1987), pp. 9 7 -

disturbances that destroyed and created private fortunes in apparent chaos.

The origins of financial innovations

buyer of a bill (drawee, or remitter) purchased it from the drawer, a

course, on the willingness of the Amsterdam merchant banker who had to

Figure 1.2. The foreign bill of exchange as a means of credit.

proceeds of the bill drawn on Amsterdam (Figure 1.2, Amsterdam side).

Diffusion of financial innovations

long-distance trade. Not only were the mental horizons of Europeans

These forced movements of tightly knit communities repeatedly along

The financial revolution in England

The origins of international capital markets

rise of an active, well-organized stock market in Amsterdam to the nature

Houghton appended copies of a "Course of the Exchange" (22 May

Woodruff D. Smith, "The Function of Commercial Centers in the Modernization of Euro-

Douglass North's theory of transactions costs and George Stigler's theory

The earliest stock price lists in London

Houghton made it clear that his primary audience lived in London or

to trantfer in Bank tat Tuefdays 4n</

Figure 2.1. Castaing's Course of the Exchange, 11 January 1698.

quarter" (26 May 1699). He also mentioned a complementary publication:

The earliest stock price lists in Amsterdam

Huguenots throughout the Continent, given Castaing's origins.15 It is pos-

the "Liberate Gift," a voluntary capital levy, of that year.23 It is at least as

perhaps reflecting the renewed interest by Dutch investors in English se-

The rise and fall of competing price lists in London

market newsletters and investment services tailored to specific groups of

to acquire knowledge, consumers are likely to concentrate on one kind of

made, directly or indirectly, to Castaing or his brother-in-law, Edward

The reliability of the Course of the Exchange

Exchange. Nevertheless, his recapitulation of 1,676 observations on as

the price movements of these securities on the Amsterdam Beurs closely

Castaing - Freke's Course of Exchange

Lag BofE EIC SSC

3 0.64 1.73 0.72

6 0.60 1.38 0.77

3 0.44 0.72 0.27

6 0.43 0.84 0.35

3 1.00 1.86 0.73

higher on average. This is because Amsterdam prices were time prices

"points of detail" in the organization of these companies lies in whether or

of the Huguenot connections. A stock market boom occurred in the

Figure 3.1. London stock price index, end-of-month prices, 1698-1708.

Figure 3. 2. London stock price index, end-of-month prices, 1709-19.

140 - June 33 - 140

120 - ' '-120

Additional Shares was £20. There is no record of dividends being paid on

market" that those restrictions created were exploited by outsiders, as had

change Assurance was the continuation of the Assurance of Ships joint-

was astonishingly dull by any standard, with only a mild disturbance in

Figure 3.4. Holding-period returns for balanced portfolio, 1698-1708.

Figure 3.5. Holding-period returns for balanced portfolio, 1709-19.

Figure 3.6. Holding-period returns for balanced portfolio, 1724-34.