Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-27T20:56:26.278Z Has data issue: false hasContentIssue false
  • English
  • Français

Interest Reductions in the Politico-Financial Nexus of Eighteenth-Century England

Published online by Cambridge University Press:  13 September 2011

Christophe Chamley
Christophe Chamley*
Affiliation:
Professor, Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215; and Directeur d'Etudes (EHESS), Paris School of Economics, Ecole Normale Supérieure, 48 bd Jourdan, 75014 Paris, France. E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

In the 1730s and 1750s the English government proposed to refinance the redeemable debt by “lowering the interest rate.” In the ensuing coordination game among creditors, large investors like the Bank of England could block the policy change by demanding cash. Using 4 percent and 3 percent annuities prices to analyze market expectations, this article studies two refinancing episodes with very different fates. Lord Barnard failed in 1737 because his terms were too strict and financial agents induced a temporary market crash. Lord Pelham succeeded in 1750 because his better terms fit market prices, and interest rates had fallen much faster than expected.

Type
ARTICLES
Information
The Journal of Economic History , Volume 71 , Issue 3 , 13 September 2011 , pp. 555 - 589
Copyright
Copyright © The Economic History Association 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Abrahamson, Mark, Jenkinson, Tim, and Jones, Howard. “Why Don't U.S. Issuers Demand European Fees for IPOs?” Journal of Finance, forthcoming, 2011.Google Scholar
Alvarez-Nogal, Carlos, and Chamley, Christophe. “Debt Policy Under Constraints Between Philip II, the Cortes and Genoese Bankers.” Mimeo, Boston University, 2011.Google Scholar
Barro, Robert J.“Government Spending, Interest Rates, Prices, and Budget Deficits in the United Kingdom, 1701-1918.” Journal of Monetary Economics 20, no. 2 (1987): 221–47.Google Scholar
Brennan, Michael J., and Eduardo, S. Schwartz. “Convertible Bonds: Valuation and Optimal Strategies for Call and Conversion.” Journal of Finance 32, no. 5 (1977): 1699–1715.Google Scholar
Cecco de, Marcello. “The Italian National Debt Conversion of 1906.” In Public Debt Management: Theory and History, edited by Dornbusch, Rudiger and Draghi, Mario, 263–92. Cambridge: Cambridge University Press, 1990.Google Scholar
Chamley, Christophe.“Interest Reductions in the Politico-Financial Nexus of Eighteenth-Century England.” Mimeo, Boston University, 2011. Dowloadable at http://people.bu.edu/chamley/papers/reduction.pdf.Google Scholar
Chen, Hsuan-Chi, and Ritter, Jay R., “‘The Seven Percent Solution’.” Journal of Finance 55, no. 3 (2000): 1105–31.CrossRefGoogle Scholar
Cobbett, William.The Parliamentary History of England from the Earliest Period to 1806, Vol. 10, (1737-1739). London: Hansard, 1812.Google Scholar
Cochrane, John H.“Review of Famous First Bubbles: The Fundamentals of Early Manias by Peter M. Garber.” The Journal of Political Economy 109, no. 5 (2001): 1150–54.Google Scholar
Dickson, Peter G.M.The Financial Revolution in England. London: Macmillan, 1967.Google Scholar
Grellier, J.J.A History of the National Debt. London: John Richardson, 1810.Google Scholar
Grellier, J.J.The Terms of All the Loans Which Have Been Raised for the Public Service, 3rd edition. London: John Richardson, 1812.Google Scholar
Harley, Charles K.“Goschen's Conversion of the National Debt and the Yield on Consols.” Economic History Review 29, no. 1 (1976): 101–06.Google Scholar
Ingersoll, Jonathan E.“An Examination of Corporate Call Policies on Convertible Securities.” Journal of Finance 32, no. 2 (1977): 463–78.CrossRefGoogle Scholar
Klovland, Jan Tore.“Pitfalls in the Estimation of the Yield on British Consols, 1850-1914.” The Journal of Economic History 54, no. 1 (1994): 164–87.Google Scholar
Marco, Pilar, and Vam Malle-Sabouret, Camila. “East India Bonds, 1718-1763: Early Exotic Derivatives and London Market Efficiency.” European Review of Economic History 11, no. 3 (2007): 367–94.Google Scholar
Mirowski, Philip.“What Do Markets Do?” Efficiency Tests of the Eighteenth-Century London Stock Market.” Explorations in Economic History 24, no. 2 (1987): 107–29.CrossRefGoogle Scholar
Quinn, Stephen.“Securitization of Sovereign Debt: Corporations as a Sovereign Debt Restructuring Mechanism in Britain, 1694 to 1750.” Mimeo, Texas Christian University, 2008.Google Scholar
Shiller, Robert J.“The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure.” Journal of Political Economy 87, no. 6 (1981): 1190–1219.CrossRefGoogle Scholar
Stasavage, David.Public Debt and the Birth of the Democratic State. Cambridge: Cambridge University Press, 2003.Google Scholar
Stasavage, David.“Partisan Politics and Public Debt: The Importance of the Whig Supremacy for Britain's Financial Revolution.” Mimeo, New York University, 2006.Google Scholar
Sussman, Nathan, and Yafeh, Yishay. “Constitutions and Commitment: Evidence on the Relation Between Institutions and the Cost of Capital.” Mimeo, Hebrew University of Jerusalem, 2003.Google Scholar
Sutherland, L.S.“Samson Gideon and the Reduction of Interest: 1749-50.” The Economic History Review 16, no. 1 (1946): 15–29.Google Scholar
The American Finance Association. “Why Don't U.S. Issuers Demand European Fees for IPOs?” by Mark, Abrahamson, Tim Jenkinson, and Howard Jones, June 2011.Google Scholar
The Course of the Exchange, various issues.Google Scholar
The Gentleman's Magazine, various issues since 1737.Google Scholar
United Kingdom, Parliamentary Papers. Accounts of Public Income and Expenditure of Great Britain, 1688-1868, Vol. 35, 1868–69.Google Scholar
United Kingdom, Parliamentary Papers. History of the Funded Debt from 1694 to 1786, Vol. 52, 1898.Google Scholar
Vasicek, Oldrich.“An Equilibrium Characterization of the Term Structure.” Journal of Financial Economics 5, no. 2 (1977): 177–78.CrossRefGoogle Scholar
Velde, François R., and David, R. Weir. “The Financial Market and Government Debt Policy in France, 1746-1793.” The Journal of Economic History 52, no. 1 (1992):1-39.Google Scholar
Weiller, Kenneth J., and Mirowski, Philip. “Rates of Interest in Eighteenth-Century England.” Explorations in Economic History 27, no. 1 (1990): 1–20.Google Scholar
Willard, Kristen L., Guinnane, Timothy W., and Harvey, S. Rosen. “Turning Points in the Civil War: Views from the Greenback Market.” American Economic Review 86, no. 4 (1994): 1001–18.Google Scholar