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The Day the King Defaulted pp 1–20Cite as

Palgrave Macmillan

Bankers Then and Now

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Abstract

Offers an overview, motivation and very brief outline of the story of the Stop of the Exchequer in the year 1672. It begins by contrasting the fate of the goldsmith-bankers in Restoration England with that of the financiers who were part of the financial crisis of 2007–2008. Explains the balance-sheet mechanics of how and why the seventeenth-century goldsmith-bankers ran into financial difficulties and also offers an overview of the remaining chapters in the book.

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Notes

  1. 1.

    See Appendix A for a listing of the CEOs in 2007, their compensation and the fate of their institution, as well as how many ended up in jail or prison. Spoiler alert: none did.

  2. 2.

    See Turner (2016) and his forward-looking suggestions on how to avoid another financial and banking crisis, such as raising capital requirements for banks, and so on.

  3. 3.

    My main source for the list of London bankers of the time is Price (1970), although it seems that some of the dates (birth, death and such) are a bit off.

  4. 4.

    According to the (old) Julian calendar that was still being used in England at the time, although I will take the year (1972) to begin in January and will refrain from using the cumbersome 1671–1672 for the period from January to March.

  5. 5.

    Yes, there have been a few episodes of interest payment delays, especially in times of war, but never a formal default as it was declared in 1672.

  6. 6.

    See Gleeson-White (2013) for the history of double-entry accounting, which was known and practiced centuries prior.

  7. 7.

    See Geist (2013) for a review of the history of usury laws and attitudes. I’ll return to the interest rate calculations in Chaps. 5 and 6.

  8. 8.

    In reference to the book Lords of Finance: The Bankers Who Broke the World (Ahamed, 2009) about the central bankers in the 1920s, who, the author claims, caused the Great Depression after a series of bad policies and decisions.

  9. 9.

    See Atwood (2008).

  10. 10.

    See the research by White (2007) for more information about the (astonishing) number of people who declare personal bankruptcy in the United States every year. It is higher than the number of people who graduate from college, get divorced or are diagnosed with cancer.

  11. 11.

    See Hoppit (1987) for a starting reference.

  12. 12.

    For more reasonable and serious recommendations, see Admati and Hellwig (2013) or Turner (2016).

  13. 13.

    For example, there is no mention of the “stop” in Reinhart and Rogoff (2009), although they do mention (on p. 87) English defaults in the year 1340, 1472 and 1594. Likewise, Kindleberger and Aliber (2005) pay the “stop” no attention in their review and discussion of major historical financial crises. Even the great Adam Smith in his landmark The Wealth of Nations appears to make no reference to the event. See Smith (2000). In their historical compendium of interest rates, Sidney Homer and Richard Sylla devote a few sentences to the “stop” in the context of seventeenth-century interest rates. See Homer and Sylla (2005).

  14. 14.

    See Hume (1778) Volume VI, Chap. LXV, p. 253.

  15. 15.

    See entry for March 12, p. 606 (Evelyn, 1955). I should note that evoking the cliché of “widows and orphans” to justify or criticize any action should be treated with skepticism. It is often used in a polemic manner when direct evidence of harm is lacking. Evelyn’s accounts in particular must be read and treated with caution, according to historians.

  16. 16.

    See Roseveare (1991) and p. 22 in particular.

  17. 17.

    I should note that the current view among leading historians, see, for example, Hoppit (2002), is that that scandal and tragedy of the South Sea Company in 1702 has been exaggerated in terms of both its impact on the real economy and the magnitude of financial loss. In the words of Julian Hoppit, the Bubble has itself been bubbled.

  18. 18.

    This affected not only bank depositors but even pensioners and retirees in unrelated schemes. See, for example, Lewin (2003). Mentions of The Stop appear in the social and literary references of the 1670s; see, for example, Spurr (2000).

  19. 19.

    I suspect that Italian and Chinese scholars have a different view on the origins of paper money.

  20. 20.

    The “stop” gets a token mention in Niall Ferguson’s book, The Ascent of Money (Ferguson, 2008), on p. 76, or in the book by Robert Wright, One Nation Under Debt (Wright, 2008), on p. 22. So, modern historians and writers certainly know about this episode.

  21. 21.

    See Tomalin (2002) for a wonderful overview and analysis of Samuel Pepys, his life and times. She also makes an interesting claim that Pepys (also) knew about The Stop in advance and managed to get his treasury orders paid before the default.

  22. 22.

    See the related and readable book by Drelichman and Voth (2014), in which they make the argument that King Philip’s bankers actually expected these defaults and were jointly sharing the risks of the loan by charting suitable interest rates. There are many important differences between the Spanish and English cases. For example, the Genoese bankers certainly did not end up in prison or disgraced.

  23. 23.

    See the very entertaining book Devil Take the Hindmost by Chancellor (1999), as well as the recent book Money Changes Everything by Goetzmann (2016).

  24. 24.

    For example, see the very entertaining book by Balen (2002), as well as Dale (2004) or Carswell (1960) or Kindleberger and Aliber (2005). Note that the meltdown or deflating of the stock price bubble took place during the years 1720–1722.

  25. 25.

    See Bruner and Carr (2007).

  26. 26.

    See Silber (2007).

  27. 27.

    The most entertaining and enduring account is provided by Galbraith (1997). See also Bernstein (1996) for a captivating story of risk over the ages.

  28. 28.

    See Graeber (2011) for an excellent and perhaps overwhelming account of the origins and development of debt and debt instruments over the last 5000 years.

  29. 29.

    For that angle, see Wennerlind (2011) and his intriguing claim that threats and fear of violence were an important ingredient in establishing credit markets.

  30. 30.

    See, for example, the best-selling book by Acemoglu and Robinson (2012), the widely cited article by the Nobel Prize-winning economist Douglas North (North & Weingast, 1989), as well as Quinn (2001) and Neal (1990).

  31. 31.

    My response was: “Yes, but only a handful of people alive today—outside of academics—have heard of the story.”

  32. 32.

    See Shaw (1904), and in particular the introductions to the many volumes of Treasury records that he edited. Another important source is Chandaman (1975), who corrects many of the errors and inconsistencies in the work of Shaw (1904), and whose numbers I use for some of King Charles II’s expenditures.

  33. 33.

    See Browning (1929, 1966).

  34. 34.

    See Richards (1927, 1929), important sources and authors I’ll return to later on.

  35. 35.

    See Horsefield (1982), who expands the analysis to the “community at large” but with ample reference to Richards (1929) as the “fullest record available.”

  36. 36.

    See Roseveare (1991), as well as the earlier Roseveare (1973).

  37. 37.

    See Chap. 3, and in particular pp. 60–70.

  38. 38.

    See also the book by Brewer (1988) on the relation between financial matters and England’s power in the eighteenth century, as well as the records collected by Dickson (1967), which is another classic.

  39. 39.

    See Iddesleigh (1887) as an example of a highly exaggerated (aka “Whig”) version of events. More on the Whigs versus the Tories and how an eighteenth- and nineteenth-century author’s political affiliation might have affected the telling of the story of “The Stop” will come in Chap. 6.

  40. 40.

    For those (English) readers who had enough of this in grade school, feel free to skip ahead to Chap. 3.

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  1. Schulich School of Business, York University, Toronto, Ontario, Canada

    Moshe Arye Milevsky

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Milevsky, M.A. (2017). Bankers Then and Now. In: The Day the King Defaulted. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-59987-8_1

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