Abstract
Introduces the main borrowing instrument that were the cause of the Stop of the Exchequer in 1672—the collateralized treasury orders (CTOs) and the payment system introduced by George Downing. Explains the history of CTOs and how they worked, and covers various administrative aspects of the Exchequer. Offers a valuation model for CTOs using a modern-day approach to balancing financial risk and return using the concept of a Poisson arrival process. Ends by discussing whether bankers charged “too much” for lending money.
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Notes
- 1.
See the Additional Aid Act 1665.
- 2.
- 3.
See also Post Boy, Flying Post and the Collection for Improvement of Husbandry and Trade.
- 4.
Source: C. D. Chandaman (1975), The English Public Revenue: 1660–1688, p. 296, as well as Nichols (1971), which describes the fact that companies such as the Royal African Company were able to borrow at rates lower than those of the government, in contrast to the modern days, in which the government rate is considered risk free and all other corporate rates are higher.
- 5.
See Coleman (1963).
- 6.
For a careful economic analysis of tax farming in England (as well as in France) during the seventeenth century, see the article by Johnson and Koyama (2014), in which they also reference the suspension of farming in September 1671, which was a few months before the “stop.”
- 7.
- 8.
See Nichols (1971), p. 83.
- 9.
Although this was never stated explicitly, it is implicit. See, for example, Horsefield (1982) and his comment on top of p. 514.
- 10.
- 11.
Very roughly speaking, the £936,000 plus 6% interest (plus a fudge factor) is approximately equal to the £1,000,000. My objective here is to keep the numbers round and simple.
- 12.
For the more mathematically inclined reader, a brief mathematical model is available in the technical document listed in the references as Milevsky (2017).
- 13.
This is the CDF (cumulative distribution function) of the corresponding Poisson distribution.
- 14.
Quoted on p. 295 of the Shaftesbury biography by Haley (1968).
- 15.
Louis XIV revoked the Edict of Nantes in 1685 and many Huguenots (including de Moivre) sought refuge in England.
- 16.
These are known to historians as fiduciary orders; see Chandaman (1975). I can use the abbreviation fi-CTO.
- 17.
Source: See Shaw (1904) or R. D. Richards (1927). Note that English historians are more likely to make this claim. The Dutch, French and Spanish historians scoff. And there is some evidence that the Chinese got there before anyone else in the sixth century. That paper was made of lovely silk too!
References
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Milevsky, M.A. (2017). Paid Upon Orders from the Treasury. In: The Day the King Defaulted. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-59987-8_5
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