In the previous chapter, I documented the emergence of monopoly brokerage in the loans-for-debts market. Sovereign promises to repay loans became harder to revise or erode, as they became parliamentary and brokered. Such promises also became more valuable, as loan prospectuses increasingly limited executive discretion over the “when” and “how much” of repayment.
In this chapter, I examine the consequences of these reforms, which should have substantially improved the state's expected reversionary repayment. Section 1 considers the volume, variety, and efficiency of trade. Section 2 considers why England lagged behind its continental rivals in the development of long-term debt. Sections 3–6 turn to the evidence on interest rates. Finally, Section 7 reinterprets England's post-revolutionary debt crises, arguing they had little to do with investors’ worries that the state would not perform its promises, and much to do with the quality of those promises.
The Volume, Variety, and Efficiency of the Loans-for-Debts Trade
How did the emergence of monopoly brokerage in the loans-for-debts market affect the volume, variety, and efficiency of trade? Consider each in turn.
England's long-term funded debt stood at zero from 1600–1693, and then increased to £1,200,000 in 1695, £4,100,000 in 1705, and £29,600,000 in 1715 (see Figure 6.1). The structural break in the data is clear; I reconsider the reasons for it later in this chapter.
Short-term debt exhibited no trend from the mid-1630s to 1688, totaling about £1,000,000 (North and Weingast 1989, p. 822). By Sussman and Yafeh's (2006, p. 922) figures, such debt then increased roughly fivefold by 1695 and was five to ten times the pre-Revolution mean until 1715, declining slightly thereafter.
The variety of products in the debt market increased, too. In addition to introducing England's first long-term funded debt, the post-revolutionary generation experimented with a range of debt and debt securitization schemes much wider than had ever been attempted before (cf. Dickson 1967; Quinn 2008).
The efficiency of the debt market was reflected in the transactions costs involved in arranging sovereign loans. Earlier in the seventeenth century, most loans were connected to the sale of tax farms by the Crown (Brewer 1988, pp. 92–93). Farmers were willing to loan to the Crown because they themselves would collect the tax revenues that would repay them. The monarch would never lay hands on the funds and thus never be tempted to renege.