The empire of credit: the financial revolution in the British Atlantic world, 1688

The title of this book is ambitious: to extend study of the ‘financial revolution’ of the English-speaking world on both sides of the Atlantic. The costs of war created in 1694 the Bank of England, with the right to issue paper money in return for a loan of £1.4 million to the government. Thereafter Britain borrowed heavily in wartime, reducing its debt by taxation in peacetime. Paper money in itself (though profitable for its issuers) was far from being the central feature. It was government debt in quantity (which as a means of holding wealth could be bought and sold) and short-term treasury bills that created the first really effective financial market. The aim of this book is to see how Ireland, Scotland, America and the Caribbean contributed ‘to the wealth and military viability of the mother country’, and also engaged in ‘their own financial innovation and experiments’ (p. 16).

This book fails to do that. The study rests primarily on analysis of writings of the period. While well written and informative and touching constantly on the question of paper money versus hard cash, the papers, mostly by authors professionally concerned with literary, philosophical or political study, engage little with the macro-economy. Whatever questions money posed for armchair critics in the eighteenth century (whether an Irish bishop, George Berkeley, or an American writer like John Witherspoon, who was closer to policy formulation), society at the time was pragmatic, using both paper money and specie (coin). Paper money was not really a problem; many private banks even ceased to issue paper, and outside London a medley of means of payment circulated (including for wholesale transactions intensified use of bills of exchange). In the wartime suspension of cash payments from 1797, inconvertibly paper spread, but it never ousted coin completely. Kevin Barry’s account of Maria Edgeworth’s fiction interestingly shows how she regarded the insistence at the time by some Irish landlords on rent payment by tenants in guineas as oppressive or abusive.

The book sees a paradox of previous metals: while paper increased in circulation in internal trade, precious metals remained ‘a priority of international trade’ (p. 3). This is, however, a misunderstanding that runs through the book. Specie was not at the heart of foreign trade. In foreign trade, as in inland trade, the bill of exchange usually made the movement of precious metals unnecessary. Moreover, multilateral settlements using bills on a third country to settle debts greatly reduced the need to move specie to satisfy imbalances. Inland and foreign payments both anticipated the celebrated ‘gold points’ of the later gold standard: if prices became too high to the buyer of a bill or too low to a seller, an alternative existed of moving, over land or over sea, coin itself. Only the trade with East Asia, with the necessity of silver for the settlement of accounts, drained the metal away from Europe (one of the essays, on gold in the Royal African Company, though an interesting account in itself, is an unrepresentative example). Specie is said to have declined in Ireland’s money supply (p. 234). That is not the case. Silver was indeed drawn away, as in England, but bankers replaced it with other coin, and in the second half of the century the state at no real cost to itself imported guineas.

The empire of credit of which Britain was the pivot depended entirely on the success of London. It attracted money from the provinces (working balances of merchants and rents of landowners); Scots and Irish also held balances. Men followed money, and businessmen with a provincial, Irish or Scots background appeared in numbers in London. In the case of Ireland, funds of absentees and balances to settle Irish trade with third countries were a significant feature in the accounts of the Bank of England and in the London market generally. The future independence of the United States, as argued in the essay by Hermann Wellenreuther, was anticipated in diversification of American exports to markets other than Britain. In the case of the Caribbean, on the other hand, rich planters moved residence to London, their profits from the sugar islands maintaining them in luxury. American businessmen did not dally in London; American surpluses through London paid for American imports of English-manufactured goods.

Wellenreuther’s essay and Ivar McGrath’s in illustrating the rise of an Irish national debt in 1715–45 are the two studies that come closest to the objective of the book. McGrath’s study by implication makes the case for a future look at the larger and still manageable debt of the second half of the century. Little if any ready evidence survives of the prices at which stock sold, which suggests that it was still in 1745 a very illiquid market. But from the 1770s newspaper quotations reveal a thriving and expanding money market. Taxes paid for a large military establishment (some of the costs of which, to the benefit of Irish bankers, were incurred aboard), and as taxes were mostly indirect they fell most heavily on lower incomes. While absenteeism has been wildly exaggerated, it still accounted for between a fourth and a sixth of the total rental: that itself made it a substantial outflow, ensuring that more Irish money than Scots rested on deposit in England, and in the following century the reserves of the new joint-stock banks were held in London. In this way money from the banks and also from private wealth-holders created in time the famous—and economically sterile—sterling balances, which became the subject of much debate in the 1930s, ’40s and ’50s. In the eighteenth century Scots and Americans had better use for their capital at home. In the nineteenth century, outside Ulster, Irish banks were under-lent, and money deposited with them added to the overflowing London reserves. Were outlets in southern Ireland too few or were they ceasing to be profitable? HI

L.M. Cullen is Professor Emeritus of Modern Irish History at Trinity College, Dublin.