Anne Murphy’s The Origins of English Financial Markets examines the
demand side of the English inancial Revolution. Much has been written on
the surge in the supply of securities around 1700, but someone had to buy the
stuff. Murphy’s book tells the story of English investors in the 1690s –
a volatile period when england was an emerging market economy.
The first chapter shows that a corporate stock boom occurred in London before
the funded national debt and the Bank of England. Investors learned about
stock transfers, dividends, initial public offerings, and corporate
bankruptcy before the state attempted to sell its new financial products in
the mid-1690s.
Chapters 2 and 3 revisit the revolution in English public finance and the
pamphleteering that went along with it. In the process, Murphy finds that
investors valued resale liquidity even if the state was slow to
accommodate. The author also argues that investors used the press to push
back against the government. Murphy finds that creditors, “acted both to
call the government to account and, when necessary, in defence of their
property rights” (p. 61). Put differently, Murphy casts investors as
active participants in the creation of credible sovereign debt.
Chapters 4 and 5 examine how advantageous market information was available
but required effort. The financial press did provide a record of prices,
but more timely or nuanced information required investors to engage the
networks of information that entangle London. Many small investors
understood that they were at the mercy of market insiders, and that
vulnerability contributed to the widespread distrust of financial
intermediaries.
Chapters 6 and 7 use archival sources to show how a small circle of
London-based brokers and dealers (called jobbers) did indeed dominate the
resale market for securities. The social-economic and geographic frontiers
of the investing class were expanding, but Murphy argues that it was the rise
of market makers that buoyed demand for securities. Stocks that did not
secure a critical mass of intermediation slid into oblivion. Much of this
compelling evidence comes from a detailed analysis of Bank of England stock
transfers.
Chapter 8 finishes the analysis by considering the in-betweens: investors who
were not broker-dealers and yet did not buy-and-hold either. Again, Murphy
hits the archives to show that this active middle existed. Many were
merchants redeploying capital when war limited traditional commercial
operations. To me, Chapter 8 is too modest regarding the implications of
these active investors. Again, the book establishes that an expanding
resale market drove the demand side of the English Financial Revolution, but
market makers need customers, yet most investors rarely bought or sold.
Active investors emerge as a necessary, if underappreciated, aspect of the
Financial Revolution.
Substantial archival work and an important focus make The Origins of English
Financial Markets a substantial contribution to our understanding of the
English Financial Revolution. The book is a must read for scholars of Early
Modern Britain. Others interested in development, now or in the past, will
find in the book a detailed example of how a successful financial system
actually emerged.
Stephen Quinn is the author of “Money, Finance and Capital Markets,” in
The Cambridge Economic History of Modern Britain, Volume I, edited by Floud
and Johnson, Cambridge University Press (2004): 147-74. His recent work
with William Roberds on the Bank of Amsterdam includes “An Economic
Explanation of the Early Bank of Amsterdam,” in The Origin and Development
of Financial Markets and Institutions, edited by Atack and Neal, Cambridge
University Press (2009): 32-70.
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