A Historiography on the Origins of the English Financial Revolution

In this paper we will be exploring the historiographical interpretations of the English Financial Revolution. Christine Desan, an economic historian, focuses primarily on the nature of money and how political and constitutional developments augmented the relationship the general public and government had with money. Carl Wennerlind, a historian of intellectual history, sets out to understand why the English augmented money in the first place. While taking very different research focuses, in the end both historians come to the conclusion that the English Financial Revolution marked a new era of political economy which interconnected the interests of the state with that of the private sphere and subsequently lead to the expansion of the English fiscal military state.

A Summary Of The Reviewed Texts

Christine Desan

In Christine Desan’s book Making Money: Coin, Currency, and the Coming of Capitalism, Desan sets out to describe the origins of money in early modern England, the revolution which redesigned it, and the reorganized capitalist political economy which it spawned. From the onset of the text, Desan takes a non-traditionalist perspective and argues that money is a non-natural technology, a political project, graphed and formed at the center of society. Under this guise, Desan tracks the political process behind the English Financial revolution. This process, which Desan describes as the transition away from a government monopolized commodity coin into a fractional credit-based paper currency society, altered how the public and private sphere related to debt and its impact on the economy. Through this new organizing principle, English society became flush with liquidity which, in turn, allowed for the government and economy to rapidly expand. In response to this new period of “economic pump,” Desan argues, English society quickly passed a series of laws that protected private property and “institutionalized interest in material profit as the engine” of the market.

Carl Wennerlind

In the book Casualties of Credit: The English Financial Revolution, 1620–1720 Historian Carl Wennerlind, seeks to uncover how the intellectual underpinnings of 17th-century English society lead towards an epistemological revolution in how English society fundamentally understood, employed, and adapted to accessible public credit. Wennerlind argues that for us to understand the Financial Revolution and the public system of credit it generated. We must first understand how society came to view the utility of money and credit for its symbolic value and its potential versus that of just its physical commodity value. To do this, Wennerlend thinks we must look back further than most historians, and start with the mid-seventeenth-century political economists, who first began to embrace the ideas of infinite worlds. Like Desan, Wennerlind also believes in the notion that money is more than just a coin, but as opposed to focusing solely on the history recoinage and its relation to expanding the money supply, Wennerlind focuses on how the role of natural philosophy, probabilistic reasoning, Bacocian, and Neo-Aristotelian ideals lead towards unique experimentations in the field of monetary policy throughout the century, and how these experimentation eventually guided intellectual thought towards the unique credit systems of the English Financial Revolution.

What Is The English Financial Revolution?

In general, we can describe the period known as the English Financial Revolution as a transformation of the fiscal capacity of the English government’s ability to borrow money and its relation to the development of the English fiscal-military state. There are four basic components interlocked in the telling of this story. The first is the creation of the Bank of England in 1694 and the development of a fractional credit-based paper currency. Before to this intervention, money I.e., metal coin in England was manufactured through a monopoly held by the crown. This endeavor, which charged a fee to create new money, resulted in an illiquid market with limited access to credit. With the creation of the Bank of England, now in the monopoly position of money creation, the state would obtain loans directly from the bank and the bank would, in turn, monetize this debt in the form of circulating notes. In response, we see our second and third developments, an explosion in accessible credit in the British Isles through the process of debt spending on the part of the English Parliament. As opposed to the politically and economically volatile process of recoinage, the monarch and parliament could increase the fiscal capacity of the state by directly obtaining loans from the Bank of England. Over the next century, the national debt dramatically increased to over 100% of the G.D.P. which in turn funded the expansive English imperial projects of the 18th century. With the bank then able to convert that debt into paper money, the money supply would increase by 65% over the course of the next century. With the expansion of credit and money in the country, we see the last development in the story of the English Financial Revolution. The English transitioned from an illiquid to a credit-rich economy, we saw an increase in intellectual debates about free-market principles, a cultural shift toward the acceptance of self-interested profit, a judiciary that protected private property rights, and a government that took on ever-increasing levels of debt, which intrinsically linked its longevity with said debt.

Origins
For Desan, money is the key component in describing the origins of the English Financial Revolution. As an academic whose work is centered on a chartalist approach and influenced by the works of Georg Friedrick Knapp. Desan argues that currency and monetary policy are a constitutional project, a political construct, which can be engineered to serve the interests of those who design it. In Making Money, Desan primarily focuses on how political and constitutional processes augmented the money supply in the 17th century, in addition to the aggregated, and distributed consequences, which developed within the social sphere, state government, and in the market as a result of these changes. The culmination of these changes, Desan would argue, becomes the English Financial Revolution.

Desan starts her book out by first denaturalizing the concept of money and does so by critiquing the long-held maxim that currency is just a “simple unit of account,” a natural technology, which came about in a post-barter world. The base layer of Desan’s argument is that, first and foremost, money has always been a project of governance. Coins were not just simple slugs of silver, gold, or rough pieces of metal which rose to the surface. Be it 17th-century England or 2nd-century Rome, state mints held a monopoly on the production of money, and, through that monopoly, states expressed their interests. They were an item of statecraft, standardized by government mints, and unified the political community. Coins were pressed with the faces of political rulers and government symbols, and that imagery represented a projection of government influence.
Monetary and fiscal policy in early 17th-century England was primarily focused on tax collection and the recoinage of commodity coins. Desan describes this period as an “illiquid world” as making money was a costly ambition. The royal mint, which held a monopoly on the production of coin, charged a small fee on top of the physical bullion required to produce the non-one-to-one coin. While this did provide a source of revenue for the crown, the amount of new money being injected into the market was limited. While existing coin faced the potential of melting and clipping to further arbitrage values. Furthermore, price fluctuations in gold and silver on the international market could temporarily drive much-needed bullion to other regions, halting production. The lack of coin in circulation impacted all people. For peasants, wages were suppressed, and the likelihood of saving money decreased. For producers who relied upon access to silver and gold to produce goods, like silverware and jewelry, prices increased. Desan’s sources point to circulation as a point of interest across class. The lack of coin in circulation resulted in bartering and a dependency upon local private credit networks within communities. Since these credit networks often relied upon written accounts vs hard deposits, an additional challenge existed to pay off taxes since one’s labor was no longer being valued in coin. When it came to larger industries, a similar pattern played out. Limited access to hard currency resulted in the decreased likelihood of loans, which applied a downward pressure on entrepreneurship, as individuals needed to rely upon local social networks to procure resources versus using capital in order to access regional and foreign markets.

The impact of recoinage on the state could also be expressed in several ways, but much has to do with the role of the monarch in relation to the paying of debts owed. As previously noted, for the monarch to raise revenue in times of need the crown could increase taxes, it could enact a call for recoinage, or it could take out costly private loans. However, the monarch sat in a position where it controlled the judicial and physical means of enforcing debt repayment, and the crown also dictated what constituted money. If the monarch’s debt is measured in a coin with a tangential commodity value in silver or gold, and the state then decides to devalue the metallurgy content of said coin, the subsequent debt owed in the coin at the time of repayment is no longer equal to the amount owed in metal. In response, the primary sources demonstrate a great many conversations around the potential for economic instability, high tax rates, property and contract rights, and the need to trust the crown’s repayment of its debt obligations. Monarchial debt resulted in real tangibles which negatively impacted economic life. Tax rate increases were felt by all. And those who profited from selling debt to the crown, I.e., the powerful and wealthy, could potentially see their profits wiped clean. As such, those who can lend money to the crown may be less inclined to do so because of the potential of default. As we will see later on, the English Financial Revolution will entirely flip this process.

Desan’s approach towards discovering the origins of the English Financial Revolution can be described as following the through-line from the nature of money to its institutional development. In Casualties of Credit: The English Financial Revolution, 1620–1720 Historian Carl Wennerlind, focuses instead on the intellectual origins which precipitated, shaped, and modified English money throughout the century. By understanding these “intellectual underpinnings,” one would be better able to understand the “earlier revolutions” in the political economy which enabled the new financial architecture of the revolution and the rhetoric which allowed for its general acceptance. Wennerlind sought to, “uncover how people conceived of credit and how their understanding was embedded in the seventeenth-century thinking about the universe, nature, matter, agriculture, commerce, manufacturing, politics, class, war, capital punishment, and colonialism.” These understandings, Wennerlind argues, were necessary in understanding the conditions which paved way for the revolution to occur in the first place.

Much of the discussion around the intellectual underpinnings of the financial revolution comes about with a focus on how one can alter the total amount of money in circulation and the subsequent relationship between money and value. Like Desan, Wennerlind starts off the book with a focus on coin scarcity, but as opposed to focusing on the governance project of recoinage, Wennerlind centers on those who wanted to improve upon the coin scarcity problem through other means. The Neo-Aristotelians, the first political economist of their time, described the situation involving coin scarcity as a great hindrance to the country’s economic wellbeing and social order as money was no longer performing its principal responsibility as a facilitator of trade and mediation device. The Neo-Aristotelians, still “believing that only precious metals could serve as money” outlined some of the first frameworks around trade deficits and how international trade could be leveraged to push the “natural capital flows” of silver and gold into England. However, these early political economists were unable to develop a theoretical framework that functioned outside of a metallic currency. As such, their framework was subsequently stuck in a loop of economic dependence upon silver and gold which had not been broken for centuries.

Unlike the Neo-Aristotelians, the members of the Hartlib Circle sought to push back against the notion of a finite and naturally balanced currency system and thought it would be possible that through scientific exploration, Baconian, and alchemist ideals researchers could expand the money supply by transmuting lead into gold. Here, is where Wennerlind’s research begins to reveal some of the early foundations of the English Financial Revolution, and the credit-based paper currency which spawned its rise. The Hartlib Circle set forth on a path of creating a new political economy through expanding the money supply and the advancement of the first English credit currency. The alchemist approach was; however, but a means to an end. The Hartlibians, just like the Neo-Aristotelians, thought money and its value was tied to the transmission of metal coins; however, the Hartlibians went a step further and argued that with greater levels of accessible capital, the economy could expand considerably faster. With this new system of money, the general public, through scientific exploration and public participation, could create a world of infinite opportunity and growth. Though unsuccessful in actually creating this new money supply, the Hartlibians expanded on their predecessor’s economic frameworks. In doing so, they established the first, “intellectual framework within which credit money was conceived and debated.” Their thoughts countered antiquated notions of limits and the scarcity of value and would become a part of the institutional history of England’s growing university system. The Hartlibian’s lasting legacy was that if the English were going to solve the problem of coin scarcity, they were going to have to think beyond metal coin.

While the Hartlibians paved the way for the English Financial Revolution, their inability to produce new coin and metal via alchemy in addition to their inability to functionally implement their paper based credit system, never allowed for the general public to test their trust in the new experiment. Trust in credit and paper money was a fundamental concern within intellectual circles of the 1650s, as the original backing of the credit system was privately centered around large merchants guarantee the lending of bills. Several prominent Hartlibian intellectuals argued that the credit system would never work without the acceptance of the entire public.
After the Glorious Revolution of 1688, the Parliament gained strict control over the fiscal and financial systems of the country. The Whig party, who was now in power, created the structures for England’s “first system of long-term borrowing.” However, just like the Harlibians theorized, the, “key challenge was to design a mechanism that allowed people to trust that the credit instruments would circulate indefinitely.“ With the formation of the Bank of England and the credit-based paper currency we saw created earlier with Desan, Whig politicians relied upon a government debt backed system “clearly influenced by” Hartlibian intellectuals, which associated paper currency value with the known stable value of land and parliament’s “credible commitment” towards debt repayment. Through this guarantee of debt repayment, investors no longer needed to worry about the possibility of default which had always been a looming threat under the monarch’s previous monopolized system. With this new level of trust built into the system, a new culture of credit was formed in England.

Repercussions

In addition to managing the money supply, the Bank of England would be authorized to make loans and issue bonds backed by government debt for a profit. From this moment on, Desan argues, the once illiquid market would begin to see the rapid “pump” of liquidity into the formerly cash-strapped society. The wealthy, often rich in land, placed property up as collateral to purchase government debt-backed securities, I.e., bonds or cash loans, from banks. The tradable land value was now no longer locked dormant and could now be circulated throughout the economy. With bank portfolios expanding, “the trade in securities moved capital from those who wanted investments to those who needed resources.” With more competition in lending, interest rates began to lower, and credit became more accessible to those across class. In the following decades, real wages rose, national industrial research increased, investment into private industries and commercial activities grew while private shipping fleets expanded. Within a century of the implementation of the Bank of England, the money supply had increased by 65 percent.

One’s ability to acquire credit for their venture did come with a caveat: An individual had to prove the ability to repay a loan. Desan argued that the profit motive, the underlying mechanism for repaying those loans, became the driving factor in society. Public debt, the first order in money creation, became synonymous with economic growth and English hegemony. Investors in government debt and those who expanded its activity would be heralded as patriots. In contrast to the civil society of the previous century, Desan points to expanded literature and economic thought surrounding profit. Political writers John Locke and Thomas Hobbes argued that expanding and defending private property rights was the best means of protecting one’s ability to generate profit and participate in the rapidly expanding economy. The judiciary would respond in reorganizing common law around the interests of a laissez-faire market. Landowners and producers would see an expansion in property rights, and the courts would position themselves as settlers in contracts. Lastly, the high courts quickly came down on the side of a private bank’s right to profit off of and enforce loan repayments in the new currency. (289)

Desan finishes the text by arguing that the coming of capitalism in England was a, “constitutional design, a political and legal creation… a governance project all the way down, starting with its money.” In Making Money, Desan was able to plot the chain of causality generated by the transition away from commodity coin and into the new fractional fiat money created by the Bank of England. Money was how individuals interacted with the market, and when money became, “a resource underwritten by public funds and endorsed for expansion by banks operating for profit,” the public’s relation to money and subsequently the market changed. Desan describes this atmospheric change as the “pump” that “institutionalized interest in material profit as the engine” of the market. As the English transitioned from an illiquid to a credit-rich economy, we saw an increase in intellectual debates about free-market principles, a cultural shift toward the acceptance of self-interested profit, a judiciary that protected private property rights, and a government that took on ever-increasing levels of debt, which intrinsically linked its longevity with said debt. The basis of Desans’s denaturalization argument is that these events, these changes, are not possible without the advent of a new form of currency.

Wennerlind also focuses on the impacts of English Financial Revolution and does draw some correlation. In the last section of the book, Wennerlind describes one of the firsts instance of instability to rock the new finance system in 1711, the South Sea bubble. Wennerlind’s focus here provides much greater detail than Desan’s handful of paragraph, but what we see develop in this period is the beginnings of the dissolution of public trust, that very same public trust the Hartlibian and the authors of the new political economy were so concerned, but also this shift towards self interest at no cost. The South Sea company held a monopoly on the trade of slaves to Spain and advertised public investment in the company. Company propaganda advertised investment in the company and the Atlantic slave trade in general as an, “inexhaustible fountain of riches.” Winnerland’s focus in this chapter demonstrates the dark history associated between public credit and the slave trade and how the financialization of assets enable for such expansive action.

A Comparative Analysis

While both historians would agree that the physical augmentation of money and the evolving relationship English society had with credit in the 17th-century was the main driving force behind the English Financial Revolution, each historian came to this conclusion in a different set of ways. I found the comparison of the two arguments similar to that of the chicken or the egg dilemma. Desan focuses on the moments of new money being hatched, e.g., recoinage, the development of credit-based paper currency, and then the societal impacts which get generated thereafter. Wenner instead looks at the moments of incubation where intellectuals pontificate and plan their moments of historical intervention in response to past social pressures. In a way, these two texts are extremely complimentary of one another under this guise. Wenner plots the longer trends, while Desan focuses on the details of events.

The political-economic focus of Desan and Wenner’s background as an intellectual historian does provide for different details of the same events in those moments of overlap. For example, at no point in Making Money does Desan ever refer to the Hartlibian’s even though Wennerlind describes the period of the political economy leading into the revolution as dominated by the, “Hartlibian understanding of money and credit.” This is not to say that Desan does shy away from intellectual debates throughout the book. Desan devotes a significant portion of the book to Hobbes, Locke, and the rhetoric of other popular liberal theorists when it comes to understanding the development of property rights in England. But it may be Desan’s narrow focus on coinage that does not allow for the author to explore the fact that some of these individuals were living in Holland, where major banking reform was taking place concurrently with English reform. Under the guise of intellectual underpinnings, Wennerlind was able to provide a comparative historical analysis between the Bank of Amsterdam, the various English land banks, and the Bank of England. If Desan could present more detail in this instance, Desan may be able to substantiate the uniqueness of the English financial system even further. This is not to say one analysis is in part, better than the other but it appears Wennerlind’s focus on intellectual history allows for a larger European perspective.

While Wennerlind relies on a bevy of source material like fictional literature, popular debates reported in newspapers, pamphlets, and broadsheets Desan’s focus on political economy provides a different set of sources. Much of Desan’s research originates directly from the archives of the Bank of England, the English Parliament, 17th and 18th-century bankers, the writing of sea-merchants, and even contemporary economists. As such, Desan is better able to present arguments that rely upon numerical reasoning and demonstrate, concretely, change over time. For instance, in measuring the impact of the Financial Revolution on England’s illiquid money supply, Desan demonstrates that within a century of the creation of the credit-based paper currency, nearly 65% more money had entered into circulation.

Herein lies the difference between their respective approaches. Wennerlind’s argument relies more so on casual long-term developing trends, versus Desan’s deterministic approach of looking at instances of institutional change and measuring the subsequent impact thereafter. As such, Wennerlind’s book comes off as more theoretical and open-ended. However, Wennerlind is able to focus on the social impacts of credit, the individual relationship that enabled years of debate, the tracking of institutional history ,and the nuance of experience. Whereas Desan’s approach presents a political-economic story centered on governance, constitutional history, monied interests, and the trajectory of capitalism. While I would suggest an interested reader to first focus on Desan’s text, as it provides the additional multi-disciplinary approach towards economics, both books are fantastic in their own right.

In conclusion, both historians paint a beautiful picture of the multitude of underpinnings involved in the English Financial Revolution. Desan’s focus on the denaturalization of money and the constitutional process surrounding its augmentation. Allowed Desan to detail a very specific and narrow narration of the development of England’s credit-based paper money, and follow up with very specific causes and effects. Separately, Wennerlind’s focus on the intellectual underpinnings allowed the historian to craft a narrative a century in the making. While such a time frame can result in broad brush strokes, Wennerlind’s intellectual history focus enables the historian beautiful connect one generations of thought to another. All in all, both historian provide great utility in one’s understanding of the origins of the English Financial Revolution, and I would suggest everyone to read up on the tale.