ORIGINS OF BRITAIN’S HOUSING CRISIS: ‘Stop-go’ policy and the covert restriction of private residential house-building

by Peter Scott and James T. Walker (Henley Business School at the University of Reading)

University of the West of England, The History of Council Housing. Copyright of Bristol Record Office

‘Stop-go’ aggregate demand management policy represents one of the most distinctive, and controversial, aspects of British macroeconomic policy during the post-war ‘long boom’. This was, in turn, linked to an over-riding priority among an influential section of policy-makers in the Treasury and the Bank of England to restore sterling as a ‘strong’ currency (second only to the dollar) and to re-establish the City of London as a major financial and trading centre, despite heavy war-time debts and low currency reserves.

This policy is often viewed as having had damaging impacts on major sectors of the British economy – especially the manufacture of cars, white goods and other consumer durables, which were deliberately depressed in order to support sterling and thereby facilitate the growth of Britain’s financial sector.

This research explores an important but neglected impact of ‘stop-go’ policy: restrictions on house-building. This has been overlooked in the general stop-go literature, largely because the policy was mainly undertaken covertly, without public announcement or parliamentary discussion.

In addition to publicly announced restrictions on public sector house-building – by restricting local authority borrowing and raising interest rates on that borrowing – the government covertly depressed private house purchases and mortgage lending by restricting house mortgage funds to well below market clearing levels.

The Treasury used a combination of informal pressure and, less frequently, formal requests, to get the building societies’ cartel (the Building Societies Association) to set their interest rates at levels that forced them to ration mortgage lending in order to maintain acceptable reserves. Officials particularly valued this instrument of stop-go policy owing to its effectiveness and its ‘invisibility’ (mortgage lending restriction was not publicly announced and was not generally even subject to cabinet discussion).

Meanwhile political pressure for action to increase house-building and home ownership (especially in the run-up to national elections) led to a perverse situation whereby government was sometimes simultaneously boosting demand for house purchases and covertly restricting the supply of mortgages – feeding into a growing house price spiral that has become an enduring characteristic of the British housing market.

This study shows that the application of stop-go policy to mortgage lending for most of the period between the mid-1950s and the late 1970s had a major cumulative impact on the British economy: depressing the long-term rate of capital formation in housing; creating inflationary expectations for house purchasers; having negative impacts on living standards (especially for lower-income families); and damaging the growth, productivity, and capacity of the house-building sector and the building society movement.

Democracy and taxation in Greece: a long history of rural favouritism

by Pantelis Kammas (University of Ioannina) and Vassilis Sarantides (University of Sheffield)


Some of the basic characteristics of the current tax system in Greece seem to have deep historical roots. One is the amazingly low tax burden that has fallen on the incomes of the agricultural population throughout the history of the Greek state.

This is because governing authorities always keep an eye on the welfare of the politically powerful group of peasants and farmers to gain support. Another deep-rooted characteristic is significant reliance on indirect versus direct taxes, which can be attributed to analogous political economy reasons.

The main concern of the governing authorities in the agrarian new-born Greek state of the nineteenth century was the legitimisation of their authority. On this basis, a number of economic benefits through tax (and other) policies were provided to the rural population that became politically powerful after 1864, the date that voting rights were granted to all adult males.

In that way, authorities aimed to ensure a minimum level of social consensus and to convince the citizens of the young Greek state that the public demands of the war of Independence – ‘social justice’, ‘democracy’ and ‘equality of political rights’ – would be satisfied.

This research highlights the importance of economic development in the relationship between democracy and taxation, focusing mainly in the case of Greece during the nineteenth and early twentieth century. Notably, Greece established universal male suffrage in 1864 while it was still a developing, pure agrarian economy with 76% of the population in the agricultural sector.

In contrast with Greece, other democratic European countries had significantly narrower agricultural sectors in the nineteenth century – the majority of them at a level below 40% of the total working population.

Building on a unique tax dataset that contains 13 different tax categories of the newborn Greek state during the period 1833-1933, the results conclude that the extension of the voting franchise in 1864 did not affect the size of the government – but it did change the structure of taxation in favour of the rural population.

Universal male suffrage was accompanied by a long-run reduction in the percentage of rural (for example, taxes on land) to total taxes by 8.25%. This reduction was balanced by increases in indirect taxes – mostly custom and excises duties – leaving the overall level of taxation constant over time.

The research interprets these empirical findings in terms of a political economy motivation. In particular, the Greek governments changed the composition of taxation, reducing rural taxes to satisfy the large majority of the electorate who were poor peasants and farmers.

In turn, the findings for Greece are compared with that for a sample of 12 West European countries that were substantially more developed on democratisation.

The analysis suggests that in more industrialised European economies, democratisation revealed the political preferences of a more urbanised electorate – mostly consisting of workers and middle class capitalists – leading to a different pattern of ‘reshapement’ of the tax system.

This is consistent with the theoretical priors that the level of development, and the consequent structure of the economy, will result in a differentiated effect of democratisation on fiscal policy.


Ottoman stock returns during the Turco-Italian and Balkan Wars of 1910-1914

by Avni önder Hanedar (Dokuz Eylül University and Sakarya University, Turkey) and Elmas Yaldız Hanedar (Yeditepe University, Turkey)


Were the military conflicts of 19101914 related to higher risks for market investors at the İstanbul Stock Exchange? Wars are often perceived as bad news, correlated with increasing risks for investors and fluctuations in volatility: there would be fall in stock prices due to expected macroeconomic costs, such as higher inflation and lower production, as companies’ activities and expected returns decrease. On the other hand, if wars’ outcomes were perceived as unimportant for companies’ activities and expected returns, then there would be no significant changes in stock prices and volatility.

Many researchers on financial economics have created a large literature on the effects of different wars, and addressed mixed findings. A pioneering research for the political crises of 1880–1914 is Ferguson (2006), contributing to answering how did investors at the London Stock Exchange view the conflicts on the eve of the First World War. He showed the absence of higher war risk on bonds of Great Powers[1] traded on the London Stock Exchange. In addition, Hanedar et al. (2015) evince that the outbreak of the Turco-Italian and Balkan wars were correlated with a lower likelihood of Ottoman debt repayments, using data on two Ottoman government bonds traded on the İstanbul bourse. As the literature on the İstanbul bourse is limited, new light on this question required to explore risk perceived by stock investors due to the historical conflicts.

A column of Tanin presenting the value of bonds and stocks on 14 November 1910

We focus on the influence of stock returns at the İstanbul bourse during the Turco-Italian and Balkan wars, using unique data on stock prices of 9 popular domestic joint-stock companies in the Ottoman Empire. All these companies played a crucial role for the Ottoman economy and operated in the most attractive sectors, i.e. banking, mining, agriculture, and transportation. Some of them are the Ottoman General Insurance company (Osmanlı Sigorta Şirket-i Umûmiyesi), the Regie (Tobacco) company (Tütün Rejisi), and the Imperial Ottoman Bank (Bank-ı Osmanî-i Şâhâne). The data are manually collected from Tanin, which was a widely circulated daily Ottoman newspaper. This research is the first to provide a historical narrative explaining the changes of Ottoman stock returns due to the wars that took place on the eve of the First World War. It observes only small reactions to the Turco-Italian war, and only for three stocks out of ten examined (see Table 1). This is interesting, as previously (Hanedar et al., 2015) we observed higher responsiveness of government bond prices during the same period.



It would be possible to argue that investors might have believed that the war would not be that harmful for the non-governmental economic and financial sectors. An important aspect supporting the finding is that the companies were either established or supported by foreign investors. Great Powers protected their home countries’ investments both economically and politically. The companies obtained revenue guarantees and privileges from the Ottoman state, making the investors’ investments secure. Great Powers that invested in the Ottoman Empire were expecting its demise soon. Therefore, investors were likely to invest in the companies just for the sake of having territorial claim without much consideration of risk. During the nineteenth century, wars were important sources of the solvency problem, which could explain the sensitivity of government bond prices to the conflicts studied here.

The working paper can be downloaded here

References to this blog post here

[1] The UK, France, Germany, Italy, and Austria-Hungary.

Do the rules of the game matter? Monetary regimes and financial stability since 1920

by German Forero-Laverde (Universidad Externado de Colombia / Universitat de Barcelona)

Financial crises come in many shapes and forms. They can occur in stock markets, private or public debt markets, housing markets or any asset class you may think of (yes, even tulips). Attempts to predict the timing and asset class where the next crisis will show its ugly head have been unsuccessful in part due to the amount and diversity of forces at play. The veil of uncertainty that surrounds them and the negative effect they have on long-run economic growth makes the study of crises both pertinent and challenging.

The research, presented at the 2017 EHS annual conference, studies one possible factor that may be related to the frequency and intensity of booms and busts in stock and credit markets: the rules of the game. It studies the possibility that the monetary regime, competing decisions on monetary policy, exchange rates and capital flows, is related to the evolution of financial aggregates to different time horizons. The underlying idea, following the Bank for International Settlements, is that different regimes endow the financial system with varying levels of elasticity, allowing for imbalances to accumulate in the form of booms and unwind in the form of crises at different rates and intensity.

This is a stepping stone in the road to answer a question that has troubled policy makers for over a century: Should authorities and regulators intervene in the market trying to anticipate crisis, or is the best course of action to react once crises ensue? If regimes do play a role, and the channels of accumulation of imbalances are contingent on the institutions at play, it is possible that authorities may have a wider array of tools at their disposal to avoid the accumulation of financial stability.

In order to do it, the research proposes three new measures for the evolution of the stock market and credit aggregates since 1922 until today for France, Germany, Italy, the Netherlands, Sweden and the UK. The new measures, the Boom Bust Indicators – BBIs, result from a variation on our earlier work, and allow us to characterize booms and busts depending on their effects to different horizons: explosive ones affect the short-run (up to one year); expansive ones have an effect up to the third year; and pervasive ones show effects after 5 years.

BBIs complement what has been traditionally done in the financial crisis literature. They depart from decomposition techniques such as spectral analysis in that they use all the information in the original series instead of extracting a part of the data. They depart from turning point analysis and other crises dating techniques since the outcome is a triplet of continuous series instead of a summary sequence of dates for booms and crashes. They complement measures like the severity index which pays unduly little attention to explosive booms and busts to the benefit of lengthier events. Finally, the measures allows for comparisons across countries and time. A sample of the three measures for the UK stock market is presented in Figure 1.

Figure 1: Boom Bust Indicator for the UK stock market 1922-2015

Forero-Laverde - Figure 1

The research studies the evolution of BBIs for credit and stock markets under five different regimes: the gold exchange standard (GES), the fixed peg rate of Bretton Woods (PEG), the managed float of the Exchange Rate Mechanism (MF), the periods of free floatation (FF) and the European Monetary Union (EMU). To characterize the differences in behavior under each regime we pool all countries together and measure the statistically significant differences in means and volatility for BBIs under each regime. They were graphed in a scatter plot, where the X axis represents volatility and the Y axis represents the mean. Results for the long-run measure are presented in Figure 2. The farther a regime appears from the origin, the more elastic it is as it coincides with stronger variability in the indicator.

Figure 2: Regimes according to mean value and volatility of long-run BBIs

Forero-Laverde - Figure 2

Although the mechanisms through which the regime impinges on the boom-bust cycle of credit and stocks still remains unclear, it is possible to highlight several findings. First, there is a role for the monetary regime on the evolution of asset prices and credit. Second, some sort of currency peg, with commitments to exchange rate stability and capital controls, favors financial stability both in the short and long run. However, stricter pegs are favorable for controlling stock market booms but increase both short run and medium run volatility of credit growth. Finally, a nominal anchor of the currency, through the gold exchange standard or the European Monetary Union, appears to be insufficient in generating financial stability as they coincide with booms and heightened volatility in stock and credit markets.


Religion and economics: early Methodism was underpinned by sophisticated financial management

by Clive Norris (Oxford Centre for Methodism and Church History, Oxford Brookes University)


John Wesley’s efforts to spread the Gospel throughout the British Isles and beyond in the later eighteenth century relied on resources generated and managed using a wide range of techniques. This study of contemporary financial records shows that the evangelistic energy and fervour of Methodist preachers and members was supported – but also frequently constrained – by the movement’s approach to financial management.

The central priority of Wesley’s movement or ‘Connexion’ was to supply enough preachers to meet the needs of the membership and attract new converts. Members’ dues provided the core financing for the growing cadre of travelling preachers, while tools such as central grants channelled resources from richer to poorer areas.

Although the increasing number of married preachers with children raised per capita costs, the annual preachers’ conference tried to keep the deployment of preachers within the envelope of the resources available. By 1800, preaching costs probably exceeded £40,000 a year, met by around 110,000 members.

A second preoccupation was the capital and revenue funding of the expanding network of Wesleyan chapels, which numbered almost one thousand by 1800, costing perhaps £9,000 in annual debt interest alone.

From the 1760s, increasing use was made of an essentially commercial model, overseen by a central committee of business advisers. The opportunity to provide loans at attractive interest rates was offered to wealthier members and supporters, and these both financed chapel construction and offered a good home for their surplus funds. Interest costs were met by renting out seats in chapel, though some seats were always made available free to the poor.

Proposals for new chapels were reviewed annually by the Wesleyan conference, and although many were built without its approval, the resulting pressure on the movement’s finances became marked only after 1800. Chapels also enabled the Connexion to draw income from non-members, who typically outnumbered members by three to one in congregations.

Third, Wesleyan Methodists sought to spread the Gospel through the publication and distribution of cheap and readable publications, including Charles Wesley’s hymnals.

From the 1750s, the so-called Book Room became increasingly profitable, largely because by 1780, almost every aspect of production and distribution had been brought in-house. In particular, Wesleyan preachers were exhorted to market the publications to their members and congregations, and received 10% commission on sales. By 1800, the Book Room’s profits – typically £2,000 annually – were making a significant contribution to overall Connexional finances.

Fourth, the Connexion developed a portfolio of other activities, including educational services such as Sunday schools, poor relief programmes and overseas missions, especially in the West Indies. Most of these activities were not financed directly by the membership.

A key approach was to appeal for public subscriptions, which were widely used outside Methodism to fund public buildings and services such as hospitals, but there were many variations. In the West Indies, for example, some Wesleyan missionaries supplied spiritual services to slave-owners under contract.

One major result of these developments was that the Wesleyan Methodist movement became increasingly dependent on its richer members and supporters. For example, though its areas of greatest membership strength were Yorkshire and the South West of England, subscription income came disproportionately from wealthy London.

But until well into the nineteenth century, this seems not to have blunted its expansion: membership almost doubled between 1800 and 1820. Indeed, the complex and flexible financial policies and practices that underpinned the movement were crucially important in enabling it to respond to the spiritual and (to an extent) material needs of Britain’s growing and geographically shifting population.

How accounting made financial markets in the Early Modern age

by Nadia Matringe, London School of Economics


In the early modern age, accounting was the site of finance.

From the sixteenth century onwards, the unprecedented growth of international trade and banking gave rise to the great exchange fairs (Lyon, Bisenzone, Castile, Frankfurt, etc.), with international clearing and banking functions. To exploit these new opportunities while limiting risks, a growing number of banks at the fair locations specialised in the commission business, which required a high demand for goods and capital to yield substantial profits.

Both these transformations deeply affected the international payments system. In particular, they gave rise to new uses of accounting as a payment and credit instrument.

The research, to be presented at the Economic History Society’s 2017 annual conference, analyses this transformation and highlights the role of accounting in shaping early modern financial markets. It shows that at that time, accounting tables were not only used as local means of payment through book transfers initiated by oral order: they also became the sole material support for a growing number of international fund transfers and credit operations.

Indeed, as chains of commission increased in length and density, both the exchange and the deposit business changed in form and started to be increasingly operated through the accounting medium.

The classical exchange operations, which usually involved four parties (a drawer, a remitter, a payer and a payee) and the circulation of a bill of exchange between two markets, could now be conducted by two parties through their corresponding accounting systems, on behalf of several clients.

In these transactions, bank A would draw on and remit monies to bank B on behalf of clients who appeared as drawers and remitters by proxy. Payments on both markets took the form of book transfers, and no bill of exchange was issued: banker A simply informed banker B in his usual correspondence to credit and debit the pertinent accounts according to agreed exchange rates.

Such transactions performed multilateral clearance between distant regions of the world, where the bankers’ clients had business.

Two-party exchange transactions reduced to accounting entries also served banking activity at the local level. In this case, at least one side of the exchange transaction (the remittance or the draft) was meant to lend or to borrow money in one of the two markets. The exchange was followed by a rechange in the opposite direction, and at a different rate, and interest was charged according to the differences in exchange rates.

Finally, the taxation of overdrafts on current accounts at the fair location enabled clients to buy bills of exchange on foreign markets without provision, and to postpone payment of those drawn on them. Consequently, deposits in Lyon, Antwerp or Castile could create credit in Florence, Paris, London, etc.

Furthermore, this old fair custom of deferments gave rise in the sixteenth century to autonomous deposit markets whose rate circulated publicly, enabling ‘outsiders’ who otherwise had no business in the fairs, to invest their savings there.

The research thus shows that in the context of the rapid development of international banking centres and the correlated rise of commission trading, accounting made financial markets.

Its function was similar to that of modern algorithms used to match orders and perform financial transactions. Accounting tables were used to make payments, transfer funds, operate clearance and grant interest-bearing loans – all of which could be combined in a single game of book entries in the accounts of corresponding partners.

International trade and banking were supported by a network of interconnected accounting systems. This accounting network appears as a major infrastructure of early modern trade, without which the whole European payment system would have collapsed.

Agency House Crises in India: What Role Did Indigo Play?

by Tehreem Husain

English, Dutch, and Danish factories at Mocha, 1680 ca. Public Domain picture


History provides us with many examples of asset bubbles which have led to systemic crises in the economy. Popular examples are that of the Tulip mania and the South Sea Bubble. This blog discusses the case of an indigo price bubble in nineteenth century India, perhaps the first of its kind, which lead to a contagion like crises in the economy.

 Almost 17.4% of Indian GDP was derived from the agricultural sector in 2015-16, with nearly half of the Indian population being dependent on agriculture and allied activities for livelihood. This makes smooth functioning of commodity markets of considerable importance to policymakers. Throughout time, there have been many episodes of commodity price surges and ensuing market volatility due to traditional demand-supply gaps, monetary stress and financialization of commodity markets inclusive of speculation (Varadi, 2012). What role did agriculture play in commodity market volatility during the late 18th/ early 19th century? Little is known about perhaps the first asset bubble of its kind in India – the indigo crisis, the reasons attributed to it and the cost it imposed on different sectors of the economy.

With the advent of the East India Company, India was a global trade destination for a number of commodities including cotton, silk, indigo, saltpetre and tea. In order to trade these commodities with global markets, European traders needed banks to finance foreign trade. Indigenous bankers in India did not provide this particular banking function and hence the East India Company diversified its business by introducing agency houses in Calcutta which amongst others also performed banking functions. These agency houses performed all the banking functions of receiving deposits, making advances and issuing paper money. Their responsibility of note circulation crucially helped them in carrying out their diversified lines of businesses as ship-owners, land owners, farmers, manufacturers, money lenders and bankers (Cooke, 1830). It was the agency house of Messrs. Alexander & Co. which started the first European bank in India, called the Bank of Hindostan, in 1770 (Singh, 1966).

In the early nineteenth century these agency houses were tested for their endurance and continuance due to three factors. Firstly and most importantly, during the early 1820s, agency houses borrowed money at low interest rates and invested it prodigally in indigo concerns-the crop being the only profitable means of remittance in Europe. The crisis multiplied when newly formed agency houses, besides investing capital in their own indigo concerns, fiercely competed with the old houses in making indiscriminate advances to indigo planters and paid little regard to the actual state of the market. Excessive demand of indigo fuelled the prices in the mid 1820s and encouraged increased production of the commodity which eventually led to a glut in the market and sharp decline in its price. This rise and fall in prices is evident from the fact that the indigo price shot up from Rs. 130/maund in 1813 to Rs. 300 in 1824, and then fell to Rs. 145/maund in 1832 (Singh, 1966).

The second challenge, along with indigo price volatility, was the start of the first Anglo Burmese war in 1825. This further led to stressed monetary conditions resulting in a scarcity of metal in Calcutta (Sinha, 1927).

Thirdly, in terms of the global landscape, this period marked the peak of investment boom in Britain, which characterized an explosion of company promotions and bond issues by foreign governments, mining companies, railways, utilities, docks and steamships. In total during 1824-25 some 624 companies hoping to raise £372 million were brought to the market. However, with the investment boom peaking out in 1825, market conditions had changed. Interest rates had risen making borrowing more expensive, investor sentiment had become more cautious which eventually led to a panic like situation resulting in bank failures and bankruptcies (Brunnermeier & Schnabel, 2015).

In such times of local and global economic stress, several minor agency houses failed in 1827 which shook investor confidence in the remaining agency houses. A notable case is that of the agency house of Messrs. Palmer and Co., known as the ‘indigo king of Bengal’, which faced heavy withdrawals from their partners and eventually led to the closure of their private bank and finally their own demise in 1830. This panicked the market and led to further withdrawals of capital investments.

During this period agency houses made desperate appeals to the government for financial relief and highlighted their importance in the Indian financial system at that time. In a minute dated 14th May 1830, Lord William Bentick, Governor General of India from 1828-35, accentuated systemic importance of agency houses. He highlighted that not only would there be a dislocation of trade in some staple commodities, any damage to the ‘conglomerate’ nature of the agency houses would cause severe disruptions in other industries, most notably shipping. Finally, loans were granted to these houses in the form of treasury notes bearing 6 percent interest.

Despite the monetary aids provided by the government, the wave of agency house failures could not be curbed. More agency houses failed in January 1832. In addition to this, the unexpected fall in the price of indigo created difficulties for one of the biggest agency houses Messrs. Alexander & Co. It is important to note that the relief package came under stringent conditions. They were obliged to withdraw their bank notes from circulation, and were given an extended period for the payment of their debts provided they end their banking operations (Savkar, 1938). This resulted in the demise of the Bank of Hindostan and the Commercial Bank.

Overall seven great Agency Houses of Calcutta failed within a short span of four years which had detrimental effects on the Indian economy at that time. It may be summarized that speculation in indigo and mixing of trading and agency business were the pivotal reasons behind the failure of these agency houses. More importantly, this episode of a commodity price bubble spreading its tentacles to the entire economy had a phenomenal impact on the structure of business. It is recoded that from a handful of firms in the year before 1850, there were 170 firms working as joint stock organizations in 1868. The first commercial register to identify firms with tradable stock was established in 1843 which listed eights firms (Aldous, 2015). Joint stock organizational form also entered banking. A key example is the rise of the Union Bank of Calcutta (Cooke, 1830). The crisis also led to the establishment of a number of private banks by the British expats (Jones, 1995).


From NEP-HIS Blog: ‘The market turn: From social democracy to market liberalism’, by Avner Offer

The market turn: From social democracy to market liberalism By Avner Offer, All Souls College, University of Oxford ( Abstract: Social democracy and market liberalism offered different solutions to the same problem: how to provide for life-cycle dependency. Social democracy makes lateral transfers from producers to dependents by means of progressive taxation. Market liberalism uses […]

via How do we eliminate wealth inequality and financial fragility? — The NEP-HIS Blog

Credit, Currency & Commerce: New Perspectives in Financial and Monetary History

Conference Report: University of Cambridge, 13-14 September 2016
by Sabine Schneider, University of Cambridge

‘Dividend Day at the Bank of England’ by George Elgar Hicks (1824-1914), Bank of England Museum. Copyright: The Governor and Company of the Bank of England


Retracing the path to the Great Recession, Barry Eichengreen has observed how ‘The historical past is a rich repository of analogies that shape perceptions and guide public policy decisions.’[1] Certainly, recent years have shown that analogies drawn from historical experience are most in demand ‘when there is no time for reflection.’[2] Beyond the study of banking crises and financial regulation, the past decade of economic turmoil has generated renewed scholarly interest in the evolution and politics of financial capitalism. While the legacy of the Great Recession has profoundly shaken established tenets of mainstream economics, it has also stressed the need for new historical narratives that understand the world economy within the specific cultural contexts, economic ideas and political debates of the past. On 13 and 14 September, the Centre for Financial History at Darwin College, Cambridge, hosted an early career conference to foster an interdisciplinary dialogue about histories of finance, global trade and monetary policy. Over the two conference days, twenty early career scholars and doctoral researchers presented papers that ranged, in period and geography, from medieval Catalonia and eighteenth-century Scotland to pre-war China and post-war Britain. This review will reflect on three major themes of the conference: the art and science of central banking, studies in political economy, and cultural approaches to the history of finance.

Central banking and the formation of monetary policy have resurfaced as key concerns for economic historians since the 2007/8 financial crisis. The debate over the Bank of England’s evolving role as Lender of Last Resort, for instance, was re-examined by Dr Paul Kosmetatos (Edinburgh). His paper analysed Adam Smith’s and Henry Thornton’s differing recommendations for crisis containment as a starting-point for evaluating the Bank’s conduct in 1763 and 1772. Kosmetatos concluded that the Bank’s timely injection of liquidity via the banknote channel during the latter crisis showed that ‘the attitude and means of intervention described by Thornton were already practically in place.’ Pamfili Antipa (Banque de France/Paris School of Economics) presented new Bank of England balance sheet data that adds considerably to our knowledge of how the British government financed the Napoleonic and Revolutionary Wars. Her joint research with Professor Christophe Chamley (Boston) revealed that the Bank strategically operated in the secondary market for Exchequer bills in order to re-direct funds to the Treasury. For the post-war period, Oliver Bush’s paper (Bank of England/LSE) investigated Britain’s approach to monetary and macroprudential policies in the years after the UK Radcliffe Report (1959). Based on collaborative research with Dr David Aikman (Bank of England) and Professor Alan M. Taylor (California), Bush presented new findings on the ‘causal impacts of interest rates and credit controls’ on inflation and economic activity.[3]

The evolution and management of modern central banks in mainland Europe and Great Britain formed the focus of three further papers. Starting with the foundation of Germany’s Reichsbank in 1876, Ousmène Mandeng (LSE) explored the role of competition and monetary stability as integral elements of the operation of Germany’s central bank prior to 1890. Mandeng argued that the Reichsbank’s flexible reserve requirements, as well as its rivalry with regional note issuing banks in the market for bills, created an effective, incentives-based system of central banking. Enrique Jorge-Sotelo (LSE) took a micro-historical approach to the Spanish banking crisis of 1931, assessing the criteria the Banco de España employed for the provision and conditions of its emergency loans. In her closing keynote, Dr Anne Murphy (Hertfordshire) examined the origins of modern management practices at the Bank of England.[4] Shedding light on the Bank’s working processes, recruitment, and staff training during the 1780s, Dr Murphy demonstrated that the Bank took important steps towards fostering and monitoring good managerial practice, which over the long run may have aided ‘the development of trust in the British public finances.’[5]

The politics of currency, taxation, and trade shaped a second major strand of the conference. Professor Martin Daunton (Cambridge) delivered a wide-ranging keynote on ‘Bretton Woods Revisited: Currency, Commerce and Contestation’. Shifting the focus away from the predominant narrative of US-UK rivalry at Bretton Woods, Daunton re-evaluated the specific domestic concerns of several Western European and Commonwealth countries, which affected their negotiating positions at the 1944 summit and at subsequent international trade conferences. The League of Nations’ work in the field of trade finance in the years leading up to the Great Depression was re-examined by Jamieson Gordon Myles (Geneva). His paper investigated the League’s failed internationalist efforts, and traced how economic nationalism and beggar-thy-neighbour policies could take hold in the inter-war period. New research on France, China, and Germany prompted further reflections on the impact of global integration in capital markets, and its effect on nations’ public finances. Jerome Greenfield (Cambridge), for example, investigated the political economy of France’s fiscal constitution between 1789 and 1852. Greenfield’s paper elucidated the central government’s rationale for re-introducing and extending indirect taxes after they had been abolished during the French Revolution. Ghassan Moazzin (Cambridge) discussed the Chinese state’s practice of raising capital for public expenses through foreign bond markets in the early twentieth century. His paper demonstrated that the interventions of Western bankers to uphold China’s credit had a critical influence on the political outcome of the Republican Revolution of 1911. Considering the nexus between finance and diplomacy, Sabine Schneider (Cambridge) appraised the role of cosmopolitan financial elites in Germany’s conversion to a gold standard. Her paper examined the semi-official position of Gerson von Bleichröder, private banker and economic advisor to Bismarck, and his interventions in the monetary reforms Germany pursued after unification.

Several papers pointed to the underexplored potential of cultural and social history to broaden our understanding of how economic cultures, ideologies and policies are themselves socially constructed. Owen Brittan’s paper (Cambridge) drew on autobiographical evidence to assess men’s anxiety over bankruptcy and debt in later Stuart England, and revealed how such fears were mediated through ideals of masculinity, honour and economic independence. Henry Sless (Reading) discussed the news reporting of financial events in the Victorian era, while Damian Clavel (Geneva) revisited the speculative bubble in Latin American bonds that gripped investors in the 1820s, focusing, in particular, on how underwriters constructed the notorious story of the ‘fictitious country of Poyais’.[6] Exploring changing cultural attitudes to speculation, Kieran Heinemann (Cambridge) traced the practices of brokers and investors in Britain’s grey market for stocks and shares during the half-century leading up to the Prevention of Fraud Act of 1939. Heinemann recovered a largely forgotten ‘discursive struggle over the boundaries between investment, speculation and gambling’, which still resonates with the concerns of investors and regulators today.

Credit, Currency & Commerce brought together thirty-six junior researchers and senior academics from across history, economics, development economics, business management, and philosophy. Their contributions from a variety of disciplinary angles and methodologies produced lively exchanges on the trajectory of financial and monetary history, and the opportunities it holds for mastering a deeper understanding of the world economy.


The full conference report and programme are available at

The conference was generously funded by the Economic History Society, the Centre for Financial History and the Faculty of History at the University of Cambridge. For more information on grants and conference funds:


[1] Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession and the Uses and Misuses of History (New York: Oxford University Press, 2015), 377.

[2] Eichengreen, Hall of Mirrors, 377.

[3] David Aikman, Oliver Bush, and Alan M. Taylor, ‘Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report’, NBER Working Paper No. 22380 (June 2016).

[4] Anne Murphy, ‘The Bank of England and the Genesis of Modern Management’, eabh Working Paper, No. 16-02 (August 2016); see also, Anne Murphy, ‘“Writes a fair hand and appears to be well qualified”: the recruitment of Bank of England clerks, 1800-1815’, Financial History Review, 22 (2015), 19-44.

[5] Murphy, ‘The Bank of England and the Genesis of Modern Management’, 29.

[6] Carmen M. Reinhardt and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), 93.

The Great War and Evolution of Central Banking in India

by Tehreem Husain, The Express Tribune


Post global financial crisis, there has been increased importance on exploring financial history of advanced economies and emerging markets to identify episodes of boom, crisis and regulatory responses from which parallels can be drawn today. In this blog, Tehreem Husain discusses an episode from early twentieth century Indian financial history which narrates the tale of a crisis and the evolution of a regulatory institution-the central bank in its wake.

The importance of India amongst the pool of emerging market economies can be gauged from the fact that it contributed 6.8 per cent to global GDP on PPP basis in 2014. Sustaining this growth track requires robust financial regulatory frameworks which can only come with a thorough understanding of its history and the events which led to the evolution of its crucial building block-the central bank. Researching early twentieth century Indian financial history suggests that the onset of the Great War and the financial crisis that ensued in India gave impetus to the creation of a central banking institution in the country.

The Great War, one of the most expensive wars in history, caused untold loss of human life and damages to economic and social resources. Britain at the forefront of the war went through insurmountable stress to meet financing needs of the war. Stephen Broadberry and other eminent economic historians have estimated that the cost of the Great War to Britain exceeded one-third of the total national income of war years. As the war continued in Europe, its stress spilled over the boundaries of mainland Britain and British colonies also became entangled in human and financial costs. For instance, not only did India contribute approximately 1.5 million men recruited during the war, but Indian taxpayers also made a significant contribution of £146 million to Britain to finance the war.

War times impose huge costs on the entire economy but more so for banks, due to the key role that they play in financing it. The National Bureau of Economic Research published a special volume on the effect of war on banking in 1943. One of the chapters, ‘Banking System and War Finance’, highlighted the crucial importance of commercial banks for Treasury borrowing. Banks constituted the largest purchasers of government obligations in addition to being the single most important outlet for the sale of government obligations to the public during World War II. Going back, similar to the experience of other countries, during the Great War Indian treasury borrowed heavily from the banking system. Debt archives from 1918 show that Rs 503.3 million were raised in the form of loans, Treasury Bills and Post Office Cash Certificates. At the same time government continued to issue fresh currency notes, which contributed to extraordinary liquidity flushing the banking sector (evidenced by a high cash-to-deposit ratio).

Studying the Indian economy during that time period using macro-financial indicator analysis, the relation between the British involvements in the Great War and the evolution of central banking is explored in India. Evidence suggests that exigencies of war-finance and government resorting to banking system to finance expenditures, the latter came under huge strain. A stressed macro and financial environment during the war years further weakened the fragile and fragmented Indian banking system. It led to a contagion like financial crisis accelerating bank failures in the war years and beyond. This crisis went unabated due to lack of a formal regulatory structure.

The near absence of regulatory oversight leading to financial crisis gave impetus to the creation of a central banking authority. Although the idea of a ‘banking establishment for India’ dates back to 1836, as a consequence of this episode, restructuring and reforms process ensued. This led to the introduction of a quasi-central banking institution, the Imperial Bank of India in 1921 and finally the creation of a full fledged central bank – the Reserve Bank of India, in 1935. In general, as argued by economists Stijn Claessens and M. Ayhan Kose (2013) deficiencies in regulatory oversight[1] leading to currency and maturity mismatches and resultant financial crisis are applicable to this episode as well.

Interestingly, this episode was not unique to India. In the presence of no regulatory institutions, management and resolution of financial crisis becomes increasingly complex. Historian Harold James has written that the global financial panic of 1907 demonstrated the necessity to America the need to mobilize financial power themselves in the form of a central bank analogous to the Bank of England. The Federal Reserve was created in 1913.

To conclude, one can argue that absence of a formal central banking institution in India resulted in many stressed scenarios for Indian financial system and missed opportunities for the imperial government. This meant that at that time there was no liquidity support available to the failing commercial banks, no control and coordination of credit creation (i.e. no reserve requirements), no mechanism or support for price discovery of the securities to be traded in the primary and secondary markets, etc. A similar argument was given by Keynes in his book ‘Indian Currency and Finance’ supporting the idea of an Indian central bank. Had there been a central bank in India it would have performed three essential functions: (a) assist the government in flotation of bonds or other government securities to the commercial banks, (b) provide direct lending to treasury in the form of ways-and-means advances or by purchase of government securities, and (c) provide reserves to the commercial banks to help them buy government obligations and offer them guidance and support to carry on as much of their traditional task of financing trade and industry as was compatible with a maximum war effort.

This article was based on the working paper ‘’Great War and Evolution of Central Banking in India”.

[1] Claessens, S., and Kose, M.A, 2013,” Financial Crises: Explanations, Types and Implications”, IMF Working Paper WP/13/28