The gender division of labour in early modern England: why study women’s work?

by Jane Whittle (University of Exeter) and Mark Hailwood (University of Bristol)

This article is published by The Economic History Review, and it is available on the EHS website.

 

WhittleandHailwood
Interior with an Old Woman at the Spinning Wheel. Available at Wikimedia Commons.

Here are ten reasons to know more about women’s work and read our article on ‘The gender division of labour in early modern England’. We have collected evidence about work tasks in order to quantify the differences between women’s and men’s work in the period from 1500-1700. This research allows us to dispel some common misconceptions.

 

  1. Men did most of the work didn’t they? This is unlikely, when both paid and unpaid work are counted, modern time-use studies show that women do the majority of work – 55% of rural areas of developing countries and 51% in modern industrial countries (UN Human Development report 1995). There is no reason why the pattern would have been markedly different in preindustrial England.
  2. But we know about occupational structure in the past don’t we? Documents from the medieval period onwards describe men by their occupations, but women by their marital status. As a result we know quite a lot about male occupations but very little about women’s.
  3. But women worked in households headed by their father, husband or employer. Surely, if we know what these men did, then we know what women were doing too? Recent research undertaken by Amy Erickson, Alex Shepard and Jane Whittle shows that married women often had different occupations from their husbands. If we do not know what women did, we are missing an important part of the economy.
  4. But we have evidence of women working for wages. It shows that around 20% of agricultural workers were women, surely this demonstrates that women’s work wasn’t as important as men’s in the wider economy? This evidence only relates to labourers paid by the day, and before 1700 most agricultural labour was not carried out by day labourers, so this isn’t a very good measure. Our article shows that women carried out a third of agricultural work tasks, not 20%.
  5. But women mostly did domestic stuff – cooking, housework and childcare – didn’t they, and that type of work doesn’t change much across history? Women did do most cooking, housework and childcare, but our research suggests it did not take up the majority of their working time. These forms of work did change markedly over time. A third of early modern housework took place outside, and our data suggests the majority was done for other households, not as unpaid work for one’s own family.
  6. But women only worked in a narrow range occupations, didn’t they? Our research shows that women worked in all the major sectors of the economy, but often doing slightly different tasks from men. They undertook a third of work tasks in agriculture, around half of the work in everyday commerce and almost two thirds of work tasks in textile production. But women also did forms of work we might not expect, such as shearing sheep, dealing in second-hand iron, and droving cattle.
  7. Women’s work was all low skilled wasn’t it? Women very rarely benefitted from formal apprenticeship in the way that men did, but that does not mean the tasks they undertook were unskilled. Women undertook many tasks, such as making lace and providing medical care, which required a great deal of skill.
  8. But this was all in the past, what relevance does it have now? Many gendered patterns of work are remarkably persistent over time. Analysis by the Office of National Statistics states that one third of the gender pay gap in modern Britain can be explained by men and women working in different occupations, and by the lower rates of pay for part-time work, which is more commonly undertaken by women than men.
  9. So nothing ever changes …? Well, not necessarily. In fact looking carefully at patterns of women’s work in the past shows some noticeably shifts over time. For instance, women worked as tailors and weavers in the medieval period and in the eighteenth century, but not in the sixteenth century.
  10. But we know why women work differently from men, particularly in preindustrial societies – isn’t it because they are less physically strong and all the child-bearing stuff? Physical strength does not explain why women did some physically taxing forms of work and not others (why they walked for miles carrying heavy loads on their heads rather than driving carts). And not all women were married or had children. Neither physical strength nor child-bearing can explain why women were excluded from tailoring between 1500 and 1650, but worked successfully and skilfully in this and other closely related crafts in other periods.

We now have data which allows us to look more carefully at these issues, but there is still much more to uncover.

 

To contact Jane Whittle: j.c.whittle@ex.ac.uk, Twitter: @jcwhittle1

To contact Mark Hailwood: m.hailwood@bristol.ac.uk, Twitter: @mark_hailwood

from Microeconomic Insights: ‘When Britain turned inward: lessons from the impact of 1930s protectionism’

by Alan de Bromhead (Queens University Belfast), Alan Fernihough (Queens University Belfast), Markus Lampe (Vienna University of Economics and Business) and Kevin Hjortshøj O’Rourke (All Souls College, Oxford)

The full post and online access to the full article is available on the Microeconomic Insights website

 

With a protectionist president in the White House, the future of the multilateral, rules-based international trading system seems much less certain. So it is not surprising that politicians and commentators are turning to the 1930s for examples of what protectionism can imply for international trade flows.

World trade not only collapsed during the early 1930s: it also became much less multilateral. Countries like Britain and France, which already had empires, traded more with those empires. And countries like Germany and Japan, which were looking to acquire empires of their own, similarly traded more intensively with their respective spheres of influence.

This research focuses on the experience of Britain, which in 1931 broke decisively with a longstanding tradition of free trade. From November that year, substantial tariffs could be imposed on manufactured goods from outside the Empire. Similar duties on non-Empire fruit, flowers, and vegetables were possible soon after. And following the Ottawa conference of 1932, Britain’s trade policy explicitly served the interests of ‘the home producer first, Empire producers second, and foreign producers last’.

What was the impact of this dramatic policy shift? This study analyzes detailed data on British imports of 258 consistently defined commodities from 42 countries over the period 1924-38, as well as information on tariffs, quotas, voluntary export restraints, and other variables potentially influencing trade flows. To quantify the impact of the switch to protection, the authors compare actual trade flows from 1931 with counterfactual flows that would have taken place had tariffs and quotas remained unchanged.

The shift towards protection reduced the value of British imports by 9-10% on average, with the biggest impact being felt in 1933. Protection accounted for about a quarter of the total decline in British imports, which is consistent with results for the United States.

But in contrast with the findings of previous studies (which analyze aggregate data on trade and trade policies), the new research finds that the shift towards protection had a big effect on the geographical composition of British imports. For example, the Empire’s share of British imports rose from 27% to 39.2% between 1930 and 1935, while in the absence of protection it would only have increased to 31.4%.

Overall, the research shows that using disaggregated data does not significantly change the estimated impact of protection on the total value of trade. But it matters a great deal for the estimated impact of protection on the geographical composition of trade. Studies using aggregate data find that imperial trade blocs did not have a big influence on trade patterns during the 1930s. In contrast, this research finds that trade policy was crucial in increasing the share of the British Empire in British imports.

The clear ‘Balkanization’ of world trade shown in these results had wider effects, as several contemporary observers recognized. It reflected and probably also exacerbated the international tensions of the times, the later outcomes of which are well known.

An Efficient Market? Going Public in London, 1891-1911

by Sturla Fjesme (Oslo Metropolitan University), Neal Galpin (Monash University Melbourne), Lyndon Moore (University of Melbourne)

This article is published by The Economic History Review, and it is available on the EHS website

 

37829
Antique print of the London Stock Exchange. Available at <https://www.ashrare.com/stock_exchange_prints.html>

The British at a disadvantage?
It has been claimed that British capital markets were unwelcoming to new and technologically advanced companies in the late 1800s and early 1900s. Allegedly, markets in the U.S. and Germany were far more developed in providing capital for growing research and development (R&D) companies whereas British capital markets favored older companies in more mature industries, leaving new technology companies at a great disadvantage.
In the article An Efficient Market? Going Public in London, 1891-1911 we investigate this claim by obtaining detailed investment data on all the companies that listed publicly in the U.K. over the period 1891 to 1911. By combining company prospectuses, which provide issuer information such as industry, patenting activity, and company age with those company’s investors we investigate if certain company types were left at a disadvantage. For a total of 339 companies (out of 611 new listings) we obtain share prices, prospectuses, and detailed investor information on name and occupation.

A welcoming exchange
Contrary to prior expectations we find that the London Stock Exchange (LSE) was very welcoming to young, technologically advanced, and foreign companies from a great variety of industries. Table 1 shows that new companies were from a great variety of industries, were often categorized as new-technology, and almost half of the companies listed were foreign. We find that 81% and 84% of the new and old technology firms that applied for an official quotation of their shares were accepted by the LSE listing committee, respectively. Therefore, there is no evidence that the LSE treated new or foreign companies differently.

Table 1. IPOs by Industry

  IPOs Old-Tech New-Tech Domestic Foreign
Banks and Discount Companies 4 4 0 0 4
Breweries and Distilleries 13 13 0 12 1
Commercial, Industrial, &c. 155 137 18 125 30
Electric Lighting & Power 11 0 11 9 2
Financial Land and Investment 23 23 0 2 21
Financial Trusts 12 12 0 8 4
Insurance 7 7 0 7 0
Iron, Coal and Steel 20 20 0 20 0
Mines 8 8 0 0 8
Nitrate 3 3 0 0 3
Oil 11 11 0 0 11
Railways 10 9 1 5 5
Shipping 3 3 0 3 0
Tea, Coffee and Rubber 48 48 0 0 48
Telegraphs and Telephones 3 1 2 1 2
Tramways and Omnibus 6 0 6 5 1
Water Works 2 2 0 1 1
Total 339 301 38 198 141

Note: We group firms by industry, according to their classification by the Stock Exchange Daily Official List.

We also find that investors treated disparate companies similarly. We find British investors were willing to place their money in young and old, high and low technology, and domestic and foreign firms without charging large price discounts to do so. We do, however, find that investors who worked in the same industry or lived close to where the companies operated were able to use their superior information to obtain larger investments in well performing companies. Together our findings suggest that the market for newly listed companies in late Victorian Britain was efficient and welcoming to new companies. We find no evidence indicating that the LSE (or its investors) withheld support for foreign, young, or new-technology companies.

 

To contact Lyndon Moore:  Lyndon.moore@unimelb.edu.au

Voting rights and financial systems: Evidence from two centuries of suffrage reforms

by Thomas Lambert (Erasmus University Rotterdam)

Extending voting rights to broader segments of the population considerably affects the way countries finance their economies. This is the key finding of our new research recently published in the Economic Journal, available here

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Suffragette Mrs Banks and banker Mr Banks in a scene from the classic Disney movie Mary Poppins (1964), directed by Robert Stevenson

Financial systems fulfil a number of key functions in the economy, thereby contributing to its growth. By transferring funds from savers/investors to borrowers such as households and firms, financial systems are the oil for the wheels that keep the economy turning.

Therefore, it is vital to have a clear understanding of the fundamental factors that support the development of financial systems. The research shows that suffrage institutions – that is, the institutions defining who holds the right to vote in the population – play a critical role.

Financial systems encompass financial institutions (such as banks) and financial markets (such as stock markets). However, the population is composed of corporate stakeholders (workers, investors, managers) and thus is not indifferent about whether governments should promote – through their policy choices – the development of stock markets or the banking sector. Indeed, both fulfil similar functions in the economy, but have a different impact on corporate stakeholders as they affect differently the degree to which each corporate stakeholder bears corporate risk. Stock markets lead to riskier but more profitable investments, at the cost of potentially higher labor-risk bearing. In contrast, banks have a tendency to limit risk-taking behavior of corporate managers because, as debtholders, they do not benefit from the upside potential of riskier investments.

The voting population will prefer politically to support bank finance if it relies more, in the aggregate, on labor income. However, the voting population will prefer relying on stock market finance if it has a sufficient amount of capital income relative labor income. By defining who has the right to vote in the population, suffrage institutions thus play a pivotal role in the way countries finance their economies.

Our research analyzes the gradual extensions of suffrage to various segments of the population over the nineteenth and twentieth centuries in 18 countries. It demonstrates that suffrage extensions change the political preferences of the voting population and, thereby, policy choices supporting either stock market finance or bank finance. Specifically, it provides empirical evidence that extending suffrage to broader segments of the population hampers the development of stock markets. In contrast, broadening suffrage is conducive to banking sector development.

Further evidence reveals longer-term effects produced by the extension of suffrage: A 25-year delay in the introduction of women universal suffrage increase today’s importance of stock markets relative to the banking sector by 17.5%.

Overall, these findings are consistent with the insight that small elites pursue economic opportunities by promoting capital raised on stock markets. In contrast, a broader political participation empowers a middle class which prefers bank finance as it is composed of voters with proportionally more exposure to labor income relative to capital income.

The research has broader implications. The scope of voting rights may drive the adoption and content of financial regulation shaping the way that financial intermediation takes place. This ultimately determines the long-term performance of economies.

 

To contact the author: t.lambert@rsm.nl

Lessons for the euro from Italian and German monetary unification in the nineteenth century

by Roger Vicquéry (London School of Economics)

Unificazione-Monetaria-Italiana-2012
Special euro-coin issued in 2012 to celebrate the 150th anniversary of the monetary unification of Italy. From Numismatica Pacchiega, available at <https://www.numismaticapacchiega.it/5-euro-annivesario-unificazione/&gt;

Is the euro area sustainable in its current membership form? My research provides new lessons from past examples of monetary integration, looking at the monetary unification of Italy and Germany in the second half of the nineteenth century.

 

Currency areas’ optimal membership has recently been at the forefront of the policy debate, as the original choice of letting peripheral countries join the euro was widely blamed for the common currency existential crisis. Academic work on ‘optimum currency areas’ (OCA) traditionally warned against the risk of adopting a ‘one size fits all’ monetary policy for regions with differing business cycles.

Krugman (1993) even argued that monetary unification in itself might increase its own costs over time, as regions are encouraged to specialise and thus become more different to one another. But those concerns were dismissed by Frankel and Rose’s (1998) influential ‘OCA endogeneity’ theory: once regions with ex-ante diverging paths join a common currency, they will see their business cycle synchronise progressively ex-post.

My findings question the consensus view in favour of ‘OCA endogeneity’ and raise the issue of the adverse effects of monetary integration on regional inequality. I argue that the Italian monetary unification played a role in the emergence of the regional divide between Italy’s Northern and Southern regions by the turn of the twentieth century.

I find that pre-unification Italian regions experienced largely asymmetric shocks, pointing to high economic costs stemming from the 1862 Italian monetary unification. While money markets in Northern Italy were synchronised with the core of the European monetary system, Southern Italian regions tended to move together with the European periphery.

The Italian unification is an exception in this respect, as I show that other major monetary arrangements in this period, particularly the German monetary union but also the Latin Monetary Convention and the Gold Standard, occurred among regions experiencing high shock synchronisation.

Contrary to what ‘OCA endogeneity’ would imply, shock asymmetry among Italian regions actually increased following monetary unification. I estimate that pairs of Italian provinces that came to be integrated following unification became, over four decades, up to 15% more dissimilar to one another in their economic structure compared to pairs of provinces that already belonged to the same monetary union. This means that, in line with Krugman’s pessimistic take on currency areas, economic integration in itself increased the likelihood of asymmetric shocks.

In this respect, the global grain crisis of the 1880s, disproportionally affecting the agricultural South while Italy pursued a restrictive monetary policy, might have laid the foundations for the Italian ‘Southern Question’. As pointed out by Krugman, asymmetric shocks in a currency area with low transaction costs can lead to permanent loss in regional income, as prices are unable to adjust fast enough to prevent factors of production to permanently leave the affected region.

The policy implications of this research are twofold.

First, the results caution against the prevalent view that cyclical symmetry within a currency area is bound to improve by itself over time. In particular, the role of specialisation and factor mobility in driving cyclical divergence needs to be reassessed. As the euro area moves towards more integration, additional specialisation of its regions could further magnify – by increasing the likelihood of asymmetric shocks – the challenges posed by the ‘one size fits all’ policy of the European Central Bank on the periphery.

Second, the Italian experience of monetary unification underlines how the sustainability of currency areas is chiefly related to political will rather than economic costs. Despite the fact that the Italian monetary union has been sub-optimal from the start and to a large extent remained so, it has managed to survive unscathed for the last century and a half. While the OCA framework is a good predictor of currency areas’ membership and economic performance, their sustainability is likely to be a matter of political integration.

Cash Converter: The Liquidity of the Victorian Capital Market

by John Turner (Queen’s University Centre for Economic History)

Liquidity is the ease with which an asset such as a share or a bond can be converted into cash. It is important for financial systems because it enables investors to liquidate and diversify their assets at a low cost. Without liquid markets, portfolio diversification becomes very costly for the investor. As a result, firms and governments must pay a premium to induce investors to buy their bonds and shares. Liquid capital markets also spur firms and entrepreneurs to invest in long-run projects, which increases productivity and economic growth.

From an historical perspective, share liquidity in the UK played a major role in the widespread adoption of the company form in the second half of the nineteenth century. Famously, as I discuss in a recent book chapter published in the Research Handbook on the History of Corporate and Company Law, political and legal opposition to share liquidity held up the development of the company form in the UK.

However, given the economic and historical importance of liquidity, very little has been written on the liquidity of UK capital markets before 1913. Ron Alquist (2010) and Matthieu Chavaz and Marc Flandreau (2017) examine the liquidity risk and premia of various sovereign bonds which were traded on the London Stock Exchange during the late Victorian and early Edwardian eras. Along with Graeme Acheson (2008), I document the thinness of the market for bank shares in the nineteenth century, using the share trading records of a small number of banks.

In a major study, Gareth Campbell (Queen’s University Belfast), Qing Ye (Xi’an Jiaotong-Liverpool University) and I have recently attempted to understand more about the liquidity of the Victorian capital market. To this end, we have just published a paper in the Economic History Review which looks at the liquidity of the London share and bond markets from 1825 to 1870. The London capital market experienced considerable growth in this era. The liberalisation of incorporation law and Parliament’s liberalism in granting company status to railways and other public-good providers, resulted in the growth of the number of business enterprises having their shares and bonds traded on stock exchanges. In addition, from the 1850s onwards, there was an increase in the number of foreign countries and companies raising bond finance on the London market.

How do we measure the liquidity of the market for bonds and stocks in the 1825-70 era? Using end-of-month stock price data from a stockbroker list called the Course of the Exchange and end-of-month bond prices from newspaper sources, we calculate for each security, the number of months in the year where it had a zero return and divide that by the number of months it was listed in the year. Because zero returns are indicative of illiquidity (i.e., that a security has not been traded), one minus our illiquidity ratio gives us a liquidity measure for each security in our sample. We calculate the overall market liquidity for shares and bonds by taking averages. Figure 1 displays market liquidity for bonds and stocks for the period 1825-70.

fig1
Figure 01. Stock and bond liquidity on London Stock Exchange, 1825-1870. Source: Campbell, Turner and Ye (2018, p.829)

Figure 1 reveals that bond market liquidity was relatively high throughout this period but shows no strong trend over time. By way of contrast, there was a strong secular increase in stock liquidity from 1830 to 1870. This increase may have stimulated greater participation in the stock market by ordinary citizens. It may also have affected the growth and deepening of the overall stock market and resulted in higher economic growth.

We examine the cross-sectional differences in liquidity between stocks in order to understand the main determinants of stock liquidity in this era. Our main finding in this regard is that firm size and the number of issued shares were major correlates of liquidity, which suggests that larger firms and firms with a greater number of shares were more frequently traded. Our study also reveals that unusual features which were believed to impede liquidity, such as extended liability, uncalled capital or high share denominations, had little effect on stock liquidity.

We also examine whether asset illiquidity was priced by investors, resulting in higher costs of capital for firms and governments. We find little evidence that the illiquidity of stock or bonds was priced, suggesting that investors at the time did not put much emphasis on liquidity in their valuations. Indeed, this is consistent with J. B. Jefferys (1938), who argued that what mattered to investors during this era was not share liquidity, but the dividend or coupon they received.

In conclusion, the vast majority of stocks and bonds in this early capital market were illiquid. It is remarkable, however, that despite this illiquidity, the UK capital market grew substantially between 1825 and 1870. There was also an increase in investor participation, with investing becoming progressively democratised in this era.

 

To contact the author: j.turner@qub.ac.uk
Twitter: @profjohnturner

 

Bibliography:

Acheson, G.G., and Turner, J.D. “The Secondary Market for Bank Shares in Nineteenth-Century Britain.” Financial History Review 15, no. 2 (October 2008): 123–51. doi:10.1017/S0968565008000139.

Alquist, R. “How Important Is Liquidity Risk for Sovereign Bond Risk Premia? Evidence from the London Stock Exchange.” Journal of International Economics 82, no. 2 (November 1, 2010): 219–29. doi:10.1016/j.jinteco.2010.07.007.

Campbell, G., Turner, J.D., and Ye, Q. “The Liquidity of the London Capital Markets, 1825–70†.” The Economic History Review 71, no. 3 (August 1, 2018): 823–52. doi:10.1111/ehr.12530.

Chavaz, M., and Flandreau, M. “‘High & Dry’: The Liquidity and Credit of Colonial and Foreign Government Debt and the London Stock Exchange (1880–1910).” The Journal of Economic History 77, no. 3 (September 2017): 653–91. doi:10.1017/S0022050717000730.

Jefferys, J.B. Trends in Business Organisation in Great Britain Since 1856: With Special Reference to the Financial Structure of Companies, the Mechanism of Investment and the Relations Between the Shareholder and the Company. University of London, 1938.

Wages of sin: slavery and the banks, 1830-50

by Aaron Graham (University College London)

 

jon-bull
From the cartoon ‘Slave Emancipation; Or, John Bull Gulled Out Of Twenty Millions’ by C.J. Grant. In Richard Pound (UCL, 1998), C.J. Grant’s ‘Political Drama’, a radical satirist rediscovered‘. Available at <https://www.ucl.ac.uk/lbs/project/logo/&gt;

In 1834, the British Empire emancipated its slaves. This should have quickly triggered a major shift away from plantation labour and towards a free society where ex-slaves would bargain for better wages and force the planters to adopt new business models or go under. But the planters and plantation system survived, even if slavery did not. What went wrong?

This research follows the £20 million paid in compensation by the British government in 1834 (equivalent to about £20 billion today). This money was paid not to the slaves, but to the former slave-owners for the loss of their human property.

Thanks to the Legacies of British Slave-ownership project at University College London, we now know who received the money and how much. But until this study, we knew very little about how the former slave-owners used this money, or what effect this had on colonial societies in the West Indies or South Africa as they confronted the demands of this new world.

The study suggests why so little changed. It shows that slave-owners in places such as Jamaica, Guyana, South Africa and Mauritius used the money they received not just to pay off their debts, but also to set up new banks, which created credit by issuing bank notes and then supplied the planters with cash and credit.

Planters used the credit to improve their plantations and the cash to pay wages to their new free labourers, who therefore lacked the power to bargain for better conditions. Able to accommodate the social and economic pressures that would otherwise have forced them to reassess their business models and find new approaches that did not rely on the unremitting exploitation of black labour, planters could therefore resist the demands for broader economic and social change.

Tracking the ebb and flow of money shows that in Jamaica, for example, in 1836 about 200 planters chose to subscribe half the £450,000 they had received in compensation in the new Bank of Jamaica. By 1839, the bank had issued almost £300,000 in notes, enabling planters across the island to meet their workers’ wages without otherwise altering the plantation system.

When the Planters’ Bank was founded in 1839, it issued a further £100,000. ‘We congratulate the country on the prospects of a local institution of this kind’, the Jamaica Despatch commented in May 1839, ‘ … designed to aid and relieve those who are labouring under difficulties peculiar to the Jamaican planter at the present time’.

In other cases, the money even allowed farmers to expand the system of exploitation. In the Cape of Good Hope, the Eastern Province Bank at Grahamstown raised £26,000 with money from slavery compensation but provided the British settlers with £170,000 in short-term loans, helping them to dispossess native peoples of their land and use them as cheap labour to raise wool for Britain’s textile factories.

‘With united influence and energy’, the bank told its shareholders in 1840, for example, ‘the bank must become useful, as well to the residents at Grahamstown and our rapidly thriving agriculturists as prosperous itself’.

This study shows for the first time why planters could carry on after 1834 with business as usual. The new banks created after 1834 helped planters throughout the British Empire to evade the major social and economic changes that abolitionists had wanted and which their opponents had feared.

By investing their slavery compensation money in banks that then offered cash and credit, the planters could prolong and even expand their place in economies and societies built on the plantation system and the exploitation of black labour.

 

To contact the author: aaron.graham@ucl.ac.uk

 

The UK’s unpaid war debts to the United States, 1917-1980

by David James Gill (University of Nottingham)

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Trenches in World War I. From <www.express.co.uk>

We all think we know the consequences of the Great War – from the millions of dead to the rise of Nazism – but the story of the UK’s war debts to the United States remains largely untold.

In 1934, the British government defaulted on these loans, leaving unpaid debts exceeding $4 billion. The UK decided to cease repayment 18 months after France had defaulted on its war debts, making one full and two token repayments prior to Congressional approval of the Johnson Act, which prohibited further partial contributions.

Economists and political scientists typically attribute such hesitation to concerns about economic reprisals or the costs of future borrowing. Historians have instead stressed that delay reflected either a desire to protect transatlantic relations or a naive hope for outright cancellation.

Archival research reveals that the British cabinet’s principal concern was that many states owing money to the UK might use its default on war loans as an excuse to cease repayment on their own debts. In addition, ministers feared that refusal to pay would profoundly shock a large section of public opinion, thereby undermining the popularity of the National government. Eighteen months of continued repayment therefore provided the British government with more time to manage these risks.

The consequences of the UK’s default have attracted curiously limited attention. Economists and political scientists tend to assume dire political costs to incumbent governments as well as significant short-term economic shocks in terms of external borrowing, international trade, and the domestic economy. None of these consequences apply to the National government or the UK in the years that followed.

Most historians consider these unpaid war debts to be largely irrelevant to the course of domestic and international politics within five years. Yet archival research reveals that they continued to play an important role in British and American policy-making for at least four more decades.

During the 1940s, the issue of the UK’s default arose on several occasions, most clearly during negotiations concerning Lend-Lease and the Anglo-American loan, fuelling Congressional resistance that limited the size and duration of American financial support.

Successive American administrations also struggled to resist growing Congressional pressure to use these unpaid debts as a diplomatic tool to address growing balance of payment deficits from the 1950s to the 1970s. In addition, British default presented a formidable legal obstacle for the UK’s return to the New York bond market in the late 1970s, threatening to undermine the efficient refinancing of the government’s recent loans from the International Monetary Fund.

The consequences of the UK’s default on its First World War debts to the United States were therefore longer lasting and more significant to policy-making on both sides of the Atlantic than widely assumed.

 

Decimalising the pound: a victory for the gentlemanly City against the forces of modernity?

by Andy Cook (University of Huddersfield)

 

1813 guinea

Some media commentators have identified the decimalisation of the UK’s currency in 1971 as the start of a submerging of British identity. For example, writing in the Daily Mail, Dominic Sandbrook characterises it as ‘marking the end of a proud history of defiant insularity and the beginning of the creeping ­Europeanisation of ­Britain’s institutions.’

This research, based on Cabinet papers, Bank of England archives, Parliamentary records and other sources, reveals that this interpretation is spurious and reflects more modern preoccupations with the arguments that dominated much of the Brexit debate, rather than the actual motivation of key players at the time.

The research examines arguments made by the proponents of alternative systems based on either decimalising the pound, or creating a new unit worth the equivalent of 10 shillings. South Africa, Australia and New Zealand had all recently adopted a 10-shilling unit, and this system was favoured by a wide range of interest groups in the UK, representing consumers, retailers, small and large businesses, and media commentators.

Virtually a lone voice in lobbying for retention of the pound was the City of London, and its arguments, articulated by the Bank of England, were based on a traditional attachment to the international status of sterling. These arguments were accepted, both by the Committee of Enquiry on Decimal currency, which reported in 1963, and, in 1966, by a Labour government headed by Harold Wilson, who shared the City’s emotional attachment to the pound.

Yet by 1960, the UK had faced the imminent prospect of being virtually the only country retaining non-decimal coinage. Most key economic players agreed that decimalisation was necessary and the only significant bone of contention was the choice of system.

Most informed opinion favoured a new major unit equivalent to 10 shillings, as reflected in evidence given by retailers and other businesses to the Committee of Enquiry on Decimal Coinage, and the formation of a Decimal Action Committee by the Consumers Association to press for such a system.

The City, represented by the Bank of England, was implacably opposed to such a system, arguing that the pound’s international prestige was crucial to underpinning the position of the City as a leading financial centre. This assertion was not evidence-based, and internal Bank documents acknowledge that their argument was ‘to some extent based on sentiment’.

This sentiment was shared by Harold Wilson, whose government announced the decision to introduce decimal currency based on the pound in 1966. Five years earlier, he had made an emotional plea to keep the pound arguing that ‘the world will lose something if the pound disappears from the markets of the world’.

Far from being the end of ‘defiant insularity’, the decision to retain a higher-value basic currency unit of any major economy, rather than adopting one closer in value either to the US dollar or the even lower-value European currencies, reflected the desire of the City and government to maintain a distinctive symbol of Britishness, the pound, overcoming opposition from interests with more practical concerns.

THE FINANCIAL POWER OF THE POWERLESS: Evidence from Ottoman Istanbul on socio-economic status, legal protection and the cost of borrowing

In Ottoman Istanbul, privileged groups such as men, Muslims and other elites paid more for credit than the under-privileged – the exact opposite of what happens in a modern economy.

New research by Professors Timur Kuran (Duke University) and Jared Rubin (Chapman University), published in the March 2018 issue of the Economic Journal, explains why: a key influence on the cost of borrowing is the rule of law and in particular the extent to which courts will enforce a credit contract.

In pre-modern Turkey, it was the wealthy who could benefit from judicial bias to evade their creditors – and who, because of this default risk, faced higher interest rates on loans. Nowadays, it is under-privileged people who face higher borrowing costs because there are various institutions through which they can escape loan repayment, including bankruptcy options and organisations that will defend poor defaulters as victims of exploitation.

In the modern world, we take it for granted that the under-privileged incur higher borrowing costs than the upper socio-economic classes. Indeed, Americans in the bottom quartile of the US income distribution usually borrow through pawnshops and payday lenders at rates of around 450% per annum, while those in the top quartile take out short-term loans through credit cards at 13-16%. Unlike the under-privileged, the wealthy also have access to long-term credit through home equity loans at rates of around 4%.

The logic connecting socio-economic status to borrowing costs will seem obvious to anyone familiar with basic economics: the higher costs of the poor reflect higher default risk, for which the lender must be compensated.

The new study sets out to test whether the classic negative correlation between socio-economic status and borrowing cost holds in a pre-modern setting outside the industrialised West. To this end, the authors built a data set of private loans issued in Ottoman Istanbul during the period from 1602 to 1799.

These data reveal the exact opposite of what happens in a modern economy: the privileged paid more for credit than the under-privileged. In a society where the average real interest rate was around 19%, men paid an interest surcharge of around 3.4 percentage points; Muslims paid a surcharge of 1.9 percentage points; and elites paid a surcharge of about 2.3 percentage points (see Figure 1).

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What might explain this reversal of relative borrowing costs? Why did socially advantaged groups pay more for credit, not less?

The data led the authors to consider a second factor contributing to the price of credit, often taken for granted: the partiality of the law. Implicit in the logic that explains relative credit costs in modern lending markets is that financial contracts are enforceable impartially when the borrower is able to pay. Thus, the rich pay less for credit because they are relatively unlikely to default and because, if they do, lenders can force repayment through courts whose verdicts are more or less impartial.

But in settings where the courts are biased in favour of the wealthy, creditors will expect compensation for the risk of being unable to obtain restitution. The wealth and judicial partiality effects thus work against each other. The former lowers the credit cost for the rich; the latter raises it.

Islamic Ottoman courts served all Ottoman subjects through procedures that were manifestly biased in favour of clearly defined groups. These courts gave Muslims rights that they denied to Christians and Jews. They privileged men over women.

Moreover, because the courts lacked independence from the state, Ottoman subjects connected to the sultan enjoyed favourable treatment. Theory developed in the new study explains why their weak legal power may translate into strong financial power.

More generally, this research suggests that in a free financial market, any hindrance to the enforcement of a credit contract will raise the borrower’s credit cost. Just as judicial biases in favour of the wealthy raise their interest rates on loans, institutions that allow the poor to escape loan repayment – bankruptcy options, shielding of assets from creditors, organisations that defend poor defaulters as victims of exploitation – raise interest rates charged to the poor.

Today, wealth and credit cost are negatively correlated for multiple reasons. The rich benefit both from a higher capacity to post collateral and from better enforcement of their credit obligations relative to those of the poor.

 

To contact the authors:
Timur Kuran (t.kuran@duke.edu); Jared Rubin (jrubin@chapman.edu)