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.

THE INEFFECTIVENESS OF GOVERNMENT EFFORTS TO PROMOTE PRODUCTS MADE AT HOME: Evidence from the ‘Buy British’ campaigns of the 1960s and 1980s

David Clayton (University of York) and David Higgins (Newcastle University)


Campaigns to promote the purchase of domestic manufactures feature prominently during national economic crises. The key triggers of such schemes include growing import penetration and concern that consumers have been misled into purchasing foreign products instead of domestic ones. Early examples of such initiatives occurred in the United States in 1890 and 1930, with the introduction of the McKinley tariff and the ‘Buy American’ Act, respectively.

In Britain, similar schemes were launched during the interwar years and in the post-1945 period. For the latter, Britain’s share of world trade in manufactures declined from 25% to 10%, and between 1955 and 1980, import penetration in the manufacturing sector increased from 8% to 30%.

Simultaneously, there were numerous government public policy interventions designed to improve productivity, for example, the National Economic Development Council and the Industrial Relations Commission. Both Labour and Conservative governments were much more interventionist than today.

Currently, the rise of protectionist sentiment in the United States and across Europe may well generate new campaigns to persuade consumers to boycott foreign products and give their preference to those made at home. Indeed, President Trump has vowed to ‘Make America Great Again’: to preserve US jobs he has threatened to tax US companies that import components from abroad.

Using a case study of the ‘Buy British’ campaigns of the 1960s and 1980s, our research, to be presented at the Economic History Society’s 2017 annual conference in London, considers what general lessons can be learned from such initiatives and why, in Britain, they failed.

Our central arguments can be summarised as follows. In the 1960s, before Britain acceded to the European Economic Community, there was considerable scope for a government initiative to promote ‘British’ products. But a variety of political and economic obstacles blocked a ‘Buy British’ campaign. During the 1980s, there was less freedom of manoeuvre to enact an official policy of ‘Buy British’ because by then Britain had to abide by the terms of the Treaty of Rome.

In the 1960s, efforts to promote ‘Buy British’ were hindered by the reluctance of British governments to lead on this initiative because of Treasury constraints on national advertising campaigns and a general belief that such a campaign would be ineffective.

For example, the nationalised industries, which were a large proportion of the economy at this time, could not be used to spearhead any campaign because they relied on industrial and intermediate inputs, not consumer durables; and in any case, the ability of these industries to direct more of their purchases to domestic sources was severely constrained: total purchases by all nationalised industries in the early 1970s were around £2,000 million, of which over 90% went to domestic suppliers.

Efforts to nudge private organisations into running these campaigns were also ineffective. The CBI refused to take the lead on a point of principle, arguing that ‘A general campaign would… conflict with [our] view that commercial freedom should be as complete as possible. British goods must sell on their merits and their price in relation to those of our competitors, not because they happen to be British’.

During the 1980s, government intervention to promote ‘Buy British’ would have contravened Britain’s new international treaty obligations. The Treaty of Rome (1957) required the liberalisation of trade between members, the reduction and eventual abolition of tariffs and the elimination of measures, such as promotion of ‘British’ products, ‘having equivalent effect’. Attempts by the French and Irish governments to persuade their consumers to give preference to domestic goods were declared illegal.

The only way to overcome this legislative restriction was if domestic companies chose to mark their products as ‘British’ voluntarily. This was not a rational strategy for individual firms to follow. Consumers generally prefer domestic to foreign products.

But when price, quality and product-country images are taken into account, rather than origin per se, the country of origin effect is weakened considerably. From the perspective of individual firms promoting their products, using a ‘British’ mark risked devaluing their pre-existing brands by associating then with inferior products.

Our conclusions are that in both periods, firms acting individual or collectively (via industry-wide bodies) did not want to promote their products using ‘British’ marks. Action required top-down pressure from government to persuade consumers to ‘Buy British’. In the 1960s, there was no consensus within government in favour of this position, and, by the 1980s, government intervention was illegal due to international treaty obligation.

In a post-Brexit Britain, with a much weakened manufacturing capacity compared even with the 1960s and 1980s, the case for the government to nudge consumers to ‘Buy British’ is weak.

Holding Brexiteers to account

by Adrian Williamson, University of Cambridge

Margaret Thatcher and Ted Heat campaigning during the 1975 Common Market Referendum, when conservative leaders took a rather different approach to Europe. Source:

The House of Commons has voted overwhelmingly to trigger Article 50, on the explicit basis that this process will be irrevocable and that, at the end of the negotiations, Parliament will have a choice between a hard Brexit (leaving the Single Market and the EEA) and an ultra-hard Brexit (WTO terms, if available).

It follows that arguments about whether the UK should remain in the EU, or should stay in all but name (the so called Norwegian option) are now otiose. What role can economic historians play as the terms of exit unfold? I think that there is an important role for scholars in seeking to analyse the promises of the Brexiteers and how feasible these appear in the light of previous experience.

Thus far, the economic debate over Brexit has been conducted on a very general basis. Remainers have argued that leaving the EU spells disaster, whereas Leavers have dismissed such concerns and promised a golden economic future. But what exactly will this future consist of? Doing the best one can, the Brexit proposition must surely be that the rate of economic growth per capita will be significantly higher in the future than it would have been if the UK had retained its EU membership. Since, at the same time, there was to be a massive and permanent reduction in EU and non-EU immigration (from c.330,000 p.a. net immigration to ‘tens of thousands’), it is per capita improvements that will have to be achieved.

The path to this goal will, it is said, be clear once the UK leaves. In particular:

  • the UK will be able to make its own trade deals and become a great global trading nation;
  • the UK can develop a less restrictive regulatory framework than that imposed by the EU;
  • industries such as manufacturing, fisheries and agriculture will revive once the country is no longer ‘tethered to the corpse’ of the EU;
  • the post-referendum devaluation will provide a boost for exporters.

In relation to each of these claims, there is plenty of helpful evidence from economic history. After all, the UK was the first nation to embrace a global trading role. As Keynes pointed out in a famous passage, in 1914:

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages…

 Yet, despite this background, and despite the economically advantageous legacies of Empire, the UK spent the period between 1961 and 1973 making increasingly desperate attempts to join a (then much smaller) Common Market. British policymakers were initially dismissive of the European Community. Exports to the Six were thought less important than trade with the Commonwealth. Britain’s initial response was to establish EFTA as a rival free trade area. However, it soon became apparent that this arrangement was lopsided: Britain was part of a free trade area with a population of 89m (including its own 51m), but stood outside the EEC’s tariff walls and population of 170m. Will the 2020s be different from the 1960s? In any event, ‘free trade’ is an elusive concept. As John Biffen, a Tory Trade Minister in the Thatcher government (and no friend of the EU), acknowledged, free trade has never existed ‘outside a textbook’.

As regards to decoupling from EU regulations, the UK was, of course, completely free to devise its own regulatory framework prior to accession to the EU in 1973. Nonetheless, in this period, much of the current labour market structure, such as protection against unfair dismissal and redundancy, was enacted. EU regulations, such as the Social Chapter, have complemented, not undermined, this domestic framework. In any event, does the evidence suggest that a mature economy, such as the UK, will be able to establish a more rapid rate of growth with a looser regulatory framework? The obvious comparisons in this respect are the developed North American and Japanese economies. The data suggests that the UK has performed extremely well within the EU framework.


Table: GDP per capita (current US $, source: World Bank




Cumulative increase






















Of course, much higher rates of growth have recently been achieved in developing economies such as China and India. But it cannot seriously be argued that an economy like the UK, which underwent an industrial revolution in the eighteenth century, can achieve rates of progress comparable to economies that are industrialising now. The whole course of economic history shows that mature economies have much slower rates of growth and that the increases achieved by the USA and the UK over the last few decades are close to optimum performance.

The maturity of the UK economy is also germane to arguments suggesting that it will be possible to revive industries that have suffered long term decline, such as manufacturing, agriculture and fisheries. After all, one consequence of the UK’s early start in manufacturing is that primary industries declined first and most rapidly here. Economic historians have been pointing out since the 1950s that in advanced economies the working population inevitably drifts from agriculture to manufacturing and then from manufacturing to services. In 1973, the American sociologist Daniel Bell greeted the arrival of the post-industrial society. He pointed out that the American economy was the first in the world in which more than 60% of the population were engaged in services, and that this trend was deepening in the USA and elsewhere. Brexit is scarcely likely to reverse these very long-term developments.

The British economy has also had considerable past experience of enforced devaluation (for example in 1931, 1949 and 1967). Research following the 1967 devaluation suggested that a falling pound gave only a temporary fillip to the trade balance, whilst delivering a permanent increase in inflation. Over the same period the West German economy performed extremely strongly, despite a constantly appreciating currency.

Finally, one may question whether the UK can achieve an economic miracle whilst, at the same time, pursuing a very restrictive approach to immigration. Successful economies tend to be extremely open to outsiders, who are both a cause and a consequence of growth. After all, in the pre-1914 golden age to which Keynes referred, there were no controls at all, and the British businessman ‘could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality…and could then proceed abroad to foreign quarters…and would consider himself greatly aggrieved and much surprised at the least interference’. Our putative partners in trade deals are not likely to be offering such access and, if they do, they will want substantial concessions in return.

Of course, past performance is no guarantee of future prosperity. Historic failure does not preclude future success. And sections of British public opinion have, it appears, ‘had enough of experts’. Even so, economic historians can hold up to scrutiny some of the more extravagant claims of the Brexiteers.