Financial Revolution in 18th Century England- the South Sea Bubble
After 1688, Britain underwent a revolution in public finance, and the cost of borrowing declined sharply. Leading scholars have argued that easier credit for the government, made possible by better property rights protection, lead to a rapid expansion of private credit, and see the Industrial Revolution as a result of the preceding revolution in public finance.
However, some prominent economic historians, on examination of this hypothesis, conclude that the financial revolution led to an explosion of public debt, but it stifled private credit. This resulted in a markedly slower growth in the English economy. Numerous entrants tried their hand at the new business of deposit banking – few survived and fewer thrived. Government regulations such as setting a maximum interest rate caused severe misallocation of credit. A misguided attempt to lighten the nation's debt burden led directly to the South Sea Bubble in 1720, and frequent wars caused banks to call in loans, leading to sharply slower economic growth. Wartime borrowing crowded out investment. Far from fostering economic development, England's financial revolution after 1688 did much to slow it down.
The South Sea Bubble, apparently, was preceded by a discursive bubble. Early modern capitalist markets evolved, financial systems developed, and English economic institutions changed. There was a chronic shortage of currency in 17th century England, and the fiscal pressures of near- continuous war with France ensured that public credit remained a problem.
18th century finance can be divided into three areas – public, private and corporate. Crises could affect all of these at the same time or simply one of two. Crises in corporate finance were rare because it commanded limited amounts of money and the Bubble Act prevented too much speculative activity. Public finance had developed after the Glorious Revolution. However, creditors' trust in the government's ability to honor its debt was limited and
However, some prominent economic historians, on examination of this hypothesis, conclude that the financial revolution led to an explosion of public debt, but it stifled private credit. This resulted in a markedly slower growth in the English economy. Numerous entrants tried their hand at the new business of deposit banking – few survived and fewer thrived. Government regulations such as setting a maximum interest rate caused severe misallocation of credit. A misguided attempt to lighten the nation's debt burden led directly to the South Sea Bubble in 1720, and frequent wars caused banks to call in loans, leading to sharply slower economic growth. Wartime borrowing crowded out investment. Far from fostering economic development, England's financial revolution after 1688 did much to slow it down.
The South Sea Bubble, apparently, was preceded by a discursive bubble. Early modern capitalist markets evolved, financial systems developed, and English economic institutions changed. There was a chronic shortage of currency in 17th century England, and the fiscal pressures of near- continuous war with France ensured that public credit remained a problem.
18th century finance can be divided into three areas – public, private and corporate. Crises could affect all of these at the same time or simply one of two. Crises in corporate finance were rare because it commanded limited amounts of money and the Bubble Act prevented too much speculative activity. Public finance had developed after the Glorious Revolution. However, creditors' trust in the government's ability to honor its debt was limited and