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Innovations, Debts, and Bubbles: International Integration of Financial Markets in Western Europe, 1688–1720

Published online by Cambridge University Press:  03 March 2009

Eric S. Schubert
Eric S. Schubert
Affiliation:
member of the International Economics Group, Bankers Trust Company, 280 Park Avenue, New York, NY 10017.
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Abstract

The article uses recent exchange-rate data to explore the progressive integration of early eighteenth-century, West European financial markets. The process climaxed in 1719 and 1720 with the Mississippi Bubble in Paris, the South Sea Bubble in London, and the insurance bubbles in Hamburg and throughout Holland. Only Paris failed to integrate permanently into the new multinational network.

Type
Papers Presented at the Forty-Seventh Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 48 , Issue 2 , June 1988 , pp. 299 - 306
Copyright
Copyright © The Economic History Association 1988

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References

1 Dickson, P.G.M., The Financial Revolution in England: A Study in the Development of Public Credit, 1688–1756 (London, 1967);Google ScholarNeal, Larry D., “The Integration and Efficiency of the London and Amsterdam Stock Markets in the Eighteenth Century,” this JOURNAL, 47 (03 1987), pp. 97–115;Google ScholarKindleberger, Charles P., Manias, Panics, and Crashes (New York, 1978),CrossRefGoogle Scholar and A Financial History of Western Europe (London, 1984).Google Scholar

2 de la Vega, Josef Penso, Confusion de Confusiones (Amsterdam, 1688; translated and abridged by Kellenbenz, Hermann, Cambridge, Mass., 1957).Google Scholar

3 Dickson, Financial Revolution, chap. 3, carries a full discussion on the efforts of the government to transform tax procurement.Google Scholar

4 Parliament borrowed £16.5 million in the War of the League of Augsburg (1689–1697) and £29.4 million in the War of the Spanish Succession (1702–1713) from all sources. Dickson, Financial Revolution, p. 10.Google Scholar

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6 Dickson, Financial, Revolution, p. 471, charts the interest rates on government and private debt in England for the first half of the eighteenth century.Google Scholar

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8 Dickson, Financial Revolution, p. 310, provides evidence for purchases of stock in the Bank of England. The number of new accounts of Dutch financiers rose from 5 in 1713 to 33 in 1718.Google Scholar

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12 Ibid., p. 427.

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14 Posthumus, History of Prices in Holland, p. 596. Though Posthumus lists only one rate on a city, he states that his tables of exchange rate data include short rates whenever possible, “as a number of complicating factors are in this way eliminated” (p. 587).Google Scholar

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16 Castaing failed to list the long rate again until 1740. As a result of the bubbles and numerous recoinages that took place between 1709 and 1726, the function of the short bills on Paris after 1720 differed from those on other cities in Western Europe, probably serving as a hedge against arbitrary intervention by the monarchy in France.Google Scholar

17 Schubert, Eric S., “The Ties That Bound: Market Behavior in Foreign Exchange in Western Europe During the Eighteenth Century,” (Ph.D. dissertation, University of Illinois at Urbana-Champaign, 1986), chap. 3, section 7.Google Scholar

18 The Daily Post (London), various issues from 07 to 12 1720.Google Scholar

19 Schubert, “The Ties That Bound,” chap. 2, sections 3 and 4, gives indirect evidence that the money market in Hamburg was linked to that of Amsterdam and London.Google Scholar

20 The other two banks were required by law to maintain a 100 percent reserve ratio. Kindleberger, Financial History, pp. 46–49.Google Scholar

21 Ibid., p. 283.

22 Wilson, Anglo-Dutch Commerce, chap. 6.Google Scholar

23 The intervention of the Bank of England is discussed more fully in Eric S. Schubert, “The Ties That Bound,” chap. 3, section 7.Google Scholar

24 Dickson, Financial Revolution, p. 158. Dickson cites the Directors' Court Minute Book of the Bank of England.Google Scholar

25 France did, however, develop a primitive stock market at a later date. The French newspaper La Gazette de France listed shares in several companies as early as the 1750s.Google Scholar

26 Dickson, Financial Revolution, pp. 8–12.Google Scholar A writer of the eighteenth century who made the same point was Pinto, Isaac de, Traité de la Circulation et du Credit (Amsterdam, 1771).Google Scholar