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Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700

Author(s):Temin, Peter
Voth, Hans-Joachim
Reviewer(s):Grossman, Richard S.

Published by EH.Net (December 2013)

Peter Temin and Hans-Joachim Voth, Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700.  New York: Oxford University Press, 2013.  ix + 214 pp. $40 (hardcover), ISBN: 978-0-19-994427-9.

Reviewed for EH.Net by Richard S. Grossman, Department of Economics, Wesleyan University.

Economic historians spend a lot of time writing about banking.  The report of the editors of the Journal of Economic History presented to the annual meeting of the Economic History Association typically includes a breakdown of the subfields of submitted manuscripts.  Money and banking is often one of the more popular areas of research.

For a variety of reasons – notably lack of an extensive paper trail – the vast majority of economic history research on banking focuses on the nineteenth and twentieth centuries.  So the profession should be especially grateful to Peter Temin and Hans-Joachim Voth for their new volume on eighteenth century London goldsmith banking, Prometheus Shackled.

The authors are well-known to readers of EH.Net.  Peter Temin is an emeritus professor at MIT and one of our most eminent economic historians.  He published his first book almost 50 years ago and has by now authored or edited, alone or with others, 20 books – including three in 2013.  Hans-Joachim Voth is a professor at Universitat Pompeu Fabra and also a prominent, widely-published member of the economic history tribe.

The first chapter describes the rise of the “middling” classes in London, which includes those who will eventually become the principal savers and borrowers.  The second chapter discusses the financial revolution that allowed England to raise money more efficiently, including the establishment of the Bank of England.  The third chapter charts the rise of goldsmith bankers, in particular Hoare’s Bank (and a main competitor, Child’s Bank), from which the authors gathered the majority of their archival data.  This chapter presents details on the evolution of the goldsmith banking business, including information on balance sheet size and composition, as well as return on equity and assets of Hoare’s and Child’s, supplemented with more fragmentary data on other goldsmith bankers.  The subsequent chapter analyzes the identity of the lenders to and borrowers from the goldsmith banks, using Hoare’s as a model of a successful example, and takes a detailed look at the impact of the usury ceiling and the consequences of reducing that ceiling in 1714.

Chapter 5 discusses the South Sea Bubble in detail and the ability of Hoare’s and its clients to profitably “ride” the bubble.  Chapter 6 describes the evolution of the work of the goldsmith banks and the adoption of more routinized practices, a chapter the authors call: “The Triumph of Boring Banking.”  A final substantive chapter, the only chapter that directly addresses the main thesis presented in the book’s title, speculates that Britain’s constrained financial system – especially the combination of usury laws and a large government debt – slowed economic growth during the early phase of the Industrial Revolution.

The book will be welcome to anyone looking for a clearer picture of goldsmith banking.  The authors have made good use of the archives of Hoare’s Bank, supplemented with more fragmentary records of other institutions.  Hoare’s archives are bolstered by the happy fact that the bank has been in business in the same address since before 1700, meaning that no documents have been lost in a move to another location or through amalgamation with another institution.

The strongest parts of the book – many of which have appeared as journal articles – are those that rely on detailed analyses of the data from Hoare’s records.  For example, chapter 4 presents a nice analysis of the changes in Hoare’s accounts after 1714 when the usury ceiling was lowered to 5 percent from 6 percent.  This natural experiment reinforces the authors’ suspicion that the bank’s customary loan rate was, in fact, generally set equal to the usury limit.  Further, the authors are able to identify how lowering the usury ceiling affected credit rationing, as higher quality creditors continued to be able to secure loans, while lower quality borrowers were presumably rationed out of the market.  This study was previously published in the Economic Journal.   Chapter 5 presents an interesting micro study on bubbles, examining how Hoare’s was able to “ride” the South Sea Bubble, which was previously published in the American Economic Review.

When the authors stray from Hoare’s, they are on less firm ground.  The first two chapters are neither as well argued nor as articulately written as those that are more directly tied to Hoare’s.  Additionally, despite acknowledging difficulties in generalizing from the experience of Hoare’s, the authors do so anyway: given that the Industrial Revolution was centered more than 150 miles away from 37 Fleet Street, this may be more problematic than they admit.

We can only hope that this book inspires even more archival-based research on this neglected era.  In the meantime, this useful volume will provide a welcome starting point for future researchers.

Richard S. Grossman is a professor of economics at Wesleyan University and a visiting scholar at the Institute for Quantitative Social Science, Harvard University.  His is the author of WRONG: Nine Economic Policy Disasters and What We Can Learn from Them, which was published in November 2013 by Oxford University Press.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):18th Century