Published by EH.NET (October 2010)

Anne L. Murphy, The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble. New York: Cambridge University Press, 2009. xiii + 283 pp. $99 (cloth), ISBN: 978-0-521-51994-6.

Reviewed for EH.NET by Stephen Quinn, Department of Economics, Texas Christian University.

Anne Murphy?s The Origins of English Financial Markets examines the demand side of the English Financial Revolution.? Much has been written on the surge in the supply of securities around 1700, but someone had to buy the stuff. Murphy?s book tells the story of English investors in the 1690s ? a volatile period when England was an emerging market economy.?

The first chapter shows that a corporate stock boom occurred in London before the funded national debt and the Bank of England.? Investors learned about stock transfers, dividends, initial public offerings, and corporate bankruptcy before the state attempted to sell its new financial products in the mid-1690s.

Chapters 2 and 3 revisit the revolution in English public finance and the pamphleteering that went along with it.? In the process, Murphy finds that investors valued resale liquidity even if the state was slow to accommodate.? The author also argues that investors used the press to push back against the government.? Murphy finds that creditors, ?acted both to call the government to account and, when necessary, in defence of their property rights? (p. 61).? Put differently, Murphy casts investors as active participants in the creation of credible sovereign debt.

Chapters 4 and 5 examine how advantageous market information was available but required effort.? The financial press did provide a record of prices, but more timely or nuanced information required investors to engage the networks of information that entangled London.? Many small investors understood that they were at the mercy of market insiders, and that vulnerability contributed to the widespread distrust of financial intermediaries.??

Chapters 6 and 7 use archival sources to show how a small circle of London-based brokers and dealers (called jobbers) did indeed dominate the resale market for securities.? The social-economic and geographic frontiers of the investing class were expanding, but Murphy argues that it was the rise of market makers that buoyed demand for securities. Stocks that did not secure a critical mass of intermediation slid into oblivion.? Much of this compelling evidence comes from a detailed analysis of Bank of England stock transfers.?

Chapter 8 finishes the analysis by considering the in-betweens: investors who were not broker-dealers and yet did not buy-and-hold either.? Again, Murphy hits the archives to show that this active middle existed.? Many were merchants redeploying capital when war limited traditional commercial operations.? To me, Chapter 8 is too modest regarding the implications of these active investors.? Again, the book establishes that an expanding resale market drove the demand side of the English Financial Revolution, but market makers need customers, yet most investors rarely bought or sold.? Active investors emerge as a necessary, if underappreciated, aspect of the Financial Revolution.?

Substantial archival work and an important focus make The Origins of English Financial Markets a substantial contribution to our understanding of the English Financial Revolution.? The book is a must read for scholars of Early Modern Britain. Others interested in development, now or in the past, will find in the book a detailed example of how a successful financial system actually emerged.?

Stephen Quinn is the author of ?Money, Finance and Capital Markets,? in The Cambridge Economic History of Modern Britain, Volume I, edited by Floud and Johnson, Cambridge University Press (2004): 147-74.? His recent work with William Roberds on the Bank of Amsterdam includes ?An Economic Explanation of the Early Bank of Amsterdam,? in The Origin and Development of Financial Markets and Institutions, edited by Atack and Neal, Cambridge University Press (2009): 32-70.?

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