Not an ordinary bank but a great engine of state: The Bank of England and the British economy, 1694–1844

Abstract

From its foundation as a private corporation in 1694 the Bank of England extended large amounts of credit to support the British private economy and to support an increasingly centralized British state. The Bank helped the British state reach a position of geopolitical and economic hegemony in the international economic order. In this paper, we deploy recalibrated financial data to analyse an evolving trajectory of connections between the British economy, the state, and the Bank of England. We show how these connections contributed to form an effective and efficient fiscal-naval state and promoted the development of a system of financial intermediation for the economy. This symbiotic relationship became stronger after 1793. The evidence that we consider here shows that although the Bank was nominally a private institution and profits were paid to its shareholders, it was playing a public role well before Bagehot's doctrine.

Comparative European Institutions and the Little Divergence, 1385–1800

“…This happened at a time when London's population was around 100,000 and unskilled building laborers earned 2.435p per day (Harding, 1990;Clark, 2005) Hence (ignoring distributional matters), this corresponded to nearly 20 days of work per head. 55 The credibility of English public debt improved with the institutional changes following the Glorious Revolution, including the creation of the Bank of England (Cox, 2016;O'Brien & Palma, 2023) Earlier, one simple measure of the lack of state credibility is the number of external defaults. Between 1300 and 1550, Spain and Portugal never defaulted, while England did so twice (in 1340 and 1472).…”

Understanding money using historical evidence

“…The result was for the most part not inflationary. The Restriction Period ushered in a new era on the march towards more modern and active central banks, and yet without compromising its independence from the executive (O'Brien and Palma, 2023).…”

“…The history of central banks was, until recently, seen through the lens of the Bank of England, a private profit-maximizing banking establishment that gradually enlarged its privileges but developed a public motive and took responsibility for monetary and financial stability. The notion that there was no central banking before Bagehot ( 1873) is now obsolete (Bindseil, 2019;Roberds and Velde, 2016a,c,b;Bignon et al, 2012;Ugolini, 2017;O'Brien and Palma, 2023). Perhaps the most striking example is given by Roberds (2007, 2014), who document how the Bank of Amsterdam eventually made its liabilities inconvertible and developed tools and policies (essentially open-market operations) to stabilize their market value (the agio or exchange rate between bank money and ordinary coinage).…”