Proposal preview

Colonial financial markets in the long 18th century: a source of underdevelopment?

The underdevelopment of financial markets in today’s developing countries probably has its roots in their colonial past. Financial markets are considered key to the long-term development of various economic leaders in history and it is therefore important understand the institutional aspect of financial markets for developing countries today (Banerjee and Duflo, 2011; Acemoglu Johnson and Robinson (AJR) 2001; Acemoglu and Robinson 2012). More specifically, only a few financial revolutions exist in history. These propelled the economies of The Dutch Republic, Great Britain, the United States and Japan onto paths of exceptional growth (Sylla 2002, 2006). These financial revolutions all built on the experiences of other countries: the English learned as much from the Dutch, as they had learned from their Italian and Antwerp predecessors (Dickson 1967; Tracy 1985; Homer and Sylla, 2005). The transfer of financial skill appears to play an important part in the development and progress of these financial markets. Yet, this transferability appears limited to the European experience or its off-shoots also known as settler colonies, with the notable exception of Japan. This is an odd phenomenon, especially when the exchange of ideas and technological skill around the globe is considered (Mokyr, 2017; Davids, 2013).

This session extends the discussion about the importance of financial techniques and its transferability to the colonies of the European powers, most notably Great Britain and the Dutch Republic. This extension is a logical step following AJR’s distinction between settler and non-settler colonies in the transplantation of European institutions. If the colony was a non-settler colony, they argue, extractive institutions were put in place. If it was a settler colony, more inclusive institutions appeared. The focus of this and subsequent studies, focused on macroeconomic outcome variables like GDP growth. What research, on these institutional effects, have failed to study are financial institutions and how it transferred from colonizer to colony. The extent to which financial markets were influenced by the type of colonial institutions remain unclear. For example, Java is considered an extractive colony of the Dutch during the eighteenth century. Yet, research on the financial markets show that the Dutch adapted to local systems to enhance trade and ensure they could obtain the desired commodities. Another case is the Cape Colony, a colony between the two extremes of settler and extractive. Here, informal credit markets were directly transferred and changed to suit the economic environment. This session purposes to examine and compare the development of financial markets between these colonial types.

The aim of this session is to bring together scholars of colonial financial markets to discuss how the colonizer and the type of colony influenced the transfer of financial markets to these colonies. These markets can include but is not limited to money markets, informal and formal credit markets, and bond markets. The session proposes to investigate not only the formal financial markets of colonial debt and international transfers between colony and colonizer, but also the informal markets between settlers and the indigenous populations of the colonies.

Organizer(s)

  • Christie C Swanepoel University of Western Cape cswanepoel@uwc.ac.za South Africa
  • Alberto HA Feenstra University of Amsterdam H.A.Feenstra@uva.nl Netherlands
  • Farley F Grubb University of Delaware grubbf@udel.edu United States

Session members

  • Christie C Swanepoel, University of Western Cape
  • Alberto HA Feenstra, University of Amsterdam
  • Farley F Grubb, University of Delaware
  • Peter PAE Koudijs, Stanford University
  • Abe A de Jong, Erasmus University Rotterdam
  • Tim T Kooijmans, Monash University
  • Benjamin B Huf, University of Sydney

Discussant(s)

  • Christiaan C van Bochove Raboud Universiteit C.vanBochove@let.ru.nl
  • Karin K Pallaver University of Bologna karin.pallaver@unibo.it

This panel has Call for Papers open.
If you are interested in participating, please contact the panel organizer(s) to submit a proposal.

  • Christie C Swanepoel, University of Western Cape, cswanepoel@uwc.ac.za, South Africa
  • Alberto HA Feenstra, University of Amsterdam, H.A.Feenstra@uva.nl, Netherlands
  • Farley F Grubb, University of Delaware, grubbf@udel.edu , United States

Papers

Panel abstract

1st half

Financial market development in South Africa – a long-term perspective

Christie Swanepoel

South Africa’s financial market ranked one of the best in the world according to the World Economic Competitiveness Forum. It provided the main shield against the worst of the global financial crisis of 2007. But several of these institutions have a long history. For example, when the South African Reserve Bank (SARB) was established in 1920, it was one of four central banks in the world. The paper proposes to offer a long-term perspective on the financial development of South Africa. It will place many of these developments in the international context and ask why the stable market of today has, perhaps, not lead to innovation. The paper broadly studies the financial development in South Africa according to the following historical eras: The Dutch colonial period (widely based on research by Fourie and Swanepoel), the British colonial period that introduced banking, the Mineral Revolution, the establishment of the central bank...

South Africa’s financial market ranked one of the best in the world according to the World Economic Competitiveness Forum. It provided the main shield against the worst of the global financial crisis of 2007. But several of these institutions have a long history. For example, when the South African Reserve Bank (SARB) was established in 1920, it was one of four central banks in the world. The paper proposes to offer a long-term perspective on the financial development of South Africa. It will place many of these developments in the international context and ask why the stable market of today has, perhaps, not lead to innovation. The paper broadly studies the financial development in South Africa according to the following historical eras: The Dutch colonial period (widely based on research by Fourie and Swanepoel), the British colonial period that introduced banking, the Mineral Revolution, the establishment of the central bank and stock market in the early twentieth century. Many of these eras saw changes in currency, economic opportunities and political upheaval – all had its impact on the financial market development.

Settler Sovereign Debt: Normalising Government Debt in the Nineteenth Century British World

Ben Huf

Historians are again studying public debt, with renewed focus on two distinct periods. Firstly, they continue to unearth enduring political and moral controversies surrounding Britain’s Financial Revolution, and second, provide critical insights into expanding government borrowing with the emergence of international finance capitalism. However, the passage between these two epochs, from controversial eighteenth-century innovation to essential twentieth-century governmental instrument, remains under-explored. This paper bridges these periods by charting the establishment of public debt in British settler colonies in Upper Canada and New South Wales in the early nineteenth century. These debts reflected challenges previously faced elsewhere in the British world. But the spread of colonial government debts throughout empire and the novel struggles and innovations this involved, including the diversifying kinds of projects it funded (railways not wars) and changing terms of justification (political economy not patriotism), sheds light on the normalisation of public debt and globalisation of financial markets.

Historians are again studying public debt, with renewed focus on two distinct periods. Firstly, they continue to unearth enduring political and moral controversies surrounding Britain’s Financial Revolution, and second, provide critical insights into expanding government borrowing with the emergence of international finance capitalism. However, the passage between these two epochs, from controversial eighteenth-century innovation to essential twentieth-century governmental instrument, remains under-explored. This paper bridges these periods by charting the establishment of public debt in British settler colonies in Upper Canada and New South Wales in the early nineteenth century. These debts reflected challenges previously faced elsewhere in the British world. But the spread of colonial government debts throughout empire and the novel struggles and innovations this involved, including the diversifying kinds of projects it funded (railways not wars) and changing terms of justification (political economy not patriotism), sheds light on the normalisation of public debt and globalisation of financial markets.

The plantation business of F.W. Hudig: An anatomy of 18th century mortgage-backed securities

Abe de Jong, Tim Kooijmans, and Peter Koudijs

This paper investigates securitization in the 18th century. Starting in 1754 Dutch bankers financed sugar and coffee plantations in the Caribbean colonies with securities that were sold, often in packages, to investors. The information problems among the planter-owners, bankers and investors created agency problems, which led to a financing arrangement called negotiaties with mortgaged debt and oversight of all cash flows of the plantations by the bankers. We illustrate the (in)efficiency of the negotiatie system using the archive of the banker F.W. Hudig, who was active in the plantation financing from 1759 until his death in 1797. We demonstrate that although the debt contracts and their securitization may be ex ante efficient, in times of a shock due to falling prices, the system turns out to be ex ante inefficient. The liquidations become unattractive due to the collapse of the market and bankers are reluctant to liquidate as they value...

This paper investigates securitization in the 18th century. Starting in 1754 Dutch bankers financed sugar and coffee plantations in the Caribbean colonies with securities that were sold, often in packages, to investors. The information problems among the planter-owners, bankers and investors created agency problems, which led to a financing arrangement called negotiaties with mortgaged debt and oversight of all cash flows of the plantations by the bankers. We illustrate the (in)efficiency of the negotiatie system using the archive of the banker F.W. Hudig, who was active in the plantation financing from 1759 until his death in 1797. We demonstrate that although the debt contracts and their securitization may be ex ante efficient, in times of a shock due to falling prices, the system turns out to be ex ante inefficient. The liquidations become unattractive due to the collapse of the market and bankers are reluctant to liquidate as they value their reputation. The outcome is that the bankers switch from a role as intermediary to lender with skin in the game, while restructurings are postponed.

Colonial North Carolina’s Paper Money Regime, 1712-1774: Value Decomposition and Performance

Cory Cutsail and Farley Grubb

The North Carolina’s assembly emitted its own paper money and maintained some amount in public circulation during its entire history as a separate colony. No systematic or statistical analysis of North Carolina’s paper money regime exits in the literature. We correct that here. We model and estimate how the market value of this money was determined. We compare the quantity theory of money with an asset-pricing model to see which explains the observed market value of the paper money better. Finally, we explore counterfactual redemption architectures to show how redemption affected monetary performance in periods of value collapse.

The North Carolina’s assembly emitted its own paper money and maintained some amount in public circulation during its entire history as a separate colony. No systematic or statistical analysis of North Carolina’s paper money regime exits in the literature. We correct that here. We model and estimate how the market value of this money was determined. We compare the quantity theory of money with an asset-pricing model to see which explains the observed market value of the paper money better. Finally, we explore counterfactual redemption architectures to show how redemption affected monetary performance in periods of value collapse.

The VOC’s role in financial development

Alberto Feenstra

The VOC in Europe is associated with the development of modern finance and subsequently a first modern stock market. The relation between finance and the VOC in Asia has received much less attention. This paper tries to expand our knowledge about that relation with the purpose to analyse whether and to what extent there was a transfer of financial techniques and how this related to local practices in Asia. To do so, if explores the credit transactions in which the VOC was involved in the eighteenth century, with special attention paid to interest rates.

The VOC in Europe is associated with the development of modern finance and subsequently a first modern stock market. The relation between finance and the VOC in Asia has received much less attention. This paper tries to expand our knowledge about that relation with the purpose to analyse whether and to what extent there was a transfer of financial techniques and how this related to local practices in Asia. To do so, if explores the credit transactions in which the VOC was involved in the eighteenth century, with special attention paid to interest rates.

TBA

Holly Stephans

TBC

TBC

2nd half