Abundance and scarcity : classical theories of money, bank balance sheets and business models, and the British restriction of 1797-1818

• Main Author: Gent, John
• Published: London School of Economics and Political Science (University of London) 2016
• Subjects: HC Economic History and Conditions
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.700969

The thesis looks through the lens of bank balance sheet accounting to investigate the structural change in the British banking system between 1780 and 1832, and how classical quantity theorists of money attempted to respond to the ensuing financialisation of the wartime economy with its growing reliance on credit funded with paper-based instruments (the ‘Vansittart system’ of war finance). The thesis combines contributions to three separate fields to construct a holistic historical example of the challenges faced by monetary economists when ‘modelling’ financial innovation, credit growth, ‘fringe’ banking, and agent incentives – at a time of radical experimentation: the suspension of the 80-year-old gold standard (“the Restriction”). First, critical text analysis of the history of economics argues that the 1809-10 debate between Ricardo and Bosanquet at the peak of the credit boom, bifurcated classical theory into two timeless competing policy paradigms advocating the ‘Scarcity’ or ‘Abundance’ of money relative to exchange transactions. The competing hypotheses regarding the role of money and credit are identified and the rest of the thesis examines the archival evidence for each. Second, the core of the thesis contributes to the historical literature on banking in relation to money by reconstructing a taxonomy of bank business models, their relationships with the London inter-bank settlement system, and their responses to the Restriction - drawing on some 17,000 mostly new data points collected from the financial records of London and Country banks. The final section contributes to the economic history of money by constructing aggregated views of total bank liabilities from the firm-level data, scaled to recently available British GDP estimates. These are examined to establish (with hindsight) the relative merits and lacuna of the competing theoretical hypotheses postulated by political economists. It was the period of deleveraging after 1810 that revealed the lacuna of both paradigms.