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City of Capital

City of Capital: Politics and Markets in the English Financial Revolution

Bruce G. Carruthers
Copyright Date: 1996
Pages: 318
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  • Book Info
    City of Capital
    Book Description:

    While many have examined how economic interests motivate political action, Bruce Carruthers explores the reverse relationship by focusing on how political interests shape a market. He sets his inquiry within the context of late Stuart England, when an active stock market emerged and when Whig and Tory parties vied for control of a newly empowered Parliament. Carruthers examines the institutional linkage between politics and the market that consisted of three joint-stock companies--the Bank of England, the East India Company, and the South Sea Company--which all loaned large sums to the government and whose shares dominated trading on the stock market. Through innovative research that connects the voting behavior of individuals in parliamentary elections with their economic behavior in the stock market, Carruthers demonstrates that party conflict figured prominently during the company foundings as Whigs and Tories tried to dominate company directorships. For them, the national debt was as much a political as a fiscal instrument.

    In 1712, the Bank was largely controlled by the Whigs, and the South Sea Company by the Tories. The two parties competed, however, for control of the East India Company, and so Whigs tended to trade shares only with Whigs, and Tories with Tories. Probing such connections between politics and markets at both institutional and individual levels, Carruthers ultimately argues that competitive markets are not inherently apolitical spheres guided by economic interest but rather ongoing creations of social actors pursuing multiple goals.

    eISBN: 978-1-4008-2210-2
    Subjects: Economics

Table of Contents

  1. (pp. 3-26)

    Eumenes of Cardia was principal secretary to Alexander the Great and a member of his army. As a Greek general in a Macedonian force, Eumenes was regarded with suspicion and contempt. Those who served under him had to respect his martial abilities but this made the Macedonians fear and hate him even more. With the death of Alexander, Eumenes lost his sponsor and his situation suddenly became rather precarious. As Plutarch explained, Eumenes’ response consisted of an unusual hostage strategy. He borrowed as much money as he could, especially from his bitterest rivals. As creditors, Eumenes’ enemies acquired a financial...

  2. (pp. 27-52)

    This chapter explains the changing political context for public and private financial developments. To construct an embeddedness explanation for economic behavior, it is necessary to understand social context. Of course, much of the social environment of an economy may be irrelevant, and depending on how embeddedness works, it could be the kinship system, popular or elite culture, religion, ethnicity, politics, or any number of other factors, which matter most. What made politics so relevant in this case was a set of institutional connections joining the polity to the stock market. This and the next chapter describe the structure of those...

  3. (pp. 53-91)

    Whigs and Tories contended for control of many different institutions, but chief among them was the apparatus of central government. The content and stakes of their conflict changed as the size and financial power of the British state grew, but this process occurred in a peculiar fashion. State strength as measured by the ability to wage external wars increased manyfold. England was rightly considered a marginal player in European politics during Charles II’s reign, but under Queen Anne, Britain achieved great power status and was a force to be reckoned with. During the Financial Revolution, Britain became a world power....

  4. (pp. 92-114)

    British politics shaped the capital market which undergirded the buildup of Britain’s fiscal-military state. Yet the significance of Britain’s financial development and the consequences for national state formation can only be assessed in a comparative context. How can we gauge the extent of these financial achievements? Was the buildup a common seventeenth-century experience? Were there similar relationships between politics and public borrowing in other European countries?

    To answer these questions and to gain the full measure of the Financial Revolution, I compare Britain with four other early modern European countries: France, the United Provinces, Sweden, and Spain. Obviously, I cannot...

  5. (pp. 115-136)

    British public and private finance changed dramatically at the end of the seventeenth century. The state’s fiscal machinery developed, its ability to borrow expanded, a London stock market emerged, and the number of joint-stock companies grew. This newfound financial strength propelled Britain ahead of Spain and Holland and into rough parity with the much larger France. Yet, beneath the details and events it is not clear what caused these changes, however consequential they were. It is not obvious why, for example, this financial transformation did not happen fifty years earlier, or fifty years later. Was it the inevitable culmination of...

  6. (pp. 137-159)

    Joint-stock companies such as the Bank of England, East India Company, and the South Sea Company were both political institutions and financial commodities. As institutions, they were pillars of public finance and thus directly implicated in the very political process of helping to pay for two expensive and controversial wars. Since there were no general laws of incorporation, the establishment of each company required a distinct political act on the part of the sovereign or legislature. They enjoyed special rights and powers that were delegated to them and no one else, and in return provided loans and other kinds of...

  7. (pp. 160-194)

    The chief insight of the New Institutional Economics was that the institutional setting of markets affected economic behavior. Markets emerge from a set of legal and political institutions, not out of thin air. The North-Weingast analysis of this period is incomplete in some important ways but the general point that institutions matter remains true. The key explanatory task is to figure out which institutions matter and how.

    Joint-stock companies were deeply involved both in party competition and public borrowing but politics at the institutional level need not engender politics in the market. As a type of property, joint-stock company shares...

  8. (pp. 195-208)

    Anthropologists have traditionally been more aware than other social scientists that relationships between social groups get enacted and sustained through the exchange of what appear to be “mere” things. Objects transferred across group boundaries have a symbolism and social life that can far exceed their utility or use-value.¹ Their movement maps out a social structure. Yet even anthropologists tend to distinguish “traditional societies” from “modern market societies.”² Kula rings, ropes of moka, potlatches, and other symbol-laden forms of exchange occurred among the native peoples of the South Pacific islands and northwest coast of North America. Among the tribes of investment...