Capitalism – Born in England, Nourished in America

Capitalism – Born in England, Nourished in America

By Gary Alexander
Navellier Marketmail

The Bank of England was born 320 years ago, in July 1694. Here’s a short description of that important event from “War and Gold: A 500-Year History of Empires, Adventures and Debt,” by Kwasi Kwarteng:

“The setting up of the Bank of England allowed the government to borrow more cheaply. The initial amount raised was 1.2 million pounds at a time when total government spending in any given year was not much more than this sum. This money was raised by individuals pledging or ‘subscribing’ to lend certain amounts…There was an initial cap of 20,000 pounds for each individual subscription.

“The subscription books were opened in the Mercers’ Chapel on 21 June, 1694. A total of 300,000 pounds, a quarter of the initial sum, was subscribed on the first day. By noon on 2 July, in less than 11 days, the whole of the amount had been raised. There were over 1,200 subscribers and the very first names on the list were those of the King and the Queen, who subscribed 10,000 pounds jointly.”

The Bank of England, in turn, paid 8% a year interest, a relatively high rate even then. The Bank of England was privately owned for over 250 years, until it was nationalized by Atlee’s Labor Party in 1946.

In his 1930 Treatise on Money, British economist John Maynard Keynes wrote that the modern age began with the accumulation of capital in the 16th century, “which resulted from the treasure of gold and silver which Spain brought from the New World to the Old.” Keynes claimed this “profit inflation… created the modern world.” Capital creation “commenced in 1519 when the Aztec spoils arrived, and terminated as early as 1588, the year of the Armada.” However, Spain’s power soon eclipsed because it spent its gold on Armadas, rather than banking it and using the new assets as the basis for loans.

The British and the Dutch were able to build banking and stock market systems, while Spain created sinking assets – wooden ships. France also went the wrong direction. In the same year the Bank of England was founded, 1694, Scotsman John Law fought a duel in London, killing Edward Wilson. Law was sentenced to death, but he mysteriously escaped and fled to Amsterdam, where he picked up some lessons from Europe’s oldest stock exchange, founded in 1609 by the Dutch East India Company. Law then migrated to France where he created one of the great bubbles of all time, the Mississippi Company. His unique idea was to sell paper representing the hope of finding gold or silver in swampy delta land.

John Law consolidated the considerable debts of the spendthrift kings of France by creating shares in this pipedream of gold in America, specifically along the Mississippi River. Shares multiplied 60 fold from 1716 to 1719. Like 1929 or 1999, commoners reaped princely fortunes. Law promised that France would dominate all of Europe, and he could “ruin England and Holland” whenever he pleased, but Law’s Papier-mâché empire fell apart in early 1720 and Law fled Paris to seek his fortune in other European cities.

While France’s fortunes faded – in part due to the despotism which grew out of the French Revolution (225 years ago next Monday) – Britain continued to prosper throughout the 1800s. Between the fall of Napoleon in 1815 and World War I in 1914, Britain’s per capita wealth quadrupled, in real terms.

British historian Niall Ferguson wrote in The Cash Nexus that “Between 1816 and 1899, the UK government ran a deficit in excess of 1% of GNP in only four years.” This was the golden era, literally. Historian A.J.P. Taylor wrote in The Origins of the Second World War that the British people “reared in the stable economic world of the later nineteenth century” assumed that “a country could not flourish without a balanced budget and a gold currency.” The terrors of World War I put an end to that belief.

Posted by on July 8th, 2014 at 11:25 pm


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