The Day the King Defaulted: Financial Lessons From the Stop of the Exchequer in 1672
by Moshe Arye Milevsky
Published by Palgrave Macmillan, £22.50
(Buy at Amazon – due out at the end of September)
In early 1672, Crown finances were in a perilous state, mainly due to an expensive war with the Dutch. Having borrowed heavily from local goldsmith-bankers, in the form of notes theoretically secured against tax revenue, Charles II requested a large additional loan to augment the English navy. When the bankers refused to lend him any more money, Charles was persuaded by his five main advisers (from whom we get the phrase “cabal”, after their initials) to “temporarily” freeze both the interest payments and redemption of the principal on the existing loans.
This default allowed the government to divert tax revenue towards the army. However, it was a disaster for the bankers, who had loaned the money using funds that they themselves had borrowed from a large number of small depositors. Not only were many of them ruined and forced to declare bankruptcy, but a fair number of them ended up spending the rest of their lives in debtors’ prisons. Indeed, when they finally did get some partial compensation, many years later, they were forced to hand this over to their depositors.
Fascinating stuff, but only about 50 pages of the monograph are directly related to the default itself, as opposed to the economic context and biographies of the key figures. Milevsky is therefore silent on some of the key questions, such as the reason why the bankers’ refused Charles an additional loan in the autumn of 1671, or even the additional amount that Charles requested.
Milevsky adopts a very jaunty and informal writing style, making references to Downtown Abbey and addressing the reader in person. The attempts at jollity in an otherwise serious book are a bit distracting. Similarly, his attempts at the end to contrast the fate of the “good” Restoration bankers, ruined by events beyond their control, with the “bad” ones responsible for the 2007-8 financial crisis, comes across as a bit opportunistic. However, despite the book’s shortcomings, the author deserves praise for throwing a spotlight onto an unjustly neglected period of British economic history.