The king's run-in with his bankers

Book review: The Day the King DefaultedMoshe Arye Milevsky deserves credit for shining a spotlight on a neglected period of British history, says Matthew Partridge.


Charles II: trouble with the bankers
(Image credit: Credit: Ian Dagnall / Alamy Stock Photo)

The Day the King Defaulted:

Financial Lessons From the Stop of the Exchequer in 1672by Moshe Arye MilevskyPublished 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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri