The Anglo-French Rivalry and the Rise of British Finance, 1688-1720

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dc.description학위논문 (석사)-- 서울대학교 대학원 : 정치외교학부, 2016. 2. 박종희.-
dc.description.abstractWhy did Great Britain rise as a hegemon in the 18th century Europe? What was the role of sovereign borrowing in the process? Great Britain had access to unprecedented levels of war finances via the expansion of the debt market in the early eighteenth century, and its eventual success was reflected in Britains prodigal expenditure on military and naval equipment. Effective government borrowing has hitherto become one of the predominant factors in explaining the rise of Great Britain as a global hegemon in the eighteenth century.
This dissertation focused on the eighteenth century Anglo-French rivalry underpinning British financial growth to argue that the pressure to financially outperform France provided Britain the incentives to implement schemes that restructured the debt market, from public ownership of debt to modern forms of private holdings. The two grand schemes were to convert the unfunded debt to the funded debt by inducing interest rate flexibility of loans and reducing the cost of debt via the sinking fund and the South Sea Bubble. The implementation of each scheme was triggered by financial developments in France. As a result, the two schemes committed Britain to lower the cost of its national debt and institutionalize private sector control over the national debt.
The thesis, in particular, focuses on the financial developments from 1700 to 1720 because when distinguishing the different types of debt, the twenty years starting from 1700 to 1720 is the transitional period where old forms of debt are restructured to modern forms of funded debt. In other words, the ownership of the national debt restructures from the public sector to the private sector, typically in forms of the bond market. This dissertation has divided the twenty years into 1700-1710 and 1710-1720 to analyze major financial developments that enabled the restructuring of the national debt.
From 1700 to 1710, two political events affected Britain to compete for its fiscal-military reputation over France, in order to secure finance in the debt market. Britains military outperformance over France and internationalization of the British debt market, made Britain increasingly reluctant to forgo its future finances by reneging its commitment. To sustain the inflow of investment from foreign creditors, reputation fiscal-military mattered and especially Britain had the pressure to consistently manifest her devotion to consistent implementation of debt servicing policies despite domestic complexities.
From 1710 to 1720, Britain implemented two grand schemes that restructured British national debt from unfunded debt to modern forms of funded debt. Each of the schemes was achieved in response to the financial developments in France. The first scheme to lower the interest rate of the national debt was implemented by the Tories in 1711 via the founding of the South Sea Company. This scheme was triggered by developments in 1702 France where their saving banks were re-established and their Treasury notes were circulating faster via the lowered interest rate on the Treaty notes. The second scheme to repay the debt was implemented by the Whigs in 1716 in response to the seemingly rapid fiscal recovery of France via the development of the Mississippi Company in 1716. In response, Britain actively sought to repay their public debt via the sinking fund and lower the cost of debt further by generating the South Sea Bubble that encouraged the private sector to provide speculative incentives to absorb the old forms of debt to modern forms of government bonds.
The thesis, thus, provides two significant implications for international political economy. First, this thesis shows how inter-state relations influence the trajectories of financial growth for a state. I argued that the international dimension or the Anglo-French rivalry provides a better explanation in explaining the restructuring of old forms of national debt to modern forms of national debt. Recasting the international dimension to the discussion suggests that international factors can equally, and more powerfully explain government finance.
More importantly, however, this thesis provides implications for hegemonic rivalry and its effect on financial growth. Anglo-French rivalry played an important role in setting the foundation for the rise of British finance, and not necessarily the endogenous factors of the British hegemon. Anglo-French rivalry and the continental war in Europe provided Britain the pressure to go beyond domestic political complexities and consistently implement policies favorable to debt servicing.
dc.description.tableofcontentsI. Introduction 1
1. Inter-state Politics and the Development of Credit 1
2. Question 4
3. Research Method 6
1) Subject 6
2) Reputational Rivalry and Credible Commitment 7
4. Outline of the Dissertation 9

II. Literature Review 12
1. Institutions that Promote Revenue 12
1) Taxation 12
2) Centralized Civil Administration 13
3) Determination to Act as a Major Power 14
2. Institutions that Veto Default 14
1) Multiple Veto Points 14
2) Partisan Politics 15
3) Private Institutions 17
3. Limits and Implications 17
1) Limits to the Institutions that Promote Revenue 17
2) Limits to the Institutions that Veto Default 20
4. Chapter Summary 21

III. Glorious Revolution and the Development of Debt 23
1. British State of Finance 23
1) State of Credit before the Glorious Revolution 23
2) State of Credit after the Glorious Revolution 26
2. Development of the Different Types of Debt 31
1) Terminable Annuities 32
2) Unfunded Debt 32
3) Funded Debt 32
3. Sovereign Debt Restructuring from 1700 to 1720 33
4. Chapter Summary 35

IV. Anglo-French Rivalry and the British Credit, 1700-1710 37
1. Britain as the Emerging War State 37
1) Embarkation of the Anglo-Dutch Alliance in 1688 37
2) Britain as a Balancer of Europe, 1700-1710 39
3) Military Reputation and the Flow of Credit, 1710-1710 40
2. Internationalization of the British Debt Market 41
1) Foreign Investments in Britain, 1700-1710 41
2) Fiscal Reputation and the Flow of Credit, 1700-1710 42
3. Chapter Summary 42

V. Anglo-French Rivalry and the British Credit, 1710-1720 44
1. Lowering the Cost of Debt 44
1) Interest Rate Flexibility and Creditor Confidence 44
2) Financial Innovations and the Low Interest Rate in France 46
3) The Tory Ministry and the Lowered Cost of Credit 47
2. The Grand Redemption Scheme 51
1) Deficit Reduction and State Credibility 51
2) The Mississippi Company and the Cheap Debt in France 52
3) South Sea Company and the Bargain for Private Ownership of Debt 53
3. Chapter Summary 58

VI. Conclusion 60

Figures 19
Figure II1. Total Revenue of France and England, 1660-1800 19
Figure III1. Military Spending Ratio of England, 1691-1760 30
Figure III2. Total Military Spending of the England, 1691-1760 31
Figure III3. Debt Charges of Great Britain, 1691-1750 34
Figure V1. Interest Paid to Bank of England, South Sea Company and East India Company, 1688-1750 51
Figure V2. Total Debt and Reimbursement of Britain, 1688-1740 57

Tables 16
Table II 1. Political Division over Issues 16
Table V 1. Public borrowing of English Government from 1708-1714 48
Table V 2. Private Sector Interest Rate on Public Borrowing, 1694-1750 49
Table V 3. Public borrowing of English Government from 1716-1720 55
Table V 4. Debt Charges of Britain 1716-1720 56

Appendix 62
Appendix 1. Total Revenue of England and France, 1680-1740 62
Appendix 2. Total Military Spending of England, 1691-1760 63
Appendix 3. Total Debt Charges in Britain, 1688-1750 66
Appendix 4 Interest Paid to the Private Sector, 1680-1740 69

Bibliography 70

국 문 초 록 77
dc.format.extent831771 bytes-
dc.publisher서울대학교 대학원-
dc.subjectFinancial Development-
dc.subjectSovereign Debt-
dc.subjectPublic Borrowing-
dc.subjectAnglo-French Rivalry-
dc.subjectHegemonic Rivalry-
dc.subjectGreat Britain-
dc.titleThe Anglo-French Rivalry and the Rise of British Finance, 1688-1720-
dc.citation.pagesvi, 78-
dc.contributor.affiliation사회과학대학 정치외교학부-
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College of Social Sciences (사회과학대학)Dept. of Political of Political Sciences and International Relations (정치외교학부)International Relations (외교학전공)Theses (Master's Degree_외교학전공)
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