If you think fierce political debate about rescuing financial services in the City of London is something new and very modern, think again. Historian Adrian Leonard of Cambridge University has found what he sees as “the first-ever English financial services rescue scheme” as far back as the 1690s. And the fate of that scheme, amidst much argument about who was to blame, has a distinctly familiar ring today.
The crisis centred on marine insurance, developing rapidly in London in the 17th century in step with England’s naval and trading expansion. The scale of financial activity at this time was “impressive and growing”, suggests Leonard. It was a key building block in what would become the British empire.
But insuring shipping at a time of frequent war was a hazardous business. In June 1693, in what was known as the ‘Smyrna catastrophe’, over 90 vessels in an Anglo-Dutch Mediterranean trading fleet were captured or destroyed by French forces. Cargoes worth over a million pounds were lost, a “fantastic sum” at that time, says Leonard.
Many insurance underwriters faced bankruptcy, and the survival of the London insurance market itself was in doubt. Political and public anxiety was also strong. The House of Commons as well as the printed press began to debate a rescue plan for the insurance industry, with a bill proposed to help insurers – who had “sustained such losses as tend to their utter ruin” – settle with creditors, and try to prevent a loss of confidence in insurance.
Despite patchy evidence of the nature of the political debate, Adrian Leonard notes how the scheme was caught up in “tumultuous politics”, raising much broader issues than more technical matters of, say, debt payment. Whigs focused on who was to blame for the Smyrna disaster in the first place. Senior Admiralty officials lost their jobs after claims that the fleet had not had adequate protection, and Whig pressure also led King William III and II to sack his Tory secretary of state, the Earl of Nottingham.
Tories responded by airing suspicions of the merchant insurers who stood to gain most from a government-backed rescue scheme. Whereas Whigs were more inclined to support insurers and trade as the ‘lifeblood of the nation’, Tory propagandists painted a different picture. City of London figures were seen as the equivalent of today’s ‘fat cat’ bankers, pursuing personal wealth rather than the national interest, and undeserving, therefore, of state rescue.
The debate also highlighted the uncertain boundary between state and private finance. This was still a period of transition, Leonard points out, between an older model of royal and state funding of warfare and more modern private sector financial involvement. Delineation between the two was not always clear cut. That further complicated the question of whether the insurers should be bailed out.
In the end political disagreement meant that the full rescue scheme was not implemented and, Leonard estimates, around a quarter of London marine insurance underwriters may have gone bankrupt. While this doubtless caused short-term loss of confidence, he suggests it was probably the weaker underwriters who were eliminated.
In the longer term the market could recover into what became the world’s most important insurance market, dominated by Lloyd’s, a key player in the global as well as the British economy. Meanwhile the question of how far the government should go in bailing out financial services or rescuing sectors ‘too big to fail’ during a crisis remained permanently uncertain, as recent events have shown.
As for those whose careers were ended in this period of insurance turbulence, there is one figure Adrian Leonard has identified for whom it may have been a blessing in disguise. One Daniel Foe, who had dabbled in the wine and tobacco trade as well as insurance underwriting, went bankrupt in the early 1690s, and turned more and more to writing for a living. As Daniel Defoe, he went on to make quite a success of it.
About the author
Chris Bowlby is a presenter on BBC radio, specialising in history
This series is produced with History & Policy. You can find out more about them and read their papers at www.historyandpolicy.org