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Money and modernization in early modern England

Published online by Cambridge University Press:  07 March 2019

Nuno Palma
Nuno Palma*
Affiliation:
University of Manchester and CEPR
*
N. Palma, Department of Economics, University of Manchester, Oxford Road, Manchester m13 9pl, UK; email: nuno.palma@manchester.ac.uk; and Research Affiliate, Centre for Economic Policy Research (CEPR), London.
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Abstract

Classic accounts of the English industrial revolution present a long period of stagnation followed by a fast take-off. However, recent findings of slow but steady per capita economic growth suggest that this is a historically inaccurate portrait of early modern England. This growth pattern was in part driven by specialization and structural change accompanied by an increase in market participation at both the intensive and extensive levels. These, I argue, were supported by the gradual increase in money supply made possible by the importation of precious metals from America. They enabled a substantial increase in the monetization and liquidity levels of the economy, hence decreasing transaction costs, increasing market thickness, changing the relative incentive for participating in the market and allowing agglomeration economies to arise. By making trade with Asia possible, precious metals also induced demand for new desirable goods, which in turn encouraged market participation. Finally, the increased monetization and market participation made tax collection easier. This helped the government to build up fiscal capacity and as a consequence to provide for public goods. The structural change and increased market participation that ensued paved the way for modernization.

Keywords

origins and persistence of modern economic growththe industrious, industrial and financial revolutionsearly modern monetary injectionsthe great divergencethe little divergencestate-formationprovision of public goods

JEL classification

E40: General E50: General N13: Europe: Pre-1913 E10: General O40: General N33: Europe: Pre-1913
Type
Articles
Information
Financial History Review , Volume 25 , Issue 3 , December 2018 , pp. 231 - 261
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Copyright
Copyright © European Association for Banking and Financial History e.V. 2019 

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Footnotes

I am thankful to Martin Allen, Edward Besly, Bruce Campbell, Rui Pedro Esteves, Regina Grafe, Nick Mayhew, Larry Neal, Judy Stephenson and Jan Luiten van Zanden for helpful discussions. Special thanks to the Financial History Review editor, Stefano Battilossi, for detailed comments which led to significant improvements. Thanks also to the participants in the FHR Fast-track workshop in Turin, and an anonymous referee for useful suggestions. Adam Brzezinski provided excellent research assistance. The usual disclaimer applies. An earlier version of this article circulated as a EUI working paper MWP 2016/11 under the title ‘Money and modernization: liquidity, specialization, and structural change in early modern England’.

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