In lieu of an abstract, here is a brief excerpt of the content:

Reviewed by:
  • Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700. by Peter Temin and Hans-Joachim Voth
  • Phillip G. Bradford (bio)
Prometheus Shackled: Goldsmith Banks and England’s Financial Revolution after 1700. by Peter Temin and Hans-Joachim Voth. New York: Oxford University Press, 2013. $39.95.

All economic systems are shaped by priorities and trade-offs. Recently, the swelling of Western debt intensified debate on its impacts. Likewise, debate on investments in research, innovation, and talent development are front and center. Banking regulations and the treatment of labor also have been called into question. Thus, contrasting the capital needs of the Industrial Revolution with government war debt and the surrounding context is both very relevant and very interesting.

Peter Temin and Hans-Joachim Voth analyze the limited role early goldsmith (commercial) fractional-reserve banks played in the Industrial Revolution. A central focus is on how government war debt may have crowded out banking investments in firms driving the Industrial Revolution. The book’s theme is expressed through clever modification of the title of David S. Landes’s classic The Unbound Prometheus (1969).

The authors provide a thorough discussion of the evolution of the early goldsmith banks with Hoare’s (1672–) used as a key example. We learn that goldsmith banks were started by goldsmiths acting as jewelers and pawnbrokers. Such origins gave these banks an advantage in collecting and evaluating collateral.

Prometheus Shackled supplies a broad context, including timely political perspectives. The authors mention, for example, that the Tories saw the economy as a zero-sum game. Their approach to economic growth was to enlarge the spoils of the zero-sum game by acquiring new territories. In contrast, the Whigs saw the economy as a positive-sum game. Their approach to economic growth was to increase commerce and manufacturing, driving up living standards. Interestingly, we learn that Richard Hoare, founder of Hoare’s bank, was a Tory and eventually lord mayor of London. His political affiliation and stature are interesting given the authors’ thesis that goldsmith banking was of little help to the Industrial Revolution.

The authors discuss the conflict between the “economic uselessness” of stable banks and the “economic usefulness” of unstable high-risk banks. Should banks be steadfast utilities or highly leveraged freewheeling financiers? Prometheus Shackled discusses banks that functioned more as utilities. Several factors producing this conservative stance are suggested, including: banks were limited to six partners, the partners had unlimited liabilities, and each partner was often personally responsible for his own loan portfolio. Assuming a utility role for fractional-reserve banks, perhaps modern angel investors and venture capitalists are more suited to take on high-risk/high-reward investments?

Temin and Voth mention that successful ventures in the Industrial [End Page 269] Revolution had high profit margins. These ventures sometimes required big up-front investment, too. High profit margins may drive fast growth using retained earnings. Also, these fast-growing firms may lack sufficient collateral, although, given their growth, new firms required quick access to substantial capital to compete or even get in the game.

On the specific subject of war debt and its potential to crowd out industrial investments, the authors offer three primary reasons for this crowding effect: government debt soaked up capital due to its increased availability and liquidity; the government was able to get around its usury rates, displacing non-government debt; and in times of war, banks rationed credit. A common modern theme is that war can drive an economy; here is a study suggesting that it may slow it as well. War may focus a government, increase the need for innovation, and drive up demand. But it also can limit demand and growth, as the authors show industrial output growth generally went down when war debt increased.

There is an interesting discussion of bank balance sheets, which, along with analyses of cash-on-hand, give a clear impression of the viability of the banks. The compensation of Hoare’s partners and employees makes interesting reading. There are also good discussions of labor productivity and related issues. The book provides an extensive discussion of the government’s South Sea scheme and the following economic bust. It was...


Additional Information

Print ISSN
pp. 269-270
Launched on MUSE
Open Access
Back To Top

This website uses cookies to ensure you get the best experience on our website. Without cookies your experience may not be seamless.