shoving this into econ, because why not? And because the topic of my dissertation was pretty econ-y: banking, financial crisis, a proto central bank in action
Most photo apps provide "On this day"-type throwbacks. Here's mine today—from January 12, 2017.
I had just handed in my dissertation for my undergraduate degree ("A Reconsideration of the Financial Crisis of 1847"), and I was the most satisfied I have ever been about a piece of work—probably ever since.
Having worked on it with my advisor, a Scottish banking historian with lots of experience guiding students toward performing their best, for most of the autumn, I sat for hours during the winter holidays to meet this early-January deadline. I wasn't sure it would work, not sure my stray components of archival material and literature reviews would form a coherent story.
I remember the most glorious of New Year's Eves, sitting at my dad's house re-reading Frank Fetter's Development of British Monetary Orthodoxy, 1797-1875 and tracing down some of the relevant characters for this story.
(the book is available these days, remarkably, via Internet Archive, but I read from this sturdy hardback):
For hours and hours I was trying to solve a puzzle regarding the currency/banking school. I went downstairs for dinner with my dad, before returning upstairs to write up my notes and get everything together in this segment of the paper. Around midnight, I ventured outside to watch some fireworks for ten minutes—and then went straight back to the desk, not calling it a night until 4 in the morning.
It was the most wonderful and comforting of moments, foreshadowing lots of my future life—sitting in silence, enshrouded by darkness, fiercely typing away at my computer.
The work I did that night eventually produced this table:
...which one of my grader, another much-accomplished British economic historian, described as "the best overview of the Currency-Banking debates I have ever seen."
Two other components in this work
...and what I discovered in that underlying data, probably earned my the highest grade available (A1, on the Scottish higher-ed's 21-scale grading). It earned me the lordly sum of £25 as a price for best dissertation—the shittiest hourly pay I have ever had for a piece of writing.
(You can read a shortened version of this article in the Scottish Higher-ed publication Groundings here)
I can barely interpret them myself, not quite remember what the storyline here was. The tl;dr, I believe, was that the Bank of England—not yet-but-maybe a central bank the way we think of it today—was running its operations irresponsibly: bank runs, deposits fleeing, and reserves almost hitting zero, before the government bailed them out.
- 1: the Bank had not taken proper precautions for known future expenditures, and thus had to pay out of its dwindling reserves (it had been lulled into comfort by having lots of deposits on hand because of the railway mania in the 1840s and the various financial schemes requiring down payments, regularly on deposit with the Bank).
- 2: they had underestimated how much, and how fast, they could liquidate public securities (consols, basically government debt) and raise funds quickly if they needed to. That market was drying up, and despite the Bank governors' insistence that they could sell into the market, the public—rightfully—didn't believe them).
- 3: I found that the major story in the econ history literature is, when looking at the archives, upside down (hence "Reconsideration"...): historians looking at this era usually say that the Bank lent aggressively/recklessly in the early months of 1847 and not enough in the week leading up to the crash (October 1847). Accounting for private deposit flows, I found that they actually held back a lot of lending in the early months, and supplied an incredible amount of liquidity right before the crash. The graph above ("Discounts and Rates") show that the Bank rationed credit on price rather than quantity:
Hence my conclusion:
In the last few months before the Week of Terror, considered as a period of highly restrictive discounts and near-impossibility of obtaining funds, I find that the Bank exceeded every previous record. Moreover, by using a weighted average of the discount rates actually applied by the Bank, I can show how the Bank in August-October was rationing on price only, not quantity. They were, in other words, supplying the money markets with much credit, for which they charged an exceptionally high price.
Reading it today, it's still a pretty good piece of work.
Happy Sunday read, Stackers.