Working Paper: CEPR ID: DP15471
Authors: Nathan Sussman; Dmaris Coffman; Judy Z. Stephenson
Abstract: This paper presents new archival data to analyse how, in the absence of banking or capital market finance, the London Corporation funded the rebuilding of London after the Great Fire of 1666. The City borrowed at rates much lower than previously thought from its citizens and outside investors to replace vital services and to support large improvement works. Borrowing was partly secured on its’ reputation and partly secured by future coal tax receipts. Although records show that the funding from these sources was forthcoming and would have covered costs, and most of the rebuilding project was completed in less than a decade, having invested in public goods without generating the expected fiscal flows, the City defaulted in 1683.
Keywords: England; Financial Development; Financial Intermediation; Growth; Interest Rate; Default
JEL Codes: G23; N2; N23; O16; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| London Corporation's borrowing secured by its reputation (G33) | access to private credit at lower rates (G21) |
| access to private credit at lower rates (G21) | funding vital services and large improvement works (H54) |
| funding vital services and large improvement works (H54) | completion of most rebuilding projects within a decade (R42) |
| insufficient fiscal flows generated by public goods investments (H40) | default in 1683 (N93) |
| London Corporation's ability to secure financing (G33) | initial recovery post-fire (H84) |
| reliance on borrowed funds without generating corresponding revenue streams (G32) | financial distress (G33) |
| corporation's reputation (M14) | ability to borrow at lower costs than other entities (G32) |
| financial maneuvers (G32) | deferred default (G33) |
| underlying financial instability (F65) | eventual default in 1683 (G33) |