David Ricardo, the Stock Exchange, and the Battle of Waterloo: Samuelsonian legends lack historical evidence

Samuelson and numerous other authors have presented colourful stories about how David Ricardo became the richest economist in history. The Samuelsonian legends suggest that Ricardo was an extreme risk-taker, especially in the period of the Battle of Waterloo (June 1815), that he used inside information and market manipulation, and that his decision to retire was caused by his big “Waterloo profits” in 1815. The often-quoted Ricardo obituary in The Sunday Times suggested that Ricardo upon this single occasion “netted upwards of a million sterling”. After consulting relevant archival material in the Bank of England, the Guildhall Library and the Metropolitan Archives in London, the Ricardo Papers and the Sraffa Papers in Cambridge, I conclude that many tales on Ricardo lack historical evidence. To develop my criticism of some widespread narratives, it is first necessary to describe the specific position of Ricardo in the world of finance, especially with respect to the typical characteristics of the Stock Exchange in London during Ricardo’s business career. Already in 1795, two years after starting his own business there, Ricardo could afford a wealthy lifestyle. The Stock Ledgers in the Bank of England show how Ricardo quickly became one of the top dealers on the Stock Exchange, where his unusually large number of transactions as a jobber created considerable total profits, generated by multiplying a small average profit per day by a few thousand working days in his business career. Ricardo also served on various committees of the Stock Exchange, trying to improve its moral principles, and defending the interests of its members. Several examples show that his own standards at the Stock Exchange were much more integer than average. From 1806 on, Ricardo could participate in biddings for the large Loans of the British government, which was possible only for a few financiers of excellent moral and financial standing. Ricardo acted as the financially most important partner in a consortium that included John Barnes and James Steers. Sraffa and others have signalled the existence of an open detective problem about the name of the unknown fourth member in this consortium. To solve this problem, I draw attention to the Minutes of the Stock Exchange, some genealogical sources, the diaries of Joseph Farington, and a neglected 1806 letter from John Barnes to potential subscribers of the 1806 Loan. This leads to overwhelming evidence that the unknown fourth man is Charles Steers, a brother of James Steers. Ricardo was a co-contractor for seven big British Loans (1807, 1811, 1812, June 1813, November 1813, 1814, 1815) and a small Irish Loan (1807). All these Loans started with a positive premium. Ricardo made some big gains from several Loans, especially from 1812 on, when the Loans were large and profitable for him and for a few other top financiers. On these occasions Ricardo’s small or medium rates of profits on a large investment generated large total profits. His correspondence shows that he often preferred to sell a large part of his Loan share rather quickly, and that he was “contented” with the results of his cautious strategy, even when he noticed more profitable prices one or two weeks after his sales. Samuelson’s story about the extreme difference between Ricardo’s and Malthus’s attitude to risk in 1815 is exaggerated. I also show that, contrary to Sraffa’s and Heertje’s information, the 1815 Loan was taken by only two consortia, not four. Contrary to Samuelson’s claims, it is evident that Ricardo possessed no early information about the defeat of Napoleon at Waterloo. Otherwise it is inexplicable that Ricardo sold part of his Omnium at 3 to 5 percent premium, just before the premium rose further when the official news from Waterloo reached London. There is no archival evidence for legends about Ricardo’s “million of Waterloo profits” in 1815 or for strikingly similar myths about Nathan Mayer Rothschild. Probably the year 1813 also deserves special attention. In 1813 Britain borrowed much more than ever, £49 million, spread over a Loan in June and one in November. Both these 1813 Loans reached much higher maximum premiums than the Waterloo Loan of 1815. The sum of the profits of the two 1813 Loans might have encouraged Ricardo to start making plans in 1813 for his retirement. His Waterloo gains were a substantial bonus, but without this bonus Ricardo would not have changed his retirement plans. In the Appendix of my paper I present various relevant statistical tables. They form an essential part of my study, because the exact data are often ignored or misrepresented. For example, many authors reproduce the same wrong numbers for the critical years 1814-1815-1816, often due to errors in the statistical tables of the standard works by Mitchell (1988) and by Homer & Sylla (2005). I claim that the origin of these errors can ultimately be traced back to deficient tables in the Nash edition of Fenn’s Compendium of 1883, and I try to provide more reliable financial data by using the main newspapers and magazines from the early 19th century.