IDEAS home Printed from https://ideas.repec.org/p/ise/gheswp/wp522014.html

Money Supply and the Credit Market in Early Modern Economies: The Case of Eighteenth-Century Lisbon

Author

Listed:
  • Leonor Freire Costa,
  • M. Manuela Rocha,
  • Paulo Brito

Abstract

In this paper, we address the partial equilibrium functioning of the shortterm credit market in the Eighteenth-century Lisbon and its response to three major events: massive gold inflows from Brazil, a catastrophic destruction of capital caused by the 1755 earthquake and the enactment of a 5% legal ceiling on interest rates 1757. We build a time series for the market interest rate, and a regression shows money stock and real estates as two significant variables. Interest rates were affected negatively by the former and positively by the latter. We conclude that changes in the money stock tended to operate through the supply of loanable funds. The wealth effect, measured by the stock of real estate, operated over demand and tended to be the most significant effect among several other possible countervailing effects (e.g., the impact of wealth effects on supply, the informational effects of collaterals). The inflow of gold clearly generated a liquidity which by itself explained the downward trend in interest rates up until around 1780. However, the huge variations experienced by the stock of capital after the earthquake also explains the steadiness of interest rates in a period when the inflow of money started to recede. For the whole period during which the 5 % ceiling on interest rates was in force we do not find any evidence to confirm the existence of disequilibrium credit rationing: the notional interest rate predicted by our model was very close to the 5% legal ceiling.

Suggested Citation

  • Leonor Freire Costa, & M. Manuela Rocha, & Paulo Brito, 2014. "Money Supply and the Credit Market in Early Modern Economies: The Case of Eighteenth-Century Lisbon," Working Papers GHES - Office of Economic and Social History 2014/52, ISEG - Lisbon School of Economics and Management, GHES - Social and Economic History Research Unit, Universidade de Lisboa.
    • Handle: RePEc:ise:gheswp:wp522014
    as

    Download full text from publisher

    File URL: https://ghes.rc.iseg.ulisboa.pt/wp/wp522014.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Manuel Delgado Cabeza, 1996. "Texto," Revista de Estudios Regionales, Universidades Públicas de Andalucía, vol. 1, pages 13-14.
    2. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 857-882, December.
    3. repec:ise:gheswp:wp512015 is not listed on IDEAS
    4. Edvinsson, Rodney, 2011. "Shadow interest rates in Stockholm and the integration of early financial markets, 1660–1685: was Heckscher right?1," Financial History Review, Cambridge University Press, vol. 18(3), pages 309-329, December.
    5. Sussman, Nathan & Yafeh, Yishay, 2006. "Institutional Reforms, Financial Development and Sovereign Debt: Britain 1690–1790," The Journal of Economic History, Cambridge University Press, vol. 66(4), pages 906-935, December.
    6. Odell, Kerry A. & Weidenmier, Marc D., 2004. "Real Shock, Monetary Aftershock: The 1906 San Francisco Earthquake and the Panic of 1907," The Journal of Economic History, Cambridge University Press, vol. 64(4), pages 1002-1027, December.
    7. Barro, Robert J., 1987. "Government spending, interest rates, prices, and budget deficits in the United Kingdom, 1701-1918," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 221-247, September.
    8. Temin, Peter & Voth, Hans-Joachim, 2005. "Credit rationing and crowding out during the industrial revolution: evidence from Hoare's Bank, 1702-1862," Explorations in Economic History, Elsevier, vol. 42(3), pages 325-348, July.
    9. Douglass C. North, 1991. "Institutions," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 97-112, Winter.
    10. Regina Grafe, 2012. "Distant Tyranny: Markets, Power, and Backwardness in Spain, 1650-1800," Economics Books, Princeton University Press, edition 1, number 9625, December.
    11. Regina Grafe & Alejandra Irigoin, 2012. "A stakeholder empire: the political economy of Spanish imperial rule in America," Economic History Review, Economic History Society, vol. 65(2), pages 609-651, May.
    12. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(4), pages 803-832, December.
    13. Leonor Freire Costa & Maria Manuela Rocha & Paulo Brito, 2014. "Notarial activity and credit demand in Lisbon during the Eighteenth-Century," Working Papers GHES - Office of Economic and Social History 2014/51, ISEG - Lisbon School of Economics and Management, GHES - Social and Economic History Research Unit, Universidade de Lisboa.
    14. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    15. Drelichman, Mauricio, 2005. "The curse of Moctezuma: American silver and the Dutch disease," Explorations in Economic History, Elsevier, vol. 42(3), pages 349-380, July.
    16. Pereira, Alvaro S., 2009. "The Opportunity of a Disaster: The Economic Impact of the 1755 Lisbon Earthquake," The Journal of Economic History, Cambridge University Press, vol. 69(2), pages 466-499, June.
    17. Quinn, Stephen, 2001. "The Glorious Revolution'S Effect On English Private Finance: A Microhistory, 1680–1705," The Journal of Economic History, Cambridge University Press, vol. 61(3), pages 593-615, September.
    18. Hoffman, Philip T. & Postel-Vinay, Gilles & Rosenthal, Jean-Laurent, 1992. "Private Credit Markets in Paris, 1690–1840," The Journal of Economic History, Cambridge University Press, vol. 52(2), pages 293-306, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Leonor Freire Costa & Maria Manuela Rocha & Paulo B. Brito, 2018. "The alchemy of gold: interest rates, money stock, and credit in eighteenth‐century Lisbon," Economic History Review, Economic History Society, vol. 71(4), pages 1147-1172, November.
    2. Leonor Freire Costa & Maria Manuela Rocha & Paulo Brito, 2014. "Notarial activity and credit demand in Lisbon during the Eighteenth-Century," Working Papers GHES - Office of Economic and Social History 2014/51, ISEG - Lisbon School of Economics and Management, GHES - Social and Economic History Research Unit, Universidade de Lisboa.
    3. Irigoin, A, 2012. "Bounded Leviathan: or why North & Weingast are only right on the right half," MPRA Paper 39722, University Library of Munich, Germany.
    4. Irigoin, Alejandra & Grafe, Regina, 2012. "Bounded Leviathan: or why North and Weingast are only right on the right half," Economic History Working Papers 44492, London School of Economics and Political Science, Department of Economic History.
    5. repec:ehl:lserod:44492 is not listed on IDEAS
    6. Eric Monnet, 2024. "Interest Rates," Springer Books, in: Claude Diebolt & Michael Haupert (ed.), Handbook of Cliometrics, edition 3, pages 1531-1549, Springer.
    7. Timur Kuran & Jared Rubin, 2014. "The Financial Power of the Powerless: Socio-Economic Status and Interest Rates under Partial Rule of Law," Working Papers 14-22, Chapman University, Economic Science Institute.
    8. António Henriques & Nuno Palma, 2023. "Correction to: Comparative european institutions and the little divergence, 1385–1800," Journal of Economic Growth, Springer, vol. 28(2), pages 295-295, June.
    9. Ogilvie, Sheilagh & Carus, A.W., 2014. "Institutions and Economic Growth in Historical Perspective," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 8, pages 403-513, Elsevier.
    10. Dan Bogart, 2016. "The East Indian Monopoly and the Transition from Limited Access in England, 1600–1813," NBER Chapters, in: Organizations, Civil Society, and the Roots of Development, pages 23-49, National Bureau of Economic Research, Inc.
    11. Mauricio Drelichman & Hans-Joachim Voth, 2008. "Debt Sustainability in Historical Perspective: The Role of Fiscal Repression," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 657-667, 04-05.
    12. repec:ehl:lserod:50815 is not listed on IDEAS
    13. Leonor Freire Costa & Susana Münch Miranda, 2023. "Reputational recovery under political instability: Public debt in Portugal, 1641–83," Economic History Review, Economic History Society, vol. 76(3), pages 871-891, August.
    14. Noel D., Johnson & Mark, Koyama, 2012. "Standardizing the fiscal state: cabal tax farming as an Intermediate Institution in early-modern England and France," MPRA Paper 40403, University Library of Munich, Germany.
    15. repec:ehl:lserod:127155 is not listed on IDEAS
    16. Alberto Vesperoni, 2013. "War Finance and the Modern State," NEPS Working Papers 6/2013, Network of European Peace Scientists.
    17. Mark Dincecco, 2010. "The Political Economy Of Fiscal Prudence In Historical Perspective," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 1-36, March.
    18. Johnson, Noel D. & Koyama, Mark, 2017. "States and economic growth: Capacity and constraints," Explorations in Economic History, Elsevier, vol. 64(C), pages 1-20.
    19. Cox, Gary W., 2012. "Was the Glorious Revolution a Constitutional Watershed?," The Journal of Economic History, Cambridge University Press, vol. 72(3), pages 567-600, August.
    20. Palma, Nuno & Santiago Caballero, Carlos, 2019. "Patterns of Iberian economic growth in the early modern period," IFCS - Working Papers in Economic History.WH 29185, Universidad Carlos III de Madrid. Instituto Figuerola.
    21. Pamfili Antipa, 2014. "How Fiscal Policy Affects the Price Level: Britain s First Experience with Paper Money," Working papers 525, Banque de France.
    22. Rosa Congost & Ricard Garcia‐Orallo & Enric Saguer, 2023. "Seeing credit and property rights from below: The experience of Catalan smallholders in the eighteenth century," Economic History Review, Economic History Society, vol. 76(3), pages 759-782, August.
    23. Pamfili Antipa, 2013. "Fiscal Sustainability and the Value of Money: Lessons from the British Paper Pound, 1797-1821," Working papers 466, Banque de France.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N43 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: Pre-1913

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ise:gheswp:wp522014. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalia Nobre (email available below). General contact details of provider: https://aquila.iseg.ulisboa.pt/aquila/research/ghes .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.