Winton Absolute Return Futures Fund 3
1 May 2018

A picture is worth a thousand words and the only sensible way to engage with economic history, which necessarily involves a lot of numbers, is through graphical representation. In financial markets, there is a venerable history of charting. The future is, by definition, unprecedented, but the past at least provides shadowy hints of what might unfold. History is said not to repeat itself but to “rhyme”.

Accounts of modern economic history often begin with the start of the industrial revolution in 18th century Britain. Just as significant, however, was the financial revolution that graced the country nearly a century earlier. A series of costly wars prompted public finance reforms, and by the early 1700s, Britain had the Bank of England and a liquid market in government debt. Historians have credited the financial environment these developments fostered with Britain’s subsequent military and economic supremacy. It is little wonder, then, that the British people developed a certain affection for gilts – reflected in the nicknames they gave them. These were often references to the chancellors who issued them: ‘Childers’, ‘Goschens’, ‘Daltons’. Even the random number generator for the lottery-based Premium Bonds introduced in the 1950s was personified as ERNIE — and later referenced in a song by the rock band Jethro Tull.

The Goodness of the Publick Credit in England, is the reason why we shall never be out of Debt....Let us be, say I, a free Nation deep in Debt, rather than a Nation of Slaves owing Nothing.

Anonymous pamphlet, 1719
Bond Yields
Sources: Bank of England (Consols, 1703-1988); Bloomberg (10-year, 1989-2017).

If the stock market grew up in Amsterdam, it matured in London. The South Sea Bubble gave the world one of its earliest equity manias, followed by the inevitable regulatory crackdown, a pattern that would recur for centuries to come. In the 19th century, the London equity market internationalised, and British investors succumbed to crazes for shares in Latin American and South African miners, US railroads and Persian banks. At home, London’s merchant banks were taking public a new kind of firm: the limited-liability industrial corporation. Such was the frenzy for the 1886 Guinness IPO that guards had to restrain crowds, and some would-be investors even lobbed their subscription forms, wrapped around rocks, through the windows of Barings Bank. After World War I the British stock market turned inward, but London returned to its international roots after the Big Bang reforms of the 1980s.

No one fancies that the last mail train from Panic station will leave him behind.

Letter to The Times on the British railway shares mania, 1845
Sources: Bank of England (Stock price index, 1709-1984); Winton (FTSE 100, 1985-2017).