from Asad Zaman and WEA Pedagogy Blog
Money Transformed in Early Modern Britain
A Guided Reading of Glyn Davies’ A History of Money, Part 3
For millennia, money was anchored in the tangible: silver, gold, cattle, grain. It served religious rituals, enabled imperial taxation, and, above all, funded the machinery of war. But with the arrival of the Industrial Revolution, and in parallel with Britain’s rise as a financial and military power, money itself changed.
In this post, we explore a pivotal transition in Glyn Davies’ A History of Money — from the era of bullion-based empire to the credit-fueled capitalist state. This is also the period Karl Polanyi described as the moment when money became a “fictitious commodity” — something treated as a tradable good, even though it was never produced for sale, and never truly separate from the structures of power and production that created it.
Credit, in this new world, was not simply an economic convenience. It was a weapon of war, a catalyst of revolution, and a new infrastructure of sovereignty. By examining the financial innovations of early modern Britain — especially the founding of the Bank of England — we begin to see how money becomes detached from precious metal and increasingly tied to productive capacity, trust, and expansion.
The Financial Revolution and the Rise of Modern Banking
In Chapters 6 and 7 of A History of Money, Davies turns to the critical developments of 17th- and 18th-century Britain, especially the creation of public credit and the institutions that sustained it.
The Bank of England, founded in 1694, was a direct response to military necessity. England faced a fiscal crisis: its wars — especially against France — required more capital than the monarchy could raise through taxation or gold reserves. The solution was revolutionary. The Bank was chartered to lend money to the state in exchange for the right to issue banknotes, backed by the government’s credit rather than by bullion alone. These notes circulated as money, representing not gold in a vault, but a claim on the state’s future revenue.
This was a transformative moment. With the invention of a centralized, regulated banking system and the emergence of long-term government bonds, money could now expand independently of metal. Davies shows how this expansion allowed Britain to fund vast military campaigns — including the War of Spanish Succession — while maintaining domestic stability.
The key innovation was not paper itself, but the idea that trust in the state could serve as collateral. In this way, money was no longer just minted — it was constructed, negotiated, and constantly reproduced through institutional arrangements. The British state had learned to create money from promise, and this promise was enforceable by law and protected by national interest.
War and Credit: A Symbiotic Relationship
As Davies makes clear, the relationship between money and war didn’t disappear — it evolved. Instead of melting treasure to mint coins, Britain could now borrow from its own citizens through bonds, annuities, and lottery loans. These instruments mobilized private capital for public ends. The more credible the state, the more capital it could attract, and the longer it could sustain warfare.
This financial structure gave Britain a decisive advantage over its main rival, France, which lacked equivalent mechanisms and continued to rely on more rigid, less transparent financing methods. As a result, Britain was able to outspend, outlast, and ultimately outmaneuver France in a series of protracted conflicts that shaped the modern world.
The implications are enormous: money, once limited by the quantity of gold and silver, was now limited only by the capacity to generate trust and productive output. War had driven this transformation, and the consequences would soon spill over into all sectors of economic life.
Credit and the Rhythms of Production
Another crucial theme in Davies’ account is how the new monetary system responded to the needs of industrial and agricultural cycles. Traditional economies, based on self-sufficiency and low growth, did not require a constantly expanding money supply. But capitalist economies — driven by investment, expansion, and profit — did.
Credit became the tool to match money to production, especially in the face of seasonal variations. Farmers, for example, needed loans to cover costs in spring that would not yield returns until harvest. Industrialists required upfront capital to fund factory expansion, hire labor, and purchase raw materials. Fixed stocks of gold or silver could not accommodate this dynamic.
Paper credit, backed by institutional trust, could. And in this new system, it was not the possession of specie that signaled power, but the ability to mobilize resources, labor, and capital through credit networks.
In other words, the wealth of a nation was no longer measured in gold, but in its capacity to produce.
From Mercantilism to Adam Smith: A Redefinition of Wealth
This transformation did not go unnoticed by economic thinkers. Earlier doctrines like mercantilism, which prioritized the accumulation of precious metals, were not irrational — they reflected a world where bullion was the engine of war and the marker of power. In such an age, trade surpluses and specie accumulation were entirely logical goals.
But the rise of industrial production, and the financial systems that supported it, rendered this logic obsolete. In The Wealth of Nations, Adam Smith redefined national wealth not in terms of hoarded treasure, but as the “annual produce of the land and labor.” This redefinition aligned economics with the new reality: productive capacity, not gold, was now the foundation of power.
This was not merely a theoretical shift — it reflected the institutional reality that Britain’s financial system had made visible. Smith’s ideas emerged from a landscape where credit, paper money, and public finance were already remaking the world.
Credit as Infrastructure: Lessons from Wennerlind
Carl Wennerlind’s Casualties of Credit provides invaluable context to this transition. Focusing on 17th-century England, he shows how the English financial revolution laid the groundwork for capitalism by inventing new ways to fund war and manage risk.
Faced with mounting military expenses, the English state embraced innovative debt instruments: life annuities, tally sticks, transferable lottery tickets. These were not just financial gimmicks — they were mechanisms for creating social trust and aligning individual interest with national survival.
Wennerlind emphasizes how credit was morally and philosophically contentious. It required a cultural shift: the belief that promises, backed by institutional authority, could replace metal as the basis of economic life. Thinkers like John Locke contributed to this shift by reconciling credit with ideas of value and legitimacy. In the end, the system proved robust: it enabled the British state to transform public trust into military capacity, setting the template for modern financial capitalism.
Conclusion: The Birth of Modern Money
By the 18th century, the nature of money had changed. It was no longer a thing — a metal, a token — but a network, a set of institutional commitments, a symbol of the capacity to mobilize resources at scale.
Glyn Davies, enriched by Wennerlind’s insights, helps us see that this was not a purely economic change. It was political, military, and cultural. It created the conditions under which money became a self-expanding force, bound to the rhythms of production and the logics of capital.
In future posts, we’ll follow this transformation into the 19th century — as paper money, central banks, and industrial power converge to shape the world we now inhabit.
