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Learning by doing: the Failure of the 1697 Malt Lottery-Loan

Author

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  • Georges Gallais-Hamonno

    (LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

  • Christian Rietsch

    (LEO - Laboratoire d'Économie d'Orleans [UMR7322] - UO - Université d'Orléans - UT - Université de Tours - CNRS - Centre National de la Recherche Scientifique)

Abstract

The failure in 1697 of the 'Malt Lottery', the second Lottery-Loan, presents a beautiful case study. From a practical point of view, it tells us three things. 1) The technical features of the English State lotteries-loan were established for more than a century after only three experiments. 2) Its two components ('lottery' and 'loan') led to an abnormally poor return for investors since its expected return was 3.91% whereas its effective one was 5.84% - --- two figures in contradiction with the 6.3% advanced by Dickson (1967). 3) A most strange solution was imagined to counteract the failure: delivering the unsold tickets to the Exchequer for being used as cash. From a more theoretical point of view, the condition North and Weingast (1989) advanced for a successful financial issue proves necessary but not sufficient. The Malt Lottery failed (1,763 tickets sold out of 140,000) because it did not meet the three requirements for success: its return was too low and was lower than the return on competitive assets; its reimbursement dates were uncertain; and the economic and political environment was gloomy.

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  • Georges Gallais-Hamonno & Christian Rietsch, 2013. "Learning by doing: the Failure of the 1697 Malt Lottery-Loan," Post-Print halshs-01066866, HAL.
    • Handle: RePEc:hal:journl:halshs-01066866
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01066866
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    References listed on IDEAS

    as
    1. Murphy,Anne L., 2009. "The Origins of English Financial Markets," Cambridge Books, Cambridge University Press, number 9780521519946, September.
    2. Murphy, Anne L., 2005. "Lotteries in the 1690s: Investment or Gamble?," Financial History Review, Cambridge University Press, vol. 12(02), pages 227-246, October.
    3. 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.
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    Keywords

    1697 Lottery-loan; Malt Lottery; Expected and actual costs of loans and lotteries; Lottery tickets as legal currency;
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