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

Georges Gallais-Hamonno (1) , Christian Rietsch (1)

1 LEO - Laboratoire d'Économie d'Orleans [UMR7322]

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.

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

Domaines: Economies et finances

Georges Gallais-Hamonno, Christian Rietsch. Learning by doing: the Failure of the 1697 Malt Lottery-Loan. Financial History Review, 2013, 20 (3), pp.259-277. ⟨halshs-01066866⟩