At the end of the 17th century, England was facing fiscal strain from decades of political and economic disorders just as it found itself engaged in yet another war against its historic foe, France. However, rather than bring about a default on its debts, the fiscal crisis ushered in an era of financial innovation. It was the last decade of the 17th century that saw the establishment of the Bank of England and the transition of England’s state borrowing away from short-term debts and towards long-term obligations. Both of these innovations survived to today. However, there were more curious products of fiscal creativity that helped pull England through that war. One of these was a kind of loan-lottery hybrid called the ‘Million Adventure Lottery’, launched in 1694.
Exchequer
England was at its fiscal breaking point at the end of the 17th century. Its credit had deteriorated during that century on account of internal disorders and expensive military engagements. The last of these, the War of the Grand Alliance, was fought between France and a coalition of countries including England from 1689 to 1697. Paying for the conflict required some financial innovation on the part of the English government. Despite increased taxes during the war, deficits rose as state expenditures ballooned from under £2 million a year before its start to over £5 million once it was underway. It was a grave threat to the nation that it struggled to borrow at interest rates of 14% a year. It didn’t help matters that up to this point, most of the English state borrowing was very short-term in nature. Much of it was comprised of short-term ‘tallies’ that government contractors and others were essentially forced to accept on account of there being insufficient state funds.
Faced with such a lack of investor appetite, new forms of borrowing were implemented. Among these were insurance products, such as a tontine which raised £100,000 for the state in 1693. Tontines were annuity-like products in which the benefits that would have gone to deceased beneficiaries were diverted to living ones, rather than being extinguished altogether. Alongside the tontine was the sale of ordinary life annuities. Life annuities sold in 1693 and 1694 raised £900,000 for the wartime government but didn’t come cheap; they carried an implied interest rate of 14%. Along with other loans raised, such as that which saw the Bank of England incorporated, almost £7 million in debt financing was arranged during the war. However, one of the more innovative approaches was a combination of loan and lottery launched in 1694. Indeed, lotteries had been used to raise public funds in England since the mid-16th century but were less successful or massive than what was to come.
Million Adventure Lottery
The idea of using a state lottery as a means of raising funds during the war came from Thomas Neale, a royal official and Member of Parliament. He was also an entrepreneur, having been a real estate developer and the creator of the first official postal service in British North America. The lottery Neale organized in 1694 was advertised as the ‘Million Adventure Lottery’ and it was destined to be quite profitable for him personally as he was allowed to keep 10% of the proceeds for administering it. This was also not the first of his lotteries; he had earlier established a private one modeled off an example from Venice. This lottery two years prior saw great success; 50,000 tickets were sold for 10 shillings (half a pound) each. The 150 winning tickets were rewarded with prizes ranging from £20 to £3,000.
The Million Adventure Lottery would be forty times greater than this earlier lottery. When launched in 1694, the Million Lottery saw £1 million raised through the sale of 100,000 tickets for £10 each. It was also not a lottery in the modern sense but more like a loan. Ticketholders were to receive a guaranteed return of at least 10% for sixteen years. However, 2500 ‘Fortunate Tickets’ would yield vastly more. These winning prizes included annuities ranging from £10 to £1,000 annually for sixteen years. Given the generous terms, the take up was substantial. The lottery opened up for subscriptions in late March 1694 and by mid-April, £400,000 had been raised and all the available tickets were sold by late-June that year.
In the 1690s, even £10 was a substantial amount of money for ordinary people. A typical wage for a skilled craftsman at the time might be three or four shillings a day (£45 to £60 a year) and many ordinary laborers would be lucky to earn even half that. However, there was a way for even commoners to participate. Many bought lottery tickets through syndicates, not unlike the lottery pools of today. This not only reduced the minimum investment threshold but also allowed for some diversification; it broadened out participation in the Million Adventure Lottery, which likely had tens of thousands of participants by its end.
That said, when the winning tickets were drawn, the largest prize went to recipients already well off. Curiously enough, the winners of the largest prizes of the Million Adventure Lottery, the largest in England up to that time and intended to finance a war against France, were two Frenchmen. They were Samuel Ravenel, a nobleman from Brittany who had left France and was living with the Duke of Leeds, and François Le Cocq, a former French judicial official. However, while they won the £1,000 a year prize; the £500 pound a year prizes were won by men of more modest means. Among them were a stone-cutter named Gibbs, a stationary-salesman named Proctor, and fellow called Skinner, who manufactured hosiery.
Of course, given the bond-like characteristics of the tickets, the history of the lottery did not end there. The tickets continued to have value as they earned 10% interest on their £10 principal. However, this was an off-market return considering that other securities issued by the English state were yielding quite a bit more. Thus, in the secondary market, the lottery tickets sold at around £7 each, resulting in a 14% yield that matched the returns on other government securities issued at the time.
The story of this period’s financial innovation does not end with the drawing of the winning tickets either. It turned out that ticketholders had another option for their investments besides holding or selling. The following year, the ‘Million Bank’ was established and offered to trade lottery tickets, and their 14% yields, in exchange for shares in the bank. Roughly £200,000 was raised to establish the bank, much of it from ticketholders looking to convert their 16-year loans into a potentially perpetual income. That said, though the bank raised more money by selling annuities for a while, it never became a commercial success. It would exist for a century however, only being wound up in 1796 once all the annuities it had issued had been extinguished. It never resembled much more than an investment trust though.
Future Lotteries
Regardless, the Million Adventure Lottery was obviously not the last state lottery in England and it was not the last to be a kind of loan-lottery hybrid. Indeed, in the late 17th and early 18th centuries, lottery schemes flourished. The next attempt to use a lottery to raise public funds was the ‘Malt Lottery’ of 1697, so-called because it was funded through taxes on malt. It failed however because the 6% promised return was judged to be too stingy. Future loan-lotteries of this style were more successful. The Lord Treasurer, Sidney Godolphin’s, 1710 lottery was a success, raising money at a modest 7% cost to the state. More lotteries in 1711 and 1712 successfully sold their tickets at roughly 6% interest. By 1714, the British state was borrowing through these lotteries at just 4% interest. The improvement in Britain’s credit and the reduction in its borrowing costs in this period was stark. By the mid-18th century, British state borrowing costs had fallen to 3.5%. The use of lotteries though had successfully carried England through its darker days, until its borrowing costs fell to such low levels.
Lesson
At the end of the 17th century, England was confronted by a fiscal challenge of existential significance. However, the Million Adventure Lottery not only helped meet the short-term needs of the state, but also opened up the investment world to ordinary people. In retrospect, the tickets turned out to be acceptable investments. They yielded 10% even if they won no prizes; by the time they matured, the yield on British state debts had fallen to just 7% and would sink further from there. Though the 1690s was a decade of financial innovation, brought on by the necessity of financing a war fought by an uncreditworthy state, the need for this desperate borrowing at high rates of interest would diminish with time. The Million Adventure Lottery marks the moment when England’s fiscal health was at its lowest.
More from the Tontine Coffee-House
Learn about how the creation of the Bank of England was the result of similarly innovative fundraising. Also, discover how tontines helped finance London’s bridges.
Further Reading
1. Floud, Roderick, et al. The Cambridge Economic History of Modern Britain. Cambridge University Press, 2014.
2. Harris, Bob. “Lottery Adventuring in Britain, C.1710–1760*.” The English Historical Review, vol. 133, no. 561, 2018, pp. 284–322.
3. Murphy, Anne L. “Lotteries in the 1690s: Investment or Gamble?” Financial History Review, vol. 12, no. 2, 2005, pp. 227–246.
4. Scott, W. R. The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720. Cambridge University Press, 1910.
5. Velde, François. “Lottery Loans in the Eighteenth Century.” 2018.
