In the early days of government borrowing, public borrowing went hand-in-hand with estates and inheritances. Bonds and annuities, both means by which states in early modern Europe borrowed, were also convenient ways of transferring wealth to widows and heirs.
Perhaps nowhere was this association clearer than in London, especially in the 17th century. The City of London took it upon itself to manage the inheritances of orphans until they came of age. In the process, it came to control funds for long periods of time, paying only a manageable rate of interest on money it could apply to public works, most notably in the aftermath of the Great Fire of London. However, much of this money simply went to cover operating deficits and the amounts due to London’s orphans had to be consolidated into a new Orphans’ Fund that wasn’t repaid until the 1830s.
Inheritances are a particularly large accumulation of capital that must be invested somewhere until spent. The inheritances of orphans unable to access the money immediately are particularly promising sources of investment capital. Wills in medieval and early modern England often specified that inheritances be invested until the heir came of age; however, the investment vehicles available then were, unsurprisingly, not of the same sort around today. Wills sometimes specified with whom the money be invested, often a merchant or tradesman, or simply that the funds be invested by trustworthy men. These men would use the money in trade but must answer for the money once the child came of age.
Of course, management of the money might be handled completely privately but there was an alternative that became customary in London. In 1352, a certain John de Holegh left money for his daughter and grandchildren and specified that the money be “placed with some trusty merchant of the city of London who will answer for the profit arising therefrom according to the manner and custom of orphans in London.” The question is what exactly was the “manner and custom of orphans in London” to which John de Holegh referred?
Court of Orphans
The ‘Court of Orphans’ was an institution of the City of London dating to at very least the 13th century. Its records, called the ‘Orphans’ Inventories’, survived. These files detailed the possessions, properties, securities, and loans inherited by orphans. The Court of Orphans was charged with managing the estates left to orphaned children in the City of London, the one square mile at the center of London which hosted most of its commercial life. Whether there was a will or not, estates there would be put under the court’s management.
Inventory was taken by the executors of the will and presented to the Court of Orphans. The estate would be valued, together with any unpaid debts owed to the deceased. From this amount would be deducted debts owed by the deceased, the cost of the funeral, administrative expenses, and possessions of the widow. The balance was divided into three pieces, one for the widow, one for the orphan, and the remainder distributed according to the will.
In the 16th century it became more common for executors and guardians to simply deposit the inheritance with the Court of Orphans for their management until the child came of age. The portion left to the orphan would then be paid, in the case of a son, at the age of twenty-one and in the case of a daughter, at the earlier of marriage or reaching the age of twenty-one. In the meantime, interest or ‘finding money’ was paid to the guardians at a rate of 4% per year, perhaps as a means of supporting the children.
The inheritances of orphans comprised a pool of capital that was used as a source of credit in London. The Court of Orphans sometimes lent this credit to others. However, this credit was largely supplied to the City itself since the government did not firmly separate the public budget from the funds managed for the orphans. For the City, the orphans’ money provided an alternative to raising money via loans.
This was in essence a way of securing long-term financing. Orphans, upon coming of age, would often prefer to continue leaving the money with the City and live off the interest paid. The City of London should seem like a trustworthy institution providing one of the few large-scale passive investment vehicles available, seemingly free of the risk of fraud or misappropriation.
By the end of the 17th century, London was the largest city in Western Europe. It had a population of 500,000; one-tenth of the population of England and Wales lived in London, a remarkable concentration in the capital for a country of such a size at that time. London was also wealthy and much of that wealth earned in the one square mile governed by the Corporation of London, the autonomous entity managing the City of London.
The City of London had a debt of £190,000 in the late 1620s and £250,000 by 1670. Thereafter, the debt grew quickly as the City encountered financial difficulties in the late 17th century. About two-thirds of its debt was due to the orphans. As more and more inheritances were put into the hands of the City, the use of funds to meet deficits and pay interest on the inheritances grew, causing larger and larger deficits to be made up by new deposits of inheritances. By 1680, £559,000 was owed to the orphans and the City was required to pay out nearly £20,000 in interest. The total debt, most of it due to orphans, reached £747,000 by 1694.
The growing indebtedness was the result of mismanagement and decades of crises in Britain and, owing to the Great Fire of London, in London especially. The 1666 fire reduced revenues and the orphans’ money was used to rebuild public buildings like the Guildhall and Royal Exchange. Increasing the strain, the City was often tasked with raising money for the Crown, which was suspicious of the City since the English Civil War but on whose grace the City relied for the continuance of its privileged autonomy. Reluctant to raise taxes, the City’s deficits grew steadily.
The ease with which London could borrow from orphans’ inheritances meant that building a more responsible fiscal policy was not immediately necessary. The City did not float long-term loans as others in Europe had. Also, the tax system was not conductive to raising large amounts of revenue; taxes were levied unequally by the City’s oligarchic Court of Aldermen. Eventually, the strain proved too much and the City was forced to cut the interest paid on inheritances from 4% to 2.5%. Speculators soon acquired the legacies of orphans managed by the City at a discount and lobbied for relief from Parliament.
In the end, the City of London itself asked for help, putting its future autonomy at risk in negotiations for a bailout. The English Parliament was initially slow to intervene in part due to internal disagreement. Tories favored harsher restrictions on the City to benefit the orphans; their plan entailed giving the City a meagre stipend with which to manage itself and apply remaining revenues for the benefit of the orphans. By contrast, Whigs were more defensive of the City’s interests.
An act of Parliament in 1694 made it optional for a testator to leave management of an estate to the City of London. Still, despite all this, it remained customary to do so, only gradually becoming less and less common until the mid-18th century, by which point the City’s improved finances meant it had little need for the money anyway. The act also consolidated the City’s debt into an ‘Orphans’ Fund’ paying 4%. The Orphans’ Fund was divided into shares in the City’s debt, whether held by orphans or not.
At 4% a year, the debt of about £750,000 would cost £30,000 per year to service. The amount would be met by £8,000 annually from the City’s budget and new taxes authorized by Parliament would meet the rest of the burden. These included a tax on the City’s inhabitants raising £2,000 per year, a customs duty on coal and wine received at the Port of London, and other revenues as well.
Around this time, a Scottish financier named William Paterson, who would later be known for his promotion of the infamous Darien scheme, sought to seize on the legislation and establish an ‘Orphans Bank’ to purchase the securities of the Orphans’ Fund at sixty percent of their face value. He managed to raise some money for this purpose but the recently formed Bank of England, sensing the emergence of a rival, worked to kill this bank, which was dissolved at some point around May 1697
Still, the new revenues failed to satisfy the £30,000 due each year until sometime around 1710. By then though, the coal tax revenues rose to such a level where the Orphans’ Fund could meet its interest expense in full. In the mid-to-late 18th century, the coal tax alone came satisfy the interest due. Investors saw the securities of the Orphans’ Fund as desirable and the original orphans or their decedents sold their shares in the fund to new investors.
“Who are these poor orphans we pay so much money to? And whether they are not some of the richest men in the City of London, who have got the stock into their own hands, and find it so snug a fund, they do not care to get out of it?”Daniel Defoe in “Augusta Triumphans: or, the Way to Make London the Most Flourishing City in the Universe” (1728)
On a solid footing and with surpluses that could be used to secure new debts, the Orphans’ Fund was once again used to borrow money, this time in the late 1760s. The amount of new borrowing was manageable though; the Orphans’ Fund was tapped into to secure loans of just £300,000. This money went to build Blackfriars Bridge and part of London’s Embankment, to rebuild Newgate Goal and parts of the Royal Exchange, and to eliminate tolls on London Bridge. All of this was largely funded with borrowing secured by coal taxes paid into the Orphans’ Fund. Eventually, the Orphans’ Fund outlived its usefulness though. The securities of the fund were gradually repaid until the remaining balance of the fund was extinguished in 1832.
At least a few of central London’s iconic landmarks owe their existence to orphans’ inheritances. This public splendor is a peculiarity of urban wealth. In the country, where wealth was held in land, bequests, unless charitable, did not seem to give rise to public benefits as they had in London. Merchants or tradesmen engaged in ventures alone or in partnerships that would dissolve upon their death could not simply leave their businesses to their minor children.
As a result, some security was needed to serve as a means of transferring large sums of money to future generations. Management of this money could be lucrative. While perhaps mismanaged, London’s post-fire rebuilding by means of orphans’ inheritances stands as a testament to the wealth of 17th century London in a monumental way no paper will and testament could.
More from the Tontine Coffee-House
Read about the Great Fire of London and the coal taxes introduced to finance rebuilding. Though Blackfriars Bridge may have been built with the orphans fund, other bridges built in London around the same time were funded with a form of life annuity called a tontine. Consider subscribing to this blog’s newsletter here.
1. Doolittle, I. G. “The City of London’s Debt to Its Orphans, 1694–1767.” Historical Research, vol. 56, no. 133, 1983, pp. 46–59.
2. Harding, Vanessa. “The Crown, the City, and the Orphans: The City of London and Its Finances, 1400-1700.” Urban Public Debts, Urban Government and the Market for Annuities in Western Europe (14th-18th Centuries), 2003, pp. 51–60.
3. Mesurier, Alice M. “The Orphans’ Inventories at the London City Guildhall.” The Economic History Review, vol. 5, no. 1, Oct. 1934, pp. 98–103.
4. Sykes, Adele. “The Medieval Foundations of the Court of Orphans: London and Wardship, C.1250-C.1550.” Royal Holloway, University of London, 2021.