In Prometheus Shackled, the numerous wars suffered by eighteenth-century Britain constrain the nation's banks, so much of the book details the effects of war finance on London banks. Massive state borrowing crowds-out private sector lending.

A regulatory ceiling on interest rates rations bank credit. The book demonstrates these results through archival work into a few goldsmith bankers.

Authors Peter Temin and Hans-Joachim Voth also argue that after 1750 potential industrial innovation was becoming unbound, so they go on to conclude that a shortage of bank lending slowed the rate of British industrialization. A lack of bank credit constrained the flow of new capital that manufacturers needed to transform innovations into production. The last fifth of the book turns to the argument that industrial entrepreneurs were stymied by an inability to acquire bank loans.

The first five chapters focus on the preindustrial era, when bankers were still goldsmiths or only a generation removed. Chapter 1 sets the stage with the emergence of a middling class in early modern London. This growing class included many goldsmith bankers. Chapter 2 provides a summary of the revolution in state finance that followed the Glorious Revolution of 1688.

Chapter 3 uses micro-level data to detail how Hoare's Bank evolved from a pawn broker into a fractional reserve banker. While Hoare's story picks up in 1702, it is similar to the learning curve of the earlier generation of goldsmith banks operating in London's West End. The chapter uses reconstructed loans to reveal that Hoare chose a high-leverage, short-maturity strategy when compared to his local competitor Child's Bank. Both banks moved away from using pawns of silver, gold, and gems, but Hoare's did not accept securities as collateral until 1714, a generation later than Child. The chapter highlights the challenges of balancing interest rate, principal, maturity, collateral, and default risk.

Chapter 4 carefully examines how the usury law of 1714 changed Hoare's lending. The state lowered the interest rate ceiling from 6 percent to 5 percent. The move eased pressure on the state, for the national debt was already substantial yet growing rapidly. Hoare and Child responded by making fewer, larger loans to more privileged borrowers. Hoare also began to use securities as collateral. Such credit rationing was to the disadvantage of London's middling class.

Chapter 5 uses the Hoare records to show how the bank and its customers rode the South Sea Bubble of 1720. The bank traded stock in its own name and made great profits. It also facilitated asset price inflation by brokering for its customers and by accepting stock as collateral. The bubble emerged from the state's effort to recast large amounts of the national debt, and its collapse led to the Bubble Act that limited incorporation.

The final three chapters carry the story into the second half of the eighteenth century and the era of industrialization. After 1720 Hoare's learned to further concentrate loans to the moneyed elite of London's West End. This minimized defaults, and such a low-risk strategy succeeded well because the usury regulation stopped the bank from charging high rates to high risk borrowers. Chapter 6 also presents balance sheet data for a few other London banks to show growth rates similar to Hoare's.

Chapter 7 uses the balance sheets of these banks to show that lending was highly and negatively correlated to government wartime borrowing from 1720 through the Napoleonic Wars. The chapter also shows that output growth for the macroeconomy was also negatively correlated to government borrowing. The chapter advances that banks were a causal link, for massive government borrowing caused banks to ration credit. At the time, industry had high rates of return, so entrepreneurs wanted to borrow. More lending would have gone to capital formation in the absence of usury limits and frequent periods of massive government borrowing. Chapter 8 summarizes and defends the thesis that, “Financial intermediation therefore emerges as the crucial choke point for growth. It failed to fulfill its potential because of heavy-handed regulation and wartime shocks (p. 185).”

Anyone studying financial history will find this book an important contribution full of hard won facts, for collecting its data required substantial archival work. The book is highly accessible and written in an engaging style that avoids excessive formalization. The choke-point thesis is intriguing, but the degree of extrapolation from London to industrialization leaves some questions unanswered. Prometheus Shackled directs future research towards detailing an unmet demand for loans among early industrialists and a rationing of such loans by country and City banks.