Evolving Financial Markets and International Capital Flows: Britain, the Americas, and Australia, 1865-1914

By Lance E. Davis; Robert E. Gallman | Go to book overview

CHAPTER 2
The United Kingdom

2–1. Introduction

It was not that British savers were born with a lesser degree of aversion to uncertainty than their counterparts in the four frontier countries, it was simply that Britain had begun to develop earlier, and by the middle of the nineteenth century the process of educating savers had proceeded much further than it had in the outlands. Although a doubledigit savings rate was not achieved until the early decades of that century, capital had been accumulating in trade and commerce for at least 300 years. It may well have been true, as Postan has noted, that at least two fifteenth-century families could have provided all the finance required to fund the entire Industrial Revolution. However, those (and other elite) families chose not to redirect their existing portfolios, to meet either the relatively small demands of the manufacturing sector — demands that were met largely out of retained earnings — or, much more importantly, the demands for supporting investment in infrastructure, particularly canal construction.

Although her findings have been subject to criticism, Elise S. Brezis has concluded that from 1740 to the end of the century the national savings rate, although rising, rose by substantially less than the investment rate. As a result, for the century as a whole, given the level of military expenditures, domestic savings were insufficient to finance the observed level of investment, and there was a need for foreign capital imports. She concludes that “foreign capital flows, in great majority Dutch, financed budget deficits, investments, and investments in the colonies.”61 R.C. Nash disputes Brezis's estimates of the deficits in the balance of payment and concludes that the capital inflows were substantially smaller. He estimates that the accumulated net foreign indebtedness was probably nearer £18 million in the 1780s and £31 million a

____________________
61
Elise S. Brezis, “Foreign Capital Flows in the Century of Britain's Industrial Revolution: New Estimates, Controlled Conjectures, ” Economic History Review, Vol. XLVIII, No. 1 (February 1995), pp. 55–56 and table 2, p. 51.

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