Financing Industrialisation

Question 1

When, in relation to the industrial revolution, did the financial revolution occur, according to Neal?

Answer 1

The financial revolution clearly preceded the industrial revolution.

Question 2

What acted as the backdrop of the financial revolution?

Answer 2

The techniques from the Netherlands financial culture: bills of exchange, transferrable shares, and perpetual annuities issued by the government

Question 3

What is a perpetual govt. annuity with regard to the eighteenth century?

Answer 3

Fixed payments issued at equal instalments indefinitely- consolidated the bank of England “stocks” into fixed interest rates of 3%. No expiry- often used as retirement funds.

Question 4

What fostered financial development in the eighteenth-century?

Answer 4

A lax legal system based upon common law

Question 5

When was a financial revolution firmly established in London?

Answer 5

By 1723 (the South Sea Bubble affair)- there were no further innovations until the Napoleonic Wars

Question 6

What is the traditional interpretation of the financial revolution?

Answer 6

That it didn’t interact with the IR because financial innovations supposedly weren’t needed by new firms, fixed capital only helped net profits be diverted into generating internal fixed capital

Question 7

What method of analysis reveals interactions between finance and the IR?

Answer 7

Looking at each industry / region / time period individually as Unwin (1924) suggested

Question 8

What can be said about the relationship between IR and FR?

Answer 8

While industry determines what happens in the financial sector, financial markets direct industry

Question 9

What is the revisionist interpretation of the financial revolution?

Answer 9

Legal forms of businesses, financial instruments and intermediaries are linked to all savers in British finance

Question 10

Where does the historiographical focus of the financial revolution lie? What does it assume?

Answer 10

Historiographic focus falls on financial activities of individual firms- which are assumed to take place within interrelated markets where supply and demand of funds is low

Question 11

Is there evidence of a cohesive national capital market?

Answer 11

Not really, no. But separatism over Scotland shouldn’t be exaggerated, and while there wasn’t national cohesion there was certainly national penetration

Question 12

What does Neal argue with regards to the financial revolution?

Answer 12

Eighteenth century Britain has ‘an active and widespread, if amorphous, credit market’- any firm in any sector could tap into this

Question 13

What two capital needs did firms in the eighteenth century have?

Answer 13

working capital and investment capital needs

Question 14

Why is the supply curve of funds regarding firms in the eighteenth century so volatile?

Answer 14

Because firms’ loanable funds are dependent on their internal capital, but they only had knowledge of this, not external lenders

Question 15

What characterised the financial climate of the eighteenth century?

Answer 15

Trade booms and crises were happening with distressing frequency and increasing damage throughout the eighteenth century

Question 16

What did the growth in overseas trade mean for temporary insolvencies?

Answer 16

Because of overseas trade, temporary insolvencies become increasingly common and were larger and more frequent in nature

Question 17

What shows the contemporary awareness of insolvency issues with regards to eighteenth century firms?

Answer 17

The 1706 Act of Bankruptcy was a response to insolvency issues, and was made permanent in 1732- it was clearly a provision for creditors to have better means of dealing with insolvency

Question 18

What were the two uses of bills of exchange during the eighteenth century?

Answer 18

Bills of exchange were used either as payment for goods travelling between distant markets (i.e. the New World), or as an investment of credit to earn returns on idle balances

Question 19

What was the impact of using bills of exchange for international trade?

Answer 19

it allowed imports of goods to flow seamlessly via an export of short-term capital, and allowed rapid and secure transfer of payments between drawer and drawee in London and payer and payee abroad.

Question 20

What was the outcome of bills of exchange being established in London?

Answer 20

Bills of exchange circulating London facilitated short-term lending by merchant-bankers, making the rate of interest fall

Question 21

What was the impact of using bills of exchange as a means of credit?

Answer 21

bills of exchange acted as a significant source of credit for British merchants to extend to American planters in this manner

Question 22

What was the impact of inland usage of bills of exchange?

Answer 22

English legislation meant that it wasn’t necessary to show that value had been given for the sum drawn, so they circulated locally and after 1765 could be drawn payable to the bearer

Question 23

Who studied eighteenth century mortgages?

Answer 23

Anderson (1969)

Question 24

What can be said about the popularity of mortgages in the eighteenth century?

Answer 24

1. Because of the emergence of strict land settlement after the Glorious Revolution 2. because they could be raised on both free and leasehold properties, 3. they were convenient

Question 25

What was the nature of government debt in the eighteenth century?

Answer 25

The eighteenth century was the first time European nations racked up significant govt. debt because of the wars

Question 26

What was the rate of interest on wartime annuities versus peacetime annuities in the eighteenth century?

Answer 26

Wartime annuities had 8-10% rate of interest, peacetime only 5-6%

Question 27

What did governments do to convert annuities debt into equity?

Answer 27

The weakened Spanish empire was feasted upon by large monopoly trading companies exploiting riches

Question 28

What was the impact of the large monopoly trading companies entering the financial sphere?

Answer 28

Placing shares of significant businesses onto notably small, infant, stock markets led to bubbles (e.g. 1719, 20),

Question 29

What does Neal assert regarding the impact of large businesses being floated on the market?

Answer 29

‘promises of financial gains, … led to speculative excess’

Question 30

What was the traditional interpretation of market bubbles?

Answer 30

market bubbles according to the traditionalist school were disasters which stunted the rise of financial capitalism by a century

Question 31

What is the revisionist interpretation of market bubbles?

Answer 31

according to revisionists, market bubbles had a crucial role in internationalising European investment communities

Question 32

What are the four financial intermediaries during the eighteenth century?

Answer 32

Goldsmiths, Scriveners, attorneys, country banks and merchant banks

Question 33

Summarise the role played by Goldsmiths in the eighteenth century financial world:

Answer 33

Goldsmiths had roots in medieval England as a guild, they influenced public finance because of their role in the Mint until the Bank of England exceeded their issuing in 1720, there after they were involved in private banking.

Question 34

Summarise the role of Scriveners in the eighteenth century financial world:

Answer 34

Scriveners largely worked with the landed gentry that owned London properties- they were at the centre of agricultural credit and thus important in mortgages

Question 35

Summarise the role of attorneys in the eighteenth century financial world:

Answer 35

They were important financial intermediaries in Yorkshire and Lancashire, as estate stewards and executors of wills they represented both potential borrowers AND lenders

Question 36

Who claimed that country banks were ‘virtually none existent’ before 1750? When did they grow?

Answer 36

Pressnell (1956)- he said that there can’t have been more than 12 banks in total averaging £10,000 capital. Didn’t begin growing until the Napoleonic Wars when branch banking became popular

Question 37

Summarise the role of country banks in the eighteenth century financial world:

Answer 37

country banks helped facilitate local interaction between savers (landlords) and investors (manufacturers in the IR)

Question 38

Summarise the role of merchant banks in the eighteenth century financial world:

Answer 38

Merchant banks in the period 1780-1825 helped industrialists branch into new export markets

Question 39

What is the historiographical division over the role of merchant banks?

Answer 39

Traditional school claims that government monetary policy was inept so there was a recourse of private substitutes; the revisionist school claims even if so, merchant banks were more than capable to sustain heavy payment streams

Question 40

What were the eighteenth century conditions for annuities like?

Answer 40

Conditions for purchasing, trading and receiving annuities were restrictive- deeds were inspected with as much scrutiny as land titles

Question 41

What did the Napoleonic Wars mean for British businesses?

Answer 41

Government debt racked up in the Napoleonic wars provided liquid assets to businesses and a relatively risk free asset for inexperienced/wary investors

Question 42

What can be summarised of the relationship between the financial revolution and the industrial revolution?

Answer 42

The relationship between finance and industry ebbed and flowed throughout the century, but any break in the web of credit would have a ripple effect in trade

Question 43

How did the financial climate develop in the eighteenth century?

Answer 43

Generally the web of credit grew consistently in ‘radius, density and strength’ and by 1844 extended everywhere domestic and international

Question 44

What does Neal assert as the fundamental core of his argument of the financial revolution?

Answer 44

Structural economic changes could not have occurred in later years without the establishing of this backdrop.