Finance and growth in the United Kingdom

Abstract

England's financial revolution in the eighteenth century has long been hailed as a key contributor to the world's first Industrial Revolution. Later, in the nineteenth century, roles change in standard narratives – finance turns from hero into villain, with Victorian economic “failure” a result of excessive financial development. This survey argues for the exact opposite. England's financial revolution was strictly limited to public finance, enabling an explosion of public borrowing that stifled economic activity in the century up to 1815. It was only afterwards that finance began to fulfill its promise, enabling the country's rise to become the undisputed workshop of the world by the 1850s. Finally, there is no evidence of Victorian failure through excessive capital exports. In sum, the English case eloquently demonstrates the risks of financial repression – and the vast benefits from repealing outdated rules and regulations.