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Debt, deficits, and crowding out: England, 1727 1840

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  • CLARK, GREGORY

Abstract

By the 1820s, as a result of the protracted struggle with France, the market value of the British Government debt was twice British GDP. It has been argued that this debt represented a huge institutional failure by the government, significantly slowing growth in the Industrial Revolution period by crowding out private investment. This article constructs measures of private rates of return in the years 1725 1839 and shows these imply that neither the government deficits nor the mounting debt are associated with much higher private rates of return on capital. The reason the government could issue so much debt without raising rates of return is unclear. One possibility is that crowding out was occurring, but population growth in 1770 1839 was reducing rental income as a fraction of GDP, creating a demand for other asset income so that we do not observe tightness in capital markets.

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Bibliographic Info

Article provided by Cambridge University Press in its journal European Review of Economic History.

Volume (Year): 5 (2001)
Issue (Month): 03 (December)
Pages: 403-436

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Handle: RePEc:cup:ereveh:v:5:y:2001:i:03:p:403-436_00

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Cited by:
  1. David R Stead, . "Fixed Rent Contracts in English Agriculture, 1750-1850: A Conjecture," Discussion Papers 05/01, Department of Economics, University of York.
  2. Peter Temin & Hans-Joachim Voth, 2004. "Credit Rationing and Crowding out during the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862," Working Papers 211, Barcelona Graduate School of Economics.
  3. Mikael Priks, 2005. "Optimal Rent Extraction in Pre-Industrial England and France – Default Risk and Monitoring Costs," CESifo Working Paper Series 1464, CESifo Group Munich.
  4. Michael Bar & Oksana Leukhina, 2009. "Supplemental Notes to "Demographic transition and industrial revolution: A macroeconomic investigation"," Technical Appendices 08-85, Review of Economic Dynamics.
  5. Voth, Joachim, 2005. "Credit Rationing and Crowding Out During the Industrial Revolution," Department of Economics, Working Paper Series qt4qw3v8q6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.

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