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Credit Rationing and Crowding out during the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862

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  • Peter Temin
  • Hans-Joachim Voth

Abstract

Crowding-out during the British Industrial Revolution has long been one of the leading explanations for slow growth during the Industrial Revolution, but little empirical evidence exists to support it. We argue that examinations of interest rates are fundamentally misguided, and that the eighteenth- and early nineteenth-century private loan market balanced through quantity rationing. Using a unique set of observations on lending volume at a London goldsmith bank, Hoare's, we document the impact of wartime financing on private credit markets. We conclude that there is considerable evidence that government borrowing, especially during wartime, crowded out private credit.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 211.

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Date of creation: Feb 2004
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Handle: RePEc:bge:wpaper:211

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  1. Peter Temin & Hans-Joachim Voth, 2004. "Riding the South Sea Bubble," American Economic Review, American Economic Association, vol. 94(5), pages 1654-1668, December.
  2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  3. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
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  5. Quinn, Stephen, 2001. "The Glorious Revolution'S Effect On English Private Finance: A Microhistory, 1680 1705," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 61(03), pages 593-615, September.
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  7. Harley, C. Knick & Crafts, N.F.R., 2000. "Simulating the Two Views of the British Industrial Revolution," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 60(03), pages 819-841, September.
  8. De Long, J Bradford & Shleifer, Andrei, 1993. "Princes and Merchants: European City Growth before the Industrial Revolution," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 36(2), pages 671-702, October.
  9. Peter Temin & Joachim Voth, 2006. "Banking as an emerging technology: Hoare's Bank, 1702-1742," Economics Working Papers 1263, Department of Economics and Business, Universitat Pompeu Fabra.
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  14. Williamson, Jeffrey G., 1987. "Has Crowding Out Really Been Given a Fair Test? A Comment," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 47(01), pages 214-216, March.
  15. Temin, Peter, 1997. "Two Views of the British Industrial Revolution," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 57(01), pages 63-82, March.
  16. Mokyr, Joel, 1987. "Has the industrial revolution been crowded out? Some reflections on Crafts and Williamson," Explorations in Economic History, Elsevier, Elsevier, vol. 24(3), pages 293-319, July.
  17. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 49(04), pages 803-832, December.
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  21. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, Elsevier, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier.
  22. Sussman, Nathan & Yafeh, Yishay, 2004. "Constitutions and Commitment: Evidence on the Relation Between Institutions and the Cost of Capital," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4404, C.E.P.R. Discussion Papers.
  23. Temin, Peter, 2000. "A Response to Harley and Crafts," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 60(03), pages 842-846, September.
  24. Mirowski, Philip, 1981. "The Rise (and Retreat) of a Market: English Joint Stock Shares in the Eighteenth Century," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 41(03), pages 559-577, September.
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Cited by:
  1. Mauricio Drelichman & Hans-Joachim Voth, 2008. "Debt Sustainability in Historical Perspective: The Role of Fiscal Repression," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(2-3), pages 657-667, 04-05.
  2. Maria Alejandra Irigoin & Regina Grafe, 2012. "Bounded Leviathan: or why North and Weingast are only right on the right half," Economic History Working Papers, London School of Economics and Political Science, Department of Economic History 44492, London School of Economics and Political Science, Department of Economic History.
  3. David R Stead, . "Fixed Rent Contracts in English Agriculture, 1750-1850: A Conjecture," Discussion Papers, Department of Economics, University of York 05/01, Department of Economics, University of York.
  4. Efraim Benmelech & Tobias J. Moskowitz, 2007. "The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century," NBER Working Papers 12851, National Bureau of Economic Research, Inc.
  5. Kiril Danailov Kossev, 2008. "The Banking Sector and the Great Depression in Bulgaria, 1924 - 1938: Interlocking and Financial Sector Profitability," Working Papers 76, Bank of Greece.

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