title: Economic history of the United Kingdom

text: Most of the companies earned good profits, and enormous personal fortunes were created in India. However, there was one major fiasco that caused heavy losses. The South Sea Bubble was a business enterprise that exploded in scandal. The South Sea Company was a private business corporation supposedly set up much like the other trading companies, with a focus on South America. Its actual purpose was to renegotiate previous high-interest government loans amounting to £31 million through market manipulation and speculation. It issued stock four times in 1720 that reached about 8,000 investors. Prices kept soaring every day, from £130 a share to £1,000, with insiders making huge paper profits. The Bubble collapsed overnight, ruining many speculators. Investigations showed bribes had reached into high places—even to the king. His chief minister Robert Walpole managed to wind it down with minimal political and economic damage, although some losers fled to exile or committed suicide.


title: Economic history of the United Kingdom

text: The basis of the British Empire was founded in the age of mercantilism, an economic theory that stressed maximising the trade outside the empire, and trying to weaken rival empires. The 18th century British Empire was based upon the preceding English overseas possessions, which began to take shape in the late 16th and early 17th century, with the English settlement of islands of the West Indies such as Trinidad and Tobago, the Bahamas, the Leeward Islands, Barbados, Jamaica, and Bermuda, and of Virginia, one of the Thirteen Colonies which in 1776 became the United States, as well as of the Maritime provinces of what is now Canada. The sugar plantation islands of the Caribbean, where slavery became the basis of the economy, comprised England's most lucrative colonies. The American colonies also used slave labour in the farming of tobacco, indigo, and rice in the south. England, and later Great Britain's, American empire was slowly expanded by war and colonisation. Victory over the French during the Seven Years' War gave Great Britain control over what is now eastern Canada.


title: Economic history of the United Kingdom

text: Mercantilism was the basic policy imposed by Britain on its colonies. Mercantilism meant that the government and the merchants became partners with the goal of increasing political power and private wealth, to the exclusion of other empires. The government protected its merchants—and kept others out—by trade barriers, regulations, and subsidies to domestic industries in order to maximise exports from and minimise imports to the realm. The Navigation Acts of the late 17th century provided the legal foundation for Mercantilist policy. They required all trade to be carried in English ships, manned by English crews (this later encompassed all Britons after the Acts of Union 1707 united Scotland with England). Colonists were required to send their produce and raw materials first of all to Britain, where the surplus was then sold-on by British merchants to other colonies in the British empire or bullion-earning external markets. The colonies were forbidden to trade directly with other nations or rival empires. The goal was to maintain the North American and Caribbean colonies as dependent agricultural economies geared towards producing raw materials for export to Britain. The growth of native industry was discouraged, in order to keep the colonies dependent on Britain for their finished goods.


title: Economic history of the United Kingdom

text: The government had to fight smuggling—which became a favourite American technique in the 18th century to circumvent the restrictions on trading with the French, Spanish or Dutch. The goal of mercantilism was to run trade surpluses, so that gold and silver would pour into London. The government took its share through duties and taxes, with the remainder going to merchants in Britain. The government spent much of its revenue on a superb Royal Navy, which not only protected the British colonies but threatened the colonies of the other empires, and sometimes seized them. Thus the British Navy captured New Amsterdam (New York City) in 1664. The colonies were captive markets for British industry, and the goal was to enrich the mother country.


title: Economic history of the United Kingdom

text: Besides woollens, cotton, silk and linen cloth manufacturing became important after 1600, as did coal and iron.


title: Economic history of the United Kingdom

text: In 1709, Abraham Darby I established a coke-fired blast furnace to produce cast iron, replacing charcoal, although continuing to use blast furnaces. The ensuing availability of inexpensive iron was one of the factors leading to the Industrial Revolution. Toward the end of the 18th century, cast iron began to replace wrought iron for certain purposes, because it was cheaper. Carbon content in iron was not implicated as the reason for the differences in properties of wrought iron, cast iron, and steel until the 18th century.


title: Economic history of the United Kingdom

text: In period loosely dated from the 1770s to the 1820s, Britain experienced an accelerated process of economic change that transformed a largely agrarian economy into the world's first industrial economy. This phenomenon is known as the "industrial revolution", since the changes were far-reaching and permanent throughout many areas of Britain, especially in the developing cities.


title: Economic history of the United Kingdom

text: Economic, institutional, and social changes were fundamental to the emergence of the industrial revolution. Whereas absolutism remained the normal form of governance through most parts of Europe, in the UK a fundamentally different power balance was created after the revolutions of 1640 and 1688. The new institutional setup ensured property rights and political safety and thereby supported the emergence of an economically prosperous middle class. Another factor is the change in marriage patterns through this period. Marrying later allowed young people to acquire more education, thereby building up more human capital in the population. These changes enhanced the already relatively developed labour and financial markets, paving the way for the industrial revolution starting in the mid-18th century.


title: Economic history of the United Kingdom

text: Great Britain provided the legal and cultural foundations that enabled entrepreneurs to pioneer the industrial revolution. Starting in the later part of the 18th century, there began a transition in parts of Great Britain's previously manual labour and draft-animal–based economy towards machine-based manufacturing. It started with the mechanisation of the textile industries, the development of iron-making techniques and the increased use of refined coal. Trade expansion was enabled by the introduction of canals, improved roads and railways. Factories pulled thousands from low productivity work in agriculture to high productivity urban jobs.


title: Economic history of the United Kingdom

text: The introduction of steam power fuelled primarily by coal, wider utilisation of water wheels and powered machinery (mainly in textile manufacturing) underpinned the dramatic increases in production capacity. The development of all-metal machine tools in the first two decades of the 19th century facilitated the manufacture of more production machines for manufacturing in other industries. The effects spread throughout Western Europe and North America during the 19th century, eventually affecting most of the world, a process that continues as industrialisation. The historian Emma Griffin has placed particular emphasis on the role of the steam engine in the making of Britain's industrial revolution.


title: Economic history of the United Kingdom

text: According to Max Weber, the foundations of this process of change can be traced back to the Puritan Ethic of the Puritans of the 17th century. This produced modern personalities attuned to innovation and committed to a work ethic, inspiring landed and merchant elites alive to the benefits of modernization, and a system of agriculture able to produce increasingly cheap food supplies. To this must be added the influence of religious nonconformity, which increased literacy and inculcated a "Protestant work ethic" amongst skilled artisans.


title: Economic history of the United Kingdom

text: A long run of good harvests, starting in the first half of the 18th century, resulted in an increase in disposable income and a consequent rising demand for manufactured goods, particularly textiles. The invention of the flying shuttle by John Kay enabled wider cloth to be woven faster, but also created a demand for yarn that could not be fulfilled. Thus, the major technological advances associated with the industrial revolution were concerned with spinning. James Hargreaves created the Spinning Jenny, a device that could perform the work of a number of spinning wheels. However, while this invention could be operated by hand, the water frame, invented by Richard Arkwright, could be powered by a water wheel. Indeed, Arkwright is credited with the widespread introduction of the factory system in Britain, and is the first example of the successful mill owner and industrialist in British history. The water frame was, however, soon supplanted by the spinning mule (a cross between a water frame and a jenny) invented by Samuel Crompton. Mules were later constructed in iron by Messrs. Horrocks of Stockport.


title: Economic history of the United Kingdom

text: As they were water powered, the first mills were constructed in rural locations by streams or rivers. Workers villages were created around them, such as New Lanark Mills in Scotland. These spinning mills resulted in the decline of the domestic system, in which spinning with old slow equipment was undertaken in rural cottages.


title: Economic history of the United Kingdom

text: The steam engine was invented and became a power supply that soon surpassed waterfalls and horsepower. The first practicable steam engine was invented by Thomas Newcomen, and was used for pumping water out of mines. A much more powerful steam engine was invented by James Watt; it had a reciprocating engine capable of powering machinery. The first steam-driven textile mills began to appear in the last quarter of the 18th century, and this transformed the industrial revolution into an urban phenomenon, greatly contributing to the appearance and rapid growth of industrial towns.


title: Economic history of the United Kingdom

text: The progress of the textile trade soon outstripped the original supplies of raw materials. By the turn of the 19th century, imported American cotton had replaced wool in the North West of England, though wool remained the chief textile in Yorkshire. Textiles have been identified as the catalyst in technological change in this period. The application of steam power stimulated the demand for coal; the demand for machinery and rails stimulated the iron industry; and the demand for transportation to move raw material in and finished products out stimulated the growth of the canal system, and (after 1830) the railway system.


title: Economic history of the United Kingdom

text: Such an unprecedented degree of economic growth was not sustained by domestic demand alone. The application of technology and the factory system created such levels of mass production and cost efficiency that enabled British manufacturers to export inexpensive cloth and other items worldwide.


title: Economic history of the United Kingdom

text: Walt Rostow has posited the 1790s as the "take-off" period for the industrial revolution. This means that a process previously responding to domestic and other external stimuli began to feed upon itself, and became an unstoppable and irreversible process of sustained industrial and technological expansion.


title: Economic history of the United Kingdom

text: In the late 18th century and early 19th century a series of technological advances led to the Industrial Revolution. Britain's position as the world's pre-eminent trader helped fund research and experimentation. The nation also had some of the world's greatest reserves of coal, the main fuel of the new revolution.


title: Economic history of the United Kingdom

text: It was also fuelled by a rejection of mercantilism in favour of the predominance of Adam Smith's capitalism. The fight against Mercantilism was led by a number of liberal thinkers, such as Richard Cobden, Joseph Hume, Francis Place and John Roebuck.


title: Economic history of the United Kingdom

text: Some have stressed the importance of natural or financial resources that Britain received from its many overseas colonies or that profits from the British slave trade between Africa and the Caribbean helped fuel industrial investment, citing "bigger markets for British goods, larger profits to British investors, more and cheaper raw materials for emerging industrial sectors, and more incentives for British consumers than were offered by domestic industries or other foreign markets".


title: Economic history of the United Kingdom

text: The Industrial Revolution saw a rapid transformation in the British economy and society. Previously, large industries had to be near forests or rivers for power. The use of coal-fuelled engines allowed them to be placed in large urban centres. These new factories proved far more efficient at producing goods than the cottage industry of a previous era. These manufactured goods were sold around the world, and raw materials and luxury goods were imported to Britain.


title: Economic history of the United Kingdom

text: During the Industrial Revolution the empire became less important and less well-regarded. The British defeat in the American War of Independence (1775–1783) deprived it of its largest and most developed colonies. This loss brought a realisation that colonies were not particularly economically beneficial to the home economy. It was realised that the costs of occupation of colonies often exceeded the financial return to the taxpayer. In other words, formal empire afforded no great economic benefit when trade would continue whether the overseas political entities were nominally sovereign or not. The American Revolution helped demonstrate this by showing that Britain could still control trade with the colonies without having to pay for their defence and governance. This encouraged the British to grant their colonies self-government, starting with Canada, which became unified and largely independent in 1867, and Australia, which followed suit in 1901.


title: Economic history of the United Kingdom

text: Critical to British success in confronting Napoleon was its superior economic situation. It was able to mobilize the nation's industrial and financial resources and apply them to defeating the First French Empire. With a population of 16 million Britain was barely half the size of France with 30 million. In terms of soldiers, the French numerical advantage was offset by British subsidies that paid for a large proportion of the Austrian and Russian soldiers, peaking at about 450,000 in 1813.


title: Economic history of the United Kingdom

text: Most important, the British national output remained strong. Textiles and iron grew sharply. Iron production expanded as demand for cannon and munitions was insatiable. Agricultural prices soared—it was a golden age for agriculture even as food shortages appeared here and there. There were riots in Cornwall, Devon, and Somerset during the food shortages of 1800–01. Mobs forced merchants to hand over their stocks, as the food was distributed to the hungry by popular committees. Wells concludes that the disturbances indicate deep social grievances that extended far beyond the immediate food shortages. Overall, however, crop production grew 50% between 1795 and 1815.


title: Economic history of the United Kingdom

text: The system of smuggling finished products into the continent undermined French efforts to ruin the British economy by cutting off markets. The well-organized business sector channelled products into what the military needed. Not only did British cloth provide for British uniforms, it clothed the allies as well and indeed the French soldiers too. Britain used its economic power to expand the Royal Navy, doubling the number of frigates and increasing the number of large ships of the line by 50%, while increasing the roster of sailors from 15,000 to 133,000 in eight years after the war began in 1793. France, meanwhile, saw its navy shrink by more than half.


title: Economic history of the United Kingdom

text: The British budget in 1814 reached £66 million, including £10 million for the Navy, £40 million for the Army, £10 million for the Allies, and £38 million as interest on the national debt. The national debt soared to £679 million, more than double the GDP. It was willingly supported by hundreds of thousands of investors and tax payers, despite the higher taxes on land and a new income tax. The whole cost of the war came to £831 million. By contrast the French financial system was inadequate and Napoleon's forces had to rely in part on requisitions from conquered lands.


title: Economic history of the United Kingdom

text: O'Brien examines the long-term economic impact of the wars, 1793–1815, and finds them generally favourable, except for damage to the working class. The economy was not damaged by the diversion of manpower to the army and navy; in terms of destruction and enforced transfer of national wealth, Britain came out ahead. British control of the oceans proved optimal in creating a liberal free-trade global economy, and helped Britain gain the lion's share of the world's carrying trade and financial support services. The effects were positive for agriculture and most industries, apart from construction. The rate of capital formation was slowed somewhat and national income perhaps would have grown even faster without war. The most negative impact was a drop in living standards for the urban working classes.


title: Economic history of the United Kingdom

text: 19th century Britain was the world's richest and most advanced economy while 19th century Ireland experienced the worst famine in Europe in that century. Real GDP per person almost doubled in the 90 years between 1780 and 1870, when it reached $3263 per capita. This was one third greater than GDP per person in the United States, and 70% more than both France and Germany. The economy was the most industrialized in the world, with one-third of the population employed in manufacturing by 1870 (concurrently one-sixth of the workforce in the United States was employed in manufacturing). The level of quantifiable steam power (in both industry and railroad travel), was gauged at 7,600 hp in 1880, only excelled by the United States. Urbanization was so intense that by 1901 80% of the British population lived in towns. The number of towns with a population over 50,000 reached 32 between 1847 and 1850, double that of Germany and almost five times that of the United States. By 1901 there were 74 British towns which met the 50,000 minimum threshold.


title: Economic history of the United Kingdom

text: Free trade was intellectually established by 1780 and implemented in the 1840s, thanks to the unusually strong influence of political theorists such as Adam Smith. They convincingly argued that the old policy of mercantilism held back the British economy, which if unfettered was poised to dominate world trade. As predicted, British dominance of world trade was apparent by the 1850s.


title: Economic history of the United Kingdom

text: After 1840, Britain committed its economy to free trade, with few barriers or tariffs. This was most evident in the repeal in 1846 of the Corn Laws, which had imposed stiff tariffs on imported grain. The end of these laws opened the British market to unfettered competition, grain prices fell, and food became more plentiful in Britain, the main island of the then United Kingdom. The same was not true in Ireland where the 1840s saw the worst famine in Europe in that century. By re-introducing income taxes in 1842 at the rate of 7 pence on the pound for incomes over £150, the government of Sir Robert Peel was able to compensate for loss of revenue and repeal import duties on over 700 items.


title: Economic history of the United Kingdom

text: From 1815 to 1870, Britain reaped the benefits of being the world's first modern, industrialised nation. It described itself as 'the workshop of the world', meaning that its finished goods were produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market. If political conditions in a particular overseas market were stable enough, Britain could dominate its economy through free trade alone without having to resort to formal rule or mercantilism. Britain was even supplying half the needs in manufactured goods of such nations as Germany, France, Belgium, and the United States. By 1820, 30% of Britain's exports went to its Empire, rising slowly to 35% by 1910. Until the latter 19th century, India remained Britain's economic jewel in terms of both imports and exports. In 1867, when British exports to her Empire totaled £50 million, £21 million of that was earned from India's market alone. Second to India, but far behind, was Australia, whose imports from Britain totaled £8 million, followed by Canada (£5.8 million), Hong Kong (£2.5 million), Singapore (£2 million), and New Zealand (£1.6 million). While these figures were undoubtedly significant, they represented just over a third of total British exports, the same proportion as over forty years before.


title: Economic history of the United Kingdom

text: Apart from coal, iron, tin and kaolin most raw materials had to be imported so that, in the 1830s, the main imports were (in order): raw cotton (from the American South), sugar (from the West Indies), wool, silk, tea (from China), timber (from Canada), wine, flax, hides and tallow. By 1900, Britain's global share had soared to 22.8% of total imports. By 1922, its global share was 14.9% of total exports and 28.8% of manufactured exports.


title: Economic history of the United Kingdom

text: However, while in the 1890s Britain persisted in its free trade policy its major rivals, the U.S. and Germany, turned to high and moderately high tariffs respectively. American heavy industry grew faster than Britain and by the 1890s was competing with British machinery and other products in the world market.


title: Economic history of the United Kingdom

text: In the decades before the First World War, Britain's exports were elastic to (increasing) foreign tariffs, with one study estimating that Britain's exports would have been 57% higher in 1902, under the counterfactual scenario of worldwide free trade.


title: Economic history of the United Kingdom

text: Historians agree that in the 1840s, Britain adopted a free-trade policy, meaning open markets and no tariffs throughout the empire. The debate among historians involves what the implications of free trade actually were. "The Imperialism of Free Trade" is a highly influential 1952 article by John Gallagher and Ronald Robinson. They argued that the New Imperialism of the 1880s, especially the Scramble for Africa, was a continuation of a long-term policy in which informal empire, based on the principles of free trade, was favoured over formal imperial control. The article helped launch the Cambridge School of historiography. Gallagher and Robinson used the British experience to construct a framework for understanding European imperialism that swept away the all-or-nothing thinking of previous historians. They found that European leaders rejected the notion that "imperialism" had to be based upon formal, legal control by one government over a colonial region. Much more important was informal influence in independent areas. According to Wm. Roger Louis, "In their view, historians have been mesmerized by formal empire and maps of the world with regions colored red. The bulk of British emigration, trade, and capital went to areas outside the formal British Empire. Key to their thinking is the idea of empire 'informally if possible and formally if necessary.'" Oron Hale says that Gallagher and Robinson looked at the British involvement in Africa where they, "found few capitalists, less capital, and not much pressure from the alleged traditional promoters of colonial expansion. Cabinet decisions to annex or not to annex were made, usually on the basis of political or geopolitical considerations."


title: Economic history of the United Kingdom

text: Reviewing the debate from the end of the 20th century, historian Martin Lynn argues that Gallagher and Robinson exaggerated the impact. He says that Britain achieved its goal of increasing its economic interests in many areas, "but the broader goal of 'regenerating' societies and thereby creating regions tied as 'tributaries' to British economic interests was not attained." The reasons were:


title: Economic history of the United Kingdom

text: A free market for imported foodstuffs, the driving factor behind the 1846 repeal of the Corn Laws, reaped long-term benefits for consumers in Great Britain as world agricultural production increased. Consumers in Ireland, where there was severe famine in the 1840s, did not benefit to the same extent. At first agriculture in Great Britain, through its superior productivity, was able to weather and even thrive following the repeal of the Corn Laws, contrary to the dire warnings of the landowners who had warned of immediate agricultural ruin. By the 1870s, the global price of grain began to fall dramatically following the opening up of the Midwestern United States and interior of Canada to mechanized cultivation. Combined with lower global transportation costs, the average price of a quarter of grain fell from 56"s" in the years 1867–71, to 27"s" 3"d" per quarter in 1894–98. This lowered the cost of living and enabled Britain to meet the demands of a quickly growing population (grain imports tripled in volume between 1870 and 1914, while the population grew 43% between 1871 and 1901). It also caused the Great Depression of British Agriculture in the countryside by the late 1870s, where a series of bad harvests combined with the far cheaper price of foreign grain induced a long decline for the British agricultural sector. Wheat-producing areas like East Anglia were especially hard hit, with overall wheat cultivation down from 13% of agricultural output in 1870, to 4% in 1900. Landowners argued for a re-introduction of the Corn Laws to protect domestic farming, but this was rebuffed by Prime Minister Benjamin Disraeli, who argued that returning to protectionism would endanger British manufacturing supremacy.


title: Economic history of the United Kingdom

text: In addition to the general slump in demand, greater mechanization in British agriculture, typified by the introduction of steam-powered threshing machines, mowers, and reapers, increased unemployment for rural workers. The result was an acceleration of migration from country to town, where jobs in factories, domestic service, and other occupations offered better wages and more opportunities. The male workforce of the countryside decreased by 40% between 1861 and 1901, while agriculture as a percentage of the national wealth fell from 20.3% in 1851 to just 6.4% by 1901. The depression did not apply only to foodstuffs, but also to wool producers, a once vital sector undercut by a flood of cheap wool imports from Australia and New Zealand. Only select types of produce where freshness was imperative, like milk and meat, enjoyed strong domestic demand in the late 19th century.


title: Economic history of the United Kingdom

text: The declining profitability of agriculture in the latter decades of the 19th century left British landowners hard pressed to maintain their accustomed lifestyles. The connection between land ownership and wealth which had for centuries underpinned the British aristocracy began an inexorable decline. Rents fell some 26% between the mid-1870s and mid-1890s, just as the amount of land under cultivation fell some 19%. 88% of British millionaires between the years 1809–1879 were defined as landowners; the proportion fell to 33% in the years 1880–1914, as a new class of plutocrats emerged from industry and finance.


title: Economic history of the United Kingdom

text: Britain's 19th century economic growth was beset by frequent and sometimes severe recessions. The Post-Napoleonic depression following the end of the Wars in 1815 was induced by several years of poor harvests, which were aggravated by the Corn Laws of 1815. This law set high tariffs on imported foodstuffs, keeping the cost of grain artificially high while wages were declining. As early as 1816, the high cost of grain caused famine and unrest in areas such as East Anglia and the North of England, where rioters seized grain stores and attacked the homes of suspected profiteers and merchants. The high food prices caused an overall slump in consumption and consequently in industrial production and employment. The discontent of the workers culminated in the disastrous confrontation with the authorities at the Peterloo Massacre of 1819, when British cavalry rode headfirst into a crowd of 60,000 to 80,000 protesters in Manchester, killing 5 and wounding as many as 700 people.


title: Economic history of the United Kingdom

text: The recession of the "Hungry Forties" was similar in its nature to that of the 1820s. Like that of the years following 1815, the 1840s recession was caused by a series of bad harvests, this time from a blight affecting potatoes facilitated by unusually wet and cold conditions in Northern Europe. Ireland, where the population was heavily dependent on potatoes for subsistence, was the worst affected. On mainland Britain, regions of the Scottish Highlands and the Outer Hebrides were worst affected by the potato blight (some parts were depopulated by as much as 50%). The Corn Laws inhibited the ability of the British government to import food for the starving in Ireland and Scotland, which led the Tory Prime Minister Sir Robert Peel to defy the landed interests in Parliament and force the abolition of the Corn Laws in June 1846. The abolition was only accomplished in phases through 1849, by which time Ireland and the Highlands had lost much of their populations to famine or emigration. The repeal of the Laws, combined with the astronomic growth of the railways, served to lift Britain out of recession in the 1850s, providing the basis for steady growth in population and output over the next few decades.


title: Economic history of the United Kingdom

text: The British invented the modern railway system and exported it to the world. This emerged from Britain's elaborate system of canals and roadways, which both used horses to haul coal. Domestic consumption in household heaths remained an important market though coal also fired the new steam engines installed in textile factories. Britain furthermore had the engineers and entrepreneurs needed to create and finance a railway system. In 1815, George Stephenson invented the modern steam locomotive, launching a technological race: bigger, more powerful locomotives using higher and higher steam pressures. Stephenson's key innovation came when he integrated all the components of a railways "system" in 1825 by opening the Stockton and Darlington line. It demonstrated it was commercially feasible to have a system of usable length. London poured money into railway building—a veritable bubble, but one with permanent value.


title: Economic history of the United Kingdom

text: Thomas Brassey brought British railway engineering to the world, with construction crews that in the 1840s employed 75,000 men across Europe. Every nation copied the British model. Brassey expanded throughout the British Empire and Latin America. His companies invented and improved thousands of mechanical devices, and developed the science of civil engineering to build roadways, tunnels and bridges.


title: Economic history of the United Kingdom

text: The telegraph, although invented and developed separately, proved essential for the internal communications of the railways. They allowed slower trains to pull over as express trains raced through; made it possible to use a single track for two-way traffic, and to locate where repairs were needed.


title: Economic history of the United Kingdom

text: In the early period, recognition of the potential of the railways along with led to a period of speculation and investment referred to as Railway Mania. The boom years were 1836 and 1845–47, when Parliament authorized 8,000 miles of railways with a projected future total of £200 million; that about equalled one year of Britain's GDP. Once a charter was obtained, there was little government regulation, as laissez faire and private ownership had become accepted practices. Britain had a superior financial system based in London that funded both the railways in Britain and also in many other parts of the world, including the United States, up until 1914.


title: Economic history of the United Kingdom

text: Isambard Kingdom Brunel (1806–1859) designed the first major railway, the Great Western, built originally in the 1830s to cover the 100 miles from London to Bristol. Even more important was the highly controversial George Hudson. He became Britain's "railway king" by merging numerous short lines. Since there was no government agency supervising the railways, Hudson set up a system that all the lines adopted called the Railway Clearing House. It made interconnections easy for people and freight by standardizing routines for transferring freight and people between companies, and loaning out freight cars. By 1849 Hudson controlled nearly 30% of Britain's trackage. Hudson did away with accountants and manipulated funds—paying large dividends out of capital because profits were quite low, but no one knew that until his system collapsed and the railway bubble of the late 1840s burst.


title: Economic history of the United Kingdom

text: By 1850 Britain had a well integrated, well engineered system that provided fast, on-time, inexpensive movement of freight and people to every city and most rural districts. Freight rates had plunged to a penny a ton mile for coal. The system directly or indirectly employed tens of thousands of engineers, conductors, mechanics, repairmen, accountants, station agents and managers, bringing a new level of business sophistication that could be applied to many other industries, and helping many small and large businesses to expand their role in the industrial revolution. Thus railways had a tremendous impact on industrialization. By lowering transportation costs, they reduced costs for all industries moving supplies and finished goods, and they increased demand for the production of all the inputs needed for the railway system itself. The system kept growing; by 1880, there were 13,500 locomotives which each carried 97,800 passengers a year, or 31,500 tons of freight.


title: Economic history of the United Kingdom

text: During the First Industrial Revolution, the industrialist replaced the merchant as the dominant figure in the capitalist system. In the later decades of the 19th century, when the ultimate control and direction of large industry came into the hands of financiers, industrial capitalism gave way to financial capitalism and the corporation. The establishment of behemoth industrial empires, whose assets were controlled and managed by men divorced from production, was a dominant feature of this third phase. By the middle of the 19th century, as the world's only fully industrialized nation, British output represented just under half the total of the world's industrial capacity.


title: Economic history of the United Kingdom

text: New products and services were also introduced which greatly increased international trade. Improvements in steam engine design and the wide availability of cheap iron (and after 1870 steel) meant that slow, sailing ships could be replaced with steamships, such as Brunel's "SS Great Western". Electricity and chemical industries became important although Britain lagged behind the U.S. and Germany.


title: Economic history of the United Kingdom

text: Amalgamation of industrial cartels into larger corporations, mergers and alliances of separate firms, and technological advancement (particularly the increased use of electric power and internal combustion engines fuelled by gasoline) were mixed blessings for British business during the late Victorian era. The ensuing development of more intricate and efficient machines along with mass production techniques greatly expanded output and lowered production costs. As a result, production often exceeded domestic demand. Among the new conditions, more markedly evident in Britain, the forerunner of Europe's industrial states, were the long-term effects of the severe Long Depression of 1873–1896, which had followed fifteen years of great economic instability. Businesses in practically every industry suffered from lengthy periods of low — and falling — profit rates and price deflation after 1873.


title: Economic history of the United Kingdom

text: By the 1870s, financial houses in London had achieved an unprecedented level of control over industry. This contributed to increasing concerns among policy-makers over the protection of British investments overseas — particularly those in the securities of foreign governments and in foreign-government-backed development activities, such as railways. Although it had been official British policy to support such investments, with the large expansion of these investments in the 1860s, and the economic and political instability of many areas of investment (such as Egypt), calls upon the government for methodical protection became increasingly pronounced in the years leading up to the Crystal Palace Speech. At the end of the Victorian era, the service sector (banking, insurance and shipping, for example) began to gain prominence at the expense of manufacturing. During the late 18th century the United Kingdom experienced stronger increases in the service sector than in the industrial sector; industry grew by only 2 percent, whereas the service sector employment increased by 9 percent.


title: Economic history of the United Kingdom

text: Foreign trade tripled in volume between 1870 and 1914; most of the activity occurred with other industrialised countries. Britain ranked as the world's largest trading nation in 1860, but by 1913 it had lost ground to both the United States and Germany: British and German exports in the latter year each totalled $2.3 billion, and those of the United States exceeded $2.4 billion.


title: Economic history of the United Kingdom

text: Although her own exports were diminishing in comparison to her rivals, Britain remained the world's largest trading nation by a significant margin: in 1914 her import and export totals were larger by a third compared to Germany, and larger by 50 percent compared to the United States. Britain was a top importer of foodstuffs, raw materials, and finished goods, much of which were re-exported to Europe or the United States. In 1880 Britain purchased about half the world total in traded tea, coffee, and wheat, and just under half of the world's meat exports. In that same year, more than 50 percent of world shipping was British owned, while British shipyards were constructing about four fifths of the world's new vessels in the 1890s.


title: Economic history of the United Kingdom

text: Its extensive trading contacts, investments in agriculture, and merchant shipping fleet enabled it to trade in a great volume of commodities remotely - transactions were concluded with foreign clients from London or other British cities over distant commodities like coffee, tea, cotton, rubber, and sugar.


title: Economic history of the United Kingdom

text: Proportionally, even though trade volumes trebled between 1870 and 1914, the British share of the world market was actually shrinking. In 1880, 23 percent of world trade was British-owned - by 1910 it was 17 percent. As foreign trade increased, so in proportion did the amount of it going outside the Continent. In 1840, £7.7 million of its export and £9.2 million of its import trade was done outside Europe; in 1880 the figures were £38.4 million and £73 million. Europe's economic contacts with the wider world were multiplying, much as Britain's had been doing for years. In many cases, colonial control followed private investment, particularly in raw materials and agriculture. Intercontinental trade between North and South constituted a higher proportion of global trade in this era than in the late 20th century period of globalisation.


title: Economic history of the United Kingdom

text: The American "invasion" of some sections of the British home market for manufactured goods prompted a commercial response. Tariffs, despite sustained political campaign for Protection in the first decade of the twentieth century, were only imposed generally after the collapse of the world trade in 1930. In this competitive milieu, British businessmen modernised their operations; for example, manufactures of boots and shoes faced increasing imports of American footwear and Americans entered the market for shoe-making machinery. British shoe-makers realised that to meet this competition it was necessary to re-examine their traditional methods of work, labour utilisation, and industrial relations; they also had to be more responsive to the demands of fashion.


title: Economic history of the United Kingdom

text: The City of London strengthened its position as the world's financial capital, the export of capital was a major base of the British economy 1880 to 1913, the "golden era" of international finance. By 1913 about 50% of capital investment throughout the world had been raised in London, making Britain the largest exporter of capital by a wide margin. Although the British trade deficit widened (£27 million in 1851, by 1911 it was £134 million), earnings from investment and financial services more than closed the gap and generated a substantial Balance of Payments surplus. Part of the reason for the initial boom in financial services was because manufacturing became less profitable beginning in the 1880s, due to the largely depressed world market of these years, combined with the expansion of manufacturing in the United States and Germany. With foreign competition in some manufacturing sectors fiercer than in mid-century, British industrialists and financiers more profitably invested increasing quantities of capital abroad. In 1911, income from overseas investments amounted to £188 million; income from services like insurance, shipping, and banking totalled some £152 million. It is indicative of the notable shift to financial services that between 1900 and 1913 total British investment abroad doubled, increasing from £2 billion to £4 billion. In the late nineteenth century, Britain's foreign investment raised its merchandise exports to capital-receiving countries, since, at the time, Britain was both the world's workshop and the world's creditor.


title: Economic history of the United Kingdom

text: British overseas investment was especially impressive in the independent nations of Latin America, which were eager for infrastructure improvements, such as railways and ports, that were often built by British contracting firms, and telegraph and telephone systems. Contemporaneously, British merchants dominated international trade in Latin America. Inevitably, not all these investments paid off; for example, many British investors suffered substantial losses after investing in railway companies in the United States that went bankrupt, while even some mining ventures in the Sudan also proved unprofitable.


title: Economic history of the United Kingdom

text: Big business grew much more slowly in Britain than in the United States, with the result that by the late 19th century the much larger American corporations were growing faster and could undersell the smaller competitors in Britain. A key was the vertical integration. In the United States, the typical firm expanded by reaching backward into the supply chain and forward into the distribution system. In the Ford Motor Company, raw iron and coal went in one end, and Model Ts were delivered by local dealers at the other end, British firms did not try to own the sources of raw materials, they bought on the market. Instead of setting up their own distribution system they worked with well-established wholesalers. The British businessmen were much more comfortable and a smaller niche, even though it made it much harder to lower costs and prices. Furthermore, the Americans had a rapidly growing home market, and Investment Capital was much more readily available. British businessmen typically used their savings not to expand their business but to purchase highly prestigious country estates – they looked to the landed country gentry for their role model Where the Americans look to the multi-millionaires. Crystal Palace hosted a world class industrial exhibition in 1851 in London. It was a marvelous display of the latest achievements in material progress, clearly demonstrating British superiority. The Americans were impressed, and repeatedly opened world–class industrial exhibits. By contrast, the British never repeated their success. In 1886 British sociologist Herbert Spencer commented: "Absorbed by his activities, and spurred on by his unrestricted ambitions, the American is a less happy being than the inhabitant of a country where the possibilities of success are very much smaller."


title: Economic history of the United Kingdom

text: As industrialisation took effect in the late 18th and early 19th century, the United Kingdom possessed a strong national government that provided a standard currency, an efficient legal system, efficient taxation, and effective support for overseas enterprise both within the British Empire and in independent nations. Parliament repealed medieval laws that restricted business enterprise, such as specification of how many threads could be in a woollen cloth, or regulating interest rates. Taxation fell primarily on landed wealth, not accumulated capital nor income. In 1825 Parliament repealed the Bubble Act of 1720 and facilitated capital accumulation. After the General Enclosure Act of 1801, farming became more productive and feed the growing urban industrial workforce. The Navigation Acts remained important into the 1820s, and enforced by the Royal Navy, facilitated international trade. The road system was developed through government-sponsored local turnpikes. However, there were few examples of government-financed canals, and none of railroads, unlike early major transport projects in Japan, in Russia, or in the mid-nineteenth century USA.


title: Economic history of the United Kingdom

text: Evidence from Lever Brothers, Royal Dutch Shell, and Burroughs Wellcome indicates that after 1870 individual entrepreneurship by top leaders was critical in fostering the growth of direct foreign investment and the rise to prominence of multinational corporations. In 1929, the first modern multinational company emerged when a merger of Dutch Margarine Unie and British soapmaker Lever Brothers resulted in Unilever. With 250,000 people employed, and in terms of market value, Unilever was the largest industrial company in Europe. However, after 1945 the importance of entrepreneurship declined in British business.


title: Economic history of the United Kingdom

text: New business practices in the areas of management and accounting made possible the more efficient operation of large companies. For example, in steel, coal, and iron companies 19th-century accountants used sophisticated, fully integrated accounting systems to calculate output, yields, and costs to satisfy management information requirements. South Durham Steel and Iron, was a large horizontally integrated company that operated mines, mills, and shipyards. Its management used traditional accounting methods with the goal of minimizing production costs, and thus raising its profitability. By contrast one of its competitors, Cargo Fleet Iron introduced mass production milling techniques through the construction of modern plants. Cargo Fleet set high production goals and developed an innovative but complicated accounting system to measure and report all costs throughout the production process. However, problems in obtaining coal supplies and the failure to meet the firm's production goals forced Cargo Fleet to drop its aggressive system and return to the sort of approach South Durham Steel was using.


title: Economic history of the United Kingdom

text: After the loss of the American colonies in 1776, Britain built a "Second British Empire", based in colonies in India, Asia, Australia, Canada. The crown jewel was India, where in the 1750s a private British company, with its own army, the East India Company (or "John Company"), took control of parts of India. The 19th century saw Company rule extended across India after expelling the Dutch, French and Portuguese. By the 1830s the company was a government and had given up most of its business in India, but it was still privately owned. Following the Indian Rebellion of 1857 the government closed down the company and took control of British India and the company's Presidency Armies.


title: Economic history of the United Kingdom

text: Free trade (with no tariffs and few trade barriers) was introduced in the 1840s. Protected by the overwhelming power of the Royal Navy, the economic empire included very close economic ties with independent nations in Latin America. The informal economic empire has been called "The Imperialism of Free Trade."


title: Economic history of the United Kingdom

text: Numerous independent entrepreneurs expanded the Empire, such as Stamford Raffles of the East India Company who founded the port of Singapore in 1819. Businessmen eager to sell Indian opium in the vast China market led to the Opium War (1839–1842) and the establishment of British colonies at Hong Kong. One adventurer, James Brooke, set himself up as the Rajah of the Kingdom of Sarawak in North Borneo in 1842; his realm joined the Empire in 1888. Cecil Rhodes set up an economic empire of diamonds in South Africa that proved highly profitable. There were great riches in gold and diamonds but this venture led to expensive wars with the Dutch settlers known as Boers.


title: Economic history of the United Kingdom

text: The possessions of the East India Company in India, under the direct rule of the Crown from 1857 —known as British India— was the centrepiece of the Empire, and because of an efficient taxation system it paid its own administrative expenses as well as the cost of the large British Indian Army. In terms of trade, however, India turned only a small profit for British business.


title: Economic history of the United Kingdom

text: However, transfers to the British government was massive: in 1801 unrequited (unpaid, or paid from Indian-collected revenue) was about 30% of British domestic savings available for capital formation in Britain.


title: Economic history of the United Kingdom

text: There was pride and glory in the Empire, as talented young Britons vied for positions in the Indian Civil Service and for similar overseas career opportunities. The opening of the Suez Canal in 1869 was a vital economic and military link. Britain continued to expand their control in areas strategically important to the link with India, including Egypt and Cyprus.


title: Economic history of the United Kingdom

text: Cain and Hopkins argue that the phases of expansion abroad were closely linked with the development of the domestic economy. Therefore, the shifting balance of social and political forces under imperialism and the varying intensity of Britain's economic and political rivalry with other powers need to be understood with reference to domestic policies. Gentlemen capitalists, representing Britain's landed gentry and London's service sectors and financial institutions, largely shaped and controlled Britain's imperial enterprises in the 19th and early 20th centuries. Industrial leaders played a lesser role and found themselves dependent on the gentlemen capitalists.


title: Economic history of the United Kingdom

text: The last and longest lasting of the 19th century recessions was the Long Depression, which began with the financial Panic of 1873 and induced a twenty three-year period of worldwide anemic growth and recession cycles which only ended in the late 1890s. The bursting of a railroad speculation bubble in the United States, heavily financed via London, was a major factor in the initial shock. British foreign investment fell sharply, but it took some years for record high domestic investments to fall as well. The initial Depression lasted between 1873 and 1879, and was marked above all by price deflation, and therefore declining profitability for industrialists and financiers. Shrinking returns and a generally unfavorable economic climate meant that investment as a percentage of Britain's National wealth, both overseas and at home, fell from an average of 12.6% between 1870 and 1874, to 9.7% between 1875 and 1896. The sluggish world market, which was at its weakest in the 1880s, was keenly felt in the export-reliant economy of the UK. British quinquennial export averages did not return to their pre-1873 levels (£235 million between 1870 and 1874) until 1895–99, slumping to £192 million in 1879. The recovery, moreover, was weaker than the mid-century growth in exports, because British manufactures were struggling to compete with domestically produced products in nations like Germany and the United States, where steep exclusionary tariffs had been enforced in response to the economic crisis. Prices on commodities in Britain fell as much as 40% in the 1870s, with a downward pressure on wages which led to a general perception among the working classes of financial hardship and decline.


title: Economic history of the United Kingdom

text: To a great extent, Britain's economic difficulties were symptomatic of structural weaknesses that were beginning to manifest themselves by the 1870s. Economists have explained the relative slowdown in growth during the latter 19th century in terms of the Neoclassical growth model, in which the momentum from decades of growth was reaching an inevitable slow down. Endogenous growth theory suggests that this slowdown was attributable to national institutions and conditions, such as entrepreneurship, natural resources, and outward investment, rather than subject to a naturally occurring external model. It is not surprising then, that countries with markedly larger natural resources, and larger populations to draw from, should have overtaken the UK in terms of production by the end of the nineteenth century. Britain depended on imports to supplement her deficiencies of some natural resources, but the high cost of shipping made this impracticable when competing against the resource-rich giant, the United States. The result was clearly measured: the UK averaged 1.8% annual growth between 1873 and 1913, while the United States and Germany averaged 4.8% and 3.9% per annum respectively. Historians have criticized cultural and educational factors for contributing to a decline in the "entrepreneurial spirit" which had characterized the Industrial Revolution. The offspring of first and second-generation industrialists in the late 19th-century, raised in privilege and educated at aristocratically dominated public schools, showed little interest in adopting their father's occupations because of the stigma attached to working in manufacturing or "trade". Moreover, the curricula of the public schools and universities was overwhelmingly centered on the study of Classics, which left students ill-prepared to innovate in the manufacturing world. Many turned away from industry and entered the more "gentlemanly" financial sector, the law courts, or the civil service of the Empire.


title: Economic history of the United Kingdom

text: However, the statistical evidence counters any of perception of economic stagnation in the latter 19th century: the employed labour force grew, unemployment in the years 1874–1890 only averaged 4.9%, and productivity continued to rise after the 1870s recession, albeit at a lower annual rate of 1%, compared to 2% in the years preceding the Panic of 1873. Moreover, because of the decline in prices overall, living standards improved markedly during the "Long Depression" decades. Real GDP per capita fluctuated by the year, but as a whole rose steadily from $3870 in 1873 to $5608 by 1900, exceeding all nations in terms of per capita wealth except Australia and the United States. The heavy investment levels of pre-1873 began to yield returns, so that British income from abroad surpassed outward investment and created a steady surplus to support the widening balance of trade. The export of capital investment, even though it occupied a smaller percentage of the national wealth, recovered briskly beginning in 1879, reaching record highs in the following decade (£56.15 million between 1876 and 1895, compared to £33.74 between 1851 and 1874). The trend towards investing British capital abroad in the late 19th century (about 35% of British assets were held abroad by 1913) has been blamed for essentially starving native industry of investment which could have been used to maintain competitiveness and increase productivity.


title: Economic history of the United Kingdom

text: One of the causes for the 1873 panic was attributed to overproduction in industry. British industrialists believed they had produced more than could be sold on saturated domestic and overseas markets, so they began to lobby the British government and public opinion to expand the British Empire. According to this theory, Britain's trade deficit could be corrected, and excess production absorbed, by these new markets. The result was the Scramble for Africa, the aggressive competition for territory between Britain and her European competitors which occurred in the 1880s.


title: Economic history of the United Kingdom

text: By 1900, the United States and Germany had experienced industrialisation on a scale comparable to that achieved in the United Kingdom and were also developing large-scale manufacturing companies; Britain's comparative economic advantage had lessened. The City of London remained the financial and commercial capital of the world, until challenged by New York after 1918.


title: Economic history of the United Kingdom

text: The Edwardian era (1901–1910) stands out as a period of peace and plenty. There were no severe depressions and prosperity was widespread. Britain's growth rate, manufacturing output, and GDP (but not GDP per capita) fell behind its rivals the United States, and Germany. Nevertheless, the nation still led the world in trade, finance and shipping, and had strong bases in manufacturing and mining. Growth in the mining sector was strong and the coal industry played a significant role as the focus of the world's energy market; this prominence was to be challenged after the First World War by the growth of the oil industry and continuing development of the internal combustion engine. Although the relative contribution of the agricultural sector was becoming less important, productivity in the British agriculture sector was relatively high.


title: Economic history of the United Kingdom

text: By international standards, and across all sectors of the United Kingdom, the British services sectors exhibited high labour factor productivity and, especially, total factor productivity; as was to be even more the case one hundred years later, it was the services sectors that provided the British economy's relative advantage in 1900.


title: Economic history of the United Kingdom

text: It has been suggested that the industrial sector was slow to adjust to global changes, and that there was a striking preference for leisure over industrial entrepreneurship among the elite. In 1910, the British Empire's share of world industrial capacity stood at 15%, just behind Germany's 16%, and less than half of the United States' 35%. Despite signs of relative weakness in certain sectors of the UK economy, the major achievements of the Edwardian years should be underlined. The city was the financial centre of the world—far more efficient and wide-ranging than New York, Paris or Berlin. British investment abroad doubled in the Edwardian years, from £2 billion in 1900 to £4 billion in 1913. Britain had built up a vast reserve of overseas credits in its formal Empire, as well as in its informal empire in Latin America and other nations. The British held huge financial holdings in the United States, especially in railways. These assets proved vital in paying for supplies in the first years of the World War. Social amenities, especially in urban centres, were accumulating – prosperity was highly visible. Among the working class there was a growing demand for access to a greater say in government, but the level of industrial unrest on economic issues only became significant about 1908. In large part, it was the demands of the coal miners and railway workers, as articulated by their trade unions, that prompted a high level of strike activity in the years immediately before the First World War.


title: Economic history of the United Kingdom

text: The rise of a powerful, concerted, and politically effective labour movement was one of the major socio-economic phenomena of the Edwardian years in the UK. Trade union membership more than doubled during this time, from 2 million people in 1901 to 4.1 million in 1913. The Labour Party for the first time gained an active foothold in Parliament with the election of 30 Labour MPs in the 1906 General Election, enabling greater advocacy for the interests of the working classes as a whole.


title: Economic history of the United Kingdom

text: Inflation and stagnating wages began in 1908, which precipitated greater discontent among the working classes, particularly as the prosperity enjoyed by the middle and upper classes was becoming ever more visible. In that year, strikes increased precipitously, mainly in the cotton and shipbuilding industries where job-cuts had occurred. In 1910, with unemployment reaching a record-low of 3 percent, unions were emboldened by their bargaining power to make demands for higher wages and job stability. Strikes erupted throughout the nation - in the coal mining country of Wales and northeast England, the latter also experiencing a sustained railway workers' strike. In 1911 the National Transport Workers' Federation organized the first nationwide railway workers' strike, along with a general dockworker's strike in ports throughout the country. In Liverpool, the summertime strikes of the dock and transport workers culminated in a series of conflicts with the authorities between 13 and 15 August, leading to the death of two men and over 350 injured. In 1912 the National coal strike and another wave of transportation strikes cost the British economy an estimated 40 million working days.


title: Economic history of the United Kingdom

text: The major demands of the labour movement during these years were wage-rises, a national minimum wage, and greater stability in employment. The Liberal government in London did make some concessions in response to the demands of organized labour, most notably with the Trade Boards Act 1909, which empowered boards to set minimum wage requirements for workers, oversee working conditions, and limit working hours. At first this applied to a very limited number of industries like lace-making and finishing, but in 1912 boards were created for the coal mining industry and within a few years all "sweated labour" occupations were overseen by such boards, guaranteeing minimum wages and safer work environments. The coal strike of 1912 was so disruptive that the British government guaranteed a minimum wage for miners with separate legislation, the Coal Mines (Minimum Wage) Act 1912.


title: Economic history of the United Kingdom

text: In Edwardian Britain, proposals for more protectionist tariff polices which had begun in the 1890s became a mass political movement with high visibility. The Tariff Reform League, founded in 1903 and headed by Britain's most outspoken champion of protectionism, Joseph Chamberlain, pushed for the implementation of tariffs to protect British goods in domestic and Imperial markets. Tariff reformers like Chamberlain were worried by what was seen as a deluge of American and German products entering the domestic market; they argued that part of the reason for the success of the U.S. and German economies were the national tariffs each imposed to protect fledgling industries from foreign competition. Without tariffs, it was claimed, vulnerable young industries like electrical goods, automobiles, and chemicals would never gain traction in Britain.


title: Economic history of the United Kingdom

text: A major goal of the Tariff Reform League was the foundation of an Imperial Customs Union, which would create a closed trade bloc in the British Empire and, it was hoped, fully integrate the economies of Britain and her overseas possessions. Under such an arrangement, Britain would maintain a reciprocal relationship whereby she would purchase raw materials from her colonies, the profits of which would allow them to buy finished goods from Britain, enriching both sides. Although it was a highly publicized and well-funded campaign, Tariff Reform never gained traction with the public at large. The defeat of Chamberlain's Liberal Unionist Party in the 1906 General Election, which returned a huge majority for free-trade stalwarts in the Liberal and Labour parties, was a resounding blow to the movement's electoral hopes, although the campaign itself persisted through the rest of the Edwardian period.


title: Economic history of the United Kingdom

text: The First World War saw a decline of economic production, with a major reallocation to munitions. It forced Britain to use up its financial reserves and borrow large sums from the U.S. Because of its prime importance in international finance, the entry of the UK into the war in August 1914 threatened a possible worldwide liquidity crisis. In Britain itself, there were fears of a run on the banks, which prompted the Treasury to take inflationary measures and begin printing 5 million new banknotes a day. To assuage nervous markets, a one-month moratorium on payments was declared, while the Bank of England agreed to guarantee the City of London's bills of exchange and to act as underwriter for London's Clearing houses.


title: Economic history of the United Kingdom

text: Shipments of American raw materials and food allowed Britain to feed itself and its army while maintaining her productivity. The financing was generally successful, as the city's strong financial position minimized the damaging effects of inflation, as opposed to much worse conditions in Germany. Spending by the UK in the US, on everything from food to munitions, occupied 40% of total British war expenditure by 1916. The banking house J.P. Morgan & Co. won a concession in January 1915 to act as the sole purchasing agent for the Admiralty and War Department in the United States. $20 billion worth of trade was undertaken in this way by the end of 1916. Until February 1917, J.P. Morgan was also Britain's agent for all dollar loans raised in the United States.


title: Economic history of the United Kingdom

text: Overall consumer consumption declined 18% from 1914 to 1919. To raise vital funds for the war effort, taxation also increased dramatically. Whereas before the war the majority of tax revenue was derived from indirect taxation, by 1920 60% of tax revenue was from income and "super tax" levies, like the one imposed on incomes over £10,000. Income tax had stood at just 6% before the war and only applied to 1.13 million Britons, by 1920 there were 3 million income tax payers at a rate of 30%. Britain also exploited its imperial resources to raise capital: India's 1917 excess export earnings were appropriated through a "gift" of £100 million to the British war effort. In 1918 another £45 million was appropriated to support the war.


title: Economic history of the United Kingdom

text: Trade unions were encouraged as membership grew from 4.1 million in 1914 to 6.5 million in 1918, peaking at 8.3 million in 1920 before relapsing to 5.4 million in 1923. In Scotland, the shipbuilding industry expanded by a third. Women were available and many entered munitions factories and took other home front jobs vacated by men.


title: Economic history of the United Kingdom

text: The human and material losses of the World War in Britain were enormous. They included 745,000 servicemen killed and 24,000 civilians, with 1.7 million wounded. The total of lost shipping came to 7.9 million tons (much of it replaced by new construction), and £7,500 million in financial costs to the Empire. Germany owed billions in reparations, but Britain in turn owed the U.S. billions in loan repayments.


title: Economic history of the United Kingdom

text: In 1919–1920 there was a short-lived boom in the British economy, caused by a rush of investment pent-up during the war years and another rush of orders for new shipping to replace the millions of tons lost. However, with the end of war orders, a serious depression hit the economy by 1921–22. Exports fell to half of their 1913 levels, and unemployment peaked at 17%. Factors explaining the economic depression are on one hand the return to prewar gold standard at parity or upcoming structural problems to the northern industrial core of the UK. Another factor contributing to the relative decline of British industry during the 1920s was the loss of Britain's export markets, mostly in the Far East and Latin America. The diversion of shipping and production towards the war effort between 1914 and 1918 meant that regional producers like the United States in Latin America or Japan in the Far East usurped important markets for British goods. Britain never regained its pre-1914 export volumes, by 1929 exports were still only 80% of what they had been in 1913.


title: Economic history of the United Kingdom

text: Indeed, even if Britain was far better off compared to the badly battered Continent, economic stagnation lasted the whole decade. Overall growth averaged 1.8% per annum during the 1920s, slightly weaker but comparable to the United States. Slow growth was due in part to Britain's heavy dependence on exports, and world trade grew sluggishly through the 1920s. It was also overly dependent on so-called "staple" industries, those which had brought huge prosperity in the 19th century but by the 1920s were experiencing faltering demand and strong competition from abroad. In 1922, for example, the volume of cotton exports was only about half of what it had been in 1913, while coal exports were only one third of their 1913 levels. The most skilled craftsmen were especially hard hit, because there were few alternative uses for their specialised skills. In depressed areas the main social indicators such as poor health, bad housing, and long-term mass unemployment, pointed to terminal social and economic stagnation at best, or even a downward spiral. The heavy dependence on obsolescent heavy industry and mining was a central problem, and no one offered workable solutions. The despair reflected what Finlay (1994) describes as a widespread sense of hopelessness that prepared local business and political leaders to accept a new orthodoxy of centralised government economic planning when it arrived during the Second World War.


title: Economic history of the United Kingdom

text: In 1919, Britain reduced the working hours in major industries to a 48-hour week for industrial workers. Historians have debated whether this move depressed labour productivity and contributed to the slump. Scott and Spadavecchia argue that productivity was in some ways enhanced, especially through higher hourly productivity, and that Britain did not suffer in its exports because most other nations also reduced working hours. Looking at coal, cotton, and iron and steel, they find that Britain did not suffer any significant relative productivity loss in these industries. By 1924 workers had regained their productive output of 1913, this while working greatly reduced hours compared to the pre-war years. By 1938 British industrial productivity had increased by 75% compared to pre-1914 levels, even after the setbacks of reduced working hours and the effects of the Great Depression were taken into account.


title: Economic history of the United Kingdom

text: Monetary policy of postwar governments also contributed to high unemployment. By April 1925, years of stringent deflationary policies by the British Exchequer had accomplished the intended goal of returning the Pound Sterling to its pre-war exchange rate of $4.86. This high exchange rate made for cheap consumer prices and a high real wage for UK workers. However, interest rates were also high as a result, making the cost of doing business all the more expensive, while high labour costs were inevitably offset by employers with layoffs and reduced hiring.


title: Economic history of the United Kingdom

text: By 1921, more than 3 million Britons were unemployed as a result of the postwar economic downturn. While the economy was recovering by 1922–1923, the UK found itself struggling again by 1926, the general strike of that year doing it no favours. Growth for the remainder of the decade became erratic, with brief periods of stagnation constantly interrupting growth. Industrial relations briefly improved, but then came the Wall Street stock market crash in October 1929, which sparked the worldwide Great Depression (See the Great Depression in the United Kingdom). Unemployment had stood at less than 1.8 million at the end of 1930, but by the end of 1931 it had risen sharply to more than 2.6 million. By January 1933, more than 3 million Britons were unemployed, accounting for more than 20% of the workforce - with unemployment topping 50% in some parts of the country, particularly in South Wales and the north-east of England. The rest of the 1930s saw a moderate economic recovery stimulated by private housing. The rate of unemployment fell to 10% in 1938 - half of the level five years previously.


title: Economic history of the United Kingdom

text: From 1800 to 1870, Britain produced more than half of the world's pig iron, and its ironmasters continued to develop new steel making processes. In 1880, Britain produced 1.3 million tons of steel, 3 million tons in 1893 and by 1914 output was 8 million tons. Germany caught up in 1893 and produced 14 million tons in 1914. After 1900, as the U.S. became the world's leading steel producing economy, British metallurgists pioneered the commercial development of special steels. Academic experts, such as Professor Oliver Arnold led research into the development of phospho-magnetic steels and other specialised high-strength alloys, using the electric furnace and other innovations, as well as reducing smoke pollution. The industry trained a cadre of experts that made large firms scientifically progressive. The leaders of the world's leading iron and steel companies continued to look to the London-based Iron and Steel Institute for the dissemination of cutting-edge scientific and technical research.


title: Economic history of the United Kingdom

text: Politics became a central issue for the coal miners who contributed significantly to the growth of the labour and co-operative movements in major industrial centres such as South Yorkshire (including Sheffield), the West Midlands (the Black Country), Bristol, the Valleys of South Wales (Merthyr Tydfil) and the Central Lowlands of Scotland (Paisley); while some rural coal-mining communities could be insular, they also provided the bedrock of the Britain's industrial regions by providing locally produced fuel. 1888 saw the formation of an overarching national organisation for the hitherto regionally based miners' unions, and by 1908 The Miners' Federation of Great Britain had 600,000 members. Many of the policies associated with the Labour Party's 'old left' had roots in coal-mining areas; in particular, the nationalisation of the coal industry.


title: Economic history of the United Kingdom

text: The Spring of 1926 saw the British government refuse to extend again the subsidy that had bought short-term peace for the coal industry. In April 1926 the owners locked out the miners when they rejected the coal mine owners' demands for longer hours and reduced pay. The backdrop to the dispute was a fall in the price of coal, an important element of the general deflationary tendency after the end of the First World War which was exacerbated by the adoption of fuel oil in place of coal. The general strike was led by the Trades Union Congress in support of the coal miners, but it failed. It was a nine-day nationwide walkout of one million railwaymen, transport workers, printers, dockers, ironworkers and steelworkers supporting the 1.5 million coal miners who had been locked out. The government had continued existing subsidies for an additional nine-months subsidy in 1925 seeking to achieve short-term peace in the coal industry. The TUC hope was the government would intervene to reorganise and rationalise the industry, and raise the subsidy. The Conservative government had stockpiled supplies and essential services continued with middle class volunteers. All three major parties opposed the strike. The general strike itself was largely non-violent, but the miners' lockout continued and there was violence in Scotland. It was the only general strike in British history and TUC leaders such as Ernest Bevin considered it a mistake. Most historians treat it as a singular event with few long-term consequences, but Martin Pugh says it accelerated the movement of working-class voters to the Labour Party, which led to future gains. The Trade Disputes and Trade Unions Act 1927 made general strikes illegal and ended the automatic payment of union members to the Labour Party. That act was largely repealed in 1946.


title: Economic history of the United Kingdom

text: Coal continued as industry in slow decline as the best seams were used up and it became more and more difficult to mine the residue. The Labour government in 1947 nationalised coal with the creation of National Coal Board, giving miners access to control of the mines via their control of the Labour party and the government. By then, however, the best seams had played out and coal mining was headed downward. Coal production was 50 million metric tons in 1850, 149 million in 1880, 269 million in 1910, 228 million in 1940, and 153 million in 1970. The peak year was 1913, with an output of 292 million tons. Mining employed 383,000 men in 1851, 604,000 in 1881, and 1,202,000 in 1911; on the eve of the First World War in the United Kingdom ten workers, one was a coal miner.


title: Economic history of the United Kingdom

text: While Britain remained overly dependent on 'staple' heavy industries, the First World War had the advantage of stimulating production in new industries where the UK had lagged behind before 1914. Several of the new industries, including motorcars, chemicals, and rayon, were early recipients of tariff protection in the 1920s, prior to the Import Duties Act 1932. The interwar years saw new technologies develop at a breakneck pace, creating lucrative new industries including automobile, airplane, and motorbike manufacture. Before the First World War, automobile manufacture in Britain had been a boutique industry limited to producing expensive luxury cars. The industry produced 34,000 vehicles for the year 1913; by 1937 over half a million were being produced. Most of these were affordable models like the Austin 7 (introduced 1921), the Morris Minor (1928), as well as Model A and Model Y cars produced by Ford of Britain. The adoption of streamlined automation processes and the strong competition between manufacturers was responsible for a 50% drop in motorcar prices between the mid 20s and mid 30s, making cars more affordable (over 1 million were owned by 1930).


title: Economic history of the United Kingdom

text: The chemicals industry, once dominated by Germany and the United States, also thrived in the UK during the interwar years. By 1939 it employed 100,000 people and produced fertilizers, pharmaceuticals, and synthetic materials. Electrical engineering also mushroomed: the establishment of the Central Electricity Board in 1926 enabled a nationwide high-voltage electrical grid to be developed. By 1939 two thirds of homes had electricity supply, which in turn opened up a new consumer market for electrically powered appliances like vacuum cleaners, refrigerators, radios and stoves.


title: Economic history of the United Kingdom

text: Between 1923 and 1938, the most successful new industries were: automobile production, electrical engineering, mechanical engineering, metal goods, and printing. These created a net total of 557,920 new jobs between 1923 and 1938, some 96% of all new industrial jobs created in the interwar period. These industries were overwhelmingly concentrated in the communities surrounding London and cities in the West Midlands, particularly Coventry and Birmingham, where there was an established workforce skilled in the production of high quality metal goods.


title: Economic history of the United Kingdom

text: In spite of the serious problems that plagued heavy industry, the 1920s marked an era of unprecedented growth for the British consumer industry, until then a minor player in the national economy. While not creating a fully-fledged "consumer culture" as in the United States during the same decade, it had an important effect over British society, primarily on the middle classes which gained access to commodities previously reserved for the upper crust, primarily automobiles, ownership rising tenfold during the interwar period (from around 500,000 in 1919 to approximately over 3 million in 1929 and 5 million in 1939). Sales of electric appliances boomed thanks to the rise of consumer-oriented credit and loans. Higher wages and shorter working hours also led to the rise of recreation: Gramophone records, radio (or "the wireless" as it was referred), magazines and cinema became part of everyday life much like sports, primarily football and cricket.


title: Economic history of the United Kingdom

text: Tourism grew rapidly in the interwar years because of the rapidly rising number of motorized middle-class and lower-middle-class holidaymakers, as well as an influx of American tourists. Seaside resorts like Blackpool, Brighton and Skegness were particularly popular. However, those tourist sites that catered to the very wealthy (which now began holidaying abroad) or were located in depressed areas, all experienced a decline in profits, especially during the Great Depression.


title: Economic history of the United Kingdom

text: Electricity, gas, plumbing and telephone services became common as well during the decade, even in some working class households. However, those living in the most remote and poorest parts of Britain saw little change in their living standards, with many Britons still living in terraced homes with outdoor toilets as late as the 1960s.


title: Economic history of the United Kingdom

text: While the Wall St Crash of 1929 had little direct impact on the British stock market, the collapse of the American economy which it had foretold and the associated contraction of world trade seriously affected Britain in the early 1930s. Whereas British politicians had championed the concept of the free market when it was ascendant in the world economy, it gradually withdrew to adopting Tariff Reform as a measure of protectionism. In 1933 Sterling left the Gold Standard. By the early 1930s, the depression again signalled the economic problems the British economy faced. Unemployment soared during this period; from just over 10% in 1929 to more than 20% (or more than 3 million of the workforce) by early 1933. However, it had fallen to 13.9% by the start of 1936. While heavy industry sank to new lows, the consumer industry recovered by 1934 and production increased by 32% between 1933 and 1937. A good indication of the strong consumer market was the growth of retailers during the 1930s. Marks & Spencer, for example, increased its turnover from £2.5 million in 1929 to over £25 million in 1939, necessitating the opening of dozens of new locations to serve the burgeoning demand in the suburbs.


title: Economic history of the United Kingdom

text: In 1929 Ramsay MacDonald formed his second minority Labour Party government. In political terms, the economic problems found expression in the rise of radical movements who promised solutions which conventional political parties appeared unable to provide. In Britain this was seen with the rise of the Communist Party of Great Britain (CPGB) and the British Union of Fascists under Oswald Mosley. However, their political strength was limited and unlike in the rest of Europe, the conventional political parties did not face a significant challenge. In 1931 the Labour Government resigned having failed to agree cuts in national expenditure, disagreeing over the extent of cuts in welfare payments, to be replaced by a McDonald-led National Government. The Conservative Party, which provided the majority of its MPs, was returned to power in the 1935 general election.


title: Economic history of the United Kingdom

text: In the Second World War, 1939–45, Britain had a highly successful record of mobilising the home front for the war effort, in terms of mobilising the greatest proportion of potential workers, maximising output, assigning the right skills to the right task, and maintaining the morale and spirit of the people. Much of this success was due to the systematic planned mobilisation of women, as workers, soldiers, and housewives, enforced after December 1941 by conscription. The women supported the war effort, and made the rationing of consumer goods a success.


title: Economic history of the United Kingdom

text: Industrial production was reoriented toward munitions, and output soared. In steel, for example, the Materials Committee of the government tried to balance the needs of civilian departments and the war effort, but strategic considerations received precedence over any other need. Highest priority went to aircraft production as the RAF was under continuous heavy German pressure. The government decided to concentrate on only five types of aircraft in order to optimize output. They received extraordinary priority. Covering the supply of materials and equipment and even made it possible to divert from other types the necessary parts, equipment, materials and manufacturing resources. Labour was moved from other aircraft work to factories engaged on the specified types. Cost was not an object. The delivery of new fighters rose from 256 in April to 467 in September 1940—more than enough to cover the losses—and RAF Fighter Command emerged triumphantly from the Battle of Britain in October with more aircraft than it had possessed at the beginning. Starting in 1941 the U.S. provided munitions through Lend lease that totalled $15.5 billion.


title: Economic history of the United Kingdom

text: After war broke out between Britain and Germany in September 1939, Britain imposed exchange controls. The British Government used its gold reserves and dollar reserves to pay for munitions, oil, raw materials and machinery, mostly from the U.S. By the third quarter of 1940 the volume of British exports was down 37% compared to 1935. Although the British Government had committed itself to nearly $10,000 million of orders from America, Britain's gold and dollar reserves were near exhaustion. The Roosevelt Administration was committed to large-scale economic support of Britain and in early 1941 enacted Lend-Lease, whereby America would give Britain supplies totalling $31.4 billion which never had to be repaid.


title: Economic history of the United Kingdom

text: Although Britain achieved ultimate victory in the war, the economic costs were enormous. Six years of prolonged warfare and heavy losses of merchant shipping meant that Britain had lost two-thirds of her pre-war export trade by 1945. The loss of her export markets also caused a serious shortage of US dollars, which were crucial to servicing Britain's war debt and maintaining imports from the United States. Most of Britain's gold and currency reserves were depleted and the Government had been forced to sell off the bulk of British overseas assets to fund the war effort. When Lend Lease was terminated by the United States in August 1945, Britain was unable to pay for the import of essential supplies from America. Although the US agreed to cancel $20 million in Lend Lease debt, the UK was forced to obtain a $3.75 billion loan from the United States at 2% interest in December 1945. The US/UK trade imbalance was perilously high, forcing the extension of rationing to lessen the imbalance and preserve precious US dollars for the servicing of loan repayments.


title: Economic history of the United Kingdom

text: Successive governments squandered billions of Marshall Plan Aid to support British world power pretensions, and so jeopardised the economic future of Britain. The Labour government chose not to use the $2.7 billion (Germany received $1.7b) in aid for industrial modernization like West Germany had.


title: Economic history of the United Kingdom

text: Germany rebuilt factories like the Volkswagen plant in Wolfsburg. Germany, France and Italy were fully re-engineered with all electric rail lines. In Britain, steam engines, mechanical semaphore signalling and old track would remain into the 1960s. In addition, the road and telecommunications network in Britain remained equally inadequate, ill-maintained and out-of-date.


title: Economic history of the United Kingdom

text: In the 1945 general election, just after the end of the war in Europe, the Labour Party led by Clement Attlee was elected with a landslide majority (its first ever outright majority), introducing sweeping reforms of the British economy. Taxes were increased, industries were nationalised, and the welfare state with the National Health Service, pensions, and social security was expanded. Most rations were lifted by 1950, with a few of them remaining until 1954.


title: Economic history of the United Kingdom

text: The next 15 years saw some of the most rapid growth Britain had ever experienced, recovering from the devastation of the Second World War and then expanding rapidly past the previous size of the economy. The economy went from strength to strength particularly after the Conservatives returned to government in 1951, still led by wartime leader Sir Winston Churchill until he retired to make way for Anthony Eden just before his party's re-election in 1955. However, the Suez crisis of 1956 weakened the government's reputation and Britain's global standing, and prompted Eden to resign in early 1957 to be replaced by Harold Macmillan.


title: Economic history of the United Kingdom

text: By 1959, tax cuts had helped boost living standards and allow for a strong economy and low unemployment, with October 1959 seeing the Tories win their third consecutive general election with a greatly increased majority, which sparked public and media doubt regarding Labour's chances of future election success. Labour leader Hugh Gaitskell then drew a new economic plan for the party, heavily based on the success of the centralised industries of France and West Germany, by the 1960s the latter's economy surpassing the UK for the first time since 1915 as Europe's largest economy. Harold Wilson and Anthony Wedgwood Benn further developed the idea, becoming the backbone of the party's manifesto for the 1964 election.


title: Economic history of the United Kingdom

text: Britain's economy remained strong with low unemployment into the 1960s, but towards the end of the decade this growth began to slow and unemployment was rising again. Harold Wilson, the Labour leader who had ended 13 years of Conservative rule with a narrow victory in 1964 before increasing his majority in 1966, was surprisingly voted out of power in 1970. The new Conservative government was led by Edward Heath.


title: Economic history of the United Kingdom

text: During the 1970s Britain suffered a long running period of relative economic malaise, dogged by rising unemployment, frequent strikes and severe inflation, with neither the Conservative government of 1970-1974 (led by Edward Heath) nor the Labour government which succeeded it (led by Harold Wilson and from 1976 James Callaghan) being able to halt the country's economic decline. Inflation exceeded 20% twice during the 1970s and was rarely below 10%.


title: Economic history of the United Kingdom

text: Unemployment exceeded 1 million by 1972 and had risen even higher by the time the end of the decade was in sight, passing the 1.5 million mark in 1978. The winter of 1978/79 brought a series of public sector strikes known as the Winter of Discontent, leading to the collapse of Callaghan's Labour government in March 1979 (two years after it had lost the three-seat parliamentary majority won in October 1974).


title: Economic history of the United Kingdom

text: This led to the election of Margaret Thatcher, who had succeeded Edward Heath as Conservative leader in 1975. She cut back on the government's role in the economy and weakened the power of the trade unions. The final two decades of the 20th century saw an increase in service-providers and a drop in manufacturing and heavy industry, combined with privatisation of some sections of the economy.


title: Economic history of the United Kingdom

text: After the end of World War II, the British economy had again lost huge amounts of absolute wealth. Its economy was driven entirely for the needs of war and took some time to be reorganised for peaceful production. Britain's economic position was relatively strong compared to its devastated European neighbors - in 1947 British exports were equivalent in value to the combined exports of France, West Germany, Italy, Norway, Denmark, Belgium, the Netherlands, and Luxembourg. Anticipating the end of the conflict, the United States had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets which had previously been closed to it, including the British Empire's Pound Sterling bloc. This was to be realised through the Atlantic Charter of 1941, through the establishment of the Bretton Woods system in 1944, and through the new economic power that the US was able to exert due to the weakened British economy.


title: Economic history of the United Kingdom

text: Immediately after the war in the Pacific ended, the U.S. halted Lend-Lease, but did give the UK a long-term low-interest loan of US$4.33bn. The winter of 1946–1947 proved to be very harsh, with curtailed production and shortages of coal, which again affected the economy so that by August 1947, when convertibility was due to begin, the economy was not as strong as it needed to be. When the Labour Government enacted convertibility, there was a run on Sterling, as pounds were traded for dollars. This damaged the British economy and within weeks convertibility was abandoned. By 1949, the British pound was seen to be overvalued; it was devalued on 18 September 1949 from £1 at $4.03 to $2.80. The US dollar had become the world's premier currency.


title: Economic history of the United Kingdom

text: The major economic priority of post-war Britain was to raise exports to fund the UK's dollar deficit. This required the extension of rationing, as British goods and produce were prioritized for export markets. Unlike Continental European countries, where rationing was abandoned within a few years of the wars' end, Britain actually tightened rationing restrictions and didn't fully abandon them until 1954. The U.S. began Marshall Plan grants (mostly grants with a few loans) that pumped $3.3 billion into the economy and encouraged businessmen to modernize their approach to management. Marshall Aid, however, failed to have the desired effect of modernizing industry and stimulating the economy, because 97% of the funds were used to service British debt repayments. This left the UK at a comparative disadvantage to rivals like France and West Germany, who were able to invest the money directly into industry and infrastructure, creating more competitive, efficient economies in the long-term.


title: Economic history of the United Kingdom

text: The Labour Governments of 1945–1951 enacted a political programme rooted in collectivism that included the nationalisation of industries and state direction of the economy. Both wars had demonstrated the possible benefits of greater state involvement. This underlined the future direction of the post-war economy, and was also supported in the main by the Conservatives. However, the initial hopes for nationalisation were not fulfilled and more nuanced understandings of economic management emerged, such as state direction, rather than state ownership. With the extensive nationalisation programme achieved, Keynesian management of the UK economy was adopted.


title: Economic history of the United Kingdom

text: With the postwar Labour Governments, the first comprehensive attempts at economic planning were made with initiatives intended to overhaul chronically depressed regions of the UK. The Distribution of Industry Act 1945 designated "development areas" in northeast England, Scotland, and Wales according to the findings of the Barlow Report of 1940, which had recommended a complete economic overhaul of the troubled areas it pinpointed. Between 1945 and 1950, the British government pumped some £300 million into the building of 481 new factories in these regions, to be leased to private industry. In addition there were 505 privately owned factories built in the troubled regions on the active encouragement of the government in London. This activity created an estimated 200,000 new jobs.