Debt into growth: How sovereign debt accelerated the first industrial revolution

Arbeitspapier

Why did the country that borrowed the most industrialize first? Earlier research has viewed the explosion of debt in 18th century Britain as either detrimental, or as neutral for economic growth. In this paper, we argue instead that Britain's borrowing boom was beneficial. The massive issuance of liquidly traded bonds allowed the nobility to switch out of low-return investments such as agricultural improvements. This switch lowered factor demand by old sectors and increased profits in new, rising ones such as textiles and iron. Because external financing contributed little to the Industrial Revolution, this boost in profits in new industries accelerated structural change, making Britain more industrial more quickly. The absence of an effective transfer of financial resources from old to new sectors also helps to explain why the Industrial Revolution led to massive social change - because the rich nobility did not lend to or invest in the revolutionizing industries, it failed to capture the high returns to capital in these sectors, leading to relative economic decline.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 194

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Aggregate Factor Income Distribution ; Fiscal Policy ; National Security and War ; National Budget, Deficit, and Debt: General ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Europe: Pre-1913 ; Economic History: Financial Markets and Institutions: Europe: Pre-1913
• Subject: crowding out ; debt crises ; Industrial Revolution ; Ricardian equivalence ; misallocation ; financial repression ; structural change ; productivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ventura, Jaume ; Voth, Hans-Joachim
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2015

Further information

• DOI: doi:10.5167/uzh-110970
• Handle: http://hdl.handle.net/10419/111251
• Last update: 10.03.2025, 11:43 AM CET