By Carolyn Sissoko (University of the West of England)
This blog is based on a paper presented at the 2022 Economic History Society Annual Conference in the session AS1VG (Eighteenth-Century Finance).
This blog focuses on British industrialization as a regional phenomenon and asks: Why Lancashire? In doing so it follows works such as Hudson (1989 and 2014) and Walton (1989). One possible explanation is that changes in banking following the Seven Years’ War interacted with regional characteristics of Lancashire to act as a spark to set off industrialization.
At the end of the Seven Years’ War, a change in the Bank of England’s commercial discount policy promoted the growth of banking in England. Apparently due to the British government’s success in driving down the interest rates and other terms on the public debt, the Bank deliberately expanded its private sector lending at the end of the war. It did so by relaxing the rules for the discount of promissory notes. These policy changes primed the British economy for the growth of banking.
Relying on frameworks developed in Sissoko (2007, 2019 and 2021), I argue that banking plays a fundamental role in making markets work. More particularly, what banking does is to make it possible for prices to accurately reflect marginal cost and marginal benefit, instead of being determined by financing constraints. The growth of English banking, thus, led to a reduction in financial constraints on economic activity. My work investigates the degree to which these changes in banking can explain the increase in economic activity in Lancashire after the aforementioned change in the Bank of England’s commercial discount policy.
My research suggests that the dramatic growth that was experienced in Lancashire and nearby counties can indeed be explained by the growth of banking. The expansion of banking in Lancashire was stimulated by three factors: proximity to Liverpool, distance from London, and the same resource endowments and demographic changes which feature in traditional accounts of industrialisation.
Liverpool was the most important port serving the slave trade and the Atlantic economy more generally. Meanwhile, distance from London may have allowed Lancashire’s banking to develop in its early years without being perceived as a threat to existing London financial interests. These factors interacted with the more familiar explanations for the leading role of Lancashire in industrialization – such as the aforementioned resource endowments, demographic changes, and technological innovation – to promote the growth of a banking sector which reduced financial constraints on industry.
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