Winning the capital, winning the war: retail investors in the First World War

by Norma Cohen (Queen Mary University of London)

The First World War brought about an upheaval in British investment, forcing savers to repatriate billions of pounds held abroad and attracting new investors among those living far from London, this research finds. The study also points to declining inequality between Britain’s wealthiest classes and the middle class, and rising purchasing power among the lower middle classes.

The research is based on samples from ledgers of investors in successive War Loans. These are lodged in archives at the Bank of England and have been closed for a century. The research covers roughly 6,000 samples from three separate sets of ledgers of investors between 1914 and 1932.

While the First World War is recalled as a period of national sacrifice and suffering, the reality is that war boosted Britain’s output. Sampling from the ledgers points to the extent to which war unleashed the industrial and engineering innovations of British industry, creating and spreading wealth.

Britain needed capital to ensure it could outlast its enemies. As the world’s capital exporter by 1914, the nation imposed increasingly tight measures on investors to ensure capital was used exclusively for war.

While London was home to just over half the capital raised in the first War Loan in 1914, that had fallen to just under 10% of capital raised in the years after. In contrast, the North East, North West and Scotland – home to the mining, engineering and shipbuilding industries – provided 60% of the capital by 1932, up from a quarter of the total raised by the first War Loan.

The concentration of investor occupations also points to profound social changes fostered by war. Men describing themselves as ‘gentleman’ or ‘esquire’ – titles accorded those wealthy enough to live on investment returns – accounted for 55% of retail investors for the first issue of War Loan. By the post-war years, these were 37% of male investors.

In contrast, skilled labourers – blacksmiths, coal miners and railway signalmen among others– were 9.0% of male retail investors by the after-war years, up from 4.9% in the first sample.

Suppliers of war-related goods may not have been the main beneficiaries of newly-created wealth. The sample includes large investments by those supplying consumer goods sought by households made better off by higher wages, steady work and falling unemployment during the war.

During and after the war, these sectors were accused of ‘profiteering’, sparking national indignation. Nearly a quarter of investors in 5% War Loan listing their occupations as ‘manufacturer’ were producing boots and leather goods, a sector singled out during the war for excess profits. Manufacturers in the final sample produced mineral water, worsteds, jam and bread.

My findings show that War Loan was widely held by households likely to have had relatively modest wealth; while the largest concentration of capital remained in the hands of relatively few, larger numbers had a small stake in the fate of the War Loans.

In the post-war years, over half of male retail investors held £500 or less. This may help to explain why efforts to pay for war by taxing wealth as well as income – a debate that echoes today – proved so politically challenging. The rentier class on whom additional taxation would have been levied may have been more of a political construct by 1932 than an actual presence.