saville -a comment on professor rostow´s british economy of the 19th century

7/28/2019 Saville -A comment on Professor Rostows British economy of the 19th century

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The Past and Present Society

A Comment on Professor Rostow's British Economy of the 19th CenturyAuthor(s): John SavilleReviewed work(s):Source: Past & Present, No. 6 (Nov., 1954), pp. 66-84

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A Comment on Professor Rostow's BritishEconomy of the 19th CenturyECONOMICHISTORIANS N BRITAINHAVE,UNTIL RECENTYEARS,USUALLYemployed an empirical approach to the study of economic develop-ment. Most of the theoretical advances that have been made arethe work of scholars of other nationalities.1 It was the considerablemerit of Professor W. W. Rostow, beginning with his well-knownarticle in the Economic History Review for I938, and carried a stagefurther by the publication of the British Economy of the Igth Centuryin I948,2 that he made the attempt to rewrite the economic historyof 19th-century Britain in terms of a sustained dynamic analysis.His book was warmly welcomed as an exciting piece of research whichprovided a suggestive interpretation of old data. Its main thesis wasa simple one, based upon the " streamlined parable 5T3 that was setout in its opening pages, the conclusions of which were " that themain trends in the British economy, over the period I790-I914, arebest understood in terms of the shifting balance between productiveand unproductive outlays; and among types of productive outlayswith differing yields and differing periods of gestation."4Professor Rostow's analysis is based upon a functional relationshipbetween the type of investment on the one hand, and the movementof prices, the terms of trade and real wages, on the other. When thecharacter of investment is productive, which broadly means thatdomestic investment yields its results in the short run, pricesfall, real wages rise and the terms of trade shift favourably to Britain.Conversely, when investment outlays are unproductive (as in wars),or when they are channelled into projects which yield their economicresults only over a long period, as with British capital investment inrailway construction in a " new " country, prices rise, real wages fall,and the terms of trade move against Britain. Using these concepts,Professor Rostow divided the I9th century after I8i55 into fourmain periods: the first, from I815 to I847, years of intensive homeinvestment; the second, from I848 to I873, when investment outlayswere either in wars or long term in their economic effects; thethird, from I873 to I898, when investment was once again directedtowards home resources; and finally, from I898 to I914 when capitalwas invested abroad rather than at home. There are then, on thisanalysis, two periods when capital investment was mainly concentratedat home, and two periods when investment outlays were largely

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unproductive or with a long gestation period. As a result of thepredominantly domestic character of investment, the years betweenI815 to I847, and I873 to I898, showed a falling price trend, risingreal wages and favourable terms of trade. By contrast, the thirdquarter of the century (I848-73) and the decade and a half beforeI914 (I898-I914) exhibited the opposite trends of rising prices,falling real wages and unfavourable terms of trade.The merit, and it is considerable, of this approach is that it con-centrates attention upon capital accumulation and investment asamong the crucial determinants of a capitalist economy. ProfessorRostow's work has undoubtedly provided an additional stimulus tothe study of real phenomena (in the Keynesian sense of the term).At the same time there is some doubt about the relevance to i9thcentury economic development of the elegant model that he hasconstructed. The usefulness of any particular theory must bejudged on two counts: first, the internal consistency of the theoreticalmodel and second, the validity of its theoretical assumptions inrelation to the established facts. It is with certain apparentdivergences from the established facts that this commentary uponProfessor Rostow's analysis will begin.

To consider first Professor Rostow's periodisation of Englisheconomic history in the i9th century. He uses the traditionaltextbook division into periods whose boundaries are set by long termprice changes. He accepts the picture of falling prices to I847 and,in his own words, the " famous price level increase of the thirdquarter" as reflecting, in both periods, different phases of theindustrialising economy. The change from one period to anotherhe puts at I847. Professor Rostow, following J. M. Keynes, suggestsmore sophisticated reasons for these price movements than werecommon before the Treatise on Money, and he is concerned primarilywith investment and production, and with prices only as a consequenceof changes in the character of investment outlays. It is, however,worth noting that the movement of prices from 1815 to I873 is not assimple and straightforward as has been generally accepted. Anexamination of the wholesale price index for the middle decades of thecentury shows a rise between I844 and I847, a fall to I849, noappreciable change to 1852 followed by a very steep increase to I854.Then, from the middle I85os to the end of the i86os wholesale pricesremain on a fairly steady level, followed by a sharp rise betweenI870 and I873, the steepness of the increase being less thanthat of the early I85os.6 Some detailed price data for the thirdquarter, set out by Professor Rostow himself in a recent article,

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PAST AND PRESENTshow that out of eight important commodities only two - cottonand wool - had substantialprice increases while another three -sugar, timber and wheat - showed absolute declines in price.7 Ingeneral,the picture is more complicatedthan is usually appreciated.What is very markedis the way in which prices are jacked-upto anew high level with the sharp upwardmovement of the early I85os,but this phenomenonis not the same as a rising price trend betweenI847 and I873; nor can the break in the trend be put just beforethehalf century. Some years ago A. F. Burnsand W. C. Mitchell madea relevant comment in this connection."The long waves (of prices J.S.) are clearest in Britain, yet onewho did not alreadyknow these waves in advancemight concludethat the trend of prices was not falling from 1823-I84I or rising

during I853-I87I."8There is some reason therefore to question the traditional ac-ceptanceof the price movements for the half century after I815;but Professor Rostow was concerned with prices only as theproduct of other factors. More central to his argument are thedata for capital export. The main difference,he argued, betweenthe years after I8I5 and the years after I847 lay in the characterof investment in these two periods. In the first there was aconcentrationupon domestic investment and an absence of whathe characterisesas unproductive investment (includingthat with along gestation period), and in the second there takes place a shifttowards foreign outlays and government expenditures on wars.We have, as our guide to the movements of British capital exports,the calculations hat ProfessorImlah has recently published(Table i).The Limitations of any of our existing figures on the balance ofpayments and capitalexports are well enough known, although it islikely that this series prepared by Professor Imlah (which was notavailableto Professor Rostow in I948) are more accuratethan thosethat have been used in the past. If we examine the data for netincome available for capital export for two decades on either sideof I847 we find that until the middle of the I85os there arefluctuationsaround a fairly low annual average. The boom yearsof I852-4 exhibit the much-discussed contrasting movement of adecline in capital export against the backgroundof rising domesticinvestment; andwhat apparentlydoes not occur is any shift towardsforeign outlays until after I855. At that date the changeappearstobe very marked,but on ProfessorImlah's figures, it is difficult tosuggest a crucial turning point in the characterof investmentat theend of the I84os.

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BRITISH ECONOMY OF THE I9TH CENTURYTABLE I

NET INCOMEAVAILABLEOR FOREIGN NVESTMENTFive Yearly Averages. Million. Annual Figures.I831-35 -. 7.30 184I .. 2.7 I851 ... I0.4I836-40 . 2.62 I842 . I.0 852 ... 7*9I841-45 .. 6.96 I843 ... I0.3 I853 ... 3.4I846-50 ... 6.i8 I844 ... II.2 I854 ... 4.6I851-55 ... 7.62 I845 ... 9.6 1855 ... II.8I856-60 ... 24.82 I846 ... 9.6 I856 ... 20.7I86i-65 ... 23.00 I847 ... 0-5 I857 .. 26.0I866-70 ..- 39-3 1848 ... 2.7 I858 ... 20.9I871-75 ... 73.96 I849 ., 6.5 I859 .. 34.2

I850 ... ii.6 i86o ... 22.3(From A. H. Imlah, "British Balance of Paymentsand ExportofCapital I816-I913," Economic History Review, 2nd, Ser. V, No. 2

(1952).If we turn next to examine the movement of real wages, sointimatelyconnectedin ProfessorRostow'smodel with the particulartype of investment the economy is experiencing,we are involved inone of the most controversialquestions of the history of the yearsbefore I85o. Since real wages are at the centre of ProfessorRostow's theoreticalanalysis,their directionafter 1815 is a matter ofconsiderable importance. It may be remarked in passing thatconsideringthe crucialsignificanceof the movementof realwages inProfessor Rostow's model (" The focus is, rather, the complex offorces affectingthe course of real wages "9)it is somewhatsurprisingto find no analysis at all of the characteristicsof the labour marketin Britain during the i9th century. It is investment, its scale andcharacter,and the movementsof interestrates, pricesand the terms oftradethat affectthe fluctuationsin, and the directionof, realwages,10andit would appear hat the size, the compositionand the institutionalcharacteristicsof the labour market are of little importance. Butto return to the half century after i8I5. What may perhaps becalled the classical view was that a deterioration n living standardsoccurred during the three decades after the end of the NapoleonicWars(" the legend that everythingwas getting worse for the workingman, down to some unspecified date between the drafting of thePeople's Charter and the Great Exhibition"1). This view hasbeen opposed by J. H. Clapham, romwhom the quotationwas taken,Professor Ashton and others.12 Certainlythe rise in real wages is

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documented for artisans and skilled workers although no one canbe satisfied with the cost of living indices (an essential part of theevidence) whose limitations have come to be increasingly recognised.The central problem, however, to which almost no attention has beenpaid, is to determine the social composition of the proletarian massesand to arrive at some estimate of the numbers of skilled and unskilledworkers, both in the factory and, even more important, in the un-revolutionised small master industries. The important preliminaryanalysis by Dr. Hobsbawm suggests that " the favoured strata ofthe working population were much less numerous than the rest,"13and if those groups for whom there is reasonable evidence of animprovement in living standards are found to be only twenty orthirty per cent of the total proletarian population, then the moreoptimistic views of recent years will need to be seriously modified.There would seem to be no incontrovertible statistical basis for thestatement that " despite a number of difficult years, real wagesrose for a rapidly expanding population."14 Mr. Matthews hasfound no increase of any significance in living standards duringthe I83os,15 and contemporary evidence of a non-statistical natureis also against this view.

There are two other aspects of the economic history of the yearsafter I815 on which the evidence to some extent conflicts with theinterpretation suggested by Professor Rostow. The first concernsthe terms of trade, which, in his analysis of the years after 1815,occupy a rather ambiguous position. In his brief summary of theperiod I815-47 (pp. I7-I9) Professor Rostow uses the phrase " theterms of trade " without indicating whether he is referring to thegross or the net barter terms of trade. Some evidence suggests theformer, but then on p. 25, when discussing the Great Depressionhe refers to the " phenomena . . . essentially the same as thosewhich dominated the period from I815 to the end of the forties,"and includes a specific reference to the " favourable shift in the termsof trade." Now both the gross and the net barter terms of trademoved favourably to Britain after I880; but almost the oppositeoccurred before I850. One of the striking differences of the post-I815 years compared with the period of the Great Depression is themarked and notable deterioration of the net barter terms of trade.This decline of British export prices relative to import prices has longbeen recognised as a most prominent feature of the first half of the19th century, and is usually explained in terms of the existence ofone country (Britain) rapidly industrialising herself in a world whichremained predominantly agrarian.16 The primary production of

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those countries trading with Britain - with the very importantexception of raw cotton from America - was increasing at a muchslower rate than industrial production in Britain.'7 The causes ofthis particular Britain-World relationship were, in the main, theopposite of those which produced the favourable terms of trade forBritain in the years of the Great Depression. One was the relativelyslow improvement, before the railway age of the I84os, of transportfacilities; a second was the high degree of protectionism before I840;and a third, perhaps of crucial importance, was the continuedexistence of feudal and semi-feudal relationships over most of theEuropean countryside. While the gross barter terms of trade didnot show the same sharply declining trend as did the net barterterms of trade, it is the decline of the latter which it is difficult toreconcile with the assumptions from which Professor Rostow argues.Nor can his simple theoretical model explain why the net terms oftrade begin to move in Britain's favour after I86o and again turnagainst her during the ten years which followed I873. The economicrelationships between Britain and the world economy were morecomplex than the British Economy is prepared to allow.One last point on the decades before the Great Depression. It isfar from the intention of this essay to suggest an alternative period-isation of 19th-century development to that put forward byProfessor Rostow. It is, however doubtful whether, on the evidenceof prices and more especially of the data for capital export, we canaccept I847 as a meaningful dividing line between two supposedlydifferent economic periods; and the statistical series we have of themovements of production suggest a further reason why we ought tolook once again at our traditionally accepted divisions. ProfessorRostow's analysis was not dependent for its confirmation uponproduction movements; but if we analyse the movements ofproduction, some interesting conclusions emerge which conflict withhis generalisations concerning the dividing year of I847. ProfessorRostow used Hoffman's well-known index of industrial production,first published in 1934; and for the purposes of the present note, theannual average rate of production has been calculated from Hoffman'sindices on a five-yearly basis. The results are set out in Table II.Taking first total industrial production, it will be seen that thedecades immediately after I8I5 show the most rapid developmentof domestic resources in the whole of the I9th century.18 From I815to I830 the annual average rate of increase of total production was3.5/o; between I830 and I855 it was 3.6%; in the succeeding twentyyears to I875 it fell to 2.8%. Individual years showed wide

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PAST AND PRESENTfluctuations,but the significantfact is that for the forty years after1815 the British economy had a remarkably teady and high averageannualincreasein total production. The data for producer'sgoodsareeven morestriking, n that they bringinto focus the yearsbetween1830 and 1855 as a period of very rapid economic development.The annual average rate of growth for capital goods was 3.6%between 1815 and 1830, 5.1% for the years between 1830 and 1855,and 3.5% from i855 to 1875. There are no doubt a number ofqualificationswhich statisticians would wish to make in respect orHoffman'sdataand the serieshas been revised by Hoffmanhimself19since its firstpublicationin 1934, but the index was broadlyacceptedby Professor Rostow and used by him.20 On the basis of theseproduction figures,there is no breakaround1847but rathera markedslackening in the rate of growth of both capital and total goodsproduction after 1855.

TABLE IIANNUAL AVERAGEPERCENTAGERATE OF CHANGE

Total Producer's Total Producer'sProduction Goods Production GoodsI815-20 ... 2.4 ... 2.1 1845-50 ... 3.5 ... 6.61820-25 ... 4.4 ... 6.2 1850-55 ... 4.1 ... 5.11825-30 ... 3.7 ... 2.5 I855-60 ... 2.4 ... 3.11830-35 ... 3.9 ... 5.1 1860-65 ... 2.3 ... 4.61835-40 ... 3.6 ... 5.5 I865-70 ... 3.7 ... 3.21840-45 ... 3.0 ... 3.3 1870-75 ... 2.8 ... 3.0(The rates are averaged as between five-year intervals centeredon the indicatedyear. This is the method used by ProfessorRostow.See Table I (p. 8), British Economy of the I9th Century. The dataare from Hoffman: Weltwirtschaftliches Archiv, 1934).

IIWhen we turn to the last quarterof the 19th centurythe statisticalmaterialon which generalisationscan be made, while still imperfect,are nevertheless much more reliable than those discussed above;and, it must be added, a number of important series have beenpublished since Professor Rostow wrote in 1948. For ProfessorRostow the Great Depression, which he put between the years1873 and 1898, was characterised by a shift from domestic to

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BRITISH ECONOMYOF THE I9TH CENTURYforeigninvestment:" the central causalforce in the GreatDepressionwas the relative cessation of foreign lending."21 This shift in thedirection of capital outlays brought with it " phenomena . . .essentially the same as those which dominated the period fromI815 to the end of the forties: a favourable shift in the terms oftrade; a fall in interest rates and commodity prices; a maintainedrise in real wages."22The facts of capitalexport and domestic investment, on which somuch of the argumentmust rest, can be easily stated.23 In general,the twenty years from 1873 exhibit the familiarscissorsmovementofhome andforeigninvestmenr. The peak yearforcapitalexportin thethird quarterof the century came in I872, with the two followingyearsshowing declines but still maintaininga high rate. Then, fromI875 the decline in capitalexportbecamevery marked,the low pointbeing reached in I877 (a year when there was still, according toImlah's series, and contraryto earliercalculations,a small net surplusof income available for foreign investment). Net domestic invest-ment, excluding housing, declined sharply from its peak in I873 toI875, recovered in I876 and I877 and then fell to a low point in I879.Investment in housing, to which, it must be pointed out, ProfessorRostow allows an inadequateplace in total investment outlays,24 osesteadily to a peak in I877 and then declined slowly to its lowestpoint in the middle of the I88os. The investment data of theI87os, to sum up, confirmthe turn towards domesticinvestment andawayfrom foreign outlays which ProfessorRostow emphasisesis thecentral feature of the Great Depression. It is the next decade inwhich the facts do not appearto supporthis thesis.The notable feature of domestic investmentin the i88os is the lowlevel of new capital expenditure on housing. Total net domesticinvestment (includinghousing)has two peaks- one in I882 and thesecond in I889 - and both were smaller in absolute terms and asproportionsof the National Income than the peaksof I873 and I877.Foreign investment on the other hand, increased jerkily from thelow point of I877 (with decreaseson immediately preceeding yearsin I88o, I882, I883, I885 and I889) to a peak in I890, after which itonce again fell away. Total investment (domestic and foreign) wasroughly the same in terms of its proportionof the National Incomein both decades; but net home investment in the i88os was lowerabsolutely and relatively to National Income than in the I870s,and foreigninvestment,absolutelyand as a proportionof the NationalIncome, was higher than in the I87os. This was the crucial differencebetween he two decades. It means that the depressionof the I88os

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PAST AND PRESENTwas more pronounced in home investment than in foreign investment.There was no shift to domestic investment in the i88os; for thefour years 1884-7 net home investment (in terms of the NationalIncome) was lower than in any year of the I87os except 1879. Thesemiddle years of the i88os are to be compared, in the matter of thelow volume of home investment, with the early years of the iS90S;the new factor in the I89os is the steadily declining absolute volumeof foreign investment.If there is no evidence of a relative shift in investment outlaystowards the home market in the i88os and the early I89os, neitheris there any reason to date the beginning of a new period in 1898.Rostow argues that the British economy, at the end of the I89os " wason the eve of a new secular phase,"2 when the characteristics of thethird quarter of the century - a shift towards foreign outlays with theaccompanying effects upon the economy-would be repeated. Onceagain the facts would appear not to support these generalisations.From I895 to I904, total net domestic investment, including housing,was never less than seven per cent of the National Income and inI899/1900 it was over Io%. In the same years foreign investmentwas phenomenally low, and it remained at a low level for a longerperiod than at any time since I870. If the character of investment isa determining factor in the shape of an economy, as ProfessorRostow argues, the home boom of 1895-1904, which was the resultof a high level of domestic outlays, cannot be included within thesame trend period as the years which followed I905, when homeinvestment declined sharply as capital exports rose to their highestabsolute and relative level for the whole century.Hoffman's production data confirm the slowing down in thegeneral rate of growth of the economy after the I87os; and forcomparison with earlier decades, see Table II.

TABLE IIIANNUAL AVERAGEPERCENTAGERATE OF CHANGE

Total Producer's Total Producer'sProduzction Goods Production GoodsI870-75 ... 2.8 ... 3.0 I890-95 ... 0.8 0.8I875-80 ... i.i ... 3.1i 895-I900 2.3 ... 3.1I880-85 ... 1.9 ... I.3 I900-05 I.3 ... 2.0I885-90 ... 2.3 ... 2.6 I905-IO ... I ... 0.8(From Hoffman: Weltwirtschaftliches Archiv, I934).

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BRITISH ECONOMYOF THE I9TH CENTURYWe must conclude from an analysis of the character of invest-ment that the years from 1873 to 1894 do not appear to agree with

the thesis put forward by Professor Rostow. Whatever else theGreat Depression was, and whatever other characteristics it possessed,it was not a period of economic development during which there wasa shift within investment outlays to a more intensive exploitationof home resources. It is, on the contrary the apparent stagnation ofdomestic investment opportunities during most of the i88os and theearly I89os that requires an explanation.III

In concentrating upon the character of investment rather than itsvolume, Professor Rostow is assuming that throughout the centurythe volume of investment was sufficient in each main trend period tomaintain roughly the same level of employment throughout theeconomy. He is explicit about this assumption, which is of crucialimportance in his argument and which has not received from hiscommentators the attention it deserves. In his own words," Significant differences in the level of employment would affect thevalidity of an analysis which put primary emphasis on the characterof investment rather than on its volume. No significant distinctionson existing evidence are found," '; and to make his point he examinedthe unemployment data from 185o and concluded that there was noevidence " to justify the view that the Great Depression period wasmarked by significantly higher unemployment than the averagefrom the mid-century to the outbreak of war in 1914."27 Thereare two comments worth making on these statements. The first isthat Professor Rostow makes no serious attempt to assess the worthof these unemployment data; a rather surprising omission consideringhow much of his analytical model depends upon the assumptionthat changes in the volume of investment could be ignored for thewhole century to I9I4.8 Both the usefulness of the series and the in-terpretations that can be fairly placed upon them have been discussedelsewhere2' but it is perhaps worthwhile to make one general pointhere. The unemployment series are for skilled workers and havebeen compiled in the main from the records of the skilled tradeunions. How relevant the unemployment data of skilled workers arefor an assessment of the general level of employment is a questionwhich demands an answer; and the further back in time one goesthe less obvious is the usefulness of this particular yardstick. In i85othe factory was not the representative unit of industrial organisationand the skilled workers in number were no more than a substantialminority of the labour force. This is not to deny the usefulness of

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this unemployment series but it must be properly handled; and inthe small mastereconomy of the i85os its relevance is less, perhapsa good deal less, than for the decades immediatelypreceeding I914.There is a second general point to be made in connection with Pro-fessor Rostow'suse of the unemploymentfigures, on the legitimateassumptionthat the series is of some use in estimatingthe level ofemployment. It is a criticism which has already been argued byProfessor D. H. Robertson. To prove the point that the level ofemploymentwas approximately he same over the whole periodfromI850 to the first Worldwar, ProfessorRostow summarised he averageunemployment figures for I855-73, I874-I900 and I90I-I3; and theaverages came out at 4.8%, 4.9% and 4.5%o. The immediatepoint that strikes the reader is to ask why these particularperiodswere chosen when they do not correspondwith the trend periodswhich Rostow insists upon throughout his book. ProfessorRobertson,who madethis point indirectly,went on to show thatif thecrude averages for I851-73, I874-95 and I896-I914 were workedout the unemploymentpercentageswererespectively4.6%, 5.4% and4.00o. " I cannot help thinking " concluded Professor Robertson,"there is somejustificationfor the impression that for a quarter-century jobs were less secure than they had been or were about tobecome."30There is reason,therefore,to doubt the validityof the assumptionthat lays an emphasis upon the character of investment to theexclusionof its volume. No one will deny the analyticalusefulnessofan approachwhich directs attentionto the type of investment outletto which the resources of an economy are being directed, but toignore fluctuationsin the total volume of capitalinvested in any oneyear or period is to eliminate from an historicalanalysismuch of thecentral processes of economic change. This failure to note thechangesin the level of capitalinvestment is at the heart of ProfessorRostow's misreading of the Great Depression. By concentratingupon the I87os and early I88os, in which yearsthe phenomenawhichhe associateswith the whole periodwereclearlydiscernible,he missedtwo crucial facts which make the Great Depression a period verydifferent from his characterisationof it. The first was that foreigncapital investment was rising throughout the i88os while domesticinvestment remainedfairlylow; the second was that total investmentduringthe late I87os, most of the i88os andthe first half of the i89oswas significantly lower than for the period I870-I914 considered as awhole. The statisticians will no doubt be constantly refining andimproving the various series on the national income, prices and the

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BRITISH ECONOMY OF THE I9TH CENTURYlike, but if Mr. Lenfant's statistics on capital formationare broadlycorrect (or the calculationsin Appendix I which are derived mainlyfrom Professor Phelps Brown and A. R. Prest31) hen it is difficultnot to questionthe correctnessof an emphasiswhich stresses the typeof investment and ignores the problemof volume.It is not only because of this concentrationupon type of investmentto the exclusion of other crucial problems connected with capitalaccumulationthat Professor Rostow must be accused of a simplisteinterpretation of 19th-century economic development. Theeconomic historianmust ask whether it is legitimateto exclude froma theoretical model the relationship between institutional andeconomic factors in the development of a national economy. Thesize andcompositionof the labour force and the generalcharacteristicsof the labour market, the organisation of industry, the characterof the home market considered from the side of demand, are allstructuralproblems whose impact upon any industrialor industrial-ising societyis internalrather hanexternal. The particular tructure:of the capital market in the I9th century is perhapsthe best knownexample of an institutionalfactor, the productof both economic andhistorical forces, which exercised a marked influence upon the rateand character of investment and therefore upon the rate of growthof the economy as a whole. The deficiencies of the English capitalmarket have been much commented upon from the point of viewof the domestic capitalmarket in the twentieth century32;but thereis no reason to believe that those deficiencies were wholly absentduring the second half of the I9th century. It is to be expected,a priori, that the nearer one gets to I914 the more obviously thestructural defects of the domestic capital marketwould affect thedevelopment of home industry. Admittedly the documentationfor such a generalisationis still far from complete; but in the oneindustry, steel, where the evidence is presented in detail in themagistralanalysisof D. L. Burn, the consequencesof an inadequaterate of capital accumulationcan be clearlytraced upon the size andefficiency of plants.33 There is scattered evidence elsewhere, notablyin the unpublishedwork of Dr. J. B. Jefferys,34hat here we have anessential clue in the analysis of the relative stagnation of Britishindustry before 1914. The argument may be summarised thus.By the third quarter of the i9th century the main capital marketof the country,centeredupon London, was alreadyfirmlyorientatedtowards the provision of the long term capital requirements ofoverseas governments, foreign railways and public utilities. Thisoverseas demand continued strongly until I914 and the institutions

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and the traditions of the London capital market reinforced themselveson the basis of extraordinary prosperity and profitability. Theredeveloped a structural deficiency in respect of home investment which,as the individualistic traditions of self-financing were no longercapable of meeting the steadily increasing capital requirementsof industry, operated as a drag upon the whole economy from aboutthe i88os. It is now generally accepted that an important part of thereasons for the lag in industrial efficiency in the decades before I914was the relatively slow growth in size of manufacturing units. Theabsence of large scale institutions catering for home industrialinvestment meant that the entrepreneurs were thrown much moreupon their own financial resources than was the case in other majorindustrial Powers. Certainly those resources in the case of Britishindustries, especially in the old basic industries, were considerable,but the gap between individual resources and requirements must havebeen growing steadily in the years before 1914. Professor Paish,in his inaugural lecture, drew attention to the small proportion ofnet domestic investment financed through the London capital marketbefore I914. He noted that:"The small scale of the new issue market in home securities, and

of many of the individual issues, was no doubt the reason why thegreat merchant bankers, who were responsible for the great bulkof the issues in overseas accounts, took little interest in it, apartfrom occasionally sponsoring a large issue of railway or publicutility services."3 5But could not this formulation be put in another way? namely,that by the time we are in the 20th century new issues were smallbecause of the particular way the British capital market had grownand developed over the previous hundred years ? Mr. Dobb has

argued that the practicable alternatives that face the entrepreneurare generally smaller than economists have generally supposed.36The institutional structure of the capital market provided the back-ground against which investment decisions were made; and if, asargued above, the entrepreneurs in Britain were thrown back on theirown resources at a time when only a recourse to the open market wouldhave provided them with adequate capital, their overall decisionswould inevitably be coloured with elements of cautiousness andconservatism. Vision, as well as the financial possibilities requiredto translate vision into practical effect, were becoming less commonin British industry before I914, and to ignore traditional and structuralproblems is to make of ones analysis a bloodless abstraction from thehistorical complexities of the real world.

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BRITISH ECONOMYOF THE I9TH CENTURYThe institutional factors noted above - the labour market, the

organisation of industry, the character of the home market - must beleft for discussion to another occasion, but mention must brieflybe made of a further serious limitation upon the usefulness ofProfessor Rostow's theoretical assumptions. " After I870, AlfredMarshall used to say, you cannot write English economic history ";and, the late J. H. Clapham added, " he might have given an earlierdate."7 At no point indeed, in the I9th century can the Britisheconomy be considered without reference to the rest of the (economic)world, and as industrialisation proceeded, and as the revolution intransport facilities completed the inter-dependence of the nations,the relation of national economies to the world economy becameincreasingly intimate. Recognition of this truism has recently beenemphatically made by Professor Rostow himself,38 and the absenceof the international background to the British economy makes muchof the argument unreal in the volume under discussion. Inparticular, this failure to place Britain in an international settinghas meant a failure to appreciate the importance of America for theBritish economy before 1870 and of colonial expansion after thatdate.39

IVThis comment has been undertaken in no spirit of captiousness.Professor Rostow's work has been a ready source of inspiration tothose working in the field of 19th-century history and there is muchillumination to be gained from his writings on many aspects of theeconomic growth and development of the British economy. Thesematters have not been mentioned here because the object of this brief

essay was not to write a general commentary upon Professor Rostow'swork, but to indicate certain of the weaknesses in his analysis whichwere held to vitiate his particular theoretical approach. It is freelyadmitted that the full documentation of a number of the generalcriticisms is not yet available, but it will not be at our elbows untilthe kind of questions which have been posed receive their answersone way or the other.To sum up. There are two separate parts of the criticism whichhas been made here. One is concerned with matters of fact; thesecond with the adequacy of Rostow's theoretical model. On thequestions of fact, it has been argued that in two vital periods of 19th-century economic history Professor Rostow has misread the evidence.One is the period of the Great Depression and the other concernsthe I84os and the I85os. With regard to this earlier period, it must

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be pointed out that if, as has been suggested here, I847 cannot beregarded as marking the transition from one distinctive periodto another, the implications for the social historian are far-reaching. Although it was the 20th century which inventedthe phrase " The Hungry Forties," the contemporarywritings ofEngels and the Reports inspired by Chadwick abundantlyconfirmthe poverty and the misery of the labouringmillions. At the sametime, the rapidrate of growthof the economyin the I83os and I84ossuggests that it is in this periodthat must be sought the originsof thechangingclimate of opinionof the I85os. The engineersNew Modeland the rapid decline of the Chartist movement occurred withinthreeyearsof April ioth, I848, and a closerappreciationof the phasesof growth within the economy will permit an analysisof these eventsthat relies less upon the personal and the fortuitous than has beencustomary hitherto.40The theoretical weakness of Professor Rostow's work stems first,it is suggested, from an undue concentrationupon the character ofinvestmentand from a failureto consideradequately,or indeed hardlyat all, changes in its volume. Second, it has been argued that ananalysis which focusses attention upon a few variables within theeconomy does violence in its conclusions to the complexitiesand thecomplications of historical change; and that moreover, no set ofabstractionscan ignore the crucialimportanceof certain institutionalactors; for institutional factors become, in time, economic forces.There is much else that could be discussed in a comment uponProfessorRostow'sanalysis. Mr. Matthews has recentlymade somecritical remarks about the hypothesis of the inventory cycle, andelsewhere has published some detailed comments upon the two-volume Growth and Fluctuation of the British Economy which wasthe forerunner to Professor Rostow's own volume.41 There isfurtherthe general problem of the usefulness of any analysis whichdoes not take account of structural changes occuring within theeconomy, a criticism from which Professor Rostow's work is notentirely free despite his discussion of the role of harvests, theinventory cycle and the long term investment cycle. What heappears to ignore are changes in industrial organisationand theindustrial structure. It is doubtful whether it is theoreticallypossible to include the small master economy within a pre-dominantly agrariansociety under the same umbrella as the matureindustrial society of 1914, and apply to both a set of rathersimplified theoretical assumptions, from the application of whichthe same phenomena can be expected to be deduced. This is a

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BRITISH ECONOMY OF THE I9TH CENTURYmatter which demands the attention of both historians andeconomists.While this note must be understood as a criticism of the attemptto force a complicatedhistoricalstory into the strait jacketprovidedby a too simple theoretical model, there is no intention to decrythe importanceof a theoreticalapproachin general to the problemsof economic growth. We need more, not less, theoretical under-standing; we need however to check continually our theorieswith what we believe to be the facts.University College, Hull. John Saville.

NOTES1Among the more recent exceptions to this statement may be noted M. H.Dobb, Studies in the Development of Capitalism (1946) and R. C. 0. Matthews,A Study in Trade Cycle History: Economic Fluctuations in Great Britain I833-42(1954).2 W. W. Rostow, British Economy of the g9thCentury, O.U.P. (1948),hereafter referred to as Rostow.3The phrase is from D. H. Robertson, 'New Light on an Old Story',Economica, (Nov. 1948), p. 297. This review of the British Economy by Prof.Robertson is the most illuminating comment upon Prof. Rostow's theoreticalapproach that I have read.4Rostow, p. I2.I have ommitted from the discussion, for reasons of space, Prof. Rostow'sanalysis of the years I790-I815.6 W. T. Layton and G. Crowther, An Introduction to the Study of Prices,(I935), Chart I.7W. W. Rostow, The Historical Analysis of the Terms of Trade, Econ. Hist.Rev. 2nd. Ser., IV, No. I (I951), p. 56.8A. F. Burns and W. C. Mitchell, Measuring Business Cycles, (1946), p. 440.9Rostow, p. o0.10ibid.11J. H. Clapham, An Economic History of Modern Britain, Vol. I, (I926),Preface.12 See esp. T. S. Ashton, ' The Standard of Life of the Workers in England,1790-I830', Journ. Econ. Hist., Supplement, (I949).13E. J. Hobsbawm, ' The Labour Aristocracy in I9th Century Britain',Democracy and the Labour Movement, (ed. Saville I954), p. 208, note I.4Rostow, p. I9.16 Matthews, op. cit., pp. 220-223.16C. Clark, The Conditions of Economic Progress, (I940), pp. 448-454;W. A. Lewis, Economic Survey, (I949), pp. I94-5 ; Rostow, The HistoricalAnalysis of the Terms of Trade, op. cit., p. 58 ff.17 A. H. Imlah, 'Real Values in British Foreign Trade', Journal ofEconomic History (1948), pp. I33-I52.18 Rostow, p. 19.


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PAST AND PRESENT19The revised series were incorporated in a volume published in Jena in 1940.Wachstum und Wachtstumformen den Englischen Industrie-wirtschaft von 1700

bis zur Gegenwart. Few copies of this volume, which I have not seen, reachedBritain. See also W. Hoffman, ' The Growth of Industrial Production inGreat Britain: A Quantitative Study,' Econ. Hist. Rev., 2nd Ser. II, No. 2,(1I949), pp. 162-180.20 For Prof. Rostow's brief comments on Hoffman's index, see pp. 33-4, noteI and p. 223, note 13. The index was also extensively used in A. D. Gayer,W. W. Rostow and A. J. Schwartz, The Growth and Fluctuations of the BritishEconomy, 1790-1850, 2 vols. (1953). This work was written before Prof.Rostow's own British Economy of the 19th Century and is a detailed source formany of his generalisations.21 Rostow, p. 88.22 Rostow, p. 25.2s The statistics of the volume and movement of capital investment have beentaken from the following sources: A. H. Imlah, ' British Balance of Paymentsand Export of Capital, 1816-1913', Econ. Hist. Review, 2nd Ser., V, No. 2,(1952), pp. 208-239 ; J. H. Lenfant, ' Great Britain's Capital Formation,1865-1914', Economica, N. S. XVIII, No. 70 (May 1951), pp. 151-168 ; E. H.Phelps Brown and S. J. Handfield-Jones, ' The Climateric of the i89os': Astudy in the Expanding Economy,' Oxford Economic Papers, IV, No. 3, (Oct.I952), pp. 266-307.:' Rostow, Ch. IX.26 Rostow,p. 88.26 Rostow, p. 12, note I.27 Rostow, p. 48."8Rostow, pp. 34-5.29 The most useful discussions are in J. Hilton, ' Statistics of Unemploy-ment . . .' J. R. S. S. (Feb. 1923) pp. I54-205; W. H. Beveridge Unemploy-ment, A Problem of Industry, (1909), esp. Ch. 2; A. L. Bowley, 'TheMeasurement of Empioyment: An Experiment,' J. R. S. S., (July 1912),pp. 791-829.sOD. H. Robertson in Economica, loc. cit.81Lenfant, loc. cit.32 One of the earliest statements is in H. S. Foxwell, ' The Financing ofIndustry and Trade', Econ. Journal, (Dec. 1917), pp. 502-552. The mostwidely known discussion is in the Committeeon Industry and Trade, Pt. 2, Ch. 4.83D. L. Burn, The Economic History of Steel Making, (1940), esp. Ch. XI.'4J. B. Jefferys, Trends in Business Organisation in Great Britain since i856 ...(Ph.D. thesis, London 1938).l6reprinted in Economica, (Feb. 1951).36 Dobb, op. cit., p. 286.37Preface to An EconomicHistory of Modern Britain, Vol. 2, (1932).38 Addendum to Directors Preface, A. D. Gayer, W. W. Rostow and A. J.Schwartz, The Growth and Fluctuations of the British Economy, 1790-1850,2 Vols., (1953).39 See, for example, Brinley Thomas, Migration and Economic Growth. AStudy of Great Britain and the Atlantic Economy (1954).40 It is perhaps relevant here to note that the Webbs, in their History ofTrade Unionism, (1894), began the chapter on the New Spirit and the NewModel with the year 1843.41Matthews, op. cit., pp. 74-5; 'The Trade Cycle in Britain, I790-I850',Oxford Economic Papers, N.S. (Feb. 1954) pp. 1-32

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APPENDIX I.INVESTMENT AS A PROPORTION OF THE NATIONAL INCOME.

Total Net ForeignDomestic Investment Investment

I87I ... ... 8.4 7.5I872 ... ... 8.7 9-5I873 ... ... 9.9 6.9I874 ... ... 7.7 6.2I875 ... ... 6.4 4.4I876 ... .. 9.2 I.7I877 .. .. 0.2 I.0I878 ... .. 8.o I.4I879 5.2 3.6I880 . . 8.o 3.4I88 .. . . 8.8 5.8I882 . 8 .9 5.0I883 .. ... 7.8 4. II884 . 4.2 6.6I885 ... 4.7 5.5I886 . 5 6.9I887 ... . 5.6 7.3I888 . ... 7.5 7.3I889 ... ... 8. I 6.o1890 ... ... 7.0 7.0

Note: Domestic Investment data from E. H. Phelps Brown and S. J. Handfield-Jones, The Climacteric of the I89os : A study in the Expanding Economy,Oxford Economic Papers, (October I952), Appendix C, Table 4.Foreign Investment data from A. H. Imlah, ' British Balance ofPayments and Export of Capital, I816-I913,' Econ. Hist. Review, 2ndSer., V, No. 2, (1952).National Income data from A. R. Prest, 'National Income of theUnited Kindgom I870-I946,' EconomicJournal, (March I948).


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APPENDIX II.GREAT BRITAIN.Production Movements - Annual Average Percentage Rate of Change.

(From W. Hoffman: 'Ein Index der Industriellen Produktion furGrossbritannien seit dem I8. Jahrhundert', WeltwirtschaftlichesArchiv. 1934).Producers' TotalGoods. Production.

I815-18201820-18251825-1830I830-1835I835-1840I840-1845I845-1850I85o-I855I855-i86oI86o-I865I865-1870I870-1875I875-1880I88o-I885I885-1890I890-1895I895-19001900-19051905-19I0

2. I6.22.55. I5 -53 -36.65.I3. I4.63.23.03. II 32.6o.83. I2.0o.8

2.44.43.73.93.63.03 54 I2.42.33 -72.8I . II .92 3o.82.3I 3I. I

84

saville -a comment on professor rostow´s british economy of the 19th century

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