The Past and Present Society

A Comment on Professor Rostow's British Economy of the 19th Century

Author(s): John Saville
Reviewed work(s):
Source: Past & Present, No. 6 (Nov., 1954), pp. 66-84
Published by: Oxford University Press on behalf of The Past and Present Society
Stable URL: http://www.jstor.org/stable/649815 .
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66

PAST AND PRESENT

A Comment on Professor Rostow's British

Economy of the 19th Century
ECONOMICHISTORIANSIN BRITAINHAVE,UNTIL RECENTYEARS,USUALLY

employed an empirical approach to the study of economic development. Most of the theoretical advances that have been made are
the work of scholars of other nationalities.1 It was the considerable
merit of Professor W. W. Rostow, beginning with his well-known
article in the Economic History Review for I938, and carried a stage
further by the publication of the British Economy of the Igth Century
in I948,2 that he made the attempt to rewrite the economic history
of 19th-century Britain in terms of a sustained dynamic analysis.
His book was warmly welcomed as an exciting piece of research which
provided a suggestive interpretation of old data. Its main thesis was
a simple one, based upon the " streamlined parable 5T3 that was set
out in its opening pages, the conclusions of which were " that the
main trends in the British economy, over the period I790-I914, are
best understood in terms of the shifting balance between productive
and unproductive outlays; and among types of productive outlays
with differing yields and differing periods of gestation."4
Professor Rostow's analysis is based upon a functional relationship
between the type of investment on the one hand, and the movement
of prices, the terms of trade and real wages, on the other. When the
character of investment is productive, which broadly means that
domestic investment yields its results in the short run, prices
fall, 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 economic
results only over a long period, as with British capital investment in
railway 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 four
main periods: the first, from I815 to I847, years of intensive home
investment; the second, from I848 to I873, when investment outlays
were either in wars or long term in their economic effects; the
third, from I873 to I898, when investment was once again directed
towards home resources; and finally, from I898 to I914 when capital
was invested abroad rather than at home. There are then, on this
analysis, two periods when capital investment was mainly concentrated
at home, and two periods when investment outlays were largely

BRITISH ECONOMY OF THE I9TH

CENTURY

67

unproductive or with a long gestation period. As a result of the

predominantly domestic character of investment, the years between
I815 to I847, and I873 to I898, showed a falling price trend, rising
real wages and favourable terms of trade. By contrast, the third
quarter of the century (I848-73) and the decade and a half before
I914
(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 concentrates attention upon capital accumulation and investment as
among the crucial determinants of a capitalist economy. Professor
Rostow's work has undoubtedly provided an additional stimulus to
the study of real phenomena (in the Keynesian sense of the term).
At the same time there is some doubt about the relevance to i9th
century economic development of the elegant model that he has
constructed. The usefulness of any particular theory must be
judged on two counts: first, the internal consistency of the theoretical
model and second, the validity of its theoretical assumptions in
It is with certain apparent
relation to the established facts.
divergences from the established facts that this commentary upon
Professor Rostow's analysis will begin.
To consider first Professor Rostow's periodisation of English
economic history in the i9th century. He uses the traditional
textbook division into periods whose boundaries are set by long term
price changes. He accepts the picture of falling prices to I847 and,
in his own words, the " famous price level increase of the third
quarter" as reflecting, in both periods, different phases of the
industrialising economy. The change from one period to another
he puts at I847. Professor Rostow, following J. M. Keynes, suggests
more sophisticated reasons for these price movements than were
common before the Treatise on Money, and he is concerned primarily
with investment and production, and with prices only as a consequence
of changes in the character of investment outlays. It is, however,
worth noting that the movement of prices from 1815 to I873 is not as
simple and straightforward as has been generally accepted. An
examination of the wholesale price index for the middle decades of the
century shows a rise between I844 and I847, a fall to I849, no
appreciable change to 1852 followed by a very steep increase to I854.
Then, from the middle I85os to the end of the i86os wholesale prices
remain on a fairly steady level, followed by a sharp rise between
I870 and I873, the steepness of the increase being less than
that of the early I85os.6 Some detailed price data for the third
quarter, set out by Professor Rostow himself in a recent article,

68

PAST AND PRESENT

show that out of eight important commodities only two - cotton

and wool - had substantial price increases while another three sugar, timber and wheat - showed absolute declines in price.7 In
general, the picture is more complicated than is usually appreciated.
What is very marked is the way in which prices are jacked-up to a
new high level with the sharp upward movement of the early I85os,
but this phenomenon is not the same as a rising price trend between
I847 and I873; nor can the break in the trend be put just before the
half century. Some years ago A. F. Burns and W. C. Mitchell made
a relevant comment in this connection.
"The long waves (of prices J.S.) are clearest in Britain, yet one
who did not alreadyknow these waves in advance might conclude
that the trend of prices was not falling from 1823-I84I or rising
during I853-I87I."8

There is some reason therefore to question the traditional acceptance of the price movements for the half century after I815;
but Professor Rostow was concerned with prices only as the
product of other factors. More central to his argument are the
data for capital export. The main difference, he argued, between
the years after I8I5 and the years after I847 lay in the character
of investment in these two periods. In the first there was a
concentration upon domestic investment and an absence of what
he characterises as unproductive investment (including that with a
long gestation period), and in the second there takes place a shift
towards foreign outlays and government expenditures on wars.
We have, as our guide to the movements of British capital exports,
the calculationsthat ProfessorImlah has recentlypublished (Table i).
The Limitations of any of our existing figures on the balance of
payments and capital exports are well enough known, although it is
likely that this series prepared by Professor Imlah (which was not
available to Professor Rostow in I948) are more accurate than those
that have been used in the past. If we examine the data for net
income available for capital export for two decades on either side
of I847 we find that until the middle of the I85os there are
fluctuations around a fairly low annual average. The boom years
of I852-4 exhibit the much-discussed contrasting movement of a
decline in capital export against the backgroundof rising domestic
investment; and what apparentlydoes not occur is any shift towards
foreign outlays until after I855. At that date the change appearsto
be very marked, but on Professor Imlah's figures, it is difficult to
suggest a crucial turning point in the characterof investment at the
end of the I84os.

BRITISH ECONOMY OF THE I9TH CENTURY

69

TABLE I
NET INCOMEAVAILABLE
FOR FOREIGNINVESTMENT
Five Yearly Averages.
I831-35
I836-40
I841-45
I846-50
I851-55
I856-60
I86i-65
I866-70
I871-75

-.
.
..

...
...
...
...
.....

7.30
2.62
6.96
6.i8
7.62
24.82
23.00
39-3
73.96

Million.
184I
I842
I843
I844
I845
I846
I847
1848
I849
I850

Annual Figures.
..
.
...

...
...
...
...
...
.,

...

2.7
I.0
I0.3
II.2
9.6
9.6
0-5
2.7
6.5
ii.6

...
I851
...
852
...
I853
...
I854
...
1855
...
I856
I857 ..
...
I858
..
I859
...
i86o

I0.4
7*9
3.4
4.6
II.8
20.7
26.0
20.9
34.2
22.3

(From A. H. Imlah, "British Balance of Payments and Export of

Capital I816-I913,"
(1952).

Economic History Review, 2nd, Ser. V, No.

If we turn next to examine the movement of real wages, so

intimately connected in Professor Rostow's model with the particular
type of investment the economy is experiencing, we are involved in
one of the most controversial questions of the history of the years
before I85o. Since real wages are at the centre of Professor
Rostow's theoretical analysis, their direction after 1815 is a matter of
considerable importance. It may be remarked in passing that
considering the crucial significanceof the movement of real wages in
Professor Rostow's model (" The focus is, rather, the complex of
forces affecting the course of real wages "9) it is somewhat surprising
to find no analysis at all of the characteristicsof the labour market
in Britain during the i9th century. It is investment, its scale and
character,and the movements of interest rates, prices and the terms of
trade that affect the fluctuations in, and the direction of, real wages,10
and it would appearthat the size, the compositionand the institutional
characteristics of the labour market are of little importance. But
to return to the half century after i8I5. What may perhaps be
called the classical view was that a deteriorationin living standards
occurred during the three decades after the end of the Napoleonic
Wars (" the legend that everything was getting worse for the working
man, down to some unspecified date between the drafting of the
People's Charter and the Great Exhibition "1). This view has
been opposed by J. H. Clapham,from whom the quotationwas taken,
Professor Ashton and others.12 Certainly the rise in real wages is

70

PAST

AND

PRESENT

documented for artisans and skilled workers although no one can

be satisfied with the cost of living indices (an essential part of the
evidence) whose limitations have come to be increasingly recognised.
The central problem, however, to which almost no attention has been
paid, is to determine the social composition of the proletarian masses
and to arrive at some estimate of the numbers of skilled and unskilled
workers, both in the factory and, even more important, in the unrevolutionised small master industries. The important preliminary
analysis by Dr. Hobsbawm suggests that " the favoured strata of
the working population were much less numerous than the rest,"13
and if those groups for whom there is reasonable evidence of an
improvement in living standards are found to be only twenty or
thirty per cent of the total proletarian population, then the more
optimistic views of recent years will need to be seriously modified.
There would seem to be no incontrovertible statistical basis for the
statement that " despite a number of difficult years, real wages
rose for a rapidly expanding population."14 Mr. Matthews has
found no increase of any significance in living standards during
the I83os,15 and contemporary evidence of a non-statistical nature
is also against this view.
There are two other aspects of the economic history of the years
after I815 on which the evidence to some extent conflicts with the
interpretation suggested by Professor Rostow. The first concerns
the terms of trade, which, in his analysis of the years after 1815,
occupy a rather ambiguous position. In his brief summary of the
period I815-47 (pp. I7-I9) Professor Rostow uses the phrase " the
terms of trade " without indicating whether he is referring to the
gross or the net barter terms of trade. Some evidence suggests the
former, but then on p. 25, when discussing the Great Depression
he refers to the " phenomena . . . essentially the same as those
which dominated the period from I815 to the end of the forties,"
and includes a specific reference to the " favourable shift in the terms
of trade." Now both the gross and the net barter terms of trade
moved favourably to Britain after I880; but almost the opposite
One of the striking differences of the postoccurred before I850.
I815 years compared with the period of the Great Depression is the
marked and notable deterioration of the net barter terms of trade.
This decline of British export prices relative to import prices has long
been recognised as a most prominent feature of the first half of the
19th century, and is usually explained in terms of the existence of
one country (Britain) rapidly industrialising herself in a world which
remained predominantly agrarian.16 The primary production of

BRITISH ECONOMY OF THE I9TH

CENTURY

7I

those countries trading with Britain - with the very important

exception of raw cotton from America - was increasing at a much
slower rate than industrial production in Britain.'7 The causes of
this particular Britain-World relationship were, in the main, the
opposite of those which produced the favourable terms of trade for
One was the relatively
Britain in the years of the Great Depression.
slow improvement, before the railway age of the I84os, of transport
facilities; a second was the high degree of protectionism before I840;
and a third, perhaps of crucial importance, was the continued
existence of feudal and semi-feudal relationships over most of the
European countryside. While the gross barter terms of trade did
not show the same sharply declining trend as did the net barter
terms of trade, it is the decline of the latter which it is difficult to
reconcile with the assumptions from which Professor Rostow argues.
Nor can his simple theoretical model explain why the net terms of
trade begin to move in Britain's favour after I86o and again turn
against her during the ten years which followed I873. The economic
relationships between Britain and the world economy were more
complex than the British Economy is prepared to allow.
One last point on the decades before the Great Depression. It is
far from the intention of this essay to suggest an alternative periodisation of 19th-century development to that put forward by
Professor Rostow. It is, however doubtful whether, on the evidence
of prices and more especially of the data for capital export, we can
accept I847 as a meaningful dividing line between two supposedly
different economic periods; and the statistical series we have of the
movements of production suggest a further reason why we ought to
look once again at our traditionally accepted divisions. Professor
Rostow's analysis was not dependent for its confirmation upon
production movements; but if we analyse the movements of
production, some interesting conclusions emerge which conflict with
his generalisations concerning the dividing year of I847. Professor
Rostow used Hoffman's well-known index of industrial production,
first published in 1934; and for the purposes of the present note, the
annual average rate of production has been calculated from Hoffman's
indices on a five-yearly basis. The results are set out in Table II.
Taking first total industrial production, it will be seen that the
decades immediately after I8I5 show the most rapid development
of domestic resources in the whole of the I9th century.18 From I815
to I830 the annual average rate of increase of total production was
3.5/o; between I830 and I855 it was 3.6%; in the succeeding twenty
years to I875 it fell to 2.8%. Individual years showed wide

PAST AND PRESENT

72

fluctuations, but the significant fact is that for the forty years after
1815 the British economy had a remarkablysteady and high average
annual increase in total production. The data for producer's goods
are even more striking,in that they bring into focus the years between
1830 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 of

qualifications which statisticians would wish to make in respect or

Hoffman's data and the series has been revised by Hoffman himself19
since its first publication in 1934, but the index was broadly accepted
by Professor Rostow and used by him.20 On the basis of these
productionfigures, there is no breakaround 1847 but rather a marked
slackening in the rate of growth of both capital and total goods
production after 1855.

TABLE II
ANNUAL AVERAGEPERCENTAGERATE OF CHANGE

I815-20
1820-25

Total
Producer's
Production Goods
...
2.4 ... 2.1
...
4.4 ... 6.2
... 3.7 ... 2.5

Total Producer's
Production
Goods

1845-50

...

3.5

...

6.6

1850-55

...

4.1

...

5.1

I855-60

...

2.4

...

3.1

1830-35 ...
1835-40 ...

3.9
3.6

...
...

5.1
5.5

1860-65 ...
I865-70 ...

2.3
3.7

...
...

4.6
3.2

...

3.0

...

3.3

1870-75

...

2.8

...

3.0

1825-30

1840-45

(The rates are averaged as between five-year intervals centered

on the indicated year. This is the method used by ProfessorRostow.
See Table I (p. 8), British Economy of the I9th Century.
are from Hoffman: Weltwirtschaftliches Archiv, 1934).

The data

II
When we turn to the last quarterof the 19th century the statistical
materialon 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 been
published since Professor Rostow wrote in 1948. For Professor
Rostow the Great Depression, which he put between the years
1873 and 1898, was characterised by a shift from domestic to

BRITISH ECONOMY OF THE I9TH CENTURY

73

foreign investment: " the centralcausal force in the Great Depression

was the relative cessation of foreign lending."21 This shift in the
direction of capital outlays brought with it " phenomena . . .
essentially the same as those which dominated the period from
I815 to the end of the forties: a favourable shift in the terms of
trade; a fall in interest rates and commodity prices; a maintained
rise in real wages."22
The facts of capital export and domestic investment, on which so
much of the argument must rest, can be easily stated.23 In general,
the twenty years from 1873 exhibit the familiarscissors movement of
home and foreign investmenr. The peak year for capitalexport in the
third quarter of the century came in I872, with the two following
years showing declines but still maintaininga high rate. Then, from
I875 the decline in capital export became very marked,the low point
being reached in I877 (a year when there was still, according to
Imlah's series, and contraryto earlier calculations,a small net surplus
of income available for foreign investment). Net domestic investment, excluding housing, declined sharply from its peak in I873 to
I875, recovered in I876 and I877 and then fell to a low point in I879.

Investment in housing, to which, it must be pointed out, Professor

Rostow allows an inadequateplace in total investment outlays,24rose
steadily to a peak in I877 and then declined slowly to its lowest
point in the middle of the I88os. The investment data of the
I87os, to sum up, confirm the turn towards domestic investment and
away from foreign outlays which Professor Rostow emphasises is the
central feature of the Great Depression. It is the next decade in
which the facts do not appearto support his thesis.
The notable feature of domestic investment in the i88os is the low
level of new capital expenditure on housing. Total net domestic
investment (including housing) has two peaks - one in I882 and the
second in I889 - and both were smaller in absolute terms and as
proportionsof the National Income than the peaks of I873 and I877.
Foreign investment on the other hand, increased jerkily from the
low point of I877 (with decreases on immediately preceeding years
in I88o, I882, I883, I885 and I889) to a peak in I890, after which it

once again fell away. Total investment (domestic and foreign) was
roughly the same in terms of its proportion of the National Income
in both decades; but net home investment in the i88os was lower
absolutely and relatively to National Income than in the I870s,
and foreign investment, absolutely and as a proportionof the National
Income, was higher than in the I87os.

This was the crucial difference

betweenthe two decades. It means that the depression of the I88os

74

PAST AND PRESENT

was more pronounced in home investment than in foreign investment.

There was no shift to domestic investment in the i88os; for the
four years 1884-7 net home investment (in terms of the National
Income) was lower than in any year of the I87os except 1879. These
middle years of the i88os are to be compared, in the matter of the
low volume of home investment, with the early years of the iS90S;
the new factor in the I89os is the steadily declining absolute volume
of foreign investment.
If there is no evidence of a relative shift in investment outlays
towards the home market in the i88os and the early I89os, neither
is 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 " was
on the eve of a new secular phase,"2 when the characteristics of the
third quarter of the century - a shift towards foreign outlays with the
be repeated. Once
accompanying effects upon the economy-would
again 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 in
In the same years foreign investment
I899/1900 it was over Io%.
was phenomenally low, and it remained at a low level for a longer
period than at any time since I870. If the character of investment is
a determining factor in the shape of an economy, as Professor
Rostow argues, the home boom of 1895-1904, which was the result
of a high level of domestic outlays, cannot be included within the
same trend period as the years which followed I905, when home
investment declined sharply as capital exports rose to their highest
absolute and relative level for the whole century.
Hoffman's production data confirm the slowing down in the
general rate of growth of the economy after the I87os; and for
comparison with earlier decades, see Table II.
TABLE

III

ANNUAL AVERAGEPERCENTAGERATE OF CHANGE

I870-75
I875-80
I880-85
I885-90

Total
Producer's
Produzction Goods
...
2.8
...
3.0
i.i
...
...
3.1i
...
...
1.9
I.3
...
...
2.6
2.3

I890-95
895-I900
I900-05
I905-IO

Total
Producer's
Goods
Production
0.8
...
0.8
...
2.3
3.1
...
2.0
I.3
...
...
I
0.8

(From Hoffman: Weltwirtschaftliches Archiv, I934).

BRITISH ECONOMYOF THE I9TH CENTURY

75

We must conclude from an analysis of the character of investment that the years from 1873 to 1894 do not appear to agree with
the thesis put forward by Professor Rostow. Whatever else the
Great Depression was, and whatever other characteristics it possessed,
it was not a period of economic development during which there was
a shift within investment outlays to a more intensive exploitation
of home resources. It is, on the contrary the apparent stagnation of
domestic investment opportunities during most of the i88os and the
early I89os that requires an explanation.
III
In concentrating upon the character of investment rather than its
volume, Professor Rostow is assuming that throughout the century
the volume of investment was sufficient in each main trend period to
maintain roughly the same level of employment throughout the
economy. He is explicit about this assumption, which is of crucial
importance in his argument and which has not received from his
commentators the attention it deserves. In his own words,
" Significant differences in the level of employment would affect the
validity of an analysis which put primary emphasis on the character
of investment rather than on its volume. No significant distinctions
on existing evidence are found," '; and to make his point he examined
the unemployment data from 185o and concluded that there was no
evidence " to justify the view that the Great Depression period was
marked by significantly higher unemployment than the average
from the mid-century to the outbreak of war in 1914."27 There
are two comments worth making on these statements. The first is
that Professor Rostow makes no serious attempt to assess the worth
of these unemployment data; a rather surprising omission considering
how much of his analytical model depends upon the assumption
that changes in the volume of investment could be ignored for the
Both the usefulness of the series and the inwhole century to I9I4.8
can
be
that
fairly placed upon them have been discussed
terpretations
elsewhere2' but it is perhaps worthwhile to make one general point
here. The unemployment series are for skilled workers and have
been compiled in the main from the records of the skilled trade
unions. How relevant the unemployment data of skilled workers are
for an assessment of the general level of employment is a question
which demands an answer; and the further back in time one goes
the less obvious is the usefulness of this particular yardstick. In i85o
the factory was not the representative unit of industrial organisation
and the skilled workers in number were no more than a substantial
minority of the labour force. This is not to deny the usefulness of

76

PAST AND PRESENT

this unemployment series but it must be properly handled; and in

the small master economy of the i85os its relevance is less, perhaps
a good deal less, than for the decades immediately preceeding I914.
There is a second general point to be made in connection with Professor Rostow's use of the unemployment figures, on the legitimate
assumption that the series is of some use in estimating the level of
employment. It is a criticism which has already been argued by
Professor D. H. Robertson. To prove the point that the level of
employment was approximatelythe same over the whole period from
I850 to the first World war, ProfessorRostow summarisedthe average
unemployment figures for I855-73, I874-I900

and I90I-I3;

and the

averages came out at 4.8%, 4.9% and 4.5%o. The immediate

point that strikes the reader is to ask why these particular periods
were chosen when they do not correspond with the trend periods
which Rostow insists upon throughout his book. Professor
Robertson, who made this point indirectly, went on to show that if the
crude averages for I851-73,

I874-95 and I896-I914

were worked

out the unemploymentpercentageswere respectively4.6%, 5.4 % and

4.00o. " I cannot help thinking " concluded Professor Robertson,
"there is some justification for the impression that for a quartercentury jobs were less secure than they had been or were about to
become."30

There is reason, therefore, to doubt the validity of the assumption

that lays an emphasis upon the character of investment to the
exclusion of its volume. No one will deny the analyticalusefulness of
an approachwhich directs attention to the type of investment outlet
to which the resources of an economy are being directed, but to
ignore fluctuations in the total volume of capital invested in any one
year or period is to eliminate from an historical analysis much of the
central processes of economic change. This failure to note the
changes in the level of capital investment is at the heart of Professor
Rostow's misreading of the Great Depression. By concentrating
upon the I87os and early I88os, in which years the phenomena which
he associateswith the whole period were clearlydiscernible,he missed
two crucial facts which make the Great Depression a period very
different from his characterisationof it. The first was that foreign
capital investment was rising throughout the i88os while domestic
investment remained fairly low; the second was that total investment
during the late I87os, most of the i88os and the first half of the i89os
was significantly lower than for the period I870-I914

considered as a

whole. The statisticians will no doubt be constantly refining and

improving the various series on the national income, prices and the

BRITISH ECONOMY OF THE I9TH CENTURY

77

like, but if Mr. Lenfant's statistics on capital formation are broadly

correct (or the calculations in Appendix I which are derived mainly
from Professor Phelps Brown and A. R. Prest31)then it is difficult
not to question the correctnessof an emphasis which stresses the type
of investment and ignores the problem of volume.
It is not only because of this concentrationupon type of investment
to the exclusion of other crucial problems connected with capital
accumulation that Professor Rostow must be accused of a simpliste
interpretation of 19th-century economic development. The
economic historian must ask whether it is legitimate to exclude from
a theoretical model the relationship between institutional and
economic factors in the development of a national economy. The
size and compositionof the labourforce and the generalcharacteristics
of the labour market, the organisation of industry, the character
of the home market considered from the side of demand, are all
structuralproblems whose impact upon any industrial or industrialising society is internalratherthan external. The particularstructure
:of the capital market in the I9th century is perhaps the best known
example of an institutional factor, the product of both economic and
historical forces, which exercised a marked influence upon the rate
and character of investment and therefore upon the rate of growth
of the economy as a whole. The deficiencies of the English capital
market have been much commented upon from the point of view
of the domestic capital market in the twentieth century32;but there
is no reason to believe that those deficiencies were wholly absent
during the second half of the I9th century. It is to be expected,
a priori, that the nearer one gets to I914 the more obviously the

structural defects of the domestic capital market would affect the

development of home industry. Admittedly the documentation
for such a generalisation is still far from complete; but in the one
industry, steel, where the evidence is presented in detail in the
magistral analysis of D. L. Burn, the consequences of an inadequate
rate of capital accumulation can be clearly traced upon the size and
efficiency of plants.33 There is scattered evidence elsewhere, notably

in the unpublished work of Dr. J. B. Jefferys,34that here we have an

essential clue in the analysis of the relative stagnation of British
industry before 1914. The argument may be summarised thus.
By the third quarter of the i9th century the main capital market
of the country, centered upon London, was alreadyfirmly orientated
towards the provision of the long term capital requirements of
overseas governments, foreign railways and public utilities. This
overseas demand continued strongly until I914 and the institutions

78

PAST AND PRESENT

and the traditions of the London capital market reinforced themselves

on the basis of extraordinary prosperity and profitability. There
developed a structural deficiency in respect of home investment which,
as the individualistic traditions of self-financing were no longer
capable of meeting the steadily increasing capital requirements
of industry, operated as a drag upon the whole economy from about
the i88os. It is now generally accepted that an important part of the
reasons for the lag in industrial efficiency in the decades before I914
was the relatively slow growth in size of manufacturing units. The
absence of large scale institutions catering for home industrial
investment meant that the entrepreneurs were thrown much more
upon their own financial resources than was the case in other major
industrial Powers. Certainly those resources in the case of British
industries, especially in the old basic industries, were considerable,
but the gap between individual resources and requirements must have
been growing steadily in the years before 1914. Professor Paish,
in his inaugural lecture, drew attention to the small proportion of
net domestic investment financed through the London capital market
before 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 the
great merchant bankers, who were responsible for the great bulk
of the issues in overseas accounts, took little interest in it, apart
from occasionally sponsoring a large issue of railway or public
utility services."3 5
But could not this formulation be put in another way? namely,
that by the time we are in the 20th century new issues were small
because of the particular way the British capital market had grown
and developed over the previous hundred years ? Mr. Dobb has
argued that the practicable alternatives that face the entrepreneur
are generally smaller than economists have generally supposed.36
The institutional structure of the capital market provided the background against which investment decisions were made; and if, as
argued above, the entrepreneurs in Britain were thrown back on their
own resources at a time when only a recourse to the open market would
have provided them with adequate capital, their overall decisions
would inevitably be coloured with elements of cautiousness and
conservatism. Vision, as well as the financial possibilities required
to translate vision into practical effect, were becoming less common
in British industry before I914, and to ignore traditional and structural
problems is to make of ones analysis a bloodless abstraction from the
historical complexities of the real world.

BRITISH ECONOMY OF THE I9TH CENTURY

79

The institutional factors noted above - the labour market, the

organisation of industry, the character of the home market - must be
left for discussion to another occasion, but mention must briefly
be made of a further serious limitation upon the usefulness of
Professor Rostow's theoretical assumptions. " After I870, Alfred
Marshall used to say, you cannot write English economic history ";
and, the late J. H. Clapham added, " he might have given an earlier
date."7 At no point indeed, in the I9th century can the British
economy be considered without reference to the rest of the (economic)
world, and as industrialisation proceeded, and as the revolution in
transport facilities completed the inter-dependence of the nations,
the relation of national economies to the world economy became
increasingly intimate. Recognition of this truism has recently been
emphatically made by Professor Rostow himself,38 and the absence
of the international background to the British economy makes much
of the argument unreal in the volume under discussion. In
particular, this failure to place Britain in an international setting
has meant a failure to appreciate the importance of America for the
British economy before 1870 and of colonial expansion after that
date.39

IV
This comment has been undertaken in no spirit of captiousness.
Professor Rostow's work has been a ready source of inspiration to
those working in the field of 19th-century history and there is much
illumination to be gained from his writings on many aspects of the
economic growth and development of the British economy. These
matters have not been mentioned here because the object of this brief
essay was not to write a general commentary upon Professor Rostow's
work, but to indicate certain of the weaknesses in his analysis which
were held to vitiate his particular theoretical approach. It is freely
admitted that the full documentation of a number of the general
criticisms is not yet available, but it will not be at our elbows until
the kind of questions which have been posed receive their answers
one way or the other.
To sum up. There are two separate parts of the criticism which
has been made here. One is concerned with matters of fact; the
second with the adequacy of Rostow's theoretical model. On the
questions of fact, it has been argued that in two vital periods of 19thcentury economic history Professor Rostow has misread the evidence.
One is the period of the Great Depression and the other concerns
the I84os and the I85os. With regard to this earlier period, it must

80

PAST AND PRESENT

be pointed out that if, as has been suggested here, I847 cannot be
regarded as marking the transition from one distinctive period
to another, the implications for the social historian are farreaching. Although it was the 20th century which invented
the phrase " The Hungry Forties," the contemporary writings of
Engels and the Reports inspired by Chadwick abundantly confirm
the poverty and the misery of the labouring millions. At the same
time, the rapid rate of growth of the economy in the I83os and I84os
suggests that it is in this period that must be sought the origins of the
changing climate of opinion of the I85os. The engineers New Model
and the rapid decline of the Chartist movement occurred within
three years of April ioth, I848, and a closer appreciationof the phases
of growth within the economy will permit an analysis of these events
that relies less upon the personal and the fortuitous than has been
customary hitherto.40
The theoretical weakness of Professor Rostow's work stems first,
it is suggested, from an undue concentration upon the characterof
investment and from a failureto consider adequately, or indeed hardly
at all, changes in its volume. Second, it has been argued that an
analysis which focusses attention upon a few variables within the
economy does violence in its conclusions to the complexities and the
complications of historical change; and that moreover, no set of
abstractionscan ignore the crucial importance of certain institutional
actors; for institutional factors become, in time, economic forces.
There is much else that could be discussed in a comment upon
Professor Rostow's analysis. Mr. Matthews has recently made some
critical remarks about the hypothesis of the inventory cycle, and
elsewhere has published some detailed comments upon the twovolume Growth and Fluctuation of the British Economy which was

the forerunner to Professor Rostow's own volume.41 There is

further the general problem of the usefulness of any analysis which
does not take account of structural changes occuring within the
economy, a criticism from which Professor Rostow's work is not
entirely free despite his discussion of the role of harvests, the
inventory cycle and the long term investment cycle. What he
appears to ignore are changes in industrial organisation and the
industrial structure. It is doubtful whether it is theoretically
possible to include the small master economy within a predominantly agrariansociety under the same umbrella as the mature
industrial society of 1914, and apply to both a set of rather
simplified theoretical assumptions, from the application of which
the same phenomena can be expected to be deduced. This is a

BRITISH ECONOMY OF THE I9TH CENTURY

matter which demands the attention of both historians and

economists.
While this note must be understood as a criticism of the attempt
to force a complicated historical story into the strait jacket provided
by a too simple theoretical model, there is no intention to decry
the importance of a theoretical approachin general to the problems
of economic growth. We need more, not less, theoretical understanding; we need however to check continually our theories
with what we believe to be the facts.
University College, Hull.

John Saville.

NOTES
1 Among 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 g9th Century, O.U.P.
(1948),
hereafter referred to as Rostow.
3 The 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 theoretical
approach that I have read.
4 Rostow, p. I2.
I have ommitted from the discussion, for reasons of space, Prof. Rostow's
analysis of the years I790-I815.
6 W. T. Layton and G. Crowther, An Introduction to the
Study of Prices,
Chart I.
(I935),
7 W. W. Rostow, The Historical Analysis of the Terms of Trade, Econ. Hist.
Rev. 2nd. Ser., IV, No. I (I951), p. 56.
8 A. F. Burns and W. C. Mitchell, Measuring Business Cycles, (1946), p. 440.
9 Rostow, 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.
4 Rostow, 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 Historical
Analysis of the Terms of Trade, op. cit., p. 58 ff.
17
A. H. Imlah, 'Real Values in British Foreign Trade', Journal of
Economic History (1948), pp. I33-I52.
18 Rostow, p. 19.

82

PAST AND PRESENT

19 The 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, reached
Britain. See also W. Hoffman, ' The Growth of Industrial Production in
Great 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, note
I 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 British
Economy, 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 for
many of his generalisations.
21
22

Rostow,

p. 88.

Rostow, p. 25.

2s The statistics of the volume and movement of capital investment have been
taken from the following sources: A. H. Imlah, ' British Balance of Payments
and 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': A
study in the Expanding Economy,' Oxford Economic Papers, IV, No. 3, (Oct.
I952), pp. 266-307.
:' Rostow, Ch. IX.
26

Rostow, p. 88.

Rostow, p. 12, note I.

Rostow, p. 48.
"8Rostow, pp.
34-5.
29
The most useful discussions are in J. Hilton, ' Statistics of Unemployment . . .' J. R. S. S. (Feb. 1923) pp. I54-205; W. H. Beveridge Unemployment, A Problem of Industry, (1909), esp. Ch. 2; A. L. Bowley, 'The
Measurement 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 of
Industry and Trade', Econ. Journal, (Dec. 1917), pp. 502-552. The most
widely known discussion is in the Committee on Industry and Trade, Pt. 2, Ch. 4.
83 D. 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 Economic History 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. A
Study of Great Britain and the Atlantic Economy (1954).
40 It is perhaps relevant here to note that the Webbs, in their History of
Trade Unionism, (1894), began the chapter on the New Spirit and the New
Model with the year 1843.
41 Matthews,
op. cit., pp. 74-5; 'The Trade Cycle in Britain, I790-I850',
Oxford Economic Papers, N.S. (Feb. 1954) pp. 1-32
26

27

BRITISH ECONOMYOF THE I9TH CENTURY

APPENDIX
INVESTMENT

AS A PROPORTION

I.

OF THE NATIONAL

Total Net
Domestic Investment
I87I
I872

I873
I874
I875
I876
I877
I878
I879
I880
I88
I882
I883
I884
I885
I886
I887
I888
I889
1890

...
...
...
...
...
...
..
...

...
...
...
...
...
..
..
..

.
..

.
. .
.
...

..
.
...
.
...
.
...
...

.
...
...
...

8.4
8.7

9.9
7.7
6.4
9.2
0.2
8.o
5.2
8.o
8.8
8 .9
7.8
4.2
4.7
5
5.6
7.5
8. I
7.0

83

INCOME.

Foreign
Investment
7.5

9-5
6.9
6.2
4.4
I.7
I.0
I.4
3.6
3.4
5.8
5.0
4. I

6.6
5.5
6.9
7.3
7.3
6.o
7.0

Note: Domestic Investment data from E. H. Phelps Brown and S. J. HandfieldJones, 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 of
Payments and Export of Capital, I816-I913,' Econ. Hist. Review, 2nd
Ser., V, No. 2, (1952).
National Income data from A. R. Prest, 'National Income of the
United Kindgom I870-I946,' Economic Journal, (March I948).

PAST AND PRESENT

84

APPENDIX

II.

GREAT BRITAIN.
Production Movements - Annual Average Percentage Rate of Change.
(From W. Hoffman: 'Ein Index der Industriellen Produktion fur
Grossbritannien seit dem I8. Jahrhundert', Weltwirtschaftliches
Archiv. 1934).
Producers'
Goods.
I815-1820
1820-1825
1825-1830
I830-1835
I835-1840
I840-1845
I845-1850
I85o-I855
I855-i86o
I86o-I865
I865-1870
I870-1875
I875-1880
I88o-I885
I885-1890
I890-1895
I895-1900
1900-1905
1905-19I0

Total
Production.

2. I

2.4

6.2

4.4
3.7
3.9
3.6

2.5

5. I

5 -5
3 -3
6.6
5.I
3. I

4 I
2.4

4.6

2.3

3.2
3.0

3 -7

3. I
I .3

3.0

3 5

2.8
I .I
I .9
2 3

2.6
o.8

o.8

3. I

2.3

2.0

I .3

o.8

I. I