Paper #859

Title:

Credit rationing and crowding out during the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862

Authors:

Peter Temin and Joachim Voth

Date:

February 2004 (Revised: January 2005)

Abstract:

Crowding-out during the British Industrial Revolution has long been one of the leading explanations for slow growth during the Industrial Revolution, but little empirical evidence exists to support it. We argue that examinations of interest rates are fundamentally misguided, and that the eighteenth- and early nineteenth-century private loan market balanced through quantity rationing. Using a unique set of observations on lending volume at a London goldsmith bank, Hoare’s, we document the impact of wartime financing on private credit markets. We conclude that there is considerable evidence that government borrowing, especially during wartime, crowded out private credit.

Keywords:

Credit rationing, Napoleonic wars, Industrial Revolution, technological change, crowding out

JEL codes:

E22, E43, E51, E65, N23, N13

Area of Research:

Economic and Business History

Published in:

Explorations in Economic History, Elsevier, vol. 42(3), pp. 325-348, July 2005

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