Credit Rationing and Crowding-Out During the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862

35 Pages Posted: 28 Jul 2004

See all articles by Hans-Joachim Voth

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Peter Temin

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004

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. Over 90% of all loans were made at the maximum permissible lending rate, as set by the usury rate. Hence, earlier investigations such as the one by Mirowski, et al., could not undertake a valid examination of the crowding-out hypothesis. 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. Whenever public borrowing rose above trend, private lending declined markedly. We conclude that there is considerable evidence that government borrowing, especially during wartime, crowded out private credit, and that the magnitude of the effect is important enough to explain at least partly why British growth during the period 1750-1850 was relatively slow.

Keywords: Crowding-out, british industrial revolution, growth, finance, credit rationing

JEL Classification: E44, G18, G21, G28, N13, N23

Suggested Citation

Voth, Hans-Joachim and Temin, Peter, Credit Rationing and Crowding-Out During the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862 (June 2004). CEPR Discussion Paper No. 4453. Available at SSRN: https://ssrn.com/abstract=570164

Hans-Joachim Voth (Contact Author)

University of Zurich - UBS International Center of Economics in Society ( email )

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Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

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United Kingdom

Peter Temin

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Cambridge, MA 02142
United States
617-253-3126 (Phone)
617-253-6915 (Fax)

National Bureau of Economic Research (NBER)

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