Interest Rates and Crowding-Out During Britain's Industrial Revolution

Abstract

Available evidence on interest rates and government borrowing during Britain's industrial revolution, while limited, does not support the idea that war spending crowded out private investment. This article demonstrates the importance of using data on net receipts from borrowing, rather than changes in government debt. Weaknesses of the crowding-out model concerning capital markets and investment, openness of the economy, and full employment are identified for the historical case. The case raises broader issues of whether conceptions of saving and investment based in neoclassical supply-constrained models are as appropriate as theories of capital accumulation.