The Balance of Payments and Foreign Capital Flows in Eighteenth‐Century England: A Comment

Abstract

I n a recent article in this journal, Brezis presented estimates of England's balances of trade and payments for the eighteenth and nineteenth centuries.' For the nineteenth century, she bases her analysis on the wellknown study by Imlah, a work which has stood the test of time and which is generally accepted as providing an accurate account of the balance of payments in the period.2 For the eighteenth century, her estimates are based on the new data which she herself has provided for the major items in England's foreign trade and invisibles accounts and for the size of the country's foreign reserves. On the basis of these estimates, Brezis argues that eighteenth-century England, like most developing countries, ran near-continuous deficits in its overseas trading and financial dealings, deficits which by the 1 770s had reached ?1.7 million per annum. These deficits were financed by substantial inflows of foreign capital, which in turn led to England accumulating a large foreign indebtedness. Thus, Brezis estimates that England's net foreign debts increased from ?2 million in 1710 to ?103 million by the 1780s. These capital flows, she further argues, while previously neglected, played a vital role in British industrialization as for most of this period they provided nearly one-third of total investment in the economy. Brezis's work provides a strong challenge to the current orthodoxy about the causes of British industrialization, which sees the process as a home-grown product, one based on the technology, demand, and capital generated in the internal rather than the external economy.3 If Brezis is correct, we are required to modify these views and to recognize that industrialization, at least with respect to the financing of capital formation, was heavily influenced by forces operating in the international as well as in the domestic economy. The theoretical framework used by Brezis is a sophisticated one and her article demonstrates considerable ingenuity in its attempts to provide new data on the eighteenth-century balance of payments. Nevertheless, I will argue here that so much of the statistical information which she presents is erroneous or at least highly problematic that little confidence