INTRODUCTION

Great Britain’s immense capital export is among the most important historical phenomena of the period between 1860 and 1914. Rising in the 1850s and 1860s, the flow of net foreign investment averaged about a third of the nation’s annual accumulations from 1870 to 1914. As a result of these annual flows, net overseas assets grew from around 7 per cent of the stock of net national wealth in 1850 to around 14 per cent in 1870 and then to around 32 per cent in 1913. Paish (1914), estimating the value of the stock of British overseas assets just before the First World War, net of repatriations and foreign sales, suggested that the total stock at the end of 1913 was not less than £4,000 million (see also Platt 1986; Kennedy 1987b; Feinstein 1990b). Never before or since has one nation committed so much of its national income and savings to capital formation abroad.

To some observers the immense capital export went abroad because of the high profitability of railroad and other social overhead investments in the emerging primary product economies of North America, South America and Australasia. Others have argued that the capital export was a result of weaknesses in the domestic British economy. In one argument domestic investment demand weakened due to a pause or slowdown in British productivity growth – a productivity climacteric – and, because Britons continued to save despite slowing domestic investment demand, funds moved abroad by default. Another argument is that the British distribution of income and wealth led to tendencies to oversave, with the excess carried off abroad.