171having to make choices not just without a complete set of information before them, but on the basis of a stock of knowledge that was heavily biased in favour of the British World. Simply put, British investors were just better informed about, and better placed to act upon, investment opportunities in the dominions than elsewhere. Understood in this way, it is hardly surprising that dominion securities were among the first overseas assets to catch their eye. This state of affairs was in many ways the natural by-product of the global expansion of British human and social capital in the nineteenth century. Thus, just as the bonds of trust and reciprocity promoted British trade (Chapter 4), so too, it is contended, did they exert influence over the course and direction of British overseas investment.

The pattern of British overseas investment, 1865–1914

An overview Throughout the nineteenth and early twentieth centuries, London was the undisputed financial capital of the world. From its famous Stock Exchange and financial houses, historically unprecedented volumes of external capital – some £4.1 billion of money calls for new overseas issues between 1865 and 1914 – flowed to all corners of an ever-expanding global economy.4 It was a development that bound Britain’s ongoing

4 For an excellent account of the City of London in the nineteenth century, see D. Kynaston,

The City of London, 3 vols., Vols. I and II (London: Pimlico, 1995).

172prosperity more tightly and deeply to the success of economies in other parts of the world. Whereas £1 in every £48 earned by Britons in the 1850s was invested overseas, between 1870 and 1914 the proportion had grown to £1 in every £23; in some years, it was substantially greater. The investment surge of the Edwardian period, for example, saw as much as £1 in every £16 of the nation’s domestic income end up as net foreign investment. As a consequence, Britain’s net overseas assets, which comprised approximately 7 per cent of the stock of its national wealth in 1850, had risen to just over 32 per cent by 1913.5

Britain’s overseas investment was truly a global affair. Over 170 countries and colonies benefited from this outpouring of capital.6 As Table 5.1 illustrates, though, not all were to share the benefits equally. Most British investment funds found their way to the temperate, settler societies of the ‘New’ world. Six of these societies alone – the USA, Argentina and the four self-governing dominions – received more than half (56 per cent) of all British overseas investment. Significant amounts of capital also flowed to India, Russia and Brazil. Tropical and European countries on the whole fared less well, together accounting for only a third of total British overseas investment in this period.

As Table 5.2 demonstrates, these proportions were not static. At the beginning of our period, European countries were the main recipients of British capital. From the second half of the 1870s, however, Europe’s dominance steadily declined, and by the turn of the century Europe accounted for only 5 per cent of total British overseas investment. The United States, by contrast, although subject to considerable year-on-year variation, remained an important destination for British capital throughout the period under consideration. Likewise, Latin America, in particular Argentina, was an important outlet for British investment, with significant surges in the flow of capital experienced in the late 1880s and between 1904 and 1914.7 The composition of British investment in the empire underwent profound changes. Before 1870 India held sway with the British investor, although its share of capital, which peaked in the 1860s and 1870s, declined slightly thereafter, except for a sharp spike at the end of the century. As Figure 5.1 shows, from the 1870s the dominions emerged as

5 M. Edelstein, ‘Foreign Investment, Accumulation and Empire, 1860–1914’, in R. Floud

and P. Johnson (eds.), Cambridge Economic History of Modern Britain, 3 vols., Vol. II: Economic

Maturity, 1860–1939 (Cambridge: Cambridge University Press, 2004), pp. 191–6.

6 L. Davis, ‘The Late Nineteenth-Century British Imperialist: Specification, Quantification

and Controlled Conjectures’, in R. E. Dumett (ed.), Gentlemanly Capitalism and British

Imperialism: The New Debate on Empire (Basingstoke: Palgrave Macmillan, 1999),

pp. 82–112 (p. 99).

7 For more on the popularity of Argentine securities, see Platt, ‘Canada and Argentina’.

173Information and investment

Table 5.1. Recipients of British capital exports, 1865–

1914 (capital called).

£1,000

USA

836,371

20.5

Canada

412,283

10.1

Argentina

349,243

8.6

Australia

339,001

8.3

India

317,174

7.8

South Africa

262,233

6.4

Dependent British colonies

199,644

4.9

Brazil

172,742

4.2

Russia

138,695

3.4

Mexico

81,585

2.0

New Zealand

84,495

2.1

Chile

61,818

1.5

France

57,920

1.4

Turkey

42,268

1.0

Peru

37,173

0.9

Uruguay

30,678

0.8

Other

655,931

16.1

Europe

488,158

12.0

North America

1,399,841

34.3

South America

686,332

16.8

Africa

430,738

10.6

Asia

570,423

14.0

Oceania

503,762

12.3

Empire

1,614,830

39.6

Dominions

1,098,012

26.9

Total

4,079,254

Source: I. Stone, The Global Export of Capital from Great Britain,

1865–1914 (London: St Martin’s Press, 1999).

the primary destination for British investment. From then on, other than for a short spell in the 1890s, these colonies experienced a faster growth in investment than anywhere else, an apt reflection of their increasingly important economic role within the empire. The vast majority of British investment in Canada arrived after 1904, while Australia’s investment boom occurred between the 1870s and the early 1890s. Table 5.2 also shows that Britain’s dependent colonies (excepting India) did not figure prominently in its overseas investment. Even when aggregated, these colonies together typically accounted for less than 4 per cent of all British capital sent abroad.

695Dependent

Africa %

colonies %

Table 5.2. British overseas investment by destination, 1865–1914 (annual average capital called; as a percentage of all

0.2

11.8

23.3

6.0

2.6

6.9

2.9

0.9

5.9

South

1.2

2.8

8.8

5.8

3.3

3.6

5.9

1.7

7.7

South Africa

colonies £1,000

159

1,885

3,719

2,318

3,490

9,096

16,773

9,026

5,748

232

Dependent

£1,000

907

819

889

2,040

1,543

2,139

6,828

5,536

7,703

11,524

India %

11.8

7.8

13.8

23.6

9.0

6.6

5.1

8.1

7.1

3.7

America %

12.2

18.8

23.2

32.0

11.5

15.5

19.6

14.5

9.1

22.7

Latin

India £1,000

7,,300

6,421

3,513

3,733

5,005

8,108

4,608

10,705

4,732

9,310

Latin America

4,231

8,855

8,745

44,862

13,479

2,866

8,892

28,946

11,084

30,297

£1,000

Australia %

2.8

14.8

6.0

12.5

3.4

5.9

16.1

14.7

4.7

Europe %

17.8

6.8

8.5

7.0

26.4

35.9

8.1

5.1

15.1

10.1

Canada % Australia

1,644

1,954

4,677

9,933

13,320

,8731

9,655

4,259

4,382

9,244

£1,000

Europe £1,000

7,200

24,757

5,621

9,262

7,701

3,987

6,264

3,638

9,187

20,016

11.8

5.2

9.8

7.6

9.0

3.6

5.0

19.4

2.6

4.7

Canada

15,386

38,315

695

3,607

3,092

2,872

6,841

5,287

2,762

3,599

£1,000

Source: Stone, Global Export of Capital.

Zealand %

2.2

2.8

1.3

1.6

3.5

0.5

1.6

8.6

2.4

1.9

New

USA %

8.2

24.3

16.0

26.3

23.5

21.4

25.5

15.6

14.1

20.7

New Zealand

overseas investment).

604

1,076

2,712

2,147

2,532

1,147

1,822

913

709

3,237

12,028

16,872

27,058

42,257

2,231

16,755

4,449

15,682

14,412

15,531

£1,000

USA

1910–14

1880–4

1900–4

1890–4

1870–4

1885–9

1905–9

1870–4

1885–9

1865–9

1895–9

1865–9

1895–9

1905–9

1875–9

175Information and investment

80000

70000

60000

Dominions

50000

GBP

Dependent colonies and

40000

India

30000

20000

10000

1865

1870

1875

1880

1885

1890

1895

1900

1905

1910

Year

Figure 5.1 British investment to the empire, 1865–1914 (£1,000).

To a large extent, the intensification of British investment in the regions of recent settlement after 1870 was related to their inherent development potential. These were new, rapidly growing and resource-rich societies, which shared a common problem: a transport and communications infrastructure that could not cope with the export-led expansion they were pursuing. Incomplete integration into the global marketplace threatened that process of development. To remedy this, they recognised that essential building blocks had to be put in place: efficiently run and adequately equipped ports to despatch exports without delay, railroads to link the agricultural and mining hinterlands with the coast, tramways to convey the swelling numbers of urban dwellers to work, and modern postal and telegraphic systems to facilitate the freer flow of information both internally and externally. With few sources of capital of their own, these societies instinctively turned to the UK for assistance. The consequences are readily evident in the statistics – almost 70 per cent of all funds leaving Britain went into the construction of infrastructure in regions of recent settlement.8 Of the different types of infrastructural projects dependent on British capital, the railways were the hungriest: as many as 71.4 per cent of all railway securities issued in London in the latter half of the nineteenth century were for lines located in regions of recent settlement.9 By contrast, only 12 per cent of British funds went into agriculture and mining, and a meagre 4 per cent into manufacturing.

8 M. Simon, ‘The Pattern of New British Portfolio Foreign Investment, 1865–1914’, in

J. H. Adler (ed.), Capital Movements and Economic Development (London: Macmillan,

1967), pp. 33–70.

9 I. Stone, The Global Export of Capital from Great Britain, 1865–1914 (London: St Martin’s

Press, 1999), p. 414.

176The significance of these so-called ‘social overhead’ projects had major implications for the structure of British investment. The finance of such projects is notoriously ‘lumpy’. Building roads, bridges and ports is horrendously expensive, requiring huge up-front injections of capital. Profits from these ventures cannot be realised for a number of years until the project is completed and the desired services are up and running. It was thus not possible to rely on the direct investment of the wealthy few to finance these ventures. Instead what was needed was the capital of large numbers of investors who would be content with a steady rate of return from an asset rather than its outright ownership. The thousands of smallscale, middle-class savers dotted across the UK were the obvious target; the debenture and fixed-term security were the financial mechanisms that could attract them. Given the pervasiveness of these ‘lumpy’ social overhead projects, the preponderance of indirect, or portfolio, investment among late-nineteenth-century British investors (some 70 to 80 per cent