209home with an interest in a Utah silver mine and plans to float the Denver Street Railway Company in London.111
Britishness
So far our emphasis has been on what may be called project-specific investment-related information: that is, data, news or opinion that were directly related to the likely returns on a specific (or specific types of) investment project. Whether the information pertained to a company’s balance sheet, market prices or merely the possibility of the economic life of a particular location being disrupted by political strife, the unifying feature of this knowledge was its ability to shape an investor’s perception of the likely profitability of a certain investment. Yet not all information at the investor’s disposal was project-specific. Context clearly mattered too. Norms, conventions and beliefs acted to filter and give ‘meaning’ to information. Then as now, investors, like traders and businessmen,
109 C. Schmitz, ‘The Nature and Dimensions of Scottish Foreign Investment, 1860–1914’,
Business History 39 (1997), 42–68 (pp. 60–1).
110 Spence, British Investments, pp. 13–15.
111 Michie, ‘Social Web’, p. 170.
210preferred to operate in environments where the rules of behaviour, law and etiquette were familiar and compatible with their own. In such contexts, misunderstandings, unexpected responses and conflict were less likely to occur; trust, as a result, was more easily and firmly established. Hence what might be called context-specific information could also have a bearing on investment behaviour.112 Contemporary testimony affirms that many people found investing in the dominions appealing. The lure of these regions of settlement was twofold. First, and most obviously, they promised considerable pecuniary rewards. But, as a secondary consideration, there was the fact that they were self-proclaimed ‘British’ societies; in many ways, therefore, investing in them was like investing at home. Indeed, the two characteristics were closely related: the dominions, for their part, were acutely aware of the financial benefits of their distinctive ‘Britishness’. They knew, for example, that UK investors were highly sensitive to uncertainty about the future of their imperial connection with Britain. Thus, following the first Anglo-Boer War (1880–1), widely circulated rumours about the possibility of Britain giving way to the Transvaal’s demands, and thereby cutting off the Cape colony’s road to the north, coupled with fears of the Afrikaner Bond emerging victorious from the next general election, jeopardised the colony’s credit. The value of Cape securities in London, it was (correctly) claimed, had already depreciated as a result. With the colony’s ability to finance its economic development in doubt, its Agent- General, Charles Mills, noted that merely ‘to mention the possibility of [the British flag] being in danger of coming down would be most embarrassing if not fatal to our financial and other business transactions in [the UK]’.113 Just over a year later, with rumours about the colony’s future still pervasive, Mills added that ‘the idea of a Dutch Republic is indeed the bête noire of the English capitalist with respect to investment in our securities’.114 Why did ‘Britishness’ matter so much to the investor? Like all issues of identity, this is a complicated question. The most commonly advanced explanation finds its answer not so much in what it meant to be ‘British’ but rather in what the United Kingdom did for the colonies: most crucially, provide defence, law and order, justice, a sound political and monetary
112 D. C. North, Understanding the Process of Economic Change (Princeton: Yale University
Press, 2005), pp. 135–6; E. L. Jones, Cultures Merging: A Historical and Economic Critique
of Culture (Princeton: Yale University Press, 2006), pp. 259–60; L. Guiso, P. Sapienza
and L. Zingales, ‘Does Culture Affect Economic Outcomes?’, Journal of Economic
Perspectives 20 (2006).
113 Mills to Merriman, 13 April 1883, quoted in Purkis, ‘Politics’, p. 304.
114 Mills to Sprigg, 15 May 1884, quoted in Purkis, ‘Politics’, p. 306. The whole episode is
recounted in ibid., pp. 304–6.
211Information and investment system, and the basics of good governance.115 A tradition of political stability and a thriving market economy were the empire’s most enduring legacies. As the most recent advocates of this view contend: ‘The Victorians imposed a distinctive set of institutions that was very likely to enhance their appeal to investors. These extended beyond the Gladstonian trinity of sound money, balanced budgets and free trade to include rule of law (specifically, British-style property rights) and relatively non-corrupt administration – among the most important “public goods” of late-nineteenth-century liberal imperialism.’116 The importance of stable property rights and sound, predictable government to capital accumulation and mobilisation cannot be denied. There is considerable historical evidence to support such a contention.117 But was the institutional structure that Britain imposed on its colonies the key element of what it meant to be ‘British’? After all, did not the United States and the Dutch have their own strong tradition of liberal institutions? Neither nation in this period can be said to have been countries that wantonly trampled on investors’ rights. The fact that the British had a record of rich interaction with them reinforces the point. There must be a deeper issue here, therefore: namely, was the existence of British institutions in itself enough to elicit a healthy flow of external development capital? ‘Good’ institutions can work their putative ‘economic magic’ if, and only if, they are endowed with substance. In other words, what matters is whether the institutions were in practice merely facades, perhaps even cynically created to attract the gullible foreign investor, or whether they did what they were supposed to. An institutional framework out of kilter with its society’s underlying belief structure is unlikely to perform in ways its designers intend – a cursory glance at the traumatic experience of most post-Soviet societies shows this is so.118
What really mattered, then, for one to have faith that one’s rights as an investor would be recognised, respected and strongly enforced, was the actual behaviour, rather than the surface appearance, of institutions. A recent econometric study of interest rate spreads for securities from ‘emerging’ nineteenth-century markets emphasises this point. It finds that British investors in the short term actually tended not to
115 See Ferguson, Empire: The Rise and Demise of the British World Order, pp. xix–xxvi;
Edelstein, ‘Foreign Investment’, p. 217; and Dilley, ‘Gentlemanly Capitalism’, pp. 151–68.
Ford, Gold Standard, p. 20 also highlights the extension of the English Monetary Area
beyond the British Isles as one of the empire’s institutional achievements.
116 Ferguson and Schularick, ‘Empire Effect’, p. 6.
117 A fascinating introduction to this historical literature is E. L. Jones, The European
Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia
(Cambridge: Cambridge University Press, 1981).
118 North, Understanding the Process of Economic Change, pp. 1–8, 65–80.
212respond positively to the appearance of liberal institutions in a country, ‘either because it took years for new institutions to attain the necessary credibility, or because their establishment was followed by renewed turbulence’.119 Adoption of the gold standard is a case in point. Although Argentina formally re-joined the gold standard in 1883, before 1914 the landed and export-producing oligarchy, according to Ford, ‘willingly abandoned or adopted the gold standard whenever it was to their benefit and profit’. As a consequence, investors could never be sure of the true extent of Argentina’s commitment to exchange rate stability. By contrast, Australia’s and New Zealand’s adherence to the international monetary order never appeared as anything other than exemplary.120 These findings suggest that a key part of what was distinctively ‘British’ about Britain’s settler colonies was the ease with which they could credibly operate the institutions they had imported from ‘home’.
But where did that perception of credibility come from? For Platt, the answer lay in the bonds of ‘race and tradition’ that Britain and the dominions enjoyed.121 After all, these colonies were part of a larger British community; they were brethren who shared the same norms, conventions and values. The foundations of trust were already in place. As The Times informed its readers in 1901, ‘the people of these colonies, brought up in a sound school of self-government and inheriting the best traditions of the mother country, may be trusted to work out their own destiny in a manly spirit and with the practical sagacity that marks the British race’. Such a view was far from uncommon in Victorian and Edwardian Britain, and J. W. Taverner, Victoria’s Agent-General, was merely drawing out one of its most obvious implications when he noted that ‘surely a country, in which 97 per cent are British – your flesh and blood, your language, and under one flag – is a safe spot to invest British capital’.122
It is worth teasing out these quotations a little further. The underlying message seems to be that the dominions were regarded as ‘safe’ precisely because the British investor knew what type of behaviour to expect from both the borrowers and the state apparatus that ultimately guaranteed their capital’s security. For the British, therefore, ‘Britishness’ connoted not their parliamentary or legal systems per se, but all the virtues they saw in themselves and that breathed life into their institutions: fairness, justice, reliability, technical competence, accountability, individual freedom and respect for private property.123 Whether or not such virtues were
119 Mauro, Sussman and Yafeh, Emerging Markets, p. 6.
120 Ford, Gold Standard, pp. 133, 169.
121 Platt, ‘Canada and Argentina’, p. 81.
122 Both quotations come from Dilley, ‘Gentlemanly Capitalism’, pp. 176–7.
123 For the concept of ‘character’, and its imperial connotations, see P. J. Cain, ‘Character
and Imperialism: The British Financial Administration of Egypt, 1878–1914’, JICH 34
213Information and investment peculiar to the British character – and many non-British people would have undoubtedly begged to differ – it was this perception of themselves, and by extension those in their colonies, that influenced, at both the conscious and sub-conscious levels, the attitudes of investors. As Ranald Michie astutely observes, ‘the Empire found it easier, and less expensive, to borrow in Britain than foreign countries, as the British investor was more inclined to trust those who belonged to the wider British community though the actual security offered might be identical’.124
For their part, colonial and imperial banks and companies wore the ‘British’ tag with pride (and for gain). The Bank of Australasia and the Union Bank of Australia openly proclaimed both their ‘Britishness’ and their place at the heart of the British banking system.125 Every effort was taken to cultivate such branding. Australian financial institutions consciously (and as a result of inherited banking traditions) packaged their products in a manner that appealed and was instantly recognisable to British savers.126 Representatives regularly visited British cities and towns to demonstrate their British credentials and in the process drum up more deposits. Britishbased borrowing agents – bankers, brokers, solicitors, accountants – were employed on commission to interact with the public and put a local face on the colonial bank or finance company. So widespread was the practice that the British Economist in 1888 commented that there was ‘hardly an influential firm of lawyers in the city which does not hold an agency for one or other of those [colonial investment companies]’.127
Railway companies, including American ones, likewise saw it opportune to trumpet their British credentials in the latter half of the nineteenth century. They certainly marketed their shares on such a basis.128 Yet, even if only partially true, it was not a hard claim to sustain. Keynes could look back on Britain’s splurge of investment in ‘New World’ railways in the decades before the First World War and claim that ‘we did not, as a rule, lend the money to foreign corporations or Governments. We built the railways ourselves with British engineering skill, with our own iron and steel, and rolling stock from our own workshop.’129 Armed
(2006), 177–200; and S. Collini, Public Moralists: Political Thought and Intellectual Life in
Britain, 1850–1930 (Oxford: Oxford University Press, 1991), pp. 91–118.
124 Michie, ‘Social Web’, p. 170.
125 Merrett, ANZ Bank, pp. 12–14.
126 For instance, the maturing debenture stock popular with Scottish investment trusts was
adopted by many Australian investment companies; see Bailey, ‘Australian Company
Borrowing’, p. 15.
127 Davis and Gallman, Evolving Financial Markets, pp. 815–17. For a detailed discussion
of Australian companies’ use of Scottish agencies, see Bailey, ‘Australian Company
Borrowing’, pp. 107–39. The quotation comes from p. 122.
128 Davis and Gallman, Evolving Financial Markets, p. 832.
129 Keynes, ‘Foreign Investment’, p. 584. For a similar view, see Habakkuk, ‘Free Trade’,
pp. 797–8.
214with such assurances from promoters, British investors might have been excused for thinking the tracks were going to be laid in, say, Berkshire, England rather than Berkshire, Massachusetts. American railway companies worked hard to build British confidence in their creditworthiness. To that end, a number of organisational innovations were employed, all of which in some manner shored up the firm’s British connections. Some negotiated long-term partnerships with leading British financial houses. In return for their capital, these arrangements typically allowed the British house to monitor the railway firm’s finances, offer advice, and act as an almost-silent partner. Other American railway companies opted to appoint or elect prominent British shareholders (usually financiers and aristocrats) onto their board and create shareholders’ committees – organisational features that were designed to safeguard the British investors’ interests, or at least to give that impression. Finally, direct British ownership of the railway could be assumed. One way this could be achieved was for an existing American company to be bought out, reconfigured as a freestanding company, and then re-floated as a new, purely British enterprise. From the 1880s a number of entirely British lines were constructed and operated on such a basis.130 Being seen to be British paid dividends.
Institutional investment
For many investors the world of high finance was bewildering and alien: a