Crowding out and the Industrial Revolution

A while ago I posted on Bill McColloch's paper on the role of financial regulation during the 18th century. One of the arguments that Bill's paper tries to refute is the idea that the revisionist views that suggest slower growth in England during the Industrial Revolution (Crafts and Harley here; subscription required) was caused by crowding out (see, for example, Jeffrey Williamson here). Bill correctly points out that interest rates remained low in England.

The graph below, from Dickson's classic book on the Financial Revolution shows that throughout the 18th century interest rates actually fell.
More importantly, British rates remained well below the levels of the French ones, and gave a significant advantage in their quest for global hegemony, as the graph below shows (source here).
Note that even if one accepts the lower rates of growth suggested by Crafts and Harley, the explanation for the lower rates of investment should not be that surprising. Yes, the accelerator. Lower levels of growth imply one needs lower levels of investment in order to adjust supply to growing demand.


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