This new edition of The Cambridge Economic History of Modern Britain is a great collection of essays including many exciting chapters written by leading authorities. In this review, I will focus on selected contributions only, since it is close to impossible to give due credit to all 34 chapters included in the two volumes.
Chapter 1 in the first volume, written by Brian A'Hearn, provides a broad overview of Britain's macroeconomic performance over time and in comparison with other countries, using various indicators, such as gross domestic product (GDP) per capita, real wages, productivity growth, urbanisation and health. From 1650 onwards, developments in Britain diverged from those on the continent, making Britain the richest country in Europe by about 1800. This is reflected in real GDP per capita, population growth, urbanisation rates, and an earlier transformation from an agrarian society to one based on services and industry. Moreover, A'Hearn provides a good overview of various approaches that try to explain this stylised fact, or broadly accepted generalisation, and he makes clear that no single factor can account for Britain's lead. Domestic and foreign demand, the state, innovation, energy, relative factor prices and – perhaps – human capital all had an impact on Britain's rise to economic leadership between 1650 and 1900. A reader who has time for only one chapter in volume 1 should make it this one.
Most issues raised by A'Hearn are discussed in other chapters, e.g. structural change (chapters 2 and 3 on occupational structure, population change and agriculture), technological progress (chapters 9 and 10), national and international demand (chapters 8 and 14 on consumption and trade) and so on. Since the chapters are written by eminent scholars who have frequently been working on these topics for decades, we get nice summaries of their research findings. Robert Allen, for example, provides in chapter 10 (Technology) a quick summary of his key ideas: relative factor prices (the relative price of capital, labour and energy) are the key driving force behind directed technical change – directed towards the use of energy-consuming machinery instead of costly labour. Beyond such structural insights, Allen provides us with helpful examples. Some of these are well known, like steam machines and cotton spinning, others less so, such as the production of hats.
The second volume starts with three impressive chapters written by Knick Harley, Nicholas Crafts and Kevin O'Rourke. The first chapter provides an overview of Britain's macroeconomic performance from the 1870s until the Second World War and the potential causes behind the stylised facts. In contrast to the introductory chapter of the first volume, this chapter focuses much more on Britain. The next chapter is, in the opinion of this reviewer, one of the best. Crafts re-assesses Britain's growth performance during the twentieth century. He focuses on competition (or lack of it) and innovation as the driving forces behind growth. Overly strong competition kills innovation since innovators cannot profit from temporary monopoly rents. Competition that is too weak also kills innovation, since nobody has an incentive to innovate. In particular, we learn from this chapter that we have to look at the microeconomic foundations to understand macroeconomic performance. Moreover, we have to take a comparative view to disentangle general factors, such as catch-up growth after the war, from specific factors behind economic outcomes. In chapter 3, O'Rourke provides a highly readable overview of globalisation before 1914, de-globalisation during the interwar period, and re-globalisation after 1950. Declining trade costs during the nineteenth century, rising trade barriers during the interwar period, and re-direction of trade flows from Empire to Europe are the key stylised facts emerging from this chapter.
Finance is a topic in both volumes. In volume 1, Anne L. Murphy in ‘The financial revolution and its consequences’ demonstrates that a strong and stable state is important for economic development. In particular, we learn that the financial reforms following the Glorious revolution of 1688 built the backbone of sound public finance, financial institutions (like the Bank of England), financial instruments (like consols) and financial markets. While this point is made, the chapter is rather short on industrial finance and on international comparison. In contrast, David Chambers' chapter on the City of London and the corporate economy (volume 2) deals with corporate finance and the classic question – did the City fail industry? In general, the answer is no. The London stock exchange provided (long-term, risky) finance to start-up firms and to other enterprises, while commercial banks took care of short-term lending. This convincing finding stands in contrast to a claim made by Michael Kitson and Jonathan Michie in chapter 12. According to them, Britain's de-industrialisation is a bad development, at least partly caused by the failure of the financial sector. This controversy might be the beginning of an economic history debate about the role of the financial sector in economic development. The rise of the service sector – including the financial sector – is dealt with by Stephen Broadberry in chapter 13. Compared with the leading economy of our times, the United States, the British service sector is relatively productive. It is thus a good outcome for economic resources to move from relatively less productive industry to relatively more productive services, including financial services. This supports the idea that Britain has been successful in transitioning its economy from agriculture, to industry, and finally to services.
