Geoffrey Ingham

Despite their overtly historical nature, Anderson and Nairn’s essays on British development were profoundly theoretical. The identification of British ‘pecu-liarity’ or ‘exceptionalism’ involved a challenge not only to Marx and Engels’s commentaries on the times in which they lived, but also to the general Marxist theory of capitalist development.1 However, this aspect did not figure explicitly in the early debates: for example, Thompson attempted to settle the issue by simply denying the historical validity of Anderson’s revisions. It was not until a later sequel that Nairn tried to reconcile historical heterodoxy with traditional Marxist theory. ‘A generally Marxist model of Britain is sufficient’, he wrote, but it had to be ‘historical and specific’. He saw the major deficiency of past Marxist analyses of Britain as the ‘overabstraction’ involved in explaining the functioning of state and society wholly in terms of the internal industrial eco-nomy and its relations of production.2 But this was theoretical legerdemain: at what point, I asked in Capitalism Divided?, does the historically specific model

Commercial Capital and BritishDevelopment: A Reply to Michael

Barratt Brown

45

part company with the concept of the capitalist mode of production and all that this entails in Marx’s scheme. Anderson’s ‘Figures of Descent’ contains a different claim for the legitimation of heterodoxy: he believes he can detect a clear shift in Marx and Engels’s understanding of bour-geois power in nineteenth-century Britain. It is suggested that they moved from believing the industrial bourgeoisie to be ‘in command of Victorian state and society’ to a view that this class was ‘subordinate in its actions and aspirations’ to the aristocracy.3 This may be a reasonable interpret-ation of the doubts expressed by Marx and Engels in their occasional essays as the century progressed, but it is not the substance of the Preface to a Critique of Political Economy or of Capital.4 And it is these works which formed the basis for Marxist economics, sociology and history. In short, it is extremely difficult to reconcile the subordination of the industrial bourgeoisie during the nineteenth century and beyond with the tenets of Marx’s ‘theory of history’. This remains one of the main points of differ-ence between myself and Anderson; details apart, I concur with the sub-stance of his historical account.5

Michael Barratt Brown’s polemic is ostensibly directed at ‘Figures of Descent’, but most of his ire is reserved for Capitalism Divided?. ‘Away With All The Great Arches’ belongs firmly to the older empirical mode of criticism to which I referred earlier. It is primarily an uncompromising reassertion of Marxist (and liberal) orthodoxy: that is, of the absolute centrality of the ‘industrial revolution’ and industrial capitalism for an accurate understanding of Britain’s general development.6 Capitalism Divided? is vigorously rejected because of alleged ‘factual errors’ and ‘rather large conceptual confusions’; it is, in Barratt Brown’s view, very bad history and consequently cannot threaten traditional Marxism. How-ever, theory is not entirely absent; as we shall see, Barratt Brown’s history is informed—albeit implicitly—by an eclectic combination of two oppos-ing strands of orthodox Marxism. Both ‘functionalism’ and ‘instrument-alism’ are woven into his narrative.

There appear to be five main elements in Barratt Brown’s critique. In the first place, most critical emphasis is placed on my designation of the City as primarily a centre of commercial capital. This is seen to be ‘concep-tually confused’ and ‘ambiguous’. Second, he questions my view of Britain’s productive economy and, especially, the analysis of finance–industry relations presented in Capitalism Divided?. Third, the identifica-tion of the City–Bank of England–Treasury relationship as the ‘core institutional nexus’ of British society and the means by which the City’s hegemonic position has been reproduced is alleged to be ‘fatally flawed’. Fourth, my discussion of the links between the City and Empire is

1 See the discussion of Anderson and Nairn’s essays in Capitalism Divided? The City and Industry in British Social Development, London 1984, pp. 15–26, 32–39.2 Tom Nairn, ‘The Decline of the British State’, New Left Review 101¢2, February–April 1977.3 Perry Anderson, ‘Figures of Descent’, New Left Review 161, January–February 1987. 4 An equally plausible alternative case can be made; see Capitalism Divided?, Ch. 1.5 Davis Nicholls (‘Fractions of Capital: the Aristocracy, the City and Industry in the Development of British Capitalism’, Social History 13¢1, January 1988) observes that Anderson does ‘not acknowledge the implication of Ingham’s thesis for Marxist theory’. However, he goes too far in suggesting that I see my work as a ‘refutation of Marxism’ (p. 76).6 Michael Barratt Brown, ‘Away with all the Great Arches: Anderson’s History of British Capitalism’, New Left Review 167, January–February 1988.

46

brusquely dismissed as ‘quite simply nonsense’. Finally, these serious deficiencies are ascribed to my method: the analytical or sociological history of Capitalism Divided? is described as a ‘great arch’ from whose lofty vantage-point I (and Anderson) have failed to observe the major discontinuities which Barratt Brown detects in Britain’s development. Unfortunately, there are also many instances of misunderstanding and what I can only interpret as misrepresentation in his polemic: much of ‘Away With All The Great Arches’ is the dismissal of a caricature.

The City and Commercial Capital

It is arguable that I devoted too much attention to the careful elaboration of conceptual distinctions between the economic practices of commercial, banking and productive capital—in fact, almost three chapters. More-over, the discussion was based on Marx’s own analysis of the forms and circuits of capital. None of this is referred to by Barratt Brown and this probably explains why he can claim that I present a ‘peculiarly ambig-uous definition of commercial activity which includes banking and insurance and merchanting, but, apparently, also brewing and shipping and sometimes even all forms of overseas investment.’7 The first and least important objection is to Barratt Brown’s curious misrepresentation. Nowhere in the book did I include brewing under the rubric of commer-cial capital, and in the reference he cites for the quotation above there is no mention of either shipping or overseas investment. In fact, my whole enterprise was to move away from the potentially confusing common-sensical definitions of economic activity which Barratt Brown falsely attributes to me. The passage in the Introduction to Capitalism Divided? which he cites as the source of his interpretation is as follows: ‘Fundamen-tally, London’s role in the world system may be seen as the specialization in and near monopolization of the commercial activities which are based on the existence of international exchanges. These activities include the financing of trade, insurance of commodities and transport, foreign exchange dealing, etc. The City has not simply dealt with Britain’s exchanges with other states, but has performed a wide range of functions for the world system as a whole. The most important aspect of this role has been the management of the domestic currency as world money—that is, as an internationally acceptable means of payment and exchange. More recently, the largest single share of the transactions in de facto uni-versal money such as Eurodollars has been undertaken in London.’8

I also argued that the ‘City is not—as most Marxists have maintained—aspecial type of “finance capital” which is externally rather than domestic-ally oriented. Clearly, the City is involved with financial relationships, in the sense that money capital is provided for different purposes. But the City’s main role is in the intermediation of these relationships—that is to say, considered as economic practices these activities are commercial. . . . The roles of the City houses as middlemen or brokers in the provision of finance overseas (and domestically for that matter) are best viewed as comprising commercial practices which form part of complex financial relationships. For example, the City’s profits have not been primarily in

7 Barratt Brown, p. 29.8 Capitalism Divided?, p. 5.

47

the form of interest, but a deduction from this in the form of brokerage fees or commission—that is, commercial profit from the trading in various forms of investment capital.’9

Eventually, Barratt Brown concedes that my analysis has some contem-porary significance: ‘. . . the City today is . . . not the engine of anything except of the revolving wheels of a casino . . . Today we can indeed begin to understand what Ingham meant by commercial as opposed to pro-ductive activity.’10 But he sees this as a very recent departure; in the nineteenth century, he argues, the City’s main role was in the provision of investment capital both at home and overseas—especially to the Empire.11 Barratt Brown utterly rejects my stress on the enduring clearing-house role of the City in the world system. However, the contrast is surely overdrawn: today as in the nineteenth century, the funds which pass through London finance all kinds of activity throughout the world—including production and speculation. But the fundamental point, which Barratt Brown simply fails to grasp, is that the City itself has never realized the major part of its own profits from investment in production,but, rather, from the financial and commercial intermediation which enabled this to take place.

The Interpretation of Imlah

The main thrust of Barratt Brown’s polemic hinges on my alleged misuse ofImlah’s statistical work on Britain’s balance of payments in the nineteenth century.12 In a formal sense the dispute’s resolution rests on Barratt Brown’s concession that my ‘thesis can be justified only by including shipping revenues with financial services.’13 The reasons given for the exclusion of shipping display Barratt Brown’s own conceptual confusion and, it must be said, either his neglect or his misunderstanding of the theoretical treatment of commerce in Capitalism Divided?. He continues: ‘Shipping apparently appears under commerce because it is concerned with foreign trade; but it is not a financial service and the direct exploitation of labour by capital could hardly be more apparent than in this industry.’14

First, it should be noted that I do not include shipping under the rubric of ‘financial services’; it is, rather, a branch of commercial capital. From a commonsense standpoint, of course, shipping (like warehousing, for example) involves the ‘exploitation’ of labour; however, profits from this activity are not the direct result of the production of surplus value. In Marx’s scheme, the profits of the carrying trade in the circulation of surplus value (like those of the merchant or warehouse owner) represent adeduction from the value created by workers in production and extrac-tion. The latter are exploited in the technical sense used by Marx who insisted that: ‘However much we twist and turn, the final conclusion remains the same . . . Circulation or the exchange of commodities creates no value.’15 Barratt Brown’s objection merely serves to obscure one of

9 Ibid.10 Barratt Brown, p. 47.11 Ibid, pp. 30; 31; 35; 36; 37.12 Albert H. Imlah, Economic Elements in the Pax Britannia, New York 1958. 13 Barratt Brown, p. 29.14 Ibid., p.30.15 Capital, I, Harmondsworth 1976, p. 331.

48

TAB

LE 1

GR

EA

T B

RIT

AIN

FO

RE

IGN

EA

RN

ING

S O

F B

RA

NC

HE

S O

F C

AP

ITA

L, 1

815–

1913

(£m

)

PR

OD

UC

TIO

NC

OM

ME

RC

ET

OTA

LB

AN

KIN

G/

TO

TAL

Exp

orts

of

Re-

expo

rts

Ship

ping

Serv

ices

CO

MM

ER

CE

FIN

AN

CE

FIN

AN

CE

UK

prod

ucts

cred

its

Inte

rest

&

&di

vide

nds

CO

MM

ER

CE

1815

–20

4011

109

302

3221

–25

378

97

244

2826

–30

367

87

225

2731

–35

408

98

255

3036

–40

509

1111

318

3941

–45

529

1211

327

3946

–50

6111

1413

389

4751

–55

8416

1918

5312

6556

–60

124

2526

2475

1691

61–6

514

246

3433

113

2213

566

–70

181

4744

4013

131

162

71–7

523

858

5149

158

5020

876

–80

201

5754

4715

856

214

81–8

524

763

6047

170

6523

586

–90

239

6257

4616

584

249

91–9

522

361

5745

163

9425

796

–190

025

461

6247

170

100

270

1901

–05

294

7071

5419

511

330

806

–11

396

9089

6724

615

139

711

–13

481

105

100

8028

518

847

3

Gro

wth

1836

–189

04.

86.

85.

24.

25.

310

.56.

418

91–1

913

2.1

1.7

1.8

1.8

1.7

2.0

1.8

49

During the pre-industrial period (1800–1840), America earned a large surplus from shipping and other commercial services; but as Harris points out ‘ . . . gradually, however, our net surplus from the sale of servi-ces was converted into a deficit.’18 As the USA embarked on her rapid and massive industrialization she relied to some extent—as did European countries—on London to finance, insure and undertake the distribution of products around the world.

50

TABLE 2UNITED STATES BALANCE OF PAYMENTS, 1840–1950 ($m)

COMMODITY TRADE Investment ServiceExports Imports income income

1840 124 100 –12 151880 851 681 –78 –411920 8,481 5,384 476 –511950 10,658 9,315 1,306 –352

Marx’s most enduring achievements: the ‘materialist method’ which stresses the fundamental importance of deciphering the precise social-structural conditions by which value is created and different types of profit are realized.

Within the limitations imposed by the official classification of different branches of economic activity, I would suggest that the retabulation of Imlah’s data in Table 1 represents the nearest approximation of the rela-tive contributions of productive, commercial and banking/finance capitalto Britain’s balance of payments during the time in question.16

When tabulated in this way, Imlah’s data starkly show the fundamental weakness of Britain’s productive economy. From 1815 to 1913, the com-bined receipts from commerce and banking/finance are virtually the same as those from the export of British products. Moreover, commercial capi-talism grew as quickly as manufacture for exports after 1836; that is, in the period which saw the most rapid expansion of industrialization. With regard to shipping credits, there can be few clearer expressions of Medick’s description of Britain as the Makler (middleman/broker) eco-nomy than in her disproportionate share of the world’s carrying trade.17

Throughout the nineteenth century, there was—as Anderson puts it—‘a two-track development of capital’. Data for other countries comparable to those constructed by Imlah are not available; but a brief glance at the USA’s balance-of-payments figures for the period 1840–1950 (Table 2) highlights the particular nature of British development and the funda-mental importance of the clearing house role.

16 The data are exactly the same as those in Barratt Brown’s tabulation and come from the same sources. 17 H. Medick, ‘Anfange und Voraussetzungen des organisierten Kapitalismus in Grossbritannien, 1873–1914’, in H.A. Winckler, ed, Organisierter Kapitalismus, Voraussetzungen und Anfange, Gottingen 1974.18 Seymour E. Harris, American Economic History, New York 1961, pp. 87–88.

If my classification of the different forms of capital is accepted, then, Imlah’s data show quite clearly that Barratt Brown is in error when he states that ‘earnings of merchanting were never as important as the earnings either on export of goods or on direct exports of capital.’19 It is the neglect of commercial earnings which led me to argue that, hitherto, the export of capital has been ‘overstressed’ in the traditional view of British development. Furthermore, there are very good reasons for sus-pecting that the volume of British capital exports has been greatly over-estimated. It is surprising that Barratt Brown does not confront the implications of Platt’s downward revisions of the scale of capital exports; to which, of course, I gave emphasis in Capitalism Divided?. About a third of the capital ‘exports’ came from abroad. Like other items of the entre-pot trade, they were in fact ‘re-exports’, and, as such, the source of com-mercial profits from intermediation.20 Furthermore, Barratt Brown seems to be unaware of Pollard’s massively thorough review of the capital exports debate which endorses Platt’s findings.21 The revisions have also been accepted by the foremost authority on the history of merchant banking and investment groups in this period. Chapman believes that ‘ . . . further downward revisions are imminent. The consequences of this for an assessment of Britain’s role in international economic development can at present be discerned only in outline, but it will inevitably tone down the stridency of earlier assessments of the role of finance in imperialism and the maintenance of what Jenks called a “rentier govern-ing class” . . . Such a revision would harmonize with the more modest eco-nomic performances ascribed to them [merchant banks] . . . suggesting trade credit to be of more far-reaching importance than foreign loans .’22

I had a further intention in suggesting that the straightforward quantita-tive issue of capital exports had been traditionally overstressed. One of the central themes of Capitalism Divided? was that the City’s separation from domestic industry was not primarily a matter of financial dissocia-tion at this time. I was at pains to argue that the City’s typical mode of operation had longer-term consequences. The overriding concern to stabilize the short-term operations of the entrepot role was transmitted in various complex ways to the wider domestic financial system. It was this aspect of nineteenth-century developments which rendered the City and banking system structurally incapable of direct and continuous engage-ment with production of the kind that occurred in Germany, the USA, Japan and elsewhere.23

Commercial Capitalism: Some Recent Reappraisals

Barratt Brown enlists the support of non-Marxist historians and I would like to call on reinforcements from the same quarter. Chapman, Tomlin-son, Boyce, Mitchie, Crouzet, Cain and Hopkins, and Newton and Porter have all recently moved to a recognition of the significance of mercantile

19 Barratt Brown, p. 31.20 D.C.M. Platt, ‘British Portfolio Investment Overseas before 1870: Some Doubts’, Economic History Review, 2nd ser., xxxiii, 1980.21 Sidney Pollard, ‘Capital Exports, 1870–1914: Harmful or Beneficial?’, Economic History Review, 2nd. ser., xxxviii, 1985.22 Sidney Chapman, The Rise of Merchant Banking, London 1984, p. 175.23 Capitalism Divided?, pp. 142–50; 162–69.

51

capitalism in the development of the British economy.24 It is especially pertinent that Barratt Brown attempts to use Cain and Hopkins’s recent reappraisal to support his own view. Whilst I have serious misgivings about the conceptual utility of the term ‘gentlemanly capitalism’, the entire tenor of Cain and Hopkins’s work is to challenge the very ortho-doxy which Barratt Brown seeks to defend. ‘Our aim,’ they write, ‘is not to deny what is irrefutable, namely that Britain industrialized, but rather to suggest that non-industrial, though still capitalist activities were much more important immediately before, during and after the industrial revo-lution than standard interpretations of economic and imperial history allow . . . The service sector occupied a far larger and more independent place in the economy than has customarily been acknowledged . . . . ’25

In other words, the dispute is not merely a matter of perspective: that is, of panoramic views from great arches or a more down-to-earth inspection—as Barratt Brown’s frequent metaphors imply. The traditional view not only has to face revisionist theory, but also recent historical scholarship. As Cain and Hopkins concluded: ‘ . . . despite their many differences Marxist and non-Marxist historians share a conception of imperialism which is derived from certain assumptions about the place of the indus-trial revolution in modern British history . . . We believe that this approach is seriously at variance with what is now known about British economic history during this period.’26 Any general sociological or historical inter-pretation (Marxist or otherwise) of capitalist development in Britain can no longer afford to rely entirely—as does Barratt Brown—on the classic work of Dobb, Clapham, Court, Deane and others.

Sterling’s International Roles

Whatever the importance of London’s international commercial activi-ties, it is generally agreed that these were in large part made impossible by the willingness of the emerging capitalist world order to use sterling for its transactions. However, Barratt Brown takes this to be proof of the domi-nance of the productive economy: ‘ . . . the overseas role of the pound depended on the strength of the British economy.’27 In short, Barratt Brown’s basic criticism is that I deny the existence of a relationship of direct correspondence between the use of a national currency as world money and the strength of the host economy. He also raises a subsidiary objection: ‘The whole of Ingham’s argument is predicated in any case on the assumption that a strong pound is guarantee of its successful role.’ Rather, he suggests that ‘it is a stable currency that is needed.’28 His alle-gation is simply untrue: throughout Capitalism Divided?, I stressed that

24 Sidney Chapman, op. cit.; B.R. Tomlinson, ‘The Contraction of England: National Decline and the Loss of Empire’, Journal of Imperial and Commonwealth History, xi, 1, October 1982; R.C. Mitchie, ‘Options, Concessions, Syndicates, and the Provision of Venture Capital, 1880–1913’, Business History, xxiii, 2, 1981; François Crouzet, The Victorian Economy, London 1982, chapters 11 and 12; P.J. Cain and A.G. Hopkins, ‘Gentlemanly Capitalism and British Expansion Overseas I: The Old Colonial System, 1688–1850’, Economic History Review, 2nd. ser. xxxix, 4, 1986; ‘II: New Imperialism, 1850–1945’, Economic History Review,2nd, ser., xl, 1, 1987; Robert W.D. Boyce, British Capitalism at the Crossroads, 1919–1932, Cambridge 1987; Scott Newton and Dilwyn Porter, Modernisation Frustrated: The Politics of Industrial Decline in Britain since 1900, London 1988.25 Cain and Hopkins, I., op. cit., pp. 503–4.26 Ibid., 502.27 Barratt Brown, p. 34.28 Ibid., p. 29.

52

London’s commercial and financial roles required a stable and, therefore, predictable value for sterling.29 Indeed, ‘strong’ can be construed to mean stable in the sense of immunity from speculative attack. ‘Strength’ in the sense of high value may be the effect of a strong domestic economy, but anyone with the most rudimentary knowledge of twentieth-century monetary history will be aware that other factors are also involved. Again one is forced to wonder just how much care Barratt Brown took in read-ing my book before launching into his polemic. He seems to think, for example, that I contradict myself by what he takes to be my reluctant admission that the global acceptance of sterling could be linked to the strength of the British economy: ‘Yet on several occasions Ingham refers to the need for a strong national economy to manage the international economy and provide the world’s money. He even sometimes recognizes that this depends on productive capital and exploited labour, though sometimes arguing otherwise . . . Ingham does in the end recognize this when he observes that Britain had the strongest economy and thus the “top” currency in the nineteenth century.’30 Such an interpretation is bewildering. He contends that I have two separate and contradictory arguments, yet one of the underlying arguments of Capitalism Divided? is that the use of a currency as world money does not depend exclusively and entirely on the strength of the host economy. The opening paragraph of chapter 5 contains an unambiguous statement of what I take to be the basis of the City’s position in the nineteenth century: ‘During the nine-teenth century Britain’s manufacturing superiority and share of world trade helped transform the City into the “natural” commercial and finan-cial centre of the world system. However, the City’s position was never a simple reflection of this economic strength. In addition to the productive base, the following may be seen as the proximate conditions of existence for the City’s growth: (i) the unprecedented 100 years peace between the major European powers (1815–1914)—the Pax Britannica; (ii) the com-mitment to economic liberalism (1820–1931)—in particular free trade; (iii) the reintroduction and formalization of the domestic gold standard which, significantly, lasted as long as the peace itself.’31

Furthermore, I stressed that the three conditions were mutually sustain-ing and could not be reduced in their origins or persistence to the exigen-cies posed by (or functional requirements of) capitalist industrialization, nor to the explicit demands of the industrial bourgeoisie. In some respects, this package of conditions was the result of contingency—for example, the outcome of the Napoleonic Wars. But, more importantly, they also had quite independent geo-political and institutional bases. Indeed, if this were not the case, it would be extremely difficult to provide a satisfactory account of how and why Britain continued in this commit-ment to nineteenth-century economic liberalism and the gold standard long after the economic conditions for their maintenance had disap-peared. A central question of Capitalism Divided? is how one is to explain the persistence and growth of the City in the face of incipient productive decline. In my lengthy answer I argued that the City’s political conditionsof existence had a marked impact on the structure of the state and the

29 The index to Capitalism Divided? contains five separate references to sterling’s stability.30 Barratt Brown, p. 27.31 Capitalism Divided?, p. 96.

53

composition of the dominant class which, in complex ways, permitted (but did not simply determine) the reproduction of the City’s roles in the twentieth century. This, I stressed, occurred in the face of tremendous economic and political difficulties and, of course, to the disadvantage of the productive economy. In fact, this involves the clear recognition of a discontinuity of the kind Barratt Brown argues I am incapable of perceiv-ing from the elevation of my particular ‘great arch’. In the nineteenth century sterling was the strongest and, therefore ‘Top’ currency and prime candidate for global use; but this was not its exclusive basis. During a large part of the twentieth century, it was a ‘Master’ currency: that is to say, its use was imposed politically on an Empire, Common-wealth and Sterling Area.32

However, it would be a mistake to view this change as a radical disjunc-ture in the bases for sterling’s global use. In both centuries, sterling’s posi-tion was the result of a complex interplay of ‘material’, ‘political’ and ‘symbolic’ factors. International monetary phenomena have never been as simple to comprehend as Barratt Brown’s uncompromising materialism makes them out to be. To repeat: there appears to be no direct, immed-iate and objective correspondence between the strength of a national eco-nomy and the international uses to which its currency may be put. This is always mediated by two interrelated factors. First, in the face of uncer-tainty about a currency’s ‘real’ strength, its trustworthiness is usually secured by state action to guarantee its formal validity. Any such political pledge is obviously limited by the currency’s substantive validity—that is, its economic basis. However, the force of such limits can vary very widely indeed and sterling performed roles between the late nineteenth century and the 1970s far beyond those which an ‘objective’ assessment of its eco-nomic strength would have warranted. Second, national currencies can only be used globally if their domestic financial systems possess the appropriate institutional structure of banks and money markets. As I argued in Capitalism Divided?, the dollar did not take over sterling’s roles in any way approaching comprehensiveness after 1931. Apart from the New Deal policies and opposition from industrialists, the USA simply did not have a sufficiently concentrated and centralized financial system under the very close control of the central bank and Federal Reserve.33

With regard to nineteenth-century Britain, Tomlinson has recently sug-gested that after about 1860 the strength of sterling was not necessarily a reflection of the strength of the rest of the economy. London was not only the place through which trade and finance were organized, ‘but also the centre at which the balances of trade were lodged. The strength of sterling was greatly aided by the flow of short-term capital [and] this was the result of particular institutional arrangements, rather than a reflection of any particular strength of the national economy . . . Britain could domi-nate the world economy and act as a successful imperial power only so long as other nations chose to use the City of London as the contact point for their bilateral and multilateral transactions.’34 Underlying the choice to use the only well-developed clearing house in the nineteenth century was the continued political pledge to maintain the gold–sterling standard,

32 These distinctions are taken from Susan Strange’s fundamental work: Sterling and British Policy (London 1971) and not Richard Minns as Barratt Brown incorrectly states.33 Capitalism Divided?, p. 203.34 Tomlinson, op. cit., p. 64.

54

which was in fact becoming increasingly flimsy in objective economic terms. If the relationships between, on the one hand, industrial product-ivity, strength of capital and the industrial economy and, on the other, the global use of a national currency were as obvious as Barratt Brown avers, then the history of international monetary relations—and much else—would have been very different.

The City and the British State

Unravelling the inter-relations of what I termed the core institutional nexus of British society (City–Bank of England–Treasury) formed the main part of my explanation of how the City was socially reproduced during the twentieth century. In fact, the issue can be stated with more force: in strictly economic terms, conditions were actually antithetical to the preservation of the City’s international activities as the twentieth cen-tury progressed. After 1918, in the 1930s, and from 1945 to the present, political strategies have assumed paramount importance. Moreover, the pursuit of trade, fiscal and foreign exchange policies favourable to the City was not without opposition—however muted and sporadic. It seemed difficult to explain the origins and persistence of these interdependencies in terms of the prevailing theoretical Marxist orthodoxies of the 1970s. The institutional connections of the City, Bank and Treasury were clearly not the outcome of the City’s power as a so-called ‘fraction’ of capital (‘instrumentalist’ theories). In the light of early nineteenth-century his-tory, it appeared to be even more inappropriate to consider the ‘core nexus’ as a functional response to the ‘requirements’ of capitalist develop-ment (for example, as a means of exporting ‘surplus’ capital and the exploitation of overseas possessions—that is, the ‘functionalist’ theory of finance-capital imperialism). I argued at length that both theories were fraught with serious logical and empirical difficulties and stressed, rather, the interplay between classes and state institutions. I considered the latter as possessing their own interests in the production exercise of power.35 In his summary of what is a very condensed conclusion to chapter 6 of Capi-talism Divided?, Barratt Brown presents a parody of my arguments. It is unfortunately necessary, therefore, to set the record straight by quoting at length from this conclusion.

Although overwhelming manufacturing superiority in the nineteenth century made Britain the natural commercial centre in objective economicterms, political factors have had important effects from the earliest times . . . The monetary and commercial policies which eventually became the basis of the City’s activities were the products of complex political and eco-nomic interests which did not include the industrial bourgeoisie as a major force . . . , the monetary and fiscal reforms were also aimed at rationalizing the state’s finances and dealing with the chronic indebtedness which the Napoleonic Wars had exacerbated. These measures were intended to weaken the system of aristocratic parasitism and patronage of ‘old corrup-tion’ and the state’s dependence on the ‘money powers’. In other words, . . . the state set itself against a section of the traditional dominant class, but not at the behest of the emerging industrial bourgeoisie. If the ‘econo-mical reformers’ had any specific interests in mind, it was those of the new generation of merchants who had captured much of the Dutch and French

35 For a summary of these arguments see Capitalism Divided? pp. 229–32. See also the clear implicationsof John Zysman’s Governments, Markets and Growth: Financial Systems and the Politics of Industrial Change,Ithaca 1983.

55

trade and who would profit by a free trade/gold standard regime . . . The early monetary and commercial reforms had a critical impact on key institutions in the modern British state and economy, on the structural development of the dominant class, and on the financial system as a whole . . . the core institu-tional nexus of British society (City–Bank of England–Treasury) became fixed in the basic form it has retained to this day. The foundation for the connection between these institutions lies in the mutual interest they have in the production of stable money forms. This interdependence is not simply based on the City as a dominant fraction of capital. To be sure, the pursuit of fiscal and monetary orthodoxy by the Bank and Treasury sus-tained the gold standard and later sterling’s exchange value and, thereby, the City’s international position. But these policies were also an indepen-dent source of power for the Bank and Treasury in their own respective domains—that is, in the banking system and the state bureaucracy.36

I also stressed the occurrence of unintended (and frequently ironic) conse-quences of intended actions in the development of the nexus during the nineteenth century. For example, the ‘economical reformers’ wished to free the state from dependence on the ‘money powers’; but their legisla-tion ultimately strengthened the City and via the Bank drew it closer to the Treasury. The Bank Charter Acts were intended to curtail the Bank’s powers by establishing a supposedly self-regulating monetary system; but, of course, the system was crisis-prone and required discretionary manage-ment and, hence, an increase in the Bank’s autonomous power.

The precise nature of Barratt Brown’s objections to all this is difficult to pin down. He questions my arguments concerning the institutional power of the core nexus as follows: ‘A nexus cannot simply be assumed from what both Ingham and Anderson describe as an agreement not to inter-vene.’37 I am not at all sure what this is supposed to mean; but there is no ‘assumption’ of the ‘nexus’ on my part. I devoted at least half the book to establishing, elaborating and substantiating the historical utility of the concept. However, it is just about possible to discern a general basis for Barratt Brown’s critique in his tacit adherence to both Marxist ‘function-alism’ and ‘instrumentalism’. For Barratt Brown, the exigencies posed by the capitalist mode of production require stabilizing and crisis-avoidance measures, and this is assured by bourgeois participation in the state. Thus, on numerous occasions throughout his article, he insists that the City’s primary function was to channel investment into production overseas; but as we have seen, this is a very one-sidedly exaggerated account. The City just cannot be seen only as the conduit through which ‘surplus’ capital flowed and as the handmaiden of finance-capital imper-ialism. On the other hand, he argues that the Bank Charter Acts cannot have had the significance for the City that I assign to them because: ‘ . . . there could scarcely be imagined a clearer example of an industrial bourgeois incumbent of high office than Sir Robert Peel, son of a Lanca-shire millowner and twice Prime Minister.’38 Presumably this line of reasoning accounts also for Barratt Brown’s jibe that ‘none of the three parties (City, Bank and Treasury) knew what they were doing until clever fellows like Ingham and Anderson came along and showed us.’39

36 Capitalism Divided?, pp. 6–8.37 Barratt Brown, p. 36.38 Ibid., p. 34.39 Ibid., p. 36.

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However, I made frequent reference to the collusion of the metropolitan elite in the three institutions and devoted special attention to the deft and almost conspiratorial nature of the handling of the Baring crisis. More importantly, Barratt Brown displays a strange unwillingness to acknow-ledge that intended actions have unintended consequences. Thus, because he seems so sure that ‘Huskisson was thinking about the export of goods’, he infers that the commercial legislation of the 1820s which removed bar-riers to the re-export trade cannot have had the effect of stimulating the City’s entrepot activities.40 Knowing the class origin of historical agents, what they were thinking and what they intended to achieve can never provide us with a full explanation of long-term patterns of development.

Finally, there are two further irritating instances of misrepresentation: ‘The crux of Ingham’s case,’ writes Barratt Brown, ‘is that the Treasury linked together the landowning interest and the financial oligarchy at the expense of industry.’41 This could hardly be a crux of my thesis because nowhere in Capitalism Divided? do I present such a clumsy historical inter-pretation. Second, I am accused of making the ‘strange assumption’ that conflicts did not arise among the Treasury, City and Bank. However, in an astonishing contradiction only four lines later, Barratt Brown corrects himself and accurately cites my book as evidence for such ‘struggles and disagreements’.42

It is precisely the City’s impact on the British state which has been taken up by several recent authors. Scott Newton and Dilwyn Porter endorse my account of the core institutional nexus and use it to organize their Modernisation Frustrated: The Politics of Industrial Decline in Britain since 1900. Robert Boyce’s detailed monograph, British Capitalism at the Crossroads, 1919–1932, takes a similar line and also recognizes the fundamentally mer-cantile character of the City as ‘a centre of international markets, depend-ent only slightly upon the nation’s economic performance’.43 Boyce, like Alan Booth in his recent paper, also supports my view that many policies which have favoured the City—most notably the return to gold in 1925—were also welcomed by the Treasury and the Bank of England as they helped to re-establish their independent institutional power in their respective domains of public finance and the banking system.44 In his otherwise very favourable review in this journal, Colin Leys also expressed doubts about my insistence that state institutions must be seen as possessing their own power and interests. Leys accepts that the Trea-sury ‘had a vested interest in the restoration of the gold standard; it offered a prospect of restoring its preeminence in Whitehall that the war had eroded. But it is equally true that the Board of Trade had a vested interest in launching a long-term, state-led project for industrial modern-ization at the end of the Second World War. It is hard to explain why the

40 Ibid. It should be noted that Barratt Brown omits the last part of a quotation from Huskisson (p. 35), which I cited in Capitalism Divided?, and changes the meaning considerably. Huskisson was complaining that the maintenance of the gold standard was enriching the money dealers, but that the deflation and frequent crises meant that ‘the wages of labour have been too low and the profits of fructifying or productive capital less than they ought to be.’ Capitalism Divided? p. 110.41 Barratt Brown, p. 38.42 Ibid., p. 36.43 Boyce, p. 19.44 Ibid., pp. 30–31; Alan Booth, ‘Britain in the 1930s: a Managed Economy’, Economic History Review, 2nd ser., xl, 4, 1987.

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former interest prevailed, and the latter was defeated, without recourse to the balance of class power.’45 Whilst not denying the significance of class power, it is quite a simple matter to answer Leys’s question. The Trea-sury’s power over ‘second-rate’ state agencies, such as the Board of Trade, derived from several sources—both ‘internal’ and ‘external’ to the state. With respect to the former, the Treasury had the power of the public purse and, with the Bank, control over Britain’s exchange rate and cur-rency policy. Second, by the 1920s its domination of the state bureaucracy had assumed—after nearly a century’s struggle—a constitutional legiti-macy. Similar points can be made about the Treasury’s clashes with the Department of Economic Affairs in the 1960s. The extent of the Treasury’s autonomous power is also apparent in the 1930s, when what may be crudely seen as the City’s ‘class power’ was at its lowest ebb. The Treasury pur-sued its objectives as before; maintaining the fiction of balanced budgets, deflecting mounting criticism and so on, until the exigencies of wartime production led to its political demotion in the state apparatus.46

A serious distortion is insinuated throughout ‘Away with All The Great Arches’. Barratt Brown implies and at times explicitly states that Capital-ism Divided? argues (or can be used to substantiate the view) that ‘there was no real industrial revolution in Britain and that British capitalism was rooted in commercial and not industrial capital accumulation.’47 It is, for example, a gross misrepresentation to imply that my book could have fostered such nonsense as: ‘The revolutionary industrial innovators in textiles and railway-building—Arkwright, Watt, Hargreaves, Boulton, Paul, Darby and Brindley in the eighteenth century, Brassey, Stevenson, Brunel, Wilkinson, Faraday in the nineteenth—are reduced to some sort of commercial intermediaries. . . ’48 The title—Capitalism Divided?—was chosen with some care for the content of the book. I intended to convey my concern with the relationships between the three types of capital and, especially, that between commerce and banking, on the one hand, and productive capital on the other. In general terms I questioned the axiom that productive capital was completely dominant (both economically and politically) at all times, in all places, and under all circumstances. In this respect, any tolerably careful reading should disclose that my intention was to explain why the efforts of the industrial modernizers were so enfeebled from the late nineteenth century onwards. Second, as Anderson and Leys correctly emphasize, the separation of the City and industry was ultimately based on the existence of ‘a world economic space segmented into independent units’ which permitted the emergence of ‘a major clearing house of universal scope’: that is, a centre of commercial capitalism which was not directly and exclusively dependent on the productive capitalism of the host nation.49 Neither argument could be remotely construed as sug-gesting that capitalist industrialization never took place in Britain!

45 Colin Leys, ‘The Formation of British Capital’, New Left Review 160, November–December 1986, p. 117.46 Capitalism Divided? passim. Barratt Brown displays a symptomatic misunderstanding when he cites the penetration of the Cabinet and the Treasury by industrial representatives during World War II as evidence of industrial capital’s general power. The Treasury temporarily lost power during the war in order that a national productive economy could be organized and this is precisely why industrial capitalattained a brief ascendancy.47 Barratt Brown, p. 23.48 Ibid., p. 25.49 Anderson, p. 53.

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Nevertheless, there is mounting evidence to suggest that the traditional conception of the ‘industrial revolution’, which Barratt Brown staunchly defends, has been overdrawn. His own version of orthodoxy lacks any real substance. On the one hand, he merely refers to the heroic deeds of the entrepreneurs—Arkwright, the mills and canals etc. On the other hand, in extolling the performance of the economy, he offers the limp assertion that ‘British productivity held up remarkably well until the First World War.’50 However, any such judgement must be comparative and, as Barratt Brown concedes, the USA and Germany outperformed Britain from the onset of their own industrialization. The hyperbole of the tradi-tional conception is evident after consulting such recent works as Maddi-son’s Phases of Capitalist Development and Lee’s The British Economy since 1700.51 According to Maddison, Britain’s growth between 1820 and 1979was the slowest of twelve advanced countries. Most of the increase in British GNP and GDP per head was generated in the twentieth century, especially since 1950. More significantly with regard to Barratt Brown’s arguments, Lee questions the orthodox conceptualization of a radical discontinuity in Brit-ish economic growth associated with the so-called industrial revolution.52

Finance and Industry

The insistence that the City was involved in financing production to a far greater extent than I recognize is scattered throughout Barratt Brown’s essay and is, of course, a tacit reassertion of finance-capital theory. No new data are presented in support of this claim, nor can they be. The chronically low level of investment in British production since the eighteenth century is an established fact and a unique feature of British development.53

My alleged failure to mention the mid-nineteenth-century Company Acts which permitted limited liability is presented as evidence of a one-sided distortion of Britain’s economic development. Barratt Brown considers this legislation to be equally significant as the Bank Charter Acts and the means by which ‘investment in industry at home’ occurred.54 But, the index to Capitalism Divided? contains five entries under ‘limited liability’. My discussion was based on Payne’s work, which is widely accepted as the standard account of nineteenth-century business structure. The impli-cation of Barratt Brown’s comments—that it was enacted to serve the interests of the industrial bourgeoisie—is simply not borne out by the evidence. Limited liability was adopted in 1855 after twenty years of par-liamentary enquiry and the initial impetus came from middle-class philanthropists who wished to create safer investment opportunities for the working and lower middle classes—not from ‘the industrialists

50 Barratt Brown, p. 27.51 A. Maddison, Phases of Capitalist Development, Oxford 1982; C.H. Lee, The British Economy Since 1700: A Macro-economic Perspective, Cambridge 1986.52 Lee, p. 23. ‘All the quantitative indices show a slow but accelerating rate of growth, balanced growth encompassing most sectors of the economy and a very modest, if continuous rate of structural change. Increased growth in the early nineteenth century and small reduction in growth rates in the later part of the century require explanation, but their dimensions hardly warrant labels like “industrial revolution” or“great depression”.’53 Ibid., p. 51. ‘It was one of the unique aspects of British development. Home investment throughout theeighteenth and nineteenth centuries was exceptionally low in relation to GDP, for most of the time less than half that of the investment ratio in other developing countries . . . Indeed, this level of investment was similar to that enjoyed in more recent times by such countries as Paraguay, Malaysia and El Salvador.’ 54 Barratt Brown, p. 26.

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themselves, whose voices were seldom heard in the discussions’. More-over, it was not until very late in the nineteenth century that the joint Stock Companies Acts had any impact on industrial finance and, even then, this was small in comparison with developments in continental Europe.55 The implied case for the existence of an embryonic ‘finance-capital’ in mid-nineteenth century Britain has no historical basis what-soever. Indeed, Barratt Brown concedes as much in his somewhat contra-dictory admission that nineteenth-century industry was self-financed. ‘But by the early twentieth century this had changed’, he argues, and quotes a passage from Capitalism Divided? which shows the rapid increase in the number of domestic companies quoted on the London Stock Exchange. However, it is all too easy to fit the occurrence of this first merger boom in British industry into a crude and misleading theory of capitalist devel-opment which was originally generalized from the German case. This approach misses a number of very pertinent aspects of the singular British experience. First, the movement towards concentration in indus-try was far less marked here than in comparable economies; and, second, the London Stock Exchange’s role was very limited and the clearing banks’ involvement was negligible.56 The contemporary industrial and political concern at Britain’s increasingly archaic industrial structure, its technological underdevelopment, and its separation from the financial system is firmly established and has recently received further elaboration in Newton and Porter’s Modernisation Frustrated. Davenport-Hines’s bio-graphy of Dudley Docker not only shows just how some of the successfulmergers were financed, but also follows Docker’s increasing exasperation with the City’s reluctance to become involved with domestic industry. To counter this deficiency, Docker set up the British Stockholders’ Trust (1918) to raise finance for the rationalization of industry along German lines. This provoked hostility from the City establishment, which threat-ened to deny access to the Stock Exchange to any provincial brokers who held shares in the Trust.57

The arguments that Barratt Brown adduces for close finance–industry relations since 1945 are equally flimsy, and also methodologically flawed. Simply reporting from his own research that merchant bankers sat on the boards of half the top 120 home industrial companies is not very compell-ing. The closeness of finance–industry relations—even when measured in this manner—can only be assessed comparatively. The last ten years have seen a massive proliferation of research on interlocking directorships in all the major advanced countries and it shows far lower finance–industry relations in Britain as measured by banker participation.58 However, even these extensive and sophisticated studies based on network ana-lysis have quite clear limitations. Knowing that banks and industrial

55 P.L. Payne, British Entrepreneurship in the Nineteenth Century, London 1974, p. 19. See also Crouzet. It must be noted that limited liability was not ‘an invention [which] must surely rank with those of the industrial revolution’ (Barratt Brown, pp. 25 and 26). Restrictions had been imposed on joint stock companies by the Bubble Act (1720) and such financial organization was prevalent in France, New York State and elsewhere in the eighteenth century.56 Payne, op. cit., Lee, chapter 3.57 R.P.T. Davenport-Hines, Dudley Docker: The Life and Times of a Trade Warrior, Cambridge 1984. The significance of this work lies in the fact that despite its overtly empiricist method, the City–industry opposition is captured through the experiences of one of Britain’s leading industrialists.58 For the most recent survey see John Scott, Capitalist Property and Financial Power: A Comparative Study of Britain, the United States and Japan, Brighton 1986.

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companies have directors in common does not in itself tell us what kind of role the interlocks play in corporate banking and industrial strategy. To generalize, on the basis of his own limited data, that British merchant bankers on industrial boards ‘performed the same coordinating function as the big banks in Germany and the zaibatsu in Japan’ is not only wild, but also mistaken speculation.59

The relationships between finance and industry (and the state) are pri-marily the result of the more fundamental structural means by which credit and finance are created, distributed and controlled. Zysman’s work remains the essential starting point in unravelling these complexities. Even orthodox economists now make distinctions between bank-based and market-based financial systems in a similar way to Zysman and myself.60 Bank credit-based systems such as Japan’s and Germany’s exhibit two characteristics not found to any marked degree in Britain: a high level of external funding and long-term direct involvement of banks in corporate organization and strategy. The structure of the German and Japanese financial systems is such that the banks become involved to ensure a rate of return on their direct investments. Most City represent-atives on industrial boards are there as ‘information receptors’ and/or organizers of take-overs, ‘dawn raids’ etc, or the defence against such events. Their activities are structured by the market-based financial sys-tem which, in the absence of bank domination of industrial finance, per-mits the speculative short-term practices for which the British system is renowned. ‘Commercial’ profits are realized in this kind of financial intermediation and must be distinguished from the returns on investment typical of the bank-based type of finance capital.61

Finally, Barratt Brown’s attempt to demonstrate the contemporary involvement of the City in industry is based on a methodological error: ‘Contrary to what Ingham says about the finance of industry . . . the top 116 largest UK companies took 90 per cent of the new capital issued on the stock exchange.’62 Recent research shows that over 90 per cent of cor-porate finance came from retentions over the period 1949–1977, only 7.7per cent from the issue of securities, and a little over 2 per cent from bank credit. The contrast with Japan, Germany, France and even the market-basedAmerican financial system is a significant one and is the only way to eval-uate the kind of claims made by Barratt Brown. The top 116 companies may have taken over 90 per cent of the new issues; but it was 90 per cent of very little in comparative terms and merely serves to illustrate what Barratt Brown denies—the persistent disengagement of the City and industry.63

The City and Empire

The aims of my brief treatment of the connections between the City and Empire were very limited in scope: I questioned the view that the City’s pre-eminence derived from a position as the nerve-centre of Britain’s

59 Barratt Brown, p. 46.60 Colin Mayer, ‘Financial Systems and Corporate Investment’, Oxford Review of Economic Policy, 3/4, 1986.61 In the 1970s, the ‘Big Three’ German banks owned 35 per cent of the shares of the top 74 German enterprises. (E. Smith, The West German Economy, London 1983.) The comparable figure for Britain is less than one per cent. See Wilson Report, London 1980, p. 500.62 Barratt Brown, p. 62.63 Sec Colin Mayer; and Capitalism Divided?, chapter 3, which Barratt Brown completely ignores.

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‘finance-capital imperialism’, and I made some suggestions concerning the relationships between the Empire and the City’s commercial hege-mony. In its simplest form, the old Lenin/Hobson orthodoxy is untenable on empirical grounds.64 In the first place, there was no clear and direct connection between British trade and the growth of Empire in the nine-teenth century. Almost two and a half million square miles were added in the late nineteenth century—mainly desert and underdeveloped land, as Crouzet points out; but trade with the Empire remained static and remark-ably small—around 25 per cent of Britain’s total trade.65 Second, the very same point can be made with respect to investment: most capital went to non-Imperial destinations. As Barratt Brown concedes: ‘The City was interested in investing funds all over the world and did not wish to be limited to the Empire large as it was.’66 Furthermore, as we have seen, the amount of British capital channelled through the City has been overestimated.

Nevertheless, Barratt Brown reiterates the old highly questionable view that ‘the pressures of British industrial capital behind this expansion can hardly be denied.’67 Many industrialists did have a vision of Empire which Lenin, Hobson and others thought was a reality, but the defeat of their strategy was brought about, at least in part, by those very same interests who did not wish to have their commercial and financial inter-mediation restricted to anything less than the whole world.68 Of course, in the 1930s the Empire was put to the kinds of uses which Barratt Brown argues were the primary motives in the late nineteenth century. With the 1931 sterling crisis and the world depression, the City was forced to retreat to the security of the Empire (and even flirt temporarily with the finance of domestic industry).69 As I suggested in Capitalism Divided?: ‘ . . . it has been all too readily assumed that the intentional uses to which the Empire was put in the twentieth century can neatly explain its origins.’70 Once again, Barratt Brown does not seem to realize that the demonstration of functional economic links at any particular point in time does not neces-sarily imply a causal connection. I offered the hypothesis that the growth of formal Empire in the late nineteenth century was, in part, the ironic unplanned consequence of attempting to maintain the Pax Britannica and, thereby, the economic dominance of which commercial hegemony was such an important part. Britain’s leading competitors were becomingincreasingly impatient with this regime and wished to challenge it with

64 Cain and Hopkins; Eric Hobsbawm, The Age of Empire, London 1987; Capitalism Divided?, pp. 117–27.65 Crouzet, p. 356.66 Barratt Brown, p. 33.67 Ibid., p. 32.68 Newton and Porter, Chapter 1. They cite the views of George Byng, chairman of GEC, who made ‘due distinction between industry and commerce, between manufacturing and trading, between production and exchange’. Free trade, he argued, had made merchant bankers into merchant princes. It is interestingto note that a very early critic of the capital exports thesis anticipated the present debate (and the nature of Platt’s revisions) by almost eighty years. Rozenraad (President of the Foreign Chambers of Commerce in London) commented on Paish’s paper on overseas investment (delivered to the Royal Statistical Society in 1909) as follows: ‘Great Britain acts only as an intermediary, as honest broker working in all parts of the world, taking over—to a greater extent with the money of her customers—the loans of other nations . . . In a word, although the investment power of Britain is very great, London is the principal inter-mediary between Europe and other parts of the world for the placing of foreign securities issues here.’ Quoted in Tomlinson, pp. 63–64.69 Capitalism Divided?, pp. 195–99. Lee: ‘By the 1930s, the internationalist trade and financial policies of Victorian Britain had been abandoned, and British trade followed by British investment became increas-ingly oriented towards the Empire. Thus there emerged the sterling area.’ Op. cit., pp. 174–5.70 Capitalism Divided?, p. 117.

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their own spheres of influence. Other factors were clearly involved, but Britain’s response to her rivals’ ambitions created a politically autono-mous process of pre-emptive annexation which was interwoven with the pursuit of economic interest.

None of this ‘requires us to suppose’, as Barratt Brown mischievously avers, ‘that there had been in the Empire no sugar and cotton plantations, no tea and rubber estates . . . or mills or factories.’71 Apart from the con-flation of the plantation slavery of the old colonial system with the imperial activities of the late nineteenth century, the stress on Britain’s direct involvement or investment in factory production overseas is mis-taken. In the mid-nineteenth century, less than one per cent of British portfolio investment overseas went into manufacturing; by 1913 this had risen to just under 5 per cent.72 Barratt Brown argues as if any concessionto my notions about Empire and the City’s commercial capitalism necessarily involves a criticism of the traditional view. But this is not so; the respective approaches are not logically exclusive. It is, rather, the factual basis of the traditional view which is difficult to uphold.

My ‘most blatant misconception concerns the role played by India.’73

Saul’s standard account has established that during the late nineteenth century Britain had large trade deficits with many of the advanced coun-tries (e.g. £50m with the USA and £45m with continental Europe by 1910)and surpluses with underdeveloped ones—especially India (£60m by 1910). Thus, India occupied a key position in Britain’s balance of pay-ments and, thereby, in the whole system of multinational payments which had become centred on London.74 From the late nineteenth cen-tury onwards, as Tomlinson and I have argued, this system was based largely on the existence of the City’s institutions, the willingness and the ability to maintain the gold–sterling standard. The stability and trustwor-thiness of the currency were absolutely essential for the maintenance of international liquidity and, in this respect, the Indian surplus was crucial. It ‘ensured’, as Crouzet argues, ‘that the City was truly the economic heart of the world.’75 Barratt Brown will have none of this: ‘The Indian surplus was transferred to investment elsewhere, as I have shown at length in Economics of Imperialism.’76 There is, of course, no way of showing that the Indian surplus was literally ‘transferred’ into investment; Economics of Imperialism merely quotes Saul’s original inference that it would have been impossible to indulge so heavily in overseas investment ‘had not British

71 Barratt Brown, p. 31.72 Pollard, p. 490. Recent research has shown that British investment groups abroad had a more ‘modern’ form of organization than domestic firms and equalled them in size, but ‘the groups still per-formed the mercantile function in the sense that they were the “local” experts with capital and supportingservices in the countries or sectors of the world in which they specialized.’ Stanley Chapman, ‘British-Based Investment Groups before 1914’, paper delivered at the Institute of Commonwealth Studies, 11October 1985. Mira Wilkins (‘The Free Standing Company, 1870–1914: an Important Type of British Foreign Direct Investment’, Economic History Review, 2nd ser., xli, 2, 1988) contrasts British direct invest-ment with that of the USA: ‘ . . . thousands of companies [which] unlike the American model, did not grow out of the domestic operations of existing enterprises that had their headquarters in Britain.’ They were ‘little more than a brass nameplate some place in the City’ and, therefore, often failed to meet the challenge of other countries’ successfully managed overseas operations (p. 264). See also Charles Jones, International Business in the 19th Century, Brighton 1987.73 Barratt Brown, p. 31.74 S.B. Saul, Studies in British Overseas Trade, 1870–1914, Liverpool 1960.75 Crouzet, p. 370.76 Barratt Brown, p. 31.

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exports found a wide open market in India during the last few years before the outbreak of war. . . ’77 Obviously, anything which led to a balance-of-payments surplus facilitated the export of capital; but, within limits, this is not incompatible with the Indian surplus’s role in stabiliz-ing the currency on the exchanges. Moreover, de Cecco detects a con-scious intent to this end on the part of the British monetary authorities.78

At the very least, the traditional view must consider the following revi-sions. First, the growth of the formal Empire in the late nineteenth cen-tury cannot be explained adequately by the functional necessity for the export of surplus goods or capital. The ‘causes’ and ‘function’ of overseas expansion have been hopelessly confused in the Hobson/Lenin tradition. Second, even if one adheres to this view, there are no logical or empirical grounds for denying that the Empire also had a role in maintaining Lon-don’s commercial capitalism.

Conclusions

Unfortunately, this necessarily protracted defence of my arguments pre-vents any thorough treatment of Barratt Brown’s comments on the City’s present role in the world system and the emergence of what Susan Strange has termed ‘casino capitalism’. Barratt Brown suggests, and then rejects, the possibility that these developments may be a vindication of my gene-ral thesis. Recent events in the City are ‘a new phenomenon and there is nothing particularly English about it.’79 To be sure, the volume of finan-cial speculation has increased immensely and has been facilitated by London’s link-up with Tokyo and New York, and the emergence of twenty-four-hour trading; but again Barratt Brown jumps to hasty ill-considered conclusions about the degree of discontinuity that this repre-sents. First, as Perry Anderson correctly observed in ‘Figures of Descent’, London remains pre-eminent in its traditional roles in commercial insur-ance, foreign exchange dealing, commodity broking etc. Even with the abolition of exchange controls, the foreign earnings of pension funds are only about half those of commodity trading and brokerage.80 The Stock Exchange may provide the most newsworthy copy and capture Barratt Brown’s imagination, but is not co-extensive with the City. Second, Bar-ratt Brown’s explanation of the expansion of speculation is too simplistic. It is, he insists, yet another general crisis of capitalism which arises ‘when world competition grows and profit rates decline’.81 However, such a starkly materialist approach is unable fully to grasp these developments, and especially London’s part in the anarchy. As with sterling and the productive economy, the relationship between declining rates of profit and speculation is not direct and unmediated. Financial speculation of the recent kind can only occur if the ‘casinos’ exist. As in Monte Carlo, Las Vegas and elsewhere, the ability to remain in business requires a

77 Michael Barratt Brown, Economics of Imperialism, Harmondsworth 1974, p. 195.78 M. de Cecco, Money and Empire, Oxford 1974. He sees India as the main stabilizing element in the international payments system whose surplus was deposited in London. In this way the City could maintain its leading position and until 1914 remained the main source of international liquidity. See especially chapter 4, ‘Indian Monetary Vicissitudes’.79 Barratt Brown, p. 48.80 William M. Clarke, How the City of London Works, London 1986, p. 124; Anthony Hilton, City within a State, London 1987.81 Barratt Brown, p. 48. The same ‘line’ is taken by Alex Callinicos, ‘Exception or Symptom? The British Crisis and the World System’, New Left Review 169.

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politically generated freedom to operate. Ten years ago, in their evidence to the Wilson Committee, the Bankers Association insisted that the City’s greatest asset remained the absence from regulation—a continuity which only two world wars have disrupted. Just how does Barratt Brown pro-pose to explain the existence of the supposedly ‘new’ role? How did a rapidly declining productive economy come to be the hub of the new global financial (dis)intermediation? Why not Frankfurt? Furthermore, the emphasis Barratt Brown places on the ownership of the City is largely misplaced. On the one hand, it has always been a foreign enclave to some degree. In the early nineteenth century, the family firms which migrated to the City usually became permanent residents, unlike their modern counterparts—the employees of corporate banks. On the other hand, the very existence and control of the assets in the various markets are more significant than mere legal ownership in their impact on British society.82

If the explanation of the City’s current activities is as simple as Barratt Brown insists, then I wasted much time and effort in uncovering its historical roots and political strengths. And we are asked to consider that this ‘new’ role will disappear—just as quickly as it emerged—with con-tinued declining rates of profit and international working-class solidarity. I have my doubts.

82 In addition to Capitalism Divided?, see Jerry Coakley and Laurence Harris, The City of Capital, Oxford 1983, chapter 3.

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