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Faeelin
November 18th, 2007, 08:01 PM
Something that's come up before in TLs where the Confderacy getsindependence is that British investment in America decreases, with the effect being a noticeably smaller American economy.

How severe was this? I'm looking through a history of America's industrialization, The Political Economy of American Industrialization, and the author makes an interesting point.

"European investment in the US in 1899 has been estimated at over $3 billion. While this was a large sum in absolute terms, foreign capital still played a secondary role in funding American industrialization; for example , even in the railroad sector, where European investment was three quarters of all capital investment was contributed by Americans. And, in fact, trans-Atlantic investment midway through the 1890s was transoformed into a two-way street as the US became, at the margin, a net creditor in the World Economy".

I just thought this was an interesting factoid and worse tossing out; that while industrialization in the face of a (for some crazy reason) hostile Britain from 1865 may not be that dramatically different.

Draco
November 18th, 2007, 09:45 PM
If Britain pulls out in the 1860ís barring the possibility of doing so resulting in a panic I would say the long term effect will be slightly noticeable but not very large now an earlier withdrawal might be a lot more noticeable down the line. I think the largest divergence will depend on where the money ends up in this time line especially so if finds its way to say India.

Nicomacheus
November 19th, 2007, 01:51 AM
"European investment in the US in 1899 has been estimated at over $3 billion. While this was a large sum in absolute terms, foreign capital still played a secondary role in funding American industrialization; for example , even in the railroad sector, where European investment was three quarters of all capital investment was contributed by Americans. And, in fact, trans-Atlantic investment midway through the 1890s was transoformed into a two-way street as the US became, at the margin, a net creditor in the World Economy".

It seems to me the quote definitely support the thesis that a hostile Britain that does not invest in the North after a Southern victory would do a lot to slow the growth of Northern industry. I would want to qualify this: Northern industry already extant probably would grow just fine, but Western expansion which by the end of the nineteenth century produced a truly continental industrial machine would have born the brunt of the decrease. Most ranches in the "Wild West" had ultimately British financiers, for example.

The greater question is what it would take for Britain to take such a harsh line: usually, Britain invested anywhere it could, fighting wars to force its right to do so when necessary. Investing in both USA and CSA keeps both as potential bastions of markets and agricultural goods, while decreasing the ability of either to challenge Britain's role internationally. Even if Britain had intervened to stop the Civil War, enmity against them need not have been great. The war would have been going badly anyway.

Additionally, even without British investment, odds are the US would have found some other foreign investor (unless they go really all out and wall themselves off from foreign investment). Perhaps France or Germany. The returns of the settlement of Western lands were too good to pass up.

Faeelin
November 19th, 2007, 01:54 PM
It seems to me the quote definitely support the thesis that a hostile Britain that does not invest in the North after a Southern victory would do a lot to slow the growth of Northern industry.

I dunno. 25% of railroad investment is European, which includes French and so forth; and hostile Britain would still invest in America, just less. But what really struck me is that only 5% of the capital in America in the era came from foreign sources.

Nicomacheus
November 19th, 2007, 03:05 PM
The operative part is 75% foreign ownership of rail. I suspect the number from other western expansion industries was similar (for example, ranching). Without that seed capital, American industry might have stayed localized in the Northeast. Additionally, a lack of $3 billion is still a major lack.

Faeelin
November 19th, 2007, 06:06 PM
The operative part is 75% foreign ownership of rail. I suspect the number from other western expansion industries was similar (for example, ranching). Without that seed capital, American industry might have stayed localized in the Northeast. Additionally, a lack of $3 billion is still a major lack.

Not if it's a small amount compared to the overall investment.

You're assuming that that ownership could not be replaced, or that railroads were not the preferential investment because of the high rate of returns.

MrP
November 19th, 2007, 06:19 PM
Well, I suppose the thing to do is to get a view from one of our money chaps and ask what effect it'd have today if from 1990 to the present, 25% of a particular industry wasn't getting its OTL funding, and overall investment was down 5%. I don't know anything about money, so take this with a pinch of salt, but I'd think that a 5% funding drop would probably be tied into a similar drop in people prepared to invest. That could be bollocks, of course, because the British privately-owned railway network was an excellent return on investment until WWI did it in. However, there wasn't a big financial collapse in the British rail network during that period (well, not that Dad's ever mentioned to me), and there was in the American one.

Jaded_Railman
November 19th, 2007, 06:59 PM
It bears mentioning that investment does not exist in isolation. If Britain didn't invest in America, than it's very likely someone else would have.

NapoleonXIV
November 19th, 2007, 07:07 PM
It bears mentioning that investment does not exist in isolation. If Britain didn't invest in America, than it's very likely someone else would have.

Or not, maybe the lack of British investment puts off other Europeans.

What I want to know is WHY Britain's not investing. If, frex, it's because the US has passed laws which won't let it.....

(why would we do that? hey......)

67th Tigers
November 19th, 2007, 08:21 PM
It bears mentioning that investment does not exist in isolation. If Britain didn't invest in America, than it's very likely someone else would have.

These things are relative. The British were the largest foreign investors of any nations, and the lost laisez faire about it. The "lost colonies" still drew more investment than the rest of the Empire combined.

A lot of that has to do with the fact the British were so rich, and had such huge exports that the balance of trade would eventually mean the British owned everything, and everyone was poor and couldn't buy British any more. British investors had a huge interest in making sure the US could keep importing from Britain (despite a relatively huge trade barrier, it was still cheaper in America to buy British rather than US manufactures).*

Elsewhere there were such odities as the Chinese (or "Opium") Wars, fought by Britain mainly to keep China's credit rating high enough to trade with the west/ UK.


* If you've played Medieval: Total War, this is the same phenmemon as after your glorious Byzantine Armies have crushed all, you find you've no trade income left and you empire falls to pieces (or mine did).

DominusNovus
November 19th, 2007, 08:28 PM
Well, due to the volatile nature of the American economy in the 19th century, much of the stock that foreigners had in the US would get devalued in a panic and bought up by Americans.

A somewhat tangential point to the topic.

Nicomacheus
November 20th, 2007, 02:08 AM
The important piece is that Britain was the investor of last resort: without British capital, American financial panics might have been worse and small enterprises (the burgeoning west) would falter.

I agree with those who point out that this doesn't mean that the American economy dries up. But it's difficult to say that it would slow to the exact degree relative to its investment, given the nature of British capital.

All that being said, I also agree that this scenario is extremely unlikely.

wkwillis
November 22nd, 2007, 07:01 AM
If the US does not fight an expensive civil war, the US does not need British capital. Interest rates go up, people save more, bankers invest more, and that's about it.