Darwin J. The Empire Project. The Rise and Fall of the British World-System, 1830-1970

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115 / The commercial republic

1860 to 465,000 in 1910 (and 674,000 in 1920).

Shipping tonnage

more than doubled in the same period (and travelled more rapidly).

Telegraph cables lengthened from approximately 8,000 miles in 1872

to reach 325,000 miles by 1922. British interests owned, managed or

controlled all these enterprises on a grand scale: the vast proportion of

railways outside the United States and Continental Europe and some

40% of registered shipping by the early twentieth century. By then,

40% of the world’s telegraph cables were in the hands of a single

British concern, the Eastern Telegraph Company and its associates.

Trade followed construction. Building railways overseas

required locomotives, rolling stock and iron rails. New customers

appeared as commercial production extended. The demand for British

exports rose on both accounts. It was true that, as new industrial com-

petitors arose in Germany and the United States, Britain’s share of

the world’s manufactured exports drifted down from 38%in1880

to 30%in1913.

More generally, Britain’s share of world trade fell

from 25%in1860 to 20%in1900 and 17%by1913.

But these

ﬁgures disguised a large absolute rise in the value of British exports

and a remarkable increase in the share of Britain’s total production

that they represented. In 1856, the ratio of exports to gross domestic

product had been 14.6%. By 1873, it had reached 18.3%. In 1913 it

was 25%.

British imports also grew rapidly as dependence upon for-

eign food supplies became greater and greater. Indeed, the imbalance

between exports and imports widened steadily after 1880 despite the

falling cost of food and many raw materials from an average of around

£97 million in 1880–9 to £160 million after 1900.

In production and

consumption Britain had become more dependent upon international

trade and more international in outlook than ever before. Free-trade

capitalism had reached its highest stage.

But the most spectacular change was the extent to which British-

based interests proﬁted from the surging growth of international trade

and the scale on which they acquired assets abroad. A huge proportion

of the world’s trade passed through London by the early twentieth cen-

tury, not so much physically but rather in all the commercial and ﬁnan-

cial operations that international commerce required: ship-broking;

insurance; the grading of products; and sale. Sterling was the currency

of trade, and the ‘bill on London’ the usual (because most convenient)

form of payment. By 1913–14, 60 per cent of bills on London were

for transactions entirely between foreign buyers and sellers.

London

116 / Towards ‘The Sceptre of the World’

was the world centre for commercial information, the listening post

for commercial opportunities in every continent. London prices were,

for most goods, the world’s prices. Not surprisingly, British companies

took the lead in providing the information and services that world trade

needed, especially in shipping and insurance. Despite the huge fall in

the cost of seaborne freight (by some 50 per cent between 1870 and

1913

), the income from these ‘invisible’ exports rose steadily from

£80 million a year to nearly £170 million by 1913.

Large as this ﬁg-

ure was, more than covering the trade gap, it was outstripped by the

income drawn from assets built up abroad.

A marked tendency to invest overseas was already visible before

1880. Partly it arose as British merchants mobilised capital at home to

create the kind of ‘ﬁxed’ assets – like docks or warehouses – that would

expand their business on the spot. British lenders, who readily bought

government bonds (‘consols’) at home, also willingly placed money in

the bonds issued by foreign states. A disinclination to risk savings in

domestic commercial ventures, and the low level of government bor-

rowing at home after mid-century, drove the surplus incomes of the

wealthy abroad. The major impetus came from the construction of

railways overseas, which, unlike most commercial or industrial ven-

tures, required a very large immediate investment before any return

was forthcoming. British conﬁdence in railway technology, the early

development in Britain of a market in railway shares and the promi-

nent role of British railway contractors overseas combined to make

this an especially attractive outlet for surplus British funds. As the

international railway boom developed in the 1870s, a huge stream of

British capital ﬂowed abroad. Between 1870 and 1913, British invest-

ment in Indian, colonial and foreign railway companies rose ﬁvefold to

£1.5 billion – around 40 per cent of all British overseas investment.

There was a similar rise in the sums invested in government bonds

(both inside and outside the Empire) – often to fund state railway con-

struction or other kinds of infrastructure. By 1913, a third category of

foreign investment was growing even faster: overseas companies con-

trolling utilities (like gas- or waterworks), banks, real estate, mines and

plantations, but rarely industry.

The result was an overall increase in

the value of Britain’s assets abroad from under £1,000 million in the

early 1870s to around £2,000 million by 1900,and£4,000 million by

1913.

Almost all of this was placed outside Europe and 44 per cent of

the world total of foreign investment was in British hands.

Altogether

117 / The commercial republic

these overseas assets produced an income worth more than one-ﬁfth

of all Britain’s overseas earnings.

They made up some 34 per cent of

all British assets at home and abroad. A forward glance will reveal the

true scale of this astonishing mountain of wealth. By 1937, the effects

of war loss and depression had driven that proportion down to 18

per cent and by 1973 to 3 per cent.

In 1990, British overseas invest-

ment, having staged a major recovery, reached the impressive ﬁgure of

£100 billion. But, measured against the overall rise of Britain’s assets,

this was no more than one-seventh of its value in 1913.

The head and centre of this far-reaching ﬁnancial and commer-

cial activity was the City of London. Essentially, the City was a cluster of

markets attracting buyers and sellers from all parts of the world. Some

of these markets were organised as ‘exchanges’ like the Wool Exchange

(established in 1875), the London Metal Exchange (1882), the Baltic

Exchange (dealing in grain) and the Coal Exchange. Mincing Lane was

the market for commodities like sugar, cocoa, coffee and spices, with

regular auctions at its sale rooms. A large number of City ﬁrms dealt in

the import or re-export of commodities, sometimes for immediate sale,

sometimes as options or ‘futures’. Many tended to specialise by country

or type of produce, and one entirely in the import of hair.

Because

the commodity trades usually required the advance of credit to faraway

producers, and because of the lapse of time before the harvest came

to market, the dealers in London were also lenders.

They, in turn,

required the services of specialised ﬁnance houses, ‘accepting houses’

or merchant banks, who could tap the reservoirs of short-term borrow-

ing drawn to the City from bank deposits throughout the country. The

merchant banks, headed by the great houses like Rothschilds, Barings

(the ‘sixth great power’ until its crash of 1890),

J. P. Morgan, Klein-

worts and Schroders, but including many that were far smaller and

more specialised, lent money on their own account but were usually the

agents through whom large loans or an issue of securities were nego-

tiated by public or private borrowers. Including the Bank of England

and the joint stock banks catering for the ordinary public, they made up

the ‘Inner City’ of high ﬁnance.

London was also the headquarters of

more than forty British-owned overseas banks like the Bank of London

and the River Plate or the Chartered Bank of India, Australia and China,

with branches in Bombay, Calcutta, Rangoon, Singapore, Hong Kong,

Shanghai, Manila and Batavia (modern Jakarta). By 1900, banking had

become increasingly cosmopolitan and British banks faced competition

Canada

£412m

USA

£836m

Mexico

£81m

Brazil

£172m

Argentina

£349m

Egypt

£66m

South Africa

£262m

Russia

£139m

Australia

£339m

£84m

Japan

£78m

India

£317m

China

£73m

Source: A.N. Porter, Atlas of British Expansion and I. Stone, The Global Export of Capital

Map 6 British foreign investment to 1914

119 / The commercial republic

from foreign banks in London serving the commercial needs of their

own traders.

But the most dynamic element in the commercial life of the

late-Victorian City was the Stock Exchange.

Until mid-century it had

been largely concerned with the sale of government bonds. Thereafter,

railway shares and loans to foreign states rapidly widened its business.

In the 1880sand1890s, expansion was frantic. Membership (the enti-

tlement to deal) grew from 1,400 (1871) to over 5,500 by 1905.By

the early 1900s, one-third of all quoted securities around the world

were traded in London and around 60 per cent of the Stock Exchange’s

share listings were for overseas enterprises.

In the search for cap-

ital, most roads led to London. The Exchange itself was informally

divided into sections including Consols; the ‘Yankee’ market (Amer-

ican railways); Home rails; and, in the 1890s, the ‘Kafﬁr Circus’ for

South African gold shares. Stockbrokers developed specialist expertise

in lines of business or regions. In 1898,theStock Exchange Year Book

listed over 650 railway companies, a large proportion of them over-

seas; more than 1,000 ﬁrms engaged in mining or ‘exploration’; and

several thousand loosely described as ‘investment, trust and ﬁnance’ – a

category which included Cecil Rhodes’ ‘British South Africa Company’

with its private empire north of the Limpopo. As the communications

revolution seemed to throw open more and more commercial opportu-

nities in the non-European world, and distant prospects were gilded by

gold discoveries on the Rand, in Australia and at the Yukon, the Stock

Exchange became the great arena where private savings were mobilised

for investment overseas. Circling round it were the ubiquitous company

promoters, scrupulous or predatory, whose role was to convert a com-

mercial idea into a marketable security. Their skill in the ‘ﬁnancial arts’,

remarked the radical economist J. A. Hobson, was often exercised to

‘scoop out’ the real assets of an enterprise while selling on its ‘shrivelled

carcase’ to a bamboozled public.

Proximity to the Stock Exchange and merchant banks, and

access to the ﬂows of market information was the reason why many

British-owned overseas ﬁrms based themselves in the City. This was

especially true of overseas railway companies with their constant thirst

for new capital. Finsbury Circus was the favoured address of British-

owned Argentine rails like the Buenos Aires Great Southern or the

Oeste. Similar needs made the City the world headquarters for mining

enterprise.

Large shipowners like Cunard, British India, Peninsular

120 / Towards ‘The Sceptre of the World’

and Oriental and Shaw Savill (trading to Australasia) were drawn to

London by its ship-chartering market. London was the principal centre

for insurance. Railway, mining and shipping enterprise also required

the services of non-ﬁnancial expertise: consulting engineers and other

technical specialists. In short, there was scarcely any large commercial

or ﬁnancial venture linking Britain (and much of Continental Europe)

to the ‘new economies’ of the wider world that, in one aspect or many,

did not pass through a London agent. In a vast swathe of the world out-

side Europe and the United States, commercial development and even

ﬁnancial solvency turned upon decisions made in the City. Here was a

plenitude of inﬂuence that matched that of Whitehall and Westminster,

the political capital of the British system.

Indeed, the great commercial and ﬁnancial emporium centred on Lon-

don (with the lesser marts of Liverpool and Glasgow) was more than

just an adjunct to British world power. It was the great cosmopolitan

intermediary between the British domestic economy and the outside

world. It might almost be seen as an autonomous partner attached to

the British world-system by sentiment, self-interest and domicile, but

largely indifferent to the strategic or administrative preoccupations of

its political managers – except where they impinged directly on its eco-

nomic prospects. It had grown up willy-nilly over the remains of the old

mercantile system liquidated after 1846. Its well-being was acknowl-

edged as a vital national interest. Its leaders and spokesmen periodically

emphasised its contribution to British wealth. It shaped powerfully the

conception of the British interest in India. It massively – perhaps at times

decisively – reinforced the allegiance of the white dominions to their

faraway motherland. It was the conduit for the large British investment

in the United States, half-rival, half-associate in a world of voracious

imperialisms. But the commercial power it exerted was no mere exten-

sion of Britain’s imperial inﬂuence and authority. The managers of

the commercial empire, especially the City elite, had wide autonomy

and ﬁercely resisted outside regulation. Their priorities were rarely the

same as those of the political and ofﬁcial world at the far end of the

Strand. It was true that many bankers were drawn from the same class

as the political and administrative elite. But many other interests were

121 / The commercial republic

represented in the City, and in parts of it capitalism was anything but

gentlemanly.

Even in the most respectable quarters overseas busi-

ness was carried on with little regard to the ‘national interest’, partly

because, with so little inclination to think analytically, such a notion

existed only in the haziest form.

For their part, ofﬁcials and politicians were inclined to treat the

commercial cosmopolis as an allied but not necessarily friendly power.

Its independence was warily recognised. But its political judgment was

laughed at;

and its morals widely distrusted. The sensational growth

in the wealth and social power concentrated in the City after 1890

aroused alarm as well as satisfaction. On both Left and Right, the

appearance of a new City-based ‘plutocracy’ was regarded with deep

suspicion.

On both political wings, the ‘cosmopolitan’ outlook of

the ﬁnancial world was equated with rootlessness, restlessness and the

readiness to sacriﬁce public good for private gain. The cosmopolitan

ﬁnancier, indifferent to any consideration but proﬁt, was the villain in

J. A. Hobson’s radical unmasking of the hidden forces behind impe-

rial expansion and the South African War. His famous analysis of

the export of capital, on which the City prospered, insisted that its

social function was to perpetuate poverty and ‘under-consumption’ at

home by rewarding the ‘over-saving’ of the rich.

The Tariff Reformers

blamed cosmopolitan indifference to the domestic industrial economy

for the hostility of the ﬁnancial world towards their programme of

imperial unity. In his ‘City’ speech in January 1904, Joseph Chamber-

lain warned his audience not to forget that ‘the future of this coun-

try and of the British race lay in our colonies and possessions . . . the

natural buttresses of our Imperial State’.

His economic expert,

W. J. Ashley, gloomily forecast Britain’s future as a declining rentier

state: ‘the history of Holland is to be repeated.’

There were other grounds for doubting the congruence of the

interests of the City with those of nation or empire. The Barings crisis

in 1890 and the American crash in 1907 showed that the City’s huge

exposure to overseas markets could destabilise the whole ﬁnancial sys-

tem. Some observers warned that the speculative manias and fraudulent

promotions bred by the Stock Exchange could damage Britain’s real

interests overseas and unsettle her imperial ties.

But, down to 1914,

this criticism made little headway. Economic orthodoxy proclaimed the

unalloyed beneﬁt of a large foreign portfolio and even Leftish opinion

came to concede that the City’s inﬂuence in world affairs was benignly

122 / Towards ‘The Sceptre of the World’

paciﬁc.

Nor was there yet much sign of conﬂict between the City’s

cosmopolitan functions as the owner and manager of a vast property

empire outside British sovereignty and its role as the emporium for

‘Imperial’ trade between Britain, the dominions, India and the Crown

Colonies. Quite the contrary. London easily mobilised the vast stream

of capital that ﬂowed to Canada after 1900. Its multilateral payments

system made it much easier for Britain to proﬁt from India’s surplus

on foreign (i.e. non-Empire) trade, remitted to London as the ‘home

charges’.

Its foreign investments stimulated British production of cot-

ton, ships, locomotives and coal – for bunkering and as the outward

freight that made British shipping so widely proﬁtable.

It made Britain

the ‘telegraph exchange of the world’,

and hence ‘British’ news the

most widely circulated. Its vast income stream lifted the social and

cultural prestige of the British metropolis to its zenith.

New frontiers of commerce

In all these ways, the City (with the smaller cosmopolises in Glasgow

and Liverpool) was the grand ally of the (formal) Empire. Its own sphere

of unofﬁcial or ‘semi-colonial’ expansion was also growing rapidly after

1880. Here it was engaged in turning the sketchy ‘informal empire’ of

mid-Victorian times into prosperous new tributaries of its great com-

mercial republic. Four great zones lay at the edge of the ‘developed’

world but beyond the imperial frontier: tropical Africa, the Middle

East, China and Latin America.

None of these was wholly unfamiliar to British merchants and

lenders, but none had lived up to its early promise. By the 1860s

and 1870s they had become much more appealing. In part this was

a side-effect of accelerated commercial development elsewhere. As new

regions were ‘colonised’ by banks, railways, shippers and brokers, mer-

chant houses scoured remoter neighbourhoods for fresh trades where

competition was less harsh and windfall gains more likely.

Technol-

ogy was on their side. With the rising volume of long-distance trade,

seaborne travel became faster, cheaper and more regular, lowering

the start-up costs of merchant enterprise. After 1870, the Suez Canal

changed the geography of shipping in the Indian Ocean in Europe’s

favour. The expanding telegraph network carried the ‘information-

head’ of market intelligence into ever deeper hinterlands, reducing

123 / The commercial republic

business risk. With a weekly steamer service even the mystery and

horror of the West African coast was tamed.

Secondly, merchants

and lenders could hope to proﬁt from the increasing readiness of previ-

ously conservative, secluded or simply disorganised states to embrace

ﬁnancial and administrative modernisation – sometimes by ‘quick-ﬁxes’

like the Reuter’s Concession in Iran where most of the modern com-

mercial sector was handed over (if only brieﬂy) to a single foreign

entrepreneur.

Thirdly, British-based enterprises were well placed in

the later nineteenth century to piggy-back on older mercantile pio-

neers. It was usually local men who ﬁrst opened the trade paths in

‘backward’ regions, plugging them into larger commercial circuits. But,

once their trade was worth the taking, they were often no match for

interlopers with cheaper credit, better shipping and vastly superior com-

mercial intelligence of markets and prices. Europeans were sometimes

‘trade-makers’, but they were just as likely to be ‘take-over’ merchants,

squeezing out or subordinating older practitioners – nowhere more so

than in Africa.

In principle, this extension of commercial activity ought to have

been self-reliant – much more so than in early Victorian times. In the

age of contract, the diplomatic glove, let alone the mailed imperial ﬁst,

should have been redundant. The momentum of commercial change

was greater, its rewards more visible, its necessity more accepted. Busi-

nessmen had access to more capital and better information. In the era

of the limited company, it was easier to transfer capital to regions

promising quicker proﬁts. And, as the tide of economic change lapped

higher in the non-Western world, ﬁnding local partners should have

been as straightforward as squaring ‘progress’-hungry rulers. And, up

to a point, it was.

In practice, it was much less clear that, even in its own semi-

colonial sphere, the City could dispense with political Empire. There

were three reasons for this. In some parts of the semi-colonial world,

the limited scope of political institutions threw upon the trader the

onus of defending his property and commercial rights by agreement if

possible, by force if necessary. Produce, markets and especially labour

were prizes for those with the strength to seize and hold them. But,

to enforce his ‘contractual’ claims in the face of other foreign inter-

lopers, the trader needed either the protection of his government or

a licence (like a charter) to make treaties, levy taxes and dispense

‘justice’. Secondly, there were parts of the extra-European world where

124 / Towards ‘The Sceptre of the World’

foreign trade or investment were concessions in the gift of patrimonial

or bureaucratic regimes. Here the merchant existed on sufferance or by

favour. His status and prospects depended upon the help of diplomatic

intermediaries without whose protection the privileges (freedom from

taxation, arrest and bureaucratic harassment) that made his business

proﬁtable would lapse. Thirdly, there was the question of how the

merchant (or investor) could secure himself against default, when

the debtor was also the ruler. As trade and ﬁnance moved deeper into

the Outer World and their stakes grew higher, these ‘political’ risks

loomed large in their calculations.

For a late-Victorian government, however, smoothing the mer-

chant’s path and standing guard for the investor were not to be under-

taken lightly. Each threatened it with complications, embarrassment

and expense. Each laid it open to accusations of favouritism or worse.

But, where commercial interests could mobilise wider support or claim

some higher purpose, they were not so easily brushed aside. They might

even be useful to some diplomatic ploy. The result was a frontier of

commercial expansion in which the role of government varied between

a maximum (annexation) and a minimum (diplomatic inertia). It was a

revealing irony that annexation was most likely where local and inter-

national conditions made it easiest, not where its economic dividend

looked most promising.

British business in Africa

Tropical Africa represented the extreme case. Here was a vast region

between the Sahara and South Africa where British (and other Euro-

pean) traders had scarcely ventured beyond the West African coast.

Access to the hinterland was barred by physical obstacles or the obstruc-

tion of suspicious ‘middlemen’; there were no modern states to lend to

nor landed property to mortgage; and commercial information about

the interior was often, literally, at the exploratory stage. Even more

daunting, perhaps, was the fact that, in the 1880sand1890s, tropical

Africa’s commodities – such as they were – were of marginal interest

to industrialising Europe, and the principal commercial export, palm-

oil from West Africa, sank to its lowest price level in that period.

Indeed, tropical Africa had a declining share in the trade of an expand-

ing world economy. Yet none of this deterred British entrepreneurs

from striking into the interior to carve new business empires out of the

African bush.