British History An International Credit System

One of the reasons why Britain was so interested in free trade and the growth of world commerce was that she had become a creditor nation. When Alexander Hamilton sought a loan abroad for the United States, he turned to the Netherlands, the only nation at that time from which loans could be obtained. By 1815, the financial capital of the world was London, not Amsterdam. Since the days of the Commonwealth, the British had been steadily accumulating capital from trade. Increased agricultural production, trafficking in loans with the home government, and marine insurance added to British capital. Because capital chooses to operate from a safe place, such enterprising and international financiers as Alexander Baring and Nathan Rothschild had been attracted to London during the wars. These immigrants were of considerable value in mobilizing Britain's increasing capital resources. The Barings floated loans to pay French reparations and occupation costs at the close of the wars, and the Rothschilds financed the acquisition of the Suez Canal for Britain.

To purchase increasing amounts of equipment and larger and varied amounts of supplies of raw materials and to pay for the services of foreign experts and technicians, newly settled and developing areas needed foreign loans and ownership investments by foreign capitalists. During the century 1815 to 1914, millions of British pounds were loaned abroad to promote land settlement; to develop mining; and to build railroads, factories, public utilities, roads, canals, and docks. Sooner or later, these credit transactions were translated into movements of goods between countries, and, as the principal source of supply for manufactured goods and the world's carrier, Britain benefited.

Hence, a large share of international business was transacted in sterling, to the further benefit of London. As the world's leading money market, the city early developed facilities for short-term international loans for clearing payments on international transactions -- both functions necessary to the system of multilateral trade. At London, the money of every nation of the world could be made the basis of credit, and the foundations were laid for the discount market where bills of exchange from the whole trading world were dealt with so as to provide a revolving fund that enabled world trade to be financed on an expanding basis.