Commercial finance during the Industrial Revolution: a study of local, national and
international credit
Mina Ishizu (Cardiff University)
Abstract
This paper re-examines the extent to which commercial finance determined the development
pattern of the British financial system during the early nineteenth century. It seeks empirically
to evaluate the impact of transatlantic trade on the development of the financial system at local
level as well as at national and international levels.
The paper accords with a growing emphasis on the mercantile origins of the Industrial
Revolution. The impact of transatlantic trade on the economy is clearly important in explaining
the pattern of industrialisation. In financial history, this factor remains poorly explored. Many
aspects of the British financial system of the late eighteenth and early nineteenth centuries tend
to be explained from domestic, London-centred views. As a result, traditional scholarship has
placed emphasis on industrial and manufacturing finance in explaining the development of the
British financial system and the growth of international trade finance has been neglected.
Understanding the transatlantic influence upon the development of the British financial system
involves a geographical shift in research interest from the London-centred or
manufacturing-region concentrated tradition of economic/financial history. Considering the
growth of Liverpool as a hub of the domestic and the Atlantic economies during the period in
question, the paper focuses upon textile trade finance in the port city of Liverpool and its
hinterlands in Lancashire. By focusing upon bill finance, this thesis is able to examine the role of
the Lancashire banks in financing transatlantic trade in greater depth, than, for example, T. S.
Ashton and S. G. Checkland were able to achieve in their classical studies in the 1940s and
1950s.1
Until the Bank of England started rediscounting for banking customers in 1797 for London
bankers and in 1826 for country bankers, the majority of the Bank’s bill discounting for
non-banker customers had been done for mercantile customers. In 1800, for example, almost
94% of bills held by the Bank originated from merchants. 2 Further, according to Clapham, a
significant proportion of bills of exchange were discounted for merchants who were engaged in
the distribution of either raw materials or goods of the textile trades. 3 Were these the cotton
Ashton, T. S. ‘The Bill of Exchange and Private Banks in Lancashire 1790-1830’Economic History
Review, 15 (1945); Chekland, S.G. ‘The Lancashire bill system and its Liverpool protagonists
1810-1827’ Economica, 21 (1954)
2 The total bills held by the Bank for discounting was £6,603,000 of which £6,207,000 was
discounting for non-banking customers, chiefly merchants engaged in international and
domestic trades. Clapham, J. The Bank of England VolumeⅠ,Ⅱ (London, 1949), p.206 ; See also
Shapiro, Capital and cotton industry in the Industrial Revolution (Ithaca 1967), Ch.5 for the
discussion on textile bills.
3 These textile merchants included the linen drapers and Manchester warehousemen (Bills
discounted for them £654,000), woollen factors and warehousemen (£257,000) and cotton
merchants (£100,000). Clapham, Bank of England I, pp.206-08.
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textile merchants of the rising Lancashire cotton towns and villages? It was unlikely that cotton
merchants of Liverpool or Manchester directly used the Bank of England’s discounting facilities
at that time because the Bank discounted bills mostly for residents of London. But it was likely
that large and successful Lancashire firms would have accessed Bank credit via discounting
through their London partner firms. As Chapman argued, it was customary for northern cotton
firms to go into partnerships with a London firm or firms largely for this purpose. 4 It was thus
likely that cotton merchants discounting regularly at the Bank of England acted as London
agents for the Lancashire firms. The number of the Bank’s discounting clients however seemed
to decline in the first half of the nineteenth century. From the 1770s to 1818 the Bank had about
1200 to 1400 clients but by 1819 the number had decreased to 943. By 1824 it had fallen to 545
and throughout the mid nineteenth century it was often less than 300.5 Did this reflect a relative
decline in bill discounting for cotton textile merchants in London during the first half of the
nineteenth century?
Turning to textile bill discounting in Lancashire, there occurred major changes over the period
in question. By 1836 the bill discounting of Liverpool and Manchester branches made up 75% of
all the Bank’s branch discounting and these were by far the largest.6 The northwest had grown
thus as the largest outlet of the nation’s bill discounting - apart from London - by the 1830s.
These observations seem to suggest that a diversion of textile bill circulation or flow occurred in
Britain in the first half of the nineteenth century, more precisely from the 1810s to 1830s. This
was the period that witnessed the emerging inter-regional bill discounting system in Britain,
and no doubt this assisted the diversion. My hypothesis here is that the commercial finance of
the northwest textile trade was being diverted from London to the local money markets during
the period of major structural changes in the British financial system.
The paper draws upon various source materials including a collection of bills received by
Parker & Sons, the Manchester calico merchants; business correspondence and ledgers of two
large textile firms, Horrocks & Co of Preston and Lupton & Co of Leeds: and the branch
correspondence of the Bank of England in Liverpool and Manchester. Via a detailed analysis of
these sources, the paper argues that there occurred a re-route of textile bill circulation at
national level during the first three decades of the nineteenth century. It was likely that the
long-term shifts in credit terms in textile commerce acted as a causal factor in this diversion of
textile bill discounting from London to northwest local money markets. The northern textile
firms had enjoyed favourable credit terms provided by suppliers of local goods. No doubt this
had helped the firms to venture into new overseas markets in their goods exports.
Over-extended credit provision was curtailed in the mid 1820s – more precisely in the
commercial crisis in 1825 – the textile merchants now faced demand from their suppliers for
cash payments and hence increased their reliance upon credit provision and bill discounting by
local banking houses. The first quarter of the nineteenth century saw the maturation of banking
institutions in the northwest. The banks were more firmly linked with the national bill
Chapman, S.D. ‘Financial Restraints on the Growth of Firms in the Cotton Industry 1790-1850’
Economic History Review 32 (1979), pp. 52 ,58-9 and Appendix II
5 Clapham, Bank of England I, p.205
6 Data from Table 1 Bill discounting by branch banks of the Bank of England, Birmingham,
Liverpool and Manchester 1826-1838, Sekiguchi, Y. ‘Bank of England siten keiei to Chuo ginkou
seisaku,’ Yokohama Business Studies, Vol.15 -19, (1994-98) [‘The management of the Branch Bank
of England and the central bank policy’] p.9
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discounting system which met the growing demand from the local mercantile community for
regular and large credit provision.
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