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C REDIT R ATIONING AND C ROWDING O UT DURING THE I NDUSTRIAL R EVOLUTION : E VIDENCE FROM H OARE ’ S B ANK , 1702-1862 P ETER T EMIN (MIT AND NBER) H ANS -J OACHIM V OTH (UPF, CREI, AND CEPR) A BSTRACT . Why was growth so slow during the British Industrial Revolution? More than a decade ago, Jeff Williamson proposed crowding-out as a result of Britain's numerous wars as a key mechanism, but little empirical evidence existed to support it. We argue that examinations of interest rates are fundamentally misguided. The eighteenth- and early nineteenth-century private loan market balanced through quantity rationing as a result of the usury laws. In the archives of a private bank that we use, over ninety percent of all loans were made at the maximum permissible lending rate, as set by the usury rate. Hence, earlier investigations such as the one by Mirowski et al. could not undertake a valid examination of the crowding-out hypothesis. Using a unique set of observations on lending volume at a London goldsmith bank, Hoare’s, we document the impact of wartime financing on private credit markets. Whenever public borrowing rose above trend, private lending declined markedly. We conclude that there is considerable evidence that government borrowing, especially during wartime, crowded out private credit, and that the magnitude of the effect is important enough to explain at least partly why British growth during the period 1750-1850 was relatively slow. JEL CLASSIFICATIONS : E44, N23, N13, G21, G18, G28 K EYWORDS : crowding-out, British Industrial Revolution, growth, finance, credit rationing.

Credit Rationing and Crowding Out During the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862