The British Economy

• Capitalism


  an economic system in which private businesses control trade and industry for profit
• National Debt


  the debt owed by a government borrowing from banks so that it can finance its activities
• War of the Spanish Succession


  a war between European powers from 1701-1714
• Capital investment


  putting money into a financial or commercial project with the hopes of gaining interest later
• Economy 


  money that flows in and out of a country through taxation, trade and debt
• The Bank of England


  • Established in 1694 by the British government
  • Had a monopoly on issuing banknotes
  • Lent the government money at a rate of 8% per annum
  • Created the National Debt owned by the government, not the monarch
  • Could lend to private businesses and people
• Creation of the Bank of England


  • To continue with expansionist wars, William III needed to borrow money
  • At the same time, merchants wanted to promote private business
  • These interests came together to form the Bank of England in 1694
• The South Sea Company


  • Formed in 1711
  • Given the right of asiento and sold enslaved Africans to Spanish colonies
  • A joint stock company, which meant it had shareholders
  • Shareholders shared in the profits when the company did well, but would pay for its losses when business went badly
• Why people bought shares in the South Sea Company


  • The Company artificially increased the share price to £1000 per share, making it very successful
  • The Company published advertisements describing huge reserves of gold and silver in South America that it claimed it would be trading
• Why did the South Sea Bubble burst?


  • Shareholders eventually realised that the share value was too high for the company to support, and started selling their shares
  • As people sold their shares, the value decreased, and other shareholders panicked and sold their shares
  • There was a rush to sell shares
  • The Company did not have enough money to pay people back
  • Most shareholders lost all their money, and the company collapsed
• Globalised trade


  • Boom in trade
  • Huge profits
  • Development of capitalism
  • Employment opportunities
  • Global system
  • Risks
• Globalised trade - boom in trade


  • the home market grew as demand increased for rum, sugar and tobacco
  • the colonies needed goods from Britain, increasing imports to Afria
  • the Atlantic trade pushed Britain past France and Spain
• Globalised trade - huge profits


  • Profits were high from the slave trade, plantations and trade with Asia
  • The slave trade
  • owners of slave ships made profits of up to 20-50%
  • Plantations
  • plantation profits from the English Caribbean gave investors in London a good rate of return
  • Asian trade
  • The EIC made a huge 50% payout to its investors
• Globalised trade - development of capitalism


  • Britain became dependant on trade and colonial expansion during this period
  • State monopolies were ousted by private businesses
• Globalised trade - employment opportunities


  • The empire provided work for British people of all social classes
  • e.g:
  • administrators for the EIC
  • planters and their employees
  • shipbuilders in port cities
  • clerks in banks and businesses
  • workers in sugar refineries
• Globalised trade - global system


  • All aspects were interlinked:
  • more investment in businesses to meet demand
  • increased export of goods to develop plantations trading goods
  • transportation of more enslaved labour
  • increased production of commodities to Britain
  • more profit for business
  • spending power increased
  • greater demand in Britain for commodities
• Globalised trade - risks


  • Threat of war between European powers made journeys dangerous for merchant ships
  • Companies could collapse
  • e.g. the South Sea Company in 1720
• What interests came together to form the Bank of England?

  - William III needed to borrow money for wars

  - Merchants wanted to promote private business
• What did the Bank of England have a monopoly on?

  Issuing banknotes
• What was the interest rate that the Bank of England lent the government money at?

  8% p.a.
• What was the National Debt?

  A debt owed to the Bank of England by the governmet, not the monarch
• Who could the Bank of England lend to?

  People and private businesses
• When was the Bank of England set up?

  1694
• When was the South Sea Company formed?

  1711
• What was the South Sea Company given?

  Asiento
• What did it mean for the SSC to be a joint stake company?

  It had shareholders
• What was the connection between shareholders and the profits made by the SSC?


  They shared in the profits when the company did well, but would pay for its losses when business went badly
• What did the SSC do to its shares?

  Artificially increased the price to £1000 per share
• What did the SSC advertise?

  Huge reserves of gold and silver in South America that it claimed it would be trading
• What did shareholders realise about the share prices?

  Their value was too high for the company to support
• What did shareholders in the SSC do after they realised the price was too high?


  Began selling their shares
• What happened when shareholders began selling shares?

  The SSC did not have enough money to pay people back
• How did the Bubble burst?

  The SSC could not pay shareholders back, most lost all their money, and the Company collapsed