"The Greatest Age of the Inducement to Invest"

My eyes bugged out the first time I saw the above graph from Christopher Chantrill.

It makes U.S. debt (this graph, also by Chantrill) look small by comparison. Not to minimize the U.S. debt problem, not at all. (Since 1986 the US figure has been above the UK number.)

The great mountain of UK debt spans two centuries. During those centuries (where numbers are available) peak US debt was only one-tenth as much. And at maximum, US debt (relative to GDP) was half peak UK debt.

Debt is a problem. But the bigger problem is that debt is out of control. The great challenge, then, is to bring debt under control. Toward that end, an improved understanding of debt and its consequences is in order. Let us consider the great mountain of UK debt, 1692-1914.


The mountain of debt did not interfere with the Industrial Revolution. The Revolution rose in concert with the mountain. Wikipedia offers the following notes:

The industrial use of steam power started with Thomas Savery in 1698. He constructed and patented in London the first engine, which he called the "Miner's Friend" ...

The steam engine was arguably the most important technology of the Industrial Revolution. From Englishman Thomas Newcomen's atmospheric engine, of 1712, through major developments by Scottish inventor and mechanical engineer James Watt, the steam engine began to be used in many industrial settings, not just in mining...

A fundamental change in working principles was brought about by James Watt. With the close collaboration of Matthew Boulton, he had succeeded by 1778 in perfecting his steam engine which incorporated a series of radical improvements...

These developments occur early-on in the years of that mountain of debt. And Adam Smith's Wealth of Nations came out in 1776, opening the door to a new world of economic thought. The dates 1776 and 1778 occur about half-way up the up-slope of the mountain. The Industrial Revolution climbed that mountain and rode down the other side, picking up speed along the way.


The mountain did not interfere with the rise of British power.

From 1776 to the start of World War I in 1914 is a span of 139 years. During those years UK debt rose to its mountainous peak, and fell again. During those years the sun never set on the British Empire. The dates fit well with the "Rise of the 'Second British Empire' (1783–1815) and Britain's imperial century (1815–1914).

Those were not so-so years for the United Kingdom. Those were the years the UK was on top of the world. Coincidence or no, those were the years of the mountainous rise of UK public debt and the century-long decline of that debt.

I observe that the position of the UK in the world after 1820 allowed the reduction of its mountainous public debt; but the growth of that debt in the century before 1820 did not prevent the UK's rise to the top.


The mountain of debt did not interfere with the inducement to invest.

Back in May I wrote:

Keynes identified the interest-rate trough in the cycle of civilization as "the greatest age of the inducement to invest." He called it "a limiting point" ... "a period of almost one hundred and fifty years."

A period of almost one hundred and fifty years. But which years? By my rough estimate, the 139 years from 1776 to 1914, the 139 years from The Wealth of Nations to World War I, define the greatest age of the inducement to invest. James R. Crotty (PDF, see page 5) seems to agree, finding the age ending with the onset of World War I.

There is a remarkable alignment between this "greatest age" and the mountain of public UK debt. That debt obviously did not prevent investment and growth. One is almost forced to wonder whether it helped.


Two, two and one-half, three centuries ago, a truly massive public debt did not hinder investment, growth, accumulation of power, or invention, industry, and innovation in the United Kingdom. Debt is not always a problem.

Debt is not guaranteed to cause economic troubles. Sometimes it does. Sometimes, it does not. Why? Because the growth of debt is always a by-product, never an objective. Sometimes debt is merely a convenience. Sometimes debt is a symptom of a serious problem.

Our debt today, which interferes with investment, growth, and political power, is a symptom of a serious problem. It is this other problem that must be solved. Solving that problem will make the debt problem disappear.

None of our attempts to solve the debt problem have succeeded. Debt is out of control, because our attempts to control it have failed. Our attempts fail because our methods are inappropriate. Such actions as cutting spending and balancing the budget are inappropriate: They focus on the symptom. This is why we cannot solve the problem.