The exploitation of these new developments required a constant flow of fresh capital. From the first, the older commercial community supported the young industrial community. Bankers played such an important role that the Barings of London and the international house of Rothschild were among the great powers of Europe.
In the early nineteenth century each of five Rothschild brothers, sons of a German Jewish banker, established himself in an important economic center—London, Paris, Frankfurt, Naples, and Vienna. The Rothschilds prospered because, in an age of frequent speculation, they avoided unduly risky undertakings, and because they facilitated investment by residents of one state in the projects of other states.
Banks further assisted economic expansion by promoting the use of checks and bank notes in place of coins. During the Napoleonic wars, when the shortage of coins forced some British millowners to pay their workers in goods, the British government empowered local banks to issue paper notes supplementing the meager supply of coins.
But whenever financial crises occurred—and they came frequently before 1850 dozens of local banks failed, and their notes became valueless. Parliament therefore encouraged the absorption of shaky banks by the more solid institutions, and in 1844 it gave the Bank of England a virtual monopoly on issuing bank notes, thus providing a reliable paper currency. It also applied, the principle of limited liability (indicated by “Ltd.” after the name of British firms).
Earlier, the shareholders in most British companies were subject to unlimited liability, and they might find their personal fortunes seized to satisfy the creditors of an unsuccessful company. The practice of limiting each shareholder’s liability to the face value of that person’s shares encouraged investment by diminishing its risks.
By the mid-nineteenth century, the tangible signs of Britain’s economic predominance were evident on every hand—in the teeming docks and thriving financial houses of London; in the mushrooming factory and mining towns of the Midlands, the north of England, and Scotland; and in other quarters of the globe as well. Yet Britain, even in the heyday of its leadership, had no monopoly on inventive skill.
The French, for example, devised the chlorine process of bleaching cloth and the Jacquard loom for weaving intricate patterns. German technicians led the world in agricultural chemistry and in the utilization of the valuable by-products of coal. And from the United States came Eli Whitney and the cotton gin, Samuel E B. Morse (1791-1872) and the telegraph, Singer and the sewing machine, and the young Cyrus McCormick (1809-1884), whose reaper was the first of many agricultural machines developed for the vast agricultural expanse of America.
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