Chapter

Investment: The Cost and Availability of Finance

R. C. O. Matthews, C. H. Feinstein and J. C. Odling‐Smee

in British Economic Growth 1856-1973

Published in print October 1982 | ISBN: 9780198284536
Published online November 2003 | e-ISBN: 9780191596629 | DOI: http://dx.doi.org/10.1093/0198284535.003.0012

Series: Studies of Economic Growth in Industrialized Countries

 Investment: The Cost and Availability of Finance

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A favourable trend in the supply price of finance (SPOF) schedule for domestic investment between pre‐1914 and the post‐war period can be inferred from the fact that in the post‐war period the rate of capital accumulation was higher, despite a much lower profit rate. The higher savings propensity in the post‐war period was one factor causing the lower SPOF. Lower capital exports after World War I compared with the prewar periods also contributed to the decline in SPOF. An important source of trend reduction in SPOF throughout the period was the reduction in capital market imperfections. This was achieved notably by (1) the further extension of the scope of the limited‐liability joint‐stock company and the corresponding widening of the equity market and (2) an increase in the size and product‐range of firms. Inflationary expectations lowered SPOF in 1951–68 by causing the prices of equities to rise by more than general prices. The net effect of tax changes across World War II was probably unfavorable to SPOF.

Keywords: capital export; capital goods; capital market development; cost of capital; inflation; saving propensity; taxation

Chapter.  13405 words.  Illustrated.

Subjects: Economic History

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