But by the 1740s, the first signs could be seen of a spectacular change. Glasgow, whose merchants had long ago carved out a respectable share of the tobacco imported to Britain from Virginia, suddenly and rapidly came to dominate the trade. From controlling just 10% of tobacco imports in 1738, just twenty years later Glasgow had surpassed even gargantuan London. Another ten years on, by 1769, Glasgow accounted for more than every other British port combined, while all the time the total amounts of tobacco imported grew and grew.7 Contemporaries estimated that the shipping tonnage on Glasgow’s river, the Clyde, had increased more than tenfold.8 Edinburgh meanwhile saw its shops fill with luxuries, and its university become a centre of excellence in medicine and chemistry, drawing students from across northwestern Europe, while the city itself expanded, elegantly, with the building of the New Town.
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For many of those who lived through it, such as the agricultural labourers who faced eviction in the name of improvement, or the slaves on American plantations who grew the tobacco with Scots linen on their backs, Scotland’s transformations were painful, or even strictly for the worse. Yet all the transformations, for better and worse, all had a common root – a factor that made possible the sheer pace of Scotland’s simultaneous agricultural, industrial, and urban revolutions, squeezing into the space of just a few decades what had taken England at least a century and a half, and then allowing it to grow even faster still. Each of the changes required extraordinary levels of investment, which was only made possible because despite the Union, Scotland retained a difference in law and institutions that made it uniquely supportive of the raising and deploying of capital.
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Whereas in England a company needed a royal charter or a special act of parliament in order to be a distinct legal entity, with partnerships according to English common law being no more than the sum of their parts, Scots law instead enabled unchartered firms to be distinct from their owners in lots of important ways, able to outlast the partners who died or went bankrupt, with shares able to be easily traded or transferred, and enabling profits to be preserved for reinvestment in the firm rather than being dissipated in dividends. As a result, even the unchartered banks in Scotland could have dozens or even hundreds of partners drawn from across the upper and middle classes, whereas the average in England had just three.12
Scottish banks started up with more capital, grew faster, drew on a much deeper pool of investors, and were significantly more stable and resilient to shocks. And in all having to compete with one another they offered financial services that were unheard of south of the border – they had local branches, paid interest on deposits, and readily offered short-term loans on personal security rather than just on land. The second of the chartered banks, the Royal Bank of Scotland, in 1728 seems to have been the first bank in the world to have ever offered overdrafts, called the “cash credit” system.13 In the 1810s Scotland developed the savings bank, which paid interest on even the tiny deposits of artisans and labourers.14
And the Scottish banks issued plentiful banknotes in small denominations that were able to circulate in the economy as currency, finally satiating Scotland’s decades-long want of coin.15 Indeed, Scots law made it much quicker and easier than in England to enforce all sorts of debts.16 With creditors made confident, they were much more willing to lend, making more capital available to grease commerce’s wheels.
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When the Virginian tobacco planters all defaulted during the American Revolution, and the warehouses were all seized, Glasgow’s merchants were so well-capitalised that they could largely take the loss, and simply switch to dominating the trade in Caribbean sugar and cotton in the same ways instead. Indeed, by out-lending their competitors in order to capture the trade, and so allowing planters to clear land and buy slaves before they’d even grown their crop, Glasgow’s merchants provided the capital that enabled the plantations of first Virginia and then the Caribbean to so rapidly expand.17 Although it’s often said that slavery and colonialism funded Glasgow’s growth, it was largely the other way around: the Atlantic economy’s heyday was built on the savings of Scots.
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Much the same can be said of how Scotland assembled the capital for its mills, mines, ironworks, farms, and a host of other trades,20 as well as how it built its infrastructure, from harbours, bridges, canals, and later railways, to city water supplies, street paving, hospitals, and civic buildings. When new industries were invented, it was Scottish capital that ensured the country pursued it on a large scale. The St Rollox chemical works in Glasgow, founded by a former weaver and bleacher, Charles Tennant, was in the 1830s and 40s reputedly the largest heavy chemical plant in the world.21
But even more fundamentally, Scotland’s unique financial system in the late eighteenth and early nineteenth centuries made it possible for ambitious individuals to borrow even when they owned no land, based only on the personal security of themselves and their guarantors, and so to raise the capital that merely their reputation, skill and acumen might command. Scotland was thus uniquely supportive of the ambitious “lad o’ pairts”, or of the artisan with a new idea for an invention, who wanted only capital to make it real. It was the obvious place, thanks to Samuel Smiles in the 1850s, to have spawned the entire literary genre of self-help.
From the article:
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