------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (September 2005)  
  
Mario Tiberi, _The Accounts of the British Empire: Capital Flows from   
1799 to 1914_. Aldershot, UK: Ashgate Publishing, 2005. ix + 183 pp.   
$99.95 (hardcover), ISBN: 0-7546-3916-9.  
  
Reviewed for EH.NET by Elise S. Brezis, Department of Economics, KNU   
(Korea) and BIU (Israel).  
  
  
This book presents a synthesis of research on the quantitative   
estimates of the foreign investments of Great Britain during the   
nineteenth century. Given the limited data available on stocks and   
flows of capital during the nineteenth century, the various scholars   
who have focused their attention on this topic have reconstructed   
either the balance of payments or the annual income earned overseas.   
Aptly covering the principal results of those who have researched the   
subject, _Accounts of the British Empire_ is an important compilation   
of the work done in this field.  
  
Mario Tiberi has done a remarkable job of collecting the various   
studies and presenting the various methods used by the researchers.   
The book emphasizes the three main methods of estimating capital   
flows. The first, the indirect method, measures the various elements   
of the balance of payments, and capital flows are obtained as a   
residual. The second method makes use of the capitalization of annual   
income earned from British financial and real investment abroad. The   
third method does not properly estimate capital flows, but rather   
concentrates on finding information on foreign assets owned by   
British citizens.  
  
_Accounts of the British Empire_ is divided into four chapters. The   
first chapter presents the research of those who have used the   
indirect method; the second chapter presents the other two methods;   
the third chapter presents critiques on the various methods; and   
chapter four is a summary.  
  
The first chapter presents the works of Seyd, Shaw-Lefevre, Hobson,   
Schooling, Jenks, Caincross, Feinstein, myself, and of course Imlah,   
all of whom use the indirect method, i.e., they measure the various   
elements of the balance of payments. As Tiberi reminds us, this   
method can be fraught with errors regarding each of the various   
elements.  
  
The second chapter is devoted to researchers who have used the two   
other methods. Those who use the capitalization method, particularly   
Giffen, Hirst, Crammond, and Paish, start by identifying the flows of   
various types of income (profits, dividends, interest, and rent) that   
can accrue from capital invested overseas. With some guesses   
regarding the year of purchases of the various components, it is   
possible to capitalize these flows and to estimate the stock of   
capital invested overseas.  
  
The third method is based on the collection of information on foreign   
assets, both financial and real, owned by British residents overseas.   
This method consists of identifying, from all available sources, the   
flows of financial assets purchased by residents of Great Britain as   
investments abroad. This method is called the direct method, and was   
mainly used by Nash, Harris, Ayres, and Simon, but also by Crammond   
and Paish.  
  
The third chapter focuses on scholars who have criticized the   
research presented in the two previous chapters. These critiques,   
particularly those of Arnd and Platt, focus on the general   
characteristics of the direct method. They claim that information on   
the financial market regarding so-called portfolio investments cannot   
accurately represent the wealth accumulated abroad by U.K. residents.   
They also suggest downward revisions of the values attributed to the   
flows and stock of Britain's foreign investment proposed by Imlah and   
Paish.  
  
The final and most interesting chapter is a summary of the   
aforementioned studies. Since pre-1870 estimates are particularly   
problematic, Tiberi divides his critiques into two periods: pre-1870,   
and 1870-1914. On the one hand, this chapter is an objective summary   
of all of the research; in it, Tiberi summarizes all of the estimates   
in one table (table 4.1, pp. 158-159), which allows us to compare the   
various results, making it a very useful table. On the other hand, he   
finally permits himself to be subjective and tells us which research   
and which estimates he prefers. It seems that his preference tends   
toward the capitalization method; despite the fact that in Chapter 3   
he defended Imlah, in this chapter he raises some reservations   
regarding the indirect method.  
  
However, it is clear that Tiberi's preference is related to the   
objective of the research. For Tiberi, foreign investments are   
related to power and prestige, and therefore he does not place much   
importance on flows, but rather on the stocks of overseas capital. My   
own preference, of course, is the indirect method, since by checking   
the balance of payments, I could prove that foreign capital inflows   
from overseas were almost as important as savings in paving the way   
to the Industrial Revolution. It can therefore be stated that   
preferences are actually related to goals. On the whole, _Accounts of   
the British Empire_ presents the research objectively.  
  
My main critique of this book is that Tiberi is himself not critical   
enough, though he is critical of the critics. Defending Imlah, he   
writes, "Unless an author can be proved unreliable, any attempt on   
his part to verify the quality of his own work through comparisons of   
hypotheses, methods and results of other scholars should be   
considered positively" (p. 128). Yet he states, "Every method of   
evaluation of the flows and stock of foreign investments needs both   
reliable data and plausible assumptions in order to obtain empirical   
results that are sufficiently representative of the real facts" (p.   
99).  
  
Since _Accounts of the British Empire_ is about the estimation of   
capital flows, I would like to have seen more on the problem of   
evaluation. When one considers Tiberi's summary in table 4.1, what is   
striking is that the estimates, using quite different methods, yield   
very similar results. For example, the results of the indirect method   
(?1,190 million for Imlah) and the direct method (?1,250 million for   
Nash) for the year 1880 are incredibly close. This is even truer for   
the year 1913, where the difference between Paish and Imlah is   
negligible. Except for the first guess at the beginning of the   
nineteenth century (where Imlah has a preference for ?10 million and   
Beeke and Seyd for ?100 million), the differences are small during   
the rest of the period.  
  
Does this similarity mean that the probability that the "true" data   
is not far from these estimates is almost one? It would be if all of   
the various studies were independent, but the similarity of the   
estimates is also due to the fact that the studies are interrelated.   
For instance, Imlah quotes most of the works written before him,   
particularly Jenks and Seyd. So in formulating his own data, he   
incorporates the previous estimates, which is why the data do not   
differ widely. This phenomenon points to a comment of mine on   
Maddison (2000), suggesting that creating data for the first time has   
a strong impact:  
  
"The theoretical question that should be asked [regarding estimation]   
is: Does the first move, i.e., the first estimate, influence the   
entire ensuing quest for the 'true' data? In other words, does the   
first guess influence the data estimated even after many corrections?   
If the first guess can affect the ensuing research, then despite the   
fact that Maddison is the best candidate for 'casting the die and   
creating' the data, then -- like every monopoly -- this one is also   
undesirable" (Brezis, 2001).  
  
Probably, Tiberi should have raised more questions regarding the   
estimates, emphasizing which are the outcomes of the creation of new   
data and which are improvements on previous work. Yet for scholars   
researching the balance of payments of the U.K., _Accounts of the   
British Empire_ is a must: a formidable synthesis of all that has   
been done in this field.  
  
References:  
  
Elise S. Brezis, "Review of Angus Maddison _The World Economy: A   
Millennial Perspective_" Economic History Services, Nov 26, 2001,   
http://www.eh.net/bookreviews/library/0418.shtml  
  
Angus Maddison, _The World Economy: A Millennial Perspective_ (OECD, 2000).  
  
  
Elise S. Brezis is editor (with Peter Temin) of _Elites, Minorities   
and Economic Growth_ (Elsevier, 1999) and author of "Mercantilism" in   
_The Oxford Encyclopedia of Economic History_ (2003) and "The Role of   
Higher Education Institutions: Recruitment of Elites and Economic   
Growth" (with Francois Crouzet) in T. Eicher, ed., _Institutions and   
Economic Growth_ (MIT Press, forthcoming). She will contribute on   
"elites and economic outcomes" in the _New Palgrave Dictionary of   
Economics_ (forthcoming).  
  
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