DEBT, DEFICITS, AND CROWDING OUT:

By the 1820s as a result of the protracted struggle with France the market value of the British Government debt was 2.3 times GNP. It has been assumed that this debt crowded out much private investment. The paper constructs measures of rates of return on farmland, houses, rent charges, mortgages and bonds in England from 1725 to 1840 from the purchases and sales of charities. These imply that neither the government deficits nor the mounting debt displaced much private investment. By examining the balance of merchandise trade the paper also argues that the government debt was mainly financed domestically. The rise of government debt in the late eighteenth century must have created great increases in private saving. The mechanism by which this sudden increase in saving occurred is unclear, and the rise is indeed quite puzzling