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The City of London pp 98–146Cite as

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Capital City

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Abstract

The Credit City begat the Capital City. By the mid-nineteenth century the institutions and personnel of the City of London had already begun to blur the distinction between short-and long-term funds to a significant extent. Through ever more complex procedures and devices the City was increasingly able to employ whatever funds it was entrusted with to meet whatever demands borrowers made of it. ‘[T]he market for credit is a single market’, reported the Committee on the Working of the Monetary System in 1959, and this was a viewpoint that the Treasury endorsed when they gave evidence in 1977 to the Committee to Review the Functioning of Financial Institutions.1 This ability of the City to alter the time dimension of money, and so mobilise long-term finance, created a self-perpetuating cycle whereby it attracted both lenders, because it could offer conditions under which they would part with their savings, and borrowers, because they could obtain the finance they required under terms they found acceptable. There always existed a division between lenders, who wanted both a high rate of return and the ability to withdraw their savings at short notice, and borrowers, who wanted to pay a low rate of interest for funds totally under their own command. It was the role of the City of London to resolve these conflicting interests by matching supply and demand, and this was by no means a simple automatic process.

[T]he problems of finance underlie the whole field of human activities. Merely to deal in the abstract with the technique of the existing financial system, domestic and international, without relating it to the actual economic circumstances of the moment, would serve little purpose.

Committee on Finance and Industry, Report, London 1931, p. 2

[T]he hazards and difficulties of investment have been greatly increased since the war by the increased effort of government to direct and regulate the economy. The successful investor must therefore foresee not only changes in trading conditions, but possible forms of political intervention. This task is made the more difficult when there are alternating governments with widely differing views on the role of private capital in the economy.

Committee on the Working of the Monetary System, Principal Memoranda of Evidence, vol. 2, Association of Investment Trusts, London 1960, p. 41

There are many explanations for the relative decline of the UK economy, prominent among which are the relatively low level of real investment in this country, particularly in manufacturing, and the poor effectiveness with which new investment is used. The part that the financial institutions have played in this, or could play in helping the economy to break out of the vicious circle, is a matter of contention.

Committee to Review the Functioning of Financial Institutions, Report, London 1980, pp. 19–20

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Notes

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Authors and Affiliations

  1. University of Durham, UK

    Ranald C. Michie (Senior Lecturer in History)

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© 1992 Ranald C. Michie

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Michie, R.C. (1992). Capital City. In: The City of London. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12322-3_5

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