IR 212 Lecture 7: Lecture 7

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7 Feb 2017
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Week 4 Lecture 7
Thursday 2nd Feb
Key terms
1. Capitalism
2. Transaction costs
3. City of London
4. British foreign investment to 1914
British were able to double their army without having to pay taxes - large portion of
military in India
India is crucial for british power - India is the largest importer of textiles and for
military to raise forces for battle
Egypt canal is important to respond effectively to security threats to transport the
military
Egypt imported egyptian cotton to Britain
The city of London
Central london
Financial district in London
Old medieval city
Whitehall (ministries)/Westminster (Parliament) - other districts of London
British Empire
The city - Financial industry
Westminster and Whitehall - Government
City wanted to make money and the government wanted more power
Relative political weight of the two actors matter
1870’s there was an upsurge of National pride in the empire - conservatives
under Benjamin Disraeli declared Queen Victoria empress of India
Darwin page 112 - explaining the key to a century of British prosperity and power: hw
Britain kept a persistent balance of pay,ets surplus despite its persistent
merchandise trade deficit
“Britain's prosperity appeared to rise in direct proportion to the scale of its
overseas trade and the increase of its invisible income”
Scale of exports and imports of goods, trade among different parts of
the British empire
Invisible income - something that isn’t selling a physical product,
financial institutions - Trade
Focused on other kinds of services which are necessary to make the
trade in goods happen - loans, transport, insurance, stock broking
“The favorable balance of payments kept sterling attractive and replenished
the source of investment abroad.”
Creditor nation in the world, more money coming in than going out -
lending more money than they were borrowing - Kept sterling currency
attractive
Currency stays strong by investors believing that the currency will hold
its value - believe the government
People have to believe in the physical money or it will lose its value
If a country has to borrow money to keep its country afloat they will
eventually lose faith in the currency because they are relying on other
people
Taking in a lot of money, invest some abroad - productive activities to
profit from
Exporting less value in goods than importing, making extra money
from financial services
British were importing almost all of their food - trade deficit
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