INTRODUCTION

The relationship between industry and the financial system in the interwar years has been extensively discussed, almost always with a perspective of seeking to allocate some kind of blame for poor performance. This approach stems from two closely related fundamental positions. The first of these, inspired by the work of Hilferding (1910), postulates a hegemony of financial capital over the needs of productive industry. Authors such as Newton and Porter (1988) have argued that the interwar years can be seen as a period in which the core institutional nexus of the Bank of England, the Treasury and the City of London exercised a malign influence on policy making – the return to the gold standard at an inappropriate exchange rate being the prime example. The needs of manufacturing were systematically ignored by a banking and financial system obsessed with liquidity and unattainable standards of creditworthiness (Ingham 1984).

The second approach is located in the general institutional understanding of the decline of the British economy. This takes the view that, by the interwar years, the set of institutions and ways of doing things, which had delivered so much economic success and prosperity to Britain in the nineteenth century, were no longer appropriate to the new environment of international competition in the industries of the second industrial revolution (Chandler 1990). Adherents of this view suggest that the financial system, as it had developed over the previous century, acted as a constraint on the reallocation of resources from the declining staple industries to the newer, high-technology, growth-oriented sector (Best and Humphries 1986; Mowery 1992).