Three consecutive banking revolutions

The Dutch and British economic transformations were mostly financed by huge family fortunes, accrued from the profits of proto-industrial, trade, and colonial ventures. Investment demand was relatively modest because of the scale of the economy and the type of technology. Relatively small amounts were invested in fixed assets at the beginning of industrialization, and most of that amount (according to some estimates, six-sevenths to seven-eighths of investments) was spent on material stocks. Kinship connections and partnerships frequently sufficed to mobilize additional financial sources. As large joint-stock enterprises did not exist, industrialists mostly required short-term credits or working capital for purchasing raw materials and hiring labor.

A modern banking system emerged in Scotland and England in the eighteenth century. This first British banking revolution transformed medieval and early modern finance, which was partly usury, into modern banking. This momentous change, however, was built on several preliminary stages. Although modern finance had gradually replaced medieval moneylending during the early modern period in Europe, modern banking emerged in Britain. British banks connected rich agricultural regions with industrializing towns and linked savers with investors. Legislation creating the modern institutional framework greatly contributed to the modern banking system. Britain played a pioneering role in this process. The Usury Laws of 1714 to 1832 permitting 5 percent maximum interest abolished medieval usury lending. The elimination in 1826, 1833, and 1844 of previous bans on joint-stock companies, and the creation of limited liability companies in 1858 and 1862, paved the way for large-scale banking.