Professor Rostow’s View

IN his book The British Economy of the Nineteenth Century, published in 1948, Professor W. W. Rostow constructed an explanation of the long swings in terms of the shifting balance between different types of investment. He distinguished between investment which brings returns quickly in the shape of output of goods — i.e. investment with a short period of gestation — and investment which either is not productive of final goods at all — wars or gold mining — or which brings its returns only after a considerable period of time. Periods of rising prices are characterised by the second type of investment, falling prices by the first. The two decades or so prior to 1870 saw a great deal of unproductive investment in gold mining and wars. In addition, Britain was investing heavily in building railways and other public utilities at home and overseas; that is to say, indulging in investment with a long period of gestation. After 1873, however, prices began to fall partly because the emphasis in investment switched from overseas to home, lowering the period of gestation and bringing quicker returns.