Retracing Steps – Investigating Austrian Industrial Finance, 1870 – 1913

Hello, my name is Yik Fei Ko (Yik Fei is my first name). My hometown is Hong Kong. I am a freshman studying International Relations and Economics. I am also a member of the first cohort of William and Mary – St. Andrews Joint Degree Program. My research project this summer is on the relationship between finance and industrialization in Austria between 1870 and 1913.

That finance is important to industrialization seems to be common knowledge. After all, how could the industrial revolution have happened without the money to buy machines, pay workers, purchase raw materials, and finance transactions? Finance is the doppelganger of industrialization.

Therefore, I find it strange that finance is not an important area of research in the eyes of many prominent economic historians. Paul Mantoux, a french economic historian, published a encyclopedic overview of the British industrial revolution in 1928. It is a truly marvelous book, full of numerical data as well as anecdotes. Yet finance is not treated as a distinct subject matter in the book!  This neglect continued under other scholars of the industrial revolution, including Phyllis Deane and Sidney Pollard. The two find that finance is an unimportant factor in the industrial revolution because the small fixed capital requirements of the early industrial firm.

Yet no matter how small the fixed capital requirement was, the capital still have to come from somewhere. A knowledge of the sources of early industrial investment is essential to explaining the rise of the industrial age. Moreover, if those capital requirements were small at the beginning, it certainly didn’t took them very long to grow to become very large. By the early 1820s, there were already multi-storey factories in Britain, employing hundreds of workers. Certainly the financial backing to these factories were not conjured from under some thrifty person’s pillow! Furthermore, the later a country industrialize, the greater its start-up capital requirements are likely to be. The technology was simply more complex and expensive, and the minimum competitive scale of production larger.

This summer, I will be looking at industrial finance in Austria in the late 19th and early 20th century. Austria is a very, very late comer to the industrial revolution. It did not become fully industrialized until the beginning of WWII, while under German occupation. According to Gerschenkron, an economic historian and theorist, finance should have played a more significant role in industrialization because of its late-comer status. He predicted that capital owners would not only be passively looking for opportunities for gain, but actively directing industrial ventures. Yet my initial reading points to the relatively passivity and risk-aversion of the Austrian banking community. This raises the question of the relationship between finance and industrialization in Austria. Did lackluster bankers caused Austria’s mediocrity in industrialization, or were the bankers’ indifference caused by the lack of good investment opportunities?

This research project asks some very simple questions: who paid for what, and when did the payment take place. Because of the lost of historical financial document, I expect only to record about a dozen of such transactions. From those transactions, I hope to catch a glimpse of the availability of capital for industrialization in Austria in the late 19th and early 20th century, and draw some conclusions on how finance affected the path of industrialization in Austria.

This project is personal to me, because I was a high school exchange student in Austria from 2008 to 2009. During that time, I had experienced much kindness from the Austrian people, especially from my host family. More concretely, the very generous Austrian republic paid for my education, school books, and subsidized my many train travels. I hope this research project will a tiny beam of light on to the financial history of Austria; that beam of light is my repayment for the love I have received in Austria.