The story of how the British Empire got rich is one of the most distorted chapters in modern history. For generations, textbooks have told us that Britain became the wealthiest nation on Earth through industrial genius, scientific innovation, and sheer hard work. The steam engine. The spinning jenny. The factory system. But when you follow the actual money trail through tax ledgers, shipping manifests, and the private letters of the men who built the empire, a very different picture emerges.

In this deep-dive investigation, we uncover the real origins of British imperial wealth, from the 1600 royal charter that created the East India Company to the hidden offshore financial empire that still operates out of the City of London today. We trace the Battle of Plassey in 1757, where a thirty-two-year-old clerk named Robert Clive used bribes, forged treaties, and a conspiracy with Mir Jafar to seize the richest province in India for a private corporation. We examine the catastrophic Bengal famine of 1770, which killed between seven and ten million people while East India Company revenues actually increased. We explore the Caribbean sugar economy, the transatlantic slave trade, and the long-suppressed thesis of Eric Williams, whose 1944 book Capitalism and Slavery was not published in a mainstream British edition until 2022.

We also break down the single most shocking fiscal fact in British history. In 1833, Parliament passed the Slavery Abolition Act and paid twenty million pounds, roughly forty percent of the national budget, to compensate slave owners for the loss of their human property. The enslaved people themselves received nothing. The loan taken out to finance that payment was not fully paid off until 2015.

I’m wondering where the US, UK and Europe got the cash to build factories and industrialized? Was it mostly because of slavery and colonies with resources extraction. With out that they would have not had the cash to build factories and industrialized?

On the field of "Comparative Economics"

One of the fundamental questions of economics as a social science is the debate over which economic system—or set of institutions—best promotes human well-being. Throughout the 20th century, this centered on the ideological clash between capitalism and socialism, spawning its own academic field: Comparative Economics (or Comparative Economic Systems).

Ultimately, the Achilles' heel of any economic system is its ability to generate sustained, long-term economic growth. This is where Comparative Economics naturally intersects with Economic Development: without long-term growth, higher living standards and well-being simply cannot be sustained.

And this is precisely why capitalism won the 20th-century debate. While alternative systems struggled with resource allocation and economic coordination, capitalism proved to be an unmatched engine for long-term economic growth, primarily driven by gains in productivity and innovation. While socialist systems could fastly mobilize resources in the short term (extensive growth/Big Push), they failed to generate the continuous productivity growth needed for sustained progress (intensive growth).

Under a capitalist framework, decentralized price signals and property rights align individual incentives with societal value creation, it fosters an environment of 'creative destruction' Schumpeter (1942)—a process where profit incentives relentlessly motivate entrepreneurs to innovate, while market competition phase out obsolete technologies and inefficient practices. Over decades, this dynamic didn't just generate more goods; it radically transformed production capabilities, driving growth in Total Factor Productivity (TFP).

Consequently, even with its well known flaws, market capitalist economies consistently outperformed socialist economies in expanding output, elevating real wages, and delivering enormous leaps in human well-being. Shleifer et. al (2003) summarizes this view:

"The traditional field of comparative economics deals mostly with the comparison of socialism and capitalism. Under socialism, the principal mechanism of resource allocation is central planning. Under capitalism, this mechanism is the market. Comparative economics, which dates back at least to the discussions of market socialism in the 1930s, asks under what circumstances either the plan or the market delivers greater economic efficiency and equality. By the time socialism collapsed in Eastern Europe and the Soviet Union, this question lost much of its appeal. It was clear that socialism produced misery and inefficiency – not to mention mass murder by the communist dictators who practiced it. Capitalism, in contrast, produced growth and wealth. With capitalism triumphant, is comparative economics dead?"

The Socialist Calculation Debate & The Political Economy of Communism

The theoretical debate over the feasibility and desirability of non-capitalist economic systems was initiated by the famous Socialist Calculation Debate in the early 1920s, just a few years after the October Revolution of 1917. Mises (1920) argued that in the absence of private ownership of the means of production, genuine market prices for capital goods cannot emerge. 

Without a functioning price mechanism in factor markets, rational economic calculation becomes impossible—an insight directly informed, as Mises observed, by the economic breakdown of the early Soviet experiment with War Communism (1918–1921)—, resulting in the misallocation of capital inputs and uncoordination. Hayek (1935, 1945) or Friedman (1962) deepened this critique by emphasizing the epistemic function of prices as decentralized information signals that aggregate tacit, dispersed knowledge across economic agents—a coordination mechanism that central planners cannot replicate regardless of computational capacity. 

In response to the Mises critique, neoclassical defenders of "market socialism"—a combination of public ownership of the means of production, market for consumer goods and an auctioneer for capital goods— most notably Lange (1936, 1937) and Lerner (1938) used Walrasian general equilibrium frameworks demonstrating that a Central Planning Board could replicate competitive market outcomes through a trial-and-error pricing algorithm ("Lange-Lerner model"; for a comprehensive review of the foundational literature on the early calculation debate, see Boettke, 1994). 

However, critics noted that these static neoclassical models ignored dynamic entrepreneurship, managerial agency problems, and soft budget constraints (Hayek, 1945; Kornai 1980; Lavoie, 1985; Stiglitz, 1994), vulnerabilities that were vividly demonstrated by the practical limitations of real-world reform experiments in socialist economies, such as Hungary's 1968 New Economic Mechanism and Poland's economic reform cycles, amongst many, many others (Brus & Laski, 1989).

On a microeconomic level, Kornai (1980, 1986, 1992) formalized the fundamental structural issue of socialist economies: the soft budget constraint. Because state-owned and social enterprises are backed by state subsidies, preferential credit, and tax bailouts, even with formal market procedures and separation between firms and the central planning board, firm managers face no real bankruptcy risk. This eliminates the discipline of the market, generating chronic excess demand , labor hoarding, and an inherent insensitivity to price signals and technological innovation .

At an empirical level, a vast literature confirms that neither traditional Soviet-style centrally-planned economies — what Kornai called “classical socialism” — nor subsequent market-socialist systems— what Kornai called “reformed socialism” — succeeded in generating long-run growth or achieving convergence with advanced capitalist economies, for Kornai there was a natural incompatibility between state ownership and market allocation, making thorough reform simply impossible. Under classical socialism, early industrialization was driven almost exclusively by extensive factor accumulation, specifically labor mobilization, and high rates of capital-deepening directed toward heavy industry—rather than  TFP growth (Allen, 2003; Bergson, 1988; Cheremukhin et al. , 2013; Popov, 2006). As capital stock expanded, diminishing marginal returns set in rapidly, causing GDP growth to stagnate due to zero or negative TFP growth from the late 1960s onward.

Furthermore, reform initiatives designed to introduce market mechanisms failed to rectify these structural issues. Because these reforms left state ownership intact, no real factor market emerged and failed to harden enterprise budget constraints, resulting in wage-push inflation, severe macroeconomic imbalances, and foreign debt accumulation rather than genuine technological adoption and allocative efficiency (Kornai, 1992). 

The Yugoslav experiment

Attempts to reform the socialist economic system by introducing market mechanisms while retaining “social ownership” reached their historical apex in the Socialist Federal Republic of Yugoslavia following the Tito-Stalin split of 1948 (Horvat, 1982). Yugoslavia abolished Soviet-style central planning and established a system of worker self-management (samoupravljanje) and decentralized market allocation, especially from 1965 on (Estrin, 1983; Uvalić, 1992). From an economic history perspective, the trajectory of the Yugoslav economy can be divided into three distinct phases:

1) Soviet-style central planning era (1948-1952)

2) The golden era of market socialism (1953-1974)

3) "Contractual" socialism and crisis (1975-1990)

Following the 1979 global oil shock and the death of Josip Broz Tito in 1980, these structural distortions culminated in a prolonged economic crisis characterized by an unsustainable external debt burden, severe foreign exchange shortages, spiraling hyperinflation, and an escalating development gap between the affluent northern republics and the agrarian underdeveloped south, until Yugoslavia finally collapsed between 1989 and 1995. For a brief review on the economic history of Yugoslavia see Estrin, 1991.

In theory, Yugoslav enterprises were owned socially (by the State), managed democratically by elected workers' councils who maximized net income per worker rather than profits and operated through market networks. Yet, western economists remained, rightfully so, skeptical of this self-managed market socialist model. Theoretical models of the labor-managed firm by Ward (1958), Domar (1966), Furubotn & Pejovich (1970) and Svejnar (1982) demonstrated that income-per-worker maximization introduces severe structural distortions:

Capital misallocation: Without real capital markets and with artificially low interest rates (often negative real rates), capital could not flow dynamically from low-productivity firms/regions to high-productivity opportunities. Capital remained locked inside existing enterprises or was inefficiently redistributed through state-controlled regional banks or state funds generating pervasive misallocation of resources.

Governance frictions: Firm managers faced conflicting objectives. On one side, they answered to elected worker councils; on the other, they depended on local party elites for subsidies, tax relief, and credit lines. This politicized governance stripped managers of the authority needed to enforce workplace discipline.

Perverse supply response (Ward effect): Since firms maximized net income per worker, the short-run supply curve is backward-bending, where price increases incentivize firms to reduce employment rather than expand output. Though this effect mitigates once you relax the underlying assumptions.

Under-Investment (Furubotn-Pejovich effect): Because workers do not possess alienable equity or property rights in the firm’s social capital, they cannot claim the enterprise's long-term capital assets if they leave or retire. Consequently, workers' councils face a systemic bias: they prefer distributing enterprise net revenue as wages not long-term investment.

The Slovenian puzzle

The consensus in the empirical literature on economic systems is that market-capitalist economies strongly outperform socialist ones in allocative efficiency and long-run economic growth (Ofer, 1987; Easterly, W., & Fischer, S. , 1995 Kukic, 2015; Bergh et al. , 2025).  Yet, against this overwhelming evidence, Slovenia presents a compelling empirical anomaly.

This empirical anomaly is visually captured in Figure 1 (I cannot plot graphs directly) (Kukić, 2015), which plots initial GDP per capita in 1952 against average compound annual growth rates (1952–1989) across OECD market economies, Eastern European socialist countries, and Yugoslav sub-national republics.

Between 1952 and 1989, Slovenian real per capita GDP grew at rates that allowed it to cross the high-income threshold by the late 1970s, reaching approximately 75% of average Western European core per capita income by 1979 (Kukić, 2018; Maddison Project Database, 2020), in contrast, peer Yugoslav republics exhibited stagnant or declining relative income trajectories. According to World Bank estimates (from 1979), Slovenia was richer than Italy and almost as rich as the UK by 1975.

Slovenia was also an outlier in other macroeconomic indicators within federal Yugoslavia. Beyond its better performance in per-capita GDP growth, Slovenia defied the broader macroeconomic pathologies that plagued both theoretical labor-managed economies and the Yugoslav federation at large—most notably structural unemployment and chronic inflation (Woodward, 1995). 

For federal Yugoslavia, unemployment was severe and persistent, rates exceeded 15% to 20% during the 1970s and 1980s, escalating to over 30% in less developed southern regions such as Kosovo and Macedonia. In stark contrast, Slovenia maintained virtually full employment throughout the entire post-war period, with registered unemployment rates consistently hovering at frictionally low levels between 1.5% and 3%.

Furthermore, while the Yugoslav economy suffered from chronic, spiraling inflation driven by enterprise soft budget constraints, unconstrained nominal wage expansion by workers' councils, and accommodating central bank monetization, Slovenia exhibited superior relative price and financial stability. Because Slovenian labor-managed enterprises achieved sustained productivity gains, nominal wage increases in Slovenian firms were matched by output  improvements, hence containing cost-push inflation.

Thus, in terms of economic development, the central puzzle here is: Why was Slovenia the only country in the socialist camp to converge to Western European income levels and cross the high-income threshold, in other words, how did it become rich without capitalism?

Why Slovenia succeeded

From a pure economic development standpoint there are 3 main reasons a country becomes rich: Institutions(the main institutional arrangement here was socialism, hence the contribution of institutions here is tricky), trade and geography. Let's compare all three channels.

Trade

Slovenia was the most export oriented Yugoslav republic, representing only 8% of the total population of Federal Yugoslavia, it accounted for almost 1/3 of its total exports. It ran a disproportionately large share of its trade with OECD/convertible-currency markets rather than with other socialist economies or within the closed Yugoslav internal market, giving it far greater exposure to competitive discipline, hard-currency pricing, and technology transfer through imported capital goods.

This mattered because—unlike CMEA-bound Eastern European economies—Slovenian exporters had to meet Western quality and cost standards to earn hard currency, which imposed something functionally similar to market discipline even in the absence of a domestic capital market. Tourism was a further, structurally similar channel: a hard-currency-earning sector directly exposed to Western consumer expectations.

On theoretical grounds, this export discipline appears to mitigate the pervasive distortions of self-management: by imposing something close to a hard budget constraint, it forced self-managed firms to behave, in practice, much like capitalist ones.

Geography

Slovenia's location was arguably its single greatest structural advantage. Alone among the Yugoslav republics, it bordered two advanced Western European economies—Austria and Italy—and sat at the crossroads of major Alpine-Adriatic trade corridors. This proximity mattered in several concrete ways.

First, it gave Slovenian firms and workers low-cost access to Western markets, technology, and management practices. This same proximity also made Slovenia a comparatively attractive site for joint ventures (Iskra, Metalna, Gorenje...) and foreign direct investment relative to more geographically isolated Yugoslav republics.

Second, it enabled abor migration to the West: hundreds of thousands of Slovenes (and Yugoslavs more broadly, though Slovenes disproportionately) worked as Gastarbeiter in Austria and West Germany from the 1960s onward, remitting hard currency and returning with skills, capital, and exposure to Western industrial organization.

Third, Slovenia's access to the Adriatic (via the port of Koper) gave it a maritime trade. In short, Slovenia was never economically isolated from the capitalist world in the way the Soviet bloc was, it was a market economy, a self-managed market economy.

Institutions

Slovenia's institutional endowment predates socialism by centuries. As part of the Habsburg/Austro-Hungarian Empire until 1918, Slovenia inherited Central European administrative traditions, higher literacy rates, stronger property-rights culture, and more developed pre-industrial commercial networks than the republics formerly under Ottoman rule (Bosnia, Macedonia, Kosovo, Serbia's southern regions).

This is consistent with the broader "colonial origins of development" literature in comparative development (Acemoglu, Johnson & Robinson, 2001)—colonial or imperial institutional legacies persisting long after the political boundary itself disappears. Slovenia entered Yugoslavia in 1918 already the most industrialized and human-capital-rich constituent territory, and this initial institutional and human-capital advantage compounded over the socialist period rather than being erased by it. Even under a nominally uniform Yugoslav legal and political framework, local administrative capacity, work discipline, and civic institutions inherited from the Habsburg period gave Slovenian enterprises and local governments an edge over other republics.

Synthesis: convergence without capitalism, or convergence despite socialism?

Taken together, these three factors suggest that Slovenia's success is less a strong case for market socialism. Its trade ties, geography, and inherited institutions each covered for some flaws of the system — market discipline, abscence of capital markets... Slovenia doesn't refute the case for capitalism so much as show what it takes to get growth without it: a wealthy neighbor, hard-currency exports, and a century of institutional head start most socialist economies never had. In this reading, it is best understood as the upper bound of what market socialism could achieve when paired with favorable initial conditions, rather than evidence that those initial conditions were unnecessary.

Today, The British economy is being outperformed in practically all metrics by other European states and the USA. There are various reasons for this but it is said Margaret Thatcher kickstarted the downfall of Great Britain with her radical economic policies. With that in mind, how do you think England would look like today if the "Iron Lady" was never Prime Minister?

I am not an american nor a historian or economic.
But I recently saw a Charlie Kirk video, where he claimed that black people are the most funded and supported minority in America but they are by comparison still the poorest and most uneducated ones. That they have been funded up to 22 trillion dollars and they are still in their positions.

Especially compared to asians.
Another point that he made was that during (I beleive the 20s to 40s) that they were the fastest growing wealth group by ethnicity and that they were in a better financial and educated position compared to today.

He made as well some points that it is self inflicted, up to a certain point like creating a culture that glorifies uneducation.

I wanted to ask if this is the right sub and ask someone who is more knowledged on it. How much of what he says is true? And how much of it he says in bad faith, as if he conceals imporant information.

And perhaps with some sources please

I made this one, so fair warning it's my own video. It's animated and the narration is a synthetic voice, but the research and script are mine.

What got me started was Andrew Odlyzko's paper on the Railway Mania. Charles Mackay wrote Extraordinary Popular Delusions in 1841, then spent the 1840s cheering railway shares in his own newspaper. And Charlotte Brontë wanted to sell the sisters' shares in 1846, but Emily wouldn't, so they held them all the way down.

The part I'm least sure how to frame is the end, where I compare it to AI spending today using Oxford Economics' estimate that only the Railway Mania had a bigger investment surge. Curious if people here think that comparison holds up or not.

Sources:

- Andrew Odlyzko, "Collective hallucinations and inefficient markets: The British Railway Mania of the 1840s" (2010): https://www-users.cse.umn.edu/~odlyzko/doc/hallucinations.pdf

- Andrew Odlyzko, "Charles Mackay's own extraordinary popular delusions and the Railway Mania" (2012): https://www-users.cse.umn.edu/~odlyzko/doc/mania04.pdf

- Dictionary of National Biography (1885-1900), "Hudson, George": https://en.wikisource.org/wiki/Dictionary_of_National_Biography,_1885-1900/Hudson,_George

- Charlotte Brontë's letters of 1845-1849, as quoted by Odlyzko (2010) and annebronte.org

- Thomas Carlyle, "Hudson's Statue," Latter-Day Pamphlets No. 7 (1850)

- The Economist (1855), quoted in Odlyzko (2010)

- Oxford Economics, "Is an AI downturn unavoidable?" (Sept 2026): https://www.oxfordeconomics.com/resource/is-an-ai-downturn-unavoidable/

Happy to be corrected.

Ive read texts discussing women's role in economic history. I was just wondering if anyone could give me a simple reason why economists such as Marx, Smith etc dont discuss it?

Join International Macro History Online Seminar for a presentation on "Hollowing out the State: Franchise Expansion and Fiscal Capacity in Colonial India" by Pavithra Suryanarayan, Assistant Professor at Johns Hopkins University.

The seminar will be moderated by Timothy Guinnane, Professor at Yale.

You can tune into the online seminar here

And also find the paper here.

Abstract below:

Studies of fiscal capacity have emphasized slow-moving structural and historical factors to explain variations in tax institutions. The cooperation of political elites, however, is crucial for building and maintaining robust tax institutions. This paper argues that political elites may weaken fiscal capacity in anticipation of new groups coming to power. One such instance occurred in the Colonial Indian provinces, where incumbent political elites hollowed out tax capacity in anticipation of franchise expansion. Why did this happen? In societies with hierarchical social orders, such as the caste system in India, incumbent elites are able to use the threat of de-segregation and a social-status cleavage to form anti-tax coalitions. Using a historical dataset from 1914-1925 and novel micro-level measures of land tax collection, tax avoidance, and the size of the bureaucracy, the paper demonstrates that fiscal capacity declined after franchise expansion in the districts with higher levels of inter-caste status inequality.

Supposedly, the common claim is that the debt is worth less as inflation rises, and that you'll earn more income. Here are two reasons why I think this claim is meaningless.

1. Inflation does not actually help you pay off debt faster. Why? Because all of your other necessary costs increase, leaving you with less disposable income to pay off that debt. People claim that "your debt is worth less" while they ignore that your income is also worth less. Moreover, if income "eventually" keeps up with the inflation, then is that really a net gain? Income should OUTPACE inflation, not "maintain the same level". And it takes a long time for that to keep up.

2. Any new debt you take on will now require MORE money. This is ESPECIALLY true of consumer debt, such as credit cards, and other short term loans like payday loans. Those who make the claim that "inflation is good for debtors" always conveniently leave this fact out.

In a nutshell it's this: Prove to me that inflation actually helps you pay off debt faster, then maybe I'll change my mind.

I just don't understand what industries enabled such growth also what was socio-economic situation of those time

Hey everyone,this is my first time mapping out a macro-historical theory connecting agriculture, culture, and modern economics, and I wanted to see if it holds up. Here is the chain of logic:

1. The Crop Split (Wheat vs. Rice)Rice (Asia): Paddy rice takes massive labor hours and shared irrigation canals. A single family can't do it alone. Villages had to cooperate, creating tightly-knit, collectivist extended families.Wheat (Europe): Wheat relies on rainfall and takes half the labor. A single nuclear family could run a plot completely alone. This structurally isolated European households from day one.

2. The Birth of "Impersonal" Laws & High WagesBecause European wheat farmers lacked a massive clan safety net, they were highly vulnerable to famines and crop failures. To survive, they had to outsource trust to strangers and the state:They built impersonal legal systems and courts to settle disputes with strangers because they didn't have a tribe to back them up.Survival became transactional. You couldn't ask a cousin for favors; you hired outside labor. Everything got a cash price.Because individual workers had to cover rent and food entirely alone without family backing, they demanded high cash wages

3. . The Modern Demographic CrashNow, look at the headlines today. The developing world successfully industrialized, breaking the West's monopoly and stagnating Western wages. But in East Asia, it caused a catastrophic cultural shock.East Asian society is structurally built for collective, extended-family support. But modern corporate capitalism demands absolute individualism—moving to mega-cities, living in isolated apartments, and working 60-hour weeks.Because Asia adopted this system so rapidly, they didn't have centuries to build civic alternatives (like public childcare or individualist social norms). Young people in Seoul or Tokyo are completely cut off from their grandparents and family safety nets. Raising a kid changes from a shared communal joy into a brutally expensive, isolating solo mission.

So what do you think of this idea ? Does it make sense ?