MBA(Fin) is the most coveted degree in the world. Want to know why? Let’s understand. British empire was once described as “The empire on which the sun never sets”. It came in use in 1852 when the British Empire stretched from Canada to Australia. Much of that power came from the reach of the Royal Navy. But the funding for ship building came from an innovative economic idea.
Europeans began exploring
In 1496, the King of England send explorers to discover new lands and treasures. The Spanish and Dutch were already at it long time back. British in the meanwhile, started attacking the trading posts and colonies of other European countries. For the next 300 years Englishmen kept conquering new territories by force or deceit. Between 1814 to 1914 they had complete dominance, right until the outbreak of World War I. One of the main reasons that led to the war is that too many colonies were under British control. But it is France who unwillingly helped Britain achieve this dominance.
British were routed by France
France and Britain were fighting with each other for hundreds of years. While they were busy with each other, there was no time to look elsewhere.
On 10 July 1690, France defeated England in a comprehensive naval victory. In that battle England and allies lost 15 ships. Earlier on 1 July 1690 the French Army under Marshal Luxembourg decimated half of the British force of 38,000 soldiers! These two defeats send shockwaves through England. There was general panic in the government circles.
Humiliated by defeat, the King of England, William III decided to rebuild the navy. He had big plans but no money to put it into action. Such money usually comes from the “king’s treasury” or the “govt treasury”, both of which were depleted due to the ongoing wars with France.
A brilliant economic idea
In 1694, Charles Montagu reshaped a plan to create the Bank of England to loan money to the govt for building the ships. An act of Parliament passed on 27 July 1694, called the Tonnage Act, Bank of England came into being with exclusive banking privileges which included issue of govt bonds and currency notes. Bank of England became the Government banker and Joint-Stock bank also at the same time.
The first activity was to sell govt bonds to the general public as well as sell shares to stock holders. It raised 1.2 Million Pounds in just 12 days, half of which was used to fund the Royal Navy. Like regular public limited companies, the share holders get a share of the profit earned by the bank.
Rebuilding of the navy began in earnest. This gave a boost to the economy as well as other allied fields like industry and agriculture. Govt contracts flooded the country and it was an economic revival. That was the brilliance of the economist who create the Bank of England.
Britain becomes a super power
With no problem of funding coming from the bank, the Royal Navy grew and with it the country too. By 1707, the navy was fully functional. The next 100 years helped Britain achieve dominance over the seas. That is how between the period 1814 to 1914, the sun never set on the British Empire and there was hardly any nation to challenge it except for United States of America which got freedom in 1776.
Before the outbreak of World War II, Britain had around 1500 war ships as well has thousands of other merchant vessels sailing all over the world. The world war decimated the Royal navy and reduced it to a third. Today it has 75 operational warships. As compared to that Indian Navy has 150 ships while US Navy has around 500.
But for the Bank of England it has been a different story. Today it is central bank holding gold reserves of approx 5,600 tons. That is almost 3% of the total gold mined in human history. It has played a major role in shaping the history of Great Britain.