286 Ferguson and Schularick more prosperous areas of white settlement.An obvious hypothesis might therefore be that investors a century ago were more willing to in- vest money in relatively poor countries because a high proportion of these countries were not sovereign states but were under the political control of the investors'own country. Did membership of the British Empire give countries access to the British capital market at lower interest rates than they would have paid as independent states?Contemporaries and an older historical literature had little doubt that it did.Writing in 1924,Keynes noted that "South- ern Rhodesia-a place in the middle of Africa with a few thousand white inhabitants and less than a million black ones-can place an un- guaranteed loan on terms not very different from our own [British]War Loan.”It seemed equally“strange”to him that“there should be inves-. tors who prefer[ed]...Nigeria stock(which has no British Government guarantee)[to]...London and North-Eastern Railway debentures. More recently,Michael Edelstein has argued "that the British capital market treated empire borrowers differently from foreign borrowers." An obvious explanation for an"imperial discount"on bonds issued by British colonies is that they were in some way guaranteed by the British government and therefore in a legal sense indistinguishable from British bonds in terms of default risk.However,Edelstein rejects this expla- nation: Even when London backing and oversight were absent from colonial govern- ment issues...the British capital market charged lower interest rates than com- parable securities from independent nations at similar levels of economic devel- opment....The strong inference is that colonial status,apart from the direct guarantees,lowered whatever risk there was in an overseas investment and that investors were therefore willing to accept a lower retum. Another explanation may lie in the effect of legislation specifically calculated to encourage investors to buy colonial bonds.At the turn of the century,two laws were passed,the Colonial Loans Act (1899)and the Colonial Stock Act (1900),which gave colonial bonds the same "trustee status"as the benchmark British government perpetual bond, the"consol."4 At a time when a rising proportion of the national debt was being held by Trustee Savings Banks,this was an important stimu- lus to the market for colonial securities.5 However,the importance of 10Keynes,“Advice,”pp.204f. 11Edelstein,"Imperialism,"p.205. 2bid,p.206. 13Ibid,Pp.206-07. 14Cain and Hopkins,British Imperialism,pp.439,570.See for a detailed discussion,Keynes. "Foreign Investment,"pp.275-84. is MacDonald,Free Nation,p.380.286 Ferguson and Schularick more prosperous areas of white settlement. An obvious hypothesis might therefore be that investors a century ago were more willing to in￾vest money in relatively poor countries because a high proportion of these countries were not sovereign states but were under the political control of the investors’ own country. Did membership of the British Empire give countries access to the British capital market at lower interest rates than they would have paid as independent states? Contemporaries and an older historical literature had little doubt that it did. Writing in 1924, Keynes noted that “South￾ern Rhodesia—a place in the middle of Africa with a few thousand white inhabitants and less than a million black ones—can place an un￾guaranteed loan on terms not very different from our own [British] War Loan.” It seemed equally “strange” to him that “there should be inves￾tors who prefer[ed] . . . Nigeria stock (which has no British Government guarantee) [to] . . . London and North-Eastern Railway debentures.”10 More recently, Michael Edelstein has argued “that the British capital market treated empire borrowers differently from foreign borrowers.”11 An obvious explanation for an “imperial discount” on bonds issued by British colonies is that they were in some way guaranteed by the British government and therefore in a legal sense indistinguishable from British bonds in terms of default risk.12 However, Edelstein rejects this expla￾nation: Even when London backing and oversight were absent from colonial govern￾ment issues . . . the British capital market charged lower interest rates than com￾parable securities from independent nations at similar levels of economic devel￾opment. . . . The strong inference is that colonial status, apart from the direct guarantees, lowered whatever risk there was in an overseas investment and that investors were therefore willing to accept a lower return.13 Another explanation may lie in the effect of legislation specifically calculated to encourage investors to buy colonial bonds. At the turn of the century, two laws were passed, the Colonial Loans Act (1899) and the Colonial Stock Act (1900), which gave colonial bonds the same “trustee status” as the benchmark British government perpetual bond, the “consol.”14 At a time when a rising proportion of the national debt was being held by Trustee Savings Banks, this was an important stimu￾lus to the market for colonial securities.15 However, the importance of 10 Keynes, “Advice,” pp. 204f. 11 Edelstein, “Imperialism,” p. 205. 12 Ibid., p. 206. 13 Ibid., pp. 206–07. 14 Cain and Hopkins, British Imperialism, pp. 439, 570. See for a detailed discussion, Keynes, “Foreign Investment,” pp. 275–84. 15 MacDonald, Free Nation, p. 380