Schenk on Cassis, _Capitals of Capital: A History of International Financial Centres, 1780-2005_

[eh.net-review at eh.net]

Published by EH.NET (October 2007)

Youssef Cassis, _Capitals of Capital: A History of International 
Financial Centres, 1780-2005_. Cambridge: Cambridge University Press, 
2007. xiv + 385 pp. $40 (cloth), ISBN: 978-0-521-84535-9.

Reviewed for EH.NET by Catherine R. Schenk, Department of Economic 
and Social History, University of Glasgow.


Given the recent international transmission of the U.S. sub-prime 
loan crisis, it is a particularly appropriate moment to consider the 
long-term development of financial markets and the growth of 
international capital.  Pictet & Cie, itself a venerable private 
bank, commissioned Youssef Cassis, Professor of Economic and Social 
History at the University of Geneva,  to write a history of 
international financial centers (IFCs) to mark its bicentennial, and 
they have certainly generated a fine monument to commemorate their 
anniversary.  This is a truly scholarly work of synthesis drawing on 
an impressively comprehensive bibliography and with a helpful 
glossary included.

Beginning with the rise of private banks in the eighteenth century 
and concluding with the financial conglomerates and hedge funds of 
the early twenty-first century, Cassis has produced a comprehensive 
overview of the developments of the main centers of capital: London 
and New York, Amsterdam, Paris, Brussels, Zurich, Frankfurt and 
Tokyo.  His account shows how these centers were buffeted by 
political crisis and military conflict but proved resilient through 
innovation and specialization. The structure is strictly 
chronological, although themes of rivalry and competition, regulation 
and innovation emerge.  Changes in the financial architecture are 
traced throughout as private banks gave way to joint stock banks, and 
stock markets matured and became international.  The concentration of 
capital at the end of the nineteenth century, described in the first 
part of the book, is echoed near the end of the book by the mergers 
and acquisition wave of the 1980s and 1990s, which saw a return to 
the scale and breadth of global financial activity that had occurred 
a century earlier.  Nevertheless, Cassis is skeptical of the 
comparison of the 'new' globalization of the 1980s with the first era 
of globalization given the technological and scale differences 
between the two periods, and he seeks merely to position the 
integration and growth of financial markets that has occurred in the 
last 25 years in its historical context.

The most detailed descriptions are devoted to the three chapters that 
draw out the decline of Amsterdam and the rivalry between London and 
Paris from the early nineteenth century to 1914.  The years of crisis 
from the beginning of the First World War to the end of the Second 
World War are treated together in a single chapter.  Along with the 
description of the changing fortunes of European centers, this period 
sees the rise of New York as a major player with very different 
characteristics than its European rivals.  One chapter covers the 
recovery of markets from the war and the subsequent financial 
innovation (in the form of the Eurodollar market) that transformed 
the nature of business done by IFCs in the 1970s.  The final 
substantive chapter takes the story from 1980 to 2005.  In common 
with all histories that seek to cover such a broad time period there 
is a sense that later decades get rather short-changed, but that is 
the nature of this kind of project.

The final chapter draws conclusions from the long historical 
perspective on why IFCs emerge and prosper.  There is a range of 
features that seem to promote the establishment of IFCs, including 
political security and a strong currency, but Cassis admits that his 
account of the historical record shows that no combination is either 
necessary or sufficient.  He moves between centers that were 
important mainly because of large domestic markets that make for 
large banks and transaction volumes (New York and Tokyo) and those 
that operated more as financial services entrepots (Zurich and 
post-1950 London) but concludes that his research has shown that 
being a world economic leader is (usually) an important underlying 
cause of the rise of IFCs.  Will all large economies eventually 
generate an IFC, and if so what does this suggest about Shanghai, for 
example?  Other long-term factors include wars (which dent but do not 
necessarily end IFCs) and openness to migrant skilled workers.  He 
concludes that state intervention "rarely determines the destinies of 
IFCs in a lasting or fundamental way" and controversially argues that 
regulation is more a consequence of how an IFC develops than a cause. 
He concludes that most regulatory interventions did not profoundly 
change the outcome of the hierarchy of IFCs.  Supporters of Shanghai 
as an IFC of the future will take comfort from this argument that 
size of the domestic economy rather than regulation or strength of 
the national currency are the most important long-term drivers of 
IFCs.

Cassis has not quite escaped the challenges of identifying, 
classifying and ranking IFCs, although one of the themes of the book 
is shifting rivalries. He dodges the tricky question of how to rank 
IFCs by using various measures at various times; including size of 
national banks, employment, and value of foreign issues.  Each of 
these measures reflects different attributes of international 
financial activity but none allows a comprehensive comparative 
approach given the different ranges of activity in each center. 
Moreover, these measures become less useful with globalization once a 
product may involve activity in several centers, and as innovation 
changes the labor requirements and some operations are outsourced. 
Nevertheless, the breadth, scope and detail of the study must 
recommend it to scholars and students seeking an overview of the 
development of international financial and banking markets over the 
past two hundred years.


Catherine Schenk is Professor of International Economic History at 
the University of Glasgow.  She is the author of _Hong Kong as an 
International Financial Centre; Emergence and Development_ 
(Routledge, 2001).  Her most recent project examines the exchange 
rate regime choices of a range of developing economies in the early 
1970s.

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