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British Banking: Continuity and Change from 1694 to the Present

Author(s):Michie, Ranald C.
Reviewer(s):Murphy, Anne L.

Published by EH.Net (September 2017)

Ranald C. Michie, British Banking: Continuity and Change from 1694 to the Present. Oxford: Oxford University Press, 2016. xi + 334 pp. $105 (cloth), ISBN: 978-0-19-872736-1.

Reviewed for EH.Net by Anne L. Murphy, Department of History, University of Hertfordshire.

This book emerges from the “Tipping Points” project located at the Institute for Hazard, Risk and Resilience at Durham University. It is a fine work of synthesis and a focused reassessment of the nature of British banking in the long run. It is a “must read” for historians, economists and policy makers.

British Banking presents a strictly chronological account of banking development, starting with the establishment of the Bank of England (BoE) in 1694 and bringing us up to the present day. Michie opens with the thorny problem of how to define a bank so as to capture continuity and change over time. The definition he offers is “all financial institutions whose main business involved borrowing short and lending long, as that exposed them to issues of liquidity” (p. 3). In adopting this definition, he follows that employed in 1997 by Eddie George, then governor of the Bank of England, who went on to assert that it was the mismatch between the way banking assets and liabilities are configured which makes banks “peculiarly vulnerable to systemic risk” (p. 2). As Michie asserts, George’s analysis warranted far greater attention than it received at the time. The crises that were to follow in 2007/8 proved just how right he was to be concerned about the problems of liquidity.

While British Banking is an account of banking development in the long run, the underlying focus throughout is the crisis of 2007/8 and the question of whether the history of British banking offers us any insight into its causes and ways to prevent future crises. The first chapter offers a broad chronological sweep of the period from 1694 to 2015. This is no easy task as it is difficult to find data on the number of banks in operation during the eighteenth and nineteenth centuries. Michie has gone some way towards remedying this gap and presents useful statistics in a set of appendices. These show that the peak in the number of banks came around 1810. There were more than 1100 banks in operation in Britain at that time. The number has been in decline ever since. There were fewer than 100 in 2008. The banks of the eighteenth century were generally small and were the product not of lack of regulation, as is often asserted, but rather a liberal lending policy by the BoE. Once the BoE changed policy, a tipping point in Michie’s account, the numbers of banks contracted.

Chapters three and four both focus on the period from 1825 to 1914 which saw increasing consolidation and the professionalization of the banking industry. Banks focused their efforts on developing what Michie refers to as the “Lend and Hold” model of banking in which they retained a close relationship with their customer base and, in general, the deposits of one group of its customers went to fund the borrowings of another. Scale won the day but, importantly, the sector remained diversified and effective competition was retained. By the eve of the First World War, British banking had achieved both significant stability and the trust of the British populace.

Chapters five and six cover the periods from 1914 to 1945 and 1945 to 1970, respectively. Here the story is one of solid and cautious respectability. The system became more concentrated and more conservative. Michie denies that the effect of this was a lack of effective financial support for industry. His view is that the problems that beset British industry lay elsewhere. Yet the conservative nature of British banking post-war meant that banks failed to participate in the growth of financial services and, although London remained the hub of the global financial system, it was not domestic banks that benefited from this advantage. The cost of banking stability was stagnation in the financial sector.

Chapter seven covers the period from 1970 to 1997 and, in contrast to the rest of the book, it feels underdeveloped. This period was one of tremendous and highly significant change including the oil shocks of the early 1970s, ‘Big Bang’, and the explosive expansion of the derivatives market. None of these receive a great deal of attention and perhaps an opportunity was lost to address some of the key ‘tipping points’ that led to the crises of the twenty-first century.

Chapters eight and nine take us from 1997 to 2015 encompassing the crisis, its causes and its consequences and resolutions. Michie identifies the instabilities that had been introduced into the British banking system and which led to the 2007/8 crises as having been, at the regulatory level, caused by the erosion of the BoE’s regulatory role as a result of the policies of New Labour from 1997. Instability at market level was a consequence of the erosion of the BoE’s position as lender of last resort but also the switch to the U.S. dollar as the basis for inter-bank lending made it more difficult for the BoE to support the money market. Lastly, the system had become unstable at the level of individual institutions as intensified competition, from the 1970s onwards, had led to risk-seeking and profit-maximizing strategies which were unsustainable in the long run.

Michie, like any good historian, cautions against the idea that we can draw straight-forward lessons from history but he does nonetheless offer his view on what taking a long-run perspective might offer for policy makers. Stability, he argues, lies not in legislation but rather in “the existence of a small number of large banks with a diversified business model and strictly enforced code of behavior” (p. 268).



Anne L. Murphy is Reader in History and Associate Dean Research for the School of Humanities at University of Hertfordshire. Her most recent publication is “Clock-watching: Work and Working time at the Late-eighteenth-century Bank of England,” Past and Present, 236 (2017): 99-132.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (September 2017). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Oxford Handbook of Banking and Financial History

Editor(s):Cassis, Youssef
Grossman, Richard S.
Schenk, Catherine R.
Reviewer(s):Neal, Larry

Published by EH.Net (July 2017)

Youssef Cassis, Richard S. Grossman, and Catherine R. Schenk, editors, The Oxford Handbook of Banking and Financial History. Oxford: Oxford University Press, 2016. xviii + 537 pp., $160 (hardcover), ISBN: 978-0-19-965862-6.

Reviewed for EH.Net by Larry Neal, Department of Economics, University of Illinois at Urbana-Champaign (emeritus).

The global financial crisis that began in 2007-08 and continued to rattle the Eurozone countries after 2010 has certainly been good for the market for financial history.  The Oxford Handbook of Banking and Financial History is clearly a response to these events.  In their introductory chapter, the editors set out their ambitious agenda, which is to deal with the individual parts of our modern complex financial system and trace how each has evolved over time.  Each chapter ends with some insight into how the current turmoil in global banking and finance might affect part of the global financial system. This broad-ranging approach is very much in keeping with current analysis by policy economists, who have become very sensitive to how our financial system intertwines banks, which specialize in particular niches of the economy; shadow banks, which innovate to find new niches; money markets, which deal with short-term finance; capital markets, which provide long-term finance; and regulators, who attempt to oversee the operation of the financial system for the interest of the public (or the government).  The editors’ goal is to provide anyone concerned with a particular aspect of the financial system an authoritative treatment by an acknowledged expert that is clearly written for the non-specialist combined with a useful bibliography to follow up particular aspects.

The Oxford Handbook is organized into four parts: Part I, Thematic Issues, deals explicitly with the problems that the editors confronted at the outset: how have historians approached the issues in financial history (Youssef Cassis); how have economists dealt with the issues that interest them (John D. Turner); and how have policy makers tried to apply lessons from history for promoting economic development (Gerard Caprio, Jr.).  To pay due attention to historical contingency, economic analysis, and policy relevance in each of the following chapters is, indeed, a daunting task for each author.

Part II, Financial Institutions, takes up these challenges by separating out several categories of distinctly different institutions, a useful distinction too often overlooked in practice and one that illustrates nicely the complexity of any financial system.  Youssef Cassis’s “Private Banks and Private Banking” begins with the initial role models for banks, from their origins in kinship networks in Renaissance Italy to today’s Swiss managers of private wealth.  Gararda Westerhuis’s “Commercial Banking: Changing Interactions between Banks, Markets, Industry, and State” follows by dealing with the nineteenth-century spread of industrialization globally, which led to the rise of universal banks.  By the end of the twentieth century, however, it appeared that commercial banks might be in “a state of terminal decline.” (See Raghuram Rajan, 1998, “The Past and Future of Commercial Banking Viewed through an Incomplete Contracts Lens,” Journal of Money, Credit, and Banking. 30(3), 524.)  The financial crisis of 2008 led many observers to push for a separation of investment and commercial banking once again in the interest of financial stability.  Westerhuis goes on to distinguish the motives for establishing market-based systems (U.S. and England) versus bank-based systems (Germany and Japan).  She posits that the two paths diverged early on due to the differences in government control over banks and then the role played by banks in financing industrialization for follower countries, such as Germany and Japan.  Oddly missing from her overview is any consideration of the experience of Scottish banking, which developed joint-stock banks with national branches early in the eighteenth century.  Only after the financial crisis of 1825 did the English care to look seriously at the Scottish example for improving their commercial banking system!  Further, joint-stock banks did not disappear in the U.S. during the “free banking” period as she asserts. While they were confined within state boundaries, limitations on branching within a state varied considerably.  The wide range of experiments undertaken by various states has stimulated a growing and interesting literature among U.S. scholars, largely omitted from her bibliography.

Caroline Fohlin’s “A Brief History of Investment Banking from Medieval Times to the Present” takes up the most challenging role of banks, how to transform short-term liabilities into long-term assets.  Rather than taking specific organizational forms, she prefers to analyze investment banks as a set of services that help finance the long-term capital needs of business and governments. After briefly looking at merchant banks from medieval times to the early nineteenth century, this loose definition requires her to take up individual countries one by one during the nineteenth century.  Sections follow that deal with England, the European continent, Belgium and the Netherlands, France, Germany, Austria and Switzerland, Italy, Japan, and the United States. Each section highlights the differences in organizational structures created to accomplish basically the same goals, helping governments promote industrialization.  The twentieth century presents more interesting differences, essentially due to the ways various governments regulated, deregulated, and then re-regulated from the 1920s to the present.  She concludes, “even well-known investment banking names that have endured over the centuries bear little resemblance to their ancestors” (p. 159).

Christopher Kobrak’s “From Multinational to Transnational Banking” takes up the complex transformations of the world’s leading banks by size as they successively internalized their international operations.  The availability of huge advances in information technology combined with increasing opportunities for re-allocating domestic savings across foreign investments provided the basis for the growth of today’s megabanks.  Oddly, however, Kobrak takes as archetypes of the new transnational bank two of the worst performers after 2008 — Deutsche Bank and Citibank.  Relying on their respective annual reports in 2007-2010, he touts each of them as “market players” rather than staid fiduciary agents, lauding their scale and scope of activities that are only vaguely related to financial intermediation associated with banks “lending long, while borrowing short.” He dispassionately notes that three-quarters of Deutsche Bank’s two trillion euros in assets in 2007 were securities held for trading, and 40 percent were financial derivatives (p. 183), without disparaging the obvious omission of fiduciary responsibility. Citibank, similarly, by 2007 had “invested huge resources in creating an internal market, in essence warehousing securities and derivatives to build hedged positions and for future sale” (p. 182). All these intra-bank holdings of assets and liabilities enabled such banks to make a lot of money by proprietary trading that remained unobserved by regulators or by publicly accessible financial markets.  He refrains from criticizing the model developed by these two megabanks, each of which has suffered huge losses and justified public acrimony since 2008, confining himself to the anodyne remark that “megabanks may be forced, as they have many times in the past, to find an intertwined institutional and organizational adaptation more sustainable in the modern social order” (p. 185)!

R. Daniel Wadhwani’s “Small-Scale Credit Institutions: Historical Perspectives on Diversity in Financial Intermediation” concludes Part II by lumping together a motley assortment of credit cooperatives, savings banks, industrial banks, pawn shops, and savings and loans associations.  Wadhwani argues their cumulative size makes their impact on their respective economics arguably as great or greater than that made by the commercial, investment, and public banks dealt with in the previous chapters.  Their common origin across many cultures and through past millennia he finds in the ubiquitous presence of ROSCAs (rotating savings and credit associations).  Beginning with small kinship groups desiring to pool their limited resources to enable individual members to acquire a desired goal, perhaps a piece of land, a dwelling, livestock, or even the means to migrate somewhere else for employment, ROSCAs often provide a basis for transition to the more modern forms of intermediation.  These include savings banks, credit cooperatives, and savings and loans, with each evolving quite differently depending on local circumstances.  Critical to their evolution historically is the role of government, whether as regulator (restricting competition), competitor (postal savings banks), or customer (providing sovereign debt as risk-free asset).  The theoretical economic bases for their evolution and persistence are robust, both for their monitoring capability and for their local knowledge of investment possibilities.  Nevertheless, Wadhwani calls attention to more post-modern “theories” that favor the creation of supportive narratives when cultures confront changes in economic regimes.

Part III, Financial Markets, begins with Stefano Battilossi’s “Money Markets,” which emphasizes the importance of access to outside liquidity for banks when they face unanticipated shocks either for increased loans or increased withdrawals of deposits.  Further, Battilossi argues that a key lesson learned by banking theorists and practitioners in the nineteenth century, namely that money markets are essential for a smooth working of the economy but are inherently unstable, was lost over the course of the twentieth century.  The success of the Bank of England in stabilizing the money market at the center of the global economy of the nineteenth century, he argues, was due to a complex combination of close monitoring by the Bank of England and cartel complicity by the major joint-stock banks, each with extensive branching networks domestically and overseas.  U.S. efforts to imitate the British example after creation of the Federal Reserve System in 1913 failed due to irreconcilable differences in institutional structures between the two banking systems and their respective central banks.  It took over a century and a half for the Bank of England to learn how to avoid being a dealer of last resort, a role that the Federal Reserve System in the U.S. had to undertake in the 2008 crisis, and which it has not yet been able to relinquish.  Readers are left to draw the implications for the future of the global financial system for themselves!

Ranald C. Michie’s “Securities Markets” lays out convincingly and clearly the importance of securities markets for a successful financial system.  Divisibility and transferability of a security expands greatly the potential customer base, adding the virtue of diversity in demands for liquidity among the creditors as well.   He distinguishes clearly between “Primary Securities Markets” and “Secondary Securities Markets,” showing their interdependence in layman’s terms.  “Stock Exchanges” provide the effective linkage between the two levels of markets, but fall prey in turn to problems either of monopoly pricing or government repression. His exposition of the underlying theory of securities markets provides the structure for his narrative that follows. From “Early Developments in Securities Markets,” which only mentions briefly the roles of informal markets in the speculative booms of 1720, Michie insists on focusing on the nineteenth century, starting with the London Stock Exchange in 1801.  It’s unfortunate that he ignores recent work on the Amsterdam stock market, (e.g., Lodewijk Petram, The World’s First Stock Exchange, New York: Columbia University Press, 2014), or early work by this reviewer on the precedents for the London Stock Exchange (Larry Neal, The Rise of Financial Capitalism, New York: Cambridge University Press, 1990).  Committed to the importance of formal structures for modern stock exchanges, however, Michie takes up their rise in the advanced capitalist economies of the nineteenth century and then their eclipse from 1914 to 1975.  Thanks to the exigencies of war finance from World War I through the Cold War, stock markets seemed to “appear somewhat irrelevant in a world dominated by governments and banks” (p. 253)  “The Era of Global Banks” did not come to an end in 2008, however, but what had ended was the “self-regulation that had contributed so much to the attractions of stocks and bonds to governments, businesses, and investors through the reduction or elimination of counterparty risk and price manipulation and the certainty that sales and purchases could be made as and when required” (p. 258).  Big banks are bad once again!

Moritz Schularick’s “International Capital Flows” is the most quantitative and instructive of the chapters, as he summarizes succinctly in nine brief tables and one graph, the levels of international capital flows over the nineteenth and twentieth centuries, their size relative to Gross Domestic Product, and the main sending countries and main receiving countries over time.  In sum, rich countries invested in poor countries in the nineteenth century, when international capital flows were highest relative to GDP, and the rich continued to invest in poor countries even when capital flows were severely constrained during the period 1914-1975.  But after the collapse of Bretton Woods, when international capital flows rose sharply once again, the result has been for poor countries to invest in rich countries.  Further, when capital does flow suddenly to emerging economies, financial crises often follow when the flow tapers off, undoing whatever economic advance may have occurred.

Youssef Cassis’s “International Financial Centres” concludes the coverage of financial markets by analyzing the recurring features of international financial centers that lead to their persistence over time.  The physical layout of the dominant cities, the combination of functions they perform (government, communications, education, as well as trade and finance), and their organization may change as the technology of transport, communications, and information change, but, Cassis argues, the network externalities created by the concentration of so much expertise in one location make the existing centers hard to replace.

Part IV, Financial Regulation, takes up the most vexing questions for policy makers, starting with Angela Redish’s “Monetary Systems.”  Redish begins with the complexity of metallic currencies with coins minted in varying combinations of copper, silver, and gold in early modern Europe, and deftly reviews the causes that concerned European policy makers as they sought to maintain coins with fixed legal tender values, whether minted in any or a combination of the three precious metals.  Basically, their concerns were the same as today, “whether nominal change can have real consequence for the balance of trade or level of economic activity?” (p. 327).  Redish goes on to trace out the academic literature that has dealt with the Emergence of the Gold Standard, the Latin Monetary Union, the Cross of Gold, the Classical Gold Standard, and the Good Housekeeping Seal of Approval, highlighting the controversies that have arisen under each rubric.  Next, she divides the End of the Gold Standard into the First World War and the Interwar Period, Bretton Woods and European Monetary Arrangements, and the End of Bretton Woods and the Rise of the Euro.  Reproducing faithfully the graph produced by Eichengreen and Sachs to show that countries that stayed committed to the gold standard after 1929 suffered in terms of industrial production relative to those that devalued, she doesn’t point out that the outliers of Germany and Belgium are readily explained by mistaking their formal exchange rate regimes with the ones they followed in practice (Germany using bilateral trade agreements to increase industrial exports while keeping the nominal exchange rate fixed, and Belgium reducing its nominal exchange rate while being forced to maintain existing trade agreements with France).  She concludes with a brief discussion of both inflation targeting under fiat currency regimes and the rise of crypto currencies such as Bitcoin, Her conclusion is merely that “money is information, a method to enable multilateral clearing of myriad transactions.  It would be surprising if the digital revolution did not lead to a revolution in how this information is managed” (p. 339).

Forrest Capie’s “Central Banking” takes up the baton passed on by Redish to provide a brief synopsis of the issues confronting central banks as they have increasingly taken control of the supply of money over the past two or more centuries.  Monetary stability, their prime responsibility, can be assessed in terms of price stability, but financial stability, which has become a major concern, he notes is more difficult to assess, much less to sustain.  Central bank independence, however defined, does seem to correlate with monetary and price stability, which shows that policy lessons have been learned successfully on that score.  Continued independence of central banks, however, hinges very much on attaining and then sustaining financial stability.  This task, very much underway now among the world’s central banks, 174 at last count, may require expanding their role to include financial regulation as well as oversight of the banking system.

Harold James’s “International Cooperation and Central Banks” makes an interesting argument that central banks in their pursuit of the goal of monetary stability naturally tend to cooperate with other central banks internationally, but without need for formal mechanisms.  Cooperation can then be merely discursive, as it was during the classical gold standard.  Financial crises, however, often do call for international cooperation, but cooperation is difficult, perhaps impossible, to sustain given the priority of strictly national policy concerns.  Large countries, needed to make cooperative efforts successful, are the most reluctant to join in cooperative efforts.  His examples cover episodes during the classical gold standard, the interwar period, the brief Bretton Woods period, and the ongoing travail of the euro-system, which he concludes is “the global test case for both the possibilities and the limits of central bank action” (p. 391). In an interesting aside, he explains why the Bank for International Settlements was resuscitated to manage the European Payments Union in the 1950s.  Top U.S. officials were wary of using the newly-established International Monetary Fund because its staff were largely protégés of Harry Dexter White, then under suspicion as a possible Russian agent!

Catherine Schenk and Emmanuel Mourlon-Droul’s “Bank Regulation and Supervision” develops a sub-theme to the arguments presented by Harold James, namely the recurring problems of regulatory competition, moral hazard, and regulatory capture.   Essentially, “[r]eputation and private information are key bank assets in a market with information asymmetry, but this complicates the ability to engage in transparent prudential supervision” (p. 396).  The U.S. stands out for having the most complicated and unwieldy array of conflicted regulatory agencies, summarized in Table 17.1.  The authors conclude, as do Charles Calomiris and Stephen Haber (Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, Princeton, NJ: 2014), that it is no accident that Canada and the UK, with more coherent approaches to bank regulation have had fewer banking crises.  Much of the remaining chapter focuses on China and the successive efforts of China’s rulers to establish, then regulate, a banking system to enable industrialization and modernization, concluding, perhaps prematurely, that China managed to reduce the problem of non-performing loans after their peak in 2000.  The difficulties of deciding where to locate the regulator of the banking system are highlighted by tracing the successive efforts of the U.S., then the UK to find an ex post regulatory solution to the problems of recurring financial crises.  The efforts of the Basel Committee, established after the collapse of the Bretton Woods System, are described in the context of the European Union’s efforts to move toward regulatory cooperation within a more limited scope of international cooperation.  Prospects for success on that score are still very much in doubt.

Laure Quennouelle-Corre’s “State and Finance” takes a step back to look at the origins of the ongoing dilemma for the Eurozone of the interaction between governments’ sovereign debt and financial fragility of their banks.  The recurring differences between France and the other members of the European Union form the backdrop for his rambling notes on the interactions of private and public financial institutions, ending with the observation that France alone has had to deal with the European Union’s pro-market ideology versus the French tradition of state intervention.

Part V, Financial Crises, opens with Richard Grossman’s “Banking Crises,” which reprises the standard story of boom-bust cycles, exacerbated when new opportunities for speculative investments open up (first globalization after 1848; second globalization after 1979; post-war adjustments after WWI) but then moderated under strict regulation (capital controls, interest rate restrictions from 1945-71).  In his perspective, the Eurozone crisis fits the boom-bust pattern first described by D. Morier Evans in 1859 (The History of the Commercial Crisis, 1857-58, and the Stock Exchange Panic of 1859, New York: Augustus M. Kelley, 1969).

Peter Temin’s “Currency Crises: From Andrew Jackson to Angela Merkel” takes up the international aspect of the boom-bust paradigm by extending it into national decisions about setting the exchange rate with foreign trading partners and possible investors. To bolster his long-standing conviction that most, if not all, banking crises are really currency crises at heart, he lays out in detail the open macro-economy model developed by Trevor Swan. Swan’s diagram relates a country’s domestic level of production to its real exchange rate.  Internal balance is maintained if production rises with the real exchange rate, while external balance requires the real exchange rate to fall when production increases. The model leads to dire consequences for a country if it does not succeed in maintaining both internal balance (matching domestic investment with domestic supplies of savings) and external balance (matching capital account flows with offsetting trade balances) simultaneously.  Either excessive inflation or long-term unemployment occurs whenever imbalances are sustained due to misguided government policy.  Banking crises then arise as the necessary outcome of such policy failures by governments. The historical evidence to support Temin’s argument starts with Andrew Jackson and the crisis of 1837 in the U.S., continues through the Great Depression in the U.S. in the 1930s, not to mention the concurrent crisis in Germany, and concludes with the ongoing Eurozone crisis, all basically due to misguided political leaders, as named in his sub-title.

Juan H. Flores Zendejas’s “Capital Markets and Sovereign Defaults: A Historical Perspective” concludes the Oxford Handbook.  The first global financial market, arising with the collapse of the Spanish Empire in Latin America after the Napoleonic Wars, saw various devices to cope with the recurring problem of governments defaulting on the sovereign bonds they issued for whatever reason, usually to fight a war or quell a revolution.  Flores recounts the success of the London Stock Exchange in bringing governments to heel if they wanted access to British savers. The monitoring capabilities of the leading merchant bankers, especially the Barings and Rothschilds, put their imprimatur on bonds issued through their firms.  Twentieth century regulatory restrictions on these leading investment banks by their host governments, however, have limited the effectiveness of their “branding” and their intrusive follow-up in monitoring the finances of their customer governments.  Flores casts some doubt as well on the effectiveness of the Council of Foreign Bondholders in the nineteenth century.  He could also have challenged the effectiveness of international financial control committees that served as the model for the League of Nations Financial Commission after World War I if he had cited the recent work of Coskun Tuncer (Sovereign Debt and International Financial Control, The Middle East and the Balkans, 1870-1914, London: Palgrave Macmillan, 2015).  Flores concludes in general that governments that avoided defaulting in times of general crisis did so because they had been excluded from the earlier expansion of international credit.

All in all, the editors did get the compilation in print still in time to be useful for anyone concerned with how the ongoing financial crisis of the early twenty-first century will play out.  Specialists in each topic, however, may be disappointed in the necessary brevity of treatment, not to mention absence of references to their own work, particularly if they worry most about the future of the U.S. financial system.

Larry Neal is the author of A Concise History of International Finance: From Babylon to Bernanke, Cambridge: Cambridge University Press, 2015

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2017). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Complexity and Crisis in the Financial System: Critical Perspectives on the Evolution of American and British Banking

Editor(s):Hollow, Matthew
Akinbami, Folarin
Michie, Ranald
Reviewer(s):Moen, Jon

Published by EH.Net (October 2016)

Matthew Hollow, Folarin Akinbami, and Ranald Michie, editors, Complexity and Crisis in the Financial System: Critical Perspectives on the Evolution of American and British Banking.  Cheltenham UK: Edward Elgar, 2016. xv + 339 pp. $145 (cloth), ISBN: 978-1-78347-132-4.

Reviewed for EH.Net by Jon Moen, Department of Economics, University of Mississippi.

Complexity and Crisis is a set of thirteen essays aimed at providing insight into the causes of the 2008 financial crisis.  Most have a strong historical element to them.  They examine the financial and banking systems of the United Kingdom and the United States, comparing responses to crises in the past.  The essays are drawn from several disciplines including economics, law, and management.  The theme that ties this set together is the role of increasing complexity in contributing to financial crises today and in the past.  The definition of complexity is elusive, although lack of transparency about financial instruments or intermediaries certainly contributes.  One example presented early on is that of the complex financial derivatives that collapsed during the 2008 crisis.  Other examples include innovations in financial markets that lead to unexpected connections with other intermediaries that in turn create confusion or uncertainty among participants leading to a crisis.

The book is organized into three sections.  The first describes the long run, historical growth of the U.S. and UK banking systems.  This section contains four mainly historical essays, two that compare different financial and banking crises and two that look at the growth and development of the British banking system since 1688.  The second section looks at how legislation and market pressures changed the financial structures of the two countries.  It contains five essays that look at how legal decisions and legislative changes altered the location of liability in financial markets and the structure of corporate governance in financial firms.  The third section focuses on how financial crises can be dealt with while they are unfolding and what could be done in the aftermath of a crisis.  The four essays in this section look at how the governments of the UK and the U.S changed their responses to crises and what might be some new ways to respond to the inevitable crises in the future.

This is a well-done set of essays.  Although they are arranged somewhat thematically, they can be read in no particular order or even independently.  The book, therefore, can also serve as a useful reference book for those studying more historical aspects of banking and financial markets.  A majority of the essays focus on the UK; only three examine the U.S. exclusively.  This is not really a weakness, as this a useful set of essays to have as most are heavily documented, further enhancing its use as a reference volume.

The theme of complexity and its connections to crises is interesting, although it is not really needed to appreciate any of the essays.  I think there could have been more comparative analysis across various crises because the relative simplicity of earlier crises and panics helps us understand current problems.  Increasing complexity does not rule out seeing parallels across episodes of financial crisis. The Panic of 1907 and the Crisis of 2008 contains some striking similarities once you get past the complex surface of 2008.  In both cases short-term lending was disrupted, intermediaries outside the purview of the lender of last resort were the hotspots in both crises, and regulatory response — or lack thereof in the case of Knickerbocker Trust and Lehman brothers — featured prominently in both crises.  My work and that of Gary Gorton address these parallels.  The place of intermediaries being “too big to fail” also is absent in the book, although that was a concern in the past just as it has been currently.  An essay on that topic would have added a great deal.

Several of the essays caught my attention, in part because they relate to my own research or they demonstrate comparative analysis across panics.  The first chapter (by Robert Bruner, Sean Carr, and Asif Mehedi) examines six panics from U.S. history, highlighting the presence of financial innovation in each crisis and its contribution to complexity in financial markets.  I suspect that innovation was in part spurred as a means to get around new regulations in addition to new profit opportunities.  The third chapter (by Ranald Michie) shows how the evolution of the U.K. financial system was more likely to be guided by internal, market-based responses to crises while the U.S. system was more likely to be changed by outside legislative changes.  As he points out, such legislative changes likely will be followed up with innovations around the legislation, producing unintended consequences in the future.  Chapter five by (Dalia Mitchell) and chapter eleven (by T.T. Arvind, Joanna Gray and Sarah Wilson) taken together provide a nice comparison of the evolution of how legal liability was assigned in the U.S. and the UK over time.  There seems to have been a shift away from interpreting losses as a sign of criminal behavior on the part of directors towards one based more on interpreting losses as a result of market vicissitudes and bad decision making.  This is a theme that appeared during the examination of the crisis of 2008, one that blamed much of the crisis on the fact that the incorporated investment firms that had supplanted partnerships had much less “skin in the game.”  The result was that corporate firms took on more risk.  The remaining chapters are all worth reading, and most of you will select a unique set that appeals to your interests.

Jon Moen is Chair and Associate Professor in the Economics Department at the University of Mississippi.   He has studied the Bank Panic of 1907 and its role in the founding of the Federal Reserve System.  He currently is examining the limited role of the New York Clearing House as a lender of last during the National Banking Era.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (October 2016). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
North America
Time Period(s):17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The World’s First Stock Exchange

Author(s):Petram, Lodewijk
Reviewer(s):Michie, Ranald

Published by EH.Net (December 2015)

Lodewijk Petram, The World’s First Stock Exchange.  New York: Columbia University Press, 2014. vi + 296 pp. $30 (cloth), ISBN: 978-0-231-16378-1.

Reviewed for EH.Net by Ranald Michie, Department of History, Durham University.

The subject of this book is the world’s first stock exchange, which the author locates in Amsterdam in the seventeenth century. As becomes apparent in the text (pp. 181-82), no stock exchange was formed in Amsterdam at that time. The Amsterdam Stock Exchange Association was not established until 1876 and it did not occupy its own building until 1913. Both these events were long after stock exchanges had been founded in numerous other cities in the world, such as London and New York. What the author confuses is trading in corporate stocks and a stock exchange.  The former is a market whereas the latter is an institution. This difference matters because of the important contribution that rules and regulations make to reducing counterparty risk, eliminating price manipulation, addressing trading abuses and ensuring the permanence and continuity of opportunities to buy and sell.  That leads to a question that this book does not answer. Why was a stock exchange not formed in Amsterdam in the seventeenth century given the early start that was made there in establishing a market for stocks and the need to respond to all the problems it led to for those involved?  Clues are provided in the text to such a question but it remains unanswered because it is not asked.

The failure of the author to distinguish between a market and an exchange, and then discuss why the former did not lead to the latter in seventeenth century Amsterdam, is a pity because the book contains much of interest and relevance. The material that the author uses is largely that generated by disputes between those involved in this early stock market whether they were investors, brokers or dealers. Using this legal material provides a great deal of depth to an understanding of this early stock market but the overall result is rather episodic. Lacking the material produced by an institution such as a stock exchange, as there was none, there is no sense of development. Instead, there are a series of glimpses into a world in which the owning, buying and selling of corporate stocks gradually emerged from the shadows and took on a tangible form. The way this is presented is at variance with normal academic practice. Despite being based on a Ph.D. the focus is on telling a story based on the life and times of individuals, and extrapolating far beyond the evidence gleaned from the court records and business papers available. This makes the book very readable but at the expense of analysis and explanation.

Central to the narrative is the VOC (the Dutch East India Company), as it was the shares issued by it which provide the material out of which the early stock market in Amsterdam grew. As a trading company sending ships to Asia, its business prospects were highly uncertain, being exposed to the vagaries of weather and war as well as those of long-distance commerce, making its dividends a great unknown until formally declared by the directors.  At times large dividends were declared while at others none resulted, while payment could be in anything from commodities like cloves, government bonds, or actual money. It was this uncertainty that generated a great deal of market activity as it attracted speculative interest, driven by news and rumors, as well as those looking for a permanent investment, willing to accept both losses and profits over the long run.

In turn the very volatility associated with VOC stock gave it a liquidity that attracted another class of investor. These were people, such as the merchants, with temporarily idle funds who looked for a suitable investment while waiting better paying opportunities. The stock market that developed in seventeenth century delivered this. Increasingly it became possible to trade in VOC shares not only for immediate delivery but also forward, providing opportunities for those with spare funds to employ them in this market or those in need of such fund to access them. Contributing enormously to the operation of this market was the use of options and the appearance of a growing number of brokers and dealers, as these provided those trading in VOC shares with a continuous market and ways of either increasing or reducing the risks that they took. These developments are expertly documented in this book and the reader is provided with a wealth of evidence detailing the way the market operated in the seventeenth century. That makes the book an invaluable addition to the literature on the history of securities markets.

The conclusion reached by the author is a rather negative one as he says little of value about the developments that took place in share trading in Amsterdam in the eighteenth century. The stock market was confined to the shares of one company, the VOC, with only one other being formed, the Dutch West India Company (WIC), which was not a success. In addition, the interpretation presented here focuses on the speculative element of share trading, which is inevitable given the material that is relied on. Disputes were usually generated when one party to a deal looking for a way of reneging on it when the outcome meant a large loss for himself. What is lost in this approach is the connections between the market in VOC shares and the wider money market and the complex world of international payments. There are hints of these connections in the book but they are not taken up. Reflecting the weakness of this element of the book is the lack of understanding of the developments being made in the rival stock market in London from 1694 with the formation of the Bank of England, as its shares could provide the depth and breadth that those of the VOC lacked, as it was a proxy for the debt of the UK government.

Ranald Michie is author of The London Stock Exchange: A History (1999) and The Global Securities Market: A History (2006), both published by Oxford University Press. He is currently completing a book entitled British Banking: Continuity and Change since 1694, also for Oxford University Press.  He recently retired from Durham University as emeritus professor and is currently teaching at Newcastle University Business School.

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2015). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):17th Century


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Taylor, Graham D.
Taylor, Ranald
TeBrake, William
Teagarden, Ernest
Tebeau, Mark
Teichgraeber, Richard F.
Temin, Peter
Thomasson, Melissa A.
Thomson, Ross
Thornton, Mark
Tiffany, Paul
Tilly, Richard
Tolliday, Steven
Tollison, Robert D.
Toma, Mark
Tomlinson, Jim
Toninelli, Pier Angelo
Toniolo, Gianni
Touwen, Jeroen
Traflet, Janice M.
Trescott, Paul B.
Triner, Gail D.
Troesken, Werner
Tulchin, Joseph S.
Tuttle, Carolyn
Tweedale, Geoffrey
Twomey, Michael J.
Tympas, Aristotle
Ugolini, Laura
Vedder, Richard
Vedder, Richard K.
Velde, François R.
Ventry, Dennis J.
Verdon, Nicola
Ville, Simon
Virts, Nancy
Vitell, Scott J.
Vivenza, Gloria
Volckart, Oliver
Voth, Hans-Joachim
Vries, Peer
Wahl, Jenny
Wahl, Jenny B.
Wale, Judith
Wallis, John J.
Wallis, John Joseph
Wallis, Patrick
Walsh, Lorena S.
Walsh, Margaret
Walvin, James
Wanamaker, Marianne
Ward, Marianne
Wardley, Peter
Waterman, A. M. C.
Weber, Cameron M.
Wegge, Simone A.
Weidenmier, Marc D.
Weiher, Kenneth
Weir, Robert E.
Weir, Ron
Weiss, Thomas
Wells, Wyatt
Wendt, Ian C.
West, Martin
Westerman, Thomas D.
Whaples, Robert
Whatley, Christopher A
Whatley, Warren C.
Wheatcroft, Stephen
Wheeler, Hoyt N.
Wheelock, David C.
White, Eugene N.
White, Michael V.
White, Nicholas J.
Whitehead, John C.
Whitman, T. Stephen
Wicker, Elmus
Wilkins, Mira
Will, Pierre-Étienne
Williamson, Samuel H.
Wilson, John
Wilson, John F.
Winpenny, Thomas
Winpenny, Thomas R.
Wishart, David M.
Woeste, Saker
Wolcott, Susan
Wolf, Nikolaus
Wolff, Robert
Wood, Geoffrey
Wood, John
Wood, John H.
Woodward, Ralph Lee
Worden, Nigel
Wright, Gavin
Wright, Robert E.
Wright, Tim
Wuthrich, Bryan
Wynne, Ben
Yeager, Mary A.
Young, Garry
Young, Jeffrey T.
Zalewski, David A.
Zamagni, Vera
Zeiler, Thomas W.
Zevin, Robert
Zieger, Robert H.
Ziliak, Stephen
Ziliak, Stephen T.
de Fátima Brandão, Maria
del Mar Rubio, M.
van der Beek, Karine
van der Eng, Pierre
Álvarez-Nogal, Carlos
Ó Gráda, Cormac

State and Financial Systems in Europe and the USA: Historical Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries

Author(s):Battilossi, Stefano
Reis, Jaime
Reviewer(s):Hoag, Christopher

Published by EH.NET (September 2010)

Stefano Battilossi and Jaime Reis, editors, State and Financial Systems in Europe and the USA: Historical Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries.? Aldershot, UK: Ashgate, 2010.? xiv + 223 pp. $100 (hardcover), ISBN: 978-0-7546-6594-6.

Reviewed for EH.Net by Christopher Hoag, Department of Economics, Trinity College, Hartford, CT.

This volume, edited by Stefano Battilossi (Universidad Carlos III Madrid) and Jaime Reis (University of Lisbon), collects papers presented at the European Association for Banking and Financial History Annual Conference in May, 2006.? Eminent scholars in nineteenth- and twentieth-century financial history prepared papers that were reviewed by anonymous referees.? Each article relates to government intervention in historical western financial markets, though the country and time period varies.? Although the conference occurred before the recent financial upheaval, a few papers investigate issues that rose to prominence during the crisis.? In addition, several papers consider financial regulation after World War II, explicitly connecting historical and modern institutions.

After a careful introduction by the editors, Philip L. Cottrell opens Chapter 1 with a description of bank charter regulation in England from 1820 to 1890.? The English Act of 1826 allowed only lightly regulated entry by joint-stock banks.? After experience with chartering colonial banks and a domestic banking crisis in the 1830s, the Joint Stock Banking Act of 1844 heavily regulated new bank formation.? The Company Act of 1862 removed these restrictions.

In Chapter 2, Paolo Di Martino questions why the Italian and American legal systems delayed or declined to adopt the practice of ?officialism? in England, where public officials managed bankruptcy proceedings including possible debt-discharge.? The author suggests that the Italian system inherited a strong anti-debtor bias from the Napoleonic codes, while the American bankruptcy revision of 1898 was not pro-debtor (as it is commonly viewed) because creditors retained decision-making authority.

In Chapter 3, Eugene N. White hypothesizes that real productivity growth causes information asymmetries which require additional financial regulation.? White then provides a masterful synthesis of American financial regulation from 1863 to the present, with special attention to periods of high productivity growth.? Large productivity increases roughly coincide with major financial reform, so I look forward to empirical evaluation of the hypothesis in future work.

Chapter 4, by Ranald C. Michie, traces government regulation of the London Stock Exchange (LSE) after World War I.? The government used the LSE to maintain exchange rates and to channel investment towards domestic or government securities during the interwar period.? After World War II, the London Stock Exchange submitted to informal regulation from the British government to prevent more intrusive regulation.? But increasing international competitive pressure on the LSE to offer benefits and not costs to membership meant that the LSE could no longer take on a substantial enforcement role.

In Chapter 5, Laure Quennouelle-Corre and Andre Straus recount the relation of the French state to its financial markets over the period 1880-1970.? France restricted financial markets more forcefully than other European powers.? The French government channeled investment into public savings banks, government bonds, and eventually state-influenced commercial bank loans at the expense of private issues and foreign securities.? While the authors acknowledge the difficulty of producing national estimates for France, they use some aggregate point estimates for comparison within France across time as well as cross-country comparison with Britain and Germany.

In a timely Chapter 6, Richard S. Grossman employs a sample of eighteen mostly European central banks to show that central banks that obtained legal supervisory authority over commercial banks were founded about 20 years on average after those banks that did not acquire such authority.? In a subsample of ten banks with supervisory authority, younger banks acquired their powers earlier than older banks.? Current financial reforms grant central banks, such as the Federal Reserve and the Bank of England, additional supervisory authority over commercial banking, continuing the trend toward the unification of bank oversight and monetary authority.

In Chapter 7, Pablo Martin-Acena and Teresa Tortella discuss the development of the research departments of central banks, with a focus on Italy and Spain.? Research departments organized statistical information, created central bank libraries, and hired economists.? I would be interested in learning more about how the institutional structure of research departments influenced monetary policy.

In a prescient Chapter 8, Catherine R. Schenk outlines the reluctance of national regulators to oversee the Euromarket since 1960.? The Federal Reserve and the Bank of England attempted to use the Euromarket to achieve exchange rate goals during the 1960s.? Yet central banks, including the Federal Reserve, extended lender of last resort facilities to the Euromarket without substantial additional regulatory scrutiny.? National central banks remain unwilling to cede oversight of or information about multinational banks to other central banks or to a supernational regulator.? Emergency dollar funding facilities for Euromarkets remain an important modern policy concern, as the lack of regulation assures another future crisis.

Chapter 9, by Piet Clement, reviews the development of the Bank for International Settlements and notes the lack of access to the BIS archives due to a 30 year time lock.? Yet the lack of primary sources provides an opportunity for historians, economists, and policy experts to speculate about the political motivations of the regulatory maneuvers of central banks.? Unfortunately, researchers can probably expect additional delays to access to the BIS archives in order to prevent the dissemination of politically sensitive information.

In Chapter 10, Peter Englund and Vesa Vihriala document the banking and currency crises of Finland and Sweden in the early 1990s.? Using aggregate level macroeconomic data, they suggest that strong macroeconomic shocks and recent deregulation helped to exacerbate the crisis.? They also detail the policy actions of the government and the reactions of the market both before and during the crisis.

Readers interested in qualitative financial historical will enjoy the volume.? The introduction by the editors places each of the chapters in the context of economic research and modern policy, and the individual chapters emphasize presenting novel hypotheses or uncovering important details in financial history.?? With a few exceptions, articles limit data analysis to comparative aggregate statistics.?? These articles remain useful to researchers seeking to understand the institutions discussed by the authors.? The wide range of time periods and institutions means that most readers will come to the volume for a specific chapter, though on perusal most readers will find more than one chapter of interest.? The editors assemble the references conveniently at the end of the volume, rather than after each chapter.

Christopher Hoag, Assistant Professor of Economics at Trinity College, Hartford, recently completed a study of individual bank borrowing under the Aldrich-Vreeland Act of 1914.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (September 2010). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Empire and Globalization: Networks of People, Goods and Capital in the British World, c. 1850?1914

Author(s):Magee, Gary B.
Thompson, Andrew S.
Reviewer(s):Michie, Ranald

Published by EH.NET (August 2010)

Gary B. Magee and Andrew S. Thompson, Empire and Globalization: Networks of People, Goods and Capital in the British World, c. 1850?1914. Cambridge: Cambridge University Press, 2010. xx + 291 pp. $32 (paperback), ISBN: 978-0-521-72758-7.

Reviewed for EH.NET by Ranald Michie, Department of History, University of Durham.

There is a recent fashion developing in the writing of economic history. That is to refer to the Global Financial Crisis of 2007/8 and the need to re-examine the operation of impersonal markets. This has created opportunities for those who have long been skeptical of the idea that markets were the product of forces beyond the influence of mankind. Instead, markets are seen as human constructs prone to irrationality and abuse. Applied to the 50+ years before 1914, the first age of globalization, this leads to the recognition that empires were a key feature of that time, with much of the world belonging to one European power or another. These varied between the land masses of Russia and Austria/Hungary to the maritime possessions of Britain, France, Germany, the Netherlands, Portugal and Spain. The existence of these imperial domains meant that the mass movement of people, goods and capital that took place at that time was not simply the random product of global economic integration but a process influenced by culture, politics and individual behavior. In this book the focus is on the creation of the British World, by which is meant that sub-set of the British Empire largely settled by British migrants, namely Australia, Canada, New Zealand and South Africa. Such an approach does create problems as this was not a self-contained unit while the position of an ex-member, the United States of America, is never fully clarified. Nevertheless, this approach does provide the authors, respectively an economic historian and an imperial historian, with a mechanism through which the process of globalization can be examined. Though there are a number of original contributions within this study, reflecting the research conducted by the authors, the material used for this is largely derived from an extensive reading of the work of others, including that of this reviewer.
From this approach the British world emerges as a complex interconnected one involving multiple points of contact and circuits of exchange. Though Britain occupied a place at the center of this world there was no official direction and many of the currents bypassed it. Instead, this was a world unified through a shared identity, a common language, and the security provided by Britain?s military power.? Those who peopled it saw themselves as British even if they were no longer resident in that country or had been born there.? For this reason not all the inhabitants of those countries possessed this shared identity, especially the native races. In many ways this was an unstable world reliant on constant migration to and from Britain in order to reinforce this common identity. Between 1850 and 1914 an estimated 13.4 million emigrated from the British Isles with around 40 percent returning either permanently or temporarily. Though the greatest single stream went to the United States their presence there was swamped by both those long settled and those from a diversity of other countries. In contrast, these British migrants in the settler countries of the Empire were a major presence, while their letters, remittances and visits helped maintain strong links with family remaining in the UK. It is the study of this migration that lies at the heart of this book for its consequences are then traced in terms of consumption habits and the funding of investment.

As so many of those who lived in the settler countries of the Empire were British or of British origin their consumer tastes were easily satisfied by goods imported from Britain. However, this did not make these countries captive markets for British manufacturers. Other manufacturing nations soon seized the opportunity to sell goods in these markets, especially when they were better placed than British producers, as was the case with U.S. and Canada. Of even more importance was the growth of local manufacturing as it was better attuned to the changing needs of the population, as the example of beer shows. The conclusion drawn from this is that British industry did possess initial advantages in selling to these markets because of cultural affinity but only held onto them by remaining competitive in terms of price, product, distribution and marketing.? The rising proportion of British goods sold to these countries represented not a retreat into soft imperial markets by British industry but the ability of these countries to purchase more goods because of rising per capita income.? This section of the book contributes further to the rehabilitation of the once-maligned British manufacturing sector, especially as it reveals the great variety of products that it was supplying to distant markets.

The other consequence of this migration was to generate investment flows from Britain to these countries.? This was not just because of the flow of funds from a country where the returns to savers and investors were low to ones where they were high, because of conditions of supply and demand. What is examined in great detail is the role played by information flows in creating a climate in which British investors were favorably inclined to place their money in these countries. Evidence of a home bias among investors has been long known and the way the settler economies were perceived brought them within that. In addition, the degree of ongoing personal contact between Britain and these settler economies created openings for profitable investment by lowering the risks involved. This is something I explored in an article written thirty years ago and it is flattering to find it developed so expertly today!? The authors also extend this aspect of their study by looking at institutional links. British life insurance companies extended their operations to these countries as they followed their customers abroad and that also made them familiar with locally available investment opportunities.? Though there was a division between British domestic and overseas banking this did not extend to personnel, thus providing important contacts at that level.? What all this provides is a rational explanation for the imperial bias among British investors while being aware that other destinations were also of great importance, such as Argentina and, especially, the U.S.

What empires delivered before 1914 was a force for economic integration that placed flows of people, goods and money into particular channels. This is well argued though it must always be recognized that it did not preclude other flows as, for example, both the U.S. and the independent countries of Latin America were major participants in all these. However, this study goes beyond the economic by stressing the cultural dimensions of the British World. This is significant as Britain fought two world wars in the twentieth century based on this shared cultural identity and, arguably, owed its eventual victory to it as much as to the support of the U.S.? As the migration flows that bound these countries together faded after the 1950s so did this British World. By then, though, this British World was already in decline as the constituent countries forged their own identities, greatly influenced by the policies followed by their own governments.

Ranald Michie, University of Durham, is a specialist on modern financial history. His most recent publications are The Global Securities Market: A History (Oxford University Press, 2006) and Guilty Money: The City of London in Victorian and Edwardian Culture (Pickering and Chatto, 2009)

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (August 2010). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
Historical Demography, including Migration
International and Domestic Trade and Relations
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII

Guilty Money: The City of London in Victorian and Edwardian Culture, 1815-1914

Author(s):Michie, Ranald C.
Reviewer(s):Hannah, Leslie

Published by EH.NET (June 2010)

Ranald C. Michie, Guilty Money: The City of London in Victorian and Edwardian Culture, 1815-1914. London: Pickering & Chatto, 2009. x + 278 pp. $99 (hardcover), ISBN: 978-1-85196-892-3.

Reviewed by Leslie Hannah, Department of Economic History, London School of Economics.


Ranald Michie, Professor of History at the University of Durham, England, probably knows more about the history of stock exchanges than anyone. His 1987 study, The London and New York Stock Exchanges, 1850-1914, remains the classic source for those wishing to understand their different institutional characteristics. In this new book, however, he explores new and unfamiliar ground, admirably summarized in his preface: ?Though its theme is the City of London as a financial and commercial centre, it is not a factual account. Though it relies heavily on novels it is not an exercise in literary criticism. Though it attempts to identify ideas and images it is not a cultural history. The fact that it does not fit into any obvious category may explain why referees for journals and publishers found it easy to be critical rather than to understand what I was trying to achieve. This book sets out to test one simple theory and that is whether it is possible to establish, with any degree of precision, the place occupied by a financial centre in the culture of a nation, and the degree to which that changed over time.?

We may already know that financiers played a large part in the nineteenth century novel from our reading of Mansfield Park, Little Dorrit or Howard?s End (or at least remember the television adaptations on the BBC or public television). We may even have encountered the playwright Israel Zangwill in melting pot contexts, if not through his less well known Cheating the Gallows, but Michie has intrepidly delved deeper into the century?s literary output to uncover novelists that few of us will have even heard of. He appears to have read every bad novel and mediocre play and viewed every painting that touches on the life of the City. Of course, many of these were more popular at the time than the surviving classics and arguably give us a clearer window on the everyday dialogues and immediate discontents of a lost world of contemporary public opinion. Fear not, however: you are guided gently by the author though the relevant plots and dialogues, as he expertly and relentlessly assesses their significance, so you will not have to read them yourself.

His thesis is that, in a period of rapid change for both the economy and cultural attitudes, we can chart their interactions with some chronological precision by using such sources. There is no hint here of the pervasive and unchanging simplicities of Martin Wiener?s British business culture, but rather an insistence that attitudes were contingent on events and their construction, with considerable leeway for prejudices and presentations to shift and evolve. For example, the negative view of finance and speculation in some early representations tended by 1895 to be reserved for some of the darker company promoters. City folk were then generally being portrayed as hard-working, effective and honorable contributors to Britain?s economic success. However, the two decades before 1914 saw a more negative portrayal again coming to the fore. Driven first by the ?Kaffir circus? gold speculation of the late 1890s, there was an unpleasant emphasis on Jews and foreigners as a source not of the City?s international success but of dubious and underhanded practices. The rise of socialism also added a new element of negativity in the portrayal of the capitalist. Manufacturing was increasingly portrayed in positive terms while finance evoked deep-seated prejudices against money and speculation, as the unacceptable face of capitalism.

The book can be recommended to anyone seeking to understand shifts in popular attitudes toward finance and the strengths and limits of using literary evidence for this purpose. It makes no large claims to broader significance, for example, as an explanation of the financial repression which was such a marked feature of the post-1914 UK economy until the 1980s. The author can be pronounced successful in the unusual, challenging, and carefully limited, task that he set himself.


Leslie Hannah is Visiting Professor, Economic History Department, London School of Economics and is currently working on an international comparison of stock exchanges before 1914.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):19th Century
20th Century: Pre WWII

Centres and Peripheries in Banking: The Historical Development of Financial Markets_

Author(s):Cottrell, Philip L.
Lange, Evan
Olsson, Ulf
Reviewer(s):Flandreau, Marc

Published by EH.NET (March 2010)

Philip L. Cottrell, Even Lange, and Ulf Olsson, editors, Centres and Peripheries in Banking: The Historical Development of Financial Markets. London: Ashgate, 2007. xv + 326 pp. $100 (hardcover), ISBN: 978-0-7546-6121-4.

Reviewed for EH.NET by Marc Flandreau, Graduate Institute for International Studies and Development, Geneva.

This conference volume, published under the auspices of the European Association for Banking History, collects contributions from a 2002 Stockholm workshop. No less than fifteen contributions span a wide array of topics loosely connected to the broad topic of spatial aspects of banking history as the title encapsulates. There is also a partial focus on Northern Europe and Scandinavia.

It is a pity that this volume did not receive more careful editorial attention because it has many virtues and conceals a few gems. Pass beyond the articles by Officer (?Between the Dollar-Sterling Gold Points?) and Alain Plessis (?The Banque de France?), which both have an air of d?j? vu and you?ll come across several papers than can be read and re-read, for they contain dense material and rich insight. There is no way to distil all the variety of topics and interests that the other articles touch upon, so I must be selective.

My favorite is Ranald Michie?s ?City of London as a Global Financial Centre,? whose title suggests something less original than it actually is. Using archives from the Bank of England and computations from the Bankers? Almanac, Michie portrays the ways and means through which London, far from facing irrecoverable decline after World War I, managed to attract foreign exchange transactions. While before WWI a large part of the global foreign exchange market had been outsourced abroad, the gyrations of sterling and the collapse of fixed exchange rates during and after the war and then again after 1931 gave the opportunity to London to develop and retain a new line of business. This is when London became the world leader in foreign exchange transactions. I was struck by the contrast between this interpretation of world monetary history and that in Silber?s When Washington Shut Down Wall Street (Princeton University Press, 2007) which traces the rise of America?s monetary supremacy to the decline of the pound sterling. Michie believes that the problems of sterling created opportunities and eventually protected London?s financial lead.

Another article worthy of interest is Chatziioannou and Harlaftis? account of Greek merchant banks in the Levant and City of London. Beside informative and carefully-crafted business history of family links and their relation to merchant banking, the authors have taken the pain of documenting the standing of Greek houses (which mainly originated from Greek islands) from Baring’s ledgers. This enables them to zoom in on the top ten houses, on which they then give us much detail painting a vivid picture of how business was conducted. They show how well-established outposts of the Greek banking community in London participated in normal discounting business with the Bank of England. Finally, they examine the curious case of the Vagliano fraud. A clerk had presented the Bank of England with forged paper bearing Vagliano?s name and embezzled the proceeds. Vagliano filed lawsuit against the Bank of England for recovery of their money on the grounds of negligence on the part of the Bank. The reason why the case was important was that it challenged the established principle that the Bank of England did not incur any liability in paying customer acceptances: and Vagliano won the case in the court of appeal! Things went back into order when they lost their cases in the House of Lords and were excluded from discount by the Bank of England. While the episode provided opportunity for much loathing of Greek ?moral defects,? it reminds us in the most vivid way of the mechanism through which the Bank of England managed to be (according to Bagehot?s rule) so generous that it would discount ?freely?: In truth, customers always remained liable for the paper they discounted at the Bank. Bad paper was their own responsibility, not that of the Bank. And if the Lords had to be involved to remind markets of the importance of this principle, they would do what was needed.

Two articles looking at ?off-shore? centers also provide much information and insight. Both Catherine Schenk?s article on the rise of Hong Kong and Tokyo and that by Boris Barth on Scandinavian trade and finance during WWI are interesting to read indeed. Barth shows how neutrality impacted Scandinavian countries in various respects. Norway lost half of its merchant fleet as Germany declared total war on Russia?s foreign purchases. Sweden emerged as a middleman and black market entrep?t trade center organizing a web of settlements that defeated to some extent Britain?s ability to trace providers and inflict penalties on those who sought to escape its blockade. The chapter also sheds much light on the rise of Warburgs and the geographical foundations of their attempt at recapturing (via Hamburg, Sweden and their U.S. connections) Germany?s former luster in international trade and finance.

Schenk also provides a perspective on the rise of Hong Kong and Tokyo that seeks to go beyond conventional characterization of Hong Kong as a laissez-faire paradise and Tokyo as a center that effectively excluded foreign banks until the 1980s. She provides clear evidence that, although Hong Kong?s laissez faire was limited after 1965, it did remain ? given the demand for banking facilities in the region and the relatively large regulatory cost of foreign banking in Tokyo ? an attractive hub. Another interesting insight is the role of domestic factors in promoting international currencies and centers. She argues that by the strength of its domestic banking system and international reach alone, Japan was able to propel Tokyo in the top league of international financial centers ? until the bubble and lost decade of the 1990s combined with the rise of China to begin a reshaping of Asian monetary geography that is still underway.

The article by Monika Pohle Fraser is also very useful for people interested in trust relations. She provides interesting material on the process through which personal information was being gathered and reputation established. Her concern is how information and reputation can help facilitate lending. She provides a sharp and relevant distinction between information and reputation. The first is about knowing the particulars of a given firm. The second has to do with the effort that certain banks made to establish their own brand. Curiously she emphasizes that reputation facilitated impersonal exchange. Upon reading her, I would be tempted to argue that reputation was a highly personalized solution to problems of asymmetries of information ? in an age of highly personalized relations.

Other articles that I have overlooked so far also have merits of their own and will retain the attention of readers interested in the specific area. The article by Lennart Schon is informative and gives a useful study on regional integration in the Baltic during the second half of the nineteenth century. It provides a macroeconomic perspective on an otherwise more microeconomic history volume. The article by Ulf Olsson and Jan J?rnmark is interesting as well and provides a good introduction to the political economy of banking in Sweden. In a related vein, the contribution by Anders Ogren is a good way to start reading about financial crises and central banking in Sweden. The paper by Michael North on the development of bills of exchange in the Eastern Baltic has lots of interesting material and an intriguing map on financial relations in Northern Europe in the late eighteenth century. I was perhaps less convinced with Linderlaub?s discussion of the confidence in the German Mark after Germany?s unification (1871-76). Some supporting data would have been in order.

The volume ends with three contributions on the use of archives in corporate management or on the management of corporate archives. These are undoubtedly interesting if more technical issues. But as they raise matters with which this reviewer is less familiar they will not be discussed at any length.

Marc Flandreau is the author of The Glitter of Gold: France, Bimetallism and the Emergence of the International Gold Standard, 1848-1873, Oxford University Press 2004.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870

Author(s):Taylor, James
Reviewer(s):Michie, Ranald C.

Published by EH.NET (March 2007)

James Taylor, Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800-1870. Woodbridge, Suffolk, UK: Royal Historical Society and Boydell Press, 2006. x + 256 pp. $80 (cloth), ISBN: 0-86193-284-6.

Reviewed for EH.NET by Ranald C. Michie, Department of History, University of Durham.

This book is a marriage between two stands of history. On the one hand it is an account of the rise of joint-stock enterprise in Britain during its formative period, as the form spread beyond a few chartered trading companies and the Bank of England to become a model increasingly adopted by business of all kinds. On the other hands it explores the political and cultural environment within which this change took place, seeking to explain why the joint-stock form became accepted within society. Behind this approach lies a questioning of the inevitability of the triumph of the joint-stock company, and instead a belief that what took place, especially with regards to timing and form, was very much a social construct. This greatly complicates the question because it moves the research and the analysis beyond the realm of economy and business and into the interaction of politics and society. Why was it that Victorian society countenanced a shift from individual to collective enterprise? Why was legislation passed that granted investors in joint-stock companies privileges denied to partners in unincorporated businesses, namely the limitation of their liability for any losses incurred to the investment that they made?

By taking this approach Taylor reflects the bifurcation in economic history that has been so marked in recent years. Whereas economists have applied ever more sophisticated techniques of measurement and modeling to historical phenomena, with results ranging from the excellent through the irrelevant to the misleading, historians have sought to place developments in the economy within a wider context, stressing the role played by the likes of governments, elite groups, public opinion, individuals, businesses or national culture. Again, some of this has been well done, leading to a real understanding of why change took place or national differences existed that otherwise defy economic logic, but much has also been of little value because of a failure to appreciate the varied economic forces at work or the constraints under which a business or market operates. Clearly there is much to gain from each of these bifurcated approaches but only when the economist fully appreciates the history and the historian is fully aware of economic and business realities. It is against that test that a book of this kind needs to be judged.

Clearly this book by James Taylor falls into the category of an historian investigating a development of economic importance. It neither tries to measure the importance of joint stock companies in the economy nor model their corporate performance against other businesses, for example. Instead it seeks to explain why the British Parliament in the 1820s repealed legislation that had greatly restricted joint stock company formation in England, passed legislation in the 1840s and 1850s that gave joint-stock enterprise a privileged position within British business, and finally failed to remove these privileges when clear abuses were revealed during the 1860s. To achieve that requires Taylor to use a wide variety of sources ranging from ones familiar to British economic historians, such parliamentary reports, debates and commissions relating to business matters, to much more unusual items, especially contemporary novels, plays, cartoons and poems. Through the systematic and extensive use of contemporary literature Taylor believes he can capture a sense of the prevailing culture and its changing attitude towards joint-stock companies, and it is this element of the book that is the most original and interesting.

In the introduction to the book Taylor places the joint stock company in context, largely culled from already published work, and then justifies the approach that he takes. This is followed by a chapter that stresses the long-standing antipathy towards joint-stock companies in England, as revealed in contemporary novels, plays and cartoons. Joint-stock companies were seen as a threat to businesses run by individuals and to consumers because of the monopoly they might enjoy, and thus their formation was generally opposed. In the public mind joint-stock companies were also associated with speculative outbursts, and this is explored in chapter 2. Company promoters were seen either as evil people who defrauded and duped innocent investors or pandered to human greed by encouraging speculation in shares. Though the South Sea Bubble had taken place in 1720 the literature of the nineteenth century contained many references to it as a warning to the public to be wary of joint-stock enterprise. However, beyond these references to the South Sea Bubble and warnings about joint-stock companies and speculation, the literature suggests a high degree of ignorance of financial matters among the British public at this time.

Despite the prevailing antipathy towards joint-stock enterprise, the joint stock company did acquire an official status from the mid 1820s onwards. The first step on this official rehabilitation was the repeal in 1825 of the ‘Bubble Act’ passed in 1720 and then in 1826 the ending of the prohibition of joint-stock banking though only outside London. However, there was no general law permitting the formation of joint-stock companies. Instead, company promoters had either to obtain a private act of parliament, which was a long and costly process, or form companies lacking any legal standing. As the mid 1820s also witnessed a speculative boom and collapse, during which many ephemeral joint-stock companies were promoted, the public’s perception of such enterprise continued to be rather hostile. This suggests that the repeal of the restrictions on the formation of joint-stock companies was more an acceptance of the impossibility of preventing such a development rather than a willingness to embrace a new form of business organization.

Consequently, many joint-stock companies operated in limbo during the 1820s and 1830s. Unless an act of Parliament had been obtained, the company had no legal status forcing action to be taken against its directors and shareholders by those with a claim to make. By the 1840s this had become a particularly acute situation as there were a growing number of companies seeking to provide essential urban and transport services and each had to obtain a separate act of Parliament. Faced with a situation where something had to be done to reduce the pressure on parliamentary time and bring companies within the rule of law, a general act of incorporation was passed in 1844. Clearly such legislation was not a response to a changed attitude towards joint-stock companies among the public or a recognition that they had a major contribution to make to the economy. Thus, at the time of the railway mania in 1845 numerous joint stock companies were being formed either through individual acts of Parliament, as with the railways and their need for rights of way, or under the new legislation. This was then followed by further legislation in 1856 that made the formation of joint-stock companies even easier and bestowed the general privilege of limited liability. All this is the subject of chapter 4, which is very much at the center of the book. That is then followed by a chapter focusing on the 1866 financial crisis and a discussion of why legislation was not passed curbing the use of the joint-stock/limited liability acts to evade personal responsibility for business losses. Even though there was a continuing public suspicion of joint-stock enterprise, especially the way successful company promoters were able to enrich themselves at the expense of innocent investors, no action was taken. Taylor believes that, by then, joint-stock enterprise had so entrenched itself in Victorian society that no alternative could be envisaged.

It is that message that is then taken up in the epilogue, which is by way of a conclusion. Here the suggestion is thrown out that after 1870 both the stock exchange and joint-stock enterprise became respectable and the public antipathy towards promoters and speculation disappeared. Here, I fear, Taylor is generalizing from his focus on railways. After the railway mania railways gradually became a safe investment paying interest on their bonds and returning regular dividends to their shareholders. Instead, other types of joint-stock companies took their place as the object of public hostility, especially overseas mining companies but also including domestic industrial shares. Especially after the collapse of each speculative outburst both company promoters and stockbrokers were subject to attack by the novelists, playwrights and artists of the day in exactly the same way as was to be found in the 1820s or 1830s. However, this criticism of Taylor’s closing remarks in no way diminishes the achievements of this book. Measured against the test of whether this author understands the economics and business as well as the politics and culture, the answer must be a resounding yes. This book makes an important contribution to our understanding of why joint-stock enterprise became such an established element within Britain in the mid-nineteenth century. The answer lies not in the changed attitude of the British public or the foresight of successive British governments. Instead, the explanation lies in the need to cope with the growing number of joint stock companies being created for sound economic and business reasons by giving them an easy means of coming into existence and then a distinct legal entity. All this is excellently documented in this well researched and well written book.

Ranald Michie has written extensively on both securities markets and the City of London. He is the author of The London Stock Exchange: A History [Oxford 1999] and The Global Securities Market: A History [Oxford 2006]. He has also co-edited a book with Philip Williamson, on The British Government and the City of London in the Twentieth Century [Cambridge 2004]. Currently he is working on a book entitled Guilty Money: The City of London in Victorian and Edwardian Culture which attempts to explore the world of money and finance in Britain before the First World War.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):Europe
Time Period(s):19th Century