London and Paris as International Financial Centres in the Twentieth Century

Published by EH.NET (November 2006)

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Youssef Cassis and ?ric Bussi?re, editors, London and Paris as International Financial Centres in the Twentieth Century. Oxford: Oxford University Press, 2005. xii + 367 pp. $125 (hardcover), ISBN: 0-19-926949-1.

Reviewed for EH.Net by Mira Wilkins, Department of Economics, Florida International University

This book has a truly exciting set of fifteen chapters (sixteen contributors). Youssef Cassis starts off with a brief comparison between London and Paris as international financial centers in the twentieth century. After his introduction, there are four parts (one general and three chronological), with alternate chapters on London and Paris. Part I has the first pair: Ranald Michie and Alain Plessis deal respectively with London and Paris in a “long-term perspective, 1890-2000.” In a splendid essay, Michie insists that London as a financial center took shape as an addition to (not a substitute for) its role as a commercial center. London’s port, its insurers, its activities in the distribution of minerals and metals were complementary to its central position in international finance. Trade finance, short and long-term investments, and the role of stock markets are deftly handled by Michie, who emphasizes the dynamics of the City with its changing and evolving characteristics. World War I proved a “major blow” to London as an international center, but it recouped. With nuances, Michie covers the inter-war and World War II ups and downs in London’s position. World War II was another watershed. With the nationalization of the Bank of England in 1945, government interventions in financial matters became the norm. Yet, throughout, London remained cosmopolitan, in time reviving its position as a major international financial center. In December 1999 the governor of the Bank of England would call London the world’s predominant international financial center. This was perhaps an exaggeration, underestimating New York. Nonetheless, the rebirth of the City at the end of the twentieth century was remarkable. Michie explains why.

Plessis’s eleven pages on Paris do not offer as comprehensive an overview as Michie’s but then Paris was not London. Plessis shows the strengths of Paris as a financial center in the decades before World War I, its “withdrawal 1914-1926” (including the resales of the best securities abroad and the collapse of loans to Russia and the Ottoman Empire, with France moving from creditor to debtor nation in these years). Plessis’s next sub-headings are “The Great Hope, 1918-1930” (with the stabilized franc and solid current account surpluses), “An Enduring Eclipse, 1931-1958” (with the accumulation of negative impacts on Paris as a financial center), and finally “Toward a New International Role for Paris as a Financial Centre” (beginning with France’s participation in the European common market and the re-establishing of external convertibility of the currency in 1958, and then, too rapidly, he rushes through the next two decades, not really bringing the story to 2000, as Michie had).

Part II is on 1890-1914. Here the first pair of British-French chapters is not a symmetrical coupling (nor are the subsequent pairs). Each contribution fills gaps in the overviews. Michie’s summary devoted little attention to empire, to imperialism, in defining London’s role as an international financial center. Niall Ferguson’s controversial, and as is his practice highly stimulating, presentation re-looks at the older familiar literature on capitalism and imperialism (on sinister financial interests) and reviews the range of re-considerations of this equation from the 1960s onward. Ferguson brings back to the table the significance of formal empire in London’s place as a financial center. Taking on Michael Bordo and other recent economic historians, Ferguson claims British rule provided more than the good “housekeeping guarantees” of the gold standard. Ferguson sees empire as highly germane to understanding the City before World War I. Many historians have been appalled by Ferguson’s conservatism, his politically incorrect willingness to maintain that imperialism may not have been such a bad thing after all. The ideological blinders of these critics should not stop them from taking Ferguson’s arguments seriously. Even if one does not share all his arguments, he is convincing as he shows that access to London capital markets for those countries within the empire was lower cost and easier than for most countries outside the formal empire. Yet Ferguson never considers the largest single recipient of British capital in this era, the United States. This omission provides, perhaps, a flaw in Ferguson’s argument, but some may argue far from a fatal one.

The French contribution to this pair is by Marc Flandreau and Fran?ois Gallice; it shifts the tone and orientation. In this important chapter, the authors look at short-term international capital movements, 1885-1913, using data from the records of the Banque de Paris et des Pays-Bas (Paribas). Their contribution reveals the great value of using bank (and more generally) business records. This essay is as much about London as about Paris as an international financial center. Their study offers splendid new data and insights into the characteristics of short-term capital movements; it expands horizons.

The next twin covers banks and international finance, 1890-1914. Cassis supplies a snapshot of the specialized, fragmented London banking institutions along with the financial markets in which they participated and competed. Samir Saul’s approach differs, focusing on alliances between banks within syndicates, seeking to establish the managers and participants in underwriting and issue consortia. His data base consists of 311 issues of foreign governments and companies, as found in Cr?dit Lyonnais’s records, supplemented by other information.

Part III, entitled “From Global Reach to Regional Withdrawal, 1914-1958,” has offerings from P.L. Cottrell on London and Hubert Bonin on Paris banking and finance. Part IV on the “Road to Globalization, 1958-1980,” contains two sets of papers. Catherine Schenk offers keen insights into the policy environment of international banking in the City, while Olivier Feirtag tells of the “international opening up” of the Paris Bourse. The second pair in Part IV comprises contributions from Mae Baker and Michael Collins on “London as an International Banking Centre” and ?ric Bussi?re on “French Banks and the Eurobonds Issue Market during the 1960s.” And, then, completing the chronology (and the volume), in the final part, Part V, there is a very neat study of the last twenty years of the twentieth century by Richard Roberts, who playfully asks of London: “Global Powerhouse or Wimbledon EC2?” — while Andr? Straus speculates on the future of the Paris market as an international financial center from the perspective of European integration.

I missed a chapter on the interaction between London and Paris: how often were issues listed on both exchanges? How much arbitrage was there between the centers? How frequently were issues denominated in both pounds and francs? How often did Frenchmen go through London in their international transactions? To what extent did British and French banks have cross connections? We learn of French banks with outlets in London, but what about vice versa? It would be useful to think about the Lazards, Rothschilds, and Morgans in the context of London and Paris as international financial centers. There is so much to consider vis-a-vis interactions. For example, how did the two centers interact in the Euro dollar market? What did British entry into the European community do to the relationships between London and Paris as international financial centers? Plessis (to a limited extent) and Flandreau and Gallice do discuss associations between the French and British central banks, but neither contribution extends the discussion beyond 1914. How did the two central banks interact during the entire twentieth century?

While this book tells a tale of two cities, there is a third one that hovers in the background: New York. A criticism of this book is not that New York is absent in the presented story (it is there, albeit not in a systematic manner), but there seems to be a lack of awareness by most of the authors of the relevant U.S. literature (for example on British and French participation in the Eurobond markets).

These few reservations should not turn the reader from the high value of this book. This is a well-integrated volume that should be in the library of every economic historian who deals with international banking and finance in the late nineteenth and twentieth century. I read it with great absorption and delight.

Mira Wilkins is professor of economics at Florida International University. Her most recent book is The History of Foreign Investment in the United States, 1914-1945 (Harvard University Press, 2004). It is the second volume in her three volume history of foreign investment in the United States (the first was published in 1989); the third, which will carry the story from 1945 to present, is in progress. Wilkins covers foreign direct investment and, also, the entire range of other long-term foreign investments in the United States.