nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2006‒03‒11
nine papers chosen by
Bernardo Batiz-Lazo
Bristol Business School

  1. The London Stock Exchange in the 19th Century: Ownership Structures, Growth and Performance By Larry Neal
  2. The Determinants of Multinational Banking during the First Globalization, 1870-1914 By Stefano Battilossi
  3. "Effects of a bank consolidation promotion policy: Evaluating Bank Law in 1927 Japan" By Tetsuji Okazaki; Michiru Sawada
  4. The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy By Fumio Hayashi; Edward C. Prescott
  5. "Micro-aspects of Monetary Policy in Pre-war Japan: Lender of Last Resort and Selection of Banks" By Tetsuji Okazaki
  6. Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression By Kris James Mitchener
  7. The Expulsion of the Jews from France in 1306: a Modern Fiscal Analysis By Stephane F Mechoulan
  8. The British privatisation programme: a long term perspective By Robert MILLWARD
  9. "Keynes's Approach To Money: An Assessment After 70 Years" By L. Randall Wray

  1. By: Larry Neal (University of Illinois at Urbana-Champaign; Research Associate, NBER)
    Abstract: Over the course of the nineteenth century the London Stock Exchange evolved from a market dealing primarily in new issues of British government debt to become the preeminent exchange of the first global capital market. By 1914, one-third of the public capital available to investors anywhere in the world was listed and traded on the London Stock Exchange. In contrast to these examples of spectacular growth of the business conducted within the exchange, however, the microstructure of the London Stock Exchange remained remarkably constant over the entire century. The remarkable expansion in scale and diversification of activity in the London Stock Exchange was sustained over the century with such minimal organizational change due to three factors. First, the evolution of the London Stock Exchange's microstructure was path dependent – the initial conditions for membership set the incentives for the owners and operators of the exchange, and these determined how they responded to successive shocks over time. Second, the continued success of the exchange was due to the peculiar structure of property rights in the exchange. Ownership of the exchange by the Proprietors was separated from governance of the operation of the exchange by the Members. Innovations were spurred by the owners of the exchange, who sought constantly to expand the membership. Newer members were then induced to take risky searches for new sources of revenue. This is how foreign securities were added permanently to the listings of the exchange in the 1820s. The third factor, the exchange’s insistence on separating members in to two classes – brokers and jobbers (dealers) – with different incentives led to the increasing ineffectiveness of the exchange over time. By the turn of the 20th century, brokers increasingly outweighed jobbers within the membership and exercised their political power to restrict membership, enforce minimum commissions, and confine arbitrage to a limited class of members. In short, the adverse consequences of a self-regulating club of self-interested members began to appear, but only after a century of remarkable growth, innovation, and effectiveness in mobilizing the savings of the world to realize the material benefits of the first industrial revolution.
    Date: 2006–02–13
  2. By: Stefano Battilossi (Department of Economic History and Institutions, Universidad Carlos III Madrid)
    Abstract: What determined the multinational expansion of European banks in the pre-1914 era of globalization? And how were banks’ foreign investments related to other facets of the globalizing world economy such as trade and capital flows? The paper reviews both the contemporary and historical literature, and empirically investigates these issues by using an original panel data based on a sample of more than 50 countries. The dependent variable, aiming at measuring the intensity of cross-border activities operated by banks from foreign locations, is the number of foreign branches and subsidiaries of British, French and German banks. Explanatory variables are mainly selected on the base of the eclectic theory of multinational banking, but also include geographical factors (as suggested by gravity models) and institutional indicators advanced by recent studies inspired by new institutional economics, such as legal families and adherence to the Gold Standard. These regressors captures the impact of economic integration (trade and capital flows), informational development, institutional and economic characteristics of the host-market, as well as exchange rate and country risk factors, on banks’ foreign investment decisions. The results suggest that, due to its prevailing ‘colonial’ features, pre-1914 multinational banking does not fit easily into augmented gravity models. The role of trade as a key determinant of banks expansion overseas is qualified, and both institutional factors as well as competitive interaction emerge as critical determinants of banks’ decisions to invest in foreign countries. Moreover, the systematic comparison of determinants of foreign investiments of banks from major core countries reveals that multinational banking was not a homogenous phenomenon, as banks of different nationality responded differently to economic, geographical and institutional factors.
    Date: 2006–08–02
  3. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo); Michiru Sawada (Faculty of Economics, Nagoyagakuin University)
    Abstract: This paper investigates the impact of bank consolidations promoted by government policy, using data from pre-war Japan when the Ministry of Finance promoted bank consolidations by dint of the Bank Law of 1927. It is found that policy-promoted consolidation had a positive effect on deposit growth, especially in the period when the financial system was unstable. On the other hand, it had a negative effect on profitability, particularly when there was no dominant bank among the participants or when more than two banks participated in the consolidation. Policy-promoted consolidation in such cases was likely to be accompanied by large organizational cost.
    Date: 2006–02
  4. By: Fumio Hayashi; Edward C. Prescott
    Abstract: The question we address in this paper is why the Japanese miracle didn't take place until after World War II. For much of the pre-WWII period, Japan's real GNP per worker was not much more than a third of that of the U.S., with falling capital intensity. We argue that its major cause is a barrier that kept agricultural employment constant at about 14 million throughout the prewar period. In our two-sector neoclassical growth model, the barrier-induced sectoral mis-allocation of labor and a resulting disincentive for capital accumulation account well for the depressed output level. Were it not for the barrier, Japan's prewar GNP per worker would have been close to a half of the U.S. The labor barrier existed because, we argue, the prewar patriarchy, armed with paternalistic clauses in the prewar Civil Code, forced the son designated as heir to stay in agriculture.
    JEL: E1 O1 O4 N3
    Date: 2006–03
  5. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: The central bank as the Lender of Last Resort (LLR) is faced with a trade off between the stability of the financial system and the "moral hazard" of banks. In this paper we explore how this trade off was dealt with by the Bank of Japan (BOJ) in the pre-war period, and how LLR lending by the BOJ affected the financial system. In particular, this paper focuses on the following two stylized facts of Japanese financial history. First, the BOJ actively intervened in the market as the LLR under the unstable financial system in the 1920s. Second, in this period, the financial market worked well to sort out inefficient banks through failures. In providing an LLR loan, the BOJ adopted the policy of favoring those banks that had an already established transaction relationship with the BOJ. At the same time, the BOJ was selective about which banks it would enter into a transaction relationship with. That is, the BOJ chose the banks it would conduct transactions with based on criteria that included profitability, liquidity, quality of assets, and the personal assets of directors. Furthermore, the BOJ did not hesitate to suspend transaction relationships with those banks whose performance declined. This policy enabled the BOJ to act as the LLR without impairing the function of the market to sort out inefficient banks. Whereas the transaction relationship with the BOJ affected a bank's survivability, the effect was not across the board. That is, the transaction relationship did not increase the survivability of a bank directly, but it increased the influence of profitability and liquidity on survivability, especially in a period of financial crisis. This implies that the BOJ bailed out only those transaction counterparts that were profitable and prudent when the financial system was especially unstable. It is suggested that through concentrating LLR lending on its transaction counterparts, the BOJ could successfully bail out only those banks which were illiquid but solvent, and thereby avoided the moral hazard that the LLR policy might otherwise have incurred.
    Date: 2006–01
  6. By: Kris James Mitchener
    Abstract: Drawing on the variation in financial distress across U.S. states during the Great Depression, this article suggests how bank supervision and regulation affected banking stability during the Great Depression. In response to well-organized interest groups and public concern over the bank failures of the 1920s, many U.S. states adopted supervisory and regulatory standards that undermined the stability of state banking systems in the 1930s. Those states that prohibited branch banking, had higher reserve requirements, granted their supervisors longer term lengths, or restricted the ability of supervisors to liquidate banks quickly experienced higher state bank suspension rates from 1929 to 1933.
    JEL: N2 E44 G21
    Date: 2006–03
  7. By: Stephane F Mechoulan
    Abstract: In 1306, at the peak of a severe financial and monetary crisis, Philippe the Fair expelled the Jews from his kingdom, declared himself creditor of their debts, seized their property and auctioned it off. Was this a clever move, financially speaking? Did Philippe gain more, by killing the goose that laid the golden egg, than by securing a steady flow of taxes? Taking discounting into account, conservative bounds on the sum collected through the seizures over the years that followed the expulsion challenge the traditional view that it was a bad deal. Still, the windfall brought by the relative success of the operation was short-lived.
    Keywords: Jews, expulsion, Philippe le Bel
    JEL: N0
  8. By: Robert MILLWARD
    Abstract: The British privatisations were concentrated on the infrastructur e industries of transport, communications and energy. It is impor tant to assess the efficiency impact in a long-term context. The Milan study goes some way towards this but even better is to comp are different countries of the Western world over the whole perio d since 1945. A distinction is made here between 1945-73 and the 1973-95 period, which followed the oil shocks and ushered in a ge neral phase of de-regulation and privatisation. It is suggested t hat factors like the reconstruction after the Second World War, t he process of catch-up and convergence in technologies and the re source endowments of different countries had much bigger effects on productivity levels and growth rates in the infrastructure ind ustries than the shift from nationalised to privatised regimes. T his article also, more briefly, critically evaluates two other el ements of the Milan study, the treatment of excess profits and of the move to more differentiated price structures.
    Keywords: Nationalization, Privatization, Great Britain
  9. By: L. Randall Wray
    Abstract: This paper first examines two approaches to money adopted by Keynes in the General Theory (GT). The first is the more familiar Òsupply and demandÓ equilibrium approach of Chapter 13 incorporated within conventional macroeconomics textbooks. Indeed, even Post Keynesians utilizing KeynesÕs Òfinance motiveÓ or the ÒhorizontalÓ money supply curve adopt similar methodology. The second approach of the GT is presented in Chapter 17, where Keynes drops Òmoney supply and demandÓ in favor of a liquidity preference approach to asset prices that offers a more satisfactory treatment of moneyÕs role in constraining effective demand. In the penultimate section, I return to KeynesÕs earlier work in the Treatise on Money (TOM), as well as the early drafts of the GT, to obtain a better understanding of the nature of money. I conclude with policy implications.
    Date: 2006–01

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