New Economics Papers
on Business, Economic and Financial History
Issue of 2008‒02‒16
twelve papers chosen by

  1. The Evolution of Criminal Law and Police By Douglas W. Allen; Yoram Barzel
  2. ‘Separating the Roots of the Chrysanthemum’: Nishihara Kamezō and the Abortive China Loans, 1917-18 By Schiltz, Michael
  3. Financial Intermediation and Late Development: The Case of Meiji Japan, 1868 to 1912 By John Tang
  4. Explaining ship traffic fluctuations in the early Cape settlement: 1652–1793 By Willem H. Boshoff; Johan Fourie
  5. 'As Close as Lips and Teeth' The Daiichi Ginkō and Megata Tanetarō in Korea By Schiltz, Michael
  6. A Long Term Perspective on the Euro By Michael D. Bordo; Harold James
  7. Competition in the Promised Land: Black Migration and Racial Wage Convergence in the North, 1940-1970 By Leah Platt Boustan
  8. Liquidity Production in 21st Century Banking By Philip Strahan
  9. Ancien régime of Japan’s foreign aid policy: Main characteristics of Japan’s aid administration system before its reforms By Nikitina, Larisa; Furuoka, Fumitaka
  10. Alternatives for distressed banks and the panics of the Great Depression By Mark Carlson
  11. Foolishness and Identity: Amartya Sen and Adam Smith By Caroline Gerschlager
  12. The Case for Price Stability, Then and Now: A Retrospective Note on John W. Crow's 1988 Eric J. Hanson Memorial Lecture By David Laidler

  1. By: Douglas W. Allen (Simon Fraser University); Yoram Barzel (University of Washington)
    Abstract: Increased standardization of goods was a by-product of the technical innovations triggering the Industrial Revolution. A side effect of standardization was the new abilities it allowed for theft and embezzlement. Two significant modern institutions radically evolved during the 18th to mid 19th centuries to control these costs: criminal law and public police. These institutions strongly interacted with the pace of the Industrial Revolution. Our argument explains this evolution, and helps to explain several historical facts: the role of early police; the fall of the watch system; the removal of possession immunity; the rise and fall of factory colonies; the fall and rise of court cases during the 18th century; and the delay of per capita income in response to technical innovations in the Industrial Revolution.
    Date: 2007–12
  2. By: Schiltz, Michael
    Abstract: In the period between 1917 and 1918, a series of mysterious loans negotiated between Japanese middleman Nishihara Kamezō 西原亀三 and the government of warlord Duan Qirui 段祺瑞 amounted to the fabulous amount of ¥145,000,000. Although reporting about these loans at the time was confused to say the least, we now know that there existed definite and close relationships between Nishihara Kamezō on the one hand, and the Terauchi Cabinet in Tokyo, in the person of then Minister of Finance Shōda Kazue 勝田主計 in particular.1 Analyzing the Nishihara loans in their geopolitical and historical particularity and isolation is, however, to miss the point. In what context(s) were these infamous loans raised? What was, for instance the nature of their geopolitical climate and their international institutional character? Next, in what respect did the Nishihara loans differ from earlier, more 'official' instances of yen diplomacy? In what respect did they represent a break with former administrations, and, more importantly, did their exist a broad consensus about their objectives and appropriateness? And not in the least: how did China's turbulent politics contribute to their ill fate?
    Keywords: money doctoring; Japanese history; Chinese history. loans; warlordism; Nishihara; imperialism
    JEL: N5 N7 N4
    Date: 2007
  3. By: John Tang
    Abstract: Was nineteenth century Japan an example of finance-led growth? Using a new panel dataset of startup firms from the Meiji Period (1868-1912), I test whether financial sector development influenced the emergence of modern industries. Results from multiple econometric models suggest that increased financial intermediation, particularly from banks, is associated with greater firm establishment. This corresponds with the theory of late development that industrialization requires intermediaries to mobilize and allocate financing. The effect is pronounced in the second half of the period and for heavy industries, which may be due to improved institutions and larger capital requirements, respectively.
    Keywords: Financial intermediation, late development, industrialization, Japan
    JEL: N15 N25 O16
    Date: 2008–01
  4. By: Willem H. Boshoff (Department of Economics, Stellenbosch University); Johan Fourie (Department of Economics, Stellenbosch University)
    Abstract: The only reliable estimate of the number of ships that arrived in the Cape Colony was published by Beyers in 1929. Unfortunately, this data series has a number of restrictions. It only accounts for the number of ships arriving at the Cape during the period 1700–1793. It also does not distinguish between the types of ships used or compensate for the length of their stay. Using a new electronic data source detailing every ship that anchored in Table Bay during the existence of the Dutch East India Company, this paper provides new insights into the pattern of ship traffic fluctuations in the early Cape Colony. Historical evidence from this period supports the empirical results. While many gaps still remain, the new empirical evidence can be used in future research on this neglected period of South Africa’s economic history.
    Keywords: Cape Colony, Data, Economic History, Dutch East India Company, Ships, Cliometrics
    JEL: N17 E32 N77
    Date: 2008
  5. By: Schiltz, Michael
    Abstract: It is by now established knowledge that Japanese interventionist policies versus Korea cannot have been motivated by economic profits. Literature in this respect instead points to socio-political, perhaps military explanations of this instant of Japanese imperialism. Whereas this insight is certainly more satisfying, it does not pay attention to the role of a series of monetary and financial reforms both the Japanese government and the Government-General in Korea sought to implement immediately after the peninsula had been turned into a protectorate. In this paper, we will turn to the pre-history of Korea's annexation; we will highlight a number of inconsistencies at the core of Japanese policies vis-à-vis Korea, and demonstrate that financial and economic considerations eroded the very strategy of establishing Korea as a mere political 'line of interest'. Instead, the very alliance between politicians and people of high finance only reinforced the employment of finance and monetary matters as instruments in facilitating Korea's societal transformation. We will demonstrate how the 'Megata reform', as it came to be called, factually turned Korea into a subsidiary of the Japanese economy. It was a tool aimed to relegate the position of Korea in the Japanese Lebensraum —to which later generations of politicians would refer as the Greater East-Asian Co-Prosperity Sphere (dai tōa kyōeiken 大東亜共栄圏). The Megata reform was thus not an economic answer to an economic problem in the conventional sense. Instead, it was developed in reaction to a strategic need.
    Keywords: money doctoring; colonialism; Japanese empire; Korean money and finance
    JEL: N1 N4
    Date: 2007
  6. By: Michael D. Bordo; Harold James
    Abstract: This study grounds the establishment of EMU and the euro in the context of the history of international monetary cooperation and of monetary unions, above all in the U.S., Germany and Italy. The purpose of national monetary unions was to reduce transactions costs of multiple currencies and thereby facilitate commerce; to reduce exchange rate volatility; and to prevent wasteful competition for seigniorage. By contrast, supranational unions, such as the Latin Monetary Union or the Scandinavian Currency Union were conducted in the broader setting of an international monetary order, the gold standard. There are closer parallels between EMU and national monetary unions. Historical monetary unions also were associated with fiscal unions (fiscal federalism). Both fiscal and monetary unions were an important part of the process of political unification. In the past, central banks, and the currencies they managed, have been discredited or put under severe strain as a result of: severe or endemic fiscal problems creating pressures for the monetization of public debt; low economic growth may produce demands for central banks to pursue more expansionary policies; regional strains producing a demand for different monetary policies to adjust to particular regional pressures; severe crises of the financial system; and tensions between the international and the domestic role of a leading currency. In particular, there is the possibility for the EMU that low rates of growth will produce direct challenges to the management of the currency, and a demand for a more politically controlled and for a more expansive monetary policy. Such demands might arise in some parts or regions or countries of the euro area, but not in others and would lead to a politically highly difficult discussion of monetary governance.
    JEL: F02 F33 N20
    Date: 2008–02
  7. By: Leah Platt Boustan
    Abstract: In the mid-twentieth century, relative black wage growth in the North lagged behind the Jim Crow South. Inter-regional migration may explain this trend. Four million black southerners moved North from 1940 to 1970, more than doubling the northern black population. Black migrants will exert more competitive pressure on black wages if blacks and whites are imperfect substitutes. I use variation in the relative black-white migrant flows across skill groups to estimate the elasticity of substitution by race in the northern economy. I then calculate a counterfactual rate of black-white wage convergence in the North in the absence of southern migration. Migration slowed the pace of northern convergence by 50 percent, more than accounting for the regional gap. Ongoing migration appears to have been an impediment to black economic assimilation in the urban North.
    JEL: J61 J71 N22
    Date: 2008–02
  8. By: Philip Strahan
    Abstract: I consider banks' role in providing funding liquidity (the ability to raise cash on demand) and market liquidity (the ability to trade assets at low cost), and how these roles have evolved. Traditional banks made illiquid loans funded with liquid deposits, thus producing funding liquidity on the liability side of the balance sheet. Deposits are less important in 21st century banks, but funding liquidity from lines of credit and loan commitments has become more important. Banks also provide market liquidity as broker-dealers and traders in securities and derivatives markets, in loan syndication and sales, and in loan securitization. Many institutions besides banks provide market liquidity in similar ways, but banks dominate in producing funding liquidity because of their comparative advantage in managing funding liquidity risk. This advantage stems from the structure of bank balance sheets as well as their access to government-guaranteed deposits and central-bank liquidity.
    JEL: G2
    Date: 2008–02
  9. By: Nikitina, Larisa; Furuoka, Fumitaka
    Abstract: In Japan, the aid administration system was very complicated. Although there were more than ten government agencies involved in Japan’s ODA program, the aid administration had been dominated by three ministries and one agency – the Ministry of Foreign Affairs (MOFA), the Ministry of Finance (MOF), the Ministry of International Trade and Industries (MITI) and the Economic Planning Agency (EPA) before the organisational structural reforms took place in 2001. On the other hand, under the ancien régime of Japan’s aid policy, there were three main aid-implementing institutions in Japan. The oldest is Japan’s Export-Import Bank (Eximbank). It played a prominent part in Japan’s economic co-operation during the 1950s. The second institution is the Japan International Co-operation Agency (JICA), which is mainly in charge of technical co-operation projects. The Overseas Economic Co-operation Fund (OECF) provides bilateral loans to developing countries. This paper made an attempt to identify the main characteristics of Japanese aid administrative system before the aid administrative reforms. This is mainly because the ancien régime had strongly influenced and had shaped the forty-years of Japanese aid giving history before the bureaucratic restructuring took place. Nevertheless, despite the recent changes the basic problems of Japanese aid giving-mechanism, such as inter-ministerial conflicts and rivalries, remain same as before.
    Keywords: foreign aid; administration; Japan
    JEL: F35
    Date: 2008–02–07
  10. By: Mark Carlson
    Abstract: Several studies have explored whether the banking panics of the Great Depression caused some institutions to fail that might otherwise have survived. This paper adopts a different approach and investigates whether the panics resulted in the failure and liquidation of banks that might otherwise have been able to pursue a less disruptive resolution strategies such as merging with another institution or suspending operations and recapitalizing. Using data on individual state-chartered banks, I find that many of the banks that failed during the panics appear to have been at least as financially sound as banks that were able to use alternative resolution strategies. This result supports the idea that the disruptions caused by the banking panics may have exacerbated the economic downturn.
    Date: 2008
  11. By: Caroline Gerschlager (Free University of Brussels, DULBEA, av. F. D. Roosevelt, 50, B-1050 Brussels,)
    Abstract: Drawing on Amartya Sen the paper aims at a better understanding of the motivational foundation of the economic agent by analysing Adam Smith’s insights into the foolishness of human ambitions. It inquires whether there is another side to the pursuit of self-interest in Adam Smith and particularly accentuates his parable of the poor man’s son as a prototypical example. Complementing the standard views of the self and their recent extensions, the present analysis of the parable advances a description of economic identity based on selfreflexivity and conscious change of preferences.
    Keywords: hypertrophic self-love, self-deceit, illusion, change of preference, self-reflexivity.
    JEL: B B21 B D
    Date: 2008–01
  12. By: David Laidler (University of Western Ontario)
    Abstract: John Crow's 1988 Hanson Lecture argued for making price stability the goal of Canada's monetary policy, but in the early 1990s, political and economic circumstances led policy makers to settle for a 2 percent inflation target instead. The recently instituted review of the Inflation Control Program has put price stability on the policy menu again, and the current relevance of Crow's 1988 case is assessed in the light of the past 20 years' experience.
    Keywords: price stability; inflation targeting; Bank of Canada; monetary policy
    JEL: E42 E58 E61
    Date: 2008

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