New Economics Papers
on Business, Economic and Financial History
Issue of 2008‒06‒21
fourteen papers chosen by

  1. Political Economy Origins of Financial Markets in Europe and Asia By Svetlana Andrianova; Panicaos Demetriades; Chenggang Xu
  2. Family Finance By Christopher Kobrak
  3. From International to Transnational Finance By Christopher Kobrak
  4. Banks on Board By Jeffrey Fear; Christopher Kobrak
  5. Rational Solution to the Laundry Issue: Policy and Research for Day-to-Day Life in the Welfare State By Rosén, Ulla
  6. Economic Theory and Electrical public Utilities Organization in the first part of the twentieth century: French and US Experiences By Frédéric Marty
  7. The Rise and Fall of the Dollar, or When did the Dollar Replace Sterling as the Leading Reserve Currency? By Eichengreen, Barry; Flandreau, Marc
  8. Iranian Economy in the Twentieth Century: A Global Perspective By Esfahani, H.S.; Pesaran, M.H.
  9. Studying the role of political competition in the evolution of government size over long horizons By Ferris, J. Stephen; Park, Soo-Bin; Winer, Stanley L.
  10. Prosperity and depression in the european economy and during interwar years (1913-1950) : an introduction By Joan R. Roses; Nikolaus Wolf
  11. The Foundation of Birmingham Assay Office and Silver Workmanship By Yoshihiko Okabe
  12. Made in America? The New World, the Old, and the Industrial Revolution By Clark, Gregory; O''Rourke, Kevin H; Taylor, Alan M
  13. Causes of Corruption:History, Geography, and Government By Goel, Rajeev K.; Nelson, Michael A.
  14. The Retrenchment Hypothesis and the Extension of the Franchise in England and Wales By Aidt, T.S.; Daunton, M.; Dutta, J.

  1. By: Svetlana Andrianova (University of Leicester); Panicaos Demetriades (University of Leicester); Chenggang Xu (London School of Economics)
    Abstract: This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.
    Keywords: Monopoly, politics, institutions, finance
    JEL: G18 N20 O16
    Date: 2008–01
  2. By: Christopher Kobrak (ESCP-EAP - ESCP-EAP - Ecole Supérieure de Commerce de Paris)
    Abstract: As Mira Wilkins has argued, there is a curious disconnect between business and financial history. (Wilkins, 2003) Whereas business history literature has rediscovered the importance of family business in many countries and in many sectors of contemporary commercial life, for example, little has been written about family banking as an alternative to joint-stock, management-run financial institutions. This lacuna is odd for many reasons. First, family banking is one of the best-known examples of family business in history. Second, family banks once played a much greater role in international investment banking than it does today. Third, some family financial institutions are still active (dominant) in certain market segments and countries. This paper will focus on how, when and why family banking lost its position in international (multinational) banking during the first few decades of the 20th century. Although political upheaval and a widespread movement to reduce the power of private financial institutions undermined their businesses, family banks suffered, too, from America’s maturing as a financial center. I will argue that this shift is connected with the increased importance of American markets and financial regulations, which, in the 1930s, deliberately steered financial transactions away from private dealings and toward transparent impersonal exchanges and capital markets with new forms of aggregated capital and individual investors, in which private banks were ill-suited to manage or at the least for which they had no special competitive edge. Using concepts drawn from an earlier paper on family businesses and relying mostly on secondary sources, this paper will further argue that in markets or market segments, such as Leveraged Buyouts, where uncertainty forms a greater part of the transactional environment, family banking still plays a significant role.
    Keywords: business history ; family banking
    Date: 2008–04
  3. By: Christopher Kobrak (ESCP-EAP - ESCP-EAP - Ecole Supérieure de Commerce de Paris)
    Abstract: The purpose of this presentation is to trace some of the key developments of Deutsche Bank’s over 130-year-long history with American markets in order to draw or reinforce some observations about 21st century financial architecture, specifically about the roles played by financial intermediaries in cross-border finance. Although it implicitly deals with transatlantic intellectual, regulatory, and financial exchanges, especially those between the United States and Germany, it is comparative across periods, not countries.
    Keywords: Transnational Finance ; Deutsche Bank
    Date: 2008–04
  4. By: Jeffrey Fear; Christopher Kobrak (ESCP-EAP - ESCP-EAP - Ecole Supérieure de Commerce de Paris)
    Abstract: As part of a series of related papers, the authors examine the conceptual foundations of German and American corporate governance, specifically highlighting the role of banks’ relationships to corporations and the stock market. This paper focuses on how the regulatory and macroeconomic environments of the two countries helped shape how banks, especially money-centred bankers, actually interacted with their clients. Prior to 1914, despite many regulatory obstacles, American banks wielded more power over U.S. corporations than the legendary German ones because they had more “opportunities” for intervention. The U.S. suffered larger booms and busts (“panics” and bankruptcies), had more foreign investment, as well as saw more corporate consolidation than in Germany. By contrast, German companies seemed to have less need for active bank management and largely maintained their distance from activist banks, although German banks could potentially wield great power through board membership and proxy voting. Additionally, German regulators and investors turned more readily to banks to bolster controls on equity and debt capital markets to dampen dangerous speculation of “productive assets.” They encouraged banks to play a crucial intermediary role in solving the agency problem in firms and correcting the perceived weaknesses of financial markets—unlike U.S. regulators. Germans also expected banks to save companies from financial distress, but these occasions were more rare in Germany than in the United States. Surprisingly, the debates in Germany and the U.S. about the role of banks had many common features, yet the two countries increasingly found alternative solutions to classic corporate governance dilemmas. Whereas American regulators tended to suspect banks’ insider relationship with companies and stock markets, and then endeavored to destroy this “money trust,” German regulators turned to banks as institutional stabilizers to tame market turbulence and speculation. Over time, they bolstered rather than undermined banks’ special relationship to firms and capital markets. Key institutional choices set the stage for a much greater divergence during the interwar period.
    Keywords: banking ; corporate governance
    Date: 2007–08–22
  5. By: Rosén, Ulla (Växjö University)
    Abstract: The majority of laundry work in Swedish households was carried out by hand, with no technical aids, until the middle of the 20th century. In 1948, less than one per cent of households had their own revolutionary process resulted in the apartment house laundry rooms that are unique to Sweden. washing machine. Thirty years later, this figure had risen to approximately 75%, and 90% of the population had access to a washing machine in various kinds of collective laundry room. The process was implemented through a number of interested parties, of which, apart from women’s representatives, the Swedish state was one of the more driving forces; representatives of industry and the academic world were also involved. This article analyses the collaboration between the interested parties on this issue.
    Keywords: technology introduction; collaboration; technology transfer; government collaboration
    JEL: N00 O25
    Date: 2008–06–09
  6. By: Frédéric Marty (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis, OFCE - Observatoire français des conjonctures économiques - FNSP)
    Abstract: The purpose of the paper is to highlight the role of economists in the institutional building of the electric systems in the first part of the twentieth century. It aims at showing how the organization of electricity sector and its regulation were largely the fruits of the economists’ works not only at a theoretical point of view, but also trough their individual commitment in the public regulation building. <br />Economists participate to the electricity sector re-organization by their academic researches and by their intervention in the new legislative framework building or directly in the firms’ management. Both US experience of private regulated firms and French experience of a public-owned monopoly testimony of such commitment.<br />Through these two examples, the communication will aim at putting into relief the dynamics between scholar debates and electricity sector reforms and the links between economic history and history of economic thought. Finally, the purpose will be to highlight to what extent these two historical experiences and the related economics debates can help us in the current European reform.
    Keywords: electricity, regulation, economic theory
    Date: 2008–06–09
  7. By: Eichengreen, Barry; Flandreau, Marc
    Abstract: We present new evidence on the currency composition of foreign exchange reserves in the 1920s and 1930s. Contrary to the presumption that the pound sterling continued to dominate the U.S. dollar in central bank reserves until after World War II, we show that the dollar first overtook sterling in the mid-1920s. This suggests that the network effects thought to lend inertia to international currency status and to create incumbency advantages for the dominant international currency do not apply in the reserve currency domain. Our new evidence is similarly incompatible with the notion that there is only room in the market for one dominant reserve currency at a point in time. Our findings have important implications for our understanding of interwar monetary history but also for the prospects of the dollar and the euro as reserve currencies.
    Keywords: international currency; international reserves; reserve currency
    JEL: F31 F33
    Date: 2008–06
  8. By: Esfahani, H.S.; Pesaran, M.H.
    Abstract: This paper examines the economic transformation of Iran in a global context through the Twentieth Century. At the start of that century, the Iranian economy had long remained stagnant, poor, and largely agrarian, with a marginal role in the world economy. By the turn of 21st century, Iran had transformed into a complex and relatively large economy with a non-negligible impact on many parts of the world. While the initial conditions and the evolution of domestic institutions and resources played major roles in the pace and nature of that transformation, relations with the rest of the world had crucial influences as well. This paper focuses on the latter forces, while taking account of their interactions with domestic factors in shaping the particular form of economic development in Iran. We study the ways in which the development of the Iranian economy has been affected by international price movements and by the ebbs and flows of trade, investment, and economic growth in the rest of the world. In considering these effects, we also analyze the role of domestic political economy factors and policies in enhancing or hindering the ability of domestic producers to respond to external challenges and opportunities.
    Keywords: Development and Growth, Political Economy, Oil Prices and the Iranian Economy.
    JEL: N15 O11 O53
    Date: 2008–03
  9. By: Ferris, J. Stephen; Park, Soo-Bin; Winer, Stanley L.
    Abstract: We argue for the use of cointegration and error correction analysis as a method to combine economic factors that are nonstationary with political factors that are stationary into a dynamic, empirical model of the evolution of public policy over long periods. The approach we develop is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the Government of Canada over 130 years, from the origin of the modern state to the end of the 20th century. Political competition emerges robustly as the primary political factor affecting government size in the long run as well as over shorter horizons.
    Keywords: political competition, conditional convergence, cointegration, public expenditure, size of government, politics versus economics
    JEL: D7 H1 H3 H5
    Date: 2008–06
  10. By: Joan R. Roses; Nikolaus Wolf
    Abstract: We survey aggregate growth in a sample of 27 European countries during the interwar period. We discuss the available data, possible explanations for a slowdown in growth rates and test the explanatory power of several hypotheses put forward in the literature.
    Keywords: Aggregate Growth, Interwar Period, Europe
    JEL: N14 N34 O47
    Date: 2008–06
  11. By: Yoshihiko Okabe (Graduate School of Economics, Osaka University)
    Abstract: Birmingham Assay Office was established in 1773 by Toy manufacturers producting plated goods like Matthew Boulton. Main products of Birmingham were plated by gilt technique, so it was not easy to get credit for their products as growing area. Assay office had to be needed not only for the practical purpose but also credibility of Birmingham area as own assaying system. Lobbying activity was held by strong leadership of Boulton who was a well informed person and had political and financial links. Almost all entrepreneurs who became Guardians of assay office, were strong leaders in Birmingham including other fields not only toy traders and gold smith. They realized necessity of Assay office, and also do expected new direction of predicting of Silver products. However, production of Silver goods was not increased immediately after foundation of Birmingham Assay Office. Boulton and his colleague had intention to emerging new industry in their rural area, but not like their expectation, Birmingham Assay Office was functioning in traditional ways as other current ones. As a result of analyze of registered goods in Birmingham Assay Office, we find that many decorative silver goods were included, and toys were also made in silver material. It seams that manufacturing of silver made toys would become key industry of Birmingham as a growing area of decorative silver goods. The background, wide range decorative silver goods were emerged after foundation of Birmingham assay office, was reduction of risk to manufacturing, and more his strong presence contributing for market competitiveness by raising the public estimate of growing area and own brands as "Birmingham silver".
    Keywords: Industrial Revolution, Entrepreneurship, Toy trade, Silver products, Birmingham
    JEL: N33 L61 O14
    Date: 2008–05
  12. By: Clark, Gregory; O''Rourke, Kevin H; Taylor, Alan M
    Abstract: For two decades, the consensus explanation of the British Industrial Revolution has placed technological change and the supply side at center stage, affording little or no role for demand or overseas trade. Recently, alternative explanations have placed an emphasis on the importance of trade with New World colonies, and the expanded supply of raw cotton it provided. We test both hypotheses using calibrated general equilibrium models of the British economy and the rest of the world for 1760 and 1850. Neither claim is supported. Trade was vital for the progress of the industrial revolution; but it was trade with the rest of the world, not the American colonies, that allowed Britain to export its rapidly expanding textile output and achieve growth through extreme specialization in response to shifting comparative advantage.
    Keywords: British Industrial Revolution; colonies; Great Divergence; growth; specialisation; trade
    JEL: F11 F14 F43 N10 N70 O40
    Date: 2008–06
  13. By: Goel, Rajeev K. (BOFIT); Nelson, Michael A. (BOFIT)
    Abstract: Corruption, which remains a serious problem in many countries, has prompted considerable research in recent years. This paper adds to the extant literature with insights on factors influencing corrupt activity. Using cross-country data for about 100 nations, the roles of national history, geography, and government are examined to see how they affect conditions for corruption, both qualitatively and quantitatively. The innovative aspects of this research include use of a wide set of historical, geographical, and governmental determinants of corruption, as well as detailed assessment of several previously considered determinants. The main issues addressed are the effects of the size and scope of government on the incidence of corruption across countries, and the significance of historical and geographic factors in corruption. Regarding the first question, the authors find the size and scope of government can significantly affect corruption. On the second, it is shown that historical institutional inertia in older countries and new rent-seeking opportunities in younger nations can encourage corruption, while certain geographic factors can mitigate corruption. The paper ends with discussion aimed at the policymaker.
    Keywords: corruption; bribery; government size; government scope; rent-seeking; history; geography
    JEL: H00 P00
    Date: 2008–06–06
  14. By: Aidt, T.S.; Daunton, M.; Dutta, J.
    Abstract: Does local democracy help or hinder the solution of collective action problems? We study this question in the context of public spending on health-related urban amenities in a panel of 75 municipal boroughs in England and Wales in 1868, 1871 and 1886. We .nd evidence of a U-shaped relationship between spending on urban amenities and the extension of the local voting franchise. We argue that this retrenchment e¤ect arose because middle class taxpayers were unwilling to pay the cost of poor sanitation and the urban elites, elected on a narrow franchise, were instrumental for sanitary improvements. Our model of taxpayer democracy suggests that the retrenchment e¤ect is related to forced enfranchisement of the middle class through nation-wide reforms.
    Keywords: Voting franchise, retrenchment, local public goods, sanitation.
    JEL: D62 D78 H71 N93
    Date: 2008–04

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