New Economics Papers
on Business, Economic and Financial History
Issue of 2009‒12‒11
nineteen papers chosen by

  1. Moral Hazard in a Mutual Health-Insurance System: German Knappschaften, 1867-1914 By Guinnane, Timothy; Streb, Jochen
  2. International and National Wheat Market Integration in the 19th Century: A Comovement Analysis By Martin Uebele
  3. Bringing "Honest Capital" to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930 By Caruthers, Bruce G.; Guinnane, Timothy W.; Lee, Yoonseok
  4. The Economic Progress of American Jewry: From 18th Century Merchants to 21st Century Professionals By Chiswick, Barry R.
  5. Lessons from the Great American Real Estate Boom and Bust of the 1920s By Eugene N. White
  6. From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons By Miguel Almunia; Agustín S. Bénétrix; Barry Eichengreen; Kevin H. O'Rourke; Gisela Rua
  7. That's Where the Money Was: Foreign Bias and English Investment Abroad, 1866-1907 By Chabot, Benjamin; Kurz, Christopher J.
  8. Does Land Abundance Explain African Institutions? By Fenske, James
  9. The Eurodollar revolution in financial technology. Deregulation, innovation and structural change in Western banking in the 1960s-70s By Stefano Battilossi
  10. A Banking Explanation of the US Velocity of Money: 1919-2004 By Szilard Benk; Max Gillman; Michal Kejak
  11. ‘History of the Official Currency and the Central Bank of Cyprus’ Preliminary Conclusions for the Period 1960-2007 By Sophocles Michaelides
  12. Muslim Women’s Rights Pre independence PeriodDiscourse in the By Sabiha Hussain
  13. Real Business Cycle Models of the Great Depression By Luca PENSIEROSO
  14. Using Inflation to Erode the U.S. Public Debt By Joshua Aizenman; Nancy Marion
  15. Effects of Bilateralism and the MFN Clause on International Trade – Evidence for the Cobden-Chevalier Network, (1860-1875) By Markus Lampe
  16. Catching-up, then falling behind: Comparative productivity growth between Spain and the United Kingdom, 1950-2004 By George Chouliarakis; Mónica Correa-López
  17. Flying with the Crane-Recapturing KMVS’s Ten-Year Journey By Vimala Ramachandran
  18. The Global Financial Crisis And After: A New Capitalism? By Pereira, Luiz Carlos Bresser
  19. Financial crises and bank failures: a review of prediction methods By Demyanyk , Yuliya; Hasan, Iftekhar

  1. By: Guinnane, Timothy (Yale University); Streb, Jochen (University of Hohenheim)
    Abstract: This paper studies moral hazard in a sickness-insurance fund that provided the model for social-insurance schemes around the world. The German Knappschaften were formed in the medieval period to provide sickness, accident, and death benefits for miners. By the mid-nineteenth century, participation in the Knappschaft was compulsory for workers in mines and related occupations, and the range and generosity of benefits had expanded considerably. Each Knappschaft was locally controlled and self-funded, and their admirers saw in them the ability to use local knowledge and good incentives to deliver benefits at low costs. The Knappschaft underlies Bismarck's sickness and accident insurance legislation (1883 and 1884), which in turn forms the basis of the German social-insurance system today and, indirectly, many social-insurance systems around the world. This paper focuses on a problem central to any insurance system, and one that plagued the Knappschaften as they grew larger in the later nineteenth century: the problem of moral hazard. Replacement pay for sick miners made it attractive, on the margin, for miners to invent or exaggerate conditions that made it impossible for them to work. Here we outline the moral hazard problem the Knappschaften faced as well as the internal mechanisms they devised to control it. We then use econometric models to demonstrate that those mechanisms were at best imperfect.
    JEL: H53 H55 I18 N33 N43
    Date: 2009–09
  2. By: Martin Uebele
    Abstract: This paper analyses 19th century wheat market integration using comovement analysis borrowed from international business cycle research. This allows for tracking each single city's integration into its respective national market while controlling for international developments. I nd that the biggest push to global wheat market integration happened before 1860, before the railroad could have had substantial eects. Thus, the increase of U.S. wheat supply after 1870 was not that revolutionary than the established convergence literature suggests. It seems to be fair instead to speak of a major producer accessing the world's biggest market for wheat { Western Europe. The results also call for reconsidering on how national and international markets evolved alongside as the timing turns out to be diverse across Europe. Some countries like Austria-Hungary developed national markets only at the end of the 19th century; others like England integrated nationally early in the 1800s, and later internationally.
    Keywords: market integration; 19th century; dynamic factor analysis; wheat prices
    JEL: N70 N71 N73 C32 F15 E32
    Date: 2009–06
  3. By: Caruthers, Bruce G. (Northwestern University); Guinnane, Timothy W. (Yale University); Lee, Yoonseok (University of Michigan)
    Abstract: The Uniform Small Loan Law (USLL) was the Russell Sage Foundation's primary device for fighting what it viewed as the scourge of high-rate lending to poor people in the first half of the twentieth century. The USLL created a new class of lenders who could make small loans at interest rates exceeding those allowed for banks under the normal usury laws. About two-thirds of the states had passed the USLL by 1930. This paper describes the USLL and then uses econometric models to investigate the state characteristics that influenced the law's passage. We find that urbanization and state-level economic characteristics played significant roles. So did measures of the state's banking system. We find no evidence that party-political affiliations had any effect, which is consistent with the USLL's "progressive" character. Finally, we find little evidence that the passage of the USLL in one state made passage more likely in neighboring or similar states. If anything, the cross-state influences were negative. Our findings suggest that the Russell Sage Foundation only imperfectly understood the political economy of the USLL, and that a different overall approach might have produced a result closer to their aims.
    JEL: G21 G28 I38 K23 N21 N22
    Date: 2009–05
  4. By: Chiswick, Barry R. (University of Illinois at Chicago)
    Abstract: This paper tracks the economic status of American Jewry over the past three centuries. It relies on qualitative material in the early period and quantitative data since 1890. The primary focus is on the occupational status of Jewish men and women, compared to non-Jews, with additional analyses of earnings, self-employment, and wealth. The Jews in Colonial America, many of Sephardic origin, disproportionately lived in the east coast seaports and were engaged in international trade and finance. The mid-19th century German Jewish immigrants settled throughout the country; often beginning as itinerant peddlers, they advanced to small businesses, and some to not so small businesses in the retail trade. The Yiddish-speaking Eastern European and Russian Jewish immigrants, who arrived primarily in the four decades starting in 1881, are the ancestors of most contemporary American Jews. Starting in operative, craft and laborer jobs in small scale manufacturing or in retail trade in the northern and midwestern industrial cities, they experienced rapid economic advancement. Over the course of the 20th century their descendants achieved very impressive improvements in earnings and occupational status, attaining significantly higher levels than those of the non-Jewish white population. By the year 2000, 53 percent of Jewish men compared to 20 percent of white non-Jewish men were in professional occupations. Among working women in 2000, 51 percent of the Jewish women and 28 percent of non-Jewish white women were in professional jobs. Differences by gender were smaller than differences by religion. Other determinants of earnings the same, including schooling, American Jewish men earned about 16 percent more than other white men, an advantage that is about 8 percent when major occupational group is also held constant. American Jews, from the earliest period to the present, have had high rates of self-employment compared to the non-farm white population of the United States. The nature of this self-employment has changed over time, and currently includes many self-employed professionals. The high level of human wealth of contemporary American Jews is not at the expense of non-human wealth. Overall, and even when other variables including schooling are held constant, Jews have higher levels of wealth and higher rates of wealth accumulation than other religious groups. In summary, over the 350 years since the first Jews settled in what is now the United States, American Jews have consistently demonstrated a very high level of economic achievement.
    Keywords: Jews, immigrants, occupations, earnings, self-employment, wealth
    JEL: J15 J24 J31 J61 J62 N31 N32 Z12
    Date: 2009–11
  5. By: Eugene N. White
    Abstract: Although long obscured by the Great Depression, the nationwide “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-war construction catch-up, low interest rates and a “Greenspan put,” helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the “Too Big To Fail” doctrine, and federal policies to increase mortgages to higher risk homeowners. This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression.
    JEL: E5 G18 G21 N12 N22
    Date: 2009–12
  6. By: Miguel Almunia (Department of Economics, University of California, Berkeley); Agustín S. Bénétrix (Institute for International Integration Studies, Trinity College Dublin); Barry Eichengreen (Department of Economics, University of California, Berkeley); Kevin H. O'Rourke (Institute for International Integration Studies, Trinity College Dublin; Department of Economics, Trinity College Dublin); Gisela Rua (Institute for International Integration Studies, Trinity College Dublin)
    Abstract: The Great Depression of the Thirties and the Great Credit Crisis of the "Noughties had similar causes but elicited strikingly different policy responses. It may still be too early to assess the effectiveness of current policy responses, but it is possible to analyze monetary and fiscal policies in the 1930s as a "natural experiment" or "counterfactual" capable of shedding light on the impact of recent policies. We employ vector autoregressions, instrumental variables, and qualitative evidence for a panel of 27 countries in the period 1925-1939. The results suggest that monetary and fiscal stimulus was effective – that where it did not make a difference it was not tried. The results also shed light on the debate over fiscal multipliers in episodes of financial crisis. They are consistent with multipliers at the higher end of those estimated in the recent literature, consistent with the idea that the impact of fiscal stimulus will be greater when banking system are dysfunctional and monetary policy is constrained by the zero bound.
    JEL: E63 F16 N10 N27
    Date: 2009–11
  7. By: Chabot, Benjamin (Yale University); Kurz, Christopher J. (Federal Reserve Board)
    Abstract: Why did Victorian Britain invest so much capital abroad? We collected over 500,000 monthly returns of British and foreign securities trading in London and the United States between 1866 and 1907. These heretofore-unknown data allow us to better quantify the historical benefits of international diversification and revisit the question of whether British Victorian investor bias starved new domestic industries of capital. We find no evidence of bias. A British investor who increased his investment in new British industry at the expense of foreign diversification would have been worse off. The addition of foreign assets significantly expanded the mean-variance frontier and resulted in utility gains equivalent to a meaningful increase in lifetime consumption.
    JEL: E44 F22 G11 G15 N21 N23 O16
    Date: 2009–06
  8. By: Fenske, James (Yale University)
    Abstract: I show how abundant land and scarce labor shaped African institutions before colonial rule. I present a model in which exogenous suitability of the land for agriculture and endogenously evolving population determine the existence of land rights, slavery, and polygyny. I then use cross-sectional data on pre-colonial African societies to demonstrate that, consistent with the model, the existence of land rights, slavery, and polygyny occurred in those parts of Africa that were the most suitable for agriculture, and in which population density was greatest. Next, I use the model to explain institutions among the Egba of southwestern Nigeria from 1830 to 1914. While many Egba institutions were typical of a land-abundant environment, they sold land and had disputes over it. These exceptions were the result of a period of land scarcity when the Egba first arrived at Abeokuta and of heterogeneity in the quality of land.
    JEL: N57 O10
    Date: 2009–11
  9. By: Stefano Battilossi
    Abstract: The 1970s saw an explosion of financial innovations, both in instruments and strategies, which altered radically financial structures and financial decisionmaking worldwide. These transformations reversed four decades characterized by the absence of significant innovations in the banking industry, as well as by the pervasive regulation of financial systems by the state. The paper focuses on the rise of liability management (or ‘marketization’ of banking), the most important process innovation of that period. Based on the development of wholesale interbank markets, liability management found its origins in the emergence and explosive growth of the Eurodollar market. The new financial technology dramatically changed the concept of liquidity in banking, forced banks to implement totally new strategies of active liability marketing, and required a new interactive banking management of the structure of assets and liabilities. By examining the institutional evolution of the Eurodollar market and the forces behind its breathtaking growth in the 1960s and 70s, the paper analyzes how technological change in information and communication technologies interacted with institutional changes and market forces in reshaping the global financial structure.
    Keywords: Eurodollar, Financial Innovation, International Banking, Liability Management, OECD countries post-1945
    JEL: F32 G21 N24
    Date: 2009–11
  10. By: Szilard Benk (Hungarian Central Bank); Max Gillman (Institute of Economics - Hungarian Academy of Sciences); Michal Kejak (The Center for Economic Research and Graduate Education of Charles University (CERGE EI))
    Abstract: The paper shows that US GDP velocity of M1 money has exhibited long cycles around a 1.25% per year upward trend, during the 1919-2004 period. It explains the velocity cycles through shocks constructed from a DSGE model and annual time series data (Ingram et al., 1994). Model velocity is stable along the balanced growth path, which features endogenous growth and decentralized banking that produces exchange credit. Positive shocks to credit productivity and money supply increase velocity, as money demand falls, while a positive goods productivity shock raises temporary output and velocity. The paper explains such velocity volatility at both business cycle and long run frequencies. With filtered velocity turning negative, starting during the 1930s and the 1987 crashes, and again around 2003, results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times.
    Keywords: business cycle, credit shocks, velocity and volatility
    JEL: E13 E32 E44
    Date: 2009–11
  11. By: Sophocles Michaelides (Central Bank of Cyprus)
    Abstract: The period 1960 to 2007 – when the Cyprus pound was legal tender – is examined with a view to relating the major turning points of exchange, fiscal and monetary policies to their likely causes and consequences. Assumptions are made and conclusions are drawn regarding: the four periods of exchange rate policy (1960-1972, 1972-1992, 1992-1999, 1999-2007); the three phases of bank claims on the government sector (1960-1966, 1966-1975, 1975-2007); the five swings of bank credit to the private sector (1960-1965, 1965-1975, 1975-1984, 1984-2007); the five oscillations of the banking system’s foreign assets (1960-1971, 1971-1980, 1980-1989, 1989-1998, 1998-2007); the parallel tracks of GDP, CPI and the average annual salary during the 47 years under review. The above methodology is applied to the analysis and synthesis of the monetary and credit history of Cyprus between 1878 and 2007.
    Keywords: Economic history, business cycle, exchange rate, fiscal policy, private credit, price index, wage adjustment
    JEL: E3 E4 E5 N1
    Date: 2009–09
  12. By: Sabiha Hussain
    Abstract: The present paper deals with the discourse of the rights of Muslim women in the pre- independence period with particular reference to the Shariat Act 1937 and the Muslim Marriage Dissolution Act 1939. A few questions have been raised which would provide a comprehensive idea of the intentions behind these enactments. This paper attempts to explore the sociohistorical and political situation in which these Acts were passed. To this end, various debates have been captured that took place among the legislators in the assembly, social reformers, writers, community leaders and so on. The role of political parties, women’s organizations and the women’s movement is also taken into account in dealing with the above issue. The paper is based on information collected from primary and secondary sources, and analysis is socio-historical in nature. [CWDS].
    Keywords: India, writers, shariat act, women, muslim, independence, British, law, legislators, political, social, community, primary, secondary, socio-historical,
    Date: 2009
  13. By: Luca PENSIEROSO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and FNRS)
    Abstract: This paper presents and assesses the recent application of models in the Real Business Cycle (RBC) tradition to the analysis of the Great Depression of the 1930s. The main conclusion is that the breaking of the depression taboo has been a desirable completion of the cliometric revolution: no historic event should be exempt from a dispassionate quantitative analysis. On the other hand, the substantive contribution of RBC models is not yet sucient to establish a new historiography of the Great Depression.
    Keywords: Great Depression, Real Business Cycle, Dynamic Stochastic General Equilibrium, Cliometrics
    JEL: N10 E13 N01
    Date: 2009–10–19
  14. By: Joshua Aizenman; Nancy Marion
    Abstract: As a share of GDP, the U.S. Federal debt held by the public exceeds 50 percent in FY2009, the highest debt ratio since 1955. Projections indicate the debt ratio may be in the 70-100 percent range within ten years. In many respects, the temptation to inflate away some of this debt burden is similar to that at the end of World War II. In 1946, the debt ratio was 108.6 percent. Inflation reduced this ratio about 40 percent within a decade. Yet there are some important differences –shorter debt maturities today reduce the temptation to inflate, while the larger share held by foreigners increases it. This paper lays out an analytical framework for determining the impact of a large nominal debt overhang on the temptation to inflate. It suggests that when economic growth is stalled, the U.S. debt overhang may trigger an increase in inflation of about 5 percent for several years. This additional inflation would significantly reduce the debt ratio, even with some shortening of debt maturities.
    JEL: E6 F4 H6
    Date: 2009–12
  15. By: Markus Lampe
    Abstract: This study contributes to a revised picture of nineteenth-century bilateralism. Employing a new disaggregated dataset, it argues that bilateral treaties did not implement general free trade, but instead reduced tariffs unevenly through commodity-specific preferences, especially favoring manufactured goods. Gravity model estimates show that specific liberalizations translated into systematic increases in exports of corresponding items, but not overall trade. Exporters of countries whose governments used bilateralism strategically to bring down partner tariffs benefitted most. Hence, the network in form and outcome is more properly identified with reciprocal liberalization practiced by the French than with British free trade ideology.
    Keywords: preferential trade agreements, Anglo-French treaty, bilateralism, liberalisation, gravity model
    JEL: N73 F13
    Date: 2009–02
  16. By: George Chouliarakis; Mónica Correa-López
    Abstract: The pattern of Spanish comparative labor productivity performance in the period 1950-2004 is underpinned by distinctive sectoral trends. From 1950 until the mid-1970s, Spain narrowed the aggregate labor productivity gap with Britain by shifting resources out of agriculture and by improving its comparative labor productivity position across most sectors, out of which manufacturing plays a central role. Significant improvements in comparative efficiency and the dynamic pace of comparative capital intensity characterize the catch-up phase. In the period 1975-1990 convergence stagnates. In spite of the continual shift of resources out of agriculture and the good comparative performance of small sectors, such as utilities, transport and communication, and agri- culture itself, comparative labor productivity was adversely affected by the catching-up exhaustion of manufacturing and construction and by the deterioration of comparative labor productivity in services. A dramatic slowdown in efficiency gains characterizes the plateau phase. Lastly, Spain has widened the aggregate labor productivity gap since the early 1990s. The deterioration of Spain's relative productivity position with Britain has affected all sectors except agriculture. Efficiency stagnation characterizes the divergence phase.
    Date: 2009
  17. By: Vimala Ramachandran
    Abstract: This document is at the behest of KMVS and is an effort to hold up a mirror to their journey. It is a documentation of their history, context, evolution, and experiences since its emergence in 1989. Additionally, it is also an attempt to critically foreground and map out the conceptual ruminations relating to gender, development, empowerment, and participation that frame KMVS’s processes and strategies.
    Keywords: justice, equality, voluntary sectors, labour, human rights, india, political parties, NGOs, tradition, political economy, Kutch, civil society, development, women, community, governance, development, gender, empowerment, history, management
    Date: 2009
  18. By: Pereira, Luiz Carlos Bresser
    Abstract: The 2008 global financial crisis was the consequence of the process offinancialization, or the creation of massive fictitious financial wealth, that began in the1980s, and of the hegemony of a reactionary ideology, namely, neoliberalism, based on selfregulatedand efficient markets. Although capitalism is intrinsically unstable, the lessonsfrom the stock-market crash of 1929 and the Great Depression of the 1930s weretransformed into theories and institutions or regulations that led to the “30 glorious years ofcapitalism” (1948–77) and that could have avoided a financial crisis as profound as thepresent one. It did not because a coalition of rentiers and “financists” achieved hegemonyand, while deregulating the existing financial operations, refused to regulate the financialinnovations that made these markets even more risky. Neoclassical economics played therole of a meta-ideology as it legitimized, mathematically and “scientifically”, neoliberalideology and deregulation. From this crisis a new capitalism will emerge, though itscharacter is difficult to predict. It will not be financialized but the tendencies present in the30 glorious years toward global and knowledge-based capitalism, where professionals willhave more say than rentier capitalists, as well as the tendency to improve democracy bymaking it more social and participative, will be resumed.
    Date: 2009–12–04
  19. By: Demyanyk , Yuliya (Federal Reserve Bank of Cleveland); Hasan, Iftekhar (Rensselaer Polytechnic Institute, USA and Bank of Finland)
    Abstract: In this article we provide a summary of empirical results obtained in several economics and operations research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults, as well as outlines of the methodologies used. We analyze financial and economic circumstances associated with the US subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. The intent of the article is to promote future empirical research that might help to prevent bank failures and financial crises.
    Keywords: financial crises; banking failures; operations research; early warning methods; leading indicators; subprime markets
    JEL: C44 C45 C53 G21
    Date: 2009–12–01

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