The Origins and Development of Financial Markets and Institutions: From the Seventeenth Century to the Present

Cover......Page 1
Half-title......Page 3
The Origins and Development of Financial Markets and Institutions: From the Seventeenth Century to the Present......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Figures......Page 11
Tables......Page 14
Contributors......Page 17
Preface and acknowledgments......Page 23
1 Financial innovations and crises: The view backwards from Northern Rock......Page 25
I. Dutch origins......Page 35
II. Innovations of Dutch finance in France and the UK......Page 37
III. Spreading commercial financial networks......Page 41
IV. Banking and financial market innovations in the twentieth century......Page 45
References......Page 51
2 An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange and the emergence of the first central bank......Page 56
I. Debasement, the underlying problem......Page 59
A. Cashiers......Page 62
B. Multiple mints......Page 63
C. Distance between debasement and creditors......Page 64
III. Minting and melting......Page 65
IV. Systemic adjustment......Page 68
V. The Wisselbank......Page 70
VI. Regulatory dilemma......Page 71
A. The mint ordinance of 1619......Page 73
B. The mint ordinance of 1622......Page 78
C. The toleration of 1638 and the crisis of 1641......Page 80
D. The agio and the mint ordinances of 1645......Page 83
E. Period of transition, 1646–1658......Page 84
F. The mint ordinance of 1659......Page 87
G. Summary......Page 88
VIII. Genesis of a central bank......Page 89
References......Page 92
3 With a view to hold: The emergence of institutional investors on the Amsterdam securities market during the seventeenth and eighteenth centuries*......Page 95
I. The endowment of Amsterdam’s public orphanage......Page 97
II. Other public welfare institutions......Page 102
III. The churches......Page 106
IV. The guilds......Page 110
V. New types of institutional investors......Page 114
VI. Conclusion......Page 117
References......Page 119
I. The rise and fall of John Law (1716–1720)......Page 123
A. The bank......Page 125
B. The company......Page 127
C. The System......Page 130
II. The Mississippi “Bubble” revisited......Page 132
A. A “managed” market......Page 134
B. Was Law’s company overvalued?......Page 138
References......Page 143
5 Sir George Caswall vs. the Duke of Portland: Financial contracts and litigation in the wake of the South Sea Bubble......Page 145
I. The South Sea Scheme and the South Sea Bubble......Page 147
II. The legal conflict to come......Page 149
III. Private financial contracts in 1720......Page 154
IV. The Duke of Portland: background and sources......Page 155
V. The Duke of Portland: his actions during the Bubble......Page 156
VI. Portland's defense......Page 162
VII. Conclusions and directions for further research......Page 174
 References......Page 183
6 The bell jar: Commercial interest rates between two revolutions, 1688-1789......Page 185
A. Josiah Child, interest rates, and prosperity......Page 187
B. Constitutions, commitments and credit......Page 189
A. Searching for the risk-free rate......Page 192
Benchmarks......Page 194
The case of the missing commercial rate......Page 197
A. The bell jar: a model......Page 200
B. Methodology......Page 203
A. Minutiae......Page 208
B. Individual interest-rate series......Page 211
C. Cycles and seasonality......Page 215
D. Bilateral connections and the structure of the global money market......Page 217
V. The bell jar: inside and outside......Page 219
VI. Conclusions......Page 222
Appendix A Evidence on interest rates from secondary sources......Page 224
Appendix B Incidence on local rates on shadow foreign interest rates: nineteenth century evidence......Page 225
 References......Page 227
7 Comparing the UK and US financial systems, 1790–1830......Page 233
I. Comparing the British and American economies......Page 234
II. Financial revolutions create modern financial systems......Page 236
A. Public finance and debt management......Page 239
B. Money......Page 242
C. Central banking......Page 243
D. Banking......Page 245
E. Securities markets......Page 248
F. Corporations......Page 250
IV. Assessing financial leadership......Page 253
B. Money......Page 254
D. Banking system......Page 255
F. Corporations......Page 257
V. Financial system reversals and leadership changes......Page 258
 References......Page 262
8 Natural experiments in financial reform in the nineteenth century: The Davis and Gallman analysis......Page 265
I. The essential elements of Britain's financial success......Page 268
II. Imitation may be harder than innovation......Page 272
III. Banking developments compared......Page 274
IV. The Davis and Gallman comparison of securities markets......Page 279
V. Government regulations......Page 281
9 Regulatory changes and the development of the US banking market, 1870-1914: A study of profit rates and risk in national banks......Page 286
I. Interest rate differentials and the industrial dynamics of banking......Page 288
II. Regional profit rates......Page 291
III. A regression analysis of profit rate differentials......Page 294
IV. Profit rates and financial risk......Page 303
V. Conclusion......Page 311
10 Anticipating the stock market crash of 1929: The view from the floor of the stock exchange......Page 318
I. Bubbles and the price of a seat on the exchange......Page 320
II. Were NYSE brokers optimistic or pessimistic?......Page 323
III. Who bought the NYSE seats?......Page 331
IV. The New York Curb and the regional exchanges......Page 333
V. Wise brokers?......Page 341
References......Page 342
11 The development of "non-traditional" open market operations: Lessons from FDR's silver purchase program......Page 343
I. Data and empirical analysis......Page 349
II. Conclusions......Page 366
References......Page 367
12 The interwar shocks to US-Cuban trade relations: A view through sugar company stock price data......Page 369
I. Preliminary discussion......Page 371
II. The data......Page 378
III. Sugar-company equity indices......Page 380
IV. The commodity crisis and tariff endogeneity......Page 383
V. Sugar-company risk......Page 387
VI. The quality of Cuban sugar-company assets......Page 400
VII. Conclusion......Page 404
References......Page 407
13 Central bank reaction functions during the inter-war gold standard: A view from the periphery......Page 412
I. The inter-war gold exchange standard – a brief history......Page 415
II. Bank rate policies......Page 416
III. Circumstances in Central and Eastern Europe after the war......Page 419
IV. Financial reconstruction......Page 421
V. The Austrian reconstruction......Page 422
VI. Financial aid for Hungary......Page 423
VII. Other financial aid schemes......Page 425
VIII. Economic development following the reconstruction......Page 426
IX. Analysis......Page 429
X. Modeling reaction functions......Page 434
XI. Conclusion......Page 436
References......Page 437
14 When do stock market booms occur? The macroeconomic and policy environments of twentieth century booms......Page 440
I. Stock market booms and crashes......Page 441
A. Defining booms......Page 443
II. The macroeconomic environment of twentieth century booms......Page 450
III. Monetary policy and twentieth century booms......Page 453
A. The interwar period......Page 454
B. Early post-World War II era......Page 459
C. Stock market booms of the 1970s-1990s......Page 463
IV. Observations and conclusions......Page 467
Appendix Data sources......Page 469
General notes about the figures presented in the paper......Page 470
15 Lessons from history for the twenty-first century......Page 474
I. Financial crises: then and now......Page 476
II. "Overbanking" then and now......Page 479
III. The global securities market then and now......Page 480
IV. Financial innovations and government intervention......Page 482
V. Conclusion......Page 485
Index......Page 489