A Financial History of Western Europe (Economic History)

This is the first history of finance - broadly defined to include money, banking, capital markets, public and private finance, international transfers etc. - that covers Western Europe (with an occasional glance at the western hemisphere) and half a millennium. Charles Kindleberger highlights the development of financial institutions to meet emerging needs, and the similarities and contrasts in the handling of financial problems such as transferring resources from one country to another, stimulating investment, or financing war and cleaning up the resulting monetary mess. The first half of the book covers money, banking and finance from 1450 to 1913; the second deals in considerably finer detail with the twentieth century. This major work casts current issues in historical perspective and throws light on the fascinating, and far from orderly, evolution of financial institutions and the management of financial problems. Comprehensive, critical and cosmopolitan, this book is both an outstanding work of reference and essential reading for all those involved in the study and practice of finance, be they economic historians, financial experts, scholarly bankers or students of money and banking. This groundbreaking work was first published in 1984. Cover 1 Half Title 2 Title Page 4 Copyright Page 5 Original Title Page 8 Original Copyright Page 9 Dedication 10 Table of Contents 12 Illustrations 20 Tables 21 Apologies and Acknowledgements 22 1 Introduction 24 Comparative Financial History 24 Finance 25 War Finance 27 Issues of Relevance 28 Old Controversies 31 Chronologies, Glossary, Rates of Exchange 31 Chronologies 32 I Wars 32 II Monetary Events 32 III Banking Landmarks 34 IV Financial Events 35 Part One Money 38 Introduction to Part One 40 2 The Evolution of Money in Western Europe 42 The Functions of Money 42 Monetary Evolution 44 Coin 44 Output of Precious Metals 47 The Age of Discovery 48 The Quantity Theory of Money 50 Debasement 51 The Price Revolution? 51 Seignorage 53 Mercantilism 54 Bullionism 56 Suggested Supplementary Reading 57 3 Bank Money 58 Trade and Finance 58 Fairs 59 The Bill of Exchange 62 Usury 64 Italian Banking 65 The Hanseatic League 67 South Germany 67 Public Banks 69 The Riksbank (Bank of Sweden) 72 Goldsmiths 73 Early Banks in England 75 Suggested Supplementary Reading 77 4 Bimetallism and the Emergence of the Gold Standard 78 More than One Money 78 Theory of Bimetallism 79 Gresham's Law 79 Beginnings of the Gold Standard in Britain 80 Bimetallism in France 83 Suspension of Convertibility in Britain, 1797 83 The Bullion Report, 1810 84 Resumption, 1819 85 Central Bank Cooperation 86 California, 1849; Australia, 1851 87 The Latin Monetary Union 88 Universal Money 89 International Monetary Conference, 1878 90 The Gold Standard from 1880 to 1914 91 Suggested Supplementary Reading 93 Part Two Banking 94 Introduction to Part Two 96 5 English and Scottish Banking 98 The Eighteenth Century 98 London Banks 100 Clearing 101 Country Banks 102 Merchant Banking 104 Scottish Banks 105 Bank of England Branches 106 Joint-Stock Banking 107 Building a Network 108 Bank of England Discount Policy 112 The Lender of Last Resort 113 Loans to Industry 115 Suggested Supplementary Reading 117 6 French Banking 118 The Switch from Lyons to Paris 118 John Law 119 Caisse d'Escompte 121 Assignats 122 The Bank of France 123 Saint-Simonism 125 Jacques Laffitte 126 Caisse Générale du Commerce et de I'Industrie 127 Regional Banks of Issue 127 The Bank of France at Mid-Century 130 The Pereires and the Crédit Mobilier 131 The Bank of France as Stimulator of French Growth in the 1850s 132 Crédit Foncier and Crédit Agricole 133 Deposit Banks 134 Banques d'affaires 135 Union Générale 135 Money and Banking in France 136 Suggested Supplementary Reading 138 7 German Banking 140 Mosaic Germany 140 Prussia 140 Integrating the Coinage 142 Private Banks 144 Great Banks 145 The Construction Boom 148 The Reichsbank 149 Construction of the Banking Network 150 'D' Banks 151 Relations with Industry 151 Other Banks 152 Notes on Neighboring Countries 153 Austria 153 Sweden 154 Switzerland 157 Suggested Supplementary Reading 158 8 Italian and Spanish Banking 159 Italy 159 Italy before Unification 159 The First Wave of Foreign Banks 161 Il Corso Forzoso (forced circulation) 163 Evaluating the Success of Franco-Italian Banks 163 The Crisis of 1885-93 164 German Banking in Italy 165 1907 166 Spain 169 Bank of St Charles 169 The Bank of San Fernando 170 The Boom of 1856-66 171 Modernising the Monetary System 173 Lessons of the Italian and Spanish Cases 173 Suggested Supplementary Reading 174 Part Three Finance 176 Introduction to Part Three 178 9 Government Finance 181 Financial Revolution 181 Dutch Finance 182 The Power to Tax in England 183 Offices and Honors in England 183 Tax Farming 184 Funding English Debt 186 The Total Funded Debt 188 Sinking Fund 189 Debt Conversion 189 French Rentes 190 Offices and Tax Farming in France 191 Chambers of Justice 193 Reforming the System 194 Prussia 196 The Nineteenth Century 196 Taxation, Borrowing, Selling Assets 198 Financial Institutions and the Socio-Political Matrix 198 Suggested Supplementary Reading 199 10 Private Finance, Individuals and Families 200 Sources and Forms of Private Wealth 200 Land 200 Gambling 202 Land as Investment 202 Merchants 203 The Family 205 Insurance 206 Taking Care of Old Age and of Posterity 209 Trustee Securities 210 Wealth 211 Nabobs 213 Capital Needs of the Industrial Revolution 214 The Family Firm 216 Suggested Supplementary Reading 216 11 Private Finance—The Corporation 218 Partnership and Commenda 218 Joint-Stock Company 219 Canal Mania 220 Companies Prior to the Railroad 221 Provincial Stock Exchanges 222 Railway Booms 222 General Incorporation 225 Swedish Incorporation 227 British Experience with Incorporation 227 The Macmillan Gap 228 Did the London Capital Market Handicap British Industry? 229 French Joint-Stock Enterprise 229 French Railroads 230 The Venal Press 232 Germany 233 Suggested Supplementary Reading 235 12 Foreign Investment—Dutch, British, French and German Experience to 1914 236 Foreign Lending 236 Dutch Foreign Lending 237 The Seventeenth Century 237 The Eighteenth Century 238 The Switch from English to French Securities 240 Horizons and Channels 242 English Foreign Lending 242 The Baring Indemnity Loans 242 The 1820s 244 The 1830s 244 The 1840s 244 The 1850s and 1860s 245 1873 to 1896 247 French Foreign Lending 248 Lending to Czarist Russia 249 German Foreign Lending 251 Suggested Supplementary Reading 253 13 Transfer Cases 255 Redeeming the Fortress of Alvsborg 256 Palavicino and the 50,000 écu subsidy 256 Bringing a Fortune Home from India 257 The Spanish Indemnity of Napoleon 259 British Subsidies for the Peninsular Campaign 261 The Franco-Prussian Indemnity 262 Background 262 Setting the Indemnity 263 Mode of Payment 264 The Paris Indemnity 265 Paying the 5 Billion 265 The First Thiers Rente 266 The Second Thiers Rente 268 Effects 271 Real Transfer 272 Automatic Functioning of Markets 273 US Purchase of Panama Canal Company for $40 million 273 Suggested Supplementary Reading 274 14 Foreign Lending—Political and Analytical Aspects 275 Channels and their Shifts 275 Political Rivalry 276 Imperialism 276 Bankers and War 278 Push or Pull? 279 The Outlier 282 Small, Significant, Analytical Points 282 Foreign Lending without Money 282 Trade in Existing Securities 283 The Gibson Paradox (Fisher Effect) 283 Lending Abroad Interest Earned Abroad 284 Stock-Adjustment v. Flow Models 285 Beginnings of Direct Investment in Manufacturing 285 Strength of National Currencies 286 Paris v. London as the Leading European and World Financial Center 288 Suggested Supplementary Reading 291 15 Financial Crises 292 The Model 293 Displacement 293 Objects of Speculation 294 Diffusion of Euphoria 296 Distress 297 Dealing with Crisis 299 Lender of Last Resort in Crisis 300 The International Lender of Last Resort 303 Absence of a Lender of Last Resort 305 Did the Periodic Financial Crisis Go Away? 306 Suggested Supplementary Reading 307 Part Four The Interwar Period 310 Introduction to Part Four 312 16 War Finance, Reparations, War Debts 314 The Crisis of August 1914 314 How to Pay for the War 315 Germany's Theory of War Finance 315 Financing the Outbreak of War 317 Financing War through Foreign Assets and Borrowing 319 Reparations 320 Versailles 321 Economic Consequences of the Peace 321 Occupation of the Ruhr 323 The Dawes Plan 325 The Young Plan 327 Reparations Paid 328 Economics and Politics of Reparations 329 War Debts 329 The Moratorium of June 1931 331 Suggested Supplementary Reading 331 17 German Postwar Inflation 333 The Schools 333 The Facts 334 A Single Model? 337 The Course and Control of Inflation after World War I 337 Foreign Holders of Marks 342 Other Countries 343 Social Aspects of German Inflation 345 Structural Inflation 348 The Rentenmark 348 The Golddiskontobank 350 Collective Memory 350 Suggested Supplementary Reading 351 18 The Restoration of the Pound to Par 352 Getting British Finance under Control 352 The 1919-20 Boom 352 The Cunliffe Report 355 Brussels Conference, 1920 356 Genoa Conference, 1922 357 The Gold-Exchange Standard 358 The Chamberlain—Bradbury Committee 359 Down to the Wire 362 The Role of the City 364 Comparison with 1819 364 Prices and Wages 365 Central Bank Cooperation 366 Suggested Supplementary Reading 368 19 Stabilization of the Franc 369 The Exchange Rate 371 The 1924 Panic 373 Counterattack 375 Conditionality 375 The Squeeze 377 German and Austrian Losses 377 More Conditionality 378 The Crisis of 1926 379 Stabilizing the Franc 380 Lessons of the French Experience 383 Italy in the 1920s 384 Quota novanta (90 to the pound for the lire) 384 Suggested Supplementary Reading 386 20 The 1929 Depression 387 Europe and the United States 387 The Setting 388 The 1929 Crash 389 Response to the Crash in the United States 392 The Position in Europe 392 The Salvaging of Italian Banks 394 The Creditanstalt 394 The Run on Germany 395 The Run on Sterling 401 Sterling Depreciation 403 The Exchange Equalization Account (EEA) 405 The Japanese Yen and the Dollar 407 Suggested Supplementary Reading 407 21 The 1930s 408 The World Economic Conference, 1933 408 Sterling Bloc 410 Swedish Monetary Policy 412 German Foreign-Exchange Control 413 Bilateralism 414 The German Disequilibrium System 415 Italy 417 The Gold Bloc 418 The Tripartite Monetary Agreement 420 The Gold Scare 421 The van Zeeland Report 422 Suggested Supplementary Reading 423 Part Five Afrer World War II 424 Introduction to Part Five 426 22 German Finance In and After World War II 427 German Strategy 427 Occupation Finance 428 Allied Military Exchange Rates 430 Postwar Monetary Reform 432 Belgian Monetary Reform 433 German Monetary Reform 435 Four-Power Agreement 436 Black Market and Private Compensation 437 The Reform 439 Social Bases of Inflation and Monetary Reform 441 German Banking Decentralization 442 Reparations in Capital Assets 443 Suggested Supplementary Reading 446 23 Lend-Lease, the British Loan, the Marshall Plan 447 Lend-Lease 447 The Overall Postwar Plan 450 United Nations Relief and Rehabilitation Administration (UNRRA) 451 British Loan 452 The Truman Doctrine 455 The Marshall Plan 456 Marshall Plan Issues 458 Planning v. Markets 458 Amount of Aid 458 Allocation of Aid 459 Financing Overall Deficits or Deficits with the United States 460 Counterpart Funds 465 Structural v. Keynesian Unemployment 467 Devaluation of the Pound 468 Suggested Supplementary Reading 469 24 European Financial Integration 470 Economic Integration 470 European Capital Markets 472 The Eurodollar Market 473 The Eurobond Market 475 Common Agricultural Policy (CAP) and the Support Price 476 European Monetary Unification 477 Optimum Currency Areas 478 Economic and Monetary Union (EMU) 479 The Snake 480 The All Saints' Day Manifesto 481 European Monetary System (EMS) 482 European Monetary Fund (EMF) 484 Credit Facilities 485 The Outcome 485 Suggested Supplementary Reading 486 Glossary 488 Conversion Tables—Equivalences and Exchange Rates for Specified Coins and Currencies at Specified Dates 497 Bibliography 500 Index 536 This Is The First History Of Finance - Broadly Defined To Include Money, Banking, Capital Markets, Public And Private Finance, International Transfers And The Like - That Covers Western Europe (with An Occasional Glance At The Western Hemisphhere) And Half A Millenium. Charles Kindleberger Highlights The Development Of Financial Institutions To Meet Emerging Needs, And The Similarities And Contrasts In The Handling Of Financial Problems Such As Transferring Resources From One Country To Another, Investment Or Financing War And Cleaning Up The Resulting Monetary Mess. The First Half Of The Book Covers Money, Banking And Finance From About 1450 To 1913; The Second Deals In Considerably More Detail With The Twentieth Century. This Major Work Casts Current Issues In Historical Perspective And Throws Lights On The Fascinating - And Far From Orderly - Evolution Of Financial Institutions And The Management Of Financial Problems. Comprehensive, Critical And Cosmoplitan, A Financial History Of Western Europe Is Both An Outstanding Work Of Reference In The Study And Practice Of Finance, Be They Economic Historians, Financial Experts, Scholarly Bankers Or Students Of Money And Banking. Charles P. Kindleberger. Includes Index. Bibliography: P. [477]-511.