The Centre hosts a graduate workshop on financial history on Wednesdays at Darwin College (12 – 1.30pm, Tennis Court Seminar Room A).   If you would like to give a paper or join the mailing list, please contact Craig McMahon,

31 May 2017 Roger Vicquery (LSE)

Optimum Currency Areas and European Monetary Integration: Evidence from National Shocks in the Pre-Gold Standard Era, 1848-1870

The paper assesses the ex-ante optimality, from an OCA perspective, of the major international monetary arrangements which came into existence in the mid of the 19th century: two national monetary unions lasting to this day – Italy and Germany – as well as the two then competing international monetary blocs around London and Paris.  In order to do so, we look at the symmetry of nominal shocks among European regions exploiting a newly compiled dataset of twice-weekly foreign exchange bills prices, quoted in London on about 20 major European financial centres between 1846 and 1869. In particular, we apply both Frankel-Wei foreign exchange factor models and country-specific VARs to map the origin and propagation of shocks within the then European monetary system. Our baseline econometric results suggest that, based on the low level of shock symmetry between the North and the South, the establishment of a centralized Italian monetary union is likely to have entailed significant economic costs, which might have played a role in the arising of the Italian “Southern Question”.  We also identify a European monetary core, and find evidence of an increasing influence of Paris as a driver of the European monetary system in the run up to the creation of the Latin Monetary Union.

17 May 2017 Noah Law (Clare Hall, Cambridge)

Private Equity and Managerial Wages in Britain, 1980-2008

Since the end of the 1970s, the UK and other advanced economies have experienced significant wage divergence, being the most pronounced among the highest and lowest deciles of earners. Company directors and middle managers have been among the foremost recipients, despite a wave corporate governance regulation, generally unremarkable corporate performance and rising concerns over inequality. An important part of the recent history of capitalism, but one under-investigated by historians, has been the changing nature of capital management and, particularly, the emergence of private equity investment. The aim of this research is to determine whether private equity ownership has played a role in accentuating these wage divides. Private equity firms seek higher returns and take a more active role in the company’s management than traditional investors. If, as Thomas Piketty describes, returns on capital tend to be greater than wage growth in the long-run, this research will enable us to consider the extent to which managerial wage growth is a by-product of this phenomenon. Private equity firms are often thought to be among the blue-blooded buccaneers of global financial capitalism and one of its intensifying forces.

3 May 2017 Marc Adam (Freie Universität Berlin)

Liquidating Bankers’ Acceptances: International Crisis, Personal Conflict and American Exceptionalism, 1924-1932

This paper looks at Federal Reserve interventions in the market for bankers’ acceptances, also known as “real bills”, from 1924 to 1932. I argue that there is a distinction between the monetary policy of favouring real bills pursued by the Federal Reserve Bank of New York and the real bills doctrine put forth in certain academic and political circles. The conflict arising between the two parties concerned the NY Fed’s purchases of “foreign” acceptances. Furthermore, I argue that the critique issued against acceptances was merely a scapegoat and that the choice of this scapegoat was driven by seeking historical credit for founding the Federal Reserve System. Ultimately, this contributed to the all but complete collapse of the market for dollar acceptances.

15 March 2017: Jens van’t Klooster (Gonville & Cauis College)

‘Central banking in Rawls’ property-owning democracy

The 2007/2008 Global Financial Crisis transformed monetary policy, forcing central bankers to move far beyond their previous roles as guardians of price stability. I argue that their new roles have moved far beyond narrow areas of expertise and, thereby, beyond the political roles that fit the traditional justifications of central bank independence.
Before the crisis, central bankers referred to their era as that of a “Great Moderation”. They believed that recent economic policies had created a new period of weaker economic recessions and stable prices. Within the confines of their mandate, central bankers would do little more than control interest rates on short-term credit. This was considered sufficient for steering the domestic economy to its natural equilibrium. In the words of one central banker “everything was simple, tidy and cozy”, but, as he ominously continues, today “many certainties have gone”. My paper will describe the nature of the historical changes brought about by the crisis and outline how they undermine traditional argument in favour of central bank independence.
An extensive literature that justifies central bank independence is to this day part of textbooks, policy debates and academic research, but, as I will argue, the historical changes brought about by the crisis have undermined their validity. Central banks now experiment with a wide range of new instruments commonly referred to as unconventional monetary policy. They have given out trillions in cheap loans and extended their trading to a wide range of financial products. The European Central Bank lends directly to oil and gas companies, car manufacturers and low cost airlines. The Bank of Japan is a big player in Japanese stock markets. Central bankers currently debate even more experimental policies, such as giving out money to citizens directly. The crisis has also raised heated debates on the goals of monetary policy, with stable prices pitted against financial stability and economic equality.
It is then time to reconsider existing institutions of central bank independence. Despite facing different, and much more complex, political choices, central banks have retained their pre-crisis independence, and their monetary policy mandates remain virtually unchanged. This situation, I argue, is untenable and reform is overdue.

8 March 2017: Seung Woo Kim (Robinson College)

‘The ambivalent state: the Labour government and the Euromarkets, 1964-1971’

Is the state subservient to the transnational capital? This paper argues ambivalent nature of state with tax policies of the UK Labour government in the 1960s on the Euromarkets – an offshore market for U.S. dollars in the City of London. Scholars have emphasised the ‘retreat of state’ or the ‘neoliberal’ policy of national governments in the globalisation of finance in the late 20th century – the competition to attract international capital and an offshore financial market. Yet, they have not yet shed light on the taxation – an expression of the economic sovereignty of nation-states, particularly a weapon against the interests of international bankers. At the same time, national governments are empowered to exploit it to attract international capital to meet their needs. For the assessment of such ambivalent features, this paper examines the U.K. taxation policy during the repeated sterling crises in the late 1960s. Since the inauguration in 1964, the Labour government suffered from financial crises that impeded its national agenda for social policies. It also was forced to concede conditions imposed by international bankers or ‘gnomes of Zurich.’ The symbolic defeat of the British state spurred contestations regarding the role of the City of London in the British economy. Meanwhile, the Committee of Invisible Exports, an interest group for City bankers, sought to establish the Eurobond Clearing House (TECH) to make the financial district into the international financial centre for the Euromarket. However, the Inland Revenue, against the suggestion from the U.K. Treasury and the Bank of England, tenaciously opposed the exemption of the capital gains tax, a prerequisite for TECH. Led by Nicholas Kaldor, then an advisor to the government, the department resisted not only favourable terms for international finance but also the growth of the City planned by bankers. On the other hand, due to the lack of capital formation in the domestic economy, the British government allowed local authorities and nationalised industry to borrow Eurodollars and granted tax concessions. Debates on these issues reveals following topics of the taxation and state finance: the role of political ideology in the policy making process, the tension between the national and global economy and private and public, and the changing boundaries of economic sovereignty with the taxation.

22 February 2017: Kevin D’Albert (St. Edmund’s College)

‘New York trust company exposures and institutional funding arrangements during the Panic of 1907’

This paper introduces my dissertation and provides an overview of the 1907 panic that took place in New York City. There has been extensive new research on the 1907 panic, most notably focusing on the role of trust companies as lightly regulated financial institutions. Specifically, this paper, addresses the build-up of exposures within these entities as the taproot to one of the worst financial crises in United States history. Until recently, empirical studies have utilized only aggregate level data showing trust company resources and liabilities. This paper analyzes detailed, bank-level data on individual trust companies to determine both investment and funding concentrations under the theory that these exposures were tractable and demonstrated a clear propensity to liquidity shocks and financial distress. This research explores these micro-level exposures in the context of the national and international network of linkages and correspondent bank arrangements. The study also provides narrative evidence that identifies particular funding preferences and exposes the frictional institutional arrangements that were manifest between New York City trust companies and their rivals. It will also consider the preferential treatment by the US Treasury towards the New York City national banks and will argue that uneven bank regulation was a major contributory factor of the panic.

15 February 2017: Walter Jansson (Robinson College)

‘Finance and regional growth in Britain, 1870-1913’

This paper explores the relationship between financial institutions and economic growth in British counties from 1870 to 1913. During this period, banks were expanding their branch networks at a rapid pace, while stock markets outside London grew in importance. Research on other countries and periods suggests that the expansion of regional financial institutions should help explain economic growth patterns at a geographically disaggregated level. By utilizing a new dataset on provincial stock markets and regional bank branches, this paper is the first to test if changes in regional finance can help us understand the economic performance in different parts of 19th century Britain. It does not find robust evidence of finance-led growth.

18 January 2017: Brian Varian (London School of Economics)

‘The economics of Edwardian imperial preference: what can New Zealand reveal?’

In the two decades before the First World War, all four of the British dominions adopted policies of imperial preference toward imports. New Zealand’s policy of imperial preference, codified in the Preferential and Reciprocal Trade Act of 1903, was unique insofar as it applied preference to certain commodities and not others. Using propensity score matching, the differential application of preference across commodities is exploited, in order to determine the effect of imperial preference on the Empire share of New Zealand’s imports. Contrary to previous literature, this paper finds that New Zealand’s policy of imperial preference had a quite substantial effect on the Empire share of those imported commodities to which it applied. In particular, there were increases in the shares of metalliferous and labour-intensive manufactures imported from the United Kingdom.

9 March 2016: Enrique Jorge-Sotelo (London School of Economics)

‘The bank lending channel of monetary policy in Spain, 1922-1934′

The fact that the Spanish peseta depreciated sharply in 1928-1931 has been interpreted as the reason why the Spanish economy fared relatively well compared with other countries that remained fettered to gold during the Great Depression. Spain avoided the deflationary process that other countries underwent as a result of the golden fetters. With the benefit of hindsight, this is an interesting interpretation and many lessons stem from it. However, Spanish politicians at the time wanted to stop the depreciation of the peseta just as stubbornly as other countries’ politicians wanted to remain on gold. Moreover, there was an institutional debate about bringing the peseta to the gold standard as late as 1933. Accordingly, between 1928 and 1931, the Banco de España (BdE) raised its discount rate three times for the first time in five years, and by 1931 it had reached the highest level since the mid nineteenth century. This policy reaction was intended to stop the depreciation, a task in which neither the BdE nor the government succeeded. Did this tightening cause a contraction in long term credit? I draw on a previously unused and unusually rich database of more than 200 harmonized and dis-aggregated quarterly bank balance sheets during 1922-1934, to study the impact of the BdE’s tightening of monetary policy in the supply of banks’ credit. Particularly, I focus on the bank lending channel of monetary policy transmission in order to shed new light on the performance of peripheral economies during the onset of Great Depression.

2 March 2016: Rasheed Saleuddin (Corpus Christi College)

‘Did grain futures benefit producers and consumers? A historical perspective on the Marshall/Keynes hedging justification for the existence of futures markets, 1920-1930’

The interwar years witnessed the development of many of the institutional features often thought to be critical to the phenomenal success of exchanges upon which agricultural (and later other commodities and finally financial instruments) are traded for future delivery. At the time, and right up to the present, the traditional justification for the existence of the future market is to provide risk mitigation for producers, processors and (sometimes) consumers of commodities. This paper will explore (1) to what extent “producer” (farmers) and “consumer” (flour mills, for example) interests were taken into account during the rapid development of the grain futures markets in the 1920s and early 1930; and (2) to what extent farmers and grain processors were able to utilize futures markets to reduce market price risks between the planting, harvesting and marketing of wheat, corn and other grains. My paper first shows that farmer’s interests were brazenly ignored by powerful “populist” Midwestern lawmakers behind closed doors during this key period in the development of what is often (sometimes discursively) referred to as crop price insurance. Such crop insurance was rarely, if ever, available to farmers, and I will show that the Chicago futures markets were more likely to damage rather than protect farmer wealth during the 1920s. Certainly farmers never trusted Chicago traders, or indeed any middlemen, to provide grain price risk mitigation during this period. Grain processors were equally ignored by politicians during periods where they were unable to utilize hedges during periods of unexpectedly large price increases. Given the difficulty in using interwar futures markets for hedging, it is worth asking how the hedging justification became so ingrained in case law, legislation and even academic research during this period.

24 February 2016: Walter Jansson (Robinson College)

‘British Securities Markets, Banks and the Economy, 1850-1913’

The pre-WW1 British securities markets and commercial banks have received a considerable amount of attention from economic historians, but despite several qualitative accounts, there appears to be little quantitative research that has looked at their impact on economic growth at large. My study uses a comprehensive new dataset on British stock markets, together with fairly new developments in multiple time-series econometrics, to study the relationship between shocks to the bank system and stock markets on one hand, and economic fluctuations on the other.

17 February 2016: Jacopo Sartori (Gonville and Caius College)

‘Birth and characters of a late medieval public bank: the Taula de Canvì de Barcelona, 1397-1433’

The birth of public banks between the 15th and 16th centuries was directly related to the necessity of central governments to manage public debt and to expand towards a larger and more capillary credit market than the traditional one based on private banking. The singularity of the Taula lies in the fact that its establishment was requested by the citizens, seeking for protection from and alternatives to private banking. The subsequent development of this late medieval financial institution is also unusual. From the sources, it appears as a public bank de facto but semi-public state-banks de iure, bridging between the modern concepts of public, central and merchant banks. My aim is therefore to analyse its unprecedented nature and operations within the city of Barcelona through an interdisciplinary approach, involving analysis of primary sources, economic theory and quantitative methods.

10 February 2016: Killian Rider (University of Oxford)

“A Historic(al) Run on Repo? Causes of Bank Distress during the Austro-Hungarian “Gründerkrach” of 1873”

Contemporary sources on the “Gründerkrach” accorded a decisive role in establishing the link between stock market crash and banking sector distress to an early version of repo loans, which credit institutions granted to stock-market agents. Building on these historical accounts and bringing to bear a large array of new data, the present study provides a theoretically and empirically grounded explanation for the wave of bank failures in the months following Black Friday on May 9th 1873. This paper situates repos in the wider context of banks’ investment banking business models during the stock market boom leading up to the crisis of 1873. Insights from the legal environment, financial constraints and strategic trade-offs suggest that repo lender distress occurred in the context of severe liquidity mismatches on banks’ balance sheets. This paper situates repos in the wider context of banks’ investment banking business models during the stock market boom leading up to the crisis of 1873. Insights from the legal environment, financial constraints and strategic trade-offs suggest that repo lender distress occurred in the context of severe liquidity mismatches on banks’ balance sheets. The present study formally examines the impact repo loans had on lenders’ demise by drawing on Cox proportional hazard regressions.Its econometric results show a strong and robust effect of banks’ repo exposure on survival performance. These findings challenge the received wisdom that the “Gründerkrach” banking crisis derived mainly from a bursting real estate bubble which subsequently compromised the financial health of credit institutions.

3 February 2016: Craig McMahon (St Edmund’s College)

‘On behalf of the working poor? An analysis of the development and regulation of the British pawnbroking market, 1860s – 1870s.’

This research focuses on the interaction between regulatory bodies and the pawnbroker market. The objective is to understand what problems or perceived issues were regulators trying to solve? How did elite policy-makers and market participants view the pawnbroking market? How did policy-makers understand the demand factors of the working-poor in need of short-term money? And how did the market evolve in response to enacted regulation? The formation of the Pawnbrokering Act of 1872 is used as an inflection point to understand the evolution of the modern small loan market and the business of lending small sums.

20 January 2016: Alain Naef (St Edmund’s College)

‘Does sterilised central bank intervention have long term effects on exchange rate? The case of the British Exchange Equalisation Account, 1952-1972’

The post-war period was a time of unprecedented growth in most of the world. Britain experienced growth but it faced relative decline when compared with other western countries. The declining role of sterling as an international reserve currency has often been highlighted as either a symptom of the decline or even a contributing factor to the relative decline. The current literature on the period either considers narrative archival records to understand the actions by the Bank of England to defend sterling or analyses how other central banks dealt with unwanted sterling reserves. Only limited research has been undertaken on the actual defence line of the Bank of England, namely the Exchange Equalisation Account (EEA). This account was established in 1932 its operations were kept secret, allowing the Bank of England to defend sterling without informing the market of the state of gold and dollar reserves. In this paper, I question the effectiveness of British central bank intervention on the foreign exchange market during the Bretton Woods period. This paper registers daily intervention episodes to measure the direct impact of intervention on the exchange rate.

3 June 2015: Simon Mee (University of Oxford)

‘The challenge of social democracy in the era of the ‘Great Inflation’: historical narratives and the Deutsche Bundesbank, 1970-78′.

This paper examines the extent to which the West German central bank defended its independence vis-à-vis the federal government during the 1970s, a decade riven with economic crises. In particular, the paper will analyse how historical narratives of Germany’s inflationary episodes were used by the Deutsche Bundesbank in the media amid efforts to fight off political attacks on its autonomy. The paper is qualitative in nature.

27 May 2015: Sabine Schneider (St John’s College)

‘The politics of last resort lending: the Bank, the money market and the Financial Crisis of 1866

News of the bankruptcy of the eminent discount house Overend, Gurney and Co. in May 1866 struck the City of London like ‘the shock of an earthquake’, generating a scramble for funds in the money market and urgent loan applications to the Bank of England. Spurred by the finance boom of 1863, Overend’s young directorate had ventured into an array of speculative undertakings that set the stage for one of the most infamous credit bubbles of the nineteenth century. Strikingly little, however, is known about the Bank of England’s credit management during the Overend & Gurney crisis and in the ensuing period of financial stringency from May to July 1866. This paper traces the complex rationale from which decisions to extend liquidity assistance were made during ‘Black Friday’ 1866, and its significance for the Bank of England’s gradual transition towards a modern central bank. Employing perspectives from financial, monetary and intellectual history, the paper investigates the persistent policy trade-offs between the Bank’s private, profit-maximizing motives and its public function as guarantor of financial stability.

20 May 2015: Kim Seung Woo (Robinson College)

Contesting ‘efficient’ European capital markets: the political economy of the brith of Eurobond market, 1962-1964′

The Eurobond market has been regarded as a symbol of the re-emergence of global finance for its contribution to the cross-border capital movements and the integration of national capital markets.  Literatures have focused on the heroic achievement of innovative practitioners who pioneered the new financial product by mobilising eurodollars in the City of London.  In critique of such ‘canonical’ accounts, this paper contextualise the Eurobond market within the contemporary international monetary politics of the liberalisation of capital movements and the US balance of payments deficit.  Eurobonds were one of new international long-term loans, which were contested by monetary authorities of UK, US and continental European countries for their tension with domestic monetary policies.  Using original documents from the Working Party No. 3 of the Economic Policy Committee, the Bank for International Settlements, and the Bank of England, this paper argues for the ‘regulatory vacuum’ from the conflict over the ‘efficient European capital markets’ and the deliberate efforts by the UK monetary authorities, which resulted in the birth of a particular type of international long-term loan, (i.e., the US dollar-denominated bonds) in the City of London.

11 March 2015: Kim Seung Woo (Robinson College)

‘Speculation or Investment? – the index fund controversy, the law and economics movement and the US ‘prudent man rule’ in the 1970s’.

This paper purports to examine the deliberate efforts by practitioners, financial journalists, and academic professions to legalise the ‘index fund’ in the 1970s. Until the 1960s, asset management strategy anchored to the ‘Modern Portfolio Theory (MPT)’ had not been accepted as a legitimate method for fiduciaries within the US financial community. Practitioners and the court believed that it was possible to ‘beat the market.’ However, new generations of asset managers and the Chicago School inspired ‘law and economics movements’ challenged the conventional idea by permeating the ‘efficient market hypothesis’ into the ‘prudent man rule’ of the US legal discourse. By looking at the periodicals, legal cases, other publications, this paper narrates the ‘turning point’ in the US asset management industry in the 1970s and evaluate the role of experts in the making of the financial market.

4 March 2015: Rasheed Saleuddin (Corpus Christi)

‘How irrational were key benchmark indices during the global financial crisis?’

During the depths of the global financial crisis, many investors in the imploding subprime mortgage market and its derivatives were forced to mark their positions to models linked to the credit default swap indices referencing subprime residential mortgage-backed securities. Recent papers focus on the irrationality of these ‘ABX’ indices (e.g. Stanton & Wallace 2012), concluding that such benchmarks should not have been used to value similar bonds held in investor portfolios. This finding of irrationality is apparent support for the growing literature on the dangers of marking to market to financial stability (e.g. Plantin, Sapra & Shin 2008). If market prices are ‘too low’ during distressed periods, perhaps market value accounting should be stayed during periods of crisis. However I believe that the studies on ABX, besides often ignoring some very basic elements of mortgage market microstructure, do not consider the role of expectations in investor valuation of risky asset holdings. As a result such studies fail to address the important question as to whether or not such benchmarks should be used in the future. Once a correct market structure is specified and expectations are considered, it is much harder to conclude that the ABX market was irrational except during the absolute depths of the markets, and even then only with hindsight.

25 February 2015: Flora Macher (London School of Economics and Political Science)

‘The Hungarian Banking Crisis of 1931’

The purpose of this paper is to analyze the causes of the Hungarian financial crisis of 1931. The prevailing view is that the episode was a balance-of-payment crisis, arising from the country’s high indebtedness and irresponsible government spending. These initial conditions deteriorated after the October 1929 Wall Street crash. After this event world trade declined and the inflow of foreign capital dried out, and these factors together culminated in a currency crisis in 1931. Using a large macroeconomic dataset manually built from contemporary statistical publications and archival records and relying on a bank-by-bank analysis, this paper develops a new interpretation to the Hungarian crisis of 1931 and shows that it was in fact a banking crisis, not a currency crisis. The causes of the event were a restrictive monetary policy in the aftermath of an early currency crisis in October 1928, an agricultural crisis in 1930, and an unorthodox fiscal policy which offered state-guarantees to banks and thereby increased their exposure to agriculture. The Hungarian story offers an insight into contemporary policy-makers’ mindset, bound by the economic trilemma in a fixed exchange rate system with free capital flows. Hungary’s case involved a conservative central bank which single-mindedly focused on the stability of the currency and thereby sacrificed the banking sector and threatened the stability of the economy; as well as a desperate fiscal authority which was trying to find ways to stimulate the economy but was bound by the rules of the gold standard.

11 February 2015: Walter Jansson

‘Merchant banks and the British economy, 1870-1913’

International trade credit has been given little attention in economic history, and rigorous studies of its role in the pre-war British economy do not exist. Authors touching upon the subject, however, have noted its potential importance in fostering trade in the “first era of globalization”. In addition, trade credit played a central role in the pre-war British money market, which linked several parts of the financial system together. My study seeks to examine the role of a key part of trade financing – merchant bank acceptances – in the prewar British economy using multiple time series econometrics.

4 February 2015: Craig McMahon (Homerton College)

‘The Poor Man’s Banker: a comparative analysis of moneylending in America and Britain, 1900-1930s’

In America and Britain politicans and regulators are once again reforming the payday loan industry. However few decision makers are aware of the historical formation of the moneylending ‘payday loan’ markets. This paper compares the development of the modern American and British moneylending markets. I ask why, despite shared recognition that high interest loans were a problem, did the moneylending markets in these two nations develop differently? I focus on how the market was legitimised, how lending organisations evolved, and how regulatory modifications impacted the business of lending small sums.

28 January 2015: Alain Naef (St Edmund’s College)

‘Dirty float or clean intervention? The Exchange Equalisation Account, 1932-1971’

The Exchange Equalisation Account (EEA) has been a key tool of British monetary intervention, however, previous accounts mainly present qualitative evidence on the account. This paper wants to look at the efficiency of British intervention over several decades thanks to a new database on foreign exchange and EEA intervention data.