1 Financial Crisis: a Hardy Perennial
1. Ezra Vogel, Japan as Number One: Lessons for America (Boston: Harvard University Press, 1979).
2. C.P. Kindleberger, The World in Depression, 1929–1939, 2nd edn (Berkeley: University of California Press, 1986).
3. See Robert D. Flood and Peter W. Garber, Speculative Bubbles, Speculative Attacks and Policy Switching (Cambridge, Mass.: MIT Press, 1994), who believe in ‘fundamentals’ as determining economic behavior, unless governments change the rules. One particular change in the last quarter of the twentieth century was deregulation of financial markets.
4. Edward Shaw, Financial Deepening in Economic Development (New York: Oxford University Press, 1973); and Roland I. McKinnon, Money and Capitalism in Economic Development (Washington, DC: Brookings Institution, 1973). A detailed study of regulation in developing countries is ‘A Survey of Financial Liberalization’ by John Williamson and Molly Mohar, Essays in International Finance, no. 221 (Princeton, NJ: International Finance Section, November 1998).
5. Recent Innovations in International Banking (Basel: Bank for International Settlements, 1986).
6. See Kindleberger, ‘Panic of 1873’, in Historical Economics (New York: Harvester Wheatsheaf, 1990), pp. 310–25; idem, ‘International Propagation of Financial Crises’; Henrietta M. Larson, Jay Cooke, Private Banker (Cambridge, Mass.: Harvard University Press, 1936); and Matthew Simon, Cyclical Fluctuations in the International Capital Movements of the United States, 1865–1897 (New York: Arno, 1979).
2 The Anatomy of a Typical Crisis
1. Joseph A. Schumpeter, Business Cycles: a Theoretical, Historical and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill, 1939), vol. 1, chap. 4, esp. pp. 161ff.
2. Hyman P. Minsky, John Maynard Keynes (New York: Columbia University Press, 1975); and idem, ‘The Financial Instability Hypothesis: Capitalistic Processes and the Behavior of the Economy’, in C.P. Kindleberger and J.-P. Laffargue, eds, Financial Crises: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 13–29. For a view of the work of Hyman Minsky in historical context, see Perry Mehrling, ‘The Vision of Hyman P. Minsky’, in the Journal of Economic Behavior and Organization, vol. 39 (1999), pp. 125–58.
3. See R.C.O. Matthews, ‘Public Policy, and Monetary Expenditure’, in Thomas Wilson and Andrew S. Skinner, eds, The Market and the State: Essays in Honour of Adam Smith (Oxford: Oxford University Press, Clarendon Press, 1976), p. 336.
4. See James B. Stewart, Den of Thieves (New York: Touchstone Books [Simon & Schuster], 1991, 1992), p. 97: ‘What really fueled the takeover boom [in the 1980s] was the sight of other people making money, big money, by buying and selling companies.’
5. See C.P. Kindleberger, The World in Depression, 1929–1939, 2nd edn (Berkeley: University of California Press, 1986), pp. 1–3.
6. Robert D. Flood and Peter W. Garber, Speculative Bubbles, Speculative Attacks and Policy Switching (Cambridge, Mass.: MIT Press, 1964), pp. 73–4, 85, 96, 98, etc.
7. Alvin Hansen, Business Cycles and National Income (New York: W.W. Norton, 1957), p. 226.
8. Newspaper accounts state that George Soros’s Quantum Fund made a profit of $1 billion going short of the British pound and the Italian lira in 1992–93 and lost $600 million shorting the yen in the spring of 1994.
1. John F. Muth, ‘Rational Expectations and the Theory of Price Movements’, Econometrica, vol. 29 (July 1961), pp. 313–35.
2. Harry G. Johnson, ‘Destabilizing Speculation: a General Equilibrium Approach’, Journal of Political Economy, vol. 84 (February 1976), p. 101.
3. Milton Friedman, ‘The Case for Flexible Exchange Rates’, in Essays in Positive Economics (Chicago: University of Chicago Press, 1953). On one occasion, Friedman moved to a different position: ‘Destabilization speculation is a theoretical possibility, but I know of no empirical evidence that it has occurred even as a special case, let alone as a general rule.’ Milton Friedman, ‘Discussion’ of C.P. Kindleberger, ‘The Case for Fixed Exchange Rates, 1969’, in Federal Reserve Bank of Boston, The International Adjustment Mechanism (Boston: Federal Bank of Boston, 1979), pp. 114–15.
4. See Fernand Braudel, The Structures of Everyday Life, vol. 1 of Civilization and Capitalism: the Limits of the Possible, trans. Siân Reynolds (New York: Harper and Row, 1981), pp. 220, 221, 281, 315, 318, 335, etc.
5. H.M. Hyndman, Commercial Crises of the Nineteenth Century (1892; 2nd edn [1932], reprinted, New York: Augustus M. Kelley, 1967), p. 96.
6. Walter Bagehot, Lombard Street: a Description of the Money Market (1873; reprint edn, London: John Murray, 1917), p. 18.
7. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 326.
8. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; reprint edn, New York: Modern Library, 1937), pp. 703–4.
9. Alfred Marshall, Money, Credit and Commerce (1923; reprint edn, New York: Augustus M. Kelley, 1965), p. 305.
10. More and more economic theorists are moving away from unswerving reliance on the assumption that market participants are uniformly intelligent, informed, and independent in thought, introducing such concepts as asymmetric information (different knowledge available to different participants), cognitive dissonance (unconscious suppression of information that fails to fit a priori views), herd behavior, procrastination that results in failure to act in timely fashion, and so on. Those interested should consult the work especially of George Akerlof and Richard Thaler. For relevant studies, see Frederic S. Miskin, ‘Asymmetric Information and Financial Crises: a Historical Perspective’, in R. Glenn Hubbard, ed., Financial Markets and Financial Crises (Chicago: University of Chicago Press, 1991), pp. 69–108; and Thomas Lux, ‘Herd Behavior, Bubbles and Crashes’, Economic Journal, vol. 105 (July 1995), pp. 881–96.
11. Gustav LeBon, The Crowd: a Study of the Popular Mind (London: T. Fischer, Unwin, 1922).
12. Charles Mackay, Memoirs of Extraordinary Delusions and the Madness of Crowds (1852; reprint edn, Boston: L. C. Page Co., 1932).
13. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p. 161.
14. David Cass and Karl Shell, ‘Do Sunspots Matter?’ Journal of Political Economy, vol. 91, no. 2 (April 1983), pp. 193–227. This concept of a completely extraneous event was included in the first edition more or less randomly. Since 1983, however, ‘sunspots’ has become a word of art to cover general uncertainty as opposed to the ‘fundamentals’ that feature in rational expectations.
15. Irving Fisher, The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises, 2nd edn (New York: Macmillan, 1911), esp. chap. 1, dealing with crises; Knut Wicksell, Interest and Prices (London: Macmillan, 1936) (first published 1898).
16. Henrietta M. Larson, Jay Cooke, Private Banker (Cambridge, Mass.: Harvard University Press, 1934).
17. John Berry McFerrin, Caldwell and Company: a Southern Financial Empire (Chapel Hill: University of North Carolina Press, 1939; reprint, Nashville: Vanderbilt Press, 1969).
18. Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976), pp. 90–3.
19. Joan Edelman Spero, The Failure of the Franklin National Bank: Challenge to the International Banking System (New York: Columbia University Press, 1980).
20. Bagehot, Lombard Street, pp. 131–2.
21. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1953), p. 31.
22. R.C.O. Matthews, A Study in Trade-Cycle History: Economic Fluctuations in Great Britain, 1832–1842 (Cambridge: Cambridge University Press, 1954), pp. 49, 110–11; and M.C. Reed, Investment in Railways in Britain: a Study in the Development of the Capital Market (London: Oxford University Press, 1976).
The ladies and clergymen – in American parlance, ‘widows and orphans’ – may more properly belong to a third stage when the securities have become seasoned in the market. The French call such investments suitable for ‘the father of a family’. Charles Wilson, in Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), produces a number of variations on investor groups: in the Netherlands ‘spinsters, widows, retired naval and army officers, magistrates, retired merchants, parsons and orphanages’ (p. 118); ‘hundreds of other merchants ... as well as thousands of civil servants, magistrates, widows and orphans and charitable institutions’ (p. 135); ‘widows, parsons, orphanages, magistrates and civil servants’ (p. 162); ‘country gentry, wealthy burghers and officials of Amsterdam, widows and wealthy spinsters’ (p. 181); ‘spinsters, theologians, admirals, civil servants, merchants, professional speculators, and the inevitable widows and orphans’ (p. 202).
In the quotation from Bagehot that constitutes one of the epigraphs of this book, owners of the blind capital who lacked the wisdom to invest it properly were characterized in the excised portion as ‘quiet ladies, rural clergymen and country misers’ and again as ‘rectors, authors, grandmothers’. See Bagehot, ‘Essays on Edward Gibbon’, quoted in Theodore E. Burton, Financial Crises and Periods of Industrial and Commercial Depression (New York: Appleton, 1902), pp. 321–2.
In his essay on Lord Brougham (1857), Bagehot quotes his subject on the crisis of 1814:
The frenzy, I can call it nothing less ... descended to persons in the humblest circumstances, and the farthest removed by their pursuits, from commercial cares ... Not only clerks and labourers, but menial servants, engaged the little sums which they had been laying up for a provision against old age and sickness ...
The great speculators broke; the middling ones lingered out a precarious existence, deprived of all means of continuing their dealings either at home or abroad; the poor dupes of the delusion had lost their little hoards and went on the parish. (Norman St John-Stevas, ed., Bagehot’s Historical Essays [New York: New York University Press, 1966], pp. 118–19)
Another British expression for the naive and innocent who were drawn into the last phases of a bubble is ‘greengrocers and servant girls’. The American 1929 categories were ‘bootblacks and waiters’, whereas a more modern characterization is ‘house painters and office girls’ (John Brooks, The Go-Go Years [New York: Weybright and Talley, 1973, p. 305]). Classes of current well-to-do amateurish and sometimes badly advised investors in the United States include successful doctors and dentists and professional athletes.
23. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 480.
24. Ilse Mintz, Deterioration in the Quality of Bonds Issued in the United States, 1920–1930 (New York: National Bureau of Economic Research, 1951).
25. Benjamin Stein, ‘The Day Los Angeles’s Bubble Burst’, New York Times, 8 December 1984.
26. ‘For Investors, Condo Craze Ends: Once Hot Market Makes Do Without Speculators’, Boston Globe, 14 February 1988.
27. Homer Hoyt, One Hundred Years of Land Values in Chicago (Chicago: University of Chicago Press, 1933), p. 136.
28. Johnson, ‘Destabilizing Speculation’, p. 101.
29. Larry T. Wimmer, ‘The Gold Crisis of 1869: Stabilizing or Destabilizing Speculation under Floating Exchange Rates’, Explorations in Economic History, 12 (1975), pp. 105–22.
30. Christina Stead, House of All Nations (New York: Knopf, 1938).
31. Carswell, South Sea Bubble, pp. 131, 199.
32. Ibid., p. 120.
33. Clapham, Bank of England, vol. 2, p. 20. Hyndman, a socialist, sarcastically ascribes this example to the 1820s: ‘The most ridiculous blunders were made by the class which was supposed to be carrying on business for the general benefit. Warming-pans were shipped to cities within the tropics, and Sheffield carefully provided skaters with the means of enjoying their favorite pastime where ice had never been seen. The best glass and porcelain were thoughtfully provided for naked savages, who had hitherto found horns and cocoa-nut shells quite hollow enough to hold all the drink they wanted.’ (See H.M. Hyndman, Commercial Crises of the Nineteenth Century [1892; 2nd edn, 1932, reprinted, New York: Augustus M. Kelley, 1967], p. 39.) Clapham is right and Hyndman wrong. The source for both is J.R. McCullough, Principles of Political Economy, 2nd edn (Edinburgh, 1830), which refers to 1810 not 1825.
The announcement of the formation of the South Sea Company in May 1711 produced expectations of a strong demand for British goods in Latin America that would provide ‘a triumphant solution to the [British] financial problem and need for expansion for the support of our way of life’. Booming markets were anticipated in ‘Colchester bays [a type of cloth], silk handkerchiefs, worsted hose, sealing wax, spices, clocks and watches, Cheshire cheese, pickles, scales and weights for gold and silver’ (see Carswell. South Sea Bubble, p. 55).
34. William Smart, Economic Annals of the Nineteenth Century (1911; reprint edn, New York: Augustus M. Kelly, 1964), vol. 2, p. 292.
35. Matthews, Trade-Cycle History, p. 25.
36. D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 102.
37. Max Wirth, ‘The Crisis of 1890’, Journal of Political Economy, vol. 1 (March 1893), p. 230.
38. P.L. Cottrell, Industrial Finance, 1830–1914: the Finance and Organization of English Manufacturing Industry (London: Methuen, 1980), p. 169. Cottrell notes that the Guinness flotation was for £6 million, was handled by Baring, and was oversubscribed many times.
39. A.C. Pigou, Aspects of British Economic History, 1918–25 (London: Macmillan, 1948).
40. J.S. Mill, Principles of Political Economy, with some of their Applications to Social Philosophy (1848; 7th edn, reprint edn, London: Longmans, Green, 1929), p. 709.
41. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), p. 715.
42. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), p. 25. For a series from the early seventeenth century, see J.G. Van Dillen, ‘The Bank of Amsterdam’, in History of the Principal Public Banks (The Hague: Martinus Nijhoff, 1934), p. 95.
43. For 1822 and 1824, see Smart, Economic Annals, vol. 2, pp. 82, 215. For 1888, see W. Jett Lauck, The Causes of the Panic of 1893 (Boston: Houghton Mifflin, 1907), p. 39.
44. A. Andréadès, History of the Bank of England (London: P.S. King, 1909), pp. 404–5, see also p. 249.
45. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelly, 1968), pp. 35–6.
46. Great Britain, Parliamentary Papers (Monetary Policy, Commercial Distress), ‘Report of the Select Committee on the Operation of the Bank Acts and the Causes of the Recent Commercial Distress, 1857–59’ (Shannon: Irish University Press, 1969), vol. 4; Consular report from Hamburg, no. 7, 27 January 1858, p. 438.
47. This statement appears in italics in Donald H. Dunn’s fictionalized book, Ponzi, the Boston Swindler (New York: McGraw-Hill, 1975), p. 98.
48. The Collected Works of Walter Bagehot, ed. Norman St John Stevas (London: The Economist, 1978), vol. 11, p. 339.
49. Wirth, Handelskrisen, p. 109.
50. Wirth, ‘Crisis of 1890’, pp. 222–4; Alfred Pose, La monnaie er ses institutions (Paris; Presses universitaires de France, 1942), vol. 1, p. 215. Lauck puts the cost of the rescue operation at 25 million francs from the leading banks and 100 million francs from the Bank of France; see Causes of the Panic of 1893, p. 57.
51. Ronald I. McKinnon, Money and Capital in Economic Development (Washington, DC: Brookings Institution, 1973).
52. Carlos F. Diaz-Alejandro, ‘Goodbye Financial Repression, Hello Financial Crash’, Journal of Development Studies, vol. 18, no. 1 (Sept–Oct 1985), pp. 1–24.
53. Ronald I. McKinnon and Donald J. Mathieson, ‘How to Manage a Repressed Economy’, Essays in International Finance, no. 145 (Princeton, NJ: International Finance Section, Princeton University, 1981).
54. Wirth, Handelskrisen, p. 519. An apparent parallel can be found in a major exhibition in Melbourne, Australia, to celebrate the hundredth anniversary of European settlement, which boosted the city’s economy briefly. See Geoffrey Searle, The Rush To Be Rich: a History of the Colony of Victoria (Melbourne: Melbourne University Press, 1971), pp. 285–7.
55. J.W. Beyen, Money in a Maelstrom (New York: Macmillan, 1959), p. 45.
56. The expression is that of Gerald Malynes in 1686, quoted in Violet Barbour, Capitalism in Amsterdam in the 17th Century (Ann Arbor: University of Michigan Press, 1963), p. 74.
57. William R. Scott, The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, 3 vols (London, 1922), as summarized by J.A. Schumpeter, Business Cycles (New York: McGraw-Hill, 1939), vol. 1, p. 250.
58. Carswell, South Sea Bubble, p. 139.
59. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–59 (Stuttgart-Berlin: W. Kohlhammer, 1934), p. 114.
60. David Divine, Indictment of Incompetence: Mutiny at Invergordon (London: Macdonald, 1970).
61. C.P. Kindleberger, ‘The Economic Crisis of 1619 to 1623’, Journal of Economic History, vol. 51, no. 1 (March 1991), pp. 149–75.
62. Wirth, Handelskrisen, p. 92.
63. Ibid., p. 458.
64. Bertrand Gille, La Banque et le crédit en France de 1815 à 1848 (Paris: Presses universitaires de France, 1959), p. 175.
65. Lévy-Leboyer, Banques européennes, p. 673.
66. Gille, Banque et crédit, p. 304.
67. Honoré de Balzac, César Birotteau (Paris: Livre de Poche, 1972), esp. pp. 13–14.
68. Leland H. Jenks, The Migration of British Capital to 1875 (New York: Knopf, 1927), p. 34.
69. Rosenberg, Weltwirtschaftskrise, pp. 50, 100–1. See also Stewart L. Weisman, Need and Greed: the Story of the Largest Ponzi Scheme in American History (Syracuse: University of Syracuse Press, 1999).
70. Carswell, South Sea Bubble, p. 171.
71. Ibid., pp. 140, 155.
72. Ibid., p. 159.
73. Guy Chaussinand-Nogaret, Les financiers de Languedoc au XVIIIe siècle (Paris: S.E.V.P.E.N., 1970), p. 146. This author observed that the financiers were much more realistic than John Law, stimulating the speculation (agiotage) but keeping themselves aloof from the fever and ruining the system by converting their notes when they judged the moment to be the most favorable. Ibid., p. 129.
74. Clapham, Bank of England, vol. 2, p. 239.
75. T.S. Ashton, Economic Fluctuations in England, 1700–1800 (Oxford: Oxford University Press, Clarendon Press, 1959), p. 151.
76. Ibid., p. 127.
77. See the review of Johannes van der Voort, De Westindische Plantage van 1720 tot 1795 (Eindhoven: De Witte, 1973), in Journal of Economic History, vol. 36 (June 1976), p. 519.
78. Wilson, Anglo-Dutch Commerce, pp. 169–87; Ashton, Economic Fluctuations, pp. 127–9; Clapham, Bank of England, vol. 1, 242–9; Martin G. Buist, At Spes non Fracta, Hope & Co., 1770–1815: Merchant Bankers and Diplomats at Work (The Hague: Martinus Nijhoff, 1974), pp. 21ff.
79. Arthur D. Gayer, W.W. Rostow and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 92.
80. Ruth Benedict, Patterns of Culture (Boston: Houghton Mifflin, 1934).
81. See Herman van der Wee, The Growth of the Amsterdam Market and the European Economy (The Hague: Martinus Nijhoff, 1963), vol. 2, p. 202; J.A. van Houtte, ‘Anvers’, in Amitore Fanfani, ed., Città Mercanti Dottrine nell’ Economia Europea (Milan: A. Guiffre, 1964), p. 311; Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture of the Golden Age (Berkeley: University of California Press, 1988), pp. 347–50; Ernest Baasch, Holländische Wirtschaftsgeschichte (Jena: Gustav Fischer, 1927), p. 240, quoting Büsch.
82. Schama, The Embarrassment of Riches, pp. 503, 505.
83. Clement Juglar, Des crises commerciales et leur retour périodiques en France, en Angleterre et aux Etats-Unis, 2nd edn (1889; reprint edn, New York: Augustus M. Kelley, 1967).
84. Theodore E. Burton, Financial Crises and Periods of Industrial and Commercial Depression (New York: D. Appleton, 1902), pp. 39–41.
85. The real prices of Australian land rose from 100 in 1870 to 450 in 1895, fell to about 360 before 1900, and then took off again to 600 by 1905. See Kevin H. O’Rourke and Jeffrey G. Williamson, Globalization and History (Cambridge, Mass.: MIT Press, 1999), Figure 3.1.
86. Francis W. Hirst, The Six Panics and Other Essays (London: Methuen, 1913), p. 2.
87. Michel Chevalier, Lettres sur l’Amérique du Nord, 3rd edn (Brussels: Société belge du librairie, 1838), vol. 1, pp. 261–2.
88. Ibid., vol. 2, pp. 151 ff.
89. Andréadès, Bank of England, p. 404.
90. Louis Wolowski, testimony before Ministère des Finances et al., Enquête sur les principes et les faits généraux qui régissent la circulation monétaire et fiduciaire (Paris: Imprimerie imperiale, 1867), vol. 2, p. 398.
91. Wilson, Anglo-Dutch Commerce, p. 77, quoting Isaac de Pinto, Jeu d’Actions (eighteenth century).
92. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 500, quoting Constantin Franz in 1872.
93. Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton, NJ: Princeton University Press, 1959), p. 550.
94. Robert Bigo, Les banques françaises au cours du XIXe siècle (Paris: Sirey, 1947), p. 262.
95. Stead, House of All Nations, p. 233.
96. Ibid., p. 244.
4 Fueling the Flames: the Expansion of Credit
1. At least as far as I can tell from limited sources. Typically at the height of the bubble, sellers had no bulbs, and some (many?) buyers made down-payments, if at all, in kind, that is, in personal possessions or commodities, presumably because they lacked cash. The difference between the value of the down-payment and the negotiated price was personal credit. See N.W. Posthumus, ‘The Tulip Mania in Holland in the Years 1636 and 1637’, Journal of Economic and Business History, vol. 1 (1928–29), reprinted in W.C. Scoville and J.C. LaForce, eds, The Economic Development of Western Europe, vol. 2, The Sixteenth and Seventeenth Centuries (Lexington, Mass.: D.C. Heath, 1969), p. 142; Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture in the Golden Age (Berkeley: University of California Press, 1987), p. 358; Robert P. Flood and Peter M. Garber, Speculative Bubbles, Speculative Attacks and Policy Switching (Cambridge, Mass.: MIT Press, 1994), p. 60.
2. Peter Temin, The Jacksonian Economy (New York: W.W. Norton, 1969), pp. 79–82.
3. Jean Bouvier, Le Krach de l’Union Générale, 1878–1885 (Paris: Presses universitaires de France, 1960), pp. 129–34.
4. ‘Kuwait’s Great $70 Bn Paper Chase’, Financial Times, 25 September 1982; ‘Kuwait Aide Says Speculators Own “Price of Follies” ’, International Herald Tribune, 29 October 1982; ‘Kuwaitis Try a New Exchange’, New York Times, 16 December 1984, sec. D.
5. Milton Friedman, The Optimum Quantity of Money and Other Essays (Chicago: Aldine, 1969), pp. 1–50.
6. Jacob Viner, Studies in the Theory of International Trade (New York: Harper, 1937), pp. 232–3.
7. J.G. Van Dillen, ‘The Bank of Amsterdam’, in History of the Principal Public Banks (The Hague: Martinus Nijhoff, 1934), pp. 79–123.
8. Eli F. Heckscher and J.G. Van Dillen, eds, ‘The Bank of Sweden in Its Connection with the Bank of Amsterdam’, in ibid., p. 169.
9. Walter Bagehot, ‘The General Aspect of the Banking Question’, no. 1, a letter to the editor of The Economist, 7 February 1857, in The Collected Works of Walter Bagehot, ed. Norman St John Stevas (London: The Economist, 1978), vol. 9, p. 319.
10. Great Britain, Committee on the Working of the Monetary System, Report (Radcliffe Report), Cmnd 827 (London: H.M. Stationery Office, August 1959), pp. 133–4, 391–2.
11. Ibid., pp. 134, 394.
12. James S. Gibbons, The Banks of New York, Their Dealers, the Clearing House and the Panic of 1857 (New York: D. Appleton, 1859), pp. 376–7.
13. J.S. Mill, in Westminster Review, vol. 41 (1844), pp. 590–1, quoted in Jacob Viner, Studies in International Trade, p. 246.
14. See Benjamin M. Friedman, ‘Portfolio Choice and the Debt-to-Income Relationship’, American Economic Review, vol. 75, no. 2 (May 1985), pp. 338–43; and idem, ‘The Roles of Money and Credit in Macro-economic Analysis’, in James Tobin, ed., Macroeconomics, Prices, and Quantities: Essays in Memory of Arthur Okun (Washington, DC: Brookings Institution, 1983), pp. 161–89.
15. Samuel L. Clements (Mark Twain) and Charles Dudley Warner, The Gilded Age: a Tale of Today (New York: Harper & Brothers, 1873; reprint edn, author’s national edn, 10 vols, 1915), vol. 1, p. 263.
16. For an extended discussion see C.P. Kindleberger, ‘The Quality of Debt’, in D.B. Papadimitriou, ed., Profits, Deficits and Instability (Basingstoke: Macmillan, 1992). reprinted in idem, The World Economy and National Finance in Historical Perspective (Ann Arbor: University of Michigan Press, 1995), pp. 117–30.
17. See Hyman P. Minsky, ‘The Financial-instability Hypothesis: Capitalist Processes and the Behavior of the Economy’, in C.P. Kindleberger and J.P. Laffargue, eds, Financial Crisis: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 13–39.
18. See the comments on the Minsky paper by J.S. Flemming, Raymond W. Goldsmith, and Jacques Melitz, in ibid., pp. 39–47.
19. ‘Revco Drugstore Chain in Bankruptcy Filing’, New York Times, 29 July 1988, sec. D.
20. Henry Kaufman, Interest Rates, the Markets and the New Financial World (New York: Times Books, 1986).
21. Alfred Marshall noted that paper money was used in China 2000 years before his writing, and that the apt term flying money was given there to bills of exchange 1000 years ago. See Appendix E, ‘Notes on the Development of Banking, with Special Reference to English Experience’, in Money, Credit and Commerce (1923; reprint, New York: Augustus M. Kelley, 1965), p. 305n.
In Europe the bill of exchange was developed by Italian merchants to balance accounts at fairs. Net debtors at the end of trading paid in bills drawn on a fair in a different location or on the next fair at the same place. This ‘private money’ was needed because there was not enough coin (money of the prince) to square accounts. See Marie-Therèse Boyer-Xambeu, Ghislain Deleplace, and Lucien Gillard, Private Money and Public Currencies: the 16th-Century Challenge, translated from the French (Armonk, NY: M.W. Sharpe, 1984).
22. T.S. Ashton, ‘The Bill of Exchange and Private Banks in Lancashire, 1790–1830’, in T.S. Ashton and R.S. Sayers, eds, Papers in English Monetary History (Oxford: Oxford University Press, Clarendon Press, 1953), pp. 37–8.
23. Francis C. Knowles, The Monetary Crisis Considered (1827), referring to the House of Lords Committee on Scottish and Irish Currency of 1826; quoted in J.R.T. Hughes, Fluctuations in Trade, Industry and Finance: a Study of British Economic Development, 1850–1860 (Oxford: Oxford University Press, Clarendon Press, 1960), p. 267.
24. Ibid., p. 258.
25. Kurt Samuelsson, ‘International Payments and Credit Movements by Swedish Merchant Houses, 1730–1815’, Scandinavian Economic History Review, vol. 3 (1955), p. 188.
26. For an early example of such attitudes, see the hypothetical discussion of the board of directors at a New York bank in the 1850s by James S. Gibbons, The Banks of New York, Their Dealers, the Clearing House, and the Panic of 1857, p. 50. A director is pleading the loan application of a Mr Black, ‘rich beyond a contingency’, who wants to build a new house on Fifth Avenue for $60,000 and to spend $40,000 to furnish it, and proposes expanding his firm’s discount line at the bank by the whole amount. Another director objects:
Mr. President, my notion is, that we have no right to discount any thing at the Board but a bona fide commercial note that will be paid when due. And on top of that the indorser must be able to take it up himself, if the drawer should fail or die. Don’t you see that we are discounting this paper to pay for Mr. Black’s house and furniture, just for his single enjoyment? This isn’t commercial paper, sir! It’s accommodation paper in the true sense.
Gibbon’s book, with chapters on the various tasks in a bank, is a mid-nineteenth-century precursor to Martin Mayer’s The Bankers (New York: Ballantine Books, 1974).
27. R.G. Hawtrey, The Art of Central Banking (London: Longmans, Green, 1932), pp. 128–9.
28. See Herman E. Krooss, ed., Documentary History of Banking and Currency in the United States (New York: Chelsea House, 1969), vol. 1, p. 31.
29. Viner, Studies in International Trade, pp. 245ff., esp. pp. 249–50.
30. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776; reprint edn, New York: Modern Library, 1937), pp. 293–7.
31. R.G. Hawtrey, Currency and Credit, 3rd edn (New York: Longmans, Green 1930), p. 224.
32. Arthur D. Gayer, W.W. Rostow, and Anna Jacobson Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 105.
33. Great Britain, Parliamentary Papers (Monetary Policy, Commercial Distress), ‘Report of the Select Committee on the Operation of the Bank Acts and the Causes of the Recent Commercial Distress, 1857–59’ (Shannon: Irish University Press, 1969), vol. 4, p. 113, question 1661, and p. 115, question 1679.
34. Albert E. Fr. Schäffle, ‘Die Handleskrise von 1857 in Hamburg, mit besonderer Rucksicht auf das Bankwesen’, in Schäffle, Gesammelte Aufsätze (Tübingen: H. Haupp’schen, 1885), vol. 2, p. 31.
35. Wirth, Handelskrisen, p. 91.
36. See C.P. Kindleberger, The World in Depression, 1929–1939, 2nd edn (Berkeley: University of California Press, 1986), p. 133 and note.
37. Bouvier, Le Krach, pp. 130–1.
38. After the bank’s dissolution, the French prosecutor of Bontoux wrote that there had been grave irregularities in the issuance of the shares and in the increases in capital. Subscriptions to the capital had been made by the bank both in its own name and in the names of fictitious client subscribers. A rival bank, the Banque de Lyon et de la Loire, formed in April 1881 with a capital of 25 million francs (raised to 50 million in November) and with one-quarter of its capital theoretically paid in, was similarly a bubble. Of 50,000 shares originally issued, more than half had not paid amounts due, and the bank had less than half of the 6.5 million francs of capital claimed at the outset.
The Union Générale also bought its own securities in the open market and, as we shall see, loaned money to others to buy them. (Bouvier, Le krach, pp. 123, 164–5, 167.)
39. Ibid., p. 131.
40. Ibid. For prices, see tables 7 and, pp. 136 and 144; for the shortfall, see p. 144.
41. Ibid., tables 7 and, pp. 136, 144, 145.
42. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p.171.
43. Bouvier, Le krach, pp. 112, 113.
44. Federal Reserve System, Banking and Monetary Statistics (Washington, DC: Board of Governors of the Federal Reserve System, 1943), p. 494.
45. Alexander Dana Noyes, The Market Place: Reminiscences of a Financial Editor (Boston: Little, Brown, 1937), p. 353.
46. Peter H. Lindert, Key Currencies and Gold, 1900–1913, Princeton Studies in International Finance, no. 24 (August 1969).
47. Jeffrey G. Williamson, American Growth and the Balance of Payments, 1830– 1913: a Study of the Long Swing (Chapel Hill: University of North Carolina Press, 1964).
48. Alvin H. Hansen, Business Cycles and National Income (New York: W.W. Norton, 1957), chaps 13, 15.
49. A.C. Pigou, Industrial Fluctuations (London: Macmillan, 1927), pt. 1, chap. 7, and p. 274.
50. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963). Chapter 10 of the book is published separately as The Great Contraction, 1929–1933 (Princeton, NJ: Princeton University Press, 1965).
51. This assertion was made by Thomas A. Mayer in a seminar on money and the Great Depression, University of California, Berkeley, 11 May 1977.
52. Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976), passim.
53. Ben S. Bernanke, ‘Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression’, American Economic Review, vol. 73, no. 3 (June 1983), pp. 237–76.
54. Frederic S. Miskin, ‘Illiquidity, Consumer Durable Expenditure, and Monetary Policy’, American Economic Review, vol. 66 (September 1976), pp. 642–54.
55. See Minsky’s review of Temin, in Challenge, vol. 19, no. 1 (September/October 1976), pp. 44–6; and see Milton Friedman, ‘The Monetary Theory and Policy of Henry Simons’, in Friedman, Optimum Quantity of Money, pp. 81–93.
56. Henry Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948).
57. Friedman, ‘Henry Simons’, p. 83.
58. See Friedrich A. Hayek, ‘Choice in Currency: a Way to Stop Inflation’, Occasional Paper no. 48 (London: Institute of Economic Affairs, 1982); Roland Vaubel, ‘Free Currency Competition’, Weltwirtschaftliches Archiv, vol. 113 (1977), pp. 435–59; Richard H. Timberlake, ‘Legislative Construction of the Monetary Control Act of 1980’, American Economic Review, vol. 75, no. 2 (May 1985), pp. 97–102; Leland B. Yeager, ‘Deregulation and Monetary Reform’, American Economic Review, vol. 75, no. 2 (May 1985), pp. 103–7: Lawrence H. White, Free Banking in Britain: Theory, Experience and Debate (New York: Cambridge University Press, 1984); George Selgin, The Theory of Free Banking (Totowa, NJ: Rowan and Littlefield, 1989). For a defense of central banking, see Charles Goodhart, The Evolution of Central Banks (Cambridge: Cambridge University Press, 1989).
59. ‘The Post-1990 Surge in World Currency Reserves’, Conjuncture, 26th year, no. 9 (October 1996), pp. 2–12.
60. Pascal Blanqué, ‘US Credit Bubble.com’, Conjuncture, 29th year, no. 4 (April 1999), pp. 12–21.
61. Graciela L. Kaminsky and Carmen W. Reinhart, ‘The Twin Crises: the Causes of Banking and Balance-of-Payments Problems’, American Economic Review (June 1999), pp. 433–500.
62. Gayer, Rostow, and Schwartz, Growth and Fluctuation, vol. 1, p. 300.
63. Hughes, Fluctuations, p. 12.
64. Ibid., p. 261.
65. Elmer Wood, English Theories of Central Banking Control, 1819–1858, with Some Account of Contemporary Procedures (Cambridge, Mass.: Harvard University Press, 1939), p. 147.
66. A. Andréadès, History of the Bank of England (London: P.S. King, 1909), pp. 356–7.
67. Wirth, Handelskrisen, p. 463.
68. Ibid., pp. 515–16.
69. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), pp. 184–5.
70. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 241.
71. Gibbons, Banks of New York, p. 375.
5 The Critical Stage – When the Bubble Is About To Pop
1. The Collected Works of Walter Bagehot, ed. Norman St John Stevas (London: The Economist, 1978), vol. 9, p. 273.
2. Milton Friedman, ‘In Defense of Destabilizing Speculation’, in The Optimum Quantity of Money and Other Essays (Chicago: Aldine, 1969), p. 288.
3. Harry G. Johnson, ‘The Case for Flexible Exchange Rates, 1969’, in Federal Reserve Bank of St Louis, Review, vol. 51 (June 1969), p. 17.
4. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p. 139.
5. W.R. Brock, Lord Liverpool and Liberal Toryism, 1820–1827 (Cambridge: Cambridge University Press, 1941), p. 209.
6. R.C.O. Matthews, A Study of Trade-cycle History: Economic Fluctuations in Great Britain, 1832–1842 (Cambridge: Cambridge University Press, 1954), p. 162.
7. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), pp. 618–20.
8. Ibid., p. 713.
9. Wladimir d’Ormesson, La grande crise mondiale de 1857: L’histoire recommence, les causes, les remèdes (Paris-Suresnes: Maurice d’Hartoy, 1933), pp. 110ff.
10. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–59 (Stuttgart: Verlag von W. Kohlhammer, 1934), p. 210.
11. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 463.
12. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 242.
13. The Economist, 21 April 1888, p. 500. This citation and the following one were brought to the author’s attention by Richard C. Marston.
14. Ibid., 5 May 1888, pp. 570–1.
15. M.J. Gordon, ‘Toward a Theory of Financial Distress’, Journal of Finance, vol. 26 (May 1971), p. 348.
16. Carswell, South Sea Bubble, p. 170.
17. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 257.
18. Edouard Rosenbaum and A.J. Sherman, M.M. Warburg & Co., 1758–1938: Merchant Bankers of Hamburg (New York: Holmes & Meier, 1979), p. 129.
19. D.P. O’Brien, ed., The Correspondence of Lord Overstone (Cambridge: Cambridge University Press, 1971), vol. 1, p. 368.
20. Michel Chevalier, Lettres sur l’Amérique du Nord, 3rd edn (Brussels: Société belge du librairie, 1838), vol. 1, p. 37.
21. Jean Bouvier, Le krach de l’Union Générale (Paris: Presses universitaires de France, 1960), pp. 129, 133, 137.
22. Wirth, Handelskrisen. p. 508.
23. D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 203.
24. Testimony of Louis Adolphe Thiers, Ministère des Finances et al., Enquête sur les principes et les faits généraux qui régissent la circulation monétaire et fiduciaire (Paris: Imprimerie imperiale, 1867), vol. 3, p. 436.
25. Stephen A. Schuker, The End of French Predominance in Europe, the Financial Crisis of 1924 and the Adoption of the Dawes Plan (Chapel Hill: University of North Carolina Press, 1976), pp. 87, 104.
26. Arthur D. Gayer, W.W. Rostow, and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 190.
27. Ibid., p. 312.
28. Bouvier, Le krach, pp. 29, 130.
29. James G. Gibbons, The Banks of New York, Their Dealers, the Clearing House, and the Panic of 1857 (New York: D. Appleton, 1859), p. 94.
30. See Clément Juglar, Des crises commerciales et leur retour périodique en France, en Angleterre et aux Etats-Unis, 2nd edn (1889; reprint edn, New York: Augustus M. Kelley, 1967), p. 427.
31. W.T.C. King, History of the London Discount Market (London: George Routledge & Sons, 1936), p. 232.
32. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 127.
33. Ibid., p. 33.
34. Ibid., p. 36.
35. Bouvier, Le krach, p. 133.
36. Christina Stead may be referring to this episode in The House of All Nations (New York: Simon & Schuster, 1938), when she has one of her characters, Stewart, say: ‘ “My first job. By jove we had fun. At one time they had a short position in Union Pacific which exceeded the floating supply. Were they ruined? Not that time. They came to terms with them ... they had to, otherwise a world panic would have resulted”.’
37. Sprague, History of Crises, pp. 237–53.
38. See C.P. Kindleberger, ‘Asset Inflation and Monetary Policy’, Banca Nazionale del Lavoro Quarterly Review, no. 192 (March 1995), pp. 17–35.
39. Carswell, South Sea Bubble, pp. 136–7, 158.
40. Evans, Commercial Crisis, p. 13.
41. Gayer, Rostow, and Schwartz, Growth and Fluctuation, p. 307.
42. W. Jett Lauck, The Causes of the Panic of 1893 (Boston: Houghton Mifflin, 1907), pp. 59–60.
43. Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton: Princeton University Press, 1959), p. 523.
44. Part of the reason Germany sold Russian bonds was political, as was the basis for German buying of Italian bonds. The French bought Russian bonds and sold Italian bonds. But Germany did float a Mexican loan of £10.5 million in 1888, so one cannot make the case that the domestic boom in Germany required capital that in nonpolitical circumstances would have gone abroad. See Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), pp. 427, 433, 442. Professor Stern has indicated that there is nothing in the Bleichröder correspondence that bears on German selling of Argentine securities.
45. Johan Åkerman, Structure et cycles économiques (Paris: Presses universitaires de France, 1955–57), vol. 2, p. 292.
46. E. Ray McCartney, Crisis of 1873 (Minneapolis: Burgess Publishing Co., 1935), pp. 58, 71.
47. Wirth, Handelskrisen, p. 110.
48. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1943), p. 68.
49. H.S. Foxwell, introduction to Andréadès, History of the Bank of England, p. xvii.
50. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), p. 109.
51. Elmer Wood, English Theories of Central Banking Control, 1819–1858 (Cambridge, Mass.: Harvard University Press, 1939), p. 183.
52. R.G. Hawtrey, Currency and Credit, 3rd edn (New York: Longmans, Green, 1927), p. 28.
53. Clapham, Bank of England, vol. 2, p. 153.
54. Leone Levi, History of British Commerce (London: John Murray, 1872), p. 233.
55. Joan Edelman Spero, The Failure of the Franklin National Bank: Challenge to the International Banking System (New York: Columbia University Press, 1980), pp. 66, 71, 85, 91.
56. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton: Princeton University Press, 1963), p. 339.
57. Lauck, Causes of the Panic of 1893, chap. 7.
58. Sprague, History of Crises, p. 253.
59. Thomas Joplin, Case for Parliamentary Inquiry into the Circumstances of the Panic, in a Letter to Thomas Gisbourne, Esq. M.P. (London: F. Ridgeway & Sons, n.d. [after 1832]), pp. 14–15.
60. Robert Baxter, The Panic of 1866, with its Lessons on the Currency Act (1866; reprint edn., New York: Burt Franklin, 1969), pp. 4, 26.
61. Clapham, Bank of England, vol. 2, p. 101.
62. Ibid., p. 100.
63. Rosenberg, Weltwirtschaftskrise, p. 118.
64. Van Vleck, Panic of 1857, p. 74.
65. Rosenberg, Weltwirtschaftskrise, p. 121.
66. Sprague, History of Crises, p. 113.
67. Alvin H. Hansen, Cycles of Prosperity and Depression in the United States, Great Britain and Germany: a Study of Monthly Data, 1902–1908 (Madison: University of Wisconsin, 1921), p. 13.
68. H.S. Foxwell, ‘The American Crisis of 1907’, in Papers in Current Finance (London: Macmillan, 1919), pp. 202–3.
1. Peter M. Garber, ‘Tulipmania’, in Robert P. Flood and Peter M. Garber, Speculative Bubbles, Speculative Attacks, and Policy Switching (Cambridge, Mass.: MIT Press, 1994), p. 72.
2. N.W. Posthumus, ‘The Tulip Mania in Holland in the Years 1636 and 1637’, Journal of Business and Economic History, vol. 1 (1928–29), reprinted in W.C. Scoville and J.C. LaForce, eds, The Economic Development of Western Europe, vol. 2, The Sixteenth and Seventeenth Centuries (Lexington, Mass.: D.C. Heath, 1969), p. 169.
3. Simon Schama, The Embarrassment of Riches: an Interpretation of Dutch Culture in the Golden Age (New York: Knopf, 1987), p. 358. Schama’s source is Krelage, Bluemenspekulation.
4. Jonathan I. Israel, The Dutch Republic: Its Rise, Greatness and Fall, 1477–1806 (Oxford: Clarendon Press, 1995), p. 533. Jan de Vries and Ad van der Woude state that in the summer of 1636, speculation in commodity derivatives spread far beyond the circle of tulip fanciers, its flame being fanned by severe outbreaks of bubonic plague that released inhibitions (The First Modern Economy: Success, Failure and Perseverance of the Dutch Economy, 1500–1815 [Cambridge: Cambridge University Press, 1997], pp. 150–1).
5. Jan de Vries, Barges and Capitalism: Transportation in the Dutch Economy (Wageningen: A.G. Bidragen, 1978), pp. 52ff.
6. Israel, The Dutch Republic, p. 533.
7. Garber, ‘Tulipmania’, pp. 71–2.
8. Israel, The Dutch Republic, chap. 33.
9. Ibid., p. 869.
10. Homer Hoyt, One Hundred Years of Land Values in Chicago: the Relationship of the Growth of Chicago to the Rise in Land Values, 1830–1933 (Chicago: University of Chicago Press, 1933).
11. Quoted in Hoyt, Land Values, p. 165. This suggests that the ‘greater fool theory’ – a speculator buying an asset he believes is overpriced because he thinks he can sell it to a greater fool, widely quoted today – goes back at least a century.
12. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 161.
13. Hoyt, Land Values, p. 102. One stimulus to the boom was the huge fire of 6 October 1871, which destroyed somewhat more than one-fourth of the 60,000 houses in the city.
14. Hoyt, Land Values, p. 401.
15. ‘How to Ruin a Safe Bet: Did Rockefeller Center Financiers Reach Too Far?’, New York Times, 5 October 1995, pp. D1, D11.
16. Keizai Koho Center, Japan 1994: an International Comparison (Tokyo, 1993), Chart 11–3, ‘Increase in Land Prices in Japan’, p. 83.
17. Koichi Hamada, ‘Bubbles, Busts and Bailouts’, in Mitsuaki Okabe, ed., The Structure of the Japanese Economy (London: Macmillan, 1995), pp. 263–86.
18. Masahiko Takeda and Philip Turner, ‘The Liberalization of Japanese Financial Markets: Some Major Themes’, BIS Economic Papers, no. 34 (November 1992), graph 8, p. 53.
19. Takeda and Turner, ‘Liberalization of Japanese Financial Markets’, pp. 99–121.
20. Ibid., Table A-1, pp. 120–1.
21. Ibid., pp. 58–65. Hamada calls the revelations ‘scandals’ (p. 9).
22. Herman Kahn, The Emerging Japanese Superstate: Challenge and Response (Englewood Cliffs, NJ: Prentice-Hall, 1970).
23. ‘Erosion in Japan’s Foundation: Real Estate Crash Threatens the Entire Economy’, New York Times, 4 October 1995.
24. David Asher and Andrew Smithers, ‘Japan’s Key Challenges for the 21st Century’, SAIS (School for Advanced International Studies) Policy Forum Studies, April 1998.
25. Keizai Koho Center, Japan 1994, Charts 5–0, p. 52, and 4–19, p. 44.
26. See C.E.B. Borio, N. Kennedy, and S.D. Prowse, ‘Exploring Aggregate Price Formation across Countries: Measurement, Determinants and Monetary-Policy Implications’, BIS Economic Papers, no. 40 (Spring 1994), p. 46: ‘It has been widely accepted that the primary goal of monetary policy should be price stability.’
27. See Armen A. Alchian and Benjamin Klein, ‘On a Correct Measure of Inflation’, Journal of Money, Credit and Banking, vol. 5, no. 1 (February 1973), pp. 172–91.
7 Bernie Madoff: Frauds, Swindles, and the Credit Cycle
1. See Norman C. Miller, The Great Salad Oil Swindle (New York: Coward, McCann, 1965).
2. Hyman P. Minsky, ‘Financial Resources in a Fragile Financial Environment’, Challenge, vol. 18 (July/August 1975), p. 65.
3. Martin F. Hellwig, ‘A Model of Borrowing and Lending with Bankruptcy’, Princeton University Econometric Research Program, Research Memorandum no. 177 (April 1975), p. 1.
4. Daniel Defoe, The Anatomy of Change-Alley (London: E. Smith, 1719), p. 8. See also the title of Jean Carper’s book on fraud, Not with a Gun (New York: Grossman, 1973).
5. Jacob van Klavaren, ‘Die historische Erscheinungen der Korruption’, Viertelsjahrschrift für Sozial- und Wirtschaftsgeschichte, vol. 44 (December 1957), pp. 289–324; vol. 45 (December 1958), pp. 433–69, 469–504; vol. 46 (June 1959), pp. 204–31. See also idem, ‘Fiskalismus – Mercantilismus – Korruption: Drei Aspecte der Finanz- und Wirtschaftspolitik während der Ancien Regime’, ibid., vol. 47 (September 1960), pp. 333–53.
6. E. Ray McCartney, The Crisis of 1873 (Minneapolis: Burgess, 1935), p. 15.
7. John Carswell, The South Sea Bubble (London: Cresset, 1960), p. 13.
8. Maximillian E. Novak, Economics and the Fiction of Daniel Defoe (Berkeley: University of California Press, 1962), p. 103.
9. Bray Hammond, Banks and Politics in America from the Revolution to the Civil War (Princeton: Princeton University Press, 1957), p. 268.
10. Carswell, South Sea Bubble, pp. 222–4.
11. William G. Shepheard, Wall Street editor of Business Week, in the preface to Donald H. Dunn, Ponzi, the Boston Swindler (New York: McGraw-Hill, 1975), p. x.
12. Milton Friedman, ‘In Defense of Destabilizing Speculation’, in The Optimum Quantity of Money and Other Essays (Chicago: Aldine, 1969), p. 290.
13. Quoted in Max Winkler, Foreign Bonds, an Autopsy: a Study of Defaults and Repudiations of Government Obligations (Philadelphia: Roland Swain, 1933), p. 103.
14. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), p. 177.
15. Honoré de Balzac, Melmoth réconcilié (Geneva: Editions de Verbe, 1946), pp. 45–50.
16. Dunn, Ponzi, p. 188.
17. Introduction by Robert Tracey to Anthony Trollope, The Way We Live Now (1874–75; reprint edn, New York: Bobbs-Merrill, 1974), p. xxv.
18. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 1, p. 229.
19. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), p. 170.
20. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1943), p. 65.
21. Earl J. Hamilton, ‘The Political Economy of France at the Time of John Law’, History of Political Economy, vol. 1 (Spring 1969), p. 146.
22. Jacob van Klavaren, ‘Rue de Quincampoix und Exchange Alley: Die Spekulationsjähre 1719 und 1720 in Frankreich und England’, Viertelsjahrschrift für Sozial- und Wirtschaftsgeschichte, vol. 48 (October 1961), pp. 329ff.
23. Dunn, Ponzi, op. cit.
24. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 510.
25. William Robert Scott, The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720 (Cambridge: Cambridge University Press, 1911), vol. 3, pp. 449ff.; and D. Morier Evans, The Commercial Crisis, 1847–48, 2nd edn, rev. (1849; reprint edn, New York: Augustus M. Kelley, 1969), pp. 33–4. A separate list for the South Sea Bubble, prepared by a contemporary and less detailed, is set out in Wirth, Handelskrisen, pp. 67–79.
26. A. Andréadès, History of the Bank of England (London: P.S. King, 1909), p. 133.
27. Carswell, South Sea Bubble, p. 142.
28. Scott, Joint-Stock Companies, p. 450.
29. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–59 (Stuttgart: W. Kohlhammer, 1934), p. 103.
30. Wirth, Handelskrisen, p. 480.
31. Anthony Trollope, The Three Clerks (New York: Harper & Brothers, 1860), p. 346.
32. Carswell, South Sea Bubble, p. 177.
33. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 358.
34. Ibid., pp. 396–7.
35. US Senate, Committee on Finance, 72nd Cong., 1st sess., Hearings on Sales of Foreign Bonds of Securities, held 18 December 1931, to 10 February 1932 (Washington, DC: US Government Printing Office, 1932).
36. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 341.
37. Quoted in Wirth, Handelskrisen, p. 80.
38. Honoré de Balzac, La maison Nucingen, in Oeuvres complètes (Paris: Calmann Lévy, 1892), p. 68.
39. Carswell, South Sea Bubble, pp. 176, 181.
40. Wirth, Handelskrisen, p. 491.
41. Emile Zola, L’Argent (Paris: Livre de Poche, n.d.), p. 125.
42. Wirth, Handelskrisen, p. 491.
43. Zola, L’Argent, p. 161.
44. Jean Bouvier, Le krach de l’Union Générale (Paris: Presses universitaires de France, 1960), p. 36.
45. The Economist, 21 October 1848, pp. 1186–8, quoted in Arthur D. Gayer, W.W. Rostow, and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), p. 316.
46. Rosenberg, Weltwirtschaftskrise, p. 101.
47. Stern, Gold and Iron, chap. 10 (‘Greed and Intrigue’) and p. 364.
48. Novak, Economics of Defoe, pp. 14–15 and 160 n. 35.
49. Ibid., p. 16, note 50.
50. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), pp. 632–3.
51. Ibid., p. 503, note 90.
52. Bouvier, Le krach, p. 124.
53. Ibid., p. 161, note 50.
54. Stern, Gold and Iron, chap. 11.
55. Theodore Dreiser’s Trilogy of Desire consists of three novels: The Financier (1912), The Titan (1914), and The Stoic (1947). See The Titan (New York: World, 1972), pp. 371–2.
56. Ibid., pp. 515–40.
57. Henry Grote Lewin, The Railway Mania and its Aftermath, 1845–1852 (1936; reprint edn, rev., New York: Augustus M. Kelley, 1968), pp. 262, 357–64.
58. See Paul W. Gates, Illinois Central Railroad and Its Colonization Work (1934; reprint edn, Cambridge, Mass.: Harvard University Press, 1968), pp. 66, 75–6; John L. Weller, The New Haven Railroad: the Rise and Fall (New York: Hastings House, 1969), p. 37n; Van Vleck, Panic of 1857, p. 58.
59. See Willard L. Thorp, Business Annals (New York: National Bureau of Economic Research, 1926), p. 126.
60. Watson Washburn and Edmund S. Delong, High and Low Financiers: Some Notorious Swindlers and their Abuses of our Modern Stock Selling System (Indianapolis: Bobbs-Merrill, 1932), p. 13.
61. Ibid., pp. 85, 101, 144, 309.
62. Barrie A. Wigmore, The Crash and its Aftermath: a History of Security Markets in the United States, 1929–1933 (Westport, Conn.: Greenwood, 1985), pp. 344–8.
63. Ibid., pp. 358–60.
64. James S. Gibbons, The Banks of New York, Their Dealers, the Clearing House, and the Panic of 1857 (New York: D. Appleton, 1859), p. 104.
65. Ibid., p. 277.
66. John Kenneth Galbraith, The Great Crash, 1929, 3rd edn (Boston: Houghton Mifflin, 1972), pp. 133–5.
67. David F. Good, The Economic Rise of the Hapsburg Empire, 1750–1914 (Berkeley: University of California Press, 1984), p. 165.
68. D. Morier Evans, Facts, Failures and Frauds (1839; reprint edn, New York: Augustus M. Kelley, 1968), p. 235.
69. See Robert Shaplen, Kreuger: Genius and Swindler (New York: Knopf, 1960).
70. Carswell, South Sea Bubble, pp. 225, 265–6.
71. Bouvier, Le krach, pp. 211, 219.
72. Herbert I. Bloom, The Economic Activities of the Jews of Amsterdam in the Seventeenth and Nineteenth Centuries (Williamsport, Pa.: Bayard Press, 1937), p. 199.
73. Carswell, South Sea Bubble, p. 210.
74. Dreiser, The Titan, p. 237.
75. Christina Stead, House of All Nations (New York: Simon & Schuster, 1938), p. 643.
8 International Contagion 1618–1930
1. Herbert Hoover, The Memoirs of Herbert Hoover (New York: Macmillan, 1952), vol. 3, pp. 61–2.
2. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton: Princeton University Press, 1963), pp. 359–60.
3. Quoted in Leone Levi, History of British Commerce (London: John Murray, 1872), p. 234.
4. S. Saunders, quoted in D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 13.
5. R.C.O. Matthews, A Study in Trade-Cycle History: Economic Fluctuations in Great Britain, 1832–1842 (Cambridge: Cambridge University Press, 1954), p. 69.
6. Friedman and Schwartz, Monetary History, p. 360.
7. Jørgen Pedersen, ‘Some Notes on the Economic Policy of the United States during the Period 1919–1932’, in Hugo Hegelund, ed., Money Growth and Methodology: Papers in Honor of Johan Åkerman (Lund: Lund Social Science Studies, 1961), reprinted in J. Pedersen, Essays in Monetary Theory and Related Subjects (Copenhagen: Samfundsvienskabeligt Forlag, 1975), p. 189.
8. R.T. Naylor, The History of Canadian Business, 1867–1914, vol. 1, The Banks and Finance Capital (Toronto: James Lorimer & Co., 1975), p. 130.
9. Clément Juglar, Des crises commerciales et leur retour périodique en France, en Angleterre et aux Etats-Unis, 2nd edn (1889; reprint edn, New York: Augustus M. Kelley, 1967), pp. xiv, 17, 47, 149, and passim.
10. Wesley C. Mitchell, introduction to Willard L. Thorp, Business Annals (New York: National Bureau of Economic Research, 1926), pp. 88–97.
11. Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton: Princeton University Press, 1959), chap. 1. esp. sec. 6; on international stock exchange panics from 1893 to 1931, see table 139, pp. 546–7, and chart 72, p. 548.
12. C.P. Kindleberger, ‘The International (and Interregional) Aspects of Financial Crises’, in Martin Feldstein, ed., The Risk of Economic Crisis (Chicago: University of Chicago Press, 1991), pp. 128–32.
13. Friedman and Schwartz, Monetary History, p. 308.
14. See C.E.V. Borio, N. Kennedy, and S.D. Prowse, ‘Exploring Aggregate Price Fluctuations across Countries: Measurement, Determinants, and Monetary Policy Implications’, BIS Economic Papers, no. 40 (April 1994), Graph A.1, p. 74.
15. C.P. Kindleberger, ‘The Economic Crisis of 1619 to 1623’, Journal of Economic History, vol. 51, no. 1 (March 1991), esp. pp. 159–61.
16. Johan Åkerman, Structure et cycles économiques (Paris: Presses universitaires de France, 1957), vol. 2. pp. 247, 255.
17. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), pp. 84, 94, 100, 101.
18. Ibid., pp. 151, 160–1, 166. There may be some doubt about this. P.G.M. Dickson maintains that the Canton of Berne still held £287,000 of South Sea annuities in 1750 (The Financial Revolution in England: a Study in the Development of Public Credit, 1688–1756 [New York: St Martin’s Press, 1967], p. 90).
19. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), pp. 103, 124.
20. Carswell, South Sea Bubble, p. 167.
21. Ibid., pp. 178, 199. In The Great Mirror of Folly [Het Groote Tafereel der Dwaasheid], an Economic Bibliographical Study (Boston: Baker Library, Harvard Graduate School of Business Administration, 1949), Arthur H. Cole observes that Holland had a full-scale bubble between April and October 1720, stimulated by the excitements of Paris and London. Forty new companies were floated in thirty mostly smaller towns, in the amount of 350 million guilders. Shares of the Dutch East India Company tripled in this period, and those of the West India Company went from 40 to 600 before the bubble burst (pp. 5, 6).
22. T.S. Ashton, Economic Fluctuations in England, 1700–1800 (Oxford: Oxford University Press, Clarendon Press, 1959), p. 120.
23. George Chalmers, The Comparative Strength of Great Britain (London, 1782), p. 141, quoted in Ashton, Economic Fluctuations, p. 151.
24. E.E. de Jong-Keesing, De Economische Crisis van 1763 te Amsterdam (Amsterdam, 1939), pp. 216–17.
25. Wilson, Anglo-Dutch Commerce, p. 168.
26. De Jong-Keesing, Economische Crisis van 1763, p. 217.
27. Ernst Baasch, Hollandische Wirtschaftsgeschichte (Jena: Gustav Fischer, 1927).
28. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 87.
29. Stephan Skalweit, Die Berliner Wirtschaftskrise von 1763 und ihre Hintergründe (Stuttgart/Berlin: Verlag W. Kohlhammer, 1937), p. 50.
30. Wilson, Anglo-Dutch Commerce, p. 168; Alice Clare Carter, Getting, Spending and Investing in Early Modern Times: Essays on Dutch, English and Huguenot Economic History (Assen: Van Gorcum, 1975), p. 63.
31. William Smart, Economic Annals of the Nineteenth Century, vol. 1 (1911; reprint edn, New York: Augustus M. Kelley, 1964), pp. 529–30.
32. Arthur D. Gayer, W.W. Rostow, and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 159.
33. Smart, Economic Annals, vol. 1, chap. 31.
34. Murray N. Rothbard, The Panic of 1819: Reactions and Policies (New York: Columbia University Press, 1962), p. 11.
35. Bray Hammond, Banks and Politics in America from the Revolution to the Civil War (Princeton: Princeton University Press, 1957), chap. 10, esp. pp. 253–62.
36. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), pp. 464–79.
37. Åkerman, Structure et cycles économiques, p. 294.
38. Maurice Lévy-Leboyer, ‘Central Banking and Foreign Trade: the Anglo-American Cycle in the 1830s’, in C.P. Kindleberger and J.-P. Laffargue, eds, Financial Crises: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 66–110.
39. R.G. Hawtrey, Currency and Credit, 3rd edn (New York: Longmans, Green, 1927), p. 177.
40. Lévy-Leboyer, Banques européennes, pp. 570–83.
41. Juglar, Crises Commerciales, p. 414.
42. D. Morier Evans, The Commercial Crisis, 1847–48 (1849; reprint edn, New York: Augustus M. Kelley, 1969).
43. Richard Tilly, Financial Institutions and Industrialization in the Rhineland, 1815–1870 (Madison: University of Wisconsin Press, 1970), p. 112.
44. Alfred Krüger, Das Kölner Bankiergewerbe vom Ende des 18. Jahrhunderts bis 1875 (Essen: G.D. Baedeker Verlag, 1925), pp. 12–13, 35, 49, 55–6, 202–3. Reference courtesy of Professor Richard Tilly.
45. This is discussed in a Swedish study of the crisis of 1857: P.E. Bergfalk, Bidrag till de under de sista hundrade aren inträffade handelskrisershistoria (Uppsala: Edquist, 1859), referred to in Theodore E. Burton, Financial Crises and Periods of Industrial and Commercial Depression (New York: Appleton, 1902), pp. 128–9.
46. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 226.
47. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–1859 (Stuttgart: Verlag von W. Kohlhammer, 1934), p. 136.
48. Åkerman, Structure et cycles économiques, p. 323.
49. Clapham, Bank of England vol. 2, p. 268. R.G. Hawtrey makes the point that the crisis was not isolated but a sequel to the Continental crisis of 1864. See Currency and Credit, p. 177.
50. Shepard B. Clough, The Economic History of Modern Italy (New York: Columbia University Press, 1964), p. 53.
51. David S. Landes, Bankers and Pashas: International Finance and Economic Imperialism in Egypt (Cambridge, Mass.: Harvard University Press, 1958), p. 287.
52. Wirth, Handelskrisen, pp. 462–3.
53. Larry T. Wimmer, ‘The Gold Crisis of 1869: a Problem in Domestic Economic Policy and International Trade Theory’ (PhD diss., University of Chicago, 1968); US Congress, House, Gold Panic Investigation, 41st Cong., 2nd sess., H. Rept. 31, 1 March 1870.
54. Wirth, Handelskrisen, p. 464.
55. US Congress, House, Gold Panic Investigation, p. 132.
56. C.P. Kindleberger, ‘The Panic of 1873’, paper presented to the NYU-Salomon Brothers Symposium on Financial Panics, reprinted in Historical Economics: Art or Science? (New York: Harvester/Wheatsheaf, 1990), pp. 310–25.
57. Henrietta M. Larson, Jay Cooke, Private Banker (Cambridge, Mass.: Harvard University Press, 1936).
58. Homer Hoyt, One Hundred Years of Land Values in Chicago: the Relationship of the Growth of Chicago to the Rise in Land Values, 1830–1933 (Chicago: University of Chicago Press, 1933), pp. 101–2, 117.
59. R. Ray McCartney, Crisis of 1873 (Minneapolis: Burgess, 1935), p. 85.
60. Morgenstern, International Financial Transactions, p. 546.
61. Fritz Stern, Gold and Iron: Bismarck, Bleichröder, and the Building of the German Empire (London: Allen & Unwin, 1977), p. 189.
62. Morgenstern, International Financial Transactions, p. 548.
63. L.S. Pressnell, ‘The Sterling System and Financial Crises before 1914’, in Kindleberger and Laffargue, eds, Financial Crises, pp. 148–64.
64. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 132.
65. C.P. Kindleberger, ‘International Propagation of Financial Crises: the Experience of 1888–93’, in idem, Keynesianism vs. Monetarism and Other Essays in Financial History (London: Allen & Unwin, 1985), pp. 226–39.
66. Franco Bonelli, ‘The 1907 Financial Crisis in Italy: a Peculiar Case of the Lender of Last Resort in Action’, in Kindleberger and Laffargue, eds, Financial Crises, pp. 51–65.
67. Franco Bonelli, La crisi del 1907: una tappa dello sviluppo industriale in Italia (Turin: Fondazione Luigi Einaudi, 1971), pp. 31–2.
68. Ibid., p. 34.
69. Ibid., pp. 42–3.
70. Frank Vanderlip, ‘The Panic as a World Phenomenon’, Annals of the American Academy of Political and Social Science, vol. 31 (January–June 1908), p. 303.
10 Policy Responses: Benign Neglect, Exhortation, and Bank Holidays
1. Ian Giddy, ‘Regulation of Off-Balance Sheet Banking’, in The Search for Financial Stability: the Past Fifty Years (San Francisco: Federal Reserve Bank of San Francisco, 1985), pp. 165–77.
2. Edward J. Kane, ‘Competitive Financial Reregulation: an International Perspective’, in R. Portes and A. Swoboda, eds, Threats to International Financial Stability (Cambridge: Cambridge University Press, 1987), pp. 111–45.
3. Stanley Zucker, Ludwig Bamberger: German Liberal Politician and Social Critic, 1823–1899 (Pittsburgh: University of Pittsburgh Press, 1975), p. 78.
4. Thomas Joplin, Case for Parliamentary Inquiry into the Circumstances of the Panic, in a Letter to Thomas Gisborne, Esq., M. P. (London: James Ridgeway & Sons, n.d. [after 1832]), p. 10 (apropos the panic of 1825).
5. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 236 (apropos the panic of 1847).
6. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), p. 133.
7. The episode is noted in A. Andréadès, History of the Bank of England (London: P.S. King, 1909), p. 334. For an extended discussion, see Rudiger Dornbusch and Jacob Frenkel, ‘The Gold Standard and the Bank of England in the Crisis of 1847’, in Michael Bordo and Anna J. Schwartz, eds, A Retrospective on the Classical Gold Standard, 1821–1931 (Chicago: University of Chicago Press, 1984), pp. 233–64.
8. Ministère des Finances et al., Enquête sur les principes et les faits géneraux qui régissent la circulation monétaire et fiduciare (Paris: Imprimerie impériale, 1867), vol. 1, p. 456.
9. ‘The Revulsion of 1857 – Its Causes and Results’, New York Herald, n.d., quoted in D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 121.
10. Herbert Hoover, The Memoirs of Herbert Hoover (New York: Macmillan & Co., 1952), vol. 3, p. 30.
11. Murray N. Rothbard, America’s Great Depression, 3rd edn (Kansas City: Sheed & Ward, 1975), p. 187.
12. Paul Johnson, Modern Times: the World from the Twenties to the Eighties (New York: Harper & Row, 1983), p. 244.
13. Ernst Baasch, Holländische Wirtschaftsgeschichte (Jena: Gustav Fischer, 1927), p. 238.
14. Joplin, Parliamentary Inquiry, pp. 14–15.
15. Great Britain, Parliamentary Papers, Monetary Policy, Commercial Distress (1857; Shannon: Irish University Press, 1969), vol. 1, pp. 427, 431.
16. D. Morier Evans, The Commercial Crisis, 1847–1848, 2nd edn (1849; reprint edn, New York: Augustus M. Kelley, 1969), p. 89n.
17. Evans, Commercial Crisis, p. 181.
18. Parliamentary Papers, Commercial Distress, p. xii.
19. Ibid., vol. 4, appendix 20; Foreign Communications Relative to the Commercial Crisis of 1857, Hamburg consular circular no. 76, November 23, 1857, pp. 435, 440, 441.
20. Henrietta M. Larson, Jay Cooke, Private Banker (Cambridge, Mass.: Harvard University Press, 1936), p. 80.
21. W.C.T. King, History of the London Discount Market (London: George Routledge & Sons, 1936), p. 243.
22. Theodore Dreiser, The Financier (1912), in Trilogy of Desire (New York: World Publishing, 1972), p. 491.
23. W. Jett Lauck, The Causes of the Panic of 1893 (Boston: Houghton, Mifflin, 1907), p. 102.
24. The Commercial and Financial Chronicle, 16 May 1884, p. 589, quoted in O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), p. 112.
25. W.R. Brock, Lord Liverpool and Liberal Toryism, 1820–1827 (Cambridge: Cambridge University Press, 1941), pp. 209–10 (cited by Clapham, Bank of England, vol. 2, p. 108).
26. Clapham, Bank of England, vol. 2, p. 332.
27. Stephan Skalweit, Die Berliner Wirtschaftskrise von 1763 und ihre Hintergründe (Stuttgart: Verlag W. Kohlhammer, 1937), pp. 49–73.
28. Arthur D. Gayer, W.W. Rostow, and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 272.
29. Larry T. Wimmer, ‘The Gold Crisis of 1869: a Problem in Domestic Economic Policy and International Trade Theory’ (PhD diss., University of Chicago, 1968), p. 79.
30. Andréadès, Bank of England, p. 137, citing Henry D. McLeod, Theory and Practice of Banking, 3rd edn (London: Longman Green, Reader & Dyer, 1879), p. 428.
31. John Carswell, The South Sea Bubble (London: Cresset Press, 1960), p. 184.
32. Andréadès, Bank of England, p. 151.
33. Alexander Dana Noyes, The Market Place: Reminiscences of a Financial Editor (Boston: Little, Brown, 1938), p. 333.
34. Sprague, History of Crises, p. 259.
35. Ibid.
36. Ibid., p. 181.
37. Max Wirth, Geschichte der Handelskrisen, 4th edn (1890; reprint edn, New York: Burt Franklin, 1968), p. 521.
38. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), p. 480, text and note 5.
39. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1943), p. 80.
40. Sprague, History of Crises, pp. 120, 182–3.
41. Ibid., pp. 75, 291–2.
42. Jacob H. Schiff, ‘Relation of a Central Bank to the Elasticity of the Currency’, Annals of the American Academy of Political and Social Science, vol. 31 (January–June 1908), p. 375. For a more contemporary account, see Jean Strouse ‘The Brilliant Bailout’, New Yorker (23 November 1998), pp. 62–77.
43. Myron T. Herrick, ‘The Panic of 1907 and Some of Its Lessons’, Annals of the American Academy of Political and Social Science, vol. 31 (January-June 1908), p. 309.
44. John Kenneth Galbraith, The Great Crash, 1929, 3rd edn (Boston: Houghton Mifflin, 1972), pp. 107–8.
45. For a discussion of the rescue committee (Aufhilfsfonds) in Vienna, see Eduard März, Österreich Industrie- und Bankpolitik in der Zeit Franz Josephs I: Am Beispiel der k.k. priv. Österreichischen Credit-Anstalt für Handel und Gewerbe (Vienna: Europa Verlag, 1968), pp. 177–82. März notes (p. 179) that the best account of the crisis is that of Josef Neuwirth, Bank und Valuta in Österreich, vol. 2, Die Spekulationskrisis van 1873 (no publishing data given).
46. Lévy-Leboyer, Banques européennes, pp. 470–1.
47. Bertrand Gille, La banque en France au XIXe siècle (Paris: Droz, 1970), p. 93.
48. Parliamentary Papers, Commercial Distress, vol. 4, appendix, consular dispatch from Hamburg, no. 75. p. 434.
49. Ibid., p. 435.
50. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–1859 (Stuttgart/Berlin: Verlag von W. Kohlhammer, 1934), p. 129.
51. Parliamentary Paper, Commercial Distress, vol. 4, appendix, consular dispatches from Hamburg, nos. 77, 80, 81, 82, 84, 86, pp. 435–7.
52. Albert E. Fr. Schäffle, ‘Die Handelskrise von 1857 in Hamburg, mit besonderer Rücksicht auf das Bankwesen’, in Gesammelte Aufsätze (Tübingen: H. Raupp’schen, 1885), vol. 2, pp. 44, 45, 52, 53.
53. Clapham, Bank of England, vol. 2, p. 156.
54. Ibid., p. 331. For more detailed accounts of the Baring crisis and rescue, see L.S. Pressnell, ‘Gold Reserves, Banking Reserves and the Baring Crisis of 1890’, in C.R. Whittlesey and J.S.G. Wilson, eds, Essays in Money and Banking in Honour of R.S. Sayers (Oxford: Clarendon Press, 1968), pp. 67–228; and idem, ‘The Sterling System and Financial Crises before 1914’, in C.P. Kindleberger and J.-P. Laffargue, eds, Financial Crises: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 148–64.
55. Diary of John Biddulph Martin, in George Chandler, Four Centuries of Banking (London: B.J. Batsford, 1964), vol. 1, p. 330.
56. Ellis T. Powell, The Evolution of the Money Market (1384–1915): an Historical and Analytical Study of the Rise and Development of Finance as a Central Coordinated Force (1915: reprint edn, New York: Augustus M. Kelley, 1966), p. 528.
57. Ibid., p. 525.
58. ‘New York Fed Assists Hedge Fund Bailout’, New York Times, 24 September 1998, pp. A1, C11.
59. There are some purists or masochists who think that bank runs are an optimal response of depositors, and good for the system, with panic as a form of monitoring. ‘If depositors believe that there are some underperforming banks, but cannot decide which ones may become insolvent, they may force out all the undesirable ones by a systemwide panic.’ This is from Charles W. Calomoris and Gary Gorton, ‘The Origins of Banking Panics: Models, Facts and Bank Regulation’, in R. Glenn Hubbard, ed., Financial Markets and Financial Crises (Chicago: University of Chicago Press, 1991), pp. 120–1.
60. Hoover, Memoirs, vol. 3, pp. 211–12.
61. ‘Bank Board Doubles Texas Cost Estimate’, New York Times, 8 July 1988, sec. D.
62. ‘Treasury Says Savings Aid Should Not Tax the Taxpayer’, New York Times, 3 August 1988, sec. D.
63. Wirth, Handelskrisen, p. 100.
64. Andréadès, Bank of England, pp. 187–9; Clapham, Bank of England, vol. 1, pp. 263–5.
65. Gayer, Rostow, and Schwartz, Growth and Fluctuation, vol. 1, p. 34.
66. William Smart, Economic Annals of the Nineteenth Century (1911; reprint edn, New York: Augustus M. Kelley, 1964), vol. 1, pp. 267–8.
67. Ibid., p. 271.
68. Wirth, Handelskrisen, pp. 110–11.
11 The Domestic Lender of Last Resort
1. François Nicholas Mollien, Mémoires d’un Ministre du Trésor Public, 1780–1815 (Paris: Fournier, 1845), vol. 2, pp. 298ff.
2. Ministère des Finances et al., Enquête sur les principes et les faits généraux qui régissent la circulation monétaire et fiduciaire (Paris: Imprimerie impériale, 1867), vol. 2, pp. 31–2.
3. Murray N. Rothbard, America’s Great Depression, 3rd edn (Kansas City: Sheed & Ward, 1975), p. 167.
4. Herbert Spencer, from ‘State Tampering with Money and Banks’, in Essays: Scientific, Political and Speculative (London: Williams & Norgate, 1891), vol. 3, p. 354, quoted by Charles Lipson, Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries (Berkeley: University of California Press, 1985), p. 45.
5. T.S. Ashton, Economic Fluctuations in England, 1700–1800 (Oxford: Oxford University Press, Clarendon Press, 1959), p. 112.
6. Ibid., p. 111.
7. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), p. 240.
8. Maurice Lévy-Leboyer, Les banques européennes et l’industrialisation internationale dans la première moitié du XIXe siècle (Paris: Presses universitaires de France, 1964), p. 490.
9. See F.A. Hayek’s introduction to Henry Thornton, An Enquiry into the Nature and Effect of the Paper Credit of Great Britain (1802; London: Allen & Unwin, 1939; reprint, London: Frank Cass, 1962), p. 38.
10. Thornton, Paper Credit, pp. 187–8.
11. The Collected Works of Walter Bagehot, ed. Norman St John Stevas (London: The Economist, 1978), vol. 11, p. 149.
12. Ibid., vol. 9, p. 267.
13. Thomas Joplin, Case for Parliamentary Inquiry into the Circumstances of the Panic, in a letter to Thomas Gisborne, Esq., M. P. (London: James Ridgeway & Sons, n.d. [after 1832]), p. 29.
14. Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros., 1937), p. 233.
15. D.P. O’Brien, ‘Overstone’s Thought’, in D.P. O’Brien, ed., The Correspondence of Lord Overstone (Cambridge: Cambridge University Press, 1971), vol. 1, p. 95. (A bodkin is a dagger, stiletto, ornamental hairpin, or a blunt needle with a large eye.)
16. Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867–1960 (Princeton: Princeton University Press, 1963), pp. 418–19. The metaphor of an avalanche is also used by Alfred Marshall in stating that prompt action by the Bank of England in regard to the rate of discount often checks unreasonable expansions of credit, ‘which might otherwise grow, after the manner of a fall of snow on a steep mountain side’ and become an avalanche (Marshall’s emphasis). See Marshall, Money, Credit, and Commerce (1923; reprint edn, New York: Augustus M. Kelly, 1965), pp. 258–9.
17. Walter Bagehot, Lombard Street: a Description of the Money Market (1873; reprint edn, London: John Murray, 1917), p. 160.
18. Elmer Wood, English Theories of Central Banking Control, 1819–1858 (Cambridge, Mass.: Harvard University Press, 1939), p. 147.
19. J.H. Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 2, p. 289.
20. Bagehot, Lombard Street, pp. 161–2.
21. Clapham, Bank of England, vol. 2, p. 108.
22. Marshall, Money, Credit, and Commerce, p. 307. In their concluding chapter on the Dutch Republic, Jan de Vries and Ad van der Woude note that in 1780 the Dutch international banking sector lacked but one critical feature: effective credit-creating institutions to maintain liquidity in time of crisis (The First Modern Economy [Cambridge: Cambridge University Press, 1997], p. 683).
23. Bertrand Gille, La banque en France au XIXe siècle: Recherches historiques (Geneva: Librairie Droz, 1970), p. 32.
24. Bertrand Gille, La Banque et le crédit en France de 1815 à 1848 (Paris: Presses universitaires de France, 1959), p. 367.
25. Michel Chevalier, Lettres sur l’Amérique du Nord, 3rd edn (Paris: Charles Gosselin, 1838), p. 37, note 1.
26. Ministère des Finances et al., Enquête, vol. 3, pp. 411–12.
27. Ibid., vol. 2, pp. 129–30.
28. Jean Bouvier, Un siècle de banque française (Paris: Hachette Littérature, 1973), pp. 83–4.
29. See Rondo Cameron, France and the Economic Development of Europe, 1800–1914 (Princeton: Princeton University Press, 1961), pp. 191ff.
30. Maurice Lévy-Leboyer, Histoire économique et sociale de la France depuis 1848 (Paris: Les Cours de Droit, Institut d’Etudes Politiques, 1951–52), p. 121.
31. Cameron, France and Europe, p. 117.
32. Alfred Pose, La monnaie et ses insitutions (Paris: Presses universitaires de France, 1942), p. 215.
33. Jean Bouvier, Le krach de l’Union Générale, 1878–1885 (Paris: Presses universitaires de France, 1960), pp. 150, 152–53.
34. Esther Rogoff Taus, Central Banking Functions of the United States Treasury, 1789–1941 (New York: Columbia University Press, 1943), pp. 22, 23, 29.
35. Ibid., pp. 39–131.
36. C.A.E. Goodhart, The New York Money Market and the Finance of Trade, 1900–1913 (Cambridge, Mass.: Harvard University Press, 1969), p. 120.
37. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1943), p. 106.
38. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968).
39. Myron T. Herrick, ‘The Panic of 1907 and Some of Its Lessons’, Annals of the American Academy of Political and Social Science, vol. 31 (January–June 1908), p. 324.
40. Ridgely’s essay in Annals was more narrowly entitled ‘An Elastic Credit Currency as a Preventive for Panics’, but the papers of the others, except for Seligman, were unqualified in their advocacy of central bank currency elasticity.
41. Note Bagehot’s characterization of the character of the then members of the court of the Bank of England: ‘A board of plain, sensible prosperous English merchants; and they have both done and left undone what such a board might be expected to do and not to do. Nobody could expect great attainments in economical science from such a board; laborious study is for the most part foreign to the habits of English merchants’ (Walter Bagehot, Lombard Street: a Description of the Money Market [1873; reprint edn, London: John Murray, 1917], p. 166). Later he is more critical: ‘Unluckily ... directors of the Bank of England were neither acquainted with the right principles, nor were they protected by a judicious routine. They could not be expected them selves to discover such principles. The abstract thinking of the world is never to be expected from people in high places ... No doubt when men’s own fortunes are at stake, the insight of the trader does somehow anticipate the conclusions of the closet’ (p. 169).
42. Wood, English Central Banking Control, pp. 169–70.
43. Franco Bonelli, La crisi del 1907: una tappa dello sviluppo industriale in Italia (Turin: Fondazione Luigi Einaudi, 1971), passim and esp. p. 165.
44. Leone Levi, History of British Commerce, 1763–1870, 2nd edn (London: John Murray, 1872), pp. 311–12.
45. Great Britain, Parliamentary Papers, Monetary Policy, Commercial Distress (1857; Shannon: Irish University Press, 1969), vol. 3, p. xxix.
46. Collected Works of Walter Bagehot, vol. 9, p. 147.
47. Ibid., vol. 11, pp. 149–50.
48. See C.P. Kindleberger, ‘Rules vs. Men: Lessons from a Century of Monetary Policy’, in Christoph Buchheim, Michael Hutter, and Harold James, eds, Zerrissene Zwischenkriegsheit: Wirtschaftshistorische Beiträge: Knut Borchardt zum 65. Geburstag, reprinted in C.P. Kindleberger, The World Economy and National Finance in Historical Perspective (Ann Arbor: University of Michigan Press, 1995), pp. 181–200.
49. Bouvier, Le krach, chap. 5.
50. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), pp. 176–7.
51. Friedman and Schwartz, Monetary History, p. 309 and esp. pp. 309–10n; Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W.W. Norton, 1976).
52. Clapham, Bank of England, vol. 1, p. 261; vol. 2, p. 58.
53. Ibid., vol. 2, pp. 59–60.
54. Ibid., vol. 1, p. 249.
55. Ibid., vol. 2, pp. 82–4.
56. Ibid., p. 145.
57. Alain Plessis, La Politique de la Banque de France de 1851 à 1870 (Geneva: Droz, 1985), pp. 89, 99, 107. The Banque also loaned on Paris bonds, but not on those of Marseilles or Bordeaux; ibid., pp. 105–6.
58. Bagehot, Lombard Street, p. 195.
59. Clapham, Bank of England, vol. 2, p. 59.
60. W.C.T. King, History of the London Discount Market (London: George Routledge & Sons, 1936), p. 36.
61. Clapham, Bank of England, vol. 2, pp. 206–7.
62. Ibid., vol. 1, p. 261.
63. D. Morier Evans, The History of the Commercial Crisis, 1857–1858, and the Stock Exchange Panic of 1859 (1859; reprint edn, New York: Augustus M. Kelley, 1969), p. 80.
64. Lévy-Leboyer, Banques européennes, p. 559.
65. Ibid., p. 647.
66. Ibid., p. 492.
67. Evans, Commercial Crisis, pp. i–ii, vi–xviii.
68. A. Andréadès, History of the Bank of England (London: P.S. King, 1909), p. 266.
69. Clapham, Bank of England, vol. 2, p. 157. He refers to it later as ‘the long drawn out W bank affair’ (ibid., p. 337).
70. R.C.O. Matthews, A Study in Trade-Cycle History: Economic Fluctuations in Great Britain, 1832–1842 (Cambridge: Cambridge University Press, 1954), p. 173.
71. Clapham, Bank of England, vol. 1, p. 245.
72. H.S. Foxwell, preface to Andréadès, Bank of England, p. xvii.
73. Clapham, Bank of England, vol. 1, p. 256.
74. See Friedman and Schwartz, Monetary History, pp. 339, 363–7.
75. Ibid., p. 395.
76. Ibid., p. 339.
77. See Milton Friedman, ‘Rediscounting’, in A Program for Monetary Stability (New York: Fordham University Press, 1960), pp. 35–6.
78. Paul Johnson, Modern Times: the World from the Twenties to the Eighties (New York: Harper & Row, 1983), p. 244.
79. Friedman and Schwartz, Monetary History, pp. 334–5.
80. Clapham, Bank of England, vol. 2, p. 102.
81. Evans, Commercial Crisis, p. 207.
82. Taus, Central Banking, pp. 55, 70.
83. Sprague, History of Crises, p. 256.
12 The International Lender of Last Resort
1. Niall Ferguson, The House of Rothschild: Money’s Prophets, 1798–1847 (New York: Viking, 1998), chap. 16, Table 16a on p. 461, shows the course of bond prices in Vienna, Paris, Rome, and London. Ferguson states that ‘the London house was not the lender of last resort at all’; but Alphonse, Nathan’s grandson, was sent to New York to turn Belmont away from preoccupation with the Mexican indemnity and focus on Europe (pp. 466–70).
2. Ron Chernow, The Warburgs: the Twentieth-Century Odyssey of a Remarkable Jewish Family (New York: Random House, 1993), p. 328.
3. R.D. Richards, ‘The First Fifty Years of the Bank of England, 1694–1744’, in History of the Principal Public Banks, compiled by J.G. van Dillen (The Hague: Martinus Nijhoff, 1934), p. 234.
4. Violet Barbour, Capitalism and Amsterdam in the 17th Century (1950; reprint edn, Ann Arbor: University of Michigan Press, 1966), p. 125.
5. Charles Wilson, Anglo-Dutch Commerce and Finance in the Eighteenth Century (Cambridge: Cambridge University Press, 1941), pp. 168–9.
6. Ibid., p. 176.
7. Sir John Clapham, The Bank of England: a History (Cambridge: Cambridge University Press, 1945), vol. 1, p. 249.
8. Alain Plessis, La Politique de la Banque de France de 1850 à 1870 (Geneva: Droz, 1985), chap. 4, esp. pp. 241–5.
9. Knut Wicksell, Lectures on Political Economy (New York: Macmillan, 1935), vol. 2, pp. 37–8.
10. Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros., 1937), p. 273; Clapham, Bank of England, vol. 2, p. 169.
11. Clapham, Bank of England, vol. 2, pp. 164–5.
12. Clément Juglar, Des crises commerciales et leur retour périodiques en France, en Angleterre et aux Etats-Unis, 2nd edn (1889; reprint edn, New York: Augustus M. Kelley, 1967), p. 417.
13. E. Victor Morgan, The Theory and Practice of Central Banking, 1797–1913 (Cambridge: Cambridge University Press, 1943), p. 148.
14. Arthur D. Gayer, W.W. Rostow, and Anna J. Schwartz, The Growth and Fluctuation of the British Economy, 1790–1850 (Oxford: Oxford University Press, Clarendon Press, 1953), vol. 1, p. 333.
15. British Parliamentary Papers, Causes of Commercial Distress: Monetary Policy (Shannon: Irish University Press, 1969), vol. 1, p. 153, question 2018.
16. Viner, Studies in International Trade, p. 273.
17. Clapham, Bank of England, vol. 2, p. 170.
18. Bertrand Gille, La Banque et le crédit en France de 1818 à 1848 (Paris: Presses universitaires de France, 1959), p. 377.
19. Clapham, Bank of England, vol. 2, p. 229.
20. Helmut Böhme, Frankfurt und Hamburg: Des Deutsches Reiches Silber und Goldloch und die Allerenglishte Stadt des Kontinents (Frankfurt-am-Main: Europaïsche Verlagsanstalt, 1968), pp. 255–68.
21. Ibid., pp. 267–74.
22. Parliamentary Papers, Commercial Distress, vol. 4, appendix 20, consular dispatch no. 7, January 27, 1858, p. 441.
23. Ibid., dispatch no. 393 from Berlin, December 29, 1857, pp. 450–1.
24. Clapham, Bank of England, vol. 2, p. 234.
25. Morgan, Theory and Practice of Central Banking, p. 176.
26. Clapham, Bank of England, vol. 2, pp. 291–4.
27. Ibid., pp. 329–30, 344.
28. Quoted from Hartley Withers, The Meaning of Money (1909) in R.S. Sayers, Bank of England Operations 1890–1914 (London: P.S. King, 1936), p. 111.
29. J.-L. Billoret, ‘Système bancaire et dynamique économique dans un pays à monnaie stable: France, 1896–1914’, thesis, Faculty of Law and Economic Science, Nancy, 1969, quoted in Jean Bouvier, Un siècle de banque française (Paris: Hachette Littérature, 1973), p. 240.
30. Hans Rosenberg, Die Weltwirtschaftskrise von 1857–1859 (Stuttgart: Verlag von W. Kohlhammer, 1934), p. 38.
31. George W. Van Vleck, The Panic of 1857: an Analytical Study (New York: Columbia University Press, 1943), p. 42.
32. Billoret, ‘Système bancaire’, as quoted in Bouvier, Un siècle de banque française, p. 238.
33. Walter Bagehot, Lombard Street: a Description of the Money Market (1873; reprint edn, London: John Murray, 1917), pp. 32–4.
34. O.M.W. Sprague, History of Crises under the National Banking System (1910; reprint edn, New York: Augustus M. Kelley, 1968), pp. 248–85.
35. Franco Bonelli, La crisi del 1907: una tappa dello sviluppo industriale in Italia (Turin: Fondazione Luigi Einaudi, 1971), p. 42.
36. Oskar Morgenstern, International Financial Transactions and Business Cycles (Princeton: Princeton University Press, 1959), pp. 128–37.
37. See League of Nations, The Course and Control of Inflation after World War I (Princeton: League of Nations, 1945).
38. Paul E. Erdman, The Crash of ‘79 (New York: Simon & Schuster, 1976).
39. Stephen A. Schuker, The End of French Predominance in Europe, the Financial Crisis of 1924 and the Adoption of the Dawes Plan (Chapel Hill: University of North Carolina Press, 1976), p. 67.
40. J.N. Jeanneney, ‘De la Spéculation financière comme arme diplomatique: A propos de la première bataille de franc (november 1923–mars 1924)’, Relations internationales, no. 13 (Spring 1978), pp. 9–15, is persuaded that the German government organized the bear raid on the franc. Schuker is skeptical: The End of French Predominance, p. 56. Jean-Claude Debeir, ‘La crise du franc de 1924: Une exemple de la spéculation “internationale” ’, Relations Internationales, no. 13 (Spring 1978), p. 35, lays considerable blame for financing the attacks on American banks but states that the French did most of the speculation.
41. Schuker, The End of French Predominance, chap. 4.
42. Ibid., p. 111.
43. C.P. Kindleberger. The World in Depression, 1929–1939, 2nd edn (Berkeley: University of California Press, 1986), esp. chaps 7, 14.
44. R.G. Hawtrey, The Art of Central Banking (London: Longmans, Green, 1932), pp. 220–4; all italics are in the original. Hawtrey is prescient to a degree. Since the International Monetary Fund takes time to make credit decisions as a lender of last resort, and the Bank for International Settlements can act quickly, the latter has operated in a number of recent financial crises by providing ‘bridge loans’, that is, short-term finance (though limited in amounts) to countries with immediate needs. These loans would then be repaid with funds from credits from the International Monetary Fund. See Harold James, International Monetary Cooperation since Bretton Woods (Washington, DC: International Monetary Fund, 1995; New York and Oxford: Oxford University Press, 1996), pp. 361–2, 389, 557, 562, 592.
45. Hawtrey, The Art of Central Banking, pp. 229–32; italics are in the original.
46. Susan Howson and Donald Winch, The Economic Advisory Council, 1930–1939: a Study in Economic Advice during Depression and Recovery (Cambridge: Cambridge University Press, 1977), pp. 188–9. The personnel of the various committees are given in ibid., appendix 1, pp. 354–70.
47. Ibid., pp. 272–81.
48. This discussion is largely based on Karl Erich Born, Die deustsche Bankenkrise, 1931: Finanzen und Politik (Munich: R. Piper & Co. Verlag, 1967).
49. Ibid., p. 86.
50. Ibid., p. 83.
51. Norman to Harrison, cable, 3 July 1931, in Federal Reserve Bank of New York files.
52. Stephen V.O. Clarke, Central Bank Cooperation, 1924–31 (New York: Federal Reserve Bank of New York, 1967), p. 44. This was after discussion by both sides, with the British and Americans saying no (Kindleberger, World in Depression, p. 153). The Germans for their part were debating a plan of Wilhelm Lautenbach of the Economics Ministry, which called for suspending service on foreign debt and expanding spending (ibid., p. 171, n. 5). The Lautenbach plan came up again after the British pound went off gold in September 1931. See Knut Borchardt and Hans Otto Schöltz, eds, Wirtschaftspolitik in der Krise (Baden-Baden: Nomos, 1931 [1991]). This is a transcript of the riveting debate in the Reichsbank among German officials and economists.
53. Clarke, Central Bank Cooperation, pp. 121, 148.
54. Howson and Winch, Economic Advisory Council, pp. 88–9.
55. Ibid., p. 162.
56. Kindleberger, World in Depression, pp. 168, 184.
57. D.E. Moggridge, ‘Policy in the Crises of 1920 and 1929’, in C.P. Kindleberger and J.-P. Laffargue, eds, Financial Crises: Theory, History and Policy (Cambridge: Cambridge University Press, 1982), pp. 171–87.
58. Stephen A. Schuker, American ‘Reparations’ to Germany, 1919–33: Implications for the Third-World Debt Crisis, Princeton Studies in International Finance no. 61 (Princeton: International Finance Section, Princeton University Press, 1988).
59. Richard N. Cooper, ‘Economic Interdependence and Foreign Policy in the Seventies’, World Politics, vol. 24 (January 1972), p. 167.
60. See Bank for International Settlements, Annual Report no. 63 to 31 March 1993, p. 196; and no. 64 to 31 March 1994. World turnover rose from $10 billion to $20 billion a day in 1973, to $80 billion in 1983, before soaring to over $1 trillion a day in 1995: The Economist, vol. 337, no. 7936 (14 October 1995), p. 10. For emerging markets and the European Monetary Union, see Bank for International Settlements, 68th Annual Report to 31 March 1998, p. 11, and chart p. 115.
61. Charles A. Coombs, The Arena of International Finance (New York: Wiley), pp. 77, 79, 81, 83, 195, 202, 292.
62. Coombs, Arena, p. 37.
63. Ibid., pp. 81, 85, 111, 121, 127, 134, 181, 185.
64. Susan Strange, ‘International Monetary Relations’, in Andrew Schonfield, ed., International Economic Relations of the Western World, 1959–71 (Oxford: Oxford University Press, for the Royal Institute of International Affairs, 1976), vol. 2, p. 136.
65. See Debeir, ‘La crise du franc du 1924’.
66. Kathleen Burk and Alec Cairncross, ‘Goodbye Great Britain’: the 1976 IMF Crisis (New Haven, Conn.: Yale University Press, 1992).
67. For background, see the paper on Mexico by Ernesto Zedillo in Donald R. Lessard and John Williamson, eds, Capital Flight and Third World Debt (Washington, DC: Institute for International Economics, 1987), pp. 174–85. The crisis itself is discussed at length in the New York Times issues from 21 to 29 December 1994.
68. ‘President Clinton Sidesteps Congress Using Emergency Authority’, New York Times, 1 February 1995, p. A1.
69. Bank for International Settlements, Annual Report, no. 68, p. 134.
70. Ibid.
71. Wynne Godley, ‘Seven Unsustainable Processes’, a special report of the Levy Institute, Annandale-on-Hudson, New York, 1999.
72. C.P. Kindleberger, World Economic Primacy, 1500–1990 (New York: Oxford University Press, 1996), chaps 10, 12.
73. Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984).