by Richard S. Grossman (firstname.lastname@example.org)
[No abstract by author]
If you have ever come across any of my publications, you’ll know I was bound to comment on this one.
Without the benefit of an abstract by the author, I’ll summarise the paper briefly: this is a contribution to Parker & Wharple’s The Routledge Handbook of Modern Economic History and rather than an original piece, it reads as an abridged version of Grossman’s Unsettled Account: The Evolution of Banking in the Industrialized World since 1800 – see his blog.
As the latter suggests and after a haphazard introduction on the economics of financial intermediation, the thrust of the story deals with developments since the 19th Century. Throughout the piece there are inconsistencies in the use of “bank” as it sometimes refers to commercial banking activities (i.e. deposit taking and management of payment systems) and others at investment banking (i.e. financing firms). From the outset there is certainly great concern with the way surplus funds are made available to firms in the “real economy” rather than why capitalism developed institutions to manage payment systems, help to accumulate savings and provide credit to individuals, governments and firms.
I am no fan of populist versions of the history of financial institutions (e.g. Niall Ferguson’s The Ascent of Money), but the broad stroke account of how banking emerged in Medieval and Renaissance Europe is unconvincing. For instance, there is only a superficial discussion of how for quite a long time there was no clear distinction between financial and commercial activities, with firms providing credit to customers and suppliers as part of their everyday activities (e.g. cases of Madrid and Barcelona based firms during the 17th and 18th centuries documented by J. Carles Maixé-Altés).
Throughout the paper, there is a blurring line between financing firms and individuals; whilst there is no reference to alternative forms of governance such as government owned banks, mutual and co-operative financial institutions (of which, admittedly, Mark Billings and I are to publish a special edition of Business History – with a foreword by Jonathan Michie ). Hence a lost opportunity to mention of early forms to finance individuals such as savings banks (1810 in Scotland) and building societies (1770s – Birmingham). To be fair, focusing on the for-profit model is a common oversight of US-authored histories of financial intermediation. But as a result, there is no acknowledgment that these were often the first financial institutions subject to strict and detailed control by the state (for instance building societies in 1833 and savings banks even earlier – see my recent piece with Masayoshi Noguchi). More could have been made of different attitudes to thrift and usury laws in Catholic and Protestant Europe (e.g. the work of Chris Colvin or Timothy Guinnane), John Turner’s and others work on “free banking” as well as made some allowances to developments outside of Europe and the US, such as the early use of fiat money in China.
We are told that “economic history suggests that securities markets are more efficient intermediators.” (p. 2) but not explained why or how come large economies such as Germany, Japan and Spain relied on a financial institutions rather than markets to finance economic growth. There was a need to explain how and why market let finance takes prominence from say 1970 and particularly during the 1980s, even in the afore mentioned nations.
On the whole, Grossman comes across as “whiggish history” or an inevitable progression to the large, diversified, multinational/global, “bank”. It was rather disappointing that this is neither a state of the art review nor a proper historiography of financial intermediation, commercial or investment banking; a map of how different institutions and/or markets emerged and developed. This is not, in any way, to under estimate his account of post 1800 developments and particularly those of the early 20th Century. Here Grossman’s command of the area is evident but clearly contrast with the rather weak start and end of his story.