Newsletter from the EABH

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European Associationfor Banking & FinancialHistory e.V.

1/2004

Dear Colleagues,

2004 is an exciting year for the EABH, full of new beginnings and much anticipated change. Follow-ing fourteen years of dedication to the Association in his role as Chairman, Sir Evelyn de Rothschildhas stepped down from this position. Sir Evelyn has made an invaluable contribution to the EABH,in both developing the Association to its current size of nearly 80 members, and continuously im-proving the quality of our work. While we regret this loss, we are delighted to announce the electionof Dr. Willem F. Duisenberg as the new chairman of the EABH. Dr. Duisenberg is a figure of con-siderable achievement in the realms of both academia and business. His leadership of Europe intoan integrated economy has earned him both enormous respect and a place in the very fabric offinancial history in Europe. It is an honour to welcome him as the new Chairman of the EABH.

This significant event coincided with another important and long awaited change; as from 28 May,the EABH e.V. will be known as the European Association for Banking and Financial Historye.V. The new title broadens the Association’s involvement within such complementary areas ofresearch and demonstrates its commitment to responding to the ever-changing world of modernfinance and the ongoing process of economic integration.

Under its new title, the EABH aims to meet the challenges which this very change instigates, whilemaintaining the high standards and quality of research with which it is associated. To this end, theFinancial History Review has also been re-designed, sporting a new fresh cover and thereby re-flecting the EABH’s own attention to keeping abreast with the new age in which we find ourselves.This year also saw the appointment of a new editorial board for the Financial History Review whosediversity in terms of both professional background and culture is sure to stimulate new ideas andbring the journal to the attention of a wider audience. The EABH would like to thank the formermembers of the board for their unrelenting support which has ensured the much respected repu-tation of the journal while welcoming our new colleagues into the EABH.

The EABH and Alpha Bank Athens Conference “The Human Factor in Banking” was a most fittingbackdrop for these important steps in the history of the EABH, providing an atmosphere contingentwith progressive academic discussion, set in a City steeped in history. The Conference was anundisputable success for which we would like to offer our sincere gratitude to our hosts, Alpha Bank,for their generous hospitality and much valued organisational support.

It only remains for me to thank all the participants and speakers of the Athens conference and theworkshop, which was the most highly attended workshop in the history of the EABH. Your answersto our survey on Corporate Culture, which can be found in this edition of the Bulletin, contributed toan extremely interactive and thought provoking workshop, which was concluded most thoroughlyby Dr. Gurdon Wattles, Head of Group Capital Markets Communications at Deutsche Bank AG,London.

We hope that you share our enthusiasm for the changes which 2004 has brought and that wemay count on your active support in meeting the challenges which are anticipated.

Manfred Pohl

Edito

rial

EABH survey 2Burning the midnight oil 13New research 25Removing the dust 41Workshop report 45Forum 47Stories about people 51EABH notice board 54Banking is a serious job 61Stories about money 62

Published by the European Association for Banking & Financial History e.V.

Editor: Damir JelicAsistant Editor: Verity Gale

The European Association for Banking & Financial History e.V.

Guiollettstrasse 25

D - 60325 Frankfurt am Main

Telephone: +49 69 972 03 307

Telefax: +49 69 972 03 308

e-mail: info@bankinghistory.de

www.bankinghistory.de

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I The main department responsible for Cor-porate Culture activities is the Human Re-sources department. As part of their mandate,Human Resources must "support the develop-ment of a strong corporate culture; be the pro-moter and guardian of the UBS Vision and theValues for Action".

Business Groups are also important in terms ofimplementing values through, for example,training programmes and events, etc.

II A variety of activities have been under-taken such as the Senior LeadershipProgramme which includes events, training,and meetings, such as the Annual StrategicForum, and the Global Leadership Experience.

In the last decade of communism, an insuppressible undercurrent of negative tension arising fromnon-motivated employees of big companies was becoming all too evident, epitomized by such re-marks as

"They are pretending to pay us, while we are pretending to work" or in other version "They can notpay us as low, as we can work slow".

However, such unrest within personnel is not always centred upon pay and salary. Quite often, it isa silent protest against one ideological system.

Modern financial institutions are large and prominent companies, whose prosperity is reflected inthe monetary rewards of its employees. However, salary is only one of many motivating factorsassociated with the modern-day workplace; one must also consider how employees view their indi-vidual work environment. Do they hold positive perceptions of their employer? Do they feel valuedby the institution that they work for? In short, there are numerous interrelated factors that influencean employee's working performance and relationship to the organization for which he or she works.And, when there are 10.000 or 50.000 people working for such an organization, these questionsbecome evermore important.

Most banking and financial historians believe that financial institutions are, both socially and eco-nomically, very important institutions that hold a crucial function for the economic development andbenefit of the whole society. In addition, the majority of archivists are very proud of their institutionas well as their own role within it, not least due to the long-standing, interesting, and typically suc-cessful history of such corporations.

One would say that those two opinions should be implemented in the Corporate Culture of everyfinancial institution. However, most of the textbooks covering Corporate Culture do not even men-tion history. For this reason, this problem will be tackled in the EABH survey:

1. Which departments in your institution deal with the Corporate Culture activities?

2. Which activities have been undertaken in this field?

3. What is the role of the history/historical archives in those activities?

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Activities also include the integral involvementof employees within the discussion and the ap-plication of Vision and Values, and the imple-mentation of new staff training programmes.

III I have worked and continue to be involvedwithin the Human Resources department, de-veloping education and training programmes fornew staff and for senior management which in-volve historical elements. For internal commu-nication, I have also written articles on the his-tory and values of antecedent firms of UBS andI am currently working on a brochure on thehistory of UBS. Historical archives have contrib-uted to exhibitions both temporary and perma-nent, for example those held within our trainingcentre.

At Société Générale, many years ago, a realCorporate Culture existed through a sort ofCompany spirit linked with a certain way ofmanaging staff. In actual fact, this was the topicof an article in the latest internal publication inwhich Corporate Culture was discussed duringthe period of Société Générale's nationalisation(1945 - 1987).

What is the situation now?

I There is no specific department dealingwith Corporate Culture but to a certain degree,this function is devoted to the CommunicationDirectorate in that: it manages, co-ordinates

and promotes various initiatives that contributeto the image and reputation of the Group byusing all means and techniques of communica-tion (the press, advertising, public relations,sponsorship, patronage, and on-line and off-line publishing).

In order to fulfil this assignment, the Director-ate checks Group communications consistencyboth internally and with the outside world; ap-plies messages by relying on a common refer-ence value base; distributes information to vari-ous communities and to the public via the me-dia and means of communication that are ap-propriate to the targets involved. These areofficially the missions of the CommunicationDirectorate.

II Indeed, Société Générale is involved insponsorship and patronage mainly in order toimprove its image and reputation but in a cer-tain way, it can also be seen as a method of pro-moting Corporate Culture; employees are proudto take part in a company which is contributingto support young musicians (chamber music),sport (rugby, bridge, golf), modern art, charity(training for underprivileged children, health,help to handicapped people).

Another means of fulfilling this assignment hasbeen to bring employees closer to each otherwith topics such as "SG Group values". Thisrefers to the 3 values that we are expected toshare and furthermore to apply daily in all of ouractions and domains while adapting to our busi-ness lines and markets, and to the diversity ofour cultures. They are professionalism, teamspirit and innovation. This latest topic has beendeveloped since October 2003 through an ef-fort called "Innovating at every step" with a spe-cific aim of confirming the Group's creativity andinnovation. A prize, such as a bonus or an op-portunity to travel, is rewarded to employeeswho are taking an active part in this effort.

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III In all these activities, history and archivesare playing a very modest role, apart from per-haps some articles in the internal publicationabout the Centenary of a branch, SociétéGénérale's business in a specific country, or thehistory of a recently merged bank and so forth.

In 2004, Société Générale will celebrate its 140th

anniversary but in actual fact no special celebra-tion will be organised, except for a film concern-ing the entire history of the bank which will bedirected at and shown to the top management(and maybe to employees?) but there is no in-dication of marking this historical event other-wise.

Nevertheless, at a more local level, history andthe archives offer a more valued contribution tothe Corporate Culture. For instance, when abranch celebrates its anniversary, exhibitions ofpictures and furniture are organised and thehistory of the branch is traced back to its roots;the staff are invited to a reception in order tocelebrate the event and it is always very suc-cessful!

In conclusion, I will say that the Historians andArchivists are interesting employees and arecontributing to Corporate Culture even thoughthis is truer at a local level. Unfortunately how-ever, they do not play any role in the CorporateCulture activities of the Group itself, because,for the top management, History and Archivesdo not hold a very attractive image.

I At the Bank of Cyprus Group, CorporateCulture Activities are defined by all depart-ments. However, the Department that actuallydeals with and implements Corporate Culturestrategies is the Advertising and Communica-tions Department. More specifically, it is theCommunications Department which undertakesthe internal and external research that pinpointsimportant issues pertaining to Corporate Cul-ture and, as a result, the activities which will beput into practice. All these activities are dis-cussed and agreed with the Chairman and theChief Executive of the Bank.

II A series of continuous activities havebeen undertaken through the years, which de-fine the Group's Corporate Culture, both inter-nally and externally. The main activities are:

· Continuous support of the professionaland personal development of employeesthrough workshops and seminars organized bythe Bank, and support and rewarding of theacquisition of professional qualifications.

• "Open days" for meetings between seniormanagement and individual members ofstaff.

• The Scholarship Fund

• The Bank of Cyprus Oncology Center

• The "Chain of Life" (a contribution to theAnticancer Society in Cyprus).

• The "Chain" is a series of annualfundraising events, the vast majority ofwhich are organized by the Bank's em-ployees.

• The Bank of Cyprus Cultural Foundation

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• The "OIKADE" Program (a program thataims to promote Communication betweenprimary schoolchildren in Cyprus andGreece with fellow schoolchildren from theexpatriate Hellenic communities)

• Museum of the History of Cypriot Coinage

III The Historical Archive preserves the in-formation used or to be used to document thecontinuity and stability of some elements of cor-porate culture. Only by establishing this conti-nuity, may the Bank safely implement changeswhen and where these become necessary.

I Alongside its core competences, namelyemployee training, selection and development,it is the Human Resources Development Divi-sion which deals with Corporate Culture activi-ties within the National Bank of Greece.

The activities undertaken by the Human Re-sources Development Division in this field canbe summarized as follows:

During the previous year, the above mentionedDivision has organized and implemented, ontwo different occasions, a one-day Conferenceon Corporate Culture issues. In his speech, Mr.Theodoros Karatzas, former Governor of theBank, has highlighted the main points of theexisting, as well as the desired corporate cul-ture, which will successfully lead the Bank to-

wards the 21st century. The main Conferencetheme was covered by a distinguished Profes-sor of the Athens University for Economics andBusiness, while the Secretary General of theHellenic Banks Association has addressed cul-tural change issues within the framework ofBasle II requirements. 595 bank executives (TopManagement team, Administration Directorsand Branch Network Managers) have attendedthese events.

To communicate such messages to all Bankemployees, the Human Resources Develop-ment Division has proceeded to the followinginitiatives:

· The Governor´s speech on CorporateCulture issues appeared in the corporate maga-zine, distributed to all personnel, as its mainarticle.

· The messages drawn from theGovernor´s speech were implemented in vari-ous training events (mostly dealing with man-agement and sales issues, as well as the initia-tion course for new recruits).

· All employees, connecting with the Bankelectronic network, can view on their P.C. screena series of pictures containing mottos based onthe former Governor´s messages. Pictures andmottos change on a regular basis.

· An article on Corporate Culture issues,written by the Human Resources DevelopmentDivision Director, appeared in the Hellenic BanksAssociation magazine, which is distributed to allbank-members and covers various subjects onthe banking sector.

D. Broustas

Manager

Human Resources Development Division

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Dealing with Corporate Culture issues withinNational Bank of Greece falls under the respon-sibility of the Human Resources DevelopmentDivision. However, the Group Risk ManagementDivision is also related to the issue since RiskManagement also deals with Ethics, Deontol-ogy, Corporate Social Responsibility, and En-vironmental Responsibility besides its main is-sues (Compliance).

The Risk Management Division

• has prepared the "Group's Code of Eth-ics" (forthcoming) which defines the prin-ciples guiding the Bank's operations.These principles are Integrity, Impartiality,Entrepreneurship, Professionalism,Transparency, Honesty, Social and Envi-ronmental Responsibility, Respect for theHuman Rights, Responsiveness, Team-work and Compliance. The Code is a crys-tallization of the Principles, based uponwhich we operate as a Group, we act asemployees, we treat each other, our cus-tomers, our shareholders and other stake-holders, as well as our society and ourenvironment. This Code defines the prac-tices and rules of corporate ethics as wellas the desired standards of professionalbehavior within the Group. It is also thebasic tool for the implementation of theBank's and the Group's corporate culture.

•• is responsible for the fulfillment of NBG'scommitment to fully comply with the laws,regulations and ethical standards prevail-ing in any country where its Group oper-ates. It is within our competences to con-stantly and systematically maintain thor-ough knowledge on the local legal andregulatory framework of the country whereour Group is active, as well as to locate,analyze, assess, examine and accordinglysubmit proposals regarding the risks stem-ming from the Group's non-compliance.

• systematically follows the development ofemerging trends in the local and interna-tional financial system for the purpose ofthe Group's adapting to and implement-ing of and responding to, the internationaldevelopments, challenges and standards(e.g. Corporate Social Responsibility, re-spect for human rights protection, theenvironment, corporate governance, per-sonal data protection, consumer protec-tion, shareholders and stakeholders'rights) in the light of its international ac-tivities, and it duly informs the competentUnits of the Bank so that appropriate mea-sures are taken.

• provides for the ongoing training of itsstaff through seminars on corporate so-cial responsibility, corporate governanceand environmental issues, and it partici-pates in the Working Group and the Steer-ing Committee for the development of theBank's Environmental Policy.

M. Oratis

Manager

Group Risk Management Division

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History and Corporate Culture

The industrial revolution and the birth of largecorporations generated conflicting views aboutthe role and position of businesses in society.

On the one hand, it has been generally acceptedthat businesses improved living standards bycreating broadly affordable consumer productsand a wide range of services. Banks in particu-lar, as pointed out in a recent promotional cam-paign by the Hellenic Bank Association, im-proved people's quality of life by offering valu-able services such as:

• A broad range of mortgage loans sup-ported by flexible consumer loans underterms adaptable to anyone's needs andby modern savings products.

• Convenient programmes enabling con-sumers to acquire their own house and avariety of consumer products, and up-grade their savings as efficiently as pos-sible, through investments in Greece andabroad.

• A full range of alternative transactionnetworks including ATM, telephone andinternet banking, thus minimising time-consuming queuing for bank services.

• Funding agreements with favourableterms, intended to support businessgrowth and competitiveness.

•• Generating new jobs by supporting busi-ness growth in Greece and promoting en-hancement of the banks themselves.

On the other hand, however, people oftenadopt a suspicious and sometimes hostilestance towards businesses, in their belief that

the primary, if not sole objective of businesses,is to maximise profit at any cost. As a result ofthis suspicious stance, the union movement isable to flourish and the public at large puts pres-sure on the government to enhance regulationof business operations.

Public opinion of businesses depends heavilyon the image businesses project of themselvesthrough their activity and adaptability to socialchanges. Of course, companies need humanpresence to operate. A company's staff, fromsenior management to the most junior em-ployee, determines the company's prospectsthrough their individual or joint decisions. Acompany's image reflects its corporate culture.

A company's archives are mainly held to servethe needs of the company itself. Such archiveshave also been used for the purposes of re-search on a company's structure and manage-ment, and its position in a country's economic,political and social life. It has been established,however, that when confined to a mere docu-mentation of the past without any considerationto the present and the future, history has hardlyany value. Indeed, an archive programme willonly be successful if it focuses on supportingthe broader corporate mission. For its part, re-search on the history and development of cor-porate culture can indeed assist in identifyingthe key factors that contribute to a company'sgrowth and progress in the future. It is well-known that the most frequent reason for failureof corporate mergers lies in conflicting beliefsand values. If companies about to merge werefamiliar with each other's internal corporateculture, they would improve mutual understand-ing and streamline the merger procedure. Thesuccessful merger of National Bank of Greecewith National Mortgage Bank is attributable, inour opinion, to the common corporate culturesshared by both banks, as Mortgage Bank hadstemmed from National Bank in the context ofthe banking system reform of 1928.

For a number of years, National Bank's Histori-cal Archive has been concentrating its effortsin four key fields:

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1. The study of National Bank's history andits role in the economic, political, social andcultural life of Greece.

2. The study of developments in NationalBank's corporate culture. More than 40 mono-graphs have been published under the re-search programme of National Bank's HistoryCommittee, creating a valuable and unrivalledsource on National Bank's corporate culturethroughout its long and successful history. AsTheodoros B. Karatzas recently highlighted inan article in the Bank's staff magazine Emeis KaiI Trapeza, National Bank of Greece had shapedan impressive corporate culture since its earli-est days, explicitly documented in these mono-graphs which projected the picture of a bankplaying a dominant role in the economy andoccupying a central position in Greek socialpolicy and life. This culture did not harm theBank at a time when there was little or no com-petition. Now, however, as Theodoros Karatzaspointed out, the Bank needs to adapt its cor-porate culture in a way that enables it to play aleading role in a competitive environment.

3. The modernisation of National Bank'scorporate culture, enabling it to meet the re-quirements of the globalised economy of the 21st

century. The articles published in the staffmagazine and a series of interviews stressingthe role played by the Bank's units, have beenvaluable instruments for promoting corporateculture. Awareness seminars were also held toencourage the staff to be more sensitive to theevidence kept in the Bank's Historical Archive.If the staff does not have confidence in acompany's methods of operation, the companywill hardly be able to thrive.

4. The organisation of sightseeing tours forschools, societies and other associations, tohelp them discover the other side of NationalBank of Greece and become aware of itsbroader economic and social character.

N. Pantelakis

NBG Historical Archives

Corporate Culture within ING

At ING, Corporate Culture is important for theshareholders, the customers and the employ-ees. The departments which deal with Corpo-rate Culture are mainly Corporate Communica-tions and Human Resources.

Corporate culture is described in the ING Busi-ness Principles, which contains the ING values(Integrity, Entrepeneurship, Professionalism,Responsiveness and Teamwork), the Operat-ing Principles and the annual report ING inSociety, amongst others. Activities are numer-ous, including Internet- and intranet-sites, bro-chures, guides for employees and so forth.

Although History is not a standard topic in thecommunication of the Business Principles, itdoes play a role in the corporate culture. In theCorporate Brochure of ING, for example, 2pages describe the company's Dutch roots,accompanied by small images of ING history.

With the re-branding of all ING companiesthroughout the world (with the exception of theNetherlands) history has been put aside for thetime being. You cannot re-brand an old com-pany and simultaneously tell the story of thatcompany; the focus must remain on the INGbrand. After the ING is totally re-branded as a'one world wide ING', there will be more spacefor its history.

Ingrid Elferink

Historical Department ING

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I Marketing, Human Resources and Com-munication.

II Activities related with Corporate SocialResponsibility, Training and Reception programsfor new employees.

III Participation in marketing campaigns,collaboration in the Social Responsibility Re-port, training sessions for personnel, intranetbusiness history articles, papers presentationsin national and international conferences.

Carlos Alberto Damas

Centro de Estudos da História do BES

I Within the ECB the issue of corporateculture is not allocated to specific departments.As the ECB is a rather young organisation, theissue of corporate culture has not yet been ad-dressed in depth. For the time being, it is basi-cally the Executive Board which considers cor-porate culture issues on a case by case basisand requires them to be implemented by spe-cific business areas or the ECB as a whole, asappropriate. When addressing corporate cul-ture issues, it should be noted that the ECBforms part of the Eurosystem and the ESCB. Tothis end, corporate culture issues are not lim-ited to the ECB itself but have to be consideredwithin a System-wide context.

II Taking into account the above, one of themain activities was the formulation of an ECBmission statement. Furthermore, the ExecutiveBoard has recently launched an initiative aimedat preparing the ground for an enhancedawareness by staff of the added value of a com-mon corporate culture. To this end, several work-shops and seminars have been organised inorder to identify common values, desirablebehaviour patterns of staff and management,etc.

III Unlike othe institutions, the ECB does nothave a long history. Thus, the ECB's Archivedoes not currently possess an historical archivessection.

Central Bank of Iceland

I The Central Bank of Iceland has only re-cently begun to deal with Corporate Culture perse. A few years ago the concept was introducedby a new human resources officer employed inthe Operations Department. As a matter ofcourse, however, many customs and routineshave been seriously considered over the yearssince the Bank was founded in 1961, even if itwas not under the relevant heading. The Op-erations Department has without doubt led theway in all functions relating to what we have nowcome to know as Corporate Culture.

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II The Bank's approach towards its staff hasevolved. Staff meetings, presentations of a di-verse nature, regular staff interviews, motiva-tion and encouragement to education have allbeen found a more appropriate niche. At thesame time, new and revised rules and regula-tions governing daily practices have been putin place. The Bank has issued a new staff em-ployment policy. Furthermore, it should be men-tioned that of late a team has been working ona report on the Bank's Corporate Culture andhas recently submitted their recommendations.

III In our Bank, the Archives and the Numis-matic Museum have been run within the samedepartment, which has striven to present his-torical and related material. An exhibition ofnumismatic material with special emphasis onmonetary history is on permanent display. Oc-casional exhibitions have also been mounted.The Numismatic Museum publishes a series onnumismatic history. Under the direction of thearchivists, a Style Manual has been issued andstaff are required to follow it to create an accu-rate and harmonious external "corporate im-age". However, the short history of advancedcentral banking and financial institutions in Ice-land means that archiving has a more generalsocial, political and historical significance andless of a specific role in enhancing corporateculture.

Ólafur Pálmason

Central Bank of Iceland

Reykjavík

I have been trying to find some answers to thequestions in the EABH Survey in relation toCorporate Culture in European banks. I havefound out that, with the exception of individualachievements, in Spanish businesses and inparticular in the Banco de España, there is notmuch sign of Corporate Culture. There is, how-ever, an institution in Pamplona, Navarra, called"Empresa y Humanismo", which deals with thesetypes of issues, and which tries to have someinfluence on Spanish entrepreneurs, byorganising conferences and seminars.

In reply to the three questions in the Survey, andreferring to Banco de España:

I - II In the Banco de España, two depart-ments could be considered to relate to Corpo-rate Culture from a historical point of view. TheResearch Department is one of the most rel-evant research centres in the country, and haspromoted a policy of disseminating economicand banking history in general, as well as thehistory and culture of the Bank itself, for the last50 or 60 years.

The Communication Department of the Bank iscurrently also trying to disseminate the Bank'sgeneral culture to a broader audience, throughpamphlets, brochures and via the Bank'sInternet page.

III The historical archives, which have beenopen to outside researchers as well as Bankemployees since 1982, have contributed to

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making both general economic history and theBank's own history better known. In fact, sinceit has been open to the general public, a num-ber of books, articles and papers have been pub-lished using information and records from theBank's archives.

Teresa Tortella

I The departments responsible for Corpo-rate Culture activities are the Government Cabi-net; the International Relations Department andthe Historical Archives and Museum

II The Bank of Portugal encourages spon-sorship for cultural events, cooperation withcultural projects as well as the development ofour own projects.

III Its role is the specific incentive to eco-nomic historical research.

Luis Filipe de Adreu Nunes

Bank of Finland

'Corporate Culture' is the topic of countlessconversations and discussions around the busi-ness world at present. However, this articletakes a more focussed approach and concen-trates, rather, on the concept of 'CorporateGovernance'. Not only is this a more specificaspect of the bigger corporate culture issue, butit has greater relevance and is more specificallythe focal point of our energies and thinking.

I Within the Bank of Finland, every depart-ment and each employee of the Bank is ex-pected to operate within the bounds of the re-spective legislation and regulations concerningthe actions of civil servants.

In addition to which, the European Union has itsown recommendations on correct CorporateGovernance, in the form of the European UnionCorporate Governance Action Plan, in which aself-regulating market approach was taken. Itwas based on the five principles of 1) openness2) participation, 3) clarity of accountability,4) efficiency and 5) consistency.

In November 2003, the Board of the Bank ofFinland ratified its document on the key opera-tive guideline concerning Bank of Finland em-ployees. The document covered the following:

- key mechanisms concerning control andresponsibility at the Bank

- the ethical boundaries guiding the Bank'sfunctions

- civil servants' conduct in office and trust

- impartiality

- questions of vested interest

- secondary occupations and outside com-mitments

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- security issues

- secrecy and confidentiality

- insider information issues

- independence, relationship with other au-thorities and interest groups

- use of Bank funds

When drawing up its own strategic guidelinesand making an evaluation of the values withinthe Bank of Finland in 2003, the principles ofstability, sustainability, reliability, openness,competency and cost-efficiency were outlinedas being key to all the Bank's operations.

Within the Bank of Finland, attention has beenpaid to the issue of corporate governance bythe following bodies, concerning the followingissues:

- Internal Audit - internal audit and recom-mendations on sound corporate gover-nance in 2003

- Personnel Department - monitoring ofpersonnel

- Administration Department - cost-effi-ciency, legality and transparent acquisi-tion procedures

- Communications - open and transparentcommunication

- Document Services (archives) - meetingdemands of legislation on the opennessof government activities with a new docu-ment handling program

- Legal Affairs - insider issues

II The above-mentioned decision by

- the Board of Governors in November2003

- Senior management strategy paper, 2003

- Recommendations by the Internal Audit

unit on sound corporate governance,2003

- Application of a new electronic documentmanagement program to meet the de-mands of recent legislation on the open-ness of government activities

- Administration Department guidelines oncost-efficiency and transparent opera-tions

- Insider regulations

III The Bank of Finland's archives divisionand document services made moves to complywith recent legislation and other regulations con-cerning archives and archiving functions.These covered, for example, requirements onthe period of time for the storage of accountingmaterial, storage methods for material stored ona permanent basis and appropriate catalogu-ing procedures.

In addition to these activities, The Act on theopenness of government activities that cameinto force in 1999, required government bod-ies to maintain real-time (in practice, electronic)registers of their non-secret documents andsupply copies of them, upon demand, to thepublic. The Bank of Finland's Document Ser-vices Unit was able to comply with the demandsof the legislation with the up-dating of its elec-tronic documentation management system atthe beginning of 2000. There was also a periodof extensive introductory training given to civilservants on the requirements of the new legis-lation provided at that time and the spirit ofopenness was underlined, emphasising theprinciple that documentation is public in natureunless classified otherwise.

Heikki T. Hämäläinen - Vappu Ikonen

The Bank of Finland

Management Secretarial Staff

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Examination of the development of the financialmarkets has primarily focused upon explainingthe technical changes that accompanied thecreation of public and private debt instruments.Thus, the development of joint-stock compa-nies, their management and their financial ac-tivities has been minutely documented in thework of W. R. Scott (The Constitution and Fi-nance of English, Scottish and Irish Joint StockCompanies to 1720, Cambridge, 1911). Scott'swork remains the most complete exposition ofjoint-stock companies before 1720 and is aninvaluable source of information, yet it pays littleattention to the nature of the investors whomade those companies successful. Similarly,the development of the National Debt has alsoreceived attention, particularly from P. G. M.Dickson (The Financial Revolution in England,London, 1967), but again Dickson stops shortof a detailed evaluation of the actions of inves-tors.

Where the actions of investors have been ex-amined, for example in the work of D. W. Jones(War and Economy in the Age of William III and

Marlborough, Oxford, 1988), several factorshave come to dominate explanations for inves-tors' willingness to commit their capital to thenew projects that abounded at this time. Firstly,the onset of war in 1689 is acknowledged tohave obstructed overseas trade, thus divertingfunds to domestic use. Secondly, the high re-turns offered by a government in need of moneyin order to facilitate the pursuit of war drew in-vestors away from more traditional investmentopportunities and into the public funds. Lastly,the constitutional changes wrought by the Glo-rious Revolution are acknowledged to have pro-vided a legal and institutional framework inwhich investors could consider their money tobe safe in government hands.

In concentrating on these issues, historianshave created a picture in which the movementof capital into the public funds and joint-stockcompanies in the 1690s was a rational eco-nomic choice; one that diverted unproductivecapital into safe and lucrative areas of invest-ment. However, the explanation for the success-ful development of the financial markets is per-

Society, knowledge, and the behaviour of English investors,1688 - 1702

The 1690s were witness to remarkable changes in the nature of both public and private investmentin England. From 1688 onwards, a host of innovative ventures appeared, offering investors theopportunity to commit their capital to projects ranging from the manufacture of paper to the searchfor sunken treasure. The state also employed increasingly innovative tactics to attract money, re-sorting to tontine loans, lottery schemes, and authorising the incorporation of the Bank of Englandin 1694 and the New East India Company in 1698 on the condition that these companies func-tioned chiefly as vehicles to provide government funding. The public embraced the new financialmarkets with enthusiasm, in the process creating one of the world's first stock market booms. Yet,while the boom was typically short-lived, the revolution in public and private finance brought perma-nent changes in investment habits and the institutions created during this period, the National Debt,the Bank of England and an active stock market, survived, flourished and became the foundationof London's financial system.

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suggest. Indeed, although the onset of war wasa formative element in the development of thefinancial markets, it should be made clear thatthe new financial opportunities attracted a widerange of investors, not just discontented mer-chants; thus, redirected trading capital cannotaccount for all the monies invested at this time.Similarly, explanations that cite falling rents andthe risks of private lending as reasons for switch-ing into the public funds will not always suffice.In fact, where investment portfolios can be iden-tified, they often demonstrate a diverse mix oftraditional and new assets.

Furthermore, property rights were perhaps notso firmly established by the Glorious Revolutionas some explanations would seek to suggest.The Stop of the Exchequer of 1672 remainedprominent in the collective memory and left alegacy of suspicion that made many investorswary of the government's ability to honour theirdebts. The government, therefore, had to en-tice borrowers to invest in the public fundsthrough schemes, such as lotteries. This cre-ated inaccurate ideas about the uses and po-tential rewards of investment, and helped toreinforce an association with gambling that hashad a profound and long-lasting effect on per-ceptions of the financial markets.

Most importantly, it must be suggested that earlymodern investors were very unlikely to havebeen influenced solely by a rational under-standing of potential risks and rewards. Under-standing would have been obstructed by thebelief systems prevailing in society at that time.Individuals would also have been dependentupon inadequate education and communicationnetworks that would have restricted informationflow and obstructed full comprehension of mar-ket data. Moreover, it is now becoming increas-ingly well recognised that decision-making abili-ties are affected by psychological factors; indi-viduals are short-sighted, limited in their inter-pretation of data, over-hopeful about the out-comes of their decisions and profoundly influ-

enced by the way that information is presentedto them. The central question that my study willask is, therefore, what actually governed invest-ment behaviour in the late seventeenth century?

In order to answer this question, the study willconcentrate on three aspects of investment inthe late seventeenth century. Firstly, it will as-sess the way that the society of the time shapedattitudes towards investment and risk. The con-cern of seventeenth century society to under-stand and order the new environment, oppor-tunities and problems that made up the finan-cial markets led to a wide-ranging public debatethat inevitably coloured the perceptions of manyearly modern investors and affected the waythey approached the new opportunities thatwere being presented to them.

The second section of the thesis is concernedwith the issue of information. Financial informa-tion in the late seventeenth century was nec-essarily sought in an inefficient manner. Fullinformation, if such a thing could be said to ex-ist at this time, was restricted to certain groups,notably those whose physical presence at theExchange or in London's coffee houses allowedthem to be at the centre of the rumour-mill.Those forced to operate on the periphery of themarket, the occasional, provincial or female in-vestor, would have faced tremendous difficul-ties when searching for information. It must,therefore, be asked how information networksfunctioned, who could benefit from them and,most importantly, whether information could betrusted?

In the final part, the study will turn its attentionto the behaviour of investors in order to assesshow the afore-mentioned factors affected de-cision-making and investment choice. In thissection, profiles of the active and passive inves-tor will be presented. In addition, an attempt willbe made to identify those elusive individualswho acted as professional brokers in this mar-ket, and an assessment will be made of theamount of business they undertook and the level

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tionally, the issue of market efficiency will be ex-amined. Contemporary commentators, likeDaniel Defoe, assumed that stock-jobbers wereable to manipulate the markets with ease bycombining to force a movement in seeminglysolid securities. While a complete set of pricedata is unavailable for this period, it is antici-pated that it will be possible to test this assump-tion through analysis of the type and level ofturnover during periods of high market activity.

Although, reliable price data is difficult to comeby, there are abundant sources through whichto investigate the behaviour of early moderninvestors. These include the transfer books andstock ledgers of the major joint-stock companiesof the time, ledgers of private bankers, andsome collections of personal documents thatoffer a more detailed account of the actions ofcertain individuals. These records have facili-tated the construction of an extensive databasethat will allow examination of the type and ex-tent of participation in the early financial mar-kets. It will also enable an examination of the waythat participation changed over the period, par-ticularly as new innovations in public financeoccurred, such as the introduction of state lot-teries and the engraftment of short-term gov-ernment debt onto private company stock.

As the database covers a variety of joint-stockoperations, over a period of time it will facilitatedetailed investigation of the behaviour of theearly modern investor; however, it will not en-able a full understanding of his or her motivesor motivations. Reasons for investment choicesmust be sought by other means; thus, the theo-ries of behavioural finance will be employed tocast light on these aspects of market behaviour.

Behavioural finance offers a practical alterna-tive to the efficient markets hypothesis. It allowsacknowledgement of the fact that financial mar-kets, whether historical or modern, are not popu-lated by rational, profit-orientated automatons,they are populated by individuals with their own

aims and agendas. Many of those individualsallow emotion to destroy their self-control andsuffer cognitive failures that lead to misunder-standing and errors in perception. To gain acomplete understanding of the behaviour ofinvestors it is necessary to take these factorsinto account.

The 1690s were a crucial period for London'sfinancial markets, not just because this was thetime in which the private and public sectorsbegan to make use of innovative financial prod-ucts, but also because this was the period whenEngland's investing community learned to takeadvantage of the opportunities that were beingoffered to them. Understanding how investmentbehaviour was constructed at this time is, there-fore, an essential part of our understanding ofthe evolution of the financial markets and it isanticipated that this study, by combining a de-tailed set of data together with the applicationof theories that encourage a wide ranging dis-cussion of investment behaviour, will be able toprovide a far fuller picture of these develop-ments than has hitherto been available.

Anne Murphy

University of Leicester,

1 Salisbury Road,

Leicester, LE1 7LT

Email: alm17@le.ac.uk

Anne Murphy spent twelve years working as aderivatives trader in the City before returningto education in 1998. She is currently workingon her PhD thesis, under the supervision of Dr.H. V. Bowen, at the University of Leicester. Thethesis is due for completion in 2005 and isfunded by the Economic and Social ResearchCouncil

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In his Inquiry into the Nature and Causes of theWealth of Nations, Adam Smith noted that theCanton of Berne was probably the only statethat invested its budget surplus in foreign capi-tal markets. Even though some details of hisaccount are not entirely accurate, it is true thatBerne was in a fortunate financial situation;there were neither direct taxes nor a nationaldebt, and the state had even amassed signifi-cant funds, out of which it purchased shares inLondon, amongst other investments. Followingmercantilist advice, Berne had started lendingto domestic entrepreneurs from the late 17th

century onwards. In an act of 'unfriendly take-over', it had also discharged mortgages fromforeigners who had been expelled from the do-mestic capital market by an edict in 1677.Through this measure, the state had emergedas the most important mortgage provider. How-ever, this soon proved to be an insufficient in-vestment opportunity for the burgeoning bud-get surpluses of the state. As a result, duringthe war of the Spanish Succession (1703 -1713), loans to Britain and Holland weregranted for both political and economic reasons.

When these were redeemed in 1719 and 1725respectively, the Bernese government decidedto buy shares of chartered companies on theLondon capital market, where it became one ofthe biggest individual shareholders of the SouthSea Company. With these assets, the Cantonmade enormous profits during the famous SouthSea Bubble of 1720. As can be shown with quali-tative evidence from government sources how-ever, its successful bull strategy was the unin-tended outcome of misinterpretations and com-munication failures. The windfall of 1720 waslost soon after, through the bankruptcies of thegovernment's agents, the bankers Malacrida &Comp in Berne and Muller & Comp in London.As a reactionary measure, financial intermedi-aries were henceforth excluded from the admin-istration of the foreign portfolio, with the creationof the London-based office of Commissioner forthe English Funds, staffed by a governmentrepresentative. The more dramatic step of com-plete withdrawal from foreign capital marketswas not taken, probably because Bernese as-sets after 1720 were still worth more that theoriginal investment.

State and Economy in the Canton of Berne in the 18th Century

By April 1714, the Canton of Berne, the biggest state of the Swiss Confederation at the time, hadbecome an important investor in the British South Sea Company, with a purchase of shares worth£ 150,000. Despite the bankruptcy of the two banks that administered its foreign assets, the Can-ton still made considerable profits during the speculative South Sea Bubble of 1720, in a ratherunintended way. Until the French invasion of 1798, Berne held a sizeable portfolio of foreign as-sets, of which the most significant part was invested in London. The fact that the state invested itsfinancial surplus in foreign capital markets is the most distinctive feature of Berne's public financein the 18th century. Our understanding of both the reasons and the mechanisms behind these for-eign investments has remained limited. The aim of my PhD is to consider these facts in the contextof the state- economy nexus towards the end of the early modern period.

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a cautious investor, particularly in London,where its assets were low-risk and low-yieldsecurities. On the continent, slightly more riskwas taken, but the Canton still qualifies as awidow-and-orphan investor, as it sought regu-lar dividend payments rather than speculativeprofit. Investment decisions were usually madeafter a (proto-) country risk assessment. Credi-tors included princes (the Emperor, King ofDenmark, and Duke of Hesse-Cassel, amongstothers), cities (Leipzig, Ulm) and institutions(Vienna City Bank, Leipzig Tax Office). For theyoung patrician Carl Friedrich Steiger, an en-thusiastic proponent of foreign investments,Berne even had become the biggest lender ofpublic credit in Europe by 1784. Although thiswas undoubtedly an exaggeration, it can beargued that the Canton was one of the biggestindividual investors in the London capital mar-ket. In addition, interest payments accountedfor a substantial part of its budget surpluses.My PhD research will provide critical assess-ment of their importance, relative to both thetotal state revenue and the size of the Berneseeconomy. The thesis focuses on how an early

modern state raises and spends its money, andthe ensuing effect this exacts on the domesticeconomy. It is supervised by Prof Patrick K.O'Brien and will be completed in 2005.

The history of early modern European stateformation has mainly been told from the stand-point of large territorial kingdoms. In thesestraightforward stories of the developmentalpath taken towards the creation of the nationstate, little players either perished or vanished.Nevertheless, there are some intriguing ex-amples of surviving non-nation states, such asthe republics of the Swiss Confederation, withBerne being the largest and most powerfulamongst them. Analysing developments in theseunorthodox states can help to distinguish be-tween fundamental structural changes andsimple historical accidents. The most distinctivefeatures of Bernese history are the virtual ab-sence of warfare - usually viewed as a crucialfactor in state development - since the late 16thcentury, an almost uniquely fortunate financialsituation, and a taxation per capita that wasprobably the lowest in Europe. Thus, the Can-ton avails itself as a counterfactual for examin-

The account book of Bernese foreign investment: the purchase of South Sea stock in April 1719

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economy. In order to understand the functionsand mechanisms of state formation, it is crucialto consider the impact of financial resources,which puts quantitative analysis of state financethroughout the 18th century at the core of myPhD research.

The Canton of Berne, or the Res PublicaBernensis, as it was called in the late 18th cen-tury, was a territorial state, which retained somedistinctive features of the city-state that itevolved from. The government of the Cantonand of the city were effectively identical, in thatthe same representatives presided in both bod-ies, and power was wielded by oligarch families.These patricians can best be described as land-holding gentry. A sophisticated system ofchecks and balances prevented the dominanceof a single family, and was accompanied by therivalry and the mutual distrust amongst them.Despite the presence of a government memberas bailiff, each of the Canton's 60 districts en-joyed a reasonable level of autonomy and theiradministration was widely controlled by locals.Berne's financial situation in the 18th centurywas at a positive equilibrium, with several inter-dependent and reinforcing elements. In the 16th

and 17th centuries, the national debt was repaidthrough taxation, the secularisation of church

property during the Reformation, and foreignpayments for mercenary services ('subsidies').Like all members of the Swiss Confederation,the Canton did not possess a standing army, buta combination of a militia and mercenary regi-ments stationed abroad. In this way, defenceexpenditure was minimised and revenue fromtaxation was limited, which would have otherwisebeen obtained through the consent of taxpay-ers. In order to avert political claims from its sub-jects, direct taxes were abolished in the 17th cen-tury, except the tithe, considered customary andthus unquestionable. This in turn increased thelegitimacy of the financial system, and helpedto alleviate the expenditure on domestic secu-rity. If the state could run budget surpluses formost of the 18th century, it was also because in-terest payments from domestic and foreign in-vestment supported the virtuous circle of low ex-penditure and high legitimacy through low taxa-tion. This contrasts significantly with the situa-tion in highly indebted 'fiscal military' Britain or'abolutist' France with their war-driven publicdebt.

Data for a detailed analysis of Bernese statefinance is derived from government manu-scripts, kept in the public record offices ofBerne, Aargau, and Vaud. In addition to thecentral accounts (Standesrechnungen) andcontemporary tables about revenue and expen-diture compiled for 1764 - 1798, my study willbe based on account books of all districts fortwo sample years (1732 and 1782), allowing fora comparison between the centralised and de-centralised financial transactions of the state.The methodology includes a reconstruction ofearly modern accounting with the aim of mak-ing the material available for an analytical ap-proach. For this, I will be leveraging on datafrom a research project by the University ofBerne from 2000 - 2004, which involved thestandardised transcription of manuscript ac-counts and transfer to a database for easiercategorisation and computation(Forschungsprojekt BeFin: Berns

The coat of arms of Berne, the bear, as depicted onthe account book for the Vaud (French speakingpart of the Canton)

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tions in kind, mostly of cereal and wine, werecapitalised, and disparate units made directlyconvertible into metric tons of silver.

The empirical analysis of structures and con-junctures in revenue and expenditure will con-sist of a reconstruction of resource distributionby the state between economic sectors. Addi-tionally, a functional breakdown will determinethe specific duties that the state expended mostof its money on. When considering the natureof transactions, a distinction between currentspending and investment is essential as thelatter has an impact on economic growth. Taxa-tion and the fiscal efficiency of Berne will becompared with other states through the Euro-pean State Finance Database (ESFDB). In ad-dition, non-financial public goods, such as ju-risdiction and property rights, will be taken intoaccount when establishing the state's impact onthe economy. The bases employed are legaldocuments from the Sammlung BernischerRechtsquellen (RQBE) and contemporary pub-lications by political and/or economic thinkersas far as they have been edited. Ancien Régimewriters often considered the Canton as a modelrepublic and a reincarnation of antique states,though they often lacked well-founded knowl-edge about the actual situation. This discoursehas to be compared against reality and can alsobe discussed with respect to the ongoing schol-arly debate about the impact of constitutionalforms on economic development. The involve-ment of patricians in the local credit market willbe examined in a dedicated section. It can beargued that in a 'priceless market', financialdecisions did not rely on interest rates that werefixed by the government, but on the informationabout the credit-worthiness of potential debtors.In such a market, government officials, with theiraccess to administrational information, can beexpected to make use of their knowledge toenter local mortgage markets. On the basis ofanecdotic evidence from individual accountbooks of patrician families and bailiffs, this hy-

pothesis can be effectively applied to Berne.

Overall, the impact of a state on the nationaleconomy depends on the incumbent incentivestructure that is buttressed through both finan-cial and non-financial infrastructure. Unfortu-nately, there has been little research done onBerne's economy in the 18th century that can beused as point of reference, save for some stud-ies on agriculture. While this considerably lim-its the scope of a quantitative analysis of theimpact of the state on its economy, reasonablequalitative hypotheses can be justified on thebasis of estimates - and, sometimes,guestimates - about Bernese GDP and itsgrowth rates.

Stefan Altorfer

Economic History Department

London School of Economics and PoliticalScience

Houghton Street

London WC2A 2AE

S.Altorfer@lse.ac.uk

Further reading:

S. Altorfer, The Canton of Berne as an Investor onthe London Capital Market in the 18th Century, LSEEconomic History Working Paper (forthcoming,2004).

S. Altorfer, "Bulle oder Bär? Der bernische Staat unddie South Sea Bubble von 1720", in: H.-J. Gilomen/M. Müller/B. Veyrassat (eds.), Globalisierung.Voraussetzungen, Chancen und Risiken aushistorischer Sicht (1700-2000), Zurich 2003(Schweizerische Gesellschaft für Wirtschafts- undSozialgeschichte: Vol. 19): 61-86.

M. Körner, "Berns Staatsfinanzen vom 15. bis zum18. Jahrhundert. Ein Forschungsprojekt an derUniversität Bern", in: Berner Zeitschrift fürGeschichte und Heimatkunde 59 (1997): 324-326.

Homepage Forschungsprojekt BeFin (BernsStaatsfinanzen in der Frühneuzeit):www.hist.unibe.ch/befin

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Measuring the success of mergers

The merger wave that took place during the firstphase of globalization, which lasted from 1895to 1914, changed the industrial structure inEurope and the U.S. remarkably. Therefore, itis of great importance to assess whether merg-ers were successful during this period. Notice-ably, studies that evaluate the success of merg-ers during the first phase of globalization arestill lacking for Germany. One may argue thatthis statement is false and could refer toHuerkamp (1979). However, he defined successin terms of a firm which is able to stay amongthe 100 largest companies. Hence, mergers thatdestroy shareholder value and yet, being drivenby `empire building´, lead to an increase in thesize of the firm, are ultimately seen as success-ful investments. Consequently, I totally disagreewith his view. In contrast, I try to quantify themarket response due to mergers and, hence,focus on the change in shareholder value. Thisconcept is in line with studies on the success ofmergers within the United States and Great Brit-ain. Generally, for the German case, economichistorians concentrated on debates about theinterrelation between the expansion of largescale enterprises, external growth, and merg-ers. Maintaining size and survivorship were seenas major factors of success. But also `tradi-tional´ cross-country studies showed that thelarge German enterprise was a main guaran-tee for superior economic development in thepre-World War I period. After reviewing new sta-tistical material, however, the picture has to becorrected. A recent empirical cross-countrystudy on that issue was written by Kinghorn and

Nye (1996). They found evidence that Germanfirms and production facilities were smaller com-pared to U.S. or French companies. In addition,the concentration process was less developedin Germany. Besides these astonishing results,additional doubts emerge regarding the allegedsuccess of large firms. In several empirical stud-ies, Baten (2001 a, b, c) showed that small firmsexhibited greater total factor productivity. More-over, he provided evidence that contradictedthe usual opinion which suggests a steady in-crease in firm size between 1895 and 1912. Incontrast, he found that the median of firm sizestayed unchanged over time.

When one turns to studies for the U.S. or GreatBritain, the scope regarding mergers is totallydifferent compared to the `traditional´ researchconducted in Germany. For instance, Leeth andBorg (1994, 2000), who investigated the periodof 1905 to 1930, measured the economic im-pact of mergers by applying event-study meth-ods. In their study, successful mergers shouldyield an upsurge in market value.

Accordingly, my first aim is to assess the suc-cess of mergers based on the market responsecaused by merger announcements; thereby, ahigher market value is the recipe for successand not firm size. Encouraged by the results ofBaten (2001 a, b, c), I will also collect data onmergers among smaller companies, which sofar, has not been done. Of course, my researchcontributes to closing the data gap for Germanythat is a result of the absence of sources likeNelson (1957) and Eis (1971) who systemati-cally collected data on mergers among U.S.companies.

Mergers during the first and second phase of globalization:

Success, insider trading, and the role of regulation

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Who gains from mergers?

If I did indeed detect an increase in market val-ues stemming from a merger announcement,another question would arise. Which type ofshareholder gains from higher market values?Focusing on two types, namely insiders andoutsiders, I aim to answer this question.Thereby, the so called run-ups prior to mergerannouncements serve as a measure for insidergains. Run-ups are changes in stock prices trig-gered by an impending merger announcement.Because the merger is not yet public informa-tion, significant changes before the public re-lease serve as a hint for insider-trading. If amarket participant has only access to publicsources, like the official newspaper announce-ment, this participant belongs to the group ofoutsiders. In contrast, insiders possess privateinformation; hence, they already know that afirm will announce publicly that they are to en-gage in merger activities. This superior knowl-edge leads to trading activities of insiders be-fore the public announcement. Through thisinsider trading, the private information is con-veyed; thus, the market price is significantlyinfluenced. Keown and Pinkerton (1981) usedthis measure to uncover insider activitiesaround revealed mergers occurring in the years1975 - 1978. Banerjee and Eckhard (2001) pro-vided evidence for insider-trading in the year1896 - 1903, known as the first merger wave.Both studies concentrate on the U.S. case.

The lack of regulatory restrictions is responsiblefor the appearance of two different forms of dis-closure in the pre-World War I period in Ger-many. Some firms announce mergers afterthese mergers have already been executed, andothers declare their desire to merge before thetransfer of assets. Thus, one consideration isto assess whether the way of disclosure influ-ences the gains of insiders and therefore lossesof outsiders. By comparing the pre-Word-War Iperiod with mergers that took place in the year2000 in Germany, I will try to shed some light

on the impact of regulations on insider activi-ties and the ability of legislative restrictions toprotect outsiders from insider trading.

The long-term impact of mergers

Thus far, using event-studies, one concentrateson short-term market reactions caused bymergers. My additional concern is to measurethe long-term impact of mergers; thereby, anevent-study approach must be replaced bymore sophisticated methods. These superiormodels belong to the group of vectorautoregressions (VAR). Besides focusing onmergers and, thus, micro-level shock, I will re-gard macroeconomic fluctuations as an addi-tional source of uncertainties. My panel VAR isable to identify the dynamics in share prices,dividends, and nominal capital caused by dif-ferent kinds of shocks. In contrast to my short-term analyses, my long-run study covers theperiod from 1870 to 1913, for which I collectedannual data. Changes in the regulatory environ-ment at the beginning and in the middle of thisperiod - especially the establishment of the newexchange law in 1896 - make the investigationpromising from an institutional point of view.

Results

Reading daily newspapers for several months,collecting an average of 6550 daily returns forthe sample year 1908, 4941 daily returns ofindividual stocks and several thousand dailyobservations of the market index, DAX30, for theyear 2000 as well as 4620 observations ofshare prices, dividends, and nominal capital forthe long-term study, one should wonder whetherthe effort was worth it. Hence, I should presentmy empirical findings.

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Rejecting the merger paradox for the pre-World War I period

Newspaper announcements regarding an im-pending merger cause severe market re-sponses in the short-run leading to consider-able increases in market values of acquiringand target firms. Hence, based on my sampledrawn in the year 1908, I can reject the pres-ence of the merger paradox which states thatshareholders from acquiring firms actually ben-efit from mergers. Accordingly, my empirical find-ings add an additional piece to the puzzle ofwhether mergers create shareholder value byfocusing on the pre-World War I period in Ger-many. Using daily returns to improve the statis-tical power of event-studies is a completely newconcept for the pre-1914 period. Most impor-tantly, my study underlines the high degree ofinformationally efficiency of stock exchangesbecause market reactions due to mergers arecentered upon the public release of information.Interestingly, this finding can also be confirmedusing alternative approaches like transfer-func-tion models or panel GARCH models. Regard-less which model is applied, they all point in thesame direction: The market reacts fast.

Insider trading in the year 1908

Going back 100 years in history, one can ob-serve natural firm behavior operating withoutregulatory restrictions. As a direct result, firmscould decide to disclose price-sensitive infor-mation voluntarily. Event-studies and cross-sec-tional models confirm that hiding information ischargeable to outsiders. Ruling out the possi-bility that the way of disclosure influences thetotal gain from mergers, one can concentrateon the distributive effect. As a method of pro-tecting the outsider, a state intervention thatforces a firm to release information should beconsidered; in particular, a voluntary self-regu-lation cannot be supported by logit models.Henceforth, this historical experiment stresses

that ad-hoc publication requirements or otherretaliations, like a negative public opinion re-garding the misbehavior, ensure the protectionof outsiders. Most noteworthy, the media in 1908did not criticize the situation whereby acquirersstarted buying shares of targets prior to officialannouncements - but newspapers spread ru-mors about impending transactions.

Irrational speculation in the year 2000

The adaptation process of share prices in thepresence of newly available information differsfrom the clear run-ups and steady increases inmarket values observed in the historical sample.Generally, a strong upsurge in share pricesshortly before the newspaper announcement isfollowed by a pronounced fall in market values.Regardless which group of companies is con-sidered, this pattern remains nearly unaffected.Correspondingly, this adaptation pattern couldstem from following irrational trading rules like`buy on rumors and sell on facts´. This empiri-cal finding supports the effectiveness of insiderregulation during the last 92 years.

Interpreting the high informationally effi-ciency in 1908

Both event-studies and GARCH models pointout that in 1908 the market was highly basedon informational efficiency. Besides the remark-able actuality of the `Berliner Börsenzeitung´ asshown by several case studies, insider tradingmay be mainly responsible for the tremendousspeed with which new information is reflected inmarket prices. Accordingly, the benefit of infor-mational efficiency comes with a loss, namelyinsider trading. So far, little historical researchhas been conducted to quantify the number ofinsiders versus outsiders during the pre-1914period in Germany. After the new exchange lawwas established in 1896, the nine leading banksin Berlin gained a larger role in trading. For the

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U.S., Warshow (1924) pointed out that smallershareholders, the typical outsiders, were rela-tively unimportant.

The long-term impact of mergers

Mergers characterized as micro-level shockspossess a significantly negative impact onshare prices; thereby, this direct impact alsoaffects dividend streams with a time lag. Aftertaking into account unexpected macroeconomicshocks, the effect of mergers disappears;hence, macro-level shock predominated in theperiod 1870 to 1914. Nevertheless, additionalinsights are gained by extending short-termevidence based on event-studies, for example,macroeconomic surprises severely affect shareprices and dividends.

Merger waves and periods of real over- orundervaluation

As far as I know, I have provided the first em-pirical evidence for a merger wave in Germanycentered around 1906. Executed mergers oneor two years ago significantly increased the like-lihood for subsequent transactions. Further-more, mergers are more likely in periods exhib-iting high inflation rates although past andpresent share prices and dividends have nopartial impact regardless which lag structure ispermitted. Based on impulse response func-tions, an asymmetric response - triggered byshocks in inflation rates - of share prices anddividends can be observed. Hence, an unan-ticipated upsurge in inflation causes a phase ofreal undervaluation of equity. More formal mod-els, like hidden cointegration and the decom-position of time series, yield similar outcomes.Consequently, I state that the first merger wavecoincided with a period of real undervaluationof companies. A recent study for the period from1978 to 2000, conducted for the United Statesby Dong et al. (2003), showed that mergers

occur if markets are overvalued. Hence, myempirical finding for the first phase of globaliza-tion in Germany contradicts today's empiricalevidence.

What makes mergers different:Comparing both phases of globalization

Besides the hard facts justified by empiricalmodels, adding some narrative evidence, astold by case studies, may help to get a clearerpicture. During my investigation period, cross-border mergers did not occur, even though theyare very common nowadays. Furthermore,acquirers were relatively large compared to theirtarget firms, making an acquisition easer to fi-nance and facilitating the integration of bothentities. The velocity with which mergers werelegally executed in the pre-1914 period is re-markable. As shown by the presented casestudies, the announcement of a merger wasfollowed by the approval of an extraordinaryshareholder gathering within one month. Gen-erally, nearly all mergers achieved the neces-sary majority in shareholder gatherings, andhostile takeovers were very uncommon. Al-though the leading companies included in mylong-term study were very active to initiatemergers, mergers among these 35 largest com-panies did not occur. It can therefore be as-sumed that mergers are, to some extent, differ-ent in both phases of globalization - but maybelearning from historical evidence could help inmaking today's merger as successful as thosetaking place 100 years ago. A possible conclu-sion could state: acquire only smaller compa-nies in your line of business and be friendly.

The inflation illusion hypothesis and thepre-World War I period

In the `resiliency´ paper (see Baltzer and Kling,2003), my empirical result supports the inflationillusion hypothesis for the period 1870 to 1914

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in Germany, but how can one interpret this find-ing? In 1873, Germany joined the gold standard;thus, one can argue that by introducing an ef-fective commitment to avoid inflation, an infla-tion hedge provided by stocks was not needed.Unfortunately, this explanation has a blemish inthat the inflation illusion can also be observedin later periods (see Madsen, 2000).

Inspiring the Hoffmann (1965) series, the cycli-cal movement in inflation rate characterized byalternating periods of inflation and deflation isapparent. Accordingly, I argue that, during thepre-World War I period, trend inflation cannotbe observed, and thus, the average annual in-flation rate is lower than 1%. Considering along-term investor, namely a bank or a strate-gic investor, the question arises whether mar-ket participants should worry about inflation inthe long-run. Due to the overwhelming impor-tance of large investors with strategic interest,nominal share prices should not reflect inflationand inflation illusion is likely.

In addition, time series of nominal interest ratesshow that during the pre-World War I period, thedevelopment was almost stable over time,therefore suggesting that inflation rates did notinfluence nominal interest rates considerably.Putting this argument in other words, it statesthat by observing nominal interest rates, mar-ket participants were not able to improve theirforecasts regarding future inflation rates. Thisfinding is supported by my analysis on the pre-

dictability of macroeconomic variables. Hence,stable nominal interest rates suggest that infla-tion is not a major concern.

Gerhard Kling

Department of Economics, University ofTübingen

Mohlstrasse 36

72074 Tübingen - Germany

Email: gerhard.kling@uni-tuebingen.de

Homepage: http://www.uni-tuebingen.de/uni/wwl/kling.html

In May 2002, I received my diploma in econom-ics from the Ludwig-Maximilians-UniversityMunich. I am currently a member of the gradu-ate school, "Firm development, market pro-cesses, and regulation in dynamic decision pro-cesses" (with a scholarship from the GermanResearch Association, DFG) and a researchassistant within the Department of Economicsat the University of Tübingen. My dissertationproject is supervised by Prof. Dr. Jörg Baten(Professor of Economic History, Dept. Econom-ics, Univ. Tübingen and CESifo Fellow).

List of my working papers and conference contributions

Baltzer, M. and G. Kling, 2003, Resiliency of the pre-World War I German stock exchange: Evidencefrom a panel vector autoregression, accepted for presentation at the European Social Science HistoryConference 2004 in Berlin and at the 5th World Congress of Cliometrics 2004 in Venice.

Kling, G., 2003a, Disclosure of mergers without regulatory restrictions: Comparing insider- trading in theyear 1908 and 2000 in Germany, presented at the NBER conference ̀ On Developing and Sustaininginancial Market, 1820-2000´, 2003, accepted for presentation at the annual meeting of the EconomicHistory Society 2004 in London.

Kling, G., 2003b, The impact of merger announcements on stock prices: The rejection of the mergerparadox for German companies, presented at the Economics and Business Historical Society Confer-ence 2003 in Memphis and at the European Historical Economics Society Conference 2003 in Madrid.

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Still, it seems that the propositions generatedby these monetary theories do not support thefindings of empirical studies of money and creditto the extent that might be expected. This dis-crepancy between what is actually used asmoney and credit and what is generally consid-ered as the theoretical view on money and creditis both acknowledged in contemporary eco-nomic debates and apparent in recent histori-cal research. For instance, in the nineteenthcentury Swedish public debate, there was aconcurrence in that the classical monetarytheory was right in principle despite the fact thatthe economy was forced to rely on informal andinferior paper money and credit for practicalreasons.1 This research project emanates fromthis observed discrepancy and our ambition isto make sense of what is actually used as moneyin a coherent way.

We suggest that the most fruitful way to improveour theoretical understanding of money is totheorise about empirical studies of the practi-cal use of money and credit in economies withmultiple arrangements for making payments.We have identified six cases in the Swedishmonetary history prior to the twentieth century,which provide empirical evidence of variousarrangements of transactions with multiple pa-per money, issued by public, private (both for-mal and informal) organisations and private in-dividuals.2 We are interested especially in pro-cesses whereby new means of payments are

introduced into circulation or in which previouslyaccepted means of payments disappear fromcirculation.

Monetary theories

Neoclassical monetary theory remains the maintheory on money. In the last decades, this strandof monetary theory has been technically ad-vanced and most important monetary policystatements are derived from its propositions.Still, we argue that this dominant theory fails toprovide economic historians with predictions intheir empirical research. Even worse, we find itdifficult to even generate tenable historical hy-potheses based on the analytical concepts pro-vided by neoclassical monetary theory. For in-stance, the essential possibility to hoard moneydoes not exist in neo-classical monetary theory.3

We cannot find any convincing evidence, his-torical or theoretical, that money is an inventionthat was exogenously injected as a lubricant toreduce transaction costs in a barter economy.Therefore, we cannot accept the a priori propo-sition of the ‘double coincident of wants’ as it isgenerally presented. In contrast to this theoreti-cal credit free barter economy, historical re-search into the functioning of economic relation-ships in societies lacking a formal monetarysystem (i.e. as is associated with barter sys-tems) reveals the existence of credit transac-tions among individuals. In this respect, the

Multiple Means of Payments in Circulation:

Money and Credit in Sweden, 1668–1903

Monetary and credit arrangements affect the everyday life of most individuals. It is therefore easyto understand all attempts to theorise about money from Aristotle to Mundell. Generally, thesemonetary theories address some basic interrelated issues. They provide a definition of money andexplain why money exists. They account for why various means of payments have a value to eco-nomic agents and they predict that value. The theories predict what kind of financial assets areused as means of payment. Finally, they explain why certain groups of economic agents and insti-tutions are able to create accepted means of payments.

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post-Keynesian endogenous approach tomoney lies closer to what empirically can beobserved regarding money and credit.

The post-Keynesian theoretical framework ismore prone to accept contextuality than neo-classical theory; money and credit are viewedas inseparable, the idea of intrinsic value, whichin neo-classical theory is regarded as commod-ity money, is denied and money enters theeconomy endogenously through the capitalis-tic process of production. Furthermore, both theChartalist and post-Keynesian perspectivesadd a utility function for money. That means thatthe demand for money has to be acknowledgedas an important factor determining how themonetary system works as a non-neutral, inte-grated part of the economy. The question iswhat makes the public rely on a certain tokenof indebtedness as a means of payments.

Although the demand for money is an integratedpart of the endogenous approach, there is stilla strong supply-side bias within the theory. Noneof the endogenous perspectives develop theargument so far as to understand and analysethe demand for money. The approach seemsto neglect the function and conditions for thecirculation of tokens of indebtedness as meansof payments between the time that they are is-sued and until they are redeemed.

Money is demanded and accepted due to theutility it offers to the customers. The value ofmoney is related to whether it fulfils this utility,especially in relation to other possible ‘things’,which might be used, or accepted, as money.We are interested in the relative value of differ-ent means of payments. For instance, it mightbe assumed that the larger the number ofpeople prepared to accept the IOU as payment,the greater its value. Although there is alwaysthe possibility that any token accepted as moneydeclines in value, the more widely it is acceptedin circulation, the less likely this is to happen.This is one reason why payments in debts areeasily acceptable.

Consequently, we argue that no convincingevidence exists, either historical or theoretical,which demonstrates that there is a differencebetween what is labelled as commodity moneyand so called fiat money. The very existence offiat money is based on the assumption that a‘good’ lacking in utility circulates as the mediumof exchange. Fiat money is thus distinguishedfrom commodity money, which has alternativeuses that yield positive utility. We suggest thatbank notes are accepted because individualsknow that they will have the ability to transferthese notes in the future with little risk of loss,or at least with a loss lower than the cost of re-fraining from the transaction. The same argu-ment holds whether the payment consists of ashell or a piece of gold. The logical outcome ofthis argument is that the choice to use certaincommodities as money increased their value,not the other way around. The distinction be-tween fiat and commodity money, existing butwith different implications in both the neo-clas-sical and endogenous approach to money, ar-guably can be dismissed.

There are some other unsolved problems withinthe endogenous approach to money, especiallythe assumption of a fixed hierarchy of moneywith state issued money at the top. The openquestion is why market organisations should notbe able to fulfil the task of a strong issuer ofacceptable means of payment. In a transitionaleconomy, such as Sweden until the late nine-teenth century, a large part of the money stockwas in the form of informal and semi-formalmoney issued by private persons.4 It seems thatthe Swedish credit system paved the way for thecreation of means of payments without a strongstate.

As for international currencies, there seems tohave been differences in the quality of thesecredit notes in the sense that their acceptabil-ity as money varied. We believe that differentkinds of money, issued in different ways, mightalso have fulfilled the function of being a means

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of payment in different ways and furthermore tothe benefit of different agents. For instance,rather than being unable to dispose of theirsurplus production at all, sellers were willing toaccept some form of future payment, perhapsin the form of a written promise of future pay-ment (an IOU). The transaction would occur aslong as the difference in utility between keep-ing the product and selling it for a future pay-ment exceeded the likely loss on that payment(including the risk of it being reneged on). Thispromise of future payment (IOU) might also betransferable to other agents who recognise itscredibility.

Six cases of changes in the compositionof means of payments in circulation

Based on the assumption that what constitutesmoney and credit depends on social and insti-tutional factors, both the empirical and theoreti-cal understanding must be increased from stud-ies in specific historical contexts. To improve theunderstanding of money, we address the his-torical process of monetary changes in Swedenin order to generate theoretical concepts andrelations between these concepts. We haveidentified six specific periods in Sweden between1668 and 1903 when the composition of meansof payments in circulation was altered in a man-ner that is possible to examine. We are lookingfor four different forms of empirical statements.

· What makes an agent accept a new formof means of payments? And what makesan agent cancel acceptance of a previ-ously accepted means of payment?

· To what extent (quantitatively) were differ-ent kinds of credit certificates and meansof payments created and brought into cir-culation? How long would different kindsof credit certificates/means of paymentscirculate before being redeemed?

· How do financial agents value different

kinds of means of payments (or IOUs) inrelative terms? And how is this related toperceived risk in terms of none repay-ment, illiquid secondary markets?

· What incentives made issuers of creditand/or means of payments reorganizetheir business? Which approaches wereadopted in order to directly increase thequality/demand for credit and means ofpayments? How important were formaliz-ing, for instance by standardized con-tracts, rules or laws?

Basically the empirical research is divided intotwo main parts: first, to qualitatively study whichfeatures made certain kinds of means of pay-ments consisting of debt instruments acceptedas means payments over larger areas. Thismade it possible for actors on the financialmarket to create credit by the issuance of suchdebt instruments. Thus, this is a study of therelationship between creating generally ac-cepted means of payments and the increasingvolume of credit in society - of vital importancefor the development of a liquid financial sector.The second objective of this research is to quan-titatively measure the relationship between dif-ferent kinds of traditional means of payments,debt instruments and the volume of credit. Thiswould establish the link between the creation ofmeans of payments and the development of thefinancial sector.

The use of credit certificates issued bythe Riksbank between 1668 and 1722

Due to the previous discouraging experience ofthe Stockholm Banco, the Riksbank was prohib-ited from issuing any kinds of notes. Despitethis explicit ban, certificates of deposits instantlystarted to circulate as means of paymentsamong the public: this was an acceptance be-yond the control of the Riksbank. In 1707, as aresponse to this development, the Riksbankstarted to issue so called transportation notes

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(transportsedlar). The public acceptance of thiskind of note was delayed. It was not until the1720s that these notes were circulated to agreater extent than the informal credit certifi-cates issued by the Riksbank.5 The questionsare which features did the informal credit cer-tificates and the transportation notes have, andwhat kind of changes made the transportationnotes acceptable to the public as means ofpayments.

The disappearance of the domestic billsof exchange in the late 1730s

It is known that, at least after the peace in 1721,payments were made between people living indifferent towns by sending domestic bills of ex-change. Without formal support in the law,these were treated according to the law regu-lating the use of foreign bills of exchange. How-ever, when the Swedish laws were revised it wasmade clear that this act was only applicable toforeign bills of exchange. Subsequently, the is-sue of enacting a separate act for domestic billsof exchange was raised in the Swedish parlia-ment in 1738. Despite favourable comments, nodecision was made before the end of the par-liament. Surprisingly, the issue of a new act wasnot brought forward for discussion in the nextparliament in 1742. It seems that the domesticbills of exchange had disappeared from circu-lation in the period between the two parlia-ments.6 It might be that a lack of legal supportfor the use of domestic bills of exchange ulti-mately undermined the confidence in thesedomestic bills of exchange. We will study howpayments between individuals in different townsin Sweden were made in the 1730s and 1740susing business correspondence in order tosupplement Gustaf Utterström’s unpublishedanalysis of the parliamentary debate. The mainissues are who had used domestic bills of ex-change and what was then used instead.

The parallel issuance of notes by the twostate authorities, the Riksbank and theNational Debt Office, 1789 – 1818

During the first six months, the notes issued bythe National Debt Office were interest bearingbonds. Unlike the notes issued by the Riksbank,these notes were not backed by any speciereserves. While the National Debt Office floodedthe market with notes, the circulation ofRiksbank notes decreased. Subsequently, therewas a change in the relative value in favour ofRiksbank notes in the market although formallythese notes were valued at par. At the sametime, the notes of the National Debt Office be-came the unit of account.7 This process is a goodopportunity to study the introduction of a newkind of means of payments on the market. It isan empirical example, shedding light on theo-retical issues regarding endowing money withvalue, how it becomes accepted by the public,and how the unit of account is determined.8

The establishment of private, note-issuing banks in the 1830s

Strong local businessmen initiated the first waveof Enskilda bank establishment. It seems rea-sonable to assume that these persons couldcirculate their own private credit notes,assignationer, as means of payments. Thequestion is how the new Enskilda bank notescompare to private credit notes. What costswere entailed in issuing bank notes comparedto private credit notes? Was there any differ-ence in quality that might have affected theacceptance of the notes? There are archivescovering the early period of both the WermlandsEnskilda bank (founded in 1832) and Skånskaprivatbanken (founded in 1831). The former ofthese two was created by regional iron-mastersafter their failure to create an industrial bank forthe iron industry while the demand for credit inSkåne was connected to the emerging exportof oaths.9 In the case of Skånska privatbanken,

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which was established before the Swedish cur-rency was once again based on silver, it seemslikely that access to the British financial marketthrough export credit in sterling might have fa-cilitated the establishment of a good reputationwith regards to the bank’s notes.

The disappearance of private creditnotes (assignationer), about 1850

The fact that these were widely used in the1840s is apparent from business correspon-dence. It is also apparent that assignationerand the notes of the Riksbanken were given thesame value when payments were made be-tween merchants. We have, however, found inthis type of source that, when the trade cyclewent down in 1846, the willingness to accept theassignationer issued by private persons disap-peared. It is clear that many different types ofmeans of payments were in circulation at thesame time and these were accepted at par valueas long as they were still accepted. However,when the demand for credit or for means ofpayment fell, there was a hierarchy for whichcredit was accepted as means of payment.

The working of the notes issued by theprivate commercial Enskilda banksbetween 1834 and 1903

These notes were circulated to a larger extentthan legal tender Riksbank notes and were val-ued at par with these. Also the State eventuallyhad to accept these notes as the Riksbank de-cided to accept Enskilda bank notes in 1869.The Enskilda banks backed their note issuancewith Riksbank notes. In order to ensure thatEnskilda bank notes were the closest possiblesubstitute for Riksbank notes among the pub-lic, the Enskilda banks had to accept most of thediscount costs for these notes. The Enskildabanks paid their exchange agents in relation tothe amount of the banks’ notes which the agent

redeemed, including making legal tender avail-able for the public in times of tax payments.10

Subsequently, the creator(s) of credit andmeans of payments seem to have carried thecost of making the IOU accepted as (more orless) a general means of payment. Since a re-ceiver would then know with a greater degreeof confidence that the note (IOU) could be re-deemed against a bank note when needed, thisreduced the risk of this happening.

Anders Ögren

Institute for Research in Economic History

Department of Economics

Stockholm School of Economics

Torbjörn Engdahl

Department of Economic History

Uppsala University

1 Agardh 1865, Nordström 1853, Wennberg 1829,Ögren 2003.2 For most parts of Swedish history the circulation ofspecie coins was stable at a negligible level.3 Kiyotaki & Wright 1992.4 Even in late nineteenth century, a large part of theSwedish money supply held by the public was in theform of private IOUs. Lindgren 2002.5 Lindgren 1968, Nygren 1985, Sveriges Riksbank1931.6 Utterström n.d.7 Ahlström 1974, Ahlström 1989, Hallendorf 1931,Heckscher 1949.8 Ögren 2003.9 Boëthius & Kromnow 1968, Kock 1931.10 Ögren 2003

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References

Agardh, J. M. (1865) Om Bank-väsendet och penninge-theorien. Norstedts. Stockholm, Sweden.

Ahlström, G. (1974) Studier i Svensk ekonomisk politik och prisutveckling 1776-1802.Studentlitteratur. Lund.

Ahlström, G. (1989) “Riksgäldskontoret och Sveriges statsskuld före 1850-talet” in Dahmén (Ed.)Upplåning och utveckling. Riksgäldskontoret 1789-1989. Norstedts Stockholm.

Boëthius, B. & Kromnow, Å (1968) Jernkontorets historia. Del II:2. Den ekonomiska liberalismensgenombrottstid, Stockholm.

Hallendorf, G. (1931) “Bankens öden från mössväldet till den andra 1766-1803” in Sveriges Riksbank1668-1924-1931. Bankens tillkomst och verksamhet. Part III. Sveriges Riksbank. Stockholm.

Heckscher, E. F. (1949) “Riksgälds en unik fas i det Svenska penningväsendets historia.” Ekonomisktidskrift 1949.

Kiyotaki, N. & Wright, R. (1992) “Acceptability, Means of Payment, and Media of Exchange” Fed-eral Reserve Bank of Minneapolis Quarterly Review 16, pp. 18-21

Kock, K. (1931) Skånska Privatbanken. Minnesskrift, Skandinaviska Kreditaktiebolaget, Göteborg,Stockholm and Malmö.

Lindgren, H. (2002) “The Modernization of Swedish Credit Markets, 1840-1905: Evidence fromProbate Records” Journal of Economic History 62, pp. 810-832.

Lindgren, T (1968) Riksbankens sedelhistoria 1668-1968. Rabén och Sjögren. Stockholm.

Nordström, J. J. (1853) Afhandlingar hörande till läran om crediten. I. Credit- och bankväsendet.Norstedt. Stockholm, Sweden.

Nygren, I. (1985) Från Stockholm Banco till Citibank. Svensk kreditmarknad under 325 år. Liberförlag. Stockholm.

Sveriges Riksbank (1931) “Statistiska tabeller 1668-1924” in Sveriges Riksbank 1668-1924-1931.Bankens tillkomst och verksamhet. Part V. Sveriges Riksbank. Stockholm.

Utterström, G. (n.d.) “Från 1671 års växelstadga till 1752 års resolution på ständernas allmännabesvär”, part 1 in an unpublished manuscript: Om inrikes växlar i Sverige1671–1851, mimeo, De-partment of Economic History, Uppsala University.

Wennberg, J. O. (1829) Om myntbestämning och realisation. Hörberg. Stockholm, Sweden.

Ögren, A. (2003) Empirical Studies in Money, Credit and Banking: The Swedish Credit Market inTransition under the Silver and the Gold Standards, 1834 – 1913. Doctoral thesis. Stockholm Schoolof Economics.

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The banking sector in Lebanon is consideredto be a leading sector of the economy. Despitethe multiple crises and obstacles that have facedLebanon throughout its modern history, thebanking sector first began to establish itselfduring the nineteenth century and developedduring this period under a system of free ex-change, free competition, private initiative, andcomplete freedom of capital flows.

The banking sector has forged an investmentclimate favourable to its own development andgrowth, enabling Lebanon to occupy a respect-able position in the regional financial market,especially in the period after World War II. Leba-non traditionally played an important role as aregional financial service centre in the MiddleEast. This esteemed position was possible dueto Lebanon's strategic location, its traditionallyopen and liberal market based economic sys-tem, and a long-standing bank secrecy law.

This paper analyses the origins of the bankingsector and its connection to the economic de-velopment during the period 1800 - 1917. Dur-ing this period, Lebanon witnessed a financialand economic boom. This boom was expressedby a rapid rate of economic growth in variousactivities. A particular fundamental motivationbehind this paper is to attempt to study the re-lationship between the banking industry andeconomic development.

Economic Conditions and Banking duringthe Ottoman period

The European demand for silk enhanced tradebetween Europe and Lebanon from the seven-teenth century onwards, a time when Lebanon

began exporting silk to France and Italy. Due tothese trade relations, during the nineteenthcentury and continuing into the twentieth cen-tury, Lebanon increased production for, andtrading with, the international market. Capital-ist relations developed in the Mount Lebanonand Beirut region; a class of Lebanese mer-chants, bankers, financiers and intermediariesemerged, as they accumulated capital, skills andinfluence with the seeking of new export mar-kets amongst European industrial powers. Po-litical changes in the Middle East lead to aneconomic environment which favoured Euro-pean trade and local markets for Europeanmanufactured exports were opened in the re-gion through a variety of political and economicinstruments. In this environment, in 1861 theOttoman Empire established a self-ruling sys-tem for the Mount Lebanon. During the periodbetween 1861 and 1913, Beirut became animportant commercial and financial centre as anOttoman vilayet (district), due to the Europeanconsuls and concessionary offices, and the in-fluential educational and cultural centres inwhich French, American, British and other for-eign institutions were established. Furthermore,rich and influential bourgeois families migratedto Beirut in order to take advantage of what thegrowing region had to offer (Salibi, 1977:142);Beirut thus became the most prosperous city inthe region (Fawaz, 1983:73). Under these con-ditions, Lebanon assumed three basic economicroles as it integrated into the internationaleconomy: it became a market for Europeanmanufactures and investments, an export pro-ducer of primary and semi-finished commodi-ties, and an intermediary for international goodsand services in the region (Gates, 1998).

Banking and Economic Development

Banks from Istanbul to Beirut 1800 - 1917

Most assumptions about economic growth have been strongly related to the importance of themanufacturing sector. This paper is very suggestive for further research that highlights historicallythe role of banking in connection to economic development. The banking sector is not "neutral" inconnection to economic development. Where it exists, it does so because there is a demand for itsservices, and such a demand is usually evidence of a growing, developing economy.

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During the first half of the nineteenth century,the Ottoman Empire suffered from a series ofterrible economic and monetary crises, mainlydue to the conflict with Russia. As the crisisescalated, the Empire resorted to the Europeanbanks in order to finance its public debts andto facilitate its internal and external trade. TheEmpire, burdened by its undeveloped monetarysystem, became acquainted for the first timewith the banking system and readily opened itsdoors to the institutions of this new system. Atthat time, Lebanon as an Ottoman district hadno independent monetary system and it wascompletely affiliated with the Ottoman monetarysystem; it was therefore affected by the lattermonetary consequences. As banks entered intothe Empire on a large scale, so did they enterinto Lebanon; European banks in particularrushed to open branches in Beirut and otherLebanese cities. Beirut became a vital centreof trade between Greater Syria and Europe.During this period, however, there was practi-cally no real local banking sector in Lebanon.Most of the loans, discounts and credit activi-ties available at this time were supplied by anumber of local, mainly family owned, financialinstitutions which provided a most efficient sub-stitute for a real banking sector. They advancedloans to the productive sectors, especially tosilk-culture and trade, which enjoyed a strongrelationship with the rise of banking sector inLebanon (Himadeh, 1935:28).

The Ottoman Empire's economic crisis first be-came evident around the middle of the 19thcentury and severely affected the general eco-nomic situation and living standards throughoutthe Lebanese areas. Whereas the socio-eco-nomic situation deteriorated as a result of themonetary crisis, the banking activities were, inthe contrary, quite positively affected. Indeed,because of the severe crisis of government'streasury, the Empire opened itself up to the in-ternational market, allowing the Europeanbanks to exercise their activities and openbranches in major Ottoman cities, the most im-portant of which was Beirut in Greater Syria.Furthermore, at that time, Europe was goingthrough an industrial revolution prompting agreat development of its capital, while the Ot-

toman economy was still structured along thelines of a traditional agricultural economy. More-over, maritime transports developed consider-ably, greatly facilitating and increasing importsof European industrial goods, at a speedy andintense pace. Beirut's port became a major sea-port of European imports into the OttomanEmpire. As a result, Beirut became a vital nerveof foreign trade between the Ottoman Empireand Europe, and consequently became moredependent on the European Economy (Ashi andAyache, 2002:15-19). Between 1825 and 1841,European imports increased in Beirut from 5.6million piasters to 19.5 million, while exports onlyincreased from 4 million to 7 million piasters(Chevallier, 1994).

The effect of World War I upon the bankingsector was, however, considerable. Foreignbanks of enemy countries and many local banks,fearing confiscation of their assets, transferreda great part of their resources abroad. Bank-ing activities were reduced to a minimum as thewar and its effects interfered with all aspects ofbusiness. Foreign trade slackened greatly be-cause of the almost complete stoppage of seatransportation and exchange restrictions. Inter-nal trade also suffered because of the difficul-ties of land transportation. The banks were ex-tremely concerned with the liquidation of theirdebts and credits and, consequently, creditextension was considerably limited. This was thedirect result of the uncertainties which emergedduring the war period (Himadeh, 1935:41-42).

Banks: from Istanbul to Beirut

During the second half of the nineteenth cen-tury, Lebanon witnessed the establishment ofnew local and foreign banks. Local banks in-creased in number and foreign banks inIstanbul began opening branches in the majorOttoman cities. Local banks were private andsmall in size compared to foreign banks. Theyoperated in the Lebanese cities and towns,especially Beirut, and executed a considerableamount of lending and discounting to domestictrade, received deposits, and carried out someminor exchange business.

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Because of its commercial importance,branches of foreign banks extended to Beirut.This led to an increase in banking operationswith a corresponding increase in foreign anddomestic trade. Lebanese economic historiansascribe Beirut's rapid growth to the develop-ment of its trade with Europe during the nine-teenth century, and the vital role played byBeirut in facilitating trade with Greater Syria(Himadeh, 1935:30-31).

Beirut, whose population did not exceed a fewthousand at the turn of the century, welcomedthe multitude of immigrants who were in searchof profits and work, and its port became one ofthe most active and developed ports of the re-gion. In 1856, Beirut witnessed the opening ofbranches of the Imperial Ottoman Bank, followedby many European banks, which hoped to takeadvantage of the city's vitality and its promi-nence as one of the most important seaportsin the Middle East (Ashi and Ayache, 2002:26).

Unfortunately, there are no available statisticsfor the volume of banking operations. Foreignbanks in this period were predominant and hadthe advantage over local banks of broader over-seas contacts. Because of this advantage, for-eign banks were able to take over the largershare of banking operations in Lebanon. Thesix most important foreign banks operating inLebanon during the period 1800 - 1917 were:The Imperial Ottoman Bank, The Banque deSalonique, The Anglo-Palestine Company, TheDeutsche Palestine Bank, The Deutsche OrientBank, The Crédit Lyonnais Francais (Himadeh,1935:29-30).

The Imperial Ottoman Bank was the biggest fi-nancial institution. Founded in 1856 by a groupof British capitalists, it was established under aroyal decree. The Empire encouraged the cre-ation of this new bank, which would boast for-eign capital and accepted the involvement ofthe British group in the establishment of theOttoman Bank. Soon, however, a group ofFrench capitalists also joined the bank's inves-tors. The French group gradually gained con-trol of the bank's capital and became very muchinvolved in the bank's management. A

sultanate's decree, issued in 1863, transformedthe Ottoman Bank into a new institution underthe name 'Imperial Ottoman Bank' (Chevallier,1994). The Imperial Ottoman Bank was in facta private institution based in Istanbul. It playedan important role in the various attempts aimedat reforming the Empire's monetary system. Itenjoyed the right to issue paper currency con-vertible to gold and participated in managing theEmpire's public debt, both foreign and local. Itsloans to the private sector remained, however,modest as the Empire absorbed most of thecredits. This bank opened several branches inLebanese cities, which proceeded to play animportant role in facilitating foreign and domestictrade.

As mentioned previously, despite the initial roleplayed by British investors in setting up theformer Ottoman Bank, the French investorsgradually increased their control within the in-stitution until they owned 80,000 shares againstthe 50,000 shares owned by the British group(Thobie, 1977).

In fact, the Imperial Ottoman Bank was not theonly bank to represent French interests in theEmpire. In 1868, the French institution, "SociétéGénérale", established a bank called Le CreditGeneral Ottoman, owning 60% of its capitalwhich amounted to 50 million French francs dis-tributed over 100,000 shares. Crédit Lyonnaisalso opened several branches throughout theEmpire, and participated in financing the pub-lic debt through the issuance of various loans(Ducruet, 1964).

In 1875, the Crédit Lyonnais Francais openedbranches in Beirut and Jerusalem. The Beirutbranch played a very important role in financ-ing the silk trade between the Syria provinceand Europe, in particular the French city ofLyon. After the bank Salonique was establishedin 1888, and after it moved its properties to theSociété Générale, the Rothschild group went onto set up another bank, the Anglo Palestine Co.Ltd., which expanded throughout the Empire,including a branch in Beirut. It was within thisgeneral climate of European competition in theEmpire that the Deutsche-Palestina Bank was

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established in 1889, with branches in Beirut,Tripoli and Damascus. German investors alsocreated the Deutsche Orient Bank in 1906(Ashi and Ayache, 2002:26-27).

The Contribution of the Banking Sectorto Silk Industry

Family-run enterprises had an important role inplanting the seeds of the Lebanese bankingsystem. They began in the second half of thenineteenth century to infuse loans into the do-mestic economy, particularly financing trade andagriculture. At the turn of the twentieth century,Beirut witnessed a period of prosperity anddevelopment. A certain part of the Lebanesesociety emerged as traders, financiers andbankers. Beirut benefited mainly from the facili-ties offered to European banks and companiesby the Ottoman authorities. Beirut's link withthese regions, for example with Syria, was sup-ported by transportation projects, most impor-tantly the Beirut-Damascus road executed by aFrench company.

Lebanon's position in the nineteenth centuryinternational market economy was shaped bythe development of the silk industry. Lebanonbegun to specialise in raw silk production at atime when silk exports to France were expand-ing rapidly and which continued to do so up untilWorld War I. Although data are difficult to ob-tain, the nature and the pace of the growth insilk production and trade can be put into con-text by several indicators. Rapid growth of out-put and export of Lebanese silk began in themid-nineteenth century, as suggested by theincrease of silk exports from Beirut between1841 and 1851 (Smilianskaya, 1966: 229-230).

This trend peaked between 1873 and 1920,when the production of raw silk in Lebanon in-creased by over 350 percent as a direct resultof rising foreign demand especially from France(Labaki, 1983:28). Moreover, the total weight ofsilk products in terms of exports from Beirut'sport doubled from about 25 percent at themiddle of the century to 50 percent during the1890s (Chevallier, 1971:28). Silk and cocoonoutput in Lebanon grew most rapidly from 1873

to 1915, to reach a point where exports werealmost completely dependent on France; in1873, 40 percent of total silk exports were sentto France, yet by 1914, this figure had risen to99 percent. Just prior to World War I, silk pro-duction comprised 36 percent of GNP in MountLebanon (Labaki, 1984:28,155-56). From thesefigures, it becomes evident to what extent theincrease of silk production increased Lebaneseindependence on French industry, commerceand finance.

Most Economic historians in Lebanon ascribethe birth of banking activities during the secondhalf of the nineteenth and the beginning of thetwentieth centuries to the rise of silk productionas a fundamental driving factor of the Lebaneseeconomy. The highly profitable silk trade wasvery important in terms of shaping Lebanon'sbanking sector. The trade and banking serviceswhich were developed in Beirut and MountLebanon during this period focused on offeringfinance and loans to the silk industry as well asto the various component activities necessaryto its production. Beirut considerably benefitedfrom its commercial role as mediator betweenthe producers of cocoons and silk threads inGreater Syria, and between the major exportcentres, such as the French city of Lyon. Con-sequently, this production thrived in MountLebanon to such an extent that a number ofFrench entrepreneurs actually moved into theregion in order to establish silkworm nurseriesin Beirut and its surroundings. The productionof silk threads increased from 117,000 kg in1876 to 525,000 kg in 1911 (Labanki,1984:156)

In this prevailing climate, Lebanese banksstarted seeing the light of day, increasing innumber as a result of these economic condi-tions and as a response to an urgent need forfinancing. Silk-culture required a specific kindof banking operations, both to provide loans toproducers and to facilitate exports. As a result,a number of family institutions were establishedby rising commercial bourgeoisie located mainlyin Beirut, Sidon, and Tripoli. These institutionsstarted offering banking services, using theirsavings to finance individuals and certain

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projects. Furthermore, foreign trade, especiallysilk exports to France, created a need to installrepresentatives of French and European Bankswithin Beirut. At the turn of the twentieth cen-tury, the Lebanese banks had become corre-spondents to various Ottoman, Arab and Euro-pean banks. Banking activities were closelylinked to the rest of the trade activity as bank-ers were also active in trade, namely in export-ing cocoons and silk threads to France, as wellas importing seeds to grow silkworms. Onecould even say that banking was the working linkwith the silk trade, especially in Beirut. This isexplicit through available information about thetrade of silk in Lebanon.

Gaston Ducoussou, the attaché at the Frenchgeneral consulate in Beirut, wrote that between1904 and 1910, there were 73 silk exporters inthe city, exporting around 90 percent of theirsilk. Despite this figure, only seven traders outof 73 dominated the sector and they absorbed72 percent of the Lebanese silk exports (Labaki,1984).

When looking more closely into these groups'activities, it becomes clear that they were allinvolved in a variety of activities, therefore in-creasing their annual profit year by year. Thisexpansion of activities was in fact due to thedirect link between the silk trade and the bank-ing industry. A notable example is Morgued'Algue; the company also owned a silk factoryand represented two insurance companies, inaddition to importing seeds for silkworms andsoap from France. It also enjoyed privilegedrelations with commercial companies inMarseilles. In short, the considerable impor-tance of silk trade cannot be overlooked whenexamining the origin of development of the Leba-nese banking sector.

This connection between banking activities andlocal industries was not limited to Lebanon assuch a connection between the financial sec-tor and industrial production was an establishedfact in most developed countries. The economictransformation and massive manufacturing pro-cess taking place in Western Europe were onlypossible because of transformations that oc-curred in the capital markets, making it possible

to obtain funds from impersonal sources and topool investment capital. The banking sectorplays very vital and dynamic role in any func-tioning economy, and that stimulates growth inother sectors (Riddle, 1986:41-42).

In France, where silk production was very pros-perous during the second half of the nineteenthcentury, a silk trader had to secure an impor-tant capital for his commerce. According toClerge (1925), there was a strong relationshipin existence which had brought together banksand silk producers for centuries in France.Banks secured financing through the very fa-cilities that they supplied and, in turn, facilitatedthe silk trade with documentary credits. Forthese reasons, Clerge added, the silk traderwas very often a banker too. Clerge's descrip-tion is an accurate depiction that is in accor-dance with the then prevailing situation in Leba-non. The financing required by the productionand trade of silk led to the creation of this linkbetween the two activities, whereby each sec-tor contributed in developing the other.

Although it is difficult to specify the precise na-ture and volume of financing for silk industry inthis period, it is clear that the initial capital for anumber of firms came from mercantile profits,loans from banks, and family enterprises. Thegradual expansion of the silk industry in Leba-non during the nineteenth century and the be-ginning of the twentieth century leads one tobelieve that re-investment of returns from tradealso played a part in financing the silk industry.Due to this mutual interdependence, as men-tioned before, the relationship between trade,banking, and silk industry paved the way for theemergence of a new banking sector during thisperiod. In addition, a number of family enter-prises moved into the sector banking from in-dustry; for example, Casimir Eynard, a French-man, was an exporter and a producer in the silk-culture, a representative of several foreign in-surance companies, an importer of French soapand seeds for silkworms, as well as France'sadvisor on foreign trade. Eynard enjoyed bothcommercial and family ties with Lebanesepeople. Indeed, he was a relative of Emile Edde,who was to become the president of the Repub-

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lic during the French mandate. Eynard estab-lished, along with Edde and Robert Sabbagh,an industrial and commercial textile company.Sabbagh became active in banking and finallyfounded the Sabbagh bank, which financed andbought several factories (Ashi and Ayach,2002:33).

Another example is the Bassoul Company,which as well as being Beirut's leading silk ex-porter, also controlled a number of banks inFrance. Veuve Guerin & Fils, which owned amajor silk factory in Lebanon, also representeda bank in Lyon-France that imported silk fromthis region. As for Habib Sabbagh & Sons, thecompany started as a national banking institu-tion and was later to become a partner in theIndochine Bank. The same went for Trade &Partners, which later became a partner of CréditLyonnais. The Imperial Ottoman Bank also hada share in an export company from Beirut. Eco-nomic experts estimate the share of silk export-ers who were also bankers to be at around 45percent of the total exporters working out ofBeirut (Ashi and Ayache, 2002:35).

This link between the banking sector and silkproduction shows one of the important charac-teristics of the Lebanese economic history be-fore World War I. The Lebanese banking sec-tor occupied a predominant role in financing andfacilitating silk production and trade, which wasthe main pillar of growth for the Lebaneseeconomy during this period of Lebanon history.An indicator of this importance is the fact that40 percent of the land in Mount Lebanon wasplanted with mulberry, silkworms' main nourish-ment (Labaki, 1984).

Although it is difficult to determine the nature,cost, and amount of capital injected into the silkindustry, one can assume that banks were amain source of the capital used to promote thesilk industry in nineteenth century Lebanon.Funds also came from agriculture by means ofa direct transfer of any surplus by landlords,and profits gained from mulberry cultivation andsilk production. Bankers, financiers, commercialbourgeoisie, and landlords as well, controlledmost of the economy.

Conclusion

As a conclusion, one can suggest that the fis-cal weakness of the Ottoman Empire, combinedwith its undeveloped banking system, was themain incentive which led to the introduction ofEuropean banks into the Empire, as well as tothe establishment of branches within the regionthat would, in 1920, become the republic ofLebanon. As an overall assessment of the eco-nomic process between 1800 and 1917, thebanking system in Lebanon, which was estab-lished under these circumstances, played a vi-tal role in contributing to the overall performanceof the domestic economy and notably in financ-ing silk industry, whereas activities of foreignbanks were mainly focused on granting loansto the Ottoman Empire and financing Europeantrade. During this period, enterprises were at-tracted by activities that promised high andquick returns and rewards of trade and serviceinvestment. Therefore, extensive ties betweenbanks and trade appeared alongside an in-creasing interest in silk production.

This growth in the silk industry was in fact sup-ported the least by foreign investments in Leba-non. In short, the most striking features of theyears between 1800 and 1914 were the expan-sion of silk production, due to the growing de-mand from European countries for silk goods,and the prosperity of banking activities. Beirut'sexports expanded rapidly and, as Europeanefforts were focused on finding new export mar-kets, this region was greatly favoured due to theincrease in total imports.

Ali Abou-Zeinab

PhD candidate

Department of Economic History

Lund University

Sweden

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Bibliography

Ashi, Georges and Ghassan Ayashe, A Historyof Banking In Lebanon, Banque Audi, Beirut,2002.

Burns, Normaan and Edwards, Foreign trade,in Sa'id himadeh (ed). Economic Organisationof Syria, Beirut, 1936.

Buheiry, Beirut's Role, p.3, In Kamal Salibi, TheModern history of Lebanon (New York,1977)

Chevallier, Dominique, La societe du MontLiban a l'epoque de la revolution industrielle enEurope. Paris, 1971.

Chevallier, Dominique." La societe du MontLiban a l'epoque de la revolution industrielle enEurope"; The Arabic version. Dar el Nahar,Beyrouth, 1994.

Clerge, Pierre, Les industries de la soie enFrance, in Armand Colin, Paris, 1925

Dahir, Mas'ud, The Social History of Lebanon:1914-1926, Beirut, 1974.

Ducruet, Jean, "Les capitaux europeens auProches-Orient". PUF-economie internationalecollection, Paris,1964.

Fawaz, Leila, Merchants and Migrants in Nine-teenth Century Beirut 1860-1914, Paris, 1981and Cambridge,1983.

Fraser,Gup,Klori, Commercial Banking, TheManagement of Risk, South-Western CollegePublishing, USA, 2001.

Gates, Carolyn L., The Merchant Republic ofLebanon, Rise of an Open Economy, The Cen-tre for Lebanese Studies, Oxford,1998.

Gourad, Henri, La France en Syrie, Paris,1922

Himadeh, Sa'id, Monetary and banking systemof Syria and Lebanon, Beirut, 1935.

Himadeh, Sa'id ,'Monetary and banking system' in Sa'id Himadeh .Economic Organisation ofSyria. Beirut, 1936.

Hershlag, Zvi, Introduction to the Modern Eco-

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nomic History of The Middle East, Leiden,1972.

Hermes, Niels and Robert Lensink, FinancialDevelopment and Economic Growth, Theoryand Experience from Developing Countries,Routledge Studies in Development Econom-ics,1996.

Himadeh, S.B., Monetary and Banking Systemof Syria, Beirut American Press, 1935.

Issawi, Charles, The Economic History of theMiddle East and North Africa, New York, 1982.

Issawi, Charles, The Fertile Crescent 1800-1914: A Documentary History, New York, 1988.

Jacques Thobie. "Interets et imperialismefrancais dans l'empire Ottoman. 1895-1914.Universite Paris I, 1977.

Labaki, Boutros, Introduction a l'historieeconomique du Liban: soie et commerceexterieure en fin de periode Ottomane (1840-1914), Beirut, 1984).

Nickoley, Edward, 'Transportation an communi-cations', In Sa'id Himadeh, Economicorganisations of Syria , Beirut, 1936.

Rizk, Charles, Le Regime Politique Libanaise,Paris, 1966.

Riddle, Dorothy I., Service-Led Growth; TheRole of the Service Sector in World Develop-ment, New York, USA,1986.

Smilianskaya, Irina M., 'from subsistence to mar-ket economy: the disintegration of feudal rela-tions in Syria and Lebanon in the middle of thenineteenth century', in Charles Issawi (ed.) TheEconomic History of the Middle East, 1800-1914,1966

Saba, Paul, The Development and Decline ofThe Lebanese Silk Industry, Oxford,1977.

Sayers, R.S, Modern Banking, Oxford,1960.

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The main proponents of free banking typi-cally use (some might say abuse) banking his-tory to argue their case. For example, LarryWhite in his book Free Banking in Britain arguedthat nineteenth century Scotland is a prima fa-cie case, which demonstrates the efficacy of freebanking. Other historical free banking episodesare said to have occurred in Australia, Canada,France, Ireland and the United States. Interest-ingly, those on the opposite side of this debate,such as Charles Goodhart, have also usedbanking and monetary history to argue theircase.

The central theme of my research hasbeen to examine the feasibility, stability and ef-ficacy of unregulated banking systems. My maincontribution is to highlight the important connec-tion between unlimited shareholder liability andbanking stability in such systems. In the nine-teenth century, countries with unregulatedbanking systems fell into two categories - thosewhich restricted the majority of banks to theunlimited liability joint-stock form of ownershipand those which didn't. Interestingly, in a forth-coming article, my co-author and I suggest thatbanking instability was closely correlated withunregulated banking systems which permittedbanks to have limited liability.1 We also found aclose positive relationship between regulationand stability in several nineteenth centuryeconomies.

In the nineteenth century, unlimited liabil-ity played an important role in assuring deposi-tors and note-holders of English, Irish and Scot-tish banks that their bank wouldn't opportunis-tically increase its risk-taking. If a bank did taketoo much risk, and subsequently failed, theburden of the failure fell on shareholders asthey were liable to their last 'acre and sixpence'.On the other hand, when shareholders have lim-ited liability, the cost of bank failures is sharedby depositors and note-holders. Consequently,limited shareholder liability creates incentivesfor banks to increase their risk profile.

Notably, the Scottish free banking systemhad both limited and unlimited banks. However,the limited liability banks were publicly-charteredbanks (Bank of Scotland, Royal Bank of Scot-land and British Linen Company), and are usu-ally viewed as quasi-state banks. Apart fromthese exceptions, all other Scottish banks wererestricted to having unlimited liability. Althoughunlimited liability banks did fail in Scotland,shareholders bore most of the cost. For ex-ample, the infamous City of Glasgow Bank fail-ure in 1878 resulted in no losses to depositors,but after the bank's liquidation, only 254 of its1,819 shareholders were solvent.

One of the most problematic episodes ofunregulated banking for the free bankingschool is that of Australia, which suffered adevastating banking crisis in 1893. Unlike Scot-

Bank Regulation and Banking History

In the 1980s, the free banking school remerged, arguing that cen-tral banks are not essential to the well-being of the monetary sys-tem and that banks should be free from all government restrictionsand regulations. Although the policies of this group of neo-Austrianeconomists have not been implemented, they have had a large in-fluence on policy makers. Indeed, even Hayek, the Nobel Prizewinner who provided Margaret Thatcher with some of her philosophi-cal underpinnings, advocated a free-market monetary system in hisDenationalisation of Money.

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land, all Australian banks were permitted tohave limited shareholder liability. My co-authorand I argue that the Australian banking crisiscan be mainly attributed to the existence of lim-ited liability banks along with the absence oflegal constraints upon bank risk-taking.2

It appears, therefore, that unlimited liabil-ity is closely connected with banking stability.However, if unlimited liability joint-stock bankshave freely transferable shares, there is thepotential that shares could be transferred towidows, orphans and other impecunious indi-viduals. This problem is exacerbated whenevera bank is about to fail. For example, it wasclaimed that several shareholders of the Agri-cultural and Commercial Bank of Ireland gaveaway their shares in 1836 to beggars on thestreets of Dublin when it became apparent thatthe bank was about to fail.

Walter Bagehot, the renowned polymathand author of Lombard Street, was critical ofunlimited liability joint-stock banks. Writing in the1850s, it was his contention that if bank shareswere not already in the hands of the poor, theysoon would be. In two recent articles, we havequestioned this Bagehot hypothesis. Firstly, us-ing the Capital Asset Pricing Model, we exam-ined the risk of English bank shares in the 1870sand 1880s. We found that after the conversionto limited liability in the early 1880s, the risk ofbank shares fell, indicating that shares weren'towned by impecunious individuals.3 Secondly,we examined the characteristics of individualswho bought shares in an Irish unlimited liabilitybank in the period 1868-1879.4 We found thatshares were not transferred to impecunious in-dividuals, and it was remarkable to find thatthose who bought shares after the failure of theCity of Glasgow Bank were wealthier than pre-vious investors!

When a bank has unlimited liability, it is inthe interests of the wealthiest owners to partici-pate in the bank's governance as they have themost to lose from poor management. Subse-

quently, these individuals can control entry intothe ownership of the bank. Notably, the deedsof settlement of British banks granted directorsthe power to vet all share transfers and refuseentry to anyone they deemed unsuitable. How-ever, as a bank approaches failure, directorsand other wealthy owners will want to dump theirshares so as to escape calls upon their wealth.Nevertheless, the legislation which governedthe establishment of this unlimited liability con-tained a post-sale-extended liability clause. Thisclause made bank owners liable for their bank'sdebts for three years after they had sold theirshares, giving wealthy owners every incentiveto hold unto their shares during a period of fi-nancial distress.

One possible rationalisation as to whyBagehot believed what he did is that there wereseveral banks, such as the Agricultural andCommercial Bank of Ireland, which did have alarge number of poor shareholders. However,this bank did not move from a position of hav-ing a wealthy shareholding constituency towardsone with poor shareholders; it commenced busi-ness with a low-wealth constituency as its mis-sion was to open bank ownership to the lowerclasses.5 Consequently, this bank may havebeen de facto limited, resulting in it being ableto undertake greater risk than its rivals.Unsurprisingly, this bank failed in 1836.

Unlimited liability in British banking cameto an ignominious end with the failure of the Cityof Glasgow Bank in 1878. Subsequently, by themid-1880s, most banks in Britain had adoptedthe limited liability form of ownership. However,depositors would have required some alterna-tive form of assurance that banks wouldn't in-crease risk-taking at their expense. The mainquestion that I was trying to answer during mytenure at the Bank of England as a Houblon-Norman Fellow was what the alternative form ofassurance was that made this move to limitedliability possible. The overall project which I in-vestigated was the evolution of bank regulation

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in Britain. I am currently writing up the resultsof this study, and hope to disseminate these inthe near future.

With Basel II looming on the horizon andcontinual pressure being exerted on develop-ing economies to liberalise their banking sys-tems, the issue of bank regulation is topical. Itis my contention that banking history has some-thing to teach modern-day policymakers. Firstly,one of the main historical lessons is that share-holder capital has played an important stabil-ity-enhancing role. Secondly, historical episodesof unregulated banking need to be placed intheir institutional context.

1 Hickson, C.R. and Turner, J.D. (2004) “Free Bankingand the Stability of Early Joint-stock Banking”, Cam-bridge Journal of Economics (forthcoming).

2 Hickson, C.R. and Turner, J.D. (2002) “Free BankingGone Awry: The Australian Banking Crisis of 1893”,Financial History Review, vol. 9, pp.147-67.

3 Hickson, C.R. and Turner, J.D. (2003) “ShareholderLiability Regimes in English Banking: The ImpactUpon the Market for Shares”, European Review ofEconomic History, vol.7, pp.99-125.

4 Hickson, C.R. and Turner, J.D. (2003) “Trading in theShares of Unlimited Liability Banks in NineteenthCentury Ireland: The Bagehot Hypothesis”, Journalof Economic History, vol. 63, pp.931-958.

5 Hickson, C.R. and Turner, J.D. (forthcoming) “TheGenesis of Corporate Governance: Nineteenth-cen-tury Irish Joint-stock Banks”, Business History.

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John Turner has a PhD from Queen's University of Belfast. His dissertation examined the evolution ofbank regulation from both a theoretical and historical perspective. From 1997 to 1999, he was a Lecturer inEconomics at the University of Ulster. Since 2000, he has been a Lecturer at the School of Managementand Economics, Queen's University of Belfast. John mainly teaches financial economics, but he finds thathis students really enjoy studying financial history. Indeed, several MSc Finance students have undertakenfinancial history dissertations under his supervision.

In 2003, he was a Houblon-Norman Research Fellow at the Bank of England. At the Bank, he wasinvestigating the evolution of bank regulation in Britain. British banking did not have a formal framework ofregulation and supervision until 1979. Nevertheless, in stark contrast to many countries that did have sucha framework, the British banking system from the late nineteenth century was stable. John, during his timeat the Bank, was attempting to resolve this paradox. In order to do so, he spent long hours in the Bank'sarchives.

John is also working on several other projects at the minute. Firstly, along with Charles Hickson, he isanalysing the evolution of the corporation, limited liability and corporate governance. Presently, they areworking on a paper examining the impact of introducing limited liability on the market for bank shares. Sec-ondly, he is undertaking a British Academy sponsored project to investigate the market for English andScottish bank shares in the nineteenth century. This project requires extensive data collection from the archivesof the major banks. Finally, he is investigating the performance of the Irish stock market in the period 1865to 1914. Fourthly, along with Graeme Acheson, he is examining the impact of limited liability on ownershipand control. In order to do this, they have examined the shareholder records of the Ulster Bank up until1914.

Dr. John Turner

School of Management & Economics

Queen’s University of Belfast

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From the 16th and 17th century onwards andcontinuing well into the 19th century, a periodknown as the heyday of the great collections ofcuriosities, ensued whereby, people would col-lect a huge diversity of all kinds of objects. Thisincluded archaeological, ethnographic, botani-cal, art-historical, bibliophile, medical objectsand many others besides. Usually any kind ofmethod or selection criteria was lacking andpeople collected just about anything. By today'sstandards, the scientific merits of such collec-tions are highly questionable. Nonetheless, theydo provide us with a clear picture of a buddingscientific awareness.

Around this time, collections of different kindsof wood, known as xylotheques, derived fromthe Greek xulon (wood) and théke (case) werealso fashionable. These collections consistedof dried leaves, seeds, pollen grains, twigs andwoody plants stored according to wood type.They were usually kept in small boxes shaped

Xylotheque compiled by Johan Hildt

to resemble a set of books. The most wellknown xylotheque in the Netherlands can befound at the 't Coopmanshus museum inFraneker, in the northern Dutch province ofFrisia. A less known fact is that ABN AMRO alsoowns a xylotheque. The two-volume 'book' isone of the oldest known xylotheques. It wasmade in 1798 by one Johan Adolf Hildt inGotha. What makes this xylotheque particularlyspecial is the fact that it was actually kept in theform of a book, with wood samples from differ-ent types of trees countersunk into the card-board pages. The complete German title is"Sammlung In- und Ausländischer Holzarten zurtechnologischen Kenntniss, Charackterisstikund Warenkunde aller Kunst-, Farb undApothekerhölzer" translated as A Collection ofNational and Foreign Types of Wood for thepurpose of Technological Knowledge, Charac-terization and Classification of all Artificial,Coloured and Pharmaceutical woods. The titleitself reveals why these books were kept at thetime and why a copy was found in the formerlibrary of the Netherlands Trading Society, ABNAMRO's oldest predecessor and one-timebanker, as well as owner of several plantationsin the Dutch East Indies. The xylotheque un-doubtedly proved very useful for employeessent to work at the Company's overseas plan-tations.

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Cash

Coins are the oldest medium of payment still inexistence. Over two millennia, coins dominatedboth domestic and international trade, and pri-vate payments. With the spatial extension oftrade in goods, there was a demand for a moreuser-friendly medium of exchange. For commer-cial transactions, the bill of exchange was in-vented and the transport of considerable quan-tities of coins had become obsolete. Privatepersons, however, still carried coins made ofprecious metals such as gold, silver and cop-per. In the course of time, the coinage systemwas re-evaluated and the original weights andgrades of finesse were altered or replaced bycoins of non-precious medals. At times of short-ages, coins were sometimes temporarily re-placed by paper money. Around 1850, papercoins of 10, 50 and 100 guilders were intro-

duced in the Netherlands as a coin substituteduring the reminting of legal tender. Althoughoriginally a way of avoiding a shortage of silver,this paper money stayed in circulation until1904. Only at this time did Dutch householdsbegin to use banknotes as a medium of ex-change.

Banknotes were the first product innovation inwhat is nowadays referred to as retail payments.Although paper money had already been in usefor a long time in China, they were first intro-duced in Europe in the late 17th century. Swe-den was the first European country to usebanknotes where, in 1661, Stockholm's Bancowas the first issue bank. By the end of the 17thcentury, banknotes had been introduced inEngland, Scotland and Norway. Gradually,banks in various countries were granted theprivilege to issue banknotes. In the Nether-lands, banknotes were introduced just after theestablishment of De Nederlandsche Bank, inApril 1814. This remained the only issue bank.For almost a century, however, its banknoteswere mainly used as commercial paper ratherthan for daily purchases. The first Bank Char-ter in 1814 had specified the issue of nine de-nomination bank notes, varying from 25 to1,000 guilders. At that time, these wereunprecedentedly high denominations, which, ifconverted into today's currency, would equalaround 450 to 18,500 Euros. As long as the

“Check please!”

The Rise and Fall of Means of Payment in the Netherlands 1814-2004

Buying, selling and paying are an age old phenomena. At present one can pay cash or cash-less - by giro or by electronic transfer - and there is a wide variety to choose from: coins, banknotes,switch cards, debit cards, credit cards and chip cards. Ongoing product innovation in the internetage increases the number of possibilities even further. Generally speaking, innovations have beenapplied to the realms of commercial payments first and, from there, have spread to private pay-ments. During the past century the boost in new means of payment paralleled a process of crowd-ing out of some of the older means of exchange. Historically speaking, we are in a unique situationwhereby one can choose from a multitude of payment instruments. The reverse of this rather uniquesituation is that consumers have become more technology dependent when they pay.

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Dutch a coin note of 10 guilders (1853)

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wages remained below the smallest denomina-tion of 25 guilders, the common Dutch con-sumer of the 19th century did not handle a singlebanknote during his lifetime. The breakthroughof banknotes as a general medium of paymentcame in the early 20th century with the introduc-tion of a ten guilder banknote. The rising pub-lic demand for banknotes more or less coincidedwith the introduction of non-cash paymentstransfers by giro. This new mode of remotepayment appropriate for both businesses andhouseholds marked the end of cash supremacy,although this crowding out process would takemore than a half a century.

Non-cash transfers

By the end of the nineteenth century, a new wayof paying emerged in various European coun-tries as governments looked at ways to facili-tate retail payments. Although in the Nether-lands the discussion regarding the introductionof the giro started early in the 20th century, it wasonly in 1916 that the national giro was grantedits legal funding. At that time, other Europeancountries had already implemented a giro sys-tem, such as Austria (1882), Germany (1899),Switzerland (1906) and Belgium (1913). Fur-thermore, it would take another two years be-fore the Dutch Post Office Giro ['Postcheque -en Girodienst'] finally opened its doors. Theoriginal non-cash transfers were simple paperpayment orders. By its nature, such an orderwas a remote payment. Soon banks offeredtheir account holders a service of non-cashtransfers too. It should be noted that non-cashtransfers require a far more complex techniqueas well as infrastructure than conventional cashpayments. In the Netherlands, each bank in-cluding the Post Office Giro, had its own par-ticular unstandardised system and it took somenegotiation before all financial institutions in-volved agreed on a national payment system.This therefore allowed the creation of an infra-structure needed for the efficient processing ofpayment orders.

The increase of giro payments gradually meanta decrease of cash payments by the public.Hence, an important development in this pro-cess was the computerization of salary recordsof some major Dutch companies and the intro-duction of current accounts by Dutch banks inthe mid-1960s. Workers, who used to have theirwages paid in cash, were now paid via non-cashtransfer direct to their bank or giro account. Itmarked the beginning of retail banking in theNetherlands. At first, the new, inexperiencedaccount holders showed a strong preferencefor cash and went immediately to their bank orpost office to withdraw in cash the total sum ofearned money. Meanwhile, Dutch banks tried tofind ways of holding this money for a longerperiod of time and also to facilitate non-cashpayment transactions. So, in the 1970s, a rangeof new forms of non-cash payment were intro-duced such as recurring transfer instructions,inpayment transfers and direct debits. Theseproducts were launched accompanied with ex-

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The modern way of buying a parking ticket

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tensive information campaigns. Besides thesevisible innovations, there have also been vari-ous invisible improvements in processing pay-ment orders. A major shift in non-cash transferswas caused by a massive switch-over by thepublic to authorization for collection. Further-more, there have been some major advancesin the field of data processing of the originalhand-written paper orders, such as optical char-acter recognition and optically readable barcodes.

In 1967, the arrival of the guaranteed chequepaved the way for non-cash retail payments.Within a few years, this cheque became a verypopular means of payment among the Dutch.Compared to other countries, the credit cardhad never become very popular in the Nether-lands. In the 1980s, the then popular guaran-teed cheques met severe competition from thepin card (a debit card), which had evolved fromthe plastic identity card which originally accom-panied the guaranteed cheque. At first, thecheque card could only be used in AutomaticTeller Machines as an alternative for cash with-drawals from the bank counter. Due to techno-logical developments, these plastic cards wereprovided with a magnetic strip, making the cardssuitable for use both in a cash dispenser andin point-of-sale terminals in shops and restau-rants etc. Within a few years, these pin cardshad become very popular mainly at the expenseof paying by guaranteed cheques. At the endof December 2001, on the eve of the change-over to the euro, the banks decided that thetime had come to abolish the once so popularguaranteed cheques. And so the exchange ofmoney had evolved from exchanging cashmoney, via signing a paper bank order, to giv-ing a number into a machine.

A recent study examining two centuries of meansof payments in the Netherlands shows that,since the 1960s, the path of product innovationin the field of payments increases. For example,within two decades after the launch of the pincard, Dutch banks introduced an electronic

purse. Prior to the market introduction, a testwas conducted using point of sale terminalsbased on shop technology in the years 1989-1991. After some modifications, in 1995 thebanks gave birth to the electronic purse, a cardwhich could be loaded with a certain value, di-rectly from a bank account. This 'chipknip' wasmeant to be a substitute for small coin paymentsup to 15 euro. In contrast, with the rapidly gain-ing popularity of the pin cards, paying by elec-tronic purse did not become very popular untilrecently. Another type of electronic transfers inits infancy is electronic banking. So far, tradi-tional remote payments are still used on a con-siderable scale. But direct debits are the mostpopular method among Dutch households.Dutch banks thereby encourage their custom-ers to pay efficiently and have created new prod-ucts, like e-banking. As a result, a growing num-ber of payment orders are submitted via theInternet or mobile telephone.

During the past decades, banks have intro-duced various new ways of making non-cashtransfers. Prior to any introduction of a newproduct into the market, market research isundertaken and the introduction of the paymentinstrument takes place alongside an extensiveinformation campaign to the public. Even so,these marketing techniques are not always theinstant key for success as the slow adoption ofthe electronic purse shows. By definition, prod-uct innovation goes hand in hand with crowd-ing out. The afore-mentioned shows that thisalso applies for the banking industry. Much re-search is therefore needed into the history ofproduct innovation in terms of payment meansin order to explain national differences and pref-erences in the way we pay.

Joke Mooij

Source: Joke Mooij and Ton Dongelmans,

“Mogen wij even afrekenen? Twee eeuwenbetalen in Nederland”, Boom, Amsterdam 2004

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In total, thirteen papers were presented byfourteen scholars from nine European coun-tries. The bulk of the sessions were devoted toanalysing material from a variety of perspec-tives; the past, present and future prospects ofthe national banking historiographies of Austria(Charlotte Natmessnig and Peter Eigner), Brit-ain (Philip L. Cottrell), France (Michel Lescure;Olivier Feiertag), Germany (Richard Tilly),Greece (Ioanna Pepelasis Minoglou), Portugal(Jaime Reis), Spain (José Luis Garcia Ruiz),Switzerland (Sebastien Guex) and Turkey(Edhem Eldem). The national surveys covereda wide array of issues such as the intellectualevolution of banking historiography (as, for ex-ample, Olivier Feiertag's discussion) and newtrends in the field (for example, as mentionedby Michel Lescure).

A special session devoted to internationalexperiences covered the literature of bankingarchives (Edwin Green) and the writing of thehistories of European Economic Cooperation(Juan Carlos Martinez Oliva) and of the Bankfor International Settlements (Piet Clement).The Concluding Remarks were made by PhilipL. Cottrell.

Up until now the evolution of Europeanbanking historiography had been largely ap-proached in an apospasmatic manner. The con-

tribution of this workshop to European bankingHistoriography lies in the fact that, for the firsttimer ever, the topic of European banking his-toriography was addressed from a comprehen-sive, critical, and comparative perspective. In-deed, European banking historiographyemerges as characterised by certain commonfeatures. Countries otherwise diverse amongthemselves, as for example Switzerland, Portu-gal, Greece and Turkey, all seem to share somecommon traits regarding the past evolution andpresent situation of banking historiography.

The overall picture which emerges is mixed.Regarding the negative side, banking historiog-raphy appears problematic even in those coun-tries such as France, Spain, and Austria whichexperienced in the 1980s or 1990s a goldenage in the writing of banking history. Europeanbanking historiography has been and is prob-lematic for often similar technical and even po-litical factors, (the difficulties related to the ac-cess to archival and primary material werenoted by many of the participants of the work-shop). In most European nations, what is per-sistently lacking is an institutional frameworkwhich can guarantee and provide for the livelyproduction of scholarly work on banking history.Piet Clement more specifically expressed thefear that the climate for scholarly and criticalbanking historiography may become worse as

Banking Historiography: Past and Present

Corfu, 3th and 4th October 2003

General State Archives of Corfu, Paleon Frourion (Old Fortress)

Organised by Professor Kostas Kostis, this two day workshop in Corfu was the second joint col-laboration between Alpha Bank and the European Association of Banking History. The first 'Corfu'workshop, held in 2001, focused on the theme 'The Creators and the Creation of Banking Enter-prises in Europe from the 18th to the 20th Century', the proceedings of which have since beenpublished (Kostis Kostis (ed), Alpha Bank Historical Archives, Athens, 2002). In the more recentworkshop in October 2003 the theme once again was chosen for its importance and pertinence forbanking historians and the wider academic community of economic historians.

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a result of the recent boom in the litigation in-dustry and banks' managing boards inclinationto devote fewer and fewer resources to thescholarly development of banking historiogra-phy. From another perspective, Edwin Greendiscussed the difficulties facing the wider devel-opment of banking historiography. He high-lighted the negative repercussions of the factthat few bank archives have found their way intoprint and the unfortunate limited impact on his-torians of the literature on banking archives.

Although in the past a large part of thebanking history literature has been plagued withpractical problems and has also lacked deepreflection and analytical tools, some encourag-ing prospects are becoming apparent regard-ing the writing of banking history at the open-ing of the 21st century. What specific positiveobservations emerged for the future from theconcluding remarks of Philip L. Cottrell?

First, banking historiography is increas-ingly becoming a rich, versatile and excitingarea of research. It comprises not simply thehistory of bankers and banking institutions butalso the history of finance and currency, thehistory of the interrelationship between banksand economic development. Moreover, bankinghistory and political history are becoming moreand more intertwined as the political and ideo-

logical aspects of 'banks, money and finance'are increasingly explored. In addition, as alsounderlined by Richard Tilly, the writing of bank-ing history is becoming increasinglyinternationalised.

Second, banking history has the potentialof being at the forefront of developments in thesocial sciences, as banking per se is based on'trust', which, as both a function and concept,has become a central feature in economictheory, sociology, psychology, and managementstudies over the last few years.

Third, banking historiography has becomemore critical, scholarly and, in some cases,more theoretical in approach and more embed-ded in socio-economic history since the 1990s,although the volume of production may not al-ways be rising.

Of course, the debate on the theme ofbanking historiography is still open and hope-fully some of the questions posed and ideasexpressed at the workshop might provoke newinsights and research in the field.

Ioanna Pepelasis Minoglou

Department of Economics

Athens University of Economics

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The bicentennial of Banque de France, com-memorated in 2000, provided the opportunityfor a comprehensive book which includes col-lected texts written by about 50 colleagues fromnumerous different countries - several of whichhave been participants at EABH conferences.The " Mission Historique de la Banque deFrance ", which had been set up a few yearsago to gather teams of researchers on the roleplayed by Banque de France in monetary andbanking matters, therefore succeeded in meet-ing its targets through the delivery of such abook. Scientifically, it will help academics in com-paring Banque de France to its foreign coun-terparts (about which books had already beenpublished), all the more so because the publi-cation has deliberately chosen a comparativepath.

Olivier FEIERTAG & Michel MARGAIRAZ (eds.),Politiques et pratiques des banques d'émission enEurope (XVIIe-XXe siecles). Le bicentenaire de laBanque de France dans la perspective de l'identitémonétaire européenne, Paris, Albin Michel, 2003,830 pages ; ISBN 2-226-13769-6.

Since the beginning of the 19th century (1816),Caisse des Dépôts has been a cornerstone ofthe Paris finance market, managing the cashcollected by savings banks and also that col-lected by pension funds constituted throughcollective or individual processes. It had firstdeveloped its operations as a key financier ofthe State's day to day needs, then as a deci-sive institutional investor. In addition, since the1950s, it had become the main banker of local

development (for housing and city equipment).After the publication of a number of books pub-lished by its internal historical department in the1980s, Caisse des Dépôts trusted academicsto reconstitute and complement a large chunkof its history from the 1930s to the 1950s. In fact,this history came within a more precise program,dedicated to gauging the role assumed byCaisse des Dépôts during World War II. Yet his-torians actually chose to study how its strategyand its management had evolved before the warto allow for a better understanding of whatchanged during this period in its history underthe pressure of the subsequent events, such asNazi occupation and the Vichyst State. Further-more, the book extended its scope, detailingevents up to 1950 in order to scrutinize the ef-fects of the war on this public institution.

Alya AGLAN, Michel MARGAIRAZ & PhilippeVERHEYDE (eds.), La Caisse des dépôts et con-signations, la Seconde Guerre mondiale et le XXesiecle, Paris, Albin Michel, 2003, 670 pages ; ISBN2-226-13894-3.

A traumatic event occurred on the Paris bankmarket in 2003: Crédit Lyonnais, which hadbeen founded as early as 1863 (as studied byhistorian Jean Bouvier), was purchased byCrédit Agricole, a cooperative institution whichhad been established through several stagesbetween 1894-1899 and 1920-1926. The insti-tution of "peasants", so long despised as a mere"amateur" company managed by volunteer di-rectors, emerged as a big bank in the 1960s-1970s and since then has asserted itself as a

What's New in 2003 - 2004?

The French Banking Sector: Recent Publications and Articles

French historians have been less productive in the recent times than they were in 2000 - 2002because key academics have had to tackle huge tasks including the publishing of the proceedingsof important conferences. But the achievement of such projects has led to marvellous outcomes:quality and performance have prevailed over quantity.

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conquering firm, swallowing the investmentbank Indosuez and several others in the 1990s(such as, Sofinco). The peasants' bank (or"banque verte") surpassed "classical" or "capi-talist" competitors - mainly BNP Paribas - to buyCrédit Lyonnais. The merger of wholesale bank-ing departments effectively creates economiesof scale, whilst the networks of retail bankingremain independent. This revolutionary eventwas accompanied by the retirement of the man-ager, Jean Peyrelevade, who had led the re-bound of Crédit Lyonnais after its dire crisis ofthe first half of the 1990s. Thankfully, Mr.Peyrelevade succeeded, before his retirementcame into effect, to ensure a new, more com-prehensive publication of the bank, ordered withCrédit Lyonnais' well known archivist, RogerNougaret. A second more definitive history ofCrédit lyonnais became thus available, expand-ing on Jean Bouvier's contribution - republishedin 1999 by the Éditions de l'École des hautesétudes en sciences sociales (three volumes;ISBN 2-7132-1378-2) - which covered only theyears 1863 - 1882. This new and extensivebook is a collective one, covering numeroustopics on the evolution of the organisation itself,the network, competition, and international busi-ness.

Bernard DESJARDINS, Michel LESCURE, RogerNOUGARET, Alain PLESSIS & André STRAUS, LeCrédit lyonnais, 1863-1986. Etudes historiques,Geneve, Droz, 2002, 1020 pages ; ISBN 2-600-00807-1.

Paradoxically, banking history has also pro-gressed, thanks to a dissertation about the fi-nance department of the State; the history ofthe French Treasury paved the way to an as-sessment of its attitude towards the Paris bank-ing market, as the nationalised sector had beenso very much developed since 1945 and be-cause the credits distributed, or supervised, bythe State were so much more important.

Laure QUENNOUËLLE-CORRE, La direction duTrésor, 1947-1967. L'État-banquier et la croissance,Paris, Comité pour l'histoire économique et financierede la France (CHEFF), 2000, 694 pages ; ISBN 2-11-091054-2.

On a far more modest scale, the history ofCrédit du Nord, a subsidiary of SociétéGénérale group, has been republished andcomplemented. The book allows one to followthe history of several banks, merged in the1960s-1980s to form a group dedicated to re-tail banking on a regional level, and to commer-cial banking and patrimonial management on anational scope.

Hubert Bonin, Histoire de banques. Crédit du Nord(1848-2003), Paris, Éditions Hervas, 2004, 216pages ; ISBN 2-84334-008-X.

The history of French savings banks wasfavoured with one new book godfathered by thedynamic Association française pour l'histoiredes Caisses d'épargne, which seized the oppor-tunity of a permanent exhibition within the re-furbished headquarters of one entity of theCaisses d'épargne group [Caisse nationale desCaisses d'épargne, 27-29 rue de la Tombe-Issoire, 75014 Paris]. The intent of this well il-lustrated book is to emphasise the collectivevalues which accompanied the development oflocal and Paris savings banks institutions. Thewhole network of sister savings banks was thusmobilised to collect its patrimonial pictures,which were then published in the book alongwith relevant analysis and comments.

Caisse nationale des Caisses d'épargne, La Caissed'épargne a tous les âges, Paris, Les Éditions del'épargne [12 villa de Lourcine, 75014 Paris], 2002,104 pages, ISBN 2-85015-294-3.

The series published by the AssociationNationale pour l'Histoire des Caisses d'Épargne(Association for the History of the SavingsBanks) has gathered momentum; regularly pub-

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lished by the Association, the " Cahiers " andbooklets, collecting all the material constitutedby junior researchers in their dissertation, makefor very interesting reading.

Vincent Tournié, Épargne et crises dans la Francedes années trente. L'exemple des Caissesd'épargne, Les Cahiers pour l'histoire de l'épargne.La collection, Paris, Association nationale pourl'histoire des Caisses d'épargne, 2002, 128 pages,ISBN 2-85015-291-9.

Sociologists and social historians are treatingFrench bankers as fresh material. A special is-sue of Pierre Bourdieu's famous journal scruti-nised the evolution of some key professions:analysts, auditors, assets managers, accoun-tants, stock brokers to name but a few. Thisjournal invites an historian to sum up her the-sis (presented in 2000 at Paris-Nanterre) aboutFrench bankers as a social group representa-tive of the bourgeoisie of the Belle Époque (thebeginning of the 20th century).

Chantal Ronzon-Bélot, " Banquiers de la BelleÉpoque. Les dirigeants des grands établissementsde crédit ", In special issue "Espaces de la finance",journal Actes de la recherche en sciences sociales,n°146-147, March 2003, Paris, Seuil Publishings,pages 8-20 (ISBN 2.02.057344-X).

It has long been a habit that the history ofFrench banks is partially taken over and sus-tained by our Swiss colleagues. The debate onSwiss attitudes during World War II raised theissue of the relationship between the Paris andthe Swiss markets both before and during thewar. Both colleagues scrutinized therefore thebusiness links, to determine how much theFrench outlets were important to Swiss banksand which differences occurred during the waritself. One key question was the role thatheaven played for French capital and savingsduring the political troubles of the 1930s; but

the book also studies the issuing of bonds onthe Swiss markets in order to finance deficits inpublic services. During the war, of course, theinvestment of cash and gold in Switzerland wasconfiscated and sold due to their status as as-sets, and this is discussed within the publica-tion. This well-prepared book, rich with precisedata, is thus a useful contribution.

Marc Perrenoud & Rodrigo Lopez, Aspects des re-lations financieres franco-suisses (1936-1946), Pub-lications de la Commission indépendante d'expertsSuisse-Seconde Guerre mondiale, volume 25,Lausanne, éditions Payot, 2002, pages ; ISBN 3-0340-0525-X or 2-601-03290-I. It can be comple-mented for some issues by parts of : Michel Fior,Les banques suisses, le franc et l'Allemagne. Con-tribution a une histoire de la place financiere suisse(1924-1945), Geneve, Librairie Droz, 2002, 335pages ; ISBN 2-600-00645-1.

Jean-François Eck's dissertation traces backhow the industrial relationship between Frenchand German firms retook shape after World WarII. Although banking history is not the core topicof this dissertation, the publication does providehistorians with a few sections dedicated to therole played by banks in supporting the spread-ing of activities of French companies beyondthe Rhine (pages 169-190, for instance).

Jean-François Eck, Les entreprises françaises facea l'Allemagne de 1945 a la fin des années 1960,Paris, Comité pour l'histoire économique et financierede la France (CHEFF), 2003, 656 pages ; ISBN 2-11-093698-3.

The history of insurance companies is still anemerging subject among French historians.Pending some publications in the years ahead,let us draw our attention to the memoirs of animportant stockbroker, which tell the story of theevolution of the Paris market in the 1960s -1970s and then of the revolution of the 1980s -1990s.

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Xavier Dupont, Salut la companie! Mémoires d'unagent de change, Paris, Albin Michel, 232 pages ;ISBN 2-226-13281-3.

The strong flow of French history of utilities andengineering can open some doors to financialand banking history, through chapters of collec-tive books or parts of big business historybooks.

Éric Bussiere, " Paribas et le financement desaffaires d'électricité dans les années 1920 : entrestratégie bancaire et stratégie de groupe industriel",in Dominique Barjot, Henri Morsel & Sophie Coeuré(eds.), Stratégies, gestion, management. Lescompagnies électriques et leurs patrons, 1895-1945, Paris, Association pour l'histoire del'électricité en France (Électra) & Publications dela Fondation Électricité de France, 2001, pages153-162 ; ISBN 2-909484-11-4.

The history of media and the press has openeddoors to insights into the links between variousnewspapers and companies. Banks appear ashaving played an important role in the financ-ing of the press, columnists and business analy-sis.

Patrick Éveno, L'argent de la presse française de1820 a nos jours, Paris, Éditions du CHTS, 2003.

Lastly, I shall assume the role as self-promoterof my own texts in journals or collective booksas pieces of the ever growing puzzle of Frenchbanking history:

H. Bonin, " Les banquiers grenoblois des années1890-1940 : un modele spécifique ? ", in Hervé Joly(et alii) (eds.), Des barrages, des usines et deshommes. L'industrialisation des Alpes du Nord en-tre ressources locales et apports extérieurs. Étudesoffertes au professeur Henri Morsel, Grenoble,

Presses universitaires de Grenoble, 2002, pages185-209.

H. Bonin, " Le Crédit lyonnais, la Société généraleet les autres : essai d'appréciation des rapports deforce (1864-1966) ", in B. Desjardins (et alii) (eds.),Le Crédit lyonnais, 1863-1986, Geneve, Droz, 2003,pages 725-749.

H. Bonin, " Les banquiers français en Chine (1860-1950) : Shanghai et Hong Kong, relais d'unimpérialisme bancaire ou plates-formes d'outre-mersmultiformes ? ", in Laurent Cesari & Denis Varaschin(eds.), Les relations franco-chinoises au vingtiemesiecle et leurs antécédents, Arras, Artois PressesUniversité, 2003, pages 157-172.

H. Bonin, " Un outre-mer bancaire en Orientméditerranéen : des banques françaises marrainesde la Banque de Salonique (de 1907 a la SecondeGuerre mondiale) ", in Revue historique, CCCV/3,novembre 2003, pages 268-302.

" Aux origines de l'assurance-crédit en France(1927-1939). La création et l'essor de la SFAC et lerepli de ses concurrentes ", Histoire, économie etsociété, 3e trimestre 2002, n°3, pages 341-356.

H. Bonin, " L'argent des banquiers et la culture :entre mécénat et identité ", in Jacques Marseille &Patrick Éveno (eds.), Histoire des industriesculturelles en France, XIXe-XXe siecles, Paris, Pub-lications de l'Association pour le développement del'histoire économique, 2002, pages 259-282.

Hubert Bonin

Institut d’Etudes Politiques de Bordeaux

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Spiru Haret

The Promoter of Credit Co-operatives in Romania

Spiru Haret 1851 - 1912

The origins of modern credit co-operatives inRomania trace back to the latter half of the 19thcentury. The establishment of the Romaniannational state in 1859, in the wake of the unifi-cation of Wallachia and Moldavia, and its inde-pendence gained in 1877 led to a stepped-updevelopment of capitalist relationships acrossthe Romanian economy. The transition to a neweconomic system caused large sections of thepopulation in both rural and urban areas to faceeconomic hardships. In order to adjust to thenew environment, both craftsmen and smallfarmers were badly in need of credit, but thiswas scarce. There were no banks in rural ar-eas, whereas the banks operating in townswere not inclined or simply could not, in compli-ance with their by-laws, grant loans matchingthe needs of small entrepreneurs. As a result,

access to loans of the social groups most hit bythe adverse effects of economic modernizationwas almost exclusively ensured by moneylend-ers who charged interest rates close to 500percent.

Agriculture, the key sector of the Romanianeconomy in the period under review, painted thebleakest picture. The agrarian law of 1864 abol-ished all sorts of feudal dues, removed the re-strictions on the peasants' individual freedom,and provided them with land. Unfortunately, thesaid law and the subsequent regulations gov-erning agriculture did not result in the emer-gence of a thriving category of small farmersbecause of inadequate distribution of land be-tween large and small owners. Moreover, thelegal framework did little to prevent atomisationof peasants' landholdings induced by popula-tion growth. In this vein, data for 1905 show thatsmall farmers (whose plots were up to 10 ha),making up 95.43 percent of total rural landown-ers, held only 40.79 percent of total farmland.By contrast, big landowners (whose estatescovered more than 500 ha each), albeit ac-counting for a meagre 0.23 percent of total ru-ral landowners, held 38.26 percent of total farm-land. Hence, the self-determination capabilitywhich small farmers gained in the wake of the1864 reform was stifled by the low yields of theirplots and their inability to pay the instalmentsfor the land they either bought or took on lease.Holders of small plots were therefore bound towork with their own farm equipment to the ben-efit of big landowners in hard labour conditions.The Romanian economist ConstantinDobrogeanu-Gherea even coined the term "newserfdom" to define such dependency relation-ships.

In 1881, at the initiative of the liberal party, farmcredit houses were established in every county,

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in order to deal with the absence of markets forsmall loans. In 1892, the county houses werereplaced by “Creditul Agricol”, a state-ownedbank with branches in all counties. The estab-lishment of these new institutions had little im-pact because of their scant financial resourcesand not particularly favourable lending condi-tions for peasants. In 1907 ”Creditul Agricol”was subject to winding-up proceedings, its port-folio being liquidated through the popularbanks. Consequently, the first farm credit insti-tutions set up by the government could onlyfulfil, to a small extent, the borrowing require-ments of small farmers, who were still reliant onmoneylenders. Against this background, the es-tablishment of credit co-operatives was re-garded as a salutary solution meant to do awaywith the adverse effects of economic modern-ization.

Rural credit co-operatives, known as popularbanks, emerged spontaneously and in the ab-sence of adequate laws. In the beginning, suchinstitutions were incorporated in compliancewith the principles of civil code. Later on, theywere regulated by the provisions of the com-mercial code passed in 1887, according towhich variable capital companies were viewedas co-operatives. As a result, apart from genu-ine co-operatives, operated pseudo-co-opera-tives animated by capitalist spirit were estab-lished. The first popular bank was establishedin January 1891 and four other similar institu-tions were set up two years later. In 1902, therewere already 700 popular banks in operation,with net worth to the tune of Lei 4.2 million andabout 60,000 members.

The fast development of popular banks, whichbecame the key sector of Romania's co-opera-tive landscape, owes much to Spiru Haret, re-nowned professor and scientist, as well as anoutstanding figure of the liberal party. SpiruHaret was born on 15 February 1851 in Jassy,the then-capital city of Moldavia. He graduatedfrom the University in Bucharest. In 1878, Spiru

Haret was the first Romanian ever to get adoctor's degree in mathematics at SorbonaUniversity in Paris. His doctoral thesis, "Surl'invariabilité des grands axes des orbitesplanétaires" (On the Invariability of Great Axesof Planetary Orbits), hailed by many experts,was published in 1885 in the Yearbook of theAstronomic Observatory in Paris. In 1976, 125years since the birth of the Romanian scientist,as a tribute to his work, a crater on the surfaceof the moon was called by his name. After re-turning to his home country in 1878, Spiru Haretleft his mark not only on the organisation ofmodern education in Romania but also on thedevelopment of credit co-operatives.

During 1897 - 1899 and 1901 - 1904, duringwhich periods he held the position of Ministerof Public Instruction, Spiru Haret supported theassociation of peasants into credit co-opera-tives. He became the co-ordinator andorganiser of this movement, which is why lateron he has been referred to as the father ofRomania's credit co-operative movement.Thanks to his initiatives, the authorities broughtto a halt the harassment of the schoolteacherssupporting the establishment of co-operatives,who were thought to be disseminating socialistideas. The Romanian government started show-ing a keener interest in this sort of institutions

Haret (first from left to the right) and E. Costinescu ,the Minister of Finance that presented the Law onpopular banks to the Parliament in 1903 (the fifthfrom left to right) during a meeting of the Romanianliberal government in March 1909.

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and even fostered their development. Hence,popular banks were set up at an increasinglyfast pace. Even the conservatives, during theirstay in power, carried forward Spiru Haret's ini-tiatives.

Spiru Haret's opinion on dealing with the issueof farm credit and the key role to be played byschoolteachers in the movement to set up creditco-operatives in rural areas was very clearlyexpressed in a column published in "DidacticConversations" magazine in September 1900:"The peasants' genuine credit institution will bethe savings and mutual help society, estab-lished right in their village, with their own money,managed by themselves, exempted from costlyand tiresome formalities, which should not beashamed of lending even one Leu to the per-son who would be in need of it… Schoolteach-ers should become the leaders of the movementto establish such institutions in every villageand would enjoy the acknowledgement of theircountrymen".

Spiru Haret was perfectly aware that manypopular banks operating at the debut of the 20thcentury were profit-oriented so he decided toencourage them to behave in accordance withthe co-operative spirit and to get them closerto Raiffeisen banks' model. Haret strove to mapout a law to govern popular banks, which wouldlead such institutions to adopt the co-operativeprinciples and allow them to obtain governmentsupport provided they fulfil the said principles.Together with another prominent figure of theliberal party, Constantin Stere, Spiru Haret pre-pared a draft law to which the finance minister,Emil Costinescu, put the finishing touches. Asa result, on 28 March 1903, the "Law on ruralpopular banks and their central body" waspassed.

Pursuant to the said law, which was to beamended several times until 1928 when the Co-operative Code was adopted, a central bodywas established. Its prerogatives were to grantsoft loans to the popular banks, which werebound by their articles of association to complywith the co-operative principles and ensurecontrol and guidance of the entire movement.Even though the law provided for additionalbenefits to Raiffeisen-type co-operatives, theyears that followed saw a mushrooming of creditco-operatives laid down in Article 31 of the law,i.e. societies based on a combination ofRaiffeisen and Schultze-Delitsch principles. In1924, Romania enjoyed the presence of 3,747popular banks, of which 95 per cent were"mixed-type credit co-operatives", a solution thatappeared to be appropriate to the Romanianenvironment. Until the introduction of the cen-trally planned economy in Romania, the creditco-operative system continued to developstrongly, stimulated by favourable changes inthe relevant legislation.

Cristian Bichi

National Bank of RomaniaPlate offered to Haret by his colleagues and admir-ers at the moment of his retirement

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New Office for the EABH

On 1st April 2004, the EABH moved into its new premises in Central Frankfurt located atGuiollettstrasse 25, D-60325 Frankfurt. The new, larger premises have enabled the EABH and itssister associations to establish a more representative office. Although our address has changed,please note that all other contact details have remained the same.

New Members

After the introduction of a new individual membership in May 2003, the EABH has been delighted towelcome seven new members. Alongside Professor Margarita Dritsas and Dr. Carlos Alberto Damas,already introduced in the last newsletter, it is with pleasure that the EABH welcomes the followingnew members.

Professor Albert Broder

Albert Broder is Professor Emeritus of Economic History and International Economic Relations atthe University of Paris XII Val-de-Marne. He also holds the title of Director (Hon.) of the Institut JeanBaptiste Say 1619 Réseau de centre de recherches en Histoire des Relations EconomiquesInternationales and the Honorary titles of Vicens Vives Prise for Social Sciences (1983) Spain andOfficier des Palmes académiques. As well as serving on a number of editorial boards for journalswhich include Economies et Sociétés (Institute of Applied Mathematics and Economic Sciences:ISMEA), História Econômica & História de Empresa, Sao Paulo (associaçao brasileira depesquisadores en história económica), Ciclos (Universidad de Buenos Aires), and Revista de HistoriaIndustrial (Barcelona), he also co-edits the series Histoire Economique Quantitative. In addition tomany articles and papers, he has published numerous books, the latest of which include HistoireEconomique de la France au 20e Siecle (Editions Ophrys, 1998) and Histoire Economique del'Espagne contemporaine (Editions Economica, 1998). His next publication Histoire Economiquedu Monde 1870-1950 (Editions Cujas, Paris) is currently in press to be proceeded by the book LaBanca Francesa en America Látina 1880-1950 (a collective work, A. Broder and C. Marichal edit.)to be published early in 2005. Also in preparation is a book entitled A comparative Economic His-tory of France and Germany 1880-1930; Trade, Finance and technological competition in south-ern Western Europe and Latin America.

Mrs. Yolanda Hatzi

Yolanda Hatzi graduated from the University of Athens, Faculty of Philosophy, where she studiedGreek and French Literature and History and later carried out Archive and Library Sciences, postgraduate studies, at the University of Rome "La Sapienza", Faculty of Arts. Having formally workedfor the Historical Archives of the National Bank of Greece, Yolanda now provides archival supportwithin the Research Program of the National Bank of Greece.

Yolanda Hatzi has been associated with the EABH since 1991 and has attended all the conferencesand most of the workshops. She has collaborated presenting papers and writing articles for theBulletin. Since December 2003, she has been involved in the Business Heritage Management and

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the Historical Archives of a subsidiary of the National Bank of Greece.

In addition to her work at the National Bank of Greece, Yolanda has written and published morethan 15 educational books for children.

Aaro Jalas MA

Aaro Jalas MA is a researcher at Spiritus Historiae Ltd, Helsinki, a company specialized in historyconsulting. In this role, he has studied economic history in fields ranging from agriculture to hightechnology. Jalas has written several books about companies and economic history. During the lasttwo years he has been specializing in the history of Finnish Cooperative Banks.

His latest publications include Our First Century. Instrumentarium 1900-2000, Jyväskylä 2000; Fromthe Famine to the Bureaucracy of EU. History of the Finnish Agriculture (Published in the MaatilanPirkka 1/2003); 50 Years of Finnish Colour Trade. The Wholesale Cooperative of Finnish ColourTraders and Väritukku Ltd 1953-2003, Jyväskylä 2003. Two works are also awaiting publication:With Sense. Lapua Cooperative Bank 1904-2004), From the Village Banks to Region Bank. ParikkalaRegion Cooperative Bank 1905-2005, while The Cooperative Bank of Southern Savo 1904-2004is still in progress.

Dr. Raphael Markellos

Raphael Markellos is assistant Professor of Quantitative Finance at the Department of Manage-ment Science and Technology, Athens University of Economics and Business. He obtained his PhDin Finance and Econometrics from the Dept. of Economics, Loughborough University, UK under aJunior Fellowship from the Royal Economic Society. He completed his first degree in Economicsand Business Administration at the Department of Economics, Aristotle University, Thessaloniki,Greece. He has taught at undergraduate and postgraduate level at Athens University of Econom-ics and Business, Loughborough University, Aristotle University and University of Macedonia/Thessaloniki. He has over 30 publications in international journals and books and is a regular speakerat international conferences. In 1998 he was awarded with Terence C. Mills the Distinguished Es-say on Computational Intelligence in Finance Award by the Journal of Computational Intelligence inFinance. His research interests and publications are mostly concerned with finance, time serieseconometrics, financial engineering and history of finance. ?e has consulted in the financial indus-try on quantitative financial analysis and econometrics for a number of years.

Dr. John Turner

Dr. John Turner is a lecturer in the School of Management and Economics at Queen's UniversityBelfast. In 2003, he was a Houblon-Norman Fellow at the Bank of England, where he was research-ing the evolution of bank regulation in the UK. His main research is in financial and banking history.He is particularly interested in the interactions of law, finance and business organisation from anhistorical perspective. In addition, he has had articles on banking history either published or forth-coming in the following journals: Journal of Economic History, European Review of Economic His-tory, Financial History Review, Business History and Cambridge Journal of Economics.

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Prize Competition for Research on History of Banking and Finance 2002

In December 2003, the Ottoman Bank Archives and Research Centre hosted the prize awardceremony for the Prize Competition for Research on History of Banking and Finance 2002, held incollaboration with the EABH and the Economic and Social History Foundation of Turkey. Prizes wereawarded in four categories: scientific article, master's thesis, doctoral dissertation and monograph.The jury awarded seven works in all categories:

· Book Category:

Ali Akyildiz, Para Pul Oldu: Osmanli'da Kagit Para, Maliye ve Toplum (Paper Money, Financeand Society in the Ottoman Empire), Iletisim Yayinevi, Istanbul, 2003.

Zafer Toprak, Ittihad-Terakki ve Cihan Harbi, Savas Ekonomisi ve Turkiye'de Devletçilik (Unionand Progress Committee and World War I, War Economy and Etatism in Turkey), HomerKitabevi, Istanbul, 2003.

· Doctoral Dissertation Category:

Yavuz Selim Karakisla, Women and Work in the Ottoman Empire: Society for Employment ofOttoman Muslim Women (1916-1923).

· Master's Thesis Category

Ö. Faruk Bölukbasi, Sultan II. Abdulhamid Döneminde Maliye Komisyonlari ve Faaliyetleri(1879-1909) (Financial Commissions and Their Activities during the reign of Abdulhamid II(1879-1909).

· Scientific Article Category

Ioanna Pepelasis Minoglou, Ethnic Minority Groups in International Banking: Greek DiasporaBankers of Constantinople and Ottoman State Finances, c. 1840-81, Financial History Re-view, 9, October 2002, pp. 125-146.

Muzaffer Dogan, "Osmanli Imparatorlugu'nda Makam Vergisi: Caize" (The Tax of Post in theOttoman State", Turk Kulturu Incelemeleri Dergisi 7, Istanbul 2002, s. 35-74.

· Honorary Mention in the Article Category

Aliye F. Mataraci, Trade Letters as Instances of Economy, Ideology and Subjectivity.

A third competition will be launched in May; for more details please visit www.obarchive.com

EABH & Bank Austria Creditanstalt Vienna Conference, 20th - 21st May 2005

Response to Call for Papers

The 2005 Annual conference "Finance and Modernisation" will take place in Vienna and willbe kindly hosted by Bank Austria Creditanstalt on its 150th anniversary. This year was the first timethat the EABH has announced a Call for Papers for its annual conference and the response hasbeen extremely positive. We have received a number of diverse and highly interesting proposalsand would like to take this opportunity to thank all those who both responded to this Call for Papersand also who supported the EABH in promoting this announcement. Following the decision of theVienna Conference 2005 content committee, the draft programme will be completed and made avail-able on the EABH website. More details of the 2005 Conference will also be published in the nextedition of the Bulletin in December.

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The EABH e.V.

Presents

Biennial Prize for Young Scholars 2005

The Young Scholars Prize was founded by the EABH in 1995, in order to encourage research intobanking history. The award is a valuable way of emphasising the importance of banking history andbringing new ideas into the academic forum.

A prize of 2,500 EUR will awarded in Vienna 2005 to an individual scholar, or a team of maximumthree scholars, working on either an institutional, economic or social aspect of the history of Euro-pean banking or on a biography of a European banker or banker's dynasty. The studies shouldmeet academic requirements, be unpublished and consist of 80,000 to 120,000 words. The appli-cants should not be over 35 when submitting their manuscripts. The text will be accepted in anyEuropean language but will have to be accompanied by an abstract of 3,000 words/10 pages inEnglish.

Publication of the final manuscript is supported by the EABH, allowing young scholars the opportu-nity to present their work alongside other leading academics of Banking History literature.

The final submission date for the 2005 Prize is 30th November 2004. For further details please contactthe EABH at info@bankinghistory.de or telephone on +49 69 972 03 307.

Associazione Nazionale Archivistica Italiana

presents

Archives in the Public and Private sectors: Transformation, Privatisation and Mergers

(Gli archivi dello Stato, degli Enti Pubblici e delle Imprese: tra trasformazioni,privatizzazioni e fusioni)

17th & 18th June 2004

In conjunction with the EABH, the ANAI (Associazione Nazionale Archivistica Italiana) will host aworkshop on 17th - 18th June 2004 at the Library for Culture and Art in Santa Teresa dei Maschi.Entitled "Archives in the Public and Private sectors: Transformation, Privatisation and Mergers",the two day workshop will begin with two sessions discussing the economic and legal situation ofarchives, followed by the management and use of these archives. The workshop will proceed witha number of sessions focusing on state archives, public archives, business archives, and bank andinsurance Archives, ending with an-open discussion of the ideas raised during the workshop. Pleasebe aware that this workshop will be conducted in Italian. For further information, please contact theANAI Secretary at sages@libero.it.

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The Financial History Review, Volume 11, Part 1

The April 2004 issue of the Financial History Review is now available. This issue contains a broadrange of articles within the realm of banking history, stretching from the Ottoman Empire to Englishcommercial banking up to the 1970s, while the archives of the Stockholm's Enskilda Bank are thefocus of a discursive survey.

· Sevket Pamuk, 'The evolution of financial institutions in the Ottoman Empire, 1600-1914'

· Piet Clement, ''"The touchstone of German credit": Nazi Germany and the service of the Dawesand Young Loans'.

· Bruno S. Frey and Daniel Waldenström, 'Markets work in war: World War II reflected in theZurich and Stockholm bond markets'.

· Forrest Capie and Mark Billings, 'Evidence on competition in English commercial banking,1920 - 1970'.

· Anders Perlinge, 'The Foundation for Economic History Research within Banking and Enter-prise and the records of Stockholm's Enskilda Bank, 1856 - 1971'.

We hope that you enjoy reading this issue.

Subscriptions for non-members may be sent directly to the publisher:

Cambridge University Press,

The Edinburgh Building,

Shaftesbury Road,

Cambridge CB2 2RU

journals_societies@cambridge.org

Tel: +44 (0) 1223 326096

New Financial History Review Editorial Board

2004 marks the beginning of a new Editorial Board for the Financial History Review. The new Boardconsists of academics from many different nationalities, including the US, as well as a range ofacademic and professional backgrounds. This highly representative board will ensure the continu-ation of the high standards and diversity of themes already associated with the FHR. A most signifi-cant development this year has been the appointment of Professor David Weiman, chair of theEconomics Department at Barnard College, Columbia University, who will take on the role of Asso-ciate Editor for North America and to whom we wish to extend a very warm welcome. The AthensConference will be the first time that the FHR board members will meet in their new capacity andthe EABH looks forward to welcoming these new members personally at this most successful event.We would also like to take this opportunity to thank Professor Youssef Cassis, Professor Phillip L.Cottrell and Dr. Duncan Ross , for their unfailing commitment to the Financial History Review, andparticularly for their valuable help towards the selection of the new board.

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Archive Year 2003 Workshop Series: Publication of Proceedings

At the end of May 2004, the proceedings of the EABH Archive Year 2003 Series of workshops werepublished. The publication consists of three volumes, each of which centres on a specific work-shop within the series.

· Central Corporate Archives During and After Mergers, Stockholm, 29th May 2002:

Editors: Hubert Bonin & Francesca Pino

· Archives and IT Solutions, Istanbul, 24th & 25th October 2002

Editors: Maria Guercio, Lorans Tanatar Baruh & Clotilde Wang

· Appraising Banking Archives, Milan, 13th & 14th March 2003

Editors: Roger Nougaret & Maria Teresa Tortella

The Archive Year 2003 Series is part of a long-running project designed specifically to support andpromote archives. In order to maximise the practical implications of the workshops, the editors ofeach volume have also included a set of guidelines for best archive practices from the perspectiveof the theme in question.

As an in-house publication, the proceedings are only available to EABH members.

For EABH Members Only

The EABH has a number of backdated copies of publications which it would like to offer free toour members. The EABH cannot unfortunately cover the cost of postage but an estimated cost

per copy is provided below as guidance. The following publications are available:

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Crisis Banking in the East

How to write the History of a Bank

A Century of Banking Consolidation

European Banking Overseas

Regulating Spanish Banking

The Paradise Bank

The Evolution of Financial Institution

Modern Banking in the Balcans

Postage per book - 6-8 Euro (international)

European Colloquium on Bank Archives Vol-umes 1-6

Financial History Review Volume 2-10, parts 1& 2 (excluding Volume 4 Part 1)

EABH Bulletin 2/200, 1/2002

Postage per issue - 4-6 Euro (international)

Please note that these books are subject to availability and that the cost of postage is only a guide.Contact the Frankfurt office at info@bankinghistory.de for more information.

60

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The 15th International Congress on Archives, “Archives, Memory and Knowledge”, will take place inVienna, 23rd-29th August 2004. The congress will offer an interactive forum for the discussion of new techniquesin Archiving and leading research for global archives. The website www.wien2004.ica.org offers further informa-tion for those interested in attending.

There is also still time to register for the Society of Archivists’ Annual Conference and Conservation Train-ing Conference “Accountability, Citizenship and Ethics: the role of archives and records management in nur-turing citizen”, will take place in Glasgow between 31st August and 3rd September 2004. The conference focuseson ensuring that high standards of accountability are achieved through record keeping practices. More informa-tion is available at www.archives.org.uk

The Economic History Association’s 2004 Conference will be held in San Jose California from 10th-12th

September 2004. The overriding theme of the meeting will be “Technological Change and Economic Growth inHistory.” The program committee are currently requesting submissions that provide an historical or interdisci-plinary perspective on key issues in technological change, social and economic innovation, productivity, and eco-nomic growth. In addition, the dissertation session will honour the top six dissertations in economic history com-pleted during the 2004-05 academic year, with two prizes of $1,000 each for the most outstanding dissertations.Please visit the Economic History Association website at www.eh.net/EHA.

The XI Annual Meeting of the International Committee of Money and Banking Museums (ICOMON) willtake place in conjunction with the general ICOM Conference in Seoul in October of this year. The theme will be“Money: Identity and Essence”, and speakers are encouraged on every aspect of this broad title. In addition,preparations for elections onto the ICOMON Board will take place at this time and anyone interested should con-tact Richard G. Doty, ICOMON’s president. Registration forms for the Conference will be sent out in due course,but those interested in receiving them early are advised to send requests by email toicom2004seoul@hotmail.com.

The European Association for Evolutionary Political Economy will hold its Economics History and De-velopment conference from 28th-31st October 2004 in Crete. As the title suggests the conference will focus onthe relationship between historical evolution and economic progress but from the viewpoint of economics im-perialism’. It will also discuss the rediscovery of the social, the historical, the spatial, the institutional and thedevelopmental, and the lack of parallel major innovations in methodology or theory within mainstream econom-ics. More details can be found at www.institutionaleconomics.org/

The International Institute of Social History has released a Call for Papers for its forthcoming conferenceHistory of the Low Countries before 1850 to be held in Amsterdam from 18th–19th November 2004. The mainarea of discussion is the different aspects of the economy and society of the Low Countries in the pre-indus-trial period as a case study in international debates in this theme. Please see the website at www.iisg.nl for de-tails.

The 2005 annual conference of the Economic History Society will be hosted by the University of Leices-ter from 8th – 10th April. The conference opens, on the afternoon of Friday 8th April, with papers presented by newresearchers. This offers those completing doctorates the opportunity to present their work before professionalcolleagues and to benefit from informed comment. Those wishing to be considered for inclusion in theprogramme must submit a synopsis of no more than 500 words by Monday, 6 September 2004. A prize of £250will be awarded for the best paper presented at the Conference by a new researcher and limited financial sup-port is also available to enable new researchers to attend the Conference when this is not available from theirinstitution. The Conference Programme Committee also invites proposals for entire sessions as well as for in-dividual papers and welcomes proposals in all aspects of economic and social history covering a wide rangeof periods and countries, and particularly welcomes papers of an interdisciplinary nature.

Synopses and any enquiries should be directed to Maureen Galbraith at ehsocsec@arts.gla.ac.uk, al-though please be aware, conditions apply to all proposals, full details of which are available at www.ehs.org.uk/.

“Ban

king

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job”

When the farmer arrived at the bank to deliver his annual report on his financial condition, he an-nounced that he had both good news and bad news.

"Well," said the banker, "let's hear the bad news first.""You know the crop loan I've taken out from you every year for the last ten years?" the farmerreplied."Yes", said the banker,The farmer continued, "Well, this year I can't pay it back. And you know the mortgage I have onmy land?"The banker nodded."I can't pay it back either," the farmer said. "And the couple of hundred thousand I still have out-standing on my tractor and equipment?""Yes", said the banker,"Well, it's yours" said the farmer.There was a moment of silence.Then the banker asked, "What's the good news?"The farmer replied, "I just want you to know that I'm going to keep banking with you."

Around the turn of the century a speculator by the name of Charles Flint got into financial difficul-ties. He had a slight acquaintance with J.P. Morgan, Sr., and decided to touch him for a loan. Mor-gan asked him to come for a stroll around the Battery in lower Manhattan. The two men discussedthe weather in some detail and other pressing matters, when finally, after about an hour or so, theexasperated Flint burst out,

"But Mr. Morgan, how about the million dollars I need to borrow?"Morgan held out his hand and said goodbye, "Oh, I don't think you'll have any trouble getting itnow that we have been seen together."

Charles Fox, one of Richard Brinsley Sheridan's contemporaries, piled up huge debts for gamblingand other extravagant habits. His aristocratic father reproached him more than once,

"I do not know, sir, how you can sleep and enjoy the comforts of life, thinking about the vastsums you owe everyone in town.""I do not know, sir," replied the young man, "how my creditors sleep."

A banker visited another easy living borrower to discuss outstanding debts, when his customer offeredhim a glass of champagne.

"How can you afford champagne," asked the banker "when you cannot even pay the interest onyour debts.""My dear man, let me assure you," said the bon vivan with champagne in hand, "I haven't paidfor this either."

Good customers

Most of the people who have lived in Socialist Yugoslaviahold a positive opinion about this period of their life. Thereis no doubt that the experience of war and the difficulties oftransition years make their memories selective, but some-how, Yugoslav communists managed to run the country andcontinually raise the standard of living. Also contributing tothe creation of this positive spirit towards life under Social-ism is a particular monetary phenomenon - inflation.From the early sixties, building credit became availablethrough different forms of building credit associations inSocialist Yugoslavia. It was usually long-term credit with verylow interest rate. During the late sixties, seventies and be-ginning of the eighties, cheap and easily available buildingand consumption credit was available to most of the work-ing population provided by the companies where theyworked, building credit associations or banks.

For decades, a light brown banknote fea-turing a picture of a worker was the small-est of the serial of banknotes in use. 10dinars banknote was issued in 1978, yetby 1987, banknotes of 20.000 dinars werebeing issued. People used to make jokes,saying that the central bank had to putworkers on banknotes because somebodyhad to work hard in order to print all thoseinflationist banknotes.

Inflation and love for Socialism

Tito, the controversial long-lasting president ofSocialist Yugoslavia, was too smart to show hispower by appearing in banknotes; this happenedonly after his death. And then he appeared onone of the hyper-inflationist banknotes, withwhich most mortgage credits were paid. Even indeath, Tito seemed to care enough about hispeople - to pay off the mortgage.

A significant share of the population in Socialist Yugoslaviaused these credits to build houses. Taking into account ideo-logical and consequently practical limits in developing pri-vate enterprises, investment in housing was the strongestand most common investment trend. Most rather more am-bitious people built 200-400 metre square houses, as well

as owning cottages on the Adriatic coast or in the mountains. Having limited investment opportuni-ties, this generation of people active in the 1960s-80s, resolved not only their housing problems,but also the housing problems of their children and often even grand-children.Inflation was one of the constancies of monetary life in Socialist Yugoslavia; sometimes higher,sometimes lower, and occasionally jumping to levels of hyperinflation. Such monetary circumstances,lead to the development of a specific business and living culture based on "do not keep cash"instinct. There is no doubt that inflationary monetary conditions additionally stimulated investmentin housing.Credits offered to the broad population, as a rule, had a low but more importantly fixed interest rate.In inflationary conditions, it meant that during the years of repayment debt lost its value. Typicallong term building credit would lose its value in the first five to ten years. I recall my father going tothe bank to pay off his last five years of mortgage with a banknote which would only cover the priceof a box of cigarettes. I recall his comment: "Why did I not take a bigger credit?" And also his longlasting sympathy for Socialism.Just how banks operated in such circumstances is not clear. Banking under socialism remains atopic which still awaits interested historians.

Damir Jelic