innovation in global finance: the impact on hegemony and growth since 1000 ad

Research Foundation of SUNY

Innovation in Global Finance: The Impact on Hegemony and Growth since 1000 ADAuthor(s): Tony PorterSource: Review (Fernand Braudel Center), Vol. 18, No. 3 (Summer, 1995), pp. 387-429Published by: Research Foundation of SUNY for and on behalf of the Fernand Braudel CenterStable URL: http://www.jstor.org/stable/40241334 .

Accessed: 04/09/2013 14:07

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Research Foundation of SUNY and Fernand Braudel Center are collaborating with JSTOR to digitize, preserveand extend access to Review (Fernand Braudel Center).

http://www.jstor.org

This content downloaded from 129.68.65.223 on Wed, 4 Sep 2013 14:07:14 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=rfsuny

http://www.jstor.org/action/showPublisher?publisherCode=fbc

http://www.jstor.org/stable/40241334?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Innovation in Global Finance The Impact on Hegemony and Growth since 1000 AD*

Tony Porter

is the relationship between finance, hegemony, and economic growth? This article argues that finance plays a

key, but poorly understood, role in the rise of hegemony and in the stimulation of long waves of economic growth in the world economy. It treats finance as an industry which produces institutional mechanisms for organizing economic activities and transferring value over extended stretches of time and space. It analyzes large- scale financial innovations and investigates their effect on cycles of rise and decline of both the financial industry and the wider international political economy.

The article differs from prevailing views in six ways. First, it fo- cuses on finance as a practice rather than a flow of capital or a set of coherently organized agents.1 Financial practices, as sets of rules and norms that constitute and empower financial agents, can include, for example, the implicit and explicit expectations which converge around particular financial instruments, organizational technologies such as widely dispersed shareholding, and the inter- state and "private" regimes which regulate financial markets. This

* A earlier version of this research was presented as "Long Historical Patterns in the Institutional Structure of Global Finance" at the International Studies Association Annual Meeting, Washington DC, Mar. 30, 1994. I wish to thank Christian Suter and Eric Helleiner for their comments on that paper and from their own work which spurred my interest in the relationship between hegemony and finance.

On the metatheoretical significance of the concept of practice see Giddens (1984: 2-3). Liberal economists tend to focus on flows of capital, although greater attention has been devoted to institutional features of finance in recent years (Bhattacharya 8c Constantinides, 1989). Some theorists of "finance capital" in the Marxist tradition treat finance as involving a coherent class subject.

review, xviii, 3, summer 1995, 387-429 387



388 Tony Porter

shift to practices from deep structures and actors corresponds to present efforts to resolve the structure-agent problem in international relations theory (Wendt, 1987).

Secondly, a related difference is that finance is seen as a relatively autonomous sector with its own cycles rather than simply transmitting or amplifying cycles in the real economy or in military conflict, as is the view in most long-wave research. Finance will be treated as an industry with its own dynamics of innovation, maturity, and decline similar to other leading industries, such as rail, chemicals, and automobiles, which have been so important in the evolution of the international political economy. Surprisingly, finance has been absent from the vast literature on the relationship between innovations, industry cycles, and long waves despite its centrality to the functioning of the economy as a whole.

Thirdly, the article argues that financial dominance, prosperity and growth precede industrial and political dominance. This contra- dicts Wallerstein's (1983) view that finance is a lagging sector in the cycle of hegemony, and the view of hegemonic stability theorists (Lake, 1993) that hegemony is a cause rather than an effect of global prosperity.

Fourthly, the paper stresses logistics, long economic cycles of about 200 years, rather than Kondratieff waves of about 50 years, as is most common in long wave research. There is reason to think that these cycles are correlated with hegemony (Bousquet, 1979; Wallerstein, 1984; 1991). Furthermore, they are likely to be related to large scale financial innovations because they are most evident in price data, and because as "world-market control investments" (Wallerstein, 1984: 571) the timing is plausible. As Wallerstein has noted,

what are world-market control investments? They are both global infrastructure (transport, communications, financial networks) and politico-military infrastructure (armed forces, diplomatic networks lato sensu networks of subversion). They are what goes with and sustains the existence of a hegemonic power in the capitalist world economy (1984: 571).

Despite their potential relevance "there has been very little scholar- ly work done on these logistics" (Wallerstein, 1983: 104).

Fifthly, this article suggests that historically military and financial hegemony have often coincided in time but may have existed in dif-



INNOVATION IN GLOBAL FINANCE 389

ferent states, an insight relevant for understanding current U.S.- Japanese relations.

Finally, the emphasis here on the cyclical nature of global finance challenges the widespread characterization of the present globalization of finance as entirely new, unilinear, and irreversible. In fact, as will become clear below, over the past 1000 years, periods of intense globalization have alternated with periods of re- trenchment and crisis.

The article has three sections. In the first I identify the existing gaps in our knowledge of long-historical patterns in global finance. In the second I develop a model for analyzing such patterns. In the third I begin to assess this model with respect to the historical record. While this assessment is not a conclusive test it does provide some initial support for the model.

THE GAPS IN OUR KNOWLEDGE

There are four types of waves or cycles that have been discerned in the evolution of the international political economy: short cycles of less than 20 years (Kitchins, Juglars, and Kuznets), Kondratieff cycles of about 50 years, cycles of hegemony, and logistics of rough- ly 150 to 200 years. Although some theorists (Kindleberger, 1989; Suter, 1992; Morgenstern, 1959; Minsky, 1977) have linked changes in finance to shorter cycles, these cycles are too rapid to offer meaningful insights into the relationship of finance to much slower paced cycles of hegemony, and will therefore generally be ignored in this article. Relatively little effort has gone into studying logistic cycles, to which I will turn below. The largest effort has gone into identifying and explaining Kondratieff cycles and cycles of hegemony, and these will be addressed first.

While the causal connections between Kondratieff and hegemonic cycles appear to be "weak" (Goldstein, 1988: 287, Bousquet, 1979, but see Research Working Group on Cyclical Rhythms and Secular Trends, 1979), taken together these cycles have been correlated with fluctuations in a wide range of variables including prices, production, profits, war severity, and debt crises. Although conclusive empirical tests of hegemonic cycles are impossible because of the number of cases and other philosophy of science problems, the connection of hegemonic transitions with great power war and



390 Tony Porter

socio-economic restructuring are striking. The Kondratieff cycles lend themselves more to empirical testing and at present there is substantial evidence that they exist. Indeed Wallerstein has ex- claimed "I suggest that we waste no more time proving that the Earth revolves around the Sun" (1992: 339), although debate con- tinues on the causes, starting point, exact timing of the cycles, as well as on the most appropriate methodology for empirical testing.

Although there are many hints that finance may be relevant to long cycles, these have not been thoroughly explored in the existing literature. I shall demonstrate this by looking at three key contribu- tions to this literature, Goldstein (1988), Suter (1992), and Waller- stein (1983).

Goldstein

Goldstein (1988) has made an outstanding contribution to long- wave research by synthesizing and further testing results from all current research programs and a review of his treatment of finance is therefore a good indicator of its current status in long wave research more generally. Goldstein (1988: 132, 268-70) cites Rasler & Thompson and Quincy Wright in including a link between debt and the waging of war. Debt here plays an important role in the transition from an upswing to a downswing by (a) translating growth during an upswing into war, and (b) bringing about a slowdown in economic growth in the debt-laden aftermath of war. The role of the financial system here is minimal and epiphe- nomenal.

Because prices have been a key indicator of long waves, and because of the close connection of the supply of money to prices, one would expect an integration of the monetary aspects of global finance into long wave research. This is not the case, however. As Goldstein (1988: 272) notes, "prices seem to respond to money supply as well, at least since World War II ... I have no theory that ties in money supply, however, except as it is used to finance wars."

Goldstein's work suggests that there are more connections between finance and money on the one hand and long cycles on the other than are apparent from the present state of long-wave research. Both prices and war, key variables in this research, are especially likely to be related to finance and money.




Suter

Suter (1992) provides the most comprehensive model of the role of finance in long waves in analyzing global debt cycles since 1820. His book is a highly convincing demonstration that a link exists between finance and long cycles. There are, however, several gaps in his analysis which this article seeks to address. First, the focus is limited in time and space: The focus is on core-periphery relations and little is said about financial relations between core powers, nor about patterns before 1820. Secondly, finance is seen as transmitting and exacerbating cycles in the real economy, making it possible, for instance, to move production to the periphery as it moves through a cycle of maturity and standardization, but the financial industry itself has little autonomy. Thirdly, there is no attempt to differentiate among loans, securities, and direct investment, nor between government and corporate borrowers, thereby obscuring important differences between historical periods in the institutional mechanisms through which financial flows are carried.

An exception to the above assertions is Suter's identification of a secular trend towards institutionalization of global finance as evident in the roles played by loan syndicates and the International Monetary Fund (IMF), which have an effect on the nature of crises. I will show that this process of institutionalization is more cyclical itself, and has a greater effect on long cycles, than is suggested by Suter's work.

Wallerstein

Wallerstein (1983) has provided an intriguing analysis of the relationship between political and financial hegemony. He suggests that hegemons go through an overlapping sequence of agro-industrial, commercial, and financial hegemony. It is quite logical that investors might move capital overseas if domestic investment opportunities decline due to maturity and rigidity in a hegemon's leading industries. This model appears to fit the transition from Dutch to British and from British to U.S. hegemony quite well. While Waller- stein's model strongly suggests that there is a relationship between finance and cycles of hegemony, I shall show below that financial innovation precedes rather than follows the other indicators of hegemony.



392 Tony Porter

The above review of three leading theorists of Kondratieff and hegemony cycles and their treatment of finance indicates both that a connection between finance and long cycles is probable, and that we need to know more about this connection. While further explo- ration of the correlation between Kondratieff and financial transformation would indeed be useful, I will start instead in this article with the longer logistic cycles. In part this is due to the technical difficulty of analyzing the large number of Kondratieff fluctuations, and in part it is due to the logical compatibility of longer logistics with the present object of study, hegemony and very long-term trends in global growth. I will expand upon this assertion in the next section.

LOGISTIC CYCLES

Logistic cycles are very long term economic waves that span as much as two centuries each (Cameron, 1973). Cameron notes that in Europe both population and economic growth entered a rapid period of expansion starting in the ninth or tenth centuries, peaking in the twelfth, and ending with the Great Plague of 1348 (1973: 146). Subsequent cycles are shown in charts 1 and 2. Between 1330 and 1510 prices decline, from 1510 to 1630 they rise dramatically, from 1630 to 1750 they are stagnant, from 1750 to 1820 they rise, from 1820 to 1900 they decline, from 1920 to the recent past they rise. (Bousquet [1979: 510] gives slightly different starting and ending points.) Similar cycles are evident in real wages, although the phases are lagged substantially.2

Although they have received little attention in the study of the international political economy, there are several good reasons to pay careful attention to logistics in analyzing the relationship among finance, hegemony, and economic growth. First, unlike Kon- dratieff waves, the pattern spans the period before and after 1500, and therefore is more easily matched to the evolution of modern finance, which dates back to the eleventh century. Secondly, these

2 The construction of long-historical price series is fraught with difficulties. Ramsey notes of the authors of these charts: "the most valiant and successful effort is that of E.H. Phelps Brown 8c Shiela V. Hopkins, widely used by all historians of the period ever since its appearance in 1956" (1971: 3). He notes, however, several weaknesses of the indexes, including the assumption that the weighting of the constituents of the composite unit of consumables did not change.



o 1-H

i CM 1-H

W

V s

ï î 1 i U | o U O

1 r o U c« <^ o

f



CM r-i

e •a I «s Ï

° ! ? "S

I 1

=a S il 2 ^ S 2 ^

rn c/3 U

I»? rn c/3

# cm "3 "S cm "3 5 >S ffi -S u

II ^ !|I "Si & £ U a;

S- s *s "11 c S o c S o -ils gUbo U Vm g v o #a

-g g-K 2




very long cycles are likely to correspond more closely to the creation and diffusion of large-scale financial innovations which, in an early period, are too complex to be transmitted across the world economy in the period of a Kondratieff cycle. Thirdly, the duration of logistics corresponds more closely to the duration of hegemony and therefore is more likely to be correlated to the financial aspects of hegemonic rise and decline. Finally, it would be surprising if the logistic swings in price in chart 1 did not relate to the financial system given the link between prices and finance.

Cycles in Global Finance: A Model

In this section I develop a model of the relationship among finance, growth, hegemony, and logistics. I will argue that the institutional features of finance, as well as the quantities of wealth mobilized, are critical to the production and reproduction of modes of economic life and will indicate why finance, like other industries, is likely to go through cycles of innovation, maturity, and decline, which have profound influences on the economy as a whole.

Both money and finance involve the transfer of value across time and space through the use of "symbolic tokens" (Giddens, 1990). Any survey of the history of monetary and financial systems will indicate how central trust is to their functioning since the "tokens" themselves have rarely had any intrinsic value, and are presently merely pieces of paper or electronic impulses. The acceptance of financial instruments rests on a faith that they will contin- ue to be accepted. Yet this faith is not simply an attitude, but re- flects a process of institutionalization in which a bank, a state, or a set of market practices is seen as strong enough to organize its par- ticipants' actions in predictable ways.

This stress on institutionalization is contrary to the common overemphasis on gold as a "real" foundation for the monetary system. Even in earlier times one can question the relevance of gold's intrinsic value as compared to its socially constructed value as money. Certainly by the late middle ages, however, there is no doubt that the distinction between real and symbolic money, and between money and credit, had been eroded. The bills of exchange which fueled medieval and early modern trade were promises to pay that traveled over surprisingly extended and complex circuits spanning Europe. Serving both as a medium of exchange and a



396 Tony Porter

source of credit, these bills were accepted because of patterned expectations with respect to their issuers, to the regularity of the fairs at which they were redeemed, and to the effect of the threat of ex- clusion from developing international markets on debtors. Braudel, for instance, notes that "a hundred thousand or so 'ecus d'or en or9- that is real coins- might settle business worth millions" (1982: 91).

It has been shown both for medieval England and for the international economy from 1778 to 1939 that trends in prices can only be explained when analysis of gold flows is supplemented by analysis of credit.3 Moreover, the supply of gold was not necessarily exo- genous: Columbus was obsessed by the prospect of finding it, and thus the inflow of gold from the Americas to Europe could be seen as driven by demand not supply.

In the present period the ambiguous nature of money is evident in the difficulty experienced by monetary authorities in measuring the money supply given the ease with which people can substitute a dazzling array of financial instruments for cash or demand deposits, the more traditional forms of money (Podolski, 1986).

The process of institutionalization of money and finance is not at all unilinear, however. There have been frequent occasions where money and credit have been destroyed by the collapse of confidence, whether this involves individual banks, states, or international monetary regimes.

If we could discern patterns in these collapses then it is likely that we would be better able to understand long waves, given the importance of money and finance for other economic indicators. In addition to the impact of the expansion of credit on growth and inflation the financial system plays a key role in the organization of other sectors, as with, for instance, the impact of stockmarkets on corporate governance. Major transitions in the international political economy can therefore be expected to be accompanied by transformations in the financial system.

3 As De Roover notes: "there can be no question that the medieval money-changers created credit to the extent that deposits were not covered by their cash reserves. In other words, their activities in this respect were as inflationary as if they had been given the privilege of issuing notes" (1974: 215). See also Dupriez (1951), Hammar- strôm (1971: 53), Miskimin (1989: Chapter XV), Postan (1973). For a debate in the U.S. context see Friedman (1986).




There are several reasons to treat finance as an economic sector in order to discern such patterns. First, over much of history, finance has been supplied by private institutions as much as by the state. Secondly, financial instruments are produced and do not just exist. Thirdly, and most important, the production of these instruments has involved constant innovation, and it is possible that the technological dynamics that explain the rise and decline of industries in other sectors are present here as well.

Let us therefore run through a schematic financial cycle, treating a set of financial institutions as an innovation comparable to transportation, a more traditional sector. Examples of such sets of financial institutions could include bills of exchange, transferable annuities, merchant banks, joint stock companies, direct foreign investment, stock markets, East-West joint ventures, the Eurocur- rency markets, and loan syndicates. Markets may be segmented geo- graphically as well as by product: The Euroyen market may involve a different set of actors and practices than does the Eurodollar market. These distinctions are comparable to shipbuilding, canals, railways, and automobiles, as well as between Canadian and Russian railway systems.

Like transportation systems, financial institutions are likely to follow an S pattern: Initial investments in building confidence for a new financial institution are heavy, but once established, the vol- ume of transactions can increase rapidly with unit costs declining. Once established, initial profits are likely to be high as a few firms will earn rents on the technological innovation. New firms will rapidly enter, however, reducing profits. Market saturation will lead to a slowing of growth. Impending saturation may not be perceived by investors, however, leading to a crisis of overproduction. Be- cause the financial system produces credit instruments that can be a close substitute for money, this overproduction can lead to price rises.4

4 The assumption in this sentence and in other places in this article is that an expansion in the money supply and in the provision of credit will lead to price increases. While this relationship has generally been widely accepted it has also had its critics. See for instance the conventional and alternative explanations of the sixteenth century price increases in Ramsey (1971). For a brief account that links bank credit to inflation in 1520 Venice and during seventeenth and eighteenth century wars see de Roover (1974: 215).



398 Tony Porter

Financial institutions are designed to respond to an emerging possibility of mobilizing supply and demand in another sector, much as a railway might be designed to transport wheat. At the same time there may be dynamics that are best treated as endoge- nous to the financial sector and not simply transmitted to or through it.

This model draws on, resembles, but differs from Kindle- berger's (1989) explanation of manias, panics, and crashes. Kindle- berger suggests that in a boom there is a rapid expansion of credit that spreads the boom into other sectors. The expansion of credit and demand is likely to lead to rising prices. The prices of financial instruments which are based on expected returns are driven up by the inflow of investment and capital gains, rather than returns from the underlying assets. Once confidence is shaken, there is a rapid collapse in the prices of the financial instruments. Kindleberger sees cycles of about ten years duration, which he explains by the length of time needed to forget about past disasters. Yet many of the innovations in financial institutions lasted for much more than ten years, and I hope here by focusing on these longer sequences, to connect them to the literature on long waves and hegemony.

In short, the hypothesis developed here is that the spread of a significant financial innovation should be associated with the beginning of an upswing in the world-economy, that a rise in prices should be evident as the innovation becomes more firmly established, and that financial crisis should initiate a downturn with its associated deflation. The extent to which this is an alternative explanation of long swings, rather than just an associated effect, will be evaluated in the concluding section.

ASSESSING THE MODEL AGAINST THE HISTORICAL RECORD

There are two steps in assessing the above model of long financial cycles. The first is to establish key transition dates with respect to hegemony, economic growth, and prices. The second is to do an analysis of the institutional transformation of global finance. Cer- tain limitations of this assessment are apparent from the outset. While measures of long waves are quite well established on the basis of quantitative analysis of time series, the use of such a meth-




od for assessment of patterns of financial innovation is not possible due to lack of data and the need to catch significant qualitative changes in financial institutions. In the larger literature on innovation and long cycles much effort has gone into specifying criteria for the identification of key innovations, an impossible task for the present study of financial innovation given the paucity of data and the need for qualitative assessment.5 In assessing the above hypothesis, therefore, I will need to use a less rigorous combination of qualitative and quantitative analysis.

Dating Hegemony, Economic Growth, and Prices

There is considerable dispute about the exact sequence and dating of the rise and fall of hegemons. In part this dispute centers around the relative importance of economic dominance versus war, and of land wars versus sea wars. I adopt Wallerstein's (1983) dating for Dutch, British, and American hegemony because of its emphasis on economic dominance, likely to be most relevant to understanding the impact of financial innovation.

Florence, although often overlooked, has striking similarities with these other hegemons. As Cipolla puts it,

Florence grew dramatically in the course of the thirteenth century, and by the end of that century it had come to repre- sent to the world of the time what London was to the nineteenth century: not only a great cultural, commercial, and manufacturing center, but also the principle financial market of the period (1982: 2).

I've also, following Braudel (1984: 148), included Venetian hegemony because of the similarity in its financial dominance to later hegemons. Although Braudel stresses Venetian commercial dominance, it is clear that it was the northern Italian cities as a whole, including Genoa, Florence, and Siena, that organized the European economy

5 The method here can be termed adductive. See Goldstein for an explanation and justification of this method for long wave research (1988: 2, 12, 179). On the difficulties of assessing the significance of innovations in general see Clark, Freeman, 8c Soete (1984). In this study, as in others, determining the timing of innovations is also difficult For instance, the organization of the joint stock company drew on practices that had been developed over centuries. In such a situation the fixing of innovative moments is unavoidably interpretive.



400 Tony Porter

at this time. In sum, then we have the following periods of hegemony: Florentine from 1252 to 1339; Venetian from 1378 to 1498; Dutch from 1625 to 1672; British from 1815 to 1873; and American from 1945 to 1967.

Chart 1 will be basis of my analysis of price changes over this period. Although the data is from southern England it is likely that the economy was sufficiently globalized over this period that this series can be a proxy for European prices as a whole.6 As Rostow notes, "the analysis of price movements is a complex art" (1978: 81) due to the variety of factors that can influence them. However, because we are focusing on very long waves we can assume that the effects of short term factors such as bad harvests are unlikely to play a key part.

Timing upswings in growth is more difficult. Measures of global production would be ideal, but reliable data for the period before 1740 are not available (see Goldstein, 1988: 81-92; Rostow, Appen- dix A). Here I will rely on the real wage data of Chart 2 based on the following logic. Much long wave research has concluded that innovations cluster in troughs and have a major impact in initiating an upturn. Real wages are likely to increase soon after the beginning of an upturn in production for two reasons. First, the demand for labor will increase. Secondly, increasing production (and an increase in "relative surplus value") will increase the possibility of labor obtaining a greater share of "surplus value." A downturn in real wages will indicate that the upswing is beginning to end, as the demand for labor declines. Chart 3, which displays trends in world

6 This point is arguable. For the complexities of price analysis see Braudel 8c Spooner (1967), which indicates that there were lags in the rise and decline of prices in different regions of Europe. This cautionary note is amplified by Wallerstein (1974) who points out that there was a vast difference in prices of labor between the core and periphery and that these were altering over this period, indicating that the English transition from periphery to core would significantly alter the relationship of its prices to European prices as a whole. At the same time Braudel 8c Spooner (1967, Fig. 19) show that across Europe there is a substantial convergence over time around the larger patterns expressed in Chart 1. See also Braudel (1984: 75) which states that there was substantial synchronization of price fluctuations across Europe by the fifteenth century. Other historians have also identified a similar dating of logistics in prices in other countries (Research Working Group on Cyclical Rhythms and Secular Trends, 1979: 489; Rostow, 1978: 84-85). The careful pan-European time series of Braudel 8c Spooner (1967) are only reliable for the period after 1450. Price data for Krakow and Spain are available from the middle of the fourteenth century (Hammarstrom, 1971: 43-44). For the earlier period assessment of the correlation of prices and wages across Europe is more impressionistic and speculative.



Pi m

I \ 8 |

S -S "5 us 3 o ° i : T3 cm

i

.a a; a. a < à) oo o>

c 'S -d "S O c

i •s

I 2 i o u

i



402 Tony Porter

production since 1750, when taken together with chart 2, indicates that this pattern is present over the past 200 years. A 170 year upturn in production begins in 1770, followed by an upturn in real wages in 1800. The growth rate of production remains high until the beginning of the twentieth century and then begins to falter as does the growth in wage rates. Although there are differences in the shape of the curve in the twentieth century it does appear that there is a 170 year logistic in which high real wages correspond to high rates of growth of world production. This provides some support for the use of the real wage rate data displayed in chart 2 as an indicator of world growth from 1264.7

If one compares the dating of the four periods of hegemony listed above with the phases of real wage cycles in chart 2 one sees that each period of hegemony falls right in the middle of an upswing in real wages. Hegemony therefore seems to appear in the middle of the high-growth periods of logistic waves. We will come back to the significance of this in relating it to financial transformation below.

MAJOR FINANCIAL INNOVATIONS

The dating of the emergence of significant new financial institutions will be carried out by a reading of the literature on the history of banking and finance. This will be organized by logistic.

Logistic 1, to 1350 and Florentine hegemony

In this period statistics do not permit us to analyze price trends, nor do they permit an exact estimate of the timing of the resur- gence of growth in the emerging European world-economy at the end of the first millennium. According to Cipolla (1956: 12) it was

7 Cameron (1973: 146) similarly sees per capita world output as increasing in logistic cycles: "It is virtually certain that each of the accelerating phases of population growth was accompanied by economic growth in the sense that both total and per capita output were increasing This is most clearly attested for the third logistic (and the incipient fourth) for which statistical evidence is relatively plentiful; but there is also much indirect evidence for similar behaviour during the first and second." For an alternative but overlapping representation of growth surges based on urban growth in provincial capitals see Hohenburg & Lees (1985: 8).




in the second half of the tenth century that "the splendid recovery of Western Europe" took place. Cameron notes that

during the eleventh, twelfth, and thirteenth centuries Europe- an civilization expanded from its heartland between the Loire and Rhine rivers to the British Isles, the Iberian Peninsula, Sicily and Southern Italy, into central and eastern Europe, and even, temporarily, during the Crusades, to Palestine and the eastern Mediterranean (1973: 146).8

I will therefore examine the period from the eleventh century to 1350 to see whether there were important financial innovations at the beginning which were exhausted by the end.

Three financial innovations stand out in this historical period, each of which enhanced Italian control of commerce and finance and helped create a European world-economy. The first is the creation of banks. The second is the minting of gold coins. The third is the circulation and balancing of bills of exchange at the Cham- pagne fairs.9 I will examine each in turn.10

That there is a link between the economic upswing of this period and financial innovation is well known in the history of banking. As Orsingher puts it,

It was, indeed, in Italy that economic prosperity was most rapidly re-established and to meet its own needs Italian commerce gave rise to the first truly professional organization devoted to financial and credit operations, even on an international plane (1967: II).11 These financial innovations, which were not limited to the

acceptance of deposits and the making of loans, involved the creation of multinational companies. For instance, the Bardi bank of

8 See also Bautier (1971) for an account of this economic revival. 9 "Italy . . . the triumphant leader of the thirteenth century, remained above all a

commercial centre, leading the world in business techniques: she had introduced to Europe minted gold money, the bill of exchange and the practice of credit" (Braudel, 1984: 112). 10 All of these innovations built on the accumulated experience of the Middle Eastern and Central Asian worlds. A useful extension of the present paper would be to explore this earlier period. See Abu-Lughod (1989) and Udovitch (1979).

11 For an analysis of the importance of finance and credit in the revival of economic growth in this period see Bautier (1971: 146-61).



404 Tony Porter

Florence had more than 30 offices in Italy, France, Paris, London, Bruges, Spain, North Africa, and the Greek, Latin, and Moslem Levant (Bautier, 1971: 151; see also Orsingher, 1967: 12). The importance of this innovation is evident in the tracing of the origins of the English joint-stock company back to the transfer of such Ital- ian financial innovations to England in this early period (Scott, 1993: 1; Postan, 1973: 338-39).

The creation of an international monetary system was the second innovation of northern Italy in this period. In the preceding period the monetary system created by Charlemagne at the end of the eighth century in France, Germany, and Italy deteriorated through the debasement of its single silver coin (Cipolla, 1956: vii- ix). In response to the need for a new international money, the northern Italian cities began minting new coins, first with silver and then gold. The Venetian silver money was very important in Middle Eastern markets (Cipolla, 1956: xii). The Florentine gold florin, first minted in 1252, "established itself as the dominant international currency in continental Europe."12

The third remarkable financial innovation of this period is the use of the bill of exchange internationally and the settlement system at the Champagne fairs. A bill of exchange is a buyer's promise to pay, at a later date, for goods received.13 A market for these began to develop and they circulated widely through Europe. They served both as money and credit. Yet, not surprisingly, this new international financial market only worked because of specific institutions that provided confidence among traders that these pieces of paper would be redeemed and that made these bills more efficient than gold or silver. Initially confidence was enhanced by ethnic loyalties, but this was replaced by confidence in the reputation of particular firms as those firms grew. Most important, however, was the settlement system that developed at the fairs.

The fairs at Champagne were the key node of European trade in this period, organizing the exchange of wool and wool products

12 Cipolla (1956: xiii). For a more detailed account of the international monetary

system see Bautier (1971: 161-70). 1S See Kindleberger (1984: 465) for a formal definition. The bill of exchange

evolved substantially over this period. Bautier (1971: 152) labels the earlier versions "letters of payment" De Roover (1974: 203) notes however that the distinction between these early instruments and the later bills of exchange was "superficial."




from the north with Mediterranean and Asian products from the south. Most important for their fairs, however, was their innovative financial function in allowing bills of exchange to be efficiently can- celled out.14 As Braudel notes,

the originality of the Champagne fairs lay less however in the superabundance of goods on display than in the money market and the precocious workings of credit on display there . . . Italian credit would be able, through the gatherings at these international fairs, to exploit to its own advantage the huge market with its cash returns (1984: 112).

Although Florence and its neighboring city-states were not a hegemonic system in a military sense (and indeed engaged in wars among themselves), they did exercise a surprising degree of political influence through their funding of the Crusades, the collection of revenues for the Pope and other European states, and the funding of government debt. For instance, Postan notes that in the first quarter of the fourteenth century the English king owed two Italian banks over a quarter of a million pounds, equivalent to the annual war budget at its highest point (1973: 339).

15 In short, financial innovation was central to the revival of

growth in Western Europe, and to the emergence of the leading role of Florence. This corresponds closely to the model elaborated in the previous section. To what extent can the waning of this first growth logistic be traced to the maturity and exhaustion of these financial institutions? I now turn to this question.

Although the trough at the end of the first logistic is marked by the plague in 1348, the decline started earlier and is evident in the crises experienced in each of the financial innovations upon which this period of growth had been built.

The decline of Italian banks was apparent in the declining productivity of their assets, and in their relative loss of power with respect to their clients and competing banks. The first two of these are revealed by the involvement of leading Italian banks in war finance and their collapse when the English crown repudiated its

14 "The fairs were effectively a settling of accounts, in which debts met and can- celled each other out, melting like snow in the sun" (Braudel, 1982: 90-91).

15 See also Bautier (1971: 151).



406 Tony Porter

debts. As Postan puts it, the Italians taught the English important lessons in the art of commerce and finance:

By the second half of the fourteenth century the lesson was so well learned that the teacher could be dismissed . . . King Edward III defaulted on his vast obligations to the banking houses of Bardi and Peruzzi [in 1340], and the consequent ruin of Italian merchants' houses in England enabled natives to take the place of Italians in almost every branch of commerce and finance (1973: 336).

The third problem of Italian banks was the diffusion and appropria- tion of banking technology by competitors. As Orsingher (1967: 20) notes, "gradually the Italians lost their de facto near-monopoly and banking operations became a commonplace of European civilization" (1956: 20). 16

The crisis of Italian banking was not limited to its foreign operations, however. The impact on Florence was so severe and profound that Cipolla calls it "[the] great crash of 1343-1346" (1982: Gh. 1). Public debt became unsustainable, was made transferable, and then collapsed in value: "the effect was comparable to that of a collapse of a stock exchange in our times" (Cipolla, 1982: 4). Loss of confidence in banks spread from one to another until nine leading banks had collapsed (Cipolla, 1982: 9).

The collapse of the Italian banks had a profound effect on the economy as a whole. Depositors of "all social classes and groups" (Cipolla, 1982: 9) were hurt. Cipolla comments:

Nor was this all. The collapse of the banks triggered the ruin of people in other sectors both directly and indirectly-directly, because the great companies carried on mercan- tile and manufacturing activities in addition to their banking ones; indirectly, because the banks' failure caused a drastic shortage of credit. Actually, once the crisis had started, a perverse multiplier effect was set in motion by which the crisis fed upon itself and spread like an oil stain (1982: 9-10).

16 Excessive rigidity in the context of these challenges has also been blamed for the collapse of Italian banks. Subsequently a more flexible system of autonomous partner- ships was devised. See de Roover (1963: 78; 1974: 209).




The monetary system initiated by Florence also entered into crisis at this time. As in other bimetallic systems the high and ap- preciating value of gold, the main currency of finance and international trade, with respect to the currency used by workers and domestic firms, was an important contributor to the wealth of Flor- entine exporters and bankers during Florence's heyday. Starting in 1343 the market moved against gold and in favor of silver (Cipolla, 1982: 17). The Florentines were subsequently forced into a series of devaluations of their gold coins, seriously damaging the credibility of this international money. Cipolla attributes this decline in the price of gold to an unexpected and unexplained influx (1982).

One explanation for the crisis of the Florentine money is that the innovation was imitated in other countries, stimulating the search for gold and increasing the number of gold coins in circulation. As Wiseley notes, "when the Italian city-states began the fashion for gold coinage others felt obliged to follow, in the competitive quest for both commercial advantage and political prestige" (1977: 22). Between 1250 and 1344 gold coins were struck for the first time in France, Spain, Germany, England, and the Low Coun- tries. Once these competing currencies were introduced there was a tendency on the part of England and France to try to control the flow of gold across borders (Orsingher, 1967: 18). In the case of England this was accompanied by a sustained attack on the bills of exchange which were so central to Italian international finance (Munro, 1979).

An additional part of the explanation relates to the crisis of the third Italian innovation- the Champagne fairs- a crisis which itself contributed to Florentine decline. One common explanation of their decline was a "commercial revolution" in which firms used permanent representatives abroad and professional transporters. This indicates the exhaustion of the Italian financial innovation of the fairs and its replacement by alternative institutional arrangements.17 Additionally, the competition from the sea routes, initiated

17 See for instance de Roover: "the rise of this new system of business organization based on correspondence and representation abroad is intimately connected with the rapid decline of the fairs of Champagne after 1300" (1963: 43, 72). See also de Roover (1974: 204-5). Braudel (1984: 115) is skeptical of this factor but his reasons do not seem convincing since such a shift clearly did occur on a large scale with the emergence of Amsterdam's lead later on.



408 Tony Porter

by the Genoese in 1277, became intense after 1320 (Braudel, 1984: 114; De Roover, 1963: 133). There was a connection here with the monetary crisis: Florence's rival sea-going city-states sought, and succeeded, to obtain access to the German silver mines and to the silver-based Mongol commercial networks, undermining the dominant role of gold.18

In sum, in this first logistic a financial cycle of innovation, maturity, crisis and decline was central to the initial period of expansion and growth, to the emergence of Florentine hegemony, and to the downturn and hegemonic decline. By the mid-fourteenth century Europe was in severe recession.19

Logistic 2, 1350-1600: Venice, Genoa, and South Germany

The second logistic is marked by three momentous financial transformations. The first is the creation of a market for flexible short-term trade credit oriented to shipping. The second is the ap- propriation of large-scale supplies of bullion from the Americas and its use to expand the money supply. The third is the use of large- scale banking firms to finance states. While Florence initially continued to play an important role in these transformations, it relied too heavily on old institutions and therefore faded.20 Venice, South Germany and Genoa, by contrast, were the leading innovators, and were able to translate their financial power into an unprecedented

18 This interpretation is based on Bautier (1971), Braudel (1984), and Cipolla (1982). Braudel (1984: 114) suggests that the Italian fleets were interested in German silver. Silver had been more central to the Venetian economy than the Florentine due to its role in Venice's Middle Eastern trade (Cipolla, 1982: xii). Thus one could inter- pret the sea route as involving a further erosion of the Florentine gold-based international monetary system. On the other hand it should be noted that de Roover (1963: 134) argues that the increased importance of gold at the end of the thirteenth century played a role in the demise of the financial firms at the Champagne fairs. 19 For an account that also emphasizes the centrality of finance and credit in the onset of this depression see Bautier (1971: 153, 169).

^° In this second logistic influential Florentine financial practices did not completely disappear. Florentine firms continued to be active in the fairs in France in the period of their revival, which peaked around 1500. The Florentine Medici Bank, for a period of time, played a role similar to the Fuggers of south Germany, except for the French state rather than for the Hapsburgs. These activities, while important, were not as central to the transformation of the European economy during this logistic, however. On the significance of the innovations that separated pre-1348 and post-1348 practices see de Roover (1963: 44).




political influence. By the end of the logistic, however, they too had passed their zenith, clearing the way to the rise of Dutch hegemony in the third logistic. I will trace these events in this section.

The importance of trade credit was evident in the changing relative positions of the Italian city-states. After the crisis of the mid- fourteenth century, Florentine influence began to be displaced by those Italian city states which were more oriented to the sea route to northern Europe. Foremost among these city-states was Venice, but Genoa also played a key role.21 Indeed, Venetian ascendancy was marked by a halt to military conflict between these two rivals with a peace treaty signed in 1381 after the battle of Chioggia (Braudel, 1984: 118).

The key Venetian financial innovation was the creation of a system of short-term flexible trade credit organized around commercial shipping. While Venice lagged behind Florence in the creation of banks and the use of the bill of exchange, its innovations in trade credit were ideally suited to a role in re-establishing a new European growth logistic:

The entire Venetian population seems to have been advanc- ing money to the merchant venturers, thus perpetually creating and renewing a sort of commercial society embracing the whole town. This constantly available and spontaneously offered supply of credit made it possible for merchants to operate alone or in temporary associations of two or three partners, without the need for the long-term companies with capital funds which characterized the most advanced commercial activity in Florence (Braudel, 1984: 130-31). Genoa too was highly flexible in commercial and financial mat-

ters, and like Venice was building sea-based trade routes which were to become central to the emerging European economy of this growth logistic (Braudel, 1984: 162-63). Indeed, Abu-Lughod notes that participation in trade finance was even broader than Venice, and involved the creation of a market in transferrable shares that bore a close resemblance to modern joint-stock companies (1989: 118-19).22

21 Abu-Lughod attributes a persistent underestimation of Genoa's influence to the

attractiveness of present-day Venice as a tourist site for visiting scholars (1989: 131). 22 For a detailed description of Venetian and Genoese overseas trade contracts see



410 Tony Porter

The displacement by Venice and Genoa of Florence is evident in accounts of the role of Italians in England (Fryde, 1983: Gh. 14). Until 1340, at the end of the first logistic, Florentines had played the leading role, importing wool from England to be manufactured in Florence. By contrast, in the second logistic Genoa played a leading role in supplying the chemicals and dyes needed for the bud- ding English textile industry and in bringing English textiles to Iberian and other Mediterranean markets. Florentine exports and imports in this period were carried on Genoa's ships.

Genoese innovations in finance and trade played a key role in the rise of first Portugal and then Spain in this period. As Waller- stein notes, "the Genoese, the great rivals of the Venetians, decided early on to invest in Iberian commercial enterprise and to encour- age their efforts at overseas expansion" (1974: 49). Bullion was central to European trade with Asia and the successful search for it was an important factor in Iberian expansion into the Americas. In the sixteenth century the Genoese came to play a commanding role through their financing of trade and of the monarchy (Pike, 1966: 48; Wallerstein, 1974: 173).

The inflows of bullion from the Americas had a profound impact on the European economy and enhanced Genoese influence. In its initial phases it stimulated trade both within the continent and between Europe and Asia. Braudel comments, that "the galleys laden with chests of reals or ingots which began arriving in fabulous quantities in Genoa in the 1570s were unquestionably an instrument of domination. They made Genoa the arbiter of the fortune of the whole of Europe" (1984: 166). The 40% decline in revenues from Spanish colonies over the first 20 years of the seventeenth century had a severe impact on trade (Hart, 1993: 159).

The third financial innovation of this logistic, the use of large-scale banking firms to finance states, was first developed in South Ger- many, but then soon emerged in Genoa as well. The transformation, which took place between 1490 and 1520 (Bergier, 1979: 107) was evident in the collapse of the financial markets at Bruges, which had been dominated by the Italians, in the early 1490's and the transfer of banking functions to Antwerp, where German banks dominated.

de Roover (1963: 49-59). This account makes clear the dual function of these financial instruments in mobilizing credit and organizing economic life.




This transformation was not just spatial or ethnic, but more importantly involved the adoption of a more centralized structure that allowed the banks to more effectively mediate between dispersed lenders and borrowers (Bergier, 1979: 123), and to more effectively deal with lending to states, which had evolved into large-scale complex projects afflicted by severe monitoring problems.

The rise of the Fugger bank from 1473 to 1525 illustrates the importance of this new bank structure. Its success was built on its ability to lend vast sums of money to Hapsburg emperors Maximili- an I and Charles V in exchange for pledges of the production from Germany copper and silver mines. Indeed Fugger money was decisive in Charles V's election as Holy Roman Emperor (Ehren- berg, 1963: Ch. 1; Packard, 1927: 21). In part this success was due to the inadequacy of existing forms of public finance in the face of new demands- easily mortgaged assets had been exhausted and forced loans had reached the limit of toleration of subjects (Ehren- berg, 1963: introduction). Previous decentralized private firms were also inadequate to deal with such challenges as well due to the need for a powerful monitoring and bargaining capability. This new centralized institution, the largest firm that had ever existed, also per- mitted the rapid transmittal of funds across Europe for the payment of the widely dispersed Hapsburg troops.

The Fugger bank's structure was also decisive in allowing it to raise capital on the blossoming Antwerp market, its key source of financing in the 1540's and 1550's (Ehrenberg, 1963: 112). This market was much more atomistic and competitive than the Bruges market had been, and the reputation of the Fugger bank was critical in the willingness of dispersed investors to supply funds to the distrusted Hapsburg state. As Ehrenberg says, "they borrowed large sums in Antwerp, usually at 8-10% per annum, and their credit was so good that in the general mistrust and the absence of 'good borrowers' everyone 'looked out for the Fugger Bonds' " (1963: 116).

The demise of the Fugger bank was in part due to the diffusion of its unique organizational structure. Starting in 1557 the Genoese began displacing the south Germans, specializing in loans to Spain, and drawing on alternate capital markets in northern Italy, Lyons, and Lisbon (Ehrenberg, 1963: 126).

The demise of the Fugger bank, however, also indicates the limits of this form of organization. Ehrenberg notes that "in the spring of 1557 the over expansion of credit in Antwerp had reached



412 Tony Porter

the danger-point" (1963: 114). The second half of the sixteenth century was marked by financial crisis. "Bourse loans in Antwerp reached manic proportions in the 1550's" (Kindleberger, 1984: 45) and collapsed when the Hapsburgs defaulted. As "Spanish finances staggered from crisis to crisis" (Kindleberger, 1984: 45) the Fugger bank found it increasingly difficult to raise money, and could not cut back its loans sufficiently, folding in 1596. The institutional innovation of a highly centralized bank, led by a family with close personal ties to state leaders, had reached its limits: "the Fugger were so closely linked with the Hapsburgs that . . . they could not escape their demands for money" (Ehrenberg, 1963: 117). While the Genoese banks were able to prolong their arrangements with the Spanish state, they too began to decline after the Spanish bankruptcy of 1627 (Braudel, 1984: 170). The foretaste of the successor to these highly centralized banks was present in the Antwerp capital markets which would soon be displaced by more sophisticated arrangements organized around Amsterdam.

In part the downturn of the second logistic, and of the financial arrangements that had sustained its upswing, was driven by the de- structiveness of the frequent wars of this period. Yet the downturn could also be viewed as the exhaustion of the innovative financial and commercial institutions that had been so important in opening the Atlantic trade routes, expanding the production of money through the import of bullion, linking Europe to the Asian economy, and financing state creation through the use of large banks linked to emerging capital markets. The wars would certainly not have been possible without the financial system, and they subsided when they could no longer be financed. When the financial system developed further, in the third logistic, a new round of warfare erupted. Thus it is as plausible that the direction of causation runs from finance as the reverse.

The Third Logistic, 1620-1800: Dutch hegemony

The third logistic is marked by three consequential financial innovations: joint stock companies, sophisticated international securities and commodities markets, and a revolution in government finance. These were centered on Amsterdam, sustaining




Dutch hegemony, which Wallers tein dates from 1625 to 1672.2S The Dutch empire in Asia was facilitated by the innovative insti-

tutional structure of the Dutch East Indies Company. In 1609 the directors of the Company created shares with the following charac- teristics: The capital was permanent and could not be returned to shareholders; shares were easily transferable in the Amsterdam securities market; they conferred no control over the company which was retained by the directors; they were available to foreign- ers; and they paid out substantial dividends regularly. The permanent nature of the capital sharply differentiates this arrangement from the Italian companies of the earlier period, which were more temporary and were re-established every few years. These Dutch innovations preceded the adoption of similar ones by the English, their leading competitor, by 40 to 90 years (Neal, 1990: 9, 118). These innovations allowed the Company to raise large amounts of capital and to deploy this capital with a high degree of autonomy from investors.24

As Braudel makes clear, the Dutch empire in Asia relied on transferring products between one Asian market and another (1984: 220-32). The structure of the Company was ideally suited to this task, as its bureaucratic structure allowed it to coordinate these far-flung trading operations, and its autonomy allowed it to carry out these operations without the need for close monitoring by Am- sterdam capital markets.

The capital and commodity markets in Amsterdam were qualita- tively different than earlier markets in Champagne, Bruges, and Antwerp. The trading of commodities was not only ongoing, but also involved a large-scale capacity for storage, allowing greater control over the flow of goods with respect to disruptions such as bad harvests or political instability. An important factor in the success of the Dutch East Indies Company was the creation of a stock

23 The creation of public banks, most notably the Exchange Bank of Amsterdam in 1609 and the Bank of England in 1694 was also important In my view these innovations were not as momentous as the ones discussed in this section, however, and primarily had the effect of consolidating earlier innovations in private banking. 24 Clearly novel financial practices were only one aspect of the innovativeness of the joint-stock companies. The relationship of these companies to their sponsoring states, as codified in charters (Packard, 1927: 17) was also important On the other hand, by primarily focusing on non-financial factors Coornaert (1967) provides no explanation for why the Dutch preceded the British historically.



414 Tony Porter

market, making shares transferrable and creating the possibility of capital gains. Neal (1990) has shown that capital markets in this period were surprisingly integrated across borders, with prices of identical shares on Amsterdam and London markets moving in tandem. By 1688 innovations included futures and options (Neal, 1990: 16).

The Dutch also gained substantial advantage in political and military competition from their innovations in public finance. The most important of these was the creation of a market in long-term, low interest debt, as opposed to taxation, debasement, forced loans, or short-term, high-interest loans. Dickson (1967) and Kennedy (1988) have stressed the importance of such a financial revolution for Britain in its struggle with France- the French state relied instead on increased taxation and collapsed due to popular anger in 1789. The Dutch pioneered this innovation, however: Between 1611 and 1655 Holland managed to reduce interest payments on its debt from 6.25% to 4%, while the English state was paying 10% and the French state 15% (Hart, 1993: 163). The key instrument was the life annuity, a sharp contrast to the use of the Fugger bank by the Hapsburgs due to the disintermediated, popular, and commodified nature of these annuities. Hart comments "there were, in fact, an amazing number of people who brought their funds to the coffers of the state, who obviously trusted the state, and among them were quite ordinary persons" (1993: 174). As in the British financial revolution, the accountability of the state to its wealthy elites as a result of democracy (in England) and decentralization (in the United Provinces) enhanced creditworthiness and trust.

The innovative features of Dutch financial structures bore the seeds of their own demise and were subsequently displaced by more sophisticated English ones. This was evident in both corporate and public finance. I will look at these in turn.

The crisis of Dutch corporate finance was signalled by the fall of the Dutch East Indies Company's share prices relative to those of its English competitor between 1723 and 1794 (Neal, 1990: 121). There are three key aspects of the obsolescence of Dutch structures. The first aspect is that they were being imitated by competitors (Neal, 1990: 131).

The second aspect is that the company became inflexible and corrupt, missing opportunities and wasting its revenues. Inflexibility was evident in the loss of the Chinese connection to the British: The Dutch had been trading Indonesian pepper for Chinese tea,




but starting in 1698 they were cut out by the British who began purchasing tea directly from the Chinese with cash (Braudel, 1984: 222). Braudel cites corruption and excessive spending by the Com- pany's officers in Asia as a key reason for its economic decline (1984: 228-30). The Dutch West Indies management has been blamed for its failure to compete with the British in the Americas (Braudel, 1984: 234). Two features of English capital markets reduced the prevalence of these problems in its companies: The first was the greater pressure that stockholders were able to put on directors in England (Neal, 1990: 9), and the second was the sophis- tication of the English information network, including newspapers, periodicals, and printed stock price lists.25

The third and most serious aspect of the obsolescence of Amster- dam centered financial institutions was the crisis in international capital markets in 1719 and 1720. This crisis included the Mississippi Bubble in France, the South Sea Bubble in England, and less well- known speculative bubbles in Holland and Germany (Neal, 1990: Chs. 4, 5; Kindleberger, 1984, 1989). The key features of the Missis- sippi and South Sea bubbles illustrate the problem. In both cases there were unfounded promises of new overseas companies that would duplicate the successes of the East Indies Companies. In addition the companies were used to convert short-term war debt of France and England respectively into long-term debt by having investors exchange government debt for stock in the companies. The government reduced the cost of funding the debt since shareholders accepted a lower rate of return in exchange for transferability and capital gains. In both cases the rapid appreciation of stock prices was brought about by paying generous dividends out of the capital from subsequent issues rather than from real investments. In both cases a financial arrangement that had worked well in an earlier period subsequently proved to be dangerous. In the wake of the bubbles there were severe limitations for over a century on the growth of joint stock companies in England and of banks in France (Neal, 1990: 62).

There are two aspects of the crisis of the Dutch model of public finance. The first was evident in the bubbles of 1719 and 1720. The conversion of short-term public debt into long-term debt was a key

25 Neal (1990: 21). Similar problems in the English East India Company were not entirely eliminated, however. See Kindleberger (1984: 190-91, and 234-36).



416 Tony Porter

aspect of these bubbles and the collapse of the bubbles indicated a mismatch between the financial institutions involved in transform- ing this debt and the actual revenues of the states. Neither war nor the granting of foreign trade monopolies was an adequate basis for reliably funding the debt, a fact that investors were unable to assess correctly until financial collapse had occurred.

The second aspect of the crisis of the Dutch model of public finance was the migration of Dutch investments from the funding of Dutch state and industry to the financing of risky public debt in other countries. Explanations for this shift have included a loss of enthusiasm for risk-taking (see Braudel, 1984: 246, who calls the reliance on finance a "sign of autumn") and a search for the higher returns abroad, due to high labor costs at home (Riley, 1980). Most European states made abundant use of Dutch capital markets and this initially contributed to growth. As Riley notes, however,

the new credit structure was no more than an expedient response to continued, more frequent, and more substantial deficits. Its management was entrusted to a capital market inexperienced in such matters, a market that, because lenders failed to become informed about inflationary patterns, debt levels, and other trends, could not perform its regulatory charge satisfactorily. Although the Amsterdam market was adept at improving access to savings and at rapidly mobilizing large sums, it was not adept at manipulating capital availabili- ty and credit cost to restrain deficit spending. By the eve of the wars of the French revolution cumulative debts among borrowing powers were many times larger than the sum of each year's current revenues (1980: 4). These problems culminated in the "pandemic of bankruptcy on

the continent" from 1788 to 1815, with France, Austria, Sweden, Denmark, and the United Provinces defaulting on their debt obligations (Riley, 1980: 201).

The system of commercial credit appears to have expanded ex- cessively rapidly in this period as well, contributing to inflation (Riley, 1980: 27). As Braudel comments, "there is no comparison between these early [Italian] expansions of credit and the deluge of paper that occurred in the eighteenth century: 4, 5, 10 or 15 times the specie in circulation" (1984: 244). Braudel (1984: 267-68) and Kindleberger (1989: 136) see this overexpansion in large part respon-




sible for the crises of 1763, 1772-73, and 1780-83, the penultimate signals of the demise of the role of the Dutch in the world economy.

Looking at the third logistic as a whole, we see the creation of joint-stock companies, international securities markets, and new forms of public finance, as contributing to expansion and growth initially. At the end all three of these institutional innovations were in deep crisis. As at the end of the second logistic there was political and military turmoil as well as financial crisis. Yet, once again, one can see the direction of causation running from finance to war as opposed to the reverse. The lending to foreign governments would not have expanded so sharply had investments in Dutch industry and commerce continued to be as profitable as in the heyday of the joint stock companies. The foreign governments would not have been able to fund wars as easily had the financial system been better able to exercise a monitoring function.

The Fourth Logistic, 1800-1900: British hegemony

During the fourth logistic the center of gravity of the world economy shifted to London and involved new financial institutions. Wallerstein's dates for British hegemony are from 1815 to 1873. During this logistic the major financial innovation was the creation of an international market, centered in London, for transferable bonds issued by foreign states and linked to production rather than to war or trade. The second major innovation was the gold standard. I will address these in turn.

That the financial transition between the third and fourth logistics involves the replacement of financing of war by the financing of industry is evident in Neal's (1993) account of the French revolution and subsequent wars which sundered Europe from 1793 to 1815. Neal shows that international capital markets were sufficiently developed to make possible large-scale capital flight from revolu- tionary Europe to England. In part this inflow of capital helped finance the war against France. More importantly, however, it fueled investment in British industry- indeed Neal attributes the British industrial revolution to this inflow. Neal notes that the British stock exchange was reorganized in 1810, stocks of waterworks, canals, railroads, and mines began to be listed, and there was a large increase in the number of bills passed by Parliament initiating such infrastructural projects (1990: 206, 216).



418 Tony Porter

While Su ter (1992) has made a very valuable contribution to our understanding of financial cycles in this period he has tended to understate the features of nineteenth century capital markets that set them off from previous and subsequent periods and that may have been important in explaining this fourth logistic. He rightly notes the peaking of peripheral debt crises in the years around 1830, 1880, 1940, and 1985. I will argue that the fact that the first three of these involved the issuing of bonds by states to finance production, in contrast to previous debt accumulated for war, and to subsequent debt mediated through bank loans, is a significant aspect of the transition from the fourth to the fifth logistic and from British to U.S. hegemony.

In his fairly comprehensive list of financial crises Kindleberger lists 22 crises in the nineteenth century (1989: Appendix B). As table 1 indicates, with the exception of the beginning and the end of the century almost all of these involved prior speculation in production, including mining, wheat, cotton, railways, and heavy industry.

Table 1 Source of Speculation in Financial Crises, 1800-1900

1825-85 1800-24, 1886-1900

Trade and Finance Exports, securities, 2 6 bank stocks, silver, gold

Production Railroads, cotton, shipping, 15 2 building sites, mining, land, canals, wheat

Note: The German crisis of 1873 is counted twice since it includes speculation in both financial instruments and production.

Source: Constructed from data in Kindleberger (1989: Appendix B).

If the distinctive character of nineteenth century finance was only that investment was in production as opposed to war or trade then we could treat finance as simply responding to a change in the real economy rather than stimulating that change through relatively autonomous financial innovation. Yet there are two features of the




institutional structure of finance in this period that explain the rise and decline of this type of financing: the creation of national banking systems; and the institutionalization of securities markets.

We are most familiar with the key role played by national banking systems in continental Europe thanks to the work of Gerschen- kron (1966) who argued that a national structure of financial inter- mediation in France and Germany substituted for the competitive capital markets upon which British industrialization had relied. Yet, as Kindleberger (1984: 77-79; 202) and Cameron (1967) argue, the creation of a national banking system and of limited liability joint stock company law was central to the funding of industry in Britain as well. An institutionalization of stock markets occurred at this time as well: In Britain a new stock exchange building was opened in 1802 and stock exchange regulations were codified in 1812 (Neal, 1990: 225).

The international financial system of the nineteenth century built on these innovations. The banking system mobilized funds for foreign investment, and this investment took place through the sale of foreign bonds on the London stock market. In addition to the more sophisticated monitoring capacity of the London market as compared to the Amsterdam market, as noted above, the system worked because the largest number of investments were held by relatively few wealthy individuals, because these individuals organized themselves as the Committee of Foreign Bondholders to negotiate with foreign governments, because projects were often large infrastructural investments carried out or regulated by the state, because the technology involved in the investments was relatively familiar to investors, and because the focus of investment was in the countries that were well on the way to industrialization, such as the U.S., Canada, Russia, and Australia (Lipson, 1985; Stallings, 1987; Su ter, 1993). This system mobilized unprecedented quantities of capital for foreign investment.

The limitations of this global financial system became apparent as the century waned. Previously profitable markets, such as the market for railways in North America, became saturated, and yet extending the system further into the periphery was problematic as peripheral investments constituted the bulk of defaulted foreign bonds. The arms-length, disintermediated system of international financing of industry was unable adequately to monitor its investments and enforce compliance with bond contracts.



420 Tony Porter

The other major financial innovation of this period involves money. Much has been written about the importance of the gold standard to British hegemony (see e.g., Gilpin, 1987). On looking at the financial system more carefully, however, it seems clear that it was the monetization of bank credit rather than the reliance on gold which was the innovation critical to the growth of money and production in this period (Cameron, 1967). The use of gold to stabilize the value of international currencies was nothing new- the creation of an additional stable source of liquidity through the use of institu- tionalized commercial and central banks was. The eventual demise of the system can be interpreted as due to an excessive reliance on gold.

In sum, global economic growth in the fourth logistic involved the replacement of the old financial institutions centered on Am- sterdam with new ones centered on London. Much has been made of the role of the state in reducing tariff barriers and therefore en- hancing trade in mid-century. A precondition for such trade, however, was a system for transferring capital and making payments internationally. The financial innovations of the nineteenth century made such a system possible. While other factors were important as well, the rise and fall of these financial innovations corresponded in time to the logistic and clearly would have played an important part.

The Fifth Logistic, 1900-1980: U.S. hegemony

Despite some obvious similarities there are important differences between the fourth and fifth logistics and between British and U.S. hegemony with respect to finance. The first of these is the innovation of direct foreign investment carried out through joint stock companies. The second is the involvement of banks in intermediated international lending, as opposed to disintermediated bond markets.

The shift from bond markets to direct investment had begun in British capital outflows at the end of the nineteenth century, but its maturation was organized from the United States (Stallings, 1987). In the first two decades of this century U.S. direct investment in Latin America was $149.5 million as compared to $37 million in foreign bonds (Stallings, 1987: 118; 1958 dollars). There was a surge in portfolio lending by U.S. investors during the 1920's, but this method of international finance became insignificant for five decades following the international debt crisis of the early 1930's.




The advantages of direct investment over bond markets are relatively well-established: The hierarchical structure of the multinational firm allows intensive monitoring and control of transactions, especially those involving technological innovations, that are poorly suited to arms-length markets (Dunning, 1988). Direct investment involves the transfer and capitalization of knowledge and not simply a transfer of credit then used to import real capital in the form of machinery. Thus direct investment is far better suited to the expansion of production spatially (further into the periphery) and sector- ally (from infrastructure such as railways to more knowledge-intensive manufacturing).

Direct foreign investment is the expansion, at an international level, of the highly differentiated corporate structure which first came most fully to fruition within the United States. Prior to the 1920's U.S. firms enhanced their control of production through mergers involving backwards and forwards linkages. Beginning in the 1920's they sought to further extend their control of consumption through advertising and product differentiation (Fligstein, 1990; Luke, 1989). This transformation was accompanied by a profound transformation in corporate governance, brought to public attention by Berle & Means in their classic study- ownership was dispersed through the use of securities markets and separated from a professionalized management. The rise and relative decline, in the first quarter of this century, of the House of Morgan, critical to the reorganization of U.S. firms, is a key feature of this transition (Garten, 1992).

The importance of this innovation to U.S. economic growth and relative decline is apparent in the widely acknowledged centrality of the hierarchical multinational corporation (MNG) for the world economy during the period of U.S. hegemony, and in the difficulties experienced by the U.S. style MNC in recent years. During the MNC's heyday the commodification and dispersal of ownership claims enhanced the central control of managers. The vast majority of the MNC's funds were raised internally. More recently, however, a process of codification and commodification in which financial con- trols have played a key part (Fligstein, 1990) has led to the dispersal of the unique and tacit knowledge and organizational techniques embedded in the U.S. MNC and has eroded its leading role.26

26 I have analyzed these changes more extensively elsewhere (1993b). Signs of the



422 Tony Porter

Jacobs notes that "U.S. equity markets exploded fourfold during the 1980's even though the total number of stocks shrank because of stock buybacks and leveraged buyouts" (1991: 44). While some of this increased turnover of stocks may be creating value by ration- alizing the organization of production it is as well symptomatic of the exhaustion of the financial innovation of the highly organized corporation and its associated stock markets. Much like the Amster- dam capital markets as they passed their peak, there appears to be a mismatch between the mechanisms for making funds available for investment and the institutional arrangements for ensuring that those funds are deployed productively. The stockmarket crashes of 1987 and 1989, much like the crises of the Dutch model in the eighteenth century, mark an excessive detachment of investors' perceptions of the value of financial instruments and the actual returns which those instruments were capable of generating.

The evolution of multinational banks mirrors that of corpora- tions in general. In contrast to the previous period, most U.S. portfolio investment since the 1940's has been intermediated through banks rather than through dispersed bond markets. For instance, between 1970 and 1980, U.S. bank loans to Latin America were $1,481.8 million while securities totalled only $38.5 million (both in 1958 dollars; Stallings, 1987: 120).

The growth of the Euromarkets since the late 1960's can be seen as a result of the evolution of multinational bank structures. The ability of banks to transfer deposits, denominated in foreign currencies, across borders was a sign of their institutionalization in comparison to the banks of the nineteenth century.

I have discussed elsewhere the signs of the exhaustion of the hierarchical bank as key financial innovations and will only briefly mention them here (Porter, 1993b). The debt crisis of the 1980's was only one example of an ongoing crisis that is related to banks' loss of their unique competitive advantage in monitoring creditworthiness (Porter, 1993a). A significant part of the global inflation

decline of the MNC, while disputed, are apparent in the shift towards a more decentralized type of organization (Harvey, 1989; Lash & Urry, 1987; Offe, 1985; Reich, 1991), in the frequent criticisms of the US MNC for short-termism (Jacobs, 1991), in the difficulties experienced by CEOs (see the informative article by Harvey Enchin "CEOs come crashing down" in the Globe & Mail, Jan. 30, 1993, p. Bl, B20), and in the challenge to managers posed by the wave of hostile takeovers in the 1980's.




of the 1970's can be traced to an excessive expansion of international bank credit, an expansion which has since been reigned in through international bank capital standards (Porter, 1993a) and re- strictive monetary policies. The resulting credit crunches and deflation have involved a reduction and reversal of this logistic's growth. The process of disintermediation and securitization that is replacing bank lending with securities markets is well advanced, likely irreversible, and global.

The importance of the modern corporation and bank for world growth is widely recognized, whether this is pictured as the leading role of the U.S. as a national economy or the leading role of this form of production (Fordism). Thus it is not going too far to trace the evolution of the fifth logistic and of U.S. hegemony to the success of this financial innovation in overcoming the shortcomings of the previous financial institutions. In short, the fifth logistic and the rise and relative decline of U.S. hegemony has been closely associated with a distinctive set of financial innovations that overcame limitations inherent in the global financial arrangements that fueled the fourth logistic and supported British hegemony.

CONCLUSIONS: FINANCIAL INNOVATION, GROWTH LOGISTICS, AND HEGEMONY

In this concluding section I will summarize the patterns which appear in each of the five logistics examined, and will assess the degree to which they support the claims made at the outset of the paper about finance, growth, and hegemony. I will also briefly con- sider the explanatory weight that can be given to financial innovation as compared to other conventional explanations of global growth and hegemony.

The hypothesized correspondence between, on the one hand, the initiation and exhaustion of large-scale financial innovations and, on the other hand, the rise and fall of growth logistics and hegemony, is supported by the examinations of each of the logistics. In each case a major financial transformation accompanied the economic revival of the new logistic. This in turn preceded and supported the rise of a hegemonic center. Both the slowing of growth and hegemonic decline were associated with the maturation and crisis of these financial innovations.



424 Tony Porter

As chart 1 above indicated, the end of each logistic is associated with a sharp rise in prices. An excessive expansion of credit and money as financial instruments are copied and proliferate, or as the existing financial system fails to adequately monitor and control new risks, is evident at the end of each logistic. The correlation of the peaks of these long-term price waves and the excessive prolifer- ation of financial instruments provides further evidence for the link between financial innovation and logistics.

The preceding sections have offered support for the challenges to conventional approaches to hegemony proposed at the outset of the paper. First, I have shown that finance can be treated as an industry with cycles of innovation, maturation, and decline, that these cycles have a degree of autonomy from other real sectors and from state power, and that they have an impact on growth and hegemony. The historical discussion has also supported the claim that financial innovation precedes rather than succeeds industrial and political hegemony. Each of the innovations discussed here were not only developed before, but also assisted in, the rise of each hegemon. Hegemony in this account is an outcome of the tendency of these innovations to be con- centrated in one or two locations. Thus hegemony is an effect rather than, as hegemonic stability theorists would have it, a cause of growth.

Moreover, financial hegemony and military hegemony have not necessarily coincided. Despite their enormous power and influence over the European political economy, neither Florence nor Genoa dominated militarily. At the height of the Hapsburg attempt at dominance, the leading financial centers in northern Italy and southern Germany were not coterminous with the centralization of military power. The possibility that Japanese financial dominance will be accompanied by a broader military and political hegemony is less conclusively supported when the experience of the south German bankers is considered. This offers further support for the claim that financial dominance is not simply the last phase of hegemony in general.

Finally, the tendency to treat the contemporary period of financial globalization as unique, or as the culmination of a long secular trend, needs to be challenged. Many current features of the globalization of finance were apparent in earlier periods. The process of globalization is hardly smooth, but is punctuated by reversals and crises.

It is inevitable that a model that seeks to explain growth and hegemony over 1000 years risks oversimplifying and ignoring other important factors. To seek to provide a new monocausal explanation that




supercedes all others would be a foolhardy enterprise indeed. The goal here is to modify and complement competing explanations. For the sake of convenience I will divide these competing explanations into two: Those that emphasize real production and those that emphasize state power. I will address the likely importance of these relative to financial innovation in turn.

To what extent were the transformations chronicled above simply responses to transformations in the real economy? Obviously the spice trade, textile production, shipping, railways, automobiles, and other leading sectors played a large part in the historical transformations discussed. Similarly socio-cultural factors such as class struggle, the mode of production, religion, and modernity as a mode of thought also operated directly or through production to shape this millennium. There are three reasons, however, that financial innovation should be considered as one of these factors, and perhaps even among the most influential. First, the innovations discussed correspond to the timing of logistics and hegemony in a way that many of these others do not. Secondly, finance in its broad sense coordinates as well as funds. The Champagne fairs, the Genoese and south German bankers, the East Indies Companies, the nineteenth century bond markets, and the multinational corporation exercised power either directly, as in the Fugger bank's support of Charles Vs candidacy for Emperor, or by creating convergent expectations concerning appropriate practices in extended transactions, such as with the bills of exchange. Thirdly, finance, more than any other industry, is imbricated with all aspects of economic life.

How can financial innovation, which has no inherent spatial dy- namic except for a tendency towards centralization, explain the shifting of dominance from one state to another? Clearly other factors, such as the changing comparative economic and strategic advantages of loca- tion, are important here. like an aging industrial sector, a mature financial system may find it difficult to transform entrenched practices, leading to a spatial shift to other states (Perez, 1983). The case of the transition from British bond markets to U.S. direct investment is illustrative.

Why did the British not build on past success and retain their financial lead by innovating with foreign direct investment? The sluggish- ness of mature institutions is an important part of the answer: The development of joint-stock companies was retarded by the legacy of the bubbles of the early eighteenth century, and the institutions for market-



426 Tony Porter

ing foreign bonds were well entrenched. By contrast, at the end of the nineteenth century in the U.S., both banks and bond marketing were very poorly developed, while stock markets were expanding rapidly (Stallings, 1987). Thus, while clearly other factors, such as state policy, natural resources, class structure, savings rates, and war, played their parts in the shift in dominance from Great Britain to the U.S., the process of financial innovation also played an important part.

In sum, therefore, treating finance as a relatively autonomous industry with cycles of innovation, maturity, and crisis, is useful in understanding both global growth and hegemony on a very long historical time scale.

REFERENCES

Abu-Lughod, Janet L. (1989). Before European Hegemony: The World System A.D. 1250-1350. New York: Oxford Univ. Press.

Bautier, Robert-Henri (1971). The Economic Development of Medieval Europe. London: Thames 8c Hudson.

Bergier, Jean-François (1979). "From the Fifteenth Century in Italy to the Sixteenth Century in Ger-

many: A New Banking Concept?" in Center for Medieval and Renaissance Studies, The Dawn of Modern Banking. New Haven: Yale Univ. Press, 105-29.

Berle, Adolf A. & Means, Gardener C. (1932). The Modern Corporation and Private Ptvpeity. New York: Commerce Clearing House.

Bhattacharya, Sudipto & Constantinides, George M., eds. (1989). Financial Markets and Incomplete In-

formation: Frontiers of Modern Financial Theory. Totowa: Rowman and Littlefield. Born, Karl Erich (1983). International Banking in the Nineteenth and Twentieth Centuries, New York: St

Martin's Press. Bousquet, Nicole (1979). "Esquisse d'une théorie de l'alternance de périodes de concurrence et d'hégé-

monie au centre de l'économie-monde capitaliste," Review, II, 4, Spr., 501-17. Braudel, Fernand (1982). Civilization and Capitalism: Fifteenth to Eighteenth Centuries, II: The Wheels of

Commerce. New York: Harper and Row. Braudel, Fernand (1984). Civilization and Capitalism: Fifteenth to Eighteenth Centuries, III: The Perspectives

of the World. New York: Harper and Row. Braudel, Fernand & Spooner, Frank (1967). "Prices in Europe from 1450 to 1750," in E.E. Rich &

C.H. Wilson, eds., The Cambridge Economic History of Europe, IV: The Economy of Expanding Europe in the Sixteenth and Seventeenth Centuries. Cambridge: Cambridge Univ. Press, 374-486.

Cameron, Rondo (1967). Banking in the Early Stages of Industrialization. New York: Oxford Univ. Press. Cameron, Rondo (1973). "The Logistics of European Economic Growth: A Note on Historical Peri-

odization," Journal of European Economic History, II, 1, Spr., 145-48.

Cipolla, Carlo M. (1956). Money, Prices and Civilization in the Mediterranean World. Princeton: Princeton Univ. Press.

Cipolla, Carlo M. (1982). The Monetary Policy of Fourteenth-Century Florence. Berkeley: Univ. of California Press.

Clark, John; Freeman, Christopher & Soete, Luc (1984). "Long Waves, Inventions, and Innovations," in C. Freeman, éd., Long Waves in the World Economy. Dover NH: Frances Pinter, 63-77.

Coornaert, E.LJ. (1967). "European Economic Institutions and the New World: The Chartered

Companies," in E.E. Rich & C.H. Wilson, eds., The Cambridge Economic History of Europe. IV:




The Economy of Expanding Europe in the Sixteenth and Seventeenth Centuries. Cambridge: Cam- bridge Univ. Press, 220-74.

De Roover, Raymond (1963). "The Organization of Trade," in M.M. Postan, E.E. Rich, & E. Miller, eds., The Cambridge Economic History of Europe, III: Economic Organization and Policies in the Middle Ages. Cambridge: Cambridge Univ. Press, 42-118.

De Roover, Raymond (1974). "New Interpretations of the History of Banking," in J. Kirshner, éd., Business, Banking and Economic Thought in Late Medieval and Early Modern Europe. Chicago: Univ. of Chicago Press, 200-238.

Dickson, Peter CM. (1967). The Financial Revolution in England. New York: St Martins. Dunning, John H. (1988). Explaining International Production. London: Unwin Hyman. Dupriez, Leon H. (1951). "Central Banking Policy and Long Trends in Prices," in Money, Trade,

and Economic Growth. New York: MacMillan, 253-69. Edelstein, Michael (1982). Overseas Investment in the Age of High Imperialism: The United Kingdom,

1850-1914. London: Methuen. Ehrenberg, Richard (1963). Capital and Finance in the Age of the Renaissance: A Study of the Fuggers

and Their Connections. New York: Augustus M. Kelley. Fligstein, Neil (1990). The Transformation of Corporate Control. Cambridge, MA: Harvard Univ.

Press. Friedman, Benjamin (1986). "Money, Credit, and Interest Rates in the Business Cycle," in R. J.

Gordon, The American Business Cycle: Continuity and Change. Chicago: Univ. of Chicago Press, 395-458.

Fryde, E.B. (1983). Studies in Medieval Trade and Finance. London: Hambledon. Garten, Helen (1992). "Institutional Investors and the New Financial Order," Rutgers Law Review,

XLIV, 3, Spr., 584-674. Cerschenkron, Alexander (1966). Economic Backwardness in Historical Perspective. Cambridge:

Belknap Press. Ciddens, Anthony (1990). The Consequences of Modernity. Stanford: Stanford Univ. Press. Cilpin, Robert (1987). The Political Economy of International Relations. Princeton: Princeton Univ. Press. Goldsmith, Raymond W. (1969). Financial Structure and Development. New Haven: Yale Univ. Press. Coldstein, Joshua (1988). Long Cycles: Prosperity and War in the Modern Age. New Haven: Yale Univ.

Press. Hammarstrôm, Ingrid (1971). "The Price Revolution of the Sixteenth Century: Some Swedish Evi-

dence," in P. Ramsey, éd., The Price Revolution in Sixteenth-Century England. London: Methu- en, 41-68.

Hart, Marjolein C. 't (1993). The Making of A Bourgeois State: War, Politics and Finance During the Dutch Revolt. Manchester: Manchester Univ. Press.

Harvey, David (1989). The Condition of Postmodernity. Oxford: Basil Blackwell. Hohenberg, Paul M. 8c Lees, Lynn Hollen (1985). The Making of Urban Europe, 1000-1950. Cam-

bridge, MA: Harvard Univ. Press. Jacobs, Michael T. (1991) Short-Term America: The Causes and Cures of Our Business Myopia. Boston:

Harvard Business School Press. Kennedy, Paul (1988). The Rise and Fall of Great Powers. London: Fontana Press. Kindleberger, Charles P. (1984). A Financial History of Western Europe. London: George Allen and

Unwin. Kindleberger, Charles P. (1989). Manias, Panics, and Crashes: A History of Financial Crises. New

York: Basic Books. Lash, Scott & Urry, John (1987). The End of Organized Capitalism. Madison: Univ. of Wisconsin

Press. Lake, David A. (1993). "Leadership, Hegemony, and the International Economy: Naked Emperor

or Tattered Monarch with Potential?" International Studies Quarterly, XXXVII, 4, Dec, 459-89.

Lipson, Charles (1985). Standing Guard: Protecting Foreign Capital in the Nineteenth and Twentieth Centuries. Berkeley: Univ. of California Press.

Luke, Timothy W. (1989). Screens of Power Ideology, Domination and Resistance in Informational Society. Urbana: Univ. of Illinois Press.



428 Tony Porter

Minsky, Hyman P. (1977). "A Theory of Systematic Fragility," in E. I. Altaian & A. W. Sametz, eds., Financial Crises: Institutions and Markets in a Fragile Environment. New York: John Wiley and Sons, 138-52.

Miskimin, Harry A. (1989). Cash, Credit and Crisis in Europe, 1300-1600. London: Valiorum Reprints.

Morgenstern, Oskar (1959). International Financial Transactions and Business Cycles. Princeton: Princeton Univ. Press.

Munro, John H. (1979). "Bullionism and the Bill of Exchange in England, 1272-1663: A Study in Monetary Management and Popular Prejudice," in Center for Medieval and Renaissance Studies, The Dawn of Modern Banking. New Haven: Yale Univ. Press, 169-239.

Neal, Larry (1990). The Rise of Financial Capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge Univ. Press.

Offe, Claus (1985). Disorganized Capitalism: Contemporary Transformations of Work and Politics. Cam- bridge: Polity.

Orsingher, Roger (1967). Banks of the World. London: Macmillan. Packard, Laurence B. (1927). The Commercial Revolution, 1400-1776. New York: Henry Holt and

Company. Perez, Carlotta (1983) "Structural Change and the Assimilation of New Technologies in the Eco-

nomic and Social System," Futures, XV, 4, Oct, 357-75. Phelps Brown, E.H. 8c Hopkins, Sheila V. (1971). "Seven Centuries of the Prices of Consumables,

Compared with Builders' Wage Rates," in P. Ramsey, éd., The Price Revolution in Sixteenth- Century England. London: Methuen, 18-41.

Pike, Ruth (1966). Enterprise and Adventure: The Genoese in Seville and the Opening of the New World. Ithaca: Cornell Univ. Press.

Podolski, Tad M. (1986). Financial Innovation and the Money Supply. Oxford: Basil Blackwell. Porter, Tony (1993a). States, Regimes, and Markets in Global Finance. Basingstoke: Macmillan. Porter, Tony (1993b). "The State, the Firm, and the Production of Global Securities Markets,"

unpubl. paper presented at the International Studies Association Annual Meeting, Acapulco, Mexico, May.

Postan, Michael M. (1973). Medieval Trade and Finance. Cambridge: Cambridge Univ. Press. Ramsey, Peter (1971). The Price Revolution in Sixteenth-Century England. London: Methuen. Rasler, Karen A. 8c Thompson, William R. (1983). "Global Wars, Public Debts, and the Long

Cycle," World Politics, XXXV, 4, July, 489-516. Research Working Group on Cyclical Rhythms and Secular Trends (1979). "Cyclical Rhythms and

Secular Trends of the Capitalist World-Economy: Some Premises, Hypotheses, and Ques- tions," Review, II, 4, Spr., 483-500.

Reich, Robert (1991). The Work of Nations. New York: Vintage. Riley, James C. (1980). International Finance and the Amsterdam Capital Market 1740-1815. Cam-

bridge: Cambridge Univ. Press. Rostow, W.W. (1978). The World Economy: History and Prospect. Austin: Univ. of Texas Press. Scott, William Robert (1993). The Constitution and Finance of English, Scottish, and Irish foint-Stock

Companies to 1720, 1: The General Development of the Joint-Stock System to 1720. Bristol: Thoem- mes.

Stallings, Barbara (1987). Banker to the Third World: U.S. Portfolio Investment in Latin America, 1900-1986. Berkeley: Univ. of California Press.

Suter, Christian (1992). Debt Cycles in the World-Economy: Foreign Loans, Financial Crises, and Debt Settlements, 1820-1990. Boulder: Westview.

Tracy, James D. (1985). A Financial Revolution in the Habsburg Netherlands. Berkeley: Univ. of Cali- fornia Press.

Udovitch, Abraham L. (1979). "Bankers without Banks: Commerce, Banking, and Society in the Islamic World of the Middle Ages," in Center for Medieval and Renaissance Studies, The Dawn of Modern Banking. New Haven: Yale Univ. Press, 255-73.

Wallerstein, Immanuel (1974). The Modern World-System, I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century. New York: Academic Press.




Wallerstein, Immanuel (1980). The Modern World-System, II: Mercantilism and the Consolidation of the European World-Economy, 1600-1750. New York: Academic Press.

Wallerstein, Immanuel, (1983), "The Three Instances of Hegemony in the History of the Capitalist World-Economy," International Journal of Comparative Sociology, XXIV, 1-2, Jan. -Mar., 100- 108.

Wallerstein, Immanuel (1984). "Long Waves as Capitalist Process," Review, VII, 4, Spr. 559-75. Wallerstein (1992). "A Brief Agenda for the Future of Long-Wave Research," in A. Kleinknecht,

E. Mandel & I. Wallerstein, eds., New Findings in Long-Wave Research. New York: St. Martin's, 339-42.

Wendt, Alexander E. (1987). "The Agent Structure Problem in International Relations Theory," in International Organization, XLI, 3, Sum., 335-70.

Wiseley, William (1977). A Tool of Power The Political History of Money. New York: John Wiley and Sons.

Wright, Quincy (1965). A Study of War. Chicago: Univ. of Chicago Press (orig. 1942).



innovation in global finance: the impact on hegemony and growth since 1000 ad

Documents