Financial neoliberalism: British insurance and the revolution in the management of uncertainty

by Thomas Gould (University of Bristol)

 

Margaret_Thatcher_visiting_Salford
Margaret Thatcher on a visit to Salford, 1982. Available at Wikimedia Commons.

What has been the relationship between the growth of finance and ‘neoliberalism’ in post-war Britain? My research shows that the drive towards popular capitalism and a property-owning democracy was not directly created by Thatcherism, which qualifies popular narratives about the impact of government reforms such as deregulation and privatisation.

Instead, away from the battlegrounds of mainstream economics and politics, a silent ‘neoliberal revolution’ developed deep within the financial industry before Thatcher came to power.

For example, between 1967 and 1980, the number of personalised life insurance policies directly linked to asset values increased from 81,000 to 3.5 million. This development marked a sea change in the way that society managed financial risk and uncertainty.

It had little to do with mainstream politics, and it was so powerful that by 1990 there were over 12 million of these unit-linked policies in force, showing that Thatcherite reforms merely accelerated the pace of change for developments that were already underway.

A cornerstone of traditional insurance, the objective of collective security, was superseded by the interests of individual fairness. The burden of financial risk was increasingly allocated to individual policyholders and the management of financial risk to the markets.

Together, unitised insurance policies and mathematical finance re-engineered the landscape of British capitalism by undermining the scientific foundations and appeal of traditional forms of protective insurance, such as industrial life insurance policies, annuities and defined benefit pension schemes.

Vast concentrations of personal wealth accumulated in institutional funds. The conduct and behaviour of firms became more diverse and complex as the science behind financial risk management was revolutionised. There were four key contours of change:

  • First, collective provision was increasingly superseded by considerations of individual equity.
  • Second, financial analysis and treatment of assets assumed greater importance than the management of liabilities.
  • Third, insurance and protection were increasingly displaced by savings and investment media.
  • Finally, traditional actuarial science was gradually substituted for a paradigm of financial economics.

 

Financial neoliberalism – the increased role and responsibility of financial markets and financial theories in the provision of economic security – redesigned the management of uncertainty and risk in insurance by changing the relationships between experts, individuals and the regulator within an increasingly sophisticated and competitive financial environment.

Risk-taking financial behaviour became an exigency. The presumption that financial uncertainty could, and should, be managed through financial markets gained saliency. The financial world, and its future, was increasingly understood through the lenses of advanced computing, mathematics and statistics.

Financial neoliberalism dramatically changed the ways in which the financial industry and government engaged with uncertainty; and it influenced the increasingly risk-based techniques, and forms of knowledge, through which they sought to manage and control that future.

Political philosophy may be thought to have represented the main attack on collectivism and the welfare state. Yet, removed from mainstream political discourse, the journals of the actuarial profession show how financial economics gradually displaced actuarial science as the principle scientific paradigm that managed financial uncertainty.

Furthermore, data compiled from the Association of British Insurers show that the attack on principles of collectivism were already underway in the late 1960s and early 1970s as individuals increasingly acquired these personalised insurance policies.

Thus, the practice of unitising the management of risk gradually merged with a new paradigm of financial economics that scientifically legitimised investment and savings rather than mutual protection and risk pooling. In this sense, many of the Thatcher government’s reforms geared towards promoting popular capitalism and property ownership simply pushed at an open door.

The Ruhr’s mining industry and its power struggle with the High Authority of the European Coal and Steel Community

by Juliane Czierpka (Ruhr-University Bochum)

 

Ruhr
Ruhr mining. Available at Pixabay.

Since the beginning of the Ruhr area’s industrialisation in the second half of the nineteenth century, the local mining industry has always been a powerful player. Controlling vast amounts of coal, the Ruhr’s mining companies held a huge share of the European coal market and were usually able to influence political decisions made by German governments.

One reason for the power of the Ruhr’s mining industry was of course the importance of the energy sector and the country’s dependence on its coal. But the local mining companies also used to present themselves as a unity, speaking with one voice and – even more importantly – selling their coals collectively.

In other words, the mining companies of the Ruhr had built a huge coal cartel, even though it wasn’t called a cartel or syndicate after 1945 – at least within the Ruhr area, everyone was quite keen on finding new names for the sales.

In the early 1950s, the newly constituted German government was desperately trying to reduce the Allies’ control. While Britain and the United States were willing to give the Germans back parts of their sovereignty and started to loosen the regulations on the production of steel and other goods, the French did not like this approach.

Naturally, after 1945 the French government not only felt threatened by the German heavy industry, which was seen as having made the war possible by quickly adapting to the production of arms in order to support Hitler and its troops, but also by the German mining industry’s market power, because the energy sector was closely linked to questions of national autonomy and security. Furthermore, the French steel industry depended on specific qualities of coal from the Ruhr area.

The specific combination of interests in Europe in the aftermath of the war – a French government trying to keep control over the German coal and steel sector and a German government that was trying hard to win back at least parts of its sovereignty from the Allies – led to the foundation of the European Coal and Steel Community (ECSC).

The ECSC’s principal goal was to merge the coal and steel markets of Germany, France, Belgium, Luxembourg and the Netherlands, thereby leading to a high degree of economic and political cooperation, and peace between the member states. These words were of course mainly tinsel and glitter, as every member state pursued its own national interests.

The High Authority, the ECSC’s supranational executive institution, is usually seen as a failure by historians and political scientists, because it did not succeed in enforcing the ECSC’s treaty against the member states’ national interests.

My research shows that the hypothesis of a weak HA is not generally true. Looking into the HA’s dispute with the Ruhr’s mining industry over the organisation of their coal sales, I show how the HA managed to break up the traditional structures in the Ruhr area, even though the mining industry fought fiercely for their cartel and was supported by the German government – which had initially sold the mining industry out for membership in the ECSC.

My research also sheds light on the relationship between businesses and national governments and shows how this relationship was changed by the emergence of a new player – the supranational HA. My research also shows that there would have been a very early Gerxit, which only was prevented by the pressure of the Allies, which forced the German government to be part of the ECSC regardless to domestic protests.

Spinning the Industrial Revolution

by Jane Humphries (All Souls College, University of Oxford) and Benjamin Schneider (Merton College, University of Oxford)

The full paper is published on The Economic History Review and is available here

 

The wages of hand spinners have been pushed to the forefront of economic history in recent years by Robert Allen’s ‘high-wage economy’ interpretation of British industrialization. Allen contends that rising earnings of hand spinners in the mid-18th century can explain why the spinning innovations of the industrial revolution were invented and adopted first in Britain. This is an extension of his broader argument that the ratio of wages to capital and energy costs in Britain was higher than in other parts of the world and served as a general spur to innovative activity. However, many gender historians and scholars of women’s work have contended that spinning, like other occupations dominated by women, was systematically underpaid. We set out to resolve this dispute by constructing a large dataset of spinners’ earnings from primary sources.

Spinning is the process by which raw fiber (cotton, flax, wool, or synthetic fibers) is turned into yarn. Hand spinners undertook this work on spinning wheels, imparting twist and draft into the fibers with their fingers. Qualitative sources suggest that spinning was a very common employment in the early modern period, especially for women and children. It was organized along the lines of the putting-out system, with many spinners receiving fiber from yarn merchants, spinning it in their homes, and returning the finished yarn in return for payment.

fig1
Fig. 01 Pieter Nys, Woman Spinning, 1652 (Dulwich Picture Gallery)

Allen presents a set of claims regarding spinners’ time rates which are taken from the work of Craig Muldrew and Charles Feinstein. Muldrew brought spinning into the limelight with a 2012 article that presented much larger estimates of the number of women employed in yarn production in the 17th and 18th centuries. However, the primary sources underlying Allen’s composite wage series are mostly claims about earning levels provided by commentators interested in emphasizing the value of Britain’s textile industry or showing the reduction in spinners’ earnings produced by mechanization at the end of the 18th century.

To address the question of spinners’ wages with firmer evidence, we collected more than 2500 observations of hand spinners’ earnings from the late 16th to the early 19th century. Spinners were generally paid by piece rates—payments per weight of yarn—which made constructing their remuneration challenging in many cases. In addition to sources that provided recorded earnings per day or a total amount earned over a known time span, we also collected data on their output per time in order to estimate their productivity. We then combined the productivity estimates with piece rates in primary sources to construct daily wages. These constructed wages supplemented the observed earnings per time and claims about remuneration. Our series incorporates the claims of interested parties, the writings of social commentators, and, more importantly, a very large body of new evidence on direct payments to spinners in the account books of putting-out enterprises, spinning schools, and the writings of putting-out merchants.

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Figure 2: Nominal daily wages, decadal averages. Source: See online appendix S4 and table 2 in the paper

Our results show that Allen’s claim for high wages in spinning cannot be supported by the contemporary evidence. Productivity in hand spinning was far below the optimistic claims of social commentators, who wrote that a “sturdy woman” could spin a pound of fiber in a day. Direct evidence of spinners’ output shows that most of them produced less than half of this level each day. Unsurprisingly, we also find that earnings per day (even when discounting the constructed wages that use our productivity estimates with piece rates) were also substantially lower than previously claimed. Spinners barely earned enough to support themselves throughout most of the 17th and 18th centuries, and their wages did not rise precipitously in the middle of the 18th century.

At the same time, we know that cloth production expanded substantially in early modern England. We present several possible explanations to resolve this apparent paradox of rising labor demand and stagnant wages. First, we know that the geographical extent of spinning grew in the 18th century. Flax spinning, for example, spread further into the Scottish Highlands. We also provide extensive documentation regarding the involvement of the Poor Law and charitable enterprises in spinning. These entities allowed production to expand while taking advantage of the low wage demands of impoverished families, particularly in the countryside. Finally, we present evidence from contemporary descriptive sources that suggest most spinners faced monopsony power: the putters-out could act as a cartel and hold down spinners’ wages.

The growth of hand spinning provided modest but valuable household earnings for a growing number of poor families in 18th century Britain. However, spinning wages did not rise in the 18th century and therefore they cannot explain the invention of the spinning machines of the Industrial Revolution.

 

To contact the authors:

Benjamin Schneider (benjamin.schneider@history.ox.ac.uk) 

Price Shocks in Regional Markets: Japan’s Great Kantō Earthquake of 1923

by Janet Hunter (London School of Economics)

The paper was published on The Economic History Review and is available here on early view 

What do we know about how a market economy operates in the immediate aftermath of a major natural disaster such as an earthquake? Well, actually less than you might think. Specialists in disaster studies have understandably focussed on resilience, relief and reconstruction. The economics of disasters has offered limited frameworks for such addressing this kind of question, although major natural disasters have usefully served in analysis as exogenous shocks or natural experiments. Yet rebuilding economic activity following a major natural disaster must be helped by improving our understanding of the mechanisms whereby the disaster impacts on market activity, and the response of economic actors, both individual and collective. Our work builds on the idea that the analysis of markets in the short-term recuperation phase is best undertaken using the laws of supply and demand, an argument put forward in one of the classic works of the economics of disasters back in 1969.[1]

The Great Kantō Earthquake

The so-called Great Kantō Earthquake of September 1923 in Japan devastated the cities of Tokyo and Yokohama and much of the surrounding area. The location of the disaster is shown on the map.

Untitled
Map of Japan showing the epicentre of the 1923 earthquake and the cities for which we obtained price data.

While significant damage was caused by the seismic shocks and subsequent tsunami, much of the destruction and casualties (well over 100,000 died) was inflicted by the fires that broke out following the earthquake. The physical destruction was immense, and affected not only the country’s political capital, but its largest urban conglomeration and its major export port. The Kantō plain was also in many respects the hub of an increasingly integrated national economy.

Untitled1
The city of Yokohama, Japan’s most important export port, following the earthquake and fire of September 1923

Our concern in this article has been to analyse the shifts in the availability of, and demand for, different commodities following the 1923 disaster, with a view to identifying the magnitude and duration of such shifts. We have done this through an analysis of price changes for different products over the period before and after the disaster, something that allows us to explore what economists have termed the ‘ripple effects’ of natural disasters.

Our data confirmed that the economic impact of the disaster was far from being confined to the area of destruction. Price changes were experienced across the Japanese archipelago. We did find, though, that the extent of any change tended to diminish the greater the distance from the capital area.

Untitled3
Proportion of the total increase in rice price due to the earthquake by distance

It was also clear that the impact on prices was somewhat stronger in the north and northeastern half of Japan, a region that had traditionally been more closely integrated with Tokyo, than was the case in the southwest, which had long been more closely integrated with the urban area around the city of Osaka. The variation and pattern of the price changes we identified conformed with what we know about patterns of market integration in Japan in the early 20th century. At the same time, the ripples were in many cases less than might have been expected, and certainly less than cotemporary reports suggested. Nor were they in most cases of a significant duration. While there were some initially significant price rises associated with a sudden demand for reconstruction goods, for example, price levels tended to fall again within a few months, suggesting a move back towards some kind of market equilibrium. The pattern of change varied according to the product; a diversity of factors affected supply and demand for different products, and understanding these factors, as well as the pattern of government and institutional intervention in some markets, requires further analysis. It is also the case that analysis of retail prices, for which data are much more difficult to obtain, might well show a somewhat different story from the wholesale price data set that we have been able to compile. Retail prices are, of course, much more difficult to control and a better reflection of what the consumer actually had to cope with.

Overall, though, our analysis confirms that at this time Japan was a relatively well integrated economy. Our findings that prices reverted relatively rapidly toward equilibrium are in line with most other economic indicators showing that there was a relatively rapid reversion to former trends. The disaster, in short, was a short-term exogenous shock from which Japan soon recovered. That does not mean that it did not matter. We still have insufficient knowledge of the factors accelerating or limiting the spread and duration of any price changes following a natural disaster of this kind, and, crucially, of any implications for the longer term consequences of such a shock for the economy as a whole. For contemporary disaster studies, understanding these factors is one of the keys to recovery and the building of resilience.

[1] D.Dacy & H.Kunreuther, Economics of Natural Disasters (New York, 1969).

 

 

Institutional choice in the governance of the early Atlantic sugar trade: diasporas, markets and courts

by Daniel Strum (University of São Paulo)

This article is published by The Economic History Review, and it is available for EHS members here.

 

Strum Pic
Figure 1. Cartographic chart of the Atlantic Ocean (c. 1600). Source: Biblioteca Nazionale Centrale di Firenze, Florence, Italy. Port. 27.  By kind permission of the Ministero per i Beni e le Attivitá Culturali della Repubblica Italiana.
Reproduction of this image by any means is strictly prohibited.

In the age of sailboats, how could traders be confident that the parties with whom they were considering working on the other side of the ocean would not act opportunistically? Commercial agents overseas spared merchants time and the hazards of travel and allowed them to diversify their investments; but agents might also cheat or renege on or neglect their commitments.

My research about the merchants of Jewish origin plying the sugar trade linking Brazil, Portugal and the Netherlands demonstrates that the same merchants chose different feasible mechanisms (institutions) to curb opportunism in different types of transactions. Its main contribution is to establish a clear pattern linking the attributes of these transactions to those of the mechanisms chosen to enforce them. It also shows how these mechanisms interrelated.

Around 1600, Europe experienced rapidly growing urban populations and dependence on trade for supplies of basic products, while overseas possessions contributed to a surging output of marketable commodities, including sugar. Brazil was turned into the first large-scale plantation economy and became the world’s main sugar producer, with Amsterdam emerging as its main distribution and refining centre. Most of the Brazilian sugar trade was intermediated by merchants in Portugal, and traders of Jewish origin scattered along this trade route played a prominent role in the sugar trade.  The Brazilian sugar trade required institutions with low costs in agency services and contract enforcement because it was a significantly competitive market. Its political, legal, and administrative framework raised relatively few obstacles to market entrants, and trade in a semi-luxury commodity necessitated low start-up costs.

Sources reveal that merchants of Jewish origin engaged mostly individuals of other backgrounds in transactions in which agents had little latitude, performed simple tasks over short periods, and managed small sums (see table 1). Insiders were not left out in these transactions, but the background of agents was not determinant.The research shows that these transactions were primarily enforced by an informal mechanism that linked one’s expected income to one’s professional reputation. Bad conduct led to marginalization while good behaviour vouched for more opportunities by the same and other principals. This mechanism functioned among all traders, despite their differing backgrounds, who were active in these interconnected marketplaces. This professional reputation mechanism worked because a standardization of basic mercantile practices produced a shared understanding of how trade should be conducted. At the same time, the marketplaces’ structure together with patterns of transportation and correspondence increased the speed, frequency, volume, and diversity of the information flow within and between these marketplaces. This information system facilitated both the detection of good and bad conduct and relatively rapid response to news about it.

 

Strum Pic 2
Figure 2. Sugar crate being weighted at the Palace Square in Lisbon. Source: Dirk Stoop – Terreiro do Paço no século XVII, 1662. Painting. Museu da Cidade, Lisboa, Portugal. MC.PIN.261.© Museu da Cidade – Câmara Municipal de Lisboa.

The professional reputation mechanism worked better on transactions involving small sums and fewer, simpler, and shorter tasks. Misconduct in these tasks were easier to detect and expose amid an extensive and heterogeneous network; and if the agent cheated, the small sums assigned were not enough to live on while forsaking trade.

 

Table 1. Backgrounds of agents in complex and simple arrangements

Type of transaction Outsiders Probable outsiders Insiders Probable insiders Relatives
Complex 2.6% 4.9% 69.9% 2.1% 20.6%
Simple 20.0% 70.0% 0% 10.0% 0%

Source: original article in the Economic History Review.

 

On the other hand, merchants of Jewish origin preferred to engage members of their diaspora in complex, larger, and longer transactions (see table 1). A reputation mechanism within diaspora was more effective in governing transactions that were difficult to follow. Although enforcement within the diaspora benefitted from the general information system, the diaspora’s social structure generated more information more rapidly about the conduct of its members. In each centre, insiders knew each other and marriages and socialization within the group prevailed. Insiders usually had personal acquaintances and often relatives in other centres as well. They were conscious of their common history and fragile status. Such social structure also provided greater economic and social incentives for honesty and diligence than the professional mechanism, making the internal mechanism preferable in transactions involving larger sums and wider latitude.

Finally, the research shows that the legal system was able to impose sanctions across wide distances and political units. Yet owing to courts’ slowness and costliness, merchants resorted to litigation only after nonjudicial mechanisms failed. Furthermore, courts could not punish inattention that did not breach legal, customary, or contractual specifications, nor could courts reward accomplishment.

Litigation had to supplemented the professional mechanism because its incentives were not homogeneous across all marketplaces and diasporas. Courts also reinforced the diaspora mechanism by limiting the future income an agent expected to gain from misappropriating large sums from one or many principals. Finally, the professional mechanism supplemented the diaspora mechanism by limiting alternative agency relations with outsiders for insiders who had engaged in misconduct.

Because merchants were capable of matching transactions with the most appropriate governing mechanisms, they were able to diversify their transactions, expand the market for agents, better allocate agents to tasks, and stimulate competition among them. The resulting decrease in agency costs was critical in a significantly competitive market as the sugar trade. Institutional choice thus supported and reinforced—rather than caused—expansion of exchange.

War, shortage and Thailand’s industrialisation, 1932-57

by Panarat Anamwathana (University of Oxford)

This study was awarded the prize for the best conference paper by a new researcher at the Economic History Society’s 2019 annual conference in Belfast.

 

1950S-BANGKOK-STREET-SCENE
1954 Bangkok street. Available at Wikimedia Commons.

Thailand fell under Japanese occupation during the Second World War. The small agrarian country relied on imports from the West for consumer and industrial goods, and suffered shortages of everything from clothes to machinery between 1941 and 1945.

After the Japanese surrender, the Thai government learned from its trauma, adapted its economic approach and began domestic production of its own consumer goods – although at the cost of inefficiencies and rent-seeking.

Economic historians have expressed different perspectives on Thailand’s immediate post-war economic development and state-led industrialisation programme. Some, such as Hewison (1989) and Ingram (1971), mention the expansion of manufacturing capacity, despite government inefficiencies. Others, such as Suehiro (1989) and Phongpaichit and Baker (1995), are more critical of state involvement, saying that rent-seeking and corruption hindered any real progress.

Anyone familiar with state-operated enterprises might be suspicious of Thailand’s state-led industrialisation approach. To protect many of the country’s new industries, import tariffs and quotas were introduced. At the same time, a new class of capitalists emerged from an alliance of politicians and entrepreneurs. These people benefitted from favourable concessions, state-sponsored monopolies or being granted lucrative import licences. The question is: did anything come out of all this?

Since Thailand had no industrial census for the period, it is difficult to measure changes in the kingdom’s manufacturing capacity from before the war to after the war. To address this challenge, I have gathered statistical data on three industries: sugar, textiles and gunny bags (which are essential for transporting rice, Thailand’s most important export crop). These goods were three of Thailand’s most important pre-war imports, key to the wellbeing of the population and rationed during the war.

My data come from a variety of primary sources from the National Archives of Thailand, the National Archives at Kew, and the National Archives and Records Administration in Washington, DC. I also read previously unused qualitative sources, such as government reports, correspondence and old newspapers to build a more complete picture of wartime Thailand.

I find that Thailand was able to produce more of its sugar, textiles and gunny bags after 1945, and continued to substitute for imports as the decade progressed. This was achievable in part because the shortage of goods during the war reinforced the drive to diversify the economy. Government systems and infrastructure established under the Japanese occupation but hindered by wartime circumstances could then make use of importing machinery and international credit.

Finally, machines and facilities abandoned by the Japanese army could be used by the post-war Thai government and their capitalist allies. I also find that per capita consumption either plateaued or increased during this period, suggesting that Thais were not deprived of these products because of the government’s industrialisation programme.

Corruption and rent-seeking, however, were common and can easily arise from state-led industrialisation programmes with little transparency, like that in Thailand.

For example, the Sugar Organisation, the most important state-operated enterprise in this industry, played a large role in transporting sugar from both private and government mills to shops. Unfortunately, this organisation was completely corrupt. It embezzled, cheated farmers, sold sugar to fake agents and distributors, and was extremely permissive on check-ups and regulation. Although the state did revoke some of the privileges of the organisation, it continued to operate throughout all the scandals.

My study not only contributes to the historiography of Thai economic development, but also engages with studies of various models of economic growth, the efficiency and costs of state-operated enterprises, and the legacies of the Second World War in occupied territories.

 

 

Further reading

Hewison, Kevin (1989) Bankers and Bureaucrats Capital and the Role of the State in Thailand, New Haven.

Ingram, James C (1971) Economic Change in Thailand, 1850-1970, Stanford University Press.

Phongpaichit, Pasuk, and Chris Baker (1995). Thailand: Economy and Politics, Oxford University Press.

Suehiro, Akira (1989) Capital Accumulation in Thailand, Tokyo.

How Swiss banks influenced capital regulation

by Simon Amrein (European University Institute)

 

images

 

The regulation of capital has become a cornerstone of banking legislation in almost every country around the world. The last financial crisis has revived interest in the topic.

Various expert groups have identified low capitalisation in banking as a weakness of the financial system. Historically, banks in Switzerland had significantly influenced the regulation of capital, leading to lower capital requirements. It allowed them to grow rapidly and contributed to the leveraging of the banking sector.

Proportionally to total assets, equity capital has experienced a major change since the nineteenth century: Whereas balance sheets of US banks in 1850 consisted of 40% equity capital, the figure dropped to about 7% in 2000. Similar declines can be observed in other countries, such as Germany, Switzerland and the UK. During the last financial crisis, the equity capital to total assets ratio (capital/assets ratio) of large international banks dropped even lower, in some cases to below 3%.

The evolution of capital/assets ratios in banking is historically well documented. But there has been relatively little research on how capital was regulated over time and the role of regulators, supervisors and banks in developing the regulatory framework.

 

When a quarter of the banking market fails to comply with regulation

Analysis of banking legislation in Switzerland from 1934 to 1991 shows that capital requirements were eased through lower capital requirements and broader definitions of capital. Banks themselves were highly involved in shaping the design of the regulation within which they operated.

A new dataset provides insights into the so-called capital coverage ratio, comparing the actual capital of banks with the required capital according to regulation. By 1963, the three largest Swiss banks did not meet the statutory capital requirements anymore. Measured in total assets, the three banks represented about a quarter of Switzerland’s banking market.

Archival material shows that the banks entered into a series of negotiations with Switzerland’s banking supervisor, the Federal Banking Commission. The regulation of capital was changed several times between the 1960s and the 1990s.

Besides lowering the capital ratios, banks also lobbied for the extensive use of undisclosed reserves and subordinated as part of their regulatory capital. The regulatory changes coincide with significant improvements of the capital coverage ratio, showing that the banks’ lobbying was successful.

 

Regulatory changes enabled the growth of Swiss banking

Switzerland became one of the globally leading financial centres during the 1960s. Domestic banks thrived, and the balance sheets of the big Swiss banks – of which UBS and Credit Suisse still exist – grew by up to 20% per year.

Without changes in capital regulation, the balance sheets of Swiss banks would have been up to 35% smaller. Therefore, the evolution of the big Swiss banks into global financial players would have been severely hampered.

This research provides insights into regulatory and supervisory practice and shows that banking regulation has to be viewed in a historical context.

Religion and development in post-Famine Ireland

by Stuart Henderson (Ulster University)
The full paper has been published on The Economic History Review and is available here 

 

The role of religion in economic development has attracted increasing debate among scholars in economics, and especially economic history. This is at least partially attributable to the normalization in recent times of conversations relating to the effect of religion on social progress. This paper adds a new perspective to that debate by exploring the relationship between religion and development in Ireland between 1861 and 1911. The paper highlights a religious reversal of fortunes—a Catholic embourgeoisement—in the years following the Great Irish Famine.   

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Figure 1. St Patrick’s Cathedral, Armagh (Roman Catholic). Available at <https://commons.wikimedia.org/wiki/File:Armagh,_St_Patricks_RC_cathedral.jpg&gt;

 

Ireland is a rather curious case. Here the effect of the Protestant Reformation manifested, not through a conversionary zeal spreading the land, but rather by the movement of people across the Irish Sea. In the centuries that followed, the Protestant minority, and particularly adherents of the Anglican Church, gained economic and social supremacy. By contrast, the Roman Catholic majority were socioeconomically disadvantaged, and denied the societal privileges offered to their Protestant counterparts.

Slowly, however, the balance of power began to shift. Penal laws, which discriminated particularly against Roman Catholics, were overturned, and eventually The Roman Catholic Relief Act of 1829 marked the culmination of Catholic Emancipation.
However, the legal watershed of Catholic Emancipation did not resolve the uneven balance of economic power between Protestants and Catholics. The arrival of a National System of Education in 1834, was a marker of the amelioration of religious inequality, but arguably it was the Great Famine in the mid-nineteenth century that truly transformed the prevailing social paradigm.

The Great Famine had a disproportionate impact on Roman Catholics given their lower social status and geographic situation. While devastating, the Famine catalysed a new sense of purpose in Catholic society—peasant religion and superstition were suppressed as the Roman Catholic Church benefitted from a new religious fervour, religious personnel bolstered the provision of education, and a rationalisation of the farming family meant a population more receptive to the social control provided by the Church.

 

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Figure 2. Literacy by selected denominations in 1861
Of the population 5 years old and upwards. Calculated using: Census of Ireland, 1861 (P.P. 1863, LX), p. 558.

 

However, the effects of the Famine were hardly a mere religious awakening. With Catholic education in Catholic hands, the Catholic population became increasing literate. Literacy aided in occupational advancement and the diffusion of political consciousness. Moreover, with the entrenchment of barriers to Catholic progression—for example the predominance of Protestants in banking—rising literacy likely fuelled discontent and thus nationalist sentiment.

The economic progress of Roman Catholics in the post-Famine decades is statistically examined in the paper. Put simply, the results suggest a Catholic–Protestant convergence over the decades following the Famine. Roman Catholics were rapidly closing the literacy gap and rising in occupational status as Protestant dominance receded. There is also evidence provided which suggests that commercial activities in more Catholic-concentrated areas were catching up with less Catholic-concentrated areas. Indeed, the general trajectory observed is referred to as a Catholic embourgeoisement as Catholics were becoming a more middle-class people—increasingly “alike” their Protestant counterparts.

For Protestants, the prevailing cultural dichotomy—which had long been to their advantage—was perhaps relevant in the economic convergence of the denominations after the Famine, and indeed in ultimate independence. Societal separation meant that the Catholic majority had a religious identity around which to coalesce. Therefore, as legal barriers receded and human capital increased, Catholics began to create an institutional alternative to that provided by the “Protestant” state, with their own network of schools, banks and professionals. Moreover, such movements were likely self-reinforcing, as Catholic professionals aided a new generation to follow their ascent.

The significance of this development is considered further towards the end of the paper. Ireland’s obvious majority–minority structure is contrasted with the Netherlands where no religious majority prevailed. In the latter, this led to a society organised into distinct segments (or pillars), which coexisted in relative harmony. By contrast, in the Irish case, despite the economic convergence of the denominations, independence resulted. The movement towards independence was arguably aided by the mutually beneficial relationship between the Roman Catholic Church and nationalism—the Church, with its body of adherents, provided legitimising capital for nationalism, while nationalism espoused a vision of Ireland that was consistent with the teaching of the Church. Moreover, for individual Roman Catholics, such nationalist vision was likely attractive since it offered the opportunity for societal equality beyond simply materialistic gains—opportunity which the existing state apparatus was slow to provide.

Hence, in understanding the development of Ireland in the post-Famine era, this paper provides not only an important quantification of Catholic progress, but also widens the debate to what Amartya Sen eloquently calls ‘development as freedom’. In doing so, it emphasises the short-sightedness of a narrow materialistic view of societal development, and instead offers a more nuanced perspective on the Irish case.

 

To contact the author: s.henderson1@ulster.ac.uk

Is bad news ever good for stocks? The importance of time-varying war risk and stock returns

by Gertjan Verdickt (University of Antwerp)

This paper was presented at the EHS Annual Conference 2019 in Belfast.

 

'Brussels_Stock_Exchange_Building_(Bourse_or_Beurs)'_by_Tania_Dey
Brussels Stock Exchange Building (Bourse or Beurs). Available at Wikimedia Commons.

One of the most severe events that affect stock markets is arguably a war. Because wars rarely occur, it is difficult to document what the effect of an increase in the threat and act of war is. Going back to history can go a long way to fill this gap.

In my research, I start by collecting a large sample of articles from the archives of The Economist to create the metrics, Threat and Act. This sample contains 79,568 articles from the period January 1885 to December 1913. To mimic investors and understand the content of news items, I rely on a textual analysis with a thorough human reading.

First, I document that Threat is a good predictor for actual events. If The Economist writes more about a potential military conflict, the probability of that conflict actually happening in the future is higher.

The other metric, Act, only captures conflicts that are happening right now. This suggests that, in contrast to what other historians find, The Economist did not write about war excessively but chose their war news coverage appropriately.

Verdickt Graph

Second, I focus on seven countries with stock listings on the Brussels Stock Exchange: Belgium, France, Germany, Italy, Russia, Spain and the Netherlands. These countries are important for Belgium, either through import and export or with a large number of stock listings in Brussels.

Additionally, I use information on other European and non-European countries with stock listings in Brussels to test whether war risk could be considered a European or global form of risk.

For the seven countries, I document that firms do not adjust dividend policies when there is an increase in the threat of war, but only when there is an outbreak of war.

Investors, on the other hand, sell their stocks when there is an increase in the potential and outbreak of a military conflict. When the threat is not followed by an act, stock prices adjust increase to the similar levels as before.

But when there is an outbreak of war, stock returns are negative up to 12 months after the initial increase. This shows that war risk is priced appropriately in stock markets, but that the outbreak of war is associated with higher uncertainty and welfare costs.

More interestingly, I show that there is a decrease in stock prices for other European countries, but no effect for non-European countries. This suggests that investors value the importance of proximity to a war. But firms from these countries do not adjust their dividend policy when threat and act increase.

Population, welfare and economic change in Britain, 1290-1834

review by David Hitchcock (Canterbury Christ Church University)

book edited by Chris Briggs, P.M. Kitson & S. J. Thompson

‘Population, welfare and economic change in Britain, 1290-1834’ is published by Boydell and Brewer. SAVE  25% when you order direct from the publisher – offer ends on the 14th June 2019. See below for details.

 

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This edited volume emerged from a 2011 Cambridge conference held in honour of Richard Smith, and collects expanded versions of eleven papers presented to honour Smith’s scholarly contributions, not least his long tenure at the helm of the Cambridge Group for the History of Population and Social Structure. In the introduction, the editors assert that the book is fundamentally about ‘the historical contexts of demographic decisions broadly defined: decisions about marriage, migration, household formation, retirement, child-bearing, work, and saving’ (p. 2). In practice however the eleven contributors speak to a necessarily narrower range of scholarly concerns. The bulk of the chapters revolve around either demographic reconstruction, in the classic Cambridge Group style, and mainly by using English evidence, or around systemic quantification of poor relief mechanisms such as workhouses and outdoor relief (Boulton), legislation (Thompson), relief to the aged (Williams), or Almshouses (Goose and Yates). E.A. Wrigley and R.W. Hoyle offer a summative and speculative chapter respectively which bookend the volume. Wrigley’s opening chapter reprises the now classic Hajnal essay on European marriage patterns in light of new evidence and offers a survey of the present state of scholarship on the divergent demographies of early modern North-West versus South-East Europe. Wrigley remains broadly convinced of the efficacy of the ‘North-Western marriage pattern’ thesis (p. 26). Hoyle returns to Alan Macfarlane’s once-controversial contention that the peculiarly individualistic distribution of English property rights meant that long-term single family ownership of the same set of landed estates was limited (p. 308), and he pronounces Macfarlane’s argument largely true for land ownership, and his final chapter then elaborates on the implications of English individualism for other types of economic activity, namely trade and agriculture.

The collection has a five-chapter section devoted to poor relief. Several of these chapters seem to offer addendums to work already in print and there is a distinct focus on locality, for instance, Samantha Williams’ work on support for the elderly in Bedfordshire, and her production of ‘pauper biographies’, can be found in full in her book-length study of Campton parish (p. 130). Julie Marfany adds Catalonian data to the debate over regional differences in European poor relief. Jeremy Boulton interrogates the intriguing unanswered question of the long-term resilience of outdoor relief after the advent of the 1723 workhouse test (p. 153); he does so using the voluminous records of St Martins-in-the-fields with which he and others have been working since at least 2004. These chapters demonstrate the value of substantive, and in the case of Boulton, decade-long engagements with discrete sets of microhistorical material. I question the rather pat neatness of the ‘decision tree’ graph of poor relief decisions offered by Boulton (p. 184) but still consider it a useful summarizing schema. I am less convinced by S.J. Thompson’s keyword-based quantification of poor relief statutes, in a chapter ostensibly about Malthusian theories of population and their relationship to Corporations of the Poor (p. 192). Some of these keywords seem rather under-represented in the findings, for example vagrancy and settlement statutes modified or created very different judicial powers from local acts that created Corporations, but this quite important qualitative distinction seems lost here. Certain very useful regional findings do emerge, but they sit uncomfortably beside a discussion of population and poor relief in Suffolk; I think the chapter would work well solely as a discussion of one subject or the other.

The chapters which offer demographic reconstructions and then analyses of these datasets comprise the second main group of material in the volume. Bruce Campbell and Lorraine Barry’s use of GIS produces an impressive new map of the geographical distribution of the population of the three kingdoms in 1290 (p. 65) using ecclesiastical taxatio records from 1291. However, the ensuing discussion of demography in the nineteenth century seems to stretch the chapter beyond the boundaries of its admittedly excellent medieval datasets (p. 69). Though speaking as a layman, I am sceptical that demographers can estimate the 1290 population of Scotland from 1801 census records, particularly given the noted absence of early modern parochial records to use for regression, though I understand the usefulness of the speculative exercise (p. 52). Rebecca Oakes’ chapter reconstructs the effects of place of origin on the mortality rates of late medieval monks in Winchester, Oxford and Westminster monastic communities. The findings map broadly onto the current historiography of mortality for the period, though I would have liked to see rather more on the impact of broader qualitative conditions such as climate and urban development, two critical influences on the profile of pre-modern plague epidemics. Tracy Dennison’s chapter on the institutional contexts of Russian serfdom proved interesting reading though it seemed disconnected from the volume’s wider and mainly English project.

To conclude, this volume’s main contributions can be divided in two: first, a wide range of impressive (and impressively visualized) datasets that speak to the ‘choices and constraints’ (p. 2) of economic life between 1290 and 1834, and second, a set accessible of reassessments of quite dense historiographical debates. E.A. Wrigley’s chapter in particular stands out as useful in this regard. Despite some small caveats, I found the scholarship rigorous and engaging, though we can hardly expect less of the group which reconstructed the historical population of England and Wales.

 

 

SAVE 25% when you order direct from the publisher using the offer code B125 online hereOffer ends 14th June 2019. Discount applies to print and eBook editions. Alternatively call Boydell’s distributor, Wiley, on 01243 843 291, and quote the same code. Any queries please email marketing@boydell.co.uk

 

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