London School of Economics

London School of Economics 
Lent Term 2010 
Department of Economic History 
Professor L. D. Neal

Economic History 419, Research topics in Economic history 
The Development of International Financial Institutions and Markets

Monday, Lecture: 11:00 – 12:00, D206 (Clement House, 2nd floor classroom) 
Monday, Seminar1: 12:00 – 13:00, D206
Monday, Seminar2: 14:00 – 15:00, D206

Professor Neal's Office Hours: 
East Building, E488 (Prof. O'Brien's former office) 
Monday, 15:00 – 17:30, 
Wednesday, 10:30 – 12:30 

Focusing on the issues posed by today's global marketplace for the design of effective financial markets and institutions, this seminar will examine international experiments made in earlier epochs and continuing to current times. After examining the current state of financial globalization and the current credit crunch by the major international banks, we will go back to the rise of financial capitalism in the 17 th century, continue with the European experiments of the 18 th century, the spread of financial capitalism in the 19 th century, the classical gold standard before World War I, exchange controls and national experiments between the two World Wars, the Bretton Woods era after World War II, and conclude with the development of global financial relations since 1971. Students will use extensive data sets available on the course Web site to explore hypotheses about behaviors in financial markets under the varying background conditions that arose historically.

Course grade will be determined by assessment of each student's research paper due at the end of Lent Term. Deadline is Monday, April 12, 5 p.m. with Tracy Keefe in C416. Each paper will deal with a specific case study of the student's choosing, but with the approval of, and under the direction of, the course instructor. Instructions for Assessed Essay

In preparation for the assessed essay, each student will be assigned the task of presenting a critique of one of the articles on the syllabus in the seminar meeting following the general lecture. Given the size of the class there will be two-person teams (chosen arbitrarily by the instructor) and two presentations in each seminar. These should be helpful to the rest of the class as well as helping you to realize what is needed for a valid essay for the class. Later in the term, the same teams will present proposals for their respective research papers to the seminars to gain useful feedback from the rest of the class. In preparation of the critiques, check the suggestions that UCLA Economics graduate students are given for critiquing standard economic journal articles: Critique Suggestions


Larry Neal (1993), The Rise of Financial Capitalism International Capital Markets in the Age of Reason , New York : Cambridge . (Pb)

Jeremy Atack and Larry Neal, eds., The Origins and Development of Financial Markets and Institutions,Cambridge: Cambridge University Press, 2009. (Pb)

Barry Eichengreen, Globalizing Capital: A History of the International Monetary System, Princeton , NJ : Princeton University Press, 1996. (Pb)

Readings and data bases on course Web site:


1. January 11
Overview of Course & Current Crisis

IMF, Global Financial Stability Report, October 2009, "Navigating the Financial Challenges Ahead," Executive Summary & Chapter 1. Navigating Financial Challenges

IMF, Research Department, "Reaping the Benefits of Financial Globalization," June, 2007. Reaping Benefits (re: Simon Johnson)

Gary Gorton, "The Subprime Panic," NBER Working Paper 14398, October 2008. The Subprime Panic

Charles Calomiris, "The Subprime Turmoil: What's New, What's Old, and What's Next," 
unpublished paper, August 2008, Subprime Turmoil

2. January 18 The Dutch “Bell Jar”
The Dutch Innovations

Larry Neal, "How It All Began: The Monetary and Financial Architecture of Europe from 1648 to 1815," Financial History Review, 7:2 (October 2000), pp. 117-140.How It All Began

Oscar Gelderblom and Joost Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595-1612,”Journal of Economic History, 64 (September 2004), pp. 641-72. Dutch Capital Market 
Critiqued by Kates & Youdeem, Seminar 1; Mou & Zhao, Seminar 2

Stephen Quinn and Will Roberds, “An Economic Explanation of the Early Amsterdam Bank, Debasement, Bills of Exchange, and the Emergence of the First Central Bank,” in The Origins and Development of Financial Markets and Institutions, ch. 2.Dutch Central Banking
Critiqued by Oftedal & Wegerich, Seminar 1; Mangiapane & Chen, Seminar 2

3. January 25

The First Financial Crises Toil, Bubble, and Trouble

Ann Carlos and Larry Neal, “The Microstructure of the Early London Capital Market: Bank of England Shareholders during and after the South Sea Bubble, 1720–1725,” Economic History Review, LIX:3 (September 2006), pp. 498-538 . Carlos & Neal

François Velde, “John Law's System and its Aftermath, 1718-1725,” The Origins and Development of Financial Markets and Institutions, ch. 4 . 
Velde on John Law's System

For behavioral finance approaches, see:
Richard S. Dale, Johnnie E. V. Johnson, and Leilei Tang, "Financial Markets Can Go Mad: Evidence of Irresponsible Behaviour during the South Sea Bubble," Economic History Review, LVIII (2) (2005), pp. 233-271. Financial Markets Mad during South Sea Bubble
Critiqued by Molitor von Muehlfeld & Postel-Vinay, Seminar 1; Dyer & Ryen, Seminar 2

And, Gary S. Shea, "Financial Market Analysis Can Go Mad (in the search for irrational behaviour during the South Sea Bubble," June 2005.
Irresponsible Analysis
Critiqued by Guthausen & Dietrich, Seminar 1; Baron & Chakraborty, Seminar 2

4. February 1

The Beginning of Modern Capital Markets 
Why Britain Was First

Larry Neal, "A Tale of Two Revolutions: International Capital Flows, 1789-1819," Bulletin of Economic Research, 43:1 (1991), pp. 57-92. Tale of 2 Revolutions

Larry Neal, “The Bank of England's First Return to Gold and the Stock Market Crash of 1825,” Federal Reserve Bank of St. Louis Review, (May-June 1998). The First Global Financial Crisis, 1825

Michael Bordo and Eugene N. White, “A Tale of Two Currencies: Revolutions: British and French Finance During the Napoleonic Wars,” Journal of Economic History, 51:2 (June 1991), pp. 303-316Bordo and White's Tale
Critiqued by Camarena & Caruana Galizia, Seminar 1; Ault & Klemm, Seminar 2

Marc Flandreau and Juan H. Flores, "Bonds and Brands: Foundations of Sovereign Debt Markets, 1820-1830," Journal of Economic History, 69:3 (September 2009), pp. 646-684. Bonds and Brands
Critiqued by Piipariner & Banerjea, Seminar 1; Kwan and Wang, Seminar 2

5. February 8

International Comparisons 
Failed Imitations of Britain

Richard Sylla, “Comparing the British and US Financial Systems, 1790-1840,” The Origins and Development of Financial Markets and Institutions, ch. 7. Sylla on the Genius of Hamilton

Philip Hoffman, Jean-Laurent Rosenthal, and Gilles-Postel-Vinay, Priceless Markets: The Political Economy of Credit in Paris , 1660-1870, Chicago : University of Chicago Press , 2000, chs. 10 & 11. Priceless Markets (?)
Critiqued by Lucas & Myers-Cavanaugh, Seminar 1; TayYee Ren & Reutter, Seminar 2

Timothy Guinnane, “Delegated Monitors, Large and Small: Germany 's Banking System, 1800-1914,” Journal of Economic Literature, 40:1 (March 2003), pp. 73-134. Guinnane on the German Banking System
Critiqued by Lee & Jensen, Seminar 1; Bholat & Morin, Seminar 2

6. February 15

The Gold Standard and the First Global Financial Markets 
Mysteries of the Gold Standard

Larry Neal and Marc Weidenmier, “How It All Began: Financial Contagion in the History of Globalization,” in Michael Bordo, Allen Taylor, and Jeffrey G. Williamson, eds., The History of Globalization, Chicago : NBER and University of Chicago Press, 2004. Financial Contagions?

Barry Eichengreen, Globalizing Capital, ch. 2.

Larry Neal, "Natural experiments in financial reform in the nineteenth century, the Davis and Gallman analysis," in Jeremy Atack and Larry Neal, eds., The Origins and Development of Financial Markets and Institutions,Cambridge: Cambridge University Press, 2009. Natural experiments of the 19th century

Marc Flandreau, Juan Flores, et al., "The Spread of Empire: Clio and the Measurement of Colonial Borrowing Costs," working paper submitted to Economic History Review, October 2009.Spread of Empire Finance 
Discussion leaders: Seminar 1, Biplap Chavorborty; Seminar 2, Jingjing Wang.

Paper presentations: Seminar 1: Kates & Youdeem; Seminar 2: Mou & Zhao

(Web data base on the gold standard capital markets) Bond Yields Short-Term Interest Rates Exchange Rates (3 month bills, Gold and Silver)

7. February 22

The Great Depression and Financial Reforms Economics of the Great Depression

Barry Eichengreen, Globalizing Capital, ch. 3.

Eugene White (1990), "The Stock Market Boom and Crash of 1929 Revisited,” Journal of Economic Perspectives , 4 (Spring 1990), 67-84.
White on the Crash of 1929

Charles Calomiris (1993), "Financial Factors in the Great Depression,” Journal of Economic Perspectives , 7 (Spring 1993), 61-85.
Calomiris on the Great Depression

The Bank of US controversy: Lucia attacks Friedman & SchwartzFriedman & Schwartz attack backLucia defendedF & S defended

Paper presentations: Seminar 1: Oftedal, Wegerich, & Molitor von Muehlfeld; Seminar 2: Mangiapane, Chen, & Dyer

8. March 1

The Bretton Woods Era: Historical Perspective Bretton Woods, R.I.P.

Barry Eichengreen, Globalizing Capital, ch. 4.

Michael Bordo, "The Bretton Woods International Monetary System: A Historical Overview," in Michael Bordo and Barry Eichengreen, eds., A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, Chicago : University of Chicago Press, 1993, pp. 3-98. 
Bordo reviews Bretton Woods & Gold Standard

Raghuram G. Rajan and Luigi Zingales, "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, 69 (2003), pp. 5-50. Great Reversals

Paper presentations: Seminar 1: Postel-Vinay, Guthausen & Dietrich; Seminar 2:Ryen, Baron & Ault

9. March 8

The New Global Finance Bretton Woods II or Post-Bretton Woods?

Barry Eichengreen, Globalizing Capital, ch. 5.

Michael P. Dooley, David Folkerts-Landau, Peter Garber, "An Essay on the Revived Bretton Woods System," NBER Working Paper 9971, September 2003.
Bretton Woods II

Frederic Mishkin, “Global Financial Instability: Framework, Events, Issues,” The Journal of Economic Perspectives, 13:4 (Autumn, 1999), pp. 3-20. 
Mishkin on Global Finance

Paper presentations: Seminar 1: Camarena, Caruana Galizia, & Piipariner; Seminar 2: Klemm, Kwan, & Yifan Wang

10. March 15

After Deregulation, Re-Globalization What is to be done?

Barry Eichengreen, Globalizing Capital, ch. 6.

Jeremy Atack, "Financial Innovations and Crises: The View Backwards from Northern Rock," in The Origins and Development of Financial Markets and Institutions, ch. 1 Financial Innovations and Crises

Larry Neal, "Lessons from History?" in The Origins and Development of Financial Markets and Institutions, ch. 15.
Lessons for 21st Century

Paper presentations: Seminar 1: Banerjea, Lucas & Myers-Cavanaugh; Seminar 2:TayYee Ren, Reutter, & Morin

Comments on the Bernanke and Paulson Responses to Sub-Prime Crisis
The Paulson PlanKotlikoff ApprovalHubbard & Zingales EvaluationSchwartz Disapproval

Assessed Essay Due -- April 12, 2010, 5 p.m., both paper and electronic versions to Tracy Keefe, C416. (