The Oxford Handbook of Banking and Financial History (Oxford Handbooks) by Youssef Cassis

CHAPTER 1

GENERAL INTRODUCTION

YOUSSEF CASSIS, RICHARD S. GROSSMAN, AND CATHERINE R. SCHENK
THE financial crisis of 2008 aroused widespread interest in banking and
financial history among policy makers, academics, journalists, and even
bankers, as well as with the wider public. References in the press to the
term ‘Great Depression’ spiked after the failure of Lehman Brothers in
September 2008, with similar surges in references to ‘economic history’ at
various times during the financial turbulence (Eichengreen, 2012). In an
attempt to better understand the magnitude of the shock, there was a
demand for historical parallels. How severe was the financial crash? Was it,
in fact, the most severe financial crisis since the Great Depression? Were its
causes unique or part of a well-known historical pattern? And have
financial crises always led to severe depressions? The commercial success
of This Time is Different (Reinhart and Rogoff, 2009)—despite the
controversy surrounding it (Herndon, Ash, and Pollin, 2014)—perhaps best
reflects this renewed yet limited awareness of the importance to know and
understand the financial past.
It would be a mistake, however, to believe that academic interest in
financial history is only recent or that it has been triggered solely by
modern financial crises. In fact, financial history is of long standing,
stretching at least as far back at Henry Thornton’s (1802) An Enquiry into
the Nature and Effects of the Paper Credit of Great Britain and Charles
Mackay’s (1841) Memoirs of Extraordinary Popular Delusions and the
Madness of Crowds. Articles on financial history have long been a staple of
the major economic and business history journals and, since 1994, a
dedicated journal, the Financial History Review, has been published.
Nonetheless, financial history has gained even more prominence since the
mid-1970s. One reason for this has been the huge development and
transformation of the financial world during the last forty years; another has
been the increasing financial instability of those decades—particularly stark
when placed in relief against the rock-solid financial stability of the nearly
three decades following the Second World War. Until the end of this
‘golden age’ in the early 1970s, banking and financial services were
primarily seen as an appendix to the real engine of modern economic
development—industrial production. This was nowhere better illustrated
than in Britain, whose uniquely powerful financial sector had been
neglected by generations of economic historians far more concerned by the
fortunes of its nascent, rising and declining manufacturing industry.
Things started to change in the 1980s, as de-industrialization increasingly
contrasted with the prosperity of the City of London. The financial system
was no longer simply perceived as an intermediary, whose main function
was to provide funds to the ‘real economy’, but as an economic activity in
its own right—especially as bankers were found to have been wealthier than
industrialists ever since the industrial revolution (Rubinstein, 1981).
Banking and financial history soon expanded in all advanced economies,
spurred by the advent of a ‘post-industrial society’ and the growing role of
financial services in employment and national income. As a result, we now
have a far better understanding of the way modern finance has taken its
current shape—of the development of financial institutions and markets,
their contribution to economic development; the differences and similarities
between national financial systems; the expansion, and retreat of
international financial activities; financial and monetary stability; regulation
and deregulation.
Historical reflection on the recent financial crises and the long-term
development of the financial system thus go hand in hand. The object of
this volume is to provide the material for such a reflection, by presenting
the state of the art in banking and financial history.
Financial history is a very broad field, encompassing most aspects of
human endeavour, including social, political, and cultural history (Cassis
and Cottrell, 1994). However, this volume concentrates on the economic
and financial side of banking and financial activities, primarily though not
solely in advanced economies (Western Europe, the United States, and
Japan), in a long-term (from the mid-nineteenth century to the present), in
comparative perspective. In addition to paying attention to general issues,

The Oxford Handbook of Banking and Financial History (Oxford Handbooks) by Youssef Cassis