The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered

The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered

The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered

The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered

Synopsis

This comprehensive collection aims to establish how and why financial systems develop, and how knowledge of financial differentiation in the 19th-century may afford insight into the development of contemporary banking structure.

Excerpt

Douglas J. Forsyth

The problem

The purpose of this volume is to reopen an old and venerable debate in political economy on completely new terms. At issue are the origins of the distinct features of national financial systems. Since the nineteenth century, it has been commonplace to distinguish between financial systems in which commercial and investment banking are carried out by separate types of firms and those in which “universal banks” carry out both kinds of operation. Britain is often considered the paradigmatic case of a country in which commercial and investment banking evolved separately, and Germany as the paradigmatic homeland of universal banking. Many of the other countries examined by the contributors to this volume fall somewhere between, with France and the Netherlands falling closer to the British end of the spectrum, Italy and Portugal closer to the German end, and Norway, Sweden and Late Imperial Russia somewhere between. Once in place, these financial systems have proved remarkably robust. Most industrial nations still have today financial systems conforming to the broad type they developed by the end of the nineteenth century.

Establishing how and why national financial systems have developed along different lines could be important for two reasons. First, if there are differences in the relative efficiency of universal vs. functionally segmented banking systems, it should matter a great deal how these systems came into being in the first place. Let the reader be advised, we do not attempt to resolve the efficiency issue here, but other scholars have debated, and continue to debate, this question with great intensity. Second, establishing how financial system differentiation occurred in the nineteenth century may afford insight into whether or not the contemporary process of liberalization and international standardization in the regulatory framework for the financial system will produce changes in banking structure.

Two rival explanations

Beginning in 1952, Alexander Gerschenkron argued in a series of influential essays that universal banks evolved in late-industrializing nations in order to take advantage of a set of structural incentives, and in order to compensate for a set of structural impediments to economic growth. the incentives included the possibility

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