Skipping ahead: The evolution of the world's
finance markets 1914–1990 — A brief sketch
When World War I broke out, Britain and the four frontier countries were among the richest in the world. Britain was the most fully developed, had the best articulated and most comprehensive set of financial intermediaries, and was the world's leading creditor. Per capita income was at least as high in the United States as in Britain, and the American economy was very much the larger — in fact, the largest in the world. The financial system was also well developed; American savings had begun to exceed domestic investment requirements; and the United States had taken up the role of an international lender. Canada had experienced an exceptionally high rate of growth in the two decades before the war, a rate sustained by an unusually large Canadian capacity (and willingness) to save and invest, and by a steady inflow of foreign capital. The Canadian economy was much smaller than the American, but per capita income was gaining on that of the United States. The banking system was strong; the securities markets were small, but effective and growing; and in other respects the system of intermediation was gaining in depth and strength. These countries seemed set on a course of successful modern economic growth.
The prospects of the other two were more problematical. Australia, with abundant resources and a small modern population, may well have been the richest country in the world in 1870, and, perhaps in 1890, if richness is measured by per capita aggregate product of the population of European origin. By 1913, however, as a result of a pace of growth slower than those exhibited by the other four and of the very damaging effects of the crisis of the early 1890s, Australia, while still rich, had lost much of the advantage it had held in 1870. More troubling, financial intermediation was not well developed; and the principal private financial institutions — commercial and mortgage banks — had suffered very damaging blows in the 1890s, blows with enduring consequences. English lenders, severely hurt in the Australian financial collapse, were reluctant to resume lending to the private sector.