Ideas, Interests and the Development of the European Banking Systems

385 Pages·2020·2.833 MB·English

by  Florian Brugger

Wirtschaft + Gesellschaft
Florian Brugger
Ideas, Interests and
the Development of
the European Banking
Systems
Wirtschaft + Gesellschaft
Series Editors
Andrea Maurer, Fachbereich IV Soziologie, Universität Trier, Trier, Germany
Uwe Schimank, SOCIUM Forschungszentrum Ungleichheit und Sozialpolitik,
Universität Bremen, Bremen, Germany
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More information about this series at http://www.springer.com/series/12587
Florian Brugger
Ideas, Interests and the
Development of the
European Banking Systems
Florian Brugger
Institut für Soziologie
Karl-Franzens-Universität Graz
Graz, Steiermark, Austria
ISSN 2626-6156 ISSN 2626-6164 (electronic)
Wirtschaft + Gesellschaft
ISBN 978-3-658-30596-3 ISBN 978-3-658-30597-0 (eBook)
https://doi.org/10.1007/978-3-658-30597-0
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Fachmedien Wiesbaden
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Contents
1 Introduction ..................................................... 1
1.1 Why Banks are so Important: The Economic and Sociological View ..... 1
1.2 The Sociology of Banking and the Historical Development of the
Banking Sector ............................................... 3
1.3 The Selection of Case and Time ................................. 7
1.4 General Trends ............................................... 9
1.5 Three Pivotal Periods .......................................... 12
1.6 The Plan of the Book .......................................... 14
2 Ideas, Interests, Institutions and Banking Revolutions .................. 19
2.1 Ideas, Interests and Institutions .................................. 21
2.1.1 Ideas: In Sociology, Economics and Political Science .......... 22
2.1.2 Interests: In Sociology, Economics and Political Science ........ 39
2.1.3 The Relation Between Ideas and Interests .................... 48
2.1.4 The Relation Between Ideas, Interests and Institutions .......... 50
2.2 Three Main Orders: Political, Economic and Cultural ................ 55
2.2.1 The Political, Economic and Cultural Order .................. 56
2.2.2 The Interdependence of the Three Orders .................... 60
2.2.3 Stability and Change of the Three Orders .................... 62
3 Italian Financial Capitalism: The Birth of Modern Banking ............. 67
3.1 Ideal Constrains: Usury Laws ................................... 68
3.2 From Merchant to Financial Capitalism ........................... 70
3.2.1 Shifting Politics and the Rise of Public Debt Capitalism ........ 72
3.2.2 Changing Ideas: New Perspectives on Interests ................ 76
3.3 The Rise of Modern Banks ..................................... 79
3.3.1 The Foundation of the State Lender Associations .............. 79
3.3.2 Early Public Banks ...................................... 81
3.3.3 Early Cooperative Banks ................................. 83
3.4 The Regulation of Medieval Italian Banks ......................... 84
3.5 Conclusion .................................................. 85
v
vi Contents
3.6 The Heritage from Medieval Banking ............................. 87
4 Absolutism, Mercantilism and Banking Revolutions ................... 91
4.1 The Rise of Hanseatic Banks .................................... 91
4.2 The Rise of Modern Banking .................................... 93
4.2.1 Mercantilism: The New Leading Economic Idea .............. 93
4.2.2 The Rise of Merchants and Bankers ........................ 103
4.2.3 Political Coalitions ...................................... 106
4.2.4 The Rise of Private, Public, and Non-profit Banks ............. 111
4.3 Conclusion .................................................. 136
4.4 The Heritage of Early European Banking .......................... 138
5 The Development of the European Banking Sector as We Know It ........ 143
5.1 The Cultural Order of the 19th Century ............................ 149
5.1.1 The End of Mercantilism as the Leading Idea ................. 151
5.1.2 The Rise of (Economic) Liberalism and Nationalism ........... 154
5.1.3 The Anti-liberal Turn on the European Continent .............. 158
5.1.4 Intensifying Imperialism ................................. 168
5.1.5 Quantity Theory of Money and New Keynesian Money Theories . 173
5.2 The Rise of the English Banking System .......................... 210
5.2.1 The Time of Old Toryism ................................. 213
5.2.2 The Time of the Liberal Hegemony ......................... 216
5.2.3 Changing Money and Banking Laws ........................ 221
5.2.4 The Intensification of Imperialism .......................... 232
5.2.5 British Private Banks: From the Late 18th Century to World War I 236
5.3 The Rise of French Banking .................................... 246
5.3.1 Saint-Simonianism and Imperialism: Pivotal Ideas for French
Banking .............................................. 246
5.3.2 Bourbon Restoration: The Conservative Backlash ............. 254
5.3.3 July Monarchy: ‘Bankers Reign’ ........................... 256
5.3.4 Napoleon III and the Banking Revolution .................... 260
5.3.5 The Third Republic: The Rise of Megabanks ................. 265
5.3.6 The Development of the French Banking System .............. 269
5.4 The Rise of German Banking ................................... 281
5.4.1 Ideas Determining the Development of Banking ............... 282
5.4.2 The Conservative Backlash ............................... 293
5.4.3 The Second Restoration .................................. 299
5.4.4 Unification, Industrialization and the Rise of Megabanks ........ 304
5.4.5 The Development of the German Banking System ............. 313
5.5 Central Banking .............................................. 322
5.5.1 Bank of England. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
5.5.2 Banque de France ....................................... 325
Contents vii
5.5.3 Reichsbank ............................................ 327
5.6 Non-profit Banks ............................................. 328
5.6.1 Ideas Supporting Non-profit Banks ......................... 329
5.6.2 The Rise of Non-profit Banks ............................. 332
6 Conclusion ...................................................... 339
6.1 Ideas, Interests and Institutions or the Three Orders .................. 341
6.2 Shifting Ideas, Interests and Institutions ........................... 342
6.3 Shifting Orders and Banking Revolutions .......................... 343
References ......................................................... 355
Introduction 1
The central importance of banks for capitalist economies is seldom doubted: produc-
ing different arguments, sociologists and economists of most schools of thought usually
agree on the pivotal impotence of the banking sector for capitalist economy. However,
despite the wide agreement on the central importance of banks, economic and socio-
logical contributions on banking were rare for decades: only the recent banking crisis
renewed the interest of social sciences in financial markets in general and banking in
particular.
This book analyzes the historical development of the European banking sector
between the foundation of the first modern banks in the Italian City-States and World
War I. The contribution focuses on the banking revolution that significantly shaped the
path along which the leading European banking sectors of France, Germany and Britain
developed. In particular, the economic, political and cultural circumstances that caused,
fostered and accompanied the banking revolutions are studied. The book focuses on the
specific constellation of ideas, interests and institutions that facilitated, caused and ham-
pered the banking revolutions which significantly shaped the historical development of
Europe’s leading banking sectors.
1.1 W hy Banks are so Important: The Economic
and Sociological View
Economists and sociologists do not doubt that banks are among the most central organ-
izations of capitalism. Agreeing on the central importance of banks for capitalism,
economists develop various, often mutually exclusive, arguments why banks are at the
center of capitalism. Werner (2016) distinguishes three main economic banking theories:
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer 1
Fachmedien Wiesbaden GmbH, part of Springer Nature 2020
F. Brugger, Ideas, Interests and the Development of the European Banking Systems,
Wirtschaft + Gesellschaft, https://doi.org/10.1007/978-3-658-30597-0_1
2 1 Introduction
“financial intermediation theory of banking”, “fractional reserve theory of banking” and
the “credit creation theory of banking.”
The fist dominates classical and neo-classical economics. According to the financial
intermediation theory of banking, banks are mere capital intermediaries: banks absorb
savings to lend to the economy. Hence, banks intermediate loanable funds, but are una-
ble to augment capital. Banks foster economic growth and progress by facilitating the
investment of idle savings into the most promising projects. For most neo-classical econ-
omists banks are only the maturity transformer who borrows short, hence they deposit
money of short maturity, to lend long (see ibid.). Business economists usually add that
banks also transform risk and scale: banks convert relatively safe small deposits into
risky huge investments.
The fractional reserve theory of banking was advocated by several prominent
Keynesians like Paul Samuelson (1948b) and Joseph Stiglitz (1997). According to them,
banks are just fund intermediaries individually. However, collectively, banks augment
money. Their main argument is that banks are unable to unilaterally extend both sides of
the balance sheet. But because the same value may be booked simultaneously in different
balance sheets, collectively the banking sector creates money by extending banking sec-
tors’ total balance sheet.
Advocates of the credit creation theory of banking, like Schumpeter ([1911] 1934),
consider that every bank creates money out of nothing. They argue that banks are not
intermediaries, but create money by credit granting. Because deposits function as money
in advanced capitalist economies, banks create money by booking loans. A loan given to
a bank customer is booked on both sides of the balance sheet of the bank: on the active
side as a claim of the bank against the customer and on the passive side as a customer
deposit. Each theory developed different arguments why banks are so important for the
economy, however they widely agree on the central importance of banks for economic
progress and growth.
Widely agreeing on the importance of private banks for the economy, most famous
economists turned briefly to the topic of private banks and focused instead on money
theory and central banking. Most contributors to the history of money economics con-
sider that money economic theories of the last centuries may be ultimately divided
into two main strands (Kindleberger 1985; Humphrey 1993, 1999): monetarism and
Keynesianism. For monetarists money is neutral—at least in the longer run; hence,
augmenting money just raises prices. Convinced by the principle advantages of paper
money, for monetarists both private banks and governments have strong vested inter-
ests to over-issue notes. To prevent over-issuing, monetarists suggested to found central
banks equipped with note-issuing monopolies, which are obliged to follow clear bind-
ing issuing rules and target price stability. In contrast, Keynesians argue that money is
non-neutral, endogenous and governments lack the ability to determine the money stock.
Believing in central banks’ ability to actively promote economic progress and to mitigate
or even prevent crises by leaning against the wind, Keynesians demand a much more
active role of central banks.