Hostname: page-component-cd9895bd7-gbm5v Total loading time: 0 Render date: 2024-12-26T14:59:05.816Z Has data issue: false hasContentIssue false
  • English
  • Français

The systemic causes of financial crises in the long nineteenth century

Published online by Cambridge University Press:  14 September 2017

Heather Ba
Get access Rights & Permissions [Opens in a new window]

Abstract

In a globalized and hegemonically organized international economy, the economic fundamentals and policy choices of the hegemon often have spillover effects for peripheral economies. This is a well-recognized dynamic of the contemporary political economy, but it was true during the first age of globalization as well. Motivated by literature examining the impact of the U.S. macroeconomic conditions on other economies throughout the international system, this article advances a systemic theory of financial crisis and applies it to the long nineteenth century, when British hegemony reigned. My main motivation is the earliest example of a systemic theory of financial crisis, Charles Kindleberger's Hegemonic Stability Theory. However, while Charles Kindleberger focused on the stability brought about by a hegemonically structured international economy, I emphasize the dynamics of volatility present in this type of system. I argue that a hierarchical distribution of economic activity in the international system means that the financial cycle of the most central country influences the financial conditions in peripheral countries that lead to financial crisis. Evidence from financial crises which occurred in the long nineteenth century supports this theory.

Keywords

hegemonyfinancial crisisfinancial cyclessystem dynamicsglobalization
Type
Research Article
Information
Business and Politics , Volume 20 , Issue 2 , June 2018 , pp. 208 - 238
Copyright
Copyright © V.K. Aggarwal 2017 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bernanke, B. M., Blinder, A., Gertler, S., and Gilchrist, S.. 1998. “The Financial Accelerator in a Quantitative Business Cycle Framework.” In Handbook of Macroeconomics Volume I. Oxford, United Kingdom: Elsevier.Google Scholar
Bhattacharjee, A. and Thoenissen, C. 2007. “Money and monetary policy in dynamic stochastic general equilibrium models.” The Manchester School 75(s1), 88–122.Google Scholar
Bloomfield, Arthur I. 1959. Monetary Policy under the International Gold Standard: 1880–1914. Federal Reserve Bank of New York.Google Scholar
Borio, C. 2014. “The financial cycle and macroeconomics: What have we learnt?” Journal of Banking & Finance 45: 182–98.Google Scholar
Borio, C. E. and Disyatat, P.. 2011. “Global imbalances and the financial crisis: Link or no link?” Working Paper 346. Basel, Switzerland: Bank for International Settlements.Google Scholar
Borio, C. E. and Lowe, P. W.. 2002. “Asset prices, financial and monetary stability: exploring the nexus.” Working Paper 114. Basel, Switzerland: Bank for International Settlements.Google Scholar
Caballero, J. A. 2016. “Do surges in international capital inflows influence the likelihood of banking crises?” The Economic Journal 126(591): 281–316.Google Scholar
Calvo, G. A., Leiderman, L., and Reinhart, C. M.. 1996. “Inflows of Capital to Developing Countries in the 1990s.” The Journal of Economic Perspectives 10(2): 123–39.Google Scholar
Claessens, S., Kose, M. A., and Terrones, M. E.. 2012. “How do business and financial cycles interact?” Journal of International Economics 87(1): 178–90.Google Scholar
Collins, M. 2012. Money and Banking in the UK: A History, Vol. 6. New York: Routledge.Google Scholar
Conant, C. A. 1915. A history of modern banks of issue. Charlottesville, VA: GP Putnam's sons.Google Scholar
De Noyes, A. D. 1909. “A year after the panic of 1907.” The Quarterly Journal of Economics 23(2): 185–212.Google Scholar
Drehmann, M., Borio, C. E., and Tsatsaronis, K. 2012. “Characterising the financial cycle: don't lose sight of the medium term!” Working Paper No. 380. Basel, Switzerland: Bank for International Settlements.Google Scholar
Dornbusch, R., Park, Y. C., and Claessens, S.. 2000. “Contagion: understanding how it spreads.” The World Bank Research Observer 15(2): 177–97.Google Scholar
Eichengreen, B. 1987a. “Conducting the international orchestra: Bank of England leadership under the classical gold standard.” Journal of International Money and Finance 6(1): 5–29.Google Scholar
Eichengreen, B. 1992. Golden fetters: the gold standard and the Great Depression, 1919–1939. Oxford, United Kingdom: Oxford University Press.Google Scholar
Fishlow, A. 1985. “Lessons from the past: capital markets during the nineteenth century and the interwar period.” International Organization 39(3): 383–439.Google Scholar
Flandreau, M. and Zumer, F.. 2004. Development Centre Studies The Making of Global Finance 1880–1913. Paris: OECD Publishing.Google Scholar
Flandreau, M. and Maurel, M. 2005. “Monetary union, trade integration, and business cycles in 19th century Europe.” Open economies review 16(2): 135–52.Google Scholar
Forbes, K. J. and Warnock, F. E.. 2012. “Capital flow waves: Surges, stops, flight, and retrenchment.” Journal of International Economics 88(2): 235–51.Google Scholar
Forbes, K. J. and Rigobon, R.. 2002. “No contagion, only interdependence: measuring stock market comovements.” The Journal of Finance 57(5): 2,223–61.Google Scholar
Foster, J. 2005. “From simplistic to complex systems in economics.” Cambridge Journal of Economics 29(6): 873–92.Google Scholar
Ford, A. G. 1958. “The Transfer of British Foreign Lending, 1870–19131.” The Economic History Review 11(2): 302–08.Google Scholar
Friedman, Milton and Schwartz, Anna Jacobson. 1963. A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press.Google Scholar
Ghosh, A. R., Qureshi, M. S., Kim, J. I., and Zalduendo, J.. 2014. “Surges.” Journal of International Economics 92(2): 266–85.Google Scholar
Haldane, Andrew G. 2009. “Rethinking the Financial Network.” Bank of England. (Accessed 7 November 2016) http://www.bankofengland.co.uk/publications/Documents/speeches/2009/speech386.pdf.Google Scholar
Homer, S. and Sylla, R. E.. 1996. A history of interest rates. Rutgers, NJ: Rutgers University Press.Google Scholar
Jalil, A. 2009. “A new history of banking panics in the United States, 1825–1929: construction and implications.” Unpublished manuscript. California:University of California.Google Scholar
Johnson, J. F. 1908. “The crisis and panic of 1907.” Political Science Quarterly 23(3): 454–67.Google Scholar
Kawai, M. 2015. “International Spillovers of Monetary Policy: U.S. Federal Reserve's Quantitative Easing and Bank of Japan's Quantitative and Qualitative Easing.” Unpublished manuscript. Japan: University of Tokyo.Google Scholar
Keen, S. 2013a. “A monetary Minsky model of the Great Moderation and the Great Recession.” Journal of Economic Behavior & Organization 86: 221–35.Google Scholar
Keen, S. 2013b. “Predicting the ‘Global Financial Crisis’: Post Keynesian Macroeconomics.” Economic Record 89(285): 228–54.Google Scholar
Keen, S. 2011. “Debunking macroeconomics.” Economic Analysis and Policy 41(3): 147–67.Google Scholar
Keen, S. 2009. “The global financial crisis, credit crunches and deleveraging.” Journal of Australian Political Economy (64): 22.Google Scholar
Keen, S. 2006. “The Circuit Theory of Endogenous Money.” Unpublished manuscript. London: Kingston University.Google Scholar
Kim, S. and Yang, D. Y.. 2009. “Do capital inflows matter to asset prices? The case of Korea.” Asian Economic Journal 23(3): 323–48.Google Scholar
Kindleberger, C. 1973. The World in Depression, 1929–39. Berkeley, CA: University of California.Google Scholar
Kindleberger, C. P. and Aliber, R. Z.. 2005. Manias, Panics, and Crashes. Hoboken, NJ: John Wiley and Sons.Google Scholar
Keohane, R. O. 1980. “The theory of hegemonic stability and changes in international economic regimes, 1967–1977.” Center for International and Strategic Affairs. California: University of California.Google Scholar
Keynes, J. M. 1936. “The general theory of interest, employment and money.” In The Collected Writings, Vol. 7. London: Macmillan.Google Scholar
Layne, C. 2012. “This time it's real: The end of unipolarity and the pax Americana.” International Studies Quarterly 56(1): 203–13.Google Scholar
Minsky, H. P. 1977. “The financial instability hypothesis: an interpretation of Keynes and an alternative to standard theory.” Challenge 20(1): 20–27.Google Scholar
Markose, S. M. 2005. “Computability and evolutionary complexity: markets as complex adaptive systems (CAS).” The Economic Journal 115(504): F159–F192.Google Scholar
Oatley, T., Winecoff, W., Pennock, A., and Danzman, S. B.. 2013. “The political economy of global finance: A network model.” Perspectives on Politics 11(01): 133–53.Google Scholar
Reinhart, C. M. and Rogoff, K.. 2009. This time is different: eight centuries of financial folly. Princeton, NJ: Princeton University Press.Google Scholar
Renaud, Bertrand. 1995. “The 1985–1994 global real estate cycle: Its causes and consequences.” Research Working Paper 1452. Washington, D.C.: The World Bank.Google Scholar
Renaud, Bertrand. 1997. “The 1985–1994 global real estate cycle: An overview.” Journal of Real Estate Literature 5: 13–44.Google Scholar
Rey, H. 2015. “Dilemma not trilemma: the global financial cycle and monetary policy independence.” Working Paper 21162. Cambridge, MA: National Bureau of Economic Research.Google Scholar
Robbins, L. 2011. The Great Depression. Piscataway, NJ: Transaction Publishers.Google Scholar
Saull, R. 2012. “Rethinking Hegemony: Uneven Development, Historical Blocs, and the World Economic Crisis.” International Studies Quarterly 56(2): 323–38.Google Scholar
Schumpeter, J. A. 1934. The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle (Vol. 55). Piscataway, NJ: Transaction publishers.Google Scholar
Snidal, D. 1985. “The limits of hegemonic stability theory.”International Organization 39(04): 579–614.Google Scholar
Sornette, D. 2009. Why stock markets crash: critical events in complex financial systems. Princeton, NJ: Princeton University Press.Google Scholar
Sprague, O. M. W. 1910. History of crises under the national banking system, Vol. 538. Washington, D.C.: U.S. Government Printing Office.Google Scholar
Starrs, S. 2013. “American Economic Power Hasn't Declined—It Globalized! Summoning the Data and Taking Globalization Seriously.” International Studies Quarterly 57(4): 817–30.Google Scholar
Stone, Irving. 1999. The global export of capital from Great Britain, 1865–1914: a statistical survey. London: Macmillan.Google Scholar
Triffin, Robert. 1964. “The Myth and Realities of the So-called Gold Standard.” in The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives. Princeton, NJ: Princeton University Press.Google Scholar
Wang, X. F. and Chen, G.. 2002. “Synchronization in scale-free dynamical networks: robustness and fragility.” IEEE Transactions on Circuits and Systems I: Fundamental Theory and Applications 49(1): 54–62.Google Scholar
Wicksell, K. 1898. Interest and Prices, English Translation. New York 1936: Sentry Press.Google Scholar
Winecoff, W. K. 2015. “Structural power and the global financial crisis: a network analytical approach.” Business and Politics 17(3): 495–525.Google Scholar