Lance E. Davis

Evolving Financial Markets and International Capital Flows: Institutional invention and innovation: Foreign capital transfers and the evolution of the domestic capital markets in four frontier countries: Argentina, Australia, Canada, and the United States, 1865–1914

1-1a. History and current events No one believes that history repeats itself exactly, but many economic historians must have nodded knowingly when they opened their morning newspapers on February 27, 1995. On that day newspapers throughout the world reported that the House of Baring – one of the world’s oldest private banks – had gone into bankruptcy. Over one hundred years earlier, in 1890, Barings had also teetered on the verge of bankruptcy. The cases are remarkably similar. Not only did the two crises involve the same institution, but in both cases Barings was involved in financial operations in the less-developed world. In 1890 it was Latin America, particularly Argentina and Uruguay. One hundred and five years later the newspapers reported that Barings was a “strong niche player in the emerging markets of Asia,Latin America,Africa and Eastern Europe.” Moreover, despite the passage of time and the growth in the size of the British economy, the magnitudes of the potential losses, then and now, are not dissimilar. In 1890, £17.25 million was sufficient to cover Barings potential liabilities; in today’s dollars that figure amounts to just over

The Last 1,945 Sailing Ships

850 million. In 1995, if the press is to be believed, the funds required to save “the world’s oldest private bank” fell in the

Evolving Financial Markets and International Capital Flows

950 million to

Evolving Financial Markets and International Capital Flows: Britain, the Americas, and Australia, 1865-1914

1.27 billion range.

Capital Formation in the United States during the Nineteenth Century

More than three decades ago, John Hughes and Stanley Reiter published an article that has been widely recognized as a major milestone on the path to the “Cliometric Revolution.” In “The First 1,945 British Steamships” (1958), Hughes and Reiter, employing both the techniques of marine engineering and Purdue University’s then newly installed mainframe computer, analyzed the technical characteristics of the British steam mercantile fleet in 1860.1 The authors concluded that, because maritime historians had badly underestimated the carrying capacity of the steam driven fleet, the degree of the new technology’s market penetration was much greater than had been thought. Moreover, they suggested that, current historiography aside, steam had become the dominant maritime technology by the beginning of the sixth decade of the nineteenth century.