Brittany represented the world’s largest investor, followed by France. The states
United, due to isolationism, they still had too limited an external projection.
Foreign investments consisted of infrastructure (railway lines, canal ports…), and
were carried out through the purchase of public debt. In case of investments little
profitable this method led to very negative consequences, since they represented a
extra burden for the country (for example in Egypt the construction of the Suez Canal generated a
strong foreign debt and the difficulty of repaying it led to the loss of independence). Capitals
their main destinations were Europe and North America. For these countries the
consequences could be both positive and negative, first of all a
aid to the growth of modernization, secondly the risk could have been
exploitation of exhaustible resources and the deterioration of land, in exchange for few places
work and little revenue for the State. 26
These foreign investments, overshadowing domestic investments, flared up
of the debates in this regard, since internal investments could have represented a
greater social utility.
As has already been said, all countries that modernized created a central bank, which
it became a garrison of the most important public good: money. The central bank had the
monopoly on the issuing of paper money and the maintenance of gold and other reserves
currencies. But he also had other responsibilities:
– The setting of the discount rate (rate at which banks can purchase liquidity from
central bank);
– Supervision of the exchange rate;
– Treasury Supervision;
– Supervision of the banking system
– Function of lender of last resort, the latter was carried out with care
different depending on the traditions and functioning of the economic system.
There were different types of banks, they first became widespread in the first half of the eighteenth century
in the Habsburg empire and then in the rest of Europe, the savings banks, i.e. non-banks
profit that were intended to collect savings to eliminate hoarding that
it took away liquidity from the system (I accumulate money under the mattress) and limited wear and tear. The
operating surpluses were destined for social good works and charity. These crates of
savings were very successful and became large banks.
In some countries even the post offices became savings banks, or pawnshops.
Bank joint-stock companies then spread, which could be of two types:
– Commercial banks (short-term credit institutions), relied heavily on deposits;
– Merchant banks (long-term credit institutions), did not carry out deposit activities
my loan.
In the mid-nineteenth century, urban version of cooperative banks were born in Germany
(popular banks) or rural. These banks were oriented towards savings bank business,
in particular to support small local businesses. In this way yes
created a powerful savings recycling network.
As regards large companies (more advanced structure of economic systems
national) the relative importance of the stock exchange or bank in their financing has
configured the existence of two systems:
– Anglo-Saxon, market-oriented: the stock exchange has primacy, while banks have a role
secondary;
– German, bank-oriented: the mixed bank has primacy, while the stock exchange has a role
secondary and is smaller in size.
Both systems appear to have advantages and disadvantages, nowadays the system is
heading towards a hybrid model.
The functioning of this international economy without supervisory bodies was
possible thanks to the gold standard. It is an international monetary system, which
it had its roots already in the Middle Ages when a mixed circulation of
precious metal/banknotes. The country could possess gold and silver (bimetallism) or only
gold or just silver (monometallism). In 1717 Newton established that the price of gold was 27
was equivalent to 3 pounds… and thus the gold standard (gold monometallism) was born. The Grand
Britain therefore became the leading country, which for the operation of the gold standard had to
be able to maintain this leadership as all the other countries that were part of
of the system depended on it. Banking practices needed more flexibility, however
This is when banknotes began to circulate and gold became a reserve in safes. One
of the cornerstones of the system remained the right of convertibility of paper money into gold at one time
pre-established parity, this served to avoid excessive issuance of paper money.
Since there was not enough metal to convert all the banknotes into application,
it was based on the rules of the game. The loss of confidence in the system generated the races
at the counters to carry out the conversion of paper money into gold, which led the system
to collapse and exit from convertibility (forced tender, public forced to hold
paper money). This has led to holding fixed exchange rates to have more order in the economy
international. Two borderline cases to avoid were:
• The decifit, the country has difficulty in having sufficient quantities of foreign currency and will tend
to offer more quantities of national currency to purchase it, leading to a devaluation of the
own currency. As a result, anyone would rather be paid in gold, than a
Regardless, it maintains a fixed value, to avoid exchange losses. At this rate the
gold reserves decrease, and according to the rules of the game the country must decrease the
paper circulation, therefore internal demand will decrease and prices will fall
(deflation causing unemployment and falling wages) and raising interest rates
interest attracts foreign capital. All this prevents the effective devaluation of the currency.
• The surplus, inflow of gold and expansion of paper circulation leads to inflation and
to sharing the burden of readjustment between the deficit country and the surplus country.
But why hasn’t the world always maintained the gold standard? It must be emphasized that
for the system to function, the economy must not be disturbed by traumatic events
like war, then as reiterated above the leader must know how to maintain his position.
In 1944 at Bretton Woods the gold standard was supported by the US dollar, yes
it dealt with a special case called the gold exchange standard, since the reserves of gold
had declined and most banks held dollar reserves. So the
exchange began to take place with the dollar.
Gold, like all goods, has its own market, the problem lies in the fact that gold mines do not
they are unlimited and are also discovered at different paces from those needed
the economy. So the gold standard system does not generally maintain price levels
fixed, for this reason in 1973 it was abolished and we moved to a regime of flexible exchange rates.
Colonialism was not applied by all advanced countries, for example the United States not
they were a colonial power. Colonialism was determined by several factors: the
desire to expand and the need to control certain territories militarily
strategic; the pride of expanding one’s culture; economics interests. Until times
recent times the dominant view was that colonial countries had benefited greatly from
colonialism, while the colonized countries had suffered only negative effects. But now it is
It has been shown that this is not the case, taking into consideration the country most linked to the colonies
between the nineteenth and twentieth centuries, that is, Great Britain. The study was done by
Huttenback and Davis, over a rather long time period, and calculating the net benefits
of costs (since the colonies were expensive). They calculated the direct costs (military and 28
administrative) and subtracted them to obtain a profit rate net of costs. This
value was then compared with other profit values obtained by English companies on the
other non-colonial markets and the conclusion was reached that the advantages existed only until
decade of the 1880s. It was therefore not Great Britain that gained from the English colonies, but
individual investors who earned nominal profit infill and therefore retained
the profitable investment. The decline of English leadership was due, according to many,
to the excessive insistence of English industry in productions of the first revolution
industrial (textiles, steel, railways), and this is linked to the availability of colonial markets
for these products, now superseded by more modern and sophisticated markets, such as the European ones
of the First World War.
CHAPTER 9
– The social and economic consequences of the First World War and the 1920s
Europe and the United States
There were several factors that led to the outbreak of the First World War, including
main: the Franco-German conflict over the possession of Alsace and Lorraine (iron mines, of
zinc and coal were located in those territories); success and German expansionism which
it worried Italy and France; disagreement between Germany and Russia over protectionism (at the time
they bordered, as there was no Poland). In general in Europe at the beginning of the twentieth century yes
ideologies favorable to the war were widespread, such as feelings of nationalism and the
futuristic movement, which saw war as the only hygiene in the world. But the war was
reason for slowing down accumulation, through the destruction of fixed capital e
human, and often ended negatively economically speaking for all
fighters. In those years 9 million men died from the war and from the epidemic
Spanish, spread thanks to the war, 40 million.
There were several negative consequences of the war, the general slowdown of
European economies (the belligerents had to face very heavy military expenses, and for
the expansion of taxes was not enough to support them, so the printing of was increased
paper money and this resulted in powerful inflation and the exit from gold
standard); German reparations and the dissolution of the Austro-Hungarian Empire.
Regarding European territorial repair in the post-war period, to German
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