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  • Unsettled Account: The Evolution of Banking in the Industrialized World Since 1800 by Richard S. Grossman
  • Eric Hilt
Richard S. Grossman. Unsettled Account: The Evolution of Banking in the Industrialized World Since 1800. Princeton, NJ: Princeton University Press, 2010. 408 pp. ISBN 9781400835256, $46.95 (cloth).

The recent financial crisis has renewed interest in the history of banking among scholars and policymakers, in the hopes of finding insights into the appropriate design of financial regulations, the effects of government bailouts, and the causes and consequences of bank failures. The literature on the history of banking, however, is quite fragmented, with most contributions focusing on individual countries or on technical issues that are of secondary importance to nonspecialists. In part, this is an inevitable consequence of the idiosyncratic nature of the legal and institutional frameworks of different countries’ financial systems and the rarified knowledge required to analyze them. Few comparative histories of banking exist, and there are even fewer accessible works that might serve as an appropriate guide to nonspecialists interested in understanding the historical origins of modern banking systems.

Richard S. Grossman’s Unsettled Account: The Evolution of Banking in the Industrialized World Since 1800 presents just such an accessible and comparative history of banking. A professor of economics at Wesleyan University, Grossman, has made notable contributions to the literature on banking history over the years and has now produced an outstanding history that encompasses the experiences of a broad range of countries and offers insights drawn from common patterns he observes in those countries’ experiences.

Within the industrialized world, many different types of institutions perform functions that would fit within any reasonable definition of “banking.” Grossman focuses on incorporated commercial banks, thus excluding investment banks, private banks, and numerous other classes of financial intermediaries. This sacrifices some [End Page 385] important institutional details, particularly with regard to the analysis of the effects of banking regulations, which tend to spur the development of “shadow banks” outside of their reach, but it helps maintain a coherent, comparative focus—the money and credit markets of most countries have generally been dominated by the incorporated commercial banks at the heart of the book.

The book’s analysis begins with the founding of the earliest of these institutions—the Amsterdam Exchange Bank (1609) and Bank of Lending (1614), the Bank of Stockholm (1656), and the Bank of England (1694). These and other early commercial banks were endowed with exclusive, quasi-official powers, and were sometimes founded with the aim of raising funds for the government. They also maintained central positions in their countries’ banking markets, yet no doctrine or conception of “central banking” would exist for sometime. In addition, they were generally private, profit-maximizing institutions. The private and public roles of these institutions sometimes came into conflict, for example, in times of crisis when their powers to provide liquidity were not utilized fully, in order to protect their profit-making interests.

Over time, the exclusive powers of these institutions were found to limit the growth of banking services to an unacceptable extent, and other commercial banks were permitted to enter the business and compete, to at least a limited extent, with the original banks. Politics played an important role in this process; the Bank of England was able to extend its monopoly powers by making repeated loans to the government. Regulating these early commercial banks, and devising a means of enforcing those regulations, was also a learning process. The Bank of Stockholm, for example, was specifically prohibited from issuing banknotes in 1668 (after its initial charter was revoked in 1664 for doing just that) and yet its note issuance continued unabated.

Grossman organizes his analysis of the subsequent evolution of banking systems around what he calls “structure-altering” events: crises, bailouts, merger waves, and financial regulation, with separate chapters devoted to each. This gives the book a timely perspective and helps focus the analysis on questions that have become relevant in the wake of the recent financial crisis. These chapters present tables and graphs of data from a range of countries and offer persuasive accounts of the lessons that can be drawn from the common experiences of those countries. The discussion...

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