Niall Ferguson came up from Stanford yesterday, not to give one of his epater les bien-pensants de la gauche shock talks but to report on his forthcoming biography of mid-twentieth century Anglo-German financier Siegmund Warburg. Niall wanted to talk about finance: the origins in the 1960s of London's Euromarkets.
In the occasional writings of contemporary historians and of economists in the United States, and in the folk memory of American institutions and bureaucracies, the Euromarkets were born in a successful pirate raid on Wall Street. The Euromarkets provided an avenue for borrowers and lenders to engage in tax avoidance and tax evasion, and to escape the regulatory net. But, so the story goes, the City of London and its regulators did not care: the lost taxes were the problem of the American IRS, and any systemic risk created in the unregulated Euromarket was the problem of the American Federal Reserve. The Euromarkets boosted employment and income in the City of London, and raised the prestige of the British Treasury and Bank of England that could once again play host to major dealings in finance. Things were touch and go until the U.S. made the short-sighted mistake of imposing the interest equalization tax, and then Siegmund Warburg and company got their Letter of Marque and Reprisal from the British authorities, hoisted the Jolly Roger, and set out to relocate business that ought to have been New York's to London.
Niall wants to focus on Siegmund Warburg's other motives for building the Euromarkets. The first is as an aid to boosting Europe's wealth: the growing scale of modern industry required that enterprises have the ability to draw on more than their national pool of potential savings if they were to build up to efficient scale. The Euromarkets provided access to this broader, deeper pool.
The second is more interesting: Warburg's belief that the Euromarkets would enhance European integration, and strengthen the forces pushing for European unity. In these new days, we are supposed to say that he hoped to build a transnational social network. In the old days, we would say that his project was the construction of a self-organized conscious class fraction: the global (or at least pan-European) international haut bourgeoisie.
The argument seems reminiscent in some ways of arguments made by Karl Polanyi, and even Norman Angell.
It is clear that this is one thing that Siegmund Warburg thought he was doing. But did it matter much? That is a harder question, to which I do not know the answer.
Niall Ferguson (2004), "Siegmund Warburg, the City, and the Financial Roots of European Integration" (Stanford).
Posted by DeLong at November 7, 2004 06:22 PM | TrackBackGood to see that Fergie is back to doing primary research, as he'd promised, now that he's at Harvard and has cemented his occasional role on the AEI lecture circuit. There are many people who have huge critical differences with him on his German-finance work, but there's no doubt that it's his speciality, as opposed to his media-friendly stuff on empire, which betrays a naivety about American politics and history.
Posted by: nick at November 8, 2004 11:26 PMEnglish law, or, rather, the way in which it is implemented must surely have favoured London over any other continental capital. English courts are expensive, but go for the substance over the form and do so rather quickly. There was never any doubt, either, that the English language was going to be the financial lingua franca. Now, though, that the job of integrating European and, even, world financial markets is done, we can appreciate the work of Warburg. We have not seen, since the early 80's, the kind of politically-motivated economic warfare, that is high tariffs, competitive devaluations, trade boycotts and the like. Governments, of course, seem to have decided to heed the markets more in this period. But, also, it helped that the markets had the haute bourgeoisie in command at that time and that the haute bourgeoisie was so internationally-minded. The democratisation of financial markets will put the whole edifice of international finance to the test in coming years. Coupled with the US budget and trade imbalance, this could be the chief challenge to the world financial system as we know it. We can only hope that China and India can, in their turn, give the world the Keyneses, the Harry Dexter Whites and the Volckers as well as the Warburgs it will need. The early signs are that they will for their own sakes' and the world's, too.
Posted by: George J. Georganas at November 9, 2004 12:15 AM