Abstract
Brine and Poovey’s history of finance charts the intellectual and institutional context of the American financial system over the twentieth century. Their key aim is to analyse the way in which the ‘real’ and ‘financial’ sides of the economy have been understood by academics and policy makers, and how these ideas flowed through to operation of the financial system.
The authors compare their work to other recent histories of finance – Goetzmann’s (2017) Money Changes Everything and Piketty’s (2013) Capital in the Twenty-First Century. Goetzmann’s sweeping history of finance and civilisation and Piketty’s data-driven indictment of the systems that perpetuate inequality are complemented by Brine and Poovey’s analytical discussion of the financial system. Brine and Poovey focussed primarily on ideas about how the financial world has been understood, and the way these ideas have integrated into policy and practice.
The first half of the book is dedicated to the period between 1896 and the start of World War II (WWII). Chapter 1 discusses the economic, social, institutional and business context of the early twentieth century, which is used in chapter 2 to inform discussions of US economic theorists at this time. Chapter 3 focusses on measuring the financial side of the economy, including efforts by researchers and policy-makers to systematically collect financial statistics in the lead up to World War I (WWI). In chapter 4, the authors discuss the interwar changes to the financial system, including how financial institutions became ‘objects of the nation’s collective fantasies, then targets of concern and legislative reform’ (p. 7). Chapters 5 and 6 focus on research used to try to understand the financial system around the time of the Great Depression, including the creation of the first national income datasets, and work on equity and fixed income.
The second half of the book focusses on the postwar finance discipline. Chapters 7 and 8 progress from interwar research to post-WWII modelling, analysing how this became the preferred method of economics and finance research. Postwar US Keynesianism and the development of Friedman’s Monetarist tradition dominate. Chapter 8 also links these theoretical developments to monetary and fiscal policy in the 1950s and 1960s. Chapters 9 and 10 tackle contemporary financial history, from 1970 to 2008. Chapter 9 examines the emergence of the modern finance discipline from within the economic discipline and charts the development of familiar finance theories such as capital asset pricing theory, the efficient market hypothesis and the random walk of stock prices. Chapter 10 concludes by examining the recent transformation of the US (and global) financial system. De-regulation, financial disintermediation and securitisation are said to have caused rapid growth in the financial sector, while also increasingly deviating from the models designed to guide economic policy. This is said to have contributed to the vulnerability of the financial system prior to the Global Financial Crisis (GFC).
This book is sharply analytic and a skilful synthesis of US financial theory. It is an excellent work of intellectual history, with the ideas of scholars embedded in the context in which they lived. The link between intellectual trends and government policy was particularly well done and is valuable for understanding the rationale behind institutional management of the financial sector.
The title of the book is somewhat misleading. This is not really a history of the US financial system but an analysis of the intellectual models and concepts used to understand and measure the system. It is a history of the finance discipline. Much like the ‘real’ and ‘financial’ sides of the economy, intellectual and historical developments in finance are intertwined. However, the focus of the authors disregards the institutional, political and technological developments that drove changes in the financial system. This context is generally glossed over in favour of analysing the influence of intellectual models on financial policy. This assumes, unconvincingly I believe, that intellectual developments were the main drivers of change. More work is needed to integrate this research with the other aspects of the history of US finance.
A smaller point sat uncomfortably with me. The authors deliberately did not use the term neoliberalism for fear of subjugating historical theory into current thinking. However, elsewhere the authors are quite happy to use jargon terms out of their original context. The discussion of Keynesianism in the post-WWII period is a good example. Addressing neoliberalism, particularly in the analysis of the period from 1970, would have been valuable.
The authors pitch this book at ‘earnest readers’, and this is true enough. The language is fairly technical, there is quite a bit of jargon and some assumed knowledge of economics and finance. This is understandable and probably necessary for a book that analyses the history of financial theory. While it is not sufficient, on its own, to gain a comprehensive understanding of the development of the financial system in America, it is an important contribution for those interested in tracing finance theory and its links with policy.