288 Ferguson and Schularick had been reduced by imperialism.The recent literature on the determi- nants of risk premia has centered on these other factors An alternative approach focuses on monetary policy rather than colo- nial status.Michael Bordo and Hugh Rockoff argued that adherence to the gold standard worked as a credible "commitment mechanism,"reas- suring investors that governments would not pursue time-inconsistent fiscal and monetary policies.Investors rewarded this binding policy commitment by charging-ceteris paribus-lower risk premia.The gold standard worked in this respect as a "Good Housekeeping seal of ap- proval."A commitment to gold convertibility,they calculate,reduced the yield on a country's bonds by around 40 basis points.20 Using a somewhat larger sample,Obstfeld and Taylor confirmed that gold stan- dard membership lowered spreads.21 In this analysis,therefore,it was membership of the informal and voluntary gold "club"rather than membership of the British Empire that lowered the yields paid by some emerging markets.As Obstfeld and Taylor conclude,"Membership in the British Empire was neither a necessary nor sufficient condition for preferential access to London's capital market before 1914.22 As a contingent commitment,however,membership in the gold stan- dard was nothing more than a promise of self-restraint under certain cir- cumstances.Independent countries on gold were not members of some kind of monetary union.They retained the right to suspend convertibil- ity in the event of an emergency such as a war,revolution,or a sudden deterioration in the terms of trade.Such emergencies were in fact quite common before 1914.Argentina,Brazil,and Chile all experienced seri- ous financial and monetary crises between 1880 and 1914.By 1895 the currencies of all three had depreciated by around 60 percent against sterling.This had serious implications for their ability to service their external debt,which was denominated in hard currency (usually ster- ling)rather than domestic currency. A second hypothesis is that investors were primarily interested in the fiscal policies of borrowing countries.Marc Flandreau and Frederic Zumer have recently suggested that the most important risk factors were public debts,the corresponding amount of debt service,and the relation between these burdens and tax revenues.3 They find that,once differ- ences in indebtedness are taken account of,gold standard adherence was insignificant.In addition,they present evidence that contemporary 19Bordo and Kydland,"Commitment Mechanism,"p.56;and Bordo and Schwartz,"Mone- tary Policy Regimes,"p.10. 0 Bordo and Rockoff,“Gold Standard,”p.327. 21 Obstfeld and Taylor,"Sovereign Risk,"p.253. 22Obstfeld and Taylor,"Sovereign Risk,"p.265. 2 Flandreau and Zumer,Making ofGlobal Finance;see also Flandreau et al,"Stability
288 Ferguson and Schularick had been reduced by imperialism. The recent literature on the determinants of risk premia has centered on these other factors. An alternative approach focuses on monetary policy rather than colonial status. Michael Bordo and Hugh Rockoff argued that adherence to the gold standard worked as a credible “commitment mechanism,” reassuring investors that governments would not pursue time-inconsistent fiscal and monetary policies.19 Investors rewarded this binding policy commitment by charging—ceteris paribus—lower risk premia. The gold standard worked in this respect as a “Good Housekeeping seal of approval.” A commitment to gold convertibility, they calculate, reduced the yield on a country’s bonds by around 40 basis points.20 Using a somewhat larger sample, Obstfeld and Taylor confirmed that gold standard membership lowered spreads.21 In this analysis, therefore, it was membership of the informal and voluntary gold “club” rather than membership of the British Empire that lowered the yields paid by some emerging markets. As Obstfeld and Taylor conclude, “Membership in the British Empire was neither a necessary nor sufficient condition for preferential access to London’s capital market before 1914.”22 As a contingent commitment, however, membership in the gold standard was nothing more than a promise of self-restraint under certain circumstances. Independent countries on gold were not members of some kind of monetary union. They retained the right to suspend convertibility in the event of an emergency such as a war, revolution, or a sudden deterioration in the terms of trade. Such emergencies were in fact quite common before 1914. Argentina, Brazil, and Chile all experienced serious financial and monetary crises between 1880 and 1914. By 1895 the currencies of all three had depreciated by around 60 percent against sterling. This had serious implications for their ability to service their external debt, which was denominated in hard currency (usually sterling) rather than domestic currency. A second hypothesis is that investors were primarily interested in the fiscal policies of borrowing countries. Marc Flandreau and Frédéric Zumer have recently suggested that the most important risk factors were public debts, the corresponding amount of debt service, and the relation between these burdens and tax revenues.23 They find that, once differences in indebtedness are taken account of, gold standard adherence was insignificant. In addition, they present evidence that contemporary 19 Bordo and Kydland, “Commitment Mechanism,” p. 56; and Bordo and Schwartz, “Monetary Policy Regimes,” p. 10. 20 Bordo and Rockoff, “Gold Standard,” p. 327. 21 Obstfeld and Taylor, “Sovereign Risk,” p. 253. 22 Obstfeld and Taylor, “Sovereign Risk,” p. 265. 23 Flandreau and Zumer, Making of Global Finance; see also Flandreau et al., “Stability
Empire Effect 289 economic thinking about default risk centered on debt sustainability and the soundness of public finances. A third determinant of risk premia may simply have been political events.According to Ferguson,revolutions,governmental crises and wars were regarded by nineteenth-century investors as increasing the likelihood of defaults by the countries affected.25 Finally,Clemens and Williamson have identified demographic characteristics,natural re- source endowment,and education as significant determinants of yield spreads.26 To determine whether or not membership in the British Empire genu- inely lowered borrowing costs,it is therefore imperative to control for these and other factors.British colonies may simply have been able to borrow at lower rates than other foreign countries because they were on the gold standard,had more sustainable fiscal policies,were less sus- ceptible to political crises,or were simply better situated relative to trade routes and temperate climatic zones. YIELD DATA AND ECONOMIC CONTROL VARIABLES We constructed the largest possible sovereign bond database for the period 1880-1913.Price data for government bonds quoted and traded in the London market were copied by hand from the leading financial publication of the time,the Investor's Monthly Manual.Some addi- tional quotations were taken from the London Stock Exchange Weekly Intelligence,the London Stock Exchange's official weekly gazette.The bonds chosen had to pass three strict criteria to qualify as benchmark is- sues.First,they had to be payable in London in either sterling or gold, enabling us to focus exclusively on country risk and to ignore the cur- rency risk inherent in bonds denominated in other currencies.7 Secondly, 24 Unfortunately,it cannot be excluded that different gold coding is responsible for the in- compatible results.Flandreau and Zumer,Making of Global Finance,used a de facto criterion, i.e.,exchange rate stability over a couple of years,whereas Obstfeld and Taylor,"Sovereign Risk,"looked both at de jure and de facto criteria,following Meissner,"New World Order." 25 See Ferguson,Cash Nexus and"Political Risk." 26 Clemens and Williamson,"Wealth Bias,"table 7,p.322.The authors see colonial status as toreminate Fne d mym opea m mies that issued debt in domestic currency only.The(in)ability of countries to borrow interna- tionally in domestic currency has been explored in detail in the "original sin"literature;see Bordo,Meissner,and Redish,"Original Sin";and Flandreau and Sussman,"Old Sins."For the United States we followed Bordo and Rockoff,"Gold Standard,"by using gold equivalent yields instead of dollar yields.The terms of repayment of U.S.government debt were in doubt: after 1879,all government debt was to be payable in coin-technically silver or gold,but in practice gold.It was not until 1910 that gold was legally declared the only medium of repay- ment in the United States
Empire Effect 289 economic thinking about default risk centered on debt sustainability and the soundness of public finances.24 A third determinant of risk premia may simply have been political events. According to Ferguson, revolutions, governmental crises and wars were regarded by nineteenth-century investors as increasing the likelihood of defaults by the countries affected.25 Finally, Clemens and Williamson have identified demographic characteristics, natural resource endowment, and education as significant determinants of yield spreads.26 To determine whether or not membership in the British Empire genuinely lowered borrowing costs, it is therefore imperative to control for these and other factors. British colonies may simply have been able to borrow at lower rates than other foreign countries because they were on the gold standard, had more sustainable fiscal policies, were less susceptible to political crises, or were simply better situated relative to trade routes and temperate climatic zones. YIELD DATA AND ECONOMIC CONTROL VARIABLES We constructed the largest possible sovereign bond database for the period 1880–1913. Price data for government bonds quoted and traded in the London market were copied by hand from the leading financial publication of the time, the Investor’s Monthly Manual. Some additional quotations were taken from the London Stock Exchange Weekly Intelligence, the London Stock Exchange’s official weekly gazette. The bonds chosen had to pass three strict criteria to qualify as benchmark issues. First, they had to be payable in London in either sterling or gold, enabling us to focus exclusively on country risk and to ignore the currency risk inherent in bonds denominated in other currencies.27 Secondly, 24 Unfortunately, it cannot be excluded that different gold coding is responsible for the incompatible results. Flandreau and Zumer, Making of Global Finance, used a de facto criterion, i.e., exchange rate stability over a couple of years, whereas Obstfeld and Taylor, “Sovereign Risk,” looked both at de jure and de facto criteria, following Meissner, “New World Order.” 25 See Ferguson, Cash Nexus and “Political Risk.” 26 Clemens and Williamson, “Wealth Bias,” table 7, p. 322. The authors see colonial status as significant but less important than these nonpolitical variables. Ibid., p. 319, regressions 6 to 8. 27 This forced us to eliminate France and Germany as well as some smaller European economies that issued debt in domestic currency only. The (in)ability of countries to borrow internationally in domestic currency has been explored in detail in the “original sin” literature; see Bordo, Meissner, and Redish, “Original Sin”; and Flandreau and Sussman, “Old Sins.” For the United States we followed Bordo and Rockoff, “Gold Standard,” by using gold equivalent yields instead of dollar yields. The terms of repayment of U.S. government debt were in doubt: after 1879, all government debt was to be payable in coin—technically silver or gold, but in practice gold. It was not until 1910 that gold was legally declared the only medium of repayment in the United States
290 Ferguson and Schularick TABLE 1 SUMMARY STATISTICS OF YIELD DATA.1880-1913 (yield,percent per annum) Observations Mean St.Dev. Minimum Maximum All borrowers 1,461 5.39 2.86 2.86 22.33 Independent countries 909 6.30 3.30 2.97 22.33 Empire borrowers 552 3.89 0.43 2.86 6.35 Sources:Data appendix at http://fas.harvard.edu/--history/facultyPage.cgi?fac-ferguson the selected bonds had to be issued in large volumes and actively traded.Finally,the bonds needed to be long-term,typically of a matur- ity of over ten years,and to have quotations for at least three consecu- tive years. The resulting dataset includes securities from 57 independent coun- tries,colonies,and self-governing parts of the British Empire:in other words,almost the entire universe of foreign borrowing in the London market,reaching not only "from the Cape to Cairo"but also from Bos- ton to Buenos Aires and from Budapest to Beijing.8 The rationale for constructing such a broad sample was to avoid the regional biases that characterized previous studies.Bordo and Rockoff used observations for just ten countries,all either European or American.The two most recent investigations of pre-1914 bond yields by Obstfeld and Taylor and by Flandreau and Zumer were based on samples of around 20 coun- tries.The samples in both cases were predominantly European and American.Quite clearly it is difficult to form robust conclusions about the significance of colonial status without including data for at least some Asian and African countries. Table 1 shows the summary statistics for our current yield series.30 In total,we count about 1,450 observations,roughly 900 for independent countries from Europe,America,Asia,and Africa and about 550 for is- suers from the British Empire,drawn from these four continents as well as Australasia.Immediately obvious from the yield data is the signifi- cantly lower average yield of Empire borrowers (3.89 percent)com- pared with the yields of independent countries(6.30 percent). 28 The complete list of countries and colonies can be found in the data appendix.The coun- tries that were excluded despite the availability of loan quotations fulfilling our criteria were Bolivia,Costa Rica,Paraguay,Honduras,and Cuba as well as some small island empire bor- rowers such as Barbados and Trinidad,mostly for lack of economic control variables. 29 Bordo and Rockoff,“Gold Standard..” 3 We decided to exclude about 20 observations with yields of more than 20 percent,virtually all these refer to Latin American loans that had been in full default for many years.The Annual Reports of the Corporation of Foreign Bondholders indicated that investors reckoned that full repayment was most unlikely in these cases
290 Ferguson and Schularick TABLE 1 SUMMARY STATISTICS OF YIELD DATA, 1880–1913 (yield, percent per annum) Observations Mean St. Dev. Minimum Maximum All borrowers 1,461 5.39 2.86 2.86 22.33 Independent countries 909 6.30 3.30 2.97 22.33 Empire borrowers 552 3.89 0.43 2.86 6.35 Sources: Data appendix at http://fas.harvard.edu/~history/facultyPage.cgi?fac=ferguson. the selected bonds had to be issued in large volumes and actively traded. Finally, the bonds needed to be long-term, typically of a maturity of over ten years, and to have quotations for at least three consecutive years. The resulting dataset includes securities from 57 independent countries, colonies, and self-governing parts of the British Empire: in other words, almost the entire universe of foreign borrowing in the London market, reaching not only “from the Cape to Cairo” but also from Boston to Buenos Aires and from Budapest to Beijing.28 The rationale for constructing such a broad sample was to avoid the regional biases that characterized previous studies. Bordo and Rockoff used observations for just ten countries, all either European or American.29 The two most recent investigations of pre-1914 bond yields by Obstfeld and Taylor and by Flandreau and Zumer were based on samples of around 20 countries. The samples in both cases were predominantly European and American. Quite clearly it is difficult to form robust conclusions about the significance of colonial status without including data for at least some Asian and African countries. Table 1 shows the summary statistics for our current yield series.30 In total, we count about 1,450 observations, roughly 900 for independent countries from Europe, America, Asia, and Africa and about 550 for issuers from the British Empire, drawn from these four continents as well as Australasia. Immediately obvious from the yield data is the significantly lower average yield of Empire borrowers (3.89 percent) compared with the yields of independent countries (6.30 percent). 28 The complete list of countries and colonies can be found in the data appendix. The countries that were excluded despite the availability of loan quotations fulfilling our criteria were Bolivia, Costa Rica, Paraguay, Honduras, and Cuba as well as some small island empire borrowers such as Barbados and Trinidad, mostly for lack of economic control variables. 29 Bordo and Rockoff, “Gold Standard.” 30 We decided to exclude about 20 observations with yields of more than 20 percent, virtually all these refer to Latin American loans that had been in full default for many years. The Annual Reports of the Corporation of Foreign Bondholders indicated that investors reckoned that full repayment was most unlikely in these cases
Empire Effect 291 Older research on financial investment in the age of high imperialism looked only at raw yield data,thus leaving open the possibility that lower colonial spreads were a function of better economic "fundamentals" rather than the explicit or implicit guarantees to investors stemming from empire membership.The only way to say for sure that there was an em- pire effect is therefore to regress yield spreads against an appropriate range of additional control variables.The obvious question is which vari- ables to include.In our view,there are powerful methodological objec- tions to the inclusion of anachronistic indicators such as debt to GDP ra- tios.32 Self-evidently,people usually do not base their actions upon concepts that have not yet been invented or upon figures nobody yet cal- culates.33 Rather,if we want to determine how nineteenth-century inves- tors made their decisions,we need to model their behavior deductively on the basis of the data that were available to them at that time.34 The economic data were collected from primary and secondary sources.5 As anyone familiar with the financial press of the period knows, there was a plethora of publications available to investors.Standard refer- ence publications such as Fenn's Compendium,the Investor's Monthly Manual (henceforth IMM),the Stock Exchange Weekly Intelligence and the Corporation of Foreign Bondholders Annual Reports collected and ana- lyzed statistical data on government borrowers in a manner not unlike that of the handbooks on equity investments pioneered by Moody's in the United States.In addition to this dedicated financial press,there was a rap- idly growing number of more general statistical publications.3 31 See Davis and Huttenback,Mammon;and Edelstein,Overseas Investment and"Imperialism." 32 Bordo and Rockoff,"Gold Standard";and Obstfeld and Taylor,"Sovereign Risk." 3This point was advanced in Ferguson and Batley,"Event Risk"and in Ferguson,Cash Nexus,pp.285f.For a more recent development of this theme,see Flandreau and Zumer,Mak- ing ofGlobal Finance,pp.30-35. This is a practical as well as methodological issue.A lot of financial investment went to countries for which no modern GDP reconstructions exist.A more practical problem discussed in greater detail in Schularick,"Two Globalizations,"is the limited comparability of the GDP reconstructions. 35 Special gratitude is due to Trish Kelly,Peabody College,Vanderbilt University,for sharing unpublished data collected from the Corporation of Foreign Bondholders'Annual Reports.Addi- tional data were gathered from historical collections,mainly from the three volumes by Mitchell, Historical Statistics,if the figures were also available to historical investors.For some indicators, we made use of Arthur Banks's Cross-National Time Series Database.Professor Banks confirmed to us in mail correspondence that all pre-1913 indicators we used for our study were originally collected from The Statesman's Yearbook.For some countries,we were happy to rely on material collected by Michael Bordo,Chris Meissner,Maurice Obstfeld,Hugh Rockoff,Nathan Sussman, and Alan Taylor.Despite this collective effort,some gaps in the dataset remained. 36 Having spent considerable time on the collection of late-nineteenth and early-twentieth- century economic data,we found the quantity of indicators available to contemporary investors to be less of a problem than their mixed quality.Indeed,for most countries we found more than one series for the same indicator.Although it was rare that two series turned out to be com- pletely incompatible,differences of the order of 10 percent were not uncommon.The story the
Empire Effect 291 Older research on financial investment in the age of high imperialism looked only at raw yield data, thus leaving open the possibility that lower colonial spreads were a function of better economic “fundamentals” rather than the explicit or implicit guarantees to investors stemming from empire membership.31 The only way to say for sure that there was an empire effect is therefore to regress yield spreads against an appropriate range of additional control variables. The obvious question is which variables to include. In our view, there are powerful methodological objections to the inclusion of anachronistic indicators such as debt to GDP ratios.32 Self-evidently, people usually do not base their actions upon concepts that have not yet been invented or upon figures nobody yet calculates.33 Rather, if we want to determine how nineteenth-century investors made their decisions, we need to model their behavior deductively on the basis of the data that were available to them at that time.34 The economic data were collected from primary and secondary sources.35 As anyone familiar with the financial press of the period knows, there was a plethora of publications available to investors. Standard reference publications such as Fenn’s Compendium, the Investor’s Monthly Manual (henceforth IMM), the Stock Exchange Weekly Intelligence and the Corporation of Foreign Bondholders Annual Reports collected and analyzed statistical data on government borrowers in a manner not unlike that of the handbooks on equity investments pioneered by Moody’s in the United States. In addition to this dedicated financial press, there was a rapidly growing number of more general statistical publications.36 31 See Davis and Huttenback, Mammon; and Edelstein, Overseas Investment and “Imperialism.” 32 Bordo and Rockoff, “Gold Standard”; and Obstfeld and Taylor, “Sovereign Risk.” 33 This point was advanced in Ferguson and Batley, “Event Risk”; and in Ferguson, Cash Nexus, pp. 285f. For a more recent development of this theme, see Flandreau and Zumer, Making of Global Finance, pp. 30–35. 34 This is a practical as well as methodological issue. A lot of financial investment went to countries for which no modern GDP reconstructions exist. A more practical problem discussed in greater detail in Schularick, “Two Globalizations,” is the limited comparability of the GDP reconstructions. 35 Special gratitude is due to Trish Kelly, Peabody College, Vanderbilt University, for sharing unpublished data collected from the Corporation of Foreign Bondholders’ Annual Reports. Additional data were gathered from historical collections, mainly from the three volumes by Mitchell, Historical Statistics, if the figures were also available to historical investors. For some indicators, we made use of Arthur Banks’s Cross-National Time Series Database. Professor Banks confirmed to us in mail correspondence that all pre-1913 indicators we used for our study were originally collected from The Statesman’s Yearbook. For some countries, we were happy to rely on material collected by Michael Bordo, Chris Meissner, Maurice Obstfeld, Hugh Rockoff, Nathan Sussman, and Alan Taylor. Despite this collective effort, some gaps in the dataset remained. 36 Having spent considerable time on the collection of late-nineteenth and early-twentiethcentury economic data, we found the quantity of indicators available to contemporary investors to be less of a problem than their mixed quality. Indeed, for most countries we found more than one series for the same indicator. Although it was rare that two series turned out to be completely incompatible, differences of the order of 10 percent were not uncommon. The story the
292 Ferguson and Schularick The subtitle of the 1898 edition of Fenn's Compendium,the self- proclaimed "doyen of all financial books of reference,"neatly summa- rizes what economic indicators the City of London had access to:it was "a handbook of public debts containing details and histories of debts, budgets and foreign trade of all nations,together with statistics elucidat- ing the financial and economic progress and position of various coun- tries."37 In many respects,the main problem for contemporaries was not so much the raw data in the numerator-whether public debts,debt ser- vice charges,or exports-but the denominator.In the absence of a di- rect measure of a nation's output such as gross national product,a con- cept then its infancy,it was far from easy to compare the fundamental resources of different countries.Population was generally acknowl- edged to be an unreliable choice,though it had the advantage of being readily available,thanks to fairly regular and accurate censuses,and was often used to denominate export capacity.However,in more so- phisticated analyses of fiscal sustainability,the debt burden tended to be related to public revenues or to export earnings.3 The same was true of budget and trade balances. Drawing on the records of the Service d'Etudes Financieres of the Credit Lyonnais,Flandreau and Zumer have suggested that debt service to revenue was the contemporary indicator that best measured the cred- itworthiness of borrowers.39 However,for a number of reasons we chose to stick to the more traditional debt to revenue ratio.First,in con- temporary statistical publications,the overall debt burden was far more frequently given,and was also,it seems,less frequently subject to revi- sions.Secondly,as the debt service itself is determined by the interest rate,it is questionable whether it should be used as an independent vari- able to estimate the interest rate.Nevertheless,we can also work with debt service data for a far larger number of countries than previous stud- ies and will show that our key findings do not depend on the choice of a particular fiscal measure. Another indicator watched by contemporaries was the budget deficit to revenue ratio.As Cain and Hopkins have argued,the principles of "Gladstonian finance"-which aimed at budget surpluses during peace- sources tell is that of a market driven not so much by short-term economic information,but by knowledge of long-term structural trends supplemented by short-term political news from which npt e tor coyindicator Be- vised editions of Fenn's Compendium were published in 1883,1889,1893,and 1898.Unfortu- nately,the series was then discontinued,apparently because the main contributor,Robert Nash, emigrated to Australia. For a further discussion of contemporary risk analysis see Flandreau and Zumer,Making of Global Finance. 3 Flandreau and Zumer,Making of Global Finance,p.31
292 Ferguson and Schularick The subtitle of the 1898 edition of Fenn’s Compendium, the selfproclaimed “doyen of all financial books of reference,” neatly summarizes what economic indicators the City of London had access to: it was “a handbook of public debts containing details and histories of debts, budgets and foreign trade of all nations, together with statistics elucidating the financial and economic progress and position of various countries.”37 In many respects, the main problem for contemporaries was not so much the raw data in the numerator—whether public debts, debt service charges, or exports—but the denominator. In the absence of a direct measure of a nation’s output such as gross national product, a concept then its infancy, it was far from easy to compare the fundamental resources of different countries. Population was generally acknowledged to be an unreliable choice, though it had the advantage of being readily available, thanks to fairly regular and accurate censuses, and was often used to denominate export capacity. However, in more sophisticated analyses of fiscal sustainability, the debt burden tended to be related to public revenues or to export earnings.38 The same was true of budget and trade balances. Drawing on the records of the Service d’Études Financières of the Crédit Lyonnais, Flandreau and Zumer have suggested that debt service to revenue was the contemporary indicator that best measured the creditworthiness of borrowers.39 However, for a number of reasons we chose to stick to the more traditional debt to revenue ratio. First, in contemporary statistical publications, the overall debt burden was far more frequently given, and was also, it seems, less frequently subject to revisions. Secondly, as the debt service itself is determined by the interest rate, it is questionable whether it should be used as an independent variable to estimate the interest rate. Nevertheless, we can also work with debt service data for a far larger number of countries than previous studies and will show that our key findings do not depend on the choice of a particular fiscal measure. Another indicator watched by contemporaries was the budget deficit to revenue ratio. As Cain and Hopkins have argued, the principles of “Gladstonian finance”—which aimed at budget surpluses during peace- sources tell is that of a market driven not so much by short-term economic information, but by knowledge of long-term structural trends supplemented by short-term political news from which investors apparently inferred fiscal and monetary policy changes. 37 Fenn’s Compendium is probably the best overall source for country-risk indicators. Revised editions of Fenn’s Compendium were published in 1883, 1889, 1893, and 1898. Unfortunately, the series was then discontinued, apparently because the main contributor, Robert Nash, emigrated to Australia. 38 For a further discussion of contemporary risk analysis see Flandreau and Zumer, Making of Global Finance. 39 Flandreau and Zumer, Making of Global Finance, p. 31