Finance Capitalism and Germany's Rise to Industrial Power

Based on a wide array of data collected by the author, this book uses clear theoretically motivated economic analysis to explain the structure, performance, and influence of universal banks and securities markets on firms during industrialisation. The German universal banks played a significant but not overwhelming role in the ownership and control of corporate firms. Banks gained access to boards via a confluence of their underwriting and brokerage activities, the legal phenomena of bearer shares and deposited voting rights, and the flourishing securities markets of the turn of the twentieth century. In general, bank relationships had little impact on firm performance; stock market listings, or ownership structure, were more important. The findings show that securities markets can thrive within a civil-law, universal-bank system and suggest that financial system complexity can favour rapid industrial expansion.

“Blending archival research with sophisticated econometrics, Fohlin provides a finely tuned view of universal banking. The book sheds new light on the links between financial structures and economic development while at the same time making a refined contribution to the debate on the varieties of capitalism. It is recommended reading not only for economic historians but for economists and political scientists as well.” -- Gianni Toniolo, Università di Roma Tor Vergata and Duke University, “The role of so-called universal banks as a driving force in German industrialization, 1850-1914, has long been a staple of economic history. Fohlin challenges this conventional wisdom by showing that Germany's vibrant stock markets complemented universal banks in providing finance to numerous firms. Bank dominance of company finance and the atrophy of German stock markets, she demonstrates, arose in the twentieth century rather than being, as we once were taught, a distinct 'German path' to industrialization before 1914.” -- Richard Sylla, New York University, “This book is an important contribution to the debate on the advantages and disadvantages of different types of financial systems. By looking at the German economy at the end of the nineteenth and beginning of the twentieth century, Professor Fohlin focuses on a period where it is widely believed that the German economy was successful. She is able to consider in a more detached way how much of this success is due to the structure of the financial system. The book's strength is based on Professor Fohlin's ability to use her knowledge of financial economics and history to analyze the issues. Her conclusion that most of the mechanisms of universal and relationship banking were adopted only late in the industrialization process and that they had little discernible effect on firms' performance is an important contribution.” -- Franklin Allen, Wharton School, University of Pennsylvania, “An impressive piece of work! Relying on extensive data collection and encompassing empirical analysis, Caroline Fohlin provides us with a new understanding of the role of banks in late-nineteenth-century Germany. The myth of relationship banking as the mainspring of Germany's rise to industrial power is thoroughly debunked – bank influence emerged after industrialization was well under way, and was much less pervasive than the myth would have it. Contrary to another one of these myths, Fohlin also shows that banks and markets need not be opposites. In pre-1913 Germany, the stock market was a source of power to banks – and flourished nonetheless. The reality of financial systems is richer than the myths.” -- Martin Hellwig, Max Planck Institute