Liberal Financial Markets in the Interest of Staatskredite – A Process-Tracing Study of the Link between Sovereign Debt Policy and the 1908 Bourse Law Reform in the German Empire

This study of the reform of the German Bourse Law in 1908 argues that the “self-undermining negative policy feedback effects” of the initial Bourse Law of 1896 on the market for Imperial and state bonds explain why exchange regulation was liberalized although the dominant political forces, the Conservatives and the Clericals, were opposed to bourses and capital markets. Based on an original assessment of primary documents, the study uses the method of explaining-outcome process tracing to show that the initial Bourse Law caused losses to the Imperial government and the large banks; this induced both actors to remove the prohibition of speculation. Because the German Empire can be viewed as a kind of laboratory for (first) treatment effects on financial market regulation of the sovereign debt market, this study contains lessons for understanding the relationship between states and financial markets in general.