Capitalism and Financial Development: The Case of Mortgage Markets in France, 1807–1899

Historical research can contribute to greater understanding of economic growth, but only if it proceeds without theoretical blinders and assumptions imposed by past definitions of capitalism. We will make this case, by taking one particular historical example—mortgage markets in nineteenth-century France—and analyzing the financial development that accompanied the rise of capitalism there. The French example demonstrates that there is an immense amount that historians and social scientists still do not know about economic growth or capitalism. One common assumption is that little financing takes place before big banks and other modern financial institutions arrive on the scene. No one, however, has ever tested this implicit assumption by estimating how much lending or other financial dealing occurred before the arrival of the banks and modern financial institutions in developed economies. Although scholars have studied financial dealings back into the Middle Ages or before, no one knows whether the sums involved were big or small. We do so and discover that the sums involved were enormous. That so much borrowing went on outside modern financial institutions raises serious doubts about the argument that connects financial development and economic growth. Our research also makes it clear that context was critical when entrepreneurs raised money in the early stages of economic growth or when young businesses or firms in new industries sought funds.