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Assessing the Impact of World War I on the City of London

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  • Sarah Cochrane

Abstract

The interwar years saw the rise of New York to challenge London as the world's leading provider of financial services. This paper will show that the current explanations fail to identify a key factor in New York's rise. The City was prevented from operating a full capacity by a capital issues embargo, imposed by the Bank of England to support the pound. As a result, New York was able to enter the sector with little competition from London, and expand rapidly to issue over half of the global capital exported abroad in the 1920s. Without the embargo, this would not have been possible, as the London merchant banks were the most productive producers in the industry, a position built up over the previous half century. This result challenges the consensus that the return to gold was good for the City. The merchant banks suffered and lost business, suggesting that this policy was even more disastrous than is currently thought.

Suggested Citation

  • Sarah Cochrane, 2009. "Assessing the Impact of World War I on the City of London," Economics Series Working Papers 456, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:456
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper456.pdf
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    References listed on IDEAS

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    1. Alan M. Taylor, 2003. "Foreign Capital in Latin America in the Nineteenth and Twentieth Centuries," NBER Working Papers 9580, National Bureau of Economic Research, Inc.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    4. Nicholas Crafts, 1998. "Forging Ahead and Falling Behind: The Rise and Relative Decline of the First Industrial Nation," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 193-210, Spring.
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    More about this item

    Keywords

    Financial services; City of London; WWI; CGE simulations;

    JEL classification:

    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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