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What does finance do? A comparative and historical perspective, 1850-2020

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  • Krystian Bua
  • Giovanni Dosi
  • Maria Enrica Virgillito

Abstract

This paper develops a functional and historical appraisal of finance. We start by proposing a taxonomy of three core, theory-driven functions of the financial system—intermediation, entrepreneurial, and accumulative—that coevolve throughout the history of capitalism. We build an empirical counterpart of the theoretical taxonomy by constructing a new comparative long-run database covering Western Europe and the United States over 171 years of modern economic history. New measures of the long-run evolution and functional specialization of finance are derived, accounting for the functional shift of finance from intermediation and credit creation to market-based accumulation over the long-run. Functional homogenization toward a market-based accumulation motive has occurred over time and across countries, highlighting the predominant mode of the current face of finance.

Suggested Citation

  • Krystian Bua & Giovanni Dosi & Maria Enrica Virgillito, 2026. "What does finance do? A comparative and historical perspective, 1850-2020," LEM Papers Series 2026/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2026/01
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