CHAPTER 25 HISTORICAL SOCIOLOGY OF MODERN FINANCE 現代金融學的歷史社會學

BRUCE G. CARRUTHERS

Most historical sociologists have studied large-scale phenomena like social revolutions, welfare states, industrialization, class formation, social inequality, nationalism, state formation, and world systems (Adams, Clemens, and Orloff 2004). Not many showed an interest in finance (Arrighi 2010 is a rare exception). Perhaps finance was deemed epiphenomenal, or regarded as simply too boring and technical to warrant examination. Perhaps historical sociologists were not adventurous enough to encroach on the intel­lectual territory of financial economics. Recent developments, however, have kindled sociological interest in financial topics. Indeed, there are few events that so concentrate popular or scholarly minds, or that feature as prominently in historical narratives, as financial crises. Episodes like the South Sea and Mississippi bubbles of 1720, and the panics and crashes of 1837, 1873, 1907, and 1929 all precipitated recessions, popular commentary, and political interventions. In their aftermath, people reflected on the madness of crowds and the instability of value, and enacted new policies to ensure that such events did not happen again. Much the same was true of the crisis of 2008.

Although crashes dazzle and collapses capture attention, there are other financial insti­tutions and processes that warrant sociological analysis. One simple reason is that, in some fashion or other, finance enters into many sociological topics. Numerous scholars study inequality, for example, and access to credit forms one basis for social advantage. Others study state formation, and find that fiscal machinery provides crucial support for rulership, military conquest, and social provision. Conversely, social revolutions and state collapses are often preceded by fiscal crises. Countries pursuing economic development often use credit as a policy instrument, and so financial institutions figure in strategies to achieve long-term economic growth. Expanding international capital flows are also a key feature of globalization, and international financial institutions like the International Monetary Fund (IMF) have been accused of undermining the sovereignty of the nation-state. In one way or another, finance is seldom more than a step away from core sociological concerns.

When viewed over the long term, financial history is indeed visibly punctuated by the drama of crisis. But financial history also possesses a longue duree undergirded by slower moving structures and institutions. Subprime mortgages figure prominently in recent events, but much of the institutional machinery that animates US home mortgage lend­ing dates from the New Deal era. Some development economists (e.g., de Soto 2000) argue that mortgages for small landholders in today’s developing countries would help poor people to obtain credit and unleash economic growth, but the mortgage itself is a very old contractual device, dating back many centuries in the common law tradition (Simpson 1986: 141). The recent crisis featured a variety of strange objects like credit default swaps, collateralized debt obligations, asset-backed securities, and other finan­cial derivatives, and some have assumed that these were all monstrous creations of recently deregulated financial markets. In fact, derivatives stem from the seventeenth century, and traders on the London or Amsterdam stock markets would have under­stood an option or futures contract (Murphy 2009: 24-30). In the twentieth century, installment loans in the US helped turn the automobile from a luxury item into a mass market good, but installment lending was actually invented in the nineteenth century to help sell durable consumer goods like pianos, sewing machines, and encyclopedias. Financial history features many devices, methods, and techniques that develop in one context and then spread across time and space.

In this chapter I will use an historical perspective to consider that which historical sociologists have mostly overlooked — finance. I shift attention away from the most visi­ble events, namely bubbles and crises, and toward underlying institutions and processes. I will point out how, in its historical development, finance challenges many of the simple dichotomies used to think about the economy. Financial history is vast and complicated, so I must be selective in my focus. I focus mostly on Anglo-American finance, foregoing many interesting and important topics. But I make three general points. 
First, that pri­vate financial institutions have been deeply affected by public finance in a number of ways. 
Second, that both private and public regulation have shaped finance, with effects that vary substantially over time and between different countries. 
Third, that finance directly connects to core sociological concerns, such as the study of inequality.
1.公共財政在若干方面已經深刻影響到民營金融機構。
2.公民營法令規定隋著時間過去及國家間巨大差異的影響而形成金融
3.金融直接連接到核心的社會學問題，如不平等的研究

Public finance公共財政

Contemporary discussions view the state and the market as rivals. According to neolib­eral doctrine, heavy public taxation curtails market activity, public borrowing “crowds out” private borrowing, and public regulation constrains the “natural” operation of pri­vate markets. The relationship between public and private appears zero sum: more for one sphere means less for the other. And yet, the historical record reveals an important interdependence, even symbiosis, between private and public finance. The development of private financial institutions has been deeply affected by the financial imperatives of the state.
當代討論認為國家和市場是競爭對手的關係。據新自由主義原則，重公共稅收會限制市場活動，公部門借款“擠壓”私部門借款，公部門監管約束私部門的“自然”運行。公部門和私部門之間的關係似乎是零和：一個領域多意味另一邊就少。然而，歷史記錄顯示的是，私部門和公部門是相互依存，甚至是共生的。民營金融機構的發展一直都深受國家金融規則的影響。

Among other things, states tax, borrow, and spend. Their fiscal activities are backed by their monopoly (or at least comparative advantage) over the means of coercion. In fact, as Charles Tilly pointed out (1990), nation-states in early modern Europe devel­oped through an interdependent dynamic of war-making and revenue extraction: taxes paid for war, and coercive capacity helped to raise taxes. But states also stimulated the development of financial institutions like banks and stock markets, in part because of how these could support public finance. Adam Smith famously referred to the Bank of England as a “great engine of state” because the Bank was founded in 1694 on the basis of a £1.2 million loan to the English government. The Bank subsequently became one of the central institutions in London’s financial market, and continues to be so today, but it was established chiefly to help the government resolve its financial problems (Carruthers 1996) .  Furthermore, the shares which the Bank issued to raise the loan capital were traded on the stock market and stimulated its development. So did the shares of the other large joint stock companies established on the same basis of long-term loans to the government (e.g., New East India Company and South Sea Company). In each case, the company was given a corporate charter in exchange for a loan.
除此之外，國家的稅收，借貸和支出。他們的財政活動以其壟斷性（或至少比較優勢）的方式來支援他們的財政政策。事實上，正如查理斯提莉指出（1990），早期現代歐洲民族國家的發展­通過一個相互依存的動態戰爭的決策和收益的提取：支付戰爭稅，和矯頑力有助於提高稅收。但國家也刺激了金融機構，如銀行和股票市場的發展，部分原因是如何支援公共財政。亞當史密斯曾稱英國銀行作為“國家大引擎”，銀行於1694年以£1,200,000貸款給英國政府作為成立基礎。銀行隨後成為倫敦金融市場的中樞機構，並延續到了今天，但它成立主要是幫助政府解決其財務問題（卡拉瑟斯1996）。此外，銀行發行的股票，以提高貸款資金進行交易的股票市場，刺激了其發展。因此，在同一基礎上建立的另一家大型股份制企業的股份，例如，東印度公司和南海公司）。在每一種情況下，該公司被授予一個企業特許項目以換取貸款。

Sovereign debt often defines standards in financial markets. In contemporary mar­kets, US Treasury bonds set the benchmark for a (virtually) riskless investment, and the interest rates paid on alternative investments diverge from there. Sometimes contractual forms are made especially salient by their use in sovereign debt, and then diffuse more broadly as investors become familiar with them. For example, annuities and tontines (a type of group annuity) were used to borrow in the seventeenth and eighteenth centuries by the governments of Holland, France, and Britain (Tracy 1985; Weir 1989), and the practicalities of pricing and designing these financial contracts spurred the develop­ment of actuarial mathematics (Hacking 1975: 112-15). Eventually, actuarial methods provided the calculative foundation for insurance, risk management, and other related financial activities, including the definition and estimation of risk and return (Clark 1999; Porter 1986: 18-19). Overall, sovereign borrowing helped to standardize some of the basic concepts, contracts, and devices that came to populate financial markets.

In the era before general laws of incorporation, many corporations undertook a par­ticular kind of exchange with their sovereign polities. Corporations received special rights through special legislative acts, but were expected to contribute, in some manner, to the common good. American financial institutions in the nineteenth century fre­quently received their charters from state, not Federal, government. In exchange, they might have to invest in state bonds, or state mortgages, in effect making loans to state government or to farmers. The same pattern emerged during the Civil War, when the Union government established the National Banking System. Nationally chartered banks could be created by investors who purchased Union government bonds, and then could issue paper currency backed by those bonds. The measure was a success in the dual sense that many national banks were established, and the Union government was able to finance its war-driven deficit (Bensel 1990: 163, 172). The financial interests of the government directly stimulated the creation of a new system of banks, which subse­quently provided more reliable financial services to the US economy.

Later changes in public borrowing inadvertently created new tools for monetary pol­icy. As envisioned at its founding in 1913, the primary policy instrument of the Federal Reserve System was to be the discount window: a channel through which member banks could obtain emergency financing by “rediscounting” commercial paper. As an instru­ment, it embodied the central banking philosophy famously articulated by Walter Bagehot: that during a financial crisis the central bank should serve as the lender of last resort, lending freely but at a high interest rate. By raising or lowering the interest rate it charged (the “discount rate”), the Federal Reserve could influence money market condi­tions. But World War I intervened before the Federal Reserve actually did much, and by the time it resumed operations after the war, American monetary conditions had been transformed by the massive borrowing undertaken by the Federal government. The financial system was awash in Federal debt. The widespread possession of US Treasury securities by member banks created the possibility for another policy instrument: open market operations. Gradually, the Federal Reserve realized that by purchasing and sell­ing Treasury securities, it could raise or lower the excess reserves held by member banks and influence their lending operations. Lowering the discount rate and purchasing Treasury securities provided a double financial stimulus to the economy.

Sovereign borrowing has always posed unique legal and political problems. Will a sovereign borrower keep its promise to repay? Sovereign governments cannot be sued in a court of law as if they were ordinary debtors, and by extending a loan, sovereign creditors enter into a relationship that can be as much political as it is economic (sover­eign creditors acquire an interest in the political survival of the regime to which they lend). According to North and Weingast (1989), sovereign borrowers can more credibly commit to repay their loans when they share political power with those from whom they borrow. By sharing power with parliament after the Glorious Revolution of 1689, British monarchs found it easier to borrow because national debts were “backed” by par­liament. This argument works, however, only for domestic lenders. Foreign lenders are not regular members of the polity whose consent bolsters the credibility of sovereign debts. Instead, foreign creditors condition their willingness to lend on the reputation of a particular sovereign debtor (Tomz 2007). Creditors refuse to lend to borrowers with bad reputations, and their willingness to do so provides an incentive for borrowers to repay. Foreign creditors can impose other sanctions as well, and their ability to cooper­ate among themselves enhances the effectiveness of those sanctions. Modern sovereign debtors have also been subject to the public judgments of credit-rating agencies, like Moody’s and Standard & Poor’s (S&P), who offer consequential opinions about the cred­itworthiness of government borrowers. A high rating, that is, a favorable opinion, allows governments to borrow at lower interest rates, whereas a low rating raises the cost of borrowing (Sinclair 2005).

Key episodes in public borrowing have also changed household behavior. During the Civil War, World War I, and World War II, the US government sold bonds widely and in relatively small denominations. Motivated by patriotism, and with incomes enlarged by a wartime economic boom, many ordinary Americans acquired their first financial asset in the form of a war bond. Financial holdings typically are concentrated among the wealthiest households, but wartime borrowing helped set a precedent for middle- and lower-income households and gave them some familiarity with intangible assets. During the Civil War, for example, the banker Jay Cooke changed how government securities were marketed, and reached out directly through the news media to small investors nationwide (Larson 1936: 100, 106). He was particularly successful in selling bonds to small-town households that had not previously invested in financial assets.

Borrowing allows states to spend beyond their current income, in effect to soften their own budget constraints, but taxation remains the key source of public resources. Borrowing itself depends on taxation since repayments come out of future tax revenues (Brewer 1989: 88), and unless the state defaults (or unless inflation erodes the debt bur­den) there simply are no long-term alternatives to taxes. For a time, some polities gener­ated revenue by selling off publicly owned property (e.g., land or valuable minerals), or were able to exploit traditional forms of property (e.g., Crown lands). Modern nations with large and well-performing state-owned enterprises (SOEs) have relied on SOE profits to fund government spending, but recent waves of privatization have reduced the size of the SOE sector in many countries, and their performance was such that they usu­ally required subsidies. In the end, taxes are inevitable for a functioning state, and the history of taxation is the history of the state (Martin, Mehrotra, and Prasad 2009).

Depending on the organizational and political capacity of public revenue authorities, and on the economy’s level of development, states can impose direct or indirect taxes. They can tax people (with, e.g., a poll or head tax), individuals’ income, or wealth (e.g., a property tax). Wealth taxes can be imposed on the living or the dead (via inheritance taxes), and on some types of property (e.g., land) but not others (e.g., moveables). States tax transactions, either domestic (as in an excise tax) or international (e.g., a tariff imposed on imports). Impositions can be uniform (charging the same rate on all income, regardless of source or type) or variable (charging different rates depending on the type of income). Sometimes states collect taxes themselves, and sometimes they rely on oth­ers (via, for example, tax farming (Kiser and Kane 2001)). Clearly, some taxes are easier to impose than others: a head tax can be imposed using a simple population enumera­tion, whereas some kinds of property taxes require intrusive assessments of individual wealth holdings. Systems of taxation show tremendous variability over time and space, but in general their historical development has increased their extractive capacity and resulted in more elaborate and effective revenue systems. And that historical trajectory is closely entwined with political developments, especially democratization.

All forms of taxation involve measurement. From the standpoint of finance, taxation has influenced the definition and measurement of financial stocks and flows. As one of the largest economic entities in any given society, and in control of the means of coer­cion, states set the standards with which others must comply. In parallel with money, where the state can define monetary value by bestowing legal tender status on some medium of exchange, the imposition of taxes sets various metrics for measuring income and wealth. In the early modern era, European states taxed imports (via customs taxes) and domestic production (via excise taxes). In so doing, tax authorities had to measure goods physically and monetarily, where those goods were produced, transacted, or transported. Ashworth (2004) points out that many advances in metrology were driven by the fiscal interests of the British state. Revenue authorities had to devise standardized weights and measures for the physical measurement of the items they taxed (quantity of beer manufactured, volume of textiles imported, etc.). And if taxes were ad valorem (i.e., set as a function of monetary value), tax authorities had to devise rules for valuation. These standards invariably diffused beyond the customs house, excise office, or Treasury to the rest of the private economy.

Financial standard setting was one of the unintended consequences of taxation. When the US Federal government imposed an income tax for both individuals and corpora­tions, it spurred the development of accounting methods, increased demand for accountants, and set standards for how to calculate annual corporate profits and income (Edwards 1958: 75-7). Concepts like “depreciation,” as applied to capital goods, were given a specific meaning in the calculation of corporate income taxes (Pechman 1983: 131-2). It also, invariably, encouraged new methods of tax evasion. Even before the estab­lishment of the Securities and Exchange Commission (SEC) in 1934, and the imposition of disclosure requirements on publicly traded corporations, the US government shaped how firms calculated and reported their own performance.¹ As the US Federal tax code grew in complexity and progressivity, and as policymakers discovered the political value of tax breaks (so-called “tax expenditures”), it motivated further elaboration of numer­ous financial devices and contractual arrangements, known colloquially as tax shelters (Howard 1997; Brownlee 1996: 79-81, 109).

Through its various fiscal activities, the modern state has shaped the evolution of finance. How states borrow affected the development of financial instruments and stock and bond markets. Wartime public debt often lay at the core of the banking system, as the Bank of England and National Banking System attest. When the wars ended, the banks still remained. In extracting resources to service debts and fund public policies (mostly warfare, in the early modern era, but also social welfare programs in the mod­ern period), states taxed. Decisions about how to tax, what to tax, and how much to tax, affected financial activities directly by drawing resources out of the private economy, but also indirectly, via standard setting.

Public and private regulation 公共和民營監管

Financial transactions, relationships, and institutions have rarely gone unregulated. Indeed, the prohibition against usury (charging interest on a loan) derives from the Bible and Qu’ran, and in justifying this prohibition the medieval papacy made ample reference to Aristotle’s analysis of money. And usury laws are still “on the books” in many US states, although they are now easily circumvented. Even before the South Sea Bubble, the British tried to regulate stock market activity in London by limiting the number and activities of brokers (Carruthers 1996: 168; Murphy 2009: 83-6). And regulation is done both privately and publicly. How public regulations wax and wane often mark key turn­ing points in financial history (consider the significance of the deregulatory prelude to the 2008 financial crisis, as well as the postcrisis push to reregulate), and such changes always involve politics. Financial regulations coevolve with financial markets.

Regulation poses the problem of regulatory arbitrage. Since purely financial transac­tions are a relatively immaterial economic activity (in the sense that, unlike steel mills or oil refineries, they do not involve substantial physical assets), they are more sensitive to cross-jurisdictional regulatory differences. If one political jurisdiction imposes onerous regulations, it can encourage financial markets to migrate to competing jurisdictions with lighter regulations. The reality or prospect of such movement can set off “races to the bottom” as different jurisdictions undercut each other by weakening regulations in order to attract or retain financial activity. At the same time, however, regulatory com­petition can unleash “races to the top,” when more rigorous regulations and higher standards attract investors, savers, and lenders to a particular jurisdiction (Braithwaite and Drahos 2000: 128-42).

Usury laws are probably the oldest type of financial regulation, and they continue to play a role in contemporary Islamic banking (Warde 2000). Their original intent was to prohibit lenders from charging any interest on their loans, but the unintended conse­quence was usually to reshape how lending occurred so that interest payments were dis­guised: a transaction might be restructured so that repayments which ostensibly conformed to the prohibition would be accompanied by “voluntary” gifts and fees or some kind of collateral transaction (e.g., a required additional purchase by the bor­rower), or would involve parties not subject to the law (e.g., Jews in the Middle Ages, out-of-state banks in the twentieth century). The prohibition also encouraged illegal lending activity. Older laws prohibited any interest on a loan but the proscription relaxed over time and recent usury laws simply put an upper limit on interest rates (Wood 2002: 159-80; Horack 1941).

Given how sensitive financial transactions are to what the involved parties know, it is no surprise that much financial regulation concerns information. The potential for exploitation of unsophisticated investors and lenders is obvious. For financial markets that include large numbers of participants with varying levels of sophistication (prover­bial widows and orphans, on the one hand, and investment banks, on the other), caveat emptor seems politically unsustainable. But redressing informational disparities leaves open many questions. How much information must parties to a transaction provide to each other, to regulatory agencies, or to the general public? What is the format for that information? Must disclosed information be certified by third parties, and if so by who? Does information have to be updated, and with what frequency (annually, quarterly, monthly)? And what are the penalties for misinformation?

Many of the regulations that mandate disclosure reflect the classic problem of infor­mation asymmetries. In financial markets, it is common for some to know much more than others about the relevant risks and opportunities. Politically, such regulations seek to protect the less well-informed from those with inside information (similarly, usury laws tried to protect vulnerable debtors from predatory lenders), and their imposition often follows periods of speculative excess and even outright fraud. Various measures to protect individual consumers as borrowers mandate the provision of standardized information. For example, the Uniform Small Loan Law adopted by many US states in the early twentieth century required small loan lenders to provide certain kinds of infor­mation about loan terms to borrowers (Anderson 2008). In so doing, the law aimed to prevent lenders from disguising or underrepresenting the true cost of a loan, and helped to ensure that borrowers knew what they were getting into. Similarly, the Truth in Lending Act of 1968, a Federal law, protected consumers by requiring lenders to present certain kinds of information in a loan contract, including a standardized measure of interest (the annual percentage rate, or APR). It did not directly set interest rates (as usury laws did), but sought greater transparency for borrowers.

The most famous regulatory regime governing the provision of financial information was the Securities and Exchange Act of 1934. This measure came in the wake of a decade of stock market speculation followed by the 1929 crash, a combination which seemed to offer clear lessons for the importance of informed investors, and the dangers of insider information. But it also followed several decades of state-level attempts to regulate secu­rities transactions (so-called “Blue Sky” laws). The latter typically required brokerage firms to obtain a state license and file a financial report on the securities they proposed to sell, but in fact state regulators were easily circumvented, and they were generally unable to distinguish between fraudulent investments and those that were merely risky (Mahoney 2003: 231-3; Anonymous 1924). Blue Sky laws were widely adopted in the 1910s and 1920s, but proved ineffective. With the stock market collapse in 1929, Federal legislation seemed necessary.

By passing the Securities Act of 1933 and then establishing the SEC, Congress man­dated the provision of more credible information by publicly traded firms, and dedi­cated a new Federal agency to the task of enforcement. Corporations issuing new securities now had to register with the SEC and provide 32 categories of information (Allison and Prentice 1990: 462-3; Braithwaite and Drahos 2000: 152). In determining the format, organization, sourcing, and interpretation of that information, however, the SEC entered into a long-term partnership with the legal and accounting professions, and granted them considerable power and discretion in standard setting (Baskin and Miranti 1997: 202; Fung, Graham, and Weil 2007: 108). Standards were not unilaterally dictated by the SEC, but rather emerged from an interaction between agency officials and expert professionals. As numerous financial scandals attest, legal and accounting firms faced recurrent conflicts of interest, and SEC vigilance in enforcing securities laws varied depending on the political administration in power. Nevertheless, establishment of the SEC marked a sea change in the amount of information publicly available to investors.

Other types of regulation required financial information, but not to ensure that mar­ket participants were fully informed about their own transactions. Rather, information was used to ensure compliance with a regulatory standard by measuring some aspect of a transaction, or a set of transactions. Often, states have solicited and organized infor­mation in order to regulate corporate profitability (Powers 1914). For example, in the late nineteenth century agrarian groups contested the monopoly power of the railroads. In response to political pressure, the Interstate Commerce Commission (ICC) was estab­lished in 1887 to regulate rates, and to prevent railroads from exploiting small customers by charging them higher prices. The ICC developed accounting standards so that it could determine railroad costs and set “fair” prices that would give railways a “fair” rate of return (Baskin and Miranti 1997: 183-4; Berk 2009: 74-81). The ICC’s policies acceler­ated the development of cost accounting, methods of valuation, and general measures of profitability (Miranti 1989). Later on, during World War II, US politicians worried about wartime profiteering, especially among government contractors and subcontractors. The War Profits Control Act required firms to keep adequate records so that the Federal government could, if necessary, renegotiate its contracts and adjust prices to remove “excess profits” (Edwards 1956: 453-4). The Act problematized definitions of profit, in both its “normal” and “excess” variants.

Regulations are also directed at a variety of financial institutions, including commercial banks, credit unions, thrifts, savings and loans, investment banks, insurance companies, trust companies, pension funds, and so on. The history of institutional regulation is path- dependent and politically shaped, and has produced some idiosyncratic outcomes. For example, because US insurance companies are chartered at the state level, and because most of the largest insurance companies are based in New York, the New York State Insurance Department played a surprisingly important role in tracking the American International Group (AIG) insurance company during the financial crisis of 2008. Or con­sider that because US commercial banks can be chartered at either the state or Federal level, the banking sector is regulated by a large number of different regulatory agencies.

Banner (1998) claims that securities regulation in both the US and UK has deep his­torical roots. The proximate motivation for regulation is often a crisis, but in every instance regulation draws upon durable cultural and political attitudes toward finance. Both British and American publics were skeptical about market speculation, which made many financial transactions appear illegitimate. Financial markets were prone to deceitful and predatory behavior, threatened the social order, and did not involve “pro­ductive” labor (Banner 1998: 15-17, 48, 131). Mark Roe argues that the modern American pattern of corporate finance, in which large corporations have widely dispersed share­holdings, resulted directly from political decisions, and not from the imperatives of market efficiency. The American antipathy toward large financial institutions was trans­lated into policy that curtailed the development of large banks. Instead, the US financial landscape is dotted with many state-chartered small banks, whose survival was enhanced by New Deal-era deposit insurance. And, once established, small banks became another political force against large banks. Furthermore, prudential rules governing insurance companies, pensions funds, and mutual funds enforced diversification and prohibited controlling interests in firms (Roe 1994: 42, 48, 60-1, 93).

Financial regulations have sometimes been imposed privately. One example comes from the New York Stock Exchange (NYSE), which imposed reporting requirements on listed companies even before the establishment of the SEC, including that listed compa­nies publish an audited financial statement (Baskin and Miranti 1997: 187; Sivakumar and Waymire 1993: 65). The NYSE regulated itself in a variety of ways, both formal and informal (Neal and Davis 2005; Preda 2009: 62-3, 71-4). The other large stock exchanges of the nineteenth century also set out explicit conditions for a listing, which in the cases of Paris and Berlin included auditing requirements (Davis, Neal, and White 2003). Although the London Stock Market dates to the seventeenth century, when the London Stock Exchange was formally established in 1801, it became able to impose rules and regulations on its member firms (Michie 1999: 35-7).

Other private institutions have had a regulatory effect, although that was not their original intent. The major credit-rating agencies, for example, are for-profit firms that provide information about creditworthiness (Sinclair 2005). Starting in the early twen­tieth century, Moody’s (and subsequently S&P’s, and Fitch) sold ratings of railroad bonds to investors. The credit risk of a bond issues would be judged using a now-familiar ordinal category system. The highest ratings (“AAA”) signaled the lowest risk. The rating agencies expanded their activities to include corporate bonds and sovereign debt. Since the ratings helped determine the interest rate paid by the issuer (high ratings meant lower interest), rating agencies in effect regulated borrowers by imposing an implicit standard and rewarding those borrowers that best complied. Every borrower had a financial incentive to appease the rating agency, that is, to do whatever rating agencies thought would enhance creditworthiness.

Moody’s did not invent credit rating. Rather, John Moody adopted a method previ­ously developed for trade credit (short-term unsecured credit that suppliers extend to customers). Since the 1840s, the precursors of Dun & Bradstreet had been gathering information and selling credit ratings and reports to their clients (Olegario 2006). The ratings, in particular, directly anticipated Moody in that they were cast in the form of ordinal categories which, at the highest level, signaled strong creditworthiness, and, at the other extreme, unworthiness. By the end of the nineteenth century, a large “mercan­tile agency” like R. G. Dun had an international network of branch offices and was rating over 1 million firms annually (Norris 1978: 110). The ratings these agencies produced were used by wholesalers, suppliers, sellers, bank credit departments, and credit insurers.

Until recently the regulatory effects of the rating agencies have not been controversial where private borrowers were concerned, but matters have been different when sover­eign governments borrow. Although their exact methods are not generally known, it is clear that the rating agencies reward orthodox fiscal rectitude when it comes to public finance. Rating agencies may not officially endorse a neoliberal approach, but countries that cut public spending, balance their budgets, harden their currencies, and privatize state-owned assets are more likely to get a higher credit rating, and hence pay lower interest rates.² Since governments regularly borrow on the bond markets, the rating agencies have more continuous oversight with respect to public finances.

The role played by the credit-rating agencies has expanded over time. At first, Moody’s focus was on railroad bonds. But now virtually any publicly traded debt instrument issued by a private or sovereign debtor gets rated. Furthermore, the process of financial disintermediation that occurred during the 1980s and 1990s has made US corporate borrowers even more dependent on capital markets, and less on their banks (Davis 2009). Increasingly, US banks have replaced their originate-and-hold business model with an originate-and-distribute model. Instead of making loans and keeping them as assets, banks make loans, securitize them, and then sell them off to investors. By provid­ing ratings, the agencies play a key role in making securitized loans acceptable to inves­tors. And the business model of the rating agencies has itself shifted over time. Until the 1970s, investors paid for the ratings, and then used the ratings for investment decisions. Now, it is the borrowers who pay for the ratings, in effect paying the rating agencies to rate their own debt securities. The conflict of interest this poses has provoked much recent commentary.

Some rules that governments establish sit somewhere between property rights and regulations. Such rules are so constitutive of market activity that it is misleading to call them “regulations,” as if there were an autonomous and preexisting activity on which an external rule was imposed. Following Campbell and Lindberg (1990) on how property rights organize economic activity, we can examine how constitutive rules organize finance. Clearly, the rules that govern corporate chartering affect finance. After all, mod­ern financial markets are dominated by the debt and equity that private corporations issue to raise capital, and modern corporations culminate a long succession of legal forms used to mobilize capital for business (starting with the medieval commenda; see Pryor 1977). Rules of incorporation both constrain and enable those who wish to create the “fictive individuals” that dominate market economies. In the US, states charter cor­porations and the rules have evolved substantially over time. The changes occurring across multiple states have prompted considerable discussion about whether they con­stitute a race to the bottom or to the top (Kahan and Kamar 2002). For example, at the end of the nineteenth century New Jersey changed its laws to allow corporations to own stock in other corporations, and other states followed suit (Grandy 1989). Without this provision, complex and multitiered equity interests among US corporations would sim­ply not be possible (Horwitz 1992: 83-4). And whatever the direction of change, it is clear that the state of Delaware has been a big winner since so many firms now incorpo­rate there, regardless of where they put their headquarters, warehouses, or factories (Bebchuk and Hamdani 2002). In effect, US corporations are able to choose which set of legal rules they will operate under.

Incorporation creates a fictive individual who, by law, can sue and be sued, own prop­erty, and sign contracts. A corporation enjoys the power of perpetual succession, so that even if the original owners or shareholders have died or transferred their interest to someone else, the corporation continues (unlike, for example, a partnership, which dis­solves upon the death or departure of one of the partners). In other words, a corporation has a legal personality that is separate from its owners (Cooke 1951: 17). Early corpora­tions included municipalities, guilds, universities, charitable organizations, and busi­nesses. As a creation of law, a corporation only has those features given to it, and so the sovereign powers that create corporations can bestow different kinds of features, includ­ing rights and encumbrances. For example, state-chartered corporations can be required, as a condition of their charter, to provide an annual report to shareholders.

One important change in these constitutive rules involved the establishment of lim­ited liability. This change rebalanced the financial burden of failure, where a firm lost money or went bankrupt. In both Britain and the US, the establishment of limited liabil­ity meant that investors in corporations or joint stock companies could lose no more than their total investment, regardless of how great the losses sustained by the company they owned. This shifted the burden of excessive losses from company shareholders to company creditors (Baskin and Miranti 1997: 139). In Britain, the change occurred at the national level, in an 1855 amendment to the Joint Stock Companies Act of 1844 (Bryer1997). Since the 1810s, various proposals in parliament had called attention to the advan­tages of limited liability, and made envious comparisons to French and Irish law (Harris 2000: 273). Some arguments in favor simply represented investor interests, claiming that people would be more willing to invest in companies knowing ex ante their maximum possible losses. Other arguments were more complex, and asserted that limited liability would also serve the interests of the working class, either as small investors or as the ben­eficiaries of increased investment flowing into public works and housing (Loftus 2002).

The Companies Act of 1844 itself marked the shift in Britain from special to general laws of incorporation. After passage, investors could form corporations merely through registration, and did not have to obtain a special act of parliament (Harris 2000: 282-3). This changed incorporation, shifting it from an unusual privilege occasionally bestowed by sovereign power to a routine legal form that private parties could adopt if and when they saw fit. With this legal change, the number of corporations rose sharply (Harris 2000: 288).

Change came less dramatically in the US, in part because it occurred at the state level and so in a less centralized fashion. Whether they were formed for business, education, or philanthropy, early US corporations were established by a special act of incorporation, passed by the relevant state legislature (Seavoy 1978). Vulnerable to the charge of political favoritism, states passed general laws of incorporation in the early nineteenth century, transforming incorporation from a special privilege to a more ordinary legal vehicle for doing business (Horwitz 1992: 73). And while limited liability was uncommon at first, it too was adopted by leading states and spread to the others (Baskin and Miranti 1997: 141).

Limited liability shifted the balance between corporate owners and creditors. General laws of incorporation allowed limited liability to spread widely and affect creditor inter­ests throughout the economy, and also for it to spread at the behest of private interests. Given that some states “competed” for corporate charters by offering favorable corpora­tion law, the availability of limited liability increased quickly. On the positive side, lim­ited liability encouraged people to invest in company stock since it meant that their losses were capped. However, this came at the expense of creditors, who now bore a greater proportion of the losses in case a company failed.

The significance of the formal rules governing corporate debt and equity depend on the overall financial system, and how corporations typically raised money. Scholars have generally distinguished between capital market-based and bank-based financial systems (Allen and Gale 2000; Vogel 1996: 169-72; Woo-Cumings 1999: 10-12; Zysman 1983).³ In the former, exemplified by the US and UK, large firms generally mobilize capital through capital markets, relying on a balance of publicly traded stocks and bonds. In the latter, exemplified by Germany, France, Japan, and South Korea, large firms historically relied on large banks for loans, and developed long-term relationships with their bankers.

historical sociology of modern finance 503

Often, banks were part owners of the firms they loaned to, and provided “patient capi­tal” (i.e., as investors, they were concerned about long-term performance, not just quar­terly earnings). Japanese corporations have large shareholdings owned by financial groups, whereas the holdings of US corporations are widely dispersed (Roe 1994: 15,182). Bank-based financial systems facilitated credit-based industrial policy.
Governments that wished to develop an industry used their leverage over the small number of large banks to ensure that credit was “steered” into that industry. For exam­ple, “policy loans” were extended by South Korean banks, at the behest of the govern­ment, to fund heavy industry and chemicals during the 1970s (Woo 1991: 162-9). Such state-directed credit is much harder to accomplish in a capital market-based financial system.

The difference between the two kinds of financial systems has implications for infor­mation as well as industrial policy. When large corporations depend on large banks for funding, they are dealing with sophisticated, knowledgeable lenders who know a great deal about the borrower. By contrast, large corporations that go to capital markets are raising money from a heterogeneous group of investors, some of whom are relatively unsophisticated. Public policy supporting greater equality of information between cor­porate borrowers and lenders clearly has more of a problem to solve in the second case. There is greater demand for SEC-style public disclosure in financial systems that depend on capital markets.

Finance and inequality 金融和不平等

Economic inequality is a staple topic for sociologists. The traditional focus has been on income inequality (in part because it was easy to measure) and, to a lesser extent, on wealth inequality. Sociologists explored the causes of inequality, and documented varia­tions by gender, race, nationality, occupation, age, education, and so on. Access to credit is another dimension of inequality that has mostly been overlooked by sociologists. But looking at credit from an historical perspective makes its significance abundantly clear. Financial relationships can produce or reinforce inequality in several different ways. Most obviously, access to credit is valuable and so differential access can be used to favor some groups over others. As well, some coercive laws enhanced the power that creditors had over debtors so that being indebted was a truly subservient and onerous situation.


In the US, homeownership rates among African-Americans have for many decades trailed those ofwhites (Carruthers and Ariovich 2010: 107). One factor behind this racial disparity involved the availability of home mortgages (Pager and Shepherd 2008). Evidence suggests that discrimination against minorities has operated at many different levels in housing markets, including access to mortgages, valuation of real estate, and availability (and pricing) of home insurance (Immergluck 2009; Yinger 1995). As Stuart (2003) shows, racial disparities were inscribed deeply within the institutional practices of many of the New Deal organizations founded to help the US housing market recover from the Great Depression. Robb and Fairly (2007) find a similar racial disparity when considering business credit.

Financial relationships can be used directly to reinforce extreme social inequality. Debt peonage and debt servitude entailed the use of law to subordinate debtors to creditors. In late nineteenth-century Central America, for example, rural workers were typically indebted to rural landlords, and although they were nominally free they were kept in a situation of de facto servitude (McCreery 1983). Debt peonage was also common in southeastern Mexico and the Yucatan (Knight 1986). In the colonial era, European immi­grants to North America frequently undertook “indentured servitude,” in effect borrow­ing the cost of transportation and entering into servitude until the debt was repaid (which often took four years or more; see Galenson 1984: 7). And eighteenth-century American creditors could use the law to imprison their debtors (Mann 2002: 79). After the US Civil War, crop lien laws were enacted in southern states that gave landlords enormous power over their rural tenants (Woodman 1995: 39, 65). Slavery was abolished but white land­lords remained dominant over their black tenant farmers. If debt rules could be used to subordinate some groups, they could also privilege others. In early modern England, for example, it was notoriously difficult to use the courts to force aristocrats to pay their debts (Stone 1965: 235). Creditors had to find other ways to exact repayment.

A person burdened with debt and beholden to his or her creditors can still sometimes obtain relief depending on bankruptcy law. In general, personal bankruptcy puts an insolvent individual through a legal proceeding in which his or her assets are seized and distributed to creditors, but afterwards the individual is discharged from whatever debts are not satisfied by liquidation of their assets. This process is modified by categories of nondischargeable debts (which still encumber the post-bankruptcy debtor) and exempt property (which the debtor gets to keep), but basically personal bankruptcy releases the debtor from his or her obligations, and grants a form of economic redemption. The his­tory of bankruptcy in the US reflects the changing balance of power between debtor and creditor groups. Bankruptcy laws were passed in 1800, 1841, and 1867 largely in response to people who sought relief from their debts. But each law was repealed after a few years because of political pressure from creditor interests who argued that debtors were abus­ing the law and failing to live up to their obligations (Mann 2002: 223-8; Skeel 2001: 24-8). In general, through informal market practices and legal regulation, relationships between debtors and creditors can be cast, and recast, in ways that accentuate, or miti­gate, other processes of economic inequality.

Conclusion 結論

HISTORICAL SOCIOLOGY OF MODERN FINANCE 505

Financial crises are occasions to recall previous financial crises, and interest in the South Sea Bubble, for example, grew as the 2008 bubble burst. But this thin historical sensibil­ity is no substitute for a proper appreciation of financial history. Even as brief a treatment as I offer here underscores the sociological richness of finance. Most obvi­ously, finance links promise-makers to promise-takers. How credible do borrowers’ pledges seem to lenders? Who do they decide to trust? In practical life, the answers to these questions are socially structured: some enjoy more trust than others, and the ben­efits and risks of credit are not shared equally.
金融危機是回顧過去的金融危機的時刻，例如，在南海泡沫的興趣是隨著2008個泡沫破滅的增長。但是，這本薄薄的歷史情感是不可替代的金融歷史的正確理解。即使我在這裡所提供的一個簡單的處理也突顯了金融學的社會學。最明顯的，金融環節的承諾者承諾的人。借款人的抵押對貸款人有多少可信度？他們決定信任誰？在現實生活中，這些問題的答案是社會結構：信任, 永遠都是一些人多一些,一些人少一些. ，而信用的效益和風險不是公平分配的。

Financial relationships pervaded early modern economies, and their complexity and importance have only increased since then. Today, a web of intangible promises knits the economy together, supported by a changing legal and institutional infrastructure. But such increase did not occur simply because the latent potential of private interest was given freer and fuller expression, for the state mattered in how finance developed. For raison d’etat and through its taxing and borrowing activities, the state has both com­pelled financial development and determined its direction. Sometimes financial institu­tions like banks and stock markets have been harnessed directly to serve the state, and sometimes the state worked indirectly and even unintentionally, via standard setting.
財務關係遍及早期現代經濟，自那以來其複雜性和重要性已經增加。如今，無形的承諾的網通過不斷變化的法律和制度基礎設施的支持把經濟編織在一起. 但是，這種增長並沒有出現，只是因為私人利益的潛能被賦予更自由和更充分的表達，國家要緊的是金融要如何發展。為了國家利益，通過稅收和發債，國家強力介入金融發展和確定其方向。有時候,金融機構(如銀行)和股票市場被利用直接來為服務國家, 有時國家則有意無意地透過標準訂定間接運作。

Financial relationships also reflect the influence of private and public regulation. Rules undergird finance, imposing constraints that enable people (both real and fictive) to make promises and construct relationships across time and space. The imposition of new public financial regulations often follows a crisis, while private regulations operate less visibly in the background. But to be invisible is not to be inconsequential. Quite the opposite, the ability of private organizations like the rating agencies to regulate the pric­ing and flow of credit has endured precisely because of their low profile. Private regula­tors, like public ones, value, measure, and report. They produce technical knowledge recurrently and bureaucratically, and in so doing enact the longue duree that lies behind modern finance.

金融關係同時反應在公共和民營監管上。 規則強化金融,加以約束使人們（不管是真實的虛構的）做出承諾，並建立跨越時間和空間的關係。 危機之後常伴隨著新的金融條例的實施，而民謍規則的背景下不易察覺操作。但看不見的不是無關緊要的。正好相反，民營機構像信用評等公司踓隱而不顯,卻對價格規範和信用流通影響的能力一直持續存在的。民營機構不斷官僚地產生技術專業知識,使得現代金融長期的持續下去.

Notes

1.    The newly established Federal Reserve System also inadvertently set accounting standards via the discount window. The Fed restricted the assets which were eligible for “re-discount­ing” to “real bills,” a form of short-term self-liquidating commercial paper. In order to ensure assets met the required standard, the Fed insisted that the issuer’s financial state­ments be certified by a public accountant (Edwards 1958: 80).

2.    A similar process works at the level of municipal finance. See Yinger (2009).

3.    This difference also affects corporate governance, but I shall not deal with that issue here.