and enforced their agreements during the early period of their existence (the late nineteenth and early twentieth centuries). The high point of this was a ruling in 1897 by the highest court in the country that cartels were legal. From the First World War onward, cartelization became widespread, and the means by which the government planned economic activities. The Cartel Law of 1923, which gave the court the power to nullify cartels, was the first general competition law in Europe. However, the law remained ineffective, as it defined cartels very narrowly, and those to whom this law gave the powers to control cartels – namely, the economic ministry and the cartel court – hardly used them anyway. The cartel court was abolished in 1930 when a series of emergency acts empowered the state to dissolve any cartel if deemed necessary. In 1933 the Minister for Economic Affairs was given the power to nullify any cartel or decree the formation of compulsory cartels.[85]
In Norway, a Trust Law was first introduced in 1926, but the trust board in charge of it operated from the standpoint that it should monitor, but not categorically prevent, monopolistic behaviour. Although the law was subsequently replaced by the Price Law and the Competition Law in 1953, which had somewhat more stringent provisions (for example, companies now had to report major mergers and acquisitions), the main thrust of the Norwegian anti-trust policy remained that of publicity and control, rather than the imposition of outright bans. The Danish competition law of 1955, (t~e Monopolies and Restrictive Practices Act) operated on the same principle of ‘publicity and control’.[86]
3.2.5. Financial institutions
With a marked increase in banking crises across the world during the last two decades or so, especially in developing countries, establishing a good system of banking regulation has become a major theme in the push for institutional development by the IDPE. In the history of the NDCs, however, the establishment of institutions to regulate banking became an issue rather late, as the development of banking itself was a slow and uneven process, with the possible exception of Britain.
The banking system in the NDCs was only established slowly.[87] Even in England, a country wlth the most advanced banking system in the world until the mid-twentieth century, complete financial integration was only achieved in the 1920s, when deposit rates for town and country became uniform. In France, the development of the banking system was even more delayed, with widespread use of banknotes emerging in the nineteenth century (as opposed to the eighteenth century in Britain) and with three quarters of the population still without access to banking as late as 1863. Prussia had no more than a handful of banks until the eighteenth century, while the first joint stock bank was only founded m 1848. In Sweden, bank~ only appeared in the late nineteenth century. They went through a major expansion in 1870, prior to which credits to producers and exporters were provided by merchant trading houses and only became fully, established in the 1890s. In Portugal, the banking industry only saw major development in the 1860s and 1870s, after the formation of joint- stock banks was allowed.[88]
In the NDCs, banks only became professional lending institutions after the, early twentieth century. Before then, personal connections strongly influenced bank lending decisions. For example, throughout the nineteenth century, US banks lent the bulk of their money to their directors, their relatives, and those they knew.[89] Scottish banks in the eighteenth century and English banks in the nineteenth century were basically self-help associations for merchants wanting credit rather than banks m the modern sense.[90]
Banking regulation was highly inadequate. The USA permitted ‘wildcat banking’, which was ‘little different in principle from counterfeiting operations’ .[91] Wildcat banking was especially problematic during the 30-year period that saw the demise of the short-lived semi-central bank, the Second Bank of the USA, between 1836 and 1865 (see section 3.2.5.B). Although the overall cost of failures of unregulated banks at the time is estimated to have been small, such collapses were widespread.[92] As late as 1929, the US banking system was made up of ‘thousands upon thousands of small, amateurishly managed, largely unsupervised banks and brokerage houses’. This meant that even during the prosperity of the Coolidge presidency (1923-9), 600 banks a year failed.[93]
In Italy, there was a huge scandal in the late nineteenth century (1889-92), where the bankruptcy of one of the six note-issuing banks, Banca Romana, revealed a web of corruption (extension of credit to important politicians and their relatives, including two former prime ministers), a defective accounting system, and ‘irregular’ issue of banknotes (e.g., duplicate notes) in the heart of the country’s banking industry.[94]
In Germany, direct regulation of commercial banks was only introduced in 1934 with the Credit Control Act, while in Belgium, banking regulation was only introduced in 1935, with the establishment of the Banking Commission.[95]
Today, the central bank – with its note-issue monopoly, money market intervention and lender-of-last- resort function – is regarded as a cornerstone of a stable capitalist economy. There is a heated debate on how politically independent the central bank should be, as well as on its appropriate goals, targets and instruments.[96] Heated though the debate may be, few people dispute the need for a central bank. However, this was not the case in the early days of capitalism.
From as early as the eighteenth century, dominant banks, such as the Bank of England or the large New York banks, were forced to play the role of lender-of-last-resort in times of financial crisis. The increased ability of such institutions to deal with systemic financial panic in the short term, and the consequent stability that this helped bring about in the long run, naturally pointed to the creation of a fully-fledged central bank.
However, many people at the time believed that creating a central bank would encourage excessive risk-taking by bailing out imprudent borrowers in times of financial turmoil (or what we these days call ‘moral hazard’).[97] This sentiment is best summed up in Herbert Spencer’s observation that ‘[t]he ultimate result of shielding man from the effects of folly is to people the world with fools’ .[98] As a result, the development of central banking was a very slow and halting process in the NDCs.[99]
The Swedish Riksbank (established in 1688) was nominally the first official central bank in the world. However, it could not function as a proper central bank until the mid-nineteenth century because it did not have, among other things, monopoly over note issue, which it gained only in 1904. [100]
The Bank of England was established in 1694 and from the eighteenth century onward began to assume the role of lender-of-last-resort (although some suggest that this only really took place in the first half of the nineteenth century). However, it did not become a full central bank until 1844. The French central bank, Banque de France, was established in 1800, but only gained monopoly over note issue in 1848. Until 1936, however, the Banque de France was basically controlled by the bankers themselves rather than the government. The central bank of the Netherlands, the Nederlandsche Bank, was established in 1814 by King William I, modelled on the Bank of England. However, ·it struggled to circulate its notes widely until the 1830s, and remained an Amsterdam-based ‘local’ bank until the 1860s.[101]
The Bank of Spain was established in 1829 but did not gain monopoly over note issue until 1874, and was privately owned until 1962. The Bank of Portugal was created in 1847, but its note-issue monopoly was restricted to the Lisbon region. It legally gained full note-issue monopoly in 1887 but, due to the resistance of the other note-issuing banks, it was only in 1891 that the monopoly was achieved in practice. The Bank of Portugal is still completely privately owned and cannot intervene in the money market. [102]
The Belgian central bank, Banque National de Belgique, was created as late as 1851; it was however
