International Factor Mobility and Global Financial Systems

International Factor Mobility

6.1 Gold Standard and Banking Modernization

The monetary standard is characterized by its backing, convertibility into notes, free movement, and a fixed exchange rate determined by the weight of monetary gold. Thanks to free coinage and unlimited legal tender, the monetary standard could evolve in two ways:

• Bimetallism: Covering the period from 1780 to the mid-19th century, its stability was based on the price of metals (gold, silver, or silver-gold) to guarantee the coexistence of standards.
• Monometallism: Its adoption often followed instability in bimetallic countries, particularly due to the depreciation of gold and silver.

In the wake of economic growth and borrowing, banks assumed a crucial intermediation role. The modernization of the banking system was based on financial capitalism, meaning the bank acted as a regulator of boom processes by controlling structural economic, commercial, and industrial activities.

In terms of organizational models, we can identify:

• Focus on Europe
• U.S. Dispersion

Based on the type of operations, we distinguish:

• Commercial or Deposit Banking: Prevalent in Britain.
• Industrial Banking: Common in Belgium and Germany.
• Mixed Banks: Found in the U.S. and France. These combined short-term commercial loans with long-term portfolio investments.

6.2 International Financial Flows

Surpluses originate from two sources of savings: internal (generated by households and firms within the country) and external (derived from a positive balance of payments, meaning more money flows into the country). While some of these savings are invested domestically for economic development, capital is also registered or invested abroad.

Foreign investments are primarily of two types:

• Portfolio Investment: Involves the purchase of financial assets (e.g., stocks, bonds) primarily for short-term profitability and speculative purposes.
• Direct Investment: Entails buying companies or establishing new businesses, aiming for long-term participation and integration into the production system.

The primary capital-exporting countries were Great Britain, France, and Germany. These nations exhibited differences in both the sectors and territories where they invested. British overseas investment often targeted the periphery (e.g., Latin America), particularly in the railway industry and trade. France, however, focused on the European periphery (Spain, Italy, and Russia), which absorbed 90% of French investment, often involving the purchase of public debt in these countries.

The host countries can be classified as:

• Colonies: Characterized by long-term direct investment in export-oriented productive activities and related transport infrastructure (ports, railways). These investments primarily served the export sector, with little function to link to the domestic market.
• Independent Countries: Investments focused on the exploitation of primary goods for export and the necessary infrastructure. They also involved the purchase of public debt issued by these nations.