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The systemic causes of financial crises in the long nineteenth century

Published online by Cambridge University Press:  14 September 2017

Heather Ba
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Abstract

In a globalized and hegemonically organized international economy, the economic fundamentals and policy choices of the hegemon often have spillover effects for peripheral economies. This is a well-recognized dynamic of the contemporary political economy, but it was true during the first age of globalization as well. Motivated by literature examining the impact of the U.S. macroeconomic conditions on other economies throughout the international system, this article advances a systemic theory of financial crisis and applies it to the long nineteenth century, when British hegemony reigned. My main motivation is the earliest example of a systemic theory of financial crisis, Charles Kindleberger's Hegemonic Stability Theory. However, while Charles Kindleberger focused on the stability brought about by a hegemonically structured international economy, I emphasize the dynamics of volatility present in this type of system. I argue that a hierarchical distribution of economic activity in the international system means that the financial cycle of the most central country influences the financial conditions in peripheral countries that lead to financial crisis. Evidence from financial crises which occurred in the long nineteenth century supports this theory.

Keywords

hegemonyfinancial crisisfinancial cyclessystem dynamicsglobalization
Type
Research Article
Information
Business and Politics , Volume 20 , Issue 2 , June 2018 , pp. 208 - 238
Copyright
Copyright © V.K. Aggarwal 2017 and published under exclusive license to Cambridge University Press 

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