The Portuguese Republic of 1910–1926 was characterised by extreme instability in the political and economic spheres. The authoritarian regime that succeeded the Republic claimed legitimacy asserting that democracy naturally implied fiscal and monetary instability. In this article we study the Republican period and the Monarchy that immediately preceded it, in order to test three hypotheses as to the roots of instability during the Republic: exceptionally high public expenditure made necessary by participation in World War I, the Fiscal Hypothesis; expansion of the money supply and increase in its variability, the Monetary Hypothesis; social and political unrest, facilitated by greater freedom in expressing grievances, the Democracy Hypothesis. Using standard econometric techniques we find strong evidence in favour of the Monetary and the Democracy Hypotheses but not in favour of the Fiscal Hypothesis. Moreover, our results support the view that political and monetary instability were mutually reinforcing phenomena. The examination of the two periods, Monarchy and Republic, reveals a strong positive association between political and economic cycles in the later, more democratic period.

This article describes the contribution of foreign funds to the development of Italian electric power companies and the placing of loans in New York in the late 1920s. The effect of foreign loans on the financing structure of nine important Italian electric power companies in a period in which domestic long term funds were lacking is discussed. The transformation into a holding structure followed a path common to electric producers in many countries; at the same time holding companies' securities proved more marketable in the international market and the process of financing was made easier. The eventual macro effects of foreign loans on the domestic money supply and on the level of the Lira exchange rate are examined and some questions are raised concerning the relationship set up between the State, financial intermediaries and private savers during the Fascist regime.

Thomas Sargent and François Velde (2002) argue that it took government authorities centuries to solve the ‘big problem of small change’ because those authorities were constrained, first by the lack of a sound theory of small change, and then by the lack of adequate technology for implementing the theory. British experience suggests, however, that institutions also played a crucial part. In particular, the monopolistic nature of Great Britain's official coinage arrangements undermined incentives for establishing a sound system of small change even after theoretical and technological constraints were no longer present. The institutional perspective offered here helps to explain a number of historical facts that are otherwise puzzling, including the fact that a relatively successful private-sector small-change system anticipated Great Britain's official solution to the small-change problem by two decades.

This article presents an analysis of British urban working-class housing conditions in 1904, using a rediscovered survey. We investigate overcrowding and find major regional differences. Scottish households in the survey were more overcrowded despite being less poor. Investigating the causes of this overcrowding, we find little support for supply-side theories or for the idea that the Scottish households in our survey experienced particularly great variations in income, causing them to commit to overly modest accommodation. We present evidence that is consistent with idea that particularly tough Scottish tenancy and local tax laws caused excess overcrowding. We also provide evidence that Scottish workers had a relatively high preference for food, rather than housing, expenditure, which can be at least partly attributed to their inheritance of more communal patterns of urban living.

By contrasting the optimal with the actual location of Spain's main production centre in Bilbao, we have tried to resolve the enigma that mislocation introduced an important welfare loss in Spain's industrialisation. This analysis considers the optimal location for integrated steel mills in Spain from their origins (1880s) until the Spanish Civil War (1936–39). The first part of this article introduces the relevant aspects for formalising a model, while Section 2 applies the methodology. The numerical results show how the major technical change – the reduction of coal consumption – affected each of the alternative sites. They also allow us to identify ‘the overall optimum site’, which was not Bilbao. Our final conclusions confirm that the actual centre of iron and steel production during the period considered was a second-best location. The cost in terms of direct welfare loss, in terms of captive markets and rent-seeking used to maintain this second-best solution, and the ultimate consequences of mislocation, point to an inefficiency which has changed the course of modern Spanish industrialisation.

In this article time series on labour productivity in the manufacturing sector are the starting point of the analysis. Using a growth accounting framework (Cobb-Douglas production function) we try to assess to what extent increases in labour productivity are due to rises of total factor productivity or to a growth of capital intensity. The results of this accounting exercise seem to contradict the views expressed by a great number of historians who have written on this subject. By relaxing some of the strong assumptions regarding perfect competition, a new view on the determinants of long-term industrial growth can be developed. The increase in the capital/labour ratio – which undoubtedly has been the engine in the process of industrial growth – cannot be explained exclusively by changes in relative factor prices. Also changes in institutional arrangements as well as demand shocks (resulting in economies of scale) play an important role. By taking imperfect competition (and non-equilibrium prices) into consideration, the puzzling results of the Cobb-Douglas accounting experiment can be reconciled with traditional literature on this subject.

As recent commentaries on Western European unemployment have noted, high unemployment, limited worker mobility, and a limited creation of jobs characterise the current inflexible labour market structures. This article uses a new source, extracts from the Arbeiterbücher of eight German firms found in textiles and heavy industry during the period of high industrialisation, to identify key features of the labour markets of pre-1914 Germany. The results are consistent with neo-classical economic models of labour markets. Hazard analysis of firm employment records suggests that while marital status played an important role in mobility, even older workers held three to four times as many jobs as workers today. Information and skill levels were also crucial determinants. Mobility was highly responsive to shifts in demand conditions as well.

Before 1880, the British soda industry dominated world export markets and held a substantial share of the German domestic market. After 1880, the German soda industry displaced British imports and then became a leading exporter. We investigate the contribution to these developments of German tariffs, particularly the decline in tariffs on soda in 1873 and the increase in 1880. We develop a model, based on developments in the ‘new trade theory’, of oligopolistic competition in the German soda market, we calibrate this model using historical data, and we then apply the calibrated model in simulating the effects of counterfactual tariff rates. Results show that the 1880 tariff increase promoted, but was not decisive for, the rise of the German industry. More important were the decline in German input prices and the shift to the ammonia process for producing soda.

Simulated optimum tariff policies to achieve plausible government targets show objective reasons for the failure of international trade cooperation during the Slump of 1929 to 1933. For the largest players, the US and UK, benefits from foreign cooperation were small or negative. France and Germany would have been the principal beneficiaries of international cooperative policies. Since cooperation on one issue, tariffs, was difficult, cooperation on many – through the cross-issue bargaining attempted at the 1933 London Conference- was well nigh impossible. Optimum coordination across policy instruments within one country, on the other hand, would have yielded high returns for policy. A corollary is that lack of internal coordination (poor domestic policies) was a more important cause of the Great Depression than failure to harmonise policies internationally.

Free banking in Switzerland lasted from 1826 to 1907. Although the system was reasonably successful, the Swiss experience has been almost entirely neglected in the debate over free banking. In its more advanced state of development, the stability of the Swiss free banking system deteriorated, since (1) all assumptions underlying the so-called law of adverse clearings were more or less violated, and (2) the note-issuing banks were prevented by their non-issuing rivals from increasing their discount rates, even if some of them were faced with heavy losses of specie. In 1907, therefore, free banking had to be abandoned.

We analyse a newly constructed data set of monthly prices for wheat and rye in Nuremberg (1490–1855) to address the issue whether models of rational investment behaviour provide an adequate description of grain markets and grain storage in early modern Europe. Based on the empirical evidence presented here we conclude that the case for well functioning arbitrage in the market for grain in Nuremberg is quite weak. This can only partly be explained by the institutional background.

In February 2008, French President Nicholas Sarkozy created a committee with a somewhat ungainly name, ‘The Commission on the Measurement of Economic Performance and Social Progress’, headed by Joseph Stiglitz, and advised by Amartya Sen. The aim of the Commission was to ‘identify the limits of GDP as an indicator of economic performance and social progress, including the problems with its measurement; to consider what additional information might be required for the production of more relevant indicators of social progress; to assess the feasibility of alternative measurement tools, and to discuss how to present the statistical information in an appropriate way’ (p. 7).

Foreign exchange reserves have assumed considerable importance in the ongoing debate over risks to the international financial system and how it should be reformed in the wake of the great global credit crisis of 2008. The worry is that China's accumulation of foreign exchange reserves and the associated global imbalances were a factor setting the stage for the crisis. The worry for the future is that the country's huge volume of dollar reserves and the incentive this provides for portfolio diversification have disturbing implications for the stability of the dollar. One manifestation of the interest that the media and policy makers have taken in this topic is the frequency of references to ‘historical lessons’ that shed light on possible future developments. For example, one finds frequent reference to how the pound sterling was dethroned by the dollar as the leading international reserve currency and to the implications of this historical episode for what might happen next.

This article investigates which institutions and policies were related to the increase in European unemployment since 1970 and the productivity stagnation since the mid 1990s. By using data for 88 regions in nine European countries, national policies and institutions are analysed in a fixed-effects panel-data model to detect their relative importance after controlling for unobservable regional factors. The main finding is that institutions only started to matter after the oil crisis. The strongest institutional effects on employment came from the net reservation wages and employment protection laws. The institutional effects on productivity were mainly channelled through the employment productivity trade-off. By restricting the supply of labour, these effects were positive on productivity in the short run. However, the article shows that the long-run effects were negative and that there may be institutional roots to the European productivity slow-down in the 1990s.

This article traces links between the monetary regime and some institutions of the labour market in Denmark over the past century. The results indicate that elements of the labour market are endogenous. The longest wage contract terms are found towards the end of the pre-World War I classical gold standard period – characterised by price-level stability – and during the period since the mid 1990s that has seen a firm fixed exchange-rate policy and low and stable inflation. The shortest contract lengths are observed in the interwar period with high inflation volatility. Inflation indexation of wages was used most extensively in the Bretton Woods period and during the soft peg period of the 1970s when inflation was high and rising. The degree of nominal wage rigidity in the economy is therefore not necessarily approximately constant, as it is otherwise assumed in many New Keynesian models.

A general equilibrium arbitrated by prices arising from consumers and firms interacting in markets is a core idea in economic analysis and provides powerful insight into many historical issues. Modern computational models permit investigators to exploit the insights of general equilibrium. This article outlines the ideas of general equilibrium and of computational general equilibrium models. In the process, strengths and limitations are discussed. The discussion is given focus by using the Harley-Crafts model as its focus and explores briefly the consequences of changing the allocation principals in the agricultural sector of the model from a capitalist arrangement to a peasant arrangement.

I review recent monographs on the history of monetary and international financial regimes, which have explored the origins of the gold standard and the extent and sources of capital market integration. The studies of the emergence of the gold standard have adopted variously long term and shorter term perspectives, and arrive at different conclusions concerning the relative contributions of technological and political factors. The histories of capital markets document the extent and sources of the openness of late nineteenth century capital markets, and reach conflicting conclusions on the role that the gold standard played in capital market integration.

The European Review of Economic History is the journal of the European Historical Economics Society (EHES). By joining the Society you obtain the Review at preferential rates. To join simply contact: Elvira Ryan, Secretary for EHES, Latin American Centre, St. Antony's College, Oxford OX2 6JF, United Kingdom.

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A defining feature of the Industrial Revolution in England is the transfer of labour resources from the agricultural sector to the industrial sector.Crafts (1994, pp. 44–59). This transfer was exceptionally early by international standards.Crafts (1985, pp. 57–60). It was facilitated by high labour productivity in English agriculture, which enabled the industrial workers to be fed without an explosion in food imports.O'Brien (1996, pp. 213–49).