European Financial Thought in the Early Twentieth Century

Abstract

Corporate Finance is a fashionable field in schools of Economics throughout the World. Al- though the main epistemological break to identify its scientific character may be established in the decade of the 1950s, this paper demonstrates how much developed financial thought there was in Europe before the First World War. Thanks to considerable growth of international trade, corporations, and multinationals (i.e. rising globalization) during this phase of

European civilization, Stock Exchanges flourished in all European countries. Philosophers, businessmen, professors, and lawyers disseminated their burgeoning erudition in financial knowledge, and several authors made large contributions in books devoted to legal features of human economic actions, and in textbooks devoted to political economy.

Word count: 6, 551

1. Introduction

Dealing with important issues that are related to wealth and revenue, corporate financial literacy and knowledge may determine an individuals’ success in life, or even their sur- vival in old age. Finance is usually considered to be a complex science, among common people, often driven by the perception that it consists of unsatisfactory explanations of the mystery and volatility of financial markets.

Corporate Finance is a scientific field today, as the need to understand financial markets is widespread, and receives a great deal of attention. All over the world Finance has carved out a large space in schools of Economics and Management in recent decades. Spe-

1 cialized departments of Finance in most Economics and Management schools have developed extensive scientific knowledge on financial markets.1 Professors of Finance and scho- larly journals in the field offer considerable scientific advances, and financial markets’ so- phistication benefit from ever greater financial literacy.

The history of Corporate Financial Thought is also a well cultivated field today, led by experts who made great efforts to identify its main contributors. The 1950s have been identified by many as the breakthrough moment for the birth of the science of Finance. Mo- tivating this paper is the aim of recalling contributors from the late nineteenth century and the early 1900s, before the First World War, as major cases of literacy and erudition in

Finance, who provided much literature in this field.

Section 2 will describe the sophisticated financial culture of the early twentieth century in Europe, revealing how accumulated expertise in domestic production and trade, in international commercial links, insurance contracts, currency transactions, share trading, bond issuance, and derivatives operations, brought the pressing need for sophisticated financial markets. Section 3 will deal with the existence of local, regional, and national Stock

Exchanges, which were part of a world network of financial relationships in which London,

Paris, Berlin, Vienna, Milan, Madrid, Lisbon, and New York were the leading global markets.2 Family financial culture and erudition in some social circles could stimulate a scientific approach to finance, and mathematics were also applied to the concept of stochastic processes, by Louis Bachelier in his doctoral dissertation The Theory of Speculation, describing stock price evolution.3 Section 3 also addresses the issues that were current in textbooks from this time, responding to the fact that local and regional exchanges permitted im-

1 Miller, 1999: p. 95. 2 Cassis, 2006. 3 Bachelier, 1900. 2 provement in the liquidity and visibility of listed corporations’ share and bond issues, also promoting reduced transaction fees. Section 4 presents the conclusions.

2. Late Nineteenth-Century Globalization and Financial Markets

Investment strategies to manage diversified portfolios are intimidating concepts for most people even today, but, a vast financial elite operating businesses in the late nineteenth century developed practical expertise in portfolios management.4 With operations that un- derpinned the urban centers and their role in the broad networking system of information, expectations, investment, and transactions, they belonged to wealthy social circles.5 Indu- strialization in the British Iles and on the European Continent had brought large corporations to the fore of economic activity, having large volumes of commodities to consume, sell, and export, while a number of spot and term (derivatives) contracts were established among dis- tant economic agents.6 Individual wealth could rarely supply enough capital for such large businesses, but financial institutions could provide a mechanism for gathering capital and rewarding private savings, whatever the amount to be made available and involved in those businesses.7 Banks and Stock Exchanges gathered the available savings and could help to channel them to useful financial applications, providing attractive rewards to capital owners who were interested in their services.8 Shareholding positions in corporations could provide good rewards to (small) private investors. Safety, confidence, and low information costs

4 Jones, 1994. 5 Foreman-Peck, 2011. 6 Hertner; Jones, 1986. 7 Cassis, 1997. 8 Bordo et alli, 2003. 3 were top values to fuel this mechanism of transforming savings into investment.9 Informa- tion costs had decreased dramatically.

Not only were transports and posts working efficiently thanks to railroads and sail and steam shipping, but also telegraphs were installed. Press provided daily information on

Stock Exchange transactions and asset quotations. Transparency was considered an essential feature for advertising stocks. Stock Exchanges published daily bulletins containing information about the listed issues, bids and ask offers, and prices of the executed transactions.

Specialized newspapers devoted attention to corporations operating on all continents, even in the most remote regions of the world. Capital gains and dividend pay-outs were announced worldwide.10 The telegraph was a powerful instrument in decreasing information costs, and a world network was made available thanks to submarine cable technology.

Throughout the last decades of the century all Stock Exchanges were in touch with each other, and telephones also began to offer yet another information network.11

Dealers, accountants, brokers, bankers, and finance experts in general, formed a technical staff that operated according to behavioral rules derived from codes of honor in- tended to inspire confidence, transparency, and trust. Foreign and domestic Treasury Bonds, as well as corporation shares and debentures were very attractive. Because of superior Euro- pean technology this period led to the exploitation of business opportunities on all other continents.12 Mining (including precious metals), agribusiness, railroad building, shipping, banking and insurance, as well as trading and commerce in general were transferred from the European business environment context to all other endeavors.13 European investment

9 Jones, 1996.

10 O’Rourke; Williamson, 1999. 11 Foreman-Peck, 2001. 12 Jones, 2010. 13 Jones, 2005. 4 and capital moved to North, Central, and South America, as well as to Asia and Africa (especially after the Berlin Conference of the late 1880s). In most cases emigration accompanied the transfer of savings and other flows of capital, leading to a universal spread of Euro- pean economic culture and international financial expertise.

Thanks to the gold-standard regime, the monetary context was favorable to international business, foreign direct investment (FDI), and financial connections. Free capital movements, including repatriation of profits and dividends, and fixed exchange rates provided an excellent business background, minimizing transfer risk because of minimizing exchange-rate volatility to the gold-entrance and gold-exit points that arbitrage could manage.14 This financial system broke up in August 1914, when the Austrian empire declared war on Serbia, and all other European nations decided to support one side or the other in this conflict.15 Nevertheless, before 1914, a European financial civilization circled the planet, from the UK to Southern Europe, Canada and the USA, from Germany to Eastern European regions and Russia, from continental European countries to Malaysia and the Philippines, and even from the UK and Belgium to Portugal, Angola, and Mozambique.16 As Keynes

(1924) says, “What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! (…) The inhabitant of London could order by tele- phone, sipping his morning tea in bed, the various products of the whole earth, in such quan- tity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural re- sources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security

14 Officer, 1989. 15 Hardach, 1987. 16 Foreman-Peck, 2001(a). 5 of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.”17

Considerable expertise existed in creating management boards, writing statutes for corporations, and listing issuers on Stock Exchanges. Law and (commercial) codes were published in all European countries to regulate all of the many activities and to avoid fraud and embezzlement. Legal environments were carefully described in abundant literature devoted to the subject, and the discussion of institutional frameworks was based on knowledge of current-day operations for capital manipulation and financial decision-making.18 Text- books on law necessarily dealt with the legal aspects of Stock Exchanges, including organizational details, rules for operations, and regulations for brokers’ activity.19

All countries had their Stock Exchanges located in the main urban centers. The urban network was also a financial network, made of one, two, or more financial poles for trading and finance. Youssef Cassis tells on the main capitals of capital in Europe in his 2006 book with that very title (Capitals of Capital). Local, regional, and national-level Stock Ex- changes fueled capital applications and the financial markets. Powerful families and social networks of well-known persons directed these operations. Aristocrats, bankers, deputies, and other politicians, as well as successful traders inspired confidence in investors and people in general, by sitting on the boards of corporations and free-standing companies.20

The institutional development of Stock Exchanges in Europe accompanied the long- run historical needs of economic agents. In the Middle Ages exchange letters were trans- acted in Paris on a bridge, the Pont-au-Change, while Lisbon pioneered international trade negotiations for commodity contracts and shipping in the early sixteenth century as a result

17 Page 11. 18 Cagigal, 2009. 19 Cosack, 1905. Vivante, 1902. Franchi, 1890. Marghieri, 1886. 20 Wilkins and Schröter,1998. 6 of the Discoveries.21 Bruges is also recalled for its pioneering open-air business and trade meetings circa 1580.22 Even so, before the First World War financial affairs belonged pri- marily to the London Stock Exchange, thanks to the British hegemony over world markets.

From the Bank of England, transactions moved to the street Change-Alley, with the first building - Capel Court - being made available only in 1802. 23

If the definition of a Stock Exchange includes the presence of corporations and share trading, the large European trade companies become the historical benchmark to be considered.24 The seventeenth-century British, French, and Dutch East India Companies were top venture-capital organizations for trade settlement connections with India, Indonesia, and other Asian regions. De la Vega’s book Confusion de Confusiones, written in 1688, is a pioneering textbook on ethics for behavior finance.25 In this work, prudent advising, training in profit and loss forecasts, permanent management of assets, and patience are the main specu- lator’s rules, as revealed in a dialogue between a philosopher, a merchant, and a shareholder.

The book addresses the operations of the Amsterdam Stock Exchange and stock markets in general. The Amsterdam Stock Exchange Association was a leading financial center in or- ganizing and regulating share trading in Northern continental Europe.26 Organizational aspects led Paris to have two stock Exchanges in that city, the Parquet and the Coulisse.27

“The Parquet was the regulated market organized by the Compagnie des Agents de Change

(CAC), the semi-private body of 60 official brokers (agents de change) with a legal monopoly on transactions. These brokers were recruited on strict social and wealth conditions

21 Justino, 1994. 22In front of Van Den Bursen’s family house, the reason why Stock Exchanges became called Bourses. Ulrich, 1906, p. 42. 23 Boudon, 1898. Stringham, 2002. 24 Poitras, 2000. 25 Cardoso, 2002. 26 Stringham, 2003 27 The Exchange moved from Rue Quincapoix, to the Soissons palace, and to the Palais Brongniart. Bedarride, 1901. 7 which provided high guarantees to the investors (…). By contrast, the Coulisse was a loose- ly organized market (with no juridical structure until 1884), illegal de jure but de facto tole- rated and even protected by the government. Its members (the coulissiers) acted both as brokers and jobbers”.28

Some authors also mention the Middle Age fairs as Exchanges to negotiate interna- tionally and operate money exchange rates, as issuing was a manorial political privilege that resulted in a variety of circulating currencies.29 The expertise gained was business- instructive and cumulative, leading to a continuous globalizing influence of Europe on business venture, administration practice, and capital raising systems.30

The First World War interrupted all of this European prosperity. It brought a bloody conflict that lasted for four dramatic years, the consequences of which changed the face of the world. The large empires’ traditional hegemony faced newly industrialized allied countries. The extension of the conflict along the lengthy battle line, from Belgium to Southern

Europe, paralyzed all normal businesses.31 Priority was given to hostilities. Universities closed for some periods of time, as did Stock Exchanges, and the conditions for globalization were disrupted. Submarine warfare put an end to Atlantic shipping. The gold-standard suddenly came to an end, as military expenditure in all nations threw convertibility into dis- array. The conflict exhausted all nations, all armies, and all families. So balanced were the potential fighting forces on the two sides of the conflict that it led to a stalemate. The inter- vention of the United States tipped the balance. The sway of the American military forces reflected the American economic superiority. By the end of the conflict, Europe was a continent in ruins. Fighting had ravaged not only the battlefields but also national economies.

28 Hautcoeur, Rezaee, and Riva, 2010, p. 4. 29 Ulrich, 1906, p. 94, identifies 1304 as the origin of the Exchange in Paris, 1549 in Lyon, 1554 in Toulouse, 1566 in Rouhen, 1571 in Bordeaux, and 1691 in Montpéllier. 30 Rambaud, 1884. 31 Hardach, 1987. 8

Destruction, death, and annihilation were the image of the face of Europe. Financial centers had ceased their functions. London, Paris, Frankfurt, and all the other Stock Exchanges had reduced their volume of operations dramatically.32 The great financial center was now New

York, on the other side of the Atlantic.33

Such a devastating conflict naturally brought difficult times for reconstruction in the

1920s, a Great Depression in the 30s, and a Second World War from 1939 to 1945, which would wrack Europe again.34 Demographic losses only mirror the break in prosperity that the old continent suffered for so long.

In such a context, the abundance of European financial literature on Stock Exchanges before 1914 gains a new rationality, as it corresponds to a European civilizational heyday.

3. The History of Corporate Finance, as a scientific field

According to Miller’s (1999) history of Finance, the 1950s were the breakthrough decade for intellectual achievement in Finance and Financial Economics, thanks to Corpo- rate Finance and the Asset Pricing Theory. The epistemological watershed was very clear, and consisted of introducing mathematical modeling methodologies. The scientific developments achieved in the field are today universally praised and globally recognized. Eight economists received a Nobel Prize in Economics for their contributions to Finance. In 1990 the Prize was awarded to three authors, Harry Markowitz, William Sharpe, and Merton Mil- ler. Curiously, when Markowitz concluded his Ph.D. at the University of Chicago, Milton

Friedman opposed the dissertation on the grounds that it wasn’t really economics. This as- sertion in fact heralded the specialized character of Corporate Finance, and resulted from

32 Aldcroft, 1987. 33 Michie, 1987. 34 Milward, 1987. 9 considering that it was an exotic approach that was being pursued for practical aspects related with transactions in stock markets.35

In fact, the present value of an investment was understood as the expected value – that is, the probability-weighted mean value – of its possible future outcomes.36 For risk assessment, the variance (squared deviations of those outcomes around the mean) was pro- posed as a good measure. Such an approach stresses the importance of statistical evidence of past experience in stock markets, as time series treatment is crucial for these estimations. For these reasons, Corporate Finance stimulates economic history studies on stock markets, and paves the way to co-operation with economists who devote their research to economic, business, and financial history. A good example of such co-operation is the estimation of the

Cost of Capital, as it is based on long-term time series from historical datasets that record daily observed values.

Seven years later, in 1997, Robert Merton and Myron Scholes were also awarded the

Nobel Prize, for introducing option pricing and Algebraic and Mathematical Statistics for stock options and portfolio selection, thanks to a new method to determine the value of derivatives. Most economists believe that Fischer Black would have also accompanied them, but he had passed away two years before, in 1995.

Just last year, 2013, the Nobel Prize was given to distinguished contributors in

Finance, Eugene Fama, Lars Peter Hansen, and Robert Shiller, for their empirical analysis of asset price.

35 Rubinstein, 2003. 36 Stabile, 2005. 10

In spite of this tremendous turning point in the science of Corporate Finance in the second half of the twentieth century,37 it is recognized that the Great Depression (1929-

1933) strongly stimulated thought about stock markets, particularly in the USA. The textbook by Benjamin Graham and David Dodd, Security Analysis, published in 1934, is a good example to mention, and John Burr Williams’ Theory of Investment Value, published in

1938, is also important. Both books were very popular in the USA, where New York was the leading financial center of the world. The crash brought a compelling stimulus for financial information on stock markets or, at the very least, curiosity about the subject.38

In Europe the scientific interest for financial markets was largely spread throughout all countries much earlier than the 1929 crash. The European literature is replete with erudite descriptions of the Stock Exchanges and stock markets, dealings with legal aspects, discussions of the effects of regulations, and international comparisons of organizational features.

If a mathematical approach is required to define the scientific character for contributions, we may cite the pioneering work of Louis Bachelier (1870-1946), The Theory of Speculation in stock markets, from 1900, which is a seminal introduction to the concept of stochastic processes to mathematically describe stock price evolution.39 He may be rightly considered as a founding father of financial mathematics, opening the way to the Brownian motion model to evaluate stock options. According to Preda (2004: 351): “Louis Bachelier appears

(…) as one member in a series of economists intensely preoccupied with developing financial economics. This, however, does not diminish his merits: Bachelier was a creative devel- oper of ideas and preoccupations that other economists had already formulated”.

37 Poitras, 2005.

38 Kindleberger, 1987. In Spain, Galvarriato, 1935 is a good example, for its extensive influence. 39 Preda, 2003. 11

However, this mathematical contribution met with little success in the French acad- emy. It was presented as a doctoral dissertation at the Sorbonne, in Paris, and was approved, but without distinction. It also gained little recognition thereafter. No teaching position was offered to Bachelier in Paris, who found his first teaching position only in 1909 and a permanent position only in 1927, in Besançon, which was a remote university in comparison with his alma mater.

Mathematic contributions to Economics often left their pioneering authors in obli- vion, and Bachelier is only one among many. Cournot’s theories on monopoly, duopoly, oligopoly, and perfect-competition markets are perhaps the most well-known case. They were made available in his book Recherches dans les Principes Mathematiques de la Théo- rie des Richesses, which was published in 1838, but although he pursued an academic career and managed to reach a rectorship position, few had come to understand their importance by the date of his death, in 1877.40

The dominant financial paradigm in Europe in the early twentieth century was not mathematical. Many books of wide practical and educational interest on the stock markets were available, in a cultural context in which economists had already established the market theory, from Smith, Ricardo, Malthus, Jean Baptiste Say, James Mill, John Stuart Mill, and

Cairnes, to Marshall, Menger, Wieser, and Bohm-Bawerk, to quote only the most popular and well-known authors.41 To the extent that their contributions were spread among businessmen, intellectuals, and academicians, the understanding of Stock Exchange operations could be improved, as Exchanges also work as a market, which is quite clear in Courtois

(1902), for whom trading is absolutely required for producing and consuming. Moreover,

40 Ekelund and Herbert, 1975, p 209. 41 “Cairnes, Mill’s most outstanding disciple, in his comments on the text of the fifth edition of the Principles, defended the joint stock principle (…). Mill (…) inserted a paragraph em- bodying Cairnes’ observations in the sixth edition”. Schwartz, 1972: 139-140. 12 economic progress was identified with credit and the funding via stock markets, because the foundation of a limited liability corporation is based on shares that raise the capital for the business purposes.42 This was the way to support a labor division economy.

Commodities and financial asset transactions could now work in different places as well as in the same. But limitations on who could or could not participate in Stock Exchange operations became a feature of the literature. Insolvent and bankrupt persons and all those who had failed to fulfill stock exchange requirements were barred from the sessions. Also excluded were those convicted or merely accused of crimes, as were insane persons and the children. Unless they had their own business, women were also refused entry in the commercial codes of most countries.43

Most of the authors were not aiming an academic readership audience, and were more interested in financial speculation on Stock Exchanges assets and price behavior. This is the case of Regnault (1863).44 Financial speculation and horse-race gambling even stimulated calculations for the use of probabilities. Chateaudun, who was a private secretary of

Rotchild, became a banker, and published the Traité des valeurs mobilières et des opéra- tions de Bourse: Placement et speculation, (Treatise on securities and Stock Exchange operations), for financial speculators, in 1870: “In the late 1860s, Lefevre started a nationwide investment company called Union Financière and published an investment journal, the

Journal des placements financiers. In his Traité, he developed the graphic method known as the ‘payoff diagram’".45 According to Supino (1898) it is wrong to accuse stock markets of speculation, because they belong to capitalist economies and are a necessary element of capital circulation, interest rate convergence, and price equilibrium. Market efficiency was

42 Graziani, 1904. 43 Ulrich, 2011, p. 151-154. 44 Preda, 2004: 351. 45 Preda, 2004: 351. 13 commonly assumed as a basic fact, and Supino believes in it. 46 In his opinion stock markets facilitate trading and exchange, so accusations against Stock Exchanges are similar to those against machines, factories, and new technologies.

Arbitrage is important, we say now. The activity was already considered to be highly important to society by Hayaux du Tilly (1901), arguing that while trading in commodities interests only some people, everybody must recognize that financial assets serve everybody.

In his opinion this means that governments cannot be blind toward Stock Exchanges, but should keep them under the scrutiny of the central state. Such a concept is close to regarding

Stock Exchange functions as a public good, to be preserved, implemented, and regulated.

This was not the common opinion in the early days, when self-regulated Exchanges arose following merchants’ and traders’ initiatives, and these competed for their intermedia- tion role. 47 Individuals’ associations in Britain and Northern continental Europe freely dis- covered the best organizational and governance principles, by themselves without state regulation. However, in the late nineteenth century and early 1900s, voices calling for state regulation became loud and quite effective. Political economy textbooks included definitions of

Stock Exchanges as concentrated markets located in large urban trade centers where businessmen met for negotiations and transactions involving large amounts of capital.48 So too, the rules for operations and penalties pertaining to brokers’ activity were meticulously described, especially regarding unfair competition among them and false rumors.49

In the second half of the nineteenth century Commercial Codes had been established in most of the European countries, including some chapters dedicated to the regulation of

Stock Exchange operations, from listing to transactions. Punishments were prescribed, and

46 For the abandonment of the efficient markets hypothesis, Haugen, 1999. 47 Stringham, 2002, p. 2. 48 Colson, 10903, vol. 2. 49 Moysen, 1904. 14 textbooks commented on these various issues, thereby spreading information and financial literacy.50 Detailed regulations for Stock Exchange or brokers’ codes sometimes also included the opening hours, duration of the sessions, timing for short-selling, and the schedule for term (derivatives) transactions.

The recognition of the utility of Stock Exchanges for the economic system comes also from the need to collect small-pocket savings for government loans in public debt. Be- cause confidence in governments increases bonds’ prices,51 stock markets reflect a nation’s vigor and credibility, it is said. As capital mobility is an important condition for private businesses and public credit in all countries, its efficient provision by Stock Exchanges for public works and collective improvements make governments also dependent on them, while regulating their activity, simultaneously.52

Taxes on Stock Exchange operations were (and still are) a difficult matter. On the one hand, it is considered that the access to stock market services should be simple, cheap, and attractive. On the other hand, financial operations provide means for increasing production, distribution, selling, and the opportunity for such benefits should be taxed.53 What taxes and at what rates might be adopted, and what effects on financial operations may occur is a technical discussion that already existed in the early twentieth century.

Transactions (on commodities or securities) were seen as the top expression of alter- native uses for capital (transfers among shareholders’ hands in the vast world of business).54

In this way, Stock Exchanges were viewed as a thermometer of economic wealth in a capi-

50 Thaler, 1900. 51 Ulrich, 1906, p. 55, quoting Piccinelli, 1897. 52 Ulrich, 1906, 65, quoting Laveleye. 53 Weil, 1902. 54 Buriat, 1903. 15 talist society, according to Proudon’s sizeable book Manuel du spéculateur à la Bourse.55

As a philosopher, he identified stock markets as hidden engines of financial civilizations, whose importance is greater than universities, theater, conferences, courts, or the churches’ power. In his surplus-value theory, Marx describes profits and interest as rewards for capi- talists according to the amount of capital advanced for the productive system.56

The investors’ perspective, however, was the dominant approach. It was explained that if investors preferred safe and risk-free applications the interest rate would be lower, while if they accepted some risk they could get much higher rewards for the capital in- vested.57 In the first case it was usual to obtain capital at a 3% interest rate (or even less), and family fathers might need to accept such a modest return, while risk lovers could look for higher rewards, against the possibility of suffering future losses. Paul Lafargue (Marx’ son-in-law) came to the conclusion that risk and revenue were highly and positively corre- lated and expressed it in a very clear way. The mix of decisions is considered as a normal behavior. He is not far from the idea that risk-lovers’ investment in announced and listed securities or projects is undertaken so that the estimated (or expected) return may surpass (or at least equal) the market-determined free-risk rate.

A more mechanical view establishes that Stock Exchanges provoke centripetal and centrifugal forces, according to international competition and organization rules for their operations.58 Law and legal codes sought to identify and clarify the shareholders’ rights when the established legal proceedings were followed.59 Not only did they pursue this func- tion, but it is fair to also recognize the pedagogical character of these books in disseminating

55 A 511-pages book. 56 Marx, 1901. 57 Lafargue, 1897. 58 Sayous, 1898. 59 Boudon, 1896. 16 knowledge on financial markets, and in providing financial literacy to users.60 They offered real guidelines for action in describing Stock Exchange operations and the actors in them.61

Many books may also be considered as glossaries for financial vocabulary, as there is a technical language made of special words and expressions in each language.62 These books frequently presented considerable information on banking issues, securities in general, and public debt.63 They provided training in reasoning about financial matters in a political economy perspective. 64 The entries on Bourse at Dictionaries, are summations.65

Ruy Ennes Ulrich (1883-1966) also wrote a textbook in Portuguese On Stock Ex- changes and their Operations (Da Bolsa e Suas Operações). This was his doctoral dissertation topic at the University of Coimbra Law School, in 1906. He mentions a number of important books then available in France (36), Italy (11), Spain,66 Germany,67 and the UK,68 as having refined treatments of legal matters, as well as discussions of regulations and organizational features of the Stock Exchanges.69 It is quite clear that Ulrich’s concept of equilibrium stems from some fields of Physics, and comes through a large bibliography, with a dominant French character.

These authors had a wide variety of professions. From philosophers to law practi- tioners, from businessmen to academic professors, some of them devoted their lives to management and worked as CEOs or executives in large corporations, using their financial ex-

60 Chevilliard, 1904. 61 Bozerian, 1859. 62 Fontaine, 1905. 63 Ferraris, 1892. 64 Boudon, 1898. 65 Raffalovich, 1900. Vidal, 1896. 66 Carreras y Gonzalez, 1865. 67 Gründt, 1899. 68 Passos, 1905. 69 Ulrich 1906; Mata and Costa, 2013. 17 pertise in the management and strategic governance of large domestic or international businesses.70

But this tide of literature was interrupted. “In London, the world’s foremost financial center, the week before the outbreak of the First World War saw the breakdown of the markets, culminating with the closure for the first time ever of the London Stock Exchange on

Friday 31 July. Outside the Bank of England a long anxious queue waited to change bank notes for gold sovereigns. Bankers believed that a run on the banks was underway, threaten- ing the collapse of the banking system – all with the nation on the eve of war”.71 The decades following the War were difficult times, too, in one way or another.72 The inter-wars period remain as a break between the two huge conflicts, while the second half of the century would bring reconstruction and prosperity.73 Contributions in the 1950s to Corporate

Finance and the development of this scientific field reflect these historical conditions.

4. Conclusion

Main contributions may be quoted from French authors such as Curtois (1902),

Fontaine (1905), Hayaux du Tilly (1901), and Guillard (1877), from Italian books such as

Supino (1875 and 1898), Vivante (1902) and Tedeschi (1897), from English texts such as

Passos (1905), and from the Portuguese Ulrich (1906). They all pioneered the study of corporate finance and financial markets, in offering significant textbooks for financial markets users. Their knowledge and the practical character of their discussions was very rich and

70 Mata and Costa, 2013. 71 Roberts, 2013, https://itunes.apple.com/br/book/saving-city-great- financial/id784312364?mt=11. 72 Milward, 1987. 73 Aldcroft, 1987.

18 useful at a time when the balance of financial power was still in the European cities and their financial markets, although New York was beginning to gain an important role on the other side of the Atlantic. As forerunners in the field of Financial Thought they all deserve to be considered as the first wave of contributors in the history of the field.

As in many other fields, in the History of Financial Thought, one may point out a bi- as toward the preference for recent important developments, and mathematical and English- language contributors. This should not lead us to forget the many traditional forerunners.

Most of them were non-mathematical and non-English language contributors. These often overlooked authors, some of whom were well-trained economists, paved the way in spreading common and practical knowledge, to vast numbers of the global population. Many decades before the introduction of financial economics, investment strategy, and the study of risk in asset investments by American experts in the 1950s and thereafter, financial knowledge was based on experience, observation, and investment decision-making processes that were dictated by the particular needs of the time.

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