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The Long Shadow of Jewish Persecution on Financial Decisions

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The Long Shadow of Jewish Persecution on Financial Decisions The Long Shadow of Jewish Persecution on Financial Decisions Francesco D'Acunto Marcel Prokopczuk Michael Weber ∗ Abstract For centuries, Jews have been associated with financial services. We find that present-day households in German counties where Jewish persecution was higher in the Middle Ages and the Nazi period invest less in stocks, have lower savings in bank deposits, and are less likely to get a mortgage, but not to own a house. Current antisemitism, generalized trust, or supply-side forces do not appear to explain these correlations, which are consistent with a norm of distrust in finance, transmitted across generations. The forced migrations of the Ashkenazi communities across the German lands after the 11th century help assess the extent to which the effect of Jewish persecution on present-day financial decisions is causal. JEL: D91, G11, J15, N90, Z10, Z12. Keywords: Cultural Economics, Intergenerational Transmission of Norms, Religious Identity, Household Finance, History & Finance. ∗D'Acunto is at Haas School of Business, UC Berkeley (francesco [email protected]). Prokopczuk is at Leibniz University Hannover ([email protected]). Weber is at the Booth School of Business, University of Chicago ([email protected]). The views expressed in this paper do not reflect those of the DIW, the Bundesbank, the Banque de France, or the Friedrich Ebert Stiftung. We thank Joachim Voth and Nico Voigtl¨anderfor making their data on anti-Jewish violence publicly available, Tarek Hassan and Konrad Burchardi for sharing their data on the postwar migrations of Eastern European Germans, Thomas Kick for his help with the Bundesbank data on county-level bank branches, Tobias Lauter for his assistance with the Hoppenstedt data, the ifo-Prussian Economic History project, Ralph Melzer, Elmar Braehler, and Oliver Decker for sharing the micro-data underlying the FES Mitte-Studies, and Martin Eisele for his great assistance in the access of the PHF Bundesbank data. For very helpful comments and discussions, we thank Ran Abramitzky, Nick Barberis, Zahi Ben-David, Kelley Bergsma, Michael Brennan, Johannes Buggle, Filipe Campante, Davide Cantoni, Jason Chen, James Choi, Pierluigi D'Acunto, Stefano DellaVigna, Barry Eichengreen, Joey Engelberg, Ruben Enikolopov, Paola Giuliano, Will Goetzmann, Rick Green, Luigi Guiso, Tarek Hassan, Danling Jiang, Samuli Knupfer, Ross Levine, Sonya Lim, Dmitry Livdan, Ulrike Malmendier, Gustavo Manso, Adair Morse, Petra Moser, Rabbi Adam Naftalin-Kelman, Terry Odean, Martha Olney, Christine Parlour, Chris Parsons, Hagit Perry, Caitlin Rosenthal, Paola Sapienza, Markus Schmid, Andrei Shleifer, Stephan Siegel, Andrei Simonov, Paul Smeets, Robert Vishny, Nico Voigtl¨ander,Jason Wittenberg, Noam Yuchtman, and especially Joachim Voth, and participants at several seminars and conferences. All errors are our own. 1 Introduction For centuries, Jews have been associated with financial services, largely because of bans on lending money at interest for Christians and Muslims.1 The ban for Christians was lifted in the 15th century. Yet, in 1882, 3% of German workers were Jewish, but 23% of the overall financial sector workforce, and more than 85% of the brokers in the Berlin stock exchange, were Jewish.2 The diffusion of government-owned banks and local credit unions largely reduced the Jewish representation in German banking (Mosse, 1987). But Jews were still accused of dominating and manipulating the stock market, especially after major market crashes as in 1873 and 1905 (Marr(1879) and Koehler(2005)). The alleged Jewish manipulation of the German economy through the control of the stock market was an important tenet of the antisemitic propaganda until the Second World War.3 At the same time, Germans had persecuted Jews since the Middle Ages, and localized anti-Jewish sentiment had persisted for centuries (Voigtlaender and Voth, 2012). We document that present-day households in German counties where Jewish persecution was higher in the Middle Ages and the Nazi period invest less in stocks than other households. Figure 1 plots the negative correlation between stock market participation and historical Jewish persecution at the county level, conditional on a large set of historical and present-day observables. Households in counties where Jewish persecution was one standard deviation higher are 11% less likely to hold stocks. The size of this association is about one fourth of the effect of holding a college degree on investing in stocks, and college education is one of the most relevant determinants of stock market participation. Our analysis focuses mainly on stock market participation, because the defamation of Jews as stock-market manipulators was salient in the press and popular culture even 1For instance, Pope Leo IX banned Christians from lending money at interest as far back as 1049, and Gratianus formalized the ban in the Corpus Iuris Canonici in 1150: \Usura est, ubi amplius requiritur quam datur: [...] Ecce evidenter ostenditur, quod quicquid ultra sortem exigitur usura est." (\Usury is when one requires more than what he gives: [...] It is therefore obvious that whatever is required in addition shall be usury.") The human capital Jews had accumulated since the second century may have facilitated their sorting into trade and finance well before 1049 (Botticini and Eckstein(2005) and Botticini and Eckstein(2012)). 2Table 10 of the Online Appendix reports the share of Jewish workers across sectors in 1882 Germany. For the share of Jewish brokers, see Glagau(1876) and Fritsch(1892). Gross(1975) argues Jewish brokers founded the Berlin stock exchange, and the few non-Jewish brokers would not go on Saturdays, although the market was open, because of the lack of traders. 3The notion that Jews would manipulate the economy and culture through their stock ownership was already common in Wilhelmine Germany (e.g., Treitschke(1879), Sombart(1912), Poliakov(1977)). In the delirious words of Hitler, "In times of distress a wave of public anger has usually arisen against the Jew; [...]the Jew gained an increasing influence in all economic undertakings by means of his predominance in the stock exchange" (Hitler, 1939). 1 Figure 1: Stock Market Participation and Historical Jewish Persecution .2 0 -.2 Ratio Households who Own Stocks (residuals) -2 -1 0 1 2 Principal Component Measures of Persecution (residuals) Each point is a German county. The vertical axis plots the residuals from estimating the following equation, 0 RatioStockholdersk = α + Kk × δ + k; where Kk is the set of historical and present-day observables described in section 3. The horizontal axis plots the residuals of a regression of the principal component of the measures of Jewish persecution described in section 2 and the same set of covariates Kk. after the Jewish presence in banking had faded (Koehler, 2005). But consistent with the historical stereotype of Jews as moneylenders (Reuveni and Wobick-Segev, 2010), we also find that present-day households in German counties where Jewish persecution was higher use banking services less than other households, even if they do not face a lower supply of banking services. Households in high-persecution counties are 10% less likely to have a mortgage, but as likely as other households to own a house. The ratio of retail deposits over total assets of the banks in high-persecution counties is 2% lower than in other counties. Instead, households in high-persecution counties are as likely to save as other households, and the concentration of bank branches they can access is the same as in other counties. We find suggestive evidence that they are more likely to hold cash. After documenting the associations between historical Jewish persecution and the financial decisions of present-day German households, we assess their robustness, and then we investigate the channels that might have transmitted these associations over time. Our results obtain similarly in two different cross sections of households: (i) the SOEP data set, which includes 13,569 German households interviewed in nine waves over the period 1984-2010, and (ii) the PHF data set of Deutsche Bundesbank, which only includes one wave of 3,500 households interviewed in 2010, but collects unique information on household heads' risk aversion, generalized trust, financial literacy, and religiosity. Reverse causality is not a major concern in our setting, because of the timing of the outcomes we consider. But testing for a causal effect of Jewish persecution on present-day 2 households' financial decisions would require a quasi-random assignment of persecution across similar German counties in the distant past. We cannot construct such an ideal experiment, which is why we assess the concern that unobservables correlated with Jewish persecution and current financial decisions drive the results in two ways. First, we test for the robustness of our results when using alternative sources of spatial variation in Jewish persecution. All the results go through if we only look at counties that hosted documented Jewish communities in the Middle Ages, so that the presence of Jews, irrespective of violence against them, cannot fully explain the results.4 The results also hold when we only exploit the variation in Jewish persecution across geographically close counties, which delimit likely homogenous areas along several historical and present-day dimensions, as well as geography, the quality of institutions, and cultural heritage. We limit the variation in Jewish
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