EPISODE 2 : The Invention of Financial Capitalism

Following an exploration of the origins of money and the limits of the pre-industrial mercantile system, this second episode examines the emergence of financial capitalism: how economies moved from credit grounded in personal relationships to a system capable of mobilising vast amounts of capital, on a large scale and over long periods.

Here we are again, for this second episode, at the very beginnings of an invention that would reshape the world more profoundly than any war or political revolution: financial capitalism.

It is a term we use routinely today, so deeply embedded has it become in our economies, yet we rarely stop to question its origins, the hands that shaped it, or the crises that had to be weathered before it became the self-evident fact it now seems. For financial capitalism was not born in 1800. It inherits several centuries of experimentation and trial and error. These are the distant histories we must first retrace before plunging into the great nineteenth century.

Financial capitalism has its origins well before the nineteenth century, in inventions that emerged in the seventeenth and eighteenth centuries.

In 1602, the Dutch East India Company was founded in Amsterdam to finance risky trading expeditions to Asia. To raise the necessary capital, it turned to a large number of investors, who received shares in the enterprise: the first freely tradable shares. Around these securities there gradually developed a market in which shares could be bought and sold without waiting for the ships to return. Amsterdam thus invented, unwittingly, the modern stock exchange.

In 1694, the England of William III was engaged in a costly war against France, but the Crown no longer had the resources to fund its military campaigns. The Bank of England was therefore established: it lent to the state and received, in exchange, the privilege of issuing banknotes. The war was now financed in part by public borrowing, alongside taxation. The state thus acquired a lasting instrument for mobilising private savings in the service of its political power.

The eighteenth century, however, delivered a brutal lesson. In France, between 1716 and 1720, John Law developed a system combining paper money, public debt and the Mississippi Company. Share prices soared, buoyed by promises of colonial profits, before collapsing abruptly in 1720. The crisis left a lasting scar on French public opinion and fostered a deep distrust of paper money and speculation. In the same year, in England, the South Sea Bubble produced a comparable collapse.

These episodes already reveal the dual nature of finance: it can mobilise vast amounts of capital, yet it rests on a confidence that can vanish very quickly. It is on this fragile inheritance, made up of decisive innovations and violent crises, that the nineteenth century would build financial capitalism.

This period was marked by a handful of pioneers who forged the rules and the limits of capitalism as we know it. First among them were the banking dynasties: the Rothschilds, who financed the Napoleonic Wars before becoming creditors to sovereign states; the Morgans, architects of the structuring of American industrial capitalism; and the Baring Brothers, whose influence stretched from London to the young republics of Latin America.

They understood, earlier than most, that money constitutes a genuine infrastructure, comparable to a road or a bridge. Their empire rested on mastery of borrowing and credit, whereas the aristocrats of the Ancien Régime had founded their power on the possession of land.

Nathan Rothschild, it is said, learned of Napoleon’s defeat at Waterloo before the British government itself, thanks to his network of private couriers. The anecdote may well be embellished by legend, but it speaks to a deeper truth

A word on what became of these dynasties. The Rothschilds still exist, through the investment bank Rothschild & Co (delisted from the Paris stock exchange in 2023) and the Swiss group Edmond de Rothschild, led by Ariane de Rothschild; their combined fortune is estimated at around €35 billion in 2026. The Morgans merged their legacy into JPMorgan Chase, headed since 2005 by Jamie Dimon, and the bank is poised in 2026 to cross the threshold of $1 trillion in market capitalisation. The Barings, by contrast, did not survive: after 233 years of existence, the bank collapsed in 1995, ruined within a few weeks by a single trader in Singapore, Nick Leeson.

States then became the first great modern borrowers. Their public debt, now issued on a large scale and traded on the markets, transformed the way a government could fund its expenditure. A state that borrows exposes itself to the judgement of investors: its capacity to repay, its political stability and the confidence it inspires become decisive factors.

This finance also required instruments and rules. Jurists, notaries and accountants, often remaining anonymous, gradually devised the share, the bond (defined as a debt security bearing interest) and the industrialised bill of exchange. Their work gave finance a legal framework and a common language, indispensable to its development.

The pivotal date in this movement is 1815. After Waterloo, the loans raised to rebuild defeated France were subscribed as far afield as London. They constituted one of the first major coordinated international financings of modern history and foreshadowed the globalised finance of the following century.

A legal innovation then completed this movement: the generalisation of limited liability for shareholders, enshrined in England by the Limited Liability Act of 1855 and subsequently taken up on the Continent. Henceforth, investors no longer risked their entire personal fortune in the event of bankruptcy, but only the amount of their initial stake. This rule considerably widened access to capital and encouraged a broader public to take part in large enterprises.

Financial capitalism developed because it offered concrete answers to the needs of states and industrialists: financing wars, building infrastructure, developing industry and stabilising trade. Four major functions of standardisation illustrate this evolution.

First and foremost, money and the gold standard (each currency being convertible into a fixed quantity of gold). Its gradual adoption between 1820 and 1870 created, for the first time, a common reference among nations: the franc, the pound and the mark were convertible at a stable rate. A merchant in Marseille could henceforth trade with a shipowner in Liverpool without fearing that the currency he received would lose its value overnight.

Organised markets, such as the London Stock Exchange, the Paris Bourse or the New York Stock Exchange, contributed to this same standardisation. Trading there followed fixed hours, with public quotations, sworn stockbrokers and common rules. The transparency of prices allowed everyone to know the conditions of the market and fostered the lasting establishment of confidence.

Industrial credit found its embodiment in the Crédit Mobilier of the Pereire brothers, founded in France in 1852, forerunner of modern investment banks. They channelled the private savings of the small rentier towards the financing of heavy industry: railways, mines, steelmaking. The Crédit Lyonnais followed in 1863, then the Société Générale in 1864, which endowed France, within a generation, with a genuine system of deposit banks.

Finally, sovereign debt (government bonds) was standardised: listed on the stock exchange, rated, and traded like any other security, it made a country’s solvency a matter of public information and a financial asset in its own right. This method was fiercely contested by certain economists of the day, who already saw in it the seeds of abuses that we shall discuss later.

Nineteenth-century financial capitalism was also closely bound up with colonial expansion, particularly in the case of France. Finance accompanied European domination over the rest of the world, turning colonial projects into investments open to European savers.

The great concession companies, such as the Suez Canal Company, inaugurated in 1869 with chiefly French capital, or the concessionary companies of Equatorial Africa, rested largely on financial engineering. They raised capital from the European public by promising high dividends tied to colonial wealth. Imperial expansion thus became a savings product within everyone’s reach: the small provincial rentier who subscribed to Egyptian bonds was taking part, sometimes without being fully aware of it, in the machinery of colonialism.

Finance is not merely an abstraction confined to ledgers and trading floors: it takes physical form in the world around us.

The railways. The railway revolution cannot be understood without the financial revolution that made it possible: the rails were cast with money raised on the stock exchange, subscribed by tens of thousands of anonymous shareholders. The British railway speculation of the 1840s, the Railway Mania, was the first great stock-market bubble in the history of industry: hundreds of companies founded within a few months, fortunes built and swallowed up in a single season, before the inevitable collapse.

Urbanisation. The great public works that transformed Paris under the Second Empire of Napoleon III were financed by the Crédit Foncier. The modern city, with its grand boulevards, its Haussmann-style buildings and its running water, was a financial product, conceived, structured and amortised like any other investment.

A first globalisation. The transatlantic telegraph cable, laid in 1866, and financial markets now interconnected produced an unprecedented effect: a crisis arising in London was felt in New York within hours, rather than weeks. Finance created the first truly global economy.

Insurance. With the rise of the great life-insurance companies, such as the Assurances Générales in France or the British firms, ordinary people could protect themselves against premature death, fire or shipwreck by pooling risk, that is, by spreading it among other policyholders, in return for a regular premium.

Attitudes to wealth. We move from a society in which wealth is measured in land, inherited, handed down, immutable, to one in which it is measured in capital, mobile, liquid, reinvestable. This shift redefines social status, the logic of inheritance and individual ambition.

Nineteenth-century literature grasped this transformation with a lucidity often greater than that of the economists themselves.

Balzac, in The Human Comedy*, paints an uncompromising portrait of a society in which money has supplanted birth as the measure of social worth. The banker Nucingen, shrewd and unscrupulous, embodies the ambiguity of this new aristocracy of money.*

Zola, later, devotes an entire novel to stock-market speculation, Money*, published in 1891, in which he describes the workings of the Paris Bourse with almost journalistic precision, down to the collapse of his protagonist, modelled on real bankruptcies such as that of the Union Générale in 1882.*

Dumas, in a very different register, makes the hero’s fortune in The Count of Monte Cristo*, acquired through a treasure and then multiplied many times over by shrewd financial management across Europe, the instrument of his revenge: in the romantic imagination, mobile wealth takes the place of the Ancien Régime duellist’s sword.

We cannot close this episode on a note of triumph. The nineteenth century drew to a close with the first great systemic crises of modern history and, disturbingly, no one yet truly understood what was happening.

The crisis of 1873 illustrates this fragility. Born of speculation in railways and property, it brought about the collapse of numerous markets and ushered in a long period of economic slowdown, known as the “Long Depression”. According to some historians, its effects were felt until 1896, making it the first lasting worldwide depression in industrial history.

The concentration of power constituted another limit of the system. In the United States, great groups such as Rockefeller’s Standard Oil or Morgan’s U.S. Steel grew so large that they dominated entire sectors. This development shows the risks of monopoly, when a single actor controls a market. Wealth became concentrated at a pace that few observers had anticipated.

Bank failures likewise exposed the absence of robust safeguards. In 1882, the Union Générale, a Catholic bank founded in reaction to the influence of the great Protestant and Rothschild houses in French finance, collapsed after excessive speculation. The crisis struck popular savings directly and showed that a system founded on confidence can give way swiftly when no institutional mechanism steps in to support it.

Finally, the working classes remained largely excluded from the benefits of this growth. The financial system benefited first those who already held capital, while the workers of the industrial revolution endured harsh working conditions and limited incomes. This exclusion fostered the rise of the labour movement, the development of Marxism and the emergence of the first social legislation.

There was no lender of last resort (a central bank that lends to banks in difficulty); the Federal Reserve did not yet exist; there was no genuine regulation of the markets; and there was no deposit guarantee for the small saver.

On the eve of the twentieth century, the world was no longer what it had been a century earlier. Within a few decades, money had been transformed, banks had asserted themselves, financial markets had become international, and credit had profoundly changed economies. Capital flowed from one continent to another, financing states, businesses and infrastructure.

Yet behind this power lay a new fragility. The more the financial system developed, the more interdependent economies became: a crisis in one bank could spread to a market, then to a country, and cross borders.

As 1900 approached, questions began to arise: should finance be left to regulate itself? Should central banks be given new powers? How were savers to be protected?

In 1900, the world possessed a global financial system, powerful and capable of creating unprecedented wealth. But it did not yet possess the mechanisms needed to curb its excesses.

The twentieth century would put to the test, brutally, all the foundations laid in the previous century. In the next episode, we will look at the crises and upheavals that have profoundly shaped our societies throughout history.

Until next time, for the next chapter in this story.