About the Book
How a vast network of shadow credit financed European growth long before the advent of banking
Prevailing wisdom dictates that, without banks, countries would be mired in poverty. Yet somehow much of Europe managed to grow rich long before the diffusion of banks. Dark Matter Credit draws on centuries of cleverly collected loan data from France to reveal how credit abounded well before banks opened their doors. This incisive book shows how a vast system of shadow credit enabled nearly a third of French families to borrow in 1740, and by 1840 funded as much mortgage debt as the American banking system of the 1950s.
Dark Matter Credit traces how this extensive private network outcompeted banks and thrived prior to World War I—not just in France but in Britain, Germany, and the United States—until killed off by government intervention after 1918. Overturning common assumptions about banks and economic growth, the book paints a revealing picture of an until-now hidden market of thousands of peer-to-peer loans made possible by a network of brokers who matched lenders with borrowers and certified the borrowers’ creditworthiness.
A major work of scholarship, Dark Matter Credit challenges widespread misperceptions about French economic history, such as the notion that banks proliferated slowly, and the idea that financial innovation was hobbled by French law. By documenting how intermediaries in the shadow credit market devised effective financial instruments, this compelling book provides new insights into how countries can develop and thrive today.
Philip T. Hoffman is the Rea A. and Lela G. Axline Professor of Business Economics and History at the California Institute of Technology. Gilles Postel-Vinay is professor emeritus at the Paris School of Economics. Jean-Laurent Rosenthal is the Rea A. and Lela G. Axline Professor of Business Economics and the Ronald and Maxine Linde Leadership Chair in the Division of the Humanities and Social Sciences at the California Institute of Technology.
“This pathbreaking book will revolutionize how economists and historians think about banking, early modern France, and the connections between financial development and economic growth. Those who believe peer-to-peer lending is a twenty-first-century novelty enabled by Big Data and the Internet will be forced to think anew.”—Barry Eichengreen, University of California, Berkeley, coauthor of How Global Currencies Work
“If banks are a necessary requisite of a high income, modern economy, then how did ‘under-banked’ France grow wealthy enough to challenge Britain for global mastery during the eighteenth and nineteenth centuries? Read this fascinating book about peer-to-peer lending and learn the answer.”—Stephen H. Haber, Stanford University, coauthor of Fragile by Design
“This important book definitively establishes not just that informal financial institutions were just as important as the formal ones in the emergence of the modern French economy, but that they interacted in critical ways. It has profound implications for how we think about economic development.”—James A. Robinson, University of Chicago, coauthor of Why Nations Fail