The development of financial institutions during the postwar period

Abstract

After a generation in which economic analysis was unduly influenced by the famous smile of the “veil of money”, it has become clear since the 1950s that money and other financial instruments “matter” in the sense that the course of real economic development may be considerably influenced by a country’s financial structure and activities. The financial structure even in many now developed countries up to the mid-19th century was a situation in which the overwhelming majority of financing was direct, taking place between ultimate savers and prospective users of funds. In the 20th century, however, indirect financing in which financial institutions interpose themselves between ultimate savers and ultimate investors, has come to account for an increasing proportion of total external financing and now is of considerably greater importance than direct financing. The present paper studies the development of financial institutions in the postwar period and observes their relationship to national product and to capital formation.

JEL: G20, O16, N22, N24