The large German universal banks play a unique role in the historiography of German industrialization and capitalism. Their commanding presence in the German economy has generated more than a century of debate about the role of “finance capitalism.” On the left, Rudolf Hilferding's Finance Capitalism (1910) generated the widespread impression that they increasingly dominated German industry because of their shareholding of industrial firms, the seats they occupied on German boards (commonly the chair of the supervisory board), and ability to vote for shareholders (proxy voting). The famous “organized capitalism” thesis made the largely Berlin-based banks a critical institution linking German economic and political power. Ironically, neo-liberal Anglo-Saxon commentators today offer similar critiques of German bank-industry relations, but focus on the system's relative underperformance and lack of shareholder value. On a positive note, since Alexander Gerschenkron's famous thesis in Economic Backwardness in Historical Perspective (1962) argued that banks substituted for deficiencies in individual entrepreneurship and private financing, making them a “powerful invention” comparable to that of the steam engine (p. 30). Since Gerschenkron, economic historians have largely viewed them as a critical component explaining the fast “catch-up” of German industrialization by means of their key investments in large-scale German firms. Till the present, universal banks have regularly occupied one of the key positions in the German variety of capitalism (for instance, Peter A. Hall and David Soskice, Varieties of Capitalism [2001]). They appear as spiders in the net of Germany's “coordinated market economy,” the updated version of the “organized capitalism” thesis.

Building on a series of articles appearing throughout the 1990s, Caroline Fohlin's Finance Capitalism successfully challenges many of these “orthodox” interpretations. Fohlin offers a sophisticated, statistically oriented revision about the role of large German banks using modern financial theory. Although there is a good deal of talk about the importance of interdisciplinary approaches, few manage to combine as well the virtues of modern financial theory with a solid historical grounding without devolving into the virtues or prejudices of a single discipline; “theory meets evidence” (p. 63) are in true dialogue with one another. Indeed, Fohlin wrote the book with three audiences in mind: “specialist scholars of German history or of finance and business history; economists interested in a long-term analysis of German corporate finance and governance; and also general readers with a more casual interest in some or all of these areas of study” (p. 345). In spite of some heavy-hitting descriptions of financial theory (chapter three) and statistical methodology (chapters five and six on bank-firm governance and firm financing and performance), the book is clearly written and accessible. Casual readers can still read the book fruitfully for its description of the German financial system (chapter four) and corporate governance (chapter five).

It deserves to have a broad readership among German scholars. Readers already familiar with her writings will find the book a clear distillation of her ideas and useful for graduate classes. Its provocative conclusions paint a significantly different portrait of German capitalism and industrialization than is usually taught in German history courses. It is the best single, succinct overview in English about the development and debates surrounding German universal banking (chapter four) and capital markets (chapter seven). (In German, Stefan Eube's Aktienmarkt in Deutschland vor 1914 [1998] is a necessary resource.) Chapter eight offers a short, but cursory sketch of German financial system history till the present, which only begins to scratch the surface, but indicates just how much work needs to be accomplished to link the financial world before 1914 to the present across the great ruptures of German history.

Fohlin advances a number of important arguments. Although the concentration in German industry and banks was one of the hot button issues of late Imperial Germany, German universal banking was as concentrated as the English deposit banking sector (pp. 79, 332); as a whole German banking had a great deal of similarities with English banking—the classic and usual contrast (p. 104). Then, as now, the German banking system remained highly fragmented and the large, private-commercial banks accounted for only a small proportion of the financial system so their power should not be exaggerated. Because the big Berlin banks were smaller and less “dominant,” German industrialization as a whole cannot be laid at their feet (p. 102). Universal banks also appeared too late to have jump-started German industrialization; moreover, the “universal banks” of the 1850s hardly resembled the universal banks of 1914 as they increasingly accepted deposits, built branch networks, and acted as commercial banks rather than investment banks (p. 332). Rather than acting as nineteenth-century venture capitalists, universal banks followed a fairly conservative risk-taking policy. In line with many business historians' recent findings, banks hardly dominated German firms or made them perform more effectively (pp. 32–37, 167–168, 220). Equity shareholding or seats on supervisory boards were less about control than an attempt to improve their returns on the securities they issued; equity holdings were a sign of issuing failure, not symbols of success. Banks' equity holdings had more to do with their stock market intermediation than an attempt to influence corporate decision-making. Representation on company boards was more about monitoring, advising, and building relationships to further banks' own business. Few major firms relied on one bank at all as a paternalist Hausbank (pp. 335–336). Fohlin finds little to no systematic bias toward companies' financing decisions (firms tended to rely on internal financing rather than bank debt financing), or, given the close formal relationships signified by banks on boards of directors, on its capital structure, decision-making, management turnover, or debt or equity ratios. Firms with close bank relationships did not necessarily outperform or underperform other independent firms. Finally, Fohlin reminds readers that the orthodox interpretation viewing Germany as bank-centered simply erases the important role of stock markets “despite growing regulation and taxation” (p. 276). Unlike much literature in financial economics that assumes a stark tradeoff between banks and equity markets, Germany had a mixed system whereby banks symbiotically promoted stock markets and stock transactions generated a significant percentage of bank profits. Overall, Fohlin reminds readers that scholars have overstylized and dehistoricized the German financial system.

Moving beyond individual cases, the strength of the book's systematic statistical empiricism is also its weakness. Fohlin is most interested in testing hypotheses arising from the financial economics literature about the efficiency of bank financing, relationship banking, and banks' impact on firm performance. She embeds her discussion less in the historiography of Germany. Although the overall descriptions about change in the German financial system (both banks and stock markets) are excellent, why they look the way they do would require delving into intriguing issues of politics, society, law, culture, time and place, and individual personalities that are repeatedly referred to, but never quite explicated (see pp. 14, 37, 46, 345). Fohlin mentions crucial events (the 1873 Crash), the 1884 Joint-Stock Company law that still underpins German corporate governance, and capital market legislation (Stamp Tax, 1896 Stock Exchange Act), but focuses more on their measurable impacts rather than the political or legal debates leading to this legislation, which reduces the opportunity to discuss important issues of political economy, i.e., the origins of institutional design. Fohlin does, however, plan to write more on the political and legal factors behind German financial development (p. 344).

Yet there is something disconcerting about the conclusion that there is nothing peculiar about German banking especially relative to Anglo-American banking practices. Yes, they look different, but it apparently does not matter much, at least in this time period. Given Fohlin's insightful targeting about the way universal banks and stock exchanges symbiotically enhanced one another, I wanted to know more about the specific modalities of bank intermediation between firms and securities markets because of their underwriting activities and potential role as a Schutzpatron (patron saint) (pp. 13, 229ff) that might have made them “peculiar.” Did American and English bankers operate the same way? And how did it matter?

As the large German private-commercial banks are moving out of their traditional role as industry stewards and back into global investment banking, if not as hedge funds in the search for greater shareholder value, understanding the roots of the German financial system will help to understand the future trajectory of German capitalism. It is a timely contribution. While Fohlin's work will probably not be the last word on the role of German banks and banking power, the ball is hit firmly into the court of those who want to argue that German banks significantly influenced German industry or provided special relationships that other countries' banks did not.