Mary O'Sullivan's book offers an ambitious, new history of U.S. securities markets, based on hitherto unexploited bank archives, contemporary newspapers, and data. If you are a financial historian, Wall Streeter, or policymaker and you think that your beliefs have a sound historical basis, you should buy this book. Although you will not agree with all of her interpretations, you will be challenged to rethink your views.

The first several chapters criticize historians of U.S. capital markets who have seen them as sophisticated and essential to the rise of American industry. Describing the markets at the outset of World War I, O'Sullivan does not hold back: “far from being the vibrant heart of US capitalism, [they] were an embarrassment to the most powerful economy in the world” (p. 3). In O'Sullivan's view, the first real market for U.S. industrials was not the New York Stock Exchange (NYSE), dominated by railroad securities, but London. Nevertheless, industrials did not take off there because of the poor performance of American companies. O'Sullivan is right to emphasize that the railroads had huge capital demands relative to industrial companies, which could rely on internal finance, but what is left out of this explanation is the role of regulation. American commercial banks played a small part in the capital markets as institutional investors because of limitations on their size imposed by the general prohibition on branch banking and the determination that holding equities was ultra vires. Similarly, insurance companies were blocked from holding equities by New York law—the model for other states—based on the findings of the 1905 Armstrong Commission.

I have the most difficulty with O'Sullivan's treatment of the call money market. She sees the Panic of 1907 as the result of a flawed structure where banks supplied call loans to brokers and investment banks collateralized by securities that were not sufficiently liquid. Thus a “mountain of credit” was built on the foundations of a “molehill” (p. 225). O'Sullivan charges that enormous amounts of money were pumped into the call market and sustained speculative demand for securities on the NYSE. Booms were a supply-driven and not demand-led phenomenon. In her view, the central aim of the Federal Reserve Act of 1913 was to loosen the link that the call market created between the banking system and the securities markets. Yet, the Act did not sever the link, and most scholars would argue that its main purpose was to reduce the seasonal volatility of interest rates that were thought to trigger panics. In O'Sullivan's analysis, the flawed call market was an American phenomenon. Comparative history suggests that this type of linkage was common. In France, for example, the capital markets were also supported by short-term collateralized loans, the principal difference being that France was dominated by forward markets with fortnightly or monthly settlement, in contrast to American spot markets. Shocks percolated similarly through both systems, which suggests a natural evolution shaped by national rules for trading.

O'Sullivan's chapter “Too Much Ado about Morgan's Men,” in which she debunks the Pujo Report, is an invaluable contribution. The 1912 Pujo Commission claimed that a “Money Trust” dominated the underwriting and distribution of securities, a verdict that has been widely accepted by economists and historians. Supposedly led by J. P. Morgan & Co., First National Bank, and National City Company, conflicts of interest were seen to abound through interlocking directorates that tied together all manner of financial institutions and major transportation, industrial, and utility companies. The dominating banks were able to “levy a tribute upon every large enterprise” extracting commissions for their services (p. 277). O'Sullivan's careful sleuthing reveals that the report was incomplete and highly slanted. Comparing the issues of shares in corporate securities from the Journal of Commerce to those published by the Money Trust report is jarring. Of the roughly $2 billion of these securities issued between 1908 and 1912, only 10 percent of the issues with 32 percent of the value were handled by the Money Trust banks. Although the Money Trust could claim 16 percent (raising 41 percent of total proceeds) of railroads and traction, it handled only 5 percent (16 percent) of industrials and 4 percent (24 percent) of utilities. The Pujo Report also claimed that the Money Trust banks could command the assistance of a substantial portion of the call loan market. Although these banks may have channeled over half of call loans, they were unable to track what collateral was used for the loans. Furthermore, O'Sullivan puts to rest the idea that the Money Trust exerted control via the boards of corporations. Prominent Money Trust bankers were spread ridiculously thin: George F. Baker of First National Bank, for example, held fifty-seven board seats. Of course, this just looks at relationships and O'Sullivan rightly looks at outcomes to see if the bankers could have wielded disproportionate influence—and finds the commissions relatively modest.

In her last chapter, on World War I, O'Sullivan takes issue with those historians who see the crisis of July 1914 that forced a shutdown of the NYSE as a result of the sales of securities by foreigners. She again points to the vulnerability of brokers and bankers to call loans. Not much evidence is mustered for this view. But, if the call market was so central, then many questions need to be raised: Why were foreign exchanges also shut down? And why were there speculative frenzies that brought on the 1987 and dot-com crashes long after the marginalization of the call market? For O'Sullivan, World War I made corporate securities acceptable for the broad mass of investors because the “wages of war” vastly increased their profitability (chap. 8).

Every reader of this volume will come away with a different appreciation. Those viewing markets favorably will cite the chapter taking down the claims of the Pujo Commission, while those who suspect markets will cite the chapters that hold the call market responsible for speculative frenzies.