Canadians have long been typecast as self-effacing and deferential, suffering from a chronic inferiority complex. In matters of finance, they are seen as cautious and wary, traits nowhere better illustrated than by their beloved political economist-turned-humorist Stephen Leacock, who timorously admitted in “My Financial Career” that he felt “rattled” whenever he entered a bank. The real money power in North America, Canadians have long concluded, resides to the south, on Wall Street. It therefore came as a gratifying surprise in 2008, as the implosion of Lehman Brothers staggered Wall Street, to hear then president Barack Obama heap praise on Canada's financial system. America's northern neighbor, he admitted, was “a pretty good manager” of its financial system “in ways that we haven't always been here in the United States.”
The Manichean comparison of Wall Street and Toronto's Bay Street has, however, all too often lent itself to unexamined stereotyping. Canada boasts an oligopoly of coast-to-coast big banks reflective of a national dedication to “peace, order and good government,” whereas America's banking is anchored in a welter of local banks rooted in the Jeffersonian ideal of local autonomy. Within each sphere, there has been incisive academic inquiry into the financial mechanics of nationhood. To name but a few scholars, Adam Shortt and Edward P. Neufeld have unraveled the Canadian financial system; while across the border, historians such as Edwin Perkins, Mira Wilkins, and Thomas McCraw have explicated the intricacies of money at work in America.
What has been conspicuously missing, however, is any cross-border comparative analysis. That bilateral perspective has now been ably provided by Christopher Kobrak and Joe Martin in this meticulous account of two financial systems in comparative evolution. Martin, the director of the Canadian Business and Financial History Initiative at University of Toronto's Rotman School of Management, and the late lamented Christopher Kobrak, a transatlantic polymath of modern business and financial history, have given us a book of cross-border utility and erudition.
Like investigators of labor productivity, Martin and Kobrak approach their task in multivariate fashion. They begin with the primordial impact of national ideology, then add the effects of ever-changing economic and political events, revolving technology, and the consequent contest with the state over regulation. From the outset, we are made aware of the genesis of a “deep structure of beliefs,” a concept they borrow from cultural difference historians Charles H. Turner and Fons Trompenaars. In America, Alexander Hamilton's obsession with creating an orderly market for government debt prompted the birth in 1791 of the centralized Bank of the United States, an achievement soon overwhelmed by Thomas Jefferson's belief in the dispersion of authority and Andrew Jackson's populist distrust of tightly held economic power. Ironically, Martin and Kobrak point out, the young Canadian nation in the 1860s “permanently adopted” Hamiltonian ideas, installing coast-to-coast banking as a federal prerogative both in its 1867 constitution and subsequent 1871 bank and currency legislation. Prime Minister John A. Macdonald saw Civil War–wracked America as “weak,” inviting “a more positive role for government” north of the border (p. 65). Martin and Kobrak carry this theme of form following function throughout their analysis. We witness the jolt of railways on the financial system: that is to say, the huge capitalization of railways and their frequent defaults provoked more vigilant oversight of private bankers in the United States and drew Canadian governments into extensive loan guarantees and outright subsidization in a country with flimsy capital markets. We see how maturing late nineteenth-century financial systems on both sides of the border prompted a spinoff of ancillary professional services—accountants, credit raters, and actuaries. At the same time, the insurance industry quickly became a dynamic vehicle for investment on both sides of the border. Yet differences persisted: the 1913 creation of the U.S. Federal Reserve System reflected Progressive distrust of “big money.” Canada, on the other hand, found stability in its periodic review of its Bank Act to rein in the money power, shunning a central bank until the 1930s.
From Wall Street to Bay Street tracks this double helix of North American finance with clarity and insight well into the twentieth century. For instance, the “significant differences” in the architecture of national banking surfaced in the Great Depression: the “highly fragmented” American banking system suffered a one-in-three failure rate as over five thousand banks folded, whereas Canada's broad-based banks sagged but did not collapse (pp. 173, 110). Similarly, as the post–World War II social welfare state unfolded, Martin and Kobrak highlight a “wonderful example” in each nation's approach to the financing of housing (p. 229). America took an activist role in putting roofs over its citizens’ heads by promoting the securitization of mortgages, allowing the tax deduction of mortgage interest, and insuring mortgages through the creation of Fannie Mae. The Canadian government, by contrast, was less interventionist, allowing private markets a greater role and relegating itself to the role of “market steward” (p. 234).
The emergence of “supranational finance” in the late twentieth century, with all its transformative invention and global reach, tends to confound the authors’ dedication to bilateral comparison (p. 13). The rise of huge universal banks, Big Bang deregulation, technology's perfection of instantaneous worldwide markets, and the arcane sophistry of ingenious but often opaque investment vehicles—such as the securitization of mortgages in asset-based commercial paper—all introduce a global complexity and instability (as the 2008 crisis would prove) into the now global financial system. In trying to chronicle these myriad shifts, the lucidity of the book's earlier narrative gives way to dense writing. Long, detail-packed paragraphs still convey the authors’ erudition, but challenge their original ambition of reaching a lay audience.
The financial meltdown of 2008 does allow the authors to return to their original intention. As President Obama marveled, Canada's “mild experience” in the crisis attested to some of its abiding financial values (p. 265). Amid the “irrational exuberance” of global finance early in the new millennium, Canada struck a “better balance between short-term shareholder value and long-term social stability” (p. 270). American finance, the authors conclude, has been more capriciously inventive, thereby riding “a reputational roller coaster” through all of America's booms and busts (p. 260).
Martin and Kobrak have shown us the instructive value of comparative history. They do not pretend to offer a “panacea for policy dilemmas” of the future beyond reminding us to always seek a “better mix of stability and innovation” (pp. 279, 274). They have, however, given business historians, aspiring bankers, investment dealers, and their clients a fine tutorial in the way that money has changed hands in our North American culture over three centuries. How sad that one of these fine tutors is now lost to the profession.
