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Entrepot Capitalism: Foreign Investment and the American Dream in the Twentieth Century.

Charles Geisst's brief survey seeks to trace the history of the "American Dream" (freedom from want, access to higher education, home ownership, wealth) from the First World War to the present in an "international context," by which he means as affected by inward foreign investments. The idea is an exciting one, albeit only partially achieved. Geisst does far better in tracing foreign investments in the United States than in pursuing their consistent, on-going link with the American Dream. In his conclusion he argues that foreign capital has played a central role in U.S. economic development and that in recent years, foreign investment in Treasury bonds has helped keep domestic interest rates low; "drivers of U.S-made automobiles and borrowers . . . |obtaining~ adjustable-rate mortgages are two examples of consumers benefiting from the import of foreign capital and financial concepts".

Although Geisst concentrates on the course of inward foreign investments, he does not neglect U.S. investments abroad. Indeed, the book has a good deal on the latter, for the very notion expressed in the book's title, that of entrepot capitalism, involves the relationship between the two. Geisst deals with both portfolio and direct investments (inward and outward), but given his background as an investment banker he seems more comfortable with financial capital flows than with multinational enterprise.

I liked this survey, despite some flagrant flaws. Toe often, Geisst overstates (exaggerates). For example, were foreign investors really temporarily absent from the United States during the First World War? Or, is it really true that in the 1920s, "the preference for Americans |was~ to invest outside the country while foreigners tended to speculate in U.S. markets"? Often Geisst makes statements without adequate references: of foreign investors in the United States in the 1920s, for instance, he writes that the majority of their interest was in portfolio investments, in bonds; he gives no source; by contrast, Cleona Lewis found that at year-end 1929, common shares represented 54 percent of the foreign portfolio investment in the United States. Also Geisst is too often sloppy: the Federal Reserve's "inception" was not 1911; after the British returned to the gold standard in 1925, the pound was seen by most observers as over- not undervalued in relation to the dollar; Hoover's moratorium on debt was in 1931, not 1932; and imagine U.S. "net exports" of $42 billion in 1947!

These matters aside, Geisst captures well the complexities of the international securities markets in the 1920s, and for that decade he has fascinating materials on international arbitrage. He argues that in the 1920s U.S. dollar lendings abroad, "although technically expatriate," were returned to the U.S. domestic banking system as deposits that were used for short-term lending, especially for margin money, and thus foreigners helped to fuel stock market speculation (the U.S. was borrowing short and lending long).

Geisst states that the 1929 U.S. stock market Crash "was the principal cause of the Depression, which was effectively exported to the rest of the world through the exchange rate mechanism". He does not tell his reader that this is a highly controversial matter. It probably would have been appropriate for him to discuss the contemporary debate on the role of foreign investment in the United States not only in fueling speculation but in the actual crash itself.

For the 1930s, Geisst presents data that are familiar to the few of us who have read the U.S. Department of Commerce reports on foreign investments in the United States; these materials are not, however, well known to most general readers (nearly all the U.S. Department of Commerce and Treasury reports that Geisst cites have been conveniently assembled in a single volume that I edited, entitled Foreign Investments in the United States |1977~).

Geisst covers rapidly (in about twenty pages) the 1940s, 1950s, and 1960s. More than half this brief volume is on the last two decades. He has much of interest on the Eurobond market and believes that many of the domestic financial innovations of the 1970s and 1980s were derived from that market. He has valuable material on floating rate bonds, zero coupon bonds, and swaps. In the 1980s, he argues that the passage of the Depository Institutions Deregulation and Monetary Control Act (1980) unshackled credit markets from interest rate restraints, contributing to the great growth of both foreign direct investments and portfolio investments in the United States.

Geisst's book is helpful in that it includes both foreign direct and portfolio investments, although some readers may question his analysis of the connections between the two. I found the volume thoughtful, the entrepot approach useful, and many of the other arguments convincing. And I do agree that foreign investment in the United States has mattered.

Mira Wilkins is professor of economics at Florida International University. She is the author of The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (1970), The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (1974), as well as The History of Foreign Investment in the United States to 1914 (1989). For many years she has been conducting research for a lengthy sequel to her history of foreign investment in the United States, which she expects will cover the years 1914 to 1994.
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Author:Wilkins, Mira
Publication:Business History Review
Article Type:Book Review
Date:Sep 22, 1993
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