Capital Market Internationalization 5 The Argument Changes in Banking Technology and the Demand for Short Assets14 The surge in capital flows witnessed under the gold standard,I argue in this and the next two sections,originated in a demand for foreign investments,not merely long, as usually noted,but more importantly short.Banks in the late-nineteenth century had a need for short assets,which the international capital market could supply.In this and the next sections I focus on the demand and supply side of short-term assets. Banking until the mid-nineteenth century relied on personal connections.Bankers would borrow from and lend to individuals whom they knew well,either because they lived in the same towns or because borrowers and bank shareholders were often the same people-a relation that Naomi Lamoreaux has appropriately dubbed"in- sider lending."15 Philip Cottrell wrote of the English country banks: Until the 1880s English country banks were products of the localities and regions that they served;customers and shareholders were frequently the same people. The bank's constituencies both owned the banks and did business with them. Directors and managers knew their customers well and with prudence and local knowledge were prepared to go beyond the bounds of short-term lending.16 Where local,personal connections were unavailing,banks would simply not lend to enterprises.Gustav Mevissen,a co-director of the Bank of Darmstadt,made the point with utmost clarity in an instruction to the bank management written at midcentury: The task of our bank is not to attract the business of industrial and commercial enterprise in general.On the contrary,it will be our mission to establish contact with all government institutions,joint-stock companies,and wealthy private per- sons in the hope of obtaining as large a share of the business of governments,of princes and principates,as well as joint-stock companies and wealthy private persons as possible.17 By the middle of the century banking evolved into a more impersonal and profes- sional activity under the pressure of two circumstances.The first circumstance was the rise in individual deposits and the simultaneous decline of bank equity and note issuing.Until midcentury,there were only two main ways of procuring capital in 14.Assets are the left-hand side of a balance-sheet,and liabilities are the right-hand side.Assers are investments,which banks finance with resources or liabilities.Assets and liabilities are arranged ac- cording to maturity.Short assets typically include cash,loans to the stock market,short-term government debt.three-to-six-month credit advances (also called overdrafis),and commercial paper (bills of ex- change,acceptances).A bill of exchange is a buyer's promise to pay in three months:the seller can cash it immediately with a bank.An acceptance is an international bill of exchange.Long assets include long- term government debt,participations in other joint-stock companies,and all loans or advances with a maturity longer than six months.Short liabilities include deposits,positive current accounts.and,in some cases,notes.Long liabilities include equity (capital and reserves). 15.Lamoreaux 1994. 16.Cottrel11992.53 17.Tily1986,121.The Argument Changes in Banking Technology and the Demand for Short Assets 14 The surge in capital  ows witnessed under the gold standard, I argue in this and the next two sections, originated in a demand for foreign investments, not merely long, as usually noted, but more importantly short. Banks in the late-nineteenth century had a need for short assets, which the international capital market could supply. In this and the next sections I focus on the demand and supply side of short-term assets. Banking until the mid-nineteenth century relied on personal connections. Bankers would borrow from and lend to individuals whom they knew well, either because they lived in the same towns or because borrowers and bank shareholders were often the same people—a relation that Naomi Lamoreaux has appropriately dubbed ‘‘in￾sider lending.’’ 15 Philip Cottrell wrote of the English country banks: Until the 1880s English country banks were products of the localities and regions that they served; customers and shareholders were frequently the same people. The bank’s constituencies both owned the banks and did business with them. Directors and managers knew their customers well and with prudence and local knowledge were prepared to go beyond the bounds of short-term lending.16 Where local, personal connections were unavailing, banks would simply not lend to enterprises. Gustav Mevissen, a co-director of the Bank of Darmstadt, made the point with utmost clarity in an instruction to the bank management written at midcentury: The task of our bank is not to attract the business of industrial and commercial enterprise in general. On the contrary, it will be our mission to establish contact with all government institutions, joint-stock companies, and wealthy private per- sons in the hope of obtaining as large a share of the business of governments, of princes and principates, as well as joint-stock companies and wealthy private persons as possible.17 By the middle of the century banking evolved into a more impersonal and profes￾sional activity under the pressure of two circumstances. The Ž rst circumstance was the rise in individual deposits and the simultaneous decline of bank equity and note issuing. Until midcentury, there were only two main ways of procuring capital in 14. Assets are the left-hand side of a balance-sheet , and liabilities are the right-hand side. Assets are investments, which banks Ž nance with resources or liabilities. Assets and liabilities are arranged ac- cording to maturity. Short assets typically include cash, loans to the stock market, short-term government debt, three-to-six-month credit advances (also called overdrafts), and commercial paper (bills of ex- change, acceptances). A bill of exchange is a buyer’s promise to pay in three months; the seller can cash it immediately with a bank. An acceptance is an international bill of exchange. Long assets include long￾term government debt, participations in other joint-stock companies, and all loans or advances with a maturity longer than six months. Short liabilities include deposits, positive current accounts, and, in some cases, notes. Long liabilities include equity (capital and reserves). 15. Lamoreaux 1994. 16. Cottrell 1992, 53. 17. Tilly 1986, 121. Capital Market Internationalization 5