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Great Divergence

Larry Neal

American economic historian (1941–2024), professor emeritus at the University of Illinois at Urbana-Champaign. Trained at Berkeley; long career as one of the principal voices in modern financial history of the early-modern and IR-era European economy.

Intellectual program

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Neal’s signature work, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (1990), reconstructed the development of European sovereign-debt and corporate-bond markets from roughly 1660 to 1815, with the British case at the center. The book documents how the Amsterdam-London-Paris financial axis assembled the institutional machinery — funded sovereign debt, secondary markets in government securities, joint-stock company shares with active trading, marine insurance markets, brokerage and dealing infrastructure — that made early-modern European capital mobilization possible at scale. A distinctive empirical result is that Amsterdam and London were already closely integrated markets by the early eighteenth century: Neal used cross-quoted prices for the same securities in both cities to show arbitrage linking them, evidence of a functioning international capital market well before industrialization. His archival work produced the price and volume series that subsequent finance-history work has used as benchmark data.

The framework speaks directly to the question of whether the “financial revolution” of the 1690s — the founding of the Bank of England, the funded national debt, and the secondary market in its securities — was a precondition of British growth. Neal’s reconstruction supplies the empirical substance for the finance, credit and banking position, and connects to the North–Weingast institutional account of credible commitment lowering the cost of sovereign borrowing after 1688.

His later work covered the South Sea Bubble (1720) in unprecedented archival detail, the long-run integration of European capital markets, and the economic history of crisis (with the 2007–08 financial crisis bringing renewed attention to his earlier crisis-history work). A Concise History of International Finance (2015) is his late-career textbook synthesis.

Reception and contestation

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Neal’s framework is the standard reference for understanding pre-1815 European financial-market development. The principal contestation has been about interpretation rather than facts: was the financial machinery he documented a cause of subsequent industrial growth, or just the late-stage bookkeeping of a commercial economy already producing growth? Different positions in the IR debate take different views, but all use Neal’s empirical reconstructions.

Associated positions

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Key works

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  • The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (1990).
  • I Am Not Master of Events: The Speculations of John Law and Lord Londonderry in the Mississippi and South Sea Bubbles (2012).
  • With Lawrence H. White (eds): Re-establishing the British Industrial Revolution (1990, an earlier collected volume).
  • A Concise History of International Finance: From Babylon to Bernanke (2015).
  • Numerous papers on European market integration, the South Sea Bubble, and financial-crisis history.