Oskar Morgenstern on Phelps’s The Foreign Expansion of American Banks (1927)

Oskar Morgenstern’s review presents Phelps’s study as a useful history of American banks’ overseas expansion, while locating its explanatory value in the legal and institutional conditions behind that growth. Foreign branches increased from 26 before 1914 to 181 in 1920, before falling to roughly 100. Morgenstern treats the familiar background—war, expanding foreign trade, and the United States’ transition from debtor to creditor nation—as insufficiently specific to explain the process:

Wichtiger als diese allgemeinen Erklärungsgründe sind die speziellen, die z. B. auf die gesetzlichen Bestimmungen in den Vereinigten Staaten, die für diese Frage relevant sind, Rücksicht nehmen.

English translation: More important than these general grounds of explanation are the special ones, which take account, for example, of the legal provisions in the United States that are relevant to this question.

The Federal Reserve System supplies the decisive institutional connection: it permitted national banks to establish foreign branches and helped create a previously absent market for American bank acceptances. Morgenstern also qualifies what branch statistics can show, noting that banks with few branches could conduct substantial business. Likewise, the Cuban agencies of two Federal Reserve banks should not be mistaken for a general new tendency in central banking: Cuba’s monetary and political relationship with the United States makes the case exceptional.

The review briefly follows Phelps’s organization, from defining the foreign branch and assessing its contribution to international trade to a bank-by-bank history of expansion and retrenchment:

Der Rest des Buches ist, wie schon erwähnt, eine verläßliche und instruktive Geschichte dieser Weltausdehnung, die zuerst etwas zu rasch vor sich ging und daher zu einem schweren Rückschlag führte.

English translation: The rest of the book is, as already mentioned, a reliable and instructive history of this worldwide expansion, which at first proceeded somewhat too rapidly and therefore led to a severe setback.

Morgenstern then shifts from historical explanation to the conditions of future growth. Reciprocity is central: New York and California prohibited foreign banks from establishing branches, allowing only agencies with restricted functions, while American banks benefited from access abroad. His criticism gives this regulatory asymmetry a broader institutional meaning:

Diese Engherzigkeit beruht zweifellos auf Furcht und Provinzialismus, die beide im amerikanischen Bankwesen eine nicht unbeträchtliche Rolle spielen; man denke nur an die allgemeine Filialbankdiskussion.

English translation: This narrow-mindedness rests without doubt upon fear and provincialism, both of which play a not inconsiderable part in American banking; one need only think of the general discussion of branch banking.

European dependence on the New York capital market, he argues, explains why retaliatory measures had not followed; a change in that dependence could create difficulties for American overseas banking. The review thus connects domestic banking restrictions with international financial power. Its final judgment remains favorable but measured: Phelps neither exhausts the subject nor consistently integrates his chapters, yet offers European readers an instructive account of developments whose importance Morgenstern expects to increase.