11 October 2018

Portrait of Rui Esteves, Economic Historian

Newly arrived at the Institute, Professor Rui Esteves previously held academic positions at the University of Oxford and Simon Fraser University. He is specialised in monetary and financial history, straddling the fields of international finance, institutional economics, and public finance. His research provides perspective on the globalisation of finance, financial crises, sovereign debt, financial market architecture, the choice of exchange rate regimes and emigrant remittances, as well as rent-seeking and corruption in public office.

How would you introduce yourself?

Rui-Esteves.jpgI’m an economic historian interested in the long history of international finance. I was trained as an economist but from early on realised that I could not make sense of the contemporary structure of the economy without studying how it came to be historically. That and the fact that historical processes are not random or, at least, not reversible, got me interested in learning about economic history.

Could you tell us about your latest publications and their significance?

I’d like to mention two papers I published with Co┼čkun Tunçer, a colleague at UCL, on the historical precedents in Europe for debt mutualisation, also known as Eurobonds. In the wake of the eurozone debt crisis, one of the policy proposals advanced to stop the crisis and consolidate the Monetary Union was to swap individual countries’ debts with a common European debt. This would prevent markets from, say, betting against Greek bonds while taking refuge in German Bunds. The argument to abolish destabilising speculation had also been invoked for the decision, 20 years prior, to abolish individual currencies and adopt the euro. And yet, the Eurobond proposal failed to gain support because of a perceived lack of political support in surplus countries, such as Germany, where it was seen as a fiscal transfer by stealth to deficit nations. By averaging out the credibility of German bonds with the low rating of Greek debt, German economists and citizens feared that the German state would be faced with higher interest rates than before (the Greeks, of course, would benefit from an interest rate discount). A lively debate quickly ensued about the pros and cons of Eurobonds, but purely based on theoretical models since, as everyone confessed, there was no precedent to compare it to. In these two papers (“Feeling the Blues” and “Eurobonds Past and Present”) we showed that there was indeed a precedent in 19th century European history and that the benefits for financial stability from debt mutualisation had clearly outweighed the downsides.

What projects are you currently working on?

I am working on three main projects. The first has to do with the geography of capital flows before World War I. Based on a new dataset of international capital flows from the 1880s to 1913, I try to explain why capital went to some countries or industries. I also trace out the consequences from these capital migrations for the recipient nations. In a second project, I have been working on the diffusion and regression of international monetary standards before World War I. The aim here is to understand what caused what. On the one hand, countries could have strategically adopted particular monetary regimes (such as gold) in expectation of trading more with nations also on gold. On the other, they could also have an interest in adopting the currency regime of their already existing main trade partners. In a third project, I have been investigating cases of historical corruption and rent-seeking. One of the advantages of studying rent-seeking and corruption in the past is that they are very hard to observe today (for obvious reasons). However, rent-extraction activities have been legitimised in certain historical circumstances, which offers an avenue to quantifying the scale of the rents and the distortions involved.

You have carried out a project with Gabriel Mesevage, a recent PhD graduate from the Institute. Could you tell us more about this project, “Logrolling for Private Interest: British MPs during the Railway Mania of 1845”?

Gabriel and I show that British politicians (MPs) used their privileged access to power to bend regulation in their favour. The setting is the railway mania of the 1840s (probably the first tech bubble in history) that led to a speculative frenzy ending in a crash in 1847. MPs had vested interests in particular railway projects and we show that they used their influence to favour them over the competition. Ironically, railways favoured by politicians in this way had the lowest market values, such that political connections created a “market for lemons” sold to the unsuspecting public.

As part of your ongoing research into the history of networks, you are working with Florian Ploeckl on a project called “Democracy and Trade Links: A Simulation-Based Historical Case Study”. What contribution will it make to understanding those links?

This forthcoming paper aims to test the common dictum that trade helps sustaining and spreading democracy. Already Adam Smith had observed, in The Wealth of Nations, that “commerce and manufactures gradually introduced order and good government, and with them, the liberty and security of individuals, among the inhabitants of the country”. However, it is not clear whether trade really affects the incentives toward democratisation or if democratic nations have a greater tendency to trade among themselves (and, possibly, boycott authoritarian regimes). In the latter case, trade has no impact on levels of democracy. So, we try to establish which of these two alternative models explains the evolution of trade and levels of democracy in the world prior to World War I.

You’ve just joined the Institute faculty. What brought you to Geneva and the Graduate Institute?

I would say three main things brought me to the Graduate Institute. First, almost all my research is international in nature and straddles the fields of economics, history and political science. Consequently, having easy access to colleagues in all of these fields, with whom to try out research ideas, was especially attractive to me. A second and related reason were the opportunities for teaching and supervision. The Institute has an impressive record of turning out graduate students specialising in economic and financial history, and I am very keen to supervise future generations of students going to the Institute with these interests. Finally, Geneva is home to a number of interesting archives, starting with the international organisations located here, which are privileged sources for economic historians who, like me, are interested in the rise and retreat of the global economic order. Moreover, the Institute also holds a precious repository for the history of capital markets – the largest collection in the world of stock exchange price lists from the early 19th century to the end of the last century.

Are your courses at the Institute related to your research?

This year I’m teaching mostly courses related to my research – one survey course on the history of international finance, another course on the history of financial regulation and a third on the comparative history of rent-seeking and corruption. I also teach a fourth course as a book club, the aim of which is to open perspectives about what economic historians do and where the discipline is going. Rather than focusing on my own areas of research, we read a selection of the most influential recent books in the discipline, which will, hopefully, help to inspire the future generations of economic historians coming out of the Graduate Institute.

In that respect, what have you read lately that has marked your academic discipline?

I have been reading a lot on social networks and how they condition behaviour in an economy, a society or in global affairs. This is an exciting area of research in the social sciences, with considerable promise.

Concerning “classic” literature, which academic articles or books would you recommend everybody to read?

One true classic is Walter Bagehot’s Lombard Street, which, despite having been published in 1873, I still find one of the most insightful expositions about international banking and the role of central banks. Barry Eichengreen’s Golden Fetters, published in 1992, quickly became the most influential interpretation of the spread of the Great Depression and gained a new relevance after 2008, as the world tried to contain the fallout from the financial crisis. For papers, I would suggest Paul David’s “Clio and the Economics of QWERTY” from 1985, and a 1996 paper by this year’s Nobel prize winner William Nordhaus on the history of lighting. The first paper is one of the strongest statements as to why history matters. It famously introduced the concept of “path dependency” that states that history is not a sequence of reversible events. Past events, even “accidents”, can determine where we are today and so we need to look into history for understanding the present. In the second paper, Nordhaus shows, with disarming simplicity, how our measures of economic activity, such as GDP, are incapable of capturing standards of living or well-being, especially over long periods.

Interview by Aditya Kiran Kakati, PhD candidate in International History and Anthropology and Sociology.
Front picture by Chris Goldberg (
CC BY-NC 2.0), from Flickr.