Joseph Grundfest has written a very thought-provoking article. I would like to add a couple of ideas to some of the thoughts he put forward.
The very impressive charts in his article deal with only the last decade. When people talk about international capital markets, they almost never go back before the middle of this century. This emphasis on the very recent past denies us the opportunity to learn something from history about international capital markets which, after all, have been active and productive for a long time.
The main reason, I would guess, that we do not go back beyond the 1950s is that there was a 20-year hiatus prior to about 1950. We had blown up much of the world's capital during World War II, except for U.S. capital, and during the war we invested much of our capital in government. For some time before that, we had used up most of our capital, or lost it, during the Depression of the 1930s. But in the hundred years prior to that--without the benefit of new, modern technology in communications and transportation--there was an extraordinary amount of international capital movement, and international capital markets were very active.
I think much of the recent growth in international capital markets has been the result of the increase in capital available for investment. This is suggested by the article's statistics. They show that while the absolute figures were up significantly, the percent of international capital transactions to total transactions was up even more significantly.
My favorite example of early international capital market activity shows that regulation of international capital markets was not a necessary precondition--in fact, the opposite may be more nearly true. My example comes from a time in the early nineteenth century when Napoleon was in a bit of a credit squeeze and he called together whoever were his chief financial advisers and said, "We've got to get out of this." So, probably with the assistance of some "smoke and mirrors" that they provided, he decided he was going to sell assets to reduce the squeeze. The only handy asset was the Louisiana Territory for which they needed to find a buyer. The buyer they approached, the United States, had very little information on what it was buying, had no authority to make the purchase, and did not have any money. So its representatives decided to go to England from France,