Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 1863–1913

Abstract

The success with which capital funds are mobilized and transferred to industrial and related activities is widely regarded as a critical determinant of both the timing and the pace of industrialization in the modern era. Gerschenkron, for example, has suggested that institutional developments which increased this type of capital mobility played an important role in the varying degrees of industrial progress of nineteenth-century European countries. A functionally similar development, resulting from government intervention at the time of the Civil War, occurred in American banking and provided a powerful capital-supply stimulus for the United States's postbellum industrialization. This study deals with the origins of this banking development, presents an analysis of its potential effects on patterns of capital movement, and tests the hypotheses arrived at in the theoretical analysis using banking data derived primarily from theReportsof the Comptroller of the Currency.

Evidence on early-life income and late-life health from America's Dust Bowl era

“…the United States before the 1930s, it is far from clear that Americans could smooth their consumption during the Great Depression using formal market-based instruments (42)(43)(44). Sector-wide economic calamities are also more difficult to smooth than are idiosyncratic family-specific economic shocks.…”

Money, Moral Authority, and the Politics of Creditworthiness

“…But U.S. local and state bankers did push for generalpurpose currencies, as they adopted instruments such as call loans, checks, and demand deposits that allowed them to transcend constraints imposed upon them by national bankers and then invest the money in stock markets. Local bankers adopted instruments that had more generalized circulation than the ones in use before; this contributed to mobilizing money beyond the boundaries of local circuits in a process that led to the national integration of capital markets (Sylla 1969(Sylla , 1982. Of course, this also led to an increase in the fragility of those markets.…”

“…More than 6,000 different kinds of banknotes circulated in the United States in the antebellum period, with the market value of each depending on the financial soundness of the institution that issued it (Helleiner 2003). With the national banking laws enacted during the Civil War, the Union government took the power of monetary issue away from state-chartered banks, by taxing their notes, and gave it to newly created national banks, which could exercise this power upon the fulfillment of reserve requirements and the holding of Union (after the war, federal) government bonds equal to 90 percent of the value of outstanding notes as collateral (Sylla 1969). 17 By neo-chartalist criteria, once the war was over, the federal government should have been able to not only ensure the stability of the currency but fully embrace a papermoney regime.…”

“…Finally, national regulations forbade banks from making loans with real estate as security, whereas states generally imposed fewer restrictions. This clearly favored state banks in rural areas, where loans backed by real estate were the most prevalent financial instrument (Calomiris 1995;Sylla 1969). 25.…”

Related lending and banking development

“…A large body of scholarship all points to the same conclusions: financial development exerts an independent, causal effect on growth; and banks are a crucial piece of the overall process of financial development -indeed, they typically dominate securities markets during the early stages of economic development. This work includes historical case studies of developed economies (De Vries & van der Woude, 1997;Neal, 1990;Rousseau & Sylla, 2004;Rousseau & Wachtel, 1998;Sylla, 1969Sylla, , 2007; cross-country regressions (Beck, Levine, & Loayza, 2000;King & Levine, 1993a, 1993bLevine & Zervos, 1998); time series analyses of regions within countries (Black & Strahan, 2002;Dehejia & Lleras-Muney, 2007;Guiso, Sapienza, & Zingales, 2004;Jayartne & Strahan, 1996); and time series analysis of industries (Beck & Levine, 2002;Cetorelli & Strahan, 2006;Fisman & Love, 2004;Haber, 1991;Maurer & Haber, 2007;Rajan & Zingales, 1998a;Wurgler, 2000). There are, of course, scholars who are not persuaded by this evidence, and, in light of the recent financial crisis, view the growth of credit as pernicious.…”