U.S. Securities Markets and the Banking System, 1790-1840

Article excerpt

A fact underappreciated about the rise of the United States in the world economy is that a modern, "world class" financial system - by the standards of the time - emerged virtually at the beginning of the nation's history and provided a solid underpinning for the country's subsequent growth and development. This paper explores the emergence of that financial system. It emphasizes the mutual support between the banking system, which has been well studied by financial historians, and securities markets, which have been relatively neglected. Distinctive features of the U.S. banking system depended on the existence of securities markets, and before long, distinctive features of U.S. money and securities markets depended on developments in the banking system.


The "Anglo-American" or "Anglo-Saxon" pattern of financial organization features a functional division of labor and a balance among three main, interrelated sectors: the banking system, the money market, and the securities market. This pattern is often contrasted with the "Continental European" or "German" pattern, in which banks dominate the financial system while the money and securities markets are relegated to minor, secondary roles. The advantages and disadvantages of each pattern of organization relative to the other are much studied and debated. Also discussed are the questions of whether today's globalization of finance (which is less unprecedented than many believe) will bring about a convergence of financial systems and, if so, in what direction. Financial historians have become interested in an additional question: why the two different patterns of financial organization emerged in history. Thus far, however, they have only scratched the surface in attempts to answer it.

A reason for the limited progress in understanding why systemic differences emerged in history is that, while Anglo-Saxon and German systems may compete with each other in the real world, in the world of financial historians - be it the Anglo-Saxon, the Continental European, or any other division - the German model seemingly has carried the day. This is not meant to imply that financial historians have weighed the evidence and decided that the German bank-based pattern of financial organization is best, although some on both sides of the Atlantic would agree with such a contention.(1) Rather, it is meant to suggest that banks everywhere have received the lion's share of attention from financial historians. I would hazard the guess, based on some years of experience, that there are 25 or 50 dissertations, articles, and books on the history of banks and banking for each one on the history of money and securities markets.

No doubt there are many reasons for the overwhelming attention financial historians devote to banks and banking. Among them is the obvious one that, in Continental Europe, banks were by far the dominant financial institutions during the past two centuries, so that other components of financial organization merited less study But why is the emphasis on banking history much the same among Anglo-American scholars? Here I think an explanation would include several points. One is that, even in Great Britain and the United States, banks were important - perhaps even very important - sources of finance in the early stages of economic modernization during the late eighteenth and early nineteenth centuries. Another is that banknote and deposit liabilities served most of the functions of money, so that governments - regarding control over money as an element of sovereignty - had both political and economic reasons to become concerned with licensing and regulating banks and their money creation.

A by-product of governmental concern with banking had an obvious role in drawing the attention of scholars: Banks left many tracks in the public documents that are the grist of historians' mills. Moreover, since the governments overseeing banking were many, and banks as organizations were even more numerous, there were manifold topics for research, from the history of banking in country, region, or state A, B, or C, to the history of the bank of X, Y, or Z. …