State Banking in Early America: A New Economic History

State Banking in Early America: A New Economic History

State Banking in Early America: A New Economic History

State Banking in Early America: A New Economic History

Synopsis

This manuscript represents the first book-length treatment of early American banking in over 40 years. During that time economic historians have offered new interpretations of several important developments in antebellum American banking practice and policy. Such features of early American financial markets as free banking, branch banking, deposit insurance, and micro-banking have been radically reinterpreted since Redlich and Hammond wrote. Moreover, economic theory has madesignificant advances, and this manuscript incorporates those theoretical insights into every chapter. The so-called "information-theoretic" approach links the chapters into a unified whole. Early sections of each chapter synthesize the extant research; later sections present extensions, new finding andnew interpretations.

Excerpt

It has been more than forty years since the publication of Bray Hammond's Banks and Politics from the Revolution to the Civil War and more than fifty years since the appearance of Fritz Redlich's The Molding of American Banking. Conceived and written in the aftermath of the Great Depression, both works sprang from the fundamental premise that decentralized, lightly regulated financial markets and banking systems were inherently unstable. Good policy and good practice required a strong, centralized regulatory structure.

These two books' conclusions provided a historical justification, which meshed neatly with many economists' beliefs about the instability of financial markets, for broadening the Federal Reserve's supervisory powers. Hammond's and Redlich's books deeply influenced economic theory and banking history and, thus, banking policy. It is notable in this regard, however, that neither book focuses on the economics of early American banking in the sense that it explicitly employs economic models and economic reasoning in the study of economic issues. Redlich's book is more intellectual biography than economic history. It focuses on the development of banking philosophies and frequently notes how practice strayed from theory. the historical lesson was that an outside agency was needed to keep bankers on the straight and narrow. Hammond, on the other hand, traces the connection of politics and banking in early America and shows how political discourse intersected with and influenced banking practice. the lesson that emerged from Hammond's book was that regulatory and supervisory powers were best divorced from the political process. the twin pillars of postdepression-era banking policy were a strong and independent supervisory power.

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