Howard Bodenhorn. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. New York: Cambridge University Press, 2000.
xxi + 260 pp. $34.99 (paper), ISBN 978-0-521-66999-3; $90.00 (cloth), ISBN 978-0-521-66285-7.
Reviewed by Jon Moen (Department of Economics and Finance, University of Mississippi)
Published on EH.Net (July, 2000)
Almost all economic historians have read the classic
articles by Lance Davis (1965) and Richard Sylla (1969)
on the integration and efficiency of postbellum US capital markets. In them we learn that it took quite a while
for interest rates to converge and that the National Bank
Acts may have introduced some monopolistic elements
into banking. If capital market weren’t always efficient
after the Civil War, it is tempting to believe that they
must have been even worse during antebellum times.
Howard Bodenhorn attempts to erase such beliefs with
A History of Banking in Antebellum America. I think he is
successful, for the most part.
capita and provide correlations between these monetary
variables and per capita income growth, suggesting that
the correlation is not strong. However, regression analysis of the determinants of growth (in the spirit of Robert
Barro) shows that the initial level of financial depth was
positively related to subsequent economic growth.
The third chapter examines who was supplied with
credit by antebellum banks. With an admittedly small
sample (n = 4) of banks from New York, Tennessee, Virginia, and South Carolina, Bodenhorn suggests that antebellum banks were willing to lend to small borrowers
as well as large ones and that they were motivated to a
Bodenhorn focuses on how effective the antebellum great extent by the search for profit. They didn’t just lend
banking system was at creating credit, linking borrow- to their friends.
ers and lenders, and moving capital to its most valuable
The next chapter builds on Bodenhorn’s earlier reuse. He also attempts to address the issue of how critisearch
dealing with the integration of short-term capital
cal banks were to economic growth. He finds that banks
markets
and the convergence of regional interest rates.
provided credit to a broad range of businesses, not just
The
main
conclusion is that even if there were regional
to the wealthy. Banks also encouraged capital formation
differences,
interest rates moved in close enough har(and saving), capital market deepening and integration,
mony to suggest that capital markets had been integrated
and regional interest rate convergence. He does not try
for much of the antebellum period.
to analyze money creation, the effectiveness of the antebellum system of private banknotes, or the stability of
Chapter 5 is useful for the questions it raises in adthe free-banking system. These issues have been ana- dition to the conclusions it presents. This chapter analyzed by Hugh Rockoff (1975) and later by Arthur Rolnick lyzes how banks developed correspondent relationships
and Warren Weber (1983). They find that things worked to move capital across a large but developing nation. It
pretty well.
then presents a brief outline of how legal developments
proceeded to make the bill of exchange a more liquid and
In Chapter 2, Bodenhorn provides a survey of rewidely accepted financial instrument. Perhaps the most
gional banking structure, showing, for example, how
New England banking differed from banking in the interesting item in this chapter is Bodenhorn’s discussion
South, where branching was common. Next, he exam- of how, after the demise of the Second Bank of the United
ines the links between economic growth and financial de- States in 1836, state banks, private banks, and exchange
velopment. Several tables calculate money or credit per brokers stepped in to keep the markets for bills of exchange and interbank payments functioning. I got the
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H-Net Reviews
impression that its demise really did not affect markets more research on antebellum capital markets.
much and that the private sector responded quite effecReferences
tively. This is an issue that could be examined in more
detail, as it raises the question of just how important a
Lance Davis, “The Investment Market, 1870-1914:
central bank is.
The Evolution of a National Market,” Journal of Economic
The Epilogue returns to the role of banks in the History, Vol. 25, no. 3 (September 1965), pp. 355-99.
growth of the antebellum American economy. The type
of evidence presented by Bodenhorn doesn’t really allow
for much more than the suggestive answer that banks
certainly helped things along, and it also points out that
Americans were resourceful in creating a banking system. The discussion prompted me to wonder how large
were the social savings from having banks – were they
“indispensable? ” Were substitutes for banks conceivable or possible, given the legal frameworks in the various states? In other words, would moneylenders that
were not banks have appeared? The postbellum South
as described in the Epilogue shows what happened when
a banking system was decimated, but it also reveals that
new institutions – efficient or not – would spring up to
take the place of banks. A History of Banking in Antebellum America is an important work and sets the stage for
Hugh Rockoff, The Free Banking Era:
Examination. New York: Arno Press, 1975.
A Re-
Arthur Rolnick and Warren Weber, “New Evidence
on the Free Banking Era,” American Economic Review, Vol.
73, no. 5 (December 1983), pp. 1080-91.
Richard Sylla, “Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 18631913,” Journal of Economic History, Vol. 39, no. 4 (Dec.
1969), pp. 657-86.
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Citation: Jon Moen. Review of Bodenhorn, Howard, A History of Banking in Antebellum America: Financial Markets
and Economic Development in an Era of Nation-Building. EH.Net, H-Net Reviews. July, 2000.
URL: http://www.h-net.org/reviews/showrev.php?id=4319
Copyright © 2000, EH.Net and H-Net, all rights reserved. This work may be copied for non-profit educational use
if proper credit is given to the author and the list. For other permission questions, please contact the EH.NET
Administrator ([email protected]; Telephone: 513-529-2850; Fax: 513-529-3309). Published by EH.NET.
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