Money and Capital Markets in Postbellum America

Money and Capital Markets in Postbellum America

JOHN A. JAMES
Copyright Date: 1978
Pages: 312
https://www.jstor.org/stable/j.ctt13x0z3n
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  • Book Info
    Money and Capital Markets in Postbellum America
    Book Description:

    Postbellum economic change in the United States required an efficient system by which capital could be transferred to areas where it was relatively scarce. In assessing the structure that evolved to meet this need, John James provides a new and convincing explanation of the forces underlying the integration of separate and local money markets to form a national market.

    To understand the role of financial markets during the period, the author examines the institutions and operations of the banking system in detail. In contrast to the now-prevailing view among scholars, Professor James finds that the banking system was quite adaptable in responding to institutional constraints, and he focuses in particular on the role of the correspondent banking system. The second part of his book assesses the performance of the market and the forces promoting change during the period. Drawing on a new and more carefully derived set of interest rates, the author tests competing hypotheses to explain integration and advances a more satisfactory alternative theory. He offers the first modern analysis of American financial institutions of the period between the Civil War and the establishment of the Federal Reserve System. In so doing, he adds to our knowledge of the historic role of finance and capital in economic development.

    Originally published in 1978.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6962-6
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Tables
    (pp. ix-x)
  4. List of Figures
    (pp. xi-xii)
  5. Preface
    (pp. xiii-2)
    J.A.J.
  6. CHAPTER I Introduction
    (pp. 3-21)

    The development of an efficient financial structure plays an important role in the process of economic development. The accumulation of capital in itself does nothing to promote growth in income or output if that capital cannot be successfully transferred into a productive use. A financial structure that leads to an efficient allocation of funds is one of the necessary conditions for growth in per capita income. The importance of finance for development in the United States has perhaps never been articulated as well as by J. S. Gibbons in 1858:

    Anyone who has travelled among our country villages, out of...

  7. CHAPTER II The Growth of the Banking System
    (pp. 22-44)

    The composition of the money stock changed dramatically in the period after the Civil War, with the proportion of deposits held relative to currency in the total money stock rising dramatically. In the mid-1860s deposits constituted somewhat less than 60 percent of the money stock, but by 1914 the share of deposits had risen to over 88 percent;¹ the public, which had held $1.50 of deposits for every dollar of currency after the Civil War, by the beginning of the Federal Reserve period held almost $9 of deposits for every currency dollar. Indeed, this remarkable downward trend in the ratio...

  8. CHAPTER III The Individual Bank
    (pp. 45-88)

    Nineteenth-century banks have traditionally been pictured as extremely restricted institutions, operating under many legal and geographic constraints. Provisions of the National Banking Act influenced the choice of assets in the bank portfolio by enforcing reserve requirements, prohibiting loans on real estate, and limiting the amount that could be extended to one borrower. Usury laws limited the maximum interest rate allowable on loans and discounts for all national banks and for state banks in virtually every state. Banks were thus constrained on what they could charge on loans, and in addition sound banking practice restricted the types of loans that they...

  9. CHAPTER IV The Correspondent Banking System
    (pp. 89-148)

    In addition to its alleged failure in promoting economic stability, because of the unresponsiveness of the rate of national bank note issue to changes in the demand for credit, the postbellum banking system was also widely criticized for its inadequacy in promoting the transfer of capital, and hence economic growth. The problem with such a banking structure, it was often argued, was its lack of integration and coordination. Such a rationalized structure was impossible because of its heterogeneous character and large numbers of component banks—by 1900 the “banking system” was a patchwork of over 12,000 independent national, state, and...

  10. CHAPTER V Methods of Interregional Transfers of Funds
    (pp. 149-198)

    In Chapter IV it was shown that the correspondent banking system was quite effective in transferring short-term funds from West to East and concentrating them in an essentially national market, the New York money market. The task of transferring balances from East to West was a more difficult one, because it was a process of diffusing rather than concentrating funds, but the structure of the correspondent banking system facilitated the flow of funds in that direction also. Interbank borrowing was one of the means by which funds in the correspondent banking system were transferred from areas of relative financial ease...

  11. CHAPTER VI The Process of Capital Market Integration
    (pp. 199-235)

    Regional interest rates, which were widely dispersed in the antebellum period, converged markedly in the late nineteenth century, as evidenced in Figures 1 through 4. What forces were at work in promoting the development of a national market in short-term capital? Was this integration of regional capital markets the result of institutional changes promoting interregional flows of funds, as Breckenridge had argued was necessary? In this chapter three principal hypotheses about the forces underlying short-term capital market integration in the postbellum United States will be examined: the institutional change hypothesis, the market power hypothesis, and the perfect market hypothesis.

    The...

  12. CHAPTER VII Summary
    (pp. 236-244)

    The postbellum economy in the United States experienced substantial shifts in both the nature and location of economic activity, heightening the need for interregional and intersectoral transfers of funds. The national banking system was widely criticized as being inadequate for the tasks. It was usually viewed as a cause of economic instability, rather than as a promoter of stabilization, and as unsuited for the interregional transfer of funds to promote economic growth.

    The tendencies to crises in the national banking system perhaps may have been exacerbated by the concentration of balances in New York, but the central problem was the...

  13. APPENDIX A Data Appendix
    (pp. 245-262)
  14. APPENDIX B Interest Paid on New York Bankers’ Balances
    (pp. 263-267)
  15. Bibliography
    (pp. 268-284)
  16. Index
    (pp. 285-293)
  17. Back Matter
    (pp. 294-294)