U.S. Commercial Banking: A Historiographical Survey

The President and Fellows of Harvard College
U.S. Commercial Banking: A Historiographical Survey Author(s): Larry Schweikart Reviewed work(s): Source: The Business History Review, Vol. 65, No. 3, Financial Services (Autumn, 1991), pp. 606-661 Published by: The President and Fellows of Harvard College Stable URL: http://www.jstor.org/stable/3116769 . Accessed: 15/10/2012 00:40
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Larry Schweikart
U.S. Commercial Banking: A HistoriographicalSurvey

In this wide-rangingessay, a bankinghistoriansurveys the major debates in the historiographyof U.S. commercial banking. Touching on various controversies in the fieldold, new, and brewing, from financing the Revolution to the savings and loan crisis-the article serves as a guide to the parametersof debate and provides an introductorybibliographyto acquaintinterested readerswith bankingliterature from colonial times to the present. hirty-five years ago, with the publication of Bray Hammond's seminal work on antebellum banking, Banks and Politics in America from the Revolution to the Civil War (1957), the topic of banking history emerged as a central issue in economic history debates. Scholars and practitioners alike revived discussions of banking systems and structures, which hitherto had been overshadowed by biographical studies of individual bankers. Hammond's Pulitzer Prize-winning work had special importance because it represented the first comprehensive analysis of banking published since the Great Depression, and because it addressed banking policy from the author's unique viewpoint as a banker with the Federal Reserve System. For Americans who had experienced the Depression, Hammond's "Lessons from History" provided further proof, if any were needed, that the government had to regulate banking and that the more centralized the system, the better it would be. Although Hammond did not go unchallenged, he set the tone for banking history for more than a decade. Even detractors seemed to agree with his fundamental assumption that banks were
LARRY SCHWEIKART is associate professor of history at the University of Dayton.
Business History Review 65 (Autumn 1991): 606-661. ? 1991 by The President and Fellows of Harvard College.
U.S. Commercial Banking: A Historiographical Survey / 607
quasi-publicentities that competitivemarkets,by themselves, couldnot adequately regulate.Money,it was assumed,was "special" and somehow did not behave as other commoditiesdid. Nearlyall workover the next ten yearsreflectedthatview, even the equally influentialMonetaryHistory of the United States and two (1963)by MiltonFriedman AnnaJ. Schwartz, otherwise vociferousadvocatesof competitive markets.The subsequent debatesover moneyand banking focusedon a numberof issues, of Revolution the role of and notablythe financing the American the Bankof the UnitedStates(BUS)in the Panicof 1837,but they all tended to proceedfromthe assumption banksstoodoutthat side the restraints markets. someextent,even the historians of To who wrotebiographies bankers of sharedthis viewpoint; they porbankerseither as maverickentrepreneurs who worked trayed the of or who against imposition regulation as managers yieldedto its inevitability. Sincethe 1970s,however,a new generation banking of historians, business historians,and monetaryeconomistshas chalor lenged this analyticalframework abandonedit altogether. function Amongthe new issuesthey have raisedare the historical of money;the role thatregulation itselfhas playedin affecting the the of market; significance publicpsychology a uniqueelement as of banking bankpanics; the sociology bankers bankand and of and These scholarshave reinterpreted ing. nearly every episode in Americanbanking history. Although some of the continuing debatesreturnto the significance regulation centralbanks, of and the issuesof competitive and the effectsof market mechamoney nismson bankshave generatedspecialscholarly heat. The application of econometric methodologies, computer-aided data and modelshas shapedthosedisanalysis, sophisticated monetary cussionsin new ways.Thisessaydoes not pretendto constitutea comprehensive surveyof the entirefieldof banking history,but it does seek to providea guide to the maintopicsof debate. EarlyAmericanBanking A varietyof theoristsexamined issues of moneyand coinagelong before the nation's first bank, the Bank of North America, appearedin 1781. The Scottishphysicianand scientist,William Douglas, and BenjaminFranklindebated the merits of "hard
Larry Schweikart / 608 money" (specie, as opposed to paper money) and the "quantity theory" (which posits a direct relationship between the money supply and general price levels), respectively, long before the Jacksonians or the monetarists adopted those positions. Jeffrey Rogers Hummel, in a 1978 article on "The Monetary History of America to 1789: A HistoriographicalEssay," provided an exceptionally valuable bibliographicalessay on these and other topics in Americanmonetaryhistory. Hummel sought to review the sources of division among Libertarians(those who view most government activities as unnecessarily intrusive and detrimental to individual freedom) over issues in money and banking. Most Libertarians (until quite recently) subscribed to a view that many Jacksonians later accepted-namely, that only gold and silver ("hardmoney")
really constituted money. Paper notes represented "fiat money"-
unbacked by valuable metal and hence essentially worthless. Hummel concluded that "the hard money school was basically correct. The colonial-and revolutionary-monetary experience was a continuous stream of government failures"(p. 386). Despite its utility in reviewing the literature on money, much of which overlapped the writing on banking, Hummel's commodity money approachtended to recast many of the traditionalarguments made by William Gouge and other "hardmoney" advocates in the early nineteenth century; he did not discuss the deeper relationshipsbetween banks and money in the colonial period or the early Republic. John J. McCuskerand Russell Menard in The Economy of British America (1985) and McCusker in Money and Exchange in Europe and America, 1600-1775 (1978), on the other hand, succinctly explored those links. The bibliography in The Economy of British America provides an excellent point of departure for any discussion of colonial banking and money. Early theorists generally had little experience as bankers. Instead, they emerged from the ranks of editorialists, politicians and government employees, or academics;indeed, many of them had careers that combined these activities. Amos Kendall, for example, whose Autobiography was published posthumously in 1872, was a member of Andrew Jackson's"kitchen cabinet" and served as PostmasterGeneral and as an auditorin the Department of the Treasury; he was also a newspaper editor and journalist. William M. Gouge, the authorof the well-known Short History of Paper Money and Banking in the United States (1833), was prima-
here is the title page of William Gouge's Treatise on Banking, 1833 *Reproduced work, in which he arguedstronglyagainsta bankingsystemthat Gouge'sbest-known allowed the circulation paper money. (Reproduced of courtesyof WidenerLibrary, Harvard Mass.) University,Cambridge,
rily a financialjournalist, but he also served as a clerk at the Treasury. Amasa Walker, who wrote The Nature and Uses of Money and Mixed Currency (1857)and The Science of Wealth (1866), was at one time a bank director and a merchant, but he was also a teacher and a member of the U.S. House of Representatives. His son, Francis Amasa Walker, was both an academic (who became president of MIT and was active in promotingboth the American Economics and the AmericanStatisticalassociations)and a govern-
Larry Schweikart / 610

ment official. Richard Hildreth, author of The History of Banks: To
Which Is Added, A Demonstration of the Advantages and Necessity of Free Competition in the Business of Banking (1837), was
primarily an editor and writer, one who moved from being a Jacksonian Democrat to a supporter of the Whigs and William Henry Harrison; he also served as U.S. consul to Trieste. Gradually, however, bankers started to develop their own interpretations of the nation's early banking experience. Unlike their predecessors, the bankers tended to emphasize the activity of financial institutions rather than monetary instruments in their writings. Among the bankers who composed histories of the colonial or early national period, Alexander B. Johnson stands out. He
wrote An Inquiry into the Nature of Value and Capital (1813), A Treatise on Banking (1850), and The Advanced Value of Gold, Suspended Specie Payments, Legal-Tender Notes, Taxation and National Debt, Investigated Impartially (1862). If a theme
emerged in these early writings, it was "soundness": would banks, left to their own devices, avoid excessive risks, or would they be driven by profits to act recklessly? This question raised the related issue of whether the operations of gold redemption mechanisms sufficed to keep banks sound or whether they also needed government regulation. Did unregulated banks that issued notes against a gold reserve inevitably drift toward unsound practices by overissuing notes? The authors of most early soundness interpretations assumed an almost static demand for real money, and they thus viewed banks as the source of commercial lubrication rather than of investment and economic growth. Perhaps the most influential bankerwas John Jay Knox, who epitomized the turned-historian soundness doctrine by fighting to maintain reserve requirements for national banks during his tenure as Comptroller of the Currency (1872-84), although in his posthumously published History of Banking in the United States (1900), he displayed less concern with the fate of the public than with the inability of the comptroller's office to provide adequate examination of banks. Knox, Johnson, and other authors disagreed concerning "proper" principles of bank management and over whether early banks were sufficiently sound, but they all emphasized what Richard Sylla called the "soundness orthodoxy." According to Sylla's article, "American Banking and Growth in the Nineteenth Century: A Partial View of the Terrain" (1971-72), that view, "reiterated and amplified in
triumph"in the "real subsequentyears," reached a "practical bills"doctrine,which held that moneyrepresented real physical andthus thatthe moneysupplycouldnot expand withouta goods doctrine" of domigoods.The "soundness priorexpansion tangible of nated much of the historiography American bankinguntil the func1960s,when Syllaand othersbeganto emphasize banking's tion as an instrument economicexpansion. of Because early Americanbankingwas interwovenso tightly with the subjectof papernote issues, the recentfocusof scholarthe shipon thatperiodhasalsoencompassed roleof papermoney, andthe "soundness" hasbeen considerably revised. historiography of the Economic historians haveemphasized monetary scarcity the the betweenthe two colonialperiodand investigated relationship sources of paper money-colonial land banks and colonial governments-and inflation.TheodoreThayer looked at "The LandBankSystemin the American Colonies" (1953),and larger issues were surveyedby Joseph Ernst, Money and Politics in 1755-1775(1973)andLeslieBrock,TheCurrency the America, of American Colonies,1700-1764(1975).This researchshowedthat land banksprovideda way of generating savings,and that loans fromthe landbanksofferedan earlymeansof creditexpansion. A departureappearedin The Development Commercial of who Banking,1782-1837(1965)by J. VanFenstermaker, was the firstto delve into the Reports the Secretary the Treasury to of and to Congress.Those reportsprovideda state-by-state of summary all relevantdata-number of banks,resources,notes, and so on. AlthoughFenstermaker providedlittle analysisof the data he unearthed,his book remainsa criticalsource:for the first time, debatesbeganto hinge on the data,ratherthanon whatcontemsaid. Basedon the pioneering workof Thomas Sargent poraries J. and Neil Wallace, "Some UnpleasantMonetaristArithmetic" (1981),economistsstartedto applymonetary theoryto such data in much more sophisticated ways, concludingthat government the long-runfiscal credibility,particularly abilityto balanceits had on budgetsandto honorits obligations, a directimpact expectationsof inflation deflation, hence on the valueof debt. or and As economists have employedcomplexmathematical models, the debate has shiftedawayfromboth soundnessand growthto the intrinsic nature of money. Rather than viewing short-run paper money simply as an instrument of convenience and exchange-a substitutefor "real" money, such as gold-the new
Larry Schweikart / 612 crop of economists has stressed links between the asset value of money (what it will buy) and the determinantsof that value. Bruce Smith published two revealing articles on this aspect of the colonial economy in 1985: "Some Colonial Evidence on Two Theories of Money: Marylandand the Carolinas"and "AmericanColonial Monetary Regimes: The Failure of the QuantityTheory of Money and Some Evidence in Favor of an Alternative View." Ron Michener and Charles Calomiris engaged in a lively debate on colonial exchange rates: Michener's "Fixed Exchange Rates and the Quantity Theory in Colonial America"(1987) and Calomiris's "InstitutionalFailure, Monetary Scarcity,and the Depreciation of the Continental,"and his comment on Michener, "The Depreciation of the Continental:A Reply," both in 1988. If governments did not balance their budgets or seemed unlikely to meet their debt or bond obligations in full, or if they engaged in inflationarymonetary policies, perceptions and expectations were likely to drive inflation. Examinations of the link between government fiscal policies and the relationshipbetween banks and state governments, as in an article by Richard Sylla, John Legler, and John Wallis, "Banksand State Public Finance in the New Republic" (1987), continued to develop the notion that government fiscal policy depended to a great extent on its regulation of banks or its utilization of their services as agents of the state. Some states saw banks as alternatives to overtly state-run projects as vehicles of development, and they frequently employed bank profits for state purposes, a point made by Milton Heath in Constructive Liberalism:The Role of the State in Economic Development in Georgia (1954) and Claude Campbell in The Development of Banking in Tennessee (1932), for example. Banksprovided a source of revenue for states that otherwise would have required higher taxes, and state support in turn served as a buffer for banks when periodic depressions engendered a hostile mood in the public. The Jacksonian Era and the Bank War The issues raised by the "soundness"writers gained momentum in the late nineteenth century as historians applied those principles to episodes such as the Bank War. Often even supporters of laissez-fairefavored government regulation of banks, particularly
U.S. Commercial Banking: A Historiographical Survey I 613 limits on paper note issue. William GrahamSumner, for example, in A History of Banking in the United States (1896) and Andrew Jackson (1899), occasionally contradicted himself. He saw hard money, noninterference by government, and free trade as mutually supportiveelements of a sensible economy without noting that a noninterfering government would not seek to dictate a hard money or any other monetary standard. Like other members of the so-called Whig school of historiography, including Charles Grier Sellers, author of "AndrewJackson versus the Historians" (1958) and Jacksonian Democracy (1958), Sumner linked laissezfaire economic ideas to political changes brought about by the and did not always like what he saw. The expansionof Jacksonians the franchisein the political arena, for example, fanned the fires of social and economic democracythat lay behind Jackson's assaulton the Second Bank of the United States. Writing in a similar vein, Ralph Catterall in The Second Bank of the United States (1903) labeled the destruction of the Bank of the United States an "offense against the nation"and, like Reginald Charles McGrane in his The Panic of 1837: Some Financial Problemsof the Jacksonian Era (1924), portrayed Jacksonas ignorant of sound banking principles. Progressive and Marxisthistoriansalso joined the fray, but, as Hummel noted in his 1978 historiographicalessay, "The Jackthe sonians, Banking, and Economic Theory:A Reinterpretation," historical debate "was still conducted within the terms originally laid down by Sumner and his 'Whig' contemporaries"-that is, within the terms of the "soundness"school. Interpretingthe Bank War as a class-oriented struggle between the established business groups, who supporteda nationalbank, and a rising entrepreneurial segment, who opposed it, Charlesand MaryBeard in their Rise of AmericanCivilization(1927)and ArthurSchlesinger, Jr., in The Age of Jackson (1945) saw the episode as only one facet of a broader struggle for majorityrule. Nevertheless, in so doing they fell back on soundness categories and on the role of regulation in maintainingsound banks. They did not question the public policy or economic wisdom of exempting banking from certain market forces. Schlesinger, for example, viewed the BUS as an impediment to credit expansion, yet he did not find it puzzling that the disliked paper money, by which entrepreneurialbankJacksonians ers could expand credit. If the Bank War stemmed from the Jacksonians'campaignfor hard money and againstthe issuance of small
Larry Schweikart / 614 notes and if his Jacksonianentrepreneurs chafed at the government privilege associated with the BUS, as Schlesinger contended, why were they not concerned that their intervention might reduce monetary competition and increase the scope and power of government? The hard money campaign coincided, attackon state-charteredbanks, a moreover, with the Jacksonians' that has baffled, or at least troubled, many of the Democrats' point apologists, who thought a plethora of state-charteredbanks superior to a nationallychartered institution. Before historians sorted out that anomaly, a different political element took center stage in the debate. Some writers, such as Walter Smith, EconomicAspects of the Second Bank of the United States (1953), Thomas Govan, "The Fundamental Issues of the Bank War" (1959) and Nicholas Biddle: Nationalist and Public Banker, 1786-1844 (1954), and Fritz Redlich, The Molding of American Banking Men and Ideas (1947), believed that the BUS had exercised central bank powers. Its life and death therefore offered lessons for the Federal Reserve Board'spolicies, and some Fed supporters, including Bray Hammond, justified the necessity for a central bank through descriptions of the supposedly disastrous Jacksonian policies. Redlich and Hammond rested their interpretationson the soundness doctrine:fractionalreserve banking (the requirement that only a percentage, or fraction, of amounts deposited be kept in the vault, with the remainderavailable to lend at interest to create additionalcapital),if uncontrolled, tends towardinflation. They argued that in the antebellum period, private banks issued notes against gold and silver reserves with no external force to check them and therefore tended to overissue notes and to engender economic instability. Using that reasoning, Hammond'saccount had AndrewJacksonremoving the only check on inflationaryissues by unregulated state banks. Hammond, in both his book and in a Journal of Economic History article on "Bankingin the Early West" (1948), compared laissez-fairebanking, state banking, and prohibition of all chartered and unchartered bankingactivities. He determined that state banking(that is, banks run by the state governments, often as monopolies) constituted the best type of banking. Significantly,however, he advocated prohibition over the other option, laissez-faire, which he argued caused a "permanentpolicy of monetary inflation." Historians have done more to clarify the positions staked out by Hammond and Schlesinger on the political aspects of Jackson-
U.S. Commercial Banking: A Historiographical Survey / 615 ian bankingpolicy, beginning with revisions by John McFaul, The Politics of Jacksonian Finance (1972), and James Roger Sharp, The Jacksonians Versus the Banks (1970). Both identified confusions and ambiguities in the Jacksonians' views on banking. Sharp tended to explain them in the context of local political and economic forces, whereas McFaul identified an underlying thrust of the Democrats toward greater-not less-control over the nation's banking and money system. Neither, however, wished to discard the Jacksonians'hard money rhetoric, possibly because both carried into their own work many views of their mentor CharlesGrier Sellers, making them reluctant to abandon completely the notion that the Jacksoniansfavored less government influence. A new set of revisionist interpretations appeared, however, questioning whether the Jacksonians' policies had any correlation to their rhetoric. The first to challenge the view that Democrats were "anti-bank" was David Martin, who in a series of articles"Bimetallismin the United States before 1850"(1968), "1853:The End of Bimetallism in the United States" (1973), and "Metallism, Small Notes, and Jackson's War with the B.U.S." (1974)convincingly revealed a cogent and coherent policy on the part of the Democrats at the federal level to create their own national bank, using abolition as the first step towardgaining control of private note issue. Even Jacksonian apologistJeffrey Hummel agreed by then that "the Jacksonianhard-moneyattack no longer comes acrossas confused and self contradictory." Nevertheless, Hummel, like other Libertariansof the day (for example, MurrayRothbard, The Panic of 1819: Reactions and Policies [1962]), wanted to portray the Jacksoniansas valiantfree marketeers:"The attackon the [BUS] was a fully rationaland highly enlightened step towardsthe achievement of a laissez-fairemetallic monetarysystem." Thus, in an ironic turn, modern liberals such as Schlesinger, who favored "big government," perceived the Democrats as the vanguardof democracy, but dismissed their hard money views as eccentric, whereas Libertarians,who favored "smallgovernment"or no government, celebrated the Jacksonians precisely for those hard money views. What was going on? Richard Timberlake'sThe Origins of Central Banking in the United States (1978), a compilation and revision of several of his earlier articles, provided some answers. Viewing central banking not as a naturalpart of economic development but as a creation of politiciansfor ideological purposes, Timberlakeobserved that both
Larry Schweikart / 616 the First and Second Banks of the United States started to accumulate power and control over the financial system. Even the Independent Treasurycreated by the Jacksoniansquickly started to employ central bank policies, something that does not fit well with the Libertarianmythology. Robert Remini'sAndrewJackson and the Bank War (1967), while rejecting the notion that the Democrats had any intention of centralizingcontrol over banking in the hands of the federal government, nevertheless made a strong case that they did just that. Remini portrayedthe BankWar in terms of political and personal confrontationbetween Jackson and Nicholas Biddle, the bank's head, but he frequently pointed out that the struggle had the effect of expandingthe powers of the executive branch over money, banking, and the economy. Argumentsthat Jackson'sattackon the BUS had had a signifiof cant impact on either the "inflation" the 1830s or the Panic of 1837 were refuted in articles by RichardTimberlake-"The Specie Standardand Central Banking in the United States before 1860" (1961) and "DenominationalFactors in Nineteenth Century Currency Experience" (1974)-and Rockoffs "Money, Prices, and Banksin the JacksonianEra,"published in Robert Fogel and Stanley Engerman'scollection, The Reinterpretationof AmericanEconomic History (1971), as well as by Peter Temin's Jacksonian Economy (1969). Yet as late as the 1980s, with the second and third volumes of his biography of Old Hickory, Andrew Jackson and the Course of American Freedom (1981) and AndrewJackson and the Course of American Democracy (1984), Remini still exaggerated Jackson'srole in the Panic of 1837, returningto the interpretation offered almost thirty years earlier by Hammond and ignoring the widely accepted Temin and Timberlakerevisions. Building on Timberlake'sobservationthat the BUS itself gravitated toward central banking tendencies and on Remini's discussion of the politicization of banking and monetary policy, Edwin Perkins in a 1987 Business History Review article, "Lost Opportunities for Compromise in the Bank War: A Reassessment of Jackson's Veto Message," filled in another piece of the puzzle. He showed that Jacksonleft considerable negotiating room for Biddle and the pro-BUS forces. Perkins laid to rest the view that Jackson was either anti-bank or anti-BUS per se; rather, he insisted on certain controls by the federal government. Pushing open the door that Perkins and David Martin had unlocked, in Banking in the AmericanSouthfrom the Age ofJack-
The Youthful Nicholas Biddle ? Biddle, the head of the SecondBankof the United States(1823-39),was an astute manager a poor politician.He attemptedto engibut on veto neer an overrideof AndrewJackson's and refusedto considercompromise the charterexpiredin 1836, Biddlestayedon as charter's terms. Afterthe bank'snational directorof a BUS rechartered the stateof Pennsylvania. (Portrait HenryInman, by by [New York, reproducedfrom Bankingand Finance to 1913, ed. LarrySchweikart
1990], p. 54.)
son to Reconstruction(1987), I looked at banking policy in those had complete control, findsouthern states where the Jacksonians that in each case the Democrats' policies were as far from ing laissez-faire or hard money as they possibly could be. Instead, Democraticstate legislaturescreated their own monopolybanksin two states and in two others used the powers of the state to issue bonds to create a "wildernessof state banks,"in the words of U.S. Senator (and hard money Jacksonian) Thomas Hart Benton. Mov-
Larry Schweikart / 618 ing from the regional to the nationalpolitical level, I then argued in "Jacksonian Ideology, CurrencyControl, and 'Central'Banking: A Reappraisal" (1988) that "hardmoney," though an honestly held for some Democrats, provided others with a smoke screen position to conceal centralization of money and banking powers in the hands of government. The attack on small note issue, as Martin suggested, constituted only the first step in the elimination of all note issue. Regardlessof the the type of money that made up the circulation medium, control would have rested in federal hands. Despite such evidence, some, such as Lawrence H. White in his preface to Democratick Editorials: Essays in Jacksonian Political as Economyby WilliamLeggett (1984), still portraythe Jacksonians opposed to central banking. Obviously, then, further work remains to be done on the gap between the rhetoric of the Jacksonians and the effects of the policies that they enacted. Private, State, and Regional Banking The futility of the Jacksonians'attack on small notes is further illustrated in work on non-chartered banks and private bankers, which have emerged as importantcomponents of the financialsystem. I have expanded early work by Sylla, "Forgotten Men of Money: Private Bankersin Early U.S. History"(1969), in "Private Bankers in the Antebellum South" (1986). Rachel Maines's paper presented at the 1985 Economic History Association meeting in "Integrationof Banking and Manufacturing an AmericanCommunal Society," provides some important insights on lending by Utopian societies such as the Harmonists. Timberlake's 1974 Journal of Economic History article, "DenominationalFactors in Nineteenth Century Currency Experience," lent further support to the importance of those bankers as creators of unaccounted money. Although a thorough exposition of antebellum private bankers still awaits, it is now clear that money-creating, noteissuing private sources existed in far greater numbers than previously suspected. Regulation of banking at the state level, whether by Jacksonians, Whigs, or others, depended to a great extent on regionaland local history and character.Any discussion of banking in the Jacksonian era, when most state bankingsystems came into bloom (and when those in the West were planted) must examine the influence
U.S. Commercial Banking: A Historiographical Survey / 619 of regions and states on the financial system. An early excellent example of the effects of state regulatory regimes, Insurance of Bank Obligations in Six States during the Period 1829-1866 (1958), by Carter H. Golembe and Clark Warburton, examined the deposit obligations of banking in the states of the Old Northwest, predating William Shade's Banks or No Banks: The Money Issue in Western Politics, 1832-1865 (1972). Workingfor the Federal Deposit Insurance Corporation(FDIC), Golembe and Warburton produced a much more sympathetic treatment of deposit insurance in early Ohio, for example, which has been echoed in more recent studies (Charles Calomiris and my "Was the South Backward?North-South Differences in Antebellum Banking during Normalcyand Crisis"[1988], and our "The Panic of 1857: Origins, Transmission, and Containment" [1991], for example) that emphasized the coordinationand informationtransmissionaspects of the Ohio system. For a more focused treatmentof the banknote market in the Old Northwest, Jane Knodell's article, "Interregional Financial Integration and the Banknote Market:The Old Northwest, 1815-1845" (1988), and her 1984 Stanforddissertation, "FinancialStructure and Financial Stability:The AmericanWest, 1800-1845," contained evidence of a decline in the role of the banknote marketas it became more integrated. A look at the same section of the country, through the eyes of New York families (including the Bronsons)who extended their financialempire into the Old Northwest, appears in John Denis Haeger's excellent book, The Investment Frontier (1981). Haeger did not extend his study through the 1850s and therefore did not address the failure of the Ohio Life and InsuranceCompany, long blamed for triggering the Panic of 1857. Given recent debate about that depression (for example, Temin's 1975 article in the IntermountainEconomic Review, "The Panic of 1857," or Calomiris'sand my 1991 article), his insights would have added to our understandingof the role of individualsand families in financingunstable institutions. My Bankingin the AmericanSouth examinedsimilarissues for the states that eventually composed the Confederacy, less Texas. That study emphasized the importance of states that adopted branch banking, and it identified a "bankers'culture" characterized by great mobility into and within the profession. Unlike the Rhode Island bankers in Naomi Lamoreaux's article, "Banks,Kinship, and Economic Development: The New England Case" (1986), the southern bankers did not seem as tied to kinship net-
Larry Schweikart / 620 works as their New England counterparts, although kinship and friendship among bankers certainly played an important part in lending. For scholars disposed to Marxist interpretations, Susan Feiner's 1982 article, "Factors, Bankers, and Musters:Class Relations in the Antebellum South," on southern bankers generates some heat but little light, and her University of Massachusettsdissertation, "The Financial Structures and Banking Institutions of the Antebellum South: 1811 to 1832"(1981), offers an interesting, though unconvincing, analysis. No one has assembled a regional look at northern banking to complement the works on the South, but Lamoreaux has completed several articles on New England banking toward that end covering the nineteenth century, including the one in this issue of the Business History Review; she has also written "Banks and Insider Lending in Jacksonian New England: A Window on Social Structure and Values," an unpublished manuscript from 1988, and "Bank Mergers in Late Nineteenth Century New England: The Contingent Nature of StructuralChange" (1991). Most discussions of kinship ties have failed to draw the connection between family members' access to capital (a supply side advantage)and their association with other successful relatives (a demand side advantage). As for the West as traditionallydefined, Lynne Pierson Doti and I, in our recent Banking in the AmericanWestfrom the Gold Rush to Deregulation (1991), have added further evidence that the states with branch banking systems experienced much greater stability and growth than those with unit bankinglaws. We also posited a theory of bank safety that expands on Harold Livesay and Glenn Porter's often overlooked article, "The Financial Role of Merchants in the Development of U.S. Manufacturing, 18151860" (1971). Livesay and Porter argued that "merchantsusually were the banks" (p. 67); their analysis of bankers in New York, Philadelphia, and Baltimore in 1840, 1850, and 1860 showed that more than two-thirds of the bank officialscame from the ranks of merchants. Harry Stevens, in "Bank Enterprisers in a Western Town, 1815-1822" (1955), reported a strong correlationbetween a merchant backgroundand bankers in antebellum Cincinnati; my Bankingin the American South noted a similarstrong involvement by merchants, particularlyin the "Old South" states. Banking in the American West, however, maintained that more than a merchant backgroundwas required to convince depositors to trust a banker with their money: bankers needed other symbols of safety
U.S. Commercial Banking: A Historiographical Survey / 621 that included first and foremost a safe, a vault, and a relatively elaborate bank building. The banker's previous experience as a merchantwas importantfor more than the capitalit made available to him; it also constituted an observable track record of success and business performance. The Free-Banking Era The soundness school's attacks on supposedly inflationarynote issues reached epic proportions in its treatment of free banking. The so-called free bankingera in the United States was the period 1836-63, from the end of the Second Bank of the United States to the passage of the National Banking Act. American free banking differed significantly from the Scottish form, which supporters often touted as a successful exemplar. Lawrence H. White has shown in his Free Banking in Britain: Theory, Experience, and Debate, 1800-1845 (1984)that Scottishfree bankinghad a long and exemplary record of stability compared to the neighboring system under the Bank of England. White's view came under fire in a review article, "Scottish Banking before 1845: A Model for Laissez-Faire?" (1989)by Tyler Cowen and RandallKroszner,who whether the Scottish system provided a model for questioned laissez-faire banking at all, arguing that the system of unlimited stockholder liability in Scotland made Scottish banks virtually failure-proofbut hardly unregulated. White's response, "Scottish Bankingand the Legal RestrictionsTheory:A Closer Look"(1990), suggests that one's assessment of that debate hinges on whether stockholderliability laws should be considered specific to banking regulationor a general feature of all Scottish corporateregulation. In any case, "free banking"as applied to events in the United States is clearly a misnomer. As most students of the era point out, it was generally characterizednot by laissez-faireor unregulated banking, but by a form of regulation that attempted to ensure soundness by shifting from regulatingthe amount of capital banks were required to hold (capitalizationrequirements) to regulating the components of that capital, for example in terms of the required proportion or type of stocks, bonds, real estate, or cash (portfoliocomposition). Hugh Rockoff,in The Free BankingEra: A Reexamination(1975), was one of the first to make such observations. He inaugurateda wave of revision on the subject by arguing
Larry Schweikart / 622 that free bankingbecame wildcat bankingonly under a narrowset of conditions brought about by remediable flaws in free banking legislation. Nevertheless, in his other work ("Varietiesof Banking and Regional Economic Development in the United States, 18401860" [1975] and "Lessons from the American Experience with Free Banking"[1989], and Rockoffand Roger Hinderliter, "The Managementof Reserves by Antebellum Banks in Eastern Financial Centers" [1973]), Rockoffultimately characterizedfree banking as a mixed blessing. He concluded that "we could not [turn back the clock to the free banking era] even if we wanted to.... [and] the free bankingera does not represent some ideal monetary " ("Lessons," p. 49). Others drew different policy system ... implications. If the relatively unregulated antebellum banking period, with its unrestricted entry and private note issue, was more stable and "sound"than Hammond and others had argued, then one could question the need for any kind of government monopoly. The more favorableview of free bankinggained momentum in the late 1970s and early 1980s as two factors made their influence felt. First, led by Alfred Kahn, the administrations of Jimmy Carter and Ronald Reaganhad undertakenderegulationof significant sectors of the Americaneconomy-initially, trucking,airlines, and oil (see, for example, Thomas K. McCraw, Prophets of Regulation [1984]). Second, after years of domination by Keynesian economics, -anew generation of economists were much more critical of government intervention in the market, including the banking arena. Ironically, a leading role in this change was played by Nobel Prize-winning economist Milton Friedman, who along with Anna Schwartzhad offered a defense of the government'smonopoly over money in their Monetary History of the United States. Equally ironic, two of the most vociferous defenders of free banking, ArthurJ. Rolnick and Warren Weber, were Federal Reserve economists. Beginning in 1982, Rolnick and Weber produced a series of influential articles on the subject that took the defense of free banking much farther than Rockoffs work. They concluded that with relatively minor changes in free banking laws, from par to market valuation of bonds, no wildcat banking would have occurred at all. They argued, for example, that in a state permitting par valuation of bonds, a bank could hold $100,000 worth of bonds whose true value was only, say, $50,000. A change in the law that required the banker to purchase additionalbonds if the
bility to the region's banks.
for price fell would have compensated the decline in value and amount a backing as failure default. or keptthe fulloriginal against More recent refinementsof Rolnickand Weber by Andrew in Economoupolos a series of articlesand a critiqueby Kenneth Lawsand Ng in the Journalof Economic History,"FreeBanking Barriersto Entry in Banking,1838-1860"(1988),have, on the conclusion unregthat whole, done little to shaketheirunderlying ulatedbanking was not inherentlyunstable.Indeed, Economouin polos tested the makeupof free bankportfolios two states in "FreeBankFailures New York Wisconsin: Portfolio in and A Analand agreedthat they sufferedfromdeclinesin asset ysis"(1990), prices, as Rolnickand Weber suggested. He argued,however, Rolnick Weberexplained and interstate failure rates that,although of free banks-resultingfromholdingsof out-of-state bonds, for did not account differences free bankfailure for in example-they rateswithinstates,as he did. The free banks--evenwith Rolnick and Weber'spolicy fixes-still had problemsin some states. Ng tooka different that did tack,arguing free banking not lowerbarriersto entryas manyhadassumed.Rockoff, TheFreeBanking in Era, hadpointedout thatmanystatesdid not witnessa rapidrise in the number banksafterpassing banking of free laws.Neitherhe nor Ng fully explainwhy that was. One hypothesis-generally laws accepted,but not yet tested-holds that,thoughfree banking loweredthe cost of entry into banking some respects,the gain in was offsetby the portfolio restrictions were introduced. that The debatesover free bankingseem to have concludedthat the systemwas not fundamentally unstable(andin need of a centralbank,as Hammond claimed). had Free banking, however,was in only one optionconsidered the debateon the effectsof various bank regulationregimes. The SuffolkSystem in Massachusetts to representedanotherapproach bankstability.Boston'sSuffolk Bankstartedthe systemin 1824as a way to hold and cleardrafts or notes drawnon provincial, "country" or banks.In a manner to foreignexchangemarkets,the systemrequiredparanalogous ticipatingcountrybanksto leave a permanentspecie deposit of $2,000 each in the SuffolkBank, plus an amount sufficientto redeemat parany of theirnotesthatreachedBoston.Suffolk paid no intereston those deposits,givingthe bankadditional fundsto lend at no cost to itself. The countrybanksbenefitedby having swiftand reliablenote redemption, whichbroughta level of sta-
Larry Schweikart / 624 In the eyes of some free marketeers, the SuffolkSystem represented a private market response to the need for regulation. Hammond, Redlich, and Horace White, in Money and Banking, Illustrated by American History (1915), all argued that Suffolk worked for awhile but then fell prey to Gresham'sLaw, when the "bad"notes of the out-of-town banks drove the Boston notes out of circulation. Since their works appeared, F. A. Hayek's"Toward a Free Market System" (1979) and Lawrence H. White's "Accountingfor Non-Interest-BearingCurrency:A Critique of the Legal Restrictions Theory of Money" (1987) have contended that free entry and exit into the money production industry and convertibility to a base money constituted sufficientconditions to produce stability, and by that definition Suffolk'snotes should not have experienced defeat at the hands of the supposedly inferior Bank of Mutual Redemption, created in 1855. Wilfred Lake, in "The End of the SuffolkSystem"(1947), viewed Suffolk'sproblems
as stemming from its "autocratic attitude . . . towards the country
banks" (p. 206). A more recent, more subtle interpretation by Donald J. Mullineaux, "Competitive Monies and the SuffolkBank System: A ContractualPerspective"(1987), contends that the Suffolk System sought to establish a trademarkon bank notes, but that it miscalculated the government's reaction: Suffolk anticipated-incorrectly-that its withdrawalwould force the government to its assistance. Mullineauxconcluded nonetheless that a government regulatory presence was needed in the monetary system. But would the Suffolk System have succeeded in such a role? J. Van Fenstermakerand John Filer, in "Impactof the First and Second Bank of the United States and the SuffolkSystem on New England Money: 1791-1837" (1986), tested whether the Suffolk System indeed restrained the money supply as a regulator bank might do. Examining the growth rate of money during the Suffolkera, they found that Suffolkhad no effect on the expansion of the money supply, but that it did increase the bank note-todeposit ratio. The debate on Suffolkappearsto be just heating up and remains inconclusive at best, although a recent article by Charles Calomiris and Charles Kahn, "The Role of Demandable Debt in StructuringOptimal BankingArrangements"(1991) supports a more sanguine view of the SuffolkSystem.
U.S. Commercial Banking: A Historiographical Survey / 625 From the Civil War to the Creation of the Federal Reserve System Many historians treated the demise of the Second Bank of the United States and the advent of the Independent Treasurysystem as a lull between the Jacksonianand silverite and Greenbacker upheavals. The Civil War, for all the changes it brought to banking policy, marked a dividing line between the two periods of banking turmoil. The postbellum decades saw controversies over nationalversus state and "free"banking, bimetallism (centered on whether silver could continue to be used as specie, and on what ratio to gold), resumption of specie payments, chronic specie shortages, and panics. Few historians or economists saw much continuity in thought from the Jacksoniansto the Republicansto the Populists, mainly because they focused on the battles over the gold standardratherthan on the continued concentrationof power over banking and money in the hands of federal and, to a lesser extent, state government. Traditionalapproachesincluded Bray Hammond'sSovereignty and an Empty Purse: Banks and Politics in the Civil War (1970), whose description predictably praised the northern centralizing policies and condemned the Confederacy's financial program as inflationaryand decentralized. More recent and innovative work has drasticallyrevised the interpretationof Confederate financial policies. George Davis and Gary Pecquet, in "InterestRates in the Civil War South" (1990), identified crucial relationshipsbetween Confederate monetarypolicy and interest rates, while Pecquet, in "Moneyin the Trans-Mississippi Confederacyand the Confederate CurrencyReformAct of 1864"(1987)and in "TheTug of War over Southern Banking"(1992), linked the fortunes of southern banks during the Civil War to expectationsabout the potential loss of the asset value of slaves following Abraham Lincoln's Emancipation Proclamation,instead of simply to battlefield developments. James F. Morgan's Graybacks and Gold (1985) provided much useful detail, though it lacks the theoretical framework supplied by Pecquet. Much of the new work suggests that the approachesto monetary policy by both the Union and the Confederacywere similarin that they both tried to establish fixed interest rates on long-term debt to provide a predictable source of revenue. The South, of course, ran out of resources. That view is challenged in Douglas
Christopher G. Memminger A Charleston, S.C., lawyer and state representative, Memminger served as the Confederacy's secretary of the treasury from 1861 to 1864. Although he was not particularly well suited to the position, his efforts were also hinderd by the Confederate Congress and the South's military defeats. (Reproduced courtesy of the New-York Historical Society.)
Ball's Financial Failure and Confederate Defeat (1991). Ball asserts that the Confederacy had ample physical and material resources to fight the war, and that a coherent taxationprogram, combined with the use of cotton to obtain large foreign loans, could have succeeded. Ball blamed Confederate taxationpolicies and loan negotiatorsgenerally, but specificallytargeted Confederate secretaryof the treasuryChristopherMemminger, whom Ball considered inept. If the debate over Confederatemonetarypolicies has revived, the discussion of the Greenback Era never waned. "Greenbacks" were no-interest, legal-tender notes (basically,paper money) that the U.S. government, having been forced to suspend specie payments, issued beginning in 1863 to finance the Civil War. In a series of cases in the late 1860s and early 1870s, the U.S. Supreme
U.S. Commercial Banking: A Historiographical Survey / 627 Court ruled that the Greenbackswere indeed legal tender, acceptable for payment of taxes and debts and in commercial interchange. In 1875, however, Congress passed the Resumption Act, aimed at phasing out the Greenbacks and resuming payment in specie by 1879. The banking and monetarypolicies produced various political explosions, including the formationof an unsuccessful Greenbackparty, forerunnerof the more successful Populists, and the Democratic presidential nomination of William Jennings Bryan in 1896 (and Bryan's famous "cross of gold" speech). For historiansand economists looking at these developments, the central question was tied to the theme of regulationand the issue of whether or not the Greenbacks represented a deliberate attempt by the government to produce inflation. Most of the new studies on Greenbackshave borrowed from Charles Calomiris's approach by examining the supply and demand functionsfor money. In the case of the Union, the Greenbacks did not inflate wildly because they remained tied to a promise to redeem in gold at a future date; conversely, in the Confederacy, the lack of faith in the viability of the Rebel government contributed to the inflation. Monetary policy was determined primarilyby political events, but the deflationthat followed the war was also related to the structure of the national banking system. Calomiris, in "Price and Exchange Rate Determination during the Greenback Suspension" (1988), resuscitated earlier arguments made by Wesley Clair Mitchell's A History of the Greenbacks (1903), and rejected the view presented in Friedman and Schwartz's Monetary History, which attributed all developments in that era to changes in the money stock rather than to political events. Both Mitchell and Calomirissaw the money stock as endogenous to the price level, not vice versa. Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865-1879 (1964), Walter Nugent, The Money Questions during Reconstruction (1967), and Robert P. Sharkey, Money, Class, and Party: An Economic Study of the Civil War and Reconstruction (1959) agreed with Mitchell in interpreting the deflationaryperiod in the 1870s as resulting from governmentpolicy, but they focused on the causes of policy enactment. Unger and Nugent interpreted policy as driven by moral and ideological issues, whereas Sharkey saw policy as following class interests. Generally they viewed government management of the money supply as a function of politics unaffected by supply or demand
Larry Schweikart / 628 pressures. In contrast, Calomiris and Glenn Hubbard, "Price Flexibility, Credit Availability, and Economic Fluctuation: Evidence from the United States, 1894-1909" (1989), offered a more convincing explanationof economic fluctuationsand bankinginstability in the period before the First World War, one that emphasized real credit-supply shocks caused by debt inflation. Bank credit shrank, especially in farmareas, as banks hit troubled times caused by distress in the agriculturalsector. Calomirisand Hubbard argued that monetaryshocks per se had little effect under the gold standard. Some historians have focused on the changes in the economy brought about by capital markets as the most importantfinancial issues in the late nineteenth century. Lance Davis, one of the first to address the subject, in "The Investment Market, 1870-1914: The Evolution of a National Market"(1965), attributed the rise of capital markets in the United States to the spread of the commercial paper market. Two major challenges arose, with different approachesto the same criticism of Davis's commercialpaper theory. Richard Sylla argued in American Capital Markets, 18461914 (1975) that the structure of the national bank system's minimum capital requirements and its barriers to entry raised interest rates in rural areas, which in turn contributed to the concentration of funds in urban areas. Thus a national capital market emerged, but some rural banks remained outside it. John James, in Money and Capital Markets in Postbellum America (1978), rejecting the Davis thesis, observed a wave of chartercompetition between state and national authorities and pointed to state capital requirements as the key development in the nationalmoney market. He also noted that the interest rate movements in different areas did not support the view that the nationalmarketwas driven by the spread of commercial paper. Instead, James argued that, although rates between states diverged briefly, competition for lendable funds at lower rates soon produced increasing similarity and convergence, providing evidence of a truly national capital market. John Binder and David Brown, in "BankRates of Return and Entry Restriction, 1869-1914" (1991), tested a number of these theses, including Sylla's and James's, and found that differences attributed by those and other authors to monopoly power or legal restrictions on entry "were due to the way [bank] returns were measured," and that banking markets were highly competitive
U.S. Commercial Banking: A Historiographical Survey / 629 (p. 47). A similar message emerged from Lynne Pierson Doti's dissertation, "Bankingin California:Some Evidence on Structure, 1878-1905" (1978), where she found no local monopolies and excellent capital flows. However, Doti's work returned to the earlier theme of regulation by emphasizing the importance of state laws in determining a region's overall structure as had James. Kerry Odell, who in "The Integration of Regional and Interregional Capital Markets: Evidence from the Pacific Coast States, 1882-1913" (1989), found strong integration among the Pacific Coast states, supported Doti's conclusions. Other micro-level tests of these views by Marie Shuska and W. Brian Barrett, "Banking Structure and the National Capital Market"(1984), James Campen and Anne Mayhew, "The National Banking System and Southern Economic Growth: Evidence from One Southern City, 1870-1900"(1988), Kenneth Snowden, "Mortgage Rates and AmericanCapitalMarketDevelopment in the Late Nineteenth Century" (1987) and "MortgageLending and American Urbanization, 1880-1890" (1988)-all in the Journal of Economic History-and Richard Keehn, "Federal Policy, Bank MarketStructure,and BankPerformance: Wisconsin, 1863-1914," Business History Review (1974), have generally supported the Sylla-Jamesexplanationor modified it only slightly. Campen and Mayhew, for example, identified loan demand, not chartercompetition, as the source of changes in bank behavior, whereas Shuska and Barrett found that increasingly sophisticated business decisions constituted the driving force. Helen Hill Updike's 1985 study, The National Banks and American Development, 18701900, stressed the transmission mechanisms whereby country banks shifted funds to urban areas for more profitable lending. Certainly, as shown by Gregory Mankiw, Jeffrey Miron, and David Weil, "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve" (1987), individuals and banks rapidly (if not immediately) adjusted their behaviorto the new conditions associatedwith the foundingof the Federal Reserve System. Two other majortopics dominate the study of the period 18951913: the dearth of southern capital and the movement toward a centralized national bank. Although no satisfactoryoverview of southern banking in the postbellum era exists, it is clear that an absence of capital cannot be blamed for the so-called retardationof the South. If estimates of the number of antebellum private bank-
Larry Schweikart / 630 ers were substantially low, then it is likely that postbellum estimates also undercounted private bankers. Roger Ransom and RichardSutch, in One Kind of Freedom (1977), which typifies the problem, erred in their counts of the number of chartered banks in the South after the war. They also appear to have ignored the array of private lending institutions and private lenders. More accurate estimates require a thorough search of the materials on southern banking at the state and local level, as in the work of Peter Coclanis and Lacy Ford, "The South Carolina Economy Reconstructed and Reconsidered: Structure, Output, and Performance, 1670-1985" (1988), J. E. Dovell, History of Banking in Florida, 1828-1954 (1955) or John W. Budina, History of Banking in Florida, 1964-1975 (1977), or George Rogers and Ronald Bridwell, The First Hundred and Fifty Years (1984), on South Carolina. A more accurate count also necessitates a broader view of credit. Where, for example, did many freedmen turn for financing? New work on insurance companies, though sketchy, suggests that black fraternal organizations and insurance institutions stepped in to fill some of that void-see, for instance, Alexa Benson Henderson, Atlanta Life Insurance Company: Guardian of Black Economic Dignity (1990), or older work by Ivan Light, Ethnic Enterprise in America (1972). Did the federal government use the national bank system to discriminate against the South and the West by deliberately restricting the issue of national bank notes? Writers who assume that banking cannot be regulated effectively by the market have focused on complaints from various regions about increased monetary inelasticity and on the apparentinabilityof the nation'sbanking system to deal with panics. Some analyses of the reform movement generated by these problems, such as James Livingston's Origins of the Federal Reserve (1986) and his "The Social Analysis of Economic History and Theory: Conjectures on Late Nineteenth Century American Development" (1987), have focused on the "winners"and "losers"under the nationalbanking regulation. Most research on the reforms, like that of Eugene N. White, The Regulation and Reform of the American Banking System, 1900-1929 (1983), emphasized unit vs. branchbankingas the defining issue. As yet no one has posited a plausible counterfactual postbellum private banking system against which the one that developed can be measured. Bankinghistorianshave concerned themselves with two facets
Hopes for the Federal Reserve System In this 1914 cartoon, "Financial Panic" is shown being told to "move on" by the Federal Reserve. It was hoped that the new system would provide a vehicle for monetary policy and a brake on panics and recessions. (Reproduced from the New York Sun, 17 Nov. 1914.)
of the Federal Reserve System's function: its effectiveness as a source of elasticity in the money supply (and ultimately its success in the role of "lender of last resort") and its effectiveness as a regulator. In the first context, banking historians too often have failed to distinguish between the seasonality of money (needed to pay workers) and of credit (needed to ship and buy crops). The Federal Reserve System's founders thought they solved the former by providing a pool of funds at the regional Federal Reserve banks. According to Jeff Miron in "Financial Panics, the Seasonality of the Nominal Interest Rate, and the Founding of the Fed" (1986), they actually solved the latter: they provided a lender of last resort, not an elastic currency. When local banks needed additional funds, they could tap the Fed. Other writers, Eugene White chief among them, have empha-
Larry Schweikart / 632 sized the predominance of unit over branch banking as a significant factor in the establishment of the Fed. Unit banking, where one bank operated without branches, was the system adopted by most states. For reasons still somewhat unclear, only some of the southern states, then much later Arizonaand California,permitted branch banking. In some cases, the development of a branch system was deliberate, as in the South (see my Bankingin the South) and in other cases, especially in the West, it was accidental (Schweikart, A History of Banking in Arizona [1982]; Doti and Schweikart,Banking in the AmericanWest [1991]). The important aspect of the debate involved the groundless fear that unit banks were doomed in states that permitted branching. Since unit bank systems usually developed first, branch-orientedbankers found it very difficult to change the laws to permit branching (Colorado again voted down branching as late as the 1980s). White contended that the reform movement fell into the hands of the unit bankers, who outnumbered the branch bankers. Unit bankers blocked the most desirable reform, nationalbranchbanking, out of fear that the branch systems would eliminate them. That flaw made the entire system far less resilient than it might have been. Rejecting White's interpretation as irrelevant, James Livingston contended that the creatorsof the Federal Reserve Systemmainly businessmen-constructed it to reinforce the existing class structurein the country. They needed a central bank to ameliorate the effects of the financial panics that Livingston claims were endemic to corporate capitalism. Although Livingston challenged the rationaleof the reformers, he still adhered to an interpretation of money as unique (that is, outside the market discipline of supply and demand) and in need of popularcontrol. William Greider's journalistic treatment of the Fed, Secrets of the Temple (1987), explains the Fed's role in similar terms. To a considerableextent, then, Livingston from the Left, and Milton Friedman from the Right, agreed on the need for government control over banking and the money supply, disagreeing only on the mechanisms and on the degree of control. Similarly, White and Livingston-also worlds apart in other ways-both see some aspects of the Fed as the offspring of certain special interest groups, unit bankers in White's case and industrialmagnates in Livingston's. Were the reformers behind the creation of the Federal Reserve System representatives of special interests of the "business class"?No doubt. Who else would have the time, money, or
inclination pursuea majorreformof the monetary banking to and of or systemotherthana PaulWarburg Kuhn,Loeb & Company NationalCity BankpresidentFrankVanderlip? Individuals like the Populistwriter William"Coin"Harveyof Coin'sFinancial School (1894)representedextremeexceptions.Was the process dominated unit bankers? seems so. New York It bankers influby encedthe processof monetary reform Evenwhenbankers deeply. fromthe West-where branchbankers the most influencehad servedon the variouscommissions, they seldomcamefromCaliforniaor Arizona, branchbanking the states.The branch banking still rebuilding, found itself relatively weak. Thus, as South, LynneDoti andI showed,neitherthe West nor the Southplayed a prominent role in shapingthe new system. Somewriters,such as Richard Timberlake his Originsof CentralBankingin the in UnitedStates(1978),creditedthe Fed's creators with a commitmentto goldthat, in his eyes, redeemedit fromits otherfaults.A morelikelyreading the FederalReserveActwouldassumethat of it accurately capturedthe key policy points of its most forceful creators.It madelittle mentionof the gold standard becausethat was a given;it did not containnational branch banking provisions becauseof the powerful of and opposition the unitbankers the lack of influenceof bankers the SouthandWest. in The Federal Reserve Era and the Great Depression The Great Depressionremainsa highly controversial topic for economists historians. and Dominantinterpretations have swung wildly since 1936, when John Maynard Keynes publishedThe influencednumeroushistorians,includingArthur interpretation suchas JohnKennethGalbraith, Schlesinger, and economists Jr., whose The Great Crash(1954)was premisedon majordemandside tenets of Keynesianism. Galbraith blamedthe (Specifically, Crash on speculation and the Depression on inequalities of wealth.)Not untilA Monetary Historyof the UnitedStatesdid the pendulumswingtowarda "monetarist" position.As mucha treatise on bankinghistoryas on money, Friedmanand Schwartz's book proposeda thoroughand logicalexplanation the Great of Depression, citing Federal Reserve Board ineptitude as the cause of the recessionand the collapseof the Bankof underlying
General Theory of Employment, Interest, and Money. Keynes's

United States as the specific trigger. The Friedman and Schwartz thesis placed the blame for the Depression on the failures of government, not on business in general or on the banks specifically. If banks collapsed because the Federal Reserve failed to provide the necessary "money cushion," then the Fed, not the banking establishment, was culpable. For more than a decade, the Keynesian-monetarist debate raged, often with writers applying the theory they supported to the entire period from 1929 to 1939. Since the 1980s, however, the debate has moved on to an analysis of smaller components of time and place. As a result, a considerable degree of consensus has emerged, with both sides claiming victory over the interpretation of particular periods of the Great Depression. Several studies supported aspects of the Friedman-Schwartz argument. Alexander Field, in two articles published in 1984, "Asset Exchanges and the Transactions Demand for Money," and "A New Interpretation of the Onset of the Great Depression," for example, provided a supporting plank by showing that the Fed failed to accommodate a growing transactions demand, which resulted in rising real interest rates from 1928 to 1929. On the other hand, the single most concentrated attack on the FriedmanSchwartz interpretation, Peter Temin's Did Monetary Forces Cause the Great Depression? (1976), revived the "underconsumption" theme made famous by Keynes. Temin answered his title question in the negative, but he stopped short of offering an alternative explanation as comprehensive as Friedman and Schwartz's. He also admitted some of the monetarist pair's claims that changes in the money stock occurred, but he questioned whether those changes were results or causes of Fed policy. Temin maintained that "Income and production fell from 1929 to 1933 for nonmonetary reasons," which caused the demand for money to fall as well (p. 27). Temin argued that the bank failures may not have caused the stock of money to fall as far as it did, but he did not posit any specific incident as triggering the bank failures themselves. Friedman and Schwartz claimed that the failure of the Bank of United States started the chain reaction. Joseph Lucia, in "The Failure of the Bank of United States: A Reappraisal" (1985), argued that the Fed lent generously to the Bank of United States, but that the decline in real estate values brought the bank's solvency into question, thus validating the Fed's judgment in ceasing to give the bank
Failure of the Bank of United States * When the Bank of United States collapsed on 11 December 1930, it was the largest U.S. bank that had been permitted to fail, having liabilities to depositors and other creditors of $188.5 million. (Reproduced courtesy of UPI Bettmann Newsphotos.)
additionalfunds. Nothing in the monetary theory of the day provided for a massive governmentbailout of a bank. Neither the Fed nor the Bank of United States considered the long-term effects of such a bailout. Lucia'scontention that the Fed lent generously is irrelevant;the question is, did it lend enough at least to diminish dramaticallythe effects of a banking panic? In their response to Lucia, "The Failure of the Bank of United States: A Reappraisal, A Reply" (1986), Friedman and Schwartz say no. As to whether the Bank of United States was solvent, they maintain that it "ultimately paid off 83.5 percent of its adjusted liabilities ... (p. 202), though they do not show what percentage the bank could have paid immediately, which was the crucial question for depositors and other bankersevaluatingthe solvency of the bank. Lucia, in arguing that falling real estate values justified the Fed's reluctance to lend further, avoids importantpolicy judgments about the message of bailouts in favor of a more limited economic conclusion.
/ Larry Schweikart 636

Certainly the failure of the Bank of United States was not as significantas Friedman and Schwartzclaimed. Elmus Wicker, for example, suggested in "A Reconsiderationof the Causes of the Banking Panic of 1930" (1980), that the collapse of Caldwell and Company in Nashville, Tennessee, provided just as likely a catalyst for plunging the nation'sbanksinto a panic as the failureof the Bank of United States. Wicker identified bad loans and poor investments as the underlying weaknesses of that Tennessee system, not a shortage of Fed funds or rising interest rates. In so doing, he opened up an area that economists and historiansprobed more deeply in the late 1980s: the role of deflation as a factor in destroying the assets of debtors. Wicker's study also emphasized another point-namely, that in 1930 the bankingpanic remained regional, a view supportedby David E. Hamilton in "The Causes of the BankingPanic of 1930: Another View" (1985). Only after 1931 did regional banking troubles grow into a national crisis. This finding added support to the thesis because it indicated a noticeable differFriedman-Schwartz ence between bank failure rates before and after the collapse of the Bank of United States. It did not, however, support their contention that the Bank of United States failure accounted for that change. Eugene White, in "A Reinterpretation of the Banking Crisis of 1930" (1984), compared the balance sheets of the national banks that failed or survived in 1930 with national banks'balance sheets from 1927 to 1929. He found strong similarities between the two data sets, suggesting no great differencesbetween the two sets of failures. The current state of scholarshipindicates that the Fed badly bungled the situation, at least after 1929, though whether saving the Bank of United States would have helped is not clear; so many other factors affected the system that one cannot point to the Bank of United States failure as the triggering event. The link between banks and their securities affiliateswas identified by New Deal reformers as another, separate cause of the banking collapse. The securities affiliates, critics contended, contributed to the weakness of the banking system by drawingfunds from the banks for use in the securities markets. But Eugene White in a 1982 article, "The Membership Problem of the National Banking System," showed that banks' securities affiliates made them less-not more-likely to fail. Other writers have stressed the role of internationalforces and
U.S. Commercial Banking: A Historiographical Survey / 637 the determinationof the United States to remain on the gold standard in the onset of the Depression and the banking collapse: Barry Eichengreen and Jeffrey Sachs, "ExchangeRates and Economic Recovery in the 1930s" (1985); Ben Bernanke and Harold James, "The Gold Standard,Deflation, and FinancialCrisis in the Great Depression: An InternationalComparison" (1991);and Peter Lessonsfrom the Great Depression (1989). James HamilTemin, the ton, in "Roleof the InternationalGold Standardin Propagating Great Depression" (1988), argued that deflation shocks associated with the maintenance of the gold standardexplain why the initial contraction had such a persistent effect, leading to the Great Depression. Temin's book consolidates and refines most of these views. In Lessonsfrom the Great Depression, he explains that the gold standard propagated a deflationary bias-gold outflows could cause contractions-but had no quick expansionarymechanisms. Only a rapid, visible shift in perceptions could break the downwardspiral once the confidence of bankersand the public failed. But why did confidence fail? Among others, Ben Bernanke, "Nonmonetary Effects of the Financial Crisis in the Propagationof the Great Depression" (1983), identified the relationshipsamong the declining net worth of borrowers,bankruptcy,and bank failuresas more importantthan the downwardpressure on interest rates (Temin's explanation) as the cause of falling public confidence. Stephen DeCanio, "Expectations and Business Confidence during the Great Depression" (1984), argued that business confidence remained high until 1932, when it plummeted; it revived with Franklin Roosevelt's election, then declined again. The factors affecting bank failures, business confidence, and the economy remain bound together so tightly that even Temin has not unraveled them satisfactorily.It is interesting, also, that ultimately he agrees with Friedman and Schwartz, "assign[ing]a primary role [in causing the Depression] to tight monetary policy in the late 1920s," but he sees that as only a first step, reinforced by the "adherence of policymakersto the ideology of the gold standard" (Lessons, p. 7). Temin's emphasis on internationalfactors, especially the gold standard,has indeed generated considerablerecent consensus. As Eichengreen shows in Golden Fetters: The Gold Standardand the Great Depression, 1919-1939 (1992), the blame may lay more with a failure in internationalcoordinationand cooperationamong gov-
Larry Schweikart / 638 ernments than with specific weaknesses in the gold standarditself, which, he maintains, worked well before the First World War precisely because such coordinationinspired confidence. Temin's identificationof Roosevelt's decision to abandonthe gold standard as a dramatic regime shift also has generated interest. Yet, as DeCanio's study of business expectations showed, they picked up
when Roosevelt was elected, remained level for a year, and started falling after he embarked on a pro-labor policy. The business confidence indexes do not show much, if any, reaction to the decision to abandon gold. In other respects, too, Temin's synthesis remains far from settling the key issues. For example, he misinterprets the effects of the Smoot-Hawley tariff. "The argument," he says, "has to be that the tariff reduced the demand for American exports by inducing retaliatory foreign tariffs" (Lessons, p. 47). But that is not the argument at all: most critics of the Smoot-Hawley tariff, such as Jude Wanniski, The Way the World Works (1989), contend that it had an extremely negative impact on business perceptions. Realizing that the costs of all imported materials were going to rise by onethird, businesses immediately sought liquidity and embarked on layoffs. The tariff thus had an immediate effect on cost perceptions that was more important than the more distant effect on demand produced by-retaliatory barriers. Ironically, a more radical theory supporting Friedman and Schwartz has come from the Left. Gerald Epstein and Thomas Ferguson, in "Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal and Open Market Operations of 1932" (1984), argued that the Fed stopped reducing interest rates in mid-1929 when that policy threatened bank profits; it thus prevented interest rates from dropping low enough to revive the economy because "bank earnings might not permit it" (p. 982). A provocative challenge to Epstein and Ferguson's claim came from Philip Coelho and G. J. Santoni, "Regulatory Capture and the Monetary Contraction of 1932: A Comment on Epstein and Ferguson" (1991). Using bank stock prices as a proxy for high-powered money, they saw no downward pressure on bank stock; bank share prices moved positively with the general market. Epstein and Ferguson published a response, "Answers to Stock Questions: Fed Targets, Stock Prices, and the Gold Standard in the Great Depression" (1991). They conducted an "event analysis" of the bank stocks showing, they claimed, that Fed policies accounted for
U.S. Commercial Banking: A Historiographical Survey / 639 stock price changes. But event analyses are problematic. It is very difficult, even in "controlled"circumstances, to determine either the existence or the nature of a relationshipbetween two events. With the Great Depression, scholars have only touched on the wide range of events that could have affected stock prices. Another element of the Epstein-Ferguson argument-the question of Fed motivation-was addressed in David Wheelock's book, The Strategy and Consistency of Federal Reserve Monetary Policy, 19191933 (1991), which suggested that rather than pursuing a welldefined policy, the Federal Reserve Boardfell into errorsbecause it did not fully understand the contemporarysituation or how to use its powers. The Fed, Wheelock contended, had rough policy rules from past experience, but those rules proved inappropriate for the crisis of 1929-32. Indeed, the necessity of putting banking and finance under any centralized regulatorysystem is now coming under challenge. The reality of the Great Depression was too complex to be absorbed neatly by any single theory. By disaggregatingevents, economists and historians have arrived at a consensus of sorts. Each "school" can point to a particular period for vindication. What has emerged is a mosaic of events from 1929 to 1931-an early fall in consumption, exacerbated by Fed deflation, further irritated by bank failures that stemmed in great part from local agriculturalconditions, all overlaid by foolish deposit insurance plans at the state level-see Charles Calomiris, "Deposit Insurance: Lessons from the Record"(1989) and "Is Deposit Insurance Necessary? A Historical Perspective" (1990)-and weakened by unit banking laws. After 1931, the effects of the bank failures joined with the futile attempts to maintain the gold standardto turn a recession into the worst American economic crisis of the twentieth century. A reduction in emphasis on the FriedmanSchwartz model and a revival of interest in internationalforces appearjustified, but the scholarlydebate in this field is still a considerable distance from closure. Temin's work, and that of the "internationalists," placed a new emphasis on actual develophas ments instead of on perceptions. Perhaps more useful, especially for historians of banking, would be a new focus on bankers'perceptions of the economy-whether those perceptions were based on monetary policy changes, fiscal policy shifts, or developments under the gold standard.
Larry Schweikart / 640 Regulation and Deregulation since the Second World War The main events in banking since the Second World War have been the response of banking structures to regulation and the major growth of both the industry in general and of individual banks. Bank bureaucracieshad started to develop before the New Deal, with large institutions separatingtheir activities into departments, but the rise of powerfullegal departmentsand of significant activities overseas established to evade or minimize the effects of regulation date primarilyfrom the postwar era. Banking in many ways represented one of the last businesses to take advantageof the managerialrevolution, even though banker J. P. Morganhad changes almost a cenhelped to give birth to those organizational tury earlier. Some exceptional institutional studies have highlighted the of response to regulationand the corollarybureaucratization bankCleveland ing, none more outstanding than Citibank by Harold and Thomas Huertas (1985), The Chase by John Donald Wilson (1986), and But Also Good Business by Walter Buenger and Joseph Pratt (1986). More lively as pieces of journalism, but also less reliable, are works on the Bank of America'sspectacularrise, decline, and resurgence by Gary Hector, Breaking the Bank: The Decline of BankAmerica(1988) and Moira B. Johnson, Rollercoaster:The Bank of America and the Future of American Banking (1990). Many institutionalworks have emerged from sponsored histories, undertaken through major research contracts with historians and their associates. Indeed, many banks maintaintheir own archives. Such activities usually require some sacrificefor smaller banks, so one can only celebrate works such as BarryProvorse'sThe PeoplesBank Story (1987), or Sidney Hyman's Challenge and Response: The First Security Corporation(1978), which document the rise of comparativelysmaller institutionsand trace their adaptationto the regulatoryclimate. Similarworks include Thomas Noel's Growing Through History (1987), James Thomas's The Fourth (1980), Claude Singer's U.S. National Bank of Oregon (1984), and Adams, et al.'s Pioneer Western Bank (1984). They show that, lacking the political clout of a Citibank, smaller banks had to "play ball" with federal regulators much more frequently. First National Bank of Denver, for example, had to place ReconstructionFinance Corporation (RFC) officials on its board of directors, whereas the much
U.S. Commercial Banking: A Historiographical Survey / 641 larger Bank of America did not, even though Bank of America's RFC loans far exceeded (as a percentage of the total) the Denver bank's. Studies of the role of individual bankers in shaping the world around them as well as their own institutions reaffirmthe significance of the regulatoryclimate. Numerous biographiesof prominent (and not-so-prominent)bankers exist. Vincent Carosso'sThe Morgans (1987), a meticulously documented work, in many ways sets a standard for others to emulate, although Ron Chernow's single-volume history, The House of Morgan (1990), may be preferable precisely because it omits some of the detail. Both show that J. P. Morgan managed to conduct his business at a level untouched by most postbellum banking regulations, whereas Sidney Hyman's look at Marriner Eccles: Private Entrepreneur and Public Servant (1976) illustrates just how close banking and the government had grown by the Great Depression. Indeed, Eccles became one of the first entrepreneurial bankers to come totally into government's orbit by chairing the Federal Reserve Board after the Second World War. Eccles's own eccentric views appear in his autobiography,BeckoningFrontiers (1951). Regulation necessarily remains a central focus of more recent banking history, which questions the premise that banks-and, ultimately, money-differ from, say, grocery stores and apples in the extent to which they require regulation. The historical interpretations that have served as rationales for regulating certain aspects of banking have come under tremendous fire. As a result of the savings and loan (S&L)crisis, economists and historiansare applying themselves with renewed vigor to the effect of the regulatory structure on banks and other financialintermediaries. The S&L collapse already has inspired its share of literature, much of it blaming deregulation for the thrift industry's troubles-Paul Pitzer and Robert Deitz, Other People's Money: The Inside Story of the S&L Mess (1989), for example. Others agreed that deregulation contributed, but primarilyblamed immoral"buckaroo" S&L owners for the looting of their institutions, as does James Adams, The Big Fix: Inside the S&L Scandal (1990). The S&L troubles led some journalists, including Adams, in "Losing the Drug War: Drugs, Banks, and Florida Politics" (1988), to investigate links between organized crime and banks, a subject that demands further research. Finally, others pointed to the links between politi-

cians and S&Ls; see Stephen Pizzo, Mary Fricker, and Paul Muolo, Inside Job: The Looting of America's Savings and Loans
(1989).
Once the journalists had saturated the market, however, economists moved in with often very different conclusions. George Benston and George Kaufman, in "Understanding the Savings and Loan Debate" (1990), for example, pointed out the complex problems caused by regulation. For them and for other writers, such as Edward Kane, "FIRREA: Financial Malpractice" (1990), deregulation contributed to the S&L troubles only insofar as it did not loosen restrictions quickly or broadly enough. More important, the moral hazards posed by deposit insurance, which may give bank directors an incentive to take greater risks than they would if depositors could lose their money, turned several isolated S&L failures into an industry-wide epidemic. Worse, the thrift problems may have foreshadowed troubles in the banking industry, as Carol Martel and I observed in "Arizona Banking and the Collapse of Lincoln Thrift" (1986). One former official involved in overseeing the liquidations of some of the best-known bailouts, Irvine Sprague, has published his recollections of those events and his assessment of the system's weaknesses, Bailout: An Insider's Account of Bank Failures and Rescues (1987). As a result of the S&L collapse and the earlier bank bailouts, the issue -of deposit insurance has moved to the forefront of researchers' agendas. The articles by Charles Calomiris cited in the Depression section have painted a strongly unfavorable view of state deposit insurance schemes in the 1920s, while Gerald P. O'Driscoll, in "Bank Failures: The Deposit Insurance Connection" (1988), challenged the rationale used to secure the passage of deposit insurance legislation. Barrie Wigmore, in "Was the Bank Holiday of 1933 Caused by a Run on the Dollar?" (1987), similarly downplayed the view that the Federal Deposit Insurance Corporation inspired a flood of deposits by the suddenly reassured depositors. Other discussions of deposit insurance and its potential hazards appear in George Benston, "Federal Regulation of Banking: Analysis and Policy Recommendations" (1983), Douglas Diamond and Philip Dybvig, "Bank Runs, Deposit Insurance and Liquidity" (1983), Catherine England and John Palffy, Replacing the FDIC: Private Insurance and Bank Deposits (1982), Eugene Short and Gerald O'Driscoll, "Deposit Insurance and Financial
U.S. Commercial Banking: A Historiographical Survey / 643 Stability" (1983), and John Kareken and Neil Wallace, "Deposit Insuranceand Bank Regulation:A Partial-Equilibrium Exposition" (1978). Investigationof the effects of regulationhas produced a group of scholars advocating even further deregulation based on their findings. They have returned to the Scottish free banking system as their model, arguingthat past episodes showed the strength and resilience of competitive money and relatively unregulatedbanks; see, for example, David Glasner, Free Banking and Monetary Reform(1989) and George A. Selgin, The Theory of Free Banking (1988). They contend that competitive money (allowingmore than one source of legal tender) still represents a viable option. Among that group, the most prominent include Lawrence White, "Accountingfor Non-Interest-BearingCurrency:A Critique of the Legal Restrictions Theory of Money" (1987), George Selgin and White, "The Evolution of a Free Banking System" (1987), and Friedrich A. Hayek, Choice in Currency:A Way to Stop Inflation (1976). An entire issue of the CATOJournal was devoted to this subject in 1986 (includingpapers by LawrenceWhite and by Donald Wells and L. S. Scruggs), part of a continual stream of papers on banking and monetary policy in that journal: for example, Roland Vaubel, "International Debt, Bank Failures, and the Money Supply: The Thirties and the Eighties" (1984), and Lawrence White, "Bank Failures and Monetary Policy" (1984). Others have pressed for less sweeping reform, primarilyarguing for reconsiderationof interstate branch banking. A series of such articles appeared in ContemporaryPolicy Issues: Larry Frieder, "The Interstate Banking Landscape: Legislative Policies and Rationales"(1987); Richard Nelson, "Optimal Banking Structure: Implications for Interstate Banking," (1988); and Bernard Shull, "InterstateBankingand AntitrustLaws:History of Public Policy to Promote Banking Competition"(1988). Determining the fundamentalcharacterof money and banks remains critical to further research on commercialbankingand its regulation. In particular, scholars of banking history continue to pursue the origins, transmission, and containment of panics. Calomiris and Gary Gorton, "The Origins of BankingPanics: Models, Facts, and Bank Regulation"(1991)emphasize the role of information transmissionabout real disturbancesand coordinationmechanisms. An alternative explanation, offered by V. V. Chari, "Bankingwithout Deposit Insuranceor Bank Panics:Lessons from
Larry Schweikart / 644 a Model of the U.S. National Banking System" (1989), revived arguments about the elasticity of money and related the demand for money to agriculturalebbs and flows. Gary Gorton, in "Banking Panics and Business Cycles" (1988), linked panics to a critical threshold of liabilities of failed and failing businesses. Some years earlier, Charles Kindleberger had constructed a broad theory of panics and manias, Manias, Panics, and Crashes: A History of Financial Crises (1978), which saw irrationalpublic behavioras the source of financial upheavals, but most students remain unconvinced. This work represents only a beginning towardunderstanding the transmission of panics. For work on the containment of panics, Calomiris'sarticles on deposit insurancehave relevant conclusions for the S&L crisis and the utility of deposit insuranceas a containment device. He found that state deposit insurance schemes afforded the weakest type of protection among several variables, with branch banking the strongest. If poor communication-either between banks or from the banks to the public-lies at the root of panics, then the emphasis in preventing them should rest on improved communications,not increased regulation. Further research on the history of the S&Ls in particularmay better identify the motivationsof financialmanagers. The suggestion that the regulatory system itself-through interest ceilings and deposit insurance-may have aggravatedor perpetuated the crises will almost certainly generate a new round of importantscholarship. Issues for Further Research In addition to financial regulation and deregulation, many other areas of banking history need further exploration. Majorpotholes still dot the terrain of state and regional banking. A comprehensive study of southern banking, 1865 to the present, is needed, and nothing resembling a regional history of modern northern banking exists. Allowing for the specialized and narrowlyfocused works on the Old Northwest and the Midwest, such as Carter Golembe's 1952 Columbia University thesis, "State Banks and the Economic Development of the West: 1830-1844," much of that region's antebellum history has also slipped through the cracks. For optimal coverage, the history of the North and Midwest probably will demand considerable repetition and over-
U.S. Commercial Banking: A Historiographical Survey / 645 lap. A start has been made by such excellent articles as EarlingA. Ericson's "Money and Banking in a 'Bankless'State: Iowa, 18461857" (1969). Banking in the noncontiguous states, Alaska and Hawaii, has yet to be addressed. Scholars must also expand research to place New England, southern, and western bankersin their social and culturalmilieus. Specifically, how were bankers different from other business people? Why were there a disproportionatelylarge number of Gersmall number of man and Jewish bankersand a disproportionately Italian and, later, Hispanic bankers? Why did a merchant background seem to be a prerequisite for western but not for southern bankers?In what ways did public perceptions of bank solvency and safety stem from assessments of bankers themselves? Big picture theorists, such as George Gilder, Wealth and Poverty (1981), have examined the anthropologicalroots of banking, but we need to understand the social and cultural relationships between depositors and bankersand among bankersthemselves. The latter is crucial for understanding the transmission of panics and for determining exactly how banks coordinatedtheir responses. Were there socio-culturaltransmissionlines for bank panics, or did they spread geographically?Further work on the kinship networks and ethnicity of bankers may explain why some areas retained unit bankingand others developed branching. Banking has traditionally shown little enthusiasm for technology-and the industry has been technologically insulated for most of its history. But that has rapidly changed. For the first time, scholars must address the impact of technology on banking, in terms of both labor productivityand capital marketefficiencies. A banker-indeed, the nation's premier banker of this era, Citibank'sWalter Wriston-recently laid out some of these trends in "Technology and Sovereignty" (1988/89). Wriston argued that developments in transmitting financial information and even in transmittingmoney itself, which have occurred as a result of computer and satellite technology, have pushed banking into a new era. National governments, he predicts, will increasinglylose sovereignty over their currencyand credit, which will instead depend to an ever-increasing degree on the verdict of the international market. As he noted, "The entire globe is linked electronically, with no place to hide" (p. 71), and "marketsare no longer geographical locations, but data on a screen transmitted from anywhere in the world" (p. 72). In Wriston'sview, "no matter how a
Larry Schweikart / 646 country attempts to escape from the system, the world's trading room screens will continue to light up and the market will continue to make judgments" (p. 72). George Gilder has advanced much the same thesis in his powerful interpretativestudy of computer technology, Microcosm: The Quantum Revolution in Economics and Technology (1989). Though not specifically focusing on banking and finance, he assessed the impact of the ability of the market to shift resources around the globe at blinding speed. Both Gilder and Wriston may have rendered obsolete, or at least changed the scope of, another potential area of study: to date, no one has systematicallyapplied the Chandlerianthesis to the banking industry. Now, if Gilder in particular is correct-and Wriston frequently quoted Gilder on such issues-the computer will revolutionize late twentieth century industry as the railroaddid mid-nineteenth century industry. More correctly, it will force a counterrevolution. Whereas the complexity and vast extent of the railroadmade it too difficultfor any individual owner to manage rail systems, the quantumleap in transactionspeed of financialexchanges made by computershas all but eliminated geographyand time as barriersto business transactions. The computer has eroded, if not removed, many of the advantagesof multilevel managerialhierarchies;eventually, technology will allow a single owner to keep trackof inventory, scheduling, and so on with few, if any, professional managers. Such a development seems especially likely in the growing industries of software design, professional writing, editing, and publishingand in banking and financialmanagement. One cannot ignore, for example, the implications of Michael Milken's activities. Long before he violated the law, Milken proved that an individual can raise and command sums of capital previously thought beyond the reach of all but a few of the largest banking firms. Eschewing New York because its time zone restricted business with the Far East, Milken, operating virtually alone in his Beverly Hills office, could raise hundreds of millions of dollars by satellite-linked telephones and computer terminal in the wee hours of the morning before his employees even arrived; he could place a billion dollars worth of securities within a few days. Connie Bruck, no fan of the convicted Milken, nevertheless perceptively addressed the implications of this capacity in her Predators'Ball (1988). Linked to the world's capital marketsthrough technology, and
U.S. Commercial Banking: A Historiographical Survey / 647 now instantly responsive to the financialverdict of world opinion, the new entrepreneur can make command decisions far more quickly than a team of structuralmanagersin a cumbersome, often bloated, bureaucracy.Almost all the troubled banks of the 1980s have pursued decentralizationand other ways to increase entrepreneurship. Indeed, the restorationof the entrepreneurialspirit to banking and capital markets will constitute the single greatest challenge of the 1990s and beyond. Yet the world, now linked together with fiber optic networks and instantaneous satellite transmission, presents greater opportunities than at any time in the last 150 years for innovative and daring individuals to take bankingto a new frontier. Its historiansand economists are sure to follow.
Selected Bibliography Adams, Eugene H., Lyle W. Dorsett, and Robert S. Pulcipher. The Pioneer Western Bank-First of Denver, 1860-1980, ed. Robert S. Pulcipher. Denver, Colo., 1984. Adams, James Ring. The Big Fix: Inside the S&L Scandal:How an Unholy Alliance of Politics and Money Destroyed America's Banking System. New York, 1990. . "Losing the Drug War: Drugs, Banks, and Florida Politics," The American Spectator (Sept. 1988):20-24. Ball, Douglas. Financial Failure and ConfederateDefeat. Urbana, Ill., 1991. Beard, Charles A., and Mary Beard. The Rise of American Civilization. 2 vols. New York, 1927. Benston, George J. "Federal Regulationof Banking:Analysis and Policy Recommendations," Journal of Bank Research 13 (Spring 93-112. 1983): the ,and George G. Kaufman."Understanding Savingsand Loan Debate," The Public Interest no. 99 (Spring 1990):7995. Bernanke, Ben S. "NonmonetaryEffects of the FinancialCrisis in the Propagationof the Great Depression," American Economic Review 73 (June 1983):257-76. , and Harold James. "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison,"in Financial Marketsand Financial Crises, ed. R. Glenn Hubbard. Chicago, Ill., 1991: 33-68.

Binder, John J., and David T. Brown. "Bank Rates of Return and Entry Restriction, 1869-1914," Journal of Economic History 51 (March 1991): 47-66.
Brock, Leslie. The Currency of the American Colonies, 17001764: A Study of Colonial Finance and Imperial Relations. New
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Orlando, Fla., 1977. Buenger, Walter, and Joseph Pratt. But Also Good Business:
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1886-1986. College Station, Texas, 1986. Calomiris, Charles. "Deposit Insurance: Lessons from the Record," Economic Perspectives (Federal Reserve Bank of Chicago) 13 (May/June 1989): 10-30. . "The Depreciation of the Continental: A Reply," Journal Economic History 48 (Sept. 1988): 693-98. of . "Institutional Failure, Monetary Scarcity, and the Depreciation of the Continental," Journal of Economic History 48 (March 1988): 47-68. . "Is Deposit Insurance Necessary? A Historical Perspective," Journal of Economic History 50 (June 1990): 283-96. . "Price and Exchange Rate Determination during the Greenback Suspension," Oxford Economic Papers 40 (1988): 719-90. , and Gary Gorton. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," in Financial Markets and Financial Crises, ed. R. Glenn Hubbard. Chicago, Ill., 1991. , and R. Glenn Hubbard. "Price Flexibility, Credit Availability, and Economic Fluctuation: Evidence from the United States, 1894-1909," Quarterly Journal of Economics 104 (Aug. 1989): 429-52. , and Charles Kahn. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review 81 (June 1991): 497-513. , and Larry Schweikart. "The Panic of 1857: Origins, Transmission, and Containment," Journal of Economic History 51 (Dec. 1991): 807-34. . "Was the South Backward? North-South Differences in Antebellum Banking during Normalcy and Crisis." Unpublished Federal Reserve Bank of Chicago Working Paper, 1988.
U.S. Commercial Banking: A Historiographical Survey / 649 Campbell, Claude. The Development of Banking in Tennessee. Nashville, Tenn., 1932. Campen, James T., and Anne Mayhew. "The National Banking System and Southern Economic Growth: Evidence from One Southern City, 1870-1900," Journal of Economic History 48 (March 1988): 127-37. Carosso, Vincent. The Morgans: Private International Bankers, 1854-1913. Cambridge, Mass., 1987. Catterall, Ralph C. H. The Second Bank of the United States. Chicago, Ill., 1903. Chari, V. V. "BankingWithout Deposit Insuranceor Bank Panics: Lessons from a Model of the U.S. National Banking System," Federal Reserve Bank of Minneapolis Quarterly Review 13 (Summer 1989):3-19. Chernow, Ron. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance. New York, 1990. Cleveland, Harold Van B., and Thomas Huertas. Citibank, 18121970. Cambridge, Mass., 1985. Coclanis, Peter, and Lacy K. Ford. "The South CarolinaEconomy Reconstructed and Reconsidered: Structure, Output, and Performance, 1670-1985," in Developing Dixie: Modernizationin a TraditionalSociety, ed. WinfredB. Moore, Jr., et al. Westport, Conn., 1988. Coelho, Philip R. P., and G. J. Santoni. "RegulatoryCapture and the MonetaryContractionof 1932: A Comment on Epstein and Ferguson,"Journal of Economic History 51 (March1991): 18289. Cowen, Tyler, and Randall Kroszner. "Scottish Banking before 1845: A Model for Laissez-Faire?" Journal of Money, Credit, and Banking 21 (May 1989):221-31. Davis, George K., and Gary M. Pecquet. "Interest Rates in the Civil War South," Journal of Economic History 50 (March 1990): 133-47. Davis, Lance. "The Investment Market, 1870-1914: The Evolution of a National Market,"Journal of Economic History 25 (Sept. 1965):355-99. DeCanio, Stephen J. "Expectationsand Business Confidence during the Great Depression," in Money in Crisis: The Federal Reserve, the Economy, and Monetary Reform, ed. Barry N. Siegel. San Francisco, Calif., 1984. Diamond, Douglas, and Philip Dybvig. "Bank Runs, Deposit

Insurance and Liquidity," Journal of Political Economy 91 (June 1983): 401-18. Doti, Lynne Pierson. "Banking in California: Some Evidence on Structure, 1878-1905." Ph. D. dissertation, University of California, Riverside, 1978. , and Larry Schweikart. Banking in the American West from the Gold Rush to Deregulation. Norman, Okla., 1991. . "Banking in the West: A Bibliographic Overview," in Banking in the West, ed. Larry Schweikart. Manhattan, Kans., 1984. Dovell, J. E. History of Banking in Florida, 1828-1954. Orlando, Fla., 1955. . History of Banking in Florida, First Supplement, 19541963. Orlando, Fla., 1964. Eccles, Marriner S. Beckoning Frontiers: Public and Personal Recollections, ed. Sidney Hyman. Stanford, Calif., 1976 [1951]. Economoupolos, Andrew. "Free Bank Failures in New York and Wisconsin: A Portfolio Analysis," Explorations in Economic History 27 (Oct. 1990): 421-41. . "The Free Banking Period: A Period of Deregulation?" New York Economic Review 17 (1987): 24-31. . "Illinois Free Banking Experience," Journal of Money, Credit and Banking 20 (May 1988): 249-64. "The Impact of Reserve Requirements on Free Bank Failures," Atlantic Economic Journal 14 (Dec. 1986): 76-84. Eichengreen, Barry. "Did International Economic Forces Cause the Great Depression?" Contemporary Policy Issues 6 (April 1992): 90-114. . Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. New York, 1992. , and Jeffrey Sachs. "Exchange Rates and Economic Recovery in the 1930s," Journal of Economic History 45 (Dec. 1985): 925-46. England, Catherine, and John Palffy. Replacing the FDIC: Private Insurance and Bank Deposits. Backgrounder, no. 229. Washington, D.C., 1982. Epstein, Gerald, and Thomas Ferguson. "Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal and Open Market Operations of 1932," Journal of Economic History 44 (Dec. 1984): 957-83.

. "Answers to Stock Questions: Fed Targets, Stock Prices, and the Gold Standard in the Great Depression," Journal of Economic History 51 (March 1991): 190-200. Erickson, Earling A.."Money and Banking in a 'Bankless' State: Iowa, 1846-1857," Business History Review 43 (Summer 1969): 171-91.
Ernst, Joseph. Money and Politics in America, 1755-1775: A Study in the Currency Act of 1764 and the Political Economy of Revolution. Chapel Hill, N.C., 1973. Feiner, Susan Fran. "Factors, Bankers, and Musters: Class Relations in the Antebellum South," Journal of Economic History 42 (March 1982): 61-67. . "The Financial Structures and Banking Institutions of the Antebellum South: 1811 to 1832." Ph.D. dissertation, University of Massachusetts, 1982.
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