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Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective

Editor(s):Collins, William J.
Margo, Robert A.
Reviewer(s):Craig, Lee A.

Published by EH.Net (May 2018)

William J. Collins and Robert A. Margo, editors, Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective. Chicago: University of Chicago Press, 2015. viii + 287 pp. $110 (cloth), ISBN: 978-0-226-26162-1.

Reviewed for EH.Net by Lee A. Craig, Department of Economics, North Carolina State University.

This volume of essays, the product of a well-deserved conference celebrating the career of Jeremy Atack, covers a lot ground in nineteenth-century U.S. economic history. I learned something useful from every chapter, and, importantly, a few of them led me to unlearn some things I knew that, it turns out, are incorrect. The volume would be a good companion (for good students) in an upper-level undergraduate course.

The volume is organized into three sections. Following the editors’ introduction, the first section is entitled “Business Organization and Internal Governance.” In the first chapter, Naomi Lamoreaux reviews the legislative history of incorporation in Pennsylvania. She documents a messy process that produced the state’s general incorporation laws, which, frequently, were not all that general. The legislative process exposed tradeoffs between efficiency and other objectives. Running controlled experiments to test the merits of alternative arrangements was never a possibility, and efficiency was not necessarily the primary objective of the key players. In the big picture, this highly-micro story matters, because when economists analyze long-run growth rates across countries, they often find that common-law countries outperform civil-code countries. The complexity of Lamoreaux’s tale of common-law Pennsylvania suggests that we should not be too sanguine about such results. A variable, or two, might be missing from the relevant equations.

Since the seminal work of Adolf Berle and Gardiner Means, the advent of the modern corporate enterprise has been dated from “the turn of the twentieth century” (p. 8 and p. 73). Eric Hilt pushes that date back a bit in the volume’s second chapter. Employing a data set that matches the 1875 Massachusetts’ manufacturing census with firm-level data on ownership, he reveals and analyzes some of the key characteristics of the state’s corporations. He finds that rates of incorporation were high in industries in which average firm size was large. He also finds that, controlling for size, firms with large investments in fixed assets, such as steam engines, and those more likely to employ unskilled labor displayed higher rates of incorporation. In addition, the largest textile firms were “widely held” even by today’s standards, and, again controlling for size, the steam/unskilled labor combination was associated with more concentrated ownership. Overall, Hilt concludes that, at least in Massachusetts, “modern” corporate enterprises could be found by 1875.

In the third chapter, Howard Bodenhorn and Eugene White report on the evolution of bank boards in New York between 1840 and 1950. They focus on two key features: Timing the separation of ownership and control (essentially, Hilts’s question), and the trend in the number of directors on bank boards. With respect to the first question, like Hilt, they find that the “fraction of shares held by directors was smaller in larger banks” (p. 109), but they also find that, in the nineteenth century, bank directors owned, by any reasonable standard, a lot of stock in the banks they directed. As for average board size, they find that, over time, boards got smaller. The authors speculate that this trend might have been a response to regulatory changes, or changes in the business of banking, or both.

The second section of the volume is entitled “Bank Behavior and Credit Markets.” The first chapter in this section, by Jeremy Atack, Matthew Jaremski, and Peter Rousseau (henceforth AJR), documents and analyzes the positive correlation between local railroad access and local bank performance in the antebellum United States. AJR argue that access to a railroad may have contributed to a bank’s success in at least three ways: (1) Railroads enhanced overall economic activity by increasing bank liquidity and the returns on bank loans. (2) Railroad access increased the demand for a bank’s notes, while decreasing the discount on those notes. (3) The railroad may have created an inverted version of the “lemons problem;” specifically, the outside scrutiny that came with railroad access led to the self-selection of good bankers locating near a railroad. AJR’s econometric results also suggest that banks in existence before the railroad came to town improved their behavior following its arrival. Either way, the lemons, i.e. the wildcat banks, would have been more likely to locate in the hinterlands.

In the other chapter in this section, Mary Eschelbach Hansen sheds new light on an old topic: Bankruptcies during the Great Depression. Using a dataset that contains information on thousands of debts associated with 789 bankruptcies in Mississippi, between 1929 and 1936, Hansen analyzes the sources of credit employed by both consumers and businesses. She notes that much of the previous work on credit networks has “been biased toward banks and manufacturers” (pp. 194-95). She finds that, while the majority of the cases in her sample involved businesses rather than consumers, the modal reported type of business was “merchant,” and the majority of debts (roughly 60 percent) were owed to commercial rather than financial lenders. Loans for inventory seem to have played a particularly important role in the Mississippi economy.

The third, and final, section of the volume contains two chapters and is entitled “Scale Economies in Nineteenth-Century Production.” The first, by Robert Margo, addresses an issue familiar to anyone who has handled firm-level data from the era: How does one address the “entrepreneurial labor input?” In short the problem is that by omitting the labor of the owner-operator-entrepreneur, which census of manufacturing data tend to do, the denominator in output-per-worker measures is too small and thus productivity estimates are biased upwards. Space constraints prohibit a detailed explanation of Margo’s analysis, but the bottom line is that the findings of his chapter “can be seen as half empty (negative) and half full (positive)” (p. 240). On the negative side, the U.S. Census of Manufacturing data are flawed, and, without arcane adjustments, they probably cannot answer some of the key questions economic historians typically ask of them. On the positive side, the “rise of big business” narrative so common to nineteenth-century U.S. economic history misses a major point: Small firms were arguably quite productive, and there’s an important story to be told about that phenomenon.

The final chapter of this section, and the volume, is by Alan Olmstead and Paul Rhode. They address a specific question: Is it accurate to describe antebellum cotton plantations as “factories in the field?” To address this question, the authors employ several large data sets from the manufacturing censuses and the censuses of agriculture, for both northern and southern farms, to compare the operations of firms and farms from the era. After a detailed analysis of the relevant economic concepts, such as scale of operation and capital-labor ratios, Olmstead and Rhode conclude that the metaphor fits in some areas (e.g. professional managers overseeing large workforces), but, overall, the expression “factories in the field” is probably best thought of as a rhetorical device used by earlier authors to connote a degree of “modernity and efficiency” (p. 272) that obscures more about U.S. slave agriculture than it reveals.

Lee A. Craig is Alumni Distinguished Professor and Head of the Department of Economics at North Carolina State University. His most recent work in economic history is “The Impact of Mechanical Refrigeration on Market Integration: The U.S. Egg Market, 1890-1911,” with Matthew T. Holt, in Explorations in Economic History.

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Subject(s):Agriculture, Natural Resources, and Extractive Industries
Business History
Financial Markets, Financial Institutions, and Monetary History
Industry: Manufacturing and Construction
Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII