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The Engine of Enterprise: Credit in America

Author(s):Olegario, Rowena
Reviewer(s):Wright, Robert E.

Published by EH.Net (February 2016)

Rowena Olegario, The Engine of Enterprise: Credit in America. Cambridge: Harvard University Press, 2016. v + 301 pp. $40 (cloth), ISBN: 978-0-674-05114-0.

Reviewed for EH.Net by Robert E. Wright, Thomas Willing Institute, Augustana University.
Rest assured that I did not judge this book by its cover, ugly as the 1940 GMAC advertisement the book designer chose to use appears to my eye. But try as I might, I could not find an appropriate audience for this (perhaps overly) ambitious undertaking after perusing it for several days. There is no preface to help readers to understand the author’s goals or the book’s purpose and the introduction launches directly into the content.

As its title suggests, the thesis of The Engine of Enterprise is that “the United States was built on credit” (p. 1) or, with more nuance, “despite problems with credit that were at times severe, and which Americans have never fully solved, credit has been the invigorating principle that turned potential wealth into national prosperity” (p. 226) (my emphases). The proof comes in the form of five narrative chapters covering the colonial and early national (Chapter 1: “The Foundations of Credit in the New Republic”), antebellum (Chapter 2: “Credit, Enterprise, and Risk in the Antebellum Era”), postbellum (Chapter 3: “Credit in the Reconstructed Nation”), interwar and postwar (Chapter 4: “A Nation of Consumers and Homeowners”), and late twentieth century (Chapter 5: “The Erosion of Credit Standards”) periods, plus a brief postscript (“Creative and Destructive Credit”) on the causes and consequences of the Panic of 2008. The chapters do not follow a cookie cutter format but many cover the same topics, e.g., consumer credit, business credit, bankruptcy, and so forth.

While narrative descriptions of the evolution of different types of credit abound, the book does not show the primal importance of credit in statistically rigorous (e.g., Rousseau and Sylla 2005) or internationally comparative (e.g., Beck, Demirguc-Kunt, Levine 2007) ways, or even cite the finance-led growth literature (see Levine 2005 for a review). Moreover, the finance-led growth hypothesis was tempered by studies (e.g., Martin 2010; Wright 2008) that showed that financial development is just one of a series of growth-inducing economic changes that begin with secure human rights and end with improvements in physical and human capital that drive productivity gains. Because microfinance failed to spur growth in anarchic or dictatorial states, few continue to baldly assert the primacy of finance, let alone just its credit component. Alexander Hamilton had it exactly right when he argued that credit “was among the principal engines of useful enterprise” (p. 4) (my emphasis), i.e., that credit is a necessary but not a sufficient cause of economic growth. It is the fuel injection system, in other words, not the entire engine.

The book is unlikely to appeal to other specialists, either, as it is not based on new or extensive archival research or even novel interpretations of printed primary sources. As a senior research fellow at Said School of Business, author Rowena Olegario lives thousands of miles from scores of archival U.S. bank records that range from underutilized to completely untouched (for a partial list, see New Bedford Whaling Museum 2011), but one would think that Oxford University could afford to pay for the filming of, and/or travel to, at least one set of U.S. banking records. Moreover, although Olegario occasionally alludes to the theory of asymmetric information, the book is largely devoid of pertinent economic theories. So in her narrative, the early economy was “vulnerable to external shocks” (p. 24) due to unregulated banks and banknotes rather than the nation’s solution to the Trilemma or Impossible Trinity, a bimetallic standard demanding free international capital flows and fixed exchange rates in lieu of a central bank with significant monetary policy discretion.

Although The Engine of Enterprise presents more evidence about what people thought than how they behaved, the book is not a compelling “history of thought” either. Olegario, for instance, credits Henry C. Carey with being “the most notable economist of his time” and with anticipating “the new institutional economics by a century and a half” (p. 7). Carey’s life (1793-1879) overlapped those of important American political economists like Edward Atkinson (1827-1905), Alexander Bryan Johnson (1786-1867), and Erasmus Peshine Smith (1814-1882), not to mention numerous European economists of far more probity. Moreover, most of Carey’s ideas merely reiterated the thought of Hamilton and other financial founding fathers and even his own biological father. Olegario herself later (p. 59) admits that Carey was less important than Henry George (1839-1897).

Given its long coverage, from the colonial period to the present, the book might have been designed as a survey text, but for what course and at what level? Graduate students would quickly dismiss The Engine of Enterprise because it does not discuss historiography and glosses over the few debates that it explicitly recognizes without describing the major issues or even mentioning the major contributors. For example, Olegario informs readers that “historians are not in full agreement about how stringently” (p. 28) usury laws were enforced in colonial America but the corresponding note refers only to Geisst (2013). Most other debates are not even hinted at in the notes. For instance, the author blithely asserts that some colonial bills of credit depreciated because they “were insufficiently backed by land or taxes” (p. 21) without mentioning the long debate over “backing theory” (e.g., Michener 2015). Moreover, many endnotes point to a relatively limited set of broad secondary sources, like Wood (1991), Morgan (2000), and Calomiris and Haber (2014), rather than relevant specialized monographs like Kamoie (2007), which details the credit relations of the important Tayloe family in Virginia, or Roney (2014), which describes how NGOs in colonial Philadelphia served as financial intermediaries. Worse, works long since superseded are cited, some with disturbing frequency (e.g., Foulke 1941; Trescott 1963).

I also doubt that anyone teaching a financial history survey would adopt this book as an undergraduate text. The prose, while competent, is pedestrian throughout and hence more likely to bore Millennials than to spur their interest in financial history. Similarly, general readers usually demand ripping yarns like those spun in Kamensky (2008) or Mihm (2009). Lucid sections can of course be found (particularly recommended are the discussions of bankruptcy), but their benefits are outweighed by conceptual flaws and errors of commission and omission. By the latter, I mean missing important supporting data, superior examples, or more telling points. For instance, to make the point that Benjamin Franklin “took for granted that credit was essential to commerce” (p. 2), Olegario adduces mere words, Franklin’s “Advice to a Young Tradesman,” rather than Franklin’s actual actions, most notably his establishment of microfinance institutions in Philadelphia and Boston (Yenawine and Costello 2010). Likewise, the best evidence that the “new banks were meant not just to serve the needs of governments and merchants but also tradesmen, farmers, and manufacturers” (p. 24) is not Pennsylvania’s Omnibus Banking Act of 1814 but studies like Lockard (2000) and Wang (2006) that document actual bank lending patterns, a type of direct evidence that the author suggests does not exist (p. 64).

Olegario has particular difficulty astutely narrating the history of early U.S. finance because she accepts a narrow anthropological literature (e.g., Muldrew 1998) that sees much of the colonial credit system as pre-capitalist, as part of a “moral economy” characterized by “trust” and “barter” (pp. 24-25). But Olegario herself destroys both claims, presumably inadvertently. “Households bartered produce, game, and animal skins to obtain the services of blacksmiths, coopers, and other artisans,” she claims, but then adds that such exchanges were “notated in rough ledgers [sic] using monetary values even though no actual cash changed hands” (p. 24). So such transactions were not barter (trading one good for another without the use of money in any of its forms) at all but rather a form of open account, book credit, or “bookkeeping barter” (Michener 2011). Olegario also subverts the supposed reliance of colonial creditors on “trust” by detailing the widespread use of collateral, co-signers, lawsuits, prison, threats of reputation tarnishing, and other devices designed to induce borrowers to repay their debts. Colonists were certainly more apt to be lax when lending to family and friends, but that does not mean a “noncommercial morality” (p. 25) suffused the economy as family matters stand no differently today.

Other errors abound and many would flummox students and general readers. Olegario claims, for example, that bills of exchange “functioned as currency” (p. 21) by conflating negotiability (via endorsement) and currency (passing from hand to hand without formal assignment). By conflating banknotes with bank loans, she can assert that “entrepreneurial society desired … paper money” (p. 23) when in fact it sought intermediation. Imagine the confusion that would ensue were students to read that retailers “notated the value of purchased goods in a day book or ledger without issuing [sic] formal instruments like notes or bills of exchange” (p. 24). (Borrowers, not lenders, issue debt instruments.) Or that the Bank of the United States (1791-1811) was “rechartered [sic]” (p. 42) to be “in existence … again [sic]” (p. 49) as the Bank of the United States (1816-1836)!

I could continue but won’t for fear of drawing a flag for unscholarly-like conduct. Perhaps some readers will think I deserve a flag already but when the author’s school and publisher are so prestigious I think it incumbent upon reviewers to support negative generalizations with sufficient citations, details, and examples. The dust jacket can be removed if readers don’t like it, but the same can’t be said of the text, so potential readers must be credibly pointed elsewhere, like to the recent works cited below.


Beck, Thorsten, Asli Demirguc-Kunt, and Ross Levine. 2007. “Finance, Inequality, and Poverty: Cross-Country Evidence.” Journal of Economic Growth (March): 27-49.

Calomiris, Charles and Stephen Haber. 2014. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press.

Foulke, Ray. 1941. The Sinews of American Commerce. New York: Dun and Bradstreet.

Geisst, Charles. 2013. Beggar Thy Neighbor: A History of Usury and Debt. Philadelphia: University of Pennsylvania Press.

Kamensky, Jane. 2008. The Exchange Artist: A Tale of High Flying Speculation and America’s First Banking Collapse. New York: Viking.

Kamoie, Laura Croghan. 2007. Irons in the Fire: The Business History of the Tayloe Family and Virginia’s Gentry, 1700-1860. Charlottesville: University Press of Virginia.

Levine, Ross. 2005. “Finance and Growth: Theory and Evidence.” Handbook of Economic Growth, edited by Philippe Aghion and Steven Durlauf. Amsterdam: Elsevier Science.

Lockard, Paul. 2000. “Banks, Insider Lending, and Industries of the Connecticut River Valley of Massachusetts, 1813-1860.” Ph.D. Dissertation. University of Massachusetts, Amherst.

Martin, Joe. 2010. Relentless Change: A Casebook for the Study of Canadian Business History. Toronto: University of Toronto Press.

Michener, Ron. 2011. “Money in the American Colonies.” EH.Net Encyclopedia, edited by Robert Whaples.

Michener, Ron. 2015. “Redemption Theories and the Value of American Paper Money.” Financial History Review (December): 1-21.

Mihm, Stephen. 2009. A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. Cambridge: Harvard University Press.

Morgan, Kenneth. 2000. Slavery, Atlantic Trade and the British Economy, 1660-1800. New York: Cambridge University Press.

Muldrew, Craig. 1998. The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England. New York: St. Martin’s Press.

New Bedford Whaling Museum. 2011. “Records of the Merchants Bank Finding Aid, Appendix C,” MSS 107, New Bedford, Mass.

Roney, Jessica Choppin. 2014. Governed by a Spirit of Opposition: The Origins of American Political Practice in Colonial Philadelphia. Baltimore: Johns Hopkins University Press.

Rousseau, Peter and Richard Sylla. 2005. “Emerging Financial Markets and Early U.S. Growth.” Explorations in Economic History (March): 1-26.

Trescott, Paul. 1963. Financing American Enterprise: The Story of Commercial Banking. New York: Harper and Row.

Wang, Ta-Chen. 2006. “Courts, Banks, and Credit Markets in Early American Development.” Ph.D. Dissertation. Stanford University.

Wood, Gordon. 1991. Radicalism of the American Revolution. New York: Random House.

Wright, Robert. 2008. One Nation under Debt: Hamilton, Jefferson, and the History of What We Owe. New York: McGraw Hill.

Yenawine, Bruce and Michele Costello. 2010. Benjamin Franklin and the Invention of Microfinance. London: Pickering & Chatto.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University and the author or co-author of seventeen books, including, with Richard Sylla, Genealogy of American Finance (Columbia University Press, 2015).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII