ECON 195/295  AMERICAN FINANCIAL DEVELOPMENT
HIST 104/2XX  HISTORY OF AMERICAN FINANCIAL INSTITUTIONS
Spring 1996 / Gregory La Blanc
Duke University

Prerequisites for the class:  There are no prerequisites for this class,
but if you have not had microeconomics, macroeconomics, or finance, you
will find much of the material difficult to digest.  Similarly, if you are
unfamiliar with the outline of American history, you may find yourself
lost at times.  If you have either of these handicaps, I can suggest
additional primers.

Requirements for the course:

a.  One Midterm (30% of your grade):  Midterm will be short answer and
short essay in class just before spring break.

b.  Final (40%):  Final is cumulative and will be 4 essay questions
selected from a list distributed in class.

c.  Paper and presentation (30%):  The dates for presentations and papers
will be spread out through the semester and must be selected by the second
week of class.  Additional readings and paper topics are available upon
request.

d.  Class participation (+/-15%) Class participation will influence your
grade.

Required reading:

Bulk Pack #1 (covering material prior to the midterm).

Bulk Pack #2A & 2B (covering material for the second half).

The required reading can reach 200 pages per class.  If you are not
willing to do the reading or learn how to read and digest that much
material, do not take this class!  Due to the increasing costs of
copyright clearance, only some of the readings for the first half are
available in the bulk pack.  The rest of the articles will be handed out
in class.  Bulk packs 2A and 2B are not available for purchase but are in
the library on reserve.

Suggested reading: Timberlake, Richard:  Monetary Policy in the United States
                   Kindleberger, Charles:  Manias, Panics, Crashes
                   Chernow, Ron:  The House of  Morgan
                   Bruck, Connie:  The Predatorœs Ball

Both the required and the suggested readings are available at the Duke U.
Bookstore

Key to syllabus:

Numbers refer to number in coursepack

* Indicates a magazine article or otherwise contemporary article to be
handed out in class.

# Indicates suggested reading.

Th 1.11 Introduction

Theoretical Issues:  Path Dependence
                  Time Inconsistency

* "A Talent for Rewriting History," NYT 10, 13, 93
* "The œNewœ Frontier in Economics," FT 11.93

1.  David, Paul.  œClio and the Economics of QWERTY,œ American Economic
Review, 75(1985):  332-7.

* œSocket to Them,œ Economist, 11.7.92

2.  Taylor, H. œTime Inconsistency:  A Potential Problem for
Policymakers,œ Business Review, FRB of Philadelphia, March/April 1985.

3.  Foulke, R.  The Sinews of American Commerce, New York:  Dun and
Bradstreet, 1941, ch. 1.

4.  Galenson, D.W. œThe Rise and Fall of Indentured Servitude in the
Americas,œ Journal of Economic History, 44(1984):  1-26.

* œImmigrants from China Pay Dearly to Be Slaves,œ NYT 1.3.91




T 1.16 Barter, Exchange, and Money Creation

Theoretical Issues:  Money Demand
                   Liquidity Constraints
                   Greshamœs Law

5.  Menger, C.  œOn the Origin of Money,œ Economic Journal 2 238-255.
Reprinted in Menger, Principles of Economics.  New York University Press,
1976 [1923], pp.257-285.

6.  Einzig, Paul.  Primitive Money.  Part IV:  America, London:  Eyre and
Spottiswoode, 1949.

7.  Foulke, R.  The Sinews of American Commerce, New York:  Dun and
Bradstreet, 1941. ch. 2.

8.  Timberlake, Richard.  œPrivate Production of Scrip-Money in the
Isolated Community,œ Journal of Money, Credit, and Banking.  1987:  437-46.

*Healey, Nigel.  œA Beginners Guide to Corporate Barter,œ Illinois
Business Review.  Spring 91:  13-15.

* œTwelve Acorns for a hair cut,œ FT 11.30.93.

* œThe Case for Countertrade,œ Across the Board.  May 1992.

Th 1.18 Credit Creation

Theoretical Issues:  Asymmetric Information
            Credit Constraints and Pecking Order


9.  Akerlof, G. œThe Market for Lemons:  Qualitative Uncertainty and the
Market Mechanism,œ Quarterly Journal of Economics, 84(1970):  488-500.

* Geertz, C. œThe Bazaar Economy:  Information and Search in Peasant
Marketing,œ American Economic Review.  68(1978):  28-32.

10.  Baskin, J. œThe Development of Corporate Financial Markets in Britain
and the United States, 1600- 1914:  Overcoming Asymmetric Information,œ
Business History Review, 62(1988):b 199- 237.

11.  Foulke, R.  The Sinews of American Commerce, New York:  Dun and
Bradstreet, 1941.  Ch. 3.

12.  Coleman, œImprisonment for Debt,œ in Debtors and Creditors in
America.  Madison:  State Historical Society of Wisconsin, 1974.

T 1.23 Early Corporations, Public and Private

Theoretical Issues:  Limited Liability and Bankruptcy
      Industrialization as Response to Credit Constraints


13.  Coleman, œBankruptcy Relief,œ in Debtors and Creditors in America.

14.  Seavoy, R.  œThe Public Service Origins of the American Business
Corporation,œ Business History Review 52(1978):  30-60.

15.  Livermore, S. Early American Land Companies, New York:  Octogon
Books, 1968, 1-89.

16.  Hovenkamp, H.  œLimited Liability,œ in Enterprise and American Law,
Cambridge:  Harvard University Press, 1991.

Th 1.25 Colonial and Revolutionary Monetary Policy

Theoretical Issues:  Credibility and œFiatœ Money

17.  Smith, B.  œAmerican Colonial Monetary Regimes:  The Failure of the
Quantity Theory of Money and Some Evidence in favor of an Alternate View,œ
Canadian Journal of Economics, (1985):  531-65.

18.  Lester, R. Monetary Experiments:  Early American and Recent
Scandinavian.  New York:  A.M. Kelley, 1970:  pp. 56-141.

19.  Wicker, E.  œColonial Money Standards Contrasted:  Evidence From the
Seven Years War,œ Journal of Economic History.  45(1985):  869-883.

20.  Perkins, E.  œConflicting Views on Fiat Currency:  Britain and its
North American Colonies in the Eighteenth Century,œ Banks and Money, 1-30.

21.  Calomiris, C.  œInstitutional Failure, Monetary Scarcity, and the
depreciation of the Continental, Journal of Economic History, 48(1988):
47-68.

* œMilosevicœs Weimar Republic,œ Economist 12.11.93.

* œWhat Brazil can Learn from Bolivia,œ Economist 3.14.87.

* œThe Supernote,œ The New Yorker, 10.23.95.

T 1.30 Early Credit Institutions
Theoretical Issues:  Pawnbroking, Rotating Credit, Lotteries

22.  Foulke, R.  The Sinews of American Commerce, New York:  Dun and
Bradstreet, 1941, ch. 4.

* œA New Flavor of Pawnbroking,œ New England Business.  Feb. 92:  41-42.

* Caskey, J. and B. Zikmund.  œPawnshops:  The Consumerœs Lender of Last
Resort,œ Business Review.  Mar./Apr. 90:  5-18.

* Brown, C. œPawnbroker to the Stars,œ Forbes.  7.8.91:  104-5.

* Hudson, M.  œShould Regulators Check up on Check Cashers?œ Business and
Society Review.  1993: 47-50.

* œPeddling Dreams,œ WSJ, 9.22.93.

* œFacing Bank Shortages, Many Immigrants Improvise,œ NYT.  9.11.94.

23.  Light, I.  Ethnic Enterprise in America, Berkeley and Los Angeles:
University of California Press,1972, ch2.

*Chotigeat, T., et.al., œFueling Asian Immigrantsœ Entrepreneurship:  A
Source of Capital,œ Journal of Small Business Management, July 91:  51-61.

*Osborne, D. œBootstrap Banking,œ Inc. Aug. 87:  69-72.

*Kamaluddin, S. œLender with a Mission,œ Far Eastern Economic Review.  18
March 93:  38-40.

* œBanking on the Poor,œ Economist.  2.27.93.

24.  Lamoreaux, N. œBanks, Kinship, and Economic Development:  The New
England Case,œJournal of Economic History, 46(1986):  647-67.

25.  Brenner, R. œThe Uneasy History of Lotteries,œ in Gambling and
Speculation.  Cambridge: Cambridge Univ. Press, 1990:  10-18.

# Timberlake, R. Ch. 1.

Th 2.1 Sovereign Debt and Default, Bank Chartering

Theoretical Issues:  Default, Branch Banking, Guarantees, Real Bills Doctrine

26.  Hurst, J. A Legal History of Money in the Untied States, 1774-1970.
Lincoln:  University of Nebraska Press, 1973, pp. 3-27.

27.  English, W. œWhen America Defaulted:  American State Debts in the
1840s,œ unpublished manuscript.

28. Sylla, R., et.al., Banks and State Public Finance in the New Republic:
The United States, 1790- 1860,œ Journal of Economic History, 47(1987):
391-403.

# Timberlake, R. Chs. 2-3.

T 2.6 Bimetallism, Jackson and the Crisis of 1837

29. Gras, N. and H. Larson.  Casebook in American Business History.  New
York:  F.S. Crofts, 1939.:  Second Bank of the United States.

30. Temin, P. The Jacksonian Economy. New York:  Norton, 1969, pp. 15-68,
120-8.

31. Martin, D. œMetallism, Small Notes, and Jacksonœs War with the
B.U.S.,œ Explorations in Economic History, 227-247.

32. Schweikart, L. œJacksonian Ideology, Currency Control and œCentralœ
Banking:  A Reappraisal,œ The Historian.  1988.

#  Timberlake, R., Chs. 4-5.

Th 2.8 Free Banking

33. Rolnick, A. and W. Weber, œNew Evidence on the Free Banking Era,œ
American economic Review.  73(1983): 1080-91.

34. Rolnick, A. and W. Weber, œExplaining the Demand for Free Bank Notes,œ
Journal of Monetary Economics, 21(1988):  47-71.

35. Gorton, G. œThe Enforceability of Private Money Contracts, Market
Efficiency, and TechnologicalChange,œ NBER Working Paper, 1991.

36. Timberlake, R. œThe Significance of Unaccounted Currencies,œ Journal
of Economic History, 41(1981): 853-66.

37. Sylla, R. œForgotten Men of Money:  Private Bankers in Early U.S.
History,œ Journal of Economic History.  173-88.

* œLawyerœs Luck,œ The New Yorker, 3.15.93.

*œIn New Economy, Russians Cannot Rely on their Banks,œ New York Times.

*œTaking the Bounce out of Check Acceptance,œ Discount Merchandiser,
Technology Supplement 91: 42.

# Timberlake, R. Ch. 6.

T 2.13 Panics

38. Calomiris, C. and G. Gorton.  œThe Origins of Banking Panics:  Models,
Facts and Bank Regulation,œ in R.G. Hubbard, ed. Financial Markets and
Financial Crises.  Chicago:  University of Chicago Press, 1991, pp.
109-73.

39. Calomiris, C. and L. Schweikart, œThe Panic of 1857: Origins,
Transmission, and Containment,œ Journal of Economic History, 1991.

*Howard, N. œThe Ponzi Legacy,œ D&B Reports. Jan/Feb 91:  44.

*œPyramids with Giddy Heights,œ FT, 10.18.93.

*œPyramid Scheme a Trap for Many Romanians,œ NYT 11.13.93.

#Kindleberger, C. Manias, Panics, Crashes. Basic Books, 1989, chs. 2,3,4,6,8.

Th 2.15 Clearinghouses and Deposit Insurance

Theoretical Issues: Network Externalities, Moral Hazard

40. Calomiris, C. and C. Kahn. œThe Efficiency of Cooperative Interbank
Relations:  The Suffolk System.œ unpublished manuscript, 1990.

41. Gorton, G. and D. Mullineux.  œThe Joint Production of Confidence:
Endogenous Regulation and the 19th Century Commercial Bank
Clearinghouses,œ Journal of Money, credit, and Banking.  19(1987): 458-68.

42. Gorton, G. œBank Suspension of Convertibility,œ Journal of Monetary
Economics, 1985.

#Kindleberger, C. Manias, Panics, Crashes. Basic Books, 1989, chs. 9.

#Timberlake, R. œThe Central Banking Role of Clearinghouse Associations,œ
Journal of Money, Credit, and Banking, 16(1984):  1-15. (Chapter 14 in book)

43. Gorton, G. œClearing Houses and the Origin of Central Banking in the
United States,œ Journal of Economic History. 45(1985): 277-83.

44. Calomiris, C. œDeposit Insurance: Lessons from the Record,œ Economic
Perspectives, FRB of Chicago, May 1988.

*McAndrews, J. œThe Evolution of Shared ATM Networks,œ Business Review,
FRB Phila. May/June 91: 1-15.

*Phillips, S. œClearance and Settlement of Derivative Products,œ The World
of Banking. July/Aug 93: 14-7.

T 2.20 Civil War, Greenbacks, and National Banking System

Theoretical Issues: Ramsey pricing

45. Calomiris, C. œThe Motives of U.S. Debt Management Policy, 1790-1880:
Efficient Discriminationand Time Consistency,œ Research in Economic
History, 13(1991): 67-105.

46. Williamson, J. œWatersheds and Turning Points: Conjectures on the Long
Run Impact of Civil War Financing,œ Journal of Economic History, 34(1974).

47. Calomiris, C. œPrice and exchange Rate Determination During the
Greenback Suspension,œ Oxford Economic Papers, 1988: 719-50.

*œMementos of Stress in the 1860s Economy,œ NYT 2.28.93

48.  Laughlin, L. The History of Bimetallism in the United States, pp.
209-80.

49. Rockoff, H. œThe Wizard of Oz as a Monetary Allegory,œ Journal of
Political Economy 98(1990): 739-60.

#Timberlake, R. Ch. 7,8, 10.

Th 2.22 Post-Bellum National Banking and Insurance

50. Lamoreaux, N.  œInformation Problems and Banksœ Specialization in
|Short-Term Commercial Lending: New England in the Nineteenth Century,œ in
P. Temin, ed. Inside the Business Enterprise. Chicago:  University of
Chicago Press, 1992, pp. 161-195.

51. Foulke, R. The Sinews of American Commerce, New York: Dun and
Bradstreet, 1941, ch. 5.

52. James, J. Money and Capital Markets in Postbellum America. Princeton,
N.J.: Princeton University Press, 1978.  Ch. 2, 4.

53. Gras, N. and H. Larson. Casebook in American Business History. New
York: F.S. Crofts, 1939,: First National bank of Boston; First National
Bank of New York; Mutual and Equitable Insurance Cos.

T 2.27 Capital Market Integration, Mortgage Lending and CP
Theoretical Issues:  Market Segmentation
                         Costs of Disintegration

54. Davis, L. œCapital Mobility and American Growth,œ In Fogel and
Engerman, The Reinterpretation of American Economic History, New York:
Harper and Row, 1971, pp. 285-300.

*œThe Credit Minders,œ Far Eastern Economic Review, 7.22.93.

55. Sylla, R. œFederal Policy, Banking Market Structure, and Capital
Mobilization in the US,œ Journal of Economic History 29(1969): 657-86.

56. James, J. Money and Capital Markets in Postbellum America. Princeton,
N.J.:  Princeton University Press, 1978, ch. 6.

57. Bogue, A. œFinancing the Prairie Farmer,œ in R. Fogel and S. Engerman,
The Reinterpretation of American Economic History, New York:  Harper and
Row, 1971, 301-310.

58. Ransom, R. and R. Sutch. œThe Trap of Debt Peonage,œ from One Kind of
Freedom:  The Economic Consequences of Emancipation. 1977.

*Handout on Farm tenancy.

Th 2.29 Midterm review

T 3.5 Midterm

Th 3.7 The Prewar Gold Standard and International Capital Markets

1. Dam, K The Rules of the Game, pp. 1-40.

#Timberlake, R. Chs. 11-13.

Spring Break

#Chernow, Ron. The House of Morgan.

T 3.19 Syndicates and Investment Banking
Theoretical Issues Costs of Issue and Seasoning
      Market Making

2. Carosso, V.P. Investment Banking in America: A History Investment
Banking in America: A History.  Cambridge: Harvard University Press, 1970.
chs. 1-3.

3. Gras, N. and H. Larson. Casebook in American Business History. New
York: F.S. Crofts, 1939,: Jay Cooke.

4. Beneviste, L. and P. Spindt, œGoing Public: The Advantages of Using an
Investment Bankerœs Premarketing Services,œ from Bank Structure and
Competition. FRB of Chicago

Th 3.21 The Stock Exchange

Theoretical Issues: Transparency and Bid-Ask Spreads

5. Garbade, K. Securities Markets. ch. 20, 24.

6. Gras, N and H. Larson. Casebook in American Business History. New York:
F.S. Crofts, 1939,: The New York Stock Exchange.

7. Mulherin, J.H., J.N. Netter, and J.A. Overdahl. œPrices are Property:
The Organization of Financial Exchanges from a Transaction Cost
Perspective,œ Journal of Law and Economics. 34(1991): 591-644.

8. Bagehot, W. œThe Only Game in Town,œ Financial Analysts Journal.
Mar/APR 1971.

*œSoviet Commodity Trading is the Rage...œ WSJ 4.10.91.

*œLet Markets Multiply,œ Economist, 1.16.93.

T 3.26 The Money trust, Corporate Governance, and Mergers

9 Gras, N. and H. Larson. Casebook in American Business History. New York:
F.S. Crofts, 1939,: Morgan, IMM, USS.

10. De Long, B. œDid Morganœs Men Add Value?œ in P. Temin, ed. Inside the
Business Enterprise. Chicago:  University of Chicago Press, 1992, pp. 205-49.

11. Brandeis, L. Other Peopleœs Money and How the Bankers Use It. New
York: Harper and Row, 1967, excerpts.

12. Carosso, V. œThe Wall St. Money Trust from Pujo through Medina,œ
Business History Review, 47(1973); 421-435.

13. Lamoreaux, N. The Great Merger Movement. Cambridge: Cambridge Univ.
Press, ch. 4.

Th 3.28 W Separation of Ownership and Control

Theoretical Issues: Agency costs and liquidity of instruments

14. Berle, A. and G. Means The Modern Corporation and Private Property.
[1937] (excerpts).

15. Hawkins, D. œThe Development of Modern Financial Reporting Practices,œ
Business History Review (1963):  134-168.

16. Johnson, H. œManaging by remote Control, Accounting Practice in
Historical Perspective,œ in P. Temin, ed. Inside the Business Enterprise.
Chicago:  University of Chicago Press, 1992, pp. 41- xxxx

17. Roe, M. œfoundations of Corporate Finance:  The 1906 Pacification of
the Insurance Industry,œ Columbia Law Review. 93(1993):639-684.

T 4.2 The Federal Reserve, the œReal Billsœ Doctrine and the Interwar Gold
Standard Theoretical Issues: The Rules of the Game.

18. Miron, J. œFinancial Panics, the Seasonality of the Nominal Interest
Rate, and the Founding of the Fed,œ American Economic Review, 76(1986):
125-40.

19. West, R.C. œReal Bills, The Gold Standard, and Central Bank Policy,œ
Business History Review 50(1976): 503-13.

20. White, E.N. œFederal Banking Reform and the Evolution of the Federal
Reserve System,œ from The Regulation and Reform of the American Banking
System, 1900-29. Princeton: Princeton University Press.

21. Eichengreen, B. Golden Fetters: The Gold Standard and the Great
Depression. New York: Oxford University Press, 1992. (excerpts)

22. Green, S. œThe Abrogation of the Gold Clauses in 1933 and its Relation
to Current Controversies in Monetary Economics,œ Economic Review. July 86:
1-17.

#Kindleberger, C. Manias, Panics, Crashes. Basic Books, 1989, chs. 7, 10.

#Timberlake, R. Chas. 15-17.

Th 4.4 Depression
Theoretical Issues: Credit Rationing

23. Friedman, M. and A. Schwartz, œFactors Accounting for changes in the
Stock of Moneyœ from The Great Contraction, 1929-33. Princeton University
Press, 1965.

24. Temin, P. œThe Fall in the Demand for Money,œ from Did Monetary Forces
Cause the Great Depression?  Norton, 1976.

25. Kindleberger, C. The World in Depression, 1929-39. Berkeley and Los
Angeles: University of California Press, 1975, 117-96.

26. Bernanke, B. œNonmonetary Effects of the Financial Crisis in the
Propagation of the Great Depression,œ American Economic Review, 73(1983):
257-276.

27. Roberds, W. œLenders of Next to Last Resort: Scrip Issue in Georgia
during the Great Depression,œEconomic Review, FRB Atlanta, Sep/Oct 90, 16-30.

28. Wheelock, D. œThe Fedœs Failure to Act as Lender of Last Resort During
the Great Depression, 1929- 33.œ Bank Structure and Competition, FRB
Chicago.

T 4.9 the Banking and Securities Acts

29. Golembe, C. œThe Deposit Insurance Legislation of 1933,œ Political
Science Quarterly, 75(1960): 181- 200.

30. Loss, L. œDevelopment of the SEC Statutes,œ in Securities Regulation
Little Brown.

31. White, E.N. œBefore the Glass Steagall Act:  An Analysis of the
Investment Banking Activities of National Banks,œ Explorations in
Economic History 23(1986): 33-55.

32. Clair, R. and P. Tucker, œInterstate Banking and the Federal Reserve:
A Historical Perspective,œEconomic Review, FRB Dallas, Nov 89: 1-20.

* œMaking Sense out of Alphabet soup Chaos,œ WPW

* œSEC Considers Controls on Derivatives,œ WSJ.

Th 4.11 Bretton Woods and After


33. Root, F. œBretton-Woods: The International Monetary System and its
Collapse, 1945-71,œInternational Trade and Investment, 1994.

*œRules v. Discretion,œ Economist.

*œTo Fix or Float Exchange Rates,œ Economist. 8.7.93

T 4.16 Financial Innovation, Instability, and Disintermediation

34. Litan, R. What Should Banks Do? ch. 2. Brookings, 1992.

35. Gorton, G. and G. Pennacchi. œFinancial Innovation and the Provision
of Liquidity Services,œ unpublished paper, 1990.

36. Bryan, L. Breaking up the Bank. Dow Jones Irwin, 1988. p. 22-36.

37. Bryan, L. œThe Global Forces Reshaping Banking,œ McKinsey Quarterly,
1993.

Th 4.18 The Savings and Loan Crisis

38. White, L. The S&L Debacle. New York: Oxford University Press, 1991,
chs. 4,5,6.

T 4.23 The 1980s and Leverage/Corporate Control revisited

38. Jefferis, R. œThe High Yield Debt Market: 1980-90œ Economic
Commentary, FRB Cleveland 4.1.90.

39. Jensen, M. œActive Investors, LBOs and the Privatization of
Bankruptcy,œ Journal of Applied Corporate Finance. 35.

40. Jensen, M. œEclipse of the Public Corporation,œ Harvard Business
Review, 9.89:61-74. #Bruck, Connie. The Predatorœs Ball. American Lawyerœs
Press 1988.

* œAmericaœs Investment Famineœ Economist. 6.27.92.

* œFixing Corporate Americaœs Short-Term Mindset,œ NYT.

* œWhen Firms Go Bust,œ Economist 8.1.92.

* œGood-bye Berle and Means,œ Forbes 1.3.94.

Date TBA Final Review

Date TBA: Movie: Barbarians at the Gate.

Date TBA: Final.