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La Blanc, G. American Financial Development / History of American Financial Institutions
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 , 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.  (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.