Published by EH.NET (July 1, 2000)


Howard Bodenhorn, A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. New York: Cambridge University Press, 2000. xxi + 260 pp. $59.95 (cloth), ISBN: 0-521-66285-0; $22.95 (paper), ISBN: 0-521-66999-5.

Reviewed for EH.NET by Jon Moen, Department of Economics and Finance, University of Mississippi.

Almost all economic historians have read the classic articles by Lance Davis (1965) and Richard Sylla (1969) on the integration and efficiency of postbellum US capital markets. In them we learn that it took quite a while for interest rates to converge and that the National Bank Acts may have introduced some monopolistic elements into banking. If capital market weren’t always efficient after the Civil War, it is tempting to believe that they must have been even worse during antebellum times. Howard Bodenhorn attempts to erase such beliefs with A History of Banking in Antebellum America. I think he is successful, for the most part.

Bodenhorn focuses on how effective the antebellum banking system was at creating credit, linking borrowers and lenders, and moving capital to its most valuable use. He also attempts to address the issue of how critical banks were to economic growth. He finds that banks provided credit to a broad range of businesses, not just to the wealthy. Banks also encouraged capital formation (and saving), capital market deepening and integration, and regional interest rate convergence. He does not try to analyze money creation, the effectiveness of the antebellum system of private banknotes, or the stability of the free-banking system. These issues have been analyzed by Hugh Rockoff (1975) and later by Arthur Rolnick and Warren Weber (1983). They find that things worked pretty well.

In Chapter 2, Bodenhorn provides a survey of regional banking structure, showing, for example, how New England banking differed from banking in the South, where branching was common. Next, he examines the links between economic growth and financial development. Several tables calculate money or credit per capita and provide correlations between these monetary variables and per capita income growth, suggesting that the correlation is not strong. However, regression analysis of the determinants of growth (in the spirit of Robert Barro) shows that the initial level of financial depth was positively related to subsequent economic growth.

The third chapter examines who was supplied with credit by antebellum banks. With an admittedly small sample (n = 4) of banks from New York, Tennessee, Virginia, and South Carolina, Bodenhorn suggests that antebellum banks were willing to lend to small borrowers as well as large ones and that they were motivated to a great extent by the search for profit. They didn’t just lend to their friends.

The next chapter builds on Bodenhorn’s earlier research dealing with the integration of short-term capital markets and the convergence of regional interest rates. The main conclusion is that even if there were regional differences, interest rates moved in close enough harmony to suggest that capital markets had been integrated for much of the antebellum period.

Chapter 5 is useful for the questions it raises in addition to the conclusions it presents. This chapter analyzes how banks developed correspondent relationships to move capital across a large but developing nation. It then presents a brief outline of how legal developments proceeded to make the bill of exchange a more liquid and widely accepted financial instrument. Perhaps the most interesting item in this chapter is Bodenhorn’s discussion of how, after the demise of the Second Bank of the United States in 1836, state banks, private banks, and exchange brokers stepped in to keep the markets for bills of exchange and interbank payments functioning. I got the impression that its demise really did not affect markets much and that the private sector responded quite effectively. This is an issue that could be examined in more detail, as it raises the question of just how important a central bank is.

The Epilogue returns to the role of banks in the growth of the antebellum American economy. The type of evidence presented by Bodenhorn doesn’t really allow for much more than the suggestive answer that banks certainly helped things along, and it also points out that Americans were resourceful in creating a banking system. The discussion prompted me to wonder how large were the social savings from having banks — were they “indispensable?” Were substitutes for banks conceivable or possible, given the legal frameworks in the various states? In other words, would moneylenders that were not banks have appeared? The postbellum South as described in the Epilogue shows what happened when a banking system was decimated, but it also reveals that new institutions — efficient or not — would spring up to take the place of banks. A History of Banking in Antebellum America is an important work and sets the stage for more research on antebellum capital markets.

Jon R. Moen is author of “Clearinghouse Membership and Deposit Contraction during the Panic of 1907,” Journal of Economic History, Vol. 60, no. 1 (March 2000), pp. 145-63.


Lance Davis, “The Investment Market, 1870-1914: The Evolution of a National Market,” Journal of Economic History, Vol. 25, no. 3 (September 1965), pp. 355-99.

Hugh Rockoff, The Free Banking Era: A Re-Examination. New York: Arno Press, 1975.

Arthur Rolnick and Warren Weber, “New Evidence on the Free Banking Era,” American Economic Review, Vol. 73, no. 5 (December 1983), pp. 1080-91.

Richard Sylla, “Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 1863-1913,” Journal of Economic History, Vol. 39, no. 4 (Dec. 1969), pp. 657-86.