Money and capital markets in postbellum america

Money and Capital Markets Money and Capital Markets in Postbellum America JOHN A JAMES Princeton University Press PRINCETON, NEW JERSEY Copyright © 1978 by Princeton University Press Published by Princeton University Press, Princeton, New Jersey In the United Kingdom: Princeton University Press, Guildford, Surrey All Rights Reserved Library of Congress Cataloging in Publication Data will be found on the last printed page of this book Publication of this book has been aided by the Paul Mellon Fund of Princeton University Press This book has been composed in Linotype Times Roman Printed in the United States of America by Princeton University Press, Princeton, New Jersey To M Contents List of Tables ix List of Figures xi Preface xiii I Introduction II The Growth of the Banking System THE EXPANSION OF DEPOSITS NATIONAL BANKS STATE BANKS TRUST COMPANIES PRIVATE BANKS III The Individual Bank BANK PORTFOLIO SELECTION BILLS OF EXCHANGE LOANS AND DISCOUNTS COUNTRY BANK LOANS COMMERCIAL PAPER CREDIT DEPARTMENTS NATIONAL BANK NOTES USURY LAWS IV The Correspondent Banking System DEFECTS OF THE BANKING SYSTEM AND THE APPEAL OF BRANCH BANKING 22 22 27 29 39 40 45 47 51 54 66 71 72 74 79 89 89 FUNCTIONS OF THE CORRESPONDENT BANKING SYSTEM 95 EXTENT OF THE CORRESPONDENT BANKING SYSTEM 104 EVALUATIONS OF THE CORRESPONDENT BANKING SYSTEM FINANCIAL FLOWS 112 125 CONTENTS V Methods of Interregional Transfers of Funds INTERBANK BORROWING DIRECT INTERREGIONAL LENDING INTERREGIONAL HOLDINGS OF BANK STOCK THE COMMERCIAL PAPER MARKET VI The Process of Capital Market Integration FRAMING THE HYPOTHESES PERFECT MARKET HYPOTHESIS INSTITUTIONAL CHANGE HYPOTHESIS MARKET POWER HYPOTHESIS 149 149 164 170 174 199 199 210 212 218 VII Summary 236 Appendix A Data Appendix 245 245 INTEREST RATES COMPARISON OF BRADSTREET'S INTEREST RATES SERIES WITH THOSE DERIVED FROM THE COMPTROLLER'S REPORTS 252 Appendix B Interest Paid on New York Bankers' Balances 263 Bibliography 268 Index 285 List of Tables 10 11 12 13 14 15 16 17 18 19 Average Weekly Rate of Discount in Selected Cities, 1893-1897 Number of Commercial Banks in the United States, 1850-1910 Proportion of Checks and Drafts in Total Receipts of Country and Reserve City National Banks, 1881-1890 Sample National Bank Balance Sheet Percentage of Single-Name Paper to Double-Name Paper in Bank Portfolios, June 30, 1910 Interest Rates on Loans of Differing Maturities Held by New York Banks, 1903 Average Size of Loans of Reserve City National Banks, October 2, 1879 Average Size of Loans of Country National Banks, October 2, 1879 Legal Rates of Interest by State, 1915 Number of Banks by State Charging Usurious Interest, September 2, 1915 The Number of Banks by State Charging an Average of 10 Percent or More on All Loans, September 2, 1915 Bankers' Net Balances of Country National Banks, Due from Other Banks, 1870-1900 Bankers' Net Balances of Reserve City National Banks, Due to Other Banks, 1870-1900 Bankers' Net Balances of Central Reserve City Banks, Due to Other Banks, 1870-1900 Bankers' Balances Held by National Banks, November 10, 1915 Number of Correspondent Accounts Held by New York Banks, 1913 Distribution of Correspondent Banks as Reported by Banks in Selected States, 1925 Net Cash Flows into and out of New York City Seasonal Variation in Net Cash Flows from New York 10 25 32 47 59 65 70 70 81 86 87 105 106 107 108 109 114 139 142 ix BIBLIOGRAPHY Schroeder, W G Untitled address, Proceedings of the Oklahoma-lndian Territory Bankers' Association, 1907, pp 63-64 Scott, William A Money and Banking New York: Henry Holt and Co., 1910 "Rates on the New York Money Market, 1896-1906," Journal of Political Economy, XVI (May 1908), pp 273298 Scoville, C C K "The Best Class of Investments for the Av­ erage Kansas Bank," Proceedings of the Kansas Bankers' Association, 1903, pp 72-80 Selden, Richard T Trends and Cycles in the Commercial Paper Market, NBER Occasional Paper No 85 New York: Na­ tional Bureau of Economic Research, 1963 Sharpe, William F Portfolio Theory and Capital Markets New York: McGraw-Hill Book Company, 1970 "Should Bank Deposits Bear Interest?" Bankers' Magazine, XXX (February 1876), pp 596-598 Shreve, B J "Country Checks and Country Bank Accounts," Bankers' Magazine, LVI (February 1898), pp 221-231 Smiley, Gene "Interest Rate Movements in the United States, 1888-1913," Journal of Economic History, XXXV (Septem­ ber 1975), pp 591-620 Smith, C T Untitled address, Proceedings of the Georgia Bankers' Association, 1917, pp 117-120 Smith, Walter Buckingham Economic Aspects of the Second Bank of the United States Cambridge, Mass.: Harvard Uni­ versity Press, 1953 Southworth, Shirley D Branch Banking in the United States New York: McGraw-Hill Book Company, 1928 Sparks, Earl S., and Carver, Thomas N History and Theory of Agricultural Credit in the United States New York: Thomas Y CroweU Co., 1932 Sprague, O M W "Branch Banking in the United States," Quarterly Journal of Economics, XVII (February 1903), pp 244-260 "The Distribution of Money between the Banks and the People since 1893," Quarterly Journal of Economics, XVIII (August 1904), pp 513-528 History of Crises under the National Banking System Washington, D.C.: U.S Government Printing Office, 1910 BIBLIOGRAPHY Stevens, Ε Μ "Commercial Paper," Proceedings of the North Dakota Bankers' Association, 1903, pp 29-31 Stevenson, Russell, ed A Type Study of American Banking: Non-Metropolitan Banks in Minnesota Minneapolis: Uni­ versity of Minnesota Press, 1934 Stigler, George "Imperfections in the Capital Market," Journal of Political Economy, LXXV (June 1967), pp 287-292 Sumner, William G "History of Banking in the United States," in A History of Banking in All Leading Nations, Vol I New York: Journal of Commerce and Commercial Bulletin, 1896 Swartz, D G "Interest on Deposits," Bankers' Magazine, XXIV (March 1870), pp 665-670 Sylla, Richard "American Banking and Growth in the Nine­ teenth Century: A Partial View of the Terrain," Explorations in Entrepreneurial History, IX (Winter 1971-1972), pp 197— 227 "The American Capital Market, 1846-1914, A Study of the Effects of Public Policy on Economic Development." Unpublished Ph.D dissertation, Harvard University, 1968 "Federal Policy, Banking Market Structure, and Capital Mobilization in the United States, 1863-1913," Journal of Economic History, XXIV (December 1969), pp 657-686 "Forgotten Men of Money: Private Bankers in Early U.S History," Journal of Economic History, XXXVI (March 1976), pp 173-188 Talbert, Joseph T "Commercial Credits," Proceedings of the New York Bankers' Association, 1908, pp 76-91 "Commercial Paper," Proceedings of the Minnesota Bankers' Association, 1908, pp 36-53 Taylor, F M "The Final Report of the Indianapolis Monetary Commission," Journal of Political Economy, VI (June 1898), pp 293-322 Thomas, Rollin G "The Development of State Banks in Chi­ cago." Unpublished Ph.D dissertation, University of Chi­ cago, 1930 Tostlebe, Alvin S Capital in Agriculture: Its Formation and Fi­ nancing since 1870 Princeton, N.J.: Princeton University Press, 1957 Trescott, Paul Financing American Enterprise New York: Harper & Row, 1963 BIBLIOGRAPHY U.S Bureau of the Census Historical Statistics Washington, D.C.: U.S Government Printing Office, 1960 Thirteenth Census of the United States: 1910 Vols II— III: Population, 1910 Reports by States, with Statistics for Counties, Cities and Other Civil Divisions Washington, D.C.: U.S Government Printing Office, 1913 U.S Census Office Tenth Census, 1880 Vol I: Statistics of the Population of the United States Washington, D.C.: U.S Gov­ ernment Printing Office, 1883 Eleventh Census, 1890 Vol I: Report on Population of the United States Washington, D.C.: U.S Government Printing Office, 1895-1897 Twelfth Census, 1900 Vols 1-11: Population Washing­ ton, D.C.: U.S Government Printing Office, 1901-1902 Abstract of the Twelfth Census of the United States, 1900 Washington, D.C.: U.S Government Printing Office, 1903 U.S Comptroller of the Currency Annual Report, 1870-1918 Washington, D.C.: U.S Government Printing Office, 18701918 U.S Congress, House of Representatives Investigation by a Se­ lect Committee of the House of Representatives Relative to the Causes of the General Depression in Labor and Business, etc House Miscellaneous Document No 29 45th Congress, 3rd Session, 1879 Investigation by a Select Committee of the House of Representatives Relative to the Causes of the General Depres­ sion in Labor and Business, etc House Miscellaneous Docu­ ment No 5, 46th Congress, 2nd Session, 1880 Investigation of the Financial and Monetary Condi­ tions in the United States under House Resolutions Nos 429 and 504 before the Subcommittee on Banking and Currency, vols 62nd Congress, 3rd Session, 1912 , Committee on Banking and Currency Hearings before the Committee on Banking and Currency on H.R 8149 53rd Congress, 3rd Session, 1894 , Committee on Banking and Currency Views Expressed before the Committee on Banking and Currency 43rd Con­ gress, 2nd Session, 1874 BIBLIOGRAPHY U.S Congress, Senate Committee on Banking and Currency Hearings before the Committee on Banking and Currency on H.R 7837 (S 2639), vols 63rd Congress, 1st Session, 1913 U.S National Monetary Commission Report Washington, D.C.: U.S Government Printing Office, 1911 Van Fenstermaker, J "The Development of American Commer­ cial Banking: 1782-1837," Bureau of Economic and Business Research Series No 5, Kent State University, 1965 Wade, Festus J "What Causes Fluctuations in Money Rates?" Proceedings of the New York Bankers' Association, 1906, pp 35-41 Warren, George F., and Pearson, Frank A Prices New York: John Wiley & Sons, 1933 Watkins, Leonard L Bankers' Balances Chicago: A W Shaw Co., 1929 "Commercial Banking Reform in the United States," Michigan Business Studies, VIII, No 5, 1938 Westerfield, Ray B Banking Principles and Practice New York: Ronald Press Co., 1924 White, Horace Money and Banking, 4th ed Boston: Ginn and Co., 1912 Williamson, Jeffrey G Late Nineteenth-Century American De­ velopment Cambridge: Cambridge University Press, 1974 Willis, H Parker American Banking Chicago: La Salle Exten­ sion University, 1916 Witham, W S Untitled address, Proceedings of the American Bankers' Association, 1898 Woodward, C Vann Origins of the New South, 1877-1913 Baton Rouge: Louisiana State University Press, 1951 Wright, Benjamin C Banking in California, 1849—1910 San Francisco: H S Crocker Co., 1910 Wright, Ivan Bank Credit and Agriculture New York: Mc­ Graw-Hill Book Company, 1922 Wylie, James R Untitled address, Proceedings of the Michigan Bankers' Association, 1901, pp 36-39 Yohe, William P., and Karnosky, Davis S "Interest Rates and Price Level Changes," Federal Reserve Bank of St Louis Re­ view, LI (December 1969), pp 19-36 Zartman, Lester Investments of Life Insurance Companies New York: Henry Holt and Co., 1906 Index acceptances, 53-56; bank, 53-55; trade, 53-56, see also dis­ counts: double-name paper See also bills of exchange agriculture, shift from to industry, Alcorn, Edgar G., 248 American Bankers' Association, 57, 72, 82, 92, 196 bank note issue, see National Banking Acts: note issue pro­ visions, profitability of note issue under bankers' balances, 102-113, 132, 157; as use of surplus funds, 126; competitive market in New York for, 110-111, 264, 267; concentration in New York of, 95-99, 103, 104, 106-108, 112, 113n, 119-121, 148, 170, 236, see also pyra­ miding of reserves; defined, 105; growth of, 97, 105-107; opposition to interest payment on, 112-113, 264; rates on New York, 96-97, 250, 263267; relationship to call loan market, 103-104, 118-119; withdrawals·, during Panics, 119-120; seasonal, 136-137: traditional theory, 126-127, Goodhart theory, 127-128, estimates of, 134 Bankersf Magazine, 79, 112, 143, 183, 194, 264-265 banks and banking system, 236238; American vs British, 57, 62; balance sheet entries· 4647, 248-251; bonds for circulation, 248, 249; bonds for deposits, 248, 249; due from banks, 47, 154, 248249, see also bankers' bal­ ances; due to banks, 47, see also bankers' balances; loans and discounts, 248, 250, 251; other stocks and bonds, 248, 250; clearings, 139n; credit depart­ ments, 72-73, 101; functions of, 6-7; growth of, 25, 89; portfolio diversification, 4751, 88, 179-180; role in economic development of, 3; stock, interregional holdings of, 170-174, 237; structure and performance of, 7, 13, 236, 238 See also correspond­ ent banking system; national banks; private banks; state banks Barnett, George, 36, 43, 234 bill brokers, 41 See also com­ mercial paper market: dealers bills of exchange, 51-56; de­ fined, 51; importance, 52-53; kinds·, bank acceptances, 54; demand bills, 52; time bills, 52; trade acceptances, 5354; 55-56; relation to real-bills doctrine, 60 See also checks bills of lading, 63-64 Bolles, Albert S., 68 bonds, railroad, 50-51, 249-250 INDEX Bradstreefs, 9, 202η, 252, 255259, 260η, 261-262 branch banking, 11-12, 89-95, 121, 122-123, 197-198; ad­ vantages, 91-92, 93; as alter­ native to national banking system, 91-93, 94-95; corre­ spondent banks as substitute for, 122-123; extent, 89-90; in Canada, 92; in Scotland, 92; opposition to, 93-94; prohibi­ tion for national banks, 90, 172; support for, 92-93 Breckenridge, R M., 9-11, 20, 93-95, 155, 172-173, 199, 256 building and loan associations, Cagan, Phillip, 25, 78 California, 64n, 65n, 74n, 146 call loans, 63, 66, 103-104, 118— 119, 124, 130-131, 134, 168, 261; growth of New York market, 103; rates on, 127, 130-131, 266; relationship to bankers' balances, 103-104, 118-119 See also loans: demand Canada, branch banking in, 12, 92 capital market, interregional; de­ mand factors in, 207, 220n; effect of development on the savings rate, 5n; need for in­ terregional transfers in, 4-5, 12 See also long-term inter­ regional capital market; shortterm interregional capital market cash discount system, 55-56 chain-banking system, 121-122, 172 checks, use of, 28, 29-30, 31, 53; growth in, 24-25, 32-34, 100; regional variation in, 32-34 Chemical Bank of New York, 264 Chicago, 31, 56, 84, 97, 106, 110, 118, 133, 159, 183; as central reserve city, 98n, 159; country bank balances in, 96; position in correspondent banking system, 107, 109; state banks in, 49-50 Civil War, 27, 55, 75 Clayton, B F., 83 Cleveland, Grover, 93 Columbian Exposition, 90 Commercial and Financial Chronicle, 138, 139 commercial paper market, 6, 8, 102, 174-198, 208, 212-218, 237, 240-242; as outlet for surplus funds, 126-217, 177, 178-179, 180, 189; as second­ ary reserve, 176—177, 192; dealers, 41, 182, 212-213, 215-216; demand factors in, 176-180, 214—215; effect on local loan market, 194-198, 215-217, 240-241; expansion of, 182-184, 188-191, 217128; in bank portfolio diversi­ fication, 179-180, 214-215; in the South, 189-191; ma­ turity lengths in, 178; methods of selling, 186, 191, 212-213; supply factors in, 174-176, 180, 215-216; timing of spread, 181, 182-186, 187-189, 213; volume of, 192-194 Continental and Commercial Bank of Chicago, 110, 119 Cooke, Thornton, 135-136, 219, 23 2n correspondent banking system, 34n, 95-125, 134n, 135n, 149151, 164-165, 205n; as sub­ stitute for branch banking, INDEX 121, 122-123, 211, 237, 240; competition for accounts in, 110-111; concentration of balances under, see pyramiding of reserves; bankers' balances: concentration in New York; criticism of, 112-113, 118; deposits, see bankers' balances; development of, 95-97; extent of, 107-110, 111, 114-117; functions of, 99-102, 104, 149-150, 165; growth in, 104105, 107-109 cost differentials, city vs country banks, 70-71, 238 creditworthiness, 72, 73· Dailey, Don, 49 Davis, Lance E., 18n, 81-82, 163, 164, 199-202, 204n; on capital mobility, 5, 8-9, 137, 199; on measures of regional interest rate convergence, 13, 245; on role of the commercial paper market, 21, 197, 199202, 208, 212, see also insti­ tutional change hypothesis; on Southern financial develop­ ment, 189-190, 197, 221n, 222n Dawes, Charles G., 23n Deming, J K., 195 deposit banking, growth of, 2932, 235 deposit-currency ratio, 22, 2324, 26, 36 deposits, bank, 22-26; demand, 23, 25, 26, 100-101, 118n; time, 69 discounts, 54—59, 61-63, 192; characteristics of, 54, 63; double-name paper, 9, 54-55, 56, 71, 260n, see also com­ mercial paper; maturity length, 61-62, 65; rates, see shortterm interest rates; single-name paper: 54, 55, 56, 57-59, 71, 187, see also commercial paper; attitudes of country banks toward, 57-58, 187; spread of, 57, 58-59; use of single vs double-name paper, 57-59 Dunbar, Charles, 45, 48, 61 Dun's Review, 130, 132, 252, 255, 261-262 Easterlin, Richard, 143-145 Eckels, J H., 92 exchange charges, 53, 96, 99, 136n, 202n, 250 Federal Reserve Act hearings, 67, 68, 111, 150-151, 168, 267 Federal Reserve Bank of St Louis, 18n Federal Reserve system, 236 Fillmore, Millard, 233 financial flows, interregional, 125-148; balance of payments, 135, 146-147; balance of trade of, 127-129, 146, 148, 242; capital flows, net: 143-147; long-term, 143-145, 147; short-term, 146, 147; cash flow, net, 125-127, 135, 137-142, 146, 147; net direc­ tion, 124, 137, 147-148, 207, 242; seasonal: evidence on, 13Ο­ Ι 32; Goodhart hypothesis, 127-129; traditional hypoth­ esis, 125-127 float, 112 Follet, Alonzo, 192 Foulke, Ray, 193 free banking, 26, 35, 233, 234 INDEX Friedman, Milton, 22n, 23, 26 Gallman, Robert E., 5n Garfield, James, 33 Gerschenkron, Alexander, 62 Gibbons, J S., Gold Standard Act of 1900, 94, 218-220, 235, 241; effects of, 201, 219-220, 223-224, 228229; provisions of: capital re­ quirements, 201, 218; note issue, 77, 218n Goldfeld, Stephen, 24n Goodhart, C.A.E., 127-137, 142, 146, 252, 254-255 Greef, Albert O., 175, 182, 191, 192, 193, 198 Greenbackers, 23n Hazelwood, C B., 177, 178 Hepburn, Alonzo B., 121 Hughes, Jonathan, 13 Importers and Traders' Bank of New York, 72, 266 Indianapolis Monetary Commis­ sion, 11, 77n, 92-93, 94 inelasticity of the currency, 7, 22 See also national banking system: criticisms of institutional change hypothesis, 240; explained, 21, 199-200; tested, 212-218 interbank borrowing, 102, 149165, 199, 237; concealment of·, reasons, 153-154; methods, 154-155; during Panics, 158-159; extent of, 155-157, 158n, 159; geo­ graphical distribution, 159162; importance to South, 161-163; interest rates charged, 150-151; kinds·, bills payable, 151, 152, overdrafts, 151-152; rediscounting, 151, 152-153, 155; seasonal patterns, 158 interest rates, see long-term inter­ est rates; short-term interest rates investment banking, 6, 37 Jonung, Lars, 23n Keehn, Richard, 202n, 222 Kemmerer, E J., 137, 138 Knox, John Jay, 7, 46 Kuhn and Loeb (investment bankers), 41 Kuznets cycles 18n labor force, shifts in distribution of, 4, 207 Laughlin, J Laurence, In, 89, 151 lawful money, 97, 98 legal tender, 76 life insurance companies, liquidity, 48 loans, 61-70; country bank: characteris­ tics, 66-68; differences in collateral for, 68-69; ma­ turities, 67; size vs city banks, 69-70; defined, 54; kinds: demand, 64n, 65n, 66, 25In, 260-261, see also call loans; mortgage, 64; secured, 63; time, 64-65; unsecured, see discounts; maturity length, 61-62, 65; policy in England, 62; policy in Germany, 62 loans and discounts portfolio, 47, INDEX 54, 60, 67-69, 88, 250-251, 260 long-term interest rates, 13 long-term interregional capital market; institutions, 6; interest rate convergence in, 13; inter­ regional flows, see financial flows, interregional Macaulay, Frederick, 249, 250 market power hypothesis, 218235, 240, 241; explained, 21, 200-201, 218; tested, 218-220 McAvoy, Walter, 197 McNabb, L C., 85 Mellon, T and Sons, 41 Mercantile Trust Co of St Louis, 168 Mints, Lloyd, 46 monetization, 23 money market, see New York: as national money market; short-term interregional capital market money stock, 22 Money Trust, 110 monopoly power of local banks, 175, 180, 200, 211, 215-217, 220n; erosion by growth of state banks, 221-222, 232n, 233n, 235, 241, 243; influence on local interest rates, 221222, 234-235; measure of, 209 Morgan, J P., 6, 41 mortgage companies, Moulton, H G., 61, 62 mutual savings banks, Myers, Margaret, 98, 113n, 120n, 187 National Banking Acts, 27-29, 36-38, 94-98, 153, 218, 233, 240; capital requirements, 28, 94; legal barriers to entry established by, 8, 21, 28-29, 94-95, 200, 208; limitation on loan size, 37, 45, 175; note issue provisions, 74-78; prof­ itability of note issue under, 78; prohibition of branch banking, 90; prohibition of mortgage lending, 29, 45, 178, 200, 226, 237; purposes of 1863, 1864 Acts, 27, 74; reg­ ulations encouraging growth of state banks, 36-38, 66, 9495, 226, 237, 241; reserve re­ quirements, 45, 97-98; role in promoting a uniform currency, 74-75; role in reducing inter­ regional interest rate differen­ tials, 75, 170-171; tax on state bank notes, 27, 200; usury provisions, 80 See also Gold Standard Act of 1900; Re­ sumption Act of 1875 national banks and banking sys­ tem, 25-29, 238-240; as means of mobilizing and transferring capital, 123-124; balance sheet of, 47, 246; central reserve city, defined, 98n; country bank, defined, 98; criticisms of: 7, 11-12, 22n, 89, 94-95, 112-113, 118, 121, 236, 240; inadequacy in transferring capital, 1112, 89; inelasticity of the currency, 7, 22n, 121; sus­ ceptibility to Panics, 7, 112— 113, 118, 121, 236, 240, see also pyramiding of reserves; direct interregional lending under, 164-170, 199, 237; growth of· 25-26, 219, 223224; as compared with state INDEX national banks (cont.) banks, 223-224; under Gold Standard Act, 219; low rate of bank note issue under, 30; origin of, 27-28; profit rates on, 238n, 239n; reserve city, defined, 98n; unit structure of, 26, 90, 95, 112 National City Bank of New York, 122, 169, 170 National City Company, 122, 172 National Currency Acts, see National Banking Acts New York City, 126-142, 263267; as central reserve city, 98; as financial intermediary, 146148, 242; as national money market, 123; banks·, as source of inter­ bank loans, 154, 159; com­ petitive market among, 111, 263-267; composition of loan and discount portfolio, 58; concentration of bankers' balances in, see bankers' balances: concen­ tration in New York; pyra­ miding of reserves; credit departments, 72; difficulty in disposing of bank notes, 76-77; focal point for finan­ cial pressures, 119-120; in­ terregional lending by, 168169; maturity length of loans of, 61, 65; rate paid on bankers' balances, see bank­ ers' balances: rates on; call loan market in, 66, 118, 123, 124, 127; cash flows into and out of, 135-136, 137, 140, 147; commercial paper market in, 193, 257; fluctuations of money market rates in, 13 Ο­ Ι 32; position in correspondent banking system, 107-109; seasonal capital flows into and out of, 126-127, 128-130, see also financial flows, inter­ regional; stock and bond markets, New York Clearing House, 77, 100, 138-139, 263, 264 New York state; 1838 banking law, 233; usury laws in, 80 note brokers, see commercial paper market: dealers notes, social savings in use of, 75 Panics, 119-120; causes, see national banks and banking system: criticisms of; pyra­ miding of reserves; interbank borrowing during, 151, 156; Panic of 1857, 124; Panic of 1873, 76n, 77n, 125, 264; Panic of 1893, 72, 76n, 151; Panic of 1897, 186; Panic of 1907, 156, 186, 192; role of bankers' balances in, 119-120 Paper, single-name and doublename, see discounts: singlename and double-name; open market, see commercial paper market Parable of the Talents, 79 perfect market hypothesis, 21, 239; explained, 202-205; tested, 210-211 Phillips, Chester A., 67, 73, 89, 177, 179-180, 185, 198, 212 Populists, 201 Preston, Kean and Co., 50 private banks, 40-44; as substi­ tutes for national banks, 36, 44, 227; decline of, 43-44; functions, 41-42; growth of, INDEX 25-26, 38, 40-41; in Texas, 43 Pujo Committee, 104, 169 pyramiding of reserves, 98, 106107, 109, 121 See also national banks and banking system: criticisms of real-bills doctrine, 45, 59-62, 250-251 real estate, loans on, see national banks and banking system: prohibition of mortgage lend­ ing; state banks: mortgage lending by redemption fund, 47, 78, 98 rediscounting, see interbank borrowing Redlich, Fritz, 111, 122, 241 Resumption Act of 1875, 77 risk and interest rates, 75, 203207, 209, 214-215; defined, 203n, 206; in the South, 162163, 211; interregional differ­ ences in, 21, 203-204, 206207, 210-211; measures of changes in, 209, 210-211, 239; of bank failure, 206207; premium, 206, 209 Rockoff, Hugh, 88, 206-207, 209n, 227 Roots, Logan, St Louis, 98n, 106, 110, 159 Schwartz, Anna, 22n, 23, 26 Scotland, branch banking in, 9192 Second Bank of the United States, 75 secondary reserves, 48-51, 176177 short-term interest rates, 9-21, 85-87, 128-133, 199-235, 245-262, 263-267; Canadian vs United States', 12, 92; change in interregional differ­ entials, 13-15, 18-20, 170171, 200, 203, 204, 205-206, 207, 217-218, 220, 221n, 235, 236, 238; Davis's measure of, 13-14, 245; in Bradstreet's, 910, 252-262; in Chicago, 256258, 259; in Dun's Review, 130-131, 252-262; in New Orleans, 255, 257, 258-259; in Omaha, 258, 259, 260; in Pittsburgh, 258-259; in San Francisco, 258-259, 261; in­ fluence of local bank monopoly power, 234-235; influence of risk, 210-211, 239; inter­ regional differences, 9-11, 6971, 199, 202n, 204, 236; local, newly derived esti­ mates: comparison with Bradstreet's series, 252-262; comparison with 1910 Annual Report series, 251; comparison with Davis series, 245; comparison with Smiley series, 15n, 248n; construction of, 245-251; regional averages, 15-18; model of determination in local markets, 208-209, 239; on bankers' balances, see bankers' balances: rate on; real, 18n, 256, 258n; risk-return rela­ tionship, 208-209; seasonal fluctuations in, 128, 130, 132, 133, 255; usury limits and, 8587 short-term interregional capital market; barriers to mobility in· 812, see also interest rates: interregional differences in; evidence of, 9-11, 211, 212, INDEX barriers (cont.) 236, 239-240; influence of, 8-9, 12, 148, 199, 239-240, 243; solutions for, 5, 11, 9192; influence of transactions and information cost, 202; integration of: 15-20, 199, 238, 239—240, see also in­ terest rates: change in inter­ regional differentials; hy­ potheses concerning, 200209; tests of hypotheses concerning, 210-235; interregional flows, see finan­ cial flows: interregional; insti­ tutions, 6-7 sight bills, see bills of exchange: demand bills Silverites, 23 η single-name promissory notes, see discounts: single-name paper sleepers, 68 Smiley, Gene, 15n, 205-206, 248n South, 165, 171; loan risk in, 162-163, 211; slower integra­ tion into national capital market, 22 In, 222n Sprague, O.M.W., 76n, 77n, 265; on advantages of branch bank­ ing, 91, 92, 93; on causes of Panics, 113, 118, 119-121; on seasonal capital flows, 126127, 136 state banks, 29-39, 222-235; as substitutes for national banks, 28, 34, 36, 235, 237, 240, 241; balance sheet compared with national banks, 46—47; capital requirements: 44, 95n, 227-231; change in, 229-231; effects of low, 231, 232, 235, 241-242, 243; geographical pattern of, 229; decline after Civil War, 27-28; growth of: 25, 38, 224-225, 242-243; compared with national banks, 219-220, 223-224; effects, 225-226; reasons for, 36-38, 233, 235, 237, 241; incorporation laws: 41; difficulties after the Civil War, 34-35; liberali­ zation of, 233-234, 243; loss of note issue power by, 27-28, 29, 35, 74-75, 90, 226, 234; mortgage lending by, 3637; operations compared with national banks, 36-38, 39; reserve requirements, 37-38 Stevenson, Russell, 67-69 Stigler, George, 202 Sumner, William G., 46 surplus funds, 102, 126, 177, 179, 186 Sylla, Richard, 21, 29, 31, 38, 42, 234-235, 241, 245; on effi­ ciency of the national banking system in mobilizing funds, 123-124, 137; on legal bar­ riers to entry in the national banking system, 28, 94-95, 200-201, 208, 218 Taft, Alphonso, 75 telegraph, 124-125, 188, 212 Texas, 220; private banks in, 43; prohibition of state banks, 43, 233 transactions and information costs, as barriers to capital mobility, 21, 202, 203n traveling salesmen, 56, 188, 213 trust companies, 36, 39-40 INDEX unincorporated banks, see private banks U.S Comptroller of the Currency, 60, 61, 75, 80, 82, 83, 84, 93, 112, 113n, 170-171, 263 U.S Comptroller of the Currency Annual Reports, 32-34, 79, 85, 90, 107-109, 151, 229, 246247, 249, 251, 261 U.S National Monetary Com­ mission, 7-8, 11, 12, 27-28, 137, 219, 224 U.S Supreme Court, 83 U.S Treasury, 78, 248 usury laws, 45, 79-88, 236; en­ forcement of, 81-83; evasion of, 83-87; maximum interest rate by state, 80-81, 85; vio­ lations of, 85-87, 88 Wade, Festus J., 150, 190 Westerfield, Ray, 73, 83-84, 123 White, Horace, 48-49 Williamson, Jeffrey, 12n, 147n, 148n, 202n, 207, 220n Wisconsin, 202n; private banks in, 226; spread of deposit banking in, 30-31; state banks in, 30-31 Witham, W S., 121 Library of Congress Cataloging in Publication Data James, John A 1946The capital market Finance—United States—History institutions—United States—History investment—United States—History United States—History I Title HG181.J345 332.4 77-85540 ISBN - - - Financial Saving and Capital— .. .Money and Capital Markets Money and Capital Markets in Postbellum America JOHN A JAMES Princeton University Press PRINCETON, NEW JERSEY Copyright © 1978 by Princeton University... West in the postbellum period was an important factor in explaining the upward shift in the savings rate in the postbellum period Robert E Gallman and Lance E Davis, "The Share of Savings and Investment... pattern of long swings shows a peak in 1892, a trough in 1896, and a peak in 1907 In the real and nominal series we see a high point in the early 1890s However, the trough in the nominal series comes