Enterprising America: Business, Banks, and Credit Markets in Historical Perspective
December 14, 2013
Naomi Lamoreaux, Yale University and NBER
The legal rules governing businesses' organizational choices vary across nations along two main dimensions: the number of different forms that businesses can adopt, and the extent to which businesses have the contractual freedom to modify the available forms to suit their needs. During the last quarter of the twentieth century, legal rules in the United States have converged on those of other advanced industrial nations along both of these dimensions. Over the preceding century and a half, however, businesses in the United States had a narrower range of forms from which to choose than their counterparts in these other countries and also much less ability to modify the basic forms contractually. Lamoreaux argues that the sources of this "American exceptionalism" reside in the interplay between the early achievement of universal (white) manhood suffrage (which fueled "Jacksonian" attacks on corporate privilege) and elites' efforts to safeguard property rights.
Eric Hilt, Wellesley College and NBER
Using newly collected data, Hilt analyzes the use of the corporate form among nineteenth-century manufacturing firms in Massachusetts. Beginning in the 1870s, the state required all manufacturing corporations to submit to the state certificates of condition which listed their managers and owners. These records are used to compute measures of managerial ownership and ownership concentration, and are matched to the state manufacturing census of 1875 to calculate incorporation rates across industries. Although historians have emphasized the pioneering role of the great textile corporations in Massachusetts, the data indicate the corporate form was adopted among firms in a wide range of industries and by firms of varying sizes. Most manufacturing corporations were quite closely held, with ownership concentrated among management, although managerial ownership declined with firm size. Among the small number of very large corporations whose shares were traded on the Boston Stock Exchange, ownership was quite diffuse, with extremely low levels of managerial ownership.
In a famous paper, Kenneth Sokoloff argued that the labor input of entrepreneurs was generally not included in the count of workers in manufacturing establishments in the early censuses of manufacturing. According to Sokoloff, this biased downward econometric estimates of economies of scale if left uncorrected. As a fix, Sokoloff proposed a particular "rule of thumb" imputation for the entrepreneurial labor input. Using establishment-level manufacturing data from the 185080 censuses and textual evidence, Margo argues that contrary to Sokoloff's claim the census did generally include the labor of entrepreneurs if it was economically relevant to do so and therefore Sokoloff's imputation is not warranted for these census years. However, Margo also finds that the census did understate the labor input in small relative to large establishments as Sokoloff asserted, but for a very different reason. The census purported to collect data on the average labor input but in fact the data most likely measure the typical number of workers present. For very small establishments the reported figures on the typical number of workers are biased downward relative to a true average, but this is not the case for large establishments. As a result, the early censuses of manufacturing did overstate labor productivity in small relative to large establishments but the size of the bias is smaller than alleged by Sokoloff.
Howard Bodenhorn, Clemson University and NBER, and Eugene White, Rutgers University and NBER
Contemporary bank governance is criticized for manager-dominated (insider) boards of directors, but from the beginning of the nineteenth century bank presidents appear also to have operated as chairmen of the boards of directors. However, the managers were constrained by a variety of rules that tended to align the interests of management, shareholders, and other stakeholders until the mid-twentieth century. Bodenhorn and White trace this development through New York banking law and new data on banks chartered by the State of New York.
Jeremy Atack and Peter Rousseau, Vanderbilt University and NBER, and Matt Jaremski, Colgate University and NBER
Before the Civil War U.S. banks were, for the most part, loosely regulated at the state level and the resulting lack of transparency and oversight often led to bankers taking actions that were not in the best interests of their liability holders. Though extreme cases of such behavior (for example, "wildcat banking") are rare, the remoteness of the American frontier likely allowed some bankers to avoid direct and timely monitoring. Did the coming of the railroads and their access to communications networks improve bank outcomes? Using bank-level data and a geographic information system (GIS) database on the transportation network measured at five-year intervals, Atack, Jaremski, and Rousseau show that banks nearer to rails had lower failure rates and stronger balance sheet characteristics, at least when using measures believed to reflect sound banking practices in more modern datasets.
Alan Olmstead, University of California-Davis, and Paul Rhode, University of Michigan and NBER
Using census data, plantation records, and narrative evidence, Olmstead and Rhode investigate whether popular expressions such as "factories in the field" appropriately characterize antebellum cotton plantations. They argue that the analogies between plantations and factories, assembly lines, and labor systems employing "modern" management techniques are misleading and obscure far more than they reveal. Furthermore, the conclusions about the sources of supposed plantation efficiency based on these analogies are unsound.
Mary Eschelbach Hansen, American University
From the end of the Civil War through the Great Depression there was a convergence of interest rates and rates of return between banks across regions of the United States. Rates of return between sectors of the economy, however, did not converge. The reasons why rates of return did converge have not been adequately explored, primarily because of a lack of micro-level data on the sources of credit that have the potential to move capital between regions and between sectors. Hansen exploits newly collected, highly detailed data on sources of credit drawn from documents filed by a sample of petitioners for bankruptcy in the 1930s. The bankruptcy documents reveal that manufacturers had both fewer long-distance creditors and fewer financial intermediaries as creditors than either merchants or farmers. While financial intermediaries appear to have actively moved capital from low to high rates of return within the agricultural and distribution sectors, they do not appear to have been active - even as late as the 1930s - in moving capital between sectors.