Working Papers

Andrew Jackson’s Bank War and the Panic of 1837
(With Katharine Liang)

Abstract: The role of Andrew Jackson’s Bank War in the Panic of 1837 has been the source of politically charged debate over most of the 180 years since the crisis occurred. We study the Panic of 1837 using comprehensive bank-level data, focusing on the role of the pet banks—the network of banks chosen by Jackson’s administration to replace the Second Bank of the United States as fiscal agents of the federal government. These banks were closely tied to the Democratic Party, were lent tens of millions of Dollars in public money, and were granted a privileged position within the banking system. This produced a moral hazard problem, and the pet bank managers responded by taking on excessive levels of risk. Although many different factors contributed to the financial crisis of the late 1830s, an important component of the Panic of 1837 was the collapse of the pet bank system. Panel data regressions reveal that the pet banks saw their net liabilities fall and their banknote discounts rise much more than other commercial banks in the years following the Panic.  Counterfactual estimates of the national money supply indicate that the differentially severe contraction among the pet banks accounted for around 30 percent of the overall contraction in bank liabilities in 1837.   

Revisiting Time on the Cross After 45 Years: The Slavery Debates and the New Economic History

Abstract: In recent years, a wave of celebrated books by historians has explored the role of slavery in the development of the American capitalism.  This nascent body of work is quite distinct from the extensive literature by economic historians on slavery. Yet at the same time, some of the new books, particularly Baptist (2014) and Beckert (2015), make arguments that closely resemble those of the most prominent work by economists on slavery, Robert Fogel and Stanley Engerman’s 1974 book Time on the Cross:  The Economics of American Negro Slavery, without any reference to the extensive debates regarding that book or the vast literature that they helped produce. The lack of engagement with that older literature is striking.  Some of the criticisms of Fogel and Engerman in fact remain equally relevant to the works of Bapist and Beckert.  That those criticisms were in some cases produced by historians, or economists and historians in conversation with one another, suggests that something important has been lost. This paper revisits the debates surrounding Time on the Cross, not just to shed light on the emerging literature on slavery and the development of capitalism, but also to make the insights produced by those debates more accessible to non-specialists.

Political Discretion and Antitrust Policy: Evidence from the Assassination of President McKinley
(With Richard Baker and Carola Frydman)

Abstract:  We study the importance of discretion in antitrust enforcement by analyzing the response of asset prices to the sudden accession of Theodore Roosevelt to the presidency. During McKinley’s term in office, the largest wave of merger activity in American history occurred, and his administration did not attempt to use antitrust laws to restrain any of those mergers. His vice president, Theodore Roosevelt, was known to be a Progressive reformer and much more interested in controlling anticompetitive behavior. We find that firms with greater vulnerability to antitrust enforcement saw greater declines in their abnormal returns following McKinley’s assassination. The transition from McKinley to Roosevelt caused one of the most significant changes in antitrust enforcement of the Gilded Age—not from new legislation, but from a change in the approach taken to the enforcement of existing law. Our results highlight the importance of enforcement efforts in antitrust.

Financial Asset Ownership and Political Partisanship: Liberty Bonds and Republican Electoral Success in the 1920s 
(With Wendy Rahn)

Abstract:  We analyze the effects of ownership of liberty bonds, which were marketed to households during World War I, on election outcomes in the 1920s. In order to address the endogeneity of liberty bond subscriptions, we utilize the local severity of the fall 1918 influenza epidemic, which disrupted the largest liberty bond campaign, as an instrument. We find that counties with higher liberty bond ownership rates turned against the Democratic Party in the presidential elections of 1920 and 1924. This was a reaction to the depreciation of the bonds prior to the 1920 election (when the Democrats held the presidency), and the appreciation of the bonds in the early 1920s (under a Republican president), as the Fed raised and then subsequently lowered interest rates. Our results suggest the liberty bond campaigns had unintended political consequences and illustrate the potential for financial asset ownership to increase the sensitivity of ordinary households to economic policy decisions.

Banks, Insider Connections, and Industrialization in New England: Evidence from the Panic of 1873

Abstract: This paper studies the role of bank affiliations in mitigating frictions related to asymmetric information.  The analysis focuses on Massachusetts, and tests whether firms with bank directors on their boards fared better following the Panic of 1873, which did not directly impact the state’s commercial banks, but produced a prolonged economic slump. Around 59 percent of all non-financial corporations in the state had a bank director on their board in 1872. These firms survived the recession of the 1870s at higher rates, grew faster and experienced less of a deterioration in their credit ratings. Consistent with banker-directors helping to resolve problems related to asymmetric information, these effects were strongest among young firms.  Counterfactual estimates suggest that in the absence of bank affiliations, the total assets of the non-financial corporations in Massachusetts that existed in 1872 would have been 35 percent lower in the wake of the recession.  These results suggest an important role for the banking sector in New England’s industrialization, namely that affiliations with commercial banks helped nonfinancial corporations maintain access to external finance during economic downturns.

The 'Berle and Means Corporation' in Historical Perspective 

Abstract: This paper presents new evidence on the evolution of the business corporation in America, and on the emergence of what is commonly termed the ‘Berle and Means corporation.’ Drawing on a wide range of sources, I investigate three major historical claims of The Modern Corporation and Private Property:  that large corporations had displaced small ones by the early twentieth century, that the quasi-public corporations of the 1930s were much larger than the public corporations of the nineteenth century, and that ownership was separated from control to a much greater extent in the 1930s compared to the nineteenth century.  The conclusions of this analysis revise the historical claims of The Modern Corporation in important ways.  First, large corporations did not did not displace small corporations, as claimed by Berle and Means.  The early twentieth century in fact witnessed a flourishing of the small business corporation, as reflected in rapid growth in the total number of corporations. Second, consistent with the argument of the book, I find that the quasi-public corporations of the 1930s were indeed significantly larger than their predecessors from either the nineteenth century or the earlier decades of the twentieth century, both in absolute terms, and relative to average incomes.  Finally, and most importantly, comparisons between the ownership structures of the 200 corporations chronicled in their book with those of public companies from earlier eras reveals that the separation of ownership from control was not a modern phenomenon.  In fact ownership was separated from control to a lesser extent among the 1930s corporations of Berle and Means than among the public companies of the 1870s, and even the 1820s. 

Business Organization in American History
(Handbook chapter)

Abstract: This chapter presents the history of the organization of American enterprise, up to the twentieth century and the emergence of large, vertically integrated conglomerates.  It begins with a synopsis of the early origins of large-scale firms and the use of the corporate form.  It then presents a discussion of the alternative organizational forms that were available to entrepreneurs in the American states, and the significance of those legal innovations.  Finally, it presents a discussion of the rise of what became known as “big business” in the late nineteenth century, and the legal and institutional context within which those enterprises began to emerge.   The discussion of each is focused on the changing nature of the problems faced by entrepreneurs, and the changing legal and institutional environment in which they operated.  Among the topics discussed are:  the evolution of corporation law; the choice of organizational form; recurring problems in corporate governance; the role of financiers in corporate governance; and the emergence of pyramidal holding company structures.