Book Review

Howard Bodenhorn tackles a debate that has important implications for our own economy. Many scholars have argued that banks and other financial institutions merely follow the growth of the "real" economy, contributing little to economic development. Using the antebellum United States as a test case, Bodenhorn marshals an impressive array of evidence to argue the opposite. Banks, brokers, and bills of exchange provided credit to the entrepreneurs and enterprises that transformed the American economy. His new empirical evidence, as well as his remarkably clear explanations of theoretical and historiographical issues, makes A History of Banking in Antebellum America a particularly important and original book.

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To make his case, Bodenhorn provides both macroeconomic evidence and a series of individual case studies. States with more bank notes and bank credit per capita, he shows, experienced higher rates of per capita income growth. Bodenhorn contends that banks aided development because they provided capital to a variety of enterprises, a claim supported with detailed analysis of three antebellum banks. Those banks provided credit not only to merchants but to farmers and manufacturers as well. Banks were particularly effective in providing firms with working capital, which was important in an era when fixed capital costs were often quite modest.

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