| Book Review | The Journal of American History, 91.3

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| Book Review | The Journal of American History, 91.3 | The History Cooperative

Book Review

The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780–1850. By Robert E. Wright. (Cambridge: Cambridge University Press, 2002. xiv, 240 pp. $55.00, ISBN 0-521-81237-2.)
In this bold and provocative book, Robert E. Wright argues that a financial revolution was fundamentally responsible for early American economic development. Other changes in the economy—whether increasing productivity in manufacturing or improvements in transportation and communications—were either dependent on the financial system or secondary to it.	1
Theoretically, Wright's case hinges on the concept of information asymmetry. Information asymmetry is when one party knows more about a given transaction than another party. Widespread information asymmetry, Wright explains, creates important inefficiencies. If lenders and investors have trouble collecting information about governments, firms, or individuals, capital will be in short supply. In the colonial period, the difficulty of cheaply collecting relevant information necessitated highly localized and fragmented capital markets based on kinship networks or geographic proximity. Wright argues that beginning in the 1790s banks, brokers, and other financial intermediaries served the vital function of reducing information asymmetry. Banks, for example, carefully screened a wide range of potential borrowers and more rationally evaluated credit risks in ways that would have been too expensive for individual lenders.	. . .

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