Private Seeking of Private Monopoly in Early American Banking

Forthcoming, Public Choice Analyses of American Economic History, Vol. 3. Edited by Joshua Hall and Marcus Witcher. New York: Springer (2019).

55 Pages Posted: 3 Jan 2019

See all articles by Howard Bodenhorn

Howard Bodenhorn

National Bureau of Economic Research (NBER); John E. Walker Department of Economics, Clemson University

Date Written: December 18, 2018

Abstract

In early nineteenth-century America, banks were chartered through legislative acts of incorporation. Most bank charters established local monopolies so that charters created economic rents. The public choice approach holds that governmental creation of artificial rents invites rent seeking and welfare losses, and more so the larger the potential rents. This chapter provides estimates of rents and potential welfare losses for Pennsylvania. The results suggest that local monopoly rents amounted to approximately 1% to 1.5% of gross domestic product. Pennsylvania adopted a number of policies, including price ceilings and tax policies, which reduced welfare losses and redistributed some of the rents. The chapter concludes with reflections on the evolving political economy of chartering policy, and why Pennsylvania was slow to reform its practices.

Keywords: rent seeking, banking, monopoly

JEL Classification: H11, N21

Suggested Citation

Bodenhorn, Howard, Private Seeking of Private Monopoly in Early American Banking (December 18, 2018). Forthcoming, Public Choice Analyses of American Economic History, Vol. 3. Edited by Joshua Hall and Marcus Witcher. New York: Springer (2019). , Available at SSRN: https://ssrn.com/abstract=3302985

Howard Bodenhorn (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John E. Walker Department of Economics, Clemson University ( email )

Clemson, SC 29631
United States

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