Letter from Lhasa, number 301.
National
Banking’s Role in U.S. Industrialization, 1850-1900
by Roberto Abraham Scaruffi
Jaremski, M. S., National
Banking’s Role in U.S. Industrialization, 1850-1900, NBER Working Paper No.
18789, February 2013.
(Jaremski 2013).
Matthew S. Jaremski
Development, as well as underdevelopment, is the outcome of
various ingredients conveniently combined.
This research underlines the role of the banking system in
the U.S. industrialization. After the Civil War, fruitful legislation
stabilized the existing banking system and increased the number of banks.
Their concentration in the industrial belt, the Rust Belt, will
make the USA, by the 1900, world’s leading producer of industrial commodities. Econometric
analysis shows a strong correlation between the diffusion of banks and the
adoption of mechanized factories.
Of course, investments require financial concentration,
consequently solid banks. What may even be tautological. Where the population
is more concentrated, there are more possibilities for banks. There are also
near markets.
Consequently, mechanized factories can be more profitably
created, since the presence of a solid financial system and of business opportunities.
A State/Government guaranteeing markets and regulating the financial system,
eventually with additional propulsive functions, is obviously essential.
“The concentration of banks in the Midwest and Northeast
helped fuel the nation’s industrialization but it might have been at the
expense of growth in frontier states. The high capital requirements slowed
financial development in the West and South, and it was not until the 1890s or
later that the regions gained a larger number of banks. This financial
underdevelopment of other regions thus might be one reason why the
Manufacturing Belt was so persistent.” (Jaremski 2013, p. 19).
Since the financial system, as well as other aspects, was
centrally regulated, there may be other reasons why populous areas outside the Midwest
and Northeast developed later both financially and industrially. Generally,
after a bloody civil war, the first concern is to avoid whatever possible
hegemony and retaliation of the losing side.
Jaremski, M. S., National
Banking’s Role in U.S. Industrialization, 1850-1900, NBER Working Paper No.
18789, February 2013.
