Working Paper: NBER ID: w10479
Authors: Howard Bodenhorn
Abstract: One traditional and oft-repeated explanation of the political impetus behind free banking connects the rise of Jacksonian populism and a rejection of the privileges associated with corporate chartering. A second views free banking as an ill-informed inflationist, pro business response to the financial panic of 1837. This chapter argues that both explanations are lacking. Free banking was the progeny of the corruption associated with bank chartering and reflected social, political and economic backlashes against corruption dating to the late-1810s. Three strands of political thought -- Antimasonic egalitarianism, Jacksonian pragmatism, and pro-business American Whiggism -- converged in the 1830s and led to economic reform. Equality of treatment was the political watchword of the 1830s and free banking was but one manifestation of this broader impulse.
Keywords: No keywords provided
JEL Codes: N11; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corruption in bank chartering practices (G28) | Demand for free banking reforms (E69) |
| Political corruption (D73) | Economic policy (E64) |
| Corrupt banking policy (G28) | Public discontent (D72) |
| Public discontent (D72) | Legislative changes (K29) |
| Corruption in bank chartering practices (G28) | Shift to market-oriented banking approach (G21) |
| Political factions leveraging banks (G21) | Economic reform (E69) |