1. Ta-Chen Wang California State University, Sacramento
Financial Market and Industry Structure: A Comparison of Banking and Textile Industry between Boston and Philadelphia in Early Nineteenth Century
Ta-Chen Wang
California State University, Sacramento
2008 Gavin Wright Fest

2. Motivation Financial system and economic performance
Focus on growth rate
19th century American development
Divergent paths to industrialization
New England
Philadelphia
Question: What caused the different route to industrialization
2008 Gavin Wright Fest

3. Industrial Development
New England and Philadelphia
Difference in
Size
Organization forms
Labor quality/sources
Product
Financing sources
Capital accumulation process
2008 Gavin Wright Fest

4. What caused the difference?
Artisanal tradition
Culture
The role of merchants
Other factors

5. Banking Parallel Divergence in banking Was there a relationship?
State charter policies
Bank capital and assets
Banking practices
Was there a relationship?
2008 Gavin Wright Fest

6. Banking Development New England Numerous smaller banks Ease of entry
Relatively consistent growth in number of banks
Practice
Lamoreaux, insider lending
Engines of industry
2008 Gavin Wright Fest

7. Entry Policy New England, de facto free entry Pennsylvania
Omnibus Act of 1814, large number of banks
Lagged behind, especially after 1819
Heavily hit again after 1837
2008 Gavin Wright Fest

8. Number of banks
Source: Weber (2008)
2008 Gavin Wright Fest

9. Total amount of loan
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10. Sizes of banks
2008 Gavin Wright Fest

11. Bank lending per capita
1820
1830
1840
1850
1860
Bank Capital
Massachusetts
20.04
31.08
44.28
35.50
50.19
Pennsylvania
12.29
10.09
14.50
8.22
Suffolk
167.27
204.30
197.86
150.31
203.57
Philadelphia
59.74
52.28
63.32
26.56
18.19
Bank Loans
25.70
44.95
61.16
60.89
87.29
13.87
13.69
16.29
15.19
16.80
211.86
299.80
277.01
255.55
350.80
66.69
69.63
67.53
53.27
40.50
Source: Weber (2008)
2008 Gavin Wright Fest

12. Lending Practices New England
Insider lending
Middle-Atlantic States: broader clientele?
Duration of loans
Are Mid-Atlantic banks more real-bills banks?
Less frequent renewals
2008 Gavin Wright Fest

13. Average loan to capital ratio
2008 Gavin Wright Fest

14. Next Steps Banking practices Changes in the industrial landscape
Evidence from balance sheet data
Changes in the industrial landscape
Esp. Philadelphia
Explore the common factors that affects both
2008 Gavin Wright Fest

15. Challenges Merchant participated in banks but not textile
Why not if profitable?
Exogenous shocks and bank failure?
Crisis of 1819
Charter policy?
Endogeniety of banks
Demand side?
Competition of textile industry
2008 Gavin Wright Fest

16. Implications Role of banks in economic development In what sense?
Banks caused development?
In what sense?
Philadelphia could overcome the lack of bank credit
2008 Gavin Wright Fest