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Bank Chartering and Political Corruption in Antebellum New York. Free Banking as Reform

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  • Economics

Abstract

Bank Chartering and Political Corruption in Antebellum New York. Free Banking as Reform This PDF is a selection from a published volume from the National Bureau of Economic Research Volume Title: Corruption and Reform: Lessons from America's Economic History Volume Author/Editor: Edward L. Glaeser and Claudia Goldin, editors Volume Publisher: University of Chicago Press Volume ISBN: 0-226-29957-0 Volume URL: http://www.nber.org/books/glae06-1 Conference Date: July 30-31, 2004 Publication Date: March 2006 Title: Bank Chartering and Political Corruption in Antebellum New York. Free Banking as Reform Author: Howard Bodenhorn URL: http://www.nber.org/chapters/c9985 231 7.1 Introduction Government policies toward business can be categorized into three types: minimal, maximal, and decentralized (Frye and Shleifer 1997). A minimal policy regime, often referred to as the “invisible hand,” leaves most economic decisions to private agents, reserving the provision of only a few essential public goods to the state. In maximal, or “iron hand” regimes, the state is actively involved in economic activity, typically through the pursuit of industrial policies that direct resources toward sec- tors deemed important by politicians. Bureaucrats in maximal regimes may be corrupt, but corruption—defined here as the sale of public assets for private gain—is limited and does not impede economic growth (Mur- phy, Shleifer, and Vishny 1993; Mauro 1995). In the decentralized, or “grabbing hand,” regime, the state is made up of many independent bu- reaucracies, each competing for rents, that together severely undermine economic activity. In the half century between President Washington’s inauguration and that of Van Buren, many states experienced abrupt transitions from fairly “iron handed” regimes to more “invisible” ones. Nowhere was this transi- tion more apparent than in bank chartering policy, and nowhere was the 7 Bank Chartering and Political Corruption in Antebellum New York Fre

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