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Private Seeking of Private Monopoly in Early American Banking

  • Howard BodenhornEmail author
Chapter
Part of the Studies in Public Choice book series (SIPC, volume 39)

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 1–1.5% 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.

Notes

Acknowledgements

I thank Bill Dougan, Rob Fleck, Mike Makowsky, Sergey Mityakov and the other participants in the Public Economics workshop at Clemson University for comments on an earlier draft. I am deeply indebted to the late Bob Tollison for his generosity, collegiality, and for animating a culture of intellectual curiosity at Clemson. I thank Pam Bodenhorn for valuable research assistance.

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Clemson UniversityClemsonUSA

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