Politics and Banking
I have only recently stumbled on an outstanding work of scholarship published in 2001 that commands the attention of all those interested in either American financial history or money and banking. Entitled POLITICS AND BANKING: IDEAS, PUBLIC POLICY, AND THE CREATION OF FINANCIAL INSTITUTIONS (Baltimore: Johns Hopkins University Press, 2001), the book is written by Susan Hoffmann, a former city planner who got a Ph.D. in political science at the University of Wisconsin-Madison and who is hostile to deregulation. Yet immersing herself in primary sources, she has written an ideological history of American banking regulation that is one of the most insightful treatments of the subject I have encountered.
For instance, despite (or because of?) scant familiarity with the recent secondary historical literature, Hoffmann gets the Jacksonians with their commitment to hard money exactly right, putting her book alongside Major L. Wilson's classic THE PRESIDENCY OF MARTIN VAN BUREN (Lawrence: University Press of Kansas, 1984) as among the few that refrains from distorting the Jacksonians by trying to shoe-horn them into modern ideological categories. She is similarly sensitive to the political differences between the structures of the First and Second Banks of the United States. Having had occasion to read the charters myself, I also had noted that the First Bank was more private and less political, having no government-appointed directors, whereas the president appointed five of the twenty-five directors of the Second Bank. Although some older secondary accounts were aware of this difference, more recent accounts seem generally to overlook it. Indeed, one Federal Reserve historical pamphlet falls into the careless error of treating the two charters as absolutely identical except for the size of the institutions.
Hoffmann also introduces her book with a nice survey of what she considers to be the five "public philosophies," all variants of liberalism, that have battled over banking regulation in American history: classic liberalism, neoliberalism, populism, progressivism, and utilitarianism. She suggests a provocative distinction between the classic liberalism of Jefferson and Adam Smith versus the neoliberalism of modern defenders of the free market. Classic liberals viewed the corporation as an unnatural creature of the State that violated the private/public boundary, but neoliberals have embraced the corporation as "arising naturally in the private sphere." Indeed, she contends that a primary cause of divergence among the five versions of American liberalism is their reaction to the rise of the corporation. She carries the story forward through modern financial deregulation, and libertarians will not find all her arguments congenial. But I cannot recommend this book too highly.
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Sudha Shenoy - 3/23/2007
Whatever Americans may have thought, common lawyers certainly know that limited liability was the result of legislation, in the later 19th century. And Hayek was well aware that the 'corporation' was the creation of statute. See his 'The corporation in a democratic society', Studies in PPE.