Free Banking And Bank Entry In Nineteenth-century New York

摘要

Entry plays a crucial role in achieving competitive efficiencies. When entry is free, prices tend towards marginal costs and profits tend towards the competitive norm, market shares are less stable and the threat of entry diminishes the effectiveness of overt or tacit collusion. Nearly every modern introductory economics textbook includes free entry as a defining characteristic of competitive markets. It is not surprising then that political and financial historians believe that free banking represented a significant break from the system of legislative chartering that preceded it. Free banking created a system closer to the textbook norm, which resulted in more competitive markets. Free entry is not without its costs, however. The adoption of free banking led to periods of increased bank failure rates in New York, Indiana and Minnesota and note holders sometimes suffered heavy losses, which may have mitigated the pace at which the nineteenth-century US economy monetised. Bray Hammond was not extolling the virtues of free banking when he noted that mid-nineteenth-century New Yorkers found it 'somewhat harder to become a banker than a brick-layer, but not much'.