¹ I thank Mike Bordo, Hugh Rockoff, David Weiman, Eugene White and two anonymous referees for many helpful comments and suggestions. Pam Bodenhorn provided invaluable research assistance. This article was thoroughly revised while visiting Yale University in 2006–7 and I would like to thank Tim Guinnane and the economics department for their generosity and the many courtesies extended during the year. All remaining errors in fact and interpretation are, of course, my own.

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⁸ It should be kept in mind throughout that a direct entry restriction represented just one of many margins across which states could influence entry. Usury laws, reserve and capital requirements and a host of other regulations could be tightened or relaxed to induce or deter entry. Although it was not the only regulatory innovation introduced in the period, free banking was the most significant change. Maximum legal interest rates, for example, changed little in the late antebellum era, though usury penalties generally declined. New York, on the other hand, increased the usury ceiling from 6 to 7 per cent in 1837, but increased penalties for violations. For macroeconomic analyses of nineteenth-century usury laws see H. Rockoff, ‘Prodigals and projectors: an economic history of usury laws in the United States from colonial times to 1900’, NBER working paper 9742 (2003) and E. Benmelech and T. J. Moskowitz, ‘The political economy of financial regulation: evidence from US state usury laws in the 19th century’, NBER working paper 12851 (2007). For a microeconomic analysis of New York's usury law see Bodenhorn, H., ‘Usury ceilings and bank lending behavior: evidence from nineteenth-century New York’, Explorations in Economic History, 42 (2007), pp. 179–202CrossRefGoogle Scholar.

⁹ Economopoulos and O'Neill, ‘Bank entry’, recognise this as well.

¹⁰ Rockoff, ‘Reexamination’, p. 150.

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¹² Although Michigan adopted free banking a year before New York, Michigan is better viewed as follower than leader. Its 1837 law was modelled after a bill previously debated but rejected by the New York legislature.

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¹⁸ Handlin, O. and Handlin, M. F., Commonwealth: a Study of the Role of Government in the American Economy: Massachusetts, 1774–1861 (Cambridge, 1947), p. 113Google Scholar argued that Massachusetts had a long-standing commitment to freedom of corporate association and Wallis, Sylla and Legler, ‘Interaction of taxation and regulation’, suggest that Massachusetts's liberal incorporation policy followed from its tax on bank capital. More banks and more bank capital implied more tax revenues.

¹⁹ Goldsmith, R. W., Financial Structure and Development (New Haven, CT, 1969)Google Scholar; Gurley, J. G. and Shaw, E. S., ‘Financial aspects of economic development’, American Economic Review, 45 (September 1955), pp. 515–38Google Scholar.

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²¹ The literature investigating the finance–growth nexus is voluminous, and generally finds that finance leads economic growth. See Levine, R., ‘Financial development and economic growth: views and agenda’, Journal of Economic Literature, 35 (1997), pp. 688–726Google Scholar, for a concise discussion of the issues and a review of the early literature. For discussions of the finance–growth nexus in an historical context see Bodenhorn, History of Banking, ch. 2; and Rousseau, P. L. and Sylla, R., ‘Emerging financial markets and early US growth’, Explorations in Economic History, 42 (2005), pp. 1–26CrossRefGoogle Scholar.

²² New York State Legislature, Assembly, ‘Annual report of the bank commissioners’, Assembly Document No. 74 (January 1835).

²³ Handlin and Handlin, Commonwealth.

²⁴ See, for example, Report and Observations, on the Banks, and Other Incorporated Institutions, in the State of New-York (New York, 1828), p. 13.

²⁵ Ibid., p. 20.

²⁶ Quoted in Gouge, W. M., A Short History of Paper Money and Banking in the United States (Philadelphia, 1833), p. 79Google Scholar.

²⁷ This Bank of America has no relationship with the modern Bank of America. The modern Bank of America is the progeny of Amadeo Giannini's Bank of Italy, which originated in San Francisco, California in 1904.

²⁸ Cole, D. B., Martin Van Buren and the American Political System (Princeton, 1984), pp. 27–8Google Scholar.

²⁹ See Bodenhorn, ‘Bank chartering and political corruption’, for a more complete description of Van Buren's harnessing of the banking sector to his faction's advantage.

³⁰ See Chaddock, R. E., The Safety Fund System in New York, 1829–1866 (Washington, DC, 1910)Google Scholar; Calomiris, C. W., ‘Deposit insurance: lessons from the record’, Federal Reserve Bank of Chicago, Economic Perspectives, 13 (May/June 1989), pp. 10–30Google Scholar; and Bodenhorn, State Banking in Early America: a New Economic History (New York and Oxford, 2003), ch. 7.

³¹ Report and Observations, p. 9.

³² New York General Assembly, ‘Annual report of the bank commissioners’, Assembly Document No. 78 (January 1837), pp. 6–7.

³³ New York Senate, ‘Report of the select committee on the bill to repeal the laws restraining private banking’, Senate Document No. 42 (February 1838).

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³⁷ See, for example, Barnard, Speeches.

³⁸ Ibid., pp. 197–8.

³⁹ Carey, H. C., Answers to the Questions: What Constitutes Currency?: What are the Causes of Unsteadiness of Currency?: and What is the Remedy? (Philadelphia, 1840), p. 62Google Scholar.

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⁴³ Albany Evening Journal (3 January 1837). That William L. Marcy, Democratic governor and one-time Bucktail power broker and originator of the phrase, ‘to the victors go the spoils’, would utter such a sentiment reveals the extent to which Jacksonianism, generally, and the free banking impulse, specifically, had changed 1830s New York political rhetoric.

⁴⁴ New York Senate, ‘Report of the select committee consisting of one senator from each senate district, on sundry petitions for the passage of a law creating a general system of private banking’, Senate Document No. 55 (March 1837), p. 2.

⁴⁵ Gunn, L. R., The Decline of Authority: Public Economic Policy and Political Development in New York State, 1800–1860 (Ithaca, NY, 1988), p. 229Google Scholar.

⁴⁶ See, for example, Economopoulos and O'Neill, ‘Bank entry’.

⁴⁷ Sedgwick, T., What is a Monopoly? Or Some Considerations Upon the Subject of Corporations and Currency by a Citizen of New York (New York, 1835), pp. 12–13Google Scholar.

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⁵¹ Albany Evening Journal, 8 Feb. 1837.

⁵² Pennsylvania House of Representatives, ‘Report of the committee on banks’, House Report No. 126 (1832/3).

⁵³ Massachusetts Senate, ‘Report of the joint standing committee on banks and banking’, Senate Report No. 85 (March 1853).

⁵⁴ Ibid., p. 11.

⁵⁵ A more complete empirical specification would include supply-side factors, such as local returns to capital and observable costs important to entrepreneurs. I have not been able to identify any such variables at a sufficiently low level of aggregation to include them here. Parameter estimates will suffer from omitted variable bias, relative to a complete specification. They, nevertheless, remain useful in that they account for most of the variables of concern to legislators in granting charters.

⁵⁶ The entry data are gathered from a number of sources, including Fentermaker, J. V., The Development of American Commercial Banking: 1782–1837 (Kent, OH, 1965)Google Scholar and individual chartering Acts. See notes to Figure 1 for details.

⁵⁷ I use the change in per capita bank capital rather than the percentage change because many counties in which a bank is opened begin with zero per capita bank capital. The resulting percentage change is infinitely large, which raises several estimation issues. In using the absolute of the change, which is sometimes negative, rather than the percentage change, OLS remains a viable technique. Moreover, contemporaries were seemingly more concerned with the absolute scale of financial operations rather than its growth rate.

⁵⁸ Sokoloff, K., ‘Inventive activity in early industrial America: evidence from the patent records, 1790–1846’, Journal of Economic History, 48 (1988), pp. 813–50CrossRefGoogle Scholar. I include canals rather than navigable bodies of water because canals purposely altered the commercial landscape after their completion in the 1820s.

⁵⁹ The coefficients reported from a Poisson or negative binomial regression are interpreted as the difference in the natural log of the expected counts (dependent variable) due to a one unit change in the independent variable of interest, holding all others constant. Formally, this may written as β = ln(μ|x + 1) − ln(μ|x), where μ is the expected count and x is the relevant independent variable. Recall that the difference of two logs can be rewritten as the logarithm of the ratio, or β = ln[ (μ|x + 1) / (μ|x)]. The reported incidence rate ratio is then exp(β) = (μ|x + 1) / (μ|x). If exp(β) = 2, for example, the incidence rate ratio can be interpreted as a one unit increase in the independent variable increases the incidence rate of the dependent variable by a factor of 2.

⁶⁰ See Hammond, Banks and Politics; Redlich, Molding of American Banking; Bodenhorn, State Banking; Sylla, Legler and Wallis, ‘Banks and state public finance’; and Wallis, Sylla and Legler, ‘Interaction of taxation and regulation’.

⁶¹ New York, ‘Report of the New York State bank commissioners for 1840’, reprinted in Raguet, Condy, A Treatise on Currency and Banking, 2nd edition (Philadelphia, 1840), pp. 312–13Google Scholar.

⁶² Bodenhorn and Haupert, ‘Conundrum’ and ‘Note issue paradox’.

⁶³ Cary, Practical View, p. 8.

⁶⁴ Johnson, Treatise on Banking.

⁶⁵ Johnson ignores capital gains, but assumed that the hypothetical bank paid out all its current net profits as current dividends.

⁶⁶ Bodenhorn, H., ‘Usury ceilings and bank lending behavior: evidence from nineteenth-century New York’, Explorations in Economic History, 44 (2007), pp. 179–202CrossRefGoogle Scholar, shows that at least one bank selectively violated the usury law. Nevertheless, most loans were made at or below the legal ceiling rate.

⁶⁷ In 1856, the ratio of circulation to circulation plus deposits was about 0.10 among New York City banks; 0.40 at banks in five cities of 25,000 or more inhabitants (Albany, Brooklyn, Buffalo, Rochester and Troy); and about 0.55 in banks in smaller cities and towns. Author's calculation from information reported in New York State Banking Department, Annual Report of the Superintendent of the Banking Department of the State of New York, Transmitted to the Legislature, January 7, 1857 (Albany, 1857).

⁶⁸ Author's calculations from data reported in Johnson, Treatise, p. 10.

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