The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780-1850 (review)

Abandon hope, many of ye who enter here. The Wealth of Nations Rediscovered is certainly a useful book. It may even prove an important book. But it is tough going for readers without a background in economics, and, in the end, it fails to deliver on its promise.

Wright maintains that "the root cause of early U.S. economic growth (1780-1850) . . . is the development of the financial sector, not transportation and communication improvements, not foreign trade, and not manufacturing firms" (193). Canals, factories, railroads, and all of the other familiar agents of antebellum economic growth in the United States ultimately depended on an earlier "financial revolution" in which commercial banking, securities markets, and a central bank emerged (9). These new financial institutions permitted Americans to save more and directed their savings into the hands of entrepreneurs who built the canals, factories, and railroads. Without that prior financial revolution, says Wright, the United States might never have become a major industrial power.

In seeking to prove this assertion, Wright has dug deeply into his source material though not widely. He employs a staggering array of sources—recent and classic articles and monographs, brokers' and bankers' ledgers and letterbooks, and a range of newspapers. From these he extracted a wealth of data with which to build a convincing case that many American banks and companies issued stock, that their stock was traded in a growing number of free and increasingly efficient markets, that a broad array of Americans (including many women) held that stock, and that they used it to perform a variety of economic functions. This does not, however, demonstrate the root cause of economic development any more than earlier discussions of transportation or manufacturing did. Identifying the root cause requires more than calculating "the present value formula" (194).

What is missing from The Wealth of Nations Rediscovered is any significant discussion of the non-market factors that might have encouraged or retarded American economic development. Wright certainly demonstrates that a significant number of antebellum Americans participated in financial markets, but he fails to ask why. He acknowledges, for example, that during the 1790s at least some Americans saw securities markets as a form of gambling rather than as productive economic activity. Presumably, the number of such people declined between 1790 and 1850, but Wright seems utterly uninterested in what religious, political, or cultural factors might explain that decline. Similarly, he notes that contemporary observers lamented the dearth of banks in Canada but fails to ask why Canadians, who shared with Americans so much of the English legal and economic heritage, neglected or refused to establish banks.

The Wealth of Nations Rediscovered certainly demonstrates the existence and operation of financial markets in the early United States, and for that reason it is a welcome addition to American economic history. But it rarely ventures beyond the countinghouse, and for that it will frustrate scholars seeking to understand why Americans chose the path that they did.