In 1790, Congress enacted the plan of Alexander Hamilton to restructure Revolutionary War debts into long term securities with quarterly interest to be paid in specie, an action that created the U.S. national debt in more or less its modern form. The following year Congress enacted Hamilton's plan for a Bank of the United States, a large public bank owned mostly by private investors who subscribed for four fifths of its capital stock. Historians generally have viewed these actions in terms of their effects of enhancing the credit of the U.S. government and giving a major boost to the country's banking system, which at the time consisted of only three banks. Much less studied, though no less important for the country subsequent economic development, is the effect these actions had in creating securities markets that allowed American governments and corporations to raise capital and investors to benefit from the liquidity of active trading markets for bond and stock issues. This project invloves extracting a detailed quantitative record of early U.S. securities markets, mostly from newspapers of the era and to a lesser extent from archival manuscript sources and public records, and for preparing studies analyzing the efficiency characteristics of these markets and their implications for economic growth. The principal investigators have surveyed these sources in connection with a study of the market for U.S. debt from 1790 to the mid 1830s, when that debt was briefly eliminated. In the process they discovered that active markets for debt and equity sprang up immediately at the time of Congress's enactments in the cities of New York, Philadelphia, and Boston, and shortly thereafter in Baltimore. In each of these cities newspapers reported, usually with weekly frequency, the prices of the three U.S. debt issues of 1790, as well as the price of U.S. Bank shares. These were the `national market` securities of the day. At the same time, markets for `local` issues bank and insurance company shares, state and municipal debt issues, and transportation and other corporate enterprises were also reflected in newspaper price quotations. Analysis of end of month quotations for the national market securities indicates that the domestic city markets quickly exhibited a high degree of intermarket integration, and that their existence contributed to a flow of U. S. securities overseas and a corresponding inflow of foreign capital to the United States. The project will create a coded, computerized data base of weekly securities price quotations along with periodic interest and dividend payments. This data base should be of interest to others, including economic historians and financial economists. The investigators will apply the data base to investigations of a number of issues, including integration of domestic and overseas securities markets; patterns revealed by construction of more detailed asset price, yield and return indexes than currently exist; and relationships between securities markets and the development of the banking system and, more generally, corporate enterprise. The project will explore the larger question of the relationship of financial development to economic growth. The United States was fortunate to have a financial system that compared favorably with those of other nations at the beginning of its history. It is likely that this financial system made a major contribution to the country's early start on economic modernization and growth.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Daniel H. Newlon
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National Bureau of Economic Research Inc
United States
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