The Enforceability of Private Money Contracts, Market Efficiency, and Technological Change
The period prior to the U.S. Civil War saw the introduction and rapid diffusion of the railroad. It was also the Free Banking Era (1838-1863) during which some states allowed relatively free entry into banking. Banks in all states issued distinct private monies, called bank notes, which circulated at discounts from face value in secondary markets at locations away from the issuing bank. This paper proposes a pricing model for bank notes, and then, using a newly discovered data set of monthly bank note prices for all banks in North America, studies the secondary market for privately issued bank notes during the American Free Banking Era, 1838-1863. To test the model, the durations and costs of trips from Philadelphia to other locations are constructed from pre-Civil War travellers’ guides in order to measure improvements resulting from the diffusion of the railroad during this period. The results suggest that the note market accurately prices risk. Systematic wildcat banking was not possible. The transportation costs of note redemption explain only part of bank note discount variation. Bank default risk was differentially priced and such risk premia varied cyclically.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fth:pennfi:19-90. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.