Banks, Free Banks, and U.S. Economic Growth

Working Paper No. 12-W06

Matthew Jaremski and Peter Rousseau


The “Federalist financial revolution” may have jump-started the U.S. economy into modern growth, but the Free Banking System (1837-1862) did not play a direct role in sustaining it. Despite lowering entry barriers and extending banking into developing regions, we find in county-level data that free banks had little or no effect on growth. The result is not just a symptom of the era, as state-chartered banks seem to have strong and positive effects on manufacturing and urbanization.

Keywords and Phrases: Free banking; antebellum banking; financial liberalization; finance-led growth.

JEL Classification Numbers: G21, O43, N21

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