Introduction

The first commercial banks were organized in the United States during the Revolution, and the New York Stock Exchange can, with some slight stretch of the imagination, trace its lineage back into the eighteenth century. Despite these examples of early capital market arrangements, the financial market was largely unorganized at the beginning of the nineteenth century. Even in the relatively static economy of the first years of that century, there were gains to be realized from more effective institutional arrangements, and with the geographic expansion and economic growth of the succeeding century-and-a-half, these potential profits increased enormously. A meaningful history of finance in the United States can only be told in terms of the rearrangements that resulted from the innovation of new institutions to capture and recapture the profits that, in 1810, were external to any institution. The result of this process is, in the 1970s, an economy marked by a myriad of financial arrangements. The process of organization and reorganization still continues, but even the history to the present is far too much to summarize in so short a chapter. Instead, we will draw from that history a few illustrations to indicate how the search for profits led to arrangemental innovation. For every example that we cite, there are a hundred that are slighted, but the outlines of the tests of the theory are certainly there.