Banks and State Public Finance in the New Republic: The United States, 1790–1860

Abstract

The U.S. Constitution, by taking away the power of the states to issue paper money, removed a major source of flexibility in state public finance. In their search for new sources of revenue and fiscal flexibility, the states discovered that the banks they chartered could fill the gap. Investment earnings and tax revenues derived from banks soon became major elements of state public finance. We discuss the nature of these early business-government relationships and provide the first systematic assessment of their relative importance in state finance.

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