Did Inequality in Farm Sizes Lead to Suppression of Banking and Credit in the Late Nineteenth Century

Abstract

This paper creates a new database that covers all banks in the United States in the census years between 1870 and 1900 to test the interaction between inequality and financial development when the banking system was starting over from scratch. A fixed-effects panel regression shows that the number of banks per thousand people in the South has a strong positive relationship with the size of farm operations. This suggests that large Southern farm operators welcomed new banks after the Civil War. When the analysis is extended into the 1900s, the relationship becomes more negative, as bankers may have tried to block entrants.