Empirical Studies on Bankers, Legislators, and Political Parties, 1790–1859

Abstract

This chapter provides the major empirical contribution of this dissertation. Qian defines elites as bankers who had been or would become state legislators at some point of their life. Qian collects data on bank directors and state legislators from 1790 to 1860 to identify the affiliation between bankers, political parties, and state legislators. Over 70% of the bank presidents and bank directors before 1812 had been or would become state legislators. Moreover, most of those banker/legislators were associated with the Federalist Party, and very few were Democratic-Republicans. The stock of directors shows that from 1797 to 1811, many directors remained Federalist, despite the fact that Democratic-Republicans strength in the legislature kept rising. However, in 1812, the proportion of bank directors that had been Democratic-Republican legislators jumped from almost zero to 24%. Ordinary Least Squares, Logit, and Probit regressions show that the probability of a bank director being a Democratic-Republican legislator increased by more than 20% after 1811, with no significant change in the probability of being a Federalist legislator. These results reveal a shift in strategy by Federalists, who extended banking privileges to their political rivals, as a direct result of the threat of charter revocation in 1811. In addition, this chapter shows that while the connection between legislators and bankers dropped after 1812, legislators and bankers nevertheless continued to be closely connected: Even in the 1850s, 40–50% of all bank presidents and bank directors served in the state legislature at some point in time. Despite the continuing connection, limited partisan access to banking never returned in the second party system. After 1820, banking was still dominated by elites, but access to banking was no longer limited by political affiliation. Bankers were still much wealthier than the average citizen and were much more likely to become state legislators, but were no longer connected with a particular party.