the prevalence of such ﬁrms in the local economies (for the two towns where this can
be evaluated). Some historians have imagined that antebellum banks failed to feed the
economy’s growth sectors, but no such failure is evident in the balance-sheet data.
To assess whether the antebellum banking system moved funds from lower-return to
higher-return areas, Bodenhorn turns to the standard question of whether the regional pattern
of interest rates shows the convergence implied by arbitrage. A number of historians have
found that the postbellum period was marked by a lack of national capital-market integration.
Bodenhorn (162) ﬁnds, somewhat surprisingly, that “regional interest rate differentials were
generally smaller before 1860 than after 1900.” The disintegrative effects of the Civil War—
or perhaps of the National Banking regulations imposed during the War—were remarkably
large and persistent.
Bodenhorn rightly questions the view that Nicholas Biddle personally brought about
market integration through the policies he pursued as head of the Second Bank of the
United States, a view common among historians who simply take Biddle’s word for it. He
argues that although the Second Bank was not irrelevant, the integration into a national
capital market was largely accomplished by trading relationships among hundreds of banks
and commercial paper brokers in different cities: “The antebellum commercial paper market
consisted of a complex network of state-chartered banks, exchange brokers, private bankers
In all, Howard Bodenhorn has provided economic historians with a useful and persuasive
account of the contribution that banks made to America’s early development.
Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships by Mancur
Olson. New York: Basic Books, 2000, 233 pages. ISBN 0-465-05195-2.
Mancur Olson, one of the most inﬂuential economists of the late twentieth century, died
suddenly in 1998, leaving behind an almost completed manuscript of his third major work,
subsequently published as Power and Prosperity (2000).
Throughout his career, Olson focused his research on the analysis of collective action,
a ﬁeld to which his book The Logic of Collective Action: Public Goods and the Theory of
Groups (Cambridge, Mass.: Harvard University Press, 1965) made a seminal contribution.
In that work, he argued that individuals have no economic incentive to participate in seeking
large-group collective goods unless coerced or presented with other “selective incentives.”
Therefore, small groups have an advantage in organizing and lobbying for the provision of
speciﬁc collective goods, gaining that provision at the expense of larger, unorganized groups
such as taxpayers or consumers. Successful politicking corresponds with the now-familiar
shibboleth of Public Choice theory, “concentrated beneﬁts, dispersed costs.”
In his second major work, The Rise and Decline of Nations: Economic Growth, Stagﬂa-
tion, and Social Rigidities (New Haven: Yale University Press, 1982), Olson argued that
with the passage of time a stable regime suffers increasingly from “sclerosis” as more and
more small groups organize and lobby successfully for government actions that serve their