The Rise and Fall of America’s First Bank
Abstract: The adverse effect of absolutism on financial development was famously shown by North and Weingast with the example of England before and after the Glorious Revolution. This example has been challenged by claims that things were not that bad before the Revolution or not that good after it. I provide independent evidence regarding the effect of Stuart absolutism on financial development – in America. In 1686 a scheme for a semi-private land bank was launched in locally-ruled Massachusetts. Soon afterwards an English royal governor was imposed on Massachusetts. Scholars have not figured out why the bank was aborted in 1688 shortly before starting operations. I relate this event to a specific policy of the Stuart-appointed governor – the invalidation of all land titles. Since the bank was based on mortgaged private lands, it is no surprise that it was aborted four days after the governor started prosecuting land owners.
