Graduation Year

2020

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Patrick Van Horn

Reader 2

Nayana Bose

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© 2019 Juliana M Clark

Abstract

This thesis analyzes the critical role banking plays for economic growth focusing on the specific regulatory institutions in Texas during the early 1900s. I assess how these institutional regulations lead to a pattern of economic growth, diverging from other American states. There were a couple of options examined, eventually deciding to research how banks evolved in Texas as the number of banks significantly grew from 1905-1911. Economic theory and evidence assert that financial systems provide credit to businesses for expansion and investment. This, in turn, leads to economic growth as loans are more readily accessible. Businesses provided with immediate credit are more likely to succeed, as supply is maximized when the marginal product of capital is equal to the natural rate of growth. Consumption is expanded with available credit, as a business can increase the number of workers employed, increase production, purchase land, and purchase capital goods (machinery) from other firms. The introduction and expansion of the state banking system in Texas allows us to test and better understand this long-held relationship between economic growth and financial institutions. I conclude that economic growth within Texas would be unable to occur without a robust financial system both of the private and public institutions. As the economy grew from 1905 onward, the state banking system and the legislation system grew simultaneously fitting the economy’s needs best. Throughout this thesis, I study how the lack of a structured monetary system hindered businesses in Texas from expanding due to the lack of government-backed financial institutions.

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