Power Over Finance: Private Institutions, Elite Control, and Endogenous Market Disorder
Year: 2012
Type: preprint
Abstract: In this paper, we develop an account of the endogenous failure of private market-governance institutions to maintain market order by highlighting how their distributional function limits their regulatory capacity. We examine the New York Clearing House Association (NYCHA), a private market-governance institution among commercial banks in Manhattan that operated from 1853 to 1913. We find that the NYCHA, founded to achieve coordinating benefits among banks, transformed itself at the turn of the twentieth century into a device for large, elite market players to promote their own interests to the disadvantage of rival groups. Elites prevented the rest of the market from having equal opportunities of participation. The elites’ control not only worsened the condition of the rest of the market; it also diminished the influence of the NYCHA and escalated market crises. As a result, crises developed to an extent that exceeded the control of the NYCHA and ended up hurting even elites’ own interests. This paper suggests that institutional stability rests on a deliberate balance of interests between different market sectors and that, without such a balance, the distributional function of market-governance institutions plants the very seeds of institutional destruction.
Source: SSRN Electronic Journal
Authors: Lori Qingyuan Yue, Jiao Luo, Paul Ingram
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2343425427