Midcentury Markets and the Public Reliance on Private Capital

Endorsed by the Business History Conference

Saturday, April 4, 2020, 10:00 AM - 11:30 AM

Type: Paper Session

Tags: Business and Economy; Politics; Urban and Suburban


This session aims to challenge scholarly understanding of the timing and process of financialization—defined broadly as the movement of financial services to the center of the U.S. economy and of financial logics to dominant roles in state policy and daily economic life. In the early postwar era, the reigning consensus suggests, the liberal New Deal state constrained the power of finance. Scholars document how these restraints unraveled in the 1970s—with economic restructuring, persistent inflation, and the decline of the Bretton Woods International Monetary System—and follow financial acceleration with federal deregulation and the ascendance of modern conservatism in the 1980s. Finance eclipsed waning postwar liberalism in this telling; or, to use a darker metaphor, finance nailed up liberalism’s coffin.

The papers on this panel challenge this consensus. Collectively, they argue that financial executives, financial markets, and financial logics decisively shaped three essential projects of postwar liberalism: home ownership, public education, and secure retirement. We see this not by looking at federal policy, where the consensus has focused, but instead by turning to states and municipalities, which remained dependent on private capital to support their public ambitions. Local dependence on private capital granted financial elites leverage over the ambitions of the welfare state. In short, finance had been in the driver’s seat all along, albeit discreetly.

In her paper, “Land, Capital, and Segregated Suburbs,” Paige Glotzer puts the role of private capital in shaping public policy in long perspective, demonstrating how transnational investment networks engineered segregated suburbs before and during the New Deal. The suburban dream of property-ownership and rising home values was thus founded on monetizing whiteness long before these impulses were inscribed in federal housing policy. In addition to racial control, postwar Americans were drawn to the suburbs for the promise of “good schools,” but that promise too materialized only through financial markets. As Michael Glass argues in his paper, “Borrowing to Build,” school construction in the 1950s and 1960s relied on bond markets that were expensive, uncertain, and difficult for amateur school boards to navigate. One reason for this dependence was the unravelling of local investment support from state pension systems in the early 1950s. In, “Splitting the Atom of State Finance,” Sean Vanatta traces how the New York State Public Employee Pension System completely divested of local securities beginning in the late 1950s, instead betting the security of its retirees in corporate securities markets.

In sum, by looking at the state and local level, we find that finance exerted deep, structuring influence over the ambitions of postwar liberalism, encouraging scholars to rethink the origins, mechanics, and consequences of financialization.

Papers Presented

Splitting the Atom of State Finance: New York State Pensions and the Liberal Origins of Financialization

Beginning in late 1950s, New York comptroller Arthur Levitt fundamentally reconfigured his state’s fiscal relationship with its employee pension system. In 1958, 30 percent of the pension’s $1.1 billion in assets, set aside to provide retirement security to state workers, was invested in state and local bonds. Then Levitt began to divest. By 1967, local securities made up less than 2 percent of pension assets, replaced with corporate stocks and bonds, 35 percent of the state’s now $2.7 billion portfolio.

In orchestrating this transition, Levitt, a Democrat, shifted the pension system away from its longstanding fiscal support of the local ambitions of postwar liberalism. State workers and local governments, formerly bound in a relationship of fiscal support, were now equally dependent on financial markets, with broadly divergent outcomes. Entrusted to the financial instruments of corporate capitalism, pension yields for a time went up. So did local bond rates, as municipalities experienced the full weight of market discipline.

So far, the story of the rise of finance in the United States has been a federal story, told in conjunction with the fall of the New Deal order during the pivotal decade of the 1970s. States, meanwhile, have been left out of the narrative. The experience of New York’s pension system reveals, however, that state policy makers turned to finance sooner and trusted in markets earlier than scholars of financialization have recognized. At the state level, this paper argues, finance was not the end of the New Deal order, it was its foundation.

Presented By
Sean Harris Vanatta, Princeton University

Land, Capital, and Segregated Suburbs

In the early twentieth century, the rise of segregated planned suburbs changed what type of housing held the highest property value in the United States and ultimately served as the basis for federal housing policy. Decades before federal agencies codified redlining, however, the capital that underwrote the first wave of mass suburbanization was already reshaping places as disparate as Antigua and Egypt. This paper reconstructs transnational circuits of people and capital to situate American residential segregation in a longer history tied to colonialism and imperialism. It does so by examining the multitude of investment practices revolving around land that British investors and their American intermediaries engaged in to finance suburban development. In the late nineteenth century, these included bundling and selling financial instruments backed by land debt, speculating on land that they advertised as open to white settlement, as well as purchasing and operating Caribbean sugar plantations. The result was a change in housing development practices that came to emphasize racial control as a means for ensuring long-term profit. The developers who spearheaded these changes played an outsized role in influencing American housing policy in the mid-twentieth century, which set the stage for a vastly unequal allocation of public resources that continues to this day. Extending the chronology of residential segregation highlights how developers and investors from around the world adapted white supremacy to new contexts while expanding its geography places Jim Crow spatial production in a more global framework.

Presented By
Paige Glotzer, University of Wisconsin–Madison

Borrowing to Build: The School Bond Crisis in Suburban New York

The decade after World War II witnessed a flurry of school construction. Nationwide, soaring enrollments stretched school capacity in big cities and small towns alike. But the problems were most acute in the new suburbs springing up along metropolitan fringes. The suburban building spree relied almost entirely on borrowed funds, because there was hardly any state aid, and no federal aid, available for school construction. To build new schools, districts had no other choice but to borrow in capital markets. For a number of complex reasons, interest rates for municipal bonds crept upward during the 1950s. The higher rates added unforeseen costs to school construction, which led to spiraling property tax rates, mounting frustrations, and near-perpetual tax revolts.

This paper examines the efforts by New York State comptroller Arthur Levitt to manage the school bond crisis. At first, Levitt sought to stabilize interest rates by using the pension funds from state retirees to purchase outstanding school bonds. Then, he sought a more durable solution by proposing a new “State School Financing Authority.” However, both proposals failed: After an outcry from banking lobbyists, the state legislature rejected the School Finance Authority; and Levitt, under pressure to obtain higher returns for retirees, steadily shifted the pension funds into higher-yielding corporate stocks and bonds. Already during the height of the suburban boom, therefore, Americans found themselves dependent on financial markets for the most basic public good: the school buildings that educated their children.

Presented By
Mike Glass, Princeton University

Session Participants

Chair: Anne Fleming, Georgetown University Law Center

Presenter: Mike Glass, Princeton University
Michael Glass is a Ph.D. Candidate at Princeton University. Michael studies twentieth-century United States political, urban, and education history. His dissertation, “Schooling Suburbia: The Politics of School Finance in Postwar Long Island,” examines conflicts over school funding in suburban Long Island during the decades after World War II. By following the money, this project focuses on the interaction of real estate, property taxation, financial markets, and state and local politics to explore the root causes of educational inequality and racial segregation. Instead of the conventional focus on the city-suburb divide, “Schooling Suburbia” draws attention to suburban inequality.

Portions of this research were recently published an article in the Journal of Urban History titled, “From Sword to Shield to Myth: Facing the Facts of De Facto School Segregation,” which recovers the contested genealogy of the concept of “de facto segregation.” Prior to graduate school, Michael taught high school history for seven years in New York City.

Presenter: Paige Glotzer, University of Wisconsin–Madison
Paige Glotzer is Assistant Professor and John W. and Jeanne M. Rowe Chair in the History of American Politics, Institutions, and Political Economy in the University of Wisconsin-Madison History Department. She joined the faculty after a postdoctoral fellowship at the Harvard Joint Center for History and Economics. Her first book, Building Suburban Power: The Business of Exclusionary Housing Markets, will be published by Columbia University Press in April, 2020. It charts how suburban developers ushered in modern housing segregation with the help of transnational financiers, real estate institutions, and public policymakers. The effects of their efforts continue to be felt today. She has also created a digital project called Building Suburban Power that maps the British investors who financed one of the first segregated suburbs in the US. In keeping with the turn toward global urban history, her next project will focus on the interactions between American realtors and Latin American consumers in the mid-twentieth century.

Portions of her research have been published in the Journal of Urban History, The African American Intellectual History Society’s Black Perspectives, and the New School’s Public Seminar. She is the recipient of numerous awards, including the First Book Award from the University of Wisconsin Humanities Center, the K. Austin Kerr Prize from the Business History Conference, and the Maryland Historical Society's Lord Baltimore Fellowship. Her scholarship has also been profiled by The American Historical Association and The Baltimore Sun.

Dr. Glotzer received her Ph.D. in History from Johns Hopkins University in 2016.

Commentator: Destin Jenkins, University of Chicago
Destin Jenkins is the Neubauer Family Assistant Professor of History at The University of Chicago. He is currently revising his first book, City of Debt, which centers on governance, municipal debt, and urban inequality in twentieth century America. He is also the co-editor of a forthcoming volume on the history of racial capitalism.

Presenter: Sean Harris Vanatta, Princeton University
Sean Vanatta is currently a lecturer in Princeton University’s Writing Program. He received his Ph.D in history from Princeton in May 2018, and is currently revising his book manuscript, Plastic Capitalism: Credit Cards and the Making of Modern Consumer Finance (Yale University Press, forthcoming). Articles derived from this work have been published in Business History Review (2016) and Enterprise & Society, the former winning the 2016 Henrietta Larson Award for the best article in that journal. He is also the coauthor, with Peter Conti-Brown, of The Bankers Thumb: The Institutional and Evolutionary History of Bank Supervision in the United States (Harvard University Press, forthcoming).