A preliminary examination of the effects of credit instruments on de facto and de jure political power: lien laws in the postbellum United States South and nineteenth century New South Wales, Australia

This paper offers some preliminary insights into the impact of a particular type of credit instrument, the lien, on the distribution of de facto and de jure political power in the postbellum US South and the Australian colony of New South Wales. De facto political power arises when wealth increases and, once acquired, it can be used to challenge the prevailing distribution of de jure political power. The design and operation of lien laws in these two locations resulted in very different outcomes for the allocation of de facto and de jure political power and this had implications for long run growth outcomes. In the postbellum South the operation of liens evolved to favour landlord elites over competing claimants thereby supporting the continued unequal distribution of de facto and de jure political power. This skewed distribution of political power is likely to have resulted in lower growth rates in the long run for many Southern economies. In New South Wales the pastoral elites themselves were credit constrained and therefore, relied on another colonial group, merchants, to provide credit via liens. This led to greater de facto political power of merchants which, over time, allowed this group to mount an effective challenge to the prevailing de jure political power of pastoralists. In turn, this contributed to a shift toward a more equal allocation of property rights as well as liberalisation of the political sector including universal franchise and the secret ballot. The move towards greater equality in NSW would have led to higher long run growth rates than may otherwise have prevailed.