USA > Massachusetts > Commonwealth history of Massachusetts, colony, province and state, volume 5 > Part 33
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against fire. In 1837, all companies having specific capital were required to make returns to the Secretary of the Common- wealth instead of to the Treasurer, and in 1838 the first official report was published covering the business of insurance com- panies.
In 1852 the first Board of Insurance Commissioners in Massachusetts was created, consisting of the Secretary, the Treasurer and the Auditor of the Commonwealth.
Based on a report of this Board of Insurance Commission- ers, the Legislature in 1854 enacted a comprehensive codifica- tion of the insurance laws of the Commonwealth. In 1855 the Board was changed from the ex-officio Board to one of three members appointed by the governor, and the Insurance Department was created. An important piece of work of the Board within the next few years was the establishment of reserve values for all life insurance policies in force, which led the way to present sound legal standards of policy reserves.
The essential features incorporated in the codification of insurance laws in 1854 have been little changed in their fun- damental nature. As one of the later commissions stated it : "We should require conditions of the fullest publicity, and compliance with tests of solvency and honesty."
The Insurance Commissioners were empowered to examine all Massachusetts companies and to require annual reports thereof in order to be satisfied that each company was solvent and able to meet its obligations. Similar certified reports are required from companies incorporated elsewhere, which operate in Massachusetts. The laws also provided certain restrictions on the investment of the capital of stock compa- nies and the investment of the reserve of both stock and mutual life insurance companies.
NON-FORFEITURE LIFE INSURANCE (1861-1899)
A step vigorously opposed at the time, but which has since formed the basis of similar legislation in practically all States, was taken with the passage in 1861 of the "Non-Forfeiture Law" with reference to life insurance companies. Elizur Wright, insurance commissioner from 1858 to 1866, had repeatedly recommended that a policyholder upon allowing his policy to lapse should not thereby forfeit all the equity
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WORKMEN'S COMPENSATION
which his premiums had created. The new law gave to the policyholder in such a case paid-up insurance representing 80 per cent of the reserve which he had created. In 1880 the law was further revised, providing for more equitable benefits to the policyholder, either in cash or in paid-up insurance.
Amendments to the insurance laws have been passed year by year. Standard forms were provided for fire insurance (1873), and new and improved forms were made compulsory (1881). An Anti-Rebate Law was passed (1887), placing a penalty upon any rebates or discrimination between life-in- surance policyholders. The so-called "endowment orders" were eliminated (1891). Life insurance on the assessment plan was ended (1899), and fraternal insurance was placed on a more adequate standard of solvency. Massachusetts insur- ance laws have from the beginning formed a model for other States.
SAVINGS BANK INSURANCE (1907-1930 )
In 1907 a forward step in insurance policy was taken with the enactment of legislation permitting savings banks to un- dertake the business of life insurance. This was designed to provide insurance in limited amounts largely to those who would pay premiums on a weekly basis, and at a minimum cost through elimination of the solicitation of business and the extra cost thereby incurred.
Each savings bank that undertakes the handling of life in- surance contributes to a General Insurance Guaranty Fund handled by the State Department of Banking and Insurance, as a guaranty fund for all of the savings-bank insurance de- partments in operation. At the end of 1928, with little pub- licity and no solicitation of accounts, ten savings banks had insurance departments, with total assets of $7,419,000 and life insurance in force totalling $57,836,763.
WORKMEN'S COMPENSATION INSURANCE (1911-1930 )
In 1911 legislation was enacted providing for a definite scale of compensation in case of injuries to employees of industries within the Commonwealth in which the employer accepted the provisions of the act. The act took away cer- tain of the old legal defenses from the employer who did
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not accept the act, so that such employer could not allege contributory negligence on the part of the employee or on the part of a fellow employee; nor could he allege that in accepting employment the employee had assumed the risk thereof.
The act further provided for the formation of a mutual company to write insurance to cover the liability of employers with reference to the workmen's compensation obligations. Other companies, however, soon began to write policies cover- ing this type of insurance; and the mutual company estab- lished by the act subsequently changed its name and broad- ened its operations to include similar types of insurance both in this State and elsewhere.
AUTOMOBILE INSURANCE (1925)
Increase in the number of automobiles in the Common- wealth, and in the frequency of accidents in which the auto- mobile driver at fault was found to be without resources with which to indemnify the person injured, led to agitation which resulted in the passage in 1925 of a law requiring that each automobile owner, before receiving a license to operate his automobile in the Commonwealth, should give evidence of having sufficient insurance (or the equivalent in the form of a deposited bond) to provide indemnity up to $5,000 in case of accident. The Insurance Commissioner was to hold hearings and establish rates for this type of insurance. This law has led to much discussion of the rates established and the suggestion of alternative methods of handling the problem, but to date no alternative has been adopted.
GROWTH OF INSURANCE (1889-1928 )
The recent period has been particularly notable in the in- crease in total insurance written within the State; and likewise in the increase in insurance written by Massachusetts insur- ance companies both within the State and elsewhere. The territorial diversification of fire risks, carrying further the lessons of the Boston and Chicago fires, has been substantially increased. For the 54 Massachusetts fire and marine com-
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GROWTH OF INSURANCE
panies in 1928, only $9,708,000 out of total premium income of $53,756,000 was from Massachusetts business.
Compared with 112 fire and marine insurance companies incorporated in other States and 27 branches of foreign com- panies which were writing insurance in the Commonwealth in 1889, in 1928 there were 235 companies from other States and 47 branches of foreign companies. The premium income on fire and marine business written in the Commonwealth by these outside companies increased over fivefold, from $6,964,000 in 1889 to $38,659,000 in 1928.
In addition to this type of business, there are now many other types of insurance, nonexistent in 1889, or not of suffi- cient importance to be separately tabulated. Workmen's com- pensation has already been mentioned, this class of business in Massachusetts requiring premiums in 1928 of $15,206,000. Total accident and health insurance in the Commonwealth brought in premiums of $5,248,000, while liability insurance, including the compulsory automobile insurance previously re- ferred to, brought in premiums in 1928 of $23,226,000. Property damage and collision insurance (including automo- bile) required premiums of $7,610,000; while fidelity insur- ance, burglary and theft, and other less important types of casualty insurance brought in premiums of over $6,500,000.
Growth in life insurance has been particularly striking. In 1889 there were five life insurance companies incorporated in Massachusetts, with total policies in force of $200,321,000; in 1928 this had risen to ten companies with total policies in force of $7,054,822,000, not including the $57,836,000 of sav- ings bank insurance policies previously referred to.
Considering Massachusetts business alone, the Massachu- setts life insurance companies in 1889 had in force $53,093,- 000 of regular life policies ; while in 1928 the ten Massachu- setts companies and ten savings bank insurance departments had in force $829,591,000. Other companies operating in the Commonwealth in 1889 had $154,067,000 of regular life policies in force in the State, while in 1928 this had grown to $2,006,331,000. In addition, weekly payment or "industrial" policies totalling less than $30,000,000 in 1889 had grown to $1,063,084,746 and group insurance, a new form since the
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earlier date, had reached a total of $260,864,094 at the end of 1928.
REGULATION OF PUBLIC UTILITIES
Regulation of public utilities within the Commonwealth has grown with the growth of railroads and street railways, tele- phone and telegraph companies, gas and electric companies. Publicity has been required as to financial conditions and operations, and regulative policy has aimed at equity between stockholders and the public. As early as 1842, Chief Justice Lemuel Shaw marked out some of the general principles, sub- sequently followed, in the following terms: "It is true that the real and personal property, necessary to the establishment and management of the railroad, is vested in the corporation ; but it is in trust for the public. The company have not the general power of disposal, incident to the absolute right of property; they are obliged to use it in a particular manner, and for the accomplishment of a well defined public object; they are required to render frequent accounts of their man- agement of this property, to the agents of the public."
RAILROAD AND PUBLIC SERVICE COMMISSION (1909-1919)
In 1869 the legislature established the Board of Railroad Commissioners, the first railroad commission in the United States, with Charles Francis Adams a member of the first commission and its leading spirit during his service of ten years. At first this commission had no power to make orders but could investigate and recommend. As time went on, it was given power to issue orders in certain limited fields, such as safety appliances and railroad crossings. In 1893 it was given authority over the issue of stock by railroads and street railways. In 1913, it became the Public Service Commission, and acquired the added power to make orders in relation to rates and service, both on complaint and on its own initiative. The Public Service Commission at the same time was given the regulation of rates "for transmission of intelligence by electricity," the telephone and telegraph companies for six years prior to this time having been under the general super- vision of the Highway Department.
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In 1885 the Board of Gas Commissioners was established, with power from the outset to fix, upon application of certain public officials or petition of customers, the maximum price to be charged for gas. Electric light companies were first incorporated in Massachusetts in 1882; and in 1887 the Board of Gas Commissioners became the Board of Gas and Electric Commissioners, with powers expanded to cover electric light- ing operations in the same degree as gas companies. In 1894, this board was given power over the issuance of stock of gas and electric companies, and in 1914 its jurisdiction was ex- tended over water companies in the same degree as over other companies under its supervision.
DEPARTMENT OF PUBLIC UTILITIES (1919-1930)
In 1919 the Public Service Commission and the Board of Gas and Electric Commissioners were consolidated under the Department of Public Utilities, bringing together all of the then-existing powers over rates, operations and issuance of securities of the various types of public-utility companies in the Commonwealth. In 1927 an added provision permitted the department to act with reference to rates on its own motion, as well as on petitions from others.
In its regulation of utilities, the Massachusetts department has kept a somewhat unique position. While decisions else- where give particular weight to "reproduction cost" as a basis for the establishment of property valuations for use in making rates, the Massachusetts theory has based rates upon the amount of funds "prudently and honestly invested," with much less weight attached to reproduction cost.
In 1921, in order to prevent exploitation of the public through the sale of unsound securities, the department was given a degree of supervision over the offering of securities for sale within the Commonwealth.
The operations of railroads and of telephone and telegraph companies in Massachusetts have not been confined to State lines; hence accurate data to show the growth of their opera- tions during the last forty years is lacking.
By 1928, the investments of gas companies in plant and equipment had grown to $119,226,266; and annual revenue
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from the sale of gas, to $34,242,562-over seven times the revenue in 1890.
Although the first electric companies in Massachusetts were incorporated only in 1882, sixty-eight companies were opera- tive by 1890. By 1928, investment in plant and equipment for production of electricity had risen to $334,779,603; and revenue from the sale of electricity, to $86,138,975.
INVESTMENT BANKING
The growth of wealth in Massachusetts in the early years of the past century led not only to the development of the. industrial and transportation facilities within the State, but to substantial and growing interests elsewhere. Massachusetts capital played a leading part in the development of western railways, in the development of the Michigan copper mines, and, at a later period, in the development of the telephone and electrical equipment industry.
The Boston Stock Exchange, organized October 13, 1834, (the third in the country) was the outcome of the foresight of a group of local men as to the value of an organized securities market, both in the industrial upbuilding of New England, and the growing need for capital to back the pioneering ac- tivities of Massachusetts and New England groups beyond the bounds of New England. Early securities traded were those of insurance companies and banks, the canal and industrial companies, and in an increasing degree securities representing Massachusetts activities elsewhere. Foreign exchange and purchase and sale of specie were important items in early days.
Transactions at first were private, and it was not until after the first ten years that the Exchange gave its quotations to the press. Members sat at desks and were required to do their trading at desks. There were two sessions or "boards" daily, one shortly after 10 o'clock in the morning and one at about 2 o'clock in the afternoon. Each session was opened by the president of the Exchange, who "called" each stock in turn, upon which all members having orders in that stock would endeavor to effect transactions. Transactions of early days were regarded as "enormous" when this deliberate pro- cedure prolonged the first board up to the opening hour of the second board.
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INVESTMENT BANKING
About 1885, actual desks on the floor were given up and the five-hour daily continuous session was instituted; and in 1888 the Exchange started the publication of its own daily trans- action sheets.
In 1892 a Stock Exchange Clearing House was organized, the second of its kind in this country, in order to reduce the money requirements for daily settlements, and to decrease the risks involved in delivery of securities between offices. Later a comparison department was added so that comparison tickets might be delivered and exchanged at a single point.
Many of the industrial and railroad securities, which had their sole market on the Boston Stock Exchange, later grew more national in distribution and investment importance, and transferred major activity to the larger New York Stock Ex- change. Activity on the Boston Stock Exchange declined somewhat, but in recent years it has played an increasing func- tion through the trading thereon of many stocks listed else- where, as a means of reaching the investment reservoir of Massachusetts and New England, particularly in transactions involving odd amounts. Transactions on the Boston Stock Exchange had reached as high as 17,000,000 shares annually in the pioneering phase of activity, dropping below 4,000,000 shares in 1918 and 1921, with a subsequent rapid rise to 19,- 069,000 shares in 1928 and 24,625,000 shares in 1929.
Transactions on the Boston Stock Exchange, however, are far from representing the range of activity of Massachusetts and New England investment capital. Of the 82 registered firms included among the membership of 139 of the Boston Stock Exchange, 45 firms have memberships on the New York Stock Exchange, 8 on the Philadelphia Exchange, and 9 on the Chicago Stock Exchange. The number of leased wires between Boston and New York devoted to investment pur- poses has increased about 100 per cent in the last ten years to 195 at the present time. All of these factors indicate the in- creasing range of distribution of Massachusetts investment and speculative capital.
Supplementing the investment facilities offered by the or- ganized Exchanges, the investment business, in offering and maintaining markets in unlisted securities, has steadily in- creased. While the offering of new securities within the
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PUBLIC FINANCE OF MASSACHUSETTS
Commonwealth has since 1921 been subject to oversight by the Department of Public Utilities, the investment business has not required supervision which would give figures as to its growth. Supplementing the growth of the investment banking houses themselves, Massachusetts banks and trust companies in recent years have to a rapidly increasing degree provided their customers with investment service, the larger ones forming separate security corporations which, like many of the investment banking houses originating in the State, have expanded their operations far beyond Massachusetts territory. A similar increase has occurred in the number of offices in the State of investment organizations with headquarters elsewhere. With all of these increased facilities, Massachusetts capital has undoubtedly been afforded its share in a widening variety of new investment offerings, the total of which in 1929 reached over $10,000,000,000 for the entire country.
FINANCIAL JOURNALISM (1859-1930)
Financial journalism has grown with the increase in wealth and the expansion of investment interest. The Commercial Bulletin, founded in 1859 by Curtis Guild as a weekly publi- cation, was supplemented in a constantly increasing degree by the ably conducted financial sections of the daily newspapers in Boston. The Boston News Bureau, founded in 1887 by Clarence W. Barron, was a particularly vitalizing factor in the development of prompt presentation and interpretation of financial and economic news. The activities of that organiza- tion have grown to national importance with the founding in 1897 of the Philadelphia News Bureau, the acquisition in 1901 of the Wall Street Journal and the founding in 1921 of Bar- ron's, a financial weekly. Under Barron's leadership, these publications have unquestionably been a powerful influence in establishing the present practice on the part of corporations to give the public more complete and informing operating figures.
CREDIT STANDING (1861-1930)
The financial story of the last forty years is, as we have seen, one of rapid growth in the range and magnitude of projects undertaken by the State and municipal governments
From a photograph by Garo, Boston
Courtesy of the National Financial Weekly
CLARENCE W. BARRON
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SELECT BIBLIOGRAPHY
for the general welfare, with a consequent steadily mounting total of indebtedness. Material wealth and financial resources have expanded even more rapidly. Native conservatism has been constantly evident in the financial history of the Com- monwealth, in keeping commitments in proportion to re- sources, thereby maintaining an enviable credit standing.
The Civil War period was trying to the State's credit as it was to the Federal government and to other States. Mas- sachusetts 5 per cent bonds dropped from 105 in 1855 to as low as 85 in 1861. Committing itself in 1862 to pay in gold coin the principal and interest of all State bonds then outstanding or subsequently issued, Massachusetts paid a total premium of $3,703,556 on purchases of gold during the period of sus- pension of specie payments. This policy was reflected in 1871, when the State treasurer negotiated loans in London at about 5 per cent. By 1889 the State could place loans as low as 2.55 per cent. The rates on State loans in subsequent years tended to keep close to 3 per cent until 1902. Then the gen- eral trend was upward, until in 1921 loans were placed at as high a rate as 4.235 per cent. Early in 1930 loans were placed at 3.93 per cent; but with generally easier money, Massachu- setts bonds by April, 1930, were selling on about a 3.65 per cent basis.
In 1870 the Governor of Massachusetts said in his inau- gural: "Our bonds find ready sale in Europe, and at prices higher than any other American Securities." That credit has been well maintained, with Massachusetts State and municipal obligations still commanding a premium in the market over similar obligations of other States. The sound financial condition, which this credit standing reflects, is in turn an evidence of the good judgment and soundness of the men who have guided and continue to guide the financial policies of the Commonwealth.
SELECT BIBLIOGRAPHY
BARBEY, JACOB A .- The Early History of the New England Mutual Life Insurance Company (Boston, 1923).
BOSTON CHAMBER OF COMMERCE, COMMITTEE ON TAXATION .- The Massa- chusetts Tax Laws (Boston, 1922 and later years)-Annual reports, giving excellent tabulations of recent State and municipal revenues from taxation, assessed valuations, etc.
368 PUBLIC FINANCE OF MASSACHUSETTS
BOSTON INSURANCE COMPANY .- Marine and Fire Insurance in Boston (Boston, 1914).
Boston Stock Exchange (Boston, 1930)-Interesting historical booklet issued by the Boston Stock Exchange.
BULLOCK, CHARLES JESSE .- Historical Sketch of the Finances and Financial Policy of Massachusetts from 1780 to 1905 (N. Y., Macmillan, 1907). BULLOCK, CHARLES JESSE .- "Taxation of Property and Income in Massa- chusetts" (Quarterly Journal of Economics, 1916-1917, Vol. XXXI, pp. 1-61)-Able review of taxation problems and developments.
DEWEY, DAVIS RICH .- Financial History of the United States (N. Y., Longmans, Green, 1928).
FAY, FREDERIC H .- "Building a Great City" (Technology Review, 1930, Vol. XXXII, pp. 189-192).
GULICK, LUTHER HALSEY .- Evolution of the Budget in Massachusetts (N. Y., Macmillan, 1920)-Comprehensive survey of historical background and detailed steps leading to the present form of executive budget. HOWIE, WENDELL D .- "A History of Banking in Boston" (ALBERT PER-
KINS LANGTRY, editor, Metropolitan Boston; a Modern History, 5 vols., N. Y., Lewis, 1899)-See Vol. II, chap. Ix, for this detailed history of Boston banks.
JACKSON & CURTIS .- Fifty Years of Finance (Boston, 1929)-A picture of American finance, not confined to affairs of one firm.
MARTIN, JOSEPH GREGORY .- Martin's Boston Stock Market. Eighty-Eight years, from 1798 to 1886 (Boston, 1886).
MARTIN, JOSEPH GREGORY .- A Century of Finance. Martin's History of the Boston Stock and Money Markets, 1798 to 1898 (Boston, 1898).
MASSACHUSETTS. BANK COMMISSIONER .- Annual Report (Boston, 1906 and later years)-Earlier reports issued by the Bank Commissioners, and by the Board of Commissioners of Savings Banks (Public docu- ment no. 8).
MASSACHUSETTS, BANK COMMISSIONERS .- Annual Report (Boston, 1838- 1865)-Continued by the Board of Commissioners of Savings Banks. Public document no. 8.
MASSACHUSETTS, BOARD OF COMMISSIONERS OF SAVINGS BANKS .- Annual Report (Boston, 1866-1905)-Earlier reports by Bank Commissioners ; later, by Bank Commissioner. Public document no. 8.
MASSACHUSETTS, BOARD OF GAS COMMISSIONERS .- Annual Report (Boston, 1885-1889)-Public document no. 14.
MASSACHUSETTS, BOARD OF GAS AND ELECTRIC LIGHT COMMISSIONERS .- Annual Report (Boston, 1890-1919)-Later reports by the Public Serv- ice Commission. Public document no. 14.
MASSACHUSETTS, BOARD OF RAILROAD COMMISSIONERS .- Annual Report (Boston, 1870-1913)-Later reports by the Public Service Commission. Public document no. 14.
MASSACHUSETTS, BUREAU OF SATISTICS .- Annual Report on the Sta- tistics of Municipal Finances (Boston, 1907-1918)-Later reports issued by the Commissioner of Corporations. Public document no. 79. MASSACHUSETTS, BUREAU OF STATISTICS .- Report of a Special Investiga- tion Relative to the Indebtedness of the Cities and Towns of the Com- monwealth (Boston, 1912)-House document no. 2168.
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