USA > Massachusetts > Suffolk County > Professional and industrial history of Suffolk County, Massachusetts, Volume II > Part 20
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Another feature in the bank charters of that time was the subserip- tion by the State to a certain part of the stock. As new banks were formed the Commonwealth became one of the stockholders, until at the time of the War of 1812 it was said to be the owner of nearly one-eighth of all the banking capital of Massachusetts. The reason that led to the adoption of this policy is not clear at the present time. There had been, as the foregoing history will show, a belief on the part of the agricultural classes in Massachusetts that they were in some way ex- cluded from the benefits of a sound banking currency system, and that these inured to the benefit of the capitalists, merchants and dwellers in Boston. We can, perhaps, understand this feeling by taking into ac- count the present hostility shown in some of the agricultural States of the West, not only against the national banking system, but against any- thing that appertains to corporate banking.
201
FINANCIAL HISTORY.
At that time it is evident that the feelings which express themselves in resolutions of Farmers' Alliances and granger lodges in the West were pronounced factors in the minds of the country dwellers of Mas- sachusetts, and that bank charters could not be obtained from our Leg- islature in the absence of a provision which would accord to the farm- ing inhabitants of the State special opportunities of obtaining such credit as they desired. It is a possibly happy omen that with in- creased experience and with growth of knowledge this suspicion and distrust in Massachusetts has very largely evaporated. The people of the country districts of Massachusetts have realized that the banks are not their enemies, that credit can be obtained whenever reasonable ground for giving it exists, and that there is no special advantage, except that of holding available securities upon which loans can be effected, that the capitalist has over the other members of society. The disposi- tion on the part of the State to interest itself in banking ventures may have been due to this same distrust of moneyed institutions. If the State was a large shareholder it was assumed that it would give to it the right to regulate in some degree the conduct of the banking business, and in this way see that the favors were evenly bestowed. It was dis- covered later on that the connection was not one which could be wisely maintained; that to the ordinary shareholders in the bank a partner- ship with the government was liable to bring about interference detri- mental to the proper conduct of business, while on the part of the State it was discovered that the money of the people was in this way placed at risk in a manner detrimental to the public policy.
In 1812 the Commonwealth owned about a million dollars in the stock of these banking corporations, being at the time nearly one-eighth of the banking capital of the State. But when clearer views prevailed it was found expedient to dispose of all of this, and since that time, bank- ing, like any other business, has been permitted to develop itself upon its own lines without direct State participation.
The conditions under which banking business was carried on in its earlier days were in many respects different from those of the present time. The Massachusetts Bank when it was started laid down certain stringent rules regulating the loaning of money which are interesting now rather as specimens of restriction. The Massachusetts Bank started with a paid in capital of $253,500, but the maximum loan to one person at one time was $3,000, and no person was allowed to owe the bank
26
202
SUFFOLK COUNTY.
more than $5,000 at any one time, or be liable for more than $1,500 as a promisor or endorser. The renewal of notes was absolutely forbid- den, and those who failed to meet their notes were not only obliged to submit to the immediate sale of their security, but were denied the privilege of having any further notes discounted for a period of eight months thereafter, unless the penalty was remitted by the unanimous vote of the directors. The rules of the bank also required that the names of delinquents should be posted in a conspicuous place in the bank office.
With the establishment of our national independence the ship mer- chants of Boston began those ventures into the fields of foreign commerce which for many years made our city the leading commercial port of the American continent. The flag of the United States, as well as the house flags of Boston merchants were to be found in the seaports of India and China as well as on the almost unknown waters of the Pacific Ocean. No doubt the facilities that were provided by the early banks gave to the Russells, Phillipses, Perkinses, Grays, and others, the credits they re- quired for obtaining the large amounts of specie which were needed to carry on what proved to be their highly profitable trade ventures.
In the early years of the century the government of the United States afforded credit opportunities which were quickly taken advantage of by our Boston merchants. For many years the rule prevailed of taking at the custom house the endorsed note of an importer for a very consider- able part of the duty levied upon imported goods. For some time the method was on importations from Europe or Asia to have one-third of the duty paid down, the other two-thirds remaining upon credit, one of these thirds for three months and the other for six months. This led to the formation in Boston of quite a number of associations where business was done upon individual account, though to all intents and purposes the two or three merchants who were associated together were partners; that is, certain importations were made in the name of Smith for the purpose of having Brown endorse the note given in pay- ment of duties, while Brown's note for duties was endorsed by Smith. To prevent loss the government was a preferred creditor, and in cases of insolvency its claim had to be settled in full before any other ereditor could share in the division of the bankrupt's assets. The effect of this system was to materially stimulate the business of importing, quite a number of merchants engaged in it having very little capital beyond that which this eredit of the government accorded to them.
20%
FINANCIAL HISTORY.
The disturbances that grew out of the Napoleonic wars were severely felt in Boston, causing such a demoralization in trade that real estate values declined very greatly, and for a time commerce was carried on under exceedingly precarious and profitless conditions. Non-inter- course and the embargo were followed by war, to the great discontent of all of the business interests of this city. Evasions of all kinds were attempted because they were looked upon as legitimate, and not a few of the prominent ship owners engaged in smuggling and other devices, which received at the time a local sanction, even though they were in direct violation of the national statutes.
The condition of our local currency was in the main satisfactory, but the notes of New York and Vermont banks of very doubtful solvency were spread broadcast over the country, and found a readier acceptance in Boston, because it seemed to be the policy of our banks at that time to keep themselves strong by refraining from the issue of bank bills. Thus, in 1813, according to the returns made to the State, the four banks of Boston had more than four and one-half millions dollars of specie in their vaults, while their aggregate circulation did not reach a million and a half dollars. It was at this time that the New England Bank was chartered, having for one of its purposes of business the collection of the notes of foreign or non-State banks on behalf of those who did business with it. The discount at which these foreign notes had pre- viously circulated was very considerable, because the question of their redemption was always an open one. But when the New England Bank undertook to charge only the actual cost of sending foreign money home to the issuing bank and obtaining specie for it, the rates of dis- count both on bills of Massachusetts banks out of Boston and those on reasonably sound banks out of the State, were very materially reduced.
This action on the part of the New England Bank, which in 18IS was also adopted by the Suffolk Bank, created a great deal of indig- nation on the part of the officers of the banks whose notes were thus sent in for redemption. In 1814 three wagon loads of specie, amount- ing to more than $138,000, which had been collected by the New Eng- land Bank through the redemption of the bills of a number of the New York banks, was seized at Chester, by the collector of New York, while on its way to Boston. The reason given for this seizure was the alleged intention of the New England Bank to send the money to Can- ada; but representations made by the Legislature of Massachusetts to the president of the United States led to a restoration of the specie.
204
SUFFOLK COUNTY.
But the business of the New England Bank and of its rival, the Suf- folk Bank, in dealing with foreign money, as it was termed, was not carried on without great friction. The plan of the Suffolk Bank, which was chartered in 1818, was that if any bank deposited with it five thousand dollars as a permanent deposit, with such further sums as would be sufficient from time to time to redeem its bills taken by the Suffolk Bank, such depositing bank should have the privilege of receiving its own bills at the same discount at which they were purchased. The competition between the New England Bank and the Suffolk Bank was a lively one, and the discount on foreign money was so far reduced as to decidedly impair the profits of both institutions. The country and non-State banks, whose notes were promptly sent back to them for re- demption, considered the act to be outrageous and unwarrantable, and endeavored as far as possible to arouse public opinion against such proceedings. This had little effect, for in 1824 all of the banks in Boston, with the exception of the New England, agreed to make the Suffolk Bank their agent for the redemption of bills of outside banks, and a fund of $300,000 was subscribed by these banks, in proportion to their respective capitals, to be used for carrying on the business. The need of this action was apparent when one takes into account, that while Boston had more than one-half of the banking capital of New England, the currency that it put out represented only about one- twenty-fifth of that which was in circulation. The system of redemp- tion as established by the Suffolk Bank was continued until the organization of the Bank of Mutual Redemption, which was established in 1858 for the purpose of serving as agent of all of the New England banks for the redemption of their bills.
The period between the close of the War of 1812 and 183; was one highly favorable to the establishment of new banking institutions. In the last named year there were thirty-four banks in Boston, and in the State outside there were ninety-five. The Boston banks had a capital of $21,350,000, deposits of $6,560,000, and circulation of $4,386,414. The ninety-five country banks had a capital of $16,930,000, deposits of $1,90%,122, and circulation of $5, 886, 204.
It will thus be seen that the relative amount of bills in circulation was very much larger in the country banks than in the city.
In 1831 a crisis came. On May 10 of that year the banks of New York suspended specie payments, and in obedience to the desires of a large number of business men who attended a meeting at Faneuil Ilall, the banks of Boston also suspended payment on May 12, 183 ;. With
Jamie 6. Gott
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FINANCIAL HISTORY.
quite a number of these banks this action was unnecessary, as they had carried on their affairs in such a conservative manner that there was no reason to suppose that they would have suffered if they had continued their regular business. But others-and these the newly formed banks -were not strong enough to resist the strain put upon them even after suspending specie payments. In July the Franklin and La Fayette Banks failed: in January following, the Commonwealth Bank; and before that year was out ten more of the banks of Boston had either failed or had had their charters revoked by the Legislature.
It was in this year that the Legislature decided to create a Board of Bank Commissioners, giving to its members ample powers in the direc- tion of examining and controlling the banks as a means of protecting their depositors and the holders of bank bills and preventing reckless management on the part of bank officials.
From that time up to 1852 the banking business of Boston seems to have been carried on in a safe and yet progressive manner. The banks did apparently a good business and supplied their customers with the financial means required to carry on their growing and prosperous enterprises. The part which Boston merchants took in the immense increase in ocean commerce which characterized that period was per- haps greater than that taken by the ship merchants of any other city of the United States. Boston maritime ventures were found all over the world, and these obviously were supported by the aid granted by Boston banks. More than this, the period was one of great progress in cotton manufactures, in which Boston capital also played a promi- nent and possibly controlling part, so that the period between 1840 and 1852 may be looked upon as one of the most satisfactory in the entire financial history of this city.
The financial crisis of 185; found the banks of Boston in a better condition than they had been in twenty years before. The law of 1854 had required them to make public weekly a statement of their condition, so that there was no secrecy observed, and false suspi- cions of weakness-which are sometimes quite as bad as weakness itself -could not be entertained. The suspension of specie payments which took place in the fall of 1856 lasted for about two months, and in that erisis not a single bank failed. The suspension was said to be uncalled for, and during the time the best borrowers had no difficulty in obtain- ing whatever funds they needed. The panie was, however, outside of the banks an exceedingly severe one. There were in Boston alone 253 failures, with liabilities amounting to $41,000,000-a collapse dne
206
SUFFOLK COUNTY.
largely to the fact that too much of the floating capital had been sunk in permanent improvements, such as manufacturing plant and railroad enterprises, and that too large an amount of business was carried on upon long credits.
With the outbreak of the Civil War the extraordinary demand for supplies produced abnormal trade conditions in Boston and led to an equally active trade with the banks. The national banking law, which was passed in 1863, was very quickly taken advantage of by our local banking institutions, and by the end of 1865 every bank in Boston had been transformed into a national bank.
The condition of these institutions since that time is brought out more fully by their own statements than it can be in any general ab- stract.
The progress we have made in the material conditions upon which financial prosperity depends can be best brought ont in the line of comparison.
Few people have any clear idea of the rapid growth that the city of Boston has made within a relatively few years. In 1643 the population was abont 5,000; in 1435, 16,000; in 1791, 18,038; in 1810, 33, 250. Macaulay has estimated the population of London to have been in 1685 about half a million, so that Boston has grown in the last two hundred years, that is, since 1685, from a population of about 5,000 to about the same size that London was two hundred years ago, or at a period when London was larger than any city of the world, except possibly some of the great cities of China.
Moreover, while London has in the interval increased abont tenfold. Boston has grown quite one hundredfold, assuming, as is probably fair, that the effect of annexation of territory has been proportionate in both cities. Massachusetts of to-day, with its population of over two millions, has about two-fifths of the population of England in 1685. It is of course difficult to make just comparisons of the public expendi- tures of different periods on account of the variation in the purchasing power of money, but after due allowance for this fact, some curious and interesting facts may be noted.
Macaulay's estimate of the annual cost of the British navy in the year 1685 was £400,000, or $2,000,000. The city of Boston spent more than one-half of this sum, $1.136, 102, on its police in the year 1890, and also spent in the same year $1,946,684 for its public schools. Surely this shows a wonderful growth of resources in the little town of Boston which two hundred years ago had but five thousand souls, that it can
202
FINANCIAL HISTORY.
now annually spend for free education nearly the same sum which England annually spent upon her navy at the time referred to.
The Earl of Stanhope, in his history of Queen Anne, states the entire annual revenue of the kingdom of Scotland, at the time of the union with England in 1714, to have been £160,000, or about $800,000-a suin almost exactly equal to the receipts of the city of Boston from liquor licenses alone for the nine months ending January 31, 1892.
The auditor's report for the nine months ending January 31, 1892, shows the annual income of the city for that period to have been more than $13, 000, 000, while the amount of money passing through the treas- urer's books for the same period was more than $19,000, 000, the latter sum including receipts from loans and other items not strictly income.
The total income of England at the time of the union with Scotland in 1714, is stated by Earl Stanhope to have been 65,691,803, that is $28,000,000, or only about twice as much as the present income of the city of Boston. Probably no citizen of the town of Boston in 1714 imagined that within one hundred and eighty years the little place of his residence would have a revenue half as large as that of Queen Anne.
But the present financial importance and magnitude of Boston can be even more forcibly illustrated by comparisons drawn from the present time. The entire revenue of the kingdom of Greece for the year 1885 was about $12,000,000, from which was supported among other things an army of 32,000 men and a small navy. The rev- enue of Denmark in the year IS8? was about $15,000,000, which sup- ported a considerable navy and an army of 35,000 men. The rev- enue of Switzerland for the year 1887 was about $10,000,000, a sum considerably less than the revenue of Boston. The annual cost of the army of Great Britain in 1882 was almost $90,000,000; that of France in the same year was about $120,000,000; that of Germany about $90,- 000,000; so that our annual financial expenses are a considerable fraction of the annual expense of the great armies of Europe.
The assessed valuation of Boston during the last seventy years has been as follows:
1823
$ 44,896,800
1832
67,514,400
1842
106,722,800
1852
187,680,000
276,217,000
1872
682,724,300
672,497,361
1892
893,975,704
208
SUFFOLK COUNTY.
But, as it is well known, the assessed valuation does not exhibit the entire amount of personal property of the city, and it has been lately estimated, by very competent authority, that there are now in Boston from one hundred to one hundred and fifty persons the wealth of each of whom is a million dollars or more -- surely a great change from the early days.
There are undoubtedly one hundred families in Boston to-day whose annual expenses are more than the total cost of maintaining the entire town government in 1295, when $49,061,59 was spent. The aggre- gate personal property of the citizens of Boston probably amounts to quite $1,000,000,000.
The following table shows the annual expenditures of the town and city governments of Boston at intervals from 1492 to the present time :
1799
$ 49,061.54
1801
61,489.25
1802
59,601.99
1804
71.491.00
1820
94,983.55
1823
178,505.18
1832
254.151.85
1842
649,500.60
1852
2,112,562.73
1862
3,268,426.70
1872
12,144,976.34
1882
13,230,151.16
1892
16,195,028.07
NorE .- In the column of annual, actual total expenditures the figures previous to 1862 are the best that can be obtained, although not absolutely correct, on ac- count of the manner in which the accounts were kept at that time.
The following table shows the gross debt and surphis funds and net debt of Boston at different periods :
Year.
Time of Year.
Gross Debt.
Sinking Fund, etc.
Net Debt.
1822.
S
S 100,000.00
1823.
April 30.
S 100,000.00 103,550.00
3,267.27
100,282.78
1832.
817,123.93
175,734.75
641,389.18
1842.
1,594,700.00
88,930.79
1,505,769.21
1
1852.
7,110,679.70
489,065.22 851,659.08
6,621,614.48
1862.
9.031,207.77
8,179,548,69
1872.
28,628,535.82
12,849, 159.31
15,770,376.51
1882.
40,079.312.04
15,901,650.44
24,177,661.60
1892.
56,003,997.35
25,569,706.32
30,434,291.03
*1893.
Dec. 3.
57,083,563.19
26,544,273.22
30,539,989.97
1
1
4
I
.
1
I
.
1
1
'Commencement of financial year changed from from May i to February 1.
209
FINANCIAL HISTORY.
Roxbury Debt, included after annexation in 1867.
Dorchester,
. . 1869.
West Roxbury,
Brighton,
..
1873.
Charlestown,
The following table, prepared by Messrs. Carroll D. Wright and llorace G. Wadlin, in their article on the industries of the last hundred years, published in the Memorial History of Boston in 1881, shows the actual and estimated value of the annual products of the industries of Suffolk county, present territory, for the first year of each decade from 1:80 to 1880:
1980
8
3,000,000 to $4,000,000 Estimated.
1790
4,500,000
1800
6,500,000
1810
9,000,000
1820
16,000,000
1830
25,000,000
..
1840
30,000,000
1850
15,000,000
1855.
58,301,028
Actual.
1860
64,000,000
Estimated.
1865
110,000,000
Actual.
1870
120,000,000
1875
140,809,856
1880
150,000,000
Estimated.
4
6
.
.
1
.
6 4
The same writers elsewhere in their article say: " The Boston of 1480, producing between $3,000,000 and $4,000,000 worth of goods, has grown to the Boston of 1880, producing, according to the best estimates, 8150,000,000 worth of goods within her own territorial limits, while in fact the manufactures dependent upon Boston cap- ital, if their value could be ascertained, would reach $300,000,000 per annum." The national census of 1880 stated the product of the in- dustries of Boston in that year to be $130,531,993, or somewhat less than the estimate of Messrs. Wright and Wadlin for the same year. though many persons would prefer to accept the intelligent estimate of the last named gentlemen rather than the general census enumeration.
The Massachusetts State census of 1885 placed the industrial product of Boston at $149,281, 127, while the national census of 1890 fixed it at $208, 104,683, showing a gain of $10,000, 000 for the decade as compared with the census of 1880.
27
210
SUFFOLK COUNTY.
If, as seems just, we can now estimate the annual product of the manufactures dependent upon Boston capital as at least equal to $100,- 000,000 a year, it is about one hundred times as large as was the pro- duction of Boston in 1280. But taking merely the increase in the pro- duct within the territorial limits of Boston, the present product is about sixty times more than it was in 1:80, though the population is only a little more than thirty times as much as it was then.
The growth of the water-borne commerce of Boston has also been very great. The progress of the early years after the settlement of Boston is thus stated in the historical description of Boston by Charles Shaw, published in 1816:
"(1642) The following memorable order was passed in favor of the Massachusetts colony by the Commons: 'That for the better advance- ment of the planters, to proceed in this undertaking of merchandising goods that by any person or persons whatsoever shall be exported out of this kingdom into New England, to be spent or by the growth of that kingdom shall be from thence imported thither, shall be free from paying any custom or duty for the same.'"
"(1639) We hear but little of trade for the first seven years except a small traffic with the natives by bartering toys and utensils for furs and skins. The middle and lower classes had but sufficient to provide sub- sistence and construct comfortable dwellings, and the wealthy were chiefly country gentlemen unacquainted with commerce. In a few years, however, the land produced more than was necessary for home consumption and the overplus was sent to the West Indies and the Wine Islands. Those who could be spared from husbandry were em- ployed in fisheries, sorting boards, splitting staves, shingles and hoops, and as many as were capable in building vessels."
From 1655 to 1660 trade was in a very flourishing state, free admnis- sion being allowed to all nations, and the importation of no commodity whatever being under any clog or restraint. From 1666 to 1670 trade was greatly extended. No custom house was established, and the Acts 12 and 15 of Charles II were little observed. In 1665 the number of vessels was about eighty, from twenty to forty tons, about forty from forty to one hundred tons, and a dozen ships about one hundred tons, according to the report delivered to the commissioners of Charles II.
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