USA > Massachusetts > Suffolk County > Boston > The memorial history of Boston : including Suffolk County, Massachusetts. 1630-1880, Vol. IV > Part 20
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1 [See Mr. Stanwood's chapter on "The To- 2 [See Mr. Hamilton A. Hill's chapter on " The Trade, Commerce, and Navigation of Bos- ton, 1780-1880," in the present volume. - ED.]
pography and Landmarks of the last Hundred Years." - ED.]
157
FINANCE IN BOSTON.
was reposed, and had he lived would undoubtedly have become one of our wealthiest citizens." Mr. Bowditch relates that, supposing himself to be wealthy, he began the erection of a magnificent house on Beacon Street, " which would have been, even for our times, truly a palace; but non- intercourse and the embargo, followed by war with England, came on. Commerce was prostrated; real estate declined in value; rents fell off; his own health began to fail." Under these circumstances Mr. Cotting not only ceased work on his house, but pulled down what he had built, and sold the land. At the time of his death the depression in all kinds of property was very great, and the sale of the equities which he held in a great number of estates brought but a small sum to the heirs.1
Unfortunate as was the influence of the disturbance preceding the war of 1812, and that of the war itself, upon commerce, and particularly upon the trade of Boston, there were some compensations. The story of those times, as it is to be gathered from the newspapers of the period, is amazingly be- clouded with much that is probably false and still more that is unquestion- ably untrue. New England was bitterly opposed to the embargo, and op- posed to the war even to the verge of unpatriotic selfishness. Its commerce was completely destroyed. What followed is not in the least degree sur- prising. Smuggling became common, and it was engaged in by wealthy and respectable men. Moreover, many rich prizes of war were brought into Boston. In this way the town became a most important centre of trade, and in fact almost the sole source of supply of certain classes of foreign goods that could not be legally admitted into the country at all. This traffic was nevertheless profitable to a few only, who made large fortunes while most of the people were suffering, with the rest of the country, from the effects of the war. Boston was, no doubt, as one historian of the times puts it, " the financial autocrat of the country."
In 1811, three years after the passage of the Embargo Act, the Demo- crats came into power in Massachusetts. One of the acts of Governor Gerry's Legislature was to charter a good 'Democratic bank. It was the State Bank, which is still in existence, and was intended as an offset to the two banks already established, which were run on Federal principles. It was designed also to be the financial agent of the Commonwealth. Feder- alists offered to pay $100,000 for a charter precisely similar, and the Demo- crats, in order to avoid the appearance of evil, laid upon the capital of the State Bank an annual tax of one half of one per cent, and rechartered the two already doing business, whose charters were about to expire. This judicious compromise restored peace, as well as the appropriate equilibrium of parties so far as banking was concerned; but the political warfare was
1 Important pieces of land were sold for five or ten dollars over the mortgages upon them. Only a year or two later, real estate rose much in value, and the purchasers gained handsome profits. The conveyances to and from Mr. Cot- ting on the registries of Suffolk County number
twelve hundred and thirty, on forty-one streets and wharves, in all parts of Boston. So exten- sive was his ownership on Fort Hill, that a mere abstract of his conveyances there occupies fifty- eight folio pages.
.
I58
THE MEMORIAL HISTORY OF BOSTON.
waged as hotly as ever. During the war loud complaints were made of the unpatriotic manner in which the capitalists and bankers of Boston kept their purse-strings tightly drawn. Such complaints were, no doubt, justified to some extent; but party rancor carried the accusation of disloyalty be-
WILLIAM GRAY.1
yond all bounds. In 1813 the currency was in a fearfully deranged con- dition. Boston, but to a still greater extent the western part of the State, was flooded with the notes of New York and Vermont banks. The banks of Boston, in order to keep themselves strong in those troubled times,
1 [The likeness herewith given follows a por- trait of the first president of the State Bank, painted by Stuart in 1807, and owned by the Hon. William Gray. Mr. Gray was born at Lynn, June 27, 1750, and died at Boston, Nov. 25, 1825, and had the reputation of being the largest ship-owner in the country. He lived on Sum- mer Street, in the mansion previously occupied by Governor Sullivan, and built the wharf at the North End known as Gray's Wharf. He is said
to have owned at one time sixty square-rigged vessels. Soon after his coming to Boston he was elected lieut .- governor on the ticket.with Gover- nor Gerry, with whom he agreed in politics, and he was one of the few Boston merchants who sustained the embargo. During the war he had done much to promote the purposes of the administration. Drake's Landmarks of Boston, 201 .- ED.]
159
FINANCE IN BOSTON.
made but a small emission of notes. According to the returns made to the State, the four banks of the town had more than four and a half millions in specie in their vaults; but their aggregate circulation was less than a mil- lion and a half. Foreign notes (that is, those that were issued out of Bos- ton), were at a discount of from three to five per cent. By a law passed in 1810, any Massachusetts bank which refused to pay a note on demand was liable to pay to the holder two per cent a month until the note was re- deemed. By the same law, notes issued by banks beyond the limits of the State were made unbankable.
It was at this juncture that the New England Bank was chartered. Im- mediately upon beginning business it gave out that it would charge only the actual cost of sending foreign money home to the issuing bank and obtain- ing the specie, to any persons who might desire to avail themselves of the privilege. The result was that the discount on bills of Massachusetts banks out of Boston was at once reduced to one half of one per cent. The bank also sent home the notes of banks outside of the State. Notwithstanding the evident purpose of this policy, to restore order to the currency and to protect the merchants of Boston from loss, the suspicious politicians chose to put another interpretation upon it. They maintained that it was a part of a scheme to drain the country of specie, and to prevent those who were patriotic from contributing to the necessities of the government in the time of its peril. In January, 1814, the Legislature of Massachusetts received the memorial of the New England Bank, in which it was narrated that the bills of certain New York banks, amounting in the whole to the sum of $138,874, having been sent home for redemption, the specie having been received and loaded in three wagons and transported as far as Chester, the collector of New York had ordered the money back and deposited it in the - Manhattan Bank of which he was a director. He assigned as a reason for this action that he suspected the money was to be sent to Canada. The General Court passed resolutions condemning the high-handed act, refer- ring the matter to the President of the United States, and demanding the removal of the offending officer. The specie was restored, but there is no evidence that the collector was even rebuked.
The historians generally have done less than justice to this city and State in their accounts of the War of 1812. Lossing, for example, not only adopts the unwarranted suspicion of the bank-director of New York, who was in a position to worry the New England Bank for requiring payment of the circulating notes of his bank, but actually generalizes upon it, and inti- mates that Boston was in the habit of sending money to Canada. He goes so far as to lay it to the account of Boston that British bills of exchange were sold in New York and Philadelphia. He says that the terms were made attractive so as to draw specie away from the patriotic cities, and thus he makes Boston responsible for the sins of other cities. It can be said, however, that if any sums at all were sent from Boston to the Provinces the evidence does not appear in the bank statements of the time. From 181I
1 60
THE MEMORIAL HISTORY OF BOSTON.
to 1814 the holding of specie in the Boston banks increased from $830,829 to $5,466,659. In the latter year all the banks of the country except those of New England suspended specie payments, and consequently the banks of this section became the reservoir from which the whole country drew. Thus at the very time when the use of silver in illicit trade with the enemy was charged upon Boston, the stock of silver was increasing at a rapid rate.
The period of non-intercourse with Great Britain, which was more or less complete from the beginning of 1808 to the Treaty of Ghent at the end of 1814, was fruitful of good to this country in one important respect. The people were forced to engage in manufactures, for the simple reason that foreign goods were not to be had. Home industry was protected by the most potent of weapons. Previous to this time the cotton manufacture had been begun, in a small and desultory way, at factories fitted with British machinery, in Massachusetts, Rhode Island, and other States; but they were all small and poorly equipped establishments. The war sent up the price of cotton goods enormously. Cloth that retailed previously for seven- teen to twenty cents a yard, having been imported from England, now sold for seventy-five cents a yard by the package. The whole demand being thrown upon the domestic supply, factory building was greatly stimulated. Trustworthy statistics are not to be had, but it appears that more than seventy factories were built in Rhode Island alone, between the years 1810 and 1815. The growth of this interest in Massachusetts was quite as great in proportion, and larger in actual numbers. At this time was laid the foundation of the manufacturing supremacy of Massachusetts which, although figures seem to tell a different tale, she has never lost. The tariff of 1816, which followed soon after the close of the war, also helped to some extent in fostering the infant industry, although its purpose was to help the South rather than New England, which had so grievously offended the war party. Other manufactures, notably that of woollen goods, had been much stimulated by the non-intercourse policy, but it derived little or no benefit from the subsequent protective legislation.
The period succeeding the war, from 1815 to 1819, was one of severe pressure all over the country, but owing to the strength and soundness of the Massachusetts banks, and the comparatively excellent condition of the cur- rency, the evil was not so great here as it was in most other States. Some new banks were chartered at this time, but they had difficulty in raising their capital, and numerous acts were passed by the Legislature extending the time for its payment. It was during this period that the Provident In- stitution for Savings, the first savings-bank in the country, was established, in the year 1816. It was highly successful from the start, and its experi- ence led to the gradual extension of the system. The savings-banks of the State have been in general managed with much prudence, and have proved themselves to be of inestimable value in financial affairs. They have en- couraged a spirit of thrift on the part of the poorer classes of the people,
161
FINANCE IN BOSTON.
giving them a safe place of deposit for their surplus earnings, and a small but certain income from them. The watchful care of the Legislature has been in nothing more wisely shown than in the restrictions laid upon the in- vestment of the funds entrusted to the banks. At one time two or three of the earlier banks claimed exemption from rules imposed subsequent to the granting of their charters ; but the opinion of the Supreme Court was asked, and, in consequence of the judgment rendered, it became an established principle that all these institutions were liable to be held under control. The chief part they have played during their whole existence has been in enabling large and small real estate improvements to be carried out, by mortgages upon the property to be improved. It is only necessary to say here, that, with a few scattered exceptions, each year has witnessed an in- crease in the number of banks of this class, and a still more important and rapid growth in the number of depositors and of deposits. The increase has frequently gone on in spite of general depression in business; and when at last the banks have begun to feel the effects of hard times, their re- covery has not lagged behind that of the trade of the country.1
The period from 1819 to 1825 was one of expansion. Foreign trade was active and internal commerce was good.2 This was the golden age of the insurance business in Boston.3 How profitable it was may be gathered from the fact that when, in May, 1825, the American Insurance Company de- clared a dividend of six per cent on the business of the preceding six months, it was stated that in the ten years of its existence it had divided one hundred and eighty-seven per cent of its capital. Many banks of de- posit and discount were also incorporated during this period; but some of them never went into operation. Nevertheless, the seven Boston banks of 1819 had become nineteen in 1825, and the capital was increased during the same time from $7,350,000 to $10,300,000.
It was towards the close of this period that the Suffolk Bank system, which has made New England banking famous for all time, was first intro- duced. The Suffolk Bank was chartered in 1818, as the seventh bank in Boston. Among the subscribers to its capital stock were Gardiner Greene, Patrick T. Jackson, John W. Boott, Nathan and William Appleton, William, Amos, Abbott, and Luther Lawrence, Ebenezer Francis, Augus- tine Heard, and other well known capitalists of Boston. The new bank, having organized by the choice of Mr. Francis as president and Matthew S. Parker as cashier, turned its attention at once to the " foreign money " busi- ness; that is, the redemption of bank-notes issued by institutions outside of Boston, then monopolized by the New England Bank. The principle on which this business was done may be seen from the votes of the directors in February, 1819: "That if any bank will deposit with the Suffolk Bank
1 Only one serious disaster, affecting the soundness of many of the banks at once, has ever occurred, and that will be referred to in its appropriate place.
VOL. IV. - 21.
2 [See Mr. H. A. Hill's chapter. - ED.]
3 [See the chapter on "The Rise and Prog- ress of Insurance in Boston," by Mr. Osborne Howe, Jr. - ED.]
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THE MEMORIAL HISTORY OF BOSTON.
five thousand dollars as a permanent deposit, with such further sums as shall be sufficient from time to time to redeem its bills taken by this bank, such bank shall have the privilege of receiving its own bills at the same discount at which they are purchased; " also that certain banks in Massa- chusetts and Rhode Island, which were named, "shall have the privilege of receiving such of their bills as may be received at the same discount as taken, without the permanent deposit of five thousand dollars, provided such banks will make all their deposits at the Suffolk Bank, and at all times have money sufficient to redeem the bills taken;" further, "that should any bank refuse to make the deposit required, the bills of such banks shall be sent home for payment at such times and in such manner as the directors may hereafter order and direct."
A lively competition with the New England Bank was the result of this action of the bank, and the discount on foreign money was quickly reduced. After a short time the profits became so small that the Suffolk Bank was forced to reduce its expenses. A great deal of ill feeling was caused by the persistency with which the bills of country banks were returned for redemp- tion; but the Suffolk Bank insisted upon its right, and the banks affected were forced to submit. In 1824 the city was flooded with the issues of these banks. Boston, having more than one half of the banking capital of New England, supplied only one twenty-fifth part of the currency. Accord- ingly, early in that year, a committee of two of the directors of the Suffolk Bank - Messrs. John A. Lowell and William Lawrence -were directed to consider, in connection with committees of other Boston banks, what meas- ures might be adopted to check the evil of the enormous expansion of country, and especially eastern, currency. Correspondence and conferences ensued, and the result was that the Suffolk Bank became the agent of all the banks of the city except the New England, to send home the bills of outside banks for redemption. A fund of $300,000 was subscribed by these banks in proportion to their respective capitals, for the purchase, indiscriminately, of foreign money. Intense opposition arose at once to this combined effort of the Boston banks to relieve themselves and the city of the great over-issues of bank bills. The association was called in deri- sion the " Holy Alliance," and the " Six-tailed Bashaw." But the opposition was unavailing. The Boston banks knew they were only acting within their rights when they treated a bank bill as a promise to pay money on demand. Yet, long after the great benefits of the new arrangement had made them- selves evident, giving as it were a certificate of soundness to all the banks whose notes were received by the Suffolk Bank, and warning all banks of the danger of taking any bills of banks thrown out at the counter of the Suffolk, the unreasoning hostility was continued.1 Nevertheless the busi- ness increased very rapidly. With some minor modifications the Suffolk
1 As an example of this hostility may be the too cautious acceptance of country bank- cited the angry remonstrance by the Hartford bills by the Boston banks, which were charged Times, in an article printed in July, 1827, against with being "up to their old tricks."
163
FINANCE IN BOSTON.
Bank system was continued until 1858, when the Bank of Mutual Redemp- tion was established for the special purpose of serving as agent of all the New England banks in the redemption of their bills.1 The amount of foreign money which passed through the Suffolk Bank in 1857, the last year of its service as the agent of the associated banks of Boston, reached the vast sum of four hundred millions, which is a much larger sum than the redemption agency at Washington, under the National Bank system, has ever been required to handle in the same length of time. The expense of doing all this work was but $40,000.
The years from 1825 to 1830 were marked by a very large increase in the number of banks in Massachusetts, though there were but three addi- tions to the Boston list. It was at this time that a spirit of recklessness seemed to come upon the projectors of banks. Felt says, in his History of Massachusetts Currency, that " before 1825 these institutions were promoted and sustained chiefly by capitalists ; but since, they have been much oftener made up for the purpose of borrowing and not of lending, for rash enter- prises to gain fortunes at the risk of the community." The charters of three country banks, granted in 1825 and 1828, were repealed in 1830. They had been put in operation by means of perjury. They had violated nearly every provision of their charters, and were in an unsafe condition. Stringent laws were enacted to prevent a repetition of the scandal; but they were easily evaded, and the succeeding period was one of the most disgrace- ful and disastrous in the history of Massachusetts banking.
The severe pressure for money which had been felt at various times between 1825 and 1830 now began to pass away. With an abundance of money to be had at a low rate of interest, the spirit of speculation revived in its most active form. The bank fever was at its height. In seven years, ending with 1837, the number of banks in Boston was doubled, increasing from seventeen to thirty-four. Outside of Boston they rose from the num-
1 It is hardly worth while at this time either to give the particulars of the history of Suffolk Bank redemption, or to dwell upon the incidents of the controversy which finally resulted in the overthrow of the system as it was originally. A very full and interesting account of the bank and its operations for sixty years may be found in Mr. D. R. Whitney's monograph, The Suffolk Bank, privately printed in 1878. But it may be worth while to give one example of the ingenious methods of opposition which were sometimes re- sorted to for the purpose of punishing the Suf- folk Bank for its zeal in requiring debtors to pay what they owed.
The Veazie Bank of Bangor, Maine, was one of the most active opponents of the sys- tem. The officers of that bank procured the passage of a law by the Legislature of Maine, allowing to the banks of that State a certain delay after the presentation of their bills in which to redeem them. Mr. Whitney tells how
this privilege was used. "Having received in the regular course of its business a quantity of Veazie Bank notes, the Suffolk Bank would send a messenger to Bangor and demand specie for the same. The bank would acknowledge the demand and claim the lawful delay. In the mean time it would collect Boston funds and send them to a well known Boston broker, who, himself no friend of the Suffolk Bank, would take great pleasure in exchanging them in one way and another for checks on that bank. He would then present himself at the bank, demand specie for his checks, and, with the coin thus obtained, pay it for the bills for which it had demanded specie some days before ; in short, not only requiring the Suffolk Bank to hold the bills of the Veazie Bank for a certain specified time, but at the end of that time to furnish the specie for their redemption." The Veazie Bank, it may be remarked, flooded Maine with "shinplasters " at the beginning of the Civil War.
ยท
164
THE MEMORIAL HISTORY OF BOSTON.
ber of forty-six to ninety-five. The new banks were used principally for the issue of circulating-notes, as may be seen from the following compari- son of the situation of all the banks in the two years named : -
BANKS IN BOSTON.
COUNTRY BANKS.
1830.
1837.
1830.
1837.
Number .
17
34
46
95
Capital
$12,350,000
$21,350,000
$6,945,000
$16,930,000
Deposits
2,194,230
6,560,076
1,380,726
1,907,122
Circulation
2,171,417
4,386,414
2,952,673
5,886,704
Specie
910,391
1,129,942
348,053
388,042
The excessive amount of capital to the business done, the increased amount of circulation, and the small proportion of specie in reserve, tell their own story of expansion and unsoundness. In 1836 the banks of Bos- ton had barely ten per cent of the combined amount of their circulation and deposits in reserve, and the situation of the country banks was in- finitely worse. The ratio of their circulation and deposits to the specie on hand was twenty-eight and one half to one.
While this strong tendency to the creation of unnecessary banks was one of the most prominent features of the financial history of this period, it was not the only one. Speculation in real estate ran riot. There has perhaps never been another time, either before or since, when this partic- ular form of speculation assumed such proportions in the United States, or when it infected such numbers in the community. No better illustra- tion could be given of it than may be drawn from the "Eastern Land Speculation," which brought ruin upon hundreds of persons in Boston and thousands in New England. The history of this craze has never been written; and the most that can be done now, until all that bears upon it is patiently collected from the records of the time, is to construct a brief narrative from the memories of the men, now all aged, who took part in the speculation.
There was a basis for the speculation, as there always must be for any general craze. Manufacturing by means of water-power was foreseen to be a great source of wealth for New England, and there were in Maine hun- dreds of unoccupied falls where the water was abundant and unfailing. The forests of Massachusetts were exhausted, and northern Maine was covered with a virgin growth of magnificent pines and other varieties of trees. The State had increased in population during the first ten years of its separate existence, not only more in proportion but more in actual numbers than the parent State. Emigration tended thither, and a strong belief existed in the future greatness of Maine. Add to all this that land
165
FINANCE IN BOSTON.
was almost incredibly cheap in the State 1 in 1830, and it will be seen that all the elements were present for a great speculation, particularly when money was plentiful and real estate was the favorite field for bold venture.
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