USA > Massachusetts > Suffolk County > Boston > The memorial history of Boston : including Suffolk County, Massachusetts. 1630-1880, Vol. IV > Part 21
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Nobody seems to be able to tell just how the madness began; but we find it in full control of New England in 1833 and 1834. In those and the two following years men apparently grew rich in a day. Mill sites, each suitable for a small grist-mill, rose to fabulous prices. Wild lands, which could hardly have been given away a few years before, and which were scarcely worth owning at any price, changed hands at an enormous valua- tion. It used to be a joke in Bangor that the hotels and boarding-houses were so full of Boston land-speculators that late comers were forced to pay high prices for the privilege of leaning, overnight, against a fence-post. The State sold lands by the township. A speculator would buy a township wholly on credit, like a pig in a poke, without the slightest knowledge of the character of the soil or the nature of the forest growth, if any, upon it. Then he would send an " explorer," of whom there were many professional ones, to investigate and report. In too many cases the explorer would find the attractions of Bangor too great to be resisted; and accordingly, after an ostentatious setting out on his mission, he would return secretly, and draw up from his imagination a report, favorable of course. It is related of one of these explorers that he was seen making a series of sketches of townships, upon each of which a liberal growth of pine-trees was exhibited, and through the centre of each of which was represented a fine stream of water. The gentleman who saw this expressed surprise that all the town- ships should be so favored. " Oh," replied the explorer, " Maine is well watered." It was, indeed! Fortified with a favorable report, the purchaser of the township would seek and quickly find a person eager to buy at an advance. As he had bought, so he would sell,-on credit. The second owner would repeat the process, taking a note for the purchase money ; and so on.
This general method of operation was by no means confined to State lands. There were men who made it a business to go about taking bonds of all the real estate that the owners would sell. One who remembers well the incidents of the time says that almost the whole of the county of Kennebec was bonded to speculators. A bond for anything was salable. Women and boys engaged in this trade. Sorry as was the result of the craze, there are few men who were concerned in the speculation who do not recall the time with a twinkle of amusement in their eyes as soon as they begin to talk over old times, wondering at themselves as much as at others for their early folly. When the crash came, however, it was any- thing but amusing. Real fortunes, as well as paper ones, melted away in a night. The failure of any one of a series of holders of a piece of land top- pled over the whole structure of credit. In a few short months the whole
1 The land on which the State House in Augusta stands was sold for twelve and a half cents an acre.
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THE MEMORIAL HISTORY OF BOSTON.
speculation collapsed. So extreme was the depression which followed, that the land-agent of Maine, in his report at the beginning of 1838, urged the adoption of a system of cash payments for future sales of land, because " there are notes to a considerable amount in this office, taken in 1835, that can never be paid, all the parties to them having become bankrupt. . . . There is scarcely a man indebted to the land-office who would not find it exceedingly difficult to make immediate payment." A few men who took the precaution to sell out their lands and bonds at the high prices and get the money, or who were strong enough to hold on until prices became bet- ter, or who had kept out of the speculation until the collapse came and then bought properties for a song, became wealthy; but the largest part of the men concerned in the affair, among whom Boston merchants and capitalists were very prominent, lost heavily.
The period under consideration is to be mentioned for another under- taking, or class of undertakings, which have done more than anything else to increase the power and importance, in a financial sense, of this city. It was at this time that the railroad system was introduced. The connection of Boston with enterprises in this field, -both those which were designed to and did minister directly to the consequence of Boston among the cities of the country, and those which served only as outlets for the surplus cap- ital of New England, and as remunerative investments in other parts of the country, - is told in another chapter.1 It will be sufficient in this place to note very briefly the influence of railroads upon the wealth and business of Boston.
The purely local roads have consolidated the country within many miles of Boston into what is practically one city, and have concentrated, -more than is true of any other centre of population in the country, -the ener- gies and the public spirit of all into one community. The roads which have a connection with the West or the South, or with both, have been most in- valuable as agents for the distribution of New England products, and for the bringing of food either for consumption or export; and, although they have been merely independent termini of great systems, they have done their work as well, and with quite as great returns to the owners, as the railroads of any other State or district of the country. Finally, the investments beyond the State have been in the main so judicious that handsome profits have accrued to the capital placed in them, and have given Boston a financial standing which is directly comparable with that of New York, and is inferior to that of no other city on the continent.
The great interruption to business prosperity came at the end of a season of unexampled speculation and inflation, in 1837. The storm had been giving warning of its approach for many months. In Massachusetts the growing distrust had manifested itself late in the previous year by such incidents as the run on the Nahant Bank, which suspended with only $215 in specie on hand, but with liabilities outstanding, on circulation alone, of
1 [By Mr. C. F. Adams, Jr .- ED.]
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FINANCE IN BOSTON.
$242,965. At the beginning of 1837 suspicion was entertained of the sound- ness of four banks, three of them in Boston, and an investigation was had. In spite of a whitewashing report, all four banks failed before 1840. In March occurred the New Orleans failures, which pulled down many New York houses, and these in turn prostrated mercantile firms in Boston. In a short time business had almost completely ceased. On May 10 the banks of New York suspended specie payments, and the next day a large meet- ing was held in Faneuil Hall, at which it was resolved that self-protection required the banks of Boston to do the same. On the 12th all the banks did so.
To most of the banks of Boston this was almost entirely a measure of precaution. There was then, as before and since, a class of banks which are distinguished for taking large risks in the hope of large profits. In 1837 the number of such institutions appears to have been unusually large. They were exclusively new banks, all the older banks being conservative and strong. This is shown by a letter written by the president of the Suffolk Bank to a brother president in Augusta, Maine, less than a fort- night after suspension. "In regard to resuming specie payments," he wrote, " I can only say that we are ready to commence again to-day, and intend to remain in this condition till others are also ready." Other banks in Boston were in quite as safe and ready a condition as the Suffolk.
The old Jacksonian controversy over the United States Bank is not worth reviving now; but there can be no gainsaying the fact that the infla- tion of the years from 1832 to 1837 was largely caused by the rush to get into a business which the repeal of the charter, or rather its non-renewal, was to leave more open to competition; that the distress was precipitated by the hard and unreasonable demands of the Government upon the banks for funds in large sums for the distribution of surplus revenue; and that after the suspension the Government aggravated rather than ameliorated the situation. The specie-circular of 1836, which required all payments for lands to be made in coin, was now followed by an order of the post- master-general directing that specie alone should be received for postage. An immense indignation meeting was held in Faneuil Hall on May 17 to protest against this order, and some vigorous resolutions were passed, which of course had no effect. Business continued to be in a wretchedly prostrate condition all through the year 1837. Early in the following year it seemed to observers that the existing evil might be to a great extent removed, if the banks were to give evidence of their faith in the future by resuming. The Legislature passed a law which made it for the interest of the banks to begin paying their notes; and on May 10, just a year after the suspension, they resumed at the same time with the New York banks.
Although immediately after the suspension of 1837 the banks of the city, with one exception, banded themselves together for purposes of mu- tual protection and supervision, the period is strewn with wrecks of these institutions. The Associated Banks appointed a committee, "with full:
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THE MEMORIAL HISTORY OF BOSTON.
power to examine into the condition of any bank in the association; to reprove and, if necessary, restrain banks which were disposed to transcend the limits of prudence; and to require them to give security for their cir- culating-notes held by any bank in the association."1 By this action the Boston banks gave proof of the good faith of their long-continued policy of rigor towards the banks in other parts of New England, since they now applied to themselves a more rigid rule than they had ever attempted to impose upon others. While the supervision which was exercised over the banks operated to some extent as a restraint upon the more reckless mem- bers, it could not save those which were already insolvent. In July, 1837, the Franklin and Lafayette banks of Boston failed, with heavy liabilities and almost worthless assets. Some of the other banks expanded their cir- culation at the same time, but only to pay the penalty of their folly a lit- tle later. Confidence was gradually being restored as the excitement died away, when the public was startled, in January, 1838, by the failure of the Commonwealth Bank. This was the largest failure that had occurred among Boston banks up to that time; and it was particularly significant, owing to the circumstance that it was one of the institutions chosen by the General Government for the deposit of funds which were deemed unsafe in the Bank of the United States. Very soon afterward six other banks were forced to close their doors, four of them being Boston banks. The Legis- lature of 1838 promptly repealed the charters of ten banks, seven in Boston. These included, besides those already mentioned as having failed, the Com- mercial, Fulton, Kilby, and Hancock banks. Several other failures took place in following years, but only one, the Middling Interest, belonged to Boston. It is a fact worthy of notice that not one of the old Boston banks - those chartered before 1825 -was injured by the crisis. The mortality was heaviest among the latest comers into the field; not because they had not had time to strengthen themselves, so much as because they were created for purposes of speculation, and were conducted on a speculative basis. In addition to its vigorous action in annulling charters of failed banks, the Legislature of 1838 passed laws for the protection of the public in their dealings with banks, and created the Board of Bank Commission- ers, who received large powers in the direction of examination and control of banks,-measures which fully justified themselves by their subsequent success in preventing reckless management, and in giving timely warning of disaster.
The period from 1840 to 1850 was one of large prosperity for Boston. It was then that the ocean carrying trade was most active at this port. Boston ships went everywhere. Here was the controlling market for many articles of foreign production of great importance; and even when the control of the sale was not here, a large part of the carrying was done in vessels owned in and sailing from Boston. During this decade the estab-
1 History of Banking in Massachusetts, by Dudley P. Bailey, Jr .; Bankers' Magazine, October, 1876.
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FINANCE IN BOSTON.
lishment of the Cunard Line, as a swift carrier of mails, passengers, and high-cost freight, gave increased importance to the city. Those who wish to learn how large a part of the life of Boston the arrivals and departures of the Cunard steamers made, may make the discovery by studying the record of events in the city at this period, as given in the Boston Alma- nac. Not once is the interesting fact of a movement of one of these vessels omitted. The pride of the people .in the line is indicated by the enterprise with which a channel was cut for the " Britannia" to go to sea, that it might not be said that she was detained in the harbor because Boston was frozen up.
At the beginning of the last decade before the war, the memory of the terrible consequences of undue expansion which culminated in 1837 had mostly died out, and a new season of inflation set in. As before, the specu- lative rage manifested itself in a marked degree by the creation of new banks. But the legislatures of this period were more cautious than their predecessors in the period from 1830 to 1837 had been. The result of their wise caution was seen in the better resistance offered by all the banks when the disasters soon to come overtook the community. While the banks remained comparatively conservative, speculation of various kinds was rife; merchandise advanced rapidly in price, and all the elements con- spired to prepare the way for a great financial revulsion.
Two events occurring in Boston at this time deserve more than a passing mention. The first was the establishment of the Boston Board of Trade, in 1854. This association was the result of an effort to concentrate the busi- ness energies of the city, then greatly divided, in order that a consistent and enterprising policy might be substituted for the hesitating and inharmonious methods that prevailed in reference to the interests of the port. The Board of Trade never succeeded in restoring Boston to its former maritime rank. New York, stimulated by the rivalry of sister cities, and aided both by natural advantages and by the systems of communication with the interior by means of canals and railroads, had gained a start which she easily maintained; and since the period under consideration she has greatly in- creased her lead. Nevertheless, the Board of Trade found its mission, and has served a useful purpose in the financial economy of the city. The early habit of Boston merchants to meet"" on 'Change," which was in vogue until about 1850, had been abandoned, and it has never been resumed; but the Board of Trade has served to keep up a fraternal spirit among Boston mer- chants, drawing them together now and then for the purpose of discussing matters involving the interests of the commerce, both domestic and foreign, of the port, and acting as an organ and spokesman of the entire body of business men. Of late years, we may remark, as there will be no occasion to mention its work again, it has maintained one of the finest commercial news-rooms in the country.
The other event was the establishment of the Clearing-house. The New York Clearing-house went into operation in October, 1853; that of Boston,
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THE MEMORIAL HISTORY OF BOSTON.
in May, 1856. Twenty-nine banks formed the association at the start, but three others were admitted the same year. The exchanges in 1856 amounted to a little more than $1,000,000,000, - about one seventh of those at New York in the same year. The modern rule of estimating the amount of business done in a city at various periods, by a comparison of the clearings, can be proved correct, so far as Boston is concerned, by the statistics of this institution during the quarter-century of its existence. The effect of the crisis of 1857 is very distinctly observable; and so are the depres- sion at the beginning of the war, the expansion which followed, the sea- son of inflation from 1867 to 1873, the decrease of trade which ensued, and finally the revival of business in 1879 and 1880. In the last year the gross exchanges amounted to $3,326,343,166. This sum was rather more than one twelfth part of the clearings in New York in 1880; showing, so far as this is a test, that the business of the metropolitan city has grown at a more rapid rate by far than that of Boston, and in the actual amount of business done is now many times as much. It is a fact well worthy of mention, that no bank belonging to the Boston Clearing-house has ever failed. At pres- ent the association includes fifty-one banks, all under national charter. Ten banks, most of them located in Roxbury or other annexed districts, and the several trust-companies which do a banking business, "clear" through some member of the association.
The banks of Boston were much better prepared to withstand the evil of 1857 than they had been to meet disaster in 1837. In the first place, they were managed by more prudent men, - or rather, to be more accurate, there were not among them so many reckless spirits. Moreover, a law passed in 1854 had required the Boston banks to publish weekly returns of their condition, so that the business was conducted more in the sight of the public. Nevertheless, the city banks in February, 1857, had but $3,500,000 specie, as reserve against liabilities in the shape of circulation and deposits of more than $22,000,000. Warned of impending danger, the banks not only of Boston, but of New York and other parts of the country, began to curtail their loans and to reduce their liabilities to the public. This action, coming upon a business community accustomed to a free use of credit, produced such a strain that in the autumn there was a general suspen- sion of specie payments, the Boston banks joining in the movement. The suspension lasted but fifty-nine days, and all the banks resumed payment on December 12, not one bank having failed in consequence of the crisis. Indeed, the suspension was merely nominal while it lasted. Specie flowed in rapidly, and there was no great difficulty in obtaining what was needed by the best borrowers.
The disaster of 1857, so far as it affected the banks, was thus of a brief and harmless character. It was quite otherwise with general business. Yet it is safe to say that hardly a person in the community had, at the time of suspension, even an approximate appreciation of the gravity of the situa- tion. The one thing apparent to everybody was that the banks had con -.
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FINANCE IN BOSTON.
tracted at a terribly rapid rate,1 and in an unfeeling manner. The principle of post hoc propter hoc was applied by everybody who sought for an explana- tion of what was occurring, and the banks were denounced, right and left, for their heartless action. The newspaper and periodical literature of the day teems with long expositions of the situation. So careful an observer and so wise a man as Nathan Appleton, in a letter addressed to the Boston Daily Advertiser, on October 12, the day before suspension, maintained that business generally was in a sound and prosperous condition, or would be so but for the course of the New York banks. "In my whole experi- ence," he wrote, " I have never known a crisis so severe as the present, and, I must say, so wholly uncalled for." The editor of the Advertiser, in print- ing this letter, said that Mr. Appleton " fixes the seat of the mischief in the true spot, namely, the banks of the city of New York; " and Hunt's Mer- chant's Magazine, in copying the letter, expressed its entire concurrence in this view. Mr. Amasa Walker led off in the magazine just mentioned (issue for November, 1857) with an article, which he began by saying that "the whole monetary system of the United States has fallen with a mighty crash, and now lies before us a magnificent and melancholy ruin."
It was not long, however, before a change was observable in the explana- tions given. Careful men learned to their surprise, but to their complete satisfaction, that the real cause of the panic and the financial and commercial ruin lay much deeper than the action of the banks; and they. were honest enough to confess the mistake they had made. Even if they had not done so, the lesson of the appalling list of failures which ensued, becoming more frequent and more disastrous after the banks had resumed and were again discounting freely, was too plain to be mistaken. In Boston alone there were two hundred and fifty-three failures, with liabilities amounting to $41,000,- 000,- an amount which was larger than that of any year before or since. In 1858 the fact was generally recognized that overtrading had caused the evil. Immense investments had been made in manufacturing and railroad enterprises, far beyond any present necessities, and the money for these purposes had been for the most part borrowed abroad. The currency was bad; but the commerce of the country was carried on in such an artificial way that merchants and speculators, and not the representatives of con- centrated wealth, were the real offenders.
The Suffolk Bank system came to an end in 1858. This was the result of a long-growing impatience on the part of many banks in New England at the restraints which that system imposed upon them, as well as of a desire to share in the supposed large profits of the Suffolk Bank on the redemption of foreign money. The Bank of Mutual Redemption was chartered in 1855, and began business in 1858. The division of the business of redemption
1 The loans and discounts of the New York banks for the week ending August 8 averaged more than one hundred and twenty-two millions. In ten weeks, to October 17, the week of sus- pension, the amount of loans was reduced to
a little more than ninety-seven millions, - a diminution of fully twenty per cent. The re- duction in Boston was only about ten per cent ; but even then it amounted to several millions, and caused great financial distress.
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THE MEMORIAL HISTORY OF BOSTON.
between two agents, and the withdrawal of deposits by many of the country banks, determined the directors to discontinue the assorting of country money altogether. The system was continued in a modified form by the Bank of Mutual Redemption, until the establishment of the National Bank system rendered. it no longer useful or practicable. The great value of the Suffolk Bank system is seen, and will always be acknowledged, by those who study the reasons why, when the currency of the country was in a state of utter disorder, that of New England was sound and healthy; and who observe that while the notes of other banks had but a local circulation, or, if they wandered away from the place of issue, were only taken at a large discount, those of New England banks were current at par in far distant States.
The beginning of the Civil War found general business again in a pros- perous state, and the banks in a condition of strength. While the strong arms of the sons of Massachusetts were offered to the country for its mili- tary service, its strong-box was opened to supply the means for prosecuting the war. The banks cheerfully took the assigned amounts of the national loans which were raised through the medium of the banks of New York, Philadelphia, and Boston, in 1861. They gave efficient help to business in the stirring times which followed. Boston had its full share of the trade which arose. out of the necessities of large armies in the field. The last vestiges of its great fleet of ocean vessels were swept away, a part of them having been sold to British owners, and others having been captured by Confederate cruisers; but, in compensation, the factories of New England were pressed to their utmost capacity to supply woollen cloth for uniforms. The cotton-mills, if they had scanty supplies of raw material, were enabled to make handsome profits on the goods they could make. The boot and shoe makers and dealers enjoyed the benefits of an enormous demand for goods of a class in which they had almost a monoply. Other branches of business were also greatly favored by those kinds of trade which are made active by the dire necessities of war.
The first national banking law was passed in 1863, and re-enacted with some modifications in 1864. The Safety Fund Bank was the first Boston institution to take advantage of the new system, which it did by becoming the First National Bank of Boston, under the act of 1863. . All the banks of Boston transformed themselves into National banks in 1864 and 1865, being encouraged to do so by a law of the Commonwealth passed in 1864, which facilitated the change. The provision of the National Bank Act which authorized the formation of gold-banks was availed of for the organization of the Kidder National Gold-Bank, the only one of the kind ever established except on the Pacific coast. This bank, however, discontinued business several years ago, and surrendered its charter.
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