USA > New York > A short history of New York State > Part 27
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Citizens in the north country benefited from the desire of Boston in- terests to secure an independent route to the Lakes. In 1850 the Northern Railroad linked Lake Champlain and Ogdensburg, but the line proved a disappointment to its backers in Boston. The Watertown and Rome Railroad was completed by 1851, and by the end of the decade had reached Potsdam and Ogdensburg.
During the 1850's several north-south lines were built connecting the New York Central and the Erie railroads. The most important among these railroads, projected southward from Albany, Utica, Syracuse, Rochester, and Buffalo, was the Albany and Susquehanna, later the major segment of the Delaware and Hudson Railroad. This railroad, relying a great deal on local aid for capitalization, reached Oneonta in 1865 and Binghamton a short time later.
New York's basic railroad pattern was established by 1860, and prac- tically all sections of the state had railroad service. The Long Island line, for example, opened the region of that name. During the 1850's the two cross-state lines-the New York Central and the Erie-were gradually taking more traffic from the Erie Canal and helped to continue New York City's firm grasp on the western trade.
Most farmers and villagers, however, continued to rely upon the miserable roads for ordinary transportation and travel. The roads were under the care of the town commissioners of highways, who laid out roads, directed repairs, and erected bridges. They also divided the towns into road districts, and the overseers of highways in charge of these dis- tricts supervised road maintenance. They had power to assess upon each
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resident several days of labor on the road, but they did not have the equipment, technical knowledge, or skilled labor to keep the roads in good shape.
Practically all of the privately owned toll roads failed to earn enough revenues to pay for repairs. The turnpikes faced competition from several rivals: the canal system carried much freight; the railroads in the 1830's attracted the through passenger traffic from the stagecoach; and the coun- ties in the 1830's were beginning to show more interest in improving the public roads.
Shortly before the mid-century mark the movement for plank roads swept the state. The first plank road, which ran from Syracuse to Oneida Lake, proved so popular that in 1848 the legislature passed a general plank road act. Enthusiasts secured charters for over 182 companies within the next two years. Plank roads were easily built upstate, since ample lumber was still available. Local businessmen financed plank roads in every direction, hoping to enlarge the trading region of their city or town.
Unfortunately plank roads quickly deteriorated and became danger- ous for horses to use. The heavy wagons broke the planking and decay quickly rotted away the boards. Like their predecessors, the turnpikes, the plank roads seldom earned enough revenue to pay for repairs. The growing scarcity of timber, and of money after the Panic of 1857, ruined most plank road companies.
Improvements in communication instituted during this period were so marked as to be revolutionary. Mail service was greatly improved. The railroads provided faster service than the stagecoach companies. After some delays the government facilitated the delivery of mail in other ways. The establishment in 1851 of the three-cent rate for prepaid letters increased the volume of mail. In New York City the government charged the recipient two cents for each letter delivered; not until 1863 was there free city delivery. Postal receipts from New York State amounted to about 22 per cent of the national total, reflecting the great amount of business transacted in the state.
The delivery of parcels was carried on by scores of small companies, especially within New York City and the other urban centers. Four large companies controlled most of the important intercity business of the na- tion. The American Express Company, one of the largest, had close ties with the New York Central lines.
The invention of the magnetic telegraph in 1844 emancipated com- munication from transportation. Soon after the successful demonstration by Samuel F. B. Morse, promoters rushed to construct intercity lines. In 1846 Ezra Cornell of Ithaca built, under contract, a line from New York
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to Albany. This was extended by the end of the year to Buffalo. Cornell constructed a line to Michigan and sank his capital into a line paralleling the Erie Railroad. But this line across the "southern tier" was no more successful than the railroad, and it went bankrupt in 1852. Hiram Sibley of Rochester, who controlled the line from Albany to Buffalo, arranged a merger in 1856 with Ezra Cornell's interests. The reorganized company took the name of Western Union and established a virtual monopoly of wire services. By the end of the Civil War, Sibley and Cornell were mil- lionaires.
Plank roads, railroads, canals, steamboats-all had revolutionary effects on the economy of New York. The predominantly self-sufficient farmer of pioneer days was gradually transformed into a specialized commercial farmer sensitive to every shift in the markets. The isolation of many rural communities was breaking down as citizens and goods flowed freely in and out. Merchants in both the upstate and metropolitan region, recog- nizing the crucial role of canals and railroads, looked with satisfaction upon the finest and most actively expanding transportation network in the country. New York State grew steadily in population, wealth, and trade, thanks largely to the splendid system of water and rail transporta- tion promoted by its citizens in this period.
Chapter 21 ¥
The Businessman
Free institutions, general education, and the ascendancy of dollars are the words written on every paving-stone along Fifth Avenue, down Broadway, and up Wall Street. Every man can vote, and values that privilege. Every man can read, and uses the privilege. Every man worships the dollar, and is down before his shrine from morning to night. -ANTHONY TROLLOPE, 1862
BUSINESS-commerce, finance, and manufacturing-grew enormously between 1825 and 1860. Domestic commerce expanded almost explo- sively with the extension of canals and railroads, the development of the trans-Appalachian region, and the growth of manufacturing. Foreign trade was a declining fraction of the total business transacted in the United States, although exports and imports made impressive gains. To put it another way, the merchants of New York City in 1815 faced the sea- in 1860 they looked inland.
The big merchants were the leading citizens in the cities and towns of New York. Those on Manhattan Island directed the flow of farm products to Europe and the distribution of finished goods manufactured abroad or in the factories of the Northeast. By 1825 specialization had nearly outmoded those merchants who not only owned their own ships and engaged in foreign trade but also bought and sold goods at wholesale and retail, and performed banking and insurance functions for others. Some commission merchants, brokers, importers, jobbers, began to specialize in certain commodities or to perform only one function.
Commission merchants were mainly interested in selling goods con- signed to them by outsiders. A few specialized in dry goods, flour, hard- ware, and the like, but most commission houses dealt in any product that came along. The broker or factor brought buyers and sellers together, taking no title to the goods. In addition, there were auctioneers, bankers, and agents of various kinds.
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The auction system played an unusual role in the import trade during the 1820's and 1830's. Under New York law all goods offered at auction had to be sold. Almost one-half of the goods imported in the 1820's was sold at auction, sometimes at a loss, to the import houses. Auctioneers handled a smaller share of the nation's imports during the 1830's and thereafter their business fell off sharply.
Jobbers or wholesalers, the main customers at the auctions, funneled goods to the country storekeepers who swarmed to Manhattan to seek out the best bargains. After 1840 some of the small storekeepers in more distant regions began using the jobbing centers in the West such as Cin- cinnati and Chicago and in the South such as Mobile and Augusta. To counter this competition, some of the mercantile houses in New York sent traveling salesmen directly to the small stores.
The consumer received goods through retail stores, public markets, and peddlers. Retailers were normally not specialists and carried a hetero- geneous stock of goods. In New York City and the larger upstate centers some specialty shops emerged, the drugstore usually in the vanguard. Men's clothing shops were first established in New York City in the 1830's. The most important store in New York City was the "palace" of A. T. Stewart, an Ulsterman who made a fortune selling textiles in his department store. Stewart was one of the first to adopt the policy of one fixed price, which soon became common practice in the larger establish- ments. Lord and Taylor and R. H. Macy also founded their stores in this period.
Upstate, the merchants were usually the wealthiest citizens in their communities. They not only sold to consumers but also stored and trans- ported goods obtained, often by barter, from the farmers. They stocked their shelves with products as diverse as textiles and tropical foodstuffs. The importance of the country storekeeper was widely recognized. He was buyer of farm produce, seller of imports, banker, promoter of turn- pikes, sponsor of local manufactures, not to mention his duties as civic and social leader. Thurlow Weed described the significance of the general store in one of the counties of the southern tier:
I remember the stir which a new store, established in Lisle (some seven or eight miles down the river [Chenango]) by the Rathbuns, from Oxford, cre- ated in our neighborhood. It was "all the talk" for several weeks and until a party of housewives, by clubbing together their products, fitted out an expe- dition; vehicles and horses were scarce, but it was finally arranged; A fur- nishing a wagon, B a horse, C a man, and D a boy to drive. Four matrons with a commodity of black salts, tow cloth, and maple sugar, went their way re- joicing, and returned triumphantly at sunset.
The history of American foreign commerce and merchant marine in this period is virtually identical with the story of New York port. In 1860 the
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metropolis was handling over two-thirds of the imports and one-third of the exports of the United States. New York City dominated the passen- ger and immigrant traffic across the North Atlantic, the import trade, the export trade in cotton, coastwise freighting, and the trade with Cali- fornia and the Orient.
Seaborne trade expanded rapidly in the nineteenth century. The textile mills of Lancashire demanded more cotton; the primary-producing re- gions of the South wanted more and more manufactured goods; and a growing number of immigrants sought passage across the North Atlantic. The tonnage of the United States on the various routes rose from 1,191,- 776 tons in 1830 to 5,353,868 tons in 1860, an amount almost equal at the later date to that of the British Empire.
The low cost and good design of American ships were matched by the acumen of owners and seamanship of captains. After 1815 wholesalers, importers, and exporters found it economical to patronize common car- riers or to charter vessels rather than to sail their own ships. The most common type of shipping enterprise was the small firm owned by the shipmaster or by a family and operating one to three ships. American ships operated at a low labor cost because able officers drove the seamen hard.
The number of persons crossing the North Atlantic to America rose from 10,311 in 1820 to a record of 460,474 in 1854. Over 90 per cent were emigrants who for a fare of twenty dollars had the use of a bunk meas- uring six or seven by two feet and who provided and cooked their own food. Most emigrants chose the general trading vessels, particularly those carrying cotton to Liverpool. Cabin passengers, who paid $150 for the trip, took passage on the luxurious packets which averaged twenty days eastbound and thirty-five days westbound from Liverpool to New York. Packets also carried many emigrants in steerage and captured most of the high class freight.
By 1860 the American people were buying most of their clothing ma- terials through New York firms. Textile imports, comprising one-third of all imported goods, were the outstanding feature of New York's whole business as a seaport. The merchant houses of Manhattan had a virtual monopoly on woolens and cotton goods from England, linens from Ire- land and Hamburg, and silks and laces from France.
The flood of British textiles led to tariff demands by textile operators in New England. Congress placed tariffs on cotton and woolen goods in 1816 and 1832, which helped native manufacturers to produce goods, especially in the cheaper grades. By 1860 domestically produced textiles, sometimes referred to as "domestics," were triple the amount of im- ported textiles in monetary value. At first Boston houses controlled the trading in "domestics," but after 1840 the business drifted to Manhattan, the mecca for country storekeepers from the West and the South.
Iron and steel products were eyed favorably by shipowners because
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they were second in tonnage although sixth in value. British steel mills and foundries were able to lay down these products in New York at a cheaper price than the infant ironmakers of the United States. The bulk of sugar and coffee, second and third in value among all imports by 1860, also came to New York.
Cotton continued to provide most of the outbound cargo. In 1852 ton- nage engaged in the transport of cotton constituted almost one-half of the fleet registered for foreign trade. New York firms profited in many ways from the cotton trade. The commission merchants, or factors, resident in the southern towns were usually agents of the New York firms. Because of their connections with New York and Boston banks they could extend liberal credit to the planters. Underwriters associated with New York insurance companies received premiums for insuring the bales in storage or transit. If the cotton was transshipped at New York, a series of persons benefited: draymen, storekeepers, commission merchants, cotton brokers, weighers, packers, stevedores, laborers, insurers, and of course, ship- owners. If the cotton passed directly to Europe, shippers, insurers, and bankers of New York still profited.
The coastwise carrying trade employed thousands of craft whose ton- nage in the aggregate exceeded that engaged in trade with foreign coun- tries. Schooners operated up and down the coast from Maine to North Carolina with New York harbor the center of their activities. The growing population of New York City demanded more and more products: food- stuffs from nearby points in New Jersey and Connecticut; building ma- terials such as lumber, granite, and lime from Maine; tar and turpentine from North Carolina; coal from Pennsylvania; tobacco and flour from the Chesapeake region. In return, the schooners carried a heterogeneous as- sortment of goods: foodstuffs such as sugar, tea, and wines; textiles, both imported and domestic; ironware, and so on. New York exchanged many manufactured products, such as textiles, ironware, and shoes, with Boston, its only serious rival in the import trade.
Large square-rigged ships-tramps, traders, and packets-served the ports in this country below Cape Hatteras. Over a score of packets oper- ated regular schedules between New York and New Orleans and Mobile. The outbound ships carried general freight; the inbound, chiefly cotton, hides, furs, lead, wheat, and tobacco.
Ship operators of New York City dominated the trade with Latin- American and Caribbean countries, Cuba and Puerto Rico providing the most business. The Cuban planters sent their sugar to New York to be refined and relied upon New York merchants and bankers for credit. Political disturbances and British competition limited trade with the South American republics except in Brazilian coffee, Argentine hides, and Peruvian guano.
The more distant trades-those to China, India, and Africa-were be-
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coming relatively less important during this period. Furthermore, Boston provided stiff competition. Its shippers carried on most of the trade with India, although the tea from China generally arrived in New York. Inci- dentally, New York ports such as Sag Harbor and Hudson contributed only a few ships to the great whaling fleet which comprised almost one- fifth of the nation's registered marine in the 1840's.
The merchant marine experienced a boom between 1847 and 1857 due to the general prosperity of the country and also to a combination of unusual conditions. The British Parliament, by repealing the Corn Laws in 1846, opened up a large market for grain. The annexation of California in the same year and the gold rush a few years later created a heavy demand for shipping space for passengers and for their provisions. In 1856 the British government diverted many of its deep-sea ships to supply the troops in Crimea, and the tea trade between China and Great Britain employed many fast American clippers.
This boom only delayed the spectacular decline in the American mari- time industries after 1857. First and most basic of all, rising costs in the building and operating of ships were ending the American advantage over foreign builders and ship operators. The collapse of the California boom also released many ships. The Panic of 1857 caused a general busi- ness recession and aggravated the problem of surplus tonnage. The Civil War ruined the cotton trade, which was the mainstay of the merchant marine, and many shipowners lost their vessels to enemy action or trans- ferred them to foreign registries. The sailing packet service declined rapidly because of the competition of the iron-hulled steamships. East- bound passengers deserted the sailing packets by 1860, and immigrants to the United States found steamships faster and safer.
By 1863 the decline in American merchant marine had reached the point where less than 50 per cent of the nation's commerce, in monetary terms, was carried in American vessels.
Mechanical and structural innovations-steam power, screw propeller, and the steel ship-foretold a revolution in ocean transport in which Americans were to play a distinctly secondary role to the British, who quickly took the leadership in steamship travel on the high seas. Their marine engines were the most advanced in the world; their iron and steel industry made the cheapest hulls; and the British government fostered steamship lines by subsidies. In 1839 Samuel Cunard started his famous line from Liverpool to Boston and, after 1848, extended service to New York.
The high cost of American-built steamships as compared with sailing vessels discouraged their construction and made competition with Brit- ish vessels difficult. American designers were also technologically be- hind the British. Nevertheless, Congress decided in the late 1840's to
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grant subsidies to steamship lines to Le Havre, Bremen, Liverpool, and San Francisco. Edward Collins, king of the packet-owners operating out of New York City, won a generous subsidy and in 1850 began operating four large wooden paddle-wheel ships to Liverpool. Like many Americans, Collins was obsessed with the desire for speed, even at the expense of profits. Two tragic accidents and poor management caused Congress in 1857 to cut the subsidy, and the next year the Collins line went bankrupt. The only subsidized line that proved a success was the one from New York to California.
By mid-century the merchants and bankers of New York City had won supremacy in American finance. The banks, commission merchants, and mercantile houses granted credit to inland jobbers and to country store- keepers, who in turn "carried" their customers until the crop was in. This intricate system worked moderately well in good times, but periodic panics obstructed the free flow of credit and forced even some of the stronger firms into bankruptcy.
Americans, of course, yielded world leadership to the great financial houses of London. Several British houses, notably the famous Baring firm and W. & J. Brown (later Brown, Shipley and Company), specialized in the lucrative Anglo-American trade. In this country the house of J. P. Morgan owed its early growth to the handling of English investments in the American wheat trade.
Not only did the banking business of the state grow in volume but it also changed its character. Capital resources grew slowly before 1850, then more than doubled within a decade. The most striking change was the rapid increase in bank deposits as compared with the slow rise in the number of notes they issued. Unfortunately, neither bankers nor state officials realized that deposits as well as notes needed to be covered by a reserve. When the Panic of 1857 struck, many banks could not redeem their notes. The national banking system set up in 1863 partially met this need by requiring a specific minimum reserve, making stockholders liable, and providing for the regular examination of accounts.
Before 1838 banks were a quasi-monopoly granted by special act of the legislature for periods of thirty years or more. Politicians and busi- nessmen sought charters because of the high profits and the opportunities to use the bank funds in various ventures. With the granting of a new charter there often took place a wild scramble to secure the stock of that bank. Lobbyists tried to logroll other charters through the legisla- ture. The administration of the banks frequently revealed poor judgment and sometimes downright dishonesty. In 1827 the legislature prohibited directors from borrowing more than one-third of the paid-up capital, from paying dividends except out of profits, and from operating until the capital
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had been paid in. It also fixed the maximum interest rate at 6 per cent. Total debts could not exceed three times the paid-up capital exclusive of the specie actually on hand. Such regulations hint at the sort of abuses which had taken place.
Two years later the legislature tried to protect the noteholder against loss by setting up a safety fund to which all banks had to subscribe a total of 3 per cent of their capital. If this fund were not sufficient, the state authorized further assessments. This law of 1829 provided for three com- missioners to supervise the system and to make periodic inspections of the banks. The bankers of New York City generally opposed the scheme on the ground that since most of their business was deposit and discount, their institutions would be paying assessments to bail out mismanaged country banks. In fact, the existence of the safety fund encouraged rural banks to increase their note circulation.
During the 1830's banking questions plagued state politics as well as Jackson's administration. Some of the Democrats who followed Old Hick- ory against Nicholas Biddle, head of the Second Bank of the United States, were actually in favor of the banks chartered by the state of New York. Other Democrats opposed all "chartered monopolies" on principle. During the height of the boom promoters founded more banks and cre- ated more credit. When the crash came in 1837, blame was heaped upon the bankers. In 1838 Governor Marcy exploited the strong antimonopoly feeling by urging the passage of a free banking system under which any group with the required capital might enter the banking business without special legislation. This act, according to Bray Hammond, was the "most important event in American banking history" since it created a distinctly American system of banking. Before 1838 the state governments granted charters to banks only by special legislative acts, partly because banks were virtually organs of the state and partly because entrenched groups had sought exclusive privileges.
In addition to the free banking feature the act of 1838 provided a new device for ensuring the safety of bank note issues. Banks were required to deposit stock of the state, United States, or other states, or bonds and mortgages with the comptroller before they could secure notes for issue. Within the next eleven years the comptroller sold at a severe discount the securities of thirty-one free banks that failed. During 1840-1842 eleven banks covered by the safety-fund system failed, largely due to mismanage- ment, laxity on the part of the bank commissioners, and the pressures en- gendered by the depression following 1837. The comptroller therefore levied additional assessments upon the solvent banks in order to pay off the notes of the defaulting banks. The losses had been so great that the state was obliged to advance funds. In 1842 the legislature provided that
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