USA > Vermont > The Lake Champlain and Lake George valleys, Vol II > Part 29
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CHAPTER XVIII
Banking and Finance
One of the most general characteristics of frontier economy was the almost complete lack of money. Most of the early business trans- actions were conducted by barter. As we have seen, the early pio- neers transported the surplus produce of their primitive farms to such market places as Montreal, Quebec, Troy, Albany, and Boston, where they received in exchange the few necessities for which they were dependent upon civilization. Perhaps butter was traded for salt without any medium of exchange being used. When the Dutch first settled New Amsterdam, they adopted to some extent the Indian use of wampum, but there is little evidence that this was ever in general use in the Champlain Valley, it probably being more common in Saratoga County than elsewhere. Of great importance in this area, however, was pot and pearl ash. This whole territory was so thickly wooded that the pioneer was cramped for room and forced to destroy the trees in self-defense. The easiest method of eliminating the giants of the forests was by fire. At the same time it so happened that in Can- ada and Europe ash was in considerable demand. As a result this easily transportable product became a standard medium of exchange. It also provided the pioneer with almost the only cash money he could obtain, when sent to Europe. The skins of animals were often used in place of money, as were also bags of wheat and other agricultural commodities.
It was only natural that banking should have developed consider- ably earlier in New York State than in Vermont because the for- mer bordered on the sea. Prior to 1806, however, there was not a bank in our eleven counties on either side of the Champlain Valley. Indeed, there was not at that time a bank in all Vermont! Of the six such institutions then existing in New York, four were in the met-
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ropolitan area, one at Hudson and one at Albany. By the end of that era, settlement was widespread here and it is difficult to visualize under these circumstances the general financial situation that existed.
In numerous cases merchants performed the functions of bankers. In the first place the need of money was at a minimum because of the storekeeper's willingness to accept in barter almost any goods or pro- duce imaginable, regardless of his chances of disposing of them later on. He does not seem to have suffered unduly from this practice, however; his margin of profit as a rule being more than sufficient to cover any probable loss arising from his bartering operations. In the second place the merchant granted credit to an astonishing degree. Since the early settler was able to satisfy practically all of his primitive wants at the village store, he had little need of money or banking facilities in any case. It might seem that the storekeeper was a reck- less, easy-going fellow headed for bankruptcy by trusting his neigh- bor to such a great extent. This, however, is but one side of the picture. If the customer did not pay he was denied further credit, and that meant that he was outside the pale of civilization unless he moved, for there was frequently but one store in a community. If other stores did exist, rival merchants were in any case unlikely to accommodate the unfortunate customer. Generally when indebtedness began to reach undesirable heights it was secured. By virtue of his con- trol over money and credit, the early merchant was often the political, moral and social-as well as financial-czar of his community. In the third place the storekeeper would often advance cash to his cus- tomers as readily as goods. Perhaps he would, on written order, pay out cash to a third party. In the fourth place, he might even issue his own notes, if currency was inadequate. Under the law anyone could issue such notes or receive funds on deposit. Thus, even though there were no banks, as we understand them, in this area before 1806 there were many bankers, although they were primarily known as store- keepers and merchants. If more extensive banking facilities were needed than could be supplied in the local communities, there was a tendency to seek out banks in the populated centers where the settlers marketed their surplus or where the merchants had their contacts.
There were a number of reasons existing in the early days why people did not want banks. Until the National Constitution went into effect, currency, particularly paper money, was in a chaotic con-
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dition. The entire country was flooded with Continental currency, which constantly declined in value until the phrase "not worth a Continental" became a term of reproach. Inevitably people came to sour on all paper money, particularly in Vermont. It is true that in 1781 this State resorted to the emission of bills of credit to carry on war, pay the State debts, and also to enlarge the circulating medium; yet in 1786 the people rejected a referendum proposing the establishment of banks, primarily because of their opposition to any kind of paper money. In spite of this prohibition, however, it was impossible for Vermont to exclude bills of other commonwealths. Bank failures in other states and in foreign countries adversely affected the value of this money, and the people were also swindled by counterfeiters.
Another reason why the residents of the Champlain Valley did not want banks was that the institutions of neighboring states were monopolistic in character, dominated by politics, and dedicated pri- marily to the greed of a privileged few. The people of this area dis- liked and feared them so much that they were opposed to banks among themselves. In those days, to have a bank, it was necessary to obtain a charter from the Legislature, and this could only be won by political skill or favoritism. The controlling faction of the dominant political party normally secured the necessary authority to establish its bank or banks and then promptly vetoed potential rivals. Although this was not in accord with sound banking principles it undoubtedly was a lucrative arrangement to the privileged few.
One of the best examples of how a charter could be obtained by political skill, as contrasted with favoritism, was afforded by the experience of Aaron Burr in 1799. At that time Alexander Hamil- ton and the Federalists happened to be in the driver's seat. The Republicans, led by Burr, wished to organize a bank to challenge the existing monopoly, but realized the futility of appealing to their political enemies. It so happened that at this particular time New York City was menaced by disease which was thought to be caused by impure water. Burr, therefore, asked the Legislature to charter a corporation with $2,000,000 capital to build water works and provide pure water for the city, but managed to slip into the bill a proviso, vaguely worded, which would give this company the right to conduct banking operations. Being on the face of it primarily concerned with health, the Federalists allowed the charter to be favorably voted. Burr
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actually used $1,000,000 for water works, completed in 1840, but the remainder was used for banking purposes and the establishment of the Manhattan Company.
Needless to say the democratic New Englanders who lived in Ver- mont and in much of northern New York rebelled at anything as undemocratic, as privileged, and as powerful as the banks that then existed in New York City, and also in other states. To a large extent their opposition to banks was similar to that expressed by Andrew Jackson in the 1830s.
A third major reason why the residents of the Champlain Valley had an antipathy toward banks was that the institutions of that day that existed in neighboring areas were almost completely unregulated. No governmental agencies examined books or banking methods. Frauds were unchecked and trickery was rampant. There was no pro- tection to the investing public, except the integrity of the financiers or politicians who were in control.
As time went on, however, the citizens of this area became gradu- ally convinced of the wisdom of having some kind of a banking sys- tem and at a session of the Vermont Legislature at Middlebury in 1806 a State bank was established. There were at first two branches : one at Middlebury and the other at Woodstock. In 1807 two addi- tional branches were established at Burlington and Westminster, respectively. Thus Middlebury had the honor of possessing the first bank in the area covered by this research. This experiment was not a suc- cess, however, and the Legislature was forced to close the bank's doors in 1813. All business was done in these branches on State credit, no capital being subscribed. Money was scarce among the people, the county was in debt, most of the business transactions were conducted by barter, notes were usually payable in cattle or grain rather than in cash, and obligations were as a rule met in careless fashion by the agri- cultural population. The Legislature adopted various measures to improve the situation : such as making the bills lawful tender in the payment of land taxes and providing a more efficient way of enforcing the meeting of obligations. The bank continued to be sickly, however. The death blow finally fell in the summer of 1812 when the banking house was entered and a large amount of money, bills and other valua- bles stolen. Efforts to catch the criminals were not successful.
Although this experiment was a dismal failure, banks gradually became more essential as the State was developed economically. The
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rapid increase of navigation and trade on Lake Champlain, the build- ing of improved highways and the completion of the Champlain Canal in 1823 all added materially to this need. To meet this demand new banks were established and by 1838 there were twenty in Vermont. Although bank failures continued to be too frequent, there were by 1860 fifty-two institutions doing business.
Except for the pioneer banks already discussed, no purpose can be served by reference to defunct banks; and we shall now concern our- selves with those institutions now in existence. According to "Polk's Banking Encyclopedia" the three oldest banks-not only in western Vermont but in the eleven counties of this research-are to be found in Addison County. The first of these is located at Vergennes. When it was originally established in 1826 it was known as the Bank of Vergennes, but when it was rechartered in 1865 it became the National Bank of Vergennes. At first it operated with a capital of $100,000, but on the latter date this was increased to $150,000. Today it is a member of the Federal Reserve System and has total resources of $880,000. The second oldest bank in this area is the National Bank of Middlebury, originally chartered by the Vermont Legislature in 1831 as the Bank of Middlebury. Originally it had a capitalization of $100,000. Today it is a member of the Federal Reserve System and has total resources of $1,588,000. In the same decade (1836) a Middlebury Savings Bank was also established here, but it made unfortunate investments in railway bonds and became insolvent after about twenty years. The third oldest bank in these eleven counties now in existence is the First National Bank of Orwell, originally organized in 1833 as the Farmers' Bank of Orwell. Today it is a member of the Federal Reserve System with total resources of $284,000.
Meanwhile, let us examine the early development of banks in New York State. By 1812 nineteen banks had been chartered by the Leg- islature with an authorized capital of $18,216,000; while by 1829 twenty-four additional institutions had received charters, bringing the State total bank capitalization to $25,105,000, over half of which was authorized for New York City alone. During this period the State's banking system continued to be characterized by political favoritism. There was one advantage to this, however, in that it prevented the establishment of wildcat banks in the rural areas, as happened in
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other states. Perhaps it was just as well that our five New York counties included in this area were spared an epidemic of unsound banking, even though the lack of such institutions was somewhat of a hardship. When the State did finally veer to regulatory measures it went to the opposite extreme and the provisions of one act were so rigorous that not one bank was established while it was in effect. Finally, in 1838, came the installation of the Free Banking System. No longer was a bank charter to be gained by political favorites and based on fraud and privilege. Anyone who could meet certain statu- tory requirements could now enter the field. Although Michigan had toyed with a similar plan the preceding year, New York was the first State to make it work successfully. Sixteen other states later copied its features, while it also was the model of our national banking system set up during the Civil War. The only difficulty was that too many individuals entered the banking field in northern New York and other parts of the State as well, with the result that banks were too numerous and failures were frequent. In 1848 the number of free banks in the State was fifty-three.
The earliest bank in our five New York counties was established at Waterford, Saratoga County, in 1830. It had a capital of $100,- 000 with 4,000 shares of stock valued at $25 each, and was known as the Saratoga County Bank. In 1865 it became a National bank, but in 1871 became again a State bank, assuming once more its old name. Today this institution no longer exists. The oldest bank in our five New York counties still doing business, and preceded in this entire area only by the three Addison County banks mentioned, is the Ballston Spa National Bank. Although this community had an early economic development and was also the political center of the county, prior to 1838 all its banking was done at Schenectady, Troy and Waterford. In that year, however, occurred the organization of the Ballston Spa Bank. It began business the following year and con- tinued with that name until it was reorganized in 1865. Today it is a member of the Federal Reserve System and has total resources of $3,917,000.
The passage of the National Banking Act in 1862 exerted a pro- found influence on the financial development of both Vermont and New York. At that time our Nation was engaged in a great civil war. More than ever there was now a need for a uniform currency through-
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out the country. In addition, the administration realized the neces- sity for a better market for government bonds, the proceeds of which were essential if victory was to be achieved. Both these needs were met by the National Banking Act. This provided, among other things, for government supervision of bank operations and a circula- tion based directly upon the securities and guarantee of the govern- ment. When this legislation was passed New York State had three hundred and nine State banks in operation; while in 1863 there were only seven National banks by contrast. Within four or five years the number of State institutions fell to forty-five while National banks climbed to three hundred and four, which is close to being a complete reversal. A similar situation existed in Vermont which, in 1870, had forty National banks. Throughout this entire area banks switched from State to Federal control, as we have already noted, in Vergennes, Middlebury, Orwell, Waterford and Ballston Spa. By the 186os our State systems were on a sound basis and a casual reader may be par- doned if he feels astonished at this wholesale rush to the Federal band- wagon. This transition was primarily due to the imposition of a ten per cent tax on the notes of State banks, legislation which rapidly convinced bankers that they should conform to the needs and desires of the national administration. After 1868, however, the number of State banks increased faster than National banks, climbing to two hun- dred in New York State by 1894.
Today there are four hundred and thirty-four National banks and one hundred and seventy-four branches in New York State; four hundred and forty-three State banks and trust companies and four hundred and forty-seven branches; thirteen private banks; fourteen other banks; eighteen other branches, making a total of nine hundred and four banks and six hundred and thirty-nine branches. In Ver- mont there are forty-two National banks and two branches, and forty-two State banks and trust companies and nineteen branches, making a total of eighty-four banks and twenty-one branches. New York State has come to be the financial center of the Nation and leads all states by an overwhelming margin in banking resources. Accord- ing to Polk, they are valued at $24,506,883,404; while Pennsylvania trails far away in second place with $6,746,327,696. Vermont is a much smaller State and its basic industry is agriculture. One would expect to find it far down the list of states, but when we examine
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the figures we find that its total resources of $205,568,255 exceed those of thirteen other commonwealths.
When we confine our attention to the eleven counties of this review we find many interesting facts. On the Vermont side there are thirty-seven banks as compared with thirty-three in our five New York subdivisions. The Vermont institutions have a great variation in size ranging from resources of $56,000 to $19,573,000. Their total resources are $101,263,011, or an average of $2,736,838. Six banks have resources under $500,000; seven between that and $1,000,000; twenty-one between that and $10,000,000; and three beyond that figure. The resources of our New York banks range from $240,000 to $12,719,000. The total for all thirty-three insti- tutions is $78,766,156, or an average of $2,387,156. Four have resources under $500,000; eight from that to $1,000,000; twenty from that to $10,000,000; and one above that figure. Adding totals we find that the seventy banks in these eleven counties have combined resources of $180,039,167, or an average of $2,571,988. This affords a startling contrast to the $50,000 to $100,000 capitalization that most of these banks had originally.
The largest and the smallest banks are both in Burlington. First and foremost is the Burlington Savings Bank, which has total capital resources of $19,573,000. This is a State institution, organized back in 1847, and has enjoyed unusual prosperity. Second in size, and larg- est of all in this area that belong to the Federal Reserve System, is the First National Bank of Glens Falls, with its total resources of $12,- 719,000. It was originally organized in 1853 under the title of the Commercial Bank of Glens Falls, but was reorganized as a National institution in 1865. The third largest bank, and the largest of all those in our six Vermont counties belonging to the Federal Reserve System, is the Howard National Bank and Trust Company. According to Polk it was organized in 1870 and has present resources of $12,049,000. The only other bank in these eleven counties having resources in excess of ten million dollars is the Rutland Savings Bank, a State institution organized in 1850. In fifth place we find the Adirondack Trust Company of Saratoga Springs with resources of $9,438,000; in sixth place, the Plattsburgh National Bank and Trust Company, with $9,202,000; in seventh place, the Chittenden County Trust Com- pany of Burlington, with resources above eight million; and in eighth
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place, the Glens Falls National Bank and Trust Company, with $7,982,000. All other banks except these mentioned have resources under five million dollars. Of the eight mentioned, three are in Burling- ton, two in Glens Falls, and one each in Rutland, Plattsburgh and Saratoga Springs.
One of the most interesting contrasts between our New York and Vermont banks has to do with the relative number of State institu- tions found. In the five New York counties of Clinton, Essex, War- ren, Washington and Saratoga there are only seven State banks out of a total of thirty-three, and three of these belong to the Federal Reserve System. On the other hand, in our Vermont counties, there are sixteen State banks out of a total of thirty-seven, and not one of these is a member of the Federal Reserve System. Furthermore, it will be recalled that the Burlington Savings Bank, largest in this entire area, is a State institution. This situation is not surprising in a State characterized by its faith in its own innate conservatism and its antipathy to external regulation.
There are no private banks in all Vermont and only thirteen in the length and breadth of the Empire State. One of these, however, is located in our area. This is to be found at Crown Point, Essex County, and is operated by J. W. Wyman. According to Polk it was organized in 188 1 and today has total resources of $240,000.
In addition to the seventy banks included in this chapter there are to be found branches of banks existing elsewhere. For example : at Corinth, Saratoga County, there is the Manufacturers National Bank which is a branch of a bank in Troy, which is in Rensselaer County. There are also various agents or agencies with connections elsewhere. Important as these may be, nevertheless there is no way to measure these institutions without carrying on an exhaustive study which would, in certain instances, take us far from our chosen field. Disregarding these banks then, let us compare our eleven counties.
Rutland County, Vermont, leads all others in the number of its banks. Six of its twelve are located in the city of Rutland itself. These vary in size of resources from $1,319,000 to $10,190,000. In addition, banks are to be found at Proctor, Poultney, Brandon and Fair Haven, one each in the first two communities, and two each in the others. In this county there are eight National banks and four State institutions.
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Washington County, New York, ranks in second place, with nine banks. Of these, the two largest (the Sandy Hill National Bank and the Peoples National Bank) are located at Hudson Falls. Others are to be found at Argyle, Cambridge, Fort Edward, Granville, Greenwich, Salem and Whitehall. All belong to the National system.
Chittenden, Franklin and Warren counties each have eight banks. In Chittenden County there are branches of the Burlington Trust Com- pany at Winooski and Richmond, but the only independent bank out- side of the city of Burlington is the Essex Trust Company, at Essex Junction. As has been pointed out before, there is a great variation in the size of the Burlington banks when we compare total resources, these institutions ranging from $56,000 to the Burlington Savings Bank, which approaches the twenty million mark. In this county six banks are State institutions and only two belong to the Federal system.
The largest institution in Franklin County is the Franklin County Savings Bank and Trust Company, wth resources of $2,884,250. We find this and two other banks at St. Albans. There are also two at Enosburg Falls, two at Richford and one at Swanton. Five are State banks, while three are members of the National system.
In Warren County the two Glens Falls banks mentioned stand head and shoulders above all others. Outside this city the largest bank is at North Creek, but others are located at Bolton Landing, Chestertown, Lake George, Lake Luzerne, and Warrensburg. Six of the banks in Warren County are National. Of the two State insti- tutions, one belongs to the Federal Reserve System.
In Essex County the largest institution is the Citizens National Bank of Port Henry, with resources of $1,451,000. In addition there are banks at Ausable Forks, Crown Point, Lake Placid, Ticonderoga, Westport and Willsboro. Four of these seven banks are National and belong to the Federal Reserve System, while two are State institutions, and the one at Crown Point, previously mentioned, is private.
There are five banks in Addison County, two of them being located at Middlebury and one each at Bristol, Orwell and Vergennes. The largest is the National Bank of Middlebury, with resources of $1,588, 000. Three of these institutions are very old and have been already mentioned in more or less detail. Four are members of the Federal Reserve System and one is a State institution.
Saratoga County also has five independent banks, two of which are located at Saratoga Springs and one each at Ballston Spa, Schuy-
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lerville and Waterford. As we have seen, the largest of these is the Adirondack Trust Company, while the second largest is the Ballston Spa National Bank. Three banks are National and two are State institutions, but one of the latter belongs to the Federal Reserve System.
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