Railroad Land Grants
07/14/2010 22:06
Click the map for a bigger view
Robert S. Henry
“The Railroad Land Grant Legend in American History Texts”
1946
Henry said the public (especially students reading high school and college texts) has been misled by accounts of “huge,” “breath-taking” tracts of land given to railroad companies out of the public domain. The truth, he says, is that much less land was actually given (only about 9.5% of the continental U.S.), the government ultimately got a good return on it (in the form of increased value of the rest of the land due to railroads going through, and also in special government freight rates), and the social/political/military benefits of national unity outweigh any costs, anyway. The old maps, he says, mislead the public by drawing broad swaths across the west, when actually the railroads were only granted half the area drawn (in alternate sections, like a checkerboard), and in any case many of the grants were forfeited because no one built railroads to qualify for them. In all, only about 131 million acres had been given to the railroads, according to Henry. Since the 1884 presidential election, he said, “when the Democratic party issued a campaign poster featuring what purported to be a map of lands granted to railroads,” the issue had been a political football and the facts had given way to legend.
Henry’s article appeared in the 1945 Mississippi Valley Historical Review, and set off a storm of protests (many of them carried by the same journal, and reprinted in Carstensen, The Public Lands). David Maldwin Ellis suggested that 49 million acres of land grants by the states were relevant in the discussion. (145) And, even if granted lands had been forfeited or released, they still counted as grants (and they had still made those lands unavailable to settlers for many years - in some cases well into the 20th century). The real extent of the land granted was slightly over 223 million acres (or nearly 17% of America, 146). Ellis pointed out that “The General Land Office withdrew from public appropriation not only the primary limits [of the land grants] as required by law, but also the lands within the indemnity limits...The railroads sometimes tried to oust genuine homesteaders who had made their selections before the location of the railway route.” (146-7)
Fred A. Shannon called Henry’s article “a piece of special pleading for the current lobby of railroad interests to secure the repeal of clauses in the land-grant acts...for rate concessions on carrying government traffic.” (Henry was assistant to the president of the Association of American Railroads when he wrote his article, 157) The big black swaths across the map, Shannon said, should be widened “by 50 per cent so as to show the indemnity zones.” “It must not be forgotten,” Shannon said, “that until 1887 settlement was excluded from government sections...and from 50 per cent of their width clear beyond the zones proper.” “The railroads got just about one-tenth of the United States and for years restricted settlement in three-tenths of the United States,” Shannon concluded. “This ratio is much higher in the West, where most of the grants lay.” (158)
I think this series of articles says some interesting things about how history is sometimes done, and about what we need to be wary of when reading. In the first place, even taking Henry’s numbers, railroad land grants were breath-taking. Nearly ten percent of the land area of the nation? More, in unsettled areas, where pioneers were competing for farmlands. And an area at least double that (or nearly 1/5 of the American land mass) held back from sale? That’s pretty extreme. Second, whether the government got it’s money back is not the question. Everyone seems to have lost sight of the fact that private, corporate, for-profit railroad development with government handouts wasn’t the only way transportation, or the American West, could have been developed. And it’s not like there weren’t people saying this at the time (A.M. Todd, for example). We just don’t remember them. What does that say about the textbooks that are being written and read for high-schoolers now?
Farm, Shop, Landing
07/13/2010 18:12
Martin Bruegel
Farm, Shop, Landing: The Rise of a Market Society in the Hudson Valley, 1780-1860
2002
For Bruegel, the market society happened when “Commercial transactions...moved from a physical setting to an abstract, intangible sphere where prices mattered more than people and relationships.” (2) This description seems completely in keeping with the consensus that has emerged from the “transition” debates. It’s Bruegel’s extensive use of individual accounts, to an almost microhistorical level, that sets this book apart. Bruegel says he’s going to describe the “social and economic processes that underlay the movement from an understanding of the world rooted in concrete and particular experiences to general abstractions.” (3-4) While he rarely has an opportunity to present “before” and “after” views of an individual’s changing orientation, I think he successfully shows a changing understanding of relationships and social realities in the Hudson River Valley.
The non-market, neighborhood relations that dominated Hudson Valley culture in the late eighteenth century, Bruegel says, was based on the subsistence basis of the agricultural economy. Risk of starvation was real, and to mitigate that risk, farmers chose the safest route. “Rather than adapting to the environment’s average productivity,” for example, “their experience taught them to prepare for bad years.” (16) “Safety nets...created a community.” (21) Even when they traded, “the apparent utility of the traded good or service neither structured nor exhausted the meaning of the exchange. Participation was what mattered.” (reminds me of a letter from LBH to HGH, 15) As a result of the precariousness of rural life, Bruegel suggests the emphasis on self-sufficiency of farm households (vs. communities) is misplaced. “It is impossible to think about them separately,” he says, “because it was precisely the constant exchange of labor and tools that conditioned the family’s subsistence and held the neighborhood together.” (21)
Bruegel says the shift towards a commercial orientation was gradual and was marked by “the coexistence of nonmarket and market rationality in the rural economy” for much of the early nineteenth century. (62) “In practice,” he says, “farmers straddled two worlds that historians and ethnologists have often tended to construe as incompatible.” (42) “Commercial exchange,” Bruegel suggests, was both a “part of the farm families‘ strategy to achieve a competence,” and occurred in a market dominated by “personal relations: these bonds actually predicated trade on the Hudson.” (42-3) “Trust lowered transaction costs,” and this “privileged bond...helped diminish the farmer’s prejudice against the conniving merchant,” or indeed, any outsider. (42, 59) But even though the majority of extralocal trading was done by only the most prosperous farmers, “in a world of insecurity, where risk reduction guided the behavior of farm families, the establishment of dependable and durable credit and debt connections lay in the interest of both merchant and farmer;” especially those of humbler means. Their participation in the markets at the Hudson landings created a two tier system, in which the seller could choose either the local or the “New York price.” As a result, “over long periods of time, prices of locally produced goods in the neighborhood trading center remained constant and unresponsive to metropolitan fluctuations.” (59)
Bruegel seems to suggest that this situation would have persisted, if external social forces had not changed the game. “Political interventions in favor of deregulated internal commerce,” he says “show that there was nothing natural about the rise of a market society.” (66) Following Horwitz, Bruegel says “it was the law’s aim to do away with the favored client status that liberal theory construed as collusion,” but that locals at the landing valued as the relationships that tied commerce to community. (67) But the biggest factor was clearly the growth of New York City, and its markets. Demand for hay and dairy products rose. Soil exhaustion and better transportation helped push farmers into hay and livestock. By 1852 the president of the state Ag. Society was able to claim that “farming is no longer that uncertain, profitless work, which it once was.” (97) One Kinderhook resident noted “About 1790 this land was sold for $1 an acre: now it brings $75 or $80.” (95) Farm productivity “growth relied on the intensification of well-known work practices,” introduction of cast-iron plows, and increasing use of wage labor throughout the season. “The extension of employment length distinguished a new labor force from the neighbors who still helped each other during the crest of harvest work.” (112)
These new workers, Bruegel suggests, lived separately from the farmers, and bought food and supplies at the local market, for cash. This is interesting, if true -- I had always envisioned early farm wage-workers as young, single men, who lived with the farm family. Maybe this varied by region. Bruegel also suggests the shift to dairying improved the status of women. He cites an 1820 book called Dialogues on Domestic and Rural Economy and the Fashionable Follies of the World, by Hannah Barnard, which seems to complicate the traditional view of separate gender spheres. “The agricultural family, in Barnard’s depiction, was a collective in which men and women joined their forces and talents.” (115) Bruegel cites several other contemporary local sources to suggest that Harriet Martineau and other European observes were wrong to conclude that American women had no place in the outdoor work of the farm.
Growth of manufacturing, Bruegel says, followed national events: the Embargo and the War of 1812. It quickly became “more fashionable and cheaper...to dress in fabricks of our rapidly increasing manufactories,” as Sterling Goodenow observed in 1822. (in A Brief Topographical and Statistical Manual of the State of New York, 150)But in spite of this, “As late as 1837, Kinderhook grocers J. and P. Bain still carried ‘Home-Made Woolen Cloths, also low prices Broad Cloths.” (148) Based on his sources, Bruegel concludes that rural consumption had not become “rural consumerism...by the 1840s. Rather, the dissemination of everyday articles projects the image of a world whose demands remained moderate...the quest for necessities, not luxuries, propelled the consumer behavior of the majority of rural dwellers,” Bruegel says. (161-2)
Farm, Shop, Landing: The Rise of a Market Society in the Hudson Valley, 1780-1860
2002
For Bruegel, the market society happened when “Commercial transactions...moved from a physical setting to an abstract, intangible sphere where prices mattered more than people and relationships.” (2) This description seems completely in keeping with the consensus that has emerged from the “transition” debates. It’s Bruegel’s extensive use of individual accounts, to an almost microhistorical level, that sets this book apart. Bruegel says he’s going to describe the “social and economic processes that underlay the movement from an understanding of the world rooted in concrete and particular experiences to general abstractions.” (3-4) While he rarely has an opportunity to present “before” and “after” views of an individual’s changing orientation, I think he successfully shows a changing understanding of relationships and social realities in the Hudson River Valley.
The non-market, neighborhood relations that dominated Hudson Valley culture in the late eighteenth century, Bruegel says, was based on the subsistence basis of the agricultural economy. Risk of starvation was real, and to mitigate that risk, farmers chose the safest route. “Rather than adapting to the environment’s average productivity,” for example, “their experience taught them to prepare for bad years.” (16) “Safety nets...created a community.” (21) Even when they traded, “the apparent utility of the traded good or service neither structured nor exhausted the meaning of the exchange. Participation was what mattered.” (reminds me of a letter from LBH to HGH, 15) As a result of the precariousness of rural life, Bruegel suggests the emphasis on self-sufficiency of farm households (vs. communities) is misplaced. “It is impossible to think about them separately,” he says, “because it was precisely the constant exchange of labor and tools that conditioned the family’s subsistence and held the neighborhood together.” (21)
Bruegel says the shift towards a commercial orientation was gradual and was marked by “the coexistence of nonmarket and market rationality in the rural economy” for much of the early nineteenth century. (62) “In practice,” he says, “farmers straddled two worlds that historians and ethnologists have often tended to construe as incompatible.” (42) “Commercial exchange,” Bruegel suggests, was both a “part of the farm families‘ strategy to achieve a competence,” and occurred in a market dominated by “personal relations: these bonds actually predicated trade on the Hudson.” (42-3) “Trust lowered transaction costs,” and this “privileged bond...helped diminish the farmer’s prejudice against the conniving merchant,” or indeed, any outsider. (42, 59) But even though the majority of extralocal trading was done by only the most prosperous farmers, “in a world of insecurity, where risk reduction guided the behavior of farm families, the establishment of dependable and durable credit and debt connections lay in the interest of both merchant and farmer;” especially those of humbler means. Their participation in the markets at the Hudson landings created a two tier system, in which the seller could choose either the local or the “New York price.” As a result, “over long periods of time, prices of locally produced goods in the neighborhood trading center remained constant and unresponsive to metropolitan fluctuations.” (59)
Bruegel seems to suggest that this situation would have persisted, if external social forces had not changed the game. “Political interventions in favor of deregulated internal commerce,” he says “show that there was nothing natural about the rise of a market society.” (66) Following Horwitz, Bruegel says “it was the law’s aim to do away with the favored client status that liberal theory construed as collusion,” but that locals at the landing valued as the relationships that tied commerce to community. (67) But the biggest factor was clearly the growth of New York City, and its markets. Demand for hay and dairy products rose. Soil exhaustion and better transportation helped push farmers into hay and livestock. By 1852 the president of the state Ag. Society was able to claim that “farming is no longer that uncertain, profitless work, which it once was.” (97) One Kinderhook resident noted “About 1790 this land was sold for $1 an acre: now it brings $75 or $80.” (95) Farm productivity “growth relied on the intensification of well-known work practices,” introduction of cast-iron plows, and increasing use of wage labor throughout the season. “The extension of employment length distinguished a new labor force from the neighbors who still helped each other during the crest of harvest work.” (112)
These new workers, Bruegel suggests, lived separately from the farmers, and bought food and supplies at the local market, for cash. This is interesting, if true -- I had always envisioned early farm wage-workers as young, single men, who lived with the farm family. Maybe this varied by region. Bruegel also suggests the shift to dairying improved the status of women. He cites an 1820 book called Dialogues on Domestic and Rural Economy and the Fashionable Follies of the World, by Hannah Barnard, which seems to complicate the traditional view of separate gender spheres. “The agricultural family, in Barnard’s depiction, was a collective in which men and women joined their forces and talents.” (115) Bruegel cites several other contemporary local sources to suggest that Harriet Martineau and other European observes were wrong to conclude that American women had no place in the outdoor work of the farm.
Growth of manufacturing, Bruegel says, followed national events: the Embargo and the War of 1812. It quickly became “more fashionable and cheaper...to dress in fabricks of our rapidly increasing manufactories,” as Sterling Goodenow observed in 1822. (in A Brief Topographical and Statistical Manual of the State of New York, 150)But in spite of this, “As late as 1837, Kinderhook grocers J. and P. Bain still carried ‘Home-Made Woolen Cloths, also low prices Broad Cloths.” (148) Based on his sources, Bruegel concludes that rural consumption had not become “rural consumerism...by the 1840s. Rather, the dissemination of everyday articles projects the image of a world whose demands remained moderate...the quest for necessities, not luxuries, propelled the consumer behavior of the majority of rural dwellers,” Bruegel says. (161-2)
Culture of Credit
07/13/2010 17:13
Rowena Olegario
A Culture of Credit: Embedding Trust and Transparency in American Business
2006
“In a circular dated 1858, the Mercantile Agency...estimated that 157,394 village and country stores owed an average of $14,500 each to city jobbers, an aggregate value of nearly $2.3 billion. The amount of trade done on credit could be several times the capital resources of a business.” (26)
“The conventional wisdom found its way into Walden (1854) when, criticizing the heavy mortgages under which most farmers labored, Thoreau declared that ‘what has been said of the merchants, that a very large majority, even ninety-seven in a hundred, are sure to fail, is equally true of the farmers.’” (37)
The Mercantile Agency “relied on a network of ‘correspondents,’ including sheriffs, merchants, postmasters, and bank cashiers for its information. Attorneys, however, made up the bulk...” (49)
“As capitalist values spread in the United States and more people became drawn into the credit economy, outward appearance, or ‘reputation,’ took on extraordinary significance. So, too, did the anxiety that appearances could be manipulated: ‘Reputation, rather than character--to seem, rather than to be,’ fumed the Daily Illinois State Journal in 1856, ‘has become the ultimate aim of too many in all departments of business and professional life.’” (80)
A Culture of Credit: Embedding Trust and Transparency in American Business
2006
“In a circular dated 1858, the Mercantile Agency...estimated that 157,394 village and country stores owed an average of $14,500 each to city jobbers, an aggregate value of nearly $2.3 billion. The amount of trade done on credit could be several times the capital resources of a business.” (26)
“The conventional wisdom found its way into Walden (1854) when, criticizing the heavy mortgages under which most farmers labored, Thoreau declared that ‘what has been said of the merchants, that a very large majority, even ninety-seven in a hundred, are sure to fail, is equally true of the farmers.’” (37)
The Mercantile Agency “relied on a network of ‘correspondents,’ including sheriffs, merchants, postmasters, and bank cashiers for its information. Attorneys, however, made up the bulk...” (49)
“As capitalist values spread in the United States and more people became drawn into the credit economy, outward appearance, or ‘reputation,’ took on extraordinary significance. So, too, did the anxiety that appearances could be manipulated: ‘Reputation, rather than character--to seem, rather than to be,’ fumed the Daily Illinois State Journal in 1856, ‘has become the ultimate aim of too many in all departments of business and professional life.’” (80)
Mr. Madison's War
07/12/2010 18:17
J.C.A. Stagg
Mr. Madison’s War: Politics, Diplomacy, and Warfare in the Early American Republic, 1783-1830
1983
Stagg admits that the dominant feature of almost all literature” on the War of 1812 “has been its emphasis on the sheer ineptitude of the American war effort.” But even so, “to stress ineptitude as the theme of the War of 1812...is to neglect an important, albeit obvious, point about its history--which is that no administration could have actually intended what happened to have occurred.” (x) The question is, was there a realistic plan behind Madison’s policy, or was he too a source of incompetence? “The incompetence that seemed all-pervasive during the war years was more than simply the failings of so many individuals; rather it was symptomatic of political and administrative problems deeply rooted in the government of American society. Yet the founding fathers, including Madison himself, had justified the introduction of a new constitution in 1789 very much on the grounds that it would provide the United States with a more efficient system of government and prevent a recurrence of the disorder that had characterized the War for Independence.” (xi) This is an interesting point, because it suggests that the founders were particularly concerned about facilitating a united military, in expectation of future wars with Britain. And because it suggests a lack of concern with what the American people actually wanted, both in the minds of the founders and of Professor Stagg.
At the end of his introduction, Stagg also seems to admit that the war didn’t really resolve anything. Nor did “the sudden rise of Anglo-American ‘friendship’ after 1815.” (xii) The real change in British-American relations was brought about by neither Britons nor Americans, but by a change in the global balance of power created by “the emancipation of Latin America.” So in that sense, a study of politics and American foreign policy through 1830 that doesn’t say another word about Spanish American independence, seems fatally myopic.
Madison’s decision for war is hard to see as sensible. When it declared war on Great Britain, the U.S. “could command little more than six thousand regular troops and a naval force consisting of sixteen vessels of all sizes.” In contrast, the British controlled the seas with “six hundred vessels in active service while also supporting a regular army at home and abroad that totaled nearly one quarter of a million men.” (3) Stagg says Madison believed America could easily take a large part of Canada, and that this would bring Britain to the negotiating table. But in 1812 his Jeffersonian political allies seem to have been on the same page: “The best-known statement of American optimism about the ease of seizing Canada was Thomas Jefferson’s claim that ‘the acquisition of Canada...as far as the neighborhood of Quebec will be a mere matter of marching.’” (note 8, 5) The critical issue was denying Britain access to raw materials it needed in order to maintain its West Indian colonies and its navy. “The growth of Upper Canada was a significant step toward freeing the British empire from the effects of American economic restrictions.” (41) Canada, as an alternative source of nearly everything supplied by the U.S., had to be neutralized. Ironically, an American diplomat in the West Indies in 1827-8 reported, “the inhabitants of this island [Barbados] as well as the others, have less regard for Mr. Jefferson than any of our Presidents (not excepting Mr. Madison...yet they say he nevertheless, though not intentionally, rendered them a great service by laying on the Embargo, which taught them to find resources within themselves, that is to say, by cultivating ground provisions, which they never did before, and were entirely dependent on the United States.” (quoting Robert Monroe Harrison to Henry Clay, 516)
Interestingly, “the growth of Canada was also stimulated by, and in turn contributed to, the growth of the United States...and the settlers in this northeastern region were as likely to cross into Canada in search of new prosperity as they were to remain in the United States.” (refs Lambert, Travels through Lower Canada and the United States, 1813, 244-55, 40) There’s a story here...
Another interesting point, that Stagg mentions several times but doesn’t develop, is the government’s apparent difficulty raising troops. In spite of the fact that “the society of the early Republic greatly esteemed the virtuous citizen who willingly assumed public duties in a selfless, disinterested manner, recruiting in the northeast and northwest was hampered by men’s loyalty to their regions (and regional militia) in preference to national army service. (195) Troop levies in the northwest were “hampered by a series of petty obstructions, usually arising from attempts to use writs of habeus corpus to get men discharged on a variety of grounds, mainly wrongful enlistment.” (172) This is another story, especially in light of the government’s claims that one of the “popular” reasons for war was British impressment of American seamen.
A final dramatic moment (amidst several hundred pages of really dry political history) comes on January 5 1815, when the Hartford convention convened to discuss possible New England secession. An observer warned Monroe that they “would have to be crushed immediately. If the rebellious New England states were given time to organize an effective government, he believed they could, by virtue of their large populations and well-equipped militias, successfully ‘bid defiance’ to the Union, seize all the property of the federal government, and perhaps enter into an alliance with Britain. Monroe took the advice to heart. He increased the guard on the Springfield armory and on January 10 authorized New York Republican leaders...to draw on more money and volunteers to crush a rebellion or an invasion.” (481-2) Another story here, about regional interests, force, and national union.
This is an interesting period, and it seems there are several interesting stories waiting to be told about it. Something to keep in mind....
Mr. Madison’s War: Politics, Diplomacy, and Warfare in the Early American Republic, 1783-1830
1983
Stagg admits that the dominant feature of almost all literature” on the War of 1812 “has been its emphasis on the sheer ineptitude of the American war effort.” But even so, “to stress ineptitude as the theme of the War of 1812...is to neglect an important, albeit obvious, point about its history--which is that no administration could have actually intended what happened to have occurred.” (x) The question is, was there a realistic plan behind Madison’s policy, or was he too a source of incompetence? “The incompetence that seemed all-pervasive during the war years was more than simply the failings of so many individuals; rather it was symptomatic of political and administrative problems deeply rooted in the government of American society. Yet the founding fathers, including Madison himself, had justified the introduction of a new constitution in 1789 very much on the grounds that it would provide the United States with a more efficient system of government and prevent a recurrence of the disorder that had characterized the War for Independence.” (xi) This is an interesting point, because it suggests that the founders were particularly concerned about facilitating a united military, in expectation of future wars with Britain. And because it suggests a lack of concern with what the American people actually wanted, both in the minds of the founders and of Professor Stagg.
At the end of his introduction, Stagg also seems to admit that the war didn’t really resolve anything. Nor did “the sudden rise of Anglo-American ‘friendship’ after 1815.” (xii) The real change in British-American relations was brought about by neither Britons nor Americans, but by a change in the global balance of power created by “the emancipation of Latin America.” So in that sense, a study of politics and American foreign policy through 1830 that doesn’t say another word about Spanish American independence, seems fatally myopic.
Madison’s decision for war is hard to see as sensible. When it declared war on Great Britain, the U.S. “could command little more than six thousand regular troops and a naval force consisting of sixteen vessels of all sizes.” In contrast, the British controlled the seas with “six hundred vessels in active service while also supporting a regular army at home and abroad that totaled nearly one quarter of a million men.” (3) Stagg says Madison believed America could easily take a large part of Canada, and that this would bring Britain to the negotiating table. But in 1812 his Jeffersonian political allies seem to have been on the same page: “The best-known statement of American optimism about the ease of seizing Canada was Thomas Jefferson’s claim that ‘the acquisition of Canada...as far as the neighborhood of Quebec will be a mere matter of marching.’” (note 8, 5) The critical issue was denying Britain access to raw materials it needed in order to maintain its West Indian colonies and its navy. “The growth of Upper Canada was a significant step toward freeing the British empire from the effects of American economic restrictions.” (41) Canada, as an alternative source of nearly everything supplied by the U.S., had to be neutralized. Ironically, an American diplomat in the West Indies in 1827-8 reported, “the inhabitants of this island [Barbados] as well as the others, have less regard for Mr. Jefferson than any of our Presidents (not excepting Mr. Madison...yet they say he nevertheless, though not intentionally, rendered them a great service by laying on the Embargo, which taught them to find resources within themselves, that is to say, by cultivating ground provisions, which they never did before, and were entirely dependent on the United States.” (quoting Robert Monroe Harrison to Henry Clay, 516)
Interestingly, “the growth of Canada was also stimulated by, and in turn contributed to, the growth of the United States...and the settlers in this northeastern region were as likely to cross into Canada in search of new prosperity as they were to remain in the United States.” (refs Lambert, Travels through Lower Canada and the United States, 1813, 244-55, 40) There’s a story here...
Another interesting point, that Stagg mentions several times but doesn’t develop, is the government’s apparent difficulty raising troops. In spite of the fact that “the society of the early Republic greatly esteemed the virtuous citizen who willingly assumed public duties in a selfless, disinterested manner, recruiting in the northeast and northwest was hampered by men’s loyalty to their regions (and regional militia) in preference to national army service. (195) Troop levies in the northwest were “hampered by a series of petty obstructions, usually arising from attempts to use writs of habeus corpus to get men discharged on a variety of grounds, mainly wrongful enlistment.” (172) This is another story, especially in light of the government’s claims that one of the “popular” reasons for war was British impressment of American seamen.
A final dramatic moment (amidst several hundred pages of really dry political history) comes on January 5 1815, when the Hartford convention convened to discuss possible New England secession. An observer warned Monroe that they “would have to be crushed immediately. If the rebellious New England states were given time to organize an effective government, he believed they could, by virtue of their large populations and well-equipped militias, successfully ‘bid defiance’ to the Union, seize all the property of the federal government, and perhaps enter into an alliance with Britain. Monroe took the advice to heart. He increased the guard on the Springfield armory and on January 10 authorized New York Republican leaders...to draw on more money and volunteers to crush a rebellion or an invasion.” (481-2) Another story here, about regional interests, force, and national union.
This is an interesting period, and it seems there are several interesting stories waiting to be told about it. Something to keep in mind....
Merchants and Manufacturers
07/11/2010 18:20
Glenn Porter and Harold C. Livesay
Merchants and Manufacturers: Studies in the Changing Structure of Nineteenth-Century Marketing
1971
Their thesis is that “Changes in distribution played at least as important a role in the story of our economic past as did changes in production.” (1) No one who’s studied the history of transportation would think this point needed to be made again -- but apparently the shelves of business historians are “groaning with the weight of volumes dealing with...manufactured goods.”
This is interesting, although of limited use to me, because they specifically exclude ag. products from their study. Even so, their finding that “the all-purpose merchant...was the key man in the American economy in 1815...the channel through which agricultural products flowed to market, and he supplied manufactured goods and imported raw materials to city craftsmen and country storekeepers.” (15-16) And, for my purposes, he supplied country manufactures to the urban and international markets.
They briefly mention drug jobbers, who “depended on extensive trade with the interior to provide a wide market area with a sufficient volume of trade to insure success.” (29) These jobbers began as general merchants, in Porter and Livesay’s model, and then specialized in response to increasing volumes and competitive pressures. The jobber “had to maintain a large inventory of goods...[and] be prepared to ship goods in small lots on short notice” and extend credit to their rural retailers. “Storekeepers...relied on their suppliers to act as bankers and urban agents for them.” (29) And, because the majority of drugs initially came from England, drug jobbers usually had extensive foreign connections.
Porter and Livesay say merchants were much more successful than manufacturers in obtaining bank credit in the early nineteenth century, because “merchants usually were the banks. An analysis of the directors and officers of the banks of New York, Philadelphia, and Baltimore in 1840, 1850, and 1860 reveals that more than two-thirds of the officials were or had been merchants.” (72) This was probably even more the rule in smaller communities, where merchants would have been the main investors as well as the main customers of local banks.
The merchant’s value as a financial expert declined during and after the Civil War,” the authors say. The proliferation of greenbacks allowed a “switch from credit to cash [that] virtually eliminated the merchant’s role as credit consultant and guarantor of payment.” (129) “The financing of transactions became the province of specialized agencies that evolved from private banks and brokerage houses...In 1850 it would have been difficult to find a producer not dependent on his distributors for capital; sixty years later one declared, ‘the manufacturer who needs the jobber as a commercial banker is a weak manufacturer.’” (129-30) I think the point they miss, is that there wasn’t a hard border between manufacturing and merchandizing. Like the brothers whose papers I’ve been reading, many of these early manufacturers were also merchants...and bankers.
Merchants and Manufacturers: Studies in the Changing Structure of Nineteenth-Century Marketing
1971
Their thesis is that “Changes in distribution played at least as important a role in the story of our economic past as did changes in production.” (1) No one who’s studied the history of transportation would think this point needed to be made again -- but apparently the shelves of business historians are “groaning with the weight of volumes dealing with...manufactured goods.”
This is interesting, although of limited use to me, because they specifically exclude ag. products from their study. Even so, their finding that “the all-purpose merchant...was the key man in the American economy in 1815...the channel through which agricultural products flowed to market, and he supplied manufactured goods and imported raw materials to city craftsmen and country storekeepers.” (15-16) And, for my purposes, he supplied country manufactures to the urban and international markets.
They briefly mention drug jobbers, who “depended on extensive trade with the interior to provide a wide market area with a sufficient volume of trade to insure success.” (29) These jobbers began as general merchants, in Porter and Livesay’s model, and then specialized in response to increasing volumes and competitive pressures. The jobber “had to maintain a large inventory of goods...[and] be prepared to ship goods in small lots on short notice” and extend credit to their rural retailers. “Storekeepers...relied on their suppliers to act as bankers and urban agents for them.” (29) And, because the majority of drugs initially came from England, drug jobbers usually had extensive foreign connections.
Porter and Livesay say merchants were much more successful than manufacturers in obtaining bank credit in the early nineteenth century, because “merchants usually were the banks. An analysis of the directors and officers of the banks of New York, Philadelphia, and Baltimore in 1840, 1850, and 1860 reveals that more than two-thirds of the officials were or had been merchants.” (72) This was probably even more the rule in smaller communities, where merchants would have been the main investors as well as the main customers of local banks.
The merchant’s value as a financial expert declined during and after the Civil War,” the authors say. The proliferation of greenbacks allowed a “switch from credit to cash [that] virtually eliminated the merchant’s role as credit consultant and guarantor of payment.” (129) “The financing of transactions became the province of specialized agencies that evolved from private banks and brokerage houses...In 1850 it would have been difficult to find a producer not dependent on his distributors for capital; sixty years later one declared, ‘the manufacturer who needs the jobber as a commercial banker is a weak manufacturer.’” (129-30) I think the point they miss, is that there wasn’t a hard border between manufacturing and merchandizing. Like the brothers whose papers I’ve been reading, many of these early manufacturers were also merchants...and bankers.
Banks and Kinship
07/10/2010 18:22
Lamoreaux, N. R. (1986). "Banks, Kinship, and Economic Development: The New England Case." The Journal of Economic History 46(3): 647-667.
Lamoreaux challenges “scholars [who] have seen the persistence of traditional social institutions, and especially kinship-oriented business, as major impediments to economic development.” (666) Using an approach that looks somewhat like the Zeitlin/Ratcliff Chilean kinship-network argument of Landlords and Capitalists (albeit with a positive spin), Lamoreaux argues that “Early banks in New England functioned not as commercial banks in the modern sense but as the financial arms of extended kinship networks.” (647)
“Scholars who have explored the relationship between banks and economic development have assessed the banking system in terms of what theoretically are its two major functions: to provide an adequate money supply and to serve as an intermediary between savers and investors.” I’d add one more function, which I think was behind Rockoff’s approach: as an intermediary to safeguard and insulate urban investors’ wealth (money stock) from direct contact with rural entrepreneur/borrowers (money flow). But I completely buy her argument that it’s the personal connections and kinship groups that are key here.
In 1800 there were 17 state-chartered banks in New England, with capital totaling $5.50 million. By 1850, this number had increased to 300, and the capital available for loan to $62.87 million. Ten years later, 505 New England banks controlled $123.56 million. (chart, 651) Capital during this period came to banks not primarily through deposits, but through investment, as first the founders and later a wider range of local people bought shares. Lamoreaux disagrees with Rockoff: even if initial capital “was largely fictitous...deposited only to satisfy legal requirements and then immediately withdrawn in the form of loans...sales of new shares to outsiders gradually transformed capital stock to a legitimate source of funds. (653-4) This may be true, but does it avoid the point that by getting in cheaply and then controlling subsequent paid-in capital, bank owners gained an incredible degree of economic power?
In the long run, institutional investors like insurance companies, savings associations, and trustees of large estates contributed the majority of bank capital. In many cases, these institutions were part of the same kin networks that initially owned, and continued to run the banks. “Members of kinship groups generally held large blocks of their banks’ stock at the time of formation.” (655) The percentage of bank stock held by the initial owners tended to decrease as the banks grew, but “the groups often retained their dominant positions on the banks’ boards of directors...because other stockholders rarely took an interest in the institutions’ affairs.” (655-6) And these same “kinship groups...often dominated the boards of the institutional investors that purchased their banks’ stock.” (657)
The role of these banks (despite the public-service rhetoric they employed to get their corporate charters during the early period, when incorporation implied quasi-governmental public status) was to “become engines to supply insiders with capital.” (657) “Even a prudent businessman,” Lamoreaux says, “might find himself in financial difficulty.” (658) The panic of 1837 and depression of 1839 had certainly proven that point. An emergency might force him to “convert illiquid assets into cash to pay off debts.” A friendly bank could “prevent distress sales of assets by accepting notes to balance accounts.” (659) After spending so much of his time in New York City, observing this process, is it any surprise that my upstate merchant started his own bank? Especially since, in the words of the 1854 Bankers Magazine, “where business is constantly and rapidly expanding, the younger class of business men who are entitled to bank facilities, equally with their older brethren, cannot have their wants fairly supplied without the occasional establishment of new banks. The old circle of customers use the existing banks to the extent of their capacity, and keep their door shut against the new men.” (663)
This raises questions that were apparently understood by bankers in the 1850s. Lamoreaux answers that “although the system of group-dominated banking doubtless resulted in some degree of favoritism in credit markets, the situation was remarkably fluid. Up-and-coming groups were able to build financial empires that rivaled those of the oldest, most established merchant families in the region.” (664) But even with no barriers to entry, is this what we’d call a “credit market?”
One thing that does seem certain, though, is that these banks facilitated a particular type of economic development. “Could kinship groups have tapped the community’s savings without their aid?” Lamoreaux asks. “The market for securities of manufacturing corporations in early nineteenth-century New England was extremely narrow,” she says. Even the Boston Associates failed to raise enough capital, and were forced to borrow. “The market for bank securities was much wider...because the diversified enterprises of the kinship groups permitted them to pay high and steady dividends and thereby draw out the community’s savings in a way that most individual ventures could never have done.” (665) “Without banks,” she concludes, “kinship groups would have been forced to depend largely on their own resources to finance investment.” (666)
Even if New England’s financial system allowed relatively free entry into banking, and banks allowed a slightly wider public to participate in a diversified portfolio of investments that would otherwise have been restricted to the very rich, was the concentration of economic activity in the hands of these “kinship groups” a good thing? Lamoreaux mentions in the first few pages of her article that lawsuits across New England challenged the “insider” ways in which these chartered corporations behaved. Even banking commissioners admitted “an almost uniform departure from the original design of banks in this respect.” (651) Although it involves counterhistorical speculation, it might be useful to ask what alternatives there may have been to simply accepting the inevitability that “kinship groups” should gain access to the “community’s savings” to finance business ventures for their individual benefit. To what degree is this a free choice, made by empowered individuals (investors and later depositors) acting in their own best interests, and to what degree is the public’s range of choices limited by laws and social conventions that allow incorporation, interlocking control, and that regulate the terms and conditions of credit? (along these lines, do usury laws actually benefit established banks, by lowering the incentive for individuals to loan money to each other at higher -- risk-appropriate -- rates of interest?)
Lamoreaux challenges “scholars [who] have seen the persistence of traditional social institutions, and especially kinship-oriented business, as major impediments to economic development.” (666) Using an approach that looks somewhat like the Zeitlin/Ratcliff Chilean kinship-network argument of Landlords and Capitalists (albeit with a positive spin), Lamoreaux argues that “Early banks in New England functioned not as commercial banks in the modern sense but as the financial arms of extended kinship networks.” (647)
“Scholars who have explored the relationship between banks and economic development have assessed the banking system in terms of what theoretically are its two major functions: to provide an adequate money supply and to serve as an intermediary between savers and investors.” I’d add one more function, which I think was behind Rockoff’s approach: as an intermediary to safeguard and insulate urban investors’ wealth (money stock) from direct contact with rural entrepreneur/borrowers (money flow). But I completely buy her argument that it’s the personal connections and kinship groups that are key here.
In 1800 there were 17 state-chartered banks in New England, with capital totaling $5.50 million. By 1850, this number had increased to 300, and the capital available for loan to $62.87 million. Ten years later, 505 New England banks controlled $123.56 million. (chart, 651) Capital during this period came to banks not primarily through deposits, but through investment, as first the founders and later a wider range of local people bought shares. Lamoreaux disagrees with Rockoff: even if initial capital “was largely fictitous...deposited only to satisfy legal requirements and then immediately withdrawn in the form of loans...sales of new shares to outsiders gradually transformed capital stock to a legitimate source of funds. (653-4) This may be true, but does it avoid the point that by getting in cheaply and then controlling subsequent paid-in capital, bank owners gained an incredible degree of economic power?
In the long run, institutional investors like insurance companies, savings associations, and trustees of large estates contributed the majority of bank capital. In many cases, these institutions were part of the same kin networks that initially owned, and continued to run the banks. “Members of kinship groups generally held large blocks of their banks’ stock at the time of formation.” (655) The percentage of bank stock held by the initial owners tended to decrease as the banks grew, but “the groups often retained their dominant positions on the banks’ boards of directors...because other stockholders rarely took an interest in the institutions’ affairs.” (655-6) And these same “kinship groups...often dominated the boards of the institutional investors that purchased their banks’ stock.” (657)
The role of these banks (despite the public-service rhetoric they employed to get their corporate charters during the early period, when incorporation implied quasi-governmental public status) was to “become engines to supply insiders with capital.” (657) “Even a prudent businessman,” Lamoreaux says, “might find himself in financial difficulty.” (658) The panic of 1837 and depression of 1839 had certainly proven that point. An emergency might force him to “convert illiquid assets into cash to pay off debts.” A friendly bank could “prevent distress sales of assets by accepting notes to balance accounts.” (659) After spending so much of his time in New York City, observing this process, is it any surprise that my upstate merchant started his own bank? Especially since, in the words of the 1854 Bankers Magazine, “where business is constantly and rapidly expanding, the younger class of business men who are entitled to bank facilities, equally with their older brethren, cannot have their wants fairly supplied without the occasional establishment of new banks. The old circle of customers use the existing banks to the extent of their capacity, and keep their door shut against the new men.” (663)
This raises questions that were apparently understood by bankers in the 1850s. Lamoreaux answers that “although the system of group-dominated banking doubtless resulted in some degree of favoritism in credit markets, the situation was remarkably fluid. Up-and-coming groups were able to build financial empires that rivaled those of the oldest, most established merchant families in the region.” (664) But even with no barriers to entry, is this what we’d call a “credit market?”
One thing that does seem certain, though, is that these banks facilitated a particular type of economic development. “Could kinship groups have tapped the community’s savings without their aid?” Lamoreaux asks. “The market for securities of manufacturing corporations in early nineteenth-century New England was extremely narrow,” she says. Even the Boston Associates failed to raise enough capital, and were forced to borrow. “The market for bank securities was much wider...because the diversified enterprises of the kinship groups permitted them to pay high and steady dividends and thereby draw out the community’s savings in a way that most individual ventures could never have done.” (665) “Without banks,” she concludes, “kinship groups would have been forced to depend largely on their own resources to finance investment.” (666)
Even if New England’s financial system allowed relatively free entry into banking, and banks allowed a slightly wider public to participate in a diversified portfolio of investments that would otherwise have been restricted to the very rich, was the concentration of economic activity in the hands of these “kinship groups” a good thing? Lamoreaux mentions in the first few pages of her article that lawsuits across New England challenged the “insider” ways in which these chartered corporations behaved. Even banking commissioners admitted “an almost uniform departure from the original design of banks in this respect.” (651) Although it involves counterhistorical speculation, it might be useful to ask what alternatives there may have been to simply accepting the inevitability that “kinship groups” should gain access to the “community’s savings” to finance business ventures for their individual benefit. To what degree is this a free choice, made by empowered individuals (investors and later depositors) acting in their own best interests, and to what degree is the public’s range of choices limited by laws and social conventions that allow incorporation, interlocking control, and that regulate the terms and conditions of credit? (along these lines, do usury laws actually benefit established banks, by lowering the incentive for individuals to loan money to each other at higher -- risk-appropriate -- rates of interest?)
Banking and Economic Development
07/09/2010 18:23
Rockoff, H. T. (1975). "Varieties of Banking and Regional Economic Development in the United States, 1840-1860." The Journal of Economic History 35(1): 160-181.
Although this is essentially an economic history article (meaning it uses and then discusses statistical techniques that I’m not interested in, and don’t necessarily believe), Rockoff makes some points that are helpful to me. First, the general premise, that in “the two decades before the Civil War...the Federal Government withdrew from the regulation of banking” (irrelevant for me, but interesting for our times, Rockoff ultimately concludes that banking deregulation had little measurable effect on economic development in this period).
Rockoff measures “bank deposits and circulating notes...per capita as the measure of financial development.” (160) This approach favors areas where population and wealth (and possibly inequality) are greatest, and not surprisingly urbanity correlates strongly with “financial development.” But this may be misleading. Rockoff seems to ignore other economic uses of money in favor of its role as a store and signal of wealth. This basically wealth-oriented perspective discounts the (possibly much) greater velocity of money in developing regions, where funds are continuously cycling through the economy as people buy, sell, build, and consume. Rockoff’s lack of interest in this distinction is shown in the fact that New York is treated as a single entity, when in fact between 1840 and 1860, the state was a textbook example of the difference between urban and rural economies.
Rockoff highlights “free banking” laws in his analysis, which “ended the requirement that banks obtain their charters through special legislative acts.” (161) But this did not mean laissez faire. Even under free banking, the law “prohibited banks from investing in real property, [and] banks had to back issues of circulating notes with government bonds deposited with a state authority.” (162) The bond-reserve requirement (he doesn’t say, but I assume it was a 100% reserve) provided some security, but perhaps not as much as a specie reserve would have done. There seems to have been a way to “game” the discrepancy between par and market values of the underlying (state-issued) bonds. And many banks seem to have been started with capital that was immediately returned to investors in the form of loans. (160) But in any case, Rockoff says “from 1845 to 1860 New York experienced virtually no bank failures.” (162)
Rockoff notes that the “rate of growth of money per capita” in New York during this period “was quite rapid: 4.41 percent compared with 2.56 percent for the country as a whole.” (163) Of course, for my purposes, there’s the unresolved question of how much of that money growth was confined to New York City, and whether any of it found its way upstate? Proximity to the city probably increased the velocity of money through producing regions along the canal, but did it also divert accumulation to banks and their corresponding investments in the city, at the expense of local investment? Rockoff says “level of urbanization...explain[s] about seventy percent of the variance in per capita money balances.” (167) But he also admits “these coefficients refer to stocks of assets rather than flows and should therefore be compared with wealth rather than income.” (169)
And maybe this is the biggest take-away for me --- that there’s a difference between wealth and income. The way money works in a system (or the way you see it working) is different when it’s moving, from when it’s accumulated. I don’t have the language for it yet (and I should probably look for this in period, rather than in contemporary sources), but there’s a crucial difference between stocks and flows of money in the nineteenth century. To the extent that accumulation was an urban phenomenon (even for the rural elite, who deposited their wealth in secure, prestigious urban institutions), this is another “country/city” issue. And maybe it plays a role in the personalities and conflicts I’m seeing in sources like the credit reports...
Although this is essentially an economic history article (meaning it uses and then discusses statistical techniques that I’m not interested in, and don’t necessarily believe), Rockoff makes some points that are helpful to me. First, the general premise, that in “the two decades before the Civil War...the Federal Government withdrew from the regulation of banking” (irrelevant for me, but interesting for our times, Rockoff ultimately concludes that banking deregulation had little measurable effect on economic development in this period).
Rockoff measures “bank deposits and circulating notes...per capita as the measure of financial development.” (160) This approach favors areas where population and wealth (and possibly inequality) are greatest, and not surprisingly urbanity correlates strongly with “financial development.” But this may be misleading. Rockoff seems to ignore other economic uses of money in favor of its role as a store and signal of wealth. This basically wealth-oriented perspective discounts the (possibly much) greater velocity of money in developing regions, where funds are continuously cycling through the economy as people buy, sell, build, and consume. Rockoff’s lack of interest in this distinction is shown in the fact that New York is treated as a single entity, when in fact between 1840 and 1860, the state was a textbook example of the difference between urban and rural economies.
Rockoff highlights “free banking” laws in his analysis, which “ended the requirement that banks obtain their charters through special legislative acts.” (161) But this did not mean laissez faire. Even under free banking, the law “prohibited banks from investing in real property, [and] banks had to back issues of circulating notes with government bonds deposited with a state authority.” (162) The bond-reserve requirement (he doesn’t say, but I assume it was a 100% reserve) provided some security, but perhaps not as much as a specie reserve would have done. There seems to have been a way to “game” the discrepancy between par and market values of the underlying (state-issued) bonds. And many banks seem to have been started with capital that was immediately returned to investors in the form of loans. (160) But in any case, Rockoff says “from 1845 to 1860 New York experienced virtually no bank failures.” (162)
Rockoff notes that the “rate of growth of money per capita” in New York during this period “was quite rapid: 4.41 percent compared with 2.56 percent for the country as a whole.” (163) Of course, for my purposes, there’s the unresolved question of how much of that money growth was confined to New York City, and whether any of it found its way upstate? Proximity to the city probably increased the velocity of money through producing regions along the canal, but did it also divert accumulation to banks and their corresponding investments in the city, at the expense of local investment? Rockoff says “level of urbanization...explain[s] about seventy percent of the variance in per capita money balances.” (167) But he also admits “these coefficients refer to stocks of assets rather than flows and should therefore be compared with wealth rather than income.” (169)
And maybe this is the biggest take-away for me --- that there’s a difference between wealth and income. The way money works in a system (or the way you see it working) is different when it’s moving, from when it’s accumulated. I don’t have the language for it yet (and I should probably look for this in period, rather than in contemporary sources), but there’s a crucial difference between stocks and flows of money in the nineteenth century. To the extent that accumulation was an urban phenomenon (even for the rural elite, who deposited their wealth in secure, prestigious urban institutions), this is another “country/city” issue. And maybe it plays a role in the personalities and conflicts I’m seeing in sources like the credit reports...
Bankruptcy made the middle class?
07/06/2010 16:53
Edward J. Balleisen
Navigating Failure: Bankruptcy and Commercial Society in Antebellum America
2001
Balleisen focuses on the 1841 Bankruptcy Law, “partly because it coincided with and emanated from powerful transformations in the scope and character of American capitalism.” (4) He agrees with Bushman and Lamoreaux that commercial acitivity was more universal and widespread than some of the “market revolution” historians would grant, but concedes that “financial panics, like the ones in 1837 and 1839 that precipitated tens of thousands of commercial insolvencies” not only “unleashed an upsurge of political support for a comprehensive federal bankruptcy system,” but also helped push some members of the growing middle class away from an ethic of entrepreneurial risk-taking and self-reliance, toward a desire for financial security in salaried employment. (5)
“To a great extent,” Balleisen says, “the relationship between failing antebellum proprietors and their creditors resembled a game of cat and mouse.” (84) Since anyone could fail, maybe we could extend the group -- especially in light of the fact that only recently had a transition been made from an older system of credit between family members, neighbors, and friends, to an impersonal credit market. Naturally, “Debtors sought to hide their true circumstances from the holders of claims against them,...[and] creditors...did their best to pounce on whatever assets the debtors possessed.” (84-5) This seems especially apparent in the case of the rural merchants I’m studying, who seem to have credit relationships both in the family/community and outside it. It might be interesting to see if they behave differently, depending on the creditor’s status in their local network. It might also be interesting to look at the way these relationships change over time. These guys, after all, were creditors as well as debtors.
“In addition to resuscitating the entrepreneurial exertions of myriad antebellum bankrupts and fostering considerable social flux,” Balleisin says “general releases from debt contributed to the mutability and dynamism of the nineteenth-century economy. Along with the culture of privately negotiated compromises, antebellum bankruptcy discharges increased the pool of entrepreneurs who actively sought to make their fortune by extending the reach of commercial exchange, inventing new products, or developing new marketing techniques.” (198) In other words, the ability to get out from under a failed business encouraged people to experiment and overextend, to reach for the brass ring of personal enrichment because the price of failure had been reduced. It encouraged entrepreneurs who took risks, which means it penalized prudent, conservative, old-fashioned, and especially cash-based businessmen. It allowed a small group of unusually aggressive players to keep trying until they won (whether by learning from their failures or simply by finally getting lucky), while it pushed their wiser, more prudent competitors to the sidelines. Balleisen doesn’t dwell on this, but it’s the dark side of the “perpetual search for profitable innovation that constitutes a defining characteristic of modern capitalism.” (198)
For some failed entrepreneurs, though, Balleisen says “encounters with insolvency led them away from business ownership altogether.” There was “a substantial class of bankrupts who either could not resume independent business careers [even as artisans] or chose not to accept the risks associated with doing so...Many of these individuals walked away from the scenes of ongoing financial wreckage, seeking a different and less hazardous means of securing a living...Their efforts link the experience of antebellum bankruptcy to the rise of a salaried urban middle class.” (201) The result, Balleisen says, was a “burgeoning class of clerks, bookkeepers, and agents [who] could not only take consolation in their enjoyment of relative economic stability but also lay claim to a version of republican independence--one in which the most fundamental ‘autonomy’ rested not on the responsibilities of self-employment, but on freedom from both the most severe forms of subservience and the degrading precariousness of irretrievable indebtedness.” (219) “Despite the substantial contrast between these responses to personal legacies of insolvency,” he says, “they worked together to help usher in a new economic order structured around large, bureaucratic corporations, rather than small-scale producers and purveyors of goods and services. In part, post-bellum America’s world of trusts and tycoons rested on a foundation of pervasive individual failure.” (227) One way of looking at this would be to say, “well, alright. They lost their nerve and handed over the reins to their economic ‘betters’ in return for security. In return, they got to live quiet lives as modern consumers in the suburbs.” Another perspective, though, might be that changes in the legal system allowed bad money (and behavior) to drive out good, specifically because the bad actors were absolved of their responsibility when they failed. The risks were socialized, the rewards privatized. And 170 years later, here we are...
References:
Bushman, “Markets and Composite Farms”
Lamoreaux, “Accounting for Capitalism”
Weber, Protestant Ethic, 58-75
Schumpeter, Capitalism, Socialism, and Democracy, 81-6
E.M. Gibson, “Going into Business,” 1855
Asa Greene, Perils of Pearl Street, 1834
Navigating Failure: Bankruptcy and Commercial Society in Antebellum America
2001
“To a great extent,” Balleisen says, “the relationship between failing antebellum proprietors and their creditors resembled a game of cat and mouse.” (84) Since anyone could fail, maybe we could extend the group -- especially in light of the fact that only recently had a transition been made from an older system of credit between family members, neighbors, and friends, to an impersonal credit market. Naturally, “Debtors sought to hide their true circumstances from the holders of claims against them,...[and] creditors...did their best to pounce on whatever assets the debtors possessed.” (84-5) This seems especially apparent in the case of the rural merchants I’m studying, who seem to have credit relationships both in the family/community and outside it. It might be interesting to see if they behave differently, depending on the creditor’s status in their local network. It might also be interesting to look at the way these relationships change over time. These guys, after all, were creditors as well as debtors.
“In addition to resuscitating the entrepreneurial exertions of myriad antebellum bankrupts and fostering considerable social flux,” Balleisin says “general releases from debt contributed to the mutability and dynamism of the nineteenth-century economy. Along with the culture of privately negotiated compromises, antebellum bankruptcy discharges increased the pool of entrepreneurs who actively sought to make their fortune by extending the reach of commercial exchange, inventing new products, or developing new marketing techniques.” (198) In other words, the ability to get out from under a failed business encouraged people to experiment and overextend, to reach for the brass ring of personal enrichment because the price of failure had been reduced. It encouraged entrepreneurs who took risks, which means it penalized prudent, conservative, old-fashioned, and especially cash-based businessmen. It allowed a small group of unusually aggressive players to keep trying until they won (whether by learning from their failures or simply by finally getting lucky), while it pushed their wiser, more prudent competitors to the sidelines. Balleisen doesn’t dwell on this, but it’s the dark side of the “perpetual search for profitable innovation that constitutes a defining characteristic of modern capitalism.” (198)
For some failed entrepreneurs, though, Balleisen says “encounters with insolvency led them away from business ownership altogether.” There was “a substantial class of bankrupts who either could not resume independent business careers [even as artisans] or chose not to accept the risks associated with doing so...Many of these individuals walked away from the scenes of ongoing financial wreckage, seeking a different and less hazardous means of securing a living...Their efforts link the experience of antebellum bankruptcy to the rise of a salaried urban middle class.” (201) The result, Balleisen says, was a “burgeoning class of clerks, bookkeepers, and agents [who] could not only take consolation in their enjoyment of relative economic stability but also lay claim to a version of republican independence--one in which the most fundamental ‘autonomy’ rested not on the responsibilities of self-employment, but on freedom from both the most severe forms of subservience and the degrading precariousness of irretrievable indebtedness.” (219) “Despite the substantial contrast between these responses to personal legacies of insolvency,” he says, “they worked together to help usher in a new economic order structured around large, bureaucratic corporations, rather than small-scale producers and purveyors of goods and services. In part, post-bellum America’s world of trusts and tycoons rested on a foundation of pervasive individual failure.” (227) One way of looking at this would be to say, “well, alright. They lost their nerve and handed over the reins to their economic ‘betters’ in return for security. In return, they got to live quiet lives as modern consumers in the suburbs.” Another perspective, though, might be that changes in the legal system allowed bad money (and behavior) to drive out good, specifically because the bad actors were absolved of their responsibility when they failed. The risks were socialized, the rewards privatized. And 170 years later, here we are...
References:
Bushman, “Markets and Composite Farms”
Lamoreaux, “Accounting for Capitalism”
Weber, Protestant Ethic, 58-75
Schumpeter, Capitalism, Socialism, and Democracy, 81-6
E.M. Gibson, “Going into Business,” 1855
Asa Greene, Perils of Pearl Street, 1834
