¹ See, for example, Gouge, William M., A Short History of Paper Money and Banking in the United States (Philadephia, Pa., 1833)Google Scholar.

² Appleton, Nathan, An Examination of the Banking System of Massachusetts, in Reference to the Renewal of the Bank Charters (Boston, Mass., 1831), 19–20Google Scholar. The first quote is from Williams, Henry [A Citizen of Boston, pseud.], Remarks on Banks and Banking; and the Skeleton of a Project for a National Bank (Boston, Mass., 1840), 16Google Scholar.

³ See Schlesinger, Arthur M. Jr., The Age of Jackson (Boston, Mass., 1945)Google Scholar; and Hammond, Bray, Banks and Politics in America from the Revolution to the Civil War (Princeton, N.J., 1957)Google Scholar. Subsequent studies of the banking controversy have devoted relatively more attention to political strategy, ideological divisions within the two parties, and economic conditions, but their authors have still tended to gravitate toward one side or the other in this debate. See Sharp, James Roger, The Jacksonians versus the Banks: Politics in the States after the Panic of 1837 (New York, 1970)Google Scholar; McFaul, John M., The Politics of Jacksonian Finance (Ithaca, N.Y., 1972)Google Scholar; Ashworth, John, “Agrarians” and “Aristocrats”: Party Political Ideology in the United States, 1837–1846 (New York, 1983)Google Scholar; and Schweikart, Larry, Banking in the American South from the Age of Jackson to Reconstruction (Baton Rouge, La., 1987)Google Scholar.

⁴ See Pessen, Edward, Riches, Class, and Power before the Civil War (Lexington, Mass., 1973)Google Scholar; and Williamson, Jeffrey G. and Lindert, Peter H., American Inequality: A Macroeconomic History (New York, 1980), 36–46, 67–75Google Scholar.

⁵ See Rockoff, Hugh T., “Varieties of Banking and Regional Economic Development in the United States, 1840–1860,” Journal of Economic History 35 (March 1975): 179CrossRefGoogle Scholar; Rhode Island, General Assembly, Acts and Resolves (May 1837), 48a.

⁶ Rhode Island, General Assembly, Acts and Resolves (1835–45). On the operation of the Suffolk system, see Hammond, Banks and Politics in America, 549–56; and Redlich, Fritz, The Molding of American Banking: Men and Ideas (New York, 1947), pt. 1: 67–87Google Scholar.

⁷ This is not to say that there were no barriers to entry. Like all New England banks, Rhode Island institutions were required to maintain deposits with the Suffolk Bank in Boston for the redemption of their note issues. In addition, each bank's charter specified a minimum capitalization, half of which was supposed to be paid in in specie before the bank was permitted to operate. In general, however, these barriers were no higher than those imposed by the minimum capital requirements and bank-note redemption procedures found in other states. Moreover, as we shall discover, the minimum capital requirements were easily evaded, and banks frequently went into operation with very little specie in their vaults. A potentially more important barrier to entry was the need to secure a special charter from the legislature, where political affiliation and personal connections might determine an application's fate. Between 1815 and 1840 the legislature turned down about half the applications for charters that it received. Despite this high rejection rate, however, Rhode Island had more banks per capita by 1840 than any other state in the union. For general information on the banking systems of other states, see Fenstermaker, J. Van, The Development of American Commercial Banking, 1782–1837 (Kent, Ohio, 1976)Google Scholar; Hammond, Banks and Politics in America; and Redlich, The Molding of American Banking, pt. 1. On the fate of applications for bank charters, see Zuckerman, B. Michael, “The Political Economy of Industrial Rhode Island, 1790–1860” (Ph.D. diss., Brown University, 1981), 249Google Scholar. For an overview of the state's economic history, see Coleman, Peter J., The Transformation of Rhode Island, 1790–1860 (Providence, R.I., 1969)Google Scholar.

⁸ Another list of notes for 1798 shows the Browns and other directors with 75 percent of the total. Discount Book, 1791–93, and List of Notes and Discounts, 1798, Providence Bank, Fleet National Bank Archives. See also Hammond, Bray, “Long and Short Term Credit in Early American Banking,” Quarterly Journal of Economics 49 (Nov. 1935): 79–85CrossRefGoogle Scholar; Redlich, The Molding of American Banking, pt. 1: 11, 31. Most bank loans during this period took the form of discounts of promissory notes. These notes consisted either of commercial paper (IOUs generated in actual business transactions) or “accommodation paper” (personal IOUs). Each note had to be signed by at least one endorser as well as by the promisor. Since either the promisor or the endorser(s) could be the actual borrower(s), we included both kinds of signatories in our totals, taking care to eliminate all double counting.

⁹ Fenstermaker, The Development of American Commercial Banking, 174; Rhode Island, General Assembly, Acts and Resolves (1830–1840).

¹⁰ These totals are for promisors only; the records do not contain information about endorsers. Directors' and Stockholders' Minute Book, 1815–85, Pawtuxet Bank, Rhode Island Historical Society Manuscript Collections.

¹¹ Even these figures are underestimations, since sloppy (or perhaps deceptive) bookkeeping practices hid additional loans to these individuals. Bill Book A, Wakefield Bank, Rhode Island Historical Society Manuscript Collections. See also Directors' and Stockholders' Minute Book, 1834–65, Wakefield Bank, Fleet National Bank Archives; and Robinson, Caroline E., The Hazard Family of Rhode Island, 1635–1894 (Boston, Mass., 1895)Google Scholar.

¹² In 1828, for example, the Eagle Bank of Bristol reported to the Rhode Island legislature that it had lent 18 percent of its funds to directors, yet an examination of its records for this period shows that directors were principals on 30 percent (by value) of the notes it discounted and endorsers on another 25 percent. The discrepancy is largely attributable to the way in which overdue loans were treated in its accounts. Draw Account Book, Eagle Bank, Fleet National Bank Archives; Rhode Island, General Assembly, Acts and Resolves (May 1828), 37a. See also Stokes, Howard Kemble, Chartered Banking in Rhode Island, 1791–1900 (Providence, R.I., 1902), 41Google Scholar.

¹³ Rhode Island, General Assembly, Acts and Resolves (June 1842), 16a, and (October 1845), 40a.

¹⁴ Ibid. (January 1837), 89–92, and (May 1837), 48a. For additional evidence, see Lamoreaux, Naomi R., “Banks, Kinship, and Economic Development: The New England Case,” Journal of Economic History 46 (Sept. 1986): 647–67.CrossRefGoogle Scholar For a study of insider lending in a New Hampshire community, see Andrew A. Beveridge, “Local Lending Practice: Borrowers in a Small Northeastern City, 1832–1915,” ibid. 45 (June 1985): 393–403.

¹⁵ Commercial banks, of course, were not the only institutional sources of credit during this period, and similar patterns of favoritism also characterized savings banks and insurance companies. Indeed, these other financial intermediaries were often operated in conjunction with commercial banks and controlled by the same groups of people. See Lamoreaux, “Banks, Kinship, and Economic Development,” 657.

¹⁶ On this point, see Davis, Lance E., “The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing, 1840-1860,” Journal of Economic History 20 (March 1960): 1–30CrossRefGoogle Scholar.

¹⁷ Legislative investigations generated detailed information about such financial practices, especially in Massachusetts, where a number of newly chartered banks failed in the aftermath of the Panic of 1837. See, for example, Massachusetts, General Court, “Report Relating to the Kilby Bank,” Senate Doc. 34 (1838): 9–14; and “Report of the Bank Commissioners,” Senate Doc. 7 (1840): 28–29. See also Island, Rhode, General Assembly, Report of the Committee to Inquire into the Expediency of Increasing the Banking Capital (Providence, R.I., 1826), 30–32Google Scholar; and Stokes, Chartered Banking in Rhode Island, 36.

¹⁸ By law, the only securities in which Rhode Island's savings institutions were permitted to invest were government bonds and bank stock. But the relative availability, safety, and profitability of bank stock, compared with most other kinds of securities, made it an attractive investment for others as well. Even during the period 1837 to 1845, plagued both by financial panic and depression, Providence banks managed to pay dividends ranging from 5.75 to 7.9 percent per year (the average was 6.2 percent). Over the same period, the yield on New England municipal bonds averaged about 5 percent. Rhode Island, General Assembly, Acts and Resolves (1837–1845); Homer, Sidney, A History of Interest Rates (New Brunswick, N.J., 1963), 287Google Scholar.

The small role played by deposits in this period may have been in part a function of the relatively undeveloped state of the New England economy, but the region's bankers seem to have been particularly reluctant to exploit this source of funds, and the ratio of deposits to capital was lower in New England than in any other region of the country. The cause of this reluctance is not at all clear. One possible explanation was the widespread belief that deposits were essentially borrowed money, and hence an unsafe basis for loans. Another possibility was that, because of the risk of withdrawals, bankers preferred to raise funds by other means (by selling stock, for example), turning to deposits only when the alternatives proved impractical. Thus New England's active market for bank stock may actually have retarded the growth of deposit banking.

¹⁹ Record Book A, Transfer Book A, and Stock Book, Eagle Bank, Fleet National Bank Archives.

²⁰ Directors' and Stockholders' Minute Book, 1833–50, American Bank of Providence, Rhode Island Historical Society Manuscript Collections; Rhode Island, Secretary of State, Abstract Exhibiting the Condition of the Banks (Providence, R.I., 1855), 5.Google Scholar

²¹ Rhode Island, General Assembly, Report on Increasing the Banking Capital, 24.

²² The definition of wealth used here is necessarily limited to what was taxed: “real” property, which is to say, land and improvements; and “personal” property, or movable goods, including personal belongings. As Edward Pessen has pointed out, the problems with using such tax data are legion. It is likely, for example, that assessors systematically undervalued the wealth holdings of the well-to-do and failed to include property located outside the city. If anything, however, these biases should cause us to under-state the wealth of bank directors relative to the rest of the taxpaying population. Their effect on the comparative standing of new-bank and old-bank directors is impossible to gauge, but the trends we observed in their respective tax assessments were sufficiently different that the biases probably do not affect our conclusions.

We collected directors' names from the 1838 city directory and traced them through the 1830 and 1845 tax rolls. Linking records by name is always a difficult process, however, especially when using early nineteenth century sources. Not only is there considerable variation in spelling, but also in the use of initials and other identifiers, such as “junior.” We listed a director as “not found” whenever there was a significant discrepancy in spelling between the city directory and the tax rolls, unless we were able to confirm his identity using another source.

We excluded from our list of new institutions the Blackstone Canal Bank, which was organized in 1831 by the city's wealthiest merchants for the exclusive purpose of financing the Blackstone Canal. We also added to our list of older institutions the Manufacturers' Bank, which moved its office to Providence during this period. As Table 1 shows, two banks (the High Street and the Mechanics and Manufacturers) were chartered during the late 1820s. Our analysis indicates that the directors of these banks had more in common with the new-bank directors than the old. Their inclusion in the old-bank category reduces slightly the observed differences between the two groups, and hence works against our argument, but the effect is not very great. The Providence Directory (1838); Providence, Board of Assessors, Tax Book (1830) and (1845).

²³ Most of the 1838 directors were associated with their banks for considerable periods of time. Directors of old banks served terms averaging 11.5 years, with 94 percent serving six years or more, and 52 percent at least thirteen years. The average for the new-bank directors was not quite so high, largely because these banks were in operation for fewer years during the period under consideration. Still, between 1830 and 1845 new-bank directors served an average term of 7.4 years, with 78 percent serving six years or more, and 51 percent at least nine years. These figures, moreover, are underestimations, because city directories are not available for all years between 1830 and 1845. If a director served in 1838 but not in 1841, for example, and there were no directories for the intervening years, we conservatively assumed he did not serve in 1839 or 1840 either.

²⁴ Information on birth dates comes from Rhode Island, Department of Health, Index to Vital Records of Rhode Island: Deaths, 1853–1900; Snow, Edwin M., Alphabetical Index of the Births, Marriages and Deaths Recorded in Providence from 1636 to 1850 Inclusive (Providence, R.I., 1879)Google Scholar; Snow, , Alphabetical Index… from 1851 to 1870 Inclusive (Providence, R.I., 1881), vol. 3Google Scholar; Biographical Cyclopedia of Representative Men of Rhode Island (Providence, R.I., 1881)Google Scholar; Dorr's Obituaries; and Carrington's Obituaries. (These last two sources are collections of newspaper clippings, available at the Rhode Island Historical Society Library.)

²⁵ Since we are interested here in relative rather than absolute improvement, we have not undertaken to correct these figures for changes in either prices or tax rates, which, of course, would have affected all taxpayers similarly. The new-bank directors' comparative improvement did, however, manifest itself as a real rise in their wealth holdings. In real terms (1910–14 prices) their total wealth increased on average from $9,000 in 1830 to $34,000 in 1845.

²⁶ So as not to overstate the percentage increase of those who started with relatively little wealth, we used the following formula in lieu of the standard numerical average:

% increase = 100*(T2−T1)/[(T2+T1)*.5]

where T1 = tax assessment in 1830

T2 = tax assessment in 1845

²⁷ Although no exemption for bank stock was included in a revision of the tax code in 1855 (the first time that assessment criteria were definitively spelled out), the omission was apparently an oversight and was remedied in 1857. As the Providence Journal reported: “The section in the present law, and which is substantially the same in the revised chapter, defining what is personal property for purposes of taxation, having been deemed liable to a construction which was never intended, Mr. Wheaton of this city proposed an amendment, which was adopted, making the matter so plain that the wayfaring man cannot err as to its real meaning.” The amendment read as follows: “Provided, however, that no shareholder shall be deemed liable to taxation for shares held in corporations within this state which are in their corporate capacity taxed for the amount of their capital stock.” Providence Journal, 21 Feb. 1857, 2.

²⁸ Biographical information is from Biographical Cyclopedia of Representative Men of Rhode Island; Carrington's Obituaries; Dorr's Obituaries; and R. G. Dun & Co., Rhode Island, vol. 9, Baker Library, Harvard University Graduate School of Business Administration.

²⁹ Dorr's Obituaries, 7: 34.

³⁰ Biographical Cyclopedia, 1: 297–99; Dorr's Obituaries, 6: 285.

³¹ Biographical Cyclopedia, 2: 338–39; Dorr's Obituaries, 8: 20.

³² It is well known that the Rhode Island textile industry became more intensely competitive during the 1830s. For a recent account, see Tucker, Barbara M., Samuel Slater and the Origins of the American Textile Industry, 1790–1860 (Ithaca, N.Y., 1984), 189–213Google Scholar.

³³ A random sample of taxpayers listed on the 1830 rolls who were also present on the 1845 rolls shows a virtually constant Gini-index value: 0.70 for 1830, and 0.69 for 1845. Such stability stands in marked contrast to the improvement in the corresponding figures for the bank directors. Moreover, unlike the new-bank directors, the sample members were unable to increase their average wealth holdings more rapidly than the rest of the taxpaying population.

³⁴ List of Providence Freemen Supporting William Sprague for Governor, 10 April 1838, Sprague Papers; and Vote in Providence for Presidency of U.S., 2 Nov. 1840, Providence Voters: Miscellaneous Voting Lists Between 1814–48, Rhode Island Historical Society Manuscript Collections.

³⁵ In addition to the biographical sources cited above, see “First Congregational Society Pew Holders, 1816,” Rhode Island History 10 (Oct. 1951): 110–18Google Scholar; Pew Holders, First Congregational Society, 1819–67, Pew Record, Westminster Congregational Society, 1832–41, Records of the Free Evangelical Congregational Society, 1843–78, and Pew Records, First Universalist Church, 1842–84, all in the Rhode Island Historical Society Manuscript Collections; Records of the Episcopal Church of Rhode Island, Manuscript Group #41, Series I, “St. John's Cathedral,” Box 13, folder 113, Pew Rates—Record Book 1855, box 14, folder 120A, Pew Transfers, Index to 1810–1865 and Series III, “Other Churches—St. Stephen's (Providence),” box 118, folder 298, Pew Rentals—Deeds 1840–1863, University Library–Special Collections Department, University of Rhode Island; Huntington, Henry Rarrett, A History of Grace Church in Providence, Rhode Island, 1829–1929 (Providence, R.I., 1931);Google ScholarKing, Henry M., ed., Historical Catalogue of the Members of the First Raptist Church in Providence, Rhode Island (Providence, R.I., 1908)Google Scholar; Providence Directory, various years.

³⁶ See Gilkeson, John S., Middle-Class Providence, 1820–1940 (Princeton, N.J., 1986), 12–94Google Scholar; and Boyer, Paul, Urban Masses and Moral Order in America, 1820–1920 (Cambridge, Mass., 1978), 34–53Google Scholar.