¹ Gerschenkron, Alexander, Economic Backwardness in Historical Perspective: A Book of Essays (New York, 1965), pp. 5–30.Google Scholar See also Cameron, Rondo et al. , Banking in the Early Stages of Industrialization: A Study in Comparative Economic History (New York, 1967);Google ScholarCameron, , ed., Banking and Economic Development: Some Lessons of History (New York, 1972);Google ScholarNeuburger, Hugh and Stokes, Houston H., “German Banks and German Growth, 1883–1913: An Empirical View,” this JOURNAL, 34 (09 1974), pp. 710–30;Google ScholarNeuburger, and Stokes, , “German Banking and Japanese Banking: A Comparative Analysis,” this JOURNAL, 35 (03 1975), pp. 238–52;Google ScholarAdams, Donald R. Jr, “The Role of Banks in the Economic Development of the Old Northwest,” in Klingaman, David C. and Vedder, Richard K., eds., Essays in Nineteenth Century Economic History: The Old Northwest (Athens, Ohio, 1975), pp. 208–45;Google ScholarPatrick, Hugh T., “Financial Development and Economic Growth in Underdeveloped Countries,” Economic Development and Cultural Change, 14 (01 1966), pp. 174–89;Google ScholarStammer, D. W., “Financial Development and Economic Growth in Underdeveloped Countries: Comment,” Economic Development and Cultural Change, 20 (01 1972), pp. 318–29;Google ScholarSandberg, Lars G., “Banking and Economic Growth in Sweden before World War I,” this JOURNAL, 38 (09 1978), pp. 650–80. The above studies all analyze historical cases. There is also an extensive literature based on the quantitative analysis of aggregate data.Google Scholar For a recent survey, see Gupta, K. L., Finance and Economic Growth in Developing Countries (London, 1984).Google Scholar

² Gurley, John G., “Review of Banking in the Early Stages of Industrialization,” American Economic Review, 57 (09 1967), p. 953;Google ScholarCameron, “Introduction,” Banking and Economic Development, p. 6.Google Scholar

³ Gurley, John G., “Review of Banking in the Early Stages of Industrialization,” American Economic Review, 57 (09 1967), pp. 3–25.Google Scholar See also Gurley, John G. and Shaw, E. S., “Financial Aspects of Economic Development,” American Economic Review, 45 (09 1955), pp. 515–38;Google ScholarGurley, and Shaw, , “Financial Structure and Economic Development,” Economic Development and Cultural Change, 15 (04 1967), pp. 257–68;Google ScholarGoldsmith, Raymond W., Financial Structure and Development (New Haven, 1969).Google Scholar

⁴ Davis, Lance E. provided a few suggestive glimpses of the operation of these kinship networks in his earlier studies of New England financial institutions, but he was primarily concerned with exploring trends in interest rates and savings bank portfolios and never seriously pursued the implications of the groups’ personal connections with banks. See especially “The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing, 1840–1860,” this JOURNAL, 20 (03 1960), pp. 1–30;Google Scholar“Mrs. Vatter on Industrial Borrowing: A Reply,” this JOURNAL, 21 (01 1961), pp. 221–26;Google Scholar and Davis, and Payne, Peter Lester, “From Benevolence to Business: The Story of Two Savings Banks,” Business History Review, 32 (Winter 1958), pp. 386–406.Google Scholar

⁵ I am defining the region of study as Massachusetts, Rhode Island, southern New Hampshire, and southern Maine. The examples in this paper are all drawn from Massachusetts and Rhode Island, but the influence of Boston capital in the other parts of the region suggests a similar experience. For confirmation, see Beveridge's, Andrew A. work on Keene, , New Hampshire, “Local Lending Practice: Borrowers in a Small Northeastern Industrial City, 1832–1915,” this JOURNAL, 45 (06 1985), pp. 393–403.Google Scholar

⁶ Gras, N. S. B., The Massachusetts Bank of Boston, 1784–1934 (Cambridge, Mass., 1937), pp. 212–14.Google Scholar

⁷ ibid, pp. 26, 48, 53–54, 70, 259, 261, 264–65, 266, 268–69, 273–79, 306.

⁸ ibid, pp. 78, 349–56, 359–64, 376, 391.

⁹ At the Providence Bank, founded in Rhode Island in 1791 with much the same justification, there is clearer evidence of a falling away from the charter's original purpose. In the following letter Moses Brown, the conscience of the board of directors, complains about the bank's laxity in collecting past due notes and allowing overdrafts, especially from its own directors: “I have calld on the Officers a number of Times Since to know if the Accts were ready for My Examination, the period has never yet Arived, the reason Suggested for the Delay by the Officers was their not having time.…[B]elieving the Interests and indeed the Safety of the Bank very Much Depend on a more Strict Attention of the Directors and Officers of the Bank to Keep up to the Rules and Regulations thereof, than has some time been the case…It appears propper a Committee of such of the board whose Accts. do not Lay back Unsetled Should be Appointed to pay Attion to setling the Accts…One of the original Grounds of My being concerned in promoting this Institution was a Desire to promote Punctuality in Business then very much Wanting Even to the Immoralizing our Citizens, and I have been and Continue desirous that nothing of this Kind should Appear through want of rectitude in the management of this Institution Either among the Directors, the Officers or Dealers in it.” Letter from Moses Brown to the Board of Directors of the Providence Bank, September 29, 1811, Moses Brown Papers, Rhode Island Historical Society Manuscript Collections.Google Scholar

¹⁰ Fenstermaker, J. Van, The Development of American Commercial Banking, 1782–1837 (Kent, Ohio, 1965), pp. 13, 226.Google Scholar

¹¹ Notes Promised by Breed, H.A., Nahant Bank, 1831—1844, Case 1, Baker Library, Harvard University Graduate School of Business Administration, ms. 781; Record Book, 1815—1885, Pawtuxet Bank, Rhode Island Historical Society Manuscript Collections; Bill Book A, Wakefield Bank, Rhode Island Historical Society Manuscript Collections; Minute Book, 1834–65, Wakefield Bank, Fleet National Bank Archives;Google ScholarRobinson, Caroline E., The Hazard Family of Rhode Island, 1635–1894 (Boston, 1895).Google Scholar

¹² Discounts were considerably less concentrated at some institutions, for example the North Kingstown Bank in Rhode Island and the Plymouth Bank in Massachusetts. But the practice of granting large loans to insiders was the rule rather than the exception. Additional evidence and examples are scattered throughout this article. See also Beveridge, “Local Lending Practice” Bill Book, 1838—1851, North Kingstown Bank, Rhode Island Historical Society Manuscript Collections; Notes Discounted, 1827—1832, and Notes Not on Discount Book, 1827—1833, Plymouth Bank, vols. 55–56, Baker Library, ms. 781.Google Scholar

¹³ Island, Rhode, General Assembly, Acts and Resolves (January 1837), pp. 89–92.Google Scholar

¹⁴ Massachusetts, Bank Commissioners, Report, House Doc. 4, 1841, p. 10.Google Scholar

¹⁵ Cary, Thomas G., “A Practical View of the Business of Banking,” address to the Mercantile Library Association of Boston, December 1845, p. 13.Google Scholar

¹⁶ Quoted in Stokes, Howard Kemble, Chartered Banking in Rhode Island, 1791–1900 (Providence, 1902), p. 35.Google Scholar See also Redlich, Fritz, The Molding of American Banking: Men and Ideas (New York, 1947), pt. 1, p. 43.Google Scholar

¹⁷ Minute Book, American Bank of Providence, Rhode Island Historical Society Manuscnpt Collections; The Biographical Cyclopedia of Representative Men of Rhode Island (Providence, 1881), vol. 1, pp. 213–14; vol. 2, pp. 311–12; R. G. Dun & Co. Collection, Baker Library, Rhode Island, vol. 9, pp. 128–29, 136.Google Scholar

¹⁸ Some of the remaining directors were also distant relations. I am indebted to my research assistant, Ellie Stoddard, for her painstaking work in genealogical records at the Rhode Island Historical Society. Again, I have included only a few examples here, but numerous histories of individual banks document the family ties that linked officers and directors. For additional examples, see Gras, Massachusetts Bank;Google ScholarWeston, Frank and Piggott, Fred, The Passing Years (Providence, 1966);Google ScholarPinkham, Arthur W. and Bruce, Frank E., Men and Money at the National City Bank of Lynn, Massachusetts, During the Past Seventy-Five Years (Lynn, 1929);Google ScholarTymeson, Mildred McClary, Worcester Bankbook: From Country Barter to County Bank (Worcester, 1955).Google Scholar See also Beveridge, “Local Lending Practice.”Google Scholar

¹⁹ Early banks in New England seem to have regarded the taking of deposits as more a chore than a means of accessing savings and offered little or no interest to depositors. See, for example, Gras, Massachusetts Bank, pp. 37–40. Their preference for capital stock as a source of funds may have resulted from the complexities of the early nineteenth-century monetary system. While deposits might be made in any form of current money, charters specified that capital stock had to be tendered in the form of specie. The only other important source of funds—note issues—was limited by the Suffolk system and by the market's ability to absorb new bills.Google Scholar

²⁰ Massachusetts, , Secretary of the Commonwealth, Abstract of the Returns from Banks in Massachusetts (Boston, 1835). It has often been claimed the capital invested in New England banks was largely fictitious—that it was deposited only to satisfy legal requirements and then immediately withdrawn in the form of loans.Google Scholar See, for example, Rockoff, Hugh T., “Varieties of Banking and Regional Economic Development in the United States, 1840–1860,” this JOURNAL, 35 (March 1975), p. 160. While such practices were certainly common enough at the time of a bank's formation, sales of new shares to outsiders gradually transformed capital stock into a legitimate source of funds.Google Scholar

²¹ Minute Book, American Bank of Providence; Rhode Island, Secretary of State, Abstract Exhibiting the Condition of the Banks of Rhode Island (Providence, 1855).Google Scholar

²² Massachusetts, , General Court, Laws of the Commonwealth of Massachusetts, vols. 11 14, and Acts and Resolves (1839).Google Scholar

²³ Gras, Massachusetts Bank, pp. 17–18; Minute Book, American Bank of Providence.Google Scholar

²⁴ Lists of Stockholders, Oriental Bank, 1831–44, Case 2, Baker Library ms. 781; Dividend Book, American Bank of Boston, 1825–35, Baker Library ms. 781; Massachusetts, Secretary of the Commonwealth, Abstract of Returns from Banks (1855); Rhode Island, Secretary of State, Condition of Banks (1855); Gras, Massachusetts Bank, p. 537.Google Scholar

²⁵ Minute Book, American Bank of Providence.Google Scholar

²⁶ Weston and Piggott, The Passing Years, pp. 47–48; Gras, Massachusetts Bank, pp. 17–18; Pinkham and Bruce, Men and Money at the National City Bank of Lynn, pp. 22, 33, 37; “Wakefield Trust Company, Wakefield, Rhode Island”, Narragansett Times, (1928), Wakefield Bank collection, Rhode Island Historical Society Manuscript Collections; Record Book, 1815–85, Pawtuxet Bank.Google Scholar

²⁷ ibid.

²⁸ Massachusetts, Bank Commissioners, Report, Senate Doc. 5, 1839, p. 17.Google Scholar

²⁹ For examples, see Stokes, Chartered Banking in Rhode Island, pp. 15–16. See also Redlich, The Molding of American Banking, pp. 32–33.Google Scholar

³⁰ The Bankers' Magazine and Statistical Register, 3 (May 1854), p. 871; Lists of directors published in the Providence Journal, assorted issues, 1870; Providence City Directory (1870); Rhode Island Business Directory (1872).Google Scholar

³¹ Record Book, 1815–85, Pawtuxet Bank.Google Scholar

³² Bill Book A and Minute Book, 1834–65, Wakefield Bank. The 84 percent figure for the families' total loans is probably an underestimate. A close reading of the Bill Book suggests that sloppy (or deceptive) bookkeeping practices hid some large loans to the Robinson family.Google Scholar

³³ See especially the minutes of the January 11, 1823 and March 16, 1826 meetings. Record Book, 1815–85, Pawtuxet Bank.Google Scholar

³⁴ ibid. The 47 percent figure includes only those notes for which the Rhodes brothers were listed as principals. The record includes no information about endorsers.

³⁵ Minute Book, 1834–65, and Minute Book, 1865–90 (the latter is also at the Fleet National Bank archives). See especially the records of meetings held on September 29, 1863, December 29, 1863, and July 8, 1865.Google Scholar

³⁶ R. G. Dun & Co., Rhode Island, vol. 15, pp. 26, 87.Google Scholar

³⁷ Record Book, 1815–85, Pawtuxet Bank; Rhode Island, General Assembly, Petitions, 54 (1825–1826), pp. 67–69, 71, 74; Massachusetts, General Court, Laws, vol. 14, and Acts and Resolves (1838–1843).Google Scholar

³⁸ Rhode Island, General Assembly, Acts and Resolves (1830–1845); Massachusetts, General Court, Laws, vols. 11–14, and Acts and Resolves (1838–1845);Google Scholar

³⁹ Reports of Stockholders, 1833–34, Farmers and Mechanics-Phenix Bank, Rhode Island Historical Society Manuscript Collections; Stokes, Chartered Banking in Rhode Island, p. 36.Google Scholar

⁴⁰ Although most stockholders in Rhode Island (unlike those in Massachusetts) were not protected by limited liability, the high ratio of capital stock to total liabilities meant in effect that they risked only their investments.Google Scholar

⁴¹ Massachusetts, General Court, The Revised Statutes of the Commonwealth of Massachusetts (Boston, 1836), pp. 308–20; Laws, vol. 14, pp. 515–17; Acts and Resolves (1840), p. 208, (1843), pp. 56–58.Google Scholar

⁴² Massachusetts, General Court, Laws, vol. 14, pp. 302–6; Acts and Resolves (1843), pp. 20–21, (1851), pp. 625–28.Google Scholar

⁴³ Fenstermaker, The Development of American Commercial Banking, pp. 186–247;Google ScholarSylla, Richard Eugene, The American Capital Market, 1846–1914: A Study of the Effects of Public Policy on Economic Development (New York, 1975), pp. 249–52.Google Scholar

⁴⁴ Applications for Discount, Sutton, Bank, Baker Library ms. 781.Google Scholar

⁴⁵ On this point see Davis, “Mrs. Vatter on Industrial Borrowing”, p. 223, fn. 3.Google Scholar

⁴⁶ Fenstermaker, The Development of American Commercial Banking, pp. 186–247; Sylla, The American Capital Market, pp. 251–52.Google Scholar

⁴⁷ Bankers' Magazine, 3 (June 1854), pp. 952–52.Google Scholar

⁴⁸ Rhode Island, Secretary of State, Condition of Banks (1855). See also the reports for the preceding ten years. Before 1849 these were published in the General Assembly's Acts and Resolves.Google Scholar

⁴⁹ Rhode Island, General Assembly, Acts and Resolves (October, 1835), p. 76 insert; and Secretary of State, Condition of Banks (1855); Massachusetts, Secretary of the Commonwealth, Abstract of Returns from Banks (1835 and 1855)Google Scholar

⁵⁰ At the Wakefield Bank, for example, 50 percent of the notes outstanding as of March 1, 1845, were renewals of previous discounts. Only 27 percent of the notes took the form of drafts, the main type of commercial paper then in domestic use. The rest were simply promissory notes. Bill Book A, Wakefield Bank.Google Scholar

⁵¹ Stokes, Chartered Banking in Rhode Island, pp. 56–57.Google Scholar

⁵² Dalzell, Robert F. Jr, “The Rise of the Waltham-Lowell System and Some Thoughts on the Political Economy of Modernization in Ante-Bellum Massachusetts”, Perspectives in American History, 9 (1975), pp. 235–47;Google ScholarMcGouldrick, Paul F., New England Textiles in the Nineteenth Century: Profits and Investment (Cambridge, Mass., 1968), pp. 14–17, 23–24, 28, 121–22, 135, 170–73.Google Scholar

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⁵⁴ We have already seen that Rhode Island banks paid dividends averaging 7 percent over the period 1846–1855. During the same years, the dividends of Boston banks averaged 7.7 percent, with no bank paying less than 6 percent in any one year. Even during the depression year of 1840, only 6 of the 24 Boston banks paid dividends below 5 percent. Most (15) still paid 6 percent or more. Martin, Boston Stock Market, pp. 66–67.Google Scholar

⁵⁵ See especially Leff, Nathaniel H., “Industrial Organization and Entrepreneurship in the Developing Countries: The Economic Groups”, Economic Development and Cultural Change, 26 (04. 1978), pp. 663–64. See also his “Capital Markets in the Less Developed Countries: The Group Principle”Google Scholar, in McKinnon, Ronald J., ed., Money and Finance in Economic Growth and Development: Essays in Honor of Edward S. Shaw (New York, 1976), pp. 97–122; and “Entrepreneurship and Economic Development: The Problem Revisited”Google Scholar, Journal of Economic Literature, 17 (March, 1979), pp. 46–64.Google Scholar