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Banks, Kinship, and Economic Development: The New England Case
Published online by Cambridge University Press: 03 March 2009
Abstract
Early banks in New England functioned not as commercial banks in the modern sense but as the financial arms of extended kinship networks. These groups used banks to raise capital for their diversified enterprises and give their operations a stable institutional base. Because entry into banking was essentially free, favoritism in credit markets—the usual affliction of such a system—seems to have been unimportant. Instead, the economy as a whole benefited from the ease with which capital could be mobilized for industrial development.
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References
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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
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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
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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
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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
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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
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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
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