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Industrial Borrowing by the New England Textile Mills, 1840–1860, A Comment*

Published online by Cambridge University Press:  03 February 2011

Barbara Vatter
Barbara Vatter
Affiliation:
University of Minnesota
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Extract

Lance E. Davis, writing in the March 1960 issue of The Journal of Economic History, found that comparatively low interest rates were paid by eight “Massachusetts-type” cotton textile mills on loans from 1840 to 1860. These firms were voracious borrowers throughout the period, and the textile industry as a whole was a major user of credit. Davis attributed the continued low interest rates primarily to well-enforced usury laws and to the influence of nonprofit lending agencies, with occasional references to effects of the New York money market (not important before 1853). Many other factors—for example, the Tariff of 1846, removing protection from important classes of cotton textiles, die general business cycle, technological changes, alternative investments in railroads and other industries, the relation of increased savings to increased investment demands—should all be explored for an adequate explanation. Of these factors, only the general business cycle is taken up by Davis in a brief reference. The purpose of this note is to suggest that interlocking directorates between financial and textile firms rather than usury laws were probably chiefly responsible for the low rates paid.

Type
Articles
Information
The Journal of Economic History , Volume 21 , Issue 2 , June 1961 , pp. 216 - 221
Copyright
Copyright © The Economic History Association 1961

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References

1 Davis, Lance E., “The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing 1840–1860,” The Journal of Economic History, XX, No. 1 (March 1961) 1–30Google Scholar.

2 The influence of interlocking directorates is cited in Davis’ explanation for the 1849 drop in the long-term interest rate from 6 per cent to 3 per cent:

… the sudden “dumping” may have been the result of personal ties that linked the banks’ directors with the managers of the mills. The directors of the textile firms frequently served on the boards of trustees of the large savings banks, and the low interest loans could have been the result of this connection. On the other hand, the banks acting competitively simply may not have realized the effect of their collective activities on the rate of interest (ibid., p. 20).

The interlocking directorates he mentions occurred among all types of financial institutions, not only savings banks. The Tariff of 1846, which discontinued protection of cotton goods, was followed by a 600 per cent increase of imports of plain calicoes and printed and dyed calicoes in 1856 over those of 1846. (Appleton, Nathan, Introduction of the Power Loom and Origin of Lowell. Lowell, Massachusetts: B. H. Penhallow, 1858, p. 31Google Scholar.) The effect in limiting the output and expansion of the New England industry would be expected to result in a large surplus of inactive funds in financial institutions. Competition for borrowers would then force the price of money down, and financier-textile producers would push down rates on their own borrowing to help their firms compete with the British industry, if they put their textile interests ahead of their financial interests.

3 Davis, Lance E., “Stock Ownership in the Early New England Textile Industry,”The Business History Review, XXXII, No. 2 (Summer, 1958), 204–22CrossRefGoogle Scholar, gives a full discussion of the sources of capital of the early Massachusetts textile industry.

4 Vatter, Barbara A., “Francis Cabot Lowell: An Early Nineteenth Century Entrepreneur,” unpublished Ms. (University of Minnesota, 1961)Google Scholar; Davis, “The New England Textile Mills,” p. 2.

5 Appleton, Introduction of the Power Loom, p. 22; Winthrop, Memoir of the Hon. Nathan Appleton, p. 74.

6 This is probably the mill which Davis identifies briefly (p. 2) as “Massachusetts Cotton.”

7 Nathan Appleton, Introduction of the Power Loom, p. 32; Contributions to the Old Residents' Historical Association of Lowell, II (Lowell, Mass.: Morning Mail Print, 1883), 109–11Google Scholar; Winthrop, Robert G., Memoir of the Hon. Nathan Appleton, LL.D. (Boston: John Wilson and Son, 1861), p. 73Google Scholar. Writing in 1841 on the Suffolk Bank, Appleton described the flow of funds in this system which gave it influence on its members. The magnitude of the available capital of the Suffolk member banks by 1856 was revealed by Appleton to be $31,960,000 for Boston and $26,638,000 outside Boston. Appleton, Nathan, Remarks on Currency and Banking (3d ed.; Boston: J. H. Eastburn's Press, 1857Google Scholar; 1st and 2d ed. published 1841. Appendix, pp. 43–63, added in 3d edition published in 1857), 9, 49. Davis said interest rates had remained close to the legal limit during the depression years 1840–1842 because there was no central bank capable of acting as a lender of last resort. Unfortunately, the article did not elaborate on this and we are not informed of the Suffolk Bank's limitations in this regard. Davis, “The New England Textile Mills,” pp. 14–15.

8 Amos A. Lawrence, also a founder of the Lawrence Company, was a fellow director.

9 Appleton's personal profits from this connection, which was presumably extended to subsequent firms in which he had a personal interest also, “amounted to millions of dollars, a desirable and profitable business.” (From Winthrop, Memoir of the Hon. Nathan Appleton, pp. 18–21; Appleton quoted Nathan Appleton, Introduction of the Power Loom, pp. v., 8, 11–12. This statement gives an inkling of Appleton's motivation, as financier-textile producer, which might have led him to emphasize textile production profits over banking profits.)

10 Members of the board at the time of his death who were also associated with him in the textile business were William Amory, Amos A. Lawrence, Francis C. Lowell, John A. Lowell and William Sturgis.

11 Evidence on the specific interrelationships mentioned above, and many others, was found in Appleton, Introduction of the Power Loom, pp. 17–22, 26, 32; Winthrop, Memoir of the Hon. Nathan Appleton, pp. 73–74; Contributions to the Old Residents’ Historical Association of Lowell, I (Lowell, Mass.: Bacheller & Livingston, Printers, C 1879), 1, 45, 85, 87, 140, 165, 170, 188, 215, 287, 386, 389, 397, 401–2Google Scholar; Contributions, II (Lowell, Mass.: Morning Mail Print, 1883), 109, 138–39, 259–62, 267Google Scholar; Contributions, III (Lowell, Mass.: Morning Mail Print, 1887), 187–207Google Scholar; Contributions, IV (Lowell, Mass.), 180.

12 Davis, “The New England Textile Mills,” p. 17.

13 Clark, Victor S., History of Manufactures in the United States, 1607–1860, I (Washington, D.C.: Carnegie Institution of Washington, 1916), 405Google Scholar, 407, 426, 434.

14 Davis, “The New England Textile Mills,” p. 17.

15 Ibid., p. 3.

16 Massachusetts Hospital Life Insurance Company.

17 Davis, “The New England Textile Mills,” p. 21.