Financial History Issue 116 (Winter 2016) | Page 37
In the first half of the 19th century,
American economic output was mainly
confined to agricultural products. Trade
with Europe was dominated by cotton
and tobacco grown in the southern states
and forestry products from the northeastern states. By mid-century, the Industrial
Revolution created a shift in America’s
economic output. Abundant natural
resources, such as coal, iron ore and later
oil, enabled the economy to move from
mainly agrarian to higher value-added
manufacturing.
Agriculture fell to less than half of the
total US output by 1840. Capital inflows
from Europe and an expanding US population in the form of immigration from
Europe provided the funding and labor
for a rapidly-expanding manufacturing
based economy. In the period between
1850 and 1880, the number of manufacturing concerns nearly doubled, while
gross domestic product per capita grew by
approximately 49%.
During this same period, the rapid
growth of railroads opened up the western states for commerce. Between 1850
and 1880, approximately 84,000 miles of
track were added, providing a fast and low
cost means of moving freight and people
around the country. The result of this
wealth creation was a large and growing
class of wealthy people, particularly in the
eastern US cities.
During the early period of US banking
(1781–1862) all banks, with the exception
of the First and Second Bank of the United
States, were state banks, chartered by the
states in which they were located. The
First and Second Bank of the United States
were chartered by the US Congress.
Through the end of the early banking
period in 1862, state bank laws and regulations varied widely from state to state.
Each state set its own requirements for
bank founders as to the minimum amount
of paid-in capital needed to open, the
amount of reserves to hold against note
issue and limits on liabilities. Most states
had no laws governing the activities of
companies doing a trust business until
late in the 19th century. Many states did
eventually enact trust company laws, but
they were more liberal than state bank
laws because trust companies were not
considered banks. In some states, trust
companies were permitted to incorporate
under existing general corporation laws,
so there was no oversight by state banking
officials.
Trust Companies, Early Period
The first US companies to be granted trust
powers were not, in fact, interested in
banking because they were insurance companies. The first of these was the Farmers’
Fire Insurance and Loan Co., which was
incorporated in New York City in 1822.
Its original charter from the State of New
York granted the company the power to
provide mortgage loans for farms, houses
and factories; to insure properties against
loss or damage; and to grant annuities. The
new firm was also permitted to purchase
and hold stock and foreign debt, but it was
excluded from doing a banking business of
any kind. Within a few months its charter
was amended by the state legislature to
allow the company to receive both real and
personal property in trust for people and
corporations.
The company’s trust business proved
profitable enough that in 1836 it abandoned
Certificate for one share in the Irving Trust Company, dated October 2, 1931.
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