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.  |  Winter 2016  |  FINANCIAL HISTORY  35