the world of private banking

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THE WORLD OF PRIVAtE BANKING
to American colonial traders involved in international shipments were offered by
hundreds of independent British merchants on an ad hoc basis. In the aggregate,
the amount of British capital tied up in American trade debt grew increasingly
large in the third quarter of the eighteenth century. If the partners in any Anglo-
American mercantile firm thought seriously about making an effort to develop
a stronger commitment to this rapidly growing market before the middle of the
eighteenth century, the effort was not sustained – or, at least, the documentation
has not survived. As the volume of trade expanded, the underlying conditions for
specialization became more favourable. As far as we know, the Barings, beginning
in the second half of the eighteenth century, were the first entrepreneurs on either
side of the Atlantic Ocean to act on the idea of creating a transatlantic organizational
permanence. We will return to a discussion of the Barings’ achievements later in
the narrative.
Meanwhile, under the prevailing conditions in the capital markets, no firm
in London sought to entice investors to purchase the debt obligations of the
colonial legislatures, for a very sensible reason: almost none existed. Parliament
had severely restricted the ability of the thirteen colonies to issue public debt
instruments.
In the second phase of the evolution of the Anglo-American market, institutional
specialization emerged, and the focus was primarily on the overseas trade sector.
Two of the best-known merchant-banking houses – the Barings and the Browns –
made commitments to participate fully in the Anglo-American market. These firms
not only bought and sold goods on their own account for transatlantic shipment,
but in addition offered a range of financial services to other mercantile firms that
were likewise engaged in similar trading patterns. The performance of specialized
financial services was what differentiated this small group of houses from other
less ambitious firms. The leading houses made advances to American shippers
against consignments of goods, mainly cotton and tobacco, to British ports; they
created active sterling markets in US ports to serve the needs of local and regional
importers and exporters; and, for a modest fee, they began the issuance of letters of
credit to American importers who were thereby able to purchase goods in foreign
markets around the globe on more favourable terms than previously.
This last function, the issuance of letters of credit, was the one financial service
in the first half of the nineteenth century that qualified an enterprise as a full-fledged
merchant-banking house. Only the elite houses with impeccable international
After 1750 the New England colonial legislatures created a small floating debt of
three-year treasury bills. It is possible that a few British nationals acquired a fraction of this
debt on the recommendation of an American agent, but there was no attempt to place any
portion of the colonial government debt overseas.
The issue of colonial public debt is closely linked to contentious debates with
Parliamentary committees over the issuance of paper money by the thirteen legislatures.
See E.J. Perkins, ‘Conflicting Views on Fiat Currency: Britain and Its North American
Colonies in the Eighteenth Century’, in Business History, vol. 33, 1991, pp. 8–30.