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