the world of private banking

124
THE WORLD OF PRIVAtE BANKING
investment house in this survey that rose to prominence almost exclusively by
serving the financial requirements of corporate enterprises.
Schiff also disagreed with Morgan about the importance of placing
representatives of the major investment banking houses on the boards of directors
of the railroads that the bankers routinely financed. Morgan thought the presence of
his partners on boards of directors was prudent and necessary since they served as
watchdogs for investors in cases of gross railroad mismanagement. Schiff believed
that regular monitoring was unnecessarily time-consuming – except, of course, in
dire circumstances. The exceptions to his general rule applied after a thorough
reorganization of a given railroad’s capital structure by court-appointed trustees,
persons who were frequently none other than the investment bankers themselves.
Schiff’s reluctance to become closely associated with the management of the
railroads that Kuhn Loeb had financed prevented him from becoming a lightingrod
for public criticism to the same extent as J.P. Morgan.
This is an instance where anti-Semitism may have rebounded in Kuhn Loeb’s
favour. Many American railroad leaders were unwilling, except during a crisis, to
add anyone with a Jewish background to their corporate board of directors. That
prejudicial attitude helped keep Kuhn Loeb out of the glaring gaze of the public
spotlight. In contrast to J.P. Morgan, Schiff was never subpoenaed to appear before
a congressional committee investigating the so-called ‘money trust’. Under the
circumstances prevailing in the early twentieth century, Schiff and his partners
were quite happy to play second fiddle to the House of Morgan.
Conclusion
Over the three centuries spanning the period from 1600 to 1900, the Anglo-American
financial-services sector became increasingly large and more sophisticated. The
general trend was away from an early emphasis on the foreign-trade sector and
more toward the burgeoning US capital market, which literally exploded in the
second half of the nineteenth century. The flow of money was always westward;
Europeans with surplus capital aided US economic development in almost every
imaginable way. As the financial markets ripened, greater specialization emerged.
The multi-functional merchant-banking houses lost market share as the nineteenth
century progressed, and they were superseded by banking enterprises that had a
narrower scope.
Initially, the Anglo-American market was institutionally fragmented, but
the maturation process advanced steadily after 1750. The leading firms created
transatlantic networks of agents or branch offices to expedite transactions of
all varieties involving both merchandise and financial services. Trade-related
activities predominated through the War of 1812. In the 1820s Anglo-American
merchant bankers became simultaneously involved in the US capital markets,
helping to locate European investors for a series of capital-intensive transportation
projects. These portfolio investments stalled momentarily after the Panic of 1837,