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Patterns of American Railroad Finance, 1830–50

Published online by Cambridge University Press:  24 July 2012

Alfred D. Chandler Jr.
Alfred D. Chandler Jr.
Affiliation:
Assistant Professor of History at the Massachusetts Institute of Technology
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Abstract

When American railroad promoters, in the years immediately after 1830, had to look beyond their own regions for capital, they turned first to Broad Street in Philadelphia, where Nicholas Biddle and his associates served as the agents for marketing vast amounts of sterling bonds in London. This mechanism was disrupted by the failure of the Bank of the United States of Pennsylvania in 1841. Then State Street in Boston became the center, and common stock became the chief instrument, of American railroad finance. The sharp recession of 1847 showed that the Boston capitalists had already made long-term investments in excess of the liquid capital available to them. New York merchants, bankers, and brokers now took up the task of financing the railroads of the South and West, and Wall Street became the undisputed financial center of the country.

Type
Research Article
Information
Business History Review , Volume 28 , Issue 3 , September 1954 , pp. 248 - 263
Copyright
Copyright © The President and Fellows of Harvard College 1954

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References

1 The history of the Camden and Amboy is summarized in American Railroad Journal, XXIX (7 June 1856), 353–5. Hereafter the Journal will be cited as ARJ. The company's meager annual reports add little. The financial situation of the Philadelphia, Wilmington and Baltimore is given in The Second Annual Report of the Philadelphia, Wilmington and Baltimore Rail Road Company (Philadelphia, 1840), 14–15; their third annual report, printed in Hazard's United States Commercial and Statistical Register, IV (20 Jan. 1841), 41; and The Fourth Annual Report of the Philadelphia, Wilmington and Baltimore Rail Road Company (Philadelphia, 1842), 3–7, 24. For the Reading, see The Annual Report of the Philadelphia and Reading Railroad …, January, 1844 (Philadelphia, 1844), 3–5; Report of the President and Managers of the Philadelphia and Reading Rail Road Company to the Stockholders, January 13, 1845 (Philadelphia, 1845), 8; and the excellent survey of the road's finances in Neal, David A., Report Made to the Managers of the Philadelphia and Reading Railroad Company, September 19, 1849 (Philadelphia, 1849), 13–25.Google Scholar

2 By 1837 the Camden and Amboy had an authorized stock capitalization of $1,500,000, and long-term bonds issued totaling $2,888,000. In 1844 the Reading had issued $2,010,000 worth of stock shares and $6,641,000 worth of bonds.

3 The Richmond, Fredericksburg and Potomac, the Petersburg and Roanoke, the Raleigh and Gaston, the Wilmington and Raleigh all issued sterling bonds. The financial histories of the three Virginia railroads are summarized in ARJ, XXIX (15 March, April 5, 12, 1856), 172–3, 218–9, 227. For the Wilmington and Raleigh (later the Wilmington and Weldon), see ARJ, XXI (31 June 1848), 360; XXII (8 Sept. 1849), 563; and The Proceedings of the Stockholders of the Wilmington and Raleigh Railroad Company … November 14, 1852 (Wilmington, 1852), 6, and an unpaged abstract of accounts. The road made an issue of $226,666 worth of 5 per cent sterling bonds about 1840 and another sterling issue, for $520,000, in 1848. The Raleigh and Gaston's $800,000 state-gauranteed issue is mentioned in Heath, Milton S., “Public Co-operation in Railroad Construction in the Southern United States until 1861” (unpublished Ph.D. dissertation, Harvard University, 1937), 105–6.Google Scholar The Virginia and North Carolina roads also relied, as Heath points out, on state aid.

4 The coal roads relying on bonds included the Tioga, the Williamsport and Elmira, the Mine Hill and Schuylkill Haven, the Little Schuylkill Navigation, Railroad and Canal Company, the Pottsville and Danville; the coal canals, the Schuylkill Navigation and the Union. Other Pennsylvania roads using bonds were the Cumberland Valley, the Franklin, the Harrisburg and Lancaster, the Philadelphia, Germantown and Norristown; the New Jersey roads were the Morris and Essex and the Elizabeth and Somerville, as well as the Morris Canal; and in Delaware the Chesapeake and Delaware Canal. For these companies see Poor, Henry V., History of Railroads and Canal of the United States of America (New York, 1860), 394, 433, 442, 445, 480, 500, 515, 540, 552, 571, 586Google Scholar; Bogen, Julius I., The Anthracite Railroads (New York, 1927), 13–15, 145–6Google Scholar; also the annual report of the Schuylkill Navigation Company, printed in Hazard's Register, IV (27 Jan. 1841), 50; and The Report of the Committee of Investigation Appointed at the Meeting of the Stockholders of the Bank of the united States held January 4, 1841 (Philadelphia, 1841), 29–30, 45–46, 49, 56. Many of these transportation companies also received financial aid from the state of Pennsylvania including the Pottsville and Danville, the Cumberland Valley, the Franklin, the Schuylkill Navigation, the Chesapeake and Delaware Canal, and the Union Canal; see Hartz, Louis, Economic Policy and Democratic Thought, Pennsylvania, 1776–1860 (Cambridge, 1949), 323–6.Google Scholar

5 For the Southern roads, see ARJ, XXVIII (17 Nov. 1855), 729–33; Phillips, Ulrich B., A History of Transportation in the Eastern Cotton Belt to 1850 (New York, 1908), 244–5, 263–4Google Scholar; Heath, “Public Co-operation in Railroad Construction,” 73–98. Some smaller projects, like the Annapolis and Elkridge in Maryland, the Beaver Meadow, the Lykens Valley, the Monongahela Navigation, and one or two other coal transporting companies were able to finance themselves almost wholly by stock; see Poor, History of Railroads and Canals, 427, 457, 538, 577. The smaller roads in the West and Southwest used stock shares, many of which were usually taken by the state. The Erie and Kalamazoo and the Lexington and Maysville both made bond issues.

6 Nearly all the Pennsylvania and Virginia roads had the interest and principal of their bond issues paid in Philadelphia. Michel Chevalier, during his inspection of American railroads, pointed out: “L'argent de Philadelphie a été pour une bonne part dans l'établissement des chemin de fer de Petersburg au Roanoke et de Richmond a Frédéricksburg. Sans lui, jamais la ligne du Nord au Sud ne pousse traverser l'État de la Carolina du Nord qui est l'indigent de la Confederation” — Lettres sur L'Amérique du Nord (Paris, France, 1837), II, 74–75.

7 For Stockton, see Dictionary of American Biography (New York, 1928–1936), XVIII, 48–49; for Robinson, see Osborne, Richard B., “Professional Biography of Moncure Robinson,” William and Mary Quarterly, I (Oct., 1921), 237–60CrossRefGoogle Scholar; for Hamilton, see Phillips, Transportation in the Eastern Cotton Belt, 195.

8 Thomas Hankey and Company, Biddle's London correspondent, sold securities for both the Reading and the Virginia roads in the 1840's, and in 1850 continued to be the London fiscal agent for the Virginia roads; see Osborne, in William and Mary Quarterly, I, 251; Bankers' Magazine (hereafter cited as BM), V (Aug., 1850), 173.

9 Bogen, Anthracite Railroads, 23–25; Fourth Annual Report of the Philadelphia, Wilmington and Baltimore, 5–6. The Bank also helped finance, and thus controlled, the Morris Canal and Banking Company, itself active in the 1830's in handling state securities, especially those of Michigan; see Hunt's Merchants' Magazine (hereafter cited as Hunt's), XXII (Feb., 1850), 136.

10 Hazard's Register, I (25 Dec. 1839), 427. Fritz Redlich emphasizes Biddle's role as the United States's “first full-fledged, almost specialized, investment banker” in The Molding of American Banking, Men and Ideas (New York, 1951), II, 337–41.

11 In 1840 the Bank's London agents had $522,222 worth of Camden and Amboy bonds, $811,111 of Philadelphia, Wilmington and Baltimore, and over $500,000 of Reading. Its assets at home included the securities of Virginia and North Carolina roads, several of the embryonic lines in the South and West, and a large number of coal roads, including close to $1,500,000 of the bonds of the Little Schuylkill Navigation and Railroad Coal Company. It also held a loan of over $500,000 of the New York, Providence and Boston, an extension of the north-south route to Boston and one of the very few New England roads to rely on bonds rather than stock before the late 1840's, Report of the Committee of Investigation … of the Bank of the United States, pp. 26–32, 48–49, 54–58.

12 For five years after 1840 only 126 miles were reported built in Virginia (and 76 of these were completed in 1841), 86 miles in Pennsylvania, even less in New Jersey, Delaware, Maryland, and North and South Carolina; see Poor, Henry V., Manual of the Railroads of the United States for 1869–1870 (New York, 1869), pp. xxvi-xxvii.Google Scholar

13 ARJ, XXVIII (26 May 1855), 329–30; XXIX (31 May 1856), 337–38; Poor, History of Railroads and Canals, 264, 400–1. The heavy representation of Philadelphia directors in the Long Island Railroad indicates that Philadelphia capital may have financed that road.

14 For the New York exchange's reputation as the center for speculative operations, see ARJ, IV (2 May 1835), 265; XVI (July, 1843), 205–6; and Jackson, Frederick, A Week on Wall Street. By One Who Knows (New York, 1841).Google Scholar

15 Poor, History of Railroads and Canals, 219, 237–8, 251, 257–8, 265; Pierce, Harry H., “Public Aid to Railroads in New York” (unpublished Ph.D. dissertation, Cornell University, 1949), Table 2Google Scholar; Stevens, Frank W., The Beginnings of the New York Central Railroad (New York, 1926), 172, 183, 338.Google Scholar Before 1837, several New York roads received municipal aid.

16 Only 122 miles were estimated to have been built in New York between Dec., 1842, and Dec., 1847; see Poor, History of Railroads and Canals, 221.

17 Over 2,200 of the 3,660 miles estimated to have been built in New England before the Civil War were completed in the period from the beginning of 1845 to the end of 1851; Poor, Manual of the Railroads of the United States for 1869–70 …, pp. xxvi-xxvii. Also, of the 99 railroad charters passed by the Massachusetts Legislature between 1836 and 1848, 72 were passed between 1843 and 1848; Hunt's, XXI (Nov., 1849), 536.

18 For Sturgis's comments, see N. S. B. Gras and Larson, Henrietta M., Case-book in American Business History (New York, 1939), 124.Google Scholar

19 Written by Henry V. Poor a month after he left Bangor, Maine, to become editor of the American Railroad Journal; see ARJ, XXII (10 March 1849), 145.

20 Neal, Report to the Managers of the Phihdelphia and Reading, 13; BM, IV (Dec., 1849, Jan., 1850), 497, 573. Thayer was a correspondent with the British firm of McCalmont Brothers, which during the 1840's became the Reading's chief representative in Britain. In the 1840's, and especially in the 1850's after the Boston interest in the road declined, McCalmont's New York correspondent, John Gihon and Company, played an important role in the company's affairs. One of the New York firm's partners, John Tucker, became president of the railroad in 1844; see Van Oss, S. F., American Railroads as Investments (New York, 1893), 315Google Scholar; Bogen, Anthracite Railroads, 31.

21 The Tenth Annual Report of the Philadelphia, Wilmington and Baltimore Railroad Company (Philadelphia, 1848), 4–7; The Eleventh Annual Report of the Philadelphia, Wilmington and Baltimore Railroad Company (Philadelphia, 1849), 1–5; Hunt's, XXIII (Sept., 1850), 351–2; BM, IV (Dec., 1849), 497. In the late 1840's, New Englanders also bought large amounts of New Jersey Transportation Company stock.

22 ARJ, XXIX (19 Jan. 1856), 34–35; BM, II (Jan., April, 1848), 454, 640; Statement in Reference to the Seaboard and Roanoke Railroad (Boston, 1847), 5–6, 15; A Letter Addressed to Those Capitalists of Boston Who are Invited to Take Stock in Purchasing and Reviving the Portsmouth and Roanoke Railroad in Virginia, Now Called the Sea-Board and Roanoke Railroad … (Boston, 1847), passim; First Annual Report of the Directors of the Seaboard and Roanoke Railroad Company to the Shareholders … (Boston, 1849), 9.

23 These men, Daniel Tyler of Norwich, Conn., Azariah Boody of Springfield, Mass., J. G. Forbes of Syracuse, N.Y., and Rufus H. King of Albany, N.Y., found capital in Savannah, Charleston, and New York as well as in New England; see ARJ, XX (23 Jan. 1847), 60–61.

24 Porter, Kenneth W., John Jacob Astor, Business Man, 2 vols. (Cambridge, Mass., 1931), II, 1,003Google Scholar; Neu, Irene, “A Business Biography of Erastus Corning” (unpublished Ph.D. dissertation, Cornell University, 1950), 88, 91–93.Google Scholar

25 Watts Sherman of Albany, writing Corning from Boston on 17 May 1844, where he was getting stockholders of the Utica and Schenectady to support Coming's policies, stated that: “an argument which operates here much more strongly than any interest the Bostoniane have in the Utica Rl Rd stock … is the protection of their other Roads West of Utica, in which they … have very large investments.” Sherman continued by stating that for every dollar the Bostonians invested in the Utica road, they had five invested in those to the west. (I am indebted to Dr. Neu for this letter, the original of which is in the Corning manuscripts in Albany, N.Y.) The four-volume account ledger of the retired China merchant, John P. Cushing, in the Bryant and Sturgis papers at Baker Library, Cambridge, Mass., shows that the stocks of the central New York lines not purchased directly from the railroads by that firm were usually purchased from J. E. Thayer and Brothers. See also, Professional and Industrial History of Suffolk County, Massachusetts (Boston, 1894), II, 513; and Neu, “Corning,” 105.

26 Neu, “Corning,” 104, 107, 109; Pearson, Henry G., An American Railroad Builder, John Murray Forbes (Boston, 1911), 24–29.Google Scholar

27 The Annual Report of the Mad River and Lake Erie Rail-Road Company, October, 1847 (Sandusky, Ohio, 1850), 11; The Annual Report of the Mad River and Lake Erie Rail-Road Company, June 17, 1851 (Sandusky, Ohio, 1851), 7. According to the 1850 report, the shares of the road were held as follows: in Ohio, 17,859; in Mass., 15,698; in N.Y., 2,828. The 1847 report stresses that New Englanders preferred stocks to bonds.

28 The Annual Reports of the Directors of the Little Miami Railroad for the Years 1843, 1844, 1845, 1847, 1848 (Cincinnati, Ohio, 1849), 28–29, 37 (3rd Annual Report, 1845), 69–70 (Fifth Annual Report, 1847); Black, Little Miami Railroad, 49. The 1845 loan was for $200,000 and was secured by a mortgage to William Sturgis and Josiah Quincy of Boston and Timothy Walker of Cincinnati. Far more stocks were sold than bonds.

29 ARJ, XXVIII (2 June 1855), 338–9. The Cushing account ledger further documents the pattern of New England investment before the Civil War. The firm of John Bryant and William Sturgis, which invested Cushing's money for him, had by 1845 placed more of Cushing's funds in railroad securities than in anything except manufacturing stocks. By 1852, railroad securities headed the list. Although the largest portion of these securities were stocks of New England railroads, Cushing in 1845 held blocks of stock in the New Jersey Transportation Company and four central New York roads. Before 1848, the firm had added bonds of the Mad River and Lake Erie and the Little Miami, two Pennsylvania coal roads, and more stocks of New England and central New York lines. Shortly after this, Bryant and Sturgis made large purchases of both stocks and bonds of the Michigan Central and the Philadelphia, Wilmington and Baltimore. Nathan Appleton's investments followed closely those of Cushing's. By 1860, he held securities of the following companies operating outside New England: the New York Central, the Michigan Central and its ally the Chicago, Burlington & Quincy, and the Philadelphia, Wilmington & Baltimore. (I am indebted to Dr. Frances Gregory for information on Appleton's investments.)

30 Pearson, Forbes, 28–30. For a list of incorporators, see Hunt's, XXII (Feb., 1850), 139.

31 Second Annual Report of the Michigan Central Rail-Road Company to the Stockholders, June, 1848 (Boston, 1848), 5. By the fall of 1849, these bonds were sold at par in the New York market; Hunt's, XXI (Nov., 1849), 536.

32 ARJ, XXIII (20 April 1850), 248. See also ARJ, XXIII (24 Aug. 1850), 536; XXIV (11 Jan., 8 March 1851), 26–27, 152–3. For contemporary reports on the effect of the depression on Boston, see BM, II (Oct., Nov., 1847, Jan., Feb., June, 1848), 200–5, 327–8, 453–5, 511–2, 705–9; III (Nov., Dec., 1848), 324, 384; IV (March, April, May, 1849), 771–2, 866–8, 911–3; Hunt's, XXI (Nov., 1849), 536. For New York's rapid recovery, Hunt's, XVIII (March, May, 1848), 297–302, 403–12.

33 Commentators on the New England railroad scene discussed the use of bonds as a very recent and not too desirable innovation in Hunt's, XXIII (Aug., Sept., 1850), 198, 309–10. In January, 1850, $1,027,000 of dividends on railroad stock were paid in Boston, but only $162,000 of interest on bonds; BM, IV (Jan., 1850), 579. For the roads listed here, see Martin, Joseph G., A Century of Finance (Boston, 1898), 163–5.Google Scholar For the accounts of these roads, see Poor, History of Railroads and Canals.

34 Hunt's, XXI (Nov., 1849), 536.

35 One indication of the growing business and prosperity of the port of New York was the large expansion of bank deposits which occurred there at this time but did not take place in Boston or other commercial centers. Thus in December, 1849, the deposits in New York banks stood at over $27,000,000, while those of Boston were only $4,000,000, even though New York's total banking capital was only $4,000,000 more than Boston's. By Sept., 1850, New York's deposits had risen to over $37,000,000. For differences in deposits and money rates in New York and Boston, see BM, IV (Jan., Feb., June, 1850), 579, 674, 1,059–60; V (Aug., Sept., Nov., Dec., 1850), 87–88, 178–80, 262, 432, 511. For statistics of the expanding import and export trade see U.S. Bureau of the Census, Historical Statistics of the United States, 1789–1945 (Washington, 1949), 245. See ako Hunt's, XX (April, 1849), 421; XXI (Nov., Dec., 1849), 535–6, 651; XXII (April, May, 1950), 423, 549; XXIV (Feb. 1851), 206.

36 ARJ, XXIII (5 Oct. 1850), 632. The information for this and the succeeding paragraphs comes from a more detailed study of the centralizing and institutionalizing of the American bond market on Wall Street in Chandler, Alfred D. Jr., “The Pen in Business, a Biography of Henry Varnum Poor” (unpublished Ph.D. dissertation, Harvard University, 1952), ch. 6.Google Scholar