By Donald R. Adams, Jr. the BEGINNING of INVESTMENT

By Donald R. Adams, Jr. SOUTHERN ILLINOIS UNIVERSITY AT CARBONDALE

THE BEGINNING OF INVESTMENT BANKING IN THE UNITED STATES

T HE CREDIT for the establishment of investment banking as 1a means for the large scale marketing of securities is generally assigned to Jay Cooke of Philadelphia. Cooke's activities in marketing the Civil War issues of the Federal Government and his subsequent attempt to employ the same techniques in the sale of Northern Pacific Railroad securities are judged to mark a turning point in the history of financial intermediation.' This judgment rests on several innovations which Cooke utilized in his role as financial intermediary. In short, it is asserted that "unlike his contemporaries, who dealt with persons of large fortune, Cooke placed loans with small banks and local capitalists."' This democratization of the capital markets, scholars contend, opened an entirely new set of alternatives for the purveyors of private and public debt at the same time as it introduced small and medium sized savers to the opportunities of the securities market. This paper does not seek to denigrate the importance of Cooke's contributions to the development of investment banking but does seek to correct the impression that the Civil War was the stage for the first true investment banking operation of any consequence. Nearly a half century prior to the establishment of Jay Cooke's banking house a transaction took place which allowed the be- leagured Treasury to tap the financial resources of a wide spectrum of both institutional and individual savers at a time when the nation's needs were critical.

* This research was supported in part by a Fellowship of the American Council of Learned Societies. I. See, for example, Henrietta M. Larson,Jay Cooke Private Banker (Cambridge, 1936) especially pp. 427-430. 2. Krooss and Blyn, A Histoty of Financial Intermediaries (New York, 1971), p. 105.

99 100 DONALD R. ADAMS, JR. II

The War of 1812 was a divisive one for America. Politically, the country was split along sectional lines which reflected a bitter dispute between the nation's major parties. Republican radicals urged strong measures against Great Britain in retaliation for the harassment of ships, trade, and sailors. If Canada could be acquired in the bargain, so much the better. In New England, the increasingly moribund Federalist party was able to rekindle support by espousing an anti-war policy in keeping with that section's economic self-interest. The declaration of war with Britain in June 1812 caught the nation militarily and financially unprepared despite the long train of events which preceded it. As early as 1809, Albert Gallatin, the Secretary of the Treasury, had anticipated belligerency but felt that such a conflict "must be carried on principally by loans." In keeping with Republican philosophy, the Secretary proclaimed that "no internal taxes of any description need be imposed. All that the Treasury required," asserted Gallatin, "was to double the import duties; to limit the system of drawbacks; either to repeal or to complete the partial non-intercourse law, and to reform the system of accountability in the Army and Navy Departments." By the end of 1812 Gallatin and the administration had ample reason to regret their pre-war fiscal conservatism. The conscious attempt to hold the line on military spending during the preceding decade necessitated the appropriation of over $10,800,000 for national defense purposes. 4 Records reveal that total spending for the military and naval establishments rose from $3,998,394 in 1811 to $15,777,163 in 1812.5 Viewed in an alternative fashion, defense spending rose from less than one-third of total federal outlays to better than 70 percent in a single year.' Compounding matters was the House Ways and Means Committee's estimate indicating deficits of nearly $14,000,000 for the years 1813 and 1814.

3. Henry Adams, The Writings of Albert Gallatin (Philadelphia, 1879), 1: 382. 4. American State Papers, Finance, #368, 2: 539. 5. Ibid., #453, p. 919. 6. In percentage terms, only World War II was more expensive. Between 1942 and 1945 defense expenditures were 77 percent of the total budget. BANKING INVESTMENTS to]

7() 18 9.136, PO=78- 1. 102 DONALD R. ADAMS, JR. A federal loan of $11,000,000 authorized on 14 March 1812 had been a failure. With little or no participation by European financiers, with no Bank of the United States to shore up a sagging capital market, and without the cooperation of New England bankers and capitalists, the Treasury's first subscription netted only $6,118,900.? Subsequent subscriptions were equally disappointing and to finance the government's needs Gallatin was forced to obtain from a reluctant Congress the authority to issue Treaury notes in lieu of 6 percent stock.' In total, the Treasury was able to borrow $13,100,200 during 1812. Of this sum $7,415,200 was in the form of bonds bearing 6 percent interest; $2,150,000 was in the form of loans on special contract; and $3,535,000 was accounted for by Treasury notes.9 The cities of Philadelphia, New York and Baltimore accounted for over 72 percent of all 6 percent stock and over 84 percent of all Treasury notes. Banks accounted for some $9,130,000 or nearly 70 percent of the total and Philadelphia alone accounted for over 41 percent of all bond sales to individuals. '° As the year 1813 opened federal expenditures continued to grow more rapidly than receipts and the Treasury's estimates of needed borrowing approached the $15,000,000 mark. The coming year loomed as a critical one in the affairs of the Treasury and the nation. Privately, Gallatin was pessimistic. In a memorandum prepared for President Madison, the Secretary assessed the Treasury's needs and added "I think a loan to that amount to be altogether un- attainable. From the banks," said Gallatin, "we can expect little or nothing, as they have already lent nearly to the full extent of their faculties." And, he added bleakly, "all that I could obtain this year from individual subscription does not exceed 3,200,000 dollars." 1'

7. American State Papers, Finance, #375, 2: 564. 8. These obligations were "not to exceed, in the whole amount which may ultimately not be subscribed to the loan." The notes bore interest on denominations over $100 and were redeemable by the treasury in one year from the date of issue. In the mean- time they were receivable in payment of duties, taxes, and other debts due the government of the United States. 9. American State Papers, Finance, #380, 2: 580. Special Contract loans were those made by banks whose charters restricted purchases of federal stock and bore the same 6 percent rate of interest. 10. American State Papers, Finance, #380, 2: 590. 11. Adams, p. 528. BANKING INVESTMENTS 103

In an attempt to avoid a public subscription, Gallatin attempted to tap the private fortunes of Philadelphia and New York. He chose as an intermediary in this operation, David Parish, the son of Hamburg banker, John Parish. The Secretary proposed to Parish that he join Stephen Girard of Philadelphia and John Jacob Astor and Herman Le Roy of New York in the purchase of $10,000,000 of government stocks. Parish's reluctance caused this scheme to fall through much to the consternation of Gallatin. On 5 March 1813, Gallatin wrote to Madison that "my reliance on Parish is not great, he . . . positively refused to join with Le Roy and Girard and with Mr. Astor in making proposals for ten millions of the loan. I had set that going and if it had succeeded I would not have opened the loan by subscription."' On 8 February 1813 Congress authorized the Treasury to borrow $16,000,000 at 6 percent and public subscriptions were invited by means of a Treasury circular of 20 February.'3 Subscriptions were to be taken on 12 and 13 March at nineteen banks in eleven key cities across the nation. A letter from Gallatin to Madison on 5 March reflected the anxiety which gripped the administration. "Dear sir," said the Secretary, "we have hardly money enough to last till the end of the month. . . If therefore, there be any arrangements discretionary with the President . . . which are susceptible of extension or curtailment ... it is desirable that they should not be concluded till after that day [ 17 March] ... as we will then be enabled to form correct estimates of our projects; and it is better, in case of failure, to limit ourselves to what is strictly necessary than to be compelled to take retrograde steps. In the meanwhile," concluded Gallatin, "the prospect not being favorable, permit me earnestly to submit the propriety of cutting by the root militia expenses, and of reducing the Western expenditures to what is necessary for defensive operations. ... " 4 When the books closed on 13 March Gallatin's worst fears had been realized. Only $3,956,400 of the loan was taken. In Phila- delphia, the nation's financial center and a Republican strong- hold, the response was particularly disappointing. The chartered

12. Ibid. pp. 532-533. 13. The 6 percent interest was enhanced by the addition of a I percent annuity for 13 years from 1 January 1813. 14. Adams, pp. 532-533. 104 DONALD R. ADAMS, JR. institutions of the city accounted for only $371,200.'5 Stephen Girard's private banking house received $122,600 in subscriptions, with Girard personally taking $100,000.' By a notice of 18 March, Gallatin announced the reopening of the subscription books, this time for a full week, between 25 and 31 March. However, in anticipation of continued failure, the Treasury circular announcing this subscription contained a new twist. Gallatin indicated that he would receive and consider individual proposals until 5 April for taking the residue of the loan not subscribed to by 1 April. "Proposals," said Gallatin, "must distinctly state the amount offered to be loaned, the species stock or stocks, which the parties wish to obtain, and the price they will allow for the same."" Amounts subscribed under such a proposal were to be paid in four equal installments on the 15th of April, June, August, and October. Proposals were limited to a minimum of $100,000 and one-quarter percent commission would be paid to those collecting subscriptions. The Treasury thus initiated the public bidding system that was to characterize subsequent loans and simultaneously set the stage for the nation's first investment banking endeavor.

III

By mid-March David Parish had changed his views on the formation of a stock buying association. In a private conversation with Alexander J. Dallas, a friend and confidant of Gallatin, Parish expressed confidence that a syndicate of bankers and capitalists could be formed to accomplish the Treasury's goals. In a letter to Dallas, dated 16 March 1813, Parish contended that "a new appeal to the public in the manner heretofore practiced" would not accomplish the object of selling the reminder of the loan even at an interest rate of 8 percent. However, said Parish, if he were satisfied "that a serious intention exists on the part of the executive to bring this War to close as soon as it can be done with honor," or that in lieu of that "the next Congress will make the neccessary

15. Nicholas Wainwright, The Philadelphia National Bank, 1803-1953, (Philadelphia, 1953), p. 37. 16. Stephen GirardCollection, Series 2, Reel # 149 (available at American Philosophical Society Library, Philadelphia, Pennsylvania). Hereafter cited as SGC, 2, 149. 17. American State Papers, Finance, #380, 2: 590. BANKING INVESTMENTS 105

AL.B.RT G;ALLATIN. <./OUIteiV Eleutherian8 A.dl(7 flitortil lir8n1 70. / 8 . / l898.88t, PO = ;78 I 4 106 DONALD R. ADAMS, JR. appropriations to carry it on," he was disposed to "enter into an arrangement with Mr. Gallatin and engage to furnish at stated periods the whole amount wanted this year.""8 Significantly, Parish added that he should have no difficulty in making "a considerable number of American capitalists" join him in such an operation. Should the sum to be raised exceed five or six million dollars, foreign assistance might be required. In this regard Parish suggested that he go to England armed with some communication indicating that peace was at hand. If the expectation of peace did materialize and if an association of respected capitalists stepped forward to finance the government, stock would immediately advance 8 to 10 percent and exchange on London would be improved. Parish very frankly added that such a situation would enable "me and my friends in our principal seaports to dispose of a large amount of Dfts [drafts] on that place against the stock I might carry out.""9 Dallas acted swiftly, informing Gallatin of Parish's plan on 17 March. The following day the Treasury circular soliciting proposals by individuals or groups was issued. Parish set out quickly to form a syndicate. In particular he solicited the support of Stephen Girard, Philadelphia banker and merchant, John Jacob Astor, and a group of the other bankers and merchants from these cities."° Parish's methods resembled in many aspects those of modern investment bankers in that he utilized the cooperation of other merchants to tap the resources of still smaller potential investors. By 26 March his efforts had begun to show substantial results. On that day a letter from Biddle and Wharton, a Philadelphia brokerage house, presented some forty-one offers to subscribe to $783,300 of the loan. This clearly represented a "bid" in modern terms since the offer stipulated as a quid pro quo an "eight percent debt payable quarter yearly," and the Treasury's offering was at 6 percent. Two similar letters also arrived on the 26th, one from William Overman with $398,500 in subscriptions and another from William J. Bell containing a list for $280,000.21 18. David ParishLetter Books, Folio 216, (16 March 1813), New York Historical Society, New York, New York. Hereafter cited as PLB. 19. Merchants with Sterling balances in London would thus be able to repatriate their funds through purchases of stock at favorable rates of exchange. 20. Included were Joseph Taggert, President of the Farmer's and Mechanics Bank of Philadelphia; George Newbold, Cashier of the Bank of America in New York; and George Griswald. 21. SGC, 2, 248, (26 March 1813). BANKING INVESTMENTS 107

Louis Clapier's list arrived in two parts on 31 March. The first totaling $667,000 indicated that the subscribers were to be considered interested in any offer Mr. D. Parish may think proper to make to the Secretary of the Treasury. The second list stipulated an 8 percent return as a condition for subscriptions of $165,000.' Parish had been able to solicit bids of $67 1,000, bringing the total to $2,964,800. Table 1 summarizes the syndicate's activities as of 31 March 1813. The average bid was $26,792.22, or with Gallatin's suggested installment plan, $6,698.06 bimonthly.

TABLE 1

SUBSCRIPTIONS TO THE $16,000,000 LOAN OF 1813 MARCH 31, 1913

Subcontractor Total Subscription Average Subscription Biddle and Wharton $783,300 $19,104.88 William Overman 398,500 10,770.27 William J. Bell 280,000 28,000.00 Louis Clapier 832,000 24,470.59 David Parish 671,000 51,615.38

SOURCE: SGC, 2, 52, #126

As expected, the second public offering stock was even less successful than the first. A total of $1,881,800, less than one-half the 12-13 March sale was recorded. Some major banks, such as the Bank of North America, did not even open books for subscriptions. Thus, two public auctions had resulted in the sale of $5,838,200 worth of stock or a little over 36 percent of the authorized total. With nearly $10,000,000 of the loan unsold Parish needed additional financial assistance. On 1 April Girard informed Parish of his disposition to facilitate the loan to the United States but insisted that his bank receive special consideration in the process. Girard's "Proposals made for taking part of the Sixteen Million Loan of the U.S. 1st April, 1813" Stated Ist The credit to be given for the remaining part of the loan supposed to amount to three millions to be as follows: 1/10th

22. Ibid, (31 March 1813). 108 DONALD R. ADAMS, JR.

15 April, 1/10th 15 October, 2/lOths 15 January, 2/lOs 15 March, 2/ lOths 15 May and 2/ lOths 15 July with the option to pay the whole or any part thereof at any time previous to the expiration of the credit given. Also one quarter percent was to be allowed subscribers. 2nd Those who have signed the lists for proposals should subscribe for the said sum on the subscription book at Stephen Girard's Bank, where they will be placed to the credit of the United States. 3rd Funds resulting from subscriptions are to be lodged at Stephen Girard's Bank subject to the order of the Secretary of Treasury who will draw for said funds as they may be wanted, in favor of those who have claims against the United States; it being understood that no part of the loan so subscribed will . . . be drawn out of ... Stephen Girard's Bank for the purpose of lodging the same in any other Bank of the United States. 4th Interest on the loan was to be paid by the cashier of Stephen Girard's Bank "with funds which the Secretary of the Treasury will lodge in time for that purpose." 5th Should the Secretary of the Treasury have any just complaint against Stephen Girard he is at liberty to draw all Treasury funds from the Bank of Stephen Girard. 6th "In making the contract for the remaining part of the loan, which will be taken by Mr. D. P. and S. G. there must be an article which will authorise said subscribers to transfer their right or shares of said Loan subscribed by them.'

Despite the motives of patriotism often ascribed to Girard by subsequent biographers, it is obvious from his proposal that his goals were similar to those pursued by later investment bankers. The larger number of installments over a longer period of time than suggested by Gallatin would permit a smaller initial investment and a longer period of payment thus attracting smaller investors. By concentrating payments at his bank and requiring the Treasury to lodge deposits there until needed he gained the use of these deposits for a period of time. By requiring the government to deposit interest payments in his bank he gained specie reserves. Finally, Girard's insistence that a clause in the contract specifically authorize the transfer of stock from the underwriters to others confirmed his role as an intermediary. With Girard now part of the syndicate Parish turned his atten- tion to his New York colleagues. The principals in that city were Minturn and Champlin, a large mercantile house, George Griswald, David B. Ogden, George Newbold, Cashier of the Bank of America, Oliver Wolcott, President of the Bank of America, and John Jacob Astor. Fearing the defection of these needed participants, Parish

23. Ibid, (i April 1813). BANKING INVESTMENTS 109 wrote Astor on 2 April concerning the advisability of a joint purchase with him as the underwriter. "I am still of the opinion," said Parish, "that it is desirable to let the proposal go through me although the terms are higher than I shall probably insist on in the offer I propose making to Mr. G. for the balance of the Loan; it is not impossible," Parish pointed out, "that proposals being received by him from various quarters he might be disposed to grant better terms for small loans that he would be willing to allow me for the whole."' Parish informed Astor that in a conversation with Girard the preceding day, they both agreed that in making an offer for $10 million they should ask for half that amount in 3 percents at 50 and the remainder in 8 percent at par. "I trust that these terms meet your views and those of your friends," said Parish, ". . .,if you enter into the operation it will probably be divided as follows." $1,800,000 Sundry subscriptions in this city 2,000,000 you and your friend 1,200,000 lists at Baltimore 1,000,000 Oliver and his friends 4,000,000 Girard and myself 10,000,000 "If the New York proposals come through me and are accepted the amount will be taken from the share which I intend to reserve for Mr. Girard and myself." In conclusion, Parish noted that Gallatin was not expected to arrive in Philadelphia until Sunday, 4 April and that "definitive arrangements will probably not be made until Monday." Having settled with Astor, Parish now turned to the group led by Oliver Wolcott of the Bank of America. 25 In a letter addressed to Minturn and Champlin, Ogden, Griswald and Newbold, Parish confirmed in writing the fact that "you authorize me to propose for your account, but in my own name to the account for a part of the Loan and on the condition that the rate of interest shall be 8 percent stock at par or what is considered by me equivalent thereto."2 " As the final day for making proposals approached, Parish was anxious to acquire as many subscriptions as possible. On 3 April he wrote to the New York commercial house of Prime and Ward

24. PLB, Folio 235, (2 April 1813). 25. Oliver Wolcott is the Oliver of "Oliver and his friends." 26. PLB, Folio 236, (3 April 1813). 110 DONALD R. ADAMS, JR. noting that "I have received your letter of yesterday by which I observe that you decline having anything to do with the loan as you don't wish to aid in carrying on the War-My views are the same," admitted Parish, "and I supposed a speedy peace was ... almost certain ...... " Not only does this letter belie the patriotic motives often ascribed to the Girard, Parish, Astor syndicate, it also indicates that Parish was not above stretching the truth to finalize a sale. On Monday, 5 April Gallatin was in Philadelphia to meet with Girard and Parish. The latter pledged "to take as much stock of the United States bearing interest at six percent per annum, payable quarter yearly, the stock not to be redeemable before 31st December, 1825 at the rate of eighty-eight dollars for a certificate of one hundred dollars . . . as will amount to the sum of eight millions of dollars or to the residue of the said loan ... ."2 One quarter percent commission was to be paid on the amount "to which the present proposal will be accepted," and arrangements with respect to installments were to be worked out. On the same day, a letter from John Jacob Astor to take "for myself and my friends in New York, two millions and fifty-six thousand dollars worth of the loan" on the same terms offered by Girard and Parish.29 The 6 percent stock was to be taken at a price of 88, equivalent to a yield of 6.18 percent. These terms were to be offered to all who subscribed before the 31 March deadline. Girard, Parish and Astor retained the option to renegotiate their subscription at a more favorable rate should one be offered at any time during the year 1813. On 6 April the final disposition of the stock was agreed upon by the parties involved. The total amount by Girard, Astor and Parish was $10,056,000. Other parties proposed to purchase $1,050,000 and these together with the $5,838,200 subscribed at the two public offerings in March totaled $16,944,200. The excess of $944,200 was subtracted from the Girard-Parish proposal of $8,000,000 leaving them with $7,055,800. Of this sum Girard and Parish would each take $1,191,500, with the remaining $4,672,800 going to other subscribers. $5,347,800 was to be paid at Stephen Girard's Bank, $188,000 at the Farmer's and Mechanic's

27. Ibid. 28. American State Papers, Finance, #399, 2: 647. 29. Ibid. BANKING INVESTMENTS ill

Bank of Philadelphia, and $1,520,000 at the Bank of America in New York.3 0 $1,500,000 of the latter amount was for Minturn and Champlin, David B. Ogden, and George Newbold, but in Parish's name, and $20,000 was taken by the firm of LeRoy, Bayard and McEvers. On 27 April Parish received a draft for $17,639.50 or one- quarter percent of the $7,055,800 from the Secretary of the Treasury, and payments were made to the subcontractors of the loan by 9 July. 31 Table 2 indicates the final disposition of the total commission.

TABLE 2

Commissions Paid on $16,000,000 Loan of 1813

Date Paid Recipient Stock Sold Commission April 4, 1813 Biddle & Wharton $ 783,300 $1,958.25 April 4, 1813 William Overman 398,500 996.25 April 4, 1813 William J. Bell 280,000 700.00 April 4, 1813 Joseph Taggert 188,000 470.00 April 4, 1813 George Simpson 190,000 475.00 April 4, 1813 Louis Clapier 512,000 1,280.00 April 4, 1813 New York Association 1,500,000 3,750.00 May 19, 1813 A. Daschkoff 100,000 250.00 July 9, 1813 Stephen Girard 1/8% 3,104,000 3,880.00 July 9, 1813 David Parish 1/8% 3,104,000 3,880.00

SOURCE: SGC, 2, 249, (9 July 1913)

A brief analysis of the loan transaction of April 1813 indicates the relative importance of the syndicates' activities. Parish, Astor and Girard accounted for 57 percent of the total subscribed and the $7,055,800 allotted to Girard and Parish alone was 44 percent of total sales. The $5,347,800 paid into Stephen Girard's Bank comprised nearly 78 percent of the stock sold in Philadelphia and the subscriptions of Girard and Parish, which were financed by Girard, comprised over one-third of the total Philadelphia sales. Thus, like many investment banking firms of later years the syndicate accounted for the sale of a large portion of an entire offering, selling most to smaller investors ($4,672,800 or 66 percent) and retaining some for themselves ($2,383,000). 30. PLB, Folio 260, (8 April 1813). 31. PLB, Folio 284, (27 April 1813). 112 DONALD R. ADAMS, JR.

Subscribers to the portion of the loan underwritten by Parish and Girard can be conveniently divided into institutional and individual buyers. The institutional buyers fall into two groups-banks and insurance companies. $1,500,000 went to the "New York Associa- tion" headed by Newbold, Ogden, and Minturn and Champlin. In fact, the Bank of America was the principal party to this transaction and Parish assured Oliver Wolcott, President of that institution, that the deposits arising from the loan transaction would not be drawn out of his bank until the public service required it. To finance his purchase of $1,500,000 in stock on behalf of the New York group Parish discounted a note in favor of Minturn and Champlin for $193,232.87 at the Bank of America. After subtracting a discount of $5,732.87 the remaining $187,500 was used to pay the first installment (one- eighth) of the $1,500,000 subscription." An additional $188,000 went to the Farmers' and Mechanics' Bank of Philadelphia under the name of its President, Joseph Taggert. Of the insurance companies involved, all were Philadelphia based firms. The Philadelphia Insurance Company subscribed to $125,000 in stock; the Pennsylvania Company for Insurance on Lives and Granting Annuities, $10,000; the Insurance Company of North America, $30,000; the Union Insurance Company of Philadelphia, $100,000; and the Marine Insurance Company of Philadelphia, $50,000. Thus, the average, non-bank, institutional subscription was $63,000.32 Perhaps the most interesting aspect of the syndicate's operation was the distribution of individual subscriptions. Personal subscriptions fell into two broad categories: (1) those who paid the entire subscription on 15 April 1813, the date of the first installment and, (2) those who paid the one-eighth required on that date. Table 3 represents the distribution of all personal subscriptions. While the mean value of subscriptions was $20,930.40 the median clearly falls into the $10,000-$14,999 grouping, indicating the influence of a few large subscriptions on the mean. Table 4 indicates the distribution of those subscribers who paid in full for their stock on 15 April while table 5 is the distribution of those exercising the option to pay in installments. Finally, table 6 shows the distribution of installments paid on 15 April 1813. Nearly one-half of all subscribers chose to pay in installments and nearly two-thirds of these made initial payments of less than $5,000. 32. PLB, Folio 256, (11 April 1813). 33. SGC, 2, 419, (15 April 1813). BANKING INVESTMENTS 113 TABLE 3

DISTRIBUTION OF INDIVIDUAL SUBSCRIPTIONS PAID AT STEPHEN GIRARD'S BANK

Size of Subscription Number Size of Subscription Number 0-$4,999 11 $30,000-$34,999 7 $5,000-$9,999 23 $35,000-$39,999 $10,000-$14,999 37 $40,000-$44,999 3 $15,000-$19,999 6 $45,000-$49,999 $20,000-$24,999 7 over $50,000 18 $25,000-$29,999 3

SOURCE: SGC, 2, 419, (15 April 1813)

TABLE 4

DISTRIBUTION OF INDIVIDUAL SUBSCRIPTIONS PAID IN FULL ON APRIL 15, 1913

Size of Subscription Number Size of Subscription Number 0-4,999 6 $30,000-34,999 3 $5,000-9,999 12 $35,000-39,999 0 $10,000-14,999 20 $40,000-44,999 $15,000-19,999 4 $45,000-49,999 $20,000-24,999 4 over $50,000 6 $25,000-29,999 2

SOURCE: SGC, 2, 419, (15 April 1813)

TABLE 5

DISTRIBUTION OF INDIVIDUAL SUBSCRIPTIONS PAID IN INSTALLMENTS ON APRIL 15, 1913

Size of Subscription Number Size of Subscription Number 0-4,999 5 $30,000-34,999 4 $5,000-9,999 11 $35,000-39,999 0 $10,000-14,999 17 $40,000-44,999 2 $15,000-19,999 3 $45,000-49,999 0 $20,000-24,999 3 over $50,000 12 $25,000-29,999 I

SOURCE: SGC, 2, 419, (15 April 1813) 114 DONALD R. ADAMS, JR. TABLE 6

DISTRIBUTION OF INSTALLMENTS PAID ON APRIL 15, 1813

Size of Installment Number Size of Installment Number 0-4,999 37 $30,000-34,999 1 $5,000-9,999 11 $35,000-39,999 0 $10,000-14,999 5 $40,000-44,999 0 $15,000-19,999 2 $45,000-49,999 0 $20,000-24,999 1 over 50,000 0 $25,000-29,999 1

SOURCE: SGC, 2, 419, (15 April 1813)

The subscription list along with the Philadelphia city directory from this period also make possible the identification of the occupa- tional pursuits of most subscribers. Many, of course, were simply listed as "merchants." However, at least one of the following appears on the lists at Girard's bank: boarding school operator, clerk, con- veyancer, attorney, widow, sea captain, gentleman, clergyman, book- binder, financier, commodore, sailmaker, Navy Agent, bricklayer, stove merchant, physician, stock broker, goldsmith and jeweler, brewer, grocer, oil and colourman, shoemaker, storekeeper, iron merchant, distiller and refiner, Collector of the Port, merchant taylor, auctioneer, mahogany merchant, and flour merchant. The wide range of occupations represented on the subscription lists indicates that the process of subcontracting may well have tapped the financial resources of many who had never before been directly involved in the capital market. Contrary to traditional accounts, it was not the con- tractor's sense of patriotism and Girard's immense personal fortune which saved the day for the Treasury. Equally important, and of more lasting importance, was the development of a method of marketing government debt which allowed and encouraged the participation of a large number of individuals of fairly modest means in the Treasury's fiscal operations. In several other respects the loan of 1813 was a turning point in the nation's financial history. The old plan of borrowing from the banks was to a large extent displaced by a more roundabout process in which institutions and individuals, including bankers, bid for stocks.'4 Moreover, for the first time we see bankers differentiating

34. Robert A. Love, Federal Financing (New York, 1931), p. 54. BANKING INVESTMENTS 115 their function from that of mere purchasers of government securities to the more specialized acitivity of loan contracting, akin to the function of the modern investment banker. This new development was not without its problems. While it is undoubtedly true that the banks and bankers contributed to the success of the Treasury's operations during the war, it is also true that they hampered the latter's flexibility. In the absence of vigorous tax measures and a government associated bank we find that instead of the government being able to enforce its plans upon the banks, strong institutions, such as Girard's, dictated to the Treasury. " Although Girard, Parish and Astor contemplated taking part of the $25,000,000 loan authorized by the Congress in 1814, a satis- factory arrangement with the Treasury could not be worked out.3' Girard's next major transaction in the role of investment banker was the purchase of 29,736 shares of the Second Bank of the United States on 26 August 1816. All but 4,500 shares were transferred to predeter- mined individuals in lots ranging from 50 to 5,000 shares.37 Again Girard performed the role of underwriter by providing specie payment of $148,680 and funded debt of $743,400 as the first installment of this purchase. "

In conclusion, it is the contention of this paper that the essence of the intermediary function known as investment banking was well established by the second decade of the 19th century. The Girard, Parish, Astor syndicate during the War of 1812 and Girard's purchase of nearly $3,000,000 in BUS stock in 1816 exhibited clearly the func- tions of underwriting, purchase for resale, subcontracting, and attempts to influence the market for securities which characterized later investment banking. It was not until the Civil War and the activities of Jay Cooke and Company that such underwriting ven- tures again gained prominence. A decline in the importance of the federal debt, the existence of the Second Bank of the United States

35. Ibid., p. 55. 36. This rather complicated scheme involved the sale by Girard, Parish and Astor of some $10,000,000 in stock domestically and $5-10,000,000 in Europe. 37. SGC, 3, 94, #1, p. 147. 38. Kenneth Brown, "Stephen Girard's Bank," The Pennsylvania Magazine of History and Biography, (January 1942), 66: 137. 116 DONALD R. ADAMS, JR. and the independent treasury policy which divorced the Treasury from the banking system, all operated to reduce the significance of this important intermediary function in the years between the second war with England and the War Between The States.

ROBBERS TAKE NOTICE!- A REWARD FOR REFORMATION The villain or villains who practice robbing the subscriber's oil mill of FLAX SEED (he having actually lost more than forty bushels within two years) are informed, that as he despairs of detecting such apparently accomplished adepts, and being desirous of preserving his property, a Reward of FORTY SILVER DOLLARS will be given him or them who are guilty as aforesaid, on application for the same; provided the property in said mill shall in future be unmolested, and an assurance of penitency and reformation satisfactorily pledged. If, after the generous attempt to reclaim the offenders, any depredations shall be committed, it would be far better for him or them, that a mill stone had been tied about his or their neck, and the awful sentence of- dead, dead, dead-uttered against them, than that they had not em- braced the conditions of this Advertisement. Solomon Kilborn [The Pennsylvania Packet, 6 January 1789]

NO LOITERING! That part of Chestnut-street, near Smith's-alley, calls for the activ- ity of the civil officers-as there is a set of idle young fellows who meet there every evening about eight o'clock, and continue there some hours, cursing, using obscene language,-nay, even abusing passengers, particularly black people, (a practice frequent through the city). They prevent the inhabitants enjoying the cool breezes of the evening at their own doors. If there was one or two of those nightly paraders put to the house of correction, the payment of the fees would, I am persuaded, effectually prevent any further meetings in that quarter.-It is also surprising, that the masters of those boys do not find some employment for them in the evenings, as it would be of in- finite service to the morals of the younger part. An INHABITANT

[The Pennsylvania Evening Herald, and General Advertiser, 10 August, 1785]

CONTRIBUTED BY ERNEST H. SCHELL, TEMPLE UNIVERSITY