Wright Op-Ed Featured on Bloomberg, Huffington Post
Wednesday, April 11, 2012
An op-ed that explores the early influence of the U.S. banking industry by Dr. Robert Wright, Nef Family Chair of Political Economy and director of the Thomas Willing Institute at Augustana College, and Richard Sylla is featured in "Echoes," the business history blog of Bloomberg's Views, and on the business section of The Huffington Post.
'Fortune 500' of 1812 Shows U.S. Banks' Early Influence
Fortune magazine began publishing annual rankings of U.S. corporations by revenue in 1955. Ever since, scholars and forecasters have analyzed changes in the Fortune 500 to help inform their judgments about industry concentration and the relative importance of different sectors of the economy.
Historians would love to have snapshots of the nation’s largest corporations at earlier dates. Unfortunately data are scarce, especially before the Civil War. Based on our research, however, it is now possible to create a sort of historical “Fortune 500” ranked by corporate capitalization — the total sum stockholders were supposed to pay for their shares.
Conveniently for us, states regulated corporate equity capital, sometimes by specifying a precise amount of capital but other times indicating an acceptable range. They usually published the figure or range as part of the laws that incorporated each company. We have compiled that data here to provide a snapshot of the U.S. economy in 1812.
Banks and insurance companies dominate the list, reflecting the financial revolution launched two decades earlier by Alexander Hamilton and the Federalists. In 1812, all of the top five companies, and nine of the top 10, were banks. John Jacob Astor’s American Fur Co., coming in at No. 9, completed the top 10. The finance sector made up 44 percent of the 500 largest corporations and 72 percent of all the authorized capital that year.
In transportation, most non-trivial bridges, canals and long-distance roads were then privately owned corporations. Usually they weren’t extensive affairs, thus explaining their conspicuous presence in the bottom part of the rankings. The transportation sector comprised 32 percent of the companies, but only 14 percent of the capital.
Manufacturing, often thought to be a later development in the U.S., actually had a strong presence in 1812. Manufacturers accounted for 20 percent of the 500 largest companies. But like transportation, manufacturing’s share of corporate capital was far lower, only 11 percent; large-scale manufacturing was still in America’s future.
The biggest American corporation in 1812 was the Bank of the United States, chartered by Congress in 1791. Ironically, Congress refused to renew the bank’s charter in 1811, so in 1812 it was in the process of being liquidated. In 1816, Congress would charter an even larger central bank, which would meet the same fate in the 1830s at the hands of President Andrew Jackson.
Two other banks in the top 10 are still with us. The City Bank of New York (No. 5), founded in 1812, is today’s Citigroup Inc. (C), observing its 200th anniversary this year. And the Manhattan Co. (No. 8), more recently known as Chase Manhattan, survives as part of JPMorgan Chase & Co. (JPM) Bank of New York (No. 37) is also still around, with Mellon added to its name.
Economic activity at the time was still heavily concentrated in the Northeast. New York, Massachusetts and Pennsylvania had chartered the most corporations in our 500. Together they account for 63 percent of the companies and 56 percent of corporate capital.
A few caveats call for attention. Although some of the companies in the list, such as Bank of New York, exist in substantially the same form today, others, such as Bank of America (No. 2), aren’t related to extant businesses other than in name. Some surviving companies have long since lost their original identities in mergers; for example, Bank of North America (No. 36), the DNA of which is now a part of Wells Fargo & Co. (WFC) The fate of many smaller companies in the list, particularly the turnpikes, is unknown; in many cases, their facilities eventually became part of the public-road network.
The larger significance of being able to come up with a Fortune 500 for 1812 demands some reflection. The country’s population then was about 7.5 million, less than that of New York City today, and far less than the populations of leading European nations. Yet international comparisons, to the extent we can make them, indicate that the U.S. already had more business corporations than any other country, and possibly more than all other countries put together.
France had chartered 13 corporations by 1812, and Prussia had chartered eight. An old source indicates that England had only 156 joint-stock companies before 1824, and so the entire U.K. probably had no more than 200 to 300. In contrast, our U.S. data show more than a thousand charters by 1812.
The U.S. was the world’s first “corporation nation,” and the ease of incorporating businesses released a lot of entrepreneurial energy that helped to build an ever-expanding economy. By the end of the 19th century, the U.S. would be the world’s largest national economy with tens of thousands of corporations.
Americans continue to have mixed feelings about corporations, just as they did in 1812 and throughout our history. But there’s no denying that the corporation played a large role in making Americans who they were — and are.
(Richard Sylla is Henry Kaufman Professor of the History of Financial Institutions and Markets and a professor of economics at New York University. Robert E. Wright is the Nef Family Chair of Political Economy at Augustana College in South Dakota. The opinions expressed are their own.)