Using Primary Sources: Credit Reports

Dan Allosso

Unlike many of the records that I’ve been using so far in my research, credit reports like the R.G. Duns collection at Harvard’s Baker Library are a primary source that seems to stay much more in the background of many research projects. Partly this may be due to the Baker Library’s rules: no photography of the materials, no direct quoting of the reports without prior approval. But a much more reserved, qualified use of these credit reports probably also comes from the mediated form of the information in them.

As Christopher Clark described them in The Roots of Rural Capitalism, reports like those in the R.G. Duns books began to be used after the Panic of 1837, and became much more extensive after the Panic of 1857, to provide a way of evaluating the credit-worthiness of (mostly rural) borrowers for the benefit of (mostly urban) creditors. This geographic distance is key to the value of the reports; since the credit agencies employed local correspondents who reported facts, opinions, and rumors about their subjects that would have been common knowledge in the local business community. But we don’t know much about these reporters: the correspondents identified themselves in the bound volumes by code numbers, so the sources of these judgments are not at all transparent. This anonymity and the use of coded language (which as Clark points out, tends to apply contemporary “moral principles to business”) adds to the appearance of unanimity, authority, and consistency of judgment. But a closer look at the reports, especially those of long duration, casts some doubt on this supposition.

I’ve been to the Baker a couple of times to look at the R.G. Duns books. The librarians are very helpful; they bring the books out to your work table, one at a time, and can get additional volumes quickly, if your research takes an unexpected turn. One of my subjects, in Michigan, for example, did not turn up in the Kalamazoo book when I expected him to be there. Going back to the book for St. Joseph County (south of the city), I found reports of his business activities in his home community long after the “official story” of his life had him moving to the big city. The Duns reporters also wrote about him being involved in businesses that never came up in the other materials I’ve looked at, which gives me a whole new trail to follow in my investigation.

But while they are helpful for pointing to holes in my information, I think the Duns reports are most interesting for the way they describe changing attitudes toward the behavior (or “character”) of businessmen in these rural areas, and the expectations of urban creditors. It’s important to remember, when reading reports like these, that the correspondents were writing from the point of view of their distant clients. Tensions over the relative power of the local and distant parties to these credit relationships, as well as changing standards of personal and business conduct, are a central element of these narratives.

The contrast between the two brothers I’m studying in upstate New York is dramatic. They lived in adjacent towns, but in different counties covered by different Duns correspondents. They had been partners for decades, but later in life they became competitors. The younger of the two became the richest man in his county, and developed a reputation for credit-worthiness and stability that was amply recorded by his local Duns reporter. He set up his son as a banker, guaranteeing the young man’s credit with his own. When the son became an alcoholic and needed to be institutionalized, his father made good all the bank’s investors and depositors, and transferred the business to his younger son and two daughters. All these details are recorded, with very little personal judgment, in the Duns book.

In contrast, this man’s older brother seems to have pioneered the borders of financial respectability, by continually crossing them. The Duns reporter who covered his file for many years stressed the fact that the older brother was “fond of litigation,” tended to pay only after an “execution” by the court, and “cannot be trusted out of sight.” Like his respectable younger brother, this upstate businessman also started a bank, which he used primarily to finance his own business. This business was ultimately successful in a competitive national and international market, in part because its owner was willing to take substantial risks and go much farther out on a financial limb than his Duns correspondent was comfortable with. These conflicts of interest between the businessman’s activities and the standards of the Duns reporter suggest a changing dynamic of rural and urban financial power. As, I think, does the increasingly adversarial tone taken over time in several accounts. After a while, many of my local subjects seem to become less compliant with demands for information by their local Duns correspondents. It may even be a mark of financial success for them that some are able to completely stop cooperating with these reporters. In that case, the negative personal tone of the later entries in some of these credit narratives might be read as evidence of rural financial independence, rather than failure to conform in an increasingly urban credit regime.

Reading Primary Sources: Bank Notes

Dan Allosso

We don’t think much about our money. We may worry about how much of it we need; but we’re not concerned about what it looks like or where it came from. Rarely do we remember that this is a modern phenomenon. Until the Civil War, Americans were very aware of the origin and relative safety of their money.

The best money in early nineteenth-century America was gold, but there was a limit to how much of it you could conveniently carry. And there wasn’t enough of it to go around, especially in towns and villages far from financial centers like New York and Philadelphia. So local people exchanged promissory notes that were basically IOUs stating, for example, that Miller Jones owed Farmer Smith $50 for his wheat harvest, payable sixty days after Smith delivered the bushels of grain to the mill. If Farmer Smith needed to pay someone else sooner than sixty days, he had several options. He could write his own promissory notes (if people trusted him), endorse the Miller Jones’s note to a third party (if people trusted Miller Jones), or take Jones’s note to the bank for cash. The banker would exchange the note for cash, at a “discount” representing interest for the sixty days he would have to hold Jones’s note before he could redeem it. The “cash” the banker would give Farmer Smith could include gold coins if Smith insisted on it, but if the banker had his way it would be—and this is where it gets interesting—bank notes.

Bank notes were initially just like promissory notes, except that they were issued by the bank. They were usually written to a named recipient for a specific amount. But they were much more easy to endorse to a second party, because in most cases everyone knew and trusted the bank. Over time, banks were able not only to write a lot of these types of notes, but to begin writing general notes for smaller denominations, that were immediately payable to anyone “on sight.” Of course the details of how this developed varied from place to place, but these small denomination sight notes became “circulating currency,” or what we think of as money.

When banks gained the ability to issue their own notes, they basically began creating money. In many states, there were laws requiring the bankers to invest in a state insurance fund, or to deposit securities (government bonds or mortgages) with the state comptroller in order to issue notes, but very rarely was there a substantial specie requirement. In other words, the money these state banks printed was usually backed by something other than piles of gold in the vaults of the banks, because there were no piles of gold.

Confidence in the banker issuing a note was crucial to the note’s acceptance. This confidence was naturally greater in states that had a “safety fund” or that required securities to back note issues. Everyone knew that there was never enough gold at the bank to pay all the notes. The expectation was rather that there would be enough to conduct regular business, and pay the notes brought in for redemption on any given day, rather than all the notes outstanding. This differential between everyday redemptions and all the notes outstanding was all-important: this was how the bank literally made money.

The money-making ability of the local bank was not only profitable for the banker, but was essential to the community. Without the money printed by local banks, farmers and millers would have had a much more difficult time doing their business. Especially in remote areas, which was where most of the farm products destined for city dinner tables were grown. Most of the “real money” (that is, gold) was hoarded in the big eastern cities, or after Andrew Jackson’s 1837 Specie Circular was used to buy land at the frontier Land Offices. Very little was available in the settled farmlands that made up the middle of the country. Local banks provided the cash and credit that allowed farmers to plant, tend, and harvest their crops, at a time when 90 percent of Americans were farmers.

All this changed during the Civil War. The Lincoln administration first issued their own notes, called Greenbacks because they were printed with green ink, to help pay for the war. Between 1863 and 1865, Lincoln’s Treasury Secretary, Salmon Chase, led a campaign to centralize control of American banking by creating a system of national banks and by taxing the notes of local banks, to make them too expensive to use relative to the new national notes. Chase and his supporters claimed that local banks were unsafe, and that the extreme variety of notes floating around in the economy (it has been claimed there were over 9,000 different types in circulation in the early 1860s) provided too much opportunity for counterfeiters. While both of these arguments were valid up to a point, Chase’s solution wasn’t the only possible response. Our current system of national currency was not inevitable; by nationalizing the power to make money, Chase added a nearly immeasurable new source of revenue for the central government. This aspect of the change to national notes has gone largely unrecognized, and we now treat our national currency as a completely natural and inevitable part of our national economy--except in a few places like far western Massachusetts, where local people have taken advantage of changes and loopholes in the banking laws, to once again begin making their own money.

Lehman Brothers . . . and History in Art

Heather Cox Richardson

On Wednesday, September 29, Christie’s auctioned off about twelve million dollars worth of artwork from the wreckage of Lehman Brothers. (Auction catalog.) While the pieces that made the news were Ethiopian artist Julie Mehretu’s “Untitled 1,” which went for slightly more than $1 million, and Chinese artist Liu Ye’s “The Long Way Home,” which sold for slightly less than $1 million, historians can learn from the collection as a whole. It shows the history of the Lehman Brothers enterprise from its origins in the antebellum South through the collapse of 2008.

In a Wikipedia nutshell, the history of Lehman brothers runs like this:

What would become Lehman Brothers started in 1844 when Bavarian immigrant Henry Lehman opened a dry goods store in Montgomery, Alabama. Soon Henry’s brothers, Mayer and Emanuel Lehman, arrived in America, and the three became cotton traders, organized as Lehman Brothers. The company opened a branch office in Manhattan in 1858, and moved headquarters there after the Civil War. By the 1880s, the surviving Lehman brothers (Henry had died of the dreaded yellow fever before the war) were heavily involved in the worlds of trade and finance.

So far, so good—at least as far as I know. But while Wikipedia goes on to list the company’s involvement with stocks and financial instruments, the artwork Christie’s sold tells a different story.

Notable, if you look through the collection, is the large number of Chinese art and artifacts. This suggests that Lehman Brothers was deeply involved in the late nineteenth-century Pacific trade, which took off after the 1868 Burlingame Treaty opened China to US business, and which brought enormous wealth to America before WWI. A number of paintings sold on Wednesday were of ships, both merchant ships and navy ships (and one excursion steamer painted by Gideon Yates*). The Lehman brothers clearly recognized the importance of ships both to carry and to protect their business ventures. They were—if you can trust their art—almost certainly involved in China.

The rest of the collection sold Wednesday tells another story. The many early eighteenth-century British paintings and prints were undoubtedly a way for rising immigrant businessmen to nail some status to their walls. And the recent years of world-wide investment banking not surprisingly added the sophistication of modern art to the collection.

The earlier and later art Lehman Brother gathered seems to me about what you would expect from a longstanding business’s art collection. But the Chinese pieces and the maritime art was a surprise. I had never thought that the Lehman Brothers that collapsed so spectacularly in 2008 might have been a player in America’s nineteenth-century ocean trade.

__________

*No, guys, I’m not kidding. It sold for $3,748.

Economic History: State of the Field in Historically Speaking

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"But with the slow menace of a glacier, depression came on," Frances Perkins lamented in 1934. "No one had any measure of its progress; no one had any plan for stopping it. Everyone tried to get out of its way." How did this thing happen and when will it end? Common questions back in the Dirty Thirties.

Today, journalists, historians, policymakers, and so many others are grasping for some handle on the current economic slump. What's the historical context of economic trouble? What went wrong? Could it have been avoided? "Some brilliant scholar has to write a comprehensive history of modern economics," says David Brooks in the NYT, "because the evolution of this field is clearly one of the most consequential things happening in the world today." Brooks' speculates: "One gets the sense, at least from the outside, that the intellectual energy is no longer with the economists who construct abstract and elaborate models. Instead, the field seems to be moving in a humanist direction."*

Others disagree. Over a month ago Diane Coyle penned an essay for the Chronicle on how "Economics Is on the Verge of a Golden Age." "An astonishing explosion of creativity and intellectual progress has been under way for years in a number of areas," observes Coyle. "Consider competition economics (should the Department of Justice challenge the Google Books settlement on antitrust grounds?), the application of game theory or the use of market design (what's the best system for matching newly qualified doctors or Ph.D.'s to jobs?), development economics, the economics of technological change and network markets (what prices should mobile-phone companies charge for access to one another's networks?), and the study of long-term growth."*

The latest issue of Historically Speaking (April 2010) features a forum on "The Neglected Field of Economic History?" Senior editor Donald Yerxa organized the forum with a generous grant from the Earhart Foundation. I paste below Yerxa's intro to the forum and short excerpts from each essay. (Read the full forum and other material from the new issue of HS at Project Muse.)

No graduate student in history in the 1970s could escape economic history. One of the major professional debates of that era—about the cliometrics of Robert Fogel and Stanley Engerman’s Time on the Cross—went well beyond historiographical interpretation to encompass seemingly fundamental differences over the nature of historical methodology. But where does economic history stand now? In this our third in a series of four forums we asked several leading economic historians to assess the state of their field. Robert Whaples gets our conversation started with the forum’s lead essay. Philip Hoffman, Deirdre McCloskey, Joel Mokyr, and Werner Troesken respond, followed by a rejoinder from Whaples.

"Is Economic History a Neglected Field of Study?"
Robert Whaples

In the fall of 2008 and early 2009 it looked to many weary and wary workers, investors, policy makers, and analysts as though the U.S. economy was about to fall off a cliff into an abyss as bottomless as the Great Depression. What on Earth was going on? Everyone wanted to know, and many turned to history—economic history—for answers. The press burgeoned with interviews and insights from economic historians who were called to Washington and New York to offer advice. Indeed, Christina Romer, an economic historian from University of California, Berkeley, whose pioneering early research examined historical trends in economic volatility and who has done influential research on the causes of the Great Depression and the recovery from it, was tapped by President Barack Obama to be chair of the Council of Economic Ad- visors. And Ben Bernanke, a former Princeton University economist and author of Essays on the Great Depression (2000), held—and still holds—the most powerful economic policy making position in the world as chair of the Federal Reserve.

In these turbulent times, it became obvious to almost everyone that understanding economic his- tory is useful, indeed essential, and economic historians are indispensible. And yet many economic historians have the sense that their discipline is a neglected field, a field on the margins, caught in a no man’s land between two disciplines: ignored and underappreciated by economists and misunderstood, feared, and perhaps even despised by historians. Most economic historians sense that the discipline has almost always been on the margins and that this marginalization has increased appreciably since the end of a brief golden age that glimmered during the 1960s and into the 1970s.

To understand this situation, I’ll begin—as economic historians almost always begin—by doing some counting. . . . read on>>>

"Response to Robert Whaples"
Philip T. Hoffman

To make the picture even more depressing, Whaples (being the good economic historian that he is) backs up his assertions with solid evidence. One could easily add to it. To judge by the titles of articles in mainstream history journals (the American Historical Review, the Journal of American History, the Journal of Modern History, Past and Present), interest in economic history is vanishing.1 Dissertations in economic history in history departments are rare.2 And citations suggest that major works of economic history can pass unnoticed by the history profession even when they address issues that once fascinated many non-economic historians.3

My personal experience, if it is worth anything, suggests much the same. Older historians I know who were trained in the 1970s may not write economic history, but they do seem willing to pay attention to it. They also seem open to borrowing from the social sciences and to the possibility of generalization—in other words, to the notion that what they have unearthed in the archives is not necessarily a special case. . . . read on>>>

"One More Step: An Agreeable Reply to Whaples"
Deirdre N. McCloskey

I agree with every word of Robert Whaples’s elegant and well-grounded essay.1 Whaples doesn’t say things until he has the goods—and as he says, we people from the economic side tend to think of the goods as numbers. It’s very true, as he also says, that our numerical habits have repelled the history-historians, especially since they have in turn drifted further into non-quantitative studies of race, class, and gender (it is amusing that the young economic historian Whaples quotes gets the holy trinity slightly wrong, substituting “ethnicity,” a very old historical interest, for “class,” a reasonably new one; it is less amusing that historians believe they can adequately study race, class, and gender without ever using numbers, beyond pages 1, 2, 3).

But it’s also true, as is shown by the fierce and ignorant quotations he reports from other economists and economic historians, that quantitative social scientists don’t get the point of the humanities. “Whenever I read historians,” said a young economic historian to Whaples, “my response is: How can you say that without a number? Do you have a number?” Many social scientists, and especially those trained as economists, believe adamantly that, as Lord Kelvin put it in 1883, “when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of Science.” The young economists nowadays believe this so fervently that rather than deviating ever from their faith they insist on collecting sometimes quite meaningless numbers (such as what is known as “statistical significance,” or what they are pleased to call “calibrations” of a hypothetical model unbelievable on its face). . . . read on>>>

"On the Supposed Decline and Fall of Economic History"
Joel Mokyr

Much like the West, the field of economic history has experienced endless lamentations of its imminent decline and fall. Whaples’s basic argument that economic historians as a group are disrespected by economists and feared and despised by historians is typical of this kind of premature eulogy. The Cliometric Revolution had all been so promising back in the 1970s, and now all we are good for is telling a few stories about past economic crises to entertain our fellow economists or supply them with a telling historical anecdote to decorate the first paragraph of some technical paper. How bad are things, really?

It has never been easy to be an economic historian. Much like Jews in their diaspora, they belong simultaneously in many places and nowhere at all. They are perennial minorities, often persecuted, exiled, accustomed to niche existences, surviving by their wits and by (usually) showing solidarity to one another. They must work harder, and know more. . . . read on>>>

"Toward a Richer, More Diverse Intellectual Marketplace? A Response to Whaples"
Werner Troesken

Mostly I agree with Robert Whaples. Economic history is a neglected field in both economics and history. I have only two concerns. First, Whaples quotes a historian who characterizes cliometrics as generating “trivial” and “unreliable” results. I spent nearly fifteen years in a history department producing work in cliometrics. While I often felt isolated, which is the reason I left, my experience was nothing at all like that implied by the quotation. With a few unimportant exceptions, I always felt that my colleagues in history respected my work. I realize that my experience might not be representative, but I want to offer that qualification up front. Second, I think Whaples overstates the degree to which economists reject historical evidence and the broader enterprise that cliometricians call economic history. Although economic history could be held in higher esteem by economists than it currently is, there is evidence to suggest that economic history still has its place in economics departments.

But, whatever my quibbles, Whaples raises an important question: What is it about the field of economic history that undermines its position among both economists and historians? What follows is a crude and preliminary attempt to answer this question. . . . read on>>>

"Is Economic History a Neglected Field of Study? Final Thoughts"
Robert Whaples

There is considerable good sense in the comments of my four colleagues. I certainly didn’t mean to suggest that economic history is “ready for hospice care” and “doomed to extinction,” or to deliver a “eulogy.” Rather, my fundamental point, which all seem to agree on, is that, despite manifest evidence that economic historians continue to produce a high-quality product that more historians and economists should go out and read, the current amount of output in the economic history industry is below the social optimum. The demand is too low.

I don’t blame economic historians for this. Collectively, we are not as haughty as some of my quotes may suggest. And although we may not have all the breadth, polish, and ability to marshal evidence suggested by my commentators, economic historians are immensely practical. . . . read on>>>