The Capital Markets, 1789-1860
WITHOUT THE NECESSARY CAPITAL, the rapid growth of agriculture, manufacturing, commerce, and transportation during the first half of the nineteenth century would have been impossible. The demand for funds was great. The supply came from the surplus capital of Europe and from increasing savings in the United States, supplemented by the working of the credit mechanism already discussed. Businessmen of the period combined old methods with new institutions and techniques to provide the funds for those who were building the economic life of the country in these momentous years. Throughout the period there was an increasing fluidity of capital interrupted only by the crises that occurred in this period before the War Between the States.
The demand for long-term loans to provide investment capital increased, especially after 1815. Until this date there were few securities besides Federal bonds to attract investors or to require the services of financial middlemen. In the years that followed, the promising opportunities of the West and the need for capital to finance internal improvements provided the incentive.1 Especially during the twenties and thirties the states borrowed money to aid private companies building turnpikes, canals, or railroads and to forward banking. Banks, canals, and insurance companies all issued securities in large amounts. The railroads, particularly in the 1850's, were heavy borrowers. The Federal Government entered the market several times during the first half of the century, and a number of municipalities also became debtors.
These more visible evidences of debt do not tell the whole story, however. During this period the individual proprietorship and the partnership were very common in both commerce and manufacturing. Even large firms made no public appeal for capital but obtained their resources from the owners who put their profits back into the business and called on relatives and friends to contribute to the invested capital of the concern. In many cases the local market absorbed securities issued for small public improvements, mining ventures, or manufacturing enterprises. Merchants, wealthy retired persons, rich widows, even____________________