The Investment Market After the War Between the States
THE MARKET for long-term or capital funds had developed very slowly during the first half of the nineteenth century, and had reached only a low degree of specialization when the War Between the States broke out. The war gave an impetus to this process, greatly accelerating the rate of development, first by reason of the need of the Government for funds with which to carry on the war, and second by reason of the expansion of industry that accompanied and followed the war.
The borrowers who formed the demand side of the capital market in this period were the business entrepreneurs, particularly railroad builders and factory owners, who took the place formerly occupied by the canal and road builders. On the supply side of the market were the thousands of individuals who spent less than their income and had something left over to invest in stocks, bonds, savings deposits, or insurance. Corporations also frequently added to the supply of capital by adding to their equipment out of their own profits or by investing their profits in other business enterprises. Usually, in the case of individuals, and occasionally in the case of corporations, the process of transferring funds from the saver to the borrower requires the services of an intermediary. This intermediary, in a highly industrialized society like the United States, is the investment market, with its array of specialized investment banks for underwriting new issues and brokerage houses for distributing them. Like most other financial institutions, this market developed slowly by a process of gradual specialization of function, and in its early stages can hardly be distinguished from other forms of financial operations. By the time of the War Between the States, a number of merchant bankers had given up mercantile activity and concentrated upon finance, and a number of new firms had been organized specifically for that purpose. The large-scale financial operations necessitated by the war merely accelerated a process of evolution that had been going on in previous years at a more moderate rate.
When Salmon Portland Chase took office as Secretary of the Treasury in March, 1861, on the eve of the war, he was confronted with a national debt already high for that period and a public credit already