So much for the extent and character of the demand for capital which arose at this time. Let us see now what supplies of capital were available for investment in these enterprises. There were of course but two sources of supply—the savings of our own people and such surplus capital as foreigners could be induced to lend us. Regarding domestic capital the situation had greatly improved during the generation prior to 1815. In the colonies, as in all new countries, there was no considerable fund of loanable capital. Such capital as existed was chiefly in the form of trading capital or shipping, and was used by its owners themselves rather than lent out by them to other persons. But even the trading capital of the colonies was by no means all owned by Americans. Adam Smith says that the greater part of the exports and coasting trade of the colonies was carried on by capital of merchants residing in the mother country; and even the warehouses and stores from which goods were retailed in some colonies, particularly in Virginia and Maryland, were owned by the same parties. The complete lack of commercial banks in the colonies goes far to confirm the truth of this statement. Goods were sold on long credits of a year or more by English merchants, and the bills either carried by them until collected or else discounted by bankers in England. There was thus no basis for commercial banking in the colonies. It was estimated that Americans owed English merchants $28,000,000 for goods at the outbreak of the revolution. After the revolution English merchants relied upon their ability to grant longer credits than the merchants of other countries could give, to secure control of our trade; and the conditions which had preceded the war were promptly re-established. Madison declared in 1785 that England had never monopolized the trade of Virginia more completely than she did at that time. The events which changed this situation were the outbreak of the wars in Europe and the rise of the cotton industry. By throwing into our hands a vast carrying trade, and by supplying us with markets for cotton and foodstuffs, these events furnished Americans an opportunity to accumulate capital, which they eagerly embraced. The trading capital of the country now for the first time passed into the ownership of our own citizens, and it is

significant that this period marks also the rise of commercial banking as well as of marine insurance in this country. The growth of our merchant marine, the numerous small manufactories which sprang up after the embargo, as well as the beginning of turnpike and bridge building, all indicate the progress which was made at this time in the accumulation of capital.

Still another circumstance contributed to the increase of our resources during this period. The rapid payment of the national debt, both before and after the war of 1812, had the effect of augmenting the capital available for investment. Between 1815 and 1830 the government collected in taxes $123,500,000, and paid it over to the owners of its bonds. In this way small sums were taken from many individuals, and put into the hands of that class in the community who are by nature and habit disposed to save. If these small sums had remained in the hands of the people, they would, for the most part, have been spent, especially since the machinery for collecting small savings of large masses of people, such as is provided by the savings banks and life insurance companies, did not then exist. Of course, so far as the national debt was owned abroad, its payment would not have the effect of increasing capital. On the contrary, it might have the opposite effect of driving capital out of the country, unless other securities could be furnished, which the foreign investor would be willing to purchase. Such securities were provided by us during the period we were paying off our national debt most rapidly; and little, if any, foreign capital was lost by the payment of the debt.

It is evident from these facts that after 1815 this country had a considerable fund of domestic capital available for constructing its public works. In the newly settled communities of the west and southwest there was little or no such fund; but in the east, especially the southern New England and middle states, and, to a less extent, in Virginia and South Carolina, it was possible to raise quite large amounts, enough probably to construct the more important works required. Certainly this was the case in New York, where the canal commissioners reported in 1817, that they entertained no

doubt but that as much money can be obtained in this country as may be required for the canals on the credit of the states, at an interest of 6 per cent, by the creation of a funded debt. All the earlier loans for the New York canals were made without difficulty; and the capital secured was chiefly, if not wholly, domestic.

But it was not upon domestic capital alone, or chiefly, that the country had at this time to depend. It was able to draw also upon Europe, and more especially upon England. This circumstance had so great an influence upon the movement we are studying that it calls for a full statement of the facts concerning it. We have seen that English capital in the form of trading capital came freely to America in colonial times and after. To some extent also it came in other kinds of investment, at least after the revolution. Thus Hamilton noted in 1791 that several industries were owned largely by Englishmen; Pitkin estimated that $30,000,000 of our national debt was owned abroad in 1815; the United States bank reported in 1809 that three quarters of its stock of $10,000,000 was held by foreigners; and the commissioners appointed by New York to consider the practicability of a canal through the west said in their report of 1812, that notwithstanding the scarcity of money consequent on the wars which had so long raged in and ravaged Europe, a loan of $5,000,000 could be obtained there on the credit of the states. Obviously, even as early as this England was experiencing more or less difficulty in finding at home profitable investments for the great volume of savings which the inventions and improvements of the last part of the eighteenth century enabled her to accumulate. The pressure of surplus capital was, however, not left in its full force until the close of the wars in 1815. Up to that time the new savings had been absorbed by the growing manufactures, the agricultural improvements of the time, the expanding commerce, the increase of shipping, the building of canals and turnpikes, and, above all, by the expense of the

wars.

There was no place in English industry where so much new capital could be employed. Commerce and the new manufactures continued to absorb a considerable amount

of it; but the difficulty in finding a new market for a rapidly increasing product placed a stubborn limit to their rate of expansion. Conditions were still more unfavorable in agriculture, where landlords and farmers were unable for many years, even with the assistance of corn laws to earn a fair profit on the capital already sunk in improvements. The canal system of the country was nearly complete. All the leading centers of industry were connected with each other and with the seaboard. Turnpike building progressed but slowly. Until the railroad should be introduced, the transportation system could absorb but little additional capital. Under these conditions the rate of interest must inevitably fall; and, to escape that fall, those who had savings to invest would be forced to turn to highly speculative investments at home or to lend their capital in foreign countries.

A number of circumstances recommended the United States to English investors. In the first place the rapid payment of the national debt and its final extinction in 1832 strengthened American public credit as hardly anything else could have done. No other country had ever paid off a national debt, and it was felt that there could be little risk in lending money to a people whose resources were so great and whose disposition so frugal. Moreover, the enterprises for which capital was required in America were favorably regarded by the English public. From the point of view of the investor, canals in England had been very satisfactory. Eighty companies, with a total capital of $150,000,000, reported in 1825 an average dividend of 5 per cent. Ten of these paid from 20 to 28 per cent dividends; and the stock of thirty three companies, representing one-third of the total mileage, was quoted at prices ranging from $1,000 to $1,500 per share, and a few as high as $3,000 and $4,000. American canals could hardly hope to prove as profitable as this; but they did not seem at all visionary enterprises, and the financial success of the early ones created great confidence in them. Towards the banking enterprises of the southwest English capitalists were equally well disposed. England was interested in securing a steady increase in the supply of raw cotton, and in making loans to the southwest for banking purposes

she was in reality investing her capital in the same great industry which was the basis of her manufacturing system. Moreover, banking in America had proven very profitable. Englishmen had invested heavily in the stock of the first and second United States bank, had received large dividends, and suffered no losses. More and more, therefore, her capitalists after 1815 turned to this country; and by 1830 they seemed ready to supply us with all the capital necessary to complete our system of canals and railways, as well as to assist in the development of our agriculture.

It is impossible to ascertain with accuracy the amount of English capital which found its way to this country during this period. Webster thought there might be $50,000,000 of state stock owned abroad in 1836. Two years later Mr. Garland submitted to the house of representatives a list of our stocks owned abroad which put the total at $110,000,000. President Van Buren in his message of 1840 placed the amount at $200,000,000, and the annual interest charged at not less than $12,000,000. A committee of the house of representatives a few years later estimated the amount of state securities purchased by foreigners at nearly $150,000,000. Besides this amount $28,000,000 of the stock of the United States bank and $9,000,000 of the stock of the Farmers' Loan and Trust company, the Camden & Amboy railroad, and the Commercial bank of Vicksburg, was owned abroad. Mr. Garland's estimate shows a further sum of about $19,000,000 of the stock of various corporations, chiefly banks, owned abroad. These estimates cannot be verified, but they show that the movement of foreign capital to this country for the purchase of our securities was large.

Not only did foreigners purchase a large amount of our securities, but foreign capital came to us also through the medium of commercial credit. We have seen that during the twenty years prior to 1815 Americans had come to own their own trading capital. In the later twenties, however, we again began to make use of foreign capital in our commerce. Before this it had been the practice for English merchants to execute orders for America, and transmit the invoices and bills of lading to their agents in America, who then delivered the goods

Vol. 3-8