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January 11, 2013

Historical Echoes: Banking in Early Nineteenth‑Century New England

Amy Farber

Old Sturbridge Village
(OSV) is an historic site, a living museum located in Sturbridge,
Massachusetts, that has a well-developed public website. Its page about banking
in the early 1800s describes the
Thompson Bank
(see also video
of exterior), which was constructed in the 1830s in Thompson, Connecticut, was
a bank until 1893, and was disassembled and reassembled in 1963 to be part of
the museum.

Perhaps the more interesting part of the “Thompson Bank” page is what follows the bank’s description: a section called “Banks Then & Now.” The museum’s staff has created a table comparing basic bank functions today with similar functions in the early 1800s, demonstrating an impressive degree of change.

For example, the table compares the present supervision
of banks regarding counterfeit prevention and safety of bank deposits with the
past unregulated situation:

In the 1830s monthly magazines like Bicknell’s Counterfeit Detector alerted subscribers to fake bank notes and to failed
or financially shaky banks. But there were no guarantees! If a bank made too
many loans that were not repaid, it went out of business and shareholders lost
their investment. All its banknotes became worthless.

Today’s concept of personal and business loans is contrasted with the past, in which banks didn’t ordinarily deal with personal loans:

People in the 1830s who
wanted a personal loan or a mortgage usually went to wealthy individuals with
money to lend (such as Salem Towne, the prosperous farmer and businessman who
owned the large white house on our common), not to a bank.

Most bank loans, called “discounts,” were short-term business loans secured by collateral. The borrower signed a pledge to pay a certain amount (usually in three months) but received a smaller sum from which the interest had already been deducted (discounted). Borrowers received the loan in the bank’s own notes, not gold or silver coins.

On a lighter note, the table compares the occasional
bank robberies of today with the nineteenth-century situation:

While swindles, embezzlements, and other thievery did sometimes occur, armed daylight bank robberies were virtually unheard-of in 1830s New England. For one thing, there was no way to make a quick get-away!

No way to get away in the sense of a high-speed
getaway car, although in theory one could escape pretty quickly on a horse. However,
horses were not as ubiquitous as one might think in New England at that time (see
OSV’s Horses in 1830s New England Towns
page), and the roads, such as they were, were “exceedingly difficult.” Those
factors could have complicated getaways.

You can view three
of original documents concerning economic life from the museum’s graphics database, including bills of
sale, receipts, deeds, and ads, or read “The Debit Economy of 1830s New England,” an
OSV research paper. Another OSV research paper, “The Second Bank of the United States as an Issue in
American Politics 1828-1840
discusses early thinking about central banking in the United States.

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Amy Farber is a research librarian in the New York Fed’s Research and Statistics Group.

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