Merchants were Bankers

Historiography

Merchants and Manufacturers: Studies in the Changing Structure of Nineteenth-Century Marketing

Glenn Porter and Harold C. Livesay, 1971

Their thesis was that “Changes in distribution played at least as important a role in the story of our economic past as did changes in production.” No one who had studied the history of transportation would think this point needed to be made again -- but apparently the shelves of business historians are “groaning with the weight of volumes dealing with manufactured goods.” This was interesting, although of limited use to me, because they specifically excluded agricultural products from their study.  Even so, their finding that “the all-purpose merchant was the key man in the American economy in 1815...the channel through which agricultural products flowed to market, and he supplied manufactured goods and imported raw materials to city craftsmen and country storekeepers” supported my understanding of the role of general-purpose mercantile stores on the frontier who supplied country manufactures to the urban and international markets.

They briefly mentioned drug jobbers, who “depended on extensive trade with the interior to provide a wide market area with a sufficient volume of trade to insure success.” These jobbers began as general merchants, in Porter and Livesay’s account, and then specialized in response to increasing volumes and competitive pressures.  The jobber “had to maintain a large inventory of goods [and] be prepared to ship goods in small lots on short notice” and extend credit to their rural retailers.  “Storekeepers relied on their suppliers to act as bankers and urban agents for them.” And, because many of the drugs initially came from England, drug jobbers usually had extensive foreign connections.

Porter and Livesay said merchants were much more successful than manufacturers in obtaining bank credit in the early nineteenth century, because “merchants usually were the banks. An analysis of the directors and officers of the banks of New York, Philadelphia, and Baltimore in 1840, 1850, and 1860 reveals that more than two-thirds of the officials were or had been merchants.” This was probably even more the rule in smaller communities, where merchants would have been the main shareholders as well as the main customers of local banks.

The merchant’s value as a financial expert declined during and after the Civil War, the authors said. The proliferation of Greenbacks and decline of state banking allowed a “switch from credit to cash [that] virtually eliminated the merchant’s role as credit consultant and guarantor of payment.” They concluded, “The financing of transactions became the province of specialized agencies that evolved from private banks and brokerage houses. In 1850 it would have been difficult to find a producer not dependent on his distributors for capital; sixty years later one declared, ‘the manufacturer who needs the jobber as a commercial banker is a weak manufacturer’.” This is interesting, but I think the point they missed was that there wasn’t a hard border between manufacturing and merchandizing. Like the Hotchkiss brothers I described in Peppermint Kings, many of these early manufacturers were also merchants and bankers.