Abstract
Between 1847 and 1890, the miles of railroad track in operation in the United States increased from 5,598 to 166,700. The construction of America’s railroad network required finance on an unprecedented scale. The value of railroad securities outstanding in 1890 included $3.8 billion in common stock, $606 million in preferred stock, and $4.5 billion in debt outstanding.1 In 1897, railroads accounted for 69 percent of the turnover in stock on the New York Stock Exchange, and as late as 1912 they still accounted for 48 percent of the turnover.2 It is well known that the development of investment banks and stock exchanges went hand in hand with the expansion of America’s railroads.3 What is less well known is that the financial demands of the railroads also fueled the growth of trust companies, which played an important but generally overlooked part in railroad finance.
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Notes
U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1957 (Washington, DC: GPO, 1960), 433.
Ranald Michie, The London and New York Stock Exchanges, 1850–1914 (London: Allen and Unwin, 1987), 197.
Alfred Chandler, The Railroads: The Nation’s First Big Business (New York: Harcourt, Brace, 1965), 43; and Vincent Carosso, Investment Banking in America: A History (Cambridge: Harvard University Press, 1970), 29.
James Smith, The Development of the Trust Company (New York: Henry Holt, 1928), 294
United States v. Farmers’ Loan and Trust Co., 25 F. Cas. 1040 (1866).
Henry J. Bowdoin, “The Duties and Liabilities of Trust Companies Acting as Transfer Agents and Registrars,” Bankers Magazine, November 1900, 757.
Susan E. Woodward, “Limited Liability in the Theory of the Firm,” Journal of Institutional and Theoretical Economics 141, no. 4 (December 1985): 601–611; Richard Posner, Economic Analysis of Law, Fourth Edition (Boston: Little, Brown, 1992), 394–395; and Frank Easterbrook and Daniel Fischel, The Economic Structure of Corporate Law (Cambridge: Harvard University Press, 1991).
Margaret M. Blair, “Locking in Capital: What Corporate Law Achieved for Business Organizers in the Nineteenth Century,” UCLA Law Review 51, no. 2 (December 2003): 387–456; Henry Hansmann, Reiner Kraakman, and Richard Squire, “Law and the Rise of the Firm,” Harvard Law Review 119 (March 2006): 1333–1403; Naomi Lamoreaux and Jean Laurent Rosenthal, “Entity Shielding and the Development of Business Forms: A Comparative Perspective,” Harvard Law Review Forum 119 (2006): 238–245.
See Colleen A. Dunlavy, “From Citizens to Plutocrats: Nineteenth-Century Shareholder Voting Rights and Theories of the Corporation,” in Constructing Corporate America: History, Politics and Culture, ed. Kenneth Lipartito and David Sicilia (Oxford: Oxford University Press, 2004) for a description of shareholder voting in early corporations.
James G. Smith, The Development of Trust Companies in the United States. (New York: Henry Holt, 1928), 291.
For descriptions of the incident see New York and New Haven R.R. Co. v. Schuyler, 34 N.Y. 30 (1865); “The Schuyler Frauds,” American Railway Times, August 10, 1854, 1; “The Schuyler Development,” Circular, July 8, 1854, 370; and “Two Million Defalcation,” New York Times, September 25, 1854, 1.
“The American Railway Defalcations,” The Bankers Magazine: Journal of the Money Market and Commercial Digest Vol. XIV January to December 1854 (London: Groombridge and Sons, 1854), 495.
Dorothy R. Adler, British Investment in American Railways, 1834–1898 (Charlottesville: University of Virginia Press, 1970), 94–100; and Edward Harold Mott, Between the Ocean and the Lakes: The Story of the Erie (New York: John S. Collins, 1899).
Maury Klein, The Life and Legend of Jay Gould (Baltimore: Johns Hopkins, 1986), 81.
Frederick A Cleveland and Fred W. Powell, Railroad Finance (New York: Appleton, 1912) as quoted in Chandler, The Railroads, 44.
Henry H. Swain, “Economic Aspects of Railroad Receiverships,” Economic Studies 3, no. 2 (April 1898): 53–161.
Howard Bodenhorn, State Banking In Early America: A New Economic History (New York: Oxford University Press, 2003), 37.
Douw D. Williamson to James Brooks, August 20, 1853, Farmers’ Loan and Trust Company (FLTC) Letter Books, Cornell University Library.
Jonathan Baron Baskin and Paul Miranti, A History of Corporate Finance. (Cambridge: Cambridge University Press, 1997), 147; and United States Bureau of the Census, Historical Statistics, 433.
Francis Lynde Stetson, “Preparation of Corporate Bonds, Mortgages, Collateral Trusts, and Debenture Indentures,” in Some Legal Phases of Corporate Financing, Reorganization, and Regulation, ed. Francis Lynde Stetson, James Byrne, Paul D. Cravath, George W. Wickersham, Gilbert H. Montague, George S. Coleman, and William D. Guthrie (New York: Macmillan, 1917), 5.
See Blewett Lee, “What Cannot Be Sold Cannot Be Mortgaged,” Virginia Law Review 15, no. 3 (January 1929): 234–237.
Stetson, “Preparation of Corporate Bonds,” 3; see also Cecil Mead Draper, “A Historical Introduction to the Corporate Mortgage,” Rocky Mountain Law Review 2, no. 2 (February 1930): 78.
Louis Posner, “Liability of the Trustee under the Corporate Indenture,” Harvard Law Review 42, no. 2 (December 1928): 201.
George Ellis & Others v. Boston, Hartford, and Erie Railroad Company & others, 107 Mass. 1, 6–9 (1871).
Daniel Hodas, The Business Career of Moses Taylor: Merchant, Financier, Capitalist and Industrialist (New York: New York University Press, 1976), 282.
R. Kent Newmeyer, The Supreme Court Under Marshall and Taney (Arlington Heights: AMH Publishing, 1968), 49–52 and 111–112.
Charles Mc Curdy, “American Law and the Marketing Structure of the Large Corporation,” Journal of Economic History 38, no. 3 (September 1978): 631–649, 635; see also Haeger, Investment Frontier, 40.
Bradley A. Hansen, “Commercial Associations and the Creation of a National Economy: The Demand for Federal Bankruptcy Law,” Business History Review 72, no. 1 (Spring 1998): 86–113.
Tony Freyer, “The Federal Courts, Localism and the National Economy, 1865–1900,” Business History Review 53, no. 3 (Autumn 1979): 343–363; and Philip Merkel, “The Origins of an Expanded Federal Court Jurisdiction: Railroad Development and the Ascendancy of the Federal Court,” Business History Review 58, no. 3 (Autumn 1984): 336–358.
Farmers’ Loan and Trust Co. v. Chicago and Atlantic Railway Co., 27 F. 149 (1886).
Advertisement, Christian Union, July 6, 1881, 24.
“Chicago and Atlantic Absorbed,” Chicago Tribune, May 4, 1890, 1.
Farmers’ Loan and Trust Co. v. Chicago and Atlantic Railway Co., 27 F. 149 (1886).
John H. Sears, A Treatise on Trust Company Law (Chicago: T.H. Flood, 1917), 353; and Sydney R. Wrightington, The Law of Unincorporated Associations and Similar Relations (Boston: Little, Brown, 1916), 169.
“News of the Railroads; An Attack on the Chicago and Northern Pacific Mortgage,” New York Times, December 18, 1894, 15; “Chicago and Northern Pacific; Rights of the Farmers’ Loan and Trust Company in Illinois,” New York Times, December 21, 1894, 15. “Chicago and Northern Pacific; The Suit to Invalidate $30,000,000 of Bonds Dismissed by Judge Jenkins,” New York Times, April 4, 1895, 7.
Farmers’ Loan and Trust Company v. Chicago and Northern Pacific Railroad Co., 68 F. 412 (1895).
Merkel, “The Origins of Expanded Federal Court Jurisdiction”; and William G. Thomas, Lawyering for the Railroad: Business Law and Power in the New South (Baton Rouge: Louisiana State University Press, 1999), 30–31 and 75.
“Appellate Court of State of Illinois Upholds Removal of Farmers’ Loan and Trust Company as Trustee of Lake Street Elevated Railway,” New York Times, February 12, 1897, 5.
Ibid.
Farmers’ Loan and Trust Company v. Lake Street Elevated Railroad, 177 U.S. 51 (1900).
Anonymous, “Immunity Clauses in Corporate Trust Indentures,” Columbia Law Review 33, no. 1 (January 1933): 97–105.
Delaware and Hudson Co., Corporate History of the Delaware and Hudson Company and Subsidiary Companies, Vol. IV (Delaware and Hudson Co., 1906), 134.
Atchison, Topeka, and Santa Fe Railroad Co., Documents Relating to the Atchison, Topeka and Santa Fe Railroad Vol. III (Boston, 1893), 368.
Ibid.
“First Consolidated Mortgage of the Albany and Susquehanna Railroad Company to the Farmers’ Loan and Trust Company, Apr. 1, 1876,” in Corporate History of the Delaware and Hudson Company and Subsidiary Companies Vol. IV, 93.
Robert Ludlow Fowler, “Legal Responsibility of Trustees Under Corporate Bonds and Mortgages, or Deeds of Trust,” The American Law Review 24 (September/October 1890): 47.
Antelo v. Farmers’ Loan and Trust Co., 95 F. 12 (1899); Frishmuth v. Farmers’ Loan and Trust Co., 95 Fed Rep. 5 (1899); Rhinelander v. Farmers’ Loan and Trust Co., 172 N.Y. 519 (1902); and Fleisher v. The Farmers’ Loan and Trust Co., 58 A.D. 473 (1901).
Clay Herrick, “Trust Companies, Their Organization, Growth, and Management,” Bankers Magazine, August 1907, 207.
T. W. Lamont, “How A Trust Company Makes Its Money,” Bankers Magazine, May 1905, 597.
Anonymous, “Immunity Clauses in Corporate Trust Indentures,” Columbia Law Review 33, no. 1 (January 1933): 97–105.
George E. Palmer, “Trusteeship under the Trust Indenture,” Columbia Law Review 41, no. 2 (February 1941): 193–220.
New York, The Code of Procedure of the State of New York: As Amended to 1871 (Albany: William Gould and Sons, 1871), 856.
Clay Herrick, Trust Companies: Their Organization, Growth and Management (New York: Bankers Publishing Company, 1909), 41.
Ibid.
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© 2009 Bradley A. Hansen
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Hansen, B.A. (2009). The Farmers’ Loan and Trust Company and the Evolution of Corporate Finance. In: Institutions, Entrepreneurs, and American Economic History. Palgrave Macmillan, New York. https://doi.org/10.1057/9780230619135_4
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