Banks, insider lending and industries of the Connecticut River Valley of Massachusetts, 1813–1860
The Connecticut River Valley (CRV) industrialized early, yet lacked nearly all of the factors that apparently underlay the successful industrialization of eastern Massachusetts, Rhode Island and the Philadelphia region. Lamoreaux's model of bank insider lending was applied to explain this enigma. According to this model, since many insiders were industrialists, extensive insider lending among New England banks resulted in a flow of funds to manufacturing.
To test this hypothesis, a random sample of borrowers from two commercial banks and a complete sample from two savings banks was culled from bank loan ledgers. Federal and state censuses town histories were used to determine occupations of the borrowers and the nature of the businesses that borrowed. The data was analyzed to determine the extent of bank lending to Insiders, and to manufacturers and artisans.
Contrary to Lamoreaux's model, little insider lending was found, and the insiders were not industrialists. Individual banks lent only modest amounts to manufacturers and artisans, and bank lending was a very small source of industry capital. The largest recipients of bank credit, as a percent of bank loans, were the local elites of lawyers, followed by merchants and farmers. Loans to individual farmers were typically small, however. Loans to industries and artisans went to a wide variety of industries and firm types. While commercial banks lent short term, the savings banks lent long term, noticeably to railroads. These results suggest that access to credit was a factor that shaped the unique pathway to both rising Industrialism and capitalism in the CRV during the antebellum period.
0337: American history