Why Baltimore?

Chapter Three

"President Washington first took office in New York City, but, when reelected in 1792, the capital had already moved to Philadelphia where it would remain for a decade. Fittingly, Jefferson was the first president to be inaugurated in the new and lasting capital of Washington, D.C. in March 1801."

See website of Independence Hall Association.

Baltimore was the closest city to the new capital of the United States, carved out of the states of Maryland and Virginia, according to Andrew Ellicott's survey. Washington, D.C., as it was called, was then only a "swampy location" north of the Potomac River and east of the historic city of George Town in Maryland. While about 5,000 transients had taken residence in the new seat of government by 1800, the population of Baltimore had doubled in the last decade of the 18th century to more than 26,000 people. Thanks largely to the efforts of merchant-turned-banker Alexander Brown, by 1850 Baltimore had become the leading foreign exchange center for trade in the United States.[1]

Alexander Brown, having spent many years as an auctioneer in a Belfast linen market, in 1800 followed brothers Patrick and Stewart to America. Importing Irish linens from his Irish trading center, he soon expanded into a variety of other commodities that passed through the harbor in Baltimore.

He loaned out a portion of his profits from linen sales, clearing drafts and bills of lading for other merchants whose goods sat in the harbor awaiting payment, and before long his importing business had become a private bank. With surplus funds on hand for investment, he sought ought other wealthy men in the area to join with him to put their capital into the most promising technology of that day. These aspiring venture capitalists in Baltimore are worth mentioning below.

Charles Carroll, "the Signer" 

Charles Carroll setting the stone for B&O

In 1800, the year Alexander Brown arrived in Baltimore, the city’s wealthiest, and most eminent, citizen was Charles Carroll, the only Catholic signer of the Declaration of Independence, who had retired from politics the year Brown arrived. Until his death in 1832, Carroll focused on business affairs, becoming:

one of the founders of the Chesapeake and Ohio Canal Company and [he] invested in the Bank of Maryland, the Bank of Baltimore and the First and Second Bank of the United States. He held many shares in canal, turnpike, bridge and water companies in the Washington-Baltimore regional area. He purchased $40,000 of state-backed securities to build the Baltimore and Ohio Railroad, serving on its first board of directors.

Charles Carroll, a major shareholder in the Bank of the United States founded in Philadelphia, likely requested Alexander's assistance with his banking business in Philadelphia. As a result, Alexander stationed his two youngest sons there to assist Baltimore clients as well as handle business at the Philadelphia port. There they organized a new private bank, Brown Brothers & Co., in 1818.

A year earlier construction of a man-made canal which would stretch from the easternmost point of Lake Erie across to New York City's port, had begun and by 1825 would link the "western" states bordering both the canal and Lake Erie to the port at New York city. The headquarters of Brown Brothers & Co. was soon relocated by James Brown in New York to take advantage of the ever-increasing shipping trade there. Back in Baltimore, the original bank took bold steps in recognizing another technology which Alexander and George Brown hoped would allow more trade to be carried by land rather than by ships--the first rail road in America.

The Baltimore & Ohio Rail Road Company, in which Charles Carroll invested heavily, was organized in 1827 in the home of Alexander’s second son, George Brown, who served as its first treasurer. It was Carroll who laid the railroad’s foundation stone in 1828.[1] The railroad was a bold attempt by Alexander and George, who remained in Baltimore, to capture some of the western trade for their city's port. According to research cited by photographer John Gensor:

Meanwhile, at the busiest harbor in the country, Baltimore, its wealthy shipping merchants are alarmed at the canal craze that was taking place. Not only was Washington building a canal to get the western trade to the ports of Georgetown and Alexandria, but Philadelphia was also building one, linking itself to Pittsburgh to get the western trade for its port. Also, the Erie Canal construction begun in 1817 would also siphon off the western trade to New York City. If they did nothing, all trade from the west would start going to other harbors and none to theirs. The only river running into Baltimore was the Patapsco River and the water flow of this river was not enough to sustain a canal operation. Its source was a spring on top of Parrs ridge at Mt Airy, Maryland, just 36 miles away. The freight hauled by a Conestoga wagon over the Maryland road systems would be mediocre to what one canal boat could haul. But what could they do to save Baltimore’s port? Make a wagonway using a tracked road for the wagons instead of them using the dirt gravel roads?

It was the experiments with a "road of rails," to compete with the canal system that led to the incorporation of the Baltimore and Ohio Railroad in George Brown's home in 1827 where Philip E. Thomas shared his vision to other investors, many of whom like he and Brown, were either officers or directors of the Mechanic's Bank. It seems much of the ideas had come from England, where they had been previously explored by Alexander Brown's eldest son, William, in 1824 who wished to connect Liverpool to Manchester. The B&O would use the concept to connect the Potomac to the Ohio River.

The Carroll and Caton Family

Charles Carroll's daughter, Mary (born 1770), had been leaning toward marrying her cousin Henry Carroll of Duddington, son of her father's cousin Daniel Carroll--like Charles a member of Maryland's Senate to the House of Delegates. However, in 1787 she chose instead Richard Caton, an Englishman from Lancashire, and they would raise four daughters who would, as they say, marry well. Those marriages were described in Sisters of Fortune: America's Caton Sisters at Home and Abroad, a book by Jehanne Wake.

The Catons' daughter Maryanne in 1806 married Robert Patterson, whose sister, Betsy Patterson, was married to Napoleon's younger brother, Jerome Bonaparte, until, that is, his emperor brother had the marriage annulled. William Patterson is said to have been the second wealthiest man in Baltimore at the time.

William Patterson

In 1816 William Patterson, chairman of the newly chartered Baltimore Exchange Company, was another important associate of Alexander Brown. The Exchange Building housed the U.S. Custom House as well as Baltimore's branch of the Bank of the United States, established there in 1792, shortly after the war against Britain had ended. Patterson had been "a vital supplier of General Washington’s impoverished army during the early days of the war for independence," according to Jack White, a blockade runner for the patriot cause, having arrived in Philadelphia from Ireland in 1766:

When the British set out to prevent arms and powder from reaching the colonies at the beginning of the revolution, Patterson invested everything he owned and took off with his ships for France in hopes of arming the rebellion at a time when Washington claimed he hadn’t enough powder to fire a salute. First he supplied Washington’s forces from the Dutch island of Saint-Eustache and then from the French possession of Martinique. He returned to America in 1778 with over a hundred thousand dollars, married 17-year-old Dorcas Spear, settled in Baltimore, bought property, and built ships. He became one of the wealthiest men in Maryland, second only to Charles Carroll of Carrollton, Carroll County namesake and the only Catholic to sign the Declaration of Independence. (Patterson’s son Robert would one day marry Charles Carroll’s granddaughter, Mary Caton.)

When the British set out to prevent arms and powder from reaching the colonies at the beginning of the revolution, Patterson invested everything he owned and took off with his ships for France in hopes of arming the rebellion at a time when Washington claimed he hadn’t enough powder to fire a salute.
First he supplied Washington’s forces from the Dutch island of Saint-Eustache and then from the French possession of Martinique. He returned to America in 1778 with over a hundred thousand dollars, married 17-year-old Dorcas Spear, settled in Baltimore, bought property, and built ships. He became one of the wealthiest men in Maryland, second only to Charles Carroll of Carrollton, Carroll County namesake and the only Catholic to sign the Declaration of Independence. (Patterson’s son Robert would one day marry Charles Carroll’s granddaughter, Mary Caton.)
- See more at: http://www.sykesvilleonline.com/history/182-the-blighted-hopes-of-george-and-prudence-patterson#sthash.C0ZDRB7X.dpuf

a vital supplier of General Washington’s impoverished army during the early days of the war for independence. - See more at: http://www.sykesvilleonline.com/history/182-the-blighted-hopes-of-george-and-prudence-patterson#sthash.C0ZDRB7X.dpufThe Baltimore Exchange began business in 1820, with Alex. Brown & Sons being one of the approved traders in a long list of merchants. It too was an unsuccessful operation which dissolved within ten years.

Until the Bank of the U.S. met its demise in 1813, Brown's close business associates, Carroll and Patterson, were also shareholders of the central bank set up by Alexander Hamilton. Rechartered again in 1816, the Second Bank of the U.S. saw a number of Baltimore's businessmen indicted for fraudulent activity, especially in connection with Dennis A. Smith and the Mechanic's Bank in that city. Alexander Brown, who first became a director of the bank in 1807, was called as a witness against Smith, who had been central to a scheme with

stock taken in such a way 'that a Baltimore clique, taking advantage of a rule about voting, got votes enough to control the organization. By subscribing as attorneys, they got 22,187 votes out of 80,000, and they subscribed only $4,000,000 out of $28,000,000.'[2]

Thus this "clique" (which included Alex. Brown, his son George, and, later, his grandson, George S. Brown), received almost 36% of the branch's votes, while only putting up about 14% of the capital. The goal was obviously to keep those who supported federalist policies from having control of the Baltimore branch of the Second Bank of the U.S.

John Thomas Scharf, author of History of Baltimore City and County, from the earliest period to the present day (1881), indicated that one of the most active purchasers of the bills issued by the Baltimore branch of the Bank of the U.S. was an institution called the Bank of Maryland, which became insolvent in 1834 upon the revocation of the charter of the Bank of the U.S., and that Alexander Brown was among its creditors appointed as a committee of receivers, with William Patterson chairman.

This same Baltimore branch of the Second Bank was integral to the 1819 landmark Supreme Court case, McCulloch v. Maryland, in which the Court interpreted the Constitution's "necessary and proper" clause to expand the listed powers of Congress under the Constitution in favor of federalism: i.e., the federal government had the implied authority to pass legislation not expressly provided for if deemed necessary in executing the powers that were so authorized.

The information below indicates stockholder information regarding the Second Bank, widely disseminated at the time, indicating the shareholder percentages by state, as well as by foreign country, in January 1832. The U.S. government owned 70,000 shares, while 470 foreigners owned just over 84,000. There were 3,602 "domestic" stockholders who controlled about 195,600 shares in the bank that year. Charles Carroll was the second largest with 2,633, falling significantly short of Stephen Girard's 6,331 shares in the bank.

The Brown banks and clients Carroll and Patterson owned significant stock in Bank of U.S. (click to enlarge).

---

ENDNOTES:

[1] Gary L. Browne, "Business Innovation and Social Change: the Career of Alexander Brown after the War of 1812," Maryland Historical Magazine 1974 69(3): 243-255.
[2] Theodore Dwight Woolsey, The First Century of the Republic: A Review of American Progress (Harper & Brothers:1876), 244.

An Octopus is Born

Chapter Two

The branches of the family of Alexander Brown stretch like the tentacles of an octopus into every conceivable type of money-making enterprise growing out of the Anglo-American establishment that existed in 1800, a generation after America's revolution against the the colonial regime. In order to understand how the original network has grown, we must return to the Liverpool of that day and meet the members of the linen-trading network who became so prosperous. We will study the Browns living in the Baltimore region, the investments made with the textile profits, and the aristocratic Southern lifestyle they established in Maryland and Virginia.

The American Brown brothers

Alexander Brown was born in Ireland only a generation after the birth of Mayer Amschel Rothschild in Germany, but both men followed a very similar pattern in establishing their family banking businesses.  Rothschild having five sons and Brown four, each man created diverse branches of his bank in order to capitalize upon a knowledge of currency exchange and commodity trading over a wide expanse of territory, covering two or more continents.

Alexander Brown, from Ireland to Baltimore

What was to become Deutsche Banc Alex. Brown, Inc. resulted from a merger in 1999 between the German bank and a private investment bank established in Baltimore, Maryland, by Alexander Brown, who first arrived in America in 1800. His parents were William and Margaret Davison Brown, of Ballymena, Ireland where Alexander was born in 1764. His birth came 120 years after Scottish linen weavers had begun to settle around Belfast in 1641. Fifty years later the population exploded when the government’s encouragement of Protestant Northern Ireland to further develop its linen trade led to an influx of Huguenots who had fled France during their persecution by Louis XIV. For more than a century the flax and linen industry would be Northern Ireland’s main source of wealth.

Before leaving Ireland, Alexander worked as an auctioneer in the linen market in Belfast where he had a profitable business. He joined his brother Stewart Brown in Baltimore, leaving behind in London another brother who worked with Alexander in an import-export business.  

William Brown, Alexander’s eldest son, would return to England after living ten years in Baltimore, and he set up a brokerage firm that operated first as W. and J. Brown and later as Brown, Shipley & Co.  A large part of William’s role in the business would be to find wealthy British investors to buy the commercial paper issued in America.

Alexander’s linen trade did so well in Baltimore, that his two youngest sons, John and James, moved first to Philadelphia—James later moved to New York—to open a private investment bank called Brown Brothers & Co. John A. Brown’s first wife and an infant died in 1820 and he returned to Baltimore for several years while his father was engaged with others there in setting up the Board of Exchange. 

In 1823 John married Grace Brown, daughter of Dr. George Brown of Baltimore, and he drifted out of banking during the panic of 1837, leaving James to consolidate the Philadelphia concern into his New York office. The Philadelphia office had initially been opened, it seems, primarily to accommodate clients in Baltimore who had business interests in the former capital city, which had housed the Bank of the United States. Once the bank ceased operations, thanks to President Andrew Jackson, John A. Brown continued in business related to dry goods until 1839.

By 1825, when the New York office opened, America had begun to boom. The opening of the Erie Canal resulted in New York’s becoming the dominant commercial and financial center in America. In addition, the country had paid off the debt created to fund its wars—thus increasing the marketability of new stock and bonds being issued by the Brown family and their competitor, George Peabody. William Brown was able to secure placement of the paper issued by his father and brothers through his contacts in Britain.  

How do we know who bought the stock and bond issues? One way is to examine William’s family tree. Researchers have discovered that banking families frequently marry their not-too-distant cousins and relations of their father’s business associates. It helps to keep the money—and the secrets—in the family. Researching genealogies is, therefore, a very useful tool in understanding confidential financial relationships.

Click to enlarge.

William Brown, Liverpool

William has been described as a somewhat staid, even pompous, man who, though elected to Parliament to represent Lancashire, never achieved popularity among his constituents. His wife, formerly Sarah Gihon, was the daughter of Alexander Brown’s Belfast linen supplier, a cousin. William and Sarah reared two children to maturity:

Courtesy of Esther M. Zimmer Lederberg

• Their son, Alexander (1817-1849), grew up to marry his “American cousin,” Sarah, the daughter of William’s youngest brother James. 
• Their only daughter, Grace, married John Hargreaves, of the same name as the inventor of the spinning jenny a century earlier (the very invention which had resulted in the Brown family fortune, arising from the boom in the linen industry).

The Brown name survived under Alexander’s three sons:

• Sir William Richmond Brown (1840-1906), who inherited the title granted to William upon his grandfather’s death in 1864.
• James Clifton Brown (Colonel), a military man, who died in 1863.
• Sir Alexander Hargreaves Brown (1844-1922), who married Henrietta Agnes Terrell Blandy, from a wine merchant family in Madeira, Spain. That marriage made him a brother-in-law of the famed Sir William Thomson (Lord Kelvin), inventor of the binnacle known to seamen as "Lord Kelvin's Balls".

The Hargreaves tree also links back to the Brown family tree by virtue of marriages between Grace Brown Hargreaves’ great-granddaughter Violet Cicely Wollaston (daughter of Ann Hargreaves Wollaston)  to Grace’s brother (Alexander’s) grandson, Douglas Clifton Brown.

Click to enlarge.

The period of time covered above began in the period of peace between the two wars against Britain and carries us up to the decade following the loss of the Presidency by John Quincy Adams to Andrew Jackson. Alexander Brown died in 1834 and was succeeded in Baltimore by son George, who died in 1859. After the death of eldest son William in England, the youngest, James, operated the banking business on his own until his own demise in 1877. In the next chapter we will review what happened in those last few years and how the bank carried on following the civil war.

To Have—and Have More

Chapter One

“This is an impressive crowd—the haves and the have-mores.  Some people call you the elites; I call you my base.”

--George W. Bush, campaign speech, October 2000

  

George Walker Bush and  His “Base”

There was no embarrassment evident in October of 2000 when George Walker Bush flattered his campaign audience with the above quip. The “American Dream,” once defined as the ability to achieve a better life through hard work and determination, has been redefined through time by the political faction the Bush family represents (typically investment bankers, who manage “other people’s money”). The new definition defines the dream within the context of those who have already achieved (or inherited) success and are only concerned with not going backward.  Thus both Bush presidents have worked to pass elimination of capital gains taxes, lowering, if not eliminating, income taxes on the wealthiest American taxpayers, eliminating the estate, inheritance and gift tax, as well as giving investment banks the right to use the Social Security Trust fund in their stock manipulations.

All of these schemes have been designed to assist “the elites,” whom Bush called his base, in preserving and increasing their wealth. This book is written in order to see those “elite persons” more clearly.  Who are they? How do they create wealth?

The Bush family has never experienced poverty, at least in recorded memory. Ann Richards perhaps said it best in her speech before the Democratic Convention in 1988:

“Poor George.  He can’t help it.  He was born with a silver foot in his mouth,”

thus denigrating the elder George Bush, then seeking the Presidency, for his inherited position in society as well as his tendency to misspeak.  The same aspersion would also apply to Governor Richards’ 1994 opponent in the race for Texas Governor, George Walker Bush, who, like his father, had a mysterious access to capital that allowed him to venture into any new business endeavor he desired.

The word “capital” can only be defined in terms of surplus—having more than is necessary.  In an ongoing business, working capital is the amount of cash or liquidity determined to exist when liabilities are subtracted from assets. When a person wants to create a new business, he seeks “venture capital” from others who are looking for ways to make more money than they could otherwise make by letting that capital sit idly in the bank or in a fixed-rate account.

Much has been written about George Herbert Walker Bush’s decision to create his own oil company in the 1950’s with his friends from Midland, Texas, but less has been written about who put up the funds that bought equipment for his operations and provided him a salary before he and his partners actually struck oil. To whom did he report the success or failure of his venture?  The same questions can be asked, twenty years later, as George Walker Bush entered into his own business career—Arbusto, Harken, and the Texas Rangers Baseball Club. Who put up the funds, and what do we know about these capitalists? When did the Bush family first become a part of the circle that gave them access to this kind of capital?

The answers lie in history.

America’s First Millionaire

The movement into politically influential circles was a gradual one that occurred during the working life of Samuel W. Bush in Ohio, and, more particularly, as a result of his marriage into the prominent and socially conscious Sheldon family of Columbus, Ohio.  That marriage would give birth to the boy who would grow up to become the role model for two U.S. presidents. But that’s a story better saved for later.  The most notable of Samuel’s children was his eldest son, Prescott, father of the first Bush president and grandfather of the second.

It is Prescott’s entry into partnership in the newly created investment bank of Brown Brothers Harriman (BBH), which best explains how his sons and grandsons attained their access to capital.  BBH began doing business in 1931, as a result of a merger between the old, well-established Brown Brothers & Co. and W.A. Harriman & Co., a deal put together by Prescott Bush's father-in-law on behalf of the sons of railroad tycoon E.H. Harriman, who had been Prescott's Skull and Bones brothers while they were all at Yale during the years just prior to WWI.

The announcement of the planned merger was made the evening of December 11, 1930 at the residence of Thatcher Magoun Brown, 775 Park Avenue in New York City.  The 112-year old merchant banking firm would be merging with an infantile bank, founded a mere eleven years when the Harriman brothers left Yale. Whether that merger made possible a continuation of the way Brown Brothers had always done business, or whether it effected a change from the old order to the new, can only be answered by comparing the way each bank conducted its business operations. Such a comparison requires a study of the family named Brown, and the numerous branches of the Brown family tree—both in America and in England.

Capital Rooted in Opium

Both Thatcher M. Brown and his new partner, W. Averell Harriman, called 775 Park Avenue home—each having purchased apartments in the new upscale building constructed in 1927.  Marketing and sales for the high-rise were contracted to the real estate firm started by Douglas Robinson, a cousin of William Waldorf Astor and a trustee in the Astor Trust Company. John Jacob Astor, progenitor of the Astor fortune and often called “America’s first millionaire,” was a mysterious magnet for money. His biographer, Axel Madsen, explained how German immigrant to America, John Jacob, accumulated the original capital he would later invest in money-making ventures:

John Jacob Astor

Until 1816, no Astor ship had carried opium. On July 15, 1816, the Macedonean arrived in Canton with, among other things, $110,000 in specie, 27 metric tons of ebony, 8 tons of mercury, and nearly 2.4 tons of opium. It was the first time an Astor vessel had gone to China without furs. The quicksilver [mercury] had been picked up in Gibraltar, the papaver somniferum taken aboard in Smyrna, Turkey. In February 1817, the Astor ship Seneca reached Canton with a cargo that included 5.7 metric tons of opium, also picked up in Smyrna. During the next two years the Astor vessels Boxer, Alexander, William and John, and Peddler carried opium cargos to Canton.

The upper end of the opium trade, however, belonged to a British monopoly. The East India Company devoted thousands of hectares of fertile land in Bengal to the cultivation of opium. The harvest was auctioned at Calcutta, while the yields of individual growers were sold in Bombay. Chinese dealers preferred chests that bore the stamp of the East India Company because the crops of independent growers were often adulterated with molasses or cow dung. Turkish opium was inferior to Bengal imports. Still, one picul—a Malay unit of weight used throughout Southeast Asia and equal to 60 kilograms—of unrefined Turkish opium fetched $500 in Canton. Here, dealers used it to adulterate the high-grade opium from India. Horrified at the harm done to China's health, Emperor Daoguang, a reformer who came to the throne in 1821, ordered that all those convicted of opium smoking be given one hundred strokes. A sentence also stipulated that for two months an addict should wear a heavy wooden collar through which the hands were locked. A number of dealers were executed. These measures, however, proved futile. 

Astor dabbled in the opium trade because nearly everybody else did. Olyphant & Company, one American firm that refused to carry opium in its vessels, was nicknamed “Zion's Corner.” J. J. didn't hide behind the pieties of those who claimed they sent narcotics to China to accelerate the conversion of the heathen Chinese to Christianity. He was in it because it increased profits. [1]

 

Corporate Models and Nominees

Astor had abandoned the opium trade by 1821, turning instead to the importation of liquor to use in trade with Indians. With his profits he bought Manhattan leases and land on the outskirts of the then-small city of New York, assets passed down to his family for many generations, mostly in trusts in a generation-skipping fashion. These trusts had to be managed by bankers, with income available for the beneficiaries, while any surplus capital could be reinvested by the managers or trustees, who, in the days before the rise of corporate entities, often held title in their own names pursuant to an underlying contract authorizing them to hold title as nominees for the trust beneficiaries. Over the years laws have been changed from one state to another to make it easier for the real owner of property to be kept secret behind corporations, limited partnerships, limited liability companies and other legal forms or models.

Reporters speculated that Robinson was bidding for Astor.

The trustees who managed the estate thus had the use of the funds at their own discretion. Douglas Robinson attained his status as trustee because of his relationship to the family circle—that “gold ring” that surrounded the Astor family. Born in Scotland, Douglas in 1882 married Corinne Roosevelt, the sister of Theodore Roosevelt, President of the United States from 1901-1909. The Robinsons’ daughter, also named Corinne, would marry Joseph W. Alsop IV in 1909 and remain very close to her first cousin Eleanor, who married another Roosevelt—fifth cousin, Franklin. 

Was British Socialism Extracted from Poppies?

Both Corinne Robinson and Eleanor Roosevelt were sent to Allenswood, a school near London, where they were taught by Marie Souvestre, a feminist educator who “sought to develop independent minds in young women.”  Souvestre continued a correspondence with Eleanor long after her departure from the school.[2]  One of Eleanor’s teachers at Allenswood was Dorothy Strachey, sister to Lytton Strachey, who helped organize the “Bloomsbury Group,” in London in 1905.

The Stracheys were children of an upper-middle-class family headed by their father, Sir Richard Strachey, a colonial Indian civil servant and civil engineer and British army general during Lord Robert Cecil Salisbury’s tenure in the India Office when Britain faced the problem of maintaining a complex empire in South Asia.[3]  Lytton Strachey’s father and one of his half a dozen uncles servicing in India civil service, Sir John Strachey, were colleagues of Lord Cromer (of Barings Bank) on the Indian Council, while Sir John was also Viceroy of India for a time.[4] During the years when Sir Stafford Northcote was Secretary of State for India, Sir John and General Richard Strachey wrote Finances and Public Works of India, which stated at page 136:

For many years the ordinary financial condition of India had been one of chronic deficit; and the main cause of this state of affairs was the impossibility of resisting the constantly increasing demands of the local governments for the means of providing every kind of improvement in the administrations of their respective provinces. Their demands were practically unlimited, because there was almost no limit to their legitimate wants, and the local governments had no means of knowing the measure by which their annual demands upon the Government of India ought to be regulated. They had a purse to draw upon of unlimited, because of unknown, depth. . . . They found by experience that the less economy they practised, and the more important their demands, the more likely they were to persuade the Government of India of the urgency of their requirements.[5]

This same concern was also expressed by the utilitarian writer, John Stuart Mill, an employee of the British East India Company for more than three decades, who “drafted his Logic and Principles of Political Economy on the Company's stationery while so employed. In spelling out his necessary conditions of development for Indians, Mill stood amidst a long line of British writers who addressed the question of India as a codicil of the European invention of development.”[6]  As early as 1804 when Thomas Malthus became a charter member of the faculty of the newly established staff training college of the East India Company at Haileybury, John S. Mill’s father, James Mill, was hired as a Company administrator with help from Jeremy Bentham, with whom he became associated in 1806, and John Stuart started his own 35-year career there in 1823.

It was during the aftermath of the 1857 mutiny and revolt J.S. Mill wrote Memorandum of the Improvements in the Administration of India—a defense of the East India Company against the revocation of its governmental privileges. The Strachey family had a connection to the Indian civil service that was well over a century old by the time Mill wrote his treatise. 

In his 2004 book, Doctrines Of Development, M. P. Cowen, writes:

“By the mid-nineteenth century, two scions of this family, John and Richard Strachey, had risen to high office in India. In 1882 the Stracheys co-authored the retrospective of their lives' work, The Finances and Public Works of India from 1869 to 1881, and dedicated the book to ‘the public servants of all classes the results of whose labours for the people of India [were] herein recorded…by their fellow workers’. In their final chapter, the Stracheys addressed the question of the ‘future requirements of public works and finance in India’. Here, they reflected that ‘the recent remarkable progress of India, which has been placed beyond every reasonable doubt, may be traced up to the natural productive powers of the country, for the development of which greatly increased facilities have been given by the extension of railways and cheap transport’. Yet, there was no time to cry, ‘Rest and be thankful.’ The Stracheys argued that, as the famines of the 1870s had shown, much more needed to be done. How was this work to be accomplished? Their answer was that ‘experience’ had ‘established beyond dispute that it is within our power both to construct and work railways economically through state agency’. Moreover, the Stracheys continued, it was in the financial interests of the Government of India to do so:

for, it may without hesitation be said that in the case of lines yielding a profit…the amount which would be carried out of the country by a company of foreign capitalists…must be greater than the charge incurred under Government management…since the profits, even if smaller, would all remain in India.[7]

How Bankers and Accountants Hide the Source

At the same time Sir Stafford Northcote was contending with Indian provincials’ demands for more from the British government, similar pleas for money were coming from Canadian colonials. Sir Stafford, who began heading Hudson’s Bay Company in 1869, traveled to North America to discuss a way to resolve the situation, using the International Financial Society, set up in the early 1860’s, as one possible means to raise funds outside the Government’s taxing mechanism. By 1868 another new financing mechanism had been created—the investment trust—the first of which was the Foreign and Colonial Government Trust, which:

was very successful and soon had a number of imitators. In 1873 the five trustees of the Foreign and Colonial Government Trust set up the first trust company specifically devoted to investment in American railway securities, the American Investment Trust.[8]... In April the most famous of all these companies, the Scottish American Investment Trust, was inaugurated.[9]... Most of these companies also engaged in various other financial operations. They not only undertook the flotation of American railway shares but also bought and sold on such short terms that their operations came perilously close to the borderline of speculation. Nevertheless, the investors were highly satisfied with the returns. The trustees also profited, especially from the founders’ shares. Moreover, there were also intangible profits. The group of men who made up the trustees of these various companies became a power in the City.[10]

It is the Scottish American Trust that is most useful in understanding the connection between Scottish capital and American enterprise in the decades following America’s civil war, when another sort of war was going on within the British establishment concerning the maintenance of the colonial empire: 

Theories and attitudes to colonial development unfolded only very slowly and uncertainly in this period, which is not surprising, considering that it was a time when British attitudes to the empire as a whole, and to the tropical colonies in particular, were still confused and incoherent. On the one hand, there was what might be called the ‘unofficial orthodoxy’ of the Manchester school of laissez-faire dogmatism, based on the worship of free trade, which believed that, provided Britain was powerful enough to enforce free trade (or something approaching it) on tropical regions, formal colonial rule was unnecessary: and on the other hand there was the whole tribe of traders, merchants, missionaries and colonial administrators who had a vested interest in maintaining the tropical colonies, and in some cases in expanding them. Since possession is said to be nine-tenths of the law it is perhaps not surprising in retrospect that those who represented the vested interests were ultimately successful; and that the advocates of abandoning the colonies (the settlement colonies as well as the tropical ones) were eventually defeated—as much by the course of events—as by any determined new policy of expansion.[11]

This “Manchester school” centered in the Lancashire district—the heart of the textile industry—was also the location of many of the investors of the International Financial Society formed by Sir Edwin Watkin, promoter of the Grand Trunk Railroad from the east to west coasts of Canada.  This financing mechanism was a separate entity, 

capitalized at three million pounds—divided into 150,000 shares—all of which were bought by the important London banking firms.  The sale of stock was closed in June 1863, and the new shareholders (the London banks) elected Sir Edmund [Walker] Head as governor of the Company, with other board members being Richard Potter, Daniel Meinertzhagen, James S. Hodgson and J.H.W. Schroeder from the banks.  Shares in the new company were then placed for sale on the open market.  However, almost a year later, the society still owned a large block of stock.  The Society's minutes reflect that by 1867 it owned a mere 3,000 shares.

The Daniel Meinertzhagen named above headed the banking house owned by his father-in-law, Frederick Huth. In 1873 his son, also named Daniel, married one of the daughters of another board member of the International Financial Society—Richard Potter—the wealthy father of soon-to-be-famous Beatrice Potter Webb, one of the founders of the Fabian Socialists. Potter was building the Grand Trunk Railroad in Canada. Daniel was also the father-in-law of Alexander Frederick Richmond (“Sandy”) Wollaston, the second son of George Hyde Wollaston, who was related by the marriage of Ann (daughter of Frederick Eustace Arbuthnot Wollaston) into the family of Alexander Brown of Baltimore.

Click to enlarge file.

Alexander Brown's son James had gone to New York after the Erie Canal opened in order to take advantage of the trade that was opened up by that scientific wonder in 1825. James was the senior partner in the Brown Brothers investment bank  which after the 1929 crash was in dire need of new capital. That was when the Harriman boys came along and through Prescott Bush's father-in-law George Herbert Walker, negotiated to take over the bank's investment portfolio, as mentioned previously. We can only wonder at this point in time how much of those investments still derived income from opium.

---

[1] Axel Madsen, John Jacob Astor: America's First Multimillionaire (New York:  John Wiley & Sons, Inc., 2001), pp. 166-167.

[2] Betty Boyd Caroli, The Roosevelt Women: A Portrait In Five Generations (New York:  Basic Books,  1998).

[3] “Giles Lytton Strachey (1880-1932),” Encyclopedia of World Biography, 2nd ed. 17 Vols. Gale Research, 1998. According to statistics reflected by the “Statistical Abstract of British India,” presented annually to Parliament, Sir John Strachey’s Financial Statement of 1877, (V/16/344), OIOC, and Judith M. Brown, Modern India: The Origins of an Asian Democracy (Oxford, 1985), p. 125:

Salisbury’s 1866 budget speech, for all the confidence with which it was imbued, could not disguise the fact that Indian revenues could not be counted upon for any extensive program of public works. The government drew its revenue from six main sources: land, opium, stamps, salt, excise, and customs. Of these the revenue from land was by far the largest, accounting for some 40 percent of a total net revenue in the 1870s of around £38,000,000 per annum. Since this revenue was either permanently fixed or subject to only thirty-year reassessments, it could not be raised to meet extraordinary costs or provide for public works investment. Neither was the second largest source of revenue, that from opium sales to China, which accounted for around 15 to 17 percent of total revenue, a reliable or expandable source. Unlike the Chancellor of the Exchequer who could rely on gin sales in Britain, Salisbury noted, opium sales faced the risk that the Chinese government would look elsewhere for its opium. Furthermore, although currently producing a high return, it was subject to fluctuations in price. That made him look ‘with some anxiety on the statement that the Indian budget depends on the yield of opium not falling far short of the highest rate it has ever yet attained.’ (quoting Paul R. Brumpton, Security and Progress: Lord Salisbury at the India Office (Westport, CT:  Greenwood Press. 2002), 127.)

[4] John Loe Strachey, The Adventure of Living: A Subjective Autobiography—1860-1922 (New York: G.P. Putnam’s Sons, 1922), 367. Lytton’s father started his career as a subaltern in the Honourable East India Company’s Corps of Sappers and Miners.

[5] Quoted in Andrew Lang, Life, Letters and Diaries of Sir Stafford Northcote, First Earl of Iddesleigh. Volume: 1 (Edinburgh and London:  W. Blackwood and Sons, 1890), 276-277. Strachey, The Finances and Public Works of India from 1869 to 1881 (London, 1882), 401-402.

[6] M. P. Cowen and R. W. Shenton, Doctrines of Development (London:  Routledge, 1996), 42.

[7] Cowen and Shenton, 54.  Passages quoted therein from Strachey and Strachey (1882), pp. 401-2.

[8] The five trustees were:  Lord Westbury, Lord Eustace Cecil, G.M.W. Sandford, G.W. Currie, and Philip Rose.  Philip Rose, it should be noted, was not a member of the firm of Morton, Rose and Co. but of a firm of lawyers.

[9] According to a footnote to the quoted text, the trustees were: James S. Fleming, cashier of the Royal Bank of Scotland; James Syne, manager, British Linen Co.; W.J. Duncan, manager, National Bank of Scotland; and William Thomas Thomson, manager, Standard Life Assurance Co.  An additional reference recommends W. Turrentine Jackson, The Enterprising Scot:  Investors in the American West after 1873 (Edinburgh:  Edinburgh University Press, 1968) at 13 ff.

[10] Dorothy R. Adler, British Investment in American Railways 1834-1898 (Charlottesville, Va.: The University Press of Virginia, 1970), p. 92. Adler cites The London Times (March 20, 1868), as the first appearance of any mention of The International Financial Society.

[11] Michael Havinden and David Meredith, Colonialism and Development: Britain and its Tropical Colonies, 1850-1960 (New York: Routledge, 1993), 45.

Chapter One of Linda Minor's unpublished book about the history of Brown Brothers bank and the genealogy of Brown family descendants.