23 February 2010

A Digression on Crappy History: Ron Chernow's *House of Morgan*

Researching the many crises of the 19th century requires discrimination about one's sources, and I therefore felt the need to get the following off my chest. This post began as a footnote to my post on the Crisis of 1893 (2), and the following sentence in this essay appears there also.

The most familiar source on this subject for most readers will most likely be either Ron Chernow, The House of Morgan, Atlantic Monthly Press (1990), Chapter 5: "Corner" (p.71) or else Robert Sobel, Panic on Wall Street, Truman Talley Books (1988), Chapter 7: "Grover Cleveland and the Ordeal of 1893-95" (p.230).  Both books were extremely popular, measured by sales and by critical reviews, but my opinion of both is unfavorable.  Both are collections of low-hanging fruit: facts readily available without effort, including a few curios thrown in for historical color, and amply garnished with cliches. Sobel is preaching his doctrine of hard money and free markets, and hence needs to turn everything to that purpose whether it fits or not.

Chernow's narrative is a less coherent version of Sobel's, and almost wholly reliant on popular books for information. For example, on p.72, Chernow, who despises populists, claims that several Western states including Texas "venomously" outlawed bankers. His source for this astonishing claim was Anthony Sampson, The Money Lenders, Viking Press (1981), p.60. This is a common problem: popular "historians" whose sources are confined to highly remote writers, like Sampson (whose book had nothing to do with banking in Texas and should never have been consulted on that subject).  To make matters worse, Chernow carelessly paraphrases Sampson, who never said bankers were banned.

Why didn't Chernow wonder how a state functioned without banks or bankers between 1836 and 1904?  For that is an obvious question raised by his bald claim.  Or California?  The short answer was that Chernow didn't care if his information was correct, and most of his readers don't either.

For those actually curious about the claim in Sampson/Chernow, what actually happened was that the Texas state constitution (like English law to 1826) forbade banking by joint-stock corporations; banking was performed by partnerships. For the history of early bank corporations in England (with some references to Scotland), see Lucy Newton &  P.L. Cottrell, "Joint-Stock Banking in the English Provinces 1826-1857: to Branch or not to Branch?," Business and Economic History, vol.27.1 (Fall 1998). For banking regulations in Texas, see Avery Luvere Carlson, Texas, A Banking History of Texas, 1835-1929, Copano Bay Press (2007/1930). Please note Carlson's book is explicitly about banking in Texas during the relevant period, and hence, a valid source of information.


In Texas, the Constitution of 1861 (passed after secession from the United States) and the (pre-Reconstruction) Constitution of 1866 both prohibited corporations from forming banks.  The Reconstruction Constitution of 1869 allowed for the creation of a state banking system; at the same time, 10 bank corporations received national charters in Texas (between 1866 and 1874). By 1893, Texas had 254 national banks (Carlson, 2007, p.76). This data is available from the Comptroller of the Currency, of course.

Texas passed section 14 to its constitution in 1876, banning the award of state banking charters to corporations.  This allowed existing state banks to continue in operation, although the last one ceased to operate as a state bank in 1898. In 1904, section 14 was altered to allow state banks again.

Populist reform legislation did have some impact on banking practices, mainly through demands for reporting and regulation of banking services.  This is a lot less interesting than the flamboyent flapdoodle one gets from Chernow.


Sources and Additional Reading:

Avery Luvere Carlson, Texas, A Banking History of Texas, 1835-1929, Copano Bay Press (2007/1930)

Lucy Newton &  P.L. Cottrell, "Joint-Stock Banking in the English Provinces 1826-1857: to Branch or not to Branch?" (PDF), Business and Economic History, vol.27.1 (Fall 1998)

Robert Sobel, Panic on Wall Street, Truman Talley Books (1988), Chapter 7: "Grover Cleveland and the Ordeal of 1893-95" (p.230).

Benjamin Cooper Wright, Banking in California 1849-1910, H. S. Crocker Company (1910)

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