New England’s economy in the early 19th century was largely based on credit. Cash was scarce and business needed to be conducted, so other means of doing business were adopted. Farmers and townsfolk kept detailed accounts of what they were owed and what they owed in return and settled accounts through various means of payment, which rarely included cash.
In the early 1800s, the U.S. government minted coins of copper, silver and gold, but didn’t print paper money. The face value of a coin was the actual value of the metal in the coin, which limited the amount of minted currency and made New England a cash poor society. There simply was not enough cash in early 19th century New England for all the business people needed to do. As a result, people frequently purchased items and paid for services with credit. Transactions were recorded in writing at the time of purchase, and debts would be paid back in services or goods from the farmer’s harvest. Banks were not involved. While coin may have been the only legal tender, this didn’t hinder the credit system. A new means of payment was taking hold though with existence of more and more banks—the bank note.
From the late 1820s on, most of the money in circulation in New England was in the form of bank notes. A bank note was a promissory note made by a bank payable to the bearer on demand. However, they were not legal tender and no one had to accept them. Because of this, a bank note was only as good as the reputation of the bank that issued it. In order to give the impression of safety and ensure trust in customers, banks were often built of brick, with plaster facades in the Greek revival style—a style fashionable in the 1830s. A bank was usually a single room with a transaction space and a steel vault—the most important element in the building—built into the wall behind the counter. The vault represented security to the customers, for so long as the vault was closed, anything sealed in it would be safe from fires or any other disaster that could befall the building.
A bank typically employed only one person, a cashier who was usually one of the bank’s principal investors. The cashiers transacted business in the mornings and closed the doors in the afternoon while he spent the rest of the day reviewing bank loan applications, writing business letters and doing bookkeeping.
One bank would usually serve the needs of several adjacent communities; unlike the country store for example, a bank was not a necessity in a rural New England town. Despite bank notes’ popularity, local townsfolk still didn’t use the bank on a day-to-day basis. If a farmer needed a personal loan, he would be more likely to seek out a wealthy individual than the bank. The country store also supplied coins and bank notes to customers who needed small amounts of money. This was a purchase of cash and didn’t involve a loan, which meant no interest. Farmers would exchange goods for the cash.
Most banks were commercial and primarily served the needs of businessmen—storekeepers, craftsmen and textile manufacturers. Businessmen used banks to acquire loans, referred to as “discounts” in the 1800s. Most discounts were renewable three-month loans at six percent interest that were secured by collateral. The customer actually received a smaller sum than he requested because interest in the 1800s was deducted in advance. A bank used money from its shareholders to give these short-term loans, and in return paid its shareholders from its profits.
New England would remain a community based on credit for years to come. Bank notes continued to be used in place of cash until the National Banking Act of 1863 was established and paper currency was introduced into circulation. The biggest change in the New England countryside though, was the growth of the savings bank, which served the individual and not just the businessman. The savings bank for the first time allowed the small farmers to save money, which in turn received interest—a concept that would continue to grow in popularity through the years.