¹ A complete direct proof would involve (1) a comparative study of loans made to firms controlled by the “in-group” with those made to firms on the outside by each type of financial intermediary and lender, to determine if any systematic price discrimination existed; (2) if such discrimination did exist, a study of its causes—for example, did it represent an attempt by the textile owners to transfer profits from the intermediaries, that is, from certain stockholders or depositors, to themselves as mill owners? Or did it repesent some other phenomena—that is, merely risk differentials?

² Even though total savings may not have been interest-elastic, there should have been a high degree of substitutibility between forms of savings. Some savers should have moved to the new intermediaries if they offered higher returns, and those borrowers discriminated against by existing intermediaries should have provided a ready market for their loans. As far as entry was concerned, although free banking legislation was not adopted in Massachusetts until 1851, a steady flow of new banks did receive charters. Martin lists twenty-five banks operating in Boston in 1841, and, during the next decade, while one went out of business, six new banks were chartered. Moreover, in the five years from 1851 through 1855, another eight opened their doors. If one is to believe Redlich, given the animosity that existed between the management of the Suffolk and the new Exchange Bank, chartered in 1847, even before free banking, charters were not restricted to friends of the directors of the existing banks. See Martin, Joseph, Seventy-Three Years History of the Boston Stock Market (Boston: privately published, 1871), pp. 95–99Google Scholar. See Redlich, Fritz, The Molding of American Banking: Men and Ideas, Part I (New York: Hofner Publishing Co., 1951), p. 75Google Scholar.

³ Although we have no direct evidence on the lending activities of commercial banks, it is possible to deduce some indirect evidence on the subject. While we know nothing of the lending policies of commercial banks, we do have evidence on the market price of bank securities and the dividend policy of the banks in question. If the established banks discriminated in favor of the textile mills, one would expect new banks, in search of profits, to lend to those persons discriminated against by the existing institutions. Moreover, if we assume that the capital/deposit ratio for all banks was similar (not too bad an assumption, given the nature of commercial banking in Boston during the period, and the pressures of internal drain that existed because of the close proximity of a number of banks), then the difference in interest rates should have been reflected in a difference in earnings, and they, in turn, by a difference either in dividend policy or the mafket price of the banks' securities. A comparative study of dividends and bank security prices of old and new banks indicates no such differences. In the nine years 1846 through 1854, dividends in new banks exceeded those in old banks in five of nine years, but total dividends in old banks averaged slightly more over the whole period (7.8 vs. 7.7 per cent). As far as stock prices are concerned, an index of stock prices indicates that the average price of old bank securities exceeded those of new securities in seven of the nine years, and, over the whole period, averaged about 1.7 per cent more. Moreover, the differential actually increased over the period.

⁴ See Davis, Lance, United States Financial Intermediaries in the Early Nineteenth Century: Four Case Studies (unpublished dissertation: The Johns Hopkins University, 1956), pp. 96–105Google Scholar, 157–62, and 168–202. A full list includes forty of the borrowing textile firms.

⁵ See Lance Davis, Financial Intermediaries, pp. 253–58 and 268–94.

⁶ See Davis, Lance, “The New England Textile Mills and the Capital Markets: A Study of Industrial Borrowing, 1840–1860,” The Journal of Economic History, XX, No. 1 (March 1961), 4Google Scholar.

⁷ See Davis, Lance and Payne, Peter, The Savings Bank, of Baltimore, 1818–1866: A Historical and Analytical Study (Baltimore: The Johns Hopkins Press, 1956), pp. 15–41Google Scholar; Lance Davis, Financial Intermediaries, pp. 96–105; Davis, Lance and Payne, Peter, “From Benevolence to Business: The Story of Two Savings Banks,” The Business History Review, XXXII, No. 4 (Winter 1958), 388–91Google Scholar.