------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (September 2006)  
  
Robert E. Wright, _The First Wall Street: Chestnut Street,   
Philadelphia, and the Birth of American Finance_. Chicago: University   
of Chicago Press, 2005. vii + 210 pp. $25 (cloth), ISBN:   
0-226-91026-1.  
  
Reviewed for EH.NET by Peter L. Rousseau, Department of Economics,   
Vanderbilt University.  
  
  
Robert E. Wright, hailing from New York University's Stern School of   
Business, continues to expand our understanding of early U.S.   
securities markets with his recent offering from the University of   
Chicago Press. If looking for an entertaining stroll through the rise   
and fall of Philadelphia as the hub of American finance from the late   
colonial period through the Bank War, one needs to go no further. At   
the same time, the book is a fine starting point for considering more   
extended research on the wide range of financial topics addressed   
therein.  
  
The eleven chapters are, for the most part, organized around   
particular financial innovations or groups of innovations that   
emerged first in Philadelphia, many of which persist to the present   
in some form or another. But the deeper thread seems to be that,   
despite its eclipse by New York City around 1830, Philadelphia's   
importance in setting the stage for the ascendancy of the United   
States as the world's financial leader -- a position achieved by the   
end of the nineteenth century and by some accounts well before --   
should not be discounted by historians and economic historians.  
  
As Philadelphia rose to prominence as a political and economic   
center, it replaced London as the informational hub of the colonies,   
leading to a greater degree of financial integration and an end to   
the rather insulated existences that had prevailed for decades.   
Wright describes the rise of Chestnut Street with vivid narratives   
about the growth of the market for property rights (chapter 2),   
quasi-public and private banking (chapter 5), the fire and marine   
insurance industry (chapter 6), building societies (chapter 7), and   
financial securities markets. He also points out that it was   
Philadelphia that hosted the Federal mint and the nation's first two   
central banks. Indeed, the anecdotes that Wright tells about the   
challenges that the mint faced in acquiring the bullion needed to   
perform its most basic function -- challenges made more difficult by   
a seemingly constant need to justify its existence to legislators --   
are among the book's most fascinating.  
  
Given Chestnut Street's precocious start as the nation's first "Wall   
Street," Wright devotes the final third of the book to explaining the   
fall of Philadelphia from its commanding perch atop the U.S.   
financial system (chapters 8-11). Here, the author recounts the   
familiar explanation that geographic inadequacies were at the heart   
of the city's undoing -- a fate sealed by New York's unlocking the   
portal to the West with the Erie Canal. Wright's explanation,   
however, is enhanced by a reconstruction of the life and business   
experiences of a less prominent yet well-established financier named   
Michael Hillegas. Hillegas began a modest career on Chestnut Street   
during its heyday and learned from some of the great financiers of   
that time. As some of his colleagues and mentors moved their   
operations to New York, however, Hillegas chose to stay behind,   
carving out a good living as one of the remaining "old timers." In   
the end, though, the flow of human and financial capital away from   
Philadelphia led even Hillegas, and surely others like him, to   
experience increasing difficulties in keeping business from moving to   
New York and its more auspicious opportunities. Wright contends that   
it was the exodus of human capital that really spelled the end for   
Chestnut Street.  
  
One point that Wright does not make explicitly, but which is   
nonetheless reinforced by his lively narratives, is the primal nature   
of real activity as the driving force behind the location and   
development of finance. At a time when colonial economic activity was   
more local in nature and commerce more international, Philadelphia's   
position as an Atlantic port made it an adequate commercial center,   
especially since it was already a political center. It was therefore   
natural for the financial system to have its mainsprings there. A   
virtuous cycle of real needs leading to finance and promoting further   
real growth seems to have been the result. But as it became   
increasingly clear that the new nation and its large land mass was   
not a featureless plain, the move to New York might be seen as a   
classic example of Joan Robinson's famous adage that "where   
enterprise leads, finance follows." And follow it did in this case.   
As Chestnut Street's best financiers headed off to New York, their   
expertise went with them. Only large sunk investments in plant and   
equipment for the Federal mint and the central bank could hold these   
institutions in the Quaker City, at least until political forces took   
care of the latter.  
  
It is important to note that this book is not intended as a treatise   
on economic or financial theory as applied to the colonies or the   
young United States. Rather, it is solid effort to relate financial   
history to a wider popular audience. As such, the exposition might be   
a bit distracting at times to the academic reader. Yet the better   
understanding of Chestnut Street's role in early U.S. growth and   
development that I gained from reading it was well worth an   
occasional diversion or two. Effectively bridging academic and   
non-academic audiences is a difficult feat indeed, but one that we   
have come to expect from a scholar as prolific as Wright. It leaves   
me in anticipation of what new ground his next work will cover.  
  
  
Peter L. Rousseau is Associate Professor of Economics at Vanderbilt   
University in Nashville, TN and a Research Associate of the NBER. He   
is the author of "A Common Currency: Early U.S. Monetary Policy and   
the Transition to the Dollar," _Financial History Review_ (April   
2006), and co-author (with Richard Sylla) of "Emerging Financial   
Markets and Early U.S. Growth," _Explorations in Economic History_   
(January 2005).  
  
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