Inside Money

1. From Irish Linen to American Finance: The Immigrant Foundation

In the United States, the pursuit of profit was woven into the founding fabric, not as explicitly as the pursuit of happiness but there all the same.

Humble Beginnings. The story of Brown Brothers Harriman begins with Alexander Brown, an Irish immigrant who fled sectarian violence in 1800 and established a linen importing business in Baltimore. This venture, built on modest dreams and hard work, laid the foundation for what would become a pillar of Wall Street.

Transatlantic Trade. Brown's business quickly expanded beyond linen, encompassing exports like tobacco and cotton. He strategically deployed his sons to key locations, with William establishing a branch in Liverpool, England, to facilitate trade between the Old World and the New. This transatlantic network became a crucial channel for the flow of money and goods.

Family Values. Alexander Brown instilled in his sons a strong work ethic, a commitment to integrity, and a deep sense of caution. These values, passed down through generations, became the bedrock of the firm's culture, guiding its decisions and ensuring its long-term survival through numerous economic crises.

2. The B&O Railroad: A Gamble on Innovation and a Catalyst for Growth

If this railroad be accomplished, it will resuscitate Baltimore . . . and will make her in short time second to no city in the union.

Facing Competition. In the 1820s, Baltimore faced a growing threat from New York City and Philadelphia, which were investing heavily in canals to connect with the expanding West. To maintain its position as a major commercial center, Baltimore needed a bold solution.

Embracing the Unknown. Alexander Brown and other city leaders decided to invest in a new and untested technology: the railroad. Despite the risks and uncertainties, they believed that a railroad could provide a faster and cheaper route to the Ohio Valley, giving Baltimore a competitive edge.

Public-Private Partnership. The Baltimore & Ohio Railroad was financed through a public offering, attracting investment from thousands of ordinary citizens. This innovative approach to funding a major infrastructure project demonstrated the city's commitment to progress and its willingness to embrace the future.

3. Navigating Panics and Preserving Reputation: The Brown Brothers' Way

A man is a fool to do so under these circumstances, unless his need is great. Ours is not.

Recurring Crises. The 19th century was marked by frequent economic panics, each threatening to wipe out businesses and fortunes. Brown Brothers, however, consistently weathered these storms, thanks to its conservative approach and unwavering commitment to its reputation.

Trust as Currency. In a world without reliable financial institutions, Brown Brothers built its business on trust. Its letters of credit were widely accepted, and its promises were always honored. This reputation for integrity became a valuable asset, attracting clients and ensuring the firm's survival.

Cautious Expansion. While other firms chased rapid growth and high profits, Brown Brothers prioritized stability and long-term sustainability. It avoided excessive speculation and focused on building a diversified business that could withstand economic shocks.

4. The Allure and Peril of the Cotton Trade: Morality and Money

Don’t deal with people about whose character there is question. It keeps your mind uneasy. It is far better to lose the business.

The Rise of King Cotton. As the American South transitioned to a cotton economy, Brown Brothers became a major facilitator of the cotton trade, connecting Southern plantations with textile mills in England. This lucrative business, however, came at a moral cost.

Complicity in Slavery. The cotton trade was built on the backs of enslaved men and women, and Brown Brothers, like many other businesses, profited from this system. While some members of the firm expressed moral objections to slavery, they continued to participate in the cotton trade.

Evolving Attitudes. As the abolitionist movement gained momentum, attitudes within Brown Brothers began to shift. The firm eventually took a stand against slavery, supporting the Union cause in the Civil War. This decision, however, came after decades of profiting from the slave system.

5. The Arctic Disaster: A Turning Point and a Lasting Scar

I consider what I have just done to be among the most important acts in my life, second only to the signing of the Declaration of Independence, if even it be second to that.

Investing in Innovation. In the 1850s, James Brown, head of the New York branch, invested heavily in the Collins Line, a company that aimed to build faster and more luxurious steamships for transatlantic travel. This venture, however, proved to be a risky one.

Tragedy at Sea. In 1854, the Collins Line's flagship, the Arctic, sank in the Atlantic Ocean, claiming the lives of hundreds of passengers, including members of James Brown's family. This disaster had a profound impact on Brown, leading him to become more cautious and risk-averse.

A Shift in Focus. The Arctic disaster marked a turning point for Brown Brothers. The firm scaled back its involvement in shipping and focused on its core business of finance, emphasizing stability and long-term sustainability over rapid growth.

6. The Civil War Divide: Loyalty, Loss, and a Shifting Focus

The head that thought for us is gone.

A Nation Divided. The Civil War presented a major challenge for Brown Brothers, which had offices in both the North and the South. The firm had to navigate the complex political and economic landscape while remaining true to its values.

Supporting the Union. Despite its historical ties to the South, Brown Brothers ultimately sided with the Union, supporting the abolition of slavery and the preservation of the United States. This decision, however, came at a cost, disrupting its business and straining relationships with some clients.

The Rise of New York. The Civil War accelerated the shift of economic power from Baltimore and Philadelphia to New York City. Brown Brothers recognized this trend and focused its efforts on its New York branch, which became the center of its operations.

7. The Rise of the American Establishment: Service, Duty, and Influence

The primary object is safety.

A New Elite. In the late 19th and early 20th centuries, a new American elite emerged, characterized by wealth, education, and a strong sense of civic duty. Brown Brothers, with its long history and commitment to service, became a key part of this establishment.

Boarding Schools and Ivy Leagues. The children of this elite attended exclusive boarding schools and Ivy League universities, where they were instilled with a shared set of values and a sense of responsibility to lead the nation. These institutions became incubators for future leaders.

A Culture of Service. Members of the American Establishment were expected to use their wealth and influence for the greater good. They served on boards of non-profit organizations, supported cultural institutions, and entered public service, shaping American society and foreign policy.

8. Dollar Diplomacy: Banking, Power, and Intervention in Nicaragua

We do not suffer from speculations of our own, as we enter into none. We are suffering from the imprudence and misfortune of others to whom we have given credit.

Expanding Influence. As the United States rose to global prominence, Brown Brothers became involved in international finance, particularly in Central America. This involvement, however, led to controversy.

Intervention in Nicaragua. In the early 20th century, Brown Brothers played a key role in the U.S. intervention in Nicaragua, providing loans to the government and overseeing its finances. This intervention, justified by the doctrine of dollar diplomacy, was seen by some as an act of American imperialism.

A Legacy of Controversy. The firm's involvement in Nicaragua tarnished its reputation and raised questions about the ethics of using American power to protect private interests. This episode serves as a reminder of the complex and often contradictory nature of American foreign policy.

9. The New Deal and a New Direction: From Private Banking to Public Service

The head that thought for us is gone.

The Great Depression. The Great Depression of the 1930s presented a major challenge for Brown Brothers, as it did for the entire financial system. The firm, however, weathered the storm, thanks to its conservative approach and strong capital base.

The Glass-Steagall Act. The New Deal's Glass-Steagall Act forced Brown Brothers to make a difficult choice: to focus on commercial banking or investment banking. The firm chose commercial banking, spinning off its investment banking operations into a separate entity.

A Call to Service. The New Deal also saw a shift in the firm's leadership, with Robert Lovett, a partner at Brown Brothers, entering public service. This marked the beginning of a long tradition of Brown Brothers partners serving in key government positions.

10. The Wise Men: Shaping the Post-War World and the Cold War

The primary object is safety.

Present at the Creation. Following World War II, Brown Brothers partners played a central role in shaping the post-war world. Robert Lovett served as Secretary of Defense, while Averell Harriman became a key diplomat and statesman.

The Cold War Architects. These men were instrumental in creating the institutions and policies that defined the Cold War, including NATO, the World Bank, and the CIA. They also helped establish the primacy of the American dollar in the global financial system.

A Lasting Legacy. The influence of Brown Brothers extended far beyond its size. Its partners helped shape the world we live in today, leaving a lasting legacy on American foreign policy and the global economic system.

11. The End of an Era: The Fading of the Old Guard and the Rise of New Challenges

We were very hard workers.

Fading Relevance. By the end of the 20th century, Brown Brothers had faded in relevance as its competitors went public and embraced more aggressive strategies. The firm, however, remained committed to its traditional values and its partnership structure.

A Reminder of What Could Be. In the wake of the 2008 financial crisis, Brown Brothers stood as a reminder of a different kind of capitalism, one that prioritized service, stability, and long-term sustainability over short-term profits and excessive risk-taking.

A Secret History. The story of Brown Brothers is a secret history of Wall Street, a story of sustainable capitalism that offers valuable lessons for a world grappling with the excesses and imbalances of modern finance.

Last updated: March 3, 2025