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New York has long been the financial hub of the US and arguably the entire world. Only London truly rivals New York's position as a financial hub of the global economy. Despite New York’s status it has not always been the business hub of the US. The first bank and stock exchange were actually formed in Philadelphia. However, New York had several advantages which helped it pull ahead and become the business hub of the US.
Philadelphia Got There First
Philadelphia was the location of the Bank of Pennsylvania which was founded in 1780. This bank had a role in financing the revolutionary war. At this time Philadelphia was the nation's largest city as well as being the acting capital up to the first decade of the 1800s. The US’s first chartered bank was formed in Philadelphia and this bank acted as a central bank for the entire US. This established Philadelphia as the initial business capital of the country.
This first bank failed to renew its banking charter in 1811 because of political reasons but this did not impede the city’s financial dominance. The Second Bank of the US was formed in 1816 and this bank was also located in Philadelphia. As this bank was the only federally chartered bank it had special privileges associated with it. This bank exerted its influence over the rest of the nation's banks and this has been notable in the history of US banking regulations. In addition to its banking prowess Philadelphia also had the first stock exchange in the US and this was established in 1790 which makes it older than the New York Stock Exchange. It is known that as late as 1815 London banks still used Philadelphia over New York to purchase American stocks.
New York and Its Rise to Dominance
New York decided to formalize its stock exchange and established the New York Stock and Exchange Board in 1817. This would later become the NYSE. As New York had a new exchange board and more banks than Philadelphia it was poised to entice investors away from the city of brotherly love. At this point, New York had surpassed Philadelphia as the US leader in commercial trade. It would overtake Philadelphia in the value of imports in 1796 and the value of exports in 1797. New York had a clear advantage in commercial trade but it was only in 1825 with the completion of the Erie Canal that New York’s dominance became obvious.
The advantages which New York has in terms of trade has a great deal to do with the geography of the state. The ports of New York proved to be easier to access than the ports of either Boston or Philadelphia for European merchants. This was the case because the Hudson river was less prone to freezing over than the rivers which accessed these other cities. The completion of the Erie canal connected the Hudson river to the Great Lakes and subsequently the fastest growing economic regions of America in the west. Additionally, New York was the first port of entry for many immigrants which made it a convenient place for them to establish themselves. This influx would grow the city's population to twice that of Philadelphia’s by 1860. The flow of immigration also increased the manufacturing and commercial activity of New York.
The influx of immigrants brought more than just more commercial trade. They also brought an adventurous spirit which led to a greater degree of risk taking. This contrasted with the more conservative nature of the population of Philadelphia. New York would quickly develop its reputation as a city for innovation and entrepreneurship as well as its reputation for speculation in investments. Speculation of this scale helped to increase the liquidity of the New York stock market. Stock traders began using securities as collateral on loans which allowed them to speculate further. These loans would be increasingly beneficial for the banking system in New York. This was the case because the banks would earn interest off of their loans while the lent money would allow for traders to continue their activities.
By the 1830s New York had become the nation’s dominant commercial and financial sector. Wall Street was in possession of the majority of the deposits made at banks across the country. The only thing which prevented New York from becoming the true center of financial activity in the US was the existence of the Second Bank in Philadelphia. This bank's charter was going to expire in 1836. Despite New York being the predominant source of Federal Customs receipts these receipts were still deposited at the Second Bank in Philadelphia. An influential New Yorker, Martin Van Buren became an advisor to the president at the time and he pushed for New York's financial interests to take center stage.
The Second Bank did not renew its charter in 1836 and this would cement New York as the center of Finance in America. This reality would be strengthened in 1863 and 1864 as the National Banking Acts would place New York Banks at the top of a banking hierarchy. The 1864 Act would stipulate that all national banks in the US had to have a 15% reserve of their money in New York.
Today New York is the undisputed business hub of the US. It remains an extremely popular destination for entrepreneurs. This is true of all manner of business entities. One of the most popular entities for entrepreneurs is the s corp in new york. This is a business entity that avoids double taxation through what is known as pass through taxation.
Copyright: TRUiC
Final Thoughts
While Phildephia was the first business hub of the US it was surpassed by New York for a number of reasons. These include the geographical location and the resultant influx of immigration which this caused. Additionally, Philadelphia’s failure to renew its Second Bank charter would prove to be the final nail in the coffin for the city’s financial supremacy. As a result the developments in New York such as the completion of the Erie canal would lead the city to become the business hub of the US.
Disclaimer
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