Although London may still compete with New York City for the world's leading financial hub, the southern tip of Manhattan, specifically Wall Street, is the heart of American finance. How things have always been.
Philadelphia, Pennsylvania, was not New York City's financial center when the first bank and stock exchange in the United States were founded.
Several geographical, economic, and political considerations helped New York City overtake Philadelphia as the nation's largest financial hub, notwithstanding Philadelphia's early start.
Philadelphia: A Narrative
Philadelphia's foundation of the Bank of Pennsylvania in 1780 and its subsequent involvement in financing the Revolutionary War are often cited as evidence of the city's early financial dominance.
In the final decade of the 18th century, when it was the nation's largest city and de facto capital, it was chosen as the site of the First Bank of the United States, the country's first federally chartered bank.
By functioning as a de facto central bank, it helped make Philadelphia the first major financial hub in the United States.
Critical Moments
Seeing Philadelphia's success in the security exchange market, New York City decided to establish the New York Stock and Exchange Board in 1817, the forerunner to the New York Stock Exchange.
New York hoped to entice investors to move there from Philadelphia by offering a new exchange and a greater concentration of financial institutions than its southern rival.
Although New York's commercial trade advantage was obvious by 1815, the city's true dominance didn't become apparent until the Erie Canal was finished in 1825.
Advantages Of Location
New York's economic dominance is largely due to its location, but the city also benefited from several chance occurrences. New York's ports proved to be considerably more convenient than those of Philadelphia or Boston, and the city served as a hub for European merchants entering North America.
Unlike the Delaware and Charles Rivers, the Hudson River is substantially deeper, making it more navigable and less prone to freezing over.
The Erie Canal, built between 1817 and 1825, and Black Ball Lines, set up in 1818, contributed to New York's already advantageous location.
Black Ball Line supplied the first regularly scheduled transatlantic passenger service. At the same time, the Erie Canal linked the Hudson River to the Great Lakes and, by extension, the fastest-growing portions of America west of the Appalachians.
The Canal and the Line both contributed to establishing New York as the commercial and transportation hub of the United States.
Courageous Attitude
These new arrivals also contrasted the more conservative Quaker culture of Philadelphia with their own daring, risk-taking spirit. Because of this, New York swiftly became a hub for cutting-edge companies and an entrepreneurial spirit that encouraged risky financial speculation.
New York's booming stock market necessitated the creation of a market for call loans to facilitate the city's ever-increasing volume of trade.
For speculative purposes, stock dealers might borrow funds from financial institutions against the security they held as collateral. Since the banks made money on the interest from the loans, and the stock market could continue functioning thanks to the borrowed funds, everyone involved benefited.
The Tide Has Turned in New York's Favor
By the 1830s, Wall Street had become the primary financial hub of the United States, handling the bulk of bank deposits across the country.
Only the Second Bank of the United States in Philadelphia, whose charter was about to expire in 1836, prevented New York from becoming the nation's primary financial hub.
The fact that New York was the primary source of Federal Customs receipts, but those funds were not being placed in New York banks but rather in the Second Bank was becoming more irritating to those working on Wall Street.
Martin Van Buren, a powerful New Yorker who became President Andrew Jackson's counselor, spoke up for the Wall Street bankers' interests. At the same time, Jackson had his reasons for being unfriendly towards the Second Bank.
Summary
Philadelphia may have had the first bank and stock exchange in the country, but that wasn't enough to keep it from losing its financial dominance to New York City when the latter city expanded its own. By using its distinctive geographical qualities, New York surpassed Philadelphia as the nation's transportation and immigration hub.
This allowed New York to overtake its southern rival in commercial commerce soon and secure its position as the financial capital of the United States, a position it still has today.
