Before the internet or the telephone, there was the telegraph.
Inventors in the United States and Britain invented electrical telegraphy more or less simultaneously. But it was the American system, introduced in 1837 by Samuel Morse and his assistant, Alfred Vail, and using a code for the transmission of letters and numbers, that became the international standard.
The first use of the electrical telegraph for communication between banks is believed to have come in 1843, when Rothschilds and Behrens of Hamburg swapped price information about the international stock and currency exchanges. The same year, the U.S. Congress appropriated $30,000 for a telegraph line that would run between Washington, D.C., and Baltimore along the right of way owned by the Browns’ own Baltimore and Ohio Railroad.
Three years later, a telegraph line connected Baltimore and New York, and soon telegraph lines extended along the Atlantic seaboard and into the Southern states, enabling foreign exchange dealers to monitor rates.
Brown Brothers, with a closely integrated network of offices in port cities around the U.S., were uniquely positioned to exploit this new technology. In the 1850s, they began the regular practice of maintaining uniform exchange rates in every branch.
For Brown Brothers, however, it was the advent of the transatlantic telegraphic cable in 1866 that proved decisive. When direct contact between buyer and seller became possible, the merchant banker became redundant.
At the same time, by reducing the risk associated with uncovered transactions, the telegraph would be a boon to Brown Brothers’ foreign exchange business. The Browns knew this, which is why they were themselves big investors in the company responsible for laying the transatlantic cable.
For Further Reading
- Stanley Chapman, The Rise of Merchant Banking. London: Routledge, 2013.
- David Hochfelder, The Telegraph in America, 1832-1920. Baltimore: Johns Hopkins University Press, 2012.
- Richard John, Network Nation: Inventing American Telecommunications. Cambridge: Harvard University Press, 2010.
- Tom Standage, The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-line Pioneers. New York: Bloomsbury, 1998.
- Roland Wenzlhuemer, Connecting the Nineteenth-Century World: The Telegraph and Globalization. Cambridge, UK: Cambridge University Press, 2013.
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