Since the early 19th century, the firm of Brown Brothers defined the distinctive American mix of financial power and public service. Its example can still instruct us.
FROM THE WALL STREET JOURNAL | MAY 14, 2021
At the dawn of the 19th century, an Irish immigrant named Alexander Brown arrived in Baltimore and set up shop as a linen merchant. The firm that he founded would evolve into one of America’s most important investment banks, Brown Brothers Harriman, which is still in business today. Over more than two centuries, as a unique form of capitalism turned the U.S. into the most potent and affluent country in the world, Brown Brothers was the alchemist at the center.
In its first hundred years, the firm helped to make paper currency standard in the U.S., underwrote the earliest railroad and trans-Atlantic steamship companies and almost unilaterally created the first foreign exchange system between the American dollar and the British pound. In the 20th century, it became a cornerstone of what came to be known as “the Establishment,” as its partners entered the halls of government to shape the global economic and security system that remains the world’s institutional architecture.
As American capitalism faces the challenge of reinventing itself for a post-pandemic future, the story of Brown Brothers offers crucial lessons.
Today, as American capitalism faces the challenge of reinventing itself for a post-pandemic future, the story of Brown Brothers offers crucial lessons. Its legacy is by no means simple: Like capitalism itself, the firm exhibited a panoply of virtues and not a few vices. Brown Brothers helped to unlock immense wealth and spurred the growth of American creativity and power, but its partners too often equated the public good with what was good for the firm.
Generations of Brown Brothers partners became rich while sustaining a culture of prudence and public service. Yet, as the largest cotton trader before the Civil War, the firm was deeply complicit in the evils of slavery, like much of American business at the time. The international system that Brown Brothers helped to establish after World War II unleashed decades of widening prosperity in the West, but it also cemented the wealth and power of a narrow elite.
For all the complications of its legacy, Brown Brothers embodies an ethos that still has much to recommend it, especially in contrast to the form of finance capitalism that emerged in the 1980s and nearly capsized the global economy in 2008-09. Today, when the wealth of a few has reached extraordinary heights, we can learn from Brown Brothers’ commitment to sustainable capitalism—to the belief that no individual or firm can ultimately thrive unless the wider society thrives as well, and that sometimes enough is enough.
Luck and contingency certainly played important roles in the firm’s longevity, but its culture was its lifeblood. That culture began with Alexander Brown, bespectacled and almost scholarly in demeanor, whose letters two centuries ago to his four sons—the original Brown Brothers—have the pithiness of Ben Franklin’s Poor Richard: “Don’t deal with people about whose character there is a question. It keeps your mind uneasy. It is far better to lose the business.” If “the risks are too great,” he advised, it’s best not to take them: “You cannot make a mistake by being sure.” Where others engaged in speculation, Alexander preached investment.
When he did embark on riskier ventures, it was usually for a greater public purpose. In the 1820s, concerned that Baltimore was being eclipsed by New York and Philadelphia as an economic hub, Alexander Brown championed a new technology: an iron railroad with cars pulled by a steam engine. The Baltimore & Ohio Railroad was inaugurated on July 4, 1828, with the promise that it would transform the American landscape. The project cost the equivalent of billions today, and it made the family no real money, but the Browns knew that they wouldn’t prosper unless Baltimore did.
After Alexander Brown died in 1834, leaving an estate worth close to $100 million in today’s terms, his second son James—ramrod straight, courteous to a fault—made a bet on another new form of transportation, the trans-Atlantic steamer. In the 1850s, he and the roly-poly shipping magnate Edward Knight Collins launched the Collins Line, with the fastest and most luxurious ships ever to cross the Atlantic. They were on the cusp of triumph when the jewel of the line, the plush S.S. Arctic, collided with a French trawler and sank in 1854. The popular preacher Henry Ward Beecher used the disaster as an occasion to attack the triumph of materialism, intoning that God “is striking thundering strokes at the wealth of the whole community.”
Never again did the firm wager speculative capital on a newfangled venture. Brown Brothers steered clear of the railroad boom that began midcentury, which brought a few investors to great heights and buried almost everyone else. The Browns understood that finance could unleash growth and good times but also cause crashes and usher in the bad. The firm remained immensely profitable, but it carefully skirted the highest highs and lowest lows of the last years of the 19th century.
In the decades before the Civil War, Brown Brothers moved away from the physical shipment of cotton and focused on financing the industry, while the family became staunch supporters of the Republican Party and the Union cause during the Civil War. After the war, the firm made considerable profits providing letters of credit for travelers in the burgeoning tourism industry. It also pioneered the unglamorous but lucrative and necessary business of foreign exchange, helping other banks to integrate their foreign and domestic business.
The Great Depression led the firm to a corporate marriage that would prove lasting and consequential.
The Great Depression led the firm to a corporate marriage that would prove lasting and consequential. In the fall of 1930, a group of nattily dressed young men chartered a railcar to take them to their 15th reunion at Yale. Among them was Prescott Bush, a tall, lanky man who had married the daughter of George Herbert Walker of St. Louis, the president of the banking firm founded by Averell Harriman, the son of one of the country’s wealthiest railroad magnates. Others were junior partners of Brown Brothers, then being led by the cousins Thatcher and James Brown, great-grandsons of Alexander.
These sophisticated young men were to the manor born, and as they played poker on the journey, they bet sums well beyond the daily wages of most Americans. But even they weren’t protected from the economic devastation of the Depression; outside the windows of their cosseted car, storms were brewing, and their two firms were suddenly vulnerable. They broached the idea of a merger, and after a few months of negotiations, the deal was made. Robert Abercrombie Lovett, a veteran of the select Yale Air Unit in World War I who had married into the Brown family and just become a partner at Brown Brothers, recalled that “Harriman had this little business and too much capital; Brown Brothers had too much business and little capital.”
They decided to link their names, creating Brown Brothers Harriman. In a storied building at 59 Wall Street, the new bank helped to create the modern wealth management industry and to craft the financial and security system that governs the world, albeit shakily, to this day.
Even before the war, the firms had experience in global finance. Brown Brothers owned a majority share of Nicaragua’s main railroad and its national bank, and its loans to the government of Nicaragua provided President William H. Taft with an excuse to send the Marines to occupy the country in 1912. Nicaragua would remain a vassal of the U.S. for much of the decade, leading The Nation magazine to dub the country the “Republic of Brown Brothers.” The Browns averred that they were only looking after their loans and the interests of their clients, and that Nicaragua was ultimately better for their investments. But for generations of Latin Americans, the bank represented the ugly legacy of U.S. imperialism.
World War II and the Cold War propelled the combined firm into the political stratosphere, as Harriman, Lovett and Bush each served in high government positions. Their partnership was a microcosm of the WASP elite that helped to make the “American century.” During the war, Harriman became “the plenipotentiary,” as the New Yorker magazine dubbed him, serving as President Franklin D. Roosevelt’s envoy to Churchill and Stalin. Later he became administrator of the Marshall Plan and governor of New York. As assistant secretary of state in the Kennedy administration, he was responsible for East Asia policy, and thus for America’s descent into the Vietnam War.
Harriman’s ambition was clear, as was his unquestioned acceptance of his inherited fortune, but his career was shaped by the belief that elites had a responsibility to work for the public good. As he told one interviewer, “It is indefensible for a man who has capital not to apply himself diligently to using it in a way that will be of most benefit to his country.”
It was Robert Lovett who perhaps best epitomized this elite commitment to public service, as starkly embodied in the motto of his prep school, Groton: “to reign is to serve.” At the end of 1940, a year before the U.S. entered the war, he declared his readiness to serve, writing to Secretary of War Henry Stimson, “I want to help in any way I can, as soon as I can.” Appointed assistant secretary of war, he became the chief architect of the modern U.S. Air Force. When Japan surrendered in 1945, Lovett contentedly returned to Brown Brothers, where he planned to remain.
Then one early morning in 1947, as he was about to drive from his house on Long Island to his office on Wall Street, his wife Adele answered the phone and said “Bob, Washington is calling.” Lovett picked up, and the voice on the other end said, “This is the president.” Lovett snapped, “Now listen, this isn’t at all funny. I’m in the middle of breakfast and trying to get the early train to New York, and for God’s sake this is no time for jokes.” The voice said, “No, this really is the president.” President Harry Truman summoned Lovett to be Secretary of State George Marshall’s number two, and at the urging of his partners, he said yes.
Over the next four years, Lovett and Harriman were part of a small circle of leaders who confronted the postwar vacuum of global power and led the U.S. into a Cold War with the Soviet Union. They also engineered the replacement of the British pound with the dollar as the standard means of exchange, established the General Agreement on Tariffs and Trade—the precursor to the WTO—and restructured the federal government, creating the Pentagon, the CIA and the other pillars of today’s national security state.
Then there was Prescott Bush, a two-term Republican senator from Connecticut who became the father and grandfather of presidents. A genial bipartisan backbencher who golfed regularly with President Dwight Eisenhower, he reviled the excesses of Sen. Joe McCarthy. Harriman, Lovett and Bush were founding members of the Establishment—a small network of elite men who attended the same schools, worked for a few interlocking firms and moved into the corridors of power.
In the 1960s, American culture turned decisively against the Establishment. Brown Brothers came to be seen as emblematic of a cosseted class of wealthy men who enriched themselves while plunging the U.S. into a morass in Vietnam. By the 1980s, however, the pendulum had begun to swing the other way. After years of stagflation, in 1982 stocks began to climb and interest rates to fall. Wall Street was lionized in popular culture. Brown Brothers Harriman, controlled by a few dozen partners, received almost no attention as flashier firms like Lehman Brothers and Morgan Stanley went public, and Drexel Burnham Lambert and its junk bonds went ballistic.
But Brown Brothers was doing more and more business for large banks like Citibank, Lloyd’s of London and HSBC, handling stock trades in multiple markets and currencies. It had so much business, in fact, that in the mid-1980s, the partners decided it was too much. They informed their larger clients that they would have to find someone else to handle the volume. Reflecting on the decision, one Brown Brothers partner remarked to me, “You know, we didn’t do what a firm like Goldman [Sachs] might have. We didn’t ask ourselves what size we should be to meet the business. We asked what business we should take to match our size.”
Such restraint and respect for limits have become increasingly rare on a Wall Street characterized by the relentless push for more profits. It is also an example of why Brown Brothers has persisted for more than 200 years. Living long is not a virtue in and of itself, but living well is. Unlike its rivals, Brown Brothers never went public or became too big to fail. Its refusal, starting with Alexander Brown, to pursue expansion at all costs meant that, in contrast to a firm like Lehman Brothers, it never endangered the entire financial system.
As we plunge into the post-Covid future, the lessons of Brown Brothers’ history have never been more urgent: how to tame the power of money so that it builds up rather than tears down; how to ensure that those who have benefited greatly from American capitalism serve and contribute in return; above all, how the U.S. might once again play a global role that helps to increase prosperity and security for all. For more than 200 years, Brown Brothers has grappled with those questions; now we all have to do the same.