The Capitalist Culture That Built America
By Zachary Karabell, 5/14/21, Wall St. Journal

At the dawn of the 19th c., an Irish immigrant named Alexander
Brown arrived in Baltimore & set up shop as a linen merchant.
The firm that he founded would evolve into one of Americas
most important investment banks, Brown Brothers Harriman,
which is still in business today. Over more than 2 centuries,
as a unique form of capitalism turned the U.S. into the most
potent & 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 & trans-Atlantic steamship companies & almost
unilaterally created the first foreign exchange system
between the American dollar & the British pound. In the
20th c., it became a cornerstone of what came to be known as
€œthe Establishment,€� as its partners entered the halls of govt
to shape the global economic & security system that remains
the worlds institutional architecture.

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 & not a few vices. Brown Brothers helped
to unlock immense wealth & spurred the growth of American
creativity & power, but its partners too often equated the
public good with what was good for the firm.

Generations of Brown Bros partners became rich while
sustaining a culture of prudence & 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 int'l system that Brown
Brothers helped to establish after WWII unleashed decades of
widening prosperity in the West, but it also cemented the
wealth & power of a narrow elite.

For all the complications of its legacy, Brown Bros embodies
an ethos that still has much to recommend it, especially in
contrast to the form of finance capitalism that emerged in
the 80s & 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, & that sometimes enough is enough.

Luck & contingency certainly played important roles in the
firms longevity, but its culture was its lifeblood. That
culture began with Alexander Brown, bespectacled & almost
scholarly in demeanor, whose letters two centuries ago to
his 4 sons€”the original Brown Bros€”have the pithiness of Ben
Franklins Poor Richard: €œDont deal with people about whose
character there is a question. It keeps your mind uneasy. It
is far better to lose the business.€� If €œthe risks are too
great,€� he advised, its best not to take them: €œYou 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 & Philly as an
economic hub, Alexander Brown championed a new technology:
an iron railroad with cars pulled by a steam engine. The
Baltimore & Ohio RR was inaugurated on July 4, 1828, with
the promise that it would transform the American landscape.
The project cost the equivalent of billions today, & it made
the family no real money, but the Browns knew that they
wouldnt prosper unless Baltimore did.

After Alexander Brown died in 1834, leaving an estate worth
close to $100 million in todays terms, his 2nd son James€”
ramrod straight, courteous to a fault€”made a bet on another
new form of transport, the trans-Atlantic steamer. In the
1850s, he & the roly-poly shipping magnate Edward Knight
Collins launched the Collins Line, with the fastest & 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 & sank in 1854. The
popular preacher Henry Ward Beecher used the disaster as an
occasion to attack the triumph of materialism, intoning that
God €œis striking thundering strokes at the wealth of the
whole community.€�

Never again did the firm wager speculative capital on a
newfangled venture. Brown Bros steered clear of the railroad
boom that began midcentury, which brought a few investors to
great heights & buried almost everyone else. The Browns
understood that finance could unleash growth & good times
but also cause crashes & usher in the bad. The firm remained
immensely profitable, but it carefully skirted the highest
highs & lowest lows of the last years of the 19th c.

In the decades before the Civil War, Brown Bros moved away
from the physical shipment of cotton & focused on financing
the industry, while the family became staunch supporters of
the Republican Party & 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 &
necessary business of foreign exchange, helping other banks
to integrate their foreign & domestic business.

The Great Depression led the firm to a corporate marriage
that would prove lasting & 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 countrys wealthiest railroad magnates. Others were
junior partners of Brown Brothers, then being led by the
cousins Thatcher & James Brown, great-grandsons of Alexander.

These sophisticated young men were to the manor born, & as
they played poker on the journey, they bet sums well beyond
the daily wages of most Americans. But even they werent
protected from the economic devastation of the Depression;
outside the windows of their cosseted car, storms were brewing,
& their two firms were suddenly vulnerable. They broached the
idea of a merger, & after a few months of negotiations, the
deal was made. Robert Abercrombie Lovett, a veteran of the
select Yale Air Unit in WWI who had married into the Brown
family & just become a partner at Brown Bros, recalled that
€œHarriman had this little business & too much capital; Brown
Bros had too much business & little capital.€�

They decided to link their names, creating Brown Brothers
Harriman. In a storied building at 59 Wall St, the new bank
helped to create the modern wealth management industry & to
craft the financial & 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 Nicaraguas
main railroad & its national bank, & its loans to the govt
of Nicaragua provided President 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 €œRepublic of
Brown Brothers.€� The Browns averred that they were only
looking after their loans & the interests of their clients,
& that Nicaragua was ultimately better for their investments.
But for generations of Latin Americans, the bank represented
the ugly legacy of U.S. imperialism.

WWII & the Cold War propelled the combined firm into the
political stratosphere, as Harriman, Lovett & Bush each
served in high govt positions. Their partnership was a
microcosm of the WASP elite that helped to make the €œAmerican
century.€� During the war, Harriman became €œthe plenipotentiary,€�
as the New Yorker magazine dubbed him, serving as President
Roosevelts envoy to Churchill & Stalin. Later he became
admin of the Marshall Plan & governor of New York. As
assistant secretary of state in the Kennedy admin, he was
responsible for East Asia policy, & thus for Americas descent
into the Vietnam War.

Harrimans 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, €œIt
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: €œto 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, €œI 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 & said €œBob, Washington
is calling.€� Lovett picked up, & the voice on the other end
said, €œThis is the president.€� Lovett snapped, €œNow listen,
this isnt at all funny. Im in the middle of breakfast &
trying to get the early train to New York, & for Gods sake
this is no time for jokes.€� The voice said, €œNo, this really
is the president.€� President Truman summoned Lovett to be
Secretary of State George Marshalls #2, & at the urging
of his partners, he said yes.

Over the next 4 years, Lovett & Harriman were part of a
small circle of leaders who confronted the postwar vacuum
of global power & 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 &
Trade€”the precursor to the WTO€”& restructured the federal
govt, creating the Pentagon, the CIA & the other pillars of
todays national security state.

Then there was Prescott Bush, a 2-term Republican senator
from Connecticut who became the father & grandfather of
presidents. A genial bipartisan backbencher who golfed
regularly with Pres. Eisenhower, he reviled the excesses of
Sen. Joe McCarthy. Harriman, Lovett & Bush were founding
members of the Establishment€”a small network of elite men
who attended the same schools, worked for a few interlocking
firms & moved into the corridors of power.

In the 60s, 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 80s,
however, the pendulum had begun to swing the other way. After
years of stagflation, in 1982 stocks began to climb & 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 & Morgan Stanley went public, & Drexel Burnham
Lambert and its junk bonds went ballistic.

But Brown Brothers was doing more & more business for large
banks like Citibank, Lloyds of London & HSBC, handling stock
trades in multiple markets & currencies. It had so much biz,
in fact, that in the mid-80s, the partners decided it was
too much. They informed their larger clients that they'd have
to find someone else to handle the volume. Reflecting on the
decision, one Brown Brothers partner remarked to me, €œYou
know, we didnt do what a firm like Goldman [Sachs] might
have. We didnt ask ourselves what size we should be to meet
the business. We asked what business we should take to match
our size.€�

Such restraint & 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 & 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 & contribute in
return; above all, how the U.S. might once again play a
global role that helps to increase prosperity & security for
all. For more than 200 years, Brown Brothers has grappled
with those questions; now we all have to do the same.

This essay is adapted from Karabells new book €œInside
Money: Brown Brothers Harriman & the American Way of
Power,€� which will be published on May 18 by Penguin Press.

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