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Confronting DeclineThe Political Economy of Deindustrialization in Twentieth-Century New England$

David Koistinen

Print publication date: 2013

Print ISBN-13: 9780813049076

Published to Florida Scholarship Online: May 2014

DOI: 10.5744/florida/9780813049076.001.0001

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Small Business Financing in Mid-Twentieth-Century New England

Small Business Financing in Mid-Twentieth-Century New England

Chapter:
(p.139) Chapter 5 Small Business Financing in Mid-Twentieth-Century New England
Source:
Confronting Decline
Author(s):

David Koistinen

Publisher:
University Press of Florida
DOI:10.5744/florida/9780813049076.003.0006

Abstract and Keywords

For the most part, efforts to spur the growth of new industries in New England to replace sectors in decline had limited impact. In one domain, however, the push for economic development achieved significant results. This was an attempt during the 1930s and 40s to improve the financing of new and small companies in the region. The insufficiency of financing for small business was an important concern of corporate leaders throughout the United States during the first part of the twentieth century. New England’s need for added employment gave the small business finance question particular urgency there. To make more money available to small firms, New England businessmen conducted studies on the sources of financing, established some of the country’s first venture capital organizations, and pressed local commercial banks to provide more small business loans. Small New England companies obtained significant additional financing as a result of these endeavors.

Keywords:   small business finance, venture capital, commercial banks, small business lending

A campaign for economic development was one of the principal responses to the demise of textiles and other established industries in New England. Regional leaders encouraged the expansion of existing industries and the emergence of new ones, thereby seeking to create jobs to replace those lost in declining sectors. Business elites initially headed New England’s drive for growth. The private sector’s development push began in the mid-1920s with the formation of the New England Council and continued steadily in the years thereafter.

In seeking to stimulate growth in New England, development advocates engaged in a wide range of activities. Most of the development possibilities that were pursued had little impact. In one domain, however, the push for growth achieved significant results. This was an attempt to improve the financing available to the region’s new and small companies. Efforts to improve small business financing in New England started in the 1920s, shifted into high gear in the late 1930s, and continued during the 1940s.

The shortage of finance for small business was an important concern of the American corporate sector as a whole in the early twentieth century. Private-sector initiatives to address the problem were mounted throughout the country beginning in the 1920s. A desire to legitimate capitalism and prevent the long-term stagnation of the national economy motivated most of those working on the issue. The need for added employment in New England gave the small business finance question greater urgency there. To make more money available to small firms, New England businessmen conducted studies on the sources of financing, established some of the country’s first venture capital organizations, and pressed local commercial banks to provide additional small business loans. Small New England companies obtained significant new financing as a result of these efforts. The increased availability of small business finance contributed in important ways to the area’s subsequent economic growth.

(p.140) The Nationwide Shortfall in Financing for Small Businesses

Beginning in the 1920s, small companies throughout the United States confronted significant difficulties in obtaining adequate finance. Established firms with a record of profits and a sound credit history could generally raise needed funds from banks and the securities markets. Smaller companies, by contrast, faced obstacles in attracting both equity and debt financing. The problems were particularly grave for small firms that had been established recently or that sought to expand. The trouble on the equity side stemmed from a shortage of what was known as venture capital—funds that would take an ownership stake in risky but potentially very profitable enterprises. On the debt side, difficulties arose because commercial banks and other lenders were reluctant to provide sufficient credit to smaller borrowers, who were perceived as unduly risky. Lenders were particularly wary of giving small firms longer-term loans that could be used to pay for equipment or the expense of developing new products.

The shortfall of finance for small companies generated considerable concern in national business circles in the 1920s and would become much more worrying, and highly controversial, in the years that followed. Attempts to alleviate the problem produced a range of experimental initiatives that laid the groundwork for the modern venture capital industry—a key innovation in twentieth-century capitalism.

The shortage of finance for American small business was a byproduct of the country’s economic modernization and first became apparent in the years after World War I. Before that time, long-established, usually local arrangements seem to have provided a sufficient flow of funds to small companies. One veteran of the New England machine tool industry recalled that before World War I numerous firms had been set up by “young men with energy and ideals who received the backing of local capital in amounts ranging from a few tens to a few hundreds of thousands of dollars.” The establishment in the 1920s of Massachusetts chemical company Dewey and Almy exemplified the traditional routes of small business finance that were in decline during this period. According to one of those involved, to raise startup equity the company’s backers “practically passed the hat around among 20 people and asked for $5,000 or $10,000 apiece and got it.” The investment banks scattered across the country were an important avenue for securing this kind of financial backing. The institutions often raised funds for promising local entrepreneurs or gave references to people who could provide the needed money. In some places, banks and chambers of commerce maintained lists of wealthy (p.141) individuals willing to invest in local industry. Commercial banks themselves were a significant source of support, providing de facto long-term finance to trusted customers by repeatedly rolling over ostensibly short-term loans.1

In the 1920s, structural changes in the financial markets constricted the traditional flow of venture capital to small companies. Securities listed on the stock exchanges saw enormous growth in popularity during this period. Rather than investing money in small local businesses, wealthy individuals increasingly purchased listed stocks. Listed securities were highly liquid and, since only well-established firms were listed, seemingly more secure. In addition, a great deal of money flowed into the newly developed investment trusts (mutual funds), which avoided the riskier small stocks. These developments reshaped the investment banking industry. As informal local markets for the securities of small firms dried up, influence shifted to the more established investment banks in the big cities that concentrated on large issues.2

The increasing scarcity of finance for small firms caused alarm in financial circles during the 1920s. The era saw at least one instance of voluntary private action to address the problem. Under the leadership of Brice Disque, a financier and sometime progressive reformer, forty Wall Street veterans in 1928 put $25,000 each into a special loan fund. Known as the $1,000,000 Small Issues Corporation, the fund aimed to serve small companies that wanted to expand their operations but could not obtain the necessary financial backing. The timing for the venture could not have been worse. All of the small companies to which loans were extended went under in the Depression, and the forty backers of the experimental corporation lost their entire investment.3

The shortage of finance for small companies worsened during the Depression years. In the face of sizable loan losses and stiffer regulation, commercial banks became stricter about granting loans to smaller business borrowers. Studies in the mid-1930s found banks in Chicago pressing small firms to pay off outstanding long-term loans and institutions in Connecticut demanding extensive collateral before lending to even the most reliable small business customers. In the meantime the flow of equity capital to new businesses dropped off even further. The scars of the stock market crash and the higher federal taxes to be paid on the eventual profits led wealthy individuals to shun risky equities, while investment banks avoided small issues.4

Squeezed for finance, and facing strong competitive pressure from corporate America, small business mobilized in the 1930s. Groups such as the Conference of Small Business Organizations and the National Federation of Independent Business, and locally the Smaller Businessmen’s Association of (p.142) New England, lobbied for strong federal assistance to small business. Their program included rigorous anti-trust enforcement, protection from large corporate competitors, and financial and technical assistance. The small business insurgents had a high-profile spokesman in future Commerce Secretary Henry Wallace and a number of other key allies. These included Brandeisian liberals who feared corporate domination of the economy, interventionist liberals who favored government intervention to revive growth, and developmentalists from the South and West who believed that northeastern monopolists were retarding the expansion of their regions. The battle of small business against corporate America lasted through World War II and well into the 1950s and featured seemingly endless congressional investigations of the difficulties confronting smaller companies. While corporate domination of the economy was never seriously challenged, small business advocates achieved some institutional successes. These included the establishment of a Small Business Advisory Committee to the U.S. Department of Commerce during the New Deal; the formation of the Smaller War Plants Corporation to steer World War II contracts to small firms; and the creation of an Office of Small Business, later the Small Business Administration, in the commerce department.5

Federal financial assistance to small firms was an important component of the small business agenda. Government had taken on an important role in private-sector financing during the Depression through the activities of the Reconstruction Finance Corporation and the regional Federal Reserve Banks, which used their authority under section 13(b) of the Federal Reserve Act to make industrial loans. Small business advocates repeatedly proposed that the government financing function be expanded and targeted to smaller companies. In 1939 Senator James Mead of New York introduced one bill providing for public insurance of small business loans and a second that would set up a small business lending arm within the Federal Reserve System. Versions of the loan guarantee and loan provision ideas were reintroduced in Congress toward the end of World War II. Securities and Exchange Commission staffer Rudolph Weissman proposed to go even further. In a 1945 book that attracted widespread attention, Weissman called for the establishment of a government venture capital system that would invest public funds in the equity of small companies.6

Proposals for an expanded, permanent government role in financing private business horrified conservatives already reeling before the scale of New Deal intervention in the free market. “Nationalize [banking and finance],” (p.143) one business leader warned, and “you have pretty nearly reached that last long mile down the road to a complete socialist economy.”7 Ideological hostility was compounded by financiers’ fears that government agencies providing loans and investment capital would compete with their own private institutions. To preempt government intervention and help revitalize an economy dogged by depression, business leaders urged the financial industry to provide better funding to small business. New England industrialist James Hook told an audience of bankers in 1938 that to avoid “further government control and disbursement of the nation’s credit,” banks had to provide increased support for entrepreneurial activity. When “groups and individuals feel the urge to borrow money for constructive long pull ventures into the future,” Hook stated, “proper facilities to aid them must be at hand.”8

Pressured by small business and facing federal encroachment, the financial industry took a number of steps in the late 1930s and 1940s to increase the flow of money to small firms. To deflect charges that commercial banks were not doing enough for their smaller borrowers, a commission of the American Bankers Association recommended that banks establish regional credit pools that would make loans to small and medium-sized businesses that had been refused funds by individual lenders. Twenty-three banks in New York City participated in the first pool, pledging $100 million in small business credit. Bankers’ groups in Connecticut, Massachusetts, and other states quickly followed suit.9 Life insurance companies also moved to include smaller firms in their business lending programs.10

More dramatic steps took place regarding the provision of equity for small business, as the country’s first venture capital funds were established. These organizations had the sole aim of investing in new and small companies. The venture capital firms had expert staff members who sifted through myriad solicitations, selecting a promising few in which to invest. As important as the capital provided was the management advice venture capitalists gave to managers of the companies in which they took positions. Many investments were expected to fail, but it was anticipated that a few would turn out so successfully that the entire endeavor would realize a profit. Numerous venture capitalists preferred to invest in technically innovative products and processes, though others favored more conventional businesses. The first venture capital organizations appeared before World War II and included the Shaw-Isham Company, founded in Chicago in 1936, and Enterprise Associates, established in Boston in 1939. Other funds were set up during a flurry of activity in the initial postwar years.11

(p.144) The money for most early venture capital organizations came from wealthy individuals and families with a sense of social responsibility. Some of the best known operations set up in the postwar years include J. H. Whitney and Company and Payson and Trask, founded in New York by siblings of the Whitney family; a fund established by the Rockefeller brothers, also in New York; and a Pittsburgh organization set up by the Mellon family.12 There were also attempts to channel monies managed by insurance companies and investment trusts into the venture capital field. A group of Chicago businessmen tried to set up such a fund in the late 1930s, and the American Research and Development Corporation was established along these lines in Boston after the war.13

Two other types of organizations established during this period pursued different routes for bringing new products to market. One set of companies carried out laboratory development work on promising but unexploited ideas. If a viable product resulted, it was licensed to an existing manufacturer. The National Research Corporation, which moved into this field after opening in Boston in 1940, was an early example of this kind of operation. Others were the Hodges Research and Development Corporation, set up in San Francisco in 1947, and the Rand Development Corporation, established in Cleveland in 1948 by an heir to the Remington-Rand fortune.14 Another type of organization acted as a referral service and broker, seeking to bring together inventors with ideas for new products and industrial firms seeking diversification, which could do the manufacturing. The New Products Research Corporation was active in this field in Boston in 1946, as was the National Foundation for Science and Industry in Chicago.15

Of the three kinds of organizations working to aid small business and boost innovation, the venture capital firms would eventually prove the most successful. But it was not apparent at the time that this would be the outcome. Moreover, the activities of the three types of organizations occasionally intertwined, confirming that they were pursuing different means to similar ends. Thus the venture capitalist Whitney family invested in Hodges Research and Development, a development laboratory, and American Research and Development in 1953 set up a broker arm to bring proposals it found promising but did not wish to invest in to the attention of interested manufacturers.16

Many of the small business promotion organizations of the 1930s and 1940s were based in areas (such as New York, Chicago, and Detroit) that had experienced prosperous conditions until the Depression hit. These promotional groups were founded to advance national aims, such as preserving and legitimizing capitalism and assuring future national growth. In regions facing underdevelopment or structural economic decline, revitalizing the (p.145) local economy was an additional—or even the primary—motivation. Spurring development in the troubled Pittsburgh region was one aim of the Mellon family’s venture capital body. The three small business organizations set up in the San Francisco area were doubtless linked to northern California’s development drive.17 And the need to foster new industry in New England helped spur the formation by 1946 of no fewer than seven Boston organizations promoting the growth of small firms. Table 5.1 lists the small-business development entities set up in Boston during this era.

Table 5.1. Venture Capital and Other Business Promotion Organizations Established in Boston, 1939–1946

Organization

Year Created

Activity

New England Council (NEC) Role in Organization?

Enterprise Associates

1939

Venture capital

No. Although revitalizing the regional economy was an avowed goal of some of those involved.

New England Industrial Development Corporation

1940

Venture capital

Yes. Founded on the initiative of Lincoln Filene, chair of the NEC Research Committee, to aid the growth of small local manufacturers, which the committee had identified as essential to regional development.

New England Industrial Research Foundation

1942

Advise venture capitalists and others considering investment in the region

Yes. Set up at the recommendation of the NEC New Products Committee.

Venture Research Company

by 1942

Locate and investigate opportunities for venture capital investment by Venture Research clients

Some indirect role. Several leading NEC figures became involved in the organization’s work.

New Products Research Corporation

1942

Match inventors with manufacturers seeking new products to fabricate

Unknown.

New Enterprises, Inc. (reorganization of prewar Enterprise Associates)

1946

Venture capital

No. (But see Enterprise Associates above.)

American Research and Development Corporation

1946

Venture capital

Yes. Founded on the initiative of leading NEC member Ralph Flanders, who drew heavily on the findings of the NEC Committee on the Financing and Ownership of New England Business Enterprises.

Note: Table summarizes events described in chapters 4, 5, and 6.

(p.146) Initial Efforts to Improve Small Business Finance in New England

The New England businessmen spearheading the 1920s push for regional economic recovery looked into finance questions soon after their development campaign began. The first issue to arise in this connection was whether the area’s commercial banks provided sufficient support to local industrial companies. The New England Council Research Committee, headed by Lincoln Filene, assembled a group of bankers in 1926 to investigate the matter. An officer of the First National Bank of Boston, the largest lender in the region, chaired the bankers group, which included representatives from around New England. The lenders in turn hired consultants who conducted a national study of the services banks provided to their business customers. Investigators interviewed scores of bankers in New England and other regions.18

The consultants’ report documented a wide range of activities undertaken by banks to assist their industrial customers. One institution maintained a corps of engineers and accountants to advise borrowers. Others helped customers install modern budgeting, bookkeeping, and marketing systems. Enlightened self-interest lay at the root of these advisory activities, concluded the consultants conducting the study. The banks providing extensive services to industrial borrowers sought rapid expansion. By aiding the growth of customers and the local community, the lending institutions aimed to increase their own volume of business.19 The study’s authors found that New England banks were, on average, as supportive of local manufacturing as institutions elsewhere. The report noted a wide variation in the level of promotional activity from bank to bank, both within New England and in other regions. In an introduction to the study, Filene’s Research Committee stated hopefully that if New England institutions could do “a better job for industry than banks in any other section of the country, then no one would have much cause to fear for New England’s industrial future.”20

Soon after the study was complete, Filene and some of his collaborators launched an early initiative in venture capital. In their investigations of regional industry, members of the Research Committee had concluded that small manufacturers would play an essential role in the future development of the New England economy. Working with a group of financiers, committee members sought to identify steps that could be taken to aid the small firms. A leading recommendation was to establish a public interest industrial development company that would stimulate private investment in small manufacturers. Filene and some of his fellow investigators set about organizing (p.147) such a corporation. They were apparently ready to start operations under the name New England Industries, Inc., when the 1929 stock market crash abruptly foreclosed the possibility of increasing equity investment in any kind of company.21

The possibilities for improving the flow of finance to New England small business were limited during the worst years of the Depression. As the economy recovered in the mid-1930s, proposals for accomplishing this goal again circulated. At a 1936 meeting of the New England Council (NEC) one speaker called for the creation of a $5 million industrial development corporation to foster new manufacturing in the region. The same year, the NEC’s Industrial Development Committee investigated methods of financing new industry and examined the difficulties small firms faced in securing equity and longterm loans. As the 1930s ended, the NEC’s New Products Committee again examined the venture capital question. Committee members considered setting up their own equity fund but concluded that recent developments made this step unnecessary. Following years of discussion and frustrated plans, two venture capital organizations began operating in the region at this time.22

One of the new groups represented the revival of a venture capital project first contemplated in the late 1920s. As economic conditions improved in 1939, Lincoln Filene and his colleagues dusted off their decade-old plan for an organization that would provide investment capital and management advice to small New England manufacturers. The principals spent a year circulating proposals, publishing treatises on the need for venture capital, and consulting with regional leaders including NEC officer Ralph Flanders, MIT president Karl Compton, and Oscar Hausserman, attorney and former president of the Boston Chamber of Commerce. The organization finally opened its doors in Boston in late 1940, eventually taking the name New England Industrial Development Corporation (NEIDC). Filene and several other individuals provided startup funds, on the assumption that the corporation would eventually become self-supporting. William Stoddard, Filene’s assistant, acted as the body’s president. Sitting on the board of directors in 1943 were Henry B. Cabot, a wealthy lawyer and descendant of one of Boston’s most esteemed families, and a number of attorneys and industrialists. The corporation’s large advisory committee included Powell Cabot, head of the public Massachusetts Development and Industrial Commission, officers of several of the smaller Boston commercial banks, and a number of other attorneys. The NEIDC directed its aid to small manufacturers in routine lines of business; as a matter of policy, the corporation (p.148) would not support “patented devices in their embryonic or experimental stages.”23

Another group of financiers, businessmen, and technical experts set up a separate venture capital organization in Boston in 1939 under the name Enterprise Associates.

Aiding the regional economy was very likely the goal of Enterprise Associates, as was true of the NEIDC.24 The prime mover behind Enterprise Associates was William A. Coolidge, member of an old Boston business family and relative of the recent U.S. president. Coolidge epitomized the wealthy, well-connected, idiosyncratic individuals who pioneered in venture capital. Coolidge graduated from Harvard College and worked at the Boston investment banking firm Jackson and Curtis before deciding to pursue an interest in law. He attended Harvard Law School and joined the old-line Boston firm of Ropes and Gray. A friend later described Coolidge as being full of novel ideas, never wanting to work in a mold, and possessed of a sense of noblesse oblige. About twenty other individuals participated in Enterprise Associates, among them investment bankers Charles F. Adams Jr., and Henry I. Harriman; William Rand, an executive with the Monsanto chemical company; and Daniel Comstock, co-inventor of technicolor and owner of a Boston commercial laboratory. Each contributed to the group’s pool of investment money and stood to gain from the eventual profits. Comstock’s associate Stanley Livingstone helped with the organization’s staff work, and Georges Doriot, professor and assistant dean at the Harvard Business School, advised on investments.25

Enterprise Associates had a technological orientation, seeking “research developments and inventions which show good promise of industrial importance.” This contrasted with the NEIDC’s focus on assisting small firms in established industries. Enterprise Associates must have announced publicly its formation, because hundreds of investment proposals had been received by 1940. The group apparently acted on only one, putting $50,000 into a firm set up by MIT graduate Richard Morse to pursue the possibilities of manufacturing in a high vacuum environment. In the research-intensive economy of World War II, Morse’s National Research Corporation (NRC) proved an enormous success. NRC made notable advances in the production of penicillin and realized a major breakthrough by vacuum-coating glass to prevent glare, which facilitated the manufacture of bombsights. The firm also devised a vacuum technique to produce frozen orange juice concentrate that was licensed to what later became the Minute Maid corporation. NRC was probably (p.149) the first overnight success story in the Boston area technology industry. In 1949, the company had 150 employees, enjoyed sales of $1.4 million, and occupied offices in a handsome building along the Charles River near MIT.26

After making one landmark investment, Enterprise Associates seems to have gone on hiatus during the war years. Staff member Stanley Livingstone apparently left the organization and by 1942 had set up a third vehicle to aid in financing new firms, known as the Venture Research Company. Little is known of this group, which was also headquartered in Boston. Sitting on the board of directors in 1942, in addition to Livingstone, were Frederick Roberts, an investment banker, and Thomas Nelson Perkins Jr., the son of an eminent lawyer. MIT president Compton assisted in launching Venture Research, and by 1945 former NEC president Ralph Flanders had “a finger” in its work.27

Although several venture capital organizations were set up in New England in 1939–42, area business leaders still worried that the new manufacturers who could help revive the local economy were not receiving sufficient financial support. Efforts to improve financing for small business in the region therefore continued during World War II, resulting in comprehensive studies of the problem and additional steps to rectify it.

Edward E. Chase provided the impetus for this activity. Chase was a highly successful businessman with a deep interest in politics and public policy. He was a pillar of the business and political establishment in his native Maine, yet acted, in his own words, as a “rebel, off and on.”28

Chase was born into a locally prominent family from the northern Maine coast. He graduated from the University of Maine in 1913, served in local government, then became a clerk for the Maine state legislature. In 1919 Chase joined a securities firm in Portland, Maine’s largest city. By 1926 he was the organization’s vice president. Two years later he opened his own business, the Maine Securities Company. The venture prospered. By the mid-1930s the firm regularly participated, along with leading Boston and New York investment houses, in stock and bond issues for the largest Maine companies. These deals would have brought Chase into contact with executives of the power, banking, and manufacturing firms that dominated the political and economic life of Maine. Chase retained a vital interest in politics and public affairs throughout his life. In 1926 he was elected (as a Republican) to the first of two terms in Maine’s House of Representatives. He was active in the securities industry’s trade associations, participated in the New England Council’s New Products Committee, and became president of the NEC in 1942. Chase was elected to several more terms in the Maine legislature beginning in 1946. (p.150) Although he held conventionally Republican views, Chase periodically defied the party leadership. He opposed the GOP’s 1924 gubernatorial nominee, who had Ku Klux Klan backing, and campaigned in 1932 to end state party support for Prohibition. In 1953 he antagonized Maine manufacturers by calling for higher state taxes on industrial firms. Chase long advocated local control of Maine resources. He bemoaned the era when outside investors controlled the state’s principal railway. Advertisements for his securities company proclaimed that the firm offered “facilities for intelligent employment of Maine capital in Maine enterprises.” With a background in finance and politics, dedication to local business, and a readiness to challenge the status quo, Chase was ideally suited to pressure New England financiers for better support of regional industry.

Chase, then president of the New England Council, reopened the question of small business finance with a panel discussion on venture capital at an NEC meeting in September 1943. Chase initiated the proceedings with an address calling for a “financial policy suited to New England” that would make possible a “sound and stable economy based primarily upon a strong industrial [sector].” Representatives from the various sectors of the New England financial industry were then asked to comment on what their institutions could do to increase the availability of finance to new and small firms in the region.29

Rather than generating useful ideas, the session underscored the extent of the problem. Speaking on what the region’s commercial banks could do to increase the supply of “permanent risk-capital,” Charles Spencer, president of the First National Bank of Boston, claimed that government regulations limited the ability of banks to make available such money, and that the mission of institutions like his own was to provide loans rather than investment capital. New England banks were meeting the credit needs of area businesses, Spencer continued—although long-term loans could only be granted to established companies. Chase then turned to the savings banks (akin to savings and loans), suggesting that since these institutions made long-term real estate loans and were permitted to hold certain kinds of stock, they could provide some aid to small manufacturers. The industry’s representative, an officer at a Boston savings bank, demurred. The desires of depositors were paramount, he stated, and since these individuals valued security above all, savings banks were unlikely to begin purchasing riskier corporate equities.

The session continued in this vein. The speaker for the insurance companies cited government regulations and the need for liquidity as reasons for (p.151) investing only in the stocks of large companies, and opined that in insuring the risks of small firms his industry was doing its part for small business in the region. The representative of the investment trusts conceded that firms in his sector generally invested only in the securities of large companies and asserted that this policy was unlikely to change. Major industrial corporations such as GE and AT&T might be a promising source of venture capital, he suggested. The speaker for the trust funds declared that although these institutions had sizable holdings of the stock of smaller New England manufacturers, government regulations definitely ruled out providing capital to new enterprises. In closing remarks, an exasperated Chase stated that the session had spotlighted the problem of “inhibited capital.” Several weeks later, he admonished those attending a convention of New England commercial bankers that the financial problems of New England required “something better than a ‘Someone Else Policy’ that does not identify the ‘Someone.’”

Under Chase’s guidance, the NEC then set out to identify additional sources of finance for small regional companies. Appointed for this purpose was a Committee on the Financing and Ownership of New England Business Enterprises. A Harvard Business School professor headed the thirty-member group, which had representatives from numerous banks and insurance companies, several prominent regional manufacturers, the AFL and CIO, and academia. Among the latter was the former dean of the Harvard Business School.30 As in other NEC endeavors, the committee initially focused on gathering authoritative information. Members mapped out an ambitious research agenda that included inquiries into the amount of New England capital available for investment each year; the extent of demand for new money at small firms in the region; and the laws, regulations, and other restrictions on investments in effect at different types of institutions. The panel’s research agenda also called for an examination of “long term credits” (essentially bank loans) to New England firms.31 The NEC committee investigated the availability of finance for New England small business throughout 1944. At the close of the year, Chase, whose term as New England Council president had ended, took over leadership of the panel. Incoming NEC president Frederick Blackall Jr. called for Chase to direct the work of the group, by this time known as the Committee on Ownership and Finance, away from research and toward convincing regional financiers to pony up more money for small business. “Unless we can convince the lenders of their own self-interest in making venture capital available, our researches will have been of little avail,” Blackall stated.32

(p.152) Efforts to persuade businessmen to do more to advance regional economic development were likely to receive a warm reception during the last years of World War II. As bad as New England conditions had been in the 1920s and 1930s, there were indications that things would worsen after the conflict ended. War mobilization had led to the construction of a vast amount of industrial plant, much of it federally financed, in the underdeveloped West and South. When this capacity was converted to peacetime use, New England manufacturers would face even stiffer competition from other parts of the country. Partisans of underdeveloped regions even floated proposals to “freeze” war plants in the northeastern industrial belt while privatizing those elsewhere, which would bolster these developmental effects. In addition, the demand for industrial growth outside the traditional centers crescendoed during the war years. In 1944 an official of the Federal Reserve Bank of Boston noted “everywhere & an eagerness on the part of different regions to move forward, to develop their local resources and to promote business expansion in their own communities.” Legitimation for this industrialization drive came from sources such as the widely read 1946 book The Revolt of the South and West, which attacked “the economic aggression by the Eastern corporate oligarchy” against the country’s less developed regions.33

With the competitive threat from other regions rising, New England saw a whirl of economic development activity during the war years. In Massachusetts, business and government leaders mounted a significant postwar reconversion planning effort, slated a major renovation of Boston’s crumbling port facilities, and proposed to set up a state Department of Commerce to guide future development efforts. An October 1945 letter from two leaders of the Boston financial community to Harvard Business School professor and Enterprise Associates advisor Georges Doriot, then working at the Pentagon, captured this energetic developmentalist spirit. Boston had become “a very ambitious city,” the letterwriters declared, noting “the great interest which all leaders in the city are now taking” in economic development.34

An important change in personnel occurred at a leading Boston financial institution while these events were taking place. In 1944, Ralph Flanders, past member of the New England Council’s New Products Committee and former president of the NEC, became president of the Federal Reserve Bank of Boston.

Ralph Flanders was a self-made man with significant accomplishments in a range of fields. Flanders was born in Vermont in 1880, the oldest child in a large, poor farm family. Completing high school at age fifteen and unable (p.153) to afford college, he entered the apprenticeship program of a machine tool firm. He excelled at machining, supplementing his skills with night and correspondence classes in mechanical drawing and engineering. By age thirty, Flanders had worked as a machinist, machine designer, and engineer; invented improvements in machining process; written extensively on machine design; and served as associate editor of Machinery magazine. In 1911 he married the daughter of the chief executive of Vermont’s Jones and Lamson Machine Company. He went to work for the firm, becoming its chief executive in 1933. During the 1920s Flanders was active in the machine tool industry’s trade associations. The onset of the Depression drew his interest to broader socioeconomic questions. He published books and lectured widely in the ensuing years, advocating measures to stabilize production levels and raise living standards for workers. Flanders’s devout Protestant faith, which emphasized social justice, bolstered his view that the capitalist system required significant reform. Flanders served on a number of federal panels during the New Deal, including the Department of Commerce’s Business Advisory Council and the National Recovery Administration’s Industrial Advisory Board. He was president of the New England Council in 1941–42 and held posts in the World War II economic mobilization apparatus. A moderate Republican, Flanders was appointed to an empty seat in the U.S. Senate in 1946. He won election to the position several times, serving in the Senate until 1958.35

Flanders was a dynamic individual committed to maintaining the social viability of capitalism. His background and interests made him well suited to address the small business finance question. In becoming president of the Federal Reserve Bank of Boston in 1944, he gained an ideal position from which to agitate for increasing the funds available to small companies.

Soon after taking charge of the Boston Fed, Flanders launched an inquiry into the contribution that the area’s commercial banks could make to regional development. He assembled two committees of bank officers to look into the issue. One group focused on ways of aiding New England agriculture. The other took up questions related to commercial lending that had been under examination by the NEC for some time. Means of financing new and small businesses received particular attention from the second committee. Flanders told the 1944 annual meeting of Boston Fed member banks that these efforts would “largely occupy the attention” of the Reserve Bank’s officers and directors in the coming year. At the following year’s meeting he reported progress on the agricultural issue. The committee looking at the vexed question of (p.154) commercial lending had achieved fewer concrete results, he stated, although this remained “a matter of continuous and active concern.”36

The NEC Committee on Ownership and Finance, which had worked throughout 1944 on small business financing questions, published two reports in 1945, as Flanders carried on his efforts at the Boston Fed. The NEC panel’s reports included numerous recommendations for increasing the flow of finance to small companies in New England. The committee described its goal as the development of a stable economy of diversified industries which were “firmly anchored” to the region and “fortified and reinforced by venture capital which will finance the constant creation of the new to replace the inevitable obsolescence of the old.” To realize these aims, committee members counseled steps in each of the financial sectors that had been represented at the 1943 NEC conference panel on venture capital.37 For commercial banks, the committee advised changes in regulations and practice to permit a greater flow of credit, especially longer-term loans, to small business. For savings banks, insurance companies, and trusts, panelists advocated measures that would allow institutions to lend to or invest in the securities of small companies. Committee members apparently saw great opportunity in the mon-ies controlled by investment trusts. Their report called for the NEC to hold a conference with leading regional organizations in that sector to discuss increasing purchases of the stocks of New England companies, especially smaller firms.

NEC leaders communicated the findings of the Committee on Ownership and Finance at a regional commercial bank conference in late 1945. Boston Fed president Flanders was on the program, and his address pressed the argument that area banks should do more to assist local industry. In doing so, Flanders presented the audience of bank officers with the unusual spectacle of a high official of the Federal Reserve System urging member institutions to make more risky loans. On certain types of loans to new and small businesses, Flanders asserted, the usual tools for assessing creditworthiness, such as company financial statements and credit history, did not apply. In these cases bankers had to rely on their personal judgment of an applicant’s “character and abilities.” For the good of the region, Flanders stated, all New England banks should make such loans: “there should be a reasonable percentage of these marginal cases in each bank portfolio if the bank is to be of the greatest service to its community.”38

Some New England financiers resisted the idea that they should provide greater assistance to area industry. Flanders’s proposals for increasing the (p.155) number of marginal loans attracted considerable heat from the audience of bank officers at the 1945 meeting. NEC President Frederick Blackall Jr. reported on the same occasion that some of the bankers who had read a draft of the since-published report of the NEC Committee on Ownership and Finance “almost resented” the group’s work for being “critical of & existing banking procedures.”39

On the other hand, leading figures in Massachusetts finance were by the end of World War II eager to support new business in the region. The two Boston financiers who wrote to Georges Doriot in October 1945 were obviously supportive of development efforts in the city. They described prominent figures at two of the city’s principal investment banks—Neal Rantoul, president of F. S. Mosely and Company, and James Minot, a senior partner at Paine, Webber, Jackson and Curtis and a veteran of the NEC New Products Committee—as “keenly aware and anxious to do everything possible for new enterprise in this locality.”40 Some in the financial world had probably always felt this way. The investment bank Jackson and Curtis, a predecessor of Minot’s firm, seems to have long been a center of pro-development sentiment. William Coolidge and Charles F. Adams Jr., two of the leading figures in the pioneering venture capital organization Enterprise Associates, both worked there. It does appear, however, that minds had been changed in financial circles by the repeated calls for greater support for small local business. At the 1943 NEC conference on venture capital, Charles Spencer, president of the First National Bank of Boston, had rebuffed the idea that his institution could do more for the area’s small firms. But in 1945, the writers of the letter to Doriot singled out Spencer as one of the individuals anxious to aid the growth of new enterprise in the Boston area.

Establishment of the American Research and Development Corporation

Following the publication in 1945 of the reports of the NEC’s Committee on Ownership and Finance, the drive by regional business leaders to improve the financing available to small local companies focused on creating a large new venture capital organization in the area. After a year of intensive work these efforts culminated in the establishment of the American Research and Development Corporation (ARD). The firm would emerge as a landmark institution in the nascent venture capital industry and a significant investor in New England technology enterprise. Due to a highly successful 1957 investment in (p.156) fledging computer maker Digital Equipment Corporation (DEC), ARD also became extremely profitable. The fund attained legendary status within the twin worlds of venture capital and the Boston-area technology industry, and the story of its establishment has repeatedly been told in print. Many of the previous accounts greatly underemphasize the regional concerns motivating the fund’s founders.41

The idea of setting up a large new venture capital fund was in the air amid the intense pro-development spirit flourishing in Boston toward the end of World War II. The initial report of the New England Council’s Committee on Ownership and Finance, issued in the first half of 1945, noted proposals circulating locally for a $5–10 million “investment fund of a promotional character.”42 In the summer of 1945, the issue caught the attention of Boston Fed president Flanders, later identified as the “prime mover” in the formation of ARD.43 Flanders secured copies of a report on venture capital that had been prepared by the national Federal Reserve System and set up a study group in the Boston Federal Reserve Bank to examine the matter further.44

Flanders, like the members of the Committee on Ownership and Finance, was impressed by the volume of investment money in New England controlled by fiduciaries—institutions that manage the funds of others. Key fiduciaries included insurance companies; trusts, which were pioneered in Boston in the nineteenth century; and investment trusts (mutual funds), a 1920s innovation of the region’s money managers. Studies conducted in the 1930s estimated that New England fiduciaries had $10–13 billion under supervision. None of this money was invested in small, innovative companies. As Edward Chase’s 1943 NEC panel on venture capital had shown, these funds were “inhibited”—restricted by habit and government regulation to conservative investments in well-established firms. Like Chase and others before, Boston Fed president Flanders saw in the accumulated money a means of achieving economic recovery. Flanders believed, according to a contemporary, that a regional turnaround could be accomplished by “bringing New England’s declining industry and its swollen institutional reserves together.”45 Flanders spoke publicly during the summer of 1945 on the possibilities for venture capital and consulted with local experts, such as Harvard College treasurer William Claflin and Donald David, dean of the Harvard Business School. David had recently discussed this topic with Merrill Griswold, president of a leading Boston investment trust and an authority on inhibited capital. Griswold had helped shape the Investment Company Act of 1940, which governed the investment trusts, and knew that a clause in the act permitted investment (p.157) trusts to put a small fraction of their holdings into funds providing venture capital to small business.46 David, Flanders, and Griswold met at the end of the summer and resolved to establish a “development capital company” that would invest the monies of fiduciaries in small New England businesses.47

As they pursued this effort during the remainder of 1945 and early 1946, the initial group of three drew on the advice and assistance of a widening circle of business and financial leaders. Participants in these consultations included NEC president Frederick Blackall Jr.; Bradley Dewey, president of the Boston-based Dewey and Almy Chemical Company and national director of wartime rubber production; MIT president Karl Compton; MIT treasurer Horace Ford; Ira Mosher of the Associated Industries of Massachusetts; and a number of investment bankers. Georges Doriot, Harvard Business School professor and advisor to the prewar venture capital group Enterprise Associates, and Paul Clark, president of John Hancock Mutual, the largest Massachusetts insurance company, were kept apprised of developments.48 The projected firm was to be organized as an investment company with initial funds raised through the sale of stock to fiduciaries and individual investors. Numerous regulatory obstacles had to be overcome before plans could be finalized, and securing the needed startup money also proved challenging.

On the regulatory side, modifications and exemptions from state and federal restrictions on investment companies were required before the firm could begin operation. Shady practices in the early days of the investment trust industry had led several states to bar the trusts from holding the securities of companies less than three years old. Such rules blocked the participation of entities such as Merrill Griswold’s Massachusetts Investors Trust in the proposed corporation. New England promoters pushed for easing of the state restrictions. To achieve that end, Flanders addressed a convention of state securities regulators in November 1945. Declaring that “American business, American employment, and the prosperity of the citizens of the country & cannot be indefinitely assured & unless there is a continuous birth of healthy infants in our business structure,” Flanders asked that the investment trusts be allowed to invest a small percentage of their holdings without restriction.49 The response was positive. The commissioners unanimously approving a resolution calling on states to amend their regulations in the desired manner. The New Englanders then contacted the state commissions with tough restrictions, sending endorsements of the sought-after changes from Flanders, dean David of the Harvard Business School, prominent scientist Vannevar Bush, and other notables. Regulators in Ohio, Minnesota, (p.158) and New Hampshire altered their rules as requested. Then word arrived that the highly conservative Wisconsin commission was preparing further restrictions on the holdings of investment trusts. Extended negotiations with bureaucrats at the Wisconsin commission ensued, including a trip to the state by Flanders, before a compromise was reached that allowed plans for the investment company to go forward.50

Regulatory obstacles also existed at the federal level. The organizers planned to establish the corporation under section 12(e) of the Investment Company Act of 1940. However, they proposed to contravene some technicalities of the law—for example, by having institutions other than investment trusts purchase stock in the company. Exemptions from the Securities and Exchange Commission (SEC) were necessary to proceed in this manner. Obtaining them did not prove difficult, as the Democratic presidential administrations of this era strongly backed efforts to improve financing for small business. Members of the SEC were “outspoken in their desire to cooperate in every possible way” at an April 1946 meeting with a delegation from Boston. The commission granted the necessary exemptions that summer.51

The organizers of the planned company worked to raise the necessary money, in addition to battling regulatory obstacles. It was decided that the corporation needed startup capital of $3 million. This amount would be raised by selling stock, with fiduciaries such as investment trusts and insurance companies taking at least half the total. Early in the process, Griswold’s Massachusetts Investors Trust agreed to put $500,000 into the corporation if other investment trusts participated. The John Hancock life insurance company likewise committed to investing a sizable sum, provided that other insurers followed suit. To find the needed additional investors, an intensive process of recruitment took place in the early months of 1946. Griswold arranged for Rupert Maclaurin, a business professor at MIT with expertise in the economics of technology, to give a talk on the need for venture capital to an “investment group” in Boston. Flanders, Compton, and Griswold hosted a luncheon to convince other New England insurers to join the John Hancock company in supporting the corporation. And Compton and MIT treasurer Horace Ford sought the approval of the MIT governing board for a purchase of stock in the new corporation by the institute’s endowment.52

These exertions were fully worthwhile, as raising sufficient capital proved to be a struggle. Of the six New England insurance companies other than John Hancock present at the investment luncheon, only State Mutual, a relatively small firm based outside Boston, agreed to put in money. Numerous (p.159) investment trusts declined to buy stock. Even the MIT governing board was wary of taking a stake in the new organization, despite the deep involvement in the project of the institute’s president and treasurer as well as several professors. After months of concerted salesmanship, a last-minute purchase of stock by a foundation controlled by Sears magnate Lessing Rosenwald was necessary to meet a self-imposed deadline for raising the $3 million in startup funds.53

Once the corporation, by this time known as American Research and Development, had secured sufficient funds, a single problem remained: the organization needed a president. Flanders had filled the position during the summer of 1946, but this was a stopgap. After months of consideration the search finally settled on Harvard Business School professor Doriot. David, Griswold, and Doriot confirmed this decision at a meeting in November 1946, putting the organization on a firm footing at last.54 Commenting on the experience several years later, Merrill Griswold opined that ARD had succeeded thanks only to the “the prodigious efforts and enthusiasm of a very limited number of individuals and institutional investors.”55

The saga of ARD’s founding—and contemporaneous attempts to convince New England commercial bankers to provide better support to small local business—point to the same conclusion. On one hand, leaders of business and finance are generally conservative. Many doubt that anything can be done to change existing realities and some oppose making the effort. On the other hand, there may exist a small group of highly motivated people who are convinced that action must be taken and are willing to go to extraordinary lengths to advance their agenda. Through creativity and persistence, the latter group as often as not achieves considerable success.

The financing made available to small New England companies in the years after World War II facilitated the growth of recently established electronics producers in the Boston area. How this occurred is described in the next chapter.

Notes:

(1) . Ralph Flanders address, Commercial and Financial Chronicle, November 29, 1945, 2608; U.S. Joint Committee, Volume and Stability of Private Investment, 465; Second Report of New England Council’s Special Committee, 12; Freeland & Warren, Report of a Study, 28–29. The latter study cited contemporary instances of bankers and chambers of commerce maintaining lists of local investors, a persistence of the traditional practice.

(2) . Paper by Philip W. Moore of Schroder, Rockefeller and Company, Commercial and Financial Chronicle, May 25, 1950, 2163; Second Report of New England Council’s Special Committee, 12–13; Lincoln and Therese Filene Foundation, Memorandum, 10–11. For a similar account of traditional venture capital markets and their decline in the 1920s see Reiner, “Transformation of Venture Capital,” 5–6, 10–13.

(4) . Lincoln and Therese Filene Foundation, Memorandum, 20; U.S. House, Select Committee, Study and Investigation, Part 1, 875–76; Reiner, “Transformation of Venture Capital,” 10–11, 13–15. For a comprehesive account of studies of the 1930s and 1940s on the difficulties of small business in obtaining finance, see Weissman, Small Business and Venture Capital, especially 34–52.

(5) . See Bean, Beyond the Broker State, and material in Records of the Industrial Research and Development Division, Office of Technical Services (hereafter cited as IRDD), box 64, and General Correspondence File, boxes 920–26, U.S. Department of Commerce Records (RG 40). On Western support for development and small business, see Nash, World War II and the West, especially 180–88.

(6) . Stoddard, “Small Business Wants Capital,” 265; “Report by Subcommittee of Committee on Legislation of Conference of Presidents of the Federal Reserve System on Financial Aid to Small Business,” June 11, 1945, Ralph Flanders Materials, Federal Reserve Bank of Boston (hereafter cited as RF-FRBB), “Venture Capital” folder; Weissman, Small Business and Venture Capital.

(7) . Frederick S. Blackall Jr. address, sixteenth New England Bank Management Conference (1946), 23.

(8) . Hook address, ninth New England Bank Management Conference (1938), 22. Similarly, William Stoddard, assistant to the liberal Lincoln Filene, described the Mead bills as “a sign, a portent, and a challenge to privately controlled capital: unless it does the job, social controlled capital will do the job” (Stoddard, “Small Business Wants Capital,” 265). The objectives of a Chicago organization set up during this period to promote industrial growth were described as including “Preservation of America’s Private Enterprise System” and “Cooperation for Full Production and Employment.” See the brochure in IRDD 61/“National Foundation for Science and Industry.”

(9) . Commercial and Financial Chronicle, March 29, 1945, 1406; New England War Bulletin, September 1944, 8; testimony of Lloyd Brace and Edward J. Stewart, in U.S. House, Select Committee, Study and Investigation, part 1, 826–32, 947–49.

(10) . Credit and Financial Management, November 1950, 11–13.

(11) . Joseph Powell, “Report on Trip to Ten Cities,” September 9, 1946, RF-FRBB, “American Research and Development Corp. 1946” folder.

(12) . Reiner, “Transformation of Venture Capital,” 135–61. The Bing Crosby Foundation set up in Los Angeles by the entertainer was another example of action by a wealthy individual. The Manufacturers Capital Corporation in New York, which was formally sponsored by the Lee, Higginson investment bank, was probably yet another. Both are mentioned in Powell, “Report on Trip.”

(13) . Unsigned, undated “Plan for the Formation of a Company to Encourage and Facilitate the Development of New Inventions, Products, Processes, and Industries,” Lee DuBridge Papers 121/8. Another notable early organization was the fund set up in Detroit to aid conventional small manufacturers by investment banker H. R. P. Lyttle. See Investment Dealers Digest clipping, August 26, 1946, American Research and Development Corporation Historical (p.278) Materials (hereafter cited as ARD Materials). In a separate but related field were several early leveraged buyout organizations set up in Chicago, such as the Atlas Corporation and the Chicago Corporation. See Reiner, “Transformation of Venture Capital,” 163–66.

(14) . On the latter two organizations, see San Francisco News, October 6, 1947, 18; Barron’s, March 29, 1954, 3.

(15) . NENL, May 1946, 6; brochure in IRDD 61/“National Foundation for Science and Industry.”

(16) . On the Whitneys and Hodges, see February 21, 1949 Barron’s clipping in ARD Materials. The Whitneys may have participated in the Hodges organization from its inception, as Whitney investment advisor Benno C. Schmidt was an original member of the Hodges board; see San Francisco News, October 6, 1947, 18.

(17) . For the Mellons, see Reiner, “Transformation of Venture Capital,” 158–59. In addition to Hodges, two venture capital firms were established in the San Francisco area immediately after World War II: the Industrial Capital Corporation, and Pacific Coast Enterprises, which at first apparently went by the name of Fisher & Heller. See Reiner, “Transformation of Venture Capital,” 205–16, and Powell, “Report on Trip.”

Developmental motives were probably also at work in the founding of the Stanford Research Institute, an important industrial research center set up at this time near San Francisco. Plans originally called for the center to be located in Los Angeles under the name Pacific Research Foundation, but the necessary funding could not be secured. The institute was then set up at Stanford University, with Bay Area businessmen providing most of the necessary support. See Judge and MacLean to Hutchison, February 6, 1947, and Hutchison to Bowers, February 21, 1947, IRDD 62/“Stanford Research Institute.”

New Deal veteran Thomas Corcoran had connections to venture capital and worked with the Pacific Industries Development Corporation, which was active by 1951. This may have been another early Bay Area promotional organization. Consult the relevant file, when it opens to researchers, in box 508, Thomas Corcoran Papers, Manuscript Division, Library of Congress.

(18) . Freeland & Warren, Report of a Study, especially 5–8, 12, 17, 18.

(22) . NENL, May 1936 supplement, 7–9; Lincoln and Therese Filene Foundation, Memorandum, 13–14, 17–18, and citation on 39; Cross to Flanders, October 16, 1940, and Cross to Compton, December 28, 1940, page 4, in MIT-OP 158/7; Compton address, June 24, 1941, MIT-OP 158/10.

(23) . U.S. Senate, Special Committee, Small Business Problems, 2–8; Flanders to Compton, December 18, 1939, RF-SU 57/“MIT 1939”; Cox to Haussermann, May 31, 1940, and Cross to Richmond, June 3, 1940, both in MIT-OP 158/5; Compton to Cross, October 14, 1940, MIT-OP 158/7.

(24) . Available evidence does not conclusively demonstrate that the organizers of Enterprise Associates sought to bolster regional development, but this was very likely the case. Several principals of Enterprise Associates tried to set up a similar organization in Rhode Island—an (p.279) area even harder hit by industrial downsizing than Massachusetts—and after World War II one leading participant publicly avowed his determination to create more New England jobs.

(25) . Compton to Cross, October 19, 1939, MIT-OP 158/3; Cross to Compton, July 10, 1940, memorandum re Enterprise Associates, July 15, 1940, and Livingstone to Cross, July 15, 1940—all in MIT-OP 158/5; Fortune, March 1950, 80; Charles F. Adams, Jr. interview, August 29, 1996.

(26) . Compton to Cross, October 19, 1939, MIT-OP 158/3; Russell Adams, Boston Money Tree, 277–78; Moody’s Manual (1950), 590; Industry, March 1946, 42. For another account of Enterprise Associates, see Ante, Creative Capital, 75–78.

(27) . Livingstone to Compton, January 20, 1942, MIT-OP 137/6; U.S. House, Select Committee on Small Business, Availability of Long-Term Credit, 38; Fortune, August 1945, 135.

(28) . This and the following paragraph are based on Minot, Theta of Delta Kappa Epsilon, 214; Hodgkins, Brief Biographies, Maine, 52; Biographical Sketches of the Members of the 96th Maine Legislature, 4; NYT, November 24, 1935, F1, and October 14, 1936, 42, and October 26, 1936, 27; NYT, December 21, 1937, 35, and October 16, 1940, 39; BG, 3 Aug. 1953, 2; Portland Press-Herald (Portland, Me.), August 5, 1948, 24 (Maine Securities Co. advertisement), and August 3, 1953, 1–2; “State House Report,” Biddeford Daily Journal (Biddeford, Me.), August 15, 1953, 8; Peters, Maine Central Railroad Company.

(29) . Transcripts of Chase’s speeches and the panel on venture capital appear in New England War Bulletin, October 1943 supplement, 1–10.

(30) . Charles C. Abbott, professor of business economics at the Harvard Business School, chaired the panel. For a list of committee members, see New England War Bulletin, January 1944, 9.

(31) . New England War Bulletin, February 1944, 6–7.

(32) . Blackall speech to New England Conference, November 16, 1944, page 4, in Frederick Steele Blackall Jr. Papers, “Vol. II—2/13/36–12/4/45.”

(33) . New England War Bulletin, October 1944; Proceedings of the Twentieth Annual Meeting of the Stockholders (1944), 9; Mezerik, Revolt of the South and West, xii.

(34) . New England War Bulletin, September 1942, 9; various items published by the Massachusetts Committee on Post-War Readjustment; February 21, 1945 memo, BCoC Case 79/7104; Boston Herald, September 29, 1944; Christian Science Monitor, November 28, 1945; Mass Dept Comm; Joseph Kennedy speech, in Proceedings of the Twenty-First Annual Meeting of the Stockholders (1945); Ralph Flanders speech, July 30, 1945, RF-SU 130/“What Can a Dept. of Commerce Do for Mass.”; Griswold and Hammond to Doriot, October 25, 1945, MIT-OP 103/4.

(35) . American National Biography, 8:87–88; Who Was Who in America, 5:237; Fortune, August 1945, 135–36, 264–72.

(36) . Proceedings of the Twentieth Annual Meeting of the Stockholders (1944), 17–18; Proceedings of the Twenty-First Annual Meeting of the Stockholders (1945), 17–18.

On the Boston Fed’s ambitious program to increase bank support of the area’s farmers, see United States Investor, August 11, 1945, 1473–78, and the Zehner presentation in Proceedings of the Twenty-First Annual Meeting of the Stockholders (1945).

(37) . First Report of New England Council’s Special Committee, 4.

(38) . Flanders address, fifteenth New England Bank Management Conference (1945), 26. Flanders (p.280) went on to discuss the possibility of encouraging more such lending through Federal Reserve guarantees of repayment.

(39) . Fifteenth New England Bank Management Conference (1945), 28–31.

(40) . Griswold and Hammond to Doriot, October 25, 1945, MIT-OP 103/4. The letter was discussed earlier.

(41) . For accounts that underemphasize regional concerns in the establishment of ARD, see Reiner, “Transformation of Venture Capital,” 166–78; Liles, Sustaining the Venture Capital Firm, 21–22, 24–38; Adams, Boston Money Tree, 279–81. These works did not draw on the range of sources used here. Etzkowitz, “Enterprises from Science,” properly credits the developmental motives of ARD’s founders but overstates the role of MIT officials in bringing ARD into existence. For a recent account that draws on some of the materials used here, see Ante, Creative Capital, 107–12.

(42) . First Report of New England Council’s Special Committee, 10.

(43) . “Report on the American Research and Development Corporation,” October 21, 1946, page 1, RF-SU 132/“Am. Res. & Dev. Corp. 1946.” The author of this detailed report is not identified, but the document states that in September 1946 he conducted a week-long “field inquiry” in Boston, including interviews with many of ARD’s principals.

(44) . Flanders to Sproul, June 30, 1945, RF-FRBB, “Venture Capital” folder.

(45) . “Report on the American Research and Development Corporation,” 3–4.

(46) . See Henriques, Fidelity’s World, 87–97, for an account of Griswold’s role in lobbying for the Investment Company Act of 1940 and other legislation of this era of crucial importance to the investment trust industry. The clause of the Investment Company Act, Section 12(e), had the backing of the investment trust industry, which was eager to ward off charges that its activities were depriving small firms of needed equity capital, and of the SEC, which in the Roosevelt years was an enthusiastic advocate of venture capital. See “Report on the American Research and Development Corporation,” 4, and the testimony of SEC official David Schenker excerpted in U.S. Joint Committee, Volume and Stability of Private Investment, 461–62. One of the few bright spots at the New England Council’s 1943 panel on venture capital was a suggestion by Griswold that 12(e) corporations be formed to channel money managed by fiduciaries to small business. As of 1945 no venture capital companies had been formed under 12(e). ARD was one of the few that ever was.

(47) . “Report on the American Research and Development Corporation,” 4; note clipped to Claflin to Flanders, August 27, 1945, RF-FRBB, “Venture Capital” folder.

(48) . American Research and Development Corporation: Registration Statement, 3.

(49) . In public statements on the aims of ARD, Flanders and others always emphasized national goals of bolstering innovation and expanding production and employment. But the “Report on the American Research and Development Corporation,” and the other initiatives on behalf of the region mounted at this time by Flanders, Griswold, and David demonstrate that their primary motive in organizing ARD was to support industrial recovery in New England. Twenty years later, ARD president Georges Doriot described the motivations of the organization’s founders in the following terms: “With textiles and other industry flowing out of New England after World War II, [Karl Compton, Merrill Griswold and Ralph Flanders] saw the (p.281) need for new investment in new technologies to compensate for the losses” (Electronic News clipping, November 8, 1965, ARD Materials).

(50) . Jackson to Flanders, April 26, 1946, RF-FRBB, “American Research and Development Corp. 1946” folder (folder hereafter cited as ARDC 1946); Flanders address to the National Association of Securities Commissioners, Commercial and Financial Chronicle, November 29, 1945, 2576; Griswold to Flanders, April 4, 1946, and Wisconsin-related correspondence, April 9–May 16, 1946, RF-FRBB, ARDC 1946.

(52) . Maclaurin to Flanders, February 15, 1946, RF-FRBB, “Venture Capital” folder; “Progress Report re. Proposed Development Capital Corporation,” January 26, 1946, and undated sheet of “Luncheon Acceptances,” Vannevar Bush Papers, 26/“Compton (1943–46)”; Griswold to Flanders, April 4, 1946, and Ford to Flanders, May 31, 1946, both in RF-FRBB, ARDC 1946; U.S. Joint Committee, Volume and Stability of Private Investment, 451–52.

(53) . Fortune, February 1949, 84; “Conservatives Join in Revitalizing Economy,” undated Finance clipping, ARD Materials. On MIT, see Ford to Flanders, May 31, 1946, RF-FRBB, ARDC 1946; on Rosenwald, see Reiner, “Transformation of Venture Capital,” 176. Institutional investors in ARD are listed in American Research and Development Corporation, Annual Report, 1949. Of the $3.2 million in paid-up shares outstanding soon after the company began operations, investment trusts held $1.2 million, insurance companies $300,000 (undoubtedly almost all from John Hancock), educational institutions $225,000, and individuals $1.5 million.

(54) . On possible chief executives for the corporation and Doriot’s eventual selection, see Compton-Doriot correspondence, April 24, May 8, and May 10, 1946, MIT-OP 74/6, and Powell to Flanders, November 8, 1946, RF-FRBB, ARDC 1946.