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The History of Municipal Bonds

September 2, 2015 by · Leave a Comment 

By Samuel Phineas Upham

Throughout history, the practice of loaning money to governments has been integral to the development of society. Municipal bonds may not have had the structure they have today, but they pre-date most modern banking by several centuries.

Some of the earliest examples of what we recognize as municipal bonds come from REnaissence Italy, where city-states formed lending contracts with wealthy bankers in order to finance infrastructure and improvements.

One of the first recorded municipal bonds in United States history occurred in New York City in 1812. The bond was used to fund the construction of a canal. This practice grew during the 1840s as cities found themselves in debt and struggling to keep up with the increased need for better city infrastructure.

By the Civil War, bonds were funding everything from railroad construction to public education. However, bonds were over utilized. The Northern Pacific Railroad carried construction costs so high that the bonds issued reduced access to new capital and directly led to the collapse of a bank owned by the railroad conglomerate.

Just before World War II, pre-war bonds were extremely popular as tensions began to heighten. America devoted a great deal of its financial resources to the development of its military strength, but those totals fell when the US went to war. Even though production increased, spending on the part of cities basically came to a halt.

Bonds have since become a part of most people’s investment portfolios. It feels good to invest in one’s city, or the growth of another, and the revenue can be tax free.

Samuel Phineas Uphamis an investor from NYC and SF. You may contact Phin on his Samual Phineas Upham website or Facebook page.