by Ron Chernow
Hamilton waited to reply until March 14. In all likelihood he wanted to be able to inform Duer that Wolcott’s instructions had been sent before he could recall them. In his note to Duer, Hamilton did nothing to impede the threatened lawsuit and refused to compromise his official integrity. In a spirit of friendship, he told Duer that he was “affected beyond measure” by his plight and had “experienced all the bitterness of soul on your account which a warm attachment can inspire.” At the same time, he delivered this stern judgment: “Act with fortitude and honor. If you cannot reasonably hope for a favorable extrication, do not plunge deeper. Have the courage to make a full stop. Take all the care you can in the first place of institutions of public utility and in the next of all fair creditors.”76 The letter again refutes the caricature of Hamilton as a stooge for the monied interests. Meanwhile, Jefferson grumbled to his son-in-law that “the credit and fate of the nation seem to hang on the desperate throws and plunges of gambling scoundrels.”77
Instead of bailing out Duer, Hamilton had the Treasury purchase large amounts of government securities in the marketplace. By doing so, he steadied the market and also bought back public debt at bargain prices. The money came from the sinking fund he had set up to redeem public debt. Sensitive to perceptions, Hamilton told William Seton to purchase the bonds piecemeal at the securities auctions held twice daily at the Merchant’s Coffee House and “to keep up men’s spirits by appearing often, though not much at one time.”78 He also wanted Seton to conceal the buyer’s identity, allowing rumors to magnify the effect: “It will be very probably conjectured that you appear for the public. And the conjecture may be left to have its course but without confession.”79 Instinctively, Hamilton understood the creative ambiguity necessary for a central banker coping with a crisis. As was the case the previous summer, Hamilton had no training or tutors, yet he reacted with the sangfroid of an experienced central banker. He restored temporary calm to the marketplace, though milder gyrations continued through the fall.
The travail of William Duer was a public drama that transfixed New Yorkers for days. There were constant meetings at Duer’s mansion to try to rescue him from creditors. “This poor man is in a state of almost complete insanity,” Troup told Hamilton, “and his situation is a source of inexpressible grief to all his friends.”80 Duer portrayed himself as an innocent lamb, gored by his pitiless creditors. In an agitated, sometimes incoherent mood, he took refuge at Baron von Steuben’s, where he vainly awaited a reprieve from Hamilton. With an invincible capacity for self-delusion, Duer assured one friend, “I am now secure from my enemies and feeling the purity of my heart I defy the world.”81 The day after he made this brave declaration, he was packed off to debtors’ prison. Before long, Alexander Macomb failed and was also imprisoned.
By this point, Duer may have welcomed prison as a refuge from vengeful mobs howling that they wanted to disembowel him. Their animosity was so great that it was feared they might storm the jail and lynch him. On the night of April 18, hundreds of aggrieved creditors and investors ringed the jail and hurled stones at it. One newspaper wrote of the “frequent shouts and menaces” they uttered and said that many were “crying aloud, We will have Mr. D[ue]r, he has gotten our money”— words that “must have terrified the prisoner exceedingly and made him suppose that the vengeance of the injured citizens was immediately coming upon him.”82 Duer still expected to be freed by Hamilton’s miraculous intervention. In fact, the treasury secretary had already decided to make an example of Duer, informing a friend, “There should be a line of separation between honest men and knaves, between respectable stockholders and dealers in the funds and mere unprincipled gamblers. Public infamy must restrain what the laws cannot.”83 Hamilton’s letters to William Seton during these weeks mingle sadness and horror as he contemplated the plight of those destroyed by the panic.
Hamilton’s critics gloated over these events as vindicating their critique of his system. For the slaveholding south, this was irrefutable proof of northern depravity. Jefferson inveighed against the “criminality of this paper system” and said people would now return to “plain unsophisticated common sense.”84 With a touch of schadenfreude, he computed that the five million dollars squandered by speculators equaled the combined value of all New York real estate. Madison observed with satisfaction, “The gambling system...is beginning to exhibit its explosions. D[uer]... the prince of the tribe of speculators has just become a victim of his enterprises.”85 Hamilton was appalled to learn of Madison’s allegation that his purchases of government securities to steady the market had been made at high prices to benefit speculators. This complete misconception of his virtuoso performance was hard for Hamilton to stomach, and he told a Virginia friend it “left no doubt in anyone’s mind that Mr. Madison was actuated by personal and political animosity.”86
That Hamilton did not exaggerate the vindictive mood of Madison and the southern congressmen is confirmed in a letter Abigail Adams wrote about the panic to her sister: “The southern members are determined if possible to ruin the Secretary of the Treasury, destroy all his well-built systems, [and] if possible give a fatal stab to the funding system.” Her husband, the vice president, had managed to “harmonize” the Senate, but this did not stem the regional rancor. “I firmly believe, if I live ten years longer, I shall see a division of the southern and northern states unless more candour and less intrigue, of which I have no hopes, should prevail,” she wrote.87
William Duer’s downfall exposed the magnitude of the securities market that Hamilton had opened up. It also showed how easily the market for government bonds could be rigged by swindlers planting false rumors and exploiting the auction system for stock trades. To provide more orderly markets, two dozen brokers gathered on May 17 under the shade of a buttonwood tree at 68 Wall Street and drew up rules to govern securities trading. This historic Buttonwood Agreement set a minimum for brokers’ commissions and laid the foundations for what became the New York Stock Exchange. It attested to the extraordinary, if sometimes combustible, vigor of the capital markets that Hamilton had singlehandedly brought into being.
A year later, trading in government bonds grew so brisk that the Buttonwood group adjourned to an upstairs room of the new Tontine Coffee House, a threestory brick structure at Wall and Water Streets, right near Hamilton’s New York home. Its first president was Archibald Gracie, whose East River mansion was to house New York mayors. Local wits christened the Tontine Coffee House “Scrip Castle” in honor of Hamilton’s bank scrip, which had triggered expanded share trading. Henceforth, Wall Street would signal much more than a short, narrow lane in lower Manhattan. It would symbolize an industry, a sector of the economy, a state of mind, and it became synonymous with American finance itself.
On July 4, 1792, a full-length portrait of Hamilton, painted by John Trumbull on the commission of New York’s grateful merchants, went up in City Hall. Lest he seem self-aggrandizing, Hamilton consented to the project with one caveat: that the painting “appear unconnected with any incident of my political life.”88 Trumbull painted Hamilton frequently—two original portraits and fifteen replicas—and captured him here in his prime, with only the slightest shadow of a double chin. The treasury secretary gazes off into the distance with visionary confidence. Very refined, he stands by his desk in a pale suit, his body slim and shapely, one bare hand poised on his desk, the other elegantly gloved and holding a second glove; his black cloak is draped over a nearby chair. In tribute to Hamilton’s literary powers, a pen is dipped in an inkwell. With his face illuminated by a good-natured smile, he radiates a quiet, buoyant energy and seems ready for many more triumphs.
The 1792 financial panic came on the heels of the two great projects by which Hamilton hoped to excite the public with the shimmering prospects for American manufacturing: the Society for Establishing Useful Manufactures and submission of his Report on Manufactures. The outlook for both was badly damaged by the panic. Even a short list of the worst offenders in the
share mania—William Duer, Alexander Macomb, New York broker John Dewhurst, Royal Flint—included so many SEUM directors that it almost sounded like a company venture. Duer’s notoriety was especially detrimental since he had been SEUM governor, its largest shareholder, and its chief salesman in hawking securities. When Hamilton dispatched his friend Nicholas Low to sound out Duer in prison, the unyielding financier refused to resign as SEUM governor or account for the whereabouts of society funds. People who had pledged to purchase shares retreated in droves as the society’s good name was muddied.
The remaining SEUM directors rummaged through its books to assess the damage and were dismayed to learn that Duer had emptied the society’s bank accounts for his own use. “I trust they are not diverted,” Hamilton had warned Duer in a letter. “The public interest and my reputation are deeply concerned in this matter.”89 When the panic had hit, Duer had had ten thousand dollars of society funds in his possession, and that money now simply vanished. It turned out he had taken a liberal fifty-thousand-dollar loan from the SEUM treasury (though much of this was recouped when shares he pledged as collateral were sold), and another fifty thousand to buy textile machinery had gone to John Dewhurst, who had absconded with the funds to Pennsylvania. When the society board held its quarterly meeting in New Brunswick, New Jersey, that April, the New York directors were so distracted by the mayhem that not a single one showed up. Deputy Governor Archibald Mercer appealed to Hamilton to “assist us in our operations as far as [it is] in your power.”90
To revive the board’s spirits, Hamilton promised to try to arrange loans for the society and suggested it hire needed workmen from Europe. What quickly became apparent was that the board was rife with financiers who were abysmally ignorant of industrial matters. “For my part, I confess myself perfectly ignorant of every duty relating to the manufacturing business,” Mercer admitted to Hamilton while begging him to attend a special society meeting in mid-May. Intent upon salvaging the enterprise, Hamilton stole several days from his Treasury schedule to confer with the board.
How exactly would the SEUM, its coffers cleaned out by Duer, pay for its property on the Passaic River? Hamilton privately approached William Seton at the Bank of New York and arranged a five-thousand-dollar loan at a reduced 5 percent interest rate. He cited high-minded reasons, including the public interest and the advantage to New York City of having a manufacturing town across the Hudson, but more than the public interest was at stake: “To you, my dear Sir, I will not scruple to say in confidence that the Bank of New York shall suffer no diminution of its pecuniary faculties from any accommodations it may afford to the Society in question. I feel my reputation concerned in its welfare.”91 The SEUM’s collapse, Hamilton knew, could jeopardize his own career. In promising Seton that he would see to it as treasury secretary that the Bank of New York was fully compensated for any financial sacrifice entailed by the SEUM loan, Hamilton mingled too freely his public and private roles.
For several days in early July 1792, Hamilton huddled with the society directors to hammer out a new program. “Perseverance in almost any plan is better than fickleness and fluctuation,” he was to lecture one superintendent, with what could almost have been his personal motto.92 Rewarding his efforts, the society approved wide-ranging operations: a cotton mill, a textile printing plant, a spinning and weaving operation, and housing for fifty workers on quarter-acre plots. Never timid about his own expertise, Hamilton pinpointed the precise spot for the factory at the foot of the waterfalls that had so impressed him with their strength and beauty during the Revolutionary War.
It was an index of the hope generated by Hamilton that the SEUM, at his suggestion, hired Pierre Charles L’Enfant, the architect who had just laid out plans for the new federal city on the Potomac River, to supervise construction of the society’s buildings and plan the futuristic town of Paterson. At the same time, it was an index of Hamilton’s persistent anxiety that he dipped into managerial minutiae befitting a factory foreman rather than an overworked treasury secretary. For instance, he instructed the directors to draw up an inventory of tools possessed by each worker and stated that, if any were broken, the parts should be returned and “a report made to the storekeeper and noted in some proper column.”93 With his reputation at stake, Hamilton even subsidized the venture with his own limited funds, advancing $1,800 to the mechanics. Despite the Duer fiasco, the SEUM commenced operations in spinning, weaving, and calico printing.
The subsequent society records make for pretty dismal reading, as Hamilton was beset by unending troubles. L’Enfant was the wrong man for the job. Instead of trying to conserve money for the cash-strapped society, he contrived extravagant plans for a seven-mile-long stone aqueduct to carry water. He was enthralled by the idea of creating a grand industrial city on the pattern of the nascent Washington, D.C., with long radiating avenues, rather than with building a simple factory. By early 1794, L’Enfant shucked the project and spirited off the blueprints into the bargain. To find qualified textile workers, the society sent scouts to Scotland and paid for the laborers’ passage to America. Even the managers clamored for better pay, and SEUM minutes show that some disgruntled artisans personally hired by Hamilton began to sabotage the operation by stealing machinery. One of the saddest parts of the story relates to the employment of children. Whatever hopeful vision Hamilton may have had of children performing useful labor and being educated simultaneously, they had neither the time nor the money to attend school. To remedy the problem, the board hired a schoolmaster to instruct the factory children on Sundays—which, as Hamilton must have known, was scarcely a satisfactory solution.
By early 1796, with Hamilton still on the board, the society abandoned its final lines of business, discontinued work at the factory, and put the cotton mill up for sale. Hamilton’s fertile dream left behind only a set of derelict buildings by the river. At first, it looked as if the venture had completely backfired. During the next two years, not a single manufacturing society received a charter in the United States. Hamilton’s faith in textile manufacturing in Paterson was eventually vindicated in the early 1800s as a “raceway” system of canals powered textile mills and other forms of manufacturing, still visible today in the Great Falls Historic District. The city that Hamilton helped to found did achieve fame for extensive manufacturing operations, including foundries, textile mills, silk mills, locomotive factories, and the Colt Gun works. Hamilton had chosen the wrong sponsors at the wrong time. In recruiting Duer and L’Enfant, he had exercised poor judgment. He was launching too many initiatives, crowded too close together, as if he wanted to remake the entire country in a flash.
The SEUM’s problems after the 1792 panic also occurred at a moment when Hamilton’s political fortunes were starting to change. His never-ending reports and innovations were rattling the country. As one Jeffersonian writer said after Duer’s comeuppance, Hamilton had “talked to them so much of imports... funds... banks...and...manufactures that they are considered as the cardinal virtues of the Union. Hence liberty, independence ...have been struck out from the American vocabulary and the hieroglyphs of money inserted in their stead.”94 In September 1792, Elisha Boudinot—a Newark lawyer and brother of Elias—told Hamilton of rising political protests against the SEUM and warned that “a strong party” was forming in Philadelphia “against the Secretary of the Treasury.” He reported that one unidentified Virginian was “very violent on the subject” and was trying to see what could be done “with regard to displacing” him.95 For many Americans, the sheer profusion of Hamilton programs added up to a picture of America’s future that frightened them.
The financial turmoil on Wall Street and the William Duer debacle pointed up a glaring defect in Hamilton’s political theory: the rich could put their own interests above the national interest. He had always betrayed a special, though never reflexive or uncritical, solicitude for merchants as the potential backbone of the republic. He once wrote, “That valuable class of citizens forms too important
an organ of the general weal not to claim every practicable and reasonable exemption and indulgence.”96 He hoped businessmen would have a broader awareness and embrace the common good. But he was so often worried about abuses committed against the rich that he sometimes minimized the skulduggery that might be committed by the rich. The saga of William Duer exposed a distinct limitation in Hamilton’s political vision.
And what ever became of William Duer? After the 1792 panic, he lingered in prison for seven years—the remainder of his life. Until the end, he sent Hamilton heartrending notes, pleading for trifling loans of ten or fifteen dollars, which Hamilton granted. During one yellow-fever epidemic, Hamilton arranged for Duer to be transferred to another wing of the prison to protect him from the disease. Duer did not seem to blame his old friend for his imprisonment, and Hamilton seemed forgiving toward the man who had all but wrecked his manufacturing society and very nearly his reputation. Right before Duer died in 1799, he wrote movingly to Hamilton, “My affection for yourself and my sensibility for whatever interested your happiness has been ever sincere and I have felt with pain any appearance of your withdrawing from me.”97
TWENTY
CORRUPT SQUADRONS
Despite financial panics and the setbacks of his manufacturing society, Alexander Hamilton’s touch still seemed golden, his step nimble, and his position impregnable in Washington’s administration. He was brimming
with bold ideas and enacting them with singular panache. It petrified Jefferson and Madison that the one man in America willing and able to lead the country in precisely the wrong direction was Washington’s right-hand man, who seemed to be virtually running the country.
As early as May 1791 Madison and Jefferson had begun to organize opposition to the treasury secretary’s triumphal march. After Hamilton’s success with the Bank of the United States, the two Virginians embarked on what seemed a harmless “botanizing tour” that led them through New York City, up the Hudson River to Lake George, then down through western New England—the heartland of Hamilton’s support. As Jefferson observed, it was “from New England chiefly that these champions for a King, Lord, and Commons come.”1 Even though the two men registered copious notes about trees and floral specimens and pulled speckled trout from lakes, their activities thinly camouflaged a more serious agenda. As American politics split along regional lines, Jefferson knew that the south had to make northern inroads to stop the Hamiltonian juggernaut. “There is a vast mass of discontent gathered in the South and how and when it will break God knows,” Jefferson told Robert R. Livingston on the eve of the trip.2