Panic on Wall Street: A History of America's Financial Disasters

Panic on

Wall Street

Library of Congress Cataloging-in-Publication Data

Sobel, Robert, 1931 Feb. 19-

Panic on Wall Street: a history of America’s financial disasters / by Robert Sobel p. cm.

Originally published: New York : Macmillan, 1968.

Includes bibliographical references and index.

ISBN 1-893122-46-8

ISBN 978-1-5879813-4-0 (e-book)

1. Wall Street–History. 2. Financial crises–United States–History. 3. Depressions–History. I Title

HG4572 .S674 1999

338.5’42’0973–dc21

99-059480

Copyright 1968 by Robert Sobel

Reprinted 1999 by Beard Books, Washington, D.C.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, by any means, without the prior written consent of the publisher.

Printed in the United States of America

for Blanche and Phil

TURNING and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world,

The blood-dimmed tide is loosed, and everywhere

The ceremony of innocence is drowned;

The best lack all conviction, while the worst

Are full of passionate intensity.

WILLIAM BUTLER YEATS

CONTENTS

Introduction

1.William Duer and the Panic of 1792

2.The Crisis of Jacksonian Finances: 1837

3.The Western Blizzard of 1857

4.The Circus Comes to Town: 1865–69

5.Crisis of the Gilded Age: 1873

6.Grant’s Last Panic: 1884

7.Grover Cleveland and the Ordeal of 1893–95

8.The Struggle of the Titans: The Northern Pacific Corner of 1901

9.The Knickerbocker Trust Panic of 1907

10.The Year the Stock Market Closed: 1914

11.1929: The Making of the Myth

12.The Kennedy Slide: 1962

Conclusion

A Note on Sources

General Bibliography

Index

INTRODUCTION

Most Americans in their late twenties or early thirties have no recollection of the Great Depression, the last of its kind the nation has endured. Not only have today’s college students no memories of the depression, but they have learned about World War II from history books and tales of their parents and friends. These are two of the most important facts of contemporary American life: the nation has produced its first generation with no deep scars of economic or military disaster. To be sure, there were recessions in 1953–54 and 1957–58, but these cannot compare with the tragedies of the late 1830s and early 1840s, the period from 1873 to 1895, or the 1930s. Similarly, more Americans died in the taking of several island chains in World War II than in the Korean War or the Vietnam conflict. This is not to say that recessions and limited wars are a matter for indifference, but rather to place them in proper perspective.

Americans under the age of fifty do not remember the last financial panic clearly, and we are rapidly approaching the time when only Social Security recipients will be able to talk knowingly of what happened in the last part of 1929. It was a dramatic period, from which emerged few victors and a nation of losers. The mythology of the Great Crash has become an important part of America’s history, and the depression of the 1930s is considered second only to the Civil War in its impact on American society. There is a major difference in attitudes regarding the two events. Somehow it is possible to view wars as necessary, as semicrusades. Afterward, participants become nostalgic about the period of conflict, hold reunions, and brag of exploits. This is not the case with financial panics and depressions, which all agree bring little good to the nation. Several years ago America was reminded that the last surviving soldier of the Civil War had died; it is doubtful that we will be informed when the last broker or major speculator of the Great Crash breathes his last. Such people and events hardly seem dashing, courageous, or worthy of nostalgia. Yet, his death will be no less important an event than the demise of a drummer boy who entered the Union Army in the final days of the conflict.

In studying wars, we are always concerned with the problems of beginnings, those dramatic moments which seem to initiate the conflict. So it is that we remember the battles of Lexington and Concord, the shelling of Fort Sumter, and the attack on Pearl Harbor. Dozens of books deal with an obscure Austrian archduke whose only claim to fame is that his assassination sparked World War I. Historians realize that although accidents may well change the course of history, much of their impact comes from the setting off of a chain of events in the period that follows, and that no great change in human affairs takes place without some preparation in the social framework. Lexington and Concord capped more than a decade of antagonism between the colonies and the mother country. Friction between North and South did not begin with the shelling of Fort Sumter, or the election of Lincoln some months earlier. The origins of the Pearl Harbor attack can be found as far back as the turn of the century, and to understand it one must first study the Spanish-American and Russo-Japanese wars. Furthermore, these moments of crisis would be of only passing interest were they not followed by great upheavals.

So it is with the present study of financial panics. I have chosen twelve periods of Wall Street history, when the possibility of panic was foremost in the minds of many Americans. Not all were important; not all set off depressions; in fact, several were not panics in the truest sense of the term. Each has been chosen for different sets of reasons, and together they will illustrate the complexity of such moments, and our inability to make more than the vaguest generalizations about them as a group.

The specific panics were selected with care. For example, the chapters on 1914 and 1962 were included to illustrate aborted panics, the former through the wisdom of the New York Stock Exchange, the latter the result of basic strengths of the economy. On the other hand, I have not included chapters on the crises of 1785, 1808, 1819, 1825, 1847, 1860, 1878, 1889, 1903, 1920, 1937, and the few difficult moments preceding World War II and those following the war. There was a panic in 1898 when the battleship Maine was sunk. The market fell 16 percent during the next four weeks, but recovered the loss the following month. The market declined 25 percent in the twenty-six days after France’s collapse in 1940; it sank 7 percent on Eisenhower’s illness in 1955 and 4 percent when Kennedy was assassinated in 1963. None of these events are covered in the present work.

These twelve episodes in Wall Street history were chosen with four criteria in mind. In the first place, although not all were of major importance, each had a great impact on Americans of the time. Secondly, each may be used to illustrate several points I hope to make about the nature of panics. Next, all twelve were dramatic, and drama is present in most important events in history. We had economic disasters in 1819 and 1937, but in both instances this element was absent. The Kennedy slide of 1962 was dramatic; the Johnson erosion of 1966, though in most respects more severe, was not. Finally, I was drawn to each of the twelve panics as a result of what I believe has been neglect on the part of others. In some cases I have relied on familiar sources which needed reinterpretation; other chapters deal with men and happenings well known to contemporaries but half-forgotten due to a scarcity of historians interested in such matters. In about half the chapters I have found material which, for one reason or another, has led me to new interpretations of what in some cases are major, and in other, minor events and individuals.

Viewed as a whole, the book has no hero, villain, or victim, although J. P. Morgan was the hero of several panics and U. S. Grant was victimized in others. More accurately, one may say that Wall Street and the public have been, at once, heroes, victims, and villains of all the panics.

Financial panics are unusual phenomena; anyone who has lived through one never forgets it. On the other hand, such a person might find it difficult to differentiate between that panic and bad moments, which he would not label as panics. Is it the severity of the decline that makes for a panic? If so, why do we consider the Northern Pacific conflict of 1901 a panic and not the decline of 1966? Securities prices dropped further in the latter year than in the former, but although 1966 was uncomfortable on Wall Street, there was no panic.

Perhaps the severity of the crash is not as important as the length of time in which it occurs. We may say, keeping 1966 in mind, that short dips may be termed panics while long, regular declines are not. This leads to other problems, however, since the nation’s most destructive panics—such as those of 1837, 1873, and 1929—were long-lived, while the sharp collapses of 1869 and 1901 were not nearly as important.

For that matter, there is no universally accepted definition of a panic. Most economists agree that they occur after periods of crisis, but do not tell us how to differentiate them from other climaxes that conclude crises. Others say that a panic is really psychological in nature. William Graham Sumner wrote that it is a wave of emotion, apprehension, alarm. It is more or less irrational. It is superinduced upon a crisis, which is real and inevitable, but it exaggerates, conjures up possibilities, takes away courage and energy. Sumner concludes that while crises are real, panics are irrational. Should the economy be faced with a crisis, only prompt actions would serve to overcome difficulties. But since panics are psychological, they may be corrected only through the use of reason. A panic can be partly overcome by judicious reflection, by realization of the truth, and by measurement of facts.

Of course, Sumner did not live to see the 1929 panic, a time when no amount of reason would have been effective, if indeed a reasonable man could have gained an audience. One need only read the speeches and statements of President Hoover in late 1929 and early 1930 to see the impact of reason; each time the President spoke, the market seemed to slide another few points. Writing in 1867, John Stuart Mill said Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works. Reasonable men like Sumner and Mill would have been astonished by the prevalence of irrationality in the twentieth century, but it may be argued that had they known more of the panics of their own times, they might have been less sanguine about the use of reason. Indeed, some of the most reasonable presidents—Washington, Van Buren and Cleveland, as well as Hoover—were unable to cope with such events.

Is there a pattern to panics? Will we have another such crisis as that of 1929? How can we prevent panics? Such questions come to mind when reading about this subject. Clearly, the author has some reflections on them, which are best discussed in the conclusion, after the reader has traversed twelve of the most harrowing moments in American history. There is, however, one thought to keep in mind before turning to the study of William Duer and the first major panic on Wall Street. That is, far more time and effort have been spent on the study of war than on the study of panics. Do we know more about wars now than we did a century ago? Is there a pattern to wars? Will there be a World War III? How can we prevent wars? One may have ideas and thoughts about these questions, but the answers, unfortunately, have yet to be found.

Alexander Dana Noyes and Frederick Lewis Allen, two great financial historians now deceased, inspired this book, as they have many others in the field of stock market history. Mr. Peter Ritner of The Macmillan Company suggested the possibilities of such a work, and I am grateful for his assistance at every stage of its development. Mr. Ray Roberts of Macmillan was a most meticulous editor and went over the final manuscript with a magnifying glass tempered by a sense of humor. My wife put up with me during the writing of the book and was especially kind when I became depressed at the thought of all those moments of grief I was studying. Miss Elsie Reynolds of the Hofstra University Library spent a good part of many days in obtaining rare books and ordering many periodicals for my use. My students at New College may have grown tired of hearing tales of the various panics, but they were polite enough not to say so. Finally, several brokers told me of their recollections of the panics of 1914, 1929, and 1962, and one remembered the panic of 1907. They asked not to be quoted or mentioned, insisting only on a complimentary copy of this work in payment for their efforts. I hope they are pleased with the result.

1.

WILLIAM DUER AND THE PANIC OF 1792

The city of New York was covered with snow in early January of 1790, but the life of the municipality continued. Men and boys fished from the Hudson piers at Rector Street, and reported good catches of lobster and crab. Couples skated at the Collect Pond, located above Chambers Street, or took sleigh rides on Bowry Road past the Negro Burial Ground on Rivington Street. The city seemed clean and fresh compared to what would come a few decades later. Its population—33,131 in 1790—made it the largest city in the United States, but the municipal sanitation department, composed of thirty-five scavengers and a host of pigs who roamed the streets, did their jobs well.

At the close of Washington’s first administration, New York seemed to be a new city. There had been a fire in 1776, which destroyed all the houses between Broad and Whitehall Streets and along both sides of Broadway as far north as Rector Street. Cheap frame structures had been erected to take the place of the charred hulls, but by 1790 these had been replaced by neat brick homes. There were some five thousand dwellings in the city proper, and more than eight hundred houses were being built each year. The city moved north rapidly; some predicted that within two generations there would be homes on the treed meadows on Houston Street. Bunker Hill, off Broadway on Grand Street, was used for bull-baiting and other sports best indulged in away from the city; Mayor Richard Varick thought the area might have to be relocated when the population reached that point.

New York was a bustling port, passing Philadelphia in total tonnage by 1794. Boasting the finest harbor in America and fed by a satisfactory road system and the Hudson River, it was natural for New York to become the commercial center of the North. Skiffs from the upper Hudson would unload at Rector Street or at any of the many docks along Washington Street on the west side. The major land route was along Bowry Road. Drovers would stop at the Bull’s Head Tavern on Bayard Street for a last drink before entering the city proper, and then continue on to Chatham Street, which slanted across the island until it merged with Broadway. This was one of the busiest intersections of the city, with St. Paul’s Church on one side of the street, a theater and park on the other, and the almshouse, municipal jail, and city hospital within close range. Behind St. Paul’s on Church Street was a row of boardinghouses frequented by students of Columbia College.

The drovers would then continue down Broadway for seven blocks until they reached the Trinity Church, at Wall Street. Should they turn left, they could walk past the City Hall, rows of banks and mercantile establishments, and many taverns and inns. The Merchants’ Exchange and the Government House were below Wall Street, but this narrow lane was the center of the city in 1790.

Wall Street was also the seat of American government. Alexander Hamilton, the Secretary of the Treasury, resided at the corner of Wall and Water Streets, in a small house not far from the Coffee House Slip on the East River. The City Hall, renamed Federal Hall, was the temporary center of government. Washington’s original New York residence, Number 3 Cherry Street, was in Franklin Square, then a fashionable section not far from Wall Street. The city’s social elite were clustered in mansions around Bowling Green, but the men could usually be found at noontime two blocks farther north, on Wall Street.

The city’s inns were the location of much government business as the new administration established itself. But this was temporary, since all knew that Washington and his retinue would soon move to more permanent quarters in Philadelphia. When the government left New York in the summer of 1790, activities were barely slackened. The President departed by means of a barge moored on the Hudson, at McComb’s Wharf; as he bade farewell, other ships were being unloaded on the East River side of Manhattan.

The East River wharfs were quiet on Sundays, but busy at all other times. Shipments of coffee, chocolate, tea, molasses, sugar, nuts, fruits, candles, spices, indigo, cotton, and other American or foreign products were unloaded either for local use or, more often, transshipment. The inns on the east end of Wall Street hummed with activity, as bills of lading, merchants’ acceptances, notes, and checks were passed back and forth throughout the day and into the night. Small old coffeehouses were torn down to make room for larger ones. For a while, the Merchants’ Coffee-House was the center of activity, not only in mercantile bills but in the transfer of stocks and bonds as well. Early in 1792 some merchants decided to erect their own building, the Tontine Coffee-House, not far from Hamilton’s New York residence on Wall Street-Membership would be restricted to dealers and traders; in effect, the Tontine would be an American version of Lloyd’s of London. The Tontine would be used primarily for business transactions, but social activities would also be permitted. Many of the meetings called to discuss plans for the Tontine ended with a toast to the health of Secretary of the Treasury Hamilton, the hero of the New York business community and the city’s most prominent resident.

Hamilton was not the only New Yorker in a powerful position in the new government. Samuel Osgood, related by marriage to the powerful Livingston clan, was postmaster general, and John Jay was the first chief justice of the Supreme Court. Hamilton’s chief aide at the Treasury, the assistant secretary, was a man well known at the time but forgotten today. His name was William Duer.

Portraits of William Duer show a slight man with sharp features, a receding hairline, and the air of confidence so often present in the faces portrayed in paintings of the period. It is the face of a man who realized that he was important, having the elegance of one who had arrived.

In 1790 Duer was one of the social and economic arbiters of American society. It was Duer who found the house that Washington occupied in New York, and he also arranged terms for its lease. It was Duer who helped organize the ill-fated but spectacular Scioto Company, which planned massive speculations in western lands. He controlled the destinies of Parker & Duer, Duer & Parker, William Duer & Co., and other firms engaged in speculations in land, international trade, currency, stocks, and whatever else seemed to offer a rich return. More than any American, save Robert Morris, Duer was known in European banking circles as a master of finance. He was one of Hamilton’s closest friends, and had been mentioned with asperity in many of Jefferson’s and Madison’s letters. Duer was a former member of the Continental Congress and was married to socially promient Kitty Sterling (the daughter of Revolutionary General Lord Sterling).

An Englishman by birth, Duer joined the Revolutionary forces early in the war, abandoning his many commercial interests for the time being. In his capacity as deputy adjutant general for the New York militia, he secured stores for the troops when none seemed available. He became an intimate of the circle which surrounded George Washington, and was one of those who helped foil the Conway Cabal, which had been organized to depose the General. Later on, Duer entered into commercial dealings with the French and facilitated the shipment of foreign goods to the American army. After the war, he joined with Hamilton to work for a stronger union, and was one of those asked by Hamilton to contribute to the Federalist Papers when passage of the new Constitution by the New York Convention seemed in doubt. Duer wrote several articles in favor of the Constitution, and although he did not join with Hamilton, Madison, and Jay in the writing of the Federalist, he was given much credit for swaying votes in favor of the new government. It was only natural, then, that Duer be asked to take a high post in the government. At the time, it seemed that no position the nation could offer him would be beyond his ambition.

But more than anything else, William Duer was a speculator, a description he himself would not deny. However, the term meant something quite different in 1790 than it does today. At that stage of capitalist development, dealings in land, bills, or joint stock companies were considered legitimate enterprises for a gentleman. There were few banks and no blue chip bonds and stocks at the close of the eighteenth century, and so speculation was the only means by which a person of wealth might invest his surplus funds. Washington, Hamilton, Jefferson, Madison—almost all the founding fathers—were engaged in land ventures at one time or another in their careers, and this did not detract from their reputations for probity.

While accepting the situation, Jefferson and his circle drew a distinction between types of speculation. Investments in land, commerce, or joint stock companies were fine, they said, for such activities enable the community to increase its store of wealth, and so benefit all. These were not only acceptable, but participation in them was the duty of gentlemen who wished to aid in the nation’s development. On the other hand, speculation in securities was frowned upon by this group. If a man purchases a piece of paper representing ownership in an enterprise, after that enterprise has commenced activities, the paper benefits no one. Should the paper increase in value and then be sold for a profit, the speculator gains, but society does not. Should funds be drawn out of society for such activities, then useful enterprises would be stunted, and society would actually suffer. Thus, Jefferson would accept the land companies of the Virginia aristocracy but would condemn the paper speculations of men like William Duer.

Of course, Jefferson and his circle could do little to curb the paper speculations of the period. Ever since the first years of the Revolution, there were dealers in Continental currency, bonds, and other obligations of the new nation. The speculations increased during the Confederation period, as American obligations rose and fell rapidly on the performance of the new government. State obligations were also bought and sold, as were bonds and stocks of local corporations and banks. Should the new nation fail, these papers would be almost worthless; should it succeed, they would increase in value. What better avenue of speculation could there be? The European securities were relatively stable, and offered few opportunities for killings. Thus, foreign syndicates sent their money to the United States, and by the late 1780s, according to some sources, the American markets were dominated by European interests. Willinks & Stadinski of Amsterdam was one outlet for such funds. Étienne Clavière, a noted French banker, was another. The Société Gallo-Américaine of France was a third. And there were others, representing almost all the countries of Europe. Some bought and sold through their own nationals, who were sent to America for that purpose. Others used the talents of native speculators.

Andrew Craigie of Boston moved from that city to New York to engage in this business. After serving as apothecary general in the Continental Army, Craigie became interested in securities. In 1787 he visited London to make the proper contacts for investments. Craigie then returned to New York, where he met Daniel Parker and reestablished relations with his old friend William Duer. Shortly thereafter, Craigie began to funnel foreign funds into American securities, and most of the investments were handled by Parker & Duer.

The Philadelphia convention of the summer of 1787 added to the speculative activities. Should a strong new government be established, one of its first acts would have to be that of establishing national credit. This could be accomplished only by guaranteeing in one form or another the obligations of the Confederation. Prices of and activities in the Confederation’s obligations rose as the meetings continued, and they were followed with great care by the Europeans. They had always been aware of the great potential of the new nation; now it might be realized. There was land speculation, the China trade, and the possibilities of manufactures. The wheat trade alone offered tremendous profits, not to mention tobacco and possibly cotton. Most important, however, were public securities. If purchased and sold at the right times, they could offer great rewards with few risks. Inside information was needed for this. Accordingly, Van Staphorts & Hubbard of Amsterdam joined with Willinks & Stadinski and Clavière in sending Brissot de Warville to America to gain such information. Find a good situation, wrote Clavière. Study it, and if at first view it looks romantic, find the means of saving it from that objection; converse upon it with intelligent persons; find such as are sufficiently attached to great objects, to be willing to concur in them with zeal, when they are designed for the aid and consolation of humanity.

Brissot arrived in America early in 1788, as the new Constitution was making the rounds of the states. In gathering information for his syndicate, he met William Duer, and they soon became fast friends. Duer led Brissot into several land and trade speculations, and as the new government took shape, they began to discuss securities as well. Brissot was convinced that Duer was the best man to aid the group in its American dealings, a conviction that was fortified when his friend gained a major post at the Treasury. In writing of Duer, Brissot was ecstatic. It is difficult to unite to a great facility in calculation, more extensive views and a quicker penetration into the most complicated projects. To these qualities he joins goodness of heart; and it is to his obliging character, and his zeal, that I owe much valuable information on the finances of this country, which I shall communicate hereafter. In October 1788, Brissot suggested that his group and Duer’s might enter into an agreement regarding investments in America, working for closer ties between their nations—and speculation. In effect, Brissot and Clavière of France would form a combine for land and securities speculations with Duer and Craigie of the United States. There was no doubt as to who would dominate the combine: Clavière, Brissot, and Craigie were each to receive one fifth of the profiits, while Duer was to receive two fifths for himself. Brissot left America on December 4, pleased with his work and confident that the combine was in good hands.

The Americans had every reason to exude optimism. They realized that the new government would take action on the public debt, and that they would be in positions to receive privileged information. Craigie made no attempt to hide his confidence. Duer was a rising star in the Federalist camp, and seemed certain to gain high office in the government, from which he would obtain government secrets. After all, wrote Craigie, the main reason he had purchased shares in the Scioto Company was to gain Duer’s friendship and confidence. Now everything seemed to be falling into place. The public debt affords the best field in the world for speculation, he wrote, but it is a field in which strangers may easily be lost. I know of no way of making safe speculations but by being associated with people who from their official situation know all present and can aid future arrangements either for or against the funds.

French and Dutch funds continued to flow to America—much of it through Duer and Craigie—during 1789. News of Washington’s inauguration on April 30 was greated by the speculators as a sign of stability, which would result in a rise in prices. On September 2, the act establishing the Treasury Department was passed, and shortly thereafter Hamilton—the friend of business—was named Secretary of the Treasury. Within a few days Duer accepted the post of Assistant Secretary, assuring inside information for the combine. Duer did not make his business dealings secret; Hamilton and others knew of them and did not require him to relinquish outside affairs. Letters of the period indicate clearly that Duer was not above speculating on his privileged information and for his own good. Duer would make his purchases and then let news stories leak to the public, so as to cause a rise in price. Noah Webster, writing to a Dutch friend, described the growth of speculation in America. There was news, he indicated, that the public debt would soon be funded; this is the outdoor talk of Colonel Duer, the Vice-Secretary. Nor was the combine unaware of this. Theophile Cazenove, an ally of the Clavière group, made ready to come to America to aid in the dealings. Brissot wrote of this to Duer, and after congratulating him on his appointment, asked the Assistant Secretary to make Cazenove at home in New York. I am sure, knowing your obliging temper you’ll give him good information about his speculations; and I’ll be much obliged to you to do it and to introduce him to your acquaintances.

Meanwhile, debates on funding measures began. Hamilton was intent on establishing the national credit by calling in old obligations of the Confederation and exchanging them for new issues. With Washington’s prestige and support, Hamilton was able to gain passage of the Funding Act of 1790, which provided for the issuance of federal bonds in exchange for Confederation and Continental debts. The Act authorized the issuance of three types of securities: 6 percent bonds that bore interest from date of issue; 6 percent bonds that would not pay interest for the first ten years; and 3 percent bonds. A similar arrangement was made for the assumption of state debts after Hamilton and Jefferson came to an understanding on the issue. By the end of 1790, the new government had a domestic debt of $62,650,000, largely as a result of these measures.

Hamilton’s next program involved the establishment of a Bank of the United States, which would, in effect, guarantee the public credit. The bank bill was passed, through the intercession of Washington and despite Jefferson’s opposition, in February, 1791. The BUS (as the bank came to be called) was capitalized at $10 million (25,000 shares of $400 par value), of which the government was to subscribe one fifth. The other sales were to be made to the public, with the limitation that no subscription could be for more than 1,000 shares. Payment was to be made through submission of 25 percent of the price in gold and the rest in 6 percent government bonds.

In order to pay for its share of stock, the government floated a new bond issue overseas. The issue was handled by Hope & Co. of Amsterdam, and in the next six years, this firm would take more than $7 million in federal bonds. Some of the government’s subscription payment was met through a loan from the Bank of North America, a private bank which had been chartered in 1781 and which opened its doors the following year.

Hamilton’s financial program gave new confidence to both American and European speculators. Bonds, stocks, and other obligations were still low; they were bound to rise when the Hamiltonian measures were put into operation. Naturally, the soon-to-be-issued stock in the BUS was the center of activity early in 1791. Daniel Crommelin & Co. of Amsterdam sent over $1 million to its American correspondent, Watson & Greenleaf, to be used in speculations. Daniel Parker established sales outlets in London to better distribute American securities in Britain. Cazenove arrived in New York and immediately plunged into the securities markets. The credit of the United States government itself was placed behind speculations. Believing that United States obligations were selling at too low a price, and eager to have such bills at par with their foreign counterparts, Hamilton began buying bonds as early as September 1790, and he continued such purchases into 1791. Treasury purchases were limited to the 6 percents, the deferred 6 percents, and the 3 percents; speculators were interested in all three issues, but also in stocks of private banks, the when issued stock of the BUS and, by early 1791, almost any American obligation that showed promise of a rise.

The sustained bull market led to the development of new forms. Speculators would borrow stock from its holders, paying a fixed amount of money for the privilege and promising to return it within a fixed number of months. The borrowed stock would be sold, and the funds gained used to purchase other issues. When the due date arrived, the borrower would sell out his position, and repurchase the borrowed stock. If the latter rose more slowly than the former (taking interest into account) he made money; if not, he lost. Wager stock was an important factor in the bull market, and it served to intensify dealings and increase prices. Similarly, stock was purchased for delivery within from three to six months. If the stock rose in this period, then the purchaser could immediately sell it and pocket the difference between the contract price and the final quotation; if not, he would lose the difference. The seller received a guaranteed price—in the bull market higher than the immediate delivery price—and the purchaser gained the opportunity to speculate. Dealings in credit abounded before the end of the year, and buyers and sellers alike sought means of intensifying the gambling mania. Volume increased sharply, and speculators quickly recognized the need for a centralized market for securities.

By the late autumn of 1790, several brokers opened daily auctions in their offices, and there was talk of establishing a central securities market for the city. M’Evers & Barclay, which sold $180,000 worth of securities in July 1791, demanded such a market, as did Pintard & Bleecker and others. The new race of specialized brokers in securities—none had existed prior to this period in America—and the increasing number of securities speculators began negotiations for what would become the forerunner of the New York Stock Exchange.

The key to this great increase in speculative interest was the subscription to stock in the BUS, which took place early in July 1791. Although shares were high in price, the entire issue was taken within the first hour; indeed, the BUS issue was 20 percent oversubscribed. Few purchased the stock for investment; most of the buyers paid with IOUs, and only $675,000 in cash went into the bank’s coffers. Within a week half-shares of bank stock were traded in New York, and its price rose regularly throughout the summer and autumn.

The BUS issue was reported in all the New York newspapers, which noted that scrip was the topic of the day.* Such words as scriptomania, scripponomy, scriptophobia, and stock-jobbing became commonplace in the New York Daily Gazette, the New York Journal and Patriotic Register and the Daily Advertiser. Few thought the bull market would last. The Scriptophobia is at full height, reported the Journal. It has risen like a rocket—like a rocket it will burst with a crack—then down drops the rocket stick. What goes up must come down. The cry is—what can be the reason of this strange and astonishing rise of the American stocks! O that I had but cash—how soon would I have a finger in the pie! This, from the reader of the Journal early in August; at the time BUS stock had risen thirty points, and showed no sign of a decline. Could it last? There was a slight dip on August 11 and 12, and a Journal reader with the pseudonym of I——c Dipdeep wrote, "The Bubble is Burst! Wanted immediately, the advice of a honest Stock Jobber, how to dispose of about three hundred Bank Scripts, purchased at two hundred and fifty dollars per script, so as not entirely to ruin the present holder. If Dipdeep had held onto his stock for another week, he would have seen it rise to new heights, as the fever continued to grip the population. James Madison, writing to Jefferson of the mania, noted that stock and scrip the sole domestic subjects of conversation . . . speculations . . . carried on with money borrowed at from two and a half per cent a month to one per cent a week." Madison’s words were echoed by the Advertiser. The National Bank stock has risen so high, so enormously above its real value, that no two transactions in the annals of history can be found to equal it. The newspapers even published poems about the mania. The Gazette of August 13,1791, printed the following:

Speculation

What magic this among the people,

That swells a may-pole to a steeple?

Touched by the wand of speculation,

A frenzy runs through all the nation;

For soon or late, so truth advises,

Things must assume their proper sizes—

And sure as death all mortal trips,

Thousands will rue the name of SCRIPTS.

Where will it end? asked a reader of the Journal. What is the role of the government in all this? asked another. The answer seemed clear to all those involved in the speculations. Prices would rise indefinitely, and the Treasury (Hamilton) was supporting the prices.

Hamilton saw no inconsistency in continued Treasury purchases of bonds. The bull market was good for business, attracted foreign capital to America, and gave the new government an aura of confidence and success. Nor was he concerned about the obvious speculations of his friends and past associates at the Treasury. Rufus King and others informed the Secretary that Duer was occupied in heavy speculation, and Hamilton did warn Duer not to get too involved in the market. Duer—who had left his post at Hamilton’s side early in 1790 when the government moved to Philadelphia—defended himself before his friend and former associate. Hamilton replied on August 17, at a time when the mania seemed at full tide. He noted the speculation and fever it brought in its wake, and assured Duer that he realized his former associate was an honest man. But consider your fortunes and reputation, requested Hamilton. Do not be too sure of yourself, for such self-confidence may bring a fall. I feared lest it might carry you further than was consistent either with your own safety or the public good. My friendship for you, and my concern for the public cause, were both alarmed. Notwithstanding this, Hamilton agreed that the prices of stocks should continue their rise. The Secretary of the Treasury, in writing to a leading speculator, concluded, I do not widely differ from you about the real value of bank scrip. I should rather call it about 190 to be within bounds, with hopes of better things, and I sincerely wish you may be able to support it at what you mention. What was the reason for this encouragement of Duer’s purchases? The acquisition of too much of it by foreigners will certainly be an evil. Did Hamilton realize that much of Duer’s support came from Amsterdam and London? The letters of the time give no answer to this question, but we do know that Duer was acting for foreign interests throughout this period.

The bull market of 1791 was made to order for a man of Duer’s talents. Those who had purchased shares with IOUs had invested $25 in cash in single shares; by late August the price of such scrip was $185. Although it did decline in September, the price never went below $130; by late October, it was back to $170. Duer bought and sold shares, making profits from both the declines and rises; he was clearly the king of the speculators—the man who called the tune. Should a stock dealer stand on good terms with Duer, his fortune was made; if not, he could count on eventual failure. This was not a conspiracy; even the newspapers carried stories of Duer’s power. The Journal of September 14 noted that some were attempting to escape from Duer’s control, showing that his grip was tightening. A poem composed at the time indicated his power:

The Scrips Legislature, or the Old Saw Verified, of Honor Among Thieves

At Jonathan’s, y’clept of late,

Where scrip-mongers of every rate,

From Billy, of a thousand less-one

To him of humble half a dozen—

Have, for a moon, gulled half the world,

And thousands to perdition hurled;

A puny duckling quit the phalanx,

And left behind a gently balance—

This roused the honor of the Co.

And every bull and bear cried ho!

By show of hands they fixed this rule.

Henceforth a statute in their school,

That every duck that drops a feather,

Or strays an inch beyond his tether;

Or does what other birds would scorn,

Though on a dirty dunghill born,

Shall posted be, with horrid charcoal,

And stand eternal on the black-rolle.

Which done, a Philadelphia blue,

Whom late they plucked from hat to shoe,

By honorable oaths of lies,

That scrip in York were on the rise,

Burst in a fury towards the wall,

And cried, by heaven, here’s post you all!

But Duer was more than a mere speculator, although his reputation was made in this area. His ambitions included control of a manufacturing complex, commercial connections with Europe, and a permanent organization for land speculation. Had he succeeded in all of these activities, he would have emerged as the most important businessman in America, and its most powerful until the days of J. P. Morgan.

Needless to say, all of this would take large amounts of money, in comparison to which the European funds used by Duer and Craigie seemed piddling. The best source of funds would be banking, and so Duer needed control over one or more banks, whose deposits would be used to finance his other dealings. Accordingly, Duer maintained a strong position in the stock of the Bank of North America and other institutions. But to purchase such stocks money would be needed, and this had to come from speculation. By late December Duer had his plans formed: he would make a fortune in speculations, invest it in more productive enterprises, and then go on to greater fame, wealth, and glory.

New York prepared for the new year in a flush of optimism. The government was stable; Indian problems seemed on the decline; trade was booming, and the city would receive more than its share of the business; construction and other activities were satisfactory; the poorhouse was able to report that its numbers had diminished during the past year; and good crops seemed to assure a fine year for 1792. The social season had been a success, stilling fears that the removal of the capital to Philadelphia would make New York a dead city. True, there were still slave hunts, as Negroes continued to elude their masters, and almost each issue of the newspapers carried reward notices for escaped slaves. But this had always been the case, and did not merit the attention of men of affairs.

Alexander Macomb, a land speculator, trader, and businessman, was one of the richest and most highly respected citizens of the city. He was invited to all the balls, and his own home at 39 Broadway had been occupied by Washington himself just before the President moved to Philadelphia. Macomb knew all the right people, and was on good terms with William Duer.

During the last week of 1791, Duer and Macomb met to form a combine for dealings in securities. On December 29, two days before the New Year celebrations would begin, the two set their names on a secret agreement. During the next twelve months they would unite to speculate in stocks and bonds, especially those of the BUS and the Bank of New York. All purchases would be made in Macomb’s name (apparently to mask the fact that master speculator William Duer was in the combine), and all securities would be held in Macomb’s name. The agreement would run until December 31, 1792, at which time it would be dissolved and profits distributed. Although the agreement makes no mention of shares, it appears that they were to be divided evenly between the two men. Macomb was to gain the advice and connections of the more astute Duer, while Duer would be able to draw upon the Macomb fortune.

But what of Duer’s connections with Clavière and the Dutch group? There is no mention of this in Duer’s papers or other collections of important figures of the period, but we do know that Duer did not end his relationship with the foreigners. On the other hand, both Duer’s and Craigie’s papers contain letters and documents relating to Duer’s relations with another group at this time. Duer had a warm friendship with Walter Livingston, a member of the state’s most prestigious clan. Brockholst Livingston and J. R. Livingston also seemed involved in one way or another in this group, as was Edward Livingston, who had been in speculations before. The papers are spotty and incomplete; perhaps we shall never know what transpired between the Livingstons and Duer with any degree of accuracy. It is known, however, that while Duer and Macomb were committed to purchasing shares and were acting on the bull side of the market in 1792, the Livingstons were selling securities early in 1792, apparently in the expectation of a bear market. And one of the contracts entered into by the Livingstons provided for the delivery of almost all the stock in the Bank of New York to William Duer.

This seems clear-cut on the surface: Duer was purchasing Bank of New York stock, expecting it to rise, while the Livingstons sold the stock, expecting a fall. Macomb probably assumed that Duer was acting on inside information from the Treasury. There were rumors that the BUS would take over the Bank of New York and make it a branch. If this were true, then the Bank of