3/18/09 - hamilton's single share

In today's excerpt - in the formative years between the Declaration of Independence and the adoption of the Constitution soon-to-be-Treasury-Secretary Alexander Hamilton helped form New York's first bank. As political commentator Steven C. Clemons has recently pointed out Hamilton held only one share of the bank avoiding the wrenching conflicts of interest that have plagued our most recent Treasury Secretaries. Hamilton's new bank was born in the midst of anti-bank sentiment, but helped facilitate more orderly commerce in a world where inflation had decimated the value of American paper currencies and much commerce was still conducted in British pounds:

"The creation of New York's first bank [The Bank of New York] was a formative moment in the city's rise as a world financial center. Banking was still a new phenomenon in America. The first such chartered institution, the Bank of North America, had been started in Philadelphia in 1781, and Alexander Hamilton had studied its affairs closely. It was the brainchild of Robert Morris, and its two biggest shareholders were Jeremiah Wadsworth and Hamilton's brother-in-law John B. Church. These two men now cast about for fresh outlets for their capital. In 1783 ... when Church and Wadsworth deputized him to set up a private bank in New York, Hamilton warmed to it as a project that could help to rejuvenate New York commerce. ... Ironically, he held in his own name only a single share of the bank that was long to be associated with his memory.

"On February 23, 1784 ... General Alexander McDougall was voted the new bank's chairman and Hamilton a director. Snatching an interval of leisure during the next three weeks, Hamilton drafted, singlehandedly, a constitution for the new institution—the sort of herculean feat that seems almost commonplace in his life. As architect of New York's first financial firm, he could sketch freely on a blank slate. The resulting document was taken up as the pattern for many subsequent bank charters and helped to define the rudiments of American banking. ... As a triple power at the new bank—a director, the author of its constitution and its attorney—Hamilton straddled a critical nexus of economic power.

"One of Hamilton's motivations in backing the bank was to introduce order into the manic universe of American currency. By the end of the Revolution, it took $167 in continental dollars to buy one dollar's worth of gold and silver. This worthless currency had been superseded by new paper currency, but the states also issued bills and large batches of New Jersey and Pennsylvania paper swamped Manhattan. Shopkeepers had to be veritable mathematical wizards to figure out the fluctuating values of the varied bills and coins in circulation. Congress adopted the dollar as the official monetary unit in 1785, but for many years New York shopkeepers still quoted prices in pounds, shillings, and pence. The city was awash with strange foreign coins bearing exotic names: Spanish doubloons, British and French guineas, Prussian carolines, Portuguese moidores. To make matters worse, exchange rates differed from state to state. Hamilton hoped that the Bank of New York would counter all this chaos by issuing its own notes and also listing the current exchange rates for the miscellaneous currencies.

"Many Americans still regarded banking as a black, unfathomable art, and it was anathema to upstate populists. The Bank of New York was denounced by some as the cat's-paw of British capitalists. Hamilton's petition to the state legislature for a bank charter was denied for seven years, as Governor George Clinton succumbed to the prejudices of his agricultural constituents who thought the bank would give preferential treatment to merchants and shut out farmers. Clinton distrusted corporations as shady plots against the populace, foreshadowing the Jeffersonian revulsion against Hamilton's economic programs. The upshot was that in June 1784 the Bank of New York opened as a private bank without a charter. It occupied the Walton mansion on St. George's Square (now Pearl Street), a three-story building of yellow brick and brown trim, and three years later it relocated to Hanover Square. It was to house the personal bank accounts of both Alexander Hamilton and John Jay and prove one of Hamilton's most durable monuments, becoming the oldest stock traded on the New York Stock Exchange."


Ron Chernow


Alexander Hamilton


Penguin Group


Copyright 2004 by Ron Chernow


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