According to published details, the bank was to be managed by six directors who would be elected once the bank recruited its first 300 subscribers.30 One thousand shares would be available for purchase; each was to cost $750, with one-third of that paid in cash and the remainder pledged in “landed security”—mortgaged properties in New York or New Jersey that would be credited for two-thirds of their assessed value. Shareholders would be allowed to borrow money from the bank, up to one-third of the assessed value of the lands they mortgaged. The bank would therefore enable land-owners to transform their properties into circulating, liquid money. All told, the bank’s credit would be based on assets worth $1 million: $250,000 in gold and silver specie and $750,000 in mortgaged land titles. The bank promoters knew this investment would present risks to shareholders, but they promised that investors’ other assets would be shielded in the event of the bank’s failure; no subscriber was “liable for debts beyond his stock.” Moreover, no salaries would be paid to the directors or clerks of the bank until shareholders were first paid a dividend.
To observers, it should have been obvious from the 12 February newspaper advertisements that the land-bank proprietors intended to forge a formal relationship with the New York state government. By describing the bank’s potential to serve a public good as one that depended on them being “well regulated … especially in republican governments,” the promoters anticipated that state lawmakers would eventually be forced to author a set of legal rules to govern and guide its operations. Of course, the bank’s directors would presumably wield a heavy hand in shaping such regulations. Once codified in state law, the Bank of the State of New York would then become an institution designed to not only reflect the interests of the state’s largest landholders and specie-rich merchants; it would also formally structure that interest, consolidating its membership into a corporate institution that—with shares priced at $750 apiece—would speak in the voice of its wealthiest owners.
From the start, then, it was understood that the land bank was not an apolitical entity that spontaneously sprang forth from the private marketplace; instead, it was an institution that deliberately mixed interests—landed and mercantile, established aristocrats and nouveau riche arrivistes, and private citizens along with office-holding public servants—to stockpile financial as well as political capital. And there, from atop the perch of one of the only incorporated banks in the western hemisphere, Robert Livingston and his partners would be able to influence the hearts and minds of the state and nation’s top policy makers by dispensing a much-desired but limited commodity: access to credit.31
But as they read the plans for the land bank, New York City merchants began to appreciate just how much the land bank would privilege the interests of landowners over others. Land-bank shares would have to be purchased in part with mortgaged lands, therefore merchants who did not own real estate would be ineligible to buy shares unless they first bought property to mortgage at the bank.
Here is how the math would work out:
One share would cost $750. Because an account would be credited with two-thirds of a mortgage’s face value, a $750 land purchase would be worth $500 at the bank. A merchant would therefore have to top off that sum with $250 in coined money. Not including transaction costs—legal fees, commissions, appraisals, taxes, and surveys—it would therefore cost a merchant at least $1,000 in cash and property purchases to buy a bank share worth only $750.
By comparison, someone who was already a landowner would need to raise only $250 in cash to purchase that same bank share after mortgaging his or her existing holdings at the bank.
Thus, an inequity had been structured into the land bank’s design: one that privileged property holders over coin holders. This distinction would be even more magnified among the bank’s directors, who had to own four shares of stock. Although Robert Livingston would meet that requirement with only $1,000 coming out of pocket, a city merchant—someone like Isaac Sears, one of Livingston’s and Sayre’s original partners—would have to spend $4,000 to buy the same number of shares. Yet as equal shareholders on paper, both men would be eligible for the same amount of bank credit. What merchant would trade $4,000 in gold and silver coins for the same face value in less secure paper money?
The proposed Bank of the State of New York would therefore be incapable of answering the commercial credit needs of either the city’s merchants or their customers. Paper notes backed by land instead of gold or silver coins would never pass muster among merchants who were accepting only two sources of domestic paper money at the time, both of which happened to be from Philadelphia: those from the Bank of North America and so-called Financier’s Notes issued by Congress’s finance superintendent Robert Morris.32 City merchants came to view Livingston and Sayre’s proposal as fundamentally flawed—not because it was a land bank, but because it was designed primarily to serve landowners.
The Private Bank
When Alexander Hamilton first heard that people were proposing to open a land bank in New York City, he believed it had been the brainchild of Stephen Sayre. Later, he would say that he had always known the “true father” was Chancellor Robert Livingston.33 Either way, Hamilton was under instructions to not pay too much attention—a directive that had come from John B. Church, the wealthy British merchant who in 1783 had hired Hamilton to be his agent in America.
Although Hamilton was a relative newcomer to the city, his experience made him well suited to succeed in its commercial affairs. He had worked as a clerk in a St. Croix import-export house after being orphaned in 1768 and had run the firm’s headquarters for several months in 1771 when he was just sixteen years old. He therefore knew how to contract debt, pass bills of exchange, and negotiate transactions, making him intimately familiar with the skills needed to run the portfolio of a successful trading firm.
In the early 1780s, Hamilton befriended two men who made a fortune during the Revolution: John B. Church and the merchant Jeremiah Wadsworth. When the duo left American shores for Paris after the war to buy goods and collect debts, they made Hamilton their go-to man in New York City. Being Church’s agent meant that Hamilton was charged with managing his business affairs, investing his funds, and acting as his legal representative. It also meant that he had a breathtaking amount of daily autonomy; in the fall of 1783, neither Hamilton nor John Chaloner, who, as Wadsworth’s top American agent in Philadelphia, was Hamilton’s counterpart, had heard from either of their principals since July.34
Being Church and Wadsworth’s agent also meant that, by late 1783, Hamilton was already thinking like a banker. Church and Wadsworth, after all, were no ordinary merchants. Among their many assets was the largest single bloc of shares in the Philadelphia-based Bank of North America, then the only bank in the nation. Hamilton was in charge of Church’s half, managing a combined investment of 202 shares worth just under $82,000. He was directly responsible for collecting dividends paid on Church’s bloc of shares and held a power-of-attorney that entitled him to cast shareholder votes in Church’s name, making him the proxy voice for one of the country’s most important merchant-bankers and a de facto stockholder in the bank itself.35
Despite all their influence within the Bank of North America, however, Church and Wadsworth were unhappy with how the institution was being managed. They suspected that bank president Thomas Willing was collaborating too closely with his onetime business partner Robert Morris, the financier and merchant who had been Congress’s superintendent of finance since 1781. When Willing announced in December 1783 that the bank was expanding and would put additional stock shares up for sale, it looked to Hamilton like Robert Morris was behind that plan, one that would cost his clients money and dilute their influence within the bank. Chaloner predicted the new stock would “lessen the dividend” paid to current shareholders—reducing the profitability of bank shares as an investment—and “throw it out of the power of a few individuals” to select directors and “control” the bank itself.36
Moments
