writers’ opposition to incorporated banks did not arise from a preference for a particular kind of asset or method of securing the value of paper money but from a fear that banks were far too dangerous to be entrusted to the care of elected officials. By incorporating a bank, state legislators risked diminishing their own institutional legitimacy by creating a separate, quasi-independent policy-making and regulatory agency that was responsible not to lawmakers or voters but to shareholders. A bank threatened to empower a cadre of unelected financiers whose actions and behavior could not be monitored or tempered by officials or voters; it created a group of people without boundaries who were responsible only to themselves.
Although these letter-writing bank opponents might have been given to hyperbole, they offered a savvy analysis of the competition for bank charters in New York in 1784. Lawmakers were not simply evaluating competing coalitions’ proposals on the basis of political connections or judging relative merits of land and coined metals as sources of bank credit. They would not be selecting one proposal, adopting an incorporation law, and letting that bank run free; any bank that opened under their watch would create an abiding interest among legislators to prevent it from turning into what the legal profession termed imperium in imperio: a state within a state. Because banks could shower lawmakers with credit or offer them lucrative opportunities to become shareholders, banks had an arsenal of tools at their disposal that enabled them to influence public officials in ways that would make them approach policy questions in terms of the banks’ own institutional interests. And if officials became dependent on the credit or services provided by bankers, they would no longer be dependent on voters. Ultimately, banks could distort political economy by shaping policies to their liking and breaking the bonds of accountability that linked voters to their elected representatives.68
The Bank of the City of New-York
From the competing proposals put forward in the spring of 1784, only one bank emerged: the commercially focused money Bank of New-York. And it opened without a charter.
Although it is tempting to imagine that the bank proposals canceled each other out for personal reasons or political expediency specifically related to the events of 1784, lawmakers’ hostility to bank chartering proved durable. A slate of Bank of New-York directors and interested allies won election to the state assembly in April 1784, defeating a group of land-bank supporters that included Stephen Sayre, yet the bank’s petitions were denied. In 1785, a circle of more radical merchants followed their conservative brethren to support the Bank of New-York’s incorporation but to little effect.69 And although subsequent legislatures were not bound by their predecessors’ decisions, future legislators also refused the Bank of New-York’s repeated requests for corporate privileges during the next seven years. The bank reapplied for a charter in the fall of 1784, in the spring of 1785, and again in 1789 and 1790. Each time it was refused. In 1786 the bank had to fend off a proposal to make all forms of private banking illegal.70
State legislators, of course, had never been under any obligation to grant all or any of the petitions for bank corporate charters, and New York’s state government did not incorporate a bank until 1791. Therefore, although a corporate charter was a valued political prize and a clearly desirable legal tool, it was an exceedingly rare species in New York during the 1780s.
But the state legislators’ decision should not be confused with inaction; lawmakers never explicitly banished the corporate form from the state, and petitioners continued to believe they had reasonable chances of success. By refusing to charter a bank in 1784, lawmakers were not preventing a bank from opening; had that been their goal, they could have adopted a law barring the creation of such enterprises or erected onerous regulatory barriers similar to the one considered in 1786. Instead, by taking what seemed to be a neutral policy stance, New York legislators—perhaps inadvertently—ensured that the only bank that opened in 1784 was the merchant-backed Bank of New-York. Without monopoly protections or corporate privileges, the Livingston-led land-bank coalition dissolved; the risks associated with using mortgaged lands as a basis for bank capital were simply too great to attract investors when compared to the straightforward and familiar organization of the Bank of New-York.
Even in this instance, therefore, the state was a central agent of change in shaping its political economy. By deferring action in 1784, legislators affirmed that they would continue to receive and consider future petitions, creating incentives for future mobilizations by would-be bankers and other politically entrepreneurial projectors, and shaping the behavior of the Bank of New-York itself. During the years when the bank lacked a charter, its directors ran the bank as a New York City–centric institution, one that was conservative and cautious out of necessity. Without the privilege of limited liability, shareholders were theoretically exposed to financial risks beyond the sum of their investment. For some investors, the risk of owning shares in an unincorporated bank was simply too large to bear. When the bank opened, one investor publicly but anonymously announced that he was abandoning the bank because, without a charter, shareholders “become to all intents and purposes Bankers and Copartners, and every man is liable (however small his share may be) for all the engagements of the Bank, to the extent of his whole fortune.” “If I wished to be a Banker,” he said, “I would chuse my own partners, connect myself with one or two persons of probity and substance, and, instead of leaving the choice to others, the management of the affairs, upon the risque of my whole fortune depended, attend to it myself.”71 Despite these risks, however, most shareholders did not adopt this view and no further public defections followed.
During this period, some sought to exploit this vulnerability at the Bank of New-York to their advantage. Soon after the bank’s charter application stalled in the state legislature, Gouverneur Morris suggested that the New York directors consider gaining a charter by becoming a branch of the Philadelphia-based Bank of North America. But Alexander Hamilton and bank cashier William Seton refused the offer. Seton told Hamilton that he and Morris “differ[ed] widely in [their] Ideas of the benefits” that would come from any formal connection between the two banks.72 The Bank of New-York’s mission was to create liquidity, enabling merchants to have short-term credit and specie-backed paper banknotes widely accepted and even desired by creditors. When it opened its doors on 9 June 1784, the bank was already developing into an intensely local institution whose directors never petitioned for an exclusive charter or arrogated unto themselves either the name or role of an official state bank. Instead they focused on serving the domestic needs of the city’s commercial class; their constitution explicitly stated that the institution would not deal in foreign bills or notes, and it refused to accept mortgaged properties as collateral.73 Once the president and directors of the bank took oaths before the mayor of New York City on 22 May 1784, pledging to “conduct the business … to the best of their knowledge and abilities for the interest and benefit of the Proprietors,” merchants across the city began announcing one by one that they would accept the bank’s notes.74 On 3 June, Thomas Hazard & Co. signaled that the bank’s notes would be welcomed along with Morris’s notes, Bank of North America notes, beeswax, barrels of beef or pork, pot or pearl ash, or “cash”—meaning gold or silver. A week later, the firm of Morton and Horner’s began selling printed tables calculating the rates at which British, French, and Spanish gold coins would be paid at the bank.75 Had the bank’s directors been striving for precision, they would have renamed their institution the Bank of the City of New-York.
Although the internal deliberations of the bank’s directors are unknown during this decade, its ledgers reveal that the institution offered $1.3 million in discounts in its first year.76 Most directors used the advantage of their positions to obtain credit; the vast majority of the money loaned by the bank went to people beyond this small circle, however, enabling the institution to attract support among onetime land-bank promoters and skeptics, along with “radical” merchants who were quickly de-radicalized by experiencing commercial banking firsthand. Mechanics, too, found the bank’s directors supportive of small-scale manufacturing enterprises in the city.77 The bank also integrated itself into the political economy of the city and state, becoming
