for investors and well-connected borrowers but resented by those left on the sidelines. This aspect of banking became far more intense if a bank’s charter was exclusive, giving it a monopoly within a city or state by barring the creation of competing institutions.
A bank’s principal function in this period was to provide a sound medium of exchange: called banknotes, these were pieces of bank-printed money that could be redeemed on demand for gold or silver, making it a very safe and desirable form of currency.
In contrast to banks that developed in the mid-nineteenth century and are familiar to twenty-first-century readers, banks in the early republic served the interests of commercial firms rather than individual consumers by providing financiers, businesspeople, and merchants with access to credit and capital. Without satellite branches, banks typically conducted business locally, “discounting” notes—IOUs—in exchange for an equal amount of the bank’s own printed currency, minus interest. It was called a “discount” because the bank collected its interest payment up front. At a 6 percent annual interest rate, a bank would lend someone $100 for a three-month term by giving them $98.50 in the bank’s own banknotes; $100 would be due at the end of the loan. Banks discounted both commercial paper—short-term IOUs used in lieu of cash—and longer-term, renewable accommodation notes. Both types of loans had to be endorsed by guarantors known to the bank’s directors, making borrowers and endorsers jointly responsible for debts. Thus, banking privileges were personalized and reputation-dependent.
Boards of directors, cashiers, and clerks were all responsible for making sure that the paper money banknotes and checks paid by the bank were authentic, not counterfeit. But this task was mere housekeeping compared to the directors’ obligation to ensure that the bank’s customers—the recipients of its credit—were worthy of the risks entailed in allowing them to become debtors. A bank that was incorporated or formed by a joint-stock company typically loaned twice as much as its capitalization (the sum it had raised initially by offering its shares for sale). For example, a bank that sold one thousand shares priced at $500 each was capitalized at $500,000 and might loan as much as $1 million. Because the bank was extending itself in this way, each time it decided to offer credit to a client it was taking a risk. This necessarily meant that personal relationships became important factors in determining who received credit. Similarly, any person accepting a check had to make a judgment about the person passing the check, the name of the person who had signed it, and the bank’s ability to pay the check. The person who redeemed a check might be the second, third, or even fourth person to hold it. A bank, then, created networks of credit by taking risks and acting as a financial intermediary, providing tangible and reliable paper banknotes and checks that facilitated the buying and selling of goods and services in a local and regional economy.
INTRODUCTION
Strength in Structure
One late spring day in Manhattan in 1784, Robert Robert Livingston Jr. did something he and his peers did nearly every day of their adult lives: he sat down, pulled out a sheaf of paper, and began scribbling.1
For the past seven years, the 37-year-old aristocrat had been New York State’s chancellor, one of its top judicial officials. The position had been created under a new state constitution New York adopted in 1777 after the separation from Great Britain. Livingston coauthored that document and all but inherited the newly created post; his late father, Robert R. “Judge” Livingston Sr. had also been a prominent jurist and politician in colonial New York.
Politics was one of the Livingston family’s businesses, and Robert Junior had long been busy at the center of the politics of Revolution. In 1775 he became a delegate to the Continental Congress in Philadelphia, and in 1776 he was one-fifth of the Committee of Five tasked with drawing up a Declaration of Independence. He returned to New York to frame that state’s 1777 constitution, was named the state’s chancellor by a provisional governing body, and left again in 1781 to serve as his country’s first secretary of foreign affairs, its senior-most diplomatic official.2
But now all of that was in the past.
As the national capital ambled from Philadelphia to Princeton to Annapolis, the center of its politics drifted further and further from Livingston’s reach and from New York itself, where the Livingston name—one that had dominated colonial politics for a century—seemed to be at a nadir. In the New York legislature, some of the Revolution’s leaders, whom the chancellor had labeled “warm & hotheaded Whigs,” seemed determined to permanently keep men like him from wielding anything like his former power.3 Having come under fire for being an absentee state officeholder, Livingston resigned his foreign affairs post in 1783 and returned home to mend ties in New York. He spent months battling the allegation by the Whigs that he had in fact vacated the office of chancellor once he began serving in Congress. Even after that controversy quieted, a smaller contingent of legislators pestered the chancellor by proposing to cut his £400 salary in half while debating a bill that gave raises to the governor and every other judge in the state.4
Livingston quietly began plotting his recovery by falling back on a playbook his family had (successfully) used for generations: rebuilding his political capital by rebuilding his financial capital. As a political entrepreneur descended from several generations of political entrepreneurs—people who sought to translate their influence and connections into sources of income and opportunity—Livingston was used to living in a state where the official apparatus of government was his collaborative and encouraging partner, aiding his enterprises and giving a boost to his personal ambitions and those he had for the civic well-being of New York City. The animating energy of colonial government had long come from collaborations between official entities and local private interests. In Livingston’s mind, the propriety of that relationship had in no way been discredited by the Revolution. Restoring those pre-Revolutionary practices would favor Livingston’s family and others with capital to invest and influence to exercise, and for the next thirty years Robert Livingston planned and profited from political-economy practices he helped set.5
During the fall of 1783, Livingston began spending money and political capital to reestablish both the city of New York and his footing within it. He began enticing friends and associates to join him in buying houses and estates vacated during the war or abandoned by Tory Loyalists who had fled the country. Livingston had already invested £2,800 in such properties and was seeking a credit line of £8,000 to plunge even deeper into the venture. At the same time, he was assembling a portfolio of associates to cofound a so-called land bank where such real estate holdings could be mortgaged for paper money.
What frustrated Robert Livingston enough to decry the city’s “notorious” greed in early 1784 was that the official apparatus of New York’s government—both its state legislature and the city corporation governing New York City through an appointed mayor and an elected board of aldermen—was not reciprocating. As he read newspaper articles about other states’ willingness to use incorporation grants to harness civic energy and mobilize private capital, Livingston saw New York failing to support the ambitions he and other New Yorkers harbored for their city and state. His bid for a bank charter was stalled in the state legislature, and New York’s municipal government seemed to be immobilized and subject to the whims of petty entrenched interests looking to preserve their own narrow privileges at the expense of others.
Pouring his angst onto four long, narrow ledger-sized sheets of laid cotton paper—the kind lawyers used for formal court filings and Livingston used for everything—the chancellor fumed that “since the peace, a rage has prevailed in the neighboring states for corporations” that “annex ideas of utility to them.” But in New York “we have not been so fortunate.” Although “the fire” of 1776 “left open a door for improvement” and history had provided London’s 1666 singe as a model for what an active and
