Wall Street’s First Collapse

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Soon one of Duer’s partners, Walter Livingston of the powerful Hudson River Valley clan, joined him in debtors— prison. He had cosigned 28 of Duer’s notes for a total of $203,875.80. Stock prices continued to fall in spite of Hamilton’s attempts to stabilize the market with government money. Public unrest grew. On April 15 Alexander McComb defaulted on half a million dollars in stock purchased from the bears. The following day he joined Duer and Livingston in the city prison.

On the night of April 17 a large mob gathered around the jail but was dispersed by a sudden rain shower. A few days later another angry crowd gathered, determined to do someone harm, but they lacked leadership. One jittery Connecticut visitor wrote that all the city needed was a “small riot” to burst into a “general flame” that would "consume the prison & D-r and McComb with it.” The city fathers equipped the jailers with small arms and cannon, which may have chilled the impulse to violence.

Hamilton’s attempts to quell the cascading stock market with infusions from his sinking fund were repeatedly overwhelmed by the escalating panic. Even the bears were swallowed in the general collapse. One of their chiefs, Brockholst Livingston, was reported as "nearly ruined," and his fellows were not in much better shape. The commerce of New York all but stopped functioning. An upriver merchant with several tons of wheat on ships refused to unload them because no one could pay him in specie, and he did not trust the notes of the people who offered to store it. Philadelphia also felt the shock. Land prices throughout Pennsylvania dropped by two-thirds.

On April 17 a gloating Jefferson reported that in New York “bankruptcy is become general, every man concerned in paper being broke.” He estimated that the total loss was $5 million, roughly the value of all the buildings in the city. It was the equivalent, Jefferson said, “of the whole town [being] burnt to the ground.”

His unconcealed satisfaction was the signal for a ferocious onslaught upon Hamilton by the secretary of state’s followers in Congress and elsewhere. Writing in the National Gazette, Philip Freneau, Jefferson’s favorite mouthpiece, assailed the funding system as evil. He blamed it for “the scenes of speculation calculated to aggrandize the few and the wealthy, while oppressing the great body of the people.” Never hesitant about replying to critics, Hamilton blasted back under numerous pseudonyms, accusing Jefferson of being, among other things, a secret enemy of the Constitution.

Another series of letters in Freneau’s newspaper assailed the S.U.M. Alas for the immediate future of American industry, the society was an easy target. Its treasury had been depleted by Duer’s illegal transfers into the speculative whirlwind. Many of its board of governors were either in jail or in hiding, and the few who showed up for meetings nursed grievous financial wounds inflicted by the 6 percent club.

The congressional elections in the fall of 1792 reflected the success of the newspaper and congressional clamors, giving the Jeffersonians a clear majority in the House of Representatives. It was the death knell of the S.U.M., although the wake and interment took three more years. A corporate ghost remained alive for another century, leasing land it owned on the Passaic River to entrepreneurs, but it no longer resembled Hamilton’s enterprise.

New York City, however, rode out Jefferson’s apocalyptic predictions. By June 1792, thanks in large part to new infusions from the sinking fund, stability had returned to the stock market and city.

For the rest of the decade, speculative fever abated on Wall Street. William Duer, still in prison, remained a kind of living reminder of what could go wrong. But the appetite for a fast buck was not purged from the American psyche. Robert Morris and other wealthy men continued to speculate in land. Vast stretches of wilderness in the West and North became a new bubble that collapsed at the end of the decade, bankrupting Morris and many others. For a year a small army of creditors and sheriffs— deputies camped on the lawn of Morris’s mansion. He sold off furniture, silver, and rugs to satisfy those who shouted loudest. But in February 1798, without wood or coal to keep warm, the once richest American surrendered and was escorted to Philadelphia’s debtors’ prison.

The failures of America’s first group of financiers had not a little to do with the election of Thomas Jefferson in 1800, beginning decades of a federal government that was ideologically hostile to banks, industrial development, and the accumulation of capital. Only when a new generation of businessmen and financiers demonstrated that they could combine profit seeking with self-restraint and concern for the general welfare did American voters and politicians begin to unlearn the harsh conclusions that had been drawn as Wall Street’s first bubble burst in fear and misery in the spring of 1792.