Alexander Hamilton (70 page)

The troubling preponderance of northeast investors combined with other factors to feed the impression of a northern oligarchy assiduously at work. Most subscribers were merchants and lawyers—part of Hamilton’s political following—and some of the most visible speculators, especially William Duer, belonged to his entourage. With Jefferson and Madison poised to spot British-style corruption in the legislature, it did not help Hamilton’s cause that at least thirty members of Congress and Secretary of War Knox subscribed to bank scrip.

Hamilton knew that a speculative binge on securities could tarnish his system. He welcomed enthusiasm but not crazed investors. “These extravagant sallies of speculation do injury to the government and to the whole system of public credit,” Hamilton had warned earlier in the year.
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He was never a hireling of monied interests; rather, he wanted to attach them to the new country’s interests. Like many thinkers of his day, he thought that property conferred independent judgment on people and hoped that creditors would bring an enlightened, disinterested point of view to government. But what if they succumbed to speculation and disrupted the system they were supposed to stabilize? What if they engaged in destructive shortterm behavior instead of being long-term custodians of the nation’s interests? If that happened, it might undermine his whole political program.

As with any speculative bubble, it is hard to pin down the elusive moment when reasonable confidence in bank scrip bloomed into euphoria. As late as July 31, Fisher Ames wrote to Hamilton from Boston, praising the bank subscription: “People here are full of exultation and gratitude.”
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Then, in early August, prices soared upward in a vertical line. On August 8, Madison expressed shock to Jefferson: “The stock-jobbers will become the praetorian head of the Government, at once its tool and its tyrant, bribed by its largesses and overawing it by clamours and combinations.”
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Jefferson brooded about the harm to America’s moral fiber: “The spirit of gaming, once it has seized a subject, is incurable. The tailor who has made thousands in one day, tho[ugh] he has lost them the next, can never again be content with the slow and moderate earnings of his needle.”
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Benjamin Rush reported the same money-mad bustle in Philadelphia. Everybody from merchants to clerks was forsaking everyday duties to wager on scrip: “The city of Philadelphia for several days has exhibited the marks of a great gaming house....Never did I see so universal a frenzy. Nothing else was spoken of but scrip in all companies, even by those who were not interested in it.”
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Senator Rufus King later told Hamilton that New York City’s economy had ground to a halt as people rushed off to gamble in bank shares: “The business was going on in a most alarming manner, mechanics deserting their shops, shopkeepers sending their goods to auction, and not a few of our merchants neglecting the regular and profitable commerce of the City.”
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Finally, on August 11, 1791, came the first crash in government securities in American history. Bank scrip that had gone on sale for twenty-five dollars just over a month earlier had zoomed to more than three hundred dollars. The bubble was pricked when bankers refused to extend more credit to leading speculators. Then bears began to sell, and shares nose-dived. As the chief financial regulator, this market turbulence thrust Hamilton into a ticklish situation. He had no precedents to guide him. As a rule, he tried not to interfere with markets and thought it improper to register opinions on the value of government securities. But he also believed he had an obligation to protect the financial system, and so he improvised as he went along. On August 15, Rufus King informed Hamilton that speculators attempting to depress bank shares were quoting Hamilton’s opinion that scrip was grossly overvalued: “They go further and mention prices below the present market as the value sanctioned by your authority.”
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The rumors had some basis in truth. As Hamilton admitted to King, he did not ordinarily voice opinions about the suitable level of shares, but he
had
intimated that prices were too high: “I thought it advisable to speak out, for a bubble connected with my operations is, of all the enemies I have to fear, in my judgment the most formidable.... [T]o counteract delusions appears to me the only secure foundation on which to stand. I thought it therefore expedient to risk something in contributing to dissolve the charm.”
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In modern lingo, Hamilton subtly tried to “talk down” the market to avert a worse tumble later on. At the same time, he stressed that the price he had quoted as the proper level for scrip was not as low as the one being bandied about by speculators.

On August 16, Hamilton wrote confidentially to William Seton, cashier of the Bank of New York, instructing him to buy up $150,000 in government securities (what we would today call “open market operations”). Hamilton hoped that as these security prices rose, the beneficial effect would spill over into the market for bank shares. His strategy worked. What concerned Hamilton was not so much the harm to speculators as the risk to the financial system. He particularly feared that securities dealers, caught in a cash squeeze, might liquidate shares and precipitate a self-sustaining drop in prices. As he put it, “A principal object with me is to keep the stock from falling too low in case the embarrassments of the dealers should lead to sacrifices.”
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Complicating matters was the uncomfortable fact that the most flamboyant New York speculator was Hamilton’s boon companion from King’s College days, William Duer. Duer had lasted seven months as assistant treasury secretary. After leaving office, he lost no time in capitalizing on his knowledge of Treasury operations and set about cornering state debt, sending teams of buying agents into the boondocks. Duer borrowed heavily to finance his enormous trading in bank scrip, and Hamilton knew this added extreme danger to the situation.

On August 17, Hamilton wrote a tough-minded letter to Duer, reproaching him for his maneuvers and invoking the South Sea Bubble of 1720. He told Duer that people were whispering that he and his associates were rigging the price of bank scrip through “fictitious purchases” to dupe a gullible public into buying more shares. While adding tactfully that he knew Duer would do no such duplicitous thing, Hamilton made clear that he took these reports seriously: “I will honestly own I had serious fears for you—for your
purse
and for your
reputation
and with an anxiety for both I wrote to you in earnest terms.”
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Hamilton’s letter showed his usual integrity, displaying concern both for Duer as a friend and for the health of the securities market. Then Hamilton compromised himself by tipping his hand and suggesting to Duer an appropriate price for bank stock: “I should rather call it about 190 to be within bounds with hopes of better things and I sincerely wish you may be able to support it at what you mention.”
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It was one thing for Hamilton to employ the Bank of New York to prop up share prices and quite another to enlist a longtime friend and grand-scale speculator as his intermediary. Duer, of course, denied all wrongdoing. “Those who impute to my artifices the rise of this species of stock in the market beyond its true point of value do me infinite injustice,” he pleaded.
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Hamilton’s letter could only have emboldened Duer to believe that he might profit from inside information, and he continued to flaunt his association with the treasury secretary, leading unsuspecting investors to believe he was privy to government plans.

For the moment, Hamilton’s actions halted the slide in financial markets and averted a catastrophic break in prices. Scrip fell back to a more reasonable 110 share price before rallying to 145 in September. For the first time in American history, Hamilton had demonstrated how a financial regulator could steady a panicky market through deft, behind-the-scenes operations. Unfortunately, he had erred in confiding in William Duer, who remained deaf to Hamilton’s admonition that he restrain his speculation.

For Hamilton’s growing legion of critics, the financial mayhem showed the corrosive effect of his financial wizardry. New York merchant Seth Johnson deplored the behavior induced by prodigal trading in bank shares: “Those who gain play in hope of more, those who lose continue in hope of better fortune.”
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For Jefferson, scrippomania brought to the surface all his disgust for the Hamiltonian system, making imperative the need to preserve a pure, agrarian America. “Ships are lying at the wharves,” he wrote that summer, “buildings are stopped, capitals are withdrawn from commerce, manufactures, arts, and agriculture to be employed in gambling, and the tide of public prosperity almost unparalleled in any country is arrested in its course and suppressed by the rage of getting rich in one day.”
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For Jefferson, Alexander Hamilton was more than just dead wrong in his prescriptions. He was becoming a menace to the American experiment, one who had to be stopped at all costs.
NINETEEN

y the summer of 1791, after his victories in his skirmishes with Jefferson and Madison over public credit, assumption, and a central bank, Hamilton had attained the summit of his power. Such stellar success might have bred an

intoxicating sense of invincibility. But his vigorous reign had also made him the enfant terrible of the early republic, and a substantial minority of the country was mobilized against him. This should have made him especially watchful of his reputation. Instead, in one of history’s most mystifying cases of bad judgment, he entered into a sordid affair with a married woman named Maria Reynolds that, if it did not blacken his name forever, certainly sullied it. From the lofty heights of statesmanship, Hamilton fell back into something reminiscent of the squalid world of his West Indian boyhood.

Philadelphia had its quota of sensual pleasures. Though French visitors dismissed it as quaintly puritanical, it enjoyed a livelier reputation among Americans. Hamilton and other government officials had access to a nocturnal medley of parties, balls, and plays. These social gatherings were often hosted by federalist merchants. The queen bee of local society was Anne Willing Bingham, wife of the extremely rich William Bingham, who presided over banquets at their opulent three-story mansion near Third Street and Spruce. Far from being prim, Philadelphia gatherings in the 1790s abounded in exposed arms and bosoms, if Abigail Adams is to be trusted. She was shocked by all the female flesh on display at parties: “The style of dress...is really an outrage upon all decency.... The arm naked almost to the shoulder and without stays or bodice....Most [ladies] wear their clothes too scant upon the body and too full upon the bosom for my fancy. Not content with the
show
which nature bestows, they borrow from art and literally look like nursing mothers.”
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The vivacious Alexander and Eliza Hamilton socialized with the Binghams and other affluent couples. Perhaps by that spring, Eliza had felt the strain of their social obligations and needed time to recuperate. In mid-May 1791, knowing that Hamilton was bogged down with work, Philip Schuyler begged Eliza and the four children (plus the orphaned Fanny Antill) to join him in Albany for the summer. To avoid epidemics, many people vacated Philadelphia and other large cities in sultry weather. “I fear if she remains where she is until the hot weather commences that her health may be much injured,” Schuyler confided to Hamilton about Eliza. “Let me therefore entreat you to expedite her as soon as possible.”
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So due to Schuyler’s tender concern, Eliza and the children left Philadelphia soon after the sensational offering of bank scrip on July 4 and stayed away for the rest of that torrid summer.

It was a dangerous moment for Eliza to abandon Hamilton. He was the cynosure of all eyes, and many people noted his enchantment with women. John Adams carped at his “indelicate pleasures,” Harrison Gray Otis told his wife of Hamilton’s “liquorish flirtation” with a married woman at a dinner party, and Benjamin Latrobe, later the surveyor of public buildings in Washington, branded him an “insatiable libertine.”
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Such descriptions, though hyperbolic, may have contained a grain of truth: Hamilton
was
susceptible to the charms of beautiful women. Like many people driven by their careers, he did not allow himself sufficient time for escape and relaxation. When Charles Willson Peale painted him in 1791, Hamilton had the air of a commanding politician, his mouth firm, his eyes narrowed with concentration. No trace of joy softened his serious face. He was a volatile personality encased inside a regimented existence.

Whenever he dealt with women, Hamilton shed his bureaucratic manner and reverted to the whimsy of bygone days. Right before the bank subscription, Hamilton received a volume of dramatic verse,
The Ladies of Castille,
from Mercy Warren, a Massachusetts poet, playwright, and historian. Hamilton sent a dashing note of thanks: “It is certain that in the ‘Ladies of Castille,’ the sex will find a new occasion of triumph. Not being a poet myself, I am in the less danger of feeling mortification at the idea that, in the career of dramatic composition at least, female genius in the United States has outstripped the male.”
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His wit with women was often flirtatious. When his friend Susanna Livingston inquired about Treasury certificates she owned, Hamilton apologized for his delay in responding and said that he held himself “bound by all the laws of chivalry to make the most ample reparation in any mode you shall prescribe. You will of course recollect that I am a married man!”
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As the son of a “fallen woman,” Hamilton tended to be chivalric toward women in trouble. The day after he complimented Warren, he wrote to a Boston widow named Martha Walker who had petitioned Congress for relief, contending that her husband had sacrificed valuable property in Quebec to enlist in the Revolution. With countless petitions coming before Congress, it is noteworthy that Hamilton plucked this one from the pile, assuring Walker that “I shall enter upon the examination with every profession which can be inspired by favorable impression of personal merit and by a sympathetic participation in the distresses of a lady as deserving as unfortunate.”
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These letters to Warren and Walker, written right before Eliza left for Albany, suggest that Hamilton was more than receptive to overtures from women.