On July 11, 1804, Aaron Burr and Alexander Hamilton stood 10 paces apart on the cliffs of Weehawken New Jersey, overlooking Manhattan Island. Both men held pistols in their hands. Hamilton took the first shot and fired into a nearby tree. It was the honorable thing to do. Burr then took dead aim and fired a shot into Hamilton’s abdomen, mortally wounding the first Secretary of the Treasury and beginning his own descent into infamy.
The musical “Hamilton” teaches us that the duel was retribution for Hamilton opposing Burr in the presidential election of 1800 and makes reference to a duel that killed Hamilton’s son Phillip in 1801. But the bad blood between Hamilton and Burr goes back to 1799 and the Manhattan Water Company.
The water in Manhattan was unsafe. Following an outbreak of yellow fever, the pair co-sponsored a bill to charter a water company to bring clean drinking water from the Harlem River. Unbeknownst to Hamilton, Aaron Burr included language in the charter that allowed him to establish a private bank called the Manhattan Bank. The water company failed. In fact, no effort was made at all to bring clean fresh water from the river to the inhabitants of Manhattan. The bank survived and after numerous mergers and name changes still exists today as JP Morgan.
Hamilton was a proponent of the Bank of the United States. As first secretary of the Treasury he deemed it essential that the fledgling country have a central bank to regulate the currency and commerce. The Bank of the U.S. was unpopular with many citizens from the start. It was a bank. It tended to foreclose on farmers. Opposition was so fierce that two states tried to tax the bank out of existence.
Then, along came Andrew Jackson. He hated the Bank of the U.S. with a passion. One of the first things he did after sweeping into office in 1828 on the wings of a populist uprising fueled by claims that the 1824 election had been stolen was to cancel the bank’s charter. He housed the federal reserves in some of his favorite state “pet banks.” Economic chaos ensued. Unregulated banks lent money freely and went bankrupt just as liberally.
Depressions from that era were known as “panics,” because they often featured panic runs on banks by nervous depositors. (Think “It’s a Wonderful Life.”) The country barely survived a boom-bust economy that featured major panics in 1837, 1857, 1873, 1893, 1896, 1901 and 1907. The panics of 1837 and 1873 were both as bad as the Great Depression that began in 1929.
Following the Panic of 1907, where the country only survived because of the intervention of JP Morgan himself, who became the “lender of last resort” and propped up the stock market following a 50% decline in prices, wiser business and political leaders decided maybe Hamilton was right and began a movement to create a new central bank called the Federal Reserve.
Since its establishment, the Fed has done an increasingly better job of regulating commerce and the economy. I would point specifically to the financial crisis of 2008. Without Fed intervention, the economy would have most likely spiraled into a depression rivaling that of the 1930s. Soup kitchens, bread lines, massive unemployment and rampant poverty.
Scott Grant is a local author, historian and money manager. He can be reached at scottg@standfastic.com.
