A Long View Of The Wall Street 'Dream'

The recent debates in Congress about the proposed bailout of the financial industry have featured extended rhetoric about "Wall Street" and "Main Street."

In his new book, Wall Street: America's Dream Palace, Steve Fraser examines historical attitudes toward Wall Street, beginning with the first financial panic of 1792 and moving up to the dot-com bubble and bust. His book focuses on four of the financial world's archetypal characters — the aristocrat, the confidence man, the hero and the immoralist.

Fraser's other books include Labor Will Rule and Every Man A Speculator. A senior lecturer at the University of Pennsylvania, he has been published in The New York Time and The Los Angeles Times.

Excerpt: 'Wall Street: America's Dream Palace'

Book Cover
Wall Street: America's Dream Palace
By Steve Fraser
Hardcover, 208 pages
Doubleday
List Price: $22.00


The Aristocrat

William Duer was running for his life. An enraged mob was chasing him through the streets of New York. If they caught up with him they would beat him to a pulp ... or worse. Luckily for Duer the sheriff got there first. While his pursuers cried, "We will have Mr. Duer, he has gotten our money," he was hauled off to jail, where he would spend his few remaining years. Once a man of distinction and wealth, William Duer was now ruined, left to contemplate what might have been.

The year was 1792, and Wall Street had just experienced its first crash, for which William Duer and a secret circle of New York grandees were mainly to blame. They had conspired to speculate on the bonds just issued by the newly created federal government. Soon they found themselves deeply overcommitted and forced to liquidate their holdings, causing the fledgling market to collapse and its manipulators to flee-in Duer's case to debtors' prison; for the more fortunate among them to safer havens out of state. Even though there was no formal or even informal stock exchange in those days; even though the local economy went about its business largely unaffected by the mysterious machinations of financiers, there were still plenty of ordinarypeople who suffered. Real estate prices collapsed, credit dried up, house building stopped. The general distress spread from businessmen to "shopkeepers, Widows, orphans, Butchers, Cartmen, Gardeners, market women and even the noted Bawd, Mrs. McCarty."

What made Mrs. McCarty and her neighbors irate was something more than their own losses, grievous as these might be. They and many of their fellow citizens hated Duer and his confederates not only for what they'd done but for who they were. The Revolution had just ended, and tempers had barely cooled. Suspicions and animosities directed against covert monarchists and Tory aristocrats still electrified the political atmosphere. And Wall Street's first inside traders seemed to match that ignominious profile.

After all, William Duer was a merchant prince. He lived in manorial splendor on a Hudson River estate, catered to by liveried servants-this at a moment when dressing the help in livery was considered a deliberate provocation aimed at the democratic sentiments of American patriots. A onetime officer in the British army, educated at Eton, Duer was the offspring of a wealthy West Indian planter. He had migrated to colonial New York in hope of enhancing his fortune. Once there he had married into the highest echelons of colonial society. His wife, "Lady Kitty," was the second daughter of General William Alexander, who laid claim to a Scottish earldom. Lady Kitty's grandfather was Philip Livingston, a prominent member of New York's most distinguished family dynasty. Duer's closest friends and associates included other great dynastic clans of old Dutch New York: the Macombs and the Roosevelts, among others. His commercial interests extended from powder-, saw-, and gristmills to distilleries and maritime supplies.

While Duer had supported the Revolution (indeed, he was a member of the Continental Congress and a signatory of the Articles of Confederation), he was widely suspected of profiteering at its expense. He sold, at inflated prices, precious supplies of timber and planks for barracks and ships to Washington's desperate army of independence. He provisioned the Continental Army with horses, ammunition, cattle, and feed but was suspected of hoarding supplies of rum and blankets, and even of engaging in sub-rosa trading with the enemy. After the Revolution, Duer escalated his pursuit of social elevation and material enrichment, a quest that culminated in his fateful attempt to corner the market in government securities. And here he was counting on a special bit of good fortune: he was a confidant of the nation's first secretary of the treasury, Alexander Hamilton.

Hamilton was a Revolutionary War hero and a founding father. But by the 1790s, he was also the man most widely suspected of harboring elitist sentiments dangerous to the democratic aspirations of the new nation. During the Constitutional debates he had argued on behalf of a lifetime presidency and imagined the Senate as a kind of House of Lords. In his capacity as President George Washington's secretary of the treasury, he had devised a plan for funding the national debt that had accumulated during the war and in the years afterward. The federal government would sell its own bonds to make good on the nearly worthless securities issued by the states and the Continental Congress during the Revolution. Hamilton assumed that the purchasers of these new securities would be merchants, bankers, and others of substantial means. By acquiring these bonds they would help establish the creditworthiness of the new nation. In turn, that would, Hamilton hypothesized, attract capital from home and abroad which would jump-start the commercial and industrial development of what was, after all, an underdeveloped country.

Hamilton was candid in his view that the new government ought to rely on men of social eminence and wealth. Their resources and public-mindedness made them uniquely prepared to lead the nation, or so he thought. They would constitute a vanguard whose financial wherewithal and disinterested commitment to the nation's welfare would help realize his vision of America's one day joining the ranks of the world's great powers. Hamilton himself came from inauspicious social beginnings, a West Indian of illegitimate birth. But he felt an affinity for New York's patricians, having married Elizabeth Schuyler, the daughter of General Philip Schuyler, war hero and patriarch of a venerable Knickerbocker clan, one of the Hudson River patroons. Hamilton trusted these circles implicitly, convinced of their rectitude and devotion to the country's future fame and glory. He was infatuated with caste and riches. The problem was that people like Duer turned out to be less public-spirited than Hamilton supposed.

Duer's ties to the Schuyler clan afforded him access to Hamilton, who appointed him an assistant secretary of the treasury. Duer and his "6 percent club" of fellow speculators hoped for inside information on the government's pricing of its new securities in order to get a jump on the market. Hamilton, whose integrity was irreproachable, rebuffed Duer and warned him against gambling on the national debt. Duer, ignoring him, crashed and burned, as would many a Wall Street inside trader over the next two centuries. Much of Duer's estate was liquidated at sheriff's sale. Lady Kitty lived out her life in severely straitened circumstances, dwelling at the edge of fashionable society and compelled to take in genteel boarders. Moreover, as the struggle between the followers of Hamilton and Jefferson over the fate of the American Revolution grew ever nastier during the 1790s, Hamilton's rumored connection to the Duer plot kept resurfacing.

Indeed, in 1797 Hamilton felt compelled to publicly acknowledge an adulterous affair with the wife of a Duer accomplice while passionately denying that he had ever conspired to enrich himself or others at the nation's expense. He denounced his "Jacobin" enemies-Jefferson and James Madison especially-accusing them of pandering to the prejudices of the mob and slandering his reputation in order to subvert his efforts to turn America into a great commercial republic. And he was not entirely wrong.

Jefferson, Madison, and other leading Democratic-Republicans had known of the treasury secretary's sexual transgressions for years but never seriously suspected him of public corruption. However, they were vehemently opposed to Hamilton's financial and mercantile plans: to his proposals to create a national debt, establish a national bank, and subsidize manufacturing in the infant nation. Jefferson and his allies were not against trade. But they envisioned an agrarian republic, not a commercial one, made up of independent middling farmers trading with Europe only for those necessities not produced at home. In this way the new nation would be immunized against the infection of urban luxury and squalor, the war of class against class, and the moral rot that they felt characterized the Old World. Those mysterious arteries of finance, in particular, were the portals through which this political disease could most easily penetrate the healthy social organism.

Nor was the danger strictly economic or moral. Hamilton's "Jacobin" enemies were not merely opposed to his plans; they saw them as part of a malevolent conspiracy to build up a "moneyed aristocracy" allied to the government which would inevitably undermine the democratic accomplishments of the Revolution. Duer was viewed as a felonious member of this anti-republican "aristocratic faction." In a word, Hamilton's alleged connection to his Wall Street confreres embodied, in miniature, the Tory Counterrevolution.

As the Democratic-Republicans saw it, this was a plot to establish a financial aristocracy like the one ensconced in England. Looking across the ocean they could easily see how an incestuous relationship between the money men and the central government (in England, the monarchy; in America, presumably, the executive branch) threatened to make the government the exclusive preserve of the privileged. The great executive powers of France and Great Britain, so the anti-monarchists believed, floated on a vast sea of public debt. That funded debt had in turn engendered big banking institutions, well-oiled markets for money, new forms of investment, and a whole new class that traded in public securities. An alliance between this moneyed class and the Crown had overawed independent sources of political authority. According to Jefferson the real sin in Hamilton's design was that it would "prepare the way for a change from the present republican form of government to that of a monarchy of which the English constitution is to be the model." This was perhaps the inevitable fate of the Old World, but it was precisely to avoid this fate in the New that people had fought and died. Wall Street thus found itself on the front lines of a war between aristocracy and democracy. With stakes that high, exploiting the enemy's sexual peccadilloes seemed an excusable political tactic.

Partisans of Jefferson tirelessly spread the alarm. All through the 1790s, publicists, pamphleteers, and politicians warned about bankers and speculators fattening on the public credit. Even President Washington, who in the end favored Hamilton's strategy, worried, and he queried the treasury secretary: Would not the new capital ultimately pose a threat to republican government by "a corrupt squadron of paper dealers"? Hamilton's plan was a bonanza for such people, an unholy alliance of aristocracy and money. These speculators had bought up the securities issued by the states and the Continental Congress at rock-bottom prices from their original holders: desperate veterans, farmers, and other ordinary folk. Under Hamilton's scheme these rich bond buyers could now redeem their once worthless paper at its full face value.

War was waged in churches and by sensationalist pamphleteers; in novels, poems, and newspaper doggerel; on the stage in theatrical satires; and in furious political jeremiads. In his satiric "Chronology of Facts" in the National Gazette, Philip Freneau pronounced 1791 the "Reign of the Speculators." He invented a mock plan for the creation of an American aristocracy whose meticulously graded and serried ranks mirrored rising levels of speculative practice from "the lower order of the Leech" to the middling "Their Huckstership" on to the sublime "Order of the Scrip." Jefferson inveighed against the sleaziness and injustice practiced by those who bought up worthless "continentals": "Speculators had made a trade of cozening them from their holders. ... Couriers and relay horses by land, and swift sailing pilot boats by sea, were flying in all directions," buying up paper securities so that "immense sums were thus filched from the poor and ignorant." Madison worried that "the stock-jobbers will become the praetorian band of the Government, at once its tool and its tyrant; bribed by its largesse, and overawing it by clamorous combinations." John Adams, who often allied himself with Hamilton and shared with the treasury secretary a conservative conviction about the inevitability of social class distinctions, nonetheless observed that "paper wealth has been the source of aristocracy in this country, as well as landed wealth, with a vengeance."

When Duer's speculative bubble burst popular revulsion was palpable. Speculators became derisively known as "Hamilton's Rangers" and "Paper Hunters." Newssheets filled with talk of "scriptomania," "scripponomy," and "scriptophobia." A Philadelphian, writing to his local newspaper, anguished over his efforts to find safe passage through the factional battlefield. Although loath to join the local Jeffersonian Democratic Society, he still wanted to reassure his neighbors that he was certainly "no tory, no British agent, no speculator." Madison summed up the moral and political outrage: "There must be something wrong, radically and morally and politically wrong, in a system which transfers the reward from those who paid the most valuable of all considerations, to those who scarcely paid any consideration at all."

There is a grand irony at the core of this political dramaturgy, an irony that would infuse American attitudes about Wall Street for generations to come. Both sides of this fateful confrontation were right, yet both chased after phantoms. Hamilton had envisioned enlightened men investing for the public good. Jefferson saw "sharpers" and "gambling scoundrels." Both turned out to be correct, as the sad career of William Duer, an enlightened scoundrel if ever there was one, exemplified. But both founding fathers were at the same time wrong as they prophesied a final conflict between enemies that were more imaginary than real.

Hamilton was hardly a feudal aristocrat. Nor did he harbor serious thoughts of resurrecting a titled aristocracy in the New World. He did, however, entertain real anxieties about "mobocracy" and genuinely feared the leveling instincts of the "Jacobin" democracy, which seemed to him ready to countenance the wholesale repudiation of lawful contractual obligations. But the respectable freeholders of town and country were hardly revolutionary levelers. There were no bloodthirsty sansculottes preparing to erect guillotines; nor were farmers, however angry about government excise taxes and other matters-as Shays's Rebellion suggested-ready to burn down the manorial estates of their feudal overlords in some version of an American jacquerie. Moreover, alongside this fanciful specter Hamilton cultivated a parallel consoling delusion that men like Duer (if not Duer himself) were capable of a kind of disinterested behavior that is sometimes associated with an idealized version of the virtuous aristocrat. Funding the national debt would help nurture a national ruling class, a regime of "the wise, the rich, and the good." He was convinced that "those who are most commonly creditors of the nation, are generally speaking, enlightened men." He said of the rich and well born: "Their vices are probably more favorable to the prosperity of the State than those of the indigent and partake less of moral depravity." But it turned out, to Hamilton's chagrin, that modern commercial society-the kind of society he championed for America-bred men of commerce whose commitment to public service often took a distant back seat to the pursuit of the main chance. That was Hamilton's dilemma, one William Duer exemplified.

So too, the Jeffersonian democrats attacked what they thought of as an aristocracy. But it turned out to be a fledgling plutocracy. True enough, this capitalist-minded untitled elite would now and again try to assume the trappings of the pedigreed aristocracy, if only to beef up its presumptive right to rule and its own social self-confidence. In New York, the Federalist followers of Hamilton formed the Knights of the Dagger to assault Democratic-Republicans, dispersing their public rallies and tearing down their Liberty Poles. William Duer's son was one such Knight. Dressing like aristocrats, decorating their homes, horses, and carriages with heraldic crests, cultivating the accents of the British upper class, hosting fancy-dress balls and fetes, and otherwise aping the customs and mores of European gentility were very much in vogue among the Federalists of Hamilton's day, as they would be again, more emphatically, during the Gilded Age at the turn of the twentieth century. John Pintard, one of Duer's co-conspirators who only escaped debtors' prison by fleeing New York, was at the same time a man of distinctive cultural refinement, a founder of the New-York Historical Society, an author of works on medicine and topography, and an expert on Indian cultures. (He later returned to New York and resumed a lucrative career on the Street.) Without question many a Federalist openly admired the English constitution, especially the way it institutionalized social hierarchy. Federalists scarcely concealed their hopes-their expectations, actually-that a similarly deferential political order would install itself in America and that they would preside over it. Secretary of State John Jay, Hamilton's good friend and political ally, candidly asserted that "those who own the country ought to govern it."

In the end, however, William Duer's insatiable acquisitiveness gave the game away. He and his cohorts viewed the new nation as an incomparable opportunity to indulge in the pursuit of happiness. For them, as for so many of their fellow citizens, this meant the pursuit of property. But it was precisely that fellowship of desire uniting the aristocrat with the commoner that comprised the Jeffersonian side of the dilemma. Smallholding farmers, artisans, and shopkeepers, the living body of the Jeffersonian anti-aristocratic persuasion, were themselves wholly invested in the same quest for propertied independence, albeit on a more modest scale. Time and again in the years that followed, struggling farmers, anti-monopoly small businessmen, upstart entrepreneurs in search of start-up capital, railroad workers, coal miners, artisans, and laborers suffering under industrial tyranny would single out Wall Street as their archenemy. Just as commonly, however, they would depict those rapacious financiers as if they were not so much a capitalist plutocracy as a blue-blooded aristocracy, an alien species, running against the American grain.

Copyright © 2008 by Steve Fraser. Excerpted by permission of Yale University Press.

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