by Bob Schoone-Jongen.
It’s no secret that the United States has had its fair share of financial scandals. Ferdinand Ward fleeced Ulysses Grant in 1881. Samuel Insull bilked thousands of people out of millions of dollars invested in his utility schemes in the 1930s. More recently we’ve seen Bernie Ebbers, Ken Lay, Bernie Madoff, all of whom made off with someone else’s cash. When these buccaneers’ ventures went south they joined the national rogue’s gallery of financial villains, whose oldest member is the largely forgotten William Duer.
Arriving in New York from England, via a Caribbean plantation, during the 1760s, Duer became one of the colony’s plungers, with investments in timber lands, a sawmill, and a mercantile firm. During the 1770s his choicest trees went to the Royal Navy. Following a brief fling in revolutionary politics as a state senator and congressman, Duer spent the balance of the war years earning a healthy percentage from importing war materiel for the Continental Army. Profiting for the cause connected him to George Washington’s staff officers, especially the reedy Col. Alexander Hamilton, the rotund Gen. Henry Knox, and self-styled Lord Stirling, General William Alexander. Duer married the Lord’s daughter in 1779. By the end of the 1780s Duer was serving as secretary of the Confederation’s Board of the Treasury. When Hamilton became Secretary of the Treasury in 1789, he appointed Duer as first assistant.
Public office did not end Duer’s private enterprising. He joined Henry Knox’s efforts to corner the market in former royal lands located in the District of Maine. Duer speculated in the debts the United States owed to France. He helped his mercantile associates obtain army supply contracts. In the first ever congressional investigation, occasioned by the army’s disastrous defeat at the hands of the Indians in northern Ohio, the blame fell on Duer’s friends, who failed to deliver the expeditionary force’s supplies. While Duer escaped prosecution, he did resign as assistant secretary.
His greatest, and final caper involved the sale of stock in the newly minted Bank of the United States. This brainchild of Alexander Hamilton was embraced by Congress and approved by George Washington in 1791. The federal government would hold twenty percent of the bank’s stock, while the public could purchase the remaining eighty percent.
On July 4, 1791, the bank’s subscription books were opened to the public in the hallowed space of Philadelphia’s Carpenter’s Hall. What was actually for sale that day were derivatives – scrip – pieces of paper that would allow the bearer to eventually buy a share in the bank. Within an hour, the subscription books closed, with the scrip supply outstripping the anticipated shares. The real fun began as touts, stockjobbers, and speculators (Duer among them) spread the word that the bank, with its government connections, could not fail, and would surely return dividends of 12% or more. “Scrippomania” had broken out in the land.
Alexander Hamilton privately expressed great alarm at what his bank had wrought. Publically he dared say nothing. Many of the scrip holders were his political friends: thirty of them members of Congress, and one other none other than Secretary of War Henry Knox. By August 11, bank scrip bought at $25 fetched over $300. New York and Philadelphia bankers squelched the frenzy by cutting credit to the speculators. By September the price stood at $110, finally stabilizing at about $150, a level Hamilton regarded as realistic.
Round two began during December 1791. With the bank’s stock now held by investors, Duer and his friends borrowed to finance an attempt to corner the market in U.S. government securities, the Bank of the United States stock, and the shares of New York’s largest bank. The pool drove prices higher for almost two months, before seeing them slip in February and plunge during March. The Bank of the United States and other creditors pricked the bubble, leaving the speculators short in a bear market.
Duer had used his supposed insider connections to Hamilton as his personal bond. Mrs. Duer and Mrs. Hamilton were cousins. Hamilton, wise to his kinsman’s profligate habits, had warned Duer to behave himself. He hadn’t. Overwhelmed by debts from his failed corner scheme, Duer landed in debtor’s prison. Hamilton left him there. For seven years Duer remained confined, unable to pay his debts, unredeemed by his erstwhile friends, or his relatives. He had become the first American pariah, rendered so toxic that the movers and shakers with whom he had associated for decades abandoned him. In 1799 he died in a cell.
Duer became the first Wall Street villain because he conflated personal independence (a good thing) with greed (a very bad thing). For him, a gentleman’s need to live well morphed into grubbing for money. And he got caught. Others, like Henry Knox, did not. He died of old age in a stoutly-constructed bed.
In an attempt to prevent other freebooter speculators, like William Duer, from disturbing the financial peace, a group of New York moneymen met under a buttonwood tree at the corner of Wall and Nassau in 1792. They signed a pledge to conduct their securities businesses in an honest fashion, and exclude undesirables from their club. That club became the New York Stock Exchange.
P.S. While William Duer rotted in prison his family did ultimately enjoy a successful second act. His sons, John and William Alexander, built careers as prominent lawyers in New York. William Alexander Duer sat on the bench of the state supreme court for seven years, until he was appointed president of Columbia College in 1829. He headed Alexander Hamilton’s alma mater for thirteen years.
So, all hail to William Duer, mover, shaker, money manager, businessman, patriot, man about town, and scoundrel. Without him Wall Street would have been just another street, and the malefactors of great wealth who came to reside there, would have roosted some where else, Delancey Street? Maiden Lane has a certain ring to it.
Robert Schoone-Jongen is in his eleventh year at Calvin College, working with student teachers who hope to become high school and middle school social studies teachers. His historical interests are immigration, American social history, and the presidency.