Cato V, Part XV: The Operations of Commerce Amongst Individuals, contd.

One of the primary results of the rapid expansion of the number of corporate entities operating in the United States of America between the 1780s and 1810s – the purchasable shares and issuable credit of which represented wholly novel sources of wealth – was, perhaps unsurprisingly, the growth of financial malfeasance and an increase in the frequency of economic crises. In part, this was the result of the central role occupied by the Bank of the United States in the post-Revolutionary American economy. On one hand, the easy access to large sources of credit that the incorporation of the Bank of the United States facilitated – both on its own and by fostering the creation of other lending institutions – made it far too tempting for a certain type of American merchant-adventurer to resist the promise of turning a quick profit at minimal expense. And on the other, the Bank had become so instrumental to the international and domestic credit of the United States of America so quickly that even relatively minor shocks to its public standing could have series consequences for borrowers and creditors alike. In 1792, for example, former Assistant Secretary of the Treasury William Duer (1743-1799) helped precipitate the first substantial economic crisis in American history when his efforts to reap personal profit by speculating in government bonds using the knowledge he had gained in public service resulted in the sudden collapse of the securities market. Investors panicked and attempted to withdraw their deposits from the Bank of the United States, leading its directors to sharply restrict its overextended credit, leading to more panic, more selling, the cancellation of construction projects, the loss of countless jobs, and a general drop in the prices of domestic goods. Hamilton, as Treasury Secretary, managed to stabilize the economy and stave off a full-blown recession by securing the government purchase of over one hundred thousand dollars’ worth of securities, but this proved only a temporary remedy. Another crisis was just around the corner.

Unlike the aforementioned Panic of 1792 – which was successfully contained before it did an excessive amount of damage to the United States economy – the Panic of 1796-1797 represented a major recession whose aftershocks echoed into the beginning of the 19^th century and in whose wake a number of prominent merchant firms and financiers were left in utter ruin. Whereas the earlier market crash was precipitated by an overextension of credit and a purposeful attempt on the part of a handful of investors to artificially inflate the price of government securities, however, the crisis which served to undermine the economic confidence of the United States through the end of the 18^th century centered on the more familiar practice of land speculation. Seeking to rebuild their shattered fortunes following the Panic of 1792, a cohort of speculators like Duer – a group which included the aforementioned Robert Morris and a Boston merchant named James Greenleaf (1765-1843) – set their sights on the booming land market which they believed was sure to precede the movement of the United States capital city from Philadelphia to Washington City in the year 1800. The scheme, as these men devised it, was intended to be a relatively simple one.

Using grants that they had purchased by way of domestic bank loans, Morris and Greenleaf formed the North American Land Company, the purpose of which was to sell stock to European investors on the promise of an increase in the value of the aforementioned grants. When events in Europe effectively forestalled this initial effort – namely the ongoing war between the newly-established French Republic and most of its neighbors – the directors of the Company then turned their attention to the domestic market, issuing notes in their own name as a way of financing their continued activities. Because Morris was then thought to be among the wealthiest men in the United States, this script was widely regarded as a very stable investment. When people started to speculate in the value of these notes, however, and when it became clear that the conflicts then raging across Europe were not likely to abate in the near term, the resulting trans-Atlantic credit crunch brought the whole scheme tumbling down. Unable to pay their creditors, and with the notes issued in the name of the North American Land Company – a paper fortune totally some ten million dollars – trading at less than twenty percent of its stated value, Morris and Greenleaf were each remanded to debtors prison. The NALC shareholders lost almost everything they had invested, resulting in a string of business failures and job losses, the effects of which were further exacerbated by the simultaneous instability of European markets and the accompanying constriction of credit. Economic growth in the United States consequently remained sluggish for the rest of the century as investors and creditors alike remained skittish and interest rates remained high.

Reflecting on the circumstances of these early bouts of economic instability, it would seem prudent to differentiate between the kind of luxury which George Clinton was actively disparaging in the cited text of Cato V and that which he made no comment on whatsoever. Clinton, after all, was a Republican – or would be, at least, once that faction took shape by the end of the 1790s. He was accordingly, as a fellow believer in the rights of the states over the authority of the national government, an ally of Virginia planters like Thomas Jefferson and James Madison. In spite of the self-conscious opulence with which these men – and others of their class – took great pains to surround themselves, however, Clinton was most certainly not referring to the habits of the Southern gentry when he declared in the third paragraph of Cato V that luxury was, “The parent of inequality, the foe to virtue, and the enemy to restraint [.]” The reason for this – in addition to political expediency – was almost certainly because the pseudo-aristocrats of Virginia, Maryland, the Carolinas, and Georgia fitted into the same basic category in Clinton’s mental universe as did the yeoman farmers that dominated agriculture in the North. The planters were exceptionally wealthy, as a class, and great lovers of material comfort, ostentation, extravagance, etc. They built massive houses, and wore the best clothes, drank imported wine, and raced horses. Luxury, in essence, was their byword. But the source of their wealth, like that of any other farmer, was clear and explicable. They planted, their harvested, their sold their goods on the market; they owned land, their owned livestock, they owned storage facilities, they owned slaves. But all of it was solid, and real, and quantifiable. Their wealth could therefore be thought of as tangible; the product of labor – if not necessarily their own – rather than fantasy. Sometimes, yes, they were forced to take out loans. And some of them, yes, ended up deeply in debt by the end of their lives. But credit on its own wasn’t the basis of their wealth. The same could not be said of the merchants and financiers whose attempts to turn confidence into profit in the 1790s wrought so much damage to the American economy.

While the basis of the personal wealth of someone like Robert Morris was solid enough in theory – Morris being a merchant by trade – the degree to which his lifestyle was backed by promise, speculation, and risk was in practice quite alarming. Not only did he frequently issue promissory notes in either his own name or that of whatever enterprise he was involved in at the time – with the intention, presumably, of collecting on the success of whatever speculative venture he was backing – but he also borrowed widely in order to finance his own schemes, racking up a tremendous amount of debt by the time of his death in 1806. By way of evidence, consider the findings of the bankruptcy commission assigned to his case upon his release from debtor’s prison in 1801. All told, upon consolidation, the obligations held by Morris in October of that year were certified to amount to almost three million dollars. Thomas Jefferson, who also ended his life in debt in 1826, owed the comparatively paltry sum of one hundred thousand dollars. Clearly, then, while both of these men could be said to have lived lives of comfort, luxury, and even ostentation, the basis of their respective lifestyles were fundamentally unalike.

Thomas Greenleaf – the aforementioned partner of Morris in the North American Land Company – serves as a similar case in point. Eager to turn a profit on the relocation of the capital of the United States to the banks of the Potomac, Greenleaf purchased land grants in Alexandria, Georgetown, and on the Anacostia River at a frankly stunning rate over the course of the middle 1790s. Three hundred lots there, two hundred and forty there, another thousand after that; by 1794, pursuant to the rules set by the federal commission responsible for selling land in the future Washington City, Greenleaf personally owned something like one-third of all the buildings then for sale in the District of Columbia. And while the debts that accompanied these purchases were indeed substantial – nearly all of them owed to Dutch financiers – all that Greenleaf theoretically had to do to stay ahead of them was sell the right assets at the right time. The only hitch, it turned out, had to do with the manner in which the land in question was being bought. Greenleaf, as aforementioned, was dealing with Dutch financiers, promising them a favorable return on their investment if they agreed to fund his purchases of cheap – but soon to be valuable – land in the federally-designated capital district. Owing to the state of late 18^th century trans-Atlantic communications infrastructure, of course, Greenleaf couldn’t just request a loan, wait for approval, and then make the necessary purchase. In the intervening months, the lots which he intended to purchase might have been snapped up by someone else, or else increased in value beyond what he thought it sensible to pay. And so, secure in his belief that recompense was forthcoming, Greenleaf instead bought the Potomac lots on credit with the intention of paying what was owed once his Dutch funds inevitably materialized.

The trouble with this scheme, of course, was that it happened to coincide with a particularly volatile era in the history of Western Europe. Not only did the aforementioned invasion of the Netherlands by the armies of the revolutionary French Republic in March of 1794 cut off access by foreign speculators like Greenleaf to the Dutch credit market, but the broader war between France and its neighbors almost completely foreclosed on the possibility that any Western European investors might take on even a particularly safe trans-Atlantic venture for the foreseeable future. And while the formation of the North American Land Company was intended by its chief investors – Greenleaf, Morris, and a Pennsylvanian named John Nicholson – to stave off looming disaster by a pooling of assets and resources until the crisis in Europe abated, the collapse of all three men’s fortunes was already in the offing. Financial sleight-of-hand and confidence tricks notwithstanding – by which the trio co-signed each other’s loans, endorsed each other’s personal notes, sold their shares, created trusts, and generally attempted to conjure cash from thin air – the ability of Greenleaf and his partners to raise any money at all very quickly disappeared. Even the land in which Greenleaf had sunk most of his net worth – a figure totally some five million dollars by 1796 – was beginning to lose its value. Unable to sell lots fast enough or at high enough prices to stay ahead of his debts, Greenleaf went so far in his desperation as to offer Alexander Hamilton – since retired as Secretary of the Treasury – one million dollars if he would lend his reputation for financial probity to Greenleaf’s bid to borrow more money. Hamilton understandably refused, and by October, 1797, Greenleaf was in debtor’s prison in Philadelphia, no longer able to raise a single dollar.

To be entirely fair to the likes of Thomas Greenleaf and Robert Morris, some degree of risk is unavoidable when one attempts to engage with a market-based economic system. Thomas Jefferson may not have been in the business of borrowing money solely for the purpose of funding some venture or other which he could only hope would bear fruit, but uncertainty was still very much a part of his livelihood. Sometimes crop prices went up, and sometimes they went down; sometimes the harvest was plentiful, and sometimes there was a blight; sometimes land purchased on credit yielded profit within a season, and sometimes it languished for years before returning even its initial cost. The difference, however, between the kinds of risks that the Jeffersons and Madisons of the 18^th century world tended to take on and those which seemed to form the stock and the Greenleafs and Morrises – from the perspective, at least, of someone like George Clinton – was that the commodity being offered by the planter class of the American South at least seemed to possess some kind of inherent value separate from what the market was willing to pay at a given moment. Entire industries had grown to rely on access to American tobacco, rice, indigo, and sugar, and would likely have collapsed if that access was cut off entirely. War might affect what purchasers were willing to pay, or the cost of insurance, or the demand for a particular crop, but it would doubtless have seemed to be next to impossible that tobacco would completely cease to be of any value whatsoever. The same could not be said of the commodities that the likes of Greenleaf and Morris attempted to peddle.

Ostensibly speaking, land was the physical good which Thomas Greenleaf and Robert Morris worked so hard to purchase and re-sell during their turn towards speculation in the middle 1790s – a good whose value, to the late 18^th century Anglo-American mindset, was more or less unquestionable. But what they were actually in the business of offering to their backers was the promise of greater wealth. Land was simply a means to an end; a medium of exchange; an alchemical apparatus whereby small investments could me metamorphosed into massive profits. Greenleaf’s purported Dutch investors could almost certainly not have cared less what became of the lots that were being purchased with the funds that they contributed, any more than Greenleaf probably cared himself. What mattered to all involved were the gains to be realized from the buying and selling thereof. Granted, the strength of these gains might well be motivated by real improvements made to the commodity in question. As aforementioned, Greenleaf was required by the commission responsible for selling lots in the federal district to construct buildings upon the same so as to prepare the future capital city for large-scale inhabitation. But there was also – indeed, there remains to this day – a great deal more to the value of real estate than just an objective appraisal of the product itself. Rumor, hearsay, promises, threats, fear-mongering, flattery, and corruption can all contribute to raising or lowering the market value of a parcel of land far above or below the rate at which it would sell under normal conditions. Naturally – being speculators – this is what Greenleaf and Morris were counting on.

The land which they purchased on the Potomac would have been worth something regardless of whether Congress had adopted the Residence Act (1790) or not, but its value increased significantly once news began to spread that the seat of the United States Government would be relocating to that same region of the Upper South at by at least the year 1800. Now imagine if Greenleaf and Morris learned that the Residence Act was set to pass before the vote was actually taken and accordingly rushed to purchase land on the Potomac while it was still quite cheap. And if rumors began to circulate that the national government would need far more land than initially anticipated to house its various institutions and departments. And if word began to spread that the date of relocation had been moved up from 1800 to 1798. How much profit would the directors of the North American Land Company stand to make, and at what cost? A little construction here, a few rumors there, a favor called in, and suddenly land which was bought for a pittance is selling at ten times its original value. It was all extremely fragile, of course; all based on confidence, and lies, and hopes, and promises. If a scheduled loan failed to materialize, or if someone attempted to call in a debt unexpectedly, the whole scheme would almost certainly collapse. But so long as everyone believed what they were told and let the middle men get on with their business, the dividends to be realized would far exceed the costs.

This attitude towards wealth creation was also certainly what George Clinton was objecting to in the cited passage of Cato V. It was not luxury in itself that he feared would spell the degeneration of his countrymen’s moral character, for he seemed to take no issue – at the time of writing or in the years to come – with the self-conscious ostentation widely practiced among the planter class of the American South. Rather, it was the growth of the kind of luxury that was wrought by speculation with which he more than likely took issue. The probable reason for this, as explored above, was that planters and speculators each had very different relationships to the market and to the commodities that they were selling. A planter, like any farmer, was to some extent at the mercy of the market, forced as they were to sell their produce at whatever price they could manage come harvest. Sometimes demand was high and the price was good, sometimes supply was high and the price was bad. In either case, whether it was due to war, blight, drought, overplanting, or any number of other factors, the planter could only exercise a modicum of control over how the commodities they had to sell would be received. A speculator, by comparison, could manipulate the market in order to extract more value from whatever good it was they were selling. Indeed, that was half of the point of speculating to begin with. Prices were supposed to fluctuate according to rumors and promises, staying low when one wanted to buy and rising as high as possible when one wanted to sell. The means by which these fluctuations were achieved didn’t really matter; nor, indeed did the nature of the thing that was actually being sold. The mercenary attitude that was bound to result from this kind of thinking was doubtless what Clinton was attempting to warn against when he called luxury, “The foe to virtue, and the enemy to restraint [.]” By the very nature of their business, a speculator had no cause to be either virtuous or restrained. Their livelihood relied on their ability to extract as much value from an asset as possible. If lying would accomplish this, or fear-mongering, or making deals with public officials, what possible reason would they have to do otherwise? Why should they restrain themselves when easy wealth was only a rumor away?

As the events of the panics of 1792 and 1796 have hopefully made clear, George Clinton was exactly right to be wary of the side-effects of the increasing commercialization of late 18^th century American society. Prior to the 1790s, excessive luxury had been available mainly to those whose livelihoods were dependent on the cultivation of real property and the sale of renewable but finite natural resources – a position which both tied them to a particular geographic and cultural milieu and left them at the mercy of a market they couldn’t control. But the creation of a national bank and the resulting expansion in the number of chartered corporations in the states placed the promise of excessive wealth and ostentation within the reach of anyone charming enough to talk their way into a line of credit and ruthless enough to create a bubble economy from which they stood to benefit and many more stood to suffer. Not only did this tend towards a much greater degree of economic instability than had previously been the case – the after-effects of which tended to reverberate outward a great distance from wherever they originated – but it also arguably represented an imminent danger to the stability and the quality of republican government in America.

The source of said danger, as Clinton described it, was essentially twofold. On one hand, he affirmed, the, “Ambition and voluptuousness” wrought by the increasing commercialization of American society was bound to, “Teach magistrates, where limits are not explicitly fixed [,] to have separate and distinct interests from the people [.]” The logic behind this statement is plain enough on consideration. In the event that corporations multiplied in the states, sources of credit sprang up all over the country, and speculation became the norm, it would stand to reason that the interests of financiers and public servants might at some point coalesce. If charters could only be granted by government fiat, then legislators were bound to attract the attention of those who possessed the capital to form corporations but lacked the necessary legal authority. And with so much to gain in exchange for a simple “yea” – favorable loans, parcels of shares, lavish gifts, or simple cash bribes – why shouldn’t the lawmakers in question cooperate? Why shouldn’t they grant every request for incorporation made to them regardless of the degree to which the resulting entity would really serve the public welfare? For that matter, why shouldn’t these selfsame officials take it upon themselves to form corporations? In partnership with administrators and financial backers they could very easily become very wealthy, particularly if the corporation they helped to found ended up doing a great deal of business with the government to which they belonged. And though their mandate as a public servant may at length expire – due to term limits – or be overturned – due to defeat at the polls – the commercial privileges which they made sure to extend to themselves would ensure that their power and their influence would outlive their tenure in office. Indeed, it would seem to be a very foolish legislator who didn’t pursue such opportunities during their term of service. Though their actions may well constitute a betrayal of the trust vested in them by their constituents, and an abrogation of their oath to serve, “As a faithful honest representative and guardian of the people,” the ratio of potential rewards to the effort required to achieve them would appear far more favorable than whatever might be gained by standing on principle.

Reasoning such as this would seem to cut to the core of the second source of danger which Clinton ascribed to the inevitable commercialization of American society. “It will not be denied [,]” he wrote, “That government assimilates the manners and opinions of the community to it.” The growth of the number of opportunities for corruption and individual enrichment were problem enough in the meantime, leading as they surely would to the bifurcation of the responsibilities of public servants between serving their constituents and serving themselves. But only with time would the resulting connection between public office and private wealth become habitual. Perhaps, in the immediate, enough legislators who had lived through the Revolution, imbibed its ideals, and entered public service seeking to do justice to its example would restrain themselves from taking undue advantage of their power to incorporate and thus prevent republican government in the United States of America from becoming primarily an instrument of private enrichment and oligarchical privilege. Eventually, however, because, “Opinions and manners are mutable,” the commercialization of American society might advance to the point that every citizen of the United States would take it as their God-given right – if not, indeed, their sacred duty – to seek after every personal advantage on which they may possibly lay their hands. In a social atmosphere such as this – in which the pursuit of profit has become second nature amidst a proliferation of commercial enterprises and the sanctification of luxury – what reason would anyone have for second-guessing either their own selfish impulses of those of their fellow Americans? Of course, people brought up in such a world might come to tell themselves, it was acceptable for people nominally elected to preserve and promote the public welfare to take every opportunity to line their own pockets. Was that not the entire function of government, to facilitate the pursuit of profit above all else? To give every person lucky enough, ruthless enough, or cunning enough to gain access to its prerogatives the ability to become fantastically wealthy at the expense of their countrymen? Is that not what the Revolution was all about?

George Clinton did not think so, as the cited text of Cato V would seem to attest. His vision of what the United States of America should at length have become was summed up quite effectively in his description of a so-called, “Well-digested democracy [.]” Such a system, he avowed, “Has this advantage over all others, to wit, that it affords to many the opportunity to be advanced to the supreme command, and the honors they thereby enjoy fill them with a desire of rendering themselves worthy of them [.]” Thus, in Clinton’s mind, equality of opportunity should have been joined with the encouragement of self-sacrifice. Power was not a means to an end, but rather a means to be of service to others. Such sentiments, unfortunately, could not be counted on to endure for all time. The American people may have been, “Cautious, prudent and jealous in politics [,]” at the time that Cato V was published in New York in November, 1787, but, “Americans are like other man in similar situations [,]” and so were unlikely to remain that way indefinitely. Plans were wanted, therefore, if the frame of government then being examined by the citizens of the American republic was actually adopted and entered into force. Precautions had to be taken, failsafes devised, so as to ensure that future generations of Americans more concerned with luxury than liberty would not be permitted to wholly undo the legacy left to them by their forebears and thereby sink themselves into a morass of iniquity and despotism. Was Clinton exaggerating? Was he being alarmist? Was he wrong to doubt the enduring virtue of the American people? As the events of the 1790s, and the hypothetical scenario posited in the penultimate paragraph in this present entry strongly indicate, he most certainly was not. In more ways than one, in fact, George Clinton seemed to see the world that his countrymen would come to inhabit more clearly than some of us can see what transpires in front of our faces every day.