Saturday, June 20, 2015

Burr's Bank (& Water Company)

Two of our founding fathers, Alexander Hamilton and Aaron Burr, clearly hated each other.  Most Americans are aware that, in the summer of 1804, the two men fought a duel, in which Vice-President Burr killed the former Secretary of the Treasury.  Very few are aware of how the feud between the two patriots started or that there is still tangible evidence of that argument today.

Both men served with distinction in the army during the revolution, and—for a while—were friends.  Burr actually saved Hamilton's life at the Battle of Monmouth Courthouse.  Sadly, this friendship did not last for long.

Alexander Hamilton was the consummate politician, and was appointed Secretary of the Treasury by President Washington, while Hamilton achieved miracles in establishing a firm financial footing for the the new country.  He also established the first political party: The Federalists.  It would be correct to say that Hamilton also invented partisan politics, and this is what started the bad blood between the two men.

Hamilton, with the Federalists, established The First Bank of the United States.  Chartered for 20 years, the bank was to handle the monies of the new government, and both borrow and lend monies.  Almost immediately, it was a powerful tool for the Federalist Party and its supporters.

Just as quickly, the opposition party—the Democratic-Republicans—hated the bank.  The party's leaders, Thomas Jefferson and Aaron Burr, fought against the creation of the bank and lost.  The ultimate decision was George Washington's, and the bank was chartered in 1791, so for years, it was the 500-pound banking gorilla in New York.  Between the New York branch of the national bank and Alexander Hamilton's own bank, the Bank of New York, the Federalist party profited from the monopoly on banking and successfully fought against the creation of any other new banks.  (These were the only two banks in the both the city and state of New York).

In 1795, the city of New York saw the onset of a Yellow Fever epidemic that would last for eight years, killing thousands of people.  While every doctor in the city had a pet theory about the cause of the dreaded disease, no one knew for sure, so wild theories were offered:  swamp air, rotting coffee—a few crazy dreamers even blamed mosquitoes!  But everyone could agree on one course of action:  the city's water supply had to be improved.

Aaron Burr, Governor DeWitt Clinton, and few other members of the Democratic-Republican Party proposed a solution:  a modern water supply company.  They successfully petitioned the state assembly to charter the Manhattan Water Company to supply the lower half of Manhattan Island with water.  The company quickly sold $2 million in stock and set up business.

The company was headquartered in a house at 40 Wall Street, and quickly purchased several miles of logs, bored them out, and began using them as water mains.  Wells had to be dug, so  the company secured sites as cheaply as possible—meaning that many of the wells were located in cemeteries, in stockyards, and in feed lots.  In addition, while the company's business was to  supply water to the city, the wooden water lines were laid at first to only the most affluent parts of town. 

Considering the rotting wooden pipes, the potentially tainted locations of the wells, and the total lack of any purification treatment, it is amazing that anyone who actually drank any of the water lived to tell about it!  The few who did, usually added copious amounts of alcohol to the water in the vain hope of making it safe to drink.  (I would love to say this was the birth of the Manhattan cocktail....but it wasn't.  While there are conflicting theories as to the cocktail's origin, it appeared on the scene at least half a century after the water company was chartered.)

Obviously, as a "public utility", the Manhattan Water Company was not really trying too hard.  As a matter of fact, from that original sale of $2 million worth of stock, only $100,000 was used for the water company.   A closer look at the company's corporation charter will reveal what it was actually doing.

Even today, when a new corporation writes its charter application, it pretty much claims that the company will be engaged in every sort of business imaginable, and then waits for the chartering commission to whittle that down.  In the case of the Manhattan company, Aaron Burr had quietly included a clause that allowed the water company "to use surplus capital for banking transaction."

In plain English:  besides selling water, the "water company" could also be a bank.

Since it had only used 5% of its capital for piping bad water to people who wouldn't drink it, the remaining $1.9 million was used to start the bank.  After ten years, the company sold its water assets to the city for an additional $1.9 million.

Alexander Hamilton was furious and never forgave Burr for ending his banking monopoly.  In 1804, when Burr ran for governor of New York, Hamilton denounced him publicly.  Insulted, Burr demanded an apology—which Hamilton refused to give—so the argument was settled in the famous duel on July 11, 1804.

The Bank of the United States didn't last much longer  In 1811, when the charter came up for renewal, the Senate vote was tied, forcing Vice-President Clinton to cast the deciding vote to deny the charter's renewal.  (I'm sure that his being one of the stockholder's in the Manhattan Water Company did not influence his vote.)

The Manhattan Water Company continued as a bank, and since  its charter still called for it to sell water, it continued to offer water for sale until late in the 19th century.  At board meetings, a pitcher of water sat symbolically on the table (though as far as the company records show, no one ever sampled it).

By the turn of the 19th century, the bank bought and merged with other banks, becoming (for a while), the Chase Manhattan Bank with its headquarters still at 40 Wall Street in the Chase Manhattan Building.   Today, the bank is simply known as the Chase Bank, and 40 Wall Street is now called the Trump Tower.



  1. And DeWitt Clinton was on the $1,000 bill from 1869 to 1880.

  2. Not quite as absurd as putting Woodrow Wilson on the 100,000 dollar bill.