May 3 (Bloomberg) -- Americans like to imagine that the Founding Fathers were virtuous and civic-minded giants bestriding the continent. But many of them kept a sharp eye on the main chance, alert to opportunities for personal profit.
The birth of the mega-bank JPMorgan Chase & Co. may be traced to two such figures: Aaron Burr, the dark star of America’s early years, and his longtime nemesis, Alexander Hamilton, the first secretary of the Treasury.
In the 1790s, New York was emerging as the nation’s commercial center, but it had only two banks: the Bank of New York and a branch of the Bank of the United States. Both were dominated by wealthy Federalist merchants. Republicans such as Burr often found the banks’ credit windows closed tightly against them.
A gifted lawyer, Burr pondered the problem at length. A new bank would require a formal charter from the New York legislature. Controlled by Federalists, the legislature would never knowingly approve a bank that would benefit Burr and his allies.
The Water Scheme
So Burr developed a subterfuge. The city’s well water was a scandal -- foul to the taste, vile-smelling and suspected of carrying disease. An outbreak of yellow fever in 1798 raised demands for clean, healthy water.
Burr wheeled out his brother-in-law, Dr. Joseph Browne. Browne proposed incorporating a private firm to pipe fresh water from the Bronx River to the city’s residents, who were clustered at the lower tip of Manhattan. The city’s Common Council adopted the proposal. In early 1799, it sought state permission to undertake the job itself.
Burr countered with a committee of six prominent New Yorkers who argued for a private-company solution, stressing the city’s lack of funds. Half the committee members were Federalists, including none other than Hamilton, who had resigned from the Treasury in 1795.
Confronted by such worthies, the city reversed itself and embraced the private approach. At the tail end of the 1799 legislative session, Burr arranged for an ally to submit the bill chartering a water company.
But Burr’s bill included a gaping loophole. The water business, to be called the Manhattan Company, could use its “surplus capital” to buy stock or invest “in any other monied transactions or operations not inconsistent” with law, “for the sole benefit of the company,” the bill said.
In late March, New York’s legislators averted their eyes from this loophole and approved the bill on voice votes, without dissent. Under New York’s constitution, one more step remained. The Council of Revision, consisting of the governor and senior state judges, had to approve the law.
Chief Justice John Lansing objected. Burr’s open-ended clause, he insisted, was an outrage. But Lansing’s dissent was a lonely one. No one joined him, certainly not Chancellor Robert Livingston, who held an option on 2,000 shares in the new company.
Burr’s new Manhattan Company opened in 1799. It sold its shares for a mere $50, within the reach of smaller merchants and professional men who had never been welcome at Federalist banks. Over the next five years, its thriving business included loans to Burr of more than $60,000.
New York’s water supply fared less well. The Manhattan Company never piped in water from the Bronx River. Instead, it dug new wells in Lispenard’s Meadow, near where Spring Street and Broadway cross in what is now SoHo. By 1840, the water system was obsolete and shuttered.
The Manhattan Company, however, grew through several name changes to become JPMorgan Chase & Co., now the largest and most profitable bank in the U.S.
But its opening chapter included a final macabre element. The company’s original 12 directors included Burr and Hamilton’s brother-in-law, John Barker Church, an Englishman with a yen for financial speculation. At a private dinner, Church alleged that Burr had been bribed in connection with a frontier land development. Burr demanded a duel and Church swiftly accepted.
On the day after the bank opened, the two men faced off at the riverside dueling grounds in Weehawken, New Jersey. When both men missed their first shots, Church ended the dispute by expressing regret for his “indiscreet” remark.
Five years later, Burr and Hamilton squared off at the same spot. Their duel was triggered by Hamilton’s assertion that he deemed Burr “despicable,” a term that then implied sexual irregularity. The men took up pistols owned by Church. On this second journey to Weehawken, Burr’s aim was better. Hamilton died the following day.
In a final symmetry, Church’s granddaughter sold his pistols to the bank that Burr had created. JPMorgan Chase still owns them.
(David O. Stewart is author of three books on American history, most recently “American Emperor: Aaron Burr’s Challenge to Jefferson’s America.” The opinions expressed are his own.)
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