Even before there was a Constitution, there was foreign investment in the United States. At the very beginning, like any new and emerging nation, this was a land of great potential and little cash. The men on Wall Street, then as now, were hungry for capital to flow so that they could slice off a piece of the action for themselves. And even then, there was a vague, ill-defined suspicion of foreign money — a fear of the absentee landlord, of alien influence on our government.
To the first Congress, the first Secretary of the Treasury Alexander Hamilton is urging the encouragement of manufacturing in a primarily agrarian nation wrote in 1791 his often-quoted words on the goodness of foreign investment:
“It is not impossible, that there may be persons disposed to look with a jealous eye on the introduction of foreign capital, as if it were an instrument to deprive our own citizens of the profits of our own industry; but perhaps there never could be a more unreasonable jealousy. Instead of being viewed as a rival, it ought to be considered as a most valuable auxiliary, conducing to put into motion a greater quantity of productive labor, and a greater portion of useful enterprise than could exist without it.”
Quoting Alexander Hamilton on the joys of foreign investment in somewhat like repeating the sales pitch of an encyclopedia salesman on the benefits of a set of the Encyclopedia, Britannica. He may be right, but he has an ulterior motive.
Almost from the day that Hamilton hung up his colonel’s uniform after the Revolutionary War, foreign money became a presence in his life that contorted a distinguished career.
The British M.P.
In an age when honor was so delicate a commodity that it was defended with dueling pistols — Hamilton, while Secretary of the Treasury, managed the U.S. investments of a British Member of Parliament who made his fortune while betraying his country. Some historians believe too that Hamilton leaked inside information to this M.P. which helped guide his speculations in U.S. government securities.
The beginning of Hamilton’s relationship with the British M.P., John Barker Church, is understandable. They were brothers-in-law; each married a daughter of Philip Schuyler, a descendant of the Dutch patroons, an aristocrat with vast land holdings, an American general in the Revolution, and a politician and canal builder afterwards.
Church is an intriguing figure. As the result of a duel in his native England, he was forced to flee to the New World under the assumed name John Carter. He arrived in 1775 and went to work for the Continental Congress as an auditor in Albany, N.Y. In 1776, he eloped with Angelica Schuyler.
As the revolution and the fighting progressed, Church went into business instead of uniform. He joined Jeremiah Wadsworth of Hartford, Conn., in a lucrative partnership supplying the French and American forces. Church also was listed among the investors in the privateer Portsmouth which earned its keep pirating British merchant ships.
Church and Wadsworth piled up a fortune as commissaries to the fighting men. They came out of the war with about $400,000 in the till — an incredible sum in the context of the times when men labored for a couple of dollars a week. With the start of the fledgling nation’s first private bank, the Bank of North America, in Philadelphia in 1781, Wadsworth emerged as the largest stockholder, and his partner, Church, as the second largest.
By 1783, Wadsworth and Church were in Europe, and Hamilton was left with instructions to put together a bank in New York to be controlled by the partners. Before Hamilton could get moving, a group of businessmen started the Bank of New York. Deciding that it would be futile to try to open a competing institution, Hamilton joined the Bank of New York promoters buying some stock for himself, accepting a seat on the board of directors and acquiring a large block of stock for Church. The future Secretary of the Treasury wrote to Church telling him that he would surrender his seat on the board of the bank to either Church or his partner Wadsworth when they returned from Europe. Apparently Hamilton was under the illusion that his brother-in-law intended to become an American. He didn’t.
Church and his wife, Angelica, set up house in London with all of the blandishments of wealth: town houses, country estates, entree to society and to politicians. In 1790, Church was elected to Parliament. Meanwhile back in the U.S.A., Hamilton continued to manage Church’s money: lending it out, buying land, picking up more bank stock, and speculating in government securities. If the thought occurred to Hamilton that he was representing a man who had acquired his fortune by betraying England — while remaining an Englishman after the Revolution — that thought undoubtedly was softened by the family relationship and by the fact that Church was Hamilton’s heaviest creditor. Perhaps Hamilton just passed off Church as a multi-national businessman who knew how to take advantage of a ripe opportunity without the qualms of patriotism obscuring his vision.
Hamilton was about 35 (there is an uncertainty about his age) when he became the first Secretary of the Treasury in 1789. His reddish-brown hair was thinning, his slender figure was giving way to the fleshiness of middle age. Like so many in succeeding generations, he entered government service at the price of sacrificing a comfortable income. His salary as Secretary was $3,000 a year, while he was earning two or three times that amount in private law practice. And, he continued to manage Church’s affairs.
When the new Secretary of the Treasury turned in his 1790 report to Congress on the public debt in which he recommended that the federal government pay the full value of its long overdue war debts as well as the outstanding state obligations incurred in that war, a windfall of millions of dollars poured into the pockets of the speculators who had bought the government certificates at prices as low as 12 cents on the dollar. Among the chief beneficiaries were members of the Schuyler family and Church. Hamilton was suspected at the time of leaking advance information to speculators — both in Congress and among his business associates — before the Report was made public.
The Dutch Bankers
Late in 1789 when revolution was sweeping across Europe diminishing investment opportunities, four Dutch banking houses sent an affable Swiss named Theophile Cazenove to the United States in search of promising outlets for their capital. Cazenove and his hard cash were welcomed enthusiastically. The Dutch money flowed into government securities, the new Bank of the United States, land speculation, and canal-building projects.
When Hamilton was putting together the nation’s first really big business — the Society for Establishing Useful Manufactures (S.U.M.) — Cazenove and his money came quickly to mind. In a letter of April 20, 1791 to William Duer, Hamilton’s former assistant at the Treasury and a leading New York financier, the Secretary of the Treasury wrote: “I send you herewith a plan for a manufacturing society in conformity to the ideas we have several times conversed about. It has occured to me that Mr. Cazenove might be willing to adventure in the project.” Adventure was a word used at the time to mean speculate or invest. S.U.M. was conceived as a broad-spectrum manufacturing conglomerate with a capitalization of $1-million, which was probably a larger sum than the rest of the nation’s midget manufacturing concerns put together could muster.
Duer sent a copy of Hamilton’s letter along to Cazenove, adding his own sledgehammer comment that he would be happy to let the Secretary of the Treasury know if Cazenove came up with some investment capital for the project. Cazenove got the message — and put $20,000 of his Dutch bankers’ funds into S.U.M., the largest single investment in that corporation.
Through the summer of 1791, Hamilton was busy both helping to put together S.U.M. and at the same time drafting his report to Congress on Manufactures in which he argued for government support for American industries. As busy as he was that summer, the Secretary of the Treasury took time from his hectic schedule for a clumsy affair with a married woman, Mrs. Maria Reynolds.
Mrs. Reynolds, a stranger, showed up at Hamilton’s office in Philadelphia (then the capital) with a story that her husband had deserted her and with a plea for money to get her to New York. Since Hamilton was a New Yorker, and she was a New Yorker, she had turned to him. The astute Hamilton, sensing a ripe opportunity himself, said he didn’t have any ready cash in the office, but he would drop by her place that night.
Hamilton appeared at Mrs. Reynolds room on schedule. In his own words: “I took the bill out of my pocket and gave it to her. Some conversation ensued, from which it was quickly apparent that other than pecuiniary consolation would be acceptable.” He gave her that consolation. Before the year was out, Mr. Reynolds showed up to play the role of the hurt husband, and was paid $1,000 by Hamilton to balm his damaged feelings. That was one-third of the Secretary of Treasury’s annual salary. Even while the extortion money was being paid, Hamilton continued his affair with Mrs. Reynolds. The Secretary eventually got the message that he was being squeezed with his love’s connivance, and the romance fizzled.
All the while, Hamilton was helping to launch his corporate pet, S.U.M. He located the property for the corporation’s plants at Patterson, N.J., hired skilled workmen, and encouraged his associates to invest in the firm. In the prospectus for S.U.M., which Hamilton apparently helped write, there is mention that “the pecuniary aid even of Government though not to be counted upon, ought not wholly to be dispaired of.” The New Jersey Legislature granted S.U.M its corporate charter on Nov. 22, 1791 — the first corporate charter in the state.
A couple of weeks later, Hamilton delivered his Report to Congress on Manufactures — and not surpassingly urged a program to nurse new industries along with financial aid from the government. In the same report, he delivered his famous quote in favor of welcoming foreign capital — an understandable sentiment with Dutch capital already invested in S.U.M. and his brother-in-law’s money in his own pockets and in so many other enterprises in the U.S.
When the financial panic of 1792 wiped out Duer and several other key officers of S.U.M., the corporation wound up in a cash bind and turned to Hamilton for help. The Secretary arranged a loan from the Bank of New York for the shaky corporation at a preferred interest rate of five percent — the same charged the federal government. In his correspondence with the bank in this period, Hamilton notes that he was doing all he could to protect the bank’s role as the depository of federal funds in New York — a role assigned by him.
After leaving the Treasury in 1795, Hamilton was named a director of S.U.M., but the corporation through a combination of mismanagement and malfeasance was a failure as a manufacturing enterprise, After 1796, S.U.M.’s only role was to lease its properties to other manufacturers.
Cazenove hired Hamilton in the fall of 1796 to lobby on behalf of the Holland Land Company to wipe away a New York State law prohibiting aliens from owning land without special permission of the Legislature. The Holland Land Company had been formed by the Dutch banking houses to manage their land speculations. Since 1791, Cazenove had acquired 5,000,000 in Pennsylvania and New York for his Dutch bankers. They now wanted to cash in on their investment by selling the property in small parcels to settlers both American and European, but the anti-alien law was a threat both to their own property rights, and possibly the opportunity to sell it to other foreigners.
Hamilton got a law through the Legislature that year permitting foreigners to own real estate for up to seven years — after which title could revert to the state. That didn’t satisfy Cazenove. He sent the former Secretary of the Treasury back to Albany to try again. In the second go-around, Hamilton’s father-in-law Philip Schuyler succeeded in getting a new law passed to enable the Holland Land Company to extend its ownership rights to 20 years. This 1797 law contained a very tough proviso: the Dutch bankers had to agree, if the law were to be put into force, to invest $250,000 in Schuyler’s private canal company, the Western Inland Lock Navigation Company.
While Cazenove was willing to pay reasonable bribes, that kind of extortion was out of the question. He turned instead to Arron Burr, a power in New York politics and an enemy of the Hamilton-Schuyler power bloc. Burr got Cazenove the law that he wanted in the 1798 session of the Legislature. All that it cost the Holland land Company was $10,500. Paul D. Evans in his history of the Holland Land Company said that the bribes were carried on the company books back in Amsterdam as legal fees and loans. Evans said that “$3,000 went to the Attorney General of the State, Josiah Ogden Hoffman…$5500 went to Aaron Burr.” Burr’s share was listed as a loan, which he never repaid.
Hamilton and the Schuylers were naturally nettled by Burr’s performance. John Barker Church, who had returned to the United States in May, 1797, dropped some disparaging remarks in public about the bribes Burr had accepted from the Holland Land Company. Those insulting comments, although true, led to a challenge. In the duel which followed, Church shot a hole through Burr’s coat — an experience Burr might have been thinking about when he fatally wounded Hamilton seven years later in their famous duel on the Jersey shore.
Capital knows neither nationality nor morality…that is left to the human beings who handle it. Corruptive men used the foreign capital that flowed around Alexander Hamilton. Cazenove even interfered in the signing of a treaty with the Indians. In 1797, he paid a government agent $2,000 to hurry the Seneca Indians into signing away their rights to millions of acres of land in which the Holland Land Company was speculating. The Dutch bankers went on to become the absentee landlords of thousands of settlers in the Atlantic States, and as we have seen their money bent the law of New York State to fit their interests. Foreign investment is too complex a subject to draw general conclusions, but the lesson of the past is clear: the motives and methods of alien investors should be scrutinized to clarify their individual impacts on the people and the nation, and their influence on our government.
Received in New York on July 31, 1975
©1975 Kenneth C. Crowe
Kenneth C. Crowe is an Alicia Patterson Foundation award winner on leave from Newsday. This article may be published with credit to Mr. Crowe, Newsday, and the Alicia Patterson Foundation.