Focusing on the state of New York, home to the first American banks, utilities, canals, and transportation infrastructure projects, Building the Empire State examines the origins of American capitalism by tracing how and why business corporations were first introduced into the economy of the early republic.
2015 | 304 pages | Cloth $49.95
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Table of Contents
Note on Banking Terms
Introduction. Strength in Structure
Chapter 1. "The Most Dangerous and Effectual Engine of Power"
Chapter 2. "An Enlarged American Scale"
Chapter 3. "A Very Convenient Instrument"
Chapter 4. "To Occupy All Points"
Chapter 5. "If We Must Have War or a Canal, I Am in Favor of the Canal"
Conclusion. Corporate Political Economy
Strength in Structure
One late spring day in Manhattan in 1784, Robert Robert Livingston Jr. did something he and his peers did nearly every day of their adult lives: he sat down, pulled out a sheaf of paper, and began scribbling.
For the past seven years, the 37-year-old aristocrat had been New York State's chancellor, one of its top judicial officials. The position had been created under a new state constitution New York adopted in 1777 after the separation from Great Britain. Livingston coauthored that document and all but inherited the newly created post; his late father, Robert R. "Judge" Livingston Sr. had also been a prominent jurist and politician in colonial New York.
Politics was one of the Livingston family's businesses, and Robert Junior had long been busy at the center of the politics of Revolution. In 1775 he became a delegate to the Continental Congress in Philadelphia, and in 1776 he was one-fifth of the Committee of Five tasked with drawing up a Declaration of Independence. He returned to New York to frame that state's 1777 constitution, was named the state's chancellor by a provisional governing body, and left again in 1781 to serve as his country's first secretary of foreign affairs, its senior-most diplomatic official.
But now all of that was in the past.
As the national capital ambled from Philadelphia to Princeton to Annapolis, the center of its politics drifted further and further from Livingston's reach and from New York itself, where the Livingston name—one that had dominated colonial politics for a century—seemed to be at a nadir. In the New York legislature, some of the Revolution's leaders, whom the chancellor had labeled "warm & hotheaded Whigs," seemed determined to permanently keep men like him from wielding anything like his former power. Having come under fire for being an absentee state officeholder, Livingston resigned his foreign affairs post in 1783 and returned home to mend ties in New York. He spent months battling the allegation by the Whigs that he had in fact vacated the office of chancellor once he began serving in Congress. Even after that controversy quieted, a smaller contingent of legislators pestered the chancellor by proposing to cut his £400 salary in half while debating a bill that gave raises to the governor and every other judge in the state.
Livingston quietly began plotting his recovery by falling back on a playbook his family had (successfully) used for generations: rebuilding his political capital by rebuilding his financial capital. As a political entrepreneur descended from several generations of political entrepreneurs—people who sought to translate their influence and connections into sources of income and opportunity—Livingston was used to living in a state where the official apparatus of government was his collaborative and encouraging partner, aiding his enterprises and giving a boost to his personal ambitions and those he had for the civic well-being of New York City. The animating energy of colonial government had long come from collaborations between official entities and local private interests. In Livingston's mind, the propriety of that relationship had in no way been discredited by the Revolution. Restoring those pre-Revolutionary practices would favor Livingston's family and others with capital to invest and influence to exercise, and for the next thirty years Robert Livingston planned and profited from political-economy practices he helped set.
During the fall of 1783, Livingston began spending money and political capital to reestablish both the city of New York and his footing within it. He began enticing friends and associates to join him in buying houses and estates vacated during the war or abandoned by Tory Loyalists who had fled the country. Livingston had already invested £2,800 in such properties and was seeking a credit line of £8,000 to plunge even deeper into the venture. At the same time, he was assembling a portfolio of associates to cofound a so-called land bank where such real estate holdings could be mortgaged for paper money.
What frustrated Robert Livingston enough to decry the city's "notorious" greed in early 1784 was that the official apparatus of New York's government—both its state legislature and the city corporation governing New York City through an appointed mayor and an elected board of aldermen—was not reciprocating. As he read newspaper articles about other states' willingness to use incorporation grants to harness civic energy and mobilize private capital, Livingston saw New York failing to support the ambitions he and other New Yorkers harbored for their city and state. His bid for a bank charter was stalled in the state legislature, and New York's municipal government seemed to be immobilized and subject to the whims of petty entrenched interests looking to preserve their own narrow privileges at the expense of others.
Pouring his angst onto four long, narrow ledger-sized sheets of laid cotton paper—the kind lawyers used for formal court filings and Livingston used for everything—the chancellor fumed that "since the peace, a rage has prevailed in the neighboring states for corporations" that "annex ideas of utility to them." But in New York "we have not been so fortunate." Although "the fire" of 1776 "left open a door for improvement" and history had provided London's 1666 singe as a model for what an active and ambitious city government could do under such circumstances, New Yorkers refused to "[do] things themselves or [avail] themselves of the spirit of enterprise that the war has left with us."
According to the chancellor, New York City's government had become incapable of following through on even basic tasks. New Yorkers had gotten good at "[projecting] useful schemes for posterity to carry into effect," the chancellor wrote. Streets that should have been repaired for "the health & embellishment of the town" had instead become "the abode of verb & excuses." The city corporation had planned to plant trees that would re-create the "cool & shady walks" New Yorkers had enjoyed before the war. With the planting season nearly over, however, the chancellor marveled, "[N]o step has yet been taken." "Even this shadowy improvement," he predicted, "is liable to cheat our hopes." A "scheme," Livingston reflected, "is extinguished with the same rapidity that it was embraced." "Half a dozen old women" could arrest work on a project by merely "scold[ing] . . . the profanity" entailed in "[exposing] dark recesses of stone street . . . to publick view."
Livingston thought city leaders had been cowed into inaction by incumbent interests and entrenched monopolists who were "too powerful for the rest of the citizens" to defeat. The influence of these forces, Livingston believed, distorted the city's political economy and marketplace to the detriment of consumer-citizens. Spoiled bread flour that should have been "held up to public view" by a regime of city-appointed inspectors was instead being sold to unsuspecting buyers, all to keep "the customs of our ancestors, encourage luxury, and discourage . . . the sale of unmarketable flour." An abundance of fresh water that could have provided "comfortable refreshments" to residents while "guard[ing] us against the alarming ravages of fire" was instead unavailable—all because the proprietors of a spring-fed well called the "Tea-Water Pump" stood in the way. "It is a notorious fact," he wrote, "that the greed of this city is worse than that of any other place upon the continent." "[A]las we have little hope to expect," Livingston sighed, that such an improvement "will be crowned with [success] while there are tea-water men, and tea-water women & tea-water children" insisting they alone had gained in 1757 the permanent and exclusive right to supply the city with water for all time. As long as their government refused to challenge the status quo, New Yorkers would be left with no choice than to be "tormented from seeing the cup glide by them after it was brought to their chins," destined "neither to eat or drink like other folk." "It is our common reproach to want bread and water" even though "the means of obtaining both are in our power." The only public project New Yorkers could truly be proud of, Livingston bitterly concluded, was the city's decades-old gallows. They were "distinguished," he noted, by their strength, and were "in the word[s] of Hamlet's grave digger, built stronger than the carpenter or mason."
In his lifetime, Robert Livingston sent thousands of letters and published nearly a dozen widely read essays. This, however, was not one of them.
There is no indication that Livingston returned to this essay or revised it or that it was ever sent—to anyone. One of Livingston's biographers linked it to another letter sent to New York City mayor James Duane—the husband of one of the chancellor's cousins. But that missive is mocking and mischievous in tone, clearly intended to irk the mayor. That letter was a bridge-burner that flayed both the city's political leadership and the public alike and was originally written for publication in a newspaper. It was an essay written at a moment when, in a bitter letter to his friend John Jay, the chancellor said he had "concluded my political career."
Livingston might have simply wanted to spare his family embarrassment or shield himself from this momentary departure from rhetorical elegance. However, his statement to Jay about having "concluded" his political life cries out for further scrutiny. By what measure could Livingston credibly claim to be exiting politics? It certainly would have surprised New York State's legal and political community to learn that their sitting chancellor considered himself retired, particularly when his daily actions and ongoing engagements plainly contradicted this statement. As a man raised in the innermost circles of New York politics during British dominion, Livingston was clearly irritated and even disturbed by his state's postwar politics during these first years of American independence now called the Critical Period.
The Revolution fundamentally challenged the colonial status quo, empowering people who wanted to deny former colonial aristocrats the chance to return to their positions at the top of the new nation's political and socioeconomic ladders. Some ideological imperatives, therefore, demanded that Robert Livingston feel frustrated in 1784, and a cadre of state legislators stood ready to make his political life as difficult as possible. Livingston's reaction was evidence of just how unfamiliar, at least to him, this new environment had become. He remained determined, however, to turn his lands, money, connections, and family name into sources of profit and influence—not as an aristocrat but as a political entrepreneur.
Yet the chancellor was all too aware that not every New Yorker with capital was committed to the same agenda. When the chancellor railed against the "notorious fact" of the "greed of [New York City]," he was drawing a contrast between himself and others who sought privileges in the political marketplace. Livingston saw himself as a positive force in his country's politics. Profit was just one of several reasons he was interested in banking and real estate investing, activities that he viewed as constructive contributions toward the commercial success and political stability of his state. The marketplace regulations and interventions he desired—flour inspections, freshwater supplies, street paving, tree planting—had long been permissible and even definitional duties of municipal governments that had been constituted under a royal charter, operated within common law, and rechartered following independence.
Although localities, states, and the developing national confederation had adopted formal articles and constitutions, the nation's actual day-to-day governing habits—its applied political economy—were still up for grabs at this moment in American history. In New York, as in the nation, the proper extent of the state's mixed economy of public-private enterprises had hardly been debated, let alone defined. The ideological imperatives of the Revolution were competing with familiar practices of pre-Revolutionary governance, and although some lawmakers wanted to further exploit their opportunity to effect social and economic change, others sought to settle the Revolution as soon as possible. The state government, Livingston told Robert Morris, was "weak, unsettled." The monopoly-holders of the Tea-Water Pump and deceitful flour merchants were fine with that and with exploiting a lack of competition in the political marketplace to wring profits from an already anemic economy. To Livingston, their greed was parasitic, and the city government's inaction amounted to a betrayal of the Revolution's "spirit of enterprise" that was to be "encourage[d] . . . in others." Livingston's essay, therefore, did not merely address a personal agenda; the larger question hovering over his words and the country as a whole in 1784 was: What happens now?
Political economy is a well-defined term in American history: the way that states and governments ordered the economy and operated within the marketplace. As much as is known about it in theory, however, less is understood about the interactions among legal and extralegal voluntary associations, chartered and informal institutions, and political officials with backgrounds and futures in commercial and transportation development. But these ground-level machinations, complex and often messy, are what political economy is once it is operationalized.
Building the Empire State surveys and samples the changing institutional ecology of New York State during the first five decades following independence, a period my fellow historians call the early republic, by following a community of entrepreneurs like Robert R. Livingston, and their enterprises. New York was a onetime mercantile colony that, as a state, became home to the first bank incorporated after the Revolution (the Bank of New-York), utilities, canals, railroads, and other internal improvement companies, as well as the country's most powerful steamboat monopoly and the largest public works project of the early republic: the Erie Canal. Within this geographical context, this book investigates political economy in practice: I ask how ideas and ideologies gave way to actions and policies, and I explore the political, economic, and legal consequences of chartering particular institutions and organizing the marketplace in certain ways. In this period, New York's state government was busy opening avenues for profit and influence to its citizens, prompting them to organize and mobilize as economic interests in order to take advantage of these opportunities. By asserting authority in creating and regulating institutions that facilitated and intermediated private commercial transactions throughout the northeastern United States and toward the expanding westward frontier, New York's political officials set the formal rules of the game and defined the informal norms of behavior in one of the nation's busiest commercial centers and largest economies, demonstrating that "the state" was one of the primary agents of change in the early republic's economy.
But although early American states were important in this era, they were hardly omnipotent. Operating within a layered federal regime of divided and shared sovereignties; early state governments lacked the jurisdictional authority, fiscal imagination, and public consent to directly undertake comprehensive revenue-intensive programs of nation-building. To compensate, lawmakers tapped the rule-making powers that were implicit in American statehood and constitution-making in order to reward private coalitions' capital-formation abilities with formal institutional structures and legal privileges. Legal tools that had been the legacy of British imperial rule—charters for business corporations and banks, and monopoly grants for technology and transportation, for example—were repurposed by American lawmakers to serve the republic's domestic needs. By restructuring and selectively bestowing these useful instrumentalities on favored groups, New York State political leaders created an economy of political opportunity that linked private ambition to the public weal.
Flinging the doors of statehouse chambers open to petitioners eager to gain legal privileges and realize exclusive profits resurrected the familiar pre-Revolutionary practice of engaging private entities to finance, construct, and manage civic institutions and ostensibly public assets. The landscape of political opportunity in the early republic was dominated by an economy of influence in which financial capital readily purchased political and regulatory power; this incentivized coalition-building and rewarded legislative skill. It also empowered public officials to steer private capital toward building a financial and transportation infrastructure capable of encouraging further commercial ambition and hastening economic development. Government therefore got things done by deliberately bestowing public authority on individuals and institutions in order to tap private capital and channel self-interest toward public goods and civic ends. As a consequence, legislators willingly—and in some cases inadvertently—sustained the influence of a cadre of unelected political actors whose stature flowed from their personal access to private capital: political entrepreneurs.
Once they were organized into legally sanctioned and formalized partnerships and corporations, these out-of-doors unelected operatives and political entrepreneurs began curating their interests; they recruited supporters from the ranks of elected officials to deepen and widen their ties to voters. Though far from uniform or unanimous, support for politically oriented entrepreneurs among a growing interlocking directorate of citizen-shareholders and corporate directors frustrated the practical day-to-day efforts of constitution-writers and lawmakers to collar unelected individuals' and associations' capabilities to bend the vast power of the state's rule-making regulatory apparatus in their favor. Successful political entrepreneurs actively interested people in their enterprises by building networks of credit that offered access to debt and capital, by transforming the transactional relationship between modest citizen-shareholder investors and high-born corporate officers into durable long-term political alliances, and by constructing a partisan infrastructure to bring institutional discipline to the state's official sources of political authority. In the new nation's political economy, therefore, the energies of government, subordinate political institutions, and political parties were all fueled in large measure by extra-legislative, out-of-doors mobilizations undertaken for economic and material reasons.
For elected officials and appointees, catering to constituents' material interests was no distraction; it was the daily grind of the business of governing. Perusing the journals of legislative houses and statute books makes clear that such work consumed a great deal of attention from New York's political class in the early republic. Across a spectrum of letters of affection and agitation, it is clear that there was a consensus position shared among a broad swath of political entrepreneurs in the early republic—George and DeWitt Clinton, Robert R. Livingston, Robert Fulton, Aaron Burr, and Alexander Hamilton, accompanied by a large and wide cohort of less-studied figures—that a chief purpose of politics and government was to advance citizens' material interests and promote a commercial agenda. Creating a dynamic marketplace required the interposition of state power, and in the view of this cohort, government was supposed to be actively aiding the ambitions of the ambitious; for them, the controversy most often concerned whose enterprising plans merited support.
Although it is not surprising that capital and corporations exercised political power in the early republic (as they still do) or that political actors responded to them (ditto), it was not a given that the institutional ecology of New York State would evolve to revolve around the community of political entrepreneurs at the center of these enterprises. These experiments in privilege and monopoly were tests of the public's patience for private enterprises entrusted with exclusive rights to execute a public mission. And the political intensity of American corporations' early origins—particularly banks and transportation enterprises—helps explain why contemporaries and historians alike frequently cast a skeptical eye toward their emergence in the early republic.
This story is, after all, a paradox: corporations morphed from being objects of suspicion and symbols of monarchy in the late eighteenth century to being the dominant tool for capital formation and business organization by the middle of the nineteenth century.
From the seemingly antibank, anticorporate, and antimonopoly political-economy rhetoric of the 1780s, an interwoven set of incorporated banks emerged in the United States that financed a set of semi-exclusive transportation initiatives. It is easy to explain this development as an enlargement of privileges among an already privileged cadre of self-dealing political leaders who succumbed to corruption and materialist temptations. Certainly the metaphysical efforts of political-economy theorists to sort out distinctions between public and private spheres of action was undermined by the state's adoption of corporations and monopoly grants to run mixed-economy enterprises. Most efforts to use politics to restrain the influence of capital in early America were struggles that seem destined to fail.
Yet the subtle, often unspoken assumption underlying many histories of the politics and political economy of the early republic is that angst concerning corporations and concentrations of capital was widespread across thirteen states' legislatures and the public. Through the ideological prisms of republicanism and liberalism, our unfortunate present-day predicament can seem avoidable and even accidental. The shorthand narrative goes something like this: starting with the creation of incorporated banks after the Revolution, capital was unleashed with the emergence of rapacious railroads, a "Market Revolution," and a more laissez-faire marketplace that came to be dominated by trusts and monopolies in the Gilded Age. Economic histories of the period often rely on the same narrative to reach a strikingly different conclusion: one celebrating laissez-faire as the demise of the anticapitalist radicalism of the American Revolution and the blossoming of a more nearly perfect and correct set of institutional arrangements between the public and private sectors.
Historians have identified a spectrum of "good founders" who presciently recognized that corporations, monopolies, and other institutions for capital formation and the aggregation of influence had the potential to endanger the institutions of government and civil society; some believed they had no place in the nation's political economy, while others thought they could be unleashed only after first being mastered. A cadre of state legislators in Pennsylvania held firm in opposing all incorporated banks and trying to repeal an existing bank's charter, while in Massachusetts lawmakers sought to house-train corporations by tinkering with the details and complexities of corporate charter language. These histories of politics and political economy look to the founding generation for the answers they formulated to questions concerning how interests were to be managed in the young republic, poring over warning signs our forebears missed in this "lost moment" when history could have unfolded in a different way.
But this is precisely why context is key.
Early American lawmakers considering petitions for legal privileges needed to look no further than the 1773 Tea Act for an example of how a corporation's shareholders could sway parliamentarians' votes, distorting an empire's political economy and propelling its colonies into open rebellion. The East India Company, however, was a unique institution without a North American equivalent.
By contrast, American historians writing in the twentieth and twenty-first centuries approach this subject with their own particular constellation of references. Whenever most people are asked what the word corporation means to them—whether they are detached scholars and journalists, interested policy makers and politicos, or students considering the question for the first time—they conjure answers that reference the signposts of our era. They do not think of the British East India Company or its favored position in the eighteenth-century tea market but settle their brains on the twenty-first-century companies they interact with on a regular basis. To live in the United States today is to live in a nation where well-organized private interests dominate the defense, health-care, banking and finance, and media and publishing industries, as well as science, all manner of transportation, and much of the everyday commerce of nearly 300 million citizens.
Despite the sticky web of complication woven by this system as it was practiced, the vocabulary we use in our present political discourse continues to insist that somewhere, deep under layers of institutions, money, motives, and grey shades of legality, an identifiable line once existed that demarcated the boundary between What Is Public and What Is Private.
This assumption lies at the heart of decades of state legislative and congressional lawmaking and United States Supreme Court litigation aiming to limit the influence of corporations and wealthy individuals on elections and policy making. But even after drawing and redrawing limitations on who can participate in a campaign, when and how much they can contribute, and in what places and spaces candidates and lawmakers can solicit support, little seems to have been redeemed. Despite the creation of a Federal Election Commission (FEC) in 1974; the Court's 1976 decision in Buckley v. Valeo; the adoption of the Bipartisan Campaign Reform Act (McCain-Feingold) in 2002; internal efforts by congressional ethics committees; audits by the executive branch; state governments' oversight and policing of agencies, officials, and legislators; and citizens' activities in monitoring disclosure reports, filing Freedom of Information Act (FOIA) requests, and signing Public Interest Research Group (PIRG) petitions, the applied political economy of the United States remains inherently muddled.
The federal regime's regulatory apparatus often appears to be deliberately designed to be captured by the industries being monitored. Many sectors of the U.S. economy are dominated by just a handful of corporations, often operating as duopolies or monopolies. And although these firms are said to be part of the free and private marketplace, their positions are protected and their power is undeniably felt throughout the public sector. In the formal exercise of policy making, rule-making, lawmaking, and the crafting and enforcement of administrative regulations, and in the informal but highly lucrative economy of influence sustained by lobbying, deal-making, political fundraising, and seasonal electioneering, any lines that might separate public and private spheres and markets in our era seem blurred beyond recognition. The most fundamental, basic tasks of the modern American state—"to insure domestic Tranquility, provide for the common defense, promote the general Welfare"—are today executed within the mixed economy of socialized risks, private rewards, public funds, public oversight, and private profit.
Judges, policy makers, and even government activists do not seem able to carve out distinct public and private spheres in thinking about how America's political economy should work, largely because reforms fail to take full notice of how that political economy works in practice.
What if there was no lost moment? What if, instead of swinging into action as an afterthought to restrain a politics driven by ideology (or honor or culture) in the early republic—think of James Madison's Federalist No. 51—material interests were instead at the very heart of post-Revolutionary and post-Constitutional Convention politics, used to both excite and temper competing imperatives? If true, we could then view the "emergence" of corporations and economic institutions as a continuation of past practices adjusted to fit new political arrangements.
Much rhetoric of the American Revolution redefined civic space by drawing boundaries around influence and power. Pamphleteers, Continental congressmen, and minutemen all evinced hostility to accumulations of wealth, concentrations of political authority in a single individual or among a court of collaborators, and the conflation of personal wealth with a right-to-rule that was common in pre-Revolutionary times. The idea that a man's political power emanated from his person, was legitimated by his property, and automatically elevated him to a stature sufficient to merit an office might not have been explicitly annihilated by the Revolution, but it was certainly disrupted by challenges to authority, aristocracy, and deference. Although wealth itself was not abolished, it was nevertheless divested of any implied grant of authority. Inheritances and marriages were no longer investiture ceremonies. The Revolution formally decoupled fitness for office from accidents of birth, marriage, and fortune once the legitimate source of government authority was relocated from the King, his ministers, and his imperial dependents to the sovereign people and their duly elected deputies in legislatures, councils, and congresses.
Yet this legacy was fundamentally jeopardized by the building of an institutional matrix of state-chartered enterprises responsible for igniting both financial and transportation "revolutions" in this era. To fund and run these corporations, monopolies, and other projects, lawmakers politically empowered a particular class of individuals: people with capital. Political entrepreneurs were people without boundaries, not at all self-conscious or deeply conflicted about using political leverage to gain economic advantages and deploying capital to win political disputes. They embodied in their person powers that were, in theory, reserved only for public bodies and to be dispensed only by popular consent in the new democratic republic. This form of authority nevertheless radiated throughout the institutions of New York's economic life. Participating in the marketplace as a corporate director or shareholder; as a licensee of a state monopoly or partner in a state-sanctioned venture; as a holder and defender of a federal patent; as a bank depositor or borrower; as a bond holder in federal, state, or corporate securities; or even as a single signer among hundreds on a petition on behalf of a canal, railroad, or other project sent to the state capital were all avenues to participate in the state's political and civic life, demolishing any pretense of there being boundaries between the two.
Ordinarily we think of this process as one of exploitation or regulatory capture that occurs when private firms gain sway over their public regulators. But what we learn in Building the Empire State is that no such coup d'état happened; it was never necessary. American capitalism instead grew out of collaborations between political and economic interests—a dynamic in which business strategies and institutions were shaped by political strategies and institutions, and vice versa. In the case of Robert Livingston, self-interested and civic motives could be harmonious; he had no qualms about positioning himself and his investments for a favorable outcome if his larger civic plans became a reality or in gaining personal political power by circumventing the electoral process to become the principal of a commercially and financially influential extra-legislative institution. For him, no meaningful distinction existed between public authority and private capital. Politics existed, in part, to ensure that the two were intertwined; Livingston and his peers built their coalitions of investors with an eye toward translating money into political leverage.
Although business, banking, and corporate histories are often indexed by the formal names of firms and institutions, the process of actually creating a political economy is personal and contingent. This is not a study that rests comfortably in the gallery of a legislature to rehash debates over a banking bill, nor does it dwell in casebooks or libraries. Thanks to almost two decades of brilliant interdisciplinary studies into political culture and a push to move "beyond the Founders," we know that politics is not confined to recorded debates at the federal level. If we want to know what happened and how things really worked, we need to recover what happened out of sight in conference rooms and out of doors in the streets of the states and localities that composed the federal union. At each layer of the regime, officials were regularly besieged with proposals and petitions from people promising access to financial capital. But awarding privileges to these applicants was not a blind process favoring just anyone with money; legislators did not turn to strangers to build the republic. Instead, successful petitioners were more likely to be coalitions and partnerships that deliberately blended financial capital, political capital, and human capital in the form of technological, engineering, or other forms of specialized expertise. At the friction point where private initiative met public authority, well-crafted coalitions were represented by lobbyists, current and former legislators, officials, and opinion leaders who, in turn, seduced other lawmakers with personal assurances that a coalition had the know-how and capital to plan, execute, and complete a project, delivering a public good in return for a publicly given privilege and an opportunity for private profit. Therefore, the very process of creating a financial and transportation infrastructure in the early republic had structural incentives that favored a particular species of business coalition—one assembled with political savvy—because the winnowing process used by legislators to cull through stacks of petitions demanded no less.
As Robert Livingston observed in 1784, officials charged with policy making in the new republic—city aldermen, state legislators, judges, governors and their small circles of advisers—all were more responsive to organized interests than airy notions of the public good or specific demands backed by a disorganized—if unified—"popular" will. For lawmakers and government officials "the public good" was not a self-evident vision; even at rare moments of apparent consensus, opposing economic interests could use their institutional advantages to thwart policies intended to serve that public, civic good. Therefore the legal privileges conferred on particular groups long ago and under a now-deposed regime had given them an institutional permanence that was undeniably difficult to overcome. Being so well established in the political marketplace allowed these groups to amplify their wishes—however narrow and selfish—giving them an outsized voice in policy making. Moreover, the state's inaction reinforced this institutional asymmetry by discouraging the formation of countervailing rival institutions and coalitions.
In the emerging American political system, therefore, the pre-Revolutionary habit of attending to organized, mobilized, and institutionalized interests had remained in place. Government responded to pressure from established interests; it was irrelevant whether those interests were discredited so long as they faced no meaningful opposition. In pondering the failures of the early 1780s, Robert Livingston had come to appreciate the important role that the institutionalization of political interests played in creating engaged and competent public and mixed-economy enterprises. For Livingston, the novelty of this situation was that it was an institutional problem he could not change by leaning on his aristocratic name or his immense inherited land holdings. The sellers of spoiled bread flour and "Tea-Water men" had enfeebled the city government's capacity to address matters of public health and commercial regulation, not because those ideas lacked merit or because the city lacked the legal authority to assert its police powers in those areas but because no countervailing interests existed to agitate for those measures. The chancellor and others, therefore, could pine all they wanted for more energetic public authorities and more civically oriented projects, but these plans would always be at risk of being defeated so long as advocates were unorganized and unstructured. Being interested was not the same as being an interest, let alone an institution. A hungrier and thirstier population might be unhappy, but unless they were mobilized and organized, they were unlikely to see the government change its course. Electing a slate of more favorable candidates to the state legislature or the city's board of aldermen would not provide a cure because the underlying problem was a lopsided institutional ecosystem.
With this realization Livingston had discovered a loophole in the radicalism of the American Revolution: a small number of people could multiply their impact by organizing themselves into associations and institutions with permanence and influence. For this reason, Robert Livingston, who hailed from one of the nation's most wealthy and aristocratic families, had been at the apex of Revolutionary politics, and claimed to have "concluded my political career," decided in early 1784 to write, circulate, and submit a petition asking the state legislature to create a corporation. Livingston saw commerce, and banking in particular, as a useful tool for revolutionary settlement—the process of bringing the Revolution to a close now that the war was over. He believed commerce could mend the frayed relationship between the city and state's revolutionary Patriots—Whigs both mild and "hot-headed"—and those former Tory Loyalists who decided to remain in America and cast their lot with the new republic. If Livingston could channel influence and money toward the common goal of repairing and rebuilding the city's physical plant, he could help New York City reemerge from the conflict as a commercial center with a vigorous mixed economy and population of Tories and Patriots who were each stakeholders in the city's success. Meanwhile, he could personally profit from his investments while gaining leverage over and influence within the city and state's political economy by installing himself and select like-minded associates at the head of what would become the state's most influential financial institution. In the months following a Revolution against imperial abuses, unaccountable power, and monarchical tyranny, New York's chancellor had decided how he would maximize his influence in the new nation's political system: he would become a banker.
In creating a market, therefore, the state had defined what was at stake in political competition. By simply responding to interests, the state encouraged the formation of interests that would marshal financial, human, and technical capital on behalf of proposed projects. In addition, lawmakers prodded aspiring citizen-shareholders to organize plans; identify, recruit, and mobilize supporters: consolidate investor capital: and circulate petitions later unfurled in lobbies and cloakrooms in Manhattan, Albany, and Washington. Once legislators had decided to engage outside interests in the act of state formation, the boundary between politics and capital became as thin as the paper petitions for those charters and grants.
Embracing the complexities and context of these narratives is crucial; the instinct to search for clean hands and pure intentions is little different from the temptation to impose ahistorical "public" and "private" categories on mixed-economy institutions. The early republic's applied political economy was consciously manipulated by its participants in a way that militates against such neatness. Once the first shovel of canal dirt or turnpike mud was turned over by a worker paid in paper banknotes that had been carried upriver aboard a privately owned state-licensed steamboat and unloaded on a private pier at a public port, any bright categorical lines we imagine had long been trampled underfoot. Similarly, divisions between partisanship and supposedly apolitical business relationships crumbled once people began identifying themselves as Federalists, Republicans, or Whigs, for personal financial reasons, and switched affiliations if such a move would deliver advantages in business, credit, legal privileges, or political appointments. Even during the Critical Period and "Revolution of 1800," when ideological commitments reached high-water marks, political leaders were busy constructing legislative and electoral majorities with promises of public patronage, private favoritism, and competitive advantages in commerce and business. Taken together, these statutes, petitions, and journals; the debates they ignited; and the institutions they spawned are the clearest articulation of what Americans expected from their government and envisioned for their political economy in this era.
The key to understanding the political economy of the early American republic is to appreciate that there was strength in numbers, so too was there strength in structure. Government was now under the control of a more popular politics; the key to gaining leverage in the city and state's political economy lay in mobilizing the people who were the constituent members of the sovereign state of New York's body politic. Like it or not, the most durable and useful legal tool to accomplish that turned out to be the corporation, a development the legacy of which we continue to wrestle with today.
Case Studies in Empire Building
The chapters in this book are chronologically organized as case studies, examining how the business strategies of political entrepreneurs were directly related to the political structures of the state and responsive to the wishes of lawmakers.
Chapter 1 details the introduction of finance capital and commercial banking into the un-banked mercantile community of New York City. Propelled by newly won state sovereignty and seeking competitive advantages in politics, policy making, and commerce, several separate cohorts of elite New Yorkers tried to found incorporated banks in 1784. When only one of those proposed banks, the Bank of New-York, opened its doors and did so without the state's blessing, it nevertheless gained legitimacy by rooting itself in the state's institutional ecosystem as a lender to the state and municipal government and a bulwark against the incursions of a federal bank.
Chapter 2 examines the founding of the Northern and Western Inland Lock Navigation Companies, two Albany-area canal companies chartered in the early 1790s to connect the Hudson River to Lake Erie and Lake Champlain. Both companies failed and were seen as cautionary precursors to the Erie Canal.
Chapter 3 looks at how a clever cabal of elites manipulated the corporate chartering process to launch a bank from within a water utility, called the Manhattan Company, in 1799. For nearly a decade, the Bank of New-York used its financial leverage to sway political favor and block new entrants from opening rival banks until Aaron Burr and other New York Democratic-Republicans seized an opportunity to open their own bank. Amid the controversy, partisans and bankers confronted the political implications of partisan corporations and the propriety of using credit as a tool in electoral competition.
Chapter 4 examines the complicated political economy of monopoly rights in the early republic during the beginning of the nineteenth century. Even more so than the corporation, the embrace of monopoly privileges by early American states was a continuation of an imperial practice that was unquestionably monarchical: giving one person or association a long-term exclusive right to a route, waterway, structure, type of business, or stream of revenue. A paradox emerged in the republic's use of the privilege: a successful monopoly inspired legal and political challenges, forcing its proprietors to be open to partnerships with would-be rivals. In the case of the steamboat, state legal protections were ultimately more useful in maintaining a monopoly's viability than any federal patent protection for technology.
Chapter 5 considers the implications of New York lawmakers' 1817 decision to directly manage and publicly finance the Erie Canal, which fundamentally changed the relationship between the state government and its maturing institutional ecosystem. The diminishing appeal of exclusive privileges led to a fundamental reorientation in state policy with the public mobilization on behalf of the Erie Canal and legislative wrangling over how it would be financed. Although it is thought of as a "public" project and one of the first of its kind, beneath that veneer it was a hybrid—a desirable investment among wide slices of the electorate who included proprietors of incorporated financial institutions and land speculators who stood to benefit from its operation, and a civic project that legislators and merchants realized would bring the western United States into the close orbit of New York, creating the conditions for the city and state to become the commercial epicenter of the eastern seaboard.