By John Steele GordonOf all the world’s great urban centers, only a very few are surrounded by salt water. New York is one of them. In the colonial era, wells supplied New York with the water it needed. As the city began to grow rapidly after the Revolution, more and more wells were dug, but the water was more and more contaminated by the ever-increasing number of privies.
The rich could afford to buy drinking water brought into the city by wagon, as well as using the water that ran off their roofs into cisterns. The poor, however, had no choice but to use the well water. If the city was to continue to grow, it needed to solve its water problem.
What, you might ask, has this to do with banking? You might be surprised.
Aaron Burr, then a New York state assemblyman, saw a golden opportunity in the city’s water travails. There were only two banks in operation in New York City in the 1790: the Bank of New York and the Bank of the United States. Both had been founded by Alexander Hamilton, Burr’s political enemy and eventual victim.
In those days, one needed an act of legislation to open a bank, and that meant politics would always play a big role. The state government was under the control of the Federalists, led by Hamilton, and Burr was a Democratic Republican, the party led by Thomas Jefferson. Burr knew that he would never get a banking charter though the legislature, and he badly needed a source of funds to carry on his various activities.
So Burr proposed the establishment of a company that would lay pipes and bring in fresh water from the Bronx River, to be called the Manhattan Company. Even Hamilton thought this a good idea and helped push it through.
Then, waiting until the last minute to submit the bill to ensure little scrutiny, Burr quietly slipped into the bill an additional clause. “And be it further enacted,” it read, “that it shall and may be lawful for the said company to employ all such surplus capital as may belong or accrue to the said company in the purchase of public or other stock, or in any other monied transactions or operations . . . for the sole benefit of the company.”
In other words, besides being in the water business, the Manhattan Company could engage in any lawful business it wanted to. What business Burr had in mind, of course, was banking—a foreshadowing of latter-day debates over the mixing of banking and commerce.
The bill was signed into law on April 7, 1799. The company raised $2 million in the nascent stock market that operated on Wall Street and only five months later, before the company had laid a single length of pipe, it opened the Bank of the Manhattan Company. By the time Burr stepped down as a director, while serving as U.S. vice president, he owed the bank $64,903.63, a comfortable fortune by the standards of the day.
The company did get around to providing a rudimentary water system that served perhaps a thousand houses. It ran through pipes made from hollowed out tree trunks heavily tarred inside and out. (Chunks of these pipes still turn up occasionally in excavations in lower Manhattan).
In 1808 the company unloaded the water business, selling it to the city for $1 million. Now purely a bank, it flourished as New York became the greatest boomtown the world has ever known. In 1955, it merged with the far larger Chase National Bank, becoming Chase Manhattan Bank, which in turn merged with J. P. Morgan and Co. to become JPMorgan Chase, the largest bank in the country.