The Story of Aaron Burr Hijacking the Manhattan Company
aron Burr's father, Aaron Burr Sr., was a Yale-educated minister who became the first President of the College of New Jersey, soon known as Princeton College upon its move there in 1757. His mother Esther Edwards was the daughter of Jonathan Edwards, the well-known and influential minister from Northampton, Massachusetts. His parents married in 1752 and Aaron Jr. was born in 1756. Unfortunately, both parents died within the first few years of Aaron's life. From the age of 5, he lived with his uncle, Timothy Edwards, who also provided a private tutor for him before his acceptance to Princeton in 1769.
The precocious Burr entered the College of New Jersey (Princeton) at thirteen as a sophomore and graduated at sixteen. He then studied theology for a year and then military and political history before interrupting his graduate education to enlist in the revolutionary struggle against Great Britain. He fought with distinction in Arnold's failed invasion of Canada, promoted to Captain, and then fought with Washington's army in the early battles on Long Island and Manhattan. He was promoted to Lieutenant Colonel in 1777 and participated in the defense of the army at Valley Forge and at the Battle of Monmouth. Two years later, citing ill health and disheartened with what he saw as overweening political influence on the military, Burr retired from service...he was twenty-three.
Aaron Burr's legal career was as remarkable as his education and military service. After recovering his health, he studied law for almost two years and then applied to be admitted to the bar in Albany, New York in early 1782. His first ‘case' was to persuade the Supreme Court of New York to permit him to practice law before he had spent the requisite three years studying. Hearing his apparently persuasive argument that he had been a soldier serving his country when he would normally have been studying law, the court waved the three year rule, but still called for him to undergo a rigorous exam by "eminent members of the bar." The exam found him competent to practice law and the Supreme Court of New York admitted him to the bar in April 1782.
Burr practiced law in Albany for a little over a year, during which time he married a widow, Theodosia Prevost, whose unremitting patriotic political principles had earlier estranged her from her husband, a British officer, before his unfortunate but timely death. The newlyweds moved to New York in the fall of 1783 as the British were evacuating the city. Burr then took advantage of the fact that most lawyers practicing in New York during the Revolution were proscribed from practicing after the war...they were Loyalist/Tories after all.
For fledgling lawyers like Burr and Alexander Hamilton, New York after the Revolution was ideal, a virtual whirlwind of litigious possibilities: patriots who had returned from their seven year exile trying to reclaim property, rents, and municipal appointments; loyalists trying to protect themselves from the litany of anti-loyalist laws; merchants and smugglers trying to collect on unpaid products and services provided to British or American armies, sometimes both; and even criminal complaints and civil actions caused by the jurisdiction flipping on such short notice...what was legitimate under the British occupation in October 1783, such as drinking to the King's health, was not necessarily authorized under the new American regime in November of 1783.
Burr's legal practice flourished in New York and he gained even more prominence with his election to the state legislature in 1784. He returned after a single term to his private law practice for several years until, in 1789, George Clinton, the governor of New York, appointed him to be the state's Attorney General. Two years later, 1791, Burr became a United States Senator. For someone who had talked his way through a bar exam less than a decade before, Burr, at thirty-six, was doing pretty well.
At the end of his term as Senator in 1798, Burr was again elected to the New York state Assembly on a ticket put forward by the city's anti-federalist coalition, who were beginning to identify with the national democratic ‘Republican' party under Thomas Jefferson. In New York the Republican party included the original anti-Constitutionalists opposed to any strong, they would say overweening, central government (like the Clintons) and also those who had been in favor of the Constitution but were unhappy with its implementation by Washington's Federalist administration (like the Livingstons).
At the core of Republican dissatisfaction was New York's banking system created by Alexander Hamilton, the founder of the Federalist party. Other than a branch of the US Bank that Hamilton had controlled as Secretary of the Treasury, there was only one other bank in the city, the Bank of New York, chartered by the Federalist-controlled state legislature and controlled by a tightly-knit group of wealthy Federalists. The burgeoning New York economy after the Revolution had created a substantial class of wealthy merchants, shippers, land speculators, and immigrants who felt the Federalist banking clique discriminated against their need for capital.
Burr's extraordinary legal career had catapulted him into that class of the new rich. His Richmond Hill estate in New York was a showplace of refined taste and Republican virtue. However, while in the Senate he saw that the immanent foreclosure on notes he had co-signed for a close friend and his own unfortunate land speculation, would eventually compel him to seek funds to avert insolvency. His solution was to form a bank. The only problem was that the Federalist-controlled legislature would never allow a "Republican" bank to compete with what was essentially their New York banking monopoly.
Burr saw a solution to his problems as he talked to his friend and brother-in-law, Dr. Joseph Browne, who was lobbying for a Philadelphia-style water system to eliminate a repeat of the Yellow Fever epidemic. Browne had already convinced the Common Council to take action on the water system. All Burr needed to do was to redirect the Common Council plan to a privately funded corporation that, in the end, would include a bank.
Burr's plan was brilliant, breathtakingly brilliant, as it had several steps, which only he could manage flawlessly. The first step was perhaps the most dazzling. Instead of choosing some disaffected low-level Federalist to aid and abet, Burr chose as his front-man Alexander Hamilton, Mr. Federalist, and the architect of the nation's banking system.
Alexander Hamilton, the former Secretary of the U.S. Treasury in Washington's administrations and leader of the Federalist Party was at the time practicing law in New York. He and Burr sometimes shared clients and served on state committees together, but both understood without doubt where the other stood politically. Hamilton followed up on a visit to the common council of a few notables gathered by Burr, "acting as individual citizens", to convince them that the Council's plan for a waterworks under their own funding and management was ill-advised.
Hamilton argued that the municipal project as envisioned would cost over one million dollars. However, the terms under which the state legislature would convey funds to the city, according to Hamilton, would yield the city only $344,097.60, far short of the million dollars necessary. Hamilton also dismissed the possibility of the city getting a loan using as collateral the fees charged to the consumers of the water: "The Amount of the revenue to result from the supply of water must be for some time be uncertain and under this uncertainty extensive loans...ought not to be counted upon." His opinion was that to make up the difference in taxes would be too "burthensome on the citizens."
In retrospect, the City could have responded to Hamilton's projection by asking for better terms from the state legislature, estimating a range of revenue from the supply of water since it was "uncertain" but certainly not zero, or suggesting that any taxation, if needed at all, would be so light that the citizenry would gladly pay it for the access to fresh potable water. Moreover, what for-profit corporation would take on the project if Hamilton's dire projections of unprofitability were accurate?
There were Aldermen who believed that the project was too risky for the City. They would be just as happy if some private capital was put at risk rather than the City's own. After his analysis that highlighted the risks to the city of raising and managing the project, Hamilton offered an alternative plan. A private company would be capitalized for one million dollars (shares at fifty dollars each) and overseen by the Recorder of the City and six other directors chosen by the shareholders. The City would have up to a third of the shares of the Company. The only essential difference between his plan and the one envisioned by the Common Council, other than using private capital to fund the water project, was that commissioners would be appointed to manage the project for the first two years instead of Common Council, who "must necessarily be engrossed and distracted by a great multiplicity of other avocations."
The Common Council finally acquiesced to Hamilton's plan. They then charged their state Assemblymen to get the requisite legislation passed to establish a company whose charter would be focused on supplying fresh water to the city. The ablest of New York's assemblymen, one who had both the in-depth knowledge of the charter necessary and the political connections to facilitate fast passage, was Aaron Burr. Although a Republican, he would work with Federalists in the legislature and be persuasive enough with his own Republicans. Burr had already planned to include Federalists as substantial early stage investors in the water supply company to achieve his ultimate goal.
Burr's real goal, of course, had nothing to do with water but had everything to do with establishing a Republican bank that would challenge the monopoly the Federalists enjoyed. Burr envisioned the water company as ‘Trojan Horse' to establish a bank controlled by Republicans. He had already used Hamilton as his front man to get his Republican Trojan Horse through the Federalist Common Council. He also had Hamilton lobby for the water company inside the gates of the Federalist dominated legislature. Of course, the plan Hamilton presented to the Common Council was not to be the plan that was approved by the legislature.
Burr took Hamilton's plan for a charter as a starting point, but then made a few modifications. He raised the capitalization to two million dollars, expanded the number of directors from seven to twelve, expanded the powers of the corporation to include eminent domain, and allowed the corporation to exist without renewing its charter as long as it was supplying water to the city. He also minimized the city's management role and reduced its share in the offering from a third to 5%.
The greater capitalization was easily explained. It was after all what everyone thought the waterworks from the Bronx River would really cost. And what water distribution system with aqueduct and pipes doesn't need eminent domain? And why burden this essentially civic project with renewing its charter every ten years? That would endanger its independence to political influences in the future. The City would still need water in the decades to come. The lower share participation by the City was just a result of the greater participation by several civic-minded Federalist investors or, perhaps, the indication that the Common Council did not want to invest over $100,000 in the company. As it was the purchase of 2,000 shares only cleared the Common Council by one vote.
Burr also introduced, late in the process, an innovative and seemingly innocuous amendment that would allow the company, now called the Manhattan Company, to engage its "surplus capital" in other financial and commercial endeavors. The only restriction was that these "side businesses" be legal, which would have presumably precluded piracy although one wag suggested that they form an East India Company. This was Burr's brilliant implementation of the Trojan Horse. Odysseus would have been proud.
Burr was persuasive about the purpose of his slight emendation. Both a Senate subcommittee and the Council of Revision, a body with veto power that reviewed all legislation, asked why the "surplus capital" provision was necessary, since it had never been done before. Burr answered that it was the only way to fully subscribe the capital offering. No one would invest in a company whose sole activity was to build expensive infrastructures. He had a point. Hamilton had ignored that problem.
Even before legislature and Council of Revision reviewed the Manhattan Company charter, Burr had taken preliminary steps to lubricate its path. The most crucial step was to "depoliticize" the board of directors of the company by selling shares of the company to every political faction with clout in New York. The Clintonians, their rivals the Livingstons, and, most importantly, the Federalists, who controlled both the City Council and the state government, all received ample shares and had several members on the board of directors.
The Federalists got three directors, not the least of which was Alexander Hamilton's brother-in-law, John Barker Church. This may explain Hamilton's enthusiasm for the project. His family would be substantial investors. It also explains why he himself did not monitor the charter carefully through its final version in the legislature. He had a Federalist Common Council, a Federalist legislature, a Federalist dominated Council of Revision, a Federalist governor, and a Federalist family member, presumably looking out for any political shenanigans that would favor their political and commercial rivals, the Republicans.
After drafting the final version of the Manhattan Company's charter, Burr assumed a low profile by having a fellow New York City assemblyman, James Fairlie, introduce the bill. With the Imprimatur of Hamilton, who actually lobbied legislators, and the Federalist board members, the charter sailed through the state assembly. However, Burr anticipated greater scrutiny in the full state Senate committee reviewing the charter. He lobbied the Senate to have the charter reviewed quickly by a ‘select committee' rather than the usual larger committee on the basis of having a well-known New York expert, Samuel Jones, on the three member panel. Burr prevailed but, as noted, the panel wanted to know more about the "surplus capital" provision.
Burr's compelling explanation that the corporation needed the provision to attract capital satisfied the subcommittee and without much ado the charter was approved by the Senate. Only the Republican judge on the Council of Revision, Judge John Lansing, questioned the wisdom of granting an essentially immortal charter to a new and unusual corporate form with such "speculative and uncertain powers." The federal members on the Council and Chancellor Livingston, who was to become the corporation's largest shareholder, outvoted Lansing and the bill was soon sent to Federalist Governor John Jay to sign, which he did. Burr had his bank.