John Barker Church left London in 1775 as a bankrupt failure. He arrived in New York the same year under an assumed name: John Carter. Yet, within a decade, he was to become one of the wealthiest men in the United States, with investments in land, shipping, banking, and securities on both sides of the Atlantic. Footnote 1 Carter made his fortune in partnership with Jeremiah Wadsworth, the bulk of it contracting for the French and American armies over the course of just two years at the end of the War for Independence. Their story is in some ways typical of eighteenth-century merchants. They were, for example, utterly dependent on personal and kinship networks and relationships of trust with fellow merchants, suppliers, creditors, and debtors. They achieved success by leveraging their position in those networks. In the context of the war, however, Carter and Wadsworth also witnessed—and helped to effect—an important transformation of American merchant networks and the institutions with which they dealt. War and the wartime construction of the United States were the crucial factors in this transformation. This article not only presents a case study of Carter’s and Wadsworth’s entangled careers, but also uses them to demonstrate the war’s impact on the mercantile ecology and the emerging economy of the United States.
Trade and finance could not occur in the eighteenth century without networks—sets of durable, interconnected relationships between groups and individuals with an implicit or explicit expectation of mutual, long-term economic benefit. Footnote 2 Theorists, social scientists, and historians have paid considerable attention to the role and importance of business networks, as well as their complexity, variety, and limitations. Footnote 3 Merchant networks often overlapped with other forms of durable relationship, such as kinship and shared ethnic or religious identity. Footnote 4 They were always embedded in wider social and institutional contexts, and in that sense, networks were not purely instrumental. Rather, they were the result of cultural norms and practices that were not always consciously business or profit oriented. Merchants worked to create trust, limit their risks, make and protect their reputations, and fulfill their obligations to both individuals and communities. Footnote 5 All these practices supported each other, and they also operated to deepen and maintain economic and social ties—a process in which women were as crucial as men. Footnote 6 Yet merchant networks, like societies themselves, were dynamic and rarely stable. They were susceptible to crisis, disruption, and change. In the midst of such circumstances, some merchants could thrive while others failed. It just so happened that, during the early 1780s, Wadsworth and Carter were among those who thrived.
War between Great Britain and the new American states did more than simply disrupt direct trade and flows of credit between the two powers. It defined the atmosphere of business and commerce over the course of eight years, and left a changed environment in its wake. Historians have struggled to decide whether war in general was detrimental to long-term economic development, or indeed whether it was beneficial. Footnote 7 No one, however, denies that it offered some merchants large short-term gains. “War is declared in England,” Gerard Beekman wrote at the beginning of the Seven Years’ War: “Universal Joy among the merchants.” Footnote 8 It did so in part by generating a new business cycle. Wars meant a spike in demand for food and material, and an influx of credit and cash to pay for them. Of course, this first phase would be followed by one of consolidation and retrenchment with the war’s end, when demand and credit dried up. War also changed the parameters of business in other ways, by introducing extraordinary forces of coercion and necessity. The existential nature of the War for Independence forced the American Congress to adopt radical fiscal measures and create powerful new institutions in order to support the war.
In their efforts to ensure supplies for American armies, both Congress and the states mandated—and frequently intervened in—commissary systems which, in effect, co-opted merchants into government service. Footnote 9 These systems relied on existing networks of merchants, but they also placed immense pressure on those networks to change and adapt to the military situation. Footnote 10 Peacetime supply chains did not simply map onto wartime needs. Enormous quantities of, for example, flour and pork had to be assembled at concentrated points at short notice. Normal transportation, including the coastwise water route, could be risky and was sometimes impossible. Meanwhile, market conditions were distorted by the presence of one or a few large purchasers, often paying on credit that would be worthless if the war was lost. Merchants who acted as commissary officers often put their own credit on the line in service to their country. Under the commission system, however, they could potentially amass personal fortunes in the course of their duties. In an atmosphere of secrecy, well-placed merchants could also make large gains from acting on inside information about campaign plans. Both these things made them easy targets for public resentment and gossip, reputational risks. War, in short, exacerbated the dynamics of peacetime merchant networks. It drastically heightened both risks and rewards. That made war an engine of commercial inequality.
Some historians have argued that wartime exigencies tended to push merchants back into “traditional forms of risk management,” and that an atmosphere of heightened risk “emphasized the importance of face-to-face personal relationships and kinship.” Footnote 11 In other words, they suggest that warfare acted to reduce the scale and complexity of merchant networks. As Sheryllynne Haggerty puts it, “the American War of Independence forced merchants to retrench their networks and redirect their trade.” Footnote 12 This article takes a different view. It shows how the Revolutionary War fostered the growth of new, more complex, and wider reaching networks than had existed before. Successfully positioning themselves at the apex of one such network, Carter and Wadsworth benefited in dramatic style from the fortunes of war. Rather than retrenching and retreating, they leveraged what credit and connections they had in order to dominate the new mercantile ecosystem. Pierre Gervais has pointed out that “armed conflicts disrupted trade [in part] by threatening the national and international credit networks and compensation systems on which merchants relied to clear their transactions.” Footnote 13 Such credit networks were crucial to eighteenth-century commerce—and for the same reasons, they were equally crucial to the conduct of war. Footnote 14 Wadsworth’s and Carter’s entrepreneurship lay in creating and managing networks of credit they could rely on in this new context. Footnote 15 After establishing the crucial role of such networks in the military struggle for American independence, this article goes on to address questions of institutional formation in the new republic that emerged from the war. Literature focused on the financial and political institutions of the early United States has generally paid too little attention to the structures of power, and the personal networks, that lay at their roots. By emphasizing the formal characteristics of early American legal and financial institutions, such scholarship has neglected the historical contingencies of their creation and the unevenness of power that resulted. Works such as Douglas Irwin and Richard Sylla’s recent volume, Founding Choices, have examined the high-level agency of political thinkers and leaders such as Alexander Hamilton, but their analysis has not taken into account the underlying structure of early American finance, or the roles of its day-to-day participants, including men like Carter and Wadsworth. Footnote 16 Naomi Lamoreaux, by contrast, has shown how banking institutions in the early republic were built around preexisting personal and kinship networks. Rather than the “independent intermediaries of economic theory,” they represented a new institutional form of earlier, more personalized economic relationships. Footnote 17 In order to understand the real, historical character of finance and commerce in the early American republic, then, it is vital to analyze the wartime and postwar transformation of merchant networks that preceded the era of institutionalization in the 1790s.
The case study that follows is divided into two main parts, which correspond to the two phases of the war-generated business cycle, and a coda that traces some of the outcomes of wartime transformation through the end of the eighteenth century. The first part gives an account of the construction of Carter and Wadsworth’s network, the central role of the wartime commissariat, and their acquisition of the French and American armies’ supply contracts. It argues that war forced merchant networks to expand and adapt much more rapidly than usual, and that this had ramifications for merchants’ conduct and their stance toward risk, trust, reputation, and obligation. The second part describes the winding up of Carter and Wadsworth’s wartime business, and their involvement in enterprise and speculation during the phase of postwar contraction. It argues that the war’s impact went beyond the disruption of direct trade and credit links, creating new business networks and transforming the institutional context in which business was carried out. This process created novel advantages for those who did well during the wartime expansion phase. Finally, the coda outlines the process of institutional formation that followed in the wake of the 1787 Philadelphia Convention. It concludes that the friendships and networks formed during the war shaped access to information, wealth, and political power, and thus had a defining influence on the new nation’s financial markets, merchant networks, and economic future.
Expansion and Disruption
Compared to Boston and New York, the Connecticut River ports of Middletown and Hartford were only minor centers of trade. Vessels capable of crossing the Atlantic did not reach so far inland. Instead, Connecticut merchants specialized in two kinds of voyages: coastwise to the larger ports of the colonial mainland, and south to the West Indies. Footnote 18 It was in this Caribbean trade that Jeremiah Wadsworth began his career, as the captain of a ship owned by his uncle, Matthew Talcott. Wadsworth’s mother, Abigail, was the daughter of a former governor of the colony, Joseph Talcott; his father was a minister in the First Church of Christ at Hartford; but both parents died in Wadsworth’s childhood. Brought up by his uncle in Middletown, apprenticed in Talcott’s counting office, and then at sea, Wadsworth soon used his inheritance to enter business for himself in Hartford. When war came in 1775, the thirty-three-year-old Wadsworth was firmly embedded in Connecticut society and in its mercantile community. Footnote 19 It was the war itself that quickly wrenched him from this comfortable sufficiency into an entirely new set of contexts.
On April 26, 1775, a week after the Battles of Lexington and Concord, Connecticut’s assembly appointed the governor’s son, Joseph Trumbull, as commissary general to the state. He was to be assisted by a handful of prominent local merchants, Wadsworth among them. With a Whig assembly and governor, Connecticut’s response to the events in Massachusetts was rapid. Trumbull set out immediately for Cambridge, where he worked to coordinate supplies from his state to feed the militia army converging on Boston. When George Washington rode through Hartford en route to take up his command, he stopped to break bread with Wadsworth. Footnote 20 By mid-July, the Continental Congress had appointed Trumbull commissary general to the Army of the United States. “Trumbull’s organization,” one historian records, “was so completely in the hands of Connecticut men that criticism of the state developed on the grounds that it was prospering unduly from the war.” Footnote 21 Meanwhile, Wadsworth was employed in purchasing wheat and flour not only for the army at Cambridge, but also for General Philip Schuyler’s northern department in Albany. Already his connections were widening.
Over the next two years, as the army moved from Massachusetts to New York and then south to New Jersey and Pennsylvania, Wadsworth continued to serve both the state of Connecticut and the general commissariat. In 1777 there was an abortive attempt to reorganize the commissariat, revoking officers’ commissions in favor of salaries, which led quickly to Trumbull’s resignation. His successor, William Buchanan, of Maryland, did not have a successful tenure, and by March 1778 the commissariat was once again reorganized. This time, Wadsworth was to be at its head. Footnote 22 “I dare say Mr. Wadsworth might have any terms and moddle [model] the plan as he pleased,” Eliphalet Dyer wrote from Congress to Joseph Trumbull. Footnote 23 The commission system was reinstated. The new post, however, posed enormous challenges for Wadsworth. He had to take over a sprawling network of purchasers and agents, constructed by his predecessors and riddled with competition and political intrigue. In the winter just past, Colonel Henry Champion and his son Epaphroditus had driven a herd of cattle three hundred miles south from Connecticut to feed the troops at Valley Forge. Footnote 24 In general, though, it was no longer possible to draw supplies primarily from Wadsworth’s home state. His role in the war made him a merchant on a continental scale.
Among the connections Wadsworth formed in this period were two that would prove significant in his private business affairs. One was with Rhode Islander Nathanael Greene, appointed quartermaster general at the same time Wadsworth became commissary general. Between them, the two men controlled the entire provisioning operation for the Continental Army. They had more access to information about goods, prices, and transport; more agents and contacts; and more authority than anyone in America, perhaps barring Robert Morris, the Philadelphia mogul and member of the Congressional Secret Committee on Commerce. It was only natural, therefore, for Wadsworth and Greene to go into business together, though both men were at pains to keep the matter as discreet as possible. Footnote 25 Another Connecticut man, Barnabus Deane, brother of controversial merchant and diplomat Silas Deane, fronted their operation. When the war was over, Barnabas Deane and Company would establish a distillery at Hartford, vertically integrating their molasses import business. Footnote 26 Another new association for Wadsworth was with John Chaloner and James White, Philadelphia merchants and partners who played a major role in the commissary of the Middle Department. Footnote 27 Inheriting the connection from his predecessors, Wadsworth would continue to use Chaloner and White as his Philadelphia agents long after resigning from the commissariat.
In spite of the commission system, and his information advantage, Wadsworth’s stint as commissary general was not particularly profitable. Footnote 28 It was an office of public service that he seems to have taken seriously, and there is no doubt that the job he had to do was hard. Sourcing, purchasing, and transporting perishable produce on bad roads, and in the teeth of escalating inflation, left Wadsworth little attention for his own affairs. At one end, he had to negotiate with suspicious bosses in Congress; at the other, with producers who were sometimes all too ready to demand exorbitant prices. Even while a mere deputy in Connecticut in 1776, he received such letters as this: “Dear Sir, I have about thirty Barrels of Excellent Pork put up in my Store for my Use in the Vessels if you Want it Please of Offer me a Great price for it & Will Send it to yr Order.” Footnote 29 Periodically, the commissariat had powers to requisition needed supplies—and price fixing was attempted—but neither of these were the norm. Many purchasing officers ended up using their personal credit, which meant that ultimately they relied on the commissary general to see them paid by Congress. After more than twenty months of this, Wadsworth was at last allowed to step down in December 1779, on condition that he help out until a successor had settled in. Footnote 30
Once he was free from public office, Wadsworth could focus on pursuing enterprises that would actually profit him. The old West Indies trade, unfortunately, was no longer open to him. Even if he could secure a shipment in the Caribbean, the sea route was so dangerous that insurance and transport costs were astronomical. As commissary general he had had to offer half the entire cargo in payment for a shipment of rice from South Carolina. Footnote 31 The only real option was to continue purchasing for the army—except that as a private contractor, he could pick and choose which jobs he wanted. Thus, when news arrived that a substantial French Army was about to arrive in Rhode Island, Wadsworth positioned himself to assist America’s ally. He had helped provision the French fleet since 1778, and so he had some connection with the marine agent John Holker, who had himself gone into an ambiguous private partnership with Robert Morris. Footnote 32 Wadsworth had the backing of both General Washington and Connecticut Governor Jonathan Trumbull. The French had hard money to pay, as well as equally valuable European credit. Finally, Wadsworth must have thought, he stood to do well.
The problem was that other merchants also flocked to contract with the French, for the same reasons. Two partners, James Blakely and Gideon Delano, won the bulk of the French business early on by promising speedy delivery on anything General Rochambeau might need. In return, they charged extravagant sums in both specie and bills of exchange, rapidly depleting French supplies of the former. Footnote 33 Nor were they the only merchants Rochambeau contracted. This is where John Carter enters the story. Soon after arriving in America in 1775, Carter had found work as a clerk in Philip Schuyler’s northern department, on the recommendation of fellow English émigré William Duer. After being appointed by Congress to audit the northern army’s accounts, Carter found himself in close proximity to Schuyler’s family. One thing led to another, and on the July 23, 1777, Carter eloped with Schuyler’s eldest daughter, Angelica. Momentarily the general was furious, but he soon chose to accept his daughter’s choice. Footnote 34 For Carter, that meant the protection of one of New York’s wealthiest families, and access to its network. By 1780, he and Angelica were based in Newport, Rhode Island. With his high-level contacts, and command of their language, Carter was ready for the French when they arrived.
In August, Carter was supplying oats and corn, as well as “as much Hay as the Vessels which load the said Grain will bring on their Decks,” coastwise to Newport from Connecticut. Footnote 35 By October, though, he and Wadsworth had come to an agreement. Footnote 36 They presented Benoît-Joseph de Tarlé, the French quartermaster, with a proposal to jointly take over the supply of the French Army. Footnote 37 Moreover, the way they managed to displace Blakely and Delano helps reveal the dynamics of the credit networks on which the whole business was based. Henry Champion, the Connecticut cattle merchant, was Blakely and Delano’s supplier, whom they owed money for past orders. Champion, for his part, owed Wadsworth “a number of Cattle” on a prior contract. He could not fulfill both orders, so if Wadsworth “insisted on payment,” Champion would have to miss his delivery to Blakely and Delano, leaving the French in the lurch. “In this situation,” Wadsworth gloated to Governor Trumbull, “they were intirely in my Power and their Contract void when I pleased nor was Champion bound to them as they had not fulfilled on their part.” Footnote 38 Controlling the flow of credit was what gave a merchant power. Once the battle with their predecessors had been won, Carter and Wadsworth exclusively arranged the French Army’s provisioning. Footnote 39
Putting together the so-called French Contract involved all the elements of risk, trust, reputation, and obligation that characterized eighteenth-century business. Those, like Blakely and Delano, and Carter himself, who made early arrangements with the French, were extending themselves enormously. Unlike Wadsworth, they had never supplied armies before. The more extravagant the claims they made about their own capacity, the more they risked failing to fulfill the contract and ruining their own reputations. This is just what happened to Blakely and Delano. Looking back on events some years later, the Marquis de Chastellux remembered them as “undertakers without fortune, and without character; who promised everything, performed nothing, and soon threw our affairs into confusion.” Footnote 40 By contrast, Wadsworth’s reputation was solid. His performance as commissary general, especially following Buchanan’s ill-starred tenure, had endeared him to senior figures in the revolutionary command. As the Marquis de Lafayette put it to Washington early on, discussing the purchase of clothing for the arriving troops, “The knowledge I have of Clel Wadsworth zeal and Activity makes me desirous that he be intrusted with that Business.” Footnote 41 Moreover, the network and credit Wadsworth had built up enabled him to actually accomplish the task. That is why Carter agreed to bring Wadsworth in as an equal partner on his existing contracts.
Obligation was a still more complex question, especially in wartime. Not everyone was comfortable with merchants getting rich while others died fighting for independence. The system of commissions for commissary officers was, as we have seen, a bone of particular contention. It was not expected that merchants working for the army simply be out for their own profit. Rather, their position in society obliged them to use their skills and connections in support of the war effort. Footnote 42 That is certainly how Wadsworth felt about his time as commissary general, but it is also how he framed his involvement in the French Contract. He entered the business, he told Governor Trumbull:
[In] a full belief that it was for the good of my country as well as pleasing to your Excellency & Council. … I had not done this merely for the pecuniary advantage to myself, but for the reasons above and at the earnest desire of the Commander in Chief of the French Army and other officers of Rank & Character.” Footnote 43
Fulfilling social and moral obligations of this kind could obviously improve a merchant’s reputation, but there was no straightforward utility-maximizing calculation at work. As the revolution itself demonstrated, merchants could be men of principle too.
There was, of course, a dark side to how these interlocking factors operated. Normal practice for eighteenth-century merchants bore very little resemblance to a transparent and open market system. On the contrary, it was characterized by the formation of merchant “rings” that aimed to exert complete control over a given type of commodity or segment of the economy. “In these markets,” Pierre Gervais writes, “insider trading, buyer and seller cartels, price-fixing, speculation, [and] market cornering … were not bugs, they were fixtures.” Footnote 44 Merchant rings were not simply networks embedded within particular cultural and social contexts. Footnote 45 Rather, from the merchants’ perspective, rings were the ideal type of network as merchants sought to minimize risk and uncertainty by controlling a given market segment as fully as possible. The closed structure of merchant rings was also tied to a specific eighteenth-century understanding of credit “as privileged access to capital and information usable in a specific segment of the market … within a defined space.” Footnote 46 Such networks functioned to defend and reproduce this privilege by circulating capital and information among insiders, and generally denying access to outsiders. “It was incumbent on all participants to ensure network health and longevity,” adds the historian Robert DuPlessis. Footnote 47 In doing so, they entrenched market opacity and inequality.
Wartime conditions exacerbated these tendencies. As Gervais points out, merchant rings worked by “gouging customers and suppliers as much as customary price structures allowed for, and much more whenever crisis circumstances arose.” Footnote 48 By disrupting normal patterns of trade, including legal restrictions and moral economies, crises gave new license to merchants to build on their advantages. Moreover, the war in North America introduced a few major institutional buyers—armies—with coercive power and commensurately strong credit. The fact that the French Army in America chose to deal with only one firm, rather than sourcing supplies through a competitive market, reflects the centrality of closed merchant rings to eighteenth-century patterns of commerce. A firm that gained the credit of an army, as Carter and Wadsworth did after the brief struggle with Blakely and Delano, could reap huge rewards from this extremely unbalanced market, and from their privileged access to strategic information. Meanwhile, the additional risk and uncertainty of wartime also threatened to wipe out less connected or creditworthy merchants, or those excluded from the relevant networks. In this way inequality increased at both ends. Things got worse for smaller merchants and better for the most powerful. Carter and Wadsworth further limited their own risk by taking commissions from contracts arranged between the French and other suppliers, rather than making direct contracts themselves. Footnote 49 From this secure position, they stood at the pinnacle of the nation’s most powerful mercantile network.
In 1781, as the French and American armies made their dramatic march south to Yorktown, Carter and Wadsworth’s position was threatened when Robert Morris made an attempt to combine the supply contracts of both armies under his own control. Morris had recently been appointed Congress’s Superintendent of Finance, with a mandate to reduce expenditures and safeguard American credit. The Continental currency was so devalued by inflation that on the route south, Morris found himself issuing personal bills of credit to secure supplies. Footnote 50 Perhaps he hoped that integration with the French commissariat would give him access to French credit. In any case, Rochambeau refused the proposal, preferring to retain the services of Carter and Wadsworth. Wadsworth found the networks he had already forged, including Chaloner and White in Philadelphia, proved especially useful with the army in transit southward. Still, the partners could not rely on existing contacts entirely. As ever, the movement of the war forced them to continually expand and adapt their network. Carter travelled to Virginia personally to organize the French supplies, reporting back to Wadsworth in Hartford. Footnote 51 By the time the war was over, the pair had enough Virginia contacts to consider entering the tobacco trade.
One further anecdote helps demonstrate just how the war concentrated its rewards among the winners of the merchant race, while punishing anyone who could not keep up the pace. A firm of New Yorkers, including Walter Livingston, Comfort Sands, and Carter’s old friend William Duer, held the contract for supplying the American Army as it returned north after the success at Yorktown. These were highly placed merchants who had, in general, done well from the war. But the autumn of 1782 found them at the very end of their resources. With Continental currency so weak, and nothing coming into the Congressional treasury, they could hardly pay their subcontractors, and were fast running out of personal credit to extend. Unable to keep up the flow of supplies to the troops, Robert Morris was forced to look elsewhere. There was only one firm that could plausibly take over. “A new Contract is made with Wadsworth & Carter which is disadvantageous,” one Congressman reported. “We pay as much for three months as we did before for four months.” Yet, he admitted, Morris “could not have done better under the present circumstances, they giving a Credit for the money.” Footnote 52 The war created a winner-takes-all system in which those on top could name an even higher price whenever their rivals failed. Once again, command of credit was the crucial factor. Footnote 53
In America in the eighteenth-century, nearly all buying and selling were done on credit. For ordinary consumers, that might mean book credit, where storekeepers would write down what they were owed by each customer. Merchants had various forms of credit at their disposal, including notes of hand that could be exchanged in the future with the original debtor for cash, or bills of exchange that would be cashed in with a third party. They could also make contractual agreements to pay later, sometimes with interest added. The important point is that credit relations relied on the dynamics of risk, trust, reputation, and obligation. If you sold something on credit, you were taking the risk that you would never be paid. In other words, you had to trust your debtor. That trust would be based on his or her reputation, which was in part built up over time by fulfilling obligations, but it also incorporated other measures of a merchant’s character, including his family and connections. Footnote 54 It was only sensible to extend credit when you had a reasonable expectation that your debtor would be able to pay in the long run. Thus, powerful merchants with many sources of income and debtors of their own could secure much longer credit—in other words, get much deeper into debt—than most other people. That, in turn, gave them the flexibility to grow richer and more powerful still.
War played havoc with these networks of credit by introducing all sorts of added uncertainties. Accidents, such as ships being captured by the enemy, upended the best-laid plans. Formerly reliable suppliers found themselves unable to fulfill contracts, and merchants suddenly lacked cash on hand and were unable to pay. Footnote 55 Currency fluctuation was also a factor, because as Congress printed more money to pay for supplies, prices increased, leading to inflation. When money lost its value, debts as well as prices had to be recalculated. Those who could make other forms of payment, like coined metal or bills of exchange to be cashed abroad, could significantly increase their purchasing power. Access to hard money could also improve a merchant’s credit. It was this concatenation of factors that made Wadsworth and Carter two of the richest men in America by the end of the War for Independence. Because the French had coin and bills that could be exchanged in Paris, even though they avoided using them wherever possible, they could be trusted to meet their obligations in the long run. Selling to them on credit, through the agency of Carter and Wadsworth, was a risk worth taking at a moment when alternatives were scarce. The partners, in turn, took their cut in the form of credit with the French Crown—and what could be safer than the credit of a king?
Contraction and Consolidation
At the peak of the wartime credit expansion, then, Carter and Wadsworth presided over a commercial network that stretched far beyond its original locale in Connecticut and Rhode Island. It had hubs in Philadelphia and New York, where agents of the firm presided over their own subnetworks of suppliers and middlemen. Footnote 56 It was through the incorporation of such subnetworks that the larger network was able to expand, in spite of the exclusionary nature of eighteenth-century merchant rings. Agents like Chaloner and White in Philadelphia, for example, benefited from their location at the intersection of network and subnetwork. They had access to information from both sides, and they were well placed to negotiate prices favorable to themselves. Yet, ultimately, they relied on Carter and Wadsworth, through whom they had access to the credit and resources of the French and, later, American armies. Meanwhile, the firm’s principals, especially Carter, were personally mobile, overseeing business operations on the ground and forging new connections to extend the network where needed. Footnote 57 This process depended on the armies’ strategic needs rather than a process of seeking market opportunities, as entrepreneurs might do in normal times. The firm’s success depended absolutely on being best able to meet the demand for military provisions—nothing more, and nothing less. Because each army dealt with only one firm at a time, this was a winner-takes-all scenario.
The failure of Livingston, Sands, and Duer’s firm to meet the so-called American Contract after Yorktown indicates how by 1782 the war-induced business cycle had already reached its contractionary phase. Indeed, the United States had reached the extent of its fiscal capacity as much as two years earlier, when Continental currency suffered a collapse and mutiny shook several regiments of the army. Robert Morris’s appointment as Superintendent of Finance, placing the power of the purse in the hands of a single individual, had been a desperate attempt to maintain Congress’s ability to pursue the war. It worked only with the help of Morris’s personal credit, and more significantly, that of France. As the young aide-de-camp Alexander Hamilton pointed out, the French would “never give half the succours to this Country while Congress holds the reins of administration in their own hands, which they would grant, if these were intrusted to individuals of established reputation and conspicuous for probity, abilities and fortune.” Footnote 58 Yet even a loan of $400,000, secured in the summer of 1781, was not sufficient to restore Congressional fortunes. Morris put half this money to work in the establishment of the Bank of North America, but it was nowhere near the capital Hamilton had suggested such a bank would need to operate effectively. Financially, Congress limped to victory in the war and remained exhausted thereafter.
Few Americans had capital to invest in the Bank of North America. The two largest shareholders by the middle of the decade were Jeremiah Wadsworth and John Carter, who held 104 and 98 shares, respectively. Morris himself held 95 shares. Between them, Wadsworth and Carter owned $80,000 of the bank, or 20 percent of the total capitalization. Footnote 59 The partners’ success in the war’s expansionary phase had positioned them to reap significant benefits in the years that followed. Just as in the case of the American Contract, they were able to take advantage of the misfortunes of overextended rivals. In general, the 1780s saw a consolidation of property and credit in the hands of the few, which before the end of the decade resulted in severe political and social upheavals. Scarcity of money and credit, especially after 1784, left many Americans at the mercy of speculators, who bought up debt certificates at vastly depreciated rates. Footnote 60 Meanwhile banks like Morris’s, the only institutions capable of attracting capital and offering credit, tightened their grip on local and regional economies. The banks were embedded in new national networks created during the war, networks in which Carter and Wadsworth figured prominently.
News that a peace treaty had been signed arrived up the Delaware River on March 23, 1783, provoking joy in Philadelphia. “This inclosed is of such importance,” wrote the partners’ Philadelphia agent, John Chaloner, as he sent the news on to Wadsworth in Hartford, “that I will not detain [the courier] any longer than to congratulate you thereon and inform that Carter is returned to Morris’s to get Drunk.” Footnote 61 They could not afford to celebrate for long, however. The next day began a whole new era in their partnership. To realize their earnings from the French Contract, and reinvest the proceeds, Wadsworth, Carter, and their agents immediately began to sell the bills of exchange they had received in payment from the French. These bills would enable American merchants to purchase goods in France, and with American consumers starved of imported goods for the last eight years, they sold quickly and near par. Unfortunately, the French treasury was not well prepared to honor its debt. Less than a month after the news of the peace, Americans got word that the French bills would be stopped for at least a year. When their value in American markets dropped by 20 percent, Wadsworth and Carter decided on a new approach. In late July 1783, they sailed for France to negotiate directly with the royal court. Footnote 62
The trip must have been effective, for soon after they arrived Wadsworth reported to an agent in Hartford that “I have seen our Bankers from Paris and find our affairs in a good way, but our presence was necessary.” Footnote 63 However they did it, the partners managed to convince the French to fund the bills. Indeed, it was rumored in the American newspapers that “two Gentlemen, late contractors to the French Army, had lately arrived there and made great speculations in them and would soon get their money again with a Great Profit.” Footnote 64 Perhaps by buying up other people’s bills at heavy discounts, the partners were able to arrange a deal that brought them a profit while also allowing the French treasury to pay off the bills at less than face value. In any case, by the end of the year, they had achieved what they set out for. With their wartime profits now realized in Europe, the next step was to put them to work. Carter wrote to his brother-in-law Alexander Hamilton (who in 1781 had married Angelica’s sister, Elizabeth Schuyler): “We are taken measures to vest our Property in America by exporting from here and England a large Quantity of ready money Articles.” Footnote 65 That seemed to be the most profitable way to move their capital from Europe to America.
However, the moment Carter and Wadsworth had chosen to invest in imports from Europe did not prove to be a propitious one. It coincided not only with a general rush of European, and especially British, merchants into the American market, but also, shortly, with a renewed credit crunch that left American buyers once again unable to pay for imported luxury goods. The key problem was a shift in British policy, embodied in the Orders in Council of July 2, 1783. These orders cut off all American trade with the British West Indies, which had, before the war, provided Americans with their principal source of remittances to Britain itself. Slave plantations in the West Indies needed food products and naval stores that the mainland colonies could supply, and they could pay in bills on their British agents that could then be used to buy imported British goods. With their sales to the West Indies curtailed by the renewed Navigation Acts—although substantial smuggling, of course, continued—American merchants found themselves unable to pay for what they had already imported in the first months of the peace. Footnote 66 By 1784 the United States was experiencing a commercial depression. Footnote 67 Carter and Wadsworth’s agents could not shift the champagne, calicoes, and other goods the partners had enthusiastically sent over. Footnote 68
Yet what was a disaster for many American merchants, and even for many British firms engaged in the American trade, was a relatively minor setback for Carter and Wadsworth. Unlike most others, they were not importing on credit. While their capital was depleted by the losses they incurred from less-than-successful imports, there was nobody who could seize their assets for nonpayment of debts. Indeed, the partners were well positioned to take advantage of the credit crunch that resulted from this wave of merchant bankruptcies in early 1784. Footnote 69 From as early as April 1783, they had had notions of establishing a bank in New York that would operate along the same lines as Morris’s Bank of North America in Philadelphia. With their capital, if not themselves, now transferred back across the Atlantic, the partners were in a position by early 1784 to begin putting this scheme into action, with Hamilton as their agent on the ground. Rather than investing in risky overseas trade or untested domestic industry, a bank would enable its proprietors to secure a regular return on their capital by making loans. In an environment of scarce credit, its cost—and therefore the return for creditors—was commensurately higher. Especially if the risks could be limited through legal incorporation, banking was the perfect way to consolidate one’s gains. Footnote 70
Before Carter and Wadsworth’s banking plans became concrete, events in New York overtook them. As the powerful grandee and landowner Robert Livingston set in motion a project for a state-chartered land bank, and the city’s mercantile community rallied to preempt him, Hamilton was unable to control things as he would have liked. The first-movers’ advantage had been lost, and it made no sense to set up as competitors to an existing project. The whole point was to be able to dominate the credit market; competition between banks was largely understood to undermine their utility, at least to their owners. Instead, Hamilton now recommended that the partners join in the proposed Bank of New York, to be established by the city’s commercial interest. Hamilton told Carter that he hoped to “induce them to put the business upon such a footing as might enable you with advantage to combine your interests with theirs.” Footnote 71 Hamilton would himself be a director of the new bank, and would continue to act as an agent for his brother-in-law. While they would not control the bank, the partners would still be able to take a considerable part in its decision making and its profits.
Carter replied to Hamilton in May:
The Establishment of the New York Bank has determined Wadsworth and myself to give up all Thoughts of carrying our banking Plan into Execution, but I should be glad to be interested in the Shares of that Bank if they are not disposed of, and I shall write Chaloner to employ my monies in his Hands that Way. Footnote 72
By the end of the summer, Carter and Wadsworth between them had bought through their agents $15,000 worth of stock in the Bank of New York, which was again around 20 percent of the capitalization in the first year. Footnote 73 Faced with opposing visions, the New York State assembly refused to charter either Hamilton’s Bank of New York or Livingston’s land bank project, leaving the latter unaccomplished and the former, though unchartered, the only game in town. It would not gain a charter until 1791, but even in the unstable first five years of its existence, the Bank of New York yielded semiannual dividends of 3 percent—a return of just under 7 percent per year. Footnote 74 Bank of North America dividends, meanwhile, had averaged twice that much per year in 1783 and 1784, dropping to a more sustainable 6 percent in 1785. Footnote 75
Banks in Philadelphia and New York, along with a third established in Boston in 1784, created concentrations of capital in the United States that had not existed in the pre-independence American colonies. Before the war, merchants and entrepreneurs in America had relied on lines of credit from Britain to finance their activities—but these relationships had been dislocated by the war, and then again by the wave of bankruptcies that followed the short-lived postwar exuberance. American banks went some way to making up this credit shortfall. The institutional structure of banks allowed proprietors to spread risk and obligation among themselves, and to pool their reputations and networks. State charters, which all three banks possessed by 1791, offered an imprimatur that encouraged trust among both investors and the consumers of credit. At the same time, the banks’ internal operations were opaque, and lending remained heavily reliant on personal connections. Thus there were two ways that the war laid the foundations for the American banking system: it promoted the accumulation of large capital sums in the hands of a small group of merchants, and it reshaped and enlarged the networks in which they were embedded. By institutionalizing both capital and relationships, the banks helped pave the way for further changes in the generation to come. Footnote 76
Wadsworth and Carter had no intention, however, of sinking all their capital into banking. In 1784, while they were still in Europe, they pursued a deal with the Farmers General, a group of French tax collectors and financiers who held the monopoly right to import tobacco to France. Already participants in the tobacco trade following Carter’s time in Virginia with the army, the partners now sought an exclusive contract, what Carter called a “Treaty,” to supply the Farmers General with American tobacco. Footnote 77 As it happened, they lost out on the business to Robert Morris, who through the agency of Parisian bankers Le Couteaulx and Company, signed a contract in April 1785. Footnote 78 At that time, Morris was perhaps the only American merchant who could rival Carter and Wadsworth. His close connections at the heart of the political establishment, as well as networks throughout Europe, gave Morris an advantage in securing such business, especially now that he was free from the responsibilities of being the Superintendent of Finance. For their part, Carter and Wadsworth’s failure to win the contract signaled the end of their joint investments. Their partnership had been an enormously lucrative one, but the business conditions that led to its existence had changed dramatically since the war’s end. In June 1785, it was formally dissolved, and the two men went their separate ways. Footnote 79
For Carter, the trip to Europe marked a personal turning point. Discharging himself from bankruptcy in London in 1783, and returning to the use of his original name, John Barker Church, he used his newfound wealth to create a new life for himself in his country of birth. In 1785, with Angelica and his children in tow, Church returned to London, where the family would remain for over a decade. Of course, he retained significant commitments in America, including his investments in the Bank of North America and the Bank of New York. In the early 1790s, Church partnered with the Philadelphia merchant Tench Coxe in several land speculations in Pennsylvania, for which his brother-in-law Alexander Hamilton acted as agent. Footnote 80 He loaned money to Robert Morris in 1793 as part of a complex series of land and stock deals, which eventually resulted in Church taking over the ownership of 100,000 acres in New York State. Footnote 81 He also held British government debt, and speculated in French funds during the French Revolution, with the help of the ambassador to Britain, the Marquis de la Luzerne, who had been one of France’s ministers in the United States from 1779 to 1784. Footnote 82 In short, then, Church remained active as a speculator and financier on both sides of the Atlantic while he lived in London, carefully maintaining his connections in the United States.
Wadsworth returned to Hartford in 1785 and, alongside his banking interests, pursued a variety of investments in trade and industry. He owned three ships, but with the West Indies trade largely cut off, most of their voyages were coastwise and the profits were low. One speculation that did work out well was the export of flaxseed and other goods to Ireland, which he had visited during the sojourn in Europe (returning linen and woolens for sale in New York). In general, however, Wadsworth’s business ventures in the second half of the 1780s suffered from the same downturn that had afflicted the whole American economy. “I have met with so many losses and disappointments that my embarrassments are great,” he wrote in 1788. Footnote 83 A major part of the problem was that so many of Wadsworth’s debtors were themselves in difficulties and unable to pay him. “As I collect nothing on debts,” he told Edward Rutledge, “my income is barely sufficient for my own family.” Footnote 84 On occasion, he had to sell bank stock to cover his obligations. Yet by now it was that stock that provided his most stable source of income. As historian David Platt has put it, Wadsworth’s “capital … remained large. The trouble was that profitable investments were not to be found.” Footnote 85
In 1786 Wadsworth traveled south to Philadelphia on behalf of a group of investors in the Bank of North America, which included Church and also Philip van Berkel, the Dutch envoy to the United States. In light of the revocation of the bank’s charter by the Pennsylvania state assembly, Wadsworth was charged with assessing the viability of their investment. He uncovered what he took to be some highly irregular practices among the directors and their coterie in Philadelphia, especially the large sums loaned without security to the lawyer and sometime bank director James Wilson. Church wrote to Hamilton from London: “After the unwarrantable lengths they have gone in assisting Wilson, I do not think the property can with propriety be confided to their management.” Footnote 86 Yet the investors did not take their money out of the bank immediately—after all, where would they put it? By the end of the year, a new, pro-bank assembly had been elected, which restored the charter within a few months. Footnote 87 Meanwhile, the conditions for speculation and investment in the United States were about to change, as the Philadelphia Convention gave new life to American financial markets.
Power and Politics
The transformation of American merchant networks was a political as well as an economic process. Footnote 88 Those who opposed the Bank of North America in Pennsylvania accused it of promoting the concentration of power in the hands of a small financial elite. A committee of the state legislature reported: “We fear the time is not very distant when the bank will be able to dictate to the legislature, what laws to pass and what to forbear.” Footnote 89 But political power shaped financial institutions as much as vice versa. It was only through Congress and the French loan that Robert Morris had been able to establish the bank in the first place. War and independence created a completely new political context to financial and economic life in the thirteen former colonies. In order to build a viable fiscal–military state and maintain independence on the world stage, American politicians—Alexander Hamilton foremost among them—actively sought to construct new financial institutions, and to create a class of national creditors whose interests would become entwined with those of the United States. Footnote 90 While Hamilton had many political opponents, as secretary of the treasury in the new government he had the support of George Washington, as well as powerful interests in the mercantile community. By the middle of the 1790s, he had created a dramatically new landscape of American finance.
The first stage of Hamilton’s program called for the federal government to assume all the war debts of the states and to fund them at face value. By taking on the entire debt, Hamilton hoped to establish the credit-worthiness of the new nation, as well as create a moneyed interest in the success—and revenue powers—of the government. Much of the debt that had originally been owed in small amounts to soldiers and wartime suppliers had been bought up at heavy discounts over the preceding decade of economic downturn by those who could afford to gamble on the eventual returns. These men would become the nation’s creditors. The second stage of Hamilton’s plan was the creation of a national bank. This would facilitate the government’s financial transactions, including loans, much as the Bank of North America had done for Congress in the early 1780s. It would stimulate investment in industry, internal improvements, and foreign trade. Because two-thirds of the value of its stock was to be paid for in government securities, the bank would also further support the value of the public debt. In short, Hamilton aimed to recreate the financial apparatus of the British Empire. He wrote in December 1790: “By contributing to enlarge the mass of industrious and commercial enterprise, banks become the nurseries of national wealth.” Footnote 91
Wadsworth, elected to Connecticut’s ratifying convention and to the House of Representatives under the new federal constitution, was a strong supporter of this program. Footnote 92 As a holder of substantial sums in government debt, both from his wartime commissary role and afterward as a speculator, Wadsworth had a financial interest in its success. Speculation in government debt had already sped up, as the new constitution became a reality. Since Hamilton’s first Report on Public Credit, setting out his plans in January 1790, the intensity had redoubled. Wadsworth, with his extensive contacts and capital, was among those best prepared to take advantage of the situation. According to one rumor, recorded by Pennsylvania Senator William Maclay in his diary, “Wadsworth … sent two small vessels for the Southern States, on the errand of buying up certificates.” Footnote 93 Much like the wartime spending boom, the Hamiltonian financial program promised windfalls for well-placed merchants and financiers. By rewarding the current owners of securities, and leaving nothing for their original holders, it also compounded the inequalities that had been created over the course of the wartime business cycle.
Those involved with the creation of this new financial infrastructure were the same men who had worked together to supply and fund the American war effort. The friendships and networks formed in those years shaped access to information, power, and wealth in the first decade of the new federal government. When the Bank of the United States made its initial public offering in July 1791, for example, Wadsworth had to use his connections in the Treasury Department to secure his 48 shares. Footnote 94 Cultural and moral attitudes to the relationship between personal gain and public service were shifting and ambivalent. Footnote 95 Some saw the use of public office for private profit as illegitimate. Others, like Wadsworth’s and Carter’s erstwhile friend and competitor William Duer, saw it merely as inconvenient. Duer left a post as Hamilton’s secretary “to do better” in private speculation, and in 1792 his spectacular failure created a short-lived panic in the financial markets. Footnote 96 Such events damaged public confidence. As Hamilton’s friend Robert Troup put it, “Duer’s total bankruptcy will affect the public interest by bringing the funding system into odium.” After all, Troup went on, “widows, orphans, merchants mechanicks &c are all concerned in his notes.” Footnote 97 These were the losers when extended credit networks failed. Footnote 98
By the closing years of the eighteenth century, Americans faced another economic downturn, one caused by the combined effect of the Quasi-War with France, outbreaks of yellow fever in port cities, and the suspension of specie payments by the Bank of England in 1797. Footnote 99 That year, both Robert Morris and James Wilson succumbed to the weight of their obligations and faced debtors’ prison. Footnote 100 John Barker Church, meanwhile, returning with his family from Britain, became a marine insurance underwriter and continued to trade internationally in government certificates. Footnote 101 In New York, he and his wife became fixtures of Federalist high society. Yet recession also fueled ideological and partisan division. Among the middling sorts and artisans who had begun to flock to the Democratic–Republican Party, a certain suspicion was cast on those like Church and Wadsworth, “both of whom made great fortunes by the war,” and who had helped, it was alleged, to build a Federalist aristocracy. Opposition newspapers like Philadelphia’s Aurora drew out these connections and held them up for public criticism: “Are our sons to fight battles that a certain class of men may reap the spoil or enlarge their power and fortunes upon our destruction?” Footnote 102 Jefferson’s election in 1800 marked the culmination of this political backlash.
From the outbreak of the war in 1775, Wadsworth’s and Church’s fortunes had been tied to their connections with political power. Wadsworth’s friendship with the Trumbull family, his appointment as a Connecticut and then federal commissary, and Church’s connection with the powerful Schuylers and with Hamilton, gave them special access to information, contacts, and credit. These crucial advantages made the partners’ wartime success possible. Far from operating in an open and transparent market, merchants like Wadsworth and Church thrived by creating closed circles that could create and exploit monopolistic or monopsonistic positions and information asymmetries. Footnote 103 In turn, their ability to command networks of credit and supply during the war proved crucial to the logistical operations of the French and American armies. When the new federal government after 1789 embarked on the creation of a fiscal–military infrastructure, it was to these same merchant-financiers that it turned. The relationship between private financial elites and the newborn American state was, in other words, a symbiotic one. Neither could have existed without the other. This mutual constitution and entanglement is central to both the history of state formation and the history of capitalism. Nor did it disappear with the Jeffersonian victory in 1800. Footnote 104 It is in this light that we might consider the American Revolution an important economic event, as well as a political one.
