A Biography of Alexander Hamilton (1755-1804)

Stock Market Mania - Summer 1791 - Spring 1792

The summer of 1791 had its headaches as well. Irresponsible speculation on the stock market led primarily, to Hamilton's dismay, by William Duer, caused stock prices to skyrocket dangerously. The stock purchases were largely made through bank loans, despite Hamilton's severe injunction against such loans by banks. National bank branch offices, of which Hamilton also disapproved but was unable to prevent, made loans to speculators easier to procure. Foreseeing a crash, Hamilton sent a thinly veiled warning to Duer ("I had serious fears for you--for your purse and for your reputation . . ."), but Duer and friends continued to play the market extravagantly, borrowing from banks and individuals, buying up government securities and bank stock, and hatching schemes to sell at a profit to foreign investors.

The market finally crashed in February of 1792, sending Duer and other speculators into bankruptcy (and into prison), and severely devaluing government securities. In order to avoid a complete disaster, Hamilton ordered the Sinking Fund Commission to purchase government stocks, and advised banks to pool their resources in the face of expected runs on deposits. A recently secured Dutch loan also helped soften the blow of the crash. The damage had been done, however. The spectacle helped fuel Republican opposition to Hamilton and his policies. And for his part, Hamilton had a horrifying taste of the extreme behavior of which unethical "stock-jobbers" were capable.