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Panic of 1792

The Panic of 1792, of which William Duer was both a major cause and a principal victim, was the product of many complex developments. In part the fervid speculation in the Government funded debt which drove the New York securities market to new highs in January, 1792, was merely an intensification of the speculative binge in the last months of 1791.

A further impetus to speculation arose out of the efforts of various businessmen and speculators to create three new banks in New York City in one week in January, 1792. Also, many of the principal speculators in securities were involved and overextended in several other enterprises. For example, William Duer at the time had a contract to supply the United States Army, was mixed up in the new banking ventures, and had plunged heavily in numerous other land speculations.

Further, almost all the New York directors of the Society for Establishing Useful Manufactures, including Duer, were leading speculators in securities who as a result of the panic went into bankruptcy or avoided it by a variety of subterfuges. Among the leading speculators in the Federal funded debt in addition to Duer were Alexander Macomb, Richard C. Platt, John Pintard, Isaac Whippo, Brockholst Livingston, and John R. and Edward Livingston. These men and many others were at times bound to each other by their cooperation in other business undertakings and by debts and endorsements of notes. Other times, they found their interests in conflict, as when the three Livingstons were “bears” and Duer and his associates, including Walter Livingston, were “bulls.”

Duer had the unhappy distinction of being more responsible than any other individual for precipitating the Panic of 1792. On or shortly after March 9, he was “obliged to stop payment of a Certain Description of Notes”, and by March 15 securities on the New York exchange had declined to such an extent that he was unable to meet his numerous and enormous obligations.

Duer’s final collapse, however, occurred not because of his personal debts, but rather because of his obligations to the Federal Government. On March 12, 1792, Oliver Wolcott, Jr., comptroller of the Treasury, wrote to Richard Harison, United States attorney for the District of New York, that there were two unbalanced charges against Duer dating back to his service as Secretary to the Board of Treasury. Wolcott instructed Harison that if Duer could not balance his accounts or provide evidence that he could and would do so, he should be sued (copy, Connecticut Historical Society, Hartford). When Duer failed to meet the requirements set by Wolcott, he was arrested on March 23, 1792, and sent to prison.

The prices of securities in New York and Philadelphia dropped precipitously on news of the bankruptcy of Duer, a major securities dealer deeply engaged in forward and futures securities contracts. Duer's failure was not the root cause of the drop, bur rather the restriction of bank credit, first by the Bank of the United States (a.k.a. B.U.S.), and soon after by the rest of the nation's banks, forced speculators like Duer to sell their securities.

Simple arbitrage stopped the spread of the Panic. After prices plummeted in New York and Philadelphia, securities dealers in Baltimore, Boston, and Charleston remitted funds to purchase securities at "bargain" prices. Those funds, combined with Hamilton's timely purchase of securities and sale of guilder bills, bills of exchange drawn on the proceeds of a U.S. loan in Amsterdam, added liquidity to the system and prevented bankruptcies outside of Duer's inner circle.

So, far from being a sign of America's financial weakness, the Panic of 1792 was actually a sign of its great strength, a view held by top financiers like Hamilton and stockbroker Clement Biddle of Philadelphia.