Many New Yorkers, and many Americans generally, consider Wall Street – to be the world’s most famous and important street. Many tourists are surprised to find that Wall Street, once described as “a short street with the river at one end and a Church at the other,” is only seven blocks long.
Originally named for a palisade wall built by the Dutch in the 1640s (and torn down by the English in 1699), the street was an important east-west thoroughfare until the American Revolution. At that time the entire city of New York, home to about 15,000 people, was south of City Hall Park.
One of the current ironies is that Wall Street today has returned to its residential roots. The financial institutions which became famous there now are located in midtown Manhattan or elsewhere.
Another interesting aspect of Wall Street’s history is the focus on it’s intermittent declines. “Great Crashes of Wall Street,” a walking tour of Lower Manhattan given annually in October under the auspices of the Museum of American Finance by Richard Warshauer points out that a “crash” implies a fall from some height. The really interesting story of Wall Street then, is not just the crashes but also the “rises” of Wall Street and the American economy.
Nevertheless, Wall Street today has come to symbolize a critical part of New York City and America related to finance.
The Beginnings of Wall Street
After Evacuation Day (November 25, 1783) when the Patriot army took over the city of New York, Wall Street became a fashionable commercial street. Such prominent New Yorkers as Alexander Hamilton had his law office there and it was the location of Hamilton’s Bank of New York.
Initially the United States government was in rough shape economically and there was a question as to whether the new nation would survive, as war debts of the federal and early state governments were trading at a significant discount from their face value. Hamilton however, in his role as the new U.S. Secretary of the Treasury, devised a plan whereby the U.S Government would refinance federal and state debts by establishing a national Bank of the United States and issuing government bonds which would pay 100 cents on the dollar.
After the Revolution, some merchants began to gather at the Tontine Coffee house around 100 Wall Street to trade U.S. Government securities, and the stock of a few major banks, such as the federally chartered First Bank of the United States, the New York State chartered Bank of New York, and the Pennsylvania chartered Bank of North America.
At first, trading in these securities was somewhat chaotic. Brokers would charge different prices and commissions for securities and some unscrupulous speculators would try to manipulate the market in certain securities. In late 1791 and early 1792, a former U.S. Treasury official, William Duer, along with Alexander Macomb (known to New York historians as the namesake of Macomb’s Purchase) sought to corner the market in Bank of the United States securities. When their plan failed and they defaulted on their obligations the markets collapsed in the so-called Panic of 1792 which caused widespread financial distress. Hamilton sought to alleviate the crisis by having the Bank of the United States buy U.S. Government and bank securities and having all banks loosen up on credit.
In response to this crisis, twenty-four of the New York’s leading merchants met secretly at Corre’s Hotel to discuss ways to bring order to the securities business. This meeting culminated in the what is now known as the Buttonwood Agreement, a founding document of the New York Stock Exchange and one of the most important financial documents in United States history.
The Buttonwood Agreement
The Buttonwood Agreement is said to have been signed on May 17, 1792 near a buttonwood tree (an American sycamore) at what is today 68 Wall Street. The signatories to the agreement agreed to bring all the transactions in certain listed securities to one central place where there would be uniform prices for each security traded. Furthermore it provided they would only deal with one another in trading in those securities and would not charge a commission on trades of more than one percent.
The agreement created a central market for listed securities trading at a fixed price and open to all members of the exchange. It also gave the members of the exchange a monopoly in trading on those securities on the exchange. The creation of a central auction market in which the city’s major brokers participated resulted in most of the transactions in these securities taking place on the exchange, which greatly enhanced the economic status of the exchange members and the importance of Wall Street as the center of securities trading.
In the 1790s relatively few securities were traded on the exchange, by the 20th century the New York Stock Exchange was by far the most important securities market in the world. The rule that members of the exchange were required to do business only with other members of the exchange in a listed security lasted until 1975 when it was abolished by the SEC (U.S. Securities and Exchange Commission). For almost 200 years however, the rules gave exchange members a significant competitive advantage in securities trading.
It’s interesting that six of the original 24 signatories on the Buttonwood Agreement were Sephardic Jews including Benjamin Seixas (a relative of Shearith Israel rabbi Gershom Mendes Seixas); Isaac Gomez, Alexander Zuntz and Ephraim Hart. The Jewish community had strongly supported the Revolutionary cause and continued to do so in post-Revolution New York.
The Buttonwood Agreement is considered the foundational event of the New York Stock Exchange and the rise of the Wall Street securities markets. Ultimately, in the 20th century, the arrangements for a central auction market with uniform prices would create an entity where companies could efficiently raise capital for their various business purposes.
The Agreement would also provide a vehicle through which a broad base of individuals and institutions could invest their capital and participate in the fortunes of America’s most significant enterprises. As a result by the 20th century the New York Stock Exchange on Wall Street would become the repository of the largest concentration of capital in the world.
This is a series of articles on the history of Wall Street in the city of New York. You can read the entire series here.
Illustrations, from above: The Castello Plan from 1660, showing the wall at right; painting showing the Tontine Coffee House with the American flag (diagonally opposite is the Merchant’s Coffee House where members of the Buttonwood Agreement met to trade); and a 1945 diorama showing the buttonwood tree from the Museum of the City of New York.