John Steele Gordon: Don't Bet Against New York





[Mr. Gordon is the author of "Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt," out in a revised edition by Walker & Co. early next year.]

The financial collapse of 2008 and the Great Recession have had, not surprisingly, a major adverse impact on the economy of the country's financial center, New York City. There have been over 40,000 job losses in the financial community alone and both city and state budgets are deeply dependent on tax revenues from this one industry. There has been much talk that New York might take years to recover—if, indeed, it ever can.

But if one looks at the history of New York there is reason for much optimism. The city's whole raison d'être since its earliest days explains why.

The Puritans in New England, the Quakers in Pennsylvania, and the Catholics in Maryland first and foremost came to what would be the United States to find the freedom to worship God as they saw fit. The Dutch—who invented many aspects of modern capitalism and became immensely rich in the process—came to Manhattan to make money. And they didn't much care who else came to do the same. Indeed, they were so busy trading beaver pelts they didn't even get around to building a church for 17 years.

Twenty years after the Dutch arrived, the settlement at the end of Manhattan had only about a thousand inhabitants. But it was already so cosmopolitan that a French priest heard no fewer than 18 languages being spoken on its streets. By that time New Yorkers were trading tens of thousands of beaver pelts a year, and slaves, lumber, oysters, and a myriad of other products as well. New York merchants were soon trading not only with Europe, but with the West Indies, Africa and even ports in the Indian Ocean.

The British began to covet the little city set in the center of one of the world's great natural harbors, with easy water access to the interior of North America via the Hudson River. The Dutch governor, Peter Stuyvesant, built a wall to protect the city from attack from the north, but in 1664 the British sailed up from the south to put the city under the guns of the Royal Navy and Nieuw Amsterdam became New York without a shot being fired.

The Dutch merchants adjusted quickly and the city continued to expand. The lands along the Hudson River proved well adapted for growing wheat and the British governor gave New York City a monopoly on milling flour, which quickly became a major export. As the 13 colonies grew, four cities emerged as the most important: Boston, New York, Philadelphia and Charleston, with Philadelphia the largest.

Unlike the other three cities, which were only briefly occupied by the British during the American Revolution, New York suffered grievously in the conflict. Under British occupation for seven long years, much of the city was destroyed by two great fires and much of its patriot population fled. After the British (and a large number of loyalists) withdrew, however, the city recovered with astonishing swiftness. By 1800 it had passed Philadelphia in population and has been the country's largest city ever since.

Then, in 1817, three events produced what would come to seem an annus mirabilis for New York. First, the Black Ball Line was formed to provide regularly scheduled passenger service to Europe, the first such service in the world. New York immediately became the country's hub for ocean-passenger transportation, which it would remain until the era of modern, long-distance air travel began in the 1970s.

Second, the New York Stock and Exchange Board (renamed the New York Stock Exchange in 1863) was formally organized. Philadelphia was still the most important financial center, but New York would overtake it in the 1830s when Pennsylvania defaulted on its state debt, devastating many Philadelphia banks. By the 1840s "Wall Street" had become a metonym for the American financial world. By the 1850s, thanks to the telegraph invented by Samuel F.B. Morse (a New Yorker, of course), which allowed traders all over the country to trade there, it had become the only important financial market in the country.

It was, however, a market devastated by panics roughly every 20 years in the 19th century, when "the immense fortunes which we heard so much about in the days of speculation . . . melted like the snows before an April sun," as former Mayor Philip Hone wrote after one of them. But each time, as the American economy recovered and grew ever larger, so did New York City.

Most important, in 1817 the digging of the Erie Canal began. This huge project—it would be the longest canal in the world when completed in 1825—would connect New York City with the fast-growing areas of the country west of the Appalachian Mountains. Produce that formerly had to be shipped down the Mississippi and through the port of New Orleans to reach eastern and European markets could now flow through New York...

... Only time will tell if New York will do what it has done so many times: recover from economic disaster to become bigger, better, richer and more diverse than it was before. But I wouldn't bet against it.

Deep within the heart of this vast metropolis—like the child within the adult—there is still to be found that little hustly-bustly, live-and-let-live, let's-make-a-deal Dutch village. And the creation of wealth is still the city's dearest love.


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