– August 19, 2019
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Running afoul of slave-owning political interests almost destroyed brothers Lewis and Arthur Tappan, the wealthy owners of a prominent New York mercantile import business. On July 9, 1834, a pro-slavery mob gathered at New York City’s Chatham Street Chapel with the intention of breaking up an abolitionist sermon.

Among their many grievances, the protesters were incensed at an incident some weeks earlier in which Arthur invited Rev. Samuel Cornish, an African American abolitionist and cofounder of the American Anti-Slavery Society, into his family pew for Sunday service. The gesture served as a powerful symbolic call for the racial integration of religious worship at the chapel. It also made the Tappan brothers — already well known as a philanthropic force behind the abolitionist movement — the target of sensationalist conspiracy theorizing that spread to newspapers across the country and accused the devoutly Christian and pacifist brothers of fomenting a slave revolt.

Congregants caught wind of threats to forcibly disrupt their gathering and fled for their own safety. Still seeking a fight, the mob descended upon Lewis Tappan’s nearby home, tossing its furniture into a fire on the street and successfully driving away an attempt by the New York police to quell the riot. For the next two days, breakaway mobs searched the city for the Tappan brothers, ransacking the homes both of white abolitionists and leaders of New York’s free black community in the process. The same mobs attacked African-Americans on the streets at random and held crude racist political demonstrations in front of churches and businesses they deemed friendly to the abolitionist cause.

The Tappan brothers managed to escape relatively unscathed as the mayor stationed an armed militia to guard their storefront and drive away rioters. National news of the Chatham Incident, or “Tappan Riots” as they came to be called, carried other repercussions. It made the firm of Arthur Tappan & Co. into the target of a slave owner–instigated boycott that preyed upon public racism to drive away its customer base.

The mob targeting of the Tappans proved to be a watershed moment in the crusade to end slavery. William Lloyd Garrison’s coverage of the riots demonstrated that slavery’s defenders were willing to incite political violence in order to silence their critics. The episode also converted New York journalist William Leggett to the cause of abolition, which he then explicitly linked to a philosophy of laissez-faire capitalism and free trade.

It also took a heavy toll on the Tappans’ company. If the proslavery mob could not physically drive them from their New York business, it would destroy them nationally through a vilification campaign and economic targeting. Newspapers across the South demonized the brothers as the face of not only abolitionism but racial intermarriage, black political rights, and violent slave revolts. Groups of slave owners in New Orleans and Charleston even pledged a bounty on Arthur Tappan’s head. A poster advertising a “$20,000 Reward for Tappan,” for example, appears prominently in an 1835 depiction of slave owners ransacking a post office to intercept copies of William Lloyd Garrison’s The Liberator.

By 1837, the combined loss of business from the boycott and the descent of the American economy into a deep financial depression left the brothers owing more than $1 million to creditors. The decline represented a nearly complete reversal in fortunes for a firm previously known for its conservative bookkeeping and heavy reliance on cash transactions to limit its liabilities from customers who reneged on their payment obligations. Arthur Tappan & Co. finally closed shop.

Lewis Tappan, who often spoke of his business as a moral charge and who directed its proceeds in healthier times to a variety of abolitionist newspapers, was not yet ready to concede the fight to an orchestrated campaign of financial ruination. At his darkest moment, he came up with a brilliant plan that not only reversed his fortunes but also revolutionized the American financial industry.

Drawing on the experience of the boycott, Lewis recognized a systemic fault in the existing practices for business transactions carried out on credit. To fight back against a slave owner–incited boycott that undermined their cash purchases, the Tappans would reconstitute their business model around their existing network of connections in the abolitionist movement by offering credit transactions to trusted friends and associates. Establishing that trust, however, remained an obstacle, particularly if they ever hoped to expand this service beyond their own personal associations.

The complexities of the global import market and a growing customer base, spread across the nation’s rapidly expanding geography, made the issuance of credit into an economic challenge. What was once a simple relationship between a shopkeeper and customers who were known to Lewis and who usually resided in his neighborhood now became a persistent information problem. With expanded markets, businesses could no longer afford to rely upon personal knowledge and reputation when vetting potential customers. A firm had to either insist upon payment up front or assume the risk that a customer would abscond with goods purchased on credit. The only available solutions were to either pay for individual background checks on potential clients before extending them credit — an expensive and unwieldy undertaking for all but the largest of firms — or absorb the loss if a customer reneged on repayment.

Lewis Tappan devised an innovative solution to this problem by creating a service to independently track and validate the creditworthiness of potential clients. In 1841 he founded the New York Mercantile Agency, the first modern credit-reporting firm in the United States. The new company offered a subscription-based service that collected and maintained a list of the creditworthiness ratings of private businesses across New York City and, eventually, the country.

Reaching into his network of abolitionist connections and known clients from his old firm, Tappan was then able to assemble a network of credit investigators and attorneys who used local knowledge to assemble reports about outstanding debts, repayment rates, and defaults among the businesses in their cities and towns. A rating could then be provided to subscribers of the service, allowing them to reliably evaluate the risk of doing business with firms located thousands of miles away. The information problem at the root of previous complex credit arrangements could be mitigated through a market service that independently verified business reputations and conveyed their creditworthiness over long distances through simple consultation of a low-cost subscription paper.

Lewis Tappan’s innovation revolutionized the American finance industry. The direct successor to his Mercantile Agency still exists today as Dun & Bradstreet, and his idea of an independent credit-reporting entity became the standard verification instrument of modern business lending and investment practices. The information it provided as an external and accessible measure of reputation, in turn, allowed for reliable and regular transactions to occur over long distances, thereby helping to ignite an unprecedented expansion of access to markets and goods across the nation.

The origins of Tappan’s innovation remain a neglected feature in the history of American capitalism. A succinct account of the Mercantile Agency’s history may be found in an article by historians Brian Grinder and Dan Cooper for the Museum of American Finance. For a longer discussion, I recommend Roy A. Foulke’s 1941 text The Sinews of American Capitalism, which details its abolitionist origins (Foulke, a vice president of Dun & Bradstreet, was also an early benefactor of AIER and friend of E.C. Harwood).

Their fortunes renewed, the Tappan brothers remained devoted benefactors of the abolitionist cause. After the Fugitive Slave Act of 1850 strengthened federal government efforts to recapture African-Americans in the north and return them to slavery, the brothers set up a network of lawyers to mount legal challenges to the renditions and, where possible, funneled money to support the Underground Railroad. Lewis also subsidized Lysander Spooner’s book The Unconstitutionality of Slavery and financed the printing of his abolitionist pamphlets.

Interest in the history of American capitalism is on the rise, although curiously this line of study is being advanced for anticapitalistic ideological reasons as may be found in the New York Times’ new 1619 Project, on American slavery. Much of the associated academic literature, including sources used by the Times, relies on empirically shoddy and politicized lines of research that several leading economic historians have conclusively refuted (my own comments on the problems with this subfield may be found here).

In eschewing factual analysis for political narratives, these scholars and the journalists who promote them appear to be far more interested in weaponizing the history of slavery with biased and even fabricated claims for the purpose of discrediting capitalism and free markets in the present day. They neglect the historical antagonism that existed between slave owners and free market capitalism, including a leading slavery defender who declared that capitalism was “at war with all kinds of slavery.”

It is therefore no small irony that one of the most important innovations in American financial history — the development of a reliable and replicable credit-reporting mechanism — owes its existence to a leading capitalist benefactor of the American antislavery movement. That innovation emerged as a tool for abolitionist business owners to escape violent harassment by racist mobs and coordinated economic targeting by plantation owners who sought to destroy the viability of their businesses. Lewis Tappan illustrated through his personal struggle and his economic entrepreneurship that American capitalism was, indeed, at war with slavery.

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Phillip W. Magness

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Phil Magness is a Senior Research Fellow at the American Institute for Economic Research. He is the author of numerous works on economic history, taxation, economic inequality, the history of slavery, and education policy in the United States.
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