Like you, I was appalled to read about the congressional representatives — Republicans and Democrats alike — who have traded on the stock market on inside information gained through their public duties. Peter Schweizer’s new book, Throw Them All Out, has stirred up this tempest. The episode that disgusted me the most was when key legislators received briefings about the looming financial meltdown in 2008 and promptly sold their stock to avoid losses before the news became public. Others got sweetheart access to IPOs. And so on.
But I started thinking as a student of the early years of the American Republic. In that time of conspicuous civic virtue, mythologized by conservatives and progressives alike, would similar conduct have been tolerated?
I think so. Actually, it was.
The best way to make money in early America was through speculation in frontier lands. It was a fever that infected virtually all of our early leaders. So, did anyone have “inside” information about frontier lands, the sort of inside information that was gained through official duties supposedly undertaken for the public interest.
Surveyors! Those intrepid souls tramped through forests to map and draw those lines across previously-uncharted wilderness, allowing people to carve it up into chunks that could be sold. Today, we might call that a “monetization” process, converting an asset into something that could be traded. The surveyors had a real advantage when it came time to trade. They knew where the water was, where the soil was rich or rocky, where the terrain was steep or flat, and what parcels were sacred to native Americans.
So, who were these folks with such inside information about land trades? Surely they were not tied to the great men who founded our nation!
Well, there was Peter Jefferson of Virginia, who surveyed much of his colony’s frontier lands in the 1750s, land in which he was speculating. When Peter Jefferson died in 1757, his eldest son — Thomas — was only 14 years old. The wealth left to Thomas by his father bankrolled an extraordinary political career.
Then there was Colonel Thomas Marshallof Virginia, who was appointed Surveyor General of Kentucky in 1780 by Governor Thomas Jefferson (!!!).
Marshall proceeded to acuire 500,000 acres of prime Kentucky land, which served as the basis of the fortune of his immense family. His eldest son John Marshall became the nation’s greatest Chief Justice, his nephew Humphrey a senator, and so on.
And we can’t overlook George Washington, who began surveying frontier lands as a teenager. In his life, Washington “surveyed more than 200 tracts of land and held title to more than sixty-five thousand acres in thirty-seven different locations.”
Not all use of inside information was confined to the surveyors. William Duerwas the first deputy secretary of the Treasury and famously traded in public securities on inside information. Duer, cursed by many contemporaries after his speculations triggered a financial panic, spent his last seven years in debtors’ prison, where he died. Though many tried to tie Duer’s activities to Secretary of the Treasury Alexander Hamilton, they never were able to do so.
So, does that mean that they were all crooks? It all depends on the standard you apply, and whether you think that standard should evolve.
Did those frontier surveyors (and Duer) have inside information? Yup.
Did they acquire that inside information (and Duer) while being paid by the government? Yup.
Could other people have acquired that information? Yup. All they had to do was go West themselves, or chat up some Treasury officials.
Then again, most inside information can be acquired by the astute and energetic, or just the fortunate. Quite a few people figured out that the real estate market in 2008 was a bubble and sold out their positions to save themselves; a few bet against the market and made huge bundles. The information was not that difficult to figure out . . . or so we can see in hindsight.
I still find myself recoiling in disgust from our current-day legislators whose first thought, upon learning confidential information relating to their public duties, was to convert that information into profit. They are not, however, the first Americans to do so. Indeed, they are in distinguished company.
Our standards for public conduct should have evolved beyond the one applied in the eighteenth century. The behavior revealed in recent days is entirely unacceptable. But the situation puts the Founders in a light that many of their most fervent acolytes may find awkward, or worse.