Born: December 1, 1790; Connecticut
Died: 1870; New York, New York
In the early days of Buffalo, businessman Benjamin Rathbun virtually created the city — and nearly destroyed it.
Benjamin Rathbun was born to Patience Jones and Moses Rathbun on December 1, 1790, near Westford, Connecticut. The ancestors of Moses Rathbun (the surname was originally “Rathbone”) settled in New England in the 17th century. Moses’ father, Rev. John Rathbun, was a revered Baptist pastor who founded the Baptist Church of Westford in 1781. Moses was a strict Baptist as well: He never drank, smoked, danced, or played cards. However, Moses did like to dress well, and he was known for being attractive and cunning — traits he passed on to his son Benjamin. In 1807, Moses moved Benjamin and the rest of the family to New York State.
In 1808 and 1809, Benjamin apprenticed at a Rathbone cousin’s general store in Oxford, New York. There, Benjamin learned the arts of trading and running a business. On December 15, 1811, Benjamin married eighteen year old Alice Loomis, daughter of Thankful Meachum and Capt. Thaddeus Loomis. In 1816, Benjamin and Alice had a son, whom they named Thaddeus Loomis Rathbun.
By the time his son was born, Benjamin was a successful businessman in Monticello, New York. Benjamin Rathbun’s businesslike demeanor is described in The Rise and Fall of a Frontier Entrepreneur:
Rathbun presented an imperturbable and attractive countenance to the public. His calm and confident air helped resolve endless emergencies. What people recalled most about him was his unreadable expression, which concealed the busy, focused mind behind it. Almost devoid of humor, Rathbun never joked and rarely smiled except in greeting. Naturally economical in conversation, he had a ready flow of language when he wanted to convince someone.
He built a general store with a shoemaker’s shop in Monticello, and in 1816, Benjamin built a tavern in town for stagecoach passengers. He often partnered with his father in various business ventures; one such venture was a small currency exchange bank connected to the general store.
During the early 1800s, currency troubles, speculation, and lack of federal regulation led to the growth of small, privately-owned exchange banks (often called “wildcat banks”) in villages on the American frontier. The United States government did not print paper money at this time. Instead, the government minted silver and gold coins, called “specie”. The value of the metal used to make the coins determined the value of the coins themselves. People would deposit their gold and silver into a bank where it was stored in a secure vault, and the bank would issue a receipt — a paper banknote with a design unique to each bank — to the depositor as claim against the silver and gold deposit in the bank vault. Money could be withdrawn from a deposit by going to the bank and exchanging the banknote for specie. Because most sellers also accepted banknotes as payment for goods, and banknotes were far easier to carry than silver and gold, there were many banknotes in circulation.
Banks were required to exchange their banknotes for coin money on demand, but wildcat banks were notorious for their remote locations; thus many holders of “foreign notes” (or banknotes from out-of-town banks) were unable to travel to the issuing bank and exchange it for specie. While the value of local banknotes was on par with the denomination of the banknote itself, the value of foreign notes was discounted at a rate determined by the redeeming bank, and depending on the location of the issuing bank.
Most banks issued loans borrowed from the gold and silver in their vaults. The banks charged a fee to borrowers in the form of interest, which theoretically allowed the banks to cover their costs of operation, as well as make a profit. However, irresponsible lending practices by small banks often resulted in more banknotes in circulation than gold and silver to cover them. If the income from interest-bearing loans failed to cover a bank’s notes in circulation, that bank could go bankrupt; its notes would no longer have any value, and depositors could lose their savings. Wildcat banks like the Rathbuns’ were also called “free banks” because they were charter-free, thus virtually free of regulation; the profit-hungry owners of free banks were exchange brokers, not bankers.
In 1817, Moses and Benjamin Rathbun’s irresponsible lending bankrupted their bank in Monticello. Although small bank failure was not uncommon in these days, many of the Rathbuns’ neighbors lost their savings. To avoid prosecution, Benjamin and Moses fled Monticello with their families. Moses moved to Batavia, New York, and Benjamin went to Toledo, Ohio. Benjamin didn’t stay in Toledo for long. Lack of adequate shelter and dwindling funds caused Benjamin and his family to leave Toledo for Sandusky in August 1818. In 1819, the Rathbuns moved back to Batavia; they were so poverty-stricken that their only possessions were the clothes on their backs. Benjamin soon left again, this time for Niagara Falls with the intention of starting a tavern. However, Benjamin couldn’t secure funding, so he and his family moved on to the last stagecoach stop on the line: the village of Buffalo.
In 1819, Buffalo was a rustic, under-developed village on the Niagara frontier. It was still recovering after being burnt to the ground by the British six years before. Benjamin Rathbun rented a three-story, Georgian-style brick tavern called Kibbe’s Tavern. The tavern was located on the west side of Main Street, below Court Street; it was only three years old, but it already needed refurbishing. Benjamin fixed it up as best he could, adding luxurious decor to give the tavern a “high class” appeal. He renamed it the Eagle Tavern, and erected a golden eagle over the center door.
The Eagle Tavern became a Buffalo fixture. In December 1819, the Eagle offered warmth and refreshment to spectators who gathered to watch the second public execution in village history; the hanging was visible from the tavern’s upper windows and attracted quite a jubilant, thirsty crowd. In 1825, the tavern served as the meeting place where Peter Porter of Black Rock and Samuel Wilkeson of Buffalo pleaded with the Erie Canal commissioners to make their respective villages the western terminus of the Erie Canal. In June of that same year, the Eagle entertained a Revolutionary war hero: the Marquis de Lafayette. Four months later, Judge Ebenezer Walden hosted a dinner and a ball celebrating the opening of the Erie Canal at the Eagle; the dinner and the ball were attended by several illustrious New York state citizens, including Governor DeWitt Clinton. The Eagle Tavern burnt down forty-five years later, in 1865.
Benjamin Rathbun soon expanded his business ventures. He started a stagecoach line linking Buffalo and Albany. He also established Buffalo’s first horse-drawn omnibus line, extending from the Buffalo waterfront. Wanting to profit from the land boom, Benjamin bought and developed village land. By 1835, Benjamin had completely transformed Buffalo into a proper city: He created Buffalo’s first Business District along Main Street; he built eighty-nine brick buildings, including the Eagle Street Theater, a four-story warehouse, fifty-one stores (including Benjamin’s two large dry goods stores located at 228 and 230 Main Street), and thirty-one private dwellings. He also built the American Hotel and created a new street, Mechanic Street, near the Erie Canal; on Mechanic Street Benjamin built a fourteen-story stone warehouse and machine shops. He also opened two brickyards and a stone quarry.
To help fund these projects, Benjamin Rathbun created a small currency-exchange bank; to encourage business, Benjamin’s bank issued notes redeemable in his dry goods stores. The public trusted the local free banks because they were owned by well-respected Buffalo citizens. Ebenezer Johnson, the first mayor of Buffalo, owned a free bank with business partner H.H. Sizer, before dissolving it in 1832 and starting a new bank that same year with Philander Hodge called “E. Johnson & Co”.
The first state-chartered (and state-regulated) bank in Erie County — the Bank of Niagara — was established in 1816. It was in business until 1832, when its sixteen-year charter expired. The Buffalo branch of the federally-regulated United States Bank was established in 1829. The state-chartered Bank of Buffalo was established during a meeting at Benjamin Rathbun’s Eagle Tavern on May 16, 1830. Benjamin Rathbun was a commissioner for the Bank of Buffalo; the other commissioners were James McKnight, David E. Evans, I.T. Hatch, Guy H. Goodrich, S.G. Austin, and Pierre A. Barker
During construction and after completion of the Erie Canal, land speculation caused the price of real estate to rise. Buffalo’s population nearly doubled between 1830 and 1835, resulting in a land boom. Many borrowed from banks to purchase land, with the expectation of making a profit by selling the land quickly, at a much higher price. The availability of easy credit from local banks fed the “speculation fever” in Buffalo. According to Our County and its People:
Land is known in the city of Buffalo which sold early in 1835 at $2 per foot, or about $500 an acre. It was sold and resold in parcels during the speculative period until within twelve months it brought at the rate of $10,000 an acre.
As with all economic bubbles, this real estate bubble would not last. Speculation in Buffalo peaked in early 1836. The price of goods and real estate were at their highest. Almost the entire community was borrowing money at remarkably high interest rates (History of Buffalo and Erie County claims three to five percent a month).
The profit-driven free banks had more banknotes in circulation than deposits to cover them, causing the value of their notes to depreciate. To curb their irresponsible lending, President Andrew Jackson issued the Specie Circular on July 11, 1836. Under the Specie Circular, after August 15, 1836 government land could only be bought with gold and silver specie, not paper currency.
The Specie Circular started a nationwide panic. Small banks around the country suspended coin payments to note-holders and depositors wishing to withdraw funds. As a result, confidence in banknotes fell, and the banknotes’ value plummeted. Creditors called in their loans, creating a catastrophic domino-effect of bankruptcies and failures, including the ruin of Benjamin Rathbun.
When Benjamin’s creditors called in his loans, he found himself unable to pay his debts. Work on his building sites halted because he could no longer afford to pay his employees. Desperate to stay afloat, Benjamin paid his creditors with banknotes endorsed with the forged signatures of Buffalo’s wealthiest citizens. One of these citizens, David E. Evans, was a fellow member of the Bank of Buffalo’s Board of Directors. On a business trip in Philadelphia, Evans discovered that Benjamin Rathbun had deposited as security a banknote endorsed with Evans’ forged signature into a Philadelphia-area bank. Evans returned to Buffalo immediately and confronted Benjamin, who confessed to passing thousands of dollars worth of forged banknotes.
Benjamin Rathbun was arrested in August 1836. Benjamin cooperated with the investigation, but he claimed the forgeries were created by his brother, Lyman Rathbun, and his nephews, Rathbun Allen and Lyman Rathbun Howlet. The total financial loss caused by the forgeries amounted to 1.5 million dollars. Newspapers breathlessly described every detail; The Evening Post reported on August 8, 1836:
A report arrived on Saturday of the failure of Benjamin Rathbun…His business had become prodigiously extended; four large stores crammed with goods were kept in his name, he owned several lines of stagecoaches, six hundred horses, several brick manufactories [sic], and places for furnishing every material used in building…he employed twenty-eight clerks and two thousand other persons in his various departments of business, and his notes to a vast amount have sold in the New York money market at a discount of three and four percent a month. His failure therefore, naturally excites much sensation. It appears to have been immediately occasioned by the discovery of certain forgeries which it is said were committed by his relations in his employment. The effect of the failure will probably check somewhat the prosperity of Buffalo, which before was proceeding with great rapidity.
The Evening Post‘s prediction was prescient. In his book High Hopes, Mark Goldman states:
The economic crisis created in the city by Rathbun’s collapse was…severe. The city’s banks, all wrapped up with Rathbun in one way or another, went under, and the two thousand-odd workers who had been employed on Rathbun’s projects were now out of work. Private schools closed as even the privileged suffered. Hotels were empty, the harbor languished, and the city sank deeper and deeper into a depression that was national in scope.
Benjamin Rathbun’s trial in Batavia started on March 29, 1837; his nephew Rathbun Allen testified against him. Benjamin was found guilty and sentenced to five years in State prison.
Buffalo banks suspended specie payment in 1836, and by 1837, after suffering panic-driven “runs”, banks all over the nation suspended specie payment; this chaotic time was adequately named “The Panic of 1837”. Many in Buffalo lost their fortunes, including Ebenezer Johnson and Hiram Pratt, who served as Mayor of Buffalo in 1835 and 1839; Pratt never recovered from the emotional strain of his financial ruin and died in 1840, at the age of thirty-nine.
After he got out of prison, Benjamin Rathbun moved around the region, trying to start various hotels. He eventually moved to New York City and opened a boarding house, where he died in 1870.