Those who know a bit about New York’s financial past have almost certainly heard of the Buttonwood Agreement. In 1792, two dozen stockbrokers signed a now famous pact agreeing to trade directly with each other, bypassing any middlemen, under a Buttonwood tree on Wall Street. This agreement standardized trading between them and is thus thought of as setting the foundation for what would become the New York Stock Exchange. But connecting the agreement signed in 1792 to today’s stock exchange on the corner of Wall and Broad is a story involving an antique insurance product and a coffee shop by the same name.
Needing a place to do business outside the rain, Wall Street’s earliest brokers settled on a coffee shop. But no existing one would suffice, a new one, called the Tontine Coffee-House, would be created for the purpose of being New York’s first post-Buttonwood exchange. Where does insurance come into this story; well, the startup capital for the place was provided for by an archaic annuity-like scheme called a tontine.
Tontines have a history that goes back long before the Tontine Coffee-House, established on the corner of Wall and Water streets. The scheme, named after a 17th century banker from Naples, Lorenzo de Tonti, combined retirement planning with a lottery; what better way to combine financial savvy with speculative thrill, all the while raising investable capital.
The product worked as follows: Investors each buy shares in the tontine, akin to paying up front for an annuity. The pool of capital is then invested, in a coffee house in the case of our story, and investors receive dividends on their shares until their deaths. Once the number of survivors shrinks to a small group, the investment is wound down.
So far, this looks just like any other annuity; but with a tontine, the distributions that do not go to deceased investors are used to increase the benefits of the surviving ones. This is the lottery part of the scheme. Instead of having to worry about outliving your savings or the decaying buying power of your fixed income with time, with a tontine, living a long life can be very enriching financially. Imagine being among the last handful of survivors in a tontine that started out decades earlier with hundreds of investors; those dividends would look massive compared to the initial investment. You may have had to wait a long time though; knowing how important longevity was to the financial sense of investing in a tontine, many investors named their young children as beneficiaries so as to increase their odds of seeing it to the tontine’s end.
Getting back to our story in New York, the tontine that financed the construction of the coffee house had a total of 203 shares sold. Each was $200 in value providing a startup capital of just over $40,000. That’s over $1 million in today’s money, a lot for a coffee shop. While Starbucks is not open to franchisees, some quick research tells me that sum is just about enough to open a Dunkin’ Donuts, so perhaps our inflation calculator really is accurate.
Nonetheless, once built in 1793-94, the Tontine Coffee-House was no ordinary coffee shop; it became a hub for traders in the fast-growing city around it. It may have been no Royal Exchange or Paris Bourse then, but in time it would evolve into an exchange bigger than them all. One Englishman quoted a few years later said of the place:
“The Tontine Coffee House was filled with underwriters, brokers, merchants, traders, and politicians; selling, purchasing, trafficking, or insuring; some reading, others eagerly inquiring the news.”
Time and Place
So where exactly was the Tontine Coffee-House? It stood on the corner of Wall Street and Water Street. Paintings and engravings of the three-story building show it on the northwest corner of the intersection, where 82 Wall Street stands today just one block past Deutsche Bank’s New York offices at 60 Wall Street. A 1797 painting by Francis Guy, with the coffee shop located on the far left, shows the masts of ships close by. Back then, Water Street really was by the water; landfills have since expanded the profile of Manhattan by one block in that direction.
Today, the coffee house is long gone. In 1817, trading moved up the street when the New York Stock & Exchange Board was formed and rented space at 40 Wall Street. The old Tontine Coffee-House would go on to become a tavern, a hotel, and then a newspaper publishing office before being demolished in the middle of the century. The New York Stock Exchange, as it was renamed in the 1860s, moved once more in 1865, and then again to its present location in 1903.
Back to the Tontine
Oh yes, and what about the tontine that started it all? It was wound down in 1870 when the number of beneficiaries was reduced to seven, all of whom were children when the tontine was set up over 75 years earlier. While these lucky seven likely benefited immensely from the scheme in their later years, it’s not exactly a rags-to-riches story.
Among the survivors, two were members of the prominent Bayard family, which has produced several US senators and two Mayors of New York. They can thank their banker father, who was a friend of Alexander Hamilton, for the wise investment. Another was Gouverneur Kemble; a Congressmen and the son of a successful merchant, Kemble was also distantly related to the Bayards. A fourth survivor was Mary Ray, wife of New York Governor John A. King, who was, you guessed it, another Tontine recipient. Perhaps the two met at one of the meetings of the tontine’s trustees. King himself, who died in 1867 and thus was not one of the final seven, was the son of Rufus King, an ambassador, Senator and signer of the US Constitution. A list of the tontine’s investors and beneficiaries reads like Who’s Who list of 18th and 19th century New York.
Is there anything other than healthy distraction from your routine to be gained from reading all this? Perhaps an appreciation of 18th century retirement planning, not just because of the financial needs it met for its beneficiaries but also because of the capital it raised for larger enterprises, including the trading of securities. Maybe it is worth remembering the humble origins of the securities business in New York. An American can walk the historic financial centers of London and Paris and be struck by its age but should take comfort and pride that everything’s just a bit bigger back home, even if it wasn’t always that way. Whatever the lesson, I hope this provides a little more detail to the story of how a Buttonwood tree eventually gave way to a multi-trillion dollar market.
1. Ap. “New York Stock Exchange: A Timeline.” CBS News, CBS Interactive, 15 Feb. 2011.
2. “Guide to the Records of the Tontine Coffee-House.” NYU.edu, New-York Historical Society, 2011.
3. McGrath, Garrett. “The Tontine Coffee House.” Narratively, Narratively, 26 June 2013.
4. “The Tontine Building.” The Bankers Magazine and Statistical Register, Volume 10, 1855, pp. 309–315.
5. Urstadt, Bryant. “A Case For Tontines, A Morbid Mix Of Retirement Plan And Lottery.” NPR, NPR, 26 Oct. 2017.