(E)

the Philadelphia Story:

Robert Morris & Tom Paine as Economic Developers Create Our First National Bank (2)

 

Commercial Banks, Credit-Debt and Currency: the Infrastructure of Capitalism

The attempt by a hugely wealthy Philadelphia financier and export factor, Robert Morris, to strength the Articles governance capacity through banking, finance and currency institutionalization was arguably the single most important ED experiment attempted during the Articles period. His troubled attempt yielded by 1789 a mixed bag of success and failure, but it also triggered/revealed a social, economic and political reaction that over time shattered the none-too-fragile Federalist tribe revolutionary coalition. That reaction exposed a chasm that existed in colonial society which when carried over to a new, embryonic, democratic and federal government disrupted the previous style of policy-making and injected disruption engendered by socio-economic class, ethnic identity/value systems, and geographic/temporal differences–more or less on what has proven to be a permanent, if variable dynamic in American ED policy-making.

The Federalist Tribe, perhaps understandably, did not see this reaction coming, and in Robert Morris’s example, he fought it, winning one war, and losing the other. In any event, the 1776 Pennsylvania state constitution opened up the revolutionary, Articles era state policy system to such an extent, unparalleled in the other states, that we can see in microcosm, the above dynamic play out between 1784 and 1787–giving us a foretaste of how a clone of that Morris policy initiative, launched by his protege, Hamilton at the federal level in 1791, would than play out in both the national capitol and the increasing number of state capitols over the next fifty years. ED was, not of its own intentions, at the vortex of that class, ethnic and geographical struggle, and the scars and lessons learned left a lasting heritage, and an institutional memory–now lost in the mists of history–of why our professional policy-area, a “twig” back then, was bent to subsequently grew into the professional and policy area “tree” we know in our contemporary world. “As the Twig is Bent; so grows the Tree”.

Morris participated in two related, but temporally distinct banking episodes during the 1780’s. The first, conducted during 1781-4, and the second, 1785-7. The common denominators between the two experiments were banks, a finance/currency/credit capitalist system, and an ED strategy which quite naturally enough was imperative to a new-born nation: nation/state-building institutionalization. What one starts something from scratch the basic structures of policy, economy must be imagined, and installed. The policy infrastructure of a nation, and state in a federal system,must be put in place. That such infrastructure could unleash social, class, cultural value tension, not to mention geographical-laden opposition. Lacking an instruction booklet, the Federalist Tribe, given the goals they pursued (national independence, economic/population growth) were by 1780 somewhat aware of the disruptive forces already unleashed by the war and democracy–which BTW, was also being pursued without an instruction manual, and with very different definitions of what democracy meant, who should participate, and to what degree elites should be held accountable.

 

Enter Robert Morris and his First Experiment–Morris didn’t want the job, and was advised by peers such as Franklin that while he was the best man for the job, perhaps the only man, it was likely to prove not only thankless, but hostile to his business and career. He reluctantly assumed the position of Superintendent of Finance in May 1781, and over the next few months acquired leadership over the Navy, Foreign Affairs, and other Articles’s bureaucracy; he became one of three members in the War Cabinet. He was the de facto chief executive (CEO) of the Articles. Morris resigned that post in February 1783, but stayed on until November. During that time period, Morris tackled head-on , the various facets of the military-crisis by creating an empowered “national” bank which he hoped would become central to coincidental establishment of a national finance, fiscal-budgetary and currency system–which, as we have noted, the Articles lacked. This first part of this module outlines that first phase of nation-building financial, budgetary, and currency led by Morris, his Deputy Gouverneur Morris (no relation), and his chief Articles Congressional liaison, a protege which he had secured the nomination for, a delegate from New York by name of Alexander Hamilton, recently departed from Washington’s staff. This was the First Experiment.

Not prone to biographies, this history owes the reader a small and brief one to explain a man who in importance of the day ranked with Washington, Franklin and Adams. Born in 1834 Liverpool, he appears his mother and father were not married, and she disappears soon after his birth. His father immigrated to Maryland, and 1747 Robert joined him. Almost immediately he was sent to an apprenticeship in Philadelphia, with a shipping firm owned by a Charles Willing. Morris became a full partner in that firm, at 21, eight years later. Morris and Willing built the firm into the largest and most profitable mercantile house in Philadelphia–possibly the entire of the Thirteen Colonies. The reader might see in this brief intro a close similarity with Ebeneezer Scrooge and Alexander Hamilton. To describe the complicated, profitable and incredibly numerous deals that elevated Morris into the “Great Financier” and the richest man in America is best left to the reader. Everything is there–good, bad, moral, and immoral. The reader may fear I will liken him to Donald J. Trump, but I leave that to others–but there is no doubt he lived and practiced”the art of the deal”.

This was both Darth Vader and Luke Skywalker combined into one person. A man, who like John Hancock, retained personal connections to dock workers, and, like his protege Hamilton married well, in his case into one of the richest families in Maryland. He eventually fathered seven legitimate children, one illegitimate daughter who like Franklin (who fathered a son) he supported. Like Washington, Morris was totally self-educated, and like Washington became thoroughly dissatisfied with British colonial rule during the 1760’s. He was a member of Dickinson’s delegation at the Continental Congress described in the last module. He refused to sign the Declaration on July 4th, but reluctantly signed it a on August 2nd. During the war, probably most of his profits came from a fleet of privateers used to seize British shipping–some thought of him as a “war profiteer”, and during the Newburgh Affair described below, he privately wrote he preferred the war and the army continue. His personal loans to the Articles and the Army were more grants than loans–and there were a lot of them at very critical times indeed. At various points he was literally on the edge of bankruptcy due to both complicated deals and his ships arriving with silver the afternoon a loan needed repayment. He eventually went bankrupt, and spent nearly three years in debtor’s prison–shades of Dickens parents, Martin Chuzzlewit and Little Dorrit. You will hear yet more about Robert Morris in other modules.

What came out of this First Experiment? Morris got his proverbial half-a-loaf: a modern commercial bank, the Bank of North America (BofNA). He also got his head handed to him.; he was unsuccessful in his larger end, to remake the Articles into a true national government, reducing the sovereignty of the states in the process. Moreover, Morris underwent a vicious and personal attack from important Federalist elements who wanted nothing to do with him–and his Philadelphia and northern business associates. There was something about Morris they couldn’t tolerate–perhaps it was that he was “TOO” capitalist? With Morris defeated, the Articles continued on their dysfunctional and ineffective way, accumulating more debt, unable to pay soldiers, and, in general pissing off nearly everyone who came into contact with it, Morris continued on to fight more successfully, although he too had his Valley Forge, his second battle: to preserve commercial banking as Pennsylvania’s core finance/currency/debt system.

That story now begins in Philadelphia and Pennsylvania as the laboratory of our democracy and economy.

It Always Comes Down to Money: War Debs, Soldier/Officer Pay, and Supplying an Army–triggers starting American nation-building

To fully appreciate what is going on, the reader is treated into a pleasing (sarcastic) background of currency, money supply, and debt. Even more exciting is our tying these intensely fascinating topics into an electrifying concept called nation/state-building institutionalization–which is the ED strategy name for what is going on. If that we not enough, we shall also spent a bit of time characterizing our ED hero, the capitalist, Federalist rogue Robert Morris, who also played roles as a patriotic hero, Founding Father equal to Washington, Adams and Jefferson, and America’s first economic genius–along with scoundrel, double-dealing, self-serving rogue, profiteer, greedmeister, etc. Robert Morris makes Robert Moses moral.

First, the charming background to finance, currency, and fiscal nation/state-building.

War Debts  Obviously it costs money, lots of it, to finance a seven-year war. Again to make a very long story short, a few pithy statements are necessary. The Articles had no existing finance system when the war commenced; the British finance system, the previous one, had been sort shoved aside–in a war of independence where the British controlled it was used, and the British monetary system was (pardon the pun) the gold standard that simply muscled out the Articles monetary system. Arguably the most serious deficiency of the Articles financial system was that it relied exclusively on government (thirteen individual states) paper money; the Articles had no gold-filled Fort Knox (Knox was then Washington’s chief of artillery). Simply stated, there was no–NONE–private commercial banks existing anywhere in the Thirteen Colonies. In a world economy that ultimately rested on gold/silver and whose core currency was coin minted in those metals, the Articles lacked both gold and silver and could not mint coin. What passed for Articles national finance system has been aptly compared to a Ponzi Scheme by Joseph Ellis [22] the Quartet.

The Articles lacked the power to tax, and so had to have the individual states do the taxing and send the receipts to the Articles. Guess what? That hardly ever happened. The states were hesitant to tax and when they did, they kept most of the receipts for their own needs. The Articles were in perpetual threat of imminent bankruptcy. The Articles issued war bonds and sold them at high interest rates, which created an constant “how do we pay the annual interest on these notes” crisis. BTW a gentleman named Robert Morris (and his associates) usually bought most of these notes. The French would loan us money, but weren’t stupid enough to buy the notes. The notes were of short duration, and were never paid off, simply refinanced with a new bond issuance, which added still more debt. How does one say “Banana Republic”? The states, on the other hand, could tax, but having no coin they used paper money, i.e. they “printed” their own thirteen separate paper dollars–with no backing other than the full faith and credit of a state government in the middle of a war of independence–not exactly a widow’s and orphan’s investment preference. States too suffered from high interest rates, a battle to pay off annual interest, and short-term notes–so they too accumulated a ton of war debt–keep in mind much of Washington’s army were “state” regiments, not continental regulars paid by the national government. As to the American Navy, most of it was privately-owned; cargo ships were refitted into privateers who raided English shipping for fun and profit. Guess whose sizable shipping line was refitted into privateers? Robert Morris.

The states relied necessarily on government paper money (not backed by gold) issued separately by each state (creating problems obvious to the reader). But the most obvious issue  was that to increase the paper money supply, combined with the uncertainty that the states would be around much longer meant that paper money “depreciated”, i.e. a dollar was could buy about $.25 cents of real goods or British coin by 1780. In certain periods, it took $500 state paper dollars to equal $1 British Crown (forgive the currency symbols). In real life one had to first “exchange” state paper money for British coin, and then you could buy your loaf of bread. The problem, besides depreciation, was where was one to get ahold of British coins? Outside the cities, they were in very short supply–about 90% of Americans lived in the countryside/hinterland.

Needless to say, State and Articles war debt simply accumulated like a snowball rolling downhill–new debt paid for old debt and on and on. The numbers were astronomical, and there is no point to comparing them to current debt levels and dollars; the Articles (and most States) were effectively bankrupt when Morris enters the picture. But Morris enters the picture in 1781–and the crisis hit hard in 1780–it was the crisis that brought Morris into office. So But before Morris arrives, we must introduce the first actor in our drama, the author of Common Sense, Thomas Paine.

Who would have thought Thomas Paine an economic developer? The author of Common Sense and the American Crisis, newly-arrived (1774) British political activist, Paine wasted little time in cultivating key Federalists such as Franklin. Within two or three years, Paine was a close friend of Washington and America’s almost celebrity writer-propagandist. His January 1776 Common Sense was the stitch in time that saved Washington’s Army. An egalitarian enlightenment radical–whatever that means–Paine moved in Philadelphia activist circles that most Federalists went out of their way to avoid. Say it another way, although neither capitalism nor socialism were terms then in use (or existence) Paine was pretty close to being a socialist. Paine was deeply involved and closely associated with the “Populist” Committee of Inspections and Observations, the author’s of the 1776 radical democratic state constitution and its subsequent radical state government (see previous module). Still, Paine was an ardent supporter of the War of Independence (he actually served for a bit as a New Jersey private) and he understood and appreciated the need for financing the Army, its campaigns –and the need for the Articles to develop a strong financial capacity. In this sense he was a “nationalist as was Morris, Washington, Hamilton, and Madison.

Still he was a porcupine personally, he talked way too much, and wasn’t known for listening. In today’s parlance he was @unashamedly unapologetic, and spoke his own mind and constantly created trouble when the more discriminating would have looked the other way. BTW he hated corruption which included anything closing smelling like our 1780 Robert Morris capitalism. Accordingly, Paine got caught up in the 1778 Silas Deane scandal. That scandal exerted a delayed effect on Morris and his 1781 Bank of North America, therefore compelling us to provide a brief description.

Paine was the Secretary (guy in charge), one of three members of a Articles Committee sent to France in 1778 to negotiate (successfully it turns out) a big loan from France. While there, Paine both instigated and then became deeply involved in the scandal. Unknown to Paine, Deane had carried with him secret instructions  on how and who to negotiate with, along with a complicated serious of financial maneuvers/deals and conflicting parties that while it produced the necessary loans with the French (including Beaumarchais of Le Figaro fame), used tactics and practices which were not to Paine’s taste–but probably were within the letter of the law. Deane was closely associated with Robert Morris, and the scandal moved easily from Deane to fall on the doorstep of the Great Financier. Arthur Lee (brother of Richard Henry Lee–a powerful Founding Father and leader of the Virginia delegation), the third member of this committee also opposed Deane, and the scandal made Lee Morris’s lifelong enemy. Arthur Lee in 1781 became chair of the Articles of Confederation Congressional Committee that exercised oversight over Robert Morris as Superintendent of Finance. Needless to say, Morris and Paine, political opposites if there ever were any, were not the closest of friends after the Deane scandal. The scandal cutting so many ways blemished each of the participants, including Paine–but it did “play to his Philadelphia egalitarian base”. The scandal certainly is but another example of how the commercial business ethics/practices, applied during a war for a key loan, were both necessary and morally complex. Deane, initially convicted of a crime, was later pardoned and the sentence was reversed.

So why and how did Thomas Paine, an avowed opponent not only of Robert Morris personally, but a hater of all he stood for, capitalism, profit, money-lending,and most of all wealthy elites, come to join with Robert Morris and his establishment of the true first national Bank–the one set up by the Articles of Confederation in 1781: the Bank of North America? The answer is simple. By 1780 it was increasingly apparent the War could not continue much longer, and unless some bold stroke changed the military situation, the American Revolution would likely be defeated. Most Americans today link 1776 and Valley Forge as the darkest point in the Revolution–Not So! As Nathaniel Philbrick in his “In the Hurricane’s Eye” America’s 1780 military situation was summarized (in a review by Alan Taylor) as:

In 1781 the British and Patriots felt exhausted by six years of brutal and expensive conflict. The bloody stalemate tempted both sides to take risks in search of a decisive battle. The Patriot position was especially dire, for few Americans would enlist, and neither Congress nor the States could supply and pay the men who did. Rampant inflation and the seemingly-never-ending war sapped morale and bred friction among States and social classes while mutinies rippled through Washington’s suffering army. By 1780 …  ‘the experiment in creating a Republic was about to founder for a lack of will on the part of the people and their elected leaders. Only the unlikely victory … [resulting from a military bold stroke] could save the failing American Republic and its weak confederation of states. [99] Alan Taylor, “France to the Rescue“, WSJ Review, October 11, 2018, C 7-8; a review of Nathaniel Philbrick, In the Hurricane’s Eye (Viking Press, 2019).

That bold stroke was a plan by Rochambeau, the French commander, George Washington, and Admiral de Grasse to trap in a coastal southern city a large segment of the British Army operating in the South against Nathaniel Greene’s forces , move the French fleet from the West Indies to Chesapeake Bay to block off the British fleet, and move the entire northern American/French Army around the larger New York City-resident British Army, and “steal a march” to link with Greene, and compel the British surrender. A bold stroke indeed–and it would culminate in the Battle of Yorktown, the surrender of the British southern army, and the agreement to end the War, and American independence.

But nothing would happen unless money was raised to pay troops, buy supplies to travel and fight, and feed them in the course of the campaign. They money had to come first. And Robert Morris and Thomas Paine stepped, together, to the same “plate” to accomplish that feat. Their bold stroke was to create the Articles first national bank, to issues bank notes, which Robert Morris would personally guarantee–and sell the notes to pay/feed/supply the soldiers–and pay off previous debt so that investors would buy new debt. They needed a national bank to sell the Bank Notes.

 

When the military financial crisis gathered momentum in 1780, Paine took it to heart, and became a vital figure deeply involved in the establishment of America’s first commercial state-chartered bank bank, the Bank of Pennsylvania (July, 1780) [99] Joseph Hentz, the Real Thomas Paine (iUniverse, 2010), Chapter 37. In June of 1780, pledging $500 of his own money, he went to Philadelphia and started to raise funds from the most wealthy, a motley collection of wealthy businessmen, including George Meade (grandfather of General George Meade of Civil War fame). Robert Morris once again stepped in with his own money, and the “public subscription spread like wildfire”, raising an amount estimated at $300,000 pounds. To house and manage this money, Paine and Morris got the state legislature to approve and authorized the nation’s very first commercial bank, the Bank of Pennsylvania. That bank was founded on a state-charter which provided it the legitimacy and the fiscal powers to lend, invest, and distribute funds for its specified purposes. Within six months the funds had been exhausted; The proceeds paid the crisis-related debt the Army’s needs, and kept the war effort afloat. Having “spent” its initial investment, however, the Bank of Pennsylvania was unable to do much more as a commercial bank–it became essentially dormant by the end of the year. Finally, “Enter Robert Morris” in May 1781 as the Articles Superintendent of Finance and de facto Articles chief honcho.

Facing an even more intense financial crisis in 1781, engendered by an Articles-potential bankruptcy and Continental Army mutiny, Morris knew a bold stroke was required. In his mind, the only way the war debt could be eventually paid, and future bond issuance made possible was to empower the Articles, as a national government, to issue its own bonds which investors could justify purchasing, and that required (1) national taxes of some sort to pay off the interest on the subscription (bond), and also (2) required a vehicle, a commercial bank, to serve as the Articles national bank. Process being what it is, the first step was to create the bank. Striking while was his iron was hottest and Articles Congressional support the greatest, Morris proposed a truly “modern” capitalist commercial bank, which the Congress dutifully approved in early January 1782. That bank, the Bank of North America (BofNA) was a total departure from the only lending institution of the time, an agricultural “land bank”–the Populist ideal: a government entity, supported by legislative appropriations which issued low-cost, low-interest land-farm mortgages payable with depreciated paper money. The BofNA was nationally chartered by the Articles–who still lacked the power to tax.

Morris’s new national-chartered bank, was privately-funded (mostly), privately-managed, autonomous of the Articles legislature, and its purpose was to make commercial loans to individuals and businesses, as well as government. Morris’s bank was intended to be the Articles national bank, and would handle its finances, and issue and managed its debt. Morris in turn, raised from among his close associate (including the President of Philadelphia’s Chamber of Commerce, and James Wilson a Founding Father) the funds necessary to initially fund the Bank of North America. The initial subscribers, in fact, became its new Board of Directors. As such “the directors belonged to a closely-knit social and economic class and were of uniform political persuasion. they came from old and interrelated Pennsylvania families, wealthy  merchants or professional men of high standing, with political records distinguished for their conservatism. They were all to become conspicuous Federalists” [44] Janet Wilson,  the Bank of North America and Pennsylvania Politics, 1781-1787, the Pennsylvania Magazine of History and Biography, Vol. 66, No. 1, Jan, 1942), pp. 3-4. Morris himself described the bank, initially funded at $400,000 through $400 subscriptions as the only “means to national solvency”. “I mean to render this [bank] a Principal Pillar of American Credit so as to obtain the money of individuals for the benefit of the Union and thereby bind those individuals more strongly to the general cause [of independence] by ties of private interest” [00] Joseph Ellis, the Quartet, pp. 41-2.

The bank, in effect, was a monopoly–and was viewed so by nearly all. The banknotes it issued would become de facto national currency backed by the non-existent full, faith and credit of the Articles of Confederation. To complete the structure, Morris knew the next key step was to get the Articles to assume the power of taxation. So Morris quickly published his “Report on Public Credit” whose two salient tenets were (1) that the BofNA would issue debt supported by its capital, AND (2) whose principal/interest would be paid by taxes generated by an Articles national 5% tariff (impost it was called) on foreign imports. The tariff to be approved required the unanimous support of each of the Thirteen States. Also included as key elements in Morris’s Plan was an excise tax on whiskey, a poll tax (to vote), and the Articles’s assumption of all state war debts. The reader can save herself reading Alexander Hamilton’s 1791 Plan for our nation’s First National Bank–it is a carbon copy, including a tax on whiskey, of Morris’s. The latter stole it lock, stock and barrel, and since has taken the credit for it.

Morris, Hamilton and Gouverneur Morris went on full blitz. Central to this blitz was our old friend Thomas Paine–the reader remembers, Morris’s eternal enemy. Well, in ways only Morris could make work, Paine did not oppose Morris’s Plan, but joined in it and became a major proponent for it. How, you ask? At a nighttime dinner hosted by George Washington, where supposedly a lot of wine was served (p. 193), the three (Washington, Paine and Morris) made a deal that brought Paine on board. In between jobs, Paine (secretly) was hired by Morris to write a series of pamphlets that would grease the way for state approval of the tariff, especially key to securing approval from Pennsylvania’s populist legislature. In his defense, Paine, we might remember, was a sincere fiscal nationalist, and was always dedicated to the Army, military victory, and George Washington personally (Paine would a few months later ride immediately behind Washington in Washington’s New York City victory parade) [55] William Hogeland, Founding Finance, pp. 188-99. The Silas Deane affair was politely not mentioned. Did I add the Army was to be the first to benefit from the Tariffs’s revenues?

The blitz seemingly worked the impossible. Twelve states eventually approved. On the threshold of victory, the last, Rhode Island, refused–and when its refusal became known, Virginia backed out. The impost failed, the Articles did not acquire the power to tax, Morris’s Plan collapsed, and the BofNA was castrated. Morris was never able to get the Articles Congress to assume national powers or responsibilities after that. Congress, for example, subsequently failed to approve his plan for a National Mint. Frustrated, on his own, Morris went ahead and issued, “Morris Notes”, backed by Morris personally and the BofNA’s private capital–without public full faith and credit. In the Thirteen States, these Morris Notes were the closest to gold-back currency available. Their full faith and credit firmly rested on private capital, mostly the personal fortune of one, Robert Morris. It was with funds derived from Morris Notes issuance that Morris was able to finance the United States through the Paris Peace Conference and the subsequent peace treaty that made us an independent nation. Paine in the aftermath went to London and then to Paris to participate in the events of the French Revolution.

Morris after this failure needed a Plan B, and more money.  So he merged the BofNA with our now languid, Bank of Pennsylvania (Paine’s old bank), including in the process the latter’s Pennsylvania state charter. The Bank of North America was simultaneously therefore, chartered by both the Articles and Pennsylvania’s. In Morris’s mind, the Pennsylvania Bank would be the backdoor for the BofNA. In any case,The Bank of North America is recognized today as the nation’s first commercial bank [33]–even though technically, it was the second. Robert Wright, Origins of Commercial Banking in the United States, 1781-1830 (EH.net, ). Moreover, that was the structure used by Hamilton in 1791.  Hamilton to remind the reader, was in the Articles Congress and was on Morris’s team, and shortly his employ. The next task was to present his outline for solving the financial crisis. That task formally began after Washington’s Yorktown victory in October 1781.

Sad End of Morris’s Bank Experiment–Two separate, but loosely related “events” combined to effectively limit Morris’s post 1781 functionality as the Articles CEO, and frustrate any further Morris experimentation. The first was Morris’s capitalist, commercial ethics–the ones exposed in the Silas Deane affair; the second was a near-military coup in which the Army nearly took over the Articles government and installed in its place, a new dictator named George Washington.

In these early years, the Federalist pro-revolution coalition, the landed and commercial/trade/manufacturing “business” elite, while quite aware of their different economic paths, had, for the most part not yet grasped that serious coalition fault lines would defy any attempt to bridge over by elites like Madison or Washington. Hogeland provides a clue, a possible reason why the chasm between agriculture and commercial business practices reopened in 1781. In a nutshell, putting aside clashing personalities, the core difference between Morris/Hamilton and Lee/Jefferson–the two major protagonists in this ethical struggle–embraced different definitions of what was acceptable capitalist behavior, and who should benefit from capitalism. As Hogeland described it: “Many of the landed men of the Congress, with a country-gentry bent, deemed investment in securities [and a slew of other commercial trade practices] as a sewer of corruption, grubby at best, chimerical at worst, a slight-of-hand trick appearing to make money out of nothing but paperwork. Their heritage as squires inspired them to locate the proper form of wealth in land. This is the difference in the founding elite that led … [land owners saw themselves] as less-self-interested, more in favor of egalitarian democracy than merchant financiers” [55] Hogeland Founding Finance,. p. 79.

Planters like the Lees, the Dickinsons {Pennsylvania’s Articles-era “governor/”President], the Livingstons and others were enmeshed in systems involving high finances and investment, and while they liked to portray themselves as protectors of those who labored in the earth–often that meant the tenants on their manors in western [hinterland] lands–they had no greater sympathy for the radical populists of Pennsylvania than Morris did. They didn’t like the self-dealing of the Morris kind, however, the mercantile code.

Richard Henry Lee of Virginia and his brother Arthur made exposing Morris their main project. In the scandal named after Silas Deane of Connecticut, they turned up what they called, not necessarily wrongly, a private fortune-generating enterprise run by Morris and enabled by allies such as Deane, often not to the visible advantage of the country. Virginia and Maryland passed laws outlawing their delegates from engaging in private trade. The Congress held investigations. [56]  Hogeland Founding Finance, p. 79-80

Morris, not dissimilar from post-2017 Donald Trump, was under constant investigations, committee hearings, newspaper leaks and alleged scandals, by what amounted to a well-positioned “Never Morris” movement. An important, and far from obvious hint into the future, is to remember how the Tidewater (Virginia and Maryland) Federalist elite reacted in this case study to Morris and early capitalism. Arthur Lee , Joseph Ellis reports, regarded Robert Morris as the “second coming of George III“, writing that “the assimilation of offices in this man, the number of valuable appointments in his gift, the absolute control given him over all revenue officers, his money and his “art” [skill] render him a most dangerous man to the Liberty of this Country” [99] Ellis, the Quartet, p. 44. Morris was but a personification of Articles and Early Republic “eastern”, more precisely northern, young capitalism. In its time (between 1795-1800), the war-time Federalist Tribe would split, along Tidewater and “northern” Federalist lines. Tidewater elites would make common alliance with the different forces/groups unleashed in the Populist movements we are now beginning to describe. That alliance would elect three Presidents and Congresses, really four, that would govern the Early Republic through 1828.

But there is one last Article’s related BofNA story to relate and it is an important one. The payment of soldiers/officers pay, and resolution of the Army’s demand for a pension became the young nation’s single most important issue in early 1783 when, after the Peace Treaty the Army was in the process of being demobilized. It would not do so without resolution of these matters.Sparing the reader the details of that incredibly complex episode, in which Hamilton’s role was “complex” in the extreme, the Newburgh Affair and need to find money to either pay the soldiers immediately or promise them a pension once the war was over. That was the immediate crisis, but lurking not far behind was the sad reality previous state-issued debt, owned by the moderate business and land-owners was also in crisis and needed fast repayment.

What followed is a tale described in many of the important popular histories, a tale that involved Washington, Morris, Gouverneur Morris and most infamously Alexander Hamilton. Depending on the source, much of the grimy behind the scenes schemes are sanitized, or ignored. In the middle of it was the so-called” Newburgh Affair” in which General Gates semi-openly conspired to overthrow Washington, and perhaps the Articles. He was secretly aided aided and abetted by Robert Morris through his agent Alexander Hamilton. Washington and Knox, his trusted subordinate, were also approached to use the conspiracy in a way that would provide muscle to Morris’s still hoped-for Articles empowerment as a true national government. Washington emerges as an astute and pretty honest actor, defending the interests of his soldiers and certainly his officer corp. Morris and especially Hamilton were damaged–Gates was destroyed.

Washington crushed the coup, giving an emotional speech before his officers in a Newburgh barn, a speech often cited in textbooks and documentaries. It was Washington as Cincinnatus, and it would lead to his arguably greatest decision, not to be a Napoleon, and to surrender his command to civilian control rather than attempt a military dictatorship. The decision that was worked out behind the scenes was for the soldiers to be paid in Morris Notes. The officers, however, paid in lump-sum cash-a fairly sizable sum which instantly made the higher ranking officers wealthy.  The officers, almost immediately, formed ingratitude the Order of Cincinnati, and elected Washington its first President. For unknown reasons, the Morris Notes were not issued in timely fashion to the soldiers–and rank and file soldiers, needing cash on the barrel to return home and get started again, sold their authorization for a Morris Note at a discount, not infrequently to their officers. That series of actions made the odor of bank notes and national currency more putrid among the working class and middle class veterans. As we shall shortly see, that odor will fuel the Shay’s Rebellion and continue festering through the 1790’s. Elite attitudes such as this toward the common soldier, with a new notable exceptions, persisted through much of American history–and be the root of today’s Veterans Administration shortcomings.

Morris formally resigned his Articles position in February 1783, but served in office until November (for all practical purposes, the Articles government was a hit or miss affair by that point–frequently unable to muster a quorum, and whose operations at best were at the committee level. Its 1787 Northwest Ordinance, described previously were the major exception to this very mixed bag of a government. After November Morris returned to private life, and retained his seat on the BofNA board of directors–which in fact, he more or less dominated. That set the stage for our second BofNA act: the populist state legislative struggle to close the Bank of North America by rescinding its state charter–and substituting in its stead, a state government land bank making loans with easy money and paper dollars.

To make it all work, he pledged the total of its initial capitalization $200,000) secured by his personal guarantee, which in turn was made real by the expected arrival of one of his ships bearing a like amount in gold and silver. Hitting his Rolodex, Morris tapped his business associates to buy the debt and make subscriptions; Philadelphia’s moderate business community stepped to the plate, buying the Articles debt, theoretically to be repaid with state-funds. Adding in some private French money, the Bank of North America garnered over $2.5 million.  With the ship not yet in sight, Bank of North America, our first national bank (sort of) had been created and a vehicle existed to both pay off existing state debts, continue to raise funds to finance the war, and pay future pensions for its soldiers and officers–the awkward national/Pennsylvania state-chartered EDO.