Morris Installs the Infrastructure of Capitalism and Triggers a Populist Push Back 

With his departure from the Articles governance, Morris took over the responsibility for the operations of the commercial bank which he founded. The Bank of North America after Morris’s departure from Articles offices remained a publicly-chartered corporation managed by a private board of directors. It was what we refer to as a state-chartered corporation, except that as we shall see it possessed two charters, one state, and one national (Articles). In that position Morris found himself involved in yet another salient episode in our S&L ED history, the struggle by the Populist-dominated Pennsylvania State Legislature to revoke the Bank’s state charter, and set up in its place an “agriculturally-focused” land bank. Morris resisted, and while the bank was de-certified for two years, Morris led a successful effort to restore its state’s charter. By the time this matter was resolved, the 1787 Constitutional Convention was almost wrapping up a new Constitution which would be approved and become the foundation for a New Republic–the one we have at present. Morris was an impactful delegate at that Convention, but would decline newly-elected President Washington’s offer to serve as his first Secretary of the Treasury. Morris demurred, actually he said “hell no”; but strongly backed his protege, that gentleman from New York, Alexander Hamilton, who as we all know went on to even greater success as the principal in a best-selling Broadway play, and a best-selling biography that neglects nearly everything in this, and other, modules.

Background to Insurgent Western “Populism”

Rebuffed by the Articles Congress and the States, Morris by mid-1782, shifted operations to take advantage of powers and authorizations derived from his Pennsylvania charter. Raising new funds from investors, the BofNA began operations as a Pennsylvania commercial bank, making business loans on its own diligence to those it deemed suitable and appropriate. Repayment of these loans, however, was not in Pennsylvania paper money, but with funds derived from the gold standard “Morris Notes”–in effect the bank-issued Pennsylvania currency. Enter, the infamous “exchange rate” that I previously mentioned. With rare exceptions BofNA credit was extended only to Philadelphia’s merchant class in good standing with the Bank and its directors, and who had recourse to Morris Notes. This was not an unconscious decision; it was fully understood that access to the bank’s lending, would, with the inevitable exceptions, be restricted to the city’s merchant elite. Defaults did not occur, Bank profits were substantial, and BofNA paid annual dividends of 12% and 16% in the first two years of operation. That return on investment attracted others to imitate. Capital accumulation being limited to wealthy urban port cities, New York City and Boston, with Morris’ help, founded the second and third American commercial banks in 1784 and 1785 respectively. When Washington took his oath of office in 1789 there would be three commercial banks in the entire of the Thirteen States.

This initial institutionalization of commercial private banks as a state-chartered corporation was Robert Morris at his “code of commercial ethics” best. But it was not without its downside. It is also the most blatant example of the class base of the emerging Federalist Tribe. From its very start, financial/currency nation/state-building institutionalization acquired a partisan–and class–odor. The “horse BofNA rode in on”, what we will call industrial capitalism, acquired the odor possessed by its rider.

A major reason we include discussion of the 1785-7 Bank of North America’s struggle is, arguably, that it is the first major episode in what will be characteristic of a fifty-year multi-state Populist reaction to the emerging Federalist Tribe and to its Whig inheritors., That Populist reaction seriously challenged, and frightened considerably, Federalist/Whigs, and shook the ED-foundations of the Early Republic–much as the largely identical reaction against President Trump. Adding yet another dimension, only superficially related, what we might also be seeing in this module is the first tete-a-tete in the tension/struggle between our two approaches, our two ships, of American ED: Mainstream capitalist ED and People-Focused Community Development. We might also see how CD itself includes separate wings, some oppositional to Populists, others more sympathetic. It is premature to view the western populist alternative to the Morris-commercial bank as “community development”, but it would be equally incorrect to neglect to point out its overlaps.

In this module, I urge the reader to focus more on seeing the struggle between Morris and Pennsylvania’s western populists as a harbinger of the tension/struggle between what will be later labeled as MED and CD. After all if affordable housing is a key strategy of the latter, what the western populists were struggling to implement was a bank that provided finance to low-mod agricultural homesteaders. In an 18th century agricultural economic base, homesteading and flexible financing compare favorably with low-cost in-fill homes in neighborhood revitalization. Even the tactics used by these western Pennsylvania populists closely mirrored those commonly used to fight red-lining. Oh well, recognizing it is premature … “Just Saying”. As Populism, MED and CD evolve in the course of this history, we can deepen and expand our sensitivity to the various ways political culture can seep into the fissures of our political experience and behavior. Like Mistoffelees, Lloyd Webber’s famous unseen cat, culture’s impact its obvious, but impenetrable.

In any case, economic development was what this struggle was all about. The Populists, we must say rejected the by this point emerging Federalist capitalist consensus that will be described more fully in in a following module. In this module, we content ourselves with describing the legislative struggle between the populist-dominated Pennsylvania state legislature and Robert Morris, the Bank of North America, and its increasing powerful Federalist Tribe allies. In later modules we will delve more deeply into the attitudes, beliefs, and complex motivations that underlie the voters that elected these populist legislators to office. If there is a second theme in the module, is its the urban-rural distinction. That legislative fight was resolved by the Federalists getting their ducks in order so to win a majority in the Legislature by electing their compatriots in Philadelphia urban districts. In this we can see how many characterize the American Revolution as a “moderate revolution”–but to a populist it looks more like the elites once again won the battle.

A final point is our earlier assertion that this struggle is the first in a series of populists struggle throughout the nation over the next fifteen years or more. That would not be literally correct, as the Pennsylvania battle raged at exactly the same time as Shay’s Rebellion erupted in Massachusetts. It also overlapped a real populist-Federalist brew-ha over Vermont statehood. But populism-laden events continued into the 1790’s with the 1790 North Carolina “Regulators Revolt”, the New York Rent Wars, the independent state of Franklin, and culminated in a 1794-6 Pennsylvania-resident Whiskey Rebellion when Washington and Hamilton led a 15,000 man army (larger than that of Yorktown) into the wilds of Pittsburgh’s hinterland. The implementation of this nation/state-building institutionalization strategy was a long-drawn out affair–and it is only just beginning in this module.

The vestiges of that initial Populist surge carried over into the post-1800 Tidewater Period, and it profoundly affected policy-making associated with MED’s first paradigm: development transportation infrastructure (DTIS), otherwise known as “internal improvements” (canals, steamboats and later railroads). What the reader will discover is that the remainder of the module, and the ones that follow, outline what will be a half-century–more actually–struggle that will in the 1840’s result in a state constitutional/legislative embodiment of several of the Populist tenets and a major disruption in the ability of economic development to form and utilize what today we call a public-private partnership. That, as the reader will quickly scream, is way ahead of our present story, but I think a paragraph here and there is useful to let the reader know this stuff is here for a reason.

One final clue or something to watch out for. The chief reason the so-called national bank of the Articles of Confederation was caught in the crosshairs of Pennsylvania politics was the consequence of its organizational structure: the state-chartered corporation–which was the only legal organizational form available to structure a public/private enterprise. I consider the initial institutionalization of a commercial bank as a legitimate economic development organization (EDO), which I will attempt to explain in a subsequent modules. The larger point here is that the state-chartered corporation became the primary EDO of the the Thirteen States, arguably until the 1840’s. That meant the state chartered corporation, that polarizing organizational structure, inherited the legacy and cultural baggage of this tumultuous period. In any event, Morris and his Bank of North America became one of the opening sagas in our history of S&L ED. Thus from this point on, the reader concerned with ED, should think of the Bank of North American as a Mainstream EDO. That reader should also keep in her mind that the state-chartered EDO is American ED’s first primary EDO–not the chamber of commerce.

the Debt/Paper Money and Post-War Articles Politics: the larger context

When the Articles formally assumed national governance responsibilities after the Peace Treaty and formal approval by all states in 1781-2, the economic and emotional “let-down” that followed in the years after 1781 , along with the dissatisfaction associated with the demobilization of the Continental Army, and the large-scale exodus of “Tory Loyalists” to Canada and Britain, created a policy atmosphere that today we associate with a recession or even depression. To remind the reader, the Articles was a confederation of thirteen sovereign states; the Articles’s sovereignty, such as it was was derived from the states, through their unanimous approval. That meant in this period of malaise, there were thirteen state policy systems, and an off-to-the-side national policy system lumbering about, each in their own manner dealing with those subset of problems that decked their decision-making halls. In an economic malaise, the problem of debt always rises to the very top of the policy cesspool, and stinks up the place. Debt inevitably involves money supply, i.e. coin versus paper and exchange rates between different forms of money. Debt also means bill collectors, mortgage foreclosures, and other pleasantries associated with not having enough money to pay one’s bills.

Since only three states had recourse to a private-public commercial bank–and since the activities of those banks were mostly restricted to the affairs of the state’s monied elite–the vast bulk of the state’s population, be they rural or urban, got what they could from forms of barter, and what state-issued paper money they could get their hands on. One other form of currency was, believe it or not, whiskey. Whiskey was the bitcoin of the day. Anyone theoretically could make it–and usually did. Everybody, and I mean nearly everybody drank it in some form, and while not light, it could be transported about for limited distances, into the town–and even to the port cities. Farmers could also pledge their future crops for seed and tool money. And the gig economy functioned in fine style, as people did odd jobs in return for necessities. When one needed “money” to pay for debt, however, the only currency available to most, and that in limited supply, was state-issued paper money. Debt, the flip side of credit, in the mid-1780’s meant to non-elites the printing of more paper money by the state. That, however, deflated coins, and debt was paid back in deflated dollars. Credit-issuing economic elites wanted dollar for dollar, not cents on the dollar repayment. Say it another way, there was no other issue that could polarize elites and masses than debt, money supply, and credit/debt. Say that another way, installing the infrastructure of a modern capitalist economy through banking/credit/finance and currency institutionalization was in this era inherently polarizing, compelling elites to struggle against masses–each desperate to preserve one’s well-being, status, and lifestyle, the denial of which threatened future hopes and aspirations. There’s that emotional-existential nexus thing we talked about earlier.

So each state, depending upon the structure of their state policy system had to deal with our so-labeled populist insurgency. Virginia’s policy system, thoroughly plantation and small homestead agricultural, was dominated by what we call the Tidewater plantation-owner elite. Led by Madison, a total nationalist who believed currency/finance was a national level responsibility, led the fight to endure Virginia did not print more paper money. So much for populists there. In North and South Carolina, the elites were also able to beat back populists demands for more state-issued paper money; they defined demands for such “as the product of an ignorant rabble” and local grand juries (sort of county government) complained that paper money was “many interferences of the legislature in private contracts between debtors and creditors” that “destroy credit, especially foreign credit [i.e. FDI} the very thing that has converted this howling wilderness into a fertile well-people country” [44] Joseph Dorfman, pp. 257-8.

The debtor-creditor battle was most intense, in Maryland during 1785-7–the same time period of our Pennsylvania case study. There the elite split into a pro-masses faction and a hard core monied elite establishment. The former tried to mobilize the latter, and the battle was also fought out in the state legislature. The elites fought back hard–and eventually won, defeating the attempt to issue more state-issued paper dollars. That three year battle was summarized as “a factional dispute within the ruling oligarchy of planters, lawyers, and merchants  who by the prestige of their superior wealth and economic power, and the closely restricted franchise and aristocratic political structure controlled the state” [99] Dorfman, pp. 258-60. In short, Maryland did not enjoy Pennsylvania’s radical democratic franchise and so the masses lacked the ability to penetrate the policy system, even where the elites had themselves fragmented.

And then their was Shays Rebellion in Massachusetts–but that will be treated later. Suffice it to say, Massachusetts did not practice what it preached. Its franchise did not mirror that of Pennsylvania.

Pennsylvania was uniquely on its own because of its radical democratic policy system whose franchise was open to use by the populists. What happened there could only have happened there.

Before We Proceed Any Further, Let’s Talk about this Populism “Thing”.

Disruption in colonial America, evident for nearly two decades, had, of course, erupted into the 1776 War of Independence from Great Britain. The Stamp Act, North Carolina War of Regulation or the Boston Tea Party and Massacre (and others) involved a commercial bank, state or national. What each of these disruptions shared was their core masses versus the elite thrust. Still, banking/finance/credit institutionalization was a relatively new issue, and in this period Federalist elites heard for the first time what the “masses” felt about it and what they wanted. This Pennsylvania case study, contained as it it to the legislative, electoral and legal struggle between the western hinterland-dominated Pennsylvania Legislature and the Morris (national) Bank of North America, will only minimally expose the reader to what upset the Federalists/elites most–the extra-legal, anomic reaction of western hinterland agricultural communities to their future vision for their new independent Republic.

The Pennsylvania western hinterland populists stayed within the accepted confines of the existing policy system, they played not-so-nicely, but the populists remained in the sandbox. Not so the Shays Rebellion in Massachusetts which occurred at the same time our Pennsylvania bank case study played out. Its pretty clear the participants in either the Shays Rebellion or the reaction against the Bank of North America, not understanding of economic determinism and inevitable teleological progress, were convinced they were engaged in serious battle. The lessons were not lost on the 1787 Constitutional Convention either, which immediately followed the suppression of the Shays insurrection. Shays Rebellion  more profoundly shook them up–the Pennsylvania Bank Struggle was lost in the fog of history–and its lessons, so critical to understanding the establishment of the federal National Bank a half a decade later under the new Constitution remain largely unknown to most. Their effect on economic development, however, was considerable. The bottom line between Morris’s Bank and Hamilton’s 1791 Bank was that each triggered a fundamental negative reaction by those many call “populists”–in the latter case the reaction led to the formation of a rival political party, and the shattering of the Federalist Tribe consensual vision for a future new Republic.

Again, ED was caught in that crosshairs–and has been ever since, and likely will continue to be so into the future.

In the course of our case study, as in the preceding one, I constantly refer to populism, largely suggesting by that I mean “the masses”, what at that time was often described as “the mob”. I do not much like definitions, particularly in these early modules because so much is in transition: political/national independence, capitalism, industrialization, an new agricultural revolution, and, of course, democracy. The Articles period in particular I have likened to a Bunsen Burner or a Laboratory. Stuff is happening more or less organically and unpredictably; the patterns so clear to us were less apparent then when the decisions were being made. Still the reader ought to expect some parameters of what I mean by populism. In these modules, it clearly includes(1) elites versus masses, establishment and wealth versus extra-systemic and less wealth. It is this elite-mass distinction that is central to understanding American Populism. (2) Populism has not yet developed an urban/rural context: for example, the previous module demonstrated a predominately urban populism in alliance with a rural populism. This module will confuse that even more. Even a supposedly stark choice between lifestyles and economics of a late-medieval agricultural economic base and an emerging urban capitalism/industrialization appears too simple a distinction that is checked by the reality that the western populists are not opposing all banking/finance/credit/debt institutionalization–they will propose their own–but only that institutionalization perceived as unaccountable to them, and one not serving their interests and needs. It is not clear yet anyone is rejecting capitalism; what seems at question is “whose capitalism is it to be”.

 

Nevertheless, the reader might sense that (3) populism is more a “movement” than class warfare, more a coalition of classes, ethnicity, religions, and cultures united principally by their hostility or fear of external elites. Finally, populism (4) contains an existential element that fuses diverse concerns and group perspectives into an “emotional”, i.e. non-rational whole. Even in this case study it is apparent the legislative struggle involves more than legislative majorities or votes on particular bills and policies. All of these, as is our ED strategies, are infused by that emotional-existential nexus which itself imparts a more or less zero-sum tone to the debate. If politics and legislative decision-making become polarized to the extent compromise is not possible, it is because there is more at stake than mere legislation. That zero-sum, elite-mass, emotional-existential overlay emerges in this case study–that alone demonstrates our populism is at play. I will flesh that our in the next modules.

What is likely to generate reaction, is that the zero-sum to which I refer is a struggle between elites that are active policy-makers, and masses, which are more passive, i.e preferring to be as uninvolved as possible so they can live out their lives as they see fit, have mobilized and are determined to participate in matters forbidden by the previously dominant American colonial deference culture.Clearly, expectations associated with “democracy”, and the language and rhetoric contained in the Declaration of Independence have certainly triggered “rising expectations” (and raised the specter of the infamous J-Curve). To what extent is the populism to which I refer a transition from a deference political culture to one more suitable and compatible with an emerging democracy is a very legitimate question. That this transition could last for several generations is not unreasonable either. We need for things to sort themselves out before we can isolate the more enduring elements associated with “American Populism”. For the moment, and for many future modules, this populism “thing” is more a label; it is certainly not a hard-and-fast characterization of what passes for contemporary American “populism”.

For the moment, we will defer discussion on the overlap of ethnic political cultures with our elite-mass Populism–think Scots-Irish who dominated Morris’s second battle/experiment. One layer of thought at a time–letting each layer digest may help also. Populism knows little about ideological spectrums; it can be both left and right, simultaneously–as it was in 1780’s Pennsylvania.

More helpful is a brief word concerning what is not to be discussed in this module: populists strategies and tactics. Being outside the “order” imposed on policy-making by active policy elites, and being reactive in nature, Populist activism and behavior tends to the anomic, unpredictable, charismatic, and when inserted into the “rationality” understood by, and fundamental to elites, appears irrational, counterproductive, mob-lie or deplorable, and simply wrong. Hence polarization, culture wars, and intense tribal hyper-partisanship which transforms elites/and masses into babbling authoritarian, and simplistic fools, inviting a similar reaction from their opponent. There is some drama going on in the western counties, but compared to Shays Rebellion, which shall be discussed after this module, it is more muted. In any case, populists can be organized–although it can be like herding cats–ask 20th Century Tammany Hall. What is more apparent in this module is that there is a power struggle inherent in populist-elite policy-making, that zero-sum emotional-existential overlay discussed earlier and that will be very evident in this and an innumerable bunch of subsequent modules.

But enough of the philosophy and long-term futurism. Let’s move onto the background behind Pennsylvania banks and how they were perceived by Western populists.