Musings of a Philadelphia Physician who has served the community for six decades

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Philadephia: America's Capital, 1774-1800
The Continental Congress met in Philadelphia from 1774 to 1788. Next, the new republic had its capital here from 1790 to 1800. Thoroughly Quaker Philadelphia was in the center of the founding twenty-five years when, and where, the enduring political institutions of America emerged.

British Abandon Philadelphia, Morris Takes It Back

It was fear of the French Fleet that made the British abandon conquered Philadelphia. Robert Morris took over and restored the insurgent headquarters, a hundred miles from the Ocean.


Fort Wilson: Philadelphia 1779
James Wilson

OCTOBER 4, 1779. The British had conquered then abandoned Philadelphia; order was still only partially restored. Joseph Reed was President of the Continental Congress, inflation ("Not worth a Continental") was rampant, and food shortages were at near-famine levels because of self-defeating price controls. In a world turned upside down, Charles Willson Peale the painter was leader of a radical group of admirers of Rousseau the French anarchist, called the Constitutionalist Party, leaning in the bloody direction actually followed by the French Revolution in 1789. Peale was quick to admit he had no clue what to do with his leadership position, and soon resigned it in favor of painting portraits of the wealthy. Others had deserted the occupied city, and many had not yet returned. The Quakers of the city hunkered down, more or less adhering to earlier instruction from the London Yearly Meeting to stay away from any politics involving war taxes. About two hundred militia roamed the city streets making trouble for anyone they could plausibly blame for the breakdown of civil order. Philadelphia was as close to anarchy as it would ever become; the focus of anger was against the pacifist Quakers, the rich merchants, and James Wilson the lawyer.
Fort Wilson

Wilson had enraged the radicals by defending Tories in court, much as John Adams got in trouble for defending British troops involved in the Boston Massacre; Ben Franklin advised Wilson to leave town. It is still possible to walk the full extent of the battle of Fort Wilson in a few minutes, and the tourist bureau has marked it out. Begin with the Quaker Meeting at Fourth and Arch. A few wandering militiamen caught Jonathan Drinker, Thomas Story, Buckridge Sims, and Matthew Johns emerging from the Quaker church, and rounded them up as prisoners. The Quakers were marched down the street for uncertain purposes when the militia encountered a group of prominent merchants emerging from the City Tavern. Unlike the meek Quakers, Robert Morris and John Cadwalader the leader of the City Troop ordered the militia to release the prisoners, behave themselves, and disperse; Timothy Matlack shouted orders. It was exactly the wrong stance to take, and about thirty prominent citizens were soon driven to retreat to the large brick house of James Wilson, at the corner of Third and Walnut, known forever afterward as Fort Wilson. Doors were barred, windows manned, and Fort Wilson was soon surrounded by an armed, shouting, mob. Lieutenant Robert Campbell leaned out a third story window, and was soon dropped dead by a lucky bullet. It remains in dispute whether or not he fired first. Crowbars were sought, the back door forced open, but the angry attackers scattered after fusillades from inside.
Joseph Reed

Down the street came President Reed on horseback, ordering the militia to disperse, with Timothy Matlack at his side; both men were well-known radicals, here switching sides to maintain law and order. The City Troop arrived, an order was given the cavalry to Assault Every Armed Man. The radicals were finally dispersed by this makeshift cavalry charge, cutting and slashing its way through the dazed militia. When it was over, five defenders were dead and about twenty wounded. Among the militia the casualties were heavier, but inaccurately reported. Robert Morris took James Wilson in hand and retreated to his mansion at Lemon Hill; Wilson was the founder of America's first law school. Among other defenders huddled in Fort Wilson were some of the future framers of the Constitution from Pennsylvania: General Thomas Mifflin, Wilson, Morris, George Clymer. Equally important was the deep impression left on radical leaders like Reed and Matlack, and Henry Laurens, who could see how close the whole war effort was to dissolution, for lack of firm contol. Inflation continued but the conter-productive price control system was abandoned and never revived; the patriots had a bad scare, and the heedless radicals forced to confront the potentially disastrous consequences of their own amateur performance when entrusted with the power and responsibility they had just been demanding. It was one of those rare moments in a nation's history when the way suddenly opens to previously unthinkable actions.

Timothy Matlack

The Battle of Fort Wilson was the only Revolutionary War battle fought within Philadelphia city limits; a revolution within a revolution, every participant was a Rebel patriot. Reed and Matlack were the two most visibly appalled by the whole uproar, forced by circumstances to attack the forces of their own political persuasion. But it seems very certain that Robert Morris and the other prosperous idealists were also left with an indelible conviction that even a confederation must maintain central command and discipline with an iron will, or all might be lost. A knowledgable French observer estimated that Robert Morris then owned assets worth eight million dollars, an almost unimaginable sum for the time. But he would lose every penny if effective political control could not be restored. A few days later in the October election, he and all the other Republican (conservative) officials lost their seats. It did not matter; Morris then knew what to do, and his opposition didn't.

Private Sector Disciplines Congress

{Adam Smith}
Adam Smith

Two centuries after our present narrative, when President William Clinton once proposed a financial adventure, Robert Rubin replied, "The bond market won't let you do it." In this way, the former Wall Street investment banker educated his politician boss that the most powerful wealth of any nation is hidden, locked up in homes, businesses, infrastructure, population education and other long-term assets. Such wealth normally transforms into cash only when the Treasury borrows it (usually by selling government bonds) because by Constitutional intention the alternative of raising taxes is essentially confiscatory. By contrast, the use of bonds requires only an agreement on price. Bond use is thereby related to supply and demand, with the government generally selling bonds and the public generally buying them. The government sells as many bonds as it pleases, but the price received will immediately sink if too many bonds are for sale. Viewed another way, bond prices announce the market's daily assessment of probable government solvency, because the isolated bond market is solely interested in the probability of being repaid.

{top quote}
In modern wars, the longest purse must generally determine the event. {bottom quote}
George Washington, May, 1780

In 1779 there was no bond market, so Robert Morris set about creating one. Acting then as only a private citizen, but faced with his government being run into the ground, Robert Morris proposed the creation of a "bank", the Bank of Pennsylvania, created, owned and managed by private citizens. The first bank in the nation didn't take retail deposits and was unlike banks we have today in other ways. Modelled more like a bond fund of the Twenty-first century, the Bank of Pennsylvania got its funds through fairly large subscriptions from wealthy people. Robert Morris himself was probably the heaviest subscriber. A bond market was thus created, with subscriptions flooding in when the public was pleased with its government, and flooding out when the public didn't like the looks of things. Naturally there was a profit: the bonds the bank sold to subscribers were priced higher than the bonds the bank bought from the government. In this way, the public was assured the process of setting prices remained in neutral hands. The government could print bonds freely, but the Bank of Pennsylvania couldn't buy them unless somebody gave it some money, and that wouldn't happen unless prices rose to the "market clearing level," of agreement between potential buyers and sellers. The nature of the deal didn't change much when later banks got their funds from deposits, and one later enduring feature also didn't change: Governments hate banks, because banks are in a position to frustrate governments intent on spending what they please.

{Jacques Necker}
Jacques Necker

Quite soon, the public could be visualized as composed of debtors and creditors; the two main political parties have mostly had a matching composition. Progressive politicians, like Albert Gallatin, Thomas Jefferson, Andrew Jackson, Robert LaFollett, William Jennings Bryan, Woodrow Wilson and Barack Obama have demonized banks, often threatening to nationalize or eliminate what is basically a neutral book keeping function. Adam Smith had written The Wealth of Nations three years earlier; Morris gave copies to friends and had obviously read the book, as had Alexander Hamilton. Morris also entered into excited correspondence with Jacques Necker, the Swiss/ French banking genius, but Necker soon died, leaving it uncertain how much influence he had on America. This group of people gave us a system in which the public markets set the price of currency, not the other way around. In the 1779 case, galloping inflation quickly came under control and goods soon reappeared in the markets, although the continuing war exerted relentless pressure until 1783 for the government to do more borrowing.

{Bank of Pennsylvania}
Bank of Pennsylvania

In another irony, during the year he was totally out of office (conservatives were restored to power in the October 1780 election), Morris enjoyed his greatest personal prosperity and exerted almost total personal control of the currency; it was fruitless to accuse him of using government office for private gain when he held no office. During this brief interval Morris also created the first American corporate conglomerate, the series of partnerships called Peter Whitesides and Company. At least as profitable were his personal relationships with the French Ambassador Luzerne and the emissary from Havana, Juan de Miralles, who introduced him to large pools of investment capital from abroad. His American businesses became almost too numerous to count, again highlighting his prodigious ability to work. Meanwhile, his social life was as active as anyone's, extending his hospitality and affability world-wide, and anticipating a return to public life. All of this took about a year.

During this period, his sole civic activity was the Bank of Pennsylvania. As a bank it had a relatively short life. As a subtlety of government, it would be hard to find its equal in any other empowerment of the people. Many centuries of history had formerly taught the lesson that public office was the way to get seriously rich. Morris flaunted a brand new American banner: public corruption was a waste of time, like any other zero-sum game.

Peggy Shippen and Benedict Arnold:Fallen Idols

General Burgoyne

After defeating Washington's troops at the battle of Germantown, the British occupied Philadelphia for the better part of a year. The town was a mess, with food shortages and the squalor of an occupying army equal in size to the normal population. Washington was forced to fall back to the natural fortress of Valley Forge, and while the city was not exactly under siege, it was a difficult place for the British troops to live. For his part, Washington was forced to shiver and starve in a mountain valley, consoled by news of two American achievements. General Burgoyne and his army were soon captured at Saratoga under humiliating circumstances by General Gates. Clearly the dashing hero of the event had been Benedict Arnold on a white horse leading the charge, getting wounded in the leg in the process.

Benjamin Franklin in Paris

Benjamin Franklin in Paris trumpeted the news of this victory, reminding the French of Washington's earlier victory at Trenton, and turning it all into a treaty of alliance. With the French fleet in the nearby Caribbean, Philadelphia was no longer a safe place for the British to stay a hundred miles upriver, and the idea of abandoning occupied Philadelphia began to grow. The British soldiers inside the city were more comfortably housed than the American troops outside it, but nobody was exactly comfortable. The American Congress had of course fled to the hinterlands. All in all, it was not certain who was going to win this war.

Peggy Shippen

The American population at this time has been described as one-third rebel, one-third Tory, and one-third trying to hunker down and try to see who would win. Many of the seriously committed Tories had fled from Philadelphia when the rebels took charge, while pacifist Quakers were a little hard to classify. Generally speaking, the prosperous merchant class had never been persuaded King George was all that bad, while the less prosperous artisans were the fervent patriots. Under such conditions, many people who privately leaned in either direction found it was best to seem non-commital. The British were billeted in private homes, the Officers in the best houses of the merchant class, the common soldiers generally housed in the homes of the artisans. Although the soldiers and the artisans did not mix very well, circumstances permitted the aristocratic officers getting on pretty well with the merchants whose houses they occupied. The girls in the colonial families seemed immediately attractive to the British officers, who were far from home, while the officers also seemed pretty glamorous to the girls. So, it is not exactly surprising that the most beautiful colonial belles like Peggy Shippen and Peggy Chew found themselves frequently in company with dashing officers like Major John Andre. Andre would likely have been a heart throb in any circumstance, since he had risen to the rank of adjutant-general at a young age, wrote poetry and plays, reputedly was rich, and was regularly the life of any party. Nor is it surprising that generations of Peggy's descendants have treasured a lock of his hair.

Margaret Oswald Chew Howard

When the decision was finally made to abandon Philadelphia, six of the British officers personally contributed twenty-five thousand dollars to throwing Philadelphia's most famous, most splendiferous party, called The Machianza. It went on for days, had real jousting matches between officers dressed like knights in armor, banquets and all that sort of thing. It was Andre's idea, and he was enthusiastically in charge. Surviving records of the event do not show that Peggy Shippen was present, but in view of what happened later, much of her correspondence has been destroyed. It's pretty hard to imagine she wasn't there.

Major General Benedict Arnold

The British then marched away, and Washington's troops cautiously resumed control of the city. Major General Benedict Arnold had been sent from Saratoga to Valley Forge to recover from his leg wound, and probably also to raise morale among the troops seeing the famous hero. Washington more or less immediately decided to pursue the British across New Jersey, leading to the battle of Monmouth as the two armies raced for the Naval vessels in lower New York harbor. Since General Arnold had not fully recovered from his wounds, he was installed as the military governor of a somewhat bedraggled Philadelphia. Naturally, he was the center of the social scene, and soon was pursuing Peggy Shippen in every way he knew, which included some pretty gloppy letters in Romantic style. Peggy's father was uneasy about his intentions, but was eventually mollified by Arnold's purchase of the house called Mount Pleasant, now a tourist attraction in Fairmount Park. With this evidence that his prospective son in law was at least likely to stay in Philadelphia, Edward Shippen finally relented of his opposition to the marriage to his daughter. But the new couple were soon off to West Point, where Arnold had kept up a vigorous campaign with Washington, to get himself appointed the commandant of the main northern defense of the Hudson River. A point for Philadelphian tour guides to remember is that Peggy and Benedict never got a chance to live in Mount Pleasant.

Arnold originally lived in New Haven, Connecticut, where he established quite a sea-faring reputation as a merchant, some would say privateer, others would say buccaneer. There is no doubt he was aggressive, and combative, and considered himself a little bit above the law. These qualities made him outstanding at Fort Ticonderoga and Saratoga, and are always more highly valued in young men in a war. Unfortunately, he made a bitter enemy of Joseph Read who was briefly his neighbor, and later was President of the Continental Congress. Read accused Arnold of smuggling and trading with the enemy, and was so determined about it that Arnold was scheduled for court martial, but postponed. Arnold was loudly defensive about the whole matter, and public sympathy was with him. In view of what soon happened, he might well have been cleared by the court, but likely there was some truth to the accusations. Using Peggy as a go-between, he entered into a correspondence with Andre (then the adjutant-general in New York) offering to deliver the surrender of West Point, three thousand prisoners, and possibly George Washington himself in return for what might today be half a million dollars. As a note of realism, he was willing to accept half that in the event of failure. The British were particularly anxious to acquire American prisoners to exchange for their own troops captured at Saratoga. Unless Arnold was a total sociopath, he must have thought he had quite a grievance.

Lord Cornwallis

Things went along surprisingly well at first, with negotiations for price back and forth, plans for attacking West Point moving along with the Navy, and Andre disguising himself for a visit to Arnold in his house to the south of the Fort on West Point. Much of the success was due to the movie-star reputation of Benedict Arnold; few could imagine such a hero doing such an unheard-of thing. However, the plot was discovered while Washington was away visiting the Fort, and Arnold hastily abandoned his family and fled to a waiting British warship. Andre decided to make his way south to the ship through rebel territory, but local soldiers and farmers were much more suspicious than others had been, and after penetrating his disguise, found incriminating papers concealed in his boots. Since he was out of uniform behind enemy lines, Andre was by definition a spy, which required hanging. He made a plea to be shot like a gentleman, but Washington with tears allegedly in his eyes, refused. With much bravado, Andre jumped atop his own casket and placed the noose around his own neck, a behavior much admired by his compatriots when they heard of it

Meanwhile, Peggy had put on a crazy-woman act which apparently convinced Washington to be lenient, and allow her to rejoin her husband. The couple stayed in New York for a few months, toying with commands of loyalist troops in the south, but eventually taking ship for England. Lord Cornwallis was on the same ship and they became pals as shipmates, pleasing Arnold quite a lot. Unfortunately, British society was only stiffly polite to them, and many did not trouble to conceal their disdain for traitors to any cause, and thus life in England was not smooth. By that time, it is possible that many had begun to suspect the whole idea of treason was Peggy's idea from the start, as is today the conventional view of it. As an American aristocrat, she was uncomfortable with the rebels in Philadelphia, and as the impetuous wife of an accused smuggler it was difficult to fit in with either the Quakers or the merchants with loyalist leanings. No doubt she heard some catty whisperings among her friends and relatives about her other romantic associations. The British paid them their promised pensions, but a career in the British Army was out of the question for her husband. But the real shock would come, from discovering the British didn't much care for their behavior, either.

Penman of the Constitution

{Gouverneur Morris}
Gouverneur Morris

THE Constitution is the product of many minds, its ideas have many sources. But final phrasing of the unified document can largely be traced to a lawyer, Gouverneur Morris. The Constitutional Convention would announce a topic, argue for days about different resolutions of it, and then vote on or amend a composite resolution ( unless the matter was deferred to another day of earnest wrangling.) After months of deliberation, that jumble of resolutions made quite a pile. The Convention then turned it all over to Gouverneur Morris for smooth editing and uniformity. Although Morris had arrived a month late for the Convention, he still had time to rise and speak his views more than any other delegate, 173 times. But comparatively few of his ideas identifiably survived the voting; by Convention's end the delegates were most likely listening for elegance and poise, increasingly expecting the final edit to be his. He finished the task in four days, and the full convention only changed a few words before accepting it. This assembly needed a lawyer who would sincerely follow the intent of his client, rather than yield to the slightest temptation to warp it with his own views. The convention had heard his opinion about almost everything, were thus alerted to uninvited slants. He gave them what they asked for, wording it for persuading the nation, as he himself had been persuaded by what the delegates wanted. The remarkable degree to which he had faithfully served his client's wishes, rather than his own, only emerged twenty years later. During the War of 1812, he disavowed the Constitution he had written.

{top quote}
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. {bottom quote}
Preamble to the Constitution

Morris mostly shortened what the delegates had said. A word here, a phrase there, sometimes whole sentences were removed. After that, rearrangement, and substitution of more precise verbs. This lion of the drawing room, this duelist of the salon, undoubtedly had an enjoyable time twitting his less accomplished clients with brisk capsules of what, of course, they had meant to say. To remember that he was outshining Benjamin Franklin and most of the other recognized wits of the continent, is to savor the fun of it all. Of all people in the Enlightenment, Franklin was certainly Gouverneur's equal in sparkling exchanges of debate. Here, he did not even try.

{John Peter Zenger}
John Peter Zenger

Where did this apparition come from? He was almost but not quite a lord of the manor, referring to his extensive riverfront estate in the Bronx called Morrisania, which dated back seven generations in America and ultimately belonged to him, but the title went to his half-brother. He was unquestionably a member of that small society which settled America before the English colonization. Even George Washington was only a fourth-generation American. The Morris side of the family had included two Royal Governors of New York, including the one who tried to imprison Peter Zenger for telling the truth. Gouverneur was his mother's family name, one of the Huguenots who settled New Rochelle in 1663. Under the circumstances, it is not surprising that his mother was a loyalist, and his half-brother a lieutenant General in the British Army. Gouverneur Morris was a brilliant student of law, unusually tall and handsome for the era. He was as tall as George Washington, and Houdon used him as a body model for a statue of the General. Among the ladies, he created a sensation wherever he went. At an early age, however, he spilled a kettle of hot water on his right arm, which killed the nerve and mummified the flesh. The pain must have been severe, with not even an aspirin to help, and the physical deformity put an end to a big man's dreams of military valor. To a young mind, the physical deformity probably seemed more disfiguring than it needed to be, in addition to diminishing his own ideas of himself. He turned to the law, where he was probably a fiercer litigant than he needed to be. And more of a rebel.

The timing of circumstances drove him out of Morrisania, then out of Manhattan, as the invading British cleared the way for occupation of New York City. Then up the Hudson River to Kingston, and on to the scene of the Battle of Saratoga. He had been elected to the Continental Congress but stayed in the battlegrounds of New York during the early part of the Revolution, helping to run the rebel government there, and making acquaintance with George Washington, whom he soon began to worship as the ideal aristocrat in a war he could not actively join as a combatant himself. With Saratoga completely changing the military outlook for the rebellion, Morris was charged up, ready to assume his duties as a member of the Continental Congress. By that time, Congress had retreated to York, Pennsylvania, George Washington was in Valley Forge, and the hope was to regroup and drive the British from Philadelphia. For all intents and purposes Robert Morris the Philadelphia merchant, no relative of Gouverneur, was running the rebel government from his country home in Manheim, a suburb of Lancaster. After presenting himself to Robert, Gouverneur was given the assignment of visiting the camps at Valley Forge and reporting what to do about the deplorable condition of the Army and its encampment. By that time, both the British and the French had about decided that the war was going to be decided in Europe on European battlefields, so the armies and armadas in America were probably in the wrong place for decisive action. Lord North had reason to be disappointed in Burgoyne's performance at Saratoga, and Howe's abandonment of orders, even though by a close call he had captured the American Capital of Philadelphia. Consequently, Lord North added the appearance of still another defeat by withdrawing from Philadelphia, deciding in the process to dispatch the Earl of Carlisle to offer generous peace terms to the colonies. Carlisle showed up in Philadelphia and was more or less lost to sight among rich borderline loyalists of Society Hill like the Powels. His offer to allow the Americans to have their own parliament within a commonwealth nominally headed by the Monarch, went nowhere. The Colonist Revolutionaries were being offered what they had asked for, in the form of taxation with representation. To have it more or less snubbed by the colonists was certainly a public relations defeat to be added to losing Philadelphia and Saratoga. In this confused and misleading set of circumstances, Gouverneur sent several official rejections of the diplomatic overture, and wrote a series of contemptuous newspaper articles denouncing the idea. It seems inconceivable that Gouverneur would take this on without the approval of Washington, Robert Morris, or the Continental Congress, to all of whom he had ready access. But if anyone could do such a thing on his own responsibility, it was Morris. One hopes that future historians will apply serious effort to clarifying these otherwise unexplainable actions.
Roger Sherman of Connecticut

With of course the indispensable help of retrospect, some would say Gouverneur Morris had committed a massive blunder. The Revolutionary War went on for six more years, the Southern half of the colonies were devastated, and the post-war chaos came very near destroying the starving little rebellion. The alternative of accepting the peace offer might have allowed America and Canada to become the world powers they did become; but the French Revolution or at least the Napoleonic Wars might never have happened, the World Wars of the Twentieth century might have turned out entirely differently, and on and on. Historians consider hypothetical versions of history to be unseemly daydreams ("counterfactuals"), but it seems safe to suppose Gouverneur Morris changed history appreciably in 1778. Whether he did so as someone's agent, or on his own, possibly remains to be discovered in the trunks of letters of the time. Whether the deceptive atmosphere of impending Colonial victory was strong enough to justify such wrongheaded decisions, is the sort of thing which is forever debatable.

While most of the credit for the style of the Constitution must go to Gouverneur Morris, there is a record of a significant argument which Madison resisted and lost, about the document style. During the debates about the Bill of Rights, Roger Sherman of Connecticut rose to object to Madison's intention to revise the Constitution to reflect the sense of the amendments, deleting the language of the original, and inserting what purports to be the sense of the amended version. That is definitely the common practice today for organization by-laws and revisions of statutes; it is less certain whether it was common practice at the end of the 18th Century. In any event, Sherman was violently opposed to doing it that way with amendments to the Constitution. After putting up a fight, Madison eventually gave up the argument. So the 1789 document continues to exist in its original form, and the fineness of Morris' elegant language is permanently on display. It may even help the Supreme Court in its sometimes convoluted interpreting the original intent of the framers. In any event, we now substitute the unspoken process of amending the Constitution by Supreme Court decision, about a hundred times every year. By preserving the original language, the citizens have preserved their own ability to have an opinion about how it may have wandered.


Gentleman Revolutionary: Gouverneur Morris, the Rake Who Wrote the Constitution : Richard Brookhiser: ISBN-13: 978-0743256025 Amazon

Robert Morris, Financial Virtuoso

For reader convenience, we here divide Robert Morris' financial rescue of wartime America into two parts before and after 1780, because he had two episodes of being officially in charge. The first immediately followed the Battle of Fort Wilson when chaos and worthless paper money required a strong hand; it will be described next. The second episode followed the later near-revolt of the Continental Army but has already been outlined. Here, Morris was recalled to office with chaos erupting as the end of the war came in sight and everyone was reluctant to fight battles for no military purpose. At the same time British, French and American politicians connived for victory in a war each had failed to win militarily. For simplicity, time sequences have been distorted a bit, concentrating the creation of a modern banking into the second episode, where failure to coordinate banking with taxation ultimately led to the Constitutional Convention in 1787. Chronology has been sacrificed to enhance clarity. It is now time to return to the brilliant expedients Morris employed after he took charge following the Fort Wilson shocker, omitting some of the banking details already described.

What helped the first crisis most was the ready availability of a financial genius to turn around a crisis, when just about everyone else was at a total loss. Robert Morris had made his fortune, probably the richest man on the continent, and nursed the grievance of crowd abuse at the Battle of Fort Wilson. He had some novel concepts to test; it is not too much to say he showed them off, particularly since they displayed a man in charge with prodigious energy, applying a financial virtuosity of seemingly unlimited ideas. No one else came close to Morris in stature, and he must be forgiven for flaunting it a little.

{Robert Morris}
Robert Morris

At the climactic moment however, Morris played coy. He was not so sure he would accept the office of Financier, a term newly invented for the occasion. Accepting Ben Franklin's cynical assessment of the future, he wanted everyone to be clear: he was not going to give up his private partnerships. And he insisted on his right to hire and fire anyone at all within the government bureaucracy who was concerned with public money. He accepted responsibility for new debts of the government, but not for old debts incurred before he took office. He would furthermore delay taking the oath of office for a few months. These conditions naturally generated wild opposition in Congress; Morris was serene, and Congress finally had to agree. Most of these terms had some obvious purpose, while making no secret of his distrust of Congressmen. In fact, the opposition might well have hardened its position if the purpose of delaying the oath had been fully expressed. Morris wanted to delay becoming a federal officer in order to delay resigning from the Pennsylvania Assembly. During the interval, he applied similar power tactics to the Legislature, ending up simultaneously in charge of both state finances and federal.

{Yorktown: Oct. 19, 1781}
Yorktown: Oct. 19, 1781

That purpose was soon to emerge, as just one instance of many tough tactics. Inflation tossed and turned the finances of everyone, so Morris would buy with one currency and sell with another, taking advantage of brief fluctuations, then quickly reverse the currency transaction when advantages shifted. He arranged with the French and Spanish ministers to keep their loans and foreign aid in separate accounts, applied the same techniques with state accounts, and even between near and distant counties within Pennsylvania. He thus had a choice between many currency values at any one moment. His far-flung commercial network supplied him with more precise information than his counterparties could get, and usually more quickly, so his trading activities were usually profitable. One rather extreme example was the arrangement with Benjamin Franklin in Paris; Morris would write checks to Franklin in one currency and Franklin would write identical deposits back to him on the same day but a different currency. He thus extended ancient practices among international merchants, carrying them over to government operations, which had the effect of creating a modern currency exchange. To outsiders however, particularly his political enemies in Massachusetts and Virginia, it looked fishy. To modern observers, the astonishing thing was his ability to keep such complexity in his head. The political class which even today sees it as natural that governments might want to manipulate currency as they please, might describe Morris strategies as dubious. Those who believe the market price is usually the true price however, must applaud this strategy for forcing manipulated prices back to market levels. Since here has rested the central dispute in American politics for two centuries, Morris must be credited with inventing even that dispute. One would normally suppose that doubling the silver price of American currency in two months would vindicate his trading strategy; but it has not always done so, suggesting the nature of the questioning has been more ideological than economic.

Within days of assuming office, the "legal tender" laws were repealed, stripping government of the ability to force its citizens to accept worthless currency, impose rationing and price controls, and otherwise assume the mantel of "sovereignty". Like a miracle, food began to reappear in the Philadelphia marketplace at a lower price, and confidence in the competence of government began to return. To whatever degree the British ministry had been deliberately stalling the peace talks in the hope of American collapse, this incentive was dissipated.
Yeild Curve

The list of financial innovations which Morris produced in a remarkably short time, is seemingly endless. He next became central in the creation of the first American bank of the modern sort, the Bank of North America. And somewhere in that welter of activity appears to be the recognition of the so-called yield curve. Loans for a few weeks or months command a much lower interest rate than long-term loans; in the colonial period, almost all loans were for six months or less. Morris seems to have realized early that great profitability could be achieved by merging a sequence of several short loans into one long one. He thus devised a number of strategies which had the general effect of linking short loans together. Using the remittance for a transatlantic cargo in one direction as payment for the return cargo on the same ship was an early example. Once you grasped the idea and did it deliberately, long sequences of linked loans began to suggest themselves. Just to complete the thought, it might be noticed that present-day globalization reverses the process, with shorter term loans for components substituting for longer term loans for the entire assembled product. With lower interest rates, competitive prices can be reduced, unless a choice is made to increase profits.

There's one last issue in Robert Morris folklore: Did he finance the whole Revolution out of his own pocket? The answer is surely no, because Beaumarchais ended up spending much more than any other individual, however involuntarily. The degree to which hard currency originated with the French, Spanish and American governments is a little unclear, and war damages are impossible to appraise. There were moments when Morris did personally finance major cash shortages, adding the considerable advantage of speeding up what could be a cumbersome process of budgeting, committee consideration, disputes and hesitation. Where it was feasible, he sought restitution. Every bureaucrat has experienced delays and obstructions he dreams of eliminating by simply paying for it himself; Morris had the advantage that within reason, he could afford it.

As a very rich man, his more important personal contribution was his pledge to make good if the Treasury defaulted. Creditors generally preferred his credit to that of the government; his pledge was to pay if the government could not. His "Morris Notes" were not paying, but rather reinsuring government debts, in modern terms offering a Credit Default Swap. If we lost the war and our debts defaulted, Morris would have lost everything he had. But short of that, his pledge would result in much smaller losses. The public couldn't be expected to understand all that, so some simplified explanations were understandable. There were probably a number of similar examples, but near the end of the war there was a particularly clear one. The Continental Army was very close to revolt when it looked as though Congress would disband the soldiers without paying them; there was no money but unpaid demobilization would likely send rioting soldiers through the countryside. Morris came forward with a million dollars of his own money and saved the day. Washington was forced to make emotional speeches appealing to the patriotism of the troops, but with most of the army barefoot, that was not certain to hold them back. Under those circumstances, to come forward later like Arthur Lee and remind everyone that Morris had once refused to sign the Declaration of Independence, was ingratitude of the meanest sort.

The accusation made after the war was that he profited from government losses, but there has never been evidence of that. His position was that he came out about even. Unspoken in these quarrels was the plain fact that until he got involved in the post-war real estate boom, he didn't need to cheat. Probably didn't even have time for it.

The Revolutionary War continued for two years after Morris took office for the second time, so war losses continued in spite of improved financial management. Both the French Government and the American one were at the edge of bankruptcy. Britain was also in political chaos, but it was only small consolation that Parliament had granted Independence to the Colonies, when King George III remained adamant that it wasn't going to happen to his colonies. Strengthened by the British defeat of the French Caribbean fleet, the capitulation by the Spanish about Gibraltar, and great uncertainty about the Crimea and India -- almost anything was possible. Eventually, matters began deteriorating again. The British even then had the financial strength to hold out much longer, but obvious neglect of other opportunities eventually wore them down. Morris seemed to be winning , just by not losing.

In the midst of such anarchy, Morris had to admit his greatest failure as the Financier, but was already formulating his plan for setting things on their feet. The Revolutionary War as seen by a financier had either been won by the British system of taxation, or else lost by the American and French lack of such a system. It was irrelevant whether the War was described as a defeat for Britain or a victory for America; in Morris' view, the British had a good system and we had a poor one. No nation can finance a major war out of current receipts; you have to borrow. Your security for loans is the economy of your nation. Even if your illiquid assets are adequate for the war, the banking markets regard your ability to pay cash for the interest on the loan as their only reliable test of your solvency. That is, a nation at war must have the ability to keep the bankers happy with regular interest payments. For that, a nation had to have a proven system of reliable taxation. Britain had it, and the American/French alliance didn't. Franklin's masterful diplomacy was just lucky enough to achieve generous terms, but that wasn't good enough, we had to have a Federal tax system to survive and thrive. And to achieve that, we had to have a new Constitution. Never mind that resentment about British taxes got us into this mess. Never mind the chaos attending the Treaty of Paris. Never mind the war-weariness, bitterness and destitution of the troops. Never mind that Morris was now about to embark on one of the most mind-boggling real estate ventures in history, was going to go to debtor's prison, was going to engage in millions and millions of dollars of borrowing and restitution. Never mind. We needed a new Constitution, and we were going to get it. Think big.

Morris Defends Banks From the Bank-Haters

{Robert Morris}
Robert Morris

IN 1783 the Revolution was over, in 1787 the Constitution was written, but the new nation would not launch its new system of government until 1790. It was a fragile time, and a chaotic one. Earlier, just after the British abandoned their wartime occupation of Philadelphia in 1778, Robert Morris had been given emergency economic powers in the national government, whereas the state legislatures were struggling to create their own models of governance, often in overlapping areas. While the Pennsylvania Legislature was still occupying the Pennsylvania State House (now called Independence Hall) in 1778, it -- the state legislature -- issued the charter for America's first true bank the Bank of North America, and in 1784 the charter came up for its first post-war renewal. Morris was a member of the Pennsylvania Assembly both times. Although he was not a notable orator, it was said of him that he seldom lost an argument he seriously wanted to win. Keeping that up for several years in a small closed room, will unfortunately make you many enemies.

{The City Tavern}
Tavern and Bank

Morris was deeply invested in the bank, in many senses. He had watched with dismay as the Legislature squandered and mismanaged the meagre funds of the rebellion, issuing promissory notes with abandon and no clear sense of how to repay them, or how to match revenues with expenditures. There was rioting in the streets of Philadelphia, very nearly extinguishing the lives of Morris and other leaders, just a block from City Tavern. Inflation immediately followed, resulting in high prices and shortages as the farmers refused to accept the flimsy currency under terms of price controls. Every possible rule of careful management was ignored, and promptly matched with a vivid example of what results to expect next. Acting only on his gut instincts, Robert Morris stepped forward and offered to create a private currency, backed by his personal guarantee that the Morris notes would be paid. The crisis abated somewhat, giving Morris time to devise The Pennsylvania Bank, and then after some revision the first modern bank, the Bank of North America. The BNA sold stock to some wealthy backers of which Marris himself was the largest investor, to act as last-resort capital. It then started taking deposits, making loans, and acting like a modern bank. Without making much of a point of it at the time, the Bank interjected a vital change in the rules. Instead of Congress issuing the loans and setting the interest rates as it pleased, a commercial bank of this sort confines its loans to a fraction or multiple of its deposits, and its interest rates are then set by the public through the operation of supply and demand. The difference between what the Legislatures had been doing and what a commercial bank does, lies in who sets the interest rates and who limits the loans. The Legislature had been acting as if it had the divine right of Kings; the new system treated the government like any other borrower. As it turned out, the government didn't like the new system, and has never liked it since then. Today, the present system has evolved a complicated apparatus at its top called the Open Market Committee of the Federal Reserve, most of whose members are politically appointed. Several members of the House Banking Committee are even now quite vocal in their C-span denunciations of the seven members of the Open Market Committee who in rotation are elected by the commercial banks of their regions. Close your eyes and the scene becomes the same; agents of the government feel they have a right to control the rules for government borrowing, while agents of the marketplace remain certain governments will always cheat if you don't stop them. This situation has not changed in two hundred years, and essentially explains why some people hate banks.


That's the real essence of Morris's new idea of a bank; other advantages appeared as it operated. The law of large numbers smooths out the volatility of deposits, and permits long-term loans based on short term deposits. Long-term deposits command higher loan prices than short-term ones can; higher profits result for the bank. And a highly counter-intuitive fact emerges, that making a loan effectively creates money; both the depositor and the borrower consider they own it at the same time. And finally there is what is called seigniorage. Paper money (gold and silver "certificates") deteriorates and gets lost; the gold or silver backing it remains safe in the bank's vault, where it can be used a second time, or even many times.

For four days, Morris stood as a witness, hammering these truisms on the witless Western Pennsylvania legislators. At the end of it, scarcely one of them changed his vote, and the bank's charter was lost. But at the next election the Federalists were swept back into majority, defeating the opponents of the bank. Although, as we learn the way democracy works, still leaving them unconvinced of what they do not want to believe.

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