American history between the Revolution and the approach of the Civil War, was dominated by the Constitutional Convention in Philadelphia in 1787. Background rumbling was from the French Revolution. The War of 1812 was merely an embarrassment.
Robert Morris: The Dark Side
Anthropy : Blog 4448 : CONTENTS: this is the main body of text
Anthropy : Blog 4448 : Topic 168 : Topic 268
Human dominance of the Earth is surprisingly recent, a few thousand years out of several million. The years of presently recognizable civilization emerge if you knock away the dark ages. Going short makes the civilized interval very brief, indeed. History professors tip their hats to uncertainty by starting their courses with Martin Luther (Protestantism) or King Henry VIII of England. Since that only makes the contrast more extreme, let's just limit human dominance to several thousand years out of a much longer existence for the Earth itself.
Then jump to the sort of horse and buggy life George Washington lived, compared with our present whirlwind lifestyle, and see what I am driving at. Change must have speeded up considerably -- rather recently and spottily -- but at least fairly recently. Why that should be so is a mystery, possibly an illusion of history-writing.
A maxim of the book-editor trade is "Deviate from chronology at your peril." Two events may have little to do with each other, but it always remains possible to show the earlier event had somehow affected the later one. An editor may know little about a topic, but he knows that much.
|Dean Donald Kagan|
In 2011, I was privileged to be a tuition-paying student at one of Yale's Directed Studies Courses. An invention of former Dean Donald Kagan, the DS courses take an important era in history and apply three conventional faculty disciplines to it at once: Philosophy, History, and Literature. For the undergraduates, courses range in chronology from Ancient Greek to the Enlightenment; so far, the alumni just get the Greeks. Judging only from the course in Ancient Greek, the unspoken thesis soon emerged that a major era experiences permanent changes in history, philosophy, and literature, but the connection between the three is often loose, requiring some pondering to make the connections firm. Aeschylus does have a connection with Plato, and Aristotle with Thucydides but it remains unclear why the connection exists. Furthermore, you can lump these things or split them; Ancient Greece fits naturally with the Roman Empire, but it can also stand alone. Therefore, although the Yale faculty tends to lump the American Revolution with The Enlightenment, a consideration of the life and times of Robert Morris, Jr. fits naturally with both the Enlightenment and the American Era, because the American part of the Enlightenment bifurcates abruptly when Morris stood in debate with William Findlay in the Pennsylvania State House in 1798 -- and lost.
Morris was the richest man in America or close to it, the unofficial President of the United States in its darkest hours, the most brilliant non-academic innovator in Western Finance, the leader of American high society, the only man beside Roger Sherman to sign the Declaration of Independence, the Articles of Confederation, and the Constitution. Morris did not realize it but he was within a few months of going to jail for three years, then spending his final five years in secluded disgrace. Robert Morris was not accustomed to closing arguments, but he lost this one, concerning the wisdom of renewing the charter of the Bank of North America, the first real bank of the country. He lost an argument he should have won easily. In retrospect, the new modern American Era was beginning, and he was apparently on the wrong side of it. Politically, that is. Speaking purely of banking and finance, he was a century ahead of his time.
|Ancient Greek Gods|
It seemed to me and my alumni classmates that the idea of examining a historical period like the ancient Greek one in the light of three different academic disciplines, gradually assumed considerable merit. The philosophy department examined beliefs which underlay action, and the history department described what those actions turned out to mean inhuman affairs. But the literature department came far closer than either of the other two, to imparting to a reader just what it was like to be an ancient Greek. Professor Kagan seems to have a really good idea here, although it must be resource-expensive to develop, academically. Three departments of Academia have to come to some sort of agreement about the whole synthesis, an agreement which surely must not have been present at the start. It must be a process highly similar to a medical school teaching about a disease, with coordinated input from pathologists, surgeons, and internists. A nice idea, but terribly labor-intensive of labor of the highest quality. Book editors would say it is safer to stick with chronology as an organizing principle if you plan to do a lot of organizing. Nevertheless, I must express my gratitude to Yale for allowing me to be a spectator at an experiment conducted by masters of the thinking trade. Its results must be judged by standards other than the usual ones.
The feudal system once consisted of Kings awarding aristocrats a title of nobility attached to a region of inhabited land, usually as a reward for military assistance. Because of this link between their wealth and their land, almost no aristocrats migrated to America, so almost no American can now claim hereditary noble descent. What developed instead was the gentry. Regardless of the often unclear sources of their wealth, it was presumed to have arisen from some ancestor's merit, and could only be inherited if it could be made to renew itself. The vast expanses of America cheapened the value of undeveloped land, so the gentry could seldom support a gentry lifestyle without additional employment of some sort. Their children went to college, an experience originally developed for training ministers, who were expected to be the nation's leaders in balance with the tradesmen, who made no secret of their own self-serving. The expectation of community leadership for the gentry outlasted its original attachment to religion, so the non-religious gentry moved about with an air of superiority which others envied but increasingly resented. The novels of Jane Austen are filled with depictions of this sort of person during a period when they were actually rapidly disappearing. The primitive financial system and the enduring mythology of the aristocracy struggled to guide the income sources of this gentry into tracts of resalable land, where they lived off dividends, profits, and rents. Rentiers. Not quite tradesmen, but not genuine aristocrats, either.
Unfortunately, the huge abundance of land in the New World soon cheapened its value to a point where it could not support a lifestyle of entitlement along with contempt for mere tradesmen. This is the explanation often offered for the virtual disappearance of the lifestyle of the Gentleman by the time of the Civil War. The situation was rescued by the invention of corporations; a single man or family no longer could supply all the capital needed to exploit the available commercial opportunities, so corporate ownership was shared with others. Ownership of shares in corporations provided a new stream of income and a new storehouse of wealth, and it also freed the gentleman from ties to a big estate of land. The Jane Austen variety of gentleman thus virtually disappeared but remained as a mythical model for the highest aspirations in the early 19th Century. Robert Morris, orphaned and illegitimate, wanted very much to be an immensely rich gentleman even though that was becoming a contradiction of terms. And although he had virtually been in charge of the whole nation during the Revolution, he wanted very much to be looked to as a leader, then defined as some variant of a theologian. Much of this ambivalence was due to his never going to college, the same guilt which haunted George Washington. Neither of them had sufficient college-educated relatives to appreciate how little college has to do with it. A great deal probably did have to do with historical animosities between Eastern and Western Pennsylvania, between Quakers and Presbyterians, between memories of lingering hatreds among Irish tribes along Ireland's northern border. And yes, between anthracite and bituminous coal. Mountains seem to foster wild behavior, and there are a lot of mountains in Central Pennsylvania.
|Adam Smith: Nature and Causes of The Wealth of Nations|
The outcome of these commotions, as well as others unrecognized, was highlighted by the constant difficulties Robert Morris had in the Pennsylvania legislature, contrasted with his comparative ease in both the local Philadelphia political scene and the national one. Only at the state level did it seem that everyone was against him. Particularly so were Findlay and Smilie, western Pennsylvanians who hated him for his self-made wealth but refused to acknowledge the abilities it must surely represent. Like the Lees of Virginia, they asserted the burden of proof was on him, to prove he had not stolen his wealth. After all, all tradesmen were petty cheaters, so a very rich tradesman must be a big cheater. And even setting that aside, he had an odor of sanctity, an air of superiority, which they could not abide. There was even a centrality to this matter resting on Adam Smith, who published The Wealth of Nations in 1776. Smith argued that good things grew out of vigorous competition, and definitely not from altruism. Although Morris was sufficiently taken with Smith's arguments to give copies to his friends, he would not surrender the point that wealth was not necessarily proof of merit, just because merit sometimes led to wealth. Findlay freely admitted he was opposed to the re-charter of the Bank of North America in order to promote the self-interest of western farmers. What flabbergasted Morris was to hear his motives vilified for favoring the re-charter when he owned shares of the bank. Nowadays, everyone would feel astounded if a corporate executive did not vigorously defend his company; but in those days he stood shame-faced to admit he could not possibly be a gentleman and do such a thing. He, therefore, decided to prove his honor by taking an astonishing step. One of the richest men in America sold out his business to prove to these wizened backwoodsmen that he was truly acting like a gentleman. It would be hard today to find anyone who would not describe his action as that of a damned fool.
|E. James Ferguson|
James Ferguson was a Twentieth-century historian who spent most of his life compiling and editing the papers of Robert Morris covering the four years (1781-1784) he was in charge of American finances. Although Ferguson was strictly impartial or even somewhat censorious, he made the statement that he had never discovered any instance of Robert Morris engaging in self-dealing or dishonesty in handling government affairs. Likewise, Arthur Lee, who certainly qualifies as Morris's worst enemy, was in charge of a Congressional investigation of the accusations of Morris as corrupt which finally led to the conclusion that no dishonesty had been found. If any corruption is found in the future, it must thus be found in some remote corner of a mountain of careful bookkeeping by a man who was mostly too rich to bother with the immense task of covering his tracks with double books. And Morris really was very rich. One contemporary scholar, a historian for the Independence Hall Park Service, estimates that until things began to crumble, Morris was as rich in present value as Bill Gates. A quick check of that assertion would start with his unpaid debts of $12 million at the time he went to debtors prison, and then adjustment for intervening inflation. The snarling assumption that no man could get to be that rich -- honestly -- is the as yet unsupported belief underlying any smug satisfaction, then and now, with his legal downfall.
This amounts to astonishing denial. Although many billions of dollars have been amassed by many contemporary financiers of only single facets of investment banking, persisting suspicion implies it was justified to imprison a man who invented maritime insurance, central banking, commercial credit, the substitution of credit for paper currency, the organization of a privateer navy which fought the British Navy to a standstill, financed the Revolutionary War and the importation of almost all its munitions in spite of the sinking of 150 of his own ships. Morris effectively ran the Revolutionary government while he did these things-- not only an astonishing series of accomplishments in four years but seemingly quite enough achievement to attain wealth. Instead, one hears especially in Virginia, the implacable conviction that no one could possibly do all that, honestly.
Or alternatively, the thesis might be advanced that only passionate idealism would drive a man of such talents to such exertions, gently alluding to his seemingly disgraceful refusal to sign Jefferson's Declaration of Independence at the vital moment, which is accepted as sure proof of duplicity. Somehow this offense cannot be expunged by his rescuing the finances of the War when the whole Continental Congress was lost in the blind alley of inflation and price controls, on the edge of letting Washington lose the battle of Trenton for lack of gunpowder. Or largely by his own efforts getting the Articles of Confederation ratified after five years. Or, discovering their vital weaknesses, setting about to rectify them in a new constitution, and driving it through the ratification by Pennsylvania. The system of checks and balances then mysteriously emerged, without clear identification of whose idea it was. It certainly sounds like Hume and Adam Smith. They weren't present at the Constitutional Convention. But Morris was, with a lifetime of matching willing buyers with willing sellers, in mutually advantageous binding agreements.
THE Revolutionary War ended militarily with the Battle of Yorktown in 1781, and diplomatically with the Treaty of Paris in 1783. The careers of Washington and Franklin appeared to be complete, while the economic and financial career of Robert Morris seemed likely to stretch for decades into the future. But as matters actually turned out for these three fast friends, it was Washington who was propelled into a new political career, Franklin soon died, and Morris got himself into a career-ending mess. The financial complexity and economic power of the United States did grow massively in the next several decades, but unfortunately, Robert Morris was soon unable to exert any leadership. At the end of Washington's eight years as President, the power of the Federalists, and particularly the three men most central to it, was coming to a close. John Adams had a tempestuous single term, and then Federalism was all over.
The end of the Eighteenth century marked the end of The Enlightenment and the beginning of the Industrial Revolution, accompanied by many national revolutions, not just the American one. This was a major turning point for world history. The momentum of these upheavals still continues, but it is clear that the Industrial Revolution of which the Morris banking revolution was an essential part swept the world far faster than the social and political revolution, in which he also played a pivotal role. In the banking and industrial revolution, it is universally agreed that Morris was almost always right. In the social and political world, it is conversely agreed he was quite wrong. Essentially, Morris assumed that a small minority, an aristocracy of some sort, would rule any country. Within weeks of the ratification of the new Constitution, or even somewhat in anticipation of it, America made it clear that replacing an aristocracy of inheritance with an aristocracy of merit would not satisfy the need. Morris, born illegitimate and soon an orphan, was obviously in favor of promotion based on merit. John Adams defined leadership even more narrowly; he said a gentleman was a man who went to college, and he probably meant Harvard. Nobody extended the leadership class to include Indians and slaves, but the backwoodsmen of Appalachia made it clear that power and leadership at least included them. Thomas Jefferson was the visible leader of this expansion of the franchise, but changed his mind several times. James Madison switched sides; Thomas Paine switched in the opposite direction. The leaders of Shay's Rebellion and the Whiskey Rebellion lacked coherence and consistency on this point; instead of agitating for a refined goal, they mostly seemed to be running around looking for a leader. William Findlay, on the other hand, knew what he wanted. The issue might be defined as follows: it was obvious that hereditary aristocracy was too small and too inflexible to suffice, but it was also obvious that every man a king was too inclusive. An expanded leadership class was needed, but its boundaries were indistinct and contentious. But to return to Findlay, who at least had a clear idea of what he wanted.
William Findlay was a member representing Western Pennsylvania in the State Legislature, in 1785. It would be difficult to claim any notable accomplishment in his life; he was largely uneducated. The new leadership class must, therefore, include both the uneducated and the mediocre. The Legislature at that time met in the State House, Independence Hall, in Philadelphia, where no doubt the unconventional dress and manners of backwoodsmen did not pass without audible comment. Findlay made his own political goals quite explicit; he was for paper money to facilitate land speculation which could make him rich. Wealth was a goal, but it did not confer distinction. The rights of the Indians, the rights of the descendants of William Penn, the rights of the educated class and the preservation of property were all just obstacles in the way of an ambitious man who had carefully studied the rules. Everybody's vote was as good as everybody else's, and if you shrewdly controlled a majority of them, you could do as you please. If this meat-ax approach had any rational justification, it lay in the essential selfishness of every single member of the Legislature, working as hard as he could to further his own interest. If someone controlled a majority of such votes, then the majority of the public were declaring in favor of the outcome. Those who believed in good government and the public interest were saps; the refinements of education mostly just created hypocritical liars. There was a strain of Calvinism in all this and a very large dose of Adam Smith's hidden hand of the marketplace. If you were rich, it was proof that God loved you, if you were poor, God must not think much of you, or He wouldn't have made you poor. Findlay had the votes and meant to become rich; if his opponents didn't have the votes, they could expect soon to be poor. In this particular case, the vote coming up was a motion to renew the charter of the Bank of North America. Findlay wanted it to die.
|America's first bank, the Bank of Pennsylvania|
It came down to a personal debate between Findlay, and Robert Morris. Morris had conceived and created America's first bank, the Bank of Pennsylvania. Today it would be called a bond fund, with Morris and a few of his friends put up their own money to act as leverage for loans to run the Revolutionary War. After a short time, it occurred to Morris that the money in a bank could be expanded by accepting interest-bearing public deposits and making small loans at a higher interest rate, which is the way most banks operate today. Accordingly, a new bank called the Bank of North America was chartered to serve this function, which greatly assisted in winning the Revolutionary War. There was no banking act or general law of corporations; each corporation had its individual charter, specifying what it could do and how it would be supervised. When the charter came up for renewal, Findlay saw his chance to kill it. Morris, of course, defended it, pointing out the great value to the nation of promoting commerce and maintaining a stable currency. The reply was immediate. Morris had his own money invested in the bank and only wanted to profit from it at the public expense. His protests about the good of commerce and the public interest in stable money were simply cloaking for this rich man's greed to make more money. Findlay made no secret of his interest in reverting to state-authorized paper money, which could then be used by the well-connected to buy vast lands in Ohio for speculation. There were enough other legislators present who could see welcome advantages, and by a small majority the charter was defeated.
At this point, Morris made a staggering mistake. After all, he was a simple man of no great background, largely uneducated but fortified by his ascent in society from waterfront apprentice to the highest of social positions, a friend of George Washington and Benjamin Franklin, acclaimed as a financial genius, the man who saved the Revolution, very likely the richest man in America. For many years, he had harbored not the slightest doubt of his personal genius, his absolute honesty, and total dedication to the welfare of his country. To have this reputation and accomplishment sneered at by a worthless backwoodsman, a man who would stoop to using the votes of other backwoodsmen to accomplish self-enrichment, was intolerable. Morris announced and actually did sell out his entire business interest as a merchant, at a moment when he fully understood the new nation was about to enjoy an unprecedented post-war boom. So much for his self-interest. It helps to understand that John Hancock and Henry Laurens had done the same thing in Boston and Charleston, against what we now see as a strange aristocratic tradition of prejudice against bankers and businessmen. In even the few shreds of aristocracy now surviving in Britain and Europe, the tradition persists that a true aristocrat is so independently wealthy that no self-interested temptations can attract him away from purest attention to the public good. The original source of this wealth was the King, who conferred high favor on those who served the nation well. A curious exception was made for wealth in the form of land, the only dependable store of tangible wealth, and transactions in land. Wealth was something which came from God and the King in return for public service. Land ownership was its tangible storage and transfer medium. Otherwise, grubbing around with trade and manufacture was beneath the dignity of a true gentleman.
We now know what was coming. Wealth was soon to be the reward of skill and merit, recognized by fellow citizens in the marketplace, by consensus. Findlay and his friends wholly accepted this conclusion, unfortunately skipping the merit part of it for several decades. In their view, you were entitled to the money if you had the votes. As the nation gradually recognized that rewards must be durable, and once granted were yours to have and to hold, the new nation gradually came to see the need for durable ownership of property. Unless or until the owner places it out at risk in the marketplace, legislative votes may not affect its ownership. Our system ever since has rested on the three pillars of meritorious effort, assessment of value by the free market, and respect for pre-existing property. That's quite a change from the Divine Right of Kings, and therefore quite enough material to keep two political parties agitated for a couple of centuries. And quite enough change to bewilder even so brilliant a victim as Robert Morris.
A DOZEN episodes from American revolutionary times might be called pivotal, but a single debate in the Pennsylvania Legislature seems to have begun our political parties in their present form. Two debaters, their topic, and its consequences all rise to dramatic, even operatic, heights. In another place, we intend to explore the clashing philosophies of the Eighteenth century, with Hegel and Hume at the apex, but two quotations from Adam Smith are more intelligible. Charles Dickens nearly ran away with the topic in his novel A Tale of Two Cities, but Charles Brockton Brown and Hugh Henry Brackenridge were local authors, Pennsylvanians present at the scene. John Adams and Thomas Jefferson debated for decades about which of them was the main protagonist. But all of that is the background for one operatic scene at Independence Hall, where the real David and Goliath were William Findlay and Robert Morris.
Robert Morris, it must be remembered, was probably the richest man in America, a signer of the Articles of Confederation, the Declaration of Independence, and the Constitution. He was one of three men, including Ben Franklin and George Washington, about whom it could be said: the Revolution could not have been won without them. Morris essentially invented American banking, founded the first bank, the Pennsylvania Bank, invented investment banking, corporate conglomerates, American maritime insurance, and dozens of financial innovations. His merchant house probably had 150 ships sunk by the enemy. George Washington lived in his house for years. Today, he is mostly remembered for going bankrupt at the end of a busy life.
William Findlay, on the other hand, was a Scotch-Irish frontiersman with a flamboyant white hat, elected by others like him from the Pittsburgh area to promote inflation through state-issued debt paper, so as to finance land speculation in the West. He had no education to speak of, no accomplishments to mention. He made no secret of his self-interest in land speculation, and therefore no secret of his opposition to rechartering the Bank of North America, which Morris had founded for the purpose of restraining inflation and speculation. Findlay wanted the bank to disappear, get out of his way, and he boldly denounced Morris for his self-interest in promoting a bank where he owned stock. He utterly denied that Morris had any motive other than the profit he would make for the bank, so in his opinion, they were equal in self-interest. Let's vote.
Prior to that time, Findlay had politically defeated Hugh Brackenridge, using the two strong arguments that Brackenridge had gone to Princeton, and written poetry; how could such a person possibly represent the hard-boiled self-interest of frontier constituents?
Morris was positively apoplectic at this sneering at everything he stood for. As for the country's lack of trust in a man who had risked everything to save it, well, what has he done for us, lately? America had lately thrown off the King, but what it had really discarded was aristocracy. Every man was as good as every other man, and each had one vote. Under aristocratic ideals, a man was born, married and educated in a leadership class, expected to be utterly disinterested in his votes and actions, scrupulous to avoid any involvement in trade and commerce, where temptations of self-interest were abundant. Washington never accepted any salary for his years of service and even agonized for months when he was awarded stock in a canal company, wanting neither to seem ungrateful nor to make private profit. John Hancock, who came pretty close to having as much wealth as Morris, gave up his business when he was made Governor of Massachusetts. Benjamin Franklin was only accepted into public life when he retired from the printing business, to live the life of a gentleman. That's how it was, everywhere; every nation had a king and depended on rich aristocrats to supply the leadership for war and public life. But, now, America had become a republic where every man was equal. Morris and the Federalists he represented wanted to turn the clock back to an era that would never return.
Goaded too far, Morris impulsively resigned his business interests, to prove he had the nation's interest at heart in opposing inflation. It didn't help. Findlay won the vote, and the Bank of North America was closed. America was ashamed of how it behaved after the Revolution, but not ashamed enough to change.
|Robert Morris: Financier of the American Revolution: Robert Morris: Charles Rappleye: ISBN-10: 1416570926||Amazon|
Although they try to be subtle about it, the American political parties reverse their positions fairly often on issues. Indeed, there are several times when parties reversed positions with symmetry, each taking what was formerly the other party's position. For example, the Republican Party stood in defense of protective tariffs throughout the last half of the 19th century, while in the 21st century Democrats now take the pro-tariff position, and it is Republicans who hate it. If you look for the ideological center of the parties, it is not to be found in tariffs. Nor in taxes; the Federalists, effectively predecessors of the present Republican Party largely based their whole party on rewriting the Constitution to enable the Federal government to levy taxes. But more recently it might be fair to observe they allowed George Bush (41) to lose his 1992 presidential re-election campaign because he abandoned the "No new taxes" pledge. Twenty years later, the Tea Party is still on the warpath about holding taxes down. The difference between this Tea Party and the original (Boston)one is that now the Tea Party is in the hands of rock-ribbed conservatives instead of rowdy rebels.
On the question of how many parties to have, there is fairly uniform agreement that two is best. Third parties, or splinter parties, do appear from time to time but in retrospect can mostly be viewed as steps in repositioning one or both major parties. Our system of nomination depends on the utterly pragmatic question, "Can he win?", and cheerfully dumps some candidate the leadership really likes best if he seemingly can't win. The stability of our seemingly haphazard system emerges from two eventual choices, each chosen because shrewd analysts think they have the best chance with the public. The Constitution's authors hoped there would never be any political parties, but it is arguable that the remarkable stability of our government depends on them. More ideological leadership in other countries has led to many more political parties, each held by a tighter leash. The result has surprisingly been much less stability, because each splinter party is led by someone who imagines himself a Spartan at Thermopylae, determined to and usually successful at, dying for his cause. To those less cerebral about politics, one final pragmatic argument is offered: In our two-party system, the deals are made before the election, and the public is asked to choose between two best-effort products. In a multi-party system, the deals are made after the election, often requiring several efforts to get a workable coalition. And, having already voted, the public has surrendered its control over the composition of the deal.
In many recent years, someone becomes a millionaire through real estate speculation; it can be done. However, no one supposes it is easy to do, or free of risk. It would be foolhardy for anyone who knew nothing about real estate speculation to step forward, buy huge tracts of land, and expect to multiply his wealth in a year or two. That is, however, essentially what Robert Morris, Jr. did in 1785. Like his friend Benjamin Franklin, Morris was acutely sensitive to the prevailing notion that public leadership was only fitting for gentlemen, and a gentleman did not, could not, must not, engage in trade. The world was then in transition between an era when a gentleman was one of the few educated people around, a man who had attended college as John Adams described it, and who was able to live in upper-class style as a result of inheriting well or marrying well. The time was soon to arrive when public service was equivalent to improving the national economics through invention or organization, but a decade or two earlier, public service was military or diplomatic. Morris got caught in the transition.
Suddenly caught in a society he did not understand, Morris renounced his achievements as a merchant, considerable but tainted with society's disdain for scrambling for personal advantage; and as the expression goes, cashed out. Aristocrats were still understood to own vast tracts of land, however, and somehow an estate was not tarred with a commercial brush. An opportunity opened up quite soon to acquire the land along the Genessee River in upstate New York, with Morris turning it over quickly to new migrant settlers at such a profit that it was rumored he was once again the richest man in America. However, the land was cheaper and more abundant in America than in Europe, subject to violent fluctuations as immigration flourished and declined along with the economics and wars of Europe. The supply of land in the new continent was nearly inexhaustible, while the supply of immigrants was highly variable. Without a safe place to park idle money temporarily, Morris plunged on, buying land with money made on other lands, not yet paid for. Many of his customers were just as innocent as he was, but others were savvier and more ruthless. That was peculiarly true of the Scotch-Irish, who having been evicted first from Scotland and then from Northern Ireland, were among the first American immigrants to recognize real estate as a simple commodity, to be traded unsentimentally.
IN 1782, Robert Morris the Superintendent of Finance of the United States, produced a paper called "On Public Credit", which was the model for Alexander Hamilton's more famous paper with the same name. His interest in the topic almost surely grew out of the idea of selling America's abundant land to finance the Revolutionary War. It was obviously a tempting idea, but a fairly unworkable one under wartime conditions, particularly since the great abundance of American land depressed its price for long-term speculators, compared with European land. A price of fifteen or twenty cents an acre required huge parcels of land to justify the problems associated with deriving a profit from it as an intermediary, and created a myriad of other problems dealing with the end user; in 1782 it just wouldn't work.
By 1792 it was perhaps workable because the boundaries of the nation were more clear, but generated the problems of a rolling frontier, associated with steep and volatile differentials of price and safety. If the end user was an impoverished immigrant, the seller was necessarily tangled in protracted periods of refinancing. The issues of slave territory and free territory close by generated local peculiarities of land use and optimum parcel size. Those who gave close attention to the complexities of the novel situation could see the close relationship between the credit of the nation, and the value of its land mass, the ultimate definition of what the nation really was. Thus in time, the single tax idea of Henry George would be an idea that kept coming up for discussion, long before Henry George popularized the concept of placing all taxes on immobile land. The nation was the land it owned, and the land couldn't move. So Morris and Alexander Hamilton wrestled with devising ways to base the credit of the nation on its land wealth, without the complexities of doing so directly. In 1782 such ideas were only dreams, but by 1792 a clever person might work out ways to manage it.
As the opportunities of suddenly having undisputed ownership of most of a continent began to clarify, Morris was rearranging his own life. He had accomplished most of his vision of what the nation should be like and had resolved his internal conflicts about the meaning of being a patrician in a democracy, by selling off his business. No matter how strange it may seem to us that being a shipping merchant was disrespectable, while real estate speculation was an acceptable gentleman's occupation, that was apparently how he saw it. His many associations put him in contact with many opportunities, and soon he acquired the parcel of land in upstate New York abandoned by the exterminated Iroquois. Generally called the Genesee territory, the combination of smallpox and General Sullivan's famous march had greatly reduced the tangled arguments about the title to the land, and the sales went very well, netting him roughly $350,000 unadjusted for inflation. If Morris had quit the business right then and there, he had a fair chance of living the rest of his life among the richest men in America.
Lest the impression persist that Morris got into financial difficulty entirely by real estate speculation, a letter he wrote to Gouverneur in 1790 celebrating the Genesee agreement exulted, "This bargain will not only be the means of extricating me from all the embarrassments in which I have become involved, but also the means of making your Fortune and mine."
In 1794 the Asylum Co. was founded by U.S. Senator Robert Morris and John Nicholson, Pennsylvania Comptroller General, to develop and sell lands in northeastern Pennsylvania. Although it was rumored that Marie Antoinette was to be housed in the 1600 acres on the North branch of the Susquehanna River near the present Towanda, she had actually already been executed in late 1793. In 1795 Nicholson succeeded to Morris' interest, and three years later Morris was put in debtor' prison. In 1802, Napoleon invited all French emigrants to come home, and only a few stayed behind in Azilium. The Asylum Co. soon dissolved.
|Robert Morris: Financier of the American Revolution: Charles Rappleye: ISBN-10: 1416570926||Amazon|
Although Colonial Massachusetts was combative and outspoken in its demands for liberty, somehow, pacifist Quaker Pennsylvania still got along with Bostonians reasonably well. It was Virginia that was always in Pennsylvania's face, proud, loud and defiant. Patrick Henry was certainly one of Virginia's leaders, but most of the time it was the residents of Westmoreland County VA who wrangled with Pennsylvania, people with names like Washington and Lee. Some of this animosity had to do with competition for access to the Ohio territory through Pittsburgh, some of it was a strong difference in attitude toward the Indians, whom the Quakers sought to treat as equals. Eventually, there was a division over slavery. Arthur Lee had attended Eton College no less and was often the agent who acted out the repeated efforts to stir Pennsylvania from its torpor about rebellion against England. But very likely it was his brother Richard Henry Lee who schemed the most.
|Richard Henry Lee|
Richard Henry Lee was the author of the Westmoreland County Resolution of 1765, which essentially proclaimed to the neighbors that anyone who cooperated with the Stamp Act was going to be sorry about it. It was the same Richard Henry Lee who introduced the Virginia Resolution of June 1776, declaring that:
Americans are and of right ought to be, free and independent States, that they are absolved from all allegiance to the British Crown, and that all political connection between them and the State of Great Britain is, and ought to be, totally dissolved.
Hotheads of Virginia and Massachusetts formed a political group at the Continental Congress, usually referred to as the Eastern Party. The leadership of a Moderate Party was less clearly defined, but Benjamin Franklin, John Dickinson, and Robert Morris probably qualified. It was almost pre-destined that Morris and Franklin would have trouble with the Lee brothers, especially when Arthur was the spokesman and Richard Henry the ringleader. Like cats and dogs, they seemed to have been some sort of genetic antagonism; topics under dispute tended to vary. No doubt, Robert Morris' enormous wealth and the ease with which he accumulated, even more, irritated the Virginia gentry whose tobacco farms were starting to exhaust their topsoil. For his part, Morris was not likely to be deferential, merely to their ancestry. Morris did sign the Declaration of Independence a month late, but under the circumstances, he could no longer vote for it; Richard Henry Lee had written the Virginia Resolution which glorified the very crux of it. A Secret Committee was soon formed to obtain arms and gunpowder, including Morris and Franklin; Richard Henry Lee saw to it that his brother Arthur was added. When Arthur was sent to watch out for Morris' agent Silas Deane in Paris, Arthur got sent along to stand guard, stirring up endless trouble with Foreign Minister Vergennes. When the Lees finally caught on to the system of sending American products to France on ships that would return with gunpowder, they wanted Franklin removed, Robert Morris' brother Thomas removed, and another Lee brother William added to the group in charge of exchanging goods with the Frenchman Beaumarchais, who was a particular Lee favorite. When Beaumarchais indicated a strong preference for tobacco as the product most in demand in France, it must have set off bells in Richard Henry Lee's head. The Lee home region of Westmoreland County in Virginia dominated the tobacco trade. But Robert Morris was himself a second generation tobacco trader; the Lees had little new to teach him about tobacco. Time and again, Morris defeated the Lee brothers in some such petty quarrels. Gradually, the Lees lost credibility, particularly after scholars began to discover evidence that when the Stamp Act was enacted, Richard Henry Lee had applied for the job of a local agent, and had been rejected.
The Lees were not always in the wrong. Thomas Morris was indeed a hopeless alcoholic and an extreme embarrassment to Robert. But a more fraternal relationship might have led to Lee helping Morris ease Thomas out while concealing his indiscretions; he could have made a friend of Robert Morris for life. Morris was certainly willing to play this game; he praised Arthur Lee in public for his assistance in monitoring the secret committee, a description which at this distance is simply hilarious. John Adams in Paris might be forgiven for taking Puritanical offense at Ben Franklin's exuberant Parisian high life. It is likely the Virginia Cavaliers looked at dalliance through the same lens as the Adams family, disliking Franklin and Morris for having a jolly time, and worse still being acclaimed for it.
|Treaty of Paris|
When the Treaty of Paris finally ended the eight-year American Revolutionary War, it was approximately true that the ownership of the whole North American continent changed hands. The activities of the war had to be wound down, old debts settled, and the new Industrial Revolution had to be addressed. Deflation was certain as wartime activities were eliminated, but inflation also loomed as a result of new peacetime activities. A whole new government had to be started, a whole new set of rules created. In retrospect, things worked out pretty well, but at the time it seemed like unmanageable catastrophes on all sides. Apparently, Robert Morris decided that the greatest opportunity existed in land speculation, so he concentrated in it as he was winding down many other activities.
His first major land speculation was in a million acres in the Genesee country. He soon tripled the value of this investment; if he had simply retired at that point, he might have retired as one of the richest men in the country. Some personality flaw drove him onward, however, and he soon had acquired four million acres of upstate New York property on which he approximately broke even. He next acquired large tracts of central Pennsylvania along the whole Susquehanna River, offering the Azilium venture to French investors and Northumberland to Joseph Priestley and the Unitarians. Both of these utopian ventures were largely abandoned by the settlers, because of the French reign of terror, and the disaffection of Priestley's English followers. Because he hoped to keep the new National Capital on the Delaware River while struggling with western Pennsylvania interests who wanted to move it to Harrisburg, he invested in thousands of acres of Pennsylvania land around Morrisville, across the river from Trenton. Needless to say, the capital was not moved to Trenton, so after two centuries the land is still sparsely settled.
Finally, when sales were sluggish, six million acres from Virginia to Georgia were combined into a gigantic real estate trust in order to make the speculation more appealing to smaller investors in large numbers, which accounts for Talleyrand himself buying 100.000 acres, as well as drawing the participation of John Bull, himself. But by 1797 the world began to know that the real estate bubble was in danger, and many related ventures started to fail. In a complicated set of circumstances, it is hard to know which failure was more important than the others, but the general opinion emerges that Morris' main speculative failure was centered on land speculation. It must be mentioned, however, that in 1793 Philadelphia experienced one of several Yellow Fever epidemics, the French, as well as the English, were seizing American vessels and crews, the Whisky Rebellion took place in western Pennsylvania, and that Morris in what must either have been a public relations stunt or else a moment of temporary madness, began construction of a new home for himself in Philadelphia. Located on an entire block between Chestnut and Walnut at 7th Street, it was to be the most ornate private residence in America, with two levels below ground and two above, decorated with imported marble and endless extravagant fixtures. By itself, this house widely known as "Morris' Folly" could not have bankrupted him, but it may well have stripped him of ready cash when short term debts were more pressing than long ones, starting a cascade of forced distress sales at low prices. Furthermore, as though there needed to be a furthermore, tobacco had been the preferred return cargo in the transatlantic munitions trade. Tobacco does not spoil, so when prices were low, Morris often held it off the market to await higher prices. He thus was engaged in wide-spread zero-sum trading, where either you or your counterparty is likely to be cleaned out. That can make for a large accumulation of enemies, quite willing to destroy credit even further with accusations of unfair dealing. The Lee family was certainly in a position to fan the flames of such commercial antagonisms, both among creditors and in Congress. When all is said and done, to ascribe the bankruptcy of Robert Morris to land speculation is not perfectly accurate, but close enough. Particularly if credence is given to his own reflection that, had he quit after the Genesee transaction he could have lived the rest of his life as the richest man in America, land speculation seems a better psychological explanation for his behavior than many other complicated maneuvers, now too obscure to be worth explaining.
Debtors prison now seems like a barbaric and cruel treatment of unpaid debts, but at least in Morris's case, it may not have seemed the worst of it. His entire inventory of personal effects on entering debtors prison on February 16, 1798, included three writing desks, an old Windsor setee, and eight old Windsor chairs, six chests stuffed with papers, a mirror, a trunk of clothes, and a bed. However, he had many visitors, including Gouverneur Morris and George Washington. His debts were twelve million dollars, which he reduced while in prison to three million, so this world-class workaholic was probably relatively happy to concentrate on business affairs. His wife Mary undoubtedly suffered far worse humiliation in her small house on 12th Street while he was confined than he did, busy with his bookkeeping. Although she saw a few friends, she essentially withdrew from society until August 21, 1801, when he was released. Morris himself probably experienced his worst suffering from 1793 to the time he finally surrendered to the sheriff in 1798, a period of five years of uncertainty, gloom, dashed hope and offensive behavior by his 90 creditors. There must have been times when he truly believed he might survive the struggle, and other times when he had to keep up a brave front when he knew in his heart he could never make it. Nevertheless, scraping together nine million dollars while behind bars would be a remarkable achievement today, and certainly an amazing one for 1800. America had no bankruptcy laws at the time, and he managed to persuade Congress to create them for the many victims of the severe financial panic. Even for the vindictive, the provision in the law that release from debtors prison was conditional on a favorable petition from his creditors, made it unlikely that he could persuade 90 creditors to do it. But he did so and walked out a free man. Or rather, he walked out a dejected and humiliated has-been, a zombie creeping the streets. Perhaps that was the worst.
|The Invention of Air: A Story of Science, Faith, Revolution,and The Birth of America, Steven Johnson ISBN: 978-1-59448-852-8||Amazon|
This will of Robert Morris of Philadelphia, dated June 13, 1804, is found in Volume E, p. 170 of the Hardin County, KY will books. It was presented by William Fairleigh to Samuel Haycraft, Clerk of the Hardin County, KY Court, in his office on March 23, 1849.
In the name of God Amen, I Robert Morris of the City of Philadelphia formerly a merchant & c. do now make and declare this present writing to contain and to be my last will and testament hereby revoking all wills by me made and declared of precedent dates.
Imprimis I give my Gold watch by my son Robert, it was my Fathers and left to me at his death and hath been carefully kept and valued by me ever since.
ITEM I give my gold-headed cane to my son Thomas. The head was given to me by the late John Hancock Esq when President of Congress and the cane was the gift of James Wilson Esq whilst a member of Congress.
ITEM I give to my son Henry, my copying press and the paper which was sent to me a present from Sir Robt Herries of London.
ITEM I give my daughter Hetty (now Mrs. Marshall) my silver vase a punch cup which I imported from London many years ago, and have since purchased again.
ITEM I give to my Daughter Maria (now Mrs. Nixon) my silver (?) Boiler which I also imported from London many years ago and which I have lately repurchased.
ITEM I give to be Friend Gouverneur Morris Esq my telescope espying glass being the same that I bought of a French refugee from Cape Francois then at Trenton and which I since purchased of Mr. Hall officer at the Bankrupt Office.
ITEM I give and bequeath all the other property which I now possess and may hereafter be acquired whether real or personal or all that shall or may belong to me at the time of my death to my dearly beloved wife Mary Morris for her use and comfort during her life and to be disposed of as she pleases at or before her deceased when no doubt she will make such distribution of the same amongst our children as she may then think most proper. Here I have to Regret my [? at] having lost a very large fortune acquired by honest industry which I had long hoped and expected to enjoy with my family during my own life and then to distribute it amongst those of theirs that should outlive me. Fate has determined otherwise and we must submit to the decree which I have done with patience and fortitude.
Lastly--I do hereby nominate and appoint my said dearly beloved wife Mary Morris the Sole Executrix of this my last will and testament made and declared as such on this thirteenth day of June 1804.
Robt Morris (Seal)
Declared and acknowledged by Robert Morris as his last will and testament to and in our presence this sixteenth day of June AD 1804 H. Keugan and Gaucet(?) Cottringer
Philadelphia May 21, 1806 There personally appeared Henry Keugan and [?] Cottringer the witnesses of the foregoing will and on oath did depose and say that they saw & heard Robert Morris the testator sign, seal, publish and declare the same as and for his last will and testament and that at the doing thereof he was of sound mind, memory and understanding to the best of their knowledge and belief.
J. Waupole Dep Regr
The [?] sworn May 29, 1806
City and County of Philadelphia I certify the foregoing writing to be a true copy of the last will and testament of Robert Morris decd. as also of the probate thereof as the same remains on file in the Registers Office and recorded in Will Book No. 1, page 4980. (or 4981) Witness my hand and seal of office this seventeenth day of February AD 1849. A. Brown, Register
Pennsylvania Philadelphia County SS
I Edward King Esq President of the First Judicial District of Pennsylvania and Presiding Judge of the Court of Common Pleas Orphans Court, and Court of General Quarter Sessions of the Peace for the County of Philadelphia do certify that A. Brown by whom the annexed Record, Certificate and Attestation were made and given, and who in his own proper handwriting hath hereunto subscribed his name and affixed his official Seal was at the time of so doing and now is, Register for the Probate of Wills, and granting letters of Administration, in and for the City and County of Philadelphia in the Commonwealth of Pennsylvania, duly commissioned and qualified to all whose acts as such, full faith and credit are and ought to be given as well in courts of Judicature as [?] and that the said Record, Certificate and Attestation are in due form and made by the proper officer.
In Testimony whereof I have hereunto set my hand the Twenty-first day of February eighteen hundred and forty-nine. Edward King, Presd. Judge
State of Kentucky Hardin County Sct
I Samuel Haycraft Clerk of the County Court for the county aforesaid, do certify that on this day the Foregoing Copy of the Will of Robert Morris deceased duly authenticated, was produced to me in my office by William Fairleigh Esquire and at his Request I have duly recorded the same in the will book in my office this 23. day of March 1849. Saml Haycraft Clk
|Richard Henry Lee|
SOMETHING useful can, of course, be learned from a man's friends, but descriptions given by his enemies are usually briefer. The Lee family of Westmoreland County Virginia were bitter enemies of Robert Morris the Financier of the Revolution, and they surely said some unfair things about him. Morris paid as little attention to the Lees as possible, but for generations, the Lees had been neighbors of the Washingtons, and so could not be completely brushed aside. Furthermore, they were close to the center of Thomas Jefferson's anti-Federalist party. So insights into the Lee family probably illuminate the main disputes before, during, and after the Revolution. They even illuminate the mixed character of George Washington, who was sometimes unusual by Virginia standards. Nevertheless, the Lees had the same quality of heedless idealism to be found in Samuel Adams of Massachusetts and Patrick Henry of Virginia which goes beyond the ability of two-feet-on-the-ground revolutionaries like Robert Morris and Benjamin Franklin to understand, or even abide; this conflict runs throughout the history of the American founding. It seemed to baffle even those who switched positions, like James Madison going in a leftish direction, and Thomas Paine, going toward the right. So, although reckless idealism cannot be an inborn character, it must quickly acquire very deep roots.
Arthur Lee and his brothers William and Richard Henry Lee of Virginia, were passionate rebels of the Patrick Henry ("Give me liberty or give me death") sort, intermittently reviving lifelong attacks on Robert Morris. Highborn Tidewater aristocrats, they were ancestors of Virginia's revered General Robert E. Lee. Arthur had even attended Eton College and later studied medicine in England. The Lee brothers started attacking Robert Morris well before his famous abstention from the critical 1776 vote on independence. It's much too easy to shrug the Lees off as landed aristocrats who disdained self-made men, or as passionate Jacobins who hated self-made rich people, or maybe just narrow-minded nuts. Out of their often inaccurate attacks emerges an outline of what a lot of other people thought about Robert Morris. Many of these polar mind-sets outline the main divisions of political strife in America right up to the present. For present purposes, let's try to understand why Morris might risk his substantial fortune in underground smuggling before the war, and then dedicate his huge energies to winning the war -- while at the same time, not only refuse to agree to the Declaration of Independence (he did finally sign it in August 1776), but speak out in public opposition to independence. What explains Morris' apparent double-talk?<
The explanation I choose to accept is that Robert Morris' real feelings were too sophisticated for this particular crisis, reaching clearer expression in his later activities promoting the Articles of Confederation and its revision the United States Constitution. A man given to terse one-liners, Morris said in December 1775 that he joined his fellow Americans in striving for "Constitutional Liberty" but could not join them in promoting independence.
Morris was never explicit about what would achieve Liberty without Independence; perhaps something like the independent Irish parliament which English Whigs then supported, or the Scottish local parliament which exists today, was in his mind. Both of them link a single King to a commonwealth. At the time, no one was interested in the political philosophy of a shipping merchant.
But today we are in a position to see no member nation of the British Commonwealth has a written constitution; written constitutions are a comparatively recent innovation and not necessarily an essential one. The American Constitution today continues to argue about original intent and living documents, so it is still possible to prefer the wisdom of a benign King to written constitutions. The British goal seems to be to infuse overarching principles of government so deeply into citizen minds that such principles overwhelm any written commandments, however vague all that may sound to outsiders who prefer to niggle over documents. Not in America, of course, because an immigrant nation like ours cannot grow cultural roots sufficiently deep in a few generations, and must have written rules. Great Britain's recent difficulties with immigrants from the Commonwealth may well reassert the limits of unwritten constitutions; constant questioning of the written American constitution by more recent immigrant groups may become a part of the British life, too.
The Articles of Confederation were written by the eminent lawyer John Dickinson, said to be the man closest to sharing Robert Morris' political philosophy. However, for five years the Articles were unratified, and Morris began to believe this lack of ratification was the reason the states were so resistant to taxation. So Dickinson gets credit for writing the Articles, but Morris must be seen as their father. Believing the lack of federal taxation was the main difficulty, and blaming the unratified Articles as the reason for it, our businessman man-of-action pushed them through. Unfortunately, with the Articles it didn't work because the taxation problem still remained, so Morris turned his immense energies toward replacing the Articles with something which would work. It does not twist American history a great deal to believe that Robert Morris, Jr. was one of the main driving forces behind both the Articles of Confederation and the Constitution of the United States. He was neither a lawyer nor a political scientist and therefore was quite indifferent to who got credit for the documents. As Ronald Reagan was to discover two centuries later, that's one of the best ways to get anything done.
Morris could read; he knew the Articles didn't endorse Federal taxation. But he was apparently convinced an unwritten constitution always contains the latitude to do what simply has to be done; anything else amounts to shooting yourself in the foot. After the Battle of Trenton, when Morris became President of the United States for three months in everything except name, he still blamed his troubles on the inability to levy taxes, which in turn was due to failure of the states to ratify those Articles. So sensible a man as John Dickinson would never assume overly strict interpretation was intended; obviously, a state must confiscate private property when otherwise it cannot survive. After five years of state inaction, Morris abruptly pushed the Articles through to ratification. But he was wrong, it didn't help. When he finally grasped that the explicit limitations on taxation were intentional, intended to override any implicit power in the Articles whatever, he promptly threw his weight behind John Jay, George Washington, and James Madison to support a new Constitutional Convention setting it right, especially the national government's ability to levy taxes. Since Washington had by then become his best friend, who actually lived next door in Morris' Market Street house for years, there is not much paper trail of this interaction between these old friends. Once he got his tax mandate at the Convention, however, Morris had hardly anything further to say. His frenetic later activity immediately after the Constitution was enacted can almost surely be attributed to lifelong habits of a negotiator, avoiding mention of anything which might distract from his main goal, in this case of ratifying the Congressional right to levy federal taxes, but not abandoning subordinate goals for a moment. What the Lees hated about Morris, therefore, cannot be easily explained, but certainly, one feature of it was his ability to hold his cards face-down. The Lees didn't hold their cards, they flourished them. In their eyes, no gentleman would do anything else.
The incidents of June 1776 place the Lees in a more favorable light if they are seen as urging instinctive decisions by popular mandate, essentially favoring an unwritten British Constitutional arrangement. The Lees believed the place of a gentleman was at the head of a troop, daring the rest to follow their lead. The British had blockaded Boston, passed the Prohibitory Acts, fought naval battles in the Delaware River in May of that year. A huge British fleet had landed in New York harbor, and the agitated colonists were about to declare war. At the very moment of crisis, that rich Philadelphia merchant had refused to vote for independence. The Virginia tobacco planters were dancing a war dance in a city known for its pacifist Quakers, while their neighbor George Washington was conducting an actual war with the British. It was then revealed that Robert Morris had been participating in a gunpowder smuggling operation known as the Secret Committee, and Morris had made considerable profits from it. While many of his friends defended Morris, it was pretty easy to go wild with indignation about trusting him to sit on a secret espionage committee, unwatched. The very least that could be done was to appoint Arthur Lee, already a member of the Continental Congress, to that Secret Committee to sound the alarm if anything looked funny. The ironic fact seems to be that Morris and the Lees were passionately committed to the same unwritten approach to government, primarily based on trust in personal character, otherwise defined as fidelity to an unwritten tribal code. If you are the right sort of person, you will be with us; if you are not with us, you must not be the right sort of person. Unfortunately, a nation of immigrants may not survive if it adopts too many such notions.
The Lees had expressed disruptive views of Morris in the past, but they were exactly the sort of clan likely to confront scoundrels whenever facts called for it, and sometimes even when they didn't. The underlying conflicts, fiercely advocating both a strong centralized government and a loose decentralized one but not defining either, continue to run through American politics until the present. Whether Morris ever acknowledged it or not, he ended up on the side of defined contracts, as opposed to a Code of Honor. But he spent his life as a man of his word because in business your word is your bond; if you are any good, you won't need to cheat. If our Tower of Compromises is to endure, its limits of such agreement must be few, but they must somehow be strictly understood.
* * *
Morris was a monarchist, announcing he liked the king and did not want to change him. The Lees, one surmises, though they might make pretty good kings, themselves.
But we get far ahead of the story. The immediate mystery is Morris' behavior in July, 1776.
The dominant feeling during 1775 had been that Americans needed to prepare for war while doing everything possible to avert it. If England prevented both the manufacture and importation of gunpowder in the colonies, there was no way to be prepared for war except to smuggle gunpowder. Not to smuggle it would leave the colonies weak, almost inviting abuse from London. In several elections, before then Morris had been the nominee of both the radicals and the conservatives. The radicals could see he was an energetic, efficient and close-mouthed international shipowner; when a Secret Committee was proposed, he obviously would be an effective member of it. But he was loudly opposed to war with England and was formidable in a debate. The conservatives might have felt he would keep the hotheads on the committee from wandering from or expanding its narrow charge. He explained his dual position as seeking "Constitutional Liberty" rather than independence, but that was shrugged off as just so much blather. It would be twelve years before people did understand what he wanted, and that he was entirely serious about it. That the Lee brothers didn't ever understand, didn't bother Morris at all. That the Lee brothers couldn't comprehend his unwillingness to charge headlong into battle, unarmed and unprepared, was equally mysterious to Morris. The Lee brothers would well have understood Napoleon's remark that victory was 10% based on surprise. But what Napoleon is thought to have said was that victory was 90% based on supplies.
The later appointment of Arthur Lee to the Secret Committee can be similarly explained as a counterbalance to Morris. There were no Southerners on the initial committee, so a hothead like Arthur Lee could be counted on to resist the influence of conservative merchants and perhaps Arthur, outnumbered, was even urged to overplay his hand. From the moment he was appointed, he was demanding that Benjamin Franklin be removed from the committee. Not only does this help us understand his disruptive behavior when he later joined Franklin at the Paris negotiations, but such misjudgment of Franklin's patriotism illustrates how extreme Lee's suspicions really were. Since the original motion for independence had been introduced in Congress as the Virginia Resolution by his brother Richard Henry Lee, we sense this family was perpetually anxious to slay dragons. And finally, we can sense the likelihood that Robert Morris and Arthur Lee probably provoked each other.
|Richard Henery Lee|
To tolerate for the moment the rather extreme Lee brothers, it must be said there was every reason to suppose Morris hoped to enrich himself from gun running. But that is an entirely different accusation with a different defense. The ambivalent behavior of Morris and Dickinson at the Congress is admittedly puzzling, but in the end, defensible and honorable. The accusation of graft and self-dealing was plausible for uncomprehending people but seems legitimate today only because American standards of leadership ethics have gravitated toward the Virginia viewpoint. That viewpoint can be summarized by George Washington refusing to accept a cent for his years of public service. Very few politicians will today tell you this is a practical position, but nevertheless, many Americans wish it could be. Lacking any insight into what Morris was talking about with "Constitutional Liberty", the Lees were perhaps understandably driven to invent plausible explanations. These seldom proved to be fair. Morris certainly had the sympathy of the commercial world at the time for what was to them quite normal behavior. However, the rural population, especially Cavalier Tidewater Virginians, will probably never yield the point.
Morris repeatedly advised his partners he was serving his nation, while of course engaging in private profit. Even using present standards about self-dealing, it must be admitted the need for secrecy at the time necessitated hiding the smuggling within legitimate businesses. Nowadays we throw people out of a public office on suspicion of enriching themselves and throw them into jail on clear proof of it. There is also a curious feature of extreme mindsets, which seems to justify making false accusations. The underlying theory is that behind every great fortune is a great crime, so you might as well hang him for it without further proof. Morris would have been astonished at the thought of taking such risks without hope of restitution: "Do you want me to smuggle this stuff or don't you?" might well have been his answer.
And then there were those two aristocratic Frenchmen, Penet and Pliage, appearing in Providence RI in a boat loaded with gunpowder, looking for George Washington to sell it to. Everyone at the time assumed they were just adventurers, out for the money. After the passage of two centuries, it may be within bounds to ask the French to look into their records to see if maybe P&P were sent here to stir up a little trouble? There proves to be quite a literature about them, linked to that glamorous Renaissance Man, Beaumarchais.
We tend to think of 1776 as the beginning of American history, but in fact, the region around Easton was settled a hundred-forty years before 1776, and the forests were pretty well lumbered out. The backwoods lumbermen around the junction of the Lehigh and Delaware Rivers were about to move further west when Washington crossed Delaware and fought the battle of Trenton. This region nevertheless had three essential ingredients for becoming the "Arsenal of the Revolution": It was close to the war zone but protected by mountains, it had a network of rivers, and it had coal. The hard coal of Anthracite had the problem it was slow to catch fire, and iron making in the region didn't really get started big-time until a Welsh iron maker named David Thomas discovered that anthracite for iron making would work if the air blast was pre-heated before introducing it into a "blast" furnace. A local iron maker traveled to England to license the patent from Thomas, whereupon Thomas' wife persuaded her husband to move to Pennsylvania. Blast furnaces only got started into production by 1840, but by 1870 there were 55 furnaces along the Lehigh Canal. For thirty years this was America's greatest iron-producing region. In fact, Bethlehem Steel only closed its last plant in 1995.
When iron-making got started, the local industrial revolution really took off, but the more fundamental step was to dig canals to transport the coal to other regions. Canals were the dominant form of transportation for only thirty years until railroads took over, and the entire Northeast of the nation was laced with canals. Curiously, the South had relatively few canals, so their industrialization was too late for canals, and too early for railroads, to help much in the Civil War. The Erie Canal was the big winner, but Pennsylvania had many networks of canals in competition, leading to the Ohio and Mississippi Rivers, whereas the Erie Canal was more headed toward the Great Lakes and Chicago. Eventually, J.P. Morgan put an end to this race by financing the Pennsylvania Railroad and moving the steel industry to Pittsburgh, where bituminous coal was the fuel of choice. This industrial rivalry was at the heart of the enduring rivalry of Philadelphia and Pittsburgh, as well as the commercial rivalry between New York and Philadelphia. It was more or less the end of the flourishing economy of the "Reach" including Easton, Bethlehem, and Allentown. A reach is a geographic unit sort of bigger than a county, in local parlance. But you might as well include the city of Reading, which concentrated more on railroads and commerce with the Dutch Country. Out of danger from the British Fleet on the ocean, but close enough for war, the "reach" was more or less the forerunner of the Ho Chi Minh Trail in Vietnam in several later wars. The Lehigh Canal stretched from Easton to Mauch Chunk (now Jim Thorpe), the so-called Switzerland of Pennsylvania, only a mile or two West of the Northeast Extension of the Pennsylvania Turnpike.
The Allegheny Mountains stretch across the State of Pennsylvania, and the most easterly of these mountains is locally called "Blue" mountain because of its hazy appearance from the East when seen across a lush and prosperous coastal plain. It represents the farthest extent of the several glaciers in the region, and the two sides of it present quite a sociological contrast. The Pennsylvania Dutch found themselves on the richest farming land in the world, whereas the inhabitants of the other side of the mountain had to subsist on pebbles. The mountain levels down at the Delaware River, so the Dutch farmers and the late immigrants from Central Europe mixed, in the time and region of industrial prosperity. Gradually, the miners and the steelworkers began to drift away, but the Pennsylvania Germans tended to remain where they had been before all the fuss. So the Kutztown Fair is full of Seven Sweets and Seven Sours, the farmhouses are large and ample, and mostly remain the way they were, too. You have little trouble finding a twang of Pennsylvania Dutch accents. But Bucks County in Pennsylvania was cut in half by the glacier, and north of the borderline, you can see lots of pickup trucks with gun racks behind the driver. Everything is amicable, you understand, but for some reason, the tax revenues of the two halves of the County are forbidden to be transferred, even within the same county. Better that way.
The Lehigh River runs along the North side of Blue Mountain, and trickles down to join the Delaware at the town of Easton. There were only 11 houses in the town in 1776, and now you can see several miles of formerly elegant early Nineteenth century townhouses. At the point where the two rivers join, a lovely little park has been built to celebrate the high point of Colonial canal-making. Hugh Moore, the founder of the Dixie Cup Company is responsible for this historic memory, well worth a trip to see. If you have called ahead for reservations, you can have a genuine canal boat ride, pulled by two genuine mules. When you hear that the boat captain and his family used to live on the boat (Poppa steered, Momma, cooked, and the children tended the mules), it seems small and cramped. But when you climb aboard, you find it holds a hundred people for dinner with plates in their laps. The food is partly Polish, partly Hungarian and partly other things Central European. And the captain plays guitar and fiddle, singing old songs he mostly composed himself. Surprisingly, no Stephen Foster, who held forth about four hundred miles to the West, until he drank himself to death at Bellevue Hospital in New York. Foster was a member of a rival tribe of canal boaters, the ones who traveled down to Pittsburgh via the Erie Canal. Along the Reach, you hear about three canals, the Lehigh, Delaware, and Morris. The first two are obvious enough since they and the railroads which subsequently followed ran along the banks of two rivers joined. The Morris was Robert Morris, at one time the richest man in America, who bought Morrisville across from Trenton on the speculation he could persuade his friends to put the Nation's Capital there. It didn't work out, so he bought and went broke with the District of Columbia. Anyway, the Morris canal went on to New York harbor, where it prospered mightily shipping iron to New York, and iron for the rolling mills of Boston. The Morris Canal went over the Delaware River on a bridge that carried an aqueduct, over to Philipsburg; and then across the wasp waist of New Jersey.
CONTENTS: this supposedly is the main body of text
The shift to public ownership eventually led to the second discovery that even a gold standard was too inflexible for World War II. Since the time of Presidents Nixon and Johnson, the currency has no metallic standard at all. The system of limiting spending depends entirely on managed by a single man or firm, as the Spanish-American War and the War of 1812 had been financed, for example. John Maynard Keynes, the British economist and originator of the "science" of macro-economics, was beginning to see that one metal, gold, (that "barbarous relic"), could no longer suffice. What eventually replaced it, over a half-century of patching, is the subject of this for this essay. Its present form was devised by Ben Bernanke, its Chairman, after the 2007 stock market crash. arges help newcomers grasp the need for radical change. In a Republican democracy, the public needs to understand things.l Too often in the past, "something better" has proved to be something worse in disguise.
A rare-metal backing (representing the currency, without a vault around it), is fairly easy to understand; obscuring a new system that otherwise requires four-syllable words to hide changes. A spreadsheet is a simple method for simplifying a complex mixture of every penny the Fed controls, down to a single number. Please excuse its lumping of academic accuracy. Trillions of dollars are visualized as a a two-column balance sheet which an accountant would use, and so a balance sheet is our representation of assets and liabilities, ultimately matching each other. The only thing different is the term used to describe the virtual difference created when they don't match up -- the surplus or deficit. Spending beyond our means has been made so easy for Congress, it seems to have no limit. Our balance sheet, long in surplus after we won the second World War, has been in deficit since 1966. Our "balance of payments" has been heavily in deficit since the Vietnam War, and now has climbed to trillions of dollars. Spending is fun, and it has been made almost effortless.
CONTENTS: this is the main body of text
At first, currency and healthcare appear to be unrelated. However, after composing four books about Health Savings Accounts, currency-backing and health-financing now seem to have much more in common. In particular, interconnections and ideas appear along the way, and new ideas emerge as extensions of the original one. This slender volume uses that quality of composition to explore what it might be like if three concepts (backing the national currency, preventing currency manipulation, and total-market index funds) were combined.
The basic idea turned out to have considerable coherence, with index funds well suited as universal "standards of exchange" (instantaneous indicators of market value). That was especially valuable when the trade becomes injured by out-of-control inflation. Index funds, however, are less satisfactory as long-term "stores of value", when nations resort to currency price manipulation, which they can use to resist the afore-mentioned commodity price stabilization. Therefore, a common standard is required at two levels, not just one. In the Bretton Woods system, the supra-national level is the Special Drawing Rights of the International Monetary Fund.
It is here suggested stock index funds be the price standard which substitutes for both currencies and SDRs, thus removing both levels from political control, but in different ways. In all this, they somewhat resemble Health Savings Accounts, where the price of healthcare could be stabilized by market-basing its finance on passive (i.e. total stock index) investing, a concept which was never envisioned at their beginning.
Health Savings Accounts were created in 1981 by John McClaughry of Vermont and me when John was Senior Policy Advisor in the Reagan White House. The underlying idea was patterned on the tax-exempt IRA (Individual Retirement Account) devised by the late Senator Bill Roth of Delaware. Its three revenue-enhancers were the tax exemption, compound interest magnification, and the incentive to save for yourself rather than for demographic groups of strangers. Almost any financial institution might handle the straightforward mechanics, with policy decisions shifted toward the customer who owned them. Fitting for a medical emphasis, HSA tax-exemption was confined to medical expenses, with unexpected big medical events covered by inexpensive high-deductible health insurance. But switching from favoring health issues to favoring more trade and more economic growth was less a revenue issue, and more a hindrance-removal one. So when the focus changed to international balances, it then needed international features to channel it, while purely medical features could be downplayed. The thing they had in common was a large and dependable funding pool. The effective size was not how much was deposited into them, but how much could be withdrawn when it was really needed. Only later was it realized that a substantial amount might be left over at age 65, where it could be used to fund the extended retirement of those with superior health. Not only did that extend the period of compound interest, but it also provided an incentive for younger people to save even though they felt no threat of illness. The emphasis shifted somewhat from the threat of sickness expense to that of a lifetime reserve fund.
The idea of a nation state, on the other hand, was established for the Western World in 1648 by the Treaty of Westphalia, after the Thirty Years War over Religion. It took years of squabble and deep thinking to arrive at a simple formula allowing for multiple religions in Western Europe: a nation was to be inflexibly defined by its boundaries, and within those boundaries, the nation's religion was defined by the religion of the King they happened to have chosen by their own methods. Everything else could move across borders. The nature of the currency posed a slightly different problem from religion. Kings were regularly observed to cheat on the currency, mostly to finance wars about boundaries. National sovereignty was both enhanced and subordinated to accommodate religious problems. Everything else was negotiated between kings, mostly by fighting wars as it turned out. Three hundred years later, religion was of reduced importance, kings were nearly irrelevant, but the issue of an international currency continued to fragment European harmony.
The quantity of gold within a nation roughly matched its economic prosperity, and ways had been devised to inhibit it from migrating while the trade it symbolized was encouraged to move around. The King controlled paper money (or any other surrogates for gold serving as public-owned instruments of trade), within and between nations. Meanwhile, the quantity of gold remained fixed and "owned by the King" until some form of "squaring up" took place. There were two disadvantages: prices were suppressed by the fixed value of gold, as before. But periodically new gold was discovered in the ground or conquered in wars in a haphazard (non-trade, non-economic) way. In particular, two Twentieth century world wars disrupted the roughly fixed relationship between the King's possession of gold and the public's economic health. The United States eventually found itself with practically all the world's gold in 1945, so nobody else could buy anything from us. That was carrying theory to the point of paralysis.
The Bretton Woods Conference did supposedly devise a patchwork substitute, but the seeds were sown for eliminating the gold standard. In its place was put a system of national central banks, trading through the International Monetary Fund, which used a super currency called International Trading Receipts to square up national accounts. Freed of the gold restraint, there might emerge a gradually enlarging currency pool as the populations grew and supposedly shrink during international recessions. This arrangement supposedly solved the inflexibility of gold. However, without a metallic currency standard, nations found various ways to cheat, just as kings had historically found ways to cheat on gold. Inflation resulted, the power of treaties was always less than the political power of the state, the independence of central banks was eroded, and small, steady but relentless inflation resulted. That brings us to the present: we have no gold standard, but the various world economies are periodically on the edge of war about international trade. Inflation seems less threatening than war, so the balance between inflation and war calls the tune in the monetary trade dance hall. The public does not understand, but is restless about the future, as it well might be. At the moment, a huge proportion of the world in the third world have become economic factors, while retaining pre-1648 tribal patterns rather than becoming nations of boundaries. "Floating" currencies address this problem, somewhat at the expense of dependable trade relationships, and possibly the third world.
We now propose to interpose the Health Savings Account concept into this precarious arrangement. To do so, we minimize medical features and expand currency ones. Background features like index investing and individual ownership become vitally prominent, while health yields importance to demographics. But the ideas of tax exemption and equity investing are expanded to meet the changed focus on trade. Eventually, the evolution from a Health Savings Account to a monetary standard becomes obscured. But it is substantially based on the same approach. There are two alternative approaches available. Either substitute the index funds backing HSAs for metallic monetary standard or else substitute the same sort of paper for the International Trading Receipts now used for trading between nations at the International Monetary Fund. One would replace the Federal Reserve's system of adjusting the paper value of a nation's currency, relative to its nation's economy. That would center the nation's money supply on the size and health of its economy, and work better as a medium of exchange.
The other would substitute the same paper for the International Monetary Fund's (IMF's) Special Drawing Rights, hoping to regulate the long-term store of value function by having long-term money come closer to representing real underlying values, as assessed by its trading partners. Both such changes would involve a change of power, and so would be opposed by successfully constructed power centers. Even in a crisis, these centers would attempt to maintain their control. So they must be described as anticipating a crisis, possibly one which might never occur. They would serve notice on both incumbent power centers that alternatives have been prepared in case they fail, and perhaps improve their performance to prevent failure.
|Constitutional Convention 1787|
TRUE, George Washington was the presiding officer of the Constitutional Convention. But Pennsylvania was the host delegation, so the role of presiding host should have fallen to Benjamin Franklin, the President of Pennsylvania. However, Franklin was getting elderly and turned the job over to Robert Morris, who among other things was rich enough to host some necessary parties. The rules of decorum at that time thus kept Washington and Morris out of the floor debates. The proceedings were, in any event, kept the secret, so occasional frowns or encouraging smiles are not recorded for history.
But Morris had been an active debater in the Assembly and other meetings, so he knew enough to line up a consensus in advance for the matters he thought were essential. Obviously, Morris was strongly in favor of giving the national government power to levy taxes for defense purposes, and Washington whose troops had suffered severely from the inability of the Continental Congress to pay them also regarded this taxing power as the central reason for changing the rules. By making it the central argument for holding the convention at all, Washington, Franklin, and Morris had made taxation power a foregone conclusion. And by giving them what they wanted from the outset, the rest of the convention was in a position to do almost anything else it wanted without open comment from the Titans. The sense of this trade-off was captured by Gouverneur Morris, the editor of the Constitution, in Article I, Section 8:
The Congress shall have Power To lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts, and Excises shall be uniform throughout the United States;This formulation had the effect of greatly empowering James Madison, the only participant who had studied the inside details intensively and cared about every comma. It also encourages the military to believe that federal taxation was mainly their entitlement, whereas those whose main goals are defined as "the general Welfare" tend to regard defense spending as an unnecessary deduction from their share.
|Pawn Broker Sign|
Most of the convention delegates had experience with state legislatures, and Franklin and Morris had spent decades struggling with the weaknesses of legislators. A wink or a quip in a tavern was as good as an hour's speech for reminding the delegates what they already knew about human nature. What was designed as a dual system of powers of taxation, with federal oversight of balanced state budgets combined with federal power to tax on its own in emergencies or unforeseen situations. Since the members of the first few congresses after 1789 were largely the same people as the members of the constitutional convention, many details of this balance were worked out over a few following years. State powers to tax and borrow were tightly constrained, only the federal government could tax and borrow without limit. Since government borrowing is merely the power to defer taxes until later, the borrower of last resort was the U.S. Congress, alone empowered to encumber the wealth of the whole nation in a federal pawn shop window called the funded National Debt. For almost two centuries, this pawn shop window seemed able to support any imaginable expense. Today, we monitor this as the ratio of national debt to Gross Domestic Product (GDP), and we now have a clearer idea what level of that ratio flirts with hopeless inability to pay the federal government's debt. The experts say it's close to a 60% ratio, and unfortunately, almost every nation on earth now exceeds that limit. The system continues to lack an unchallenged definition of its limit, but the system is nevertheless still Morris's system, wrapped in a mountain of descriptive detail by Alexander Hamilton. If a nation borrows more than that and clearly will never repay it, that nation is to some degree a slave to its creditors, with war its only hope if creditors are unrelenting. Perhaps another way to refine the thought is to say that if the nation wishes to mortgage everything it owns down to the last shoe button, the creditors will only accept additional debt if it is proposed by someone with the power to pawn the last shoe button. To foreigners, the proof of who has what power is much more certain if written down. Morris's protege Alexander Hamilton went even further: "credit" is established when creditors can see that somebody is in the habit of getting the nation's bills paid, and "credit" is injured whenever anyone in charge, welches.
The Granville, or Lansdowne, family had so many members important in English history, that the Lansdowne name adorns countless schools, boroughs, colleges, museums and other monuments around the former British empire. It would require undue effort to sort out just why each memorial is named after just which member of the family. In the Philadelphia region, Lansdowne is the name of a small borough in Delaware County,
often annoyingly confused with Lansdale, a small borough in Montgomery County. However, it really seems more appropriate to focus reverence on the Lansdowne mansion, which from 1773 to 1795 was the home in now Fairmount Park of the last colonial Governor. That would have been John Penn, who was one of several Penns who still shared the Proprietorship until 1789, and who shared in the miserly payment which the Legislature of the new Commonwealth made as compensation for expropriating twenty-five million acres of their property. The French Revolution was going on at that time, so there were probably some patriots who would scoff that John Penn was lucky not to be guillotined.
The Penn family could see the Revolution coming, and like everyone else was uncertain who would win. Real decision-making for the Proprietorship rested with Thomas Penn in London, a close friend of the King and his ministers. The strategy employed in this difficult situation was to surrender the right to govern the colony conferred by its original charter and to become mere real estate owners with John their local representative pledging local allegiance. That might have worked for a while, until General Howe's troops captured Philadelphia. Soldiers were dispatched to Lansdowne to tell John Penn he was under detention, to reduce his potential utility to the occupying army.
As matters eventually worked out, some of the Penn descendants remained fairly wealthy after the Revolution, especially those whose wives had inherited substantial assets from other sources. But some were severely impoverished. The stately Georgian mansion burned down in 1854, and the site was then occupied by the Horticultural Hall of the 1876 Centennial Exposition. Perhaps because of misplaced patriotic fervor, it is now difficult to find a picture of Lansdowne.
The elegance of the place, on 140 acres, is suggested by the fact that William Bingham, the richest man in America at the time, apparently acquired it from James Greenleaf the partner of Robert Morris, and the nephew by marriage of John Penn, who acquired it from Penn's estate but probably had to give it up in the financial disasters of Morris and his firm. Lansdowne was still a grand manner when it was briefly acquired by Joseph Bonaparte, the former King of Spain. In view of the fact that Bingham had provided President Jefferson with the gold to finance the Louisiana Purchase from Napoleon Bonaparte, and earlier had practically forced the Congress to call off an impending war with France, there was likely a connection here.
And to some extent, the ill-treatment which John Penn received from the Pennsylvania legislature (roughly fifteen cents an acre) in the Divestment Act of 1779 can possibly be traced to the unrelenting hatred by Benjamin Franklin, Pennsylvania's icon. History does not tell us what made these two former friends fall out in 1754, sufficient to make Franklin willing to spend years in London trying to get the colony away from the Penns. The feeling was surely mutual. When John Penn was offered the patronship of the American Philosophical Society, he declined, just because Franklin was its president. In retrospect, that sounds unwise.
CONTENTS: this is the main body of text
We are going without a metal gold standard, substituting 2% inflation targeting because we don't really know what else to do. And we seem to be getting away with it, although most people don't trust it. And indeed we have the shock of discovering that the Phillips curve (inflation and joblessness balance each other) doesn't work because we just can't get inflation to rise. By the way, this includes Milton Friedman, who blamed it on the Federal Reserve, but that can't be right, either. Don't listen to experts -- no one knows why this is true. I have a solution which hasn't been tried: we could use index funds as a new gold standard. They would be a real currency backing, which would flexibly respond to inflation and deflation. Come back in a century, if you want to find out how that works.
We have too much paper money. That's another way of saying the banks have thirty times as much paper money as they have hard currency (safe) reserves to back it up. We started out with banks making it two to one, two centuries ago, and gradually raised the ratio. No one knows what the right ratio should be, so we push the envelope and watch. One day, it will be too much, but it will then be too late to do anything about it. Thirty to one seems to account for most of our prosperity, but we have several billion of the world's population still living in poverty, but with atom bombs to blackmail the rest of us. So we apparently are going to inflate the bubble until it breaks. Then we will know what the right ratio should have been. Along comes Stephan Moore of the Heritage Foundation, with either the greatest trial balloon in history or else the best idea. Who cares why interest rates are so stubbornly low, just take advantage while that is the case. He suggests we take advantage of stubbornly low rates to have the federal government issue long-term bonds until interest rates rise, possibly paying off our national debts with the profits. And also bankrupting almost everyone whose survival depended on continuing low rates, and will surely oppose the move. At least, the argument may surface the reason the Phillips Curve stopped working.Along a different line, James Madison was scared to death poor people will outnumber rich people, so in a democracy, poor people will win. They will vote themselves free college, free medical care, free wealth they didn't earn. We will then be tempted to substitute dictators for leaders, sacrificing democracy permanently to have the joys of a dictatorship temporarily. We may try everything else first, but what we need is something which will work, not demagogues, and probably not college professors, either. God help us if we start electing newspaper columnists. Even Ben Franklin learned that much.
Just remember how long we have been tinkering with bankruptcy solutions. Instead of cutting your heart out if you don't repay your creditors, we improved things somewhat by putting defaulted debtors in prison. Morris the billionaire showed George Washington how to strip all personal wealth from the defaulted debtor in exchange for extinguishing their debts; it's called bankruptcy. The banks figure out how many defaults they will have in bulk, and add that charge to the interest rate they legitimately charge substandard risk debtors and illegitimately charge a lesser amount to non-risky debtors. Unfortunately, lots of people have figured out how to cheat on their bookkeeping, and with cell phones, soon tell their friends. Just have the government bail out bad debts, and then tax the rest of the population to pay for it. It's that last step which makes it socialism. In Philadelphia, someone a century ago thought it was a good idea to have a city/county consolidation, with sheriffs sales to pay the bills. Today, hundreds of millions of dollars are skimmed off this arrangement by corrupt politicians, and the current --allegedly non-corrupt-- Mayor is running for re-election on the promise he will absorb this revenue for worthy causes, like education. In most cities in this country, this corruption goes on, because it pays off. We have had this corruption for a century, and keep electing the same people to continue it. Yes, I know we have a drugs problem, but we voted for this scam and the taxicab medallion scam. We need a few more people to get mad, but they soon turn into elected crooks, if the rest of us let experts seem to run things. Our Constitution assumes half of the public are inherently honest and the other half are inherently bad apples, seeing its job is to maintain a balance between the two.
In short, the Supreme Court could easily fix this, by fixing enforcement and penalties. Let's see if they try. Congress could also fix this, but it would be opposed by others in Congress. The overall potential might be to lower consumer and retail interest rates, because bonds average 5% return over the long run, while equities average 10% for the same risk. If stocks and bonds returned an equal amount, as they should, there should be a doubling of effect. Bonds are mostly purchased by insurance companies, forced by state insurance commissioners to limit equity purchases to 10%. Presumably, insurance commissioners are holding down the cost to the state of municipal bonds, so the cost of this subsidy is not visible. But the net effect is to have the municipal taxpayer subsidize the defaulting debtor. The tax exemption of municipal bonds is yet another feature of this subsidy, in this case drawing the federal government into the process.
Simplifying somewhat, raising the permissible insurance commissioner's permissible level of insurance company's purchase rate from 10% to 11% would double the permissible stock purchases by insurance companies. Not enough to pay off the national debt to foreigners, perhaps, but demonstrating the opportunity just waiting for a presidential candidate to exploit in his campaign.
|Justice Robert H. Jackson|
According to Justice Robert H. Jackson, "We" (The Supreme Court) "are not final because we are infallible, we are infallible because we are final." Scoop Jackson was the last Justice who never went to college or graduated from Law School, so his viewpoint concentrated on the practical outcome of a situation. In fact, the father of our constitution, James Madison, was learned in the history of many constitutions, and was well aware of allusions to divinity in the construction of our governing document, particularly when the sources of strong beliefs couldn't be grounded in evidence. However,the Age of Enlightenment was highly religious, so they gave credit to divine guidance when they really were imitating the Legal profession.The lawyer's system of progressive appeal to a hgher court of appeals was a very clever adaptation of recognition that most problems are pretty simple andcan be handled without much training.The Constitution is an attempt to reconcile our culture to the needs of government and the revelations of controversy. Composed by Enlightenment rationalists within a highly religious environment, the Founding Fathers were careful to use the metaphors of Religion, even though many were personally skeptics about the substance. Indeed, the Penman of the Constitution who ultimately wrote most of the words was Gouverneur Morris, a flagrant libertine. It had been the tradition of Constitutions to describe their culture by allusion to epic poems, drawing inferences about Right and Wrong from what had subsequently happened to ancient heroes after similar situations unfolded. Some would put the plays of Shakspere in that role in 1787, but the evidence is stronger for Roman writers, like Cato and Cicero. In my own view, this leap of faith was only divine in the sense it was a one-way street. A citizen might try to emulate the ancients, but appealing back to them was not likely to work.
Although the Constitution can be viewed as bridging a gap between Culture and Common Law, or perhaps as placing a guardhouse between them, this relationship is not spelled out and therefore, in theory, might be changed. Other cultures, perhaps the native Indian, or the Catholic Church of Central Europe, might be substituted, or other legal structures resembling the Napoleonic Code might serve on the opposite side of the bridge. These substitutions were a legal possibility, but there is little doubt the American leadership intended for an Anglo-Saxon culture, linked with Francis Bacon's legal system, to prevail under a distinctively American flag. Because of our debt to France for then-recent assistance, there was once the possibility of French coloration to our culture, but the excesses of the French Revolution soon ruled that out. Some modern observers have capsulized the scene: First, we got the British to help throw out the French in 1754; and then in 1776, we got the French to help us throw the British out. Both our allies thought we played their game, but we were playing our own. The new Constitution specified no laws, but with little doubt the Framers intended the states to adopt British Common Law without the infelicity of saying so.
|Bill of Rights|
And then there is the Bill of Rights. Madison had great faith in the ability of structure (separation of powers, term limits, etc.) to command predictable outcomes, and initially resisted any need for a Bill of Rights. But the Ratification Conventions in the states showed him the need to yield. The First Congress soon enough confronted over a hundred proposed rights in petitions from the states, especially the four big ones. If anyone else had been in Madison's position, our Bill of Rights would resemble the European one today, fifty pages long and growing. That outcome would have greatly weakened the Legislative branch since after protests about Mother Nature subside, the legal fact emerges that Rights are merely laws which no majority can overturn. They might even be characterized as a contrivance for transient majorities to promote the permanence of their viewpoint.
|The Founding Fathers|
But they are not the only contrivance in politics. Enshrinement of the Founding Fathers elevated their political positions into near divinity, whereas debunking the Founders personally undermines their symbolism as statues and myths. There was too much of this during the romance period of the Nineteenth century, but also in von Ranke's later marginalization of History into mere scholarship and footnotes, which was a reaction to it. The Founding Fathers themselves now supplant Achilles and Cincinnatus in our lexicon, and we have little choice but to accord more weight to their original intent in the Constitution, than to contemporary reasonings. Indeed, we are forced to acknowledge more similarity between George Washington's fictitious cherry tree than to his relations with Peggy Fairfax, when we interpret his thundering "Honesty is the best policy" in the second inaugural address. It is admittedly a difficult choice, but Justices now need to consider what his audience widely believed was his original intent, more than what later archeological discoveries uncover. Justice Scalia is correct in placing more weight on the original intent of the Founding Fathers than contemporary reactions to the same words. But in occasional conflicts between myth and reality, it seems safer to consider what the audience then widely believed, than what modern audiences would guess at.
UNDER the Articles of Confederation, America had a President who presided, but there was no executive branch for him to do anything administrative. The day to day business of the nation was conducted by committees of Congress, who mainly contracted out the actual work. Evidently, Robert Morris, the businessman had observed this system with displeasure, because it only took him a few days to replace it with departmental employees, reporting to him. The affairs of the nation were evidently in such disarray that there is scarcely any recorded resistance to this astonishing re-arrangement, probably viewed as only one of a series of brisk actions by this foremost businessman of the nation, acting in an emergency and to some extent using his own money. Furthermore, the immediate administrative improvement was apparently so obvious to everyone that the system continued after Morris left office, and was absorbed into the 1787 Constitution without much-recorded debate. Without dissent, as we say, the bureaucracy had been created. As the press of business steadily increased the bureaucracy, from a handful of employees to many millions of them, the fourth branch of government was created without any Constitutional mission statement, not one single word. Following directions set by early America's preeminent no-nonsense businessman, control of the bureaucracy was placed within the Executive branch, in time largely located within the District of Columbia, and governed by rules made by the Civil Service Commission. Sometimes this fourth and largest branch of government skirts dangerously close to encouraging insubordination to their politically appointed superiors.
For some reason, the State Department is particularly suspected of such "Yes, Minister" behavior. Increasingly, government subcontractors are relied upon ("privatization"), as the growth of public sector workforces a return to the subcontractor approach of two centuries earlier; such subcontractors increasingly find the bureaucracy assumes the role of the second Board of Directors. And for the same reason as before: the work of the central government keeps increasing. At a state and local level, an uncomfortable amount of political funding can be traced to utilities and other corporations who have been awarded legal monopolies, uncomfortably like the mercantilism which our colonist ancestors had found so repugnant to deal with. In the 21st Century, we are finally approaching the point where we can foresee the number of people working for some level of government becoming greater than the number of voting citizens, and therefore able to control their income and the nature of their work. When the bureaucracy begins to exert political election power over its elected superiors, elected politicians are almost certain to rebel at what they will surely see as going a step too far. However, on the topic of salary and work environment, they are likely to become allies. Public discontent is already echoed in the growing political movement to limit or shrink the size of government; it would be well to examine and pilot test alternative options before this one gets us into trouble.
In retrospect, this was one of many features of creating the three branches of government where broader implications went unnoticed in 1787. The British government had three branches, King, Parliament, and Judiciary. To create a government consisting of a President, a Congress, and a Judiciary did not then seem like much of a departure. However, the Revolution deposed the King and made the people sovereign. When the real implications of that breezy slogan had to be translated into legislative language serious implications emerged, unexpected then, and now hard to change.
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.
In modern wars, the longest purse must generally determine the event.
|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. Modeled 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.
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 LaFollette, William Jennings Bryan, Woodrow Wilson, and Barack Obama have demonized banks, often threatening to nationalize or eliminate what is basically a neutral bookkeeping 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 exciting 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 a 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.
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.
Although Alexander Hamilton's arresting slogan that "A national debt is a national treasure" has diverted attention to the underlying idea toward him, Robert Morris had introduced and argued for the same insight in the preamble to his 1785 "Statement of Accounts". The key sentence was, "The payment of debts may indeed be expensive, but it is infinitely more expensive to withhold payment." This fatherly-sounding advice was surely a distillation of a long life as a merchant, and the gist of it may have been passed down to him as an apprentice. Failure to pay your debts promptly and cheerfully results in the world assigning a higher interest rate to your future credit; it is not long before compounded interest begins to drag you down. It doesn't exactly say that, but that's what it means.
Another way of looking at this folk wisdom is that it leads to a simplified method of organizing the finances of an organization. Because higher rates of interest are demanded of long-term borrowing than short-term, it becomes efficient to segregate them. That is, to establish a cash account for every-day transactions, and a separate bond account for a long term, or capital, debt. As bills arrive, they need only be verified for accuracy and sent for payment from either a cash account or a capital account. The original responsibility for agreeing to such debts lies with top management, not the treasurer. The job of the treasurer's office is to pay legitimate bills as quickly and cheerfully as possible, ignoring any imprudence of earlier agreeing to them; rewards will come from lower interest charges and improved credit rating. An unexpected benefit of thus organizing institutions and governments is to make the accounting profession possible. Accountants perform the same function in every business, whether the business is selling battleships or parsnips. The accounting profession made itself computer-ready, two hundred years before the computer was invented.
In the same document, the retiring national Financier was advising the wisdom of "funding" the war debts, which were largely owed to France, with whom relations were rapidly souring. Lump them all together into a fund, issue bonds and sell them as representations of the nation's capital at the time of issue. Disregard what the money was used for, by either the debtor or the creditor. In spite of appearances, money sequestered in a fund for later payment belongs to the creditor the moment it is promised, not the moment it is transferred. Morris and Hamilton discovered that the fund itself had the property of a bank, in creating money. As long as the creditor did not cash your bonds, he could use them as money, in effect doubling the amount of money you yourself can spend. It was this discovery which so exhilarated Alexander Hamilton, causing him to over-praise the methodology to an already suspicious Congress. Tending toward the teachings of Shakespeare's Polonius, Hamilton's excitable manner caused them to remember, neither a borrower nor a lender is. But Congress was eventually persuaded. The federal government lumped the states' debts together in an "assumption of debts" , consolidated all these various little debts into a single "funded debt", and made the deal work with changing the "residency" of the nation's capital from Philadelphia to the banks of the Potomac. It was called the Great Compromise of 1790.
Morris well understood that a funded system requires some final payor of last resort. Such a payor need set aside only a small portion of the debt for dire contingencies, but his name gets first attention on the list presented to prospective creditors. In 1778 Morris had offered his own personal wealth as that last resort, which the public at the time trusted far more than the Treasury of the United States. Over the next twenty years, he came to realize that the last resort of established nations, no matter what the paper said, was the aggregate underlying wealth of the whole nation. With a vast continent stretching to the West, and countless immigrants clamoring to join from the East, the wealth supporting the debt of the United States in 1790 seemed endless. After two hundred years we have finally begun to accumulate a national debt which equals our Gross Domestic Product, and have only begun to pull back as we observe what happens to other nations who got to that point sooner. Let's hope devising an automatic check and balance does not require a second Robert Morris. Men like him can be hard to find, so limit your debts -- or your nation's debts -- to sixty percent of your assets. Financial geniuses are invited to devise a better debt limit, if they can.
JOHN Dickinson had been highly critical of England's treatment of its colonies. As early as 1768 he had written a book called Letters of a Pennsylvania Farmer which is credited with strongly influencing the colonies in the direction of resistance to the British Ministry. When it came time to write the Articles of Confederation, Dickinson was the lawyer selected for the task. His good friend Robert Morris had been less outspoken in opposition to the Ministry's behavior, quite possibly because he was adept at finding workarounds for his own personal business problems. But possibly he was merely maintaining an ambiguous negotiating posture, since in a hotly contested election with this as the main issue, Morris was elected by both sides in the argument. When July 4, 1776, forced the issue both Dickinson and Morris had refused to sign the Declaration, but within a few months both of them were actively fighting for the Rebellion. The truest test of their evolving attitudes might have emerged when Lord North sent the Earl of Carlisle as an emissary after Burgoyne's defeat at Saratoga, offering peace with a sort of commonwealth status for the colonies. Not much is written about this curious episode, leaving it unclear whether the British were serious, and even if they were, whether the Americans understood the offer as serious. On the surface, the British offer conceded taxation with representation as the rebellion had been demanding. But it was rejected by Gouverneur Morris acting for -- who remains unclear. It seems possible the British were exploring the true feelings of people like Dickinson and Robert Morris but were disappointed. The earlier treatment of Ireland after it had agreed to a similar half-hearted autonomy did leave British sincerity in legitimate doubt.
The thirteen colonies had united to fight the British King, but many of them were reluctant to unite for any other time or purpose. Rhode Island was perhaps the extreme example of this view of what Independence was supposed to mean, but the feeling existed to some degree in many colonies. Concern for the power of this feeling of tentativeness may have contributed an important reason the Articles placed heavy emphasis on declaring the document to represent a perpetual arrangement. Recognition of the weakness of this intent may have been an important reason why George Washington was later willing to sweep the issue aside, even though he of all people was most concerned to avoid the appearance of acting as an arbitrary king. For these and other reasons mainly revolving around state boundary disputes, the Articles remained unratified for years. Finally, in 1781 Robert Morris became convinced that failure to ratify was encouraging the states not to cooperate, and successfully pushed ratification through its steps. At that time, Morris was effectively running the country, even providing his own credit and funds to do it. People were reluctant to oppose his wishes, but they were also unwilling to provide the taxes, supplies, and troops that Morris imagined were being blocked by failure to ratify. Ratification of the Articles accomplished very little except to convince Morris: the Articles were flawed and must be replaced with something conferring more central power.
|The Goal: 1787|
Little is known about the evolution of Constitutional thought in Morris' mind between 1781 and the Constitutional Convention in 1787, although a great deal is known about his other numerous activities. It is clear, however, that his experience with the recalcitrant Pennsylvania Legislature had been dismal, while he came to see the one insurmountable flaw in the current Federal government was its inability to levy taxes and consequently, to service national debt. The states were able to levy taxes under the Articles but erratic in doing so, resorting to paper money inflation at the first sign of tax resistance. In Morris' view, the key to the effective government was to reverse the situation; let the national government tax, let the states spend. The key to such rearrangement would be to permit the national government to spend on a very limited list of vital purposes, but bedazzle the states with a substantially unlimited shopping list if they thought they could afford it. As the accounts to pay for the Revolutionary War totaled up, it was apparent that the National Government had twice as much debt as the states. Therefore it would at most, need twice the state taxing power to service such a debt; presumably, wars would be infrequent and it would be less than that. Pay this one off, and potentially the need for future federal spending would be small. Indeed, under the presidency of James Monroe, the national debt was completely paid off, although briefly. It was almost as if Robert Morris and his pupil Alexander Hamilton had a crystal ball.
|Decline and Fall, Anyone?|
Robert Morris was brilliant and had six years to fashion his strategy, but he also had some help. For one thing, George Washington lived next door much of that time. By then, almost no one dared confront Washington. Adam Smith had written his book The Wealth of Nations in 1776, and Morris gave this extraordinary work as presents to his friends. Morris had corresponded with Necker, the genius financier of France, and through his good friend Benjamin Franklin, gathered insights from the rather advanced British national finance. And James Madison brought in scholarship about politics and statecraft accumulated by Witherspoon, Hume and the Scottish enlightenment. The year 1776 was a remarkable moment for new ideas. In that year, Edward Gibbon also published the first volume of The History of the Decline and Fall of the Roman Empire. The warning behind that important book had an important impact on the minds of important thinkers of the era, too.
Once you grasped all the central ideas, in this environment the resulting strategy almost worked itself out.
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.
|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 meager 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 as 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 the 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.
WITH British troops in the process of disembarking at New Brunswick, apparently intent on hanging rebels, Robert Morris and John Dickinson annoyed everybody by refusing to sign the Declaration of Independence. Both were fully engaged in the Revolution after the fighting finally got started, and Morris signed up in August 1776. Dickinson had some further reasons of his own, but Morris explained his position quite succinctly. He didn't mind being a British subject, he didn't want a new King, what he wanted was Constitutional Liberty. There is no record of his being directly confronted about this later, and thus no detailed explanation. But whatever did he mean?
|Iliad and the Odyssey|
Morris was of course very bright, even brilliant as a businessman. He had an astonishing memory for detail and was capable of holding his own counsel. He was a person of great daring and prodigious amounts of work. But there is very little evidence that he thought it was useful to be mysterious, or deep. So why not take him at his word, which was essentially that what mattered in a government was whether it kept its promises and allowed its citizens all possible Liberty. It did not matter whether the government had a king, or seldom mattered much who that king was. What mattered was whether it kept its promises, and for that a Constitution is useful. There is no great pleasure in being capricious and arbitrary, so a king who leaves the citizens alone is mostly the best you can ask for. It does, however, help considerably if the rules are fair, clear, and binding. Beyond that, it is unwise to go about toppling governments in the vain hope that a new one is somehow better than the old one. This is putting words into his mouth, to be sure. What he did say was he saw no advantage to getting a new government when what we wanted was Constitutional Liberty. Eleven years later, he was a personal friend of just about everyone with the power to design a new government. Washington lived in his house, or in one next door. Ben Franklin was a business partner. Gouverneur Morris was his lawyer and partner. Just about everybody else who mattered was meeting with him in secrecy for months at a time, in the Pennsylvania Statehouse. And so on.
An essential part of this puzzle of Morris' role could be that the American Constitution was very close to unique in being written out as a document, like a commercial contract. The British Constitution was unwritten at the time and continues to be unwritten today. Many other members of the British Commonwealth operate without a written constitution. And in fact, what passed as constitutions for thousands of years have been unwritten; it was the written American one which was the novelty, not the other way around. It may stretch matters a little to describe the Iliad and the Odyssey as constitutions, but they do in fact describe the system of governance of the Ancient Greeks, clarifying many axioms of their culture for which they were willing to fight and die. We are able to understand the rules for Greeks to live by from reading Homer, almost surely better than we understand the rules of American culture by reading The Federalist Papers. Modern students of geometry, for another example, are taught that all the rules of Euclidian geometry are based on a few axioms stated at its beginning. Change one of those axioms, and you make mathematics unrecognizable. Even Newton's Principia are now seen by mathematicians to be rules which apply only to our universe for certain. There may exist many other universes to which they do not apply. Axioms are themselves mostly regarded as unprovable assumptions. A Constitution, therefore, is regarded in modern times to be much the same thing as a set of mathematical axioms. With one new exception: they are written out on a piece of paper for all to see and agree to -- just like a commercial contract. It would not be surprising to discover that America's great merchant trader, Robert Morris, was horrified at the idea of depending on Vestal Virgins or Judges, or Kings, for their recollection of what the contract says. It, therefore, seems quite natural for a maritime merchant to be agitated by having the rules of British society depend on what King George III chose to emphasize or ignore. Write it down, negotiate it, then tell us what you want so we can agree to it; that's a proper way to define Constitutional Liberty and limit disputes. International maritime trade could not be conducted in any other way, because sea captains who feel abused in a foreign port can abruptly up-anchor and sail away, never to return to that port again until or unless local rules are clarified.
Unless someone discovers some relevant documents in a trunk in the attic, that's about the best conjecture to be made about the American novelty of a written constitution, and its transformative effect on the legal system of all other nations which have one. It would still be nice to know, for certain, whose idea it was.
It's true that Robert Morris had been engaged in smuggling gunpowder past the British blockade for more than six months before the 4th of July, 1776. It's also true he had found ways to make international payments in spite of a prohibition of paper money, which served well in a wartime freeze of money transfers. Still, his establishment of an effective way to wage maritime war in only two or three months is an achievement that is nearly miraculous.
Essentially, he shipped normal commercial cargo out, bought munitions with the revenue, and sailed the ship home loaded with gunpowder and guns; his firm made a profit on the outgoing shipment, and the government paid for the return trip with munitions. Because of the pre-war blockade, the commercial trade was badly needed, and extremely profitable. He wrote to one agent that one shipment which was successful would pay for 2,3, or 4 losses. That's a pretty cold-blooded way to describe 2,3 or 4 ships lost with all hands, but sometimes the sailors were only captured and imprisoned.
The system needed to find a way to make the exchange between guns and butter safer and more devious, so the ships leaving American ports would mainly sail to the Caribbean, to New Orleans, or to France. Sometimes transfers were made in North Carolina. At first, almost any cargo was highly profitable, but in time the main cargo was tobacco, highly desirable in Europe. New England had very little trade, so its ships were directed to Southern ports, and then took up the trade to some other transfer destination. New Orleans was in the hands of the Spanish, so negotiations were tricky. Caribbean areas had numerous ports, but plenty of pirates and/or privateers, as well. William Bingham was dispatched by Willing and Morris to Martinique and proved to be a master of the business. He added privateering to the list of his activities, paying to have ships built and then going shares with an enlisted crew. Their technique was to approach a British ship and take it as a prize. If on approaching the ship they could tell it was a British naval vessel, they ran up a French flag and headed for port. Bingham often was able to persuade the crew of a captured vessel to join him, and so the number of his ships and the number of British captures multiplied rapidly. By the end of the war, he was able to return to Philadelphia at the age of 28, temporarily the richest man in America.
Another source of privateers was the Pine Barrens of southern New Jersey, where the Willing and Morris firm itself was able to oversee the construction of vessels, the recruitment of crew, and the sharing of spoils on return to home port. The winding creeks behind Barnegat Bay were places the British soon learned to fear. One cannon on a river bend could suddenly stop any invaders. Enormous amounts of British shipping and British seamen were lost to American privateering, probably inflicting more British casualties than Washington's army.
The ultimate main source of munitions was France. To the end, the French regarded the Revolutionary War as one fought between the French and the British, with Indian and colonial allies. Morris sent Silas Deane of Connecticut over to France to see if he could make connections, but he immediately found the French were ahead of him. The French King was immediately willing to advance 200,000 livres in loans, and Vergennes the foreign minister was prepared to clear up any difficulties that might arise with local police, customs and other French officials who were uninformed about the realities. And above all, Beaumarchais was in charge of local arrangements, to be sure gunpowder and guns were available in the right amount at the right places, and that local outlet was located to dispose of tobacco and other products coming in to pay for the munitions. Beaumarchais seemed to believe he had thought up this whole arrangement, and perhaps to some degree, he had. In any event, there was no problem persuading France to get involved. After a while, the enterprise was so successful the French began to fear it would bankrupt them, but that is another story. As is the notion that in 1783 the French were preparing to make a separate peace with the British, and thus to leave the colonists hanging. So to speak.
|The Pine Barrens: John McPhee: ISBN-13: 978-0374514426||Amazon|
AFTER resigning his position as Financier of the United States, Robert Morris worked for five months laboriously summarizing and detailing his official activities, and then he paid for printing five hundred copies of it. The document had a five thousand word preamble and over two hundred printed pages of detailed accounts, a prodigious effort. And a rather unprecedented one in an environment of traditional national secrecy about its accounts, except for the pioneering efforts of Necker in France. His reward at first was an infuriating discovery five years later that the government had not released his report to the public, and continued throughout this time to investigate Morris's earlier activities on the Secret Committee. The standard of bookkeeping for a secret committee engaged in smuggling arms before the Declaration of Independence was understandably obscure, and to have it flogged for failing to uphold the improved standards of government accounting which Morris later devised for the new nation was such a mixture of ingratitude and slyness that the behavior seemed well beyond infuriating. Nevertheless, it must have been gratifying to end the report with a positive balance of $21,000 even after eight years of struggle, war, and improvisation. The magnitude of this achievement was not lost on others in a position to see the contrast with earlier efforts, encapsulated by James Madison whose committee report concluded, "It appears to the committee that the regular official examination has already been made, and it would be inexpedient to incur the expense of a re-examination."
Madison by this time was evolving into a political opponent of Morris, but Samuel Osgood was a declared opponent of his approach to government accounts. Osgood's assessment of his opposition to the approach was prefaced with a ringing statement of its effectiveness: "I will tell you very freely, that in mere money transactions, he has saved the United States a very large sum... I am also of the opinion that much more regularity has been introduced into the keeping of accounts than ever before existed. This is a matter in my mind of very great importance. And without the strictest attention to it, the several states ought not to trust Congress with a single farthing of their money."
The supreme irony of this situation was that by imposing strict accounting standards where none had previously existed, Morris was offering to his enemies a club to beat him with. Instead of recognizing that Morris was both too diligent and too rich to bother with cheating, there emerged a duel in which his enemies took unusual behavior to be a sure sign of wickedness, while Morris absolutely courted personal disaster, supremely confident he was unchallengeable.
There are two enduring truths to both positions. It is absolutely true that a well-informed public has a perfect right to do anything it pleases, regardless of the existing rules of government, regardless of the opinions of predecessors, heedless of the opinions of anyone else, past present or future. If a republic has supplanted a monarchy, the republic in a sense has the same divine rights. It's just unwise to act that way in anything but extreme circumstances.
On the other hand, it is also absolutely true that stability, peace, and prosperity are most likely enhanced by avoiding the mistakes of the past, following the accepted rules of conduct, and avoiding the counsel of loud and unstable leaders. Once in a while, a genius does appear and his discoveries should be adapted for future use as rules. Once in a while, a treasured maxim needs to be discarded. In a limited way, these evolutions of the rules of the road are an application of Galileo's invention of the scientific method, applied to the Common Law by Sir Francis Bacon. Make a likely conjecture, then verify it. And the second source of societal wisdom is the constant pressure of Society's Hidden Hand, as described by Adam Smith. The American Revolution was not so much an overthrow of a boisterous king, as it was incompletely successful incorporation of existing principles into a Constitutional system of government.
Considering the convulsive upheaval caused by its principles, the 18th Century colonists must be forgiven for misjudging their situation when confronted with a genius like Robert Morris. In barely a moment of time, Morris assembled these ideas into a vastly improved system of government management, immediately proved that it made the country rich, and demonstrated that he had the common sense to make himself rich using the same ideas. Even the idea usually attributed to his friend George Washington, that honesty is the best policy, sounds more like Morris than Washington, and certainly more like Morris than Alexander Hamilton. Only the likes of John Adams protested that honesty came from God. Morris did not deny that was possible, but acted as though it was irrelevant.
Pay attention to the voice of consensus, be quick and alert to occasional innovation, and don't waste your time being crooked. With these three rules, Morris got rich and made his country rich, enraging those who do not think riches should be a universal goal. Don't want to be a millionaire? Plenty of other people will take your place.
Our two-party system began in Appalachia, and one poor soul found himself marooned there. Hugh Henry Brackenridge, a representative of Western Pennsylvania, cried out, "If they would let Mr. Morris alone, he would make Pennsylvania a great people. But they will not suffer him to do it!" Brackenridge was never elected again.
|Robert Morris: Financier of the American Revolution: Robert Morris: Charles Rappleye: ISBN-10: 1416570926||Amazon|
Robert Morris was in charge of the nation's finances (his title was Financier) for two intervals following two landmark emergencies: the Battle of Fort Wilson was one, and the threatened mutiny of the Pennsylvania Line of the Continental Army was the other. There was an interval without Morris in office in 1780. Both emergencies grew out of monetary panics, so a financial leader seemed a natural choice. Morris was in fact in charge of almost everything non-military, for the peculiar reason that we had no designated chief executive. The Continental Congress had a President, but the activities of the country were actually run by congressional committees. Morris wasted no time replacing this system with permanent departments under his supervision, so it is not too much to say his wartime role was acting chief executive. The improved efficiency of this approach was so evident the Constitutional Convention of 1787 seems to have spent little time arguing against continuing it, although lurking anti-Federalists never got over the idea that something had been put over on them. For reader convenience, we here take mild liberties with the chronology of individual initiatives, preferring instead to center around the two crises. The first of these, immediately following the Battle of Fort Wilson, was worthless paper money ("not worth a Continental") inflation, with soaring prices, futile price controls, and consequent false shortages of necessities. The second episode followed the later near-revolt of the Continental Army, and it was essentially a deflation provoked by the French running out of money to support us, and real shortages of necessities. Here, Morris had to cope with the end of the war in sight, but in fact not ending. Everyone was reluctant to fight battles without military purpose but unable to return to farming. Credit and hard currency reserves were exhausted. At the same time British, French and American politicians connived for advantage after a war each had failed to win militarily. By this route, having earlier described the creation of modern banking, we arrive at the cluster of clever expedients which Morris handled like a juggler as he raced from inflation to deflation, and back.
|Robert Morris, Financier|
The revolt of the Pennsylvania Line, along with Washington's clear sympathy for his soldiers, threw the Continental Congress into a panic. Their own responsibility for the crisis, as well as their lack of any clear idea about what to do about it, were as obvious to the public as to themselves. The approaching result went beyond a mere disgrace, and might even lead to a dictator, or God saves us, another king. A decade later, this crisis might have suggested to some that a guillotine should be set up behind the State House on Chestnut Street. Indeed, Thomas Jefferson made some remarks which might be taken in just that way. The soldiers themselves put an end to that sort of wild talk. British General Clinton sent some emissaries to the American Army, looking around for some deserters to turn Tory. The soldiers promptly executed the emissaries. George Washington, Morris' best friend, played his ambiguous position like a master. He was ultimately responsible for maintaining order, but his sympathies with the soldiers' complaint were obvious. Calling the officers together, he made the theatrical gesture of pulling off his glasses, intimating that he was going blind in his nation's service. Since his eyes served him very well for the next decade, that was unlikely. Although it is possible he believed what he was saying, most certainly the officers did.
What helped the perplexing monetary situation most was the ready availability of a financial genius to turn it around; there was no real need for others to understand it. Robert Morris had made his pile, probably the richest man on the continent, and he had the grievance of having been rejected from office after the Battle of Fort Wilson. He also had the perfectly normal motive of wishing to hold things together until the Paris peace negotiations could restore order. He had some novel plans which he wanted to try; it is not too much to surmise he wanted to show them off, particularly since their central feature would require his prodigious energy, applied to his seemingly unlimited succession of ingenious solutions. No one else even came close.
At this critical moment, 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 that he was going to retain his private partnerships. And he insisted on his right to hire and fire anyone he pleased within the government bureaucracy who was concerned with public money. He would accept responsibility for new debts of the government, but not for old debts which were incurred before he took office. He would delay taking the oath of office for a few months. These conditions generated a storm of opposition in Congress; Morris was serene about that, and Congress finally agreed to his terms. Most of these terms had an obvious purpose, making no secret of his distrust of Congressmen. However, the opposition might 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 the same power tactics to the Legislature, ending up in charge of administering state finances in parallel with his federal duties.
|Yorktown: Oct. 19, 1781|
The purpose was soon to emerge, as just one instance of a general approach. As inflation tossed and turned the finances of just about everyone, Morris would buy with one currency and sell with the other, taking advantage of transient fluctuations in their respective values, then quickly reverse the currency transaction when the advantages shifted. He arranged with the French and Spanish ministers to keep their loans and foreign aid in separate accounts, doing the same thing with state accounts, and even near and distant counties within Pennsylvania. He thus had his choice of a number of 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 quite profitable. One rather extreme example was the arrangement with Benjamin Franklin in Paris; he would write checks to Franklin in one currency while Franklin would write identical deposits back to him on the same day but a different currency. He thus expanded ancient practice among international merchants. Carrying it over to government operations had the effect of creating a modern currency market. 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 would regard Morris strategies as reprehensible. Those who believe the market price is the true price however, must applaud this strategy for forcing manipulated prices back to market levels. Since here has rested a central dispute in American politics for two centuries, Morris must at least be credited with inventing the dispute. One would normally suppose that doubling the silver price of American currency in two months would vindicate this trading strategy; but it has not, suggesting the nature of the opposition 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 the worthless currency, impose rationing and price controls or otherwise assume the pose 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, even that incentive abated.
The list of financial innovations which Morris produced in a remarkably short time, is seemingly endless. He was central in the creation of the first American bank of the modern sort, the Bank of North America. And somewhere in the 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 stringing a series of 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 appear. Just to complete the thought, it might be noticed that globalization reverses the process with shorter-term loans for components rather than longer-term loans for the entire assembled product. With lower interest rates, prices can be reduced, unless a choice is made to increase the profits.
There's one last issue in Robert Morris folklore: Did he finance the Revolution out of his own pocket? The answer is surely no because Beaumarchais ended up spending much more than any other individual, although 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 summarize. 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 wished he could eliminate by simply paying for it himself; Morris had the advantage that in an extremity, he could afford it.
The more important contribution was his pledge to make good. Creditors generally preferred his credit to that of the government; his pledge was to make good if the government defaulted. His position was that of reinsuring government debts, or in modern terms offering the equivalent of 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 to pay them but 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 likely to suffice. Under those circumstances, to come forward like Arthur Lee and remonstrate 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 any 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 real estate boom, he didn't need to cheat. Probably didn't have time for it.
The Revolutionary War continued for two years after Morris took office, 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 small consolation that Parliament had granted Independence to the Colonies when George III was adamant and intransigent in his opposition to any such idea. 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 were deteriorating again. The British had the financial strength to hold out much longer, but the 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; 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 had to borrow. Your security for the loan was the economy of your nation. Even if your illiquid assets were adequate for the war, the banking markets regard your ability to pay cash for the interest on the loan as the 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 permanent independence, but that wasn't good enough, we had to have a Federal tax system. 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 of the Treaty of Paris. Never mind the war-weariness, bitterness, and destitution of the troops. Never mind that Morris was 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 one. Think big.
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 the office with chaos erupting at 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 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.
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|
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 the 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.
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.
GEORGE Washington was a far more complex person than most people suppose, and he wanted it that way. He was born to be a tall imposing athlete, eventually a bold and dashing soldier. On top of that framework, he carefully constructed a public image of himself as aloof, selfless, inflexibly committed to keeping his word. Parson Weems the biographer may have overdone the image a little, but Washington gave Weems plenty to work with and undoubtedly would have enjoyed overhearing the stories of the cherry tree and tossing the coin across an impossibly wide Potomac. Washington had a bad temper and could remember a grievance for life. He married up, to the richest woman in Virginia.
Growing up along the wide Potomac River, Washington early conceived a life-long ambition to convert the Potomac into America's main highway to the Mississippi. He did indeed live to watch the nation's new capital start to move into the Potomac swamps across from his Mount Vernon mansion, in a city named for him. For now, retiring from military command with great fanfare and farewells after the Revolution, he returned to private life on this Virginia farm. He made an important political mistake along this path, by vowing in public never to return to public life. During the years after the Revolution but before the new Constitution, his attention quickly returned to building canals along the Potomac River, deepening it for transportation, and connecting its headwaters over a portage in Pennsylvania to the headwaters of the Monongahela River -- hence to the Ohio, then the Mississippi, or up the Allegheny River to the Great Lakes. He personally owned 40,000 acres along this river path to the center of North America. The occasion for a national constitutional convention grew out of a meeting with Maryland to reach an agreement about this Potomac vision, which was being blocked by commercial interests in Baltimore. Ultimately, Baltimore won the commercial race; so it was the Baltimore and Ohio Railroad which captured the early commerce to the west. Washington also made deals, ultimately to Baltimore's benefit, with the James River interests, to give them a share of the development of the Chesapeake Bay trade. As a young man, George Washington had acted as a surveyor for most of this region, and as a young soldier had explored the Indian trade to Pittsburgh, actually starting the French and Indian War during this trip. He was to march it again later with Braddock's army. All the while, Washington dreamed of the day. There were competitors; Philadelphia and New York had similar aspirations for their rivers. Take a look at a globe or Google Earth. Comparatively few of the earth's rivers drain too far western beaches. Even today, long-term victory in worldwide water transportation will likely go to one of many eastern rivers linking up with one of the few western ones. The ultimate world-wide goal has yet to be fulfilled for what continues to be the cheapest of all bulk transportation methods.
Washington at age 54 was already richer than most people need to be; a lot of this Potomac dream was a residual of boyhood ambitions enduring into middle age. In a sense, he had the ambition to make his boyhood home the future center of the universe. Although much of his stock in these real estate enterprises resulted in very little extra wealth, he demonstrated his mixture of public spirit combined with ambition by donating the stock in one of the companies to a future national university, to be located across the river near Georgetown. Since that didn't work out, he later placed the nation's capital there. He had consistently been a far bolder dreamer than Cincinnatus, humble Roman citizen-soldier returning to his farm from the wars.
Washington more or less gave up this Potomac ambition for a loftier one. During the Revolution, he had suffered the most infuriating abuse of himself and his soldiers from the state legislatures. Their urgent demands for victories were seldom matched with resources. The Continental Congress representing those state governments in a weak confederation that could not feed and pay its own troops seemed little better. He could be a mean man to cross, but perhaps with General Cromwell in mind, Washington possessed the firmest and most sincere belief in the proper subservience of military to civilian control. These conflicting feelings resulted in earnest obedience to a group of politicians he surely distrusted. This could not be described as hypocrisy; he respected their rank even though he suffered from their behavior. When Congress paid the troops in worthless currency which they promised to redeem after the war, it became clear that either lack of moral fiber or their system of governance led the states and the Congress in the direction of dishonoring their debt to the soldiers. This was a dreadful system, which led to death and suffering among the loyal troops, forcing the General into the humiliating position of assuring the troops Congress would stand by them, while he privately doubted any chance of it. Washington did not easily forgive or forget. Here was a paltry outcome for eight years of war and suffering; this system of organized dishonor must be improved.
He went about achieving his goal in a way that would not occur to most people. He chose a young ambitious agent, James Madison, who had caught his attention in the Virginia legislature, in the Continental Congress, and in the negotiations with Maryland over the development of the Potomac. Washington schemed with the young man for weeks on end about ways and means, opportunities, dangers, and potential enemies. Perhaps he failed to notice some ways where he and Madison fundamentally differed. Madison himself might not have recognized that his years at Princeton in the Quaker state of New Jersey had exposed him to novel ideas like separation of church and state, which were instantly appealing to the two Virginia Episcopalian religious doubters. Many people he admired, Patrick Henry, in particular, wanted the government to be as weak and ineffective as possible. Unfortunately, when Madison's turn later came for assuming the Presidency, he went along with reliance on diplomacy and persuasion until it almost cost America the War of 1812. Acting as Washington's agent in 1788, Madison was assigned to win over the Virginia legislature, make alliances with other states in Congress, identify friends and enemies, make deals. He performed as brilliantly as he would at the Constitutional Convention, so the basic conflict between the soldier President and his politician assistant was glossed over. As long as the original relationship held together, Washington felt it was useful to remain above and aloof, publicly wavering whether this was all a good idea, but fiercely determined to have a nation he could be proud of. There was to be a Constitutional Convention in Philadelphia, but while Washington was invited, he let it be known he was uncertain whether he should accept the invitation. What he really meant was he would preserve his political credibility for a different approach if this one failed. Considered from Madison's viewpoint however, this clearly meant Washington would dump him if things went badly. Meanwhile, the unknown young Madison on several occasions came to Mount Vernon for three days at a time to talk strategy and give the famous General all the scoop. Today, we would describe Madison as a nerd. The aristocratic Gouverneur Morris never thought much of him. Washington needed him, but there is no evidence he thought of him other than as a glorified butler. Little Madison was awkward among the ladies, a problem inconceivable to either Washington or Morris. But that little mind was surely working, all the time.
Madison was in fact a brilliant politician, a dissembler in a different way, but a severe contrast with his mentor. To begin with, he was a scholar. Both as an undergraduate at Princeton and a graduate student working directly with the great Witherspoon himself, Madison was deeply learned in the history of classical republics. He spent an extra year at Princeton, just to be able to study ancient Hebrew with Witherspoon. But he was innately skilled in the darker arts of politics. When votes were needed, he had a way of persuading three or four other members to vote for a measure, while Madison himself would then vote against it to preserve influence with opponents for later skirmishes. In fact, as matters later turned out, it becomes a little uncertain just how convinced Madison was that Washington's strong central government was a totally good idea. Before and after 1787 Madison expressed a conviction that real sovereignty originated in the states, just as the Articles declared. That was a little too fancy for practical men of affairs, who were uncomfortable to discover how literal Madison was after his break with the Federalists. Twenty years younger than the General. he prospered in the image of being personally close to the titan, and he certainly enjoyed the game of politics. The new Constitution was going to be an improvement over the Articles of Confederation, but Madison did not burn for long with indignation about injustice to the troops, or disdain for nasty little politicians in the state legislatures. These were problems to be solved, not offenses to be punished. The new Constitution was a project where he could advance his career, skillfully demonstrating his prowess at negotiation and manipulation. This is not to say he did not believe in his project, but rather to suspect that he was a blank slate on which he allowed Washington to write, and later allowed others to over-write. He was eventually to modify his opinions as a result of new associations and partners, and since he succeeded Jefferson as President, it was personally useful to adjust his viewpoints to his timing. What would never change was that he was an artful politician, while Washington hated, absolutely hated, partisan politics.
This is not just an emotional division between two particular Virginia plantation owners, but an enduring thread running through all elective politics. Washington set the style for generations of citizen leaders in America. In his mind, a person of honor distinguishes himself in some way before he enters public office, so on the basis of that honorable image, presents himself to voters for public office, and naturally is elected to represent their interests. He is expected to compromise where compromise is honorable and publicly acknowledged, in order to achieve one desirable outcome in concert with other outcomes, in some ways inconsistent but still honorable in combination. He reliably will not vote for either issues or candidates in return for some personal consideration other than the worth of the issue or the candidate, with the possible exception of yielding to the clear preferences of his local district. Such a person is not a member of a political organization very long before he encounters another group of colleagues -- who regularly swap votes for personal advantage, join a group who agree to vote as a unit no matter what the merits, and recognize the frequent necessity to talk one way while secretly voting another. The first sort of politician is usually an amateur, the second type is typically a professional politician. Although it seems a violation of ethics and common public welfare, the fact is the professional vote-swapper almost always beats the sappy amateur. The response during the Eighteenth Century was for idealists to condemn and attempt to abolish partisanship and political parties. The American Constitution does not make provision for political parties and other forms of vote-swapping or even anticipate their emergence. Although Madison ignited the process in the United States, Jefferson really organized it; every recent politician except Adlai Stevenson has openly participated in a version of it. That the Constitution has still not been amended to provide for parties seems to reflect a persisting nostalgic hope that somehow we can return to Washington's stance.
Washington's conception of open representative politics was not entirely perfect, either. In order to maintain an image of impartiality, Washington and his imitators isolated themselves in a cloak, holding back their true opinions in a sphinx-like way that hampered negotiation. Unwillingness to be seen swapping votes can lead to an unwillingness to compromise, and in the final analysis, the difference is one of degree. However, the over-riding issue is that each representative or Senator is equal to every other one. When vote-swapping gets started, it leads to placing power over supposed equals in the hands of the more powerful manipulators, masquerading as political leaders. Ultimately, it leads to the adoption of house rules on the very first day of a session which force lesser members to surrender their votes to a speaker or minority leader or committee chairman, when the theory is that there is no such thing as a lesser member. The claim of a party-line politician is that he obeys the will of the party caucus; the reality is usually that he obeys the will of some tough, self-advancing party leader. The final reality is that most legislatures must now deal with thousands of bills per session, leading to the necessity of appointing someone to set priorities, which in turn leads to the power of party leaders over their grudging servants. These various subversions of the equal rights of elected representatives can lead to such discrediting of the system that honorable people may refuse to stand for office, leaving foxes in charge of the hen house. Benjamin Franklin, who was to play an invisibly controlling role in the impending Constitutional Convention, had his own way of coping with the political environment. "Never ask, never refuse, never resign."
|13th Century Magna Carta|
NATIONAL constitutions are mainly an outgrowth of the 18th Century Enlightenment, even though similar features are to be found among ancient legal codes. Those who trace the origins of the American constitution to the 13th Century Magna Carta will usually point to a central sentence of clause 39:
No free man shall be arrested, or imprisoned, or deprived of his property, or outlawed, or exiled, or in any way destroyed, nor shall we go against him or send against him, unless by legal judgement of his peers, or by the law of the land.
That's a pretty good beginning, a good example of a needed legal principle, but unrecognizable as what we would today call a Constitution. It states what a government may not do, but does not define the nature of a government which does the job best. Nor do even the many Enlightenment philosophers of government take that final step of outlining where their notions should take us until the American Constitution had been written and defended in the Federalist papers. Nowhere among the writings of Montesquieu (The Spirit of the Laws, 1748), Catherine the Great (Nakaz, Instructions to the All-Russian Legislative Commission, 1767), Diderot (Observations About Nakaz, 1774), James Madison (1787), John Dickinson(1763) or Gouverneur Morris(1787) can there be found much tightly described definition of a constitution. Certainly, there is no definition within the writings of Adam Smith if we look for rule-making among Enlightenment thinkers whose ideas were influential on the 1787 Philadelphia document. The American constitution was the product of many minds, before and after 1787. The outlines of its final form converged, and emerged, from the Constitutional Convention of the summer of 1787, with Gouverneur Morris as the penman of record. To him, we certainly owe its succinctness, which is the main source of affection for the document. That probably understates matters; in his diary of the secret meetings, James Madison records that Gouverneur Morris rose to speak about 170 times, more than any other delegate. Lots of thought and debate; ultimately, few words.
The Elizabethan Sir Francis Bacon has the greatest claim on devising a theory of law and law-making in the Anglosphere tradition. But his elegant modification of Galileo's scientific method, the English Common Law, is more a methodology for creating good laws than an outline of a nation's legal principles. Anyway, tracing the American Constitution back to an underlying British one tends to stumble when the British Constitution fails to meet a definition which would include our own. The British Constitution is said to be "unwritten" to the degree it is a consensus of revered documents. It can be amended by Parliament at will, has a variable history of defining just who is covered by it, and in order to define constitutional principles seems to rely on sentences extracted from difficult context. If the two constitutions had been written and compared at the same time, one would say the British had sacrificed coherence out of respect for tradition. In fairness, some features of the American constitution are also perhaps unnecessary for every constitution, but by surviving as the oldest constitution of the modern form, have become its model. That would be:
A set of principles governing the legitimacy of a nation's laws, and firmly standing above them. It defines its own domain, geographically and by the membership of a defined citizenry. Except as otherwise defined, it supersedes all other governance within its domain. It defines and defends its own origins. It includes a description of how to amend it, which is intentionally infrequent and difficult. It goes on to outline the structure of the laws it regulates, with subtle modifications made to channel the type of power structure which will govern.
In the American case, history and culture generated several other instabilities so central they justified heightening the difficulty to amend them to a Constitutional level, thus conferring undisputed dominance over competing principles of governance. That would be:
A separation of government powers weakened all potentially offending branches of government, and thus enhanced citizen liberty. Separation of church from state, for like purpose. A right of citizens to bear arms, to strengthen citizens' defense against internal or external attack, and perhaps also warning that revolt must be possible, even endorsed, as some final extremity of protection for citizen sovereignty.
|Russia's Catherine the Great|
It enhances our comprehension to contrast the outcomes of competing 18th Century implementations of the Constitution idea. Russia's Catherine the Great proposed a constitution steeped in the traditions of the Enlightenment but ultimately designed to define and strengthen the role of the monarch. Denis Diderot her French protege recoiled at this viewpoint, substituting other views resembling those of Jean Jacob Rousseau. He opened Observations About Nakaz his commentary to the Queen, with the following declaration:
There is no true sovereign except the nation; there can be no true legislator except the people. Whether looking back to the English Civil War or forward to future disputes between the Executive and Legislative branches, it makes clear the Legislative branch was dominant, with the Executive branch acting as its agent.
With this ringing warcry, the French model nevertheless ushered in the extremes of the Terror, the Guillotine, and the Napoleonic conquests. The consequences of the French constitution undermined world confidence in the benevolence of public opinion, at least deeply confounding those for whom the democratic rule was not totally discredited. Once more new life was breathed into allegiance for the monarchy, military rule, and dictatorship. Public opinion, it seemed, was not either invariably benign or comfortably far-seeing. The noble savage, mankind naked of tainted civilization, was not necessarily wise or worthy of trust. Edward Gibbons, the 1776 author of The Decline and Fall of the Roman Empire was pointing out where it all might lead if we completely believed in the collective goodness of the human condition. At the least, the failure of the French Revolution complimented the viewpoint of the Scottish philosopher, Adam Smith, who also in 1776 emphatically urged a switch in that reliance toward a sense of enlightened self-interest, as follows:
It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner but from their regard to their own interest.
|Terror, the Guillotine,|
It is not surprising that Diderot rejected the Leibniz view of things that "All is for the best, in this best of all possible worlds." And, in view of his dependence on Catherine, not surprising he did not publish his rejection of it until 1823. Thomas Jefferson was in France as ambassador during the time of the American Constitutional Convention, fearing to confront George Washington; and likewise keeping his conflicting views private for several years. Eventually, they surfaced in the creation of an anti-Federalist political party along with the conflicts which kept the new nation in a turmoil for the following forty years. It is surely a testimony to the strength of the Constitution's design that the country was able to shift between such extreme governing philosophies but still hold together without changing the governing statement of purpose. Indeed, it is plausible to contend that our two political parties still continuously debate the useful tension between these two differing opinions.
|Thirteen Sovereign States|
In the case of the American Constitution, the initial problem was to induce thirteen sovereign states to surrender their hard-won independence to a voluntary union, without excessive discord. Once the summary document was ratified by the states, designing a host of transition steps became the foremost next problem. The dominant need at that moment was to prevent a victory massacre. The new Union must not humble once-sovereign states into becoming mere minorities, as Montesquieu had predicted was the fate of Republics which grew too large. Nor must the states regret and then revoke their union as Madison feared after he had been forced to agree to so many compromises. As history unfolded, America soon endured several decades of romantic near-anarchy, followed by a Civil War, two World Wars, many economic and monetary upheavals, and eventually the unknown perils of globalization. When we finally looked around, we found our Constitution had survived two centuries, while everyone else's Republic lasted less than a decade. Some of its many flaws were anticipated by wise debate, others were only corrected when they started to cause trouble. Still, many tolerable flaws were never corrected.
Great innovations command attention to their theory, but final judgments rest on the outcome.
Benjamin Franklin advised we leave some of the details to later generations, but one might think there are permissible limits to vagueness. The Constitution says very little about the Presidency and the Judicial Branch, nothing at all about the Federal Reserve, or the bureaucracy which has since grown to astounding size in all three branches. Political parties, gerrymandering, and immigration. Of course, the Constitution also says nothing about health care or computers or the environment; perhaps it shouldn't. Or perhaps an unmentioned difficult topic is better than a misguided one. Gouverneur Morris, who actually edited the language of the Constitution, denounced it utterly during the War of 1812 and probably was already feeling uncomfortable when he refused to participate in The Federalist Papers . Madison's two best friends, John Randolph, and George Mason, attended the Convention but refused to sign its conclusions, as Patrick Henry and Thomas Jefferson almost certainly would also have done. On the other hand, Alexander Hamilton and Robert Morris came to the Convention preferring a King to a President, but in time became enthusiasts for a republic. Just where John Dickinson stood, is very hard to say. Those who wrote the Constitution often showed less veneration for its theory, than subsequent generations have expressed for its results. Understanding very little of why the Constitution works, modern Americans are content that it does so, and are fiercely reluctant about changes. The European Union is now similarly inflexible about the Peace of Westphalia (1648), suggesting that innovative Constitutions may merely amount to courageous anticipations of radically changed circumstances.
|President Franklin Roosevelt|
One cornerstone of the Constitution illustrates the main point. After agreeing on the separation of powers, the Convention further agreed that each separated branch must be able to defend itself. In the case of the states, their power must be carefully reduced, then someone must recognize when to stop. If the states did it themselves, it would be ideal. Therefore, after removing a few powers for exclusive use by the national government, the distinctive features of neighboring states were left to competition between them. More distant states, acting in Congress but motivated to avoid decisions which might end up cramping their own style, could set the limits. The delicate balance of separated powers was severely upset in 1937 by President Franklin Roosevelt, whose Court-packing proposal was a power play to transfer control of commerce from the states to the Executive Branch. In spite of his winning a landslide electoral victory a few months earlier, Roosevelt was humiliated and severely rebuked by the overwhelming refusal of Congress to support him in this judicial matter. The proposal to permit him to add more U.S. Supreme Court justices, one by one until he achieved a majority, was never heard again.
Although some of the same issues were raised by the Obama Presidency seventy years later, other more serious issues about the regulation of interstate commerce have been slowly growing for over a century. Enforcement of rough uniformity between the states rests on the ability of citizens to move their state of residence. If a state raises its taxes disproportionately or changes its regulation to the dissatisfaction of its residents, the affected residents head toward a more benign state. However, this threat was established in a day when it required a citizen to feel so aggrieved, he might angrily sell his farm and move his family in wagons to a distant region. People who felt as strongly as that was usually motivated by feelings of religious persecution since otherwise waiting a year or two for a new election might provide a more practical remedy. However, spanning the nation by railroads in the 19th Century was followed by trucks and autos in the 20th, and then the jet airplane. While moving residence to a different state is still not a trivial decision, it is now far more easily accomplished than in the day of James Madison. A large proportion of the American population can change states in less than an hour if they must, in spite of a myriad of entanglements like driver's licenses, school enrollments, and employment contracts. The upshot of this reduction in the transportation penalty is to diminish the power of states to tax and regulate as they please. States rights are weaker since the states have less popular mandate to resist federal control. It only remains for some state grievance to become great enough to test the present power balance; we will then be able to see how far we have come.
|High Gasoline Taxes of Europe|
Since it was primarily the automobile which challenged states rights and states powers, it is natural to suppose some state politicians have already pondered what to do about the auto. The extraordinarily high gasoline taxes of Europe have been explained away for a century as an effort to reduce state expenditures for highways. But they might easily be motivated by a wish to retard invading armies or to restrain import imbalances without rude diplomatic conversations. But they also might, might possibly, respond to legislative hostility to the automobile, with its unwelcome threat to hanging on to local populations, banking reserves, and political power.
It helps to remember the British colonies of North America were once a maritime coastal settlement. The thirteen original states had only recently been coastal provinces, well aware of obstructions to trade which nations impose on each other. Consequently, they could readily design effective restraints to mercantilism within the new Union. Two centuries later, repeated interstate quarrels provided fresh viewpoints on old international problems. As globalization currently becomes the central revolution in trade affairs of a changing world, America is no beginner in managing the intrigues of international commerce. Or to conciliating nation states, formerly well served by nation-state principles of the Treaty of Westphalia, but this makes them all the more reluctant to give some of them up.
THE British may well have been high-handed with their American colonies, but they were precise while enacting the Prohibitory Act of December 1775 about why they would attack militarily in 1776. Their American subjects had formed a rebel government in 1775 called the Continental Congress, which then dispatched an Army under George Washington to wage war against British forces in Boston; and then showed no signs of disbanding. What could you call that, except an armed mutiny?
|Articles of Confederation|
The American colonists naturally had a different viewpoint. Because of the Prohibitory Act of 1775, they needed an established government of some sort to exist if war came, preferring not to be hanged for treason in defense of their rights as British subjects. Their primary grievance, at least at first, was taxation without representation. Many colonists were resistant to more than temporary independence from Britain. The most common goal of American moderates was then a variant of commonwealth similar to what was being discussed for Ireland. Once the British navy actually attacked, however, a strategic document describing what was contemplated for the far future was counter-productive. Strategic discussion bogged down into meaningless disputes between conservatives who wanted a strong central government, and radicals who argued for states' rights, neither of which was sufficiently tactical with British soldiers marauding the land.
To repeat the default position: Fighting the British fleet off Staten Island risked immediate hanging from the yardarm for treason, and the Articles of Confederation served the immediate purpose of legitimizing that. Lawyers may sometimes get lost in their own reasoning, but in this case, the advice was sound. Reconsidering the Articles after the Treaty of Paris was more appropriate, a smokescreen now only useful for confusing an angry British Admiral.
Although John Dickinson produced a workmanlike document in 1777 called the Articles of Confederation, it was weakened and not closely followed; formal ratification drifted during the first four years of the war. The chaotic situation also provided a pretext for some of the colonies to contribute less money or troops than their representatives promised. However, after five years of bloody warfare, an unratified Constitution became increasingly hard to justify, its disadvantages eventually outweighing any argument in favor. Robert Morris also decided the Articles needed to be ratified, as a sign of sufficient unity to justify long-term loans to them.
Morris at that time was called the Financier, a poorly defined office which in his aggressive hands meant Morris was effectively running the country. His position put him in the center of unenforceable promises of aid from the thirteen states, justified to him in all the contradictory ways of beleaguered debtors. Morris was enough of a businessman to know that hard-pressed debtors frequently offer weak excuses. So, whether he felt he was thwarting phony evasions, or really believed the states had legal concerns, he pressed ahead vigorously for ratification of the Articles of Confederation. This was soon accomplished in 1781, but unfortunately, it made little difference. It can be safely surmised this experience hardened his long-expressed conviction that every federal government must at a minimum have realistic power to collect taxes to service its debts. But to accomplish that, now required those ratified Articles must be amended or replaced; he had made everything more difficult. It would now be six more years before the "perpetual" Articles could be unraveled, in the form of a new Constitution. That provided for federal taxation and going forward made it considerably easier to amend than by unanimous consent of all the states. There remained the awkwardness of that term "Perpetual". The whole experience was exasperating, but it surely left him and others determined not to be dissuaded by fine points of legal language.
Any perpetual agreement never to allow amendment (except by unanimous consent) is visibly unwise, but that was what confronted those who now proposed to amend the Articles. At the least, it pushed the decision in favor of replacing the whole document. It was easier to brush aside a perpetual legal document, as unreasonable than to argue that obtaining thirteen votes was impossible. George Washington had spent a lifetime constructing a reputation for always keeping his word. If even Washington could agree the situation was unreasonable, the public was of a mind to accept that absolutely anyone should agree. Anyway, the reasoning behind the language in the first place was that thirteen former colonies were joining together for a larger Union which would continue after the Revolution. It was the Union which was meant to be perpetual, not the Articles. Curiously, this change also made it easier to expand the union; imagine the difficulty of obtaining unanimous votes from fifty constituent states. There almost seems to be an ominous political axiom buried in this situation: as the number of voters grows, the majority margin must narrow if a deadlock is to be avoided.
The Revolutionary War, begun in 1775, continued from 1781 (Yorktown) to 1783. Even during four succeeding years of peaceful governance under the Articles, from the Treaty of Paris (1783) to the Constitutional Convention (1787), not a great deal happened. But a few things did come up to test the usefulness of the Articles. The small war between Connecticut and Pennsylvania was settled by the Decision of Trenton, although state boundaries became largely formalities after the country was unified by Article IV of the Constitution. The Northwest Ordinance was passed. And the Constitutional Convention was agreed to. Several flags were tested and adopted. Robert Morris had swept aside the habit of micro-managing the country by Congressional Committee, delegating government departments to bureaucracy in the process. Of all these activities, the most important was the Northwest Ordinance, which demonstrated that important governmental innovations could actually be accomplished under the Articles.
Democracies all like to talk too much. Their constitutions typically run to hundreds of micro-managed pages, and get everyone confused, unless they are unwritten, which is really confusing. It's hard to remember, but the Articles were the first written constitution, and to this day no other former member nation of the British Commonwealth has a written constitution. By giving things a trial run in the Articles of Confederation, we learned what is important and wrote it down. The second time around, tested in war and in peace, we made important revisions. By the time of the Civil War, we had a written governing document that men would die for because they understood it and approved.
The Articles of Confederation were written during wartime conditions surrounding the attack on Philadelphia by the British and were initially adopted by the Continental Congress November 15, 1777. The Articles required unanimous ratification by all thirteen states, which was not attained until March 1, 1781, nearly four years later. The last hold-out state was Maryland, still concerned about its western borders. Almost all state borders had been under some degree of challenge during the interval between the French and Indian War and the American Revolution; Maryland still had a grievance. Robert Morris, unofficially running the government of America during the War, used the argument that lack of a stable agreement between the states greatly hampered his efforts to obtain foreign loans, and Maryland finally agreed. The change in status of the states from somebody's private property to common national ownership reduced the importance of defending internal boundaries. Local boundary issues changed from collective state grievances into petty complaints coming from individual landholders, thus exposing that personal quarrels often get dramatized into matters of local patriotism. Provisions of the Articles to permit free movement within the United States, and somewhat freer trade, encouraged more nationalistic viewpoints as the battle of Yorktown showed peace was approaching. The ability of the 1794 Eleventh Amendment to get ratified (prohibiting a citizen from suing another state in Federal Court), uncovers the threat to state power which was hidden in a unification of states and immediately perceived as such by local politicians. It might be noted that New Jersey and Pennsylvania never ratified this amendment, while an overwhelming majority of (Federal) Supreme Court Justices have seemed to favor undermining "state immunity".
The first draft of the Articles was written by the eminent lawyer John Dickinson, who provided for a stronger central government than the states proved ready for. Robert Morris, who finally pushed ratification of the Articles through to completion, had likewise refused to sign the Declaration. In both cases, uneasiness about anarchy and inflation was a major source of hesitation. By observing the positions of these two firm friends, it is possible to guess that the Articles already reflected a conflict between liberty and stability. The forces for prosperous stability temporarily yielded to more Romantic notions of freedom from government restraint, but only during the period of active hostilities with England. The conservatives waited until the evidence in their favor became unanswerable, and pushed the pendulum back toward orderliness, eight years later in 1787. As a timeless example of the two differing approaches, the difference is a stark one between the nation's inability to control Shays Rebellion in 1786 western Massachusetts, and President Washington's fierce restraint of western Pennsylvania's Whiskey Rebellion in 1791. To some extent, Washington's reaction was showmanship, but it was surely true that the United States was beginning to acquire a little taste for George III's viewpoint. Thomas Jefferson also noticed, rejected the concept utterly, and began to prepare his counter-attack.
Much more than the Articles of Confederation did, for all its proclamation of "perpetuity", The Constitution reflects a firm decision to establish a permanent national government. The Articles required unanimous consent of the states for most actions of Congress, and often resorted to supermajorities of two thirds in other situations. It conducted its affairs through committees of Congress, lacking any national executive or judicial branches. It thus invisibly gave the states which had such agencies a working veto power. Even appointed congressional committees were held on a tight leash. They were reappointed annually and term-limited to three years in any term of six. They voted by states, one vote per state. Although it was not explicitly stated that way, a consequence was the wartime national government had no real power to tax or to enforce its will against an unwilling state. It was a miracle we won that war, but the later obstacles to peaceful prosperity were even more difficult since without an external enemy the consequences were less certain. In case there was any final lingering doubt, any power not expressly stated was to remain with the states. For emphasis, that statement was the second sentence in the document.
On the other hand, the Articles did insist that states should acknowledge the laws of other states, at least in the freedom to travel, to recognize marriages, and to agree to extradition. The Northwest Ordinance enacted under the Articles of Confederation encouraged free public education, trial by jury, and due process. Progress in these areas laid the foundation for further progress under the Constitution and carried with it the implication that the romanticists for liberty did not consider national government power to be a threat in such areas. The view seems to have been that many government powers were harmless, but military power was so particularly dangerous to freedom that it was worth risking some freedom to constrain it. As we will see later, the Constitution was much more precise about what powers an effective government absolutely must have, if it is to defend the nation. And its eyes were more open to the benevolent peacetime potential of a central government. The Constitutional Convention might have achieved such goals by amending the Articles, except for the power which the Articles gave the states to resist the changes. That power must first be crippled by other amendments with a menacing tone. A two-step process of curtailing overall state power, followed by curtailing specified state powers, was a daunting one. Reducing state power would always be resisted more vigorously than pursuing public benefits of some sort. Someone among the Federalists decided that a complicated amendment process would be chancier than just tossing the Articles out in one tumultuous action. Whoever proposed that tactic, eventually succeeded in winning his bet.
There's a saying in poker circles: never play against someone with lots more money than you have. The American Revolutionary War can be thought of as just that sort of poker game. The British could afford to lose what they lost, while somewhat smaller debts were quite enough to overwhelm the French. The cost of any war is a guess because it cannot account for death and destruction it provokes. But after a few years, it could be observed the British were holding the British Empire, while the French were left with the desolation of their own revolution. The Americans held most of a continent, free and clear, in return for their sacrifices, although their physical sacrifice was the greatest of the three main war participants.
|Pierre Augustin Caron de Beaumarchais,|
Leaving the British aside, much of the money paid for the war passed through the hands of Robert Morris and Pierre Beaumarchais, so in one sense they paid for at least the munitions part of the war. At the time, Beaumarchais was penniless from a lawsuit, so he was a judgment proof manager of a dummy corporation, Rodriguez Hortales et Cie. The real payors were the French Government of 1 million livres, the Spanish Government of 1 million, and 1 million from several adventurous individuals. On the American side, Robert Morris was often personally responsible for defaults, as a result of the Continental currency made worthless from printing-press inflation. In a dramatic moment, Morris stepped forward and announced he and a few friends would stand behind the debts. Not only was Morris a wealthy man, but he was largely running the United States government. Among other considerations, he had a fairly good chance of inducing the government to raise taxes to pay its own debts before he would have to assume them. Many people doubted that ability, however. Even Morris' wealth would have been insufficient to carry the whole burden, so the guarantee he made must be seen as a form of default insurance or credit default swap, containing a high degree of risk. Regardless of details, if Great Britain won the war, both Morris and Beaumarchais would have been impoverished, and probably imprisoned. The main difference was that Beaumarchais was already broke.
Morris never forgot the message, that the real security backing the loans was the wealth of the North American continent. That's what America gained by winning, and that's what it would have lost if England won. If you win a war, buy real estate.
|Nicholas Van Dyke|
|Richard Henry Lee|
|Francis Lightfoot Lee|
|Signers of The Constitution|
John Dickinson was active in designing both the Declaration of Independence and the Constitution, but he signed neither one. His position on the Declaration was that England had behaved in an offensive way; but the situation was getting better and it was still possible to patch things up, even with a British fleet in New York harbor displaying hostile intent. His later position on the Constitution is less clear. Dickinson asked George Read to sign his name because he was sick. Whether this was a real illness or a diplomatic illness is not readily known.
Three active delegates made no bones about their opposition to the final product: Edmond Randolph and George Mason of Virginia were not mollified by private assurances that a Bill of Rights was necessary but could be added later. They refused to sign a constitution that did not currently include this most passionate of their demands. There is little doubt of their sincerity, but any politician today would recognize they also needed to protect their flank from Patrick Henry who stayed at home denouncing the whole enterprise. Henry was a powerful speaker, representing the Scotch-Irish Virginia Piedmont area. In Scotland, Ireland, and America, that group had been abused by English kings three times and wanted iron-clad protection against backsliding to English rule or English government models. It's quite possible that Virginia's George Wythe and James McClurg left the convention early in order to avoid the local political consequences of signing the document, or the equally uncomfortable stance of opposing George Washington. The sentiments of Virginia can be surmised when of the seven delegates sent by Virginia, only John Blair joined the two instigators, George Washington and James Madison in announcing their approval. A majority of the Virginia delegation was thus held back on ratification until only one last vote was needed for enactment. Without George Washington, there can be little doubt the whole effort would have failed. Indeed, a case could be made that the location of the District of Columbia and the election of Virginians as four of the first five presidents also has the appearance of trying to persuade the six hundred pound Virginia gorilla to play nice.
Elbridge Gerry of Massachusetts similarly refused to sign any constitution which did not include a Bill of Rights. However, Gerry undermined his stance on principle by inventing the technique of packing his opposition into one voting district (by shifting its borders) so his own party could win narrow majorities in several other districts. This sleazy manipulation of loopholes in the system has become known as Gerrymandering and raises a question perhaps unfairly, of where Gerry actually stood on every other issue in the Constitutional Convention. By contrast, it is impossible to imagine George Washington doing such a thing, and quite possible to imagine he would never again speak to someone who did.
In addition to the three delegates who stayed to the end but refused to sign, an additional four left early to demonstrate their protest: John Lansing and Robert Yates of New York; and Luther Martin and John Mercer of Maryland.
We are left less clear about the opinions of seven more who simply left the convention early (Oliver Ellsworth of Connecticut, William Houston and William Pierce of Georgia, Caleb Strong of Massachusetts, William Houston of New Jersey, and William Davie and Alexander Martin of North Carolina.) The same uncertainty extends to the eighteen delegates who were invited to attend but either refused or regretted their inability to attend: (Erastus Wolcott of Connecticut, Nathaniel Pendleton and George Walton of Georgia, Charles Carroll, Gabriel Duvall, Robert Hanson Harrison, Thomas Sim Lee, and Thomas Stone of Maryland, Francis Dana of Massachusetts, John Pickering and Benjamin West of New Hampshire, Abraham Clark and John Neilson of New Jersey, Richard Caswell and Willie Jones of North Carolina, Henry Laurens of South Carolina, and Patrick Henry, Richard Henry Lee, and Thomas Nelson of Virginia). These men were originally selected because of their local eminence, so some of them may have been unable to spend several months in a City that took days to reach on horseback. On the other hand, we certainly know where Patrick Henry stood, and a large number of other abstentions from certain states suggests more than personal inconvenience was involved. After all, Rhode Island refused even to nominate anyone to the Delegation. In this last case, a political issue was highlighted. The Articles of Confederation which were being replaced not only required unanimous consent to change them, but they affirmed the Articles to be permanent. Under ordinary contract law, that would be dispositive. But George Washington was hell-bent on replacing the Articles of Confederation, so what they said would then no longer matter.
There remains a need for someone, perhaps in a doctoral thesis, to examine the voluminous correspondence and recollections of the large group of non-signers to assess the true nature of their failure to attend or sign. There was plenty of room for honest disagreement, personal business back at home, illness, or feelings of inadequacy. On the other hand, plenty of other subsequent politicians have exhibited an unwillingness to offend anyone, a hope to seek advantage from both sides, or a habitual tendency of waiting to see who would win before stating an opinion. Politics would be better without such personal inadequacies, but politics would not be politics without them. In fairness to their quandaries, the voting on the Constitution was by states, requiring nine to adopt it. If the vote of their state was a foregone conclusion, some delegates probably had a right to go home and let it happen in their absence. In the case of Alexander Hamilton, here stood the sole New York delegate in attendance at the final signing. Since he had been agitating for this sort of reform for seven years before Madison and Washington convinced each other, it seems possible that others withdrew to let him have the limelight. There is little doubt the single remaining responsibility of the signers was to go home and "deliver" their state for ratification, and Hamilton went at that with a vengeance. Although the moment of final signing appears on portraits and in sculpture, it was only the beginning of the battle for adoption, not the final victory. Indeed the Constitution as we now perceive it did not take more or less final form until the early government shaped its operation in actual practice. Most of that shaping process also took place in Philadelphia, during the first ten years while the seat of government was still located there. In particular, many if not most of the elected members of the First Congress had been members of the Constitutional Convention, returning to Philadelphia to finish the job by writing the Bill of Rights.
The windows of Independence Hall were nailed shut and the delegates to the Convention sworn to secrecy. James Madison kept the official minutes and only released them years later. We may never be certain who was responsible for every feature, particularly the parts devised at home or in neighboring taprooms. That's the way they wanted it to be, however.
We easily notice the most influential men in each state were selectively chosen to attend, but it is hard to say whether that was done to increase the chances of state ratification, or whether it was intended to "stack" the votes in favor of rich and powerful. Perhaps some of both motives played a part, but primarily George Washington had state ratification in mind. As matters turned out, class frictions were more pronounced during and after the ratification than they were when the delegates were chosen. The Constitution encouraged the rise of the common man far more quickly than was anticipated. Almost every feature of the Constitution was considered for its effect on state ratification, whereas redistributionist ideas were largely unmentioned in the surviving records.
Although many patriots had similar feelings, George Washington stands above all others as the driving force behind calling the Convention. The experiences of seeing Congress reluctant to pay starving troops who had saved the nation, and the resulting mutinies, were almost too much for him to bear, and would have driven many other commanders to far more extreme actions in his place. James Madison, a generation younger than Washington, felt almost as strongly but could never have brought the Convention around to proposing a whole new structure of government. Washington needed a younger man to be his agent and picked this one out as the jockey for his racehorse. Washington wanted to preside and to glower at anyone who seemed to be saying the wrong things. Perhaps at some critical moment, his active intervention might save the day; he wanted to preserve that opportunity. Furthermore, Washington had not gone to college and felt he needed a scholar to suggest what the Greeks and Romans had done in similar circumstances. Particularly the Romans, whom Washington greatly admired.
Madison was short and socially awkward, still unmarried at age 36, much in awe of the towering General with his commanding demeanor. In spite of their obvious differences, they were both rich Virginia slave-holding planters; each regarded the other as the right sort. Madison was a Princeton graduate, in the days when that exposed him to Quaker beliefs and to teachers who had been prominent in the Scottish enlightenment. At that time, Virginia was by far the largest state, West Virginia and Kentucky had not yet been split off, and Virginia still held viable claims to the five states which were to become the Northwest Territory. Virginia firmly believed it had a right to run things in America.
Alexander Hamilton had been Washington's chief aide during the Revolution; their only conflict had been his demand to be released from headquarters duty to expose himself to the enemy in a flamboyant manner on the parapets of Yorktown. Hamilton the sharp-nosed little elf was a ladies man, to put it mildly. Even Martha Washington giggled about his behavior at parties. The New York delegation was split with divisions, and often Hamilton was the only New York delegate present at the Convention. It was usually quite enough. He organized the New York Federalist party and the Bank of New York seems to run around and be everywhere at once. In some ways, he was to Robert Morris what Madison was to Washington. That's where he got his financial ideas, but without need for encouragement, he ran around and got a million things done. There are portraits of him, but his real likeness is best captured in action by the elfin statue of him in Philadelphia's Constitution Center.
|Robert Morris Jr.|
Robert Morris Jr. was one of the richest men in America. Living near the waterfront of Philadelphia in a mansion, one of several he owned, Morris had arrived as a ten-year-old orphan and soon became a partner of the richest Quaker merchant by his astonishing energy and brilliance. When revolution had been proposed, Morris declared he was entirely satisfied with a king, but soon signed Thomas Jefferson's Declaration of Independence, and devastated the British merchant marine with his privateers and gunpowder smuggling in conjunction with the French playwright Beaumarchais, an equally remarkable man on the other side of the Atlantic. By the time of the battle of Trenton, Morris was essentially running the entire American government. He threw out the committee system and instituted the departmental bureaucratic system now still in use, all within a week of taking office. When the amateur Pennsylvania legislature created devastating inflation of paper money, leading to riots in the streets of Philadelphia, Morris brought the inflation to a halt by offering to finance the Revolution out of his own pocket. Living next door to George Washington, they became fast friends. Morris founded the first bank, selling bonds instead of using deposits, and then the second bank, using deposits in a modern way. He was much taken by Adam Smith and gave copies of The Wealth of Nations to influential friends. He engaged in a lively correspondence with Necker the French financier, which was cut off by Necker's death but probably formed the basis for what is now known as Hamilton's financial plan for the nation. Morris, accused only of recklessness rather than dishonesty later went to debtor's prison, tainted with the really dishonest finances of his partners, Governor Mifflin and comptroller John Nicholson. Morris repaid nine of the twelve million dollars he owed before being released by changes in the Bankruptcy Law which he suggested while in jail. During the Constitutional Convention, he seldom made a speech but was continually seen ducking in and out of conferences which very likely improved the future of the nation. With Washington running the Army and Franklin running the diplomatic mission in Paris, Morris is one of the three men about whom it can be said the Revolution could not have been won without him.
And finally, Gouverneur Morris, as "Lord of the Manor" the only titled aristocrat at the Convention, going back several generations before the English settlement of America. Morris was displaced by the British occupation of New York and became Robert Morris' lawyer. He was as tall as George Washington, but had both an arm and a leg badly injured in accidents; somehow, his many lady friends found it enhanced his attractiveness. Gouverneur is referred to as the "Penman of the Constitution", actually the editor.
So there you have the authors we can identify. It would be astonishing if Benjamin Franklin could sit there for months without saying a word, and he probably didn't. That old fox was in the habit of placing his words in the mouth of someone else so he could maneuver around any opposition. And he certainly waited until the last moment of hesitation, urging his colleagues to doubt their infallibility a little, and vote for the best they could probably produce.
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.
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.
|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|
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 the 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.
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 offering 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|
People have certainly tried to find fault with one thing or another to criticize about George Washington, Ben Franklin, and Robert Morris. They were certainly no angels, and they made mistakes. But these three men, far ahead of any others, were responsible for winning the Revolutionary War; it is pretty hard to conjecture how it could have been won without all of them.
Washington invented a style of warfare, modern weaponry, and organization grafted on to what was basically Indian guerilla war.
Ben Franklin invented many things and was clearly a genius. But his performance as the greatest natural diplomat of the Enlightenment was extraordinary. Franklin took the arts and wiles of diplomacy, an old-world sophistication of enormous complexity, and using his second-grade education eclipsed the acknowledged masters of the trade.
And Robert Morris was not merely a financial genius, because that merely implies a certain amount of academic skill, but invented modern finance for the benefit of his nation, made them rich against their will, and pushed the Industrial Revolution miles further down the road. Even when you know the details of all he did, the fact that he did it all, is astonishing. And we cannot overlook the fact that he made himself the richest man on the continent while he was doing the same for his country.
One other trait is common to these three who won the Revolution: they were deeply uncertain that it was a good thing to do. Morris refused to sign the Declaration of Independence for three months after July 4, 1776. Franklin spent most of his political life trying to unify the British and American empires. And Washington never did make a clear statement, during twenty years of striving to rescue a new nation, just what he didn't like about being a colony of Great Britain. Just imagine what Winston Churchill would have done with that material, and if readily becomes clear that all three saviors of the nation harbored many moments of doubt.
The finances of our new nation were subject to many violent swings from the day the British abandoned Philadelphia in 1778 right up to the end of the war in 1783, but things steadily turned for the better after Robert Morris took charge of the Department of Finance in 1780, and particularly a year later when he was given the confusing title of Financier. Those two-mile stones could be marked in another way; with the establishment of the Bank of Pennsylvania in 1780, and then a year later the Bank of North America. Both institutions were products of the Morris imagination, matching the evolving state of his thinking. But the politicians only permitted these innovations after bitter battles, so in a sense, they matched what he could accomplish politically, in two steps grudgingly forced on him by the world's reluctance to trust his ideas. It remains unclear which innovations originated with Robert Morris, and which ones were derived from the Swiss economist Jacques Necker, who had become the French Minister of Finance, or Adam Smith whose Wealth of Nations was published in 1776. There were obvious similarities in the approach of these men, and a means of communicating existed through Silas Deane in Paris. Curiously, Necker was primarily famous in Europe for shrinking the bloated and corrupt bureaucracy of French financial administration. It is not irrelevant that whenever clear thinking replaces floundering, waste and abuse begin to subside.
|The First Pennsylvania Bank|
The Pennsylvania Bank of 1780, unrecognizable today as a "bank", resembled a modern bond fund, operated as a partnership. It initially raised 300,000 pounds mainly from wealthy merchants, in return for interest-bearing 6-month notes. That money was promptly used to buy 500 barrels of flour for the troops at Morristown NJ. The bank thus served to transfer private funds to public purposes, which was what a rich nation urgently needs when its troops are starving.
It is always difficult to propose new ideas; in this case Morris also had to overcome resistance to taxes, which many citizens thought the Revolutionary war was all about. Taxation is, undeniably, a form of confiscation. When danger is clear at moments of panic, voluntary contributions may suffice; it is then almost sufficient to pass the hat. Soon enough, however, the government needs to increase incentives to induce the public to take the risk, hence interest rates offered by the bank must become market-driven, responding to negotiated public opinion. In short catastrophic wars for survival, a nation can gambles all its resources heedlessly. But steadily financing an eight-year war ultimately becomes a constant search for acceptable ways to transfer enough private wealth to cover the military effort, but not enough to stir up inflation. Floating interest rates, ultimately based on prevailing public opinion, do offer a match with changing prospects for victory or defeat, but only when they are not tampered with. Mismatches between public opinion and interest rates might seem tempting short-cuts to government, but they lead to inflation, price controls, rationing, and shortages of goods.
There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain of success, that to take the lead in the introduction of a new order of things.
|Niccolo Machiavelli --The Prince|
In the United States in 1780, a huge disparity between the sudden wealth of privateers, and the abject poverty of Washington's army provoked trouble. At a time when the army was barefoot, Robert Morris' personal wealth was estimated at eight million dollars, but it seems likely the contrast between barefoot soldiers and free-spending privateer sailors was even more divisive since recruitment preferences were affected. The government tried many things: inflation default, devaluation default, confiscations, and even a few timid taxes. That duty was even proposed in Congress to be levied on the prize captures of privateers, suggests the public was alert to windfall profits. But it seemed oblivious to the principle that if you tax something, you get less of it; Congress was effectively proposing to punish the capture of British ships.
The idea of some sort of bank first came to Robert Morris less than a week after he stepped forward into the rioting streets to offer ten thousand pounds of his own money for assistance to the army, and induced several dozen of his friends to be similarly generous. It was not only necessary, but it was also nation-saving. In the previous ten months, the Continental dollar had been devalued forty to one, and then later 65 to one. No one would trust such a currency, whose consequence was certain to be a military disaster. But Morris obviously also knew that winning a war run by private subscription was unlikely to last much longer than one which depended on inflated paper currency and price controls. Petaliah Webster, a brilliant economist for the day, published pamphlets sarcastically comparing price controls to the religious conversion of a prisoner on a torture rack.
Therefore, passing the hat was also only an expedient. A week later Morris reorganized the concept to be The Pennsylvania Bank, where variable interest rates would induce reluctant lenders to lend. It was perhaps one or two steps better than losing the war, but it was primitive and limited. So, although Morris had originally opposed the war for independence, and the public certainly wasn't thrilled with taxes, market-driven interest rates were about all the Continental Congress would tolerate, as a compromise between confiscation and begging. The principle of free-market interest rates worked, in the sense that the army was able to fight on for several more years, but ultimately the soldiers revolted for lack of pay. It was notable that the Pennsylvania Line led the mutiny, or protest march, from Newburgh NY to the doors of Congress, and George Washington came close to giving the troops his tacit approval.
|The Bank of North America|
Well before matters came to that crisis, The Bank of North America, similarly attracting risk money by paying interest, was established in 1781 with an additional feature of generating side revenue through commercial 30-60 day loans. It was brilliant politics since Congress (with difficulty) agreed to permit a private company to engage in commerce but would never have tolerated the government doing so. When the goal is to transfer money from the private sector to the public one, the public insists on the ability to limit the amount. Otherwise, the transfer is a confiscation. Morris soon realized there was a missing third step. If the wealth of the nation was pledged to repay the war debts, creditors would insist on knowing the government's plans for repayment in case the bank couldn't do it. With the states retaining the right to tax but refusing the Federal government the right to tax without permission, the bonds of the Bank of North America were riskier for investors than they needed to be. In the difficult later years of the war, dependence on French loans began to look unwise, so the inability of the Federal government to confiscate private assets began to worry creditors. Somehow, Morris seemed to think the unratified Articles of Confederation were the problem and forced their ratification five years late. It didn't help matters, however, finally making it clear that the debt problem could not be solved without a new Constitution. When the soldiers did start to revolt, it became absolutely necessary to do something. Ultimately, the Constitutional Convention of 1787 was the result. In the meantime, the United States almost did collapse after the Battle of Yorktown (1783), and the French Revolution of 1789 is plausibly blamed in large part on our failure to repay the huge French financial support of our independence. A nation which pledges its full faith and credit behind war bonds must somehow convince its creditors that it intends to repay its bondholders, almost as fully as it intends to survive the war.
of pledging the full faith and credit of the nation through imposing taxes as lender of last resort. You don't need to pay for the whole war with loans, but you do need to reassure creditors that you will tax to repay your debts rather than default on them. That is, loan repayment is placed "ahead" of taxation. If even that structure proves inadequate, well, your war is simply not winnable because it provokes a dissolution of the government. The American public in 1781 did not need to understand the logic; it had just watched the process in grisly action. The public would not accept banks backed by federal taxation except as a wartime expedient, and therefore Robert Morris failed in his most important proposal. Although he continued to press for this essential feature for nine more years until it finally succeeded, a second near-miracle was that he kept the nation solvent in the meantime. He achieved this with a breath-taking combination of expedients, energy, ingenious fixes, and bluff. But the Treaty of Paris did not come a day too soon. In characteristic fashion, he did a quick about-face and proceeded to manage a huge personal fortune during a post-war convulsion.
In late 1779, before Morris would accept the job of rescuing the finances of the floundering new Republic, however, he meant to set some things straight. Congress must therefore first agree:
-- That Robert Morris would not accept the job unless Congress agreed that he could retain all of his private partnerships. Ben Franklin had warned him how ungrateful the public could quickly become, and what a short memory it had for those who performed favors. The Congress was infuriated by such demands, but Morris was adamant. Lucky for him that he was, because his enemies soon emerged with that age-old question, "Yes, but what have you done for us, lately? " -- That Morris has the power to dismiss any and all persons concerned with public finances and the public tender laws, for a cause. --That it was acknowledged that he assumed responsibility only for new debts, not those which preceded his taking office. -- That he has the right to delay taking the oath of office, retaining his seat in the Pennsylvania Legislature, until the relationship was clarified to give him effective control of state finances.
It can be imagined how displeased the Congress was with these high-handed stipulations, but they agreed to them.
Within three days of assuming office, -- Morris announced plans for the Bank of North America, our first true bank. -- Asked two personal friends, Thomas Lowrey, and Philip Schuyler, to buy one thousand barrels of flour on their own credit. He added, "I must also pledge myself to you, which I do most solemnly as an Officer of the Public. But lest you like some others believe more in private than in public credit I hereby pledge myself to pay you the cost and charges of the flour in hard money." -- Argued eleven points against the issuance of more paper money, particularly its requirement to be accepted as legal tender: "Because the value of money and particularly of paper money, depends upon the public confidence, and where that is wanting, laws cannot support it, and much less penal laws. . . Penalties on not receiving paper money must from the nature of the thing be either unnecessary or unjust. If the paper is of full value, it will pass current without such penalties, and if it is not of full value, compelling the acceptance of it is iniquitous." -- Arranged for the sale of western lands, to raise money. -- Acknowledged the Army was owed its back pay. -- Changed the War, Marine, Treasury, Foreign Affairs from committees of Congress to permanent departments.
The Constitution does not prohibit paper money, as a glance inside almost any wallet will demonstrate. Although counterfeiting was a common problem in early America because of the primitive state of 18th-century printing, and the problems of inflation were commonly confused with the use of paper money, the Colonial merchant class mostly knew better. Paper money was a term of art for inflation, mostly evidenced by shortages and price controls, escalating prices and hoarding of goods. The Nobel economist Milton Friedman was succinct: "Always and everywhere, inflation is a monetary problem." Friedman was cute and brief, but he might have been slightly more clear. Governments control the money supply, mostly by borrowing to delay paying for their own spending. Inflation is not caused by paper money, or banks, or price controls. It is caused by governments spending borrowed money, thus increasing the money supply faster than the goods money can buy.
America may not have had any hard money, and many people were having a difficult financial time of it, but in Morris's view, America was rich. America had rivers and forests, farms and factories, immigrants pouring in, and a prosperous energetic people already here. Even today, it is impossible to estimate what all that is worth, especially during periodic bank panics when everything seems worth a great deal less. A creditor wants to get his money back, so he will only loan appreciably less than he thinks the collateral is worth; a nation's real worth is therefore considerably greater than creditors collectively will lend. The creditors, unfortunately, don't really know what the nation is worth, either, and they have learned not to believe a word of what a debtor tells them. A nation's credit is estimated by the creditor community, and the one thing they know for certain is whether the nation has a history of paying its bills. A debtor may walk around in rags, or his wife may wear diamonds. The lender ignores all that; the question is does he pay his bills, promptly and in full. If he does that, he will have credit, and if he doesn't, he hasn't a dime of credit. What's America worth, according to that standard? About twice what the creditor is willing to lend him, and even that is a guess. It's why shop owners drive Cadillacs and investment bankers marry movie stars; and recently, why everyone had an inflated mortgage. Finally, it's why Alexander Hamilton wanted to buy up the war debts of the state governments, and pay off the worthless Continental currency. William Bingham may well have got rich speculating on Continental currency, but who cares. It's a cost of doing business, ultimately designed to assure you of ample credit.
Under the circumstances, it is sometimes difficult to understand why Morris was so moderate in his demands for clauses in the Constitution. He certainly did insist on the federal unlimited taxing power, which did in effect pledge the entire credit of the United States in the repayment of its debts, right down to the last shoe-button. And he was thwarted in even his own ability to make the four (Pennsylvania, North America, First and Second) national banks permanent. In general, however, Morris and Hamilton relied on the private sector and on legislation, rather than seek the sovereign level of federal power in the Constitutional Convention. When you recall those bullets whizzing around at Fort Wilson and at Yorktown, this level of self-restraint is rather remarkable.
Charles Peterson developed the idea but was unsuccessful in popularizing it, that Spruce Street in central Philadelphia could be regarded as an architectural museum. It stretches from river to river but has no bridge or ferry landing at either end, so traffic is less. The earliest house still standing near the Delaware River was built in 1702, with successive houses just a little younger, or at least less old, as you progress toward Broad (14th) Street whose houses were built around 1880. And then onward into the early Twentieth Century, crossing Broad Street and going westward toward the Schuylkill. For a century or more West Spruce Street was where eminent specialists had offices, much like Harley Street in London, which it somewhat resembles. The medical flowering of this area was promoted by the surgical advancements of the nearby Civil War, as well as the contributions of Andrew Carnegie to moving the College of Physicians from 13th street to 21st Street, attracted toward the 7000-bed Civil War hospital which turned into Philadelphia General Hospital in West Philadelphia. A number of these houses are just plain too big to be manageable as single family houses today, and Spruce Street West has lagged Society Hill and other Easterly sections in restoring its buildings. Perhaps in a few decades, that will happen, and perhaps in the meantime, the present relics will be preserved enough to revive someday the idea of a house design museum. Meanwhile, West Philadelphia around Spruce Street has obstructed progression by plonking the University of Pennsylvania, Drexel University and the Science Center as obstacles to residential housing development.
So let's take a simpler idea. For roughly a century, the then-richest men in America lived in one of several houses located within seven blocks of each other, easy walking distance for a tour. The first to attract notice as a self-made rich man was Robert Morris. Morris made his money in shipping, maybe even a little privateering, and then went into banking to keep his money at work. It is said that his personal fortune, adjusted for changes in the currency and economy, was once considerably larger than Bill Gates' would be today, adjusted for inflation. As most people know, Morris financed the American Revolution personally, went broke, ending up in debtor's prison. The first real mansion he lived in was opposite Independence Hall on Market Street, now celebrated as George Washington's while he was the first president. It was earlier the place where British Admiral Gates lived while he was in charge of the 1788 British occupation, and although it was also where Washington lived during most of his presidency, the house burned down in 1832. This house is not to be confused with either the house built for Washington at 9th and Market but never occupied by him or Morris's later mansions which he also never occupied because of financial difficulties. One house in the midst of Jeweler's Row was so ornate some think it contributed heavily to his later bankruptcy. A second Morris house still stands on Eighth Street at St. James Street, but it belonged to the Quaker Morris family, no relation. Other owners named Morris bought and occupied this place for a number of years, so its history is a little mixed up, presently as a fancy restaurant. A DuPont heiress once bought and fixed it up, but her husband commented no one could sleep in that house because a subway built underneath it badly rattled its timbers. Next door to the Quaker Morris house rises a fifty story apartment house, whereas a precaution against rattles, the first nine stories contain nothing but parking spaces. Since the apartment building is owned by Arabs, it is likely they are pretty rich but not necessarily richer than Bill Gates. Aside from the Market Street partial restoration, the main Robert Morris remnant is on Lemon Hill, northwardly opposite the Art Museum, whereas the main Quaker Morris house is in the Morris Arboretum in Chestnut Hill. There are sixty or so Morris's listed in the Social Directory, so keeping the two families distinct remains a difficulty in some circles.
On the Northeast corner of Third and Spruce Street, once lived William Bingham, a former partner of Morris and later himself the richest man in America. Although sadly the house burned down, it is displayed in one of the famous prints by William Birch in his notable Eighteenth Century collection , widely available in bookstores. The striking thing about Bingham was that he was only twenty-eight years old when he achieved richest-man status and built the house, patterned after one owned by a British Duke. He made his pile three times over. First, running a privateer operation in the Caribbean for his partner Robert Morris. On returning home, he bought up any worthless Continental currency he could stuff into barrels, and then either persuaded his friend Alexander Hamilton to redeem the currency at par or heard his plan to do so. And then, as if he didn't have enough money already, he invested enough gold bars to finance the Louisiana Purchase for Jefferson, since Napoleon wanted gold, please, no paper money. Among the various things he bought as an investment was the area in upstate New York, now called Binghamton. He lost a pile of money buying the land we now call the State of Maine since post-revolutionary Westward migration turned toward Ohio rather than into his Maine holdings once the British prohibition on colonizing past the Allegheny mountains was lifted. Bingham's sister-in-law wanted to become engaged to the heir of the Crown of France, who was living in temporary exile around the corner on Walnut Street. In a famous, possibly fictional, response, the Dauphin was told, No. If you do not become the King of France, you will be no match for her "The Golden Voyage". Quite a good read, and of particular interest to Philadelphia lawyers who learn Bingham died in 1804, but his estate was not settled until 1960. The lawyer who closed the case reported his partners were less than pleased to see it go.
Stephen Girard built several houses a few steps west of Bingham on Spruce Street, identifiable by having marble facing on their lower few feet; Charles Peterson lived in one of them as the first pioneer resident of the Society Hill revival. Girard made his money in the China trade, as a ship's factor. Like Morris, he recognized America's crying need for banking in a story too complicated to repeat here and moved the Girard Bank into the First Bank of America, now a museum (Peale portraits, architectural fragments) of the Park Service on Third Street. His wife was insane, and spent most of her life at the Pennsylvania Hospital at Eight and Spruce, and was eventually buried there. Girard left thirty million dollars to found the Girard College for "poor, white, orphan boys". His 1830 will withstood all legal attacks until the mid-Twentieth Century but was eventually broken. The school now has many black girls, is bankrupt, and the definition of orphan has expanded to include any child whose parents are separated. The definition of "poor" is several times greater than the national definition of the poverty level. In his will, Girard specified that the estate should purchase what is now Schuylkill County and hold it for a century. Shortly thereafter (or just possibly very shortly before that), coal was discovered in the region and Girard College became far richer. His correspondence includes many letters to Lafitte the Pirate, so more may be heard of them.
Nicholas Biddle had "old money", which he made in the traditional way of buying real estate, particularly in Ohio. He thus made a better guess than Bingham about the likely path of westward migration. But like Morris and Girard, he needed a bank to finance the real estate. Biddle also acted as the reserve bank for the myriads of currencies then issued by individual rural banks and charged a transaction fee to translate Kentucky money into something useful in Philadelphia or abroad. Martin Van Buren, who was the political manipulator behind Andrew Jackson and who became Andrew Jackson's eventual successor, stirred up trouble about this reserve role, and Jackson "broke" Biddle's bank by withdrawing federal deposits. Jackson's complaint was that holding federal "paper" eventually resulted in a government guarantee the bank could never fail, in an echo of the present accusation of some banks being "too big to fail". Ultimately, investment banking began to take its modern formwhen in 1838, the richest man, Anthony J. Drexel, moved over the Schuylkill River on Walnut Street, amidst what is now the University of Pennsylvania, but not far from Drexel University. He walked to work each day, however, at 4th and Chestnut Streets. Drexel was the first big banker to make his fortune in banking, and when he died it was said Philadelphia banking died with him. The earlier big bankers started out with money they had made in shipping or land speculation, but Drexel somehow saw that banking was a different way to get rich, deftly filling in the gap created by Andrew Jackson shuttering Nicholas Biddle's Second Bank. Part of the idea in Van Buren's mind was to shift the focus of American banking from Philadelphia's Chestnut Street to New York's Wall Street, and he was quickly quite successful. J.P. Morgan was invited by Drexel to start a Wall Street partnership with him in correspondence with his father, Junius Morgan, who ran an international bank in London. In the era just after the Civil War, there was a great deal of money in Europe anxious to be invested in the railroads and other booming American industries. The Morgans provided a vehicle for transferring such investment capital between continents, but the Morgans were viewed as having excessively sharp practices. As it happened, Junius Morgan had been trained in this transoceanic concept by George Peabody, a former Baltimore resident who had moved to London, then, the banking capital of the world.
George Peabody earlier had also been involved with Anthony J. Drexel, and Drexel was the more successful of the two international bankers. The whole issue with European investors was whether you could trust those wild and wooly Americans, and Drexel consistently demonstrated he was entitled to be called a straight arrow. As related by a good book by Dan Rottenberg Drexel decided he needed the vigor of the Morgans and invited them to join him in a New York-Philadelphia partnership. From that point forward, JP Morgan was the shining star of honesty and straight dealing, a lesson he evidently learned from Drexel. Indeed, he and his biographers repeatedly stress this feature of him -- "I will never do business with a man I don't trust". He didn't mention women, but his behavior seems to show he probably didn't include them in the concept. Drexel, on the other hand, led a quiet sober life in West Philadelphia, reading books, starting his university, and helping his niece, who was later made a Saint in the Catholic Church, start numerous charities. Although the Drexel children more or less drifted out of sight, Drexel's business successor Stotesbury led a wild and extravagant lifestyle that is the subject of many songs and stories. His wife, for example, never washed the sheets; she always had brand new ones put on the bed. Morgan, of course, spent lots of money in a conspicuous way. The term Metropolitan identifies most of his projects, The Metropolitan Art Museum, The Metropolitan Opera, The Metropolitan Club on Fifth Avenue, with membership originally limited to his partners. The name Corsair also was a trademark, the name of his yachts, and a firm statement about his approach to things. Another difference between the Morgans and the Drexels was similarly in the New York-Philadelphia character. When Jack Morgan, the son of JP, died in the 1930's he left an estate of "only" three million dollars. It would be hard to say what the Drexel fortune was worth at that time, but it is safe to say it would dwarf that, considerably. Most of the Drexel family moved to London, but among other things, financed the restoration of the Benjamin Franklin House on Craven Street, a hundred feet from Trafalgar Square. When the House of Drexel was much blamed for the 1987 stock market crash, legions of Drexel defenders rose to protect the family name. Cabrini College, Eastern University, Valley Forge Military College, St. David's golf course and much of Radnor are only pieces of the Drexel holdings, today.
The traditional explanation for the two-chamber arrangement of legislative branches is that John Dickinson once crafted a compromise between the big states and the small-state demand for equality. That's accurate, and it's also true that the two-chamber system in Great Britain balances the power claims of the landed aristocracy with the demands of commoners. But only the Pennsylvania legislature of 1777 seems to have addressed head-on the issue of whether, in general, two were better than one. A central issue is whether the two chambers are selected by two distinctive characteristics, not what the characteristics are. By fighting to have only one chamber, the Pennsylvanians inadvertently demonstrated why unicameralism is unwise; shot themselves in the foot, as it were. Big state, little state, or patricians versus commoners, (or any other system of selection) was scarcely a central issue at all; what was essential was to create two bodies, with internal politics necessarily based on different criteria for leadership scheming. Electing representatives for six years rather than two is a minor distinction but it has a certain effect; after all, electing people for life would make a huge difference. Electing geographically, whether by counties as many states do or by state, is not terribly important in itself. What appears to be important is that one body is elected by the population, the other body geographically, and thus there are two different schemes to achieve power. Such differing political machines will seldom agree on a single pinnacle of power, thus undermining one of the central weaknesses of allowing political parties to exist. Washington believed he could achieve this outcome by making it a mark of disgrace to caucus outside of the voting chamber, probably not recognizing that relief from the temptations of tyranny was already built into the system by happenstance.
Bicameral, two-party legislatures seem to soften many of the objectionable features of political parties. Our founding fathers considered many things, but they never made up their minds about enduring political parties. Factions would, of course, appear with each contentious issue, but the modern idea of parties required experience to cope with, and the founding fathers had little experience. They were realists and pragmatists, but the concept of informal little warring governments within the government was a powerful concept they simply did not address. Part of that was due to the implacable resistance of George Washington to the whole idea; no one wanted to confront him on a topic he was so passionate about. His violent temper was famous, and sometimes it was irrational. He expected every senator and congressman to speak his mind on every subject, assuming an equal role from the day he was sworn in. For a while, it almost worked, largely because so many of the early congressmen had been members of the Constitutional Convention, hand-picked to be able to persuade their states to ratify it. But as elections became more routine it became evident that people who were primarily skillful at getting themselves elected would arrive in Congress, only to demonstrate they were lost, ignorant, or preoccupied. They "needed seasoning", out of which grew the seniority system, tending to substitute duration in office for competence and independence of mind; the main idea of seniority was to hold back raw newcomers, just a little. The vast variety of topics for Congress to consider inevitably demonstrated that many congressmen simply did not care what happened to a great many issues, but cared inordinately much about some others. Thus, the newcomers quickly needed a mechanism for trading their votes for "minor" issues in return for voting support on what they thought were "major" issues. As party leaders began to make an appearance, the leader acquired power through the seniority system, which quickly morphed from friendly advice to newcomers, into the warning phrase: "wait your turn".
Henry Clay, who had watched the system from the Senate, walked into the House of Representatives in 1811 and was elected Speaker on the first day. He quickly transformed the role of Speaker from an impartial umpire of debate and merged the powers of the Speaker with the powers of the Majority Leader. A supposedly independent Majority Leader still exists but is actually acting the role of the party whip. The true majority leader had pushed the nominal one aside, adding the powers of the speaker to his own. The supposedly impartial Rules Committee is merely an enforcer for the will of the majority party leader, rewarding and punishing Congressional colleagues as the Speaker desires. The volume of work relentlessly increased to over twenty thousand bills a year, so the larger House of Representatives was able to develop specialist experts in many fields which the Senate simply did not have the manpower to parcel out. Those who are familiar with the internal politics of large corporations will recognize the devastating threat of switching such a specialist from a field in which years of experience have been invested, into another field specifically chosen as a punishment, to seem unfamiliar or better still detestable. Speakers and Rules Committees which see themselves as impartial umpires do not do such things. But a power-hungry Majority Leader would laugh about it with his cronies. When a convulsive change of membership like the Tea Party suddenly makes an appearance, abusive leadership has a reason to mellow; but the difference between mellowing and biding your time is a small one.
The Senate has its own rules, so arcane and numerous it takes years to learn them. For present purposes, they are unimportant. The crucial thing is they are different from the House rules and tend to promote a different style of leadership. The leadership of the two bodies thus will usually have a clash of interest, and out of that comes restraint of arbitrary power. A phrase much in circulation within the Tea Party congressmen is that "The other party contains our adversaries, but the Senate contains our enemies." George Washington would not be amused, but Madison would be satisfied.
|Boston Tea Party|
The 1777 Pennsylvania Legislature seems to have grasped the idea behind a single Legislative body immediately. The Constitution of the State had been bitterly contested, and one of the main issues was unicameralism. The radicals wanted power for the Legislature, and this was one clear way to enhance it. What the heedless egalitarians did with power once they got it, had a lot to do with persuading the Constitutional Convention ten years later, that John Dickinson's bicameralism had a pretty good idea buried within his Grand Compromise. In retrospect, it can be seen that the victories at Trenton and Saratoga, plus the early successes of the privateer navy, strengthened the other colonies and mostly put moderates in charge; in Pennsylvania however it was the radicals who took over the leadership and started acting on the assumption that radicals were the natural leaders of the rebellion. At least one major cause of this peculiarity was that the British attack was focused on Philadelphia, and moderate forces were forced to flee. While the Continental Congress initially fled to Baltimore as Howe approached Trenton, they briefly returned to Philadelphia until the British were actually on the outskirts of town, and then fled a second time. Because there was general dissatisfaction with Baltimore, this time they went to Lancaster and then across the Susquehanna to the then little town of York. Morris was better prepared than most and had bought the von Stiegal mansion in the Lancaster suburb of Manheim. To the extent it was possible to direct the maritime and financial activities of the Continental Congress from such a distance, he was at least able to do it in moderate comfort. This movement of the Continental Congress may not have caused the radical uprising in Pennsylvania, but it certainly suppressed the moderate forces which would have acted to restrain it.
For practical purposes, The radical legislature got its unicameral wishes and started printing money recklessly, imposing price controls and personal threats against anyone who raised prices. The leaders of the Quakers, with Israel Pemberton ("The King of the Quakers") and several dozen others dumped into oxcarts, were exiled into the Shenandoah Valley of Virginia. James Wilson, obeying a lawyer's duty to defend his clients to the best of his ability, was the target of anger in the streets. A mob of radicals caught the Quakers emerging from the Arch Street meetinghouse and executed two of them. The mob continued a few blocks to James Wilson's house at 3rd and Walnut, and besieged a number of moderates including Robert Morris in the "Battle of Fort Wilson". The moderates were prepared to fight, but the appearance of the First City Troop put an end to the fighting of this revolution within the revolution. To a certain degree, the mob violence seems to have been provoked by food shortages, which were in turn caused by suppression of prices to a level the farmers would not accept. Inflation was raging out of control as the Legislature printed more money and attempted to make farmers accept it by force. A remarkably insightful economist of Philadelphia at the time, Pelatiah Webster, summarized the situation in a few pithy remarks which can scarcely be improved on today. Uncontrolled currency leads to inflation, inflation leads to price controls, and price controls lead to famine. The farmers simply would not sell their abundant crops for such constrained prices, city-dweller starvation notwithstanding. Their action was not violent; they simply withheld goods from the market, waiting for better prices. Price controls were, of course, futile after a very short time. Food riots were the last step before total chaos. Although the fighting stopped, the radicals consolidated their control at the next election, with Robert Morris and others of his sympathizers, turned out of office. After four years of war, things were beginning to fray at the edges.
|Posted by: jerry | Dec 26, 2012 9:49 PM|
|Posted by: Andralyn | Apr 22, 2011 6:59 PM|
New blog 4448 :2021-03-27 11:16:36 TITLE Anthropy : Topic 168 : Topic 268 :
Anthropy : Blog 4448: Topic 168 :
A Change of Era
Few historical eras burst upon the world with the suddenness of the American one. It took place in Independence Hall, all right, but even more decisively in 1798 than 1776.
Robert Morris Has a Mid-Life Crisis
Robert Morris baffled everybody by abruptly abandoning his merchant career at the peak of his power. It remains a puzzling action, but somehow it displays American society's confusion as the Industrial Revolution confronted the last of the Enlightenment.
How Could an Honest Man Go Bankrupt?
By the standards of his day, and for the most part by present-day standards, Robert Morris was a completely honest man.
Morris Upended by a Nobody
Adjusting to winning the Revolutionary War was almost as painful as losing it would have been. Especially for Robert Morris.
The Revolution is Over, Every Man for Himself
Although his personal wealth in modern equivalents approached that of Bill Gates today, Robert Morris abruptly quit his business after a debate in the Legislature, just to show he had no personal bias. It ruined him, but John Hancock and George Washington did much the same thing. Ben Franklin agreed, but was shrewder about it.
It's curious how often the two American political parties have switched positions on the main issues of the day.
R. Morris, Land Speculator
In 1785, Robert Morris suddenly quit as the biggest banker and shipping merchant in Philadelphia. Maybe in all of America, too.
Robert Morris, Land Speculator
Robert Morris devoted considerable thought to land speculation, long before he got involved in it.
Richard Henry Lee: A Pennsylvania Viewpoint
Pennsylvania in 1776 was pacifist, prosperous, and slow to anger. Virginia was hot-headed and quick to anger. For some reason, Westmoreland County VA was the most extreme. Richard Henry Lee was their leader, and always the first to pound the table.
Real Estate Bubble Traps Robert Morris
His financial affairs were unusually complicated, but the main thing which destroyed Robert Morris was the collapse of a huge real estate bubble.
Last Will and Testment of Robert Morris, Jr.
Here is the last will and testament of the richest man in America -- for most of his life, but not the end of it.
Those Troublesome Lees of Virginia
It's difficult for Pennsylvanians to understand why the Lee family of Virginia made so much trouble for our heroes, Robert Morris, Benjamin Franklin, Gouverneur Morris in particular. Perhaps it was a cultural clash.
Pennsylvania's First Industrial Revolution
By 1776, a hundred forty years of lumbering had just about exhausted the forests on upper Delaware and Lehigh Rivers. The Revolutionary War then created a use for munitions and iron products in a region which discovered it was on top of Anthracite and connected to the fighting by a network of rivers.
This supposedly applies the requested link to VPN via LastPass.
Federal Reserve Banking: A Summarized Condensation
< The Federal Reserve System was created in 1913 when J.P. Morgan realized the coming World War I was going to be too big for one wealthy man or one firm to handle, so he led that discovery into the Federal Reserve System in 1913.
Federal Reserve:Front Stuff
DESCRIPTION: this is where you put a small summary blurb which appears in the little boxes.
Morris at the Constitutional Convention
Robert Morris knew that credit is only extended to someone with a reputation for paying his bills.
Lansdowne: John Penn: Franklin: Robert Morris:
John Penn, the last of the Penn Proprietors, lived in a mansion near what is now Horticultural Hall in Fairmount Park.
DESCRIPTION: this is where you put a small summary blurb which appears in the little boxes.
Debt and Corruption: One of Them May Ruin Us, or Save Us
It nearly ruined The Merchant of Venice . It ruined Robert Morris and it has ruined lots of nations. It got better for a while, but we are gradually waking up to what may become the greatest financial gamble in history.
Franklin, Washington, Madison, Alex. Hamilton, Robt. Morris, Dickinson, Gov.Morris
Three founders were Federalists from start to finish, Washington, Robert Morris, Hamilton. Two, Franklin and Dickinson, became Federalist at the last moment, and one dropped out later, Gouverneur Morris. The rest were either bystanders or Virginians. But all of them kept their word not to talk outside the group.
Appealing the Constitution to a Higher Authority
The original intent of the Constitution has as much to do with what the audience thought they heard, as what the Founders meant they were saying. Or possibly, what Gouverneur Morris thought they were saying.
Robert Morris: Businessman Father of the Bureaucracy
Only a few days after being appointed Financier, or acting President of the United States before the Constitution, Robert Morris swept away Congressional committees and replaced them with administrative employees.
Private Sector Disciplines Congress
"The bond market won't let you" has disciplined American governments for two hundred years. Robert Morris invented the idea. The nation's first bank was really its first bond fund.
Funding the National Debt
Funded debt, otherwise known as Capitalism, was a gift to the nation from Robert Morris, Jr.
Two Friends Create the Articles of Confederation
John Dickinson and Robert Morris were good friends who pushed the Articles of Confederation through to ratification. Both of them had been active critics of Great Britain's treatment of the colonies, but both hesitated to sign the Declaration, and both later relented and fought for Independence. Dickinson's final position is less clear, but it was Morris who first saw the weakness of the Articles, and pressed on for their replacement by the Constitution.
Morris Defends Banks From the Bank-Haters
To understand why lots of people today reflexly hate bankers, it's useful to review the courtroom defense of the man who invented America's first bank, facing ruin if he proved unconvincing.
Robert Morris refused to sign the Declaration of Independence because what he really wanted was Constitutional Liberty. He didn't even mind being a British subject and didn't want a different King. What was this all about?
By September 1776, the prodigiously energetic Robert Morris had set up an international network to evade the British blockades, arm the colonies, and encourage privateers to enrich themselves at British expense, if they could.
Statement of Accounts, March 1785
At the conclusion of Robert Morris' term of office as Financier, he did an unusual thing by submitting a complete accounting of his term. As things turned out, it was a good thing he did so.
Robert Morris, In Charge By Popular Demand
Franklin warned Morris: dictatorial powers in a crisis lead to a backlash, no matter how popular and necessary that arrangement may have first seemed.
Robert Morris, Financial Virtuoso
Robert Morris had two episodes of being in charge of the American government, one before and the other after, the class warfare at Fort Wilson. In both cases, he displayed a virtuoso ability to innovate in a novel emergency.
The Signers of the Declaration of Independence
It was ratified by the Continental Congress on July 4, 1776. This anniversary is celebrated as Independence Day in the United States. The handwritten copy signed by the delegates to the Congress is on display in the National Archives in Washington, D.C. How many of these worthies were picked by Washington to invite to the Constitutional Convention?
George Washington Demands a Better Constitution
George Washington was an athlete, a soldier, and an adventurous leader. It is less appreciated that he constructed that aloof public image of himself, cloaking an activist politician and rather ambitious real estate developer. We got a new Constitution because he wanted a new constitution.
What Is the Purpose of a National Constitution?
The primary purpose of any Constitution is of course survival. Usually, but not invariably, that means avoiding war with a neighbor which will surely beat you. Having stated what ought to be obvious, the framers of a Constitution need to be careful of the reasons which originally caused the new state to be formed, and also need to avoid provisions which would cause trouble by inciting some different type of governance. These features can be enumerated, but are easily forgotten.
Aftermath: Who Won, the States or the Federal?
The auto and the jet plane changed all the rules of the American Constitution of 1787. Curiously, canals were central to the Peace of Westphalia of 1648, the other great political innovation of modern times.
American Articles of Confederation, Valuable or Hindrance?
The American Articles of Confederation were devised and then completed in Philadelphia. Correcting their biggest flaws made it easier to accept a sparse Constitution which is hard to amend. But it gave the British a legal way to hang them as rebels.
Writing and Ratifying the Articles of Confederation
The Articles of Confederation defined terms of alliance in a largely unexpected war, and were only fully agreed to as the Revolution drew to a close. Peacetime amendment was hampered by wartime oaths of "perpetual" Union, combined unrealistically with a crippling ability of individual states to block reductions of their own power. Nevertheless, many features of the Constitution were anticipated in the Articles.
Who Paid for the Revolutionary War?
Great Britain lost the war with the American colonies and paid for considerable costs. But France was the main financial loser in the sense that it couldn't afford what it lost.
Signers of the Articles of Confederation
The signers of America's first constitution, the Articles of Confederation, are less well-known than those of the Constitution or the Declaration of Independence, but they are no less important to our history. Some basic demographic information about these men is presented below.
Signers and Non-Signers of the Constitution
Seventy delegates were invited to attend the Constitutional Convention, fifty-five attended the sessions, but only thirty-nine signed it. Considering that Rhode Island refused to send delegates, that sounds like a closer vote than it really was. But it was definitely not unanimous.
Personalities Who Wrote the Constitution
Seventy-four men were invited to the 1787 Constitutional Convention in Philadelphia; fifty attended. Fewer than a dozen were known to make a significant contribution, although it is hard to believe Benjamin Franklin and John Adams were as silent as the records seem to depict them.
Penman of the Constitution
The courts have spent a fair amount of time arguing about the meaning of phrases, words and even punctuation in the Constitution. That's what constitutional lawyers think they are paid to do. It seems possible the document survived for centuries, only because its final wording was left to a lawyer who took words seriously, using as few as possible.
Who Won the American Revolution?
In one sense, King George III of England provoked the American Revolution, and he also lost the war. Seen from the American side, the three towering heroes were George Washington, Benjamin Franklin, and Robert Morris.
Robert Morris Invents American Banking
It's now hard to imagine getting along without banks, but Robert Morris had to invent the idea in 1780. Many people were horrified.
Many of the episodes of discord between American revolutionaries and other American revolutionaries was occasioned by what was popularly scorned as "paper money", actually disputes overinflated currency between debtors and creditors. The Constitutional Convention was grimly determined to put an end to this matter.
The Richest Men in America
In ten minutes, you can walk between the Society Hill homes of Robert Morris, William Bingham, Stephan Girard, and Nicholas Biddle.
Legislative Branch: Two Chambers or One?
The Romans, two thousand, and the Icelanders, one thousand years ago, developed parliaments that served as models for our own Congress. They were unicameral, however. Bicameralism had the model of the British Parliamentary system, but the Aristocratic House of Lords is currently being whittled away. The Pennsylvania Constitution of 1777 seems to have been one of the few to recognize how important the distinction is, and shows why two are better than one. The British better go back to the Thirteenth century and start over.