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The bank was the
brainchild of
Robert Morris (right),
newly installed in 1781 as Superintendent of Finance (see Creating
the Executive Departments).
Morris wanted an American national bank
modeled after the Bank of England.
The
Bank of England was privately owned but worked closely with the British
government. It
acted as a depository for
government funds, loaned money to the government, and in return held a
monopoly as the only limited-liability bank
in Great Britain, with its notes circulating as paper money.
Could an equivalent
bank be established in the United States?
This was an ambitious goal, considering that the United States at the time had no commercial banks, period.
The British had forbidden banking in the
colonies. There
were a few institutions
that called themselves banks and wrote mortgages secured by land, but
they
neither took deposits nor made commercial loans.
Morris
hoped to
capitalize his bank by selling $400,000 in stock.
Congress authorized him to put shares up for sale in
May 1781. The
response was
underwhelming. Money
was tight with the Revolutionary War raging, and
American investors were unfamiliar with banks.
The bank sold only about $70,000 in stock.
This
might have
stopped a lesser financier, but not Morris.
France at the time was allied to the United States,
and loaning money to
the American government. It
so happened
that a loan of $250,000 in hard money arrived in late 1781. Morris promptly invested
it, on behalf of the
American government, in Bank of North America stock.
This got him close enough to his goal of $400,000
in capital to get started. Congress
granted the charter, and declared Bank of North America bank notes to
be
receivable at face value for federal requisitions.
Some states, but not all, also accepted the notes in payment of state
tax. Congress also granted the
Bank a monopoly on
note issue until the end of the Revolutionary War.
There
was one flaw
in the scheme. The
government needed the
$250,000 that Morris had invested in bank stock, desperately and
immediately,
to feed and supply George Washington’s army.
This didn’t faze Morris.
He had
the bank turn around and lend the
money to the government. In
fact, the bank
lent the government not just $250,000 but $400,000, since banks can
issue an
excess of notes over capital, knowing that the notes won’t all be
redeemed at
the same time.
The
government had
no means of paying back these loans.
Again, this didn’t faze Morris.
When the loans fell due, he allowed the government
to forfeit its stock
back to the bank in lieu of payment.
By
this time the bank was up and running, attracting depositors and paying
dividends, and the shares soon found investors at the original asking
price of $400 per share. The
government was happy
because it parlayed a $250,000 investment into $400,000 worth of
supplies, and the
bank was
happy because it had gotten a good price for its stock, and had
benefited from the temporary
infusion of government capital.
After
forfeiting its
stock, the
government still owed the bank $150,000. This proved
difficult even for Morris; eventually he and his business partners
covered the obligation with notes of their own, setting up a debt
triangle in which the government owed Morris and his partners, who in
turn owed the Bank. Such arrangements invariably fed
suspicion of insider trading and profiteering (see right).
From
that point
forward, the bank parted company with the government.
 The
bank
(Philadelphia office below) was solvent, and the directors
wanted to keep it that way, but the government was broke. The government had nothing
to deposit in the
bank, and the directors refused to make any more loans to the
government without security. The bank failed to fulfill Morris's vision
as a
government partner.
The
bank as a bank,
however,
was a success. It
spawned imitators in
Boston and New York, once the war was over and the monopoly on note
issue
expired. Perhaps
more important, it
served as the model for the first and second Banks of the United
States, which
were chartered by, and did
partner with, the now-solvent federal
government under
the Constitution of the United States (COTUS).
The
Bank of North
America continued operating, as a private commercial bank, well into
the
Twentieth Century. It
eventually lost
its name in a merger, and many mergers later, has today been subsumed
into
Wells Fargo.
Sources:
Journals of the
Continental Congress, Volumes 20 and 21; Papers of Robert Morris,
Volumes 7 and 8; Elizabeth
M. Nuxoll, The Bank of North America and
Robert Morris’s Management of the Nation’s First Fiscal Crisis,
1984;
Charles Rappelye, Robert Morris,
Financier of the American Revolution, 2010
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Robert Morris
Before
there was Alexander
Hamilton, there was Robert Morris.
Nobody has yet written a musical about Morris, but
if anyone ever does,
it may have the sweep of a Wagnerian opera.
Robert
Morris was
born in Liverpool, England, in 1734.
His
father was a merchant who outfitted voyages to the American colonies,
and he
brought Robert into his trade. The
family emigrated to Pennsylvania in 1747.
Robert
excelled as
a merchant, and became one of the wealthiest men in America by the
outbreak of
the Revolution. Success
in trans-Atlantic
commerce demanded credit, judgment, knowledge of commodity markets, and
personal networking, and Morris excelled at all of these. He knew brokers and
factors in every major
port in Europe and America, and his credit was adequate to buy cargo
and outfit
ships for even the most ambitious multi-year trading voyages.
The
American
Revolution put this trading in jeopardy.
Great Britain (1775) closed the ports of the
colonies, and
pressured other
European nations, then neutral, not to trade with America either.
The
colonies in
1775 were not self-sufficient. They
needed to import guns, gunpowder, lead for bullets, and sailcloth in
order to
field an army and navy. Someone
would
need to organize voyages which could evade the British blockade and
find willing
suppliers in Europe. The
Continental
Congress turned to Morris.
Morris
had to work
in secret. Contracts
could not be put
out for public bid, lest the British hear of them and impound the
trading
ships. Suppliers in
Europe, leery of
offending the British, insisted on shipping under false papers and
false
flags. Merchants
mixed their own
civilian cargo with the military stores, helping to finance the voyages
and
providing cover in case of capture.
Morris excelled at such secrecy and chicanery, and
soon a thriving
commerce was in place. In
1778, France
entered the war as an open American ally.
Secrecy
arouses
suspicion, and Morris was not slow to attract critics who accused him
of
profiting at the public expense. One
member of Congress cited complaints of “the great expenditure of money
by the
Secret Committee (of Commerce)” and “the unsettled state of their
accounts”. Morris
patiently explained
that secrecy and insider trading had been features of his plan, not
bugs. After the
Articles of Confederation were
ratified (1781), Congress thought enough of Morris’ work to appoint him
to the
newly
created position of Superintendent of Finance.
Morris
served for
three years in that thankless role, juggling loans and notes of various
maturities and often using one lender to pay off another. He arranged for
contractors to supply the
army at a fixed price, helping to lower costs and keep George
Washington’s
troops fed and armed en route to the critical Battle of Yorktown. He pleaded repeatedly for
the states either
to send more money to Congress or to authorize Congress to lay taxes,
but to no
avail.
Again,
Morris
attracted critics. The
states resented
his endless hectoring, and the army resented that it was seldom paid. (Morris was happy just to
keep it supplied.)
Arthur Lee of Virginia, who hated Morris,
accused him of “daily rioting in Asiatic luxury” at banquets.
Morris
had had
enough. With the
war safely won, he
retired to private life in November 1784.
He later served in the Constitutional Convention of
1787 and represented
Pennsylvania for one term (1789-95) in the United States Senate.
George
Washington
offered to appoint Morris as Secretary of the Treasury under the new
COTUS in
1789, but Morris declined and recommended Alexander Hamilton instead. Hamilton brought Morris’s
program to fruition
by stabilizing the national debt with federal tax revenue and founding
a
national bank.
Morris
continued to
work as a merchant in his later years, but he lost his touch. His downfall began with
tobacco—not smoking
it, but trading it. A
partner whom he
had relied on to finance a voyage defaulted, costing Morris an enormous
amount
of money. Morris
decided to abandon
trans-Atlantic trading and speculate in land instead.
His
timing could
not have been worse. He
bought millions
of acres of western land on credit, intending to flip them for a quick
profit. The panic
of 1796 intervened,
ending speculation and collapsing land prices.
Morris collapsed with them.
By
1798 he was in debtor’s prison.
He
might have died
there, except that the Congress he had helped to create passed a
federal
bankruptcy law in 1800, and Morris was allowed to declare bankruptcy. “I now find myself a free
citizen of the
United States,” he reported in late 1801, “without one cent that I can
call my
own.” He lived out
his life on the
charity of former partners, and died penniless in 1806.
Source: Charles Rappelye, Robert Morris, Financier of the American Revolution,
2010
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