Conceived in Liberty (270 page)

Despite Morris’ power and eminence, the market in its wisdom knew that it was confronting notes inflated, however limited the extent, beyond specie backing. There was therefore a persistent tendency for the bank notes to depreciate, especially as they travelled from the bank’s home base in Philadelphia. Indeed, it was forced to hire men at critical times to persuade redeemers of its notes not to ruin everything by insisting upon specie—a tacit admission of the bank’s unsoundness and inherent bankruptcy
as an issuer of demand notes beyond the specie available to redeem them.

Apparently Morris was not opposed to government-issued paper when he, personally, was the issuer; in addition to Bank of North America paper, Financier Morris issued his own notes, “Morris notes,” signed by Morris or his cashier in the Office of Finance as well as his private business partner, John Swanwick. The Morris notes were payable in specie on demand.

A second form of Morris notes, better termed “Morris warrants,” was payable at specified dates—usually in thirty to sixty days. Both forms of notes were receivable in dues and taxes and payable both by the government and then by Morris himself. He hoped that these notes would also help constitute the national currency medium. But Morris notes were even more inclined to depreciate, especially in New England, where they quickly fell by about 15 percent. Morris tried desperately to avoid depreciation, even threatening to force federal officers to make up the difference themselves if they should pay more than specie prices for purchases in Morris notes.

The confidence in Morris notes was never great, especially in New England, and hence these notes rather than specie were paid in taxes, and tax collectors presented them to the Office of Finance for payment. Total Morris notes and Morris warrants issued during 1782 amounted to approximately $400,000; but by late August, Morris, disheartened by the reception of the notes, decided to stop issuing them and to retire them as they were received in taxes. Even this contraction could not stop the depreciation of the notes in Massachusetts.

Even more important than Morris’ monetary program was his fiscal policy—the key to which was taking the Revolutionary War public debt (loan certificates) which had been going the way of the Continentals, and making it a permanent burden upon the body politic. In Morris’ phrase, he wanted to bind the national government to powerful “private interest,” to the “interests of monied men.”

In 1780, Congress had been forced by its financial difficulties to suspend payment of the interest on its debt payable on paper money: the loan certificates issued after March 1778. Morris frankly told Congress that the securing of adequate revenue to pay the interest and eventually the principal of the certificates would cause the highly depreciated market value of these securities to rise. This windfall at the taxpayers’ expense would, according to Morris, cause wealth to flow “into those hands which could render it most productive.”

Public debt and centralized government were mutually reinforcing. On the one hand, public creditors lobbied for a strong central government in order to raise the value of their securities; on the other, now that the war was about over, only the alleged sanctity of the public debt remained as an argument for strong central government by those who wanted such a government for many reasons of power and pelf.

If the Revolutionary War debt was to be “funded” (its ultimate redemption secured), there were two ways to go about doing it. One way was compatible with the decentralized system of the United States: to apportion the Congressional debt among the states, and to allow the states to
pay their quotas by raising their own taxes. The other way meant an upheaval of the existing system and the eagerly sought completion of the nationalist counter-revolution: keeping the debt national and giving to the central government the crucial power to tax. The conservatives had been able, during the Morris regime, to stretch the powers of Congress far beyond what had been envisioned by the framers of the Articles; but one crucial power of coercive sovereignty the Congress still lacked—the power of taxation. As yet it could only requisition: ask the states to supply funds with no power to enforce its request. To Morris and his cohorts, of course, state apportionment of the public debt was anathema—even though the debt could still have been paid—for then the seizure of the tax power, vital to their cherished principles of national aggrandizement, would have been lost.

Because of the vital political nature of the public debt, both the states and Congress began a seemingly ludicrous race to “liquidate” (formally assume at a certain specie value) a mass of undigested paper certificates as their official debt. The more public debt the states or Congress could accrue, the stronger each of their claims to be the source of taxation—and repayment. For their part, the states had already been asked by Congress (in 1780, before the conservative takeover) to assume all back pay debts to the Continental soldiers. This most of them did, and they also assumed the burden of army pay for the years 1781 and 1782. In order to make these payments, they issued interest-bearing “military certificates,” which became the largest item of state debts after the Revolution.
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The states also assumed the great bulk of Congress’ Quartermaster and Commissary debt. In 1780 they began to accept in taxes the very highly depreciated Quartermaster and Commissary certificates, absorbing about $130 million in the nominal value of the currency in taxes. In addition, many of the states began to convert the remainder of these certificates into state debts. Generally, the state assumption of federal certificates arose from pressure by the people, who demanded that the states accept both federal and state certificates in taxes. As a result, many of the states at the end of the war “liquidated” (formally adjusted to specie value) these federal certificates as part of the state debt and gave the public state securities in exchange. These securities were soon absorbed in state taxes.
Thus, they not only assumed but quickly absorbed these federal debts in taxes, and left little or none as a permanent burden on the citizens. This process went furthest in the southern states. As a result of the almost complete liquidation of federal Quartermaster and Commissary certificates by the southern states, very few southern citizens came to hold the remaining federal certificates. By the mid-1780s, there was over $3.7 million outstanding in federal Quartermaster and Commissary debt, of which only 7 percent was held by citizens of the states from Maryland southward; in contrast, the greatest concentration of the debt was in New York, New Jersey, and Pennsylvania, which held 83 percent of the debt. The result of this process of state assumption was therefore to increase the concentration of federal debt held in the northern, as opposed to the southern, states.

Meanwhile, Morris pushed Congress to assume all possible remaining public debt. In February 1782, Congress resolved to “liquidate” all existing “unliquidated” federal debt. Commissioners were appointed to travel around and verify all the extant Quartermaster and Commissary notes, to revalue them at their market value in specie, and to exchange them for “final settlement certificates” amounting to over $3.7 million. The following year, Morris insisted on assuming all federal army debts (which the liberals wanted the states to assume), and $11 million of final settlement certificates were issued to the soldiery. (The southern states, however, had assumed the Continental army debts within their borders.) The effect of all this was to raise the federal public debt from $11 million (the specie value of the assumed loan certificates) in 1780 to over $27 million at the end of the war in 1783. Of this total, the citizens of the South held only 16 percent, even though their proportion of the white population was well over twice that amount.

Robert Morris won his point also. Under the Articles, the procedure agreed upon was that authorized federal and state expenses during the war would be lumped together as “common charges,” of which each state would pay its proper share according to the value of its land. In the final settlement, the war expenses of the various states would be reimbursed by the other states. Thus, states which had made heavy expenditures for the common war effort would be reimbursed by those that had made less. But Morris firmly established the federal debt, now greatly expanded, as payable by Congress alone and not by the separate states.

In the various and often fuzzy and confused state claims for repayment by the other states for their war expenditures, Morris saw another opportunity to aggrandize central government power. During the invasion in the latter years of the war, the southern states were forced to incur large military expenditures without observing the formal niceties of Congressionial
authorization. Now the northern states balked at repaying the southerners in interstate settlements for their wartime burdens. With apparent generosity to the hardpressed southern states, Morris proposed in 1783 that all claims be admitted without cavil, but that the payment be made to them in newly issued federal securities. Furthermore, states which had incurred debts during the course of the war (including the debts for assuming the Quartermaster and Commissary warrants) could then eliminate the debt by simply paying their creditors in federal securities. In short, he was graciously willing to multiply the federal public debt still further, and to assume all state debts and expenses incurred during the war. His plan was premature at the time, but as the states continued to wrangle over the narrow technicalities versus the equity of the southern wartime expenditures, the way remained open for the seeming
deus ex machina
of a federal assumption of all the war-born debts of the states.

Until his cherished dream of a federal taxing power to pay for the public debt and for other purposes could be achieved, Morris did the best he could with the extant requisition system to build up a powerful federal bureaucracy. The states had been accustomed to collecting requisitions for Congress in paper money, and, in fact, to disbursing the money themselves in Congress’ name. Congress’ loan officers were state appointees, and hence the states could control the expenditures as well as the revenues they raised. As soon as Morris assumed office, he persuaded Congress to insist that all revenues must be paid either in specie or in Morris notes; even Quartermaster and Commissary certificates were no longer to be acceptable for the huge requisitions of $8 million in 1781 and $9 million in 1782. Furthermore, he very shrewdly relegated the state-appointed loan officers to clerical duties and appointed his own new staff of tax receivers, who took charge of all monies paid by the states to Congress. Appointed by and beholden to Morris, the tax receivers were usually not residents of the states in which they served, and they were also delegated as Morris’ agents to lobby in the state legislatures. They were designed as the eager core awaiting the hoped-for federal taxing system.

Of the appointments as tax receiver, the most important was in the spring of 1782, that of 27-year-old Alexander Hamilton, who had already made his mark as the outstanding theoretician of the American Right. During 1781 and the first half of 1782, he had published
The Continentalist
essays, which called for stronger central government, especially for Congressional powers of taxation. Of all the conservative leaders, Hamilton was one of the first to realize fully the sharp conflict between their program and the liberal policy of laissez faire that was growing in adherents at home and abroad. Putting himself squarely on the side of tradition as against “speculative” ideas, Hamilton wrote that

there are some who maintain that trade will regulate itself, and is not to be benefited by the encouragements, or restraints, of government. Such persons will imagine, that there is no need of a common directing power. This is one of those wild speculative paradoxes which have grown into credit among us, contrary to the uniform practice and sense of the most enlightened nations.

Hamilton explicitly invoked the tradition of the supreme French mercantilist Colbert; and he declared that “to preserve the balance of trade in favor of a nation ought to be a leading aim of its policy,” even to forcibly preventing individuals from thwarting this aim.

It should be noted that Hamilton considered the adoption of the Articles of Confederation as “a happy event” unless the people would be lulled into believing that the powers they gave to Congress would be enough. After his appointment as tax receiver for New York, in July 1782 Hamilton and his father-in-law, Philip Schuyler, the leader of the New York Senate, drove through the legislature a call for a national constitutional convention to strengthen the Articles, a call probably drafted by Hamilton and approved by Governor Clinton. Meanwhile, Morris suggested to the public creditors that they form an organization in the states to demand the resumption of interest payments on loan office certificates and to call for the establishment of federal taxation. Inspired by Morris, the Philadelphia public creditors met and urged these demands, but Morris privately dressed them down for intemperate remarks and for their obviously sole concern for their own vested economic interest. Instead, he urged a broader alliance with the Quartermaster, Commissary, and other public creditors. Hamilton also organized meetings of public creditors to pressure the federal government, and to enlarge their demands to call for stronger central government overall. In September 1782, Hamilton and Schuyler organized a meeting of New York public creditors at Albany that petitioned the state legislature and Congress and planned a statewide convention at Poughkeepsie to be followed by a national public creditor convention at Philadelphia. Thus they aimed at organizing the nation’s public creditors as a vital pressure group for the nationalist program.

But Morris and his confreres soon found that pressure by public creditors could be a two-edged sword. While the creditors preferred the nationalist solution of federal assumption and payment, they also preferred state redemption to no payment at all. The Pennsylvania meeting of public creditors therefore also petitioned the legislature to join the southern states in assuming “unliquidated” federal obligations. The legislature, in response, protested to Congress at the stoppage of interest payment and then warned that it would assume the interest payments due to its own citizens. The following year, 1783, Pennsylvania carried out its threat and gave to the public creditors resident in the state new “certificates of
interest” receivable in taxes. At the same time, Pennsylvania created new taxes payable half in the interest certificates and half in specie; thus, Pennsylvania created a new state paper money as well as assuming and funding part of the federal public debt. Worse yet for the nationalists, New Hampshire and New Jersey soon followed Pennsylvania’s example.