Conceived in Liberty (269 page)

As the war dragged on, the radical leadership of Pennsylvania was inevitably saddled with all the errors and excesses of the war effort, including the Battle of Fort Wilson, but more particularly the economic chaos caused by inflation and price controls. Even so, the upheaval of the October 1780 elections in Pennsylvania came as a sudden surprise. Philadelphia, in particular, turned out its radical constitutionalist representatives and swept the conservatives into power by a three-to-one vote. With the overthrow within Pennsylvania as their base, the conservatives were able to change drastically the ideological complexion of that state’s delegation in Congress. The stage was set for Robert Morris’ accession to almost supreme power in the United States.

In Virginia, the moderate administration of Gov. Thomas Jefferson was discredited by the British invasion and by the defeats in the war. These led to his replacement by the ultraconservative Thomas Nelson, who had opposed independence. Thus Virginia, too, was ripe for a swing to conservatism. The old Adams-Lee radical junto was no more, Richard Henry Lee having abandoned Congress during 1781. As for the remainder of the South, invaded, war-torn, and battered, it was hardly in any position to play a leading role in national politics. And in New York, George Clinton’s centrist administration permitted the conservative oligarchs plenty of room for maneuver, while at the same time its existence frightened the conservatives sufficiently to turn to national centralization as a refuge against political insecurity in New York.

*
E. Francis Brown,
Joseph Hawley: Colonial Radical
(New York: Columbia University Press, 1931), p. 177.

During 1780, before their stirring successes in Massachusetts and Pennsylvania, the conservatives dreamed of a national military dictatorship. General Philip Schuyler raised the call for dictatorial powers to be given to George Washington in the spring of 1780, and such leading archconservatives as James Duane, Alexander Hamilton (soon to be the son-in-law of Schuyler), and Washington himself were receptive to the idea. A convention at Boston in August, representing Massachusetts, Connecticut, and New Hampshire, issued highly conservative resolves, including the payment of Continentals by taxation, the creation of executive boards in Congress, and a virtual executive dictatorship. The Boston meeting inspired the New York legislature, in mid-October, to call for great internal power to be given to Washington. In November, the New England convention met again at Hartford, and urged great power to Congress, including taxation to pay interest on the public debt, and far greater power for Washington.

In response to this rapid drift rightward, the left tried to counterattack by proposing a radical decentralization of political rule. Throughout New York, for example, local precinct and county committees arose, and Albany County delegates called upon everyone to “recommence acting by committees.” But these vague phrases quickly proved abortive.

Meanwhile, young Alexander Hamilton, who was emerging as the brilliant premier theoretician of the nationalist forces, adumbrated the long-range conservative nationalist program in a letter to James Duane. Ultimately, wrote Hamilton, a new constitutional convention must be called, to endow a central government with “complete sovereignty” over
the political, economic, and military life of the several states. And above all, this political power must be based on the coercive economic power of various forms of taxation, which power Congress conspicuously did not have under the Articles. In the meantime, Congress must build up executive power by establishing powerful executive departments under single heads; and the army must be permanently riveted upon public life to serve as a disciplined coercive arm of the central government. One means would be to grant handsome lifetime pensions to its officers.

The sharp political swing rightward from 1780 to 1781, however, meant that the conservative oligarchs could achieve their aims without having to turn toward a military dictatorship. It was more satisfactory to them to work within the existing democratic forms to achieve at least their short-run goals. By early 1781, for example, John Mathews was content to abandon his proposed military dictatorship, and instead called for dictatorial powers in Congress.

In control of Congress in the 1781 session, the conservatives moved swiftly and efficiently to fasten their counter-revolutionary program upon the country. Their first step, spearheaded by James Duane of New York, was to build up a powerful executive by creating executive departments, each in the charge of one man. This meant not only the erection of quasi-independent departments manned by nonelected bureaucrats, but also the centering of power in one man rather than in the democratic revolutionary institution of boards or committees. On January 10, Congress decided to create a department of foreign affairs, to be run by a noncongressman secretary; and on February 7, a similar decision was made to create departments and individual secretaries of war, marine, and finance. Since the linchpin of the conservative nationalist program was financial, the finance appointment was the crucial one, and it went inevitably to the eminent leader of the conservative oligarchs, Robert Morris. So strong was his political position, indeed, that he was able to dictate to Congress the terms of his acceptance of the post: (1) express advance sanction by Congress of any private business dealings that he might have while in office, thus forestalling anything like another ruinous Silas Deane affair, and (2) the absolute right, not only to hire officials in his own department, but also to fire anyone in
any other
branch of the government. By accepting these outrageous conditions, after a month of balking and grumbling, the supine Congress was well on its way to putting Morris on the road to being dictator of the United States.

Assuming his post on May 14, Morris quickly gathered all manner of power unto himself. By August, instead of Congress’ selecting a secretary of the marine, the entire department was placed directly under “the Financier”; the various naval and admiralty boards were abolished and their functions also placed, incongruously but ominously, under the Office
of Finance. Those departments that he was not able to seize personally, Morris was able to place under the firm control of one of his friends or associates. At the War Department, Morris, seconded by Washington, tried to push Schuyler to be its head, but Schuyler’s problems with Congress over his military rank and career precluded such a bald choice. At the end of October, Gen. Benjamin Lincoln was finally selected as the compromise choice. But until Lincoln assumed his duties in January 1782, Morris ran the War Department through his old friend Richard Peters, secretary of the board of war; and afterwards, Morris was easily able to dominate the weak Lincoln, to allocate the vital war contracts, and even to set policy in handling prisoners of war.

The biggest fight over appointment was over the secretaryship of foreign affairs. Morris’ man was Robert R. Livingston, the New York oligarch and Morris’ business associate; but here the left, headed by Sam Adams, made its last stand, fighting fiercely for the eminent radical, Arthur Lee of Virginia. After liberal doses of bribery were administered to Congress by the French ambassador, the Chevalier de La Luzerne, who was fiercely pro-right and anti-Adams-Lee, New Jersey and Pennsylvania changed sides and even Virginia was induced to desert Lee. Livingston was chosen foreign secretary on August 8.

Under Livingston’s friendly aegis, most diplomatic functions were swiftly added to Morris’ power, including corresponding with American ministers abroad, handling the proceeds of all foreign loans, and the power to import or export goods on the account of the U.S. government at his own personal discretion.

To cement his power further over all branches of the federal government, every Monday night Morris called together the major executive officers of government, including Assistant Financier Gouverneur Morris, the secretaries for war and foreign affairs, the commander-in-chief, and the secretary of Congress, in an informal but effective cabinet meeting.

Thus, in a few short months, Congress had surrendered much of its power to single executives, and this power was swiftly fused into the hands of Robert Morris. Before the end of 1781, observers were noting that virtually every function of government had been centralized in the hands of Morris, and that the business of government was thereby being highly “simplified.”

Virtually Morris’ first act in power was a bill submitted to Congress only three days after taking office: his bold plan to create what was at one and the same time the first commercial bank in the history of the United States, as well as its first central bank. Inspired by the model of the Bank of England, created at the end of the seventeenth century, his object was to institutionalize a permanent interpenetration of public and private business, in a profound sense to make permanent the interpenetration that
Morris had personally achieved during the Revolutionary War. In both its temporary and permanent forms, this was an interpenetration through which public funds, whether obtained through taxation or creation of paper, could be channeled into the private pockets of Morris and his colleagues. Taxing would be necessary to redeem at par that body of depreciated public debt which Morris and his friends so extensively held. This new “Bank of North America” would prevent the nation from lapsing into an economy based on hard money, and would be the device for returning to inflation. This time, however, it would be a more discreet inflation, controlled and managed for the benefit of Morris and company. The razzle-dazzle of complexities and mysteries of high finance—as well as the supposed needs of the vanishing war effort—would serve as the cloak for the hard realities of subsidy to a specially privileged few. Once again, revolutionary America was being pushed far in the direction of the reactionary British reality against which the new nation had struggled to come into existence, and the Bank of North America would have a vital role in this counter-revolution.

The idea of bringing to the United States a private central bank like that of England had been long in the air on the American right, and Alexander Hamilton, Gouverneur Morris, Pelatiah Webster, and the learned Pennsylvania lawyer William Barton had all outlined plans for such a bank.

Morris’ bill incorporated a Bank of North America, which was to receive monopoly privileges from the central government in several ways. First, it would be able to issue bank notes payable on demand, which would be receivable in all duties and taxes to all state and federal governments, at a par equivalent to specie. In addition, at least temporarily, no other banks would be permitted to operate in the country. Although the bank was to begin modestly with a private capitalization of $400,000 in specie, Morris envisioned its notes expanding to become the sole medium of exchange in the country. In short, the bank would have the monopoly license to inflate: in return for its privileges, it would graciously lend its newly created money to the federal government. In short, instead of inflating by simply printing new money, the government would only be able to issue new money by borrowing it from the privately organized Bank of North America.

The public debt holders were not to be forgotten in Morris’ scheme. Congress would insure the payment of interest and principal on its debt, and it could be deposited in the Bank of North America, thus becoming backing for the bank’s notes. Thus, the oligarchs were to benefit from issuing the new notes, and from being able to deposit their public securities as supposed backing for the notes.

Morris’ far-reaching plan passed very quickly at the end of May, and over only minimal and scattered opposition. Only Massachusetts, led by
James Lovell and old Gen. Artemas Ward, voted against the plan, although the moderate nationalist from Virginia, James Madison, balked slightly at the extreme concentration of power, which went far beyond the power conferred by the Articles. As a concession to the powers of the states, however, Congress allowed that the bank could not operate within those states which might forbid it, and that it could merely recommend, not prescribe, that the states receive its notes for all dues and taxes.

Founding owners and directors of the newly created Bank of North America included, apart from Morris himself, his old partner Thomas Willing as president of the bank, and such old friends and business associates as John Swanwick, William Bingham, Cadwalader Morris, Gouverneur Morris, George Clymer, and Jeremiah Wadsworth.

Despite this impressive roster and all of Morris’ power and cajolery, the financier was not able to raise anything like the modest legal minimum of $400,000 in specie capital. All that he could raise was $70,000, even with the aid of further financial juggling and subsidies to Morris and to his Pennsylvania friends. However, Morris was nothing if not resourceful in dealing with the funds of other people. When $462,000 in specie arrived as a loan to the United States government from France, he simply appropriated $254,000 of it to subscribe to his own Bank of North America on behalf of the federal government. This unauthorized act of virtual embezzlement went almost completely uncriticized. For the remainder of his needed “capital,” he illegally secured pledges, and Congress incorporated the bank. It began operations on January 7, 1782.

No sooner did it open its doors than Morris borrowed heavily from it for government operations. It could only lend at short term, but its loans to the government during the Morris administration totalled over $1.2 million. Since the government had to keep repaying loans, however, total notes outstanding at any time did not exceed $420,000. Morris personally benefited in several ways from these varied operations. The bulk of the specie capital of his bank was supplied by Morris out of government funds; then a multiple of these funds was borrowed back by Morris as government financier for the pecuniary benefit of Morris as banker; and then he channeled the money largely into war contracts for his friends and associates.