WEBVTT NOTE 70. Robert Morris and the Public Debt 1 00:00:00.000 --> 00:00:06.000 Volume 4, Chapter 70, Robert Morris and the Public Debt 2 00:00:06.000 --> 00:00:16.000 Even more important than Morris's monetary program was his fiscal policy, the key to which was taking the Revolutionary War public debt, 3 00:00:16.000 --> 00:00:24.000 loan certificates, which had been going the way of the continentals and making it a permanent burden upon the body politic. 4 00:00:24.000 --> 00:00:33.000 In Morris' phrase, he wanted to bind the national government to powerful private interest, to the interest of moneyed men. 5 00:00:33.000 --> 00:00:47.000 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. 6 00:00:47.000 --> 00:00:54.560 1888. Morris frankly told Congress that the securing of adequate revenue to pay the interest 7 00:00:54.560 --> 00:01:00.680 and eventually the principal of the certificates would cause the highly depreciated market 8 00:01:00.680 --> 00:01:07.980 value of these securities to rise. This windfall at the taxpayers' expense would, according 9 00:01:07.980 --> 00:01:15.040 to Morris, cause wealth to flow into those hands which could render it most productive. 10 00:01:15.040 --> 00:01:20.240 of debt and centralized government were mutually reinforcing. 11 00:01:20.240 --> 00:01:25.720 On the one hand, public creditors lobbied for a strong central government in order to 12 00:01:25.720 --> 00:01:28.500 raise the value of their securities. 13 00:01:28.500 --> 00:01:34.680 On the other, now that the war was about over, only the alleged sanctity of the public debt 14 00:01:34.680 --> 00:01:40.760 remained as an argument for strong central government by those who wanted such a government 15 00:01:40.760 --> 00:01:44.900 for many reasons of power and health. 16 00:01:44.900 --> 00:01:50.940 If the Revolutionary War debt was to be funded, its ultimate redemption secured, there were 17 00:01:50.940 --> 00:01:53.420 two ways to go about doing it. 18 00:01:53.420 --> 00:01:59.640 One way was compatible with the decentralized system of the United States, to apportion 19 00:01:59.640 --> 00:02:05.060 the Congressional debt among the states, and to allow the states to pay their quotas by 20 00:02:05.060 --> 00:02:07.580 raising their own taxes. 21 00:02:07.580 --> 00:02:13.640 The other way meant an upheaval of the existing system and the eagerly sought completion of 22 00:02:13.640 --> 00:02:19.640 The Nationalist Counter-Revolution, Keeping the Debt National and Giving to the Central 23 00:02:19.640 --> 00:02:23.800 Government the Crucial Power to Tax. 24 00:02:23.800 --> 00:02:29.400 The Conservatives had been able during the Morris regime to stretch the powers of Congress 25 00:02:29.400 --> 00:02:35.640 far beyond what had been envisioned by the framers of the Articles, but one crucial power 26 00:02:35.640 --> 00:02:42.240 of coercive sovereignty the Congress still lacked, the power of taxation. 27 00:02:42.240 --> 00:02:48.580 As yet it could only requisition, ask the states to supply funds with no power to enforce 28 00:02:48.580 --> 00:02:50.320 its request. 29 00:02:50.320 --> 00:02:57.640 To Morris and his cohorts, of course, state apportionment of the public debt was anathema 30 00:02:57.640 --> 00:03:03.160 even though the debt could still have been paid, for then the seizure of the tax power 31 00:03:03.160 --> 00:03:10.520 vital to their cherished principles of national aggrandizement would have been lost. 32 00:03:10.520 --> 00:03:15.760 As of the vital political nature of the public debt, both the states and Congress began a 33 00:03:15.760 --> 00:03:23.800 seemingly ludicrous race to liquidate, formally assume at a certain specie value a mass of 34 00:03:23.800 --> 00:03:28.280 undigested paper certificates as their official debt. 35 00:03:28.280 --> 00:03:33.760 The more public debt the states or Congress could accrue, the stronger each of their claims 36 00:03:33.760 --> 00:03:37.960 to be the source of taxation and repayment. 37 00:03:37.960 --> 00:03:43.680 For their part, the states had already been asked by Congress in 1780 before the conservative 38 00:03:43.680 --> 00:03:49.440 takeover to assume all back pay debts to the Continental soldiers. 39 00:03:49.440 --> 00:03:56.440 This, most of them did, and they also assumed the burden of army pay for the years 1781 40 00:03:56.440 --> 00:03:58.720 and 1782. 41 00:03:58.720 --> 00:04:04.600 In order to make these payments, they issued interest-bearing military certificates, which 42 00:04:04.600 --> 00:04:09.960 which became the largest item of state debts after the Revolution. 43 00:04:09.960 --> 00:04:16.000 Robert Morris's zeal to pay government debts stopped short of paying the exploited Continental 44 00:04:16.000 --> 00:04:24.960 soldiery and his refusal to pay them any salaries in 1781-82 impelled the states to continue 45 00:04:24.960 --> 00:04:27.500 assuming the burden. 46 00:04:27.500 --> 00:04:32.720 Morris proved far more interested in paying his administrative personnel in order to build 47 00:04:32.720 --> 00:04:59.720 The States also assumed the great bulk of Congress's quartermaster and commissary debt. 48 00:04:59.720 --> 00:05:14.720 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. 49 00:05:14.720 --> 00:05:22.720 In addition, many of the states began to convert the remainder of these certificates into state debts. 50 00:05:22.720 --> 00:05:34.720 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. 51 00:05:34.720 --> 00:05:50.720 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. 52 00:05:50.720 --> 00:05:54.720 These securities were soon absorbed in state taxes. 53 00:05:54.720 --> 00:06:00.720 Thus, they not only assumed, but quickly absorbed these Federal debts in taxes, 54 00:06:00.720 --> 00:06:04.720 and left little or none as a permanent burden on the citizens. 55 00:06:04.720 --> 00:06:07.720 This process went furthest in the Southern states. 56 00:06:07.720 --> 00:06:15.720 As a result of the almost complete liquidation of Federal quartermaster and commissary certificates by the Southern states, 57 00:06:15.720 --> 00:06:45.720 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% 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 $80 million. 58 00:06:45.720 --> 00:06:57.720 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. 59 00:06:57.720 --> 00:07:03.720 Meanwhile, Morris pushed Congress to assume all possible remaining public debt. 60 00:07:03.720 --> 00:07:11.720 In February 1782, Congress resolved to liquidate all existing unliquidated Federal debt. 61 00:07:11.720 --> 00:07:18.320 Federal Debt. Commissioners were appointed to travel around and verify all the extant 62 00:07:18.320 --> 00:07:24.640 quartermaster and commissary notes, to revalue them at their market value and specie, and 63 00:07:24.640 --> 00:07:31.640 to exchange them for final settlement certificates amounting to over $3.7 million. The following 64 00:07:33.120 --> 00:07:38.880 year Morris insisted on assuming all Federal Army debts, which the liberals wanted the 65 00:07:38.880 --> 00:07:44.960 The states to assume, and 11 million dollars of final settlement certificates were issued 66 00:07:44.960 --> 00:07:46.840 to the soldiery. 67 00:07:46.840 --> 00:07:52.960 The southern states, however, had assumed the Continental Army debts within their borders. 68 00:07:52.960 --> 00:07:59.180 The effect of all this was to raise the federal public debt from 11 million dollars, the specie 69 00:07:59.180 --> 00:08:06.900 value of the assumed loan certificates in 1780, to over 27 million dollars at the end 70 00:08:06.900 --> 00:08:16.180 of the War in 1783. Of this total, the citizens of the South held only 16%, even though their 71 00:08:16.180 --> 00:08:22.660 proportion to the white population was well over twice that amount. 72 00:08:22.660 --> 00:08:28.460 Robert Morris won his point also. Under the Articles, the procedure agreed upon was that 73 00:08:28.460 --> 00:08:33.300 authorized federal and state expenses during the war would be lumped together as common 74 00:08:33.300 --> 00:08:38.620 and Charges, of which each state would pay its proper share according to the value of 75 00:08:38.620 --> 00:08:40.300 its land. 76 00:08:40.300 --> 00:08:45.220 In the final settlement, the war expenses of the various states would be reimbursed 77 00:08:45.220 --> 00:08:46.900 by the other states. 78 00:08:46.900 --> 00:08:53.100 Thus, states which had made heavy expenditures for the common war effort would be reimbursed 79 00:08:53.100 --> 00:08:56.020 by those that had made less. 80 00:08:56.020 --> 00:09:02.100 But Morris firmly established the federal debt, now greatly expanded, as payable by 81 00:09:02.100 --> 00:09:09.340 Congress alone and not by the separate states. In the various and often fuzzy and confused 82 00:09:09.340 --> 00:09:15.940 state claims for repayment by the other states for their war expenditures, Morris saw another 83 00:09:15.940 --> 00:09:22.900 opportunity to aggrandize central government power. During the invasion in the latter years 84 00:09:22.900 --> 00:09:28.740 of the war, the southern states were forced to incur large military expenditures without 85 00:09:28.740 --> 00:09:34.540 without observing the formal niceties of Congressional authorization. 86 00:09:34.540 --> 00:09:40.100 Now the Northern states balked at repaying the Southerners in interstate settlements 87 00:09:40.100 --> 00:09:42.340 for their wartime burdens. 88 00:09:42.340 --> 00:09:49.460 With apparent generosity to the hard-pressed Southern states, Morris proposed in 1783 that 89 00:09:49.460 --> 00:09:55.180 all claims be admitted without cavil, but that the payment be made to them in newly 90 00:09:55.180 --> 00:09:57.660 issued Federal securities. 91 00:09:57.660 --> 00:10:02.980 Furthermore, states which had incurred debts during the course of the war, including the 92 00:10:02.980 --> 00:10:08.380 debts for assuming the quartermaster and commissary warrants, could then eliminate the debt by 93 00:10:08.380 --> 00:10:12.480 simply paying their creditors in federal securities. 94 00:10:12.480 --> 00:10:18.980 In short, he was graciously willing to multiply the federal public debt still further, and 95 00:10:18.980 --> 00:10:23.200 to assume all state debts and expenses incurred during the war. 96 00:10:23.200 --> 00:10:28.600 His plan was premature at the time, but as the states continued to wrangle over the narrow 97 00:10:28.600 --> 00:10:35.680 technicalities versus the equity of the southern wartime expenditures, the way remained open 98 00:10:35.680 --> 00:10:42.560 for the seeming Deus ex machina of a federal assumption of all the war-born debts of the 99 00:10:42.560 --> 00:10:44.560 states. 100 00:10:44.560 --> 00:10:49.980 Until his cherished dream of a federal taxing power to pay for the public debt and for other 101 00:10:49.980 --> 00:10:59.980 If other purposes could be achieved, Morris did the best he could with the extant requisition system to build up a powerful Federal bureaucracy. 102 00:10:59.980 --> 00:11:09.980 The states had been accustomed to collecting requisitions for Congress in paper money and, in fact, to disbursing the money themselves in Congress's name. 103 00:11:09.980 --> 00:11:18.980 Congress's loan officers were state appointees and hence the states could control the expenditures as well as the revenues they raised. 104 00:11:18.980 --> 00:11:28.980 As soon as Morris assumed office, he persuaded Congress to insist that all revenues must be paid either in specie or in Morris notes. 105 00:11:28.980 --> 00:11:38.980 Even quartermaster and commissary certificates were no longer to be acceptable for the huge requisitions of $8 million in 1781 106 00:11:38.980 --> 00:11:46.980 in 1781 and 9 million in 1782. Furthermore, he very shrewdly relegated the state-appointed 107 00:11:46.980 --> 00:11:53.600 loan officers to clerical duties and appointed his own new staff of tax receivers, who took 108 00:11:53.600 --> 00:12:01.680 charge of all monies paid by the states to Congress. Appointed by and beholden to Morris, 109 00:12:01.680 --> 00:12:07.480 the tax receivers were usually not residents of the states in which they served, and they 110 00:12:07.480 --> 00:12:13.400 were also delegated as Morris's agents to lobby in the state legislatures. They were 111 00:12:13.400 --> 00:12:20.320 designed as the eager core awaiting the hoped-for federal taxing system. 112 00:12:20.320 --> 00:12:26.800 Of the appointments as tax receiver, the most important was in the spring of 1782, that 113 00:12:26.800 --> 00:12:34.240 of 27-year-old Alexander Hamilton, who had already made his mark as the outstanding theoretician 114 00:12:34.240 --> 00:12:36.480 of the American Right. 115 00:12:36.480 --> 00:12:43.680 During 1781 and the first half of 1782, he had published the Continentalist Essays, which 116 00:12:43.680 --> 00:12:50.540 called for stronger, central government, especially for congressional powers of taxation. 117 00:12:50.540 --> 00:12:55.960 Of all the conservative leaders, Hamilton was one of the first to realize fully the 118 00:12:55.960 --> 00:13:03.320 sharp conflict between their program and the liberal policy of laissez-faire that was growing 119 00:13:03.320 --> 00:13:10.240 in Adherence at Home and Abroad, putting himself squarely on the side of tradition as against 120 00:13:10.240 --> 00:13:16.720 speculative ideas, Hamilton wrote that there are some who maintain that trade will regulate 121 00:13:16.720 --> 00:13:24.000 itself and is not to be benefited by the encouragements or restraints of government. 122 00:13:24.000 --> 00:13:30.320 Such persons will imagine that there is no need of a common directing power. 123 00:13:30.320 --> 00:13:36.920 This is one of those wild speculative paradoxes which have grown into credit among us, contrary 124 00:13:36.920 --> 00:13:42.880 to the uniform practice and sense of the most enlightened nations. 125 00:13:42.880 --> 00:13:48.580 Hamilton explicitly invoked the tradition of the supreme French mercantilist Colbert, 126 00:13:48.580 --> 00:13:53.640 and he declared that to preserve the balance of trade in favor of a nation ought to be 127 00:13:53.640 --> 00:14:01.060 be a leading aim of its policy, even to forcibly preventing individuals from thwarting this 128 00:14:01.060 --> 00:14:02.060 aim. 129 00:14:02.060 --> 00:14:07.300 It should be noted that Hamilton considered the adoption of the Articles of the Confederation 130 00:14:07.300 --> 00:14:12.040 as a happy event, unless the people would be lulled into believing that the powers they 131 00:14:12.040 --> 00:14:15.320 gave to Congress would be enough. 132 00:14:15.320 --> 00:14:22.360 After his appointment as tax receiver for New York in July 1782, Hamilton and his father-in-law 133 00:14:22.360 --> 00:14:28.340 Philip Shuler, the leader of the New York Senate, drove through the legislature a call 134 00:14:28.340 --> 00:14:34.660 for a national constitutional convention to strengthen the Articles, a call probably drafted 135 00:14:34.660 --> 00:14:38.260 by Hamilton and approved by Governor Clinton. 136 00:14:38.260 --> 00:14:43.720 Meanwhile, Morris suggested to the public creditors that they form an organization in 137 00:14:43.720 --> 00:14:51.380 the states to demand the resumption of interest payments on loan office certificates and to 138 00:14:51.380 --> 00:14:55.740 The Call for the Establishment of Federal Taxation 139 00:14:55.740 --> 00:15:01.940 Inspired by Morris, the Philadelphia public creditors met and urged these demands. 140 00:15:01.940 --> 00:15:06.940 But Morris privately dressed them down for intemperate remarks and for their obviously 141 00:15:06.940 --> 00:15:10.580 sole concern for their own vested economic interest. 142 00:15:10.580 --> 00:15:16.340 Instead, he urged a broader alliance with the Quartermaster Commissary and other public 143 00:15:16.340 --> 00:15:17.340 creditors. 144 00:15:17.340 --> 00:15:22.340 Hamilton also organized meetings of public creditors to pressure the federal government 145 00:15:22.340 --> 00:15:27.060 and to enlarge their demands to call for stronger central government overall. 146 00:15:27.060 --> 00:15:33.980 In September 1782, Hamilton and Shuler organized a meeting of New York public creditors at 147 00:15:33.980 --> 00:15:40.540 Albany that petitioned the state legislature and Congress and planned a statewide convention 148 00:15:40.540 --> 00:15:46.460 at Poughkeepsie to be followed by a national public creditor convention at Philadelphia. 149 00:15:46.460 --> 00:15:53.020 Thus, they aimed at organizing the nation's public creditors as a vital pressure group 150 00:15:53.020 --> 00:15:55.740 for the nationalist program. 151 00:15:55.740 --> 00:16:02.100 But Morris and his confreres soon found that pressure by public creditors could be a two-edged 152 00:16:02.100 --> 00:16:03.100 sword. 153 00:16:03.100 --> 00:16:09.220 While the creditors preferred the nationalist solution of federal assumption and payment, 154 00:16:09.220 --> 00:16:14.260 They also preferred state redemption to no payment at all. 155 00:16:14.260 --> 00:16:20.280 The Pennsylvania meeting of public creditors therefore also petitioned the legislature to 156 00:16:20.280 --> 00:16:26.300 join the southern states in assuming unliquidated federal obligations. 157 00:16:26.300 --> 00:16:32.780 The legislature in response protested to Congress at the stoppage of interest payment and then 158 00:16:32.780 --> 00:16:38.620 warned that it would assume the interest payments due to its own citizens. 159 00:16:38.620 --> 00:16:45.940 The following year, 1783, Pennsylvania carried out its threat and gave to the public creditors 160 00:16:45.940 --> 00:16:52.100 resident in the state new certificates of interest receivable in taxes. 161 00:16:52.100 --> 00:16:58.060 At the same time, Pennsylvania created new taxes payable half in the interest certificates 162 00:16:58.060 --> 00:16:59.820 and half in specie. 163 00:16:59.820 --> 00:17:07.300 Thus, Pennsylvania created a new state paper money as well as assuming and funding part 164 00:17:07.300 --> 00:17:13.860 of the Federal Public Debt. Worse yet for the Nationalist, New Hampshire and New Jersey 165 00:17:13.860 --> 00:17:16.100 soon followed Pennsylvania's example.