Volume 4, Chapter 70, Robert Morris and the Public Debt
Even more important than Morris's 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 interest of moneyed 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.
1888. 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.
of 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 health.
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.
As 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
which became the largest item of state debts after the Revolution.
Robert Morris's zeal to pay government debts stopped short of paying the exploited Continental
soldiery and his refusal to pay them any salaries in 1781-82 impelled the states to continue
assuming the burden.
Morris proved far more interested in paying his administrative personnel in order to build
The States also assumed the great bulk of Congress's 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% 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.
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.
Federal Debt. Commissioners were appointed to travel around and verify all the extant
quartermaster and commissary notes, to revalue them at their market value and 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
The states to assume, and 11 million dollars 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 dollars, the specie
value of the assumed loan certificates in 1780, to over 27 million dollars at the end
of the War in 1783. Of this total, the citizens of the South held only 16%, even though their
proportion to 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
and 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
without observing the formal niceties of Congressional authorization.
Now the Northern states balked at repaying the Southerners in interstate settlements
for their wartime burdens.
With apparent generosity to the hard-pressed 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
If 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's name.
Congress's 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
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's 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 Adherence 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
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 the 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 Shuler, 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
The 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 Shuler 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 Nationalist, New Hampshire and New Jersey
soon followed Pennsylvania's example.