So Geithner Thinks He Has Problems?
Robert Morris, signer of the Declaration of Independence and prominent pre-war Philadelphia merchant, faced a task that would have made Henry Paulson and Timothy Geithner quail when the Continental Congress appointed him Superintendent of Finance in late spring of 1781. In its effort to fund the American Revolution, Congress was well on its way to issuing $200 million in paper currency and security certificates based on less than $9 million in hard foreign loans, effectively destroying its credit. “Not worth a Continental” had become shorthand among soldiers and militiamen for describing anything devoid of value. The potential consequences of this Revolutionary liquidity crisis were dire: John Adams wrote to Congress from Paris in March 1781, “it is now generally considered … that the nation which can longest find money to carry on the war, can generally hold out the longest.”
In response, Morris put on a display of financial legerdemain that would be the crowning achievement of his life. Obtaining new loans from European powers largely on the basis of his personal credit and using his own fortune to help support or shift the public debt, he maintained the rebellion’s solvency. Foreign governments and merchants previously despairing of returns on colonial debt viewed Morris’s endorsement as the stamp of sound investment, so they kept the money flowing. Morris effectively bankrolled the remainder of the Revolution, his name and acumen purchasing American independence.
Many readers are probably wondering, “Why haven’t I heard of Robert Morris?” The answer involves a national need to sanctify the founding fathers, and the difficulty in doing so when those fathers wind up incarcerated. After the war, Morris threw himself into the “land jobber” craze for real estate speculation. He and two partners ran a holding company in the 1790s that – using Morris’s now unimpeachable credit – purchased immense tracts of land in six states. By one estimate, the company held over six million acres, including over thirty million square feet of lot space in what would become Washington, D.C. Morris personally bought the 4,000,000-acre western tip of New York State. He happily stretched his credit to ludicrous limits because he expected the U.S. to become an instant haven for European refugees and an expanding domestic population. As he explained to a German investor at the time, “the profit to those who can lay out the Money and keep the Lands will be certain and great.”
He was right about everything except his ability to “keep the Lands.” Demands for payment on his personal bills of credit and on the holding company’s stock began to trickle in. The trickle became a flood, outpacing both the value of his holdings and his credit. The sheriff arrived at his door in 1798 and carted him off to debtor’s prison, but not before he had injected over $3 million dollars of bad paper into the economy, leaving thousands of people with debt they’d never see repaid.
Only weeks after Morris entered jail, Congress swung into action on a bailout plan appropriate to its still modest means: a federal bankruptcy law. In February of 1800 it passed “A Bill, To Establish An Uniform System of Bankruptcy Throughout the United States,” and John Adams signed it in April. While federal bankruptcy was no billion-dollar “stimulus package” – it demanded the surrender of all real property – it was vastly preferable to state laws that bound debtors in indentured servitude or jailed them until friends and family made good.
The catch was, you had to be (or to have been) rich. Eligibility for federal bankruptcy and debt forgiveness required minimum arrears of $1,000, a sum far beyond the ability of ordinary citizens to accumulate in an era without easy credit. In other words, a “bankrupt” Robert Morris went home to his wife and a generous $1,500 annuity provided by prominent friends; ordinary Americans left holding small amounts of Morris’s debt or its derivatives still had to pay up or, in most cases, face harsh state laws governing debt.
One of those ordinary Americans was William Perkins, a Philadelphia carpenter who had worked on the lavish mansion Morris commissioned years earlier but would never inhabit. Having bought work materials with assurances of reimbursement from Morris, Perkins found himself in a situation many Americans understand all too well now, pressed by creditors whose quarrel should have been with Morris. Before Morris’s jailing, Perkins wrote to him simply, “Honored Sir, I take the opportunity of Informing you of my great necessity for money…it is out of my Power… I am under the necessity of beging [sic] your assistance.” It is doubtful that Perkins ever got restitution.
Robert Morris’s heroism during the revolution should not be forgotten, but neither should his later misdeeds. Perhaps if those misdeeds were better remembered, we would not again be facing that most American of injustices faced by William Perkins: unless you’re guilty of financial hubris that endangers the entire economy, you’ll suffer the havoc wreaked by those who are.