The Free Market 13, no. 2 (February 1995)
America's bankers consider Robert Morris a hero. More than 15,000 of them belong to Robert Morris Associates. Founded in 1914, the RMA organization strives for professionalism in banking practice and considers ethics paramount.
So who is the revered figure after whom this association of ethical bankers is named? An RMA publication claims Robert Morris was an "American patriot who signed the Declaration of Independence and helped finance our Revolutionary War and establish our banking system."
An "American patriot"? Hardly. Did he finance the Revolutionary War? Just the opposite. Did he establish our banking system? Maybe. But that's nothing to brag about.
Robert Morris came to America in 1747 with his father, a Liverpool tobacco agent. The young Morris apprenticed with an important commercial mercantile establishment in Philadelphia, becoming a full-fledged partner while still in his early twenties. By 1775, Morris was the lead partner in Willing and Morris, one of the principal mercantile and landholding companies in Pennsylvania.
As a member of the Continental Congress, Morris voted against independence in July 1776. He was not a friend of freedom, but a pragmatic businessman, and did not want to disrupt his many English trading relationships.
But changes in the political winds resulted in his signature on the Declaration of Independence the following month. As Morris biographer Clarence Ver Steeg notes, Morris was a "political moderate leaning slightly toward 'conservatism' whose actions on policy are conditioned for the most part by the existing situation rather than by any fundamental precept."
Robert Morris was a member of the Secret Committee of Correspondence in November of 1775. This Committee was created to procure, pay for, and distribute arms, powder, cannons, clothing and other war needs. Much of this was done by contracting with commission agents. And, as W. James Ferguson wrote in The Power of the Purse, "The merchant whose career owed most to the fertile linkage of public office and private business was Robert Morris."
Morris also became chairman of the Secret Committee of Trade in 1776, and used that position "to become possibly the richest and certainly the most famous merchant in the country." His position on these two committees made Morris, "the virtual manager of foreign procurement."
As Ferguson wrote, "much of the committee's business was conducted by the firm of Willing and Morris under its own name. Only the bookkeeping entries separated the company's affairs from those of the government."
From 1775 to 1777, nearly $500,000 in contracts went to Willing and Morris. Another $290,000 in contracts went to other Morris partnerships. The Committee's total purchases were two million dollars.
One of the benefits chairman Morris enjoyed was the use of the government's money to finance his private operations. If a venture was successful, the money was replaced with his own. However, as Ferguson described, "it is clear that Morris...diverted at least $80,000 to his own purposes and did not replace it." In 1776, $80,000 was no small sum.
Robert Morris's ethics are summed up by this message to his partner, Silas Deane; "It seems to me the opportunities of improving our Fortunes ought not to be lost, especially as the very means of doing it will contribute to the service of our country at the same time."
It's impossible to know the full extent of Robert Morris's larceny. He was frequently investigated for his actions, but the charges never stuck. When he retired from Congress, Morris took his records home and kept them for more than six months. The returning of them, incomplete, gives "apparent substance to the accusations against him."
Robert Morris became the Superintendent of Finance during the last years of the war. Throughout the war, the government issued notes to pay for supplies. As Ron Paul and Lewis Lehrman describe in The Case for Gold, these loan certificates were "accepted by the merchants because the government would not pay anything else. Hence, the loan certificates became a form of currency, and rapidly depreciated." This debt, as Paul and Lehrman point out, "could have depreciated and passed out of existence by the end of the war, but the process was stopped and reversed by Robert Morris."
Morris sought to reward those speculators who had purchased the depreciated debt certificates "by paying interest and principal at par in specie." As Ferguson wrote, Morris "told Congress that if the debt were properly funded, the market value of securities would rise, causing wealth to flow 'into those hands which could render it most productive.'"
It's likely that Morris was one of these speculators. Morris freely admitted that he "instructed his tax receivers to give priority to the redemption of his personal notes and pay them in specie."
Morris also sought the power of the federal government to tax. Ferguson noted that "without federal taxes there could be no bank nor loyal public creditors, no evolution of Congress into an effective central government. 'The political existence of America,' said Morris, 'depends on the accomplishment of this plan.'"
Morris sponsored poll taxes, property taxes, commodity taxes, and customs duties. At the same time, Morris, attempting to marshall support for federal taxes, used his position to stir up both the army (by not paying it), and public creditors (by ceasing all interest payments). He recommended that no more interest payments be made until federal taxes were established.
Morris told creditors in Philadelphia that he "promised to make a report in favor of federal taxes adequate to the entire debt." Plus, he inflamed the army at Newburgh by circulating a pamphlet that said, "if this be your treatment [no pay] while the swords you wear are necessary for the defense of America, what have you to expect from peace?"
Three days after he become Superintendent of Finance, Morris submitted a plan to establish a central bank. A year later, in 1782, The Bank of North America was born, with Morris at the helm.
At first, Morris was unable to raise the required amount of specie capital to start the Bank. Then, according to Paul and Lehrman, "in an act tantamount to embezzlement, [Morris] simply appropriated specie loaned to the U.S. by France and invested it for the government in his own Bank." This was typical of Morris's actions during the war.
"A multiple of these funds was then borrowed back from Morris's bank by Morris as government financier for the pecuniary benefit of Morris as banker; and finally, Morris channeled most of the money into war contracts for his friends and business associates."
The Bank was the first fractional-reserve commercial bank in the United States, as well as a privately-owned central bank, on the model of the Bank of England. It was granted a monopoly license to issue paper money. In exchange for this monopoly, the Bank would, as Paul and Lehrman describe, "graciously lend most of its newly-created money to the federal government to purchase public debt and be reimbursed by the hapless taxpayer." And lend it did: $12 million to the Congress, which was also headed by Robert Morris.
In 1783 Morris began speculating in vast tracts of land, betting on an appreciation in values. But by 1795 his projects had failed. Unable to pay his creditors, Morris was sent to debtor's prison. He died in 1806.
Maybe today's commercial bankers believe that a government insider who uses his position to gain great wealth at the expense of the taxpayers is a hero and a patriot. Most people would not.
As Ferguson wrote, "the myth still persists that Robert Morris financed the Revolution out of his own pocket." In fact it was the other way around; the Revolution financed Robert Morris.
Morris did help establish our fraudulent fractional-reserve banking system. As Murray N. Rothbard has written, "issuing promises to pay on demand in excess of the amount of goods on hand is simply fraud, and should be so considered by the legal system."
Rothbard does not "accuse present-day bankers of conscious fraud or embezzlement; the institution of banking has become so hallowed and venerated that we can only say that it allows for legalized fraud, probably unknown to almost all bankers."
The very ethical bankers of the RMA don't believe that they engage in fraud from 8 to 5, Monday through Friday. But, most likely, neither did their hero, Robert Morris.
