The title posed by Charles Rappleye’s lecture was “How Much Public Debt Can We Endure?” With President Obama’s words about taxes and a spending freeze still echoing off the walls in an adjacent room (it was the night of the president’s State of Union address), the question couldn’t be more relevant. In order to extract an answer, Rappleye delved deep into American history and into the life of a financier named Robert Morris.
“What I can tell you is that debt and finance have been central since the beginning,” said Rappleye, holding his book Robert Morris: Financier of the American Revolution in front of an audience at the Goethe-Institut Los Angeles.
Who was Robert Morris?
Morris was a capitalist who arrived in the New World as an orphan from Liverpool, twenty years before the American Revolution. He made a fortune off of international trade, cattle, grain, and shipping foreign cargo. When the American Revolution began, Morris imported gunpowder for the American Army and became a government contractor.
After the rebellious colonies were victorious in the American Revolution, the military, despite its impressive achievements, suffered a significant decline in funding, morale and manpower. The economy at large was in similarly dire shape. The first five years of the revolution were financed based on the faith and credit of Congress. This worked for a while, but, as Rappleye explained, the paper currency issued by Congress gradually lost credibility as the war started grinding on and privation started to set in. “People stopped accepting the money,” Rappleye said.
At the heart of the problem was that the American government couldn’t raise taxes. The power to tax was given to the states, and they did not have much will or power to raise money through taxation. By 1780, the government was desperate for someone to extricate the Americans from their problems, and it saw a savior in Robert Morris. “Morris looked at the situation,” Rappleye stated, “and regretfully came to the same conclusion.” Morris became the Superintendent of Finance.
Public Credit, Debt and Confidence
Morris slashed spending left and right, but his primary object was to restore to the American government something he called “public credit.” This may be a common concept today, but it was new to Morris’ contemporaries. Morris noted that the British national debt was 115 million pounds after the French-Indian war (“like trillions of dollars today,” Rappleye noted), and after the American Revolution, Britain’s debt went up to 245 million pounds. But England had become immensely powerful at the same time, thanks in part to its willingness to take on debt and use it to enhance the nation’s reach and dominion. George Washington, Alexander Hamilton and Robert Morris all wrote admiringly about the credit phenomenon.
The question was how to have a system of government borrowing if the people didn’t believe the government could pay, especially after the devalued currency that had been issued during the Revolution. As a remedy, Morris began signing notes with his own “personal credit,” on his own name. He recognized that the faith of the people had to be built up first. It worked.
The Bait and Switch
Morris also realized, however, that government could not take on debt without imposing taxes on the public. This was problematic. The leadership in the 1780s was very divided, and taxation was not a popular position. “The tea party of the time,” Rappleye explained, “was anti-establishment, state sovereignty, maximum individual liberty… that was their stance then.” (The modern Tea Party “really does have antecedents,” he stated.) On the other side were the Nationalists. Rappleye described Morris as the “presiding genius of the nationalist faction.” Morris managed to get all the states to support his plan for a system of government borrowing except for the people of Rhode Island, which Rappleye described as “rabid anti-tax pirates.” Their slogan in 1782 was “Hell no, we won’t pay.”
But, finally, “even in Rhode Island people saw the wisdom of banding together instead of standing separately,” Rappleye noted. Although this critical period of American history between Yorktown and the writing of the constitution threatened the Nationalists, the faction pulled through. Robert Morris and George Washington assembled conventions in Philadelphia, and would often walk home together, Washington staying as Morris’ guest. They managed to bring about the establishment of a central government, Hamilton followed Morris’ lead on debt issuance, and the economy took off.
You have to Pay
Morris had a strange end to his life, plunging deeply into the land market at a time of a real estate bubble. He was left with six million acres of land and was consigned to debtor’s prison. It was an inglorious ending to an impressive life.
“I’ve wondered what Morris would make of the current day,” Rappleye said. “So much has changed-volume of debt, commerce, the nature of the state, the welfare state-and the dollar is in a new position.”
Rappleye ended his lecture reading a few current headlines about debt, but his strongest emphasis was on responsibility. “Morris said taxes were a positive in society, they spur people toward industry,” Rappleye said. “He was looking ahead. He was a civic improver.” As much as Morris supported the notion of borrowing, he did not believe it to be free. Said Rappleye: “I’m pretty sure [Morris] would say, ‘Well, you have to pay for it.’”
See more photos here.
Watch a highlight of the lecture here.
Watch full video here.
Buy Robert Morris: Skylight Books, Powell’s, Amazon
Read Rappleye’s In The Green Room Q&A here.
*Photos by Aaron Salcido