• Robert Morris (seated right) portrayed at the “Birth of our Nations’ Flag” with Betsy Ross, General George Washington, and George Ross. Created 1893. Photo Credit: Courtesy Library of Congress.
Heritage

A revolution in banking

2019-03-21T16:21:22-04:00
Posted on March 13, 2019

Financing a revolution

The nation’s first governing body was a loose federation of states. They agreed to fight together, but had no taxation powers and no clear source of funding the war. Each state made promises of monetary support, but over many years of war that financial support grew smaller and smaller. For years, the Continental Congress (1774-1789) had resorted to printing paper money, bonds, and loans. In a world economy based on gold and silver coins, these paper promises meant nothing to soldiers expecting pay in precious metals. The Continental dollar bills quickly depreciated. By 1781, people needed $167 paper dollars or more to exchange for $1 in coins.

To fix the crashing economy and pay for the war, The Continental Congress appointed well-known Philadelphia merchant Robert Morris as the nation’s Superintendent of Finance in February 1781. When he accepted the position in May he also submitted a proposal for establishing a bank, the nation’s first, to stabilize the economy. With a firm financial foundation, the national credit would be more respected. Loans from foreign governments and domestic investors would be easier. As the King of England’s George III said a year before “this war… will prove one of credit.” As one of the world’s trading super powers, England was able to easily secure financing from allied governments. America had written one too many I.O.U.s, and was starting to get questions from its foreign lenders. Troops and suppliers started to demand payment in coin, not paper. Robert Morris had to find a way to structure borrowing. He needed to turn short term debt into a financial tool to meet immediate needs.

Portrait of Robert Morris, Superintendent of Finance by the Continental Congress and founder of the Bank of North America.

Portrait of Robert Morris, Superintendent of Finance by the Continental Congress and founder of the Bank of North America.

Some members of the Continental Congress feared that authorizing a bank exceeded their limited powers. To balance concerns, the bank gained approval, but separate authorization by each state was recommended too. As state approvals slowly arrived one letter at a time, Morris began seeking the money needed to fund the bank.

Business associates and other investors stepped forward to buy stock, but the bank needed more money to start. Word arrived in Philadelphia of a French ship due to arrive with silver and gold to loan to the new nation, but a storm blew it into port in Boston. Morris directed a dangerous and daring plan to move the money overland through enemy territory. He instructed to hide the gold be hidden in boxes welded to wagon axels. After a trip of nearly two months, Morris received the French coins in November, and used $250,000 of the money to buy stock in the new bank. With the funding complete, the Continental Congress gave its official authorization for the bank on December 31, 1781.

By investing that money in the bank instead of paying the government’s bills immediately, Robert Morris was able to make that money multiply. The Bank of North America, now Wells Fargo, opened its doors in Philadelphia on Jan. 7, 1782. Over the course of the next six months, it loaned the American government $400,000, more than the original amount of gold deposited in the bank’s vaults. Within its first 13 months, the bank loaned about $2.4 million.

As business prospered, the bank loaned money to merchants and other small businesses. These loans were the first commercial loans in the nation. Before the war, most businesses found needed capital through friends, family, and private investors. Now, the bank became a source of credit to the growing nation. Loans went to pay for soldiers and supplies to the Continental Congress and state governments. The bank loaned money to businesses in Philadelphia, but also in other states. About half of the bank’s business loans went to stockholders and their enterprises. The other half went to smaller merchants with no other connection to the bank. Early customers included women, like Hannah Holland, who inherited her husband’s store on Front Street.

When Owen Biddle needed to send money to his brother, Clement, in 1786 he didn’t want to send heavy coins or cows. He sent a check instead! Clement Biddle ran one of the nation’s first stock brokerage houses, which is today also part of Wells Fargo. Photo Credit: Wells Fargo Corporate Archives.

When Owen Biddle needed to send money to his brother, Clement, in 1786 he didn’t want to send heavy coins or cows. He sent a check instead! Clement Biddle ran one of the nation’s first stock brokerage houses, which is today also part of Wells Fargo. Photo Credit: Wells Fargo Corporate Archives.

The impact the bank had on the early American economy was dramatic. Thomas Paine, author of the influential pamphlet Common Sense, credited it in 1786 with advancing the revolutionary cause: “The sudden restoration of public and private credit, which took place on the establishment of the bank, is an event as extraordinary in itself as any domestic occurrence during the progress of the revolution.”

A new bank for a new nation

In 1783, the Treaty of Paris ended the eight year war with England, but the political revolution continued. The nation’s leaders admitted to the weaknesses of the Articles of Confederation and gathered to create a new governing system. They wrote and ratified the United States Constitution in June 1788, creating the governing system we use today. The Bank of North America could no longer legally operate under its charter given by the Continental Congress. However, it had received an additional charter by the Commonwealth of Pennsylvania. It used that authorization to continue providing loans, savings, and other financial tools to people throughout the U.S.

Over time, the new government sold its stock in the bank and opened a new central bank, called the Bank of the United States. While the Bank of North America jealously guarded its role as the nation’s only bank for a time, its success inspired others to replicate it. Within the first few years of peace, more banks opened, spreading access to stable currency and access to credit.

More about Morris

Like many founding fathers, Robert Morris left a checkered legacy. Despite securing funds liberty and freedom for America; he owned slaves, and made part of his personal fortune in the slave trade. He donated a large part of his wealth and credit to the revolutionary cause, but he also faced accusations of embezzlement by leaders wary of federal power and money. He was later proven innocent, but his reputation suffered. He later lost his money in a bad investment, and ended up in debtor’s prison for several years. He died in relative obscurity in 1806.

Birth of our nation's flag Robert Morris Library of Congress

Birth of our nation’s flag Robert Morris Library of Congress

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