The Bank of North America    

On December 31, 1781, Congress chartered a bank.  This may not seem like much of an accomplishment.  But the bank, called the Bank of North America, was the first commercial bank anywhere in the United States, ever.  It was by far the largest corporation in the United States at the time.  And, the chronically broke Confederation government itself bought $250,000 stock in the bank, and paid cold, hard cash.  And most astonishing of all, the government made money on its investment.

The bank was the brainchild of Robert Morris (right), newly installed in 1781 as Superintendent of Finance (see Creating the Executive Departments).  Morris wanted an American national bank modeled after the Bank of England.  The Bank of England was privately owned but worked closely with the British government.  It acted as a depository for government funds, loaned money to the government, and in return held a monopoly as the only limited-liability bank in Great Britain, with its notes circulating as paper money.

Could an equivalent bank be established in the United States? This was an ambitious goal, considering that the United States at the time had no commercial banks, period. The British had forbidden banking in the colonies. There were a few institutions that called themselves banks and wrote mortgages secured by land, but they neither took deposits nor made commercial loans.

Morris hoped to capitalize his bank by selling $400,000 in stock.  Congress authorized him to put shares up for sale in May 1781.  The response was underwhelming.  Money was tight with the Revolutionary War raging, and American investors were unfamiliar with banks.  The bank sold only about $70,000 in stock.

This might have stopped a lesser financier, but not Morris.  France at the time was allied to the United States, and loaning money to the American government.  It so happened that a loan of $250,000 in hard money arrived in late 1781.  Morris promptly invested it, on behalf of the American government, in Bank of North America stock.  This got him close enough to his goal of $400,000 in capital to get started.  Congress granted the charter, and declared Bank of North America bank notes to be receivable at face value for federal requisitions.  Some states, but not all, also accepted the notes in payment of state tax.  Congress also granted the Bank a monopoly on note issue until the end of the Revolutionary War.

There was one flaw in the scheme.  The government needed the $250,000 that Morris had invested in bank stock, desperately and immediately, to feed and supply George Washington’s army.  This didn’t faze Morris.  He had the bank turn around and lend the money to the government.  In fact, the bank lent the government not just $250,000 but $400,000, since banks can issue an excess of notes over capital, knowing that the notes won’t all be redeemed at the same time.

The government had no means of paying back these loans.  Again, this didn’t faze Morris.  When the loans fell due, he allowed the government to forfeit its stock back to the bank in lieu of payment.  By this time the bank was up and running, attracting depositors and paying dividends, and the shares soon found investors at the original asking price of $400 per share.  The government was happy because it parlayed a $250,000 investment into $400,000 worth of supplies, and the bank was happy because it had gotten a good price for its stock, and had benefited from the temporary infusion of government capital.

After forfeiting its stock, the government still owed the bank $150,000.  This proved difficult even for Morris; eventually he and his business partners covered the obligation with notes of their own, setting up a debt triangle in which the government owed Morris and his partners, who in turn owed the Bank.  Such arrangements invariably fed suspicion of insider trading and profiteering (see right).

From that point forward, the bank parted company with the government.  Bank of NAThe bank (Philadelphia office below) was solvent, and the directors wanted to keep it that way, but the government was broke.  The government had nothing to deposit in the bank, and the directors refused to make any more loans to the government without security. The bank failed to fulfill Morris's vision as a government partner.

The bank as a bank, however, was a success.  It spawned imitators in Boston and New York, once the war was over and the monopoly on note issue expired.  Perhaps more important, it served as the model for the first and second Banks of the United States, which were chartered by, and did partner with, the now-solvent federal government under the Constitution of the United States (COTUS).

The Bank of North America continued operating, as a private commercial bank, well into the Twentieth Century.  It eventually lost its name in a merger, and many mergers later, has today been subsumed into Wells Fargo.

Sources: Journals of the Continental Congress, Volumes 20 and 21; Papers of Robert Morris, Volumes 7 and 8; Elizabeth M. Nuxoll, The Bank of North America and Robert Morris’s Management of the Nation’s First Fiscal Crisis, 1984; Charles Rappelye, Robert Morris, Financier of the American Revolution, 2010

Robert Morris


Before there was Alexander Hamilton, there was Robert Morris.  Nobody has yet written a musical about Morris, but if anyone ever does, it may have the sweep of a Wagnerian opera.

Robert Morris was born in Liverpool, England, in 1734.  His father was a merchant who outfitted voyages to the American colonies, and he brought Robert into his trade.  The family emigrated to Pennsylvania in 1747.

 Robert excelled as a merchant, and became one of the wealthiest men in America by the outbreak of the Revolution.  Success in trans-Atlantic commerce demanded credit, judgment, knowledge of commodity markets, and personal networking, and Morris excelled at all of these.  He knew brokers and factors in every major port in Europe and America, and his credit was adequate to buy cargo and outfit ships for even the most ambitious multi-year trading voyages.

The American Revolution put this trading in jeopardy.  Great Britain (1775) closed the ports of the colonies, and pressured other European nations, then neutral, not to trade with America either.

The colonies in 1775 were not self-sufficient.  They needed to import guns, gunpowder, lead for bullets, and sailcloth in order to field an army and navy.  Someone would need to organize voyages which could evade the British blockade and find willing suppliers in Europe.  The Continental Congress turned to Morris.

Morris had to work in secret.  Contracts could not be put out for public bid, lest the British hear of them and impound the trading ships.  Suppliers in Europe, leery of offending the British, insisted on shipping under false papers and false flags.  Merchants mixed their own civilian cargo with the military stores, helping to finance the voyages and providing cover in case of capture.  Morris excelled at such secrecy and chicanery, and soon a thriving commerce was in place.  In 1778, France entered the war as an open American ally.

Secrecy arouses suspicion, and Morris was not slow to attract critics who accused him of profiting at the public expense.  One member of Congress cited complaints of “the great expenditure of money by the Secret Committee (of Commerce)” and “the unsettled state of their accounts”.  Morris patiently explained that secrecy and insider trading had been features of his plan, not bugs.  After the Articles of Confederation were ratified (1781), Congress thought enough of Morris’ work to appoint him to the newly created position of Superintendent of Finance.

Morris served for three years in that thankless role, juggling loans and notes of various maturities and often using one lender to pay off another.  He arranged for contractors to supply the army at a fixed price, helping to lower costs and keep George Washington’s troops fed and armed en route to the critical Battle of Yorktown.  He pleaded repeatedly for the states either to send more money to Congress or to authorize Congress to lay taxes, but to no avail.

Again, Morris attracted critics.  The states resented his endless hectoring, and the army resented that it was seldom paid.  (Morris was happy just to keep it supplied.)  Arthur Lee of Virginia, who hated Morris, accused him of “daily rioting in Asiatic luxury” at banquets.

Morris had had enough.  With the war safely won, he retired to private life in November 1784.  He later served in the Constitutional Convention of 1787 and represented Pennsylvania for one term (1789-95) in the United States Senate.

George Washington offered to appoint Morris as Secretary of the Treasury under the new COTUS in 1789, but Morris declined and recommended Alexander Hamilton instead.  Hamilton brought Morris’s program to fruition by stabilizing the national debt with federal tax revenue and founding a national bank.

Morris continued to work as a merchant in his later years, but he lost his touch.  His downfall began with tobacco—not smoking it, but trading it.  A partner whom he had relied on to finance a voyage defaulted, costing Morris an enormous amount of money.  Morris decided to abandon trans-Atlantic trading and speculate in land instead.

His timing could not have been worse.  He bought millions of acres of western land on credit, intending to flip them for a quick profit.  The panic of 1796 intervened, ending speculation and collapsing land prices.  Morris collapsed with them.  By 1798 he was in debtor’s prison.

He might have died there, except that the Congress he had helped to create passed a federal bankruptcy law in 1800, and Morris was allowed to declare bankruptcy.  “I now find myself a free citizen of the United States,” he reported in late 1801, “without one cent that I can call my own.”  He lived out his life on the charity of former partners, and died penniless in 1806.

Source:  Charles Rappelye, Robert Morris, Financier of the American Revolution, 2010

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