Philadelphia's Forgotten Founders

One signed all three bulwarks of the Republic. The other was second only to James Madison as the architect of the Constitution. Robert Morris and James Wilson were two of the most important, yet least publicized, of the Founding Fathers.

Wilson was according to American Heritage magazine, one of the most underrated Americans in history. Historian Gary Wills wrote, "A signer of the Declaration, a principal drafter of the Federal Constitution, the principal ratifier, and the profoundest theorist of it, Wilson is the least known of the Founding Fathers." While James Madison, Benjamin Franklin, John Adams, Thomas Jefferson, Patrick Henry and others are deservedly part of the pantheon of America's founders, Wilson and Morris were among the most significant. They should be included in that hallowed club of America's famous Founding Fathers every bit as the others. Yet, regrettably, even their hometown has not done much to recognize their contributions.

For example, while everyone is familiar with Betsy Ross, tradition-conscious Philadelphia has done nothing to recognize James Wilson. Even the University of Pennsylvania, where Wilson was the institution's first law professor, has not recognized him....

Here is the link:+ http://www.thebulletin.us/site/index.cfm?newsid=19840321&BRD=2737&PAG=461&dept_id=576361&rfi=8

"Robert Morris and James Wilson were two of the most important, yet least publicized, of the Founding Fathers."

Excellent point!

From the volume, "Our Ageless Constitution" (Bicentennial Edition, 1987), in an essay contributed by Dr. Russell Kirk, which begins on Page 172, are these words:

"'A good constitution is the greatest blessing which a society can enjoy.' So said James Wilson, in his oration at Philadelphia on July 4, 1788, celebrating the adoption of the Constitution of the United States. Wilson, who signed both the Declaration of Independence and the Constitution, preached startlingly democratic theories--more democratic than the ideas of any other delegate to the Constitutional Convention.

"Yet Wilson emphasized the duties, as well as the rights, of citizens: 'Need I infer, that it is the duty of every citizen to use his best and most unremitting endeavours for preserving it [the Constitution] pure, healthful, and vigorous? For the accomplishment of this great purpose, the exertions of no one citizen are unimportant. Let no one, therefore, harbour, for a moment, the mean idea, that he is and can be of no value to his country: let the contrary manly impression animate his soul. Every one can, at many times, perform, to the state, useful services; and he, who steadily pursues the road of patriotism, has the most inviting prospect of being able, at some times, to perform eminent ones.'

On Page 278 of the same Volume, in a section containing quotations from several Founders on the Constitution's provisions to allow for what he called the termination of slavery, James Wilson is quoted as follows:

"I am sorry that it could be extended no farther; but so far as it operates, it presents us with the pleasing prospect that the rights of mankind will be acknowledged and established throughout the Union. If there was no other lovely feature in the Constitution but this one, it would diffuse a beauty over its who countenance. Yet the lapse of a few years, and Congress will have power to exterminate slavery from within our borders."

The leaders and citizens of the founding generation wrote generously about the philosophy, intent and purposes of our Constitution. Those who signed and those in the states who ratified the document shared their wisdom in newspapers, speeches, and writings--most now available on the Internet.

There is no excuse for current generations to be ignorant of the contributions of Wilson, Morris, and all the other wise and brave people of that generations.

From my contribution to Loud Mime's thread on Wilson.

***

James Wilson was a lesser known delegate from Pennsylvania. The best known delegate was Benjamin Franklin. Author, scientist, diplomat, raconteur and general wit, Franklin was the best known man in the world. While the men of the Constitutional Convention were all men of their time, a few were ahead of their time. When one examines the words of Charles Pinckney of South Carolina, one hears the voice of Andrew Jackson some 35 years before that man strode onto the national stage. With James Wilson, one hears the Progressives a century before they evolved from eastern and mid-western Republicanism. Wilson was to interject into the Convention the idea of electing the president by direct popular vote.

By the time the issue of presidential elections was debated at the Convention, temperatures were high and tempers were short. Philadelphia summers are notoriously hot and humid, and the windows of the State House had been closed throughout the process. In this era before daily bathing and deodorants, the handkerchiefs of the day were perfumed for a good reason. The delegates wanted to go home and avoid contention about this last messy issue.

In imitation of the British Parliament, it was first thought that Congress should elect the president, a suggestion made by Hamilton. But that would make the president dependent on Congress and violate Madison’s concept of a separation of powers.

Madison cobbled together the idea of electing the president by a quadrennial convention of the states, but held separately at their respective state capitals rather than at one central location. Madison did not anticipate an American version of the British two party system because George Washington, Convention president, told him not to. Washington was opposed to the establishment of British-style political parties with every fiber of his being. It should be noted that the factions that eventually developed in the Cabinet and Congress did not organize themselves into true political parties until Washington’s body had been cold at least a few hours.

As Madison saw it, a state legislature would select the best and brightest non-officeholders to function as the state’s members of the Electoral College. Once the members met at the state capital, they would examine their consciences and vote for the man they thought would make the best president. Madison believed that the college members would choose either a state or regional favorite son in 4 out of 5 elections, and thus only 1 out of 5 presidential elections would be decided by the Electoral College. The remaining elections would be decided by the House of Representatives once no one won enough electoral votes.

James Wilson had a different idea, and he decided to test it on Madison. The best way to do this was plain old Philadelphia hospitality. Wilson invited Madison to dinner at the house.

James Wilson was a Scotsman who had come to the Colonies at the age of 16, and he still spoke with a pronounced Scottish burr. As a youth he had developed a passion for golf, but as the Colonies lacked a proper golf course, Wilson did the next best thing, building a putting green in his back yard. Following dinner, the very tall Wilson took the very short Madison out fo the putting green, stood behind Madison, and –- in one of the funnier scenes of that era –- wrapped his arms around Madison in an attempt to teach him a proper golf swing. All the time Wilson gave Madison a running monologue on his own unique solution to the problem of presidential elections.

As Wilson saw it, the presidency was a national office, and it simply made sense to elect the president by direct popular vote regardless of state. But what was simple for Wilson was very complicated for Madison.

Politely, Madison explained the political difficulty of moving forward with Wilson’s idea. The Nationalists, desiring to de-emphasize the states, would embrace it -– except for the Chief Nationalist, Alexander Hamilton, who would oppose it vehemently. As Hamilton saw it, the federal government needed to be insulated from the transient whims and popular passions of the people. Hamilton saw the people as an undisciplined mob, needing law and monarchical power to keep it in line. The States’ Men were already queasy with what was coming out of the Convention, and this proposal would be a non-starter with them. All things considered, Madison felt that Wilson’s idea, no matter how deserving, was not right for the time.

What emerged from the Convention satisfied no one, but it was one of those occasions when the Good was better than an the Unrealizable Perfect.

James Wilson died penniless due to speculations on frontier land that blew up in his face.

The first proposal to eliminate the Electoral College came from Andrew Jackson in his first State ot the Union letter to Congress in December 1829, in which Jackson argued for direct popular vote. This was based on Jackson’s loss in 1824 in the House. Similar proposals have emerged after the dangerously close elections of 1968 and 2000. The Electoral College is still there, but Wilson’s solution is out there on the sidelines, waiting to be called into the game.

This is my contribution to a Loud Mime thread on the Newburgh Plot and the involvement of the Morrises.

***

In 1783, the Treaty of Paris had been signed, Sir Guy Carleton boarded his troops on ships from their New York garrison, and they all headed back to England. It was time for Americans to govern themselves according to the Articles of Confederation without a common enemy to unite them. It didn't work.

It was time for the troops to go home, and they hadn't been paid in hard money. They had been paid in Continental Dollars, a paper fiat currency backed with the promise to pay in Spanish Milled Dollars. Unfortunately, the federal government didn't have a pot to piss in and had little in the way of Spanish Milled Dollars -- or anything else. As a result, the Continental Dollar began to get discounted by creditors even though the words "legal tender" (forced tender) were printed on them. During the war patriots had been willing to accept this paper currency because there was a war on. (Loyalists preferred British gold and silver.) Once the war was over, that patriotic sentiment was set aside because there were debts to be paid to creditors, and the troops, who were mostly yoeman farmers, were holding paper money that was now becoming worthless. The Confederation Congress was not up to the job of fixing what was wrong because the Articles weren't up to the job.

Robert Morris, proprietor of the Bank of North America in Philadelphia, decided to act. With the assistance of Gouveneur Morris, not a relation, they approached Hamilton and asked him to approach Washington with a proposal. Washington was to take his army to Philadelphia, overthrow Congress and set himself up as King George I of America. The nation's finances would be placed on a firm footing, and America would be ruled by a wise monarch. Many of Washington's officers at the Newburgh encampment thought this was the way to go, and Washington found himself with a budding fascist movement on his hands.

In an acting tour de force, Washington borrowed from "Cato" by Addison, his favorite play, and read an address to his troops cautiously arguing against the plot without mentioning either the plot or its ringleaders. He put on his glasses publicly for the first time and hinted that he had been losing his sight in the service of his country. When we was finished there wasn't a dry eye in the house, and the plot quickly fell apart.

In 1785 Robert Morris' Bank of North America collapsed, triggering the final collapse of the Continental Dollar. The Pennsylvania Militia revolted and took over Philadelphia, forcing the Confederation Congress to flee to Princeton. Hamilton fulminated that Washington return to the military and put down the rebellion in Philadelphia, but it all blew over rather quickly. What didn't blow over was the collapse of the basic currency unit, which eventually led to Shay's Rebellion and the Constitutional Convention.

A final note. At Newburgh, Hamilton had warned the Morrises that Washington would never go for the coup d'etat proposal. When the Constitutional Convention opened in Philadelphia, Washington was having dinner in one of the better taverns in town with Hamilton and some other members of his old wartime staff. Robert Morris, disgraced because of the loss of his bank, made himself scarce, but Gouveneur Morris happened to be having dinner there at the same time. Morris asked Hamilton if he could approach His Excellency, and Hamilton, who knew well Washington's opinion of the man, smiled and suggested he try it. (Hamilton had a puckish sense of humor and was fond of practical jokes.) Morris clapped Waashington on the shoulder and gave him a loud welcome. Washington gave Morris a look that would have frozen brimstone, and Morris skedaddled out of the tavern with Hamilton laughing up his sleeve.

I'm not trying to hijack your thread. But I came up with another contribution to a Loud Mime thread in which Robert Morris and the money supply play a role.

***

In 1790, Alexander Hamilton was the leader of those who pushed for assumption, the act of taking the Revolutionary War debts of the states and nationalizing them. Hamilton saw this as an opportunity to bind the states closer to the federal government and thus make a clean break with the Articles of Confederation. (Despite the ratification of the Constitution, there was an undercurrent of mistrust and hostility that eventually led to the election of Jefferson by the House in 1801.) Some history is in order.

In the aftermath of the Treaty of Paris in 1783, tensions with Britain eased, and the country got around to governing itself under the Articles of Confederation without war clouds hanging overhead. But the war debt caused major problems, not the least of which was a deflationary depression. A few states took these debts seriously, but a few took the attitude, “What are the French and Dutch bankers going to do to us? Send over their armies?” These states engaged in partial or total repudiation of their debts.

At the same time, the Continental Dollar, supposedly backed by one Spanish Milled Dollar each, was collapsing in value because there was no backing except for a nebulous promise to pay. (During the war, Patriots had accepted the Continental Dollar in commerce while Loyalists dealt only in British gold and silver.) In 1785, Robert Morris’ Bank of North America in Philadelphia failed, leaving only two banks in the entire country, one in Philadelphia and one in New York. These banks didn’t care about the farmer or the shopkeeper, but only the owners of the textile mill in Lawrence, Massachusetts, the import-export business in Manhattan and the iron foundry in Batsto, New Jersey. Ordinary Americans held their wealth in their mattresses and under their floorboards. Without a genuine coin of the realm, people relied on coins of gold and silver minted in Spain, England and France, along with base metal coins minted by the states -- before the Constitution put a stop to that practice. Coins of foreign mintage had been clipped so many times that merchants often weighed the coins to see just how much gold and silver was really present.

But it was on the frontier, in those days western Pennsylvania and New York, that things were really primitive. Money didn’t circulate on the frontier, so people used barter. Farmers preserved the value of their fields and orchards by brewing beer products or distilling whiskies and brandies from grains and fruit. A barrel of beer or cask of whiskey or brandy had a known value at a general store or trading post when traded for a barrel of flour, a bolt of gingham or hemp cloth, machine tools or a side of bacon (for those who didn’t raise their own hogs).

While farmers and shopkeepers could survive without a coin of the realm, the owners of the two banks and larger businesses could not. How could a capitalist perform the Italian art of accounting if there is no coin of the realm? How can he construct a balance sheet or income and expense statement if there is no standard by which to measure value? And where did the almost worthless Continental Dollar fit in, especially because it was technically “legal tender”, i.e. “forced tender”?

The states that wanted to treat their war debts honorably had a problem. The basic unit of governance in America was the county. The county collected the property tax, and a voter had to show his tax receipt at election time to the county clerk in order to be allowed to vote. The county built the roads and maintained the county poorhouse for indigents. States collected taxes for their own issues, but repaying war debts would require a major hike in state taxes, and a war had just been fought over that issue.

There is an old saying in the word of taxation: “Don’t tax him, don’t tax me, tax the guy behind the tree.” The states that wanted to retire their war debts found a way of taxing the guy behind the tree: they decided to tax the residents of other states. After all, residents of other states could not vote in state elections. Of course, the old taxation-representation issue that had led to war should have stopped them before it got this far.

So the states charged tariffs on goods crossing state lines. The Connecticut farmer who loaded his wagon and took his produce to New York to sell now found himself confronted at the state line by a New York customs agent who slapped taxes on his produce. Quickly other states took up the idea, and a full scale trade war erupted.

While the French and Dutch bankers couldn’t send their armies to collect, they could turn to their Spanish allies to deny the US access to the Mississippi River for navigation and commerce. Thus, the European powers hovered like vultures, waiting for the American experiment to fail.

And then the issue of the legality of the Continental Dollar came to a head when creditors began refusing to accept it in payment, in spite of the words “legal tender”. And that led to Shay’s Rebellion, which led to the Constitutional Convention in 1787.

This was what Hamilton faced as Washington’s Secretary of the Treasury, recommended for that job by Robert Morris. What Hamilton wanted was financial ballast. A ship without ballast is gyroscopically unstable and tosses and turns on the sea. Hamilton believed that a properly managed national debt would act as ballast and be a blessing. Hamilton didn’t figure this out on his own but copied Sir Robert Walpole who established the Bank of England in 1694.

The key was “properly managed”. Hamilton saw a national debt as a way of encouraging a basic conservatism in American finance. By rolling up the state debts into the national debt, Hamilton effectively monetized all those Continental Dollars whose value had dropped almost to zero. On a weekly basis, Hamilton’s clerk at Treasury went down to the New York Stock Exchange and either bought or sold treasury bills, thus managing the money supply. (This is similar to what the Federal Reserve does today on a daily basis.) Was each new American dollar backed by the proper amount of gold or silver as mandated by the Constitution? No. And that is one of our lesser known financial secrets: the US Dollar started out as a fiat currency in violation of the Constitution’s Gold and Silver Clause. (The Gold and Silver Clause has been honored more in the breach than in the observance.)

Speculators sold derivatives on the New York Stock Exchange as early as 1792 as people hedged the Treasury’s next move in controlling the money supply. This led to our first government scandal when an unscrupulous former employee of the Treasury used his wife in a badger game where the goal was to blackmail Hamilton into divulging the Treasury’s moves ahead of time. When Hamilton was contacted by the blackmailers, he fell on his sword, admitted the affair and ended his political career rather than compromise America’s finances.

Hamilton intended the US Mint to fix the gold and silver problem. The US Mint was established in Philadelphia, and Congress established gold and silver coins of different denominations as a standard. People who owned coins of foreign mintage or bars of gold and silver could take these precious metals to the Mint, which would smelt them to the correct purity and mint coins of the realm, which would in turn be handed back to the owner to be put in circulation.

America did not have a domestic supply of gold until the 1820's when gold was found in North Carolina and Georgia, and branches of the US Mint were established in Charlotte and Dahlonega respectively. Unfortunately, the gold was located on Cherokee land, and this ended up leading to the Trail of Tears episode.

Hamilton’s consolidated debt was paid off by James Monroe’s first term, and the new debt accrued during the War of 1812 came close to being paid off by the end of Andrew Jackson’s first term. And that led to a problem.

Under Nicholas Biddle, the Bank of the United States had put aside its function of neutral arbiter of capital allocation and started playing favorites. Biddle saw this as a prudent form of industrial planning, making him the father of Japan’s MITI and Jimmy Carter’s plan for favoring “sunrise" industries over “sunset” industries. The Bank’s foreclosure policies created ill will and almost wrecked Henry Clay’s political career when he acted as attorney for the Bank in foreclosure proceedings in Kentucky.

When Andrew Jackson ran for his second term, his campaign slogan was, “Jackson and No Bank”. Jackson referred to the Bank as “The Monster” and made its abolition the cornerstone of his second term. Nicholas Biddle inadvertently helped Jackson when he fought the president in Congress by allocating capital to congressmen who were the Bank’s friends and punishing its enemies via foreclosure. It was a fatal mistake.

With the end of the Bank, the national debt was gone – and so was the financial ballast. And the sharp practitioners of Wall Street were ready for a world under a gold exchange standard.

In the world of finance, there is Smart Money, Stupid Money, and Widows’ and Orphans’ Money. Smart Money can read a balance sheet and income and expense statement and park its money in an asset class as it first begins to appreciate. Smart Money’s participation defines Phase 1 of a bull market, known as the “Stealth” phase. Smart Money comes early to the party and knows enough to leave early, rarely getting caught when the inevitable bubble bursts. Stupid Money follows the Smart Money but always later, thus defining Phase 2 of a bull market, known as the “Mainstream” or “Great Unwashed” phase. Stupid Money is late to the party and late leaving which is why it gets burned. Widows’ and Orphans’ Money is more interested in capital preservation than income, so it functions best when invested in good, safe government bonds, America’s financial ballast. When the Widows and Orphans abandon their safe investments and jump in, establishing Phase 3 of a bull market, the “Mania” phase, the price of the asset goes parabolic, and no asset can survive a parabolic rise. Then comes the crash, and the Widows and Orphans take the worst bath of all.

With the end of good, safe government bonds, an asset bubble began to form on Wall Street in common stocks. The Smart Money had already staked its claim, and the Stupid Money followed. I often entertain people at FReeper Meets by doing my W. C. Fields impersonation while pretending to be a Wall Street broker in full carnival barker mode. “Ladies and gentlemen, come one, come all. You want textile stocks? We have textile stocks. You want railroad stocks? Why, the railroads will be the biggest thing until a man from Tennessee named Gore invents the Internet. Go away, little boy, you bother me.”

The asset bubble created the illusion of prosperity, and Andrew Jackson never understood what he had done. With the luck of the Scots-Irish, Jackson left the presidency to Martin van Buren before the Panic of 1837 erupted. That panic led to the worst depression America was to experience until the Great Depression of the 1930's. People lost their savings, their homes and their farms, and people froze to death in the cities. The road back was slow, arduous and was interrupted by other financial calamities, such as the Panic of 1857, when a ship full of gold coins minted in San Francisco was lost at sea in a hurricane off the coast of South Carolina. That hole in the money supply launched a panic from which the Cotton South recovered more rapidly than the industrialized North. In 1860, that fact led to a miscalculation by the southern states, but that’s a subject for another thread.

Since 1913, with the establishment of the Federal Reserve, America has spent most of a century in a state of war or cold war in order to preserve order on the planet. Since 1933, America has added the further financial burden of a full socialist welfare state. The domestic link to gold was severed by FDR in 1933, and the foreign link was severed by Nixon in 1971. Since then the dollar has steadily deteriorated, setting off a steady inflation which has led to a culture of instant gratification on Wall Street and elsewhere. The country has not yet come to grips with the concept of financial finiteness, thanks to the infinite flexibility of its fiat currency and its status as the world's reserve currency. But a century of chickens is coming home to roost.

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