Sold – Robert Morris as Superintendent of Finance and Benjamin Franklin as Commissioner in Paris Struggle to Keep American Finances Afloat
In an important letter from 1782, Morris seeks to assuage Franklin's "Trouble and Anxiety" that he would fail to meet the country's needs.
This act halted the first large scale securities trade and triggered the first ever intentional US default on its obligations
Following the Declaration of Independence, the American Revolution was well received in France. The French Monarchy and Louis XVI were sympathetic to the Colonists' plight and provided clandestine aid in the form...
This act halted the first large scale securities trade and triggered the first ever intentional US default on its obligations
Following the Declaration of Independence, the American Revolution was well received in France. The French Monarchy and Louis XVI were sympathetic to the Colonists' plight and provided clandestine aid in the form of supplies and loans. This was all the more crucial because of the structural incapacity of the Continental Congress to raise money. At the beginning of the war, the colonies were a very loose confederation bound ideologically but not administratively. And at the end, to the consternation of men like Alexander Hamilton and Robert Morris, the Continental Congress was unable to pry money from governors who refused to acknowledge the authority of a central government.
Benjamin Franklin played a crucial role in winning the war from his seat at Passy in France. He was dispatched, along with Silas Deane and Arthur Lee, in December of 1776, to get badly needed military and financial support. He was welcomed with great enthusiasm, as numerous Frenchmen embarked for America to volunteer for the war effort. Motivated by the prospect of glory in battle or animated by the sincere ideals of liberty and republicanism, volunteers included the likes of Pierre Charles L'Enfant, and Lafayette, who enlisted in 1776. But Franklin's most important contribution was in the financial realm. In 1777 the American delegation obtained a 2,000,000 l.t. (livres tournois or Tournois pounds) loan from a group of French investors known as The Framers General. Other loans followed. In a March 12, 1777 letter from Paris to Congress, the American Commissioners "advise Congress to draw on us for sums equal to the interest of what they have borrowed, as that interest comes due." The implication is that Louis XVI had agreed to pay the interest on American war debt. This was a substantial amount of money. Congress had issued Loan Office certificates to pay for the functioning of government and for the maintenance of the war. These IOUs paid varying rates of interest annually. Now this interest would be paid by France.
This letter from France spawned the creation of Continental Loan Office Bills of Exchange. The United States would repay domestic debt with Bills of Exchange to be drawn on American loans in France. These would read "for interest due on Money borrowed by the United States." The money would be paid out under the direction of Benjamin Franklin and Ferdinand Grand, who was the American banker in Paris. Many Americans did not like the terms of the Certificates and feared sending them abroad to people they had never met. Securities traders like Haym Solomon would handle these transactions frequently, often buying them at steep discounts. This led to the development of the trade around Continental Loan Office Bills of Exchange, which was the first regular securities market, developing in coffee houses in major cities.
In October 1781, with the help of the French, the Americans defeated the British at Yorktown, dealing what we now know was a fatal blow. The war, however, as well as the expenses, continued. Moreover, as active operations wound down, obligations contracted during the war, and buying supplies for Congress and the military, kept pace. Much of this was interest payment on domestic loans that many believed would never be re-paid. At the same time, France had its own problems. Over a billion livres tournois were spent by the French government to support the war effort, raising its overall debt to about 3.3 billion. The finances of the French state were in disastrous shape and were made worse by the practice of using loans to pay off debts.
While Benjamin Franklin secured money in Europe, Robert Morris, after 1781, was responsible for the financial apparatus in America. When he took the reigns in 1781, the treasury was in deep debt. With the failure of their own policies staring them in the face, Congress changed from the committee systems they had used for years and created the first executive offices in American history. Morris held two of them, Finance and Marine. In a unanimous vote, Congress appointed Morris to be Superintendent of Finance. Morris, in addition to sacrificing his own finances to fund the revolution, took many steps that today seem visionary. He advocated a stable banking system, a national mint, and a decimal coinage. Along with Hamilton, he detested the parochial interests in Congress that led to shortages of money, and more than anyone understood the conditions under which Franklin labored, writing him in 1782 to secure another $4 million livres but acknowledging that such a request might be met with a demand for payment on already extended loans.
At this crucial moment, with America on the verge of winning the war and needing money to start a new country, this confluence of circumstances gave Benjamin Franklin great concern. On March 30, 1782, Franklin wrote Morris a portentous and famous letter, in which he alerted Morris (and Congress) to the calamitous state of French finances and urged him to cease submitting Bills of Exchange. He feared a situation in which he would not be able to come through with money, or, worse yet, he would be hamstrung in getting another loan. "Permit me to hope also and for the same Reason that the Bills you will find yourself obliged to draw on me may not amount to a very large Sum. Hitherto I have accepted & paid all Drafts upon myself, and enabled my Colleagues to discharge those upon them, with Punctuality & Honour…I must in June next pay M. Beaumarchais near 2,500,000 Livres. I have often been in great Distress & suffered much Anxiety; I still dread at times the same Situation."
Morris must have shown Franklin's letter to the Continental Congress, because on September 9 of that year, it met with Robert Morris to find a resolution to this issue. As a consequence, Congress ordered the halt of any payment on interest using French loans. This was done to alleviate demands on Franklin. This decision led to the destruction of this early securities trade. Moreover, it triggered the first intentional default of its obligations by the American government, as the government admitted it would not pay interest on its obligations. Congress ordered Morris to instruct collectors not to issue these Bills.
Morris needed to inform Franklin that he would not have to worry about such obligations heading his way, in a letter that quotes Franklin's "anxiety." Franklin's and Morris's letters show not only the functioning of the funding of the war but the emotion involved in a process that meant so much to American victory. This is Morris's original response to that famous Franklin letter.
"I shall make no Comments on this Act which as it relieves you from farther Trouble and Anxiety"
Letter signed, from the "Office of Finance," October 5, 1782, to "His Excellency Doctor Franklin." "Sir I have the pleasure to enclose you the Copy of an Act of Congress of the ninth of September last. I shall make no Comments on this Act which as it relieves you from farther Trouble and Anxiety on the Subject it relates to will I am sure be agreeable. I am Sir Your Excellency’s most obedient and humble Servant Robt Morris."
Franklin must have greeted this letter with real joy. Moreover, he managed to secure the additional loan in 1783 and to negotiate favorable repayment terms on past loans. Morris became so disillusioned with Congress that he attempted to resign his post in January of that year, just months after sending this letter. In the end, he stayed. But it would be a few years until the country would find a permanent financial solution under the Constitution.

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