In short
The episode profiles Robert Morris, a key financier of the American Revolution, arguing he created the war’s “new economy,” then fell into debtors’ prison after speculative finance and currency collapse.
Guest backgrounds
Jacob Goldstein and Robert Smith are the hosts of Business History. The transcript also cites Charles Rapley’s book Robert Morris, Financier of the American Revolution.
Key claims
Morris was likely the richest man early in the U.S., financed Washington’s army (including paying soldiers during the 1777 Philadelphia crisis), and warned that Continental currency depreciation threatened the revolution. He later founded the Bank of North America, issuing silver-backed notes and using public “dazzle” vault displays to build trust. After the French Revolution and the 1797 panic, his debt pyramid collapsed; he was jailed for about $3 million in debts. The episode credits the 1800 bankruptcy system as an orderly alternative to debtor imprisonment.
Notable examples
flour arbitrage as a teenager; smuggling gunpowder via forged paperwork; price controls causing shortages; “long bobs and short bobs” promissory notes; tobacco deals with France; Genesee River land purchases; bankruptcy petition by John Houston for $284,000 in overdue notes.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOThe Role of Robert Morris in the Revolution
2:22 to 4:14
Explore the financial contributions of Robert Morris during the Revolution.
“It's the United States semi-quincentennial, a.k.a.”
Morris's Background and Entrepreneurial Spirit
4:14 to 6:38
Uncover Robert Morris's earlier life and his drive for business.
“I'm just going to admit right here, Robert Morris is not everyone's favorite founding father.”
The Impact of the Stamp Act
6:38 to 8:00
Learn how the Stamp Act influenced Morris and the colonial elite.
“He loved being a rich and powerful guy in an English colony, right?”
Morris's Shifting Loyalties
8:00 to 11:28
Discover how Morris navigated his loyalties during the revolution.
“It was really going after the moneyed interests.”
Morris's Role as a Financial Powerhouse
11:28 to 14:02
Find out how Robert Morris facilitated supplies for the revolutionary war.
“So the first shot's fired in the revolution.”
Morris's Role in the Revolutionary War Economy
14:02 to 16:38
Learn about Robert Morris's critical contributions to the wartime economy and logistics during the American Revolution.
“Making money off of a war and tragedies, terrible.”
Challenges of Currency and Inflation
16:45 to 19:51
Understand the complexities of the monetary system and the impact of inflation on the Revolutionary War efforts.
“So we need to talk about the way the monetary system works.”
Establishing the Bank of North America
19:52 to 24:48
Discover how Robert Morris established a successful bank to stabilize American currency during the war.
“Let me just say this sounds, like, bizarre to us.”
The Fall of Robert Morris
28:12 to 30:18
Exploring Robert Morris's decline from a revolutionary hero to a debtor.
“Let's jump 15 years after the end of the Revolutionary War.”
Innovative Trade Strategies
30:19 to 32:18
Discussing Morris's unique trade strategies after the war.
“And he had these big schemes that he was going to try and pull off with this network.”
Show all 14 chapters
Real Estate Speculation
32:19 to 34:17
Morris's foray into real estate and the speculative opportunities it provided.
“They compete against each other, the shell companies.”
The Jenga of Debt
34:18 to 36:38
Understanding how Morris managed a complex web of debts.
“So, you know, among the many things that we went to war for, one of them was the right to speculate in wilderness land.”
Descent into Bankruptcy
36:39 to 38:57
The events leading to Morris's desperation and eventual bankruptcy.
“So after the French Revolution, there's all of these issues.”
The Complexity of Bankruptcy in Early America
43:32 to 52:45
Explore the evolution and challenges of bankruptcy laws in the early United States.
“Let's talk about the concept of bankruptcy, formal legal bankruptcy.”
Transcript
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2:10Jacob, as a history podcast, we are contractually required to observe that our country is about to celebrate the 250th anniversary of the signing of the Declaration of Independence. You gave me the Latin, Robert. What do we call this, Jacob? I got the Wikipedia page right here. It's the United States semi-quincentennial, a.k.a. the bis-i-qui-centennial, a.k.a. the cester-centennial, or my personal favorite, the quarter millennium. The quarter millennium is the best one. Yeah, why do we need Latin? This is America. I did a half marathon. Now it's the quarter millenn. Quarter millenn. We're going all the way.
2:48All the way. A thousand years, baby. So obviously, like this summer, we're going to be hearing a lot about the classic founding fathers, You got your George Washington, your Thomas Jefferson, your Alexander Hamilton. Since this is business history, we are going to tell the story of the financial founding father, Robert Morris. Morris signed the Declaration of Independence. He signed the Constitution. He was a senator. He was a hero of the revolution in a really important way. He found the money to pay for the guns and soldiers. At one point, he was likely the richest man in the early United States.
3:28And then, all of a sudden, he was not. He had so many debts, he was thrown into jail. I'm ready for the musical. Yeah, no musical, but we do have a podcast called Business History. I'm Jacob Goldstein. I'm Robert Smith. It's a show about the history of business. Today on the show, a wild side of the American Revolution. Okay, wild for me. Not the battles, but the financing of the battles. The money George Washington needed to fight the revolution. It's no exaggeration to say that Robert Morris created really this new economy of the United States out of thin air. And the question that everyone asked as he was being hauled off to prison was, did he finance the war or did the war finance him?
4:13Not mutually exclusive. Happy quarter millennium. Who will speak for the bankers? I am going to speak for the bankers. Okay. I'm just going to admit right here, Robert Morris is not everyone's favorite founding father. He was controversial at the time. He's controversial now. But I have a real soft spot for him. He reminds me of all the people I went to business school with, the MBAs. They're charming. They're super smart. They're organized. And they just say out loud, I want to make money. I am here to make money. They ignore things happening in the world. They're not ideological. And Robert Morris sort of feels like this, even though he's living through the most dramatic times in world history.
5:00He's a guy who's like, yeah, whatever. Let's just like look at the ledger and make some money here. He came to America from England. So he's a British citizen in 1743. He's a teenager. And he didn't come for religious freedom or to start a new society. He came because he wanted to be a merchant. He wanted to do international trade. He came to make money. Yeah, and Philadelphia was the place to be. Like, this was the place where ships were coming and going, and he thought there was money to be made. He started out as an intern, you know, just sweeping the floors, became a shipping clerk. There's a story about him that captures his style.
5:40He's still a teenager, and his boss is out of town. You know, he's the shipping clerk. But he hears from a sea captain, probably a crusty old guy with one eye, that the price of flour has jumped in Europe. Yeah. And Morris doesn't really have the authority to do anything, but he's like, screw it. Let's buy up all the flour we can get in Philadelphia. Let's put it on an outbound ship and take advantage of the high prices before anyone figures it out. Arbitrage. It's an arbitrage opportunity. If a thing is selling for two different prices in two different places and the shipping cost is less than the difference, you should buy all that you can in the cheap place and sell all that you can in the expensive place.
6:23And that'll make the prices converge. It's actually a useful function. Yeah. And if Robert Morris were alive today, he'd be working for like a hedge fund. Jane Street. He would be working for Jane Street trading flower futures in India versus Pakistan. Yes. Closing the cent difference. Yes. So Morris had the gift and he ended up running this trading company. And it's fair to say that he loved it. He loved being a rich and powerful guy in an English colony, right? He had made it in the new world. He was the least likely person to want a revolution because it would mess up all the shipping schedules and his profits.
7:01It's bad for business. So he probably would have stayed out of this whole mess, except for the Stamp Act. Attacks! Attacks. There's one thing a rich guy hates, it's attacks. And the Stamp Act, I am still amazed that Britain thought this up as something to put on the colonists. The Stamp Act was a fee on anything that involved paper. Anything that had paper, you needed to put a stamp on and you had to pay for the stamp. I mean, this seems maybe reductive, but when I think about it, it's like, well, who's using a lot of paper? It's not like the poor farmers. It's journalists and lawyers. Yeah, there were taxes on newspapers, bonds, court documents, playing cards.
7:41So, well, playing cards to the side. All those other taxes are on the powerful people. Like, in terms of political economy, who do you want on your side? You want the journalists and the lawyers and the bankers. And you're putting a tax specifically on them. And, you know, Robert Morris loved to, like, do paperwork. So it was going— He's not loading the flour onto the ships himself. It was really going after the moneyed interests. And Robert Morris might have even been able to ignore this, except he was a port warden at the time. So he was kind of running things in the port because he was the biggest customer.
8:13And the American colonists decided they were going to boycott anything from Britain just to protest the Stamp Act. And so there he was. He's like, OK, fine, I will help enforce this boycott. He ends up being elected to the Continental Congress because, you know, he's a big guy on campus running the whole thing. And he really thought this whole tiff with Britain would be negotiated away. He's like, there's just no way that smart people with money on both sides of the Atlantic would ever go to war. Here's a quote that he wrote about this. He writes, I recommend constantly a steady, manly, but decent and peaceable opposition as most likely to ensure success.
8:57He thought we should just be manly, but not shoot anybody. Yeah. Yeah. Why is it manly, but decent and peaceable? Why are those at odds, Robert Morris? He wasn't going to get the peaceful part. I should say a lot of the stories in this podcast are taken from the book Robert Morris, Financier of the American Revolution. You know, that sold a lot of copies there with the word financier in it, right? Robert Morris, Financier of the American Revolution by Charles Rapley. And he told this story, kind of apocryphal, but I love it. It's April 23rd, 1775. You can hear the fife drums. I'm so glad you didn't bring in your tricorn hat.
9:37So Robert Morris is at the City Tavern. It's something called the Long Room. and he's actually at the annual feast of the Society of St. George. So it's a society of Brits celebrating Britain. Which is what he is. Let's just be clear. He is a British citizen and happy to be one. And reveling in it, right? He's sitting up front and a messenger bursts in and announces that the British had fired on American troops at Lexington. The British loyalists in the bar, according to the story, spring up and start running for the exits. They're like, war is on. And the way the story is told later, Robert Morris was left at the head table in mid-toast with his glass up, camera pans, the room is empty.
10:16And he says, to the king? You know what? He doesn't know what to say at this point. And this is uncomfortable for Robert Morris. He is as close as you can get at this point to a global capitalist. And war is very bad for his business, which is to run ships back and forth to Europe. But at this point, he is also a member of the Continental Congress, so he wants to do what's best for Pennsylvania. And it's hard for him to reconcile. So when the colonists are meeting to vote on the Declaration of Independence, Morris actually argues against it, saying, you know, we should be more conservative about this.
10:57We shouldn't take any rash measures. And he doesn't vote for the Declaration of Independence. He abstains. Uh-huh. Classic weaselly move. I neither voted for it nor against it. That's going to come in useful in case there's a tribunal later. When it is finally drawn up for a signature, though, Morris reluctantly signs his name, which you can see to this day. He's a pragmatist. And at this point, the war had started. There was no way back from this. So he's like, I guess I'm in. So the first shot's fired in the revolution. Morris dedicates himself to what he does best. He is a fancy rich man. He is not going to fight.
11:38He is not going to hold a gun. But he is going to do trading for the revolution, shipping for the revolution. I mean, the guns aren't going to buy themselves. George Washington needs gunpowder. And Morris was tasked with figuring out how to get it. And this was not easy because England kind of knew something was up. So for months, they had kept Americans from buying guns and ammunition. They're like, maybe we shouldn't be stalking people who might use these against us. The British Navy at this point, of course, controls the seas, and it's very difficult to sneak things past the British. So Morris starts to essentially act as a smuggler.
12:19Yeah, a lot of the revolutionaries, I think, were smugglers, quasi-smugglers. Aren't all shippers kind of dressed up smugglers? No. All right. That's fine. Okay. So the former clerk, he starts to forge paperwork, fake sailing orders, fake cargo registers. He's using his agents in the Caribbean and in France to route gunpowder past the British blockades. It's all very exciting, although, of course, he's just writing orders at his desk. They communicated in secret code and invisible ink. The British didn't yet know you could just put lemon juice on it and read it? Nobody knew. He was a genius. And during this all, Morris obviously was obtaining needed supplies for the American revolutionaries.
13:01and at the same time, he was making a little money because it was Morris' point of view that merchants helping to stock the American army should be able to make a profit. His company and other companies provided the ships and he wrote, I assert boldly that commerce ought to be as free as the air. Our traders are remarkable for their spirit. Their own interest and the public good go hand in hand and they need no other prompter or tutor. Very self-serving. Yes. Let me ask you, so amazingly, The Wealth of Nations, you know, the Adam Smith book that started economics, came out in 1776. Incredible kind of coincidence.
13:42Yeah. Do you know, did he know about Adam Smith, this idea that this is a very Adam Smith idea? Yes. I don't know if you said it before Adam Smith, but he definitely had the book, had gifted the book to people after it happened. Yeah. But like Morris is coming up with this, you know, it was in the air, this idea. And yeah, self-serving, absolutely. Making money off of a war and tragedies, terrible. But he understood something that I do think is true, which is if you want people to do work for you, especially people, you know, in France and the Caribbean and sailors who have no loyalty to the United States of America, you need to pay them.
14:22Well, there's the famous line from Wealth of Nations, right? It's something like it's not from the benevolence of the baker and the butcher and the brewer that we expect our dinner, but from their regard to their own self-interest. Right? Like, that's how we get our dinner, because those guys are making a profit by baking us bread and getting us meat. And that's how we got our guns and our gunpowder. And eventually, Morris is sourcing tents, sales, clothing, even food for the American army. He is like the Pentagon. He's like seeing where all the troops are and getting them what they need. At one point in 1777, the British were threatening Philadelphia.
15:02And the Continental Congress, who were running the colonist efforts at this point, they flee the city, except for Robert Morris. And he says he wants, he needs to be by the ships. He needs to like follow all the shipping stuff. He needs to stay at his desk. And with everyone else left and George Washington in the field, he's basically running the wartime economy for the colonists. And he's directing the ships and the logistics and the money side and figuring out how to pay for all of this. He is, he's kind of acting as the president or at least the secretary of the treasury, right? And George Washington at this point is, depending on him, writing him constantly, begging for more, just saying we need more, more, more, more, more.
15:49When Washington was camped by the Delaware. He's about to cross on the little rowboat standing up. Don't do that, George Washington. In winter, it's the famous painting. Yeah. You know what they didn't paint? They didn't paint Robert Morris sitting at a desk, figuring out how to get blankets and stockings to keep those men from freezing. It was winter along the Delaware River. At one point, Washington's men threatened to desert him because they hadn't been paid. You know, they were also wanting to make some money from being soldiers. And there was no way to find money. And Morris went to all the rich people he knew in Philadelphia to have them dig up their coins, to go to their stash.
16:31And he somehow managed to get$50 ,000 out of them and got it to General Washington to pay the soldiers. But it was getting harder and harder to find real money, we should say, at this time. So we need to talk about the way the monetary system works. I've been waiting. Are we going to talk about continentals? I've been waiting to talk about continentals. So the colonies were operating on gold and silver that came from Britain and France and this sort of thing, classic money. But they also had paper money. And specifically, the Continental Congress had issued these IOUs, we'll say, continental dollars, they were called.
17:09And they loved issuing continentals. Yeah. Because every time they had to pay for something, they just printed more money and said, yeah, yeah, these will definitely be worth something after the war. Robert Smith, what happens if you keep printing paper money? It's not worth anything. You get a lot of inflation. You get inflation. And Morris tried to explain this in his writing. He wrote, There is one circumstance more distressing than all the rest because it threatens instant and total ruin to the American cause unless some radical cure is applied, and that speedily. I mean the depreciation of the continental currency, the extravagance that has prevailed in most departments of the public service that have called forth prodigious emissions of paper money.
17:55Prodigious emissions of paper money. Were they nocturnal? I'll tell you, people always use this word emissions with paper money at the time. I don't know why, but you see it again and again. And it sounds disgusting, which is how they mean it to sound. They are disgusted by it. I just love that of all the things threatening the revolution, right? Everyone's arguing about the cause of democracy or centralization or federalism. Robert Morris is the one more distressing than all the rest. Is it death? Is it freezing? It's inflation. It's inflation in the currency. And you know what? He's absolutely right.
18:35This is the thing that was threatening George Washington and the army. The army was just going to give up. They wouldn't be able to obtain anything. And it's funny because this inflation is going on, And people reacted to it back then exactly as they react to it today. So some people in Congress blamed the greedy merchants. Greedflation. Greedflation, taking advantage of this war to raise prices. Not the fact that we're printing too much money. No, no, no. They're saying farmers are trying to gouge us, you know, with their increasing prices for food. And then Pennsylvania put some price controls on things like food.
19:08What happens? What happens when you put price controls on Robert Smith? You get a shortage. You get a shortage. If you don't let prices rise, then supply will fall. And that is what happened. There's a quote by Robert Morris that actually reminded me of you, Jacob. It's the kind of thing you might say. The most effectual way to turn a scarcity into plenty is to raise the price for the article wanted. If you want more of a thing, pay more for it and more will appear. It's the opposite of price controls. So Robert Morris has to tackle this currency problem. He doesn't know how to do it. He tries to lecture the Congress about we need to be better about spending.
19:47We need to, like, be backed more by France and hard money. But in the end, he decides, I'm going to start my own bank and I'm going to print my own paper money. Let me just say this sounds, like, bizarre to us. You're starting a bank and printing your own money. At the time, it was normal. Very popular. Because, as you alluded to before, paper money was an IOU. Like, in people's minds, real money was gold or silver coins. And banks would start up, people would start banks, and they would print paper money. And the paper money would actually say on it, like the$5 bill would say, like, this is a claim on$5 in silver at whatever, the bank of Robert Morris.
20:25And then the idea is you could take it and actually get the silver out of the bank, but the paper would trade as money. And I'm always amazed. People were very, very, very shrewd and smart about this. And they could look at a paper, IOU, and look at who issued it and determine how trustworthy is this person and how much is the real value of this paper. Yeah. I mean, in fact, a few decades later, people would actually start these sort of like magazines for merchants when there were hundreds of banks or thousands of banks printing their own money that told you for every bank, like, take it, don't take it, apply a discount.
20:59It's a really interesting market, right? This idea of a free market in money. So Robert Morris thinks, all right, everyone's screwing this up. So I'm just going to take it back to first principles. He starts the Bank of North America. Yes, thinking big. Starts in Philadelphia with a bunch of money, but mainly a shipment of silver from France. Okay. Collateral? Yeah. And the bank issues its own paper notes backed by silver and gold. And he is very vigilant that there should not be too many of these paper notes. Not too many emissions. Not too many emissions. No emissions. And he did all these psychological tricks, because it is a psychological game.
21:39Absolutely. I mean, a new bank pops up and you're going to trust them. Here's how he got people to trust them. One thing they did, they had the vault in the basement and the loan office was up above, and they had pulleys to lift chests of silver. Okay. Right? You know, just total logistics. But he made sure it was out in the open and people could see it. Ooh, they've got a chest of silver. And he would have people raise and lower the boxes of silver. So if you came into the bank, you would tell them, oh, you should have seen it. They had boxes and boxes of silver in there. Like they have the money to back the notes.
22:14The quote was, it would dazzle the public eye by the same piece of coin multiplied by a thousand reflectors. I love that. It's like David Copperfield, David Silverfield. Another wild thing that they would do at the Bank of North America, or so I'm told, was that if someone wanted to pull silver out of the bank, they would arrive there with a note and say, I want the silver instead of this note. At the bank, they would say, happy to do it, sir. Everything's backed by silver and gold here. And they would pay out the silver and the customer would leave happy from the bank. And then they would send a clerk after that person, chase them down in the street and say like, hey, listen, can you give us back the silver?
22:55We'll give you some notes. Like really, it's safer keeping it with us. You sure you want to be walking out or out here with that silver? So he's carefully managing this new currency. And at one point, he even issued his own Robert Morris promissory notes, which was... So not the bank, the guy. No, it was just like personally, you know me, I'm a rich guy, I walk around Philadelphia. I will personally guarantee this paper money. And they were called, because they had different durations to them, because his name is Robert, long bobs and short bobs. Oh, that's great. Yeah. Moore said when he issued his own notes, My personal credit, which thank heaven I have preserved through all the tempests of war, has been substituted for that which the country had lost.
23:39I'm now striving to transfer that credit to the public. It's a very bankerly way to think of the world. It's like you're moving credit around. A little bit arrogant, also. Even at the time, people thought he was arrogant. And remember, the United States of America, a lot of people thought that this should be a plain and simple nation. Yeah, not the United States of America yet, if I've got the timing right. Yeah. So they thought the colonists or our new civilization here should be plain and simple. You didn't want to have ostentation. People were not talking like bankers and economists. And one of the things I really do admire about Morris is he was seeing things that no one else could see.
24:21because of course everyone's like oh there's actual gunfights and and battles you know and we don't know the future of our nation and he's like no no no focus on the money make the money work and everything else becomes easier so all of this credit subterfuge personally guaranteeing essentially currency used by the government it would not have worked for long but the war ended So good news. Morris stayed on for a while as the head of finance of the new country. But there was just so much drama, political drama at this point, about how the states would work together. Would there be taxes? Would there not be federal taxes?
25:03And Morris really argued, like, no, if we're going to make the system work. He was very Hamiltonian in this, that we need a centralized government, centralized debt, centralized currency. And at one point, President Washington, when he was president, would ask him to be the Secretary of Treasury, the very first Secretary of Treasury. You know, before he asked Alexander Hamilton, he probably said, hey, you could be on the$10 bill, my man. And Morris is like, I already have way too many paper bills out there with my name on it. So he declined and Alexander Hamilton took the job instead. So Morris, at this point, he's like, I'm done with government.
25:40I want to go back to my first love, the thing I really believe in, making gobs of money. That's after the break.
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28:12And we are back. Let's jump 15 years after the end of the Revolutionary War. Robert Morris is a resident of the Prune Street Debtors Prison in Philadelphia. He is living in a cell. It's a nice cell, but it's still a cell. He would walk three miles every day in the yard outside the prison in a big circle, 50 times around the yard. Apparently, he would keep a pocket full of pebbles. And with each circle he made, he would drop a pebble just so he could keep count of how many times he got around. Like an entry in the ledger. Yes, exactly. And as he's walking around, he must have thought about how much of a fall this was.
28:55how big he was in those 15 years since the revolution. At one point, he owned more land in the United States than anyone else. Like, he would probably be in the top 10 of landowners today. Six million acres. Six million. Larger than the state of New Jersey is what he owned. No. I'm double checking that. You can check it. How many acres is New Jersey? It's almost Vermont-sized, his land. New Jersey has 5 million acres. Yeah. Impressive. Impressive also would lead to his downfall. But at the time, you know, he's in the debtor's prison and the former president of the United States, because George Washington has voluntarily decided not to become king.
29:41Heroically. A huge moment in history. Yeah. Yeah. But George Washington is still a celebrity. He came to Philadelphia. He's getting parades. Everyone's celebrating him. And he takes a break to visit Robert Morris in prison because he knew that a lot of the success of the revolution was because of Robert Morris. And I don't know, Robert Morris must have thought, if I just retired after the end of the war, like, I might be a hero. There might be parades for me as one of the people who made the revolution successful. But he could not retire. When he left the government, he started to trade again.
30:18And he started to use the network that he had developed through smuggling all of that gunpowder and guns, his contacts in France and around the world. And he had these big schemes that he was going to try and pull off with this network. His first genius plan, got one word for you, China. Okay, that sounds like a good idea from what I know so far. Yeah, everyone else is restarting trade with Europe after the Revolutionary War. Moores bought a ship and sent it in the other direction. It held 30 tons of American ginseng. Uh-huh. Popular in China. Yeah. 2 ,600 animal skins, cotton, lead, and a little pepper.
30:58Pepper I didn't see coming. The ship returned in 1785 with 800 chests of tea and 20 ,000 pairs of Nanking trousers, which I guess were a nice cotton trouser popular in the day. I don't actually know what that is. That's like hammer pants? Yeah, they're millennials. They were tight, tight trousers. It doesn't matter what was in the ship. The important thing was he made a 25 % profit. He's doing great. Still had the touch. Next up, the French approach him. And they want what the Frenchman always wants. Cigarettes. Cigarettes. Tobacco. It was actually snuff. I think they were snuff fans. They would later take up the cigarettes.
31:35But the war had, you know, put a crimp in the tobacco supply. And prices for tobacco were very high in Europe. So Robert Morris makes a bold deal. He says, I will sell you all of the tobacco you want. For the next three years, if we lock in this high price, I will supply it all. And what Morris understands that they don't quite get is that, you know, the industry in America is ramping back up again. The price will fall over the next three years. And he's locked in a high price. And he can make huge profits on this. Now, I will say Robert Morris, as a Philadelphia banker, is not the most popular man in the South at this time.
32:17So he sets up these sort of shell companies, whatever it is, he's a secret part of it. They compete against each other, the shell companies. They don't even know. They have common ownership. And they end up cornering the tobacco market. Okay. Yeah. And so eventually he's sending 30 ships a year, millions of pounds of tobacco to France. and of course in order to do this scale of operation he was going to need a lot of money so he issues some more of his notes now remember the first time he issues the bobs the first time he issues them he was doing this to save the colonists to save the revolutionary army this time you know it's just for himself and just for profit so he's borrowing money it's sort of a bond like.
33:03Yeah, yeah. And he also has this thing that, like, you know, those debts are due, but of course they're due after the tobacco arrives and there's a long chain of events that happens. He's a finance guy. That's what finance guys do. So picture this. He's got the ships sailing to China. He's cornered the tobacco market, ships in the Atlantic, secret companies, tons of debt. As he would later say, give me a Robert Morris-ism. I can never do things in the small. I must either be a man or a mouse. Well, this man is now juggling payments and loans across half the world. But he has a solution. What he calls the ultimate object of human avarice.
33:45This is it. The big score, the thing that's going to pay off all of his debts, it is land. Real estate. So that's a good way to make money, going along real estate? A great way to make money, especially if you believe that you have now created a stable country with a lot of wilderness land. It's very smart. And in fact, a lot of the founding fathers were real estate speculators long before they thought about revolution. They were buying and selling wilderness land on the western frontier, which was basically Ohio. And in fact, one of the things that Britain did to kind of piss them off was they passed the Proclamation of 1763, where colonists were forbidden from settling west of the Appalachian Mountains.
34:28So, you know, among the many things that we went to war for, one of them was the right to speculate in wilderness land. Inhabited by Native Americans. Yes. USA. So he starts buying wilderness land, Robert Morris does. And like everything else in his life, he goes all in. He starts, his like first big purchase is a million acres of western New York along the Genesee River. A million acres. A million. Cost him 30 ,000 pounds in Massachusetts currency. there is no way to know what that is worth. Presumably a lot. Yeah, a lot, but not that much. Not as much as it would sell for today. Yes. So here's the plan.
35:06He wasn't going to hold this for 200 years, which he should have done. He was going to send his agents to Europe. And they would find people in small towns around Europe, in Germany or something, who wanted to move to the New World. And he would say, I will sell you this many tracts of my vast land, and you can all live together. and it'll be just like Germany, only it'll be in the wilderness. This is a recurring sort of scheme in the new world. You see it happen again and again. And I mean, it did happen. It wasn't just a scheme. People came and moved and created these immigrant communities where they could still speak German and have their beer and pretzels and...
35:41And newspapers in German and whole communities. You'll see this happen a lot in the later 1800s. So this was going to be the big score. And if he could make it work, he would never have to issue any Morris notes ever again. But first, just a little bit more debt, just a little bit more land, by which I mean millions of acres, and then more land deals. And I think of it as this giant Jenga set of debt, right? And, you know, things are paying off. He's paying off the debt, but then he puts it into new debt. He puts the Jenga stick on top, and he keeps pulling it out and pulling it up and pulling it out.
36:16And all of a sudden, now it's three feet high, the Jenga tower, filled with debt. And then something shakes the table. Another revolution. The French Revolution. And really what brought in just years of chaos afterwards. Kind of a nice irony that our revolutionary friend should be toppled by another revolution. So after the French Revolution, there's all of these issues. There's a panic of 1797. The Bank of England suspends their hard money payments. Businesses go under. European countries start borrowing more money to build their armies to defend against France because Napoleon's coming. So a lot of the credit dries up.
37:01And, you know, if you're relying on a cycle of debt and the new debt is hard to get, what happens, Jacob? Well, the people you owe money to come and say, Pam, you're a rich guy. You own more land than anybody. Sell some of that land to give me my money. Exactly right. His famed Morris notes are becoming more worthless every day. He has this like side deal with someone else who's in the same boat. And they start cross endorsing each other's worthless notes to be like, well, if you don't trust me, maybe trust the other guy. Anyway, it's all falling apart. People are yelling at him in the streets of Philadelphia because he owes money to everyone.
37:40So he retreats to his country home, which he calls Castle Defiance. Still a little bit arrogant. And even there, desperate creditors are showing up. Apparently, Morris would lock the door and he would only communicate with people in a bucket that he lowered down from the second floor. Not the first floor, because someone could shoot you. On the second floor, he'd lower down a bucket and they would send notes back and forth. And his note would just say, no. He was probably filled with more Morris notes. Can I offer you some long bombs? I just printed them. I have some emissions for you here. He is definitely scared at this point.
38:18Creditors would come and camp outside his home on his land, and they would burn bonfires all night, and I assume yell at him all night, waiting for him to come out. Bondifiers? Bonfires. Eventually, yeah, they were fueling it with Morris notes, right? We're burning currency. Eventually, he sends a note to the sheriff. He wants to turn himself in and go to debtor's prison. In a note to a friend, he wrote, My money is gone. My furniture is to be sold. I am to go to prison and my family to starve. Good night. So debtor's prisons have been, I think, for hundreds of years. The idea was you would go and have your freedom taken away, and you would work or your family would work to figure out how to pay your debts.
39:05So it was a way of kind of keeping away the mobs a little bit, although they could still visit you in the prison and yell at you. And in fact, that happened. The debtor's prison that he went to, they actually called it a debtor's apartment because it wasn't full prison, but he was definitely confined there. It was a two-story brownstone on Prune Street in Philadelphia. and even though it was filled with people who had no money, who had sold their furniture, the inmates had to pay for room and board. Huh. I don't know. It just felt like the moral thing, I guess. It's not high security. Inmates could have visitors.
39:45But it was right next door to the real jail and they both shared a yard and they were separated by a low wall. And I guess hardcore criminals would jump over and basically mug the debtors for whatever they could get from them. For the negative money that they had. Robert Morris is like, take more notes! Take more notes. And also, the debtors' prison was getting crowded. In 1798, the economy was struggling. Robert Morris wasn't the only person who couldn't pay his bills. George Washington did visit him, famous person in the United States at this time. Thomas Jefferson said, I would like to hire Robert Morris to help run my economy if not for the prison and all.
40:26And Morris himself was despondent. He wrote around this time, I feel myself an intruder every place into which I go. I sleep in another person's bed. I occupy other people's rooms. And if I attempt to sit down and write, it is at the interruption and inconvenience of someone who has acquired a prior right to the place. It's the prison diaries from Robert Morris. So he still has land. He's still trying to work out some things. But apparently when they totaled up, he had racked up about$3 million in debts at the time. That's like a lot, yeah. That is a lot. And he was probably thinking at this point he was going to spend the rest of his life in the Prune Street prison.
41:15And then somebody went and invented the bankruptcy court. I'm looking forward to talking about bankruptcy after the break.
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43:44We're back. Let's talk about the concept of bankruptcy, formal legal bankruptcy. And there have been forms of this in Europe. But in the early United States, they had a lot to do. So they hadn't yet passed a federal bankruptcy law. Like, how would it work? And it's a complicated problem when someone is in debt. Especially a financier, right? They have all these debts, but they also have all these assets. You get the kind of moral thing of like, oh, let's be mad at them. Let's throw them in jail or whatever. But, I mean, A, it's cruel. But on a certain level, that's not actually financially a good idea, right?
44:28They have assets. There's all these different creditors. And what you fundamentally want is for the creditors, for the people the guy owes money to, to get as much money back as possible. Yeah. So it's a collective action problem. If somebody owes me money and I want that money back, it is in my best interest to buttonhole them, make them sell the house, make them sell the furniture and give me back the money first. Like that's just in my best interest. But there are hundreds of other people who also want their money. So what they need is everyone to get together and say, wait a minute, if we let this person in an orderly way sell their assets, get the most forward, or if they're running a business, keep the business running, then we all stand a better chance of being paid something instead of fighting each other.
45:16And you have some neutral party, a bankruptcy judge eventually, who can assess which creditor should be paid first, right? Or how you should allocate the assets, the proceeds to the different creditors. A complicated problem. Yeah. And I'll tell you what doesn't help is locking a guy in a room with a bunch of hardened criminals trying to mug you all the time. It's bad for the creditors, right? It's bad for the people who are owed money if that guy is locked up. Okay, so this is clearly a problem that needs to be solved. Morris might have been the most famous man in the debtor's prison, but he was joined by many other businessmen of the day.
45:54The economy had faltered. Currency is unstable. There are lots of unhappy constituents who want their money back. And so Congress, when forced, gets to work. So they have to hit this balance. They do not want it to be a pleasant process. Otherwise, everyone will rack up debts. They want it to be orderly. They want to be able to see all the assets and debt of a person and to make some of the creditors whole. And the solution they came up with, it's very interesting, very interesting the bankruptcy we have today. Today, a person or a company declares bankruptcy. They stand up and they say, I declare bankruptcy.
46:32Shout out the office. Shout out to the office. No, no, they file for bankruptcy. It's all very orderly. But Congress in 1800 decided that bankruptcy should be involuntary. voluntary. So if you owe me money and can't pay it back, I can declare you bankrupt. You're bankrupt. It's not up to me. I can't go to court and say I want to file for bankruptcy. No, you would have to arrange with a creditor who would come to you and say, I declare you bankrupt. It kind of makes sense in a way. It's sort of leaving it up to the creditor. Yeah. I mean, you know, it's not the way we do it today, but this is how they did it.
47:06The way they designed it was a panel of three commissioners would get to see all the assets and debts. They would decide what would happen next. And then two thirds of the people who lent the money had to agree, maybe based on how much they lent. And then maybe the debt would be discharged. So this was the plan. It was hard to get through Congress, passed by one vote. And you might think at this point, Robert Morris would have been thrilled. Like this is what he needed. It was what he needed, but it wasn't what he wanted. He kept saying, I don't want to be declared bankrupt. Like, that seems shameful.
47:41I'm not bankrupt. There's money somewhere. I can make this work. I can really make it work. That's also a classic finance guy. It's just a liquidity crunch. Yeah. And much like the process today, there is a stigma. It is saying you are bankrupt. And he didn't want that stigma. Well, and especially, I guess, if his whole thing, his whole life is he's the guy who wanted to make money, then being bankrupt is saying he has failed at his main thing. The thing he loved. money. But it's becoming obvious that there is no choice. He heard that one of his estates worth$100 ,000, he estimated, was being sold for$800 because he hadn't paid the taxes.
48:22So this is actually why you want bankruptcy is because that's bad for everybody, except the guy who managed to get the really cheap estate. Yeah, somebody got a deal. Finally, one of the people he owed money to did the official thing. A Philadelphia merchant named John Houston held$284 ,000 in overdue notes. He formally petitioned to have Robert Morris declared bankrupt. The panel is assembled. A judge ordered Morris released, but not free of obligations because he had to spend three months in a hearing before the panel of bankruptcy commissioners going through the process. He owed money to 90 people.
49:03The list included fellow merchants, tailors, a bookseller, blacksmith, bricklayer, an apothecary, even a senator. Richard's Scary book from 1805, garbage man, librarian, fireman. And they all have the Morris notes. They required Morris to write out his account of property, which is a very detailed list of everything he'd bought and sold, how he got it, what happened to it afterwards. he begins this account of property. I'll let you read it. It's pretty good. I shall begin. He writes, you could just begin, but he says he's going to begin. I shall begin with the lands purchased in the Genesee country, acknowledging that if I had contended myself with those purchases and employed my time and attention in disposing of the lands to the best advantage, I have every reason to believe that this day I should have been the wealthiest citizen of the United States.
49:56I'm like, bro, this is just supposed to be a list of all the stuff you bought. And you're still arrogant. But sort of. But he's like, if I hadn't have screwed up in this one way, if I had to just stop with the Genesee country. There is a note of regret in there, covered in a brag. Yeah, that's right. It's a weird, it's weird. He never really admitted that a lot had gone wrong, except he did say he issued too many of those Morris notes and just kind of lost track of exactly how many emissions had been emitted. A judge finally discharges the debt, lets the creditors sort out whatever remains among themselves.
50:35It's not like a satisfying ending to this story, but it's kind of the ending that always comes with bankruptcy, right? It's like everyone kind of gets something, and the person who is bankrupt gets to start over sort of in a way, but without their reputation, often without credit. And Morris tried. Like, he had a few more schemes. There was a new bank somewhere, and they were going to have him be the president, but it all fell apart. He had talked about starting a wine business. He was, I know this is like the saddest part of a bankrupt man. He was starting to look at land deals in Florida. Yeah.
51:14There's one place you could go to make a quick buck. It's Florida. But nothing took. He died five years after he was released. Not a rich man anymore. Definitely not the richest man in the United States. The bankruptcy law, interestingly enough, would be repealed soon after it was passed. There was problems with having the who got to declare. And then a series of new ones would come whenever there was a financial crisis. Congress would pass a new set of bankruptcy laws. And it just started to evolve over the years into what we have today, which is this really formal, but I kind of think, beautiful notion of a fresh start.
51:53We need people to take risks in the United States and around the world. We need them to start new businesses, and that's good for everyone, for jobs, for technological innovation, for everything. And having a system in place that says, listen, if you take a risk and it goes bad, we're not going to throw you in prison. We're not going to take your freedom away. You may have to spend three months in bankruptcy court. You know, you may have to pay everything back. You may have bad credit. But you can dream again and you can try again. You could even argue that of the many great things that have come out of the American Revolution, one of them was the bankruptcy law of 1800, this concept of forgiveness and orderly bankruptcy.
52:36So we're going to be back in 24 years for the semi-quince, the quarter millennium of bankruptcy in America. Exactly. We kind of like this anniversary thing. If there's any other notable business anniversaries we can celebrate here. Semi, hemi, desqua, centennials. We'll figure out the Latin. But let us know what it is, and we can do a show about it. We are businesshistoryatpushkin.fm. We're on X at Jacob Goldstein and at Radio Smith. I'm on LinkedIn. You, Robert, impressively are not on LinkedIn. It's a flex. Our show is run and edited by Mr. Ryan Dilley. It's produced by Gabriel Hunter Chang.
53:16The video is produced by Matt Nielsen. Come make a comment on YouTube. That's another way you can tell us what to do. Sure. Our engineer is Sarah Bouguer. And my name is Jacob Goldstein. I'm Robert Smith. Thanks for listening. Arrivederci. Woo! Hey, it's Ryan Seacrest for Jewel Osco. For You Save Days are here now through June 23rd. Find hot deals throughout the store and earn four times a point. Look for in-store tags to earn on eligible items from Keebler, General Mills, Lactaid, Jack Links, Cheez-It, and Gatorade. Then clip the offer in the app for automatic event-long savings. Stack up those rewards to save even more.
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From the publisher
Two-hundred-and-fifty years ago George Washington was fighting the Revolutionary War against the British, but Robert Morris doing something just as vital. He was raising money for the fighting and buying the gunpowder, tents, food and uniforms Washington's army needed.
Morris had been a merchant before the revolution, so didn't see why he shouldn't personally profit from his work supplying the colonists' struggle. He emerged from the war as a rich man and owned huge tracts of land. But the turbulent final years of the 18th Century saw Morris go first into substantial debt and then fall into utter ruin.
Write to us at businesshistory@pushkin.fm
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