WHAT WAS THE NATURE OF THE UNITED STATES DEBT DURING AND AFTER THE REVOLUTIONARY WAR

Gabe, Gautam and Xander

Debt And Inflation

Monetary Debt

During the Revolutionary War, the colonial governments, both the federal and state, amassed huge amounts of debt.

Over 100 million dollars was owed to US citizens, and other countries (France) that sold supplies or bought war bonds during the war.

The Failed Solution

The United States government’s original plan to pay off the debt was to print 200 million new dollars worth of paper money (colonials)

Pay off debts with them Then slowly collect them back through

taxes levied by the states and subsequently remove them from circulation.

Inflation

However, instead of using this currency to pay of their debts, the states collectively printed 200 millions dollars worth of their own currency

This was used that to pay off the state’s debts instead.

This massive influx of relatively worthless paper currency lead to massive inflation.

The Continental dollar’s value promptly dropped to a fifth of its face value.

People who’s bonds were paid back in this currency now had few or no goods, and large amounts of worthless money.

People began to use it to stoke flames and make clothes rather than use it as currency. An expression circulating around the colonies

was, “not worth a continental,” meaning worthless.

It made the government lose almost all control over the economy, because no-one would use its currency because it was worthless.

Inflation of the Continental Dollar

Year of EmissionNominal Dollars

Emitted (000)

Annual Emission As

Share of Total

Nominal Stock

Emitted

Specie Value of

Annual Emission

(000)

Annual Emission As

Share of Total

Specie Value

Emitted

1775 $6,000 3% $6,000 15%

1776 19,000 8 15,330 37

1777 13,000 5 4,040 10

1778 63,000 26 10,380 25

1779 140,500 58 5,270 13

Total $241,500 100% $41,020 100%

Source: Bullock (1895), 135.

ROBERT MORRIS AND THE FINANCING OF THE

REVOLUTION

Robert Morris: Early Life

Born: January 20, 1734 in Lancashire, England

Family moved to Chesapeake Bay 1744 Attended school in Philadelphia

Apprenticed in a Counting Room Took control of the business This put him in a position of relative power in

society

Robert Morris: Pre-Revolution

Stamp Act of 1765 Devastated import business Morris sided with colonists Joined movement against British

Robert Morris: Revolutionary War

Elected for Continental Congress in 1775 Headed committees for raising capital and

provisions to support the revolution Commissioned to negotiate and solicit

money for war operations Lottery Loaned $10,000 of his own wealth

Funded Washington’s troops in Battle of Trenton

Operated privateers for supply

Robert Morris: National Bank

Bank of North America Morris developed a national bank

Helped finance war Established the United States credit

Appointed to be the first Secretary of the Treasury Directed operations of newly created bank

Robert Morris: Post-Revolution

Constitutional Convention 1787 Supported a new constitution to be drafted.

Positions held Pennsylvania Legislature Senator for Pennsylvania

Robert Morris: Later Life

Lost all wealth to bad land speculation Put in debtors prison

Even though he was considered to be a national hero.

Eventually released from debtors prison (1798-1801)

Died in 1806, age 73

Alexander Hamilton and Pre-1789 Debt Solutions

Post War Debt Situation

$54 million of national debt

$25 million state debt Some states have

harder time paying No good way to pay

off debts More credit

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Hamilton’s Plan

Constitution in 1787 New Federal powers

Hamilton wants to consolidate and refinance debt Fed gov’t. assumes

state debts Pays off with more

borrowed money Pay at face value

Benefits speculators

http://pdxretro.com/wp-content/uploads/2011/01/alexander-hamilton.jpg

Approving the Plan

Big southern states didn’t like plan Didn’t want to pay

other state debt Concern over

rewarding speculators

Compromise reached after 6 months Sets Capital first in

Philadelphia, then where it is today

http://www.countymapsofgeorgia.com/pics_counties/washingtondc_map.gif

Works Cited http://mises.org/daily/2340 http://www.netplaces.com/american-revolution/the-politics-of-war/financing-

the-war.htm http://eh.net/encyclopedia/article/baack.war.revolutionary.us http://en.wikipedia.org/wiki/American_Revolution#National_debt http://www.ushistory.org/declaration/signers/morris_r.htm http://www.libertystory.net/LSACTIONROBERTMORRIS.htm "Alexander Hamilton's Financial Program." Digital History. University of 

     Houston, 2006. Web. 25 Oct. 2011. <http://www.digitalhistory.uh.edu/      database/article_display.cfm?HHID=6>.

Hamilton, Alexander. "The First Report on Public Credit by Alexander Hamilton      (1789)." WW Norton & Company, Inc. WW Norton and Company, Inc, 2011. Web. 25 Oct. 2011. <http://wwnorton.com/college/history/archive/resources/      documents/ch08_02.htm>.

Tindall, George Brown. America: A Narrative History. Vol. 1. New York: WW Norton & Company, 1984. Print.