Paine was a relentlessly honest critic of society, but he probably would have been merciful to a man that did so much for the new nation. It is doubtful that Paine had a merchant's eye, and knew where to look. The American Revolution never questioned the appropriateness of buy-low sell-high. Like the militarization of society that occurred because of how the white settlers treated the natives, profit margins were an ubiquitous and invisible part of trade. Who is to say what is a reasonable mark-up percentage, when we cannot determine a fair exchange of chickens for eggs? Whatever Morris paid for the flour, the following markup percentages could be considered reasonable and not gouging. Profit is the way of the market, and conventional wisdom cannot be sued.
Morris was unanimously appointed the first Superintendent of Finance under the Articles of Confederation. Alexander Hamilton, who later became Secretary of Treasury under George Washington, was following the roadmap that Morris created. Morris' business partner eventually became the head of the First National Bank, what we today call The Federal Reserve.
Like the French bank that financed the Mississippi Company sixty years earlier, the managers would engage in smoke and mirrors to create the illusion of stability. If you visited the new bank in Philadelphia, then you would see piles of gold coins in continuous motion passing by a barred window. It gave the impression that there was plenty of gold backing the new currency, when in fact it was a small amount rotating on a turntable. The facade of a con-man, advertising, and the gambler's bluff all intersect with banking. Modern financial advertising continues to sell an illusion on the Sunday morning talk shows and during sporting events. The illusion of financial stability has endured for centuries. Now the debt is at trillions of dollars. The Treasury cannot logically be called a treasury. The Trust should be doubted.
Developing a Currency
Part of the history of modern finance is the history of currency. Philadelphia's experiment with paper money set a precedent. Banks throughout the colonies issued their own banknotes, and a huge counterfeiting problem quickly developed. The counterfeiters became more sophisticated as time passed. They would intentionally insert a mistake on a note so there was an easy "tell' that it was a fake. Then they would print more notes with the "tell' removed, ensuring its acceptance.
The counterfeiters thrived. Fraud is the easiest way to secure unearned income. Their final assault was to create notes for fictitious banks. They looked real, and there were no warnings regarding that note, and it was only when someone tried to redeem the note was it found to be for a non-existent bank. A similar fraud now occurs with stocks issued by a business, which is the fiscal equivalent of a bank issuing its own currency.
The Constitution eliminated the different currencies. The problem that Franklin envisioned originally had shifted. Instead of there not being enough currency, there were now too many forms of currency. The underlying problem of how the money was handled was ignored again in framing a new government. Franklin's first solution made fraud easier. The Constitution only attempted to solve the problem that he had created earlier.
The temptation of speculation
After the Constitution was ratified, plans were made for the development of Washington D.C. There was a heady confidence about the new city. America would have its version of St. Petersburg. Robert Morris, after a lifetime of trade and political activism, resorted to the same "safe' speculation that Ben Franklin had originally recognized as the problem. Morris tried to use his alleged knowledge of future developments to his advantage. Instead of trading in flour, he would trade in land. He borrowed heavily, purchasing land in the District of Columbia. Unfortunately for Morris, the new nation had a slow start. He lost his fortune, and unable to pay his creditors, landed in debtors prison (1798-1801). His fall, like John Law almost one-hundred years earlier, is perhaps the best example of the failure of democratic political institutions, and of the Founders, to solve what was essentially a mathematical problem in economics.
Debtor prisons goes back thousands of years, and debt was a common story that neither the revolution, nor modern finance, solved. The father of Confederate General Robert E. Lee also landed in prison (1808-1809). Harry Lee was a revolutionary war hero and later a federalist. Like Morris, he speculated on land values, but this time in the South and West.
The problems of public debt and business difficulties were the impetus for attempting modern finance. It failed, but the newly created marketplace led to democratic reform. The problems of society cannot be blamed on tradition or the top of the hierarchy. We all share responsibility. The freedom of opinions, and the power to decide, do not matter as much as the truth of mathematical facts.
As Franklin observed, interest has a guaranteed return, as long as the borrower does not default. Most borrowing originates from the need to purchase land. Flipping real estate is a high-risk path to great wealth, and is one of the defining characteristics of modern finance. When the King and nobles owned all the land, prior to modern finance, land transfers were few and not speculative. Robert Morris and Harry Lee engaged in the same behavior that caused the Savings and Loan collapse in the 1980's: borrowing money to flip real estate. It is not much different than borrowing money to buy stocks. It is a bet that the market will rise, not fall. Unfortunately, the rise will force the fall.
All borrowing is based on a predicted future gain. All lending is based on the expectation that the borrower will pay the lender back. Corporate takeovers are a financial version of war. Private equity firms, venture capitalists and angel investors are flipping businesses instead of land, or stocks, or merchandise. The scale of what is being bought and sold changes, not the behavior.
Public credit allows the government to wage endless war on whatever citizens or nations it fears. Private credit allows endless war between businesses. These events are not the marketplace adjusting itself by an invisible hand, but the hand of credit dividing winners and losers. The entity with the most credit wins because they can borrow more after every failure. Only when the flow of credit stops does collapse follow. The recent automobile manufacturers' bailout revealed that they were in debt to bankers for billions of dollars. They had burned through all the free money available through stocks and needed to borrow more to stay afloat. They got their bailout, as did the bankers. Homeowners were no so lucky. Not being an organization, they have no representation in the Big History system.
The Civil War and Banking
Wall Street got its start in the early 1800's. With the establishment of a single currency in 1798, trading could be more earnest. The nation expanded toward the westward shore. Businesses needed a way to trade with one another. Unfortunately, while there was less counterfeiting, there was still fraud. People could buy on credit with no intention of paying for the goods. The issue of trust has shifted from "Is this currency real?' to "Will this person pay for their goods?' Wall Street began as a credit reporting agency. An unpaid invoice was no better than a counterfeit bill.
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