Joseph Ellis’s The Quartet tells the fascinating story of the birth of our nation. After the Revolutionary War, the states faced enormous challenges and as he tells it, Hamilton, Washington, Jay and Madison were among those most responsible for bringing it all together. I wanted to share with you an interesting passage about Robert Morris, one of the most forward thinking financiers to ever live. At the time, Morris was the richest man in America and declined Washington’s request to become the first Secretary of the Treasury before the position was given to Hamilton.
He also brought a way of thinking about money that did not yet have a name. (The term capitalism did not appear until 1850.) The key concept in this emerging mentality was credit, a word derived from the Latin credere, meaning ‘to believe.’ Credit refers not just to the money you possess but also to what others believe you will be able to pay. One economist has described credit as ‘money of the mind,’ which focuses attention on the psychological dimension of a capitalistic marketplace. When Morris gave his note to a customer in Madrid or Kingston, for example, he seldom had the cash on hand to pay for the purchase, but he could make the trade because the customer believed he would eventually make good on his promise, when one of his many ships delivered its cargo somewhere else in Europe or the West Indies.
Credit multiplies the amount of money in circulation, thereby giving a capitalistic economy greater productive potential, while making it vulnerable to endemic ‘bubbles,’ when projections prove illusory, credit collapses, and market adjustment takes the form of depression. Morris was able to avoid that fate by adroitly juggling his expense and his sales by making William, Morris and Company into a de facto bank, with cash reserves that allowed him to survive the inevitable cargo lost at sea.
All this became strikingly relevant when the Financier took command of the American economy. For Morris’s way of thinking was terra incognita for most southern delegates in Congress especially the Virginians, who still regarded land, not money as the ultimate measure of wealth, and for whom the manipulation of numbers on a balance sheet came across as some sinister form of magic, eerily similar to the calculations their English and Scottish creditors were employing to drive them into bankruptcy.