Sunday, March 11, 2012

The Bubble Burst and A Hero is Deflated

When we think of the current state of American economics we never look at the multigazillionaires as heroes. However, sometimes heroes do become involved and fall from grace. This is true in the case of two heroes of the American Revolution: Robert Morris and "Light-Horse" Harry Lee, and their involvement in the Panic of 1796 or the United States first economic bubble. These two men each played a major role in the American Revolution but would forever lose the true glory they deserve for their actions. It is important that we look at the Panic of 1796, at these men, and their involvements to discover who is to blame and who should have honor restored to their name.

"Let freedom ring," was sung while the British are leaving America. What really should have been said was, "Let the greed begin." I'm sure by now my faithful readers must be thinking, is Mike turning on the Founding Fathers? Not exactly. The Panic of 1796 began when the British officially surrendered. American opportunists saw the entire continent open up and saw wide open land, along with dollar signs. So where should I begin with explaining the causes of the Panic of 1796? There are three key components which caused the bubble to burst. First would be when the land speculation bubble exploded and sent many Americans spiraling into debt. Second was when the Bank of England passed the Bank Restriction Act of 1797 which stopped people from converting paper money to gold and Third was a deflation trend that effected financial markets on both sides of the Atlantic.  But how does Robert Morris and Harry Lee fit into this disaster?

Robert Morris was a key financier of the American Cause of Independence. His first loan came in 1776 when the Continental Army was at its weakest. He gave Washington a £10,000 loan in order to pay his troops and keep them in contract for the next year, which would ultimately lead to Washington kicking some serious Redcoat ass across New Jersey. Morris was a financial wiz, sort of like a Donald Trump of his time and turned profits during the entire Revolution to continue funding the American Army. Morris was also a Founding Father signing both the Articles of Confederation and the Declaration of Independence. He was a member of both Continental Congresses and because of his service and economic brilliance he was made the first Superintendent of Finance of the United States. In this position he created the first national bank, the Bank of North America, then proposed the creation of a national mint and use of coinage. Morris's main goal though was to be able to finance another war against England. With that in mind Morris reformed the banking system in America all in order to provide for the nations defense. But how does Morris fit into the Panic of 1796, and more importantly how does he tie in with Harry Lee?

I just want to say one primary thing of Henry Lee III. He was a straight bad ass. He was a true southern gentleman and a real America, and already in these two sentences I think you can see who is getting a bum rap out of this event. Lee was one of the first to arms at the outbreak of the Revolution and quickly rose to Lieutenant Colonel by the end of Revolution. He was a Captain in a dragoon detachment, promoted to Major and commanded a unit known as "Lee's Legion" and finally to Lieutenant Colonel during the fighting in the southern theater. Lee is probably most famous for the Battle of Paulus Hook. At Paulus Hook, Lee led his men in the middle of the night attack a British controlled fort in Jersey City, NJ. Lee went in with about three hundred men and only lost two and had seven captured. Lee then escaped victoriously with one hundred fifty-eight Brits and returned to the American stronghold at New Bridge (Hackensack, NJ). Upon his return he was awarded a gold medal. But how did Lee become involved with Morris? How does Lee fit into the Panic of 1796?

By the years end of 1796 all financial hell had broken loose. The American nation was in shambles from over-speculation. The Bank of England feared it's American clients would collapse the British economy so they held all funds and inflation was running wild on both sides of the Atlantic as both nations were frantically trying to rebalance their financial worlds. Morris and Lee were just a piece of a bigger picture but still an important example. Morris saw an opportunity to turn a buck around every corner and this time was no different. Morris this time pitched the idea to Lee. According to both Morris and Lee's records they worked together in forming towns with the goals of then selling them for almost double the investment cost. However, these profits never turned and both men wound up broke. With nothing left both Morris and Lee were placed in debtors prison. After their release both of their lives were in ruin. Morris left prison in poor health and would remain in retirement until his death. Lee however, went onto a political life serving in the House, delivered Washington's eulogy and would go on be a major part of the Federalist Party. But what can we take away from these two men and the Panic of 1796?

After the dust settled and the economy was put back in order the U.S. Congress passed the Bankruptcy Act of 1800. It was during this time that the government would restructure economic policies and place laws which would prevent another event like the Panic of 1796. It is documented that those involved in the Panic who could not pay their debts were imprisoned, so why change today? Today we see multinational corporations running wild and doing almost the same thing that Morris, Lee and others did in the 18th century. The "bubble" is nothing new to America, we have always had "bubbles" but usually afterwards there was some form of punishment. Today, Morris and Lee can still be seen as an example of how some of the wealthy get their name cleared and others are punished and forgotten. When you look around and compare the legacies of both men, it quite obvious that Morris is more celebrated. When looking around the American financial history we see Morris continually praised. He's appeared on U.S. currency, has a town named for him (Morrisville, PA.), ships and not one but two separate universities (Robert Morris University of Pennsylvania and Illinios). So Morris, a man who laid out a plan and screwed many Americans out of their money is still honored. While, Lee on the other hand was a war hero, revolutionary, politician, family man, writer and all around image of what an America should be. But Lee is forgotten by Americans as there is nothing honoring him. Sure you can visit both of his homes, one in Alexandria, VA and the other in Lost River State Park, WV., or maybe you can go grab a burger and beer at the Light Horse Tavern located at the site of the Battle of Paulus Hook in Jersey City, NJ. The most important thing to take away from this though and the reason I chose this topic is because the bad guy always walks away on top. Morris was one of the main factors in the Panic of 1796 and he walks away blame free. It still continues on today with the major companies around the world and their willingness to do anything to turn a profit. It is unfortunate that a man like Lee became involved, a man that should be honored as a hero is almost forgotten. It seems to be the way the world works and that the bad guys can walk away always smelling like roses. 


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