Financing the American Revolution
When the war broke out at Lexington and Concord on April 19th, 1775, the colonists had no means of funding the fight that would take seven long years. There was no government to raise money for salaries, food, ammunition and all the other items needed to wage war. What the colonists had on the battlefield came out of individual wallets, literally.
Even after the Second Continental Congress passed the Articles of Confederation and the situation was desperate. The Continental Army and Navy was starved for funds.
In 1781, Robert Morris, a wealthy Philadelphia merchant who emigrated from Liverpool as a teenager, accepted the appointment by the Congress as the Superintendent of Finance. His job – raise money from the colonial governments and private citizens and ensure that it was spent wisely. Morris founded the Bank of North America as the country’s central bank and to raise money, sold 1,000 shares at $400 each in what can be considered our nations first public offering.
The individual colonies, despite pressure from Morris, were not paying their share of the cost of the war so Morris had no choice but to turn to a network of wealthy colonists. One of whom was Hyam Salomon who was born in East Prussia and immigrated to New York in 1765 and became a wealthy securities broker. In 1775, Salomon was arrested by the British as a spy and pardoned in 1776 so he could act as an interpreter for their German mercenaries. Because he continued to help American prisoners escape and encouraged German soldiers to desert, he was arrested again in 1778.
Salomon escaped, went to Philadelphia where helped Robert Morris raise money. Salomon brought in over $18 million in 2019 dollars that doesn’t sound like much, but during the American Revolution, it was a princely sum and kept Washington’s army in the field. Near the end of the war, the Continental Army, Washington was about to trap Cornwallis at Yorktown, but his army was out of money. The general sent a letter to the Congress asking them to find Salomon who quickly came up with the money he needed. Salomon did as asked and the British were defeated.
The hard economic times following the American Revolution were not kind to those, including Haym Salomon, who loaned money to the Continental Congress. Even though it had promised to pay all its debts, the Congress couldn’t raise struggled money from the individual states and the debts went unpaid. For example, a year after the Treaty of Paris was signed in 1784, Salomon was penniless and in debtor’s prison where he died from tuberculosis in 1785.
Morris took the lessons learned from the American Revolution and turned the Bank of North America into the First Bank of the United States. Later, along with Alexander Hamilton, Morris created the basis for the financial system we know today which is the strongest in the world.