Sunday, October 17, 2021

ARP222 Congress 1779: Mo’ Money, Mo’ Problems


We last looked in on the Continental Congress in Episodes 205 and 206 while delegates were still fighting over what to do about the Silas Deane investigation, and the fact that they had no money for any new offensives.  In fact, even keeping the army fed and clothed remained an ongoing challenge.  Henry Laurens of South Carolina had given up the President’s chair to John Jay of New York.  George Washington had travelled to Philadelphia late December, 1778, mostly to convince Congress not to try to invade Quebec again.  The army simply did not have the resources for such a campaign.  At the end of January, 1779, Washington returned to the Continental winter camp in New Jersey.

French Navy, No Help

In February, Congress celebrated the first anniversary of the French Alliance with French Minister Gérard.  Leaders held a banquet and drank toasts to each other’s country.  Congress hoped the alliance would turn the tide of the war, but a year into the alliance, there still seemed to be no end in sight for the war.  It also wasn’t clear exactly what the French were willing to do.  

John Jay

Admiral d’Estaing had come to America with his fleet in early summer 1778.  He avoided landing in Philadelphia in order to face the British fleet in New York.  There, the French determined that the waters were too shallow and left New York without a fight.  They next moved up to Newport Rhode Island, where they prepared to assist the Continentals with an attack on the British garrison.  Again though, the French left without a fight.  This time, a storm damaged the fleet and word of a British relief fleet led d’Estaing to sail for Boston and put in for repairs.  The French spent the winter in Boston before heading down to the West Indies to fight with the British over some islands.  So in terms of actual assistance, a year into the alliance, the Americans had received only broken promises of support from the French army and navy.

Congress debated requesting that the French fleet come back to America in early 1779 to assist with the defense of Charleston, South Carolina and the recapture of Savannah, Georgia.  Debate on the topic broke down over whether Congress should pay France for use of the fleet, and if so, how they could come up with the money.  While France and America still celebrated their alliance, the costs of the war were still very much a point of contention.

Conrad Alexandre Gérard

The Silas Deane hearings (see Episode 193), still unresolved, raised the question about whether the US was already heavily in debt to France for the aid provided early in the war. Commissioner Deane had reported that those crucial supplies were provided on credit, while Commissioner Arthur Lee was telling delegates that they were gifts.  French Minister Gérard had met with Congress to make clear that they were loans and that America would have to repay those costs at some point.  So it seemed rather presumptuous to tell France that Congress was not going to make those payments, and that, by the way, could France please send its navy to the Carolinas, at its own expense, instead of fighting for valuable sugar islands in the West Indies?

Delegates tried to see if Gérard was open to the idea anyway.  Gérard made clear that French resources had to be focused on the West Indies and that France was not in a position to lend the use of its navy to America for a different project. In the end, delegates withdrew their requests and hoped to have the Continental Army fight the southern war on its own.

Defining victory

Good news arrived in February, 1779 in the form of rumors that Spain was getting ready to join the war.  Spain’s entry would force Britain to go even deeper into debt and spread its resources even thinner as it contested with another major power for real estate around the world.  

With the hopeful expectation of word of Spain’s entry, Minister Gérard tried to get Congress to commit to their terms for ending the war.  This led to lots of questions.  Would Britain return Georgia and other areas it still held? Would the northwest territory be part of British Canada, or the independent United States? What about the Floridas? or navigation of the Mississippi River?  Especially with Spain possibly entering the war, those former Spanish colonies became even more of a question.  Congress needed to be ready to send a peace delegation to negotiate a treaty, and to tell its negotiators what terms were essential to the treaty and which were negotiable.

Congress formed a committee to make preliminary recommendations about peace terms.  The committee included Samuel Adams of Massachusetts, Gouverneur Morris of New York, John Witherspoon of New Jersey, Mariwether Smith of Virginia, and Thomas Burke of North Carolina.

Beyond complete independence, the committee recognized six non-negotiable factors that had to be in any peace treaty:

  1. It set specific boundaries of the United States, including the area between the coastal states and the Mississippi River,
  2. evacuation of British forces from all US land,
  3. full navigation of the Mississippi river to the southernmost point of US territory,
  4. free commerce with a port below that territory to provide access to the ocean,
  5. fishing rights off the coast of Newfoundland,
  6. The cession of Nova Scotia to the US.

The Committee also came up with negotiable terms, including reparations for the harm done by the war, and the return of property taken by the British Army, including slaves.

Continental Congress
Congress spent months debating these terms, even though France was eager to get some decisions as quickly as possible.  New England delegates pushed for what proved to be one of the most contentious terms, the right to fish off the coast of Newfoundland.  Fishing rights off the coast of a foreign power seemed rather presumptuous, and a term that Britain would be unlikely to concede.  At the same time, New England leaders argued that they had traditional fishing rights in those waters, and that the New England economy depended on their continuation.  The debate boiled down to whether the US was willing to continue the war, with the ensuing casualties and debts, simply to acquire fishing rights.  New England said yes.  Other states were not so sure.

Southern delegates pushed hard for navigation of the Mississippi River. New England did not really want to continue the war over that issue, and voted it down.  Delegates were particularly concerned that US demands on the Mississippi might risk securing an alliance with Spain, which also claimed control of the river.  Because the northern states would not fight for the Mississippi, Southern states were not inclined to fight over New England’s fishing rights.  The debate dragged on over the course of the summer and into September. Finally the Congress settled on terms that included both the navigation of the Mississippi River and fishing rights off Newfoundland.   But the debates over the terms divided Congress for most of the year.

Dollar Collapses

Congress’ real problem, the one that impacted everything else, was its continuing problem with money.  Congress had no authority to impose any taxes at all.  The only way it could raise any money for the war effort, or anything else, was to ask the states for it.  If the states didn’t pay, there was not much of anything Congress could do, except ask again.

Congress’ inability to tax only compounded a problem that had existed for decades.  The British mercantile system pretty much assured that most specie, that is gold and silver, flowed from the colonies to England.  There was a constant shortage of hard money in America.  Most of the money that was there came from smugglers doing business with Spanish colonies.  The Spanish silver dollar, not the British pound, was the currency of choice throughout the Americas, regardless of which European power controlled any given colony.

So the colonies had started the war with almost no hard currency, and the Continental Congress had no way to collect what little there was.  Governments typically relied on debt to pay for a war.  The Continental Congress had no credit history.  It had no method for collecting money to pay off any debts it incurred.  There was also no guarantee that the Congress would even exist in a few years when it came time to pay off those debts.  As a result, few lenders were interested.  A few countries fronted some money, primarily out of a desire to make Britain suffer through the war, and not necessarily out of any guarantees that the money would ever be repaid.  Foreign loans were few and far between.  Loans received in Europe were immediately spent there on supplies for the war.

Continental three dollar bill

The Continental Congress had gotten through the first three years of war by issuing paper money, the Continental dollar.  Paper currency had no inherent value beyond the holder’s trust that the Congress would someday redeem the paper for Spanish silver dollars.  I’m going to start throwing out some numbers. It’s important to keep in mind that there was a wide range of colonial and other currencies in use in America.  The Continental dollar was supposed to be pegged to the Spanish silver dollar, one for one.  Because it was paper, it was always going to trade at a discount, but the amount of discount would vary depending on the recipient’s expectation of the chances of ever being able to redeem that paper for silver.

A Spanish dollar was roughly the equivalent of one-fourth of a British pound sterling.  When we start talking about these numbers, remember that the average colonial unskilled laborer lived on about 30 to 50 pounds per year, or less than 200 Spanish dollars.  The King ran all the basic functions of the British government on a budget of 800,000 pounds sterling, or about 3.2 million dollars per year.  So, a dollar went much further then than it would today.  

A Spanish silver dollar in the late 18th century was probably worth very roughly the equivalent about $1000 US today.  When you also consider that the entire population of the United States at this time was about 1/100th of what it is today, that means that any American government debt incurred, would essentially be the equivalent of $1 in the 18th Century to $100,000 today.

Congress began spending rather aggressively at the outset of the war.  In 1775, Congress emitted about $6 million in Continental dollars (equivalent of about $600 billion in debt today).  In 1776, it emitted another 19 million.  By 1777, members realized that flooding the economy with paper money was causing problems, and emitted only 13 million.  Then, in 1778, with inflation taking its toll and out of a desperation to keep the war going, Congress nearly doubled the total amount of paper dollars on the market, emitting $64 million.  It had about $100 million in paper notes in the economy, and still had no way of paying them back. 

Even so, in 1779, Congress began emitting even larger amounts of paper, over about $100 million in that year alone, bringing the total to about $200 million in debt (or $20 trillion in a modern equivalent).  Even for people who believe that the Continentals would eventually win, it was hard to see a way that they might ever be able to pay off this enormous debt.  The value of the Continental dollar plummeted.  Inflation ran rampant.  Congress ordered paper dollars be accepted at face value, so the cost of everything rose.  In 1776, a bushel of wheat cost 40 shillings.  By the spring of 1779, that same bushel cost 150 shillings.  As Congress pumped out more dollars over 1779, the value plummeted even further. By the end of the year that same bushel would cost over 1000 shillings.

Anyone still fortunate enough to have any gold or silver, hoarded it as the only thing that retained its value.  The term not worth a Continental dollar came into use as the money became worthless.  A blank piece of paper was worth more than it was after Congress turned that piece of paper into a $1 piece of currency.  Piling onto this crisis, the British counterfeited Continental dollars and distributed even more of them.

By May 1779 Congress tried to focus on the currency crisis. Members devoted three days each week to that issue alone.  Congress attempted to place tax quotas on the states, totaling $60 million in 1779 alone.  States would have to impose heavy taxes on their citizens, then turn over the paper to the Continental Congress for destruction.  Hopefully, that would reduce the amount of paper in circulation and restore some of the value of the remaining money.

Having decided to dump this burden on the states, Congress then needed to figure out a way to get the states to go along.  States could not be forced to pay, and each state inevitably complained that its proportion of the tax burden was too high.  The Congress still had not come to any consensus on how to distribute the tax burden fairly.  Would it be based on population? would the population include slaves? Would it be based on the economic ability of the state?  Even Congress’ President John Jay voted against the bill, because of the controversy over whether Vermont was still considered part of New York, and therefore part of its tax base. In June, delegate Richard Henry Lee wrote “The inundation of money appears to have overflowed virtue, and I fear will bury the liberty of America in the same grave.

Given the state of financial crisis, President Jay finally agreed to draft a letter to be sent to the states along with their tax quotas.  Jay appealed to their patriotism and the need to continue the war effort.  That would simply be impossible without the tax plan.

In addition to the tax effort, Congress once again appealed to France and Spain for additional loans.  It offered generous interest rates and appealed to the friendly nations of Europe to help finance the war against Britain. 

Half-Pay Pensions

The primary expense for Congress was running the war.  While many leaders at the outset of the war counted on public-spirited officers to step up and nobly volunteer their lives to the cause, that call had been wearing thin for years.  

Continental officers had families to feed.  Unlike Washington, many of them did not have plantations that continued to function in their absence to support themselves, and their wives and children.  As the war entered its fifth year in the spring of 1779, many officers had been away from home for much of that time.  The paper money they received as pay was increasingly worthless.  

Continentals in Camp
Officers had already had to put down several mutinies, or at least grumblings that could turn into mutinies, from the soldiers.  The army was starving, wearing tatters, and often exposed to the elements.  They saw their civilian counterparts going about their business, prospering on farms, and building a future for themselves.  In 1778, word of the French alliance had caused some of these hard feelings to subside, but mostly because so many hoped that the alliance would help to bring about an end to the war.  By 1779, it became clear that the prospect of an end in sight for the war seemed even more elusive.

Not only the soldiers, but also the officers, had been growing increasingly restless.  Even if they could put up with the day-to-day sufferings, many realized that they were losing the best years of their lives to the war, and would be unable to build up any security for their old age.  Washington had delivered their request that officers receive half-pay for life in exchange for their continued service, a benefit that British officers enjoyed.  Congress did not want to commit to those costs, and approved only half-pay for seven years following the end of the war.

In May, delegates Gouverneur Morris and William Carmichael renewed the proposal to grant half-pay for life, but the committee voted it down.  A few weeks later, in June, the Congress received a memorial from the Continental officers indicating that the half-pay for life provision had to be passed, or the army might fold.  Pennsylvania and Maryland already passed provisions at the state level.

A new delegate from Pennsylvania, John Armstrong, had been a general in the Continental Army and had also been a commander of the Pennsylvania state army before coming to Congress.  He was a strong advocate for more military benefits and supported the measure.  In late June, he wrote to friends at his surprise at how many delegates opposed pension benefits for the officers who were still suffering in the field to defend them.

The opposition, led by John Dickinson, still called for greater use of militia and less demand on a professional army that had to be compensated better.  Dickinson had recently returned to Congress after leaving shortly after the vote for Independence, which he had opposed.  

In July, the committee finally approved a measure granting officers half-pay for life.  The opposition, however, pushed the matter to the various state governments.  The Continental Congress did not have the money and had no prospect of ever getting this money to make good on this promise. The states raised the taxes.  They should have the obligation of officer pensions.  So once again, Congress refused to commit to the idea of providing life pensions for army officers.

Looking for Waste, Fraud, and Abuse

With the continuing money problems, Congress looked for someone to blame.  Some delegates proclaimed that the army was spending too much money.  Quartermasters and commissaries were paying too much for the items they purchased.  

Rather than accepting that these departments had to pay more because of the inflation caused by all the paper money, delegates believed that the overspending by these departments was the cause of the inflation.  It formed committees to look into the purchasing practices of the army and to find new ways to economize.

Of course, this had no chance of working.  The actions only caused many quartermaster and commissary officers to offer their resignations.  Among them was Nathanael Greene, whom Washington had pressured into taking charge of the army’s quartermaster department.  Greene had already offered his resignation in the spring, recognizing both the impossibility of equipping an army using worthless paper dollars, and also the willingness of Congress to make him into the fall guy for any failures.

Congress refused the resignations and passed a resolution expressing confidence in those leading the quartermaster corps, even while continuing its investigations.  Various committees continued to look at the matter, but did nothing to resolve the problem.  

The truth is there was nothing they could do unless Congress had the power to levy taxes.  Since the states refused to consider that, the problem would only fester for another year, while the leadership struggled to keep officers and men from getting disgusted and simply going home.  The money problem was only getting worse, and Congress could not find a solution.

Next week, the British make another push into South Carolina, at the battle of Stono Ferry.

- - -

Next Episode 223 Stono Ferry 

Previous Episode 221 Collier-Mathew Raids 

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Further Reading

Websites

Wilson, Megan "A Damned Set of Rascals" The Continental Army vs. The Continental Congress: Tensions Among revolutionaries, LSU Master’s Thesis, 2012: https://digitalcommons.lsu.edu/cgi/viewcontent.cgi?article=2199&context=gradschool_theses

Grubb, Farley The Continental Dollar: Initial Design, Ideal Performance, and the Credibility of Congressional Commitment, 2013: https://www.eh.net/eha/wp-content/uploads/2013/11/Grubb.pdf

Grubb, Farley. “The Continental Dollar: How Much Was Really Issued?” The Journal of Economic History, vol. 68, no. 1, 2008, pp. 283–291. JSTOR, www.jstor.org/stable/40056783

Grubb, Farley. “State Redemption of the Continental Dollar, 1779–90.” The William and Mary Quarterly, vol. 69, no. 1, 2012, pp. 147–180. JSTOR, www.jstor.org/stable/10.5309/willmaryquar.69.1.0147

Grubb, Farley “The Continental Dollar: What Happened to It after 1779?” https://www.nber.org/papers/w13770

Inflation in the American Revolution: https://mises.org/library/inflation-and-american-revolution

Free eBooks
(from archive.org unless noted)

Journals of the Continental Congress, 1774-1789, vol. 12, US Govt. Printing Office, 1904. 

Pellew, George John Jay, New York: Houghton, Mifflin and Co. 1890. 

Books Worth Buying
(links to Amazon.com unless otherwise noted)*

Burnett, Edmund Cody, The Continental Congress, Macmillan Co. 1941 

Montross, Lynn The Reluctant Rebels, Harper & Brothers, 1950. 

* As an Amazon Associate I earn from qualifying purchases.


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