Last time, we covered the struggles of the Continental Army in late 1782 and early 1783 to deal with the fact that the war was coming to an end, and that Congress seemed inclined to break every promise that it had made to the officers and men who had sacrificed so much to end the war. Washington had to snuff out a potential mutiny by the officers at Newburgh, NY. This week, we take a look at the crisis from Congress’ point of view.
Financial Breaking Point
A big part of the problem was the Congress was broke. This was nothing new. Congress had financed the first few years of the war based on printing paper promissory notes that would somehow be reimbursed later. Those reimbursements never came and Congress just needed more and more money to fund the war. By 1779 hat paper money, the Continental dollar, was worthless and Congress could not issue more. By 1780, most of its money came from French loans, and a handful of other European loans. Even those loans, however, were not enough to cover the costs of the war.
While Morris could play some financial games to keep things going, there also had to be some permanent solution to pay for the war. Congress had tried to compel the states to provide funds, based on the relative wealth of each state. The states, however, simply refused to pay. Congress could do nothing about it.
In late 1782, Morris received part of the final French loan. With it came word that this was the last loan the US would receive. France only provided this last loan to ensure the US remained in the war until France finalized its peace treaty with Britain. Once that happened, France had zero interest in pouring more money into US coffers. In fact, it wanted the US to start repaying its older loans.
With debts continuing to pile up, and no future revenue in sight, Morris decided to up the ante. In June 1782, he just stopped making interest payments on all government debt. Many of the creditors who relied on these interest payments were local merchants who had supported the cause for years, eventually hoping to be repaid. The failure even to pay the interest on the debt made clear to all that Congress was reneging on its financial promises. When creditors began to accost Morris about their money, he pointed out that he was one of the largest creditors who was being cut off. He recommended that the creditors unite and petition Congress and the states to do something about repaying their debts.
Proposed Tariff
In July, Morris issued his Report on Public Credit essentially saying that the US had massive debts from the war and no way to repay them. Morris suggested a number of options to raise revenue. The main source would be a 5% tariff on all imports. Unlike earlier efforts, this would be a direct tax collected by Confederation agents at all major ports. The problem was that any revenue act needed the support of all 13 states. Congress got twelve states voted to support the tariff, but Rhode Island refused.
The leaders there thought that a tariff on imports was unfair since most of their revenue came from imports. Rhode Island wanted to raise revenue from some other source, such as a property tax instead, or funding the war from the sale of western lands. Also, the whole Revolutionary war had been fought over the idea that states should be the only entity allowed to collect taxes. Giving that power to an outside entity seemed to run against that whole premise of the war itself.
Morris and others in Congress pressured Rhode Island for months to agree to the tariff. Morris even hired Thomas Paine to publish a series of articles in support of the tariff. At one time, years earlier, Morris and Paine had been political foes. But Paine needed the money and seemed to support the idea that a national tariff would help to bind the union together.
In December, Congress sent a delegation to Rhode Island to put some in-person pressure on the state to accept the tariff as an absolute necessity. While on their way, the delegation learned that Virginia decided to repeal its approval of the tariff. With that, the delegation simply returned to Philadelphia. Rhode Island was no longer the only hold out.
Virginia’s change of heart was largely the result of Arthur Lee. You may recall that Lee had been a diplomat in Europe for many years. There, he made enemies of Silas Deane, Benjamin Franklin, and John Adams. Lee seemed to see conspiracies wherever he went, and was not shy about spreading misinformation about them. As a delegate to Congress, Lee set his sights on Robert Morris. Lee simply did not trust the financier and figured there had to be some corruption if the man had access to so much money. Lee got Virginia legislators to kill the tariff bill simply as an effort to cut Morris’s power. I think its also telling that Lee wanted Morris to resign and probably wanted to replace Morris as Superintendent of Finance sot hat he could be in charge of all that money.
Army Demands Money
About the same time the Congressional delegation returned to Philadelphia to face a dead tariff bill, the Continental Army delegation headed by General Alexander McDougall showed up, demanding answers on pay and pensions.
A few weeks later, in January of 1783, Morris delivered more bad news. Congress had already overdrawn against its loans from France, and essentially had no choice but to keep over drawing those accounts as it was the only source of funds available. Congress’ counter offer, via Morris, was a promise to provide just one month’s pay in specie to help tide them over.
Around this same time, after Morris promised one month's pay, he received a note from General Nathanael Greene saying that Greene had to promise his men two month’s pay to keep them from walking away. Morris knew that if he gave one month’s pay to the northern army and two month’s pay to the southern army the northern army was going to be particularly unhappy.
Even coming up with that one month of pay would be nearly impossible. Morris hoped to continue to overdraw his French credit. He received a note from French Minister Luzerne ordering him to stop drawing on his French credit.
Morris was also counting on the sale of Morris Notes in Cuba in exchange for specie that he could use to pay the army. Morris was constantly shuffling around money to do whatever he could to make money available. Morris also agreed to pay the two months pay to the southern army, but sent one month for pay and the remainder of the money on the books as repayment for supplies. He hoped this would prevent the northern army from finding out the southern army got more pay.
Even if the money from Cuba arrived to pay the army, Morris saw no hope beyond that of continuing. With ever mounting debts and no hope of revenue, Morris did not see anything he could do. He submitted notice of his resignation to the President of Congress, effective May 31. Some historians have argued that Morris announced this privately and several months in advance, hoping to get Congress to approve some sort of revenue bill. That was certainly a possibility, but Morris had grown frustrated and was fed up with trying to find new ways to juggle credit for money they did not have and never would have. Morris confided in his diary that he believed that failure to repay debts was simply unjust and if that was the road Congress was going to take, he did not want to be a part of that.
Congress Argues
Congress remained divided. Delegates like Alexander Hamilton and James Madison strongly advocated for revenue measures to pay the army and government creditors. Others, like Arthur Lee feared giving Congress any power over money, seeing it as a threat to states' rights.
Hamilton took the initiative in Congress, rising to introduce four resolutions. The first supported providing the one month’s pay to the army that the committee had promised. Second was a resolution that the state would be responsible for all back pay of their soldiers up until August 1, 1780. From that point on, Congress would be responsible for all the back pay. The third resolution called on Congress to make every effort to obtain the necessary money, either through state requisitions or direct revenue measures, but that it needed to raise the money to pay off its creditors. It was vague on how to make this work. Finally, Congress needed to confirm its half pay pensions for life for Continental officers as promised, or come up with some lump sum payment for a certain period of years in lieu of that promised pension.
With the army on the verge of mutiny Congress approved the payment of one month’s pay. The other resolutions ran into considerable debate. Some states wanted to move up State responsibilities from August to December, 1780, but eventually the August 1 date passed. That was when Morris had taken over the Department of Finance and wanted to deal with costs during his tenure. Debate over the third resolution, actually raising money, ground into a debate over which forms of revenue were constitutional under the Articles of Confederation. That never went anywhere.
The debate over pensions was a larger one. It wasn’t just the money. Opponents of pensions believed that making men dependent on government pay was a blow against freedom. It would make them lazy and dependent on government handouts. It would also create political support for a stronger central government that had to be there to make those payments, something many delegates opposed.
Much of the debate at this time centered around how much of a lump sum to provide instead of that lifetime pension. Hamilton proposed six years. Congress rejected that. Other proposals ranging from 5 to 6 ½ years were also rejected. It became clear that many New England delegates would not support any pay at any level. Congress ended up tabling discussion until the states could consider whether to send new delegates.
By February 1783, word arrived from Europe that the two sides had reached a preliminary peace treaty. While most people took this as good news, it also made it difficult for Congress to do anything for the army since the soldiers would no longer be needed. There was also a pressing concern that when the Congress ordered the army disbanded, the men might not return home until they got what they were promised. In short, the end of the war created a deadline for Congress to decide how it would keep its promises for when the war ended.
Congress continued to debate a funding scheme that would allow them to pay back the debts that they owed. It also debated who should be paid back. A new argument developed among some who thought the army should get priority for payment and that other creditors would just have to wait. Another faction thought all creditors deserved repayment. Making the other creditors wait behind the army might mean they never get repaid at all since the real political pressure was coming from the army. Also, many of the creditors were some of the most powerful men in each state. If these men saw little or no hope of repayment, they would likely oppose the taxes that Congress had to raise to pay off all the debts.
Tempers flared in Congress, but neither side could get anything done. The nationalists, led by delegates, such as Alexander Hamilton, believed it to be a moral duty for Congress to repay everyone who had lent money or property to the cause, as well as the soldiers who had sacrificed so many years.
Another supporter of the nationalists was Gouverneur Morris who was an assistant to Robert Morris in managing the nation's finances. Although the two men shared a last name, they were not related. Robert was from Pennsylvania. Gouverneur had come to Philadelphia as a delegate from New York and was now working in the Department of Finance.
Gouverneur wrote to General Henry Knox, warning the general about plans to force states to pay the army rather than having Congress make sure everyone got paid. He also warned about the idea of Congress paying the army first. While officers might find that tempting, Morris told him that the plan would destroy any effort to implement a tax that could begin to pay everyone. He urged the army to express support for the nationalist plan to raise direct revenue to pay both the army and other creditors. A few days later, Morris wrote a similar letter to Nathanael Greene in Charleston on these same matters.
The officers were reluctant to support either side. They did want to alienate any delegates and were open to just about any solution the delegates adopted that meant they would get their pay and benefits. Exactly how that would happen was up to Congress and not up to them to say.
Unable to come up with a solution, some delegates in Congress proposed another solution: don’t allow the army to disband and go home, even after the peace treaty was final. The army would remain intact until it was paid its benefits. This put off the concern that soldiers would riot if sent home without their promised pay and benefits. It would allow the soldiers to remain under control. Some Continental officers, including General Knox, approved of this idea. It would keep pressure on the Congress to resolve the pay issue quickly. It would also mean the men would not mutiny on their own and march on Congress.
This option, of course, came with more problems. For starters, most of the soldiers were more than ready to go home. They needed to get back to work and wanted to be with their families. They had enlisted for the length of the war. The government had no authority to hold them to service once the war was over. Such a solution also meant that Congress would be obligated to pay for food, clothing, and pay for additional months. Standing armies in peacetime had been argued as a sign of tyranny. Most delegates believed that Congress should never support such an idea. On the other hand, trying to disband the army and have the army refuse the orders to disband could be even worse.
No good solution seemed in sight. Hamilton wrote to general Washington about the impasse in Congress, and recommended that the army, probably through Knox, put more pressure on Congress to find a resolution. Some historians have taken these letters to mean that Hamilton wanted to let the Army mutiny and march on Philadelphia. Of course, the correspondence does not say that explicitly, but they argue Hamilton had to be circumspect about what he really wanted. To me, the letter indicates that Hamilton wanted more efforts by the army to petition and have top officers meet with Congress to lobby them, but no suggestion of mutiny seems even implied.
Around this same time, Hamilton put more pressure on delegates by spreading his view that General Washington was losing popularity within the army because Washington was standing by Congress. In a discussion with several other delegates in a private setting, Hamilton suggested that the officers might overthrow Washington and follow a new leader who would fight for their interests. Although the name of this alternative leader was not recorded, it appears that he was talking about General Horatio Gates.
At the end of February, Congress once again took up debate over pensions. The delegates finally agreed to offer a lump sum payment of five years salary in lieu of half pay pensions for life. While they finally agreed on a number, that still did nothing to settle where the money to pay those lump sums would come from.
In March things reached a boiling point in Newburgh. As we covered last week, the officers met with an apparent intent of taking action, but General Washington was able to talk them down and await further action by Congress.
Once Washington resolve the matter, he wrote to President Boudinot and other members of Congress, telling them the crisis was calmed for now, but that Congress had to do something soon to keep its promises to the army. Around this same time, Robert Morris doubled down on his threat to resign in may, telling Congress he planned to make his decision public. This would have created complete financial panic. Congress called his bluff and granted the request. Almost immediately delegates began attacking Morris in the press for being the cause of all of America’s financial woes.
Meanwhile Congress also got serious about coming up with a funding plan. To allay the fears about a permanent national tax, some members suggested limiting the tax to 25 years. Opponents argued they could not do this unless they could also guarantee that all the debts would be paid off in that time.
Several months earlier the states had been asked to survey their lands and report back on their value. Congress looked at a number of possible formulations for taxes, taking into account the various state populations, wealth possession of western lands, how much they had already paid to the war effort, etc. One point of contention was how to count slaves. Northerners wanted to count slaves in the population. Southerners objected on the basis that slaves would be counted twice. They were counted for population, but also for property value. Benjamin Harrison proposed a compromise where slaves would be counted as ½ of a person. A delegate from New England suggested a compromise of ¾. Finally, on a proposal by James Madison, the delegates finally agreed to count a slave as ⅗ of a person.
News of Peace
Debate was interrupted on March 12, when a ship arrived with the preliminary peace treaty between the US and Britain. While this was preliminary, the ship had left France three months earlier. By the time it arrived, most people assumed that everything had been finalized in Europe. Less than two weeks later, another message arrived reporting a general peace agreement that resulted in the cessation of all hostilities.
These messages came at the same time that Washington’s reports of his Newburgh address, and his urgent petitions for Congress to act also arrived. Amidst all this pressure, Congress finally agreed to a commutation of officer pensions into a lump sum.
Meanwhile Washington’s letters to friends in Philadelphia, including Hamilton, revealed his suspicion that the nationalists in Congress were using the army as a pawn in order to create a larger source of Continental currency. He suspected that delegates were willing to refuse to disband the army and provide separation pay in a scheme to force Congress to adopt a stronger national economic plan.
In one if his letters, Washington famously warned Hamilton that “the Army (considering the irritable state it is in, its sufferings & composition) is a dangerous instrument to play with.”
Next week, although the war is coming to an end, not everyone has received word. The British attack the Spanish Fort Carlos in what is today Arkansas.
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Previous Episode 324 Newburgh Conspiracy
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Further Reading
Websites
Wensyel, James W. “The Newburgh Conspiracy” American Heritage Magazine, April/May 1981. https://www.americanheritage.com/newburgh-conspiracy
The Newburgh Incident: https://research.colonialwilliamsburg.org/foundation/journal/Autumn14/civilian.cfm
Newburgh Conspiracy: https://www.mountvernon.org/library/digitalhistory/digital-encyclopedia/article/newburgh-conspiracy
Free eBooks
(from archive.org unless noted)
A Collection of papers, relative to half-pay and commutation of half-pay, granted by Congress to the officers of the army. Compiled, by permission of His Excellency General Washington, from the original papers in his possession. Fishkill, NY: Samuel Loudon, 1783.
Books Worth Buying
(links to Amazon.com unless otherwise noted)*
Head, David A Crisis of Peace: George Washington, the Newburgh Conspiracy, and the Fate of the American Revolution, Pegasus Books, 2019.
Martin, James Kirby & Sean Hannah Leading with Character: George Washington and the Newburgh Conspiracy, George Washington Leadership Inst. 2017.
Richards, Dave, Swords in Their Hands: George Washington and the Newburgh Conspiracy, Pisgah Press, 2015.
* As an Amazon Associate I earn from qualifying purchases.
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