During the Revolutionary War, representatives from each of the newly formed 13 states gathered in Philadelphia to form the Continental Congress. One of the duties of the nation’s first governing body, which met from 1774 to 1789, was finding a way to finance the Revolution. They also printed the Declaration of Independence and appointed Gen. George Washington commander in chief of the Continental Army.
The Continental Congress had no taxation powers and no clear source of funding the war. For years, it resorted to printing paper money, bonds, and loans. In a world economy based on gold and silver coins, these paper promises meant nothing to soldiers expecting pay in precious metals. The Continental dollar bills quickly depreciated. By 1781, people needed 167 paper dollars or more to exchange for $1 in coins.
America had written one too many IOUs and was starting to get questions from its foreign lenders. Troops and suppliers started to demand payment in coin, not paper.
Finding a solution
To fix the crashing economy and pay for the war, the Continental Congress appointed well-known Philadelphia merchant Robert Morris as the nation’s superintendent of finance in February 1781. When he accepted the position in May, he also submitted a proposal for establishing a bank, the nation’s first, to stabilize the economy.
Morris had to find a way to structure borrowing. He needed to turn short-term debt into a financial tool to meet immediate needs. With the firm financial foundation of a bank, he argued, the national credit would be more respected. Loans from foreign governments and domestic investors would be easier. As King of England’s George III said a year before, “this war … will prove one of credit.”
The Continental Congress considered Morris’s proposal. Some members feared that authorizing a bank exceeded their limited powers. To balance concerns, the governing body recommended each state submit their own authorization. As state approvals slowly arrived one letter at a time, Morris began seeking the money needed to fund the bank.
Business associates and other investors stepped forward to buy stock, but it wasn’t enough. Then, word arrived in Philadelphia of a French ship due to arrive with silver and gold to loan to the new nation. After a trip of nearly two months, Morris received the French coins in November and used $250,000 of the money to buy stock in the new bank. With the funding complete, the Continental Congress gave its official authorization for the bank on Dec. 31, 1781.
By investing that money in the bank instead of paying the government’s bills immediately, Robert Morris was able to make that money multiply. The Bank of North America, now Wells Fargo, opened its doors in Philadelphia on Jan. 7, 1782. Over the course of the next six months, it loaned the American government $400,000, more than the original amount of gold deposited in the bank’s vaults. Within its first 13 months, the bank loaned about $2.4 million.
The first commercial bank and the first commercial loans
As business prospered, the bank loaned money to merchants and other small businesses. These loans were the first commercial loans in the nation. Before the war, most businesses acquired needed capital through friends, family, and private investors. Now, the bank became a source of credit to the growing nation. Loans went to pay for soldiers and supplies to the Continental Congress and state governments. The bank loaned money to businesses in Philadelphia, but also in other states. About half of the bank’s business loans went to stockholders and their enterprises. The other half went to smaller merchants with no connection to the bank.
The impact the bank had on the early American economy was dramatic. Thomas Paine, author of the influential pamphlet Common Sense, credited it in 1786 with advancing the Revolutionary cause. “The sudden restoration of public and private credit, which took place on the establishment of the bank,” he said, “is an event as extraordinary in itself as any domestic occurrence during the progress of the Revolution.”
More banks for the new nation
In 1783, the Treaty of Paris ended the eight-year war with England, but the political revolution continued. The nation’s leaders admitted to the weaknesses of the Continental Congress and gathered to create a new governing system. They wrote and ratified the U.S. Constitution in June 1788, creating the governing system we use today. The Bank of North America could no longer legally operate under its charter given by the Continental Congress. However, it had received an additional charter by the Commonwealth of Pennsylvania. It used that authorization to continue providing loans, savings, and other financial tools to people throughout the U.S.
Over time, the new government sold its stock in the bank and opened a new central bank, called the Bank of the United States. While the Bank of North America jealously guarded its role as the nation’s only bank for a time, its success inspired others to replicate it. Within the first few years of peace, more banks opened, spreading access to stable currency and access to credit.