Milestones of Innovation 1: Hamilton’s 1790 Report on the Public Credit
Today is the 225th anniversary of a milestone in the history of American innovation.
On January 9, 1790, the 35-year-old secretary of the Treasury of the United States sent the House of Representatives a 40,000-word blueprint for the new nation’s financial system. The report was produced just four months after Congress commissioned it. Proposing the issuance of U.S. bonds that could be traded freely, it carried the promise of bringing order to the investment system. American businessmen could more easily build up liquid assets crucial to introducing new manufactured products or hastening their wide adoption by scaling production. The country could hope to escape its near-total dependence on exporting primary products like food and timber.
Alexander Hamilton’s Report on the Public Credit laid out a plan for a central bank that would handle the government’s cash and manage the new dollar currency. He also called for refinancing – at full face value — both federal and state debt from the recent Revolution. With interest averaging around 4 percent, the debt would be serviced with revenues from the import tariffs the federal government, not the states, was starting to collect under the new Constitution of 1787. Including $13 million in unpaid interest, the debt amounted to about $77 million in money of the time. According to calculations based on data from Oregon State University, that would amount to just under $2 billion today.
In a world economy challenged by Britain’s exploding Industrial Revolution, Congress adopted the Report after a tough fight ending in a deal to put the capital city on the Potomac. Hamilton’s plan aimed to bind American investors, residing chiefly in coastal cities and not on plantations, to the more centralized government created by the Constitution. These were the people with the capital that would be essential for America to start its own manufacturing. Hamilton was determined that Thomas Jefferson’s vision of a pastoral America would not prevail.
Hamilton, who had trained in business as a boy clerk in the Virgin Islands office of Cruger, a New York trading firm, had trod this ground when he was even younger. In 1781, while serving as George Washington’s de facto Chief of Staff, he wrote a letter-essays on financial plans for the new nation. To the Philadelphia merchant and Congress’ superintendent of finance, Robert Morris, he wrote as the crucial Yorktown campaign loomed: “Tis by introducing order into our finances – by restoring public credit – not by gaining battles, that we are finally to gain our object.”
In his great projections, Hamilton showed the entrepreneur’s instinct that a system must be imagined as complete even before the thousand steps are taken to realize it. Edwin Land of Polaroid followed this doctrine as he invented instant photography in the 1940s. So did Land’s admirer Steve Jobs with the iPod, iTunes, iPad, and the iPhone.
Although Hamilton’s 1791 Report on Manufactures and his own industrial venture in New Jersey did not take hold, he laid the financial basis for bringing the Industrial Revolution across the Atlantic. Just a few years after Hamilton’s own death in the famous 1804 duel with Aaron Burr, Boston-based manufacturers took a major leap in the industrialization of America. They began converting the profits of seaborne trade into an integrated, water-powered mill at Waltham, Massachusetts, for carding, spinning, and weaving cotton. Soon they began building many more such mills.
[Editor’s Note: This is the first of an envisioned series of notes about major anniversaries in innovation and what they teach us. You’re invited to suggest other milestones of innovation for in the Xconomy Forum. Example: This year will mark the 150th anniversary of Alexander Holley’s pilot plant in Troy, New York, for making steel by the Bessemer process.]
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