Ready for industrialisation?
THE big debates which threatened tearing apart the new republic seemed to have been all laid to rest by December 1791 — all except the question of slavery which was swept under the carpet and would stay there for seventy years. The workhorse in President George Washington’s four-men cabinet was Treasury Secretary Alexander Hamilton.
I have written a bit about him in these pages so I will skip his background as General Washington’s aide during the war and how he schooled himself in finance when he was not in active combat or hustling for army supplies. This article is on how he set out to put the US on an industrialisation path. Did he succeed or did he fail?
On December 5, 1791, he presented the Report on “Manufactures to Congress”. Congress had assigned this task to him. All leaders were uncomfortable with the fact that the country did not manufacture its own arms, meaning that it was vulnerable, hence this assignment to one of its top stewards. The Secretary was to explore how that security problem could be fixed and thus perhaps facilitate the emergence of a manufacturing sector.
Hamilton definitely wanted more than ammunition production. He envisioned a global manufacturing powerhouse producing whatever citizens needed: clothes, hats, shoes, glass, watches etc. He foresaw the US flooding foreign markets with its superior goods. To this end, Hamilton even recommended the government to inspect flour exports so as “to improve the quality of our flour everywhere and to raise its reputation in foreign markets”.
He was clear that the government had to plant the seeds of industrialisation and nurture the nascent plants until they could stand on their own. This meant capital investment, (financial and human), and a constant review of tariffs.
“For a young nation struggling to find its way in a world of advanced European powers, Realpolitik trumped the laissez-faire purism of Adam Smith” observes biographer Ron Chernow in summarising Hamilton’s approach to steering his country on an industrialisation path.
Congress, however, shelved his report because it did not address any particular issue, but was merely a plan with the inherently divisive theme of federal government authority over states and the so-called interstate commerce problem. Nonetheless, he implemented the plan almost in full during his term.
Actually, he started implementing it before it was written back in 1789 when some investors met on Wall Street. The investors formed the New York Manufacturing Society and he was involved. After successfully raising funds, the society started a wool factory, but it failed in a year because of waterpower shortage. It was a question of the wrong location.
Some six months before he tabled his Report on Manufactures, he and Assistant Treasury Secretary Tench Coxe facilitated the launch of the Society for Establishing Useful Manufactures.
The grand plan of the Society was to launch a fully-fledged industrial town from scratch. The Society identified a spot by the Great Falls of Passaic River such that waterpower wouldn’t be a problem for cotton mills which was the big industry then.
The Society bought seven hundred acres for the town and named it Paterson after the State (New Jersey) Governor William Paterson who returned the honour by granting the society’s project a ten-year tax holiday. Hamilton was active in all this. He was on the board.
The society needed US$500 000 in seed capital and investors could subscribe by government bonds. That went well. He and Coxe then went all out to woo skilled workers from across the Atlantic to join the project “even if this meant defying English law” which prohibited migration of certain skills and export of numerous technologies.
As Ron Chernow writes “That Hamilton was prepared to ransack European industrial secrets was made plain when the prospectus said that ‘means ought to be taken to procure from Europe skilful workmen and such machines and implements as cannot be had here in sufficient perfection’”. This was blatant industrial espionage.
Treasury spied on the textile mills in England wooing skilled workers and as the skilled workers got to know of US schemes, they reached out and Hamilton himself would recommend them to the employ of the Society. When he presented his report to Congress in December 1791 the vibe in the Society was excellent. Then things went wrong.
For starters, there were too many financers on the board and few industrialists (perhaps because they weren’t that many industrialists hence the plan). The architect hired to design the town was the same architect designing the future capital, Washington DC.
He had very grand visions and wasted a lot of money on trivial yet expensive details. Hamilton was too involved, doubling as project micromanager and Treasury Secretary.
Then came the market crash of 1792 and it so happened that the Society’s treasurer who was once Hamilton’s former deputy at Treasury, had borrowed too much and was thus wiped out in the crash.
He had helped himself to Society funds, all the Society funds. Hamilton had to beg the Bank of New York for loans to keep the project going, personally assuring the bank’s CEO as Secretary of Treasury that the bank would not lose its money. He even threw in some of his own funds to cover some pressing shortfalls.
By 1794 things were falling apart. Employees demanded better pay. Some stripped Society’s assets for their own use or to sell.
In 1796 it was over. The Society halted operations and sold everything. A white elephant like many industrial parks? Not quite, the town roared back to life in the 1800s.
He “had chosen the wrong sponsors at the wrong time”. But did he succeed or did he fail? The narrative is that he succeeded. I think so too though I argue in my unfolding thesis that it was only when the dirt under the carpet was laid bare and dealt with that real industrialisation kicked off. We will defer discussion on that thesis for another day, but prompt reflections on it by an incomplete African idiom, “it takes a village”. ◆