Module 4

Hamilton’s Report on Manufactures (December 1791)

In December 1791, Secretary of the Treasury Alexander Hamilton issued his Report on Manufactures. Manufactures was the third of four Reports  (Public Credit and National Bank preceded it and the fourth was a 1795 follow up on Public Credit issued upon Hamilton’s departure from the Treasury Secretaryship). These Reports in aggregate constituted the Washington Administration’s Agenda for the Economy of the United States. This Report not a legislative bill submitted for Congressional debate and approval, as were the previous two reports. The Report does not ask that nation-building institutions be created, and it is no accident that Congress never formally approved the Report–nor did it reject it. Much of what is in the Report that was potentially “actionable” was incorporated by Congress into other enactments,

Rather the Report on Manufactures is incredibly long-winded, amazingly conceptual critique, explanation, and endorsement of what was often referred at that time as “the British model” of mercantile/early industrial capitalism. Adam Smith and Hume are cited extensively. and in many ways this is a combination academic treatise instruction manual as to how and why that new-fangled economic system operates as it does. Today this report may be described more as a “teachable, albeit an exceptionally long-winded blog” that imparts to its reader the “capitalist economic consensus” as understood by the Federalist Tribe, and in particular explains and justifies the role of manufactures in the Early Republic’s new national economy. On the surface, It seems clearly intentioned to acquaint the uninitiated and even those in perceived opposition to the British model of mercantile/industrial capitalism. But in the context of 1790’s United States, Hamilton (and Washington) intended the Report to tackle matters of more serious import, and that hidden-in-plain sight were deeper goals and aspirations than the mere advocacy of manufacturing.

One can read into this report that a significant Federalist tenet is the American Revolution was a political revolution, a war of independence–and not an economic revolution intentioned to allow the United States to forge its own distinctive, perhaps “exceptional” economic path. That implication was not likely to be favorably received by Anti-Federalists, who among other concerns vehemently opposed the “blind” adoption of the British economic system, and political centralization, i.e. the role and power of a national central government, in the new Thirteen State Federal Republic. But like it or not, the Report on Manufactures did not easily invite a formal Congressional repudiation–as unlikely as that would have been given the two to one majority of Federalists to Anti-Federalists in the First Congress–so in that respect, the Report on Manufactures constituted a de facto notification that the Washington administration was abiding by the Report’s definition of the  nature and character of the national economy, a sort of economic coup d’etat, so to speak.

the 800 lb Gorillas that Infested Hamilton’s Report on Manufactures

Role of the National Government in ED: The Report on Manufactures was not a national plan, nor even a proto-national plan. It was a significant, but not radical, expression of the Federalist Tribe consensus. The Report also reflected non-Federalist, orthodox mainstream opinion that manufacture was part of America’s future, largely accepted by the each of the Thirteen States and to a considerable degree accepted by their citizens. Anti-Federalists, for example, were often investors in manufactures, and quite willing to employ manufactures in their economic activities. There was no instinctive knee-jerk, Luddite-like vehement opposition to manufactures as there was with the National Bank, banks, and Public Credit. Finance, what they called “public credit” was the hot button, and  banks/currency/lending were its personification.

Hidden-in-plain sight was that the Report not only assumed but assertion that a mixture of agriculture, commerce/trade, finance, and, of course manufactures created a synergy around which state and local economic bases ought to be structure. “A Diversified Economic Base” was the ostensible purpose of this Report, and implied a desirable outcome for state and local economic development initiatives and strategies.   Diversification in Washington administration was “defensive”, oriented to reduce, but never to eliminate,  imports, it was never intended as a Maoist, Big Push, Great Leap Forward. Trade and commerce were equally valued components of a S&L diversified economic base. Manufacture for export was central to agriculture than manufacturing. What was of more concern, especially it seems to Coxe, was British manufacturing monopolies that would stop American manufacturing production dead in its track, and lead to an almost impregnable, certainly chronic, balance of payment structural deficit. In sectors key to national defense, shipbuilding, and even fisheries an important element of coastal city economic bases, as well as logistics and marine finance, there was a profound need for tariffs and protectionism. In short, there were few cutting edge, disruptive gazelles abounding in Hamilton’s Report, more a determination to develop S&L economic bases capable to producing what needed to be produced to grow the economy and population and defend the young Republic. Therein lies how Hamilton legitimized a strong federal role in ED.

Despite its title, the real bombshell in Hamilton’s report was Hamilton’s clever use of manufacturing as a backdoor approach to adopting/imposing the British economic model and its institutions as the basic framework of Federalist capitalism. The underlying tempest was, as dealt with earlier, Federalist-style perceptually benefited urban wealthy commercial elites at the expense of hinterland agricultural and urban working classes. We have asserted the Federalist’s were a self-identified wealthy elite who embraced the American Revolution for their own reasons, and upon victory worked hard to sort them out and incorporate them as best as possible in a national (and state) government. The first two Reports led to the installation of the core institutions reflecting this consensus; this Report outlined and explained how the Federalist-style capitalism was to conduct its day-to-day affairs. There was included in that a major implication: the federal, national, government was to play a large role in that day-to-day economic administration. That’s where the British model element surfaced.

In the 1790’s, British capitalism (and its associated politics) was built around, and upon a strong unitary, (i.e. non-federal) King-dominated government. That was one of the 800 lb gorillas that infested the Report on Manufactures–its strong reliance on an aggressive national government that in this report was assuming a lead, if not a primary responsibility to facilitate and promote manufacturing and its preconditions (internal improvements, commercial banks, and public credit). The battle royale in the making of our Constitution, however, created a decentralized, democratic Republic with States sharing the national sovereignty. Without ever saying a word on that matter, the Report carved out how, and why the national government was under Hamilton’s Federalist direction was intending to lead the way. Moreover, it set the priorities of that nationally-led economic development agenda–and offered a few specific tools and strategies  for States and locals to implement these objectives. It also spent much of its considerable verbiage explain how all this was “conceptually” supposed to work. In this regard Hamilton (and Coxe) were forerunners of Keynes (but not Schumpeter), while staying within the limited government confines prescribed by Smith and Hume.

There was no escaping that the Report on Manufactures “envision[ed] a wide promotional role for government [especially the national government;] [Hamilton] wished it to encourage the development of a balanced and self-sufficient economy, and held that the ‘improvement of the communications between the different parts of our country is an object well worthy of the national purse’ [99] Stuart Bruchey, p. 109. In these respects, Hamilton’s vision exactly matched Washington’s 1789 priorities, but it was safe to say Hamilton had a more robust vision that moved beyond that of his boss. From the start it was clear nation-level economic development, almost by definition, set policy for the “commanding heights” of the American economy. That’s what, in all fairness national governments do. As such it carved out for national responsibility the matters touched upon by the previous two Reports (public credit, currency and commercial banking) but fleshed them out by embracing particular ED strategies and tools (tariffs, for an obvious example). These were not controversial goals–a great deal of the motivation behind the writing and approval of the new Constitution and the Republic sprung from concerns arising from global politics to which the national government was logically the best solution.

In fact, the core legitimization Hamilton asserted or implied was that national ED leadership rested firmly in its its natural role in global economics and national defense. ED in Hamilton’s mind, certainly Washington’s, was the macro strategy that best preserved our new-found independence, and economic growth and prosperity (chiefly resulting from population growth and hinterland settlement). Manufactures, if one thinks about it, is also a prerequisite (shipbuilding, gunpowder, and muskets/cannon) for an effective national defense.  Sector/industry/product tariffs and sectors were yet another strategy to achieve this goal.–as was global trade balance, and export. The Society For Useful Manufactures (be patient it will be discussed below) was yet another clever EDO ( a proto foreign trade zone/industrial district) financed by the federal government, but set up by a city or urban area to achieve these core aims. Hamilton also moved quickly to assert a special federal role in ports–not only for national defense and global trade logistics, but because customs and tariffs were how the feds paid their bills–they were the chief source of national revenue.

Hamilton was more likely following the path of least resistance than conceptually devising a theory of national ED leadership, but his love of and embrace of the British model, a natural choice in 1791 America, offered a package of institutions and ED strategies and priorities that he fully intended to stuff into the Washington administration’s agenda. But realizing it or not (he did) what he was embracing was a structure of economic development that touched off not only a clash of cultures, but invited a chronic, fault-line tension as to who (which level of government) does what. I shall pick up this 800 lb gorilla in a section below which outlines the practical consequences that inevitably changed the path or the evolution of America’s economic development. Suffice it to say here, there is more than meets the eye in Hamilton’s assertion of a strong aggressive federal role in America’s ED future. Hamilton had already “bent the twig” that would grow into the Contemporary Era’s economic development tree.

The Next 800 lib Gorilla: Protectionism, Tariffs, “Picking and Choosing” (Targeting) Meant Not Only Sectors but Geographies: The report built upon, and tinkered with, the already approved 1789 Tariff by recommending twenty-one tariff increases (to encourage greater manufacture), and five agriculture and basic materials reductions to provide a boost to agriculture and mining. While the Report n Manufactures went no where legislatively, the subsequent 1792 Tariff Act, included 18 of the 21 increases and 3 of the 5 reductions [99] Stuart Bruchey, p. 113.. That earlier legislation had touched off a terrific debate in the first session, indeed the first month, of the First Congress. That debate was over whether the federal government had the right to tax at all, and if so, what forms of tax. Taxes were really the third rail of American politics then–much more than the present day. One of the very first tasks that Congress took on was how to pay Congressional salaries (ha ha), i.e. how to raise income to pay for federal government expenditures. Tariffs fell into a gray area, more a fee imposed on foreigners than a tax on Americans. That was the context and motivation behind the Tariff of 1789 (to raise revenues).

Madison was in charge at that point, and the recognized liaison of George Washington personally, and his administration. Madison proposed four bills, all internally related, and which constituted the mechanics behind the Tariff of 1789. The first bill was a 5% “impost” imposed on specific commodities or goods (West Indian molasses, salt, liquor, tea, pepper, sugar, cocoa, coffee, hemp, shoes and a variety of specific goods. While the goods chosen to tariff did overlap with sectors that needed protection from foreign imports, the real motivation is these goods yield the most revenues. The second bill imposed a tonnage fee on the ship that delivered the goods (customs tax). It differentiated its rates based on national origin of the ship, with American-built shipping taxed least, whether a commercial treaty had been negotiated, and finally foreign owners (mostly British). The third bill dutifully (ha ha) set up a Customs district and bureaucracy in each major port, and provide for the staffing of posts in that new bureaucracy. The final bill–important to ED–assumed federal control of lighthouses, beacons, channel buoys the essential implements establishing access to port faculties. The feds in the first month took on major responsibilities and a geographic presence in the major ports of America. Madison pleaded in this debate for Congressmen to “consider the general interest of the union. Let me ask, gentlemen, [to put aside sectional or geographic] apprehensions for one part of the union than the other”[[88] Bordewich, the First Congress, pp. 41-2. Predictably, that appeal worked not at all–and several more months of negotiation followed before he was able to forge a consensus. The bottom line was the ED-relevant implications of a tariff raised their head but mostly to serve the monetary interests of those negatively affected, who “just happened” to live wherever they lived (northern ports).

Thus the Hamilton/Coxe “protectionism” asserted and embraced in the Report on Manufactures operated on another level entirely. Here protectionism was advanced as a national-level economic development strategy whose ultimate goal was greater economic growth, general prosperity, national defense and to instill in state and local economic bases gradually over time a meaningful diversity and manufacturing presence. Without any hesitancy, citing the Constitution’s “general welfare clause, Hamilton used tax abatement and invited government involvement in private business decision-making, calling for “bounties, premiums, and awards”. He also was willing to “pick and choose” among sectors/industries. Shipbuilding and fisheries sectors were two important clusters that benefited considerably from the recommendations of this report [2]. Stuart Bruchey, p. 109, Interestingly, included in the Report, probably a Coxe inspiration judging from his post-Report lobbying for its approval, was the Report’s advocacy of a export/industrial district trade zone. Tariffs on agriculture were not a part of his plan; it would have been dead on arrival if he had.

Hamilton’s perspective, the Report’s perspective was a vision that reflected the economic vision of the national government, and the “nation as a whole”, so to speak. By definition, regions and certainly individual states saw economic development concerns and needs differently than the federal government. From the start it was also apparent the national perspective was not a zero-sum affair in references to states or locals. More precisely, some regions, cities, sectors/industries were preferred, some were neglected and left to their own devices, and slavery, which clearly could be looked at as an interstate (mobile) employment base was neglected. Tariff policy was inherently regional–and Hamilton’s tariff rate initiatives–in many ways the core element of the Report–were not acted upon but instead found their expression in a specific bill, devised by Congress itself, devoted to tariffs. Hamilton, as we indicated in the module’s introduction, got most of what he asked for, rates and products tweaked and amended by Congress–and that is the critical point.

Tariffs were effectively stripped from Treasury/Washington administration/ executive branch prerogative/job description, and clearly were transferred to the Congressional sphere. In this instance. In short, as far as ED was concerned what happened was that two of the branches sorted out which branch was dominant in the various sub-policy areas. Tariffs had geographic foundations and the notion of a so-called national interest/perspective often depends on your mailing address. If Tip O’Neil is correct, all politics is local, than Congress like a faucet could flow both hot (national) and cold (state and local) interests through its policy-making processes. This is elemental and simple today, but it was NOT clear then, as it is now, if national interests can flow down, local interests can defy gravity and flow up. The “illusion” that a pure national aggregate interest exists has befuddle American ED, indeed all policy areas, and it continues to plague our performance, and bedevil our initiates and strategies. Hamilton was biting off more than the national political system could chew. The Report on Manufactures mercifully does end–but the debate on what constitutes the aggregate national interest, be it short or long-term still goes on.

Say this in another way, ED, Hamilton’s, mine, or yours, is the result of a policy process engaged in by a policy system. Commonly accepted professional truths based on professional rationality and experience–accepted theory of economics in Hamilton’s case–are simply one ingredient that goes into the making of the policy sausage.

This reality is especially true for picking and choosing, targeting and distribution of federal resources. From the get-go if the national government hopes to engage these strategies, it means blending local and national perspectives, not to mention partisan and ideological differences. The fragility, more precisely the complexity of a federal economic development leadership in economic development was never likely to be based on some  rationally defined abstract conception of national interest–that would,of course included national plans–but more likely than not be blended geographical, partisan, cultural, and power-balances. Still from the Report one might reasonably infer that “picking and choosing”, i.e. targeting sectors and industries is in the DNA of any level of governmental economic development. National interest in these decisions would inevitably affect regions, cities, and sectors unevenly, deferentially. One can also infer that “not to target” also has its implications. In any case, economic developers be wary of what you ask for, ED plan, an industrial bank, urban renewal, a National Defense Highway, transcontinental railroad, or whatever–you just might get it, and you are not likely to recognize it when you do.

Report of Manufacture’s Import on  S&L History

Infused in the Report of Manufactures is a blended approach to American ED that reflected the earliest origins of the existence of my “Two Ships” of ED: Privatism and Progressivism. Each culture has developed a distinctive approach to economic development, with Mainstream ED (MED) congruent with Privatism, and Community Development, Progressivism. While Report of Manufactures includes several “seeds” of what will be Community Development (see below), Hamilton, the Privatist dominates. The Report on Manufactures is so tiled in favor of MED, the Report should be viewed as the founding document of what will develop into a distinct path of American economic development: Mainstream ED or MED.

The Report is not just congruent with a British capitalism, it goes a step further and adapts that capitalism to address United States needs, realities, and priority goals. In that sense it defines its vision (the Federalist Tribe consensus), sets its priorities, outlines several appropriate strategies and tools, and tasks American MED to address key national needs–especially a robust national defense strategy which seeks to develop and project the new Republic’s “soft global power” by access to and settlement (city-building) of its east of the Mississippi, trans-Appalachian western hinterlands.(While his “boss”, the President intensely embraced that goal, Hamilton privately at this point, was resistant to western settlement as it potentially reduced coastal resident manufacture workforce).  Manufactures, however, is the chief focus of this Report. Publicly  he does have good words to say about internal improvements. Yet, compared to almost everything else they get short shrift, a solid paragraph.”Good roads, canals, and navigable rivers, by diminishing the expence (sic) of carriage {i.e. transportation], put the remote parts of a country more nearly on a level with those of a neighborhood in a Town“. [Report on Manufacturers] Faint praise indeed,

Hamilton observes that an economic base consisting almost solely on agriculture lacks the capacity to defend itself from external threat, and potentially is likely to create an economy dependent on  importation of foreign manufactures. He fears that dependence augments American vulnerability and argues that dependency over time will become increasingly harder to break as foreign monopolies crush young, fragile American domestic manufacture “startups”/entrepreneurs.  Manufactures promotion, in Hamilton’s view, also includes the development of other sectors/industry, primarily finance and logistics/trade. Hamilton’s Report does not threaten the primacy of agriculture in American economic bases, While it may be one step too far to call Hamilton’s Manufacture’s strategy a “paradigm”–we reserve that label for another strategy to be later discussed–Hamilton’s Manufactures strategy is complex, robust, and frankly conceptually reasonable–even to the unwilling ears of Anti-Federalists who trusted him not at all. Besides, Hamilton did not threaten the primacy of agriculture as America’s primary economic base. He early-on in the Report made it clear that:

…  Agriculture is the most beneficial and productive object of human industry … if not universally true applies with particular emphasis to the United States on account of their immense tracts of fertile territory … Nothing can afford so advantageous employment for capital and  labor, as the conversion of this extensive wilderness into cultivated farms. (Report on Manufactures)

The Report encourages the diversification of state and local beyond agriculture so that they include the local production of key goods and products to reduce America’s dependence on external (British especially) imports, and as Hamilton argues to increase the productivity and competitiveness of its agricultural exports as well. Hamilton spends most of his Report outlining, explaining, and justifying how this Federalist version of American capitalism could and would “work”. In this sense he adjusts Smith and Hume’s British capitalism to American realities and goals. We are not striving to recreate the British Empire, but to defend ourselves from it. He is using the British model of capitalism to check the impact of British capitalism and our dependency on it. In 1791, this justification of using the British model finessed Jefferson and Anti-Federalists; it likely would not have worked in 1793 or 1796. Moreover, Hamilton offers a “manufacture” helping hand to agriculture. Creative, perhaps duplicitous Hamilton is arriving at a imported British model, and a diversified economic base through a series of back doors.

Hamilton argues manufacture (think plows, wagons, nails and shovels, not to ignore clothing and pots & pans) increases agricultural production, it also makes that production available for national consumption and offers the potential for export. Export is a goal in itself, in that it not only reduces an unfavorable balance of trade, but invites foreign direct investment– a critical, indeed essential, source of American investment capital.  A subtle, but important dynamic was introduced by positing that in certain geographies (the older coastal cities, especially), agriculture had “peaked”, and manufacture could provide gainful employment to excess immigrant population, a population with a certain inherent restlessness that could be calmed through such employment. To complete that strategy, Hamilton and his co-author Trench Coxe offer a new type of EDO (see below Society for Useful Manufactures), and then go one step further by actually creating a “pilot” EDO in New Jersey.

Not content, Hamilton moves on to promote a key, and very controversial, economic development tool–tax abatement or “bounties/premiums) which he argues are necessary for the promotion and diffusion of manufactures. He further calls for the financial “empowerment” of America’s pervasive primary EDO, the (nation/state)-chartered private/public corporation. Then Hamilton outlines and endorses several ideas that directly finance the EDO:  government loans, public bond issuance, and equity (purchase of charter stocks subscriptions) to privately managed entities that pursue publicly-endorsed projects. For example, Hamilton cleverly asserts “Bounties are sometimes not only the best, but the only proper expedient for uniting the encouragement of a new object of agriculture with that of a new object of manufacture“. Later on in the Report, Hamilton adds “There is a degree of prejudice against bounties from an appearance of giving away the public money, without an immediate consideration, and from a supposition that they serve to enrich particular classes at the expense of the Community. . But neither of these sources of dislike will bear a serious examination. There is no purpose, to which public monies can be more beneficially applied, than to the acquisition of a new and useful branch of industry,; no consideration more valuable than a permanent addition to the general stock of productive labor“. (Report on Manufactures). In short, mobility of capital be damned, full speed ahead. To complete the picture he presents an elaborate Constitutional defense of bounties.

In any case, Hamilton clearly stakes out the legitimate role of the public sector in his version of capitalist MED economic development. Strategies, tools and specific programs are discussed, justified, and defended from attack. If economic development certification existed in 1791, the Report of Manufactures could have been used for its instruction and legitimization.  Lost in plain sight was he espoused a close, almost intimate, form of public-private partnerships, which he implies are essential in achieving governmental purposes. He makes no discernible argument that government ought to lead in a project or strategy (excepting tariffs, customs duties) but should instead achieve its aims through the private/public nation/state-chartered corporation. After reading this report, Hamilton leaves in my mind little doubt that he supports NYC’s Amazon HQ incentive package. I can visualize him rolling around in his NYC grave. The same, however, could be said for any community developers buried in the near vicinity who are no doubt organizing a protest.

Reading Hamilton’s Report on Manufactures should be required reading for our Mainstream Economic Developers–part of the certification process, I should think. In any event, be forewarned, Henry Clay and his American System will regard this Report as almost Biblical.

Hamilton’s close linkage of manufacturing with national defense served as his criterion for “picking and choosing”, i.e.targeting the sectors to be preferenced in tariffs and in state and local ED initiatives. Shipbuilding (and its associated cluster components), in an age of private privateers was our chief defense industry. The seas were our first line of defense. He also targets fur trade–a major export–and iron/steel for nails, machine-building, and sundries such as “ardent spirits”, snuff, copper/tin, and gunpowder. He then develops at length the value of clothing and textiles and hints that this sector may be a possible gazelle, a platform sector that, like technology and the Internet today,might offer explosive potential. After reading the Report, one can legitimately question whether in fact Hamilton does any targeting at all–interspersed through the Report is a virtual laundry list of sectors, industries and products. Rather than free trade, our hot button du jour, Hamilton argues for protectionism, through tariffs, to ensure the competitiveness of our young and fragile emerging sectors–although he expects British “free trade” for our exports?.

Finally, deserving special treatment is Hamilton and Coxe’s newly devised, specially empowered and tasked EDO. Called the Society of Useful Manufactures (SUM), they actually formed the EDO before the publication of the Report on Manufactures, using the State of New Jersey as a cooperating ally. SUM is also an excellent device to introduce the co-author of the Report of Manufactures, Trench Coxe, whose “brainchild” it was. Hamilton might have taken it over lock, stock and barrel, but the EDO as described in the Report contains hints that expose our previously discussed community development approach to capitalism. The reader should be forewarned, the door to the safety room should be open, because as far as being politically correct, SUM does not travel especially well through time. Still in SUM one can see traces of Philadelphia-style, Quaker-derived community development In any case, from MED’s perspective it takes no imagination to see this chartered corporation is expanded to include a geographic industrial district, which is duty-free for its supply chain and subsequent export of its manufactures, and which, if state, and/or local government desires, possesses the capacity incorporate itself into a city–a company town so to speak. In Hamilton and Coxe’s pilot EDO, the EDO did not incorporate into a municipality but served as the economic nucleus for the incorporation. Is this the nation’s first industrial district or park? Is this the nation’s first foreign trade zone? The reader is the judge.

 

New Jersey Society for Useful Manufactures

The Manufactures Report  was not Hamilton’s alone. Philadelphia’s Trench Coxe, his Assistant Secretary of Treasury (referenced importantly in several previous modules), was the Report’s co-author. Coxe grounded the Manufacturers Report with the entrepreneur’s detail and structural sophistication. The Report can be described as a call to action; to emulate this pilot program/EDO, with Hamilton’s Federalist government fully committed to proving its seed financing.

Coxe, as we saw, tilted his manufacturing away from sheer profit-making. He was never in the Robert Morris camp, but instead saw manufacturing as a strategy to achieve people-focused needs and interests. I am not sure of the degree to which Hamilton shared that “community development tilt, I suspect Hamilton’s respect and admiration of the British model (which with rare exceptions possessed little in the way of community development) was more dominant. Hamilton in his actual practice of capitalism did lend one to suspect he was a bona-fide resident in the Morris capitalist camp. Still here it is in all its glory fused into the concluding  paragraphs of the Report on Manufactures itself is the presentation of this strategy/EDO.

“It may be announced that a society is forming with a capital that is expected to be extended to at least a million dollars, on behalf of which measures are already in train. for prosecuting on a large scale, the making and printing of cotton goods” (Report on Manufacturing). Conflict of interest then, not being what it is today, an actual project had already started, the brainchild of, and directed by Assistant Secretary Coxe himself–at a site selected by Hamilton himself from a 1778 visit. During that visit (during the Revolutionary War, I might add) Hamilton saw a large and powerful waterfall, aptly named “Great Falls”, which he was convinced could “power” a large enterprise”. An inspiring view it was–see image–that he thought it perfect for Coxe’s crazy idea. Hamilton later described it as “a national manufactory. The Society, SUM, was from the start was an economic development geographical expression–place-based MED at its best.

This “zone” or targeted district (up to six miles square) would be owned and managed by the private sector who would purchase a 6% federal bond note in return for federal approval of a chartered corporation. The federal and privately-owned assets could then be used as collateral for a foreign loan, at a lesser interest rate than the federal not (a form of arbitrage) which would finance manufacture facilities and required infrastructure, in companion with private investment from its board of directors and public subscription.. The proceeds of the initial foreign investment would purchase “a large areas of land” “in a town well-situated for receiving duty-free imported materials and exporting fabrics. Implicitly it was hoped, the EDO would not only house manufactures, but would lead to the incorporation of a city/town. Hamilton also used the EDO to demonstrate the value and utility of his new Bank and the Public Credit system he had so recently got approvals.

After its submission to Congress, Coxe one-on-one pitched SUM to Jefferson, looking for his support in Congress, by arguing that since “agriculture is the most natural employment“, those unsuited for agriculture, the presumably urban “intemperate and disorderly class“, was likely more suited to manufacturing , and through manufactures would therefore be gainfully employed which would be “very desirable” [99] Dorfman, p.290. Nice try Coxe! Failing this, both Hamilton and Coxe pitched the case directly to city newspapers as a economic development strategy to “vitalize” (hard to argue revitalization in his period) their city. In one brochure (collateral material) they argued:

It is a self-evident proposition to communities which cannot completely supply their own wants … Theory and experience prove that without extensive manufactures a nation cannot possess much active wealth [capital accumulation intended for investment capital]. [So] The capital required would be supplied by using the public debt; the labor supply necessary for the labor-saving machinery would be composed of women and children and emigrants [actually immigrants] obtained on reasonable terms in countries where labor is cheap. For proper policing of the inhabitants of this place {zone], the principal seat of the factories was to be incorporated [as a municipal corporation, presumably] [99] Dorfman, from the brochure, p. 291.

Certainly this industrial district/foreign trade zone proposition evidences some politically incorrect, immoral and despicable elements–it implies special zoning–but more to the point, the use of women and children in textile manufacturing was, as our Philadelphia module demonstrates, an example of community development-oriented manufacturing, which was consciously intended to empower women, and liberate children from poverty by enlisting them into the workforce. In those past module the reader was alerted to the 1790 reality that world-wide the textile workforce was drawn from women and children, not only for their cheapness, but for their past experience and skill in the making of household textiles. Times, values and perspective change, but what you are looking at is a federal level CD/MED EDO and economic development strategy delivered directly to the community level–180 years before LBJ’s creative nation directly to local government (bypassing states) federalism. Hidden-in-plain sight is federal city-building.

Such a startling proposal must have died a miserable death in 1791–except it didn’t. When publicly announced, the pilot program was well on it its way to formal startup and cutting of the ribbon.

 

Hamilton himself wrote the charter for the corporation that would conduct the project and recruited the “money men” of New Jersey to step up with investment and serve on the corporation’s board of directors”. The corporation was entitled New Jersey Society for Useful Manufactures (SUM), a catchy name indeed which uses Philadelphia terminology. Hamilton’s charter was unspecific to geography or time period, but very specific in terms of powers, financing, and operations. It authorized the Society to purchase a six mile square tract, empowered it at an unspecific time to incorporate it–and any inhabitants–into a municipal corporation, empowered as prescribed by the State. Municipal government was entrusted to a mayor, a council of twelve aldermen, recorder, and “assistants”, all appointed by the state legislature, and empowered “to make such rules and regulations, not inconsistent with the Constitution of the United States”. SUM was further empowered to make such improvements as roads, dams, canals, was exempt from state taxes for ten years, and if it did not incorporate as a municipal corporation, would be exempt from any city, county, townships taxes “forever”. A lottery could be conducted (lottery is public subscription by individual investors) to raise up to $100,000, share float was fixed at one million shares at $400 a share, and assets could be purchased up to $4 million. [100] https://lambertcastleweb.wordpress.com/the-society-for-establishing-useful-manufactures-s-u-m/; see also Dorman, pp. 291-2

Hamilton was, if anything, a micro-manager. Something about all this also suggests he wasn’t much of a community developer–despite whatever that Broadway play suggests. He also, as the next paragraphs sadly relate, appears not to have been a good judge of character.

In mid-November (1791, a month previous to the Congressional submission) the good folks that constituted its investors got together and elected a board of directors and officers. The Board elected as Chair of the Board, and “Governor” (executive director), Deputy Secretary of the Treasury, William Duer (of debt and National Bank speculation fame–by now well established in his career that would lead semi-legal unethical speculation of public bonds and National Bank shares,  to other crimes, and in a few short  years provide him lodging in the debtors prison) . Earlier, In the Fall 1791 Coxe, Hamilton and then-interest investors approached the New Jersey Legislature for a state charter. When it got to the New Jersey legislature, however, the approving legislation got a rather rude reception from many who were not at all predisposed to manufacturing, and others who thought the charter was “especially extraordinary” (not in a good way). It got through the legislative tangle, however, and was signed into law by the Governor, William Patterson–perhaps because the bill specified that the municipal district was to be named “Patterson”. Yes, we are talking about Patterson New Jersey whose current population is a bit less than 150,000. To complete the picture, the State further made a $10,000 grant to the venture in the form of stock purchase.

The Board wasted no time, hired an engineer-surveyor to work for the EDO, but later would replace him with another, a certain Pierre L’Enfant who had been fired/quit by none-other than George Washington himself (February, 1792). L’Enfant was hired to design its streets and parcels, and connect it to proposed canals, and the Great Falls power source. L’Enfant, however, was a one-trick pony, his image of urban design was variously called “imperial” or grandiose; wide boulevards and radial streets, for example. It may have fit Washington D.C,, but its applicability to Patterson New Jersey’s SUM was a bit questionable and expensive. Anyway, in May 1792 the Board formally selected the Patterson site near the Great Falls–on land owned by three of the stockholders in the corporation. They then tried to name the place “Hamilton”, but state governors being what they are, Patterson won out. SUM quickly borrowed about $130,000 to purchase 7,000 acres, build a canal, and then start on a cotton mill along Mill Street (clever name), Its first project, however, was a dam. By 1794, a four floor mill was built and opened–becoming the home base for SUM. Streets were added, workmen’s housing built–and the city of Patterson was on its way.

But then Duer ran off with $10,000, and another director left the country with $50,000 [99] Thomas Fleming describes in interesting detail the workings and fabrications of Duer and friends, the Great Divide, pp. 119-23.. The venture collapsed in 1796, was shuttered, and put up for sale.

Good projects die hard, and SUM as a state-chartered corporation continued through the bad times (surviving on real estate development and revenues from its power generation and canals), however, and SUM went through a second burst of investment in 1814, and another in 1885. The SUM facility was finally closed in 1946, when it was purchased by the surrounding City of Patterson, for $450,000. Through much of its history, SUM and the manufacturing associated with the project was a success, as these things go, employing thousands  SUM is likely to be America’s first industrial district (or park) on the basis of its 1792 launch and its sustained use and production for the next one hundred and fifty-four years.

Still, SUM was not without its critics then, or by historians now. Dorfman reports the widespread criticism of SUM’s financing structure, not in Congress which was very accepting, but from various rather wealthy individuals dispersed throughout the states, who in 1792 wrote either as “blogs” or published in book format. Dorfman cites two in detail:

(1) George Logan, a wealthy Philadelphia landowner, Quaker descendant, with considerable Pennsylvania investments. Edinburgh education Logan wrote pamphlets signed “An American Farmer”. He very quickly identified with the incrementally coalescing Jeffersonian Democratic-Republican Party. His concerns were core, concluding that capitalism led to what today we would call structural inequality;

Logan argued the incorporation of the New Jersey Society “tends to aristocracy by destroying the livelihood of thousands of mechanics and farmers to increase the gains of a a few wealthy“. He further asserted such “inequality of wealth is inevitable [and] … the grant of vast and exclusive privileges for manufactures to a few wealthy men will ruin thousands of useful citizens engaged in infant manufactures, and the result will be, as in England, starving, dependent manufacturers on the one hand, and … principals living in indolence and luxury. Worse of all this inequality leads to “the profligacy of manners” among workmen concentrated in large manufacturing establishments“.

(2) and James Sullivan, the Massachusetts Attorney General who in 1792 wrote “The Path to Riches” which outlined his perspective on evolving manufacture capitalism in terms which today could be overlapped with neo-liberalism.

Sullivan,took another tack. Personally a heavy investor and board member of several canal state-chartered corporations, he attacked the speculation that resulted from “stockjobbers”. We have spent considerable time commenting in other modules on such speculation as it affected veteran and war bonds, general debt issues during the Articles, the Public Credit proposal (and Assumption) that was ongoing at the time of the SUM project, and speculation on the sale of National Bank indentures. Speculation, it turns out, also hit SUM bond notes. More to our larger point, Sullivan thoughtfully distinguished why the state chartered corporation worked well, aside from speculation, in canals and developmental transportation infrastructure, but failed miserably applied to financial and banking institutions. His was among the first cogent articulation of the deficiencies associated with our first dominant EDO, the state chartered corporation–and a hint of what lies ahead for that structural vehicle [99] Dorfman, pp. 295-301

These wealthy eastern elites expressed what over the next generation would expand to include other wealthy eastern, Big City elites, inspired to coalesce in a movement because of the preaching associated with the Second Great Awakening. The Second Great Awakening, as we shall discover, crystallized the formal beginning of the First Wing of American Community Development.

A final concluding thought on SUM.

This mini-case study, like nearly all my case studies, offers to the reader whatever the reader takes from it. It is likely apparent to the reader that as SUM began its decline in 1794 it fed into Jefferson/Madison’s anti-Hamilton fears,  presenting them with real and serious  justification for their opposition and core concerns. As Attorney General Sullivan observed: public debt and bank debt in particular, became an almost inevitable victim of stockjobbers, rabid speculation, without restraint or ethics, to outright fraud–that inevitably hurt those least able to protect themselves. Much is made of Jefferson’ and Madison’s opposition to the advance of an inevitable industrialization, but as  the reader can see in this, and many other modules, Madison and Jefferson was seeing much of what Charles Dickens was to see in the very near future.

Is all this the yin and yang of early emerging capitalism? Today, unfortunately that yin and yang has been “weaponized” into harder ideological positions, generated polarization, and in very recent years, populist movements. Hopefully, however, the reader is more sensitive, open to my larger argument that nation/state-building institutionalization, with economic development unavoidably caught in its crosshairs, is being pulled and pushed in at least two 180 degree divergent directions. That this divergence coincides with the first years of the Second Great Awakening (officially commencing around 1790) adds additional luster to our cultural dimension which will be developed in modules ahead. All of this will impact the evolution of American S&L Economic Development. The capitalism under display in these modules is like today’s capitalism: flawed and imperfect. At this juncture, when SUM implodes, “populists” are beginning to pull ahead and push back against the Federalist Tribe and Hamilton’s/Morris version of capitalism. MED as always will be caught in the crosshairs of an incensed CD.

Perhaps a more interesting question to posit and then use as a segue way is to comment on how Washington, Hamilton and Trench Coxe reacted to the implosion of SUM in the 1794-6 period.

That implosion was well-reported; it was no secret. From a favorable MED perspective, the tale of a startup, unable to scale up sufficiently to pay debt it had incurred, is not without its Tesla-like implications. The reality of serious speculation and board of director corruption is not unknown today in either MED or CD. When all this unraveled,  however, Washington and Hamilton were either preparing for, or actually leading an army of 15,000 against a populist uprising in western Pennsylvania, known today as the Whiskey Rebellion. That “rebellion” unequivocally was triggered by one of Hamilton’s 1790 bills associated with his economic institutionalization. Hamilton,having resigned the Secretaryship in 1795, had moved to be an aged Washington’s second-in-command. Thus far, I have not discovered the reaction of either to SUM at that point.

But Trench Coxe, by this point Secretary of the National Mint, publicly urged the application of the SUM model to be applied somewhere in the western Pennsylvania adjacent to one of Robert Morris’s canals than under construction. The goal was through the SUM model to include farmers, and rural hinterland residents into the manufactures of whiskey. Output from this manufactory could then be conveyed directly by the canal to Philadelphia,  and from there exported [99] Dorfman, p. 292-3.

Either Coxe had not learned a thing from the New Jersey SUM, or, as I see it, he was earnestly trying to adapt his SUM model to alleviate what was America’s greatest populist reaction to that point–he was trying to use capitalism to save it from itself.

BTW

 Ten days after the Report’s submission to Congress in December 1791, Hamilton’s boss, the President, received a letter from a seemingly distraught husband who alleged his wife had been an object of Hamilton’s affections. This was the official start of what was to be an incredible stain on Hamilton’s reputation, and the start of a chain of related and unrelated events that culminated in his fatal 1804 duel less than a handful of miles from SUM.

Footnotes

 

[2] Stuart Bruchey, the Roots of American Economic Growth, 1607-1861, p. 109.