Tuesday, March 10, 2009

Things I Learned From John Steele Gordon's "An Empire of Wealth"

John Steele Gordon’s 2004 An Empire of Wealth: The Epic History of American Economic Power is the compelling story of American business.  It's also a marvel of synthesis, with Gordon pouring fifteen pounds into a ten-pound sack, including something surprising on virtually every page.  Empire reads like a novel--lucid, fast-paced, and profoundly optimistic about capitalism while still exposing its warts.

A contributing editor to American Heritage, Gordon is author of books about the history of Wall Street, the national debt, and the laying of the Atlantic cable.  His web page quotes Oscar Wilde: "The one duty we have to history is to rewrite it," a sentiment which I take to mean that history must be continually updated if it has any chance of speaking to its contemporary audience.  In Empire, Gordon has done just this.

 The New York Times found Empire especially strong with character-driven financial histories (which include Vanderbilt, Rockefeller, Ford and many lesser-knowns).  The Cato Institute praised Gordon for coming down on the side of free trade, sound money and freely moving prices.  The Motley Fool's review was admiring, instructive in its own right, and worth a read.

For me, An Empire of Wealth has earned a place on the bookshelf next to Drucker's Innovation and Entrepreneurship, Howe's What Hath God Wrought, and Boorstins' The Americans--all books that I turn to from time to time for insights they offer on characters, events or situations.  And sometimes I'm just looking for a few minutes of pleasant reading.

Below is a short and incomplete list of things I learned about American commercial and political history from Empire of Wealth:
1. I Wish Thomas Jefferson Was the Guy We Thought He Was
In What Hath God Wrought, Daniel Walker Howe gave us plenty of political reasons to knock Jefferson off his pedestal.  Now, in Gordon’s Empire, Jefferson takes another beating, this time on his business acumen.  Gordon reminds us that Jefferson was born one of the richest men in the American colonies, inheriting more than 5,000 acres and 300 slaves upon his father’s death.  He then spent money “with a lordly disdain for whether he actually had any” or not, dying “deeply in debt, bankrupt in all but name.”
Worse than his personal bankruptcy, Jefferson (and Jackson in his footsteps) destroyed Alexander Hamilton’s financial regulatory system, replacing it with, well, nothing.  “As a result. . .economic disaster would be visited on the United State roughly every twenty years for more than a century.” 
2. Another Less-Than-Brilliant Business Move by Jefferson
Jefferson’s Embargo Act of 1807 forbade American ships from dealing in foreign commerce, with the American navy mobilized to enforce it.  This devastated New England; legal exports fell from $48M to $9M in a year.  In effect, Gordon says, thanks to Jefferson’s statecraft, “the United States went to war with itself and blockaded its own shipping.” 
After reading Howe and Gordon, I have finally decided that to love Jefferson one needs to dwell on the writings in the first half of his career.  Once you venture into his actual activities, or much of what he wrote later in life, you want to begin pulling down his statues. 
3. Cotton Was King and Almost Destroyed a Nation
When Eli Whitney devised a way to separate the seed from the lint of short-staple cotton, he helped produce the most successful cash crop in American history.  He also revived slavery (which was dying off economically at the time of the Constitution—hence all that optimism from our Founding Fathers), and nearly destroyed the United States. 
Whitney’s cotton gin allowed a single laborer to replace 25.  Coincidentally, the Deep South turned out to be the best place in the world to grow cotton.  By 1850 the United States was producing 70% of the world’s cotton, 75% of which was exported.  Likewise, a slave selling for $300 before the cotton gin sold for $2,000 by 1860, causing Southern slave holders to increasingly and desperately clutch their precious human capital. 
The invention of the cotton gin insured that the South would remain an exporter of raw material—essentially a backward economy, where ownership of production was held by a small, privileged elite and much of the population lived in poverty and grinding toil.  Meanwhile, the North diversified, in the process enriching itself with a flood of skilled immigrants disinterested in moving South to compete with free human capital.  In Inheriting the Revolution, Joyce Appleby tells us that the most surprising thing the Founding Fathers and first generation of Americans created was not one, but two countries.  Gordon would agree, I think. 
4. First in a Series
Gordon considers the Erie Canal to be the most consequential public works project in American history, insuring that New York would become the linchpin of the American economy for more than a century.  It would also prove to be the first in a long, continuing list of megaprojects that caught the public’s fancy: the Atlantic cable, the transcontinental railroad, the Brooklyn Bridge, the Panama Canal, the Hoover Dam, the interstate highway system, the Apollo project. 
As a reminder of how well older technologies can adapt and stay relevant, the Erie Canal was obsoleted by the railroad in the 1850’s but would continue to move product for another 120 years. 
Yes, and poor old Thomas Jefferson, who should have retired and stopped writing, thought the whole idea of the Erie Canal was absurd and opposed it from the start.  [Had it been in Virginia, of course, things might have been different.] 

5. Something to Benchmark Our Misery By
The Panic of 1837 saw cotton prices cut in half in two months, fortunes disappear on Wall Street, and 90% of the nation’s factories close.  Federal revenue fell by 50% in a year.  The 1837 depression was the longest in American history, reaching bottom after 72 months in February 1843.  That was the year Dickens published A Christmas Carol and had Scrooge relieved that a debt owed him was not as worthless as “a mere United States’s security.” 
6. Take the Long Way Home
Before the steam engine, flatboats carried a crew and 30 to 40 tons of cargo down the Mississippi River to New Orleans.  Once there, the flatboats were broken up into scrap and sold.  Then, given the choice between returning home to, say, Kentucky by poling upriver on a keelboat or walking, most chose to walk.  Thus, each season hundreds of men floated down the Mississippi, sold their goods in New Orleans, stayed to refresh themselves, and then walked home hundreds of miles along the Natchez Trail, only to do it all over again the next season. 
7. We Have No Corner on the Pace of Technological Change
“The Watt engine, which had helped to spark the Industrial Revolution and was the most fundamentally important technological development since the printing press three hundred years earlier, was obsolete after only three decades.  The pace of change had already begun the relentless acceleration that continues today.” 
8. More Rapid Change
On July 4, 1828, Charles Carroll of Carrollton, the last surviving signer of the Declaration of Independence, turned the first shovelful of earth for the Baltimore and Ohio Railroad.  Age 91 and still wearing knee breeches, Carrol said, “I consider what I have just now done to be among the most important acts of my life, second only to my signing the Declaration of Independence, if indeed, it be even second to that.” In 1844, 73-year old Philip Hone wrote, “The world is going too fast.  Improvements, politics, reform, religion—all fly.  Railroads, steamers, packets, race against time and beat it hollow. . .Oh, for the good old days of heavy post coaches and speed at the rate of six miles an hour.”   
Not only was this the first recorded use of the phrase “good old days,” Gordon tells us, but he also suggests that Hones' was the first generation to encounter what every American generation has since: seeing the technological world of one’s youth vanish. 
9. The Lunch Counter Begins
So busy were the brokers on Wall Street at the height of the Civil War that the lunch counter was invented to offer them a quicker meal than they could manage traveling home.  “Fast food is, perhaps, not the least of the country’s legacies from the Civil War.” 
10. The Frontier Ends
In 1890 the Census Bureau declared that the frontier, a feature of American life since 1607, had ceased to exist.  Jefferson (not to add insult to injury) had predicted it would take a thousand years for Americans to reach the Pacific.  Had his vision of the simple farmer held, he might have been right. 
11. Rich Guys Compared
John Jacob Astor died the richest man in America in 1848 when he left $25 million.  Cornelius Vanderbilt left $105 million less than 30 years later.  Andrew Carnegie was worth $480 million in 1901.  John D. Rockefeller—considered the richest American ever—was worth $2 billion 15 years later.  And, while Americans can build fortunes, they are not especially good at preserving them.  Except for Rockefeller and Hearst, not a single name that was legendary for wealth during America's Guilded Age (1870s-1890s) is found today on the Forbes 400. 

12. Barbed Wire Goes to War
Invented by Americans in the 1870s to help bring order to western farmlands, barbed wire was ordered by the hundreds of thousands of miles by combatants in World War I trench warfare. 
13. The Most Important American Invention Ever?
“More than any single other economic development, the mass-produced automobile made the twentieth century very different from the nineteenth.”  By the 1920s it brought into existence large industries like rubber (for which it used 80%), plate glass (75%), and sheet steel (all).  By 1929 there were 662,000 miles of paved roads where there had been none, changing forever the landscape of America.  In 1905 the first purpose-built gas station opened, with gasoline rapidly replacing kerosene and giving a huge boost to the petroleum industry.   Corporate logos replaced the word-heavy style of 19th-century advertising so they could be seen while driving.  The automobile reversed the population flow from farm to city by creating suburbs.  It allowed people to shop outside their hometown, a trend that led to the ruin of many Main Streets.  It made the Big Mac with fries possible.  And speaking of food, it changed thousands of acres of hay and oats to crops for human consumption when it brought to an end the 5,000-year reign of the horse as the prime mover of humankind.  
14. Electricity Wasn’t Bad, Either. . .
There's much more, of course.  The sections about the Great Depression, from Hoover to the Supreme Court to the Federal Reserve, were startling to me; it did not happen the way I thought it did.  And that kind of information and perspective is meaningful for what we do in the future.
  
Which is, after all, the kind of thinking that good history like An Empire of Wealth is designed to inspire.