Founding Father finance

Independence Day is fast approaching in the United States. John Adams, one of the 56 signers of the Declaration of Independence, thought the day should be “solemnized with Pomp and Parade … from one End of this Continent to the other from this Time forward forever more.” Instead of Pomp and Parade, let us celebrate by reflecting on how the Founding Fathers thought about financial economics.

While none of these 56 men had a Ph.D. in economics, they held strong views on banking, monetary policy, and speculation in risky assets. While I’m guessing none of them had read The Wealth of Nations before July 4 (seeing as it had only been published on March 9, 1776), many of them had decades of experience in financial markets.

Let’s start with Sam Adams, John’s cousin. His radical anti-British stance was due in part to his father’s involvement in a Massachusetts bank issuing paper currency. When the bank was shut by the British Parliament in 1741, the Adams family was financially ruined. Just as today many crypto enthusiasts have a burning hatred for Gary Gensler of the S.E.C., Adams hated the British authorities.

Next, let’s talk about Ben Franklin. He was deeply involved in money and banking. An advocate of the futuristic financial technology known as paper money, Franklin wrote (and printed) A Modest Enquiry into the Nature and Necessity of a Paper Currency in 1729.

Centuries before Milton Friedman, Franklin talked about the optimum quantity of money and discussed key issues in monetary theory, including:

• The political economy of monetary policy: Possessors of large Sums of Money … the Interest of all such Men will encline them to oppose a large Addition to our Money
• Money as an arbitrary social contrivance: To remedy such Inconveniences, and facilitate Exchange, Men have invented Money, properly called a Medium of Exchange
• Monetary stimulus: A plentiful Currency will occasion Interest to be low

Franklin’s advocacy paid off, and in 1731 he won the contract to print Pennsylvania’s colonial currency.

Franklin had a keen appreciation of the power of compound interest, supposedly saying:

Money makes money. And the money that money makes, makes money.

Land speculation was a major source of wealth for many of the signers, including Robert Morris, possibly the richest man in America. George Washington (another big land speculator) wanted Morris to be America’s first Treasury Secretary in 1789, but Morris declined and so Alexander Hamilton got the job. Morris ended up in debtor’s prison after the panic of 1797, a reminder that leverage has risks (as Franklin said, “he that goes a-borrowing goes a-sorrowing”).

Thomas Jefferson was generally against finance, as well as commerce, industry, and most other aspects of modern society. I’ll give Jefferson an A+ for the Declaration of Independence and a B- for inventing the dumbwaiter, but I’m afraid he gets a failing grade from me in economics. Here he is in 1816 in full “Occupy Wall Street” mode:

Like a dropsical man calling out for water, water, our deluded citizens are clamoring for more banks, more banks. the American mind is now in that state of fever which the world has so often seen in the history of other nations. we are, under the bank-bubble, as England was under the South sea bubble, France under the Misisipi bubble, and as every nation is liable to be, under whatever bubble design or delusion may puff up in moments when off their guard. we are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth.

Jefferson’s frenemy John Adams was equally skeptical about finance. Both viewed farmland as the only asset for a respectable gentleman to own. Adams was also no fan of financial journalism, which he viewed as fake news:

The Gazettes of Europe Still continue to be employed as the great Engines of Fraud and Imposture, to the good People of America. Stock Jobbers are not the only People, who employ a Set of Scribblers to invent and publish Falshoods for their peculiar Purposes.

Adams raged against speculators and condemned “the infernal Arts of the Stockjobbers.” Abigail Adams wisely ignored her husband’s views and engaged in profitable bond speculation while he was away in Europe.

Although John Adams was made richer by his wife’s financial acumen, he was not made wiser, and he remained anti-finance. Here he is in 1811, writing to Benjamin Rush, a physician and fellow signer of the Declaration:

The Rage for Banks is a Fever a Mania. I wish you would invent a Tranquillizer to tame it. Every Bank in America is an enormous Tax upon the People for the Profit of Individuals. … Our Banks are the Madness of the Many for the Profit of a Few.

While Adams was probably joking about the tranquilizer, Rush took seriously the idea that speculative manias involved elements of mental illness. The American Revolution was a time of great financial upheaval and inflation, with wild swings in the prices of the Continental dollar and various credit instruments issued by different colonies. Rush saw the resulting arbitrage and trading activity as a medical issue. He identified many of the symptoms of what we would now diagnose as compulsive gambling:

Perhaps the influence of that ardor in trade and speculation, which seized many of the friends of the Revolution, and which was excited by the fallacious nominal amount of the paper money, should rather be considered as a disease than as a passion.

It unhinged the judgment, deposed the moral faculty, and filled the imagination, in many people, with airy and impracticable schemes of wealth and grandeur. Desultory manners, and a peculiar species of extempore conduct, were among its characteristic symptoms. It produced insensibility to cold, hunger, and danger …

How would these men react to today’s America? Franklin would doubtless be intrigued by bitcoin, as it combines two of his favorite topics, money and electricity. Morris would be delighted by modern bankruptcy law and would immediately move to Florida due to its homestead exemption. And Rush would be alarmed at leveraged ETFs, gamified trading apps, and TikTok finfluencers.

The Declaration of Independence declares our unalienable right to “Life, Liberty, and the pursuit of Happiness.” My advice is that your pursuit of Happiness should not involve any “airy and impracticable schemes of wealth and grandeur.”