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Wednesday, July 20, 2016

George Washington: America’s First Entrepreneur


George Washington was the first U.S. president, a celebrated military general and also a keen businessman and entrepreneur. But his business smarts have essentially been forgotten by historians and the public, even though Washington’s face can be seen plastered across the U.S. currency.

A new book called First Entrepreneur: How George Washington Built His – and the Nation’s – Prosperity is based upon reams of historic, unpublished documents showing the extent of his entrepreneurial focus. The book shines a light on Washington’s business-minded accomplishments, which helped set up the nation for future success.

An edited transcript of the conversation follows.

Knowledge@Wharton: Before interviewing an author, I love to read the inside jacket of his book for a great nugget of insight. You’ve got a good one in your book, which says, “The United States was conceived in business, founded on business, and operated as a business.” A lot of people forget about this. When we talk about the United States, we talk about freedom and many other topics. We don’t think much about business.
Edward Lengel: Yes. It was unusual for me, too. I had also been accustomed to looking at Washington from a different perspective. But when I began to look at him as an entrepreneur and as a businessman, I saw, first of all, that he thought of himself as an entrepreneur and businessman. Secondly, he identified the country’s interests with his own.
When he became both a general commanding the armies and President of the United States, he naturally thought of the country as a business. When he became President, he said, “Building the national prosperity is my first and my only aim.” Business was central to his approach.

Knowledge@Wharton: You are the director for The Papers of George Washington, which is a massive project begun in the 1960s to analyze and annotate all of Washington’s letters, writing and documents. So you are very familiar with Washington. When did you begin thinking about Washington in a business sense?

“He naturally thought of the country as a business.”

 Lengel: It began only a few years ago when my organization decided to look at Washington’s financial and business papers, which had never been published. There’s a huge collection of account books, ledgers and financial documentation. We decided to interpret them and publish them. This opened a whole new window into his life. These are not just records or dreary accounts. They actually document the lifeblood of his family, his estate and the country. It shows how much time and effort he spent on this and how important it was to him.
I think his business aptitude came from his mother, who has a bad reputation for being a grouchy woman. But she inculcated in him principles of thrift, diligence and hard work. She taught him the very basic principle that industry and morality go together. She taught him that the moral man is industrious and vice versa. She taught him that building your own prosperity is, in and of itself, an ethical thing to do.

Knowledge@Wharton: How did Washington take that philosophy, expand it beyond the family realm and apply it to a new country? How did he use that philosophy to build up the United States?
Lengel: It was a challenge, especially when he first became President, because there was a lot of political division, uncertainty and fear. He took an optimistic view of his tasks: leading the nation, trying to build up the nation’s credit, establishing a stable currency, building national infrastructure and keeping the peace. He especially focused on the currency and wiping out international debt. This was a huge challenge, especially the debt. Fortunately, he had Alexander Hamilton to work with him.

Knowledge@Wharton: How much debt are we talking about?
Lengel: I think the equivalent today would approach trillions of dollars. It was a crushing debt owed to France and the Netherlands after several years of war. Six years into his presidency, he had wiped out the national debt to France.

 Knowledge@Wharton: How did he do that?
Lengel: He worked with Hamilton to deliver a revolving system of debt repayments to gradually pay it off through careful taxation, currency management and by establishing a national bank. Instead of wiping out the economy to pay off the whole debt all at once, he was able to manage it over a series of years, which built up the nation’s credit.

Knowledge@Wharton: Hamilton is credited with a lot of the early success of the U.S. economy, but the two men are closely associated with one another.
Lengel: Yes. Hamilton certainly developed many of the concepts for implementing economic policy, but Washington set the goals and strategy. Hamilton worked with him to carry it out. There were times when Washington was ready to strike down Hamilton’s ideas. He was within moments of vetoing the national bank that Hamilton established. But they worked as a team.

Knowledge@Wharton: The country could have turned out very differently were it not for this business focus.
Lengel: Yes. The country could have staggered into ruin or stagnation, or it could have broken apart, both politically and physically. There was a lot of regional difference. It was an important part of Washington’s national policy, tied with his economic policy, to bind the different parts of the nation together through commerce. I really can’t overstate how important commerce was to him, both domestic and international.

Knowledge@Wharton: Trade is massively important for a new country that is trying to build itself up.
Lengel: Yes. Washington saw commerce as something that naturally contributed to peace and unity.
He coined a phrase, “communities of interest,” during the Revolutionary War, and he used it over and over again. The idea was that if people trade with each other – including Native Americans, Northerners, Southerners and foreigners – they will inevitably begin to see common and shared interests. They will work together and be more peaceful as a result.

Knowledge@Wharton: But there had to be a level of trust with Washington. You had to take a person at his word and face value.
Lengel: Yes. His conduct during the war and at the end of the war showed that he was a trustworthy person. Anybody else in that position may not have been able to generate the same level of trust.

Knowledge@Wharton: It’s interesting how Washington’s prosperity is tied to the country’s prosperity.
Lengel: Before the war he saw how the British mercantilist, colonial system held him down and forced his fellow Americans to stay down. Ultimately, he absolutely hated debt. Debt made him anxious and worried. But the British colonial system forced the American people into debt. He saw that if he wanted to get out of debt and build his own prosperity, the nation would need to rid itself of the colonial system.

Knowledge@Wharton: Washington didn’t have a great formal education, but I get the sense from your book that this was actually a positive for him.

“Washington saw commerce as something that naturally contributed to peace.”

 Lengel: It’s ironic, because he felt so insecure about his lack of formal education. His father died when he was 11, so he didn’t receive the classical liberal arts education that his peers received. Instead, he got a practical education based on accounting, mathematics, geometry and basics related to estate management.

Knowledge@Wharton: In some respects, he had the early version of street smarts.
Lengel: That’s right. He had to think on his feet. He had to plunge into a problem and manage it right away, instead of receiving all kinds of esoteric learning.

Knowledge@Wharton: Your book discusses how slavery plays a role in his thinking. His thoughts on this topic changed over time.
Lengel: Yes. There’s no doubt about it. Slavery can’t be pushed aside as an element of his life and times. The enslaved people on his estate played a major role in building his prosperity.
As a young man, he simply accepted the slavery system, like many of his contemporaries. I had always assumed that he turned against slavery for moral reasons after the American Revolutionary War. I figured he eventually thought it was wrong to hold people in bondage.
But actually, his thinking began to change with a very basic calculation. He calculated that if you hold people in bondage, you restrict them from the basic right of enjoying the fruits of their own labor. Therefore, they have little motivation to work. What motivation do slaves have to innovate, invest, and think towards the future? He began to think that slavery would not only hold him back, but that it would hold the nation back in the long run.

Knowledge@Wharton: It’s interesting that it would take so long for slavery to be abolished.
Lengel: Yes. There’s no doubt that Washington would have preferred it if slavery had been abolished earlier. He thought that the longer slavery lasted, the more the economy would stagnate and would remain heavily agricultural and backwards.

 Knowledge@Wharton: Your book mentions that some Washington concepts from back then would still be good concepts today.
Lengel: I think he would have been a huge advocate of the Internet. He was a big believer in gathering information, classifying information and disseminating information and knowledge about business and experimentation. He was a big believer in experimentation. His fundamental ideas related to calculated risk taking, careful account keeping and transparency could all be applied in the 21st century.

Knowledge@Wharton: I’m guessing Washington would have been in favor of IT security, considering he wasn’t a fan of the British system of taxation and debt forced upon early Americans. You need to have security and trust to move forward.
Lengel: Yes, there’s no doubt about that. He was also an advocate of some industrial, overseas espionage. The British restricted the export of knowledge and manufacturers, and skilled labor. Washington tried everything he could to bend, if not break rules, to steal industrial secrets.

Knowledge@Wharton: As he was building up his first estate, what were the biggest roadblocks that he faced?

“He began to think that slavery would not only hold him back, but that it would hold the nation back in the long run.”

 Lengel: The biggest obstacle was the British mercantilist system. It forced American planters to grow tobacco and sell it through British agents on British ships, who shipped it overseas and sold it on behalf of the planters. The planters got credit in return; they did not get cash. They had to live on credit and use that credit to buy British manufactured goods. In fact, they usually used their credit to buy luxury goods, because conspicuous consumption was important in Washington’s social class. The result was debt.
We tend to think that people at Washington’s level had it easy, but they faced financial ruin almost on a daily basis. People at Washington’s level were collapsing and having to sell off their estates because they fell so deeply into debt. It was a day-to-day problem he had to face.

Knowledge@Wharton: How much did the next Presidents benefit from Washington’s work?
Lengel: They benefitted quite a lot. Washington was completely successful in his goal to create a stable, solid foundation for future growth, build a stable currency and keep the peace. Unfortunately, some of his successors didn’t maintain that peace. But nevertheless, he brought the country to a stable, solid level where it could grow and weather the storms that were bound to come.

Knowledge@Wharton: He was a military man as well. How did that affect his thinking?
Lengel: He was a military man, but he was a combat veteran. I don’t think anybody cares for peace more than a combat veteran. Not because of pacifism necessarily, but because they understand the damage war can do at all levels. President Washington was most certainly a man of peace. He thought that keeping the peace was essential to giving the country, and the American people, a chance to grow their wealth.

Knowledge@Wharton: The country was so new and so many things were being developed during this period. Do you think Washington left anything unresolved? Was there anything in particular that he didn’t complete?
Lengel: Certainly the slavery issue was never perfectly resolved during his lifetime.
He wanted to maintain political stability. He saw the development of political factions as being detrimental to national peace. He ended his second term an embittered man as he saw the Jeffersonians and the Hamiltonians at each other’s throats. He thought that they should be willing to work together for a common purpose.
He would probably consider that his greatest failure. But it wasn’t really his fault.

Knowledge@Wharton: It’s a shame we still have these problems today. I expect he’d be really frustrated if he were alive today.
Lengel: Yes, he saw partisanship, faction, and the lack of decorum as fundamental evils.
He kept telling Thomas Jefferson and Hamilton that they should be willing to subvert their extreme dislike for one another for a common cause. But they did not.

Knowledge@Wharton: It’s amazing that these manuscripts and papers had not been released beforehand.
Lengel: They had never been published before, and they are going to be free and publicly available online when we finish sorting through them this summer. They will be available on the Mount Vernon website, and you’ll be able to explore all of his financial papers, understand the depth of his business feelings and see how he managed everything.

Knowledge@Wharton: It’s great work. And it’s good to have this historical perspective. You obviously have written quite a bit about these topics. Is this a true passion for you?
Lengel: Oh, yes. I enjoy it very much. I think Washington recognized that everything that he did on the national level would be an example not just for his contemporaries, but also for future generations.

Knowledge@Wharton: Tell me about the tough process of developing a working business relationship with the British after the war?
Lengel: That’s a great question. He and his fellow Americans emotionally wanted to look to the French for trade opportunities. But Washington was a realist. He studied the French and the British economies and saw that the French were very backwards, whereas the British were the most advanced economic nation in the world, both in terms of their agricultural revolution and their industrial revolution. He sent people over to Great Britain and he had friends among the British manufacturing class. Through his research he saw that the Americans needed to emulate the British, trade with the British and learn from the British to become a great nation. It was a practical decision. It infuriated a lot of Americans, including Jefferson. Jefferson was not a realist on this topic. But Washington moved ahead with his plan anyway, and we’re fortunate that he did. We really needed to follow the British example.

Fuente: KNOWLEDGE@WHARTON

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