Entrepreneurship in American History

John Steele Gordon
Author, An Empire of Wealth: The Epic History of American Economic Power

John Steele GordonJohn Steele Gordon was educated at Millbrook School and Vanderbilt University. His articles have appeared in numerous publications, including Forbes, National Review, Commentary, the New York Times, and the Wall Street Journal. He is a contributing editor at American Heritage, where he wrote the “Business of America” column for many years, and currently writes “The Long View” column for Barron’s. He is the author of several books, including Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt, The Great Game: The Emergence of Wall Street as a World Power, and An Empire of Wealth: The Epic History of American Economic Power.

It has not been nearly well enough noted that the American colonies, while many ended up in royal hands, were not founded by the English state. Several, such as Massachusetts Bay, Plymouth, and Virginia, were founded by profit-seeking corporations. Others, such as Pennsylvania and Maryland, were founded by proprietors. To be sure, many of these enterprises had non-entrepreneurial motives, such as providing a refuge for religious dissenters. John Winthrop wanted the Puritans to establish a “shining city on a hill”; William Penn thought of Pennsylvania as a “Holy Experiment” where Quakers could live in peace. But Plymouth, Massachusetts Bay, and Pennsylvania were also expected to show a profit. “Though I desire to extend religious freedom,” said Penn, “yet I want some recompense for my troubles.”

New York, of course, was founded by the Dutch, not the English, and profit was the sole reason for settling on Manhattan. Indeed, so bent on money making were the Dutch that they did not get around to building a church for 17 years, worshiping instead in the fort. When they did finally build a church, they named it for St. Nicholas, and Santa Claus has been the patron saint of New York ever since.

Even after the British took the colony in 1664, the Dutch devotion to commerce remained. Harking back to the early source of its economic success, the fur trade, the city’s seal remains a beaver surrounded by wampum. Even today, that little hustly-bustly Dutch village lies at the heart of the world’s most important and powerful city, and making money is still New York’s chief business.

Even in the theocracy that was early New England, the entrepreneurial spirit burned bright. Unlike the colonies on the Chesapeake, there was no cash crop that could be grown in New England’s stony soil and short growing season. Perhaps the closest thing to a cash crop was that singular beast, the Atlantic cod. Pulled from the great fishing waters off New England in prodigious numbers, it was salted, dried, and shipped to Europe to provide cheap protein for the masses. Even today, there is a carving of a codfish hanging in the Massachusetts State House. Perhaps because New England lacked a true cash crop, its economy became much more diverse than those of the Southern colonies. Shipping and shipbuilding, lumber, fishing, slaving, and rum distilling became mainstays of the New England economy and produced its earliest fortunes.

Also very important to the evolving New England economy was iron, a commodity that had by then been indispensable for 3,000 years. At first this iron had to be imported at vast expense from foundries in England. John Winthrop the younger—son of the man who coined the phrase “shining city on a hill”—saw opportunity and, a born entrepreneur, he seized it. There was plenty of iron ore available, but to make iron he needed something America did not then have—capital. So he sailed to England in 1641 to get it. Why, one might well wonder, would English capitalists invest in a major industrial enterprise located in a wilderness 3,000 miles away? The answer lay in something America did have in indescribable abundance—wood. Charcoal was as indispensable as ore to iron smelting, and whereas England’s forests were being rapidly cut down, America had well over a million square miles of forest. So Winthrop was able to argue that combining America’s cheap raw materials with England’s capital would produce a product that could be sold at a profit, not only in Massachusetts but in England as well.

Winthrop called the new company the Company of Undertakers—note the word, the literal translation of “entrepreneur”— to which the government of Massachusetts granted a 21-year monopoly on iron production, an exemption from taxation, and the right to export iron once local demand was met. (Obviously, cozy relations between government and industry is not wholly a recent phenomenon.) The Saugus Iron Works, as it is known, was a financial failure, as so many first attempts are. But it is now a national historic site—and well it should be, for it was the start of a great American industry.

By the end of the colonial era, the colonies were producing one-seventh of the world’s pig iron. A little over 100 years later, the U.S. was producing more iron and steel than Britain and Germany combined, and producing them so efficiently that we were an exporter to those countries. Much of that iron and steel was manufactured by Andrew Carnegie, who had arrived in America a penniless immigrant from Scotland in the 1840s. When he sold out to J. P. Morgan in 1901, Morgan congratulated him on becoming “the richest man in the world.”

The Saugus Iron Works was contemporaneous with the beginning of one of the handmaidens of American entrepreneurship, American invention. The first patent awarded to an American resident was given to Joseph Jenks in 1646 for a device that improved the manufacture of edged tools, such as sickles. It was the beginning of the “Yankee ingenuity” that has characterized America’s economy ever since, from that first machine tool to bifocal glasses, the cotton gin, automated flour mills, the high-pressure steam engine, interchangeable parts, the McCormick reaper, the oil industry, the airplane, Coca-Cola, the affordable automobile, the digital computer, and Twitter. For an example of how great a synergistic effect entrepreneurship and invention have had on each other, consider that when Twitter went public last year, the stock offering produced no fewer than 1,600 newly-minted millionaires.

By the time the 13 colonies declared independence, they were, after only 169 years, the richest place on earth per capita. No wonder the British fought so hard to suppress the rebellion. While statistics from the late 18th century can be scarce—the very word “statistics” wouldn’t be coined until the early 19th century—there is one powerful statistic indicating just how much better off Americans were than their British cousins: Soldiers in the Continental Army were, on average, a full two inches taller than their British counterparts.