Midnight Ride, Industrial Dawn
Page 32
Jefferson began his first term of office with many goals, chief among them quieting the partisan strife, minimizing the size of government, and repaying the huge federal debt. His major administrative measures often used fiscal policies to attain ideological goals, primarily by abolishing excise taxes (while maintaining import taxes, which he approved), shrinking the army and navy, and cutting budgets wherever possible in hopes of reducing government bureaucracy and repaying the debt. The navy presented a particularly appealing target for Jefferson’s cost reduction for many reasons. He could realize huge overall savings by targeting the navy because its budget was so large. And ideologically speaking, Jefferson had no love for the navy: it represented a version of the “standing army” that earlier Patriots deemed a threat to liberty and it served the commercial interests of primarily Federalist merchants. Secretary of the Treasury Albert Gallatin, by far the most qualified financial expert among Democratic-Republicans, launched an economy drive in 1801 and repeatedly decreased all naval appropriations. Gallatin reduced the 1800 naval appropriation of approximately $3 million to less than $1 million by 1802, and it continued shrinking until 1805, when Jefferson increased funding to build numerous small coastal gunboats in lieu of expensive ocean warships. Navy Secretary Robert Smith had to deal with the angry naval officers protesting demotions or the dry-docking of their ships, but had no opportunity to mitigate this policy: in 1807 he told his brother-in-law “never was there a time when executive influence so completely governed the nation.”63 This was not an opportune time to ask for naval funding.
Revere’s hopes and expectations were nearly smothered in early 1801. He wrote to Stoddert on March 5, attempting to collect the promised “advance” loan and use it to defray his mounting startup expenses. Revere had fulfilled his portion of the deal by preparing contracts and obtaining sufficient collateral to cover the loan. However, when he brought them to Higginson, the Boston naval agent, Higginson mentioned his new orders from “government,” as well as personal misgivings about whether Revere really needed the loan after all. Revere’s letter to Stoddert reiterates that Revere did, in fact, desperately need the loan:
you, Sir, I am sure, are Sensible, that a business of this kind can not be carried on without money . . . I was in hopes that I should be able to git thro with out the loan not doubting that I should obtain the loan if I wanted it. I now find I cannot go on with out it. I beg Sir you be so kind as to give Mr. Higginson such orders, as that I may be able to go on with the business. I have no doubt by the Month of June next I shall be able to produce Sheet Copper equal to the Brittish.64
Stoddert’s brief response arrived quickly, informing Revere that “About to retire from office, I must refer to my Successor your application for the advance of 10,000 dollars to enable you to complete your Machinery for rolling copper into sheets.”65 One small consolation appeared on the envelope and again at the bottom of the letter: Stoddert addressed Revere as “Esquire,” perhaps in belated recognition of his abilities, competence, and national service.
Without the $10,000 advance from the navy, Revere suffered from a critical cash shortfall and could not repay the private loans he had incurred to purchase the mill property, equipment, and operating expenses. The payment delay affected all aspects of his vulnerable new business. As an illustrative example, in a letter to William Bartlett of Newbury Port, he regretfully turned down an offer to purchase some copper, a rare opportunity he would ordinarily have seized, given the perpetual copper shortage. He explained that the change in the administration (although he first, suggestively, wrote and crossed out the word “Government” instead of “Administration”) had made him wary, and given his scarcity of funds he had to decline any new offers, especially until he knew the identity and plans of the new secretary of the navy.66
Throughout this trying period of administrative confusion and opposition, Revere sent a barrage of nearly identical letters to all relevant government officials (Stoddert, Samuel and Robert Smith, and Levi Lincoln), repeatedly restating the terms of the promised loan, his massive debt, and his pressing need for the government to pay him immediately. Robert Smith echoed the prevailing Jeffersonian belief in limited government power through strict constitutional interpretation when he told Revere, “I know of no law which authorizes this Dep’t to lend money for the creation of copper works.” Stunned that the federal government would even consider this sort of constitutional question so late in the process, Revere pointed out in a follow-up letter that “I had no doubt but the present Administ. would have fulfilled what the last had promised. It is exceeding [missing words] individual should suffer, when he is exerting himself for the good of the Government.” Revere was not going to be drawn into a theoretical debate regarding loose or strict constitutional authority: he wanted the money he had been promised.67
Revere’s persistence, string pulling, and letter-writing campaign eventually paid off. On June 6, 1801, Samuel Smith told Samuel Brown, the new Boston naval agent, “altho I do not entirely approve of such Contracts yet as the faith of the Government is in some measure implicated it has been determined to comply therewith.”68 Although this approval and funding arrived frighteningly late, it still represented a victory for Revere. The monetary advance kept his business solvent, and he could repay the loan in copper products instead of cash.
Revere’s ledgers confirm the financial hardship mentioned in his letters. One account record titled “1801 Furnace” lists his income and expenses between January 1, 1801, and March 1802.69 The debit and credit lists begin with the entry “to foot of account in Old Book,” which carries more than $10,431 in expenses and $14,351 in credits from 1800, the year before he began rolling copper. These values can be taken as a rough approximation of Revere’s costs and expenses before he began rolling copper, producing an estimate of approximately $3,900 in profits for the year 1800. In the 1801 ledger, Revere recorded a total of $28,608 in expenses and $30,364 in income for a 15-month period, yielding a profit of $1,756 on a far higher volume of transactions than in the prior year.70 The fact that Revere showed any profit at all sets him apart from the great majority of entrepreneurs starting new manufacturing operations in early America. Revere’s costs do not simply include operating expenses, but also one-time startup costs such as purchases of property and equipment, and yet he still balanced them with income streams. Table 6.1 presents a breakdown of Revere’s income for 1801 and the first two months of 1802.
The $10,000 loan stands out as the single largest revenue source for this period, representing almost one-third of his total income, and without this loan he would have faced more than $8,000 in losses for this period. The fact that Revere included this loan in his tally of income for the year gives us a window into his view of accounting and his shop finances. We now recognize that a loan is not a source of income, and Revere certainly understood that he had to repay this money in future years. His inclusion of a loan alongside moneys received indicates his emphasis upon immediate liquidity, necessary when his mounting expenses threatened to bankrupt him. The loan kept him solvent when he needed it most, and represented an easily repayable obligation, basically an advance on future copper-sheeting contracts. Revere usually had to wait for months to receive the moneys owed him by different clients, and in the government’s case months often turned into years. A loan reversed this trend, and not only gave him much-needed cash, but also tied him to the government by forcing the government to purchase enough copper sheathing to at least settle the account. In practical terms, the loan also enabled him to repay his private loans, which carried high interest rates.
Revere’s records reveal other factors that contributed to his financial survival. His next largest sources of revenue were payments of $7,468 and $3,343 from two federal naval agents, Sam Brown and Stephen Higginson, who continually bought large quantities of bolts, spikes, and other copper items. Unfortunately, these payments did not equal Revere’s sales during this period: naval agents usually bought on credit. Re
vere lobbied to receive his unpaid money while simultaneously pushing for his $10,000 loan, illustrating how he needed to keep these different accounts separate from one another: he would soon owe the government on a $10,000 loan that he could repay in rolled copper, while the government owed him thousands of dollars for copper bolts and spikes that he had already delivered. In a letter to U.S. Attorney General Levi Lincoln, Revere mentioned that he already delivered 84,718 pounds of his bolts and spikes to the navy.71 Subtracting the cost of the copper, the government owed Revere 24 cents per pound for these bolts and spikes, totaling more than $20,000, and it had only paid him $14,500 by December 1801. Revere continued full-scale production throughout this trying period, amassing new government charges that had yet to be paid. The payments that he did receive kept him afloat, however late and incomplete they might have been. Even while he personally struggled to learn the copper-rolling process, Revere’s workers produced a steady revenue stream by churning out bolts and spikes. Payments from the state of Massachusetts, sales of bells, and other transactions also helped him survive the transition period. Without a set of diverse and mature manufacturing operations under his belt he would not have had enough capital or equipment to give him the necessary time to master a difficult new practice.
Table 6.1. Revere’s “Furnace” Income, 1801
Revere’s ability to keep his shop financially solvent depended upon the careful management of his many expenses, listed in Table 6.2.
As always, raw materials represented Revere’s largest expenditure, at almost 40 percent of his total. However, several charges for the purchase of his Canton property, stonework, and insurance for his rolling mill constitute the second largest cost. Payments of loan principal and interest charges almost equaled the property costs, which makes sense when we consider that Revere’s reason for taking out the loan was to enable him to rapidly purchase the Canton property. Labor fees, while less than the cost of metal, property, or loan payments, still represent an enormous sum, testifying to the size of Revere’s skilled labor force at this time. These high fees collectively drove Revere to the verge of financial loss, but had he cut back on any of them he would have either had to curtail his present shop output or reduce his construction of a Canton manufactory to meet the needs of future contracts.
Table 6.2. Revere’s “Furnace” Expenses, 1801
In addition to granting him a loan, the government also helped Revere procure copper stockpiles. A letter to Robert Smith on October 26, 1801, mentions that Revere had received “nearly 120 thousand weight of copper most of it refined ready to draw into bolts and spikes.”72 This immense quantity of copper (60 tons) was the property of the government, delivered to his shop in anticipation of the important products he would make. Revere’s billing system enabled him to account for copper easily, because he charged clients 50 cents a pound when he provided the copper, or 24 cents a pound when the client provided the copper. No other client could lay their hands on this much metal, and it served Revere well through many future government contracts, allowing him to keep working without having to wait for materials. The large expense for copper and iron listed in Table 6.2 illustrates his ongoing need for additional metal on behalf of his other clients, and correspondence reveals that this procurement challenge continued to give him headaches.
By the time Revere received his government loan, the mill had cost him more than $15,000. Because he started setting up his works before receiving the loan his equipment was fully operational when the money arrived, and he rolled more copper while maintaining his production of malleable copper bolts and spikes. He expressed great pride in his achievement: “I have Erected my Works & have Rolled Sheat Copper which is approved of by the best judges here as being equal to the best Cold Rolled copper.” The navy concurred, giving his copper a rating of “excellent” in November 1801, and by the following May Revere informed Robert Smith that he had rolled more than twenty thousand pounds of sheet copper. Adding the payment for this shipment to charges for other copper products requested by Smith, Revere fully repaid his $10,000 loan and completed his contract.73
Unfortunately, the government’s administrative paralysis had only begun. Revere’s steady stream of government correspondence did not abate with the receipt and completion of his loan terms. On July 1, 1803, he asked Smith for the return of the surety bond he originally provided as collateral for the government loan. Also, the government had not yet paid for further copper bolts and sheeting that Revere had supplied, and he needed the money. This situation reached the crisis point in November 1803, as described in a letter Revere sent to Robert Smith. He began by reminding Smith that he had delivered more than 64,000 pounds of worked copper to the government and had yet to be paid. Worse yet, in expectation of receiving his fees, Revere took out another $14,000 loan and used it to buy overseas copper, since the government was no longer providing enough metal to match his production. By the end of 1803, he had been paying interest on this loan for the past 13 months. He was owed $15,000 at this point, and Smith soon ordered and received an additional $10,000 of copper without paying for it. Revere’s frustration was especially visible by the end of this letter, when he said, “We beg leave to mention, that it is more than two years since we have received one Shilling from Government ‘tho we have been at work for them the whole time.” He tried to appeal to Smith’s sense of fairness, saying, “We are now Sir distresed for Money . . . you must be sensible that it requires a considerable capital to carry on a Business the Stock of which cannot be purchased but with cash.”74 This comment certainly shows the great distance Revere and America had traveled from the barter and credit relations of colonial Boston.
This letter illustrates the type of institution that Revere was dealing with, a government that bears little resemblance to the bureaucratic institution of today. He procured and paid for the copper used in the government contract, incurred debt and interest payments in doing so, and was reimbursed more than two years late. One receives the impression that without constant goading from Revere the government would have kept taking his copper without bothering to pay for it. This administrative lethargy was not a calculated attempt to save money or trick Revere into doing extra work. The government was, it seems, incapable of doing any better. Administrative inexperience or shorthandedness exposed all transactions to major postponements. Constitutional questions such as the navy’s right to offer loans to new industries produced huge delays as novice officeholders sought precedents and considered different legal interpretations of their authority. Officials had an even harder time answering practical and technical questions because expertise on copperworking was hard to find anywhere in America, and was especially scarce in the nation’s capital. Revere learned that innovation has its costs as well as its benefits: doing something for the first time might earn contracts and praise, but it also produced confusion and delay.
Without naval funding and guaranteed contracts, Revere could have never afforded to research copper rolling. Without Revere’s experience and technical flexibility, the navy seemed incapable of founding a copper-rolling industry. In many ways, this was a match made in heaven. Or so it seemed.
The Revere-government partnership’s effectiveness can only be measured according to how it enabled each party to achieve its goals. Although Stoddert had to deal with constitutional and financial limitations, he had clear ideas about the direction he wished to take the navy. Stoddert knew the risks involved in loaning money to Revere since he had already failed, twice, to jumpstart a copper industry with government funding. By the time he made his final investment in sponsoring the copper-rolling process, Stoddert had spent $76,000, a princely sum that produced results only after Revere entered the picture.75 He undoubtedly considered his investment in Revere a major success because it finally gave him the solid domestic source of copper sheeting that completed America’s ability to produce all naval commodities. His short tenure in office prevented him from realizing major practical benefits from Revere
’s operations, but his immediate successors received many tons of copper products from the small Canton mill, and in the years leading into the War of 1812 America did not have to worry about its ability to outfit its navy. Other indirect benefits of Stoddert’s investment included the transfer of Revere’s technology to other American rolling mills, which added to America’s technological infrastructure and made future innovations possible. In this case as well Stoddert could not have been happier with Revere, a man who freely shared his experiences and knowledge with fellow manufacturers for the remainder of his life.
Revere’s copper-rolling startup experiences also illustrate the ideology and practical limitations of the early government, and in particular, of Benjamin Stoddert and the Federalists in John Adams’s administration. Stoddert’s bold and loose interpretation of the federal government’s powers to foster new industry reveals that the government sponsored private endeavors as early as the 1790s. At a time when even Alexander Hamilton could not arrange for the House of Representatives to vote on his Report on Manufactures, Stoddert quietly found ways to support American industry, fund private research, and develop a powerful, self-sufficient navy. But at the same time, the government’s administrative and bureaucratic limitations are more evident in this period than in Revere’s earlier transactions. No government official seemed capable of paying for goods at the time of purchase or meeting the government’s contractual obligations.