Money Tips from the Founding Fathers
The Founders were mostly made up of high net worth investors. Their financial wisdom remains relevant today
Happy Birthday! Last week, The United States of America celebrated its 241st birthday. You might enjoy this piece about some of the great men that made this happen, and some messages they’ve passed down to us about money and investing. These messages that are every bit as relevant today as they were in the 18th century.
You may not know that the Founding Fathers, those that created our nation, its principals and guiding documents shared one thing in particular with you. Most of them were high net worth investors. Unlike many of today’s “professional” politicians, the founders truly understood and valued the concepts of free enterprise, capitalism, small government and the empowerment of the individual. Why? Because their ranks mostly consistent of successful businessmen, professionals, and investors. They knew how money worked. They knew how business worked. They knew what it took to be successful and they wanted to create a place where anyone could be successful – if they chose to be.
They were also the thought leaders of their time.
Founding fathers, rebels and high net worth investors with wisdom to share.
They despised big government, scorned concentration of power and abhorred government overreach and over taxation (that last one really got them rankled.)
They championed hard work, the right to own property or business, and an individual’s right and ability to “raise himself up.”
We all know names like Jefferson, Washington, Adams, Paine and Franklin. But there were many, many more. And they, in turn, enlightened others to their way of thinking. So much so that in April of 1775, a group up round’ the Lexington/Concord area decided they’d had enough of the draconian government and turned their muskets on British regulars for the first time. A couple of months later, they really made their thoughts known at a bloody place called Bunker Hill.
A little over a year later, these thought leaders put their values in writing and sent it to the King – more or less telling him they wouldn’t be requiring his services anymore. The King, of course, didn’t like this very much and several years of bloody war followed. Fortunately, we all know the result.
This July 4th, we celebrate the signing of that document – The Declaration of Independence. As part of that celebration, we thought you might enjoy some thoughts that some of these founders had about money, investing and taxes. You may agree or disagree. But these guys were the best and the brightest of a very philosophical time. We all enjoy the benefits of what they created today.
Here are a few examples, for your Independence Day enjoyment.
The Founder’s Thoughts on Government Regulation, Commerce and Wealth Redistribution
“A wise and frugal government… shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” — Thomas Jefferson
“Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.” – John Adams
“A people… who are possessed of the spirit of commerce, who see and who will pursue their advantages may achieve almost anything.” – George Washington
“To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.” — Thomas Jefferson
“Beware the greedy hand of government thrusting itself into every corner and crevice of industry.” – Thomas Paine
“When the people find that they can vote themselves money, that will herald the end of the republic.” — Benjamin Franklin
It is true that many of the founders were wealthy, which in today’s world would be reason for suspicion. But like most of today’s affluent, most got that way by good decision making, working hard, educating themselves and wisely investing the capital they created (and a few by marrying well.) They wanted to create a nation where anyone could do that – unfettered by overbearing government interference or excessive taxation.
There is no political statement here. I’m sure the founders could find fault with both of today’s political parties – and there is likely plenty they would be unhappy about. But the wealth you or I have achieved today was largely made possible by the laws, guidelines and values these guys put in place for us over two centuries ago.
So as we celebrate our nation’s birthday this year, remember this additional reason to give thanks to the generation that gave us so much.
We’ll conclude this month’s patriotic Big Picture with a couple of investing lessons from our first two Presidents.
Investing Lessons from Washington and Adams
(Some segments here are reprinted from Money Lessons of America’s Founding Fathers, Money Magazine, July 2, 2015)
George Washington: Diversify Your Assets
We all think of George Washington as a General and President. But Washington was also one of the largest landowners in the colonies and an enthusiastic entrepreneur and investor. (Were he alive today, I’m convinced he would be an option seller.) He was also, as you will see, into commodities. The following snippet from Money Magazine shows how the General learned one of the most valuable lessons of good investing.
Conventional wisdom holds that investors shouldn’t put all their eggs in one basket, and our nation’s first president prospered by following this truism.
Washington: General, enthusiastic investor and big believer in diversification. He would have made a great option seller.
During the early 18th century, Virginia’s landed gentry became rich selling fine tobacco to European buyers. Times were so good for so long that few thought to change their strategy when the bottom fell out of the market in the 1760s, and Jefferson, in particular, continued to throw good money after bad as prices plummeted. George W. wasn’t as foolish. “Washington was the first to figure out that you had to diversify,” explains Randall. “Only Washington figured out that you couldn’t rely on a single crop.“
Only Washington figured out that you couldn’t rely on a single crop.
After determining tobacco to be a poor investment, Washington switched to wheat. He shipped his finest grain overseas and sold the lower quality product to his Virginia neighbors (who, historians believe, used it to feed their slaves). As land lost its value, Washington stopped acquiring new property and started renting out what he owned. He also fished on the Chesapeake and charged local businessmen for the use of his docks. The president was so focused on revenues that at times he could even be heartless: When a group of revolutionary war veterans became delinquent on rent, they found themselves evicted from the Washington estate by their former commander.
John Adams: Not an Expert? Get some Help.
John Adams, our second president, was a gifted attorney who actually defended the British soldiers who fired on citizens at the Boston Massacre (and won). But when it came to areas outside his expertise, he learned the value of enlisting assistance. Selling options likely would have served Adam’s needs as well. As he most likely would not be good at picking market direction, selling premium would have allowed him to potentially collect yield without having to do so (Although I’m guessing he would have opened a joint account with Abby.) The story below (also from Money Magazine) illustrates how Adams, lacking the time and expertise to properly manage some aspects of his financial affairs, prospered by relying on another’s trusted expertise.
In addition to being what some describe as boring and generally unlikeable, John Adams was not very good with money. Luckily for him, his wife, Abigail, was something of a financial genius. While John was intent on increasing the size of his estate, Abigail knew that property was a rookie investment. “He had this emotional attachment to land,” recounts Woody Holton, author of an acclaimed Abigail Adams biography. “She told him ‘That’s all well and good, but you’re making 1% on your land and I can get you 25%.'”
John and Abigail: They benefited from each other’s areas of expertise.
She lived up to her word. During the war, Abigail managed the manufacturing of gunpowder and other military supplies while her husband was away. After John ventured to France on business, she instructed him to ship her goods in place of money so she could sell supplies to stores beleaguered by the British blockade. Showing an acute understanding of risk and reward, she even reassured her worried spouse after a few shipments were intercepted by British authorities. “If one in three arrives, I should be a gainer,” explained Abigail in one correspondence. When she finally rejoined John in Europe, the future first lady had put them on the road to wealth. “Financially, the best thing John Adams did for his family was to leave it for 10 years,” says Holton.
As good as her wartime performance was, Abigail’s masterstroke would take place after the revolution. Lacking hard currency, the Continental Congress had been forced to pay soldiers with then-worthless government bonds. Abigail bought bundles of the securities for pennies on the dollar and earned massive sums when the country’s finances stabilized.
Despite Abigail’s talent, John continued to pursue his own bumbling financial strategies. Abigail had to be eternally vigilant and frequently stepped in at the last minute to stop a particularly ill-conceived venture. After spending the first half of one letter instructing his financial manager to purchase nearby property, John abruptly contradicted the order after an intervention by Abigail. “Shewing [showing] what I had written to Madam she has made me sick of purchasing Veseys Place,” wrote Adams. Instead, at his wife’s urging, he told the manager to purchase more bonds.
Some lessons are timeless. Happy Birthday America.