The American System Unleashed—Benjamin Franklin: the American Prometheus, Part 2

In Part 1 of this post, I introduced key aspects of Ben Franklin’s genius which have been suppressed by historians. Now we’ll take up his extraordinary scientific achievements and his role in founding the unique American System of economics which President Trump seeks to implement again to save our republic. 

Science and Progress

Modern-day biographies and history books tend to denigrate Franklin as a scientist, some even portraying him as a mere—if clever—“tinkerer.” But that is not the way he was viewed during his lifetime.  The 1751 London publication of his Experiments and Observations on Electricity Made at Philadelphia created an absolute sensation. After the French scientist Dalibard duplicated Franklin’s results, Franklin was widely proclaimed as the greatest living experimental scientist in the world.  When Franklin arrived in England in 1757, scientists from throughout Europe flocked to London to meet and confer with the Great Man. 

His international fame had nothing to do with his political career in America, but flowed entirely from his revolutionary scientific experiments,—experiments which shattered the diktats of “Newtonian” orthodoxy.  This recognition of Franklin was particularly evident during his trip to Germany in 1766, when he was hosted and lauded by Abraham Kästner, Gerlach von Münchhausen, Rudolph Erich Raspe and Georg Christoph Lichtenberg, key German collaborators and students of Gottfried Leibniz.

As we see in the founding of the American Philosophical Society, however, for Franklin new discoveries were useful only if they contributed to improving the human condition.  We see this same link between science and advanced manufacturing in Franklin’s collaboration with Matthew Boulton and William Small in England immediately prior to the American Revolution.

Although the honors for the invention of the Steam Engine must be given to Boulton and James Watt (with recognition for the earlier pioneering work by Denis Papin), what is almost unknown today is the input of Franklin in developing a working steam engine.

From 1764 through 1770 Boulton and William Small were in constant communication with Franklin, who studied their blueprints, suggested changes in design, and proposed specific experiments to test certain approaches.  By 1771 Boulton and Small had created an advanced iron-manufacturing facility powered by steam engines, and Franklin toured the facility that same year.  Later, after his return to America, Franklin would help finance the development of steam-powered boats in America.

Public Credit

In 1723, the Pennsylvania legislature authorized the issuance of £35,000 of paper currency.   This was a direct response to the shortage of circulating coins and the strangulation of investment by London financiers.  In many of the colonies money had  literally disappeared, and a significant portion of day to day business was conducted in barter (in tobacco, beaver furs and similar commodities).

In 1729, as the economic depression in Pennsylvania worsened, a new bill was introduced into the legislature, authorizing  a larger emission of bills of credit, with a lower interest rate and a longer term for retirement.  Both the colonial governor and many among the “moneyed interest” in the colony strongly opposed this.  It was at this point that the 23 year-old Benjamin Franklin intervened.

On March 27, he published in the American Weekly Mercury a piece titled “Busy Body, No 8,” wherein, he delivers a very humorous lesson on the difference between productive and non-productive investment.  Next, on April 3, he presented a pamphlet on the subject of paper currency—The Nature and Necessity of a Paper-Currency.  In the pamphlet, Franklin begins by stating: 

“Those who are Lovers of Trade, and delight to see Manufactures encouraged, will be for having a large Addition to our Currency:  For they very well know, that People will have little Heart to advance Money in Trade, when what they can get is scarce sufficient to purchase Necessaries, and supply their Families with Provision.  Much less will they lay it out in advancing new Manufactures;  nor is it possible new Manufactures should turn to any Account, where there is not Money to pay the Workmen, who are discouraged by being paid in Goods, because it is a great Disadvantage to them.

 “A Plentiful Currency will be so great a Cause of advancing this Province in Trade and Riches, and increasing the Number of its People.”

Note both the central role that Franklin gives to how abundant credit will advance manufacturing, as well as his emphasis on the effect productive growth will have on the well-being of the people.  This essay is not a mathematical monetary analysis, but a thorough discussion about what constitutes actual value in society.  He further states:

“For many Ages, those Parts of the World which are engaged in Commerce, have fixed upon Gold and Silver as the chief and most proper Materials for this Medium;  they being in themselves valuable Metals for their Fineness, Beauty, and Scarcity.  By these, particularly by Silver, it has been usual to value all Things:  But as Silver itself is of no certain permanent Value, being worth more or less according to its Scarcity or Plenty, therefore it seems requisite to fix upon Something else, more proper to be made a Measure of Values, and this I take to be Labour. . .

“In order to make a true Estimate of the Value of Money, we must distinguish between Money as it is Bullion, which is Merchandise, and as by being coined it is made a Currency:  For its Value as a Merchandise, and its Value as a Currency, are two distinct Things;  and each may possibly rise and fall in some Degree independent of the other. . .

 “The Riches of a Country are to be valued by the Quantity of Labour its Inhabitants are able to purchase, and not by the Quantity of Silver and Gold they possess.”

It is important to note here the agreement in principle between this 1729 writing by Franklin and the earlier 1691 proposal by Cotton Mather, titled Some Considerations on Bills of Credit, arguing for the issuance of state-backed paper currency.

London Bans Paper Money 

By the 1760s London’s economic rape of the colonies was reaching a crescendo.  One of the most egregious actions came in 1764, when Parliament passed the currency act, outlawing all colonial paper currency. Franklin, then residing as an American agent in London, responded with two new essays.  The first was The Legal Tender of Paper Money and the second was Remarks and Facts Relative to the American Paper Money.  

Franklin begins The Legal Tender of Paper Money with a pointed reminder that the American colonies were entirely at the mercy of Britain in regard to economic, trade and financial matters.  The shortage of coined money in the colonies was a direct consequence of the outward flow of money to London to pay for the continued dumping of British goods in America, while the colonies were prohibited by Parliament from manufacturing their own goods, or even taxing these British imports.  All of the gold and silver coin was being sucked out of the colonies, leaving them no recourse but to print their own Bills of Credit or Paper Money in order to sustain local economic activity.

Franklin insists on a plentiful stable circulating currency, backed by tax revenue and officially recognized as legal tender.  The intention is to promote physical economic development which will benefit the people.  Franklin says:

“The People in America are so sensible of these Truths, that it is thought no Assembly, unless in Cases of the greatest Necessity, will make Paper Money that is not to be a legal Tender.” 

Franklin’s second essay, Remarks and Facts Relative to the American Paper Money is addressed to the oligarchical Board of Trade, which was empowered to stamp out all colonial paper currency.  The Board had issued a report which stated that “Every Medium of Trade should have an intrinsic Value, which Paper Money has not.  Gold and Silver are therefore the fittest for this Medium, as they are an Equivalent, which Paper never can be.”

Franklin responds to this with an extended discussion on the proper role of Gold and Silver versus the concept of sovereign “Legal Tender” currency. 

In 1768 and 1769 Franklin published two more short pieces, both in London, wherein he continued to hammer away at the fundamental issue of what actually constitutes National Wealth.  In the first, On the Laboring Poor, he describes how in Britain, whose rulers proclaimed that they had created the most liberal and charitable “poor laws” in all of Europe, the actual effect of these laws had been to create a permanent underclass, a large class of poor families, subsidized in generally miserable conditions, but excluded from any upward opportunity as a result of British financial and taxation policies.

The second of these papers, Positions to be Examined Concerning National Wealth, contains a further elaboration by Franklin on his labor theory of value, including the inter-connectedness of advances in agriculture, manufacturing, and commerce.

Later Writings on Credit and Labor  

Well into the 1770s Franklin opposed all proposals to establish a “finance bank” in Philadelphia.  He was not anti-bank, but he recognized that any Pennsylvania bank, operating within a British colony, would be subservient to the City of London and quickly develop into a vehicle to carry out British financial policy in the colony.

Later, after the Declaration of Independence, when Robert Morris established the Bank of North America, Franklin became an enthusiastic supporter of that institution, defending it repeatedly against its critics.

The final two writings by Franklin to be noted here are his 1782 essay Information to Those Who Would Remove to America, where Franklin is looking ahead to the glorious future that awaited the conclusion of the war.  Almost simultaneously, he published a piece titled Reflections on the Augmentation of Wages which will be occasioned in Europe by the American Revolution.

In the second essay he takes direct aim at the parasitical “free-market” precepts then hegemonic in the City of London, particularly the idea that manufacturing development will necessitate low wages.  Franklin refutes this by showing how capital investment in both men and machines, including “using improved machinery;  employing intelligent and active workmen;  and a judicious division of labor,” will benefit all. 

He says:

“High wages attract the most skillful and most industrious workmen. Thus the article is better made, it sells better, and in this way the employer makes a greater profit than he could do by diminishing the pay of the workmen.”

Thus we have our brief portrait of Ben Franklin:— scientist, nation-builder, economist, and in many ways the true father of the American System of Economics. I hope I have enticed you to read much more about this American genius.  For a comprehensive discussion of Franklin’s life and career, see my two-volume biography of Franklin