What the Founding Fathers Said About Budgeting

Founding Fathers

“In this world, nothing can be said to be certain, except death and taxes.”

This time of year, Americans look back to the beginnings of the country and honor those who sacrificed to make it happen. The Founding Fathers not only set the scene for a new nation, they also had cogent things to say about money and personal finances.
Here are a few of their bits of advice:

John Adams: “All the perplexities, confusion and distress in America arise not from the defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.” (Letter to Thomas Jefferson, 1787.)

Thomas Jefferson: “But I know nothing more important to inculcate into the minds of young people than the wisdom, the honor and the blessed comfort of living within their income, to calculate in good time how much less pain will cost them the plainest style of living which keeps them out of debt, than after a few years of splendor above their income, to have their property taken away for debt when they have a family growing up to maintain and provide for.” (Letter to Martha Jefferson Randolph, 1808.)

Benjamin Franklin: “It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end purpose, that is, an extension of the revenue.” (Federalist No. 21)

“In this world, nothing can be said to be certain, except death and taxes.” (Letter to French scientist Jean-Baptiste Leroy, 1798.)

“A penny saved is a penny earned.” (Poor Richard’s Almanac.)

Alexander Hamilton (as described in the currently-popular musical): “The ten-dollar founding father without a father got a lot farther by working a lot harder, by being a lot smarter, by being a self-starter. By fourteen, they placed him in charge of a trading charter.”

Abigail Adams: “Learning is not attained by chance, it must be sought for with ardor and attended to with diligence” (Letter to her son, John Quincy, 1780.)

George Washington: He was a man of few words, but a stickler for keeping track of his personal finances. Appointed commander-in-chief of the Continental Army in 1775, he did not accept a salary, but asked only for reimbursement of his expenses after the war. He then recorded everything from brooms to mutton to payment for his soldiers, meticulously keeping track of every penny in expenditures. He never went into debt, as some of his contemporaries did and died a rich man.

Marquis de Lafayette: “I read, I study, I examine, I listen, I think and out of all that I try to form an idea into which I put as much common sense as I can.” (Letter to his father, 1776) Though not officially a “founding father,” he was a trusted confidant of Washington and played a pivotal role in the colonists’ struggle for independence. He was the point man for the colonists’ relations with France and showed a great example of thrift and carefully money management.

Banking Goes Way Back

Banks are such a staple of modern life that it’s hard to imagine a time when there wasn’t one on every corner or checking accounts. And in fact, the history of banking does go back a long way — to thousands of years BCE.

Finding a way to safeguard one’s resources has been a priority from the time when barter emerged as a way to do business. The history of banking parallels that of the history of money (or the goods that were traded before there were coins and other forms of money.) Some 9,000 years before the current calendar became a world standard, folks were trading in obsidian, the prime building material for tools. And rudimentary banking grew up along with trade. Ancient bankers loaned grain to clients who were active in trade. Among the first “coins” to be discovered were clay “tokens” found in the Near East that dated back to 8000 BCE.

When one of the early traders received pay for his goods, he went to the local temple to store his gains, trusting to the god to whom the temple was dedicated to protect his assets. The ruling class used the temples to protect the funds they amassed to finance festivals and community building projects.

Ancient bankers in Egypt, Babylonia ad Greece made loans, at very high interest, underwritten by the gold and silver deposited with them.

Any banking service has always come at a cost. In Babylonia circa 2000 BCE, depositors paid as much as a sixth of their deposit in charges. And regulation was also an early issue. The Code of Hammurabi, an important source of information about the Babylonian civilization, refers to banking regulations.

New ways of counting evolved as the number and the value of the goods trusted to the temples grew. The abacus was one of the first “adding machines” used by “accountants.” Its origin is lost in history. Counting tables with special apparatus to divide and number coins followed.

By about 2000 BCE, banks had taken on some of the character of today’s institutions. In Assyria and Babylonia, bankers innovated by accepting deposits and making loans. In China and India, archaeological remains show evidence of the same activities.

Bankers in northern Italy led developments in Europe, with Amsterdam soon stepping up as a leader in the business in the 16th century. London caught on and began offering banking services in the 1700s. Even earlier, in the 14th century, two families in Florence, Italy, the Bardis and Peruzzis, dominated the banking business, opening branch offices in many large European cities. The Medici family, which is noted for its involvement in the arts and sciences of the era, also had a finger in the banking pie. Giovanni Medici established a bank in 1397.

In the Medieval world, bankers often were Jews. Christians, based on strict reading of laws against usury that were set out in the Bible, left the industry to the Jews, who were happy to have the privilege, since many other occupations were denied them.

The first bank in the American colonies was the Bank of North America in Philadelphia, chartered in the mid-1700s. Many notable families have made their names and vast fortunes in banking, among them the Rockefellers, the Rothschilds and the Morgans.

Inevitable in any business that is steeped in the care and keeping of valuables, there have been incidences throughout history of misuse of funds, frauds, robberies and failures. Even with the modern technology that facilitates the care and keeping of assets, it still happens. The most recent in the United States occurred in 2000, when some of the country’s largest financial institutions came upon hard times.

But historically, the need for safe places to keep one’s assets has been proved. Banks are here to stay.

Using Checks Is Part Of The Earliest American Traditions

When the first emigrants from England began settling along the eastern seaboard of what would become America, they brought with them some of the banking practices they had enjoyed in their homeland.

Making payments and conducting business with checks had become a firmly established part of European economics by the 18th century. From 1760 to 1800, the number of banks in London, for instance, doubled. Parliament finally gave permission for new corporate banks in the city in 1833, increasing the number of options available to residents, according to a history of check use, compiled by the Federal Reserve Bank of Atlanta.

When the American colonies began flexing their financial muscles, British political leaders began to impose difficult policies on the upstart new country, suppressing banks so that the colonists could use neither checks nor banknotes. The colonies were prohibited from issuing paper money, adding to the grievances that ultimately led to the Revolutionary War. But what followed the successful fight for independence was a hodge-podge of financial schemes developed independently by the individual colonies. The new country wrestled with the notions of central monetary control vs. the rights of the states to conduct their own economic affairs.

The U.S. Constitution was finally accepted by the colonies, denied the individual states the right to issue paper money, but gave them the ability to charter banks. Over the first few decades, the central government created some oversight authority by creating the First Bank of the United States, followed by the Second Bank of the United States. They failed to survive when early presidents saw them as symbols of British-style concentration of moneyed power.

The rapid expansion of the United States, with the frontier constantly moving farther west, created new challenges, particularly for those who wanted to conduct long-distance business. Newly established communities tended to be small and geographically isolated. Collecting on a check was difficult and costly. It was possible to negotiate a check, but no third parties were anxious to buy them because it was so tough to collect. “Documentary bills” became one method of expediting business from one area of the country to another. For instance, a cotton merchant in New Orleans could borrow money or make purchases in the southern city by drawing a documentary bill on his wholesaler in New York. A bill of lading would be attached to a shipment of goods to the north, indicating that the southern merchant had shipped cotton to New York of a value sufficient to cover the amount of the bill.

As some cities grew, their state–chartered banks created cooperative alliances with institutions in other cities, which facilitated the use of checks. Until the Civil War, however, checks functioned only as a local form of payment. Improvements in transportation and communication contributed to easing the difficulties and long-distance check payments gradually grew. Still, complications were rife. In one instance, a check drawn on a bank in Sag Harbor, New York, and received in Hoboken, N. J., changed hands ten times before its collection was finalized. The distance between the two communities was only about 100 miles. A remittance charge or exchange charge was often added to the costs of negotiating a check, to cover the cost incurred by the paying bank, which had to ship currency or coin or use some other means for settling the negotiation. One researcher referred to this era of check use in the United States as a “Haphazard arrangement riddled with inefficiencies.”

The National Banking Acts of 1863, 1864 and 1865 went a long way toward resolving the troublesome issues that surrounded use of checks. They allowed for federally chartered banks and took significant steps toward assuring that banks were fiscally sound by requiring that they hold reserves equal to the deposits they were receiving. The groundwork was laid for a national check clearing system and correspondent networks were created to simplify transfers of funds.

With more safeguards in place and fewer complications in successfully negotiating a check, the United States moved by degrees to its current situation in which check use is not for business only, but for the vast majority of individuals, who write checks with never a thought to how it all came about.