2 Landmark Industrial Origins and the Creation of the Debt Ceiling

On this day in economic and business history...

Siemens (NASDAQOTH: SIEGY  ) was founded in Berlin on Oct. 1, 1847.

Founder Werner von Siemens was determined to develop new ideas in telegraphy, which was still in its infancy -- Samuel Morse had first publicly demonstrated long-distance telegraphy in the United States only four years earlier. In the winter of 1846, Siemens successfully developed a new prototype device, which his namesake company explains in its historical archives:

The cornerstone of [Siemens'] career was the idea of building a pointer telegraph out of cigar boxes, tin plate, pieces of iron and a bit of insulated copper wire. The device was far superior to the apparatus in common use until then, because it no longer worked like a clock mechanism. Instead it automatically controlled synchronization between the transmitter and the receiver -- an entirely new solution in electric communications.

Siemens collaborated on the device's construction with his friend Johann Georg Halske, a mechanic he had met at the local Physics Society. Halske was won over by the new device's potential, but the two tinkerers lacked the capital to establish a venture of the proper scale to produce it. Siemens convinced his wealthy cousin, Johann Georg Siemens, to be his financial backer, and the three men established the "Telegraphen-Bauanstalt von Siemens & Halske," or "Siemens & Halske Telegraph Construction Company," on Oct. 1, 1847. Two weeks later, on October 12 -- now considered the company's "Founding Day" -- the company began operations in Berlin.

Werner von Siemens led the company to fantastic success until his death in 1892. By this point, the start-up had become an international electrical conglomerate with 6,500 employees worldwide and 20 million marks in annual sales -- it was easily a multibillion-dollar company by modern standards, though accurate conversion records of pre-World-War-I German currencies are very difficult to find. Along the way, Siemens helped wire the world, and the company's accomplishments included laying the first Indo-European and transatlantic telegraph lines.

Werner von Siemens himself invented the first working electrical dynamo (in 1867), the first electric locomotive (in 1879), and the first electric streetcar and elevator (in the early 1880s). His wide-ranging electrical achievements made him something of a Thomas Edison of Germany, a comparison made all the more apt by the fact that several of his key breakthroughs -- particularly the dynamo -- helped Edison build General Electric into an electrical-manufacturing giant of ultimately greater global scale. The electrical unit of conductance, the siemens, is named in honor of his contributions to human knowledge of electrical engineering.

The birth of a new metal market
The Pittsburgh Reduction Company, predecessor of Alcoa (NYSE: AA  ) , was incorporated on Oct. 1, 1888 , roughly two years after founder Charles M. Hall's discovery of the first effective way to produce aluminum in large quantities. Thus Alcoa became the first true aluminum company ever created, and thanks to Hall's aluminum extraction patent -- granted half a year later -- it had a legal monopoly over this revolutionary new process for nearly two decades. This patent defensibility no doubt helped 24-year-old Hall assemble $20,000 in seed funding (equal to nearly $500,000 today) for the world's first aluminum plant in Pittsburgh, which was already becoming known as a major steelmaking town.

Alcoa embodied the youthful high-tech mindset of Silicon Valley decades before anyone even considered building computers, with recent graduates Hall and Arthur V. Davis -- only 21 when he became Alcoa's first employee in 1888 -- guiding the company in its early years. Hall was an idealistic Steve Wozniak to the more business-minded Davis' Steve Jobs, and the inventor continued his role as Alcoa's head of research while Davis stepped into the corner office. By the early 1890s demand for Alcoa's aluminum necessitated expansion, and within a decade of Alcoa's formation the company operated three plants and had managed to reduce the cost of aluminum by 95.5%. Aluminum, once so rare that it was prized above gold, was becoming a metal used by the whole world, rather than just the elites.

The Pittsburgh Reduction Company changed its name to the Aluminum Company of America in 1907. Hall continued to serve as the company's vice president of research until his death in 1914, by which point the price of aluminum had fallen to $0.18 a pound, a 99.4% reduction in price from the roughly $32-per-pound price it had commanded before Hall's birth. Alcoa's position remained so dominant for so long that the U.S. Justice Department filed an (unsuccessful) antitrust suit against the company in 1938. After fending off this suit, Alcoa joined the Dow Jones Industrial Average (DJINDICES: ^DJI  ) in 1959. After the removal of Bethlehem Steel in 1997, Alcoa became the sole metals-industry representative on the index for over 15 years, a position it finally relinquished in 2013.

Worldwide aluminum production, which was negligible before Alcoa's creation, reached a worldwide total of 43.9 million tons 120 years after the company was incorporated by one ambitious 24-year-old with one revolutionary idea.

The disc that launched a trillion free-trial mailers
Sony (NYSE: SNE  ) launched the CDP-101, the world's first CD player, on Oct. 1, 1982. For the first time in a century, media had a digital format and a device from which to access it, three years after the first public demonstration of compact discs. The CD player and the CDs it played were both crazy expensive by modern standards -- the CDP-101 cost roughly $900  at the time, and the limited selection of 113 albums retailed for anywhere from $15 to $20 each, which would be equivalent to a price range of $35 to $45 today. But the CD nonetheless represented a way forward for the music industry, which was at the time limited to formats that were either portable but prone to wearing out, or durable but too large to carry.

A CD's storage capacity was initially determined in part by the size of Beethoven's Symphony No. 9, which was one of the first albums released at launch. Only 20,000 CDP-101s sold in 1982, but the success of the 1985 Dire Straits album Brothers in Arms -- the first CD to sell more than a million copies -- paved the way for a widespread industry transition to digital formats. Some 400 million CDs were pressed in 1988, and by the 25th anniversary of the CDP-101's launch, some 200 billion CDs had been sold around the world.

Putting a ceiling on American borrowing
The first U.S. debt ceiling was put into place on Oct. 1, 1917, with the passage of the Second Liberty Loan Act. This act, one of a series of revenue-raising measures to finance the U.S.' entry into World War I, offered $3 billion worth of Liberty Bonds to the public at a 4% interest rate. More importantly for the nation's long-term fiscal picture, this act rolled up the unused borrowing capacity of previous revenue-raising efforts into one aggregate limit -- a debt limit, now commonly known as the debt ceiling.

This limit restricted the amount the U.S. could borrow only under this particular act, but for several decades, later revenue-raising legislation simply amended the Second Liberty Loan Act to increase its capacity. Existing bond offerings made under earlier legislative edicts retained their own separate borrowing limits until June 20, 1939, with the passage of the Public Debt Act, which placed all U.S. borrowing into the same aggregate pool, thus creating the debt ceiling as we now know it today.

Want to learn more about the U.S. debt ceiling, from its origins in 1917 to the present day? Click here to read a complete history, or click here for an interactive history on the growth of the U.S. debt ceiling.

The Truth About the Debt and the Debt Ceiling
The U.S. government has piled on more than $10 trillion of new debt since 2000. Annual deficits topped $1 trillion after the financial crisis. Millions of Americans have asked: What the heck is going on? Is it really time to reconsider this whole "debt ceiling" thing? 
The Motley Fool's new free report, "Everything You Need to Know About the National Debt," walks you through with step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!


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