Post Office, Telegraph, Telephone, Cell Phones, Texting, Technology, Productivity, Savings, Investment, Japan Inc. and Eurozone Crisis

Posted by PITHOCRATES - August 13th, 2013

History 101

(Originally published August 28th, 2012)

Ben Franklin’s Post Office struggles to Stay Relevant in a World where Technology offers a Better Alternative

Once upon a time people stayed in touch with each other by mailing letters to each other.  Benjamin Franklin helped make this possible when he was America’s first Postmaster General of the United States.  And it’s in large part due to his Post Office that the American Revolutionary War became a united stand against Great Britain.  As news of what happened in Massachusetts spread throughout the colonies via Franklin’s Post Office.

In America Samuel Morse created a faster way to communicate.  (While others created this technology independently elsewhere.)  Through ‘dots’ and ‘dashes’ sent over a telegraph wire.  Speeding up communications from days to seconds.  It was fast.  But you needed people who understood Morse code.  Those dots and dashes that represented letters.  At both ends of that telegraph wire.  So the telegraph was a bit too complicated for the family home.  Who still relied on the Post Office to stay in touch

Then along came a guy by the name of Alexander Graham Bell.  Who gave us a telephone in the house.  Which gave people the speed of the telegraph.  But with the simplicity of having a conversation.  Bringing many a teenage girl into the kitchen in the evenings to talk to her friends.  Until she got her own telephone in her bedroom.  Then came cell phones.  Email.  Smartphones.  And Texting.   Communication had become so instantaneous today that no one writes letters anymore.  And Ben Franklin’s Post Office struggles to stay relevant in a world where technology offers a better alternative.

As Keynesian Monetary Policy played a Larger Role in Japan Personal Savings Fell

These technological advances happened because people saved money that allowed entrepreneurs, investors and businesses to borrow it.  They borrowed money and invested it into their businesses.  To bring their ideas to the market place.  And the more they invested the more they advanced technology.  Allowing them to create more incredible things.  And to make them more efficiently.  Thus giving us a variety of new things at low prices.  Thanks to innovation.  Risk-taking entrepreneurs.  And people’s savings.  Which give us an advanced economy.  High productivity.  And growing GDP.

Following World War II Japan rebuilt her industry and became an advanced economy.  As the U.S. auto industry faltered during the Seventies they left the door open for Japan.  Who entered.  In a big way.  They built cars so well that one day they would sell more of them than General Motors.  Which is incredible considering the B-29 bomber.  That laid waste to Japanese industry during World War II.  So how did they recover so fast?  A high savings rate.  During the Seventies the Japanese people saved over 15% of their income with it peaking in the mid-Seventies close to 25%.

This high savings rate provided enormous amounts of investment capital.  Which the Japanese used not only to rebuild their industry but to increase their productivity.  Producing one of the world’s greatest export economies.  The ‘Made in Japan’ label became increasingly common in the United States.  And the world.  Their economic clot grew in the Eighties.  They began buying U.S. properties.  Americans feared they would one day become a wholly owned subsidiary of some Japanese corporation.  Then government intervened.  With their Keynesian economics.  This booming economic juggernaut became Japan Inc.  But as Keynesian monetary policy played a larger role personal savings fell.  During the Eighties they fell below 15%.  And they would continue to fall.  As did her economic activity.  When monetary credit replaced personal savings for investment capital it only created large asset bubbles.  Which popped in the Nineties.  Giving the Japanese their Lost Decade.  A painful deflationary decade as asset prices returned to market prices.

Because the Germans have been so Responsible in their Economic Policies only they can Save the Eurozone

As the world reels from the fallout of the Great Recession the US, UK and Japan share a lot in common.  Depressed economies.  Deficit spending.  High debt.  And a low savings rate.  Two countries in the European Union suffer similar economic problems.  With one notable exception.  They have a higher savings rate.  Those two countries are France and Germany.  Two of the strongest countries in the Eurozone.  And the two that are expected to bail out the Eurozone.

Savings Rate

While the French and the Germans are saving their money the Japanese have lost their way when it comes to saving.  Their savings rate plummeted following their Lost Decade.  As Keynesian economics sat in the driver seat.  Replacing personal savings with cheap state credit.  Much like it has in the US and the UK.  Nations with weak economies and low savings rates.  While the French and the Germans are keeping the Euro alive.  Especially the Germans.  Who are much less Keynesian in their economics.  And prefer a more Benjamin Franklin frugality when it comes to cheap state credit.  As well as state spending.  Who are trying to impose some austerity on the spendthrifts in the Eurozone.  Which the spendthrifts resent.  But they need money.  And the most responsible country in the Eurozone has it.  And there is a reason they have it.  Because their economic policies have been proven to be the best policies.

And others agree.  In fact there are some who want the German taxpayer to save the Euro by taking on the debt of the more irresponsible members in the Eurozone.  Because they have been so responsible in their economic policies they’re the only ones who can.  But if the Germans are the strongest economy shouldn’t others adopt their policies?  Instead of Germany enabling further irresponsible government spending by transferring the debt of the spendthrifts to the German taxpayer?  I think the German taxpayer would agree.  As would Benjamin Franklin.  Who said, “Industry, Perseverance, & Frugality, make Fortune yield.”  Which worked in early America.  In Japan before Japan Inc.  And is currently working in Germany.  It’s only when state spending becomes less frugal that states have sovereign debt crises.  Or subprime mortgage crisis.  Or Lost Decades.

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Saving, Investing and the Paradox of Thrift

Posted by PITHOCRATES - August 12th, 2013

Economics 101

(Originally published August 27th, 2012)

Healthy Sales can Support just about any Bad Decision a Business Owner Makes

“Industry, Perseverance, & Frugality, make Fortune yield.”  Benjamin Franklin (1744).  He also said, “A penny saved is a penny earned.”  Franklin was a self-made man.  He started with little.  And through industry, perseverance and frugality he became rich and successful.  He lived the American dream.  Which was having the liberty to work hard and succeed.  And to keep the proceeds of his labors.  Which he saved.  And all those pennies he saved up allowed him to invest in his business.  Which grew and created more wealth.

Frugality.  And saving.  Two keys to success.  Especially in business.  For the business that starts out by renting a large office in a prestigious building with new furniture is typically the business that fails.  Healthy sales can support just about any bad decision a business owner makes.  While falling sales quickly show the folly of not being frugal.  Most businesses fail because of poor sales revenue.  The less frugal you’ve been the greater the bills you have to pay with those falling sales. Which speeds up the failing process.  Insolvency.  And bankruptcy.  Teaching the important lesson that you should never take sales for granted.  The importance of being frugal.  And the value of saving your pennies.

Saving and frugality also hold true in our personal lives.  Especially when we start buying things.  Like big houses.  And expensive cars.  As a new household starting out with husband and wife gainfully employed the money is good.  The money is plentiful.  And the money can be intoxicating.  Because it can buy nice things.  And if we are not frugal and we do not save for a rainy day we are in for a rude awakening when that rainy day comes.  For if that two income household suddenly becomes a one income household it will become very difficult to pay the bills.  Giving them a quick lesson in the wisdom of being frugal.  And of saving your pennies.

The Money People borrow to Invest is the Same Money that Others have Saved

Being frugal lets us save money.  The less we spend the more we can put in the bank.  What we’re doing is this.  We’re sacrificing short-term consumption for long-term consumption.  Instead of blowing our money on going to the movies, eating out and taking a lot of vacations, we’re putting that money into the bank.  To use as a down payment on a house later.  To save for a dream vacation later.  To put in an in-the-ground pool later.  What we’re doing is pushing our consumption out later in time.  So when we do spend these savings later they won’t make it difficult to pay our bills.  Even if the two incomes become only one.

Sound advice.  Then again, Benjamin Franklin was a wise man.  And a lot of people took his advice.  For America grew into a wealthy nation.  Where entrepreneurs saved their money to build their businesses.  Large savings allowed them to borrow large sums of money.  As bank loans often required a sizeable down payment.  So being frugal and saving money allowed these entrepreneurs to borrow large sums of money from banks.  Money that was in the bank available to loan thanks to other people being frugal.  And saving their money.

To invest requires money.  But few have that kind of money available.  So they use what they have as a down payment and borrow the balance of what they need.  The balance of what they need comes from other people’s savings.  Via a bank loan.  This is very important.  The money people borrow to invest is the same money that others have saved.  Which means that investments are savings.  And that people can only invest as much as people save.  So for businesses to expand and for the economy to grow we need people to save their money.  To be frugal.  The more they save instead of spending the greater amount of investment capital is available.  And the greater the economy can grow.

The Paradox of Thrift states that Being Frugal and Saving Money Destroys the Economy

Once upon a time this was widely accepted economics.  And countries grew wealthy that had high savings rates.  Then along came a man named John Maynard Keynes.  Who gave the world a whole new kind of economic thought.   That said spending was everything.  Consumption was key.  Not savings.  Renouncing centuries of capitalism.  And the wise advice of Benjamin Franklin.  In a consumption-centered economy people saving their money is bad.  Because money people saved isn’t out there generating economic activity by buying stuff.  Keynes said savings were nothing more than a leak of economic activity.  Wasted money that leaks out of the economy and does nothing beneficial.  Even when people and/or businesses are being frugal and saving money to avoid bankruptcy.

In the Keynesian world when people save they don’t spend.  And when they don’t spend then businesses can’t sell.  If businesses aren’t selling as much as they once were they will cut back.  Lay people off.  As more businesses suffer these reductions in their sales revenue overall GDP falls.  Giving us recessions.  This is the paradox of thrift.  Which states that by doing the seemingly right thing (being frugal and saving money) you are actually destroying the economy.  Of course this is nonsense.  For it ignores the other half of saving.  Investing.  As a business does to increase productivity.  To make more for less.  So they can sell more for less.  Allowing people to buy more for less.  And it assumes that a higher savings rate can only come with a corresponding reduction in consumption.  Which is not always the case.  A person can get a raise.  And if they are satisfied by their current level of consumption they may save their additional income rather than increasing their consumption further.

Many people get a raise every year.  Which allows them to more easily pay their bills.  Pay down their credit cards.  Even to save for a large purchase later.  Which is good responsible behavior.  The kind that Benjamin Franklin would approve of.  But not Keynesian economists.  Or governments.  Who embrace Keynesian economics with a passion.  Because it gives them a leading role.  When people aren’t spending enough money guess who should step in and pick up that spending slack?  Government.  So is it any wonder why governments embrace this new kind of economic thought?  It justifies excessive government spending.  Which is just the kind of thing people go into government for.  Sadly, though, their government spending rarely (if ever) pulls a nation out of a recession.  For government spending doesn’t replicate what has historically created strong economic growth.  A high savings rate.  That encourages investment higher up in the stages of production.  Where that investment creates jobs.  Not at the end of the stages of production.  Where government spending creates only inflation.  Deficits.  And higher debt.  All things that are a drag on economic activity.

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FT157: “Now that the anti-establishment types are running government we are no longer to question authority but embrace it.” —Old Pithy

Posted by PITHOCRATES - February 15th, 2013

Fundamental Truth

The History of Oliver Cromwell’s New Model Army and the English Civil War were not that Distant

Benjamin Franklin said the first responsibility of every citizen is to question authority.  That was kind of America’s thing.  Giving the finger to the governing authority.  Figuratively.  And sometimes literally.  Starting with King George III.  One of our earliest flags said, “Don’t tread on me.”  This flag had a coiled rattle snake on it.  Franklin thought the rattle snake was a good symbol of the American people.  If the British left us alone this snake would cause no harm.  If you get too close this snake will warn you to back off by shaking its rattle.  If you don’t heed this warning and threaten this snake it will strike you with lethal force.

This problem with authority almost lost the Revolutionary War for us.  At first American soldiers didn’t like following orders.  For if they could rebel against their king they could just as easily rebel against a commanding officer.  George Washington stopped that.  But this mistrust of authority was systemic.  The state governments did not trust the Continental Congress.  That distant central power.  Anymore than they trusted that other distant central power.  The British monarchy.

So the Continental Congress was woefully underfunded throughout the Revolutionary War.  Finding it very difficult to supply the Continental Army.  Or pay her soldiers.  Something else the states didn’t trust.  A standing army.  For the history of Oliver Cromwell’s New Model Army and the English Civil War were not that distant.  Or the peace that followed.  Where that army helped keep the new government in power.  And unleashed great woe and suffering to the Catholics in Ireland and Scotland.

Kings don’t suffer Personal Attacks in the Newspapers like an Elected President Does

So the Americans stood up to that distant power.  And to her ministers in the American colonies.  Not afraid to speak truth to power.  To speak out about the abuses of King George in the colonies.  Which Thomas Jefferson summarized in the Declaration of Independence.  They spoke contemptuously of the ruling British authorities.  When they won their independence they transferred this contempt to the new federal government.  The states trusted the new central authority in the United States little more than they trusted the one on the far side of the Atlantic.  And many fought as passionately against it as they fought against King George.

Even those in the new central government didn’t trust each other.  Political parties formed.  Alexander Hamilton led the Federalists.  Who wanted a strong central government.  And Thomas Jefferson led the Republicans.  Who wanted a weak central government.  Keeping the power in the states.  Hamilton and Jefferson hated each other.  Despised each other.  Believed that the other was everything that was wrong in the new nation.  And they attacked each other viciously in the newspapers through their surrogates.  Which were extensions of these political parties.  So if you wanted fair and balanced news all you had to do was read at least two newspapers.  Weigh the vitriol and lies in each to arrive at the truth.  Which was somewhere in between.

And these papers were pretty nasty.  Even attacking the most beloved man in the country.  George Washington.  Calling him old and senile.  Secretly British.  A mere puppet controlled by that evil puppet master Alexander Hamilton.  George Washington could have been king with the blessings of the American people.  Instead he chose to keep the United States a republic.  And suffered horribly for it.  For kings don’t suffer the personal attacks in the newspapers like an elected president does.  This was representative government.  Where the people are sovereign.  And the president is a servant of the people.  Not the other way around.  Like in a monarchy.

You can call LBJ and George W. Bush Murderers but you can’t ask President Obama Questions he doesn’t want to Answer

People marveled at how George Washington stepped down from power after his second term as president.  Even King George said that if he did that he would be the greatest man in the world.  And he did.  Proving the American system.  But while others marveled about how he could give up power after so short a time in office Washington more likely marveled about how long he was able to stay in office.  For he hated the politics.  And the newspaper attacks.  He was anxious to step down.  He was giddy during the transfer of power.  Happy to be going home.  While poor John Adams had to deal with all the politics.  The newspaper attacks.  And the lies.

Contrast this to President Obama.  Who gets treated by the media with kid gloves.  Who don’t question him at all.  Or his administration.  It being more like a monarchy than a republic.  After 4 Americans died in Benghazi the president offered no explanation.  And the media did not pressure him for one.  When Congress finally got to question the Secretary of State, Hillary Clinton, they asked her who was responsible for the failure to provide for the security for our diplomats in Benghazi?  Who was responsible for not coming to their aid while they were under attack?  And who was responsible for the lie about it being a spontaneous uprising in response to a YouTube video?  She only yelled “what difference does it make?”  And that was that.  The media reported that the Republicans were mean to her.  And never pressed her for answers.  Or President Obama.

Even the people aren’t demanding answers.  Which is sad.  For once upon a time the people chanted, “Hey, hey, LBJ, how many kids did you kill today?”  Making the political pressure of the Vietnam War so unbearable that he refused to run for a second term.  But where is this outrage over President Obama’s use of drones to kill terrorists as well as the innocent civilians and children around them?  Or the targeting of American citizens without any due process?  We hear nothing from the people.  Or the media.  The same people and media who wanted to try the 9/11 mastermind, Khalid Sheikh Mohammed, in a U.S. court not far from Ground Zero during the Bush Administration.

Why the double standard?  Why was it okay to question authority in the Sixties and Seventies?  No matter who was in power.  But after that it was only permissible to question authority when Republicans were in power?  Why is it you can call LBJ and George W. Bush murderers but you can’t ask President Obama questions he doesn’t want to answer?  When Dr. Benjamin Carson spoke truth to power at the National Prayer Breakfast criticizing Obamacare and the president’s economic policies the Left attacked him for not showing deference to the president.  How dare he exercise free speech in a public setting they asked?  A far cry from “Hey, hey, LBJ, how many kids did you kill today?”  No.  This president we’re supposed to show deference to.  As if he was a king.  Why?  Apparently now that the anti-establishment types are running government we are no longer to question authority but embrace it.  So they can do whatever they want to do.  And change the country however they want to change it.  While that whole questioning authority thing was okay when they were on the outside looking in.  But now that they are on the inside looking out we need to question less and obey more.

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2012 Endorsements: Benjamin Franklin

Posted by PITHOCRATES - October 15th, 2012

2012 Election

Franklin understood Wealth was not Money but the Talent and Ability of the Entrepreneurs and Artisans

Benjamin Franklin was born into the middle class.  A proud member of what he called the middling people.  Entrepreneurs.  And the very definition of what it meant to be American.  Hard-working people.  Who built success based on diligence, frugality and honesty.  People who strived to live a virtuous life.  Even if they sometimes faltered.  Franklin believed doing good works led to salvation.  He believed in God and was tolerant of all religions.  Especially if they were charitable and helped others, making the world a better place.  So when he could he gave back to his community.  And to his country.  He would die a famous rich man.  But he always thought of himself as that middle class printer.  Who worked hard.  And tried to be virtuous.  Sometimes he failed.  But he did a lot of good along the way.

When he arrived in Philadelphia he had only one Dutch dollar.  He secured employment with a printer where he worked with industry and frugality.  From his first days as an apprentice.  To when he was a small business owner.  Later, on a return trip from London, he came up with four resolutions to live a better life.  1.) It is necessary for me to be extremely frugal for some time, till I have paid what I owe.  2.) To endeavor to speak the truth in every instance; to give nobody expectations that are not likely to be answered, but aim at sincerity in every word and action—the most amiable excellence in a rational being.  3.) To apply myself industriously to whatever business I take in hand, and not divert my mind from my business by any foolish project of suddenly growing rich; for industry and patience are the surest means of plenty.  4.) I resolve to speak ill of no man whatever.

When Franklin opened his own business with a partner he put in long hours.  He worked late into the evening (even working overnight when the work required it).  And started work before most others started their workday.  Being a businessman he understood money.  And the cost of borrowing.  He favored the expansion of the money supply to lower interest rates to lower the cost of borrowing for business.  However, he also understood wealth was not money.  But the talent and ability of the entrepreneurs and artisans.  Those middling people who worked with industry and frugality who offered goods and services for sale.  Purchased largely by other middling people.  The basic barter system improved by money.

Franklin believed in Limited Government and worried about too much Social Engineering

When Franklin became a newspaper publisher (i.e., writer/printer/marketer of a newspaper) he refused to become partisan.  In part because he didn’t want to limit his income.  But also for another reason.  He believed in free expression.  And said, “Printers are educated in the belief that when men differ in opinion, both sides ought equally to have the advantage of being heard by the public; and that when Truth and Error have fair play, the former is always an overmatch for the latter.”  Words framed and hung in many a newsroom since.  But he wouldn’t print everything.  He refrained from printing things that were scurrilous.  Immoral.  Or might hurt someone personally.

Franklin believed in rugged individualism.  He worked hard to acquire wealth.  And after he did he helped his community.  He helped organize volunteer fire companies.  Suggested a progressive tax on property to pay for a full-time police force.  Improved the post office.  Organized the Pennsylvania Militia during King George’s War against the French and their Indian allies in America.  (The local militia company elected Franklin to command it but he declined, saying he was unqualified and, instead, served as a common soldier.)  He retired from his printing and media empire at 42.  Set for life financially.  Then he became a scientist.  An inventor.  Then statesman.  With always an eye to detail.  And favored being practical over being rigidly dogmatic.

Franklin believed in limited government.  And had a problem with authority.  But he also believed in order.  And a place for government.  He believed in public-private partnerships and created the matching grant (matching a sum raised privately with an equal sum from the government).  He believed in charity.  Offering a helping hand.  And he was a civil activist.  Always tried to improve his community.  However, he worried about too much social engineering.  And unintended consequences.  Even worried that by helping the poor too much government could make them dependent.  And lazy.  For he built his wealth after arriving in Philadelphia with one Dutch dollar in his pocket.  It was hard work that made his success.  Not charity or dependence.

If Benjamin Franklin were here Today he would likely Endorse the Republicans in the 2012 Election

Franklin would go on to be one of the strongest supporters of Independence from Britain.  He helped edit the Declaration of Independence.  Sat in the Constitutional Convention.  And signed both documents.  As well as the Franco-American treaties bringing the French into the American Revolution.  And the Treaty of Paris officially ending the American Revolution.  He was a Founding Father.  Perhaps as indispensable as George Washington.   So if Franklin were here today what would he think about the country he helped create?  And who would he endorse in the 2012 election?

First of all he would be appalled at the size of the federal government.  Which would be unrecognizable to him from the limited government he helped create.  He would find the taxes and regulations on business suffocating to the entrepreneurial spirit.  Dissuading who knows how many from working those long hours.  Like he did.  He spent his time doing what he loved.  Printing, publishing, writing, etc.  Not hiring lawyers and accountants to help him pay his taxes and comply with regulations.  He would like the cheap credit available to business but he would have been shocked by the level of government spending and the level of the federal debt.  For the federal government is anything but frugal.  And the size of the welfare state, the amount of people receiving federal benefits, would have confirmed his fears about too much social engineering.  The blatant bias in the media would have disturbed his nonpartisan senses greatly.  Finally, being someone who rose from the middle class and built his own wealth he would have been greatly offended by the class warfare in politics today.

So who would Franklin endorse in the 2012 election?  Well, the Democrats want to make government bigger.  They want to increase taxes and regulations.  With Obamacare being a big one that will discourage many small businesses from growing.  The current Democrat administration has been the least frugal of all administrations.  Their spending having even caused a credit downgrade.  Their stimulus bill did not benefit the middling people.  Instead, most of that money went to rich Democrat donors.  They want to increase an already immense welfare state.  Which under the current administration has set a record for the number of people on food stamps.  Other than one cable channel (FOX News) and talk radio most media has a liberal bias.  Where truth and error do NOT have fair play.  And it’s the Democrats that push class warfare.  Who want to transfer even more of the tax burden to the wealthy.  Even though the top 10% of earners are already paying about 70% of the taxes.  While the Republicans want to cut taxes and regulations.  Cut spending.  Shrink the size of government.  And provide a business-friendly environment.  So others may start a business and rise up from the middle class.  Who can then give back to their community.  Like Franklin did.  So it is likely that if Franklin were here today he would endorse the party that was closer to his political and business philosophies.  The Republicans.  And the Romney-Ryan ticket.

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The Federal Reserve, Roaring Twenties, Stock Market Crash, Banking Crises, Great Depression and John Maynard Keynes

Posted by PITHOCRATES - September 25th, 2012

History 101

The Federal Reserve increased the Money Supply to Lower Interest Rates during the Roaring Twenties

Benjamin Franklin said, “Industry, perseverance, & frugality, make fortune yield.”  He said that because he believed that.  And he proved the validity of his maxim with a personal example.  His life.  He worked hard.  He never gave up.  And he was what some would say cheap.  He saved his money and spent it sparingly.  Because of these personally held beliefs Franklin was a successful businessman.  So successful that he became wealthy enough to retire and start a second life.  Renowned scientist.  Who gave us things like the Franklin stove and the lightning rod.  Then he entered his third life.  Statesman.  And America’s greatest diplomat.  He was the only Founder who signed the Declaration of Independence, Treaty of Amity and Commerce with France (bringing the French in on the American side during the Revolutionary War), Treaty of Paris (ending the Revolutionary War very favorably to the U.S.) and the U.S. Constitution.  Making the United States not only a possibility but a reality.  Three extraordinary lives lived by one extraordinary man.

Franklin was such a great success because of industry, perseverance and frugality.  A philosophy the Founding Fathers all shared.  A philosophy that had guided the United States for about 150 years until the Great Depression.  When FDR changed America.  By building on the work of Woodrow Wilson.  Men who expanded the role of the federal government.  Prior to this change America was well on its way to becoming the world’s number one economy.   By following Franklin-like policies.  Such as the virtue of thrift.  Favoring long-term savings over short-term consumption.  Free trade.  Balanced budgets.  Laissez-faire capitalism.  And the gold standard.  Which provided sound money.  And an international system of trade.  Until the Federal Reserve came along.

The Federal Reserve (the Fed) is America’s central bank.  In response to some financial crises Congress passed the Federal Reserve Act (1913) to make financial crises a thing of the past.  The Fed would end bank panics, bank runs and bank failures.  By being the lender of last resort.  While also tweaking monetary policy to maintain full employment and stable prices.  By increasing and decreasing the money supply.  Which, in turn, lowers and raises interest rates.  But most of the time the Fed increased the money supply to lower interest rates to encourage people and businesses to borrow money.  To buy things.  And to expand businesses and hire people.  Maintaining that full employment.  Which they did during the Roaring Twenties.  For awhile.

The Roaring Twenties would have gone on if Herbert Hoover had continued the Harding/Mellon/Coolidge Policies

The Great Depression started with the Stock Market Crash of 1929.  And to this date people still argue over the causes of the Great Depression.  Some blame capitalism.  These people are, of course, wrong.  Others blamed the expansionary policies of the Fed.  They are partially correct.  For artificially low interest rates during the Twenties would eventually have to be corrected with a recession.  But the recession did not have to turn into a depression.  The Great Depression and the banking crises are all the fault of the government.  Bad monetary and fiscal policies followed by bad governmental actions threw an economy in recession into depression.

A lot of people talk about stock market speculation in the Twenties running up stock prices.  Normally something that happens with cheap credit as people borrow and invest in speculative ventures.  Like the dot-com companies in the Nineties.  Where people poured money into these companies that never produced a product or a dime of revenue.  And when that investment capital ran out these companies went belly up causing the severe recession in the early 2000s.  That’s speculation on a grand scale.  This is not what happened during the Twenties.  When the world was changing.  And electrifying.  The United States was modernizing.  Electric utilities, electric motors, electric appliances, telephones, airplanes, radio, movies, etc.  So, yes, there were inflationary monetary policies in place.  But their effects were mitigated by this real economic activity.  And something else.

President Warren Harding nominated Andrew Mellon to be his treasury secretary.  Probably the second smartest person to ever hold that post.  The first being our first.  Alexander Hamilton.  Harding and Mellon were laissez-faire capitalists.  They cut tax rates and regulations.  Their administration was a government-hands-off administration.  And the economy responded with some of the greatest economic growth ever.  This is why they called the 1920s the Roaring Twenties.  Yes, there were inflationary monetary policies.  But the economic growth was so great that when you subtracted the inflationary damage from it there was still great economic growth.  The Roaring Twenties could have gone on indefinitely if Herbert Hoover had continued the Harding and Mellon policies (continued by Calvin Coolidge after Harding’s death).  There was even a rural electrification program under FDR’s New Deal.  But Herbert Hoover was a progressive.  Having far more in common with the Democrat Woodrow Wilson than Harding or Coolidge.  Even though Harding, Coolidge and Hoover were all Republicans.

Activist Intervention into Market Forces turned a Recession into the Great Depression

One of the things that happened in the Twenties was a huge jump in farming mechanization.  The tractor allowed fewer people to farm more land.  Producing a boom in agriculture.  Good for the people.  Because it brought the price of food down.  But bad for the farmers.  Especially those heavily in debt from mechanizing their farms.  And it was the farmers that Hoover wanted to help.  With an especially bad policy of introducing parity between farm goods and industrial goods.  And introduced policies to raise the cost of farm goods.  Which didn’t help.  Many farmers were unable to service their loans with the fall in prices.  When farmers began to default en masse banks in farming communities failed.  And the contagion spread to the city banks.  Setting the stage for a nation-wide banking crisis.  And the Great Depression.

One of the leading economists of the time was John Maynard Keynes.  He even came to the White House during the Great Depression to advise FDR.  Keynes rejected the Franklin/Harding/Mellon/Coolidge policies.  And the policies favored by the Austrian school of economics (the only people, by the way, who actually predicted the Great Depression).  Which were similar to the Franklin/Harding/Mellon/Coolidge policies.  The Austrians also said to let prices and wages fall.  To undo all of that inflationary damage.  Which would help cause a return to full employment.  Keynes disagreed.  For he didn’t believe in the virtue of thrift.  He wanted to abandon the gold standard completely and replace it with fiat money.  That they could expand more freely.  And he believed in demand-side solutions.  Meaning to end the Great Depression you needed higher wages not lower wages so workers had more money to spend.  And to have higher wages you needed higher prices.  So the employers could pay their workers these higher wages.  And he also encouraged continued deficit spending.  No matter the long-term costs.

Well, the Keynesians got their way.  And it was they who gave us the Great Depression.  For they influenced government policy.  The stock market crashed in part due to the Smoot Hawley Tariff then in committee.  But investors saw the tariffs coming and knew what that would mean.  An end to the economic boom.  So they sold their stocks before it became law.  Causing the Stock Market Crash of 1929.  Then those tariffs hit (an increase of some 50%).  Then they doubled income tax rates.  And Hoover even demanded that business leaders NOT cut wages.  All of this activist intervention into market forces just sucked the wind out of the economy.  Turning a recession into the Great Depression.

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Post Office, Telegraph, Telephone, Cell Phones, Texting, Technology, Productivity, Savings, Investment, Japan Inc. and Eurozone Crisis

Posted by PITHOCRATES - August 28th, 2012

History 101

Ben Franklin’s Post Office struggles to Stay Relevant in a World where Technology offers a Better Alternative

Once upon a time people stayed in touch with each other by mailing letters to each other.  Benjamin Franklin helped make this possible when he was America’s first Postmaster General of the United States.  And it’s in large part due to his Post Office that the American Revolutionary War became a united stand against Great Britain.  As news of what happened in Massachusetts spread throughout the colonies via Franklin’s Post Office.

In America Samuel Morse created a faster way to communicate.  (While others created this technology independently elsewhere.)  Through ‘dots’ and ‘dashes’ sent over a telegraph wire.  Speeding up communications from days to seconds.  It was fast.  But you needed people who understood Morse code.  Those dots and dashes that represented letters.  At both ends of that telegraph wire.  So the telegraph was a bit too complicated for the family home.  Who still relied on the Post Office to stay in touch

Then along came a guy by the name of Alexander Graham Bell.  Who gave us a telephone in the house.  Which gave people the speed of the telegraph.  But with the simplicity of having a conversation.  Bringing many a teenage girl into the kitchen in the evenings to talk to her friends.  Until she got her own telephone in her bedroom.  Then came cell phones.  Email.  Smartphones.  And Texting.   Communication had become so instantaneous today that no one writes letters anymore.  And Ben Franklin’s Post Office struggles to stay relevant in a world where technology offers a better alternative.

As Keynesian Monetary Policy played a Larger Role in Japan Personal Savings Fell

These technological advances happened because people saved money that allowed entrepreneurs, investors and businesses to borrow it.  They borrowed money and invested it into their businesses.  To bring their ideas to the market place.  And the more they invested the more they advanced technology.  Allowing them to create more incredible things.  And to make them more efficiently.  Thus giving us a variety of new things at low prices.  Thanks to innovation.  Risk-taking entrepreneurs.  And people’s savings.  Which give us an advanced economy.  High productivity.  And growing GDP.

Following World War II Japan rebuilt her industry and became an advanced economy.  As the U.S. auto industry faltered during the Seventies they left the door open for Japan.  Who entered.  In a big way.  They built cars so well that one day they would sell more of them than General Motors.  Which is incredible considering the B-29 bomber.  That laid waste to Japanese industry during World War II.  So how did they recover so fast?  A high savings rate.  During the Seventies the Japanese people saved over 15% of their income with it peaking in the mid-Seventies close to 25%.

This high savings rate provided enormous amounts of investment capital.  Which the Japanese used not only to rebuild their industry but to increase their productivity.  Producing one of the world’s greatest export economies.  The ‘Made in Japan’ label became increasingly common in the United States.  And the world.  Their economic clot grew in the Eighties.  They began buying U.S. properties.  Americans feared they would one day become a wholly owned subsidiary of some Japanese corporation.  Then government intervened.  With their Keynesian economics.  This booming economic juggernaut became Japan Inc.  But as Keynesian monetary policy played a larger role personal savings fell.  During the Eighties they fell below 15%.  And they would continue to fall.  As did her economic activity.  When monetary credit replaced personal savings for investment capital it only created large asset bubbles.  Which popped in the Nineties.  Giving the Japanese their Lost Decade.  A painful deflationary decade as asset prices returned to market prices.

Because the Germans have been so Responsible in their Economic Policies only they can Save the Eurozone

As the world reels from the fallout of the Great Recession the US, UK and Japan share a lot in common.  Depressed economies.  Deficit spending.  High debt.  And a low savings rate.  Two countries in the European Union suffer similar economic problems.  With one notable exception.  They have a higher savings rate.  Those two countries are France and Germany.  Two of the strongest countries in the Eurozone.  And the two that are expected to bail out the Eurozone.

While the French and the Germans are saving their money the Japanese have lost their way when it comes to saving.  Their savings rate plummeted following their Lost Decade.  As Keynesian economics sat in the driver seat.  Replacing personal savings with cheap state credit.  Much like it has in the US and the UK.  Nations with weak economies and low savings rates.  While the French and the Germans are keeping the Euro alive.  Especially the Germans.  Who are much less Keynesian in their economics.  And prefer a more Benjamin Franklin frugality when it comes to cheap state credit.  As well as state spending.  Who are trying to impose some austerity on the spendthrifts in the Eurozone.  Which the spendthrifts resent.  But they need money.  And the most responsible country in the Eurozone has it.  And there is a reason they have it.  Because their economic policies have been proven to be the best policies.

And others agree.  In fact there are some who want the German taxpayer to save the Euro by taking on the debt of the more irresponsible members in the Eurozone.  Because they have been so responsible in their economic policies they’re the only ones who can.  But if the Germans are the strongest economy shouldn’t others adopt their policies?  Instead of Germany enabling further irresponsible government spending by transferring the debt of the spendthrifts to the German taxpayer?  I think the German taxpayer would agree.  As would Benjamin Franklin.  Who said, “Industry, Perseverance, & Frugality, make Fortune yield.”  Which worked in early America.  In Japan before Japan Inc.  And is currently working in Germany.  It’s only when state spending becomes less frugal that states have sovereign debt crises.  Or subprime mortgage crisis.  Or Lost Decades.

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Saving, Investing and the Paradox of Thrift

Posted by PITHOCRATES - August 27th, 2012

Economics 101

Healthy Sales can Support just about any Bad Decision a Business Owner Makes

“Industry, Perseverance, & Frugality, make Fortune yield.”  Benjamin Franklin (1744).  He also said, “A penny saved is a penny earned.”  Franklin was a self-made man.  He started with little.  And through industry, perseverance and frugality he became rich and successful.  He lived the American dream.  Which was having the liberty to work hard and succeed.  And to keep the proceeds of his labors.  Which he saved.  And all those pennies he saved up allowed him to invest in his business.  Which grew and created more wealth.

Frugality.  And saving.  Two keys to success.  Especially in business.  For the business that starts out by renting a large office in a prestigious building with new furniture is typically the business that fails.  Healthy sales can support just about any bad decision a business owner makes.  While falling sales quickly show the folly of not being frugal.  Most businesses fail because of poor sales revenue.  The less frugal you’ve been the greater the bills you have to pay with those falling sales. Which speeds up the failing process.  Insolvency.  And bankruptcy.  Teaching the important lesson that you should never take sales for granted.  The importance of being frugal.  And the value of saving your pennies.

Saving and frugality also hold true in our personal lives.  Especially when we start buying things.  Like big houses.  And expensive cars.  As a new household starting out with husband and wife gainfully employed the money is good.  The money is plentiful.  And the money can be intoxicating.  Because it can buy nice things.  And if we are not frugal and we do not save for a rainy day we are in for a rude awakening when that rainy day comes.  For if that two income household suddenly becomes a one income household it will become very difficult to pay the bills.  Giving them a quick lesson in the wisdom of being frugal.  And of saving your pennies.

The Money People borrow to Invest is the Same Money that Others have Saved

Being frugal lets us save money.  The less we spend the more we can put in the bank.  What we’re doing is this.  We’re sacrificing short-term consumption for long-term consumption.  Instead of blowing our money on going to the movies, eating out and taking a lot of vacations, we’re putting that money into the bank.  To use as a down payment on a house later.  To save for a dream vacation later.  To put in an in-the-ground pool later.  What we’re doing is pushing our consumption out later in time.  So when we do spend these savings later they won’t make it difficult to pay our bills.  Even if the two incomes become only one.

Sound advice.  Then again, Benjamin Franklin was a wise man.  And a lot of people took his advice.  For America grew into a wealthy nation.  Where entrepreneurs saved their money to build their businesses.  Large savings allowed them to borrow large sums of money.  As bank loans often required a sizeable down payment.  So being frugal and saving money allowed these entrepreneurs to borrow large sums of money from banks.  Money that was in the bank available to loan thanks to other people being frugal.  And saving their money.

To invest requires money.  But few have that kind of money available.  So they use what they have as a down payment and borrow the balance of what they need.  The balance of what they need comes from other people’s savings.  Via a bank loan.  This is very important.  The money people borrow to invest is the same money that others have saved.  Which means that investments are savings.  And that people can only invest as much as people save.  So for businesses to expand and for the economy to grow we need people to save their money.  To be frugal.  The more they save instead of spending the greater amount of investment capital is available.  And the greater the economy can grow.

The Paradox of Thrift states that Being Frugal and Saving Money Destroys the Economy

Once upon a time this was widely accepted economics.  And countries grew wealthy that had high savings rates.  Then along came a man named John Maynard Keynes.  Who gave the world a whole new kind of economic thought.   That said spending was everything.  Consumption was key.  Not savings.  Renouncing centuries of capitalism.  And the wise advice of Benjamin Franklin.  In a consumption-centered economy people saving their money is bad.  Because money people saved isn’t out there generating economic activity by buying stuff.  Keynes said savings were nothing more than a leak of economic activity.  Wasted money that leaks out of the economy and does nothing beneficial.  Even when people and/or businesses are being frugal and saving money to avoid bankruptcy.

In the Keynesian world when people save they don’t spend.  And when they don’t spend then businesses can’t sell.  If businesses aren’t selling as much as they once were they will cut back.  Lay people off.  As more businesses suffer these reductions in their sales revenue overall GDP falls.  Giving us recessions.  This is the paradox of thrift.  Which states that by doing the seemingly right thing (being frugal and saving money) you are actually destroying the economy.  Of course this is nonsense.  For it ignores the other half of saving.  Investing.  As a business does to increase productivity.  To make more for less.  So they can sell more for less.  Allowing people to buy more for less.  And it assumes that a higher savings rate can only come with a corresponding reduction in consumption.  Which is not always the case.  A person can get a raise.  And if they are satisfied by their current level of consumption they may save their additional income rather than increasing their consumption further.

Many people get a raise every year.  Which allows them to more easily pay their bills.  Pay down their credit cards.  Even to save for a large purchase later.  Which is good responsible behavior.  The kind that Benjamin Franklin would approve of.  But not Keynesian economists.  Or governments.  Who embrace Keynesian economics with a passion.  Because it gives them a leading role.  When people aren’t spending enough money guess who should step in and pick up that spending slack?  Government.  So is it any wonder why governments embrace this new kind of economic thought?  It justifies excessive government spending.  Which is just the kind of thing people go into government for.  Sadly, though, their government spending rarely (if ever) pulls a nation out of a recession.  For government spending doesn’t replicate what has historically created strong economic growth.  A high savings rate.  That encourages investment higher up in the stages of production.  Where that investment creates jobs.  Not at the end of the stages of production.  Where government spending creates only inflation.  Deficits.  And higher debt.  All things that are a drag on economic activity.

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Yorktown, North, Rockingham, Shelburne, Franco-Spanish Alliance, Vergennes, Adams, Franklin, Jay and the Treaty of Paris

Posted by PITHOCRATES - July 5th, 2012

Politics 101

For the British to Maintain the Balance of Power in Europe an Independent America actually Helped Them

The war wasn’t over with Cornwallis’ surrender at Yorktown.  But his surrender changed everything.  The continuing war was becoming more and more unpopular in Britain.  And costly.  Britain was fighting four wars.   One with the Americans.  One with the French.  One with the Spanish.  And one with the Dutch.  The debt was growing so great that there were discussions about suspending some interest payments.  The British wanted out of these wars.  The opposition blamed Lord North for the latest debacle at Yorktown.  The Prime Minister resigned.  His government fell.  And the opposition took power.

The new Prime Minister, Lord Rockingham, had favored American independence.  His foreign secretary, Charles James Fox, had favored American independence.  In fact, those who had favored American independence filled all cabinet positions.  Except for one.  The Secretary of Colonial Affairs.  Lord Shelburne.  Fox and Shelburne did not much care for each other.  They quarreled.  Each having their own idea of how they should conduct the peace.  Fox sent Thomas Green to France to begin negotiations with the French.  Shelburne sent Richard Oswald to France to begin negotiations with the Americans (Benjamin Franklin was in Paris).

The French had a debt problem of their own.  And they, too, were anxious for the war to end.  But on favorable terms.  They were looking to change the balance of power with their eternal enemy.  The British.  And therefore wanted to negotiate the peace for the Americans.  Get back some of their lost North American territories.  And elsewhere.  Meanwhile the Spanish were laying siege to the British in Gibraltar.  Anxious to retrieve that from the British.  They were greatly interested in blocking American westward expansion.  And they also wanted to keep them off the Mississippi River.  Which flowed to the Gulf of Mexico through their Louisiana Territory.  So the politics were quite complex in negotiating the peace.  For the British to maintain the balance of power they enjoyed an independent America actually helped them.  While an independent America actually harmed the French and the Spanish.

Shelburne negotiated Directly with the Americans to use them to gain Favorable Terms with their European Enemies

The original peace commission in Paris was just John Adams.  Few could be found that were more adamant on American independence than he.  And this was a problem for the French foreign minister.  Charles Gravier, comte de Vergennes.  He didn’t like Adams.  Who was not willing to compromise.  Vergennes wanted to end the war.  And stop the financial hemorrhaging.   And he was willing to compromise with the British to make that happen.  Willing to compromise away American independence.  American navigation of the Mississippi River.  American territorial ambitions beyond the Appalachians (leaving Maine, New York City, portions of the Northwest territories, Charleston and Savannah British).  And the American fishing rights off Newfoundland.  He was willing to give all that up to end the war with Britain.  He had only one problem.  John Adams.  Who refused to give up what the Americans were actually fighting for in the first place.

Vergennes instructed the French minister in America, the Chevalier de la Luzerne, to lobby the Continental Congress.  To have them order Adams to be less belligerent.  To be more willing to compromise.  And to accept the wise counsel of the King of France.  The most generous sovereign who made it possible for the Americans to bring the British to the negotiating table.  Luzerne was successful.  Perhaps with a little bribery.  The Congress sent Benjamin Franklin, John Jay and Henry Laurens to join Adams.  With the instructions to follow the advice of the French in the peace negotiations. 

Fox still favored granting American independence.  And he wanted to do it quickly.  To split the allies apart.  And make separate peace treaties to limit the damage.  For the French, Spanish and Dutch could hold out for a grander bargain.  Especially if the fortunes of war turned their way.  As the Spanish were hoping would soon happen at Gibraltar.  So the British warned that their allies could force the Americans to continue the war not for their own interests but that of these Europeans.  He told Green to tell Franklin that Britain was prepared to recognize American independence.  And that it was in America’s best interests to negotiate a separate peace.  Franklin suggested early that Britain may want to throw Canada into the deal.  To help pay for all the damage the British did to American property.  Shelburne wasn’t about to negotiate away Canada.  His answer was to bring up the debt owed to British creditors.  And reimbursing the Loyalists who lost their property in America.  Things that weren’t high on the American list of demands.  Then Rockingham died.  Shelburne became prime minister.  And Fox quit.  Pro-American independence ministers no longer filled the government.  Still, Shelburne continued to negotiate directly with the Americans.  So he could use them to gain favorable terms with their European enemies.

The American Negotiators were being Played by the Best of European Intrigue

In Franklin’s talks with Oswald he made it clear that independence was a prerequisite for peace.  Officially that was a problem for Oswald.  For his original commission from Shelburne directed him to negotiate with a commissioner from the colonies or plantations.  Not a commissioner from the United States of America.  Which, of course, would recognize American independence.  Vergennes urged Franklin and Jay to proceed anyway.  That official recognition could follow in the final peace treaty.  Jay suspected that the French were stalling.  He knew of the siege of Gibraltar.  And didn’t trust the Franco-Spanish alliance.  So he ignored Congress’ order.  And did not listen to the wise French counsel.  Joining Franklin and Adams in stating that independence was a prerequisite for peace.

The American commission had good reason to not trust their European allies.  The French wanted the British to agree to keep the Americans out of the fisheries along Newfoundland.  So they could fish these waters.  A bitter pill for a New Englander like Adams to swallow.  The French were also opposed to the Americans annexing Canada.  What they once called New France.  Before it became British.  While the Spanish were working hard behind the scenes to keep the Mississippi River away from the Americans.  Had they gotten their way the Mississippi south of the Ohio River would have been in Spanish hands.  As well as the states of Kentucky, Tennessee, Mississippi, Alabama and parts of Louisiana. 

The American negotiators were being played by the best of European intrigue.  But thanks to the principled men America sent to negotiate the peace the Americans bested the Europeans at their own game.  John Adams.  Benjamin Franklin.  And John Jay.  For the Americas got their independence.  Territory that stretched to the Mississippi River.  And navigation on the Mississippi to the Gulf of Mexico.  Even their fishing rights off of Newfoundland (though they would revisit that issue later).  It would be America’s greatest achievement in diplomacy.  The Treaty of Paris (1783).  And they made this treaty without consulting the French.  Who were miffed.  But thanks to Franklin America and France remained friends.  So the Americans won the Revolutionary War.  And the peace.  While avoiding any entangling alliances with the old European powers.  Not bad for a brand new nation on the world’s stage.

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Benjamin Franklin, John Adams, Silas Deane, Arthur Lee, John Jay, Mississippi River and Dutch Treaty of Commerce and Friendship

Posted by PITHOCRATES - May 17th, 2012

Politics 101

Franklin spent a Great Deal of Time in France during the Revolution enjoying Social Gatherings and Social Drinking

People are disgusted by politics today.  Negative campaigns.  Personal attacks.  Special interests.  People using their public office for personal gain.  Scandals.  Intrigue.  It’s enough to turn anyone off of politics.  Forever.  For it seems like no matter what the politicians say nothing ever changes.  And you know what?  They haven’t changed.  For even before there was a United States of America this stuff was going on.  Even threatening the success of the American Revolutionary War.

George Washington is criticized for many things.  For owning slaves (which he released and trained to enter the workforce as free men in his will).  That he wasn’t a great general.  For he did lose more battles than he won.  But even his critics have to give him this at least.  He was a man of honor.  With impeccable integrity.  His men respected him.  His officers respected him.  His enemies respected him.  One of Britain’s last attempts of treachery was to try and bribe Washington to defect to the British side.  Where he could live out his life very comfortably.  Knowing the Americans would give up without him.  But he did not waiver.  Resolute to the end.  The indispensable one.  The Father of our Country. 

Sadly, though, there weren’t many indispensable ones.  And few that matched Washington’s stature.  Perhaps the one coming closest was Benjamin Franklin.  Our most respected diplomat.  Who played a large part in gaining French support for the American cause.  Franklin spent a great deal of time in France during the Revolution.  The French loved him.  And he loved his time there.  Perhaps a little too much.  Staying up late.  Getting up late.  Enjoying social gatherings.  And social drinking.  Something that John Adams couldn’t stand.  Who was very religious.  And all-business.  About as different from Franklin as you could get.  But the French liked Franklin.  And did not like Adams.  Because he was all-business.  And a bit insufferable.

It didn’t take a Genius to know that the Americans Planned on Moving West to the Mississippi River and Beyond

France was America’s most important ally during the war.  And technically speaking their only ally.  There were many foreigners who sought a commission in the American army.  But that was more for glory and fame than support of the cause.  France, though, entered into treaty with the independent United States.  And supplied a large part of the war effort in both money and arms.  Granted this was more to get back at their archenemy, the British, than it was to help the Americans.  But the love and respect for Franklin was real.

Franklin was a self-made man living his third life.  He was a small business owner and writer.  He was a scientist.  And now he was a diplomat.  He had little to prove.  And needed no money.  All he wanted was to enjoy what life he had left.  And champion the American cause.  Not so with his co-emissary Arthur Lee.  Whose interests centered more on Arthur Lee than the American cause.  He didn’t like Franklin because the French liked and respected him more.  And he didn’t like America’s other emissary, Silas Deane, who was in France before Franklin and Lee joined him.  And who the French liked and respected, too.  Which really annoyed him because the French didn’t like him at all.  In fact they thought Lee liked England just a little too much.  For he had a brother in England.  Which didn’t go over well with the French.  Despite his having two brothers in the Continental Congress you just didn’t know where his allegiance lay.  Lee aggressively tried to disgrace both Deane and Franklin to make his star shine brighter.  Franklin’s character was impeccable, though.  No one believed anything he said about Franklin.  But, alas, they did about poor Deane.  At least enough to recall him to Congress.  The French, though, respected Deane enough to give him safe passage back on a French warship with the new French minister to America.  This whole episode did little to impress upon the French the professional stature of American diplomacy.   Nor did it impress the other European courts.  America just wasn’t being taken seriously in Europe.

Except, perhaps, in Spain.  John Jay went to Madrid to get Spanish recognition.  And Spanish aid.  Getting little of either.  Spain entered the conflict.  As an ally to France, though.  Because they, too, hated the British.  And they used this opportunity to get Gibraltar back from the British.  (They didn’t.)  Other than that they had little interest in helping the Americans.  For they didn’t trust the Americans.  France may have lost all of their North American possessions to the British but they hadn’t.  They still had the Louisiana Territory.  Western Florida.  The land from the Texas Gulf coast to California.  As well as the port of New Orleans.  And control of the lower Mississippi River.  Which the Americans wanted navigation rights on.  And god knows what else.  For it was no secret that the Americans wanted to expand west.  That’s why they wanted the Ohio country.  And the Ohio River flowed into the Mississippi River.  It didn’t take a genius to know what that meant.  The Americans planned on moving west to the Mississippi River.  And beyond.  Using the Mississippi to ship all of their goods from the interior of the country to the Port of New Orleans.  And on to the world.  All they needed to do was to remove one last obstacle.  The Spanish.  And the Spanish grew weary of John Jay.  Who only wanted two things.  To get Spain to recognize their independence.  And for Spain to give them money.  Suffice it to say the Spanish did not enter into an alliance with the United States.  And gave little money.

Catherine the Great’s League of Armed Neutrality isolated Britain and helped Adams in the Netherlands

Meanwhile John Adams, having annoyed the French, headed to the Netherlands.  And was more successful.  Not so much because they supported the American cause but because of their commerce.  The Dutch and the British had been bitter rivals.  The Dutch East (and West) India Company.  The English East India Company.  They both wanted what the other had.  Commerce.  They would actually go to war over this trade.  Some 4 times.  And now the British were interfering with their trade once again.  Interfering with their lucrative black market trade from the Dutch West Indies to the United States.  Through the British blockade.  Which may have broken a treaty they had with the British.  So Adams found commercial incentive for Dutch support.  But what he didn’t find was Dutch respect for the American cause.  And a general ignorance of the American cause.  There was just little information about the United States in the Netherlands.

They did see a rising commercial power in the U.S.  That would have a lot of food and materials to ship.  And being good businessmen they wanted a piece of that action.  And they certainly didn’t want to see the French and Spanish monopolize that trade.  Which could happen based on the treaty between France and America.  And the treaty between France and Spain.  Of course if they backed the wrong horse that could hurt them in post-war relations with Britain.  Should Britain win.  But neither was it in their best interests for Britain to win.  For that would only make their greatest rival stronger.  But what if the Americans won with the help of the Franco-Spanish alliance?  Would the Americans keep their independence?  Or would they get absorbed into France and/or Spain?  That wouldn’t be good.  For it wasn’t that long ago that they won their independence from Spain.  So making Spain stronger and/or richer wasn’t high in their to-do list. 

Catherine the Great of Russia finally helped push the issue.  Indirectly.  To keep the seas free and to protect neutral nations she organized a League of Armed Neutrality of which the Netherlands was signatory.  Neutral nations wanted no part of Britain’s war with America.  And they didn’t want it to interfere with their trade on the high seas.  Even if that trade favored the Americans somehow more than the British.  So if the British fired upon a neutral engaging in trade the British did not approve of these neutrals would fire back.  Thus isolating Britain.  And shortly thereafter Adams negotiated a couple of loans.  Got recognition as the minister representing the United States of America.  And as one of his first duties in that capacity he signed a treaty of commerce and friendship.  He may not have had the stature of a Washington or a Franklin but he had the same dedication to the cause.  And refused to quit.  He was successful.  But few other American diplomatic missions were.  And they probably caused more harm than good.  The antics of a few bringing ridicule to the new nation.  Franklin in fact did not approve of this ‘cold calling’ on countries for recognition and aid.  Perhaps explaining his laid back ways in France that so irritated Adams.  “A virgin state,” Franklin said, “should preserve its virgin character, and not go about suitoring for alliances, but wait with decent virgin dignity for the application of others.”  It seemed to do wonders for him.  And the nation.

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Treason, Benjamin Franklin, William Franklin, Reconciliation, Hutchinson Letters, Boston Tea Party, The Cockpit, Patriot and Loyalist

Posted by PITHOCRATES - May 10th, 2012

Politics 101

The Hutchinson Letters and the Tea Act put the Americans firmly on the Path to Independence

There’s a fine line between treason and loyalty.  Some people cross that line.  Some people don’t.  Some people wait to see which side of the line their best interests lay.  Some like to straddle the line.  Either unable to commit.  Unwilling to commit.  Or unwilling to give up profiting from both sides of that line.  Such it was during the American Revolutionary War.  A very unique conflict.  That pitted colony against mother country.  New World against Old World.  American against Brit.  Brit against Brit.  And American against American.

The American Revolutionary War was a smorgasbord of antagonism.  What started out as a dispute over taxation escalated into world war.  And into civil war.  To settle old scores.  And to settle new ones.  Upon the signing of the Declaration of Independence the American colonies were in open rebellion against their sovereign.  The ultimate act of treason.  Yet they committed this act of treason to live a more British life.  For Britain’s constitutional monarchy gave unprecedented rights to British subjects.  And the highest standard of living then known to a middle class.  Most knew what the rest of the world was like.  And they wouldn’t trade their British way of life for any other.  So rebellion undoubtedly made a great many nervous.  For many were happy and comfortable living under the British sovereign.  Benjamin Franklin, for one.

Franklin was a Loyalist.  At first.  He knew how to work the system.  And did.  Even achieving the post of American postmaster.  And he made it profitable.  Very profitable.  Even his son, William Franklin, was governor general in New Jersey.  So he was very connected to the British Empire.  And saw it as the best system of government ever developed.  Which is why he sought reconciliation.  He was in England when tensions were increasing between the colonies and the mother country.  He then came into the possession of some private correspondence that he passed along to his contacts in Massachusetts.  The Hutchinson letters.  As in governor general of Massachusetts Thomas Hutchinson.  Which basically said that the way to subdue the unrest over recent Parliament actions (i.e., taxation without representation) was to deprive the colonists of some of their English liberties.  Franklin asked that they not publish these letters.  His intent was to calm the more radical in America.  Proving that these misguided policies were the result of some bad advice from a few people.  There was no general animosity towards the American colonies in Great Britain.  And that reconciliation was possible.  Which is what Franklin wanted.  But they published the Hutchinson letters.  And the Americans were not pleased.  Then one thing led to another.  After Parliament passed the Tea Act Franklin was anxious of the American response.  Hoping for calm.  But the response was anything but calm.  And did nothing to aid reconciliation. 

The Humiliation in the Cockpit helped Push Franklin from Reconciliation to Independence

When the first tea arrived following the Tea Act the Patriots threw it in Boston Harbor.  Forever known thereafter as the Boston Tea Party (1763).  This destruction of private property shocked Franklin.  For this was not an act against Parliament.  But an act against a private company.  The East India Company.  This did not go over well in England.  Which was pretty agitated over the publication of those private Hutchinson letters.  People accused each other of being the source of the leak.  It got so bad that two men dueled in Hyde Park.  Each blaming the other for the dishonorable act of leaking those private letters.  Not being a very good duel both men survived.  When they were going to have at it again Franklin publically stated that he was the leak.  Explaining his intentions. 

Though Franklin sought reconciliation he had his enemies in England.  Who thought he was more of rabble rouser on the other side of the pond.  And pounced on this opportunity to disgrace him.   They summoned him to appear before the Privy Council.  On the pretense to hear testimony on the petition from the Massachusetts Assembly to remove Hutchinson as governor general.  But when Franklin arrived in the ‘Cockpit’ he found that he was on trial.  For leaking the Hutchinson letters.  News of the Boston Tea Party had by then reached England.  And the newspapers attacked Franklin without mercy.  All of England was turning against the man who wanted reconciliation more than any American.  It even looked like Franklin could end up in an English jail. 

It was an all out assault on Franklin in the Cockpit.  Where his enemies packed the room.  While few of his friends sat in.  Such as Edmund Burke.  Lord Le Despencer.  And Joseph Priestly.  One after another his enemies took their turn lambasting Franklin.  Blaming him for the agitation in the American colonies against British rule.  They attacked him personally.  And besmirched his honor.  Humiliated him.  During it all Franklin stood silent.  Refusing to partake in this farce.  When Wedderburn called Franklin as a witness his counsel stated that his client declined to subject himself to examination.  In the end they rejected the Massachusetts petition.  And his friend Lord Le Despencer had no choice but to relieve Franklin from his post as American postmaster.  He wrote his son William and urged him to quit his post as governor general of New Jersey in order to pursue more honorable work.  He would not, though.  And thus began the breach between father and son.

Franklin and William were no longer Father and Son but Patriot and Loyalist

William would stay loyal to the crown.  While Franklin was moving closer to the side of the Patriots.  In response to the Boston Tea Party Britain planned a blockade of Boston Harbor.  In response the colonies united behind Boston and formed the First Continental Congress.  Which William said was a mistake.  And that Boston should make good on the tea they destroyed.  Which would be the best way to calm the situation.  And reopen Boston Harbor.  Exactly what Franklin had earlier suggested.  But after the Cockpit and the loss of his post as postmaster Franklin was losing his love for the British Empire.  But he still tried while he remained in England with no official duties.  He even played chess with Caroline Howe.  Sister of Admiral Richard Howe and General William Howe.  Who would later command the British naval and military forces in the opening of the Revolutionary War.  But at the time they were both sympathetic to the American cause.  Despite of his shameful treatment in the Cockpit she and other friends urged him to put pen to paper.  And try to mediate a peaceful solution to the breach between the American colonies and Great Britain.  He tried. 

But all efforts came to naught.  He worked on a bill with Lord Chatham.  Which Lord Sandwich attacked with a fury when introduced into the House of Lords.  And they publicly attacked Franklin again.  They rejected the bill.  And Franklin booked passage home.  He met with Edmund Burke before leaving.  Discussed with him one last plea for reconciliation.  He spent his last day in London with his friend Joseph Priestly.  And discussed the future.  The coming war.  Reading the papers.  Priestly later wrote that the thought of that dismal future brought Franklin to tears.  After Franklin was on a ship sailing west Burke rose in Parliament and gave his famous speech On Conciliation with America. Where he said, “A great empire and little minds go ill together.”

The move to independence accelerated after arriving home.  Thomas Paine, who Franklin helped to bring to America, wrote Common Sense.  Which Franklin read before it was published.  Even offered a few revisions.  As he would offer later to Thomas Jefferson’s Declaration of Independence.  Then the Continental Congress scheduled a vote for independence.  General Washington was preparing to fight General William Howe on Long Island.  Supported by his brother Admiral Lord Richard Howe.  Who made one last attempt at conciliation with Franklin.  But things had already progressed too far.  Franklin had crossed that fine line.  The time for peace had passed.  On June 15, 1776, the new American provincial government in New Jersey ordered the arrest of William Franklin.  On the day of his trial Benjamin Franklin wrote General Washington.  He did not mention William.  Nor did he say anything when the Continental Congress voted to imprison him in Connecticut.  The breach between father and son was complete.  No longer father and son.  But Patriot and Loyalist.  As families throughout the colonies similarly tore asunder.  Setting the stage for the civil war within the world war that was the American Revolution.

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