American Education is so Poor only 7% in Survey can Name the First Four Presidents in Order

Posted by PITHOCRATES - April 13th, 2014

Week in Review

All you hear from Democrats is that we need to spend more on education.  They call it investing in our future.  Which is a lie.  For ‘investing in our future’ is code for shoring up teachers’ pensions.  And keeping higher education doing what those in control of higher education want it to do.  Produce Democrat voters.  Which actually starts in our public schools.  Where they teach our kids to come home and tell their parents that they are ashamed of them.  For all the global warming they’ve caused.  And bringing them into the world in the evil, rotten United States.

These are the things our kids seem to know about.  Global warming.  Slavery.  Stealing land from the Native Americans.  American imperialism.  But ask them to name the first four presidents of the United States?  Four of the greatest Americans ever to live?  Those in control of our public education don’t think knowing anything about them is important.  Apparently (see Rolling Stone, Groupon Show The Viral Benefits of Historical Inaccuracy by Nathan Raab posted 4/11/2014 on Forbes).

In 2007, a US Mint poll showed that only 7 percent of those surveyed could name the first four Presidents in order. A later poll by Marist was not more encouraging.

George Washington (#1) kept the Continental Army together for 8 years under circumstances few could imagine today.  Near the end of the Revolutionary War his character alone put down a mutiny in the officer corps.  He turned down the offer to make him king.  An unprecedented act at the time.  King George of Britain had said if he turned down absolute power “he will be the greatest man in the world.”  And Washington did.  Twice.  His presence was the only thing that got the states to ratify the Constitution.  And his two terms in office was the only thing that gave the United States of America a chance of succeeding.  This is why there is only one man we call the Father of his Country.  And only one man we call the Indispensible Man.  George Washington.

John Adams (#2) was a driving force for American independence.  So much so that King George could not forgive him.  Had they reconciled with the mother country the king would have pardoned many patriots.  But not Adams.  He would hang.  Adams nominated George Washington to command the Continental Army.  He chose Thomas Jefferson to write the Declaration of Independence.  He worked with Benjamin Franklin to negotiate the peace treaty that ended the Revolutionary War.  And negotiated America’s first loan from Amsterdam bankers.  The first nation to recognize and do business with the new nation (other than France).  And he averted war with France following the French Revolution.  Giving the fledgling nation a chance to survive.

Thomas Jefferson (#3) was the author of Declaration of Independence.  The author of the Statute of Virginia for Religious Freedom.  And the Father of the University of Virginia.  The three things Jefferson was most proud of and appear on his tombstone.  As president his administration bought the Louisiana Territory from the French.  More than doubling the size of the United States.  And sent out Lewis and Clark to explore these vast new territories.  And he slashed government spending wherever he could.  A true believer in limited government.

James Madison (#4) is the Father of the Constitution.  He wrote the Federalist Papers with Alexander Hamilton and John Jay to encourage ratification of the Constitution.  The Federalist Papers are still referenced today in Constitutional law.  He also helped the effort to ratify the Constitution in Virginia where he battled the great patriot Patrick Henry.  Who feared a large central government.  Madison served in the first Congress.  Where he championed the Bill of Rights.  And, later, supervised the Louisiana Purchase as President Jefferson’s Secretary of State.

It is indeed a sad commentary on our educational system that only 7% of those questioned could identify these great Americans.  And it’s not a lack of money causing this.  It’s a lacking in the curriculum.  Choosing global warming, slavery, stealing land from the Native Americans, American imperialism, etc.  Instead of teaching our kids why the United States is the greatest country in the world.  Because of men like these.  Who put the individual before the state.  Who made freedom and liberty things we take for granted.  Instead of things people can only dream of.  Which is the case in much of the world today.  And has been the norm throughout history.

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FT172: “Damn the truth, promises and the Constitution,” said the politician. “I’m trying to get reelected.” —Old Pithy

Posted by PITHOCRATES - May 31st, 2013

Fundamental Truth

The People ratified the Constitution only because George Washington would be the First President

George Washington did not want to be president.  After winning the American Revolutionary War his place in history was set.  If the first government following the Constitutional Convention failed he didn’t want history to remember him for that.  Also, Washington was an old man.  Most Washington men were already dead at his age.  Something he was very conscious of.  And he wanted to live out his remaining days, however few he had, at Mount Vernon.  With Martha.  But America’s Cincinnatus would, reluctantly, answer the call of duty again.

The new Constitution was not very popular.  The old patriots of 1776 hated it.  With a passion.  While Washington, Alexander Hamilton and others who served in the Continental Army were generally for it.  Because they saw how the weak Continental Congress had almost lost the war.  Starving the Continental Army of the supplies they needed.  Unable even to provide it with shoes and clothing during the long cold winters at Valley Forge and Morristown.  And then there was the inflation.  Worthless Continental paper dollars that forced the Army to take what they needed to survive.  Giving the people they took from IOUs for the Continental Congress to honor later.

With the British defeated the Americans lost the common enemy that held the states together.  And they were soon back to looking after their own interests.  Charging tariffs to other states.  Even sending militias to fight over disputed land.  The nation was falling apart before it even became a nation.  The Philadelphia Convention addressed these problems.  And over a long, hot, humid and horsefly invested convention they wrote a new Constitution.  Few loved it.  But understood that it was probably the best they would ever get.  Ratifying it was another brutal battle.  And all throughout this process people reluctantly got on board.  Basically because of one thing.  The first president would be someone that all the people could trust with such great powers.  The man who gave up power when he could have been king.  George Washington.  So Cincinnatus laid down his plow once more.  And went to serve his nation.  Again.

The most Important Precedent Washington set was not Exceeding the Limits of the Constitution

This is how it used to be.  When our politicians were men of the enlightenment.  Disinterested men who went out of their way NOT to profit from the offices they held.  Men who would rather have been back home.  But reluctantly served.  Because the nation needed the best leaders during that formidable time.  That’s why Washington served a second term.  Not because he wanted to.  But if he didn’t Thomas Jefferson and Alexander Hamilton would have paralyzed the government with their constant fighting and seething hatred of each other.  So Washington stayed on.  Father to these children that couldn’t get along.  And father to a nation.

Washington was never happier than when he left office.  This man who could have been king.  Sacrificing all of his wants and desires.  And putting the nation first.  This old man that was cheating death.  Living beyond his years.  Who was used to giving orders in the army and having subordinates dutifully following them.  He hated the political process.  The deal making.  The special interests.  Those things modern politicians live for.  Because it is the pathway to wealth and power.  Which is why people serve today.  Who do not understand the meaning of selfless disinterest.  For they’re in it for number one.  And when they leave office they want to have more wealth than they know what to do with it.

Whereas Washington kept true to the Constitution.  And didn’t make arguments about it being a living document.  Or questioned the intent of the Founding Fathers.  For he was one of them.  He was there in Philadelphia in 1787.  He sat in the chair with that sun on it.  The one Benjamin Franklin studied for so long while sitting in that stuffy hall.  Wondering if the sun was rising.  Or setting.  After they signed the Constitution Franklin was certain the sun was rising for the new nation.  A nation of laws.  Where no man was above the law.  And the supreme law of the land was there in the Constitution.  Washington was the first president.  Setting the precedent for all that would follow.  And the most important precedent was not exceeding the limits of the Constitution.  For he knew a strong central government was necessary for the nation to have any hopes of surviving.  But he feared that once anyone exceeded the limits of the Constitution the whole experiment in self-government would come crashing down.

Life is so Good in an Aristocracy that Politicians will do Anything it takes to Win Reelection

What Thomas Jefferson feared most was consolidation.  Fears of a strong central government turning independent states into federal districts of the new government.  With growing powers to administer these lands from afar.  Turning the people living on these lands once again into subjects of a distant ruling power.  Who are there to serve.  To be obedient.  And revere this distant power.  Giving the duly elected president king-like powers.  Who would further consolidate his power.  This was Jefferson’s fear.  A fear Alexander Hamilton did not share.  Because he assumed all men in the government would be disinterested men of the enlightenment.  Like the Founding Fathers were.  But Jefferson knew you could not trust men to refrain from using power given to them.  So it was best not to give them that power in the first place.

Today you can see all of Jefferson’s fears come to pass.  A federal government larger and more powerful than even Alexander Hamilton could have imagined.  And a new fourth branch of government.  The IRS.  Powerful.  And fearsome.  Which appears to be helping the current administration to suppress the political opposition.  By harassing anyone espousing Jeffersonian principles.  Limited government.  States’ rights.  Constitutional limits.  Etc.  Which are also Tea Party principles.  That set of principles that launched a great grassroots movement that helped the Republicans win back the House of Representatives in 2010.  Something the Democrats were very conscious of.  And have since pilloried the Tea Party with every invective under the sun.  To delegitimize the Tea Party.  To prevent another 2010 from happening again.

President Obama is the most liberal president to ever occupy the White House.  And he won reelection.  Which isn’t easy for a liberal to do on a national stage.  Because only about 21% of the people call themselves liberal.  While 35% call themselves moderate.  And 40% call themselves conservative (see Conservatives Remain the Largest Ideological Group in U.S. posted 1/12/2012 on Gallup).  So liberals are in the minority.  Yet they hold majority power.  Which begs the question.  How do they win elections when the majority opposes their ideology?   Well, you don’t do it by acting like George Washington.  You know, with integrity.  But, instead, with rascality.  You don’t exactly tell the truth.  You make a lot of promises.  Even if you have no intention of keeping them.  And you use the awesome power of your office to attack your political enemies.  For it’s a different mindset today.  Whereas the Founding Fathers were trying to destroy an aristocracy today’s politicians are trying to build and maintain one.   And life is so good in an aristocracy that once you get in you never want to leave.  Which is why politicians will do anything it takes to win reelection.  Anything.  And if they were honest you’d hear them say so.  “Damn the truth, promises and the Constitution.  I’m trying to get reelected.”  But they’re not honest.  So you will never hear them say this.  You’ll just have to see it in their deeds.  And how unlike the Founding Fathers they are.

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The First Bank of the United States, the Second Bank of the United States and the Federal Reserve System

Posted by PITHOCRATES - April 2nd, 2013

History 101

Merchants raise their Prices when the Monetary Authority depreciates the Currency

What is inflation?  A depreciation of the currency.  By adding more money into the money supply each piece of currency becomes less valuable.  Let’s assume our currency is whiskey.  In bottles.  Whiskey has value because people are willing to pay for it.  And because we are willing to pay for it we are willing to accept it as legal tender.  Because we can always trade it to others.  Who can drink it.  Or they can trade it with others.

Now let’s say the monetary authority wants to stimulate economic activity.  Which they try to do by expanding the money supply.  So there is more money available to borrow.  And because there is more money available to borrow interest rates are lower.  Hence making it easy for people to borrow money.  But the monetary authority doesn’t want to make more whiskey.  Because that is costly to do.  Instead, they choose an easier way of expanding the money supply.  By watering down the bottles of whiskey.

Now pretend you are a merchant.  And people are coming in with the new watered-down whiskey.  What do you do?  You know the whiskey is watered down.  And that if you go and try to resell it you’re not going to get what you once did.  For people typically drink whiskey for that happy feeling of being drunk.  But with this water-downed whiskey it will take more drinks than it used to take to get drunk.  So what do you as a merchant do when the money is worth less?  You raise your prices.  For it will take more bottles of lesser-valued whiskey to equal the purchasing power of full-valued whiskey.   And if they water down that whiskey too much?  You just won’t accept it as legal tender.  Because it will be little different from water.  And you can get that for free from any well or creek.  Yes, water is necessary to sustain life.  But no one will pay ‘whiskey’ prices for it when they can drink it from a well or a creek for free.

It was while in the Continental Army that Alexander Hamilton began thinking about a Central Bank

During the American Revolutionary War we had a very weak central government.  The Continental Congress.  Which had no taxing authority.  Which posed a problem in fighting the Revolutionary War.  Because wars are expensive.  You need to buy arms and supplies for your army.  You have to feed your army.  And you have to pay your army.  The Continental Congress paid for the Revolution by asking states to contribute to the cause.  Those that did never gave as much as the Congress asked for.  They got a lot of money from France.  As we were fighting their long-time enemy.  And we borrowed some money from other European nations.  But it wasn’t enough.  So they turned to printing paper money.

This unleashed a brutal inflation.  Because everyone was printing money.  The central government.  And the states.  Prices soared.  Merchants didn’t want to accept it as legal tender.  Preferring specie instead.  Because you can’t print gold and silver.  So you can’t depreciate specie like you can paper money.  All of this just made life in the Continental Army worse.  For they were hungry, half-naked and unpaid.  And frustrating for men like Alexander Hamilton.  Who served on General Washington’s staff.  Hamilton, and many other officers in the Continental Army, saw how the weakness of the central government almost lost the war for them.

It was while in the army that Hamilton began thinking about a central bank.  But that’s all he did.  For there was not much support for a central government let alone a central bank.  That would change, though, after the Constitutional Convention of 1787 created the United States of America.  And America’s first president, George Washington, chose his old aide de camp as his treasury secretary.  Alexander Hamilton.  A capitalist who understood finance.

Despite the Carnage from the Subprime Mortgage Crisis the Fed is still Printing Money

At the time the new nation’s finances were in a mess.  Few could make any sense of them.  But Hamilton could.  He began by assuming the states’ war debts.  Added them to the national war debt.  Which he planned on paying off by issuing new debt.  That he planned on servicing with new excise taxes.  And he would use his bank to facilitate all of this.  The First Bank of the United States.  Which faced fierce opposition from Thomas Jefferson and James Madison.  Who opposed it for a couple of reasons.  For one they argued it wasn’t constitutional.  There was no central bank enumerated in the Constitution.  And the Tenth Amendment of the Constitution stated that any power not enumerated to the new federal government belonged to the states.  And that included banking.  A central bank would only further consolidate power in the new federal government.  By consolidating the money.  Transferring it from the local banks.  Which they feared would benefit the merchants, manufacturers and speculators in the north.  By making cheap money available for them to make money with money.  Which is the last thing people who believed America’s future was an agrarian one of yeoman farmers wanted to do.

They fought against the establishment of the bank.  But failed.  The bank got a 20 year charter.  Jefferson and Madison would later have a change of heart on a central bank.  For it helped Jefferson with the Louisiana Purchase.  And like it or not the country was changing.  It wasn’t going to be an agrarian one.  America’s future was an industrial one.  And that required credit.  Just as Alexander Hamilton thought.  So after the War of 1812, after the charter of the First Bank of the United States had expired, James Madison signed into law a 20-year charter for the Second Bank of the United States.  Which actually did some of the things Jefferson and Madison feared.  It concentrated a lot of money and power into a few hands. Allowing speculators easy access to cheap money.  Which they borrowed and invested.  Creating great asset bubbles.  And when they burst, great depressions.  Because of that paper money.  Which they printed so much of that it depreciated the dollar.  And caused asset prices to soar to artificial heights.

Andrew Jackson did not like the bank.  For he saw it creating a new noble class.  A select few were getting rich and powerful.  Something the Americans fought to get away from.  When the charter for the Second Bank of the United States was set to expire Congress renewed the charter.  Because of their friends at the bank.  And their friends who profited from the bank.  But when they sent it to Andrew Jackson for his signature he vetoed the bill.  And Congress could not override it.  Sensing some blowback from the bank Jackson directed that they transfer the government’s money out of the Second Bank of the United States.  And deposited it into some state banks.  The president of the bank, Nicholas Biddle, did not give up, though.  For he could hurt those state banks.  Such as calling in loans.  Which he did. Among other things.  To try and throw the country into a depression.  So he could blame it on the president’s anti-bank policies.  And get his charter renewed.  But it didn’t work.  And the Second Bank of the United States was no more.

National banks versus local banks.  Hard money (specie) versus paper money.  Nobility versus the common people.  They’ve argued the same arguments throughout the history of the United States.  But we never learn anything.  We never learn the ultimate price of too much easy money.  Even now.  For here we are.  Suffering through the worst recession since the Great Depression.  Because our current central bank, the Federal Reserve System, likes to print paper money.  And create asset bubbles.  Their last being the one that burst into the subprime mortgage crisis.  And despite the carnage from that they’re still printing money.  Money that the rich few are borrowing to invest in the stock market.  Speculators.  Who are making a lot of money.  Buying and selling assets.  Thanks to the central bank’s inflationary policies that keep increasing prices.

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Deficits, Debt and Interest on the Debt 1988-2012

Posted by PITHOCRATES - March 26th, 2013

History 101

Congress printed so much Money that the Continental Dollar became Worthless

The American Revolutionary War lasted eight years.  And eight years of war ain’t cheap.  It took money to buy arms.  It took money to buy uniforms.  It took money to pay soldiers.  And paying for these for eight years required a lot of money.  Which the Americans didn’t have.  They were at war with Great Britain.  Who was their major trading partner.  And pretty much their only trading partner.  As the Americans were a British colony in the days of mercantilism.  Which meant the Americans sent raw materials to the mother country.  On British ships.  Through British ports.  Britain then transformed those raw materials into finished goods.  And exported them.  On British ships.  Through British ports.  Throughout the world.  And back to America.  Before the Revolution, that is.

Thankfully for the Americans there was a nation that hated the British.  And had been in a near perpetual state of war with them since about forever.  And they had just recently lost their North American territories to the British.  Which they wanted back.  So the French had other interests than American Independence.  But American Independence was a good opportunity to settle the score with their old nemesis.  And when the Americans defeated a British Army at Saratoga the French thought that just maybe the Americans could pull this off.  And if so they wanted to be in on the spoils of a British defeat.

So the French financed a large part of the American Revolutionary War.  But it wasn’t enough.  The Continental Army was poorly fed and poorly clothed.  Even leaving bloody footprints in the snow as the Continental Congress couldn’t put boots on their feet.  Nor could they pay them.  So they turned to printing money.  Unleashing a brutal inflation.  No one wanted the currency.  The inflation was so bad that it lost its value before they could spend it.  So no one wanted to accept the Continental paper dollar.  Giving rise to the expression ‘not worth a Continental’.  Everything had two prices.  A low price if you paid with hard currency (gold and silver coins).  And a very high price if you paid in Continental dollars.  They printed so much money that the money became worthless.  So the Continental Army just took what they needed from the people to keep their men from starving to death.  Leaving the people with an IOU.  That Congress would redeem one day.  Maybe.

The Percentage of Tax Receipts going to Pay the Interest on the Debt has fallen as the Federal Debt Rose

Today hard currency is a thing of the past.  It’s pure un-backed paper these days.  This paper money has no intrinsic value.  And you can’t exchange it for gold or silver that does.  But you sure can print it.  Well, the government can.  And they do.  They borrow and print money like there’s no tomorrow.  Allowing them to spend money they don’t have easier than ever before.  And it’s not just for feeding and clothing our soldiers.  But just about everything under the sun.  Causing the federal debt to soar.

Think of the growing federal debt like a credit card with a growing balance.  And these balances grow fast because each month they charge you interest on your past purchases.  And on your past interest charges.  Which is why if you let that credit card balance get too high it’ll grow beyond your ability to pay it off.  A lot of people who do find themselves filing a personal bankruptcy.  Because the interest charges just balloon their monthly payment.  With the interest in their credit cards consuming an ever larger portion of their paycheck.  As should the interest on the federal debt consume an ever larger portion of federal tax receipts.

Debt and Interest as Percentage of Receipts

(Sources: A History of Debt In The United States; Interest Expense on the Debt Outstanding; Historical Amount of Revenue by Source)

Interestingly, the percentage of federal tax receipts going to pay the interest on the debt has in general fallen as the federal debt rose.  Odd.  The more debt one has the greater the interest one pays.  That’s how it works on our credit cards.  When the debt was approximately $6.2 trillion in 1991 the percentage of total tax receipts going to pay the interest on the debt was 27.1%.  But when the debt soared to $16.1 trillion in 2012 the percentage of tax receipts going to the interest on the debt fell to 15%.  The federal debt grew to be 2.6 times what it was in 1991.  Yet it appears we are paying less interest in 2012 than in 1991.  Something doesn’t seem right.

Interest Rates will Rise as the Purchasing Power of the Dollar Falls, Raising Prices and the Cost of Borrowing

A couple of things could explain this.  And the first thing that comes to mind is tax revenue.  The reason why interest on the debt as a percentage of tax receipts has fallen while the federal debt grew is, perhaps, that tax revenues grew even greater.  So even though interest on the debt could be soaring along with the soaring federal debt the government could be awash in tax revenue.  And if the number you’re dividing by is larger than the number you’re dividing into it than you get a smaller percentage.  Simple arithmetic.  The driver of the federal debt is the annual deficits.  So let’s compare interest on the debt to the deficit.  To see if the interest on the debt rises with the deficit.

Interest on the Debt and the Deficit

(Sources: Interest Expense on the Debt Outstanding; Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2017)

And it doesn’t.  In fact, the interest on the debt almost held constant when the deficit plunged into a surplus.  And when the deficit soared to a record high.  It seems like there was some other factor involved here.  Something actually keeping the interest on the debt down.  Even when the deficit soared after 2007.  What could do this?  Well, there is only one other thing to look at.  Interest rates.

Interest on the Debt the Deficit 10 Year Treasury

(Sources: Interest Expense on the Debt Outstanding; Table 1.1—SUMMARY OF RECEIPTS, OUTLAYS, AND SURPLUSES OR DEFICITS (–): 1789–2017; Market yield on U.S. Treasury securities at 10-year constant maturity, quoted on investment basis)

And we have our answer.  Interest on the debt has not kept pace with the debt because of bad monetary policy.  Keynesian economic policies introduced permanent inflation into the economy.  The Keynesians in government kept interest rates artificially low to stimulate economic activity.  Those low interest rates stimulated so much economic activity in the Nineties that it created a dot-com bubble.  And when it burst it created a painful recession in the early 2000s.  Also, President Clinton’s Policy Statement on Discrimination in Lending lowered lending standards in the Nineties setting the stage for a great housing bubble that burst into the subprime mortgage crisis in 2007.  And the Great Recession.

The Keynesians have been increasing the money supply (i.e., printing money) in a desperate attempt to pull the economy out of recession.  Which is why the market yield on a 10-year treasury has fallen as the deficit soared in the early 2000s.  And fell even more as the deficit soared even further after 2007.  With the yield falling to as low as 1.8% in 2012.  Even though the demand for so much borrowing should have raised interest rates.  Which would have happened had the government not been increasing the money supply.

And this is why interest on the debt as a percentage of receipts has fallen.  Despite record debt.  Some may look at this and think it’s a good thing.  As it lets the government borrow more money.  So they can give us more stuff.  But printing money causes inflation.  Which has been kept at bay for now thanks in large part to the Eurozone sovereign debt crisis.  As investors everywhere are desperate to find a safe harbor for their money during these uncertain times.  But that won’t last forever.  Eventually those interest rates will rise as the purchasing power of the dollar falls.  Raising prices.  And the cost of borrowing.  A lot.  Because of that record debt.  And when they start selling new treasuries at higher interest rates than the ones they’re replacing a very large portion of our tax receipts will go to pay the interest on the debt.  Just like when people charge too much on their credit cards.  Pushing the country closer to bankruptcy.  Just like people with overextended credit cards.  And like countries in the Eurozone.

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2012 Endorsements: Alexander Hamilton

Posted by PITHOCRATES - October 18th, 2012

2012 Election

When Hamilton looked out Across the Vast North American Continent he saw Great Economic Opportunity

Alexander Hamilton was born in the British West Indies.  At the age of eleven he had to get a job.  As his father abandoned his family after losing all the family money.  Young Alexander worked at Cruger and Beckman’s.  a New York trading house.  A window onto the world.  And international trade.  Where young Alexander learned about the world.  And business.  He had a gift for numbers.  He was bright.  And driven.  Born in the British West Indies he was also something else.  A Founding Father without any state lineage.  With no provincial views.  During the prelude to American independence when other patriots talked about the states going their own way he was already thinking of an American union.  And only of an American union.

The British response to the Boston Tea Party was the Intolerable Acts.  Or the Coercive Acts in Britain.  Where the British put the hurt on Boston.  And Massachusetts.  To separate it and isolate it from the rest of the colonies.  Reverend Samuel Seabury took to the papers and argued against uniting the other colonies to support Massachusetts.  That the people should support their king.  And Parliament.  And not the spoiled, trouble-making people of Boston.  Hamilton took to the papers and argued in support of union.  And Boston.  Warning the people that this was just the beginning for Britain.  More taxes would certainly follow.  Hamilton warned the people to put away their sectional differences.  As this attack on one was an attack on all.  And that if they gave up on Boston it would only be a matter of time before other colonies met the same fate.

That was all well and fine during the warm months of summer.  But the American colonies were part of the British Empire.  Which was a mercantilist empire.  Whose colonies shipped raw materials to the mother country.  And the proceeds from those sales were used to buy manufactured goods made from those raw materials in the mother country.  Making the colonists dependent on Britain for their clothing.  The lack of which would make a very cold and miserable winter.  Which led a lot of people to agree with Reverend Samuel Seabury.  But not Hamilton.  For he looked out across the American colonies and saw something else.  Economic independence.  The South had cotton.  The North could raise sheep for wool.  And they could build factories in the cities to make cloth and clothing.  Staffed by skilled immigrants from European factories.  This is what Hamilton saw when he looked out across the vast North American continent.  Great economic opportunity.  Made possible by an American union.

Hamilton spent the Winter Seasons at Valley Forge and Morristown Reading and Studying Economics and Public Finance

When the Revolutionary War came Hamilton joined the Continental Army.  Fought bravely.  Then ended up as General Washington’s aide-de-camp.  Serving in Washington’s inner circle he knew what the commanding general knew.  And he knew the sorry state of the army.  Half-naked, hungry and unpaid.  While some civilians were living the life of Riley.  Making a fortune off of hording commodities and selling them at high prices.  Which they could do with impunity as the Continental Congress was powerless to stop them.  As it was at the mercy of the states.  The national congress was broke and had little legal authority.  Which let the speculators run roughshod over it.  Leaving the people sacrificing the most for independence half-naked, hungry and unpaid.  Diminishing the fighting ability of the army.  Which greatly increased the risk of defeat.

Hamilton learned an important lesson.  The stronger the national government was, and the richer it was, the easier it was to wage war.  And the easier it was NOT to be defeated in war.  The problem here was that the national government was too weak.  While the state governments were too strong.  Which was fine for the people living normal lives in their states.  But not the soldiers in the field fighting for the nation.  Making things worse was inflation.  The Continental Congress was printing money.  As were the states.  And the more they printed the more they depreciated it.  Which led to even higher prices.  More profits for the speculators.  And even more hardship for the army.  Which had to at times take things from the local people in exchange for IOUs.  Making these people hate the army.  And the army hate the people.  As they were the ones risking life and limb for what was to them an ungrateful people.

Hamilton spent the winter seasons at Valley Forge and Morristown reading and studying economics and public finance.  And set out to solve the inflation problem.  What he learned was that a lot of people were benefiting by the rampant inflation.  Debtors loved it.  For the greater the inflation was the easier it was to repay loans in those depreciated dollars.  Especially the farmers.  They sold their produce at ever higher prices.  Borrowed money to buy land (and repaid those loans in depreciated dollars).  While escaping much of the ravages of inflation themselves.  Because they were farmers.  And were self-sufficient.  Eating what they grew.  Even making their own clothes.  For some inflation was a way to get rich quick at the detriment of others.  To help dissuade such activity Hamilton suggested high taxes in kind (if a farm grew wheat that they turned into flour they would pay a portion of their flour to the government as a tax) on those benefitting from inflation who where destroying the confidence in the dollar.

If Hamilton were Alive Today he would likely Endorse the Republican Candidates Mitt Romney and Paul Ryan

Hamilton also suggested a plan for a national bank.  To help restore the credit of the United States.  And to provide a source of credit for the national government.  The bank would be owned half by the government and half by rich investors.  By letting the rich investors make money on the bank it would, of course, encourage them to invest in the bank.  And provide capital the government could borrow.  Hamilton believed in bringing the rich people closer to the government.  So the government had access to their money.  Both would win in such a partnership.  And both would have a vested interest in seeing the government succeed.  The Continental Congress used some of Hamilton’s ideas.  But not enough to bring his vision to life.  He would get another chance, though.  When he became America’s first Secretary of the Treasury.

At the end of the Revolutionary War the United State’s finances were in a mess.  State governments and the national government owed money.  As they used that money to prosecute the war Hamilton believed the national government should assume the states’ debts and roll in into the national debt.  And, more importantly, the new national debt would help strengthen the union.  By binding the states to the national government.  These actions also helped to restore the nation’s credit.  Allowing it to borrow money to repay old debts.  As well as finance new spending.  Hamilton also got his bank.  And he produced a report on manufacturers.  A plan to use government funds to help launch American industry.  So they could catch up to Great Britain.  And even surpass the former mother country.

Hamilton pushed for these things because he wanted to use the power of government to make America strong and fiercely independent in the world of nations.  With an economic plan that would make the nation wealthy.  And allowing it to afford a military that equaled or surpassed Great Britain.  He did not want to make America wealthy to implement a massive welfare state.  His idea of partnering government with business was to make an American Empire modeled on the British Empire.  Making it a rich military superpower.  Able to project force.  Maintaining peace through strength.  Much like the British did with their Pax Britannica that he didn’t live to see.  And to protect what it had from anyone trying to take it away from them.  So based on this who would he endorse in the 2012 election?  The party that had business-friendly policies to encourage economic growth.  The party that was more anti-inflation.  The party that would best exploit the nation’s resources.  And the party that favored a strong military.  Which is NOT the Democrat Party.  No, if Alexander Hamilton were alive today he would likely endorse the Republican candidates Mitt Romney and Paul Ryan.

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Hamilton, Jefferson, Republicans, Federalists, Money & Power, Corruption, British, French, Neutral Shipping and Letters of Marque

Posted by PITHOCRATES - September 27th, 2012

Politics 101

Hamilton trusted Men of Integrity to Govern Justly while Jefferson believed Money and Power would Corrupt Anyone

Nasty politics began back in the Washington administration.  With the seething hatred between Alexander Hamilton and Thomas Jefferson.  These American greats had two different visions for America.  Based on their background.  Hamilton’s from his experience in the Continental Army and his business experience.  Jefferson’s from his books.  As different as their views for America were, and despite their hatred for each other, they both loved their country.  And wanted what was best for their country.  While absolutely sure that the other had nefarious plans for its ruin.

Both were students of the Enlightenment.  Both believed in the natural, God-given rights of the people.  And both believed vehemently in the rule of law.  In fact, both were lawyers.  But Hamilton was part of the Continental Army when its troops were barefoot, half-naked and starving.  Which were barefoot, half-naked and starving because of a weak Continental Congress that could not provide for them.  Because they were weak, impotent and could not levy taxes.  All they could do was ask the states to give them money.  The states promised little.  And delivered even less.  Threatening the American Revolution itself.

Jefferson, on the other hand, saw that history was replete with examples of corruption and oppression whenever financial centers and the seat of power got too close.  Hamilton may have seen this.  But what he was most conscious of was the British Empire.  The greatest empire in the world.  Which became the greatest empire in the world by bringing the financial centers and the seat of power together.  Which is what Hamilton wanted to do.  Trusting in the integrity and moral character of gentlemen of the Enlightenment.  Who would rule with selfless indifference.  Principled men with strong Judeo-Christian values.  These were the men that would rule America.  Men like the Founding Fathers.  Who they could trust with money and power.  Who America should trust with money and power.  To make an American Empire to surpass the British Empire.  This is what Hamilton wanted.  While Jefferson believed that money and power would corrupt anyone.  If not in their generation then surely in the generations to follow.  And the best way to prevent this was by giving government as little money and power as possible.

An Outbreak of Yellow Fever in Philadelphia nearly settled the Quarrel between Hamilton and Jefferson

So Jefferson opposed Hamilton at every opportunity.  Such as the Bank of the United States.  And Hamilton’s funding system.  Making matters worse was that Hamilton’s Treasury Department was the largest department in the federal government.  While Jefferson’s State Department was one of the smallest.  So Jefferson tried to transfer some parts of Treasury to his State Department.  The Post Office.  Which he failed in getting.  But he did succeed in transferring the Mint from Treasury to State.  Hamilton even learned that James Madison and Jefferson met with Robert Livingston and Aaron Burr to conspire against Hamilton to remove him from office.  Hamilton saw an ambitious Jefferson.  Who wanted the kind of power Jefferson accused Hamilton wanted for himself.

So these gentlemen began a campaign to force the other from office.  Hamilton had an ally in the Gazette of the United States who championed his policies.  To counter Jefferson hired Philip Freneau into the State Department to help finance a new paper.  The National Gazette.  Whose sole purpose was to attack Hamilton while praising everything Jeffersonian.  Hamilton wrote anonymous attacks published in the Gazette of the United States.  While Jefferson left his dirty work to Freneau.  And the attacks grew uglier.  The attacks were not just on policy or the future vision of the nation.  But these were personal attacks on each other.  Where accuracy was not a major requirement.  Such as when Hamilton took Jefferson out of context.  Quoting selective excerpts from a 1787 letter to suggest that Jefferson wanted to rob the Dutch to repay the French.  Hamilton and Jefferson became like two quarreling children in Washington’s cabinet.  Each running to ‘father’ tattling on the other.  Insisting that Washington demand the resignation of the other.

An outbreak of yellow fever in Philadelphia nearly settled the question.  By almost killing Hamilton.  But he survived.  Unlike some 4,000 others in Philadelphia.  Even Hamilton’s illness was seen through a political lens.  Hamilton sought the medical advice from an old college buddy.  As opposed to following the good advice of Dr. Benjamin Rush.  Who recommended massive bloodlettings.  When Hamilton recovered he publically thanked his friend (who had nothing to do with his recovery) and encouraged others to follow his recommended treatment.  Which didn’t include bloodletting.  Dr. Rush was infuriated.  Accusing Hamilton of killing countless others through this quackery instead of the sensible bloodletting that was established medical practice.  Of course, this was a personal attack on Dr. Rush.  Because he was not a Federalist.  But a Republican.  And a friend of James Madison and Thomas Jefferson.

While the French were causing Headaches for Jefferson and his Republicans the British were doing the same to Hamilton and his Federalists

The yellow fever also claimed another casualty.  The National Gazette.  As people fled Philadelphia, or died, circulation fell.  And the paper lost money and closed shop.  About the same time that happened Jefferson resigned from the cabinet.  And returned to Monticello.  Things were looking up for Hamilton.  Until the reverberations of the French Revolution further divided the country.  The Federalists were reestablishing trade with the British.  So when the French and British were back at war with each other it caused some problems in America.  For the American people still hated Britain.  While having deep emotional ties to the country that had helped them win their independence.  France.  The United States had proclaimed their neutrality in this new war.  But being a maritime nation dependent on exports her best interests lay with Great Britain and the most powerful navy in the world.  Which further proved that Hamilton and his Federalists were secret monarchists.  And that Hamilton wanted to be king.

Meanwhile, the French had sent their new ambassador to America.  Citizen Genêt.  Who Jefferson, the Republicans and the American people welcomed with open arms.  But then he started issuing letters of marque to American captains to attack and capture British shipping.  Bringing them back to American ports to refit them.  Which was a dangerous thing for a neutral nation to do against the nation that kept the sea lanes safe for their commerce.  Then Citizen Genêt tried to raise an American army to attack the Spanish in Florida and in New Orleans.  With further aims of attacking the British in Canada.  This was too much even for Jefferson.  And it was one of the few times that Jefferson and Hamilton were in agreement.  Citizen Genêt had to go.  For Jefferson he was proving to be an embarrassing liability for the Republicans.

While at the same time the British were retaliating.  Issuing orders to blockade France and to seize any neutral shipping trying to supply France with corn.  Which was pretty much any agricultural grain product.  A major export of the United States.  So this was a direct blow against U.S. commerce.  Even though she was a neutral in this current war between France and Great Britain.  This did not make the American people happy.  Nor did it help Hamilton or his Federalists with their rapprochement with Britain.  Then the British began to seize all shipping going to and from the French West Indies.  Which were mostly American ships.  So while Citizen Genêt was causing great headaches for Jefferson and his Republicans the British were doing the same to Hamilton and his Federalists.  Further dividing the nation.  And bringing them closer to war.  In large part due to the politics dividing the nation.

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Revolutionary War, Sovereign Debt, Report on Public Credit, Hamilton, Jefferson, Madison, Assumption and Residency Act

Posted by PITHOCRATES - August 16th, 2012

Politics 101

In 1792 the Outstanding Debt at all Levels of Government was 45% of GDP

Wars aren’t cheap.  Especially if they last awhile.  The American Revolutionary War lasted some 8 years until the British and Americans signed the Treaty of Paris (1782) officially ending all hostilities.  So the Revolutionary War was a very costly war.  The ‘national’ government (the Continental Congress) owed about $70 million.  The states owed another $25 million or so.  And the Continental Army had issued about $7 million in IOUs during the war.  Added up that comes to $102 million the new nation owed.  About 45% of GDP.  (Or about 35% without the state debt added in.)

To put that in perspective consider that the Civil War raised the debt to about 32% of GDP.  World War I raised it to about 35%.  World War II raised it to about 122%.  Following the war the debt fell to about 32% at its lowest point until it started rising again.  And quickly.  In large part due to the cost of the Vietnam War and LBJ’s Great Society.  Government spending being so great Nixon turned to printing money.  Depreciating the dollar’s purchasing power in every commodity but one.  Gold.  Which was pegged at $35/ounce.  Losing faith in our currency foreign governments traded their U.S. dollars for gold.  Until Nixon decoupled the dollar from gold in 1971.  Ushering in the era of Keynesian economics, deficit spending and growing national debts.  Because of increased spending for social programs governments everywhere now have debts approaching 100% of GDP.  And higher.  But I digress.

So 45% of GDP was huge in 1792.  And it continued to be huge.  Taking a devastating civil war and a devastating world war to even approach it.  It took an even more devastating world war to exceed it.  And now we’ve blown by that debt level in the era of Keynesian economics.  Without the devastation of another World War II.  This debt level has grown so great that for the first time ever in U.S. history Standard and Poor’s recently lowered the United States’ impeccable sovereign debt rating.  And restoring that debt rating at today’s spending levels will be a daunting task.  But imagine trying to establish a sovereign debt rating after just becoming a nation.  Already with a massive debt of 45% of GDP.

In Hamilton’s Report on Public Credit the New Government would Assume Outstanding Debt at all Levels of Government

There was only one choice for America’s first president.  The indispensible one.  George Washington.  Some delegates at the Philadelphia Convention in 1787 who were skeptical of the new Constitution only supported it because they had someone they could trust to be America’s first president.  George Washington.  Benjamin Franklin, John Adams, Thomas Jefferson and James Madison were indispensible at times.  But not as indispensible as Washington.  For without him the Continental Army would have ceased to exist after that winter at Valley Forge.  That same army would have mutinied (for back pay and promised pensions) after the war if he didn’t step in.  Our experiment in self-government would have ended if he did not relinquish his power after the war.  We wouldn’t have ratified the Constitution without having Washington to be America’s first president.  And our experiment in self-government would have ended if he did not relinquish his power.  Again.  After his second term as president.

With the state of the government’s finances after the war there was another Founding Father that was indispensible.  Not as indispensible as Washington.  But close.  For without him the Washington presidency may have failed.  As well as the new nation.  Because of that convoluted financial mess.  The Continental Congress borrowed money.  The states borrowed money.  Some of which went to the Continental Congress.  The army took stuff they needed to survive in exchange for IOUs.  There were bonds, loans and IOUs at every level of government in every state.  Complicating the matter is that most of the instruments they sold ended up in the hands of speculators who bought them for pennies on the dollar.  As the original holders of these instruments needed money.  And did not believe the Continental Congress would honor any of these obligations.  For before the Constitution the government was weak and had no taxing authority.  And no way to raise the funds to redeem these debt obligations.

A few tried to get their arms around this financial mess.  But couldn’t.  It was too great a task.  Until America’s first secretary of the treasury came along.  Alexander Hamilton.  Who could bring order to the chaos.  As well as fund the new federal government.  He submitted his plan in his Report on Public Credit (January 1790).  And the big thing in it was assumption.  The federal government would assume outstanding debt at all levels of government.  Including those IOUs.  At face value.  One hundred pennies on the dollar.  To whoever held these instruments.  Regardless of who bought them first.  “Unfair!” some said.  But what else could they do?  This was the 1700s.  There weren’t detailed computer records of bondholders.  Besides, this was a nation that, like the British, protected property rights.  These speculators took a risk buying these instruments.  Even if at pennies on the dollar.  They bought them for a price the seller thought was fair or else they wouldn’t have sold them.  So these bonds were now the property of the speculators.

Jefferson and Madison traded Hamilton’s Assumption for the Nation’s Capital

Of course to do this you needed money.  Which Hamilton wanted to raise by issuing new bonds.  To retire the old.  And to service the new.  Thus establishing good credit.  In fact, he wanted a permanent national debt.  For he said, “A national debt, if not excessive, is a national blessing.”  Because good credit would allow a nation to borrow money for economic expansion.  And it would tie the people with the money to the government.  Where the risk of a government default would harm both the nation and their creditors.  Making their interests one and the same.

That’s not how Thomas Jefferson saw it, though.  He had just returned from France where he witnessed the beginning of the French Revolution.  Brought upon by a crushing national debt.  And he didn’t want to tie the people with the money to the government.  For when they do they tend to exert influence over the government.  But Hamilton said debt was a blessing if not excessive.  He did not believe in excessive government debt.  And he wanted to pay that debt off.  As his plan called for a sinking fund to retire that debt.  Still, the Jefferson and Hamilton feud began here.  For Hamilton’s vision of the new federal government was just too big.  And too British.  Madison would join Jefferson to lead an opposition party.  Primarily in opposition to anything Hamilton.  Who used the Constitution to support his other plan.  A national bank.  Just like the British had.  Based on the “necessary and proper” clause in Article I, Section 8.  Setting a precedent that government would use again and again to expand its powers.

At the time the nation’s capital was temporarily in New York.  A final home for it, though, was a contentious issue.  Everyone wanted it in their state so they could greatly influence the national government.  Hamilton’s struggle for assumption was getting nowhere.  Until the horse-trading at the Jefferson dinner party with Hamilton and Madison.  To get the nation’s capital close to Virginia (where it is now) Jefferson offered a deal to Hamilton.  Jefferson and Madison were Virginians.  Give them the capital and they would help pass assumption.  They all agreed to the deal (though Jefferson would later regret it).  Congress passed the Residency Act putting the capital on the Potomac.  And all the good that Hamilton promised happened.  America established good credit.  Allowing it to borrow money at home and abroad.  And a decade of prosperity followed.  Hamilton even paid down the federal debt to about 17.5% of GDP near the end of America’s second president’s (John Adams) term in office (1800).  Making Hamilton indispensible in sustaining this experiment in self-government.  Keeping government small even though it was more powerful than it was ever before.  Of course his using that “necessary and proper” argument really came back to bite him in the ass.  Figuratively, of course.  As government used it time and again to expand its role into areas even Hamilton would have fought to prevent.  While Jefferson no doubt would have said with haughty contempt, “I told you so.  This is what happens when you bring money and government together.  But would you listen to me?  No.  How I hate you, Mr. Hamilton.”

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States’ Rights, Debt, Interstate Commerce, Russia, Barbary Pirates, Spain, Britain, Shays Rebellion and Miracle of Philadelphia

Posted by PITHOCRATES - July 19th, 2012

Politics 101

After Winning their Independence from Great Britain the Common Enemy was no more Leaving them Little Reason to Unite

The South lost the American Civil War for a few reasons.  Perhaps the greatest was the North’s industrial superiority.  Her industry could make whatever they needed to wage war.  While the South suffered behind the Union’s blockade.  Unable to trade their cotton for the means to wage war.  And then there was the fact that the North was united.  While the states’ rights issue that they were fighting for prevented the South from being united.  The southern states (whose governments were dominated by the planter elite) did not like the federal government in Washington (except when they forced northern states to return southern slaves).  And as it turned out the states didn’t like the federal government in Richmond any better.  They fought Jefferson Davis from consolidating his power.  They put the states’ interests ahead of the national interest.  Such as winning a war to secure their states’ rights.  And any supplies a state had they wouldn’t share them with another state.  Even if they had a warehouse full of surplus shoes while troops from another states fought barefoot.

So the North won the American Civil War because they were united.  They had an advanced economy based on free market capitalism and free labor.  And they were wealthy.  Basically because of the prior two statements.  But it wasn’t always like this.  The United States of America is a large country.  Even before it was a country.  When it was only a confederation of sovereign states.  With independent republican governments.  Still it covered great tracts of land.  Allowing the states to keep to themselves.  Much like it would be some 75 years later in the South.

After winning their independence from Great Britain the common enemy was no more.  And they had little reason to unite.  Which they didn’t.  For the several states included a lot of disparate people.  Who agreed on little with the people beyond their state’s borders.  Which was one of the criticisms of republican government (i.e., an elected representative government).  And one held by perhaps the greatest influence on the Framers of the Constitution.  French philosopher Charles de Montesquieu.  Who believed that the larger the geographic size the more dissimilar the people’s interest.  And therefore making republican government more difficult.  As it was too difficult to arrive at a consensus with such a large electorate.  Which James Madison disagreed with, making this a heated topic during the Constitutional Convention and the ratification process.  But before that convention it would appear to be incontrovertible.  The United States were anything but united.

The Americans defeated one Distant Central Power and were none too keen on Answering to a New Central Power

The first American identity appeared in the Continental Army.  Where soldiers came from different states and fought together as Americans.  General Washington fostered this spirit.  Forbidding any anti-Catholic displays.  One thing that all the Protestant American colonists enjoyed.  No matter which state they came from.  But to fight the British Empire they needed a large army drawn from all the states.  And to get the French Canadians living in British Canada to join them they needed to embrace religious freedom.  Even for Catholics.  Which was even more important if they had any chance of getting support from the most likely foreign power.  The eternal enemy of Britain.  Catholic France.  Washington, as well as those who served in the Continental Army, understood the success of their cause required less infighting and more uniting.  That it was imperative to set aside their sectional interests.  Only then could the new nation join the world of nations.  Strong and independent.  And avoid the European nations pulling them into their intrigues.

But of course that wasn’t going to happen.  After the war no one called themselves American.  Except for a few.  Like Washington.  And some other veterans of the Continental Army.  No.  The country people belonged to was their state.  Thomas Jefferson, the author of the Declaration of Independence, called Virginia his country.  As did most if not all of the Patriots of ’76.  The war was over.  They defeated the distant central power.  And they were none too keen on a new central power to answer to.  Even if it was on their side of the Atlantic.  To these Revolutionary Patriots the Continental Congress was just another foreign legislature trying to infringe on their sovereignty.

The national congress had no power.  Delegates didn’t always show up leaving the congress without a quorum.  Which didn’t matter much as they couldn’t pass anything when they had a quorum.  For any legislation they wanted to pass into law required a unanimous vote of all thirteen states.  Which rarely happened.  They couldn’t levy taxes.  Which meant they couldn’t fund an army or navy to protect their states from foreign aggressors.  Or protect their international trade on the high seas.  Which was a problem as the British no longer provided these services.  And they couldn’t repay any of their debts.  Their prewar debt owed to a lot of British creditors (which they had to repay according to the treaty that ended the war and gave them their independence).  Or their war debt.  States owed other states.  And the Congress owed foreign creditors in Europe.  Especially their war-time ally.  France.  Who they owed a fortune to.  The states charged duties and tariffs on interstate commerce.  They made their own treaties with the Indians.  Some states defaulted on the debt they owed to out of state creditors.  States even fought each other over land.  The Untied States were anything but united.  And it showed.

The Delegates of the Continental Congress agreed to meet in Philadelphia in 1787 to revise the Articles of Confederation

Europe watched the Americans with amusement and contempt.  The Americans didn’t get much respect from Catherine the Great, tsarina of Russia.  The ruler of the world’s largest country viewed the Americans as a bit uppity and not worthy to join the European courts.  Besides, she was more interested in expanding her powers into Turkey.  And into Poland.  Who caught some of that spirit of liberty from the Americans.  That Catherine wanted to squelch.  Making her less of an America fan.  But it wasn’t only Russia.  The Barbary pirates were targeting American shipping in the Mediterranean.  Selling their crews to the slave markets of North Africa.  Western settlers using the Mississippi River to ship their produce were denied passage through the Port of New Orleans by Spain.  The British refused to vacate their forts in the Northwest.  Even worked with the Indians to cause some mischief in the borderlands.  Why did the Europeans do these things?  Because they could.  For the Americans could not stop them.

To make matters worse the Americans were drifting towards civil war.  The northern provinces were talking about leaving the confederation and forming their own.  The North feared the South would do the same.  Even aligning itself more with Europe than the American states.  Meanwhile the economy was tanking.  Trade was down.  People were out of work.  Farmers were unable to pay their debts.  Even losing their farms.  In western Massachusetts Daniel Shays gathered together disgruntled veterans and rebelled.  Again.  Only this time it wasn’t against the British.  It was against the legal authorities in Massachusetts.  Shays Rebellion spread to other states.  And grew violent.  Massachusetts asked the Continental Congress for help.  And the Congress asked the states for $530,000 to raise an army to put down the rebellion.  Twelve of the thirteen states said “no.”

With no other choice Massachusetts went to rich people for funding.  Used it to raise a militia of some 4,400 men.  In time and after some bloody fighting they put down this rebellion.  But some of the rebels continued a guerilla war.  Making many in the new United States live in fear.  Washington, despondent of what was happening to the republic he had fought for so long to secure, pleaded, “Let us look to our national character and to things beyond the present moment.”  And so they did.  The delegates of the Continental Congress agreed to meet in Philadelphia in 1787.  To revise the Articles of Confederation.  To reign in the chaos.  To get their finances in order.  And to gain the respect of the world of nations.  But to do that would require s stronger central government.  And that is exactly what emerged from Philadelphia.  So they did what the Confederates did not do nearly 75 years later.  Which is the reason why they lost the American Civil War.  Because of an ideal.  States’ rights.  That was so absolute that it weakened the Confederacy to the point she could not survive.  Something the Miracle of Philadelphia prevented in 1787.  Which left the states sovereign.  And the new federal government only governed that which extended beyond the states’ borders.  And it worked well.  For some 75 years.  When it hit a road bump.

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Continental Army, Continental Congress, Inflation, Wage & Price Controls, Paper Money, Specie, IOUs, Impressment and Repudiation

Posted by PITHOCRATES - May 3rd, 2012

Politics 101

The Articles of Confederation made the United States of America a Confederacy of Sovereign States that had Little Power to Raise Revenue

By the time the Continental Army left Valley Forge they could hold their own against the British Army.  The British couldn’t push them around any longer.  They became so good that they fought the war to a standstill.  They came close to some major wins on the field of battle.  But close didn’t diminish the staying power of the British Army.  And they stayed.  On the battlefield.  And in their cities.  Dragging the conflict out for a total of 8 years.  And no matter what era of warfare you use to measure war-years 8 years of war is very costly.  Someone has to pay for it.  And, ultimately, it’s the people.  Either through taxation.  Or the loss of wealth through inflation.  Or simply the loss of wealth through the losing of your stuff.  And going without.  Because the army fighting for your liberty had no choice but to take what was yours.

This made the Revolutionary War unlike other wars.  For this war was about liberty.  Property rights.  The tyranny of a distant power.  And unjust taxation.  In other words this war was against all the things that made fighting a war possible.  You can’t really draft men to fight in a country that stands for liberty.  You just can’t confiscate the things you need to wage war from your people in a country built upon the principle of property rights.  You can’t declare martial law and suspend the rule of law on people you deem not to be patriotic enough in supporting the cause when you’re fighting the tyranny of a distant power that does.  (Even the Americans gave British soldiers a fair trial for the Boston Massacre).  And taxes?  The people that dumped tea into Boston Harbor over the principle of no taxation for revenue purposes without representation in Parliament was not going to be able to tax their people on a federal level.  Which proved a big obstacle in paying for the war to win their liberty.

The Articles of Confederation made the United States of America a confederacy of sovereign states.  And those sovereign states held the real power.  Virginia.  Massachusetts.  Pennsylvania.  New York.  And the other 9 sovereign states.  Not the United States of America.  That confederation that was waging war against the mightiest power in the world.  Which made raising funds difficult.  For without the power to levy taxes all they could do was ask.  Just like George Washington did all of the time.  Especially during that horrible winter at Valley Forge when his army was naked and starving.  He asked the Continental Congress for provisions.  And the Continental Congress asked the several states for their apportioned funds raised by their state legislatures.  Per the Articles of Confederation.  If they didn’t pay these funds timely or in full (or at all) they could ask again.  And that’s all they could do.  Which is why George Washington’s army suffered through that horrible winter.  Because the funds weren’t there to buy Washington the provisions his army needed.

Thanks to Inflation the Continental Army often had No Choice but to Take what they Needed from the People they were Fighting For 

The Americans never had enough money.  Which makes it amazing that they held off losing for 8 years.  Eight very costly years.  And won.  Especially considering how bad the economy was during the war.  Unable to tax or get sufficient loans from Europe they had little choice but to print money.  Which caused a whole lot of trouble.  For the more money they printed and put into circulation the more the value of their currency fell.  And soon a Continental was “not worth a Continental.”  And when the currency lost its value it took more of it to buy things.  Which led to price inflation.  The price of material and parts grew so high that it increased the cost of American manufactured muskets over the cost of imported French muskets.  Which they had to bring in through a British blockade.  Giving what should have been a cost advantage to the Americans.  Had it not been for the inflation.

To try and keep prices under control they implemented wage and price controls.  Which didn’t work.  The continued devaluation of the currency forced sellers to raise their prices to cover their rising costs.  Forcing them to sell below their costs would just put them out of business.  Voluntarily.  Or involuntarily.  Creating shortages in the market place.  Some offered lower prices for specie (gold and silver coins).  You can’t print hard money (specie).  So it held its value.  Unlike the paper money.  So a little of specie went a long way compared to paper money.  Of course, this didn’t help their wage and price controls.  It just made the paper more worthless.  And raised prices further.

There was yet another ugly side to this sordid business.  High prices and shortages created opportunity to profit handsomely.  There was speculation and market manipulation (hoarding, cornering the market, etc.) to take advantage of those highly priced items that were in scare supply.  Further raising prices for the people.  And compounding the problems of provisioning the army.  Which infuriated the low-paid soldiers.  Who the Continental Congress paid in that worthless paper money.  Angry mobs arose to address this profiteering.  As well as new laws and enforcement.  But they helped little.  The army often had no choice but to take what they needed from the people they were fighting for.  Either outright.  Or in exchange for IOUs.   Promises that the Continental Congress of the United States of America would make good on.  Just as soon as the several states paid their apportioned funds raised by their state legislatures. 

If you Violate the Ideals you’re Fighting for while Fighting for those Ideals it can Complicate the Peace

Fighting for an ideal makes war complicated.  If you’re just a tyrannical dictator looking to rape and pillage it makes things easier.  You don’t have to worry about liberty.  Property rights.  Debt.  Or taxes.  In the short term.  Or the long term.  Which made the American Revolutionary War a very difficult war to fight.  Because at the heart of the United States of America were those ideals.  To win this war to grant liberty to the people required taking their liberty away.  A little.  To win this war to guarantee property rights you had to violate property rights.  A little.  To win this war against tyranny you had to use excessive force against your people.  A little.  To win this war to establish taxation only with representation caused the destruction or personal wealth.  A lot.  Through impressment (taking things from the people).  Borrowing from foreign countries.  Or through inflation.

When the French joined the Americans in 1778 inflation was already out of control.  They printed twice as many Continentals in 1778 as they did in the last three years combined.  And there was serious discussion about doing the unthinkable.  Repudiation.  To simply escape the inflation by escaping the currency.  To retire the bills from circulation.  At a fraction of their value.  And that’s what they did in 1780.  Issuing new currency based on specie for the old currency at a 40 to one ratio.  The states were to tax their people to raise the funds for the new currency.  So the people took a huge short-term loss.  For a stable long-term future.  Based on specie.  That they couldn’t inflate.  This hard money would come from in large part the Spanish and the French.  The Spanish in Cuba buying American flour with specie.  And French aid.  As well as their army and navy spending their hard money in the American economy.

Wars are costly.  And they are rarely nice.  Trying to make them nice can make them last longer.  Which will make them more costly.  Of course, if you violate the ideals you’re fighting for while fighting for those ideals it can complicate the peace.  Luckily, for the Americans, they won their peace.  Their allies, the French, were not so lucky in their revolution.  The French Revolution.  Fought less than a decade after the American Revolution came to a close.  And unlike the Americans the French peace that followed was a bloody one.  That would eventually replace the king they executed with an emperor.  Napoleon Bonaparte.  Who the Americans helped bring to power in part due to the crushing debt King Louis XVI incurred supporting the Americans in their revolution.

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Benjamin Franklin, Bon Homme Richard, John Paul Jones, Whitehaven, Dominica, Rhode Island, Count d’Estaing, Anti-French Riots and Serapis

Posted by PITHOCRATES - April 26th, 2012

Politics 101

The First French Action in the New World that was in Support of their New American Allies was in Rhode Island

The French loved Benjamin Franklin.  He was America personified.  They loved his science.  And his Poor Richard’s Almanac.  In 1779 King Louis XVI of France bought a merchant ship from the French East India Company and gave it to the Americans to use in their common war with Great Britain.  The U.S. captain fittingly named the Duc de Duras the Bon Homme Richard.  Which translates to Good Man Richard.  Richard as in Poor Richard’s Almanac.  To make it a favorite of the French.  Who were already quite enthused by this young American captain.  Who was a Scotsman by birth.  John Paul Jones.  From his actions off (and on) the British coast the previous year.  In the first year of the Franco-American alliance in the American Revolutionary War (1775–1783).

With the French on board Benjamin Franklin wanted to capitalize on this new alliance.  With friendly ports on the far side of the Atlantic Franklin instructed John Paul Jones to harass the British coast.  To bring the war home to the British people.  And that’s exactly what Jones did.  Then in command of the Ranger.  Coming ashore at Whitehaven in April of 1778.  A seaport on the north east coast of England.  His intent was to set fire to the ships and port facilities.  To disrupt British shipping.  He didn’t do the great damage he had hoped.  But it really brought the American Revolutionary War to British soil.  And the British were not amused.  But the French were.

The French were eager to get some payback for their embarrassing defeat in the Seven Years’ War (1756–1763).  And to recover some of their lost New World territories.  Beginning in the West Indies.  On the island of Dominica in September of 1778.  The first of a series of victories in the West Indies where the French navy began helping the Americans in their War of Independence.  By taking these islands from the British.  Which helped the Americans by keeping the British busy.  And depriving the Royal Navy of some useful ports.  But these actions benefited the French more than the Americans.  Which was keeping with French interests in joining this war.  Payback for their prior defeats at the hands of the British.  And regaining lost territory.  The first French action in the New World that was in support of their new American allies was in Rhode Island.  In the first Franco-American combined action in the war.  Which didn’t go well.  Or end well.

The French arrive with a Fleet Including some 16 Warships and about 4,000 French Soldiers

1777 ended well for the Americans.  They defeated a British Army at the Battle of Saratoga.  Because of this the French joined in alliance with the Americans in their war against Great Britain.  Valley Forge followed.  Which was pretty horrible.  But Baron von Steuben drilled the Continental Army.  Made them as good as any European Army.  And when General Clinton was moving his army from Philadelphia back to New York in the Spring Washington wanted to go on the offensive.  His chance came at the Battle of Monmouth.  Washington ordered an attack on the rearguard of Clinton’s army.  General Charles Lee hesitated.  Then ordered a retreat.  Which Washington turned around.  As had the British in their retreat to New York.  The Americans and the British then engaged in a long day of attacks and counterattacks.  Stopping only after exhaustion set in.  Von Steuben’s trained Continental Army fought the British Army to a draw.  As impressive a feat as the win at Saratoga.  Perhaps more so.  And so close to a win.  Had Lee followed Washington’s orders perhaps it would have been.  But, alas, it wasn’t.  And in the morning the British were gone.

The French were on their way.  But they did not arrive early enough to prevent Clinton from getting his army across to Manhattan.  But the appearance of the French fleet did paralyze the British into inaction.  The French fleet included some 16 warships and about 4,000 French soldiers.  With some 50,000 British regulars in New York surrounded by a fleet of 100 or so made New York NOT the best place to test the grand Franco-American alliance.  Instead the first test of that grand alliance would be in Newport, Rhode Island.

The plan was to land the French soldiers to join an American force to assault the British forces with the support of the guns of the French fleet.  What happened was a tragic comedy of errors.  A militia force arrived late.  While the Franco-American force was waiting a British naval squadron appeared.  Count d’Estaing, the French naval commander, re-embarked the French troops and prepared for battle.  Then a violent storm blew in.  Scattering the opposing naval forces.  The British then limped back to New York to refit.  And the French limped to Boston to refit.  The American commander was furious at the French.  He published an order condemning the French.  American morale fell.  Militia went home.  The British seeing this decided to attack.  The Americans held their ground.  Fought to another draw.  Then slipped away under the cover of night.  Yet another missed opportunity.

When the Serapis asked the crippled Bon Homme Richard if she was striking her colors Jones replied, “I have not yet begun to fight.” 

The Americans were not amused with the French actions.  Anti-French riots broke out in Boston where the French fleet was refitting.  All the old animosities from the previous war resurfaced.  When the Americans fought alongside the British against the French.  It took the combined efforts of d’Estaing, John Hancock, Nathanael Greene and Alexander Hamilton to maintain the peace between the Franco-American alliance in Boston.  Their counterparts in Charlestown, South Carolina, were not so successful.  Where the French and the Americans fired upon each other with cannon and small arms.  And there was blood.  Dead and wounded.  Not the greatest of beginnings between the grand alliance.

While the French fleet failed to pay any dividends for the Americans some other naval action was.  Harassing the sea lanes between London and the West Indies.  Causing great headaches to British commerce.  Harassing the fisheries off of Nova Scotia.  Capturing enemy ships.  And who was doing all of this damage to the British fleet?  And to British pride?  That Scotsman fighting for America.  John Paul Jones.  Who did not know the meaning of the word ‘surrender’.

In September of 1779 Jones came into contact with a convoy of 40 British merchant ships coming from the Baltic under the protection of the 44-gun Serapis and the 28-gun Countess of Scarborough.  Jones commanded a 4-vessel squadron including the Bon Homme Richard and the Alliance captained by French Captain Pierre Landais.  And engaged.  The battle lasted some three and a half hours.  And into the night.  The Bon Homme Richard and the Serapis rammed into each other yet still continued the fight.  The Alliance fired broadside after broadside into the Bon Homme Richard and yet Jones continued the fight.  When the captain of the Serapis asked the crippled Bon Homme Richard if she was striking her colors (surrendering) Jones reportedly replied, “I have not yet begun to fight.”  And he kept fighting until the captain of the Serapis struck his colors sometime after 10 PM.

Again, not an auspicious start for the Franco-American grand alliance.  But a pretty impressive one for a nearly nonexistent U.S. Navy.

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