Mercantilism, North America, Pontiac’s Rebellion, American Revolution, Northwest Territory, George Rogers Clark, Louisiana Territory

Posted by PITHOCRATES - May 31st, 2012

Politics 101

The French claimed great Territories in the New World but they did not Settle them nor could they Defend Them

In the Age of Discovery the Old World discovered the New World.  The Portuguese bumped into Brazil while sailing around Africa.  And they stayed awhile.  Which explains how the language from tiny Portugal is one of the top ten spoken languages in the world today.  Because of Brazil.  Population 205,716,890 in 2012.  The Spanish pretty much discovered and settled the rest of South and Central America.  Working their way up the Pacific coast of North America.  And into Mexico, Texas and Florida.  Because of this Spanish is now the 4th most spoken language in the world.  The British discovered and settled North America east of the Appalachians between Maine and Georgia.  They also settled parts of Canada south of the Hudson Bay.  And some of the Maritime Provinces.  Today English is the 2nd most spoken language in the world.  The French also came to the New World.  But they weren’t as successful.  Today French is only the 10th most spoken language in the world.

The Age of Discovery was also the age of mercantilism.  Which is why the Old World was racing to settle the New World.  So they could establish colonies.  And ship back raw materials to the mother country.  And in Spain’s case, all the gold and silver they could find.  Which they found a lot of.  Mercantilism is a zero-sum game.  To maximize the export of manufactured goods.  And to maximize the import of raw materials and bullion.  To always maintain a positive balance of trade.  And whoever had the most overseas colonies sending raw material back to the mother country won.  And as they expanded throughout the New World they eventually began to bump into each other.  As well as the Native Americans.  Who weren’t mercantilists.  But hunters and gatherers.  Like all Europeans were some 5,000 years or so earlier.  Before they became farmers.  Moved into cities.  Where they took control of their environment.  And became more efficient.  Growing ever larger populations on smaller tracts of land.  Which proved to be a great threat to the Indians.  For when these Europeans took their land they also increased their numbers.  Greatly.  And this fast growing population had the latest in war-fighting technology.

Soon they were stepping on each others’ toes in the New World.  The British and the Spanish north of Florida.  The British and the French between the Mississippi River and the Appalachians.  In New Brunswick.  And large parts of Ontario and Quebec.  A lot more territory was in dispute between the British and the French.  And that’s because the French claimed so much territory in North America.  Their claims included the lands around the St. Lawrence Seaway.  All the land around the Great Lakes.  And pretty much the total watershed into the Mississippi River.  The French had profitable business in the fur trade.  They used the rivers in North America for that trade.  With a few forts scattered along the way.  Where they traded with the Indians.  But the big difference between the French and everyone else is that the French claimed the land.  But they didn’t settle it.  Which made the Native Americans tolerate them more than the other Europeans in the New World.  But in the days of the mercantilist empires that was a problem.  Because everyone wanted everyone else’s land.  And if it wasn’t settled with large and growing populations, someone else was just going to take it.

The Proclamation of 1763 and the Quebec Act of 1774 tried to make Peace with the Indians but Inflamed the Americans

And that’s what happened in the French and Indian War (1754–1763).  The European powers came into conflict with each other over their North American territories.  The British came out the big winners.  And the French were the big losers.  Losing pretty much everything east of the Mississippi to the British.  And everything west of the Mississippi to Spain.  The various Indian tribes fought alongside the various European powers.  But it is the fighting on the side of the French that we know them for in this war.  Where their fighting against the British Americans was some of the cruelest fighting in the war.  For the Indians liked the non-settling ways of the French.  While they didn’t care for the settling ways of the American colonists at all.  Who kept encroaching on their hunting grounds.  So at the conclusion of the French and Indian War the Native Americans were restless.  Something the British were keenly aware of.  And after the long and expensive war they just fought they didn’t want a return to hostilities.  So King George III issued the Royal Proclamation of 1763.  Setting the border between the British American colonists and the Indian lands along the watershed of Appalachia.  Lands where the rivers flowed to the Atlantic Ocean were the American colonists’ lands.  Lands where the rivers flowed into the Mississippi River and its tributaries (east of the Mississippi) were Indian lands. 

This did not go very well with the American colonists.  For they planned to expand west until they could expand west no further.  At the shore of the Pacific Ocean.  Especially Virginia.  Who wanted to expand into Kentucky.  And into the Ohio Country (across the Ohio River from Kentucky).  Before the Proclamation of 1763 could even go into affect the Indians rose up in the Great Lakes region, the Illinois Country and Ohio Country.  Where the British displaced the French.  Pontiac’s Rebellion (1763–66).  A rather nasty and brutal war where the Indians killed women and children as well as prisoners.  And the British used biological warfare against the Indians.  Giving the Indians smallpox-infested blankets.  In 1774 Parliament passed the Quebec Act.  Which did a lot to further annoy the American colonists.  Especially that part about extending the province of Quebec (the former French territory from Labrador all the way to the Great Lakes region) south into the Ohio and Illinois country.  Many lumped the Quebec act in with the Intolerable Acts of 1774 which were to punish the colonists for the Boston Tea Party.  All these acts of Parliament and proclamations of the Crown failed in one of their main objects.  Maintaining the peace on the frontier.  One year later there was another shooting war in North America.  And this one did not end well for the British.

The American Revolutionary War evolved into a World War.  Once the Americans defeated a British army at Saratoga the French joined the American cause and declared war on Great Britain.  Eager to get back their North American territories.  The Spanish would join the French in alliance and declared war on Great Britain.  Primarily to settle some old scores in the Old World as opposed to helping the American cause.  They had the lands west of the Mississippi and control of that same river.  They had no desire to see the Americans advance any further west.  In fact, they wanted to expand their territory at the expense of both the Americans and the British.  The Indians, meanwhile, saw the Americans as the greatest threat and allied with their two-time past enemy.  The British.

The Indians were Little More than Bystanders while the Europeans Traded their Land with each Other

The war in the frontier lands of the West was as nasty and brutal as ever.  The British coordinated their war effort against the Americans from their frontier outposts.  Where they traded with their Indian allies.  Some even paying the Indians for each scalp they brought back from their raids.  And so the Indians crossed the Ohio River into Kentucky.  Throughout the war.  And attacked these frontier settlements.  While the Americans fought a defensive war.  Until one man arose.  Who believed the strongest defense was a strong offense.  And he took the war to the Indians and the British in the West.  Saving Kentucky.  And conquered the Northwest Territory. 

George Rogers Clark’s plan for conquering the Northwest was bold.  First take Vincennes (in southern Indiana near the Illinois border).  Travel up the Wabash River.  Down the Maumee River.  And then on to Detroit.  After taking Detroit head north to Michilimackinac (on the northern tip of Michigan’s Lower Peninsula).  The Virginian authorities liked the plan.  And commissioned him colonel in the Virginian forces.  And authorized him to conquer the Northwest.  For Virginia.  So Clark led his men down the Ohio River.  And traveled all the way to Kaskaskia near the Mississippi River in southern Illinois.  Not far from St. Louis.  Took it.  And marched to Vincennes.  And took Fort Sackville at Vincennes.  Shortly thereafter Henry Hamilton (who had a reputation for buying scalps from the Indians), governor of Detroit, Left Detroit and headed to Vincennes.  Gathering Indians along the way.  Recaptured Vincennes.  Then Clark returned and in one of the most fabled actions of the entire Revolutionary War took back Vincennes.  Despite the British and Indians greatly outnumbering Clark’s force.  Detroit lay open.  But Clark did not have the men or provisions for that conquest.

Meanwhile the Spanish were looking to cash in on their alliance with France.  And moved against British outposts from New Orleans.  Taking Baton Rouge.  Natchez.  Mobile.  And Pensacola.  To turn back the Spanish Governor Sinclair of Michilimackinac gathered a force and headed to the Spanish outpost St. Louis.  With the ultimate goal of taking New Orleans.  It did not go well.  The following year the Spanish launched an offensive of their own to take Detroit.  They got as far as St. Joseph on the other side of Michigan’s Lower Peninsula.  Around the bottom of Lake Michigan from Chicago.  A lot of land changed hands in the Northwest.  But thanks to Clark much of it remained in American hands at the end of the war.  Who came out the big winners in this war.  The British ceded all their claims east of the Mississippi to the Americans.  Including all of the Illinois and Ohio country.  Including Michigan and the lands surrounding the Great Lakes south of Canada.  The French did not drive the peace as they had hoped.  And recovered none of their North American territories.  The Spanish emerged with pretty much what they had when they entered.  Only with the Americans across the Mississippi instead of the British.  Who were much more interested in westward expansion than the British.  But they didn’t have to worry about the Americans crossing the Mississippi.  For Napoleon strong-armed the Louisiana Territory from the French in exchange for some land in Tuscany.  Who would later sell it to the Americans.  While being rather vague on the exact boundaries.  Which the Spanish would have to worry about in the years to come as the Americans headed west.  Towards Spanish country on the west coast.

Of course the Indians were the greatest losers.  For they were little more than bystanders while the Europeans traded their land with each other.  Making the Native Americans ever more restless.  And unwilling to give up their hunting and gathering ways.  Which sealed their faith.  For while they retreated west the American population exploded.  Due to their efficient use of the land.  It was the New World against the Very Old World.  Modern farming civilizations displaced the hunters and gatherers everywhere in the world.  A trend that started some 5,000 years earlier.  And the history of North America would be no different.  The Indian ways since then have been fast disappearing.  The Indian languages were so rarely spoken in the 20th century that the code based on it was the one code the Japanese couldn’t crack during World War II.

www.PITHOCRATES.com

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We’d do better Emulating Bourbon Country than China

Posted by PITHOCRATES - June 25th, 2011

A Generous Government robs the Private Sector

The economy.  It’s bad today.  It’ll be bad tomorrow.  And probably will still be bad when many are thinking about retiring.  I say thinking.  Because that’s all they may be able to do about retirement.  Think about it.  As they keep working well into retirement age (see Retirement As We Know it Is “Dead”: EuroPacific’s Pento by Peter Gorenstein posted 6/22/2011 on Yahoo! Finance).

“Americans are have negligible savings, the real estate market is still in secular decline, stock prices are in a decade’s long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are bankrupt.”

Pento believes these issues could be resolved if the government takes the right steps. What might those be? He recommends lowering taxes, reducing inflation and balancing the budget as a means to increase the value of the dollar. If the dollar had more purchasing power and interest rates were higher, retirees would be able to live off their fixed income, he says.

Please note the common theme in the resolution.  Less government.  Less government spending.  Les government taxing.  Less government quantitative easing (i.e., stop depreciating the dollar).  Because it is all of this government intervention into the private sector that has killed so many private sector jobs.  Reduced our real incomes.  Bankrupted our entitlement programs.  And destroyed our pensions (because fat pension funds are just too tempting to ‘borrow’ from to pay for more spending.  And by borrow I mean steal).

A generous government is a government that robs the private sector to pay the beneficiaries of the public sector.  But they have taken so much that they have given the private sector the worst recession since the Great Depression.  Which, in turn, has starved government coffers.  Talk about killing two birds with one stone.

There’s no Recession in Bourbon Country

Despite being in the worst recession since the Great Depression thanks to all that government intervention into the private sector, there is some positive economic activity out there.  One area in particular that is near and dear to my heart.  Bourbon (see Bourbon’s popularity feeds growth of Kentucky distilleries by Bruce Schreiner, Associated Press, posted 6/25/2011 on USA Today).

The producers are aiming to quench a thirst for bourbon — especially premium brands — that is steady in the U.S. and rapidly expanding overseas, thanks in part to the comeback of cocktails appealing to younger adults, lower tariffs, robust marketing and a larger middle class in emerging markets.

A tariff is a tax on an import.  To protect the domestic competition.  Or so goes the theory.  Protective tariffs destroyed a lot of American industry that had no incentive to improve (textile, steel, automotive, etc.).  But that’s another story.  Thankfully, bourbon is an American spirit.  All proper bourbon hails from Kentucky.  Thanks to those freshwater streams through the limestone bedrock of those rolling hills.  So there are no foreign bourbon markets to protect.  Keeping tariffs lower than they may be otherwise.  Thus providing a healthy export market. 

Industry observer F. Paul Pacult, editor of the quarterly newsletter Spirit Journal, said bourbon makers are showing an adventurous side with premium offerings that reflect an “intramural competition.”

“There’s more innovation happening in Kentucky right now than any other place in the world,” Pacult said.

Now Kentucky is bourbon country.  There are a lot of distillers competing against each other.  And yet the bourbon market as a whole is growing.  There’s no recession in bourbon country.  Which just goes to prove the old maxim.  Competition makes everything better.

The industry’s biggest boost, though, has come from exports.

Producers of bourbon and Tennessee whiskey reaped $768.2 million in export sales in 2010, up from $303.8 million in 2000, according to the spirits council, citing statistics from the U.S. Department of Commerce and the U.S. International Trade Commission.

The biggest overseas customers include Australia, Japan, the United Kingdom and Germany, but the industry is looking at two seemingly bottomless markets — China and India — along with other emerging markets in Asia and Africa.

China and India.  Those two countries driving up the price of oil.  Because of exploding demand in their emerging middle classes.  Countries that gave up much of their communist/socialist ways.  Who turned their disdain for capitalism to ‘dain’ (which I think means the opposite of disdain).  And they have smoking hot economic growth.  Hard to believe that a communist country, China, is schooling the United States in free market capitalism.

Crony Capitalism and Corruption in China

Or are they?  Oh, they are getting more Western.  But not like the UK or the USA during the Industrial Revolution or the booming times that followed.  But after the growth of Big Government in those counties (see The long arm of the state posted 6/23/2011 on The Economist).

Chinese students used to aspire to a job with a foreign company. Now they are more likely to want one with an SOE [state-owned enterprises].

This may seem an odd choice, since the dynamism in China’s economy is mostly generated by non-state firms… In 1999 government-controlled firms owned 67% of industrial capital; a decade later their share had fallen to 41%. But in the industries that pay the highest salaries, state firms dominate.

A new shorthand has entered common parlance: guojin mintui, meaning the state [sector] advances and the private retreats. ..It has been tightening its grip on some industries it considers “strategic”, from oil and coal to telecommunications and transport equipment. It has been devising market-access rules that favour state firms. And to the chagrin of private businesses, it has allowed state companies to remain active in a surprising range of palpably non-strategic sectors, from textiles and papermaking to catering. In recent years property development has become a lucrative sideline for government businesses. “The tentacles of state-owned enterprises extend into every nook where profit can be made,” writes Zheng Yongnian of the National University of Singapore.

Already the young people are choosing the public sector over the private sector when it comes to their career.  Because the bloated public sector pays more.  With this higher pay they must be attracting the best and brightest to these SOEs.  So these SOEs must be kicking the non-state firms’ asses.

Some Chinese economists worry that the government’s response to the global financial crisis will bolster state enterprises and their bad habits at a time when they urgently need reforming. As the confederation’s researchers put it, much stimulus spending has involved “swapping from the left hand to the right hand”: the state lending to the state…

Unirule noted that the profits of state-owned industrial companies had increased nearly fourfold between 2001 and 2009. But their average return on equity was less than 8.2%, whereas that of larger non-state industrial enterprises was 12.9%. Factor in the low cost of borrowing enjoyed by SOEs and their access to land at below-market prices, the report said, and their real return on equity between 2001 and 2009 was minus 1.47%. They are, in effect, destroying capital.

Apparently not.  They actually have a negative return on investment.  So the SOEs are just deadwood propped up by government spending and special privilege.  Reminds me of another Asian country awhile back.  Where there was private sector/public sector partnering.  Where capital was shuttled from the left hand to the right hand.  Anyone like to guess the country I’m thinking about?  Anyone?  No?  Here’s a hint.  China and this other country hate each other.  Bitterly.  Which makes it rather ironic that they’re now following their example.  That Asian country is Japan.  During the Eighties.  A decade of spectacular growth.  That was more bubble than growth.  And we all know what happened in Japan in the decade that followed.  Not a whole hell of a lot.  Because the bubble popped.  And they suffered a devastating deflationary spiral similar to the Great Depression.  It was so bad that they called the Nineties the Lost Decade.

Some foreign businesspeople complain that market-opening measures initiated in the 1990s and early 2000s have run out of steam.  Many saw China’s accession to the WTO ten years ago as a great impetus for reform. But when the country reached the end of its transition period in 2006, its will faltered. Many foreign companies still report doing good business. But especially since the global financial crisis, the government has been widely accused of twisting rules in favour of its state-owned or, sometimes, private-sector favourites…

Local governments sometimes play a decisive role in determining which firms succeed and which fail. Take Himin, a manufacturer of solar water heaters based in the city of Dezhou in the northern province of Shandong. Himin is a private company, but it is the local government’s champion. Together Himin and the government have devised a branding strategy for Dezhou as China’s “solar city”. The government has helped Himin to grow by requiring apartment buildings to be equipped with solar water heaters and by subsidising solar-heated bathhouses in villages.

This is not capitalism.  This is crony capitalism.  Not much different from mercantilism.  And not a sustainable economic model.  Unlike entrepreneurism.  Like they’re doing in Kentucky.  While the nation is suffering the worst recession since the Great Depression, distillers are investing and innovating, competing against each other as they book record exports.  Without any partnering with their government.  While Himin is in bed with government.  A government that giveths.  And can just as easily taketh away.  And with business dependent only on their relationship to government, you can bet that there isn’t a lot of investing and innovating going on at Himin.  Because they don’t have to.  So why would they?

This scheme to encourage what the government calls “indigenous innovation” focuses on seven “strategic” industries, from alternative energy and low-carbon-emitting vehicles to information technology. First Financial Daily, a Chinese newspaper, reported that investments by these industries could amount to as much as $1.5 trillion over five years, of which the state is likely to contribute 5-15%. Mr McGregor says the scheme involves creating new Chinese technologies on the back of foreign ones supplied by companies eager for a share in the government’s massive spending. Some Chinese scientists have complained about the likely waste involved in state-directed R&D, but the party loves big projects too much to listen.

Good innovation doesn’t need government money.  Investors are more than willing to finance a good thing.  What investors don’t like to invest in are bad investments.  Which is typically what the government invests in.  Because a good investment can attract private capital.  So that leaves the bad investments for government to fund.

People flocking to the government for financing are just like ants at a picnic.  They just want to get in while the getting is good.  But they have little of value to offer.  They’ll just pull a lot of money out of the private sector that could have been put to better use.  By producing real economic growth.  With a positive return on investment.

Worse is the state directing private investment.  People risking capital know what good R&D is.  People risking other people’s money don’t.  And they’re far more tempted to consider political reasons than good science.

China’s state-sector reforms in the 1990s went for the low-hanging fruit. A decade ago angry workers were easily cowed into submission by police or bought off with handouts. But any further reform would affect the interests of people in the top echelons of the party as well as their families, who have extensive connections with state-owned firms.

Zhu Rongji, the former prime minister whose reforms obliterated many of China’s state-owned firms in the late 1990s, has also gone on the attack. In April he made a rare public appearance at his alma mater, Tsinghua University. He handed over copies of a four-volume collection of his speeches, due to be published later this year, and pointedly invited readers to “make comparisons with the situation today”. To his supporters, the present looks grim.

Top echelons of the ruling communists, as well as their families, are well connected with state-owned firms?  No wonder they have negative returns on equity.  They’re stealing money from these SOEs.  This is everything the communists said the capitalists did.  And here the wealthy communist elite are doing it themselves.  Exploiting the poor working class.  How ironic.

Maybe the Chinese are just drunk with power.  Or on that fine Kentucky bourbon.

You’re going to Work until you’re Dead

The Chinese economy is a house of cards.  Much like it was in Japan in the Eighties.  And it will crash.  One day.  Just as the Japanese economy fell.  And no doubt a round of deflation will follow.  Like in Japan.  The Chinese are already raising interest rates to stamp out inflation.  To try and stop a bubble in their economy.  Much like the rest of world is.  Well, pretty much everyone but Ben Bernanke in the U.S.  Who may still try another round of quantitative easing.  Silly Americans.  Adding inflation to high unemployment only gets you the misery of the Seventies.  Carter‘s stagflation.

Although some of that economic activity may be somewhat artificial, it is producing surpluses.  Enough for the Chinese to buy U.S. debt.  So the Americans can continue to pay for their entitlement programs.  Such as Social Security.  And Medicare.  Which everyone and their brother knows will go bankrupt in the not so distant future.  Just as the Baby Boomers start retiring en masse to stress these programs like they’ve never been stressed before.  Now imagine the Chinese economy crashing.  And their surpluses turn to deficits.  And they can’t buy U.S. debt anymore.  That’d be one painful scenario.  Unable to borrow money, the U.S. would have no choice but to cut spending.  In a big way.  As in all those entitlement programs.  Which account for almost half of all federal spending.  Ouch.

Retirement as we know it dead?  You better believe it.  You’re going to work until you’re dead.  Even if you saved for your own retirement.  Because a broke government is a desperate government.  And if they can’t raise enough money taxing income, and the Chinese aren’t buying our debt, they’ll start taxing your wealth.  Your savings.  Your assets.  Your retirement.  Some nations already do.  So it’s not unprecedented.  Which would make a Chinese crash rather depressing. 

Gee, I’d hate to be in our shoes.

www.PITHOCRATES.com

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