Thomas Jefferson, Alexander Hamilton, Agrarian Past, Industrial Revolution, Federalists, Republicans, Reynolds Affair and Philip Freneau

Posted by PITHOCRATES - September 20th, 2012

Politics 101

Jefferson could not Turn a Profit on his Plantation and was Forever in Debt Leading to a Lifelong Disdain for Merchants and Bankers

At the time of the Founding America was (and would be for a long time) an agrarian nation.  A country of farmers.  Big and small.  Rich plantations.  And lots of hard-working family farms that were far from being rich.  Yeomen famers.  Who, to borrow a phrase from Oliver Wendell Douglas, “got their hands dirty!”  For those of you too young to recognize this line it’s from the 1960s classic sitcom Green Acres.  Where Douglas was a rich New York City (NYC) attorney who moved out of NYC to Hooterville to be a farmer.  Who he called the backbone of America.  Much like Thomas Jefferson.

Douglas and Jefferson shared a lot in common.  Both were lawyers.  Both were part of high society.  And both could make a good speech (or put something great in writing).  Douglas lived on Park Avenue in NYC.  And he and his wife travelled in the top social circles.  Just like Jefferson.  They both enjoyed the best of the best.  But neither were very good farmers.  The Douglas farm was a disaster despite his best efforts.  While Jefferson could not turn a profit on his plantation.  And was forever in debt.  Leading to a lifelong disdain for merchants and bankers.  Especially merchant bankers.

Alexander Hamilton was born on the British Isle of Nevis.  And raised in St. Croix.  Hamilton was a bastard child.  Illegitimate.  A stigma that spurred him to do everything aggressively in his life to show he was not a second-class person.  He worked at an early age.  In commerce.  And he was very good.  A natural.  Very smart.  And brave.  A veteran of two American wars.  He loved America.  But having been born and raised outside of the country he had no allegiance to any state.  Put it all together and it made Hamilton a nationalist.

Jefferson wanted to hold on to the Agrarian Past while Hamilton wanted to bring on the Industrial Revolution

Hamilton was just as much a Patriot as the other Founding Fathers.  Perhaps more so as he actually served in the Continental Army.  And while serving he saw how poor military power and poor financial power made a country dangerously weak.  The Americans almost lost their Revolution because of a weak nation that could not provide for her army.  So he wanted to make America strong.  And united.  The key in Hamilton’s eyes to making America a powerful nation (like Great Britain) that could stand up against any enemy was a strong union.  And in the Washington administration he advanced policies towards that end.  Ironically, policies that would do more to drive the nation apart.

So Hamilton (Secretary of Treasury) and Jefferson (Secretary of State) could not be more different.  And as they started to push their agendas in the Washington administration they grew to hate each other.  For their visions for America couldn’t be more different.  Despite both being ardent Patriots.  Jefferson wanted to hold on to the agrarian past.  While Hamilton wanted to bring on the Industrial Revolution.  Jefferson believed in the landed aristocracy built upon virtue and talent.  Not the aristocracy money could buy you.  Or birth or a title like in a monarchy.  Which Jefferson believed Hamilton was trying to turn America into.  As did all the farmers throughout the South and in the West.  Who all hated bankers and merchants.  Those people who made money off of other people’s labors.  Investors and speculators.  While speculation in land, on the other hand, was perfectly acceptable as it was what the southern gentry did to acquire their wealth.

And so began the political parties.  The Federalists were for a strong national government that Hamilton tried to make as strong as possible.  And the anti-Federalists.  Who already felt that the national government had grown too strong.  Or as they would become under Jefferson’s leadership, the Republicans (which were NOT the forbears of the current Republican Party).  In general, southern planters.  While Hamilton led the Federalists.  In general, northern businessmen.  The game of politics was born.  And it got dirty pretty quickly.  Thanks to each party’s friends in the media.  The newspapers of the day.  Which were pretty much political arms of these parties.

The Newspapers launched Vitriol at each Other including a Lot of Lies, Slander and Libel

The Treasury Department was the largest government department.  It was huge.  With a huge budget.  Whereas the State Department was basically Jefferson and a few clerks.  Hamilton no doubt felt he was the most important man in America next to the president.  And Jefferson was sure that Hamilton was using his position to steal money from the treasury.  So sure that Jefferson and his Republicans launched Congressional investigations that turned up nothing.  Convincing Jefferson that Hamilton was a better thief than even he had imagined.  Jefferson still pressed and had a colleague introduce multiple resolutions in Congress against Hamilton hoping to get Hamilton thrown from office on a House vote.  The House voted down all resolutions.

James Reynolds was a con man who made his money by defrauding veterans.  And other criminal pursuits.  Tired of the scale of these scores he came to Philadelphia to make some bigger money.  By using his wife, Maria, to seduce and have an affair with Alexander Hamilton.  So he could blackmail him.  Which she did.  Then he did.  When Reynolds’ criminal past caught up with him and sent him to jail he talked about the affair.  Which was more than just an affair.  He told some Republicans that he and Hamilton were using treasury funds to fund speculation for personal gain.  Jefferson and the Republicans were overjoyed.  Sure that they at last had a way to get rid of Hamilton. When confronted in his home to answer these charges he fessed up and told the truth.  Which included no speculation with treasury funds.  While all the money paid to Reynolds came from his own pocket.  All treasury funds were present and accounted for.  Politicians being the gentlemen they were then were satisfied and promised to never speak of Hamilton’s marital indiscretions.

So the political battle between Hamilton and Jefferson would carry on in the press.  Hamilton contributed most of his writings to the Gazette of the United States which wrote positively about Federalist policies.  And enjoyed a national circulation.  So Jefferson countered that by setting up a Republican national paper.  The National Gazette.  Who James Madison helped kick off by convincing Philip Freneau to come to Philadelphia to edit the paper.  Which he did.  And Jefferson helped him with his finances by hiring him into the State Department.  Putting him on the payroll to attack Washington’s treasury secretary while he was the sitting Secretary of State.  Trying to undermine the very administration he belonged to.  And the war between the two men escalated.  The papers launched vitriol at each other.  Including a lot of lies, slander and libel.  Enlisting other papers to join in the journalistic malfeasance.  People who talk about negative political campaigns today have no idea how ugly it was back then.  There was no interest in reaching across the aisle.  They just wanted to destroy the opposition so they could advance their policies.   Much like it is today.  Only without it being about principle.  But advancing the privileged government class.  That other aristocracy that Jefferson hated.

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Marine Insurance, General Average, Mesopotamia, Genoa, Middle Class, Capitalism, London Coffeehouses and Lloyd’s of London

Posted by PITHOCRATES - April 3rd, 2012

History 101

It was in Genoa that Marine Insurance became a Standalone Industry

Risk management dates back to the dawn of civilization.  Perhaps the earliest device we used was fire.  Fire lit up the caves we moved into.  And scared the predators out.  As we transitioned from hunting and gathering to farming we gathered and stored food surpluses to help us through less bountiful times.  To avoid famine.  As artisans rose up and created a prosperous middle class we also created defensive military forces.  To protect that prosperous middle class from outsiders looking to plunder it.

As we put valuable cargoes on ships and sent them long distances over the water we encountered a new kind of risk.  The risk that these cargoes wouldn’t make it to their destinations.  So we created marine insurance.  Including something called ‘general average’.  An agreement where the several shippers shared the cost of any loss of cargo.  If they had to jettison some cargo overboard to save the rest of the cargo or to save the ship.  Some of the proceeds from the cargo they delivered paid for the cargo they didn’t deliver.  Some merchants who borrowed money to finance a shipment paid a little extra.  A risk ‘premium’.  Should the shipment not reach its destination the lender would forgive the loan.

So how long has marine insurance been around?  A long time.  Some of these practices were noted in the Code of Hammurabi (circa 1755 B.C.).  For ancient Mesopotamia was a trading civilization.  That shipped on the Tigris and Euphrates and their tributaries.  Out into the Arabian sea.  And beyond.  Following the coasts until advances in navigation and sail power took them farther from land.  The Greeks and Romans insured their valuable cargoes, too.  As did the Italian city-states that followed them.  Who ruled Mediterranean trade.  And it was in Genoa that marine insurance became a standalone industry.  No longer bundled with other contracts for an additional fee.

As the British Maritime Industry took off so did Lloyd’s of London

But the cargoes got larger.  And the voyages went farther.  Until they were crossing the great oceans.  Increasing the chances that this cargo wasn’t going to make it to its destination.  And when they didn’t the financial losses were larger than ever before.  Because the ships were larger than ever before.  So as the center of shipping moved from the Mediterranean to the ocean trade routes plied by the Europeans (Portugal, Spain, France, the Netherlands and England) the insurance industry followed.  And took the concept of risk management to new levels.

With trade came a prosperous middle class.  Where wealth was no longer the privilege of landholders.  Capitalism transferred that wealth to manufacturers, bankers, merchants, ship owners and, of course, insurers.  You didn’t have to own land anymore to be rich.  All you needed was skill, ability and drive.  It was a brave new world.  And these new capitalists gathered together in London coffeehouses to discuss business.  Including one owned by Edward Lloyd.  On Tower Street.  Where those particularly interested in shipping came to learn the latest in this industry.  And it was where shippers and merchants came to find underwriters to insure their ships and cargoes.

This was the birth of Lloyd’s of London.  And as the British maritime industry took off so did Lloyd’s of London.  As the British Empire spread across the globe international trade grew to new heights.  The Royal Navy protected the sea lanes for that trade.  The British Army protected their far-flung empire.  And Lloyd’s of London insured that valuable cargo.  It was a very symbiotic relationship.  All together they made the British Empire rich.  To show their appreciation of the Royal Navy making this possible Lloyd’s set up a fund to provide for those wounded in the service of their county following Lord Nelson’s victory over the combined French and Spanish fleets at the Battle of Trafalgar.  They continue to provide support for veterans today.  In short, Lloyd’s of London was the place to go to meet your global insurance needs.  From marine insurance they branched into providing ‘inland marine’ insurance needs.  Providing risk management to property beyond ships plying the world’s oceans. 

The Purpose of Insurance is to Let Life Go On after Unexpected and Catastrophic Events

Cuthbert Heath led Lloyd’s in the development of the non-marine insurance business.  Underwriting policies for among other things earthquake and hurricane insurance coverage.   And Lloyd’s helped to rebuild San Francisco after the 1906 earthquake.  With Heath ordering that they pay all of their policies in full irrespective of their policy terms.  They could do that because they were profitable.  Which is a good thing.  Insurers need to be profitable to pay these large claims without being forced out of business.  Which is why when the Titanic sunk in 1912 they were able to pay all policies in full.  And to continue on insuring the shippers and merchants that followed Titanic.  To allow life to proceed after these great tragedies.  And they would do it time and again.  Following 9/11.  And Hurricane Katrina.

This is the purpose of insurance.  Risk management.  So unexpected and catastrophic events don’t end life as we know it.  But, instead, it allows us to carry on.  Even after some of the worst disasters.  Because life must go on.  And that’s what insurance does.  Even people who rely on a particular body part for their livelihood have gone to Lloyd’s to buy insurance.  Perhaps the most famous being Betty Grable.  Who insured her legs for $1 million in 1940.  Pittsburgh Steeler Troy Polamalu has a lucrative endorsement with a shampoo company.  And insured his long hair for $1 million.  Rolling Stones guitarist Keith Richards insured his hands for $1.6 million.  America Ferrera (Ugly Betty) has an endorsement deal with a toothpaste company.  And they insured her smile for $10 million.  Even ‘the Boss’ Bruce Springsteen insured his voice for $6 million. 

People hate insurance companies.  Because they don’t understand how insurance works.  For they only know that they pay a lot in premiums and never receive anything in return.  But this is the way risk management is supposed to work.  And we need risk management.  We need insurance companies.  And we need insurance companies to be profitable.  Meaning that most of us will never see anything in return for all of our premium payments.  So these companies can pay for the large losses of the few who sadly do see something in return for all of their payments.  For insurance companies protect our wealth.  And earning potential.  So life can go on.  Whether we’re raising a family and planning for our children’s future.  Or taking precautions for some unforeseen accident to one of our body parts that may limit our future earning potential.

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Money, Gold Standard, Banknotes, Bills of Exchange, Checks, Credit and Debit Cards, ATMs and Online Banking

Posted by PITHOCRATES - January 4th, 2012

Technology 101

People storing their Gold in the Goldsmith’s Safe was a Precursor to the Gold Standard

Money is a temporary storage of wealth.  It improved on the barter system.  Instead of having to find people to trade our wealth-creating talents for the wealth-creating talents of other people we just stored the wealth we created in money.  If you built a plow and wanted a sack of wheat you didn’t have to find someone who had a sack of wheat who wanted a plow.  You could just go to the city market and sell your plow for money.  And use your money to buy the wheat.

Money took many forms.  Animals.  Grain.  Tobacco.  Alcohol.  And other commodities.  All of which had drawbacks.  Grain can become cumbersome to carry to market.  And it can be difficult making change with animals.  The precious metals gold and silver solved these problems.  Easier to carry.  Easy to exchange for goods.  You just weighed out whatever amount needed.  Durable.  Not easy to get so it would hold its value.  It was uniform.  Gold was gold.  Silver was silver.  Not so with animals.  They can be big or small.  Old or young.  One breed or another.  Making the value of animals non-uniform.  On top of not being very divisible in making change.

So gold and silver became the money of choice.  As it gained universality it became even more valuable.  And a bit dangerous to carry around on you.  Or leave at your home in your sock drawer.  Because other people wanted it, too.  And not the kind looking to trade with you.  The kind of people who just want to take your gold.  Se we needed a safe place to store it.  And few places were safer than a safe.  And who had a safe?  Goldsmiths.  So people took their gold to the local goldsmith.  Who placed their gold into his safe.  And the goldsmith gave the person a note stating the value of gold stored in his safe.  A precursor to the gold standard.

Merchant Banks Specialized in International Trade and Foreign Currency Exchange

And the banknote was born.  A promise to exchange that note for the amount of gold or silver specified on the note.  These notes were much easier to carry around than the heavier metal itself.  So the metal stayed in the safe and people started using the notes for currency instead.

And there were other notes that held value.  Such as a bill of exchange.  Popular with international trade.  Because ships rarely travel empty.  Which means at each port they are unloading one cargo (the import) and loading one new cargo (the export).   The people who do this importing and exporting are merchants.  They buy and sell.  That is, they pay money for one cargo and then collect money for another.  A good portion of these payments and collections equal each other.  So instead of paying money for one import cargo only to get most of that money back on a subsequent export cargo, they used bills of exchange.  And the merchants added the sum of payments and the sum of collections for each account (import/export company).  And carry any amount remaining owed or due on a ledger.  Or the company owning would send money to the company with the outstanding balance due to clear the difference.   Merchant banks carried out these transactions.  Who specialized in international trade and foreign currency exchange and acted as a clearing house for these bills of exchange.  The bill of exchange was a very valuable temporary storage of value.  And sometimes used as money.  One could even take it to a bank and exchange it for money for a small discount fee.

Buying and selling without exchanging money turned out to be very convenient.  And it spread.  Instead of taking cash to a utility we could mail a check.  Instead of mailing cash to a mail order company we could mail a check.  And we do.  We write checks from our bank.  That others deposit into other banks.  We write a lot of checks.  The volume is so great that massive computerized clearing houses process these checks.  Where computers read the magnetic ink on these checks and post payments and receipts to the individual bank accounts.  Where most payments and receipts cancel each other out.  Much like those bills of exchange at the merchant banks.

The Economy took off because of Banking and International Trade

As technology advanced we found other ways to pay without using money.  Credit cards were very popular.  Until people realize they have to pay the bank back.  Which led to debit cards.  Which is like writing a check at the point of purchase.  The merchant processes your debit card and your bank transfers money from your bank account to the merchant’s account.  Very convenient.  And no growing credit card balances.  Just declining bank balances.  Then came the Internet.  Which has taken the cashless economy to new heights.  And for those who still need cash while out and about you can always visit a convenient ATM.  One swipe of your debit card and the machine gives you cash.  And the ATM’s bank networks with your bank to transfer money from your bank account to theirs.  Automated by computers operating 24/7.  Spending money has never been more convenient.

Today most of our money is just numbers on some ledger.  Inside some computer.  Many of our employers even pay us electronically.  From our ‘pay check’ to the economic activity we engage in there is a whirlwind of banking activity behind the scenes.  As the banking community settles these accounts.  They do it quickly.  And efficiently.  Allowing ever greater economic activity.  And mobility.  Wherever you are you can log into some computer network (credit/debit card, ATM or Internet) to access your money and engage in economic activity.

People may not like banks.  But one thing for sure.  None of this would be possible without banks.  The economy took off because of banking.  Starting with those great Italian city-states of the 14th century.  And their international trade.  Their great merchant bankers leading the way.  Giving the world modern finance.  A modern economy.  And the way to a higher standard of living.

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Democrat (dĕm’ə-krăt’), n., A member of the Democrat Party, the more liberal of the two major political parties in the United States.

Posted by PITHOCRATES - November 17th, 2011

Politics 101

The Planter Elite was a Small Minority in the South but these Southern Democrats Wielded the Political Power

People often say that the Democrat Party is for the working man.  Which is rather ironic as it has more often been the party of privilege.  It was also the party of slavery.  The party of Jim Crowe Laws.  The party of segregation.  And the party to have an Exalted Cyclops of the KKK as a high-ranking member of Congress.  Senator Byrd.  Who later filibustered against the 1964 Civil Rights Act.  Which is another irony.

Black voters tend to vote Democrat despite this history.  At the time of the Civil War it was Northern Republicans against Southern Democrats.  The Southern states seceding from the Union to keep their slaves.  And the institution of slavery.  For the plantation system was a throwback to Old World aristocracy.  Only with slaves instead of peasants.  The Planter Elite was a small minority in the South.  But they wielded the political power.  And owned all of the good land.  Like in any landed aristocracy.  And slavery worked that good land.  That peculiar institution that survived long past the 20 years the Founding Fathers thought it would.  Of course, the Founding Fathers never counted on Eli Whitney.  Or his cotton gin.

Today’s Democrats can trace their lineage back to Thomas Jefferson’s Republican Party.  And to the man who wrote “all men are created equal.”  The hero of the yeoman farmer.  The backbone of the new republic.  Only Thomas Jefferson was more equal than most.  He was part of the landed aristocracy of the South, the planter elite.  Wealthy.  Refined.  A bit of a dandy.  And a hypocrite.  To some.

Thomas Jefferson saw the Corruption Resulting from Mixing Money and Government

Thomas Jefferson was brilliant.  Well read.  And had strong beliefs.  He understood politics.  And he knew world history.  He hated bankers and merchants.  Saw the corruption resulting from mixing money and government.  And especially hated Alexander Hamilton.  The secretary of the treasury.  And puppet master of George Washington.  Or so he believed.

Hamilton was a capitalist.  He understood money.  And the power of capital.  Ergo he was a sneaky bastard.  Corrupt.  And possibly the devil.  In Jefferson’s eyes.  So he worked tirelessly to destroy Hamilton.  Put a man on the federal payroll to help fund an opposition newspaper.  And slandered the hell out of him.  Exposed the affair with Mrs. Reynolds but left out the part about the Reynolds being crooks.  Mrs. Reynolds seduced Hamilton so Mr. Reynolds could blackmail him.  She did.  He did.  And Hamilton paid.  With his own money.  But Jefferson accused him of embezzling from the treasury to pay off the Reynolds.  And later lamented that Hamilton was such a good thief that they found absolutely no evidence of his heinous crimes.

When Jefferson was president, though, he did something very Hamiltonian.  He bought the Louisiana Territory.  Something that Hamilton would have done in a heartbeat.  And something Jefferson would have fought tirelessly against if he tried.

The Democrat Party is the Party of the Working Man as long as that Working Man belongs to a Union

So was Jefferson a hypocrite?  Sort of.  To many he was.  To himself, though, he wasn’t.  In his mind there was no contradiction in any of his actions.  For Jefferson’s mind could believe two conflicting truths at the same time.  He didn’t lie.  He didn’t flip flop.  These were not contradictions.  But paradoxes.  For the truth was nimble and flexible in his pragmatic vision.  And in that vision was an agrarian economy.  No banks.  A weak merchant class.  And a very limited and anemic federal government.  That spoke with a southern accent.  In other words a federal government was okay per se as long as Virginia and the planters of the other southern states controlled it.  Which they did for nearly a century thanks to the Three-Fifths Compromise.  That counted slaves as three-fifths a person for representation (giving the South more representatives per district than the North).  But not for taxation.

Privilege.  Born of the plantation system in America.  Based on the institution of slavery.  Where a small minority wielded great political power.  And exploited people (slaves) to accumulate wealth.  Protect their power.  And their privilege.  Not unlike the modern Democrat Party.  But today, because of the abolition of slavery, they have to do things differently.

Yes, the Democrat Party is the party of the working man.  As long as that working man belongs to a union.  Pays union dues.  And that union supports the Democrat party.  Working men who don’t are scabs.  And don’t deserve to have jobs.  So Democrat legislation favors Big Labor.  And unions.  Makes it hard for nonunion companies to compete for work.  And jobs using federal money have to pay union wages.  Either by union employees.  Preferably.  Or scabs earning union scale thanks to Davis-Bacon.  Which they would rather not have.  Because scabs earning union scale thanks to Davis-Bacon still don’t pay union dues.  But it at least makes it harder to compete against union companies.

Privilege Begets Privilege

This is the formula for most Democrat support.  Automotive workers (UAW).  Health care workers (SIEU).  Public sector workers (public sector unions).  Public school teachers (teachers unions).  And so on.  Privilege begets privilege.  You get favorable legislation as long as part of your union dues goes to Democrat coffers.  And if Democrats win control of Congress they will implement more anti-capitalistic legislation.  Impose tariffs to protect union jobs.  Increasing costs to taxpayers everywhere.  To support this privilege class.  So it’s who you know.  And not your ability.  Just like it was in the good old days.

To bolster their power they have to appeal to others in the electorate who aren’t union employees.  Because there just aren’t enough union employees.  Yet, at least.  So they also delve into crony capitalism.  Picking winners and losers in the private sector.  By supporting companies in favorable industries with grants and loan guarantees.  The winners being those who support Democrat candidates.  Privilege begets privilege.  The losers being those who don’t.  And these poor bastards not only don’t get grants or loan guarantees.  But the government saddles them with costly regulations to boot.  Or the Justice Departments initiates antitrust proceedings against them.  Like Microsoft.

Of course it takes Big Government to play like this.  And Big Government needs a lot of taxes.  For to spend money you have to first tax.  Or play with monetary policy.  Which is why Democrats will always oppose returning to the gold standard.  Because sometimes you can’t tax and spend.  Sometimes you have to print money and spend.  And you can’t do that with a gold standard.  But because of the problems inherent with printing money (inflation), they will tax every last penny they can first.  And their weapon of choice is class warfare.  To get the poor and middle class to agree to increase tax rates on the rich.  Which they are all for.  But what they don’t know is that Democrats are constantly redefining who is rich.  Which they would not be for.  Because a lot of people are being surprised to find out that they are now rich.  Especially modest middle class couples (say a cop and a teacher) whose combined income make them rich.  Much to their surprise.

The Democrat Party is For Sale to the Highest Contributor

The Democrats round out their base by appealing to populist issues.  They play down the God stuff and keep abortion legal to keep the youth vote.  And the feminists.  By showing that the government is not your parents when it comes to sex.  Or drugs (the youth is ever hopeful for the Democrat who finally decriminalizes marijuana).  Which is ironic as that same government acts like parents everywhere else.  Policing what we eat, drink and legally smoke.

They increase welfare spending to keep the poor dependent.  And voting Democrat.  They appeal to special interests (environmentalists, gays and lesbians, etc.) to get their support, too.  By painting their opponents as vicious monsters who want to destroy the environment.  Who want to criminalize being gay.  And who want to bring back the Spanish Inquisition.

You see, the modern Democrat Party has to buy votes.  Or lie to scare people.  Because people don’t willingly vote to give privilege to others.  Unless there’s something in it for them.  And this is where the modern Democrat Party breaks from Thomas Jefferson.  Jefferson did things to prevent money from influencing power.  And he did some pretty shady things.  But they were for a higher purpose.  To keep the spirit of 1776 alive.

The higher purpose of the Democratic Party?  The Democratic Party.  And unlike Jefferson, they’re all for influencing power with money.  In fact, the Democrat Party is for sale to the highest contributor.

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LESSONS LEARNED #73: “Politics is about overspending and vote-buying while getting some poor dumb bastard to pay for it.” -Old Pithy

Posted by PITHOCRATES - July 7th, 2011

Great Britain’s Costly World Wars

The 18th century was a time for adventure.  Exploring brave new worlds.  Discovering new species of plant and animal.  And new peoples.  But most of all it was a time for war.  World war.  As the great mercantilist empires raced to establish colonies in those brave new worlds.  And bumped into each other in the process.  Great Britain, Prussia and Portugal fought against against France, Spain, Austria, Russia and Sweden in the Seven Years’ War.  They fought for control of trade routes.  And each other’s colonies.  They fought from 1756 to 1763.  In Europe, Asia, Africa, South America, North America, the Caribbean, the Philippines and on the high seas.

Great Britain’s secretary of state, William Pitt, committed to total war.  He went all in.  Thanks to his allies fighting in Europe on land he had armies available for the colonial theaters.  And he had the Royal Navy.  That ruled the seas.  It was a formidable force.  And the British Empire grew.  From Gibraltar to the Indian subcontinent to the Philippines to the Caribbean.  And, of course, Canada.  It was a great victory.  But a costly one.  As total war tends to be.  And with more empire to manage and protect, Britain needed a larger standing army.  And a larger Royal Navy.  Costing even more money.  Especially in North America.  Where there was a lot of Indian activity on the frontier.  It only seemed fair to King and Parliament that their American colonists paid their fair share.  And the taxation started coming. 

The king needed money.  And the landowners in England were already overtaxed from years of war.  Taxing them further could cause problems in Parliament.  Because they had representation with their taxation.  But there was a lot of untapped wealth across the Atlantic Ocean.  The American colonies.  And they had no representation in Parliament.  So they would tax them to replenish the royal coffers.  And to help maintain the sprawling empire.  So they taxed.  And the Americans balked.  Then Parliament passed some acts to punish the colonists.  One thing led to another that led to a shot at Lexington that was heard ’round the world.  The American Revolution for independence from the British Empire was on.  And it, too, would be costly for Great Britain.  Eight more years of war.  And it would end with the loss of the American colonies.  Worse, it gave the French some ideas that led to the French Revolution.  And, ultimately, Napoleon.  That would plunge Great Britain back into another costly world war. 

Rhode Island:  Smallest State but Biggest Pain in the Ass

But Great Britain wasn’t the only nation with a large war debt.  The new United States of America also had a huge war debt.  And her finances were a mess.  People had debts.  States had debts.  And the Confederation Congress had debt.  Millions borrowed from Holland and France to fight the war.  And money was owed from before the war.  Including to British merchants that had to be honored for America needed trade with the British Empire.  And the protection of that trade provided by the Royal Navy.  So a lot of money was owed to a lot of people.  Which a lot of people didn’t have.  State legislations passed debtors’ laws that provided some relief to debtors by making it okay for them not to repay their loans.  Of course, this destroyed the credit markets.  Because people won’t loan money if the law says no one has to pay it back.  Worse, states were printing their own currencies.  And forcing people to accept it as legal tender.  Even though it wasn’t worth the paper it was printed on.  States were charging import duties on interstate trade.  Other states were charging some states more for their goods.  The love was gone.  States circled the wagons.  The war was over so they said screw the confederation .  It was a mess.  And soon after the war the economy was collapsing.

The United States was the Rodney Dangerfield of the international community.  It got no respect.  And most thought it was only a matter of time before they fell on their face and rejoined the British Empire.  The new nation needed legitimacy.  Which is hard to do when you’re broke.  You have no army or navy.  And the individual states were making their own treaties.  Making their own currency.  Collecting their own tariffs.  Life was simpler for the rest of the world when the Americans were British Americans.  For then she had a single seat of government to treat with.  A single currency.  A uniform tariff.  The Articles of Confederation just wasn’t getting it done.  So there was a drive to revise them to address some of these shortcomings.  Such as a national tariff to help pay down the national debt.  But one of the shortcomings was the revision process itself.  Any change required unanimous consent.  Which was a problem when it came to tariffs.

You see, tariffs are a source of revenue.  Imported goods come in on ships.  That have to dock.  In a port.  Before they offload a customs official reviews the manifest.  And verifies the cargo.  It’s simple math.  You have a list of what’s on a ship.  You apply a tariff.  Get your money.  Then you let the ships unload their cargo.  It’s very straight forward.  All you need is a port.  Which Rhode Island had.  And she refused to give up her right to collect those tariffs.  Because they collected a lot of revenue.  From her merchants.  And from all the merchants in the land-locked states that used her port.  It was very lucrative.  Her taxpayers loved it.  Because someone else was paying their taxes.  They were getting a free ride.  Thanks to those tariffs.  Which was great for them.  But it almost doomed the fledgling new nation.  Because whenever the Confederation Congress tried to amend the Articles of Confederation to include a national tariff, Rhode Island always voted “no.”  She refused to give up her cash cow.  Even if it meant the collapse of the new nation.  (Eventually delegates would meet in Philadelphia in 1787 and write a new constitution to replace the Articles of Confederation.  And some 100 years later America became a superpower.  No thanks to Rhode Island, of course.)

The EU and their Mercantile Emissions Trading Scheme

A clever government is always trying to think of ways to get other people to pay for their excessive spending.  And by ‘clever’ I mean devious.  To find some dumb bastard to pick up their tab.  Preferably not their own taxpayers.  Especially taxpayers who vote.  Because that’s the funny thing about taxpayers.  They don’t like paying taxes.  They will because they understand certain public goods require public funding.  Like an army and a navy to protect their nation from foreign enemies.  They’ll pay for these because they don’t want to be invaded or have their cargo ships boarded by pirates on the open seas.  But they’re not going to willingly pay for a big fat welfare state.  Not if they have to make sacrifices in their own lives so others don’t.  That’s just slavery by another name.  People just don’t like oppressive governments that take their money.  Or their liberty.  But if they could get some nice government benefits without having to pay for them, why, that’s a different story.

This is a lesson governments have learned well.  This is the basis for socialism (from those according to ability to those according to need).  And the progressive income tax (the more you earn the more you pay).  You get the smaller group of rich people to pay more than their fair share.  Then you take their money and spend it on the larger group of poor people who will forever love you.  And vote for you.  It’s a sound theory.  Until you can’t raise taxes anymore without throwing the economy into recession.  Or causing a taxpayer revolt.  So advanced nations that can’t tax anymore have found other sources of revenue.  Thanks to global warming.

Global warming is a hoax created to impose more government control over our lives.  To create more fees.  And a font of new taxation.  The University in East Anglia led the charge in this false science.  Leaked emails have since proven that they did play with the numbers to advance their agenda.  Though debunked it still has deep roots in the UK.  And Europe.  They refuse to let it go because of the riches it promises to deliver.  And with the UK and Europe suffering debt crises, they need those riches.  And the European Union is acting bold.  And extralegal.  They created an Emissions Trading Scheme (ETS).  Anyone that produces carbon dioxide has to pay for that privilege.  And that ‘anyone’ is pretty much everyone in industry and transportation.  By buying permits that ‘allow’ you to emit this product of combustion.  Including all international flights flying into EU airspace.  Which the non-EU airlines have a problem with.  Who are already struggling under the high cost of fuel.  But the EU is standing firm.  To save the planet.  And coincidentally pouring vast sums of money into their coffers.  So they can transfer the cost of their irresponsible government spending to non-Europeans buying tickets to travel to Europe.  But this can’t end well.  Other nations will respond with some measures of their own to ‘tax’ EU planes coming into their airspace.  Worse, when they can no longer sell the fraud of global warming to a gullible people, the nations who bought those permits may want their money back.  To help with their own irresponsible spending.  And with the sums involved, they will no doubt exhaust no legal avenues.  Perhaps even exploring other avenues.  Something extralegal.  Just like they did in the EU when they set up their ETS.

Spend First, Pay Later, then Suffer the Consequences

That’s the problem with spending first then trying to figure out clever ways to get someone to pay for that spending later.  Politicians tend to look at short-term benefits.  Not long-term consequences.  Had Great Britain known what the ultimate price would be for their tax policies they no doubt would have pursued a different course.  And avoided the 8 years of the American Revolutionary War.  And the subsequent Napoleonic Wars.  Which all added up to quite the pretty farthing.

Of course, Great Britain’s woes go back to the costly Seven Years’ War.  Which grew out of a trade war.  Resulting from the mercantile policies of competing empires for overseas colonies.  And trade.  The EU’s ETS is sort of a throwback to those mercantile policies.  That may very well result in a trade war itself.

Funny how history repeats.

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FUNDAMENTAL TRUTH #59: “When the Right partners with business the Left calls it crony capitalism. When they partner with business the Left calls that smart government.” -Old Pithy

Posted by PITHOCRATES - March 29th, 2011

The Right likes Capitalism, the Left likes Marxism

Crony capitalism isn’t capitalism.  At best it’s mercantilism.  At worse it’s autocracy.  But the critics of capitalism haven’t the foggiest clue of what capitalism is.  They think it just exploits the working class.  Like Karl Marx said.  Of course, Karl Marx was wrong.  His philosophy has never worked.  Whereas capitalism, true capitalism, has.  Try to point to a successful Marxist country today.  You can’t do it.  Because when you take from those according to ability and give to those according to need you have everyone trying to show as little ability and as great need as possible.  Put yourself in that position.  Do you want to show some genius and work 12-hour days and see all of your earnings go to people sitting at home collecting state benefits?  Or would you rather not work those 12-hour days, relax at home and collect those state benefits?  If these are your choices, you don’t have to answer.  Because everyone is going to choose to stay at home and collect benefits.  Because no one volunteers to be a slave.

In such a world try to imagine how many cellular towers people would install when no one wants to work.  Not many.  Which means no cell phones, no text messaging, no internet on your mobile device and no sitting in your favorite coffee shop Internet hotspot.  For no one will spend the excruciating time, money and effort to create something while he or she is paid less than those with greater need who do nothing.  In other words, there is no incentive to work hard.  So no one will work hard.  Just like you won’t work hard by working overtime hours for free.  And why won’t you?  Because when you work you sell your time to an employer.  It’s your time.  If no one is paying you for it, you’d rather do something fun.  We all would.  Because it’s our unalienable right to pursue happiness.  Like Thomas Jefferson wrote in the Declaration of Independence.  And pursue it we do.  Because when it comes to our happiness, we’re all Jeffersonians.  Even Alexander Hamilton.  Even though they often saw things differently.

And one of those things was capitalism.  Jefferson didn’t like bankers.  Especially when they were in tight with the government.  Hamilton, on the other hand, liked the bankers.  Because he knew the difference between money and capital.  Assume everyone has a few bucks in their pockets.  What is that going to buy these individuals?  Not much.  Certainly no cellular towers.  But when you pool that money together you get capital.  And capital can buy cellular towers and the other conveniences of modern society.  And this is capitalism.  There’s a little more to it but the point is capitalism provides incentive.  And incentive stimulates innovation.  People take risks, work hard and create great things.  Marxism, on the other hand, provides no incentive for anyone to innovate.  There are no risk takers and people work the bare minimum they can get away with.  And there is nothing great in a Marxist society except misery, hunger and fear.  North Korea and Cuba are about the last of the Marxist societies remaining.  The Soviet Union, Eastern Europe and Mao’s People’s Republic of China are relics of the Cold War.  Now on the ash heap of history.  And all of these countries have/had sealed borders.  People could not leave.  If they tried they often died.  Many still risked it.  Because life was horrible under Marxism.

Jefferson the anti-Capitalist turns to Capitalism

Now whenever you gather money in great big piles you invite corruption.  Especially in government.  Which is what Jefferson feared.  You need money to do things.  And if government had access to great pools of it, they could do a lot of things.  Build armies.  Build navies.  Fight wars.  Grow the size of government.  Increase the size of the federal payroll.  Buy favors.  Sell patronage.  So more and more people became part of a growing, bloated federal government.  Who then had a vested interest in seeing it continue to grow to protect and increase the power and money they had.  All the great cities in the old world (London, Paris, Madrid, etc.) were corrupt.  The bankers were in bed with the politicians.  And the people suffered.  In his beloved France, Jefferson saw firsthand this insidious combination of money and power impoverish and starve the masses.  He saw revolutionary fervor grow in the Jacobin clubs.  And witnessed the outbreak of the French Revolution.  To check the power of the absolute monarchy and instill republican ideals.  And he liked what he saw.

With the backdrop of history, two men (and their followers) pulled America in two directions.  The Hamiltonians wanted to model America after the British Empire.  Rich and powerful.  Jefferson envisioned a nation of citizen farmers.  Simple farmers toiling the land.  Free from the corruption of the banks and the merchants.  With limited government.  Working with a modest federal budget.  Without any debt.  Of course, this all went out the window with the Louisiana Purchase.  When he needed a big whopping pile of money.  And a little extraconstitutional authority as well.  Sort of like a European monarch.  Which he took.  And thanks to a little thing called capitalism, the British and Dutch put together some creative financing for the French and the Americans.  They paid cash to France in exchange for the American bonds they just underwrote.  Some would say it was a bit hypocritical considering his attacks against Hamilton, but the U.S. profited very well from that purchase.  The point being is that even an ardent anti-capitalist like Jefferson had to turn to capitalism to close this deal.  Because there was no other way a young and poor nation could ever come up with that kind of money without borrowing it.

But all politicians aren’t like Thomas Jefferson.  In fact, shortly after the Founding Father generation, government began to grow.  There were political favors.  Pandering.  And corruption.  As the quality of the politician declined more unscrupulous people were attracted to government.  A growing nation needed to grow.  It needed to build things.   Armies.  Navies.  Forts.  Government buildings.  Post offices.  Canals.  Railroads.  As the nation grew it collected more taxes.  It soon had a lot of money to buy these things.  And issuing contracts for these things could be a very lucrative endeavor.  For the unscrupulous politician.  Who would only contract with those who made it worth his while.  The unscrupulous businessman.

Buying and Selling Favors for Personal Gain

This is crony capitalism.  The joining of business and government in backroom deals.  This isn’t laissez-faire capitalism.  This is the buying and selling of favors for personal gain.  And this is what many people think capitalism is.  Especially those critics on the Left.  Who think in zero-sum terms.  The only way some people can have more money is if other people have less.  Some people are lucky.  Some just aren’t.  Ability and ambition have nothing to do with it.  It’s all based on who you know.  And when money and power is concentrated in too few hands, it shuts out others from the market place.  And that’s just not nice.  Good people will be unable to make other and more important things.  So unless someone smart steps in and coordinates this economic activity, that activity will be inefficient.  It will build the wrong things.  And the wealth will accumulate in the wrong hands.

These politicians want to partner with business to make the right things.  By the right people.  The things they want to see built.  And not the things they don’t like.  A good example of this today is the electric car.  And the internal combustion engine.  They love one.  And despise the other.  They put in policies to increase the cost of gasoline-powered cars.  And the cost of gasoline.  And provide subsidies to electric car companies to help them build cars no one wants to buy.  And subsidies to consumers to reduce the price on electric cars.  So they’ll buy something they don’t want.

Currently, there is no market for the electric car.  People are buying it now for one of two reasons.  Because of the subsidies.  Or the smugness.  Yet companies are building these cars.  Why?  Well, they’re not doing it to lose money.  They’re making money.  Somehow.  But it isn’t in the market place.  And if it isn’t the market place, it can mean only one thing.  They are getting some sweet federal subsidies to build these cars no one wants.  And this just isn’t capitalism.  It’s another example of crony capitalism.

The Left hates Shareholders, not Corporations

The Left attacks the Right for being the party of the big corporations.  They’re nothing but a bunch of crooks.  The corporations.  And the Republicans.  Republicans pander to the corporations.  They want to deregulate their industries.  While consumer safety suffers.  As does the environment.  And they want to cut their taxes.  Paid for by tax hikes on the poor and working class.  To those on the Left the business corporation is evil incarnate.  Unless they want to partner with them.  And build things together.  Then they’re okay.

The Left hates corporations.  Yet it’s always the left that favors corporatism.  The partnering of business and government.  Like in Mussolini’s fascist Italy.  Or outright nationalization of the corporation.  A complete takeover by the government. Like in Hugo Chavez‘s Venezuela.  It apparently isn’t the corporations per se they hate.  It’s the shareholders.  They have no problem with these corporations making obscene profits.  As long as the politicians can share in these profits.

So there you have it.  The difference between crony capitalism and smart government.  It all depends on the amount of money flowing into the government’s coffers.  If the shareholders keep the full return on their investment then the business and Republicans are practicing crony capitalism.  If the shareholders share their return on their investment with the Democrats, then that’s smart government partnering with business.

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