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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Classical Greece, Persian Empire, Hellenistic Period, Roman Empire, Italian Renaissance, Venice, Florence and Government Bonds

Posted by PITHOCRATES - January 17th, 2012

History 101

The High Cost of Mercenary Soldiers and a Bloated Bureaucracy brought down the Western Roman Empire

Classical Greece dates back to the 5th century BC.  Lasted about 200 years.  And was the seed for Western Civilization.  Classical Greece was a collection of Greek city-states.  There was no Greek nation-state like the nation of Greece today.  The city-states were independent.  And often waged war against each other.  Especially Sparta and Athens.  Athens is where we see the beginnings of Western Civilization.  Sparta was a city-state of warriors.  While Athens kicked off science, math and democracy, Sparta bred warriors.  And boys trained from an early age.  Or were abandoned to die in the wilderness.

Adjacent to Classical Greece was the great Achaemenid Empire.  The First Persian Empire.  The empire of Cyrus the Great.  Which extended from the eastern Mediterranean all the way to India.  Some of those Greek city-states were on the eastern coast of the Mediterranean.  Did not like Persian rule.  And the Ionians revolted.  Supported by Athens.  The Ionian Revolt (499 BC) was the first in a series of Greco-Persian Wars.  Persia’s Darius the Great was tiring of the Greek’s insolence.  And set out to conquer the Greek mainland.  Only to get turned back at the Battle of Marathon.  His son Xerxes returned to Greece to complete the work his dad started.  King Leonidas of Sparta delayed him at the Battle of Thermopylae for three days.  But he defeated the vastly outnumbered Spartans and marched on to Athens.  Where he sacked the abandoned city.  But he would lose the subsequent Battle of Salamis naval engagement.  Losing his navy.  Forcing Xerxes to retreat.

The Greek city-states united to fight their common enemy.  And won.  With the common enemy defeated, Sparta and Athens returned to fighting each other.  In the Peloponnesian War.  Where Sparta emerged the dominant power.  But the constant fighting weakened and impoverished the region.  Making it ripe for conquest.  And that’s exactly what Phillip of Macedon did.  He conquered the great Greek city-states.  And Phillip’s son, Alexander the Great, succeeded his father and went on to conquer the Persian Empire.  Creating the great Hellenistic Period.  Where the known world became Greek.  Then Alexander died.  And his empire broke up.  Then the Romans rose and pretty much conquered everyone.  And the known world became Romanized.  Built upon a Greek foundation.  Until the western part of that empire fell in 476 AD.  Due in large part to the high cost of mercenary soldiers.  And a bloated bureaucracy.  That was so costly the Romans began to debase their silver coin with lead.  To inflate their currency to help them pay their staggering bills.

In Exchange for these Forced Loans the City-States Promised to Pay Interest

The history of the world is a history of its wars.  People fought to conquer new territory so they could bring riches back to their capital.  Or to defend against someone trying to conquer their territory.  And take their riches.  Taking riches through conquest proved to be a reliable system of public finance.  For the spoils of war financed many a growing empire.  It financed the Roman Empire.  And when they stopped pushing out their borders they lost a huge source of revenue.  Which is when they turned to other means of financing.  Higher taxes.  And inflation.  Which didn’t end well for them.

With the collapse of the Western Roman Empire the world took a step backwards.  And Europe went through the Dark Ages.  To subsistence farming on small manors.  The age of feudalism.  Serfs.  Wealthy landowners.  And, of course, war.  As the Dark Ages drew to a close something happened in Italy.  At the end of the 13th century.  The Italian Renaissance.  And the rise of independent Italian city-states.  Florence.  Siena.  Venice.  Genoa.  Pisa.  Much like the Greek city-states, these Italian city-states were in a state of near constant war with each other.  Expensive wars.  That they farmed out to mercenaries.  To expand their territory.  And, of course, to collect the resulting spoils of war.  These constant wars cost a pretty penny, though.  And built mountains of debt.  Which they turned to an ingenious way of financing.

These Italian city-states could not pay for these wars with taxes alone.  For the cost of these wars was greater than their tax revenue.  Leading to some very large deficits.  Which they financed in a new way.  They forced wealthy people to loan them money.  In exchange for these loans these city-states promised to pay interest.

Renaissance Italy gave us Government Bonds and a new way for a State to Live Beyond its Means

The vehicle they used for these forced loans was the government bond.  Used first by the Italian city-states of Venice and Florence.  Which were very similar to today’s government bonds.  Other than the being forced to buy them part.  The bond had a face value.  An interest payment.  And the bondholders could then buy and sell them on a secondary market.   The market set interest rates then as they do now.  The market determined the likelihood of the city-state being able to pay the interest.  And whether they would be able to redeem their bonds.

When there was excessive outstanding debt and/or war threatening a city-state’s ability to service their debt interest rates rose.  And the face value of existing bonds fell.  Because if the state fell these bonds would become worthless.  When state coffers were full and peace rang out interest rates fell.  And bond prices rose.  Because with a stable state their existing bonds would still be good.  Just like today.  So if you’re into government bonds you can thank Renaissance Italy.  And their wars.  Which gave birth to a whole new way for a state to live beyond its means.

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FUNDAMENTAL TRUTH #60: “Fool me once shame on you. Fool me twice shame on me. Fool me again shame on public education.” -Old Pithy

Posted by PITHOCRATES - April 5th, 2011

The Founding Fathers’ Experiment in Self-Government

Benjamin Franklin said when the people find they can vote themselves money, that will herald the end of the republic.  Because people tend to be greedy.  And lazy.  And they don’t understand public finance.  Especially the uneducated ones.  And there were a lot of uneducated people during our founding.  The Founding Fathers worried about this.  Because governments past have always exploited the uneducated for personal gain.  Kings and lords would give the poor some alms to make them feel good about their lives of unending toil and suffering on the feudal estates.  Should you not be lucky enough to have been born with the ‘right’ last name.  The new United States of America was going to change that.  Here it wouldn’t matter who your father was.  Here, no one would be better than you.

But only if this experiment in self-government succeeded.  So they were very careful when they wrote the Constitution.  And the type of government for the new nation would not be a democracy.  Instead, they chose a representative republic.  For the Founding Fathers all feared democracies.  Which when you come down to it is nothing more than mob rule.  If the mob is racists they’ll pass racist laws.  If the mob is sexist, they’ll pass sexist laws.  And if the mob is greedy and lazy, they’ll vote themselves money from the federal treasury.  This is the risk of democracy.  All you need is a majority.  And whatever you want is yours.  No matter how destructive it is to the country.

That’s why the Founding Fathers did NOT give us a democracy.  We have intermediaries between the mob and the actual law-making.  We call these people our representatives.  At the founding, these were the best of the best.  Well educated and/or experienced.  Men of great honor and integrity.  Imbued with a selfless sense of duty.  These men went out of their way NOT to prosper from their government service.  Really.  It’s nothing at all like today where government service is nothing more than a ticket to a fat pension and early retirement.  Back then such a thought was anathema to the Founding Fathers.  Which is very evident by the type of government they created.

Indirect Elections temper the Populist Tendencies

The Constitutional Convention was a hot, miserable, long summer in Philadelphia.  There was little agreement.  No one liked the final product much.  But most agreed it was the best that they could do.  Even then the U.S. was big.  Lots of different people trying to make the final product favor their state more than the others.  And few were in favor of giving the new central government much power.  They all feared that this new central power would consolidate its power.  And regulate the states to fiefdoms in a new kingdom.  Just like in the Old World.  So they took as many opportunities to restrict federal power.  And minimize the influence of the populist mob.

The new federal government was a limited government.  It was only to do the things the states couldn’t do well.  Maintain an army and navy.  Treat with other nations.  Those things that needed a singular national identity.  Everything else was to remain with the states.  And to make sure the states would not lose their sovereignty, the states’ legislators would choose their federal senators.  The House of Representatives would have direct elections.  Being the closest to true democracy, the House risked being influenced by the mob.  The Senate, then, would be wise and prudent to temper the populist tendencies of the House.  To keep the House from doing something stupid.  Like voting the people the treasury.  (Of course, the states lost a lot their sovereignty when we changed this by amendment to a popular vote like the House.)

The president was to be elected indirectly, too.  Like the senators.  The Founders were worried that the office of the president could be easily corrupted.  So they put great restrictions on its powers.  And made it as difficult as possible for any one group or interest to ‘cheat’ and get their man into office.  Hence the indirect election.  Again, to protect their sovereignty, this fell to the states.  State legislatures would choose electors who would then vote for president.  (With quite a few close elections, there have been calls to eliminate the Electoral College and replace it with a pure popular vote.  Of course, it is usually the loser in a close election who wants this change.  If the same thing happens in a subsequent close election where they win they are quite happy with the Electoral College.)

Talented People create things to trade

The reason the Founders wanted so many people between the voters and the actual law-making is to keep people from voting irresponsibly.  The federal budget is pretty big.  And people see that it is big.  They figure that because they pay taxes, there’s no reason why they can’t have stuff from the federal government.  In a true democracy, the people could vote to cut taxes and increase spending.  They could vote themselves a monthly stipend to live on and quit their jobs.  An uneducated mob can easily do this.  Who wouldn’t want to get a paycheck for doing nothing AND pay less in taxes?  It’s very attractive.  If I ran for office on such a platform a lot of people would probably vote for me.  But there’s a problem with such generosity.  You see, government can’t give money to people unless they take money from other people first.

There appears to be a popular misconception about public finance.  Many believe that government has a stash of cash that they can give out whenever they please.  And that this stash of cash has mystical power.  That it’s endless.  And when they give it away more just magically appears.  But the government has no money.  The public treasury isn’t filled with the government’s money.  It’s filled with our money.  That’s our tax dollars in there.  Or it’s borrowed money.  Borrowed money that costs interest.  Paid with our tax dollars.  Or it’s printed money.  Money created out of nothing.  Which makes our money worth less.  Which makes everything we buy more expensive.  We call this inflation.  You just can’t print money.  Because it just dilutes the purchasing power of the money already in circulation.  It’s like a bartender selling you whisky from a bottle that’s one part water and 4 parts whisky.  It not only tastes bad.  But you’ll have to pay more to get the same buzz from an honest bartender.

The reason why printing money doesn’t work?  Because it isn’t the money we want.  It’s the things that money can buy that we want.  Who sits in an empty room and enjoys looking at big piles of cash?  No one.  Take the cash out of your wallet or purse and see how long you can stare at it.  Probably not long.  Why?  Because it’s boring.  We don’t enjoy the cash.  We enjoy the things in the room we trade that cash for.  And this is key.  We trade.  We are traders.  Always have been.  And always will be.  We started out bartering for things.  You traded something you built (this is important) for something someone else built (equally important).  Talented people who created things met to trade.  And we still do this today.  The money just makes it easier to trade.  But this would not be possible if we all lived on a government stipend and nobody worked.  Because if no one worked, there would be no things to buy.  We would be sitting in an empty room staring at piles of useless money.

A Public Educational System that doesn’t Educate but Indoctrinates

The Founding Fathers understood all of this.  And they framed the Constitution accordingly.  They limited the powers of the federal government.  Minimized the amount of actual democracy/mob rule.  And minimized the amount of money in the federal treasury.  For they were capitalists.  They knew money left in the private sector stimulated local economies.  People created useful things.  Brought them to market.  And traded these useful things for other useful things.  That’s the way things were.  It’s not how they are now.  Politicians today are in politics for personal gain.  They pander to the voters.  Buy and sell favors.  Enrich themselves in the process.  And leave a swath of destruction in their wake.  And how are they able to do this?  Because the government has become more of a democracy than a representative republic.

Along the way the educational system failed.  Probably starting in the Sixties.  With the hippies in college.  Who went on to teach in the Seventies.  We spent less time on reading, ‘riting and ‘rithmetic.  And more on American white guilt for what happened to the Native Americans and a slave economy.  We learned less about the Founding Fathers.  And more about the people they wronged.  We learned less about American culture and more about diversity and multiculturalism.  We learned less about American Exceptionalism and more about American Imperialism.  We learned less about Western Civilization and more about ‘enlightened’ oppressive socialism.  We learned less about capitalism and more about the ‘fair’ redistribution of wealth.  Let’s face it.  Kids in school didn’t have a chance.  Their teachers were no longer teaching how America got to be exceptional.  They were teaching that America was anything but exceptional.  That we were guilty of every crime and injustice you could think of.  That America needed to change.  And that they, the young, our future, could make that change happen.

So the dumbing down of America began.  For those unable to escape the indoctrination of the new public education.  And the growth of government took off.  In fact, you can say that as society became ‘less American’ they became more dependent on government.  Where once rugged individualists dominated the land their numbers are thinning.  As slick politicians lure more people by the siren song of an easy life provided by government benefits.  And these politicians find the lie easier to sell with a public educational system that doesn’t educate but indoctrinates.  In fact, it’s quite an incestuous relationship.  The politicians spend more and more money on education.  The money goes to the teachers.  The teachers belong to unions.  The teachers’ unions support and donate to Democrat candidates.  So some of that tax money spent on education goes right back to the politicians that just increased educational spending.  And the teachers, eager to keep a good thing going, teach their students to become good Democrat voters.  Instead of teaching them about the three Rs, the Founding Fathers, American culture, American Exceptionalism, Western Civilization and capitalism.  As the standardized test scores show.  And does their irresponsible voting.

A Rising Sun or a Setting Sun 

America is fast approaching a crossroads.  People have learned that they can vote themselves money.  And have.  Politicians are pandering to these people for personal gain.  Offering to spend more and more money that we just don’t have.  Bringing us closer and closer to the end of the republic. 

Ben Franklin sat through that insufferable summer in Philadelphia.  Swatted at the giant horseflies in the hall.  He was old and his time was short.  He sat quietly during much of the debates.  Often staring at the sun carved into George Washington‘s chair.  He wondered if it was a rising sun.  Or a setting sun.  He saw it as symbolic of their little experiment in self-government and the work they were doing in that hall.  Was this already the end of their noble experiment?  Or was it just the beginning?  After the delegates voted to send the new Constitution to the states for ratification he breathed a sigh of relief.  For it was a rising sun.

I guess that question is once again open to debate.

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