Franco-American Treaties, Spanish Louisiana, French Republic, Edmond Genêt, Proclamation of Neutrality and Petit Démocrate

Posted by PITHOCRATES - October 11th, 2012

Politics 101

The US enjoyed a Booming Economy due to Trade with Great Britain and the Protection of that Trade by Britain’s Royal Navy

In politics there is domestic policy.  Where politicians can really make a mess of the nation.  And then there’s foreign policy.  Where politicians can make an even bigger mess of things.  Because nations are not isolated from other nations in the world.  And what they say or do can have a great impact on those nations who threatened them.  And those nations who peacefully coexist with them.  Bad foreign policy can do anything from hurting the economy (by disrupting international trade).  To causing war.

America came into being in part due to the treaties they made with the King of France.  Louis XVI.  Who helped them overthrow their king’s rule.  An interesting thing for a king to do.  What with Louis being a king himself.  And the last thing he wanted was his subjects to overthrow him.  Which they would do a decade or so later.  As they were inflamed with the spirit of liberty.  Thanks to the American Revolution.  The very thing that Louis helped the Americans win.  Who did so to improve his position against his perpetual enemy.  Great Britain.  But in the end he lost his own kingdom.

The Franco-American treaties included a perpetual military alliance.  Such that if a hostile nation attacked France the U.S. was obligated to help protect the French West Indies.  Under a commercial treaty French privateers could use U.S. ports.  Meaning that if they captured an enemy ship, say a British ship, they could bring that prize into a U.S. port.  Even refitting the ship into another French privateer to go out and attack more British shipping.  All sensible and reasonable considering the U.S. was at war with Great Britain at the time they entered those treaties.  But the U.S. did not remain in a perpetual state of way with Great Britain.  In fact, the U.S. enjoyed a booming economy in part due to trade with Great Britain.  And the protection of that trade by Britain’s Royal Navy.  The most powerful navy in the world.

The Port of New Orleans was the Gateway for all American Farm Goods West of the Appalachians

So as war clouds loomed over Europe again with the outbreak of the French Revolution these treaties complicated matters for the young nation.  She had no navy.  Not much of a standing army.  And a lot of debt from the last war.  Which was not an enjoyable experience having lasted some 8 years before the Treaty of Paris of 1783 officially ended it.  Now the nation was enjoying peace and economic growth.  And the last thing they wanted was another war.  Which was going to be difficult to avoid.  And the animosity between Alexander Hamilton and Thomas Jefferson didn’t help.  As they both wanted the young nation to remain neutral.  But they each wanted that neutrality to lean in opposite ways.

In 1790 war loomed between Great Britain and Spain.  The Spanish had allied themselves with France in the American Revolution to settle some old scores with Britain.  That war did not end as well as they had hoped.  As Gibraltar was still British.  So there was that.  Among other deeply held…differences.  When it looked like they would return to war the British in Canada sent an official to meet with the Washington administration.  To get permission for the passage of British troops on American territory to attack Spanish Louisiana.  Which is where the Mississippi River flowed through to the Port of New Orleans.  The gateway for all American farm goods west of the Appalachians.

This was a complex issue.  For the Spanish didn’t really like the Americans.  Wanting to keep them as far east of the Mississippi river as possible.  So on the one hand getting the Spanish out of North America completely might have been a good thing.  But replacing the Spanish with the British not so good.  Alexander Hamilton wanted to grant the British this passage.  In exchange for a guarantee of navigation rights on the Mississippi River.  He also wanted to grant them passage as he feared they would take it with or without the American’s permission.  And if they did without that permission the Americans would have no choice but to go to war to preserve American honor and her territorial sovereignty.  So supporting the British was the only way to save face in the international community without going to war.  In the end, though, the British and the Spanish resolved their differences peacefully.

Genêt refitted the British Brigantine Little Sarah into the Commerce Raider Petit Démocrate, Pushing the Americans Closer to War

The British didn’t go to war with the Spanish.  But the French and British did in 1793.  Which caused a lot of trouble in America.  For the American people still hated the British.  Despite a lucrative trade with them.  A trade protected by their Royal Navy.  But that did little to make them forget all those years of war.  Or forget the people who helped them win their independence.  The French.  So when the French Revolution broke out, and the French and the British went to war again, the American people sided with the French.  Despite what was happening in Paris.  The Terror.  And the execution of the king and queen.  As far as they were concerned the only good king was a dead king.  But that dead king posed a problem for American foreign policy.  Those Franco-American treaties were made with that now dead king.  And his court.  Which no longer existed.  So were the Americans still bound by those treaties?

Which brought up an even bigger question.  Should the Americans recognize the French Republic?  No other nation had.  And after the execution of King Louis and Marie Antoinette, it was unlikely any monarchy would.  So should the Americans be first?  Hamilton said, “No.”  While Jefferson said, “Yes.”  As far as the Franco-American treaties Hamilton did not want to honor them as that government no longer existed.  Jefferson insisted on honoring them as if they were made with the new French Republic.  Jefferson also insisted that Washington receive the new French envoy.  Citizen Edmond Genêt.  Washington ultimately consented to receiving Citizen Genêt.  But he also issued his Proclamation of Neutrality.  Telling the British and the French that America would remain friendly but impartial to both.  Which did not go over well with the French.  Or the American people.

Genêt landed in South Carolina.  And travelled overland to Philadelphia.  Getting a hero’s welcome along the way.  Genêt even said that Washington was jealous of him for how the American people loved him more than the president.  These actions and remarks did not endear Genêt to the Washington administration.  Washington and Hamilton gave him a cool reception.  While Jefferson gave him a very warm reception.  Telling him he had a friend in the Secretary of State.  Genêt demanded an advance on the money America owed France.  Hamilton refused.  Knowing what he wanted that money for.  To pay for the Armée du Mississippi and the Armée des Florides that George Rogers Clarke was putting together for him on paper.  To attack the Spanish in Louisiana and in Florida.  When Hamilton refused he complained to Jefferson.  Saying he was clearly favoring the British Crown over the Franco-American alliance.  And even lied.  Saying that if he agreed to use that money to contract with Hamilton’s friends he could have it.  Further convincing Jefferson of the corruption at the Treasury Department under Hamilton.

As bad as all of that was Genêt was also outfitting privateers that were attacking and capturing British shipping.  Worse, he was bringing these prizes back to American ports to sell.  Which did not look very neutral to Britain.  Who demanded their ships back.  And that the Americans close these ports to the French.  Which Washington did.  For the last thing the Americans wanted was another war with Britain.  Chaffing under the American restrictions Genêt refitted the British brigantine Little Sarah into the commerce raider Petit Démocrate.  Telling Jefferson he did so by the authority of the Franco-American treaties.  And when she set out to sea it captured one British ship after another.  Pushing the Americans closer to war with the British.  Turning the American people against the French.  And the Republican Party.  Who had so warmly embraced Citizen Genêt.  So that was the end of Genêt.  And the Franco-American treaties.  The Americans would remain neutral.  Even if that neutrality favored the British.  Which turned out to be a good thing.  As the whole world would be at war with France in a few years.  With even the American people demanding to go to war with France.  Thankfully, America’s second president, John Adams, was able to keep that from happening.

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Jefferson, Hamilton, Washington, Whiskey Rebellion, French Revolution, New French-British War and Proclamation of Neutrality

Posted by PITHOCRATES - August 23rd, 2012

Politics 101

America’s First Tax was a 25% Excise Tax on American Whiskey made from Corn

Thomas Jefferson held a dinner party where he, Alexander Hamilton and James Madison met to resolve some issues.  Hamilton was stressed out.  He was facing strong opposition for his assumption plan.  Secretary of the Treasury Hamilton wanted to assume all the states’ debts and lump them into the federal debt.  To get the nation’s finances in order.  Establish good credit.  And raise revenue for the new nation.  The Virginians, Jefferson and Madison, offered their assistance if Hamilton would give them the nation’s capital.  Hamilton got his assumption.  And the Virginians got the nation’s new capital on the Potomac River.  Across from Virginia.  Where they could keep a close eye on the nation’s business.  And everyone lived happily ever after.

Well, not exactly.  There was already growing discontent across the land.  Hamilton understood business and commerce.  And banking.  Farmers don’t like bankers.  Or commerce.  Or business.  Many in the south and on the frontier worked the land.  As yeoman farmers.  Families working small farms that they owned.  They believed, as Jefferson believed, that the most honorable work in America was farming.  And that America’s future was the growth of farming.  Small farms.  Owned by families working the land.  Yeoman farmers.  Proud.  Pure.  And wholly American.  This despite Jefferson being a member of the slave-owning planter elite.  Who indulged in little physical labor.

So the south and the frontier were no Hamilton supporters.  They didn’t like his high finance ideas for the new nation.  And they especially didn’t like his whiskey tax.  A tax of 25% on western corn products.  Which you made whiskey from.  The new American alcoholic beverage of choice after they eschewed beer.  The beverage of choice before the rebellion.  When they were all content British citizens.  But an excise tax on corn products was little different from the excise taxes that caused the colonies to rebel against Great Britain in the first place.  Sure, there was one subtle difference this time.  The whiskey tax was taxation with representation.  And, technically speaking, legal.  But on corn?  The new tax seemed to fall unfairly on the West.  Which had a corn economy.  And used the whiskey they made from it for money.  So these frontier people were not just going to sit idly by and take this new taxation without a fight.

The Washington Administration took Decisive Action in Suppressing the Whiskey Rebellion

This first tax was to help finance Hamilton’s assumption.  But it was more important than the revenue it would raise.  The whiskey tax was a matter of principle.  It was probably poor policy.  And probably not the smartest thing to do.  Picking a fight with the toughest and most fiercely independent people in the country.  Frontier people.  Who lived off the land without any of the city comforts enjoyed back east.  But the tax was the law.  And the first test of the new nation.  If the government retreated in the face of opposition to a law passed by Congress their experiment in self-government would fail.  For as unpleasant as taxation was it was the reason they formed a new nation in 1787.  To levy taxes so they could pay their past debt.  And their current bills.  So President Washington and Hamilton hunkered down on the tax.

And the riots came.  The Whiskey Rebellion.  Around Pittsburg.  Kentucky (aka bourbon country).  The backcountry of the Carolinas.  And elsewhere.  They refused to pay the tax.  And attacked the tax collecting apparatus.  Even the courts.  It was war.  The spirit of ’76 was alive again.  Protesting a distant central power trying to impose a tax on them.  Washington offered amnesty if they just dispersed and went home.  They refused.  So Washington raised an army of some 13,000 strong.  Larger than any army he commanded during the Revolutionary War.  And led the army west with Hamilton to meet the insurrection.  The first and only time a sitting president led an army.  As the army approached resistance melted away.  So Washington handed command over to Henry “Lighthorse Harry” Lee (a Revolutionary War veteran and hero) and returned to the capital in Philadelphia.  Hamilton remained with the army.  As the army arrived the insurrection collapsed.  The army caught some rebels and tried them.  And two received death sentences.  Who Washington later pardoned.

Score one for the rule of law.  Washington was pleased with the outcome.  Hamilton, too.  They took decisive action to subdue an insurrection.  The people in general were happy that they restored peace.  And that the country didn’t collapse into anarchy.  All in all a win-win for the people and the government.  Almost.  Not everyone saw it in this light.  Some saw a king leading an army against his own people.  A professional army.  Little different from British redcoats.  Or Oliver Cromwell’s New Model Army a century or so earlier.  A professional standing army squashing those who disagreed with the government.  And Jefferson did not like it.  Nor did a lot of those in the south.  Or on the frontier.

President Washington issued a Proclamation of Neutrality in the New War between Great Britain and France

Seeing Hamilton ride at the head of an army only reinforced Jefferson’s opinion of him.  A power-hungry, British-loving puppet master.  And the puppet was President Washington.  The dislike between Hamilton and Jefferson turned into outright hostility.  They had two different visions of America.  And these two visions were mutually exclusive.  Cabinet meetings became insufferable as Hamilton and Jefferson constantly fought.  And the French Revolution didn’t help matters any.  The radical Jefferson supported the radical French.  Who he knew and sat with in the Jacobin clubs while he was in France.  Jefferson was all for overthrowing monarchies.  So when the French and British declared war on each other it was a no brainer who to support for Jefferson.  Vive la France!

Of course there was only one problem with that position.  About 75% of U.S. exports went to Great Britain.  Even more of her imports (approximately 90%) came from Great Britain.  And then there was the Royal Navy (RN).  Who still ruled the high seas.  And all the international trade routes.  In addition to the RN there was the British Army.  Who still occupied forts on the American western frontier.  And who were still in contact with their Indian allies from the Revolutionary War.  Couple this with the fact that the U.S. had no comparable army or navy.  And was already having trouble on the frontier with the Indians (from the influx of settlers into the western territories).  So siding with France against Britain was not the smart move.  Yes, the French were instrumental in helping the Americans achieve their independence from Great Britain.  But America was a country emerging from 8 years of war that just had to suppress a tax rebellion over a sin tax.  She did not have the wealth to enter a European war.  Besides, the Americans were supported by the monarch (King Louis XVI) the French were overthrowing.  Which complicated matters.

Washington and Hamilton saw things differently than Jefferson.  More like realists than the idealist Jefferson.  The Revolution was over.  The British and Americans were no longer enemies.  But important trade partners.  That shared a common British past.  Of laws and traditions firmly established in what was once British America.  So Washington issued his Proclamation of Neutrality (1793).  They would support neither in this European war.  Which infuriated the French.  And Jefferson.  For though they were neutral it was clear that their neutrality would favor the British.  As well as Hamilton.  And it did.  But it also favored America’s best interests.  For another long war would have probably bankrupted the nation.  And perhaps resulted with her partitioned among the European nations.  For the French Revolution lasted for a decade.  And the Napoleonic Wars it begot lasted another 11 years.  Which let us not forget the French lost.  In large part due to the Royal Navy.  And Great Britain’s wealth generated by her international trade.  Something the Americans could not have altered had she entered the war on France’s side.  A wise foreign policy call by President Washington (and yet another time he saved his country).  But it was one that tore his administration apart.  Firmly establishing the opposition party.  With Jefferson at its head.  With but one purpose.  To destroy Hamilton.  And to lead the nation away from where Hamilton was taking it.

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George Washington , Clinton, Cornwallis, Lord George Germain, Comte de Rochambeau, Comte de Grasse, Yorktown and Treaty of Paris

Posted by PITHOCRATES - June 28th, 2012

Politics 101

British Sea Power allowed the British to Remain in a Hostile Land for the Eight Years of the Revolutionary War

The American Revolutionary War began in April of 1775 with the Battles of Lexington and Concord.  For years following these battles George Washington yearned to meet the British in a grand battle and defeat them.  What he got instead was a lot of smaller battles that sent him in retreat.  For despite fighting on the far side of an ocean the British had a large professional army.  A vast merchant marine to supply them whatever they needed.  And the world’s preeminent navy.  The Royal Navy.

That sea power allowed the British to remain in a hostile land for the following 7 years.  Allowed them to remain in New York.  Allowed them to take the war to the South unopposed.  It allowed them to move armies.  And supply armies.  As well as control the world’s sea lanes to maintain their commerce.  The Royal Navy tipped the balance of power well to the side of the British.  And perhaps it was their undoing as well.  Trusting that their naval superiority would always be there.

British generals Clinton (superior in rank and resting comfortably in New York) and Cornwallis (junior in rank and chasing American armies in the South) did not see eye to eye.  Their boss, Lord George Germain, Secretary of State for the American Department, didn’t help matters.  It was his job to suppress the American rebellion.  But he didn’t understand the country.  Or the people.  Thinking of America in European terms.  He thought the Americans were no match for a professional European army assembled on the field of battle.  And he was right.  But the Americans didn’t fight the war like Europeans.  Which proved to be a great disadvantage for the British.

With the French Fleet heading to Chesapeake Bay Washington Scrapped his Plan to Attack New York

General Burgoyne had a grand strategy to cut off New England from the rest of the colonies.  A three-pronged attack that required General Howe (who preceded Clinton) coming up from New York.  Germain approved the plan.  And two of the three prongs proceeded accordingly.  East through the Mohawk Valley.  And south down the upper Hudson valley.  Howe was to come up the Lower Hudson valley and meet the other two prongs around Albany.  But Germain did not order Howe to do so.  So Howe didn’t.  Executing his own plans in Pennsylvania.  Which led to Burgoyne’s surrender at Saratoga (1777).  And the entry of France into the War (on the condition that the Americans would not make a separate peace with the British).  The Spanish later (allied to the French).  The Dutch, too.  And an armed neutrality of the other powers who did not want to partake in the war and would not submit to the advances of the Royal Navy on the high seas.  Making it difficult to blockade arms and supplies from reaching the Americans.

The first Franco-American actions proved disappointing.  In fact a lot of public sentiment turned against the French.  Especially after they abandoned an offensive action in Rhode Island.  Leaving the Americans to retreat again.  Then Cornwallis moved north.  Toward Virginia.  And there was another window for French cooperation after some action in the West Indies.  And there was a French Army in Newport, Rhode Island, commanded by Comte de Rochambeau, a veteran of the Seven Years’ War.  So he knew a thing or two about fighting the British.  These forces arrived after Clinton pulled his forces out and returned them to New York.  Which is where Washington wanted to attack with this Franco-American force.

Washington and Rochambeau drew up some plans.  The French fleet coming from the West Indies commanded by Comte de Grasse was to support the attack.  However, this was the battle Clinton was waiting for.  And he was ready for it.  Washington tested the New York defenses and found them formidable.  And there was a British fleet in New York Harbor.  Then he got a letter from De Grasse.  Rochambeau had left him some freedom in his orders.  Instead of going to New York he was heading to the Chesapeake Bay.  Where Cornwallis’ army was.  It wasn’t New York but it was still a British army.  And he would have a large French fleet in support.  Washington soon scrapped his New York plans.  And looked to Virginia instead.   

Cornwallis and Burgoyne lost their Armies because the British never Coordinated their Forces in a Unified Plan

Quickly and quietly the Franco-American force moved from around New York towards Virginia.  They were across the Delaware River before Clinton knew where they were going.  Or what they planned to do.  They kept Admiral Graves in the dark as well.  Who kept his British fleet around New York.  Waiting to support the army when the Americans and French launched their attack on New York.  By the time they figured out what Washington and the Franco-America force were up to it was too late.  The French fleet beat them to the Chesapeake Bay.  The superior French fleet repelled the smaller British fleet which returned to New York.  Leaving Cornwallis on his own.  As he faced an enemy that outnumbered him more than two to one.  A force that numbered 5,700 professional Continentals and 7,000 professional French troops.  As well as 3,100 militia.

Cornwallis was entrenched in Yorktown.  With Banastre Tarleton (of Waxhaw Massacre fame) across the York River in Gloucester.  As Cornwallis looked out at the gathering force against him laying siege to his army he saw the French on his right.  And the Americans on his left.  Their trenches slowly moving closer to his.  Across the York the French were closing in on Tarleton.  Soon the American artillery was within effective range.  And George Washington lit the first fuse.  It was over in less than a month.  And included a bayonet charge led by America’s first Secretary of the Treasury, Alexander Hamilton.  Recognizing the seriousness of Cornwallis’ position Clinton sent a fleet to help lift the siege.  But by the time it arrived Cornwallis had already surrendered.

Cornwallis lost his army for the same reason Burgoyne lost his army at Saratoga.  Lord Germain.  Who failed to coordinate his generals in the American Department.  While the Americans did.  For most of the war the British had the superior army and the superior navy.  Yet they could not win.  Because these superior forces were never coordinated together in a unified plan.  Opposition in Parliament forced Germain out of office after the fall of Yorktown.  And called for the resignation of the Prime Minister.  Lord North.  Which he gave.  A first for a British Prime Minister.  The new government would end the war with the Americans with the Treaty of Paris (1783).  Where the Americans did very well.  And conducted separate peace treaties with the Spanish and the Dutch.  As well as the French.  Which the French were not pleased with.  And they did not do as well as the Americans in the peace.  Worse, they would find themselves in their own revolution within a decade.  The American Revolution being a major cause of the French Revolution.  By saddling France with an enormous war debt.  And filling their people with the spirit of liberty.

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FT120: “Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.” -Old Pithy

Posted by PITHOCRATES - June 1st, 2012

Fundamental Truth

In Warfare Starvation and Famine are the most Potent of Weapons

Starvation and famine has plagued mankind since the dawn of time.  It was the driving force in evolution.  Those who took control of their food supply lived.  Those who didn’t disappeared from the evolutionary path.  Like Neanderthal.  And those who came before him.  Our earliest civilizations massed their populations to farm.  And the masses lived in cities.  Setting down roots and saying goodbye to their hunting and gathering ways.  In the Wei River valley.  In the Indus River valley.  The valleys of the Euphrates and Tigris.  In the Nile River valley.  Where modern life took root.  Produced our first food surpluses.  And gave birth to urban life.  And the middle class.

The rise of the middle class allowed civilization to flourish.  For every person that didn’t have to produce food could do something else.  Build better tools.  Create a better government.  Create art.  In general, think about other things.  Those other things that made humans different.  By giving us a more interesting life.  And more sophisticated ways to express ourselves.

But this growth was a double-edged sword.  For large urban populations that made life more enjoyable was also a great threat to the food supply.  A cool and wet summer could destroy crops.  Poor food storage could spoil the food surplus.  A war could see an enemy purposely destroy your crops and your food surplus.  Causing famine.  Where half or your city population could easily die before the next harvest.  Or more.  Especially if the famine resulted from an act of war.   As an act of genocide.  To clear people off land that others want to use for their own food needs.  Which was Hitler’s plan in Russia.  To take the food from the Ukraine.  Kill the indigenous population.  And replace them with Nazis.  Thus creating more living space for the Third Reich.  Or Lebensraum.    Because in warfare starvation and famine are the most potent of weapons.

History has shown that the most Food-Abundant Countries are the most Capitalistic

England led the way in agricultural advances.  Increasing crop yields such that small tracts of land could support greater populations.  As well as produce such huge food surpluses that they had food to export.  As the British Empire spread across the globe so did their advanced agricultural ways.  During the 19th century starvation and famine were becoming rarer in the technologically advanced West.  The 19th century Irish Potato Famine reduced Ireland’s population by up to 25%.  A tragedy of epic proportions.  But it was an exception to the rule.  For food was growing so abundant in the advanced Western World that rarely did people go hungry.  Or feared famine.  And when mechanization and chemistry hit the farm our crop yields exploded.

During the Twentieth Century the Western World produced so much food that food prices plummeted.  Causing the Great Depression.  There was so much food available that farmers couldn’t sell their food at a high enough price to service the debt that they incurred mechanizing their farms.  But not everyone was producing bumper crops in the Twentieth Century.  Both the Soviet Union and the People’s Republic of China set records for death by famine.  As they shunned the ways of the West.  And the state took over their agricultural sectors.  States that were so inept at good farming practices and things economic that crop yields plummeted.  North Korea to this day can’t even grow enough food for her own people.  And has recurring famines.  Because they hold on to the communist ways of Stalin and Mao.  While the Russians and the Chinese have long abandoned them. 

History has shown that the most food-abundant countries are the most capitalistic.  Countries whose agricultural sectors use the latest in technology.  And/or have a rich and vibrant economy that can buy all the food they need if they can’t produce their own.  Like Hong Kong.  Basically a rock off the Chinese mainland.  It has little arable land.  Few natural resources.  But what it does have is low taxation and free trade.  And laissez-faire capitalism.  The Chinese lost Hong Kong to the British Empire (who have since given it back).  And the British used laissez-faire capitalism to make Hong Kong the gem it is today.  Where people are free and in want of little.  And in this island nation that can’t grow enough food to feed their population famine is unheard of.  Why?  Because they have the wealth to trade for all the food they desire.  In fact, while Mao gave the people in the People’s Republic of China famine Hong Kong were doing just fine.  Because they were wealthy and could trade for what they needed.  And they had the Royal Navy protecting her.

In America our Food Supplies are so Abundant and so Cheap that Poor People are becoming Obese

Poverty is the biggest killer.  Famine is prevalent in poor countries.  Like Haiti.  North Korea.  And sub-Saharan Africa.  People suffer in these countries unlike they do in the West.  Despite the amount of aid the West pours into them.  And it’s not because Western nations were blessed with natural resources.  Hong Kong doesn’t have anything other than laissez-faire capitalism.  Protected by the Rule of Law and minimal government interference into the private sector economy.  The very things that are missing from Haiti, North Korea and sub-Saharan Africa.  Where corruption rules supreme.  There is little regard for human rights.  Or property rights.  And no one can protect their people from the abuses of government.  Or from warring neighbors.  Like the Royal Navy protected Hong Kong.  And pretty much the rest of the world during the 19th century.  Just like America’s military might made the world safe for capitalism in the Twentieth Century.

Third world nations are not a victim of first world nations.  They are a victim of themselves.  Where corrupt rulers collect Western aid and live well while their people suffer.  Especially the nations that eschew capitalism.  And embrace socialism.  Like the Soviet Union did.  Like the People’s Republic of China did (the current Chinese regime is enjoying economic growth by allowing some capitalism into their still communist country).  And like North Korea still does.  These socialist utopias were a living hell for their people.  Where they live in fear of their government.  And of famine.

Meanwhile in the Western capitalist nations what do they suffer from?  Especially the poor people in America?  Obesity.  In New York they’re passing laws restricting the size of sugary beverages because they are dangerous to your health.  While they pass out free condoms and birth control as sex is far less risky behavior than a delicious carbonated beverage.  Apparently.  Yes, in America our food supplies are so abundant and so cheap that poor people are becoming obese.  Because capitalism has made those food supplies abundant and cheap.  And capitalism gave people jobs where they could afford to buy so much food that they can give themselves an obesity problem.  A problem they just don’t have in Haiti, North Korea or sub-Saharan Africa.  Because they can’t grow enough food.  Or earn enough money to buy enough food.  For they don’t have an environment conducive to creating jobs.  Which is why these nations are still impoverished and/or suffering famine despite all the aid the West gives them.  Food aid will run out.  And then they’ll just be starving once again.  If they have jobs, though, they’ll be able to buy food whenever they’re hungry.  Because it’s like that old saying.  Give a man a fish and he can eat for a day; give him a job and he can have an obesity problem.

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Mercantilism, Royal Navy, Napoleon, Pax Britannica, Corn Laws, David Ricardo, Comparative Advantage, European Union and NAFTA

Posted by PITHOCRATES - May 22nd, 2012

History 101

Mercantilism gave Britain the Royal Navy which Ushered in the Pax Britannica

Great Britain had a rough go of it at the end of the 18th century.  They lost their American colonies in the American Revolutionary War.  A war that started over the issue of taxation to pay for the previous Seven Years’ War.  So instead of securing new revenue to pay down old debt they incurred new debt.  The French Revolution closed out the century.  Causing concern for some in Britain that their monarchy may be the next to fall.  It didn’t.  For the constitutional monarchy and representative government in Britain was a long cry from the absolute monarchy that they had in France.  So revolution did not come to Britain.  But war did.  As the French expanded their revolution into a European war.  Pulling the British back into war with their old enemy.

With a large conscripted French Army and the concept of total war France made total war.  Napoleon Bonaparte won a lot of battles.  Conquered much of Europe.  Even marched back and conquered Paris.  Proclaimed himself emperor of France.  And continued waging war.  Including an ill-conceived invasion of Russia.  Which marked the beginning of the end for Napoleon.  And the French Empire.  Weakened from war France saw her old nemesis, Great Britain, rise as the first superpower since the Roman Empire.  And like the Romans’ Pax Romana Britain entered a century of peace.  Pax Britannica.

The reason the British could do this was because of their mercantile past.  They set up colonies and international trade networks.  And they used the proceeds from that lucrative trade to finance the greatest naval power then in the world.  The Royal Navy.  And the Royal Navy would help keep the peace in the Pax Britannica.  She became the world’s policeman.  Making the world safe for trade.  Especially on the high seas.  But then something interesting happened.  She broke from her mercantile past.  Because they saw the shortcomings of mercantilism.  One of which produced wealthy landowners at the expense of a hungry population.

When the British repealed the Corn Laws in 1846 Food Prices fell and the Standard of Living Rose 

The British Corn Laws were a series of laws protecting those who grew cereal crops.  The stuff we grow that has edible grains.  Corn, rice, wheat, barley, etc.  What we call staple crops as they form the basic sustenance of humans everywhere.  We grow these in greater abundance than all other foods.  And when you look at the grain size you come to one realization.  It takes a lot of land to grow these crops.  And who owns large tracts of land?  The landowning aristocracy.  A small group of people with a lot of wealth.  And a lot of political influence.  Hence the Corn Laws. 

The Corn Laws were legislation with one goal.  To prevent the British people from buying less expensive food.  By either forbidding any importation of cheaper grains until the domestic price had reached a certain price level.  Or adding tariffs to the less expensive imports so the landowners could still sell their grains at higher prices.  Thus preserving their wealth.  And they made specious arguments about how lower-priced food was actually bad for the people.  For it was just a way for manufacturers to maximize their profits.  For if food was cheaper they could pay their workers less.  Being the greedy bastards that they were.  So the only fair thing to do was to keep food prices high.  To keep the living wage high.  To force manufacturers to pay their workers more.  You see, the only way to help the poor and middle class was to let the wealthy landowners become even wealthier.  By keeping the price of the food they sold high.

Opposition grew to the Corn Laws.  People studied the works of their fellow countrymen.  Adam Smith and David Hume (both Scottish).  And the Englishman David Ricardo.  All great economists and thinkers.  Who were all proponents of free trade.  Ricardo’s Comparative Advantage basically proved the case of free trade over the protectionism of mercantilism.  Eventually the political power of the landowners could not overcome the economic arguments.  Or a famine in Ireland.  And, in 1846, they repealed the Corn Laws and adopted free trade.  Food prices fell.  Leaving people with more disposable income.  To purchase the goods the Industrial Revolution was making.  Increasing their standard of living.  While small famers had to leave their farms being unable to farm efficiently enough to pay their bills at the prevailing prices.

The Success of NAFTA proves David Ricardo’s Comparative Advantage

Mercantilists and other opponents to free trade like to point at the human costs.  Small farmers losing their farm.  Just so they can preserve some semblance of privilege to protect the high prices in their industry.  But it was becoming more and more difficult to make the argument that the masses were better off paying higher prices.  Because they’re not.  Lower consumer prices increase the standard of living for everyone.  Higher living standards create healthier living conditions.  And reduces child mortality.   For the greatest killer of children in the world is poverty.

The British were both a military and an economic superpower during the 19th century.  But someone was chasing her.  The Untied States.  Who was feeling her economic oats.  Her economy would catch up and surpass the British.  Making it the mightiest economic power of all time.  How did this happen?  Two words.  Free trade.  The United States was the largest free trade zone in the world.  The economic advantages of all those states trading with each other freely across their state borders made Europe stand up and take notice.  And in response created treaties that ultimately led to the European Union and the Eurozone.  To replicate the large free trade zone of the United States.

Back across the Atlantic the Americans, Canadians and the Mexicans took it up a notch.  And created the North American Free Trade Agreement.  NAFTA.  Extending the free trade that existed in each of their countries across their international borders.  The mercantilist fought against this.  Because protectionism, restrictions and tariffs helped the privileged few protect the high prices in their industry.  In America they talked about a great sucking sound as all American jobs went to low-wage Mexico.  Some manufacturers did move to Mexico.  Primarily because like the small farmers in Britain after the repeal of the Corn Laws they could no longer sell at prices to meet all of their costs.  But it was not as the mercantilists predicted.  Yes, imports increased.  In 2010 they were up 235% from pre-NAFTA 1993.  But exports were up, too.  Some 190% for the same period.  Proving Ricardo’s Comparative Advantage.  By focusing on what we do best and trading for everything else all countries do better.

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Mercantilism

Posted by PITHOCRATES - May 14th, 2012

Economics 101

Wealth is the Stuff we use our Talent and Ability to Make

Mercantilism gave us the United States.  For it was because of these policies that the British established colonies in North America.  And it was those same policies that led to American Independence.  Because those polices pissed off the Americans. 

The mercantile system came into being as nation states arose from feudal estates.  Kings arose and consolidated these estates into larger kingdoms.  Then one king arose to consolidate the kingdoms into a nation.  Creating Spain, France, the Netherlands, England, etc.  Enlightened thinking and better technology created food surpluses.  With food surpluses a middle class of artisans arose.  And manufactured goods.  People met in markets to trade their food and goods.   These markets grew into cities.  All of this economic activity created wealth.  Food.  And manufactured goods.  That we bought with money.  Often silver and gold. 

There was wealth.  And there was money.  Two different things.  Wealth is the stuff we use our talent and ability to make.  Food and manufactured goods, for example.  And the more food and manufactured goods a nation has the wealthier that nation is.  This is a critical point.  And the mercantile policies ultimately failed because those policies mistook money for wealth.  But money is not wealth.  It’s a temporary storage of wealth.  To make our trading of food and manufactured goods easier.  By reducing the search costs to find people to trade with.  Which is why the barter system failed in a complex economy.  It just took too long to find people to trade with.  Money solved that problem.  Because you could trade what you had for money.  Then trade your money for what you wanted.

England used the Positive Flow of Bullion to Finance the Building of the Royal Navy

Mercantilism focused on the money.  And used wealth to accumulate it.  Instead of the other way around.  The way most advanced nations do today.  These European nations accumulated money with international trade.  Beginning in the 15th century they started looking at the balance of trade between nations.  And did everything they could to maintain a positive balance of trade.  Meaning they tried to export more than they imported.  Why?  Well, nations often did trade with each other.  So they owed each other money.  And when you settled your account if other nations owed you more than you owed them there was a net flow of money to you.  Bullion.  Silver and gold.  Which is what they wanted.

To maintain a positive balance of trade the government actively intervened into the economy.  It set up monopolies.  It provided subsidies for manufacturers who exported their goods for bullion.  It placed tariffs on imports.  Or simply blocked the importation of any goods that they produced domestically.  They set up colonies to harvest raw materials to ship back to the mother country.  Which would use those raw materials in their factories to produced higher valued finished goods.  That they would export.  Especially to their colonies.  Which were convenient captive markets for their finished goods.  On the mother country’s ships.  Through the mother country’s ports.  Where they, of course taxed it.  Guaranteeing that at every step of the way they added to the positive bullion flow back to the mother country.

And it worked.  To a certain extent.  England used that positive flow of bullion to finance the building of the Royal Navy.  Which proved invaluable in the wars that followed in the mercantile world.  For mercantilism is a zero-sum game.  For every winner there had to be a loser.  Which is why this era was an era of world war.  To wrest control of those colonies.  And those sea lanes.  Great Britain came out the victor.  Thanks to their Royal Navy.  But it wasn’t all good.  For Spain found gold in the New World.  And they took it.  Shipped it back to the Old World.  Just like a good mercantilist would.  Which caused problems in the Old World.  Because money is not wealth.  It’s a temporary storage of wealth.  And when they inflated their money supply it took more of it to hold the same amount of value it once did.  Because there was so much of it in circulation.  And what happens during inflation?  Prices rise.  Because the money is worth less it takes more of it to buy the same things as it did before.  So by hording bullion to create wealth they actually destroyed wealth.  With wealth-destroying inflation.

With the Boston Tea Party the Americans Renounced Mercantilism and Demanded Free Trade

Spain was one of the greatest mercantile nations of the era.  But they quickly became a shadow of their former self.  Even though they had more bullion than their European neighbors.  For it turned out that those mercantile policies hindered economic growth.  Which is the true source of wealth.  Economic growth.  Where people use their talent and ability to create things.  That’s where the true value lay.  Not the money that held that value temporarily.  All those mercantilist policies did was raise domestic prices.  And allocated scarce resources poorly. 

It turned out free trade was the secret to wealth.  For free trade can increase wealth.  For both nations.  Thanks to something we call comparative advantage.  Instead of both nations manufacturing all of their goods they should only manufacture those goods that they can manufacture best.  And trade for the goods they can’t manufacture best.  This more efficiently allocates those scarce resources.  And produces a greater total amount of wealth.  By allowing people to buy lower cost imports they have more money left over to buy other stuff.  Increasing the overall amount of economic activity.  Which is why when Great Britain adopted free trade in the 19th century the British Empire went on to rule the world for a century or so.  And led the Industrial Revolution.  By creating wealth.  Goods and services people created with their talent and ability.  That changed the world.  And ushered in the modern era.  Something no amount of bullion could do.

But before Britain adopted free trade they were struggling with one of their belligerent colonies.  Their British American colonies.  Who were unhappy over taxation without representation in Parliament.  And the mother country forcing them to buy only British tea shipped on British ships at higher prices than they could get from the Dutch.  The British thought they found a solution to their problem.  By permitting their British East India Company monopoly to ship their tea directly to America without passing through an English port.  The tea was cheaper because of this.  But it also would set a precedent for taxation without representation.  Something the Americans weren’t about to accept.  So they threw that tea into Boston Harbor.  What we affectionately call the Boston Tea Party.  Renouncing mercantilism.  And demanding the right to engage in free trade.  Which they got after winning their independence.  And the mother country would follow suit in a few decades.  Because they, too, would learn that free trade was better than mercantilism.

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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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War of the Spanish Succession, War of the Austrian Succession, Diplomatic Revolution , Seven Years’ War, Royal Proclamation and Quebec Act

Posted by PITHOCRATES - February 16th, 2012

Politics 101

The French lost most of their colonial possessions to Great Britain in the Seven Years’ War

The 18th century started off with a bang.  And it banged all the way through the century.  Starting with the War of the Spanish Succession from 1701-1714.  At issue was the Spanish throne.  The last Spanish Habsburg, Charles II of Spain, died in 1700.  Leaving the throne without an heir.  And France was very interested in occupying it.  But the British weren’t too keen on Catholic France controlling so much of Europe.  The rest of Europe that wasn’t Spanish or French wasn’t all that enthusiastic about the idea, either.  For France and Spain, both Catholic, at this time were the two European superpowers.  And a union between the French and the Spanish would alter the ‘balance of power’.  A term entering the political discourse at this time.  So there was war.  There’s a lot more details to this war as one would expect in a war that lasted over a decade.  But in the end there was no French and Spanish union.  The Spanish lost territory in Italy and the Netherlands to Austria.  And Spanish Gibraltar became British.  As did parts of French North America.  Also, when Queen Anne died in Great Britain with no male heir, the Brits plucked one from German Hanover.  Over on the continent.  George I.  For his mum was the daughter of James I.  Which gave her Stuart blood.  And she was a Protestant.  Making George a Protestant.  Very important and necessary for a British ruler.  George I ascended the throne of Great Britain in 1714.  Creating a personal union between the British and German states (two separate kingdoms ruled by the same king).

But the peace didn’t last.  Because another Habsburg died.  The last male Austrian Hapsburg.  Charles VI.  Before he died, fearing he may have no sons to inherit his throne, he issued an edict.  The Pragmatic Sanction of 1713.  Which said in the absence of a Habsburg son a Habsburg daughter, his daughter, could inherit the throne.  Most of the German states accepted the edict.  Problem solved.  Until Charles died.  And his daughter, Maria Theresa, ascended the throne.  Then the European states went to war.  The War of the Austrian Succession from 1740-1748.  Because some said that Maria Theresa was ineligible to inherit the Hapsburg throne.  But what they really wanted was a chance to alter the balance of power now that the Habsburg line was extinct.  For the Austrian Habsburgs were a major power.  And whoever succeeded to that throne would control a large part of Europe.  Something Prussia (a rising German state) was interested in.  As were the French.  And the Spanish (primarily to win back what it lost in the War of Spanish Succession).   Who joined together.  With the threat of a French/Spanish super state again the British jumped in to prevent that.  And joined in on the Habsburg side.  Who at the time was stronger than the rising Prussian state.  And a better balance to French power and ambition.  Especially with Hanover being so close to the French border.  After 8 years of war not a whole lot changed in the balance of power.  Except that Prussia appeared to be now a more formidable threat than Austria.  Which the Diplomatic Revolution of 1756 addressed.  By a changing of sides.  The France-Prussia alliance versus the Great Britain-Austria alliance became the France-Austria alliance versus the Great Britain-Prussia alliance.  Which made for a long and lasting peace.

Until hostilities flared up again later that year.  In the Seven Years’ War from 1756 – 1763.  This was a big one.  A world war.  Over the balance of power.  In Europe.  And other parts of the world.  Especially where colonial interests clashed.  Where they were generating lucrative trade.  And the British were bumping into the French almost everywhere they went.  In North America.  As the British expanded their colonies west from the Atlantic into the river valleys the French claimed.  In the Caribbean.  In coastal Africa.  In the Philippines.  In India.  In the end Britain’s Royal Navy and their alliance with Prussia led them to victory.  The Prussian armies of Frederick the Great held their own in Europe and freed the British Army for service elsewhere.  The Royal Navy ruled the seas.  And moved the British Army at will.  Where they prosecuted and won the colonial battles.  At the close of hostilities the French lost most of their colonial possessions to Great Britain.  And Spain lost Florida.  The British extended their control in North America to all lands east of the Mississippi River.  Spain ended up with the Louisiana Territory west of the Mississippi River.  But the mighty Spanish empire was now in decline.  France wasn’t looking that much better.  France and Spain also lost most of their naval power.  Which elevated Great Britain to true empire status.

To Help bring the Catholic in the Province of Quebec under British Rule the British passed the Quebec Act

The British did well in the Seven Years’ War.  They won large parts of the world.  And paid a pretty price to do it.  Almost bankrupted them.  This despite the previous efforts of William Pitt the Elder.  The British Secretary of State who built a great and prosperous colonial empire.  The British Empire.  Before the war.  And added greatly to it during the war.  But conquering is one thing.  Governing is another.  And, as it turns out, governing is as expensive as conquering.

British North America required a little political finesse.  For the Protestant British now governed Catholic French Quebec.  And they had to step lightly with the Indian Nations.  Who were allied with the French.  Agreeing to halt further westward expansion.  Via the Royal Proclamation of 1763.  To avoid hostilities on the frontier. 

To help bring the Catholic in the Province of Quebec under British rule the British passed the Quebec Act of 1774.  This act extended Quebec territory to include most of the Midwest states bordering the Great lakes.   The oath of allegiance to the British Crown no longer included a reference to Protestantism.  It protected Catholicism in the Province of Quebec.  And it allowed the use of French civil law in some instances over English common law. 

Great Britain would fight a Civil War in British North America before the Century was Out

None of this went over well with the British North Americans.  After defeating the French all eyes looked west.  And they did not like this Royal Proclamation interfering with their business.  And these fiercely loyal and proud Britons were also devoutly Protestant.  Many fought in the war to get the Catholic French out of their country.  And this protection of Catholicism in their Protestant backyard was nothing short of an insult.  But worse of all were the taxes.  To pay for a century of war against the French that only some of which was fought in North America. 

Great Britain’s money woes would continue.  For they would be fighting another war before the century was out.  This one a civil war in British North America.  Another costly 8 years of war.  That would not end as well for them as the previous war.  Worse, it would cause a Revolution in France.  Brought about in part due to the near bankruptcy of France from all of her wars.  And alliances.  Bringing about yet another war with the French for the British before the century was out.

The century started out with a war to contain French expansion and Catholicism.  And the century would end with great successes in that endeavor.  With the decline of the French and Spanish empires the world was safe from Catholicism.  But France and Great Britain would fight on.  Into the next century.

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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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UK Budget Cuts Ignite Riots, Gives Glimpse of USA Future

Posted by PITHOCRATES - March 26th, 2011

Unruly Mobs Attack the Police…in London

The riots in the Middle East were ignited by high unemployment, high food prices and little government relief for either.  Some countries have all but degenerated into civil war.  But violent unrest is not limited to the Middle East.  Even some of the most advanced Western economies are having their problems (see TUC protest march: anarchists on the rampage in London by Patrick Sawer and David Barrett posted 3/26/2011 The Telegraph).

Police fought mobs of masked thugs who pelted officers with ammonia and fireworks loaded with coins.

The anti-capitalists started fires, smashed their way into banks, hotels and shops, bringing chaos to Britain’s busiest shopping street.

The violence began as Ed Miliband, the Labour leader, addressed a TUC rally of at least 250,000 peaceful protesters in Hyde Park who had marched from Westminster to demonstrate against government spending cuts.

Yeah, you read that right.  London, England.  Unbelievable, isn’t it?  The violence against the police?  And property?  Wow.  And look who’s doing it.  Bloody anti-capitalist anarchist thugs. 

After five hours of running battles, there were 75 arrests. At least 30 people, including five police officers, were injured. Police said the anti-capitalists threw lightbulbs filled with ammonia at them…

They ordered limited use of “kettling” to contain the rioters but admitted that such was the scale of the violence, they could not protect property.

The UK has big time budget problems.  High taxes are hurting the economy.  Ever increasing public benefits require more and more tax revenue.  And increases the debt.  They cannot sustain this spending without crashing the economy.  Or bankrupting the nation.  But the anarchists don’t care.  Because they’re anti-capitalists.  And simply don’t understand rudimentary economics.  Or numbers with a ‘£’ in front of them.

From Rich Empire to Bankrupt Nanny State

So just how bad are things in the UK?  Bad.  The country is at a crossroads.  It may forever change if it doesn’t change course.  During World War II it was the Nazis threatening their survival.  Today it’s their own spending (see Britain’s leaders should come clean on the true depth of the fiscal crisis by Liam Halligan posted 3/26/2011 on The Telegraph).

The UK’s fiscal crisis is of monumental historic importance. The future of the free world may not be at stake as it was in Churchill’s day. What is in the balance, though, is the prosperity of the British people for at least the next few decades and our status as a top-ranking nation.

This is a common theme among great nations that fall from greatness.  Out of control government spending.  It brought down the Roman Empire.  And the British Empire.  But the great nation that built it remains.  For now, at least.  But the government spending is burdening Britain more than her empire ever did.

Over the last 12 months, then, this country’s “on-balance-sheet” liabilities have risen by £147bn. That’s roughly what we spent on the NHS and defence combined in 2010 – and that was merely, during this last year of “austerity”, the incremental increase in what Britain has put “on tick”.

That’s my point – and I will keep making it until it fully enters the public discourse. It is the total debt numbers that Osborne, the Tories and our politicians in general should focus on, not the size of the annual deficit.

This is another common theme with great nations.  They have big military forces.  To protect what is theirs.  And to maintain the peace.  The Royal Navy built the British Empire.  And maintained world peace.  As did the Roman Legions.  That’s why there was a Pax Romana.  And a Pax Britannica.  These empires ushered in great periods of peace.  And their rule of law and free markets provided great prosperity.  But the prosperity led to entitlement.  And state benefits.  Such as the NHS (National Health Service).  State spending increases to meet the desires of voters.  And that spending is now unsustainable.  They have to cut something.  Because they just can’t borrow anymore.

In 2009, the UK spent £31bn – around 6pc of total tax receipts – on debt interest payments. That’s money down the drain. By 2015, we won’t have reached, in Churchill’s words, some “broad sunlit upland”. After four more years of deficits, debt services costs, according to last week’s Budget, will by then be £67bn a year – or almost 10pc of total tax receipts. These shocking numbers are also likely to be under-estimates, given the UK’s massive “off-balance-sheet” liabilities and the Treasury’s benign assumption of future gilt rates.

These interest costs are staggering.  Any meaningful cuts will have to be greater than the annual debt cost if they have any hope of bringing down deficits.  Or the debt.  And they were trying to make some meaningful cuts.  Almost £100bn.  And we saw what happened.  People took to the streets in violent protest.

All of us – politicians, commentators and voters – should compare the quality of our current national debate, its utter detachment from reality, with the statesmanship and candour of Churchill’s “blood, toil, tears and sweat“. For such hard truths inspired a nation, while winning Churchill untold respect.

Of course, during Churchill’s time, there wasn’t a nanny state.  After enduring World War I and the Great Depression, austerity was an all too familiar way of life.  It isn’t like that today.  Today students protest if they don’t get a free college education.  It is questionable even if Winston Churchill himself could inspire today’s entitlement culture.  They’re just too spoiled, lazy and greedy.

A Look into America’s Future

All right, so that’s what’s happening in the UK.  How about the USA?  We have our problems.  But we’re not as bad off.  Obamacare is not quite the NHS.  Yet.  But we have the same entitlement culture.  Out of control state spending is plunging us into record deficits and debt.  High taxes and regulatory compliance has drawn out the Great Recession.  And when some governors start cutting their budgets to balance their budgets, the people protested.  Our day of reckoning is coming.  And N. Gregory Mankiw wrote how a future president might inspire the American people ala Churchill in 2026.  It’s an interesting look at what could very well be our future (see It’s 2026, and the Debt Is Due by N. Gregory Mankiw posted 3/26/2011 on The New York Times).

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security. They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embraced health care reform with subsidies for middle-class families.

But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income.

Today, most of the large baby-boom generation is retired. They are no longer working and paying taxes, but they are eligible for the many government benefits we offer the elderly.

Our efforts to control health care costs have failed. We must now acknowledge that rising costs are driven largely by technological advances in saving lives. These advances are welcome, but they are expensive nonetheless.

If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided. But no one likes paying taxes. Taxes not only take money out of our pockets, but they also distort incentives and reduce economic growth. So, instead, we borrowed increasing amounts to pay for these programs.

This part of the story we know.  It’s how we got here.  Or there, as it were, in this tale from the future.  Now comes the debt spiral.  Which will force us to act.  And make decisions no one wants to, or is willing to, now.  Which will be even more painful hence.

For years, the United States government borrowed on good terms. Investors both at home and abroad were confident that we would honor our debts. They were sure that when the time came, we would do the right thing and bring spending and taxes into line.

But over the last several years, as the ratio of our debt to gross domestic product reached ever-higher levels, investors started getting nervous. They demanded higher interest rates to compensate for the perceived risk. Higher interest rates increased the cost of servicing our debt, adding to the upward pressure on spending. We found ourselves in a vicious circle of rising budget deficits and falling investor confidence.

When the treasury tried to auction off some bonds in this tale there were few takers.  So this future president secured a loan from the International Monetary Fund (IMF) with some draconian strings.  The IMF required big cuts in spending (Social Security, Medicare, Medicaid, Obamacare and subsidies – farming, ethanol production, public broadcasting, energy conservation and trade promotion).  And big tax increases. 

We will raise taxes on all but the poorest Americans. We will do this primarily by broadening the tax base, eliminating deductions for mortgage interest and state and local taxes. Employer-provided health insurance will hereafter be taxable compensation.

We will increase the gasoline tax by $2 a gallon. This will not only increase revenue, but will also address various social ills, from global climate change to local traffic congestion.

AS I have said, these changes are repellant to me. When you elected me, I promised to preserve the social safety net. I assured you that the budget deficit could be fixed by eliminating waste, fraud and abuse, and by increasing taxes on only the richest Americans. But now we have little choice in the matter.

If only we had faced up to this problem a generation ago. The choices then would not have been easy, but they would have been less draconian than the sudden, nonnegotiable demands we now face. Americans would have come to rely less on government and more on themselves, and so would be better prepared today.

Even in the future presidents will be making the same promises that they cannot keep.  And make the same lament.  If only we continued the policies of Ronald Reagan.  Kept government small.  And relied on ourselves.  Had we, we’d never be in this financial mess now.  Or hence.

Dead People haven’t a Care in the World

Our own greed will do us in.  Insatiable want of government benefits kills great nations.  Even the UK and the USA are not immune from this.  But the easy political road is to pander to the people.  Give them what they want.  To get their votes.  They do this knowing full well they are destroying the future.  So why do they do it?  Because most of those in government are old.  And when it comes time to pay the piper, it will be a moot point.  Because they will be dead.  And dead people haven’t a care in the world.

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