Britain and Scotland disagree over Scottish Currency in an Independent Scotland

Posted by PITHOCRATES - February 16th, 2014

Week in Review

The Eurozone was a grand idea to make an economic zone that could compete against the United States.  A United States of Europe, if you will.  But the Eurozone has suffered a sovereign debt crisis that was unavoidable.  As many analysts have identified the problem causing the Eurozone all its sovereign debt woes.  The lack of a political union.

The solution they say is for member states to give up some of their sovereignty and allow a Eurozone government have more control.  Like the United States of America has.  Which means putting even stricter controls on member states when it comes to their spending.  Which, in turn, would limit their deficits.  And their borrowing needs.  Which brought on the sovereign debt crisis in the first place.  Excessive spending beyond their ability to pay for with taxes.  Normally not a problem for other countries when another country spends itself into oblivion.  Unless, of course, there is a currency union with that country.  Which makes their problems your problems.  Problems that are impossible to solve without a political union.

The Eurozone sovereign debt crisis illustrates that a currency union without a political union will not work.  Which makes the movement for Scottish independence very interesting (see Britain warns Scotland: Forget the pound if you walk away by Belinda Goldsmith, Reuters, posted 2/13/2014 on Yahoo! News).

Britain warned Scotland on Thursday it would have to give up the pound if Scots voted to end the 307-year-old union with England, declaring the currency could not be divided up “as if it were a CD collection” after a messy divorce…

The message was aimed at undermining the economic case for independence and one of the Scottish National Party’s (SNP) key proposals – that an independent Scotland would keep the pound…

The debate has intensified in recent weeks with Bank of England chief Mark Carney cautioning that a currency union would entail a surrender of some sovereignty…

The SNP [Scottish National Party] has indicated that if London prevented a currency union, an independent Scotland could refuse to take on a share of the UK’s 1.2 trillion pounds ($1.99 trillion) of government debt which Britain has promised to honor…

Osborne said the nationalist threat to walk away from its share of UK debt would mean punitively high interest rates for an independent Scotland and was an “empty threat”.

“In that scenario, international lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default,” Osborne said.

Currently there is a political union between Scotland and England.  The United Kingdom (UK).  And Scottish independence would go contrary to what some analysts say is needed to save the Eurozone.  Political unity.  The problem in the Eurozone is that no one nation wants to give up any of their sovereignty and have some distant power tell them what they can and cannot do.  The way some in Scotland feel about London.  That distant power that governs the United Kingdom.

The British pound is one of the world’s strongest currencies.  A product of the powers in London.  Because they have political control across the UK.  If they lose their political control over Scotland will it damage the British pound?  If the Eurozone is any measure of a currency union without a political union, yes.  So it will be interesting to see what happens between these two great nations.  Whose people made the world a better place.  People like the great Scotsman Adam Smith.  And the great Englishman John Locke.  To name just two.  So whatever happens let’s hope it’s in the best interest of both countries.  For countries everywhere enjoying economic freedom and human rights can thank these two countries for their contributions to the British Empire.  Which helped spread the best of Western Civilization around the world from the United States to Canada to Australia to Hong Kong.  And beyond.

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The Solution to Europe’s Debt Crisis may be as ‘simple’ as the Eurozone Nations surrendering their Sovereignty

Posted by PITHOCRATES - June 24th, 2012

Week in Review

The solution to the Eurozone debt crisis is easy.  All the European nations have to do is surrender their sovereignty (see The eurozone’s long reform wishlist by Laurence Knight posted 6/24/2012 on BBC News Business).

A US-style federal budget may be needed to cover the cost of recessions, so that individual governments don’t risk going bust when their national economies get into trouble. For example, the cost of a minimum level of social security – especially unemployment benefits – could be permanently shared across the eurozone, paid for by a common income tax.

Welcome to the new world order.  At least the new country of Europe.  Made up from the former European nations.  And, unsurprisingly, the answer to all their problems is a new tax.  Not just any tax.  But a European income tax paid to a distant central power.  The kind of thing that embroiled Europe in wars to prevent going as far back as the Roman Empire.  And beyond.

The European Central Bank may need to have its mandate changed so that it has an explicit dual target to support employment as well as price stability, just like the US Federal Reserve does, as proposed by the new French President Francois Hollande.

Because it has worked so well in the United States.  The Fed was in charge during the Great Depression.  The Fed was in charge during the stagflation of the Seventies.  The Fed was in charge during the irrational exuberance of the Nineties.  And the Fed was in charge during the great housing bubble that gave us the subprime mortgage crisis.  Few people in the US think the Fed should be supporting anything these days.  For they feel they’ve done enough damage.

All Europeans (and especially southerners) are having to implement structural reforms that will increase their long-term growth and strengthen government finances, including removing restrictions on market competition, raising the retirement age, laying off (over many years) a lot of state employees, and making it much easier to hire and fire employees.

Really?  Something the individual European nations couldn’t do (cut back generous state benefits) a European country can?  Students in France took to the streets when they added a year or so to the retirement age.  Students took to the streets in Britain when they tried to make students pay for a part of their college education.  And Greece’s answer to austerity?  Riots.  It is easy to say what they must do.  Getting them to do it is another thing.  And they’ve clearly shown they don’t like doing it.  And so far have chosen not to.

In the same way that Washington has helped out struggling US states, the southern European governments may need to be given money (given, not lent) by the rest of the eurozone via direct fiscal transfers, so that they can afford to prop up their economies until they have regained competitiveness. These transfers could end up taking the form of bailout loans that are never repaid.

The US government can’t afford to bailout any states.  The state of California is in trouble.  As are some of our big cities.  Such as Chicago.  And New York City.  They have the same problem Greece has.  They have far more spending obligations than they can afford to pay.  As did the state of Wisconsin.  Whose governor implemented the kind of structural reforms suggested for the new European country.  And the opposition party and the federal government attacked them for it.  Organized a recall drive to kick out the governor.  And undo those structural reforms.  But the recall failed.  The governor won the recall election by a large margin.  Showing the people are no longer going to pay for other people’s irresponsible spending.  As the European people probably won’t want to either.

To make a full banking, fiscal and monetary union work, the eurozone governments would need to hand power to a central authority (the European Commission) that can pay for and supervise all of the above, while national governments accept that in future they have to keep their own spending strictly within their limited means.

 As most of the above reforms involve Germany sharing its wealth with the rest of Europe (and all European nations handing power to Brussels), Berlin is insisting on the principle of no taxation without representation – in other words a move towards full federalism, with spending and regulation controlled by a directly elected presidency of the European Commission.

Few European governments like hearing Germany tell them to implement structural reforms.  They’re not going to like it any better coming from Brussels.  Federalism wasn’t easy in the US.  We had to fight a civil war.  Go through reconstruction.  To this day we’re still fighting regional conflicts.  The Midwest is strongly union while the southern states are not.  And the federal government recently intervened on the side of the unions when Boeing tried to build a new aircraft manufacturing plant in the South.  In fact, those in the federal government refer to those states as flyover country.  Which is all they want to see of that country.  Flying overhead as they go between the east and west coasts.  Where the big government people live.

The 13 original American states had only about 200 years of history before they joined the federal union.  The European people have over 2,000 years of history.  It is unlikely that they will willingly choose to become flyover country.  No, there isn’t any easy solution to their problem.  If there was they would have already done it.  A currency union without a political union may just prove to have been a bad idea.  A political union isn’t likely.  Unless the people of Europe are more willing to give up their 2,000 years or so of history than the Americans were willing to give up their 200 years or so of history.  And if they’re not they should really think long and hard about creating something even bigger than the Eurozone.  That may be even more difficult to fix.  Should it follow US history too closely.  Where that first hundred years proved to be a bitch.

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Fitch follows S&P and Downgrades Eurozone Countries which doesn’t Help the Eurozone Debt Crisis

Posted by PITHOCRATES - January 29th, 2012

Week in Review

First Standard & Poor’s.  Now Fitch.  Things are not looking up for the Eurozone (see Greek debt deal hit by eurozone ratings downgrades by Angela Monaghan posted 1/28/2012 on The Telegraph).

Following similar action from rival Standard & Poor’s (S&P) earlier this month, Fitch downgraded Italy, Spain and Slovenia by two notches and Belgium and Cyprus by one notch. Fitch took no action on France’s AAA credit rating despite S&P downgrading the country two weeks ago.

The rating agency warned that the eurozone crisis would only be resolved “as and when there is broad economic recovery” and with “greater fiscal integration”.

It was also being reported last night that the German government wants Greece to hand over control of tax and spending decisions to a ‘budget commissioner’ appointed by the rest of the eurozone, before the country gets its second bail-out.

The budget commissioner would have to power to veto decisions made by the Greek government, according to a proposal seen by the Financial Times, marking a significant step-up in the EU’s powers over the sovereign governments of member states…

Eurozone finance ministers said that while there were still considerable challenges ahead, they believed in the future of a united eurozone.

They’re still trying to save the Eurozone because they can’t save the Eurozone.  Greater fiscal integration?  Hand over tax and spending decisions?  Having a veto over other sovereign nations?  It sounds like to save the Eurozone will require some erasing.  Of the borders between these sovereign states.  Something that sovereign states don’t like.  Being conquered.  Only with Euros and debt.  Instead of artillery and bullets.  Or sword and lance.

So to save Greece all the Greek people have to agree to is to become a vassal of the greater power.  Sort of a step back in time.  To the days of feudalism.  Where the poorer states serve their lord.  Who serves their sovereign.  The new Eurozone structure.  Whatever that may be.  Where the stronger member states will be among the nobility and have greater privileges than the poorer states.  Who will be among the serfs.  Grateful for the generosity of their masters.  And showing due gratitude and obedience.

It’s a simple plan.  But knowing the history of Europe one that is not likely to work.  Not in an age when the trend is towards independence.  Not subjugation.  Hell, even Scotland is talking about their independence from the United Kingdom.  So to think the Greeks are just going to surrender their sovereignty is wishful thinking.  Not in the land where Western Civilization was born.  Not in the country that contains the once great city-state of Athens.  That inspired Alexander the Great.  And the Romans.  No.  That’s just a wee bit too much history for the Greeks to surrender.

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The British and Argentineans are disputing the sovereignty of the Falkland Islands Again

Posted by PITHOCRATES - December 24th, 2011

Week in Review

The British are making cuts in military spending.  Could there be another Falklands War afoot?  Now that some perceive that they don’t have the strength or the reach they once had?  Perhaps (see Britain slams Argentina, vows to protect Falklands by Mohammed Abbas posted 12/23/2011 on Reuters).

Britain has controlled the South Atlantic islands, located about 300 miles off the eastern coast Argentina, since 1833. Its two-month war with Argentina in 1982 resulted in the deaths of 255 British and about 650 Argentine soldiers.

The British government says it will only agree to sovereignty talks if the territory’s 3,000 residents ask it to, and that the islanders want to remain British.

Argentine President Cristina Fernandez has rejected the argument as a display of “mediocrity bordering on stupidity” and earlier this year called Britain a “crass colonial power in decline” for refusing to hold talks over the islands, known as Las Malvinas in Spanish.

The residents of the Falkland Islands are British in pretty much every sense of the word.  They speak English.  Visiting British doctors provide their health care.  The Islands were uninhabited when the British first landed on them.  There have been other Europeans there but it’s been mostly British.  The 1982 Falklands War was more a diversion from floundering Argentine economic policies.  The people who live there are for all intents and purposes British.  And want to remain British.  So why are the Argentines so intent on making this British population Argentinean?

Diplomatic tensions over the islands have increased in recent years over offshore oil exploration.

Oh.  That’s why.  The money.  Some things never change.

This isn’t a colonial colony where a foreign power moved in and oppressed the local population.  Something all European nations have been guilty of.  Including Britain.  But these islands had no local population when the British moved in.  Any other people that did live there at one time or another were other colonial powers.  Yes the islands are close to Argentina geographically.  But they are closer to Britain in every other way.  And probably should stay British.  At least, if that’s what the local population wants.

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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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LESSONS LEARNED #17: “The raison d’être of federalism is to keep big government small.” -Old Pithy.

Posted by PITHOCRATES - June 10th, 2010

ALEXANDER HAMILTON WAS a real bastard.  John Adams hated him.  Thomas Jefferson, too.  George Washington looked at him like a son.  Aaron Burr killed him.  Politics.  It can get ugly.

Hamilton’s father was having an affair with a married woman in a loveless marriage.  Fathered two children with her.  First James.  Then Alexander.  Both born on the British island of Nevis in the Caribbean.  His father then moved the family to the Danish island of St. Croix.  Shortly thereafter, Hamilton’s father abandoned his family.  Alexander was 10ish (there is some disagreement about his year of birth). 

At age 11ish, Alexander became a clerk at Cruger and Beekmen, an import-export firm.  There he learned about business and commerce.  People noticed his talent and ability.  Soon, they collected some money and sent him off to the American colonies for a college education.  Hamilton’s fondest memory of his childhood home was seeing St. Croix disappear into the horizon from the ship that delivered him to America.

Hamilton’s father did have some nobility in his lineage but he squandered it before it could do Alexander any good.  He was an illegitimate child (a real bastard).  His father abandoned him.  His mother died while he was young.  He had little but ability.  But that was enough to take him from St. Croix to the founding of a new nation.

Hamilton served in the Continental Army.  He served as General Washington’s aide-de-camp.  Hamilton was in the know as much as Washington.  His understanding of business, commerce and money made him acutely aware of the financial disarray of the Army.  And of the Continental Congress.  What he saw was a mess.

The Continental Congress was a weak central government.  It could not draft soldiers.  It could not impose taxes to pay her soldiers.  It could only ask the states for money to support the cause.  Contributions were few.  The congress tried printing money but the ensuing inflation just made things worse.  The Army would take supplies for subsistence and issue IOUs to the people they took them from.  The Congress would beg and borrow.  Most of her arms and hard currency came from France.  But they ran up a debt in the process with little prospect of repaying it.  Which made that begging and borrowing more difficult with each time they had to beg and borrow.

The army held together.  But it suffered.  Big time.  Washington would not forget that experience.  Or Hamilton.  Or the others who served.  For there was a unity in the Army.  Unlike there was in the confederation that supported the Army.

WARS ARE COSTLY.  And France fought a lot of them.  Especially with Great Britain.  She was helping the Americans in part to inflict some pain on her old nemesis.  And in the process perhaps regain some of what she lost to Great Britain in the New World.  You see, the British had just recently defeated the French in the French and Indian War (aka, the 7 Years War).  And she wanted her former possessions back.  But France was bleeding.  Strapped for cash, after Yorktown, she told the Americans not to expect any more French loans.

Wars are costly.  The fighting may have been over, but the debt remained.  The interest on the debt alone was crushing.  With the loss of a major creditor, America had to look elsewhere for money.  The Continental Congress’ Superintendent of Finance, the guy who had to find a way to pay these costs, Robert Morris, said they had to tax the Americans until it hurt they were so far in debt.  He put together a package of poll taxes, land taxes, an excise tax and tariffs.  The congress didn’t receive it very well.  Representation or not, Americans do not like taxes.  Of the proposed taxes, the congress only put the tariffs on imports before the states.

Rhode Island had a seaport.  Connecticut didn’t.  Rhode Island was charging tariffs on imports that passed through her state to other states.  Like to Connecticut.  Because they generated sufficient revenue from these tariffs, their farmers didn’t have to pay any taxes.  In other words, they could live tax free.  Because of circumstance, people in Rhode Island didn’t have to pay taxes.  Connecticut could pay their taxes for them.  Because of the Rhodes Island impost.  And the Robert Morris’ impost would take away that golden goose.

As the congress had no taxing authority, it would take a unanimous vote to implement the impost.  Twelve voted ‘yes’.  Rhode Island said ‘no’.  There would be no national tax.  ‘Liberty’ won.  And the nation teetered on the brink of financial ruin. 

DEFALTION FOLLOWED INFLATION.  When the British left, they took their trade and specie with them.  What trade remained lost the protection of the Royal Navy.  When money was cheap people borrowed.  With the money supply contracted, it was very difficult to repay that debt.  The Americans fell into a depression.  Farmers were in risk of losing the farm.  And debtors saw the moneymen as evil for expecting to get their money back.  The people demanded that their state governments do something.  And they did.

When the debtors became the majority in the state legislatures, they passed laws to unburden themselves from their obligations.  They passed moratoriums on the collection of debt (stay laws).  They allowed debtors to pay their debts in commodities in lieu of money (tender acts).  And they printed money.  The depression hit Rhode Island hard.  The debtors declared war on the creditors.  And threw property laws out the window.  Mob rule was in.  True democracy.  Rhode Island forced the creditors to accept depreciated paper money at face value.  Creditors, given no choice, had to accept pennies on the dollars owed.  No drawbacks to that, right?  Of course, you better pray you never, ever, need to borrow money again.  Funny thing about lenders.  If you don’t pay them back, they do stop lending.  The evil bastards.

Aristotle said history was cyclical.  It went from democracy to anarchy to tyranny.  Hamilton and James Madison, future enemies, agreed on this point.  A democracy is the death knell of liberty.  It is a sure road to the tyranny of the majority.  If you don’t honor written contracts, there can be no property rights.  Without property rights, no one is safe from arbitrary force.   Civilization degenerates to nature’s law where only the fittest and most powerful survive.  (In the social utopias of the Soviet Union and Communist China, where there were no property rights, the people’s government murdered millions of their people).

WINNING A WAR did not make a nation.  Before and after the Revolution, people thought in provincial terms.  Not as Americans.  Thomas Jefferson hated to be away from his country, Virginia.  Unless you served in the Continental Army, this is how you probably thought.  Once the common enemy was defeated, the states pursued their own interests.  (Technically speaking, they never stopped pursuing their own interests, even during the War).

In addition to all the other problems a weak Continental Congress was trying to resolve, states were fighting each other for land.  A localized war broke out between Pennsylvania and Connecticut over the Wyoming region in north east Pennsylvania.  And a region of New York was demanding their independence from that state.  Hamilton helped negotiate a peaceful solution and the confederacy admitted the new state, Vermont.

There were problems with the confederation.  And people were getting so giddy on liberty that that they were forgetting the fundamental that made it all possible.  Property rights.  States were moving closer to mob rule with no check on majority power.  And the smallest minorities held the legislation of the Confederate Congress (the Continental Congress renamed) hostage.  Land claims were pitting state against state with the Congress unable to do anything.  Meanwhile, her finances remained in shambles.  She had no credit in Europe.  And creditors wanted their money back. 

They were choosing sides.  And you can probably guess the sides.  Hamilton had no state allegiances, understood finance and capital, saw how an impotent congress was unable to support the Army during war, saw provincial interests hinder national progress and threaten civil war.  George Washington, Virginia’s greatest son, had long looked to the west and saw America’s future there.  Not Virginia’s future.  His war experience only confirmed what he believed.  America had a great future.  If they could only set aside their provincialism and sectional interests.  James Madison saw the tyranny of the majority in the Virginian State House first hand.  He liked partisanship.  He liked competing ideals debated.  He did not want to see a majority stampede their vision into law.

These were the nationalists.  Madison wanted a strong federal government to check the tyranny of the states.  Hamilton wanted to do away with the states altogether.  Washington wanted what was best for these several united states as a whole after so many labored for so long during the Revolutionary War.  Ultimately, he wanted to capitalize the ‘u’ and the’s’ in united states and make it a singular entity.

On the other side were many of the old 1776 patriots.  Many of who did not have any army experience.  Such as Thomas Jefferson.  In them, the Spirit of ’76 was alive and well.  The Revolutionary War was to free the states from the yoke of British oppression.  They remained provincials.  They did not spend up to 8 years in an army made up of soldiers from different states.  They had no sense of this nationalism.  They saw everything through the eyes of their state.  And a strong central government was just another yoke of oppression in their eyes.

THE ANSWER TO all of their concerns was federalism.  Shared sovereignty.  The states would give up a little.  And the new central government would take up a little.  The drafters of the Constitution set up a 3-branch government.  It included a bicameral legislature.  Membership in the House of Representatives would be proportional to a state’s population.  They would have power of the purse.  Including the authority to levy taxes.  In the Senate, each state would get 2 senators.  They would be chosen by the states’ legislatures (a constitutional amendment changed this to a popular vote).  This was to keep the spending of the House in check.  To prevent mob-rule.  And to check national power.  Each chamber would have to approve legislation for it to become law.  But each chamber did not need to have unanimous approval. 

That was in the legislature.  In the executive branch, the president would be head of state and execute the laws written by the legislature.  He would also conduct a uniform foreign policy.  The president could veto legislation to check the power of the legislature.  And the legislature could override the president’s veto to check the power of the president.  Where the law was in dispute, the judiciary would interpret the law and resolve the dispute.

At first glance, the people didn’t love the U.S. Constitution.  Those at the convention didn’t either, but they thought it was the best they could do.  To help the ratification process, James Madison, Alexander Hamilton and John Jay wrote a series of essays, subsequently published as the Federalist Papers making the case for ratification.  Those opposed wanted a Bill of Rights added.  Madison did not think one was necessary.  He feared listing rights would protect those rights only.  If they forgot to list a right, then government could say that it wasn’t a right.  He acquiesced, though, when it was the price to get the Virginian Baptists on board which would bring Virginia on board. 

Madison promised to add a Bill of Rights after ratification.  So the states ratified it.  And he did.  The final document fell between what the nationalists wanted and what the ‘states’ government’ people wanted. 

OVER THE FOLLOWING years, each side would interpret the document differently.  When Hamilton interpreted broadly to create a national bank, to assume the states’ debts and to fund the debt, the other side went ballistic.  Madison, the father of the Constitution, would join Jefferson in opposition.  For they believed the point of the constitution was to keep big government small.  Hamilton was interpreting the ‘necessary and proper’ clause of the Constitution to make government big.  Nasty, partisan politics ensued.  And continue to this day.

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FUNDAMENTAL TRUITH #17: “The raison d’être of federalism is to keep big government small.” -Old Pithy.

Posted by PITHOCRATES - June 8th, 2010

BONJOUR.  A LITTLE French there.  To go with the use of the French expression ‘raison d’être’.  Which means reason for being.  Sounds better in French, n’est-ce pas?

I like Canada.  Both parts.  The French and the English parts.  I’ve met and become friends with people in Toronto, Montreal, Fredericton and Corner Brook.  And elsewhere.  I like to talk to my Francophone friends about that day on the Plains of Abraham.  And I like to speak French to my Anglophone friends.  And they both like to point out to me what they believe to be America’s lack of tolerance and compassion.

The Canadians may be a tolerant and friendly people.  Everyone says that about them.  That they’re nice.  And they are.  But they have to work at it at times.  For there ain’t a whole lot of love between the French and English.  Not now.  Or then.  When French Canada became British.

Like it or not, that animosity has been at the van of Western Civilization.  And it would compete in the New World.  Colonize it.  Fight in it.  And give birth to a new nation.  One that would break from the ways of the past.

“WHO’S THAT, THEN?” one filthy peasant asked another.

“I don’t know.  Must be a king. ”

“Why?”

“He hasn’t got shit all over him.”

(From Monty Python and the Holy Grail – 1975.)

What is a king?  Besides someone who “hasn’t got shit all over him.”  A king is where sovereignty lies.  And sovereignty?  In a word, supremacy.  Supreme authority. 

The Sun King, Louis XIV of France, was an absolute monarch and his word was the absolute law of the land.  And he could do pretty much whatever the hell he wanted.  He built his gorgeous palace at Versailles.  Because he could.  Over in England, the king was sovereign, too, but Parliament checked his power.  So the British king wasn’t an absolute monarchy.  In England, the king could do whatever he wanted as long as Parliament agreed to pay for it.  For Parliament controlled the purse strings.  There would be no Versailles in England.

Now France and England were always at war.  Their fighting even spilled over into the New World.  The 7 Years War (as the Europeans called this world war) went by a different name in North America.  The French and Indian War.  The British won.  France lost Canada and other colonial possessions.  Their loss, though, was America’s gain.  The French and Indian attacks on the American Colonists ended, leaving them with peace and prosperity.  But it was costly.  As wars are wont to be.

Over in England, Parliament had to pay that cost.  But taxes were already pretty high at the time in England.  If they raised them further, it could cause trouble.  So what to do?  Well, there were some who pointed out that the American colonists really came out the clear winner in this latest contest.  They got peace and prosperity without really paying anything to get it.  Shouldn’t they pick up part of the tab?  I mean, fair is fair, right?

And they probably would have gladly contributed as good English subjects.  However, and this is a big however, they felt they weren’t treated as good English subjects.  In fact, they felt more like Parliament’s bitch than English subjects.  And to add insult to injury, they had no vote in Parliament.

Parliament passed a series of acts that the Americans would call the Intolerable Acts.  Both sides missed opportunities for compromise and peace.  Instead, tempers festered.  Parliament would bitch-slap the colonists.  And the colonists would bitch-slap Parliament.  Eventually throwing some British East Indian tea into the water.

Now Britain’s king, King George, had a bit of a problem on his hands.  The Americans were challenging his sovereign rule.  There was a name for this.  Kings call it treason.  And they kill people for it.  King George was the supreme authority.  Anyone challenging his authority was challenging his right to rule.  That’s why acts of treason are typically punishable by death.  You don’t stand up to kings.  You grovel.  And these uppity Americans surely weren’t groveling.

And just how does a king get this authority?  Well, you don’t vote for them.  They either inherit power.  Or they kill for it.  It’s a story as old as time.  Patricide.  Matricide.  Fratricide.  And sometimes the killing was by someone outside the family.  But that’s how sovereign power changed.  A king or queen died.  Naturally.  Or with a little help.  And when a new sovereign ascended the throne, he or she usually killed all other possible contenders.

If King George didn’t put down the American rebellion, it could spread.  To Canada.  To other English colonies.  Or give someone ideas back at home that the king was weak.  And challenge him for his throne.

These are things kings think about.  Power can be precarious.  Even when it’s absolute.  As King Louis XVI would learn in France.  During the French Revolution, the people, challenging the king’s sovereignty, sent him to the guillotine.  Chopped his head off.  His wife’s, too.  Marie Antoinette.

ENGLAND GAVE BIRTH to modern, representative government.  It was a balance of power between the many (the common people in the House of Commons), the few (the aristocratic rich in the House of Lords) and the one (the sovereign king).  Each provided a check on the others.  The king was the supreme power but he needed money to wage war and build things.  Parliament collected taxes and paid for things they approved of.  And the House of Lords was to keep that spending from getting out of control as they understood money and costs (that’s what rich people are good at).  They were to protect the nation from the evils of pure democracy where the people, once they realize they can, will vote themselves the treasury.

Most of the American colonists were transplanted Englishmen.  Or came from English stock.  They were English subjects (at least in name if not in practice).  They understood representative government.  Their colonial governments were in fact very British.  The Rule of Law was the rule of the land.  The governed consented to taxation.  And the government collected the taxes they consented to. 

You can probably see where this is going.

Taxation without representation was very un-English.  The fact that it was okay in the American colonies chafed the American English subjects.  I mean, it really frosted their shorts.  It wasn’t right.  By English law.  Or by precedent.  Anger at Parliament turned into anger at the king.  Questions of sovereignty arose.  Should the king be sovereign?  Or should the people?  In 1776, the American colonists stated their opinion in a very treasonous document.  The Declaration of Independence.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed….

The U.S. Constitution emphasized the sovereignty of the people in the preamble.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

Kings were out.  The Rule of Law was in.  No aristocracy.  No hereditary offices.  In America, it would be different.  After the Battle of Gettysburg some 75 years later, Abraham Lincoln would reiterate this at the dedication of the Soldiers’ National Cemetery.

Four score and seven years ago our fathers brought forth on this continent a new nation, conceived in liberty, and dedicated to the proposition that all men are created equal…

…that we here highly resolve that these dead shall not have died in vain—that this nation, under God, shall have a new birth of freedom—and that government of the people, by the people, for the people, shall not perish from the earth.

THE AMERICAN COLONISTS rebelled and broke away from Great Britain because they were through with being her bitch.  In fact, they weren’t going to be anyone’s bitch.  That’s why there was a lot of opposition to the establishment of a strong, central government.  They didn’t want a national government taking up where Great Britain left off.  And they didn’t want an American president to be just another King George.  The people won their liberty.  And they intended to keep it.  So they could pursue that happiness Thomas Jefferson wrote about in the Declaration of Independence.

Federalism was the solution.  The states’ governments would retain most of their powers.  Only those things they could not do well (regulate ‘free-trade’ interstate commerce, negotiate trade agreements with other nations, wage war, etc.) would be done by the new national government.  The people would remain sovereign.  Strong state governments and a ‘weak’ central government would share power.  In effect, the new central government was to be the people’s bitch.  But you’d never know that by looking at things today.

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