Byzantine Empire, Bosporus, Silk Road, Dutch East India Company, English East India Company, Tea Act and Opium Wars

Posted by PITHOCRATES - March 11th, 2014

History 101

(Originally published May 15th, 2012)

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices.  Something they enjoyed during Roman times.  When the Romans ruled the world.  And the Mediterranean Sea was nothing more than a Roman lake.  But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire.  Taxes.  To pay for the Roman government and their public spending.  And the Roman legions.  This excessive government spending led to the fall of the western half of the empire.  But the eastern half lived on for another 1,000 years or so.  Why?  Because the capital of the Byzantine Empire was Constantinople.  On the Bosporus.  Trade crossroads of the world.

This city was so rich everybody wanted to conquer it.  So they could have all those riches.  For everything that came along the Silk Road from China crossed into Europe at the Bosporus.  Soon Muslims fought Christians in the Holy lands.  Then more Christians came.  The Crusaders.  Those who didn’t die went back to Europe with some of those Chinese luxuries.  Spices.  Silk.  Porcelain.  Etc.  Sparking a renewed interest in these finer things in Europe.  Especially the spices.  For European cooking was horribly bland at the time.  The Ottoman Turks eventually took Constantinople.  Renamed it Istanbul.  And controlled that lucrative trade.  Making those much sought after Asian goods rather expensive in Europe.  Which they had no choice but to pay.  Because if you wanted those luxuries you had to go through Istanbul.  Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution.  A new age of international trade.  A trade even more profitable than what the Ottoman Turks controlled.  Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road.  And these new European maritime powers wanted that wealth.  And the power it would provide.  To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters.  The Dutch East India Company (VOC) was one of the largest.  And one of the wealthiest.  But this was not your typical company.  The VOC established overseas colonies.  It waged war.  Established treaties.  Even coined its own money.  Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy.  And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this.  They had competition.  Portugal.  Spain.  France.  And England.  Who would bump into each other numerous times fighting for control of this trade.  And those colonies.  The English and the Dutch would fight 4 wars.  Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities.  The English East India Company gave the VOC a run for its money.  Parliament even passed legislation to give the English a monopoly on all trade with their American colonies.  The Navigation Acts.  Which stated that all trade to and from America had to be on English ships.  And all trade had to go through an English port.  Where the ships were unloaded and the cargoes inspected.  And taxed.  Then they could reload their cargoes and continue on their journey.  All tenets of mercantilism.  This kept the lower-priced Dutch goods out of America.  And prevented the Americans from selling to the Dutch directly for higher prices.  So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England.  While extending shipping times and increasing prices for the Americans.  Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC.  And soon made the Indian subcontinent a wholly owned subsidiary of the Company.  But it wasn’t cheap.  Waging war was costly.  As was managing those conquered territories (something the Romans had also learned).  Then a famine in Bengal in 1770 claimed about one-third of the local population.  Making laborers more scarce.  And more expensive.  All at a time when the sales of their imported goods were falling in Europe.  There were warehouses full of unsold Chinese tea that they couldn’t sell.  Making for a bad time for the Company.

Higher costs and lower sales spelled trouble.  And that’s what the Company had a lot of.  Trouble.  So the Company turned to Parliament for help.  And Parliament helped.  By allowing the Company to ship their tea directly to America without having to unload it in a British port.  Or pay a duty on that tea.  Which would greatly reduce their costs.  And allow them to sell it in America cheaper than they did before.  So Parliament passed the Tea Act in 1773.  Making life better for all involved.  But the Tea Act left in place another tax in the previous Townshend Acts.  Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch).  These taxes on the British subjects in America were unconstitutional.  Because there were no Americans sitting in Parliament.  This was taxation without representation.  A much bigger issue than cheap tea.  So they threw that first ‘cheap’ tea into Boston Harbor.  The Boston Tea Party being a major step towards war with the mother country.  And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies.  Part of those policies required maintaining a positive balance of trade.  So there was always a net inflow of bullion into the mother country.  That’s why raw materials shipped into Britain from America.  And finished goods shipped out to America.  Finished goods are more valuable than raw materials.  So the Americans had to make up for this balance of trade in bullion.  Resulting in a net inflow of bullion into the mother country.  Very simple.  As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese.  For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured.  Which meant Britain had to pay for those luxuries with bullion.  Including all that Chinese tea they craved.  Which resulted in a net outflow of bullion to the Chinese.  The British fixed this problem by finding the one thing that the Chinese people wanted.  Indian opium.  Grown in Bengal.  Of course, this turned a lot of Chinese into opium addicts.  The addiction problem was so bad that the Chinese banned opium.  But the British were able to smuggle it in.  They sold so much of it that they used the proceeds to buy their tea.  Thus reversing the bullion flow.

Not the finest hour in the British Empire.  The Chinese and the British would go on to fight a couple of wars over this opium trade.  The Opium Wars.  Which the British did all right in.  Even gaining Hong Kong in the bargain.  They didn’t build any long-lasting love with the Chinese people.  But Hong Kong turned out pretty nice under the British.  Especially after they abandoned their protectionist mercantile policies and adopted free trade.  Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution.  And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland.  And caused a famine or two.  For they lived comfortably.  In a state founded on mercantilism.  That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.

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Governments turn People into Addicts to generate Tax Revenue

Posted by PITHOCRATES - January 4th, 2014

Week in Review

During the days of the British Empire Great Britain had a problem.  They loved Chinese tea.  But the British had nothing the Chinese wanted in trade.  Except for one thing.  Silver.  Hard money.  Which was a problem for Britain.  They were running out of hard money.  So they came up with an ingenious way to solve that problem.  By getting as many Chinese hooked on opium as possible.  So they could trade Indian grown opium for Chinese tea.  It worked out great for the British.  But the Chinese didn’t like it.  And fought two opium wars with the British.  Which did not end well for them.

North Korea has a hard money problem, too.  And they, too, turned to drugs.  Crystal meth.  Which North Korea manufactured in state-run labs.  Destined for China.  Where they tried to get as many people addicted to crystal meth as possible.  So they can sell it in exchange for Chinese currency.  Which they could use to buy Chinese food.  To help ward off famine in North Korea.  This worked pretty well for North Korea.  But only gave China another addiction problem.

In the United States the government found other ways to raise revenue.  The first two big sources of addiction-revenue were cigarette and alcohol taxes.  But it soon proved not enough.  They then got people addicted to playing the lottery.  When that revenue proved to be insufficient they then got people addicted to casino gambling.  But government spending had grown so great that this revenue was still not enough.  So the government is looking at other things to get people addicted to (see Why Legalizing Marijuana Is a Smart Fiscal Move by Bruce Bartlett, The Fiscal Times, posted 1/3/2014 on Yahoo! News).

Perhaps the dominant factor driving marijuana legalization is the desperate search for new revenue by cash-strapped state governments. The opportunity to tax marijuana is potentially a significant source of new revenue, as well as a way of cutting spending on prisons and law enforcement. The California Secretary of State’s office, for example, estimates savings in the hundreds of millions of dollars from both factors. The following summary is from a proposed state ballot initiative in California (No. 1617)…

It is not surprising that revenue considerations should be critical in the marijuana legalization movement. That was previously the reason why cigarettes were not banned until the 1920s despite a strong nationwide movement to do so. In the wake of Prohibition, governments simply needed cigarette tax revenue too badly. And when Prohibition ended, the need for new revenue after the Great Depression decimated government budgets was a driving force.

Indeed, according to author Daniel Okrent, expectations of the revenue from taxing legal liquor were so great in 1932 that some people thought it might permit the repeal of income taxes. It’s worth remembering that in 1900, taxes on alcohol and cigarettes constituted half of all federal revenues. Indeed, the only reason Prohibition was possible in the first place was that the income tax established in 1913, which was greatly expanded by World War I, would replace the revenue lost from the liquor tax after Prohibition.

There have been no great cuts to revenue like that following Prohibition.  Government spending has just grown so great that it far exceeds the nation’s ability to pay for it with current taxes and borrowing.  So they are looking to make people addicted to marijuana to help pay for their large public sectors.  As well as their vote-buying welfare state.  And when this proves insufficient they can turn to other sources of revenue.  Such as decriminalizing and taxing heroin.  Cocaine.  Crack.  Crystal meth.  Opium.  Even prostitution.  People are already doing these things.  So they can’t be any worse than marijuana.  As long as only responsible adults indulge in these activities.  Just as only responsible adults will smoke marijuana in Colorado.  For think of the tax revenue heroin, cocaine, crack, crystal meth and opium could generate.  For those drugs are really addictive.  And just think how much old rich men would enjoy 18 year old prostitutes.  Prostitution would be a booming business to tax.  These young women could generate great tax revenue for the government by just doing what consenting adults want to do.

We could do these things to find new sources of revenue.  Or we could NOT make people addicts.  Or NOT sell women into prostitution.  Instead we could cut the size of the public sector and the welfare state.  So we can cut spending.  Which would eliminate the need to produce new tax revenue in the first place.  Allowing people to keep their hard-earned money instead of handing it over to the government.  To pay for generous pensions and retiree health care for others.

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Cowboy Coffee, Percolator and Electric Drip Coffee Maker

Posted by PITHOCRATES - June 26th, 2013

Technology 101

Done Right Cowboy Coffee is one of the Finest Cups of Coffee you will ever Have

The British love their tea.  They love it so much they call lunch ‘tea’ in Britain.  Their world stops when it’s time for tea.  As they place a kettle of boiled water, cups on saucers, milk, sugar and lemon on a tray and bring it in to a warm gathering of friends and colleagues.  Then prim and proper British gentlemen and ladies prepare their tea.  Sit with good posture.  And sip their tea with pinky extended.

The British brought their treasured tea to the New World.  And British Americans continued the tradition.  Until the Boston Tea Party and the Revolutionary War.  And the War of 1812.  Interrupting the British-controlled tea trade.  It was these events and a general dislike of all things British during those turbulent times that changed American tea drinkers into coffee drinkers.  Something we didn’t have to do with such dainty British manners.  As Americans were not quite as prim and proper.  Or refined.  Americans were more rough and tumble.  As epitomized by the American cowboy.  (Caution: The following clip from Mel Brooks’ Blazing Saddles has crude and sophomoric humor featuring cowboys breaking wind.)

Not quite the refined British tea.  Note the beverage they were drinking.  Hanging on the tripod over the campfire is a large coffee pot.  Where these cowboys make ‘cowboy coffee’.  Course coffee grounds go into the coffee pot.  Fill with water.  Place over campfire.  Heat water to just below a boil.  Carefully pour out coffee without stirring up coffee grounds from the bottom of the pot.  Enjoy.  Done right and it will be one of the finest cups of coffee you will ever have.  And something that really hits the spot on the trail after a long hard day.  Though not as refined as British tea it is just as comforting.

A Common Complaint about Coffee Percolators was that they made Bitter Coffee

Cowboy coffee can be delicious.  Or it can be horrible.  For temperature and brew time are critical in making coffee.  As well as the proportion of coffee grounds to water.  The proper temperature to brew coffee is between 195 and 205 degrees Fahrenheit.  This will release the oils from the coffee beans.  But if the temperature reaches boiling the coffee will be bitter.  So for good cowboy coffee you needed to put in just the right amount of ground coffee beans with just the right amount of water.  And keep the water just below the boiling point.  And once the coffee brewed you needed to drink it.  For sitting on the heat too long will just evaporate the water away leaving a strong, bitter, muddy water.

Around the time of the American Civil War we started using coffee percolators.  Where instead of placing ground coffee beans in a pot of water we dripped water through a basket that contained the ground coffee beans above the water.  In the center of this basket was a tube that went from the bottom of the percolator to the top.  We placed this percolator onto the stove.  This heated the water.  As the temperature rose the water expanded.  The water in the narrow tube expanded so much in that small tube that it pushed all the way up and out at the top of the tube.  And dripped onto the top of the coffee grounds.  Dripped through them.  And out the bottom into the heated water below.

This cycle continued over and over until the water in the pot started getting darker.  The top of the pot, above the tube, was a glass knob.  Which we could see through.  And observe the color of the water percolating up from the bottom of the pot.  When it turned to the appropriate ‘coffee color’ we removed the percolator form the stove.  And served the brewed coffee.  Using a stove, though, made it easy to boil the water.  Which would make the coffee bitter.  A common complaint about percolators.  As well as some coffee grounds that passed through the basket into the pot.  And poured into our cup.  But some preferred the full robust flavor percolating gave.  Even if it was bitter from overheating the water.

A Quality Electric Drip Coffee Maker can pour 195-205 Degree Water over Coffee Grounds in under 8 Minutes

Thanks to Nikola Tesla and his AC power Americans soon had electricity in their homes.  And a whole sort of electric appliances to use with that electricity.  Including an electric coffee percolator.  Which reduced the chances of boiling the water by controlling the temperature of the water.  There was a temperature sensor that shut off the heating element if the water temperate approached boiling.  When the temperature fell below the optimum temperature range (195-205 degrees Fahrenheit) the temperature sensor turned the heating element back on.  Making it easier to make a good cup of coffee in the home.  Until the Seventies came around.  And the electric drip coffee maker.

The electric drip coffee maker is a staple of most American kitchens today.  It is now the way we make coffee at home.  By heating water to an appropriate temperature and dripping that heated water through a coffee filter full of ground coffee beans.  Once brewed the coffee drips into a carafe.  Which sits on a warming plate.  Unlike the percolator which sent brewed coffee back through the basket holding the coffee grounds over and over again.  The electric drip coffee maker has a reservoir of cold water.  At the bottom of this reservoir is a tube with a check-valve.  Which allows water to flow only one way through the valve.  Past this check-valve is a horseshoe-shaped metal tube.  Attached to this metal tube is a heating element.  Past this metal tube is a hose that runs up to the top of the coffee maker.  And out through a spray-head onto the coffee grounds.

As the heating element heats the water in the metal tube it expands.  Because it can’t go back into the reservoir thanks to that check-valve the water rises up the tube and out through the spray-head.  As the water moves up the tube the siphon it creates pulls water from the reservoir through the check-valve into the metal tube.  When it heats and expands it rises up the tube to the drip-head.  And this cycle repeats again and again until the water reservoir is empty.  A temperature sensor turns the heating element on and off to maintain the proper water temperature.  Like the electric coffee percolator.  But the addition of a coffee filter prevents any grounds from ending up in our cup.  Also, a well-designed drip coffee maker can pour this properly heated water over the coffee grounds in under 8 minutes.  Another key to making an excellent cup of coffee.  Other advances include a timer.  Allowing us to set up the drip coffee maker the night before so we can have a freshly brewed cup of coffee first thing in the morning.  So we can grab a cup on the way out the door.  American style.  In a hurry.  Unlike the British.  Who stop the world when it’s time for tea.

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Laws banning Alcohol and Drugs didn’t stop Alcohol Violence or Drug Violence

Posted by PITHOCRATES - January 31st, 2013

Politics 101

Prohibition Violence spilled onto the Streets where Gangsters shot up each other with Thompson Submachine Guns

Men have always drunk in this country.  A lot.  After the working day was over they went to their corner saloon.  And drank away their pay.  Getting inebriated.  And making a lot of bad decisions.  Such as drinking away their pay.  Getting into fights.  Engaging the services of prostitutes hanging out at the saloons.  Catching a venereal disease or two.  Taking them home to the wife.  Worse, some of these drunken men were beating their wives.

Alcohol violence was taking a toll on the American family.  In particular on the women in those American families.  This alcohol violence was creating a war on women.  These drunken men were beating their wives.  And inflicting them with venereal diseases.  Causing great harm to their wives.  And destroying their families.  They needed to do something.  And that something led to the temperance movement.  Which ended in Prohibition.  An outright ban on alcoholic beverages.

And it worked.  Alcohol violence on women committed by their husbands decreased.  As did the rate of venereal disease infections on married women.  As Prohibition shut down the local saloons.  And all the problems they caused.  But it didn’t stop everyone from drinking.  There was such a large demand despite Prohibition that others stepped in to meet that demand.  Organized crime.  Prohibition violence spilled onto the streets where gangsters shot up each other, and innocent bystanders, with Thompson submachine guns.  As the profitability of the illicit alcohol trade erupted in violent gang wars.  Allowing crime bosses like Al Capone to take over cities.  And corrupting their police forces.  Causing even more trouble than the original alcohol violence on married women.  So they repealed Prohibition.  And the people could drink once again.  As they always wanted to.

The Illicit Drug Trade picked up where Prohibition left off in terms of Gun Violence

The British were addicted to Chinese tea.  They couldn’t get enough of it.  Or other Chinese luxuries like silk and porcelain.  The only problem was that the Chinese didn’t want anything from Britain.  So as the Chinese goods flowed to Britain silver flowed from Britain to China to pay for their goods.  Causing a huge trade imbalance.  Which the British corrected with the opium grown in India.  And being that opium was addictive more and more Chinese were using opium.  Which reversed the net silver flow.  Allowing the British to enjoy their tea, silk and porcelain.  Which they traded Indian opium for.  Causing an addiction problem in China.  And a destruction of Chinese society.  That the Chinese responded to with the Opium Wars.

Drug addiction has destroyed many families.  And societies.  Throughout the world.  Which is why hard drugs like heroin and cocaine are illegal in most countries.  For they are very addictive.  Drug addicts lose their jobs.  Their wives.  Girlfriends.  And families.  As they sink into addiction without a job they often turn to crime to pay for their habit.  Become thieves.  Or prostitutes.  Where they often suffer abuse.  End up in jail.  Or catch AIDS from sharing needles with other intravenous drug users.  Cocaine use spread in more affluent circles.  While crack cocaine devastated poorer circles.  Which is why most of the world has criminalized these drugs.  Despite this demand remains high.  Cocaine use has fallen in the West.  But only because some users have switched to methamphetamine.  Which is cheaper.  More powerful.  And longer lasting.

Like with alcohol someone stepped in to meet this demand.  Organized crime.  And boy did they unleash drug violence onto the world.  From the street gangs shooting each other (and innocent bystanders) to control turf.  To the cartels higher up the distribution channels.  The illicit drug trade is big money.  Very big money.  Picking up where prohibition left off.  For it is the criminal element that truly benefits from banning anything.  The drug trade is so lucrative that it is now even funding al Qaeda.  Even though Islam strictly forbids the use of drugs.  But they have no problem taking a percent of the drug trade that flows from South America through Africa on its way to Europe.  Where it can destroy European societies.  Something al Qaeda has no problem with.

People already Breaking the Law will not be Stopped by another New Law

There is an epidemic of gun violence in the U.S.  Committed not by people who support and defend their Second Amendment right to own a gun.  For wanting to do that is not helped by shooting lots of innocent people.  In fact if one is prone to conspiracy theories one could say that the rise in gun violence is oddly coincidental to the Obama administration’s pursuit of gun control regulation.  Especially following Fast and Furious.  A program used by the Obama administration to try and stir up anti-gun sentiment.  Like that the current epidemic of gun violence is stirring up.  Which the conspiracy theorist could find a little too coincidental.   But I digress.

The people committing these acts of gun violence are some pretty disturbed people.  They have mental health issues.  Or are extremely angry about something.  Perhaps because they can’t get a job in the worst economic recovery in U.S. history.  Thanks to President Obama’s economic policies designed more for politics and social justice than actual job creation.  Who knows?  The only thing for certain is that this rise in gun violence corresponds with President Obama’s time in office.  For he didn’t campaign on the need for new gun control legislation.  But like his position on gay marriage he evolved to this position.  After witnessing a rise in gun violence during his time in office.

Whatever the cause is will new gun control legislation change anything?  Well, if we can learn anything from Prohibition and the War on Drugs, yes.  It will change things.  It will give organized crime another lucrative illicit trade.  But unlike alcohol and drugs their customers will not be people just trying to get a drink or a high.  It will be hardened criminals.  Who are shooting each other on the streets to defend their turf.  And at all levels of the illicit drug trade going right up to the cartels at the top.  So the criminals will have their guns.  And there will be new gang wars as criminal elements fight each other to control the gun trade.  Which may even increase the gun violence in places like Chicago.  Which is already one of the deadliest U.S. cities.  Despite having some of the most restrictive gun control laws in the nation.

So why do they have more gun deaths in Chicago than most cities?  Because there is a high demand for guns by the criminal element in Chicago.  Will a federal ban change that?  Will it put an end to gun violence?  Did it stop alcohol violence during Prohibition?  Does it stop drug violence now?  No.  A gun ban will not change what’s happening in Chicago.  For guns aren’t causing the gun deaths in Chicago.  It’s the people using the guns.  And people already breaking the law will not be stopped by another new law.

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Byzantine Empire, Bosporus, Silk Road, Dutch East India Company, English East India Company, Tea Act and Opium Wars

Posted by PITHOCRATES - May 15th, 2012

History 101

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices.  Something they enjoyed during Roman times.  When the Romans ruled the world.  And the Mediterranean Sea was nothing more than a Roman lake.  But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire.  Taxes.  To pay for the Roman government and their public spending.  And the Roman legions.  This excessive government spending led to the fall of the western half of the empire.  But the eastern half lived on for another 1,000 years or so.  Why?  Because the capital of the Byzantine Empire was Constantinople.  On the Bosporus.  Trade crossroads of the world.

This city was so rich everybody wanted to conquer it.  So they could have all those riches.  For everything that came along the Silk Road from China crossed into Europe at the Bosporus.  Soon Muslims fought Christians in the Holy lands.  Then more Christians came.  The Crusaders.  Those who didn’t die went back to Europe with some of those Chinese luxuries.  Spices.  Silk.  Porcelain.  Etc.  Sparking a renewed interest in these finer things in Europe.  Especially the spices.  For European cooking was horribly bland at the time.  The Ottoman Turks eventually took Constantinople.  Renamed it Istanbul.  And controlled that lucrative trade.  Making those much sought after Asian goods rather expensive in Europe.  Which they had no choice but to pay.  Because if you wanted those luxuries you had to go through Istanbul.  Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution.  A new age of international trade.  A trade even more profitable than what the Ottoman Turks controlled.  Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road.  And these new European maritime powers wanted that wealth.  And the power it would provide.  To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters.  The Dutch East India Company (VOC) was one of the largest.  And one of the wealthiest.  But this was not your typical company.  The VOC established overseas colonies.  It waged war.  Established treaties.  Even coined its own money.  Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy.  And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this.  They had competition.  Portugal.  Spain.  France.  And England.  Who would bump into each other numerous times fighting for control of this trade.  And those colonies.  The English and the Dutch would fight 4 wars.  Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities.  The English East India Company gave the VOC a run for its money.  Parliament even passed legislation to give the English a monopoly on all trade with their American colonies.  The Navigation Acts.  Which stated that all trade to and from America had to be on English ships.  And all trade had to go through an English port.  Where the ships were unloaded and the cargoes inspected.  And taxed.  Then they could reload their cargoes and continue on their journey.  All tenets of mercantilism.  This kept the lower-priced Dutch goods out of America.  And prevented the Americans from selling to the Dutch directly for higher prices.  So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England.  While extending shipping times and increasing prices for the Americans.  Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC.  And soon made the Indian subcontinent a wholly owned subsidiary of the Company.  But it wasn’t cheap.  Waging war was costly.  As was managing those conquered territories (something the Romans had also learned).  Then a famine in Bengal in 1770 claimed about one-third of the local population.  Making laborers more scarce.  And more expensive.  All at a time when the sales of their imported goods were falling in Europe.  There were warehouses full of unsold Chinese tea that they couldn’t sell.  Making for a bad time for the Company.

Higher costs and lower sales spelled trouble.  And that’s what the Company had a lot of.  Trouble.  So the Company turned to Parliament for help.  And Parliament helped.  By allowing the Company to ship their tea directly to America without having to unload it in a British port.  Or pay a duty on that tea.  Which would greatly reduce their costs.  And allow them to sell it in America cheaper than they did before.  So Parliament passed the Tea Act in 1773.  Making life better for all involved.  But the Tea Act left in place another tax in the previous Townshend Acts.  Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch).  These taxes on the British subjects in America were unconstitutional.  Because there were no Americans sitting in Parliament.  This was taxation without representation.  A much bigger issue than cheap tea.  So they threw that first ‘cheap’ tea into Boston Harbor.  The Boston Tea Party being a major step towards war with the mother country.  And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies.  Part of those policies required maintaining a positive balance of trade.  So there was always a net inflow of bullion into the mother country.  That’s why raw materials shipped into Britain from America.  And finished goods shipped out to America.  Finished goods are more valuable than raw materials.  So the Americans had to make up for this balance of trade in bullion.  Resulting in a net inflow of bullion into the mother country.  Very simple.  As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese.  For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured.  Which meant Britain had to pay for those luxuries with bullion.  Including all that Chinese tea they craved.  Which resulted in a net outflow of bullion to the Chinese.  The British fixed this problem by finding the one thing that the Chinese people wanted.  Indian opium.  Grown in Bengal.  Of course, this turned a lot of Chinese into opium addicts.  The addiction problem was so bad that the Chinese banned opium.  But the British were able to smuggle it in.  They sold so much of it that they used the proceeds to buy their tea.  Thus reversing the bullion flow.

Not the finest hour in the British Empire.  The Chinese and the British would go on to fight a couple of wars over this opium trade.  The Opium Wars.  Which the British did all right in.  Even gaining Hong Kong in the bargain.  They didn’t build any long-lasting love with the Chinese people.  But Hong Kong turned out pretty nice under the British.  Especially after they abandoned their protectionist mercantile policies and adopted free trade.  Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution.  And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland.  And caused a famine or two.  For they lived comfortably.  In a state founded on mercantilism.  That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.

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Treason, Benjamin Franklin, William Franklin, Reconciliation, Hutchinson Letters, Boston Tea Party, The Cockpit, Patriot and Loyalist

Posted by PITHOCRATES - May 10th, 2012

Politics 101

The Hutchinson Letters and the Tea Act put the Americans firmly on the Path to Independence

There’s a fine line between treason and loyalty.  Some people cross that line.  Some people don’t.  Some people wait to see which side of the line their best interests lay.  Some like to straddle the line.  Either unable to commit.  Unwilling to commit.  Or unwilling to give up profiting from both sides of that line.  Such it was during the American Revolutionary War.  A very unique conflict.  That pitted colony against mother country.  New World against Old World.  American against Brit.  Brit against Brit.  And American against American.

The American Revolutionary War was a smorgasbord of antagonism.  What started out as a dispute over taxation escalated into world war.  And into civil war.  To settle old scores.  And to settle new ones.  Upon the signing of the Declaration of Independence the American colonies were in open rebellion against their sovereign.  The ultimate act of treason.  Yet they committed this act of treason to live a more British life.  For Britain’s constitutional monarchy gave unprecedented rights to British subjects.  And the highest standard of living then known to a middle class.  Most knew what the rest of the world was like.  And they wouldn’t trade their British way of life for any other.  So rebellion undoubtedly made a great many nervous.  For many were happy and comfortable living under the British sovereign.  Benjamin Franklin, for one.

Franklin was a Loyalist.  At first.  He knew how to work the system.  And did.  Even achieving the post of American postmaster.  And he made it profitable.  Very profitable.  Even his son, William Franklin, was governor general in New Jersey.  So he was very connected to the British Empire.  And saw it as the best system of government ever developed.  Which is why he sought reconciliation.  He was in England when tensions were increasing between the colonies and the mother country.  He then came into the possession of some private correspondence that he passed along to his contacts in Massachusetts.  The Hutchinson letters.  As in governor general of Massachusetts Thomas Hutchinson.  Which basically said that the way to subdue the unrest over recent Parliament actions (i.e., taxation without representation) was to deprive the colonists of some of their English liberties.  Franklin asked that they not publish these letters.  His intent was to calm the more radical in America.  Proving that these misguided policies were the result of some bad advice from a few people.  There was no general animosity towards the American colonies in Great Britain.  And that reconciliation was possible.  Which is what Franklin wanted.  But they published the Hutchinson letters.  And the Americans were not pleased.  Then one thing led to another.  After Parliament passed the Tea Act Franklin was anxious of the American response.  Hoping for calm.  But the response was anything but calm.  And did nothing to aid reconciliation. 

The Humiliation in the Cockpit helped Push Franklin from Reconciliation to Independence

When the first tea arrived following the Tea Act the Patriots threw it in Boston Harbor.  Forever known thereafter as the Boston Tea Party (1763).  This destruction of private property shocked Franklin.  For this was not an act against Parliament.  But an act against a private company.  The East India Company.  This did not go over well in England.  Which was pretty agitated over the publication of those private Hutchinson letters.  People accused each other of being the source of the leak.  It got so bad that two men dueled in Hyde Park.  Each blaming the other for the dishonorable act of leaking those private letters.  Not being a very good duel both men survived.  When they were going to have at it again Franklin publically stated that he was the leak.  Explaining his intentions. 

Though Franklin sought reconciliation he had his enemies in England.  Who thought he was more of rabble rouser on the other side of the pond.  And pounced on this opportunity to disgrace him.   They summoned him to appear before the Privy Council.  On the pretense to hear testimony on the petition from the Massachusetts Assembly to remove Hutchinson as governor general.  But when Franklin arrived in the ‘Cockpit’ he found that he was on trial.  For leaking the Hutchinson letters.  News of the Boston Tea Party had by then reached England.  And the newspapers attacked Franklin without mercy.  All of England was turning against the man who wanted reconciliation more than any American.  It even looked like Franklin could end up in an English jail. 

It was an all out assault on Franklin in the Cockpit.  Where his enemies packed the room.  While few of his friends sat in.  Such as Edmund Burke.  Lord Le Despencer.  And Joseph Priestly.  One after another his enemies took their turn lambasting Franklin.  Blaming him for the agitation in the American colonies against British rule.  They attacked him personally.  And besmirched his honor.  Humiliated him.  During it all Franklin stood silent.  Refusing to partake in this farce.  When Wedderburn called Franklin as a witness his counsel stated that his client declined to subject himself to examination.  In the end they rejected the Massachusetts petition.  And his friend Lord Le Despencer had no choice but to relieve Franklin from his post as American postmaster.  He wrote his son William and urged him to quit his post as governor general of New Jersey in order to pursue more honorable work.  He would not, though.  And thus began the breach between father and son.

Franklin and William were no longer Father and Son but Patriot and Loyalist

William would stay loyal to the crown.  While Franklin was moving closer to the side of the Patriots.  In response to the Boston Tea Party Britain planned a blockade of Boston Harbor.  In response the colonies united behind Boston and formed the First Continental Congress.  Which William said was a mistake.  And that Boston should make good on the tea they destroyed.  Which would be the best way to calm the situation.  And reopen Boston Harbor.  Exactly what Franklin had earlier suggested.  But after the Cockpit and the loss of his post as postmaster Franklin was losing his love for the British Empire.  But he still tried while he remained in England with no official duties.  He even played chess with Caroline Howe.  Sister of Admiral Richard Howe and General William Howe.  Who would later command the British naval and military forces in the opening of the Revolutionary War.  But at the time they were both sympathetic to the American cause.  Despite of his shameful treatment in the Cockpit she and other friends urged him to put pen to paper.  And try to mediate a peaceful solution to the breach between the American colonies and Great Britain.  He tried. 

But all efforts came to naught.  He worked on a bill with Lord Chatham.  Which Lord Sandwich attacked with a fury when introduced into the House of Lords.  And they publicly attacked Franklin again.  They rejected the bill.  And Franklin booked passage home.  He met with Edmund Burke before leaving.  Discussed with him one last plea for reconciliation.  He spent his last day in London with his friend Joseph Priestly.  And discussed the future.  The coming war.  Reading the papers.  Priestly later wrote that the thought of that dismal future brought Franklin to tears.  After Franklin was on a ship sailing west Burke rose in Parliament and gave his famous speech On Conciliation with America. Where he said, “A great empire and little minds go ill together.”

The move to independence accelerated after arriving home.  Thomas Paine, who Franklin helped to bring to America, wrote Common Sense.  Which Franklin read before it was published.  Even offered a few revisions.  As he would offer later to Thomas Jefferson’s Declaration of Independence.  Then the Continental Congress scheduled a vote for independence.  General Washington was preparing to fight General William Howe on Long Island.  Supported by his brother Admiral Lord Richard Howe.  Who made one last attempt at conciliation with Franklin.  But things had already progressed too far.  Franklin had crossed that fine line.  The time for peace had passed.  On June 15, 1776, the new American provincial government in New Jersey ordered the arrest of William Franklin.  On the day of his trial Benjamin Franklin wrote General Washington.  He did not mention William.  Nor did he say anything when the Continental Congress voted to imprison him in Connecticut.  The breach between father and son was complete.  No longer father and son.  But Patriot and Loyalist.  As families throughout the colonies similarly tore asunder.  Setting the stage for the civil war within the world war that was the American Revolution.

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LESSONS LEARNED #63: “There is no such thing as a monopoly in free market capitalism.” -Old Pithy

Posted by PITHOCRATES - April 28th, 2011

Even the mighty Coke-Pepsi Duopoly can’t stop People from Drinking Tap Water

Coke and Pepsi have a near monopoly in the cola market.  Or a duopoly.  They dominate.  And they’re bitter enemies.  Few brands are locked in such a bitter struggle that we call it war.  The Cola Wars.  They are archenemies.  Even though they may cooperate by alternating their discounting to limit their losses.  One month Coke may be on sale.  The following month, Pepsi.  They’re big and their powerful and when you ask for a Coke at a restaurant you’ll either get a Coke.  Or they’ll ask you if Pepsi is okay.  Or vice versa.  Because they own the market.

But do they?  There’s always another choice.  At a restaurant, we can order ice tea.  Hot tea.  Coffee.  Orange drink.  Beer.  Wine.  A cocktail.  Or even water.  Ditto at the grocery store.  Walk down an aisle and there’s more to choose than Coke or Pepsi.  RC Cola, for one.  And then there’s the un-cola (7-Up).  VernorsA&W Root BeerSquirtDr. PepperCrushSnapple.  And other name brands that aren’t owned by the Dr. Pepper Snapple Group.  Not to mention all the store brands.  And, of course, tap water.  Which I personally drink with most of my meals.  Even though there’s nothing finer than a Coke or Pepsi to wash down a greasy pizza.

Try as they might Coke and Pepsi can’t limit entry into the beverage market.  The barriers they can erect are minimal.  They can offer a special price to a store or restaurant in exchange for keeping out their hated rival, but they can’t prevent people from asking for tap water.  Or from people simply going elsewhere to get the Coke or Pepsi product they want.  Or the million other options out there.  And if they raise their prices in their ‘duopoly’, people will just seek out those other options.  Yes, they may be able to tell the difference between Coke and Pepsi in blind taste tests.  But if the price isn’t right, they’ll enjoy RC Cola just fine.  Or even the store brand cola.

Go ahead and Tax our Tea.  We’ll just drink Coffee Instead.

You see, to keep out the competition, you need the power of government.  Just ask the sugar importers.  Who would love to sell to the cola companies.  But don’t.  Because government has erected a barrier to that market.  Now, we don’t know what their highly guarded secret recipes are, but we do know that they each use the same sweetener.  High fructose corn syrup (HFCS).  They don’t use sugar.  Why?  Because Big Ag lobbied Congress to slap high tariffs on imported sugar.  Which they have.  Now the price of sugar is so high the cola companies use HFCS instead.  Though that may be changing as of late with a new round of health concerns about HFSC.  But that’s a whole other story.

To limit consumer choice, you need government to step in.  Because only government can write laws to erect market barriers.  For example, the last straw of British oppression before America’s Declaration of Independence was about a British law that erected a market barrier.  British Americans, being of British stock, liked their tea.  But they didn’t like paying the high price of East Indian Company tea.  In the Mercantile economics of the day, everything bought and sold in the British Empire shipped on British ships through British ports.  Indian opium shipped on British ships to China (via Calcutta).  The British than used the proceeds from those sales to purchase tea.  Which they shipped on British ships back to London.  Where they paid a duty on it.  And then on to America.  Where the colonists paid a tax on it.  All these markups made their tea pretty expensive.

Famine and recession caused financial problems for the East India Company.  To help alleviate their problems, British Parliament stepped in.  Said they could ship their tea directly to British North America (without going through London).  And sell it tax-free in the colonies.  Which made all other tea more expensive.  Which did not go over well with the American tea merchants.  Or the colonists in general.  This led to the Boston Tea Party.  American Independence.  And the switch from drinking tea to drinking coffee in America.  Because even when there is only one tea that is legal to drink, there is always another choice.

Rockefeller benefited Consumers.  The ICC did not.

People love Teddy Roosevelt for his trust busting.  Attacking the big robber barons.  To help the little guy.  And one of the big guys the little guys loved to hate was John D. Rockefeller.  Of Standard Oil fame.  Rockefeller was richer than most nations.  And some people just hated that.  He made his wealth by making refined oil products affordable to the consumer.  And he was a great environmentalist.  He saved the whales by replacing whale oil with kerosene.  And his relentless research and development made every bit of refined oil into a useful product.  While his competitors dumped most of their waste back into the environment.  Not Rockefeller.  He hated waste.  He even experimented in finding the least number of welds it would take to hold an oil barrel together.  He invented vertical integration (controlling industries up and down the product pipeline from the collection of raw resources to the sale of a finished product).  He not only made refined oil products cheap.  He made them plentiful.  Which made America the world’s leading economic power.  Successful corporations follow his example today.

Sure, he put a lot of his competitors out of business.  But it wasn’t because he was a monopoly.  It was because he was just that much better.  He produced refined products better and cheaper than his competition.  By the time the trust busters busted up Standard Oil, competition was coming into being on the Standard Oil model.  Which ultimately produced more refined products at lower costs.  He forced the competition to step up to his level which benefited consumers.  While the trust busters tried to bring Rockefeller down to his competitor’s level which benefited his competitors.  Not the consumers.  No, consumers did very well by John D. Rockefeller.  He created and produced at a relentless rate.  He didn’t ask for government help.  Unlike his competitors.  Who complained to the government.  (It is never a consumer that complains about predatory pricing).  Because when you can’t compete legitimately, you petition government for special favors.  Much like some of the railroads did.

Building a railroad is costly.  And takes a lot of friends in government.  At all levels.  Because you have to lay track through federal land, state land, county land as well as through cities.  Of course, everyone wanted that track to go through their land because the railroad was the way to ship goods.  And people.  So the system was ripe for corruption.  And it often was.  Once built some shippers complained about unfair shipping rates compare to what others got.  Rockefeller, for example, was highly criticized for getting better rates by far than any of his competitors.  Of course, he shipped by far more product than any of his competitors.  Which probably had a lot to do with his rates.  But the government saw that things were unfair in the railroad business.  So they stepped in.  And created the Interstate Commerce Commission (ICC).  Which was to right all the wrongs.  Which, of course, it didn’t.  It just made it easier for the big companies to fix things in their favor.  For they now had a single governing body to buy.  Which made it easier to buy political influence.

But none of this made a difference to save the railroads.  They started to die in the Fifties.  Of arrogance.  When people asked the big railroad executives what business they were in, they replied, “The railroad business.”  But they weren’t.  They were in the transportation business.  What’s the difference?  The ‘railroad’ business had only other railroads for competition.  The transportation business had cars, trucks and, eventually, planes, as competition.  So even though those who used the power of government to restrict other railroads from entering their markets, there was still competition.  The interstate highways and the automobile killed passenger rail.  And the trucking industry almost killed the freight railroads.  What saved them was realigning their operations into the transportation business.  Intermodal transportation combined container ships, railroads and trucks into a seamless and cost efficient transportation system.  Roadrailers took that concept to a higher level.  These are truck trailers that can be pulled by a locomotive without the need of a rail flatcar.  Trucks deliver these trailers to a rail yard.  They add a train bogey to the trailer.  Put it on the track.  Couple them together.  And attach them to a single locomotive.  Very little non-revenue weight.  Making it very efficient.  John D. Rockefeller would be impressed.

In a Free Market there is always a Choice

Wherever there is a market there is competition.  For any market where a profit can be made will attract others to that market.  Companies can try to restrict competitors.  But that’s all they can do.  Try.  Because if it’s a free market, it’s open to competition.  There are no barriers that a competitor can’t overcome.  Except one legislated by government.  And competitors can even crack that barrier.

And this is what it takes to make a monopoly.  Government.  Railroads had monopolies for awhile.  But creative business people found a way to crack their government-imposed monopoly.  Truckers came in and shipped at rates lower than the ICC said was fair.  Of course, fair is a relative term.  What’s fair to the railroad is not fair to the shipper.  Or the consumer.  But a trucker shipping at rate that he can cover his expenses and support his family is fair to everyone.  Except the railroad who depended on government instead of innovation for their business profits.

Coke and Pepsi can fight their cola wars but they can’t keep out competition.  There’s always root beer, ginger ale, orange drink, beer, wine, liquor, water, coffee or tea.  And even when government uses their full weight and power to create and maintain a tea monopoly, tea drinkers can simply become coffee drinkers.  For in a free market there is always a choice.  Always.

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