Thursday, September 12, 2013

Obama and Napoleon


No, we don’t think that President Obama has gone around the bend and now thinks he’s the Emperor Napoleon, or even a pastry or snifter of cognac.  It’s just that someone asked us recently whether there were any parallels in history to the way the Russians and the Chinese seem to be moving in a way almost calculated to force Obama to act out of ego and pride instead of reason.

While Chancellor of Prussia, Prince Otto von Bismarck egged Napoleon III of France on to declare war by doing deliberately provocative acts and forging telegrams.  Napoleon’s pride and ego got involved, especially since the Mexican venture under Maximilian had gone very badly, the economy was in a downturn, and he needed something to restore his prestige.  Having Napoleon I, one of the greatest military geniuses ever, as his uncle didn’t help any.

Similarly, Russia and China, by this time convinced that the U.S. is a paper lion, economically, militarily, and politically, are being provocative by sending in military vessels, using very sound psychology on Obama.  Like Henry VIII Tudor (whom he in some ways resembles), Obama is very easy to manipulate due to his gigantic ego and need to divert public attention away from a rather long list of disasters that he and his supporters desperately need to spin into successes.

Fortunately, there is an epilog to the story.  Following the defeat of France and the rise of the Paris Commune as the “solution” to the country’s troubles — that only made matters worse — Bismarck imposed a gigantic indemnity on France, deliberately designed to destroy France economically forever — Fr 5 billion, the equivalent of U.S. $1 billion at the time.

At the same time, the French economy was in ruins, both as a result of the war, and the fact that anthrax was decimating the sheep and cattle, and bacterial infestation was crippling the wine, silk, and poultry industries.  Fortunately France had a secret weapon: Louis Pasteur.  Some historians credit the value of his discoveries alone as generating enough to pay off the entire indemnity in less than three years (!), and ushering in a virtual golden age of French culture.

There are two things historians neglect in their analyses of how France was able to go from total defeat to prosperity in less than three years, recovering from a disastrous war and a wrecked economy to prosperity, even opulence.  This was in addition to the growing demand throughout the world for French products, especially in the United States:

1) The indemnity was payable in coined money, both gold and silver, as well as in bills of credit redeemable in coined gold and silver.  This was due to Bismarck’s limited understanding of money as limited to currency, whether backed by gold and silver, or government debt.  The Iron Chancellor didn’t understand that private sector bills of exchange and mortgages have always made up the bulk of the money supply in a free market economy.

At the same time, the price of silver was in the cellar and falling rapidly.  Not only was the Comstock Lode pouring silver into the market, the mines of Central and South America were in full operation as silver was their chief export until fruit took over toward the end of the 19th century.

There was so much silver that its utility as a monetary standard was greatly diminished.  Many countries — including Germany — abandoned silver and went with gold as being more stable in value.  Then the British abandoned their efforts to develop India, which (due to their misunderstanding of money) they had been trying to finance with massive purchases of silver instead of through the (non-existent) commercial banking system.  During the 1860s the British had in some years bought more silver than the world mined in a self-defeating effort to finance growth with past savings.

The world was awash in a flood of cheap silver.  Bismarck, however, had specified in the treaty that the indemnity could be paid or the bills of credit redeemed at face value with silver French five franc pieces — with a silver content now far below face value, and at a time when the new German Reich was trying to drain the formerly legal tender silver out of circulation and replace the silver Convention and Reichs Thalers with the gold Reichsmark.  In and of itself the fall in silver may have reduced the real value of the indemnity paid by France by as much as Fr 2 billion.

2) Key French industries tended to be family owned.  French wine, cheese, silk, and other products were produced by workers who owned, not by hirelings.  Taxes were high to pay for the war and the indemnity, but the French were patriotic — and productive.  Everything they produced went either to their own benefit or that of France.  Worker-owners, not big commercial or industrial interests or inflationary government debt, saved France.

#30#

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