Yesterday we took a look at what made England Great & Glorious, Long to Reign O’er us . . . at least until she screwed up the financing of the greatest commercial expansion the world had ever seen up to then, “then” being the period prior to the British Bank Charter Act of 1844. We discovered that after the government took over the banking system (you don’t have to have actual title to something to own it, you just have to control it, as the agrarian socialist Henry George realized in promoting his theories), the British Empire began its long and slow decline.
|Double-Ewe Double Ewe Eye, bad news all around.|
And make no mistake: it was very slow. It’s hard to use up all the capital (technological, financial, and social) in a short time. Cracks didn’t start showing up until the twentieth century, and didn’t really become critical until after World War I, which also didn’t help matters any.
To those who knew the score, though, the handwriting was on the wall by 1850. Only three factors allowed the British to maintain their position in the face of a socially unjust financial and economic system . . . all three in the United States, which alone of all the countries in the world had the potential to challenge the British commercial and financial hegemony.
|Andy J. screwing up the financial system.|
One, there was the incredible stupidity of U.S. politicians, who refused to put America’s financial house in order. The extreme animus against a central bank — based in large measure on the fact that few people seemed to know just what it was that a bank of any kind does — ensured that the country would always be limping along with an inadequate and incomplete money supply.
Take, for example, Andrew Jackson’s “war” on the Second Bank of the United States. When Jackson began his second term in office, he made favorable comments about the Bank in his inaugural address. Not too long after that, however, one of Jackson’s friends didn’t get a job with one of the Bank’s branches.
|Biddle: the end justifies the means.|
Since Jackson tended to take everything personally (understandable, in light of the way political rivals went after his wife), he took the fact that a friend of his was denied a job as an attack on him, just another way his enemies could strike at him through his friends and family. He started his campaign to teach that bastard Nicholas Biddle (who had nothing to do with Jackson’s friend not getting a job) a lesson by refusing to renew the Bank’s charter.
Biddle fought back, using “questionable” (i.e., illegal) methods that he felt were justified in light of the fact that Jackson’s attacks were not, in his opinion, justified. Among his goals was to get the Bank’s charter renewed ahead of schedule to teach Jackson a lesson.
Instead, Jackson decided to shut down the Bank ahead of schedule to teach Biddle a lesson. He went through three Treasury secretaries before he found one, Roger Brooke Taney, willing to circumvent Congress and take Jackson’s personal orders to withdraw federal deposits from the Bank, which effectively terminated the Bank as a central bank, teaching the whole country a lesson.
Later, ticked off at the land speculators and others who forced the removal of the Cherokee from their lands and taking that, too, as a personal attack — Jackson’s understanding of the role of the federal government was such that he held the national government had no right to intervene in the matter (?!?!?!?), but he could and did send federal troops to protect the Cherokee . . . sort of . . . to teach those state militias a lesson — he issued the “Specie Circular,” to be enforced by Martin Van Buren, and to teach the speculators a lesson. All sales of federal lands (the chief source of income for the federal government at that time) as well as all taxes had to be paid in specie (gold and silver), not banknotes or other financial instruments.
|Hon. G. Tucker, banking expert, sci-fi dude.|
Uh, huh. Instant depression, as there was less than one gold or silver coin in the United States for every person. What with the changing ratio between gold and silver, it paid people to export U.S. coin, and deal almost exclusively in banknotes, mortgages, and bills of exchange. Congressman George Tucker (possibly America’s first science fiction writer, publishing A Voyage to the Moon, a political satire, under the pen name "Joseph Atterley") calculated that 95% of all commerce in the U.S. in the 1830s was carried out using bills of exchange, not gold and silver coin. Without credit, everything came screeching to a halt — "Hard Times."
Two, what “saved” the United States from complete financial meltdown was . . . slavery. At least, that was the widespread belief . . . among people who owned slaves and owners of industries that used slave-produced commodities, especially (you guessed it) cotton.
Eli Whitney's 1797 invention of the cotton gin made slavery, which had been showing signs of being on the way out, seem not merely financially feasible, but essential to the production of cotton. It really was not; free labor would have done the job better and made everybody more money, but just try to tell that to people getting rich off of slave labor.
|Cotton is King.|
By the early 1830s the United States produced most of the world’s cotton. Cotton exceeded the value of all other United States exports combined (even 'baccy). Between them, the United States and Great Britain (where cotton was spun and woven into inexpensive cloth) in the first half of the nineteenth century could be said to have clothed the world.
Before the Civil War, industrialization of the United States and Great Britain appeared to depend on the continuance and expansion of slavery to the American west. This was due in part to the fact that the cultivation of cotton seriously depleted the soil, and new land was constantly needed to maintain and increase production.
|Union Army ending the reign of King Cotton|
In 1855 David Christy’s book Cotton is King made a well-argued, if logically flawed case that the economic survival of the United States and the British Empire depended absolutely on slave-cultivated cotton and other agricultural products. And as long as the United States could be kept in the position of supplying raw materials to Great Britain, Great Britain could stay top dog economically. All you had to do was turn a blind eye to slavery (or, if you're going to protest, be quiet about it).
Three, after the Civil War, Abraham Lincoln’s 1862 Homestead Act changed everything. For all its flaws, the Homestead Act was the single greatest economic initiative in history. It shifted U.S. agriculture away from slave-cultivated and processed cotton, and toward wheat grown by small homesteaders. By the end of the nineteenth century, America was feeding a good portion of the world. Only the fact that economic development was directed inward kept the British Number One in the world.
|The National Banking Act of 1863 was . . . "inadequate."|
And the U.S. still had a lousy financial system. Had it not been for the fact that the land was available “free” (sort of), nothing could have been done because the financial system did not allow ordinary people to use future savings to finance development; commerce and industry were closed off, and free land was going fast. Pure credit (financing with the profits of the capital being financed) was reserved for the rich. The homesteaders and small business owners had to rely on the dwindling supply of existing savings.
Even then, the productive capacity of the United States was so great that it eventually pushed the country into the Number One spot economically and financially.
But, again, cracks were showing. By the end of the nineteenth century, just when it seemed that everything might just keep getting better and better, small ownership began disappearing at an alarming rate. World War I didn’t help matters (nor did the economic theories of John Maynard Keynes who pontificated that countries couldn’t advance unless wealth was concentrated!), and the New Deal pretty much finished off small ownership as a way of life. Today’s economic malaise is simply the logical result of the loss of the land frontier starting in the 1890s, and finishing up around 1910.
The question is what to do about it.