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.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
#30#
