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Sunday, September 30, 2012

GEORGIA PEACHES Part Three

I don't think we should judge Patrick Henry too harshly. When his beloved Sarah went mad in 1771,
shortly after the birth of her sixth child, the doctors diagnosed her as being possessed by demons. Two centuries later we believe she suffered from puerperal (or post patrum) psychosis, which strikes 1 in 1,000 new mothers - meaning "Sallie" had probably been hearing voices for two decades. Andrea Yates, a sufferer from the same condition, had the benefit of 20th century drug therapy, and she finally succumbed to her delusions after the birth of her fifth child. In June of 2001, during an errant hour, Andrea drowned all her children in a bath. The humanity of Sarah Henry's slaves probably prevented her from committing a similar act. Instead of prison, which Andrea endured, or the bedlam of an asylum, Sarah was kept locked away, in a cellar “apartment” beneath her own home and cared for by her eldest daughter Martha, and, again, her slaves. The standard treatment – exorcisms, restraints, regular enemas and laxatives, bleedings and beatings – all probably hastened her death in 1775. But the story of these two woman, two centuries apart, are not all that different. Time, it seemed, does not actually heal wounds. We just learn to live with the scars.
On December 21, 1789, Georgia governor Edward Telfair, signed grants of five million acres between the Apalachicola River and the Mississippi,  to the Virginia, Tennessee and Carolina Yazoo companies.  In exchange within two years they were to pay Georgia $207,000 – or about twenty-four cents an acre. The first payment was to be made in six months. A disinterested observer might ask, when land claims in the region were certain to be disputed by Indians who lived there and Spanish who claimed the place, and even the American government which did not accept Georgia's claims, and since undisputed claims elsewhere were selling for two pennies an acre, how could the investors in the Yazoo swamp – er, Yazoo lands – hope to make a profit? Well, there was the golden rule of business - Caveat Emptor
The concept has officially been a part of English law since 1603, when a goldsmith named Lopus sold what turned out not to have been the magical gallstone of a wild goat to Mr Chandler, for 100 pounds. When Chandler realized he had bought a useless rock, he sued, and a court ordered Lopus to give him his money back. But on appeal the case was thrown out, because the higher court said it didn't matter what the seller's sales pitch had been - “for everyone in selling his wares will affirm that his wares are good...(yet) the warranty ought to be made at the same time of the sale.” In other words, without a written guaranty, there was no legal promise. That was quite a barrier to justice when the vast majority of the population could not read or write. In the 400 years since Lopus v Chandler English business developed the shady reputation of horse traders, used car salesmen and bankers. And in Georgia in 1790, buyer beware was the business model for all three of the Yazoo companies, never mind that the buyers were Georgia taxpayers.
But again, how do you make a profit buying swamp land for 24 cents an acre, when adjacent dry land is selling for 2 cents an acre? Simple - you pay in play money. And in 1789 there was a lot of it around.
At America's lowest point in the revolution, a desperate Continental Congress had created the Bank of North America, and it had furnished the financial framework to support Washington's army. The BNA was the great unsung hero of the revolution. But after the war the new congress, voted into office only by those who owned property, had attacked the institution. Like the hyperventilated debate over the Health Care Reform Act in 2010, the attack on the BNA involved wild charges and paranoiac drum beating. But the primary political objection seems to have been that the wealthy bankers and unscrupulous investor class did not like competition for control of the money supply. So, in 1785 the bank's charter was withdrawn, leaving the Federal government with $11 million in debt to France and Spain, and the states about $48 million in debt to their own citizens. In exchange the moneyed class got “free market” banking.  Everybody was happy - right?
Thomas Jefferson and Patrick Henry's Virginia continued to do fine under this “laissez faire” banking, but within two years everywhere else markets went to hell. Bonds issued by the American government were selling for ten to fifteen cents on the dollar, and most state bonds were selling for less than that. Legislatures were reduced to borrowing money just to pay the interest on loans used to run their bare-bones governments. There were more than fifty currencies in circulation, including English pounds and Spanish “eights”. Individual cities were chartering banks, which then issued their own money. And in the woods of western Pennsylvania, where their were no banks, the standard medium of exchange was home brewed whiskey. The collapse of the American economic system was the major reason the Articles of Confederation were scrapped in 1787.
Under the new Constitution, the fix was the responsibility of President Washington's bright-eyed boy, Alexander Hamilton. And having been orphaned twice while growing up (even his adoptive parent had died), the new Secretary of the Treasury had an aversion to chaos. Hamilton's imposition of economic order was simple, brilliant and realistic. I am certain what he wanted to do was tell Jefferson and Henry's Virginians to “stick it in their ear”, but rather then doing that, he bought them off. And he had a little help when reality kicked the Virginia money class right in their pocket books.
That summer, when agents for the Virginia Yazoo Company showed up in Georgia to make their first payment for the Yazoo land grant, they were carrying a huge pile of money – sort of; meaning it was “sort of” money. What it was, was paper. Some of it was Federal bonds, and the rest was cash issued by various state banks, all bought at a discount. None of it was gold or silver and Patrick Henry and friends expected their payment to be accepted at "face value". Well, the horror of figuring what each individual piece of paper was really worth was bad enough. But once the state had done all of that they came to the horrible realization that it wasn't worth anywhere near what the contract required.  So Georgia canceled the sale. They canceled the land grants to all three Yazoo companies – No sale.
That left Patrick Henry and David Ross, et al, holding huge piles of paper which had just been officially declared worthless. Which is when Alexander Hamilton offered to exchange their “worthless” paper “at par”, meaning at the best rate offered in the open market - for new U.S. government bonds. In other words, he was offering something of nothing. And all they had to do was convince the state of Virginia to allow the Federal government to take debt, and control any western lands they were laying claim to. Oh, and Hamilton also wanted to set up a new Bank of North America - this time to be called The First Bank of the United States.
It was easy for the Virginia money class to convince Virginia - after all, they were Virginia. And that is the deal which saved their collective behinds. In fact it made them a little richer. And it got the new Federal City  located between the southern states of  Virginia and Maryland. But still, it bothered the Virginia speculators that all those profitable schemes they had used to amass their fortunes were now out of reach. Thomas Jefferson, the man who had written the Declaration of Independence, and a life long land speculator, would later say Hamilton had fooled him. It was very unlike Jefferson to admit he had ever been bested by Alexander Hamilton. Besides, Jefferson only said what he said that after he had cashed Hamilton's check and spent the money.
So the Yazoo swamp land deals were dead and buried. Except they weren't. Like movie zombies the land speculators would rise again. It is the nature of capitalism that its keeps ripping open its scars.. Have I mentioned that greed makes you stupid?
- 30 -

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