OCTOBER 2017

OCTOBER  2017
.The Eternal American Battle - Humans V Money

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Friday, October 25, 2013

A LITTLE SOCIALISM

I can't think of a place in America that is more deceptive than North Dakota, 70,000 square miles of not what you thought.  It's most fertile land is the valley of the Red River of the North (above), except its not a valley. It's the bottom of a lake that's no longer there - usually. The river meanders back and forth across a prostrate terrain on its way to not the Pacific or the Atlantic, but the Arctic Ocean. Flowing north, every fall it freezes first at its mouth causing “the valley” below to flood. Every spring, when the rains come to Minnesota, the lake reappears again, but briefly, because in North Dakota the dominant long term weather pattern is reoccurring drought. And in the second decade of the 20th century, with a population of little over half a million, most of whom were farmers and bred to be conservative and fiercely independent and Republican,  this state created openly socialistic industrial and economic institutions. Perhaps this was because North Dakota's raison d'ĂȘtre from its inception in 1889, was the business plan of two vertically integrated out-of-state corporations. 
Both the Northern Pacific railroad, created to benefit its shareholders, and the Great Northern Railroad, built by the megalomania of its owner, James J. Hill, sold land to European farmers, who bought their inexpensive new American farms sight unseen. The boat and train tickets, and the land itself were loss leaders for the corporations. Their profits came once the farmers were isolated on the Great Plains. They bought their food and supplies from corporate stores, financed their plantings through corporate banks, stored their harvests in corporate silos until it was transported on corporate railroads to be sold to corporate mills in Minnesota. In “bonanza” years the profits ended up in the corporate banks. And in the inevitable non-bonanza years, the farms were reposed by the banks, starting the cycle all over again. It was a very profitable business plan, as long as the customers did not get wise that North Dakota was a colony of the Minneapolis-St. Paul, Minnesota capitalist- industrial complex.
Up to 1916 the great dividing force within North Dakota politics was race. In the 1870's the Red River Valley had been settled by snowy white Norwegians and Icelanders - mostly stern Lutherans. The west and center of the state was settled in the 1880's by creamy white Germans who had been living in Russia since the 16th century. They called themselves the “volksdeutsch” and they were rigid Catholics all. But in 1916, the North Dakota normal was turned on its head by a political arsonist named Arthur Charles Townley, who split the rigid, stern conservative North Dakota Republican Party into kindling.
When he was a farmer along the Montana border, Townley  (above) was known as the “Flax King”. But an August snowstorm in 1913 cost him his farm and left him $80,000 in debt. He went into politics – Republican of course - there being only one real party in North Dakota - and he pushed for aid for farmers. He was confronted by his fellow Republican Treadwell Twitchell who told him to stop messing in state politics and “go home and slop the hogs”. Instead Arthur cranked up his model T Ford and went on a tour of the state, speaking to hundreds of small groups about the need for North Dakota's 78,000 farmers to organize in self defense. 
 Three thousand paid $6 each to join his Non-Partisan League, because he spoke their language. “If you put a banker, a lawyer, and an industrialist in a barrel and roll it down a hill,” he said, “you’ll always have a son-of-a-bitch on top.” In 1916 the Non-Partisan League had 40,000 members and elected Lynn Joseph Frazier as governor. And in 1918 they swallowed the Republican party whole and won every executive office in state government, control of the house and near control of the state Senate.
Governor Frazier (above, center) now became the head of the new Industrial Commission, a three man board running state owned businesses. Commissioner of Agriculture John Hagan (above, left) was entrusted to construct and run the state's Mill and Elevator Association in Grand Forks. It would buy wheat and barley from farmers at fair prices and sell the final products at a profit for the state. Attorney General William Lemke (above, right) oversaw operations of the BND, the Bank of North Dakota. All state and local tax revenues would be deposited in the bank, and used to offer low interest loans to farmers. When the farmers profited the bank would profit. And you know, it seemed like a good idea at the time. The day it opened the bank had two hundred applications for a total of $8 million in loans.
Then the First World War ended on November 11, 1918. In a flash every industrialized nation slashed their budgets and stopped buying American wheat. Farm prices collapsed. The 650, 000 citizens of North Dakota were hurting, and in order to cover its loan requests, the BND was forced to offer $10 million in bonds for sale. The Minneapolis-St. Paul bankers, who had just lost their best customers to the BND, turned up their noses. They were determined the bank should fail. Faced with impending disaster, the Industrial Commission decided on a bookkeeping slight of hand. They ordered various state agencies and city governments, which were already required to have their money deposited in the bank, to loan the BND $10 million. The cash was never actually withdrawn, so nobody was actually out the money. But cash was available to make loans to the strapped farmers. And the bank of North Dakota had been saved.
It was a bridge too far for the old school Republicans. On April Fools day, 1919, three major players in state politics, Attorney General “Wild Bill” Langer, state Auditor Carl Kositizksy and Secretary of State Thomas Hall all resigned their membership in the NPL in protest. Publicly they blamed Townley's influence. Langer even called the father of the Non-Partisan League a liar. Resistance to the League solidified around The Independent Voters Association - except the IVA was anything but independent. Most of its money came the Minnesota capitalist-industrial complex. So much money poured in that in November of 1919 the first issue of a 40 page monthly magazine appeared, “The Red Flame”, pounding home the message that the NPL were communists, intent on subverting capitalism in North Dakota. Newspapers took sides, and it became clear that the further west within the state, the stronger the NPL became, and feeding off the anti-German sentiment left over from the war, the further east you went the stronger the IVA became.
The IVA tried suing to invalidate the legislation which had created the Industrial Commission, claiming it violated the 14th amendment. A North Dakota judge tossed the suit, and the State Supreme Court upheld that decision, saying it was an issue of taxation and thus a matter for the the elected officials, not judges. The IVA then appealed to the U.S. Supreme Court which heard the case in in April of 1920. And in June the court admitted that things in North Dakota were getting pretty odd, but again, they refused to stick their noses into a taxation issue.
The primary campaign in 1920 was nasty, and vicious. There were charges that the IVA was bribing politicians, and the IVA managed to put a measure on the ballot to weaken the bank by allowing city or county governments to withdraw their money. Month after month, “The Red Flame” spewed out accusations against Frazier and the Non-Partisan League, charging incompetence and fraud in running the BND. In the October Republican primaries Frazier beat “Wild Bill” Langer for Governor, but the NPL lost control of the House to the IVA, and the bank lost capital when the ballot measure passed. Come November, the wounded Frazier defeated the Democratic candidate for Governor by a mere 5,000 votes.
Governor Frazier responded in December, during a special session of the legislature, when he introduced the “anti-liars” bill, making it a felony for a state employee to publish false statements about the bank. IVA politician Theodore “Two Bit” Nelson went hyperbolic to the Bismark North Star Dakotan, “This is the end of democracy. Nothing is sacred,” he pronounced What it was, was civil war within the Republican Party. Politics in North Dakota ground to a halt. Fist fights erupted periodically in the legislature between NPL and IVA Republicans. But the IVA had managed to turn one of the NPL's political reforms against it, collecting 73,000 signatures and forcing an October recall election on the three freshly re-elected members of the Industrial Commission; Frazier, Lemke and Hagen. At the same time a half dozen ballot measures were offered, any one of which would neuter or destroy the bank.
The vote was held on Friday, October 28th, and all three NPL members of the Industrial Commission were ousted. Frazier became the first Governor every recalled, by a margin of just 1%, barely 4,000 votes. But the Bank of North Dakota survived, as every ballot measure meant to destroy it was defeated. Wrote the Dakotan, “It seems that the people want the bank and the mill but think that the IVA can do a better job of running them.” In 1921, the IVA tried again to dismantle “Socialism” in North Dakota, and again every ballot measure intended to overturn the bank and the state run flour mill, went down to defeat. They never tried again. Both institutions are still very much alive and healthy today, if reduced in size and goals. But they remain a recognition that when corporations seek to exploit and dominate the people, the people have no choice but to incorporate themselves.
The year after being recalled as governor, the people of North Dakota elected Lynn Frazier to the United States Senate, where he served for 17 years. Arthur Charles Townley the man who splinted the Republican party, served a 90 day prison sentence in 1922 for discouraging enlistments in World War One. He resigned from the NPL, but he never stopped fighting for things he believed in. Without him, his Non-Partisan League remained a thorn in the side of the Republican Party until 1956. Since then they have annoyed the Democratic Party of the North Dakota, which remains a minority party in a state still filled with farmers and still dominated economically from Minnesota.
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Wednesday, October 23, 2013

CRAZY DEAD MAN AT THE SWITCH

I have said it before, and I say it again - letting an economist graduate without a minor in psychology, is like allowing a doctor to become board certified without knowing how to identify their own colon. The original psychologically impaired financial genius was David Ricardo (above). In 1785 the 14 year old David joined his father Abraham's successful brokerage firm in London. David showed an affinity for the business, including the profitable sideline of lending money to his clients. He steadily built a small fortune of his own, until, in 1794, the 21 year old eloped with the 25 year old Priscilla Anne Wilkinson, which precipitated a complete business and familial split with David's father.

The problem was her family were Quaker Christians, while his were Jewish Orthodox. And forced to choose between the woman he loved and the faith of his father, David chose Priscilla. That the marriage was based on passion is hinted at by the 11 children David and Priscilla produced over the next 11 years of their 35 year marriage. But after the marriage David's father disinherited his third born child and forbade all family contact with him. David never spoke with either of his parents again. The finality of the break hints at two men with a rigid absolutist self assurance in their own vision. It was obvious David was destined for a career as an economist.
 
David's second career began in December of 1799 when the 27 year old millionaire read Adam Smith's bone dry book, “The Wealth of Nations”. In this verbose work, the Scotsman argued the greedy selfish practitioners of capitalism were actually useful to society because en mass they were being directed by an “invisible hand” toward doing the public good. But what David Ricardo read was slightly different. To his eye the lesson was that individually the greedy capitalists, such as the successful David Ricardo, were good. Smith's invisible hand became a mystical incantation invoked in the abstract as justification, but legislated against in the actuality. What had motivated Ricardo to finally read “Wealth of Nations'” a quarter of a century after it was first published, was known as the gold crises.
A generation's on again, off again wars with France stretched Britain’s finances to the breaking point. And after two particularly disastrous years, in 1795 and 1796, Britain had a 22 million pound deficit. With the economy and the banking system frozen near collapse, the government became desperate enough to introduce the Restrictive Act in 1797, which for the first time established paper money as legal tender, and put a limit on gold (then referred to as 'cash') withdrawals from the private-public conglomerate Bank of England. It was not much of a limit – 75% of personal gold could still be withdrawn. But the Restrictive Act was still considered so radical the ruling class had built in a time limit. The act would automatically expire in five years.
To David Ricardo the act was an outrageous violation of the “free market” and every business principle he knew. And, of course, he had suddenly lost direct access to a quarter of his 'cash', and was prevented from from demanding repayment of loans in “cash”. David was so angry he even struggled through the tangled web of Adam Smith's book, looking for a rationalization for his anger. And he found it.
David's problem was the Restrictive Act worked. Prices for food and goods stabilized, and despite predictions, gold poured back into the Bank of England. The act was so successful that in 1802 it was extended for another five years, even though England was now technically at peace. The lender class was burning with indignation. To men such as David Ricardo, it did not matter that the paper currency was working for consumers and industrialists. It did not matter that gold deposits were increasing at the Bank of England. The Act was not working for him, and thus it was not working. And he and his “monoterist” allies came up with a long list of ideological explanations as to why, despite the evidence, paper money was a failure.
In 1806 the new French Emperor Napoleon Bonaparte led his grand army into Austria, capturing an entire Austrian army and Vienna, and then smashing a combined Austrian and Russian army at Austerlitz. This victory gave France control of Europe, which was then closed to all British trade. This renewal of the war increased spending to 15 million pounds a year, and despite more “outragous taxes” capping out at 10%, forced the government accounts three million pounds in the red.
The economic disruption created a political opening, into which, in 1810, David Ricardo dispatched his first book on economics: “The High Price of Bullion, a Proof of the Depreciation of Bank Notes.” In it he argued that the Royal Mint's program of releasing quantities of new one and five pound notes – what modern economists would call cheap money - had made all pound notes worth less, or devalued the currency as a whole. As proof David pointed out that the price of an ounce of gold was higher at the European gold market in Hanover, Germany, than in London, which meant the English pound notes were worth less.
The directors of the Bank of England, which ran the mint, responded that it was the growing economy that was pushing the volume of paper currency up, not the reverse. Besides, they asserted, the alleged price variation between London and Hanover was actually a fluctuation in the local value of gold, not the value of the paper money. An ounce of gold was still worth no more than an ounce of gold in either market. But since the Bank of England now had more gold than the Hanover banks, you would expect an ounce of gold would cost more in Hanover. Despite the logic of the Bank's arguments, the bankers and money lenders in Parliament, such as David Ricardo, sitting on the “Bullion Committee” still called for a return to “hard” currency, not so they could profit from it (although they would), but because it was good policy. Still the members of parliament overwhelmingly voted down the committee's suggestions. And the economy kept improving.
By 1815 this hard money movement finally had enough politically clout to convince the Bank of England to reduce the supply of paper money. As predicted by the industrialists, that caused the economy to hiccup. Prices began to fall in 1819, when the Restrictive Act was repealed. In the next two years 89 regional and county banks failed across Britain. The unemployment rate climbed. And that allowed Ricardo and his allies to push for cutting the amount of paper money in circulation. As modern Nobel winning economist Paul Krugman puts it, “Fiscal policy that focuses on deficits rather than on job creation...serves the interests of creditors...(who) want governments to make honoring their debts the highest priority..” And that, in a nutshell, was the economic thought of David Ricardo.
In 1820 the Bank of England began reducing the supply of five pound notes in circulation, from 4 million pounds worth, to, by 1822, less than a million pounds worth. The contraction hit the fan in January of 1825. It started with a series of runs on small regional banks, eventually spreading to larger banks even in London, with customers desperately trying to withdraw their funds. That terrible year another 70 banks failed. That not everyone agreed with David Ricardo's policy is shown when you read the contemporary economist and politician Thomas Attwood, from Birmingham. He witnessed the Panic of 1825 and charged the banker friendly return of the gold standard had created “More misery, more poverty, more discord...than Attila caused in the Roman Empire.”
The loss of money in circulation cut demand, and the loss of demand threw hundreds of thousands out of work. Industrialists complained full employment had been sacrificed to Ricardo's “sound money” program. The directors of the Bank of England, which had become the central bank for England's economy, much as the Federal Reserve is for today's American economy, merely clicked their tongues in moral disapproval of those whose lives had been destroyed. But the panic refused to stop at the suckers window.
The same ideological dogma would lead to a panic again in 2007, when Lehman Brothers banking and brokerage house was allowed to fail, because it was seen as having violated the “moral hazard” rule. But that failure led to a panic which destroyed confidence in the entire banking system. Back in 1825, by December even the directors of the Bank of England were forced to step in, if to save no one else, to save their friends and people their knew. The Bank of England became the “lender of last resort”, printing new paper notes to pay debts that exceeded the failing banks' gold reserves. And with those guarantees, the panic subsided.
Logic would seem to demand that David Ricardo be noted in economic texts as a selfish short sighted fool, who thought that which favored him, favored all, and whose theories produced far more economic misery than success. But that is not the case. Another Nobel Prize winning economist, John Maynard Keynes, admitted to being perplexed as to why Ricardian economics “conquered England as completely as the Holy Inquisition conquered Spain." And Ricardian theory is setting today's conservative agenda. Why? Keynes suggests several reasons: “That it reached conclusions quite different from what the (average)...person would expect, added...to its intellectual prestige. That...translated into practice (it was), was austere...lent it virtue....That it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress...commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist, attracted to it the support of the dominant social force behind authority.”
In other words, what Ricardo thought made money for the bankers. He preached that government was the enemy of business. His Iron Law said increasing wages was actually bad for the workers. And when David Ricardo died in 1823, two years before the panic that proved him wrong, he left an estate valued at over 600,000 pounds (about $100 million today.) And to bankers that is the final judgement as to the accuracy of his views.
 And that is just nuts.
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Sunday, October 20, 2013

ET TU Part Three BLOODY DRILLS

I know little about the soldier Crastinus, except that he died on June 7, 48 B.C.E. of a sword wound to the mouth. I know that on this day, as he was about to face the 45,000 men in Pompey's army, Crastinus swore an oath to his own commander. “General, I will act in such a manner today that you will feel grateful to me, living or dead.” This is not to say that Crastinus was happy to be on the plain that day, just north of the central Greek town of Pharsalus (modern Farsala). But we can be certain he had already proven his bravery and his ability to inspire men, else he would not have achieved the rank of Centurion, entrusted this day with directing 80 of the men in a 22,000 man army. The men in his Century depended upon Crastinus. He was the second most important man in their lives, after Julius Caesar.
Caesar had crossed the Rubicon on January 11th  49 B.C. with just 5,000 men. His primary opponent, Pompey the Great, had more than twice that many men defending the walls of Rome. But less than a week later, without even offering battle, Pompey, most of his army and most of the Senate aristocrats fled Italy, sailing for Epirus, in north western Greece. That left the center stage of Rome to Caesar. First he got his hands on the treasury. Then, what remained of the Senate voted him dictator for a year. Caesar ordered all government posts abandoned by the aristocrats to be filled by his allies. That gave him political control of  the city and its bureaucracy.  Still, he was caught between Pompey's Spanish legions and Pompey himself, gathering new legions and allies in Greece.
The Latin word for a Roman soldier, “legionnaire”, meant a military conscript, who was drafted under the Republic to serve for 6 years. The professionals, who were beginning to dominate the Roman Army, signed 25 year contracts. For non-Romans, such as the Gauls in Caesar's army, an honorable discharge meant Roman citizenship and a plot of farmland upon which they could retire. And most who signed up, made it to retirement - for every hour a legionary spent on a battlefield like Pharsalus he spent years drilling. It was said of Caesar (but could have been said of any good Roman general) that his drills were bloodless battles and that his battles were bloody drills.
In late March of 49 B.C.Caesar left Rome and crossed the Alps, where he met three of his legions from Gaul Without pausing, he now forced the passes through the Pyrenees mountains, and outside of the Spanish village of Illerda confronted Pompey's legions. Caesar had covered the 800 miles so quickly – just 27 days – that Pompey's troops were caught unprepared and were defeated. On August 2nd all five of Pompey's Spanish legions surrendered, and rather than being disbanded were integrated into Caesar's forces.
The core formation of the Roman Army was always the squad of 8 men, called a contubernium, who shared a barracks room or a tent, and a mule to carry their supplies. Ten such groups, or 80 men, formed a century (a company) , six centuries formed a cohort (a battalion), and a legion (a division) was made up of 10 cohorts. Everything they did was a standardized drill. They even ended each day's march by building a standardized camp. A legionary could walk into any camp from Judea, to Britain, to Africa, and walk directly to the armory, the barracks, or the stables. The basic plan for European and American cities grew out of the standardized design of Roman Army camps.
By early 48 B.C. Caesar had gathered three legions in Brundisium, at the heel on the Italian boot. He still lacked enough ships to carry all his men across the Adriatic to Greece, but so eager was he to come to grips with Pompey, that Caesar sailed with just half his force. For once, Pompey moved quickly. His ships cut Caesar off from reinforcement, and his larger army forced Caesar’s men into battle at Dyrrhachium, in what is today Albania. Caesar lost 1,000 men and would have been destroyed, had Pompey not become cautious, and Mark Anthony not finally slipped the rest of Caesar’s legions through Pompey's blockade. The two Roman armies now began a dance, moving southwestward, down the Greek peninsula, until, by late May they had reached the plain of Pharsalus, where Caesar’s men grew so hungry, they could march no further.
At Pharsalus Caesar’s legionaries were facing fellow legionaries and neither side had a technological advantage. Pompey's larger army held the high ground. That meant that Caesar’s hungry men would have to attack uphill. Pompey formed each of his legions as usual, three ranks deep, with three feet between each man. But Caesar thinned out his men to add a fourth line. It seemed a minor alteration.
After throwing their spears, each Century battered into the enemy with their shields, strapped to their left forearm. The overlapping shield walls pushed and shoved the enemy, the enemy pushing and shoving back. A Roman battle was mostly this, a brutal shoving match, both sides looking for an opening to thrust in their 2 foot long gladius (sword) with their right arms. Every 90 seconds the Centurion would blow his whistle. The front rank would sidestep right and backward. The fresh second rank would surge forward, pushing and shoving. The exhausted rank would then fall back to the third line, to rest. As long as both armored sides maintained their discipline, the causalities in ancient battles were few. But the instant either side broke formation, showing their backs to the enemy, the slaughter would begin
On Caesar’s right, Pompey's cavalry scattered their weaker opponents. But this uncovered Caesar’s fourth line of legionaries. Ceasar's incessant drilling allowed his men in the midst of battle, to smoothly swing to their right, and thrust at the enemy cavalry. And here Caesar displayed a new tactic, developed to deal with the Gaulic cavalry. Instead of throwing their spears, Caesar’s legionaries used them as five foot long spikes. The enemy's horses would not hold formation, and were scattered and driven off the field. Caesar’s fourth line now swung through the opening and outflanked Pompey's troops. Now the fourth line pulled their gladius, and the slaughter began.
Pompey saw what was happening and panicked. He rode back to his camp, gathered up his wife and servants. urged his soldiers there to resist Caesar to the death, and then rode for the coast, some say dressed as a peddler. Meanwhile, on the battlefield, Caesar’s 22,000 man army lost just 200 legionnaires killed, and 30 Centurions – including the brave Crastinus. Another 800 legionaries were wounded. But because Pompey's army of 45,000 had turned their backs, they left the field littered with 15,000 of their dead.
Once again, Caesar chose to be magnanimous. He separated the soldiers from their Centurions. He put his men in command of Pompey's legions, and he transferred Pompey's officers to positions in his loyal legions, where junior officers and superiors could keep watch over them. Pompey sailed for Egypt, intending on moving on to his allied forces in Tunisia and what is today Libya. He would never make it. But with each step Ceasar took to follow Pompey, he took one step closer to his own murder.
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