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Friday, September 26, 2014

DESIGNER OF DISASTER


I would like to introduce you to Mr. Andrew William Mellon (above), a scarecrow of a man whose life reads like a Balzac novel. He is virtually forgotten today, but he should be remembered. First, he is one of the men who brought you the Great Depression; second, he is the man who invented “trickle down economics”, which is trying very hard to bring you the next depression; third, his name has appeared on more dollar bills than anyone, with the possible exception of Alexander Hamilton; and fourth, his obsession with money was so great that its poison has leached into our own time, for Andrew William Mellon is the 'prater profectio' of the “vast right wing conspiracy.” Suffice it to say that if Freud had ever met Andrew Mellon, psychiatry would be a recognized science today.
Andew was lucky enough to be born in Pittsburg during the latter half of the ninteenth century – “hell with the lid off" as the town was described.  And he was born to  a Scrooge-like father who disapproved of those with..."festive dispositions”. His father was a successful banker, and when Andrew was 17 he loaned the boy enough cash - at reasonable interest rates - so that he could found his own lumber company. Andrew ran the firm following the mantra, “What would father do?” After paying daddy back and making a small fortune of his own, Andrew sold out. He felt the market was about to take a downturn – which it promptly did. Andrew then joined with his father and brother in founding a bank, T. Mellon & Sons. In 1882 Andrew became the President and primary shareholder. Using it as a base, and his connections with the Pittsburg elite of Carnegie and Rockefeller, Andrew helped found ALCOA, B.F. Goodrich, Gulf Oil, Heinz Foods and dozens of other corporate giants of the dawning 20th century. And he took a share in the stocks of every one of them.
Andrew (above) was, by 1899, the fourth richest man in America. But he was still living with his parents and eating porridge for dinner. Did life have anything to offer Andrew other than an “Oedipal competition” which he could never win? It turns out it did. But Andrew screwed it up.
In 1900 the 45 year old Andrew tried to escape his desolate fate by marrying the vivacious 19 year old Nora Mary McMullen (above), "The prettiest woman in London", and heir to part of the Scottish Guinness Brewing fortune. But instead of Nora providing Andrew with a way out, he dragged her into his miserable life. She tried to make dirty, foul Pittsburg a home. The couple had a daughter in 1901 and a son in 1907, but Andrew became convinced that Nora was seeing a certain debonair and dashing cavalry British Captain, George Alfred Curphey - who had already been named as co-respondant in the South African Vivian divorce case of 1907. Perhaps Nora was having an affair. But the microphones Andrew had hidden in their home failed to produce any evidence of it. So Andew smashed 12 of them with an axe. For a decade Nora pleaded with Andrew for a divorce, but Andrew wanted custody of the children, and she didn't want them trapped as Andrew was. Finally, in 1912, he actually charged her with adultry in court papers. Nora strongly denied the accusation and a special master who carefully examined Andrew's evidence, rejected his claim. However , Nora had suffered enough. In exchange for a $2 million settlement and her freedom, Nora did not fight Andrew when he demanded primary custody of the children. But that merely meant that now the children would be just as miserable as Andrew was.
By 1920 Andrew had become so brittle that one writer would described him as a “dried-up dollar bill waiting to be blown away”. And this was the man the new President, Warren G. Harding, named as his Secretary of the Treasury. And why not: if you believed in the power of unfettered capitalism, what better man to guard its future than one of the most devoted and disciplined unfettered capitalists in the world? After resigning as director from the sixty corporate boards he sat upon, Andrew accepted the post. Of course he still maintained close contact with the family bank, now under his brother's stewardship.
The entire modern Republican economic game plan was on display while Andrew Mellon (above, center) ran Treasury through the terms of Presidents Harding, Calvin Coolidge (above, left)  and Herbert Hoover (above, right). Through the entire decade of the 1920’s the economy grew at 7% per year, while unemployment remained between just three and four percent.
Mellon moved to quickly retire much of America's World War One debt, cutting it by $10 billion. He also pushed hard to cut the upper income tax rate from 77% to 24%, and cut taxes for middle class Americans at the same time, although by not nearly as much. He reduced the Estate Tax, (known in current Republican circles as the “Death Tax”). But more importantly, he moved to improve the “efficiency” of government. Remember this was when the largest civilian department in the government was the Post Office.
In 1920 the federal government was costing $1,329.77 per person per year.  By 1927, after seven years of Andrew Mellon 'efficency' at Treasury, that spending had fallen to $180.57 per citizen per year - for the Post Office, the Navy, the Army, food inspectors, for everything.
So if Mellon was making government so efficent by 1929, what went wrong? As one historian has explained, “Between 1923 and 1929 manufacturing output per person-per hour increased by 32 %, but workers’ wages grew by only 8 %. (Meanwhile) corporate profits shot up by 65 %" (Sound familar?) "… In 1929 60% of families were living on less than $1,500 a year….” (equal to $18,500 in 2012)
The ultimate expression of Mellon economics was the Revenue Act of 1926 , pushed hard by Andrew Mellon. Taxes were cut for those making $1 million or more a year by more than two thirds. As a result, by 1929, the top 1/10th of 1% of Americans had an income equal to that of the bottom 42% of Americans. Another historian has observed that, "The Mellon tax policy, placing its emphasis on relief for millionaires…made the mal-distribution of income…even worse."
By 1929 the American middle class was being squeezed out of existence. (Sound familar?) And since the economic health of the nation became dependent solely on the swing of business cycles, without consumers, there was not much of a swing left. The M-1, the money supply in circulation, had contracted past the point where the economy could recover from the next stumble.
And when the next "stumble" came, without cash moving through the system; “Industrial production fell by nearly 45% between the years 1929 and 1932. Home-building dropped by 80%...” The stock market simply followed suit. It fell from a high of 294 points in early October 1929, to 230 points at the end of the month. Does any of this sound familiar?
One wag put it to verse; “Mellon pulled the whistle, Hoover rang the bell, Wall Street gave the signal, And the country went to hell.” Mellon saw what was happening in the Great Depression, but favored what he called a “liquidationist” approach to the problem. (Sound familar, again?) Mellon believed that weak banks (like weak insurance conglomerates, weak car companies and weak hedge funds today) should always be allowed to fail. Mellon called it “weeding out”. What that strategy produced in 1929, and in 2008, was panic selling, when over-confident investors suddenly realized that actually applying the rules of capitalism to them meant that, actually  the odds were they would be the next loser. Realizing this, they then acted accordingly. They got out of the market so fast all the markets collapsed.
In the public’s mind, Mellon, who was by then 70 years old, had become the face of the “old system”. During 1930 and 1931 Herbert Hoover saw to it that Andrew Mellon spent much of his time out of the public purview, in Europe, with the thankless job of trying to get America's ex-allies to repay wartime debts. But since they were also suffering in the Great Depression, they could not.
It was during these years that the Hoover administration, still following Andrew Mellon’s theories, drove the economy from a recession into a depression, eventually dropping the market, on July 8, 1932, to an all time low of just 41 points. And rightly or wrongly, in the public’s mind, Andrew Mellon as well as Hoover bore the responsibility for the disaster.
Capitalism had reached such a point of concentration of capital that while the millionairs still had plenty of money, there was no where for them to invest it. (This is true again today, except today big banks can invest their money in each other, trading vast fortunes and claiming imaginary profits by doing so)  There was no consumer demand in America because the consumers had been "weeded out" of Mellon's system. What was needed was what Roosevelt called "priming the pump", but such ideas were anathama to Mellon's economic thinking, and anatham to Republicans today.
Finally, in February of 1932, with Hoover looking for some way to get the disgraced economic mastermind out of the public eye before the November elections, Andrew agreed to step down from Treasury, and accept the post of Ambassador to England. He served for just one year, and performed such assignments as introducing Emilia Erhart to the King of England (above). And then he resigned.
In 1937 the Roosevelt administration opened “The Mellon Tax Case”, investigating Andrew's  ties with the family bank while he was serving at the Treasury Department. Eventually the Mellon Bank settled for $668,000 (the equivalent to $10 million, today).
But by then Andrew had died, on August 27, 1937. And though his estate had been hurt by the massive tax settlement, and even though Andrew had spent the last years of his life giving away much of the wealth he had accumulated, Andrew still held so much personal wealth, that in 2007 (seventy years later!) the various trusts that Andrew created saw that his grandson,...
 ...75 year old Richard Mellon-Scaife, was still collecting about $45 million a year from them. Scaife used some of his unearned wealth to finance the impeachment campaign against President Bill Clinton in 1998, and the idea that Barak Obama didn't have a valid U.S. birth certificate in 2008. It is as if this part of the family, and the Republican Party, is still trying to prove that old man Andrew Mellon was right back in 1929,  and that the Great Depression did not really happen.
As Honor de Balzac wrote in his novel, “Father Goriot”, “Behind every great fortune…is a crime that has yet to be discovered.”
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Wednesday, September 24, 2014

PARCEL POST

I hate to tell you this, but, contrary to common knowledge, we are the ones living in a “simpler time”, not our parents or even our great-great grandparents. We have E-mail, and I-phones and twitter and face-book and every other pseudonymous instantaneous electronic communication device which, with apologies to Socrates, proves that a life under punctuated is a life not worth being self-obsessed about. Sharing every naval-infatuated idea has become de rigueur for the Obama generation. There is no longer room for confusion or miss-interpretation, only for over-interpretation. And that makes the world much simpler.
For the first two million years of human evolution the only limit on communication was the sum of the speed of sound divided by the speed of walking, divided by the number, width and depth of rivers and oceans, and the height of mountains and width of deserts separating you from the persons you wished to speak to. Those kinds of obstacles and those kinds of delays made the world a very complicated place. When the Battle of New Orleans was fought on January 8, 1815, the War of 1812 had been over since the Treaty of Ghent had been signed on December, 24, 1814. That was three years you needed to refer to,  while talking about just one battle, because of the delays in communications. How much more complicated can you get than that?
Mail was the first invention in long distance communications. Cyrus the Great of Persia invented pony express riders to carry “words” to bind his empire together. According to the first great historian, Herodotus,  these civil service riders were so dedicated that “Neither snow, nor rain, nor heat, nor gloom of night stays these courageous couriers from the swift completion of their appointed rounds”; which is not the official motto of the U.S. Postal Service. The U.S. Postal service has no official motto.
The next major technical advance in communication didn’t come along until 1792, when Claude Chappe invented a ‘semaphone’ network in France. In his sales brochures he called it a “telegraph” (Greek for “far writing”). It required a series of towers spaced 20 miles apart, upon each of which were erected two movable arms connected by a longer movable arm. A Chappe telegraph operator repeated the 174 different combinations of arm positions to relay up to two words a minute. Although this was such a dependable system that the Swedes kept theirs running until 1880, Chappe never saw it turn a profit, for two reasons. First he threw himself down a well in 1805. And second, it never turned a profit. Worse yet, for Chappe’s family, he copyrighted every thing about his brilliant invention except the name.
In 1837 a failed Calvinist minister, a proslavery Federalist, a pedantic anti-catholic and anti-Semitic conspiracy freak named Samuel Fineley Breese Morse, co-opted the name for his “electronic telegraph” which he copyrighted from top to bottom, including the name. The first recorded “Mores Code” telegraphed was “A patient waiter is no loser”, in 1838. It was the dot and dash equivalent of “The quick brown fox”, etcetera.  The more famous message, “What hath God Wrought”, was telegraphed as a publicity stunt in 1844 and was suggested by Anne Ellsworth from my home town of Lafayette, Indiana. She was married at the time to Mr. Roswell, who gave his name to the New Mexico town where, in 1947, space aliens attempted to communicate with humans. Their message appears to have been the alien equivalent of “Mayday, mayday, mayday.” But, so far nobody has answered that message. 
The perfect expression of this more complicated communication is the traditional or “snail” mail service. The complexities involved stagger the imagination. You write a letter, usually by hand. You take the letter to a collection point, a post office or mail box. A representative of the United States Postal Service (your stand in) then physically carries the actual letter to your friend’s home. There, your friend or business partner reads your words from the very paper you once held. It sounds fraught with opportunity for delays and errors, and it is. And yet it has worked in America for two centuries. And what is most amazing is that we expect it to work, and complain when it doesn’t.
As of 2009 the 656,000 employees of the USPS (as it likes to refer to itself) processed 667 million pieces of mail every day (7,700 every second). They generated $75 billion in fees and charges, which left them with a $2.8 billion loss. Still nobody (well, a few libertarian lunatics) are suggesting that snail mail delivery should cease. What a bunch of "Big Government" people these pro-mail people are.
The ultimate complication of this ultimate complicated communication system was/is Parcel Post, in which individuals were encouraged to send not only words from one end of the nation to another, but goods as well. The service was started in 1912 as an attempt to encourage economic development in rural America.
The first flaw in the plan became visible when Postal authorities deemed it permissible to mail live chicks (in special containers) for 53 cents apiece. Now, farmers could order chicks from breeders and they would be delivered, cheaply and reliably, right to the farmer's front door. It was a great boon to the egg industry nationwide. But problems arose when some of the little cheeps in ever shipment died in their boxes en route, and the customers sought reimbursement from the Post Office. The rules denied the customer’s appeals, but they appealed anyway. What was not noticed at the time, was a  flaw in the logic of “live” parcel post.
The path to Parcel Post ad nausea was first made visible on the morning of February 19, 1914, when Mrs. John E. Pierstroff of Grangeville, Idaho, loaded her four year old daughter, May Pierstroff (above), into the mail car of a train bound for Lewiston, Idaho, 55 miles away. A few moments later Harry Morris, the conductor, stumbled upon the little girl sitting quietly atop a pile of mail bags. Morris checked the 56 cents postage on the tag tied to May’s coat, and since the mother was no where to be seen, allowed the girl to ride in the mail car to Lewiston. There, mail clerk Leonard Mochel delivered May to her destination, the home of Mrs. Vennigerholz,  the girl’s grandmother.
It was the beginning of a disturbing trend. Later that same year postal workers in Stillwell, Indiana accepted a parcel post box marked, “live infant”. They delivered the box to South Bend where the “package” was accepted and opened by the infant’s divorced father. Cost for the trip was 17 cents. The infant arrived safely. The next year a Pensacola, Florida probation officer shipped six year old Edna Neff to her father in Christiansburg, Virginia. The postage was 15 cents.
The public was unsettled by this mailing of children, since the percentage of child molesters among the population in 1914 was about the same as it is today. The negative publicity probably prevented another child mailing until 1919, when it appears a press agent for the Aluminum Company of America arraigned for the mailing of five year old Marmi Hood and four year old Evan Hedge to their respective fathers, who were locked down inside in the company’s plant in Alco, Tennessee, surrounded by union picket lines. After a two hour tearful visit, heavily documented by the company publicity department, the children were “mailed Special Delivery” back to the Alco, Tennessee Post Office, where their mothers were anxiously waiting for them. Postage for the stunt both ways was $2.26 cents. 
On June 13, 1920 The US Post Office issued new rules, announcing that children would no longer be accepted as a parcel post. The coda to this regulation, and perhaps a comment on the continued poverty in rural America even during the “Roaring Twenties”, was the C.O.D. package mailed to an undertaker in Albany, New York. It arrived on November 20, 1922, and carried no “return address”. In the box was the body of a child who seemed to have had died of natural causes. She was buried “...through the kindness of individuals” under the name of “Parcella Post.” How could you call such a world as that, "simpler" than ours? 
As you would expect from people living in such complicated times, the denizens of that ancient confusion were able to predict the problems and solutions faced by our current, “simpler", electronic age. It turns out the philosophical antithesis to twitter was written in 1854, not long after the Mores telegraph hinted at the self obsessed simplicity which was to follow. 
It was written by that old fogey, Henry David Thoreau. “Our inventions are wont to be pretty toys”, wrote Henry David, “which distract our attention from serious things. They are but improved means to an unimproved end…We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate.” And, what with the current Texas Governor advocating the re-secession of Texas from the union of states, it would appear that our modern politicians are leading the way by getting simpler and simpler all the time. 

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Sunday, September 21, 2014

GREAT EXPECTATIONS Part Nine

I am always surprised by people who despise politics, because that is like despising vaccination needles; try living without them. And the way in which James Reavis-Peralta responded to Royal Johnson's report is a perfect example. Of course he sued the United States, claiming the government was stealing a million and a half acres from his “Arizona Development Corporation”, and demanded compensation of $11 million ($2.5 billion today). That got a lot of headlines. But more practically, he called on his allies in Washington. The railroad's man in the President's Cabinet (and therefore Collis Huntington's man), Secretary of the Interior John W. Noble, put pressure on the Commissioner for the Land Office, Lewis Groff,  who was technically Johnson's boss. On February 20, 1890, Commissioner Groff fired off a critical letter to the Arizona Surveyor General -  Royal Johnson. The letter said Johnson's report was biased and instructed Johnson to “strike the case from your docket and notify Mr. Reavis of the action, allowing the usual time for an appeal to the Hon. Secretary of the Interior.” In other words, John W. Noble. Problem solved – except for the lawsuit.
Lawyers for Reavis-Peralta and the Development Corporation were Harvey Brown, Robert Ingersall and James Broadhead, who had already publicly endorsed the Peralta claim. All three men were also attorneys for Huntington's Southern Pacific Railroad. Mr. Huntington must have been a little annoyed he'd been forced out of the shadows on this point. Never-the-less the lawyers began a delaying action while Senator Roscoe Conkling (another Huntington ally) came to the rescue, pushing for the creation in March of 1891, of the U.S. Court of Private Land Claims, which was given jurisdiction over old Mexican and Spanish land claims, i.e. the Peralta grant.
While all of this was going in Washington, D.C.,  back in California James Reavis-Peralta's personal attorneys managed to find just the right people who were willing to swear under oath they had known the little orphan girl Sophia Peralta at various stages in her life. One man even claimed to have been a employee of John Treadway, who had supposedly provided for the child after her father left California for Spain. And in February 1893, an express wagon pulled up in front of the Land Office in Sante Fe, New Mexico and unloaded “an array of boxes and packages, all...marked 'Peralta Grant.' This was the evidence attacking the Surveyor General's report. Along with this mass of documents, old and newly discovered, was a large oil portrait of the Marquis de Peralta, to put a face on the fraud. James Reavis-Peralta and Sophia , Baron and Baroness of Arizona, now moved back into their desert fortress of Arizola, where, on March 8, 1893 , Sophia argued her own case by giving birth to twin boys, thus proving, said James, that she had been born a twin herself. Also that spring, another group of investors were lined up to supply another $2,500 (today's equivalent of $60,000) a month,  for operating expenses for Development Corporation, and the Revis-Peralta household.
At the same time the prosecution was also getting ready. The newly formed Court of Private Land Claims had hired Mathew Reynolds to defend the government, “"a lawyer of splendid ability”, and he fought to hire William Tipton an expert on document analysis, Sevaro Mallet-Prevost, a Mexican-American who was an expert in Mexican and American land laws, and Henry Flipper, an expert surveyor. All these men and their staffs were a major investment by the government. But with his lawsuit Reavis had changed the economics of the case, making it reasonable to invest the time and money needed to prove Reavis was a fraud. It was James Reavis' first really big mistake. He had overplayed his hand.
In January of 1894 Mallet-Prevost and Tipton went to Tucson to examine the original claim files. Once that task was completed, Mallet-Provist went on to Mexico City and Guadalajara. There he found that the Royal Cedula naming Don Miguel Peralta as the Baron of Arizona was real, but it had been altered. Originally it had been a Credula advising the City of Guadalajara that the Count of Fuenclara was the new Viceroy of New Spain. In June Mallet-Prevost moved on to old Spain. While in Seville he discovered that the Spanish authorities had actually caught Reavis trying to slip a doctored document into a library, and had issued a warrant for his arrest. But Reavis had used his connections with Spanish royalty to discourage the police from pursuing their case.
Meanwhile, Mathew Reynolds had gone to California, where he was contacted by the lawyer for Mrs Elena Campbell de Nore, who had a signed contract between her husband and James Reavis, in which Miguel Nore (the husband) had been promised $50,000.00 if he lied for Reavis. Hell, it seems, hath no fury like a wife cut out of a payoff.  Also, Reynolds had made a side trip to the grave of John Treadway, the friend of Don Peralta who had supposedly cared for the infant Sophia. According to the dates on his tombstone, Treadway had died six months before Sophia was supposedly born.  As details of the evidence being collected in Mexico, Spain and California began to leak out, Reavis' investors began to quietly drop away. As the money dried up, Reavis' lawyers quit, one after the other. By the time his case came to trial, James Reavis-Peralta was flat broke, and representing himself in court..
The trial was supposed to begin in Santa Fe, at 10:00 Monday morning, June 2, 1895, but nobody from the Reavis-side showed up. The court adjourned until 1:00 that afternoon, when the only business was a motion from  J.T. Kenney,  a lawyer representing 106 Peralta family members from Arizona. They had filed a companion suit, hoping to catch some dribbles from Reavis' bounty, but after reviewing the government's evidence, Kenney told the court, “from a cursory examination... it (the Peralta Grant) is a fabrication...We wash our hands from all of it.” First thing Tuesday morning the court began taking testimony from government witnesses, even though Baron James Reavis-Peralta was still no where to be seen.
The Government case was laid out in full. There never was any one named Don Miguel Nemecio Silva de Peralta de la Corboda. There had never been a grant of land issued to the nonexistent Baron. The nonexistent grant had not been approved by the Inquisition, and had not been confirmed by the Viceroy, who had died a few days after he did not sign the nonexistent grant. The nonexistent Don Miguel Peralta had never married, and he and his imaginary wife had never had children, who, of course had not had children, who had not had children, who, needless to say, had not delivered sickly twins in an isolated California mission, where the nonexistent mother had not died along with her nonexistent male child, and there had been no Sophia Peralta who survived, because her mother had not existed. The supposed friend of the nonresistant Baron Parlata had existed - John A. Treadway was real. But he had died six months before the nonexistent Sophia Peralta had not been born.
Documents supporting the Peralta claim had been forged, usually badly, and inserted into existing files and books. Legitimate entries in diaries and record books had been erased to make room for forged names and titles. The entire Peralta case was a tale of lies, cheats and broken promises, and had survived in the courts as long as it did only because of the support by rich and powerful men like Collis Huntington and Charles. Crocker, who had become rich and powerful because they had no scruples about lying and cheating to make money.
Finally, on June 10, 1895, the Baron of Arizona, James Reavis-Peralta showed up in court in Santa Fe, New Mexico, in the flesh, to answer the Government's charges. He should have stayed in bed.
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