JULY 2018

JULY 2018
One Hundred Years Later, Same Message. 1916 - 2017


Thursday, February 02, 2017


I don't think we should judge Patrick Henry too harshly. Shortly after the birth of her sixth child Patrick's  beloved Sarah went mad and in 1771 the doctors diagnosed her as being possessed by demons. Two centuries later it seems likely she suffered from post patrum psychosis. Over the next 4 years Sarah was kept locked in a cellar “apartment” beneath her own home and cared for by her eldest daughter Martha, and her slaves. The standard treatment – exorcisms, restraints, regular enemas and laxatives, bleedings and beatings – all probably hastened her death in 1775. 
On 15 July, 1788, Federal Secretary of the Treasury Alexander Hamilton suggested that Georgia cede her “vacant territories” west of the Apalachicola River to the Federal government.  In exchange the Federal government would assume Georgia's entire war debt. But Georgia politicians said “no thanks”. Instead, on 21 December, 1789, Georgia governor Edward Telfair, signed grants of five million acres between the Apalachicola River and the Mississippi River, to the Virginia, Tennessee and Carolina Yazoo companies.  In exchange, within two years, the Yazoo companies were to pay Georgia $207,000 – or about 24 cents per 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 local Indians and the Spanish,   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 a Mr Chandler, for 100 pounds. When Chandler realized he had bought a useless rock, he sued, and a court ordered Lopus to give Chandler 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 neither read or write. 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 was selling for 2 cents an acre? The answer is 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 in 1785 the new Confederation Congress withdrew the bank's charter, leaving the Federal government $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.  And it was utopia. Right?
Within 2 years 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. State legislatures were reduced to borrowing money just to pay the interest on earlier loans. There were more than fifty currencies in circulation, including English pounds and Spanish “pieces of 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, establishing a stable economy was the job of President Washington's bright-eyed boy, Alexander Hamilton. 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. 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 grants, they were carrying a huge pile of paper money.  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".  But the state of Georgia refused to fall for that.  They deemed the offer insufficent and canceled grants to all three Yazoo companies – No sale.
That left Patrick Henry David Ross and Thomas Jefferson, 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 over their entire debt, and give up claims to any western lands.  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 the deal which saved the Virginia speculators' collective behinds, but it was a bitter pill for the aristocracy to swallow. Thomas Jefferson, a life long land speculator, would later say bitterly that Hamilton had fooled him. But he still cashed the check.
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?
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