DUER CONSIQUENCES

I can't find anyone who was not certain that William Duer (above) was destined to die broke. A few of his friends even told him so - even some while helping him bankrupt themselves.  At forty-five Duer was a slight built man with “sharp features and a receding hairline”, a man of “...dashing personality...with both talent and wit...” and “Making schemes every hour and abandoning them as instantaneously”.  At its peak in 1794 his fortune was between $250,000 and $375,000  - over $4 billion today.  But more, William Duer was the founding father who put the manic in America's first and succeeding economic depressions. Thomas Jefferson called him “The King of the alley”, meaning both the back alley, and "The Street", as in Wall Street,. He suckled at the breast of that most self destructive American midwife, Madam Laissez Fair.  His bipolar greed added the purge to American gluttony.  He was the American fingers on Adam Smith's invisible hand, always reaching for his partner's wallet. Let me give you an example.

The United States officially came into existence on 1 March, 1781, when the Articles of Confederation were finally ratified after four years of bitter debate. But economically America would not be a nation until all thirteen states shared a currency. Paper money was considered too risky to be legal tender, but coins had intrinsic value - in those days. In 1786 the Treasury Board accepted a bid from the firm of Jarvis and Parker to supply copper “Fugio” pennies (above), named for the Latin word meaning “I fly” stamped on their obverse.

Winning bidder, James Jarvis (above),  suggested speeding up the process of issuing the coins by melting down the 30 tons of British copper pennies the Treasury already had on hand, and proposed paying for the copper out of his profits. And that little bit of economic legerdemain was the opening that William Duer needed to grab a little something for himself. You see, Duer was the head of the Treasury Board, appointed to that post by his friend and business partner, Alexander Hamilton.

According to James Jarvis, when they met in William Duer's New York City mansion to discuss the copper trade, Duer bluntly demanded a share of the business as a bribe. Jarvis says he was offended and ready to walk out, but then agreed so long as Duer remained a silent partner. Duer countered with a demand for a straight $10,000 bribe. Jarvis agreed to that too, but only if the business was successful. And that was what Jarvis thought he had agreed to, “relying on his (Duer's) honor”. Unfortunately Duer had no honor. Congress decided not to go along with the deal, so only few hundred “Fugio”'s were ever minted. Jarvis returned the unused copper, and that should have been the end of it. . But like a bad penny, William Duer turned up again, still demanding his $10,000 bribe.

Jarvis insisted he was not bound to pay Duer so much as “ten pence”. He insisted, Duer's “share... was conditioned on the success of the contract.” Duer simply ignored Jarvis' arguments and relentlessly demanded to be paid. And Jarvis relentlessly refused. Finally, at the end of September, 1788 Duer turned up the pressure, using his friends in Congress to demand Jarvis pay for the copper used in minting the few hundred “Fugio” pennies. The government already had the pennies. Now they wanted to be paid for the copper that was in them? Given the criminal treatment for debtors in those days, Jarvis was looking at some unpleasant jail time.

And just at this moment, Duer suggested that Jarvis might want to invest in another one of his schemes, an Ohio land speculation called the Scioto Company.  Two shares were available, at $5,000 each. Anxious to be rid of the Duer, and reasoning that this way he at least got land that might some day be worth something, Jarvis gritted his teeth and sold off his coin stamping equipment, using the cash to pay a premium price for two sections of land in the “Scioto Company” Ohio reserve. Finally free from the villain (he thought), Jarvis left on a business trip to Europe.

A year later Jarvis returned and found he had no shares and no cash. He wrote to Duer's lawyers, “I demanded of Mr. Duer, the Ohio rights he was to have purchased for my account....He told me they were in the name of Doctor. J. Ledyard, and should be transferred to mine, in the company's books. I applied to...the treasurer, who informed me there were two shares in the name of Doctor Ledyard, but that he could not transfer them to me.....I have more than ten times applied to Mr. Duer, and...I could get no satisfaction....” It was a favorite tactic of Duer, to stubbornly refuse to admit he had stolen money, no matter the evidence or the law or common sense.  Poor Mr Jarvis was so worn down by now, and so confused by Duer's shifting arguments, he seems to have forgotten they were arguing over the payment of an illegal  bribe!  Jarvis complained, “I have been three years amused in this business, it appears that he (Duer) should at least allow me interest (on his $10,000)..." 

It was like speaking Greek to an Italian donkey. Duer (above) insisted he had sold two shares of the Scioto Company to Doctor Issac J. Ledyard. He (Duer) had been paid. He no longer had the shares. The company was supposed to transfer the shares to Mr. James Jarvis. So if Jarvis had a problem, it was with the company, not with Duer. It was perfectly logical as long as you forgot that the Scioto Company treasurer took his orders from William Duer.  If you did remember that, Duer's arguments would eventually drive you insane. When the Scioto Company finally failed some years later, two shares were still on the companies' books as belonging to Doctor Isaac J. Ledyard. And there is no hint how many times Duer used Dr. Ledyard's two shares to bilk other partners. But for William Duer all this was a mere distraction to his tour de fraud with the Bank of New York.

The BNY was America's only private bank large enough to have its shares traded on the brand new New York Stock Exchange. Many people expected Alexander Hamilton, as Secretary of the Treasury Department, to eventually take over the BNY. And that was what William Duer assured his neighbor and new partner, Alexander Macomb. Blindly following Duer's instructions, Macomb bought 290 shares of the BNY, expecting to make a tidy profit as soon as Hamilton announced the Federalists were taking over the bank.

Of course, word that Alexander Macomb (above)  was buying BNY stock sent the price climbing, which so impressed Macomb he wrote to a friend in London praising his partner. “Duer's genius assures him it can be done without any further capital farther than can be raised beyond our joint credit at the bank.” Of course, “joint capital” meant Alexander Macomb had co-signed Duer's loans, which meant the money had been raised on Macomb's reputation, not Duer's. By 1792  few people  trusted William Duer enough to do that   Macomb's investment encouraged  even Walter Livingston, of the large and wealthy and powerful Livingston family, among others.

While in New York City, Alexander Macomb and William Duer continued borrowing and buying BNY stock (eventually $100,000 worth), in Philadelphia Walter Livingston (above)  and William Duer were buying $160,000 shares of BNY futures, and buying them short. In other words Walter and William were betting against Alexander and William. Of course, Walter Livingston had also co-signed William Duer's Philadelphia loans. So without risking a penny of his own money, William Duer had bet both sides of the coin - heads he won and tails at least one of partners lost. It was predictable. .

Other members of the Livingston clan certainly predicted it, and Duer's involvement made them nervous. They began to withdraw the gold and silver they had on account at the BNY. That forced the directors of the bank to tighten their loan levels, and to raise the interest rates as high as 1% per day on just the sort of risky loans that Alexander Macomb and Walter Livingston had recently made. William Duer (above)  tried to calm his New York partner, assuring Macomb, “I am now secure from my enemies, and feeling the purity of my heart, I defy the world.”

The world did not share the feeling. First Macomb and then Walter Livingston defaulted on their loans and were confined in the Manhattan debtors prison (above) . The financial panic spread and quickly caught up Duer as well.  By the summer, William Duer was also in debtors prison, partly for his own protection, flat broke but not broken, claiming he could save his fortune if the banks would just let him free to repeat his old mistakes. The American economy teetered briefly on the edge of its first collapse, the recession of 1792, or what was called "Duer's Panic". 

Five hundred of Duer's victims laid siege to the jail, chanting, “We have Mister Duer. He has our money.” Benjamin Rush, Congressional gadfly and gossip, went down to take a look, and described the victims as,  “merchants and tradesmen, dray men, widows, orphans, oyster men, market women, churches, and even common prostitutes.” A lively trade developed on the streets around the jail in Mr. Duer's IOU's, and fights even broke out. One night a man broke into the jail, and confronted Duer with a pair of dueling pistols, demanding he pay what was owed or choose a weapon right there. Duer handed over what little cash he had on him and the would be duelist left..

The end, when it came, was long and drawn out. Confined in jail for seven years for debts he could never pay,  William Duer died, probably of kidney failure, in April of 1799. He was only 57 years old. He left behind a widow unprepared for a life without wealth, and eight children. Alexander Hamilton wrote the first epitaph for William Duer,  when he insisted, “There must be a line of separation between honest men and knaves, between respectable stockholders and dealers in the funds, and mere unprincipled gamblers.”.

The second, more permanent epitaph to William Duer was delivered on Thursday, 17 May, 1792 when 24 traders signed an agreement under a Buttonwood tree in front of 68 Wall Street. The two regulations they committed themselves to were, one, the signers would only trade with each other, and two, they would charge a ¼ of 1 % fee on each transaction. Like all practical market systems the New York Stock and Exchange Board was created by and survived because of regulations, designed by and for the majority of "respectable stockholders and dealers in funds",  and not the manic gamblers flaming across the horizon.  

Despite having only the Bank of New York and 4 other stocks to trade, a year after it was founded the New York Stock Exchange was successful enough to build itself a home, The Tontine Coffee House (above, left) on the corner of Wall and Water Streets. John Lambert would describe the Tontine as “filled with underwriters, brokers, merchants, traders, and politicians; selling, purchasing, trafficking, or insuring...Everything was in motion; all was life, bustle and activity...”  But the attraction of the dramatic manic was there as well, even with  the wreckage of William Duer still scattered about.  Noted an observer in June of 1793, “There was an affray at the Tontine...(a fight) between...aristocrat and democrat.” A few months later the newspaper “Columbian Gazetteer” would complain, “only persons of the same party” remained at the Tontine."   Wall Street, on its way to the panic of 1798, was again becoming addicted to the dramatic manic depressives in its nature, and likely always will..    

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IT IS BALOON! Japan Attacks Mainland America

 

I draw your attention to one rather peaceful fall morning.  A lone sailing vessel tacks gracefully across an empty silver grey horizon. It could be anytime in history after 1430, and it could be a vision on any sea. Violence must have seemed a million miles away from that sleek wooden hull. But it was Saturday, 4 November, 1944, and war was about to intrude upon grace.

The sailing vessel was a member of the "Corsair Fleet" – private sailing yachts which patrolled the outer approaches to American ports on both coasts. This particular ship was criss-crossing the Pacific, 66 miles outside of San Pedro and the Port of Los Angeles. The owner, too old for military service, was her acting captain. But she was crewed by uniformed members of the United States Coast Guard. Being wooden and small, these vessels were often missed by the radar of the day. While under sail, they were invisible to submarines listening for the grinding of propellers from patrol craft. And then a crewman’s shout pierced the morning serenity.

Rolling with the swell was a large section of white cloth. The captain reefed his sails and hove to. As the sailors pulled the cloth on board they became aware that suspended beneath the fabric was a large metal ring resembling an oversized bicycle wheel, upon which was mounted electronic equipment, all marked in Japanese.

Three months earlier, in August, students at the Yamaguchi Girl’s High School received a visit from a Major from the Kokura military arsenal. He informed the girls they were now members of the Student Special Attack Force, and would be working on a secret weapon which would fly directly to America and would have a great impact upon the war. The girls were thrilled at being asked to participate directly in the war effort, especially considering the traditional subservient and hidden role of Japanese women.

One of the girls, 15 year old Tanaka Tetsuko, explained later. “Stands were placed all over the schoolyard and drying boards were erected on them.... We covered the board with a thin layer of paste...and then laid down two sheets of Japanese (mulberry)  paper and brushed out any bubbles." 

"When dry, a thicker layer of paste, with a slightly bluish hue…. was evenly applied to it. That process was repeated five times".

"We really believed we were doing secret work, so I didn’t talk about this even at home. But my clothes were covered with paste, so my family must have been able to figure out something. We didn't have any newspapers, no radio. We didn't even hear the news announcements made by Imperial General Headquarters. We just pasted paper”  The first of the Fu-Go balloons was released on 3 November, 1944.  Carried by the jet stream it would reach San Pedro just 24 hours later.

Over the next few months some 300 balloons fell to sea and earth off Hawaii and in Alaska, Oregon, Washington State, California, Idaho, Montana, Wyoming, and Texas, as well as British Columbia and Alberta, Canada.

 The balloons were all 33 feet in diameter and made of mulberry paper, glued together with potato flour and then inflated with hydrogen. 

Each balloon was programed during its three to five day flight across the north Pacific to control its height by dropping 2 lb. bags of sand ballast each evening as the gas in the paper envelope cooled.

Once they had flown long enough to be over North America they would then drop their cargo of 33-lb fragmentation and incendiary bombs.  

The production markings made in grease pen by the Japanese workers on the captured "Foo-Go" bombs revealed the balloons had been made only a few weeks before being launched, and even recorded the hours required to make them. 

There was initial panic among officials because of the real fear was that these balloons might carry a biological attack.  American intelligence sources had already heard rumors of the Japanese Unit Number 731, which was experimenting with plagues on prisoners of War in Manchuria. Some 200,000 unwilling test subjects, mostly Chinese, would die in misery as guinea pigs. 

American authorities clamped a total press blackout on any information concerning the balloons, to prevent the Japanese from learning of their effectiveness. 

And they stationed squadrons of fighters along the west coast to seek out and shoot down as many of the approaching balloon bombs as possible. They were able to intercept only 20.  Meanwhile, a search was begun to find their launching point. The Military Geology Unit within the U.S. Geological Survey, provided the answer.

Geologists examined the sand in the ballast bags under a microscope. They found several species of extinct single-celled plants, described by prewar Japanese marine biologists. In addition the sand contained enough trace minerals to narrow their source to one of  two beaches, one of which was at Ichinomiya, Japan. In February of 1945, surveillance flights identified two plants near Ichinomiya which manufactured hydrogen. In April, American B-29 bombers burned over half of Ichinomiya to the ground, and destroyed both of those plants. There was a third plant, left undamaged because it was undiscovered, But without any information on the effectiveness of the 9,300 balloons released by March of 1945,  the Japanese military decided to cut off funding for any future balloons.

On the morning of Saturday, 5 May, 1945, 27 year old Reverend Archie Mitchell and his wife Elsie (above), who was five months pregnant, were accompanying children from their church on a fishing outing to Laenord Creek, at the foot of Gearhart Mountain, five miles outside of Bly, Oregon. The  children's parents were all working overtime to produce lumber and food for the war effort, and the minister and his wife were trying to restore a small piece of a normal childhood lost to the war.  

Archie dropped his wife and the children off at a bend in the road and drove a mile ahead, to the river bank. He unloaded the fishing gear, and had just returned to the car to unload the picnic supplies, when he heard Elsie (above) and the children approaching. Then Elsie call out, "Look what I found, dear.  A weather balloon". Mitchell started to shout a warning not to touch it when one of the boys tried to dislodge the balloon from the tree, and set it off.

 By the time Archie had reached the scene, his wife and unborn child and all five of the other children were dead, peppered with shrapnel.

Sherman Shoemaker, age 11, Jay Gifford, age 13, Edward Engen, age 13, Joan Patzke, age 13, and Dick Patzke, age 14; these and Elsie Mitchell age 26, and her unborn child, were the only American civilian casualties during the Second World War, giving the Japanese balloon bombs a kill rate of just 0.067% of the 9000 balloon bombs launched.

The last of the Japanese balloon bombs was discovered in Alaska in 1955. It’s bombs were still lethal. The remains of another balloon bomb were discovered in 1978 near Agness, Oregon. It can be seen in the Coos County Historical Museum.

But it was not until the 1986 that now 55 year old Tanaka Tetsuko learned what one of the bombs she had helped to construct, had achieved. She and two of her classmates carefully folded 1,000 paper storks, and in 1987 arraigned for them to be delivered to the community of Bly, with her heartfelt apology.

It must be assumed that of the 9,000 “Fu-Go” balloon bombs launched from Japan, roughly 10% reached North America. Even 65 years later, less than 300 have been found. In all probability the bombs from some of the missing 200 of so balloons are still out there, hidden in the underbrush, tangled in tree branches and still capable of killing people, even those who think the Second World War is over and ancient history.

Wars are not fought merely by armies. And their violence does not cease merely because a peace treaty is signed. When Shakespeare wrote in Julius Caesar,  "Cry havoc, and let loose the dogs of war!", he knew exactly what he was talking about.

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A WOODEN LEG NAMED SMITH - The Myth of Capitalism

 

I recently read that the historian Bernard Lewis once considering writing an essay on economics, but confessed he couldn't get past his own first paragraph. He had written, “In the history of human thought science has often come out of superstition. Astronomy came out of astrology. Chemistry came out of alchemy. What will come out of economics?” Its such a good joke, Lewis figured saying anything else would just be repeating himself. Luckily, I have no such inhibitions. But then I also have no problem describing the World War One slaughter of Armenians as a holocaust, which Professor Lewis refuses to do. I guess we all tend to underestimate the power of our own psychology to confuse us...much as the ideologues of economics continue to do.

“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

The Wealth Of Nations

The godfather of capitalism was the fatherless Scotsman, Adam Smith (above). He presented to the world a “large nose, bulging eyes, a protruding lower lip, a nervous twitch, and a speech impediment” He had no love life that we know of, admitting “I am a beau in nothing but my books” And he wrote just two books – which was good because he was a really boring writer. He may be the most quoted lest read author since Moses. He wrote “The Theory of Moral Sentiments”, first published in 1759, and “An Inquiry into the Nature and Causes of the Wealth of Nations”, first published in March of 1776 - a month before the start of the American Revolution.

“If [justice] is removed, the great, the immense fabric of human society... must in a moment crumble into atoms.”

The Theory Of Moral Sentiments

I give the date for the first publications of Smith's books because he never stopped re-writing them. Where the modern author fixes his mistakes by issuing an entirely new manifesto, yearly, Smith reworked his books until he ran out of time. There were four editions to “Moral Sentiments”, and five editions of “Wealth of Nations”. And with each edition they got longer, and more verbose. More than one reviewer has described “Wealth of Nations” as“tedious” and Thomas Jefferson recommend readers consult another author because he “treats the same subject on the same principles, but in a shorter compass and and more lucid manner” than Smith did.

“To widen the market and to narrow the competition, is always the interest of the dealers…who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

The Wealth Of Nations.

The defining moment in American economics was the great depression. Fundamentalists adhere to the Old Time Religion of Roosevelt's New Deal; in time of business down turn, government should prime the pump, putting money into circulation to fuel a business recovery by investing in infrastructure for future development.  Reform Theorists, like the Chicago School, contend the New Deal was actually a total failure. The key to economic stability, in their view, is faith in private enterprise and distrust of government enterprise. Why the generation which actually experienced the depression refused to believe the New Deal was a failure, is never explained in the Chicago School ethos. And they expend a great deal of energy ignoring the godfather of capitalism, Adam Smith, when he virtually screams in both of his methodical works, that private enterprise, if left to its own devices, may be relied upon to destroy its own markets. To paraphrase Karl Marx, capitalism will bury itself. 

“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities (to pay)...”

The Wealth Of Nations.

Of course the first thing you notice when reading Adam Smith is that he never uses the word “capitalism ”. It had not been invented yet. And neither had the word psychology. But both were Professor Smith's subject when he wrote: “Every individual... intends only his own security; and...intends only his own gain, and he is in this...led by an invisible hand to promote an end which was no part of his intention.” And thus we meet Smith's magical “invisible hand”, used ever since he wrote that sentence to justify the greed, waste and “gluttony of the wealthy”, to also quote Adam Smith.  But that same invisible hand, says Smith, must also be guiding the tyranny of a socialist majority - for the greater good.  It is the balance of the two which Smith promotes in his works, not a domination of one over the other. At times he seems to be channeling thinkers like Karl Marx - from a century in front.

“Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods....They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

The Wealth of Nations..

Dubious legend says that Adam Smith was once awakened from a muse to the sound of church bells. Dressed only in his nightshirt, he awoke to discover he had walked, lost in thought, fifteen miles from his home on High Street in Kirkcaldy (below), to the outskirts of Durnfermline (above), Scotland. To have made that journey he would most likely have followed the Invertiel Road southwest to the village of Dalgety, before turning north west to Durnfermline. If he had done so, why did no one from Dalgety stop the lunatic wandering about in his night shirt?  The story reads like the old joke about the man with a wooden leg named Smith. The punch line is "What is the other leg called?"  But the two towns did play an important role in Smith's thinking.

“The man of system…seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that...every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

The Theory Of Moral Sentiments,

Durnfermline had been the ancient seat of Scottish royalty, and had caught the first wave of industrialization, growing rich by mass producing the luxury damask weaves. But the feudal center had been outstripped by the hand looms of the port city of Kirkardy, which had tripled its output of simple linen over ten years (1733 -1743). As a youth Smith had thus seen first hand the power of capitalism to create and to waste, both markets and the lives of the workers and consumers. The citizens of Durnfermline were now left without work, starving and abandoned by a social structure designed for field workers, who ate what they grew. Smith admitted that his invisible hand was always ready to pick a pocket, even if only its own. And the legislature he derided in the above example might be a liberal “socialist” body, or a conservative body protecting its wealthy members. Neither brand of political theater impressed Adam Smith. He  believed in the bible, and in particular its ancient warning about the love of money being the root of all evil. He knew, and preached, that capitalism was not about the "job creators", but about the consumers, the middle class - created by capitalism and feeding capitalism. They are the wealth of a nation - not gold or stock values or stock brokers. Without a healthy, growing middle class there can be no capitalism.  That was the lesson Adam Smith was trying to teach.

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

The Wealth Of Nations

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