Tuesday, December 3, 2019

How 3 wealthy American patriots financed a 16 million loan for War of 1812.. before Whistleblower! THE FOUNDING FORTUNES

How 3 wealthy American patriots financed a 16 million dollar loan for the War of 1812 , initiating investment banking. Then came a whistleblower...
"Parish, Girard and Astor jointly pledged to take more than ten million, but not at the 6% Gallatin (U.S. Treasury) had offered. Rather, they agreed to pay in 88.00 a share and in return to receive an annuity that would yield them 13 years of annual payments that would eventually total the full one hundred dollars per share. The pledged amounts were more than the trio's current combined private fortunes, a considerable risk. Nonetheless, they put up 10 million dollars' worth of the certificates apiece, and resold the rest.
The big purchasers were insurers in Philadelphia, and banks and brokers in new York, and merchants in Baltimore, who all resold the certificates in smaller batches to hundreds, perhaps thousands of individuals. A list of the occupations of some of the individuals to whom Girard's bank sold the bonds included:
boarding school operator, clerk, conveyancer, attorney, widow, sea captain, gentleman, clergyman, bookbinder, financier, commodore, sailmaker, Navy Agent, bricklayer, stove merchant, physician, stock broker, goldsmith and jeweler, brewer, grocer, oil and colourman, shoemaker, storekeeper, iron merchant, distiller and refiner, Collector of the Port, merchant taylor, auctioneer, mahogany merchant, and flour merchant.
The historian of the Girard Bank calls what the wealthy did "the commencement of investment banking in America." It was also a ratification of the nonwealthy's willingness and ability to actively fund the country's activities.
Girard, Astor, and Parish had wished to keep their involvement a secret. However, a Federalist clerk in the Treasury Department stole a document about it from Gallatin's desk, and it was soon publicized. Girard and his bank were then attacked even more virulently by the banks in Philadelphia, and Astor and parish also came under fire. Nonetheless the deal held.
The money enabled the U.S. to keep armies in the field and ships afloat during a very difficult 1813, and the loan-purchase structure of middlemen and small-batch buyers set the pattern for absorption of further loans. Astor, Parish, and Girard continued to pitch in individually, and became public advocates for a new Bank of the United States to buy big loans at wholesale and sell them at retail."
Photos, Astor,Girard,Gallatin


"Throughout the presidencies of Washington and Adams, who both professed to desire abolition, the practice of slavery increased, extending without national governmental opposition into what would become Kentucky, Tennessee, Alabama, and Mississippi."
“This was an American failure, but it should be noted that just then most of the slave-importing trade was British and French: in the decade after the Peace of Paris they made, respectively, 1,073 and 727 slaving voyages to the United States. The expansion of slavery into the new territories also increased as an unexpected result of the awarding of one early national patent, for the cotton gin to Eli Whitney. He had two hopes for his invention: One to make a fortune (which didn’t happen because the gin became so necessary it was widely reproduced without paying him royalties.) His second hope was that since the cotton gin enabled one man to do the work of fifty, it would end slavery. In this, he similarly misjudged human greed: In response to the cotton gin planters bought fifty to a hundred times more acreage and purchased more slaves to work them with the new machines.”


Interview with WAMC's Roundtable is now live! Tom's history of THE FOUNDING FORTUNES provides a great context for tonight's debate.

Why THE FOUNDING FATHERS, who were wealthy men, preferred a rich tax to raise revenue. 
And they favored progressive taxation.

NEW! Atlantic Monthly piece by Tom Shachtman on how the wealthy used their money to show patriotism!

AFTER THE REVOLUTION...Sans Souci Nightclub
The rise of an American middle class began to fulfill the Revolution's promise that property would not be solely reserved for those who already owned a lot of it.
In Boston both the old guard and the nouveau riche flaunted their finery at the Sans Souci nightclub, where two wealthy women proprietors offered costly foods, wines, and entertainments. The high level of ostentation brought condemnation from Samuel Adams as insufficiently republican, and from Mercy Otis Warren in a satirical play, Sans Souci, Alias Free and Easy, or Am Evening's Peep into a Polite Circle. 
"Damn the old musty rules of decency and decorum...Spartan virtues--republican principles," a proprietress says. "They are all calculated for rigid manners...they are as disgusting as old orthodoxy; Fashion and etiquette are more agreeable to my ideas of life--this is the independence I aim at."
The Sans Souci was not an outlier: In this period the pursuit and flaunting of wealth was first acknowledged to be as thoroughly American as waving the flag

Here is a new feature on Founding Fortunes that begins..."Tariffs, taxes on the wealthy, the national debt, regional disparities, keeping manufacturing on these shores, our leaders' public vs. private interests-these are issues present at the birth of this country that retain startling relevance to today's world."

Here also is a new podcast, great interview at end of show!

About Pendulum swings in government from THE FOUNDING FORTUNES by Tom Shachtman, St. Martin's Press 1/2020

"There comes a moment in every pendulum's arc when it slows to a halt before reversing direction and heading toward the apogee. In the spring of 1794, events signaling such a change in direction included Hamilton's resignation; his acknowledgment that the country no longer needed to keep the debt intact to stay united; Gallatin's persuading of the Federalist-controlled House to withhold funding for certain operations until it received adequate assurances on their financial impact; and his instituting of regular Ways and Means Committee oversight of executive branch financial actions. The old direction toward the benefit of the already wealthy was replaced by a new one whose aim was voiced in a toast given at a young men's Republican Society in New York:"Less respect to the consuming speculator, who wallows in luxury, than to the productive mechanic, who struggles with indigence."

Alfred Gallatin and Hamilton bust 

Today 1/20 is pub date for Tom Shachtman's Founding Fortunes from St.Martin's Press.
Here is article in Daily Beast!

For more info on this page, go to:  https://www.facebook.com/TheFoundingFortunes/posts/


LUXURY and other Problems with democracy; John Adams and Madison cautioned the Framers before the constitutional convention...
“In his opus (A Defense of the Constitutions of Government of the United States) Adams addressed head-on a subject to which he framers only alluded, Adams insisting that it was inherent in a democracy and had to be guarded against: “A free people are the most addicted to luxury of any.” It was part and parcel of the promise of America, where people who had very little always had the possibility of gaining more:
‘In a country like America, where the means and opportunities for luxury are so easy and so plenty, it would be madness not to expect (luxury), be prepared for it, and provide against the dangers of it in the constitution....Luxury, to certain degrees of excess, is an evil....The evil lies in human nature; and that must be restrained by a mixed form of government, which is the best in the world to manage luxury.’
The prevention of luxury’s overinfluence was a prime reason for what Adams called the “tripleheaded balance,” the apportioning of governing powers among legislative, executive, and judicial branches in such a manner that each branch acted as a check on the worst urges of the others, and in the legislature, the balancing of a house that drew its members from the poorer ranks of society with a senate that drew its members from those who possessed much more property and education. “If we will not adopt that,” Adams warned, “we must suffer the punishment of our termity.”
Madison identified and even more basic problem.
“If the multiplicity and mutability of (state) laws prove a want of wisdom, their injustice betrays a defect still more alarming; more alarming not merely because it is a greater evil in itself, but because it brings more into question the fundamental principle of republican Government, that the majority who rule in such governments, are the safest Guardians both of public Good and of private rights.
(Society would always be composed of groups holding opposite views., “creditors or debtors-rich or poor-husbandmen, merchants or manufacturers-members of different religious sects-followers of different political leaders-inhabitants of different districts-owners of different kinds of property. In a democracy the only way to prevent domination of one group was to configure a government to encompass all.”)

Imagine if the U.S. declared a war and then discovered there was no money for the Army and there was such debt, they had to shut down money sources? 
Excerpt, Chapter 7, The Founding Fortunes by Tom Shachtman. (1/20/20 St. Martin's Press-Macmillan)
"We can no more support the Army without cash, than the Israelites could make bricks without straw, Nathaniel Greene wrote to Washington....and he accompanied the observation with a letter to Congress urging a redoubling of efforts to supply the army and resigning as quartermaster general. The states' response to renewed appeals for help was meager.
That the army was nonetheless supplied during this critical period prior to the French sending larger forces to assist the United States is overlooked by many history books. The heroes were not well-known leaders; they were the dozens and dozens of quartermasters and commisssaries who, when government money and credit were exhausted, spent their own money, and then their own credit, and then the credit of their friends and relatives, to obtain supplies:
"My Credit is nearly sunk with the people here from my not being able to comply with my promises to them,"one such quartermaster wrote. "They now declare they will not part with their property in future to the public without the Money (cash) laid down to them." Estimates of how deeply these government agents wehnt into debt on the country's behalf range from one to five million dollars. Most were never repaid.
Three factors exacerbated the supply problem. Two were beyond Congress' power to control: the British naval blockade and the Hession Fly infestation that devestated grain crops. The third was provided by Congress itself, in an attempt to stem depreciation.In late summer 1779, the members had become frightened upon learning the amount of the country's debt, the sum total of all thos omitted Continentals, had reached 160 million. This should not have been news to them, but they acted as though it was, on September 3 ordering the shut down of the of the printing presses once the total reached $200 million.

THE FOUNDING FORTUNES: How the Wealthy Paid for and Profited from America's Revolution by Tom Shachtman (St. Martin's, January 2020)

SO, the Wealthy not only made our Revolution winnable but passed a Constitution to benefit the poor--even at their expense! WHO WERE THESE PEOPLE?

 In 2020, "Tax the Rich" may seem to some people a fair approach to balancing the distribution of our nation's wealth. But as Tom Shachtman shows in THE FOUNDING FORTUNES (St. Martin's Press (January 2020), the United States owes its existence to the wealthy who financed our revolution and, in the 30 years following the achievement of political independence, guided the new nation to economic independence--often at great personal cost.

Our origin story rightfully celebrates such poor and working-class heroes as Sam Adams, Paul Revere, and the brave ragtag farmers of the Continental Army who stood up to the redcoats. We also know about the roles played by that wealthy Virginia planter George Washington and by Boston’s John Hancock but our story often overlooks the other wealthy who contributed a great deal to the birth of our country, some profiting at the same time, others  losing their shirts. Among them were S. Carolina Plantation owner Henry Laurens, who came late to the Revolution, privateer magnate Elias Hasket Derby, international traders Robert Morris, William Bingham, Jeremiah Wadsworth, and the immigrant Stephen Girard. There were fortunes to be made in the Republic's early years. Even Abigail Adams became a skilled currency speculator.

THE FOUNDING FORTUNES looks into the lives of the men, and some women, who practiced an “economic patriotism,” which often entailed giving up profits to support the very long war with Great Britain and then the new government. Some eventually lost everything – Robert Morris ended his life as a bankrupt, and Laurens was not far behind, while others, such as Morris’s junior partner Bingham, made fortunes that lasted into the 20th century.

Why were these economic patriots able to rise above concern with "the bottom line," when others of their merchant class could not?  Shachtman argues that the economic patriots had a sense of the long term, and that "Freedom for all" meant extending to all classes the opportunity to climb the ladder of success. As Kirkus Reviews puts it, the book’s “provocative argument [is] that wealthy men built America and did a good job.”  They constructed a Constitution that balanced the rights of property owners with the need for democratic representation. They also avoided the tyranny of kings by having power shared between the Executive, Congressional, and Judicial branches.
In our era, lawmakers face some of the same problems as the primarily wealthy men of the new republic did – tariffs, taxes on the wealthy, the level of the national debt, the census as it affects finances, the ratio of imports to internally-manufactured goods, and other hot-button economic issues. 

From before the revolution and through the presidencies of Washington, Adams, Jefferson, and Madison, THE FOUNDING FORTUNES shows how nation-building and the economy took shape, stumbled, was righted, and began the foundations of a world-class economic power. In an intriguing critique, the book contends that our history has overlooked the extensive contributions of the Jefferson-Madison years, and Treasury Secretary Albert Gallatin, because of the current popular appeal of Jefferson’s long-term rival, Alexander Hamilton.  

Also examined are the economics of the slave trade as brought to the colonies by the British and the role of slavery in the economic calculus of the Revolution. Though castigated by every president as an evil that needed eradicating, slavery was nevertheless tolerated in an awful compromise that ensured the adoption of the Constitution. 

Today, as the United States re-examines the nation's direction and how to deal with the accelerating gap that separates billionaires from the vast majority of citizens, THE FOUNDING FORTUNES provides new insight. Our country’s creators, among the wealthiest men of their time, worked to establish the economic and political structures of a new nation. While fine-tuning a society dedicated to protecting their property, they also provided economic opportunities for people at all levels of income. The wealthy and the non-wealthy united in common cause.  Has that value, so esteemed by our forefathers, gone completely out of style?  Or is it a clarion call for America’s future in the 21st century?  THE FOUNDING FORTUNES is both provocative and wise.