History littered with leaders who underestimated the power of the people

A Silver Medal for Gallantry, at the Battle of Bunker Hill, from King George III to Captain Peter Ewing of the Royal Marines, dated June 17, 1775, realized $32,000 at a June 2012 Heritage auction.

By Jim O’Neal

It is fascinating to watch the mass demonstrations in Hong Kong and speculate how the central government in Beijing will quell the unrest. It could end up badly if President Xi Jinping decides to ensure there is no uncertainty over the ultimate authority that still rests comfortably on the mainland … and resorts to force.

Hong Kong (Island) became a colony of the British Empire after the First Opium War (1839-42), then expanded to include the Kowloon Peninsula after the Second Opium War in 1860. Finally, Britain obtained a 99-year lease in 1898. After the lease expired in 1997, Hong Kong has exploded into one of the major financial centers of the world. It is home to many of the world’s ultra-rich and has managed to squeeze 7 million to 8 million residents into its 317 skyscrapers, the most of any city in the world. It has a first class, 21th century economic model that is widely admired.

The protesters’ beef is over governance, since HK has an autonomous system with executive, legislative and judicial powers devolved from the mainland (two systems, one country). They are resisting a proposal that would dilute the judiciary by moving criminal indictments and trials to Beijing. Small wonder since the conviction rate is almost 100 percent. If President Xi does move forward (at least now), it would be a classic mistake that many others have made. History is littered with leaders who underestimated the power of the people they govern.

Eight hundred years ago, King John of England experienced a similar revolt by English nobility against his rule. The king met with the barons and affixed the Royal Seal to a peace agreement that became known as the Magna Carta (Great Charter). The implications of the Magna Carta were quite modest with respect to what the king agreed to.

He guaranteed to respect feudal rights and privileges, to uphold the freedom of the church and maintain the nation’s laws. However, later generations have come to view it as the cornerstone of a democratic England.

King John inherited the crown after the death of his brother, Richard the Lionheart, when he was on crusade in 1199. By 1215, he was viewed as a failure after raising taxes on the nobility to compensate for losing Normandy to the French. He also frequently quarreled with Pope Innocent III and even sold church properties to replenish the royal coffers. In return, he was formally excommunicated.

But importantly, just by signing the Magna Carta, it implied that the king was obliged to follow certain laws and avoid any future claim of absolutism. Several earlier monarchs had talked about the king having some sort of “divine immunity.” Then there was also clause 39 (of 63) that stated “no freeman shall be arrested or imprisoned … or outlawed or exiled … except by the lawful judgment of his peers.” This clause has been celebrated as our own guarantee of a jury trial and habeas corpus.

In one aspect, all of this was actually moot since another civil war erupted almost immediately and both King John and the barons disregarded their commitments after the pope annulled the Magna Carta. Fortunately, King John died the following year (1216) and his 9-year-old son, Henry III, inherited the crown. Under the auspices of his guardian William Marshall, the Magna Carta was revived and eventually it formally entered English statute law.

Closer to home, it’s safe to assume that when 22-year-old King George III succeeded to the British Crown in 1760, most American Colonists considered themselves Britons and subjects of the king (but not Parliament). However, this system started to unravel after the Seven Years’ War of 1756-63 when Great Britain started imposing higher taxes on the Colonies. One glaring example was the large British garrisons established after the war; Colonists were required to pay all costs to maintain them.

This was followed by the Sugar Act of 1764 and the pervasive Stamp Act in 1765. Next was the Declaratory Act of 1776, when it became obvious that the Parliament of Great Britain was intent on extending its sovereign power into every nook and cranny of daily colonial life. Loyalty to the king was one thing, but to allow Parliament to impose new taxes at will and without any representation or discussion was quite another. It proved a bridge too far, but no one in England was sympathetic to the whinges from across the ocean.

Enter a man named Thomas Paine, who believed that arguments over equality, excessive taxes, or lack of representation or divided loyalty were wrong. He helped shift the focus to one of separation and unrestricted independence. Gaining support for his views was difficult due to slow communications in the Colonies and the subtle complications to men of little education. Newspapers were notoriously inadequate due to erratic distribution and lack of coherence.

What distinguished Paine was his remarkable ability to synthesize the issues and offer ideas that the general population could grasp. Further, he was a pamphleteer extraordinaire and authored “Common Sense,” which was perfect for the masses to understand. It was an immediate success – the equivalent of 18th century social media (which spawned the “Arab Spring” we witnessed in the Middle East). Suddenly, the momentum shifted to “Give Me Liberty or Give Me Death,” instead of untimely complaints.

Ever disdainful and out of touch, Lord Sandwich, First Lord of the Admiralty, pronounced to the House of Lords in March 1775: “Of the Colonies … they are raw, undisciplined cowardly men.” More famously, British Army officer James Grant proclaimed in the House of Commons that Americans could not fight because “they drink, they swear, they whore” and that he would “undertake to march from one end of the continent to the other with but 5,000 regular British soldiers.”

Pity King George (now 37), who had never been a soldier, had never been to America or even set foot in Scotland or Ireland. But, with absolute certainty, he believed his trust in providence and high sense of duty. Nagged by his mother – “George, be a king!” – America must be made to pay. Inevitably, war came on April 19 with the first blood at Lexington and Concord and then savagely at Bunker Hill. On June 3, General George Washington had taken command of the “American Rabble.”

Game on!

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Throughout U.S. history, a lot of money has been made from tobacco

Peter Stackpole’s gelatin silver print titled Camel Cigarette Billboard Sign, Times Square, 1944, went to auction in 2013.

By Jim O’Neal

In 1976, while planning a new Frito-Lay plant for Charlotte, N.C., a small group of us made a trip to Winston-Salem to visit R.J. Reynolds Tobacco. They had spent $1B on a computer-integrated manufacturing plant (C.I.M.) that was recognized as the largest and most modern cigarette plant in the world. We were interested in the latest automation technologies available for possible application in our new plant.

My two most vivid memories include the pervasive odor outside the plant that I (correctly) identified as menthol. This was not too tough since the plant was the major producer of Salem brand cigarettes (I assumed the rest were Winstons, given the town we were in). Second was that every single manager we met was a heavy smoker, with the biggest clue being the distinctive deep-yellow stain between their index and middle fingers. It was like being in a 1940s Bette Davis movie.

We finished up with an enjoyable dinner with David P. Reynolds, chairman emeritus of Reynolds Metals, whom I had known since my days involving aluminum foil and beer cans. He amused the group by telling old company stories, including “Lucky Strike Green Goes to War.” It seems that in 1942, they wanted to change the package design by substituting white ink for the more familiar green. Both copper and chromium were expensive ingredients in the green ink, so it simply “went to war” (and never returned). There was another story involving Camel and Kaiser Wilhelm (the original name favored for the cigarette that debuted in 1913). I don’t remember the details, but the moral of the story was … never name a product after a living person.

Later, I learned about Operation Berkshire, a secret 1976 agreement between all tobacco CEOs to form a collective defense against anti-smoking legislation (anywhere). Each pledged to never concede that smoking had any adverse health effects. We all recall the “Seven Dwarfs” testifying in April 1994 to the U.S. Congress (under oath) that nicotine was not addictive and smoking did not cause cancer. Movie tip: The Insider starring Russell Crowe ranks No. 23 on AFI’s list of the “100 Greatest Performances of All Time.” It tells the tobacco story of today brilliantly.

Lucky Strike was introduced as chewing tobacco in 1871, evolving into a cigarette by the early 1900s.

More than 400 years earlier, in 1604, King James I had written a scathing rebuke to the evils of tobacco in A Counterblaste to Tobacco. He was the son of Mary, Queen of Scots, and ascended to the English throne when Elizabeth I died childless. He wrote of tobacco as “lothsome to the eye, hatefull to the Nose, harmefull to the braine, [and] dangerous to the Lungs.” He equated tobacco with “a branche of the sinne of drunkenness, which is the roote of all sinned.”

Tobacco was late to arrive in England. Fifteenth-century European explorers had observed American Indians smoking it for medicinal and religious purposes. By the early 16th century, ships returning to Spain took back tobacco, touting its therapeutic qualities. The Iberian Peninsula eagerly adopted its use.

When English settlers arrived in Jamestown in 1607, they became the first Europeans on the North American mainland to cultivate tobacco. Spotting an opportunity in 1610, John Rolfe (of Pocahontas fame) shipped a cargo to England, but the naturally occurring plant in the Chesapeake region was considered too harsh and bitter. The following year, Rolfe obtained seeds of the milder Nicotiana tabacum from the Spanish West Indies and soon production was rapidly growing and spreading to Maryland. By the middle of the 18th century, Virginia and Maryland were shipping nearly 70 million pounds of tobacco to Britain.

Even as many Colonial leaders in America believed that smoking was evil and hazardous to health, it had little effect on the relentless spread of tobacco farming. By the eve of the Revolutionary War, tobacco was the leading cash crop produced by the Colonies. Exports to Britain rose to over 100 million pounds … 50 percent of all Colonial trade. Never was a marriage of soil and seed more bountiful.

But tobacco cultivation and manufacturing were extremely labor-intensive activities. Initially, white indentured servants were used to harvest the crop and inducements to come to America often came in the form of a formal “indentured servitude” agreement. Typically, in exchange for agreeing to work for seven years, the servant would receive his own land to farm. This system was preferred over slavery; losing a slave was seen as more costly than losing an indentured servant.

Then the economics started shifting as land became scarcer and slaves more plentiful due to King Charles II. He decided to create the Royal African Company of England and grant it a monopoly with exclusive rights to supply slaves to the Colonies. Then, with the explosion of cotton production, there was an enormous demand for more slaves.

A cynic might note that the formation of the United States was first led by men from Virginia and then governed by them. President Washington, followed by Thomas Jefferson, James Madison and, finally, James Monroe … four of the first five presidents … all from Virginia and all with slave plantations.

Throughout our history, there has been a lot of money made from tobacco. As the plant manager at that C.I.M. plant explained, “We ship about 800 rail cars filled with cigarettes every eight hours and they come back loaded with cash.”

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Solving a problem starts with understanding it

Bank of England notes printed on denominated watermarked paper, like this 1914 example, often appear at auction.

By Jim O’Neal

The venerable Bank of England, established in 1694, was known colloquially as “The Old Lady of Threadneedle Street.” This moniker derived from its address in Central London and the English propensity to “tut tut” anything considered disdainful. She took deposits, made loans and financed wars. None of the directors was a banker or even an economist. It was essentially merchant/businessmen who guarded the precious pound sterling, the lifeblood of the economy.

In August 1931, the bank issued an odd press release: “The governor of the Bank of England has been indisposed as a result of the exceptional strain to which he has been subjected in recent months. Acting on medical advice, he has abandoned all work and has gone abroad for rest and change.” That governor was Montagu Norman, the last of the four great Central Bankers (Britain, France, Germany and the United States) to still be alive. Governor Norman had a strange aversion to the press and was notorious for his clever ways to avoid them.

So it was a surprise when he openly explained his trip by ship to Canada: “I need a rest … suffered very difficult times … my health is poor, etc.” What he failed to mention was his incapacitation due to a nervous breakdown or that the world’s financial system was on the verge of collapse. This was especially true of the European banks, where he was revered as the world’s most powerful banker and, as he would later be forced to admit, he was unquestionably “the dictator of European currency,” a role he cherished to all others.

The bank’s press release had been received in Asia, the United States and, naturally, Europe and had further spooked anxious investors since this man was considered the thought leader of “the most exclusive club in the world” … Central Bankers. And 1931 was just the second year of what would become the unprecedented Great Depression that followed the collapse of the U.S. stock market on “Black Tuesday” in 1929. The effect on the United States can be explained by four simple indices from 1929-32: industrial production (46 percent), wholesale prices (32 percent), foreign trade (70 percent), and unemployment (607 percent!).

Supply-demand economists typically point to the event when a stock-market bubble bursts (as in the U.S.) and results in bank failures, bankruptcies and widespread economic devastation. Later monetarists led by Milton Friedman point to the contraction in money supply as a bigger culprit. Ex-Federal Reserve Chairman Ben Bernanke now agrees with Friedman and we’ve seen the results of quantitative easing during the 2008 Great Recession followed by 10 years of slow recovery.

I have a different perspective. The cause was pure greed. “Virtual casinos” inside banks were making big bets using customers’ money and outrageous leverage. A housing bubble combined with subprime lending was accompanied by exotic structured products like collateralized debt swaps, mortgage-backed securitization, and a slew of other complicated derivatives that nobody truly understood. They were approved by rating agencies and sold to unsuspecting investors (including other financial firms). Once the housing market collapsed, it exposed all the other high commission, risky products.

This difficult-to-understand situation was simplified by writer Michael Lewis in his book and movie The Big Short. My idea is to have him do something similar to our health-care system (which everybody agrees is terrible … like most of the ideas to fix it). I suspect it could all be cleaned up by having a truly transparent price-based system and eliminating an incomprehensible fee structure that lacks an outcome-based tracking system by hospital, doctor or other caregivers. It is too important to leave to Congress.

Mr. Lewis, I hope someone can get your attention … I am busy this week.

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Roosevelt selected a running mate who now ranks among the best

A pencil portrait of Franklin Roosevelt by E.A. Burbank, dated 1939 and signed by both, sold for $2,270 at a June 2008 auction.

“I hardly know Truman.” – Franklin Delano Roosevelt (1944)

By Jim O’Neal

President Franklin Roosevelt was a tired and worn out man. The worry aroused by his appearance was more than justified. Unbeknown to all but a few, he was suffering from a progressive, debilitating cardiovascular disease. Several elite cardiologists agreed he would be dead within a year, especially if he decided to run for a fourth term. But FDR was determined, and told a few close confidants that he would resign as soon as WWII was concluded satisfactorily.

He had ventured into national politics when his name, youth and political strength in populous New York led to his nomination for vice president in 1920. The DNC had met in June in San Francisco and picked James Cox for the president slot. However, the Republican ticket of Warren Harding and Calvin Coolidge won easily.

The following year, the 39-year-old Roosevelt contracted poliomyelitis while vacationing at the family’s summer home on Campobello Island in Canada. He was crippled in both legs, permanently. In a show of intestinal fortitude, he mastered the use of leg braces, crutches and a wheelchair; he built his upper-body strength by swimming. He demonstrated his new skills in dramatic fashion in June 1924 at the National Democratic Convention.

He rose from a wheelchair and, unassisted, walked to the speaker’s rostrum and nominated Al Smith for president. The crowd went wild after Roosevelt crowned Smith “the Happy Warrior of the political battlefield.” Smith ultimately lost the nomination that year; four years later in 1928 he won the nomination but lost the election to Herbert Hoover. The economic good times favored the better-known Hoover, but there was also the lingering issue of Smith’s Catholicism. This would remain an issue until 1960 when Jack Kennedy would vanquish it permanently.

In 1930, FDR was re-elected governor of New York. In the wake of the stock market crash, he convinced the legislature to provide $20 million to the unemployed. This was the first direct unemployment aid by any state and was a harbinger of bigger government programs. It was also a springboard to the 1932 Democratic nomination for president. FDR was so energized that he flew to Chicago to accept – the first time a nominee accepted in person.

No one was surprised at the results of the 1932 election, when FDR defeated Hoover in a landslide. The country had turned on Hoover and the Republicans and was eager and impatient to have the new president installed. This led directly to the 20th Amendment of the Constitution, which advanced the presidential inauguration to Jan. 20 and Congress to Jan. 3. Alas, it didn’t go into effect until 1933. Hoover was full of ideas on how to help the new president, but Roosevelt was less willing to accept any advice, since he had his own plans.

And so it began. With a soothing voice and supreme self-confidence, Roosevelt rallied a fear-ridden country to overcome the Great Depression. With a New Deal, he provided social justice; security to the aged; relief to the unemployed; and higher wages to the working man. He revamped the federal government, adding scores of new agencies and reshaping the Democratic Party from states’ rights into a Hamiltonian model of a strong central government.

Twelve years went by fast, and the last days of the Second World War required a series of critical decisions and it started with a decision on a fourth term. His trusted advisers saw defeat unless something was done about VP Henry Wallace. A plant geneticist by profession, he had become very popular as an author, lecturer and social thinker. To the “wise men,” he seemed pathetically out of place and painfully lacking in political talent. But there was more concern over the president’s declining health, which could no longer be ignored. All realized that the man nominated to run with Roosevelt would probably be the next president.

That man turned out to be Senator Harry Truman from Missouri. Together, they would win the 1944 election; 82 days after taking office, Truman would become president when FDR died on April 12, 1945. He would end the war as expected, win re-election in 1948 and become embroiled in another war, this time with Korea. However, with each passing year, Truman continues to gain in stature and now often polls among the top 10 best presidents.

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].