Adam Smith – The Intelligent Collector Magazine

Are we ready to continue building this great nation?

Two weeks before the Treaty of Paris ended the Spanish-American War, Princeton Professor Woodrow Wilson in this letter to an anti-imperialist says it’s too late to protest and that the focus should be on the “momentous responsibilities” facing the nation.

By Jim O’Neal

Many historians believe that the European exploration of the Western Hemisphere (1500 to 1800) was one of the most transformative eras in the history of civilization. The great Scottish philosopher Adam Smith (1723-1790) took it a step further and labeled it “one of the two greatest and most important events recorded in the history of mankind.” Much of the modern world is a direct result of these 400 years of colonization and transference of culture. In the end, the world seemed inexorably on the way to what we now call “globalization.”

It seems overly dramatic to me (and omits great chunks of transformative periods) but also unambiguously clear that – despite the broad participation of other important nations – the people from England and Spain had the most influence on the vast territories of the New World. However, these two genuinely great empires ultimately evolved into dramatically different societies. Also in the crystal-clear category is that, in the end, they both managed to dissipate the powerful advantages they had created.

A quick snapshot of the world today confirms this devolution. The once mighty Spanish Empire is reduced to a relatively small, unimportant European nation (with a shaky economy, disturbing brain drain and geographic unrest). The other powerful empire of even greater influence in the world is now back to being a small island, wracked with political dissent over further retreat from the European Union (Brexit) and a dangerously unstable government.

In their place is the most powerful, democratic, innovative nation in the history of the world. But even the remarkable United States has developed troubling signs that pose a real threat to a continuation of prosperity. If we don’t find a way to reverse the issues that divide us (basically almost every single issue of importance) and close the inequality gap, our future will inevitably end up like those that went before. An economic boomlet has masked deep, difficult issues that politicians are blithely hoping will somehow be solved by some unknown means. We lack leadership at a time when Waiting for “Superman” is not a prudent strategy.

Some believe we are in a steady decline and that China will surpass America in many important areas this century. However, that is pessimistic conjecture. It’s more useful to re-examine the factors that propelled us to a pinnacle of unprecedented prosperity. I find it more interesting to visit the past rather than speculate on a future with so many possible outcomes (e.g. extinction via asteroid collisions, interstellar travel or a billion robots with superior intellect). It is an unknowable with questionable benefits.

One simplistic way is to skip our story of independence from England and correlate the decline of the Spanish Empire with our annexation of the Spanish-speaking borderlands. It broadly occurred in three phases, starting with the annexation of Florida and the Southeast by 1820. This was followed by California, Texas and the greater Southwest by 1855. Mexico lost 50 percent of its land and up to 80 percent of its mineral wealth. The final phase occurred with the Spanish-American War of 1898, which added Central America and the Caribbean to complete the New American Empire.

Virtually every American president was complicit in varying degrees, bookended by Thomas Jefferson and Teddy Roosevelt, who wrote as if this was preordained by a benevolent entity. With immigrants flowing into the East, the promise of free land and the lure of gold in California, the land between the oceans became steadily populated and blended. The short war with Spain was merely the capstone for a century of annexation, population growth and a perfect balance of territory, people and economic development. The motivation was clear (“sea to sea”) and the manipulation perfectly illustrated by this anecdote:

Publisher William Randolph Hearst (eager to have a war to sell more newspapers) hired Frederic Remington to illustrate the revolution erupting in Cuba. In January 1897, Remington wrote to Hearst, “Everything is quiet. There is no trouble. There will be no war. I wish to come home.” Hearst quickly responded, “Please remain. You furnish the pictures and I WILL FURNISH THE WAR.”

A year later, the Treaty of Paris was signed and Spain relinquished all claims of sovereignty and title to Cuba (long coveted by the U.S. for its sugar and labor), then ceded Puerto Rico and Guam to America. The Philippines was (much) more complicated. The islands had been under Spanish rule for four centuries and waging a war for independence since 1896. The U.S. Navy prevailed and Spain sold the Philippines to the U.S. for $20 million. However, Filipino nationalists had no interest in trading one colonial master for another. They declared war on the United States. Finally, in 1946, the U.S. recognized the Philippines’ independence.

And that, dear friends, is how you build (and lose) an empire.

In a different time, we would simply annex the rest of Mexico, eliminate the border with Canada and create a North American juggernaut to counter China and end squabbling over a wall. We could help Mexico (now perhaps a few U.S. states), eliminate drug cartels, develop the entire Baja California coastline to match Malibu and take advantage of the outstanding Mexican labor force to rebuild infrastructure. All the wasted money on border security (DHS, ICE, asylum, deportations, etc.) would be spent rebuilding old stuff.

But, I will need your vote for 2020! (I feel certain Adam Smith would agree.)

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].

Floridians seem too busy enjoying the sun to worry about sea levels

Hermann Ottomar Herzog’s oil on canvas *Fishing on the Gulf Coast, Florida*, sold for $150,000 at a May 2017 Heritage auction.

By Jim O’Neal

Many people typically think of American colonization in terms of English exploration and the establishment of eastern settlements like Jamestown, Va. (1607), the first permanent colony. Or perhaps even the slightly more renowned Massachusetts Bay Colony (1628-91) and Plymouth Colony (just south), which was founded by Separatist Pilgrims seeking freedom from the edicts of the Church of England.

However, the fact is Spanish explorer Juan Ponce de León (1457-1521) was the first European to touch what is now the mainland of the United States. He accompanied Christopher Columbus on his second voyage to the New World in 1493 as one of several hundred “gentlemen explorers.” This voyage landed in Hispaniola (now the Dominican Republic and Haiti) as Columbus never actually set foot in North America.

Ponce de León leveraged his military prowess to win an appointment from King Ferdinand of Spain to become the first governor of Puerto Rico. This was followed by his maiden voyage to the mainland, where he discovered La Florida (Land of Flowers) in 1513. He would die eight years later, after a battle with native Calusa people, without establishing a permanent settlement. The mythical tale of his search for a magical “Fountain of Youth” began circulating after his death. He was interred in Puerto Rico and his tomb is in the Cathedral of San Juan Bautista. Some speculate that more than 30 percent of Puerto Ricans are in his lineage.

The arrival of Europeans, primarily from Spain and England, has been described as the “most astounding clash of civilizations in history.” Scottish philosopher Adam Smith called it the “greatest and most important event in the history of mankind.” Spain dominated world exploration from the 15th to 17th centuries and was the first to own the description of an “empire on which the sun never sets.” This title shifted to the British Empire in the 18th and 19th centuries as the British Navy became the world’s most powerful force.

The devastation these incursions into the Western Hemisphere had on native populations almost defies comprehension. In 1492, Hispaniola had 1 million inhabitants; 20 years later, it had dwindled to 46,000. America’s native population was estimated at up to 100 million. An average of 1 million perished annually for most of the 16th century. It has been labeled “the greatest genocide in human history.”

The first official voyage to Florida is a microcosm of the relentless force of conquest. Spain traded it to Great Britain in 1763 for control of Cuba. The United States claimed ownership after the Louisiana Purchase (1803), and it gained statehood (no. 27) on March 3, 1845, after the Indian Removal Act and Andrew Jackson defeated the Seminole. Florida became a slave state, seceded from the Union and became part of the Confederacy.

During the next century, Florida would suffer through killer hurricanes, tornadoes and severe freezes. Then came the Great Land Boom of the 1920s when the city of Miami turned itself into a real estate cornucopia; 100,000 people were getting rich selling lots to each other. Some land was sold 10 times a day and the bubble was getting bigger every hour. One cabdriver drove a couple down from New York, took the $1,300 fare and invested it. Within three days, he was a millionaire. Another man sold his place in an auction line, went to another location and parlayed his money into $5 million.

One day, the merry-go-round stopped and those still holding tickets were broke!

Today, Florida has recovered from the 2008 real estate bubble, has a $1 trillion economy (fourth in the U.S.), a population of over 20 million (third largest), and is home to more than 451,000 millionaires (a fact) … and property is hot again.

One Achilles’ heel is that the state is a long peninsula and 75 percent of its people live within 10 miles of the coastline. The state is very flat. The highest point is 345 feet above sea level, which is the lowest high point in any state. It is easy to visualize rising sea levels endangering a state already known for its swamps. But Floridians seem relaxed about the risk. They are too busy flipping houses and enjoying the sun, sand and nightlife.

Cheers!

Despite numerous failed examples, socialism still fascinates some people

An 1872 presidential campaign banner for Horace Greeley sold for $40,000 at a December 2016 Heritage auction.

By Jim O’Neal

Many credit the famous 19th century motto of “Go West, young man” to newspaperman Horace Greeley for a line in a July 1865 editorial. However, there is still a debate over whether it was first penned by Greeley or the lesser-known John Soule in an 1851 edition of the Terre Haute (Ind.) Express. Either way, the dictum helped fuel the westward movement of Americans in our quest for Manifest Destiny (“From sea to shining sea”). Clearly, Greeley helped more to popularize the concept due to the great influence of his successful newspaper.

Greeley was much less successful as a politician. He was sent to Congress in 1848 in a special election to represent New York. His colleagues groused that the brief three months he spent there were primarily devoted to exposing Congressional corruption in his newspaper rather than passing legislation. He was unable to generate any meaningful support for re-election, which relegated him back to his real interest, which was reporting on news and exposing crooked politicians.

Despite this setback to his political career, Greeley remained a powerful force in American politics throughout the entire Civil War period and beyond. After exposing the corruption in the first term of the Grant presidency (1868-1872), he found himself in the curious position of being the presidential candidate for both the Democratic Party (which he had opposed on every issue for many years) and the Liberal-Republican Party (which was an offshoot that objected to the corruption).

The 1872 presidential election was especially bitter, with both sides resorting to dirty tricks and making wild allegations against each other. Grant won the Republican nomination unanimously and as the incumbent, chose not to actively campaign. Greeley was a virtual whirlwind, traveling widely and making 20 or more speeches every day. A cynic observed that the problem was it was the wrong message to the wrong audience, but fundamentally, the issue was that Greeley was simply a poor campaigner and Grant was still a very popular president/general.

Grant easily won his re-election bid for a second term with 56 percent of the popular vote and Greeley died on Nov. 29 – just 24 days after the election and before the electoral votes were cast or counted. This is the first and only time a nominee for president of a major party has died during the election process. Grant went on to snag a comfortable 56 electoral votes as the others were spread among several candidates, including three for the deceased Greeley (which were later contested).

Thus ended the life of Horace Greeley (1811-1872), who had been founder and editor of the New-York Tribune, arguably in the top tier of great American newspapers. Established in 1841, it was renamed the New-York Daily Tribune (1842-1866) as its daily circulation exploded to 200,000. Greeley was endlessly promoting utopian reforms such as vegetarianism, agrarianism, feminism and socialism. In 1852-62, the paper retained Karl Marx as its London-based European correspondent to elaborate on his basic tenets of Marxism.

Great Britain had just finished its decennial census, which put the population at precisely 20,959,477. This was just 1.6 percent of the world’s population, but nowhere on the planet was there a more rich or productive group of people. The empire produced 50 percent of the world’s iron and coal, controlled two-thirds of the shipping and accounted for one-third of all trade. London’s banks had more money on deposit than all other financial centers … combined! Virtually all the finished cotton in the world was produced in Great Britain on machines built in Britain by British inventors.

The famous British Empire covered 11.5 million square miles and included 25 percent of the world’s population. By whatever measurement, it was the richest, most innovative and skilled nation known to man, and in London – where he was living the good life – primarily on his friend Friedrich Engels’ money – Marx was still churning out socialist propaganda. He made no attempt to explain that for the first time in history, there was a lot of everything in most people’s lives. Victorian London was not only the largest city in the world, but the only place one could buy 500 different kinds of hammers and a dazzling array of nails to pound on.

While Marxism morphed into Bolshevism, communism and socialism – polluting the economic systems of many hopeful utopians like Greeley – capitalism and the market-based theories of Adam Smith (“the father of modern economics”) quietly crept over America almost unnoticed. Despite the numerous failed examples of socialism in the real world, there will always be a new generation of people wanting to try it.

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].

Cotton Gin Extended America’s Abhorrent Practice of Slavery

The 1796 patent signed by George Washington for “new machinery called the Cotton Gin” realized $179,250 at a May 2011 Heritage auction.

By Jim O’Neal

In 1776, Scottish economist, philosopher and teacher Adam Smith wrote The Wealth of Nations, a book that helped create a new understanding of modern economics. A pervasive theme was the idea that any economic system could be automatic and self-regulating if it was not burdened by monopolies or artificial trade barriers. This theory has become widely known as “the invisible hand.” It heavily influenced my favorite economist Milton Friedman and his Free to Choose basic philosophy.

One highly topical insight was that slavery was not economically viable and contributed to inefficient markets. Aside from the obvious moral issue, Smith believed slave owners would benefit by switching to a wage-labor model, since it was much more inexpensive to hire workers than own them and provide decent conditions. Buying slaves was much more costly due to ongoing expenses of feeding, housing and caring for workers with a high mortality rate, workers who eventually would have to be replaced.

In the United States, there was also a major disconnect between the concepts of all men being created equal and the cruel practice of slavery, which was prevalent especially in the agrarian states of the South. Although many sincerely believed that slavery would gradually die out, powerful Southern states needed some kind of assurances before they agreed to the new federal Constitution. Section 9 Article 1 of the Constitution barred any attempt to outlaw the slave trade before 1808. Other provisions prohibited states from freeing slaves who fled from other states, and further required them to return “chattel property” (slaves) to their owners. Kicking the issue down the road 20 years enabled the delegates to reach a consensus.

Historian James Oliver Horton wrote about the power slaveholder politicians had over Congress and the influence commodity crops had on the politics and economy of the entire country. A remarkable statistic is that in the 72 years between the election of George Washington (1788) and Abraham Lincoln (1860), in 50 of those years, the president of the United States was a slaveholder; as was every single two-term president.

The passage in 1807 of the Act of Prohibiting Importation of Slaves in America, and the Slave Trade Act in Great Britain marked a radical shift in Western thinking. Even as late as the 1780s, the trade in slaves was still regarded as natural economic activity. Both U.S. and European colonies in the Caribbean depended on slave labor, which was relatively easily obtained in West Africa.

However, it was really the invention of the cotton gin by Eli Whitney in 1793 that dramatically extended the abhorrent practice of slavery. Cotton was suddenly transformed from a labor intensive, low-margin commodity with limited demand into a highly lucrative crop. Production in Southern states exploded as demand skyrocketed. The number of slaves grew concurrently from 700,000 in 1790 to 3.2 million by 1850. The United States quickly grew into the largest supplier in the world and snagged 80 percent of the market in Great Britain, whose appetite seemed insatiable.

As an economist, Adam Smith was undoubtedly right about hiring workers versus owning them, but everybody was too busy getting rich to worry about optimizing labor costs. And the more demanding abolitionists in the industrializing North denounced slavery the more Southern states were determined to retain it. It would take a bloody four-year Civil War and 630,000 casualties to settle it.

Harry Truman once explained why he preferred one-armed economists: It was because they couldn’t say “On the other hand…”

Insidious Practice of Slavery Violated Every Principle that Men of Goodwill Supported

thomas-hart-benton-slave-master-with-slaves-study-for-the-american-historical-epic — This crayon with pencil and ink on paper by American painter Thomas Hart Benton (1889-1975), titled *Slave Master with Slaves (Study for The American Historical Epic)*, circa 1926, realized $35,000 at a December 2013 Heritage auction.

By Jim O’Neal

Slavery was the great exception to the rule of liberty proclaimed in the Declaration of Independence and established in the U.S. Constitution. The first African slaves (about 40 in all) were brought to the North American colony of Jamestown, Va., in 1619 to aid in the production of lucrative crops like tobacco.

By the time of America’s founding, the number had grown to 500,000, mostly in the five southernmost states. Slavery was never widespread in the North, but many profited indirectly by the practice. Between 1774 and 1804, all of the northern states had abolished slavery, but the “peculiar institution” remained absolutely vital to the South.

Even as the U.S. Congress outlawed the African slave trade in 1808, domestic trade flourished, and the slave population more than tripled over the next 50 years. By 1860, it was up to 4 million, primarily in cotton-production areas of the South.

One naive hope had been that slavery would slowly die as a simple matter of business economics. In 1776, Adam Smith (The Wealth of Nations) argued that the plantation system was uneconomic since slave labor cost more to maintain than laborers paid a competitive wage. But, in 1793, Eli Whitney invented the cotton gin, making slave-based production lower in cost. The insatiable demand for cotton from Europe was irresistible to the southern agrarian-based economy.

Overlooked in all of this was a brilliant insight by Smith. He noted that slavery ended in the Middle Ages in Europe only after the state and church became separate and strongly independent. His insight was that it is nearly impossible to end slavery in free, democratic forms of government, primarily because many of the legislators would also be slave owners and unlikely to act in ways that were not in their best interest.

Similar arguments later appear in the works of French philosopher Auguste Comte, known for his ideas regarding the “separation of the spiritual and the temporal.”

That was exactly the situation in the United States since many of the founders – most notably George Washington, Thomas Jefferson and James Madison – owned slaves and the South had always been dominated by self-interest. The obvious implication is that war was not only probable, but inevitable and unavoidable.

So the inexorable forces of profit versus human rights continued to accelerate, with only pauses, as the deeply conflicted country tried to find compromises (e.g. 1820) that simply delayed the inevitability of war. Kick-the-can strategies never achieve anything except temporary lulls.

Quite predictably, ours required a bloody civil war to (finally) reconcile the Constitution and an insidious practice of slavery that violated every principle that men of goodwill supported.

Both Smith and Comte tried to warn us, but their theories did not include any useful solutions, except perhaps to implement a kingdom … the very thing we were fleeing.

Even after 620,000 lives were lost in the Civil War, a number that exceeds all our other conflicts combined … and with the passage of 150 years … we are still struggling with race and inequality as our legislators try to find compromises.

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 Chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].