CAPITALISM

As we move along through history, technological innovation becomes the rage.
The first water powered cloth mill opens in England in 1771. James Watt delivers
the first steam engine to purchasers in 1776. The industrial revolution has begun.
Where land had been the traditional source of wealth and the natural investment for
the wealthy, capital is now placed into manufacturing ventures. Adam Smith
publishes his “Wealth of Nations,” denouncing mercantilism as an inhibitor of
growth, and monopolies as stifling competition. He promotes “laissez faire”
capitalism – the literal translation “let do,” later becomes known as “leave it
alone.” He touts the elimination of all tariffs, regulations, and state interference.
Smith basically decried that public good will follow naturally from the
untrammeled pursuit of private interest. This, by the way, is the exact opposite of
what Kabbalah teaches. In Kabbalah, the untrammeled pursuit of private interest is
known as acting for the self alone. Remember, Kabbalah teaches that that behavior
will inevitably lead to chaos. Well, maybe that’s just a theory. Let’s keep
examining history and you can draw your own conclusions.

With the dawn of the industrial revolution, economic boom is ushered into
England. Investors become eager to invest, and in 1825 the Bubble Act is repealed
in England. Once again, numerous fraudulent schemes evolve and that leads to the
first meaningful and effective regulatory law promulgated in the UK-- The Joint
Stock Companies Act of 1844.
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What was the economic effect of the Industrial Revolution? The Industrialist
replaced the merchant as the dominant actor in the Capitalist system. Artisans and
guilds declined in prominence. Factories sprang up in cities since new technology
meant that production did not have to be near waterways, and labor was plentiful in
cities. Cash crop production rose to feed a new market rather than the subsistence
farming vital to Feudalism. The rise of commercial agriculture and textile
production encouraged increased mechanization, such as Eli Whitney’s cotton gin
in 1793.

As time passed, wages increased and eventually the standard of living increased
leading to the birth of a middle class. Back in the United States, the war of 1812
had left the U.S. in significant debt, but America still experienced an economic
boom, mostly because of the damage to Europe’s agricultural markets caused by
the Napoleonic wars. The Bank of The United States (there were 2 Federal Banks
in U.S. History, but we are going to skip most of the specifics of their existence)
aided this boom through its lending, which encouraged land speculation. Land was
doubling and tripling. Land sales in 1819 alone totaled 55 million acres. A sudden
and precipitous increase in prices for no reason, sound familiar? The banks
realized they were massively over extended and began to call in their loans. This
led to a panic in 1819, and a widespread distrust of banks as well as the Bank of
the U.S. The Bank of the U.S. had thrived because it had been a depository for
Federal tax revenue. Later, Andrew Jackson instructed the Secretary of the
Treasury to deposit tax revenues in selected State banks, effectively driving the
U.S. Bank into bankruptcy. This also led to the States borrowing large sums from
the London banks. Many States in the U.S. were borrowing to fund infrastructure
investments in canals and railroads, in order to more efficiently get their goods to
markets.

After the Napoleonic wars, the UK rebounded with increased banking, and
increased trade. Their gold and silver reserves rose from 4 million pounds in the
Bank of England in 1821, to 14 million by late 1824. The London banks were also
undergoing in interesting metamorphosis. At the beginning of the 19th Century,
British banks were essentially clubs of very wealthy families. Gradually, they
became joint stock organizations run by professional managers, and accepted
deposits from a large pool of small savers.

On a side note, a slew of the States in America that had borrowed money, would
not raise taxes to cover those debts after yet another panic in 1837. This led to a
wave of defaults of state banks, and even the default of the States of Maryland and Pennsylvania both of which had refused to implement property taxes before they
defaulted.
We’ll jump ahead now to 1861, where Civil War breaks out in the United States.
President Lincoln closes ports in “rebellion areas” to international commerce.
Britain and France have to shift their reliance on cotton to Africa and Asia. This
creates pressure for an Anglo-French controlled Suez Canal, which opens in 1869.
In 1862, The U.S. passes The Homestead Act, hoping to shape the western region
by populating it with farmers. The Northerners wanted not just to create an
Agrarian base, but also wanted to break the institution of slavery and promote the
Union. The U.S. sold 160 acres of public land for $1.25 per acre to anyone who:
didn’t fight against the Union and promised to work the land for 5 years. The offer
was open to immigrants and women. Loans for livestock, seeds, barb wire, etc,
became easy to get and plentiful. Towns borrowed money for roads and buildings.
Speculators, Railroad and Timber companies bribed the residents to get the best
land (many speculators submitted fraudulent claims as well). The lion’s share of
public land went to those Companies and Speculators. In 1869, The Union Pacific
railroad spanned the entire North American continent.

In January of 1887, a major blizzard hit the new west, and thousands of cattle
perished. The harsh winter was followed by a summer drought. International
wheat prices fell 30%. Most of the financing in the Country now comes from the
main financial center, Wall Street. Borrowers default, credit dries up and the focus
of politicians and economists switches to the solvency of U.S. currency.
Consensus arises that gold reserves need to be $100 million.

In 1893, Gold reserves dipped to $80 million. Panic erupted, and investors
frantically seek to exchange their assets for gold. Where have you heard this story
before? 1720 France! But now, 170 years later, over 600 banks, 74 railway
companies, and over 15,000 commercial enterprises fail. Luckily, in 1896 gold is
discovered in Klondike, Alaska, and confidence slowly recovers.

Another interesting economic development in the late 1880s was the extension of
the 14th Amendment of the U.S. Constitution to Corporations. The 14th
Amendment forbids States from denying any persons equal protection of its laws.
It was meant to insure that freed slaves were not denied “life, liberty, or property”
without due process of the law. As for corporations, they originally had very
limited functions within the U.S. They operated under the “privilege” of a state
charter, for a limited time and for limited purposes, with stated capital.

Shareholders were also liable for the corporation’s obligations. At the end of the
Civil War, the U.S. gave huge federal subsidies to the railroads, but lawyers
actively sought to remove the restrictions placed upon those corporations. In
1886, in Santa Clara County v. Southern Pacific Railroad, the Supreme Court
recognized corporations as having the same rights as natural persons to contract, to
buy and sell property, to borrow money, to sue and be sued—and thus to be subject
to the 14th Amendment. But think of this concept carefully for a moment, is a
corporation REALLY a person? A corporation is legally bound to place the
financial interests of its owners above all other interests, including the public good.
It was once allegedly stated by Baron Thurlow: “A corporation has no soul to
save, and no body to incarcerate.”