Thursday, October 30, 2008

While you're fuming about wooden arrows, Puerto Rican rum, NASCAR tracks, and all the other goodies in the bail-out...

... just remember that abuse of power in government is endemic--even in the United States--and has been even under the very weakest form of central government ever devised: The Articles of Confederation.

The history courses in our public schools, when they mention the Articles at all, generally treat them as a failed first attempt at national government, left so weak by Congress's inability to levy taxes on the States that financial instability was leading to insurrection, inflation, and potential balkanization of the new nation by European interests. Then, as if called forth by God and the correct political principles, James Madison, Alexander Hamilton and the rest of the demi-God framers step in and give us the real Constitution with enough meat on its bones to get the job done [which really means the ability to levy taxes and eventually override all the state governments]. Great story.

The only shining light in the Articles period is generally held to be the Northwest Ordinance of 1786, which allowed for the organized settlement of the new territories north of the Ohio River, providing for their transition into statehood, mandating an abridged but effective bill of rights, and forever prohibiting slavery in the area. Great stuff that.

But...

How often do they tell our kids about the Land Ordinance of 1785, which was the actual law that allowed for the survey and sale of that land in the first place?

Never. And here's why....

The Land Ordinance of 1785 required the survey and organization of the new territory into townships, generally ten miles square (unless rivers or mountains intervened) and divided into 100 equal lots of 640 acres [one square mile] each. Certain lots in each township were reserved to the government for later sale to support schools or other instruments as necessary....

The Ordinance required that the smallest element that could be sold by the government in its initial offering was one lot of 640 acres.

The reality was that not only was 640 acres much larger than any farm a single family could work, given the technology of the time, but it was also fiscally impossible for any small farmer to save or borrow that much money. There was a general shortage of both specie and paper money in the mid-1780s, partly brought about by the collapse of the Continental Dollar and the Continental Bond at the end of the Revolution and the inability of private banks to establish sufficient circulating currency. Regular folks did not have access to either cash or credit--at least not in the amounts necessary to buy new cut-rate land from the government.

So, first of all, the Land Ordinance of 1785 effectively restricted initial purchases in the Northwest Territory to the very wealthy, who then resold smaller plots to the farmers who wanted to move there and settle at a mark-up of usually 1000-1500%.

Ah, but it gets better.

One of the reasons that there was a currency shortage was, as I mentioned before, the complete collapse of the Continental Dollar and Bond. Essentially, by 1780 these instruments had become toilet paper. But that's all that George Washington and the Congress had available to pay discharge bonuses with. So they handed out worthless money and sent the men home. Before they left, however, many officers and private soldiers were approached by currency speculators offering to buy their money.

The transaction worked something like this.

Hey, Major! I see you just got paid off $300 in Continental Dollars that are worth, let's see here--about $3 in gold if you're lucky. You know, I think it's horrible that patriots like you are getting ripped off. Tell you what. I can't give you face value for that paper, son--hell, nobody could afford to do that--but because I like you, I'll give you $5 in gold, right here, cash on the barrel head. Whaddya say, Major?

And by and large, they took it, thinking they'd gotten the best of the city slicker.

Then the currency speculator either secured a nomination to the Congress or sent somebody he trusted to represent his interests. It was pretty easy: being in Congress was not really a high status job in those days.

And so they wrote that forgotten Land Ordinance of 1785.

Which specified not only that the land had to be purchased in big plots, but that for purposes of buying land, all Continental Dollars and Bonds had to be accepted by the Government at face value on par with specie.

In other words, that $300 bonus I paid $5 for a couple years ago is now worth $300 again, so long as I am buying land. Which means not only do I get the land for what amounts in real gold to $.02-.03 per acre, I am usually turning around and reselling it to the same people who sold me the discounted paper in the first place.

Oh, by the way, those opportunists included Edmund Randolph, Robert Morris, Gouvenour Morris, George Washington, and at least another dozen men who showed up at the Constitutional Convention, and who--in the First Congress--made sure they re-passed the Land Ordinance of 1785 and the Northwest Ordinance of 1786 [just to insure their continued legality] before they got around to debating the Bill of Rights.

In other words: even the weakest government we've ever had opened up doors for the opportunistic to rig markets in their favor. So why should you be at all surprised that today, when millions and billions and trillions of dollars flow into and out of Washington DC on a daily basis, our legislators spend their time enriching themselves and selected constituents rather than actively pursuing the public good.

Hell, it's an American political tradition.

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