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Thursday, March 28, 2013

The Great Tulip Bubble

“For do I now persuade men, or God? Or do I seek to please men? For if I yet sought to please men, I should not be the servant of Christ.” — Galatians 1:10 (KJ21)

The time of Easter is a time for renewal and redemption in the Christian World. It is also a time of renewal for nature as spring brings new growth to the planet. It is a time for tulips.

The tulip is a perennial, bulbous plant with showy flowers in the genus61599871.rBjuKKt0 Tulipa, of which up to 109 species have been described and which belongs to the family Liliaceae. The genus's native range extends from as far west as Southern Europe, Anatolia (Turkey), Israel, Palestine, North Africa, and Iran to the Northwest of China. The tulip's center of diversity is in the Pamir, Hindu Kush, and Tien Shan mountains. A number of species and many hybrid cultivars are grown in gardens, as potted plants, or to display as fresh-cut flowers. Most cultivars of tulip are derived from Tulipa gesneriana. [Source-Wikipedia]

Okay the above is the official definition of this beautiful spring flower, but now it’s time for the story of the Great Tulip Bubble.

Like the housing bubble and other similar bubbles the Great Tulip Bubble was created by speculators and people who thought they could make a killing from tulips.

It al began when the Spanish discovered great qualities of silver in the Andes Mountains of South America in 1545. Once the Spanish chemists learned how to refine this South American silver by using cobalt rather than the traditional mercury the boom in Spanish silver began. The Spanish conquest of the New World led to mining of  silver  that dramatically eclipsed anything that had come before that time. Between 1500 and 1800, Bolivia, Peru and Mexico accounted for over 85 percent of world production and trade.

The Spanish began minting the silver into coins where the mines were and shipping them back to Spain on their galleons. These coins were known as200294346-001 the Spanish Dollar or “pieces of eight” and they became the first universal currency. This universal currency opened vast amounts of trade across the world and allowed The Netherlands to become a great commercial center due to their mercantile and shipping proficiency and allowed the Dutch to break the monopoly in the Baltic States held by the Hanseatic League. Amsterdam became one of the greatest commercial cities of the world and the Dutch citizenry grew in wealth. They became so wealthy that they began looking for other things to invest in. They were looking for something of beauty that the people wanted and tulips looked like a sure thing.

Tulips have long held a significant role in Dutch history and culture ever since they were introduced to the Netherlands from the Ottoman Empire in the mid-1500s. So strong was the Dutch love affair with tulips during the Dutch Golden Age of the mid-1600s that a tulip bulb bubble or "Tulip Mania" even occurred. Generally considered to be the first recorded financial bubble, the Tulip Mania of 1636-1637 was an episode in which tulip bulb prices were propelled by speculators to incredible heights before collapsing and plunging the Dutch economy into a severe crisis that lasted for many years.

The Golden Century is the name of the period in Dutch history between 1600 and 1700 when the port city of Amsterdam was one of the richest of all cities in Western Europe due to its strong role in international trade. Trading companies such as the VOC (Verenigde Oost-Indische Compagnie), commonly known as the Dutch East India Company, became dominant players in the Netherlands’ trade with Indonesia and other far-away lands. Amsterdam’s booming economy led to a flourishing of the arts and architecture, as well as trade in blue glass, china and other luxury goods.

Dutch trade with foreign lands led to the importation of exotic goods that were never seen before by Europeans. Tulips were first introduced to Europe from Turkey when a sultan sent bulbs and seeds to Vienna. Shortly after 1554, these seeds were sent to Amsterdam, where their popularity began to rise. A university study in 1593 led to the discovery that tulips could withstand the harsh northern-European climate, which further boosted their desirability in the Netherlands. With their intensely colorful petals, tulips were unlike any other flower popular in Europe at that time and having tulips growing in one’s garden became an important status symbol.

Tulip plants originate in the form of tulip bulbs which do not flower until seven to twelve years later. Between April and May, tulips bloom for about one week, with bulbs appearing between June and September, thus confining Dutch sales to that season. A rudimentary derivatives market, similar to modern-day options and futures contracts, eventually arose so that traders could conduct trade in tulips all year round. Traders entered into tulip contracts by signing contracts for future tulip purchases before a notary. The very active tulip contract market eventually became an integral part of the overall booming Dutch tulip industry.

As the Dutch tulip market became increasingly sophisticated, tulips were classified into groups and priced according to their rarity. In general, solid-colored tulips were worth less than those with multiple colors. Couleren was the classification for solid-colored red, white, or yellow tulips, rosen referred to multi-colored tulips, often red, pink, or white and violetten described the white tulips with purple or lilac on them. Bizarden were the most popular tulips, with a yellow background and red, brown, or purple coloration. Tulips that were infected with the benign mosaic virus, which caused "flames" of color to appear upon the petals, sold at a premium due to their unique beauty and rarity

Tulip prices steadily rose with their growing popularity and bulbs were purchased at higher and higher prices by speculators who planned to turn around and sell them for a profit, similar to modern-day house "flippers." From 1634 to 1637, an index of Dutch tulip prices (see chart below) soared from approximately one guilder per bulb to a lofty sixty guilders per bulb. Traders who sold their bulbs for a profit began to reinvest all of their profit into new tulip bulb contracts or new bulbs to sell to other Dutch citizens or to take with them on trips around the world to sell alongside with spices from the Dutch East India Company. Many merchants sold all of their belongings to purchase a few tulip bulbs for the purpose of cultivating and selling them for more profit than they could have ever made in a lifetime as a merchant. As the tulip bulb bubble crescendoed, already pricey tulip bulbs experienced a twentyfold price explosion in just a single month By the peak of tulip mania in February of 1637, a single tulip bulb was worth about ten times a craftsman’s annual income and a single Viceroy tulip bulb was allegedly exchanged for the following goods.

  • Two lasts of wheat
  • Four lasts of rye
  • Four fat oxen
  • Eight fat swine
  • Twelve fat sheep
  • Two hogsheads of wine
  • Four tuns of beer
  • Two tons of butter
  • 1,000 lb. of cheese
  • A complete bed
  • A suit of clothes
  • A silver drinking cup

Dutch Tulip Bulb Bubble Chart

Successful Dutch tulip bulb traders, the archaic counterparts to the day traders of the late 1990s Dot-com bubble and the house flippers of the mid-2000s U.S. housing bubble, could earn up to 60,000 florins in a month– approximately $61,710 in current U.S. dollars. Tulip bulb speculation became so widespread by 1636 that they were traded on Amsterdam’s Stock Exchange and in Rotterdam, Haarlem, Leyden, Alkmaar, Hoorn, and other towns. Around the same time, tulip speculation even spread to Paris and England, where tulips were traded on the London Stock Exchange. In both cities, traders strove to push tulip prices up to the lofty levels seen in Amsterdam but were only moderately successful in their attempt.

Astronomically-high tulip bulb prices resulted in some equally astonishing anecdotes such as the sailor who mistakenly ate an extremely rare Semper Augustus tulip bulb thinking it was an onion. This "onion" was so valuable that it could have fed his whole ship’s crew for an entire year. The hapless sailor was jailed for several months for his innocent but costly mistake. Another similar anecdote is of a traveling English botanist who was unaware of the Dutch tulip mania of the time, who peeled and dissected a wealthy Dutchman’s four thousand florin Admiral Von der Eyk tulip bulb mistaking it for an unusual species of onion. The bewildered English traveler was quickly led through the streets, followed by a mob, to be brought before a judge who sentenced him to prison until he could pay for the damage.

Like all bubbles, the Dutch tulip bulb bubble continued to inflate beyond people’s wildest expectations until it abruptly "popped" in the winter of 1636-37. A default on a tulip bulb contract by a buyer in Haarlem was the main bubble-popping catalyst and caused the tulip bulb market to violently implode as sellers overwhelmed the market and buyers virtually disappeared altogether. Some traders attempted to support prices, to no avail. Within just a few days, tulip bulbs were worth only a hundredth of their former prices, resulting in a full-blown panic throughout Holland. Dealers refused to honor contracts, further damaging confidence in the tulip bulb market. Eventually, the government attempted to stem the tulip market meltdown by offering to honor contracts at 10% of their face value, which only caused the market to plunge even further. The brutal popping of the tulip bulb bubble ended the Dutch Golden Age and hurled the country into a mild economic depression that lasted for several years. The traumatic tulip bulb crash resulted in a suspicion toward speculative investments in Dutch culture for a very long time after. One also has to wonder if this is how the Dutch reputation for frugality arose!

Looking back through time it’s easy to laugh at the foolish Dutch, paying such prices for simple tulip bulbs, but an economic bubble was nothing new even then. We’re still doing the same sorts of things today. Human beings have always been prone to want things that are difficult to get, especially if everyone else seems to be doing it. Nutty behavior becomes commonplace when enough people are following along. It’s only afterwards that we stand back and shake our heads and wonder what came over us.

Tulips are without are my favorite flowers. While not having a distinct and pleasurable odor like roses or lilacs their variety of colors and delicate petals make them a sight for the eyes, especially when they are in fields and you a photographer.

One the world’s best places to view thousands of tulips is at Keukenhof Gardens in the Netherlands. Keukenhof Gardens are located near the little61599924.P5YADXGU town of Lisse, just a short drive from Amsterdam. According to the official website for the Keukenhof Park, approximately 7,000,000 (seven million) flower bulbs are planted annually in the park, which covers an area of 32 hectares (79 acres). The gardens are open annually from mid-March to mid-May. The best time to view the tulips, however, is around mid-April, depending on the weather.

My wife a I visited Keukenhof Gardens in mid-May, 2004 and the tulips were in full bloom, but some of the fields had already harvested for their bulbs. It quite a sight to see fields of tulips arranged by color crawling over the gardens. The tulip may not be the investment it was once, but they are a beautiful sight to behold.

Some Photos from my visit the Keukenhof Gardens in 2004




You can view more photos by clicking here

Wednesday, March 27, 2013

The Men Who Built America

“It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.” — Henry Ford

In recent years there has been an increasing scorn for capitalism in this country and around the world. Movements like Occupy caught a great deal attention last year as they staged protests and occupied parks in New York City and Oakland. Their beef was with the greed of capitalists and bankers. They wanted government to provide more and more assistance for those who could not find satisfying jobs.

There is a great series playing on the History Channel about the Men Who Built America. The series profiles John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, Henry Ford, and J.P. Morgan and shows how they turned ideas into millions of dollars and in the process they built this nation.


John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, Henry Ford and J.P. Morgan rose from obscurity and in the process built modern America. Their names hang on street signs, are etched into buildings and are a part of the fabric of history. These men created the American Dream and were the engine of capitalism as they transformed everything they touched in building the oil, rail, steel, shipping, automobile, and finance industries. Their paths crossed repeatedly as they elected presidents, set economic policies and influenced major events of the 50 most formative years this country has ever known. From the Civil War to the Great Depression and World War I, they led the way.

Using state of the art computer generated imagery that incorporates 12 million historical negatives, many made available for the first time by the Library of Congress, this series brings back to life the world they knew and the one they created. The event series shows how these men created the greatest superpower the world has ever seen. In the series we see how their historic achievements came to create the America of today.

The series begins with the life and achievements of Cornelius Vanderbilt. Shipping and railroad tycoon Cornelius Vanderbilt (1794-1877) was a self-made multi-millionaire who became one of the wealthiest Americans of the 19th century. As a boy, he worked with his father, who operated a boat that ferried cargo between Staten Island, New York, where they lived, and Manhattan. After working as a steamship captain, Vanderbilt went into business for himself in the late 1820s, and eventually became one of the country’s largest steamship operators. In the process, the Commodore, as he was publicly nicknamed, gained a reputation for being fiercely competitive and ruthless. In the 1860s, he shifted his focus to the railroad industry, where he built another empire and helped make railroad transportation more efficient. When Vanderbilt died, he was worth more than $100 million ($2.6 billion in today’s dollars).

In the early 1850s, during the California Gold Rush, a time before449px-Cornelius_Vanderbilt_Daguerrotype2 transcontinental railroads, Vanderbilt launched a steamship service that transported prospectors from New York to San Francisco via a route across Nicaragua. His route was faster than an established route across Panama, and much speedier than the other alternative, around Cape Horn at the southern tip of South America, which could take months. Vanderbilt’s new line was an instant success, earning more than $1 million (about $26 million in today’s money) a year.

In the 1860s, Vanderbilt shifted his focus from shipping to the railroad industry, which was entering a period of great expansion. He gained control of a number of railway lines operating between Chicago and New York and established an interregional railroad system. According to T.J. Styles, author of “The First Tycoon: The Epic Life of Cornelius Vanderbilt”: “This was a major transformation of the railroad network, which previously had been fragmented into numerous short railroads, each with its own procedures, timetables, and rolling stock. The creation of a coherent system spanning several states lowered costs, increased efficiency, and sped up travel and shipment times.”

Unlike the Gilded Age titans who followed him, such as steel magnate Andrew Carnegie (1835-1919) and oil mogul John Rockefeller (1839-1937), Vanderbilt did not own grand homes or give away much of his vast wealth to charitable causes. In fact, the only substantial philanthropic donation he made was in 1873, toward the end of his life, when he gave $1 million to build and endow Vanderbilt University in Nashville, Tennessee. (In a nod to its founder’s nickname, the school’s athletic teams are called the Commodores.)

John D. Rockefeller (1839-1937), founder of the Standard Oil Company, became one of the world’s wealthiest men and a major philanthropist. BornJohn_D._Rockefeller_1885 into modest circumstances in upstate New York, he entered the then-fledgling oil business in 1863 by investing in a Cleveland, Ohio, refinery. In 1870, he established Standard Oil, which by the early 1880s controlled some 90 percent of U.S. refineries and pipelines. Critics accused Rockefeller of engaging in unethical practices, such as predatory pricing and colluding with railroads to eliminate his competitors, in order to gain a monopoly in the industry. In 1911, the U.S. Supreme Court found Standard Oil in violation of anti-trust laws and ordered it to dissolve. During his life Rockefeller donated more than $500 million to various philanthropic causes

In 1865, Rockefeller borrowed money to buy out some of his partners and take control of the refinery, which had become the largest in Cleveland. Over the next few years, he acquired new partners and expanded his business interests in the growing oil industry. At the time, kerosene, derived from petroleum and used in lamps, was becoming an economic staple. In 1870, Rockefeller formed the Standard Oil Company of Ohio, along with his younger brother William (1841-1922), Henry Flagler (1830-1913) and a group of other men. John Rockefeller was its president and largest shareholder.

Standard Oil gained a monopoly in the oil industry by buying rival refineries and developing companies for distributing and marketing its products around the globe. In 1882, these various companies were combined into the Standard Oil Trust, which would control some 90 percent of the nation’s refineries and pipelines. In order to exploit economies of scale, Standard Oil did everything from build its own oil barrels to employ scientists to figure out new uses for petroleum by-products.

Scottish-born Andrew Carnegie (1835-1919) was an American industrialist who amassed a fortune in the steel industry then became a major philanthropist. Carnegie worked in a Pittsburgh cotton factory as a boy before rising to the position of division superintendent of the Pennsylvania Railroad in 1859. While working for the railroad, he invested in various ventures, including iron and oil companies, and made his first fortune by the time he was in his early 30s. In the early 1870s, he entered the steel business, and over the next two decades became a dominant force in the industry. In 1901, he sold the Carnegie Steel Company to banker John Pierpont Morgan for $480 million. Carnegie then devoted himself to philanthropy, eventually giving away more than $350 million.

Ambitious and hard-working, he went on to hold a series of jobs, including479px-Andrew_Carnegie,_three-quarter_length_portrait,_seated,_facing_slightly_left,_1913-crop messenger in a telegraph office and secretary and telegraph operator for the superintendent of the Pittsburgh division of the Pennsylvania Railroad In 1859, Carnegie succeeded his boss as railroad division superintendent. While in this position, he made profitable investments in a variety of businesses, including coal, iron and oil companies and a manufacturer of railroad sleeping cars.

After leaving his post with the railroad in 1865, Carnegie continued his ascent in the business world. With the U.S. railroad industry then entering a period of rapid growth, he expanded his railroad-related investments and founded such ventures as an iron bridge building company and a telegraph firm, often using his connections to win insider contracts. By the time he was in his early 30s, Carnegie had become a very wealthy man.

In the early 1870s, Carnegie co-founded his first steel company, near Pittsburgh. Over the next few decades, he created a steel empire, maximizing profits and minimizing inefficiencies through ownership of factories, raw materials and transportation infrastructure involved in steel-making. In 1892, his primary holdings were consolidated to form Carnegie Steel Company.

The steel magnate considered himself a champion of the working man; however, his reputation was marred by a violent labor strike in 1892 at his Homestead, Pennsylvania, steel mill. After union workers protested wage cuts, Carnegie Steel general manager Henry Clay Frick (1848-1919), who was determined to break the union, locked the workers out of the plant. Andrew Carnegie was on vacation in Scotland during the strike, but put his support in Frick, who called in some 300 Pinkerton armed guards to protect the plant. A bloody battle broke out between the striking workers and the Pinkertons, leaving at least 10 men dead. The state militia then was brought in to take control of the town, union leaders were arrested and Frick hired replacement workers for the plant. After five months, the strike ended with the union’s defeat. Additionally, the labor movement at Pittsburgh-area steel mills was crippled for the next four decades.

In 1901, banker John Pierpont Morgan (1837-1913) purchased Carnegie Steel for some $480 million, making Andrew Carnegie one of the world’s richest men. That same year, Morgan merged Carnegie Steel with a group of other steel businesses to form U.S. Steel, the world’s first billion-dollar corporation.

One of the most powerful bankers of his era, J.P. (John Pierpont) MorganJPMorgan-Young (1837-1913) financed railroads and helped organize U.S. Steel, General Electric and other major corporations. The Connecticut native followed his wealthy father into the banking business in the late 1850s, and in 1871 formed a partnership with Philadelphia banker Anthony Drexel. In 1895, their firm was reorganized as J.P. Morgan & Company, a predecessor of the modern-day financial giant JPMorgan Chase. Morgan used his influence to help stabilize American financial markets during several economic crises, including the panic of 1907. However, he faced criticism that he had too much power and was accused of manipulating the nation’s financial system for his own gain. The Gilded Age titan spent a significant portion of his wealth amassing a vast art collection.

During the late 19th century, a period when the U.S. railroad industry experienced rapid overexpansion and heated competition (the nation’s first transcontinental rail line was completed in 1869), Morgan was heavily involved in reorganizing and consolidating a number of financially troubled railroads. In the process, he gained control of significant portions of these railroads’ stock and eventually controlled an estimated one-sixth of America’s rail lines.

By the start of the 20th century, Morgan’s focus had shifted from railroads to other industries. In 1901, he bought the Carnegie Steel Company from Andrew Carnegie (1835-1919) for some $480 million then merged it with a group of other steel companies to create U.S. Steel, the world’s first billion-dollar corporation. Morgan also helped engineer the deals that established General Electric, International Harvester, American Telephone & Telegraph and other industrial giants. In 1902, he was instrumental in the formation of International Mercantile Marine (IMM), a conglomeration of transatlantic shipping companies. A decade later, the Titanic, owned by one of the IMM companies, White Star, sank on its maiden voyage after hitting an iceberg. Morgan, who attended the ship’s christening in 1911, was booked on the ill-fated April 1912 voyage but had to cancel.

During Morgan’s era, the United States had no central bank so he used his influence to help save the nation from disaster during several economic crises. In 1895, Morgan assisted in rescuing America’s gold standard when he headed a banking syndicate that loaned the federal government more than $60 million. In another instance, the financial panic of 1907, Morgan held a meeting of the country’s top financiers at his New York City home and convinced them to bail out various faltering financial institutions in order to stabilize the markets.

While working as an engineer for the Edison Illuminating Company in Detroit,Henry_ford_1919 Henry Ford (1863-1947) built his first gasoline-powered horseless carriage, the Quadricycle, in the shed behind his home. In 1903, he established the Ford Motor Company, and five years later the company rolled out the first Model T. In order to meet overwhelming demand for the revolutionary vehicle, Ford introduced revolutionary new mass-production methods, including large production plants, the use of standardized, interchangeable parts and, in 1913, the world's first moving assembly line for cars. Enormously influential in the industrial world, Ford was also outspoken in the political realm. Ford drew controversy for his pacifist stance during the early years of World War I and earned widespread criticism for his anti-Semitic views and writings.

A month after the Ford Motor Company was established, the first Ford car—the two-cylinder, eight-horsepower Model A—was assembled at a plant on Mack Avenue in Detroit. At the time, only a few cars were assembled per day, and groups of two or three workers built them by hand from parts that were ordered from other companies. Ford was dedicated to the production of an efficient and reliable automobile that would be affordable for everyone; the result was the Model T, which made its debut in October 1908.

The "Tin Lizzie," as the Model T was known, was an immediate success, and1910Ford-T Ford soon had more orders than the company could satisfy. As a result, he put into practice techniques of mass production that would revolutionize American industry, including the use of large production plants; standardized, interchangeable parts; and the moving assembly line. Mass production significantly cut down on the time required to produce an automobile, which allowed costs to stay low. In 1914, Ford also increased the daily wage for an eight-hour day for his workers to $5 (up from $2.34 for nine hours), setting a standard for the industry. The mass production techniques Henry Ford championed allowed the Ford Motor Company to turn out one Model T every 24 seconds.

So during this great age of industrial expansion from the end of the Civil War to the end of the First World War what bound these giants of industry together? Firstly these men had fierce completive and entrepreneurial spirits. With the exception of J.P. Morgan they came from modest working-class roots and were not high-born. Second is that they wanted to win and would not take no for an answer. They hated competition and would take whatever measures needed to defeat that competition. Thirdly they all had a vision of what their efforts could achieve. Fourth is that they were not afraid of long hours and hard work and expected such from those around them. Fifth is that when they saw an opportunity they were quick to take action and if that opportunity did not pan out they were equally as quick to move on to other opportunities that would arise, especially from the work of others. And sixth, and perhaps the most important is that they realized the needs and wants of their customers and did all they could to keep them well feed.

In 1862, the Pacific Railroad Act chartered the Central Pacific and the Union Pacific Railroad Companies, and tasked them with building a transcontinental railroad that would link the United States from east to west. Over the next seven years, the two companies would race toward each other from Sacramento, California on the one side and Omaha, Nebraska on the other, struggling against great risks before they met at Promontory, Utah, on May 10, 1869.

By the 1880s the nation was overbuilt of railroads and many were losing money — including those owned by Vanderbilt. He was looking for new customers willing to ship goods on his lines. At the same time John D. Rockefeller was attempting to corner the market on kerosene — the fuel used to light homes and businesses across the nation. He needed a secure and cheap method of shipping his kerosene from his refineries to market. He also renamed his company Standard Oil implying that his kerosene was the standard on which all others should be compared with.

To insure his shipping Rockefeller struck a deal with Vanderbilt to ship exclusively on his railroads — namely the New York Central Railroad. Both men were wary of each other, but kerosene was making both Rockefeller and Vanderbilt rich. Starting in 1853, Thomas A. Scott of the Pennsylvania Railroad Company employed Andrew Carnegie as a secretary/telegraph operator at a salary of $4.00 per week. At age 18, the precocious youth began a rapid advancement through the company, becoming the superintendent of the Pittsburgh Division. His employment by the Pennsylvania Railroad Company would be vital to his later success. The railroads were the first big businesses in America, and the Pennsylvania was one of the largest of them all.

This did not sit well with Rockefeller. He was fearful that the cabal of Vanderbilt’s NYCRR and Scott’s PRRC would raise their prices and damage Standard Oil. So what did Rockefeller do — he built a pipeline and cancelled his exclusive deals with Vanderbilt and Scott.

In 1877, Standard clashed with the Pennsylvania Railroad, its chief hauler. Rockefeller had envisioned the use of pipelines as an alternative transport system for oil and began a campaign to build and acquire them. The railroad, seeing Standard’s incursion into the transportation and pipeline fields, struck back and formed a subsidiary to buy and build oil refineries and pipelines. Standard countered and held back its shipments, and with the help of other railroads, started a price war that dramatically reduced freight payments and caused labor unrest as well. Rockefeller eventually prevailed and the railroad sold all its oil interests to Standard. But in the aftermath of that battle, in 1879 the Commonwealth of Pennsylvania indicted Rockefeller on charges of monopolizing the oil trade, starting an avalanche of similar court proceedings in other states and making a national issue of Standard Oil’s business practices. Rockefeller was creating vertical and horizontal monopolies — but he was serving the public with cheap kerosene to light their homes.

Standard Oil added its own pipelines, tank cars, and home delivery network. It kept oil prices low to stave off competitors, made its products affordable to the average household, and to increase market penetration, sometimes sold below cost if necessary. It developed over 300 oil-based products from tar to paint to Vaseline petroleum jelly to chewing gum. By the end of the 1870s, Standard was refining over 90% of the oil in the U.S. Rockefeller had already become a millionaire.

Now enter Thomas Edison and Nikola Tesla.

In his 84 years, Thomas Edison acquired a record number of 1,093 patentsThomas_Edison2 (singly or jointly) and was the driving force behind such innovations as the phonograph, the incandescent light bulb and one of the earliest motion picture cameras. He also created the world's first industrial research laboratory. Known as the "Wizard of Menlo Park," for the New Jersey town where he did some of his best-known work, Edison had become one of the most famous men in the world by the time he was in his 30s. In addition to his talent for invention, Edison was also a successful manufacturer and businessman who was highly skilled at marketing his inventions — and himself — to the public.

Serbian-American engineer and physicist Nikola Tesla (1856-19Tesla_aged_3643) made dozens of breakthroughs in the production, transmission and application of electric power. He invented the first alternating current (AC) motor and developed AC generation and transmission technology. Though he was famous and respected, he was never able to translate his copious inventions into long-term financial success — unlike his early employer and chief rival, Thomas Edison.

Edison not only invented the electric light bulb he also developed a means of transmission of electricity — direct current (DC). His assistant at the time was a 29-year old Serbian immigrant named Nikola Tesla. In 1885, Tesla claimed that he could redesign Edison's inefficient motor and generators, making an improvement in both service and economy. According to Tesla, Edison remarked, "There's fifty thousand dollars in it for you — if you can do it" — this has been noted as an odd statement from an Edison whose company was stingy with pay and who did not have that sort of cash on hand. After months of work, Tesla fulfilled the task and inquired about payment. Edison, claiming that he was only joking, replied, "Tesla, you don't understand our American humor." Instead, Edison offered a $10 a week raise over Tesla's $18 per week salary; Tesla refused the offer and immediately resigned.

Tesla immediately teamed up with George Westinghouse who was famous for his development for air brakes on train cars. And now the current war began. Edison, who had partnered with J.P. Morgan were pushing DC whileGeorge_Westinghouse Westinghouse was pushing Tesla’s alternating current (AC). When Sing-Sing prison in New York was looking for a more “humane” method of executing prisoners they developed an electric chair using AC. The first trial was a botched failure and Edison and Morgan immediately began a nasty public relations campaign hyping the dangers of AC. This set Westinghouse back and in order avoid bankruptcy and convince investors to buy into AC Tesla signed all of his patent rights over to Westinghouse. At this time the Niagara Falls Power Company was building a massive hydro-electric generating plant to service the entire Northeast. They were taking bids from companies to provide the generators and were considering Westinghouse’s AC system and the Edison/Morgan DC system. The bidding war had begun.

In order to convince the public of the safety and efficiency of AC Westinghouse and Tesla worked feverishly to wire the 1893 World's Columbian Exposition (AKA Chicago World’s Fair) with thousands of lights. The Morgan/Edison (now General Electric) bid was $1.8 million and later reduced to $554,000. The Westinghouse/Tesla bid was $399,000. Westinghouse won the bid and had invent their own light bulb as General Electric refused them the rights to use the Edison bulb.

When the exposition opened and the great illumination was viewed by the public it convinced the Niagara Power to select the AC generators. Westinghouse had won the battle of the currents.

Meanwhile John Rockefeller was looking on from the sidelines wondering what would happen to his kerosene business now that electricity was beginning to light the nation. Rockefeller urged his scientists to come up with new ways to use petroleum and they did. One of the waste products from the refining of kerosene — a substance that was being dumped into the fields — was something called gasoline. But there was little use for gasoline until the emergence of the auto industry and Henry Ford.

With the introduction of the Model T Ford in 1908 the public was beginning to drive gasoline powered vehicles. Rockefeller’s Standard Oil empire was not only saved it was expanded through his vertical monopolies of owing the wells producing the oil and the refineries to owning the pipelines carrying his products and the service stations dispensing gasoline to the ultimate customer. With the widespread growth of the electrical industry a door had closed to Rockefeller, but with the growth of the automobile industry another door had opened.

Even though Morgan had lost the current war it did not take him long to dump Edison and buy into AC making General Electric one of world’s largest corporation.

Meanwhile with the PRR suffering setbacks in the Railroad business causing Carnegie and Scott to part ways it did not take the Scotsman long to jump head first into the steel business. The Bessemer process for making steel was not only a technical success it was also a great business success. Carnegie’s Homestead plant began turning out steel on a massive scale. With the development of Otis’s elevator taller and taller buildings became possible. The demand for Carnegie’s steel grew and grew as skyscrapers began to dot the cities of the nation. It was not only steel for buildings but steel for bridges, automobiles, and ships.

Carnegie built Pittsburgh's Carnegie Steel Company, which he sold to J.P. Morgan in 1901 for $480 million, creating the U.S. Steel Corporation. Carnegie devoted the remainder of his life to large-scale philanthropy, with special emphasis on local libraries, world peace, education and scientific research. With the fortune he made from business, he built Carnegie Hall, and founded the Carnegie Corporation of New York, Carnegie Endowment for International Peace, Carnegie Institution for Science, Carnegie Trust for the Universities of Scotland, Carnegie Hero Fund, Carnegie Mellon University and the Carnegie Museums of Pittsburgh, among others. His life has often been referred to as a true "rags to riches" story.

These men, while not perfect by any means and sometimes unethical, created whole industries supporting other businesses. Edison’s light bulb gave rise to the lamp industry with companies like Tiffany making lamps for the wealthy — lamps that sell for thousands of dollars at auctions today. Henry Ford’s auto plants created thousands of small, entrepreneurial enterprises supplying the auto industry — even to today’s Auto Zone. The cheap availability of steel brought forth the home appliance industry and gasoline not only fueled millions of automobiles but also allowed two brothers and bicycle makers in Dayton, Ohio to make a successful flight of something called an airplane on the wind-swept dunes of Kitty Hawk, North Carolina. Two high school dropouts who pioneered a trillion dollar aviation industry — an industry that transports billions of passengers safely each year around the globe.

Today many of our K-12 students learn virtually nothing of these giants and what they do learn is biased away from capitalism and towards something call social justice, They learn of the purported “evils” of the capitalistic system and the virtues of the collective. They learn that government is the source of all technology and invention. They have no idea of why the lights go on in their homes or classrooms when the flip a switch on the wall. They go into a high-rise building not knowing how steel and elevators were responsible for the construction of those buildings. And they ride in mom’s SUV or school bus with no idea of how the fuel that runs that vehicle got there. Even musicians who perform at Carnegie Hall probably don’t realize how this magnificent edifice came to be. It was not government who built it but the money from Carnegie’s steel. Yes, Mr. Obama, they did build it — not government.

We owe a great deal to these capitalist who were willing to risk everything of their visions and efforts. Yes, they made profits for without profits nothing would have happened. The next time you flip a light switch or ride an elevator give some thought to the men who built America.

Tuesday, March 26, 2013

The Critical Period in Our History

“Such is our situation, and such are our prospects: but notwithstanding the cup of blessing is thus reached out to us, notwithstanding happiness is ours, if we have a disposition to seize the occasion and make it our own; yet, it appears to me there is an option still left to the United States of America, that it is in their choice, and depends upon their conduct, whether they will be respectable and prosperous, or contemptible and miserable as a Nation; This is the time of their political probation; this is the moment when the eyes of the whole World are turned upon them; this is the moment to establish or ruin their national Character forever; this is the favorable moment to give such a tone to our Federal Government, as will enable it to answer the ends of its institution; or this may be the ill-fated moment for relaxing the powers of the Union, annihilating the cement of the Confederation, and exposing us to become the sport of European politics, which may play one State against another to prevent their growing importance, and to serve their own interested purposes. For, according to the system of Policy the States shall adopt at this moment, they will stand or fall; and by their confirmation or lapse, it is yet to be decided, whether the Revolution must ultimately be considered as a blessing or a curse: a blessing or a curse, not to the present age alone, for with our fate will the destiny of unborn Millions be involved.” — Circular Letter to the States, George Washington, June 14, 1783

A great many Americans are deeply concerned today about the size of government, the national debt, and the direction government is going. It’s easy to become demoralized. But if you compare our situation today with the critical period after the battle of Yorktown and after the Peace of Paris we are a thousand times better off. We can solve our problems with a single election. In 1781 they did not have the institutions in place to even cope with the problems.

There was a huge war debt owned by the states and another huge debt owed by the Government itself. But the Continental Congress did not have any way to raise revenue except to beg money from the states and the states were desperate with their own problems. We had states with claims that overlapped one another all the way to the Pacific Ocean. So there was a prospect there was going to be a civil war between the sovereignties

George Washington, in 1783 sent a circular letter to the governors of the states where he raised the question as to whether the American Revolution was going to be a blessing or a curse. Whether self-government was going to work or was it going to be a total failure. We are much better off now if we pull our socks up we can turn things around. For today we have the institutions under the law of the Constitution to make this happen.

Washington was urging the Continental Congress and the governors of the states to come together and form a system of self-government that would create the institution that would insure our revolution was not in vain. In the closing paragraph of his letter Washington stated:

“I now make it my earnest prayer, that God would have you, and the State over which you preside, in his holy protection, that he would incline the hearts of the Citizens to cultivate a spirit of subordination and obedience to Government, to entertain a brotherly affection and love for one another, for their fellow Citizens of the United States at large, and particularly for their brethren who have served in the Field, and finally, that he would most graciously be pleased to dispose us all, to do Justice, to love mercy, and to demean ourselves with that Charity, humility and pacific temper.”

The young American nation faced substantial challenges to effective self-government in the years immediately following victory the Battle of Yorktown where there were more French troops fighting than Colonials. Under the Articles of Confederation, the states were separate sovereignties only loosely bound together. The Continental Congress lacked the authority and the means to enable national institutions to respond sufficiently to problems such as war debt, the continuing presence of British soldiers in forts within the Trans-Appalachian region, and foreign trade negotiations.

The Constitutional Convention was convened in May, 1787, to address these issues by composing a constitution that would create political institutions in accordance with the principles of the Declaration of Independence, and that would also enable the functions of good government to be fulfilled. The Framers ultimately argued that improvements in the science of politics enabled them to establish a republican form of government that would be viable over an extended territory.

The ratification of the Constitution in 1789 established a federal governmentScene_at_the_Signing_of_the_Constitution_of_the_United_States for the United States that was meant to be "a more perfect union," than that which had existed under the Articles of Confederation, and to "establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty" for American citizens present and future. But in order for the Constitution to be agreed to, a compromise had been struck in regards to the slave trade. The unresolved issue of slavery posed a formidable challenge to the American experiment of self-government, a challenge that resulted ultimately in the Civil War.

While Washington’s letter was influential and carried great weight with the governors it was Shea’s Rebellion that finally drove the delegates of the Continental Congress to take action.

The Rebellion was an armed uprising that took place in central and western Massachusetts in 1786 and 1787. The rebellion was named after Daniel Shays, a veteran of the American Revolutionary War and one of the rebel leaders.

The rebellion started on August 29, 1786. It was precipitated by several factors: financial difficulties brought about by a post-war economic depression, a credit squeeze caused by a lack of hard currency, and fiscally harsh government policies instituted in 1785 to solve the state's debt problems. Protesters, including many war veterans, shut down county courts in the later months of 1786 to stop the judicial hearings for tax and debt collection. The protesters became radicalized against the state government following the arrests of some of their leaders, and began to organize an armed force. A militia raised as a private army defeated a Shaysite (rebel) attempt to seize the federal Springfield Armory in late January 1787, killing four and wounding 20. The main Shaysite force was scattered on February 4, 1787, after a surprise attack on their camp in Petersham, Massachusetts. Scattered resistance continued until June 1787, with the single most significant action being an incident in Sheffield in late February, where 30 rebels were wounded (one mortally) in a skirmish with government troops.

The rebellion took place in a political climate where reform of the country's governing document, the Articles of Confederation, was widely seen as necessary. The events of the rebellion, most of which occurred after the Philadelphia Convention had been called but before it began in May 1787, are widely seen to have affected the debates on the shape of the new government. The exact nature and consequence of the rebellion's influence on the content of the Constitution and the ratification debates continues to be a subject of historical discussion and debate.

The Constitutional Convention took place from May 25 to September 17, 1787, in Philadelphia, Pennsylvania, to address problems in governing the United States of America, which had been operating under the Articles of Confederation following independence from Great Britain. Although the Convention was intended to revise the Articles of Confederation, the intention from the outset of many of its proponents, chief among them James Madison and Alexander Hamilton, was to create a new government rather than fix the existing one. The delegates elected George Washington to preside over the Convention. The result of the Convention was the creation of the United States Constitution, placing the Convention among the most significant events in the history of the United States and perhaps the World.

The most contentious disputes revolved around the composition and election of the Senate, how "proportional representation" was to be defined (whether to include slaves or other property), whether to divide the executive power between three persons or invest the power into a single president, how to elect the president, how long his term was to be and whether he could stand for reelection, what offenses should be impeachable, the nature of a fugitive slave clause, whether to allow the abolition of the slave trade, and whether judges should be chosen by the legislature or executive. Most of the time during the Convention was spent on deciding these issues, while the powers of legislature, executive, and judiciary were not heavily disputed. Once the Convention began, the delegates first agreed on the principles of the Convention, then they agreed on Madison's Virginia Plan and began to modify it. A Committee of Detail assembled during the July 4 recess and produced a rough draft. Most of this rough draft remained in place, and can be found in the final version of the constitution. After the final issues were resolved, the Committee on Style produced the final version, and it was voted on and sent to the states.

With the exception of Rhode Island, which refused to participate, the states had originally appointed 70 representatives to the Convention, but a number of the appointees did not accept or could not attend, leaving 55 delegates who would ultimately craft the Constitution.

Almost all of the 55 delegates had taken part in the Revolution, with at least 29 having served in the Continental forces, most in positions of command. All but two or three had served in colonial or state government during their careers. The vast majority (about 75%) of the delegates were or had been members of the Confederation Congress, and many had been members of the Continental Congress during the Revolution. Several had been state governors. Just two delegates, Roger Sherman and Robert Morris, would be signatories to all three of the nation’s founding documents, the Declaration of Independence, the Articles of Confederation, and the Constitution.

More than half of the delegates had trained as lawyers (several had even been judges), although only about a quarter had practiced law as their principal means of business. There were also merchants, manufacturers, shippers, land speculators, bankers or financiers, two or three physicians, a minister, and several small farmers. Of the 25 who owned slaves, 16 depended on slave labor to run the plantations or other businesses that formed the mainstay of their income. Most of the delegates were landowners with substantial holdings, and most, with the possible exception of Roger Sherman and William Few, were very comfortably wealthy. George Washington and Gouverneur Morris were among the wealthiest men in the entire country. For some reason John Jay, one of the authors of the Federal Papers did not attend as did Thomas Jefferson, who was the ambassador the France, and John Adams who was the ambassador to Great Britain.

Soon after September 17, 1787, when the constitution framed at the Philadelphia Convention was signed and dispatched to the Continental Congress, the ratification debate began. The most memorable and authoritative contribution to that debate was made up of a series of seventy-seven articles that first appeared in New York in The Independent Journal and The New York Packet under the pseudonym Publius in the period stretching from October 27, 1787 to April 2, 1788, which were soon thereafter reprinted, along with eight additional articles, in a two-volume work titled The Federalist. Alexander Hamilton initiated the series and saw to the publication of the two volumes. He had hoped to work in tandem with John Jay (1745–1829), but soon after the project’s inception Jay fell ill. He then recruited James Madison, whose contributions turned out to be no less important than those of Hamilton himself. In the first number of the Federalist, Hamilton explained why such an endeavor is necessary and outlined the argument that Publius will make on behalf of ratification. In the tenth number, Madison set out to disprove Montesquieu’s claim that it is impossible to establish a viable republic on an extended territory. In the thirty-ninth number, he defended the republican character of the Constitution and specified that it is to be “neither wholly national nor wholly federal.” In the fifty-first number, he explored the nature and purpose of the separation of powers provided for by the Constitution.

In Federalist No. 1 Hamilton wrote:

“AFTER an unequivocal experience of the inefficiency of the subsisting federal government, you are called upon to deliberate on a new Constitution for the United States of America. The subject speaks its own importance; comprehending in its consequences nothing less than the existence of the UNION, the safety and welfare of the parts of which it is composed, the fate of an empire in many respects the most interesting in the world. It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force. If there be any truth in the remark, the crisis at which we are arrived may with propriety be regarded as the era in which that decision is to be made; and a wrong election of the part we shall act may, in this view, deserve to be considered as the general misfortune of mankind.

I propose, in a series of papers, to discuss the following interesting particulars:


In the progress of this discussion I shall endeavor to give a satisfactory answer to all the objections which shall have made their appearance that may seem to have any claim to your attention.”

One of the issues facing the delegates was that of a republic vs. a democracy. Most of the delegates were fearful of a democracy and the tyranny of the majority it could create — something we face today and what the Progressives believe in. On the other hand the delegates were familiar with the writings of Charles-Louis de Secondat, baron de La Brede et de Montesquieu in his 1748 book “The Spirit of Laws.”

Montesquieu believed a republic would only work for small states and not in extended territories like the newly formed United States. He described the various forms of government thusly:

“1.8.16: Distinctive Properties of a Republic. It is natural for a republic to have only a small territory; otherwise it cannot long subsist. In an extensive republic there are men of large fortunes, and consequently of less moderation: there are trusts too considerable to be placed in any single subject; he has interests of his own; he soon begins to think that he may be happy and glorious by oppressing his fellow-citizens; and that he may raise himself to grandeur on the ruins of his country.

In an extensive republic, the public good is sacrificed to a thousand private views; it is subordinate to exceptions, and depends on accidents. In a small one, the interest of the public is more obvious, better understood, and more within the reach of every citizen; abuses have less extent, and of course are less protected. The long duration of the republic of Sparta was owing to her having continued in the same extent of territory after all her wars. The sole aim of Sparta was liberty; and the sole advantage of her liberty glory.

It was the spirit of the Greek republics to be as contented with their territories as with their laws. Athens was first fired with ambition, and gave it to Lacedaemon; but it was an ambition rather of commanding a free people than of governing slaves; rather of directing than of breaking the union. All was lost upon the starting up of monarchy, a government whose spirit is more turned to increase of dominion. Excepting particular circumstances, it is difficult for any other than a republican government to subsist longer in a single town. A prince of so petty a state would naturally endeavor to oppress his subjects, because his power would be great, while the means of enjoying it, or of causing it to be respected, would be inconsiderable. The consequence is, he would trample upon his people. On the other hand, such a prince might be easily crushed by a foreign, or even a domestic, force; the people might every instant unite and rise up against him. Now, as soon as the sovereign of a single town is expelled, the quarrel is over; but, if he has many towns, it only begins.

1.8.17: Distinctive Properties of a Monarchy. A monarchical state ought to be of a moderate extent. Were it small, it would form itself into a republic; were it very large, the nobility, possessed of great estates, far from the eye of the prince, with a private court of their own, and secure moreover from sudden executions, by the laws and manners of the country, such a nobility, I say, might throw off their allegiance, having nothing to fear from too slow and too distant a punishment.

Thus, Charlemagne had scarce founded his empire when he was obliged to divide it: whether the governors of the provinces refused to obey; or whether, in order to keep them more under subjection, there was a necessity of parceling the empire into several kingdoms.

After the decease of Alexander, his empire was divided. How was it possible for those Greek and Macedonian chiefs, who were each of them free and independent, or commanders at least of the victorious bands dispersed throughout that vast extent of conquered land, how was it possible, I say, for them to obey?

Attila's empire was dissolved soon after his death; such a number of kings, who were no longer under restraint, could not resume their fetters. The sudden establishment of unlimited power is a remedy, which, in those cases, may prevent dissolution. But how dreadful the remedy, which, after the enlargement of dominion, opens a new scene of misery! The rivers hasten to mingle their waters with the sea; and monarchies lose themselves in despotic power.

1.8.19: Distinctive Properties of a Despotic Government. A large empire supposes a despotic authority in the person who governs. It is necessary that the quickness of the prince's resolutions should supply the distance of the places they are sent to; that fear should prevent the remissness of the distant governor or magistrate; that the law should be derived from a single person, and should shift continually, according to the accidents which incessantly multiply in a state in proportion to its extent.

2.9.1: In What Manner Republics Provide for Their Safety. If a republic be small, it is destroyed by a foreign force; if it be large, it is ruined by an internal imperfection. To this twofold inconveniency democracies and aristocracies are equally liable, whether they be good or bad. The evil is in the very thing itself, and no form can redress it. It is therefore very probable that mankind would have been, at length, obliged to live constantly under the government of a single person, had they not contrived a kind of constitution that has all the internal advantages of a republican, together with the external force of a monarchical, government. I mean, a confederate republic.

This form of government is a convention, by which several petty states agree to become members of a larger one, which they intend to establish. It is a kind of assemblage of societies, that constitute a new one, capable of increasing by means of farther associations, till they arrive to such a degree of power, as to be able to provide for the security of the whole body.

It was these associations that so long contributed to the prosperity of Greece. By these the Romans attacked the whole globe; and by these alone the whole globe withstood them. For, when Rome was arrived to her highest pitch of grandeur, it was the associations beyond the Danube and the Rhine, associations formed by the terror of her arms, that enabled the barbarians to resist her. From hence it proceeds that Holland , Germany, and the Swiss Cantons, are considered in Europe as perpetual republics.

The associations of cities were formerly more necessary than in our times. A weak defenseless town was exposed to greater danger. By conquest, it was deprived not only of the executive and legislative power, as at present, but moreover of all human property. A republic of this kind, able to withstand an external force, may support itself without any internal corruption; the form of this society prevents all manner of inconveniences If a single member should attempt to usurp the supreme power, he could not be supposed to have an equal authority and credit in all the confederate states. Were he to have too great an influence over one, this would alarm the rest; were he to subdue a part, that which would still remain free might oppose him with forces independent of those which he had usurped, and overpower him before he could be settled in his usurpation.

Should a popular insurrection happen in one of the confederate states, the others are able to quell it. Should abuses creep into one part, they are reformed by those that remain sound. The state may be destroyed on one side and not on the other; the confederacy may be dissolved, and the confederates preserve their sovereignty.

As this government is composed of petty republics, it enjoys the internal happiness of each; and, with regard to its external situation, by means of the association, it possesses all the advantages of large monarchies.”

Madison, on the other hand, believed that you could have a republican form of government if it was structured correctly. In one of the most famous and influential of the Federalist Papers, Federalist No. 10, Madison wrote in defense of a republic:

“The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended.

The effect of the first difference is, on the one hand, to refine and enlarge the public views, by passing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country, and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations. Under such a regulation, it may well happen that the public voice, pronounced by the representatives of the people, will be more consonant to the public good than if pronounced by the people themselves, convened for the purpose. On the other hand, the effect may be inverted. Men of factious tempers, of local prejudices, or of sinister designs, may, by intrigue, by corruption, or by other means, first obtain the suffrages, and then betray the interests, of the people. The question resulting is, whether small or extensive republics are more favorable to the election of proper guardians of the public weal; and it is clearly decided in favor of the latter by two obvious considerations:

In the first place, it is to be remarked that, however small the republic may be, the representatives must be raised to a certain number, in order to guard against the cabals of a few; and that, however large it may be, they must be limited to a certain number, in order to guard against the confusion of a multitude. Hence, the number of representatives in the two cases not being in proportion to that of the two constituents, and being proportionally greater in the small republic, it follows that, if the proportion of fit characters be not less in the large than in the small republic, the former will present a greater option, and consequently a greater probability of a fit choice.

In the next place, as each representative will be chosen by a greater number of citizens in the large than in the small republic, it will be more difficult for unworthy candidates to practice with success the vicious arts by which elections are too often carried; and the suffrages of the people being more free, will be more likely to center in men who possess the most attractive merit and the most diffusive and established characters.”

Madison’s arguments for a republic won the day with his proposal for a bicameral legislature (lower and upper houses) along with a district separation and balance of powers between the Legislature, Executive and Judiciary based upon his Virginia Plan. It is this republican form of government that lasted for 226 years — one that faces dangers today from the progressive left.

One of the first articles of the new Constitution (Article I, Section 8) delineated the specific enumerated powers given to Congress. The first 3 of these 18 powers dealt with the power to lay and collect taxes, the borrow money, and to regulate commerce with foreign nations and among the states. As mentioned above these were the most critical issues facing the Continental Congress under the Articles of Confederation — issues that could lead to a civil war with the newly liberated colonies.

In October, 1798 Jefferson advanced the theory of “nullification” when it came to states where they wished to resist or “nullify” legislation they determined to be unconstitutional. In his remarks on the Draft of the Kentucky Resolutions Jefferson stated:

“Resolved, That a committee of conference and correspondence be appointed, who shall have in charge to communicate the preceding resolutions to the legislatures of the several States; to assure them that this commonwealth continues in the same esteem of their friendship and union which it has manifested from that moment at which a common danger first suggested a common union: that it considers union, for specified national purposes, and particularly to those specified in their late federal compact, to be friendly to the peace, happiness and prosperity of all the States: that faithful to that compact, according to the plain intent and meaning in which it was understood and acceded to by the several parties, it is sincerely anxious for its preservation: that it does also believe, that to take from the States all the powers of self-government and transfer them to a general and consolidated government, without regard to the special delegations and reservations solemnly agreed to in that compact, is not for the peace, happiness or prosperity of these States; and that therefore this commonwealth is determined, as it doubts not its co-States are, to submit to undelegated, and consequently unlimited powers in no man, or body of men on earth: that in cases of an abuse of the delegated powers, the members of the General Government, being chosen by the people, a change by the people would be the constitutional remedy; but, where powers are assumed which have not been delegated, a nullification of the act is the rightful remedy: that every State has a natural right in cases not within the compact, (casus non foederis,) to nullify of their own authority all assumptions of power by others within their limits: that without this right, they would be under the dominion, absolute and unlimited, of whosoever might exercise this right of judgment for them: that nevertheless, this commonwealth, from motives of regard and respect for its co-States, has wished to communicate with them on the subject: that with them alone it is proper to communicate, they alone being parties to the compact, and solely authorized to judge in the last resort of the powers exercised under it, Congress being not a party, but merely the creature of the compact, and subject as to its assumptions of power to the final judgment of those by whom, and for whose use itself and its powers were all created and modified: that if the acts before specified should stand, these conclusions would flow from them; that the General Government may place any act they think proper on the list of crimes, and punish it themselves whether enumerated or not enumerated by the Constitution as cognizable by them: that they may transfer its cognizance to the President, or any other person, who may himself be the accuser, counsel, judge and jury, whose suspicions may be the evidence, his order the sentence, his officer the executioner, and his breast the sole record of the transaction: that a very numerous and valuable description of the inhabitants of these States being, by this precedent, reduced, as outlaws, to the absolute dominion of one man, and the barrier of the Constitution thus swept away from us all, no rampart now remains against the passions and the powers of a majority in Congress to protect from a like exportation, or other more grievous punishment, the minority of the same body, the legislatures, judges, governors, and counselors of the States, nor their other peaceable inhabitants, who may venture to reclaim the constitutional rights and liberties of the States and people, or who for other causes, good or bad, may be obnoxious to the views, or marked by the suspicions of the President, or be thought dangerous to his or their election, or other interests, public or personal: that the friendless alien has indeed been selected as the safest subject of a first experiment; but the citizen will soon follow, or rather, has already followed, for already has a sedition act marked him as its prey: that these and successive acts of the same character, unless arrested at the threshold, necessarily drive these States into revolution and blood, and will furnish new calumnies against republican government, and new pretexts for those who wish it to be believed that man cannot be governed but by a rod of iron: that it would be a dangerous delusion were a confidence in the men of our choice to silence our fears for the safety of our rights: that confidence is everywhere the parent of despotism -- free government is founded in jealousy, and not in confidence; it is jealousy and not confidence which prescribes limited constitutions, to bind down those whom we are obliged to trust with power: that our Constitution has accordingly fixed the limits to which, and no further, our confidence may go; and let the honest advocate of confidence read the alien and sedition acts, and say if the Constitution has not been wise in fixing limits to the government it created, and whether we should be wise in destroying those limits. Let him say what the government is, if it be not a tyranny, which the men of our choice have conferred on our President, and the President of our choice has assented to, and accepted over the friendly strangers to whom the mild spirit of our country and its laws have pledged hospitality and protection: that the men of our choice have more respected the bare suspicions of the President, than the solid right of innocence, the claims of justification, the sacred force of truth, and the forms and substance of law and justice. In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution. That this commonwealth does therefore call on its co-States for an expression of their sentiments on the acts concerning aliens, and for the punishment of certain crimes herein before specified, plainly declaring whether these acts are or are not authorized by the federal compact. And it doubts not that their sense will be so announced as to prove their attachment unaltered to limited government, whether general or particular. And that the rights and liberties of their co-States will be exposed to no dangers by remaining embarked in a common bottom with their own. That they will concur with this commonwealth in considering the said acts as so palpably against the Constitution as to amount to an undisguised declaration that that compact is not meant to be the measure of the powers of the General Government, but that it will proceed in the exercise over these States, of all powers whatsoever: that they will view this as seizing the rights of the States, and consolidating them in the hands of the General Government, with a power assumed to bind the States, not merely as the cases made federal, (casus foederis,) but in all cases whatsoever, by laws made, not with their consent, but by others against their consent: that this would be to surrender the form of government we have chosen, and live under one deriving its powers from its own will, and not from our authority; and that the co-States, recurring to their natural right in cases not made federal, will concur in declaring these acts void, and of no force, and will each take measures of its own for providing that neither these acts, nor any others of the General Government not plainly and intentionally authorized by the Constitution, shall be exercised within their respective territories.” (Emphasis added)

This issue came to head when leaders of South Carolina advanced the idea that a state did not have to follow a federal law and could, in effect, "nullify" the law.

The idea that "states' rights" superseded federal law was promoted by John C. Calhoun, one of the most experienced and powerful politicians in the country, and was, to some extent, a precursor to the secession crisis that would trigger the Civil War 30 years later.

Calhoun and others from South Carolina were outraged by a tariff passed in 1828 that had raised taxes on imports. The 1828 tariff was so controversial, in various regions of the country, that it became known as the Tariff of Abominations.

Calhoun and others felt the tariff unfairly targeted the southern states, and that the states were not obligated by the U.S. Constitution to follow the law. At that time, Calhoun wrote an essay advancing a theory of nullification, in which he made a legal case for states to disregard some federal laws.

In the early 1830s, Calhoun was serving as vice president to Andrew Jackson. With the issue of a tariff again rising to prominence, Calhoun resigned his position, returned to South Carolina, and was elected to the Senate, where he promoted his idea of nullification. For a time it appeared that armed conflict might result if South Carolina seceded from the Union — something they did in 1861.

The crisis was finally put to rest in 1833 when a compromise was reached on a new tariff. But the Nullification Crisis demonstrated that disputes between various regions of the nation could cause enormous problems.

Calhoun became one of America’s greatest public men. He served in theJCCalhoun-1822 House, Senate, Cabinet, and Vice-Presidency over the course of thirty nine years, during which time he saw the balance of power in the United States tip northward and toward the national government. He undertook to defend state sovereignty by defending the South, and to defend the South by defending slavery. To do this he knew he had to confront the dominant political faith of his age: Equality. Calhoun’s “disquisitions and discourses” were published the year after his death. In them he tried to solve the great problem of American political life: how to protect and preserve local (or regional) communities against centralized democratic power.

In 1840 Calhoun wrote:

“But government, although intended to protect and preserve society, has itself a strong tendency to disorder and abuse of its powers, as all experience and almost every page of history testify. The cause is to be found in the same constitution of our nature which makes government indispensable. The powers which it is necessary for government to possess, in order to repress violence and preserve order, cannot execute themselves. They must be administered by men in whom, like others, the individual are stronger than the social feelings. And hence, the powers vested in them to prevent injustice and oppression on the part of others, will, if left unguarded, be by them converted into instruments to oppress the rest of the community. That, by which this is prevented, by whatever name called, is what is meant by constitution, in its most comprehensive sense, when applied to government.”

It was the same John C. Calhoun, however, who in his 1837 writings on the positive good of slavery stated:

But I take higher ground. I hold that in the present state of civilization, where two races of different origin, and distinguished by color, and other physical differences, as well as intellectual, are brought together, the relation now existing in the slaveholding States between the two, is, instead of an evil, a good--a positive good. I feel myself called upon to speak freely upon the subject where the honor and interests of those I represent are involved. I hold then, that there never has yet existed a wealthy and civilized society in which one portion of the community did not, in point of fact, live on the labor of the other. Broad and general as is this assertion, it is fully borne out by history. This is not the proper occasion, but, if it were, it would not be difficult to trace the various devices by which the wealth of all civilized.”

The fly in the ointment, however, was the issue of slavery. The new Constitution contained language allowing the slave trade to operate until 1808. Article I, Section 9 stated:

“The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.”

This was the only reference to slavery in the Constitution. This was a necessary compromise to obtain support from the Southern states where farmers and plantation owners depended on slavery for cheap and unpaid labor to produce their crops. However, the Northwest Ordinance prohibited slavery in the territories north of the Ohio River where today’s states of Ohio, Indiana, Illinois, Michigan, Wisconsin, and Minnesota exist. On the other hand the Southwest Ordinance — an act passed by the new Congress in 1790. The Southwest Ordinance served the same purpose for the "Old Southwest" as the Northwest Ordinance of 1787 had for the "territory north-west of the Ohio." While the Southwest Territory comprised the former western districts of North Carolina, South Carolina, and possibly Georgia as far west as the Mississippi River, in practice its provisions for territorial government applied only to the future state of Tennessee. There was no mention of abolishing slavery in this Ordinance.

It was not until the Missouri Compromise when the issue of slavery was addressed based on geographic limits. The Missouri Compromise was passed in 1820 between the pro-slavery and anti-slavery factions in the United States Congress, involving primarily the regulation of slavery in the western territories. It prohibited slavery in the former Louisiana Territory north of the parallel 36°30′ north except within the boundaries of the proposed state of Missouri. To balance the number of "slave states" and "free states," the northern region of what was then Massachusetts was admitted into the United States as a free state to become Maine. Prior to the agreement, the House of Representatives had refused to accept this compromise, and a conference committee was appointed.

A bill to enable the people of the Missouri Territory to draft a constitution and form a government preliminary to admission into the Union came before the House of Representatives in Committee of the Whole, on February 13, 1819. James Tallmadge of New York offered an amendment, named the Tallmadge Amendment that forbade further introduction of slaves into Missouri, and mandated that all children of slave parents born in the state after its admission should be free at the age of 25. The committee adopted the measure and incorporated it into the bill as finally passed on February 17, 1819, by the house. The United States Senate refused to concur with the amendment, and the whole measure was lost. This was a perfect example of the upper house overriding the wishes of the lower house as Madison had proposed.

During the following session (1819–1820), the House passed a similar bill with an amendment, introduced on January 26, 1820, by John W. Taylor of New York, allowing Missouri into the union as a slave state. The question had been complicated by the admission in December of Alabama, a slave state, making the number of slave and free states equal. In addition, there was a bill in passage through the House (January 3, 1820) to admit Maine as a free state.

The Senate decided to connect the two measures. It passed a bill for the admission of Maine with an amendment enabling the people of Missouri to form a state constitution. Before the bill was returned to the House, a second amendment was adopted on the motion of Jesse B. Thomas of Illinois, excluding slavery from the Missouri Territory north of the parallel 36°30′ north (the southern boundary of Missouri), except within the limits of the proposed state of Missouri.

Like many compromises the Missouri Compromise left a bad taste in the mouths of the abolitionist and those who supported slavery. One of the fiercest critics of the Compromise was Thomas Jefferson who called it the “knell of the Union.” In a letter to John Holmes on dated April 22, 1820 Jefferson stated:

“I thank you, dear Sir, for the copy you have been so kind as to send me of the letter to your constituents on the Missouri question. It is a perfect justification to them. I had for a long time ceased to read newspapers, or pay any attention to public affairs, confident they were in good hands, and content to be a passenger in our bark to the shore from which I am not distant. But this momentous question, like a fire bell in the night, awakened and filled me with terror. I considered it at once as the knell of the Union. It is hushed, indeed, for the moment. But this is a reprieve only, not a final sentence. A geographical line, coinciding with a marked principle, moral and political, once conceived and held up to the angry passions of men, will never be obliterated; and every new irritation will mark it deeper and deeper. I can say, with conscious truth, that there is not a man on earth who would sacrifice more than I would to relieve us from this heavy reproach, in any practicable way. The cession of that kind of property, for so it is misnamed, is a bagatelle which would not cost me a second thought, if, in that way, a general emancipation and expatriation could be effected; and, gradually, and with due sacrifices, I think it might be. But as it is, we have the wolf by the ears, and we can neither hold him, nor safely let him go. Justice is in one scale, and self-preservation in the other. Of one thing I am certain, that as the passage of slaves from one State to another, would not make a slave of a single human being who would not be so without it, so their diffusion over a greater surface would make them individually happier, and proportionally facilitate the accomplishment of their emancipation, by dividing the burthen on a greater number of coadjutors. An abstinence too, from this act of power, would remove the jealousy excited by the undertaking of Congress to regulate the condition of the different descriptions of men composing a State. This certainly is the exclusive right of every State, which nothing in the constitution has taken from them and given to the General Government. Could Congress, for example, say, that the non-freemen of Connecticut shall be freemen, or that they shall not emigrate into any other State?

I regret that I am now to die in the belief, that the useless sacrifice of themselves by the generation of 1776, to acquire self-government and happiness to their country, is to be thrown away by the unwise and unworthy passions of their sons, and that my only consolation is to be, that I live not to weep over it. If they would but dispassionately weigh the blessings they will throw away, against an abstract principle more likely to be affected by union than by scission, they would pause before they would perpetrate this act of suicide on themselves, and of treason against the hopes of the world. To yourself, as the faithful advocate of the Union, I tender the offering of my high esteem and respect.” (Emphasis added)

In essence Jefferson was predicting a civil war over the issue of slavery — a war that would commence some 41 years later.

In closing I refer to something Alexis de Tocqueville said in his 1840 book “Democracy in America” about tyranny:

“I would like to imagine with what new traits despotism could be produced in the world. I see an innumerable multitude of men, alike and equal, who turn about without repose in order to procure for themselves petty and vulgar pleasures with which they fill their souls. Each of them, withdrawn apart, is a virtual stranger, unaware of the fate of the others: his children and his particular friends form for him the entirety of the human race; as for his fellow citizens, he is beside them but he sees them not; he touches them and senses them not; he exists only in himself and for himself alone, and, if he still has a family, one could say at least that he no longer has a fatherland.

Over these is elevated an immense, tutelary power, which takes sole charge of assuring their enjoyment and of watching over their fate. It is absolute, attentive to detail, regular, provident, and gentle. It would resemble the paternal power if, like that power, it had as its object to prepare men for manhood, but it seeks, to the contrary, to keep them irrevocably fixed in childhood; it loves the fact that the citizens enjoy themselves provided that they dream solely of their own enjoyment. It works willingly for their happiness, but it wishes to be the only agent and the sole arbiter of that happiness. It provides for their security, foresees and supplies their needs, guides them in their principal affairs, directs their industry, regulates their testaments, divides their inheritances. Can it not relieve them entirely of the trouble of thinking and of the effort associated with living?

In this fashion, every day, it renders the employment of free will less useful and more rare; it confines the action of the will within a smaller space, and bit by bit it steals from each citizen the use of that which is his own. Equality has prepared men for all of these things: it has disposed them to put up with them and often even to regard them as a benefit.

After having taken each individual in this fashion by turns into its powerful hands, and after having kneaded him in accord with its desires, the sovereign extends its arms about the society as a whole; it covers its surface with a network of petty regulations-complicated, minute, and uniform-through which even the most original minds and the most vigorous souls know not how to make their way past the crowd and emerge into the light of day. It does not break wills; it softens them, bends them, and directs them; rarely does it force one to act, but it constantly opposes itself to one's acting on one's own; it does not destroy; it prevents things from being born; it does not tyrannize, it gets in the way, it curtails, it enervates, it extinguishes, it stupefies, and finally it reduces each nation to nothing more than a herd of timid and industrious animals, of which the government is the shepherd.”

Today we are throwing away the efforts of our Founders and Framers of the Declaration of Independence and Constitution for a welfare state described by de Tocqueville. We have gradually for the past 100 years been drifting into a collective dominated by the government shepherd.