Tuesday, October 28, 2008

When I landed in Peru in 2000, I had to learn the language. New languages are very difficult for a person who is hard of hearing. I began reading books with my trusty English/Spanish dictionary to improve my language skills. I read the textbooks of the biologist with whom I was working and my oceanographer friend Robert who is married to a biologist. Occasionally I would try a novel to see what their literature was like but I found them not to my taste. I complained to friends who complied by bringing me history books. They felt I couldn't understand them without knowing their historical roots. After reading more than 50 books in both Spanish and English, I saw a pattern of events in the footnotes that were basically ignored by historians until I came across a thesis by a history student published in 1989 on the role of Great Britain in the Great War of the Pacific in 1880. This led me to the story of Nicolas de Pierola, the last of the great swash-bucklers.

As the Generals danced in and out of the President's post through the first half of the 19th century following the victory of San Martin and the declaration of independence, the British were the first to set up shop and get into trade. Because they were owed a pile of money for financing the liberation armies, they negotiated monopolistic rights on the most valuable resources. Gold and silver were well known but they soon came to learn the secret of the Peruvian coast. Guano was worth more than gold! Most of the coast of Peru has never felt the touch of raindrops. Guano is bird dung. Before the fishmeal industry devastated the coastal ecosystem by taking too much of the anchoveta (anchovy) stock, depriving the other creatures of the system of their main source of food, Peru's coast was host and home to uncountable numbers of birds. One observer watched two black lines of cormorants heading home after a day's fishing that took more than 5 hours to pass! The favourite nesting places were the islands just off the coast where they were safe from predators, including man. For thousands of years their dung would dry in the tropical sunshine and grew into mountains hundreds of meters high.

Guano is not only one of the best fertilizers known, it is also an important ingredient in gunpowder. The merchants got concessions (often through bribery) on the guano but withheld the royalty payments owed to the Peruvian government until the government ran out of cash to pay the bills. These merchant bankers from London would LOAN the government the money they OWED the government at high interest rates!

They loaned the government money to build railroads to haul the ore from the mines that they owned to the coast for shipping back to Europe, keeping the Peruvian government in debt and constantly on the brink of bankruptcy and charging outrageous interest rates.

In 1869, a young man came down from Arequipa, Peru's second largest city, and began writing articles protesting the disgrace of those in power. At the age of 30, Nicolas de Pierola became the minister of finance in the government and immediately announced that Peru would no longer tolerate this shoddy treatment by the British merchant bankers. Nicolas was the son of a Spanish aristocrat who gave up his wealth to support liberation. Although poor, he had powerful friends, especially in the Catholic Church. Arequipa is the ultra conservative balance to the liberal ways of Lima. The friends of his father arranged a full education for Nicolas in a convent university in Arequipa.

In the 1840's a great discovery was made in the desert in the south of Peru. Saltpeter. Also excellent fertilizer and also excellent for high quality gunpowder. Charles Darwin describes seeing a basin more than 100 miles in diameter with pure "phosphates", as they were known then, in a massive layer from 3 to 100 meters thick. British merchants latched onto this and pulled the same dirty tricks to cheat the Peruvians of their wealth.

Pierola took a trip to France and met with their bankers. He negotiated a fair contract for the harvesting of guano and another for the mining of saltpeter, to come into effect when each of the existing concessions reached its end date.

The British were furious! They demanded a return to the status quo but Nicolas was adamant and had persuaded the President and the congress to support him and stand firm. Never again would Peru humble itself and pay usury for money it was owed!

The British quietly went to Chile and stirred up the people down there. Peru's wealth, they said, would make Chile a rural backwater. The business in the port of Valparaiso would all go to Callao. Peru must be stopped! Chile needed the mines in southern Peru and Bolivia to balance the scales!

Peru had warships being built in England. They were diverted to Chile. With the financial backing of the British merchants (and approval of the British government) Chile invaded Peru, occupied Lima for 3 years and left, taking the southern part of Peru where the saltpeter mines were and the coastal area of Bolivia where there were silver and copper mines.

In the leadup to all this, while the Peruvians were dithering over whether or not they could stand against the growing British Empire, Pierola decided he had had enough. With a handful of compatriots they stole the Huascar, a boat called a monitor that lies low in the water with only it's gun turret above the surface, invented by the Confederates in the American Civil War. Another coup in Lima had forced a change of president and Nicolas de Pierola was going to put things right! He cruised into Callao and demanded the great fortress surrender! People lined the cliffs to watch this brash young man challenge the navy. The Peruvians didn't have a warship capable of taking on the Huascar and an earlier president had sold the cannons of the fortress for scrap, so they demanded the British War ships take care of Pierola claiming he was a pirate and had stolen their ship. After a short diplomatic flurry (always necessary in the Spanish culture) the British agreed. They demanded that Pierola surrender or they would open fire.

The brassy little aristocrat from Arequipa attacked the 3 warships with his little monitor! They fired at him but couldn't hit him as he chugged in and fired cannon shells back, ripping a hole in the side of one of the ships! The British retreated!

Pierolo marched from Callao to the Palace in Lima through a massive cheering crowd that kept growing as he went. The President fled in panic! Pierola declared himself President and spelled out the rules of doing business in Peru.

That was when the British decided to send in the Chilean Army escorted by Peru's warships.

The wound to Peruvian pride still has not healed, more than 125 years later.

Nothing to do with our subject of money, but an intersting post-script:

Nicolas de Pierola remained dictator only long enough to end the war with Chile and set up elections for a new democratic government. He returned to politics in 1895, when he was elected by a landslide.

The power of money shapes our lives. The men who dictate policies to governments are never seen in public. The names of the rich that we read in the papers are part of the smoke and mirrors that hide the few people with enough money power to dictate to all of the governments of the world.

The information revolution gives us the power to understand the forces that control our destinies and allow us to change our destinies for the better.

Will we? Or will we just go get a hamburger while they last?

Monday, October 27, 2008

Capitalism

1776 was a watershed year in human history. On July 4th, the founding fathers declared independence for the 13 British Colonies and created the United States of America.

That same year Adam Smith published a work called The Wealth of Nations.

The Wealth of Nations espoused a new concept in doing business more suited to the new industrial revolution than the system used by the old agricultural era. Steam had created factories. Factories required capital and as the industries gained steam they needed more and more capital.

At the time, this was only happening in Britain, as the Kings of Europe, afraid of losing their grip on their realms, banned industrial development, just as China had done two thousand years before. The first factories were mechanized looms for making cloth but soon ironworks began to expand and steam was put to another purpose that changed the face of the world...

Railroads.

Adam Smith proposed that capital be arranged by tradeable shares so that the wealthy could pool their money to create greater and grander projects. The Free Trading Stock Exchange was created in London and in no time at all made London the financial center of the known universe.

The seed that grew into the British Empire was planted by Queen Elizabeth in the 1500's with the charter of the East India Company granted to a small group of families close to the royal house, to organize and operate British interests in the spice trade where the only real competition came from the Dutch.

Being an island nation, Britain was a country of seafarers and concentrated on building the most powerful navy on the seven seas. As the industrial revolution expanded, people were needed for the factories located mainly close to the sources of coal and water in the northwest of England causing a major population shift from the agricultural southeast. People were taken from their drudgery on farms and crammed into rapidly growing slum cities where the appalling living conditions caused widespread discontent.

In 1770, the throne of England was left vacant by a king with no heirs. They looked around for a family with royal blood and chose a German king to sit on their throne. George I came to the throne and ruled England without even learning the language. It was George who demanded the colonies pay the stamp tax to fund the rebuilding of the British Navy, which had been neglected and was falling into disrepair. The Stamp Act was the cause of the American Revolution. The sick condition of the "navy that ruled the oceans" was the weakness that allowed the Americans to win their war of independence with the gleeful backing of the King of France. The French were able to disrupt the British supply lines preventing arms and men from reinforcing the sparse British army that had gone into decline in North America with the defeat of the French in Quebec.

With the loss of the United States, England needed a new supply of raw materials for their factories and new markets for their manufactured goods. They funded the South American war of independence from the Spanish King; and when the dust settled, the newly independent nations found themselves in deep debt to the British financiers. The Bitish learned an important lesson in Buenos Airies. When Napoleon marched into Madrid and put his brother on the throne, the British invaded Buenos Aires only to find that the locals were strong enough to throw them out. They came up with a new idea of empire. Don't conquer these countries and have to maintain huge armies to hold them, simply own them and control their banking systems. This new strategy at first employed British war ships that would sail into a port and demand that the ports be opened to "free trade". Since they controlled the shipping routes, they were the only "free trade partners" with the South Americans. By secretly funding the independence armies of San Martin and Bolivar they avoided war with Spain while stealing their colonial wealth.

Indeed, when the United States declared independence, most of their wealth was still in the hands of British families that sent sons to America to live and look after their financial interests. This is still the basis of the "special relationship" between Great Britain and the United States.

In the East Indies (or as it was also known, the West Pacific) the Dutch had come up with a new weapon of war: OPIUM. The Dutch got opium from India and would flood a target country with it, addict as many people as possible and then march in and conquer people too laid back to resist. The British loved the idea, so they marched into India, kicked out the Dutch and took over the opium trade. When the British discovered that opium was also grown in Afghanistan, they became a foreign power that learned the hard way that these rugged mountain people were not giving in to subjugation so they moved to China to set up opium growers in the parts of that country that were suitable. To get their way, they used the Dutch tactic of flooding China with opium addicting as many as possible making them unable to resist the British forces.

The opium growers would accept no paper money from anyone; only gold and diamonds. This meant that a system of payment had to be created without being dragged into war for breaking treaties over the transfer of gold and precious gems. One family went to South Africa to open gold and diamond mines to pay the opium growers. The British created their colony of Hong Kong as home of the banking establishment to handle the secret transfers of gold and diamonds to the growers. They also needed ships to transport the opium and the payments for it so they established the Hong Kong and Shanghai Bank and the Pacific and Orient Shipping Company. They found that diamonds were far easier to transfer so they created a monopoly on diamonds that we know today as De Beers to maintain a stable, although artificial, price.

As the 19th century opened, the only money acceptable to most people was coinage. The only paper money was promisory notes written personally between parties. With the explosion of the industrial revolution and the business growth that accompanied it, shipping metals back and forth and around the world was just too cumbersome and costly, paper notes increased in usage as banks began to issue them instead of coins. Bank notes were slow to gain acceptance until the railroads and telegraph sped up the market so much the use of paper notes as promises to pay in real goods (originally denominated in specific weights of gold or silver) that began to be passed from person to person in daily trade and became the medium of exchange. The original pound sterling was just that. A promise to pay one pound of sterling silver on demand. Anyone could issue a note as long as they had the goods to back the note. Banks printed them, governments printed them and soon the dominant notes became the currencies on which the concept of nations was redifined in the late 1800's. This redefining of nations led to the two great wars of the 20th century.

As these events were unfolding, two German students living in London, Marx and Englels, wrote a critque of the newly emerging capital system of finance called "Das Kapital". This book became the rallying point for the creation of the concept of Communism. Although Lenin tried to create commune-ism in Russia, the movement was subverted by Trotsky and then Stalin into a totalitarian dictatorship calling itself Communist even though it was not, and giving the concept of commune-ism, or shared ownership of the means of production, a bad name.

The patchwork money system of the industrial era suited the financiers as it gave them the tools to control the creation of money backed by their industrial output and their armies and police.

The dawn of the information age has made this patchwork money system obsolete. We are witnessing the meltdown of the system through "loss of confidence".

It is time to ask the hard questions. Do we continue patching up the old systems of exchange of goods and services leaving the creation of new money as needed for market expansion in the hands of the "old money" people? Or do we start to create a just system of expansion of the money supply for the use and benefit of all people?

I welcome your thoughts and ideas. A just global monetary system is the ticket to introducing the Utopian Era of human existence. Or, as we learned from Star Trek, the abolition of money as the basis of providing the goods and services of human endeavour to the population of our tiny planet that has become, for all intents and purposes, one large city state still divided into barrios like New York in the era of West Side Story.

Saturday, October 25, 2008

Significance of The Money Tree

It has occurred to me that the message my father tried to give our nation in Parliament is more significant than ever. He called it Social Credit and was a Member of Parliament in the political party of that name in the 50's and 60's. The Social Credit Party was based on the writings of a former Governor of the Bank of England who wrote about the injustices of the financial system and was promptly fired for his daring to expose the game: THE BIGGEST CON GAME IN THE HISTORY OF THE WORLD since the beginning of religion!

What is Money?

Where does Money come from?

Why is Money called the Root of All Evil?

R. Buckminster Fuller told a story to illustrate the origin of money that rings truer than mere fable.

In the early days of human existence on Planet Earth, before the invention of writing, humans lived in small tribes foraging for food. As each tribe discovered new innovations like fire for cooking and shelter from the elements they began to collect "valuable" things they felt they needed like tools and weapons. The first inter-tribal wars were fought over territory in which grew the plants and animals that they ate. Tribal warfare became commonplace.

One tribal leader had a better idea. He had noticed a deep cave with a small opening on his territory. He had sons, brothers, cousins and nephews that were strong. He selected a bead of sufficient scarcity and local mainly to his land as a symbol. He went to visit neighbouring tribes.

Whenever attacked or when leaving for a raid, tribes had to carry their valuables with them for protection. He told the other leaders of his cave that could be guarded against a hoard of attackers with only a few strong men. He suggested that when a tribe went to war, they bring their valuables to his cave for safe keeping. He would give them a quantity of beads that represented their holdings. By doing this, the warring tribe could travel unencumbered by their valuables, which could be reclaimed when they returned from battle or could be claimed by the victors if they lost the war (if they knew the value of the beads).

The beads became the first currency of trade, or "money" between the tribes and our chief with the cave became the first "banker". The banker could demand that the other tribes bring his clan food in payment for guarding the cave and when a tribe left valuables and were wiped out in battle, the banker tribe kept their valuables.

The key to money is CONFIDENCE.

Soon people began to use the beads to trade with each other in ways more efficient than mere barter. They believed in the value of the beads because they knew that the value was based on the ever growing collection of "real valuables" in the secure cave.

Over the millenia the symbols changed while the principle remained the same. Our archeological history shows how beads were replaced by rare seashells in inland areas and gradually by lumps of stone of special properties (gems) and metals. Experimenting with fire and metals as tribes grew into empires, the coin was introduced as a trading medium that was backed by the power and wealth of each empire as they rose and fell.

Coinage became money and the metals used to make coins gained in value, not only for money but for arms and tools. Gold became the metal that symbolized wealth because of its rarity and also its purity. Gold doesn't rust. Early man discovered that it could be hammered into shapes because of its malleability. Then they discovered it could be melted and formed without changing its essential nature. This created the Gold Standard that still exists today.

Throughout the agricultural era, common folk didn't need or use money. They lived in feudal societies where they were housed and fed in return for their work. Only the feudal estate leaders used money for major trading between estates and between empires. An estate that grew mostly grain could trade their excess for gold and then buy the meat, seafood and weapons materials when and where they desired.

Gold fever gripped the human race. It still does.