Thursday, July 5, 2012

What Life Was Like in 1776

This op ed piece appeared in the WSJ this week which dictates "What Life Was Like in 1776".  The author Thomas Fleming is a former president of the Society of American Historians. This article was adapted from his e-book, "What America Was Really Like in 1776," recently published by New Word City.


Almost every American knows the traditional story of July Fourth—the soaring idealism of the Declaration of Independence, the Continental Congress's grim pledge to defy the world's most powerful nation with their lives, their fortunes and their sacred honor. But what else about revolutionary America might help us feel closer to those founders in their tricornered hats, fancy waistcoats and tight knee-breeches? 



Those Americans, it turns out, had the highest per capita income in the civilized world of their time. They also paid the lowest taxes—and they were determined to keep it that way.

By 1776, the 13 American colonies had been in existence for over 150 years—more than enough time for the talented and ambitious to acquire money and land. At the top of the South's earners were large planters such as George Washington. In the North their incomes were more than matched by merchants such as John Hancock and Robert Morris. Next came lawyers such as John Adams, followed by tavern keepers, who often cleared 1,000 pounds a year, or about $100,000 in modern money. Doctors were paid comparatively little. Ditto for dentists, who were almost nonexistent.

In the northern colonies, according to historical research, the top 10% of the population owned about 45% of the wealth. In some parts of the South, 10% owned 75% of the wealth. But unlike most other countries, America in 1776 had a thriving middle class. Well-to-do farmers shipped tons of corn and wheat and rice to the West Indies and Europe, using the profits to send their children to private schools and buy their wives expensive gowns and carriages. Artisans—tailors, carpenters and other skilled workmen—also prospered, as did shop owners who dealt in a variety of goods. Benjamin Franklin credited his shrewd wife, Deborah, with laying the foundation of their wealth with her tradeswoman's skills.

Several hundred miles inland was the "back country," and at the time of the Revolution, not many people went there by choice. Most were poor and landless—younger sons, for example, whose older brothers had inherited the family's property. Life on the outskirts of civilization was hard and often violent. Morals on the Western frontier were often much more relaxed than they were in the civilized East.

image
Bettman/Corbis
The Blue Anchor Inn, Philadelphia, Pa., 1776 
 America in 1776 was also a diverse nation. The first census, taken in 1790, revealed that only about 60% of the people came from England. The rest were German, Irish, Dutch, Scottish, Swedish and African.

Men wore clothes that were as colorful as the ladies' garb. One male fashion plate in New York ordered a suit of "superfine scarlet plush and a vest of light blue plush." Among the ladies, the beauty business was already a major force in the economy. "Fashion dolls" wearing the latest styles circulated through the city and the country. Women regularly spent a half day getting their hair "permanented" for a ball. Ladies seeking to preserve the sheen of youth spent a fortune on "paints" from China and lip salves from India.

Molly Tilghman of Chestertown, Md., summed up the prevailing opinion when she told her cousin Polly Pearce: "Wisdom says beauty is a fading flower but it attracts more admiration than wit, goodness or anything else in this world."

Another American tradition beginning to take root was female independence. The wife of Sueton Grant ran her husband's shipping business in Newport, R.I., for more than 30 years after his death in 1744. As a teenager, Eliza Lucas began experimenting with various plants on her father's Wappoo Creek Plantation, near Charleston, S.C. Soon she was raising indigo, which became one of the most profitable crops in the South.

Philadelphia's Lydia Darragh, America's first female undertaker, operated her business for almost a decade before the Revolutionary War began. During the war she was one of George Washington's most successful spies.

"Domestic felicity" was considered vital to everyone's peace of mind, and although divorce was legal, it was also rare. Although money played a part in marriages among the more affluent, family life was often full of affection. The love letters Col. Thomas Jones of Virginia wrote to his wife began "My Dearest Life."

Not everyone achieved this level of bliss. One notoriously unhappy marriage involved Col. John Custis of Arlington, Va., and his wife, Frances Parke. According to local accounts, they would go for weeks without speaking. One day, on a carriage ride, Mrs. Custis realized he was driving their "equipage" straight into Chesapeake Bay.

"Where are you going, Mr. Custis?" she asked. "To hell, Madam," the colonel replied. "Drive on," she said. "Any place is better than Arlington."

The colonel—or his horses—apparently changed their minds.

By 1776, the Atlantic Ocean had become what one historian has called "an information highway" across which poured books, magazines, newspapers and copies of the debates in Parliament. The latter were read by John Adams, George Washington, Robert Morris and other politically minded men. They concluded that the British were planning to tax the Americans into the kind of humiliation that Great Britain had inflicted on Ireland.

As eight years of war engulfed the continent, not a few of the rebels saw that the Revolution was a spiritual enterprise that would never really end. Dr. Benjamin Rush, a Pennsylvanian who signed the Declaration of Independence, wrote that the war was only the first step in the Revolution's destiny to transform America and the world.

History confirmed his intuition. In the next hundred years, other nations and peoples would issue 200 similar declarations.


Wednesday, July 4, 2012

Happy 4th of July

As we all take time to celebrate our Independence in the US today let us not forget that there have been significant sacrifices made by generations past and present in order for us to celebrate this great national holiday.

This is a post that I had issued back in May during the Memorial Day holiday period.  Let us not forget those sacrifices as we move forward today.

Have a safe and happy 4th of July!

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Michael Burry’s UCLA Economics Commencement Speech

Michael Burry was the driving character behind Michael Lewis's book The Big Short.  He was quite the visionary when it came foreseeing the economic crisis specially the housing bubble.

As Burry put it, "I bet against America and won."  He ended up being in the proverbially 1% but not how he had envisioned.

Monday, July 2, 2012

Mish Shedlock: Zero Hedge Provides Empirical Proof of Deflation (However, He Does Not Even Realize It)

Full post by Mish Shedlock on post by Zero Hedge concerning shadow banking.  Eventually he turns to the deflation vs. inflation debate.
Zero Hedge, citing a Federal Reserve Bank of New York report on Shadow Banking, makes (without even realizing it) a sure-fire case for deflation.

I encourage you to visit the link shown above, but also take a look at On The Verge Of A Historic Inversion In Shadow Banking by Zero Hedge.

Here is the introduction by ZH.

While everyone's attention was focused on details surrounding the household sector in the recently released Q1 Flow of Funds report (ours included), something much more important happened in the US economy from a flow perspective, something which, in fact, has not happened since December of 1995, when liabilities in the deposit-free US Shadow Banking system for the first time ever became larger than liabilities held by traditional financial institutions, or those whose funding comes primarily from deposits.

As a reminder, Zero Hedge has been covering the topic of Shadow Banking for over two years, as it is our contention that this massive, and virtually undiscussed component of the US real economy (that which is never covered by hobby economists' three letter economic theories used to validate socialism, or even any version of (neo-)Keynesianism as shadow banking in its proper, virulent form did not exist until the late 1990s and yet is the same size as total US GDP!), is, on the margin, the most important one: in fact one that defines, or at least should, monetary policy more than most imagine, and also explains why despite trillions in new money having been created out of thin air, the flow through into the general economy has been negligible.
Empirical Proof of Deflation

Here are the pertinent charts and commentary.



That chart is from the NY Fed.

On a similar chart ZH commented ... "As another reminder, US Shadow Banking liabilities - a combination of Money Market funds, GSE and Agency paper, Asset-Backed paper, Funding Corporations, Open market paper and of course, Repos - hit a gargantuan $21 trillion in March 2008. They have tumbled ever since, printing at just under $15 trillion at the end of March 2012, the lowest number since March 2005 when shadow banking liabilities were soaring. This is an epic $6 trillion in flow being taken out of credit-money circulation, with a $143 billion drop in Q1 alone!"

Sequential Change in Shadow Bank Liabilities



click on chart for sharper image

The chart immediately above is from ZH, not the NY Fed article.

ZH comments ... "It is precisely this ongoing contraction that the Fed does all it can, via traditional financial means, to plug as continued declines in Shadow Banking notionals lead to precisely where we are now - a sideways "Austrian" market, in which no new credit-money money comes in or leaves."

Emphasis in bold by ZH.

Deflation It Is

There is nothing "sideways" about it. The charts clearly show credit money is indeed leaving (contracting) to the tune of a whopping $6 trillion since March 2008.

Interestingly, Zero Hedge did not mention "deflation" once in his post.

Yet, those charts, without a doubt, depict deflation if one accurately describes inflation and deflation as measures of credit, not prices.

Based on real-world experience of what is most important, here is my definition: Inflation is a net increase of money supply and credit with credit marked to market.

Deflation is the opposite, a net decrease of money supply and credit with credit marked to market.

If one woodenly sticks to the view that inflation and deflation are about prices (while ignoring a devastating collapse in housing), then yes, the US is still in a period of inflation.

Likewise, if one foolishly sticks to measures of money supply like M1, M2, or  TMS (true money supply)  by Michael Pollaro, then the US is also in a period of inflation.

Real World Viewpoint

Neither money supply nor the CPI can adequately explain interest rates, housing prices, lack of jobs, and numerous other real-world phenomena. 

In the real-world, in a credit-based economy, it is credit that matters.

The above charts show the real story. That story explains 10-year treasury yields at 1.61% and 2-year yields at .29% even though the CPI is 1.7% year-over-year.

Those charts also show why hyperinflationists are in an alternate universe and why proponents of "huge inflation but not hyperinflation" are on Mars.

Mike "Mish" Shedlock