Thursday, February 16, 2023

The Great Depression

Nearly a century ago, our collective soul as fellow Americans was forever scarred by the Great Depression of the 1930s.  Beginning with the stock market crash on Black Thursday, October 24, 1929, and continuing until World War II, the Great Depression economically devastated the United Stated and much of the world.  “Peak to trough, global [gross domestic product] fell 15 percent world-wide from 1929 to 1932.”  Comparing the Great Depression to the Great Recession, from the top to the bottom, global GDP fell less than one percent between 2008 and 2009.

The devastation to the United States cannot be overstated and is ongoing.  From 1929 to 1932, family income dropped over 40 percent.  By 1933, nearly a quarter of America was unemployed.  In addition, about 9,000 banks failed, thus leading to many of those who deposited cash in America’s banks to lose their entire savings.  In 1933, Congress began instituting Franklin D. Roosevelt’s “New Deal” policies and thereby creating scores of new federal agencies in an effort to address the economic wreckage.  These unprecedented federal government programs, enacted in an effort to get the nation’s economy moving forward, never had the desired effect and proved to be job killers instead of job creators thus dragging out the economic wreckage over an entire decade.  Even more importantly, the size and scope of the federal government has continued to grow dramatically ever since the inception of Roosevelt’s New Deal and has turned into the leviathan government our nation has today.  In addition to the dire adversity described above and also in the 1930’s, America suffered through serious Midwestern droughts which great hampered food supply chains as well as the economy as farmers went bankrupt in massive numbers.  Some scholars argued in the past that the Great Depression was caused by the excesses of capitalism, but as argued by Milton Friedman, the general consensus is now that the Great Depression was caused by the failure of the Federal Reserve System to endorse a more expansive monetary policy which could have limited the economic damage done by the Great Depression. 

Pursuant to its power under the U.S. Constitution to coin money and in 1913, Congress created the Federal Reserve System for the specific purpose of creating a more liquid, elastic currency in order to provide greater stability to the American banking system.  Prior to the inception of the Federal Reserve System, bank panics plagued America and was blamed on an “inelastic currency.”  In his book, A Monetary History of the United States, 1867-1960, Friedman explains how the prior system worked.  Like today, depositors would deposit their cash savings with banks or with other financial institutions which in turn would lend the cash in collateralized loans to third-party borrowers.  Occasionally unfortunate events would occur which would lead depositors en masse to attempt to withdraw all their money from the bank all at once.  Because the bank’s cash deposits were tied up in collateralized loans, cash was unavailable to all depositors all at once.  Consequently, the bank would fail thus creating more fear and leading to more runs on the banks and more bank failures.

The Federal Reserve System was enacted to provide liquidity to the banking system in order to limit bank runs and failures.  Member banks were required to deposit their cash reserves with regional Reserve Bank, and if the run on a bank occurred, the regional Reserve Bank could advance the bank cash from the “discount window” in exchange for some collateral, thus theoretically providing more liquidity to the banking system.  That said and on December 11, 1930, when Bank of United States failed, the Federal Reserve System failed to provide the necessary liquidity the Jewish-owned bank, in part, based upon antisemitic reasons as alleged by Friedman.

Friedman argued that Bank of United States was a “sound” bank at the time that was plagued by unfounded rumors which caused a run on the bank.  The New York Reserve Bank devised a plan to save Bank of United States, but “the Clearing House banks of New York refused to adopt it.”  As detailed by Friedman, “Anti-Semitism almost surely played a role in the decision of the Clearing House to reject the New York Reserve Bank’s plan,” and he expounded as follows:

For most members of the Clearing House, the evidence to this effect is indirect.  It is much less so for those members dominated by J. P. Morgan & Co.  We know how John Pierpont Morgan, Jr., the head of the House of Morgan, felt about Jews, thanks to an entry in the diary of Charles Hamlin—a Federal Reserve Board member from 1914 to 1936 and, fortunately, a lover of gossip. Hamlin records that at a board meeting on Jan. 20, 1917, “Gov. [W. P. G.] Harding [chairman of the Fed] said he had had a two-hour talk w. J. P. Morgan at the Met. Club late this p.m., that Morgan…seemed very bitter against Warburg [Paul M. Warburg, a member of the board] evidently thinking he was dominating the board; that he said he did not trust Jews: that they had killed his father (referring I suppose to Untermyer) and that some time he should get even with them!” From The Collected Works of Milton Friedman, compiled and edited by Robert Leeson and Charles G. Palm.  The reference is to Samuel Untermyer, a famous Jewish lawyer of the time, who served as counsel to a Congressional committee that investigated “The Money Trust” (the Pujo committee).  In that capacity, Untermyer questioned J. P. Morgan Sr. in December 1912, some months before Morgan’s death.  The son no doubt was referring also to Louis D. Brandeis, who had strongly criticized Morgan and who did much to stimulate and later publicize the Congressional inquiry.  The Morgans presumably felt that Untermyer and Brandeis had unfairly subjected J. P. Morgan Sr. to public obloquy.  J. P. Morgan Jr. finally got “even with them”—but at what a cost to the nation.

As of 1930, Bank of United States was largest commercial bank to ever fail.  In addition, and while not being the official bank of the United States, the name “Bank of United States” gave the bank an air of being the official bank of the country.  Consequently, and as a result of its size and perceived status, the failure of Bank of United States started a cascade of bank failures across the United States.  By 1933, all of the banks in the entire United States (including the Federal Reserve) had to close for a week in order to prevent massive bank failures which changed the severe recession into a catastrophe and “the worst panic the country had ever experienced.”

As such and as concluded by Friedman, the Great Depression was caused by a failure of the Federal Reserve System to utilize policy for which the Federal Reserve System was created to provide liquidity to banks.  That said, and although Bank of United States was the first bank to fail, possibly any other bank could have caused the string of runs on banks as well.

Thursday, February 9, 2023

George W. Starr - Hardrock Gold Miner

William Bowers Bourn was the original owner of the Empire Mining Company, but in 1874, he died in San Francisco from an accidental, self-inflicted gunshot wound to the stomach.  At the time of Bourn’s untimely death, the Empire Mining Company was still in financial straits as a result of the Panic of 1873.  After Bourn’s death, his son, William Bowers Bourn, Jr., operated the mine, and in 1881, William Bowers Bourn’s nephew, George W. Starr, started working at the Empire Mine as a mucker.  A mucker is a miner who shovels broken rock into mining cars for removal from the mine.  Starr was an orphan at the age of 11 after his mother died and he was abandoned by his father.  Despite his humble background, Starr had knack for mining and was very talented miner.  Starr work is way from being a mucker, to a miner, and to a shift boss.  Finally, and after six short years, Starr became the superintendent of the Empire Mine to whom the younger Bourn, after selling his controlling interest in the mine, left the management of the mine.

Starr had knack for mining and was very talented miner.  Starr embodied the notion that if you are not moving forward, you are moving backward.  He constantly strove to improve the operations of the Empire Mine.  In 1890, Starr introduced drills powered by compressed air which increased the productivity of the miner as well as the depth to which the miners could dig, and in 1891, Starr launched electric lighting to the tunnels of the mine.  At the Empire Mine, Starr built a formidable reputation as a miner in California and worldwide as an authority on hardrock gold mining.

In 1893, Starr was lured to South Africa John H. Hammond.  Starr left Grass Valley, California, for the gold mines continents away.  Prior to Starr’s departure, the Empire Mining Company began to take a slight downturn which subsequently became a large downturn.  In fact, and in 1893 and again in 1894, the Empire Mining Company failed to pay expenses.  With the drop in value of the mine, Bourn bought low and regained his controlling interest in the Empire Mining Company in 1896.  During the period from 1893 to 1898, the mine was actually run at a loss.

Shortly thereafter, and while Starr was visiting San Franciso from South Africa, Bourn convinced his cousin, Starr, to rejoin him at the Empire Mine.  Bourn offered his cousin the position of Managing Director with the understanding that Starr would bring the mine back to its former greatness. 

Prior to accepting the position, Starr examined the operations of the mine and demanded $200,000 from the board of directors and investors in order to modernize and to repair the above-ground facilities which were dire straits.  While the board of directors was at first quite hesitant, Bourn pressured the board to accept Starr’s terms.  Starr, with a newly freed hand, went about turning the mine around.  Under Starr’s management and armed with the experiences from hardrock gold mining in South Africa, Starr reinvigorated the Empire Mine leading it to become and extremely profitable venture.  During the early 1900’s, the Empire Mining Company became a model mine.  Starr got rid of the old Cornish pumps and replaced them with new hydraulic pumps as well as completely renovating the above-ground facilities (rock crushers, boilers, compressors, and offices).  Starr explained, “What appears as an extravagance is a renumerative improvement.” 

During Starr’s tenure, the mining operations never shut down and he never requested additional funds aside from the initial $200,000.  All improvements in addition to the initial $200,000 was paid for out of earnings and the company still issued dividends.  In short, George W. Starr was a driving force behind the success of the Empire Mining Company.

Thursday, January 26, 2023

Why Do We Have Two Pasty Restaurants in Grass Valley?

 During the first few years after our arrival in Nevada County, California, from the Midwest, I pondered a few questions in connection with these pasty restaurants in Grass Valley.  First, I wondered what in the world is a pasty?  Second, why are there two restaurants in Grass Valley where you can buy them?  Finally, why are there no pasty restaurants in Nevada City, California, which is only five miles from Grass Valley? 

Eventually after being here for some time, I asked a local friend what is a “pastey” (“a” as in waste)?  After giggling for a second, my friend politely told me that it is pronounced “pasty” (“a” sounds like apple) and that it is a flaky meat pie with origins in Cornwall, England.  His answer seemed quite random yet quite specific at the same time.  Meat pie? Cornwall?  California?  So, I pressed him further and asked why there are two “pasty” restaurants in Grass Valley.  His response was very simple.  Miners from Cornwall, England, immigrated to the Grass Valley during the gold rush after 1849, and their wives made them pasties to be eaten in Empire Mine while working.  Being observant, I inquired of my friend as to why there are no pasty restaurants in the old mining town of Nevada City just a few miles away, and he had no idea.  In truth, I am not a fan of the pasty, as they are pretty bland and not very flavorful.  Yet, the pasty supports two separate restaurants in Grass Valley, and the tradition of the Cornish miners lives on.  Grass Valley even has a Cornish Christmas, but why do the Cornish mining traditions remain in Grass Valley and not in Nevada City which is quite literally just over the hill. 

One must understand the nature of mining in California and in the old Empire Mine.  In 1848, John Marshall discovered flecks of gold in the south fork of the American River at Sutter’s Mill located in Coloma, California, about 30 miles southeast of Grass Valley.  Marshall discovered these alluvial gold nuggets in the riverbed and sparked the California Gold Rush.  Thousands and thousands of people emigrated from the east coast of the USA and thousands and thousands also immigrated from Asia, South America, and Europe to partake in the gathering of these gold nuggets laying the rivers of the west slope of the Sierra Nevada mountains.  Over the next couple decades or so, all of this alluvial gold was scooped up by “placer miners.” 

Once the rivers were empty, the miners started mining the actual mountains from where the alluvial gold had originated thousands, if not millions, of years ago.  The problem for the miners was that the California gold is trapped within the granite and quartz of the Sierra Nevada.  Such gold entrapment required knowledge of hard rock tunnel mining, and the Cornish of Cornwall, England, had this mining knowledge which was developed from mining in the Cornwall region since the early Bronze Age.  The Empire Mine was a quartz mine which mined tons of quartz smashing the quartz with giant “stamps” thus freeing the gold from the quartz.  The average yield was about $30 per ton of quartz.  In 1866, and according to the Report on Precious Metals form the Paris Exposition in 1869, Grass Valley had 292 stamps dedicated to gold mining operating in the town while Nevada City had only 147 stamps.  That said, of the 147 stamps in Nevada City dedicated to gold mining, most of the stamps were associated with hydraulic mining and not quartz mining.  According to statistics published by Ralph Mann and in 1860, twenty-two percent of the miners in Grass Valley were from England while only 13% of Nevada City miners were from England.  By 1870 and after quartz mining began to accelerate as alluvial gold disappeared, a whopping 60% of the miners in Grass Valley were from England while only 18% of Nevada City miners were from England. 

By the time Empire Mine closed in 1957, the Cornish miners had created miles of tunnels some even as deep as 11,000 feet and had removed over 5,800,000 ounces of gold had been separated from the quartz fissures.  Not only did the Empire Mine Company become one the greatest mining businesses in California, the mine became the central hub for the creation to the little town of Grass Valley, California, and the Cornish deposited their culture in California along with the pasty and Cornish Christmas.

Thursday, December 15, 2022

Christmas and Jesus Christ - The Loving Message

What better time to talk about Jesus than in December?  The time from Thanksgiving through New Year's Day is very special to us.  In November, we give thanks to God for what we have - food, shelter, family, friends - and for football.  Why we have to give thanks to the Detroit Lions each Thanksgiving morning, I'll likely never know.  Anyway, then on black Friday in all its glory and for the next five weeks, we all start preparing for Christmas and New Year's Day.  

 Staré Město Christmas Market - Prague

Easter certainly has its merits as a time to reflect on Jesus, but in my humble opinion, Christmas is the best Holiday ever.  As a child believing in Santa Claus was phenomenal.  The Easter bunny stories just could never top Santa's reindeer.  My red-suited old man has reindeer that fly, and he comes to my house every year with a new baseball glove or a football.  Winning.  But as a young adult, Christmas was just another holiday when I got to go home from wherever I was living, and I kind of lost track of why Christmas was so special.  Then, we had children.  Children who we had to teach how to be good adults and productive members of society.  Now, and as progressive children of boomer parents from the sixties and even before our children were born, we briefly considered whether we would teach our children the same traditions which our parents had taught us, or would we stray from our roots for something that we may feel is better for our offspring and for society.  In the end (and it was an easy choice), we chose to raise our children as Christians.  

Consequently, and as stated above, the Holidays are very special to us.  Not only do folks prepare by buying gifts for others, the vast majority of Christians, and many non-Christians, also reflect on who Jesus was and what Christmas and Jesus means to us.  As parents who chose to raise Christian children, we had a lot of questions to answer as they grew up.  Daddy, why do Santa's reindeers fly?  Mommy, how does Santa get down the chimney?  Mommy, why does Santa leave presents for us?   Daddy, who was Jesus? 

Okay, now the kids just left the kiddie pool and jumped right into the deep end.  Who was Jesus and why do we celebrate Him?  Good questions.  Our now adult children have come to completely different understandings related to Jesus Christ and the Bible, but they each reached the very same general conclusion.  One attends Christian church semi-regularly.  One believes that the stories in the Bible are just mythical stories about a real person named Jesus who was an amazing philosopher, whose philosophy is a great model for life.  One actually told me that the Christian stories in the Bible are "a false construct."  I have to say this one made me laugh, but despite different approaches, they all believe in living the philosophy of Jesus Christ.  The philosophy of Jesus Christ is one of Love and Charity.  While I don't know how reindeer fly or how Santa gets his fat butt down the chimney, I do know who Jesus was.  Jesus is the way, and He is the Word.  Jesus taught the world that the path to true happiness and joy is love.  Love of your family.  Love for your friends.  Love for your neighbors.  Love of your fellowman.  Love of yourself.  

While I am reflecting on this Christmas and while I don't know about you, I am of the firm opinion that the world could use a little bit more Jesus right about now.  There is so much of the darkness of hate, greed, and narcissism in the world, our family kind of insulates ourselves from it with our own faith and love.  We can be saved as a people by living Christ's message of love whether you believe in the actual Bible stories or not.  

The Great Reverend Martin Luther King, Jr., in one of his most famous speeches titled Loving Your Enemies, concluded, “Returning hate for hate multiplies hate, adding deeper darkness to a night already devoid of stars.  Darkness cannot drive out darkness; only light can do that.  Hate cannot drive out hate; only love can do that.”  This message from Reverend King just so happens to be the message of Jesus Christ which we celebrate this and every December.  It is a message who many in the darkness cannot hear, but we love them anyway.  

In order to make the entire world a better place, we have to be better people.  So, if we do anything at all this Christmas, I pray that we choose to love and that we all love just a little bit more than usual and hopefully that love can carry us all out of the darkness.  Amen, brothers and sisters!  Lol.  On that note, my family and I bid you all a Merry Christmas and a Happy New Year!