Alexander Hamilton versus Shareholder Value - HAWB December 1790

How America Was Built: Alexander Hamilton versus Shareholder Value - HAWB December 1790

This past month I made a concerted effort to read the major reports to Congress submitted by First Secretary of the Treasury Alexander Hamilton. These reports are the foundation documents of the USA economy. And no, the USA economy was not based on the ideas of British imperial economist Adam Smith, whose ideas Hamilton flatly rejected in his reports.

The Second Report on the Further Provision Necessary for Establishing Public Credit was submitted to Congress on December 13th, 1790, and is often referred as The Report on a National Bank. In one section, where Hamilton explains the best structure for a central bank, he propounds a system of proportional shareholder representation in which no one "person, copartnership, or body politic" was allowed more than 30 votes, no matter how many shares they owned. Since this was a Founding Father prescribing a system of corporate ownership that was entirely at odds with the business management ideas of shareholder value, profit maximization, private equity, etc., etc., that have predominated for around the past half century, I was amazed when I began checking various biographies of Hamilton and found that none had pointed to this important fact.

Hamilton's plan of shareholder voting, if it had been extended beyond the central bank to other corporations, would have hampered, if not entirely crippled, the corporate raiders who destroyed tens of thousands of USA industrial facilities--beginning in the 1960s "go-go" years of mergers and acquisitions; the 1970s through 1990s "leveraged buyout" pirates like Michael Milkin and Kohlberg Kravis and Roberts; and contemporary "private equity" scammers like Peter G. Peterson's and Stephen A. Schwarzman's Blackstone Group; David Rubenstein's and Caspar Weinberger's Carlyle Group; Leon Black's Apollo Global Management; and Mitt Romeny's Bain Capital.

Hamilton agreed that larger shareholders should have a larger vote, but he clearly saw the danger that "a few principal Stockholders" could seize control of "the power and benefits of the Bank." Hamilton knew that to preserve the new experiment in republican self-government, any such  dangerous concentration of economic power would have to be guarded against . Hamilton wrote:

Checking on climate change predictions

Because I am spending so much time on the subject of climate change these days, I am having trouble understanding the bigger picture at times. Let me explain.

For years I have been astonished by the ability of the charlatans to muddy the waters on what is really pretty simple science. I have claimed that it should be clear to anyone who stayed awake during 7th-grade science class. But as I worked through the problem of illustrating the CO2 molecule a few weeks back, it dawned on me that there are almost aesthetic reasons why CO2 is such a remarkably stable molecule. And the reason I know that is because I stayed awake for the first week of high school chemistry when bonds were described. My 7th-grade claim is bogus—10th grade Chemistry!

So I asked Tony, "Even though Chemistry is taught in almost all high schools, what percentage of the population signed up to take Chemistry and actually understood what a covalent bond is when it was taught?" His guess was less than 10% of the population. Whatever the number, it is probably small and nowhere nearly as large as the percentage of people who cannot really pass judgement on climate change because they lack the scientific background and are forced to trust someone else's credentials. I believe that this is a subject where the facts should speak for themselves—that there is probably nothing in human history that has been more validated in so many ways as climate change. But it probably should be asked, "How confident should one be in just presenting the facts when less than 10% of the population is equipped to process just the facts?"

Which leads to question 2: "If and when the world gets serious about doing something meaningful about climate change, what part of the population will be required to do the heavy lifting?" The truth is, replacing the fire-based infrastructure with something more sophisticated will require mostly highly skilled people. What good does it do to rile up people who are probably not qualified to do anything more than cheer (at best)?

Flat earth believers

Tony sent me this link. He probably thought I needed help getting going. He understands the "value" I put on folks who spread pure nonsense. Actually, the flat earth crowd doesn't even enter my radar because unless they are employed setting airline routes, it hardly matters what folks believe about the shape of the earth.

However, the sort of "thinking" that goes into this quite-common behavior is downright dangerous. And it is sadly not confined to the lunatic fringe. As pointed out below, this sort of thinking is quite common in the social sciences—Michel Foucault claimed that what the author wrote was nearly irrelevant compared to the power relationships that impacted his writing. Pontius Pilate had a French philosopher asking "what is truth?" I went through a period where the ability to quote Foucault was a sign of intellectual seriousness.

Because I had formulated my facts-as-building-blocks approach to epistemology before I had ever heard of Foucault, I pretty much dismissed him as another typical Leisure Class thinker. If you live in a world where being right or wrong is not terribly important, you tend to skip over learning the skills an aero engineer must learn to design something that punches a 550 mph hole in the air and the biggest problems for the passengers are crying babies and bad food. Anyway, Michel, there are many writers who are scrupulously concerned about being absolutely accurate—some even go so far as to provide illustrations.

This is just another way to avoid doing homework.  IF you know the science or other important facts, coming to a conclusion about the accuracy of another's testimony is routine. If you do not have the background to evaluate the information, you must fall back on judging the speakers based on his or her dress, hairdo, necktie, sexual history, political party, etc. Or the power arrangements.

That's the problem with climate science. The folks collecting data on the front lines have no doubts about whether climate change is real. The rest of us must either evaluate the data from second-hand sources with the required scientific (high school chemistry) background or else from random decisions based on sociology, rumor, or slander. In this way, the climate doubters have managed to stalemate an incredibly important public debate even though the facts are overwhelmingly against them.

410 ppm and counting

It's getting hard to keep up.

It required 146 years for the CO2 concentration in the atmosphere to go from 275 ppm to 290 (1750-1896) when Arrhenius first postulated that CO2 would change the climate. Recently, the 400 ppm mark was breached in 2013 and has now passed 410 ppm only five years later. This is truly a scary development. Climate scientists talk about tipping points where melting permafrost and other disasters will trigger runaway climate change. The question now becomes, have we already passed one or more of those tipping points?

We probably won't find out any useful information on this topic from the main media outlets. They are much more interested in the decade-old claims of a fading porn star against a president who wasn't even a politician when it happened. Got to love those folks specializing in trivialities.

Hudson on debt cancellation

Michael Hudson has a new book coming out. It addresses the most fundamental economic question of the age—what to do about the unpayable debt. The reason I am so interested in this subject is that IF the austerity geeks get their way, there will not be the money needed to build the solar future.

Coming from the rural Midwest, I have heard these debates for a long time—even one that Hudson highlights below—his contention the Christianity was about progressive economics. The King James translators had it right when they wrote the Lord's Prayer as "forgive us our debts, as we forgive our debtors." Most Protestants have wimped out and changed this radical notion to "forgive us our trespasses, as we forgive those who trespass against us." Last I heard, the Presbyterians still use the older, more accurate version. Considering the implications, I am not sure that reopening that wound is wise since it is as old as Christianity itself. The religion of slaves become the religion of the Roman Emperor in only 300 years so it is not especially surprising that the interests of the creditor classes would come to dominate—even so far as to rewrite the freaking Lord's Prayer. (Where are the fundamentalists when you need them ;-)

And of course, this is Hudson so he gets it right. I wish he would take up the subject of "odious" debt (and maybe he does in his new book). The way I see it, because we can no longer operate our societies with technologies that produce CO2, all investments in these technologies should be written off as "odious." Actually I don't give a damn what reasoning is used so long as there is a serious global debt restructuring.