Connected

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August 2013
Ivan Obolensky

 

On March 11, 1854, Chief Seattle is said to have given a speech ceding native lands to settlers near the present city of Seattle which carries his name. He was of the Duwamish people and his name was not Seattle but closer to Si’ahl. What was said exactly in the speech is a matter of controversy.

That he gave a speech is likely. He was a tall man and known for his oratory skills. He spoke in Lushootseed, a language spoken by many Puget Sound native peoples at the time. Today there may be only a handful who are fluent. Lushootseed was not universally known even then and needed to be translated into Chinuk Wawa or Chinook jargon (a pidgin trading language) before it could be translated again into English. What was said was only written down several years later. 1

Yet for all its lack of authenticity, the speech has refused to fade away. A paragraph from it is as follows:

…It matters but little where we pass the remainder of our days. They are not many. The Indian’s night promises to be dark. No bright star hovers about the horizon. Sad-voiced winds moan in the distance. Some grim Nemesis of our race is on the red man’s trail, and wherever he goes he will still hear the sure approaching footsteps of the fell destroyer and prepare to meet his doom, as does the wounded doe that hears the approaching footsteps of the hunter. A few more moons, a few more winters, and not one of all the mighty hosts that once filled this broad land or that now roam in fragmentary bands through these vast solitudes will remain to weep over the tombs of a people once as powerful and hopeful as your own2… (Safire, 1992.  P. 574)

The influx of settlers to all parts of the American West continued unabated.

Still, the Indian struggle against incursion had a brief respite between 1861 and 1865 as the Civil War raged back East, but events in Europe were what ultimately put the deciding pressure on the Indian Nations and accelerated their collapse.

The event that had such far reaching consequences was the signing of the Treaty of Versailles of 1871 by Otto von Bismarck which ended the Franco-Prussian War. One of the conditions of surrender was a demand for a large reparation to be paid by France to Germany in gold.

The amount of gold was sufficiently large for Germany to make the decision in 1871 to cease minting silver thaler coins all together. Then, in 1873 the government issued a new gold mark effectively putting Germany on a gold standard because gold, not silver, established the value of its currency.

This change had profound consequences particularly across the Atlantic in the Unites States.

The Comstock Lode in Nevada had been discovered in 1857 and because of it and other mining discoveries, the United States supplied the majority of the world’s silver during this time helping fuel an economic boom.

The US was expanding, and with it came speculation particularly in railroads and mining interests. Much of the speculation was done by investing in the debt issued by railroads and miners as they raised money to fuel further growth. Money was readily available.

The US dollar was backed by a combination of gold and silver, but with the drop in the price of silver the relative value of the dollar declined in relation to other currencies, such as the English pound and the German mark which were backed exclusively by gold.

Since money usually goes where it is treated the best, money began to move away from the United States and into European gold-backed currencies just when it was needed to generate more expansion. To remedy this, the US Congress passed the Coinage Act of 1873 which effectively meant that the dollar too was now backed by gold only and not subject to the effect of decreasing silver prices.

With this move, the need for silver as coinage diminished and as demand dried up, the value of silver plummeted even more. Miners were outraged and called the act “The Crime of ’73”.

By solving one problem another was created. An unintended consequence of the Act was a decrease in the supply of money available.

Imagine a currency that is backed by both gold and silver and then a currency backed only by gold. Suppose there were 100 arbitrary dollars available when the dollar was backed by gold and silver with each commanding 50%. What happens when the currency is only backed by gold? There is now only 50 dollars in circulation since the amount of dollars in circulation has to be reduced to the number of dollars only backed by gold. In the same way, money in 1873 became scarce and in order to get it, one had to pay more for it in the form of higher interest rates.

Much of the speculation at the time was in the form of bonds. These bonds were issued primarily by the many railroad companies and mining interests during times when interest rates were low.

What happens to long term bonds when interest rates rise rapidly?

Imagine a long term bond that pays 3% in an environment when interest rates have risen to 6%. The 3% bond would pay out much less when compared with a similar long term bond that paid 6%. When interest rates rose these lower paying bonds decreased in value. The result was rapidly falling bond prices and insufficient collateral for loans that had been issued by banks.

As interest rates rose, the public’s appetite for long-term debt dried up and things came to a head.

In September of 1873, Jay Cooke & Co. attempted to market several million dollars’ worth of railroad bonds. There were no buyers and just before it could get a major infusion of government money, it went bankrupt. This bankruptcy was quickly followed by many more bank failures. So severe was the financial shock, the New York stock market closed for ten days and the economic future was so uncertain that factories began laying off workers in droves. By November of 1873, fifty of the nation’s railroads (the high technology companies of the day) had gone bankrupt to be followed by another sixty a year later.

These events started what has been termed the Long Depression of 1873-1879. The depression became worldwide and may have lasted until 1896, a period of 23 years.3

By now the administration of Ulysses S. Grant, the US president, was in desperate need of a large cash infusion into the economy. There was no Central Bank at the time to simply print money. It had to be found in the form of gold. The 1849 California Gold Rush had proven that there was no quicker way to invigorate an economy and increase the money supply than discovering a brand new gold supply. A possible location for such a bonanza was the Black Hills of what would become South Dakota. There had always been rumors of large amounts of gold in the Black Hills, and thus an expedition was put together to make certain.

The expedition (which was to be called the Black Hills Expedition of 1874) would embark from Bismarck in modern North Dakota. Escorting the expedition—since it would have to trespass through what was legally Sioux territory—would be Lt. Col. George Custer and the 7th Cavalry. Included in the expedition were the President’s son, three newspaper reporters, and a photographer to make sure that any discovery had the necessary coverage.

On August 2, 1874, gold was discovered, and with it began the Black Hills Gold Rush. Prospectors began to stream into the area. By 1875 the Grant administration made an offer to buy the Black Hills from the Sioux, who refused. Since that did not work, the Grant administration decided it needed to instigate a war. The Sioux were told that they had to report to a reservation by the end of January 1876, or be considered hostile.

After the ultimatum, many Sioux bands and other tribes came to the camp of Sitting Bull, a charismatic chief, who refused any dependence on the white man.

With the declaration of being hostile, military force was authorized to move Sitting Bull and any others found to reservations and away from the Black Hills. Various military units, including those of Custer and the 7th Cavalry, were ordered seek them out.

The eventual collision of Custer and Sitting Bull led to the one of the most famous Indian victories at the Battle of Little Bighorn.

While the victory gained a momentary respite for the victors, public shock and chagrin in the East meant that thousands of troops would be dispatched to the area. Many Indians were forced to surrender. Sitting Bull led his band of 186 people north in 1877 into Canada. Four years later, he returned to the United States and surrendered. The Buffalo herds had shrunk and his people were starving.

Just the same, Sitting Bull did not go quietly. He said when he had his son hand over his rifle to his captors, “I wish it to be remembered that I was the last man of my tribe to surrender my rifle.” (Philbrick 2010 loc. 157)

He died in a shoot-out in 1890; a participant in one of the most famous last stands in American history, the end result of a complex set of circumstances and causes that stretched far away beyond the Great Plains into Europe.

Much has changed in the 150 years since Chief Seattle made his speech and Sitting Bull collided with Custer at Little Big Horn, yet much has stayed the same.

Lately there has been renewed talk of moving to a gold standard in an effort to create a sounder currency. Yet, just as in 1873, if that path is followed, there will be the inevitable contraction of the money supply, higher interest rates, and the potential for a deflation similar to that of the Long Depression.

Unlike in 1873, economies seem less volatile today. Much of this is the result of the adoption in later years of a Central Bank that can control the supply of money and create an influx of cash to cushion the effects of economic downturns.

The result has been economies that appear less open to extremes than previous ones, but this comes at a price. It is easy to allow bad businesses to continue with cash infusions rather than let them fail which they must (if they do not make economic sense) and a new beginning to be envisioned.

In the late 19th century, the best intentions of those who governed were compromised when the economy faltered.

At the time Grant first took office in 1869, he adopted a peace policy in handling Indian relations. He was so serious about this he appointed Ely Parker as commissioner of Indian affairs. Parker was a full-blooded Seneca and held office until 1871. The number of military actions against Indians was much reduced and yet by 1876 the administration was embroiled in an Indian war of much larger and more tragic proportions.4

To understand the circumstances we find ourselves in, whether as a people or as individuals, we must be aware of how we are connected. What happens over the horizon and out of sight can create unexpected effects at home. It did in 1873. It is still happening today.


  1. Krupat, A. (2011) Chief Seattle’s Speech Revisited, American Indian Quarterly, Spring 2001, Vol. 35, No.2.
  2. Safire, W. (1992) Lend Me Your Ears: Great Speeches in History. New York, NY: W.W. Norton & Co.
  3. Armstrong, M. (2000) The Best of Princeton Economics International and Martin Armstrong 1996-2000. Retrieved on August 23, 2013 from http://www.scribd.com/doc/57168945/Best-of-Princeton-Economics-International-Website-Martin-Armstrong.
  4. Philbrick, N. (2010) The Last Stand: Custer, Sitting Bull, and the Battle of the Little Bighorn. New York, NY: Penguin Group

 


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© 2013 Ivan Obolensky. All rights reserved. No part of this publication can be reproduced without the written permission from the author.

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