Failure of first federal subsidy

One hundred and ninety years ago, in 1822, the American people were beneficiaries of a fascinating sale of federal property, including hundreds of a quaint little musical instrument known as the “Jew’s harp.”
This story begins with President George Washington, who feared the influence of British fur traders along the Canadian border. Only a government-run company, he reasoned, would be strong enough to challenge the British in the Great Lakes region. At Washington’s request in 1796, Congress voted $50,000 to establish a company that would secure furs from the Indians in exchange for an assortment of goods. The subsidized company lobbied for ever increasing subsidies—up to $300,000 eventually, which would be worth more than $10 million today. (That’s a lot, but it’s a pittance compared to what President Obama wasted on his friends at Solyndra.)
Problems developed with the government’s fur business from the start. It’s CEO, Thomas McKenney, refused to extend credit to the Indians, who then couldn’t buy the supplies needed to trap and skin the animals.
McKenney also had a social agenda. He wanted to “amend the heads and hearts” of the Indians and change them from hunters to farmers. To do this he bought lots of plows and hoes (and Jew’s harps) to give out at his trading posts, while the Indians preferred muskets, whiskey and gunpowder.
Meanwhile, private fur traders flourished. The most prominent was John Jacob Astor, an immigrant from Germany who came to New York and set up the American Fur Company in 1808. To win the Indians’ business, he knew he had to be responsive and efficient.
Astor hired traders and had them live with the various Indian tribes. His men provided credit to the Indians and traded with them on the spot. If the Indians wanted axes, kettles, muskets and liquor instead of hoes, he made sure they got them.

McKenney’s operation required the Indians to travel long distances to the government trading posts only to find they had to hand over their furs for an assortment of goods they found unattractive—including those Jew’s harps.

Before long, Astor captured most of the fur trade and McKenney’s government shop was deep in red ink. When congressmen began to ask questions, McKenney urged them to increase his subsidy, slap a $10,000 license fee on Astor’s agents, and even ban the private fur companies entirely.

But a congressional inquiry exposed McKenney’s deficiencies. Among the government company’s dust-collecting inventory of strange or shoddy merchandise unwanted by the Indians, the investigators counted 1,152 unsold Jew’s harps.

Congress shut down the government fur company in 1822. Its unsold supplies were put on the open market, but netted less than 20 percent of what McKenney had paid for them — proof of the old adage that nobody spends everybody else’s money as carefully as he spends his own.

So ended the federal fur fantasy—in failure with a capital “F.”
............................

(Lawrence W. Reed, a resident of Newnan, is president of the Foundation for Economic Education in Irvington, N.Y., and Atlanta.)



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