American History Lesson 68: Whiskey Rebellion

In this lesson I learned about the Whiskey Rebellion. This lesson had two main parts, a familiar theme, and the new elements of the story. Let’s begin with the familiar theme.

It starts with a distant central government imposing internal taxes, specifically against producers. Now the bigger producers pay the taxes, but off in Appalachia, the west, smaller producers, some distilling out of their homes, are outraged by the taxes. They rally the local citizens, and the local citizens threaten the tax collectors. Soon there is violence against the tax collectors, they are tarred and feathered. Needless to say taxes are not collected. So the government reduces the taxes, but it is too late, the rebellion spreads. Liberty poles are set up, government leaders are hanged in effigy, and a tax collector’s home is burnt down. A huge army of protestors forms, 7,000 in number.

If this sounds familiar that’s because it’s exactly what the British did to the colonists. Except the American government has grown even more powerful than Parliament.

Now this is where the new elements come in. The head of the government happens to be a military man, he had been a former militia commander in Western Pennsylvania. By law he is the Commander-in-Chief of the militias, the force which won the Revolution, and by law he is allowed to draft in order to suppress domestic revolt. There are draft riots, but eventually a huge army is assembled, 14,000 men in total. For the only time in our nation’s history, the Commander-in-Chief leads the army himself. The rebellion evaporates, realizing they have no chance to defeat the forces of their own government. However the majority of the public are pleased.

This is where the law of unintended consequences takes over. A new political party begins forming, with Thomas Jefferson as the primary leader, and Hamilton symbolic of the opposition. In 1800 it wins the election, and this is caused by the defection of Hamilton, who was the one who dreamed up the whiskey tax and called for armed suppression of the revolt in the first place. The reason for this was because of how the electoral college worked, there was a tie between Jefferson, whom Hamilton disliked, and Burr, whom Hamilton hated, so he broke the tie in Jefferson’s favor. Immediately Hamilton suffered the greatest political reversal in American history, as it would turn out, the man who called for armed suppression of the revolt would end up the political victim of his actions.

The internal tax was eventually repealed, only to be re-imposed in 1812 by a man named Albert Gallatin, who had previously been one of the rebels himself. Politics does strange things, but no one can ever break the law of unintended consequences entirely. A culture of resistance still exists in Appalachia, it remains to this day.

American History Lesson 67: First Bank of the United States

In this lesson I learned about the First Bank of the United States. The idea to have a privately owned central bank was brought up by Hamilton, of course, who drew influence from the Bank of England. The government would hold 20% ownership over the Bank, leaving 80% to be owned privately. Of that 80%, 70% was taken up by nonvoting foreign ownership. The Bank guaranteed 8% on bank stock, which was a tremendous deal, and it would loan to individuals, national government, as well as states with congressional approval.

While trying to get the act through Congress, Hamilton faced some opposition. Attorney General Edmund Randolph challenged the Bank’s constitutionality, as did Jefferson and Madison. Washington however gave Hamilton one week to be persuaded. What ensued was a letter called the Doctrine of Implied Powers, which Hamilton crammed with any argument he could think of. Despite the fact that most of it is made up of incoherent nonsense, they triumphed because the Constitution’s language lends itself to an expansion of national government power.

Dr. North then brought up some arguments that the critics missed. The First Bank of the United States was a privately owned profit seeking business that was created by the government and given a monopoly by the government. In fact, the bank would have the same authority as a government agency. However it was used to line the pockets of investors, including some members of congress, and many unnamed foreign investors.

Ultimately, it was the Constitution that did not protect against this monopoly. The gibberish that was the doctrine of implied powers became dominant in American constitutional history. And from then on the government would never get smaller.

American History Lesson 66: Public Debt

In this lesson I learned about public debt. There are really only three ways to fund civil government. Through taxes, visible or invisible, borrowing from the public, or monetary inflation.

First let’s look at Great Britain’s example, which was the greatest example at the time Hamilton was in office. Great Britain had no open defaults, though there may have been some secret defaults, the British government never said they wouldn’t pay back loans. Britain had a ready market for debt, people had great confidence that they would get a good return, and with low interest rates, there was very little risk associated with lending. Finally Britain had stable wartime finances, giving them the ability to outlast all their opponents economically with only one exception, America.

So what was America’s experience with public debt? Under the Articles of Confederation, no taxation by the national government was allowed, because of this even though it could borrow money there was real question surrounding whether or not it could pay it back. There was massive wartime debt by all governments, federal and state, and the response to it was massive monetary inflation by all governments. The federal issued currency, the Continentals, were inflated so much they were practically worthless, but different states had varying degrees of success with their currencies.

By 1790, the time Hamilton made it into office, there were $75 million dollars in debt, including state debt. This was all held by speculators, some who had bailed the government out in time of war, hoping to get something back later, and others who had bought government IOUs dirt cheap from people who had run out of money. One big difference now was the national government had the power to tax in the form of tariffs. Meanwhile the state governments always had the power to tax.

Hamilton’s response to this was to set forth the mercantilist views of commerce and prosperity that had been refuted by Adam Smith in 1776. That we should have perpetual public debt rather than paying it off, because this would increase trade, promote agriculture and manufacturers, lower interest rates and increase the value of developed land. Of course he had no way of proving it, he just said it. He spoke for the speculators, arguing that nothing should be paid to the original owners of government bonds, and that it was their fault for selling them. It was supposedly the fault of the original owners of government bonds that the government not only didn’t pay them back but devalued their bonds. Alexander Hamilton said perpetual government debt was the price of liberty. What it was, was the price of a revolution, a revolution that had been entirely undermined by a government, albeit an American government, that was far bigger than Parliament could imagine.