Saturday, April 10, 2010

The Whiskey Boys

After the end of the American Revolution, a set of problem worried the new government. High on that list was the question of how to pay back the war debt. In order to show itself a truly functional government, the United States had to resolve a large debt owed to all manner of creditors, including foreign powers, businesses, bond buyers and war veterans, who in the main had been paid only in scrip. The chosen plan to address the United States’ international financial credibility, was the Bank of the United States, the brainchild of Alexander Hamilton, who enjoyed the blessing of President George Washington, whose favor all but guaranteed its support in Congress.

The bank, however, depended on a special security, bonds sold to bring in capital for the government, yet the government needed capital to pay for those bonds as well. Hamilton’s answer, blessed by President Washington and the Congress, was an excise tax on whiskey. To the mind of Congress, this was a perfect solution, as whiskey was considered not only a luxury, but sinful because of the behavior of many men who drank it. Note also that the Congress chose to target whiskey, not wine or any other spirit likely to be imported from a country where the United States wanted to build a commercial relationship. The tax was assigned to whiskey, specifically whiskey distilled in the western territories.

To the pioneers in western Pennsylvania, Ohio, and Kentucky, the tax was not only onerous, but an outrage built upon another outrage. Many veterans of the Revolution found that they had lost land and property during the war, and so were ‘paid’ with promissory notes, which the Congress dithered about repaying for more than a decade in some cases. Many of these men ended up selling their notes to speculators for land in the western territories, finding out only later that the land was often neither arable nor valuable, and in some cases the new settler discovered that he had not in fact really bought the land at all. Even where the settlers were able to live on the land they bought, they were offered far less than the notes were worth. For these settlers, it was an outrage that having been fleeced by speculators once, they were to be taxed in a manner aimed directly at them, and them alone.

Cash was scarce in the new territories, so barter and various mediums of exchange came into use. While some settlers were successful farmers, because no highways had been built, there was no way to ship produce to the East, and the Spanish who controlled the Mississippi River barred the settlers from shipping goods on it. After some time, the settlers discovered that whiskey was a valuable commodity. Unused grain and fruit would spoil and become worthless very soon, but whiskey could be stored, and in fact gained value as it aged. The whiskey tax, therefore, targeted the principal means of the settlers’ commerce.

Worse, the tax had to be paid in hard currency, and worse still, the tax was not based on cash sales or even proportion of inventory, but on the tax collectors’ estimates of whiskey production. A tax collector could assign literally any dollar amount on a whiskey producer, and many did so because their enforcement rights allowed them to seize property and land. Given that many of the settlers had fought in the war against unfair taxation, this was unconscionable on its face. Protests rose up in short order in many places, including the South where landowners saw the Tax as a prelude to government takeover of anyone in its way. Armed rebellion began in 1794 near Pittsburgh, but no one was killed – the rebels made it a point to voice their anger but stop short of lethal force.

President Washington, under the authority of the Militia Law passed in 1792, called up a military force larger than the entire Continental Army used in the Revolutionary War, and set it under the command of Virginia Governor Harry “Light Horse” Lee, whose grandson, Robert E. Lee, would surpass him. Lee considered the post unsuitable and handed control over to his civilian advisor appointed by President Washington – Alexander Hamilton. Hamilton drove his army into and all about Western Pennsylvania, but the rebel forces refused to give him a target and melted away into the mountains and hills. What’s more, the local citizens were hostile to the government forces – the army was commonly asked why they were unwilling to protect the settlers from attacks by Indians, but were so quick to hunt down veterans of the Revolution, patriots who merely opposed an unfair and discriminatory tax that any free man would find abhorrent – so the army eventually drew up charges – on dubious evidence – against twenty men, two were convicted (but not in Western Pennsylvania), and seeing the futility of the move, President Washington pardoned those two and called the matter closed.

The tax remained fiercely unpopular, helped bolster the fortunes of the young Democratic-Republican Party and Thomas Jefferson, and was repealed in 1803.

Since History is not a popular course these days, either with students or the mostly PC school districts, the lessons of the Whiskey Rebellion are not commonly discussed, much less considered in the light to today’s conditions and events. But men who deem themselves better than the common man, who imagine that their solution will be painless for all just because it benefits them personally, would do well to consider the one notable blunder in Washington’s terms as President, which consequences altered not only political history but the character of American finance – it should be remembered that the Bank of the United States failed, not once but twice – and the lessons of how anyone, when pushed far enough, will push back.