On a conservative site last week, the editor wrote this:

While the Constitution has been largely ignored over the last 80 years, the document is very real, and its purpose is clear: to limit greatly the powers of the federal government.

Having said this, he went on to a conclusion:

If Congress proves unwilling to force indiscriminate cost reductions on government then it should apply constitutional principles to the budget whereby government functions not enumerated in the Constitution are abolished, privatized, or passed to the states.

When we begin with a myth, we have a tendency to expect miracles. Let me explain.

The Constitution was established in order to strengthen the powers of the Federal government. It strengthened them vastly beyond what the British had attempted to impose on the colonies in the early 1770s.

Before the American Revolution, the British level of taxation on the colonies was in the range of 1%. There were sales taxes on imported goods, but most people, then as now, bought domestically produced goods. There were taxes on paper after 1765. This affected mainly lawyers and newspaper publishers. By alienating these two influential groups, the Parliament stirred up a hornets’ nest. When professional talkers and writers get squeezed by the government, the public gets an earful. “The end of liberty is nigh!” On the contrary, the end of a debt-free colonial governments was drawing nigh.

Revolutions must be financed. They are always financed with debt and fiat money. Creditors buy the IOUs with good money, then weaker money, and then — at the end of the revolt — worthless money. Then they have a supreme political goal: to get the new government to pay off the worthless IOUs at face value in gold or silver. In the 1780s, it was silver.

The Constitution was deliberately designed to centralize power vastly beyond what the legitimate constitution — the Articles of Confederation — allowed. The Federal government in 1787 was weak. In 1788, it was vastly stronger.

The newly created Federal government immediately did two things. It accepted responsibility to pay off state debts. This was Alexander Hamilton’s proposal. He proposed it specifically to centralize the government by granting enormous profits to the investment class that had bought state debts for practically nothing.

The Wikipedia article on this consolidation of Federal debt is accurate in its discussion of Hamilton’s motives.

Hamilton’s economic plan had multiple goals. First, the debts and honor of the nation would be secured. Hamilton felt that the Federal government would not be able to borrow money from anyone in the future if these debts were not paid. By selling bonds to pay the debt, bondholders would have a direct financial interest to help the new United States government survive and thrive. Creditors who purchased the bonds could use them as collateral for loans, stimulating the economy even more.

The plan would also create a bureaucracy of agents across the country who would be tied to the Federal government instead of the individual states. Assuming the debts of the states would likewise couple financial elites in those states to the national government and less so to state governments, thereby reducing the risk of secession. Hamilton’s scheme was called “debt assumption plan,” and it was a radical idea in 1790.

Hamilton’s Report supported ideas of war debt assumption, redemption of Confederate securities at face value, and funding of new national securities as a permanent national debt. Hamilton reasoned that creating a large financial structure, which wealthy citizens would support and belong to, would enhance the revenue and fiscal system of the national government and bring prosperity to the Federal government. He also reckoned that failure to establish the creditworthiness of the Federal government would weaken the United States, and called a permanent, reasonably-sized public debt “the powerful cement of our Union.”

Hamilton’s statements at the time were quite frank about all this.

When Madison and Jefferson opposed the plan, Hamilton bought them off by promising to support the swamp today known as Washington D.C. as the nation’s Capitol. This was done at a private dinner with only the three in attendance. Jefferson later wrote about it.

Here was the outcome:

The Treasury Department quickly grew in stature and personnel, encompassing the United States Customs Service, the United States Revenue Cutter Service, and the network of Treasury agents Hamilton had foreseen. Hamilton immediately followed up his success with the Second Report on Public Credit, containing his plan for the Bank of the United States — a national, privately-operated bank owned in part by the government, which became the forerunner of the Federal Reserve System. In 1791 Hamilton released a third report, the Report on Manufactures, which encouraged the growth and protection of manufacturing.

By 1791, Hamilton had created a vast Federal debt and the nation’s first central bank, owned privately.

He had planned it from the beginning. That was why he promoted the Constitution. This was why he wrote most of The Federalist Papers.

The anti-Federalists predicted accurately what was coming in 1787. It came.

There was a conspiracy in Philadelphia in 1787. It was successful. I have written a book on this: Conspiracy in Philadelphia, which you can download for free.

To understand the expansion of Federal power in 1788, consider this. In 1786, the Federal government’s total army was 1,200 men. It was too small come to the rescue of the state of Massachusetts in putting down Shay’s rebellion. This was a rebellion by rural counties against the state government’s decision in 1786 to pay off state debts in silver, collected from the counties. The governor and most of the members of the legislature had bought these debts for pennies in fiat currency. Now they were about to get very rich at the expense of rural taxpayers, who had little silver. A lot of counties revolted.

That was the trigger that got George Washington to attend the Convention, which he had previously refused to agree to attend. He had been completely misinformed about the motives of the protest. A former general of his sent him letters that concealed the politics of the revolt. [See Dr. North’s article on this revolt: “John Hancock’s Big Toe.” –ed.]

In 1794, Washington personally led an army of 13,000 to crush a tax revolt in Western Pennsylvania. This was the first and last time a President ever led troops into action. Because so few men volunteered, the Federal government imposed a draft. This was the Whiskey Rebellion.

The revolt was against Hamilton’s 1791 tax on whiskey — a tax used to raise revenues to pay off Federal debts at face value — debts that the holders had purchased for pennies. If this sounds like a replay of Shays’ rebellion and its outcome, that’s because it was, but on a far larger scale.

Centralized power? I guess so.

What Hamilton didn’t do, Federalist Party Supreme Court Chief Justice John Marshal did do, 1801-1836. Among other things, he wrote the opinion for McCulloch v. Maryland (1819), which authorized the privately owned Second Bank of the United States to exercise a government-granted monopoly over the monetary system.

In only one fiscal year, 1836, has the U.S. government ever been debt-free.

The Constitution was from day one an instrument to consolidate Federal power and expand it. The Constitution has proven to be a weak reed in every attempt to slow down the expansion of Federal power. It has proven utterly impotent to roll Federal power back as little as a decade, ever.

Therefore, the following is just plain silly, politically speaking:

If Congress proves unwilling to force indiscriminate cost reductions on government then it should apply constitutional principles to the budget whereby government functions not enumerated in the Constitution are abolished, privatized, or passed to the states.

I would of course love to see this. But I am unaware of any fiscal year since 1790 in which such a rollback of Federal employment and Federal spending took place, other than after a major war, when the soldiers were de-commissioned and taxes were cut. If we are talking about civilian employment by the Federal government, I am unaware of any permanent reduction, ever.

There should come a time when the victims of a myth should figure out that they are the victims of a rich and powerful ruling class, which hires the teachers and screens the textbooks to keep the voters docile. But this dawning of enlightenment has yet to come.

When Washington’s checks finally bounce, the day of enlightenment will come of necessity, not principle. Then we will have a shot at abandoning the myth of the Constitution as a restraint on Washington’s power.

Regards,

Gary North
Whiskey & Gunpowder

The U.S. Constitution Has Always Been a Tool of Centralization and Debt was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

THIS COULD VERY well have been the Province of Westsylvania, part of British Imperial Canada. To the east, along a line of demarcation that follows the northeasterly arc of the Alleghenies, would be what was left of the United States of America, a collection of small, Northeastern coastal states that rely for survival on their wits as traders and seafaring merchants. To the south would be the Confederated States, an amalgamation of political jurisdictions that had long ago seceded from the failed Constitutional Compact of 1789. To the west of this spot would be the very large Province of Ohio, another jurisdiction of Canada, extending all the way to the Mississippi River. Abutting the west bank of the mighty Father of Waters would lie the French Department of Louisiana. West and southwest of the French possession would be the United States of Mexico, extending across the high plains and Rocky Mountains to the Pacific Ocean and bordering Canada to the north. Mexico would encompass the territory of Texas and extend far down through the old land of the Aztecs and well into the lands of the lost Maya.

Yes, indeed, things could be very different. Except that Mr. Alexander Hamilton, first Secretary of the Treasury of the United States, levied a tax on whiskey.

If you taste the whiskey first, it helps to understand (and at the end of this article, I will tell you how to do just that…). Dark amber in color, not unlike some varieties of that fine Pennsylvania crude oil that seeps from the cracks in the Devonian shale and Carboniferous sandstone that make up the bedrock in these parts, the whiskey has a dry taste and is certainly not to be confused with those better-advertised, rather fruity beverages that are but sweetened imitations of the real thing. Pennsylvania rye whiskey goes down straight and warm, not quite bypassing the taste buds, but it hits you hard from the inside out. In its own inimitable way, this whiskey is rough and strong and uncompromising, like the men who first distilled it on the western frontiers of the British Empire in North America in the 1700s. In 1768 one man of the cloth called it “a perfect beverage, and a blessing from God for which people would take to arms.” He was prescient, this pastor. In retrospect, the rye whiskey of the western frontier was a beverage that defined a fresh-born nation. And if nothing else, the whiskey and those who consumed it forced the nascent government of the United States to govern wisely, and even to issue honest money. Well, at least for a while.

The Whiskey Rebellion: A Staple of the Frontier Economy

Brewed and fermented spirits were a staple of the frontier economy of colonial America. Beer, for example, was available in almost all households and consumed at almost every meal. Beer-making provided a use for surplus grain, which could not otherwise be transported for sale in distant markets over the primitive roads of the time. Beer was safer to drink than most of the water that one could obtain from wells and streams. Beer had nutritional value, and in a world where most everything was scarce, one did not allow good carbohydrates to go to waste. Thus beer was a routine part of the diet of frontier families and a vital source of nutrition. If it made you feel better during the hard times, that was also a good thing.

Whiskey as well became a staple of frontier life and diet. Like beer, it was made from the surplus grain that was not consumed locally and could not otherwise be transported any great distance for sale. Whiskey served as a medicine, a tonic, and an anesthetic in a time and place where there was no alternative. And distilled whiskey had commercial value, such that it was worth a man’s while to transport it over the mountains, where it sold in Philadelphia for a price in colonial times that was the equivalent of about $25 per gallon today. In an environment in which money was scarce, whiskey not surprisingly became a store of value on the frontier. In western Pennsylvania, one estimate from the 1780s states that there was one still for every 15 residents. People used whiskey to pay bills and local taxes, and even to compensate their schoolteachers and clergy. Hence whiskey evolved into a form of currency in its own right, at least west of the Alleghenies.

The Revolutionary War had left the American national government broke and insolvent, with a reputation for having issued worthless paper currency, called “Continentals. Congress passed laws that forced people to use these notes literally at the point of a soldier’s gun. Inflation and bad debt, both of pandemic proportions, were ruinous to any semblance of a post-Revolutionary national economy. The Articles of Confederation, which lasted from 1777-1789, did little to remedy the sad state of monetary affairs in the young nation. The members of the Constitutional Convention of 1787 were forced of absolute necessity to address monetary affairs. The U.S. Constitution, finally ratified in 1789, specifically made provision for a currency based on gold and silver, as well as for a national bankruptcy law in order to address the oceans of bad debt that permeated every level of colonial society. But it was one thing for the Constitution to declare, as it did, that no “Thing but gold and silver Coin” could be used as legal “Tender in Payment of Debts.” It was quite another for this sovereign edict to become reality.

In the earliest days of the federal government under the new Constitution, Secretary of the Treasury Alexander Hamilton proposed that the national government raise its revenue by levying excise taxes. Among Hamilton’s proposals for raising revenue was a tax on whiskey, that staple of life along the western frontier. For a variety of reasons, this “whiskey tax” immediately aroused the sentiment of many people that the new federal government was simply the replacement of the British King by swindling, moneyed, East Coast speculators and tyrants.

The legislation that enabled the whiskey tax was reflective of the goals of Alexander Hamilton, with his desire to create a strong central government and a nation of industry. The tax placed the levy on the point of distillation, not at the point of sale. Hence many farmers and small-businessmen found themselves taxed on the capacity of their stills, which included the amounts of whiskey they consumed personally, let alone what they discarded due to waste or spoilage. The federal tax rate was lower on larger stills, thus favoring bigger businesses at the expense of small, family-run operations. And the federal tax had to be paid in, of all things, gold or silver coin, of which there were precious few during the best of times on the frontier. As a result, the new tax almost immediately destroyed the value of whiskey as a form of barter currency in its own right. But without whiskey to lubricate the wheels of commerce, the frontier economy soon began to grind to a standstill.

The Whiskey Rebellion: Enforcing the Whiskey Tax

To enforce the whiskey tax, the federal government, then seated in Philadelphia, appointed tax collectors in every region of the country. Aside from a small stipend, the tax collectors’ pay was based on commission, calculated against the total amount of tax collected. Thus, for the most part, when the tax collectors commenced their rounds, riding along the roads and trails of the western frontier to levy tax notices on settlers and their stills, they met the usual resentment that tax collectors have encountered since time immemorial. Tax collectors were often threatened, shot at, beaten up, robbed, or even tarred and feathered. On occasion, the tax collector returned to his homestead and found instead a smoldering ruin. The job of the whiskey tax collector was, to say the least, dangerous and thankless. As a consequence, federal tax collections on whiskey were minimal.

When the whiskey taxes were not paid after collector’s levy, federal marshals were instructed to issue writs of citation against still owners. In Pennsylvania, these writs were answerable within 30 days at the federal court in Philadelphia. For a resident of western Pennsylvania at that time, traveling 280 miles or more to Philadelphia would have required a 10-day ride across difficult, mountainous terrain in the best of circumstances. (On today’s Pennsylvania Turnpike, things have improved marginally.) Due to the difficulty and expense of travel, most federal tax writs went unanswered. Thus the federal court in Philadelphia issued numerous contempt citations against individuals, as well as executions against their stills and other property. The contempt citations often led to citizens being jailed, their property being seized and sold (as often as not, to some out-of-town, swindling, East Coast speculator…), and evictions from their homes, all by federal authorities and in the name of the government of the United States. Thus, it is difficult to overstate the sense of unfairness, the resentment, and the bitterness that many frontier dwellers felt towards the new government.

Within a very short time, it was costing the federal government more to administer the whiskey tax than the government was receiving in revenue. Even worse than the shortfall of revenue, however, was the failure of the new federal government to demonstrate its ability to enforce its tax laws. This was widely perceived, both domestically and abroad, as the beginning of the end of the Constitutional experiment. A number of influential people in western Pennsylvania began to advocate secession from the Commonwealth, as well as from the new federal republic. They proposed to set up a state called “Westsylvania.” Some of the more zealous secession advocates made contact with emissaries from Britain regarding creation of an association with Canada. Others made contact with agents of France, regarding setting up a relationship with that nation’s vast and mostly uncharted Louisiana holdings that included a significant presence in the Ohio Valley. When word of this seditious talk reached President George Washington, he was appalled.

In the spring of 1794, President Washington appointed a man named John Neville as federal tax collector for western Pennsylvania. Neville was a former Revolutionary War general and a close acquaintance of Washington’s. Neville set up his tax office at his family’s farm, just south of Pittsburgh. On July 15, 1794, a group of local residents gathered at Neville’s house to protest the seizure of a neighbor’s property for unpaid whiskey tax. They demanded Neville’s resignation, and also that he turn over his tax records to be burned. Neville’s home was guarded by a unit of federal marshals. After a period of standoff, one of the farmers began to approach Neville’s house under a white flag of truce, and he was shot and killed, presumably by one of the marshals.

Word of the killing rapidly spread, and on July 17, a group of local militia mustered, marched on Neville’s house, and burned it to the ground. Their intent was to deliver some frontier justice to Neville and his “murdering marshals.” Neville and his entourage fled to Old Saint Luke’s Church, on the site of an old British garrison dating back to the days of the French & Indian War, where the pastor offered them sanctuary until the pursuing militia dispersed.

President Washington was outraged at what he considered a personal insult to his old friend and war comrade Neville. Washington and Treasury Secretary Hamilton decided that they had to make an example of these “western insurrectionists.” Washington referred to the burning of Neville’s farm as a “Rogue, unprincipled challenge to authority” and resolved to crack down and bring discipline “to the lower classes of western Pennsylvania.” The area was already well known to Washington from his younger days as a surveyor and from fighting for the British side in the region during the French & Indian War. Also, there was at least a reasonably good road on which troops could march from Philadelphia to Pittsburgh.

The American Army of 1794 hardly merited the name. It had dwindled to a few hundred older veterans of the Revolutionary War, with outdated equipment and next to no supplies on hand. Washington was faced with the need to call out the militia if he was going to impose the federal will on the rebels of western Pennsylvania. Not trusting the reliability of Pennsylvanians, most of the militia called to muster were from Virginia and New Jersey. The Secretary of War was away on family business in Maine, so it fell to Hamilton to organize the expedition. Hamilton, whose tax policies had precipitated the matter, was desperate for success and viewed the confrontation with the whiskey rebels as his personal struggle to stop America from sliding into anarchy and ruin.

President Washington actually led his army of 13,000 troops as they marched west from Philadelphia in August of 1794, the only time in American history that a president has actually served in the role of “commander in chief” in the field. The trek across Pennsylvania took the better part of a month, and many a hotel and tavern was thereafter able to place a sign on the door that “George Washington Slept Here.” The ill discipline, lack of proper equipment, and general lack of military professionalism in the ranks of the militia troops appalled both Washington and Hamilton, the latter a former artillery officer under Washington during the Revolution.

The Whiskey Rebellion: Ending the Rebellion

As Washington’s expedition approached its destination from the mountains to the east, another group of western Pennsylvania militia formed with the intent of attacking Pittsburgh and burning the city in advance of Washington’s arrival. The city fathers, who had made plans for a great civic celebration upon the arrival of Washington, heard of the threat. Thinking fast, they rode out to meet the militia at a place named Braddock Field, the site of a major engagement during the French & Indian War (and now the site of U.S. Steel’s Edgar Thomson Works). In tow, the Pittsburgh men brought many wagons filled with beef, beer, and other victuals that were originally intended for Washington and his army. The Pittsburghers offered the feast to the militia, who enjoyed it thoroughly and thereafter determined that they would not burn the city to the ground. A few days later, Washington’s army marched to the city line, but the militia had dispersed and, lo and behold…few people had any recollection of the identities of the offending rebels. Realizing that the nation was at a political crossroads, President Washington took a magnanimous route and granted a general amnesty to almost all of the insurrectionists.

Today, the Whiskey Rebellion is usually mentioned as a minor event in American history. It is considered by most people, if they have ever even heard of it, as a quaint occurrence long ago, just a footnote in the standard history texts. But the Whiskey Rebellion was actually a defining moment for the United States, and, by implication, for the world. In many respects, it is a period that still resonates today. The Whiskey rebellion raised issues of liberty, peoples’ right of protest, taxation, treason, the use of the militia, and the scope of representative government. The events leading up to, and after, Washington’s march across Pennsylvania in 1794 forced a national debate on the power of the new federal government, including the limitations on the use of that power. Out of it all came a general consensus on the principle of federal supremacy in many fields of national life, among the least of which was to clarify federal power to impose and collect a tax on whiskey.

Post-Whiskey Rebellion, the political life of the nation began to concern itself with the meaning of “perpetual union,” and the implications of the concept. The national memory of the near-dissolution of the young constitutional republic lasted for several generations, until the matter flared again and ignited in 1861. The immediate threat to national expansion that was inherent in discussion of secession, by certain individuals in “Westsylvania” in 1794, prompted an aggressive federal policy favoring westward expansion, fueled by a relatively liberal immigration policy.The lands south of the Great Lakes began to fill up with American immigrants, not Canadians. Within a decade, President Jefferson would purchase the Louisiana Territory from France, and through the explorations of Lewis and Clark (whose boat was constructed on the banks of the Monongahela River, just south of Pittsburgh) America would move the western frontier of the nation to the Pacific Coast. The Whiskey Rebellion started the country on its path to becoming a continental power, and later a world power.

The westward movement of the United States also prompted federal efforts to expend resources on what were called “internal improvements,” both to construct roads, canals and mail routes to the interior, and also to put gold and silver coins into the western frontier economy. Not coincidentally, on October 15, 1794, as Washington’s army was encamped in western Pennsylvania, the U.S. Mint in Philadelphia struck 1,758 silver dollars. These coins were intended to compete with the foreign currencies then circulating freely in the U.S. These “1794 Silvers,” of which only a few are known still to exist, are considered the nation’s first true issue of real money and are all but priceless in today’s numismatic market.

The Whiskey Rebellion framed the debate in early America over the limits to freedom of speech and when such speech would be considered seditious. National divisions over the propriety of the cause of the insurrectionists highlighted philosophical fault lines, along which the first American “political societies” (now called “parties”) were formed. At the same time, the federal government confronted the reality of an armed citizenry and the grudging respect that a large group of like-minded people with guns and ammunition were entitled to be accorded by the sovereign. It is no coincidence that these two issues, speech and guns, had been the focus of the first two Amendments to the U.S. Constitution, in 1791, just a few years before the Whiskey Rebellion.

The need to call out the militia of one state to quell a disturbance in another highlighted the inadequacy of the federal army of that time. It illuminated sectarian fears, in that an army of Virginians was marching through Pennsylvania. (The next time that would occur would be on the march to Gettysburg.) After this episode in 1794, the central government began to build a national military capability based upon a standing army, with an industrial base of armories and associated vendors. The use of federalized militia to enforce police powers and execute the laws also led to a robust debate that has lasted through today. Almost a century after the Whiskey Rebellion, the principle was embodied in the national policy behind the Posse Comitatus Act of 1878.

The sense of unfairness caused by citizens having to travel great distances to confront their government in a federal courthouse led to the establishment of numerous federal District Court jurisdictions, in particular the Western District of Pennsylvania located at Pittsburgh. “Just in case,” President Washington must have been thinking. Incidentally, this philosophy of locating courts near the citizens also led to a national political consensus that state courts should be located near to the people as well, resulting in the development of relatively compact county jurisdictions as the United States expanded to the west. This was a key element in the shaping of an “American” political character, and the development of American participatory democracy. People still say that “All politics is local.”

In today’s world, American taxpayers routinely part with 40-50% of their income in the form of federal, state, and local taxes. It might seem strange to the modern mind that the collection of a tax on whiskey would usher in a defining episode in the history of the United States. But this says more about the loss of national memory of people today than about the political values and motives of the whiskey insurrectionists. In many respects, the fault lines of the Whiskey Rebellion are still present in contemporary society, if you understand the issues and know where to look. And absent Mr. Hamilton’s tax on whiskey and the rebellion that it sparked, the United States of America would be a very different nation. The world would be a very different place.

One last note…If you want to sample the rye whiskey of old, the closest brand you can find on the market today is Old Overholt. If you cannot locate a bottle of “O.O.” (it is hard to find), then try a sip of Jim Beam Straight Rye Whiskey. Even if you do not drink hard liquor, take a taste. You will be reliving history.

Best wishes to all…

Byron W. King
for Whiskey & Gunpowder
December 17, 2004

The Whiskey Rebellion: Whiskey Taxes: The Real Thing was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.