The Whiskey Rebellion

by William Hogeland

  Others saw things differently. American merchants and financiers might employ the poetry of English rights when resisting England, but they preferred a critique of power and law when it came to making policies for their own nation. A tax might represent good or bad policy, or benefit one interest or another, but how can a fundamental evil arise from a tax’s operating internally, not externally? It was easy to see a federal excise on whiskey as an innocuous luxury tax, easily passed on by distillers to drinkers, surely nothing to tar and feather anyone over.

  What people in the western backcountry recognized, and most Congressmen lacked the expertise to understand, were mechanisms embedded in the tax for keeping wealth in the hands of a few while denying western laborers and small farmers their last, slim chances for economic opportunity. The Daniel Hamilton gang that attacked Robert Johnson was less concerned that the whiskey tax could be classified an excise, so offensive to genteel libertarians, than that it worked on laboring people at the Forks of the Ohio in a particular way. Those whom the tax disabled, as well as its author Alexander Hamilton, knew that in getting the act passed, Hamilton was dropping a very smart bomb on a target he’d been softening for years. The secretary of the treasury was celebrating a victory, which some at the Forks had every intention of cutting short, in a long struggle over nothing less than the power of money in the lives of the American people.

  • • •

  Alexander Hamilton had first taken up that struggle at twenty-seven, when, having completed active service in the Continental Army, he came to the confederation Congress late in 1782 as a delegate appointed by the New York legislature. Though dauntlessly self-creating and experimental, Hamilton liked ledgers, balances, and order. Born on a Caribbean island, abandoned by his drunken Scottish father, soon bereaved of his beautiful, French-speaking mother, he’d started clerking in an office on the St. Croix docks before he was fifteen. When his boss went to New York, Hamilton, barely seventeen, took command of the office and bore down on those who owed the company money. Wishing for war, the youth was also writing poetry and reading widely, a romantic who longed to distinguish himself in combat and love. He was charismatic and obviously brilliant and people took him up. He was helped to emigrate to New York and matriculate at Columbia, where he made up for his lack of education by digesting classical and modern authors, pacing beside the Hudson to memorize Latin and Greek and compose his essays. The war he’d longed for came on cue. Still in his teens, he published impassioned attacks on British oppression and rationales for American independence. He so distinguished himself as an artillery captain on Harlem Heights, where he took charge of building an earthworks, and then in battles in New Jersey, that he was invited to join General Washington’s staff, of which he quickly became de facto chief.

  For all his obduracy in business, war, and politics, verbal fluidity gave Hamilton startling charm, almost a kind of femininity. He was small and stylish, proud of the notable length of his nose and the penetration of his intellect; he had violet eyes and striking physical grace. Long renowned as a dashing ladies’ man, he married into the patrician Schuyler family of New York. As war neared its end, he led a light-infantry battalion that acquitted itself with distinction at the climactic battle of Yorktown. He went to Congress a self-taught student of finance who knew more about the subject than almost anyone else in government. He brought from the military a love of hierarchy and combat.

  As a delegate, Hamilton discovered a new kind of combat that engaged his highest yearnings. It devolved on a repository of hopes and anxieties known as the war debt. Some of the debt was owed to foreign countries, but the debt to American investors, which lay at the heart of the drama, and to which Hamilton would one day dedicate the whiskey tax, took the form of a welter of notes, interest-bearing and otherwise, issued on chaotically overlapping bases by the Congress and various state legislatures to raise cash for the war. The most exciting notes—beautifully engraved federal certificates paying 6 percent interest—were held by a small group of moneymen, the sort who had embraced young Hamilton in New York’s first families.

  Those creditors kept reminding Congress that their investment in the war had been patriotic and should be rewarded as such. But their patriotism had a special relationship to their investing, which gave Hamilton a real-life crucible in which to test his book knowledge of the purposes and mechanics of taxation. Back in ’76, when Washington’s army was being butchered in Brooklyn, and the Congress had first floated bonds to raise cash for supplying wet, hungry men, those same financiers had yawned. Congress had been offering a paltry 4 percent interest. Congress dangled 6 percent. Still nothing. Then Congress offered to pay the 6 percent in a far more attractive medium than the paper currency it was issuing. Paper wasn’t money; though often issued by various colonies, because cash was often scarce, it had value only in a generally depreciating relation to silver and gold coin from England, Spain, and Mexico. There were two tricks to keeping paper currency’s value somewhat stable against metal, which the confederation Congress, when it began issuing paper, couldn’t perform. One was to strictly limit the number of bills in circulation. The other was to retire them, scheduling taxes payable in the paper itself, taking back the bills and burning them. Some provincial paper currencies had maintained strong value against coin.

  The Congress, however, couldn’t tax to withdraw its bills: a meeting of delegates representing sovereign states, it had no power to tax anyone. Every state was therefore supposed to levy taxes to retire a proportionate amount of Continental paper. But the colonies had been suffering a thirty-year economic slide, which war was now making full-on depression. People in the countryside were desperate. States couldn’t collect taxes and were already failing to make agreed-upon requisitions of funds to Congress; they also issued their own paper currencies and offered their own interest-paying war bonds. So Congress printed more and more of its poorly supported paper—war expenses were out of hand—violating the cardinal rule of strictly limiting supply. As early as ’76, everybody knew Continental paper would depreciate deeply, and by 1780 the Congress had to stop printing it. The bills soon traded at a rate of $125 in paper to $1 in coin. After passing out of circulation, they sold to long-shot gamblers at five hundred to one.

  So potential investors in Congress’s war bonds would hardly want to be paid interest in paper. To attract the biggest investors, Robert Morris, the leading merchant in Congress, began to play a role from which Alexander Hamilton, a Morris protégé even before arriving in Congress, took much. Congress announced it would pay investors the 6 percent interest not in Continental paper but in bills of exchange—certificates issued by merchant firms and European governments and banking houses, backed by firms’ coin reserves, payable in cash on set dates. Bills of exchange traded at the real price of metal. Still, creditors wondered how Congress could reliably fund such bills.

  Robert Morris showed them how. He was fat; his financial presence was fatter. He owned ships and warehouses and ran his own network of trading partners, connecting Philadelphia to New Orleans, Europe, and the West Indies; soon he’d be investing in the China trade. He hadn’t favored American independence, but given a fait accompli, Morris would find opportunities. Exploiting the potential of a war economy, he hoped to unleash high finance, turn America into a commercial empire, and make the merchant class fabulously rich. On behalf of the Congress, Morris helped make a deal with France for a large cash loan dedicated to paying bondholders their interest in bills of exchange, as good as gold.

  Well backed, the bonds now sold to a small group: mainly Robert Morris’s partners, associates, and clients, who knew about the bonds’ unexpected reliability. The sweetest part was that Congress accepted, in selling bonds, the same Continental paper that investors scorned to be paid interest in. That paper had already started depreciating, yet Congress took it back at face value for bonds. When $1,000 in Continental paper was worth only $200 in trade, you could dump that $200 and pick up a thousand-dollar bond drawi
ng 6 percent interest, in metal, on its face value. Four interest payments alone would bring in more than the real purchase price—and you still had a thousand-dollar bond, whose value would hold up well: The offer’s brevity (the deal ended in March of 1778) made the certificates so special that they depreciated slowly.

  Thus did the founding $2.5 million of what became the domestic war debt of the United States, the preferred, blue-chip tier, backed by French coin and paying cash interest, come to be held by a network dominated by the man his cronies called Bob Morris. Congress got in exchange a lot of its own bad paper. This and similar feats would give Bob Morris his place in history as financier of the revolution. He also became the richest American merchant. It was just the mercantile code. Every day, in capitals and outposts of European empires, agents and brokers in coffeehouses, taverns, and dockside warehouses made deals for their principals in the absence of any institutional structure. Bob Morris was making a national art of the self-dealing and inside communication that had long been industry standard in large-scale buying and selling. In Congress, Morris used public funds for dozens of personal speculations and awarded his own and his partners’ firms and middlemen millions in congressional contracts, commissions, and outright disbursements. Morris and the revolution financed each other.

  The mercantile code wasn’t everybody’s code. Landed men with a country-gentry philosophy, deeming the whole enterprise of buying, selling, and investing a sewer of corruption, disdained to learn anything about how it worked. When they exposed Morris’s scams, they could do little but be scandalized. And they needed him. Early in the war, the British were winning; the economy was crashing. State legislatures stopped collecting or even imposing taxes for requisitions to Congress. Instead of throwing Morris in jail, Congress made him superintendent of finance. He expressed reluctance, so they let him name his terms. When Alexander Hamilton came to Congress, Bob Morris was explicitly permitted to conduct his own and the Congress’s business with no carping about conflicts of interest. Committees became departments commanded by individuals with executive power, and Morris’s people headed not only Finance but also Foreign Affairs and War. The financier controlled all real power in Congress, as well as the Continental Army.

  The philosopher David Hume had argued that key to a nation’s economic prosperity is concentrating wealth in the hands of the few people who can use it to finance ambitious projects. Alexander Hamilton, devouring books on finance, found in Bob Morris an embodiment—to the perspicacious Hamilton, perhaps a somewhat primitive one—of Hume’s ideal. But despite the power he wielded, things were not, as far as Morris was concerned, going well, and he enlisted young Hamilton, whom he found more than promising as a financier, in a full-scale project to get the war effort focused on what Morris saw as its main purpose: paying interest to the bondholding class. Tight cash forced choices between paying soldiers and paying creditors. Creditors came first: Morris officially suspended army pay, already shaky enough, and he prohibited legislatures from paying their own soldiers, insisting states send all money to Congress, to be distributed as he saw fit.

  Yet state assemblies kept finding ways to avoid sending full requisitions to Congress, and the main problem, in Morris’s view, was that they weren’t collecting the necessary taxes from the mass of ordinary people. He therefore became intent on imposing on all the people, throughout the states, direct federal taxes, payable by the people to Congress—in coin. These taxes would be collected not by weak state governments but by a powerful cadre of federal officers.

  • • •

  Here was the origin of Hamilton’s whiskey tax of 1791. Here too was the origin of a resistance movement—typified by the tar-and-featherer Daniel Hamilton—that would treat the whiskey tax as the last, intolerable stroke in a long flogging. The conflict that Alexander Hamilton was taking up in the confederation Congress, and which he would pursue with increasing intensity to its climax in the 1790s, was really a conflict between creditors and debtors.

  What was frustrating the creditors, led by Robert Morris, was a third American political philosophy, less articulate than that of either the mercantile or landed party, inchoate, spasmodic—the philosophy of a people’s movement. Recently liberated by the revolution, the people’s movement had strong opinions about democracy and economic fairness. Its gnarled roots were in fables of Oliver Cromwell’s English revolutions of the 1600s, when the Puritans challenged royal privilege, rejected established religion, and decapitated the king. Some groups had then called for “leveling,” or broad democracy that would more evenly distribute economic opportunity. Others had revolted against Cromwell in hopes of bringing on the Christian millennium. Some unemployed laborers and landless peasants, so-called diggers, planted crops on common land and tried to inspire widespread spiritual communism. In America, the people’s movement drew energy from the Great Awakening, whose spiritual radicalism had gripped the colonies in the 1730s and ’40s. By the 1770s, the movement wanted laws to dictate fair and equal distribution of wealth and credit. It wanted to limit the profits that a few moneyed men could reap from what it saw as the suffering and degradation of entire communities. To achieve those goals, it wanted democratic access to the political process.

  Denied that, the people’s movement had long employed tactics that were extralegal, often illegal, as well as ancient, local, and direct, drawn in part from communal forms of regulation in English villages, where wife-beaters, husband-scolders, and other irritating neighbors could be hauled from their homes by dancing gangs who shook pebbles in cups, banged shovels on stone, shrieked horribly, and shouted obscene improvised rhymes. When new laws had abridged old common-law rights to hunt deer in Windsor Forest, blackfaced gangs had instantly appeared to attack officials; England’s notorious Black Act responded by making it a capital crime merely to blacken your face. In the colonies, Fort Pitt commanders had learned in the 1760s that disguised gangs might waylay officials and attack soldiers, with juries refusing to convict perpetrators. Teams spent days of hard labor felling trees and stacking them high across roads, keeping officialdom out. People made no-buy covenants, boycotting sheriffs’ auctions of foreclosed farms, and they enforced those covenants by making transgressors ride poles in tar and feathers. Judges in remote areas refrained from hearing government suits against tax felons. Crowds in crazy garb closed courts and opened jails to free people imprisoned for debt.

  Paper was the people’s finance. For long periods, gold and silver were rarely seen by ordinary people, and paper currency in small denominations gave the mass of cashless citizens a medium, allowing them to avoid borrowing from merchants like Bob Morris. Possessors of those rarest of things, cash and credit, merchants issued bills of exchange backed by their own coin, cashed their bills and other firms’ for a cut, and, most significantly for the conflict that Morris and Hamilton were pursuing in Congress, loaned money to small farmers, small businesspeople, and lesser merchants with no coin of their own. Interest rates sometimes ran as high as 10 to 12 percent per month, but ordinary people, paralyzed and reduced to barter, had to borrow. When high payments became a further source of desperation, and retiring a debt was out of sight, creditors came in effect to own debtors’ labor and property. Farmers overworked their soil in hopes of success and only failed more rapidly. When they couldn’t pay, their farms and businesses were seized. The colonial era had seen pandemics of loss, with families sent in droves from their farms and shops to prisons or poorhouses, their land, livestock, and furniture auctioned off, sometimes to the very creditors who had foreclosed and were now picking up, at bargain prices, the debtors’ lands, mills, and tools.

  The people’s movement wanted that cycle stopped by law and had often used rowdy and sadistic tactics to frighten legislatures into providing relief. Provinces had issued paper currency and passed legal-tender laws that required creditors to accept that paper for payments on loans. Paper depreciated; Morris and other creditors, forced by governments to accept bills whose real value wa
s less than the interest owed, castigated paper as rotten, pulp, a curse, and legal tender as confiscatory, mobbish, and leveling, the legalized pillage of the rich. Legislatures also established public lending institutions, known as land banks, which issued low-interest government mortgages secured by land, providing farmers with small amounts of cash on easy terms and robbing creditors of their markets for high-interest loans. Land-bank mortgage notes, passed around in trade, entered the economy as another form of paper currency that sometimes gave even landless people a circulating medium.

  To Robert Morris, the revolution had aggravated the curse of pulp, especially in his own state of Pennsylvania, where upscale revolutionaries had been forced to ally themselves with the mob. In Philadelphia in 1776, Thomas Paine’s long pamphlet Common Sense had set out the popular movement’s goal for its participation in the revolution: broad democracy to ensure economic fairness. That same year, to the disgust of Bob Morris and friends, Pennsylvania adopted a constitution that, unlike those of Massachusetts and Virginia, fulfilled Paine’s prescriptions. Pennsylvania’s executive branch was now a committee, its members elected by county, its head chosen by a legislative branch with only one chamber; free of checks from an upper house, the legislature was elected, in an especially radical change, in proportion to population. The thing that truly dismayed the Morris circle was the Pennsylvania property requirement for voting: virtually none. Nor was there one for officeholding. The poor could not only vote in Pennsylvania but also hold office. The Pennsylvania assembly passed legal-tender laws and antimonopoly regulations. The Massachusetts revolutionary John Adams, when he read the Pennsylvania constitution, predicted that Pennsylvanians would soon want King George back.