In 1789, the Constitution of the United States had been ratified. The first U.S. Congress was settling into its temporary home in New York City and confirmed Alexander Hamilton’s appointment to the executive branch.

Alexander Hamilton, working up his finance plan, had exciting new powers to work with. The U.S. Constitution, Article One, section eight, clause one, gave the federal government a right to collect every kind of tax from the whole people of the United States. Congress created and deployed a cadre of federal officers to collect the impost, and the officers’ power, which included search and seizure, were unhampered by state lines or state laws. The nation was being unified by tax officers. Furthermore, sections fifteen and sixteen empowered the federal government to call out the state militias to enforce federal laws, to organize and control those militias when so engaged, and to prescribe militias’ training at all times.

Section ten, clause one, prohibited states from printing paper money, issuing bonds, and making anything but gold and silver a legal tender for paying public or private debts.

District judges were no longer elected in the counties they served but were appointed by the executive in the capital.

The power that the people had been given in 1776 was taken away.

The war was effectively won in late 1782. The past seven years had been a slog through cold, starvation, at time near-nakedness, along with the daily horrors of slaughter. Neither officers nor men had been paid in years. Tight cash forced choices between paying soldiers and paying creditors. Creditors came first: Morris officially suspended army pay. Washington himself was near bankruptcy. Mutiny was what Washington feared most. He blamed Congress. Uncertainty about pay was haunting – and uniting – a large, angry force, 550 officers and around 10,000 enlisted men, who might refuse to be sent home impoverished and in debt.

When officers met with Congress, they mentioned mutiny as the probable outcome of demands not being met. Hamilton was now determined to build the situation into a genuine crisis. That the crisis really might end in coup and military government was a risk they had to take. They even considered the potential benefits to their national agenda of the success of such a coup. But their main idea was merely to frighten the states with the threat of military takeover. The officer class was armed. Morris advised the officers to refuse to lay down their arms unless the states agreed to federal taxes.

In Philadelphia, Morris met with officers and hailed them as fellow creditors. The only solution was to demand federal taxes to pay not just officers but all creditors. Hamilton addressed Congress to rule out compromises. He opposed a motion to levy the impost only for paying officers: all bondholders must be included. Congress did just that. All army obligations thus passed easily to the federal government, adding to the debt. The officers agreed to take the interest-bearing bonds, to be funded after final settlement of states’ accounts with Congress.

Washington believed creditors had been manipulating his much abused army and risking a national disaster just to get payments for bondholders. When Washington seemed to chide Hamilton, calling an army a dangerous thing to play with, Hamilton wrote a passionate justification, admitting that he and Morris had indeed blended creditor and officer interest, swearing he’d always had the army’s interest at heart.

The Whiskey Rebellion Series

The debt to American investors, which lay at the heart of the drama, took the form of interest-bearing notes issued chaotically by the Congress and various state legislatures to raise cash for the war. Those creditors kept reminding Congress that their investment in the war had been patriotic and should be rewarded as such. The Congress, representing sovereign states, had no power to tax anyone. Every state was therefore supposed to levy taxes to retire a proportionate amount of Continental paper. 

The colonies had been suffering a thirty-year economic slide, which was now a 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. So Congress printed more and more of its poorly supported paper. As early as 1776, 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.

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 networking 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.

In Morris’s view, Congress wasn’t collecting the necessary taxes from the mass of ordinary people. He therefore became intent on imposing on all 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. Once people were inured to direct federal taxation, Morris told Hamilton, cash poll taxes, cash land taxes, and cash excise taxes would soon follow. To ensure payment to the creditors, Morris intended to open, as he put it, the purses of the people. That those purses were almost always empty of the metal he wanted did not faze him.

Another part of the Morris plan, critical to enabling Hamilton’s later projects, was to swell the federal debt to massive proportions. A sufficiently huge debt, Morris believed, would force the Congress to pass federal taxes. So Morris began defining the purpose of the war as sustaining the war debt. Only extending the military conflict, he said, could hold the country together long enough for the government to grow strong and the people resigned to paying national taxes.

Morris enlisted young Hamilton to get the war effort focused on what Morris saw as its main purpose: paying interest to the bondholding class. 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 feathering – that would treat the whisky 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.

The Whiskey Rebellion Series

Recently liberated by the revolution, the people’s movement had strong opinions about democracy and economic fairness.  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.

During the Colonial period, gold and silver were rarely seen by ordinary people. But still, ordinary people, paralyzed and reduced to barter, had to borrow. When high payments and retiring debt was out of sight, creditors came in effect to own debtors’ labor and property. Farmers over-worked their soil in hopes of success and only failed more rapidly. When they couldn’t pay, their farms and businesses were seized. Families were sent in droves from their farms and shops to prisons and 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.

Many of the river industries were no longer owned and operated by the settlers themselves. Men labored more and more often in the mills and yards of rich entrepreneurs and merchants. An ironworks could employ dozens of men while its owner bought up thousands of foreclosed acres recently owned by his laborers. Even many who engaged in farm work no longer owned their own land; they’d become tenants of large landowners and hired hands of commercial farmers.

The people’s movement wanted that cycle stopped by law and had often used rowdy and sadistic tactics to frighten legislatures into providing relief. The people’s movement had long employed tactics that were extralegal, often illegal. The People’s Movement had shifted westward after the war and the radicals had involved themselves in two incidents in the 1780s that inadvertently enabled Hamilton to impose the whiskey tax of 1791. One was traditional in being criminal and violent. The other, even more disconcerting to creditors, was lawful and political.

Shay’s Rebellion

 

The Massachusetts assembly had taken an aggressive approach to consolidating and paying its war debts, benefiting the few who held interest-bearing state notes. Further taxes were levied on the people. Though some were payable in various kind of paper, they were simply not payable at all by many; mass foreclosures ensued. Protest took the form of petitions and meeting, demanding a revaluation of the debt along realistic lines. In 1786 the debtors staged a classic court riot in Northampton. In January of 1787 they tried to seize the federal arsenal in Springfield, where they were put down by the state militia and ringleaders were arrested.

 

After suppressing the Shays’ Rebellion, the Massachusetts legislature repealed the crushing tax laws. To nationalists like Hamilton, it was the old story; legislatures reacted to the people’s violence by passing laws that robbed investors.

 

 

Pennsylvania

 

In Pennsylvania, the radical state constitution allowed ordinary people an unusual degree of access to the government. The Pennsylvania assembly became a tense place. Throughout the eighties, power lurched back and forth from the party of creditors and merchants. The thing that truly dismayed the Morris circle was the Pennsylvania property requirement for voting: virtually none. Nor was there one for holding office. The poor could not only vote in Pennsylvania but also hold office.

 

Morris and other creditors had picked up depreciated Pennsylvania bonds, at a fraction of face value, from people in urgent need of cash. Having bought at a deep discount, creditors now hoped to get the state not merely to pay interest on but to actually pay off the debt, at face value, for an overnight creditor bonanza.

 

The radicals proposed instead to depreciate the bonds, by law, to real market value, about one-quarter face value, and make those depreciated certificates a legal tender for paying taxes, state mortgages, public fees of kinds, requiring creditors to accept that paper for payments on loans – never indeed redeeming them in gold and silver. Morris and other creditors, forced to accept these depreciated bills, castigated paper as the legalized pillage of the rich.

 

 

 

During the 1780s, mob in New Jersey, Maryland, New York, Pennsylvania, South Carolina, and Virginia all protested debtor courts and attacked tax collectors. Anarchy threatened to undermine the fledgling nation everywhere. The confrontation at the Springfield arsenal in January 1787 was the high point in a series of yeoman protests and Regulator conflicts that became known to history as Shays’ Rebellion.

After Shays’ Rebellion, state governments became even more convinced that the national government needed to be stronger in order to prevent further insurrections. Alexander Hamilton was one of the political leaders who pusher for a stronger federal government in the wake of Shays’ Rebellion. He had long argued that the Articles of Confederation was inadequate and needed to be revised to give more power to the federal government.

By the summer of 1788, the Constitution had been ratified by nine states and was officially adopted as the new governing document for the United States. Shays’ Rebellions had played a vital role in the creation of the United States Constitution.  The fear the rebellion had evoked helped the Federalists in their crusade for a stronger government. The memory of Shays’ Rebellion and fear of other possible rebellions pushed many people who might otherwise have rejected a stronger national government to accept one.

Daniel Shay

In 1820, Shays applied for a military pension based on his service during the Revolutionary War. He received it. After his pension came, he bought a small farm and built a house and barn, living out his days as a farmer. Daniel Shays died in Sparta, New York, on September 29, 1825, at the age of seventy-eight.