South Carolina meant business. The nullification law authorized importers to recover any goods that had been impounded by federal tariff collectors; sheriffs were instructed to seize the personal property of the tariff collectors and award it to the importers until their seized goods were returned; all duties were to be reimbursed to the importers with interest; tariff collectors were subject to fines and imprisonment for any attempts to resist the nullification law; and no jail in the state could be used to imprison anyone for failure to pay the tariff. A fund of $200,000 was made available to the governor of the state to purchase firearms, if necessary, to enforce the nullification law through the state militia.
President Andrew Jackson had made some threats to enforce the tariff collection, but, after further tariff increases in 1832, a lower, compromise tariff rate was finally agreed upon in and secession and war were avoided.
As has been the case throughout world history, freer trade led to prosperity while protectionism threatened war. The average tariff rate would slowly be reduced over the next several decades. On the eve of the War between the States, it was at the lowest level it would ever be during the nineteenth century (about 15 percent).
HOW TARIFFS PLUNDERED AMERICAN FARMERS
Farmers are always disproportionately harmed by high tariff rates because reduced imports impoverishes our trading partners, causing them to purchase fewer of our exports, especially agricultural exports.
To understand why the South was so agitated over protectionist tariffs it is essential to understand how tariffs affect the economics of agriculture. Protectionist tariffs always impose a disproportionate and unjust burden on export-dependent regions within a country, and in the nineteenth century the agrarian South exported as much as three-fourths of everything it produced, especially cotton, tobacco, and rice. Exporters who sold their goods in foreign markets, mostly in Europe, found competition was so intense that they were unable to pass on any of their higher costs of living, caused by the tariff increases, to their customers. Northern consumers were also plundered by protectionist tariffs that drove up the prices of the manufactured goods, but since they were not predominantly exporters they had an easier time passing on the cost to their customers, or arguing for wage increases to maintain their standard of living. As explained in a popular international economics textbook by Wilson Brown and Jan Hogendorn, which, like almost all textbooks, reflects the professional consensus on various issues: “The only group that is powerless to pass the costs [of protectionist tariffs] on further are the exporters, who have to sell at world prices and swallow these costs. In essence, a tax on imports becomes a tax on exports as well.”4 So, even though the U.S. Constitution prohibits taxes on exports, taxes on imports (tariffs) have essentially the same effect: They disproportionately punish exporters through indirect means. This burden has always disproportionately harmed American farmers from all regions of the country.
Nineteenth-century Southerners understood this concept perfectly well, for they saw their incomes decline whenever tariff rates rose. In a September 1, 1828, letter to Micah Sterling of Watertown, New York, John C. Calhoun explained that “a protectionist tariff gives to one section [the North] the power of recharging … the duty, while to the other [the South] it is a pure unmitigated burden.” This was true, wrote Calhoun, because the South “was engaged in cultivating the great staples of the country for a foreign market, in a market where we can receive no protection, and where we cannot receive one cent more to indemnify us for the heavy duties we have to pay as consumers.”5
Calhoun knew firsthand how protectionist tariffs disproportionately harmed American exporters. In one speech before Congress he noted that “during the eight years of high duties [1824–1832], the increase of our foreign commerce … was almost entirely arrested; and … the exports of domestic manufactures actually fell off.”6 He considered protectionism to be a form of political “warfare.” “Protection against what?” he rhetorically asked, and then stated the obvious answer: “Against low prices.”
Nobel laureate economist Milton Friedman and his wife, Rose, explain in their bestselling book, Free to Choose, just why exports decline after tariffs are increased: “If tariffs are imposed on say, textiles, that will add to output and employment in the textile industry. However, foreign producers who no longer can sell their textiles in the United States earn fewer dollars. They will have less to spend in the United States. Exports will go down to balance the decreased imports.”7 In other words, mid-nineteenth-century tariffs might have benefited New England textile mill owners, but at the expense of consumers in general, and especially export-reliant farmers.
When protectionist tariffs cause a reduction in imports (which is their sole purpose), our foreign trading partners will then have fewer dollars with which to buy our exported goods to their countries—especially agricultural products. Restricting imports today will invariably cause a reduction of our own exports tomorrow. And remember, the mid-nineteenth-century South had an overwhelmingly export-oriented economy.
The South exported as much as three-fourths of what it produced and was economically devastated by high protectionist tariffs.
It wasn’t just the antebellum South that complained about discriminatory tariff policy. All agricultural regions exported a large percentage of their produce in the nineteenth century and were similarly victimized by the Whig/Republican policies of protectionism. During the latter part of the century midwestern farmers became ardent free traders precisely because of tarriffs’ effects on their exports. As explained by Frank Chodorov in his book The Income Tax: “The plight of these [midwestern] farmers was made worse by the protective tariff policy of the government. The best they could get for their products was the competitive world price, while manufactures they bought, from the East, were loaded down with duties.… The populists clamored for lower tariffs.”8 This also likely explains why so much of the Northern opposition to the Lincoln administration during the war came from the Midwest.9
It is also telling that in Confederate president Jefferson Davis’s first inaugural address, delivered on February 18, 1861, he did not mention the word slavery but emphasized the fact that the South, an “agricultural people,” relied crucially on free trade. “An agricultural people, whose chief interest is the export of a commodity required in every manufacturing country, our true policy is peace and the freest trade which our necessities will permit. It is alike our interest, and that of all those to whom we would sell and from whom we would buy, that there should be fewest practicable restrictions upon the interchange of commodities.”10
LINCOLN’S TARIFF WAR
As soon as the new Republican Party gained enough power, it succeeded in getting the U.S. House of Representatives to pass the highly protectionist Morrill Tariff during the 1859–1860 session of Congress. According to the Congressional Globe (precursor of the Congressional Record), there was only one yes vote from a secessionist state (Tennessee) and forty no votes. There were only fifteen no votes (out of 64) from Northern states.
The Republican Party used the severe recession in 1857 as an excuse to propose protectionism as a “cure.” This makes no economic sense—raising prices and reducing trade to alleviate the effects of recession, unemployment, and rising poverty—but a gullible and largely economically illiterate Northern public apparently fell for it.
Protectionism was so important to the Republican Party of 1860 (and beyond) that in his book Yankee Leviathan, historian Richard Bensel labeled it the “keystone” of the Republican Party platform of 1860.
After being elected president, Abraham Lincoln literally owed everything, politically, to his Northern protectionist supporters. And as a master politician he understood that he had to come through for them if his political career was to be a success. It was northern protectionists, especially ones from Pennsylvania and New Jersey, who catapulted him into the position of Republican Party nominee and, ultimately, the presidency. An important part of this story was told in a J
uly 1944 article in the prestigious American Historical Review by Professor Reinhard H. Luthin entitled “Abraham Lincoln and the Tariff.” The following discussion is based on Professor Luthin’s well-documented accounts.
Beginning in the 1820s there was almost no support for protectionist tariffs from Southern members of Congress.
Lincoln had been an ardent protectionist for his entire political career. He claimed to have made more speeches on that topic than on any other, and he stumped for the Whig Party’s protectionist presidential candidates in numerous elections. In 1860 some of the most powerful and influential men in Illinois recognized that Pennsylvania, with the second-largest number of electoral votes, could be the key to winning the nomination and the presidency. They also understood that, as the heart of the iron and steel industry, the state’s Republicans would demand a candidate with solid protectionist credentials. Abraham Lincoln fit the bill.
Joseph Medill, the influential editor of the Chicago Press and Tribune, recognized immediately that favorite son Abraham Lincoln was the perfect candidate: In addition to his solid protectionist credentials, he was a slick politician, a trial lawyer, and a bona fide member of the Northern, moneyed, corporate elite. He editorialized in his newspaper that Lincoln was “an old Clay Whig, is right on the tariff and he is exactly right on all other issues. Is there any man who could suit Pennsylvania better?”
At around the same time a relative of Lincoln’s by marriage, Edward Wallace of Pennsylvania, solicited Lincoln’s views on the tariff by communicating through his brother, William Wallace. On October 11, 1859, Lincoln wrote Wallace the following: “My dear Sir: your brother, Dr. William Wallace, showed me a letter of yours, in which you kindly mention my name, inquire for my tariff view, and suggest the propriety of my writing a letter upon the subject. I was an old Henry Clay-Tariff Whig. In old times I made more speeches on that subject than any other. I have not changed my views.”
Lincoln cleverly used his lifelong reputation as a staunch protectionist to secure the Republican Party nomination.
As a masterful politician—certainly among the slickest in all of American history—Lincoln understood that if he made his protectionist views too public he would risk losing the support of agricultural regions of the country. Consequently, he asked Dr. Wallace and others he wrote to on the subject to keep their correspondence on the tariff issue confidential and private. Going a step further, he sent a personal envoy, his friend David Davis, to Pennsylvania with original copies of eleven of his pro-tariff speeches. Another personal envoy, one William Reynolds, was sent to solidify his protectionist views with the powerful Pennsylvania congressman Thaddeus Stevens.
Davis met with Republican Party leaders throughout the state in August of 1860 to show them Lincoln’s speeches promoting protectionism. Pennsylvania senator Simon Cameron understood Lincoln’s political dilemma and instructed Davis: “Nothing about these [speeches] must get into the newspapers,” presumably so that voters in agricultural states would not learn of Lincoln’s dogmatically protectionist views.11
Lincoln’s strategy succeeded, and when the protectionist tariff plan was finally voted on at the Chicago convention, writes Luthin, “The Pennsylvania and New Jersey delegations were terrific in their applause over the tariff resolution, and their hilarity was contagious, finally pervading the whole vast auditorium.”12 One eyewitness recalled that upon passage of the protectionist plank, “one thousand tongues yelled, ten thousand hats, caps and handkerchiefs waving with the wildest fervor. Frantic jubilation.”
Upon reading of this, Southern politicians must have been even more alarmed than they were in 1828 at the prospect of having their economy ruined by protectionist tariffs. When Lincoln returned home to Springfield after securing the nomination, writes Luthin, a Republican Party rally featured “an immense wagon” bearing a gigantic sign that read: “Protection for Home Industry!” This in fact was the slogan at the bottom of 1860 Republican campaign posters bearing pictures of Lincoln and his vice presidential candidate, Hannibal Hamlin.
After he was elected Lincoln publicly proclaimed that no issue—none—was more important than raising the average tariff rate.
Once elected, Lincoln openly stumped for senatorial passage of the Morrill Tariff. In a February 19, 1861, speech in Pittsburgh, Pennsylvania, he told his audience that no other issue—none—was more important to their congressional representatives than raising tariffs. President James Buchanan of Pennsylvania would sign the Morrill Tariff into law on March 2, 1861, two days before Lincoln’s inauguration. Luthin reveals: “Morrill, John Sherman of Ohio, and Thaddeus Stevens of Pennsylvania steered the bill through the House; Simon Cameron of Pennsylvania and James F. Simmons of Rhode Island, a wealthy textile mill owner, guided it through the Senate.”
In his first inaugural address Lincoln shockingly threw down the gauntlet of war over the tariff issue, literally threatening the invasion of any state that failed to collect the newly doubled tariff. On the issue of slavery he was 100 percent accommodating, going so far as to pledge his support for a constitutional amendment that would forever ban the federal government from interfering with Southern slavery. But on tariff collection he was uncompromising and dictatorial. “[T]here needs to be no bloodshed or violence, and there shall be none unless it is forced upon the national authority.”
In his first inaugural address Lincoln promised a military invasion of any state that refused to collect the newly doubled tariff rate. He kept his promise.
What was he talking about? What might ignite bloodshed and violence? Failure to collect the tariff, that’s what. After making the obligatory statement that it was his obligation to “possess the property and places belonging to the Government” he further stated that it was his duty “to collect the duties and imposts; but beyond what may be necessary for these objects, there will be no invasion, no using force against or among the people anywhere.” In other words, Pay Up or Die. Fail to collect the tariff, as the South Carolinians did in 1828, and there will be a military invasion, Lincoln announced. He would not back off when it came to tax collection, as President Andrew Jackson had done some three decades earlier.
Two weeks after Fort Sumter, Lincoln announced a naval blockade of the Southern ports as one of his first acts of war, doing so unconstitutionally, without involving Congress. The seceded states clearly had no intention of sending tariff revenues to Washington, D.C., so Lincoln announced that the purpose of the blockade was essentially to render to “Caesar” what is Caesar’s. He named only one reason for the naval blockade: tariff collection. This is how America’s thirty-seven-year tariff war was turned into a shooting war.
Economists Robert A. McGuire and T. Norman Van Cott surely understated their case in the peer-reviewed economics journal Economic Inquiry in 2002, when they concluded after analyzing the role of tariffs in precipitating the War between the States that “the tariff issue may in fact have been even more important in the North-South tensions that led to the Civil War than many economists and historians currently believe.”13
14
The Great Inflationist
When Abraham Lincoln first entered Illinois politics in 1832 he announced: “My politics are short and sweet, like the old woman’s dance. I am in favor of a national bank,… in favor of the internal improvements system and a high protective tariff.” The last two chapters have discussed the latter two policies—corporate welfare and protectionism. It is revealing that Lincoln, ever the careful wordsmith and trial lawyer, listed a national bank as his first priority.
Eighteen hundred thirty-two was the year of the big political showdown over the rechartering of the Bank of the United States (BUS). The battle pitted President Andrew Jackson against the bank’s president, Nicolas Biddle. On Biddle’s side was Henry Clay and what was soon to become the Whig Party establishment, including Lincoln. In opposition stood the descendants of the Jeffersonian political tradition, which was especially strong in the South.
A national
bank was arguably the lifeblood of the Whig Party, and the main reason for its coming into existence in the early 1830s. Few politicians of the era were more devoted to resurrecting the bank than Abraham Lincoln was. In The Rise and Fall of the American Whig Party, University of Virginia historian Michael Holt wrote of how, during the 1840, 1844, and 1848 national elections Lincoln “crisscrossed the state [of Illinois] ardently and eloquently defending specific Whig programs like a national bank.” Not only did he defend the programs, writes Holt, but “few people in the party were so committed to its economic agenda as Lincoln.”1
University of Georgia economist Richard Timberlake, author of a treatise on American monetary history entitled Monetary Policy of the United States, agreed with Professor Holt’s assessment of the importance of central banking to the Whigs. “To the Whigs … a national bank was their life—the vital principle—without which they could not live as a party—the power which was to give them power.… To lose it, was to lose the fruits of the election, with the prospect of losing the party itself.”2
The first reason Lincoln gave for entering politics in 1832 was that he wanted to crusade for a nationalized banking system.
In other words, the Whigs always intended to use a national bank, and its printing of paper money that was not redeemable in gold or silver, as the means of financing the colossal patronage schemes that they hoped would keep them in power indefinitely.
THE GREAT BANK WAR
The best published account of the conflict between Andrew Jackson and Nicolas Biddle over the BUS is Robert Remini’s Andrew Jackson and the Bank War. Remini explains how Jackson considered paper money that was not redeemable in gold or silver to be “the instrument of the swindler and the cheat.” For Jackson “hard money—specie [i.e., gold or silver] was the only legitimate money; anything else was a fraud to steal from honest men.”3
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