The Whiskey Rebellion

by William Hogeland

  Then, in the middle of debate in Congress, Morris dramatically resigned his office. He wrote to Congress to say that if funds for every kind of public debt were not permanently secured, his own integrity would be baseless. With the Gates cabal at Newburgh moving, on the pledge of Morris’s support, to unite the officers in mutiny against Washington and Congress, Morris published his threatened resignation, creating maximum anxiety about pay even among loyal officers at Newburgh.

  At last Washington acted. Learning of the mutinous memos circulating in camp, he wrote to Hamilton asking him to explain to Congress and the states that if the worst should happen, it would be their fault; they hadn’t addressed the desperate needs of his army. He sent his officers a memo preempting the unofficial meeting, calling his own meeting, at which he appointed Gates to preside; Washington asked for a full report on what occurred at the meeting. The inference was that he wouldn’t attend. When the officers had gathered, in a huge, barnlike structure on a hill, with Gates in the chair and ready to rouse them to mutiny, Washington walked into the room. Gates gave up the chair and could only watch as Washington made a stern and beautiful speech on remaining loyal to the country’s promise for civil authority and republican government. The vast majority of officers were already moved when Washington sealed the matter with a gesture that brought some to tears and established his reputation for all time. He started to read aloud a letter from Congress promising attention to officer pay, but finding that he couldn’t read it, he reached for his glasses. Apologizing as he settled the glasses on his nose, he remarked that having already gone gray in the service of his country, he now seemed to have gone blind too.

  The sensation left Gates unmoored. All he could do was thank the general for his speech as Washington swept out of the room to acclaim, and Knox and other loyal generals, on cue, moved in to propose resolutions, to which the assembled officers enthusiastically assented, abhorring mutiny.

  Washington instantly wrote to Congress. He’d barely averted disaster, he said; now Congress should give immediate satisfaction to officer demands. Congress, relieved, did just that, and everything Washington had hoped for, when suggesting that his officers petition Congress—officer payment, no mutiny—was accomplished. Officers were offered five years’ full pay. If they preferred to get it from states, officers of any state line could apply by a set deadline—but only collectively—to their legislature; after that, officer payment would be considered part of the federal debt. Just as Morris had hoped, all army obligations thus passed easily to the federal government, adding $5 million to the debt. The officers agreed to take the payoff in interest-bearing bonds, to be funded after final settlement of states’ accounts with Congress. Each general received $10,000 worth of bonds (average family income was under $200 per year). The officers formed the Society of the Cincinnati, a hereditary organization with a chapter in each state. Every officer of the Continental Army was a member, and each officer’s eldest male descendant, in every future generation, would be a member too. The society unified the families of those who would become the country’s most influential men, creating a hereditary interstate lobby with roots in fear of coup. The society’s president was General Washington (who took no bonds or pay).

  Soldiers got $200 to $300 in bonds at the officers’ behest. It was a stopgap side deal; addressing back pay for the men was put off for final settlement among the states, and the soldiers, needing cash, and with no time to wait for interest or payment on debt instruments, sold their bonds to speculators at up to a thirtieth of face value. When Pennsylvania troops rebelled over nonpayment, the officers, now bondholders of high standing, were far from supportive, and the rebellion was put down. In April, peace became official and the soldiers were sent home. They were supposed to be paid three months’ salary in Mr. Morris’s notes. Morris took his time sending the notes; army contractors gave soldiers goods on credit and took the soldiers’ notes, when they did at last arrive, at 40 and 50 percent markdowns. There was no final settlement with the men. Morris said he had no authority to make it, and by the time Congress gave him authority, everybody had gone home. The soldiers hardly got paid at all. The countryside filled up with broke, indebted veterans of a long war.

  In Congress, the impost was passed—but only in a diluted version, still dependent on state collection, thus useless. The Morrises’ and Hamilton’s most extreme efforts failed to get genuine federal taxes passed in the confederation Congress. Yet by 1791, when Hamilton was in a position to fund the debt, its size, and the influential nature of those who held it, helped him pursue the Morris agenda to its conclusion in a new, national context.

  For Washington and Hamilton, meanwhile, the crisis had renewed a relationship that became crucial to Hamilton’s hopes. Even as the Morrises were giving up on Washington and Knox and risking everything by turning to Gates, Hamilton was making himself the repository for Washington’s private thoughts on quelling the mutiny. Praising the wisdom of Washington’s decisions—which departed sharply from what he’d at first solicited Washington to do—Hamilton was keeping all avenues open. After the war, as the victorious general, returning to his farm, became more august than ever, Hamilton emerged not as a conspirator in sedition but as one of Washington’s important correspondents in the Congress.

  They delved remarkably freely into the real sources of the crisis. Washington believed creditors had been manipulating his much abused army and risking a national disaster just to get payments for bondholders. Such was Hamilton’s agility that he confessed to a great deal of what Washington suspected him of. Confession invested the correspondence with a new intimacy. When Washington expressed suspicion of Robert Morris, Hamilton defended Morris—but he did confide an opinion that Morris’s judgment could sometimes be clouded. When Washington seemed to chide Hamilton, calling an army a dangerous thing to play with, Hamilton wrote a passionate justification, admitting that he and the Morrises had indeed blended creditor and officer interest—he would do it again, he said—but swearing he’d always had the army’s interest at heart. Hamilton crossed out an admission that the conspirators had hoped, at least briefly, to create rather than merely benefit from a threat of coup. And revealing the collaboration with Gates would have ended the revived relationship for good. Hamilton left that out altogether.

  But before receiving Hamilton’s reply, Washington had written again to qualify his remark about playing with the army. He’d been tired, he said; he’d only meant that the army is volatile, that manipulating it might have ended with state sovereignists, not nationalists, winning. Nobody, Washington repeated, more favored national government and federal taxation than he.

  So Hamilton might have avoided writing his letter of half confession, so careful yet so intense, and might have gotten away with revealing less. But the letter had the effect of pulling the two men more deeply into a special way of collaborating, to which they would resort with even more complex results in the 1790s, when Hamilton reconnected national finance with domestic military power. Hadn’t he courted terrible danger, Hamilton was saying in his post-Newburgh letters—somehow he put it both bluntly and subtly—and admittedly done outright wrong, only to achieve the strong nationhood that Washington wanted too?

  CHAPTER THREE

  Spirits Distilled Within the United States

  Six years later, authoring the whiskey tax as President Washington’s treasury secretary, Hamilton had matured in the practice of law and politics, and the United States of America had become, thanks in part to Hamilton’s efforts, a government with direct powers over citizens throughout the states. Opening the purses of the people, in Robert Morris’s expression, was possible at last, and Hamilton was in full command of his excitement, impatient with anyone whose imagination lacked the scope of his own. He had a relentless commitment—it was uncanny, given the fertility of his imagination—to the minutiae involved in administering whatever his ambitions demanded. There was no argument he couldn’t make impregnable, no argument he couldn’t e
viscerate.

  As when he’d made himself chief of the general’s staff, he saw Treasury as top job in the president’s cabinet. He’d been recommended for it by Robert Morris, who had turned it down; as an economist Hamilton was ahead of Morris now. Even before he’d gone to the Congress, he’d written the superintendent a letter offering what he called some ideas, which in fact ran to thirty pages of figures and argument, a thoroughgoing analysis of a central bank’s ideal charter, with the recommendation that Morris’s bank issue smaller, more generally usable bills and pushing for a larger capital than Morris deemed prudent. Since then he’d learned more, and he had reason to see himself as the only person in the country qualified not only to do this job, but also to use it as a lever for moving the executive branch, and the whole government, toward the highest national goals.

  It was a busy fall. He had to get loans to cover immediate operating expenses. He had to take over the chaotic process of final settlement—flattening the debts, expenses, and common charges that states had run up against one another under the defunct confederation. The first U.S. Congress had finally passed a real federal impost on foreign goods. He had to comprehend every facet of customs processes, the operation of lighthouses, the cargo typically listed on manifests. He deployed deputies and assistants and got his Broadway office up and running with the robustness and efficiency he loved. He couldn’t abide a cluttered desk.

  At the end of the month, Congress closed its first session and went home. By October the president and the rest of the cabinet had left town too. New York was Hamilton’s home, and as daylight fled, and winds drove waves against the Battery, he kept lamps burning. He was developing a far-reaching plan of finance for the United States. It would realize the old plan of funding the domestic debt, liberating the nation’s commercial energy while placing all significant public investment in federal hands, not through the long slate of taxes that Morris had wanted—overkill with a blunt instrument—but by adding to the import duties a single tax, exhaustively calculated to serve precise purposes: the federal excise, soon to be known as the whiskey tax. This time Hamilton meant to give the debtor class no further chance for resistance, no choice but to pay.

  • • •

  That class was both rampant and desperate. Its activism had shifted westward after the war—mountainous regions remained in depression during a postwar recovery of the east—and the radicals had involved themselves in two incidents in the 1780s that inadvertently helped enable Hamilton to impose the federal whiskey tax of 1791. One was traditional in being criminal and violent. The other, even more disconcerting to creditors, was lawful and political.

  The violent incident occurred in western Massachusetts, where the failed economy led to insurrection. Belittled by creditors as the Shays Rebellion, as if inspired only by the audacity of one of its leaders, Daniel Shays, the outbreak was the most focused of many violent debtor actions in western and rural parts of many states, frightening creditors throughout the country. The Massachusetts assembly had taken an aggressive approach to consolidating and paying its war debts, benefiting the few who held interest-bearing state notes. The assembly paid interest on notes at their value when issued: if depreciation had made a one-dollar note worth 25 cents when issued, the note would be paid at 25 cents, despite having depreciated, by the late 1780s, to 2 cents. Taxes to raise coin for this payoff to state bondholders were already heavy enough; then the state decided to pay the entire principal of its army debt too—and then to pay the principal of the state notes. Further taxes were levied on the people. Though some were payable in various kinds of paper, they were simply not payable at all by many; mass foreclosures ensued. Protest took the form of petitions and meetings, demanding a revaluation of the debt along realistic lines and the opening of a state land bank for farmers’ relief. In 1786 the debtors staged a classic court riot in Northampton. In January of ’87 they tried to seize the federal arsenal in Springfield, where they were put down by the state militia and ringleaders were arrested.

  But after suppressing the Shays Rebellion, the Massachusetts legislature repealed the crushing tax laws. To nationalists like Hamilton, it was the old story. State assemblies, left to their own devices, would either try to retire state debts overaggressively, or lower taxes and open land banks, thus perpetuating the curse of pulp, or—showing perfect irrationality—do both. In every circumstance, legislatures reacted to the people’s violence by passing laws that robbed investors.

  The other event in which finance radicals distinguished themselves in the 1780s, at least as frightening to creditors as the Shays Rebellion and Massachusetts’s response, occurred in Pennsylvania. There 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 led by Robert Morris—now in the Pennsylvania assembly, having left the confederation Congress—to a populist alliance that was shaky at best. One problem for rural farmers and artisans was that they rarely voted. Western counties were huge. Getting to and from polling places could take days, and incumbents were rich, with machines dedicated to stifling opposition. Still, in the mid-1780s, citizens of Cumberland and Westmoreland counties, organizing to vote in large numbers, had a farmer, Robert Whitehill, and a weaver, William Findley, in the assembly in Philadelphia. Creditors all over the country saw what might happen to investments if democracy got a grip on legitimate politics.

  Whitehill and Findley urged their fellow assemblymen to revoke the charter for Bob Morris’s bank, which, they argued, served no public function. That the bank might lose its privilege to operate terrified the merchants who relied on it for large-scale funding—including Morris himself and the bank’s other directors, who were accustomed to approving massive, poorly secured loans to fund their many speculations. James Wilson, Morris’s chief ally in the assembly, had personally borrowed more than $250,000 to speculate in western land. In debate, Whitehill pointed out that strapped farmers and artisans couldn’t get loans at Morris’s bank; Findley noted that almost a third of the families in his county had been foreclosed. Morris and Wilson waved away widespread depression in the countryside as a figment of radicals’ imaginations: any farmer in the state, they said, could of course open an account at the bank—as long as he had good connections in the city and could get someone respectable to endorse his notes. Exasperation prevailed. Whitehill and Findley were also demanding a new land bank, to give ordinary people credit, as well as more liberal paper emissions. If an angel from heaven, Bob Morris said, were to inform Robert Whitehill that the central bank was a good thing, Whitehill would still deny it. Whitehill declared that any pro-bank angel would be a fallen one.

  A remarkable victory for populist lawmaking occurred when the radicals gained the unlikely support of speculators operating from a lower rung than Morris’s and Wilson’s; they’d long resented being excluded from the banking clique. The assembly did revoke the bank’s charter. In the next session, it refused to reinstate it. Bob Morris accused the assembly of confiscating his bank’s property. Not so, Whitehill triumphantly replied: the charter was the property not of Morris but of the people of Pennsylvania.

  Emboldened, radicals now proposed a plan for state bonds that would have defeated the purpose of buying them. Morris and other creditors had begun picking 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 all kinds—never indeed redeeming them in gold and silver. This plan would give people a way to pay taxes and land-bank mortgages in paper. Speculators would still derive val
ue from the bonds, the radicals argued: now a public currency, bonds could be used in trade for goods and services. When all certificates were reabsorbed by the state, the war debt would be paid off, small holders’ property stabilized, burdens equalized, and the best goals of the revolution realized.

  Whether the plan was unrealistic became academic. The populists’ sometime allies, low-rung speculators, held plenty of state bonds themselves; this time the populists could not get a majority. No debate was held, no action taken. In the end, a compromise prevailed, whose most significant feature, for the future of the country, was the dissatisfaction it caused both sides. The weaver William Findley announced that staving off plutocracy and preserving liberty in Pennsylvania had been defeated. Bob Morris savaged the assembly as leveling and confiscatory. Both the creditors and the debtors, having engaged in a direct legislative contest, ended by feeling cheated and weak.

  Outbreaks like the Shays Rebellion, as well as the qualified legislative successes of Pennsylvania radicals, inspired some decisive new alliances. By the late eighties, nationalists and creditors everywhere feared that federal bonds would never pay, that the state debt instruments in which they’d invested would be voided by paper schemes, that cash taxes could never be effectively imposed to service public debt. State sovereigntists, for their part, once bitterly opposed to any talk of nationhood, were seeing their states’ authority eroding in the mountains and beyond them. The idea of some limited form of collective strength began to take on new appeal in the legislatures.

  Disappointed radicals, meanwhile, now mainly from the west, were interested in collective strength too. They were explicitly connecting the debt that kept them paralyzed with two failures, which they blamed equally on the confederation Congress and on state governments in the east: the lack of any agreement with Spain to open the Mississippi River to American trade, and the lack of any effective protection from Indian attacks. The Mississippi problem robbed westerners of chances for the small-scale commercial development through which they longed to free themselves from depression, barter economies, and dependency on landlords and creditors. The east was accessible only by bad roads, at great expense, over a mountain barrier. Westerners looked farther west, in Spanish Louisiana and beyond the Gulf of Mexico, for markets. But George Washington and other land speculators, whose ambitions required keeping west linked to east, hoped to postpone a Mississippi opening until some kind of national cohesiveness could be enforced. The river remained closed.