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4. The Burdens of State Public Debt

A key to the politico-economic problems of the Confederation period, as well as one of the leading arguments for centralized power, was the swollen corpus of war-born public debt. The mass of federal and state debt could have depreciated and passed out of existence by the end of the war, but the process was stopped by Robert Morris. Morris and the nationalists moved to make the depreciated federal debt ultimately redeemable at par, and also agitated for federal assumption of the states’ debts. This was done to benefit speculators who purchased the public debt at depreciated values and to force a drive for a national taxing power. As a result of the nationalists’ efforts to assume the public debt, the value of the public debt, in specie, increased from $11 million in 1780 to $27 million in 1783, the vast bulk of which was held in the northern states. While scrambling to assume some of the debt themselves, the states had also amassed a huge burden of their own debt. Thus, by the end of the war, Massachusetts’ total debt was nearly £1.5 million; Rhode Island, about $0.5 million; Connecticut, over $3.75 million; Pennsylvania, over £4.6 million; Virginia’s over £4.25 million. As a result, payment of interest on the debt amounted to an overwhelming proportion of the state budget, and one estimate is that 50–90 percent of state expenditures went for this purpose: out of South Carolina’s total budget of roughly £104,000 in 1786, over £83,000 went to pay interest on the debt; of Virginia’s budget of roughly £256,000 in 1784, over £207,000 went to payment of interest.14

One problem that bitterly divided the states during the Confederation period was the settlement of common accounts. Under the Articles, expenses made by the several states for causes common to them all would be lumped together as “common charges” and the charges paid proportionately by the various states. In short, “debtor” states would pay their share to claimant “creditor” states through Congress and thus settle their accounts. Wartime expenses were clearly a common charge for the general welfare, and therefore those states which had expended more in the war effort (notably the southern states, because of the nature of the last few years of the war) were entitled to payment from the others. Logically, the public debt incurred by Congress should also have been assumed pro rata by the separate states, but the nationalists’ fierce determination to amass and retain a federal debt was able to keep that debt a federal rather than a “common” charge.

Throughout the 1780s the southern states tried to obtain their just settlements, but the northern states faithlessly fell back on technicalities, lack of official vouchers and authorization, etc., to keep the southern states from their just due. Also the South in particular had gone much further than other states in assuming unliquidated federal debt during the war (e.g., Quartermaster and Commissary certificates) and had exchanged them for state debts, only to find Congress (i.e., the North) balking about accepting these federal certificates as evidence for expenditures in the common welfare. Again, the North was depriving the South of their just due. As the dispute dragged on during the decade with the southern states unable to redeem their claims, Robert Morris’ wily “solution” proposed in 1783 began to look better to all concerned. An ultra-nationalist’s dream, the proposal was to accept all southern claims without cavil, but not to be paid by the debtor states: to be assumed by the federal government, which would issue federal securities for all claims. In short, the federal government would assume all war-born state debts.

The tax-and-debt burdens of the states were, of course, aggravated when the depression of 1784 hit the country, for now a fixed sum of taxes and debt payments had to be exacted from a depressed economy in which prices were generally lower and therefore the real tax burden greater. One critical problem was whether the debt would be paid at its depreciated market value, which at least reflected current economic realities, or whether the state would insist on paying them at their far greater face value, and thus impose an enormously greater tax burden upon the people. The anger of people at paying debt charges was considerably aggravated by the fact that the bulk of this debt had passed from its original owners at highly depreciated amounts into the hands of speculators. Payment of face value, then, would not even benefit the original public creditors; in fact, they too would suffer from being taxed for the benefit of a windfall to a comparative handful of speculators in the public debt.

Virginia was sensible enough to pay much of the debt at its depreciated market value, and make its taxes to pay the debt payable in depreciated certificates. Hence, Virginia was able to reduce its debt rapidly and without imposing enormous burdens on its taxpayers. Massachusetts, on the other hand, so handled its debt during the war as to benefit its debt holders and speculators, consolidating its debt by 1784 at twice its market value. To pay this particularly large debt, Massachusetts levied enormous taxes and insisted on collecting them in specie. This is not surprising, since the Massachusetts government was basically run by the very groups that owned the great mass of state debt. The debt burden was borne particularly by the poor, since roughly 33 to 40 percent of Massachusetts’ state revenue was raised by poll taxes, which were equal for each citizen. As a result, it is estimated that at least a third of a Massachusetts farmer’s income after 1780 was extracted from him in taxes, and in specie at that. Farmers and the poor demanded that the state debt at least be scaled down to market value, but the conservative ruling groups angrily refused.

Typical of the eastern mercantile oppression over the mass of citizens and farmers was the imposition of excise taxes, which harmed the bulk of consumers. Thus, the tax on spirits (e.g., cider brandy) distilled from one’s own apple orchard was twice the level of the tax on New England rum: a clear privilege to the Boston and other eastern merchants over the western farmers. Tax oppression upon the Massachusetts people was enormous, and the courts ruthlessly threw those who could not pay into jail. Tax defaulters’ property was seized, but in the time-honored way of neighborhood solidarity, local mobs prevented anyone but the owner from bidding for the property.

To the distressed people of Hampshire and Berkshire counties in western Massachusetts, it became increasingly clear that salvation must lie in their own hands alone: specifically by taking direct action to close the hated tax-enforcing courts. On February 11, 1782, a convention of Hampshire County at Hadley urged the suspension of civil suits; leading a call at the convention for direct action was the Reverend Samuel Ely of the town of Conway. The convention also prioritized the discriminatory excise taxes: “We esteem it as a matter of great grievance that Excize should be paid on any articles of Consumption in a free Republick.” Throughout January, Ely had stirred up the northern towns of the county, attacking the Massachusetts government and the constitution, and denouncing the highly excessive salaries of the governor and the superior court judges. Now, his views appeared so radical that one Northampton divine feared that the government itself was in danger, and none other than Joseph Hawley, the former leader of the western Massachusetts Left, accused Ely of treason. It was clear that the hard-pressed masses of western Massachusetts had found a new leader.15

Samuel Ely was a Yale graduate and former preacher in Connecticut, and a volunteer fighter at the Battle of Bennington in August 1777. On April 4, Ely addressed the mob in front of the common pleas court of Northampton and called for the people to rise up and close the court. The Hampshire moderates tried to take the play away from Ely with a county convention at Hatfield on April 9, which opposed the holding of county courts and suits for debt, but also opposed all radical measures to close them; particularly staunch in their conservatism on this issue were the older commercial Connecticut River towns—Northampton, Springfield, Hatfield and Hadley—with Joseph Hawley the leading delegate from Northampton. Samuel Ely scorned the schemes of the moderates, designed to quell his movement, and again raised a mob in front of the Northampton courts on April 12, calling for armed uprising. His plan was blocked by people standing to defend the courts. For his leadership in the Northampton riots, in mid-May Samuel Ely was arrested, convicted, and imprisoned in a Springfield jail. On June 13, a mob of 120 Hampshire men marched from Northampton to Springfield to free their leader from prison. Ely was freed, and, after an armed clash with a sheriff’s posse, the insurgents yielded three hostages for their return of Ely. But on the eighteenth, 600 rebels marched on Northampton to demand release of the hostages, but withdrew upon pleas of the hostages themselves. The situation eased only when the hostages were freed; Ely eventually fled to the free air of Vermont.

The General Court suspended the right of habeas corpus, and sent a grievance committee headed by Sam Adams, which called a Hampshire County convention for August. While doing nothing to allay grievances, Adams and Hawley were able to use their former radical reputations to grant amnesties and quiet the county; people’s conventions continued in the following year but without further major riots. The following August, one of Ely’s men, Justus Wright, led a rescue mob in Northampton on behalf of another Ely follower and tried to close the courts in Westfield. After Wright’s arrest in 1784, petitions of amnesty on his behalf were made by the towns of Goshen and Chesterfield. Wright himself, from prison, denounced the Massachusetts government as an “aristocracy” of “tyrants.” A small rump convention at Hatfield, in March 1783, also voted to pay no more taxes to the state of Massachusetts.

Disturbances had also occurred further west in Berkshire County. At the end of February 1782, a mob of 300 in Pittsfield succeeded in closing the common pleas court, but a month later, a large county convention in Pittsfield repudiated such radical methods. The leader of the successful Pittsfield uprising had himself been a justice of the peace, James Harris of Lanesborough. Harris had refused to pay taxes to the town, resisted the sheriff in serving court writs, rescued a neighbor’s cow from the sheriff, and declared that the courts must be “ripped up” to make the General Court listen to the people’s grievances. The following autumn, the mob rescued a pair of oxen from the hands of the sheriff; the mob, led by Major Thomas Lusk, had formally agreed to set themselves against the government. The General Court resorted here to continuing its suspension of habeas corpus.

At the beginning of the depression, Massachusetts managed to quiet Hampshire and Berkshire temporarily by lightening the tax burdens on the towns; however, it compensated for this by imposing a harsh stamp tax on all documents and papers, hitting at all state transactions and distressing the newspapers of the state; the newspaper tax, however, was soon repealed.

While the tax burden was most severe in Massachusetts (other New England states levied taxes at one-fourth the rate), all the states groaned from the postwar tax and debt burden, which undoubtedly aggravated the postwar depression. Much of the revenue, especially in importing states like New York, was derived from the state imposts. A particularly burdensome tax was the fixed tax per acre of land prevalent in the South. Thus Virginia levied a tax of one shilling per 100 acres and North Carolina five times that amount—these taxes greatly discriminated against the owners of the poorest land. Mass pressure from the backcountry forced Virginia, the Carolinas, and Georgia to abandon this tax and to moderately graduate the land tax. South Carolina, indeed, established a uniform land tax by value.

When the depression came, Connecticut, in contrast to the unyielding Massachusetts, agreed to abate taxes and grant time for their payment. Virginia sheriffs in the western country ran into similar trouble as in western Massachusetts. Any property they seized was rescued, many taxpayers refused to pay taxes and threatened to resist seizure of their property by force, and other delinquent taxpayers went into hiding. Numerous county petitions in Virginia pleaded the impossibility of paying taxes, a condition aggravated by the low price of tobacco in the mid-1780s. The Virginia legislature reacted sagely to the protests—again in contrast to Massachusetts—and agreed to lower or suspend taxes, and to allow hemp-growing western farmers to pay their taxes in hemp or flour. Indeed, Virginia agreed, in the spring of 1784, to suspend all tax collections for six months, and then agreed to cut taxes in half for the year 1785.16

 

  • 14. [Editor’s footnote] The continual use of both pounds and dollars may be confusing to the reader. The states generally used English units (pounds, sterling, and pence) as their unit of account, which they began while they were still British colonies. During the colonial era, since Britain used mercantilist restrictions to prevent English specie from leaving the country, the colonists imported specie from other regions, in particular the Spanish silver dollar. The colonies also heavily issued paper money, which was indirectly linked to the specie unit of account through taxes and legal tender laws. In the early 1790s the new government put the country on a dollar accounting system that defined the American dollar in terms of both gold and silver (at a 15 to 1 ratio). Murray Rothbard, Conceived in Liberty, vol. 2: “Salutary Neglect”: The American Colonies in the First Half of the Eighteenth Century (Auburn, AL: Mises Institute, 1999), pp. 621–38; pp. 123–40; Murray Rothbard, “A History of Money and Banking Before the Twentieth Century,” in A History of Money and Banking in the United States: The Colonial Era to World War II, ed. Joseph Salerno (Auburn, AL: Mises Institute, 2005), pp. 65–68.
  • 15. [Editor’s footnote] During the Revolutionary War there was a crisis of leadership among the Massachusetts radicals. Since John Hancock and John and Sam Adams began to move rightward, new radical leaders had to be found in 1775 and 1776. One of them was Joseph Hawley, who later criticized the new Massachusetts constitution in 1780 as overly conservative and infringing on religious liberty. Rothbard, Conceived in Liberty, vol. 4, pp. 1258–63, 1500; pp. 141–49, 386.
  • 16. [Editor’s footnote] Jensen, The New Nation, pp. 302–12; Robert J. Taylor, Western Massachusetts in the Revolution (Providence, RI: Brown University Press, 1954), pp. 103–27; E. James Ferguson, The Power of the Purse (Chapel Hill: University of North Carolina Press, 1961), pp. 203–19.
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