Cronyism

CHAPTER 1

THE PATH TO AMERICAN INDEPENDENCE

England Charters the Colonies

United States history began in the seventeenth century with European colonization, particularly by Old Order England. The Old Order referred to the combination of absolutism, the ideology that the divine monarch could lord over the people; mercantilism, the economic philosophy that advocated special privileges; and feudalism, the system that tied the monarch’s subjects to the land. Absolutism ensured mass obedience, while mercantilism and feudalism created important allies and a hierarchical caste system. To strengthen this dispensation, the monarch allied the throne and altar by promoting the established church and mercantilist theorists to court intellectuals. In short, the unrepentant cronyism of the Old Order concentrated power in the monarch, feudal landlords, privileged merchants, the royal bureaucracy, and the church against the laborers, peasants, artisans, and discriminated religious groups.

In the late sixteenth century, Queen Elizabeth controlled England with mercantilist policies. Monopoly grants restricted competition, usually through a corporate charter. In addition to any explicit monopoly granted, the contemporary corporate charter was a license: to use the corporate form and the benefits of limited liability, a company had to acquire a legislative charter. Businessmen bribed the Crown to obtain monopoly charters for goods such as coal, soap, iron, and leather. This resulted in higher prices and a decrease in quality, benefitting only the Crown and privileged company.

When King James I assumed the throne in 1603, he accentuated the Elizabethan system, envisioning the colonies as appendages and extensions of the Old Order. James expected the colonies to provide living space for recalcitrant subjects to work on feudal estates and produce raw materials under rigid taxes, regulations, and licenses. In other words, James conceived of the colonies as the beginning of a new grandiose empire.

The Crown created the colonies through special privilege, blatantly neglecting the rights of European homesteaders. England also discarded Indian rights. This aggression occurred because the natives, in addition to the land they farmed, claimed ownership of large tracts of unused land they only hunted on.

In 1606 James chartered the North Virginia Company and the South Virginia Company, named after the Virgin Queen. Each corporation possessed separate monopoly grants to unappropriated land. James gifted the North Virginia Company (soon called the Plymouth Company) the area from modern New York to Maine, while he granted the South Virginia Company (soon called the Virginia Company) a tract from modern North Carolina to Virginia. In 1609, James egregiously extended ownership of the latter from “sea to sea”—to the other side of the continent. In addition, he assigned the lands between the companies to the first claimant, but when the Dutch later settled the land, England confiscated it through war.

In 1607, the Virginia Company established Jamestown. However, the colony’s success was short lived and James dissolved the Company after it failed during the depression of the 1620s. He made Virginia a royal colony, appointing the governor and upper legislature. In 1632 King Charles I granted part of northern Virginia to one individual, Lord Baltimore, who wielded feudalistic control over the residents. It was named Maryland after Charles I’s wife. In 1663 King Charles II expanded the southern border, awarding a feudal grant to eight favored supporters. This colony was named Carolina after Charles I.

In the colonies, feudal manors exported agricultural commodities, such as tobacco and later rice, to England. Oligarchical planters received arbitrary land grants and imposed a system of land taxes (quitrents) upon the actual homesteading settlers. Taxes and restrictions heavily regulated agriculture. For a cheap supply of labor the plantations imported indentured slaves from England. Significantly, planters also augmented the business of corrupt African chieftains involved in the slave trade. The labor system required a panoply of subsidies to stop escaping and revolting slaves. Among others, the colonies conscripted patrols to catch runaways and put down rebellions, regulated slave meetings and travels, required the return of fugitive slaves, and restricted voluntary manumissions. England assisted by incorporating the Royal African Company with a monopoly over African land and the slave trade. Colonial feudalism, from the land grants to the coerced workforce, embodied cronyism.

Although the Plymouth Company made little progress in colonization, the Pilgrims established Plymouth in 1620, and Charles I chartered the Massachusetts Bay Company for exiled Puritans in 1629. In the mid-1630s, the settlements acquired self-governance after wealthy colonists bought control from the English owners. However, this hardly meant freedom for the individual settlers, because stock ownership guaranteed arbitrary land grants. A theocratic and oligarchical elite quickly amassed power, fastening domestic mercantilism on hapless settlers. Elites implemented maximum wage controls to ensure cheap labor and limit upward mobility; subsidized and monopolized various industries such as fur, iron, salt, and textiles; and passed debtor laws to benefit wealthy borrowers. The oligarchs also sanctioned slavery, systematically cleared out Indians, and privileged the Puritan church to create a new alliance of throne and altar.

Despite these privileges in Virginia and Massachusetts, England maintained the upper hand. The King and Parliament enacted various navigation acts to benefit English commercial interests, particularly shippers and shipbuilders. The 1650 Navigation Act required a restrictionist license for foreign shippers trading with the colonies, and the 1660 Navigation Act accelerated this with a virtual monopoly to English shippers. The 1663 Navigation Act prohibited colonial imports that did not first pass through English ports, and the 1673 Navigation Act instituted a tax on tobacco shipped between colonies. Elites designed these laws to ensure the colonies’ commerce worked for their benefit: artificially low prices on exports subsidized English industry at the expense of Dutch competition. English cronyism layered over colonial cronyism.

Despite the feudalism, mercantilism, and pledged loyalty to the Crown, the Old Order never secured absolute hold and the imposed restrictions failed. First, the ruling class failed to enforce colonial feudalism because of the distance and sheer abundance of land, which allowed settlers to avoid paying quitrents on their homesteaded farms. In some cases, colonists created entirely new settlements free from control, such as Rhode Island in the 1630s. Moreover, natural homesteading instilled the colonists with a rudimentary understanding of private property rights, making them averse to government encroachment.

Second, the Old Order failed to enforce the Navigation Acts because of English turmoil culminating in the Glorious Revolution of 1688. In addition, related wars with France, Spain, and the Dutch Republic hampered oversight. Smuggling outside of English jurisdiction became rampant.

Third, whenever the elites managed to enforce cronyism, the settlers rebelled, the most basic form of resistance. Colonists directed the rebellions against both the local state and the Crown. However, while the rebels possessed classical liberal orientations, they failed because the reins of coercion corrupted the leadership into supporting power-aggrandizing policies. Bacon’s Rebellion in 1676, named after the Virginian Nathaniel Bacon, was a prominent example. Although the desire to take land the Indians claimed partially motivated the rebels, they also criticized special-interest legislation. After Bacon secured Jamestown, he enacted new democratic reforms to weaken the ruling oligarchy. But, shortly thereafter, Bacon morphed into a despot and alienated his supporters before suddenly dying. Bacon’s Rebellion ended in failure.

Therefore, by the beginning of the eighteenth century the Old Order maintained control. English mercantilism and feudalism still gripped the colonies.

The Enlightenment and Salutary Neglect

By the mid-eighteenth century, the governing bodies that became the thirteen states had emerged. Colonists established Virginia, Maryland, North and South Carolina, and Georgia in the South; New York, New Jersey, Pennsylvania, and Delaware in the Mid-Atlantic; and Massachusetts, Rhode Island, Connecticut, and New Hampshire in New England. The Old Order of Great Britain (in 1707 England merged with Scotland) had cleaned up its internal affairs to become the rising imperial superpower. Although the Glorious Revolution of 1688 destroyed absolutism, the king still exerted enormous influence over Parliament through patronage. In addition, the clergy and mercantilist theorists spun crucial apologia for British depredations.

Parliament passed new navigation acts, such as the monopolistic 1696 Navigation Act, tightening the enforcement of previous regulations. The 1699 Wool Act prohibited wool exports from one colony to another, ensuring artificially low prices for England’s wool manufacturers. The 1705 Naval Stores Act and the 1711 and 1712 White Pine Acts instituted regulations over forests and siphoned lumber to British shipbuilders. The 1732 Hat Act protected British hat makers, the 1733 Molasses Act’s taxes protected British West Indies molasses producers at the expense of those in the French West Indies, and the 1750 Iron Act restricted colonial iron production to subsidize British iron manufacturers.

However, rampant smuggling and black market production continued. When the Whig King George I succeeded the Tory Queen Anne in 1714, he appointed Robert Walpole as chief minister of his Privy Council and in effect Britain’s first prime minister. Walpole chose the Duke of Newcastle, Thomas Pelham, for the Secretary of State for the Southern Department, which oversaw the colonies. The pro-peace and pro-market Walpole and Newcastle ironically presided over a centrist Whig Party that espoused mercantilist and expansionist policies, a stark contrast to the traditionalist and absolutist Tory Party. Walpole and Newcastle astutely realized that prosperous colonies benefitted England. Contemporaries later described their philosophy of leaving the colonies alone as “salutary neglect.” Through political manipulation and patronage, Walpole and Newcastle deliberately refused to enforce the Navigation Acts.

Salutary neglect dovetailed with the burgeoning religious liberalization and libertarian ideology that flourished during the mid-eighteenth century. The Enlightenment that swept the colonies stressed man’s inner reason and ability to discover the world’s natural laws. This new perspective encouraged individuals to seek out freedom to improve their social standing, radicalizing the colonists against British cronyism.

A prominent Enlightenment thinker was the English theoretician John Locke. Momentously, the natural-rights philosopher argued in his libertarian Two Treatises of Government (1689) that the people were not inexorably bound to their rulers. The radical Whigs John Trenchard and Thomas Gordon preached the Lockean creed to the public through Cato’s Letters (1719–23). Against Old Order propaganda, they forcefully exposed governments as the source of power and privilege in society. Brilliantly describing how power corrupts rulers into expanding their control, Trenchard and Gordon reasoned that only strict laws and constitutions with enumeration can limit such power. For Trenchard and Gordon, the history of mankind was a titanic struggle between the people’s liberty and the rulers’ power. Their ideological writings infused the colonists with libertarianism, and writers soon praised liberty as the source of human flourishing and castigated power as a cancerous tumor. The solution to their problems, the colonists reasoned, was to embrace freedom and eradicate coercion.

Consequently, Cato’s Letters aggravated the growing battle between the colonists and their governments. By the mid-eighteenth century, most political structures consisted of a royally appointed governor and his council (the upper legislature) and a democratically elected assembly (the lower legislature). The governor and council represented the reactionary oligarchs in favor of feudalism and mercantilism. The oligarchs wanted policies and officials to be remote from the people, defending the governor’s ability to protect cronyism through his veto power and the bicameral legislature’s extra layer of gridlock in the upper chamber. On the other hand, the democratically elected assembly represented the radicals in favor of greater freedom. The radicals supported short terms for elected officials, rotation in office, and the lower chamber to weaken the political oligarchy. The political and ideological landscape had drastically changed from just a few decades prior.

Monetary Mercantilism

This philosophical revolution does not imply that the colonies adhered to pure salutary neglect, or “laissez-faire.” The colonists’ libertarianism was inchoate and Old Order mercantilism percolated through it. One extremely important example is monetary intervention.

Mercantilists, besides advocating business privileges, argued that a country’s wealth is associated with the specie (gold and silver) accumulated through a favorable trade balance. These writers, John Law in particular, advocated increasing (inflating) the money supply to stimulate economic activity. Even classical liberal Enlightenment thinkers, such as David Hume, endorsed similar fallacies. Correspondingly, England forbade colonial mints and the exporting of “hard money” specie to her satellites. The colonists responded by importing foreign coins, particularly the Spanish silver dollar, though they still used England’s silver pound for accounting purposes. The colonial governments also printed paper money, or “soft money,” to expand their money supplies, beginning with Massachusetts in 1690. The colonies linked their irredeemable money to specie through promises of future redeemability and taxes. In addition, they forced the public to accept the money through legal tender laws. This initiated Gresham’s Law—overvalued paper money drove out undervalued hard money from circulation.

The colonies also imported mercantilist banking interventions. In 1694, England chartered the Bank of England (BOE). The new corporation was a fractional reserve bank, because redeemable notes and deposits remained greater than specie reserves. The Bank could inflate through loans to businesses and the government, also known as credit expansion. Parliament vested it with immense privileges and King William III and various government officials purchased shares. In addition to the privilege of holding government deposits, Parliament blocked a land bank proposed by the rival Tory party, passed laws prohibiting the chartering of new corporate banks, restricted other banks from issuing notes, and allowed the Bank of England to periodically suspend specie payments. Overall, the monopolistic central bank controlled banking activities and centralized inflation.

Colonists latched on to the banking concept. For example, the wealthy merchant and real estate speculator John Colman founded the Massachusetts Land Bank in 1740. Colman and his supporters desired a bank whose credit expansion (with land as collateral) would finance speculation in government land grants. They also wanted it to subsidize local manufacturers by allowing loans to be repaid in iron and hemp. During this time, competing merchants established a fractional reserve silver bank, issuing notes redeemable in specie after fifteen years. Massachusetts did not incorporate either bank but sanctioned their inflationary emissions.

Various groups clashed over who would get the new money first, and therefore, who would benefit. Great Britain vociferously fought the colonists’ paper money inflation, not out of animosity toward paper money but because British merchants and creditors did not want payments in depreciated currency. Thus, in 1741 Parliament outlawed both Massachusetts banks. Mercantilist banking fallacies persisted after the eighteenth century, along with the intense debate over what constituted the government’s proper role in banking. It would take a long time for the laissez-faire solution—free banking where unchartered fractional reserve banks competitively issued redeemable notes and deposits—to affect economic theory and politics.

Despite the monetary interventions, salutary neglect, in conjunction with the burgeoning libertarianism, allowed the colonies to move in a classical liberal direction, away from the European Old Order. Liberty was on the rise.

The Turn to Rebellion

After salutary neglect ended in the 1760s, colonists embraced increasingly radical measures to fight new British cronyism. By 1775, they had openly revolted.

King George II and the Tory warmongers ousted Walpole and Newcastle to move against their archenemy, France, whose territories Canada and Louisiana spread north and southwest of the British colonies. The French only controlled this vast and mostly unsettled “New France” with scattered forts near Indian fur traders. The British continually argued that New France was the aggressor, despite its population numbering only 75,000 while the British colonies housed nearly 1.5 million. In reality, they coveted French land to benefit favored speculator interests and further British domination.

By this time, Virginia settlers had reached New France’s borders near the Appalachian Mountains. Unsurprisingly, Virginia invoked its grandiose ownership claims against the French. In 1749, Virginia granted nearly 1.5 million acres of New France land in the Ohio Valley to land corporations. Similar to the royal land grants, these grants transferred the privileged companies colonial governments’ claims to unappropriated land, and they planned to sell at a massive profit. Understandably, the French constructed forts when they heard of the Ohio Company’s plans to move in. Consequently, Robert Dinwiddie, the Virginia governor and an Ohio Company shareholder, lobbied for Crown approval to repel the “invasion.”

In 1754, matters rapidly escalated into the French and Indian War. Great Britain hastily imposed conscription and the quartering of soldiers upon a reluctant colonial public. By the end of the conflict in 1763, Great Britain, now ruled by King George III, emerged the undisputed European superpower and possessor of New France.

However, the ungrateful colonists avoided paying for the British elites’ swollen empire, much less abiding by the Navigation Acts. George III and the Tories now implemented their mercantilist “Grand Design”: Great Britain would station peacetime standing armies to stringently enforce the Navigation Acts, restrict western settlement, and impose new taxes.The elites cunningly schemed to stifle economic growth and the libertarian ideas that challenged cronyism, such as those in Cato’s Letters.

The mother country quickly implemented the Grand Design: the 1763 Proclamation Line restricted western settlement and voided all speculative land sales in the area (thus double crossing the land companies); the 1764 Sugar Act imposed taxes on sugar with stringent enforcement; the 1764 Currency Act restricted colonial governments’ ability to print paper money; and the 1765 Stamp Act levied taxes on paper products.

The hated Stamp Act produced a storm of protest, particularly by the libertarians Patrick Henry, a Virginia lawyer, and Samuel Adams, a Massachusetts politician and newspaper editor. They respectively wrote the Virginia and Massachusetts Resolves that challenged the Stamp Act. Henry’s resolves earned the admiration of the young Virginian Thomas Jefferson, and Sam Adams’ resistance group soon expanded into the colony-wide Sons of Liberty.

Virginia and Massachusetts quickly stressed resistance while Pennsylvania and New York, under the influence of corrupt financial and landed interests connected to the British, urged caution. Resistors called the Stamp Act Congress for late 1765 and engaged in mass civil disobedience by not recognizing the taxes. It was a rudimentary but highly effective form of nullification—to declare a law illegal and refuse to obey and enforce it. Great Britain, realizing the imminent rebellion, quickly repealed the measure in 1766.

While this seemingly resolved the crisis, problems remained, particularly in Massachusetts after the 1767 tax-increasing Townshend Acts. British troops soon occupied Boston and the colonies responded with voluntary nonimportation protests that crushed British commercial interests, who consequently pushed for repealing the Townshend Acts in 1770. Despite this uneasy lull, matters reached a fever pitch with the 1773 Tea Act.

The Tea Act extended the privileged British East India Company’s tea monopoly to American shores. Colonists feared that the corporation’s monopoly would extend to other imported goods. They responded accordingly with the famous Boston Tea Party of December 1773. To prevent customs officers from seizing and selling cargo on East India tea ships after Bostonians protested paying the required tax, the Sons of Liberty boarded the ships and destroyed the tea. When Great Britain counterattacked with the Coercive Acts of 1774, the colonies formed a congress of representatives to coordinate boycotting and resistance measures. They once again nullified British cronyism.

When the first Continental Congress met in September 1774, it became clear that two distinct factions had coalesced. The Massachusetts and Virginia radicals Sam Adams, his distant younger cousin John Adams, Patrick Henry, and the planter Richard Henry Lee led the first. Pennsylvania and New York reactionaries Joseph Galloway, James Duane, and John Jay led the second. The radicals wanted maximum resistance to uphold the libertarian ideals of Trenchard and Gordon, while the reactionaries, financially ensconced with Great Britain, only wanted more representation in the British Empire and discouraged nullification. Radicals appropriately labeled them Tories.

At the Congress, the Tory Galloway introduced his “Plan of the Proposed Union between Great Britain and the Colonies.” In the first of the statists’ many attempts, Galloway proposed uniting the independent governments with a central coercer: the colonial assemblies would elect members to a grand council, who would work with a royally appointed president-general to represent the colonies in Great Britain. The American elites hoped that this constitution would grant them their fair share in Britain’s mercantilism.

But Henry and Lee would not stand for such moderation, defeating the plan. Congress settled on nullification through a boycott of all British products, causing the British Empire to respond with more soldiers and standing armies. This escalation could lead to only one outcome: a cataclysmic clash between American freedom and British coercion. Henry, understanding the upcoming struggle with crystal clarity, thundered in March 1775:

Let it come. I repeat Sir, let it come! . . . Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty, or give me death!

In April 1775, British soldiers tried to arrest Massachusetts radicals John Hancock and Sam Adams. Colonial minutemen soon confronted the approaching troops, leading to the famous “shot heard round the world.” It was a climactic scene: an open fight erupted at Lexington, causing Adams to proclaim, “Oh! What a glorious morning is this!” The mass-movement American Revolution—the People’s War—had begun. The new conflict built on the prior struggles and reform movements against British cronyism. But this time, after radicals committed to the truly revolutionary reform of secession, the American Revolution ushered in a new epoch of resistance.

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Brian Murphy, Building the Empire State (Philadelphia: University of Pennsylvania Press, 2015), pp. ix–xi; Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith (Auburn, AL: Mises Institute 2006), pp. 221–26; Murray N. Rothbard, Conceived in Liberty, vols. 1–4 (Auburn, AL: Mises Institute 2019), pp. 5–31; Murray N. Rothbard, “Mercantilism,” in Economic Controversies (Auburn, AL: Mises Institute, 2011), pp. 649–51.

Rothbard, Conceived in Liberty, 1–4, pp. 31, 36–39, 85, 552; Carl Watner, “Libertarians and Indians,” Journal of Libertarian Studies (1983): 147–56.

Rothbard, Conceived in Liberty, 1–4, p. 48.

Ibid., pp. 29, 31–35, 43–54, 104–15, 156.

Andrew P. Napolitano, Dred Scott’s Revenge (Nashville, TN: Thomas Nelson, 2009), pp. 1–24; Rothbard, Conceived in Liberty, 1–4, pp. 55–103, 516–18, 532–33, 542–44,

584–86, 595–98, 714.

Rothbard, Conceived in Liberty, 1–4, pp. 145–71, 217–19, 227–56; Rothbard, “Mercantilism,” pp. 651–52.

Rothbard, Conceived in Liberty, 1–4, pp. 77–79, 763–64.

Ibid., pp. 36–39, 172–207, 497–99.

Ibid., pp. 121–33, 157, 313, 413–27, 704.

Ibid., pp. 85–103, 500–502.

R.R. Palmer and Joel Colton, A History of the Modern World (New York: McGraw-Hill, 1995), p. 179; Rothbard, Conceived in Liberty, 1–4, pp. 501, 605–18, 654–56, 700–01.

Rothbard, Conceived in Liberty, 1–4, p. 705.

Thomas J. DiLorenzo, How Capitalism Saved America (New York: Crown Forum, 2004), pp. 64–69; Rothbard, Austrian Perspective on the History of Economic Thought, 1, p. 340; Rothbard, Conceived in Liberty, 1–4, pp. 703–12.

Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Harvard University Press, 2017), pp. 55–59; Ronald Hamowy, “Foreword,” in The English Libertarian Heritage, ed. David Jacobson (San Francisco: Fox & Wilkes, 1994), pp. vii–ix; Rothbard, Conceived in Liberty, 1–4, pp. 654–71, 684–96, 699–702, 1239–43.

Jeffrey Rogers Hummel, “Mises, the Regression Theorem, and Free Banking,” Liberty Matters (January 2014); Murray N. Rothbard, An Austrian Perspective of Economic Thought, vol. 2, Classical Economics (Auburn, AL: Mises Institute, 2006), pp. 327–35, 425–31, 437–38, 462–63; Rothbard, Conceived in Liberty, 1–4, pp. 621–29.

Rothbard, Austrian Perspective on the History of Economic Thought, 2, pp. 227–31.

Rothbard, Conceived in Liberty, 1–4, pp. 627, 630–38.

Ibid., pp. 713, 721–22, 724–25.

Ibid., pp. 725–29.

Ibid., pp. 729–66.

Ibid., p. 791.

Ibid., pp. 781–97, 805–11, 831, 853–59.

Ibid., pp. 803, 860–73, 893.

Ibid., pp. 889–920.

Ibid., pp. 920–87.

Ibid., pp. 1024–60.

Ibid., p. 1061.

Ibid., p. 1087. See also pp. 899 and 1060–89.

Ibid., p. 1093.

Ibid., p. 1092.

Ibid., pp. 1090–93.