Cronyism

CHAPTER 9

PRESIDENT MADISON: THE EMPIRE OF POWER

Conquering Canada

James Madison, the preeminent moderate Republican, fulfilled the power-aggrandizing trends Thomas Jefferson accomplished after the Louisiana Purchase. During the attempted conquest of Canada and Florida—the War of 1812—the Republicans wholeheartedly sponsored Federalist cronyism for the Old Order Empire: a protective system for manufacturers, favorable terms for debt speculators, and banking privileges. After the war, the new National Republicans—the direct descendants of the moderate Republicans—continued to enact Federalist policies: another central bank, peacetime protective tariffs, and plans for a federal transportation network. Madison came full circle: he began his career laying the groundwork for a Federalist government and ended it by adding the finishing touches.

Once he acquired Louisiana, Jefferson increasingly fixated on Canada. Most prominently, the conquest would monopolize the lucrative Great Lakes and St. Lawrence River trade. Aside from bringing additional revenue into the Treasury’s coffers, this would allow American commercial interests to ship goods through an American-controlled St. Lawrence River or a canal that connected one of the Great Lakes with the Hudson River. In addition, controlling Canada would benefit the New England fishing industry, which the Republicans wanted to court; eliminate British fur trade competition around the upper Mississippi River; and ensure continental dominance. Lastly, annexation weakened western Indians, whom Republicans accused of aggressing on frontier settlements. In reality, though, the hunters only farmed on a fraction of the land, Americans undeniably encroached, particularly William Henry Harrison, inveterate land speculator and governor of the Indiana Territory.

After the Chesapeake incident, Jefferson banned British warships from American ports and recalled American ships from abroad. He recommended a military buildup, particularly an increase in harbor defenses and gunboats, one hundred thousand militia, and a Canadian offensive. The president insisted to the public that the embargo was necessary to prevent war. At the same time, he ratcheted up military expenditures for a secret invasion. From 1805 to 1808, Congress augmented the Departments of War and Navy’s combined budgets by 107 percent. In late 1808, Secretary of War Henry Dearborn recommended an army appropriation of $2.1 million. Careening toward an offensive strike in early 1809, the House passed a bill that called for a special session to meet in May, tasking it with ending the embargo and declaring war. But everything came to a crashing halt: the makeshift coalition of Clintonians, Old Republicans, and Federalists that repealed the embargo also rejected Dearborn’s request.

Defeated, expansionists postponed imperial war until the 1810 midterm elections, when moderate Republicans increased their strength and two new bellicose factions emerged. John Randolph appropriately labelled the first group, the proponents of a land war, the War Hawks. Prominent War Hawks included Congressmen Henry Clay, Tennessee’s Felix Grundy, Peter B. Porter, and John C. Calhoun of South Carolina. War Hawks contrasted with the bellicose war faction Nathaniel Macon labelled the Invisibles, who preferred a naval war to subsidize shipping interests. Prominent Invisibles included Senators Samuel Smith and William Branch Giles of Virginia. However, War Hawks amassed the greater political strength, so the war drive focused on their goals. The War Hawks wanted war to seize British Canada in the North and Spanish Florida in the South. The Madison administration already worked toward the latter goal by encouraging “revolts.” In December 1811, Grundy privately summed up the War Hawks’ plans: “the Canadas & Floridas will be the Theatres of our offensive operations.”

When arguments to seize Canada leaked into the public discourse, War Hawks anxiously defended their bellicosity. They described the Canadian conquest as an “occupation” designed to force the British to repeal their maritime restrictions, insisting that after the war the US would seamlessly return Canada. Thus, Clay famously wrote in December 1813 that “Canada was not the end but the means, the object of the War being the redress of injuries, and Canada being the instrument by which that redress was to be obtained.” Many historians take the War Hawks’ words at face value and argue that conquering Canada was not a major motivation for war against Britain.

In reality, the War Hawks had no intention of returning Canada: British maritime issues provided a convenient front to sell war to a hesitant public. In the same letter Clay wrote that “it has ever been my opinion that if Canada is conquered it ought never to be surrendered if it can possibly be retained.” In December 1811, War Hawk Congressman Richard Johnson of Kentucky proclaimed that he would die unhappy unless Canada was “incorporated [into] the United States.” Secretary of State James Monroe spoke for the administration in 1812 when he tried to get the British to end the war quickly because it would be “difficult to relinquish Territory which had been conquered.” Of course, even if the British quickly surrendered, the Republicans would have still kept land they seized.

In mid-1811, Madison eagerly called for an early session of Congress. Treasurer Gallatin, anxious to avoid war, toned down Madison’s aggressive message. But the War Hawks still got the picture and elected Clay to the important Speaker of the House position. Speaker Clay reorganized House committees to his faction’s liking. War Hawks Porter, Calhoun, and Grundy dominated the important Foreign Relations Committee and allocated their time to invasion plans. In November, Chairman Porter, with his own ill-gotten interests in mind, delivered the committee’s report. It called for filling up army and navy vacancies, increasing the army to ten thousand men, augmenting the supply of volunteers by fifty thousand, readying the militia, and preparing the navy. The resolutions were to “make preparations” for war.

The former Federalist Porter was a businessman in New York near Lake Ontario. Porter had a vested interest in the crop, livestock, and shipping potential in the adjacent Canadian land (Upper Canada), which he considered “immensely valuable.” Porter created Porter, Barton & Company to acquire land and control trade in the region, actively supporting Federalist Gouverneur Morris and Republican DeWitt Clinton’s previous efforts to link the Hudson River to the Great Lakes with a canal. Unfortunately for Porter, the New York State Canal Commission recognized that ships trafficking in Lake Ontario would still be incentivized to ship down the Canadian-controlled St. Lawrence River (Lower Canada). It made more sense for New York to build a canal to Lake Erie, where such competition did not exist. If only the United States owned Canada, Porter strategized, it could divert traffic away from the St. Lawrence River and make a Lake Ontario canal feasible—thereby boosting the profits of Porter, Barton & Company! Porter envisioned making Lower Canada a vassal territory while incorporating Upper Canada, geographically closer to his business interests, into the United States. He did not play games with his report: “Do not let us raise armies unless we intend to employ them.”

Congressman Randolph fought the report in a valiant stand on behalf of liberty. He blasted the entire proposal as preparing for a “war of conquest, a war for the acquisition of territory and subjects” driven by “agrarian cupidity [and] not maritime right.” He accused Porter of wanting to attack Canada because his businesses “on the Hudson and the Lakes would be enriched by supplies for the troops, which they alone can provide.” He reasoned that a Canadian war would not improve the nation’s maritime rights and relations with the Indians, who were angry because of “our own thirst for territory [and] our own want of moderation.” Furthermore, the territorial expansion would shift the nation’s capital to the West. Above all, Randolph hurled a devastating thunderbolt against his Republican-In-Name-Only opponents when he stated that the party had once

vaunted of paying off the national debt, of retrenching useless establishments; and yet had now become as infatuated with standing armies, loans, taxes, navies, and war, as ever were the Essex Junto. What Republicanism is this?

In essence, with this damning statement Randolph brilliantly encapsulated the corrupting nature of power that infected the Republican Party.

Strategically, and quite ominously, Randolph raised the specter of slave insurrections. However, his protest was not a thinly veiled protection of slavery. Like other southern classical liberals, slavery tormented Randolph. Consequently, the same man who wrote committee reports supporting bans on slavery in the Indiana Territory and the foreign slave trade into the Louisiana Purchase, futilely brought the up the issue to dampen southern War Hawks’ ardor. Although the “slavery scare” was a grisly tactic, desperate times called for desperate measures, and in his speech against the war Randolph used every tool in his arsenal, much like Patrick Henry during the Virginia ratification debates. Nationalistic southerners disagreed with the Old Republican’s sectional maneuvers: the ardent War Hawk Calhoun, who longed for the “day when the British will have no Halifax on this continent,” stated the upcoming war would not threaten slavery. The war of conquest was still on.

In the end, the House approved the committee’s resolutions by overwhelming margins. Even many Federalists voted for them, which one described as “measures of the old federal school.” In early 1812, Congress increased the army to thirty-five thousand. Randolph tried to fight this, stating it would lead to Republicans adopting “Federal doctrine to its full extent.” The corrupting nature of power—the drive for more land to expand the empire—had really transformed the Republican Party of the 1810s into the Federalist Party of the 1790s.

But at this moment, the Republican war machine drew the line, for it quickly became clear that the War Hawks and Invisibles were not a unified front willing to adopt the Federalist system—a strong army and navy, military bureaucracy, and high taxes. The War Hawks naïvely believed that land forces could quickly conquer Canada and Florida, balking at extensive war preparations. At the same time, they fought against any attempts to strengthen the navy. They reasoned that the navy would largely benefit Federalists (of course, their downplaying of the navy justly exposed them to the criticism that they neglected maritime issues). On the other hand, the Invisibles wanted greater war preparedness and favored a naval war to help shipping interests.

However, one thing Republicans happily agreed on was the cost: they strenuously fought against tax increases—the public must not recognize the cost of war! When Secretary Gallatin, who opposed the war but resigned himself to it, proposed tariff increases and a revival of the internal tax system, War Hawks and Invisibles castigated him for trying “to chill the war spirit.” After all, 1812 was an election year, and higher taxes could lead to bad outcomes at the polls. Congress eventually agreed on future tariff increases and navigation duties but postponed internal taxes. Republicans settled on financing their militarism by borrowing.

In addition, the Republican Party still agreed on the basics: a war of some kind against Britain. That country also agreed on the basics: it did not want a war against the United States. In the spring, the British ordered increased care toward American ships, removed their boats from the American coast, and offered to give the former colonies an equal share of their licensed trade with Napoleonic Europe. But the US did not consider this adequate appeasement. In early June, Madison delivered his war message to Congress, strategically emphasizing maritime issues without mentioning Canada or Florida. He hoped for a war to rally the War Hawks behind his reelection bid against the challenger DeWitt Clinton, who tried to ally with pro-liberty Republicans and Federalist opponents of the upcoming war.

In a closed session, Congressman Calhoun introduced a bill to declare war, which the House quickly and secretly passed by a relatively underwhelming vote. Republicans were for and Federalists against, and the South and West were strongly for while the North— the area most affected by the British seizures of goods and impressment—was against. Only a handful of Old Republicans in the South and Clintonian Republicans in the North voted against their party. The bill stalled in the Senate until the upper chamber passed it by a thin margin of 19-13, less than the two-thirds required for a treaty. While Federalists and Clintonians opposed the motion, the pro-naval war Invisibles provided the margin of victory.

The declaration of war flummoxed the British, who had announced earlier in the month that they would repeal their restrictions if the US dropped its ban on British imports. Furthermore, the British soon scrapped their restrictive system. To be fair, communication took longer than a month and the British had stumbled into these concessions with no plans to announce them to the US in advance. But once the Republicans learned of the British repeals, they could have abandoned the war effort. However, this was not to be, for Madison wanted the British government to completely renounce the right to impose restrictions.

Walter Nugent perceptively describes the real reason for the war: “‘True patriotism’ required that it continue, without a reason— except to invade and annex Canada? So it did, for almost two and a half years.” Indeed, ten days into the war, Jefferson wrote that “the cession of Canada . . . must be a sine qua non at a treaty of peace.” He followed this up with an even more aggressive remark in August: “The acquisition of Canada . . . will give us experience for the attack of Halifax the next, and the final expulsion of England from the American continent.” The Empire of Liberty was now an Empire of Power.

The War of 1812

Although splits between Invisibles and War Hawks dashed Republican dreams for imperial aggrandizement, the War of 1812 still led to various special privileges, including protective restrictions for manufacturers, generous terms for debt speculators, and subsidies to banking interests. It was the high tide of cronyism.

The War of 1812 differed from the American Revolutionary War, because the United States clearly aggressed in the new conflict. Although Britain did not completely eliminate maritime grievances, it made notable concessions that should have prevented or at least delayed hostilities. Of course, this had nothing to do with the real motive: conquering British Canada and Spanish Florida. If the Revolutionary War was a “just war,” to quote Murray Rothbard, it is clear that the War of 1812 was an “unjust war.”

During these dark days, Randolph stood virtually alone in opposition among the Republicans—even Macon reluctantly supported the administration’s efforts. In January 1813, he delivered a speech in Congress and blasted the pro-power Republicans for betraying their true libertarian principles:

Love of peace, hatred of offensive war, jealousy of the State governments towards the General Government and of the influence of the Executive over the coordinate branches of the Government; a dread of standing armies; a loathing of public debt, taxes, and excises; tenderness for the liberty of the citizen; jealousy, Argus-eyed jealousy of the patronage of the President.

Unfortunately, for this brilliant restatement of the Republican Party’s founding doctrine, Randolph’s Virginia constituents rewarded the Old Republican by voting him out of office in April 1813. It looked as if nothing would stop the War Hawks from total domination.

But all was not well in the expansionist war. War Hawks hoped the military could quickly snatch Canada and Florida for the empire, but the Republicans disagreed over what to do with their newfound acquisition. Ironically, the major problem was that southern and western War Hawks coveted the conquest far more than their northern allies. While War Hawks wanted a land war, Invisibles stressed the naval campaign.

Recall that the Senate only barely agreed to declare war, thanks to the Invisibles. Shortly thereafter, the House passed a resolution pledging that the federal government would protect Canadians’ “lives, liberty, property, and religion” in the same manner as US citizens, a clear step toward annexation. However, it failed in the Senate. Although southerners supported the measure, Federalists and anti-war Clintonians, aided by the swing pro-naval war Invisibles, defeated the bill. Then, with Randolph opposing, the House passed legislation authorizing the occupation of Florida. Senator William Crawford, former Old Republican turned War Hawk, attached to the Florida bill an amendment authorizing the president to establish a temporary government in Canada to enlist the north for the Florida war. Even though southern senators supported the final bill, it failed by the razor-thin margin of 14-16 after most of the North opposed the measure. In the end, pro-power Invisibles provided a slim majority to declare war, but not a war of land conquest.

Undeterred by the rebuff, Madison fixated on the Florida question. In early 1813 Secretary Monroe continued the government’s clandestine operations, conquering the last segment of West Florida. In a virtual side affair to the War of 1812, General Andrew Jackson of Tennessee fought the Creek Indians, allies of the Spanish, in the Mississippi Territory and Florida. While the United States never conquered Canada, slowly but surely the empire bit away at Florida.

Despite the territorial setbacks, Republicans still used the war to distribute new special privileges. First came the manufacturers. In July 1812 Congress followed up on its earlier pledge to raise revenue by increasing tariffs until a year after hostilities ended and a new navigation act that taxed goods on foreign ships. The legislature also continued nonimportation of British products and restricted exports to Canada. When combined with the British blockade of the coast, the trade legislation resulted in economic autarky. From 1811 to 1814, exports collapsed by 89 percent, imports 75 percent, and customs revenue 55 percent. The trade and shipping barriers subsidized domestic manufactures and inefficient methods of land transportation. In particular, Francis Cabot Lowell of the Boston Associates, wealthy businessmen descendent from the old Essex Junto, founded the Boston Manufacturing Company in 1813, quickly earning a profit of 25 percent. The Federalist Boston Associates eagerly looked forward to continued federal assistance after the war.

The debt speculators stood next in line. Federal expenditures exploded 330 percent to pay for increases in the army, navy, and war bureaucracy. Several states, especially New York and Pennsylvania, lived on the government fat and experienced wartime booms in their manufacturing and real estate sectors. Pennsylvania returned the favor by reelecting Madison in 1812. If Congress could not raise revenue from taxes to finance such spending, it had to resort to other means, allowing the Treasury to issue long-term debt securities. Banks and wealthy citizens in the Mid-Atlantic cities of New York, Philadelphia, Baltimore, and Washington, DC, gobbled the investments up. The public debt, after declining from $57 million in 1808 to $45 million in 1811 (21 percent), increased to $127 million in 1815 (182 percent).

Most prominently, in 1813, a private syndicate led by Stephen Girard and John Jacob Astor subscribed to two-thirds of a $16 million loan. On top of earning a 0.25 percent commission, they purchased the bonds below face value (at eighty-eight cents on the dollar) and with depreciated state bank notes (an estimated specie value of forty-two cents on the dollar). If they could use the government to eliminate their investment’s risk, they would reap a massive profit. Similar to Robert Morris’ debt speculators, they pushed for the chartering of a new central bank whose stock could be purchased with government securities to increase the value of their bond holdings. The influential financiers embarked on their goal by first lobbying for their Philadelphia lawyer, Alexander J. Dallas, to be appointed Treasurer in October 1814.

Finally, Republicans pleased the state banking interests. The exigencies of wartime finance led the Treasury to print money in the form of interest-bearing notes redeemable in specie in one year. The people could use them to pay taxes, though they were not legal tender for private transactions. However, the public did not use the high-denomination Treasury notes. Instead, banks primarily purchased the notes and held them as reserves. From June 1812 to February 1815, Treasury notes in circulation increased to $15.5 million. This subsidy to the banks—increasing their reserves—led to significant inflation. While the money supply had remained constant from 1810 to 1812, from 1812 to 1814 it increased 29 percent (14 percent per year). Similarly, though the cost of goods stayed constant in the two years prior to the war, the increase in the money supply and collapse in imports increased prices by 39 percent from 1812 to 1814 (18 percent per year).

Historians often argue that the demise of the Bank of the United States in 1811 caused the prevailing free-banking system to recklessly expand credit during the war years. In reality, though the estimated number of total banks increased from 117 to 247 between 1811 and 1815, no system of free banking existed and state governments still intervened. The government’s augmentation of bank reserves, not deregulation, caused the monetary expansion and increase in prices. With or without the BUS, the same inflation would have occurred.

The central government’s policy to increase bank reserves in the form of Treasury notes would have resulted in a sustained credit expansion were it not for the antiwar New England Federalist banks, who refused to purchase any debt. After banks in the Mid-Atlantic, South, and West purchased the Treasury notes with banknotes and deposits, the federal government spent this money on New England goods to facilitate the war. New England financial institutions then presented the notes and deposits for specie redemption at their subsidized rivals’ branches in the rest of the country. The adverse clearing mechanism caused specie to flow to the Northeast. If this continued indefinitely, then to avoid illiquidity the expanding banks outside of New England would have to contract credit, jeopardizing the wartime funding measures. But the federal and state governments allowed banks to breach contract and suspend specie payments in August 1814.

Thus, the Republicans subsidized banks by first increasing their reserves and then bailing them out when they should have failed. Shorn of specie redemption, the banks continued to engage in credit expansion and made lucrative profits of 12 to 20 percent in 1815. Suspension lasted until February 1817, and those who sued banks for failing to honor their obligations rarely succeeded in court. The banks looked forward to future assistance from a more permanent relationship with the federal government.

During the war, New England remained upset. States’ rights doctrine flourished and the rank and file contemplated radical nullification and secession reforms. But the result of their leaders’ efforts, the Hartford Convention of December 1814, called for only “moderation and firmness” and amendments to incentivize New England to remain in the Union. Prominent Federalist leaders, such as the venerable John Jay, Congressman Daniel Webster of New Hampshire, and Timothy Pickering, praised the convention’s report. On the other hand, the mass populace complained bitterly because they hoped for more radical measures.

Thanks to diplomatic skill and British war fatigue, the Republicans emerged relatively unscathed. The Treaty of Ghent, ratified by the Senate in February 1815, restored the status quo, mentioning none of the maritime issues that supposedly drove America to declare war against Great Britain (the end of the Napoleonic Wars made these issues dead letters). The United States believed it emerged the unambiguous winner after General Jackson smashed the British in his defense of New Orleans in the month prior.

Overall, the policies Republicans pursued during the War of 1812 impacted the nation’s history more than the war itself. The corrupted Republican Party totally embraced statism to expand their empire. With the conflict over, Madison and his new National Republicans could turn to adopting what Norman Risjord describes as “the old Hamiltonian system” and “the final abandonment of ‘the principles of 1798’”: a national bank, a protective tariff, and a national system of internal improvements. Indeed, the Republicans had long discarded the compact theory and laissez-faire economics, embracing Hamiltonian policies with little restraint.

Postwar Economic Nationalism

The rest of Madison’s second term witnessed the National Republicans fortifying their Old Order Empire: a second central bank, peacetime restrictive tariffs, and transportation subsidies. They only suffered defeat on the internal improvement issue because Madison envisioned an even grander system. Overall, the corrupted party hammered the final nails in the reform coffin brought by the Jeffersonian Revolution of 1800.

Madison’s December 1815 message to Congress discarded the fashionable laissez-faire theories the Republican Party paid lip service to: “However wise the theory may be which leaves to the sagacity of individuals the application of their industry and resources, there are . . . exceptions to the general rule.”But the free market Randolph, now back in Congress, mustered “a desperate, tho feeble stand against the new system which out-Hamiltons Alexander Hamilton.”

First, National Republicans desired a second national bank. During the war, Astor and Girard initiated the drive to increase the value of government debt by making securities exchangeable for bank stock. Astor even nixed concurrent proposals that allowed investors to capitalize a new bank with real estate mortgages. In the fall of 1814, their new pawn, Treasurer Dallas, outlined plans for a central bank along their recommendations. However, Congress resisted because of the blatant profits Astor and Girard would amass, greatly emasculating Dallas’ proposal into a privately owned commercial bank. However, Madison vetoed the bill because the projected bank was not close enough to the government. Congress responded with a new bill in February 1815 that met the president’s objections, but news of peace postponed efforts to create another central bank.

Madison revived the plan in December. By this time, the country’s monetary affairs had sunk calamitously, because the state banks had not yet resumed specie payments. Since the war’s beginning, banknotes and deposits had increased far beyond the available supply of gold and silver, posing a major problem for returning to the specie standard. Contemporaries did not even consider the option of dollar devaluation and this left Congress with the options of either deliberately contracting the money supply by retiring Treasury notes, waiting for increased production of goods and services to lower prices and bring specie into the country, or engaging in a sleight of hand with a new central bank that could lend to state banks and continue inflating. Given the lack of hard money sentiment among National Republicans, they unsurprisingly chose the last path.

After Madison’s message, Speaker Clay, who publicly recanted his past heresies by recognizing the benefits and constitutionality of central banking (as did Congressman Samuel Smith), started the process to charter a new institution. He instructed the inveterate nationalist Calhoun, chairman of the House Committee on a National Currency, to work with Secretary Dallas. Calhoun, whom Joseph Dorfman accurately characterizes as proclaiming “the policies of high Federalism,” introduced the bill in January 1816. It was in most respects a replica of Hamilton’s old BUS, only larger. The proposed bank in Philadelphia possessed a twenty year monopoly charter with one-fifth government ownership and a capitalization of $35 million (instead of $10 million). The bill also required the bank to give the government a payment of $1.5 million. Of the $28 million in private capital, $21 million could be purchased with government securities and $7 million with specie—thereby boosting the prices of government debt. Similar to Hamilton’s Bank, Dallas’ Bank received most government deposits, a vast subsidy.

Quite importantly, Calhoun, among other National Republicans, defended its constitutionality using the moribund coinage clause. In spirit with the ultra-Federalists who led the Constitutional Convention, Calhoun argued that the coinage clause empowered the federal government to regulate the nation’s currency. Moreover, he declared that since the Constitution forbade states from issuing paper money, it also forbade states from chartering banks that could issue paper money. Therefore, a national bank was the proper method by which the federal government could constitutionally regulate the nation’s money supply.

Randolph answered Calhoun, blasting the bank as unnecessary and contributing to the formation of “one great consolidated nation, under one form of law.” To the Old Republican, it “would be an engine of irresistible power in the hands of any administration” aggravating, not inhibiting, state banks’ credit expansion. Still under the sway of the hard money John Taylor, Randolph favored a purely private bank that would sever what he called the “monstrous alliance,” conceiving an institution somewhat similar to that of Jefferson’s earlier Note of Agenda to make the government deal only in specie and not bank money. Similarly, Senator Nathaniel Macon “still [could not] find the authority for a bank in the constitution of the US”

Unlike earlier attempts, Astor and Girard did not express any public support for fear of increasing opposition, privately communicating with Dallas and Madison during the legislative process. Consequently, Congress was more sympathetic, but the House still narrowly passed the bill. Fifteen Federalists provided the crucial margin of victory, disgusting Randolph for demonstrating their lack of “courage, . . . talent, [and] integrity to conduct an opposition.” The Senate followed up in April and Madison soon signed the bill. The government-bank partnership was back in full force: National Republicans birthed the Second Bank of the United States into existence. The Bank’s inflationary capabilities pleased Astor and Girard, businesses eager for cheap credit, and state banks hungry for additional reserves.

After chartering a new central bank, Congress turned to protective tariffs. Jefferson and Madison’s mercantilist trade policies protected inefficient manufacturers at the expense of more economical British firms and the public. In particular, the number of textile mills increased from eighty-seven in 1809 to 243 in 1814. Despite the continuation of wartime tariffs, many manufacturing companies suffered losses after commerce revived with Great Britain: though wholesale prices declined 9 percent from 1814 to 1815, prices of domestically produced goods actually remained constant while prices of imported products plummeted 17 percent. Americans accused British manufacturers of “dumping,” or selling below their cost of production. Some statements by British politicians gave credibility to such a claim. In reality, more efficient British manufacturers only tried to sell their wares at market prices after international trade reopened. But US companies continued to complain, and the National Republican Party wanted to assist this constituency.

In February 1815, the House directed Dallas to write a new peace-time tariff schedule that could replace wartime rates. The Treasurer’s report, which paid homage to Hamilton’s Report on Manufactures, proposed new tariffs that would raise revenue and protect industries. Dallas explicitly wanted to protect existing manufacturing interests, particularly cotton and woolen textiles, but not new industries, such as luxury goods. His rates were lower than the wartime schedule’s but still very generous in a time of peace: most importantly, 33.33 percent and 28 percent on cotton and woolen textiles, respectively. Significantly, Dallas stressed a twenty-five-cent minimum valuation on cotton textiles, which meant any imported cotton product priced lower, say at nine cents, would be assessed as if its price were twenty-five cents. In other words, instead of a three-cent duty on a nine-cent cotton cloth (the 33.33 percent rate), there would be a duty of eight and one-third cents on the nine cent cloth—a whopping rate of 93 percent. This blatantly regressive tax, lobbied for by Boston Associate Francis Cabot Lowell of the Boston Manufacturing Company, drastically raised actual tariff rates on cheap imported cloth relative to expensive cloth.

However, other interests, particularly New England shippers and southern planters, wanted low tariffs. At this time, only the Mid-Atlantic staunchly favored high tariffs on industrial products. When the Chairman of the Ways and Means Committee, South Carolina’s William Lowndes, received Dallas’ report, the moderate protectionist revised some rates downward. In particular, Lowndes reduced the rates on cotton and woolen textiles to 25 percent. Happily for Dallas (and Lowell), the minimum valuation remained in place.

The House debated the new tariff schedule in March 1816. Interestingly, southern National Republicans, though their economic interests should have pushed them to lower tariffs, supported moderate protectionism. They did so for national defense reasons and from the expectation that the South might embark on manufacturing in the future. The free trade Randolph bitterly fought the minimum valuation, which the Boston Associates’ lackey, Congressman Daniel Webster of New Hampshire, strenuously defended. Randolph tried to strike the privilege out because it taxed merchants and slaveholders to benefit cotton manufacturers—a clear attempt to rally New England shippers and southern National Republicans against the bill. But Calhoun rebuffed Randolph, declaring that cotton manufacturers warranted protection, including the minimum valuation. The House passed the tariff and the Senate followed shortly thereafter.

Thus, the National Republicans adopted another Federalist policy; enough politicians could see the resemblance between old and new. In June 1816, Federalist Senator Rufus King wrote: “As respect Taxes, Army, Navy, and some other points, the practice of the Republicans now seems to be the same as that of the Federalists formerly, but I am not inclined to oppose measures proposed or done by Republicans, which the Federalists proposed and did in former times.”

The new peacetime Tariff of 1816 boasted an average duty of 27 as a percentage of total imports and benefitted manufacturers more than prewar rates in many respects, particularly the minimum valuation. But for the industrialists, moderate mercantilism did not go far enough. New societies soon sprouted and clamored for more assistance, such as the New York-based American Society for the Encouragement of Domestic Manufactures, which included among its members Presidents Adams, Jefferson, and Madison. Protectionist periodicals, such as the Niles Weekly Register, also increased their circulation.

After enacting tariff legislation, Congress prepared for the upcoming presidential election. Everyone understood that the Republican candidate would crush his Federalist opponent, and the Republican nomination in the congressional caucus proved to be more important than the election itself. Two Virginians led the race: Secretary of War William Crawford, who had long resided in Georgia, and the National Republican Secretary of State James Monroe. Although Crawford supported the SBUS, moderately protective tariffs, and federally funded transportation projects, the former Old Republican championed frugality and advocated stringent budget cuts. His followers, particularly Martin Van Buren’s Albany Regency, were known as “Radicals.” However, Crawford sabotaged his chances when he withdrew his name two months before the caucus, with the apparent understanding that he succeed Monroe in eight years. But when Crawford reentered his name at the last minute, the contest was still on. One hundred and nineteen Republicans voted; sixty-five for Monroe, fifty-four for Crawford. Unsurprisingly, Monroe destroyed Rufus King in the fall.

But not all was well for the National Republicans. Before the election, they passed the Compensation Act. This law raised the salary of congressmen, which had not increased since 1789, from $6 to $12 per day. But they got greedy: the pay raise was effective immediately, meaning the current Congress voted to double its own pay and present the taxpayers with the bill. The people, struggling in the war’s aftermath, would not stand for what they considered blatant cronyism. In the fall elections, the furious voters kicked out two-thirds of congressmen. Many of the new representatives, while not doctrinaire Old Republicans, championed reform more than their predecessors. The stunned lame-duck Congress returned in December for one final session before Monroe’s inauguration in March 1817. It repealed the Compensation Act and the legislature later settled on $8 per day.

Momentously, Congress decided to push forward with the final piece of the Hamiltonian program: federally funded internal improvements. In his 1816 congressional message, Madison recommended such a system but stressed that an amendment accompany the legislation. The president maintained multiple reasons for this stipulation. First, the opportunist had already contradicted himself on central banking, and if he wanted to cement his legacy as the nation’s preeminent strict constructionist he had to require an amendment. Even on this point Madison was inconsistent, because earlier in the year he signed a bill appropriating $100,000 to continue constructing the National Road without raising any constitutional objections. Second, Madison wanted the amendment to clear up any ambiguities and pave the way for a clear expansion of interventionism. Unlike the original Jeffersonian approach, which demanded amendments as a roadblock to restrict government power, Madison wanted to use them as enabling devices.

However, Madison failed to convince National Republicans, who thought the Constitution already contained the power. One such nationalist was Calhoun, an enthusiastic proponent of federal handouts to transportation companies. The South Carolinian responded to Madison’s plea with a bill that would use the government’s SBUS bonus ($1.5 million) and future dividends from stock ownership to subsidize roads and canals. In this way, Congress would divert revenue from paying down the bloated federal debt to land speculators, transportation companies, and mercantile businesses. Calhoun defended its constitutionality with the general welfare clause and precedent—the Louisiana Purchase. His argument for broad constructionism practically mimicked Hamilton’s: the Constitution “was not intended as a thesis for the logician to exercise his ingenuity on. It ought to be construed with plain good sense.” In addition, the Hamiltonian buttressed his case with the argument that federally funded internal improvements would “bind the republic together” and prevent “the greatest of calamities—disunion.”

But here, as always, the topic of internal improvements ran into difficulties. While Clay firmly supported the bill, Randolph fought it as expected. In addition, the young Philip Barbour of Virginia, rapidly shaking off his previous wartime nationalism and transforming into one of the state’s preeminent Old Republicans, bitterly attacked the proposed legislation on constitutional grounds. In the end, the House moved that the funds had to be distributed to the states according to population and the states had to concede to distribution. After a bitter struggle, Congress barely passed the bill before Monroe’s inauguration. Voting divided along sectional lines—National Republicans desired federal improvements to bind the empire, but did not want rival states to benefit more than their home turf. New England voted nay because the region had already constructed roads and wanted to prevent western migration; the Mid-Atlantic, particularly canal-hungry New York, enthusiastically voted yea; the Upper South opposed; and the Lower South split. Vocal opposition came from the new Old Republican senator from South Carolina, William Smith, a vehement opponent of the statist Calhoun and Lowndes.

But Madison shockingly responded with a veto. According to the president, the bill was too decentralized and Congress failed to pass an amendment. He arrogantly sent the bill back to Congress, confident the legislature could produce an even more nationalist bill and an amendment. Madison, as usual, wanted to have it both ways: a National Republican who harkened back to old-school Federalism, and a nominal adherent to Jeffersonian principles. In the end, believing his legacy secured, the president retired “without denying either his nationalist instincts or his deep suspicion of laissez faire.”

The Republican Revolution of 1800 ended in a resounding failure. Jefferson and Madison threw the Federalist Party out of power on the basis of strict constructionism, limited government, and states’ rights. But power corrupted the Republican Party into moderation and then outright privilege granting. As the libertarian Republicans morphed into moderate Republicans, then War Hawks and Invisibles, and finally National Republicans, cronyism reversed its gradual decline and lurched upwards. National Republicans eagerly looked forward to continuing the trend.

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Roger Brown, The Republic in Peril (New York: Columbia University Press, 1964), pp. 120–21; Bruce De Mesquita and Alastair Smith, The Spoils of War (New York: Public Affairs, 2016), pp. 68–72; Reginald Horsman, “On To Canada,” Michigan Historical Review (Fall 1987): 17; Stanley Lebergott, The Americans (New York: W.W. Norton, 1984), pp. 13–16; Walter Nugent, Habits of Empire (New York: Vintage Books, 2009), pp. 75–78.

Historical Statistics of the United States, Colonial Times to 1957 (Washington, DC, 1960), p. 91; H. Arthur Scott Trask, “Thomas Jefferson,” in Reassessing the Presidency, ed. John V. Denson (Auburn, AL: Mises Institute, 2001), pp. 93–100; Gordon Wood, Empire of Liberty (New York: Oxford University Press, 2009), pp. 647–48.

Julius Pratt, Expansionists of 1812 (New York: Macmillan, 1925), p. 122. See also American Political Leaders (Washington, DC: CQ Press, 2000), p. 290; David Johnson, John Randolph of Roanoke (Baton Rouge: Louisiana State University Press, 2012), pp. 140–41; John Pancake, Samuel Smith and the Politics of Business (Tuscaloosa: University of Alabama Press, 1972), p. 79; Pratt, Expansionists of 1812, pp. 49–50, 120; Wood, Empire of Liberty, pp. 660–62.

De Mesquita and Smith, Spoils of War, p. 81.

Richard Maass, “‘Difficult to Relinquish Territory Which Had Been Conquered’,” Diplomatic History (January 2015): 70–97.

De Mesquita and Smith, Spoils of War, p. 81.

Horsman, “On To Canada,” p. 12.

Ibid., p. 14.

Ibid., pp. 11–17.

Norman Risjord, Chesapeake Politics (New York: Columbia University Press, 1978), p. 129.

J. Stagg, “Between Black Rock and a Hard Place,” Journal of the Early Republic (Autumn 1999): 392.

Donald Hickey, The War of 1812 (Chicago: University of Illinois Press, 2012), p. 31. See also pp. 28–29; Nugent, Habits of Empire, pp. 75–82; Risjord, The Old Republicans, pp. 128–29; Stagg, “Black Rock,” pp. 386, 394–96, 402–03, 405, 412–14; Sean Wilentz, The Rise of American Democracy (New York: W.W. Norton, 2005), p. 154; Wood, Empire of Liberty, pp. 666–67.

Johnson, John Randolph, p. 144 and Nugent, Habits of Empire, p. 81.

Stagg, “Black Rock,” p. 386.

Johnson, John Randolph, p. 144.

Adam Tate, Conservatism and Southern Intellectuals (Columbia: University of Missouri Press, 2005), p. 69.

Nugent, Habits of Empire, p. 81.

Johnson, John Randolph, pp. 143–46; Nugent, Habits of Empire, pp. 80–81; Tate, Conservatism and Southern Intellectuals, pp. 67–69; Nicholas Wood, “John Randolph of Roanoke and the Politics of Slavery in the Early Republic,” Virginia Magazine of History and Biography (Summer 2012): 113–16.

Hickey, War of 1812, p. 31.

Risjord, The Old Republicans, p. 134.

Hickey, War of 1812, pp. 31–32; Wood, Empire of Liberty, p. 672.

Hickey, War of 1812, p. 33.

Brown, Republic in Peril, pp. 131–57; De Mesquita and Smith, Spoils of War, pp. 81–84; Hickey, War of 1812, pp. 33, 39, 46–47, 100–04; Nugent, Habits of Empire, p. 82; Risjord, The Old Republicans, pp. 136–37.

Nugent, Habits of Empire, pp. 82–83.

Ibid., p. 85.

Ibid., p. 73.

Hickey, War of 1812, pp. 39–43; Nugent, Habits of Empire, pp. 82–83; Risjord, The Old Republicans, pp. 144–45; J. Stagg, Mr. Madison’s War (Princeton, NJ: Princeton University Press, 1983), pp. 118–19.

Murray N. Rothbard, “America’s Two Just Wars,” in The Costs of War, ed. John V. Denson (New Brunswick, NJ: Transaction Publishers, 1999), p. 119.

Risjord, The Old Republicans, p. 19.

Johnson, John Randolph, pp. 152–54.

History of Congress (June–July 1812), p. 322.

Brown, Republic in Peril, pp. 126–29; History of Congress, pp. 298, 322–26, 1683, 1691–94; Nugent, Habits of Empire, pp. 115–20; Wood, Empire of Liberty, pp. 686–87.

Adam Bellow, In Praise of Nepotism (New York: Doubleday, 2003), pp. 320–21; Stuart Brandes, Warhogs (Lexington: The University Press of Kentucky, 1997), p. 55; Historical Statistics, Colonial Times to 1957, p. 538; Historical Statistics of the United States, vol. 5, ed. Richard Sutch and Susan Carter (New York: Cambridge University Press, 2006), p. 82; Douglas A. Irwin, Clashing over Commerce (Chicago: The University of Chicago Press, 2017), pp. 120–21; Curtis Nettels, The Emergence of a National Economy (New York: Holt, Rinehart and Winston, 1962), pp. 275–76, 338–40; Lawrence Peskin, Manufacturing Revolution (Baltimore, MD: The Johns Hopkins University Press, 2003), pp. 134, 209; George Taylor, The Transportation Revolution (New York: Holt, Rinehart and Winston, 1951), p. 234.

Brandes, Warhogs, p. 61; Philip Burch, Elites in American History, vol. 1 (New York: Holmes & Meier Publishers, 1981), pp. 97–99, 269; Hickey, War of 1812, pp. 104, 118–19, 235–38; Historical Statistics, 5, p. 80; Nettels, Emergence of a National Economy, pp. 331–32, 335; Gregory May, Jefferson’s Treasure (Washington, DC: Regnery History, 2018), pp. 215–17.

Roger Lowenstein, America’s Bank (New York: Penguin Press, 2015), p. 3.

Historical Statistics, 3, p. 181; Nettels, Emergence of a National Economy, pp. 332–35; Murray N. Rothbard, “The History of Money and Banking Before the Twentieth Century,” in Rothbard, A History of Money and Banking in the United States, ed. Joseph Salerno (Auburn, AL: Mises Institute, 2002), pp. 73–84; Peter Rousseau and Richard Sylla, “Emerging Financial Markets and Early US Growth,” Explorations in Economic History (January 2005): 24; Richard Timberlake, Gold, Greenbacks, and the Constitution (Berryville, VA: The George Durell Foundation, 1991), p. 16; Richard Timberlake, Monetary Policy in the United States (Chicago: The University of Chicago Press, 1993), pp. 13–18.

Hickey, War of 1812, p. 281.

American Political Leaders, p. 318; James Banner, To the Hartford Convention (New York: Alfred A. Knopf, 1970), pp. 308–18, 327–46; Hickey, War of 1812, pp. 222, 274–83, 291–300, 306; William Watkins, Reclaiming the American Revolution (Oakland, CA: The Independent Institute, 2004), pp. 90–93.

Risjord, The Old Republicans, p. 161.

Hickey, War of 1812, pp. 284–301, 316; Nugent, Habits of Empire, pp. 85–90.

George Dangerfield, The Awakening of American Nationalism (New York: Harper & Row, 1965), p. 6.

Daniel Peart, Lobbyists and the Making of US Tariff Policy (Baltimore, MD: The Johns Hopkins University Press, 2018), p. 25.

John Haeger, John Jacob Astor (Detroit, MI: Wayne State University Press, 1991), pp. 143–44; Bray Hammond, Banks and Politics in America (Princeton, NJ: Princeton University Press, 1957), pp. 231–32; Hickey, War of 1812, pp. 256–58.

Hammond, Banks and Politics, pp. 232–33; Murray N. Rothbard, The Mystery of Banking (Auburn, AL: Mises Institute, 2008), p. 198; Timberlake, Monetary Policy, pp. 18–22.

Joseph Dorfman, The Economic Mind in American Civilization, vol. 1 (New York: Viking Press, 1946), p. 362.

Hammond, Banks and Politics, pp. 233–39, 243–44, 253–54; Susan Hoffman, Politics and Banking (Baltimore, MD: The John Hopkins University Press, 2001), pp. 46–48.

Risjord, The Old Republicans, p. 163.

Rothbard, Mystery of Banking, p. 200.

Risjord, The Old Republicans, p. 166.

Ibid., p. 167.

Ibid., p. 167.

John Devanny, “A Loathing of Public Debt, Taxes, and Excises,” Virginia Magazine of History and Biography (Winter 2001): 406–11; Haeger, John Jacob Astor, p. 199; Hammond, Banks and Politics, pp. 239–44; Risjord, The Old Republicans, pp. 162–63, 167–68; Rothbard, Mystery of Banking, pp. 200–01; Arthur A. Schlesinger Jr., The Age of Jackson (Boston, MA: Little, Brown and Company, 1945), pp. 228–29.

Historical Statistics, 3, p. 193; Irwin, Clashing over Commerce, pp. 126, 132–33; Wood, Empire of Liberty, pp. 702–03.

Peart, Making of US Tariff Policy, p. 27.

Historical Statistics, 5, p. 510; Irwin, Clashing, pp. 126–35; Dangerfield, Awakening, p. 15; Peart, Making of US Tariff Policy, pp. 13–30; Murray N. Rothbard, The Panic of 1819 (Auburn, AL: Mises Institute, 2007), p. 210.

Andrew Browning, The Panic of 1819 (Columbia: University of Missouri Press, 2019), pp. 208, 294; Burch, Elites in American History, 1, pp. 268, 272; Dangerfield, Awakening of American Nationalism, pp. 22–23, 30; Risjord, The Old Republicans, pp. 228–31.

Daniel Howe, What Hath God Wrought (New York: Oxford University Press, 2007), pp. 86–87; Risjord, The Old Republicans, pp. 180–82; Wood, Empire of Liberty, pp. 718–21.

Howe, What Hath God Wrought, p. 86; Risjord, The Old Republicans, p. 168.

John Larson, Internal Improvement (Chapel Hill: The University of North Carolina Press, 2001), p. 65.

Dangerfield, Awakening of American Nationalism, p. 18.

Dangerfield, Awakening of American Nationalism, p. 20. See also William Belko, Philip Pendleton Barbour in Jacksonian America (Tuscaloosa: University of Alabama Press, 2016), pp. 55–56, 66–67; Dangerfield, Awakening of American Nationalism, pp. 18–20; Howe, What Hath God Wrought, p. 88; Larson, Internal Improvement, pp. 63–69, 274; Risjord, The Old Republicans, pp. 168–74, 186.