Constitutional Myths Page 3
The most notable insurrection was in Massachusetts, whose state legislature, dominated by eastern lawyers and merchants, resisted the pleas of farmers in the western part of the state for relief. In response, angry armed men who described themselves as “Regulators” converged on county seats to shut down the state’s courts and prevent enforcement of debts and foreclosure actions. (Only their enemies labeled them “Shaysites” and the uprising “Shays’ Rebellion,” named after Revolutionary War veteran Captain Daniel Shays, one of the movement’s several leaders.) Nor was unrest limited to Massachusetts. Farmers also closed courts in Virginia, Maryland, and New Jersey. After a court closure in Camden, South Carolina, Judge Aedanus Burke stated that not even “5,000 troops, the best in America or Europe, could enforce obedience to the Common Pleas.” In York, Pennsylvania, 200 men armed with guns and clubs took back cattle that had been seized by the state government in lieu of taxes. Farmers in Connecticut, New Hampshire, and Vermont staged protests. The entire nation appeared at risk.19
The day after Christmas 1786, George Washington wrote to the Confederation’s secretary of war Henry Knox, the man he had left in charge of the remnants of the Continental Army three years earlier: “I feel, my dear General Knox, infinitely more than I can express to you, for the disorders, which have arisen in these states. Good God! Who, besides a Tory, could have foreseen, or a Briton predicted them?” A few weeks later, Washington wrote to Knox again: “If government shrinks, or is unable to enforce its laws, … anarchy & confusion must prevail—and every thing will turn topsy turvey in that State.” But with only a few hundred men to guard the western borderlands, Knox could do nothing to suppress the rebellions. In dire need of a national army, Congress once again requisitioned the states and once again came up short. Massachusetts could not even supply funds to put down its own rebels. In the end, it took a private army, hired by wealthy merchants, to restore order.20
For George Washington, Gouverneur Morris, John Jay, and Henry Knox, as for James Madison, Alexander Hamilton, and other prominent nationalists, the wave of unrest, however unwanted, provided a unique political opportunity. Over the previous decade, ever since the declaration of American independence, advocates of a stronger national government had lost out to deep-seated fears of a central authority that would be geographically distant from many Americans. Now, those fears were matched by others of equal power: economic collapse, social upheaval, and political disintegration, allegedly dragging the nation toward anarchy and a return to the state of nature, where no man’s property would be secure. Historians to this day argue whether things were quite so bad as the nationalists made them out to be, but that is beside the question. This was the nationalists’ political moment, their chance to reframe America’s political dialogue by stressing such concerns. If they played their cards right, they might yet wind up with the centralization they thought was needed to give the United States a firm financial foundation and enduring governmental structure. In their minds, a drastically revised constitutional framework could protect the fruits of the Revolution: American independence and republican government.
On February 21, 1787, in the immediate wake of the insurrection in Massachusetts, the Confederation Congress called for a special interstate convention “for the sole and express purpose of revising the Articles of Confederation and reporting to Congress and the several legislatures such alterations and provisions therein as shall … render the federal Constitution adequate to the exigencies of Government and the preservation of the Union.” Such a convention, Congress said, appeared to be “the most probable means of establishing in these states a firm national government.” Such language—“firm national government”—would not have won much applause at an earlier date, but it was now deemed acceptable.21
Political leaders began to ponder: precisely what “alterations” would “render the federal Constitution [the Articles of Confederation] adequate to the exigencies of Government”? Separately, John Jay, Henry Knox, and James Madison each sketched ideas for a complete overhaul of the federal government and sent them to Washington, whom they hoped would attend the convention and play a key role in its deliberations. All three outlines diverted radically from the Articles of Confederation, and Knox, in particular, referred bluntly to the “imbecilities of the present government.” He feared that the convention “might devise some expedients to brace up the present defective confederation so as just to keep us together.” In his view, what was needed was “one government instead of an association of governments.”22
Washington wrote back to Knox: “The system on which you seem disposed to build a national government is certainly more energetic, and I dare say, in every point of view is more desirable than the present one.” Yet even if the forthcoming convention adopted such a scheme, could it ever gain the approval of the states? Washington feared it would not: “The darling Sovereignties of the States individually, the Governors, … the Legislators—with a long train of etcetra whose political consequence will be lessened, if not anihilated, would give their weight of opposition to such a revolution.”23
Several of Washington’s allies—Jay, Knox, Hamilton, and Madison—urged him to attend the convention, and he did understand that his presence would help legitimize this revolution in the making. To Knox, though, he expressed his misgivings. If several states chose not to send delegates, or if they “fettered” their delegates or “cramped” their options, he saw no reason “to be a sharer in this business.” When Knox reported back that all states but one were sending delegates “with ample powers to point out radical cures for the present political evils,” Washington finally agreed to go.24
Washington, Madison, and five other Virginians were the only out-of-state delegates to arrive on time, and while waiting for other delegations they prepared a new and radical scheme. On May 29, the first day of formal deliberations, Virginia’s governor Edmund Randolph presented his state delegation’s fifteen-point plan. The first article hinted at the nationalists’ design: “Resolved that the Articles of Confederation ought to be so corrected & enlarged as to accomplish the objects proposed by their institution; namely, ‘common defence, security of liberty and general welfare.’”25
Why only a hint, wondered Gouverneur Morris? Why not proclaim their actual design? At Morris’s bidding, Randolph moved to strengthen the wording: “A national government ought to be established consisting of a supreme legislative, executive & judiciary.” Madison’s meticulous notes on the convention, the main source of what went on behind those closed doors, emphasized the words “national” and “supreme.”26
This motion set off a spirited discussion “on the force and extent of the particular terms national & supreme.” Some delegates declared that they were authorized by their state legislatures only to amend the Articles of Confederation, not to abolish them, but Gouverneur Morris countered, “In all communities, there must be one supreme power, and one only.” A “federal” government was no more than “a mere compact resting on the good faith of the parties,” he explained, while a “national, supreme” government implied “a compleat and compulsive operation.”27
To our ears that language—“a compleat and compulsive operation”—might sound harsh, but not so to George Washington in 1787. Two years earlier, writing to James Warren, he had contended that the “necessity … of a controuling power is obvious,” and in 1786 he had told John Jay he favored “the intervention of a coercive power … which will pervade the whole Union in as energetic a manner, as the authority of the different state governments extends over the several states.” Now, among the delegates assembled in Pennsylvania’s State House, this stance was common currency. Of the eight states then in attendance that voted that day, six approved the radical move to create a sovereign national government with supreme authority, one opposed it, and one was divided. In a single daring stroke, the convention scrapped the Articles of Confederation—a mere contract among sovereign states, each “supreme.”28
The revo
lution in favor of government was under way, and this is where our book takes form: at the Federal Convention in Philadelphia on May 30, 1787, as the men we now call the framers discussed how to devise an energetic and vigorous new government for the United States. They wanted to institute a “coercive power” that would “pervade the whole Union,” yet they had to do so carefully, always mindful that the people, in whom all authority resides, would have the last say.
2
TAXES
Myth: The framers hated taxes.
I just wondered that if our founders thought taxation without representation was bad, what would they think of representation with taxation?
—Representative Michele Bachmann, presidential candidate, speaking to Conservative Political Action Conference, February 26, 20091
The Founders, who framed a Constitution to protect us from government, did not dare consider an income tax.
—Thomas Del Beccaro, chairman, California Republican Party2
Kernel of Truth
“No taxation without representation” and “liberty and property” were the rallying cries of America’s original patriots. Before the Revolution, British American colonists believed they were entitled to full rights as Englishmen, including (and especially) the right to keep their own property. The Crown, for all its powers, was not permitted to seize land, possessions, or money from its citizens; only the people themselves, acting through their elected representatives, could relinquish any share of what they rightfully owned. Because Americans did not have any representatives in Parliament, they were taxed instead by colonial assemblies, in which they were represented. This was the only legitimate form of taxation, in their minds.3
That’s how the system operated before the end of the French and Indian War (known in Europe as the Seven Years’ War), when Britain more than doubled its holdings in North America. After 1763, to finance the expanded empire, Parliament levied various taxes on the colonies. Colonists from Massachusetts to Georgia resisted, Parliament and the Crown held firm, and Americans, refusing to cave in, eventually declared their independence.
In the wake of the American declaration of independence, only state legislatures had the power to levy taxes or duties. The Continental Congress lacked the authority to tax because congressmen represented their states, not the people themselves. After 1781, when the Articles of Confederation took effect, the Confederation Congress could not tax citizens directly, nor could it tax imported goods without approval from all thirteen state legislatures. People in any one state, the reasoning went, should not be taxed upon the authority of representatives from other states. Even when facing the expenses of fighting a protracted war, Americans refused to be taxed by anyone but their immediate representatives. They feared that a central government, if granted the power of taxation, might replicate the injustices that Parliament and Crown had inflicted on the colonists.
But …
After the Revolutionary War, without the power to tax, the Confederation Congress was unable to deliver two of the most fundamental government services: protection of property and national defense.
In the wake of the war, with states struggling to pay back their debts, citizens found themselves taxed more heavily than they had been before independence. Meanwhile, overseas merchants insisted on payment in specie, so the money supply shrank. Debt-ridden and overtaxed farmers pushed for various forms of relief. They wanted state governments to increase the money supply by issuing paper money so they wouldn’t need specie to pay their debts and taxes. To lessen their tax burdens, they also wanted their state governments not to honor war bonds at face value, but rather to honor them only at the value that speculators had paid for them. Such measures displeased the men we now call the founders. The net effect of debtor relief, they believed, was to deprive creditors of what was rightfully theirs, thereby nullifying the obligation of contracts. Under normal conditions, creditors could rely on courts to help them collect debts owed to them, but in 1786 and 1787 debtors in some states actually closed the courts to prevent such proceedings. When rebels in Massachusetts shut down courts and threatened to seize arms so they could march on Boston, the penniless Congress, with just a few hundred soldiers stationed in the West, could do nothing about it. Political leaders who thought in national terms worried that debtor insurrections and laws favoring debtors over creditors would threaten all private property and in the end convulse the republic.
These troubles threatened national defense. With the American people embroiled in domestic turmoil and Congress lacking any means to raise an army, the fledgling nation was vulnerable to foreign attack. How might it defend itself? It would need to either tax its citizens (which it was not allowed to do), requisition the states for money (it had tried that many times, with at best mixed results), or borrow from creditors abroad (if it could find any investors willing to lend to a government with no means of raising money for repayment). All was in flux. In the minds of many prominent Americans, no property was safe and the nation as a whole lay exposed.
The only way out, they figured, was to revamp the rules under which the United States operated. First and foremost, Congress needed the authority to raise its own funds through taxation, and not just a few cents here and there. Without credit to borrow in case of emergency, the national government would always be vulnerable to foreign nations that did have the money to spend on warfare, or at least sufficient credit to raise armies and navies. But to secure credit, the United States would have to convince investors it could and would raise revenues so it could pay its bills. The government’s tools could not be too constricted. Congress needed the sweeping authority to tax.
Such was the reasoning of George Washington, James Madison, Edmund Randolph, Alexander Hamilton, Robert Morris, Gouverneur Morris, and other committed nationalists who organized a convention in 1787 to strengthen the financial standing of the federal government. We might not want to hear it, but to taxes we owe our Constitution.4
The Full Story
The 1689 English Bill of Rights, a document dear to the hearts of British subjects in North America, stipulated that “the levying money for or to the use of the Crown by pretence of prerogative, without grant of Parliament … is illegal” and “that election of members of Parliament ought to be free.” Colonists interpreted these two provisions to mean “no taxation without representation,” not only in England but also in America.
Here, colonists did not shirk taxation, so long as they were taxed by their own representatives. Colonial assemblies, elected by the people, raised funds in a variety of ways. They imposed retail licenses and excises, import duties, and tonnage fees. These were considered “indirect taxes” because they taxed activities, not people; in a sense they were voluntary because if you didn’t want to pay a tax, you simply didn’t engage in the activity being taxed. Indirect taxes rarely sufficed, however, which meant that citizens had to be taxed directly, either by a poll or head tax, applied evenly to all taxpaying citizens, or by some form of property tax, in which those with larger holdings assumed a greater share of the tax burden. One variation on the property tax, a “faculty tax,” resembled the modern income tax. People were assessed not only on the basis of their property but also according to their ability, or faculty, to make money. Each profession was taxed according to its likely “returns and gains.” Often, because specie was scarce, taxes could be paid in commodities such tobacco, corn, wheat, rice, beaver skins, whale oil, or turpentine.5
In times of war, when money had to be raised in a hurry, current taxes alone were never enough. Colonial governments had to purchase supplies for their fighting men with bills of credit, which would circulate as money. Typically, when a colonial government issued these bills, it would allocate taxes for the next few years to pay them off. If taxes were not allocated or if people lost faith in the government’s ability to raise money, however, the bills would quickly lose their worth. Wars were thereby financed by a promise of future taxes, but this system of deficit spendi
ng worked only if the bills of credit were issued with restraint and backed by an adequate program of taxation. Such measures were common in colonial times because Britain, France, and Native nations fought frequently for control of eastern North America.6
The newly independent states inherited these precedents from their colonial predecessors. They needed to adapt such practices to pay for the Revolutionary War, but the systems they developed proved disastrous and almost led to the nation’s ruin.
At the outset of the war in 1775, more than a year before declaring independence, the Continental Congress issued 2 million dollars in paper bills. (It denominated its currency in dollars, the unit used in Spain, rather than in pounds, as the British did.) In July, when George Washington assumed command of the army surrounding Boston, Congress followed with another million dollars, and by the end of 1775 it had issued 6 million. That was only the beginning. In 1776 it issued 19 million dollars, in 1777 another 13 million, in 1778 63 million, and in 1779 124 million. By then the dollar had fallen to only 3 percent of its original value, and two years later, in 1781, a dollar could not buy a penny’s worth of goods. At the time, Americans mocked the national paper money as “not worth a Continental,” a phrase still used today. The problem was that the currency was never backed by a revenue-producing plan that shored up its value. The public had no reason to believe that Congress could ever redeem the bills it issued.7
Congress was not directly at fault, for it was playing with a weak hand. How could it meet its obligations and buttress its credit when it lacked the authority to levy taxes? Nor could Congress ask states to meet their obligations and increase taxes ten- or twentyfold when state taxpayers had not yet recovered from the financial duress brought on by war. In colonial times, the assemblies had issued bills of credit, and the new state legislatures tried to do so again, but with the flood of paper money emitted by both the states and Congress, nobody dared take the money too seriously. State currency inflated along with federal currency, likewise dropping in value.