War Debt, Seven Years War, Revolutionary War, Articles of Confederation, U.S. Constitution, Central Government, Federal Spending and Fiscal Policy

Posted by PITHOCRATES - February 7th, 2012

History 101

Americans don’t like Paying Taxes

Americans don’t like paying taxes.  A dispute over taxation without representation led to American independence from British rule.  For Britain had been fighting for many years in many wars.  And ran up an enormous war debt.  Which they had to repay.  Because some of that debt was incurred protecting the American colonists from the French and Indians during the Seven Years War, some had a bright idea.  “Here’s a thought,” they said, “Let’s have the Americans pay their fair share.  I mean, fair is fair, right?  Besides, it’ll be a lot easier getting money from the Americans than it will be getting it from Parliament, eh wot?” 

The Seven Years War, though, was a world war.  Fought in many countries and on many seas.  Costing lots of money.  Which Parliament was financing with lots of taxes.  But the British taxpayer had tax fatigue.  And felt they had no more taxes to give.  Or wanted to give.  As they had a say in Parliament raising taxes further was a nonstarter.  But the Americans had no representation in Parliament.  So what could they do?  Turns out they could do a lot.  Now the Americans weren’t unreasonable.  They just didn’t appreciate the, “Oh, by the way, here’s your share of the war debt.  We’ll tax you accordingly.”  Which the British did.  Without so much a by-your-leave.  Rubbed the Americans the wrong way.  If the British had shown them the numbers and gave them a chance to agree on what their ‘fair share’ was they probably would have paid.  And stayed loyal to the Crown.  But the British didn’t.  So the Americans didn’t.

Now fighting wars is expensive.  Especially long ones.  And the Revolutionary War was a long one.  Eight years until they penned their names to the Treaty of Paris (1783) officially ending it.  In these eight years the Americans ran up a great war debt.  And needed to repay it.  Just like the British.  The very thing that started the Revolutionary War.  Now it was the Americans’ turn to raise taxes.  They tried taxing whiskey.  Which led to another tax rebellion.  The Whiskey Rebellion.  For Americans still didn’t like paying taxes.  This time, though, it was a tad different.  Because those they were taxing had representation.  And the new ‘nation’ (a confederation of ‘equal’ states) had the legal authority to impose this tax.  And to put down the rebellion.  Which General Washington did.  To the howls of liberty-loving patriots everywhere.  The tax quietly went away.  But it didn’t solve the nation’s problems.  They were broke.  Needed money.  And they had to get a handle on the massive sums they owed for the world of nations to take them seriously.

Hamilton thought both Jefferson and Burr were Scoundrels but at least Jefferson was a Principled Scoundrel

The new ‘nation’ (that confederation of ‘equal’ states) was the problem.  Just as the world of nations didn’t take the Americans seriously these ‘equal’ states didn’t take the new national government seriously.  There was no taxing authority.  So the federal government could only ask for contributions from the states.  Which often came in late.  And when they did they were often less than they requested.  Some states even refused to pay anything.  Worse, the states were making their own treaties with other nations as well as the Indian Tribes.  Or reneging on the treaties the federal government made with other nations and the Indian Tribes.  The confederation wasn’t working.  They needed something new.  And once George Washington was onboard they called a meeting in Philadelphia (1787) to rework the Articles of Confederation.

Of course they didn’t rework the Articles of Confederation.  They replaced them with a new U.S. Constitution.  And a new nation.  The Preamble to the U.S. Constitution began with “We the people.”  The sovereignty of the new nation wasn’t with the states.  It wasn’t with the new federal government.  It was with the people.  It was a nation of the people, by the people and for the people.  To borrow some words from Abraham Lincoln.  Which meant that although the thing they created had more power than the confederation of states it replaced, its power was limited.  Very limited.  The Framers designed it to do only those things the states could not do well individually.  National defense.  Coin uniform money.  Establish post offices and post roads.  Make national treaties with other nations and Indian Tribes.  Declare war.  Create a standard of weights and measures.  But little more.  In fact, the Constitution listed more things the new government couldn’t do than listed what it could do.  To quell everyone’s fear that they just replaced one far away central power (the British Crown) with another far away central power (the central government of the United States).  Especially when it came to taxes.  Raising taxes required approval by two houses of Congress and by the President.  Making it difficult to raise taxes.  The way Americans liked it.  For Americans didn’t like paying taxes.  And still don’t.

Getting the new Constitution ratified wasn’t a walk in the park.  The size and power of the new central government appalled those Patriots who worked so hard during the Revolution.  James Madison, the Father of the Constitution, joined forces with Alexander Hamilton and wrote a series of articles arguing for ratification.  The Federalist Papers.  And were successful.  Then when Alexander Hamilton was putting the Constitution into action as Secretary of the Treasury in the Washington administration, Madison didn’t like what he saw.  For Hamilton wanted to use the power of government to make the United States an economic superpower like Britain.  His opponents, though, saw a man who wanted to be king.  So Madison joined the opposition.  Led by Thomas Jefferson.  And the politics got ugly.  Before it was done the Jefferson camp would write about an affair Hamilton had.  And the same muckraker who exposed this affair would later write about a Jefferson affair with a slave.  Sally Hemming.  The people in the different camps hated each other.  Especially Hamilton and Jefferson.  They hated each other with a passion.  But they were principled men.  For when the election of 1800 came down to either Thomas Jefferson or Aaron Burr, Hamilton backed his archenemy.  Thomas Jefferson.  Both Jefferson and Burr were scoundrels as far as Hamilton was concerned.  But at least Jefferson was a principled scoundrel.  Burr took great offense to some things Hamilton said about him around this time.  And challenged him to a duel.  In which Hamilton suffered a mortal wound.  Pity.  For Hamilton was a true Patriot.  And perhaps the greatest treasury secretary the United States ever had.

It’s not the Spirit of Alexander Hamilton, Thomas Jefferson or James Madison that lives on in Politics but Aaron Burr

Funny how things change.  The new nation almost didn’t survive because of the opposition towards a strong central government.  And towards federal taxes.  Now federal spending includes just about everything under the sun.  Most of which the Framers excluded from the Constitution.  And the taxes!  They have reached a level none of the Founding Fathers thought would ever be possible.  Even Hamilton.  He was ‘big government’ for his day but he would be disgusted to see what became of his beloved Treasury Department.  And the money they pull out of the private sector economy.  Not to make America an economic superpower.  But to buy votes.  And for personnel gain.  The true underbelly of democracy.  Where people come to public service not to serve.  But to enrich themselves at the expense of the taxpayer.  Like that scoundrel that killed him.  Aaron Burr.

Even worse they use fiscal policy to further their spending ways.  The federal debt grows.  And now whenever a recession rolls around they use Keynesian fiscal policy to ‘lessen’ the affects of the recession.  Which is just a clever way to keep on spending after they’ve run out of money.  Because this spending is now stimulus.  And if the government stops spending it will make the recession worse.  Clever.  And it’s just coincidental that friends of the administration benefit most by this Keynesian stimulus spending.

It would appear it’s not the spirit of Alexander Hamilton that lives on in Washington.  Or Thomas Jefferson.  Or James Madison.  It’s the spirit of Aaron Burr.  Scoundrel extraordinaire.  And role model for the political elite.

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