War and Economics in 19th-Century America

0:00Lew always gives me these very narrow topics, the war and economics in the 19th century, and so I have a half hour. And so, but I'm going to focus, really the focus of what I'm going to have to say is how a trade war turned into a shooting war, and I'm going to try to do that in a half hour. And a lot of you know that from the beginning of the American Republic, there was a political conflict between the nationalists on the one hand, led by people like Alexander Hamilton and the advocates of states' rights and decentralized government, or the Jeffersonians. I wrote that on the board. This is my version of PowerPoint. I call it West Virginia PowerPoint. I just pointed the blackboard that I scribbled onto.

0:46So Hamilton and his followers wanted a bigger government, stronger government, government's more centralized in the nation's capital for what purpose to one purpose was to centrally plan the economy more than the other people wanted it to and the Jeffersonians were dead set against all this and so there was this ongoing conflict for the first 70 years or so of the American Republic and the way in which this conflict manifested itself in the most visible way was over economic policy in particular and by the 1830s This economic policy that was being battled over in the conflict between nationalism and states' rights was labeled by Henry Clay as the American system.

1:34And I write about this in my book quite a bit. And the American system had three planks to it. Protectionist tariffs, central banking, and corporate welfare for the railroad and road building industries. That's it. And Abraham Lincoln, which I'm going to talk about later, when he got into politics in 1832, Right about the time the Whig Party was created and Henry Clay was the leader of the Whigs, he announced to his potential constituents in Springfield, Illinois that the purpose that he was getting into politics were three things. Protectionist tariffs, a central bank and internal improvement subsidies as they were called for the railroad corporations and that's it. That's what he claimed he was devoting his political career to. And so, this, there were a number of battles, fierce political battles over these things that some of you are familiar with, such as Andrew Jackson's veto of the bank bill in the, around 1832, but what I'd like to start off with was, what some people consider to be really the first, the first move in the direction of civil war, so called, which of course was not a civil war, it was a, or a war between the states, I call it the war for southern independence.

2:49but this was the Tariff of Abominations of 1828 and at the time Henry Clay was at the peak of his political power in the Congress and he was the sponsor of the Tariff of Abominations that raised the average tariff rate to around 50% and in some items like I believe wool was taxed at 200% imported wool and of course the southerners felt that they were being severely plundered by this because they had very little manufacturing in the south and such things as wool blankets they bought from northern manufacturers or from Europe and so you place a 200 percent tariff on the wool blankets and they're going to feel that whereas the beneficiaries of course of the manufacturers of the wool blankets all benefit to them and so but anyway this ended up in this controversy over the Tariff Nullification in South Carolina and there's an interesting book on this if anyone's interested by Chauncey Boucher, B-O-U-C-H-E-R called The Nullification Controversy in South Carolina and here's what he says about this, he says,

4:04At the session of the South Carolina legislature, which convened in November of 1825, this is right, this is before the tariff abominations, Judge William Smith introduced a set of anti-bank, Anti-Internal Improvement and Anti-Terrorist Resolutions, they were adopted. Before this session, there had appeared in South Carolina scattered evidence only of opposition to nationalism. But this episode may be said to mark the beginning of the formidable anti-nationalist movement in the state. So clearly, as I said, the way in which this conflict between nationalism and states' rights manifested itself was over these economic policies as early as 1825 and the South Carolinians went on to describe the tariff as a system of robbery, plunder and it was destructive to the southern states and it's kind of interesting to me that the first translator of Bastiat in America was a woman from South Carolina and so the people in South Carolina were pretty well schooled in the free trade doctrines of Friedrich Bastiat by the 1850s.

5:13by the mid-1850s. They also complained about this. They said, this kind of tariff, when they started talking about the tariff of abominations, they made one section tributary to another, and the revenue would be used by the administration of artful and corrupt politicians to buy up partisans and retain power. Sounds familiar, but keep in mind, at this time, the federal government was tiny. Even at the time the war broke out in 1861, The average American paid about $40 in federal taxes in today's money, today's dollars, and the only contact any citizen ever had with the federal government was through the postal service, was through mailing a letter or something like that, and there's no other contact with the federal government. James J. Kilpatrick wrote a great little book called The Sovereign States, and he comments on this tariff of abominations. He said this, Cotton shirts, woolen blankets and other staple items of an agrarian society became suddenly more expensive at a time when the South had virtually no industries of its own

6:15that might benefit from a protectionist policy. Virginia also joined in with the South Carolinians in denouncing this proposed tariff. They called it an unconstitutional exercise of power. Georgia, North Carolina and Alabama did also. They issued these proclamations that had violated the part of the Constitution that requires the duties and impose to be uniform across the population. which of course it did. They understood the incidence of tariffs back then and so they thought this was not only an act of plunder but unconstitutional act of plunder. On the other hand, Massachusetts, Ohio, Pennsylvania, Rhode Island, Indiana and New York legislatures issued proclamations in favor of protectionism, in favor of raising the tariff to 50 percent and higher and they won out with this battle of course. The law was passed and the tariff rates were raised to on average 50% from 15 to 20% so they're more than doubled at the time and that's what created this controversy and so the South Carolinians took the lead in opposing this tariff increase

7:22and they held a nullification convention. It wasn't a meeting of the state legislature, it was a political convention where representatives from all the various communities met and they They issued a proclamation that said we are not going to collect this higher tariff rate. If imports come into the port of Charleston, for example, we are not going to collect this money. We were nullifying this and they were in a big political battle with President Andrew Jackson over this at the time. And the law that they passed, the South Carolina legislature then passed a law to enforce this idea of nullifying the tariff. And here's what the law said. Authorized Importers to Recover Any Goods that Had Been Impounded by Federal Tariff Collectors Sheriffs Were Instructed to Seize the Private Property of the Tariff Collectors and Award it to the Importers Any Duties that Were Paid Were to be Reimbursed with Interest Anyone Arrested for Failure to Pay the Tariff was to be Immediately Liberated No Property Titles Were to be Recognized for Property Sold in Order to Pay the Tariff

8:30Tariff collectors and all their assistants were subject to fines and imprisonment for any attempts to resist the nullification law and collect the tariff. No public jail in the state could be used to imprison anyone for failure to pay the tariff. And my favorite, a fund of $200,000 was made available to the governor of South Carolina to purchase guns to enforce the nullification law through the state militia. In 1828 I imagine you could buy a lot of guns with $200,000 and so they were serious about this and President Andrew Jackson talked about the possibility of sending naval ships to Charleston Harbor or invading the state but then you know he must have smacked himself and thought he would go down in history History is one of the worst tyrants in all of human history if he were over mere tax collection to go down and bomb a city and kill people and burn buildings and loot and plunder.

9:33You know, only a Hitler would do something like that. And so he backed down. He backed down the South Carolinians' wand by forcing a compromise tariff, a lower compromise tariff. And so, and that was by 1832, 1833, the lower compromise tariff was settled upon, and from that period, from 1833 until about 1857, we had essentially free trade, we had the average tariff rate by 1857 was about 15%, one-five, and a great many items were exempted altogether, so the free traders, thanks to the efforts of the South Carolinians and their The New Hortz in Alabama, Georgia, Virginia and a couple of other southern states created a free trade ideal.

10:25Frank Taussig, the great historian of tariffs, said that 1857 was probably the high watermark of free trade in America in the 19th century, as far as that is concerned. But then that all changed. That all began to change in 1857. 1857, there was a recession in 1857 and by that time the Whig Party of Henry Clay had gone by the wayside, disappeared, Henry Clay was dead, and the Republican Party picked up the protectionist mantle. And Abraham Lincoln, by the way, eventually picked up Henry Clay's mantle as the leader of that faction, the nationalist faction in American politics. And so the Republicans started arguing that the cure for the recession was high tariffs.

11:13That if only we would go back to that a tariff abomination of a 50% or so average tariff instead of a measly 15%, that would be the cure to the recession. Of course, that's total unmitigated nonsense. And at the time, the works of Adam Smith and Ricardo and John Baptist Say and other free traders were well known. were well known, and as I said, by the 1850s, the work of Bastiat was printed in English. It was especially popular in the southern states. And so when Abraham Lincoln was elected in 1860, before that, in the 1859 session of Congress, the moral tariff had passed the House of Representatives. And so this is before any secession took place, before Lincoln was even nominated.

12:00And the moral tariff, in two steps, increased the average tariff rate from 15% to 32% and then to 47%. And so, and this was put into place before secession, before the war, before Lincoln, by the House of Representatives. And of course, when Lincoln came in, the Senate quickly voted for it and he signed it, of course. And it's kind of been entertaining in some of the, as a lot of you know, I've been involved in what I'll politely call a spinning match with some of my critics or my Lincoln writings and they've gone berserk over my assertion that Lincoln was interested in economic policy because the official gospel, the civic religion, is that Abraham Lincoln re-entered politics when he ran for the Senate against Stephen Douglas and then later as the presidency and even though he was an old wig who fought for for these things in politics. That was all behind him. He no longer had any interest whatsoever in tariffs, subsidies for the railroads or banking. Slavery was his issue. Although

13:09if you look at his own words, they contradict that over and over and over again. James McPherson has said this, the great James McPherson, he's written that it was a new Lincoln. He turned over a new leaf, was no longer interested in money and power and all that. It sort of sprung a halo all of a sudden. But listen to what he said two weeks before he was inaugurated president, in two and a half weeks, in February 15th, 1861 speech in Pittsburgh, Pennsylvania, that you can read in any edition of the collected works of Abraham Lincoln. He said this, the tariff is to the government what a meal is to the family, which is true. At the time, the tariff accounted for about 90% of federal tax revenue. There were a few other excise taxes that raised money, but that's true.

13:57But then, in the same speech, he continued on to endorse the Republican Party's platform on the tariff. And here's what the platform said, Planck said, that while providing revenue for the support of the general government by duties upon imposts, sound policy requires such an and Adjustment of the Impost as to encourage the development of the industrial interest of the whole country and we commend that policy of national exchanges which secures to the working men liberal wages, to agriculture, remunerating prices, to mechanics and manufacturers an adequate reward for their skill, labor and enterprise, and to the nation commercial prosperity and independence." In other words, raise the tariff to 50% and all these good things will happen, is what they were saying.

14:44is adjustment of the imposts. Adjustment of the imposts is raising the tariff. And in the same speech he went on to say this, and I quote Abraham Lincoln, no subject should engage your congressional representatives more closely than that of a tariff. No subject, nothing, not even slavery should be more important to your representatives. Two and a half weeks before he became president he said that, and so some of these, some of my critics insist In the same speech, he gave his standard line in defense of tariffs, which was the mercantilist notion that there should be no international competition of any kind whatsoever allowed with any product that is manufactured here.

15:37here that was his position if we grow if we make shoes here in the US there should be zero imports of shoes if if we don't grow coffee we can take coffee we'll take coffee we don't grow coffee here and so anything that can be produced at home there should be no international competition he also espouse the mark a crude version of the Marxian labor theory of value where he said quote labor is the true standard of value and quote he criticized all transportation costs as has, quote, lost labor. That is, if a shoemaker in England shipped shoes to Boston, the shipping costs are lost labor and we should not permit that. We should not permit that importation. And so, clearly, this was very important to Lincoln. In fact, I would argue that Lincoln owed his nomination as president and his election as president to the protectionist interests Special in Pennsylvania and New York.

16:34At the nominating convention in 1860, there's an article in the July 1944 American Historical Review on Lincoln and the Tariff that talks about the importance of his reputation as a career-long protectionist in getting the nomination. And the most influential newspaper in Illinois at the time was the Chicago Press and Tribune, by Joseph Meadow, M-E-D-I-L-L, and he started editorializing, promoting Lincoln as a presidential candidate. He said, Lincoln was an old Henry Clay Whig. He's right on the tariff and is right on all the other issues. Is there any one man who would suit Pennsylvania better? He was addressing Pennsylvania because Pennsylvania had the second largest number of delegates next to New York. And their strategy was to get the nomination, you had to win New York and Pennsylvania.

17:24If not, you're not going to get the nomination. So they keyed in on Pennsylvania. Lincoln himself lobbied for the job by writing to all the top political movers and shakers in Pennsylvania, telling them of boasting of his protectionist credentials. One such person was a Dr. Edward Wallace of Pennsylvania. And he wrote this to, this is a letter from Lincoln to Wallace. My dear sir, your brother, another doctor, Dr. W.S. Wallace, shows me a letter of yours in which you request him to inquire if you may use a letter of mine to you in which something is said upon the tariff question. I do not precisely remember what I did say in that letter, but I presume I said nothing substantially different from what I shall say now. In the days of Henry Clay, I was a Henry Clay tariff man, and my views have undergone no material change upon that subject.

18:16And he did the same. I have a list here of other Pennsylvania and Illinois Republican Party big shots that Lincoln wrote letters to reminding them of what a staunch protectionist he's been for 30 years in order to get the nomination. Then when the tariff plank was voted in at the Republican Convention, according to Professor Lutheran, who wrote this article I'm quoting, he said at the convention, the hilarity was contagious, finally pervading the whole vast auditorium. So when they passed the tariff plank in 1860, the Republican Convention, pandemonium broke out, apparently. And then when Lincoln won the nomination, he convinced the Pennsylvanians he was their man if they wanted high tariffs. And when he returned home to his hometown of Springfield, according to Lutheran, there was, quote, an immense wagon bearing a gigantic sign proclaiming protection for home industry.

19:10And so that's what the people who knew Lincoln best in his hometown after he won the nomination, that's what they had a big billboard sign on the top of the wagon protection for home industry that's to them that's what his nomination meant along with a lot of patronage I imagine the top economic advisor to Lincoln and the Republicans was a man named Henry C. Carey who was known as the Ajax of protectionism back then his nickname was the Ajax of protectionism and he said this at the time he said without a high protectionist tariff Mr. Lincoln's administration will be dead before the day of the inauguration and of course that makes sense because if if he owed his political career to the protectionists in Pennsylvania, New York and elsewhere among others well the way you play the game in politics to succeed in a political career is you have to pay off your your benefactors and so if you can't come through with that higher tariff your career is not very promising and of course Henry C. Carey who had been around for decades as

20:17He was a publicist for the Pennsylvania steel industry. He once bragged that he had never read The Wealth of Nations by Adam Smith, and yet he claimed to have refuted everything in it, even though he had never read it. Sort of like some of the critics of my book who have actually admitted they haven't read it. Actually, Jude Wineski said that. I haven't had time to read it, but... and he devoted one of his columns to criticizing it. Now, in the handout I gave you, in Lincoln's first inaugural address, The Moral Tariff had passed Congress. It was before the Senate. Lincoln's inaugurated on Inauguration Day and is to give his first inaugural address. Two days before he was inaugurated, the United States Senate passed a proposed constitutional amendment that had already passed the House that would ban the federal government from ever interfering in Southern slavery.

21:08The amendment is here in the hand-off. And then two days later, during the first inaugural address, Abraham Lincoln pledged his support for that amendment and said that he believed it's already unconstitutional for the federal government to interfere in southern slavery. And he says in the first inaugural that holding it such a provision to now be implied constitutional law, I have no objection to it being made express and irrevocable. and so he was in support of that so as far as he was concerned on the day he was inaugurated if slavery in the south lasted beyond his own lifetime that was okay with him that's what he said okay but at the same time in the same first inaugural in the same speech he promised that any state that failed to collect the increased tariff like South Carolina did in 1828 will be invaded he said that in So everybody here has probably heard of the saying coined by Bastiat that if goods can't cross borders, armies will.

22:15What Bastiat meant was just looking over the sweep of history that if people can't prosper through peaceful exchange, it increases the likelihood that one country will invade another and try to prosper by theft, by warfare. by Warfare. Lincoln's version of this was, if goods do cross borders, our army will. That's sort of his version of that. But let's take it in his own words. In his own words, which are also in the handout here in the bottom of the front page of your handout, is what he said in the first inaugural, the power confided in me will be used to hold, occupy and possess the property and places belonging to the government and to collect the duties and imposts, but beyond what may be necessary for these objects, collecting the duties and imposts, there will be no invasion, no using force against or among the people anywhere.

23:09So, you know, read that. And what is he saying? He's saying, if you fail, we're going to raise the moral tariff. The House has already passed it and everybody knew the Senate was going to go along with it, as was he. he was a life-long protectionist and any state that failed to collect it like the South Carolinians did in 1828 will be invaded he says collect it and there will be no invasion well the flip side of that is don't collect it and there will be an invasion and so he promised an invasion so on the issue of slavery he was willing to he was willing to see southern slavery exists long beyond beyond his own lifetime but on the issue of taxation he was totally uncompromising and promised The Military Invasion. Two professors, Robert McGuire and Norman Van Cot have an interesting article that was published in Economic Inquiry last year where they take a look at the importance of the tariff and they conclude that the importance of the tariff has been under misinterpreted

24:10or given too little weight by historians and they note that in 1857 there was this drumbeat for Protection, and they looked at the House vote, the House of Representatives vote, and it occurred before Lincoln came around, and the vote was 105 to 64 in the House, and it was completely lopsided in terms of Northern supporters and Southern opponents. There was only one yes vote for the moral tariff in the House from a secessionist state, Tennessee, and only 15 no votes out of 64 came from Northern states. So obviously there were a few southern protectionists and there were some northern free traders, especially in New York City, but in general it was completely lopsided.

24:56Now why is that? The main reason it is is what it was obvious that these tariffs were mostly on manufactured goods manufactured in the north, and so they obviously benefited financially, the manufacturers, but then anyone who paid higher prices for these manufactured things, whether you lived in Pennsylvania or South Carolina was harmed, but there was still a net benefit in general to the North, and in particular there was a concentrated special interest, the Northern manufacturers who politically pushed for this stuff, but at the same time the South, which was an agrarian society, had to pay all of this. And one reason why it hurt them especially was that the South exported at least three fourths of everything that was produced in in the South. It was an agricultural society, cotton and so forth was exported to Europe.

25:48And the reason why it hurt them especially is I can quote an international trade textbook that I dug up on something that's called the pass-through effect of a tariff. You study international trade, you learn about this. Once a tariff is increased, here's what the book says, importers pass on their higher costs to buyers and industrial buyers pass And so there's another little, I ran across an even simpler explanation of this, which is that we have to pass on those costs in the form of higher prices. Consumers hit directly or indirectly include the inflationary price increases in their wage and salary demands. Everybody tries to pass a tax to someone else. The only group that is powerless to pass the cost on further are the exporters And so, and there's another little, I ran across an even simpler explanation of this in a great old book by Frank Choterov called The Income Tax, Root of All Evil, and I recommend it to anybody who has not read this.

26:46But Choterov at one point was talking about the populace of the 1890s. And they, it turns out they found themselves in the same spot that the Southerners were in 1860, in terms of being major exporters who are being screwed by the tariff, by the same Republican tariff. By the way, the Republican Party raised tariffs to 47% on average and higher, and it stayed that way until Woodrow Wilson was president, or that range. Here's what Chodorov said about the farmers of the Upper Midwest in the 1890s. The plight of these farmers was made worse by the protective terrorist policy of the government. Same policy. The best they could get for their products was the competitive world price, while the manufacturers they bought from the East were loaded down with duties.

27:32Next to their demand for more money, the populace clamored for lower tariffs. And so they saw themselves as being especially plundered by this. A few moments, we started a minute late, so sit back now. I'm finishing up, I'm finishing up. Murray Rothbard, I also quote him as saying the same thing about this. So that's why Charles Adams came to the conclusion in his book, When in the course of human events, that in 1861, the Southerners were paying about 75% or more of all the Federal tariff revenue. Although most of the money that was collected was being spent in the North, because after all, there were twice as many Northern states, so they had twice as many senators. And also, the population of the North was more than double the population of the South, and so Congress was headed in that way, too, of Northern dominance, and this is what they wanted to do with their dominance.

28:26The final thing I'm going to say, to make Mark happy and sit down, is that after Fort Sumter, on April 19, 1861, Abraham Lincoln in his first act of war announced the blockade of the southern ports. And here's the reason he gave in his statement for the blockade of the southern ports. Whereas an insurrection against the government of the United States has broken out, and he names all the states, and then he says, and the laws of the United States for the collection of the revenue cannot be effectively executed therein comfortably, to that provision of the Constitution, which requires duties to be uniform throughout the United States, I, Abraham Lincoln, President of the United States, until Congress shall have assembled and deliberated on said unlawful proceedings, or until the same shall have ceased have further deemed it advisable to set foot a blockade of the ports within the states aforesaid.

29:23A lot of legalese there, but what he's saying is they're not collecting the tariff therefore we're going to blockade the ports and do something about this. And that was the first act of war. So in other words, the first thing he did was to keep his promise that he had made just a month or so earlier in the first inaugural that if you fail to collect the tariffs The Tariffs, there will be an invasion and the first step was the blockade of the southern ports and so that is how a trade war turned into a shooting war in my evaluation and my time is up so thank you.