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By Sandy Brian Hager,

The history of class conflict, power and inequality in the United States has always been intimately bound up with the public debt. Already during the War of Independence (1775-‘83), revolutionary forces accumulated debts of $54 million, and a difficult task for the first Secretary of the Treasury, Alexander Hamilton, was to devise a plan to manage these liabilities. Should the Federal Government try to repay its debts in full? If so, by what means should it honor its commitments to creditors?

Defaulting on foreign debts was out of the question. The French and the Dutch contributed roughly one-quarter of wartime financing, and the United States did not want to alienate itself from allies that assisted its drive for independence. At the same time, the Federal Government was hesitant to renege on its commitment to domestic bondholders. A small but powerful group of men, including most of the architects of the Constitution, provided the remaining funds to finance the war. These men would rally against default and would push for a tax system that raised reliable revenues to service the public debt. This system would prove especially advantageous if the tax burden were to fall on someone else — that someone else being the vast majority of Americans who did not own government bonds.

In the end, Hamilton decided that the debts were to be repaid in full. And in order to raise the revenue needed to repay its debts, the US Congress approved Hamilton’s proposal to levy a highly regressive excise tax on distilled spirits. Small-scale farmers saw the new tax as a threat to their livelihood and vented their frustrations through violent attacks against tax collectors in western Pennsylvania. So concerned was Hamilton with the unrest caused by the resultant Whisky Rebellion of 1794 that he personally accompanied General George Washington, and the 13,000 troops he commanded, to put down the rebellion. One critic, William Findley, seized on the events, suggesting they were proof that Hamilton’s system of public debt had created a “new monied interest” that wanting nothing other than “oppressive taxes.”

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For more on the state power of the purse from an historical perspective, see here

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