Assaults on the Rule of Law in Early America
If our nation is ever taken over, it will be taken over from within.
—JAMES MADISON
THERE WAS A RULE OF LAW ON AMERICAN SHORES FOR millennia before the first European immigrants arrived. The tribal law of Native Americans embodied a deep yet varied understanding of the relationship of human beings to each other, to the earth, and to their creator.
The Iroquois League of nations is often noted as the most powerful of the northeastern tribes. In the Iroquois society, land was owned and worked in common. Hunting was done in groups. Villagers shared the catch. Families shared homes. There was no private ownership of land or property.
The women with seniority in an Iroquois village named the men to represent them at village and tribal councils. It was the women who chose the tribal chiefs for the ruling council for the Five Nations of the Iroquois. Women attended meetings and voted. Laws and history were passed down through an oral tradition, song, dance, and traditional ceremonies. However, warfare was a persistent problem. Like Europeans, the Iroquois tried to avoid war with treaties.
One of the most important stories handed down through generations was the coming of Dekanawida, the man who became known as the Great Peacemaker. His spokesperson was Hiyonwantha, later named Hiawatha by Henry Wadsworth Longfellow. Hiyonwantha (her name has sometimes been spelled “Ayenwathaaa” or “Aiionwatha”) was an Onondaga woman living among the Mohawks.
The Peacemaker arrived when there was fierce fighting among the Mohawk, Oneida, Onondaga, Cayuga, and Seneca tribes. He arrived on Lake Onondaga in a canoe made of white stone, proclaiming that peace had come.
The Peacemaker would preach peace as the desire of the Creator. It took forty years for the five tribes to agree to end hostilities.
Sometime between 1450 and 1600, the Five Nations, joined together as the Iroquois Confederacy, agreed to the Great Law of Peace. (In 1722, a sixth tribe, the Tuscarora, joined the confederacy.)
The Great Law of Peace, 177 articles written on wampum belts and passed down through oral tradition, promoted unity, harmony, and respect for others.
The three principles of the Great Law of Peace were:
1. Righteousness—to treat each other fairly
2. Health—incorporating well-being of mind, body, spirit, and peace between nations
3. Power—to maintain peace and well-being of the members of the confederacy
The government of the Great Law of Peace (“of the people, by the people, and for the people”) included two houses and a grand counsel; a women’s council, similar to a supreme court; checks and balances between branches; separation of powers; freedom of religion; and freedom of speech.
The grand counsel consisted of fifty sachem chiefs, each from a clan of the tribe. Decisions often were decided by consensus, though each sachem chief had veto power. As a result, most decisions were made at the tribal level.
The Iroquois were visited often by the Founding Fathers, including George Washington, Benjamin Franklin, and Thomas Jefferson. These men were familiar with the Great Law of Peace, and several Iroquois delegates were in attendance when the Declaration of Independence was written. In 1987, the United States Senate acknowledged that the Great Law of Peace had been a model for our Constitution.
Before the American Revolution, the Iroquois kept their treaty promises to the British and prevented the French from gaining a stronghold in the area. They were dependent on British goods. During the American Revolution, the Oneida and the Tuscarora sided with the Americans, while the other tribes sided with the British. When the Americans won, they forced six pro-British tribes to the northern lands still owned by Britain.
We now jump back to the time when Europeans first came to America. We note the great irony of contemporary American politicians attacking immigrants, when the history of our country has benefited greatly from immigrants, beginning with the Pilgrims.
The American immigration story is now four hundred years old, and much of it involves those who arrived without permission: immigrants who wanted a new life or believed that God called them here.
The first European immigrants to permanently settle in North America came in the 1620s. And yes, the Mayflower passengers actually left their country illegally. They snuck out. The Pilgrims, who were opposed to the Church of England, first fled to Holland, set up a community, and then in 1620 sailed to America without permission and without speaking the native language. Native Americans welcomed them, at least at first. They didn’t turn the Mayflower back because they didn’t have proper papers. Millions of Americans are descended from those who arrived without permission. Until the late nineteenth century, many immigrants came here without first asking anyone for permission to come.
These immigrants brought new concepts of the rule of law, drawn almost entirely from experiences in their countries of origin. They also borrowed from the Native American rule of law, but they gradually built a government based on European political philosophy and legal concepts.
Still, there were several obstacles to the establishment of the rule of law in the New World. These have been salient features of American history since colonial times.
We will refer to these throughout this book.
The most significant obstacles to a democratic rule of law are the problems surrounding:
1. Religious intolerance
2. Violations of due process
3. Myths and alternative facts
4. Attacks on the free press
5. Corruption
RELIGIOUS INTOLERANCE
Religion has been centrally important to most civilizations since the dawn of time. Sadly, it’s also often been a source of strife, oppression, and warfare.
Most early European settlers came to America for religious freedom, to get away from state religion and rulers in countries throughout Europe. If you lived in a Protestant country like England, you were expected to worship only the type of Protestantism approved by the king. In a Catholic country like France, you were expected to be Catholic. Going back to the Crusades in Spain, Greece, and even Austria, Christians were often at odds with Islam. Jews were sometimes tolerated but at one time or another were expelled from most European countries.
Those brave souls who sailed to America, it turned out, were not so tolerant themselves. Even as late as the American Revolution, eight of the thirteen colonies were ruled by powerful Christian religious groups. Not only did state government leaders sometimes force strict religious observance on the residents, but they also levied taxes to pay the salaries of the ministers. Those who practiced a different version of Christianity faced persecution.
In Boston in the early years, for instance, everyone was obliged to go to church on Sunday. There was a Congregationalist meetinghouse in every New England town. Massachusetts and Connecticut were run by the Puritans, who enforced their religious beliefs by law. Religious dissenters were treated as harshly as they had been in England.
In many colonies there was a battle between the Anglicans and the Puritans, offshoots of the Congregationalists. Other groups in the colonies included Catholics, Quakers, Dutch Calvinists, Scottish Presbyterians, German Reformed, French Huguenots, Baptists Methodists, Unitarians, and Jews. The sect with the most power varied from colony to colony.
Rhode Island, founded by Roger Williams, was an exception, embracing tolerance of all religions. Williams had been a minister in Salem, Massachusetts, and he became fluent in the languages of the Narragansett and Wampanoag tribes. He preached that the settlers should not take land from the Native Americans without a valid treaty, and he promoted the separation of church and state.
“Forced religion stinks in God’s nostrils,” said Williams, and many felt he went too far when he declared that the magistrates of the city should have no say in spiritual matters. Outrage ensued.
Furious Puritan leaders decided to ship Williams back to England. John Winthrop, the strict Puritan founder of the Massachusetts Bay Colony, tipped Williams off, and with the aid of some Native American friends, Williams escaped to what would later become Rhode Island.
Rhode Island became a haven for dissenters because of Williams. Jews, for example, settled in Newport, where the Touro Synagogue (built 1759–63) is the oldest synagogue in the United States.
The period now known as the Great Awakening arose in the 1730s and ’40s. A minister named Jonathan Edwards traveled the colonies leading a movement that focused on salvation through personal conversion. The Evangelical sect—which still exists today—was embraced by the poor.
The movement that followed the Great Awakening encouraged believers to question the right of the state and local governments to adjudicate religious issues, leading to the adoption of the separation of church and state in the Constitution. Early American Evangelicals thus were strongly opposed to government entanglement with religion.
After the Revolution, America was essentially a Protestant nation, but newcomers joined forces to oppose state religions. The resistance culminated in a philosophical battle that pitted Thomas Jefferson and James Madison against Patrick Henry’s 1784 bill proposing a tax-supported religion in Virginia.
Madison, the leader of the separation of church and state faction, in 1785 wrote, “The Religion then of every man must be left to the conviction and conscience of every man; and it is the right of every man to exercise it as these may dictate. This right is in its nature an unalienable right [ … ] We maintain therefore that in matters of Religion, no man’s right is abridged by the institution of Civil Society, and that Religion is wholly exempt from its cognizance.”
Madison also wrote, “We are teaching the world the great truth that Governments do better without Kings & Nobles than with them. The merit will be doubled by the other lesson that Religion Flourishes in greater purity, without than with the aid of Government.”
In 1786 Madison reintroduced a bill that had been set aside by the legislature nine years earlier. Against a state tax-supported religion, Thomas Jefferson’s bill proclaimed religious freedom, banned compulsory attendance or support of any religious institution, and forbade religious tests for public office. It passed with an overwhelming margin.
Jefferson’s statute was a model for the First Amendment and Article VI, Clause 3 of the Constitution, which states that there shall be “no religious test for public office.”
The United States has a long history of religious discrimination by individuals against each other, but our Founding Fathers recognized early on that the government should not restrict or penalize people for their religion. The First Amendment thus reads:
“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” After the Civil War, the Fourteenth Amendment applies this and other parts of the Bill of Rights to the states.
The framers could not have been clearer about the relationship between religion and government. Political figures who flouted the rule of law throughout history often ignored this.
VIOLATIONS OF DUE PROCESS
Religious persecution is closely linked to another antagonist to the rule of law: denial of life, liberty, or property without due process. In Europe for centuries, people were often imprisoned, had their assets confiscated, and were executed based on accusations that they did not follow the predominant religion, were disloyal to rulers, or both. At times in Puritan New England, it was no better.
Recall Hester Prynne in Nathaniel Hawthorne’s The Scarlet Letter. Accused of adultery, Prynne had to walk around town wearing a scarlet letter A on her chest. Never mind that her fellow adulterer was the town minister. Other common punishments included being tied to a post in the middle of town and public stoning, which could result in death.
Before 1692, there had been rumors of witchcraft in villages neighboring Salem, Massachusetts. Cotton Mather, an important outspoken Boston minister, strongly believed in witches. He wrote about the strange behavior he had witnessed in six children and called their strangeness “witchcraft.” His fear and imagination-based observations fueled the hysteria that came afterward.
Between February 1692 and May 1693 fear rose up among the parishioners. That fear turned into hysteria and a particularly nasty undermining of the rule of law. Two girls, aged nine and eleven, began having fits, screaming, crawling under furniture, and contorting themselves. A doctor said he didn’t know why they were acting that way.
The two girls were the first to be accused and arrested for being witches. A vicious rivalry between two families fueled the insanity. One woman was accused of witchcraft because she married a servant. Another woman was accused because she was a South American Indian slave, and she was accused of having magical powers over children. Those accused were interviewed for several days and sent to jail.
As the fear of witches spread, accusations flooded in. A special court was empaneled. Cotton Mather expressed support for the prosecutions.
A series of trials ensued. In all, twenty people were convicted, fourteen of them women. Twelve were hanged. Five (including two infants) died in prison.
The Salem witch trials became a cautionary tale about the dangers of religious extremism, false accusations, and lack of due process.
It was the fear of the unknown that was grossly exaggerated and became the basis for undermining the rule of law.
Enter the politics of accusation. In this case, the mere accusation became guilt—there was no due process—and that pattern made it very easy to destroy people you didn’t like just by accusing them. People were accused of witchcraft just because others held grudges against them.
When the mere accusation is enough for conviction, that’s perhaps the most frightening violation of the rule of law imaginable, one that would rear its ugly head too often in American history.
The framers thus sought to embed in the rule of law a protection against accusation without due process that had been badly lacking in early Puritan New England and Europe. The Fifth Amendment was this protection.
It reads:
No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
The framers did not want to see a Spanish Inquisition or another Salem witch trial.
MYTHS AND ALTERNATIVE FACTS
The Salem witch trials were among the New World’s earliest exposures to the damage that can be done by an essential human character flaw: the tendency to form opinions and make judgments based on myths instead of demonstrable evidence. Collective adherence to falsehood—reinforced by lying—would threaten the rule of law again and again for centuries.
Galileo had been persecuted by the Catholic Church for refusing to believe the world was flat—even though scientific evidence showed otherwise. In Salem, the settlers not only believed in witches, despite a lack of scientific or even biblical evidence, but they became convinced they could use judicial processes to determine who was a witch. The myth so dominated Salem that mob rule took hold.
More recently, Americans have confronted myths about human origins. There was the famous Scopes Monkey Trial in 1925 in which public school science teacher John Scopes was indicted for violating a Tennessee law that prohibited teaching evolution. Myths and “alternative facts” are often politicized: by Jeffersonian Democrats who idealized the French Revolution, by early twentieth-century American communists and socialists who idealized the Russian Revolution, by deniers of clear scientific evidence of climate change in the 2000s, and most recently by people, including President Trump, who trust Fox News more than information gathered by professionals in multiple intelligence agencies.
There is yet another category of even more pernicious myths—when one group of human beings believes another group of human beings is morally or intellectually inferior. These myths exist globally but have been particularly tragic for our country. These myths were used to justify slavery and then Jim Crow; to destroy Native American civilizations; and to demean, abuse, and imprison countless immigrant groups.
A demagogue may invoke negative characteristics of a religious group such as Jews or Muslims by building on existing myths. Anti-Semitism has never been about anything the Jews actually did. Its deliberate fabrications are systematically spread to engender hatred. For centuries, Christians repeated the “blood libel”—that as part of the Passover ritual, Jews sacrificed Christian babies. The myth of Jewish world domination was spread by the book The Protocols of the Learned Elders of Zion, which was probably forged in the early 1900s by the Tsarist secret police in response to political unrest in Russia. But in the twentieth century, it was spread in the United States by many anti-Semites, including Henry Ford.
Irrational fear can be a terrible thing, putting due process to the test time and time again. When our country was gripped by fear of rebels during the Civil War, President Lincoln suspended habeas corpus. Fear of communists in the early 1920s led to the Red Scare and midnight raids; a fear of Japanese nationals led to internment of Americans of Japanese ancestry during World War II; fear again of communists in the 1940s and 1950s led to McCarthyism; and after the 9/11 attacks came the fear of Muslims.
The ability, and failure, of due process to stand up to myth and fear has been a critically important part of the story of the rule of law in America.
ATTACKS ON THE FREE PRESS
England passed the Bill of Rights in 1689, but the bill ignored freedom of the press. The English government decided who could own a printing press, and if one dared to speak out against the king or Parliament, he could face the common-law crime of seditious libel. Only members of Parliament could speak their minds without fear of arrest.
Let’s be clear: The freedom of the press in our Constitution did not come from England. It came rather from colonists’ resentment of the strict control over ideas and information.
In the years leading to the American Revolution, colonists published more than three dozen newspapers, hundreds of political pamphlets, and a flood of one-page broadsides, often written under pseudonyms, that held the disparate colonies together. Thomas Paine’s “Common Sense” made the first forceful argument for independence and became the most popular of the four hundred pamphlets distributed in the American colonies. Paine mocked the divine right of kings.
He wrote, “Every thing that is right or reasonable pleads for separation. The blood of the slain, the weeping voice of nature cries, ’TIS TIME TO PART.”
In Boston, the Gazette printed diatribes against the crown. The Boston Chronicle was owned by a loyalist who supported the crown and did what he could to out the Gazette writers.
The authors championed freedom from British rule and used pseudonyms to stay anonymous so as not to incur the wrath of royal governors and councils that could charge them with sedition and throw them in jail.
In 1732, the king appointed William Cosby to be New York colony’s royal governor. Cosby was an unpopular autocrat who broached no opposition. He tried to extort the former governor, Rip Van Dam, then sued him.
Cosby got permission to hold the trial before a three-judge special court. The chief justice, Lewis Morris, objected, saying that what Cosby was trying to do was illegal. The other two justices, James De Lancey and Frederick Philipse, sided with Cosby.
Cosby in retaliation fired Morris and made De Lancey the chief justice.
Morris and Van Dam tried to get King George II to recall Cosby, and they published attacks in the New York Weekly Journal. Morris hired a printer, Peter Zenger, to publish diatribes against the governor, who Morris rightly characterized as a tyrant. Morris’s articles were printed under a pseudonym.
This went on for several months, until Cosby had had enough.
Uncertain of the author, Cosby sued Zenger—for seditious libel.
When Cosby asked the New York Colonial Assembly to prosecute, it refused. The regular courts also refused. When Cosby demanded that the Assembly order the public hangman to ceremonially burn issues of the New York Weekly Journal, the Assembly refused.
Cosby, unable to try Zenger legally, was left to try him before the special jerry-rigged three-man court he himself had set up. The makeshift court set a high bail of four hundred pounds, and Zenger was jailed.
Avoiding the grand jury, Cosby had his attorney general, Richard Bradley, issue an “information” against Zenger, charging him with printing items that were “false, scandalous, malicious, and seditious.”
Zenger languished in jail for an entire year.
The trial began on August 4, 1735. With James De Lancey, a close friend of Cosby, as the chief judge, Zenger didn’t stand a chance. Defense attorneys James Alexander and William Smith argued that the appointments of Judges De Lancey and Philipse were illegal because they were “at the Governor’s pleasure.”
In retaliation, Judge De Lancey ordered the disbarment of Alexander and Smith.
Cosby was one steel-nosed autocrat.
John Chambers, a young lawyer favorable to Cosby, was named Zenger’s attorney, but Alexander and Smith were able to convince top-rated lawyer Andrew Hamilton to take the case. Hamilton, no relation to Alexander, was the most famous defense attorney in the American colonies. He had been the attorney general of Pennsylvania.
During his argument, Hamilton said to the jury, “The question before the Court and you, Gentlemen of the jury, is not of small or private concern. It is not the cause of one poor printer, nor of New York alone, which you are now trying. No! It may in its consequence affect every free man that lives under a British government on the main of America. It is the best cause. It is the cause of liberty.”
Chief Justice De Lancey instructed the jurors that their job was to decide but one question: Had Zenger published the issues of the New York Weekly Journal?
Hamilton then surprised everyone by admitting to the jury that Zenger had done just that.
He then argued that Zenger had every right to print them so long as he was telling the truth.
“If Attorney General Bradley can prove the words were not true,” said Hamilton, “I will agree they were libelous.”
Chief Justice De Lancey, caught by surprise by Hamilton’s defense, ruled that truth did not matter in libel cases. He said it was up to the court to judge whether the words were libelous.
Hamilton turned and spoke directly to the jurors.
“Are we to believe that truth is a greater sin than falsehood?” he asked. “If we leave the matter of libelous words up to judges, this would render juries useless.”
He continued, “It is you that we must now appeal for witness to the truth.”
Telling the truth, he said, does not cause governments to fall. Rather, “abuse of power” causes governments to fall.
Zenger printed the truth. No libel had taken place, and the jury should find him not guilty.
“Truth ought to govern the whole affairs of libels.”
Governor Cosby tried to fix the jury, another violation of the rule of law. Some men on the list were not freeholders, as required, and some held commissions and offices at the Governor’s pleasure, including his baker, tailor, shoemaker, and candlemaker. Hamilton got them all tossed from the jury.
The jury deliberated for ten minutes and found Peter Zenger not guilty.
The crowded courtroom cheered as Judge De Lancey was defeated.
After the Zenger trial, few seditious libel cases were brought for fear that juries would refuse to convict.
When the Bill of Rights was adopted, the first amendment was:
Congress shall make no law … abridging the freedom of the press.
In 1798, the United States Congress passed the Sedition Act, bringing back the possibility of jail for talking or writing against the government. The United States was fighting France on the high seas, and the Federalists, led by Alexander Hamilton, took advantage of wartime fears and argued for bills that they said would strengthen national security. The Federalist-controlled Congress passed three laws curtailing immigrants’ rights and passed a fourth law permitting prosecution of those accused of voicing or printing remarks against the United States government. The laws were designed to silence outspoken Republicans critical of the war with France.
The law led to the prosecution of fourteen men, mostly journalists, and mostly Republicans. Some were imprisoned.
Republicans Thomas Jefferson and James Madison declared the Sedition Act to be in violation of the First and Tenth Amendments. Because of backlash from the passage of the Alien and Sedition Acts, Jefferson defeated John Adams for the presidency in 1800.
The Sedition Act was repealed in 1802, and the three anti-immigrant acts were allowed to expire.
Freedom of the press remained a cornerstone of our democracy.
CORRUPTION
Since the earliest days of our country, we have had problems with corruption—the comingling of a politician’s financial interests with government interests.
The founders were well aware of the risk of corruption of American officials by foreign governments, particularly the great powers of Europe: Great Britain, France, Austria-Hungary, and Russia, whose monarchs were enormously wealthy. The founders were so worried about foreign influence that they insisted that the president must be a natural-born citizen (we heard about that clause endlessly from Donald Trump spewing alternative facts about President Obama’s birth certificate). More importantly, the emoluments clause of the Constitution provides:
No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.
Officials in the United States government may accept no title of nobility, no gift, no profits or advantages (the definition of “emoluments” in Samuel Johnson’s 1755 Dictionary of the English Language), no offices, no titles of any kind without consent from Congress. That includes the most lowly federal employee as well as the president of the United States.
Controversies under this clause have generally been modest (for instance, a gold snuffbox given to Benjamin Franklin by the French king) until Trump assumed office in 2017. The first federal court decision interpreting the emoluments clause, Maryland v. Trump, was not until 2018.
Related to the foreign emoluments clause is the domestic emoluments clause, designed to avoid favoritism between states. It is directed solely at the president and reads:
The President shall, at stated Times, receive for his Services, a Compensation, which shall neither be increased nor diminished during the Period for which he shall have been elected, and he shall not receive within that Period any other Emolument from the United States, or any of them.
That clause also has not been controversial until recently. It also is part of the pending litigation against President Trump.
The founders, however, overlooked a serious domestic conflict of interest. They wrote their own corruption into the Constitution when they declared that African American slaves were to be counted as three-fifths of a person. They condoned slavery because it made agricultural plantation owners rich. Economic self-interest of public officials as well as racism is thus an important part of the slavery story and its tragic aftermath.
Another area of corruption came when we tried to establish a financial system under Alexander Hamilton, Washington’s treasury secretary. Hamilton set up the first central bank of the United States. Great Britain had had a central bank since 1696. The Federalists believed that the United States needed a central bank to be a financial power. The other thing we needed was to pay back in full both the federal and state debts incurred during the Revolutionary War.
So far, so good. Hamilton was doing the right thing to establish the credit worthiness and sound financial footing of the United States.
Opposing Hamilton were the Democrat-Republicans, sometimes called the “Jeffersonians,” who didn’t like the idea of a central bank. The populist Jeffersonians feared the concentrated economic power of a central bank. Furthermore, some Jeffersonians didn’t like having to pay off the states’ debts, because most had been incurred in states such as Massachusetts and New York, states not represented by the Jeffersonians.
The Southerners struck a deal to allow the central bank and to pay off $25 million of the states’ debt. In exchange, Congress moved the capitol from New York City to a site on the Potomac River that became Washington, DC.
Once it was agreed that all the state debts would be paid off, some members of Congress and their allies began buying at a fraction of their value the debt certificates from Revolutionary War veterans and farmers who had funded the revolution.
The speculators were close to Treasury Department officials who were close with Congress; they made themselves rich by buying this paper at twenty-five cents on the dollar. These speculators had inside information and made millions off the backs of ordinary Americans.
William Maclay, a Jeffersonian senator from Pennsylvania, wrote extensively about this in his published diary. Maclay was hostile to Alexander Hamilton, President Washington, other Federalists, and the big-city financiers who dominated the political scene. He and other Jeffersonians were very critical of what was going on in the Treasury Department under Hamilton.
In his Journal, Maclay wrote on January 15, 1790:
I call not at a single house or go into any company but traces of speculation in certificates appear. Mr. Langdon [Sen. John Langdon of New Hampshire], the old and intimate friend of Mr. Morris [Sen. Robert Morris of Pennsylvania], lodges with Mr. Hazard [Jonathan Hazard, Rhode Island’s delegate to the Continental Congress]. Mr. Hazard has followed buying certificates for some time past. He told me he had made a business of it; it is easy to guess for whom. I told him, “You are, then, among the happy few who have been let into the secret.” He seemed abashed, and I checked by my forwardness much more information, which he seemed disposed to give.
The Speaker gives me this day his opinion, that Mr. Fitzsimmons [congressman from Pennsylvania] was concerned in this business as well as Mr. Morris, and that they stayed away [from Congress] for the double purpose of pursuing their speculation and remaining unsuspected.
Later, Maclay wrote, “I really fear the members of Congress are deeper in this business than any others. Nobody doubts but all commotion originated from the Treasury.”
Whether Hamilton and his associates leaked inside information to inquiring speculators is subject to debate.
James Madison, a Democrat-Republican, proposed paying the speculators the highest market price to date for the certificates, with the balance going to the original note holders, but he was voted down. The speculators who bought the notes were paid in full.
It was the first insider trading scandal in America. The only thing Congress did about it was to pass an obscure law prohibiting the treasurer and secretary of the treasury from trading in state and federal bonds while they were in office. The bill said nothing about members of Congress speculating in the public funds. The bill had been uniquely targeted to the treasury secretary, because some in Congress did not trust Alexander Hamilton.
Jeffersonians feared corruption in the First Bank of the United States. When Jefferson became president in 1801, he abolished many of Hamilton’s taxes but allowed the bank to remain intact.
When the bank’s charter came up for renewal in 1811, the Democrat-Republicans controlled Congress. The bill to continue the bank was defeated by one vote.
This fear of corruption made it very hard for the central bank to gain popular support, even though having a central bank was a sound economic policy.
We celebrate Alexander Hamilton today in the musical, but the truth is that Hamilton never dealt with the corruption problem in the central bank. A Second Bank of the United States, established in the 1820s and presided over by Nicholas Biddle, also had serious corruption problems, with payoffs made to Senator Daniel Webster, among others. The Second Bank of the United States was then defeated by the notoriously anti-bank president Andrew Jackson. Hamilton’s dream of a national bank for the United States would not be realized until the Woodrow Wilson administration established the Federal Reserve in 1914.
We see this same problem in the financial sector today. When there is corruption in the banking industry, the public loses faith in the financial system. Populist politicians take advantage of unrest to attack the financial system, along with the independence of our central bank, jettisoning good economic policies along with the bad.
If there was one flaw in the early Federalist administrations, it was that rural Americans felt that the rich and powerful controlled government—an opinion that many rural Americans hold today. The little guy—farmers and local business owners—felt that Wall Street bankers and their friends were getting very rich and powerful while their own incomes and futures were stagnant. In the 1790s, those who lived outside the big cities saw bankers and speculators making fortunes while country folk fought just to keep their heads above water. Resentment and anger arose over the unfair economic system.
The result was the Whiskey Rebellion.
In 1791, President Washington imposed the first tax on a domestic product: whiskey. The tax revenue would be used to pay off the war debt. Farmers who distilled extra grain into whiskey were outraged because they felt they had no say in Congress. Their reaction was similar to the Boston colonists after Britain passed the Tea Act. In both cases, protestors used violence and intimidation to keep officials from collecting the tax.
In July 1794, a US marshal arrived in western Pennsylvania to serve writs on distillers who hadn’t paid the whiskey tax. More than five hundred armed men attacked the home of the local tax inspector.
George Washington himself rode with a band of thirteen thousand militiamen from Pennsylvania, Maryland, New Jersey, and Virginia. The insurgents dispersed before the militia arrived, but Washington had twenty protest leaders arrested. Later, all were acquitted or pardoned.
When elected leaders are chosen by the rich and powerful, ordinary people get angry. That’s what led to the demise of the Federalist Party when Thomas Jefferson was elected in 1800. In the 1820s, that populist anger led to Andrew Jackson’s election. Jackson was a rough guy who loved to put his boots up on the couch. He was not a gentleman like his predecessors. He attacked our banking system instead of regulating it and rooting out corruption. He liked to engage in violence. He made a career of killing Native Americans, yet he was viewed as the champion of the common man.
It is critical for the survival of democracy that ordinary people feel the government is not corrupt and represents them. We have struggled with the corruption problem since the beginning of our country’s history. Today, President Trump, who ran against Wall Street and promised to “drain the swamp,” hangs a portrait of Andrew Jackson in the Oval Office, appeals to white populists, and attacks the central bank. In August of 2019, he tweeted that the chairman of the Federal Reserve was as much an enemy of the United States as the leader of China. And yet, as we will see, the corruption problem in America has recently grown worse, not better.