Alexander Hamilton

A Tariff of Abominations
When Washington took office for the first time, the size of the government was quite small and expenses were minimal. But Alexander Hamilton, newly-minted Secretary of the Treasury, wanted to establish American financial credibility in world markets. His first step was to get the federal goverment to assume the debts the states had incurred during the Revolutionary War – $25 million – (the "Assume State Debts" issue in the game) as well as honor the loans incurred by the Articles of Confederation – $52 million – (the "Pay Off War Bonds" issue). Suddenly there was a great need for money. Where to find it?

Given that taxation had been a major factor in the Revolutionary War, it was awkward and ironic that part of the solution would be new taxes. Congress considered various proposals and eventually decided to tax carriages, salt, sugar, property auctions, window panes, tobacco and, disastrously, whisky. A considerable number of taxes, yet still insufficient.

Thus Congress created a tariff, or tax on imports, which alone brought in more revenue than all of the other taxes combined. But the tariff had another benefit as well. In those days the nation was not the industrial producer it would later become. In fact most of its exports were in the form of raw materials such as lumber or agricultural products such as tobacco, textiles and foodstuffs. But in Great Britain the Industrial Revolution had begun and taken hold, resulting in large amounts of manufactured product arriving on American shores and at prices at which fledgling and underfunded American enterprises found it difficult to complete. The extra tax on British products tended to level the playing field and thus was particularly popular in New England, where most such firms were located at the time. They were less popular in the South, however, where there was little industry to protect and which depended on exporting their tobacco, cotton and so on.

Thus the tariff tend to be a divisive issue between North and South, and later the West (the West being the area closer to the Mississippi at the time). With the Napoleonic Wars, the US pursued embargoes and other severe restraints on trade so in the years 1800-1815 the tariff level receded in importance. But with the conclusion these wars, the issue returned as never before. The conclusion of Madison's second term saw passage of the first protective tariff, i.e. one that went beyond mere revenue goals and sought to definitively support American industries. It was further increased under the second Adams administration in 1824. From the perspective of the South the outlook was bad, especially as the West had begun siding with the North.

John C. Calhoun

The Tariff of Abominations

What could the South do? In 1828 hat tiger of the the Southern cause, John C. Calhoun, and his allies cooked up a scheme. They concoted an insane tariff plan. Not only did it continue to tax all the manufactureds, it would also tax the raw materials needed by New England industries. How would this help them? Their idea, Calhoun admitted nine years later, was that surely New England would reject the plan out of hand and then the southerners could for once make northerners look like naysayers, laying the blame for killing the tariff at their feet. As a consequence, they hoped, no tariff bill would be passed at all and the southerners would appear as if they had tried to cooperate.

Did it work? Well, the vote was very close, but in the end the motion passed the House, 105-94. The New England Congressmen smelled the problems, but decided to hold their noses and vote for it anyway and President Adams signed it.

As a consequence of their machinations, southerners got a far worse tariff than they would have otherwise. It reduced the South's income even more as they were forced to pay high prices to manufacturers. Exasperated, Vice President Calhoun took a leaf out of the Virginia and Kentucky Resolutions (secretly authored by Madison and Jefferson) and wrote The South Carolina Exposition, in which he propounded the theory that South Carolina could nullify the "Tariff of Abominations" on the grounds that it violated the Constitution by treating one part of the country differently than others. Although the South Carolina legislature printed 5,000 copies of the pamphlet, it did nothing to actually nullify the law.

More surprisingly new President Andrew Jackson did notthing to reduce the tariff either. This led to a split between Jackson and Vice President Calhoun and to further nullification proposals. By 1832 Jackson reduced tariff rates, but not enough and Calhoun resigned his office and a special state convention in South Carolina declared both of the latter tariffs null and void inside its borders, leading to a Nullification Crisis. The state made military preparations to resist the federal government. In the Senate Jackson got help from men like Webster and Frelinghuysen who usually opposed him to pass a Force Bill that authorized use of the military against the state.

Eventually cooler heads prevailed. The House Judiciary Committee rejected the use of force. Calhoun made a major speech opposing it. The Force Bill stalled. Meanwhile the House went to work on an acceptable tariff that went back to the 1816 levels. South Carolina's governor stopped drilling the 25,000 soldiers it had recruited and postponed the deadline he had set. A commisioner from Virgina arrived to act as a mediator. Henry Clay came up with a compromise tariff, got the approval of Calhoun and it passed both houses, as did the Force Bill. Thus given a choice between compromise and war, South Carolina repealed its ordinance on March 15, 1833 and everyone cooled off.

Madison, still alive at the time, wrote prophetically in "Advice to My Country" that the Union "should be cherished and perpetuated. Let the open enemy to it be regarded as a Pandora with her box opened; and the disguised one, as the Serpent creeping with his deadly wiles into paradise." Unfortunately it was not published until 1850 and by then dismissed as a forgery.

While in the end no real harm had been done, as it turned out this was a dry run for Secession and another step toward Civil War. In 1860 South Carolina would be the first state to secede.

There is a long history of fraud and financial crimes in the United States. See this article for information on the charges and penalties for modern day financial crimes.

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