Nullify this
The Gist: Before the Civil War, Jackson & Polk successfully maneuvered to keep tariffs only high enough to pay for a small government.
Part two of a four part series. Find parts one, three, and four here.
Andrew Jackson had two regrets from being President of the United States: he did not shoot Henry Clay nor hang John Calhoun.
In that Jackson had a history of dueling irritants and executing deserters, these were no idle comments. And they’re worth bearing in mind as we listen to modern political pundits insisting that America has never been more divided: Clay was a leader of the opposition party whom Jackson beat in his re-election. Calhoun was Jackson’s own Vice President! And never mind that these squabbles prefaced a brutal Civil War that made casualties of over a million Americans - about 3% of the 1865 population.
Figure 1. While AJ wins the contest for best quip about executive regrets, Dwight Eisenhower comes second: Ike observed that he had two regrets from being president - and unfortunately, they were both sitting on the Supreme Court.
But we’re getting ahead of ourselves. This is part two of our review of Clashing Over Commerce, Douglas Irwin’s magisterial history of American trade relations. In part one, we discovered how the Founders were free trade radicals who spent the first decades of the United States trying to manage our complex relationship with Britain. In this part, we will explore how a pair of patriotic Tennesseans managed the significant regional differences over trade in the lead up to the most devastating conflict in American history.
Tensions emerged in the wake of the War of 1812. Due to questionable presidential management of foreign policy, the United States was cut off from international trade for so long that new domestic producers rose up to meet local demand. Once the war concluded, British manufacturers were eager to recapture their consumers and wanted to flood the American market. American industry was concentrated in the north, really only sold their products locally, and had suddenly become a valuable constituency, prompting regional legislators to call for protection (sometimes in dramatic shifts from their previous positions which had catered to the now-devastated export-oriented business sector). Without much industry but caught up in patriotic fervor against the British, the South provided crucial votes to increase the tariff.
The South soon realized its mistake. First, to the degree that Southerners consumed manufacturing goods, they now had to pay higher prices, sometimes for inferior products. Second, and more importantly, the South was an export-oriented economy that rightfully feared that our tariffs on manufactured imports encouraged others’ tariffs on our agricultural exports. While the traditional Southern cash crop was tobacco, Eli Whitney’s invention of the cotton gin dramatically expanded (by 300x!) the productivity of cotton harvesters. Irwin gives a sense of the scale: “In 1793, the United States produced 10,000 bales of cotton, just 1 percent of world production. By 1830, the country produced 732,000 bales of cotton, about half of the world’s production.” Cotton was king: “By 1821, cotton alone comprised almost half of total [American] exports. Cotton was the largest single commodity export of the United States throughout the nineteenth century and remained so as late as 1929, when it alone comprised 18 percent of total exports.” Yet even with the productivity gains, cotton harvesting was a labor intensive operation - and the South became all the more attached to the repugnant practice of slavery.
“The 1820s saw some of the fiercest political battles ever waged over trade policy in the nation’s history.” A significant reason for this was that the government felt compelled to do something in response to economic downturns but really only had the policy option to adjust tariffs: the dollar was tied to the gold standard and “federal spending was a tiny part of the overall economy.” The South insisted that the tariff should be for revenue only, i.e. only enough to finance government, and you’ll recall that the tariff was the source of 90% of federal funds at this time. Harking back to the Founders’ vision, the South desired a federal government that would not get in the way of trade - nor slavery - while keeping expenses low to keep taxes low.
Figure 2. Good advice for government in historic downturns: Don’t just do something, stand there!
But the South was increasingly outpaced in population growth and correspondingly had under 40% of representatives in Congress. Northern manufacturers naturally continuously pushed for higher tariffs to impede foreign competition. Because they did not sell abroad, they couldn’t care less about reciprocity. But the midwest was up for grabs. Kentucky’s Henry Clay would cement the relationship with some economic nationalism he called the “American System”: the increased revenue from high tariffs protecting northern industry could be spent improving domestic infrastructure, especially in the midwest. The only loser in this government-managed supposedly-virtuous cycle was that the South footed the bill: “the sale of exportable goods (cotton and tobacco) at home could not possibly make up for the loss of foreign markets.” Undergirding their relative loss in political representation was another issue: “In 1774, the South was well ahead of the North in terms of income and wealth; by the 1840s, it was well behind.” As a result, the South was increasingly resistant to giving up the basis of its economy.
Clay filled a variety of roles - Speaker of the House, Senator, Secretary of State - and by the 1820s, he was the architect behind President John Quincy Adams’ policies and poised to become President himself in what opponents called a “corrupt bargain” that would help bring them both down. The South bitterly fought every tariff increase after their initial concession but the tariff rose in small fits and starts until 1828, when the South made a miscalculation. Attempting to help Andrew Jackson win the Presidency over the tariff-mongering northerners, the South allowed a particularly outrageous tariff to work its way through Congress on the presumption that it would be so excessive and so corrupted that it would hurt their political opponents and probably fail along the way. Not responding to any economic downturn, it was a perfect example of political logrolling which did not even really make sense in terms of tariffs attempting to help domestic economic output: it placed duties on raw materials to boost prices for western developers even though that made manufacturing more expensive for the north (another safety valve the South hoped would kill the bill). Unfortunately for the South, the “Tariff of Abominations” actually passed, and dramatically increased the average tariff to over 60%, up from 20% in the Hamilton years.
Figure 3. To quote GOB Bluth, they made a huge mistake.
John Calhoun was furious. Due to a constitutional quirk, he had actually been Adams’ Vice President and then got himself re-elected under Jackson instead in 1828. From that position, keen to undo the Abominations, Calhoun proposed a controversial theory: that any state had the right to “nullify” federal law it found unconstitutional and refuse to have it enforced within its jurisdiction. This was certainly an extra-textual interpretation, but it was built on the writings of Thomas Jefferson and James Madison when they were working to oppose the overreach of the first John Adams administration. Calhoun argued that the Constitution only provided for a tariff for revenue, not protection, which was indeed the prevailing (and productive) attitude of this era but not explicit in the Constitution, which gave the federal government explicit power over the issue without specifying limits. Calhoun’s home state of South Carolina had been in economic decline for a decade and placed the blame squarely on the tariff regime that had just gotten a whole lot worse - so they took up the cause, and their legislature threatened to secede if their demands were not met. (Notably, although this is the by far the most famous example of nullification, northern states were simultaneously nullifying federal laws requiring the returning of slaves - something that also had firm constitutional grounding).
“A dispute over trade policy had become an unprecedented constitutional crisis.” At one point, at a dinner with all involved, President Andrew Jackson toasts “Our Federal Union union - it must be preserved!” To which vice president John Calhoun replies, “Next to our liberty, most dear.” Van Buren concludes with a toast to “Mutual forbearance and reciprocal concession. Through their agency the Union was established. The patriotic spirit from which they emanated will forever sustain it.” President Jackson was not going to take this lightly. Jackson declared that “disunion by armed force is treason” and dismissed nullification as an “impractical absurdity” that was “incompatible with the existence of the Union, contradicted expressly by the letter of the Constitution, unauthorized by its spirit, inconsistent with every principle on which it was founded, and destructive of the great object for which it was formed.” And not just fiery words, Jackson, who had risen to national fame due to his heroic leadership in the War of 1812, threatened to personally lead an army to quell South Carolina.
Jackson’s Tennessee origins helped him weather the crisis. Though he had no love for the Abominations, he was a moderate on trade policy, desiring relatively low tariffs to pay off debt but willing to compromise to preserve the union. Still, Jackson won over fellow Southerners in his opposition to Clay, including vetoing certain improvements as unconstitutional because they were entirely within a single state. Furthermore, the rest of the South was not experiencing the same economic problems and thought that South Carolina went too far, especially with an ally in the White House, though plenty observed that this could be a precursor to the bigger debate over the federal government’s power over slavery. What they fervently wanted now, though, was for the tariff to be lowered. So Jackson got to work on Clay: “With South Carolina on the brink of revolt, the federal government recording large fiscal surpluses, a popular president now supporting a reduction in protective tariffs, and a new Congress poised to challenge the American System, Clay concluded that maintaining the status quo would be impossible.” Clay, the Great Compromiser, spearheaded a tariff reduction to appease Southerners and save his system to fight for another day. South Carolina’s brinkmanship shifted the direction of tariffs (at the expense of almost being invaded) and they supported the compromise - though to prove a point, their legislature voted to nullify the Congressional act that gave Jackson the power to forcibly suppress them. South Carolina wins the day but its hotheads would prove to be a problem soon enough. And there was a catch, because the tariff reduction was supposed to be phased in: “The South bore much of the risk in the compromise, because the low duties it sought would arrive only after a period of nine years.”
Figure 4. In the Clash over commerce, South Carolina had to decide: Should I stay or should I go? Ultimately, John Calhoun fought the law and the law lost.
In a theme that reverberates throughout American history, the policy was safe only so long as the opposition party did not fully control both houses of Congress and the White House. In this case, Jacksonian Democrats actually controlled all three until 1841. The Whigs swept into office amidst an economic depression with a killer slogan: Tippecanoe and Tyler Too. “Tippecanoe” was tariff supporter William Henry Harrison, their own hero from War of 1812 (the nickname was the battle he had won) and John Tyler was the Vice Presidential nominee - a frustrated Democrat thrown onto the ticket to try to win votes. The final phase of tariff reduction was supposed to come in 1842 but the Whig majority in Congress was eager to use the only political tool they had to help their manufacturing constituents amidst a downturn - and pay off a rising deficit while they were at it. Immediately unfortunately for them, Harrison gave too long an inauguration speech in the bitter cold and died of pneumonia after about a month. “His Accidency” President Tyler desired no change in the Jacksonian compromise and fought the party that had brought him to power. But the Whigs wore him down by the end of his term and pushed through a tariff increase designed to protect industry that would bring the average duty close to 40%. “The fact that the final low tariffs envisioned by the Compromise of 1833 were in effect for just two months, July and August, before Congress had overturned them, rekindled old animosities.”
Figure 5. Imagine if a McCain-Lieberman ticket was swept into the White House along with a Republican Congress - only for McCain to die almost immediately, leaving a President Lieberman trusted by neither party - the Republicans only agreed to put him on the ticket to try to win, the Democrats outraged at his betrayal. That was John Tyler’s position.
Enter America’s greatest president, James Knox Polk. A Tennessee protege of Andrew Jackson’s, Polk beat Henry Clay (still around!) by promising to acquire Texas (which Clay opposed). But what makes Polk truly remarkable is that he said he was going to do four big things in four years and then leave. Even more incredible, he succeeded. One of those four was to bring about a low tariff (i.e. low taxes) - “the most important domestic measure of my administration” - and, as we have seen so far, this was going to be no easy lift. Almost all of the tariff policies in the 19th century originated in Congress, but Polk was one of the only presidents to present, much less fight for and win, a fully realized tariff plan. Polk knew the legislative process well - he is the only Speaker of the House to become President - and his party had captured both houses of Congress with his election. Polk refused to be distracted and strategically focused spending his political capital on his four big items, managing to persuade enough party members outside the South of his greater vision. Attempting to placate his northern supporters, Polk told them “I am far from entertaining opinions unfriendly to the manufacturers. On the contrary, I desire to see them prosperous as far as they can be so without imposing unequal burdens on other interests.” Ultimately, Polk got what he wanted: a restructuring that simplified rates and “brought about the most far-reaching reduction in import duties to date” - down to an average of 26%. And, incredibly, “Unlike the Compromise of 1833, the tariff reduction was not phased in over time and took effect immediately.” The immediate result may have been Britain lowering its agricultural import barriers, which helped realign Midwestern agricultural interests against the tariff. Overall, Polk set into place the governing tariff policy until the Civil War, by which time the average tariff was below the Hamilton standard of 20%. Interestingly, this was a time of high economic growth and, though imports did increase under the low tariff, domestic manufacturing output remained the same, suggesting that foreign products were not competing with domestic ones. (The other three things Polk promised to do and did: acquire California from the Mexicans, settle the Canadian border to ensure Washington was within the U.S., and establish an independent treasury to ensure the separation of bank and state, which the economic historian Jeffrey Rogers Hummel says led to “probably the best monetary system the United States has ever had”)
Between Jackson and Polk, the South had won the tariff debate and continued the radical trade vision of the Founders. But the other pillar of the Southern economy was a moral outrage to an increasing number of northern abolitionists:
“In 1860, the aggregate value of slaves as property was $3 billion, nearly 20 percent of the nation’s wealth. The value of slaves was more than 50 percent greater than the capital invested in railroads and manufacturing combined, a calculation that excludes the value of land in southern plantations. Slavery generated a stream of income that enabled overall white per capita income in the South to approximate that of northern whites. In the seven cotton states, nearly a third of white income came from slave labor.”
The Civil War changed everything. In the 1860 election, Abraham Lincoln won the White House and Republicans captured the House - but Democrats still controlled the Senate until 11 states seceded and almost all their Senators left. Without a strong bulwark of free traders, most of the remaining legislators were either outright protectionists with an increasing number of constituents from the growing manufacturing sector or relatively indifferent and willing to go along with their party - a coalition that would essentially determine tariff policy until World War II. But more immediately, the government needed the revenue to pay for the extremely expensive Civil War: “The outstanding public debt rose from $65 million in 1860 to nearly $2.7 billion in 1865, about 30 percent of GDP.” The average tariff jumped double digits but foreign trade dropped and so, “despite these heavy tax increases, the revenue they raised covered only one-fifth of total federal expenditures during the war; most of the spending was financed by borrowing.” And servicing that debt - along with a new coalition centered on protectionism - would mean high taxes for decades that we’ll look at in our next segment.
We’ll conclude today by reflecting on one more aspect of the War Between the States: the South had to pay to field armies as well. Though the Confederate Constitution explicitly restricted a tariff to cover revenue alone and their House of Representatives even went so far as to vote to abolish the tariff completely, the state had immediate and enormous costs. The Confederate “economy was much smaller and more dependent upon foreign commerce” than the Union’s. In one sense, this provided a potential strategic advantage: could the Confederacy entice Great Britain, whose economy was dependent on importing cotton, to intervene on its behalf? They had a decent case, but Southern leadership never agreed on how to exploit their potential advantage: some wanted to restrict exports until Britain helped them, others wanted to increase exports to pay for the war. Ironically, the U.S. Constitution, at Southern insistence, forbids export taxes, but the Confederates had to tax exports to help pay for the war. Confederates also floated using cotton as collateral for debt but they couldn’t pull it off because the same powerful planting interests who pushed secession to protect their autonomy had no interest in giving it up to a different central government. Simultaneously, the Union imposed a naval blockade that managed to capture about a third of vessels and dramatically increase the costs of trade, prompting Britain to diversify its cotton sources to areas under its control in India and Egypt. All of which led the South to successfully export less than 10% of their production to Europe, leading to a dubious alternative policy: “the Confederacy raised just $3.4 million in customs duties over the entire war. During the war, the Confederate government collected only $258 million in taxes and loans but spent $1.5 billion, resorting to monetary inflation to make up the difference.” Though it’s impossible to know what would have happened if the Confederacy had succeeded, the ultimate economic verdict is that secession was very costly: “In 1860, the South’s per capita income was 72 percent of the national average; in 1880 it was 51 percent of the national average. The South took nearly a century to recover its prewar economic position relative to the North.”
Figure 6. Click here to acquire Clashing over Commerce 10/10 - a magisterial retelling of American history through the important lens of trade, filled with insight into the events that defined the country over its three eras of tariffs: for revenue only (through Civil War), for protection (through World War II), and for reciprocity (through today). My apologies for only just remembering the Clash as creative inspiration - and thus missing the opportunity to do London Calling in our first segment.
Figure 7. For more information on how Andrew Jackson was able to navigate the nullification crisis, check out Forrest McDonald’s States’ Rights and the Union, which essentially argues that Jackson had so much credibility being in favor of states’ rights that he was able to isolate South Carolina (Lincoln, in contrast, lacked that credibility and South Carolinian hotheads in the 1860s were able to spark an 11 state secession). Jackson sincerely told South Carolina: “No one, fellow-citizens, has a higher reverence for the reserved rights of the States than the Magistrate who now addresses you. No one would make greater personal sacrifices or official exertions to defend them from violation; but equal care must be taken to prevent, on their part, an improper interference with or resumption of the rights they have vested in the nation.” For a contrarian take on nullification, check out Thomas E. Woods’ take on the subject, which digs deep into its historical uses by north and south and even advocates for its modern usage: Basically, it argues that states are coequal interpreters of the US constitution and that the federal Supreme Court is not a fair arbiter between federal and state interests. Yes, the Constitution is Supreme - but unconstitutional laws are inherently not.
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