Finance, Money, Tax, Fiscal, Revenue, Investment, Debt, War
This book is essentially a sequel to Edling’s first monograph that extends analysis about the creation of a European-inspired war-making fiscal state from the end of the Revolution to the end of the Civil War. Edling’s main point is that every administration in this era, which he labels ‘‘The First American Fiscal Regime’’ (222), followed a model of war financing that relied heavily on government borrowing and taxes on imported goods. Indeed, Edling shows how American leaders even outdid Europeans in their embrace of borrow-now, tax-later policies. This sheds new light on war financing beyond what we have long known about the [End Page 178] individual conflicts by providing an overarching framework for understanding how this model developed and for appreciating its persistence over time, even in the face of considerable social, economic, and political change. In an era when an estimated four-fifths of all federal spending was on war or preparation for war, Edling tells us an important story about the antebellum state.
What’s most striking is the pattern that Edling finds repeating. Although politicians were perpetually wary of creating large national debts—and despite often radically different governing philosophies—American regimes all financed war and territorial expansion by heavy borrowing. Federalists like Alexander Hamilton initially developed this system to emulate Europe and avoid repeating Congress’s experiences in funding the War of Independence through printing paper money and enacting heavy direct taxes. Wanting to eliminate government currency altogether and hoping to avoid the widespread civil unrest caused by heavy taxes on farms and livestock, Hamilton sought to pay off the Revolutionary war debt through loans paid back over many years funded primarily by tariffs on imported goods. Creating this system, it was believed, would make it easier to borrow for the next war. That proved mostly true. Both Thomas Jefferson and James Madison borrowed to finance the Louisiana Purchase and the War of 1812, respectively, despite their demonizing of Hamilton’s system. Andrew Jackson used loans to fund Indian removal. James Polk borrowed to finance the War with Mexico. During the Civil War, the system was embraced by Abraham Lincoln.
In each case, differences of time and political philosophy collapsed beneath tradition and expedience in ways eerily reminiscent of recent wars: It seems that most politicians were anxious to sell war to the public so that the full burdens were not immediately felt. Fears of popular revolts or electoral backlashes for heavy war taxes led political leaders to rack up debts, secure loans, and issue war bonds to spread out the costs. Then they relied primarily on tariffs on foreign goods to pay the bill over the long term. This masked the burden and generated less resistance because the costs were hidden in the form of more expensive imports and were not directly traceable to war because the taxes were levied on goods over long time periods.
This is high political and financial history. The voices heard are almost exclusively presidents, treasury secretaries, and prominent bankers. The heart of the book’s evidence comes from treasury reports and [End Page 179] balance sheets, with a splash of correspondence to flesh out the reasoning behind the policy. Each chapter examines a different war and introduces a new treasury secretary and shows the pattern repeating. Edling makes the case clearer with mostly helpful tables and graphs of revenue streams and government expenditures.
As convincing as the Edling’s main argument is, there are some obvious omissions. One is the role of foreign investment, surprising given that the system was originally created to borrow from European bankers. Ironically, despite its origins, when war came, the United States had trouble attracting foreign capital. Thus, although Edling says nothing of it, part of the financial problems the nation faced funding the War of 1812 resulted from British investors dumping U.S. securities and American politicians refusing to re-charter the Bank of the...