Mr. Watkins, a recent graduate of Clemson University, is Assistant Editor of The Freeman.
History teaches us that pernicious economic policies can destroy a powerful nation in a surprisingly short period of time. When a government uses tools such as currency expansion, debt, and high tariffs, eventually not even force will hold the nation together. Were we to heed the advice of statesmen from earlier eras, solutions to many of our most pressing problems would be clear. The first half of the nineteenth century is an excellent period to study in that many policies that were pursued greatly resemble recent economic misadventures. And of the statesmen fighting for sound economics during the turbulent years of the nineteenth century, John C. Calhoun was one of the most tenacious.
Though Calhoun battled valiantly for “Free trade, low duties, no debt, separation from banks, economy, retrenchment, and a strict adherence to the Constitution,” historians do not consider him a champion of sound economics. Calhoun is remembered primarily for stalwart republican principles rather than his economic acumen. This is indeed a shame since the turbulent years leading to the Civil War were predominantly shaped by divergent opinions concerning the central government’s intervention in the economic sphere of American life. As was the case in the time of Calhoun and the bloody war that soon followed, government’s interference with voluntary exchanges between individuals in the marketplace inevitably leads to conflict.
Calhoun was born the son of a plucky Ulsterman in the upcountry of South Carolina and was molded by his pioneer kinsmen and Calvinist upbringing. After graduating Phi Beta Kappa from Yale College in 1804, he went on to study law. Always energetic, Calhoun found the practice of law pedestrian and soon made his entrance into public life.
Early in his career in the national legislature, Calhoun had a reputation as a War Hawk and supported such unsound policies as internal improvements with federal funds, the national bank, and tariffs. With the aid of John Randolph and practical experience, Calhoun realized he had strayed from the principles of the founding era. Fittingly, it was the North’s exploitation of the South vis-a-vis the tariff that awakened in Calhoun an understanding of basic economics.
The Free Trader
Of all the sundry conflicts between the sections in the 1800s, the issue of the protective tariff was the most fervently debated. Calhoun opposed protective tariffs on constitutional and economic grounds. He believed that the powers delegated to the general government were trust powers rather than plenary and were consequently limited to the nature and the object of the trust. Thus, the power to levy tariffs can only be used to raise revenue to meet the legitimate expenses of government.
While addressing the Senate before the passage of the Tariff Bill of 1842, Calhoun argued that when tariffs are levied for protective purposes, government descends “from its high and appointed duty, and become[s] the agent of a portion of the community to extort, under the guise of protection, tribute from the rest of the community; and thus defeat[s] the end of its institution, by perverting powers, intended for the protection of all, into the means of oppressing one portion for the benefit of another.”
An example of Calhoun’s opposition to protective duties on solely economic grounds can be found in the same address. Calhoun had brought charts, which described what supply-siders would later call the Laffer Curve, to the floor of the Senate. He explained that on all items “which duties can be imposed, there is a point in the rate of duties which may be called the maximum point of revenue.” He proceeded to show his colleagues how high tariffs coincided with a stagnation of interstate commerce and a decline of exports. The charts also illustrated how during periods of low duties, exports and key sections of the domestic economy grew.
Representing a state that depended upon the ability to sell her staples freely on the world market, Calhoun was unrelenting in the fight for free trade. “No people,” emphasized Calhoun, “restricted to the home market, can, in the present advanced state of the useful arts, rise to greatness and wealth. . . . For that purpose, they must compete successfully in the foreign market. . . .” As the spokesman for the Southern states, Calhoun asked for no special favors from government. He was confident that the South could succeed not “by the oppression of our fellow-citizens of other States, but by our industry, enterprise, and natural advantages.”
Essential to Calhoun’s recipe for competing in foreign markets and maintaining prosperity at home was “a sound currency, fixed, stable . . . instead of an inflated and fluctuating one.” Unlike modern America’s followers of the “new economics,” Calhoun understood the importance of a sound currency and realized that inflation robbed the working man of the fruits of his labor. Currency expansion, according to Calhoun, “overthrew the almost entire machinery of commerce, precipitated hundreds of thousands from affluence to want . . .” and corrupted private and public morals.
Moreover, a stimulus “caused by the expansion of currency . . . would tempt numerous adventurers to rush into the business, often without experience or capital; and the increased production . . . would greatly accelerate the period of renewed distress and embarrassment. . . .”
With Misesian accuracy, Calhoun recognized the nature of artificial periods of growth and the inevitable readjustments that must always follow. In an 1838 oration in the Senate, Calhoun proclaimed: “Nothing is more stimulating than an expanding and depreciating currency. It creates a delusive appearance of prosperity, which puts everything in motion. Every one feels as if he was growing richer as prices rise. . . . But it is the nature of stimulus . . . to excite at first, and to depress afterwards.”
Not only did Calhoun oppose governmental machinations with currency for economic reasons, but as with Congress’ power to levy tariffs, the power to coin money and regulate its value was also viewed as a trust power. It would be a violation of the people’s trust to devalue their money and thus rob them of their earnings. Calhoun, like the Framers who refused to give the general government the power to issue bills of credit, realized that government ought not be trusted to make a piece of paper worth “x” amount of dollars by decree.
Though he was an enemy of paper currency, Calhoun refused to add his voice to measures designed to tax the circulation of small notes from state-chartered banks and thus increase the specie in circulation. Such a tax to Calhoun was a violation of the people’s trust. He prophetically articulated what such a penal power would do in 1834 during a speech against the continuation of the charter of the Second Bank of the United States. Government would have “an entire control . . . over the property and pursuits of the community,” argued Calhoun, “and thus concentrate and consolidate the entire power . . .” in Washington. Even when given the opportunity to strike at the circulation of paper, Calhoun was true to his principles and refused to violate the people’s trust.
Of course when one discusses fiat money, it is not overly bold to assume that debt was the cause or one of the major factors leading to the currency expansion. It is the nature of government to print more money when it spends beyond its means. Due to his years in the government, Calhoun realized the danger wrought by debt. As heroin is to the addict, so is deficit spending to government. And once government starts deficit spending, warned Calhoun, “we shall hear no more of economy and retrenchment, those two virtues so essential to a Republic and so necessary at the present time.”
Calhoun saw that government’s expenses ought to be kept as small as possible in order to preserve the Republic left by the Founders. “Every dollar we can prevent from coming into the Treasury,” Calhoun wrote, “or every dollar thrown back into the hands of the people will tend to strengthen the cause of liberty.”
It was this cause of liberty that provided the impetus for Calhoun to fight for sound economic policies. Due to the course of events following his death in 1850, it is understandable why Calhoun’s grasp of economic matters has been ignored by historians. Certainly no victor wishes to heed the advice of the vanquished. Nonetheless, with our debt continuing to spiral, printing presses operating 24 hours a day, and demands for “fair trade” echoing throughout the halls of Congress, it is high time that we reconsider the wisdom of the “cast-iron man” from South Carolina.