It is rarely a good idea to try to draw specific parallels between contemporary political trends and major events from the nation's political past, but the immediacy of the blogging format sometimes encourages such risks. Like many observers, I've been struck by Congress's stubbornly protracted wrangling over whether and how to raise the debt ceiling and avoid defaulting on the federal government's debt obligations. Bi-partisan talks of late have centered on the issues of taxes and a balanced budget amendment to the Constitution. Republicans have remained largely united in their refusal to close the federal budget deficit with new taxes and instead propose overhauling the entire federal fiscal system through spending cuts, eliminating some entitlement programs and proposing a balanced budget amendment to the Constitution (though many political observers think that the Republican leadership is only offering token support to this amendment, favored by the Tea Party). Democrats initially countered that the current budget deficit cannot be closed by spending cuts alone and any plan to begin paying down the national debt and balancing annual federal budgets will have to include tax increases. Their latest plan to close the deficit, however, abandons taxes as one of the tools to accomplish that task in the coming years.
This is somewhat reminiscent of the fiscal crisis that hit New York and several other northern states following the Panic of 1837, when the speculative bubble in land burst and the resulting recession threatened to bankrupt several states that had overextended their finances by funding internal improvements schemes through debt. In New York, this financial crisis created a factional divide in the Democratic Party between pro-development Hunkers and radical Barnburners (see a quick primer on the factions here) who believed in sharply circumscribing government intervention in the economy. These factions later would become associated with pro-slavery and antislavery politics within the party, but they first coalesced around these economic issues.
The seeds of factionalism had been sown in the New York Democratic Party by the startling accumulation of state debt in the 1830s and the Panic of 1837. Hunkers had joined with their Whig opponents in the 1830s to support state bond issues to fund the extension and widening of New York's nonpareil canal system. Both Hunker Democrats and Whigs were confident that increased canal traffic and rising toll revenues would easily pay the mounting canal debt. The Panic of 1837 dashed those hopes, however, and imperiled the state's ability to meet its obligations to canal contractors. Moreover, the looming debt had depressed the value of New York bonds as much as 25% below face value, seriously weakening the state's credit on the open market and putting it at further risk of defaulting on its debts.
John William Hill's The Erie Canal, 1831
Alarmed by this fiscal folly and the apparent apostasy of their Hunker colleagues, Barnburners took firm control of the party by 1842 and proposed a dramatic solution: the so-called Stop and Tax Law, which halted canal construction and levied a direct tax to pay down the state debt. Chastened Hunkers joined with their Barnburner colleagues to pass the law, which staved off bankruptcy and restored the state's credit, reflected in an immediate and sustained rise in state bond premiums. While antebellum political leaders tended to abhor direct taxes on citizens, most Democrats and many Whigs in New York agreed that a direct tax was not only necessary to solve this crisis, but also reflected New Yorkers' shared responsibility to maintain the state's credit. Since New Yorkers benefited from the state's good credit in the form of internal improvements and increased commercial opportunities, New York's political leaders did not question the appropriateness of taxpayers bearing some of the burden of restoring the state's good credit, nor their willingness to do so.
This relative political unity in meeting New York's fiscal crisis did not last, however. As the state's finances recovered by 1845, Hunkers sought to resume funding canal improvements through state bonds. Barnburners responded by joining with Whigs in 1846 to call a state constitutional convention focused on fiscal reform, not typically a favorite principle of Whigs. Through this alliance, however, Whigs got a more democratic constitution with more elective offices (and therefore, more opportunities to weaken Democratic control of the state), though they failed to secure another of their goals: black suffrage. Radical Democrats got a constitution with severe restrictions on incurring future state debt and requirements that state canal revenues pay off existing debts before applying any surplus revenue to new construction.
While radical Barnburners secured constitutional safeguards for the state credit, undaunted Hunkers continued to seek ways of employing that credit to promote wealth creation among its citizens. They argued that the state's refusal to improve access to markets and increase commercial opportunity amounted to a de facto tax on producers in remote communities who had to pay more to transport their goods to market. As the Hunker editor of the Rochester Republican put it, "we go for removing the absurd restrictions upon trade so as to allow the farmer free access to the markets of the world."
Regardless of their divergent views of the purpose of the state's credit and the best means to preserve and augment it, these conflicting Democratic factions and their Whig opponents reveal a very different conception of the public credit than we see in the current congressional debt talks. Antebellum New Yorkers were both symbolically and literally invested in the state's good credit, at least according to their political leaders. And while these leaders sought to limit taxation (indeed, canal toll revenues provided the bulk of the state's income) and to shield citizens from the negative effects of increasing state debt, they also considered it a communal obligation of all citizens to sacrifice when necessary to preserve that good credit. The state's citizens apparently agreed, as they voted radical Democrats into office during the crisis, thereby sanctioning their plan to confront the state's debt crisis through retrenchment in spending and levying taxes. Though New Yorkers surely were angered by their government's apparent profligacy in accumulating that debt, they accepted a shared responsibility for solving the crisis. Moreover, once the crisis passed, voters did not hesitate to send Hunkers back to office to promote further internal improvements spending. Apparently, those voters believed the recent debt crisis was an aberration, or they were willing to risk still more sacrifice to solve any future debt problems. Thus, while Hunkers, Barnburners, Whigs, and their supporters clashed over the role of the state in furthering economic development, all parties appeared willing to undertake painful remedies to rescue the state's credit when it was threatened.
That is an element that is missing from the current congressional debate, which has been rooted in the rhetoric of individualism. Taxes have become anathema in this struggle to find solutions to the budget deficit, derided as a potential obstacle to economic recovery (though defaulting on the federal debt would be a much greater obstacle) and an unjust imposition on individual taxpayers. The refusal to consider increased taxes on the one side and the reluctant acquiescence to that demand on the other side suggest that our contemporary leaders believe Americans have little tolerance for self-sacrifice or lack a sense of unifying, communal responsibility to aid the country through a fiscal crisis that threatens to affect more Americans more directly than contemporary threats to our national security. Whether that says more about us or our political leaders remains to be seen.