Chapter 4. Shay’s Rebellion and The American Ruling Class Constitutional War on State-Issued Paper Currency.
Many scholarly accounts of the history surrounding the events leading up to the Constitutional Convention of 1787 emphasize a common set of factors related to the inadequacy of the Articles of Confederation.
For example, Jeff Broadwater cites the list of factors surrounding the Convention provided by Forrest McDonald. [George Mason: The Forgotten Founder, 2006. p. 163.].
McDonald identified 4 broad factors that precipitated Madison’s calling of the convention:
- Landless states jealous of neighbors with territorial claims in the West.
- Commercial states anxious to protect their carrying trade.
- Planters seeking to protect agricultural exports and in S. C. and Georgia, the foreign slave trade.
- Public creditors and investors who were concerned about the solvency of the central government.
We argue that the threat of civil unrest by farmers and common citizens, coupled with the issuance of paper currency by state legislatures, were the two predominant factors that prompted Madison to call the Convention.
The other factors, cited by McDonald, are subordinate factors that were resolved by various compromises among members of the natural aristocracy towards the end of the Convention.
The conventional scholarly treatment of the factors surrounding the convention usually pass over, or deemphasize, Shay’s rebellion of farmers in western Massachusetts, who did not have, either paper money, or gold or silver to repay their debts or to pay their taxes.
As a consequence of not repaying debts, the farmers were having their farm lands confiscated by the courts and given, as collateral, to members of the natural aristocracy who held the loan contracts.
The farmers in Shay’s rebellion were attempting to shut down the courts in order to stop the land confiscations.
Forrest McDonald, in his list of factors leading up to the Convention omits, entirely, a reference to Shay’s Rebellion.
In his book, The Constitutional Convention of 1787: A Biographical Dictionary, Joseph C. Morton, passes lightly over Shay’s Rebellion, by writing,
“Shays Rebellion: [August 1786 – February 1787] This rebellion convinced many Americans of the need to establish a strong central government …that could squelch riotous behavior.” [2006, p. 14.].
The farmer’s inability to pay debts is related to a second major factor for Madison to call the convention.
The state legislatures had been issuing paper currency as a medium of exchange in the economy, and inflation had made the paper currency worthless.
Farmers had been attempting to pay their debts and taxes with state paper currency, and the natural aristocracy wanted to eliminate paper currency, and force farmers to pay debts in gold and silver.
Various state legislatures had also been attempting to provide relief to farmers by passing laws which voided the contracts for loans made to farmers by banks and private investors.
In order to eliminate state-issued paper currency, Madison proposed two provisions to the Constitution, in Article I, Section 10. First, Madison proposed to make money issued by the U. S. Treasury as the exclusive legal tender medium of exchange, in the entire nation.
Second, Madison inserted the contract clause into Article I, which made any state legislative attempt to alter an existing loan contract illegal, in the entire nation.
In other words, a bank or private investor who had previously entered into a loan contract with a farmer could not have the loan repayment obligation of the farmer rescinded or modified, by a subsequent law passed by the state legislature.
The contract clause performed double duty to the plantation slaveocracy because it protected the legal property rights of contracts that permitted slave owners to own, buy and sell slaves.
Madison’s Article I states:
Article I, Section 10, Clause 1:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
We agree with Michael Klarman, in his book. The Framers Coup, (Oxford University Press, 2016.), that the 38 elites who met in secret and signed the document in Philadelphia, constituted a Ruling Class coup over the Articles of Confederation, not a founding.
“Madison objected to the injustice of state legislation on creating paper money and debtor relief laws … Madison viewed society as two classes: creditors or debtors, rich or poor… Madison declared that the Senate ought to come from and represent the wealth of the nation. The Senate should serve as a bastion of privilege. Dickinson wanted the Senate to bear the likeness of the British House of Lords. Pinckney argued that, “only the wealthy would be able to afford to serve.”…As Butler put it, “the great object of government was to protect property…the Senate would block any populist economic measures that might emanate from the House.”
The Constitutional Convention can more accurately be viewed as a response to the economic and financial weakness of the U. S, economy, that was harming the financial social class interests of the natural aristocracy.
Beginning in 1785, the U, S, economy entered into a three year economic collapse which devastated the financial interests of farmers. The causes of the economic collapse lay in the overexpansion of credit for farmers by banks and private investors, a postwar deflation in agricultural products, competition in the manufacturing sector from Britain, and lack of a sound monetary system.
The economic collapse of 1785, coupled with the lack of money in the economy, is the proximate cause of Shay’s Rebellion. The farmers in Massachusetts did not have any money to repay their debts to the Ruling Class, and as a result of not being repaid their loans to farmers, the natural aristocracy met in Philadelphia and agreed to replace the Articles of Confederation.
The new constitutional rules eviscerated the authority of state governments to issue currency and imposed centralized national rules over the law of contracts.
The social and economic conditions of low economic growth in January of 1787 led to greater levels of social class conflict between elites, who desired to maintain their incomes, and the working social classes, described by William Sumner as the ‘forgotten man.”.
The political institutional structure, created by Madison, grants unelected political power to the elites and bankers, who use the agencies of government to maintain their incomes through crony capitalist control over money supply, government taxes and government spending.
As an additional windfall profit benefit for the Ruling Class, Madison and Hamilton worked together to reward the financial elites by insuring that the bonds that had financed the Revolutionary War were repaid at 100% of face value.
The market value of the bonds had been trading in the financial market at 20% of their face value in 1785, and the discounted bonds had been bought by the natural aristocracy, in both the U. S. and Europe, to hold until Hamilton could implement his assumption of state-issued bonds, by the U. S. Government.
In other words, state-issued bonds that had been trading at $20 per bond, were redeemed by the U. S. Government at $100 per bond. Prior to the Convention, it was no secret, among the natural aristocracy, that Madison and Hamilton intended to redeem the bonds at full face value, causing an immediate windfall profit for the financial elite.
The elite had bought the discounted bonds, primarily from the soldiers who fought in the Revolutionary War, who had been paid the bonds for their service. The payment in bonds, was a substitute for money because the Government had a monetary system that functioned on debt, not on cash.
This bond transaction between the Government and the natural aristocracy, was why Hamilton stated that the redemption of the bonds, at full face value, was a “national blessing.”