Shay's Rebellion and lessons for today's Big Government.

Believe it or not there are two very important lessons we can learn today from a 1786 rebellion.  For those not familiar, Shays' rebellion took place in Massachusetts and involved Daniel Shays and hundreds of other poor farmers crushed by taxes and debt to launch a full scale rebellion.  However the story is not about citizens rioting because of injustices they felt were thrust upon them, but a state and federal government printing "money" to finance a war and ultimately failing to deliver the gold and silver promised to the holders of the printed "money". 

Massachusetts was an especially egregious offender of printing money via their state bank and routinely inflated worthless paper on top of gold/silver they could not ultimately pay out in.   This practice stemmed back for decades prior to the Continental Congress engaging in similar practices ultimately leading to the infamous "Not worth a Continental". 

Many argue Shays' rebellion inspired and instigated the push for ratification of our Constitution and promoted discussions over a stronger centralized government.  In fact one line in the famous Federalist papers suggest that Shays' rebellion caught the attention of one very distinguished founding father. 

Alexander Hamilton wrote in Federalist #6:

"If Shays had not been a desperate debtor, it is much to be doubted whether Massachusetts would have been plunged into a civil war."

Hamilton was a genius of his time, but we are presented here with out first lesson, one that can teach us much about how government works to this day.  As you can see here Hamilton glosses over the rebellion with simplicity and blames the uprising on Shays' financial situation while using the event as evidence that we need stricter and broader central power.  Truth is, Shays' rebellion was not caused by his debt, no,  it was caused by worthless paper money being cashed in for gold, gold the government never had.  In order to pay the holders of the paper money wealthy individuals in Massachusetts raised taxes on the citizenry and demanded payment gold or silver and in case of poor farmers unable to pay authorities forced foreclosures and confiscation of property!  While plenty of founding fathers understood the danger of paper money as evidenced by Article 1 Section 10 banning paper money, Hamilton chose to use this particular example to further his ultimate goal of a stronger centralized government. 

Think how often a similar tactic has been employed recently using a very similar approach. 

• The Federal Reserve was created to prevent banking panics and preserve the dollar strength, even though the state and federal government encouraged regional banks to print money,create inflation and actually honored suspension of specie payment (paying out in gold/silver).
• Social Security was created to handle people's retirements, even though Hoover/FDR prolonged the Great Depression by destroying companies and private pensions with price fixing, crushing taxation and unprecedented federal intervention.
• Department of Energy was created to battle high oil prices, even though Nixonian price fixing lead to record oil prices.
• Department of Education was created to fix our education system, even though LBJ's great society created permanent welfare ghettos destroying the community and turning schools into prisons.
• Congress passed the HMO Act of 1973 to handle out of control insurance costs, even though Medicare's creation broke the free market and caused prices to explode.
• Congress wants to pass universal coverage because HMOs are too expensive and too many Americas are uninsured, even though Congress essentially created the HMOs while subsidizing their costs via federal tax credits to employers.

You can probably think of many more examples.  Whether it is Hamilton, FDR, Carter, Bush or Obama the process is the same.  Identify a "crisis", provide the simplest explanation and provide a solution via further expansion of government.   This creates a vicious cycle whereby governments grow while the population is constantly mislead into believing that all problems are caused by the free market, speculators and greed.  Consequently the population is lead to believe that only the Federal government can offer solutions while too often the fix is worse than the disease. 

Interestingly enough the bankrupt Social Security System, broke Medicare, corrupt Federal Reserve or useless and ineffective departments like that of Energy or Education are not enough to dissuade the population that government programs do not work.  In fact most people cannot imagine life without these institutions and would prefer to strengthen and expand these very programs in hope they could ultimately work in the future.

What is the second lesson you are wondering?  This is the very lesson that Hamilton never understood as can be demonstrated by his central bank, an institution he agitated for despite the objection of Madison and Jefferson.  Government cannot be allowed to print money.  It is really that simple.  Whether it was via the individual state banks during the colonial times or the "private" Federal Reserve, the result is always the same.  Printing money systematically bankrupts and impoverishes the citizenry allowing governments to spend with impunity. 

Before 1933 expanding the monetary supply beyond the physical collection of gold (inflation) lead to panics and recessions.  After 1933 the panics vanished, but recessions remained, but the depreciation of currency took on a more systematic and sinister approach.  Every time the government prints money in the name of "elasticity" you are being taxed implicitly as your purchasing power drops.  Furthermore with our progressive tax code even as wages rise to deal with rising prices we end up paying a bigger share of our salary to the government.  Whether you are being taxed more via bracket creep or implicitly taxed via currency depreciation the government is stealing from you.  Remember, inflation always awards initial recipients while hurting the general population. In this case awarding commercial bankers while penalizing you and me.

Whether you look at the debasement of the Roman currency or the systematic destruction of the Byzantine gold coin the result is always the same.  Debasement of a civilization's currency leads to the civilization's demise as the population is systematically robbed while the ruling class grows richer.  This is precisely what is happening in America today!  If you are not convinced, play around with the inflation calculator. You will find just as an example a 30% inflation rate since 1999.  Similarly in 1999 the median income was 42k, while in 2009 the median income stands just north of 46k.  So while prices on average went up 30%, median incomes barely went up 10%.

Over two hundred years ago Daniel Shays and his neighbors felt the injustice and cruelty of a ruling class without truly understanding how he and others were being systematically plundered.  Not much has changed.