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The Daily Reckoning | Saturday, August 18, 2012 A tale of taxes, rebellion...and good ol’ Pennsylvania rye whiskey, Readers weigh-in on guns and who ain’t gonna take ’em, Plus, all this week’s reckonings, archived for your “straight-up” consumption... --------------------------------------------------------------- Amazing... But True! Tobacco is being resurrected — making it the profit opportunity of the decade. It turns out that one man’s quest to help people quit smoking has led to what could be the most important “accidental” health discovery since penicillin. And for you — it could be the biggest potential “profit bonanza” since Pfizer accidentally discovered Viagra. Discovered by accident: A chemical compound in tobacco that doctors are now recommending to slow aging! BUT because Wall Street inexplicably thinks the biotech firm that owns the patent — and is already selling this miracle product without a prescription — is a nasty, dirty tobacco company, you still have a little time to load up before the truth is finally revealed! Learn more about this amazing opportunity right now, right here. Joel Bowman, checking in today from Paris, France... Joel Bowman Pull up a seat, Fellow Reckoner. This weekend’s feature article is sure to slake your thirst...or maybe even inspire one. Byron King was among the bare-knuckled belletristes who founded Whiskey & Gunpowder, Agora Financial’s “rough and tumble,” big idea engine room. In this very special essay, first published by W&G back in ‘04, Byron recounts the story that inspired the Whiskey name and guides its ethos. Enjoy... The Daily Reckoning Presents The Whiskey Rebellion Byron King This could very well have been the Province of Westsylvania, part of British Imperial Canada. To the east, along a line of demarcation that follows the northeasterly arc of the Alleghenies, would be what was left of the United States of America, a collection of small, Northeastern coastal states that rely for survival on their wits as traders and seafaring merchants. To the south would be the Confederated States, an amalgamation of political jurisdictions that had long ago seceded from the failed Constitutional Compact of 1789. To the west of this spot would be the very large Province of Ohio, another jurisdiction of Canada, extending all the way to the Mississippi River. Abutting the west bank of the mighty Father of Waters would lie the French Department of Louisiana. West and southwest of the French possession would be the United States of Mexico, extending across the high plains and Rocky Mountains to the Pacific Ocean and bordering Canada to the north. Mexico would encompass the territory of Texas and extend far down through the old land of the Aztecs and well into the lands of the lost Maya. Yes, indeed, things could be very different. Except that Mr. Alexander Hamilton, first Secretary of the Treasury of the United States, levied a tax on whiskey. If you taste the whiskey first, it helps to understand (and at the end of this article, I will tell you how to do just that...). Dark amber in color, not unlike some varieties of that fine Pennsylvania crude oil that seeps from the cracks in the Devonian shale and Carboniferous sandstone that make up the bedrock in these parts, the whiskey has a dry taste and is certainly not to be confused with those better-advertised, rather fruity beverages that are but sweetened imitations of the real thing. Pennsylvania rye whiskey goes down straight and warm, not quite bypassing the taste buds, but it hits you hard from the inside out. In its own inimitable way, this whiskey is rough and strong and uncompromising, like the men who first distilled it on the western frontiers of the British Empire in North America in the 1700s. In 1768 one man of the cloth called it “a perfect beverage, and a blessing from God for which people would take to arms.” He was prescient, this pastor. In retrospect, the rye whiskey of the western frontier was a beverage that defined a fresh-born nation. And if nothing else, the whiskey and those who consumed it forced the nascent government of the United States to govern wisely, and even to issue honest money. Well, at least for a while. The Whiskey Rebellion: A Staple of the Frontier Economy Brewed and fermented spirits were a staple of the frontier economy of colonial America. Beer, for example, was available in almost all households and consumed at almost every meal. Beer-making provided a use for surplus grain, which could not otherwise be transported for sale in distant markets over the primitive roads of the time. Beer was safer to drink than most of the water that one could obtain from wells and streams. Beer had nutritional value, and in a world where most everything was scarce, one did not allow good carbohydrates to go to waste. Thus beer was a routine part of the diet of frontier families and a vital source of nutrition. If it made you feel better during the hard times, that was also a good thing. Whiskey as well became a staple of frontier life and diet. Like beer, it was made from the surplus grain that was not consumed locally and could not otherwise be transported any great distance for sale. Whiskey served as a medicine, a tonic, and an anesthetic in a time and place where there was no alternative. And distilled whiskey had commercial value, such that it was worth a man’s while to transport it over the mountains, where it sold in Philadelphia for a price in colonial times that was the equivalent of about $25 per gallon today. In an environment in which money was scarce, whiskey not surprisingly became a store of value on the frontier. In western Pennsylvania, one estimate from the 1780s states that there was one still for every 15 residents. People used whiskey to pay bills and local taxes, and even to compensate their school teachers and clergy. Hence whiskey evolved into a form of currency in its own right, at least west of the Alleghenies. The Revolutionary War had left the American national government broke and insolvent, with a reputation for having issued worthless paper currency, called “Continentals. Congress passed laws that forced people to use these notes literally at the point of a soldier’s gun. Inflation and bad debt, both of pandemic proportions, were ruinous to any semblance of a post-Revolutionary national economy. The Articles of Confederation, which lasted from 1777-1789, did little to remedy the sad state of monetary affairs in the young nation. The members of the Constitutional Convention of 1787 were forced of absolute necessity to address monetary affairs. The U.S. Constitution, finally ratified in 1789, specifically made provision for a currency based on gold and silver, as well as for a national bankruptcy law in order to address the oceans of bad debt that permeated every level of colonial society. But it was one thing for the Constitution to declare, as it did, that no “Thing but gold and silver Coin” could be used as legal “Tender in Payment of Debts.” It was quite another for this sovereign edict to become reality. In the earliest days of the federal government under the new Constitution, Secretary of the Treasury Alexander Hamilton proposed that the national government raise its revenue by levying excise taxes. Among Hamilton’s proposals for raising revenue was a tax on whiskey, that staple of life along the western frontier. For a variety of reasons, this “whiskey tax” immediately aroused the sentiment of many people that the new federal government was simply the replacement of the British King by swindling, moneyed, East Coast speculators and tyrants. The legislation that enabled the whiskey tax was reflective of the goals of Alexander Hamilton, with his desire to create a strong central government and a nation of industry. The tax placed the levy on the point of distillation, not at the point of sale. Hence many farmers and small-businessmen found themselves taxed on the capacity of their stills, which included the amounts of whiskey they consumed personally, let alone what they discarded due to waste or spoilage. The federal tax rate was lower on larger stills, thus favoring bigger businesses at the expense of small, family-run operations. And the federal tax had to be paid in, of all things, gold or silver coin, of which there were precious few during the best of times on the frontier. As a result, the new tax almost immediately destroyed the value of whiskey as a form of barter currency in its own right. But without whiskey to lubricate the wheels of commerce, the frontier economy soon began to grind to a standstill. Stay tuned for Part II, tomorrow... Byron King, for The Daily Reckoning Joel’s Note: By now you’ve probably heard that the unabashedly irreverent Whiskey & Gunpowder publication is joining forces with Laissez-Faire Books. This change will occur on Monday. To be absolutely clear, the Whiskey name isn’t going anywhere. Nor is the website. Nor is the indomitable spirit of Whiskey. The idea behind this “free-market marriage” is to combine the refined, intellectual sensibilities of Laissez-Faire Books with the bare-knuckled, editorial gumption ofWhiskey. The team is excited and looking forward to fulfilling all your “Salon-meets-Saloon” liberty-minded needs. So, what does this all mean? If you’re an existing Whiskey reader, you don’t need to do a thing. Your Laissez-Faire Today subscription, and all the goodies that entails, will begin automatically on Monday. If you are not an LF Today or Whiskey reader, we invite you to either sign up for LF Today (it’s free) at Lfb.org...or proceed directly to Club membership, here. World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! ALSO THIS WEEK in The Daily Reckoning... Snap! Crackle! Pop!...Goes the Student Loan Bubble! By Dan Amoss Jacobus, Pennsylvania It’s May 2013 on an ivy-draped college campus. You just graduated with a degree in English. In 2009, you borrowed $50,000 from the US Department of Education’s Direct Loan Program. Job searches for teaching and journalism positions have been fruitless. Within a matter of weeks, you must start making loan payments on a waiter’s wages and tips. On sleepless nights, you fear what defaulting on this loan will mean down the road. The Whiskey Rebellion, Part II: Enforcing the Wealth Tax By Byron King Pittsburgh, Pennsylvania To enforce the whiskey tax, the federal government, then seated in Philadelphia, appointed tax collectors in every region of the country. Aside from a small stipend, the tax collectors’ pay was based on commission, calculated against the total amount of tax collected. Thus, for the most part, when the tax collectors commenced their rounds, riding along the roads and trails of the western frontier to levy tax notices on settlers and their stills, they met the usual resentment that tax collectors have encountered since time immemorial. The Whiskey Rebellion, Part III: Ending the Rebellion By Byron King Pittsburgh, Pennsylvania As Washington’s expedition approached its destination from the mountains to the east, another group of western Pennsylvania militia formed with the intent of attacking Pittsburgh and burning the city in advance of Washington’s arrival. The city fathers, who had made plans for a great civic celebration upon the arrival of Washington, heard of the threat. Thinking fast, they rode out to meet the militia at a place named Braddock Field, the site of a major engagement during the French & Indian War (and now the site of US Steel’s Edgar Thomson Works). Rand Paul’s Tea Party Manifesto Jeffrey Tucker Auburn, Alabama Politics is a lagging indicator of social-cultural trends. Politics doesn’t lead change; it chases it, incompetently and long after the underlying reality is impossible to deny. This is why it makes no sense to put faith in politics. By the time politics catches up, the rest of the world has moved on What to Expect in 2013... Between 2004-2007, Bill Bonner and Addison Wiggin did their best to alert their loyal readers to the dangers of the housing bubble well before the mainstream said anything about it. Well, today, they see something even worse looming just over the horizon. It’s not often our Reckoner-in-Chief agrees to appear on-screen, but this was just too important. Click here (or the image below) to see what they’re talking about now... The Weekly Endnote... Earlier this week, we featured a column by Jim Karger, titled “When They Come For Your Guns, You Will Turn Them Over”. Unsurprisingly, we received plenty of reckoner mail in response. Here are a few... First up, Reckoner Richard writes... Read your subject article. Attached is a letter I sent to the Pittsburgh Post-Gazette that was published several years ago. It was in response to an editorial that suggested seizing everyone’s guns. I thought you might find it interesting. No doubt this letter is in the government’s file: “Dan Simpson’s editorial (Disarm America? Here’s how) was very interesting both in what was said and what wasn’t said. I agree that a disarming of America would require cordoning off and searching every business, dwelling, and building in America by armed Government forces. This requires ignoring properly executed search warrants on everyone. The Government must therefore ignore the Constitution’s Second, Fourth and Fourteenth Amendments. If local newspapers complained then the newspapers would be silenced — eliminating the First Amendment. A Government that deliberately ignores these four Constitutional guarantees in the pursuit of guns will ignore the entire Constitution. “Dan glosses over the seizure of weapons from citizens. Let’s apply some probabilities to these confiscations. Assume there are 100 million people in the US who have guns, and 97 percent of them gave up their weapons; three million ‘criminals’ still have guns. Assume the ‘Special Police’ are very good, and in 90 percent of the confrontations with these ‘criminals’ there are no fatalities. That results in 300,000 fatalities. This does not include collateral damage that could occur if these armed ‘criminals’ decide to go on the offensive against their fellow citizens who they perceive have betrayed them, instead of waiting passively to be disarmed. Please note that ‘collateral damage’ could and most likely would include the parents, spouses, siblings and children of police officers that take part in any seizures. “Would the American people put up with the slaughter of 300,000 citizens in America when the killing of 3,000 soldiers in Iraq upsets them? Would a Government that deliberately kills 300,000 of its citizens ever give up power?” And here’s Reckoner Aziz... Most gun owners will probably get rid of their guns and ammo even before the tanks roll down their streets looking for them. I ended up spending a few months in Germany in ’45/’46 and found that civilians said the Nazi’s proclamations regarding fire arms were very effective. It apparently stated that if you were found in possession of as little as one cartridge of ammunition, the penalty was an instant bullet in the head by the investigating officer. It was said to have been very effective in getting guns and ammunition surrendered. Here’s another, from Reckoner Bracken... Jim needs to send his analysis of the gun issue to the State Department and have it translated into Arabic and sent to the Taliban leadership. Once the Taliban leadership reads this article they will come to the conclusion that they cannot possibly defeat US forces. They would throw down their arms and surrender immediately, ending America’s longest war. Jim could be celebrated as the hero that made it happen. And finally, here’s one from Jimbo in “rural Amerika”... I must take exception to Jim Karger’s article on handing over your guns. His scenario might be true in some urban areas, but not where I live. There are relatively remote regions of the country where many ex-military men live with families that have held the land literally for hundreds of years. Oh, and all those prior service soldiers and marines won’t just pony up their weapons because the federal government says so. Combat training, combat experience, support of the local population, and knowledge of the terrain count for something, just ask any Afghan vet. --- Feel free to email any thoughts you have on the matter to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ---------------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com