Tag Archives: Reparations

Speaking Truth to Power

(June 18, 2017) By one definition a person is speaking truth to power when they “stick their head above the parapet and tell those in authority how it really is.” The Wiktionary similarly states the phrase means “to address facts to an authority,” presumably when such facts are overlooked by that authority.

Thus, in the spirit of speaking truth to power the genius de jour, Ta-Nehisi Coates, was praised three years ago for his magazine article suggesting that the United States pay reparations to African-Americans as compensation for slavery. There were, however, two ways that Mr. Coates was not really speaking truth to power in the context of the meanings above.

First, he was not an outsider. Coates was a regular columnist at The Atlantic, which is among America’s most venerable periodicals. The mainstream media almost universally praised his reparations essay. He followed it a year later with perhaps the thinest non-fiction book to ever win the National Book Award. That led to a McArthur Foundation award, which granted him $125,000 annually over five years ending in 2021.

Second, the most significant unnoticed fact among Coates and his power elite is that former Confederates and their descendants have already paid a form of reparations, if not for slavery, then as a consequence of losing the Civil War. It should not be assumed that the Southern states escaped reparations-equivalent penalties merely because they were readmitted to the Union.

As the preceding table illustrates, more than half of federal tax revenues for twenty-five years after the Civil War were applied to three items, which exclusively benefitted Northerners although former Confederates were required to pay their share of the taxes needed to fund them. If such items as interest on the federal debt, budget surpluses, and Union veterans benefits were paid by an independent defeated foe, they would undeniably been classified as reparations.

The budget surpluses were used to repay federal war debts, which had jumped 40-fold from $65 million at the start of the Civil War to $2.7 billion at the end. The debt took the form of federal war bonds, which were held exclusively by Northerners. In addition to helping to pay off the bonds without owning any of them, Southerners were burdened with another penalty linked to federal bond policies.

Specifically, a law adopted four years after the Civil War required that federal debt be redeemed in gold. During the war, however, the great majority of investors used paper money, which traded at a discount to gold, to buy the bonds. The discount got to be as much as 63%—meaning that a paper dollar was worth only thirty-seven cents—after General Grant sustained heavy casualties in 1864 only to be stalemated at the siege of Petersburg. Similarly, interest on federal war bonds was also paid in gold.

Since the bonds and interest had to be paid in gold, the amount of paper money required to pay them off was larger than the face amounts of the bonds and their interest coupons. The difference was an extra cost to the taxpayer but a sizeable bonus to the bondholder, none of who were former Confederates.

Additionally, former Confederates derived no benefit from generous federal spending on Union veteran pensions. Ex-Rebel soldiers could only collect much smaller pensions from their respective states. Union veteran pensions were originally paid only to soldiers who had sustained disabling injuries during military service, but Republicans gradually expanded eligibility in order to cement veterans as one of the Party’s chief voter constituencies. In 1904 any Union veteran over age 62 was regarded as disabled thereby transforming the program from a disability assistance platform into an old age retirement system. In the 1893 such pensions represented an astounding 40% of the federal budget.

By 1917 Union veterans and their dependents had collected about $5 billion in pensions, which was more than double the amount spent to fight the war by all of the Northern state governments and the federal government combined. Annual spending on Union veteran pensions did not peak until 1921, which was over 55 years after the war had ended. By 1950 cumulative pension spending had totaled $8 billion, which exceeded three times the amount spent to fight the war. The last pension check was paid in 2016.

Demonstrating that Southerners have already paid reparations is a more valid example of speaking truth the power than is Coates’s “The Case for Reparations” for two reasons. First, the historical facts document that the payments have already been made. Second, those facts are truly overlooked by the zeitgeist in power, of which Coates is a himself member instead of an outsider.

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Southern Reconstruction, Part 3: Discriminatory National Policies

Provided below is the third and final installment of my Southern Reconstruction speech last Saturday in Tullahoma, Tennessee. It addresses national policies after the Civil War that delayed economic recovery in the South but promoted prosperity in the North. 

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During Reconstruction Southerners were required to pay their share of federal taxes for sizable budget items that if funded by an independent defeated foe would have constituted reparations. To be sure, reparations are not a rare form of a victor’s compensation, but it should not be assumed that the Southern states escaped equivalent penalties merely because they were readmitted to the Union.

The table below summarizes federal tax revenues and spending for a quarter century following the Civil War. More than half of federal tax revenues were applied to three items: (1) interest on the federal debt, (2) budget surpluses, and (3) Union veterans benefits. Although compelled to pay their share of taxes to fund them, former Confederates derived no benefit from the allocations.

reparations

But the table does not tell the whole story.

First, the 1869 Public Credit Act required that federal debt be redeemed in gold. During the war, however, the great majority of investors used paper money to buy the bonds even though the paper currency traded at a discount to gold. The discount got as high as 63% while Grant was sustaining heavy casualties in 1864 only to be stalemated at the siege of Petersburg. In short, gold redemption was a huge windfall for the bondholders.

Southerners held few, if any, bonds. Some were held by national banks, which bought them to use as monetary reserves as mandated by the 1863 National Banking Act, but many Northern civilians also owned them. Federal debt jumped forty-fold from $65 million to $2.7 billion during the war. Since bonds and interest had to be paid in gold, the amount of paper currency needed pay them was significantly larger than the face amounts of the bonds and the nominal coupon interest rates. The difference was an extra cost to the taxpayer and a bonus to the bondholder.

The budget surpluses were caused by protective tariffs that generated more income than necessary to operate the federal government. As the table below documents dutiable items were taxed at about 45% until after President Woodrow Wilson was inaugurated in 1913. They were increased again in the 1920s after the Republicans regained the White House. Rates generally remained high until after World War II when the manufacturing economies of the Northern states had no international competitors because of the World war’s destruction of European and Asian economies. In short, American finally became a free-trade advocate only after the manufacturing economies of the Northern states had no international competition.

tariff

Protective tariffs were designed to restrict competition for domestic producers, almost none of which were in the South. The South’s was primarily an export economy. Even as late as the 1930s, 60% of its cotton was sold overseas. Foreign buyers, however, were unable to pay for Southern cotton unless they could generate exchange credits by selling manufactured goods into the USA, which protective tariffs impeded. By one estimate the post-war tariff imposed an implicit 11% tax on agricultural exports. As Cornell professor Richard Bensel puts it, “[The tariff] redistributed [wealth] from the periphery to the [Northern industrial regions] in the form of higher prices for manufactured goods and from the periphery to the national treasury in the form of customs duties.”

Finally, former Confederates derived no benefit from generous federal spending on Union veteran pensions. Ex-Rebel soldiers could only collect much smaller pensions from their respective states. Union veteran pensions were originally paid only to soldiers who sustained disabling injuries during military service, but Republicans gradually expanded eligibility to solidify veterans as one of the Party’s voter constituencies. In 1904 any Union veteran over age 62 was regarded as disabled thereby transforming the program into an old age retirement system instead of the disability-only program it was originally intended to be. In 1893 the pensions represented over 40% of the federal budget. Although dropping as a percent of the total budget thereafter, annual spending on Civil War Union veteran pensions did peak until 1921, which was over 55 years after the war had ended.

Pensions

While some federal spending items not specified in the preceding table benefitted the South, they were few, tiny, or funded by the Southerners themselves. From 1865 – 1873 the federal government spent $103 million on public works, but less than 10% went to the former Confederate states. New York and Massachusetts alone got more than twice as much as the entire South. Continue reading