It now seems that lawmakers may have to be shamed into passing a stock trading ban. If so, it might help to revisit a brief but charged and disturbing episode of American history, what James Madison called “an enormous and flagrant injustice,” when the Congress of 1790 approved a financial policy that, in effect, enriched almost half of its mostly wealthy members by ripping off mostly poor Revolutionary War veterans.
Historians have generally ignored or dismissed this episode as a minor blip in the epic creation story of the U.S. But the fact remains that at the very founding of this country, Congress was rife with conflicts of interest, which cleaved an early rift of mistrust between the federal government and the people, and cast a shadow on the moral character of the new republic.
The principle behind the stock trading bans thus pertains not only to the present and future. It could also be seen as a recognition, if not redress, of a past offense, an unpaid moral and monetary debt of Congress to the American people, after 233 years.
In 1790, there was already ample cause for Americans to feel mistrust, if not disgust, towards their government. Weakly organized under the Articles of Confederation that were in effect until 1789, a cash-strapped, feckless, and fractious Congress was unable or unwilling to control rampant and widely known corruption in the military supply lines during the Revolutionary War (1775-1783). This failure exacerbated the difficulties and privation the soldiers faced and depleted government funds to prosecute the war. With hard money (gold and silver) or “specie” scarce, the states individually and Congress nationally issued paper money to keep the economy going. But uncertainty over the values of the various currencies led to their decline in worth and discontinuation throughout the country. “Not worth a continental,” in reference to the national currency, was a common refrain at the time.
Amid the financial disarray, Congress ceased payments and issued “certificates,” or formalized IOUs, to the soldiers and officers of the Continental army in lieu of the compensation they had been promised for leaving their farms, shops, and families to fight the war. To supply the army, the government authorized the military “impressment” or confiscation of property—crops, livestock, and other necessities—from civilians who were also “paid” in certificates.