The United States survived an early crucial test of its new centralized authority, and Constitution -- when nearly 13,000 troops were called in to quell rioting farmers in the "Whiskey Rebellion" of western Pennsylvania, this week in August 1794.

Unrest amongst farmers began in response to a 1791 federal excise tax devised by Secretary of the Treasury Alexander Hamilton that imposed a burdensome tax on whiskey. The fees enacted to pay the national debt, effectively wiped out the profits (and barter worthiness) on the grain crop grown and distilled in the area. In particular, small producers suffered under the 'tax by the gallon' payment structure. Other grievances in the western frontier territories were soon added to the complaint list by settlers-who were less than thrilled to bow to distant lawmakers' dictates.

Soon occasional physical attacks on tax collectors themselves and their properties yielded to mob-like uprisings and erupted into several destructive actions in July 1794...including violent riots in Pittsburgh and a vindictive attack on a federal marshal in Allegheny County.

Wishing to restore calm and establish authority, President Washington issued a proclamation on August 7, 1794 calling out the militia and ordered the rioting western Pennsylvania residents to return to their homes. It was the first use of the 1792 Militia Law deploying soldiers to "execute the laws of the union (and) suppress insurrections."

Led by Washington, Hamilton and Revolutionary War hero General "Lighthouse Harry" Lee -- then Governor of Virginia and father of Robert E. Lee -- the multi-state armed forces were able to assert federal primacy and defeat the rebel soldiers with a national army the same size as the one that defeated the British back in the day. Happily, the military action also caused some small whiskey producers to migrate to western Tennessee and Kentucky -- where far from the federal government's reach, they grew and distilled corn -- thereby establishing America's Bourbon whiskey business.

This Week in Wall Street History

8/3/08