Debt Controversy
The Readjuster Party came into being as a result of the prolonged political crisis of the 1870s while the state government struggled unsuccessfully to pay the interest on the public debt left over from before the Civil War. Because the state had paid no interest during the years of the Civil War and Congressional Reconstruction, by the beginning of 1871 the debt had risen to more than $45.6 million. The General Assembly passed and on March 30, 1871, the governor signed “An Act to Provide for the Funding and Payment of the Public Debt,” which was then and has thereafter always been known as the Funding Act of 1871. It provided for issuing new bonds worth two-thirds of that amount (with a promise that the state would pay the remainder after reaching an agreement with West Virginia about the precise amount that state owed) to replace all the existing bonds. Bondholders therefore had to exchange their old bonds for the new bonds, which, like the pre-war debt, paid 6 percent interest and were to mature in thirty-four years.
The Funding Act appeared to make good, sound business sense. Its supporters predicted that Virginia’s payment of the interest and principal would encourage bankers and businessmen from outside the state to invest in Virginia and thereby help stimulate and revive its economy. However, the size of the debt was so large and the rate of interest so high that payment of the interest required more than half the annual revenue. Moreover, the Funding Act made the interest-bearing coupons on the new bonds receivable for taxes, and every dollar paid in taxes with a coupon was a dollar that the state could not spend to run the government, support the new public school system, or even pay the interest. By 1872 Virginians paid about half the state revenue in coupons, and during the remainder of the decade the state ran large budget deficits.
The assembly reduced the interest rate to 4 percent in 1872, but the state’s financial condition grew worse after the Panic of 1873 brought on a long economic recession. Tax revenue continued to fall, and revenue collected in money fell even more, leading to calls for refinancing the debt on more advantageous terms. A principal argument in favor of refinancing was to provide more money for the popular new public school system that the Constitution of 1869 created. For the remainder of the decade Virginians debated whether to refinance the whole debt or repudiate some of it and try to pay a reduced principal.
Rise of the Readjusters
Advocates of refinancing the debt—adjusting it, or readjusting it—to pay a reduced principal at a lower rate of interest became known as Readjusters. People who insisted on paying the full principal and interest were known as Funders. As the debates about the debt and about the shortage of money available for the schools became more intense, the state’s dominant Conservative Party, founded in 1867 in opposition to Congressional Reconstruction, split into two factions. White men who identified themselves as Democrats and as Republicans also split into Funders and Readjusters. By the end of the 1870s, it is likely that most African Americans in Virginia, who by then were nearly all Republicans, sympathized with the Readjusters.
William Mahone, of Petersburg, emerged as leader of the Readjusters. He was a short man with a long beard and inexhaustible energy who had commanded Confederate forces at the Battle of the Crater (1864) and created what became the Norfolk and Western Railroad. Originally a leader in the Conservative Party and an opponent of the radical reforms of Congressional Reconstruction, Mahone forged a coalition of politicians from both parties and both races who opposed the reduction of school appropriations and wished to refinance the debt. Readjusters appealed to white and Black families on the grounds that the Funders had failed to support the public schools, and specifically to African Americans on the additional grounds that the Conservatives had imposed a poll tax as a prerequisite for voting that made it more difficult for Black men to vote.
In 1878, Readjusters in the General Assembly passed a bill to require that a portion of the state’s tax revenue be collected in money and not in coupons in order that the money could be spent on the public schools. It was known as the Barbour Bill, for its sponsor, James Barbour, a member of the House of Delegates. During debate on the bill, a Funder member of the Senate of Virginia, John W. Daniel, declared that he would rather see all the public schools in the state burned than divert money from paying the creditors in order to support the schools. Governor Frederick W. M. Holliday vetoed the bill and denounced the public school system as unnecessary. His veto message stated that tax money should be used to pay the state’s creditors and not to fund the schools.
In the 1879 session of the assembly, the legislators passed a refinancing act popularly called the McCulloch Act, named for former Secretary of the Treasurer Hugh McCulloch, who represented the state’s bondholders during negotiations between the government and the creditors. Readjusters called it the Broker’s Bill because they believed that bond brokers and owners of bonds were the chief beneficiaries. The law provided that the existing bonds be replaced with new bonds that matured in forty years and paid 3 percent interest for the first ten years, 4 percent for the next twenty, and 5 percent for the last ten. They were often referred to as ten-forties or as McCulloch bonds. The legislature again made the interest-bearing coupons tax receivable.
Party Founded
In February 1879, Mahone and like-minded men called for a state convention to found the Readjuster Party. They invited all supporters of readjustment irrespective of race, and from then until the party ceased to exist, African Americans held party offices and won election to the General Assembly and to local offices as Readjusters. The new party also won strong support from white voters in some of the cities and rural areas, particularly in the mountains and valleys of western Virginia where the number and percentage of African Americans was smaller than elsewhere in the state. Opponents of the Readjusters charged then and later that the party was under the domination of northern Republicans and radical Black men, but that was not the case.
The Readjusters’ arguments in favor of the schools and Mahone’s organizing skills produced victories at the polls. In 1879, the Readjusters won majorities in both houses of the General Assembly, which in 1880 elected Mahone to the U.S. Senate. The assembly passed a bill to refinance the debt with fifty-year bonds that paid 3 percent interest and repudiated about one-third of the principal established in the Funding Act of 1871. Called the Riddleberger Bill, it was named for Harrison H. Riddleberger, a member of the Senate of Virginia from the Shenandoah Valley. Holliday vetoed the bill, and that set the stage for the next statewide election.
In March 1881, a convention of Republicans, all of them African Americans, met in Petersburg and voted to make an alliance with the Readjusters. The Readjuster state convention that summer nominated William E. Cameron, mayor of Petersburg, for governor, and Readjuster candidates for lieutenant governor and attorney general. In the general election, Cameron defeated Daniel, the Conservative Funder candidate for governor, and Readjusters won all the statewide offices and larger majorities in the General Assembly.
Early in 1882, the assembly passed and Cameron signed a revised version of the 1880 bill. Known as the Riddleberger Act, it reduced the principal and interest rate much as Riddleberger’s 1880 bill had done and was intended to replace the bonds issued in 1871 and 1879. The interest-bearing coupons on the Riddleberger bonds could not be used to pay taxes. Later in the session, the legislators elected Riddleberger to the other Virginia seat in the U.S. Senate.
The Readjusters appointed auditors who enforced the tax laws strictly, and the government collected hundreds of thousands of dollars in delinquent taxes. Readjusters also reduced taxes on farms and small businesses and raised taxes on corporations and corporate property. Their policies relieved heavily burdened taxpayers and replenished the state treasury and at the same time more than doubled the funding for public schools. The Readjusters also abolished the poll tax as a prerequisite for voting, and eliminated the brutal, humiliating whipping post, left over from slavery days, for punishing African Americans. The Readjusters created what became Virginia State University, the South’s first publicly supported college for training African American teachers, they overhauled higher education in the state, and within two years replaced the Funders’ chronic deficits with a surplus in the treasury.
Early in the 1880s, seven Readjusters also won election to the U.S. House of Representatives. The Readjuster ascendancy in Virginia politics was as short-lived as it was dramatic. As soon as the party had accomplished the main task for which it was founded, refinancing the debt, it began to fall apart. The main reasons were that the party’s leading spokesmen, such as Mahone, Cameron, and Riddleberger, welcomed African American men into the party as fully enfranchised citizens and Mahone joined the Republicans. The emerging egalitarian thinking among the party’s leaders appealed to farmers and working-class people of both races, which alienated many white voters and political leaders who opposed the participation of poor men and Black men in politics. That raised fears of racial equality, or so-called Black domination, which opponents of the Readjusters seized on to regain control of the General Assembly.
Party’s Fall
Danville’s Role in the Readjuster Party’s Defeat in 1883
Two years later, in 1885, the Democratic Party won all the statewide offices, placing former Confederate general Fitzhugh Lee in the governor’s office. The Readjuster Party then ceased to exist. Most African Americans entered or reentered the Republican Party and a substantial number of white men who had supported the Readjusters also became Republicans. The problems with the debt continued, however, and following a long series of federal and state court cases challenging the assembly’s laws to prevent payment of taxes with coupons, the General Assembly adopted the Olcott Act of 1892 that withdrew the coupon bonds from circulation and paid the remainder of the debt that the Riddleberger Act of 1882 had promised to pay.
