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Well, that depends on who you ask; Wikipedia claims, for instance, that the original Manhattan was made with American whiskey. I make mine with Maker's Mark, following those exact proportions above (though I don't usually bother with the orange), and it's my favorite drink. Damn tasty.

So who makes "Blended Bourbon" nowadays?

As far as blended bourbon- there's tons of it out there. Anything that's not single barrel is blended bourbon.

jpschust - nice theory; unfortunately it isn't one that's backed up by the historical record.

Manhattans were being served in, you guessed it, Manhattan decades before the enactment of Prohibition (it came out in the 1880s, if memory serves -- a more detailed exploration of the drink's history is included in the recent book Imbibe!, by David Wondrich).

At that time, the Northern states were awash in rye whiskey, which, in the mid- to late 19th century, was far more common to find in the area than the Southern bourbon, or Canadian whisky. It wasn't until Prohibition that many of the venerable rye whiskey distilleries were permanently shuttered; this was the era when calling for "rye" became the equivalent of asking for the far more available Canadian whisky. Today, many bartenders will still reach for a bottle of Canadian Club or the like when asked for rye -- this despite the fact that almost none of today's Canadian whiskies are made with mashbills composed primarily of rye.

And no, the recipe didn't change because better quality American whiskey became more widely available; the switch from vermouth-heavy to whiskey-heavy occurred, again, decades before Prohibition, when decent American rye was still widely available. Changing tastes had more to do with it than seeking to obscure the flavor of bad whiskey.

Finally, no, blended bourbon is NOT anything that's not a single barrel. This is required by federal statute: any whiskey labeled as a straight bourbon or rye must contain ONLY barrel-aged whiskey, plus any water added to bring it to the appropriate bottling proof. Single-barrel whiskies such as Blanton's Bourbon come from, you got it, single barrels; straight whiskies such as Jim Beam, Maker's Mark, Wild Turkey or the Sazerac Rye you mentioned are made by mixing the whiskey from a number of different barrels to obtain a certain flavor profile, then adding water to reduce it to the desired proof.

Blended bourbons/American whiskies such as Kessler, Beam's Eight Star or Monarch, on the other hand, are made from at least 51 percent aged bourbon or other type whiskey mixed with unaged grain alcohol and water (as far as I know, there are no blended American rye whiskies currently on the market). The effect is to take the flavor of the whiskey and stretch it using a lower cost ingredient. As a result these whiskies are typically more neutral in flavor and are generally considered inferior. (And keep in mind there's a difference in rules and procedures between American whiskies such as bourbon and rye and other whiskies such as scotch; my comments apply only to American whiskies). Again, this is all codified in federal law, and has been for more than a century.

More info on types of bourbon can be found here: http://www.straightbourbon.com/faq.html. More great info on the history of different American spirits and cocktails can be found in William Grimes' excellent Straight Up or On the Rocks, as well as in the previously mentioned Imbibe.

May I suggest Pikesville Rye??