Essay on Federalist No. 11

Introduction

Before getting to the plain language summary of Federalist No. 11, I’d like to take a moment to voice my disagreements and intrigue with some statements made by Alexander Hamilton in Federalist No. 11. They are as follows.

1. Hamilton mentions “the adventurous spirit, which distinguishes the commercial character of America.” Part of the American character from the very beginning was our our precociousness in commerce. We weren’t known for having the most awesome military. We didn’t go around world trying to make it safe for democracy. Every person didn’t get free health insurance an unemployment benefits. It wasn’t egalitarianism that gave us our reputation. It was our adventurousness in business and commerce that distinguished the United States. That’s what propelled us to riches and grandeur.  To continue on that track we must rekindle the entrepreneurial spirit. Bureaucracy is the opposite of an “adventurous spirit”. Too much government will prevent us from ever regaining our status as the great commercial nation again.

2. Hamilton writes “By prohibitory regulations, extending, at the same time, throughout the States, we may oblige foreign countries to bid against each other, for the privileges of our markets.” Hamilton is proposing a system whereby the Federal government would negotiate with foreign governments to grant them access to our markets. Those who offered the best concessions, for example those who would give us access to their markets in return, would be able to export their goods to the United States under favorable conditions. Favorable conditions would mean low tariffs and duties, negligible paperwork and inspections at the ports, etc. On the other had, those countries that wouldn’t play ball would get the opposite treatment. On the face of it, this might seem like a reasonable way to run the economy. In reality, it is antithetic to free markets and liberty. In the first place, under such a system, the federal government has control over who the American people can do business with. That is a power that the government should absolutely not have. Politicians would be able to play god with the economy, deciding which products would be made available, from where, and at what price. This would surely lead to corruption as key politicians would be bought off by the powerful elite from foreign countries. The disruption to the economy would be immense. Imagine a business that is dependent on a particular product coming from France, for example. If, for whatever reason, a group of politicians in Washington D.C. decide they don’t like the French anymore, the person will no longer be able get the necessary product. Now imagine the impact of on the economy if such arbitrary decision making were to be carried out on a large scale. Further, this same power could be used to subsidize American manufacturing. Indeed, that is exactly what ended up happening under the so-called “American System”. The Whig party, headed by Henry Clay and later becoming the Republican party under Abraham Lincoln, made restrictive tariffs a part of their platform. High tariffs were to be paid on foreign goods so that American made goods would be more affordable. However, without the tariff, foreign-made goods were actually cheaper. The difference in price between the foreign good and the American good was a subsidy to American manufacturers, located mostly in the northern states.The tariffs carried out under this Hamiltonian power were eventually one of the major causes of the civil war. Southern states preferred cheaper European goods, but were forced by tariff policy to subsidize northern manufacturers. The point is that people should be allowed to trade with whomever they wish without any restrictions whatsoever. Once the government gets involved in managing trade, the process becomes corrupt. Commerce and liberty are sure to suffer.

3. In a stunning display of ignorance Hamilton writes “Suppose, for instance, we had a government in America, capable of excluding Great Britain (with whom we have at present no treaty of commerce) from all our ports; what would be the probable operation of this step upon her politics? Would it not enable us to negotiate, with the fairest prospect of success, for commercial privileges of the most valuable and extensive kind, in the dominions of that kingdom?” Would it not also punish all individuals who were carrying on a successful trade with British merchants? Would it not reward exporters while punishing importers? Would it not be totalitarian in nature, infringing upon the rights of citizens to carry out free trade? Would it not possibly lead to a trade war whereby everybody would suffer? This comment by Hamilton shows that not all of the Founding Fathers were for liberty. They wanted to have their own country but they didn’t necessarily care about having a country of free individuals. If the government can step in and completely abolish all trade with another country, liberty has been abandoned. A free people must be allowed to trade with anybody they see fit on voluntarily negotiated terms. Of course, central planners will counter that a free people will only think of themselves and not the good of the whole country. To which I counter, how can the government know what is best for the people as a whole? Who made them gods? Is it more likely that a bunch of suits in a small district on the east coast know what’s best for the people or that the people themselves will know what’s best? An economy formed by the voluntary decisions of hundreds of millions of people day in and day out will be dynamic and conform to the true desires of the decision makers, the people. The centralized economy will run based on decisions made by hundreds of people and will be static and unable to meet true needs and wants of the market.

4. In discussing the creation of an American navy, Hamilton says “There can be no doubt that the continuance of the Union under an efficient government would put it in our power, at a period not very distant, to create a navy which, if it could not vie with those of the great maritime powers, would at least be of respectable weight if thrown into the scale of either of two contending parties.” The important point that I want to note here is that Hamilton was apparently already planning to get the U.S. entangled in foreign wars. Even if the U.S. navy couldn’t “vie with those of the great maritime powers,” it would at least “be of respectable weight if thrown into the scale of either of two contending parties.” Why would it be thrown in the scale unless it was getting involved in a war between two other countries? Discussing the West Indies, he goes into even further detail when he says “A few ships of the line, sent opportunely to the reinforcement of either side, would often be sufficient to decide the fate of a campaign, on the event of which interests of the greatest magnitude were suspended.” He doesn’t stop there though. He continues, “And if to this consideration we add that of the usefulness of supplies from this country, in the prosecution of military operations in the West Indies, it will readily be perceived that a situation so favorable would enable us to bargain with great advantage for commercial privileges. A price would be set not only upon our friendship, but upon our neutrality.” Hamilton was an early American interventionist.

5. Hamilton writes that other nations have “a common interest in being our carriers, and still more in preventing our becoming theirs, they would in all probability combine to embarrass our navigation in such a manner as would in effect destroy it, and confine us to a PASSIVE COMMERCE.” This is pure mercantilism. Mercantilism is the notion that the only way for one country to get rich is by getting all of the money from other countries. It logically follows from this position that the only way for a country to get rich is by exporting way more than it imports. You send the stuff out of the country, the other countries send you their money and you win. A positive trade balance must be maintained. A country must never import more than it exports. Otherwise, money will be flowing out of the country and the country will become poorer. This is why Hamilton says that other countries have “a common interest in being our carriers, and still more in preventing our becoming theirs.” If other countries are our carriers, they can control how much of our stuff leaves our country and goes to their country. Likewise if we are their carriers. Mercantilism, though alive and well even today in modern economies, has been completely demolished as a rational policy. The easiest way to understand why mercantilism is irrational is to pretend that two nations are two people, person A and person B. In the beginning, both person A and Person B have five dollars and five widgets. Over the course of a year, they trade back and forth with each other in series of voluntary trades. At the end of the year person A has three dollars and seven widgets. Person B has seven dollars and three widgets. Can we really say which person is better off? Person A will clearly think that they are in a better position, otherwise they wouldn’t have traded away money for widgets. Person B will think they are better off, for the opposite reason of person A. The truth is that they are both better off than before. Their situation more closely conforms to their preferences than it did before they traded. Mercantilism would deem person B the winner but their is no objective basis for making that proclamation. The truth is that both are winners even though person A has a “trade deficit” and person B has a “trade surplus”. The same logic applies to nations. No matter the scale, voluntary trade between individuals makes everybody, regardless of geography, better off.

6. Regarding creating a navy, Hamilton writes “To the establishment of a navy, it must be indispensable.” Hamilton makes this comment in the context of protecting commerce against foreign attacks. There are not many people who would argue against the notion that a commercial nation needs a navy to protect against the violent destruction of property in international business transactions. However, I would argue that it is beyond the scope of the government to protect business inventory once the products are beyond the country’s borders. In other words, government jurisdiction ends at their borders. Any business person who wishes to engage in international trade should do so at their own risk. After all, the government can only obtain resources by taking money from taxpayers. Why should taxpayers having nothing to do with a particular business be taxed to provide protection for said business? It is a violation of property rights. Further, if every government is in the business of protecting their citizens on the open seas, the likelihood of war is magnified greatly. With many merchants from many countries participating in transporting their wares from one land to another, mistakes and infringements are bound to occur. If each and every conflict is to be sorted out and made right by governments, rivalries will develop and the chances of war will increase. The counter argument is that without government protection on the seas, certain industries would cease to do business and that would adversely affect the economy as a whole. This is true to a certain degree. However, history shows that merchants will go through all types of hell and risk to bring their product to market. In order to properly understand whether a navy to protect commerce would be better on net for the economy, we must analyze whether the resources appropriated from other parts of the economy to be spent on protecting ocean commerce would provide a net benefit. In other words, would the increase in maritime commerce outweigh the decrease in economic activities that must necessarily occur in order to pay for the navy? Another way to think about this issue is: will the sea trade pay for itself? If the answer is no, its not worth it. If the answer is yes, there is no need for government to be involved because the merchants can pay for their own protection as a cost of doing business. So what purpose can a navy have? There is only one purpose: keep other countries from invading us.

7. Hamilton describes the effect that the formation of a strong navy would have on society. He writes “Every institution will grow and flourish in proportion to the quantity and extent of the means concentred towards its formation and support.” This is actually, surprisingly, exactly wrong. No government has its own resources. Any and every government activity is financed by diverting resources from private individuals and companies towards projects that the government deems more iportant. Therefore, in absolute contradiction to Hamilton’s statement, every institution will wither and die in proportion to the quantity and extent of the means concentrated towards any government project.

8. In discussing the effect of the Union on the economy, Hamilton writes that the “aggregate balance of the commerce of the United States would bid fair to be much more favorable than that of the thirteen States without union or with partial unions.” This statement is only correct as long as the Union strictly enforces free trade between the states or as Hamilton describes it earlier in the same paragraph “unrestrained intercourse between the States.” However, this has not been the case. The Union government, also known as the federal government, has not promoted free trade between the states. There is a mountainous library of commercial regulations that affect every single economic activity that occurs between business people in different states. Industries in certain state receive subsidies. Federal projects go to certain geographical areas based purely on politics. The states acting on their own could not have mucked things for “unrestrained intercourse between the States” the way the federal government has.

9. Hamilton, totally falsely, writes “A unity of commercial, as well as political, interests, can only result from a unity of government.” This is so off base that it is breathtaking. The examples against this statement, of course, are legion. The American colonies had just banded together to defeat the British Empire. They fought as an extremely loose confederation of states. Magically, they were able to come together and cooperate when their interests coincided. You mean human beings can cooperate without living under a big and powerful national government? Impossible! If a unity of commercial interests can only “result from a unity of government”, then why are we all wearing clothes made in Asia, eating corn and beef from Kansas and Texas, and talking to customer service agents in India? We don’t all have the same governments but our commercial interest are united. A real conundrum…..for Hamiltonians. Anybody who understands the free market knows that individuals are perfectly capable of matching their interests with those of other individuals. In a completely voluntary society where government action is only called upon to protect property rights, the entire economy would be structured in the way that best provides for the interests of everybody, not only those that are well connected to the government.

10. Discussing Europe, Hamilton writes “It belongs to us to vindicate the honor of the human race, and to teach that assuming brother, moderation.” This is surely a pre-Wilsonian statement. For Hamilton, the purpose of the new country wasn’t to protect the liberty of it’s citizens. It wasn’t to provide a place where people could live their lives as they saw fit, keeping the fruits of their labor, raising their children, falling in love, living in peace, and being free from tyranny. No, the destiny of the United States, in the Hamiltonian view, was to “vindicate the honor of the human race.” That’s a pretty lofty goal. How would it be eventually be carried out? At the point of an automatic weapon and through bombs dropping down out of the sky.

Summary

The commercial benefits that are gained by maintaining a strong union are not denied by nearly any intelligent person familiar with the issue. Trade within our own borders and with other nations will be much improved as a result of the Union.

There is evidence that the “the adventurous spirit, which distinguishes the commercial character of America” is making the great sea-faring, European nations nervous. They don’t like the idea of having to compete against America in the shipping business, which is how they make money to support their navies. Those European nations that have territory in America are worried about what the United States has the potential to become. Danger lurks for their colonies that are in close proximity to the United States. For the United states has the desire and all of the necessary resources to develop a strong presence on the seas. It is likely, therefore, that the Europeans will try to divide us up and turn us against each other. This will keep the States from having strong and prosperous commercial relationships with each other, even right here in our own country.   Such a policy would have three outcomes. 1) It would keep us from competing in the shipping business. 2) The Europeans would monopolize our business interests. 3) We would be kept from becoming a great and powerful nation. Even though it isn’t wise to look into the matter to deeply, this disruptive policy could easily be traced back to the European powers.

As long as the States stay united, we can fight off the detrimental policy carried out by those who oppose us. Through the use of tariffs and other “prohibitory regulations” against foreign countries, which will be uniform throughout every State, we can make nations that wish to do business with us compete with one another for the privilege. Anybody who grasps the importance of a market containing three million people, with a fast growing population that is almost entirely agricultural in nature, to manufacturing nations will not fail to see the benefit of this policy. Further, there will be a huge benefit to manufacturing nations in being able to carry their own products in their own ships to the United States instead of having to rely on the ships of a foreign nation to carry their products to U.S. ports. Imagine what would happen if the Federal government had the power to keep Great Britain from selling her products in our markets. Under such circumstances, the U.S. would then be able to negotiate more favorable terms for exporting her own products to Great Britain. However, some commentators have argued that this wouldn’t necessarily be the case. These people argue that the British needn’t change their system because they could simply ship their goods with the Dutch who would buy British goods and then sell them in the United States. This line of reasoning neglects to consider the loss suffered by Great Britain in not being able to ship her own goods. The Dutch would receive more of the profits on the final sale for having taken on ownership of the goods and the risk of bringing them to market. Shipping costs would work against the British as well. By making the process of bringing her goods to market more round about and complicated, the British would be edged out in the competition against competitor nations. British products would have higher prices in U.S. markets and an important part of the British economy, shipping, would be lost to other nations.

An honest contemplation reveals that Great Britain would certainly be disadvantaged by losing access to our ports. The majority of the people in Great Britain are in favor of trade with the United States. Let us not forget the damage that would be done to the West Indies trade. All of these factors would force Great Britain to negotiate a settlement with us whereby we would gain access to markets of the West Indies and other British possessions. Our economy we would receive a mighty boost as a result. It is not likely, however, that the British would accept this arrangement without receiving, in turn, increased access to our markets as well. Other nations, observing the dealings between the U.S. and Great Britain, would be much more likely to open their markets to the United States in order to maintain their trade with us and not fall behind the British.

Another way to bring European nations to the negotiating table is through the creation of a powerful national navy. Assuming that the Federal government has the necessary power to run the country efficiently, there is no doubt that United States will have the resources, in the very near future, to build a navy which would rival many of the world’s great naval powers. Even if the American navy weren’t quite as powerful as some of the other navies, it would still be respectable enough to influence the outcome of a war between two other nations. This would be especially true in the case of the West Indies. It would only take a few ships, sent out to support either side, to determine an outcome of great importance. In this particular case, we have a very strong position. In addition to the aforementioned, we can add the need of American supplies in carrying out a war in the West Indies. These considerations would certainly allow us to negotiate with “great advantage for commercial privileges.” We would not only demand concessions for our participation in a war, but for our neutrality as well. As long as we maintain a strong Union, we’ll be able to decide the outcome of political rivalries in America and in this part of the world. The United States will have the power to manipulate this situation to its advantage.

On the other hand, if we abandon the Union and the States are forced to negotiate separately with foreign nations, all of the “advantages which nature has kindly placed within our reach” will be forfeited. In that situation, our commercial interests would be at the mercy of the various powers who are at war with each other. They would not fear the consequences of their actions and would act without conscience in violating our property and taking advantage of us. Neutrality is only respected when its backed up by a strong military. A nation with a weak military can’t even claim the right of being neutral.

Under a strong and active central government, the resources of the country would be utilized, with the common interest in mind, to keep at bey any European power that would interfere with our economic growth. In fact, our strength would keep European powers from even trying to meddle with us in the first place. Flourishing commerce and an active presence on the seas would be the natural results of this situation.  Any foreign politician who tries to stand in the way of our destiny will be unable to keep us from prospering.

However, if we abandon the Union, foreign powers may be able to keep us from achieving greatness. Those countries with strong navies and an extensive sea trade would take advantage of our weakness and dictate the terms of our existence to us. Since it is good for their economies if they ship our goods and bad for their economies if we ship their goods, they would do all they could to eliminate our ocean presence and reduce us to a state of commercial dependency. We would have no choice but to accept any price offered for our goods. Profits on the sale of our products would kept by those who antagonize us. The unique American zest for commerce, which is so conducive to wealth and prosperity,  would be sapped. America would move towards “poverty and disgrace” and that would be a shame because with a little bit more foresight, the United States could be the “admiration and envy of the world.”

The Union has ownership of certain natural resources that are very much desired in world trade. Specifically, the Union owns various fisheries, trade routes to and on the great lakes, and trade routes on the Mississippi river. If the Union were to break up, there would be serious controversies over which states would have legal rights to the valuable resources mentioned above. There is no doubt that powerful interests would intervene in the deliberations and obtain rights that would hurt the rest of the country. For example, it is well known that Spain is desirous of extending her ownership along the Mississippi river. France and Britain want more control over our fisheries because their trade routes are affected. These powerful nations wouldn’t hesitate for a moment to seize more power over such valuable possessions. After all, ownership of such assets would increase their commerce and prevent us from selling our products at cheaper prices in their domestic markets. Under similar circumstances, any nation would move with haste to weaken the type of dangerous competition that we present to the European powers.

Owning resources that allow for greater sea commerce is good for the entire nation, not just certain states. The states that already have a significant maritime industry will benefit immediately. As other states begin to invest in the sea trade, they’re likely to benefit as well. With the passing of time, the country will evolve from a nation with limited maritime trade to a nation in which every state participates in commerce via our various water transportation routes.  Of course, given such a scenario, the establishment of a powerful navy is absolutely essential.

If we are to have success in the great national project of building a navy, a strong Union between the states is necessary. Every actor and organization in society that dedicates resources and energy to building a strong navy will benefit in proportion to their level of participation. It is a much more obtainable goal to build a navy for the United States than for each state to build their own navy. A United States navy would have its disposal the resources of the entire country, whereas the states could only utilize their own local funds. It just so happens that each region of the country has a unique and essential contribution to make to the construction of the navy. The southern states produce a number important naval commodities such as “tar, pitch, and turpentine.” The south also has the best wood for building dependable, long lasting ships. In fact, ships built with southern wood would be of such high quality that the duration of their service would provide both military and economic benefits. A number of southern and “Middle States” produce large quantities of high quality iron.  The sailors themselves will come from the north. Of course, it is unnecessary to even explain why we must have a navy to protect commerce. Likewise, it is obvious that lucrative maritime commerce will support a powerful navy.

Free trade between the states will cause an  increase in the quantity of economic activity in each state. This will result in greater production for both domestic consumption and for export to foreign markets.  Unrestricted trade will spread commercial activity out across the entire nation. Momentum will feed upon itself and more and more action will ensue as goods are allowed to travel freely from one part of the country to another. The economy will be much more dynamic because the different states offer such a large variety of products. If there is a bad crop in one state, a different state will be able to pick up the slack. In trading with foreign countries both the selection of different types of goods and the quality of goods offered contribute to success. It follows that a country will have more fruitful economic relations when they can offer a large selection of high quality products. Foreign commerce will suffer when a country only has low quality or a limited selection of offerings. There will be times when certain items are in high demand. At other times the same items won’t be able to find a market. However, a nation that offers many types of goods will be able to do business even if some of their products are not in demand. All of their goods won’t be in low demand at the same time. Under such circumstances, businessmen will be continually occupied selling their various wares where demand is highest. Speculators will easily see that these statements are true. None will argue that the commerce of the nation as whole is better off under a union than it would be if organized as thirteen separate states or a number of smaller unions.

Some will respond that with or without the Union, the States will still carry on extensive trade with each other and the resulting variety and quality of the products would be the same as under the Union. This, however, is untrue. There exist a number of complications that would interfere, interrupt, and limit trade between the states. Such problems have already been discussed in previous papers. Cooperation in commercial and political activities can only be obtained if everybody lives under the same government.

There are other ways of looking at this issue which would be very illuminating. However, doing so would take this discussion way off course. It should be observed, though, that an honest assessment of our situation and interests calls for a federal government, superior to the states. The world is divided into four regions, each with their own interests. Europe, though shrewd coercion and trickery, has come to dominate the other three. Africa, Asia, and the Americas have all fallen under dominion. Europe’s success in lording her power over the rest of the world have made her feel invincible. She looks upon the people of the globe as existing only to serve her. Intellectuals have attributed unique physical gifts to the people of Europe while claiming that animals and humans alike “degenerate in America.” This has gone on for too long. It is up to the citizens of the United States to prove Europe wrong and teach her humility. A strong union will make this possible. Disunion will add us to the list of victims. Americans must resist falling prey to the Europeans. Our thirteen states must come together to form a powerful, ever lasting American union that will be able to stand up against foreign intrigue and influence. If we do this, we’ll be able to deal with Europe on our own terms.

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