Essay on Federalist No. 12

Introduction

Before getting to the plain language summary of Federalist No. 12, I’d like to take a moment to voice my disagreements and intrigue with some statements made by Alexander Hamilton in Federalist No. 12. They are as follows.

1. Hamilton writes “The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth.” This statement gives us interesting insight into the prevailing philosophy during the time of our country’s founding. We learn that during the era when the Constitution was crafted, the “prosperity of commerce”, was considered to be the “most useful as well as the most productive source of national wealth.” Oh, how the times have changed! In the twenty first century, war and welfare programs are considered the appropriate way to make our country richer. Corporations are viewed as money grubbing thieves, while politicians are looked upon to make our lives better. The truth is just the opposite. Those who bring products to the market and engage in voluntary business transactions are truly responsible for raising our standard of living.

2. Hamilton writes “By multipying the means of gratification, by promoting the introduction and circulation of the precious metals, those darling objects of human avarice and enterprise, it serves to vivify and invigorate the channels of industry, and to make them flow with greater activity and copiousness.” Note that “precious metals”, gold and silver, used to serve as money. Hamilton here appears to be recommending an inflationary monetary policy to stimulate the economy. He equates “promoting the introduction and circulation of the precious metals” with increasing action in “the channels of industry and to make them flow with greater activity and copiousness.” How could the government inflate the money supply if gold and silver were money? First, the federal government was to be in charge of minting coins. The government could mint more coins and put them into circulation. Second, Hamilton was in favor of a central bank. This would allow the federal government to pyramid paper dollars on top of precious metals. In a sense, Hamilton is right. Increasing the money supply does invigorate the economy, temporarily at least. The downside is that increasing the money supply creates the business cycle. When “greater activity and copiousness” in the economy is due to a government injection of money, a bust will inevitably ensue. Business activities that made sense as long as the money supply was increasing will turn out to be unprofitable as soon as the monetary spigot is turned off. Recessions and depression ensue. It is also useful to understand that when the government officials involve themselves in regulating the money supply, they are interfering with the free market. Gold and silver became money not by government decree but rather as a result of the decisions of individuals on the market. Supply and demand regulate the quantity of money produced. When the government gets involved with altering the money supply, it supersedes decisions made by private individuals. This violates property rights and disfigures the structure of the economy. When the economy is manipulated in this way, it becomes less suited to meet the demands of private actors and more suited to carry out political designs.

3. In an ode to commerce, Hamilton writes “Could that which procures a freer vent for the products of the earth, which furnishes new incitements to the cultivation of land, which is the most powerful instrument in increasing the quantity of money in a state–could that, in fine, which is the faithful handmaid of labor and industry, in every shape, fail to augment that article, which is the prolific parent of far the greatest part of the objects upon which they are exerted?” This is an eloquent expression of the benefits provided by the free market. People work harder. New methods of production are discovered. Output increases. In a material sense, the world becomes a better place as a greater supply of higher quality goods become more accessible to the masses. These effects are all to the good and are the natural results of a free society. Hamilton does error on one point. As long as the government doesn’t get involved, commerce is not necessarily “the most powerful instrument in increasing the quantity of money in a state.” The fact is that free commerce may or may not bring more money into the state. It depends on the preferences of the people living in the state. If the people of a state desire to hold money so strongly that they are willing to trade away other goods and services for it, the quantity of money in the state will increase. If a free people prefer to have goods instead of holding money, money will leave the state. As long a people are permitted the freedom to pursue whatever makes them happiest, it doesn’t really matter one way or the other how much money stays in the state. What does matter though, is that the quantity of goods and the access to services is always increasing. This is the result of a more productive economy not an economy with more money circulating. Greater production is the result of capital accumulation. Capital accumulation can be seen in new and better tools and machinery, new technology, labor saving devices, inventions and discoveries, etc. This can only occur as the result of saving. Saving allows certain people to focus on improving productivity without starving in the meantime. Money is not capital. Money is a medium of exchange. In and of itself money can’t make a society more productive. Only an increase in production resulting from savings and investment can make us better off in a material sense. For that reason, Hamilton is incorrect in listing ” increasing the quantity of money in a state” as a benefit of commerce.

4. In the third paragraph of Federalist No. 12, Hamilton makes some grievous statements. I’m going to go through this paragraph sentence by sentence and discuss what makes this paragraph so disturbing. Hamilton errors right off the bat, writing “The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates.” This is false. Hamilton makes a similar statement in a previous paragraph as well. Money itself will do nothing for the government or help it execute its designs. The government needs resources. Money is an intermediary that facilitates obtaining resources. The government can have all the money it wants but without sufficient resources it can’t do anything. Imagine, for example, that the government wants to build a navy. Clearly, tons and tons of gold can’t make that happen if the economy doesn’t have enough wood, metal, and labor available to make that happen. What Hamilton doesn’t seem to understand is that an economy can be highly productive and wealthy without a lot of gold rapidly circulating through it. Hamilton should have written is “The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of goods and services available.” Next, Hamilton writes “Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury.” Hamilton shows his true colors in this passage. A flourishing economy isn’t important to him because it makes the lives of free people better. Nope. That takes a back seat to making “the payment of taxes easier” and facilitating “the requisite supplies to the treasury.” This is a common theme seen throughout the Federalist Papers written by Hamilton. He equates the success and dignity of a country with the wealth and power of its government. By that definition, Hamilton is a raging nationalist. Of course, history shows us that the prosperity of the people and the power wielded by the government move in opposite directions. One must diminish the other. A free people must choose which they prefer because they certainly can’t have both.  Hamilton continues by telling us about the Emperor of Germany. He writes, “The hereditary dominions of the Emperor of Germany contain a great extent of fertile, cultivated, and populous territory, a large proportion of which is situated in mild and luxuriant climates.” This sounds great, right? The Emperor and the people of Germany must be pleased to live in such wonderful surroundings. Think again. Hamilton informs us that “In some parts of this territory are to be found the best gold and silver mines in Europe. And yet, from the want of the fostering influence of commerce, that monarch can boast but slender revenues.” For shame! Here, again, we see that Hamilton does not care one way or the other about the effects of commerce on the people of a nation. His only focus is on the public treasury. Without trade, the government can’t collect taxes. If the government can’t collect taxes, it is able to carry out public projects and start wars. No projects and no wars make a government small an undistinguished. An impoverished, inactive government is the symbol of a poor, weak country. This whole line of reasoning is completely bogus. An impoverished, inactive government is the sign of a free people. It is the sign of a dynamic economy. It is the sign of voluntary cooperation. Hamilton concludes the paragraph, “He has several times been compelled to owe obligations to the pecuniary succors of other nations for the preservation of his essential interests, and is unable, upon the strength of his own resources, to sustain a long or continued war.” This sounds all too familiar. Be it an eighteenth century German Emperor, or a twenty first century Constitutional Republic/Democracy, governments inexorably run deficits, or as Hamilton says it, “owe obligations to the pecuniary succors of other nations for the preservation of his essential interests.” Of course, its ironic that Hamilton appears to laments this. He was well known for his opinion that running a government deficit was actually a good thing for a nation. The people who financed government debt tended to be big industrialists. As Hamilton saw it, government debt was a means for forging a stronger bond between the government and the wealthy class of a country. This would be important for carrying out large public projects, and especially for carrying out wars. Well, he got what he wished for. The government and the rich are very well connected. It hasn’t turned out too well though. In 2011, the economy is reeling and official government debt is now more than 100% of GDP. Finally, we learn from Hamilton that commerce is important because it facilitates war. The poor Emperor was “unable, upon the strength of his own resources, to sustain a long or continued war.” Again, trade and a strong economy aren’t good things because they make our lives better. They are necessary in case we need to carry out a long and sustained war. Of course, the United States hasn’t fought a truly defensive war since the Revolutionary War. Further, the government runs wartime deficits anyways. Even with the largest and most robust economy in the history of mankind, the United States government has run huge war time deficits to fight its numerous interventionist wars.

5. Take a look at how Hamilton describes what happened when the state governments tried to raise taxes on the people. He writes “Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty.” Americans were so stubborn about paying taxes that they had “defeated every experiment for extensive collections, and has at length taught the different legislatures the folly of attempting them.” This is the quintessential American tradition, saying “Hell No!” to the tax man. Where has this attitude gone and how can it be rekindled? The government has come up with many devious ways to rip us off. Deficit financing and monetary inflation are the principal ways that government takes money from us without us realizing it. Americans today lack the courage to stand up to government, at any level, that they once had. It was a magnificent and original quality and it is necessary to protect liberty. Each individual should do their best to fire up a defiant spirit within them. It doesn’t mean that you have to go around raising hell. It means that you must always maintain in your heart a love of liberty that you will sacrifice for no man. Of course, Hamilton saw the State’s inability to collect taxes as great defect in the system. It was a problem to be fixed, not a joy to behold. Indeed, Hamilton was a statist.

6. Hamilton writes that in late eighteenth century Great Britain “the greatest part of the national revenue is derived from taxes of the indirect kind, from imposts, and from excises.” This is interesting as a historical aside. Nowadays, the vast majority of government revenues come from direct income taxation, personal and corporate. Our ancestors never would have tolerated such an infringement.

7. Even though Hamilton seems none to pleased by the attitude of the American people of his time, he gives a very heartening description of how Americans used to be. Discussing taxes, he writes “The genius of the people will ill brook the inquisitive and peremptory spirit of excise laws. The pockets of the farmers, on the other hand, will reluctantly yield but scanty supplies, in the unwelcome shape of impositions on their houses and lands.” Americans hated to pay taxes and the only to get it from them was to not take too much and to take it in a way that was very respectful of the liberties. Times change. People actually think of paying taxes as a patriotic thing to do! We’ve all heard somebody say something to the effect of “I pay my taxes because I’m a good citizen and a decent member of society.” Had they said something similar two hundred and thirty years ago they would have been shouted down. Avoiding taxes at all costs used to be patriotic. Americans understood that giving the government too much power was about the least responsible thing that a decent citizen could do.

8. The topic of Federalist No. 12 is “The Utility of the Union In Respect to Revenue”. The title alone let’s you know that this particular Federalist Paper will discuss why the new constitution is conducive to collecting more taxes. However, there is one paragraph that, at least in my humble opinion, is way over the top. It is no wonder that the Constitution wasn’t initially ratified by New York. Hamilton essentially comes right out and says “Vote for the Constitution and we’ll raise your taxes!” This passage is enough to completely sour my opinion of the American Constitution. If this is what the Founders had in mind for our country, then the Founders were way off base. Hamilton starts of by writing that “that state of things which will best enable us to improve and extend so valuable a resource must be best adapted to our political welfare.” The “valuable resource” referred to is the federal government’s ability to tax the citizenry. In other words, Hamilton believes that the easier it is for the federal government to generate revenue for itself, the better off our country’s “political welfare” will be. Of course, I vehemently disagree. When the government takes resources from the private economy, nine hundred and ninety nine time out of a thousand, it is going to squander them. The money will be spent on paying a bureaucrat to sit at a desk, pushing papers. Such waste is terrible for our  “political welfare” and completely unjust. Hamilton continues “And it cannot admit of a serious doubt, that this state of things must rest on the basis of a general Union.” So, the general Union and the Constitution that preserves it eternally, create the best “state of things” for maximizing government revenue. This, then, is the Hamiltonian view of the government made simple: The Union is good because it gives the government more power. In the same paragraph, commenting on the effect that increased commerce has on taxation, Hamilton writes “As far as this would be conducive to the interests of commerce, so far it must tend to the extension of the revenue to be drawn from that source.” Commerce is good because it can be taxed, not because it makes peoples lives better. After all, if the purpose of commerce is making people better off, why limit it by taxation at all? Would it not be better to get the government out of the way and let commerce continue unhampered? This is not how Hamilton sees the matter. For him, commerce is good because it generates the resources necessary to support federal initiatives. Hamilton concludes “As far as it would contribute to rendering regulations for the collection of the duties more simple and efficacious, so far it must serve to answer the purposes of making the same rate of duties more productive, and of putting it into the power of the government to increase the rate without prejudice to trade.” It must be conceded that a strong federal union does make the collection of taxes easier for the government. However, it has not made the collection of taxes more simple for the citizens. The federal tax code is a monstrosity. It is so bad that citizens have to pay people of near genius intelligence top dollar just to figure out how much tax they owe. Tax money also has to be spent on thousands of bureaucrats to make sure that the correct amounts are being paid. This is not “simple and efficacious”. In Hamilton’s mind, since collecting taxes would be relatively painless, the arrangement would provide for “the power of the government to increase the rate without prejudice to trade.” Bully! Taxes would be so much easier to collect, and the process so efficient, that the government could keep raising rates and nobody would even notice.

9. In paragraph eight of Federalist No. 12 Hamilton makes the claim that a Union is needed because without it there would be too much free trade between the states. The laissez-faire would be so pernicious that it would be impossible to carry out a mercantilist policy of limiting imports and subsidizing exports. He has the gall to point out that Americans wouldn’t be able to carry out the same type of economic policies as Europeans, when it was precisely the European style of government that colonists were rebelling against. Here we go, sentence by sentence. Hamilton starts out by writing “The relative situation of these States; the number of rivers with which they are intersected, and of bays that wash there shores; the facility of communication in every direction; the affinity of language and manners; the familiar habits of intercourse;”. This sounds almost like a paradise doesn’t it? Neighbors live in close quarters using nature provided gifts to travel and carry out trade. They are able to share technology and pass along the latest news across shared bays and up and down convenient river systems. Everybody has the same mother tongue so communication is undertaken with a minimum of effort. The same manners and morals are shared by all. There could be no better situation than this for a new country to grow and prosper. What does Hamilton think of all this? He hates it. He explains “all these are circumstances that would conspire to render an illicit trade between them a matter of little difficulty, and would insure frequent evasions of the commercial regulations of each other.” All of this harmony made it way too easy for free people to carry on relationships without government interference. It was so hard for Hamilton to countenance voluntary interactions between people in the absence of government oversight that he resorts to describing such perfectly legitimate relationships as “illicit”. In his mind, free trade between the citizens of the states is equated with “evasions of the commercial regulations of each other.” What, then, would be the results of all of this liberty? Hamilton answers “The separate States or confederacies would be necessitated by mutual jealousy to avoid the temptations to that kind of trade by the lowness of their duties.” This is the worst of the worst for Hamilton. Open commerce between citizens would undermine the commercial regulations of the states. Under such circumstances, the various States, in order not to be cut out of the trade altogether would loosen up their rules and lower their duties. The market, after all, is very competitive. Those states that don’t comply with the will of the people will be left behind economically. Further, if the States didn’t relax their laws, they’d be making criminals out of their citizens. Putting people in jail for simply doing business is, or was, a sure way to not get reelected. Hamilton disliked this scenario because “The temper of our governments, for a long time to come, would not permit those rigorous precautions by which the European nations guard the avenues into their respective countries, as well by land as by water.” The “rigorous precautions” referred to here are trade barriers and high protective tariffs. Hamilton hates the idea of free trade between the states because it would prevent the country from implementing high import duties. We can see where all of this is headed. A strong federal government is needed to keep the free people of the different states from undertaking rigorous, unhampered commerce. For, if the states lower their duties, it would undermine the high tariff program that the federal government wants to carry out. For Hamilton, that is simply unacceptable. After all, the Europeans had a high tariff policy and look how powerful they were. It must be explained briefly why high tariff policies are bad for regular citizens. Imagine you buy pants made in China. A pair cost ten dollars. Pants are also made in the United States but a pair made in America costs twenty dollars. The quality is essentially the same. So, all things being equal, you prefer to get the more affordable pants. Now the federal government steps in and slaps a ten dollar import duty on all pants made abroad. Now your choices are between a twenty dollar pair of American made pants and a twenty dollar pair of Chinese made pants. Either way, you lose. The winners are the American manufacturers or the American government, depending on which pants you buy. You are not the only loser though. Now there is an additional ten dollars spent on pants that otherwise could have been spent on something else. Some worker will be unemployed to the tune of ten dollars as a result of the tariff. It can be countered that more workers will be employed either by the American manufacturer or the government depending on which pair of pants is purchased and that will create more jobs too. There is a fundamental difference however. In one case employment is being created by the true demand of the people. In the other case the demand is being created by the government through tariff policy. That being the case, even though the same amount of jobs are being created, the economy is becoming disfigured and deformed. It is being structured to suit political needs and not the true needs of the citizens. Further, there is a gross violation of property rights. For all intents and purposes, the government is taking ten dollars from our defenseless pants buyer. Depending on which pair of pants is bought, it either keeps the ten dollars for itself or gives it to the American pants manufacturer. Finally, Hamilton concludes the paragraph “and which, even there, are found insufficient obstacles to the adventurous stratagems of avarice.” “Even there” is Europe and we can see that high tariff and all, the Europeans were unable to completely stifle free trade. Of course, for Hamilton, that is a crying shame. He refers to free market transactions as “adventurous stratagems of avarice”, or in lay terms, adventurous strategies of greed.

10. I hate to beat a dead horse but I must point this out. Hamilton writes “If, on the contrary there be but one government pervading all the States, there will be, as to the principal part of our commerce, but ONE SIDE to guard–the ATLANTIC COAST.” Here, again, is further proof that Hamilton would use the federal government as a tool for restraining free trade. He would have the federal government regulate all commerce and would keep Americans from entering into agreements based on voluntarily negotiated prices. This is an intolerable breach of liberty.

11. In paragraph ten of Federalist No. 12, Hamilton continues with his misguided, protectionist economic policies. In a certain passage, Hamilton mentions the great security provided by the Atlantic ocean. It acts as a giant buffer separating the United States from potentially aggressive European nations. Of course he is correct. However, I couldn’t help but chuckle when I continued reading and learned that Hamilton viewed the Atlantic not as protection against foreign invaders but rather as “a prodigious security against a direct contraband with foreign countries.” This is simply absurd. If businessmen from other countries bring goods to market that people want and are willing to purchase voluntarily, the ocean between them is actually an obstacle not a protection. The government that stands in the way of voluntary transactions is the real threat. It threatens a citizen’s liberty to dispose of their own, hard earned property, as they see fit. It threatens our standard of living by keeping us from purchasing the newest and best products from all over the world. Finally, it threatens the ability of American merchants to take their goods overseas and improve the lives of people in far away lands.

12. Hamilton writes “It is therefore evident, that one national government would be able, at much less expense, to extend the duties on imports, beyond comparison, further than would be practicable to the States separately, or to any partial confederacies.” Arguing that the government will have the ability to collect, “beyond comparison”, more taxes should be a strike against forming a national government, shouldn’t it? Hamilton is an influential guy in American history and he is saying in no uncertain terms that the Constitution will help the government take more money from the people. That isn’t a good thing. Time to rethink the quality of our Constitution. In the same paragraph, Hamilton continues “Hitherto, I believe, it may safely be asserted, that these duties have not upon an average exceeded in any State three per cent. In France they are estimated to be about fifteen per cent., and in Britain they exceed this proportion. [1] There seems to be nothing to hinder their being increased in this country to at least treble their present amount.” Hamilton the protectionist strikes again. He is proposing a tripling of taxes! Why? To be more like the Europeans.

13. Hamilton writes “The single article of ardent spirits, under federal regulation, might be made to furnish a considerable revenue.” To be consistent, a person who is for liberty must oppose a tax on alcohol. I’ve often heard the refrain that marijuana should be legalized and taxed. This is offered as  a win win solution. However, it is an unjust solution. Taxing alcohol and marijuana denies people the write to do what they please with their own body. Our bodies are our primordial property. If we can’t even decide what we can and cannot do with our bodies, it is impossible to secure any further rights for ourselves. Paying the government to enjoy a beer or a smoke is essentially being granted their permission to do what we please. We do not need their permission! I personally don’t drink or use any drugs. However, I understand that being accepting of other individuals who do wish to partake in such enjoyments have a right to do so. Giving the government the power to deny that right will surely lead, in short order, to an erosion of all other rights. Therefore, the proper pro-liberty position is to legalize all substances for self consumption and don’t tax them.

14. Hamilton provides a revealing glimpse into the true nature of government. He writes “And as, on the other hand, the wants of the government can never obtain an adequate supply, unless all the sources of revenue are open to its demands, the finances of the community, under such embarrassments, cannot be put into a situation consistent with its respectability or its security.” This passage should be analyzed in two parts. First Hamilton notes that “the wants of the government can never obtain an adequate supply.” Indeed! This is certainly the case. It appears to be a universal law of government that it is never satisfied with the amount of money it takes from its citizens. The budget keeps growing every single year regardless of the rate of population growth, increase in the size of the economy, or any other metric which could justify the government’s constant snowballing. It doesn’t even matter if it has enough money to pay for its  growing number of functions. What it can’t collect in taxes it borrows or prints. Knowing that the federal government will have an insatiable desire for funds, what is to be done to provide it revenues? Hamilton answers “unless all the sources of revenue are open to its demands, the finances of the community, under such embarrassments, cannot be put into a situation consistent with its respectability or its security.” Hamilton prescribes making “all the sources of revenue are open to its demands.” Nothing is off limits. Whatever the government wants it must have. Otherwise, our country “cannot be put into a situation consistent with its respectability or its security.” Again, we see Hamilton conflating government power with the greatness of a country. I personally see the greatness of a country as being the result of how free it is and how prosperous and enlightened the people are. Hamilton would disagree.

Summary

It has been shown in previous papers that a strong union is good for commerce in the United States. In this paper we’ll see that the Union is also favorable for generating tax receipts for the federal government.

Almost all “enlightened statesmen” now accept that the best way to make a country more prosperous is through extensive private commercial activity. For this reason, the most important goal of many modern politicians is to support trade. By encouraging merchants to produce more goods and by circulating more gold and silver, the government can stimulate the economy. Businessmen and laborers of all sorts are pleased when they can receive more money in exchange for their hard work. It has often been observed that a natural conflict exists between agriculturists and merchants. However, real life experience shows that no such problem actually exists. The extension of profitable commerce  has proved conclusively that their interests are actually inseparable. Land values have increased in the countries where active trade has been allowed to flourish. Of course, all of this is quite logical. Anything that promotes more freedom in taking advantage of natural resources, encourages more citizens to work their land, and brings more money into the country must be beneficial. Commerce increases hard work and ingenuity. Not only that, trade must cause all parts society to become more productive. It is hard to believe that there could be anybody against increasing commercial activity. The fact that some men come out against promoting commerce shows how jealousy and confusion from the over sophistication of ideas can “lead men astray from the plainest truths of reason and conviction.”

As a country accumulates more money, it will be easier for the citizens of the country to pay taxes. The quantity of money in circulation and the number of transactions it facilitates have a direct impact on government expenditures. A strong economy increases both the quantity of money and the velocity with which it circulates. It stands to reason, then, that active commerce will facilitate tax payments by citizens and provide the treasury with the funds it needs to finance the government. The lands of the Emperor of Germany are enormous, filled with people, highly productive, and located in zones blessed with moderate weather. Among the Emperor’s lands are some of the “best gold and silver mines in Europe.” In spite his possessions, the Emperor, due to a lack of commerce, receives very little in the way of taxes from his subjects. In fact, on many occasions the Emperor has been forced to borrow money from other countries in order to carry out the plans of his government.  He cannot even carry on a proper war with his paltry tax revenues.

The Union will be beneficial for generating government revenue in ways other than just promoting commerce. In fact, these additional benefits will bring in even more revenue, and quicker, than promoting trade alone could. It is obvious when observing the American people and looking at past attempts to levy taxes that a direct tax on the people isn’t likely to bring in very much money. A lot of new tax legislation has been passed. Different ways have been tried for collecting taxes owed. Its all been for nothing. The State governments have been unable to get their hands on the taxes they need. Governments of the people, by nature, are unable to collect much in the way of taxes. Additionally, there isn’t much money in the country as a result of a weak economy. That is why every time a state government tries to collect taxes, it ends in failure. After having failed so many times to collect taxes, the state government have given up on even trying.

Nobody who knows about how taxes are collected in other countries will be surprised by this. Even in a country as rich as Great Britain, where the people have much more money with which to pay taxes, and the government is much more active than it is United States, the majority of government revenues come from “taxes of the indirect kind, from imposts, and from excises.” A large portion of the excises collected come from taxes on imported goods.

It obvious that the federal government of the United States will have to depend on indirect taxes to generate revenue for a long time to come.  Even excise taxes have to be strictly limited. Americans are too jealous of their liberties to tolerate the invasion of privacy and interference with their affairs that excise taxes imply. Farmers are only willing to pay a very small property tax on their lands and they don’t give that up willingly. Personal property is too widely dispersed and hard to keep track of to collect anything but a sales tax on it.

If the above analysis is true, then anything that will help the federal government collect more taxes will be for the good of the country. Of course, the only way to set up a system of greater taxation in the United States is through the maintenance of a strong union. To the same degree that the Union will increase commerce between the states, it will also help the federal government collect more money. Expanded trade will create a larger tax base from which to collect taxes. If a union government can make the collection of taxes easier and more efficient, more can be done with the same amount of tax because there will be less waste. The ease of obtaining tax funds would also permit the government to increase taxes without harming the economy.

The fact that the states are located so close to each other; that they many rivers and bays; that citizens are able to easily communicate with people in other states; that everybody shares the same morals and language; that similar manners and social mores exist throughout the country; all of these factors make it very easy for merchants to carry on illegal trade with people of other states. It is all too easy to ignore the various laws regulating interstate commerce. As a result, the various states or separate confederacies, because of their desire to improve their economy at the expense of their neighbors, would be forced to lower their excises to attract more trade. Under such circumstances, the United States wouldn’t be able to protect its domestic industry the way the Europeans do. In fact, even the Europeans, despite their government’s power to limit imports, are unable to keep rogue merchants from illegally smuggling goods into their countries.

The French keep an army of active duty soldiers on guard to keep goods from coming into the country illegally, that is without paying duties. Jacques Neckar, French finance minister, estimates the number of troops at twenty thousand. This provides Americans with a real life example of how hard it is to suppress illicit trade, especially when neighbors are able to easily communicate with each other. It is easy to see how hard it will be for the government of the United States to collect its taxes, given that it faces circumstances similar to those of the French government. Disunion among the States will cause economic rivalries that mirror the rivalries between France and other European nations. The French soldiers that keep foreign goods out must necessarily be armed. Such a thing would not be tolerated by American citizens.

On the other hand, if there is but one powerful government in charge of all the states, it will only be essential to guard foreign goods from coming in illegally on the Atlantic coast. Foreign boats, loaded up with their precious inventory, would very rarely risk dangerous attempts to evade import taxes by unloading their shipments before they make it to our ports. Ships wishing to avoid duties would have to negotiate our dangerous coastline and avoid being caught in the act by our government officials. It wouldn’t take an overwhelming amount of work to make sure that our deserved revenue is collected. A few armed ships, set up to monitor the sea surrounding our ports, could very affordably make sure that our laws are enforced. Further, because a single government would be in charge over every state, enforcement throughout the entire land would be much more manageable.  The Union provides yet another benefit, one that perishes in the absence of union. There is a long distance between the United States and Europe, and for that matter, between all of the other countries with whom we conduct foreign trade. It is impossible for merchants from other nations to get here in a few hours or overnight, the same way French, British, and other European traders can with their neighbors. Our geographic location secures against having illegal goods smuggled into our country.  However, it would be both easy and risk free to smuggle goods in through one state en route to selling them to end buyers in other parts of the country. Anybody with a brain can see the big difference between having foreign goods imported directly into the country via official channels or having goods come in indirectly and unofficially through various different states, in small quantities, to be traded on the hush in the black market.

Its quite obvious that a single national government would be much more capable, with much less effort, of collecting an extraordinarily larger amount of import duties than would separate states or miniature confederacies. Up until now, import duties haven’t exceed three percent in any state. In France, the tariff rate is fifteen percent. They’re even higher in Britain. There is no reason why our tariffs couldn’t be at least three times higher than they are now. Just allowing the federal government to tax alcohol alone would raise a lot of money for the government. Based on the amount of liquor that the state of New York imports, it can be estimated that at least four million gallons of booze are imported by the U.S. every year. If a shilling per gallon were to be charged, two hundred thousand pounds of tax revenue could be collected by the government. The price of alcohol is low enough that it could easily handle an additional tax without affecting the level of consumption. However, if the effect of the tax is to lower the amount of spirits that Americans drink, that is a good thing for “the agriculture, to the economy, to the morals, and to the health of the society.” The legality of alcohol is, after all, perhaps the most controversial political issue in the country today.

What will happen if the government isn’t able to get its hands on sufficient tax revenue? A government can’t last very long without taxes. It will be forced to surrender its sovereignty and become ruled by some other country. No government will permit this to happen voluntarily. Under any circumstances, taxes must be collected. In the United States, the easiest way to collect revenue is by laying duties on commerce. If this fails, a direct tax on land must be resorted to. As we’ve seen elsewhere in these papers, the American people aren’t likely to tolerate an excise tax on land. Further, in certain states where agriculture is the main industry, there isn’t even enough land to make collecting taxes worthwhile. Estate taxes are hard to collect because it is difficult to figure out who is actually in possession of the estates. The only real way to raise revenues from estates is by taxing consumption. In cities with a lot of people, estate taxes are likely to cause a large uproar without providing significant benefits. However, once you get outside of cities its almost impossible to get taxpayers to comply. No matter what, the federal government will have to get its money somewhere and if it can’t get it from other sources it will, from necessity, resort to taxing land.  Additionally, the federal government will never run out of reasons to want more and more money. Unless the government has access to all possible revenue sources, it will be in constant need of funds. This will endanger the country’s security and respectability. If there isn’t enough money for the government to carry out its projects, it will have collected taxes from land owners in vain. The citizens will have paid for projects that can’t be carried out to completion. Both the public and the private sector will deteriorate and all will damn those who supported disunion.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: