FReeper Book Club: The Debate over the Constitution, Federalist #21

Hamilton pays a great deal of attention to taxation policy in these papers, and here he lays out indirect and direct taxation.

² Having in the three last numbers taken a summary review of the principal circumstances and events which have depicted the genius and fate of other confederate governments, I shall now proceed in the enumeration of the most important of those defects which have hitherto disappointed our hopes from the system established among ourselves.

³ To form a safe and satisfactory judgment of the proper remedy, it is absolutely necessary that we should be well acquainted with the extent and malignity of the disease.

⁴ The next most palpable defect of the subsisting Confederation is the total want of a sanction to its laws.

⁵ The United States, as now composed, have no powers to exact obedience or punish disobedience to their resolutions, either by pecuniary mulcts, by a suspension or divestiture of privileges, or by any other constitutional mode.

⁶ There is no express delegation of authority to them to use force against delinquent members, and if such a right should be ascribed to the federal head as resulting from the nature of the social compact between the states, it must be by inference and construction in the face of that part of the second article by which it is declared, “that each State shall retain every power, jurisdiction, and right, not expressly delegated to the United States in Congress assembled.”

⁷ There is, doubtless, a striking absurdity in supposing that a right of this kind does not exist, but we are reduced to the dilemma either of embracing that supposition, preposterous as it may seem, or of contravening or explaining away a provision which has been of late a repeated theme of the eulogies of those who oppose the new Constitution, and the want of which, in that plan, has been the subject of much plausible animadversion and severe criticism.

⁸ If we are unwilling to impair the force of this applauded provision, we shall be obliged to conclude that the United States afford the extraordinary spectacle of a government destitute even of the shadow of constitutional power to enforce the execution of its own laws.

⁹ It will appear, from the specimens which have been cited, that the American Confederacy, in this particular, stands discriminated from every other institution of a similar kind and exhibits a new and unexampled phenomenon in the political world.

¹⁰ The want of a mutual guaranty of the state governments is another capital imperfection in the federal plan.

¹¹ There is nothing of this kind declared in the articles that compose it, and to imply a tacit guaranty from considerations of utility would be a still more flagrant departure from the clause which has been mentioned than to imply a tacit power of coercion from the like considerations.

¹² The want of a guaranty, though it might in its consequences endanger the Union, does not so immediately attack its existence as the want of a constitutional sanction to its laws.

¹³ Without a guaranty, the assistance to be derived from the Union in repelling those domestic dangers which may sometimes threaten the existence of the state constitutions must be renounced.

¹⁴ Usurpation may rear its crest in each state and trample upon the liberties of the people while the national government could legally do nothing more than behold its encroachments with indignation and regret.

¹⁵ A successful faction may erect a tyranny on the ruins of order and law while no succor could constitutionally be afforded by the Union to the friends and supporters of the government.

¹⁶ The tempestuous situation from which Massachusetts has scarcely emerged evinces that dangers of this kind are not merely speculative.

¹⁷ Who can determine what might have been the issue of her late convulsions if the malcontents had been headed by a Caesar or by a Cromwell?

¹⁸ Who can predict what effect a despotism established in Massachusetts would have upon the liberties of New Hampshire or Rhode Island, of Connecticut or New York?

¹⁹ The inordinate pride of state importance has suggested to some minds an objection to the principle of a guaranty in the federal government as involving an officious interference in the domestic concerns of the members.

²⁰ A scruple of this kind would deprive us of one of the principal advantages to be expected from union and can only flow from a misapprehension of the nature of the provision itself.

²¹ It could be no impediment to reforms of the state constitution by a majority of the people in a legal and peaceable mode.

²³ The guaranty could only operate against changes to be effected by violence.

²⁴ Towards the preventions of calamities of this kind, too many checks cannot be provided.

²⁵ The peace of society and the stability of government depend absolutely on the efficacy of the precautions adopted on this head.

²⁶ Where the whole power of the government is in the hands of the people, there is the less pretense for the use of violent remedies in partial or occasional distempers of the state.

²⁷ The natural cure for an ill administration in a popular or representative constitution is a change of men.

²⁸ A guaranty by the national authority would be as much leveled against the usurpations of rulers as against the ferments and outrages of faction and sedition in the community.

²⁹ The principle of regulating the contributions of the states to the common treasury by quotas is another fundamental error in the Confederation.

³⁰ Its repugnancy to an adequate supply of the national exigencies has been already pointed out and has sufficiently appeared from the trial which has been made of it.

³² Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained.

³³ Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of state contributions, has any pretension to being a just representative.

³⁴ If we compare the wealth of the United Netherlands with that of Russia or Germany, or even of France, and if we at the same time compare the total value of the lands and the aggregate population of that contracted district with the total value of the lands and the aggregate population of the immense regions of either of the three last mentioned countries, we shall at once discover that there is no comparison between the proportion of either of these two objects and that of the relative wealth of those nations.

³⁵ If the like parallel were to be run between several of the American states, it would furnish a like result.

³⁶ Let Virginia be contrasted with North Carolina, Pennsylvania with Connecticut, or Maryland with New Jersey, and we shall be convinced that the respective abilities of those states in relation to revenue bear little or no analogy to their comparative stock in lands or to their comparative population.

³⁷ The position may be equally illustrated by a similar process between the counties of the same state.

³⁸ No man who is acquainted with the state of New York will doubt that the active wealth of Kings County bears a much greater proportion to that of Montgomery than it would appear to be if we should take either the total value of the lands or the total number of the people as a criterion!

⁴⁰ Situation, soil, climate, the nature of the productions, the nature of the government, the genius of the citizens, the degree of information they possess, the state of commerce, of arts, of industry: these circumstances and many more, too complex, minute, or adventitious to admit of a particular specification, occasion differences hardly conceivable in the relative opulence and riches of different countries.

⁴¹ The consequence clearly is that there can be no common measure of national wealth, and of course no general or stationary rule by which the ability of a state to pay taxes can be determined.

⁴² The attempt, therefore, to regulate the contributions of the members of a confederacy by any such rule cannot fail to be productive of glaring inequality and extreme oppression.

⁴³ This inequality would of itself be sufficient in America to work the eventual destruction of the Union if any mode of enforcing a compliance with its requisitions could be devised.

⁴⁴ The suffering states would not long consent to remain associated upon a principle which distributes the public burdens with so unequal a hand and which was calculated to impoverish and oppress the citizens of some states while those of others would scarcely be conscious of the small proportion of the weight they were required to sustain.

⁴⁵ This, however, is an evil inseparable from the principle of quotas and requisitions.

⁴⁶ There is no method of steering clear of this inconvenience but by authorizing the national government to raise its own revenues in its own way.

⁴⁷ Imposts, excises, and in general, all duties upon articles of consumption, may be compared to a fluid which will in time find its level with the means of paying them.

⁴⁸ The amount to be contributed by each citizen will in a degree be at his own option and can be regulated by an attention to his resources.

⁴⁹ The rich may be extravagant, the poor can be frugal, and private oppression may always be avoided by a judicious selection of objects proper for such impositions.

⁵⁰ If inequalities should arise in some states from duties on particular objects, these will in all probability be counterbalanced by proportional inequalities in other states from the duties on other objects.

⁵¹ In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere.

⁵² Or if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas upon any scale that can possibly be devised.

⁵³ It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess.

⁵⁴ They prescribe their own limit, which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.

⁵⁵ When applied to this object, the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.”

⁵⁶ If duties are too high, they lessen the consumption, the collection is eluded, and the product to the treasury is not so great as when they are confined within proper and moderate bounds.

⁵⁷ This forms a complete barrier against any material oppression of the citizens by taxes of this class and is itself a natural limitation of the power of imposing them.

⁵⁸ Impositions of this kind usually fall under the denomination of indirect taxes and must for a long time constitute the chief part of the revenue raised in this country.

⁵⁹ Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment.

⁶⁰ Either the value of land or the number of the people may serve as a standard.

⁶¹ The state of agriculture and the populousness of a country have been considered as nearly connected with each other.

⁶² And as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a preference.

⁶³ In every country it is a herculean task to obtain a valuation of the land; in a country imperfectly settled and progressive in improvement, the difficulties are increased almost to impracticability.

⁶⁴ The expense of an accurate valuation is, in all situations, a formidable objection.

⁶⁵ In a branch of taxation where no limits to the discretion of the government are to be found in the nature of things, the establishment of a fixed rule not incompatible with the end may be attended with fewer inconveniences than to leave that discretion altogether at large.

This is a difficult piece. One might read it several times, swimming in a sea of churning 18th Century prose without surfacing, catching at moments a desperate breath of semantic content before once again being sucked under by period usage. In fact, the struggle is well worth it. This is Hamilton’s exposition of the inadequacies of the existing government, with clear statements of issue and a hint of passion as well. That passion is somewhat opaque to the modern reader, inasmuch as it is a single allusion, but within that lies the explanation of why there was a Constitutional Convention in Philadelphia in this form and at this time.

To the third point Hamilton devotes considerable effort. He has twice insisted (Federalist #15, #19) that a federal government incapable of dealing directly with the citizen through law will ultimately be compelled to do so through force. Here the reader sees one of his reasons: in the absence of dealing directly with the citizen, there is no practical way to divide the debts contracted on the part of the states among them, not by land area – a form of direct taxation – nor by population.

³³ Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of state contributions, has any pretension to being a just representative.

It is an uneven point at best. After all, a federal government capable of dealing with the individual citizen is, in every respect, doing so by population. But Hamilton's point is not the justice of the matter, but whether it had worked with the states as intermediaries. In fact, it hadn't. This touches on his second point: that there was no way of compelling the states to honor debt, however fairly apportioned. There had been neither fair apportionment nor payment.

Here was a fellow who had been run out of Philadelphia by troops with whom he had lately served honorably – unpaid troops, unpaid because the government that had contracted the debt toward them could not redeem it. It was no imaginary problem.

⁴⁶ There is no method of steering clear of this inconvenience but by authorizing the national government to raise its own revenues in its own way.

What way, then? There was direct taxation, i.e. a tax on property, but hindered by the practical objection that there was yet no real way of establishing a consistent basis for a property tax (63) even within a single state, much less across the country, and it promised to be a very expensive task to provide this basis (64). But Hamilton prefers indirect taxation.

⁴⁷ Imposts, excises, and in general, all duties upon articles of consumption, may be compared to a fluid which will in time find its level with the means of paying them.

It is another way of the federal government dealing directly with the citizen under the somewhat misleading characterization of “indirect” taxation. Along the way Hamilton states a fundamental truth of taxation: that it acts in a self-corrective way. It changes behavior.

⁵⁴ They [indirect taxes] prescribe their own limit, which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.

It is a point lost on contemporary social reformers determined to use tax policy to engineer human activity. One cannot hope for both revenue and a modification of behavior; they work against one another.

⁵⁶ If duties are too high, they lessen the consumption, the collection is eluded, and the product to the treasury is not so great as when they are confined within proper and moderate bounds.

A “security against excess,” (53) according to Hamilton. That does not preclude a government from eschewing the revenue in favor of the control, but it does guarantee that it can't have both.

The reader now reaches Hamilton's last point, which was that the existing federal government had a problem with guaranteeing anything, even sovereignty, to its constituent states. That might lead into some alarming scenarios and, in fact, just had. What would happen, for example, to a state government that found itself overthrown from within? In the absence of a federal guarantee of state stability, both the federal government and the governments of its neighbors might find themselves powerless to act (15).

¹⁶ The tempestuous situation from which Massachusetts has scarcely emerged evinces that dangers of this kind are not merely speculative.

This point is separate from the rest because its antecedents were much better known to the readers of Hamilton's day than they are today, so much so that he did not consider it necessary even to give the tempestuous situation a name. The reference is to Shays' Rebellion, an armed uprising that had concluded only the previous February, and whose nature served to attest to the alarming powerlessness of the federal government both to address its causes and effect a resolution. It is no exaggeration to state that Shays' Rebellion was the principle motivation for holding the Constitutional Convention itself. Certainly it was foremost in the minds of the principal actors: Hamilton, Samuel Adams and John Hancock in what some might consider an unlikely role for them – Hancock was the sitting Governor of Massachusetts at the time – and George Washington, whom the rebellion impelled to come out of a well-earned retirement.

It had long been a feature of Enlightenment political doctrine that the proper defense of a nation might be effected by a citizen's militia, drilled – “well-regulated” – occasionally to maintain some sort of operational edge, assembled at the sign of invasion, disposing of its enemies in a series of short, sharp engagements, and returning afterward to the plow and the pulpit. It is a notion dating back to the ancient Greeks, who practiced it, learning in doing so that a professional army – the Spartans, the Macedonians, the Romans – had a considerable advantage over a local militia both in terms of training and discipline, and in terms of longevity in the field. The expense of those standing armies, however, argued against their maintenance by a peaceful state. As a Florentine Minister of Defense, Machiavelli should have known better, yet he was a romantic on the issue. One might be less forgiving of non-military theorists such as Montesquieu and Jefferson for fostering the illusion. In practice, however, the superiority of professional arms was demonstrated very early in the War of Independence, and it was not until Washington emerged from Valley Forge with a trained army at his command that the Americans would begin to match the steel of their opponents on a more or less even basis.

The war turned out to be no series of short engagements such as Lexington, Concord and Breed’s Hill, but a long, miserable, bloody slog, fully six years from Lexington to Yorktown, eight to the Peace of Paris. The men who dropped the plow to pick up the sword in defense of their country found themselves returning – unpaid – to fallow fields and crippling debt. Worse, inasmuch as the state governments had adopted several of British Common Law's less attractive features, they could face debtor's prison for as little as five dollars owed.

One such individual was Daniel Shays, a Massachusetts farmer who fought for the Americans at several major engagements, until wounded in 1780. He returned home to find himself in the process of being forcibly dispossessed of his property due to debts that had accrued unpaid through the war. It was a situation that the colonial victory did nothing to ameliorate, and it was no isolated circumstance. The government under the Articles of Confederation had promised pay that it did not have the power to collect itself, depending on the states to raise and distribute it to their citizens, an action which was widely ignored or actively disputed. The upshot was penniless veterans who ended up in the courts of the very states who owed their new independence to those men's service.

A number of ploys short of violence were attempted, notably the issuance of paper currency to address the debts, remediation through legislation, and at last nonviolent marches, liberty poles and the other accoutrements of the late War of Independence. None were effective. Finally, Shays' men armed themselves and began a march on the Springfield Armory, to be opposed by William Shepherd's local militia. As if to accentuate the powerlessness of the federal government, Secretary of War Henry Knox declined to permit Shepherd's force to open the armory, believing that measure to require congressional approval with Congress not in session at the moment. Shepherd chose to exceed his authority, opened the armory and ended up sending two warning cannon shots into the assembled body of Shays' men. Three were killed and the others dispersed, shocked that their fellow veterans and countrymen should have responded with a violence that the rebels had scrupulously avoided.

No fewer than a thousand men were arrested, and as Hamilton penned Federalist #21, they were still in custody and had not yet been amnestied, as they finally were the next year. Indeed, the only two rebels to be executed were hanged six days before the publication of this piece. It was that atmosphere in which the current debate resounded, and if certain anti-Federalists complained that the resulting Constitutional Convention was overly precipitous, their point should be measured against the immediacy certain other sober and experienced observers felt from Shays' Rebellion. One was Washington, who wrote to Henry Lee, “You talk, my good sir, of employing influence to appease the present tumults in Massachusetts. I know not where that influence is to be found, or, if attainable, that it would be a proper remedy for the disorders. Influence is not government. Let us have a government by which our lives, liberties, and properties will be secured...”

Others disagreed. Jefferson, an academic genius who notoriously had never faced fire, was nonplused, returning his famous remark that “a little rebellion now and then is a good thing. The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.” One notes that not a single drop of any tyrant's blood had spilt on the rocky soil of Springfield, and that the streets of Paris, whence Jefferson issued the statement, were about to run with rivers of it.

It is a damning bill of indictment. One might think that Hamilton's main complaint in the matter might be in favor of the men he had helped lead through the War of Independence, empowering the new federal government to avoid such exigencies in the future. One would be mistaken. Hamilton's main point was to empower the government to put down such armed revolts (19-21). That is the nature of the somewhat vaguely worded “guaranty” he wishes the federal government to be able to provide.

To be fair, it was revolts of broader scope than Shays' that were Hamilton's concern, stirred up perhaps by foreign influence, as Samuel Adams claimed had motivated certain of Shays' troops.

¹⁷ Who can determine what might have been the issue of her late convulsions if the malcontents had been headed by a Caesar or by a Cromwell?

For one thing, they might have shot back. But in the event they did not, it would not have been to the advantage of Massachusetts to have Shays' place filled by a Julius Caesar eager to cross the Charles River. Nevertheless, a state government taken over by a hostile power was demonstrably beyond the current powers of the federal government to address, and in the absence of that ability, could prove disastrous to the entire country.

¹⁸ Who can predict what effect a despotism established in Massachusetts would have upon the liberties of New Hampshire or Rhode Island, of Connecticut or New York?

It was a sound point. The anti-Federalists would answer that it was not necessary to address it by setting up a federal despotism of their own. That does not, however, mean it was not necessary to address it at all. They insisted that the matter could be settled through altering the powers of the existing Confederation. Hamilton insisted that it could not, and the urgency of the moment appeared to support him.

Hamilton's case is for a federal government capable of levying its own taxes directly on the citizens, disbursing its own funds in response to its own commitments, and capable of acting independently in times when its own authority or that of its member states was challenged.

He closes as he began with what, on a lighter note, must make the modern reader's jaw drop at a masterpiece of overelaborate 18th Century obfuscation.

We are so accustomed to Hamilton the Centralist that his meaning nearly escapes us in the turgid prose. It is simply that placing a limit on the government's ability to tax keeps it from abusing the privilege. In fact, it didn't.

This piece is absolutely the best founding father argument for the imposition of a consumption tax, now known as the Fair Tax, as a self regulating, equitable form of taxation for all classes. Pay close attention to lines 46 through 59, and then the analysis at the end.

Pay close attention to lines 46 through 59, and then the analysis at the end.

Thanks for the heads up O. I'm well aware of those lines. I've posted them many times in Fair Tax related threads over the last nearly five years.

At 14, Hamilton points out that the present arrangement makes it impossible for the federal government to intervene when a state sets up its own tyranny. Yet something much like that occurred under the Constitution in the South in the period from the end of Reconstruction to the Sixties despite the 14th and 15th Amendments. Why did Hamilton not foresee that?

I am not at all sure that I can buy in to your premise here. When did any state institute anything like a tyrannical government not only in the period you mention but ever?

How would you describe the treatment of black people in the South after Reconstruction ended, until the civil rights laws of the Sixties? From the Twenties to the Sixties, it was hard to discern the line that separated the KKK from local law enforcement.

I'm talking about Jim Crow and the blind eye that both parties turned toward it until the Sixties when the federal government stepped in to end it.

At 56, Hamilton observes the Laffer Curve in action centuries before Arthur Laffer drew it on a cocktail napkin, yet at 57, he does not foresee that government will ignore that rule. Why did he fail to see that coming?

I doubt that anyone of that period could have foreseen the abandonment of sound free market principals in favor of communistic social engineering but that is indeed what happened in 1913 under president Woodrow Wilson.

At 58 through 65, Hamilton sees direct taxation only in the form of a tax on land. It never occurs to him that other things could be taxed more lucratively, like income. Why did he not cross that bridge at that time?

Again I doubt that anyone of that era could have conceived of such things at all and if they had they surely would have laughed at the idea that the people would ever stand still for them!

While communistic social engineering wasn't on the horizon -- Marx had not yet been born -- there was plenty of social engineering favored by the churches in England. In fact, the Tory Party was the party of the Monarchy and the Established Church, and Tories had no problem with using the tax system to procure socially favorable outcomes. Hamilton slides into this position in an earlier paper where he pushes the idea of a tax on alcohol to curb drunkenness.

Hamilton did not foresee that the government's appetite for money would become so ravenous.

What tickled me in this essay was that Hamilton anticipated Laffer by two centuries. (Or did Laffer read his Hamilton?)

...and if they had they surely would have laughed at the idea that the people would ever stand still for them!

Certainly, the unpleasantness over the federal excise tax on whiskey would show that there might be a problem with even a simple excise tax. The idea of a tax on income would have prompted a lock-and-load response, no doubt because it would have smacked of the kind of tyranny the late war had been fought over.

That tyranny was fresh in people's minds, and people were on guard against any repitition of it. By 1913, the landscape had changed, much of it due to the outcome of the Civil War.

I'm not about to defend Jim Crow but I think you go to far in equating that to a tyrannical government. Tyranical government is what the South experienced during reconstruction and THAT is, IMHO, what let to the promulgation of Jim Crow laws after reconstruction.

Hamilton did not foresee that the government's appetite for money would become so ravenous.

Indeed! Hamilton was well aware of the "chains" in the Constitution put there to bind down the federal government but those have been broken and discarded first by Lincoln and then by every mercantile progressive since.

He didn’t think of the income tax because during this period few worked for wages.

This was before the industrial revolution and the mass displacement of people from agriculture.

Shays' Rebellion was the Gulf of Tonkin incident that the Federalists were waiting for. Washington in particular had advised that they not hatch their plan for a convention and a new "energetic" government until things got worse.

You could say the Federalists "didn't let a good crisis go to waste."

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