Posted on 04/12/2010 7:47:48 AM PDT by Publius
It is not surprising that the man who was to become America’s first central banker would take a hard look at how to build a platform for taxation. That he had been a businessman first is apparent in his level-headed approach to a sensitive topic.
1 To the People of the State of New York:
2 The effects of union upon the commercial prosperity of the states have been sufficiently delineated.
3 Its tendency to promote the interests of revenue will be the subject of our present inquiry.
4 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 and has accordingly become a primary object of their political cares.
5 By multiplying 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.
6 The assiduous merchant, the laborious husbandman, the active mechanic and the industrious manufacturer – all orders of men look forward with eager expectation and growing alacrity to this pleasing reward of their toils.
7 The often agitated question between agriculture and commerce has from indubitable experience received a decision which has silenced the [rivalry] that once subsisted between them, and has proved to the satisfaction of their friends that their interests are intimately blended and interwoven.
8 It has been found in various countries that in proportion as commerce has flourished, land has risen in value.
9 And how could it have happened otherwise?
10 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?
11 It is astonishing that so simple a truth should ever have had an adversary; and it is one, among a multitude of proofs, how apt a spirit of ill-informed jealousy, or of too great abstraction and refinement, is to lead men astray from the plainest truths of reason and conviction.
12 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.
13 Commerce, contributing to both these objects, must of necessity render the payment of taxes easier and facilitate the requisite supplies to the treasury.
14 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.
15 In some parts of this territory are to be found the best gold and silver mines in Europe.
16 And yet, from the want of the fostering influence of commerce, that monarch can boast but slender revenues.
17 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.
18 But it is not in this aspect of the subject alone that union will be seen to conduce to the purpose of revenue.
19 There are other points of view, in which its influence will appear more immediate and decisive.
20 It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation.
21 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.
22 The popular system of administration inherent in the nature of popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experiment for extensive collections and has at length taught the different legislatures the folly of attempting them.
23 No person acquainted with what happens in other countries will be surprised at this circumstance.
24 In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable and from the vigor of the government much more practicable than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind: from imposts and from excises.
25 Duties on imported articles form a large branch of this latter description.
26 In America it is evident that we must a long time depend for the means of revenue chiefly on such duties.
27 In most parts of it, excises must be confined within a narrow compass.
28 The genius of the people will ill brook the inquisitive and peremptory spirit of excise laws.
29 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, and personal property is too precarious and invisible a fund to be laid hold of in any other way than by the imperceptible agency of taxes on consumption.
30 If these remarks have any foundation, 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.
31 And it cannot admit of a serious doubt that this state of things must rest on the basis of a general union.
32 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.
33 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.
34 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 – 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.
35 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.
36 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, and which even there are found insufficient obstacles to the adventurous stratagems of avarice.
37 In France, there is an army of patrols, as they are called, constantly employed to secure their fiscal regulations against the inroads of the dealers in contraband trade.
38 Mr. Necker computes the number of these patrols at upwards of twenty thousand.
39 This shows the immense difficulty in preventing that species of traffic where there is an inland communication and places in a strong light the disadvantages with which the collection of duties in this country would be encumbered, if by disunion the states should be placed in a situation with respect to each other resembling that of France with respect to her neighbors.
40 The arbitrary and vexatious powers with which the patrols are necessarily armed would be intolerable in a free country.
41 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.
42 Vessels arriving directly from foreign countries, laden with valuable cargoes, would rarely choose to hazard themselves to the complicated and critical perils which would attend attempts to unlade prior to their coming into port.
43 They would have to dread both the dangers of the coast and of detection, as well after as before their arrival at the places of their final destination.
44 An ordinary degree of vigilance would be competent to the prevention of any material infractions upon the rights of the revenue.
45 A few armed vessels judiciously stationed at the entrances of our ports might at a small expense be made useful sentinels of the laws.
46 And the government having the same interest to provide against violations everywhere, the co-operation of its measures in each state would have a powerful tendency to render them effectual.
47 Here also we should preserve by union an advantage which nature holds out to us and which would be relinquished by separation.
48 The United States lie at a great distance from Europe and at a considerable distance from all other places with which they would have extensive connections of foreign trade.
49 The passage from them to us, in a few hours or in a single night, as between the coasts of France and Britain and of other neighboring nations, would be impracticable.
50 This is a prodigious security against a direct contraband with foreign countries, but a circuitous contraband to one state, through the medium of another, would be both easy and safe.
51 The difference between a direct importation from abroad and an indirect importation through the channel of a neighboring state, in small parcels, according to time and opportunity, with the additional facilities of inland communication, must be palpable to every man of discernment.
52 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.
53 Hitherto, I believe, it may safely be asserted that these duties have not upon an average exceeded in any state three percent.
54 In France they are estimated to be about fifteen percent, and in Britain they exceed this proportion. *
55 There seems to be nothing to hinder their being increased in this country to at least treble their present amount.
56 The single article of ardent spirits under federal regulation might be made to furnish a considerable revenue.
57 Upon a ratio to the importation into this state, the whole quantity imported into the United States may be estimated at four millions of gallons which, at a shilling per gallon, would produce two hundred thousand pounds.
58 That article would well bear this rate of duty, and if it should tend to diminish the consumption of it, such an effect would be equally favorable to the agriculture, to the economy, to the morals and to the health of the society.
59 There is perhaps nothing so much a subject of national extravagance as these spirits.
60 What will be the consequence if we are not able to avail ourselves of the resource in question in its full extent?
61 A nation cannot long exist without revenues.
62 Destitute of this essential support, it must resign its independence and sink into the degraded condition of a province.
63 This is an extremity to which no government will of choice accede.
64 Revenue, therefore, must be had at all events.
65 In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land.
66 It has been already intimated that excises in their true signification are too little in unison with the feelings of the people to admit of great use being made of that mode of taxation, nor indeed in the states where almost the sole employment is agriculture are the objects proper for excise sufficiently numerous to permit very ample collections in that way.
67 Personal estate, as has been before remarked from the difficulty in tracing it, cannot be subjected to large contributions by any other means than by taxes on consumption.
68 In populous cities, it may be enough the subject of conjecture to occasion the oppression of individuals without much aggregate benefit to the state, but beyond these circles it must in a great measure escape the eye and the hand of the tax gatherer.
69 As the necessities of the state, nevertheless, must be satisfied in some mode or other, the defect of other resources must throw the principal weight of public burdens on the possessors of land.
70 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.
71 Thus we shall not even have the consolations of a full treasury to atone for the oppression of that valuable class of the citizens who are employed in the cultivation of the soil.
72 But public and private distress will keep pace with each other in gloomy concert and unite in deploring the infatuation of those counsels which led to disunion.
[*] If my memory be right, they amount to twenty per cent.
Hamilton’s Critique
Hamilton the businessman is very much in evidence in this piece, and so is Hamilton the centralist. The latter provides a glimpse at the split that was forming among the patriots between the Jefferson/Madison party and that of Hamilton. It is a split in ideology, in the fundamental attitude concerning the relationship of citizen to government. It is hardly surprising that the split should be over the issue of taxation.
One cannot blame Hamilton for observing that a government must require a source of funding adequate to its needs, the Constitution being the means of controlling those needs and channeling them into directions least likely to cause friction between government and governed. But the needs are real. The reader recalls that Hamilton had already been personally embarrassed by the inability of the Confederation Congress to remunerate the troops whose perils and ultimate victory he had spent the better part of a decade sharing. That episode colored his attitude toward the justification of the government with regard to the scope of taxation, and the preceding decade convinced him as well that Americans were no more eager to part with their hard earned dollars in support of politicians than anyone else at the time. Rather less so, actually, inasmuch as the most persuasive slogan during the hostilities was “No taxation without representation.” The new Constitution would provide the representation. It was now time to consider the taxation.
The reader first encounters a point that seems odd at this date, that the merchant and the farmer had interests more common than in opposition (7). This is easier to understand as a subtle reminder that the city and the countryside had common interests, and that the interests of the urban New Yorkers to whom this piece was addressed had more in common with the Virginia planters than they had with their urban London counterparts.
Hamilton the banker now speaks and in terms eerily reminiscent of his contemporary, the Scotsman Adam Smith.
12 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.
His example involves the Emperor of Austria – that would have been Joseph II, the son of the remarkable Maria Theresa – and what happens when money is not allowed to circulate.
15 In some parts of [his] territory are to be found the best gold and silver mines in Europe.
16 And yet, from the want of the fostering influence of commerce, that monarch can boast but slender revenues.
It is no idle point. The underlying argument is that any taxation that stifles commerce is doomed to act against itself in terms of overall revenue. Hamilton’s first criterion is that taxation must, therefore, be structured such that commerce is hindered as little as possible. His second criterion is that it be practical. “Direct” taxation, by which he means on property and income, seems to him impractical.
20 It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation.
24 In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable and from the vigor of the government much more practicable than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind: from imposts and from excises.
That was one consideration in Article I, Section 8, which states that such taxes as excises are in fact the rightful province of Congress but are to be apportioned geographically. Article I, Section 2 is specific about direct taxation being apportioned by population. The very controversy around which Congress was designed – how to ensure the rights of the smaller states while still acknowledging the per-capita clout of the larger – once again rears its head.
Hamilton now turns to an argument that while perfectly valid, makes one smile to consider that he manages to deliver it with a straight face. It is, to be blunt, that one of the advantages of union is that it will make taxation easier by making smuggling between the states more difficult (41). It is an argument more beloved of the bureaucrat than an individual such as the free and notoriously law-flouting John Hancock, known to his contemporaries as the “Prince of Smugglers”.
But Hamilton did know his people. One sees their descendants behaving in precisely the manner he wished to minimize every time they cross a state line to take advantage of lower gasoline prices or visit a Native American reservation where the absence of taxes on tobacco entices the smoker. One sees them crossing state lines to purchase illegal fireworks to commemorate the very occasion that gave Hamilton his platform, un-apologetically, defiantly and very much more in the spirit of a Hancock than a Hamilton. And worse to the heirs of Hancock, Hamilton next argues that the federal system is more amenable to existing taxes being raised.
52 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.
From the point of view of a money-hungry government, this attitude is laudable; from the point of view of a tax-fatigued public it seems quite a bit less so. One notes that at no point in this essay does Hamilton delve into the actual propriety of government taking money from one particular source or another, only whether such an activity is feasible, efficient and manages not to kill the goose that lays the golden egg. It is a supremely utilitarian approach to the government taking what it needs from the pockets of a reluctant public, and it is notable in its persistence among elected officials to this very day. Yet the government does need revenue to function.
64 Revenue, therefore, must be had at all events.
Hamilton's argument ends with the plea that the “imperceptible agency of taxes on consumption” (29) is far preferable to its alternative, the direct taxation of land (65), not that it is more just but that it is less destructive of overall commerce. It happens to be less avoidable as well.
It is perhaps inevitable that in the two centuries that have passed since Hamilton penned this, the government has availed itself of taxation both direct in the form of property tax, semi-direct in the form of an income tax, itself requiring a constitutional amendment in 1913, and consumption taxes in the form of sales taxes and even the recently broached – and heartily damned – value-added tax in addition to the others. It is a level of taxation that even the hardheaded Hamilton would have found astonishing, and despite it the federal government still runs an astronomical deficit and seeks creative new ways to expand its ability to separate the citizen from his earnings. It may be that Hamilton might hear, in the voices of the current discontent, the echoes of the voices that sent him scrambling from Independence Hall in 1783.
Discussion Topics
Earlier threads:
FReeper Book Club: The Debate over the Constitution
5 Oct 1787, Centinel #1
6 Oct 1787, James Wilson’s Speech at the State House
8 Oct 1787, Federal Farmer #1
9 Oct 1787, Federal Farmer #2
18 Oct 1787, Brutus #1
22 Oct 1787, John DeWitt #1
27 Oct 1787, John DeWitt #2
27 Oct 1787, Federalist #1
31 Oct 1787, Federalist #2
3 Nov 1787, Federalist #3
5 Nov 1787, John DeWitt #3
7 Nov 1787, Federalist #4
10 Nov 1787, Federalist #5
14 Nov 1787, Federalist #6
15 Nov 1787, Federalist #7
20 Nov 1787, Federalist #8
21 Nov 1787, Federalist #9
23 Nov 1787, Federalist #10
24 Nov 1787, Federalist #11
Hamilton failed to understand the primary means of keeping the US government in control: Competition and weakness. The federal government was not supposed to grow so powerful as to control the wealth of the nation and States were to be sovereign as to ensure both their individual freedoms and liberties and to provide competition between the States.
Hamilton was a liberal that thought he knew best for the people and people he would hire to be with him in government would be best at handling the wealth of the antion. He was arrogant and stupid.
I won't argue the first point, but will argue the second.
Your point is unclear to me. What did he do that was stupid? If there was to be no national bank, why would the US be given the power to coin money? Would that bank's absence have empowered one State (or "nigerian" bank) to become more powerful than others, possibly so powerful that it could have overpowered some financial abilities of other States?
I have argued countless times that the effects of the 17th Amendment have allowed our Federal Government to be stronger than the Constitution's design. It seems that the government following the limited powers of the original constitution were not covered in your recipe for keeping the US Government in control. Why?
Hamilton was a liberal? In some respects I agree with you, but not in a majority of points. What brings you to your total judgement of him as a liberal?
Liberals believe people need them; that they know better than the people and should hold power. Liberals desire central control with them doing the controlling.
Conservatives believe in the people and in competition. Conservatives believe they might be smart, educated, and experienced but that others are too and the best ideas come from all.
Liberals need control as they are fearful of the world and want the world to look as they believe it should look. Conservatives can handle differences and adapt as necessary and are not fearful the world isn’t as they expect it to be.
Hamilton wanted central control by a powerful federal government with him at the helm.
The US government and State governments were to be kept in control by keeping them weak by not allowing them the instruments of power. A central bank as with the Federal Reserve System we have now is exactly the thing the anti-federalists knew would allow the government to control the people by controlling the money. Hamilton also knew this, but, as a liberal, couldn’t help himself to continue to desire central control. He led his life through fear and ignorance, as do all liberals.
People do not need control, they need freedom. Perfection is not a possible outcome with any government, and anyone trying to achieve some kind of societal perfection will only result in creating tyranny from an overbearing and controlling government.
This is why Hamilton was stupid; he failed to know and understand history and human psychology.
One State overpowering the others? As with the federal government overpowering ALL the States as we have now? Hmmm, doesn’t sound like a practical argument to me.
You are aware I hope that the only thing federal about the Federal reserve banks is the word federal in the name.
They are PRIVATELY owned.
The Constitution provides for the CONGRESS “to coin Money, regulate the Value thereof, and of foreign Coin,...”.
Doesn’t say a word about delegating that authority to privately owned banks anywhere.
I do not recall Hamilton’s writings sqauring with your assertions about him; but I will study the matter.
Also, I do not see how the creation of the bank alone refuted the other writings (Federalists) of a limited government. I cannot imagine a way that that any national government would not have some sort of centralized banking system - - I may be wrong; is there any examples of a large nation NOT having such a system?
I define liberal and conservative relative to the Constitution, not simple behavior. If we lived under an oppressive dictator, a person aspiring to be a benevolent dictator and believed in liberty total accountibility and smaller government could be, under your definition, a liberal as well. Work from the Constitution.
I doubt that any of the founders believed that our government would have grown into the size and shape of our present monster. That growth is not due to Hamilton’s influence. But, what Hamilton created has been used as one of the tools to create that monster, just as the other tools of the Legislature, the Judiciary and the Executive.
To focus on just one is not a strong argument. There is far more to this monster than just a central bank.
Agreed. It does not provide any direction on the matter either. The 10th, again, is trumped by the IC clause?
Only because we continue to allow that to be the case.
If our state legislatures would simply stand up for their rights, as some are again beginning to do, that would change rather quickly. The problem is exacerbated greatly by that d*%$ed 17th amendment!
Congressman Ron Paul, U.S. House of Representatives, September 10, 2002
ABOLISH THE FEDERAL RESERVE
"Mr. Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve. I also ask unanimous consent to insert the attached article by Lew Rockwell, president of the Ludwig Von Mises Institute, which explains the benefits of abolishing the Fed and restoring the gold standard, into the record.
Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.
From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.
With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.
Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.
Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.
In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.
In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve."
“Doesn’t say a word about delegating that authority to privately owned banks anywhere.”
You’re right, it doesn’t, yet, we have done just that. They decide through the federal reserve how much money to print and coin and how much to offer out of thin air to produce as “credit” to loan to other banks. They completely control the money supply.
“creation of the bank alone”
Sure, a bank the federal government uses as a means of transacting federal business is perfectly reasonable and constitutional institution.
A federal baking system that controls private banking and money supply is another thing and is what we have today.
“But, what Hamilton created has been used as one of the tools to create that monster, just as the other tools of the Legislature, the Judiciary and the Executive.”
The federal reserve is the means to control money, credit, and the markets. It is one of the few items that are the enabling tools for the monster we have today. Few people realize the massive power the federal reserve has.
Do you actually think Paul’s bill will ever get past the powers that be? I no not. So what do we do?
We can start our fight against the Fed by not using dollars. Should we start using Euros?
You know where I am headed from there.....
To address the argument in this thread, today’s banking system and manipulation is not in the design of Hamilton. It is the product of one mutation after another. These mutations have teamed with systemic corruption within the enforcement community to build today’s monster.
If the government was not so far in debt - again, the fault of many - the bankers would not have the politicians over a barrel. Our nation’s debt may have chained us to today’s mutated fed.
Not likely unless WE the people stand up and DEMAND it.
"Give me control of a nations' money, and I care not who runs the government."
Meyer Rothschild (1743-1812)
So what do we do?
We do what we can and educating as many as possible is a very good start!
"Those who profess to favor freedom, and yet deprecate agitation, are men who want crops without plowing up the ground. They want rain without thunder and lightening. They want the ocean without the awful roar of its waters. This struggle may be a moral one; or it may be a physical one; or it may be both moral and physical; but it must be a struggle. Power concedes nothing without a demand. It never did, and it never will. Find out just what a people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them; and these will continue until they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress."
Frederick Douglass August 4, 1857
You know how much I embrace and refer to philosophical writings. We’ve shared comments for some time.
But the power of the fed is now greater than the power of congress. The Fed owns congress; and China is approaching that strength. Any solution will not come with Congress.
Yesterday I went to one of our local flea markets. No credit cards, no sales tax. Is that our future?
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