Federalist No. 21

“For all of Hamilton’s faults both politically and philosophically, he had it right when he stated that indirect taxes ‘must for a long time constitute the chief part of the revenue raised in this country.’ This would ensure that the government was truly small and limited.

In Federalist 21 Alexander Hamilton relates the peculiar limits of the United Confederacy under the Articles. After having spelled in great detail the problems associated with republics and confederacies of the past, Hamilton does the same for the United States in 1787. Hamilton bemoans the awful situation, in his mind at least, of having the American government under the Articles with “no power to exact obedience, or punish disobedience to their [national government] resolutions”.  In a preview of his later ability to stretch articles and clauses to meets his needs, Hamilton sees the only way to give resolutions of the national congress teeth is to loosely construct the meaning of the Articles but he argues that this would  be difficult in light of Article II, which states, “Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled.”  This Article seems to have made it through the death of the Articles to become the basis for the 10th Amendment to the Constitution as part of the Bill of Rights demanded by anti-federalists. In this way Hamilton reasoned, the national government could have greater powers to act in its sphere. But this of course was not what the spirit nor the letter of the Articles meant, and Hamilton knew it.

So rather than a painful stretching of the Articles to meet the demands Hamilton foresaw for the young nation, he proposed ratification of the Constitution which would alleviate much of the problems that had plagued republics for centuries. It is interesting to note that Hamilton is reluctant to take a broad interpretation of the Articles of Confederation but is more than willing to do so with the US Constitution, and in fact might be considered the “Father” of loose construction of that document. Perhaps it was because he wanted to save the latter and scrap the former.

To further prove his point on the weakness of the national Congress, Hamilton relates the problems in Massachusetts: Shays’s Rebellion. Daniel Shays was a veteran of the Revolutionary War who, like so many other veterans found life at home economically difficult upon his return. To remedy this situation, Shays, with other veterans and fellow debtors marched on Springfield to seize arms and powder, close down courts and cause a general panic among the merchants and bankers. The rebellion was put down by Benjamin Lincoln after moneyed interest pooled together to raise a militia. From the days of Hamilton to the university class of today, this incident has been seen as an obvious reason for a stronger national government. It should be pointed out that anti-federalists gave minimal credence to this “little” affair and were weary of the way it was used to justify the Constitution. But as it has been said recently by the Obama Administration it’s a bad idea to let a good crisis go to waste.

Amongst all the discussion of the problems of the Articles, Hamilton does offer some solutions, particularly economic solutions to the national revenue problem. His suggestion is rather straightforward and might sound familiar to modern ears. He understands that the states must grant the national government power to raise revenues or face economic ruin.  He suggests this be done by collecting:

Imposts, excises, and, in general, all duties upon articles of consumption, [which] may be compared to a fluid, which will, in time, find its level with the means of paying them. 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. 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…It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.

Note the level of financial independence and management he assumes Americans will exercise, a faith that seems far from possible with today’s consumers and their government. Minus the bit about an excise tax, which will get Hamilton in trouble over whiskey, the idea of a consumption tax is rather fair minded. I have not researched this fully but might this be the origin for the modern movement for a FairTax? For all of Hamilton’s faults both politically and philosophically, he had it right when he stated that indirect taxes “must for a long time constitute the chief part of the revenue raised in this country.” This would ensure that the government was truly small and limited. But no matter how true the statement, it is slightly ironic coming from a man whose future plans and vision for America, which has become our reality, requires a government and military that is much too big for the type of indirect taxation whereof he writes.

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