Federalist No. 12

“In freedom we’re born and in freedom we’ll live–

Our purses are ready, steady, friend steady–

Not as slaves, but as freemen our money we’ll give.”

starIn this essay Hamilton points out that a “nation cannot long exist without revenue.” Too true, but how a government goes about collecting revenue and the purposes for it remain questions of the utmost importance.  The people who read Federalist No. 12, and that is probably not many, tend to take a modernist approach to the essay. We have to have taxes to run the government. Taxes have to be high because it is the government’s job to take care of the people “from the cradle to the grave.” Some read Hamilton’s words to justify the outrageous taxes imposed on American citizens who are engaged in lawful and industrious commercial activity and to point a scornful finger at those who desire tax reform. Hamilton’s argument in this essay was never intended to justify the collection and generation of revenue needed to support the dependence of modern America on its government.

But in this essay Hamilton is probably closer to Jefferson’s counsel on the subject than modern progressives. In relation to revenue collecting Jefferson famously stated:

A wise and frugal government which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.

This then is the key to good government: don’t directly tax the people. Period.  And those things the government needs taxes for should be limited. Hamilton suggests that a wise government not tax the people directly but instead sees to it that the “greatest part of the national revenue is derived from taxes of the indirect kind, from imposts and excises,” and also “by the imperceptible agency of taxes on consumption.” Notice the word, “imperceptible,” Hamilton, yes Hamilton who we have made out as the arch-statist, the only founder the progressives have their side, understood you cannot simply tax the brains out of the people; they might revolt. Revenue must be collected very carefully. Hamilton explains:

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.

The modern federal government has taken to collect revenue directly from the people in the same manner as a bull in a china closet; and we the people have let them. We have made it a priority to reform healthcare, go to war in foreign countries and save the environment, but we have not put meaningful tax reform on the top of the national agenda for some time.  We need to return to the refrain our political forefathers during the American Revolution used to sing:

In freedom we’re born and in freedom we’ll live–

Our purses are ready, steady, friend steady–

Not as slaves, but as freemen our money we’ll give.

To do ourselves justice and to honor the ideals and principles of the founding generation, let us begin now to undo the strong cords that the progressives have fettered us with. Repeal the 16th Amendment, return to a consumption tax and delicately gather imposts and excises from foreign and domestic trade. Cut back on the size and scope of government. Practice independence and demand economic liberty!

To answer the modern progressives: Taxes are necessary but only for necessary things. The sooner we understand that the list of necessities that a good government provides is short and simple, the sooner Americans can regain their economic independence bequeathed to us by a freer generation.

Hamilton began this essay with what seems obvious to us now, in a post-Adam Smith world. But it still amazes me how certain parties and leaders continually ignore the profit motive. “By promoting the introduction and circulation of the precious metals, those darling objects of human avarice and enterprise,” Hamilton reasons, “it serves to vivify and invigorate all the channels of industry and to make them flow with greater activity and copiousness.” People seek their own self-interest. Companies make things, bigger, better and more cost-efficient things, because they get something valuable for doing so.

The assiduous merchant, the laborious husbandmen, 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.

Hamilton, and many other framers who read their Adam Smith understood that all men do what they do, not because of charity but because of self-interest and the profit motive. The butcher provides meat for you not because he knows you need it to sustain yourself but because you have something he wants in exchange for it. Insurance companies provide health insurance not because they care about your health but because you offer them something they need. But modern progressives don’t want to operate according to that time tested formula. Instead they make the argument along the lines of Kathleen Sebelius regarding healthcare reform, “you don’t turn over the whole new marketplace to private insurance companies and trust them to do the right thing.” You’re right Kathleen, because “doing the right thing” isn’t the motive for action in the private marketplace; profit is. So what keeps self-interest benefiting both the consumer and producer? Competition. And is that really what government would do if it enter the private sphere and began offering health coverage? Of course it wouldn’t. Placing an entity that is by its very nature monopolistic into a system of competition would eliminate such competition completely. The government’s role in all of this should be to loosen up regulations that give a few companies an unfair advantage in certain states. The government doesn’t create competition by jumping into the race, it does so by maintaining conditions of a fair one.  Otherwise it ends up like the German prince Hamilton makes reference to in the essay who had some of the richest land in all of Europe but “from the want of fostering influence of commerce that monarch can boast but slender revenues.”

May we return to the sound economic principles laid out in the Constitution and defended in the Federalist Papers.


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