FReeper Book Club: The Debate over the Constitution, Federalist #35

It is time for Hamilton to address the details of his plans for basing federal taxes on imposts, and he addresses the issue of what kind of representation Congress should have.

² Before we proceed to examine any other objections to an indefinite power of taxation in the Union, I shall make one general remark, which is that if the jurisdiction of the national government in the article of revenue should be restricted to particular objects, it would naturally occasion an undue proportion of the public burdens to fall upon those objects.

³ Two evils would spring from this source: the oppression of particular branches of industry, and an unequal distribution of the taxes as well among the several states as among the citizens of the same state.

⁴ Suppose, as has been contended for, the federal power of taxation were to be confined to duties on imports, it is evident that the government, for want of being able to command other resources, would frequently be tempted to extend these duties to an injurious excess.

⁵ There are persons who imagine that they can never be carried to too great a length since the higher they are, the more it is alleged they will tend to discourage an extravagant consumption to produce a favorable balance of trade and to promote domestic manufactures.

⁷ Exorbitant duties on imported articles would beget a general spirit of smuggling which is always prejudicial to the fair trader and eventually to the revenue itself; they tend to render other classes of the community tributary in an improper degree to the manufacturing classes to whom they give a premature monopoly of the markets; they sometimes force industry out of its more natural channels into others in which it flows with less advantage; and in the last place, they oppress the merchant who is often obliged to pay them himself without any retribution from the consumer.

⁸ When the demand is equal to the quantity of goods at market, the consumer generally pays the duty, but when the markets happen to be overstocked, a great proportion falls upon the merchant and sometimes not only exhausts his profits, but breaks in upon his capital.

⁹ I am apt to think that a division of the duty between the seller and the buyer more often happens than is commonly imagined.

¹⁰ It is not always possible to raise the price of a commodity in exact proportion to every additional imposition laid upon it.

¹¹ The merchant, especially in a country of small commercial capital, is often under a necessity of keeping prices down in order to a more expeditious sale.

¹² The maxim that the consumer is the payer is so much oftener true than the reverse of the proposition, that it is far more equitable that the duties on imports should go into a common stock than that they should redound to the exclusive benefit of the importing states.

¹³ But it is not so generally true as to render it equitable that those duties should form the only national fund.

¹⁴ When they are paid by the merchant, they operate as an additional tax upon the importing state whose citizens pay their proportion of them in the character of consumers.

¹⁵ In this view they are productive of inequality among the states, which inequality would be increased with the increased extent of the duties.

¹⁶ The confinement of the national revenues to this species of imposts would be attended with inequality from a different cause between the manufacturing and the non-manufacturing states.

¹⁷ The states which can go farthest towards the supply of their own wants by their own manufactures will not, according to their numbers or wealth, consume so great a proportion of imported articles as those states which are not in the same favorable situation.

¹⁸ They would not, therefore, in this mode alone contribute to the public treasury in a ratio to their abilities.

¹⁹ To make them do this, it is necessary that recourse be had to excises, the proper objects of which are particular kinds of manufactures.

²⁰ New York is more deeply interested in these considerations than such of her citizens as contend for limiting the power of the Union to external taxation may be aware of.

²¹ New York is an importing state and is not likely speedily to be to any great extent a manufacturing state.

²² She would, of course, suffer in a double light from restraining the jurisdiction of the Union to commercial imposts.

²³ So far as these observations tend to inculcate a danger of the import duties being extended to an injurious extreme, it may be observed conformably to a remark made in another part of these papers that the interest of the revenue itself would be a sufficient guard against such an extreme.

²⁴ I readily admit that this would be the case as long as other resources were open, but if the avenues to them were closed, hope stimulated by necessity would beget experiments fortified by rigorous precautions and additional penalties which for a time would have the intended effect, till there had been leisure to contrive expedients to elude these new precautions.

²⁵ The first success would be apt to inspire false opinions which it might require a long course of subsequent experience to correct.

²⁶ Necessity, especially in politics, often occasions false hopes, false reasoning and a system of measures correspondingly erroneous.

²⁷ But even if this supposed excess should not be a consequence of the limitation of the federal power of taxation, the inequalities spoken of would still ensue, though not in the same degree, from the other causes that have been noticed.

²⁹ One which, if we may judge from the frequency of its repetition, seems most to be relied on is that the House of Representatives is not sufficiently numerous for the reception of all the different classes of citizens in order to combine the interests and feelings of every part of the community and to produce a due sympathy between the representative body and its constituents.

³⁰ This argument presents itself under a very specious and seducing form and is well calculated to lay hold of the prejudices of those to whom it is addressed.

³¹ But when we come to dissect it with attention, it will appear to be made up of nothing but fair-sounding words.

³² The object it seems to aim at is in the first place impracticable, and in the sense in which it is contended for, is unnecessary.

³³ I reserve for another place the discussion of the question which relates to the sufficiency of the representative body in respect to numbers and shall content myself with examining here the particular use which has been made of a contrary supposition in reference to the immediate subject of our inquiries.

³⁴ The idea of an actual representation of all classes of the people by persons of each class is altogether visionary.

³⁵ Unless it were expressly provided in the Constitution that each different occupation should send one or more members, the thing would never take place in practice.

³⁶ Mechanics and manufacturers will always be inclined with few exceptions to give their votes to merchants in preference to persons of their own professions or trades.

³⁷ Those discerning citizens are well aware that the mechanic and manufacturing arts furnish the materials of mercantile enterprise and industry.

³⁸ Many of them indeed are immediately connected with the operations of commerce.

³⁹ They know that the merchant is their natural patron and friend, and they are aware that however great the confidence they may justly feel in their own good sense, their interests can be more effectually promoted by the merchant than by themselves.

⁴⁰ They are sensible that their habits in life have not been such as to give them those acquired endowments without which, in a deliberative assembly, the greatest natural abilities are for the most part useless, and that the influence and weight and superior acquirements of the merchants render them more equal to a contest with any spirit which might happen to infuse itself into the public councils unfriendly to the manufacturing and trading interests.

⁴¹ These considerations and many others that might be mentioned prove, and experience confirms it, that artisans and manufacturers will commonly be disposed to bestow their votes upon merchants and those whom they recommend.

⁴² We must therefore consider merchants as the natural representatives of all these classes of the community.

⁴³ With regard to the learned professions, little need be observed; they truly form no distinct interest in society and according to their situation and talents will be indiscriminately the objects of the confidence and choice of each other and of other parts of the community.

⁴⁴ Nothing remains but the landed interest, and this, in a political view and particularly in relation to taxes, I take to be perfectly united, from the wealthiest landlord down to the poorest tenant.

⁴⁵ No tax can be laid on land which will not affect the proprietor of millions of acres as well as the proprietor of a single acre.

⁴⁶ Every landholder will therefore have a common interest to keep the taxes on land as low as possible, and common interest may always be reckoned upon as the surest bond of sympathy.

⁴⁷ But if we even could suppose a distinction of interest between the opulent landholder and the middling farmer, what reason is there to conclude that the first would stand a better chance of being deputed to the National Legislature than the last?

⁴⁸ If we take fact as our guide and look into our own Senate and Assembly, we shall find that moderate proprietors of land prevail in both; nor is this less the case in the Senate, which consists of a smaller number, than in the Assembly, which is composed of a greater number.

⁴⁹ Where the qualifications of the electors are the same, whether they have to choose a small or a large number, their votes will fall upon those in whom they have most confidence, whether these happen to be men of large fortunes, or of moderate property, or of no property at all.

⁵⁰ It is said to be necessary that all classes of citizens should have some of their own number in the representative body in order that their feelings and interests may be the better understood and attended to.

⁵¹ But we have seen that this will never happen under any arrangement that leaves the votes of the people free.

⁵² Where this is the case, the representative body, with too few exceptions to have any influence on the spirit of the government, will be composed of landholders, merchants and men of the learned professions.

⁵³ But where is the danger that the interests and feelings of the different classes of citizens will not be understood or attended to by these three descriptions of men?

⁵⁴ Will not the landholder know and feel whatever will promote or insure the interest of landed property?

⁵⁵ And will he not, from his own interest in that species of property, be sufficiently prone to resist every attempt to prejudice or encumber it?

⁵⁶ Will not the merchant understand and be disposed to cultivate, as far as may be proper, the interests of the mechanic and manufacturing arts to which his commerce is so nearly allied?

⁵⁷ Will not the man of the learned profession, who will feel a neutrality to the [rivalries] between the different branches of industry, be likely to prove an impartial arbiter between them, ready to promote either, so far as it shall appear to him conducive to the general interests of the society?

⁵⁸ If we take into the account the momentary humors or dispositions which may happen to prevail in particular parts of the society and to which a wise administration will never be inattentive, is the man whose situation leads to extensive inquiry and information less likely to be a competent judge of their nature, extent and foundation than one whose observation does not travel beyond the circle of his neighbors and acquaintances?

⁵⁹ Is it not natural that a man who is a candidate for the favor of the people, and who is dependent on the suffrages of his fellow citizens for the continuance of his public honors, should take care to inform himself of their dispositions and inclinations and should be willing to allow them their proper degree of influence upon his conduct?

⁶⁰ This dependence, and the necessity of being bound himself, and his posterity, by the laws to which he gives his assent, are the true, and they are the strong chords of sympathy between the representative and the constituent.

⁶¹ There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation.

⁶² The man who understands those principles best will be least likely to resort to oppressive expedients or sacrifice any particular class of citizens to the procurement of revenue.

⁶³ It might be demonstrated that the most productive system of finance will always be the least burdensome.

⁶⁴ There can be no doubt that in order to a judicious exercise of the power of taxation, it is necessary that the person in whose hands it should be acquainted with the general genius, habits and modes of thinking of the people at large, and with the resources of the country.

⁶⁵ And this is all that can be reasonably meant by a knowledge of the interests and feelings of the people.

⁶⁶ In any other sense the proposition has either no meaning or an absurd one.

⁶⁷ And in that sense let every considerate citizen judge for himself where the requisite qualification is most likely to be found.

It is the sixth of seven Hamilton papers on the broad topic of taxation, and the impatient reader might be justified in suspecting the topic nearly to be spent by now. So it might be were Hamilton merely a self-educated New York lawyer pushing a political project. He is more than that, and it pops up in unexpected places. For Hamilton was a successful merchant as a very young man, being left in charge of his employers’ import-export concern at the tender age of 16 for no fewer than five months while its owner was at sea. When he speaks of merchants setting prices, he speaks from experience.

He also speaks as a self-educated man in the matter of the budding science of economics. His own views appear to vacillate between old-school mercantilism and the free market approaches of Adam Smith, whose work Hamilton had certainly read. It makes for an interesting point of view.

By now both Hamilton and his opponents have wrestled over the exclusivity of the federal government with respect to impost taxes, his opponents insisting that this exclusivity be matched by restrictions in other areas in favor of state governments. Hamilton’s reply was pragmatic indeed, the theorist restrained by the merchant.

² …if the jurisdiction of the national government in the article of revenue should be restricted to particular objects, it would naturally occasion an undue proportion of the public burdens to fall upon those objects.

He foresees a hungry federal government as well as a powerful one, with a diet inadequate to its appetites as well as its needs. It would, he states, be compelled to increase taxation to the point where it was injurious to revenue (4). It would also alter behavior, he continues in the first of his appreciations for economic phenomena that would later be codified in formal schools of economics.

⁷ Exorbitant duties on imported articles would beget a general spirit of smuggling which is always prejudicial to the fair trader and eventually to the revenue itself…

The British ones already had, as Hamilton knew well from his good friend John Hancock, whose sloop Liberty had been confiscated by the British under the accusation of the smuggling of wine and then used to enforce their own imposts – it was apparently quite suited both to smuggling and enforcement – until burned by an outraged and possibly thirsty colonial mob in 1769. Hancock’s actual guilt is open to historical question, but the prevalence of smuggling in early America as a reaction to what was regarded as impertinent taxation was not.

The remarkable debt of the British government as a result of the Seven Years’ War had been cited by Hamilton in Federalist #34. One means of raising the revenue necessary to service this debt was the Townshend Acts, whose purpose was to recover part of this debt. It was also intended to force colonial officers who had received their pay directly from local sources to take that same money through the intermediary hand of the Crown, thus helping to diffuse any tendency toward sympathy to the colonials. The latter, for their part, turned out not to be quite so provincial as not to see through this overt play for political power.

From the British point of view the New World portion of the war had been fought for American interests, employing a nice distinction between British interests and those of British colonials. From the latter’s point of view their portion of that war had been paid for already in both coin and blood. When the British attempted to tax goods that were not manufactured in America and simultaneously to restrict the purchase of those goods exclusively from Britain, the resistance was inflamed many times over that which was inspired by the defunct and, by comparison, relatively innocuous Stamp Act.

It was the highhandedness of its inception and not necessarily the economic impact that had led to the vociferous – and accurate – accusations of “taxation without representation” that sent the country hurtling toward rebellion. Now Hamilton found himself in the position of Lord Townshend and was exquisitely aware of how very inflammatory the issue remained. He had written six closely reasoned papers justifying his position on it, and there would be a seventh to follow.

Suddenly Hamilton the merchant becomes Hamilton the economist. The topic is how very complicated a tax structure restricted to imposts would become.

In short, it is that a tax theoretically paid by the consumer often isn’t, which affects what is now roughly termed “economic justice”. A government seeking to disperse the load of taxation by aiming directly at the consumer often finds itself concentrating it instead, with a disproportionate effect on revenue. That is actually quite an economic insight for a time when Wealth Of Nations was barely ten years old. It gets better.

¹⁰ It is not always possible to raise the price of a commodity in exact proportion to every additional imposition laid upon it.

Again, the net effect is to throw off the neat calculations of theory. In fact, the principle Hamilton is alluding to was known in the bones of every successful merchant but was not to be codified for another century by the economist Alfred Marshall under its formal name, price elasticity of demand. Hamilton the merchant was cautioning his lawyerly opponents that the matter wasn’t quite so simple as it appeared.

There were further complications. Manufacturing states would require less to be imported, hence shifting the burden of taxation on imports to non-manufacturing states (17), one of which was Hamilton’s own New York. There is even a whiff of the yet-to-be-born Marx in Hamilton’s sly suggestion that New York might end up footing an inordinate portion of the bill.

¹⁸ They (the manufacturing states) would not, therefore, in this mode alone contribute to the public treasury in a ratio to their abilities.

Hamilton’s overall case is a combination of canny mercantile savvy and a great deal of smoke, but the upshot was that the model of restricting federal taxation to any particular area was a lot less clean than its proponents hoped.

He changes course abruptly to a discussion of an issue that had been at the forefront of anti-Federalist rhetoric from the outset: the composition of the House of Representatives by number. This was not simply the point that one representative for every 30,000 inhabitants was likely to be insufficient, a matter Hamilton puts off for a later treatment (33). It is the hope that each of the separate identifiable social classes would find, through that number, the prospect of placing a member or sympathizer within the House. Nonsense, says Hamilton.

³⁴ The idea of an actual representation of all classes of the people by persons of each class is altogether visionary.

³⁵ Unless it were expressly provided in the Constitution that each different occupation should send one or more members, the thing would never take place in practice.

That is not “visionary” in the pleasant, contemporary sense, but “illusory.” Hamilton explains why from the perspective of merchant, mechanic, academic and land holder. These, he states, will tend to vote for class interest over class identification, and that representation in the sense of actual membership in both Senate and House is likely to fall into the same patterns already observed (49). Crude tokenism is, in practice, anathema to liberty.

⁵¹ But we have seen that this will never happen under any arrangement that leaves the votes of the people free.

⁶⁷ And in that sense let every considerate citizen judge for himself where the requisite qualification is most likely to be found.

Indeed, it is difficult to imagine an American, accustomed even then to a level of class mobility that was shocking to European aristocracy and incredibly seductive to its common people, restricted to voting by the bounds of a social class that he saw perfectly well were ill defined and toward whose members he bore little, if any, feelings of class solidarity. That relic of Plato was not a seed that would take root in the New World until future generations of Marxists would attempt to graft it there.

It is an odd combination of topics, perhaps a reflection that Hamilton was still in the process of reacting to Brutus’ thunderous paper and attempting slowly to turn the debate back into a more congenial direction. He will close out the current one in his next offering.

I think you have a typo in line 11.

It’s difficult to imagine any taxation plan as fair. As soon as a rule is established, some creative attorney or accountant will find a way to test it. I did a very limited amount of exporting, and finding classifications for our exports, as well as exploiting loopholes, proved quickly to be a lucrative field. When is a 52” plasma tv not a 52” plasma tv? When it is an unassembled component of a commercial entertainment system to be installed on a cruise ship in a yard in Germany.

This particular essay ignores, as did Brutus, the very real power of the states in the Senate. When the states were given their influence at the federal level, their senators helped to ensure that some states could not use the federal code for the benefit of some, at the expense of others. We really need to repeal the 17th Amendment and return to this system.

Paragraph 59 is one which should be cautionary and instructive for the current President, who seems to be bound to ideologies and ideas about spending and taxation that are destructive of liberty, inconsistent with his oath, and inconsiderate of the majority of citizens who oppose his policies.

He listens not to those who, like the colonists of 1776 and the Framers of the 1787 Constitution, call him to account for excessive spending and taxation. Note specifically Nos. 59 - 67.

Oh, for the wisdom of a Thomas Jefferson:

"I deem [this one of] the essential principles of our government and consequently [one] which ought to shape its administration:... The honest payment of our debts and sacred preservation of the public faith." --Thomas Jefferson: 1st Inaugural, 1801. ME 3:322

"I sincerely believe... that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." --Thomas Jefferson to John Taylor, 1816. ME 15:23

"[With the decline of society] begins, indeed, the bellum omnium in omnia [war of all against all], which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression." --Thomas Jefferson to Samuel Kercheval, 1816. ME 15:40

I love that line enough to repeat it here:

Is it not natural that a man who is a candidate for the favor of the people, and who is dependent on the suffrages of his fellow citizens for the continuance of his public honors, should take care to inform himself of their dispositions and inclinations and should be willing to allow them their proper degree of influence upon his conduct?

The key is "proper" degree of influence. This can run the gamut from a President who governs strictly by the polls to one who governs strictly by personal diktat. BJ Clinton pretended to be the former if one can ignore the unfortunate tendency of his and his PR department to first attempt to orchestrate the polls before they "listened" to them. 0bama is in a far less subtle category - his is the approach of a self-proclaimed paragon of moral rectitude whose task it is to force a refractory and sinful people into a mold of greater political purity. Clinton was a back-door despot, 0bama is an open one. Neither considers himself a representative; both flatter themselves that they are, to the contrary, "leaders."

But the Constitution was written very much around the concept of representation, not leadership. Hamilton and his critics, Jefferson and even, eventually, his co-author Madison, were apparently unaware that they were forming the germ of a factionalism that allows the elected to be responsive not to the people as a whole, but only to those followers who they regard as putting them into office. In theory that rivalry is dropped once the last vote is counted; in practice it is relentlessly perpetuated until it is no longer effective. Only then do we get the achingly familiar lip service to "President of ALL the people." By the time the latter pops up it is already too late for it to become a reality.

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