Federalist 12

The Utility of the Union in Respect to Revenue – (Hamilton)

(read the full text of Federalist 12)

Alexander Hamilton

Federalist 12 explains how the Federal Government will obtain revenue necessary to fulfill its obligations to secure/protect our unified principles by practicing that compact.

Government – both the institution and the practical  application of government –  is not to be separate from the compact, but to be the enacting, the embodiment ( tangible or visible form of an idea) of the compact.

“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.” [Federalist 12 – Hamilton]

Previously, it was believed that physical raw materials such as precious metals were the equivalent of national wealth and it was by boosting exports and limiting imports that established national wealth. In this theory, the wealth of raw materials came from not actually using them. For instance a forest of uncut trees was viewed as national wealth or a gold mine that was not mined.

Smith’s proven theory established that it was the actual stream of goods and services – the jobs created by putting the forest or mine into production to produce products to sell/trade – that determined national wealth rather than the physical raw materials.

We now refer to this understanding of commerce as Gross Domestic Product.

      • GDP : the total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments.

The American compact comprised of the Declaration of Independence and the Constitution is founded upon commerce itself, the by-product of man’s yearning to provide from himself, which is the Creator endowed right of all men to pursue happiness, which creates both private and national wealth.

It is the responsibility of our government to protect both compacts – the establishing of the principles uniting us and then the practical means to ensure and protect them.

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. The often-agitated question between agriculture and commerce has, from indubitable experience, received a decision which has silenced the rivalship that once subsisted between them, and has proved, to the satisfaction of their friends, that their interests are intimately blended and interwoven.” [Federalist 12 – Hamilton]

In thinking rightly about how commerce occurs – agriculture and commercial business are united rather than competing ideologies creating “the most powerful instrument in increasing the quantity of money in a state.” [Federalist #12 – Hamilton] Therefore, pitting the agrarian against the industrialist was not in the best interest of the government that needed the revenue to meet its obligation of citizen safety and ownership. The purpose of government was not to hamper, favor, or seize ownership, but to protect ownership.

The often-agitated question between agriculture and commerce has, from indubitable experience, received a decision which has silenced the rivalship that once subsisted between them, and has proved, to the satisfaction of their friends, that their interests are intimately blended and interwoven.” [Federalist 12 – Hamilton]

Rather than seeking to control commerce in order to obtain revenue, the purpose of American government is to encourage and protect our liberty to pursue the commerce of self-interest so that collecting revenue to operate government is never a hardship upon the citizen.

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.” [Federalist 12 – Hamilton]

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. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury.” [Federalist 12 – Hamilton]

Hamilton uses this example to explain the error of pre-Smith understanding of  national wealth:

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. In some parts of this territory are to be found the best gold and silver mines in Europe. And yet, from the want of the fostering influence of commerce, that monarch can boast but slender revenues. 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. [Federalist 12 – Hamilton]

By understanding and applying the equalizing responsibility of human nature, our government’s revenue is assured as long as it adheres to the compacts of unifying principles stated in the Declaration of Independence and then protecting the safety of citizens in regards to our endowed rights of life, liberty and pursuit of happiness. However, as our elected officials and justices have drifted from adherence to acknowledging the reality of man living in a Creator Designed System with an understood human nature, so too has our nation drifted from appreciating the unifying principles set forth in the Declaration and our government from its duty to ensure and protect those principles.

As I wrote in the post – Blackstone’s Natural Law Not OK According to Vice-President Biden:

“By removing the equalizing responsibility of human nature, the floodgates of man’s desire to blame and hold others responsible for his life, liberty, and pursuit of happiness are opened wide for exploitation.” [Coppock]

This shift from our founding philosophy and purpose of government has not only put our nation’s revenue collection in jeopardy but in opposition to our original compact for purpose of government.

So, as we continue in Federalist #12, we must appreciate that our various federal, state, and local governments have embraced methods to collect revenue is the antithesis of original intent by taxing or applying fees on the means (physical materials) by which citizens pursue happiness.

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. 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. 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.” [Federalist 12 – Hamilton]

The genius of the people will ill brook the inquisitive and peremptory spirit of excise laws. 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 inperceptible agency of taxes on consumption.” [Federalist 12 – Hamilton]

The arbitrary and vexatious powers with which the patrols are necessarily armed, would be intolerable in a free country.” [Federalist 12 – Hamilton]

The Appreciation of Human Nature

Man is capable of great accomplishments in the pursuit of personal advancement.

  • In Washington’s letter to Benjamin Harrison  in discussing the means to improve communication between the territory west of the Allegheny Mountains and the eastern states such as digging  a canal- “A people however, who are possessed of the spirit of commerce, who see, and who will pursue their advantage, may achieve almost anything.

For every law meant to control the behavior of man, men simply look for a way around it. Or as Hamilton describes:

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. 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.” [Federalist 12 – Hamilton]

However, as hard as it is to enforce laws, a nation must have revenue therefore, if the state’s method of collecting revenue is so noxious as to make commerce entirely about escaping the law, rather than productive commerce the entire nation will collapse in debt.

A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land.” [Federalist 12 – Hamilton]

If productive commerce is not supported, then government revenue will then be derived from taxing land or under produced raw materials. For instance taxing the physical forest rather than the commerce of a forest in production. This is the most counter-productive method of raising revenue.

“… 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. 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. 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.” [Federalist 12 – Hamilton]

In studying these Federalist articles, we refresh ourselves in those unifying principles that established this unique nation. In knowing those principles and then applying them, we find the means to get our nation back on course. The compact of the Declaration of Independence and the Constitution remains intact, we only must live and vote accordingly.


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