In Federalist 21, Hamilton covers three topics. The government under the Articles of Confederation was incapable of enforcing its own laws, neither could it offer any protection to States against usurpation of local power by malignant factions. Finally, advocates of a VAT tax might have a look at this Federalist essay. Hamilton argues that the only way for the Federal government to function is to give it the right to collect taxes directly from the people, largely (but not exclusively) in the form of consumption taxes. It is interesting to note that he does not preclude the collection of property taxes.
HAVING in the three last numbers taken a summary review of the principal circumstances and events which have depicted the genius and fate of other confederate governments, I shall now proceed in the enumeration of the most important of those defects which have hitherto disappointed our hopes from the system established among ourselves. To form a safe and satisfactory judgment of the proper remedy, it is absolutely necessary that we should be well acquainted with the extent and malignity of the disease.
In the last three essays, we have summarized the main aspects and subsequent fate of other confederate governments. In this paper I will now enumerate the biggest faults of our own confederation. In order to cure the disease, we must be sure of our diagnosis in extent and degree.
The next most palpable defect of the subsisting Confederation, is the total want of a SANCTION to its laws. The United States, as now composed, have no powers to exact obedience, or punish disobedience to their resolutions, either by pecuniary mulcts, by a suspension or divestiture of privileges, or by any other constitutional mode. There is no express delegation of authority to them to use force against delinquent members; and if such a right should be ascribed to the federal head, as resulting from the nature of the social compact between the States, it must be by inference and construction, in the face of that part of the second article, by which it is declared, “that each State shall retain every power, jurisdiction, and right, not expressly delegated to the United States in Congress assembled.” There is, doubtless, a striking absurdity in supposing that a right of this kind does not exist, but we are reduced to the dilemma either of embracing that supposition, preposterous as it may seem, or of contravening or explaining away a provision, which has been of late a repeated theme of the eulogies of those who oppose the new Constitution; and the want of which, in that plan, has been the subject of much plausible animadversion, and severe criticism. If we are unwilling to impair the force of this applauded provision, we shall be obliged to conclude, that the United States afford the extraordinary spectacle of a government destitute even of the shadow of constitutional power to enforce the execution of its own laws. It will appear, from the specimens which have been cited, that the American Confederacy, in this particular, stands discriminated from every other institution of a similar kind, and exhibits a new and unexampled phenomenon in the political world.
The biggest defect of our current confederation is its complete inability to enforce its laws. The United States as an entity in its current configuration, have no power to enforce obedience, or punish disobedience to their resolutions. They cannot fine, suspend or reduce privileges, or do anything else under the existing constitution to maintain authority. There is nothing specified in the Constitution allowing the States to use force against members that don’t pay. Furthermore, if such a right were to be inferred for the federal head of government, in as much as there is a compact between the States, it would necessarily be a weak presumption. This is because the second article states unequivocally, “that each State shall retain every power, jurisdiction, and right, not expressly delegated to the United States in Congress assembled.” It seems preposterous that this power is not granted to the federal head. Nevertheless, we are stuck in the position of having to either accept that it not does exist, or of figuring out some way to legally work around the provision. This is extremely ironic because it is the want of this very provision in the new Constitution, which its critics continually harp upon. Yet if we cannot ameliorate the effects of this provision, we will have to resign ourselves to the extraordinary status of a country which lacks the power to enforce its own laws. In this aspect, the American Confederacy is unique from every other institution of its kind within the political world.
The want of a mutual guaranty of the State governments is another capital imperfection in the federal plan. There is nothing of this kind declared in the articles that compose it; and to imply a tacit guaranty from considerations of utility, would be a still more flagrant departure from the clause which has been mentioned, than to imply a tacit power of coercion from the like considerations. The want of a guaranty, though it might in its consequences endanger the Union, does not so immediately attack its existence as the want of a constitutional sanction to its laws.
Another major problem with the existing federal plan is the lack of a mutual guaranty of the State governments. The Articles of Confederation don’t stipulate any provision by which the states may come to one another’s aid. To infer that such guarantees exist is even more ridiculous than inferring the power of coercion discussed above. Although the lack of any such provision of guaranty is a major defect, and could result in danger to the union, its absence is not as dire that of a constitutional ability to enforce its laws.
Without a guaranty the assistance to be derived from the Union in repelling those domestic dangers which may sometimes threaten the existence of the State constitutions, must be renounced. Usurpation may rear its crest in each State, and trample upon the liberties of the people, while the national government could legally do nothing more than behold its encroachments with indignation and regret. A successful faction may erect a tyranny on the ruins of order and law, while no succor could constitutionally be afforded by the Union to the friends and supporters of the government. The tempestuous situation from which Massachusetts has scarcely emerged, evinces that dangers of this kind are not merely speculative. Who can determine what might have been the issue of her late convulsions, if the malcontents had been headed by a Caesar or by a Cromwell? Who can predict what effect a despotism, established in Massachusetts, would have upon the liberties of New Hampshire or Rhode Island, of Connecticut or New York?
Without a constitutional guaranty, State governments cannot rely on any assistance from the Union in putting down domestic insurrections which may, from time to time, threaten the State governments. A State may have its power usurped at any point, and have its peoples liberties trampled upon. Yet the national government would be legally unable to do anything, other than sit back and watch, with indignation and regret. A successful faction might even be able to impose a tyrannical regime, and the Union would be powerless to assist the friends and supporters of the displaced State government. One needs only to look at the situation which recently transpired in Massachusetts to know that this is not mere idle speculation. If the mob had been led by the likes of a Caesar or a Cromwell, who knows what might have happened. Who can predict the effect of a despotic government once established in Massachusetts, upon the liberties of New Hampshire, Rhode Island, Connecticut, or New York?
The inordinate pride of State importance has suggested to some minds an objection to the principle of a guaranty in the federal government, as involving an officious interference in the domestic concerns of the members. A scruple of this kind would deprive us of one of the principal advantages to be expected from union, and can only flow from a misapprehension of the nature of the provision itself. It could be no impediment to reforms of the State constitution by a majority of the people in a legal and peaceable mode. This right would remain undiminished. The guaranty could only operate against changes to be effected by violence. Towards the preventions of calamities of this kind, too many checks cannot be provided. The peace of society and the stability of government depend absolutely on the efficacy of the precautions adopted on this head. Where the whole power of the government is in the hands of the people, there is the less pretense for the use of violent remedies in partial or occasional distempers of the State. The natural cure for an ill-administration, in a popular or representative constitution, is a change of men. A guaranty by the national authority would be as much levelled against the usurpations of rulers as against the ferments and outrages of faction and sedition in the community.
Some have attached extraordinary importance to the principle of State supremacy, and suggest that the federal government would be prone to interfere needlessly in the domestic concerns of the member States. Going too far to prevent this, will deprive us of one of the chief advantages of union. Fears about abuse can only be due to a misunderstanding of the nature of the provision itself. The power of the Union could not impede any legitimate reforms of a State constitution, enacted by a majority of the people, in a legal and peaceable manner. This right would remain undiminished. The guaranty we are talking of, would only apply to changes made by violence. It’s impossible to safeguard too much against calamities of this sort. The peace of society and the stability of government depend absolutely on the efficacy of the precautions adopted in this area. In a system where the whole power of government is in the hands of the people, there is much less of a chance that violent remedies will be necessary to quell occasional political unrest in a State. In a government based on a popular or representative constitution, elections are the natural cure for a bad administration. A guaranty by the national authority would apply as much to the usurpation of state executives as to the subjugation of mobs spreading sedition within the community.
The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Its repugnancy to an adequate supply of the national exigencies has been already pointed out, and has sufficiently appeared from the trial which has been made of it. I speak of it now solely with a view to equality among the States. Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth, must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained. Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of State contributions, has any pretension to being a just representative. If we compare the wealth of the United Netherlands with that of Russia or Germany, or even of France, and if we at the same time compare the total value of the lands and the aggregate population of that contracted district with the total value of the lands and the aggregate population of the immense regions of either of the three last-mentioned countries, we shall at once discover that there is no comparison between the proportion of either of these two objects and that of the relative wealth of those nations. If the like parallel were to be run between several of the American States, it would furnish a like result. Let Virginia be contrasted with North Carolina, Pennsylvania with Connecticut, or Maryland with New Jersey, and we shall be convinced that the respective abilities of those States, in relation to revenue, bear little or no analogy to their comparative stock in lands or to their comparative population. The position may be equally illustrated by a similar process between the counties of the same State. No man who is acquainted with the State of New York will doubt that the active wealth of King’s County bears a much greater proportion to that of Montgomery than it would appear to be if we should take either the total value of the lands or the total number of the people as a criterion!
Another fundamental error in the Confederation, is the principle of trying to use QUOTAS as the means of regulating the State contributions to the common treasury. The inability of such a system to provide for the needs of the nation has already been pointed out, and it’s failure to do so has been verified in practice. At the moment, I only speak of this from the standpoint of equality among the States. As any economist knows, there is no common standard or barometer by which the degree of national wealth can be ascertained. Neither population or land evaluation, both of which have been proposed as the means of determining just apportioning, are very good approximates of wealth. We have only too look overseas to see the inadequacy of such indicators for measuring wealth. Compare the wealth of the United Netherlands, with that of Russia or Germany, or even of France. Now at the same time, compare the total value of their lands and aggregate populations. Obviously the United Netherlands is smaller in both size and population than any of the last three countries and yet its wealth is not proportionate. If we were to do a similar comparison between the States of America, we’d find a similar lack of correlation between size and population, and wealth. Contrast Virginia with North Carolina, Pennsylvania with Connecticut, or Maryland with New Jersey, and we shall be convinced that the respective abilities of those States, in relation to revenue, bear little or no analogy to their comparative stock in lands or to their comparative population. You can even take this down to the disparate degrees of wealth between the various counties within an individual State. Anyone familiar with the State of New York knows that King’s County is far wealthier than would be supposed, if judging by its size and population relative to that of Montgomery County.
The wealth of nations depends upon an infinite variety of causes. Situation, soil, climate, the nature of the productions, the nature of the government, the genius of the citizens, the degree of information they possess, the state of commerce, of arts, of industry, these circumstances and many more, too complex, minute, or adventitious to admit of a particular specification, occasion differences hardly conceivable in the relative opulence and riches of different countries. The consequence clearly is that there can be no common measure of national wealth, and, of course, no general or stationary rule by which the ability of a state to pay taxes can be determined. The attempt, therefore, to regulate the contributions of the members of a confederacy by any such rule, cannot fail to be productive of glaring inequality and extreme oppression.
The wealth of nations depends upon an infinite variety of causes. These include: situation, soil, climate, the type of manufacturing, the nature of the government, the work ethic of the citizens, the degree of information they possess, the state of commerce, of arts, of industry, and numerous other factors. In short, there are too many factors to accurately tabulate the relative wealth of different countries. If this is so, and there is no common measure of national wealth, then it is not possible to establish a general rule for determining the ability of a state to pay taxes. Consequently, attempting to regulate the contributions of the members of a confederacy by any such rule, can’t help but be unfair and oppressive.
This inequality would of itself be sufficient in America to work the eventual destruction of the Union, if any mode of enforcing a compliance with its requisitions could be devised. The suffering States would not long consent to remain associated upon a principle which distributes the public burdens with so unequal a hand, and which was calculated to impoverish and oppress the citizens of some States, while those of others would scarcely be conscious of the small proportion of the weight they were required to sustain. This, however, is an evil inseparable from the principle of quotas and requisitions.
This inherent inequality would be sufficiently egregious to eventually destroy the Union, if there were any way enforcing it. States unfairly burdened, would not long consent to remain associated with a system calculated to impoverish and oppress their citizens. At the same time, those with light burdens would hardly realize the small proportion of the weight they were required to sustain. But, that’s invariably what you get, in a system based on quotas and requisitions.
There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, 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. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. Or, if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas, upon any scale that can possibly be devised.
The only way around this problem, is to authorize the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount contributed by each citizen, will be, to some extent, within their control, based on how they choose to spend their money. The rich may be extravagant, the poor can be frugal. Taxes need not be unduly oppressive on the individual, if the items taxed are chosen carefully. If some States are unequally taxed on one commodity then this will in all likelihood be counterbalanced by a proportional inequality in other States. Over time, a kind of equilibrium will be reached, as much as it is possible to attain one. However, if inequalities still should exist, its unlikely that they would be as significant, consistent, or odious in their degree, as those which occur under any system based on quotas.
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. When applied to this object, the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.
Consumption taxes have the advantage of being somewhat self-regulating. They have a natural limit which cannot be exceeded without suffering a loss in revenue, which is the entire purpose for their existence. Just like “in political arithmetic, two and two do not always make four.” If duties are too high, they lessen the consumption; the collection is eluded; and the amount flowing to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this sort, and is itself a natural limitation of the power of imposing them.
Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. The state of agriculture and the populousness of a country have been considered as nearly connected with each other. And, as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a preference. In every country it is a herculean task to obtain a valuation of the land; in a country imperfectly settled and progressive in improvement, the difficulties are increased almost to impracticability. The expense of an accurate valuation is, in all situations, a formidable objection. In a branch of taxation where no limits to the discretion of the government are to be found in the nature of things, the establishment of a fixed rule, not incompatible with the end, may be attended with fewer inconveniences than to leave that discretion altogether at large.
Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time make up the bulk of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, require some sort of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. There is a direct relationship between the state of agriculture and the population of a country. And, as a rule, numbers are the basis of making such determinations. In every country it is a herculean task to obtain a valuation of the land. In a sparsely settled country in a constant state of improvement, it is nearly impossible to do so. Not only that, the expense required to obtain an accurate valuation is a big obstacle as well. Since such a mode of taxation is not subject to limit and is solely at the discretion of the government, it is better in this case to make an arbitrary, fixed rule, than to try to figure out each individual valuation.