One of the most pressing problems America faced after its War of Independence against the English was debt. Not only was the Federal Government broke, but large debts were also held by citizens. Many farmers were oppressed by taxes and even suffered foreclosures on their land. The situation erupted at the end of 1786 when a farmer protest became a rebellion, called Shays’s Rebellion after Daniel Shays, a former militia captain who led it. The rebellion was eventually put down by the state militia, but it had wider implications beyond the initial threat of violence. For a start, there had been calls to abolish debt and to divide wealth equally. Naturally, this spooked investors and creditors, and the weakness of the Federal Government was exposed, since most of the army had been disbanded after the war with England. Massachusetts had used its own militia. But it wasn’t only the issue of military force that the rebellion raised. It also raised the issue of the power of the Federal Government to regulate taxes, since the rebellion had in large part been a reaction to the onerous State taxes Massachusetts imposed in an attempt to clear its own debt.
The situation in Massachusetts is the background to the twenty first Federalist Paper. Hamilton intends to address two main problems in this paper: first, the untethered power of the States; and second, the problem of addressing debt fairly, which must be through Federal taxes on consumption, according to Hamilton, not State quotas under the current confederacy.
The first issue centres upon Hamilton’s term,
mutual guaranty. The term basically refers to the relationship between the States and the Federal Government. The problem for the Federal Government, Hamilton argues, is that it has no means by which to enforce its laws because it has no means by which to make States comply. He quotes the second article of the present Constitution to illustrate the problem:
that each State shall retain every power, jurisdiction, and right, not expressly delegated to the United States in Congress assembled. Apart from the many powers reserved for States, the problem also lies in the tendency of those who defend the prerogatives of the States,
of contravening or explaining away a provision. In other words, there are areas where laws attributed to the Federal Government may be argued to be exempt by the power of this provision, thereby further empowering States. Given the discussion of the last three Federalist Papers, the argument for the potential for chaos and conflict in this circumstance has already been made. Mutual Guaranty, Hamilton argues, is missing. States may be deemed to have an implied or assumed obligation, but not necessarily a legal one.
Hamilton argues, following the logic of the previous Federalist Papers, that with Mutual Guaranty, problems like those witnessed in Massachusetts do not have to end in violence. Instead, in a system in which
the whole power of government is in the hands of the people, and which States are beholden to the will of the Federal Government, resolutions of disputes and changes of power are peaceable.
The second half of the paper addresses the problem of State quotas. Hamilton points out their unfairness by arguing that the wealth of a population is not in its size and its land assets, but is established by a variety of factors, including climate, soil, access to information, the established infrastructure and the abilities of its citizens. Hamilton’s point is simple here. That one population should not be taxed beyond its means while another with greater means to pay should pay a similar amount of tax without even noticing it, all in the name of equality. The only remedy he feels that would work is a tax on consumption rather than a tax on land and population. (Hamilton points out the problems of land valuation, too, especially
in a country imperfectly settled). Hamilton illustrates his argument with some of the basics of the laws of supply and demand. People will consume what they can afford (
a security against excess), while the system will mean the government will not make taxes onerous, since if taxes on consumption are raised, consumption will decrease, thereby creating a limit on government revenue. Hamilton’s theory seems sound, but this didn’t stop his later Whisky tax, possibly America’s first
sin tax, from also being the impetus for rebellion.
19 April 2018