Federalist No.35

The Same Subject Continued

(Concerning the General Power of Taxation)

Saturday, January 5, 1788

Alexander Hamilton


35.1

While Hamilton uses this instalment of the Federalist Papers to continue his argument in favour of the Federal government’s powers of taxation, he progresses the argument in the second half of the paper to address what is implicit in the objections of the Constitution’s detractors: that a federal government could not provide proper representation of its constituents.

35.2

The first half of the paper addresses the differences between ‘rational’ models of taxation [my word for it] and the natural tendencies of human beings to avoid an impost. By ‘rational’ I do not mean a rational application of a law or a belief that laws are inherently rational, but a belief that economic theory alone explains how a tax will affect an economy. Hamilton makes this point by arguing that if the Federal government were to be limited to a narrow range of taxes – say import duties – there would be the likelihood that duties could be overexploited in order to achieve needed revenue levels. A ‘rational’ argument might be that higher import duties would suppress extravagant consumption, to produce a favourable balance of trade, and to promote domestic manufactures. However, this is a naïve belief, since extremes beget responses, which in this case would likely be a general spirit of smuggling; which is always prejudicial to the fair trader, and eventually to the revenue itself… And Hamilton makes it clear that he believes that when a government has a narrow range of taxation resources at its disposal, it will at some stage be forced to raise taxes beyond an acceptable point which may not be bearable, even with mitigating responses to alleviate the burden, prohibitive laws or with the best of intentions leavened by hope.

35.3

Hamilton further makes his point by raising the issue of who ultimately pays a tax. The belief is that it is the consumer. However, states that have a greater manufacturing base will import fewer goods and thereby pay less tax in a model that limits the federal government to import duties. So, a state like New York, which had a much smaller manufacturing base, would thereby pay a disproportionate amount of tax.

35.4

This is where Hamilton comes to the question of representation. First, he points out that unless the constitution mandated that there should be a representative from every kind of trade in the House of Representatives, there would never be a perfect representation of every kind of business interest in society. Instead, Hamilton breaks society down into three broad interest groups: artisans and manufacturers; learned professionals; and landed interests. Hamilton argues that it is unlikely that any parliament would lack the representation of any one of these classes, and that in broad terms, each of these classes represent the interests of the myriad of specific types of jobs, industry and financial interests. The argument Hamilton makes here has already been used in other Federalist Papers: that different factions will represent their own interests and each will act upon each other as a brake to the imposition of extravagant burdens on any one facet of the financial system. In fact, Hamilton conceived that the learned professionals would provide a neutrality to the rival-ships between the different branches of industry, [and] be likely to prove an impartial arbiter between them, ready to promote either… Hamilton saw parliament as a balanced mechanism that would nullify the worst excesses of self-interest and achieve a fair and balanced system of taxation.


Is it not natural that a man who is a candidate for the favour of the people, and who is dependent on the suffrages of his fellow-citizens for the continuance of his public honours, 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?
- Alexander Hamilton

35.5

Ultimately, the fact that the parliamentarian must answer to the people through a plebiscite was the brake on excessive exploitation. Hamilton conceived of the parliamentarian as someone who ideally would engage in extensive enquiry in order to serve his own interests as a representative, by ensuring he served the interests of his constituents. The man who understand those principles best, Hamilton argues, will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue.

19 October 2018