Federalist 12 and 13
In March of 1785 the Continental Congress entertained a motion to amend section 9 of the Articles of Confederation, giving Congress the power to regulate commerce with foreign powers and among the states. The motion was defeated. Then, as now, different regions of America had different economies and thus different economic interests. If the Congress could pass regulations by a simple majority, the northern states would be able to use that regulatory power to their economic advantage and to the disadvantage of other regions. Concerning that, Richard Henry Lee wrote “So essential is the difference between the Northern & Southern productions and circumstances relative to Commerce, that it is not easy to adopt any general system that would well accord with all.”
Lee expressed concern that too much attention to commerce would capitulate to “the Spirit of Avarice” that would corrupt the morals of the community. Granted, human beings necessarily engage in commercial transactions, and governments typically figure out ways to siphon wealth off those transactions to fund its enterprises, but the Antifederalists insisted that a good society keep economic activity within limits, not only geographically but also morally. These writers also worried about the government’s power to skim off wealth, especially a distant and central government where the representatives didn’t share the economic interests or fates of the people, nor were their actions transparent.
George Clymer, a delegate from Pennsylvania commented on the likelihood that the system of representation in Congress would result, commercially speaking, in the advantage of one region to the detriment of others. The author of the Centinel essays (likely Samuel Bryan, also from Pennsylvania) went even further, arguing that allowing Congress the power to regulate commerce would not only favor a particular region, but also a particular class, and choke off the spirit of liberty that defined America.
“The merchant, immersed in schemes of wealth, seldom extends his views beyond the immediate object of gain; he blindly pursues his seeming interest, and sees not the latent mischief; therefore it is, that he is the last to take the alarm when public liberty is threatened. This may account for the infatuation of some of our merchants, who, elated with the imaginary prospect of an improved commerce under the new government, overlook all danger: they do not consider that commerce is the hand-maid of liberty, a plan of free growth that withers under the hand of despotism, that every concern of individuals will be sacrificed to the gratification of the men in power, who will institute injurious monopolies and shackle commerce with every device of avarice; and that property of every species will be held at the will and pleasure of rulers.”
This merchant class would end up “controuling [sic] the credit of the state, and dictating the measures of government.”
Even in Massachusetts, the state most likely to benefit from the commerce clause, concerns about its fundamental unfairness appeared in the essays of James Winthrop, writing under the pseudonym “Agrippa.” Winthrop observed that the ability to regulate commerce necessitated the exclusive right to grant charters, such grants resulting in monopolies that would destroy the spirit of individual enterprise, destroy competition, and create inequality. He asked readers to consider how the Parliament’s authority to grant charters benefited England but worked to the disadvantage of Ireland and Scotland. It would destroy the economic self-sufficiency which was essential to American’s liberty.
Hamilton responded to these concerns in Federalist 12 and 13. Granted, almost all the Antifederalists agreed that Congress needed greater control over commerce, both internationally and domestically, and also agreed that it had to have some power to tax in order to perform its services. One of the big issues facing the young country concerned its ability to pay off its debts, and there was much disagreement about how to accomplish this. Some of the Antifederalists bemoaned the ways in which the young nation was living beyond its means, calling for austerity measures that resulted from the virtues of frugality and modesty. Others pointed out that progress was already being made on debt measures and didn’t require drastic solutions. Hamilton and others argued that the debt crisis was significant enough that it required a more forceful solution, one that would have other salutary benefits as well.
The ability to produce more wealth, Hamilton argued, was “acknowledged by all enlightened statesmen” (Hamilton had a tendency to imply that people who disagreed with him were not enlightened) as the “primary object of their political cares.” An increase in wealth was the key to national greatness, and circulating wealth in the form of currency was the best way to increase it. There are different sources or types of wealth, and in traditional republican societies land mainly played that role, in no small part because of its productive value. Genuine wealth creation relates to the production of necessary goods and services and, depending on values and circumstances, some unnecessary ones as well. Yeoman farmers maintaining their self-sufficient and modest livelihoods were the backbone of the republic.
Farmers who engage in subsistence-plus farming or farm for cash crops often had interests that conflicted with merchants, whose interests tilted not to productivity but to profit. The latter could shift markets to their advantage, especially by manipulating the value of currency. The relationship of agricultural products to markets would remain a long-standing source of conflict in American political life. Hamilton recognized that agricultural interests and merchant interests often conflicted with each other, but believed that “by multiplying the means of gratification” and “promoting the introduction and circulation” of money, this “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.” If revenues are not drawn from commerce, Hamilton argued, they must be drawn from land. For this reason, he believed, the interests of the farmer and the merchant coincided. This confidence did not survive the weight of events.
Hamilton’s conviction resulted from his theory of money, which was an essential part of his defense of the Constitution. Among its virtues, money allows you to represent wealth. You can’t eat a dollar, but you can take it into a Wendy’s a buy a Jr. hamburger with it. Money alters the relationship of labor to property, because in its system of representation, wherein it allows for speculation, we can extrapolate wealth not only beyond use, but beyond productivity itself. The speculator’s only interest is increasing his reserve of currency; indeed, the lack of productivity can itself be a source of wealth. For the farmer, everything depends on how much he actually produces and can use.
This division in the principle of wealth means that wealth can be extracted from productive property. The term we use for this is “liquidation,” and money allows that which is solid to become liquid, and that which is liquid may in turn evaporate. The entire economy, rather than being firmly grounded, becomes ephemeral and vaporous. It allows government through a system of confiscatory taxation to pull wealth from productive property as if it were pulling carrots from the ground. Without a system of strict representation, the Antifederalists feared, the interests of merchants, stock-jobbers, and other speculators would soon alter the very structure of American citizenry. Even before the ratification of the Constitution, the ability of government to set the value of currency to the interests of one group over that of others had become a flashpoint in politics, and remains so to this day. Inflation, intimately related to the money supply that government controls, doesn’t hit everyone equally.
Hamilton believed that government had to have the capacity to raise revenues via a system of confiscatory taxation, and this ability depended on “the amount of money in circulation, and the celerity with which it circulates.” Commerce and trade alone would “facilitate the requisite supplies to the treasury.” The government under the Articles was not only restricted on paper from raising revenues, but by being too democratic indulged the error of perpetuating “the popular system of administration inherent in the nature of popular government” that coincided with a “languid and mutilated state of trade” that defeated “every experiment for extensive collections.” In this context, Hamilton praised Britain for its ability to generate revenue through direct taxation. One imagines how those words resounded in the ears of the recent revolutionaries.
The two most consequential powers of modern government, Bertrand de Jouvenel argued, were the powers of conscription and being able to dip the government’s hand directly into people’s pockets. Granted, Hamilton thought, “the pockets of farmers” would only “yield but scanty supplies” and “the unwelcome shape of impositions on their houses and lands” would not produce great revenues unless government could be rescaled to extract wealth over a much wider territory. Thus increasing government’s capacity to extract wealth “must rest on the basis of a general Union” that “would be conducive to the interests of commerce” and the “extension of the revenue to be drawn from that source." The productivity of farmers, limited by the actual restrictions of land and climate, would never generate the increases in wealth and revenue that could fund more ambitious government projects. Only by unleashing, via currency, wealth from productive action, that is, by liquidating it, could you circulate it broadly and rapidly enough that government could siphon off a sufficient amount to fill its tanks.
Hamilton minimized the the ways in which differing regional economies could become a source of conflict. America, he thought, was interconnected both topographically and culturally, and this meant the states would have little incentive to protect their particular economic interests. Indeed, states would behave in the same way all economic actors behaved: motivated by money, “the darling [object] of human avarice and enterprise,” the states too would find themselves beholden to “the adventurous stratagems of avarice.”
Trade between the states would thus become a source of government revenue, and a single union would also facilitate the generation of taxes from trade with foreign powers. Hamilton, like many observers before and since, observed America’s distinctive advantage with its abundance of warm-water ports and navigable internal waterways. Surely these features could be turned to economic advantage.
Clearly much of the debate here turned on the relationship of the states to the union, but Hamilton rightly understood that economies were determined more regionally than on a state-by-state basis, an idea clearly present in debates at the Convention. It’s simply more difficult to farm productively in some parts of the country than in others. For this reason, the new government had to regulate the relationship between these three regions, for “no well-informed man” [!] will doubt that that relationship could be “properly regulated by a government less comprehensive … than that which has been proposed by the convention.” Only a government of sufficient size and strength could “direct the passions,” including the spirit of avarice, “to the public good.” A central government provided with sufficient power could diffuse its force in such a way as to “reproduce itself in every part of a great empire by a judicious arrangement of subordinate institutions.” The reality of people stubbornly clinging to and defending the integrity of those “subordinate institutions” could be undone by time and by the superior administrative skill of the central government.
Hamilton’s arguments in 12 and 13 anticipate the conditions that would become central features of American politics and history: regional conflicts; divisions in types of economic activities and the populations who engage in them; the means and scope of government wealth extraction and the purposes to which it is used; and the extent to which the interests of parts would be subordinated to the interests of the whole. In the years leading up to the Civil War, the divisions in Congress that would allow the northern states to impose its economic interests on the southern states, largely though the imposition of tariffs, sped the regions toward armed conflict. For this reason, George Mason and others argued that the Constitution’s grant of authority in Article I section 8 to Congress to regulate commerce should require a 2/3 vote rather than a simple majority. Counterfactuals may be the bane of professional historians, but I think one could make a pretty convincing case that American history would have played out very differently, and I expect more justly, had this 2/3 requirement been approved. If Mason had gotten his way on that one, the more restrictive commerce clause “would have produced mutual moderation, promoted the general interest, and removed an insuperable objection to the adoption of this government.”
Director of the Ford Leadership Forum, Gerald R. Ford Presidential Foundation
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