No. 12 — The Utility of the Union in Respect to Revenue (Hamilton)

Hamilton's premise is the mercantilist insight that all enlightened statesmen of his era accepted: commerce is the most productive source of national wealth, and therefore the most productive source of tax revenue. A commercial society generates a circulating stock of goods and money that can be taxed through indirect means — import duties and excises — far more easily and productively than through direct taxes on land and property. The problem with direct taxation, as Hamilton notes, is that it meets resistance in proportion to its visibility: citizens feel every direct tax as an imposition on their person and resist it. Indirect taxes, embedded in the price of goods, are paid almost without noticing.

The fiscal case for union follows directly. A national government with the power to impose uniform import duties at American ports can generate substantial revenue from the large volume of trade flowing through those ports. The revenue can be sufficient to fund the national government's operations, service the revolutionary debt, and maintain the military establishment that external security requires. By contrast, thirteen separate state governments, or even three or four confederacies, would each need their own revenue systems, each competing with the others and each unable to prevent smugglers from circumventing their duties by crossing a nearby border. The administrative costs would be higher and the yields lower.

Hamilton closes with an argument that looks forward to the political economy he would build as Treasury Secretary: a well-funded national government is not just administratively more efficient than state governments — it can underwrite national credit at lower cost, borrow at better rates, and fund long-term investment in infrastructure and military capacity. A government that cannot reliably service its debts cannot borrow; a government that cannot borrow cannot manage large unexpected expenditures; a government that cannot manage large expenditures in a crisis will fail the crisis. The case for union is thus partly the case for creditworthiness — and creditworthiness requires the revenue base that only union can provide.