Our future first treasury secretary, Alexander Hamilton, reminds us in Federalist No. 12 why we have him on the ten-spot, writing of how a prosperous commerce (fostered by effective government of the Union) will promote the “circulation of the precious metals, those darling objects of human avavice and enterprise,” and thereby “invigorat[ing] all the channels of industry, . . . mak[ing] them flow with greater activity and copiousness.”
Was Hamilton a supply-sider? The real objective of this essay is to show how a commercially vibrant Union can generate a steady revenue flow to meet a national government’s legitimate needs (remember that navy, for instance, in the previous essay). But government policy must not kill the goose laying these golden eggs:
“The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates.”
(Sounds like a good slogan for the Federal Reserve, another institution that can trace its roots to Hamilton). And since tax policy matters, Hamilton provides a quick, compact primer on the various forms of taxation known at that time (the income tax not having been invented yet), settling on duties on imports as the least damaging to prosperity, the least annoying to the people, and the least trouble to collect from a bureaucratic standpoint. Hamilton rightly predicts that for a long time to come, these tariffs will supply most of the national government’s revenue, though other means remain constitutionally available.
But the overarching point is to make the revenue come into the treasury “without prejudice to trade.” For “[a] nation cannot long exist without revenue,” and the surest way to destroy the revenue is to pursue policies producing economic stagnation.
As President Bush sends up a budget reminding Congress that his tax policies are closing the deficit, he stands with Hamilton in understanding the relation of prosperity to the revenue.
(For explanation of this recurring feature, see here.)