The vesting Congress with the power of regulating trade ought to have been a principal object of the confederation for a variety of reasons. It is as necessary for the purposes of commerce as of revenue. There are some, who maintain, that trade will regulate itself, and is not to be benefited by the encouragements, or restraints of government. Such persons will imagine, that there is no need of a common directing power. This is one of those wild speculative paradoxes, which have grown into credit among us, contrary to the uniform practice and sense of the most enlightened nations. Contradicted by the numerous institutions and laws, that exist every where for the benefit of trade, by the pains taken to cultivate particular branches and to discourage others, by the known advantages derived from those measures, and by the palpable evils that would attend their discontinuance–it must be rejected by every man acquainted with commercial history. Commerce, like other things, has its fixed principles, according to which it must be regulated; if these are understood and observed, it will be promoted by the attention of government, if unknown, or violated, it will be injured–but it is the same with every other part of administration.
To preserve the balance of trade in favor of a nation ought to be a leading aim of its policy. The avarice of individuals may frequently find its account in pursuing channels of traffic prejudicial to that balance, to which the government may be able to oppose effectual impediments. There may, on the other hand, be a possibility of opening new sources, which, though accompanied with great difficulties in the commencement, would in the event amply reward the trouble and expense of bringing them to perfection. The undertaking may often exceed the influence and capitals of individuals; and may require no small assistance, as well from the revenue, as from the authority of the state.
The contrary opinion, which has grown into a degree of vogue among us, has originated in the injudicious attempts made at different times to effect a REGULATION of PRICES. It became a cant phrase among the opposers of these attempts, that TRADE MUST REGULATE ITSELF; by which at first was only meant that it had its fundamental laws, agreeable to which its general operations must be directed; and that any violent attempts in opposition to these would commonly miscarry. In this sense the maxim was reasonable; but it has since been extended to militate against all interference by the sovereign; an extreme as little reconcilable with experience, or common sense, as the practice it was first framed to discredit.
The reasonings of a very ingenious and sensible writer, by being misapprehended, have contributed to this mistake. The scope of his argument is not, as by some supposed, that trade will hold a certain invariable course independent on the aid, protection, care or concern of government; but that it will, in the main, depend upon the comparative industry moral and physical advantages of nations; and that though, for a while, from extraordinary causes, there may be a wrong balance against one of them, this will work its own cure, and things will ultimately return to their proper level. His object was to combat that excessive jealousy on this head, which has been productive of so many unnecessary wars, and with which the British nation is particularly interested; but it was no part of his design to insinuate that the regulating hand of government was either useless, or hurtful. The nature of a government, its spirit, maxims and laws, with respect to trade, are among those constant moral causes, which influence its general results, and when it has by accident taken a wrong direction, assist in bringing it back to its natural course. This is every where admitted by all writers upon the subject; nor is there one who has asserted a contrary doctrine.
Trade may be said to have taken its rise in England under the auspices of Elizabeth; and its rapid progress there is in a great measure to be ascribed to the fostering care of government in that and succeeding reigns.
From a different spirit in the government, with superior advantages, France was much later in commercial improvements, nor would her trade have been at this time in so prosperous a condition had it not been for the abilities and indefatigable endeavors of the great Colbert. He laid the foundation of the French commerce, and taught the way to his successors to enlarge and improve it. The establishment of the woolen manufacture, in a kingdom, where nature seemed to have denied the means, is one among many proofs, how much may be effected in favor of commerce by the attention and patronage of a wise administration. The number of useful edicts passed by Louis the 14th, and since his time, in spite of frequent interruptions from the jealous enmity of Great Britain, has advanced that of France to a degree which has excited the envy and astonishment of its neighbors.
The Dutch, who may justly be allowed a pre-eminence in the knowledge of trade, have ever made it an essential object of state. Their commercial regulations are more rigid and numerous, than those of any other country; and it is by a judicious and unremitted vigilance of government, that they have been able to extend their traffic to a degree so much beyond their natural and comparative advantages.
Perhaps it may be thought, that the power of regulation will be left placed in the governments of the several states, and that a general superintendence is unnecessary. If the states had distinct interests, were unconnected with each other, their own governments would then be the proper and could be the only depositories of such a power; but as they are parts of a whole with a common interest in trade, as in other things, there ought to be a common direction in that as in all other matters. It is easy to conceive, that many cases may occur in which it would be beneficial to all the states to encourage, or suppress a particular branch of trade, while it would be detrimental to either to attempt it without the concurrence of the rest, and where the experiment would probably be left untried for fear of a want of that concurrence.
No mode can be so convenient as a source of revenue to the United States. It is agreed that imposts on trade, when not immoderate, or improperly laid, is one of the most eligible species of taxation. They fall in a great measure upon articles not of absolute necessity, and being partly transferred to the price of the commodity, are so far imperceptibly paid by the consumer. It is therefore that mode which may be exercised by the federal government with least exception or disgust. Congress can easily possess all the information necessary to impose the duties with judgment, and the collection can without difficulty be made by their own officers.
They can have no temptation to abuse this power, because the motive of revenue will check its own extremes. Experience has shown that moderate duties are more productive than high ones. When they are low, a nation can trade abroad on better terms–its imports and exports will be larger–the duties will be regularly paid, and arising on a greater quantity of commodities, will yield more in the aggregate, than when they are so high as to operate either as a prohibition, or as an inducement to evade them by illicit practices.
It is difficult to assign any good reason why Congress should be more liable to abuse the powers with which they are intrusted than the state-assemblies. The frequency of the election of the members is a full security against a dangerous ambition, and the rotation established by the confederation makes it impossible for any state, by continuing the same men, who may put themselves at the head of a prevailing faction, to maintain for any length of time an undue influence in the national councils. It is to be presumed, that Congress will be in general better composed for abilities, and as well for integrity as any assembly on the continent.
But to take away any temptation from a cabal to load particular articles, which are the principal objects of commerce to particular states, with a too great proportion of duties, to ease the others in the general distributions of expense; let all the duties whether for regulation or revenue raised in each state be credited to that state and let it in like manner be charged for all the bounties paid within itself for the encouragement of agriculture, manufactures, or trade. This expedient will remove the temptation; for as the quotas of the respective states are to be determined by a standard of land, agreeable to the article of the confederation, each will have so much the less to contribute otherwise as it pays more on its commerce.
An objection has been made in a late instance to this principle. It has been urged, that as the consumer pays the duty, those states which are not equally well situated for foreign commerce, and which consume a great part of the imports of their neighbors, will become contributors to a part of their taxes. This objection is rather specious, than solid.
The maxim, that the consumer pays the duty has been admitted in theory with too little reserve; frequently contradicted in practice. It is true, the merchant will be unwilling to let the duty be a deduction from his profits, if the state of the market will permit him to incorporate it with the price of his commodity. But this is often not practicable. It turns upon the quantity of goods at market in proportion to the demand. When the latter exceeds the former, and the competition is among the buyers, the merchant can easily increase his price and make his customers pay the duty. When the reverse is the case, and the competition is among the sellers, he must then content himself with smaller profits, and lose the value of the duty or at least of a part of it. Where a nation has a flourishing and well settled trade this more commonly happens than may be imagined, and it will, many times, be found that the duty is divided between the merchant and the consumer.
Besides this consideration, which greatly diminishes the force of the objection, there is another which entirely destroys it. There is strong reciprocal influence between the prices of all commodities in a state, by which they, sooner or later, attain a pretty exact balance and proportion to each other. If the immediate productions of the soil rise, the manufacturer will have more for his manufacture, the merchant for his goods; and the same will happen with whatever class the increase of price begins. If duties are laid upon the imports in one state, by which the prices of foreign articles are raised, the products of land and labor within that state will take a proportionable rise; and if a part of those articles are consumed in a neighboring state, it will have the same influence there as at home. The importing state must allow an advanced price upon the commodities, which it receives in exchange from its neighbor in a ratio to the increased price of the article it sells. To know then which is the gainer or loser, we must examine how the general balance of trade stands between them. If the importing state takes more of the commodities of its neighbor, than it gives in exchange, that will be the loser by the reciprocal augmentation of prices–it will be the gainer, if it takes less–and neither will gain, or lose, if the barter is carried on upon equal terms. The balance of trade, and consequently the gain, or loss, in this respect will be governed more by the relative industry and frugality of the parties, than by their relative advantages for foreign commerce.
Between separate nations, this reasoning will not apply with full force, because a multitude of local and extraneous circumstances may counteract the principal; but from the intimate connections of these states, the similitude of governments, situations, customs, manners–political and commercial causes will have nearly the same operation in the intercourse between the states, as in that between the different parts of the same state. If this should be controverted, the objection drawn from the hypothesis of the consumer paying the duty must fall at the same time: For as far as this is true it is as much confined in its application to a state within itself, as the doctrine of a reciprocal proportion of prices.
General principles in subjects of this nature ought always to be advanced with caution; in an experimental analysis there are found such a number of exceptions as tend to render them very doubtful; and in questions which affect the existence and collective happiness of these states, all nice and abstract distinctions should give way to plainer interests and to more obvious and simple rules of conduct.
But the objection which has been urged ought to have no weight on another account. Which are the states, that have not sufficient advantages for foreign commerce, and that will not in time be their own carriers? Connecticut and Jersey are the least maritime of the whole; yet the sound which washes the coast of Connecticut has an easy outlet to the ocean, affords a number of harbors and bays, very commodious for trading vessels. New-London may be a receptacle for merchantmen of almost any burthen and the fine rivers with which the state is intersected, by facilitating the transportation of commodities to and from every part, are extremely favorable both to its domestic and foreign trade. Jersey, by way of Amboy has a shorter communication with the ocean, than the city of New-York. Princes bay, which may serve as an out port to it, will admit and shelter in winter and summer vessels of any size. Egg-harbor on its southern coast is not to be despised. The Delaware may be made as subservient to its commerce as to that of Pennsylvania, Gloucester, Burlington, and Trenton, being all conveniently situated on that river. The United Provinces with inferior advantages of position to either of these states, have for centuries held the first rank among commercial nations.
The want of large trading cities has been sometimes objected as an obstacle to the commerce of these states; but this is a temporary deficiency that will repair itself with the increase of population and riches. The reason that the states in question have hitherto carried on little foreign trade, is that they have found it equally beneficial to purchase the commodities imported by their neighbors. If the imposts on trade should work an inconvenience to them, it will soon cease by making it their interest to trade abroad.
It is too much characteristic of our national temper to be ingenious in finding out and magnifying the minutest disadvantages, and to reject measures of evident utility even of necessity to avoid trivial and sometimes imaginary evils. We seem not to reflect, that in human society, there is scarcely any plan, however salutary to the whole and to every part, by the share, each has in the common prosperity, but in one way, or another, and under particular circumstances, will operate more to the benefit of some parts, than of others. Unless we can overcome this narrow disposition and learn to estimate measures, by their general tendency, we shall never be a great or a happy people, if we remain a people at all.
Source: Alexander Hamilton, Continentalist, 18 April 1782.