Not everything in The Federalist Papers is a timeless truth. The second half of The Federalist Papers #21 is a complaint that there was nothing akin to GDP that could be used to fairly apportion taxes among the 13 states. We take GDP for granted, but it’s development was a great advance for macroeconomic policy. Similarly, I think the development of a national well-being index that has technical strengths on a par with GDP will be a great advance for macroeconomic policy in the future.

Below is the full text of Alexander Hamilton’s complaint about the lack of something like GDP in the second half of The Federalist Papers #21. He also discusses various other taxing options, complaining about the difficulty of valuing land and building as well—something we routinely do for property taxes in most states now. He argues that commodity taxes at least go up with spending—and hence are not as regressive as head taxes.

The principle of regulating the contributions of the States to the common treasury by QUOTAS is another fundamental error in the Confederation. Its repugnancy to an adequate supply of the national exigencies has been already pointed out, and has sufficiently appeared from the trial which has been made of it. I speak of it now solely with a view to equality among the States. Those who have been accustomed to contemplate the circumstances which produce and constitute national wealth, must be satisfied that there is no common standard or barometer by which the degrees of it can be ascertained. Neither the value of lands, nor the numbers of the people, which have been successively proposed as the rule of State contributions, has any pretension to being a just representative. If we compare the wealth of the United Netherlands with that of Russia or Germany, or even of France, and if we at the same time compare the total value of the lands and the aggregate population of that contracted district with the total value of the lands and the aggregate population of the immense regions of either of the three last-mentioned countries, we shall at once discover that there is no comparison between the proportion of either of these two objects and that of the relative wealth of those nations. If the like parallel were to be run between several of the American States, it would furnish a like result. Let Virginia be contrasted with North Carolina, Pennsylvania with Connecticut, or Maryland with New Jersey, and we shall be convinced that the respective abilities of those States, in relation to revenue, bear little or no analogy to their comparative stock in lands or to their comparative population. The position may be equally illustrated by a similar process between the counties of the same State. No man who is acquainted with the State of New York will doubt that the active wealth of King's County bears a much greater proportion to that of Montgomery than it would appear to be if we should take either the total value of the lands or the total number of the people as a criterion!

The wealth of nations depends upon an infinite variety of causes. Situation, soil, climate, the nature of the productions, the nature of the government, the genius of the citizens, the degree of information they possess, the state of commerce, of arts, of industry, these circumstances and many more, too complex, minute, or adventitious to admit of a particular specification, occasion differences hardly conceivable in the relative opulence and riches of different countries. The consequence clearly is that there can be no common measure of national wealth, and, of course, no general or stationary rule by which the ability of a state to pay taxes can be determined. The attempt, therefore, to regulate the contributions of the members of a confederacy by any such rule, cannot fail to be productive of glaring inequality and extreme oppression.

This inequality would of itself be sufficient in America to work the eventual destruction of the Union, if any mode of enforcing a compliance with its requisitions could be devised. The suffering States would not long consent to remain associated upon a principle which distributes the public burdens with so unequal a hand, and which was calculated to impoverish and oppress the citizens of some States, while those of others would scarcely be conscious of the small proportion of the weight they were required to sustain. This, however, is an evil inseparable from the principle of quotas and requisitions.

There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will, in all probability, be counterbalanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. Or, if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas, upon any scale that can possibly be devised.

It is a signal advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty, that, “in political arithmetic, two and two do not always make four.”

If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. The state of agriculture and the populousness of a country have been considered as nearly connected with each other. And, as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a preference. In every country it is a herculean task to obtain a valuation of the land; in a country imperfectly settled and progressive in improvement, the difficulties are increased almost to impracticability. The expense of an accurate valuation is, in all situations, a formidable objection. In a branch of taxation where no limits to the discretion of the government are to be found in the nature of things, the establishment of a fixed rule, not incompatible with the end, may be attended with fewer inconveniences than to leave that discretion altogether at large.

PUBLIUS.

Here are links to my other posts on The Federalist Papers so far:

• The Federalist Papers #1: Alexander Hamilton's Plea for Reasoned Debate

• The Federalist Papers #2 A: John Jay on the Idea of America

• The Federalist Papers #2 B: You Trusted the Continental Congress; Trust the Constitutional Convention

• The Federalist Papers #3: United, the 13 States are Less Likely to Stumble into War

• The Federalist Papers #4 A: The States Must Be Prepared to Defend against Aggression by Other Nations

• The Federalist Papers #4 B: National Defense Will Be Stronger if the States are United

• The Federalist Papers #5: Unless United, the States Will Be at Each Others' Throats

• The Federalist Papers #6 A: Alexander Hamilton on the Many Human Motives for War

• The Federalist Papers #6 B: Commercial Republics Also Start Wars with Their Neighbors—Alexander Hamilton

• The Federalist Papers #7 A: Divided, the States Would Fall into Territorial Disputes Likely to Lead to War Between the States—Alexander Hamilton

• The Federalist Papers #7 B: Without Union, Economic Disagreements Would Drive the States to Conflict with One Another—Alexander Hamilton

• The Federalist Papers #8: Without Union, the States Would Either Be Subject to Devastating Wars with Each Other or Would Have Liberty Endangered by their Own Standing Armies—Alexander Hamilton

• The Federalist Papers #9 A: There Has Been Technological Progress in Practical Principles of Republican Government—Alexander Hamilton

• The Federalist Papers #9 B: A Large Confederation May Be More Politically Stable Than a Small Nation—Alexander Hamilton Cites Montesquieu

• The Federalist Papers #10 A: Conflicts Arising from Differences of Opinion Are an Inevitable Accompaniment of Liberty—James Madison

• The Federalist Papers #10 B: The Larger the Republic, the Easier It is to Find Thoughtful Legislators and the Harder It is to Put Together a Majority to do Unjust Things—James Madison

• The Federalist Papers #11 A: United, the States Can Get a Better Trade Deal—Alexander Hamilton

• The Federalist Papers #11 B: Union Will Make Possible a Strong Navy, Allowing America to Chart Its Own Destiny—Alexander Hamilton

• The Federalist Papers #12: Union Makes it Much Easier to Get Tariff Revenue—Alexander Hamilton

• The Federalist Papers #13: Alexander Hamilton on Increasing Returns to Scale in National Government

• The Federalist Papers #14: A Republic Can Be Geographically Large—James Madison

• The Federalist Papers #15: A Government, to be Worthy of the Name, Must Govern Its Citizens, Not Just Its Subordinate Jurisdictions—Alexander Hamilton

• The Federalist Papers #16: Authority of the Federal Government Directly over Individuals Means States Can Only Thwart the Federal Government by Active and Obvious Resistance—Alexander Hamilton

• The Federalist Papers #17: Three Levels of Federal Power

• The Federalist Papers #18: Alexander Hamilton and James Madison Point to the Weakness of Confederations of Cities in Ancient Greece to Argue for a Strong Federal Government

• The Federalist Papers #19: The Weakness of the German Empire, Poland and Switzerland up to the 18th Century is Evidence for the Weakness of Confederations—Alexander Hamilton and James Madison

• The Federalist Papers #20: The Weakness of the United Netherlands up to the 18th Century is Evidence for the Weakness of Confederations—Alexander Hamilton and James Madison

• The Federalist Papers #21 A: Constitutions Need to be Enforced—Alexander Hamilton