by
Gary North
Tea Party Economist

Recently
by Gary North: Ray
Bradbury’s Virtual Reality Universe

This may sound odd. Conservatives don’t love taxes. They want lower
taxes. Right? They want lower taxes and smaller government.

I wish that
were true. It isn’t.

Alexander
Hamilton was a crusader for higher taxes and a larger national government
in the 1790s. He wanted higher taxes in order to raise money for
a higher federal debt. He wanted higher federal debt because he
wanted investors in government IOUs to commit to the survival of
the United States. Free market economist Thomas
DiLorenzo has summarized Hamilton’s position, which he accurately
identifies as crony capitalism.

In
a lengthy “report” to Congress on the topic of the public debt Hamilton
said that “a national debt, if it is not excessive, will be to us
a public blessing.” He would spend the rest of his life politicking
for excessive government spending – and debt. The reason Hamilton
gave for favoring a large public debt was not to finance any particular
project, or to stabilize financial markets, but to combine the interests
of the affluent people of the country – particularly business
people – to the government. As the owners of government bonds,
he reasoned, they would forever support his agenda of higher taxes
and bigger government. (He condemned Jefferson’s first inaugural
address and its minimal government message as “the symptom of a
pygmy mind.”) No wonder one historian entitled his book on Hamilton
American
Machiavelli.

In 1791, he
persuaded George Washington and then Congress to transfer to a group
of private investors the right to set up a central bank that was
not answerable to Congress or anyone else in government. The Bank
of the United States had the right to create fiat money out of nothing,
lend it to the government, and keep the interest paid by the government.
This was the supreme institution of crony capitalism in America
from 1791 to its expiration in 1811.

He was also
a big supporter of tariffs. Tariffs raised the money the government
needed to pay interest to the Bank of the United States, which was
independent of the government of the United States. Tariffs were
taxes favored by big-government conservatives. They still are.

SALES
TAXES ON IMPORTS

The Constitution
authorizes tariffs. Why? Because the central government in 1787
was not allowed to tax states or individuals directly. So, the Framers
gave it the power to tax imports. As a way to keep the U.S. government
out of most citizens’ lives and pocketbooks, tariffs made sense.
They were a way to limit the central government.

But Hamilton
did not view tariffs as a way to keep the federal government small.
He wanted it big.

He also wanted
high tariffs against imported goods as tools to subsidize his political
allies: crony capitalists.

Tariffs are
sales taxes on imported goods. He saw that higher sales taxes on
imported goods would subsidize American firms. How? By restricting
foreigners from using lower prices to compete against domestic manufacturers.

He wanted
to reduce the degree of choices available to American customers.
He wanted to subsidize American manufacturers by letting them charge
higher prices than foreign producers would have charged, had there
been no sales tax on imports.

Hamilton was
the early Republic’s supreme philosopher of crony capitalism. His
intellectual heirs are defenders of this strategy. This is why Hamilton
is a favorite of both the Right and the Left. Biographies of Hamilton
sell very well. He articulated our era’s version of capitalism:
the bastard child of the Keynesian interventionist state. (Hamilton
was the most influential bastard in American history.) Keynesianism
is a philosophy of creative government spending and endless government
debt. So is Hamiltonianism.

Making a nation
richer by taxing customers more than before is a strange idea: “Tax
and grow rich.” It sounds like Keynesianism because it is Keynesianism.

Passing a
law against people who want to get together to make a voluntary
exchange of assets is a restraint on trade. Why does a nation get
richer by restricting trade? How is it that sending a man with a
badge and a gun to keep people from doing what they want to do to
improve themselves increases a nation’s wealth? Isn’t the idea of
greater wealth the idea of greater opportunities to buy more things
than before? Then how are people made richer by deliberately restricting
the number of things they are allowed to buy?

Hamilton’s
intellectual heirs deny that greater wealth for Americans is based
on greater freedom of trade. They argue the opposite: “Reduced opportunities
are the basis of wealth. The fewer opportunities you have to trade,
the richer you are.”

If this sounds
crazy, that’s because it’s crazy. But it is widely believed, especially
by conservatives who swear they are anti-Keynesian defenders of
limited government.

They also
argue that the more sales taxes that the federal government collects,
the richer America is.

Again, you
may think that sounds like Keynesianism. It is Keynesianism. It
is crony Keynesianism.

“LOGIC
DOESN’T COUNT”

The amazing
thing about Hamiltonians is that they are impervious to economic
logic. They argue that raising taxes is bad, unless it’s the sales
taxes called tariffs. Then they switch sides. They join the ranks
of the tax collectors, the bureaucrats, and the people with badges
and guns who say that higher taxes and reduced choices make America
rich.

They love
badges and guns. They are convinced that badges and guns are the
basis of economic growth and wealth for all. They really believe
that if the government sends out enough people with badges and guns,
extracting sales taxes from buyers of foreign goods, the nation
will be stronger, richer, and freer.

Of course,
they want only “good” taxes. They want taxes of a special kind.
They don’t promote increased taxation in general. No one supports
increased taxes in general.

The Left wants
taxes on the rich for the sake of the poor. Hamiltonians want taxes
on customers for the sake of crony capitalists and their employees.

The Left wants
taxes on the rich in the name of fairness. Hamiltonians want taxes
on the middle class in the name of national prosperity.

Both groups
are committed to badges and guns.

FIGHTING
TYRANNY WITH TYRANNY

Recently,
I received an email from a committed Hamiltonian. He took exception
to my assertion that reduced sales taxes would increase most people’s
wealth. He argued as follows.

It
seems to me that you do not take account of “nationalism,” or nationhood.
It is not that our manufacturers are less efficient than foreign
manufacturers because of anything they, themselves, do. The reality
is that our government imposes the causes of their “inefficiency”
upon them. Therefore, to make things equal, our government ought
to remove those artificial burdens,…either that or impose a tariff
equal to those burdens in order to offset them.

Let me summarize
this argument. (1) American manufacturers are not inefficient. (2)
They are hampered by our government. (3) Therefore, we need a larger,
more intrusive government to get our government off the backs of
manufacturers.

He is a Hamiltonian.
As with all Hamiltonians, he cannot think straight. He has adopted
the idea that by making the federal government stronger, voters
can overcome the effects of a much too strong federal government.
He defends this in the name of nationalism or nationhood.

I will now
give you a test. See if you are a Hamiltonian. If you cannot follow
this argument, you are a Hamiltonian.

THIS
SIDE AND THAT SIDE

You live on
one side of the street. Across the street is Jones. Jones wants
to sell you an item that you want to buy.

Smith, your
next door neighbor, also sells an item like the one Jones sells.
But his item is priced 20% higher.

He comes to
you and tells you that, for the sake of This Side-ism, or This Sidehood,
we must impose a sales tax of 25% on Jones’ item. After all, we
don’t want to lose the wealth on This Side of the street. Without
a sales tax, That Side will extend its grasping hand into This Side.

You reject
his suggestion as nonsense. You like Jones’ product. It’s sleek.
It’s cheap. It’s a deal. “Butt out, Smith.” (Every time you buy
anything, you are telling every other seller to butt out.)

Smith, seeing
that you are hopeless, approaches Brown, your other next-door neighbor,
and warns him about the terrible threat posed by That Side to the
way of life Over Here. He does not mention you, of course. He is
only defending This Side in the name of truth, justice, and the
This Side way.

He also goes
two houses down and makes the same pitch to Green. He suggests that
Green and Brown join him in passing a law imposing a 25% sales tax
on Jones’ product. If this law is passed, he promises, This Side
will be richer. This Side will be stronger. This Side will be able
to defend liberty.

They do it.
Then they deputize a guy named Morton to enforce the new law. Morton
now has a badge. He now has a gun. He comes to you and warns you
that if you buy Jones’ item without paying a 25% sales tax to This
Side, he will fine you a lot more than 25%. He defends This Side
with great enthusiasm, since the alternative to this job is the
private sector. He has never done well in the private sector –
a trait he shares with Smith.

Brown will
now buy from Smith. Green will now buy from Smith. And Morton, who
has not had full-time employment in years, is happy to buy from
Smith.

How is This
Side richer?

Why does the
word “This Side-ism” make you richer? How does the word “This Sidehood”
make you richer?

What does
the invisible line separating This Side from That Side have to do
with anything, economically speaking?

It has a lot
to do with economics if you are a Hamiltonian. It is an opportunity
to subsidize crony capitalism.

HAMILTONIANS
PROTEST

“See here,”
the Hamiltonian says. “You are trying to ridicule me with all this
talk about This Side and That Side.”

To which I
say, “I am ridiculing the logic of your position. You think that
an invisible line down the middle of the street is economically
relevant. I don’t.”

He responds:
“I am not saying that the line down the middle of the street is
economically relevant.”

I respond:
“You are saying that the invisible line down the middle of the Rio
Grande River is economically relevant.”

He says, “But
that line is economically relevant.”

I ask: “Why?”

He answers:
“Because the people on the other side of that line are supposed
to stay on their side of the line.”

“OK,” I reply.
“What if I hire a middleman – called UPS – and he goes
across the river and brings some item back to me that I pay for?
The guy on the other side of the invisible line stays on his side
of the line.”

“No, no, no,”
says the Hamiltonian. “That invisible line is different. It defends
Nationhood.”

I ask: “What
is Nationhood?”

He responds:
“This Side – big time.”

So, we are
arguing about the length of the line and the latitude of the line.
But what does the length of the line or the latitude of the line
have to do with whether I should pay a sales tax?

The Hamiltonian
says: “I don’t understand what you’re getting at. You offer a lot
of incomprehensible theory, when I am trying to defend Nationhood.”

Hamiltonians
capitalize a word and think that they have offered a logical economic
argument: “Nationhood.” But when I capitalize two words – This
Sidehood – the Hamiltonian thinks I am trying to confuse him.

Hamiltonians
are easily confused.

MAKING
US POOR

My correspondent
was not content to invoke nationhood. He went in for the kill. He
invoked the ancient Hamiltonian argument: “Free choice impoverishes
us; sales taxes make us wealthy.” Of course, they never use the
term “free choice.” That would reveal their real target to stamp
out. So, they use the term “free trade.” He wrote:

“Free
trade” has the long term effect of lowering our standard of living
until it is eventually equal to everyone else’s. Wouldn’t it be
a worthwhile national goal to maintain a high standard of living
for our own people for as long as we can?

He is Smith.
He looks across the street and sees Jones. He shudders. He goes
to Brown and says this:

“Free
trade” has the long term effect of lowering our standard of living
until it is eventually equal to everyone else’s. Wouldn’t it be
a worthwhile this-side-of-the-street goal to maintain a high standard
of living for our own people for as long as we can?

Brown is not
sure. He looks at Jones and thinks, “I don’t care whether Jones
is rich or poor. I sure would like one of those items. The price
is right.” So, Smith presses the point.

Jones
exploits the poor. Workers on That Side are slaves. They cannot
find work at decent wages. That’s why Jones sells his goods so cheaply.
You don’t want to wind up like all those exploited workers, do you?

Brown thinks
about this line of reasoning. He comes up with an idea.

We
ought to give all those enslaved workers a chance at a better life.
Jones needs some competition. Why don’t we invest some money in
one of Jones’ competitors? That way, the competitor can offer better
wages.

Smith is horrified
at this prospect. He has enough problems just dealing with Jones.

No,
no, no. That would let all those workers get a faint glimpse of
a better life. That would make their lives even worse: the disappointment.
They are not ready for wage increases. They need more time. The
best thing that we can do is not to become like them. We need to
close the border to all goods produced by slaves. Our job is not
to reduce slavery on That Side. It’s to preserve liberty on This
Side.

Brown thinks
about this. “How do you define liberty?”

Smith replies:

Liberty
is the right of every man on This Side to join with his fellow man
and vote to increase sales taxes on goods produced on That Side.
That is the only way we can continue to be prosperous.

Brown thinks
about this. “Then the best way to preserve our wealth is to limit
our choices.” Smith says that it is.

Brown pursues
this line of thought. “Then the path to liberty is reduced choice.”
Smith assures him that it is.

“So,” Brown
says, “the best way not to become slaves with few choices is to
legislate fewer choices.”

Smith has
serious problems with following logical arguments, but he senses
where this is headed, although he can’t quite put his finger on
it. He senses that he does not want to go there. So, he switches
his line of reasoning. “You must defend your income as a worker.”

Brown says:
“By restricting my choice as a customer.”

Smith says:
“That’s it, exactly. And you must also limit everyone else’s choice
as a customer.”

Brown says:
“Then the best way to maintain my income as a producer is to reduce
the number of sales that people on That Side can make to me, and
also to reduce the number of sales that I can make to people on
That Side.”

Smith replies:
“Don’t worry about lost sales on That Side. They’re all a bunch
of slaves.”

Brown asks:
“Why is that?”

Smith has
the right answer: “Because they spend their lives being told what
to do by people with badges and guns.”

CONCLUSION

Did you follow
my argument? If so, you are probably not a Hamiltonian.

Do you believe
my argument? If so, then you definitely are not a Hamiltonian.

Hamiltonians
do not like economic arguments that are clear. They regard clear
arguments as tricks. They think that any argument which progresses
step by step to a conclusion is inherently untrustworthy.

They prefer
to capitalize words, and then call for higher sales taxes in the
name of defending the newly capitalized words. The words all boil
down to these: “This Side-ism,” “This Sidehood,” and “That Side.”
They fear that trading with people on That Side will impoverish
us.

A Hamiltonian
believes that if someone in China discovered a cure for cancer,
the only way to protect America from unfair competition and inevitable
poverty would be to impose at least a 50% sales tax on it. “We need
to give Americans a fighting chance,” he says. Not buyers of cancer
cures, of course. Sellers.

If
you think this sounds silly, you are not a Hamiltonian. You do not
think that badges and guns and sales taxes on imports make most
people richer on either This Side or That Side of the invisible
line. But they do make some people richer: (1) inefficient producers
who can now sell at higher prices and not go bankrupt because buyers
depart, and (2) people who wear badges and carry guns for a living.
If you think of these two groups as “crony capitalists” and “salaried
extortioners,” you will have the categories right.

If you want
a visual image, think of Don Corleone’s words: “I made him an offer
he couldn’t refuse.” Think also of the man who woke up with a severed
horse’s head in his bed. That’s Hamiltonianism.

June
9, 2012

Gary
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.

Copyright ©
2000 Gary North

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