I recall that I may have hinted
in a previous post that it’s something of a pet peeve of mine when politicians
and pundits in the United States invoke the Founding Fathers when arguing for
or against whatever the issue of the day happens to be. They claim to know,
often with startling specificity, what the Founders intended or would have said
about this or that subject. While I think it’s creditable that a people should
seem to be so in touch with their own history, I am often baffled by the
arguments the Founders are regularly drafted into, and am driven to wonder how
many of these politicians and pundits have actually sat down and read what
Jefferson, Washington, or Hamilton actually wrote.
I say this because, in addition
to being a sort of primer on classical republicanism, Washington’s Farewell
Address contains a number of cautions which the first president saw fit to
impart as he left office. While these warnings all have their roots in
contemporary, 18th-century issues, their relevance in the present
context is, at a glance, startlingly apparent. Consequently, if someone wanted
to know what the first man to hold the office of president, hero of the
Revolution, and Founding Father par excellence George Washington had to say on
the subject of the national debt, taxation, foreign relations, free trade and
partisan politics, they need look no further than his valedictory address for
eloquent statements on each of those topics.
If it pleases the court, I’d like
to highlight a few of them now.
I’ll start with the national
debt, which has been a topic of heated conversation for several months now, and
will likely continue to be for the foreseeable future. Should the debt be
totally paid off? Is it an unreasonable burden to pass on? Is it growing out of
control? How can it best be managed? Not
being an economist, and having only come to something like a competent
understanding of the function of the debt recently, I’ll leave the in-depth
discussion to those more qualified. That being said, and for the benefit of
those that know even less about sovereign debt than I do (which wouldn't be
difficult), allow me to sketch out the basic concepts.
Any government, in its regular
operations, must spend money. They spend it on social programs, on national
defence, on infrastructure, and on financial aid. There are, essentially, two
ways for a government to accumulate this money: taxation, and borrowing.
Taxation comes in many forms, like sales taxes, income taxes, tariffs, and
capital gains taxes. However, taxation, unless it is to become excessive to the
point of ridiculousness, can never hope to account for the billions of dollars
that the average government spends every year. Thus, governments must also
borrow money, from private citizens, banks, and foreign countries. In so doing
they accumulate a debt which fluctuates from year to year as portions of it are
paid off and more money is borrowed. As long as a government is able to pay off
the interest on it debts from year to year, and avoid defaulting on any
payments, actually having a debt is not really an issue. In fact, the debt is
really what helps governments borrow the money they need. By showing themselves
to be trustworthy borrowers, governments can effectively establish a line of
credit that enables them to borrow even larger sums further down the line. That
being said, it is inadvisable for any government to allow its debts to grow out
of control, especially to the point that they eclipse the total amount of money
that a country is able to generate on a yearly basis.
During Washington’s first term in
office, the United States of American began the process of generating its first
public debt. Mainly, this meant permitting the state governments to transfer
the debts that they’d accumulated during the Revolution (some of which were
sizeable) to the Federal government. New taxes would be implemented, mainly on
items considered luxuries (like whiskey), in order to create a stable line of
credit by reliably paying the interest on this consolidated debt. Having proven
its reputation as a reliable borrower, the United States could then freely
issue bonds to foreigners and American alike, generating significant revenue
for the federal government. The brainchild of Treasury Secretary Alexander
Hamilton, this debt assumption scheme met with mixed reactions and became one
of the most hotly debated issues in America in the 1790s. Negative responses
were particularly common among the Southern states, many of who were on their
way to paying off their debts and felt that they were being punished for their
diligence. Soldiers who had been paid in state bonds at the end of their
service during the Revolution also had cause to complain, as many of them had
sold their IOUs at a time when they were at a low value, only to have that
value sky-rocket in the lead-up to the federal purchase. Nevertheless, a
compromise was reached and the assumption went forward.
By 1796, the debt had become one
of the central issues of debate between the emerging political factions in
United States. Generally speaking, Northerners, who tended to value commerce
over agriculture, saw the debt as a useful way to promote investment and economic
stability. Southerners, who tended to own land and made their living either
working it or renting it to those who did, saw the debt as a tool of bankers
and speculators who wished to manipulate the nation’s finances to their own ends.
Washington, though he was a Southerner, was in favour of the debt, or at least
saw it as a potentially useful tool. In his Farewell Address he referred to public
credit as an important source of security and stability and called on his
countrymen to cherish it, with certain qualifications. It should be used, he
wrote, sparingly, and occasions for added expense should be avoided by
cultivating peace (war being a notoriously costly endeavour). At the same time
he cautioned that timely investments aimed at preparing for a potential danger
would likely alleviate the much greater cost of repelling said danger once it
had arrived (essentially, good preparation is cheaper than good damage
control). These admonitions he coupled with the assertion that though it is not
always possible, the accumulation of debts is best avoided and that once
accumulated great effort should be exerted to discharge them, thereby “not
ungenerously throwing upon posterity the burthen, which we ourselves ought to
bear.”
This is, I think, a
reasonable position to take; that debt could be a very valuable tool, but only
when used skilfully, moderately and prudently. And it was likely the product
of Washington’s effort to chart the middle course between the opposing factions,
both of whom looked to him for moral leadership and mediation. It is, I think,
worth acknowledging that Washington did not claim that it was desirable to pay
off the debt entirely. This would, after all, render it useless as a means of
generating much-needed revenue, something which the federal government, even in
the 1790s, was increasingly in need of. In fact, though the United States
actually did pay off its debt completely in 1835, it began borrowing again at
the start of 1836 (at which point, in January, the total debt amounted to
$37,000).
In the same section (the 30th),
Washington also discusses the necessity of taxation as a means of discharging
the nation’s debts. His opening statement on that topic is, to my mind, one of
the most even-tempered and pragmatic I've read or heard from an American
politician on the subject of taxes.
He wrote:
“Towards the payment of debts there must be Revenue; that to
have Revenue there must be taxes; that no taxes can be devised, which are not
more or less inconvenient and unpleasant; that the intrinsic embarrassment,
inseparable from the selection of the proper objects (which is always a choice
of difficulties), ought to be a decisive motive for a candid construction of
the conduct of the government in making it, and for a spirit of acquiescence in
the measures for obtaining revenue, which the public exigencies may at any time
dictate.”
18th-century
linguistic contortions aside, there can be no more plain explanation of the
purpose and necessity of taxation in a free society. Taxes are
unpleasant but necessary. Because they are unpleasant, the objects which they
apply to (investments, property, imports, income, etc…) must be very carefully
chosen, and the process of selecting and enforcing them must be as transparent
as possible. And at the same time, the public must be willing to accept the
implementation of taxes aimed at providing revenues for measure or programs
from which they benefit directly. At no point does he say that taxes are what
make life worth living, nor does he claim that they spell the end of American
civilization. They are, to his thinking, an inconvenience, but one that must be
tolerated because they ultimately serve the public good.
I can’t speak for
anyone else, but I think this is a view worth considering.
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