The Constitution - After 230 Years - Still Provides The Path To Prosperity

"A republic, madam, if you can keep it" was Benjamin Franklin's reply to Elizabeth Powell's question @ the end of the Constitutional Convention about what sort of government the delegates of the Convention had created on September 17, 1787 – 230 years ago today. 

 

The final vote of the states represented @ the Convention in favor of the Constitution was unanimous, 11 – 0.  Rhode Island never attended because it rightfully feared monetary reform would end its prolific paper money practices & New York did not have a quorum because the anti-federalists in the NY delegation had left in disgust – although Alexander Hamilton signed the Constitution as NY's lone delegate. 

 

The Constitution was then sent by the Confederation Congress to the state legislatures, who in turn sent it to their respective state ratifying conventions.  The Constitution became effective for the ratifying states when the delegates of nine of those state conventions ratified the Constitution.

 

The excitement regarding the disagreements & heated arguments that existed during the Constitutional Convention continued throughout the ratification process – principally in the form of a series of essays written in local newspapers that collectively are known today as the Federalist Papers & the opposing Anti-Federalist Papers.  Today these essays are studied in college history classes as extraordinary intellectual explanations of the two competing visions of America that mainly melded into one when the Bill Of Rights was added to the Constitution in 1791.  But to put the essays in the context in which they were written is to understand they were the instruments federalists used in trying to convince anti-federalists of the validity of the new Constitution & vice versa.

 

The tabulation below shows the Constitution became binding on nine states on June 21, 1788 thereby becoming the law of the land without the concurrence of Virginia or New York – the two biggest states that argued during both the Constitutional Convention & the ratification process. 

 

All of the Federalist Papers had been addressed "To the People of the State of New York" & the closeness of the vote below in NY indicates why.  NY was Alexander Hamilton's home state - he supervised the writing of the Federalist Papers & enlisted the help of his fellow participants James Madison & John Jay – Hamilton wrote 51, Madison 29, & Jay 5 of the 85 essays. 

 

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Even as a young army officer in 1780, & even before the Articles of Confederation had been ratified, Alexander Hamilton was thinking about improvements to the Articles of Confederation.  Hamilton had even gone as far as proposing a convention to revise the Articles of Confederation to include his ideas – this convention turned out to be the Constitutional Convention from which the Constitution of the United States was written, & upon ratification, replaced the Articles of Confederation as the supreme law of the land.

 

Starting on May 25, 1787 when all states except Rhode Island were represented, & running through September 17, 1787 the debates & exchanges of ideas were held in the building that today is known as Independence Hall in Philadelphia.  Toward the end of the Convention a Committee of Style & Arrangement was selected to write the new Constitution.  Its members were Gouverneur Morris, James Madison, Rufus King, William Samuel Johnson, & Alexander Hamilton.

 

President George Washington's first cabinet nomination was Alexander Hamilton as Secretary of the Treasury – & it took mere minutes for Congress to unanimously approve Hamilton's nomination.

 

This was all Hamilton needed to get his high energy started to implement his vision of almost ten years before - not of America being a southern agrarian society & the North being a separate industrial commercial society but rather a vision where the South's products were sent to the North as raw materials for incorporation into final products thereby linking & maximizing the synergy of both regions of the country.  Hamilton's idea was that the agrarian interests of the South would be advanced by the Northern manufacturers & that both would be equally productive.

 

In making a realty of his vision Hamilton became the founder of the nation's financial system.  In essence he gave us capitalism – a word that did not yet exist in his time.  See graph below.

 

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The Constitution was conceived in liberty with the purpose of protecting our God-given individual rights to life & liberty from which flows the pursuit of happiness & property rights.

 

Ayn Rand put it this way – "If one wishes to advocate a free society - that is, capitalism - one must realize that its indispensable foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold & protect them."

 

Below are the key clauses of the Constitution, a document that Hamilton was so instrumental in creating, that he used in creating the American capitalistic system that is still the envy of the world (terms in italics refer to clauses of the Constitution):

 

1.  No state shall make any Thing but gold & silver Coin a Tender in Payment of Debts.  Hamilton, as were all of the Founders, was quite familiar with the term "not worth a Continental" that referred to the utter worthlessness of the paper dollars, unlinked to gold or silver, that the Continental Congress printed to pay for the Revolutionary War.  Hamilton's principles regarding sound money were adopted in the Coinage Act of 1792 & the creation of the U.S. Mint To coin money, regulate the Value thereof, & of foreign Coin, & fix the Standard of Weights & Measures.  There was to be a ten-dollar Gold Eagle coin, a silver dollar, & fractional money ranging from one-half to fifty cents.  Except for times of war the price of gold stayed in the $20 per troy ounce range from 1792 until 1933 when FDR devalued it – see graph below.  Hamilton issued a bimetallic currency @ a fixed ratio of 15:1 silver to gold.

 

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2.  To raise revenue for the federal government, including covering the full debt of both Congress & the states incurred during the Revolutionary War, the Constitution specifies that The Congress shall have the Power To lay & collect Taxes, Duties, Imposts, & Excises . . . but all Duties, Imposts, & Excises shall be uniform throughout the United States . . . & that No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. 

 

The direct taxes were expected to be used only in emergencies & even then the formula to determine an unchallenged apportionment  scheme would be difficult – in short, the Founders did not favor direct taxes – like an income tax.

 

The indirect taxes, were all consumption taxes, & did not lend themselves easily to congressional abuse because if the rates were raised too high, fewer taxed goods would be bought & revenue would decrease.  Hamilton described this as "the nature of the thing" in The Federalist No. 21.

 

BTW - A consumption tax, the type of tax favored by our Founders, is the source of revenue of today's FairTax legislation, HR 25.  If you are ever asked what country ever used a broad based sales or consumption tax to fund their central government you can quickly reply "America from the time of the founding of our constitutional republic until 1913."  Our Founders used tariffs & excise taxes to fund the government.  Tariffs are a form of user fees & today they are used to negotiate reciprocal reductions in U.S. & foreign tariffs.  Consumption taxes are by definition a form of excise taxes.  Consumption taxes include retail sales taxes, excise taxes, use taxes, & import duties.

 

3.  To regulate Commerce with foreign Nations, & among the several States, & with the Indian Tribes meant that all efforts should be to encourage commerce.  Judge Napolitano has explained that in the 18th century the word "regulate" meant "to make regular."  In writing the Commerce Clause the Founders captured Montesquieu's thought – "To sustain the spirit of commerce, it is necessary that all the laws should favor it."

 

The Federalist No. 11: Hamilton – "The unrestrained intercourse between the States themselves will advance the trade of each, by an interchange of their respective productions, not only for the supply of reciprocal wants @ home, but for exportation to foreign markets.  The veins of commerce in every part will be replenished, & will acquire additional motion & vigor from a free circulation of the commodities of every part.  Commercial enterprise will have much greater scope, from the diversity in the production of different States." 

 

Federalist 11 also talked about "The importance of the Union, in a commercial light . . . the adventurous spirit, which distinguishes the commercial character of America . . . look forward, to what this country is capable of becoming . . . soar to a dangerous greatness . . ." & "Let the thirteen States, bound together in a strict & indissoluble union, concur in erecting one great American system, superior to the control of all trans-atlantic force or influence, & able to dictate the terms of the connection between the old & the new world!"

 

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4.  No Tax or Duty shall be laid on Articles exported from any State.  Although Washington, Madison, & Hamilton favored taxes on state exports during the Constitutional Convention, citing the South's disproportionate need for naval protection that would be paid for by the export taxes, the free flow of materials from one state to another greatly enhanced commerce & the economic growth of the country. 

 

The Export Taxation Clause of the Constitution is related to NY's original intransigence against the Constitution.  NY had flourished under the Articles of Confederation by imposing taxes on goods passing through its booming harbor & issuing paper money that held its value; hence much of NY did not want to rock the boat & change a successful arrangement.  But some New Yorkers saw even greater prosperity under the constitutional republic & that position carried the day when NY became the 11th state to ratify the Constitution by a vote of 30 to 27.

 

5.  Congress shall have the Power To . . . provide for the general Welfare of the United States was a clause originally used by Alexander Hamilton, some Congresses, & most presidents up to the Civil War as an additional limitation on the Constitution's enumerated powers rather than an open ended permission to redistribute wealth – a position I recently presented on national TV on the Brett Winterble Show on Newsmax TV.  President James Monroe had this understanding during his presidency, known as the "Era of Good Feelings", & explained that Congress's power "to spend was restricted to purposes of common defense, & of general, national, not local, or state, benefit."  Accordingly, government spending was held down during America's liberty to abundance stage & that greatly enhanced our fortunes on the road to prosperity.

 

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President Washington had three main objectives for America & his administration under the Constitution – 1) respect abroad, 2) prosperity @ home, & 3) development westward.

 

Pulitzer Prize winning author Edward Larson writes regarding Washington's above objectives – "Toward these ends, he envisioned a vigorous federal government encouraging trade, manufacturing, & agriculture through effective tariffs, sound money, secure property rights, & a nonaligned foreign policy."

 

This post demonstrates how Treasury Secretary Alexander Hamilton followed the Constitution to implement President Washington's vision for America.

 

But the enemies of America, both foreign & domestic, are enormous in number & America's libertarian principles defined in our Constitution come under assault more frequently every day making one wonder, like Dr. Franklin did 230 years ago today, just how long can we keep our constitutional republic?