Financial History Issue 122 (Summer 2017) | Page 19
Commonwealth of Massachusetts, Plymouth County, Tax Collector’s Certificate #718,
dated February 1783 and issued to Solomon Lovell.
the model of the British fiscal state. The
fiscal transitions between the end of the
Revolution and the early 1790s seemed
prolonged and painful at the time, but the
new nation actually created its modern
fiscal state rather quickly. This was pri-
marily because America’s financial lead-
ers, especially Secretary of the Treasury
Alexander Hamilton and Robert Morris,
had acquired intimate familiarity with
the British fiscal state. The most dramatic
and influential steps came with the enact-
ment of Hamilton’s financial program
during the first administration of Presi-
dent George Washington.
Hamilton and the other architects of
the fiscal state made taxation its lynchpin.
As in Britain, taxes would fund important
national projects directly and also pay
the interest required to support national
debt. Also as in Britain, national taxation
would draw most heavily on customs
duties. Hamilton intended that the cen-
tral government would keep the duties at
relatively low levels by spreading the costs
of the federal government, primarily the
management of the federal debt, over a
broad base of taxation.
The new American fiscal state was
a worthy successor to the British fiscal
state. Moderate tariffs, helped by gener-
ally strong economic growth and dynamic
exports, paid off the national debt, includ-
ing the money borrowed by President
Thomas Jefferson to fund the Louisiana
Purchase. In addition, the tariff revenues,
supplemented at times by excises and
special property taxes, funded the military
expenses of the republic.
As Noah Webster declared in 1790,
Americans now had “an empire to raise
and support.” The new nation went to
war with numerous Native American
nations over several generations, France
in an undeclared naval war in the 1790s,
the Barbary States during the next two
decades, the British in the War of 1812
and Mexico in the 1840s. Until the 21st
century, the Mexican War (1846–48) was
the only major war funded without any
wartime tax increases. In addition, tar-
iffs funded subsidies for roads, canals,
lighthouses, river and harbor improve-
ments, assistance for internal improve-
ments by the Army engineers, the Postal
Service, construction of public buildings
and grants-in-aid to the states.
From the beginning of the new nation,
however, two important differences distin-
guished the American fiscal system from
its British counterpart. The effects of those
differences remain significant even today.
The first major difference with the Brit-
ish system was that the fiscal capacity of the
new nation included the ability not only to
tax and borrow, but also to exploit the own-
ership of vast expanses of land. The federal
government held enormous tangible assets
in trust for its owners, the American people.
Consequently, the new government was
an “asset state,” as well as a fiscal state
that taxed and borrowed. The ownership
of massive assets gave the federal govern-
ment a great deal of political flexibility in
developing social programs because the
assets often relieved the central govern-
ment of the onus of seeking tax increases.
Between the Revolution and the Civil
War, the landed assets of the nation
expanded to include the lands ceded by
the original 13 states to the federal govern-
ment and lands acquired in the Louisiana
Purchase and the war with Mexico. By
1850, the United States held about 1.2 bil-
lion acres in trust for its citizens.
The federal government used the lands
in three ways. Most important, the govern-
ment offered public lands for sale at low
and increasingly favorable terms to those
who would settle, develop and pay state
and local property taxes. The government
also used land to finance education at the
state and local levels. It began doing so in
1785 for the benefit of public local schools
and added support for colleges in 1802.
Expanded by the Morrill Acts during and
after the Civil War, educational grants to
the states totaled nearly 150 million acres
of public land by World War I.
The federal government also used land
to subsidize infrastructure projects, pri-
marily components of the nation’s trans-
portation system, reducing the potential
burden on the state and local tax system.
Over the decade of the 1850s, Congress
granted about 22.5 million acres of federal
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