Daily Archives: October 18, 2012

Federalist No. 17

In Federalist No. 17, Hamilton again continues his discussion of the insufficiency of the present confederation to preserve the union.

In this essay, he moves on from the discussion of the ability of a loose confederacy to both claim and protect the territories, posts, and natural resources that it should be entitled to and away from the discussion of the increased risk of Civil War presented by a loose confederacy to address the objection that the government of the Union [may be] too powerful and enable it to absorb those residuary authorities, which it might be judged proper to leave with the States for local purposes.

To this end, Hamilton admits that he is at a loss to discover what temptation the persons entrusted with the administration of the general government could ever feel to divest the States of the authorities of that description. He notes that commerce, finance, negotiation, and war seem to comprehend all the objects which have charms for minds governed by that passion; and all the powers necessary to those objects ought, in the first instance, to be lodged in the national depository. After all, we must deal with foreign nations as one nation, or we are no better than a collection of loose confederacies, regardless of what title we convey on the union.

Furthermore, the administration of private justice
between the citizens of the same State, the supervision of agriculture and of other concerns of a similar nature, all those
things, in short, which are proper to be provided for by local legislation, can never be desirable cares of a general
jurisdiction. As such, the Union would see no benefit in pursuing them at the federal level, so there should be no cause for concern because it is therefore improbable that there should exist a disposition in the federal councils to usurp the powers with
which they are connected; because the attempt to exercise those powers would be as troublesome as it would be nugatory.

But even, for argument’s sake, if we assume that mere wantonness and lust of domination would be sufficient to beget that
disposition, it is the case that it will always be far more
easy for the State governments to encroach upon the national authorities than for the national government to encroach upon
the State authorities.

Furthermore, there is one transcendent advantage belonging to the province of the State governments, which alone suffices to place the
matter in a clear and satisfactory light, — I mean the ordinary administration of criminal and civil justice. This, of all others, is
the most powerful, most universal, and most attractive source of popular obedience and attachment. As a result, this great cement of society, which will diffuse itself almost wholly through
the channels of the particular governments, independent of all other causes of influence, would insure them so decided an
empire over their respective citizens as to render them at all times a complete counterpoise, and, not unfrequently, dangerous
rivals to the power of the Union.

How do you measure savings?

It’s a tough question, but if you’re good at what you do, and you want to “win” at the end of the year, be sure you factor in currency fluctuation, inflation, and, if necessary, demand shift, because, on a per-unit basis, you can always save against market average if you’re good at your job and normalize the expenditures.

Here’s the foundation for a simple formula you can use to make this measurement. In reality, it will be a bit more difficult as you’ll have to calculate the actual increase in cost due to a change in the commodity index (as the commodity will only be one cost component in the total cost of the good being purchased), the realized difference in the exchange (as the currency conversion may cost you additional basis points), and the demand shift relative to a fixed interval, and not a fixed point, in time. But this simple example will suffice to show how, if you calculate appropriate unit costs, you really can’t lose even if the overall spend in the category goes up (because, without your efforts, it would have went up a lot more). And this is just fine (as long as you don’t double count the savings some other way).

Let’s say that, using appropriate benchmarking, backed up by indices and correlating cost models that are accepted by finance as reasonable, you calculate that the average market price per unit is $12 and you sign a contract for $10, for an expected savings of $2. Then, a year later, you find that the result of commodity inflation increases the cost per unit $1.20, for an increase of 10%, and the currency exchange increases $0.05 not in your favour, for an increase of 5%. What have you saved?

Savings/unit = (market cost/unit) – amount paid * (1 + currency increase) = 13.2 – 10 * 1.05 = 13.20 – 10.50 = 2.70

  market cost / unit = (base price/unit + cost increase/unit)

% Savings/unit = (savings/unit) / (market cost/unit) = 2.70 / 13.2 / 20% (WOW!)

Now, let’s say next year, you agree to a price increase to $10.50, but inflation increases unit costs by another $1.80 and the currency exchange only falls to $0.03 not in your favour. How did you do year over year?

Savings/unit = (13.2 + 1.80) – 10.5 * 1.03 = 15 – 10.5 * 1.03 = 4.19

% Savings/unit = 4.19 / 15 = 28% WOW!

  Costs increased 10%, but you increased your savings of 20% against market average to 28% against market average year over year! Looking at the big picture makes a difference since accepting 50% of the cost increase saved you considerably in the long run as prices continued to rise.