Founding America: Documents from the Revolution to the Bill of Rights

by Jack N. Rakove (editor)

  How far it may be practicable to erect a bank on the joint credit of the public and of individuals can only be certainly determined by the experiment; but it is of so much importance that the experiment ought to be fully tried. When I saw the subscriptions going on to the bank established for supplying the army, I was in hopes it was only the embryo of a more permanent and extensive establishment. But I have reason to believe I shall be disappointed. It does not seem to be at all conducted on the true principles of a bank. The directors of it are purchasing with their stock instead of bank notes as I expected; in consequence of which it must turn out to be a mere subscription of a particular sum of money for a particular purpose.

  Paper credit never was long supported in any country, on a national scale, where it was not founded on the joint basis of public and private credit. An attempt to establish it on public credit alone in France under the auspices of Mr. Law27 had nearly ruined the kingdom; we have seen the effects of it in America, and every successive experiment proves the futility of the attempt. Our new money is depreciating almost as fast as the old, though it has in some states as real funds as paper money ever had. The reason is, that the monied men have not an immediate interest to uphold its credit. They may even in many ways find it their interest to undermine it. The only certain manner to obtain a permanent paper credit is to engage the monied interest immediately in it by making them contribute the whole or part of the stock and giving them the whole or part of the profits.

  The invention of banks on the modern principle originated in Venice. There the public and a company of monied men are mutually concerned. The Bank of England unites public authority and faith with private credit; and hence we see what a vast fabric of paper credit is raised on a visionary basis. Had it not been for this, England would never have found sufficient funds to carry on her wars; but with the help of this she has done, and is doing wonders. The bank of Amsterdam is on a similar foundation.

  And why can we not have an American bank? Are our monied men less enlightened to their own interest or less enterprising in the persuit? I believe the fault is in our government which does not exert itself to engage them in such a scheme. It is true, the individuals in America are not very rich, but this would not prevent their instituting a bank; it would only prevent its being done with such ample funds as in other countries. Have they not sufficient confidence in the government and in the issue of the cause? Let the Government endeavour to inspire that confidence, by adopting the measures I have recommended or others equivalent to them. Let it exert itself to procure a solid confederation, to establish a good plan of executive administration, to form a permanent military force, to obtain at all events a foreign loan. If these things were in a train of vigorous execution, it would give a new spring to our affairs; government would recover its respectability and individuals would renounce their diffidence.

  The object I should propose to myself in the first instance from a bank would be an auxiliary mode of supplies; for which purpose contracts should be made between Government and the bank on terms liberal and advantageous to the latter. Every thing should be done in the first instance to encourage the bank; after it gets well established it will take care of itself and government may make the best terms it can for itself.

  The first step to establishing the bank will be to engage a number of monied men of influence to relish the project and make it a business. The subscribers to that lately established are the fittest persons that can be found; and their plan may be interwoven.

  The outlines of my plan would be to open subscriptions in all the states for the stock, which we will suppose to be one million of pounds. Real property of every kind, as well as specie should be deemed good stock, but at least a fourth part of the subscription should be in specie or plate. There should be one great company in three divisions in Virginia, Philadelphia, and at Boston or two at Philadelphia and Boston. The bank should have a right to issue bank notes bearing two per Cent interest for the whole of their stock; but not to exceed it. These notes may be payable every three months or oftener, and the faith of government must be pledged for the support of the bank. It must therefore have a right from time to time to inspect its operations, and must appoint inspectors for the purpose.

  The advantages of the bank may consist in this, in the profits of the contracts made with government, which should bear interest to be annually paid in specie, in the loan of money at interest say six per Cent, in purchasing lives by annuities as practiced in England &c. The benefit resulting to the company is evident from the consideration, that they may employ in circulation a great deal more money than they have specie in stock, on the credit of the real property which they will have in other use; this money will be employed either in fulfilling their contracts with the public by which also they will gain a profit, or in loans at an advantageous interest or in annuities.

  The bank may be allowed to purchase plate and bullion and coin money allowing government a part of the profit. I make the bank notes bear interest to obtain a readie currency and to induce the holders to prefer them to specie to prevent too great a run upon the bank at any time beyond its ability to pay.

  If Government can obtain a foreign loan it should lend to the bank on easy terms to extend its influence and facilitate a compliance with its engagements. If government could engage the states to raise a sum of money in specie to be deposited in bank in the same manner, it would be of the greatest consequence. If government could prevail on the enthusiasm of the people to make a contribution in plate for the same purpose it would be a master stroke. Things of this kind sometimes succeed in popular contests; and if undertaken with address; I should not despair of its success; but I should not be sanguine.

  The bank may be instituted for a term of years by way of trial and the particular privilege of coining money be for a term still shorter. A temporary transfer of it to a particular company can have no inconvenience as the government are in no condition to improve this resource nor could it in our circumstances be an object to them, though with the industry of a knot of individuals it might be.

  A bank of this kind even in its commencement would answer the most valuable purposes to government and to the proprietors; in its progress the advantages will exceed calculation. It will promote commerce by furnishing a more extensive medium which we greatly want in our circumstances. I mean a more extensive valuable medium. We have an enormous nominal one at this time; but it is only a name.

  In the present unsettled state of things in this country, we can hardly draw inferences from what has happened in others, otherwise I should be certain of the success of this scheme; but I think it has enough in its favour to be worthy of trial.

  I have only skimmed the surface of the different subjects I have introduced. Should the plans recommended come into contemplation in earnest and you desire my further thoughts, I will endeavour to give them more form and particularity. I am persuaded a solid confederation a permanent army a reasonable prospect of subsisting it would give us treble consideration in Europe and produce a peace this winter.

  If a Convention is called the minds of all the states and the people ought to be prepared to receive its determinations by sensible and popular writings, which should conform to the views of Congress. There are epochs in human affairs, when novelty even is useful. If a general opinion prevails that the old way is bad, whether true or false, and this obstructs or relaxes the operation of the public service, a change is necessary if it be but for the sake of change. This is exactly the case now.’Tis an universal sentiment that our present system is a bad one, and that things do not go right on this account. The measure of a Convention would revive the hopes of the people and give a new direction to their passions, which may be improved in carrying points of substantial utility. The Eastern states have already pointed out this mode to Congress; they ought to take the hint and anticipate the others.

  And, in future, My Dear Sir, two things let me recommend, as fundamental rules for the conduct of Co
ngress—to attach the army to them by every motive, to maintain an air of authority (not domineering) in all their measures with the states. The manner in which a thing is done has more influence than is commonly imagined. Men are governed by opinion; this opinion is as much influenced by appearances as by realities; if a Government appears to be confident of its own powers, it is the surest way to inspire the same confidence in others; if it is diffident, it may be certain, there will be a still greater diffidence in others, and that its authority will not only be distrusted, controverted, but contemned.

  I wish too Congress would always consider that a kindness consists as much in the manner as in the thing: the best things done hesitatingly and with an ill grace lose their effect, and produce disgust rather than satisfaction or gratitude. In what Congress have at any time done for the army, they have commonly been too late: They have seemed to yield to importunity rather than to sentiments of justice or to a regard to the accomodation of their troops. An attention to this idea is of more importance than it may be thought. I who have seen all the workings and progress of the present discontents, am convinced, that a want of this has not been among the most inconsiderable causes.

  You will perceive My Dear Sir this letter is hastily written and with a confidential freedom, not as to a member of Congress, whose feelings may be sore at the prevailing clamours; but as to a friend who is in a situation to remedy public disorders, who wishes for nothing so much as truth, and who is desirous of information, even from those less capable of judging than himself. I have not even time to correct and copy and only enough to add that I am very truly and affectionately D Sir Your most Obed ser

  A. HAMILTON

  LIBERTY POLE

  SEPT. 3D 1780

  IMPOST AMENDMENT PROPOSED

  BY CONGRESS TO THE STATES

  FEBRUARY 3, 1781

  THE REPORT FROM THE Committee of the Whole, being amended, was agreed to as follows:

  Resolved, That it be recommended to the several states, as indispensably necessary, that they vest a power in Congress, to levy for the use of the United States, a duty of five per cent. ad valorem, at the time and place of importation, upon all goods, wares and merchandises of foreign growth and manufactures, which may be imported into any of the said states from any foreign port, island or plantation, after the first day of May, 1781; except arms, ammunition, cloathing and other articles imported on account of the United States, or any of them; and except wool-cards and cotton-cards, and wire for making them; and also, except salt, during the war:

  Also, a like duty of five per cent. on all prizes and prize goods condemned in the court of admiralty of any of these states as lawful prize:

  That the monies arising from the said duties be appropriated to the discharge of the principal and interest of the debts already contracted, or which may be contracted, on the faith of the United States, for supporting the present war:

  That the said duties be continued until the said debts shall be fully and finally discharged.

  —Robert Morris—

  REPORT ON PUBLIC CREDIT

  JULY 29, 1782

  OFFICE OF FINANCE JULY 29TH. 1782

  SIR

  The reference which congress were pleased to make, of a Remonstrance and Petition from Blair McClenaghan and others, has induced me to pray their Indulgence while I go somewhat at large into the Subject of that Remonstrance. The Propriety and Utility of public Loans, have been Subjects of much Controversy. Those who find themselves saddled with the Debts of a preceding Generation, naturally exclaim against Loans; and it must be confessed that when such Debts are accumulated by Negligence, Folly or Profusion, the Complaint is well founded. But it would be equally so against Taxes, when wasted in the same Way. The Difference is, that the Weight of Taxes being more sensible, the Waste occasions greater Clamor, and is therefore more speedily remedied; but it will appear that the eventual Evils which Posterity must Sustain from heavy Taxes, are greater than from Loans. Hence may be deduced this Conclusion, that in Governments liable to a vicious Administration it would be better to raise the current Expence by Taxes, but where an honest and wise Appropriation of Money prevails, it is highly advantageous to take the Benefit of Loans. Taxation to a certain Point is not only proper but useful, because by stimulating the Industry of Individuals, it increases the Wealth of the Community. But when Taxes go so far as to intrench on the Subsistence of the People, they become burthen-some and oppressive. The Expenditure of Money ought in such Case to be (if possible) avoided; and if unavoidable, it will be most wise to have Recourse to Loans.

  Loans may be of two Kinds, either domestic or foreign. The relative Advantages and Disadvantages of each, as well as those which are common to both, will deserve Attention. Reasonings of this Kind, (as they depend on Rules of Arithmetic), are best understood by numerical Positions. For the Purposes of Elucidation, therefore, it may be supposed, that the annual Tax of any particular Husbandman were fifteen Pounds, during a ten Year’s War, and that his net Revenue were but fifteen Pounds, so that (the whole being regularly consumed in Payment of Taxes) he would be no richer at the End of the War, than he was at the Beginning. It is at the same Time notorious that the Profits made by Husbandmen, on Funds which they borrowed, were very considerable. In many Instances their Plantations, as well as the Cattle and farming Utensils, have been purchased on Credit, and the Bonds given for both have shortly been paid by Sales of Produce. It is therefore no Exageration to state the Profits at twelve per Cent. The enormous Usury which People in Trade have been induced to pay, and which will presently be noticed, demonstrates that the Profits made by other Professions are equal to those of the Husbandman. The Instance therefore taken from that, which is the most numerous Class of Citizens, will form no improper Standard for the whole. Let it then be farther supposed in the Case already stated, that the Party should annually borrow the Sum of ten Pounds, to pay Part of his Tax of fifteen Pounds, at six per Cent. On this Sum then he would make a Profit of twenty four Shillings, and have to pay an Interest of twelve shillings. The enclosed Calculation will shew that in ten years he would be indebted one hundred Pounds, but his additional Improvements would be worth: near one hundred and fifty, and his net Revenue be increased near twelve after deducting the Interest of his Debt; whereas if he had not borrowed, his Revenue would have continued the same, as has already been observed. This Mode of Reasoning might be pursued farther, but what has been said is sufficient to shew that he would have made a considerable Advantage from the yearly Loan. If it be supposed that every Person in the Community made such [a] Loan, a similar Advantage would arise to the Community. And lastly if it be supposed that the Government were to make a Loan, and ask so much less in Taxes, the same Advantage would be derived. Hence also may be deduced this Position, that in a Society where the Average Profits of Stock are double to the Interest at which Money can be obtained, every public Loan, for necessary Expenditures, provides a Fund in the Agregate of national Wealth equal to the Discharge of it’s own Interest. Were it possible that a Society should exist in which every Member would, of his own accord, industriously pursue the Increase of national Property, without Waste or extravagance, the public Wealth would be impaired by every species of Taxation. But there never was, and unless human Nature should change, there never will be such a Society. In any given Number of men there will always be some who are Idle, and some who are extravagant. In every Society also, there must be some Taxes, because the Necessity of Supporting Government and defending the State always exist. To do these on the cheapest Terms is wise. And when it is considered how much Men are disposed to Indolence and Profusion, It will appear that (even if these Demands did not require the whole of what could be raised) still it would be wise to carry Taxation to a certain Amount, and expend what should remain after providing for the Support of Government and the national Defence, in works of public utility, such as the Opening of Roads and Navigations. For Taxes Operate two Ways towards the increase of national Wealth. First they S
timulate Industry to provide the Means of Payment. Secondly, they encourage Oeconomy so far as to avoid the Purchase of unnecessary Things, and keep Money in Readiness for the Tax Gatherer. Experience Shews that those Exertions of Industry and Oeconomy grow by Degrees into Habit. But in Order that Taxation may have these good Effects, the Sum which every Man is to pay, and the Period of Payment, should be certain and unavoidable.

  This Digression opens the way to a comparison between foreign and domestic Loans. If the Loan be domestic, Money must be diverted from those Channels in which it would otherwise have flowed, and therefore, either the Public must give better Terms than Individuals, or there must be Money enough to supply the Wants of both. In the latter Case, if the Public did not borrow, the Quantity of Money would exceed the Demand, and the Interest would be lowered ; borrowing by the Public, therefore, would keep up the Rate of Interest, which brings the latter Case within the Reason of the former. If the Public outbid Individuals, those Individuals are deprived of the Means of extending their Industry. So that no Case of a domestic Loan can well be supposed, where some public Loss will not arise to counterballance the public Gain; except when the Creditor spares from his Consumption to lend to the Government, which Operates a national Oeconomy. It is however an Advantage peculiar to domestic Loans, that they give Stability to Government, by combining together the Interests of moneyed Men for it’s Support; and consequently, in this Country, a domestic Debt would greatly contribute to that Union, which seems not to have been sufficiently attended to, or provided for, in forming the national Compact. Domestic Loans are also useful from the farther Consideration that as Taxes fall heavy on the lower Orders of a Community, the Releif obtained for them by such Loans, more than counterballances the Loss sustained by those who would have borrowed Money to extend their Commerce or Tillage. Neither is it a refinement to observe, that since a Plenty of Money and consequent Ease of obtaining it, induce Men to engage in Speculations which are often unprofitable, the Check which these receive is not injurious, while the Releif obtained for the Poor is highly beneficial.