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FINANCE - Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 2 
The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. Vol. 2.
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first report on the public credit
January 14, 1790.
January 9, 1790.
The Secretary of the Treasury, in obedience to the resolution of the House of Representatives of the twenty-first day of September last, has, during the recess of Congress, applied himself to the consideration of a proper plan for the support of the public credit, with all the attention which was due to the authority of the House, and to the magnitude of the object.
In the discharge of this duty, he has felt, in no small degree, the anxieties which naturally flow from a just estimate of the difficulty of the task, from a well-founded diffidence of his own qualifications for executing it with success, and from a deep and solemn conviction of the momentous nature of the truth contained in the resolution under which his investigations have been conducted,—“That an adequate provision for the support of the public credit is a matter of high importance to the honor and prosperity of the United States.”
With an ardent desire that his well-meant endeavors may be conducive to the real advantage of the nation, and with the utmost deference to the superior judgment of the House, he now respectfully submits the result of his inquiries and reflections to their indulgent construction.
In the opinion of the Secretary, the wisdom of the House, in giving their explicit sanction to the proposition which has been stated, cannot but be applauded by all who will seriously consider and trace, through their obvious consequences, these plain and undeniable truths:
That exigencies are to be expected to occur, in the affairs of nations, in which there will be a necessity for borrowing.
That loans in time of public danger, especially from foreign war, are found an indispensable resource, even to the wealthiest of them.
And that, in a country which, like this, is possessed of little active wealth, or, in other words, little moneyed capital, the necessity for that resource must, in such emergencies, be proportionably urgent.
And as, on the one hand, the necessity for borrowing in particular emergencies cannot be doubted, so, on the other, it is equally evident that, to be able to borrow upon good terms, it is essential that the credit of a nation should be well established.
For, when the credit of a country is in any degree questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it has occasion to make. Nor does the evil end here; the same disadvantage must be sustained on whatever is to be bought on terms of future payment.
From this constant necessity of borrowing and buying dear, it is easy to conceive how immensely the expenses of a nation, in a course of time, will be augmented by an unsound state of the public credit.
To attempt to enumerate the complicated variety of mischiefs, in the whole system of the social economy, which proceed from a neglect of the maxims that uphold public credit, and justify the solicitude manifested by the House on this point, would be an improper intrusion on their time and patience.
In so strong a light, nevertheless, do they appear to the Secretary, that, on their due observance, at the present critical juncture, materially depends, in his judgment, the individual and aggregate prosperity of the citizens of the United States; their relief from the embarrassments they now experience; their character as a people; the cause of good government.
If the maintenance of public credit, then, be truly so important, the next inquiry which suggests itself is: By what means is it to be effected? The ready answer to which question is, by good faith; by a punctual performance of contracts. State, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.
Every breach of the public engagements, whether from choice or necessity, is, in different degrees, hurtful to public credit. When such a necessity does truly exist, the evils of it are only to be palliated by a scrupulous attention, on the part of the Government, to carry the violation no further than the necessity absolutely requires, and to manifest, if the nature of the case admit of it, a sincere disposition to make reparation whenever circumstances shall permit. But, with every possible mitigation, credit must suffer, and numerous mischiefs ensue. It is, therefore, highly important, when an appearance of necessity seems to press upon the public councils, that they should examine well its reality, and be perfectly assured that there is no method of escaping from it, before they yield to its suggestions. For, though it cannot safely be affirmed that occasions have never existed, or may not exist, in which violations of the public faith, in this respect, are inevitable; yet there is great reason to believe that they exist far less frequently than precedents indicate, and are oftenest either pretended, through levity or want of firmness; or supposed, through want of knowledge. Expedients often have been devised to effect, consistently with good faith, what has been done in contravention of it. Those who are most commonly creditors of a nation are, generally speaking, enlightened men; and there are signal examples to warrant a conclusion that, when a candid and fair appeal is made to them, they will understand their true interest too well to refuse their concurrence in such modifications of their claims as any real necessity may demand.
While the observance of that good faith, which is the basis of public credit, is recommended by the strongest inducements of political expediency, it is enforced by considerations of still greater authority. There are arguments for it which rest on the immutable principles of moral obligation. And in proportion as the mind is disposed to contemplate, in the order of Providence, an intimate connection between public virtue and public happiness, will be its repugnancy to a violation of those principles.
This reflection derives additional strength from the nature of the debt of the United States. It was the price of liberty. The faith of America has been repeatedly pledged for it, and with solemnities that give peculiar force to the obligation. There is, indeed, reason to regret that it has not hitherto been kept; that the necessities of the war, conspiring with inexperience in the subjects of finance, produced direct infractions; and that the subsequent period has been a continued scene of negative violation or non-compliance. But a diminution of this regret arises from the reflection, that the last seven years have exhibited an earnest and uniform effort, on the part of the Government of the Union, to retrieve the national credit, by doing justice to the creditors of the nation; and that the embarrassments of a defective Constitution, which defeated this laudable effort, have ceased.
From this evidence of a favorable disposition given by the former Government, the institution of a new one, clothed with powers competent to calling forth the resources of the community, has excited correspondent expectations. A general belief accordingly prevails, that the credit of the United States will quickly be established on the firm foundation of an effectual provision for the existing debt. The influence which this has had at home is witnessed by the rapid increase that has taken place in the market value of the public securities. From January to November, they rose thirty-three and a third per cent.; and, from that period to this time, they have risen fifty per cent. more; and the intelligence from abroad announces effects proportionably favorable to our national credit and consequence.
It cannot but merit particular attention, that, among ourselves, the most enlightened friends of good government are those whose expectations are the highest.
To justify and preserve their confidence; to promote the increasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources, both to agriculture and commerce; to cement more closely the union of the States; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy;—these are the great and invaluable ends to be secured by a proper and adequate provision, at the present period, for the support of public credit.
To this provision we are invited, not only by the general considerations which have been noticed, but by others of a more particular nature. It will procure, to every class of the community, some important advantages, and remove some no less important disadvantages.
The advantage to the public creditors, from the increased value of that part of their property which constitutes the public debt, needs no explanation.
But there is a consequence of this, less obvious, though not less true, in which every other citizen is interested. It is a well-known fact, that, in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie. The same thing would, in all probability, happen here under the like circumstances.
The benefits of this are various and obvious:
First.—Trade is extended by it, because there is a larger capital to carry it on, and the merchant can, at the same time, afford to trade for smaller profits; as his stock, which, when unemployed, brings him an interest from the Government, serves him also as money when he has a call for it in his commercial operations.
Secondly.—Agriculture and manufactures are also promoted by it, for the like reason, that more capital can be commanded to be employed in both; and because the merchant, whose enterprise in foreign trade gives to them activity and extension, has greater means for enterprise.
Thirdly.—The interest of money will be lowered by it; for this is always in a ratio to the quantity of money, and to the quickness of circulation. This circumstance will enable both the public and individuals to borrow on easier and cheaper terms.
And from the combination of these effects, additional aids will be furnished to labor, to industry, and to arts of every kind. But these good effects of a public debt are only to be looked for, when, by being well funded, it has acquired an adequate and stable value; till then, it has rather a contrary tendency. The fluctuation and insecurity incident to it, in an unfunded state, render it a mere commodity, and a precarious one. As such, being only an object of occasional and particular speculation, all the money applied to it is so much diverted from the more useful channels of circulation, for which the thing itself affords no substitute; so that, in fact, one serious inconvenience of an unfunded debt is, that it contributes to the scarcity of money.
This distinction, which has been little if at all attended to, is of the greatest moment; it involves a question immediately interesting to every part of the community, which is no other than this: Whether the public debt, by a provision for it on true principles, shall be rendered a substitute for money; or whether, by being left as it is, or by being provided for in such a manner as will wound those principles and destroy confidence, it shall be suffered to continue as it is, a pernicious drain of our cash from the channels of productive industry?
The effect which the funding of the public debt, on right principles, would have upon landed property, is one of the circumstances attending such an arrangement, which has been least adverted to, though it deserves the most particular attention. The present depreciated state of that species of property is a serious calamity. The value of cultivated lands, in most of the States, has fallen, since the Revolution, from twenty-five to fifty per cent. In those farther south, the decrease is still more considerable. Indeed, if the representations continually received from that quarter may be credited, lands there will command no price which may not be deemed an almost total sacrifice. This decrease in the value of lands ought, in a great measure, to be attributed to the scarcity of money; consequently, whatever produces an augmentation of the moneyed capital of the country must have a proportional effect in raising that value. The beneficial tendency of a funded debt, in this respect, has been manifested by the most decisive experience in Great Britain.
The proprietors of lands would not only feel the benefit of this increase in the value of their property, and of a more prompt and better sale, when they had occasion to sell, but the necessity of selling would be itself greatly diminished. As the same cause would contribute to the facility of loans, there is reason to believe that such of them as are indebted would be able, through that resource, to satisfy their more urgent creditors.
It ought not, however, to be expected that the advantages described as likely to result from funding the public debt would be instantaneous. It might require some time to bring the value of stock to its natural level, and to attach to it that fixed confidence which is necessary to its quality as money. Yet the late rapid rise of the public securities encourages an expectation that the progress of stock, to the desirable point, will be much more expeditious than could have been foreseen. And as, in the meantime, it will be increasing in value, there is room to conclude that it will, from the outset, answer many of the purposes in contemplation. Particularly, it seems to be probable, that from creditors who are not themselves necessitous it will early meet with a ready reception in payment of debts, at its current price.
Having now taken a concise view of the inducements to a proper provision for the public debt, the next inquiry which presents itself is: What ought to be the nature of such a provision? This requires some preliminary discussions.
It is agreed, on all hands, that that part of the debt which has been contracted abroad, and is denominated the foreign debt, ought to be provided for according to the precise terms of the contracts relating to it. The discussions which can arise, therefore, will have reference essentially to the domestic part of it, or to that which has been contracted at home. It is to be regretted that there is not the same unanimity of sentiment on this part as on the other.
The Secretary has too much deference for the opinions of every part of the community not to have observed one, which has more than once made its appearance in the public prints, and which is occasionally to be met with in conversation. It involves this question: Whether a discrimination ought not to be made between original holders of the public securities, and present possessors, by purchase? Those who advocate a discrimination are for making a full provision for the securities of the former at their nominal value, but contend that the latter ought to receive no more than the cost to them, and the interest. And the idea is sometimes suggested of making good the difference to the primitive possessor.
In favor of this scheme it is alleged that it would be unreasonable to pay twenty shillings in the pound to one who had not given more for it than three or four. And it is added that it would be hard to aggravate the misfortune of the first owner, who, probably through necessity, parted with his property at so great a loss, by obliging him to contribute to the profit of the person who had speculated on his distresses.
The Secretary, after the most mature reflection on the force of this argument, is induced to reject the doctrine it contains, as equally unjust and impolitic; as highly injurious, even to the original holders of public securities; as ruinous to public credit.
It is inconsistent with justice, because, in the first place, it is a breach of contract—a violation of the rights of a fair purchaser.
The nature of the contract, in its origin, is that the public will pay the sum expressed in the security, to the first holder or his assignee. The intent in making the security assignable is, that the proprietor may be able to make use of his property, by selling it for as much as it may be worth in the market, and that the buyer may be safe in the purchase.
Every buyer, therefore, stands exactly in the place of the seller; has the same right with him to the identical sum expressed in the security; and, having acquired that right by fair purchase and in conformity to the original agreement and intention of the Government, his claim cannot be disputed without manifest injustice.
That he is to be considered as a fair purchaser, results from this: whatever necessity the seller may have been under, was occasioned by the Government, in not making a proper provision for its debts. The buyer had no agency in it, and therefore ought not to suffer. He is not even chargeable with having taken an undue advantage. He paid what the commodity was worth in the market, and took the risks of reimbursement upon himself. He, of course, gave a fair equivalent, and ought to reap the benefit of his hazard—a hazard which was far from inconsiderable, and which, perhaps, turned on little less than a revolution in government.
That the case of those who parted with their securities from necessity is a hard one, cannot be denied. But, whatever complaint of injury, or claim of redress, they may have, respects the Government solely. They have not only nothing to object to the persons who relieved their necessities, by giving them the current price of their property, but they are even under an implied condition to contribute to the reimbursement of those persons. They knew that, by the terms of the contract with themselves, the public were bound to pay to those to whom they should convey their title the sums stipulated to be paid to them; and that, as citizens of the United States, they were to bear their proportion of the contribution for that purpose. This, by the act of assignment, they tacitly engaged to do; and, if they had an option, they could not, with integrity or good faith, refuse to do it, without the consent of those to whom they sold.
But, though many of the original holders sold from necessity, it does not follow that this was the case with all of them. It may well be supposed that some of them did it either through want of confidence in an eventual provision, or from the allurements of some profitable speculation. How shall these different classes be discriminated from each other? How shall it be ascertained, in any case, that the money which the original holder obtained for his security was not more beneficial to him, than if he had held it to the present time, to avail himself of the provision which shall be made? How shall it be known whether, if the purchaser had employed his money in some other way, he would not be in a better situation than by having applied it in the purchase of securities, though he should now receive their full amount? And, if neither of these things can be known, how shall it be determined, whether a discrimination, independent of the breach of contract, would not do a real injury to purchasers; and, if it included a compensation to the primitive proprietors, would not give them an advantage to which they had no equitable pretension?
It may well be imagined, also, that there are not wanting instances in which individuals, urged by a present necessity, parted with the securities received by them from the public, and shortly after replaced them with others, as an indemnity for their first loss. Shall they be deprived of the indemnity which they have endeavored to secure by so provident an arrangement?
Questions of this sort, on a close inspection, multiply themselves without end, and demonstrate the injustice of a discrimination, even on the most subtile calculations of equity, abstracted from the obligation of contract.
The difficulties, too, of regulating the details of a plan for that purpose, which would have even the semblance of equity, would be found immense. It may well be doubted, whether they would not be insurmountable, and replete with such absurd as well as inequitable consequences, as to disgust even the proposers of the measure.
As a specimen of its capricious operation, it will be sufficient to notice the effect it would have upon two persons, who may be supposed, two years ago, to have purchased, each, securities, at three shillings in the pound, and one of them to retain those bought by him, till the discrimination should take place; the other, to have parted with those bought by him, within a month past, at nine shillings. The former, who had had most confidence in the Government, would, in this case, only receive at the rate of three shillings, and the interest; while the latter, who had had less confidence, would receive, for what cost him the same money, at the rate of nine shillings, and his representative, standing in his place, would be entitled to a like rate.
The impolicy of a discrimination results from two considerations: one, that it proceeds upon a principle destructive of that quality of the public debt, or the stock of the nation, which is essential to its capacity for answering the purposes of money—that is, the security of transfer; the other, that, as well on this account as because it includes a breach of faith, it renders property in the funds less valuable, consequently induces lenders to demand a higher premium for what they lend, and produces every other inconvenience of a bad state of public credit.
It will be perceived, at first sight, that the transferable quality of stock is essential to its operation as money, and that this depends on the idea of complete security to the transferee, and a firm persuasion that no distinction can, in any circumstances, be made between him and the original proprietor.
The precedent of an invasion of this fundamental principle would, of course, tend to deprive the community of an advantage with which no temporary saving could bear the least comparison.
And it will as readily be perceived that the same cause would operate a diminution of the value of stock in the hands of the first as well as of every other holder. The price which any man who should incline to purchase would be willing to give for it, would be in a compound ratio to the immediate profit it afforded, and the chance of the continuance of his profit. If there was supposed to be any hazard of the latter, the risk would be taken into the calculation, and either there would be no purchase at all, or it would be at a proportionably less price.
For this diminution of the value of stock every person who should be about to lend to the Government would demand compensation, and would add to the actual difference between the nominal and the market value an equivalent for the chance of greater decrease, which, in a precarious state of public credit, is always to be taken into the account. Every compensation of this sort, it is evident, would be an absolute loss to the Government.
In the preceding discussion of the impolicy of a discrimination, the injurious tendency of it to those who continue to be the holders of the securities they received from the Government has been explained. Nothing need be added on this head, except that this is an additional and interesting light in which the injustice of the measure may be seen. It would not only divest present proprietors, by purchase, of the rights they had acquired under the sanction of public faith, but it would depreciate the property of the remaining original holders. It is equally unnecessary to add any thing to what has been already said to demonstrate the fatal influence which the principle of discrimination would have on the public credit.
But there is still a point of view, in which it will appear perhaps even more exceptionable than in either of the former. It would be repugnant to an express provision of the Constitution of the United States. This provision is that “all debts contracted and engagements entered into before the adoption of that Constitution, shall be as valid against the United States under it as under the Confederation”; which amounts to a constitutional ratification of the contracts respecting the debt in the state in which they existed under the Confederation. And, resorting to that standard, there can be no doubt that the rights of assignees and original holders must be considered as equal. In exploding thus fully the principle of discrimination, the Secretary is happy in reflecting that he is only the advocate of what has been already sanctioned by the formal and express authority of the Government of the Union in these emphatic terms: “The remaining class of creditors,” say Congress, in their circular addressed to the States of the 26th April, 1783, “is composed of such of our fellow-citizens as originally lent to the public the use of their funds, or have since manifested most confidence in their country by receiving transfers from the lenders; and partly of those whose property has been either advanced or assumed for the public service. To discriminate the merits of these several descriptions of creditors would be a task equally unnecessary and invidious. If the voice of humanity pleads more loudly in favor of some than of others, the voice of policy, no less than of justice, pleads in favor of all. A wise nation will never permit those who relieve the wants of their country, or who rely most on its faith, its firmness, and its resources, when either of them is distrusted, to suffer by the event.”
The Secretary, concluding that a discrimination between the different classes of creditors of the United States cannot, with propriety, be made, proceeds to examine whether a difference ought to be permitted to remain between them and another description of public creditors—those of the States individually. The Secretary, after mature reflection on this point, entertains a full conviction that an assumption of the debts of the particular States by the Union, and a like provision for them as for those of the Union, will be a measure of sound policy and substantial justice.
It would, in the opinion of the Secretary, contribute, in an eminent degree, to an orderly, stable, and satisfactory arrangement of the national finances. Admitting, as ought to be the case, that a provision must be made, in some way or other, for the entire debt, it will follow that no greater revenues will be required whether that provision be made wholly by the United States, or partly by them and partly by the States separately.
The principal question, then, must be whether such a provision cannot be more conveniently and effectually made by one general plan, issuing from one authority, than by different plans, originating in different authorities? In the first case there can be no competition for resources; in the last there must be such a competition. The consequences of this, without the greatest caution on both sides, might be interfering regulations, and thence collision and confusion. Particular branches of industry might also be oppressed by it. The most productive objects of revenue are not numerous. Either these must be wholly engrossed by one side, which might lessen the efficacy of the provisions by the other, or both must have recourse to the same objects, in different modes, which might occasion an accumulation upon them beyond what they could properly bear. If this should not happen, the caution requisite to avoiding it would prevent the revenue's deriving the full benefit of each object. The danger of interference and of excess would be apt to impose restraints very unfriendly to the complete command of those resources which are the most convenient, and to compel the having recourse to others, less eligible in themselves and less agreeable to the community. The difficulty of an effectual command of the public resources, in case of separate provisions for the debt, may be seen in another, and, perhaps, more striking light. It would naturally happen that different States, from local considerations, would, in some instances, have recourse to different objects, in others to the same objects, in different degrees, for procuring the funds of which they stood in need. It is easy to conceive how this diversity would affect the aggregate revenue of the country. By the supposition, articles which yielded a full supply in some States would yield nothing, or an insufficient product, in others. And hence, the public revenue would not derive the full benefit of those articles from State regulations; neither could the deficiencies be made good by those of the Union. It is a provision of the national Constitution that “all duties, imposts, and excises shall be uniform throughout the United States.” And, as the General Government would be under a necessity, from motives of policy, of paying regard to the duty which may have been previously imposed upon any article, though but in a single State, it would be constrained either to refrain wholly from any further imposition upon such article, where it had been already rated as high as was proper, or to confine itself to the difference between the existing rate and what the article would reasonably bear. Thus the pre-occupancy of an article by a single State would tend to arrest or abridge the impositions of the Union on that article. And as it is supposable that a great variety of articles might be placed in this situation, by dissimilar arrangements of the particular States, it is evident that the aggregate revenue of the country would be likely to be very materially contracted by the plan of separate provisions.
If all the public creditors receive their dues from one source, distributed with an equal hand, their interest will be the same. And, having the same interests, they will unite in the support of the fiscal arrangements of the Government—as these, too, can be made with more convenience where there is no competition. These circumstances combined will insure to the revenue laws a more ready and more satisfactory execution.
If, on the contrary, there are distinct provisions, there will be distinct interests, drawing different ways. That union and concert of views among the creditors, which in every Government is of great importance to their security and to that of public credit, will not only not exist, but will be likely to give place to mutual jealousy and opposition. And from this cause the operation of the systems which may be adopted, both by the particular States and by the Union, with relation to their respective debts, will be in danger of being counteracted.
There are several reasons which render it probable that the situation of the State creditors would be worse than that of the creditors of the Union, if there be not a national assumption of the State debts. Of these it will be sufficient to mention two: one, that a principal branch of revenue is exclusively vested in the Union; the other, that a State must always be checked in the imposition of taxes on articles of consumption, from the want of power to extend the same regulation to the other States, and from the tendency of partial duties to injure its industry and commerce. Should the State creditors stand upon a less eligible footing than the others, it is unnatural to expect they would see with pleasure a provision for them. The influence which their dissatisfaction might have, could not but operate injuriously, both for the creditors and the credit of the United States. Hence it is even the interest of the creditors of the Union, that those of the individual States should be comprehended in a general provision. Any attempt to secure to the former either exclusive or peculiar advantages, would materially hazard their interests. Neither would it be just that one class of public creditors should be more favored than the other. The objects for which both descriptions of the debt were contracted are in the main the same. Indeed, a great part of the particular debts of the States has arisen from assumptions by them on account of the Union. And it is most equitable that there should be the same measure of retribution for all. There is an objection, however, to an assumption of the State debts, which deserves particular notice. It may be supposed that it would increase the difficulty of an equitable settlement between them and the United States.
The principles of that settlement, whenever they shall be discussed, will require all the moderation and wisdom of the Government. In the opinion of the Secretary, that discussion, till further lights are obtained, would be premature. All, therefore, which he would now think advisable on the point in question would be that the amount of the debts assumed and provided for should be charged to the respective States to abide an eventual arrangement. This the United States, as assignees to the creditors, would have an indisputable right to do. But, as it might be a satisfaction to the House to have before them some plan for the liquidation of accounts between the Union and its members, which, including the assumption of the State debts, would consist with equity, the Secretary will submit, in this place, such thoughts on the subject as have occurred to his own mind, or been suggested to him, most compatible, in his judgment, with the end proposed.
Let each State be charged with all the money advanced to it out of the treasury of the United States, liquidated according to the specie value at the time of each advance, with interest at six per cent.
Let it also be charged with the amount, in specie value, of all its securities which shall be assumed, with the interest upon them, to the time when interest shall become payable by the United States.
Let it be credited for all moneys paid and articles furnished to the United States, and for all other expenditures during the war, either toward general or particular defence, whether authorized or unauthorized by the United States; the whole liquidated to specie value, and bearing an interest of six per cent. from the several times at which the several payments, advances, and expenditures accrued.
And let all sums of continental money, now in the treasuries of the respective States, which shall be paid into the treasury of the United States, be credited at specie value.
Upon a statement of the accounts according to these principles, there can be little doubt that balances would appear in favor of all the States against the United States.
To equalize the contributions of the States, let each be then charged with its proportion of the aggregate of those balances, according to some equitable ratio, to be devised for that purpose.
If the contributions should be found disproportionate, the result of this adjustment would be, that some States would be creditors, some debtors, to the Union. Should this be the case—as it will be attended with less inconvenience to the United States to have to pay balances to, than to receive them from, the particular States—it may, perhaps, be practicable to effect the former by a second process, in the nature of a transfer of the amount of the debts of debtor States, to the credit of creditor States, observing the ratio by which the first apportionment shall have been made. This, whilst it would destroy the balances due from the former, would increase those due to the latter; these to be provided for by the United States, at a reasonable interest, but not to be transferable. The expediency of this second process must depend on a knowledge of the result of the first. If the inequalities should be too great, the arrangement may be impracticable, without unduly increasing the debt of the United States. But it is not likely that this would be the case. It is also to be remarked, that though this second process might not, upon the principle of apportionment, bring the thing to the point aimed at, yet it may approach so nearly to it, as to avoid essentially the embarrassment of having considerable balances to collect from any of the States.
The whole of this arrangement to be under the superintendence of commissioners, vested with equitable discretion and final authority. The operation of the plan is exemplified in Schedule A.
The general principle of it seems to be equitable: for it appears difficult to conceive a good reason why the expenses for the particular defence of a part, in a common war, should not be a common charge, as well as those incurred professedly for the general defence. The defence of each part is that of the whole; and unless all the expenditures are brought into a common mass, the tendency must be to add to the calamities suffered, by being the most exposed to the ravages of war, an increase of burthens. This plan seems to be susceptible of no objection which does not belong to every other, that proceeds on the idea of a final adjustment of accounts. The difficulty of settling a ratio is common to all. This must, probably, either be sought for in the proportions of the requisitions during the war, or in the decision of commissioners, appointed with plenary power. The rule prescribed in the Constitution, with regard to representation and direct taxes, would evidently not be applicable to the situation of parties during the period in question. The existing debt of the United States is excluded from the computation, as it ought to be, because it will be provided for out of a general fund. The only discussion of a preliminary kind which remains, relates to the distinctions of the debt into principal and interest. It is well known that the arrears of the latter bear a large proportion to the amount of the former. The immediate payment of these arrears is evidently impracticable; and a question arises, What ought to be done with them?
There is good reason to conclude, that the impressions of many are more favorable to the claim of the principal, than to that of the interest; at least so far as to produce an opinion, that an inferior provision might suffice for the latter.
But, to the Secretary, this opinion does not appear to be well founded. His investigations of the subject have led him to a conclusion, that the arrears of interest have pretensions at least equal to the principal.
The liquidated debt, traced to its origin, falls under two principal discriminations. One relating to loans, the other to services performed and articles supplied. The part arising from loans was at first made payable at fixed periods, which have long since elapsed, with an early option to lenders, either to receive back their money at the expiration of those periods, or to continue it at interest, till the whole amount of continental bills circulating should not exceed the sum in circulation at the time of each loan. This contingency, in the sense of the contract, never happened; and the presumption is, that the creditors preferred continuing their money indefinitely at interest to receiving it in a depreciated and depreciating state.
The other parts of it were chiefly for objects which ought to have been paid for at the time—that is, when the services were performed, or the supplies furnished; and were not accompanied with any contract for interest.
But by different acts of Government and Administration, concurred in by the creditors, these parts of the debt have been converted into a capital, bearing an interest of six per cent. per annum, but without any definite period of redemption. A portion of the Loan Office debt has been exchanged for new securities of that import; and the whole of it seems to have acquired that character after the expiration of the periods prefixed for repayment. If this view of the subject be a just one, the capital of the debt of the United States may be considered in the light of an annuity at the rate of six per cent. per annum, redeemable at the pleasure of the Government by payment of the principal: for it seems to be a clear position, that, when a Government contracts a debt payable with interest, without any precise time being stipulated or understood for payment of the capital, that time is a matter of pure discretion with the Government, which is at liberty to consult its own convenience respecting it, taking care to pay the interest with punctuality.
Wherefore, as long as the United States should pay the interest of their debt, as it accrued, their creditors would have no right to demand the principal. But with regard to the arrears of interest, the case is different. These are now due, and those to whom they are due, have a right to claim immediate payment. To say that it would be impracticable to comply, would not vary the nature of the right. Nor can this idea of impracticability be honorably carried further than to justify the proposition of a new contract, upon the basis of a commutation of that right for an equivalent. This equivalent, too, ought to be a real and fair one. And what other fair equivalent can be imagined for the detention of money, but a reasonable interest? Or what can be the standard of that interest, but the market rate, or the rate which the Government pays in ordinary cases?
From this view of the matter, which appears to be the accurate and true one, it will follow that the arrears of interest are entitled to an equal provision with the principal of the debt.
The result of the foregoing discussion is this: That there ought to be no discrimination between the original holders of the debt, and present possessors by purchase; that it is expedient there should be an assumption of the State debts by the Union; and that the arrears of interest should be provided for on an equal footing with the principal.
The next inquiry, in order, toward determining the nature of a proper provision, respects the quantum of the debt, and present rates of interest.
The debt of the Union is distinguishable into foreign and domestic.
The domestic debt may be subdivided into liquidated and unliquidated; principal and interest.
This includes all that has been paid in indents (except what has come into the treasury of the United States), which, in the opinion of the Secretary, can be considered in no other light than as interest due.
The unliquidated part of the domestic debt, which consists chiefly of the continental bills of credit, is not ascertained, but may be estimated at 2,000,000 dollars.
These several sums constitute the whole of the debt of the United States, amounting together to $54,124,464.56. That of the individual States is not equally well ascertained. The Schedule E shows the extent to which it has been ascertained by returns, pursuant to the orders of the House of the 21st September last; but this not comprehending all the States, the residue must be estimated from less authentic information. The Secretary, however, presumes that the total amount may be safely stated at twenty-five millions of dollars, principal and interest. The present rate of interest in the States’ debt is, in general, the same with that of the domestic debt of the Union.
On the supposition that the arrears of interest ought to be provided for, on the same terms with the principal, the annual amount of the interest, which, at the existing rates, would be payable on the entire mass of the public debt, would be:
The interesting problem now occurs: Is it in the power of the United States, consistently with those prudential considerations which ought not to be overlooked, to make a provision equal to the purpose of funding the whole debt, at the rates of interest which it now bears, in addition to the sum which will be necessary for the current service of the Government?
The Secretary will not say that such a provision would exceed the abilities of the country, but he is clearly of opinion that to make it would require the extension of taxation to a degree and to objects which the true interest of the public creditors forbids. It is, therefore, to be hoped, and even to be expected, that they will cheerfully concur in such modifications of their claims, on fair and equitable principles, as will facilitate to the Government an arrangement substantial, durable, and satisfactory to the community. The importance of the last characteristic will strike every discerning mind. No plan, however flattering in appearance, to which it did not belong, could be truly entitled to confidence.
It will not be forgotten that exigencies may, erelong, arise, which would call for resources greatly beyond what is now deemed sufficient for the current service; and that, should the faculties of the country be exhausted, or even strained, to provide for the public debt, there could be less reliance on the sacredness of the provision. But while the Secretary yields to the force of these considerations, he does not lose sight of those fundamental principles of good faith which dictate that every practicable exertion ought to be made, scrupulously to fulfil the engagements of the Government; that no change in the rights of its creditors ought to be attempted without their voluntary consent; and that this consent ought to be voluntary in fact as well as in name. Consequently, that every proposal of a change ought to be in the shape of an appeal to their reason and to their interest, not to their necessities. To this end it is requisite that a fair equivalent should be offered for what may be asked to be given up, and unquestionable security for the remainder. Without this, an alteration consistently with the credit and honor of the nation would be impracticable.
It remains to see what can be proposed in conformity to these views.
It has been remarked that the capital of the debt of the Union is to be viewed in the light of an annuity, at the rate of six per cent. per annum, redeemable at the pleasure of the Government by payment of the principal. And it will not be required that the arrears of interest should be considered in a more favorable light. The same character, in general, may be applied to the debts of the individual States.
This view of the subject admits that the United States would have it in their power to avail themselves of any fall in the market rate of interest for reducing that of the debt.
This property of the debt is favorable to the public, unfavorable to the creditor, and may facilitate an arrangement for the reduction of interest upon the basis of a fair equivalent.
Probabilities are always a rational ground of contract. The Secretary conceives that there is good reason to believe, if effectual measures are taken to establish public credit, that the Government rate of interest in the United States will, in a very short time, fall at least as low as five per cent.; and that, in a period not exceeding twenty years, it will sink still lower, probably to four. There are two principal causes which will be likely to produce this effect: one, the low rate of interest in Europe; the other, the increase of the moneyed capital of the nation by the funding of the public debt.
From three to four per cent. is deemed good interest in several parts of Europe. Even less is deemed so in some places; and it is on the decline, the increasing plenty of money continually tending to lower it. It is presumable, that no country will be able to borrow of foreigners upon better terms than the United States, because none can, perhaps, afford so good security. Our situation exposes us, less than that of any other nation, to those casualties which are the chief causes of expense; our encumbrances, in proportion to our real means, are less, though these cannot immediately be brought so readily into action; and our progress in resources, from the early state of the country, and the immense tracts of unsettled territory, must necessarily exceed that of any other. The advantages of this situation have already engaged the attention of the European money-lenders, particularly among the Dutch. And as they become better understood, they will have the greater influence. Hence, as large a proportion of the cash of Europe as may be wanted will be, in a certain sense, in our market, for the use of Government. And this will naturally have the effect of a reduction of the rate of interest, not indeed to the level of the places which send their money to market, but to something much nearer to it than our present rate.
The influence which the funding of the debt is calculated to have in lowering interest has been already remarked and explained. It is hardly possible that it should not be materially affected by such an increase of the moneyed capital of the nation as would result from the proper funding of seventy millions of dollars. But the probability of a decrease in the rate of interest acquires confirmation from facts which existed prior to the Revolution. It is well known that, in some of the States, money might, with facility, be borrowed, on good security, at five per cent., and, not unfrequently, even at less.
The most enlightened of the public creditors will be most sensible of the justness of this view of the subject, and of the propriety of the use which will be made of it. The Secretary, in pursuance of it, will assume, as a probability sufficiently great to be a ground of calculation, both on the part of the Government and of its creditors, that the interest of money in the United States will, in five years, fall to five per cent., and, in twenty, to four. The probability, in the mind of the Secretary, is rather that the fall may be more rapid and more considerable; but he prefers a mean, as most likely to engage the assent of the creditors, and more equitable in itself; because it is predicated on probabilities, which may err on one side as well as on the other.
Premising these things, the Secretary submits to the House the expediency of proposing a loan, to the full amount of the debt, as well of the particular States as of the Union, upon the following terms:
First. That, for every hundred dollars subscribed, payable in the debt (as well interest as principal), the subscriber be entitled, at his option, either to have two thirds funded at an annuity or yearly interest of six per cent., redeemable at the pleasure of the Government by payment of the principal, and to receive the other third in lands in the Western territory, at the rate of twenty cents per acre; or to have the whole sum funded at an annuity or yearly interest of four per cent., irredeemable by any payment exceeding five dollars per annum, on account both of principal and interest, and to receive, as a compensation for the reduction of interest, fifteen dollars and eighty cents, payable in lands, as in the preceding case; or to have sixty-six dollars and two thirds of a dollar funded immediately, at an annuity or yearly interest of six per cent., irredeemable by any payment exceeding four dollars and two thirds of a dollar per annum, on account both of principal and interest, and to have, at the end of ten years, twenty-six dollars and eighty-eight cents funded at the like interest and rate of redemption; or to have an annuity, for the remainder of life, upon the contingency of fixing to a given age, not less distant than ten years, computing interest at four per cent.; or to have an annuity for the remainder of life, upon the contingency of the survivorship of the younger of two persons, computing interest in this case also at four per cent.
In addition to the foregoing loan, payable wholly in the debt, the Secretary would propose that one should be opened for ten millions of dollars, on the following plan:
That, for every hundred dollars subscribed, payable one half in specie and the other half in debt (as well principal as interest), the subscriber be entitled to an annuity or yearly interest of five per cent., irredeemable by any payment exceeding six dollars per annum, on account both of principal and interest.
The principles and operation of these different plans may now require explanation.
The first is simply a proposition for paying one third of the debt in land, and funding the other two thirds at the existing rate of interest and upon the same terms of redemption to which it is at present subject.
Here is no conjecture, no calculation of probabilities. The creditor is offered the advantage of making his interest principal, and he is asked to facilitate to the Government an effectual provision for his demands, by accepting a third part of them in land, at a fair valuation.
The general price at which the Western lands have been heretofore sold, has been a dollar per acre in public securities; but, at the time the principal purchases were made, these securities were worth, in the market, less than three shillings in the pound. The nominal price, therefore, would not be the proper standard, under present circumstances, nor would the precise specie value then given be a just rule; because, as the payments were to be made by instalments, and the securities were, at the times of the purchases, extremely low, the probability of a moderate rise must be presumed to have been taken into the account.
Twenty cents, therefore, seems to bear an equitable proportion to the two considerations of value at the time and likelihood of increase.
It will be understood that, upon this plan, the public retains the advantage of availing itself of any fall in the market rate of interest, for reducing that upon the debt; which is perfectly just, as no present sacrifice, either in the quantum of the principal, or in the rate of interest, is required from the creditor.
The inducement to the measure is, the payment of one third of the debt in land. The second plan is grounded upon the supposition that interest, in five years, will fall to five per cent.; in fifteen more, to four. As the capital remains entire, but bearing an interest of four per cent. only, compensation is to be made to the creditor for the interest of two per cent. per annum for five years, and of one per cent. per annum for fifteen years, to commence at the distance of five years. The present value of these two sums or annuities, computed according to the terms of the supposition, is, by strict calculation, fifteen dollars and the seven hundred and ninety-two thousandth part of a dollar—a fraction less than the sum proposed.
The inducements of the measure here, are the reduction of interest to a rate more within the compass of a convenient provision, and the payment of the compensation in lands.
The inducements to the individual are, the accommodation afforded to the public; the high probability of a complete equivalent; the chance even of gain, should the rate of interest fall, either more speedily or in a greater degree than the calculation supposes. Should it fall to five per cent. sooner than five years, should it fall lower than five before the additional fifteen were expired, or should it fall below four previous to the payment of the debt, there would be, in each case, an absolute profit to the creditor. As his capital will remain entire, the value of it will increase with every decrease of the rate of interest.
The third plan proceeds upon the like supposition of a successive fall in the rate of interest, and upon that supposition offers an equivalent to the creditor: One hundred dollars, bearing an interest of six per cent. for five years, or five per cent. for fifteen years, and thenceforth of four per cent. (these being the successive rates of interest in the market), is equal to a capital of $122.510725 parts, bearing an interest of four per cent., which, converted into a capital bearing a fixed rate of interest of six per cent., is equal to $81.6738166 parts.
The difference between sixty-six dollars and two thirds of a dollar (the sum to be funded immediately) and this last sum is $15.0172 parts, which, at six per cent. per annum, amounts, at the end of ten years, to $26.8755 parts—the sum to be funded at the expiration of that period. It ought, however, to be acknowledged that this calculation does not make allowance for the principle of redemption, which the plan itself includes; upon which principle, the equivalent, in a capital of six per cent., would be, by strict calculation, $87.50766 parts.
But there are two considerations which induce the Secretary to think that the one proposed would operate more equitably than this: One is, that it may not be very early in the power of the United States to avail themselves of the right of redemption reserved in the plan; the other is, that with regard to the part to be funded at the end of ten years, the principle of redemption is suspended during that time, and the full interest of six per cent. goes on improving at the same rate, which, for the last five years, will exceed the market rate of interest, according to the supposition.
The equivalent is regulated in this plan by the circumstance of fixing the rate of interest higher than it is supposed it will continue to be in the market, permitting only a gradual discharge of the debt, in an established proportion, and consequently preventing advantage being taken of any decrease of interest below the stipulated rate.
Thus the true value of eighty-one dollars and sixty-seven cents, the capital proposed, considered as a perpetuity, and bearing six per cent. interest, when the market rate of interest was five per cent., would be a small fraction more than ninety-eight dollars; when it was four per cent., it would be one hundred and twenty-two dollars and fifty-one cents. But the proposed capital being subject to gradual redemption, it is evident that its value, in each case, would be somewhat less. Yet, from this may be perceived the manner in which a less capital, at a fixed rate of interest, becomes an equivalent for a greater capital, at a rate liable to variation and diminution.
It is presumable that those creditors who do not entertain a favorable opinion of property in Western lands will give a preference to this last mode of modelling the debt. The Secretary is sincere in affirming that, in his opinion, it will be likely to prove, to the full, as beneficial to the creditor as a provision for his debt upon its present terms.
It is not intended, in either case, to oblige the Government to redeem in the proportion specified, but to secure to it the right of doing so, to avoid the inconvenience of a perpetuity.
The fourth and fifth plans abandon the supposition which is the basis of the two preceding ones, and offer only four per cent. throughout.
The reason of this is, that the payment being deferred, there will be an accumulation of compound interest, in the intermediate period, against the public, which, without a very provident administration, would turn to its detriment, and the suspension of the burthen would be too apt to beget a relaxation of efforts in the meantime. The measure, therefore, its object being temporary accommodation, could only be advisable upon a moderate rate of interest.
With regard to individuals, the inducement will be sufficient at four per cent. There is no disposition of money, in private loans, making allowance for the usual delays and casualties, which would be equally beneficial as a future provision.
A hundred dollars advanced upon the life of a person of eleven years old would produce an annuity1 —
The same sum advanced upon the chance of the survivorship of the younger of two lives, one of the persons being twenty-five, the other thirty years old, would produce, if the younger of the two should survive, an annuity2 for the remainder of life, of twenty-three dollars, five hundred and fifty-six parts.
From these instances may readily be discerned the advantages which these deferred annuities afford, for securing a comfortable provision for the evening of life, or for wives who survive their husbands.
The sixth plan also relinquishes the supposition, which is the foundation of the second and third, and offers a higher rate of interest, upon similar terms of redemption, for the consideration of the payment of one half of the loan in specie. This is a plan highly advantageous to the creditors who may be able to make that payment, while the specie itself could be applied in purchases of the debt, upon terms which would fully indemnify the public for the increased interest.
It is not improbable that foreign holders of the domestic debt may embrace this as a desirable arrangement.
As an auxiliary expedient, and by way of experiment, the Secretary would propose a loan upon the principles of a tontine1 —
To consist of six classes, composed respectively of persons of the following ages:
First class, of those of 20 years and under.
Second class, of those above 20, and not exceeding 30.
Third class, of those above 30, and not exceeding 40.
Fourth class, of those above 40, and not exceeding 50.
Fifth class, of those above 50, and not exceeding 60.
Sixth class, of those above 60.
Each share to be two hundred dollars; the number of shares in each class to be indefinite. Persons to be at liberty to subscribe on their own lives, or on those of others nominated by them.
The annuities of those who die to be equally divided among the survivors, until four fifths shall be dead, when the principle of survivorship shall cease, and each annuitant thenceforth enjoy his dividend as a several annuity during the life upon which it shall depend.
These annuities are calculated on the best life in each class, and at a rate of interest of four per cent., with some deductions in favor of the public. To the advantages which these circumstances present, the cessation of the right of survivorship, on the death of four fifths of the annuitants, will be no inconsiderable addition.
The inducements to individuals are, a competent interest for their money from the outset, secured for life, with a prospect of continual increase, and even of a large profit to those whose fortune it is to survive their associates.
It will have appeared that, in all the proposed loans, the Secretary has contemplated the putting the interest upon the same footing with the principal. That on the debt of the United States, he would have computed to the last of the present year; that on the debt of the particular States, to the last of the year 1791: the reason for which distinction will be seen hereafter.
In order to keep up a due circulation of money, it will be expedient that the interest of the debt should be paid quarter-yearly. This regulation will, at the same time, conduce to the advantage of the public creditors, giving them, in fact, by the anticipation of payment, a higher rate of interest; which may, with propriety, be taken into the estimate of the compensation to be made to them. Six per cent. per annum, paid in this mode, will truly be worth six dollars and the one hundred and thirty-five thousandth part of a dollar, computing the market interest at the same rate.
The Secretary thinks it advisable to hold out various propositions, all of them compatible with the public interest, because it is, in his opinion, of the greatest consequence that the debt should, with the consent of the creditors, be remoulded into such a shape as will bring the expenditure of the nation to a level with its income. Till this shall be accomplished the finances of the United States will never wear a proper countenance. Arrears of interest, continually accruing, will be as continual a monument, either of inability or of ill faith, and will not cease to have an evil influence on public credit. In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it; and this is affected by appearances as well as realities. By offering an option to the creditors between a number of plans, the change meditated will be more likely to be accomplished. Different tempers will be governed by different views of the subject.
But while the Secretary would endeavor to effect a change in the form of the debt by new loans, in order to render it more susceptible of an adequate provision, he would not think it proper to aim at procuring the concurrence of the creditors by operating upon their necessities.
Hence, whatever surplus of revenue might remain, after satisfying the interest of the new loans and the demand for the current service, ought to be divided among those creditors, if any, who may not think fit to subscribe to them. But for this purpose, under the circumstance of depending propositions, a temporary appropriation will be most advisable, and the sum must be limited to four per cent., as the revenues will only be calculated to produce in that proportion to the entire debt.
The Secretary confides, for the success of the propositions to be made, on the goodness of the reasons upon which they rest; on the fairness of the equivalent to be offered in each case; on the discernment of the creditors of their true interest, and on their disposition to facilitate the arrangements of the Government, and to render them satisfactory to the community.
The remaining part of the task to be performed is to take a view of the means of providing for the debt, according to the modification of it which is proposed.
On this point the Secretary premises that, in his opinion, the funds to be established ought, for the present, to be confined to the existing debt of the United States; as well because the progressive augmentation of the revenue will be most convenient, as because the consent of the State creditors is necessary to the assumption contemplated; and though the obtaining of that consent may be inferred with great assurance from their obvious interest to give it, yet, till it shall be obtained, an actual provision for the debt would be premature. Taxes could not, with propriety, be laid for an object which depended on such a contingency.
All that ought now to be done respecting it is to put the matter in an effectual train for a future provision. For which purpose the Secretary will, in the course of this report, submit such propositions as appear to him advisable.
The Secretary now proceeds to a consideration of the necessary funds.
The interest on the domestic debt is computed to the end of this year, because the details of carrying any plan into execution will exhaust the year.
Thus, to pay the interest of the foreign debt, and to pay four per cent. on the whole of the domestic debt, principal and interest, forming a new capital, will require a yearly income of $2,239,163.09—the sum which, in the opinion of the Secretary, ought now to be provided, in addition to what the current service will require.
For, though the rate of interest proposed by the third plan exceeds four per cent. on the whole debt and the annuities on the tontine will also exceed four per cent. on the sums which may be subscribed; yet, as the actual provision for a part is in the former case suspended, as measures for reducing the debt by purchases may be advantageously pursued, and as the payment of the deferred annuities will of course be postponed, four per cent. on the whole will be a sufficient provision.
With regard to the instalments of the foreign debt, these, in the opinion of the Secretary, ought to be paid by new loans abroad. Could funds be conveniently spared from other exigencies for paying them, the United States could illy bear the drain of cash, at the present juncture, which the measure would be likely to occasion.
But to the sum which has been stated for payment of the interest must be added a provision for the current service. This the Secretary estimates at six hundred thousand dollars,1 making, with the amount of the interest, two millions eight hundred and thirty-nine thousand one hundred and sixty-three dollars and nine cents.
This sum may, in the opinion of the Secretary, be obtained from the present duties on imports and tonnage, with the additions which, without any possible disadvantage, either to trade or agriculture, may be made on wines, spirits (including those distilled within the United States), teas, and coffee.
The Secretary conceives that it will be sound policy to carry the duties upon articles of this kind as high as will be consistent with the practicability of a safe collection. This will lessen the necessity, both of having recourse to direct taxation, and of accumulating duties where they would be more inconvenient to trade and upon objects which are more to be regarded as necessaries of life.
That the articles which have been enumerated will, better than most others, bear high duties, can hardly be a question. They are all of them in reality luxuries; the greatest part of them foreign luxuries; some of them, in the excess in which they are used, pernicious luxuries. And there is, perhaps, none of them which is not consumed in so great abundance as may justly denominate it a source of national extravagance and impoverishment. The consumption of ardent spirits, particularly, no doubt very much on account of their cheapness, is carried to an extreme which is truly to be regretted, as well in regard to the health and morals as to the economy of the community.
Should the increase of duties tend to a decrease of the consumption of those articles, the effect would be in every respect desirable. The saving which it would occasion would leave individuals more at their ease, and promote a favorable balance of trade. As far as this decrease might be applicable to distilled spirits, it would encourage the substitution of cider and malt liquors, benefit agriculture, and open a new and productive source of revenue.
It is not, however, probable that this decrease would be in a degree which would frustrate the expected benefit to the revenue from raising the duties. Experience has shown that luxuries of every kind lay the strongest hold on the attachments of mankind, which, especially when confirmed by habit, are not easily alienated from them.
The same fact affords a security to the merchant that he is not likely to be prejudiced by considerable duties on such articles. They will usually command a proportional price. The chief things, in this view, to be attended to, are, that the terms of payment be so regulated as not to require inconvenient advances, and that the mode of collection be secure.
To other reasons, which plead for carrying the duties upon the articles which have been mentioned, to as great an extent as they will bear, may be added these: that they are of a nature, from their extensive consumption, to be very productive, and are amongst the most difficult objects of illicit introduction.
Invited by so many motives to make the best use of the resource which these articles afford, the essential inquiry is, in what mode can the duties upon them be most effectually collected?
With regard to such of them as will be brought from abroad, a duty on importation recommends itself by two leading considerations: one is, that, meeting the object at its first entrance into the country, the collection is drawn to a point, and, so far, simplified; the other is, that it avoids the possibility of interference between the regulations of the United States and those of the particular States.
But a duty, the precautions for the collection of which should terminate with the landing of the goods, as is essentially the case in the existing system, could not, with safety, be carried to the extent which is contemplated.
In that system, the evasion of the duty depends, as it were, on a single risk. To land the goods in defiance of the vigilance of the officers of the customs, is almost the sole difficulty. No future pursuit is materially to be apprehended. And where the inducement is equivalent to the risk, there will be found too many who are willing to run it. Consequently, there will be extensive frauds of the revenue, against which the utmost rigor of penal laws has proved, as often as it has been tried, an ineffectual guard.
The only expedient which has been discovered, for conciliating high duties with a safe collection, is the establishment of a second or interior scrutiny.
By pursuing the article, from its importation into the hands of the dealers in it, the risk of detection is so greatly enhanced, that few, in comparison, will venture to incur it. Indeed, every dealer who is not himself the fraudulent importer, then becomes in some sort a sentinel upon him.
The introduction of a system founded on this principle in some shape or other, is, in the opinion of the Secretary, essential to the efficacy of every attempt to render the revenues of the United States equal to their exigencies, their safety, their prosperity, their honor.
Nor is it less essential to the interest of the honest and fair trader. It might even be added, that every individual citizen, besides his share in the general weal, has a particular interest in it. The practice of smuggling never fails to have one of two effects, and sometimes unites them both. Either the smuggler undersells the fair trader, as, by saving the duty, he can afford to do, and makes it a charge upon him, or he sells at the increased price occasioned by the duty, and defrauds every man who buys of him, of his share of what the public ought to receive; for it is evident that the loss falls ultimately upon the citizens, who must be charged with other taxes to make good the deficiency and supply the wants of the State.
The Secretary will not presume that the plan which he shall submit to the consideration of the House is the best that could be devised. But it is the one which has appeared to him freest from objections, of any that has occurred, of equal efficacy. He acknowledges, too, that it is susceptible of improvement, by other precautions in favor of the revenue, which he did not think it expedient to add. The chief outlines of the plan are not original; but it is no ill recommendation of it, that it has been tried with success.
The Secretary accordingly proposes—
That the duties heretofore laid upon wines, distilled spirits, teas, and coffee, should, after the last day of May next, cease; and that, instead of them, the following duties be laid:
Upon every gallon of Madeira wine, the quality of London particular, thirty-five cents.
Upon every gallon of other Madeira wine, thirty cents.
Upon every gallon of Sherry, twenty-five cents.
Upon every gallon of other wine, twenty cents.
Upon every gallon of distilled spirits more than ten per cent. below proof, according to Dicas’ hydrometer, twenty cents.
Upon every gallon of those spirits under five and not more than ten per cent. below proof, according to the same hydrometer, twenty-one cents.
Upon every gallon of those spirits, of proof, and not more than five per cent. below proof, according to the same hydrometer, twenty-two cents.
Upon every gallon of those spirits, above proof, but not exceeding twenty per cent. according to the same hydrometer, twenty-five cents.
Upon every gallon of those spirits, more than twenty, and not more than forty per cent. above proof, according to the same hydrometer, thirty cents.
Upon every gallon of those spirits, more than forty per cent. above proof, according to the same hydrometer, forty cents.
Upon every pound of Hyson tea, forty cents.
Upon every pound of other green tea, twenty-four cents.
Upon every pound of Souchong and other black teas, except Bohea, twenty cents.
Upon every pound of Bohea tea, twelve cents.
Upon every pound of coffee, five cents.
That, upon spirits distilled within the United States, from molasses, sugar, or other foreign materials, there be paid:
Upon every gallon of those spirits, more than ten per cent. below proof, according to Dicas’ hydrometer, eleven cents.
Upon every gallon of those spirits, under five, and not more than ten per cent. below proof, according to the same hydrometer, twelve cents.
Upon every gallon of those spirits, of proof, and not more than five per cent. below proof, according to the same hydrometer, thirteen cents.
Upon every gallon of those spirits, above proof, but not exceeding twenty per cent. according to the same hydrometer, fifteen cents.
Upon every gallon of those spirits, more than twenty, and not more than forty per cent. above proof, according to the same hydrometer, twenty cents.
Upon every gallon of those spirits, more than forty per cent. above proof, according to the same hydrometer, thirty cents.
That, upon spirits distilled within the United States, in any city, town, or village, from materials of the growth or production of the United States, there be paid:
Upon every gallon of those spirits, more than ten per cent. below proof, according to Dicas’ hydrometer, nine cents.
Upon every gallon of those spirits, under five, and not more than ten per cent. below proof, according to the same hydrometer, ten cents.
Upon every gallon of those spirits, of proof, and not more than five per cent. below proof, according to the same hydrometer, eleven cents.
Upon every gallon of those spirits, above proof, but not exceeding twenty per cent. according to the same hydrometer, thirteen cents.
Upon every gallon of those spirits, more than twenty, and not more than forty per cent. above proof, according to the same hydrometer, seventeen cents.
Upon every gallon of those spirits, more than forty per cent. above proof, according to the same hydrometer, twenty-five cents.
That, upon all stills employed in distilling spirits from materials of the growth or production of the United States, in any other place than a city, town, or village, there be paid the yearly sum of sixty cents, for every gallon, English wine measure, of the capacity of each still, including its head.
The Secretary does not distribute the duties on teas into different classes, as has been done in the impost act of the last session; because this distribution depends on considerations of commercial policy, not of revenue. It is sufficient, therefore, for him to remark, that the rates above specified are proposed with reference to the lowest class.
The Secretary, conceiving that he could not convey an accurate idea of the plan contemplated by him, for the collection of these duties, in any mode so effectual as by the draught of a bill for the purpose, begs leave, respectfully, to refer the House to that which will be found annexed to this report, relatively to the article of distilled spirits; and which, for the better explanation of some of its parts, is accompanied with marginal remarks.
It would be the intention of the Secretary that the duty on wines should be collected upon precisely the same plan with that on imported spirits.
But, with regard to teas and coffee, the Secretary is inclined to think that it will be expedient, till experience shall evince the propriety of going further, to exclude the ordinary right of the officers to visit and inspect the places in which those articles may be kept. The other precautions, without this, will afford, though not complete, considerable security.
It will not escape the observation of the House that the Secretary, in the plan submitted, has taken the most scrupulous care that those citizens upon whom it is immediately to operate, be secured from every species of injury by the misconduct of the officers to be employed. There are not only strong guards against their being guilty of abuses of authority; they are not only punishable, criminally, for any they may commit, and made answerable in damages, to individuals, for whatever prejudice these may sustain by their acts or neglects; but even where seizures are made with probable cause, if there be an acquittal of the articles seized a compensation to the proprietors for the injury their property may suffer, and even for its detention, is to be made out of the public treasury.
So solicitous, indeed, has the Secretary been to obviate every appearance of hardship, that he has even included a compensation to the dealers for their agency in aid of the revenue.
With all these precautions to manifest a spirit of moderation and justice on the part of the Government; and when it is considered that the object of the proposed system is the firm establishment of public credit; that, on this depends the character, security, and prosperity of the nation; that advantages, in every light important, may be expected to result from it; that the immediate operation of it will be upon an enlightened class of citizens, zealously devoted to good government, and to a liberal and enlarged policy; and that it is peculiarly the interest of the virtuous part of them to co-operate in whatever will restrain the spirit of illicit traffic; there will be perceived to exist the justest ground of confidence that the plan, if eligible in itself, will experience the cheerful and prompt acquiescence of the community.
The Secretary computes the net product of the duties proposed in this report at about one million seven hundred and three thousand four hundred dollars, according to the estimate in Schedule K, which, if near the truth, will, together with the probable product of the duties on imposts and tonnage, complete the sum required.
But it will readily occur, that in so unexplored a field there must be a considerable degree of uncertainty in the data; and that on this account it will be prudent to have an auxiliary resource for the first year in which the interest will become payable, that there may be no possibility of disappointment to the public creditors ere there may be an opportunity of providing for any deficiency which the experiment may discover. This will, accordingly, be attended to.
The proper appropriation of the funds provided and to be provided seems next to offer itself to consideration.
On this head, the Secretary would propose that the duties on distilled spirits should be applied, in the first instance, to the payment of the interest on the foreign debt.
That, reserving out of the residue of those duties an annual sum of six hundred thousand dollars for the current service of the United States, the surplus, together with the product of the other duties, be applied to the payment of the interest on the new loan, by an appropriation coextensive with the duration of the debt.
And that, if any part of the debt should remain unsubscribed, the excess of the revenue be divided among the creditors of the unsubscribed part by a temporary disposition, with a limitation, however, to four per cent.
It will hardly have been unnoticed that the Secretary has been, thus far, silent on the subject of the Post Office. The reason is, that he has had in view the application of the revenue arising from that source to the purpose of a sinking fund. The Postmaster-General gives it as his opinion that the immediate product of it, upon a proper arrangement, would probably be not less than one hundred thousand dollars. And, from its nature, with good management, it must be a growing, and will be likely to become, a considerable fund. The Postmaster-General is now engaged in preparing a plan which will be the foundation of a proposition for a new arrangement of the establishment. This, and some other points relative to the subject referred to the Secretary, he begs leave to reserve for a future report.
Persuaded, as the Secretary is, that the proper funding of the present debt will render it a national blessing, yet he is so far from acceding to the position, in the latitude in which it is sometimes laid down, that “public debts are public benefits”—a position inviting to prodigality and liable to dangerous abuse—that he ardently wishes to see it incorporated as a fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of extinguishment. This he regards as the true secret for rendering public credit immortal. And he presumes that it is difficult to conceive a situation in which there may not be an adherence to the maxim. At least, he feels an unfeigned solicitude that this may be attempted by the United States, and that they may commence their measures for the establishment of credit with the observance of it.
Under this impression, the Secretary proposes that the net product of the Post Office to a sum not exceeding one million of dollars be vested in commissioners, to consist of the Vice-President of the United States, or President of the Senate, the Speaker of the House of Representatives, the Chief Justice, Secretary of the Treasury, and Attorney-General of the United States, for the time being, in trust; to be applied by them, or any three of them, to the discharge of the existing public debt, either by purchases of stock in the market, or by payments on account of the principal, as shall appear to them most advisable, in conformity to public engagements; to continue so vested until the whole of the debt shall be discharged.
As an additional expedient for effecting a reduction of the debt, and for other purposes, which will be mentioned, the Secretary would further propose, that the same commissioners be authorized, with the approbation of the President of the United States, to borrow, on their credit, a sum not exceeding twelve millions of dollars, to be applied:
First.—To the payment of the interest and instalments of the foreign debt, to the end of the present year, which will require 3,491,932 dollars and 46 cents.
Secondly.—To the payment of any deficiency which may happen in the product of the funds provided for paying the interest of the domestic debt.
Thirdly.—To the effecting a change in the form of such part of the foreign debt as bears an interest of five per cent. It is conceived that for this purpose a new loan at a lower interest may be combined with other expedients. The remainder of this part of the debt, after paying the instalments which will accrue in the course of 1790, will be 3,888,888 dollars and 81 cents.
Fourthly.—To purchase of the public debt, at the price it shall bear in the market, while it continues below its true value. This measure, which would be, in the opinion of the Secretary, highly dishonorable to the Government if it were to precede a provision for funding the debt, would become altogether unexceptionable after that had been made. Its effect would be in favor of the public creditors, as it would tend to raise the value of stock; and all the difference between its true value and the actual price would be so much clear gain to the public. The payment of foreign interest on the capital to be borrowed for this purpose, should that be a necessary consequence, would not, in the judgment of the Secretary, be a good objection to the measure. The saving, by the operation, would be itself a sufficient indemnity; and the employment of that capital, in a country situated like this, would much more than compensate for it. Besides, if the Government does not undertake this operation, the same inconvenience which the objection in question supposes, would happen in another way, with a circumstance of aggravation. As long, at least, as the debt shall continue below its proper value it will be an object of speculation to foreigners, who will not only receive the interest upon what they purchase, and remit it abroad, as in the case of the loan, but will reap the additional profit of the difference in value. By the Government's entering into competition with them, it will not only reap a part of the profit itself, but will contract the extent, and lessen the extra profit of foreign purchases. That competition will accelerate the rise of stock; and whatever greater rate this obliges foreigners to pay for what they purchase, is so much clear saving to the nation. In the opinion of the Secretary, and contrary to an idea which is not without patrons, it ought to be the policy of the Government to raise the value of stock to its true standard as fast as possible. When it arrives to that point, foreign speculations (which, till then, must be deemed pernicious, further than as they serve to bring it to that point) will become beneficial. Their money, laid out in this country upon our agriculture, commerce, and manufactures, will produce much more to us than the income they will receive from it.
The Secretary contemplates the application of this money through the medium of a national bank, for which, with the permission of the House, he will submit a plan in the course of the session.
The Secretary now proceeds, in the last place, to offer to the consideration of the House his ideas of the steps which ought, at the present session, to be taken toward the assumption of the State debts.
These are, briefly, that concurrent resolutions of the two Houses, with the approbation of the President be entered into, declaring in substance:
That the United States do assume, and will, at the first session in the year 1791, provide, on the same terms with the present debt of the United States, for all such parts of the debts of the respective States, or any of them, as shall, prior to the first day of January, in the said year, 1791, be subscribed toward a loan to the United States, upon the principles of either of the plans which shall have been adopted by them, for obtaining a reloan of their present debt.
Provided, that the provision to be made, as aforesaid, shall be suspended, with respect to the debt of any State which may have exchanged the securities of the United States for others issued by itself, until the whole of the said securities shall either be re-exchanged or surrendered to the United States.
And provided, also, that the interest upon the debt assumed, be computed to the end of the year 1791; and that the interest to be paid by the United States commence on the first day of January, 1792.
That the amount of the debt of each State, so assumed and provided for, be charged to such State in account with the United States, upon the same principles upon which it shall be lent to the United States.
That subscriptions be opened for receiving loans of the said debts, at the same times and places, and under the like regulations, as shall have been prescribed in relation to the debt of the United States.
The Secretary has now completed the objects which he proposed to himself to comprise in the present report. He has for the most part omitted details, as well to avoid fatiguing the attention of the House as because more time would have been desirable, even to digest the general principles of the plan. If these should be found right, the particular modifications will readily suggest themselves in the progress of the work.
The Secretary, in the views which have directed his pursuit of the subject, has been influenced, in the first place, by the consideration that his duty, from the very terms of the resolution of the House, obliged him to propose what appeared to him an adequate provision for the support of the public credit, adapted at the same time to the real circumstances of the United States; and, in the next, by the reflection that measures which will not bear the test of future unbiassed examination, can neither be productive of individual reputation nor (which is of much greater consequence) public honor or advantage.
Deeply impressed, as the Secretary is, with a full and deliberate conviction that the establishment of the public credit, upon the basis of a satisfactory provision for the public debt, is, under the present circumstances of this country, the true desideratum toward relief from individual and national embarrassments; that without it these embarrassments will be likely to press still more severely upon the community; he cannot but indulge an anxious wish that an effectual plan for that purpose may during the present session be the result of the united wisdom of the Legislature.
He is fully convinced that it is of the greatest importance that no further delay should attend the making of the requisite provision: not only because it will give a better impression of the good faith of the country, and will bring earlier relief to the creditors, both which circumstances are of great moment to public credit, but because the advantages to the community, from raising stock, as speedily as possible, to its natural value, will be incomparably greater than any that can result from its continuance below that standard. No profit which could be derived from purchases in the market, on account of the Government, to any practicable extent, would be an equivalent for the loss which would be sustained by the purchases of foreigners at a low value. Not to repeat, that governmental purchases to be honorable ought to be preceded by a provision. Delay, by disseminating doubt, would sink the price of stock; and, as the temptation to foreign speculations, from the lowness of the price, would be too great to be neglected, millions would probably be lost to the United States.
All of which is humbly submitted.
To this report were appended several schedules.
operations of the act laying duties on imports
April 23, 1790.
April 22, 1790.
In obedience to the order of the House of Representatives of the 19th day of January last, the Secretary of the Treasury respectfully submits the following report:
First. As to the act imposing duties on the goods, wares, and merchandise, imported into the United States.
Section 1. The duties specified in this act, according to this section, took effect throughout the United States from and after the first day of August last. But as the act for the collection of those duties did not pass till the last of July, it was of course impossible that the officers for carrying it into execution could be appointed, commissioned, and ready to enter upon the execution of their offices, at the day fixed for the commencement of the duties. The custom-houses in the several States were not organized till at different periods, from the fifth of August to some time in September; and in the intervals, several importations took place. In some instances, duties were paid under the State laws, in others none were paid.
The Secretary, conceiving it to be a clear point that the duties imposed by the first-mentioned act accrued as debts to the United States on all goods imported after the day specified for their commencement, and that the regulations prescribed by the collection law were to be considered merely as auxiliary guards for securing their payment, did not think himself at liberty, on grounds of convenience or inconvenience, to waive the claim for them. He has therefore caused it to be made, and has given directions, with a view to a legal decision of the question.
But it is worthy of consideration by the Legislature, whether it be advisable to pursue, or relinquish it. The payment of the duties in this situation has been generally unlooked for, and in most cases must be preceded by a legal determination. The enforcement of the claim would therefore be likely to be thought rigorous, and in some instances, might be injurious—where merchants may have sold, without reference in the price to the duty; where factors or agents may have settled accounts with, and paid over the proceeds of goods to, their principals, especially if transient persons; where duties have been paid under the State establishments; in these, and other cases, there might ensue loss or embarrassment. There must also be difficulty in ascertaining the sums which ought to be paid.
The distinctions between distilled spirits are conceived not to be sufficiently diversified or accurate. This has been remarked and a remedy proposed in the plan submitted to the House for the support of the public credit.
There is no general rate prescribed for estimating the draught and tare of those articles which pay duty by weight. The consequence is that different allowances are made at different places according to former usage, and too much is left to discretion.
Unwrought steel is rated at fifty-six cents for 112 lbs., which, upon an average of the cost, is less than five per cent. ad valorem. As an enumerated article, it is presumed to have been the intention of the Legislature to rate it higher than five per cent., especially as a higher rate would be in favor of the manufacture of it among ourselves, in which considerable progress has been made, particularly in the State of Pennsylvania.
The information received by the Secretary induces him to consider as questionable, the policy of the duty on pickled fish in its present extent. It is represented that almost the whole of what is brought from Nova Scotia to Massachusetts is re-exported; and this chiefly to foreign countries. And that, while it forms a considerable article in an intercourse between those places beneficial to Massachusetts, it contributes to the augmentation of her exports.
If this be true it is difficult to discern any advantage in the duty. To the revenue there will be rather loss than profit; as the expense incident to the collection and to the process of the drawback will probably exceed the amount of the duty on the small quantity internally consumed, even taking into the calculation the one per cent. retained as an indemnification for that expense. In a commercial light, as far as it has any operation, it seems to be rather an unfavorable one. The process of paying and drawing back is not without inconveniences; and the unrefunded residue is a tax on the export trade in that article, from which, for the reason assigned, no benefit arises to the public; while the encouragement which it was the object of this regulation to give to the fisheries, loses in a great measure, its effect, by reason of the drawback. And it is suggested by intelligent men that an injurious competition in the branch of the fisheries to which the duty is applicable, is little to be apprehended.
The Secretary, however, does not conceive himself to be possessed with sufficient accuracy of all the facts necessary to a right judgment on this point to be willing to hazard a decisive opinion. He therefore only means to state the circumstances communicated to him, in expectation that the representatives from the part of the Union more immediately affected will be able, by further lights, to guide the opinion of the House to a proper conclusion.
A discrimination is made by this section in favor of teas brought from China or India in American bottoms. The fifth section allows a discount of ten per cent. on all the duties imposed by this act on goods, wares, and merchandises imported in American bottoms. A question arises whether this discount ought to obtain in respect to the above-mentioned teas. The Secretary presumes, that the better construction is against the allowance, though within the letter of the provision; but an explanation is, perhaps, requisite, to obviate controversy.
All goods, wares, and merchandise, except teas, brought from China or India, otherwise than in American bottoms, are made liable to a duty of twelve and a half per cent. ad valorem. But in the clause immediately succeeding, all China ware is rated only at ten per cent. ad valorem. A doubt suggests itself whether this article be excepted out of the preceding provision, or be itself subject to an implied exception in favor of the full operation of that provision.
It is suggested that the encouragement intended to our East-India trade, by the duty of twelve and a half per cent. on India goods brought from China in foreign bottoms, will be counteracted by the want of a greater duty than is now laid on the same goods brought from Europe, as competition is more to be apprehended through that channel than from direct importations in foreign bottoms from India. While the Secretary deems it proper to bring this suggestion into the view of the House, he forbears giving an opinion as to the weight it ought to have. He perceives various advantages in a direct commerce with the East Indies, and is hitherto inclined to believe it merits the patronage of the Government; but the tendency of it is not yet sufficiently developed, to his judgment, to leave him wholly without reserve as to the extent of the encouragement which ought to be given.
Commodities of our own growth or manufacture, carried to a foreign port, and brought back again to the United States, are, by this act, liable to duty. The tendency of this to discourage commercial enterprise recommends the expediency of an exemption upon due proof of identity.
The sea-stores of vessels, the furniture, clothing, and professional apparatus of persons arriving in this country from abroad seem equally liable to duties with goods brought by way of merchandise. They have been in several instances exacted; but the payment is usually accompanied with remonstrance and discontent. If it was not the intent of the Legislature to include such articles, an explanation is necessary. Various considerations plead for exempting them, under proper limitations.
Section 2. From this section it has been doubted whether there be, at present, any duty on hemp. And it has been inferred from the debates to have been the intention of the Legislature to exempt it till after the first of December, 1790; but the construction of the act is different. There is a duty on cotton, as well as hemp, to take place at a future day. But cotton, in the meantime, is expressly excepted out of the five-per-cent. duty, which impliedly excludes hemp from the like exception. As the act now stands it will be a question, when the duty of sixty cents per hundredweight takes place, whether it be in addition to, or in lieu of, the present duty.
Section 3. Provision is here made for a drawback of the duties on goods exported within twelve months, with an exception of certain kinds of distilled spirits, and a deduction of one per cent.
But there is no provision for entries for exportation; whence it happens that a vessel arriving from a foreign port, with part of her cargo destined for the United States, and other part for some other country, is obliged to pay or secure the payment of the duties on her whole cargo; and in strictness, even to land such articles as require weighing, gauging, or measuring, in order to the ascertaining of the duties. This is complained of as a hardship, and is contrary to the prevailing usage of commercial nations. The Secretary is of opinion that the complaint is well founded, and that it is advisable that entries for exportation, with proper precautions and restrictions, should be authorized. The interests of the revenue can, with advantage, be consulted no further than they are consistent with the necessary freedom and felicity of commercial intercourse.
The allowance of drawbacks does not obviate the subject of complaint. The necessity of advancing the money, or procuring security for the amount of the duties; the necessity of landing those articles which require to be weighed, measured, or gauged (which must in the first instance be submitted to), are material inconveniences; and the process for obtaining drawbacks is attended with difficulty, casualty, and trouble. There must be a bond given not to re-land the goods, and this bond must be cancelled by certain proofs, which may not, in all cases, be obtainable, but which are, nevertheless, made a pre-requisite to the payment of the drawbacks. Nor can that payment, at any rate, be had, till after the expiration of six months; so that, even where security is given for the amount of the duties, it must often happen that they become payable before parties can be prepared to demand the drawback; and the one per cent. retained is, in every case, a certain loss. These circumstances, to transient persons especially, operate as a grievance.
Secondly. As to the act imposing duties on tonnage.
The duties mentioned in this act are upon all ships or vessels entered into the United States.
The entry, therefore, is the circumstance which regulates the payment of the duty.
But a doubt has arisen whether the duty ought to be deemed to accrue on every entry, or only on entries from foreign countries.
The construction which has been adopted is, that it accrues on every entry, whether from abroad, or in one part of the United States from another.
One reason for this construction results from the second section, which provides that vessels built and owned in the United States, whilst employed in the coasting trade or fisheries, shall not pay tonnage more than once a year. If the duty were confined to entries from abroad only, it could not arise at all on vessels employed in the coasting trade whilst so employed; in which case this provision would be wholly nugatory. The last clause of the twenty-third section of the “act for registering and clearing vessels, regulating the coast trade, and for other purposes,” looks also to the same construction; strongly implying the payment of tonnage generally, between district and district, and enlarging the rate in a particular case.
Yet the third section of the act now under consideration has been supposed to have a different aspect, as it subjects all vessels, except those built within and owned by citizens of the United States, employed in transporting our own commodities, coastwise, to a tonnage of fifty cents at each entry; whence it has been inferred that, in other cases, the duty is not payable at each entry; because, by the first section, vessels wholly foreign pay fifty cents, whether employed in the coasting trade or not. But this inference loses its force when it is observed that there are other descriptions of vessels, in respect to which it serves to increase the rates specified in the first section, in favor of the exclusive privilege, to transport our own commodities coastwise, intended to be secured to vessels built within and owned by citizens of the United States. This suggests a use for the clause which is reconcilable with the provision in the second section.
The provisions of this act, however, appear to be varied by the “act for registering and clearing vessels, regulating the coasting trade, and for other purposes,” in these particulars. The latter extends the privileges in the coasting trade, which, by the former, seem to be confined to vessels of the build of the United States, to all vessels which are registered or enrolled, provided they obtain licenses for the purpose. It also extends the duty of fifty cents to the transportation of foreign (as well as domestic) commodities, from district to district, by any vessel of the burthen of twenty tons and upward, which has not a register or enrolment, and a license to trade.
Hence, if even a registered vessel, having no license, proceed from one district, with part of an outward bound cargo, to another district, in order to procure the remainder, and happen to take in a freight at the first place for the last, which amounts to a trading between the districts, she is subject on her entry in the last to foreign tonnage.
The propriety of this construction has been questioned; but a consideration of the general spirit of the coasting act, which aims at guarding the revenue against evasion, by the precautions annexed to the granting of licenses, and an accurate attention to the words of the last clause of the twenty-third section of that act, seem to leave no room for a different construction. These words are: “And if any vessel of the burthen of twenty tons or upward, not having a certificate of registry or enrolment, and a license, shall be found trading between different districts, or be employed in the bank or whale fisheries, every such ship or vessel shall be subject to the same tonnage and fees as foreign ships or vessels.”
This provision, for want of having been understood in the proper sense, has, in a variety of instances, borne hard upon individuals who have omitted to procure licenses, and whose vessels have been, on that account, subjected to foreign tonnage. It is submitted to the consideration of the House, whether restitution of the sums paid, through misapprehension of a new law, would not be equitable in itself, and calculated to give a favorable impression of the liberality of the Government.
Perhaps, indeed, the expediency of the regulation itself merits reconsideration. The necessity of paying tonnage at all, in going from one district to another, has been a subject of complaint. And it is certain that it has in many cases been a burthensome operation. It would appear to the Secretary, upon the whole, eligible, that, upon entries from district to district, tonnage should in no case be demanded, except where a freight had been taken in at one district for another; and that even there in respect to vessels registered, but not licensed, half tonnage only should be paid.
Thirdly. As to the act to regulate the collection of the duties imposed by law on the tonnage of ships or vessels, and on goods, wares, and merchandise imported into the United States.
Sections 1, 2, 3, and 4. The arrangement of the districts, the privileges granted to some ports, the restrictions upon others, have been represented in a few instances as requiring alteration. The Secretary is inclined to think that some of the representations made to him will deserve attention; but, as he presumes that the course of business will lead to the appointment of a special committee to prepare a bill for amending the laws under consideration, there are reasons which, with the permission of the House, would induce him to reserve a more particular communication on this part of the subject for that committee.
Section 5. This section contemplates a provision of boats for securing the collection of the revenue; but no authority to provide them is anywhere given. Information from several quarters proves the necessity of having them; nor can they, in the opinion of the Secretary, fail to contribute, in a material degree, to the security of the revenue, much more than will compensate for the expense of the establishment; the utility of which will increase in proportion as the public exigencies may require an augmentation of the duties. An objection has been made to the measure as betraying an improper distrust to the merchants; but that objection can have no weight when it is considered that it would be equally applicable to all the precautions comprehended in the existing system; all which proceed on a supposition, too well founded to be doubted, that there are persons concerned in trade in every country, who will, if they can, evade the public duties for their private benefit. Justice to the body of the merchants of the United States demands an acknowledgment that they have, very generally, manifested a disposition to conform to the national laws, which does them honor, and authorizes confidence in their probity. But every considerate member of that body knows that this confidence admits of exceptions, and that it is essentially the interest of the greater number that every possible guard should be set on the fraudulent few, which does not, in fact, tend to the embarrassment of trade.
The following is submitted as a proper establishment for this purpose:
That there be ten boats, two for the coasts, bays, and harbors of Massachusetts and New Hampshire; one for the sound, between Long Island and Connecticut; one for the bay of New York; one for the bay of Delaware; two for the bay of the Chesapeake (these, of course, to ply along the neighboring coasts); one for the coasts, bays, and harbors of North Carolina; one for the coasts, bays, and harbors of South Carolina; and one for the coasts, bays, and harbors of Georgia.
Boats of from thirty-six to forty feet keel will answer the purpose, each having one captain, one lieutenant, and six mariners, and armed with swivels. The first cost of one of these boats, completely equipped, may be computed at one thousand dollars.
The following is an estimate of the annual expense:
The utility of an establishment of this nature must depend on the exertion, vigilance, and fidelity of those to whom the charge of the boats shall be confided. If these are not respectable characters they will rather serve to screen than detect fraud. To procure such, a liberal compensation must be given, and, in addition to this, it will, in the opinion of the Secretary, be advisable that they be commissioned as officers of the navy. This will not only induce fit men the more readily to engage, but will attach them to their duty by a nicer sense of honor.
Section 6. Collectors are here authorized, in case of necessary absence, sickness, or inability, to appoint deputies. It is represented that inconveniences have arisen from the want of the like power in the naval officers and surveyors.
Section 7. Provision is here made for the case of the disability or death of the collector, but not of the naval officer or surveyor. A similar provision, with respect to them, appears to be not less requisite.
Section 10. The provision of this section seems to extend too far. It is conceived that it ought to be confined to vessels owned wholly, or in part, by citizens of the United States; as it is not supposable that those of other nations can be acquainted with a regulation so entirely local in its nature, or be prepared to comply with it. There is also want of a penalty to enforce its observance.
This regulation has been represented as inconvenient and useless, but the Secretary does not view it in this light. It is probable that it will contribute to the security of the revenue, by rendering more difficult those collusions between masters and owners, which often take place after the arrival of vessels upon the coast, or within port.
Section 11. Masters of vessels, within forty-eight hours after their arrival in any port of the United States, are to make report. It is not explained whether they are not at liberty in the meantime to proceed elsewhere. The construction of the officers of the customs, in several instances, has been in favor of such liberty. But this construction does not appear to the Secretary well founded. He conceives that the duties become payable by the act of importation, even previously to entry, and that the forty-eight hours are only allowed as a reasonable time for the master to prepare his report; after which he is to be subject to a penalty for not doing it. An explanation, however, may prevent disputes.
It is also submitted, whether masters ought not to be required, within twelve hours after their arrival, to announce it at the custom-house, and to complete their report within twenty-four, with an exception for Sundays. It is of moment that vessels arriving should be brought as speedily as possible under the notice of the proper officers, and that their situation should be ascertained as early as practicable. More time than is necessary for disclosing it with proper accuracy can be of no real use, and gives greater opportunity for concerting frauds.
In the oath here prescribed for masters of vessels, there is no view to those casualties which may cause the cargo to be diminished at sea. There ought to be room for making the proper exceptions, according to the circumstances. And it would be useful to make it a part of the oath, that any goods afterwards discovered on board shall be reported; as in the case of importers or consignees.
Section 12. It is here declared that no goods shall be unladen but in open day. It would be more safe, as well as more certain, to fix particular hours for the purpose, according to different seasons of the year. And it is submitted, whether all lading, as well as unlading of goods, at other hours, unless by special license from the officers of the customs, ought not to be forbidden. If, in addition to this, masters of vessels were required to give previous notice to the officers assigned to their respective vessels, of the times when deliveries are intended to begin, it would afford an increase of security.
This section contains various penalties on persons concerned in unlading and removing goods without the requisite permits. It would be a most powerful check upon fraud if every master of a vessel concerned in one, should, on conviction, be disqualified, under competent penalties, from having at any time after the command or charge of a vessel within the United States. There are, however, objections of weight to such a provision.
Section 13. The effect of this section is to oblige the payment or securing of the duties on all the goods brought in any vessel, at the port at which she first arrives, though part of them be destined for another, either within the United States, or elsewhere. This regulation is a subject of complaint. Its inconvenience becomes the more apparent, when it is considered that all the goods intended for another port must first be landed (and certain articles measured, weighed, or gauged), and afterward reshipped. The trouble, expense, and delay of such a process are serious obstructions to trade. Balancing its commercial inconveniences with the additional security which it may afford to the revenue, the Secretary is of opinion that an alteration is advisable. It should be incumbent upon the master of the ship to make report, at the first port, of the whole cargo on board, upon oath, distinguishing the particular goods intended for each port; and also to make oath, at every subsequent port, of the particulars of the goods landed at any preceding one, and of the persons to and for whom they were delivered; producing also certificates from the proper officers, of the whole quantity of the goods originally entered, and of so much as may have been regularly landed. A power of securing, with proper fastenings, the hatches and other communications with the holds of ships; providing for accidents and necessity; and even, if judged requisite, to put an inspector on board, in going from one port to another, ought to be superadded.
No person but the owner or consignee of goods can make the entry here required. This, from the absence of parties, is sometimes inconvenient. It is the practice of countries, whose regulations are not deficient in strictness, to allow an agent of the party to make entry in his absence. And though this may widen the door for evasion, there are, nevertheless, strong arguments, derived from convenience, in its favor. Penalties, proportionably severe, may be inflicted upon fraud committed by any such agent, and the permission may be confined to the case of persons absent at the time of the arrival of the vessel in which the goods may have been brought.
The oath here directed to be taken by importers is not always in their power. There may be no invoice, nor any other accurate account of the quantity, quality, or cost of articles. A qualification in this respect is indispensable. Entries, without specifying particulars, must, of necessity, be admitted; parties swearing that they have received no account of them, and that they are unknown. An eye is had to this in the sixteenth section, but something is wanting to reconcile the two sections, and define a more accurate course of proceeding in the case.
Section 15. Inspectors are to be put on board vessels, who are to remain on board until they are discharged. This implies during the night as well as the day; which, if practised, would multiply the number of inspectors to a very expensive extent. A power of securing the hatches and other communications with the holds of vessels, during the night, would give greater security, where inspectors were kept constantly on board, and would, in many instances, obviate the necessity of doing it.
The unloading of a vessel is here limited to fifteen working days after she begins to unload. But the commencement of the business may be postponed as long as the parties interested think fit. If there should be considerable delay, either an inspector must remain on board the whole time, in which case the expense may exhaust the duty, or there must be great opportunity for fraud. It seems proper, either to fix an ultimate limit for unloading, to be computed from the time of arrival, or of the master's report; or a period, after which, the expense of an inspector shall be borne by the party. The first appears to the Secretary most advisable, and he conceives that twenty working days, after the master's report, would suffice.
Section 19. The payment or securing of the duties is here made a preliminary to their being landed. This, in a strict sense, is impracticable, as certain articles must first be landed, weighed, gauged, or measured, before the duties can be ascertained. The object, however, of the provision is proper, and it must be construed to admit a gross estimate of the sum in the first instance, subject to after-revision. It would, however, be desirable, that a discretion of this sort should be expressed. The collector, together with the naval officer, where there is one, or alone, where there is none, may be authorized to determine the amount of the duties to be paid, by an estimate of the same, according to the best of their or his judgment, and the collector may be empowered, in case of an over-estimate, either to return the excess, if the money has been paid, or to endorse a credit for it on the bond.
A discount of ten per cent. is here allowed for prompt payment, on the excess of any sum of duties beyond fifty dollars. The policy of this discount is questionable. Experience shows that, in most of the States, transient persons chiefly avail themselves of it, who would in most cases pay the money without the discount, to avoid the inconvenience of suretyship.
But even if the discount ought to be continued, the rate seems to be too high. It exceeds the rate of interest at which the Government may borrow, more than is equivalent for the insurance of the risk of non-payment. Seven per cent. would, in the judgment of the Secretary, be the extent of a proper allowance. The confining the discount to the excess beyond fifty dollars counteracts the provision wherever that excess is not considerable.
It is provided by the last clause of this section, that no person, whose bond is unsatisfied after it becomes due, shall have a future credit with the collector until it shall be discharged. The words “the collector,” having been supposed to confine the non-allowance of credit to the particular collector to whom the bond was given; in which sense, a further credit may be had in another district; which would considerably lessen the utility of the regulation. The removal of this ambiguity, so as to render the exclusion general, may add to the efficacy of the provision.
Section 29. The compensations to the officers established by this section require revision; they are, in many instances, inadequate; in some, disproportionate. Resignations in consequence of it have taken place, and others are suspended on the expectation of a favorable alteration during the present session. It is certain that competent allowances are essential to the idea of having the service performed by characters worthy of trust. And how much the security of the revenue depends on this is evident. There are many ports where the officers receive next to nothing for their services. It were superfluous to comment on the inexpediency of such a state of things.
The Secretary for the sake of brevity, begs leave to reserve the details on this head for the committee before alluded to.
It has been inferred from this section, that the collector and naval officer are, necessarily, to transact their business in separate apartments. This (if it be the design of the provision from which the inference is drawn) was, probably, founded upon the idea, that the separation would lessen the danger of collusion between those officers. But it does not seem likely that a circumstance of this sort could have much effect in that way, while the separation leaves a good deal more in the power of the collector, and renders the naval officer far less a check upon him, than if he were made an immediate witness to his transactions. The Secretary is of opinion that it would be preferable to require them to act in conjunction, and in the presence of each other, among other things, jointly administering and certifying all oaths required to be taken at the custom-houses.
Section 30. This section provides for the receipt of the duties in gold and silver coin only. The Secretary has considered this provision as having for object, the exclusion of payments in the paper emissions of the particular States, and the securing the immediate or ultimate collection of the duties in specie, as intended to prohibit to individuals the right of paying in any thing except gold or silver coin; but not to hinder the treasury from making such arrangements as its exigencies, the speedy command of the public resources, and the convenience of the community might dictate; those arrangements being compatible with the eventual receipt of the duties in specie. For instance, the Secretary did not imagine that the provision ought to be so understood as to prevent, if necessary, an anticipation of the duties, by treasury drafts, receivable at the several custom-houses. And, if it ought not to be understood in this sense, it appeared to him that the principle of a different construction would extend to the permitting the receipt of the notes of public banks, issued on a specie fund. Unless it can be supposed, that the exchanging of specie, after it has been received for bank notes, to be remitted to the treasury, is also interdicted, it seems difficult to conclude that the receipt of them, in the first instance, is forbidden.
Such were the reflections of the Secretary with regard to the authority to permit bank notes to be taken in payment of the duties. The expediency of doing it appeared to him to be still less questionable. The extension of their circulation, by the measure, is calculated to increase both the ability and the inclination of the banks to aid the Government. It also accelerates the command of the product of the revenues for the public service, and it facilitates the payment of the duties. It has the first effect, because the course of business occasions the notes to be sent beforehand to distant places; and being ready on the spot, either for payment or exchange, the first post, after the duties become payable, or are received, conveys them to the treasury. The substitution of treasury drafts, anticipating the duties, could hardly be made without some sacrifice on the part of the public. As they would be drawn upon time, and upon the expectation of funds to be collected, and, of course, contingent, it is not probable that they would obtain a ready sale, but at a discount, or upon long credit. As they would also be more or less liable to accident, from the failure of expected payments, there would be continually a degree of hazard to public credit. And, to other considerations, it may be added, that the practice of anticipations of this kind is, in its nature, so capable of abuse as to render it an ineligible instrument of administration in ordinary cases, and fit only for times of necessity.
If the idea of anticipation should be excluded, then the relying wholly upon treasury drafts would be productive of considerable delay. The knowledge that the funds were in hand must precede the issuing of them. Here would of course be some loss of time. And as the moment of demand, created by the course of business, would frequently elapse, there would as frequently be a further loss of time in waiting for a new demand. In such intervals, the public service would suffer, the specie would be locked up, and circulation checked. Bank notes being a convenient species of money, whatever increases their circulation, increases the quantity of current money. Hence, the payment of duties is doubly promoted by their aid; they at once add to the quantity of medium, and serve to prevent the stagnation of specie.
The tendency of the measure to lessen the necessity of drawing specie from distant places to the seat of Government results from the foregoing considerations. The slow operation of treasury drafts would frequently involve a necessity of bringing on specie, to answer the exigencies of government; the avoiding of which, as much as possible, in the particular situation of this country, need not be insisted upon.
But, convinced as the Secretary is of the usefulness of the regulation, yet, considering the nature of the clause upon which these remarks arise, he thought it his duty to bring the subject under the eye of the House. The measure is understood by all concerned to be temporary.
Indeed, whenever a National Bank shall be instituted, some new disposition of the thing will be a matter of course.
Sections 31 and 32. The provision, in these sections, respecting drawbacks, seems to require revision in several particulars.
The benefit of it is intended for any person by whom the goods may be exported, whether that person be the importer of them or another; and yet the oath to be taken by the exporter is of such a nature as must be very difficult to any but the importer. It declares, that the goods are, in quantity, quality, and value, according to the inward entry of them, which was duly made at the time of importation—a fact, which, it is evident, can rarely be known to any but the person who made that entry. This must, therefore, occasion either difficulty in obtaining the drawback, or a kind of constructive swearing, inconsistent with that scrupulous strictness which ought ever to accompany an oath, and on which the security they are intended to afford must depend. To obviate both, it seems necessary to direct, that proof of the fact shall be made, to the satisfaction of the collector, by the oaths or affirmations of all the parties through whose hands the goods may have passed; in which case, each can be examined as far as his knowledge can be presumed to extend.
There is no rule prescribed for regulating the sum in which bonds shall be taken; whence there is, perhaps, too much left to the discretion of the officers. And the cancelling of the bond is made to depend, among other things, upon the oath or affirmation of the master and mate of the vessel, in which the goods are exported, attesting their delivery: a requisite which it may not always be possible to fulfil. The master or mate may die, or may quit the vessel from different causes, without complying with it. These circumstances seem to require some other modifications. The Secretary has had an eye to them in the draught of the bill accompanying his report of the ninth of January last; to which he begs leave respectfully to refer.
Section 40. This section provides that no goods, wares, or merchandise, of foreign growth or manufacture, subject to the payment of duties, shall be brought into the United States, otherwise than by sea, and in ships or vessels of not less than thirty tons’ burthen; with an exception as to the district of Louisville, and another, as to vessels, at the time of the passing of the act, on their voyage.
It is a matter which merits particular consideration, whether there ought not, also, to be an exception in regard to the most easterly district of the State of Massachusetts. The situation of that district is, in different views, peculiar, so as, perhaps, to render it advisable rather to endeavor to regulate, than to prevent the introduction of foreign articles in smaller vessels. The information received on this point will, also, with the leave of the House, be reserved for the committee before referred to.
Fourthly. As to the “act for registering and clearing vessels, regulating the coasting trade, and for other purposes.”
Many of the provisions of this act are objected to, particularly those parts which relate to the coasting trade and fisheries; and yet, it must be confessed, that the proper remedies or alterations are neither obvious nor easy. The more the matter is examined, the more difficult it appears to reconcile the convenience of those branches of trade with due precautions for the security of the revenue.
Section 2. The idea of this section is, that every vessel shall be registered by the collector of the district to which she belongs. This regulation is a proper one, as a knowledge of the persons on whose oaths or affirmations the registries are to be founded by the officer making them, is a security against imposition. But this provision seems to be contravened by that of the seventh section, as will be noted hereafter.
Section 3. This section directs the mode of ascertaining the tonnage of all ships or vessels.
It is, however, a question whether it means only those which are to be registered, in order to their registry, or extends to others, in order to computing the tonnage duty. The latter construction has been preferred, for the sake of equality and uniformity.
The mode of admeasurement prescribed, has been complained of, as unfavorable to certain kinds of vessels, and as tending to enlarge the tonnage beyond the standard of other countries.
Section 6. Objections are made to the form of the oath prescribed by this section. The party is to swear positively, to the place where the vessel was built (which, in a great number of cases cannot, with propriety, be done), and, also, to the citizenship, not only of himself, but of the other owners, and of the master (which, in many cases, must be equally difficult).
Inconveniences are experienced from the want of a rule for determining who are citizens. The consequence of it is that every man is left to his own opinion of what constitutes one, and it is represented that there are instances in which persons of reputation, supposing that residence only conferred the character, have been ready to take the oath prescribed.
A designation of the several descriptions of persons entitled to the privileges of citizens under this act, requiring that the particular one, under which each falls, should be inserted in his oath, would be the most effectual guard against error or imposition. If this should be thought to be attended with too many difficulties, from our peculiar situation, it may, at least, be proper to annex some adequate pecuniary penalty to the obtaining of registers by persons not citizens, and to oblige all who apply to specify, in their oaths, by what title they are citizens—that is, whether by nativity, naturalization, or otherwise, which, by bringing into view the situation of each person, would serve as a useful check.
In these observations it is taken for granted that, as the law now stands, the oath of the party is the sole guide to the officers of the customs; that they have not any discretion in the case, and that a power in them to judge of the qualifications of individuals, in so important a respect, could not, with propriety, be established.
Section 7. The second section, as already remarked, directs that vessels be registered in the districts to which they belong. This admits their registry wherever they may be, provided the oath required be taken before the collectors of the district to which they belong. It is conceived that an adherence to the principle of the second section, throughout, would conduce to security. And it is, therefore, submitted, whether, instead of the provision in this section, it would not be advisable to provide that, when a vessel, being in a district other than that to which she belongs, has occasion to be registered, she shall be surveyed under the direction of the proper officer of the port where she may happen to be, and registered by the collector of the district to which she may belong, upon a certificate of the officer by whom such survey shall have been made.
Section 11. The declaring the instrument of transfer void, unless the register be recited in it, involves an embarrassing question, as to the property of the vessel, and does not seem necessary to the object in view. The subsequent part of the section, which annuls the privileges of an American bottom, without such recital, answering alone the purpose of the provision.
Section 12. If, in the oath on which the registry is founded, it be necessary to declare that the master is a citizen, it would seem equally necessary that, on a change of master, there should be a like attestation of his citizenship, previous to the endorsement herein directed to be made, as, otherwise, a citizen may be the master one day, a foreigner the next.
Section 13. There would be less room for imposition if, instead of allowing the collector of the port where the vessel might be to grant a new register, he were authorized merely to take the oath prescribed, in order to its transmission to the collector of the district where she might belong, making it the duty of the latter to issue the new register.
Section 22. This section commences the regulations respecting vessels employed in the coasting trade and fisheries. The proviso of it exempts all licensed vessels, under twenty tons, from clearing and entering, and in its consequences, removes them, almost wholly, from the inspection of the officers of the customs. The tendency of this to facilitate smuggling is obvious, as these vessels are precisely of that kind which would be most naturally employed in clandestinely unlading, on the coast, those which arrive from abroad. The bond required, in order to a license, is a very slender restraint, not only from the smallness of the penalty, but from the little danger of discovery. And the oath is still less effectual, because the master who is to take it may at any time be changed before the application for a new license. This oath, too, is exceptionable on other accounts. The anticipation of a future and distant oath may be too apt to give way to the allurements of immediate interest; and if a breach of the law have been committed when it is to be taken, it is hardly to be expected that there will be a strict adherence to truth at the price of incurring both disgrace and loss.
It would, perhaps, be more effectual and less exceptionable if, instead of this oath, one should be required, previous to the granting of any license to a fishing or coasting vessel, from the owner or owners of such vessel, that she shall not, during the time for which it is to be granted, be employed, with his or their permission, consent, sufferance, privity, or connivance, in any way whereby the payment of the duties imposed by law on articles imported into the United States may be evaded.
But it seems indispensable toward guarding against the frauds which may be committed by coasters that they should be obliged, at every port or place where there is an officer of the customs, to report themselves and their lading, on their arrival, and previous to their departure. For this purpose, the office hours ought to be so regulated and extended as to afford the greatest possible accommodation, and avoid occasions of delay. With this precaution and taking care that the fees are moderate, it is presumable that coasters may be subjected to a pretty exact inspection without injuriously impeding their business.
While they ought, in the opinion of the Secretary, to be thus subjected to a strict supervision at places where there are officers, it appears to him proper that they should be exempted from the obligation either of entering or clearing when at places where there are none. The necessity of journeys to distant offices, frequently across rivers and bays, and at the expense of the loss of favorable winds, occasions, in some parts of the Union, serious obstructions to the coasting trade. As connected with the idea, it would tend to the security of the revenue if a discretion were allowed to appoint inspectors at places which are not ports of general entry or delivery, for the purpose of entering, clearing, and overseeing coasters.
Section 23. In the remarks on the act imposing duties on tonnage, the construction which has obtained upon the last clause of this section has been stated, together with the hardships which have ensued to individuals from misapprehension of it.
A different modification of the provision has also been suggested. Among other reasons to be assigned for it is this: that, by obliging all registered vessels to take our licenses, it unnecessarily increases the number of vessels entitled to the privileges of coasters. In the opinion of the Secretary, these ought to be confined to such as are ordinarily employed in the coasting and fishing trade; to effect which it may be proper that previous to the granting of any license an oath or affirmation should be made that the vessel for which it is required is, bona fide, intended to be employed as a coasting or fishing vessel during the period for which it is to be granted, or the greater part of it; and even to annex a penalty to the taking out a license for any vessel which shall not be so employed. This, in respect to fishing vessels, seems peculiarly necessary, as it is easy to see that on the pretext of that employment licenses may be perverted from their real purpose to that of a mere cover for illicit practices.
There is no provision for the case of a change of property within the year, for which a license may be granted, which sometimes occasions sureties to be bound for parties they did not contemplate. This, and the repetition of tonnage duty, which is a consequence of it, is regarded as an inconvenience, requiring to be remedied by a provision for the granting new licenses, when such changes happen, upon new security for the remainder of the year.
Sections 27 and 28. As there are no particular penalties annexed to a non-compliance with the requisites of these sections, it has, of course, been found in some instances difficult to enforce their execution. And though it is presumed that such non-compliance would be a good probable cause of seizure, yet if, in the event of a trial, it turned out in one case that there were no foreign goods nor ardent spirits exceeding four hundred gallons on board; and in the other, that a manifest and permit had been obtained, and that no goods were on board but such as they had specified, no penalty could be inflicted. And a vexatious litigation between the officer and the party might be the only fruit of the seizure.
It is inferred from the last of these sections that a coaster whose ultimate destination is for a place where a collector or surveyor resides, having on board goods for any intermediate place, is not at liberty to land those goods at such intermediate place till after a permit for landing shall have been obtained at the place of destination; which is complained of as a grievance, and certainly is attended, in many cases, with considerable inconvenience. A relaxation in this respect, may be advisable. And to guard as much as possible against any ill effects from it, it may be expedient that, whenever a coaster arrives at a port where a collector or surveyor resides, it should be incumbent upon the master of her to make a report in writing, and upon oath, stating the goods on board at the time of her departure from the last port left by her at which a collector or surveyor presided, and which may have been afterwards taken in or delivered prior to her arrival at the place of report. In this case, to avoid a too great multiplication of oaths, the oaths required by the 25th and 26th sections may be dispensed with; though it will be still useful that the manifests should be exhibited and certified.
Section 31. The Secretary, considering it as an essential rule that emoluments of office should not be extended by construction or inference beyond the letter of the provision, lest a door should be opened to improper exactions, has instructed the officers of the customs to govern themselves by a literal interpretation of the several clauses of this section; the consequence of which, however, is that equal services are unequally recompensed.
This chiefly arises from that clause which allows a fee of sixty cents.
“For every entry of inroad cargo, directed to be made in conformity with this act, and for receiving of, and qualifying to, every manifest of vessels, licensed to trade as aforesaid.”
The entry and the receiving and qualifying to a manifest being joined together by the word and, are understood as one service, to which a fee of sixty cents is attached; so that, when only either of the two things is performed, and not the other, no fee is taken.
Hence there is no allowance for swearing the master to his manifest, and granting a certificate of its having been done according to the twenty-fifth and twenty-sixth sections of this act, because it is not accompanied in either case with an inward entry. Twenty cents for the permit to proceed to the place of destination is the only fee understood to be demandable for the services specified in these sections.
The sixty cents are deemed applicable only to the services enjoined by the twenty-seventh section.
A revision of this section will upon accurate examination be found eligible for other reasons, which for the sake of brevity are omitted.
The foregoing are the principal remarks which occur on the provisions of the several acts, on which the Secretary has been directed to report. These acts have fulfilled their objects in all respects as well as could reasonably have been expected from the first essay on so difficult a subject. It was foreseen that experience would suggest the propriety of corrections in the system, and it is equally to be inferred that further experiment will manifest the expediency of further correction. The work must be progressive, since it can only be by successive improvements that it can be brought to the degree of perfection of which it is susceptible.
As connected with the difficulties that have occurred in the execution of the laws, which is the subject of this report, the Secretary begs leave, in the last place, to mention the want of an officer in each State, or other considerable subdivision of the United States, having the general superintendence of all the officers of the revenue within such State or subdivision.
Among the inconveniences attending it, is a great difficulty in drawing from the more remote ports the moneys which are there collected. As the course of business creates little or no demand at the seat of Government, or in its vicinity, for drafts upon such places, negotiations in this way are either very dilatory or impracticable; neither does the circulation of bank paper, from the same cause, extend to them.
This embarrassment would be remedied by having one person in each State, or in a district of the United States of convenient extent, charged with the receipt of all the moneys arising within it, and placed in point of residence where there was the greatest intercourse with the seat of Government. This would greatly facilitate negotiations between the treasury and distant parts of the Union, and would contribute to lessening the necessity for the transportation of specie.
But there are other reasons of perhaps still greater weight for the measure. It is, in the opinion of the Secretary, essential to a due supervision of the conduct of the particular officers engaged in the collection of the revenues, and to the purposes of exact and impartial information, as to the operation of the laws which relate to them. It is impossible that the first end can be answered by any attention or vigilance of an individual, or individuals, at the head of the treasury. Distance and the multiplicity of avocations are conclusive bars. And, however it may appear at first sight, that the second end may be attainable from the communications of those particular officers, yet, when it is considered how apt their representations will be to receive a tint from the personal interests of the individuals, and the local interests of districts, it must be perceived that there cannot always be sufficient reliance upon them, and that variances between them will not unfrequently serve rather to distract than to inform the judgment. Greater impartiality and, of course, better information may be expected from an officer who, standing in the same relation to a larger district, composed of several smaller districts, will be more likely to be free from the influence either of personal interests or local predilections, in reference to the parts.
The Secretary begs leave, with the utmost deference, to say that he considers an arrangement of this kind as of real importance to the public service and to the efficacious discharge of the trust reposed in him.
All of which is humbly submitted.
arrears of pay1
Hamilton to Washington
|The amount of the State debts which has been assumed is . . . .||$21,500,000 00|
|The sum of annual interest upon that amount, which, according to the terms of the proposed loan, will begin to accrue after the year one thousand seven hundred and ninety-one, is .||788,333 33|
|The estimated deficiency in the funds already established, as they respect the original debt of the United States, is . . . . .||38,291 40|
|Making, together . . .||$826,624 73|
For procuring which sum, the reiterated reflections of the Secretary have suggested nothing so eligible and unexceptionable, in his judgment, as a further duty on foreign distilled spirits, and a duty on spirits distilled within the United States, to be collected in the mode delineated in the plan of a bill, which forms part of his report to the House of Representatives, of the ninth day of January last.
Under this impression he begs leave, with all deference, to propose to the consideration of the House—
That the following additions be made to the duties on distilled spirits imported from foreign countries, which are specified in the act making further provision for the payment of the debts of the United States, namely:
On those of the first class of proof, therein mentioned, per gallon, eight cents;
On those of the second class, per gallon, eight and a half cents;
On those of the third class, per gallon, nine cents;
On those of the fourth class, per gallon, ten cents;
On those of the fifth class, per gallon, ten cents;
On those of the sixth class, per gallon, fifteen cents.
And that the following duties be laid on spirits distilled within the United States, namely:
If from molasses, sugar, or other foreign materials, and of the first class of proof, per gallon, eleven cents;
Of the said second class of proof, per gallon, twelve cents;
Of the said third class of proof, per gallon, thirteen cents;
Of the said fourth class of proof, per gallon, fifteen cents;
Of the said fifth class of proof, per gallon, twenty cents;
Of the said sixth class of proof, per gallon, thirty cents.
If from materials of the growth or production of the United States distilled within any city, town, or village, and
Of the said first class of proof, per gallon, nine cents;
Of the said second class of proof, per gallon, ten cents;
Of the said third class of proof, per gallon, eleven cents;
Of the said fourth class of proof, per gallon, thirteen cents;
Of the said fifth class of proof, per gallon, seventeen cents;
Of the said sixth class of proof, per gallon, twenty-five cents.
And upon each still employed in distilling spirits from the like materials, in any other place than a city, town, or village, in lieu of the rates above mentioned, the yearly sum of sixty cents for every gallon, English wine measure, of the capacity of such still, including its head: exempting, nevertheless, all such stills, within a certain defined dimension, as are used essentially for the domestic purposes of their respective proprietors.
The product of these several duties (which correspond in their rates with those proposed in the report above referred to, of the ninth of January last) may, upon as good grounds as the nature of the case will admit, prior to an experiment, be computed at eight hundred and seventy-seven thousand and five hundred dollars, the particulars of which computation are contained in the statement which accompanies this report.
This computed product exceeds the sum which has been stated as necessary to be provided, by fifty thousand eight hundred and seventy-five dollars and twenty-seven cents; an excess which, if it should be realized by the actual product, may be beneficially applied toward increasing the sinking fund.
The Secretary has been encouraged to renew the proposition of these duties, in the same form in which they were before submitted, from a belief, founded on circumstances which appeared in the different discussions of the subject, that collateral considerations, which were afterwards obviated, rather than objections to the measure itself, prevented its adoption, during the last session; from the impracticability, which he conceives to exist, of devising any substitute equally conducive to the ease and interest of the community; and from an opinion that the extension of the plan of collection which it contemplates, to the duties already imposed on wines and distilled spirits, is necessary to a well-grounded reliance on their efficacy and productiveness.
The expediency of improving the resource of distilled spirits, as an article of revenue, to the greatest practicable extent, has been noticed upon another occasion. Various considerations might be added to those then adduced, to evince it, but they are too obvious to justify the detail. There is scarcely an attitude in which the object can present itself, which does not invite, by all the inducements of sound policy and public good, to take a strong and effectual hold of it.
The manner of doing it, or, in other words, the mode of collection, appears to be the only point about which a difficulty or question can arise. If that suggested be liable to just objections, the united information and wisdom of the legislative body insure the substitution of a more perfect plan.
The Secretary, however, begs leave to remark, that there appear to him two leading principles, one or the other of which must necessarily characterize whatever plan may be adopted. One of them makes the security of the revenue to depend chiefly on the vigilance of the public officers; the other rests it essentially on the integrity of the individuals interested to avoid the payment of it.
The first is the basis of the plan submitted by the Secretary; the last has pervaded most if not all the systems which have hitherto been practised upon in different parts of the United States. The oaths of the dealers have been almost the only security for their compliance with the laws.
It cannot be too much lamented that these have been found an inadequate dependence. But experience has, on every trial, manifested them to be such. Taxes or duties relying for their collection on that security wholly, or almost wholly, are uniformly unproductive. And they cannot fail to be unequal, as long as men continue to be discriminated by unequal portions of rectitude. The most conscientious will pay most; the least conscientious least.
The impulse of interest, always sufficiently strong, acts with peculiar force in matters of this kind, in respect to which a loose mode of thinking is too apt to prevail. The want of a habit of appreciating properly the nature of the public rights renders that impulse in such cases too frequently an overmatch for the sense of obligation, and the evasions which are perceived, or suspected to be practised by some, prompt others to imitation, by the powerful motive of self-defence. They infer that they must follow the example, or be unable to maintain an advantageous competition in the business—an alternative very perplexing to all but men of exact probity, who are thereby rendered, in a great measure, victims to a principle of legislation which does not sufficiently accord with the bias of human nature. And thus the laws become sources of discouragement and loss to honest industry, and of profit and advantage to perjury and fraud. It is a truth that cannot be kept too constantly in view, that all revenue laws which are so constructed as to involve a lax and defective execution, are instruments of oppression to the most meritorious part of those on whom they immediately operate, and of additional burthens on the community at large.
The last effect is produced in two ways. The deficiencies in the funds (which, in the main, afford only partial exemptions) must be supplied from other taxes, and the charges of collection, which, in most cases, are nearly the same, whether a tax or duty yield much or little, occasion an accumulation of the ultimate expense of furnishing a given sum to the treasury.
Another and a very serious evil, chargeable on the system opposite to that proposed, is that it leads to frequent and familiar violations of oaths, which by loosening one of the strongest bands of society, and weakening one of the principal securities to life and property, offends, not less against the maxims of good government and sound policy, than against those of religion and morality.
It may not be improper further to remark, that the two great objections to the class of duties denominated excises are inapplicable to the plan suggested. These objections are: first, the summary jurisdiction confided to the officers of excise, in derogation from the course of the common law and the right of trial by jury; and, secondly, the general power vested in the same officers, of visiting and searching, indiscriminately, the houses, stores, and other buildings of the dealers in excised articles. But, by the plan proposed, the officers to be employed are to be clothed with no such summary jurisdiction, and their discretionary power of visiting and searching is to be restricted to those places which the dealers themselves shall designate by public insignia or marks as the depositories of the articles on which the duties are to be laid. Hence, it is one of the recommendations of the plan, that it is not liable to those objections.
Duties of the kind proposed are not novel in the United States, as has been intimated in another place. They have existed, to a considerable extent, under several of the State governments, particularly in Massachusetts, Connecticut, and Pennsylvania. In Connecticut, a State exemplary for its attachment to popular principles, not only all ardent spirits, but foreign articles of consumption generally, have been the subjects of an excise or inland duty.
If the supposition, that duties of this kind are attended with greater expense in the collection than taxes on lands, should seem an argument for preferring the latter, it may be observed that the fact ought not too readily to be taken for granted. The state of things in England is sometimes referred to as an example on this point, but there the smallness of the expense in the collection of the land-tax is to be ascribed to the peculiar modification of it, which proceeding without new assessments according to a fixed standard long since adjusted, totally disregards the comparative value of lands and the variations in their value. The consequence of this is an inequality so palpable and extreme as would be likely to be ill relished by the landholders of the United States. If, in pursuit of greater equality, accurate periodical valuations or assessments are to afford a rule, it may well be doubted whether the expense of a land-tax will not always exceed that of the kind of duties proposed. The ingenious, but fallacious hypothesis, that all taxes on consumption fall finally with accumulated weight on land, is now too generally and too satisfactorily exploded to require to be combated here. It has become an acknowledged truth that, in the operation of those taxes, every species of capital and industry contribute their proportion to the revenue, and consequently that, as far as they can be made substitutes for taxes on lands, they serve to exempt them from an undue share of the public burthen.
Among other substantial reasons which recommend, as a provision for the public debt, duties upon articles of consumption, in preference to taxes on houses and lands, is this: It is very desirable, if practicable, to reserve the latter fund for objects and occasions which will more immediately interest the sensibility of the whole community, and more directly affect the public safety. It will be a consolatory reflection, that so capital a resource remains untouched by that provision, which, while it will have a very material influence in favor of public credit, will also be conducive to the tranquillity of the public mind, in respect to external danger, and will really operate as a powerful guarantee of peace. In proportion as the estimation of our resources is exalted in the eyes of foreign nations, their respect for us must increase, and this must beget a proportionable caution, neither to insult nor injure us with levity; while, on the contrary, the appearance of exhausted resources (which would, perhaps, be a consequence of mortgaging the revenue to be derived from land, for the interest of the public debt) might tend to invite both insult and injury, by inspiring an opinion that our efforts to resent or repel them were little to be dreaded.
It may not be unworthy of reflection that, while the idea of residuary resources, in so striking a particular, cannot fail to have many beneficial consequences, the suspension of taxes on real estate can as little fail to be pleasing to the mass of the community; and it may reasonably be presumed that so provident a forbearance on the part of the Government will insure a more cheerful acquiescence on that of the class of the community immediately to be affected, whenever experience and the exigency of conjunctures shall dictate a resort to that species of revenue.
But, in order to be at liberty to pursue this salutary course, it is indispensable that an efficacious use should be made of those articles of consumption which are the most proper and most productive, to which class distilled spirits very evidently belong; and a prudent energy will be requisite, as well in relation to the mode of collection as to the quantum of the duty.
It need scarcely be observed that the duties on the great mass of imported articles have reached a point which it would not be expedient to exceed. There is at least satisfactory evidence that they cannot be extended further without contravening the sense of the body of the merchants; and, though it is not to be admitted, as a general rule, that this circumstance ought to conclude against the expediency of a public measure, yet, when due regard is had to the disposition which that enlightened class of our citizens has manifested toward the National Government, to the alacrity with which they have hitherto seconded its operations, to the accommodating temper with which they look forward to those additional impositions on the objects of trade, which are to commence with the ensuing year, and to the greatness of the innovation, which, in this particular, has already taken place in the former state of things, there will be perceived to exist the most solid reasons against lightly passing the bounds which coincide with their impressions of what is reasonable and proper. It would be, in every view, inauspicious to give occasion for a supposition that trade alone is destined to feel the immediate weight of the hands of Government in every new emergency of the treasury.
However true, as a general position, that the consumer pays the duty, yet, it will not follow that trade may not be essentially distressed and injured, by carrying duties on importations to a height which is disproportionate to the mercantile capital of a country. It may not only be the cause of diverting too large a share of it from the exigencies of business, but, as the requisite advances to satisfy the duties, will, in many, if not in most cases, precede the receipts from the sale of the articles on which they are laid, the consequence will often be sacrifices which the merchant cannot afford to make.
The inconveniences of exceeding the proper limit in this respect, which will be felt everywhere, will fall with particular severity on those places which have not the advantage of public banks, and which abound least in pecuniary resources. Appearances do not justify such an estimate of the extent of the mercantile capital of the United States as to encourage to material accumulations on the already considerable rates of the duties on the mass of foreign importation.
Another motive for caution on this point arises from the reflection that the effect of an important augmentation made by a law of the last session is, hitherto, a mere matter of speculative calculation, and has not yet even begun to be tried.
It is presumable, too, that a still further augmentation would have an influence the reverse of favorable to the public credit. The operation would be apt to be regarded as artificial, as destitute of solidity, as presenting a numerical increase, but involving an actual diminution of revenue. The distrust of the efficacy of the present provision might also be accompanied with a doubt of a better substitute hereafter. The inference would not be unnatural, that a defect of other means, or an inability to command them, could alone have given birth to so unpromising an effort to draw all from one source.
A diversification of the nature of the funds is desirable on other accounts. It is clear that less dependence can be placed on one species of funds, and that, too, liable to the vicissitude of the continuance or interruption of foreign intercourse, than from a variety of different funds, formed by the union of internal with external objects.
The inference from these various and important considerations seems to be, that the attempt to extract wholly, from duties on imported articles, the sum necessary to a complete provision for the public debt would probably be both deceptive and pernicious—incompatible with the interests not less of revenue than of commerce; that resources of a different kind must, of necessity, be explored; and that the selection of the most fit objects is the only thing which ought to occupy inquiry.
Besides the establishment of supplementary funds, it is requisite to the support of the public credit that those established should stand on a footing which will give all reasonable assurance of their effectual collection.
Among the articles enumerated in the act making further provision for the payment of the debt of the United States there are two, wines and teas, in regard to which some other regulations than have yet been adopted seem necessary for the security of the revenue and desirable for the accommodation of the merchant.
With these views it is submitted that the term for the payment of the duties on wines be enlarged, as it respects Madeira wines, to eighteen months; and as it respects other wines, to nine months; and that they be collected on a plan similar to that proposed in relation to imported distilled spirits.
And that a third option (two being allowed by the present law) be given to the importers of teas, which shall be, to give bond, without security, for the amount of the duty in each case, payable in two years, upon the following terms:
The teas to be deposited, at the expense and risk of the importer, in storehouses, to be agreed upon between him and the proper officer of the revenue; each storehouse having two locks, the key of one of which to be in the custody of the importer or his agent, and the key of the other of which to be in the custody of an officer whose duty it shall be made to attend, at all reasonable times, for the purpose of deliveries.
These deliveries, whether for home sale or for exportation to a foreign country, to be warranted by permits from the chief officer of inspection of the place.
If for home sale, the permits to be granted after the duties shall have been paid, or secured to be paid.
When the amount of the duties shall not exceed one hundred dollars, four months to be allowed for payment. When it shall exceed one hundred dollars, and not exceed five hundred dollars, the term of payment to be eight months; and twelve months, whenever the amount shall exceed five hundred dollars: Provided, that the credit shall in no case extend beyond the period of two years, originally allowed for the entire sum. If the duties on the whole quantity deposited shall not have been paid, or secured to be paid, before the expiration of that time, it shall be lawful for the proper officer to cause a sale to be made of so much as shall be sufficient to discharge what shall remain unsatisfied. In every case, it shall be at the option of the party applying for the permit, either to pay the amount of duties on the quantity to be delivered, or to give bond for it, with one or more sureties, to the satisfaction of the officer whose province it shall be to grant the permits.
If the deliveries are to be made for exportation, the permits to be granted upon bond being entered into, to secure and ascertain the exportation. This may require some alterations of form, in the manner of proceeding, relatively to the exportation of this article.
All teas to be landed under the care of the inspectors of the revenue; the chests, and other packages containing them, to be marked; and certificates, which shall accompany them, be granted, as in the case of distilled spirits.
To these more direct expedients for the support of public credit, the institution of a national bank presents itself, as a necessary auxiliary. This the Secretary regards as an indispensable engine in the administration of the finances. To present this important object in a more distinct and more comprehensive light, he has concluded to make it the subject of a separate report.
All of which is humbly submitted.
Secretary of the Treasury.
|Estimate of the probable product of the funds proposed in the annexed report.|
|4,000,000 gallons of distilled spirits, imported from foreign countries, at 8 cents per gallon . . . . . .||$320,000 00|
|3,500,000 gallons of spirits, distilled in the United States, from foreign materials, at 11 cents per gallon . . . .||385,000 00|
|3,000,000 gallons of spirits, distilled from materials of the United States, at 9 cents per gallon . . . . . .||270,000 00|
|Total dollars . . .||$975,000 00|
|Deduct for drawbacks and expense of collecting, 10 per cent . . . .||97,500 00|
|Net product . . . .||$877,500 00|
hamilton to supervisors of boston
- Treasury Department,
July 27, 1791.
A temporary absence from the seat of government has delayed an answer to your letter of the 14th inst.
It is an established rule at the treasury not to disclose the amount of the stock which stands to the credit of any person on the public books to any but the proprietor himself, or his regular representative; and the reasons extend, of course, to the respective loan offices.
One of those reasons is, that as property in the public funds constitutes an usual and a considerable portion of mercantile capital, wherever public credit is well supported, the permitting an inspection into the stock account of individuals to others than the parties respectively interested, would have a tendency to lay open the affairs and operations of merchants more than is consistent with the spirit of trade. Indeed, not only merchants, but other classes of citizens, may often have very fair and valid reasons for being disinclined to such an inspection; and it may be even conceived that it would not at all times be expedient to allow access to the secret emissaries of a foreign power to discover the quantum of interest which its own citizens might have in the funds of a nation.
In thus assigning some of the reasons which have given occasion to the rule that has been mentioned, I yield to a desire of satisfying the Board that it is not unsupported by considerations of weight, and that a relaxation of it, in compliance with their request, could not with propriety be acceded to on my part.
At the same time, I feel myself called upon by the occasion to express an opinion that every thing in the nature of a direct tax on property in the funds of the United States is contrary to the true principles of public credit, and tends to disparage the value of the public stock. If any law of the State of Massachusetts, therefore, gives sanction to such a tax, it is presumed that it must have been passed without an advertence to this important idea; and it is not doubted that in the execution of it there will be all the care and moderation which the delicacy of the operation requires. It is desirable on every account that no occasion should be given to a discussion concerning the regularity of the proceeding.
- Communicated to the House of Representatives,
February 7, 1792.
- Treasury Department,
January 23, 1792.
Pursuant to the order of the House of Representatives of the first of November, 1791, directing the Secretary of the Treasury “to report to the House the amount of the subscriptions to the loans proposed by the act making provision for the public debt, as well in the debts of the respective States, as in the domestic debt of the United States, and of the parts which remain unsubscribed, together with such measures as are, in his opinion, expedient to be taken on the subject,” the said Secretary respectfully submits the following report:
|1. The whole amount of the domestic debt of the United States, principal and interest, which has been subscribed to the loan proposed concerning that debt, by the act entitled “An act making provision for the debt of the United States,” according to the statement herewith transmitted, marked A, and subject to the observations accompanying that statement, is . . . . . .||$31,797,481 22|
|Which, pursuant to the terms of that act, has been converted into stock bearing an immediate interest of six per cent. per annum . . . .||$14,177,450 43|
|Stock bearing the like interest from the first of January, 1801 . . .||7,088,727 79|
|Stock bearing an immediate interest of three per cent. per annum . .||10,531,303 00|
|Making, together . .||$31,797,481 22|
|Of which there stands to the credit of the trustees of the sinking fund, in consequence of purchases of the public debt made under their direction, the sum of . . . . . .||$1,131,364 76|
|The unsubscribed residue of the said debt, according to the statements herewith transmitted, marked B and C, and subject to the observations accompanying the statement C, appears to amount to . . . . .||$10,616,604 65|
|Consisting of registered debt, principal and interest . . . . .||$6,795,815 26|
|Unsubscribed stock on the books of the commissioners of loans for New Jersey, Pennsylvania, and Maryland, principal and interest . . .||15,674 62|
|Credits on the books of the treasury, for which no certificates have been issued, principal and interest . .||107,648 63|
|Outstanding or floating evidences of debt, estimated, per statement C, at .||3,697,466 14|
|Making, together . .||$10,616,604 65|
Concerning which some further arrangement is necessary.
The greatest part of the registered debt, hitherto unsubscribed, is owned by citizens of foreign countries, most if not all of whom appear now disposed to embrace the terms held out by the act above mentioned; extensive orders having been received from those creditors to subscribe to the loan, after the time for receiving subscriptions had elapsed.
A considerable part of the outstanding or floating debt consists of loan-office certificates, issued between the first of September, 1777, and the first of March, 1778, bearing interest on the nominal sum. Many of the holders of this species of debt have come in upon the terms of this act, but others have hitherto declined it; alleging that the special nature of their contract gives a peculiarity to their case, and renders the commutation proposed not so fair an equivalent to them as in other instances. They also complain that the act has had, toward them, a compulsory aspect, by refusing the temporary payment of interest, unless they should exchange their old for new certificates, essentially varying the nature of their contract.
A resolution of Congress of the tenth of September, 1777, stipulates, in favor of this class of creditors, interest upon the nominal instead of the real principal of their debt, until that principal be discharged. This certainly renders their contract of a nature more beneficial than that of other creditors; but they are, at the same time, liable to be divested of the extra benefit it gives them by a payment of their specie dues; and it may be observed, that they have actually enjoyed, and by accepting the terms offered to them, were enabled to realize, advantages superior to other creditors. They have been paid interest by bills on France from the tenth of September, 1777, to the first of March, 1782, while other creditors received their interest in depreciated bills of the old emissions; and the terms of the loan proposed put it in their power to realize the benefit of interest, on the nominal amount of their respective debts, at rates from 6 20/100 nearly to 10 47/100 per cent. on their real or specie capital down to the last of December, 1790.
It does not, therefore, appear to have been an unreasonable expectation, that they, as readily as any other description of public creditors, would have acquiesced in a measure calculated for the accommodation of the Government, under circumstances in respect to which it has been demonstrated by subsequent events that the accommodation desired, was consistent with the best interest of the public creditors. A large proportion of the parties interested have, indeed, viewed the matter in this light, and have embraced the proposition. It is probable that the progress of things will satisfy the remainder that it is equally their interest to concur, if a further opportunity be afforded. But it is, nevertheless, for themselves only to judge, how far the equivalent proposed is, in their case, a reasonable and fair one; how far any circumstances in their claim may suggest reasons for moderation on their part; or how far any other motives, public or private, ought to induce an acceptance. And the principles of good faith require that their election should be free.
On this ground, the complaint which regards the withholding of a temporary payment of interest, except on the condition of surrender of the old certificates for new ones, importing a contract substantially different, appears, to the Secretary, not destitute of foundation. He presumes that the operation of that provision, in the particular case, was not adverted to; or, that an exception would have been introduced as most consonant with the general spirit and design of the act. Accordingly, the further measures which will be submitted, will contemplate a method of obviating the objection in question.
From the consideration, that an extension of the time for receiving subscriptions, upon the terms of the act making provision for the debt of the United States, is desired by a large proportion of the non-subscribing creditors; and from the further consideration, that sufficient experience has not yet been had of the productiveness of a considerable branch of the revenues which have been established, to afford the light necessary to a final arrangement, it is, in the judgment of the Secretary, advisable to renew the proposition for a loan in the domestic debt, on the same terms with the one which has been closed, and to allow time for receiving subscriptions to it until the last day of September next, inclusively; making provision for a temporary payment of interest to such who may not think fit to subscribe for the year 1792, of the like nature with that which was made in the same case for the year 1791, except as to the holders of loan-office certificates issued between the first of September, 1777, and the first of March, 1778; in respect to whom it is submitted as proper to dispense with the obligation of exchanging their old certificates for new, as the condition of their receiving interest in capacity of non-subscribers; and to allow them, without such exchange, to receive the same interest both for the year 1791 and 1792, as if they had subscribed to the first loan. It will not be materially difficult so to regulate the operation at the treasury as to avoid, in the particular case, that danger of imposition by counterfeits, which was the motive to the general provision for an exchange of certificates.
The amount of the subscriptions in the debt of the respective States, within the limits of the sum assumed in each, appears, by the statement marked D, to be $17,072,334.39, subject to the observations accompanying that statement. Consequently, the difference between the aggregate of the sums subscribed and the aggregate of the sums assumed is $4,427,665.61. This difference is to be attributed to several causes—the principal of which are the following: First, that the sums assumed, in respect to certain States, exceeded the actual amount of their existing debts. Second, that, in various instances, a part of the existing debt was in a form which excluded it from being received, without contravening particular provisions of the law, as in the case of certificates issued after the first day of January, 1790, in lieu of certificates which had been issued prior to that period, which was reported upon by the Secretary on the twenty-fifth day of February last. Third, ignorance of, or inattention to, the limitation of time for receiving subscriptions. It appears that a number of persons lost the opportunity of subscribing from the one or the other of these causes.
A strong desire that a further opportunity may be afforded for subscriptions in the debts of the States has been manifested by the individuals interested. And the States of Rhode Island and New Hampshire have, by the public acts referred to by the Secretary, indicated a similar desire. The affording of such further opportunity may either be restricted within the limit as to amount, which is contemplated by the act itself, or may receive an extension which will embrace the residuary debts of the States.
The first may be considered as nothing more than giving full effect to a measure already adopted.
The last appears to have in its favor all the leading inducements to what has been already done. The embarrassments which might arise from conflicting systems of finance are not entirely obviated. The efficacious command of the national resources for national exigencies is not unequivocally secured. The equalizing of the condition of the citizens of every State, and exonerating those of the States most indebted, from partial burthens which would press upon them, in consequence of exertions in a common cause, is not completely fulfilled until the entire debt of every State, contracted in relation to the war, is embraced in one general and comprehensive plan. The inconvenience to the United States of disburthening the States which are still encumbered with considerable debts, would bear no proportion to the inconvenience which they would feel, if left to struggle with those debts, unaided.
More general contentment, therefore, in the public mind, may be expected to attend such an exoneration, than the reverse; in proportion as the experience of actual inconvenience would be greater, though only applicable to parts, in the one, than in the other case.
With regard to States, parts only of the debts of which have been assumed, and in proportions short of those which have prevailed, in favor of other States, and short, also, of what would have resulted from a due apportionment of the entire sum assumed; the claim to a further assumption is founded on considerations of equal justice, as relative to the measure itself, considered in a separate and independent light.
But there is a further reason of material weight for an immediate general assumption. Moneyed men, as well foreigners as citizens, through the expectation of an eventual assumption, or that, in some shape or other, a substantial provision will be made for the unassumed residue of the State debts, will be induced to speculate in the purchase of them. In proportion as the event is unsettled, or uncertain, the price of the article will be low, and the present proprietors will be under disadvantage in the sale. The loss to them in favor of the purchasers is to be regarded as an evil; and as far as it is connected with a transfer to foreigners, at an undervalue, it will be a national evil. By whatsoever authority an ultimate provision may be made, there will be an absolute loss to the community, equal to the total amount of such undervalue.
It may appear an objection to the measure, that it will require an establishment of additional funds by the Government of the United States. But this does not seem to be a necessary consequence. The probability is, that, without a supplementary assumption, an equal or very nearly equal augmentation of funds will be requisite to provide for greater balances in favor of certain States; which would be proportionably diminished by such assumption. The destination, not the quantum of the fund, will, therefore, be the chief distinction between the two cases.
It may also appear an objection to a total assumption, that the magnitude of the object is not ascertained with precision. It is not certainly known, what is the sum due in each State; nor has it been possible to acquire the information, owing to different causes. But, though precise data are deficient, there are materials which will serve as guides. From the returns received at the treasury, assisted by information in other ways, it may be stated, without danger of material error, that the remaining debts of the States, over and above the sums already subscribed, will not exceed the amounts specified in statement D, accompanying this report. And that, including sums already subscribed, the total amount to be ultimately provided for, in the event of a general assumption, will not exceed 25,403,362 71/100 dollars, which would constitute an addition of 3,903,362 71/100 dollars to the sum of 21,500,000 dollars already assumed.
Should a total assumption be deemed eligible, it may still be advisable to assign a determinate sum for each State, that the utmost limit of the operation may be pre-established; and it is necessary, in order to the certainty of a due provision, in proper time, that interest should not begin to be payable, on the additional sums assumed, till after the year 1792.
It will occur, that provision has been made for paying to each State, in trust for its non-subscribing creditors, an interest upon the difference between the sum assumed for each State, and that actually subscribed, equal to what would have been payable, if it had been subscribed.
In the event of a further assumption, either within the limits already established, or commensurate with the remaining debts of the States, it is conceived that it will not be incompatible with the provision just mentioned, to retain, at the end of each quarter, during the progress of the further subscription, out of the money directed to be paid to each State, a sum corresponding with the interest upon so much of its debts as shall have been subscribed to that period, paying the over-plus, if any, to the State. An absolute suspension of that payment does not appear consistent with the nature of the stipulation included in that provision; for, though the money to be paid to a State be expressly a trust for the non-subscribing creditors, yet, as it cannot be certain beforehand, that they will elect to change their condition, the possibility of it will not justify a suspension of payment to the State, which might operate as suspension of payment to the creditors themselves.
A further objection to such a suspension results from the idea, that the provision in question appears to have a secondary object, namely, as a pledge for securing a provision for whatever balance may be found due to a State, on the general settlement of accounts. The payment directed to be made to a State is “to continue until there shall be a settlement of accounts between the United States and the individual States, and, in case a balance should then appear in favor of a State, until provision shall be made for the said balance.”
The secondary operation as a pledge or security (consistently with the intent of the funding act) can only be superseded in favor of the primary object, a provision for the creditors, and as far as may be necessary to admit them to an effectual participation in it. But as whatever money may be paid to a State, is to be paid over to its creditors, proportional deductions may, with propriety, be made from the debts of those creditors who may hereafter subscribe, so that the United States may not have to pay twice for the same purpose.
If it shall be judged expedient either to open again, or to extend the assumption, it will be necessary to vary the description of the debts which may be subscribed, so as to comprehend all those which have relation to services or supplies during the war, under such restrictions as are requisite to guard against abuse.
In the original proposition for an assumption of the State debts, and in the suggestions now made on the same subject, the Secretary has contemplated, and still contemplates, as a material part of the plan, an effectual provision for the sale of the vacant lands of the United States. He has considered this resource as an important means of sinking a part of the debt, and facilitating ultimate arrangements concerning the residue. If supplementary funds shall be rendered necessary, by an additional assumption, the provision will most conveniently be made at the next session of Congress, when the productiveness of the existing revenues, and the extent of the sum to be provided for, will be better ascertained.
There is a part of the public debt of the United States which is a cause of some perplexity to the Treasury. It is not comprehended within the existing provision for the foreign debt, which is confined to loans made abroad; and it is questionable whether it is to be regarded as a portion of the domestic debt. It is not only due to foreigners, but the interest upon it is payable, by express stipulation, in a foreign country; whence it becomes a matter of doubt, whether it be at all contemplated by the act making provision for the debt of the United States. The part alluded to is that which is due to certain foreign officers, who served the United States during the late war. In consequence of a resolution of Congress, directing their interest to be paid to them in France, the certificates which were issued to them specify that, “in pursuance of and compliance with a certain resolution of Congress, of the third day of February, 1784, the said interest is to be paid, annually, at the house of Mons. Le Grand, banker in Paris.” Interest has accordingly been paid to them at Paris, down to the 31st of December, 1788, by virtue of a special resolution of Congress, of the 20th of August in that year; since which period no payment has been made.
It has been heretofore suggested, as the opinion of the Secretary, that it would be expedient to cause the whole of this description of debt to be paid off; among other reasons, because it bears an interest at six per centum per annum, payable abroad, and can be discharged with a saving. The other reasons alluded to are of a nature both weighty and delicate, and too obvious, it is presumed, to need a specification. Some recent circumstances have served to strengthen the inducements to the measure. But if it should, finally, be deemed unadvisable, it is necessary, at least, that provision should be made for the interest, which is now suspended, under the doubt that has been stated, and from the want of authority to remit it pursuant to the contract.
The amount of this debt, with the arrears of interest to the end of the year 1791, is $220,646.81.
The act making provision for the debt of the United States has appropriated the proceeds of the western lands, as a fund for the discharge of the public debt. And the act making provision for the reduction of the public debt has appropriated all the surplus of the duties on imports and tonnage, to the end of the year 1790, to the purpose of purchasing the debt at the market price, and has authorized the President to borrow the further sum of two millions of dollars for the same object.
These measures serve to indicate the intention of the Legislature, as early and as fast as possible, to provide for the extinguishment of the existing debt.
In pursuance of that intention, it appears advisable that a systematic plan should be begun for the creation and establishment of a sinking fund.
An obvious basis of this establishment, which may be immediately contemplated, is the amount of the interest on as much of the debt as has been, or shall be, from time to time, purchased, or paid off, or received in discharge of any debt or demand of the United States, made payable in public securities, over and above the interest of any new debt, which may be created, in order to such purchase or payment.
The purchases of the debt, already made, have left a sum of interest in the treasury, which will be increased by future purchases; certain sums payable to the United States, in their own securities, will, when received, have a similar effect. And there is ground to calculate on a saving upon the operations, which are in execution with regard to the foreign debt. The sale of the western lands, when provision shall be made for it, may be expected to produce a material addition to such a fund.
It is therefore submitted, that it be adopted as a principle, that all interest which shall have ceased to be payable by any of the means above specified, shall be set apart and appropriated in the most firm and inviolable manner as a fund for sinking the public debt, by purchase or payment; and that the said fund be placed under the direction of the officers named in the second section of the act making provision for the reduction of the public debt, to be by them applied toward the purchase of the said debt, until the annual produce of the said fund shall amount to two per cent. of the entire portion of the debt which bears a present interest of six per centum, and thenceforth to be applied towards the redemption of that portion of the debt, according to the right which has been reserved to the Government. It will deserve the consideration of the Legislature, whether this fund ought not to be so vested, as to acquire the nature and quality of a proprietary trust, incapable of being diverted without a violation of the principles and sanctions of property.
A rapid accumulation of this fund would arise from its own operation; but it is not doubted, that the progressive development of the resources of the country, and a reduction of the rate of interest, by the progress of public credit, already exemplified in a considerable degree, will speedily enable the Government to make important additions to it in various ways. With due attention to preserve order and cultivate peace, a strong expectation may be indulged that a reduction of the debt of the country will keep pace with the reasonable hopes of its citizens.
All of which is humbly submitted.
spirits, foreign and domestic1
- Communicated to the House of Representatives,
March 6, 1792.
- Treasury Department,
March 5, 1792.
In obedience to the orders of the House of Representatives of the first and second days of November last, the first directing the Secretary of the Treasury to report to the House such information as he may have obtained, respecting any difficulties which may have occurred, in the execution of the act “repealing, after the last day of June next, the duties heretofore laid upon distilled spirits, imported from abroad and laying others in their stead, and, also, upon spirits distilled within the United States, and for appropriating the same,” together with his opinion thereupon; the second directing him to report to the House whether any, and what, alterations in favor of the spirits which shall be distilled from articles of the growth or produce of the United States, or from foreign articles, within the same, can, in his opinion, be made in the act for laying duties upon spirits distilled within the United States, consistently with its main design, and with the maintenance of the public faith; the said Secretary respectfully submits the following report:
From the several petitions and memorials which have been referred to the Secretary, as well as from various representations which have been made to him, it appears that objections have arisen in different quarters against the above-mentioned act, which have, in some instances, embarrassed its execution, and inspired a desire of its being repealed; in others, have induced a wish that alterations may be made in some of its provisions.
These objections have reference to a supposed tendency of the act, first to contravene the principles of liberty; secondly, to injure morals; thirdly, to oppress by heavy and excessive penalties; fourthly, to injure industry, and interfere with the business of distilling.
As to the supposed tendency of the act to contravene the principles of liberty, the discussions of the subject which have had place in and out of the Legislature, supersede the necessity of more than a few brief general observations.
It is presumed that a revision of the point cannot, in this respect, weaken the convictions which originally dictated the law.
There can surely be nothing in the nature of an internal duty on a consumable commodity, more incompatible with liberty, than in that of an external duty on a like commodity. A doctrine which asserts, that all duties of the former kind (usually denominated excises) are inconsistent with the genius of a free government, is too violent, and too little reconcilable with the necessities of society, to be true. It would tend to deprive the Government of what is, in most countries, a principal source of revenue, and by narrowing the distribution of taxes, would serve to oppress particular kinds of industry. It would throw, in the first instance, an undue proportion of the public burthen on the merchant and on the landholder.
This is one of those cases in which names have an improper influence, and in which prepossessions exclude a due attention to facts.
Accordingly, the law under consideration is complained of, though free from the features which have served, in other cases, to render laws on the same subject exceptionable; and, though the differences have been pointed out, they have not only been overlooked, but the very things which have been studiously avoided in the formation of the law, are charged upon it, and, that, too, from quarters where its operation would, from circumstances, have worn the least appearance of them.
It has been, heretofore, noticed that the chief circumstances which, in certain excise laws, have given occasion to the charge of their being unfriendly to liberty, are not to be found in the act which is the subject of the report, viz.: first, a summary and discretionary jurisdiction in the excise officers, contrary to the course of the common law, and in abridgment of the right of trial by jury; and, secondly, a general power, in the same officers, to search and inspect, indiscriminately, all the houses and buildings of the persons engaged in the business to which the tax relates.
As to the first particular, there is nothing in the act even to give color to a charge of the kind against it, and, accordingly, it has not been brought. But, as to the second, a very different power has been mistaken for it, and the act is complained of as conferring that very power of indiscriminate search and inspection.
The fact, nevertheless, is otherwise. An officer, under the act in question, can inspect or search no house or building, or even apartment of any house or building, which had not been previously entered and marked by the possessor as a place used for distilling or keeping spirits.
And even the power so qualified is only applicable to distilleries from foreign materials, and in cities, towns, and villages, from domestic materials; that is, only in cases in which the law contemplates that the business is carried on upon such a scale as effectually to separate the distillery from the dwelling of the distiller. The distilleries scattered over the country, which form much the greatest part of the whole, are in no degree subject to discretionary inspection and search.
The true principle of the objection which may be raised to a general discretionary power of inspection and search, is that the domicile or dwelling of a citizen ought to be free from vexatious inquisition and intrusion.
This principle cannot apply to a case in which it is put in his own power to separate the place of his business from the place of his habitation; and, by designating the former by visible public marks, to avoid all intermeddling with the latter.
A distillery seldom forms a part of the dwelling of its proprietor, and even where it does, it depends on him to direct and limit the power of visiting and search, by marking out the particular apartments which are so employed.
But the requisition upon the distiller to set marks on the building or apartments which he makes use of in his business is one of the topics of complaint against the law. Such marks are represented as a dishonorable badge; and thus a regulation, designed as much to conform with the feelings of the citizen as for the security of revenue, is converted into matter of objection.
It is not easy to conceive what maxim of liberty is violated by requiring persons who carry on particular trades, which are made contributory to the revenue, to designate, by public marks, the places in which they are carried on. There can certainly be nothing more harmless, or less inconvenient, than such a regulation. The thing itself is frequently done by persons of various callings for the information of customers; and why it should become a hardship or grievance, if required for a public purpose, can with difficulty be imagined.
The supposed tendency of the act to injure morals seems to have relation to the oaths, which are, in a variety of cases, required, and which are liable to the objection that they give occasion to perjuries.
The necessity of requiring oaths is, whenever it occurs, matter of regret. It is certainly desirable to avoid them as often and as far as possible; but it is more easy to desire than to find a substitute. The requiring of them is not peculiar to the act in question; they are a common appendage of revenue laws, and are among the usual guards of those laws, as they are of public and private rights in courts of justice. They constantly occur in jury trials, to which the citizens of the United States are so much and so justly attached. The same objection, in different degrees, lies against them in both cases, yet it is not perceivable how they can be dispensed with in either.
It is remarkable that both the kinds of security to the revenue, which are to be found in the act, the oaths of parties and the inspection of officers are objected to. If they are both to be abandoned, it is not easy to imagine what security there can be for any species of revenue, which is to be collected from articles of consumption.
If precautions of this nature are inconsistent with liberty, and immoral, as there are very few indirect taxes which can be collected without them, the consequence must be that the entire or almost entire weight of the public burthens must, in the first instance, fall upon fixed and visible property, houses, and lands—a consequence which would be found, in experiment, productive of great injustice and inequality, and ruinous to agriculture.
It has been suggested by some distillers, that both the topics of complaint which have been mentioned, might be obviated by a fixed rate of duty, adjusted according to a ratio compounded of the capacity of each still, and the number and capacities of the cisterns employed with it; but this, and every similar method, are objected to by other distillers, as tending to great inequality, arising from unequal supplies of the material at different times, and at different places, from the different methods of distillation practised by different distillers, and from the different degrees of activity in the business, which arise from capitals more or less adequate.
The result of an examination of this point appears to be, that every such mode, in cases in which the business is carried on upon an extensive scale, would, necessarily, be attended with considerable inequalities; and, upon the whole, would be less satisfactory than the plan which has been adopted.
It is proved by the fullest information, that, in regard to distillers which are rated in the law, according to the capacity of each still, the alternative of paying according to the quantity actually distilled, is received in many parts of the United States as essential to the equitable operation of the duty. And it is evident, that such an alternative could not be allowed but upon the condition of the party rendering upon oath an account of the quantity of spirits distilled by him, without entirely defeating the duty.
As to the charge, that the penalties of the act are too severe and oppressive, it is made in such general terms, and so absolutely without the specification of a single particular, that it is difficult to imagine where it points.
The Secretary, however, has carefully reviewed the provisions of the act, in this respect, and he is not able to discover any foundation for the charge.
The penalties it inflicts are in their nature the same with those which are common in revenue laws, and, in their degree, comparatively moderate.
Pecuniary fines, from fifty to five hundred dollars, and forfeiture of the article in respect to which there has been a failure to comply with the law, are the severest penalties inflicted upon delinquent parties, except in a very few cases: In two, a forfeiture of the value of the article is added to that of the article itself, and in some others, a forfeiture of the ship or vessel, and of the wagon or other instrument of conveyance, assistant in a breach of law, is likewise involved.
Penalties like these, for wilful and fraudulent breaches of an important law, cannot, truly, be deemed either unusual or excessive. They are less than those which secure the laws of impost, and as moderate as can promise security to any object of revenue which is capable of being evaded.
There appears to be but one provision in the law, which admits of a question whether the penalty prescribed may not partake of severity. It is that which inflicts the pains of perjury on any person who shall be convicted of “wilfully taking a false oath or affirmation in any of the cases in which oaths or affirmations are required by the act.”
Precedents in relation to this particular, vary. In many of them, the penalties are less severe than for perjury, in courts of justice; in others, they are the same. The latter are, generally, of the latest date, and seem to have been the result of experience.
The United States have, in other cases, pursued the same principle as in the law in question. And the practice is certainly founded on strong reasons.
1st. The additional security which it gives to the revenue cannot be doubted. Many who would risk pecuniary forfeitures and penalties would not encounter the more disgraceful punishment annexed to perjury.
2d. There seems to be no solid distinction between one false oath in violation of law and right and another false oath in violation of law and right. A distinction in the punishments of different species of false swearing is calculated to beget false opinions concerning the sanctity of an oath; and by countenancing an impression, that a violation of it is less heinous in the cases in which it is less punished, it tends to impair in the mind that scrupulous veneration for the obligation of an oath which ought always to prevail, and not only to facilitate a breach of it in the cases which the laws have marked with less odium, but to prepare the mind for committing the crime in other cases.
So far is the law under consideration from being chargeable with particular severity, that there are to be found in it marks of more than common attention to prevent its operating severely or oppressively.
The 43d section of the act contains a special provision (and one which, it is believed, is not to be found in any law enacted in this country, prior to the present constitution of the United States), by which forfeitures and penalties incurred, without an intention of fraud or wilful negligence, may be mitigated or remitted.
This mild and equitable provision is an effectual guard against suffering or inconvenience, in consequence of undesigned transgressions of the law.
The 30th section contains a provision in favor of persons, who, though innocent, may accidently suffer by seizures of their property (as in the execution of the revenue laws sometimes unavoidably happens), which is, perhaps, entirely peculiar to the law under consideration. Where there has even been a probable cause of seizure, sufficient to acquit an officer, the jury are to assess whatever damages may have accrued from an injury to the article seized, with an allowance for the detention of it, at the rate of six per centum per annum of the value, which damages are to be paid out of the public treasury.
There are other provisions of the act which mark the scrupulous attention of the Government to protect the parties concerned from inconvenience and injury, and which conspire to vindicate the law from imputations of severity or oppression.
The supposed tendency of the act to injure industry, and to interfere with the business of distilling, is endeavored to be supported by some general and some special reasons, both having relation to the effect of the duty upon the manufacture.
Those of the first kind affirm generally, that duties on home manufactures are impolitic, because they tend to discourage them; that they are particularly so, when they are laid on articles manufactured from the produce of the country, because they have, then, the additional effect of injuring agriculture; that it is the general policy of nations to protect and promote their own manufactures, especially those which are wrought out of domestic materials; that the law in question interferes with this policy.
Observations of this kind admit of an easy answer. Duties on manufactures tend to discourage them, or not, according to the circumstances under which they are laid; and are impolitic, or not, according to the same circumstances. When a manufacture is in its infancy, it is impolitic to tax it, because the tax would be both unproductive, and would add to the difficulties which naturally impede the first attempts to establish a new manufacture, so as to endanger its success.
But when a manufacture (as in the case of distilled spirits in the United States) is arrived at maturity, it is as fit an article of taxation as any other. No good reason can be assigned why the consumer of a domestic commodity should not contribute something to the public revenue, when the consumer of a foreign commodity contributes to it largely. And, as a general rule, it is not to be disputed, that duties on articles of consumption are paid by the consumers.
To the manufacture itself, the duty is no injury, if an equal duty be laid on the rival foreign article. And when a greater duty is laid upon the latter than upon the former, as in the present instance, the difference is a bounty on the domestic article, and operates as an encouragement of the manufacture. The manufacturer can afford to sell his fabric the cheaper, in proportion to that difference, and is so far enabled to undersell and supplant the dealer in the foreign article.
The principle of the objection would tend to confine all taxes to imported articles, and would deprive the Government of resources, which are indispensable to a due provision for the public safety and welfare, contrary to the plain intention of the Constitution, which gives express power to employ those resources when necessary—a power which is found in all governments, and is essential to their efficiency, and even to their existence.
Duties on articles of internal production and manufacture form in every country the principal sources of revenue. Those on imported articles can only be carried to a certain extent, without defeating their object, by operating either as prohibitions, or as bounties upon smuggling. They are, moreover, in some degree temporary; for, as the growth of manufactures diminishes the quantum of duty on imports, the public revenue, ceasing to arise from that source, must be derived from articles which the national industry has substituted for those previously imported. If the Government cannot then resort to internal means for the additional supplies which the exigencies of every nation call for, it will be unable to perform its duty, or, even to preserve its existence. The community must be unprotected, and the social compact be dissolved.
For the same reasons that a duty ought not to be laid on an article manufactured out of the country (which is the point most insisted upon), it ought not to be laid upon the produce itself, nor consequently upon the land, which is the instrument of that produce; because taxes are laid upon land, as the fund out of which the income of the proprietor is drawn; or, in other words, on account of its produce. There ought, therefore, on the principle of the objection, to be neither taxes on land, nor the produce of land, nor on articles manufactured from that produce. And if a nation should be in a condition to supply itself with its own manufactures, there could then be very little or no revenue; of course, there must be a want of the essential means of national justice and national security.
Positions like these, however well meant by those who urge them, refute themselves, because they tend to the dissolution of government by rendering it incapable of providing for the objects for which it is instituted.
However true the allegation, that it is, and ought to be, the prevailing policy of nations to cherish their own manufactures, it is equally true that nations in general lay duties for the purpose of revenue on their own manufactures; and it is obvious, to a demonstration, that it may be done without injury to them. The most successful nations in manufactures have drawn the largest revenues from the most useful of them. It merits particular attention that ardent spirits are an article which has been generally deemed, and made use of, as one of the fittest objects of revenue, and to an extent, in other countries, which bears no comparison with what has been done in the United States.
The special reasons alluded to are of different kinds:
- 1.It is said that the act in question, by laying a smaller additional duty on foreign spirits than the duty on home-made spirits, has a tendency to discourage the manufacture of the latter.This objection merits consideration, and, as far as it may appear to have foundation, ought to be obviated.The point, however, seems not to have been viewed, in all its respects, in a correct light.Before the present Constitution of the United States began to operate, the regulations of the different States respecting distilled spirits were very dissimilar. In some of them, duties were laid on foreign spirits only; in others, on domestic as well as foreign. The absolute duty, in former instances, and the difference of duty in the latter, was, upon an average, considerably less than the present difference in the duties on foreign and home-made spirits. If to this be added the effect of the uniform operation of the existing duties throughout the United States, it is easy to infer that the situation of our own distilleries is, in the main, much better, as far as they are affected by the laws, than it was previous to the passing of any act of the United States upon the subject. They have, therefore, upon the whole, gained materially under the system which has been pursued by the National Government.The first law of the United States on this head laid a duty of no more than eight cents per gallon on those of Jamaica proof. The second increased the duty on foreign spirits to twelve cents per gallon, of the lowest proof, and by certain gradations, to fifteen cents per gallon, of Jamaica proof. The last act places the duty at twenty cents per gallon, of the lowest proof, and extends it, by the like gradations, to twenty-five cents per gallon, of Jamaica proof; laying also a duty of eleven cents per gallon on homemade spirits, distilled from foreign materials of the lowest proof, with a like gradual extension to fifteen cents per gallon of Jamaica proof; and a duty of nine cents per gallon on home-made spirits, distilled from domestic materials of the lowest proof, with the like gradual extension to thirteen cents per gallon, of Jamaica proof.If the transition had been immediate from the first to the last law, it could not have failed to have been considered as a change in favor of our own distilleries, as far as the rate of duty is concerned. The mean duty on foreign spirits by the first law was nine cents; by the last the mean extra duty on foreign spirits is, in fact, about eleven cents, as it regards spirits distilled from foreign materials, and about thirteen as it regards spirits distilled from domestic materials. In making this computation, it is to be adverted to that the four first degrees of proof mentioned in the law correspond with the different kinds of spirits usually imported, while the generality of those made in the United States are of the lowest class of proof.Spirits from domestic materials derived a double advantage from the last law; that is, from the increased rate of duty on foreign imported spirits, and from a higher rate of duty on home-made spirits of foreign materials.But the intervention of the second law has served to produce in some places a different impression of the business than would have happened without it. By a considerable addition to the duties on foreign spirits, without laying any thing on those of home manufacture, it has served to give to the last law the appearance of taking away a part of the advantages previously secured to the domestic distilleries. It seems to have been overlooked that the second act ought, in reality, to be viewed only as an intermediate step to the arrangement finally contemplated by the Legislature; and that, as part of a system, it has, upon the whole, operated in favor of the national distilleries. The thing to be considered is the substantial existing difference in favor of the home manufacture as the law now stands.The advantage, indeed, to the distillation of spirits from the produce of the country, arising from the difference between the duties on spirits distilled from foreign, and those distilled from domestic materials, is exclusively the work of the last act, and is an advantage which has not been properly appreciated by those distillers of spirits from home produce who have complained of the law as hurtful to their manufacture.Causes entirely foreign to the law itself have also assisted in producing misapprehension. The approximation of the price of home-made spirits to that of foreign spirits, which has of late taken place, and which is attributed to the operation of the act in question, is in a great degree owing to the circumstances which have tended to raise the price of molasses in the West India market, and to an extra importation of foreign spirits prior to the first of July last, to avoid the payment of the additional duty which then took place.It is stated in the petition from Salem that previous to the last act, the price of domestic to foreign spirits was as 1s. 9d. to 3s. 4d. of the money of Massachusetts per gallon, and that since that act it has become as 3s. 3d. to 4s. 2d.It is evident that a rise from 1s. 9d. to 3s. 3d. per gallon, which would be equal to twenty cents, is not to be attributed wholly to a duty of eleven cents. Indeed, if there were a concurrence of no other cause, the inference would be very different from that intended to be drawn from the fact, for it would evince a profit gained to the distiller of more than eighty per cent. on the duty.It is, however, meant to be understood that this approximation of prices occasions a greater importation and consumption of foreign, and a less consumption of domestic, spirits than formerly. How far this may, or may not be the case, the Secretary is not now able to say with precision, but no facts have come under his notice officially which serve to authenticate the suggestion; and it must be considered as possible that representations of this kind are rather the effect of apprehension than of experience. It would even be not unnatural that a considerable enhancement of the prices of the foreign article should have led to a greater consumption of the domestic article, as the cheaper of the two, though dearer itself than formerly.But while there is ground to believe, that the suggestions which have been made on this point are, in many respects, inaccurate and misconceived, there are known circumstances which seem to render advisable some greater difference between the duties on foreign and on home-made spirits. These circumstances have been noticed in the report of the Secretary on the subject of manufactures, and an alteration has been proposed by laying two cents in addition upon imported spirits of the lowest proof, with a proportional increase on the higher proofs, and by deducting one cent from the duty on the lowest proof of home-made spirits, with a proportional diminution in respect to the higher proofs.This alteration would bring the proportion of the duties nearly to the standard which the petitioner, Hendrick Doyer, who appears likely to be well informed on the subject, represents as the proper one to enable the distillation of Geneva to be carried on with the same advantage as before the passing of the act. He observes, that the duty on home-made Geneva being nine cents, the additional duty on foreign ought to have been twelve cents. By the alteration proposed, the proportion will be as ten to eight, which is little different from that of twelve to nine.It is worthy of remark, that the same petitioner states, that, previous to the passing of the act of which he complains, he “could sell his Geneva sixteen and a quarter per cent. under the price of Holland Geneva, but that he cannot do it at present, and in future, lower than fourteen per cent.” If, as he also states, the quality of his Geneva be equal to that of Holland, and, if his meaning be, as it appears to be, that he can now afford to sell his Geneva lower, by fourteen per cent. than the Geneva of Holland, it will follow, that the manufacture of that article is in a very thriving train, even under the present rate of duties. For a difference of fourteen per cent. in the price is capable of giving a decided preference to the sale of the domestic article.
- 2.It is objected, that the duty, by being laid in the first instance upon the distiller, instead of the consumer, makes a larger capital necessary to carry on the business; and, in this country, where capitals are not large, puts the national distiller under disadvantages.But this inconvenience, as far as it has foundation, in the state of things, is essentially obviated by the credits given. Where the duty is payable upon the quantity distilled, a credit is allowed, which cannot be less than six, and may extend to nine, months. Where the duty is charged on the capacity of the still, it is payable half yearly. Sufficient time is, therefore, allowed, to raise the duty from the sale of the article: which supersedes the necessity of a greater capital. It is well known, that the article is one usually sold for cash, or at short credit. If these observations are not applicable to distilleries in the interior country, the same may be said, in a great degree, of the objection itself. The course of the business, in that quarter, renders a considerable capital less necessary than elsewhere. The produce of the distiller's own farm, or of the neighboring farms, brought to be distilled upon shares, or compensations in the article itself, constitute the chief business of the distilleries in the remote parts of the country. In the comparatively few instances in which they may be prosecuted as a regular business, upon a large scale, by force of capital, the observations which have been made will substantially apply.The collection of the duty from the distiller, has, on the other hand, several advantages. It contributes to equality, by charging the article in the first stage of its progress, which diffuses the duty among all classes alike. It the better secures the collection of the revenue, by confining the responsibility to a smaller number of persons, and simplifying the process. And it avoids the necessity of so great a number of officers, as would be required in a more diffused system of collection, operating immediately upon purchasers and consumers. Besides, that the latter plan would transfer whatever inconveniences may be incident to the collection from a smaller to a greater number of persons.
- 3.It is alleged that the inspection of the officers is injurious to the business of distilling, by laying open its secrets or mysteries.Different distillers, there is no doubt, practise, in certain respects, different methods in the course of their business, and have different degrees of skill. But it may well be doubted whether, in a business so old and so much diffused as that of the distillation of spirits, there are at this day secrets of consequence to the possessors. There will, at least, be no hazard in taking it for granted that none such exist in regard to the distillation of rum from molasses or sugar, or of the spirits from grain usually called whiskey, or of brandies from the fruits of this country. The cases in which the allegations are made with most color apply to Geneva, and, perhaps, to certain cordials.It is probable that the course of the business might and would always be such as, in fact, to involve no inconvenience on this score. But, as the contrary is affirmed, and as it is desirable to obviate complaint as far as it can be done consistently with essential principles and objects, it may not be unadvisable to attempt a remedy.It is to be presumed that, if any secrets exist, they relate to a primary process, particularly the mixture of the ingredients; this, it is supposable, cannot take a greater time each day than two hours. If, therefore, the officers of inspection were enjoined to forbear their visits to the part of the distillery commonly made use of for such process, during a space not exceeding two hours in each day, to be notified by the distiller, there is ground to conclude that it would obviate the objection.
- 4.The regulations for marking of casks and vessels, as well as houses and buildings, also furnish matter of complaint.This complaint, as it regards houses and buildings, has been already attended to. But there is a light in which it is made that has not yet been taken notice of.It is said that the requiring the doors of the apartments, as well as the outer door of each building, to be marked, imposes unnecessary trouble.When it is considered how little trouble or expense attends the execution of this provision, in the first instance, and that the marks once set will endure for a great length of time, the objection to it appears to be without weight.But the provision, as it relates to the apartments of buildings, has for its immediate object the convenience of the distillers themselves. It is calculated to avoid the very evil of an indiscriminate search of their houses and buildings by enabling them to designate the particular apartments which are employed for the purposes of their business, and to secure all others from inspection and visitation.The complaint, as it respects the marking of casks and vessels, has somewhat more foundation. It is represented (and upon careful inquiry appears to be true) that, through long-established prejudice, home-made spirits of equal quality with foreign, if known to be home-made, will not command an equal price. This particularly applies to Geneva.If the want of a distinction between foreign and home-made spirits were an occasion of fraud upon consumers, by imposing a worse for a better commodity, it would be a reason for continuing it; but as far as such a distinction gives operation to a mere prejudice, favorable to a foreign and injurious to a domestic manufacture, it furnishes a reason for abolishing it.Though time might be expected to remove the prejudice, the progress of the domestic manufacture, in the interval, might be materially checked.It appears, therefore, expedient to remove this ground of complaint by authorizing the same marks and certificates both for foreign and for home-made Geneva.Perhaps, indeed, it may not be unadvisable to vest somewhere a discretionary power to regulate the forms of certificates which are to accompany, and the particular marks which are to be set upon casks and vessels containing spirits, generally, as may be found convenient in practice.Another source of objection with regard to the marking of casks is, that there is a general prohibition against defacing or altering the marks, and a penalty upon doing it, which prevents the using of the same casks more than once, and occasions waste, loss, and embarrassment.It is conceived that this prohibition does not extend to the effacing of old marks, and placing of new ones, by the officers of the revenue, or in their presence, and by their authority. But as real inconveniences would attend a contrary construction, and there is some room for question, it appears desirable that all doubt should be removed by an explicit provision to enable the officer to efface old marks and substitute new ones, when casks have been emptied of their former contents and are wanted for new use.
- 5.The requisition to keep an account from day to day of the quantity of spirits distilled is represented both as a hardship and impossible to be complied with.But the Secretary is unable to perceive that it can justly be viewed either in the one or in the other light. The trouble of setting down, in the evening, the work of the day in a book prepared for and furnished to the party, must be inconsiderable, and the doing of it would even conduce to accuracy in business.The idea of impracticability must have arisen from some misconception. It seems to involve a supposition that something is required different from the truth of the fact. Spirits distilled are usually distinguished into high wines, proof spirits, and low wines. It is certainly possible to express each day the quantity of each kind produced, and, where one kind is converted into another, to explain it by brief notes, showing in proper columns the results in those kinds of spirits which are ultimately prepared for sale.A revision is now making of the forms at first transmitted, and it is not doubted that it will be easy to obviate the objection of impracticability.On full reflection, the Secretary is of opinion that the requisition in this respect is a reasonable one, and that it is of importance to the due collection of the revenue, especially in those cases where, by the alternative allowed in favor of country distilleries, the oath of a party is the only evidence of the quantity produced. It is useful in every such case to give the utmost possible precision to the object which is to be attested.
- 6.It is alleged as a hardship, that distilleries are held responsible for the duties on spirits which are exported, till certain things, difficult to be performed, are done, in order to entitle the exporter to the drawback. And the Government relies on the bond of the exporter for a fulfillment of the conditions upon which the drawback is allowed.This is a misapprehension. The drawback is at all events to be paid in six months, which is as early as the duty can become payable, and frequently earlier than it does become payable.An explanation to the several collectors of this point, which has taken place since the complaint appeared, will have removed the cause of it.The same explanation will obviate another objection, founded on the supposition that the bond of the distiller and that of the exporter are for a like purpose. The latter is merely to secure the landing of the goods in a foreign country, and will often continue depending after every thing relative to duty and drawback has been liquidated and finished.
- 7.It is an article of complaint that no drawback is allowed in case of shipwreck, when spirits are sent from one port to another in the United States.There does not occur any objection to a provision for making an allowance of that kind, which would tend to alleviate misfortune and give satisfaction.8.The necessity of twenty-four hours’ notice, in order to the benefit of drawback on the exportation of spirits, and the prohibition to remove them from a distillery after sunset, except in the presence of an officer, are represented as embarrassments to business.The length of notice required appears greater than is necessary. It is not perceived that any inconvenience could arise from reducing the time to six hours.But it is not conceived to be necessary or expedient to make an alteration in the last-mentioned particular. The prohibition is of real consequence to the security of the revenue. The course of business will readily adapt itself to it, and the presence of an officer in extraordinary cases will afford due accommodation.
- 9.It is stated as a hardship, that there is no allowance for leakage and wastage, in the case of spirits shipped from one State to another.The law for the collection of the duties on imports and tonnage allows two per cent. for leakage, on spirits imported. A similar allowance on home-made spirits at the distillery does not appear less proper.
- 10.It is mentioned as a grievance, that distillers are required to give bond, with surety, for the amount of the duties, and that the sufficiency of the surety is made to depend on the discretion of the chief officer of inspection.
The requiring of sureties can be no more a hardship on distillers, than on importing merchants, and every other person to whom the public afford a credit. It is a natural consequence of the credit allowed; and a very reasonable condition of the indulgence, which, without this precaution, might be imprudent, and injurious to the United States.
The party has his option to avoid it by prompt payment of the duty, and is even entitled to an abatement, which may be considered as a premium, if he elects to do so.
As to the second point, if sureties are to be given, there must be some person on the part of the Government to judge of their sufficiency, otherwise the thing itself would be nugatory; and the discretion cannot be vested more conveniently for the party, than in the chief officer of inspection for the survey.
A view has now been taken of most, if not of all, the objections of a general nature, which have appeared.
Some few, of a local complexion, remain to be attended to.
The representation signed Edward Cook, chairman, as on behalf of the four most western counties of Pennsylvania, states that the distance of that part of the country from a market for its produce, leads to a necessity of distilling the grain, which is raised, as a principal dependence of its inhabitants; which circumstance, and the scarcity of cash, combine to render the tax in question unequal, oppressive, and particularly distressing to them.
As to the circumstance of equality, it may safely be affirmed to be impracticable to devise a tax which shall operate with exact equality upon every part of the community. Local and other circumstances will inevitably create disparities, more or less great.
Taxes on consumable articles have, upon the whole, better pretensions to equality than any other. If some of them fall more heavily on particular parts of the community, others of them are chiefly borne by other parts. And the result is an equalization of the burthen as far as it is attainable. Of this class of taxes it is not easy to conceive one which can operate with greater equality than a tax on distilled spirits. There appears to be no article, as far as the information of the Secretary goes, which is an object of more equal consumption throughout the United States.
In particular districts, a greater use of cider may occasion a smaller consumption of spirits; but it will not be found, on a close examination, that it makes a material difference. A greater or less use of ardent spirits, as far as it exists, seems to depend more on relative habits of sobriety or intemperance than on any other cause.
As far as habits of less moderation, in the use of distilled spirits, should produce inequality anywhere, it would certainly not be a reason with the Legislature either to repeal or lessen a tax, which, by rendering the article dearer, might tend to restrain too free an indulgence of such habits.
It is certainly not obvious how this tax can operate particularly unequally upon the part of the country in question. As a general rule it is a true one, that duties on articles of consumption fall on the consumers, by being added to the price of the commodity. This is illustrated, in the present instance, by facts. Previous to the law laying a duty on home-made spirits, the price of whiskey was about thirty-eight cents; it is now about fifty-six cents. Other causes may have contributed in some degree to this effect, but it is evidently to be ascribed chiefly to the duty.
Unless, therefore, the inhabitants of the counties which have been mentioned are greater consumers of spirits than those of other parts of the country, they cannot pay a greater proportion of the tax. If they are, it is their interest to become less so. It depends on themselves, by diminishing the consumption, to restore equality.
The argument that they are obliged to convert their grain into spirits, in order to transportation to distant markets, does not prove the point alleged. The duty on all they send to those markets will be paid by the purchasers. They will still pay only upon their own consumption.
As far as an advance is laid upon the duty, or as far as the difference of duty between whiskey and other spirits tends to favor a greater consumption of the latter, they, as greater manufacturers of the article, supposing this fact to be as stated, will be proportionably benefited.
The duty on home-made spirits from domestic materials, if paid by the gallon, is nine cents. From the communications which have been received since the passing of the act, it appears that, paying the rate annexed to the capacity of the still, and using great diligence, the duty may be, in fact, reduced to six cents per gallon. Let the average be taken at seven and a half cents, which is probably higher than is really paid.
Generally speaking, then, for every gallon of whiskey which is consumed, the consumer may be supposed to pay seven and a half cents; but for every gallon of spirits, distilled from foreign materials, the consumer pays at least eleven cents, and for every gallon of foreign spirits, at least twenty cents. The consumer, therefore, of foreign spirits pays nearly three times the duty, and the consumer of home-made spirits, from foreign materials, nearly fifty per cent. more duty, on the same quantity, than the consumer of spirits from domestic materials, exclusive of the greater price, in both cases, which is an additional charge upon each of the two first-mentioned classes of consumers.
When it is considered that 8/21 parts of the whole quantity of spirits consumed in the United States are foreign, and 7/21 are of foreign materials, and that the inhabitants of the Atlantic and midland counties are the principal consumers of these more highly taxed articles, it cannot be inferred that the tax under consideration bears particularly hard on the inhabitants of the Western country.
This may serve as an exemplification of a general proposition, of material consequence, namely, that if the former descriptions of citizens are able, from situation, to obtain more for their produce than the latter, they contribute proportionally more to the revenue. Numerous other examples, in confirmation of this, might be adduced.
As to the circumstance of scarcity of money, as far as it can be supposed to have foundation, it is as much an objection to any other tax as the one in question. The weight of the tax is not certainly such as to involve any peculiar difficulty. It is impossible to conceive that nine cents per gallon on distilled spirits, which is stating it at the highest, can, from the magnitude of the tax, distress any part of the country, which has an ability to pay taxes at all—enjoying, too, the unexampled advantage of a total exemption from taxes on houses, lands, or stock.
The population of the United States being about four millions of persons, and the quantity of spirits annually consumed between ten and eleven millions of gallons, the yearly proportion to each family, if consisting of six persons, which is a full ratio, would be about sixteen gallons, the duty upon which would be less than one dollar and a half. The citizen who is able to maintain a family, and who is the owner or occupier of a farm, cannot feel any inconvenience from so light a contribution; and the industrious poor, whether artisans or laborers, are usually allowed spirits, or an equivalent, in addition to their wages.
The Secretary has no evidence to satisfy his mind that a real scarcity of money will be found, on experiment, a serious impediment to the payment of the tax anywhere. In the quarter where this complaint has particularly prevailed, the expenditures, for the defence of the frontier, would seem alone sufficient to obviate it. To this it is answered that the contractors for the supply of the army operate with goods, and not with money. But this still tends to keep at home whatever money finds its way there. Nor is it a fact, if the information of the Secretary be not materially erroneous, that the purchases of the contractors of flour, meat, etc., are wholly with goods. But, if they were, the Secretary can aver that more money has, in the course of the last year, been sent into the Western country from the treasury, in specie and bank-bills, which answer the same purpose, for the pay of the troops and militia, and for the quartermaster's supplies, than the whole amount of the tax in the four western counties of Pennsylvania and the district of Kentucky is likely to equal in four or five years. Similar remittances are likely to be made in future.
Hence, the Government itself furnishes, and, in all probability, will continue to furnish, the means of paying its own demands, with a surplus which will sensibly foster the industry of the parties concerned, if they avail themselves of it, under the guidance of a spirit of economy and exertion.
Whether there be no part of the United States in which the objection of want of money may truly exist, in a degree to render the payment of the duty seriously distressing to the inhabitants, the Secretary is not able to pronounce. He can only express his own doubt of the fact, and refer the matter to such information as the members of any district, so situated, may have it in their power to offer to the legislative body.
Should the case appear to exist, it would involve the necessity of a measure, in the abstract, very ineligible, that is, the receipt of the duty in the article itself.
If an alternative of this sort were to be allowed, it would be proper to make it the duty of the party paying to deliver the article at the place in each county where the office of inspection is kept, and to regulate the price according to such a standard as would induce a preference of paying in cash, except from a real impracticability of obtaining it.
In regard to the petition from the district of Kentucky, after what has been said with reference to other applications, it can only be necessary to observe that the exemption which is sought by that petition is rendered impracticable by an express provision of the Constitution, which declares that “all duties, imposts, and excises shall be uniform throughout the United States.”
In the course of the foregoing examination of the objections which have been made to the law, some alterations have been submitted for the purpose of removing a part of them. The Secretary will now proceed to submit such further alterations as appear to him advisable, arising either from the suggestions of the officers of the revenue or from his own reflections.
- 1.It appears expedient to alter the distinction respecting distilleries from domestic materials in cities, towns, and villages, so as to confine it to one or more stills worked at the same distillery, the capacity or capacities of which together do not fall short of four hundred gallons.The effectual execution of the present provisions respecting distilleries from home materials in cities, towns, and villages would occasion an inconvenient multiplication of officers, and would, in too great a degree, exhaust the product of the duty in the expense of collection. It is also probable that the alteration suggested would also conduce to public satisfaction.
- 2.The present provisions concerning the entering of stills are found by experience not to be adequate, and, in some instances, not convenient.It appears advisable that there shall be one office of inspection for each county, with authority to the supervisor to establish more than one, if he shall judge it necessary for the accommodation of the inhabitants; and that every distiller, or person having or keeping a still, shall be required to make entry of the same at some office of inspection for the county, within a certain determinate period in each year. It will be proper, also, to enjoin upon every person, who, residing within the county, shall procure a still, or who, removing into a county, shall bring into it a still, within twenty days after such procuring or removal, and before he or she begins to use the still, to make entry at the office of inspection. Every entry, besides describing the still, should specify in whose possession it is, and the purpose for which it is intended, as, whether for sale or for use in distilling; and in the case of a removal of the person from another place into the county, shall specify the place from which the still shall have been brought. A forfeiture of the still ought, in every case in which an entry is required, to attend an omission to enter.This regulation, by simplifying the business of entering stills, would render it easier to comprehend and comply with what is required, would furnish the officers with a better rule for ascertaining delinquencies, and, by avoiding to them a considerable degree of unnecessary trouble, will facilitate the retaining of proper characters in the offices of collectors.
- 3.It is represented that difficulties have, in some instances, arisen, concerning the persons responsible for the duty. The apparent not being always the real proprietor, an opportunity for collusion is afforded; and without collusion the uncertainty is stated as a source of embarrassment.It also, sometimes, happens that certain itinerant persons, without property, complying with the preliminary requisitions of the law as to entry, etc., erect and work stills for a time, and before a half yearly period of payment arrives, remove and evade the duty.It would tend to remedy these inconveniences if possessors and proprietors of stills were made jointly and severally liable, and if the duty were made a specific lien on the still itself; if, also, the proprietor of the land upon which any still may be worked should be made answerable for the duty, except where it is worked by a lawful and bona-fide tenant of the land of an estate not less than for a term of one year, or unless such proprietor can make it appear that the possessor of the still was, during the whole time, without his privity or connivance, an intruder or trespasser on the land; and if, in the last place, any distiller, about to remove from the division in which he is, should be required, previous to such removal, to pay the tax for the year, deducting any prior payments, or give bond, with approved security, conditioned for the payment of the full sum for which he or she should be legally accountable to the end of the year, to the collector of the division to which the removal shall be, rendering proof thereof, under the hand of the said collector, within six months after the expiration of the year.As well with a view to the forfeiture of the still for non-entry, as to give effect to a specific lien of the duty (if either or both of these provisions should be deemed eligible), it will be necessary to enjoin it upon the officers of the revenue to identify, by proper marks, the several stills which shall have been entered with them.
- 4.The exemptions granted to stills of the capacity of fifty gallons and under, by the 36th section of the law, appear, from experience, to require revision.Tending to produce inequality, as well as to frustrate the revenue, they have excited complaint. It appears, at least, advisable, that the obligation to enter, as connected with that of paying duty, should extend to stills of all dimensions, and that it should be enforced, in every case, by the same penalty.
- 5.The 28th section of the act makes provision for the seizure of spirits, unaccompanied with marks and certificates, in the cases in which they are required; but as they are required only in certain cases, and there is no method of distinguishing the spirits, in respect to which they are necessary, from those in respect to which they are not necessary, the provision becomes nugatory, because an attempt to enforce it would be oppressive. Hence, not only a great security for the due execution of the law is lost, but seizures very distressing to unoffending individuals must happen, notwithstanding great precaution to avoid them.It would be, in the opinion of the Secretary, of great importance to provide, that all spirits whatsoever, in casks or vessels of the capacity of twenty gallons and upwards, should be marked and certified, on pain of seizure and forfeiture, making it the duty of the officers to furnish the requisite certificates gratis, to distillers and dealers, in all cases in which the law shall have been complied with.In those cases in which an occasional recurrence to the officers for certificates might be inconvenient, blanks may be furnished, to be accounted for. And it may be left to the parties themselves, in the like cases, to mark their own casks or vessels in some simple manner, to be defined in the law. These cases may be designated generally. They will principally relate to dealers who, in the course of their business, draw off spirits from larger to smaller casks, and to distillers who pay according to the capacities of their stills.As a part of a regulation of this sort it will be necessary to require that within a certain period, sufficiently long to admit of time to know and comply with the provision, entry shall be made by all dealers and distillers of all spirits in their respective possessions, which shall not have been previously marked and certified according to law, in order that they may be marked and certified as old stock.The regulations here proposed, though productive of some trouble and inconvenience in the outset, will be afterwards a security both to individuals and to the revenue.
- 6.At present spirits may not be imported from abroad in casks of less capacity than fifty gallons. The size of these casks is smaller than is desirable, so far as the security of the revenue is concerned, and there has not occurred any good objection to confining the importation to larger casks,—that is to say, to casks of not less than ninety gallons. Certainly, as far as respects rum from the West Indies, it may be done without inconvenience, being conformable to the general course of business. The result of examination is that the exception as to this particular, in favor of gin, may be abolished. Should any alteration on this subject take place, it ought not to begin to operate till after the expiration of the year.
- 7.There is ground to suppose that the allowance of drawback, without any limitation as to quantity, has been abused. It is submitted that none be made on any less quantity than one hundred and fifty gallons.
- 8.There is danger that facility may be given to illicit importations by making use of casks which have been once regularly marked, and the certificates which have been issued with them, to cover other spirits than those originally contained in such casks. Appearances which countenance suspicion on this point have been the subjects of representation from several quarters.The danger may be obviated by prohibiting the importation in such marked casks on pain of forfeiture both of the spirits and of any ship or vessel in which they may be brought. A prohibition of this sort does not appear liable to any good objection.
- 9.The duty of sixty cents per gallon of the capacity of a still was founded upon a computation that a still of any given dimensions, worked four months in the year, which is the usual period of country distillation, would yield a quantity of spirits, which, at the rate of nine cents per gallon, would correspond with sixty cents per gallon of the capacity of the still. It will deserve consideration whether it will not be expedient to give an option to country distillers, at the annual entry of their stills, to take out a license for any portion of the year which they may respectively think fit, and to pay at the rate of twelve and a half cents per gallon of the capacity, per month, during such period. This to stand in lieu of the alternative of paying by the gallon distilled; it would obviate in this case the necessity of accounting upon oath, and would leave it in the power of each distiller to cover the precise time he meant to work his still with a license, and to pay for that time only. A strict prohibition to distil at any other time than that for which the license was given would be of course necessary to accompany the regulation as far as regarded any such licensed distiller.
The only remaining points which have occurred, as proper to be submitted to the consideration of the Legislature, respect the officers of the revenue.
It is represented that, in some instances, from the ill humor of individuals, the officers have experienced much embarrassment in respect to the filling of stills with water to ascertain their capacity, which, upon examination, is found the most simple and practicable mode. The proprietors have, in some instances, not only refused to aid the officers, but have even put out of their way the means by which the filling might be conveniently accomplished.
It would conduce to the easy execution of the law, and to the very important purpose of retaining and procuring respectable characters as collectors, if the proprietors and possessors of stills were required to aid them in the execution of this part of their duty, or to pay a certain sum as a compensation for the doing of it.
The limits assigned in the law respecting compensations are found in practice essentially inadequate to the object.
This is so far the case that it becomes the duty of the Secretary to state that greater latitude in this particular is indispensable to the effectual execution of the law.
In the most productive divisions the commissions of the collectors afford but a moderate compensation. In the greatest part of them the compensation is glaringly disproportioned to the service; in many of them it falls materially short of the expense of the officer.
It is believed that in no country whatever has the collection of a similar duty been effected within the limit assigned. Applying in the United States to a single article only, and yielding consequently a less total product than where many articles are comprehended, the expense of collection must of necessity be proportionally greater.
It appears to the Secretary that seven and a half per cent. of the total product of the duties on distilled spirits, foreign as well as domestic, and not less, will suffice to defray the compensations to officers and other expenses incidental to the collection of the duty. This is to be understood as supplemental to the present custom-house expenses.
It is unnecessary to urge to the House of Representatives how essential it must be to the execution of the law, in a manner effectual to the purposes of the Government and satisfactory to the community, to secure by competent though moderate rewards the diligent services of respectable and trustworthy characters.
All of which is humbly submitted.
additional supplies for 1792
- Communicated to the House of Representatives,
March 17, 1792.
- Treasury Department,
March 16, 1792.
The Secretary of the Treasury, pursuant to a resolution of the House of Representatives, of the 8th instant, directing the said Secretary to report to the House his opinion of the best mode of raising the additional supplies requisite for the ensuing year, respectfully submits the following report:
The sum which is estimated to be necessary for carrying into effect the purposes of the act for making further and more effectual provision for the protection of the frontiers of the United States, beyond the provision made by the act making appropriations for the support of Government for the year 1792, is $675,950.08.
The returns which have been received at the treasury subsequent to the Secretary's report of the 23d of January last, among which are those of some principal ports, afford satisfactory ground of assurance that the quarter ending the last of December was considerably more productive than it was supposed likely to prove, authorizing a reliance that the revenues, to the end of the year 1791, will yield a surplus of $150,000, which may be applied in part of the sum of $675,950.08, above stated to be necessary.
Provision remains to be made for the residue of this sum, namely, $525,950.08.
Three expedients occur to the option of the Government for providing this sum.
One, to dispose of the interest to which the United States are entitled in the Bank of the United States. This, at the present market price of bank stock, would yield a clear gain to the Government much more than adequate to the sum required.
Another, to borrow the money upon an establishment of funds, either merely commensurate with the interest to be paid, or affording a surplus which will discharge the principal by instalments within a short time.
The third is to raise the amount by taxes.
The first of these three expedients appears to the Secretary altogether unadvisable.
First. It is his present opinion that it will be found, in various respects, permanently the interest of the United States to retain the interest to which they are entitled in the bank. But,
Secondly. If this opinion should not be well founded, it would be improvident to dispose of it at the present juncture, since, upon a comprehensive view of the subject, it can hardly admit of a doubt that its future value, at a period not very distant, will be considerably greater than its present, while the Government will enjoy the benefit of whatever dividends shall be declared in the interval. And,
Thirdly. Whether it shall be deemed proper to retain or dispose of this interest, the most useful application of the proceeds will be as a fund for extinguishing the public debt. A necessity of applying it to any different object, if it should be found to exist, would be matter of serious regret.
The second expedient would, in the judgment of the Secretary, be preferable to the first.
For this, the following reason, if there were no other, is presumed to be conclusive, namely, that the probable increase of the value of the stock may itself be estimated as a considerable, if not a sufficient, fund for the repayment of the sum which might be borrowed.
If the measure of a loan should be thought eligible, it is submitted, as most advisable, to accompany it with a provision sufficient not only to pay the interest, but to discharge the principal within a short period. This will at least mitigate the inconvenience of making an addition to the public debt.
But the result of mature reflection is, in the mind of the Secretary, a strong conviction that the last of the three expedients which have been mentioned, is to be preferred to either of the other two.
Nothing can more interest the national credit and prosperity than a constant and systematic attention to husband all the means previously possessed for extinguishing the present debt, and to avoid as much as possible the incurring of any new debt.
Necessity alone, therefore, can justify the application of any of the public property, other than the annual revenues, to the current service, or to the temporary and casual exigencies of the country, or the contracting of an additional debt, by loans, to provide for those exigencies.
Great emergencies, indeed, might exist, in which loans would be indispensable. But the occasions which will justify them must be truly of that description.
The present is not of such a nature. The sum to be provided is not of magnitude enough to furnish the plea of necessity.
Taxes are never welcome to a community. They seldom fail to excite uneasy sensations, more or less extensive. Hence, a too strong propensity in the governments of nations to anticipate and mortgage the resources of posterity, rather than encounter the inconveniences of an increase of taxes.
But this policy, when not dictated by very peculiar circumstances, is of the worst kind. Its obvious tendency is, by enhancing the permanent burthens of the people, to produce lasting distress, and its natural issue is in national bankruptcy.
It will be happy if the councils of this country, sanctioned by the voice of an enlightened community, shall be able to pursue a different course.
Yielding to this impression, the Secretary proceeds to state, for the consideration of the House, the objects which have occurred to him as most proper to be resorted to for raising the requisite sum by taxes.
From the most careful view which he is able to take of all the circumstances that at the present juncture naturally enter into consideration, he is led to conclude that the most eligible mode in which the necessary provision can at this time be made is by some additional duties on imported articles.
This conclusion is made with reluctance, for reasons which were noticed upon a former occasion, and from the reflection that frequent and unexpected alterations in the rates of duties on the objects of trade, by inducing uncertainty in mercantile speculations and calculations, are really injurious to commerce, and hurtful to the interests of those who carry it on.
The stability of the duties to be paid by the merchants, is, in fact, of more consequence to them than their quantum, if within reasonable bounds.
It were, therefore, much to have been wished, that so early a resort to new demands, on that class of citizens, could have been avoided, and, especially, that they could have been deferred until a general tariff could have been maturely digested, upon principles which might, with propriety, render it essentially stationary.
But, while there are these motives to regret, there are others of a consoling tendency, some of which indicate that an augmentation of duties, at the present juncture, may have the effect of lessening some public evils, and producing some public benefits.
It is a pleasing fact, if the information of the Secretary be not very erroneous, that the improved state of the credit of this country enables our merchants to procure the supplies which they import from abroad upon much more cheap and advantageous terms than heretofore; a circumstance which must alleviate to them the pressure of somewhat higher rates of duty, and must contribute, at the same time, to reconcile them to burthens, which, being connected with an efficacious discharge of the duty of the Government, are of a nature to give solidity and permanency to the advantages they enjoy under it.
It is certain, also, that a spirit of manufacturing prevails at this time, in a greater degree than it has done at any antecedent period; and, as far as an increase of duties shall tend to second and aid this spirit, they will serve to promote essentially the industry, the wealth, the strength, the independence, and the substantial prosperity of the country.
The returns for a year, ending with the thirtieth of September last, an abstract of which is in preparation to be communicated to the Legislature, evince a much increased importation during that year, greater far than can be referred to a naturally increasing demand from the progress of population, and announce a probability of a more than proportional increase of consumption; there being no appearance of an extraordinary abundance of goods in the market. If, happily, an extension of the duties shall operate as a restraint upon excessive consumption, it will be a salutary means of preserving the community from future embarrassment, public and private. But, if this should not be the case, it is at least prudent in the Government to extract from it the resources necessary for current exigencies, rather than postpone the burthen to a period when that very circumstance may cause it to be more grievously felt.
These different considerations unite with others, which will suggest themselves, to induce, in the present state of things, a preference of taxes on imported articles to any other mode of raising the sum required.
It is, therefore, respectfully submitted, that the existing duties on the articles hereafter enumerated, be repealed, and that, in place of them, the following be laid, viz.:
|Madeira, of the quality of London particular .||$0 56|
|Madeira, of the quality of London market . .||49|
|Other Madeira wine . . . . . .||40|
|Sherry . . . . . . . .||33|
|St. Lucar . . . . . . . .||30|
|Lisbon . . . . . . . .||25|
|Oporto . . . . . . . .||25|
|Teneriffe and Fayal . . . . . .||20|
All other wines, 40 per centum ad valorem.
Those distilled wholly or chiefly from grain.
|Of the first class of proof . . . . .||$0 28|
|Of the second class of proof . . . . .||29|
|Of the third class of proof . . . . .||31|
|Of the fourth class of proof . . . . .||34|
|Of the fifth class of proof . . . . .||40|
|Of the sixth class of proof . . . . .||50|
other distilled spirits.
|Of the second class of proof, and under . .||$0 24|
|Of the third of proof, and under . . . .||27|
|Of the fourth of proof, and under . . . .||31|
|Of the fifth of proof, and under . . . .||37|
|Of the sixth of proof, and under . . . .||45|
|Beer, ale, and porter . . . .||per gallon,||0 08|
|Steel . . . . . . .||per cwt.,||1 00|
|Nails . . . . . . .||per lb.,||2|
|Cocoa . . . . . .||per lb.,||2|
|Chocolate . . . . . .||per lb.,||3|
|Playing cards . . . .||per pack,||25|
|Shoes and slippers of silk . . . . .||20|
|Shoes and slippers of stained or colored leather (other than black), for men and women||$0 10|
|Ditto for children . . . . .||7|
|All other shoes and slippers (for men and women), clogs and goloshes . . . .||10|
|All other shoes and slippers for children .||7|
articles ad valorem.
15 per cent. ad valorem.
Looking-glass, window, and other glass, and all manufactures of glass, black quart bottles excepted.
Swords, cutlasses, hangers, and other fire- and side-arms Starch.
10 per cent. ad valorem.
Cast, slit, and rolled iron, and generally all manufactures of iron, steel, tin, pewter, copper, brass, or of which either of these metals is the article of chief value (not being otherwise particularly enumerated).
Leather, tanned and tawed, and all manufactures of leather, or of which leather is the article of chief value (not being otherwise particularly enumerated).
Medicinal drugs, except those commonly used in dyeing.
Hats, caps, and bonnets, of every sort. Gloves and mittens.
Millinery, ready made.
Artificial flowers, feathers, and other ornaments for women's head-dresses.
Dolls, dressed and undressed.
Buttons of every kind.
Carpets and carpeting, mats and floor-cloths.
Sheathing and cartridge paper.
All powders, pastes, balls, balsams, ointments, oils, waters, washes, tinctures, essences, liquors, or other preparation or composition, commonly called sweet scents, odors, perfumes, or cosmetics.
All dentifrice, powders, tinctures, preparations, or compositions, whatsoever, for the teeth or gums.
Printed books, except those specially imported for a college, academy or other public or incorporated seminary of learning or institution, which shall be wholly exempted from duty.
The foregoing duties to be permanently established, and to be appropriated, in the first place, to the payment of the interest of the public debt; in the second, to such other grants and appropriations as have been heretofore made; and in the third, to the purposes of the act for making further and more effectual provision for the protection of the frontiers of the United States.
An addition of two and a half per cent. ad valorem to be made to the duty on all goods heretofore rated at five per centum ad valorem.
This addition to be temporary, and accordingly to be so established as that it shall not continue longer than till the present Indian war shall terminate, and the expenses of carrying it on shall have been defrayed, which will of course include the reimbursement of any sums that may have been borrowed by way of anticipation of the product of the duties.
It is represented that the present duty on salt operates unequally, from the considerable difference in weight, in proportion to quantity, of different kinds of salt; a bushel weighing from about fifty-six to upward of eighty weight. It would have an equalizing effect if the bushel were defined by weight; and if fifty-six pounds were taken as the standard, a valuable accession to the revenue would result.
This regulation is, therefore, submitted as a resource upon the present occasion; the rate of duty to remain as it is.
It will be a reasonable accommodation to trade, if it is made a part of this arrangement, to extend the credit for the duty on salt to a longer term. It is an article which, from the circumstances of its importation, frequently lies on hand for a considerable time; and in relation to the fisheries, is usually sold upon a credit of several months.
Some remarks may be proper in regard to the proposed duties. Those on spirits and wines may appear high. They are, doubtless, considerable. But there are precedents, elsewhere, of much higher duties on the same articles. And it is certainly, in every view, justifiable to make a free use of them for the purpose of revenue.
Wines, generally speaking, are the luxury of classes of the community who can afford to pay a considerable duty upon them.
It has appeared advisable to adhere to the idea of a specific duty per quantity on all the species of wines in most common consumption in the country, and those most susceptible of precise designation, as affording greatest certainty to the revenue; and to adopt a general ad-valorem rate for other kinds, proportioned to the specific duties. This rate is forty per cent.
The distinction has proceeded from the difficulty of a precise enumeration of all the other kinds of wine which are, and may be, imported, and of such an adjustment of specific rates as will bear some reasonable proportion to the value of the article. The present lowest rate of duty on wines amounts to two hundred and three hundred per cent. on the value of certain kinds, which may be considered as equivalent to a prohibition.
While, therefore, ideas of proportion will be better consulted than heretofore by the proposed arrangement, it is probable that the revenue will be benefited, rather than injured, by a reduction of the duties on low-priced wines.
The considerations which render ardent spirits a proper object of high duties have been repeatedly dwelt upon. It may be added, that it is a familiar and a just remark that the peculiarly low price of ardent spirits in this country is a great source of intemperance.
To bring the price of the article more nearly to a level with the price of it in other markets by an increase of duty, while it will contribute to the advancement of the revenue, cannot but prove, in other respects, a public benefit.
The rates proposed will be still moderate, compared with examples in other countries; and the article is of a nature to enable the importer, without difficulty, to transfer the duty to the consumer.
A discrimination is suggested in respect to duties on spirits distilled from grain. To this there have been two inducements: one, that the difference in the duty is conformable to the difference between the cost of the grain spirits usually imported, and that of West India rum. Another, that it is in a particular manner the interest of the United States to favor the distillation of its own grain, in competition with foreign spirits from the same material. In the second division of spirits, the first class of proof is dropped, because none of it comes from the West Indies, and because any other spirits, usually imported, which may be of so low a proof, are higher priced, even than some of the higher proofs of West India spirits. The dropping of that class of proof, therefore, in this case, is favorable to the revenue, and favorable to equality.
Several of the other specific duties which are proposed, besides the inducements to them as items of revenue, are strongly recommended by considerations which have been stated in the report of the Secretary, on the subject of manufactures. The same report states inducements to a 15 per cent. duty on some of the articles which are mentioned, as proper to be comprised under that rate.
With regard to china and glass, there are two weighty reasons for a comparatively high duty upon them. The use of them is very limited, except by the wealthier classes; and both their bulk and liability to damage in transportation are great securities against evasions of the revenue. It will, however, merit consideration, whether, for the accommodation of importers, a longer term of credit ought not to be allowed on these articles.
A duty of two cents per pound on cocoa is less, in proportion to the value, than the present duty on coffee. As an extensive article of consumption, it is a productive one of revenue.
The duty on playing-cards can give rise to no question except as to the practicability of a safe collection. In order to this, it will be proper to super-add certain precautions, which will readily occur in regulating the details of a bill for the purpose. A similar attention will be requisite in regard to the duties on wines. The employment of marks and certificates may advantageously be extended to this article.
The rate of 10 per centum ad valorem, it is hoped, will not be deemed immoderate in relation to the articles to which it is proposed to apply it. It is difficult to assign rules for what ought to be considered as a just standard. But, after the best consideration which the Secretary has been able to bestow upon it, he cannot discover that any real inconvenience is likely, permanently, to result from the extension of that rate to the cases proposed.
The addition of 2½ per cent. to the duty on the mass of articles now rated at five, will constitute an important, though not an excessive, augmentation. Nevertheless, it is proposed that it shall be only temporary; and there is reasonable ground of expectation, that the cause for having recourse to it will not be of very long continuance.
It will not have escaped the observation of the House, that the duties which were suggested in the Secretary's report on that subject, as encouragements to manufactures, are, for the most part, included among the objects of this report.
It may tend to avoid future embarrassment, if such abolitions and drawbacks as shall be deemed expedient, with a view to promoting manufactures, shall accompany the establishment and appropriation of whatever further duties may be laid, for the object in contemplation. And it may be found convenient to qualify the appropriation of the surplus which is to be applied to that object, so as to let in such other appropriations, during the session, as occurrences may suggest.
An estimate of the additional revenue which may be expected from the proposed duties is subjoined.
It will occur to the House, that the credit allowed for the duties will require an anticipation of their product by a temporary loan, for which provision in the law will be requisite.
All of which is humbly submitted.
hamilton to short1
- Treasury Department,
April 16, 1792.
The fluctuation of the price of the stocks in the United States is a circumstance that cannot have failed to attract your attention, nor to excite a temporary feeling in the minds of foreigners. Though I doubt not it will be well explained by the agents of those citizens of other countries who have vested their moneys in our funds, I think it necessary that some ideas should be communicated to you, on which you can found a true opinion, either for your own satisfaction or that of persons interested in our national welfare, with whom you may have occasion to confer.
The moderate size of the domestic debt of the United States appears to have created the most intemperate ideas of speculation in the minds of a very few persons, whose natural ardor had been increased by great success in some of the early stages of the melioration of the market value of the stock. To combinations of private capitals thus acquired or increased, sums of specie, obtained as well at the most extravagant rates of premium as at common interest, were added, and to these were joined purchases of stock on credits, for various terms, so as to create a delusive confidence that the concentration of so much stock in a few hands would secure a very high market rate. This expectation was increased by comparing the market values of the several species of our funds, with those of the same species of stock in Great Britain, the United Netherlands, and other parts of Europe, without due allowance for the deductions which should have been made on account of the great difference in the value of money, and the objections arising from our distance from those European money-holders whose capitals they expected to attract, and other relative circumstances. At the time when many heavy engagements thus formed were becoming due, some contentions among the dealers in, and proprietors of, the debt, took place, and counter combinations were formed to render the crisis of payment and speculation as inconvenient and disadvantageous as possible. By these means those eventual contracts, it was probably hoped, could be more cheaply complied with; and, moreover, that a reduced market would afford further opportunities of beneficial speculation. The extreme indiscretion of the first-mentioned speculations, and the distress which, it was manifest, they must produce, excited, perhaps, and animated the movements of the other party, and brought on a scene of private distress for money, both artificial and real, which probably has not been equalled in this country. It happened in the winter season, when the influx of cash articles of trade, as returns from abroad, is nearly suspended, and when quantities of specie were sent from the seaports to the interior country, for the purchase of produce to supply the demand for the spring exportation.
The banks, who can always perceive the approach of these things, were influenced to limit their operations, and particularly the Bank of the United States, which was then preparing for the opening of its branches, or offices of discount and deposit, in Boston, New York, Baltimore, and Charleston.
The United States, you would presume, could not be insensible of so fit a moment to make purchases of the public stock, and the Treasurer was accordingly authorized to buy; but, though the appearances of private distress for money were so great, he could not obtain for several days the sum of fifty thousand dollars, at the highest rates at which the public purchases had before been made. The holders who were free from engagements were averse to selling; the principal persons, who were under engagements they could not comply with, were obliged or disposed to place their effects in the hands of their creditors, who did not choose to add to their own disappointments of great profits actual losses by unseasonable sales of the bankrupts’ property. The stock in the market, therefore, was really made scarce. A quarter's interest has just been paid. Some of the cautious moneyed people have begun to purchase. The specie is returning from the country, and the heaviest private engagements having now fallen due, the declension of stock may be considered as arrested. There is little doubt that the difficulty for money among the dealers in the debt will be at no time so great as it has been, after the present week, and that changes of a favorable complexion are to be confidently expected; at first moderate, perhaps, afterwards such as will carry the funds up to their due value.
Should you be of opinion that the state of things in France will render some intimation of these events useful there, you will be good enough to communicate them to Mr. Morris, our minister at that court.
hamilton to washington1
August 18, 1792.
I am happy to be able, at length, to send you answers to the objections which were communicated in your letter of the 29th of July.
They have unavoidably been drawn in haste, too much so, to do perfect justice to the subject, and have been copied just as they flowed from my heart and pen, without revision or correction. You will observe that here and there some severity appears. I have not fortitude enough always to hear with calmness calumnies which necessarily include me, as a principal agent in the measures censured, of the falsehood of which I have the most unqualified consciousness. I trust I shall always be able to bear, as I ought, imputations of errors of judgment; but I acknowledge that I cannot be entirely patient under charges which impeach the integrity of my public motives or conduct. I feel that I merit them in no degree; and expressions of indignation sometimes escape me, in spite of every effort to suppress them. I rely on your goodness for the proper allowances.
With high respect and the most affectionate attachment, I have the honor to be, sir, etc.
objections1 and answers respecting the administration of the government
Objection 1.—The public debt is greater than we can possibly pay before other causes of adding to it will occur; and this has been artificially created by adding together the whole amount of the debtor and creditor sides of the accounts.
Answer.—The public debt was produced by the late war. It is not the fault of the present government that it exists, unless it can be proved that public morality and policy do not require of a government an honest provision for its debts. Whether it is greater than can be paid before new causes of adding to it will occur, is a problem incapable of being solved, but by experience; and this would be the case if it were not one fourth as much as it is. If the policy of the country be prudent, cautious, and neutral towards foreign nations, there is a rational probability that war may be avoided long enough to wipe off the debt. The Dutch, in a situation not near so favorable for it as that of the United States, have enjoyed intervals of peace longer than with proper exertions would suffice for the purpose. The debt of the United States, compared with its present and growing abilities, is really a very light one. It is little more than 15,000,000 of pounds sterling—about the annual expenditure of Great Britain.
But whether the public debt shall be extinguished or not, within a moderate period, depends on the temper of the people. If they are rendered dissatisfied by misrepresentations of the measures of the government, the government will be deprived of an efficient command of the resources of the community toward extinguishing the debt. And thus those who clamor are likely to be the principal causes of protracting the existence of the debt.
As to its having been artificially increased, this is denied; perhaps, indeed, the true reproach of the system which has been adopted is, that it has artificially diminished the debt, as will be explained by and by.
The assertion that the debt has been increased, by adding together the whole amount of the debtor and creditor sides of the account, not being easy to be understood, is not easy to be answered; but an answer shall be attempted.
The thirteen States, in their joint capacity, owed a certain sum. The same States, in their separate capacities, owed another sum. These two sums constitute the aggregate of the public debt. The public in a political sense, compounded of the governments of the Union and of the several States, was the debtor. The individuals who hold the various evidences of debt were the creditors. It would be nonsense to say, that the combining of the two parts of the public debt is adding together the debtor and creditor sides of the account. So great an absurdity cannot be supposed to be intended by the objection. Another meaning must therefore be sought for.
It may possibly exist in the following misconception. The States, individually, when they liquidated the accounts of individuals for services and supplies toward the common defence, during the late war, and gave certificates for the sums due, would naturally charge them to the United States as contributions to the common cause. The United States, in assuming to pay those certificates, charge themselves with them. And it may be supposed that here is a double charge for the same thing.
But as the amount of the sum assumed for each State is by the system adopted to be charged to such State, it of course goes in extinguishment of so much of the first charge as is equal to the sum assumed, and leaves the United States chargeable only once, as ought to be the case.
Or perhaps the meaning of the objection may be found in the following mode of reasoning. Some States, from having disproportionately contributed during the war, would probably on a settlement of accounts be found debtors, independently of the assumption. The assuming of the debts of such States increases the balances against them; and as these balances will ultimately be remitted, from the impracticability of enforcing their payment, the sum assumed will be an extra charge upon the United States, increasing the mass of the debt.
This objection takes it for granted, that the balances of the debtor States will not be exacted; which, by the way, is no part of the system, and if it should eventually not prove true, the foundation of the reasoning would fail. For it is evident, if the balances are to be collected, (unless there be some undiscovered error in the principle by which the accounts are to be adjusted,) that one side of the account will counterpoise the other, and every thing as to the quantum of debt will remain in statu quo.
But it shall be taken for granted, that the balances will be remitted; and still the consequence alleged does not result. The reverse of it may even take place. In reasoning upon this point, it must be remembered that impracticability would be alike an obstacle to the collection of balances, without, as with the assumption.
This being the case, whether the balances to be remitted will be increased or diminished must depend on the relative proportions of outstanding debts. If a former debtor State owes to individuals a smaller sum, in proportion to its contributive faculty, than a former creditor State, the assumption of the debts of both to be provided for out of a common fund raised upon them proportionally, must necessarily, on the idea of a remission of balances, tend to restore equality between them, and lessen the balance of the debtor State to be remitted.
How the thing may work upon the whole cannot be pronounced without a knowledge of the situation of the account of each State; but all circumstances that are known render it probable that the ultimate effect will be favorable to justice between the States, and that there will be inconsiderable balances either on one side or on the other.
It was observed, that perhaps the true reproach of the system which has been adopted is, that it has artificially decreased the debt. This is explained thus:
In the case of the debt of the United States, interest upon two thirds of the principal only, at six per cent., is immediately paid; interest upon the remaining third was deferred for ten years, and only three per cent. has been allowed upon the arrears of interest, making one third of the whole debt.
In the case of the separate debts of the States, interest upon four ninths only of the entire sum is immediately paid; interest upon two ninths was deferred for ten years, and only three per cent. allowed on three ninths.
The market rate of interest, at the time of adopting the funding system, was six per cent. Computing, according to this rate of interest, the then present value of one hundred dollars of debt, upon an average, principal and interest, was about seventy-three dollars.
At the present actual value, in the market, of one hundred dollars, as the several kinds of stock are sold, is no more than eighty-three dollars and sixty-one cents. This computation is not made on equal sums of the several kinds of stock, according to which the average value of one hundred dollars would be only seventy-eight dollars and seventy-five cents; but it is made on the proportions which constitute the mass of the debt.
At seventy-three to one hundred, the diminution on 60,000,000 is 16,200,000 dollars; at eighty-three dollars and sixty-one cents to one hundred, it is 9,834,000 dollars.
But as the United States, having a right to redeem in certain proportions, need never give more than par for the six per cents., the diminution to them, as purchasers at the present market prices, is 12,168,000 dollars.
If it be said that the United States are engaged to pay the whole sum, at the nominal value, the answer is, that they are always at liberty, if they have the means, to purchase at the market prices; and in all those purchases they gain the difference between the nominal sums and the lesser market rates.
If the whole debt had been provided for at six per cent., the market rate of interest when the funding system passed, the market value throughout would undoubtedly have been one hundred for one hundred. The debt may then rather be said to have been artificially decreased by the nature of the provision.
The conclusion from the whole is that, assuming it as a principle that the public debts of the different descriptions were honestly to be provided for and paid, it is the reverse of true that there has been an artificial increase of them. To argue on a different principle, is to presuppose dishonesty, and make it an objection to doing right.
Objection 2.—This accumulation of debt has taken for ever out of our power those easy resources of revenue which, applied to the ordinary necessities and exigencies of government, would have animated them habitually, and covered us from habitual murmurings against taxes and tax-gatherers;—reserving extraordinary calls for extraordinary occasions, would animate the people to meet them.
Answer.—There having been no accumulation of debt, if what is here pretended to have been the consequence were true, it would only be to be regretted as the unavoidable consequence of an unfortunate state of things. But the supposed consequence does by no means exist. The only sources of taxation which have been touched are imported articles, and the single internal object of distilled spirits; lands, houses, the great mass of personal as well as the whole of real property, remain essentially free.
In short, the chief sources of taxation are free for extraordinary conjunctures, and it is one of the distinguishing merits of the system which has been adopted, that it has rendered this far more the case than it was before. It is only necessary to look into the different States to be convinced of it. In most of them, real estate is wholly exempted. In some, very small burthens rest upon it for the purpose of the internal governments. In all, the burthens of the people have been lightened. It is a mockery of truth to represent the United States as a community burthened and exhausted by taxes.
Objection 3.—That the calls for money have been no greater than we must generally expect, for the same or equivalent exigencies; yet we are already obliged to strain the impost till it produces clamor, and will produce evasion, and war on our citizens to collect it, and even to resort to an excise law, of odious character with the people, partial in its operation, unproductive unless enforced by arbitrary and vexatious means, and committing the authority of the government, in parts where resistance is most probable and coercion least practicable.
Answer.—This is mere painting and exaggeration. With the exception of a very few articles, the duties on imports are still moderate—lower than in any other country of whose regulations we have knowledge, except, perhaps, Holland, where, having few productions or commodities of their own, their export trade depends on the exportation of foreign articles.
It is true that merchants have complained; but so they did of the first impost law, for a time; and so men always will do at an augmentation of taxes which touch the business they carry on, especially in a country where no, or scarcely any, such taxes before existed. The collection, it is not doubted, will be essentially secure. Evasions have existed, in a degree, and will continue to exist. Perhaps they may be somewhat increased, to what extent can only be determined by experience; but there are no symptoms to induce an opinion that they will materially increase. As to the idea of a war upon the citizens to collect the impost duties, it can only be regarded as a figure of rhetoric.
The excise law, no doubt, is a good topic of declamation; but can it be doubted that it is an excellent and a very fit means of revenue?
As to the partiality of its operation, it is no more so than any other tax on a consumable commodity, adjusting itself upon exactly the same principles. The consumer, in the main, pays the tax; and if some parts of the United States consume more domestic spirits, others consume more foreign, and both are taxed. There is, perhaps, upon the whole, no article of more general and equal consumption than distilled spirits.
As to its unproductiveness, unless enforced by arbitrary and vexatious means, facts testify the contrary. Already, under all the obstacles arising from its novelty and the prejudices against it in some States, it has been considerably productive; and it is not enforced by any arbitrary or vexatious means; at least, the precautions in the existing laws for the collection of the tax will not appear in that light but to men who regard all taxes, and all the means of enforcing them, as arbitrary and vexatious.
Here, however, there is abundant room for fancy to operate. The standard is in the mind, and different minds will have different standards.
The observation relating to the commitment of the authority of the government, in parts where resistance is most probable and coercion least practicable, has more weight than any other part of this objection. It must be confessed that a hazard of this nature has been run; but if there were motives sufficiently cogent for it, it was wisely run. It does not follow that a measure is bad because it is attended with a degree of danger.
The general inducements to a provision for the public debt are:
- 1. To preserve the public faith and integrity, by fulfilling, as far as was practicable, the public engagements.
- 2. To manifest a due respect for property, by satisfying the public obligations in the hands of the public creditors, and which were as much their property as their houses or their lands, their hats or their coats.
- 3. To revive and establish public credit, the palladium of public safety.
- 4. To preserve the government itself, by showing it worthy of the confidence which was placed in it; to procure to the community the blessings which in innumerable ways attend confidence in the government, and to avoid the evils which in as many ways attend the want of confidence in it.
A mind naturally attached to order and system, and capable of appreciating their immense value, unless misled by particular feelings, is struck at once with the prodigious advantages which, in the course of time, must attend such a simplification of the financial affairs of the country as results from placing all the parts of the public debt upon one footing, under one direction, regulated by one provision. The want of this sound policy has been a continual source of disorder and embarrassment in the affairs of the United Netherlands.
The true justice of the case of the public debt consists in that equalization of the condition of the citizens of all the States which must arise from a consolidation of the debt and common contributions towards its extinguishment. Little inequalities as to the past can bear no comparison with the more lasting inequalities which, without the assumption, would have characterized the future condition of the people of the United States, leaving upon those who had done most, or suffered most, a great additional weight of burden.
If the foregoing inducements to a provision for the public debt (including an assumption of the State debts) were sufficiently cogent, then the justification of the excise laws lies within a narrow compass. Some further source of revenue, besides the duties on imports, was indispensable, and none equally productive would have been so little exceptionable to the mass of the people.
Other reasons co-operated in the minds of some able men to render an excise at an early period desirable. They thought it well to lay hold of so valuable a resource of revenue before it was generally preoccupied by the State governments. They supposed it not amiss that the authority of the national government should be visible in some branch of internal revenue, lest a total non-exercise of it should beget an impression that it was never to be exercised, and next, that it ought not to be exercised. It was supposed, too, that a thing of the kind could not be introduced with a greater prospect of easy success than at a period when the government enjoyed the advantage of first impressions, when State factions to resist its authority were not yet matured, when so much aid was to be derived from the popularity and firmness of the actual Chief Magistrate.
Facts hitherto do not indicate the measure to have been rash or ill advised. The law is in operation with perfect acquiescence in all the States north of New York, though they contribute most largely. In New York and New Jersey it is in full operation, with some very partial complainings fast wearing away. In the greater part of Pennsylvania it is in operation, and with increasing good humor towards it. The four western counties continue exceptions. In Delaware it has had some struggle, which, by the last accounts, was surmounted. In Maryland and Virginia it is in operation, and without material conflict. In South Carolina it is now in pretty full operation, though in the interior parts it has had some serious opposition to overcome. In Georgia no material difficulty has been experienced. North Carolina, Kentucky, and the four western counties of Pennsylvania, present the only remaining impediments of any consequence to the full execution of the law. The latest advices from North Carolina and Kentucky were more favorable than the former.
It may be added as a well-established fact, that the effect of the law has been to encourage new enterprises in most of the States in the business of domestic distillation. A proof that it is perceived to operate favorably to the manufacture, and that the measure cannot long remain unpopular anywhere.
Objection 4.—Propositions have been made in Congress, and projects are on foot still to increase the mass of the debt.
Answer.—Propositions have been made, and no doubt will be renewed by the States interested, to complete the assumption of the State debts. This would add in the first instance to the mass of the debt of the United States between three and four millions of dollars, but it would not increase the mass of the public debt at all. It would only transfer from particular States to the Union debts which already exist, and which, if the States indebted are honest, must be provided for. It happens that Massachusetts and South Carolina would be chiefly benefited. And there is a moral certainty that Massachusetts will have a balance in her favor more than equal to her remaining debt, and a probability that South Carolina will have a balance sufficient to cover hers. So that there is not likely to be an eventual increase even of the debt of the United States by the further assumption. The immense exertions of Massachusetts during the late war, and particularly in the late periods of it when too many of the States failed in their federal duty, are known to every well-informed man. It would not be too strong to say, that they were in a great degree the pivot of the Revolution. The exertions, sufferings, sacrifices, and losses of South Carolina need not be insisted upon.
The other States have comparatively none or inconsiderable debts. Can that policy be condemned which aims at putting the burdened States upon an equal footing with the rest? Can that policy be very liberal which resists so equitable an arrangement? It has been said that if they had exerted themselves since the peace, their situation would have been different. But Massachusetts threw her citizens into rebellion by heavier taxes than were paid in any other State, and South Carolina has done as much since the peace as could have been expected, considering the exhausted state in which the war left her.
The only proposition during the last session, or at any antecedent one, which would truly have swelled the debt artificially, was one which Mr. Madison made in the first session, and which was renewed in the last, and generally voted for by those who opposed the system that has prevailed. The object of this proposition was, that all the parts of the State debts which have been paid, or otherwise absorbed by them, should be assumed for the benefit of the States and funded by the United States. This measure, if it had succeeded, would truly have produced an immense artificial increase of the debt, but it has twice failed, and there is no probability that it will ever succeed.
Objection 5.—They say that by borrowing at two thirds of the interest we might have paid off the principal in two thirds of the time, but that from this we are precluded by its being made irredeemable but in small portions and long terms.
Answer.—First. All the foreign loans which were made by the United States prior to the present government, taking into the calculation charges and premiums, cost them more than six per cent. Since the establishment of the present government, they borrowed first at about five and a quarter, including charges, and since, at about four and a quarter, including charges. And it is questionable, in the present state of Europe, whether they can obtain any further loans at so low a rate.
The system which is reprobated is the very cause that we have been able to borrow on so good terms. If one that would have inspired less confidence, certainly if the substitutes which have been proposed, from a certain quarter, had obtained, we could not have procured loans even at six per cent. The Dutch were largely adventurers in our domestic debt before the present government. They did not embark far till they had made inquiries of influential public characters, as to the light in which the debt was and would be considered in the hands of alienees—and had received assurance that assignees would be regarded in the same light as original holders. What would have been the state of our credit with them, if they had been disappointed, or indeed if our conduct had been in any respect inconsistent with the notions entertained in Europe concerning the maxims of public credit?
The inference is, that our being able to borrow on low terms is a consequence of the system which is the object of censure, and that the thing itself, which is made the basis of another system, would not have existed under it.
Secondly. It will not be pretended that we could have borrowed at the proposed low rate of interest in the United States; and all our exertions to borrow in Europe, which have been unremitted, as occasions presented, have not hitherto produced above —— dollars, not even a sufficient sum to change the form of our foreign debt.
Thirdly. If it were possible to borrow the whole sum abroad within a short period, to pay off our debt, it is not easy to imagine a more pernicious operation than this would have been. It would first have transferred to foreigners, by a violent expedient, the whole amount of our debt; and creating a money plethora in the country, a momentary scene of extravagance would have followed, and the excess would quickly have flowed back;—the evils of which situation need not be enlarged upon.
If it be said that the operation might have been gradual, then the end proposed would not have been attained.
Lastly. The plan which has been adopted secures, in the first instance, the identical advantage which in the other plan would have been eventual and contingent. It puts one third of the whole debt at an interest of three per cent. only, and by deferring the payment of interest on a third of the remainder, effectually reduces the interest on that part. It is evident that a suspension of interest is in fact a reduction of interest. The money which would go towards paying interest in the interval of suspension is an accumulating fund, to be applied towards payment of it when it becomes due, reducing the provision then to be made.
In reality, on the principles of the funding system, the United States reduced the interest on their whole debt, upon an average, to about four and a half per cent., nearly the lowest rate they have any chance to borrow at, and lower than they could possibly have borrowed at in an attempt to reduce the interest on the whole capital by borrowing and paying, probably by one per cent. A demand for large loans, by forcing the market, would unavoidably have raised their price upon the borrower. The above average of four and a half per cent. is found by calculation, computing the then present value of the deferred stock at the time of passing the funding acts, and of course three per cent. on the three per cent. stock.
The funding system, then, secured in the very outset the precise advantage which it is alleged would have accrued from having the whole debt redeemable at pleasure. But this is not all. It did more. It left the government still in a condition to enjoy upon five ninths of the entire debt the advantage of extinguishing it, by loans at a low rate of interest, if they are obtainable. The three per cents, which are one third of the whole, may always be purchased in the market below par, till the market rate of interest falls to three per cent. The deferred will be purchasable below par, till near the period of the actual payment of interest. And this further advantage will result: in all those purchases the public will enjoy, not only the advantage of a reduction of interest on the sums borrowed, but the additional advantage of purchasing the debt under par, that is, for less than twenty shillings in the pound.
If it be said that the like advantage might have been enjoyed under another system, the assertion would be without foundation. Unless some equivalent had been given for the reduction of interest in the irredeemable quality annexed to the debt, nothing was left, consistently with the principles of public credit, but to provide for the whole debt at six per cent. This evidently would have kept the whole at par, and no advantage could have been derived by purchases under the nominal value. The reduction of interest, by borrowing at a lower rate, is all that would have been practicable, and this advantage has been secured by the funding system in the very outset, and without any second process.
If no provision for the interest had been made, not only public credit would have been sacrificed, but by means of it the borrowing at a low rate of interest, or at any rate, would have been impracticable.
There is no reproach which has been thrown upon the funding system so unmerited as that which charges it with being a bad bargain for the public, or with a tendency to prolong the extinguishment of the debts. The bargain has, if any thing, been too good on the side of the public; and it is impossible for the debt to be in a more convenient form than it is for a rapid extinguishment.
Some gentlemen seem to forget that the faculties of every country are limited. They talk as if the government could extend its revenue ad libitum to pay off the debt. Whereas every rational calculation of the abilities of the country will prove, that the power of redemption which has been reserved over the debt is quite equal to those abilities, and that a greater power would be useless. If happily the abilities of the country should exceed this estimate, there is nothing to hinder the surplus being employed in purchases. As long as the three per cents and deferred exist, those purchases will be under par. If for the stock bearing an immediate interest of six per cent., more than par is given, the government can afford it from the saving made in the first instance.
Upon the whole, then, it is the merit of the funding system to have conciliated these three important points—the restoration of public credit, a reduction of the rate of interest, and an organization of the debt convenient for speedy extinguishment.
Objection 6.—That this irredeemable quality was given to the debt for the avowed purpose of inviting its transfer to foreign countries.
Answer.—This assertion is a palpable misrepresentation. The avowed purpose of that quality of the debt, as explained in the report of the Secretary of the Treasury, and in the arguments in Congress, was to give an equivalent for the reduction of interest—that is, for deferring the payment of interest on one third of the principal for three years, and for allowing only three per cent. on the arrears of interest.
It was indeed argued, in confirmation of the reality of the equivalent, that foreigners would be willing to give more where a high rate of interest was fixed, than where it was liable to fluctuate with the market. And this has been verified by the fact—for the six per cents could not have risen for a moment above par, if the rate could have been lowered by redeeming the debt at pleasure. But the inviting of the transfer to foreigners was never assigned as a motive to the arrangement.
And what is more, that transfer will be probably slower with the portion of irredeemability which is attached to the debt than without it, because a larger capital would be requisite to purchase one hundred dollars in the former than in the latter case. And the capital of foreigners is limited as well as our own.
It appears to be taken for granted, that if the debt had not been funded in its present shape, foreigners would not have purchased it as they now do; than which nothing can be more ill-founded or more contrary to experience. Under the old Confederation, when there was no provision at all, foreigners had purchased five or six millions of the debt. If any provision had been made, capable of producing confidence, their purchases would have gone on just as they now do; and the only material difference would have been that what they got from us then would have cost them less than what they now get from us does cost them. Whether it is to the disadvantage of the country that they pay more, is submitted.
Even a provision which should not have inspired full confidence would not have prevented foreign purchases. The commodity would have been cheap in proportion to the risks to be run. And full-handed Dutchmen would not have scrupled to amass large sums for trifling considerations, in the hope that time and experience would introduce juster notions into the public councils.
Our debt would still have gone from us, and with it our reputation and credit.
Objection 7.—They predict that this transfer of the principal, when completed, will occasion an exportation of three millions of dollars annually for the interest; a drain of coin, of which, as there has been no example, no calculation can be made of its consequences.
Answer.—The same gloomy forebodings were heard in England in the early periods of its funding system. But they have never been realized. The money invested by foreigners in the purchase of its debt, being employed in its commerce, agriculture, and manufactures, increased the capital and wealth of the nation more than in proportion to the annual drain for the payment of interest, and created the ability to bear it.
The objection seems to forget that the debt is not transferred for nothing; that the capital paid for the debt is always an equivalent for the interest to be paid to the purchaser. If that capital is well employed in a young country like this, it must be considerably increased, so as to yield a greater revenue than the interest of the money. The country therefore will be a gainer by it, and will be able to pay the interest without inconvenience.
But the objectors suppose that all the money which comes in goes out again, in an increased consumption of foreign luxuries. This, however, is taking for granted what never happened in any industrious country, and what appearances among us do not warrant. The expense of living, generally speaking, is not sensibly increased. Large investments are every day making in ship-building, house-building, manufactures, and other improvements, public and private.
The transfer, too, of the whole debt, is a very improbable supposition; a large part of it will continue to be owned by our own citizens. And the interest of that part which is owned by foreigners will not be annually exported, as is supposed. A considerable part will be invested in new speculations—in lands, canals, roads, manufactures, commerce. Facts warrant this supposition. The agents of the Dutch have actually made large investments in a variety of such speculations.
A young country like this is peculiarly attractive. New objects will be continually opening, and the money of foreigners will be made instrumental to their advancement.
Objection 8.—That the banishment of our coin will be completed by the creation of ten millions of paper money, in the form of bank bills, now issuing into circulation.
Answer.—This is a mere hypothesis, in which theorists differ. There are no decisive facts on which to rest the question.
The supposed tendency of bank paper to banish specie is from its capacity of serving as a substitute for it in circulation. But as the quantity circulated is proportioned to the demand for it in circulation, the presumption is that a greater quantity of industry is put in motion by it, so as to call for a proportionally greater quantity of circulating medium and prevent the banishment of the specie. But however this may be, it is agreed among sound theorists, that banks more than compensate for the loss of the specie in other ways. Smith, who was witness to their effects in Scotland, where too a very adverse fortune attended some of them, bears his testimony to their beneficial effects in these strong terms (Wealth of Nations, Vol. I., Book II., Chap. 11, pages 441 to 444).
Objection 9.—They think the ten or twelve per cent. annual profit paid to the lenders of this paper medium are taken out of the pockets of the people, who would have had without interest the coin it is banishing.
Answer.—1. The profits of the bank have not hitherto exceeded the rate of eight per cent. per annum, and perhaps never may. It is questionable whether they can legally make more than ten per cent.
2. These profits can in no just sense be said to be taken out of the pockets of the people. They are compounded of two things: 1st, the interest paid by the government on that part of the public debt which is incorporated in the stock of the bank; 2d, the interest paid by those individuals who borrow money of the bank on the sums they borrow.
As to the first, it is no new grant to the bank. It is the old interest on a part of the old debt of this country, substituted by the proprietors of that debt towards constituting the stock of the bank. It would have been equally payable if the bank had never existed. It is, therefore, nothing new taken out of the pockets of the people.
As to the second, it may with equal propriety be said, when one individual borrows money of another, that the interest which the borrower pays to the lender is taken out of the pockets of the people. The case here is not only parallel, but the same. It is the case of one or more individuals borrowing money of a company of individuals associated to lend. None but the actual borrowers pay in either case; the rest of the community have nothing to do with it.
If a man receives a bank bill for the ox or the bushel of wheat which he sells, he pays no more interest upon it than upon the same sum in gold or silver—that is, he pays none at all.
So that, whether the paper banishes specie or not, it is the same thing to every individual through whose hands it circulates, as to the point of interest. Specie no more than bank paper can be borrowed without paying interest for it; and when either is not borrowed no interest is paid. As far as the government is a sharer in the profits of the bank, which is in the proportion of one fifth, the contrary of what is supposed happens: money is put into the pockets of the people.
All this is so plain and so palpable, that the assertion which is made betrays extreme ignorance or extreme disingenuousness. It is destitute even of color.
Objection 10.—That all the capital employed in paper speculations is barren and useless, producing, like that on a gaming-table, no accession to itself, and is withdrawn from commerce and agriculture, where it would have produced addition to the common mass.
Answer.—This is a copious subject, which has been fully discussed in the report of the Secretary of the Treasury, on the subject of manufactures.1 It is true that the capital—that is, the specie which is employed in paper speculation,—while so employed, is barren and useless, but the paper itself constitutes a new capital, which, being salable and transferable at any moment, enables the proprietor to undertake any piece of business as well as an equal sum in coin; and as the amount of the debt circulated is much greater than the amount of specie which circulates it, the new capital put in motion by it considerably exceeds the old one, which is suspended, and there is more capital to carry on the productive labor of the society. Every thing that has value is capital—an acre of ground, a horse, or a cow, or a public or private obligation, which may, with different degrees of convenience, be applied to industrious enterprise. That which, like public stock, can at any instant be turned into money, is of equal utility with money as capital. Let it be examined, whether at those places where there is most debt afloat, and most money employed in its circulation, there is not at the same time a greater plenty of money for every other purpose. It will be found that there is.
But it is a fact quite immaterial to the government, as far as regards the propriety of its measures.
The debt existed; it was to be provided for. In whatever shape the provision was made, the object of speculation and the speculation would have existed. Nothing but abolishing the debt could have obviated it. It is, therefore, the fault of the Revolution, not of the government, that paper speculation exists. An unsound or precarious provision would have increased this species of speculation in its most odious forms; the defects and casualties of the system would have been as much subjects of speculation as the debt itself.
The difference is, that under a bad system the public stock would have been too uncertain an article to be a substitute for money, and all the money employed in it would have been diverted from useful employment, without any thing to compensate for it. Under a good system, the stock becomes more than a substitute for the money employed in negotiating it.
Objection 11.—Paper Speculation. That it nourishes in our citizens vice and idleness, instead of industry and morality.
Answer.—This proposition, within certain limits, is true. Jobbing in the funds has some bad effects among those engaged in it. It fosters a spirit of gambling, and diverts a certain number of individuals from other pursuits. But if the proposition be true, that stock operates as capital, the effect upon the citizens at large is different. It promotes among them industry, by furnishing a larger field of employment. Though this effect of a funded debt has been called in question in England by some theorists, yet most theorists and all practical men allow its existence. And there is no doubt, as already intimated, that if we look into those scenes among ourselves where the largest portions of the debt are accumulated, we shall perceive that a new spring has been given to industry in various branches.
But, be all this as it may, the observation made under the last head applies here. The debt was the creature of the Revolution. It was to be provided for. Being so, in whatever form, it must have become an object of speculation and jobbing.
Objection 12.—The funding of the debt has furnished effectual means of corrupting such a portion of the Legislature as turns the balance between the honest voters whichever way it is directed.
Answer.—This is one of those assertions which can only be denied, and pronounced to be malignant and false. No facts exist to support it, and being a mere matter of fact, no argument can be brought to repel it.
The assertors beg the question. They assume to themselves, and to those who think with them, infallibility. Take their words for it, they are the only honest men in the community. But compare the tenor of men's lives, and at least as large a portion of virtuous and independent characters will be found among those whom they malign as among themselves.
A member of the majority of the Legislature would say to these defamers: “In your vocabulary, gentlemen, Creditor and Enemy appear to be synonymous terms; the support of public credit, and corruption, of similar import; an enlarged and liberal construction of the Constitution, for the public good and for the maintenance of the due energy of the national authority, of the same meaning with usurpation and a conspiracy to overturn the republican government of the country; every man of a different opinion from your own, an ambitious despot or a corrupt knave. You bring every thing to the standard of your narrow and depraved ideas, and you condemn without mercy or even decency whatever does not accord with it. Every man who is either too short or too long for your political couch must be stretched or lopped to suit it. But your pretensions must be rejected, your insinuations despised. Your politics originate in immorality, in a disregard of the maxims of good faith and the rights of property, and if they could prevail must end in national disgrace and confusion. Your rules of construction for the authorities, vested in the government of the Union, would arrest all its essential movements, and bring it back in practice to the same state of imbecility which rendered the old Confederation contemptible. Your principles of liberty are principles of licentiousness incompatible with all government. You sacrifice every thing that is venerable and substantial in society to the vain reveries of a false and newfangled philosophy. As to the motives by which I have been influenced, I leave my general conduct in private and public life to speak for them. Go and learn among my fellow-citizens whether I have not uniformly maintained the character of an honest man. As to the love of liberty and country, you have given no stronger proofs of being actuated by it than I have done;—cease, then, to arrogate to yourself and to your party all the patriotism and virtue of the country. Renounce, if you can, the intolerant spirit by which you are governed, and begin to reform yourself, instead of reprobating others, by beginning to doubt of your own infallibility.”
Such is the answer which would naturally be given by a member of the majority of the Legislature to such an objection. And it is the only one that could be given, until some evidence of the supposed corruption should be produced.
As far as I know there is not a member of the Legislature who can properly be called a stock-jobber or a paper-dealer. There are several of them who were proprietors of public debt in various ways; some for money lent and property furnished for the use of the public during the war; others for sums received in payment of debts, and it is supposable enough that some of them had been purchasers of the public debt, with intention to hold it as a valuable and convenient property, considering an honorable provision for it as a matter of course.
It is a strange perversion of ideas, and as novel as it is extraordinary, that men should be deemed corrupt and criminal for becoming proprietors in the funds of their country. Yet I believe the number of members of Congress is very small who have ever been considerable proprietors in the funds. As to improper speculations on measures depending before Congress, I believe never was any body of men freer from them.
There are, indeed, several members of Congress who have become proprietors in the Bank of the United States, and a few of them to a pretty large amount, say fifty or sixty shares. But all operations of this kind were necessarily subsequent to the determination upon the measure; the subscriptions were of course subsequent, and purchases still more so. Can there be any thing really blamable in this? Can it be culpable to invest property in an institution which has been established for the most important national purposes? Can that property be supposed to corrupt the holder? It would indeed tend to render him friendly to the preservation of the bank; but in this, there would be no collision between duty and interest, and it would give him no improper bias on other questions.
To uphold public credit, and to be friendly to the bank, must be presupposed to be corrupt things, before the being a proprietor in the funds, or of bank stock, can be supposed to have a corrupting influence. The being a proprietor, in either case, is a very different thing from being, in a proper sense of the term, a stock-jobber.
On this point of the corruption of the Legislature, one more observation of great weight remains. Those who oppose a funded debt, and mean any provision for it, contemplate an annual one.
Now it is impossible to conceive a more fruitful source of legislative corruption than this. All the members of it who should incline to speculate would have an annual opportunity of speculating upon their influence in the Legislature to promote, or retard, or put off a provision. Every session the question whether the annual provision should be continued, would be an occasion of pernicious caballing and corrupt bargaining. In this very view, when the subject was in deliberation, it was impossible not to wish it decided upon once for all, and out of the way.
Objection 13.—The corrupt squadron deciding the voice of the Legislature have manifested their disposition to get rid of the limitations imposed by the Constitution on the general Legislature; limitations, on the faith of which the States acceded to that instrument.
Answer.—Here again the objectors beg the question. They take it for granted that their constructions of the Constitution are right, and that the opposite ones are wrong; and with great good nature and candor ascribe the effect of a difference of opinion to a disposition to get rid of the limitations on the government.
Those who have advocated the constructions which have obtained, have met their opponents on the ground of fair argument, and they think have refuted them. How shall it be determined which side is right?
There are some things which the general government has clearly a right to do. There are others which it has clearly no right to meddle with; and there is a good deal of middle ground, about which honest and well-disposed men may differ. The most that can be said is, that some of this middle ground may have been occupied by the national Legislature, and this surely is no evidence of a disposition to get rid of the limitations in the Constitution, nor can it be viewed in that light by men of candor.
The truth is, one description of men is disposed to do the essential business of the nation, by a liberal construction of the powers of the government; another, from disaffection, would fritter away those powers; a third, from an overweening jealousy, would do the same thing; a fourth, from party and personal opposition, are torturing the Constitution into objections to every thing they do not like.
The bank is one of the measures which is deemed by some the greatest stretch of power, and yet its constitutionality has been established in the most satisfactory manner.
And the most incorrigible theorist among its opponents would, in one month's experience, as head of the department of the Treasury, be compelled to acknowledge that it is an absolutely indispensable engine in the management of the finances, and would quickly become a convert to its perfect constitutionality.
Objection 14.—The ultimate object of all this is to prepare the way for a change from the present republican form of government to that of a monarchy, of which the British constitution is to be the model.
Answer.—To this there is no other answer than a flat denial, except this: that the project, from its absurdity, refutes itself.
The idea of introducing a monarchy or aristocracy into this country, by employing the influence and force of a government continually changing hands, toward it, is one of those visionary things that none but madmen could meditate, and that no wise man will believe.
If it could be done at all, which is utterly incredible, it would require a long series of time, certainly beyond the life of any individual, to effect it. Who, then, would enter into such a plot? for what purpose of interest or ambition?
To hope that the people may be cajoled into giving their sanctions to such institutions is still more chimerical. A people so enlightened and so diversified as the people of this country can surely never be brought to it, but from convulsions and disorders, in consequence of the arts of popular demagogues.
The truth unquestionably is, that the only path to a subversion of the republican system of the country is by flattering the prejudices of the people, and exciting their jealousies and apprehensions, to throw affairs into confusion, and bring on civil commotion. Tired at length of anarchy or want of government, they may take shelter in the arms of monarchy for repose and security.
Those, then, who resist a confirmation of public order are the true artificers of monarchy. Not that this is the intention of the generality of them. Yet it would not be difficult to lay the finger upon some of their party who may justly be suspected. When a man, unprincipled in private life, desperate in his fortune, bold in his temper, possessed of considerable talents, having the advantage of military habits, despotic in his ordinary demeanor, known to have scoffed in private at the principles of liberty; when such a man is seen to mount the hobby-horse of popularity, to join in the cry of danger to liberty, to take every opportunity of embarrassing the general government and bringing it under suspicion, to flatter and fall in with all the nonsense of the zealots of the day, it may justly be suspected that his object is to throw things into confusion, that he may “ride the storm and direct the whirlwind.”
It has aptly been observed, that Cato was the Tory, Cæsar the Whig of his day. The former frequently resisted, the latter always flattered, the follies of the people. Yet the former perished with the republic—the latter destroyed it.
No popular government was ever without its Catilines and its Cæsars—these are its true enemies.
As far as I am informed, the anxiety of those who are calumniated is to keep the government in the state in which it is, which they fear will be no easy task, from a natural tendency in the state of things to exalt the local on the ruins of the national government. Some of them appear to wish, in a constitutional way, a change in the judiciary department of the government, from an apprehension that an orderly and effectual administration of justice cannot be obtained without a more intimate connection between the State and National tribunals. But even this is not an object of any set of men as a party. There is a difference of opinion about it, on various grounds, among those who have generally acted together. As to any other change of consequence, I believe nobody dreams of it.
It is curious to observe the anticipations of the different parties. One side appears to believe that there is a serious plot to overturn the State governments, and substitute a monarchy to the present republican system. The other side firmly believes that there is a serious plot to overturn the general government, and elevate the separate power of the States upon its ruins. Both sides may be equally wrong, and their mutual jealousies may be naturally causes of the appearances which mutually disturb them and sharpen them against each other.
Objection 15.—This charge, that this change (i.e., from a republic to a monarchy) was contemplated in the convention, they say is no secret, because its partisans have made none of it—to effect it then was impracticable; but they are still eager after their object, and are predisposing every thing for its ultimate attainment.
Answer.—This is a palpable misrepresentation. No man that I know of contemplated the introducing into this country a monarchy. A very small number (not more than three or four) manifested theoretical opinions favorable in the abstract to a constitution like that of Great Britain; but every one agreed that such a constitution, except as to the general distribution of departments and powers, was out of the question in reference to this country. The member who was most explicit on this point (a member from New York) declared in strong terms that the republican theory ought to be adhered to in this country as long as there was any chance of its success; that the idea of a perfect equality of political rights among the citizens, exclusive of all permanent or hereditary distinctions, was of a nature to engage the good wishes of every good man, whatever might be his theoretic doubts; that it merited his best efforts to give success to it in practice; that hitherto, from an incompetent structure of the government, it had not had a fair trial, and that the endeavor ought then to be to secure to it a better chance of success by a government more capable of energy and order.
There is not a man at present in either branch of the Legislature who, that I recollect, had held language in the convention favorable to monarchy.
The basis, therefore, of this suggestion fails.
Objection 16.—So many of them have got into the Legislature, that, aided by the corrupt squadron of paper dealers, who are at their devotion, they make a majority in both Houses.1
Answer.—This has been answered above. Neither description of character is to be found in the Legislature. In the Senate there are nine or ten who were members of the convention; in the House of Representatives, not more than six or seven.2 Of those who are in the last-mentioned House, none can be considered as influential but Mr. Madison and Mr. Gerry. Are they monarchy men?
As to the 17th, 18th, and 19th heads:
Objection 17.—The republican party who wish to preserve the government in its present form are fewer, even when joined by the two, three, or half a dozen anti-federalists, who, though they dare not avow it, are still opposed to any general government; but, being less so to a republican than a monarchical one, they naturally join those whom they think pursuing the lesser evil.
Objection 18.—Of all the mischiefs objected to the system of measures before mentioned, none, they add, is so afflicting, and fatal to every honest hope, as the corruption of the Legislature; as it was the earliest of these measures, it became the instrument for producing the rest, and will be the instrument for producing in future a king, lords, and commons, or whatever else those who direct it may choose. Withdrawn such a distance from the eye of their constituents, and these so dispersed as to be inaccessible to public information, and particularly to that of the conduct of their own representatives, they will form the worst government upon earth, if the means of their corruption be not prevented.
Objection 19.—The only hope of safety, they say, hangs now on the numerous representation which is to come forward the ensuing year; but should the majority of the new members be still in the same principles with the present—show so much dereliction to republican government, and such a disposition to encroach upon or explain away the limited powers of the Constitution, in order to change it,—it is not easy to conjecture what would be the result, nor what means would be resorted to for correction of the evil. True wisdom, they acknowledge, should direct temperate and peaceable measures, but add, the division of sentiment and interest happens, unfortunately, to be so geographical, that no mortal can say that what is most wise and temperate would prevail against what is more easy and obvious. They declare they can contemplate no evil more incalculable than the breaking of the Union into two or more parts; yet when they view the mass which opposed the original coalescence—when they consider that it lay chiefly in the Southern quarter—that the Legislature have availed themselves of no occasion of allaying it, but, on the contrary, whenever Northern and Southern prejudices have come into conflict, the latter have been sacrificed and the former soothed.1
They are rather inferences from and comments upon what is before suggested, than specific objections. The answer to them must therefore be derived from what is said under other heads.
It is certainly much to be regretted that party discriminations are so far geographical as they have been, and that ideas of a severance of the Union are creeping in both North and South. In the South, it is supposed that more government than is expedient is desired by the North. In the North, it is believed that the prejudices of the South are incompatible with the necessary degree of government, and with the attainment of the essential ends of national union. In both quarters there are respectable men, who talk of separation as a thing dictated by the different geniuses and different prejudices of the parts. But happily their number is not considerable, and the prevailing sentiment of the people is in favor of their true interest, UNION. And it is to be hoped that the efforts of wise men will be able to prevent a schism which would be injurious in different degrees to different portions of the Union, but would seriously wound the prosperity of all.
As to the sacrifice of Southern to Northern prejudices—if the conflict has been between prejudices and prejudices, it is certainly to be wished, for mutual gratification, that there had been mutual concession; but if the conflict has been between great and substantial national objects on the one hand, and theoretical prejudices on the other, it is difficult to desire that the former should in any instance have yielded.
Objection 20.—The owners of the debt are in the Southern, and the holders of it in the Northern, division.
Answer.—If this were literally true, it would be no argument for or against any thing. It would be still politically and morally right for the debtors to pay their creditors.
But it is in no sense true. The owners of the debt are the people of every State, South, Middle, and North. The holders are the individual creditors—citizens of the United Netherlands, Great Britain, France, and of these States, North, Middle, South. Though some men, who constantly substitute hypothesis to fact, imagination to evidence, assert and reassert that the inhabitants of the South contribute more than those of the North, yet there is no pretence that they contribute all; and even the assertion of greater contribution is unsupported by documents, facts, or, it may be added, probabilities. Though the inhabitants of the South manufacture less than those of the North, which is the great argument, yet it does not follow that they consume more of taxable articles. It is a solid answer to this, that whites live better, wear more and better clothes, and consume more luxuries, than blacks, who constitute so considerable a part of the population of the South; that the inhabitants of cities and towns, which abound so much more in the North than in the South, consume more of foreign articles than the inhabitants of the country; that it is a general rule, that communities consume and contribute in proportion to their active or circulating wealth, and that the Northern regions have more active or circulating wealth than the Southern.
If official documents are consulted, though, for obvious reasons, they are not decisive, they contradict rather than confirm the hypothesis of greater proportional contribution in the Southern division.
But, to make the allegation in the objection true, it is necessary not merely that the inhabitants of the South should contribute more, but that they should contribute all.
It must be confessed that a much larger proportion of the debt is owned by inhabitants of the States from Pennsylvania to New Hampshire, inclusively, than in the States south of Pennsylvania.
But as to the primitive debt of the United States, that was the case in its original concoction. This arose from two causes: first, from the war having more constantly been carried on in the Northern quarter, which led to obtaining more men and greater supplies in that quarter, and credit having been for a considerable time the main instrument of the government, a consequent accumulation of debt in that quarter took place; secondly, from the greater ability of the Northern and Middle States to furnish men, money, and other supplies, and from the greater quantities of men, money, and other supplies which they did furnish. The loan-office debt, the army debt, the debt of the five great departments, was contracted in a much larger proportion in the Northern and Middle, than in the Southern, States.
It must be confessed, too, that by the attraction of a superior moneyed capital the disparity has increased, but it was great in the beginning.
As to the assumed debt, the proportion in the South was at the first somewhat larger than in the North, and it must be acknowledged that this has since, from the same superiority of moneyed capital in the North, ceased to be the case.
But if the Northern people who were originally greater creditors than the Southern, have become still more so as purchasers, is it any reason that an honorable provision should not be made for their debt? Or is the government to blame for having made it? Did the Northern people take their property by violence from the Southern, or did they purchase and pay for it?
It may be answered that they obtained considerable part of it by speculation, taking advantage of superior opportunities of information.
But admitting this to be true in all the latitude in which it is commonly stated, is a government to bend the general maxims of policy and to mould its measures according to the accidental course of private speculations? Is it to do this, or omit that, in cases of great national importance, because one set of individuals may gain, another lose, from unequal opportunities of information, from unequal degrees of resource, craft, confidence, or enterprise?
Moreover, there is much exaggeration in stating the manner of the alienation of the debt. The principal speculations in State debts, whatever may be pretended, certainly began after the promulgation of the plan for assuming by the report of the Secretary of the Treasury to the House of Representatives. The resources of individuals in this country are too limited to have admitted of much progress in purchases before the knowledge of that plan was diffused throughout the country. After that, purchasers and sellers were upon equal ground. If the purchasers speculated upon the sellers, in many instances the sellers speculated upon the purchasers. Each made his calculation of chances, and founded upon it an exchange of money for certificates. It has turned out generally that the buyer had the best of the bargain, but the seller got the value of his commodity according to his estimate of it, and probably in a great number of instances more. This shall be explained.
It happened that Mr. Madison and some other distinguished characters of the South started in opposition to the assumption. The high opinion entertained of them made it be taken for granted in that quarter that the opposition would be successful. The securities quickly rose, by means of purchases, beyond their former prices. It was imagined that they would soon return to their old station by a rejection of the proposition for assuming. And the certificate-holders were eager to part with them at their current prices, calculating on a loss to the purchasers from their future fall. This representation is not conjectural; it is founded on information from respectable and intelligent Southern characters, and may be ascertained by inquiry.
Hence it happened that the inhabitants of the Southern States sustained a considerable loss by the opposition to the assumption from Southern gentlemen, and their too great confidence in the efficacy of that opposition.
Further, a great part of the debt which has been purchased by Northern and Southern citizens has been at higher prices—in numerous instances beyond the true value. In the late delirium of speculation large sums were purchased at twenty-five per cent. above par and upward.
The Southern people, upon the whole, have not parted with their property for nothing. They parted with it voluntarily, in most cases, upon fair terms, without surprise or deception—in many cases for more than its value. ’T is their own fault if the purchase money has not been beneficial to them; and the presumption is, it has been so in a material degree.
Let, then, any candid and upright mind, weighing all the circumstances, pronounce whether there be any real hardship in the inhabitants of the South being required to contribute their proportion to a provision for the debt as it now exists? whether, if at liberty, they could honestly dispute the doing of it? or whether they can, even in candor and good faith, complain of being obliged to do it?
If they can, it is time to unlearn all the ancient notions of justice and morality, and to adopt a new system of ethics.
OBJECTION 21.—That the antifederal champions are now strengthened in argument by the fulfilment of their predictions, which has been brought about by the monarchical federalists themselves, who, having been for the new government merely as a stepping-stone to monarchy, have themselves adopted the very constructions of the Constitution, of which, when advocating the acceptance before the tribunal of the people, they declared it insusceptible; whilst the republican federalists, who espoused the same government for its intrinsic merits, are disarmed of their weapons,—that which they denied as prophecy being now become true history. Who, therefore, can be sure, they ask, that these things may not proselyte the small number which was wanting to place the majority on the other side? And this, they add, is the event at which they tremble.
Answer.—All that can be said in answer to this has been already said. It is much to be wished that the true state of the case may not have been, that the antifederal champions have been encouraged in their activity by the countenance which has been given to their principles by certain federalists who, in an envious and ambitious struggle for power, influence, and pre-eminence, have embraced as auxiliaries the numerous party originally disaffected to the government, in the hope that these, united with the factious and feeble-minded federalists whom they can detach will give them the predominancy. This would be nothing more than the old story of personal and party emulation.
The antifederal champions alluded to may be taught to abate their exultation by being told that the great body of the federalists, or rather the great body of the people, are of opinion that none of their predictions have been fulfilled, that the beneficial effects of the government have exceeded expectation, and are witnessed by the general prosperity of the nation.
ADDRESS TO THE PUBLIC CREDITORS1
by a friend.
September 1, 1790.
It is probable that many of you are not sufficiently apprised of the advantages of your own situation, and that for want of judging rightly of it, and of your future prospects, you may be tempted to part with your securities much below their true value, and considerably below what it is probable they will sell for in eight or nine months from this time.
To guard you against an unnecessary sacrifice of your interests by a precipitate sale, I will now state to you, in a plain and concise way, what has been done for you in the course of the last session of Congress, and what you may reasonably expect.
Effectual provision has been made for actually paying you six per cent. yearly, on two thirds of the principal of your debt—that is, four per cent. on the whole amount of your principal. And at the end of ten years you are to receive six per cent. yearly, on the remaining third of your principal—that is, two per cent. more on the whole of your principal. And like effectual provision has been made for actually paying you three per cent. yearly, on whatever arrears of interest may be due to you on your principal. For this interest you are not even to wait to the end of a year, but you are to receive it in quarteryearly payments—that is to say, one fourth part at the end of every three months; and it is to be paid to you not in new certificates, or paper money, but in actual gold and silver. To secure this to you, the duties which have been laid on goods imported, and on the tonnage of ships or vessels (and which there is every reason, from the experience we have had, to believe will be sufficient), are absolutely mortgaged to you, till the whole of your debt is discharged. You will not have to depend, as under most of the State governments, upon a provision from year to year, with an entire uncertainty whether it would be continued, and with many examples of fickleness and change; but you will have to depend on a permanent provision made once for all, for the sacredness of which the faith, not of a single State, but of all the States, is solemnly bound to you, and which cannot be undone or altered, without the concurrence of three different branches of the government—the House of Representatives, the Senate, and the President of the United States. It cannot be supposed that if one of the two branches of Congress should hereafter be disposed to do so disgraceful and ruinous a thing as to repeal a law on which the credit of the government was at stake, that the other branch would be willing to concur in so pernicious a measure; or if both should be so unwise and dishonest, that the President of the United States would give his assent to it, or if he dissented, that two thirds of both Houses of Congress would be inclined to persist in spite of his disapprobation. Whoever considers the nature of our government with discernment will see, that though obstacles and delays will frequently stand in the way of the adoption of good measures, yet, when once adopted, they are likely to be stable and permanent. It will be far more difficult to undo than to do.
To destroy your confidence in future, there are too many publications which represent to you that Congress have, by their late proceedings, violated their past engagements, and that you can place no greater reliance upon those they now make than those they have heretofore made. Whether representations like these proceed from a sincere opinion in persons who have not accurately considered the matter, or from those who wish to depreciate the government, or from those who wish to buy securities cheap, or from all these descriptions of persons, I cannot say; but from whatever source they proceed, they are certainly not candid nor just.
Congress, it is true, submit to your consideration some alterations in the nature of your claims upon the government, for certain equivalents which they hold out to you, and of which you are to judge. A principal object they have in doing this is to obtain a suspension of the payment of one third of the interest, to which you are entitled for ten years, in order to avoid the necessity of burthening the community, or carrying the taxation to objects which might be displeasing to them. And you cannot wonder that a government so lately formed, and not without considerable opposition, should be cautious in this respect.
But whether you will accept the terms offered to you is certainly left to your own choice. There is not a syllable in the law that obliges you to do it. On the contrary, there is in it an express ratification of your former contracts; and to remove all possibility of future cavil about the true import or obligation, all questions of discrimination and the like, new titles are offered to you of the like import in substance with your old ones. And your rights are thus established, and their meaning defined, so as to render their future operation, under the sanction of the Constitution, unequivocal. They are not only not violated, but if possible they have received additional strength, and have become still more inviolable.
So far is there from being any thing compulsory in the acts of the government in the case, that those of you who do not choose to subscribe to the new terms are to receive, during the time allotted for determining upon them, exactly as much as those who do subscribe. And the faith of the government remains pledged to you to fulfil its engagements, which must be performed, as fast as its resources can be brought into action for the purpose. Your only security before the late arrangement was the faith of government. There were no funds pledged to you which have been taken away. You have still the faith of government upon a renewed assurance as your pledge, and while you are deliberating on the new proposals you are to receive a payment on account.
You are therefore to decide according to your own judgment, whether an acceptance of the new terms, under all these circumstances, are preferable or not to a dependence on the future resources of the country for more. This is a question of prudent calculation which you are at liberty to determine as you please.
Whence it is evident, that whatever other objections may be against the propriety of the provision which has been made for the public debt, the charge of a breach of contract is not well founded.
The better to form a comparison between the terms proposed and those of your former contract, it may be well to recollect that the latter will be satisfied by a provision, annually made, for paying you six per cent. Whatever the policy of the government may hereafter dictate, there is nothing in the existing contract that calls for a permanent appropriation of funds. Such a permanent appropriation, however, forms a part of the new loans, and will be of the essence of the new contract.
These remarks are intended to satisfy you that there is no cause, from any thing that has happened, for a diminution, but on the contrary much reason for an increase, of your confidence in the property you possess, as holders of the public debt.
I return to the subject of the value of your securities. Their present price, if compared with that at which they were current before the establishment of the new Constitution, will be deemed to be high, and is as great as at this time could reasonably have been expected; but compared with their true value, and the solidity of footing on which they stand, is still far too low. The rise which has already taken place is an earnest to you of their probable future rise. Such of you who do not incline to be permanent holders will at least do well to postpone a sale till after March, when the first payment of interest is to be made. The effect of this on the price of securities must undoubtedly be very favorable, and you may then calculate on a better market.
The holders of State securities have still stronger reasons for keeping those they have, the price of which, in most of the States, is out of all proportion lower than that of the present securities of the United States, and must, in all probability, undergo a considerable change for the better, as soon as funds are actually appropriated for them, which is not now the case, but which must of course be so at the ensuing session of December. The present debt of the United States having been provided for out of the duties on imposts and tonnage only, seems to leave no doubt of the facility of devising the means of providing for the amount which has been assumed of the State debts.
END OF VOL. II.
See Schedule F.
See Table, Schedule G.
See Table, Schedule H.
See Schedule I.
There is probably no single State paper in the history of the United States, with the exception of the Emancipation Proclamation, which was of such immense importance, and produced such wide and far-reaching results as Hamilton's first report on the Public Credit. “Finance, my friend,” said Gouverneur Morris to John Jay, “all that remains of the American Revolution grounds there.” The public debt of that day, a trifle to the present generation, seemed to the country after the Revolution, a mountain which could not be removed. The wretched Confederacy went down to ruin on the financial difficulties. The Union was bankrupt and hastening to dissolution, while foreign powers gloated over the prospect of our coming destruction Hamilton met the question, grasped it, and solved the dire problem. In his first report he embodied the financial policy which organized and brought out our resources, rendered us strong and prosperous at home, established our credit, and made us respected in every money market in Europe. But the first report was far more than a vigorous and able piece of financiering. It was the corner-stone of the Government of the United States, and the foundation of the national movement. Hamilton saw in the debt and its proper treatment the means of binding together the States as a nation by the sure tie of a common interest. This was the end for which he labored. He converted the Constitution into a living organism, founded a policy on which a great party came into being, and, above and beyond all, brought into vigorous life the national principle which has gone on strengthening and broadening through all our subsequent history. The most cursory reading of the report shows its simplicity, strength, lucidity, and condensation, as well as the masterly financial ability of its author. But to fully appreciate it we must look before and after. We must appreciate the anarchy of the Confederation, the chaotic opposition to order then existing, and contrast all this with the development of the United States which has followed. Studied in this way the first report on the Public Credit assumes its true proportions, and shows the great place which Hamilton fills in our history.
A petition signed by officers and soldiers of the Virginia and North Carolina lines had been presented to Congress asking for payment of arrears due them, but which they had assigned. Joint resolutions were thereupon passed by Congress ordering the Secretary of the Treasury to pay these arrears, and that where payment had not been made to the original claimants it should now be made to them. Hamilton, in this able report, advised the President to veto these resolutions on the ground that they violated the rights of the assignees, and thereby impaired the obligation of contract. Jefferson gave an opposite opinion, resting it on the common law doctrine that the conveyance of a debt not in possession was void, a bill of exchange and notes and bonds being the only exceptions. This doctrine had never been adopted in equity, but. nevertheless, Jefferson urged Washington to approve the measure on this narrow theory, and the President accepted his view and decided against Hamilton.
This is the famous argument on the policy of internal revenue and the expediency of an excise on spirits, both of which are now established.
William Short, of Virginia. Born, 1759; died at Philadelphia, 1849. He was Jefferson's Secretary of Legation at Paris, 1784. In 1789 he was appointed by Washington Chargé d’Affaires at Paris, and in 1792 Minister to Holland, whence he was transferred to Spain in 1794, acting first in the capacity of commissioner and afterwards of minister. He was an able and successful diplomatist, and had charge of all the business of the foreign loans, and of funding and paying the foreign debt.
This important letter is in reply to one from Washington, dated July 29, 1792, at Mount Vernon, giving the opinions he had heard expressed in Virginia as to the new government, and also certain objections to the financial policy offered by Col. George Mason at the instigation, probably, of Jefferson. It is printed here, because it is in effect a defence of the funding system.
These objections are all repeated from Washington's letter, which it is, therefore, needless to reprint here.
See Vol. IV.
This objection is peculiarly Jeffersonian.—[Ed.
This computation is from memory.
These three objections are inserted here as they stand in Washington's letter of July 29th.
This address and the vindication which follows, if the dates alone were to be observed, should have come after the official reports of 1790 and 1791. They have, however, a more immediate connection with the preceding letter to Washington as parts of the defence of the funding system, and this address in particular shows how Hamilton at the very outset attempted through the newspapers to check the tide of speculation and to prevail on the original holders of the debt not to part with their securities.