Front Page Titles (by Subject) public credit Communicated to the Senate, January 16 and 21, 1795. - The Works of Alexander Hamilton, (Federal Edition), vol. 3
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public credit Communicated to the Senate, January 16 and 21, 1795. - Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 3 
The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. Vol. 3.
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|Foreign debt, as per statements B and C . .||$14,599,129 35|
|Deduct instalment of foreign debt in the year 1795, to be paid out of proceeds of foreign loans . . . .||853,750 00|
|Funded domestic debt, viz.:|
|I. Arising from original domestic debt, subscribed to loan proposed by funding act:|
|Stock bearing a present interest of six per cent.||$17,912,138 01|
|Stock bearing a future interest of ditto. .||8,538,228 97|
|Stock bearing an interest of three per cent. .||12,275,347 55|
|2. Arising from State debts assumed:|
|Stock bearing a present interest of six per cent.||7,908,374 19|
|Stock bearing a future interest of ditto . .||3,940,608 96|
|Carried forward .||$50,574,697 68||$13,745,379 35|
|Brought forward .||$50,574,697 68||$13,745,379 35|
|Stock bearing an interest of three per cent. .||5,944,115 70|
|3. Arising from balances to creditor States:|
|Stock bearing a present interest of six per cent.||2,345,056 00|
|Stock bearing a future interest of ditto . .||1,172,528 00|
|Stock bearing an interest of three per cent. .||703,516 80|
|Unsubscribed debt, viz.:|
|Principal, exclusive of loan-office certificates, bearing interest on nominal value . .||$1,072,583 40|
|Interest thereupon, including indents . .||452,826 74|
|Principal of loan-office certificates, bearing interest on nominal sum.||27,935 00|
|Interest thereon . .||7,830 00|
|Total unredeemed debt,||$76,096,468 67|
This is exclusive of a sum of $1,400,000 due to the Bank of the United States, on account of the loan of $2,000,000 had of that institution, pursuant to the eleventh section of the act by which it is incorporated, and which is not included in the mass of the debt, because it is more than counterbalanced by a greater value in stock. It is also exclusive of those loans which are temporary anticipations of the revenue.
The particulars and amount of the annual current revenues of the United States, are as follows:
|Duties on imports and tonnage, domestic . .||$4,199,791 67|
|Duties on distilled spirits and stills . . .||400,000 00|
|Fees in patents . . .||660 00|
|Postage of letters . .||29,722 16|
|Surplus dividends on bank stock . . . .||62,500 00|
|Temporary duties on imports . . . .||$1,479,626 91|
|Duties on snuff, refined sugar, sales at auction, licenses to retail spirits and wines, carriages for conveyance of persons.||380,000 00|
|Total annual current revenue,||$6,552,300 74|
The particulars and amount of the annual stated expenditure of the United States, computing the army and navy establishments on the scale of an Indian and Algerine war, are as follows:
|Interest on the foreign debt . . .||$638,480 58|
|Interest on domestic funded debt . .||2,339,241 50|
|Interest on unfunded debt . . .||66,031 10|
|Interest on temporary loans . . .||100,000 00|
|Expenses of the civil Government, including foreign intercourse . . .||475,249 53|
|Expenses of military land service . . .||1,511,975 29|
|Expenses of military naval service . .||441,508 80|
|Miscellany . . . . . .||109,357 04|
|Total annual expenditure,||$5,681,843 84|
This sum is liable to be increased by the interest which will begin to accrue on the deferred stock the first of January, 1801; being, on the present amount of that stock, 871,401 dollars and 92 cents.
The annual force of the sinking fund, as depending on ascertained funds, may be stated as follows:
|Interest for a year, on sums already carried to its credit . . . . . .||$68,225 55|
|Interest for a year, on debts of foreign officers, in a course of payment, including arrears of interest to be carried to the credit of this fund . . . . . .||13,439 49|
|Interest for a year, on the unexpended surplus of the revenues at the end of the year 1790, being 411,659 dollars 49 cents, supposing this to be invested, by purchase, in an equal sum of present six-per-cent. stock . . . . . .||24,699 56|
It is further liable to be increased by an investment in purchases of 865,098 dollars 11 cents, which, together with the sums from that source already invested in purchases and payments will amount to 2,000,000 of dollars, the sum authorized to be borrowed for purchases of the debt.
But, as this auxiliary depends on an operation, not only future, but, in some degree, casual, it cannot be taken into an estimate of the actual strength of the fund.
The proceeds of the sales of Western lands must also be considered as an eventual resource.
There are other contingent sources of augmentation, not computed, because they are contingent. But, on the other hand, the fund is liable to be reduced by a sum reserved out of it for the payment of principal and interest, of the two millions authorized to be borrowed for purchases not exceeding eight per centum per annum.
The sum applicable, in the first instance, to the redemption of that portion of the funded debt which bears a present interest of six per centum, excluding that standing to the credit of the commissioners of the sinking fund, is as follows:
|Of transferable stock . . . . .||$516,410 24|
|Of untransferable stock, arising from balances to creditor States . . .||46,901 12|
The sum applicable, in the first instance, that is, on the 1st day of January, 1802, to the redemption of that portion of the funded debt, now called deferred stock, excluding that standing to the credit of the commissioners of the sinking fund, will be as follows:
|Of transferable stock . . . . .||$249,576 75|
|Of untransferable stock, arising from balances to creditor States . . .||23,450 56|
These sums would complete the redemption of the whole amount of the stock to which they are applicable, within twenty-three years after the redemption in each case was begun; within which terms they would discharge the whole of the public debt, except the foreign debt, the unsubscribed debt, and the three-per-cent. stock.
If the redemption of the present six-per-cent. stock commence the first of January, 1796, and the redeeming fund be commensurate with the whole of the unredeemed stock bearing a present interest of six per cent. and transferable, the revenue set free in the year 1818, for operations upon the residue of the debt, will be 2,039,394 dollars 36 cents.
If the redemption of the deferred debt commence the first of January, 1802, when it may rightfully commence, and the redeeming fund be commensurate with the whole of that stock, unredeemed and transferable, the revenue set free in the year 1824, for operations upon the residue of the public debt, if any remain, will be $998,307 02.
The revenue set free by these successive redemptions would be sufficient to redeem the whole of the present foreign debt in six years; that is, within a term of twenty-eight years from the proposed time for commencing the redemption, or the 1st of January, 1796; and, after extinguishing the foreign debt, would more than discharge the whole of the balances to creditor States, and the whole of the unfunded debt in two years more.
If the proceeds of the lands in the Western territory should be equal to three million of dollars, and the three-per-cent. stock can be purchased at an average of twelve shillings in the pound, that fund would suffice to pay off the principal of the three-per-cent. stock, in something more than twenty-five years.
It follows that, if the force of the sinking fund be rendered equal, exclusive of the proceeds of the sales of Western lands, to the redemption of the present unredeemed transferable stock, commencing the 1st of January, 1796, as to that bearing a present interest of six per centum, and the 1st of January, 1802, as to that bearing a future interest of six per centum; and if the proceeds of the sales of Western lands should prove equal to three million of dollars, and can be brought into action for purchases of the three-per-cent. stock, at the rate above mentioned, at any time before the year 1801, the whole of the present debt of the United States, foreign and domestic (the funds appropriated being, during the whole period, adequate in productiveness, and inviolably applied), would be extinguished in thirty years. And there would then revert to the United States an annual income of 4,435,320 dollars and 89 cents. Some auxiliary provisions, which will be proposed, may greatly accelerate that result.1
On the basis of the foregoing data, the Secretary of the Treasury proceeds to submit to the consideration of Congress certain propositions which appear to him necessary to be adopted to complete our system of public credit. These will be followed by some explanatory remarks.
That further provision be made, with regard to the yet unsubscribed debt of the United States, as follows:
1st. Further time to be given, until the end of the year 1795, to subscribe the same to the loan proposed by the funding act; with liberty to the holders to subscribe the arrears of interest up to that period separately from the principal, reserving that principal on its original footing.
2d. An appropriation to be made for payment of interest on so much of the principal (excepting loan-office certificates bearing interest on the nominal value) as, at the year 1795, shall remain unsubscribed, for the term of one year, according to the rate or rates stipulated by the original contracts, and for the payment of ten per centum of the arrears of interest thereupon, to the same end of the year 1795. This payment to be made on the 1st of January, 1796, at the Treasury, where no particular place of payment is stipulated, and at where there is one.
3d. The specie principal of the loan-office certificates, which bear interest on the nominal value, together with the arrears of interest, to be immediately paid off.
That provision be made for taking, upon loan to the United States, by subscription at the Treasury, the outstanding and unbarred new emission bills of credit, the sums subscribed to be paid in the principal only of those bills, and the stock of the new loan to bear an interest of five percent. per annum, payable quarter yearly at the Treasury, and redeemable at the pleasure of the United States by payment of the principal, with a stipulation to pay the same at the expiration of thirty years. The loan to be deemed to commence on the 1st of January, 1796, and to rest on funds permanently pledged, namely, the permanent revenues.
That provision be made for converting, by a new loan, the whole of our present foreign into domestic debt, upon these terms, to wit: that, for any sum subscribed to the new loan, and paid in the principal of the present foreign debt of the United States, there be allowed, in addition to the interest now payable upon such principal, the further yearly interest of one half per centum, or, in lieu thereof, at the option of each subscriber, an equivalent sum in capital stock, bearing an interest of five per centum per annum. That the whole interest upon the new loan, including that upon the capital stock, to be given as an equivalent for the additional one half per cent., shall remain fixed until the first day of January, 1818, at which time, and not sooner, the principal of the said new loan, including the said capital stock given as an equivalent, may and shall be reimbursed, except as to such subscribers as may prefer a shorter term of reimbursement, who may elect any term not less than fifteen years. That the permanent revenues shall be and remain firmly pledged for the payment of the said interest, until the reimbursement of the said principal, to be paid quarter yearly, as that of the present funded domestic debt. And, lastly, that the commissioners of the sinking fund be empowered, with the approbation of the President, to provide, by new loans, for the reimbursement of any instalment or part of principal of the present foreign debt, or of the loan to be made thereupon, as aforesaid, either by direct borrowing or by sale in the market, of certificates of stock, so as the said loan or the said certificates of stock shall bear an interest not exceeding six per centum per annum, and shall be liable to reimbursement within a term not exceeding twenty-four years. The interest upon the capital reimbursed, and, in aid thereof, the permanent revenues, to be pledged for the interest upon the loans or stock to be made or created by virtue of the said power.
That the temporary duties on imports be made coextensive, in duration, with those now permanent, and be appropriated in like manner; and that the reservation of 600,000 dollars, annually, out of the duties on imports and tonnage, for the support of the Government of the United States, and their common defence, be postponed till after the appropriations for the interest of the funded debt, foreign and domestic, and for the SINKING FUND.
That the following provisions be added to those heretofore made, for reimbursing and redeeming the debt of the United States:
1st. To direct, by law, that so much of the surplus of the duties on imports and tonnage, to the end of the year 1790, as shall remain uninvested in purchases, on the 1st day of January, 1796, shall be so invested, one fourth part within the month of April, another fourth part within the month of July, another fourth part within the month of October, in that year, and the remainder within the month of January, 1797.
2d. To exonerate the FUND established by the act, entitled “An act supplementary to the act making provision for the debt of the United States,” passed the 8th of May, 1792, from the payment of the rate, per annum, which by the 4th section of the act of the 12th of August, 1790, entitled “An act making provision for the reduction of the public debt,” is reserved, on account of the principal and interest of the moneys authorized, by that act, to be borrowed for purchases of the debt; charging the interest of the moneys so borrowed, upon the revenue from imports and tonnage.
3d. To appropriate to the SAME FUND, so much of the revenue from imports and tonnage, as, together with the other moneys now constituting the fund, and which shall accrue to it by virtue of the foregoing provisions, shall be sufficient, from year to year, with the interest redeemed, to pay the sums which may, of right, be annually paid on account of the principal of such funded stock, as, on the 1st day of January, 1796, shall bear a present interest of 6 per centum per annum, excluding that which shall stand to the credit of the commissioners of the sinking fund, and that which shall stand to the credit of particular States, on account of the balances reported in their favor by the commissioners for settling accounts between the United States and individual States; to continue so appropriated until the whole of the said funded stock shall be redeemed, and, thenceforth, until the whole residue of the present debt of the United States, foreign and domestic, funded and unfunded, shall be redeemed or discharged.
4th. To appropriate to the SAME FUND, the dividends on the stock of the Bank of the United States belonging to the United States, reserving, from time to time, so much thereof as may be necessary to pay interest on what shall remain unpaid of the loan had of the said bank, pursuant to the second section of the act of incorporation, and, also, so much of the duties on imports and tonnage as, together with those dividends (deducting what may be necessary to pay interest), shall be sufficient, from year to year, to pay off the instalments of the said loan, hereafter to grow due, and as (the said instalments being paid), together with any other moneys which on the 1st day of January, 1802, may belong to the said fund not otherwise appropriated, shall be sufficient, from year to year, with the interest redeemed, to pay the sums which may, of right, be annually paid on account of the principal of such funded stock, as, at the expiration of the year 1800, shall begin to bear an interest of six per cent. per annum, excluding that which shall stand to the credit of the commissioners of the SINKING FUND, and that which shall stand to the credit of particular States, on account of the balances reported in their favor, by the commissioners for settling accounts between the United States and individual States; to continue so appropriated, until, as well the last mentioned stock, as the instalments of the loan aforesaid, shall be fully redeemed and discharged, and, thenceforth, until the whole residue of the present debt of the United States, foreign and domestic, funded and unfunded, shall be redeemed and discharged.
5th. To continue the appropriation to the SAME FUND, of the interest of the stock which shall be redeemed by virtue of the foregoing provisions (when the full redemption in each case is completed), until the WHOLE of the PRESENT DEBT of the United States, foreign and domestic, funded and unfunded, shall be redeemed, by reimbursement, purchase, or otherwise.
6th. To provide for carrying to the SAME FUND, agreeably to the appropriation in the funding act, the proceeds of the sales of the lands of the United States in the Western territory, to be applied according to the said appropriation.
7th. To appropriate to the SAME FUND, to be employed for the purposes thereof, all moneys which shall be received for debts due to the United States, antecedent to the present constitution.
8th. To provide that the surpluses of all the current revenues of the United States, which shall remain at the end of any calendar year, beyond the amount of the appropriations charged upon them, and which, during the session of Congress, commencing next thereafter shall not be otherwise specially appropriated or reserved, shall be carried to the FUND AFORESAID, to be applied to the purposes thereof.
9th. To provide for paying annually, out of the SAID FUND, the sum which may be rightfully paid in each year, toward the redemption of the funded stock, which does or shall bear an interest of six per centum per annum, excluding that which shall stand to the credit of the commissioners of the sinking fund, and that which shall stand to the credit of particular States on account of the balances reported in their favor by the commissioners for settling accounts between the United States and individual States, commencing the redemption of that bearing a present interest on the first of January, 1796, and of that to bear interest after the year 1800 on the first of January, 1802, and pledging, in the firmest manner, the faith of the United States to the creditors thereof, that the SAID FUND shall be inviolably applied to the purpose of redeeming the stock aforesaid, and afterward to the redemption of the whole of the PRESENT DEBT of the United States, foreign and domestic, funded and unfunded, until the whole shall be fully redeemed and discharged, and to be vested in the commissioners of the sinking fund, as property in trust for the creditors, until the redemption of the whole of the present debt of the United States shall be completed.
Provided, always, that whenever THE FUND shall be more than sufficient for paying off, as they accrue, the remaining instalments of the said loan had of the Bank of the United States, and for the complete and final redemption of the whole of the aforesaid stock, bearing and to bear an interest of six per cent. according to the right reserved for that purpose, and also for the payment of the instalments of the present foreign debt, or of such new loans as may be made thereupon, pursuant to the third proposition, and for the reimbursement, purchase, or redemption of the residue of the present debt of the United States, within the term of thirty years, it shall be lawful for Congress, if at war with any foreign European Power, to apply so much of the excess as they may think fit, the said excess being certified by the COMMISSIONERS OF THE SINKING FUND, toward the expenses of such war; excepting always so much of the said excess as may be requisite to fulfil any contracts which shall have been entered into by the commissioners of the sinking fund, pursuant to the powers vested in them; and provided that no second appropriation of any such excess shall derogate from the fund once reserved for the redemption or purchase of the said residue of the debt, within the said term of thirty years.
10th. To provide that all reimbursements of the capital of the public debt, foreign and domestic, and of the remaining instalments of the aforesaid loan of the Bank of the United States, be made under the superintendence of the commissioners of the sinking fund, empowering them, with the approbation of the President of the United States, as the instalments of principal become due, to borrow, if necessary, the sums requisite to pay those instalments. Provided, that the ultimate term for the reimbursement of any loan they may make shall not exceed twenty-four years; the interest thereof to be charged—first, upon the interest of the instalments which shall be reimbursed by means thereof, except the instalments of funded six-per-cent. stock; secondly, upon the revenue from imports and tonnage, to make good any deficiency.
That power be given to the commissioners of the sinking fund, with the approbation of the President, to borrow, from time to time, such sums as may be necessary in anticipation of the revenues appropriated for the purpose, not exceeding in one year one million of dollars, to be reimbursed within a year from the time of each loan, for the payment of the interest which shall annually accrue on the public debt.
The interest upon each loan to be defrayed out of the permanent revenues.
That the internal revenues from snuff and refined sugar, sales at auction, licenses to sell by retail foreign distilled spirits and wines, carriages for the conveyance of persons, be continued to the first day of January, 1800, and that the reimbursement of the principal of the loan of one million dollars, authorized to be borrowed for defraying the expenses of foreign intercourse, be charged upon this fund.
That, in regard to any sum which shall have remained unexpended upon any appropriations other than for the payment of the interest of the funded debt and for the purposes of the sinking fund for more than two years after the end of the calendar year in which the act of appropriation shall have been passed, such appropriation shall be deemed to cease and determine—and the sum expended upon it shall be carried to an account to be denominated “THE SURPLUS FUND.” But no appropriation shall be so deemed to have ceased or determined till after the year 1795, unless it shall appear to the Secretary of the Treasury that the object of such appropriation has been fully satisfied; in which case it shall be lawful for him to cause to be carried the unexpended residue thereof to the account aforesaid.
That provision be made that all priorities heretofore established in the appropriations for the funded debt, as between the different parts of said debt, shall, after the year 1796, cease with respect to all creditors of the United States who do not, before the expiration of the period, signify their dissent therefrom; and that thenceforth, with the exception only of the debts of those creditors who shall so signify their dissent, the revenues charged with these appropriations shall constitute a common or consolidated fund, chargeable indiscriminately and without priority.
That provision be made for calling in all outstanding loan-office certificates, certificates called final settlements, and indents of interest, and for issuing in lieu of them other certificates of equivalent tenor, establishing that all which shall not be presented for exchange within the term of two years shall be barred.
Remarks upon the First Proposition
The experiment has now been fully tried, and with nearly complete success, of the disposition of the public creditors to accept the terms offered by the funding act. Those who still decline have probably made a final election to abide by their original contracts.
It remains to fulfil them. This, the moral obligation of the contracts, the new and peremptory sanction given to them by the present Government, and the essential maxims of public credit, unite to demand; and, while these cogent motives, affecting intimately the permanent character and general interest of the United States, recommend the measure, there is now no longer any momentary inducement, from situation, to procrastinate.
The present advanced state of the national finances, and the inconsiderable magnitude of the still unsubscribed debt, render it of little, if any, consequence to obtain upon it the temporary accommodation of deferring the payment of a part of the interest accruing according to contract. This motive apart, and considering the approximation of the period when the payment of interest on the deferred debt is to commence, the chance of benefiting by a fall of the market rate of interest, incident to a provision for the debt on the terms of the contract, which make it redeemable at pleasure, may be found more advantageous to the Government, than the partial postponement of interest encumbered with an abridgment of the right of redemption.
To those who should not rightly appreciate this circumstance, it might seem an objection, that the provision proposed would place those creditors who had not consented to accommodate the Government, upon a better footing than those who had so consented.
But a scruple of this kind is overruled by several considerations.
1st. It is not improbable that a considerable proportion of those who may not have accepted the terms offered by the funding act, are executors and other trustees, who may have doubted their power to accept.
2d. Giving the fullest force to the fact which is the ground of the objection, it is one of those cases in which the general principles that constitute the permanent happiness of society, give the less meritorious advantages over the more meritorious. All the creditors had a right to conform, or not. Those who have not done it have only used their right, and it cannot be matter of objection or prejudice to them. To delay indefinitely a provision for their claims, according to contract, is to annihilate the contract.
The complying creditors cannot with propriety complain. They were informed unequivocally that the proposal of a new loan was referred to their free choice; that the rights of those who did not assent would remain unimpaired; and compensations were offered in the new contracts for the surrender of the old. A plea that an ultimate provision was not relied upon could not be admitted, because it would be to convert a distrust of the faith of the Government into an argument against its being observed towards those who had depended upon it.
But the complying creditors actually received valuable considerations for the modification of their claims, instead of annual provision for their interest, which alone their contracts, as they stood previous to the funding act, required; they have had it secured by adequate funds permanently mortgaged for its payment.
Instead of the stipulated annuity being redeemable at pleasure, whenever a fall in the market rate of interest should render it advantageous to pay off the principal, it has acquired a more fixed character by the relinquishment of the right of the Government to redeem, except in certain proportions, and a capacity to increase in capital value, by a declension of the market rate of interest.
Instead of receiving their interest in one payment, at the end of a year, they receive it in quarter-yearly portions, which makes it, in fact, 6.15 per cent. in lieu of the stipulated rate of six per centum.
On the first point it has been argued that, supposing a steady preservation of its faith by the Government, it is indifferent to the creditor whether his demand stands upon the basis of an annual provision, or upon that of mortgaged funds.
This is to substitute theory to fact. As well with regard to a government as to an individual, there is, in the nature of things, an intrinsic difference between the value of a debt bottomed on mortgaged funds, and that of a debt resting on what is called, in the one case, and may be called in the other, personal security. The degree of this difference, and some of the circumstances on which it depends, may be different in the two cases, but the reality of its existence can be denied in neither.
Government, being administered by men, is naturally, like individuals, subject to particular impulses, passions, prejudices, vices; of course to inconstancy of views and mutability of conduct.
A kind of property, of which the essence is contract, must necessarily, therefore, be more or less valuable, because more or less secure, in proportion as it is little or much exposed to the influence of that inconstancy or that mutability.
If a provision is to be made by a new resolution every year, that resolution, being always liable to be affected by momentary circumstances, is always casual.
If made once for all, it continues, of course, unless revoked by some positive act, and has for that reason a moral certainty of stability.
But why, it might be asked, if a disposition unfaithful to the public engagements, or unfriendly to the public credit, should exist, would it not operate to produce a violation of a provision made, as well as to prevent the making of one?
The two things are widely different. To undo, which is to act, and in such a case to act with violence, requires more enterprise and vigor, and presupposes greater energy, or a stronger impulse, than not to do or to forbear to act. This is particularly true where a number of wills is to concur. Many men who will not rouse to the effort, or encounter the responsibility of doing mischief by positive acts, will readily enough slide into it by a negative conduct—that is, by omitting to act. Many men, merely from easiness of temper or want of active fortitude, will suffer evil to take place which they neither desire nor would themselves commit. In collective bodies, votes are necessary to ACTION: absences may produce INACTION. It often happens that a majority of voices could not be had to a resolution to undo or reverse a thing once done, which there would not be a majority of voices to do.
This reasoning acquires tenfold force when applied to a complex government like ours; that is, to a government distributed into departments, acting through different organs, which must concur to give it motion; as, in our Constitution, the HOUSE OF REPRESENTATIVES, the SENATE, and the PRESIDENT.
In delicate and difficult cases, whether to issue in good or ill, a suspension of action is far more natural to such a government than action.
It can hardly happen that all the branches or parts of it can be infected at one time with a common passion, or disposition, so manifestly inimical to justice and the public good, as to prostrate the public credit, by revoking a pledge, given to the creditors. It is far more probable that such a disposition should, at one time, possess one part, at another time, another part. Possessing either part, it might be sufficient to obstruct a provision which was to be made. Without possessing all the parts, it could not subvert one which had been made. The last can scarcely be supposed, except in one of those extraordinary crises of nations which confound all ordinary calculations.
Hence the value of property in public debt, which rests on specified and competent funds, firmly pledged for the satisfaction of the creditor, is intrinsically greater, and to a considerable extent, than that of property in public debt, which depends on annual provision. Hence, too, a creditor to whom such a pledge was not stipulated, may be justly said to have received a compensation for the relinquishment of a portion of his interest.
On the second point, it has been observed, with less plausibility, that, in this country, where it would be to the advantage of the creditor to receive his principal, rather than a rate of six-per-cent. interest, the abridgment of the right of redemption is of no value.
1st. The proposition is not universally true.
It depends on the particular situation of a creditor, whether it be his interest to be reimbursed his principal or not. It is believed, owing to the impunctuality of collections, that in no part of the United States does fair lending at private interest, upon real security, net six per cent.
2d. As far as it is true, it does not authorize the inference which is drawn, because the creditor cannot demand his principal when it suits him, but must wait till it is convenient for the Government to pay. This convenience might not exist till there was a fall in the market rate of interest, and then it would not be the interest of the creditor to receive.
Unable to exact the principal when he pleases, it is a material point gained to be able to arrest the hand of the Government from paying him when it is his interest not to receive. It is evident, that whenever the rate of interest to which he is entitled shall exceed the market rate, if he cannot be obliged to receive back his principal, or take the market rate, his stock must rise in value in proportion to the difference and degree of its duration.
Nor is an idea which has been entertained just, that this advantage is remote and contingent, to accrue only to those who may be holders at the time of the fall of interest, at the expense of those who were holders when the funding act passed, many of whom, as it is alleged, being obliged to alienate then or shortly after, suffered loss in the sale, from the postponement of a part of their interest, without benefiting by the supposed equivalents.
The fairness of an equivalent ought never to be tested by the necessities of particular individuals. It ought to be estimated by the general principles of value; by the natural and real operation of things. Admitting, therefore, the suggestion, as to such individuals, to be true, it would decide nothing.
But it is not true. The permanency of a high rate of interest, and the possibility of a future rise of the capital above par, by the fall of the market rate below the stipulated rate, were, to the first holders of stock, circumstances of present value.
Foreigners, especially, whose purchases would necessarily influence the market, would give higher prices for it on these accounts.
And when to this are added the funding of the new stock and the payment of the interest quarter yearly, there is solid ground for entertaining an opinion that the stock has, from the earliest period, borne a better price in the market than upon the principle of an annual payment of six per cent. on the whole capital depending upon an annual provision.
This opinion would be confirmed, if we should take as a guide what actually happened in one or more of the States which made annual provision for the payment of interest upon their debts, at the stipulated rate of six per cent. With this provision the market price of their stock rarely exceeded thirty-three and one third per centum.
It is probable that greater confidence in the ability and constancy of views of the Government of the United States might have given a greater value to their stock in a like situation. But it is not to be doubted that it would have felt, in a great degree, a similar effect of that situation.
This may not appear with respect to the small amount of unsubscribed debt, now to be provided for, and with the advantage of a confirmation of confidence by experience; but it could not have failed to have been very apparent, if the whole debt had been provided for on this plan.
These observations serve to render it probable that the creditors who have accepted the terms offered by the Government have not been injured by the acceptance; that, if they had now an option to change their ground for that which is now proposed for non-subscribers, it would be an ill-judged choice in them to do it; and that, upon these, as well as other accounts, they will have no cause to be dissatisfied with the proposal under consideration.
Let it be added, that, whether the non-subscribers shall fare better or not by that proposal than the subscribers, it is the interest of all the public creditors upon principle and precedent, that the public faith should be preserved toward those non-subscribers.
But, at the same time, every consideration connected with the question, urges that nothing more should be done for non-subscribers than is positively due to good faith. Accordingly, the proposition contemplates that their debt shall not be funded, but that provision shall be annually made.
With regard to arrears of interest, a tenth part only is proposed to be paid on the first of January, 1796. At this rate they would be paid off in ten years.
In strictness, they ought to be immediately discharged. But to have done this on the whole debt would have been impracticable; to do it on what now remains unsubscribed would not only be unequal, but would, at the present moment, obstruct arrangements which are conducive to the general interests of the creditors. The state of the Treasury in succeeding years will enable Congress to decide how far the payment can be accelerated. In the meantime, the creditors have an option to separate these arrears from the principal, and to fund them at three per cent., as has been done generally with regard to interest. The case of a large arrear of interest, arising from the inability of a former government, which is the present case, is liable to some peculiar considerations.
A difference is made in the special case of the loan-office certificates, which, by contract, are entitled to interest of six per cent. on the nominal principal, redeemable only by payment of the specie principal.
This is too disadvantageous a footing for the Government.
The alternative most convenient at this time is to pay off the debt, which is proposed. To elude this contract, would be to sacrifice a very great principle to a very little interest.
The amount will be seen in the statement A.
Remarks upon the Second Proposition
The certificates, or bills of credit, called new emission money, were emitted pursuant to a resolution of Congress, of the 18th of March, 1780, which directs them to be emitted upon the funds of individual States, to bear an interest of five per centum per annum, payable in specie, at the redemption of the bills; or, at the election of the holder, annually, at the Continental loan offices, in sterling bills drawn by the United States upon their commissioners in Europe, and pledges the faith of the United States for the payment of the said bills, in case any State on whose funds they should be emitted, should, by the events of war, be rendered incapable to redeem them; directing, also, an endorsement to be made upon each bill, in these words: “The United States insure the payment of the within bill, and will draw bills of exchange for the interest, annually, if demanded, according to a resolution of Congress, of the 18th of March, 1780.”
These resolutions, and the endorsement upon the bills, engage the absolute promise of the United States for the payment of the interest indefinitely, and their eventual guaranty of the principal, in case any State on whose funds the bills should be emitted should, by the events of war, be rendered incapable to redeem them; which is, in effect, though not in form, an absolute guaranty of the principal: for the United States are bound to pay the interest perpetually till that is discharged.
Good faith demands that the United States should supply the omissions of the States which issued the bills, by providing themselves, at least, for the interest upon them.
But it is not as easy to pronounce on what terms they ought to be provided for.
On their face, and according to the unrevoked resolutions of Congress, they are of specie value, equal to their nominal amount, and bearing five-per-cent. interest.
But it is known that they were issued by different States, at different values, fixed by previous laws. The true nature of the contract, therefore, in fact, and the true equity of the case, are, from these circumstances, involved in some question.
A compromise by a new agreement, seems the best road out of the difficulty.
This is the aim of the proposition, which, it is hoped, will, in the main, reasonably consult all interests.
There have been special references of this subject to the Secretary, but he purposely declined a report till the expiration of the term limited by the act, entitled “An act relative to claims against the United States not barred by any act of limitation, and which have not been already adjusted,” passed the 12th of February, 1793, had obviated a danger to which the business was exposed. It is now ascertained that the amount for which the United States shall be in future liable, is $90,574. The sums subscribed to the loan will, of course, be a charge against the States which respectively issued the bills.
Remarks on the Third Proposition
The payment of interest and instalments of principal of our foreign debt, in the countries where it was contracted, is found by experience to be attended with difficulty, embarrassment, some loss, and a degree of casualty which occasionally puts in jeopardy the national credit. Loans for reimbursement must be made beforehand, as the market suits, and necessarily involve double interest for a greater or less time. The procuring of bills to be remitted for payment of interest cannot be depended upon in coincidence with the periods of payment, which, co-operating with distance, renders inconvenient anticipations necessary.
The remitting in commodities would be liable to other casualties and to some peculiar objections; and whatever mode be adopted, it may be frequently not practicable to deposit in season the necessary funds on the spot without great sacrifices. If, therefore, the place of these payments could, with consent of the creditors, upon an equitable indemnification to them for the transfer, be changed to the United States, the operation would be in various lights beneficial. It has occurred that the present posture of the affairs of Europe might favor a plan of this kind, and perhaps produce some collateral advantages. Under this idea, an experiment is proposed. The proposed augmentation of interest is intended as an indemnification for the expense and hazard of agencies in this country, delays in remittance, inconvenience of distant negotiation, renunciation of the facilities which attend the receipt of interest at home, risks of loss by exchange, etc., and is calculated on a liberal scale, in order to induce an acceptance of the proposition.
If, instead of an increase of interest, the option of an equivalent be given by way of premium, in stock bearing an interest of five per cent., it would have attractions for certain creditors, and would facilitate the success of the measure. On strict calculation, the equivalent would be six dollars and fifty-eight cents per one hundred dollars, of the principal subscribed. It is not perceived that the interests of the United States could suffer by allowing the alternative. The fixing of the rate of interest, by postponing the reimbursement to the year 1818, would also be a powerful inducement, and till the period of reimbursement arrives, any surplus of the sinking fund which may exist can be invested in purchases, so as to prevent the progress of the fund being arrested.
It could not be necessary to observe, except for the sake of dispelling jealousy or apprehension on the part of the creditors, that, while the plan is in experiment, and afterwards, with regard to all who do not embrace it, every thing is to proceed as heretofore, and as the contracts respecting the debt require.
The auxiliary proposition of giving power to the commissioners of the sinking fund to remit certificates for sale is founded upon a belief that this operation will sometimes be practicable, where direct loans cannot be effected, and will be occasionally a more beneficial mode of remittance than by bills of exchange.
Remark on the Fourth Proposition
The object of this proposition is to give moral certainty to the adequateness of the fund for paying the interest upon the debt, and for its ultimate redemption, making a reasonable allowance for the casualties to which it is exposed.
Remarks on the Fifth Proposition
There is no sentiment which can better deserve the serious attention of the legislators of a country than the one expressed in the speech of the President, which indicates the danger to every government from the progressive accumulation of debt. A tendency to it is, perhaps, the natural disease of all governments; and it is not easy to conceive any thing more likely than this to lead to great and convulsive revolutions of empire.
On the one hand, the exigencies of a nation, creating new causes of expenditure, as well from its own, as from the ambition, rapacity, injustice, intemperance, and folly of other nations, proceed in increasing and rapid succession. On the other, there is a general propensity in those who administer the affairs of a government, founded in the constitution of man, to shift off the burden from the present to a future day—a propensity which may be expected to be strong in proportion as the form of a state is popular.
To extinguish a debt which exists, and to avoid the contracting more, are ideas always favored by public feeling and opinion; but to pay taxes for the one or the other purpose, which are the only means of avoiding the evil, is always, more or less, unpopular. These contradictions are in human nature; and happy, indeed, would be the lot of a country that should ever want men ready to turn them to the account of their own popularity, or to some other sinister account.
Hence, it is no uncommon spectacle to see the same men clamoring for occasions of expense, when they happen to be in unison with the present humor of the community, whether well or ill directed, declaiming against a public debt, and for the reduction of it as an abstract thesis; yet vehement against every plan of taxation which is proposed to discharge old debts, or to avoid new, by the defraying expenses of exigencies as they emerge.
These unhandsome arts throw artificial embarrassment in the way of the administrators of a government, and, co-operating with the desire which they themselves are too apt to feel to conciliate public favor, by declining to lay even necessary burthens, or with the fear of losing it, by imposing them with firmness, serve to promote the accumulation of debt, by leaving that which exists without adequate provision for its reimbursement, and by preventing the levying, with energy, new taxes, when new occasions of expense occur. The consequence is, that the public debt swells till its magnitude becomes enormous, and the burthens of the people gradually increase, till their weight becomes intolerable. Of such a state of things, great disorders in the whole political economy, convulsions and revolutions of government, are a natural offspring.
There can be no more sacred obligation, then, on the public agents of a nation, than to guard, with provident foresight and inflexible perseverance, against so mischievous a result. True patriotism and genuine policy cannot, it is respectfully presumed, be better demonstrated by those of the United States, at the present juncture, than by improving, efficaciously, the very favorable situation in which they stand, for extinguishing, with reasonable celerity, the actual debt of the country, and for laying the foundation of a system which may shield posterity from the consequences of the usual improvidence and selfishness of its ancestors, and which, if possible, may give IMMORTALITY TO PUBLIC CREDIT.
Fortunately for the first object, the circumstances in our foreign affairs, which, during the last session, impelled to an extension of the national revenues, have left little more to do than to apply the existing means with decision and efficacy.
The second object will depend on the establishment of wise principles in the application, fitted to become a permanent precedent in the fiscal system of the country.
The first report of the Secretary on the subject of the public debt, of the 9th of January, 1790, suggests the idea of “incorporating, 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; that this is the true secret for rendering public credit immortal, and that it is difficult to conceive a situation in which there may not be an adherence to the maxim”; and it expresses “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.”1
No opportunity has been lost by the Secretary, as far as he could contribute to the event, to reduce this principle to practice; and important steps towards it have been, from time to time, taken by the Legislature.
But much remains to be done to give it full effect. The present state of things encourages and invites to the consummation of the plan. And the Secretary, about to leave the office he holds, feels it a peculiar duty to make a final effort to promote that invaluable end.
This is the object of the fifth proposition, aided by the preliminary provisions of the fourth. This proposition aims at two principal points: I. To constitute a fund sufficient, in every supposable event, for extinguishing the whole of the present debt of the United States, foreign and domestic, in a period not exceeding thirty years. 2. To fix its destination unchangeably, by not only appropriating it permanently, under the direction of commissioners, and vesting it in them as property in trust, but by making its faithful application a part of the contract with the creditors.
As to the first point: If the temporary duties on imports be rendered permanent, the annual reservation of six millions of dollars postponed, and if the additional appropriations which are proposed be made to the sinking fund, its intended force will not only be equal to the effect meant to be produced, but it may be hoped that there is scarcely a casualty which can reasonably be taken into calculation, foreign war not excepted, which will occasion a deficiency in the fund.
The whole amount of the duties on imports and tonnage, and upon domestic distilled spirits and stills, estimated now to amount to $6,079,418 58, besides the dividends on bank stock, and the items which now compose the sinking fund, will then be appropriated, primarily, to the interest upon the public debt, and to the sinking fund; which, together, including the deferred stock, will demand, permanently, from that revenue, $4,373,836 03 — little more than two thirds of the fund from which they arise. An expectation may be indulged, that even foreign war, making due allowance for what will always be practicable through neutral Powers, would not occasion a defalcation in the revenues greater than the difference. This competency of the fund is an essential idea. The fulfilment of the object, as far as the uncertainty of human affairs will permit, ought to be superior to casualty.
The necessity of a reliance on auxiliary provisions, always precarious in those situations which affect the productiveness of the public revenues, ought to be, as far as practicable, superseded by the ample nature of the provision.
As to the second point: The intent is to secure, by all the sanctions of which the subject is susceptible, an inviolable application of the fund, according to its destination. No expedients more powerful can be devised for this purpose than to clothe it with the character of private property, and to engage absolutely the faith of the government, by making the application of it to the object, a part of the contract with the creditors.
But is this necessary?
Its necessity rests on these cogent reasons: The inviolable application of an adequate sinking fund is the only practicable security against an excessive accumulation of debt, and the essential basis of a permanent national credit.
Experience has shown, in countries the most attentive to the principles of credit, that a simple appropriation of the sinking fund is not a complete barrier against its being diverted, when immediate exigencies press. The causes which have been stated with another view, tempt the administrators of government to lay hold of this resource rather than resort to new taxes. This indicates the utility of endeavoring to give, by additional sanctions, inviolability to the fund.
But, will those proposed answer the end?
They are the most efficacious that can be imagined, and they are likely to be entirely efficacious. They cannot be disregarded, without, by breach of faith and contract, destroying credit; and at a juncture, too, when it is most indispensable. The emergencies which induce a diversion of the fund are those in which loans, and, consequently, credit, are most needed.
But will it be safe to put the funds so entirely out of the command of the government? May there not be situations in which the command of it may be requisite to the safety of the State?
This is not conceivable. The amount of the sinking fund will, in the situations which create extraordinary demands for money, be always inconsiderable, compared even with a single year’s expenditure. The current revenues of a nation do not, in such cases, suffice. Plunder or credit must supply the deficiency. The first presupposes a subversion of all social order. The second will find its best support and greatest efficacy in adhering steadily to the principles of such a fund. An annuity of seven dollars will pay the interest upon, and discharge a capital of, one hundred dollars, bearing six per cent. interest, in thirty-three and a third years, nearly. The situation of a country must be not a little exhausted, if it cannot create yearly, by new revenues, during the continuance of a foreign war, an annuity on the above scale sufficient to fund the loans of which it may stand in need. Ten millions of dollars will, with order and economy, maintain in this country an army of fifty thousand men for a year. Viewing our geographical position, is there a prospect of any war expensive beyond this ratio? If not, an annuity of seven hundred thousand dollars, created each year of the war, would suffice. But it would be wise, in such an event, to carry taxation, in the first instance, to the full extent of the ability of the state, which would proportionably contract the necessity for borrowing, and, consequently, the extent of the annuities necessary for loans.
If a nation can find embarrassment in creating the revenues requisite on this scale, it must arise from her having reached a stage when, from the neglect of the principle now inculcated, the mass of her debt has become so enormous as to strain her faculties in order to make a provision for it.
The United States are in a situation altogether different. An inspection of the list of their revenues discovers that they have a large field of resource unexplored. Their youth, and large tracts of unsettled lands, and land in the infancy of improvement, assure them a great and rapid increase of means. Even their actual revenues, without additions, must, with the progress of the country, considerably increase. And, though war may interrupt, the temporary interruption being removed by the restoration of peace, their increasing productiveness, suspended for a time, must resume its vigor and growth. In a given number of years a considerable augmentation is certain.
The government of this country may, therefore, adopt, fearless of future embarrassment, a principle which, being adopted, will ultimately furnish resources for future exigencies, without an increase of burthen to the community.
To explain this last idea: It will readily be perceived that the funds pledged for paying the interest and sinking the principal of a portion of the debt existing or created at a particular time, will, within a certain period, extinguish that portion of debt.
They will then be liberated, and will be ready for any future use, either to defray current expenditures, or be the basis of new loans, as circumstances may dictate. And, after a course of time, it is a reasonable presumption, that the funds, so successively liberated, will be adequate to new exigencies, as they occur.
Moreover, the last clause of the proposition authorizes the deriving aid from the sinking fund for new loans, whenever the state of the fund admits of it, consistently with the accomplishment of its purposes—that is, when it is sufficient—1st, to make good the payments on account of the principal of the debt as they accrue; 2d, to purchase in the market all that part of the public debts of which there is no stipulation of payment by instalments (as the three per cent. stock) within a period of thirty years.
This, while it secures the extinction of the existing debt within a reasonable term, by preventing too great a proportion of the public revenue from being tied up by the sinking fund, gives due weight to the consideration of providing for future emergencies.
The same consideration has governed in proposing (instead of the appropriation of a definite sum out of the revenue from imports and tonnage, which, in certain years, would be greater than will be permanently necessary) that the sum to be applied out of that revenue shall be so much from year to year as, with the other items of the sinking fund, will suffice for the object. It has likewise influenced in postponing the redemption of that stock which stands to the credit of certain States, in consequence of the report of the commissioners for settlement of accounts.
Every system of public credit must assume it as a fundamental principle, that the resources of the country are equal to its probable exigencies, and that it will possess ability to pay the debts which it contracts. If this be so, there is no cause to hesitate about the inviolable appropriation of funds to the extinction of an existing debt within no less a term than thirty years.
Indeed, as before intimated, it cannot be doubted that the resources of a credit, built upon a foundation so solid as that which is recommended, will more than replace, even in the earliest stages of our affairs, the use of the additional funds withdrawn from the command of the government to effect it, and, in the eventual operation, will give a more abundant command of funds than it can otherwise have. The successive liberation of the revenues, successively pledged, after accomplishing their object, will afford resources that may almost be said to be inexhaustible.
It should be recollected, too, that the public arrangements may, under a great pressure, anticipate the approaching period of such liberation, by intermediate temporary loans, to be replaced by those funds when they are free.
This proposition exemplifies, as to the past, the nature of the maxim which has been supposed capable of giving immortality to credit, namely: that, with the creation of debt, should be incorporated the means of extinguishment; which means are twofold: 1. The establishing, at the time of contracting a debt, funds for the reimbursement of the principal, as well as for the payment of interest within a determinate period. 2. The making it a part of the contract, that the fund, so established, shall be inviolably applied to the object.
It is believed that it would be happy for the United States, if Congress would adopt this principle as a rule in all future loans—never to be departed from; and a good evidence of this determination will be, to apply it to the past.
This would be, at the same time, an antidote against what may be pronounced the most plausible objections to the system of funding public debts; which are, that, by facilitating the means of supporting expense, they encourage to enterprises which produce it; and, by furnishing in credit a substitute for revenue, likely to be too freely used to avoid the odium of laying new taxes, they occasion a tendency to run in debt. Though these objections to funding systems, which give the greatest possible energy to public credit, are a great source of national security, strength, and prosperity, are very similar to those which speculative men urge against national and individual opulence, drawn from its abuses; and though, perhaps, upon a careful analysis of facts, they would be found to have much less support in them than is imagined, attributing to those systems effects which are to be ascribed, more truly, to the passions of men, and perhaps to the genius of particular governments; yet, as they are not wholly unfounded, it is desirable to guard, as far as possible, against the dangers which they suppose, without renouncing the advantages which these systems undoubtedly afford.
It will readily be seen, that the maxim of making concurrent provision for the principal as well as interest, in the act of contracting debt, if by precedent and habit it can be rendered a rule of administration, by implicating a greater portion of the revenue in every such operation than would be requisite for a mere provision for interest, will control proportionably the disposition to defer the burthen to futurity, and create a greater necessity for circumspection in incurring expense.
It is, probably, the true expedient for uniting a due regard to the present accommodation of the community, with a due care not to overburthen posterity—the full energy of public credit, with a salutary restraint upon the abuses of it.
To this explanation of the general principles of the fifth proposition, it may be proper to add some brief notes on particular parts of it.
It is proposed that the redemption of the present six per cent. stock shall commence on the 1st of January, 1796. This time of commencement is recommended by several reasons: 1. It ought to be such as to admit of sufficient notice to distant creditors. 2. It will favor order, to date the commencement of every new pecuniary operation, where there is an option, and no particular reason to the contrary, with the commencement of the natural year. 3. The moment of payment presupposes that the annuity to be paid has actually accrued, which will not be the case till the end of the present year. 4. The small delay, by not forcing the means, will facilitate the future execution.
It is a part of the plan to make provision for reimbursing the remaining instalments of the two-million loan, had of the Bank of the United States, pursuant to the act of incorporation. The preceding instalments have been reimbursed out of the proceeds of foreign loans. This resource cannot, in future, be relied upon; and for such a purpose it is not as eligible as a domestic one, though circumstances have hitherto dictated a recurrence to it. By making the dividends on the stock auxiliary for this purpose to the revenue from taxes, the object is effected with little more than half the sum from that revenue; and, in the end, a fund is formed from the dividends which, with a small addition, suffices for the redemption of the deferred stock. As these instalments are yearly falling due, and must be paid as they accrue, it is essential that a provision for them be contemplated in the general arrangement requisite to the completion of our system of credit. There is, perhaps, no easy alternative to what is proposed, except the sale of the stock. But, waiving other weighty considerations against such a measure, it is, in the view of a true economy, liable to the most solid objections.
It is morally certain that the dividends on the stock will increase, and the value of the capital, from this and collateral causes, more than proportionably. There is no momentary urgency to induce the relinquishment of this future advantage. To sell at present would be to abandon the difference without necessity. It cannot be expedient in a government to part with a capital which, at the time, produces as great or a greater revenue than can be realized from the proceeds of a sale, however invested; and which has an inherent tendency to future augmentation. The measure, too, would be to renounce, or lessen, a most convenient resource for forming the redeeming fund of the deferred stock.
It is proposed to carry the proceeds of the sales of the Western lands to the sinking fund. This is to execute the intention of the funding act, which has not organized the mode of application; and it has the advantage of combining in one system all the provisions for extinguishing the debt.
It is proposed that all surpluses of revenue shall, at a certain time, be carried to the use of the sinking fund. This is to extend and give effect to a principle which has already received the legislative sanction. It was necessary to fix a time when the appropriation of the surplus should become absolute, and that this should be consistent with a due opportunity to provide for the exigencies of the public service. Both these considerations have been consulted. This measure has, besides, reference to a more speedy redemption of the debt than it appears prudent to attempt by an absolute appropriation of more extensive funds. And the legislators of to-day would be entitled to the lasting gratitude of their country, if they would extend this auxiliary resource by all the means which are consistent with a due regard to the present accommodation of their constituents.
It is proposed to authorize the commissioners of the sinking fund to provide, by new loans, for the reimbursement of the instalments which, from time to time, accrue. This is on the ground that it is essential to the perfection of the system of redemption, that all the means of ultimate execution should be organized in it, and that there should be no need of future provisions.
The last clause of the proposition excepts from the operation of that clause the interest on the six per cent. stock. This is because that interest is destined to form the accumulations for paying the successive instalments of the principal of that stock, which increase each year in a ratio to the interest liberated by each payment.
The statement E exhibits the course of the sinking fund, as proposed to be established.
Remarks on the Sixth Proposition
This will be a useful and important provision. It has reference to a circumstance repeatedly adverted to—the long credits given upon the principal branches of revenue; from which it happens, that, though the fund itself, or the product of the revenue, is more than adequate to an appropriation, yet the receipts upon it come too slowly into the treasury to answer the end, without anticipation by temporary loans. Its propriety depends on the principle suggested under the last head, of having all the means of complete execution organized in the system of public credit.
Remarks on the Seventh Proposition
It is a good rule of caution, that no more of the public revenues should be rendered permanent, than is necessary to give moral certainty to the provisions which may be regarded as the pillars of public credit. This idea will, it is believed, be satisfied, by giving permanency to the now temporary duties on imports. Accordingly, it is only proposed to extend the duties, mentioned in this proposition to the year 1800, and thence, to the end of the next ensuing session of Congress; which is on the ground that they ought to be commensurate in duration with the objects which they are to accomplish, and no more.
It has been already noticed, that they are at present chargeable, together with the temporary duties on imports, laid in the last session, with an appropriation of 1,292,137 dollars and thirty-eight cents, and with the interest of one million of dollars, authorized to be borrowed with a view to foreign intercourse; having a special eye to an object very interesting to the commerce and feelings of the United States.
This business wants a further arrangement; standing, at present, upon a vague and inefficient footing. The reimbursement of the loan is not adequately provided for, neither is the interest, this being predicated on funds which, in their present form, would probably expire after a product of two years.
According to the fifth proposition, the temporary duties on imports, after the above-mentioned appropriation of 1,292,137 dollars and thirty-eight cents shall have been satisfied, will become permanently charged with the interests on the public debt, the sinking fund, and the annual reservation of $600,000, for the support of government.
If the duties mentioned in the sixth proposition are continued till the first of January, 1800, and the reimbursement of the principal of the loan, as well as the interest, is referred to them, two good purposes will be answered: the obtaining the loan will be facilitated, and its complete reimbursement will be effected within the term allotted, without an augmentation of the permanent debt of the country. This makes allowance for fulfilling the appropriation for the current service already charged upon this fund.
It is presumed to be a conclusive reason in favor of the proposition, that it aims at preventing an increase of permanent debt. If services of this kind, when the United States are at peace (at least with civilized Powers), are made causes of permanent loans, the progress of new debt will easily exceed the extinction of old.
It appears desirable that there should be a steady effort, as a rule of administration, not to increase the permanent debt of the country by permanent loans, except when it is inevitable, by the existence of a war with some European Power.
The comparative view of revenue and expenditure (statement F) establishes, satisfactorily, that these duties cannot be dispensed with, unless there be a substitute, if the redemption of the public debt is to be seriously entered upon; and it is believed that there cannot be devised objects of revenue more proper in themselves, nor more generally acceptable to the people. Whatever interested parties may allege, it seems self-evident that there can hardly be a reasonable question, except as to the best mode of collection. The objection, that part of them falls on manufactures, has no weight. The manufactures on which they fall are complete luxuries and completely established; consequently, fit objects of revenue. The increased duties on the rival foreign articles are a full protection to the manufacture. Whatever may be the appearances in the infancy of the tax, it is certain, in principle, that it will finally fall on the consumer, as generally as duties on imported commodities.
Remarks on the Eighth Proposition
This is to terminate an embarrassment which has been experienced. Appropriations are frequently made for objects, the extent of which is not precisely known, or in a degree casual. To leave them indefinite, as to time, is sometimes to tie up, unnecessarily, a portion of the public funds, which may, ultimately, not be wanted at all for the purpose of the original appropriation.
It will do away this inconvenience, and promote perspicuity in the treasury accounts of appropriations, if an ultimate period is fixed when each appropriation shall be deemed to have ceased. Should further appropriations appear necessary for the same objects, new estimates can be presented, and new appropriations made.
The designating an account with a denomination known in the laws, to which the surpluses are to be carried, will facilitate future legislative dispositions of the resulting fund. It is, however, essential to the system of public credit, that this should be with the exceptions contained in the proposition.
Remarks on the Ninth Proposition
This proposition is calculated to give simplicity to the public accounts of stock and revenue, which will conduce to correctness, dispatch, and economy. As the revenues are manifestly more than adequate to the claims of all the creditors, they, none of them, have any interest in the distinctions which now exist, and which grew out of the course of the business; and the rights of none of them will be affected, because all who choose may continue on their former ground, by signifying their dissent to the present plan. It is, however, presumed, there will be no such dissent.
Remarks on the Tenth Proposition
It is important to the fiscal calculations, to ascertain, positively, the extent of every portion of the public debt. At present, the amount of these several items of it is deduced from accounts of the late war, of various officers and offices in some instances, conducted with little order. There is not, therefore, sufficient certainty; indeed, it is probable, from the length of time that has elapsed without their appearing, that the computed amount exceeds the real.
Besides, they are, from their nature, subject to forgeries and counterfeits; which implies a danger of loss to the public, till their circulation is finally terminated. The proposition, accordingly, besides the obtaining of better information, aims at obviating this danger.
Allowing sufficient time for bringing them in to be exchanged for certificates of equivalent tenor, while it is a measure tending to public information and security, it can be liable to no reasonable objection on the part of the creditors.
The Secretary of the Treasury has reserved for the conclusion of this report, a proposition which appears to him of great importance to the public credit, and which, after some preliminary observations, will be offered to consideration. It relates to the right of taxing the public funds, and to that of sequestering them in time of war.
A proposition, on either of those points would have been deemed superfluous, had there never been discussions asserting a right to do the one and the other, and even the expediency of exercising that right. The negative of both the pretensions, from the habit of regarding it as incapable of being disputed, had acquired, in the mind of the Secretary, so much the force of an axiom as to have precluded even the mention of the subject in the plan which he originally submitted for funding the public debt. He should, otherwise, have thought it an indispensable duty to suggest, as a matter of primary consequence to the system of credit contemplated in the plan, the express renunciation of those pretensions; for they are (as he believes) not only unwarranted by principle or usage, but subversive of the sound maxims of public credit. A persuasion that this would always be a truth granted in the councils of the United States, is his apology for the omission.
Even now he should think it useless to depart from his silence on the point, had not the discussions alluded to created some alarm in places where all the circumstances are not well understood, which it is the interest of the country to dispel. The confidence justly to be reposed in the collective wisdom of this government, forbids the supposition, by one acquainted with its constitution, that the security of the creditor can need, in this particular, a further sanction. It is presumed to be impossible, that any final act can ever give so deep a wound to the national interest and character, as to derogate from a principle which may be placed among the most sacred in the administration of a government.
Is there a right in a government to tax its own funds?
The pretence of this right is deduced from the general right of the legislative power to make all the property of the state contributory to its own exigencies.
But this right is obviously liable to be restricted by the engagements of the government; it cannot be justly exercised in contravention of them; they must form an exception. It will not be denied, that the general right in question could, and would, be abridged, by an express promise not to tax the funds. This promise, indeed, has not been given in terms, but it has been given in substance. When an individual lends money to the state, the state stipulates to repay him the principal lent, with a certain interest, or to pay a certain interest, indefinitely, till the principal is reimbursed; or it stipulates something equivalent, in another form. In our case, the stipulation is in the second form.
To tax the funds, is manifestly either to take, or to keep back, a portion of the principal or interest stipulated to be paid.
To do this, on whatever pretext, is not to do what is expressly promised; it is not to pay that precise principal, or that precise interest, which has been engaged to be paid; it is, therefore, to violate the promise given to the lender.
But is not the stipulation to the lender, a tacit reservation of the general right of the Legislature to raise contributions on the property of the state?
This cannot be supposed—because it involves two contradictory things; an obligation to do, and a right not to do. An obligation to pay a certain sum, and a right to retain it in the shape of a tax. It is against the rules, both of law and reason, to admit, by implication, in the construction of a contract, a principal which goes in destruction of it.
The government, by such a construction, would be made to say to the lender: “I want a sum of money, for a national purpose, which all the citizens ought to contribute proportionably, but it will be more convenient to them, and to me, to borrow the money of you. If you will lend it, I promise you faithfully, to allow you a certain rate of interest, while I keep the money, and to reimburse the principal within a determinate period, except so much of the one and the other as I may think fit to withhold, in the shape of a tax.“
Is such a construction either natural or rational? Does it not, in fact, nullify the promise by the reservation of a right not to perform it?
Is it to be presumed, without being expressed, that such can be the understanding of a lender, when he parts with his money to a government?
The contrary is so much the more presumable that nothing short of an express reservation can support the pretension to tax the funds.
It may be replied, that the creditor might be willing to rely upon the equity of the government, not to abuse its right, by exacting from him excessive contributions.
This, if true, does not obviate the difficulty of supposing the coexistence of an obligation and a right, destructive the one of the other, in interpreting the sense of a contract, when nothing of the kind is said.
It is possible that a creditor might be willing so to contract; yet it is still necessary, in order to determine that he has done it, to find some provisions or expressions in the contract, indicating the intention to render what is stipulated compatible with what is reserved. But it is not probable that an individual would be willing to lend upon such terms. He would justly apprehend, that, in great emergencies, a right having no limit but the opinion of the party possessed of the power, would be abused, that the convenience of laying hold of a fund already prepared and at hand, supported by a claim of right, would be a temptation to abuse, not easy to be resisted. However well disposed to contribute, in common with his fellow-citizens, on all the ordinary objects of property or income, he would be unwilling to subject himself to a special burthen, in the peculiar character of creditor of the state. He would prefer to employ his money in other ways; even to lend it to private persons, where it might be more likely to escape the hand of the fiscal power.
Let the question be tried by another analysis.
Public debt can scarcely, in legal phrase, be defined either as property in possession or in action. It is evidently not the first, till it is reduced to possession by payment. To be the second, would suppose a legal power to compel payment by suit. Does such a power exist? The true definition of public debt is a property subsisting in the faith of the government. Its essence is promise. Its definite value depends upon the reliance that the promise will be definitely fulfilled. Can the government rightfully tax its promise? Can it put its faith under contribution? Where or what is the value of the debt, if such a right exists?
Suppose the government to contract with an individual to convey to him a hundred acres of land, upon the condition of paying a hundred dollars. When he came to pay the hundred dollars and demand his title, could the government require of him to pay fifty more as a tax upon the land, before it would consent to give him the title? Who would not pronounce this to be a breach of contract—a fraud—which nothing could disguise?
This case is parallel with that under examination, with circumstances that fortify the right of the lending creditor.
The government agrees with him that, for one hundred dollars, which he delivers to the government, it will deliver to him, at the end of each year, six dollars. Here the six dollars to be delivered answer to the land to be conveyed, with this stronger ground of right, that the consideration for them has actually been given and received. Yet, when the creditor comes to demand his six dollars, he is told that he cannot have them, except with the reservation of one dollar as a tax upon the six, or that he cannot have them, except upon the condition of returning one dollar as that tax. What is this but to say that his title to the money in this case, as to the land in the other, must depend upon his paying or allowing a further consideration for it, not contemplated in the contract? Can there be a doubt that this, also, would be a breach of contract—a fraud?
The true rule of every case of property, founded on contract with the government, is this: It must first be reduced into possession, and then it will become subject, in common with other similar property, to the right of the government to raise contributions upon it. It may be said that the government may fulfil this principle by paying the interest with one hand, and taking back the amount of the tax with the other. But to this the answer is that, to comply truly with the rule, the tax must be upon all the money of the community, not upon the particular portion of it which is paid to the public creditors; and it ought, besides, to be so regulated as not to include a lien of the tax upon the fund. The creditor should be no otherwise acted upon, than as every other possessor of money; and, consequently, the money he receives from the public can then only be a fit subject of taxation when it is entirely separated and thrown, undistinguished, into the common mass. A different practice would amount to an evasion of the principle contended for, and to oppression. A rent, or annuity, liable before it passes, or in the act of passing, or at the moment of passing, from one proprietor to another, to a deduction, or drawback, at the pleasure of the party from whom it is to pass, is an imaginary thing, destitute both of shape and substance.
When a government enters into contract with an individual, it deposes as to the matter of the contract its constitutional authority, and exchanges the character of legislator for that of a moral agent, with the same rights and obligations as an individual. Its promises may be justly considered as excepted out of its power to legislate, unless in aid of them. It is, in theory, impossible to reconcile the two ideas of a promise which obliges with a power to make a law which can vary the effect of it. This is the great principle that governs the question, and abridges the general right of the government to lay taxes, excepting out of it a species of property which subsists only in its promise.
There are persons who, admitting the general rule, conceive a distinction to exist between a tax upon the funds, which must be paid at all events, and a tax upon alienations of them, which will only be paid when they are transferred from one to another. The latter they think justifiable, because it is in the option of the creditor to avoid the tax by avoiding the alienation. But the difference between the two cases is only a difference in the degree of violation.
The stock, in its creation, is made transferable. This quality constitutes a material part of its value, and the existence of it is a part of the contract with the government, which has undertaken, itself, to conduct the operation of transferring by its own officers, and consequently at its own expense. It is as completely a breach of contract to derogate from this quality, in diminution of the value of stock, by encumbering the transfer with a charge or tax, as it is to take back, in the same shape, a portion of the principal or interest. It is obvious, too, that this may be carried so far as essentially to destroy the transferable capacity. But what is a tax upon transfers, other than the faculty of taking away from the actual proprietor of stock a portion of his principal, whenever his interests or his necessities demand a transfer, in derogation from the full enjoyment of the right to transfer, and from the express promise of the government to pay to him or his alienee? For it is upon the seller, not upon the buyer, that such a tax will fall. And where is the substantial difference, on the ground of contract, between this and a direct tax upon the fund itself? The value of it is as certainly impaired by the one as by the other.
But shall the proprietor of money in the funds, then, be exempt from his proportion of the burthens which other citizens bear?
This will not be the consequence of the principle. As a consumer, of which his income is the instrument, he will pay his proportion of the taxes on consumption. As a holder of any other species of property procured by that income, or otherwise, which is liable to a tax, he must also contribute his proportion.
But, without undue refinement, the lender of money to the public may be affirmed to have paid his tax when he lends his money.
Relying upon the engagement of the government, express or implied, that he will receive what is promised him, without defalcation, he is content with a less interest than he would take if subject to any such defalcation, and especially if it was to be arbitrary as to its extent. In this lower rate of interest he may be truly said to pay his tax, or to purchase an exemption from it.
Here, also, we find what is decisive on the point of expediency.
If the government had a right to tax its funds, the exercise of that right would cost much more than it was worth. The money-lender would exact exorbitant premiums, not only as an indemnification for the use which the government might probably make of its right, and which, in practice, would be likely to be qualified by some regard to equality of contribution, but as an equivalent for insurance against the risk or possibility of a more extensive use. Hence the government would be likely to pay much more in premiums upon its loans than it would draw back in taxes; and the former being supposed but equal to the latter, there would be no advantage in exercising the right.
But it will be, perhaps, more safe to affirm that there would be no borrowing at all upon such terms. The first precedent of a tax upon the funds might be expected to compel the government to an express renunciation of the right in every future loan. Solid capitalists would not be much inclined to adventure their money upon so precarious a footing as is implied in a power of taxing their credits.
These reflections lead readily to an estimate of the impressions which would be produced by the example of an imposition on the funds. Regarded either as a breach of contract, or as a deviation from the sound maxims of credit, the effect upon it would be nearly equally fatal. Whatever might be excused to a time of revolution, to a defect of means, or to some extraordinary peculiarity of situation, no excuse would be admitted for a deliberate departure from principles, at a time, too, of national prosperity, in a flourishing state of the finances, after the foundations of a regular system had been laid. The departure would argue an incorrectness, an instability, or a depravity of views, calculated to give a lasting shock to public credit.
The United States must, henceforth, tread with the most cautious steps.
A renunciation of the right, in future, might not speedily heal the wound which an example of its exercise had given. Durable suspicions might fasten on the wisdom or the integrity of the government, which might occasion to it no inconsiderable loss and embarrassment, before a course of contrary experience would obliterate them.
The right of a government to sequester or confiscate property, in its funds, in time of war, involves considerations analogous to those which regard the right of taxing them. Whether the foreigner be, himself, the original lender, or the proprietor of stock, in its constitution transferable without discrimination, he stands upon equal ground with the citizen. He has an equal claim upon the faith of the government.
In the second case, as the substitute of the original lender, the promise made attaches immediately upon him. Indeed, the certificates which issue upon every transfer, and which may be called the public bonds, designate him as the creditor, and expressly invest him with the correspondent rights.
To sequester or confiscate the stock, is as effectually a breach of the contract to pay, as to absorb it by a tax. It is to annihilate the promise, under the sanction of which the foreigner became a proprietor.
But, does not the general right of war, to seize and confiscate enemy property, extend to the property of the citizens of one nation in the funds of another—the two nations being at war with each other?
Resorting to principle as the guide, this question may, on solid grounds, be answered in the negative.
The right to seize and confiscate individual property, in national wars, excludes all those cases where the individual derives his title from the enemy sovereign or nation: for the right to property always implies the right to be protected and secured in the enjoyment of that property; and a nation, by the very act of permitting the citizen of a foreign country to acquire property within its territory, whether to lands, funds, or to any other thing, tacitly engages to give protection and security to that property, and to allow him as full enjoyment of it as any other proprietor—an engagement which no state of things between the two nations can justly or reasonably affect. Though politically right, that, in wars between nations, the property of private persons, which depend on the laws of their own country, or on circumstances foreign to the nation with which their own is at war, should be subject to seizure and confiscation by the enemy nation; yet it is both politically and morally wrong, that this should extend to property acquired under the faith of the government, and the laws of that enemy nation.
When the government enters into a contract with the citizen of a foreign country, it considers him as an individual in a state of nature, and contracts with him as such. It does not contract with him as the member of another society.
The contracts, therefore, with him, cannot be affected by his political relations to that society. War, whatever right it may give over his other property, can give none over that which he derives from those contracts. The character in which they are made with him, the faith pledged to him personally, virtually exempt it.
This principle, which seems critically correct, would exempt as well the income as the capital of the property. It protects the use as effectually as the thing. What, in fact, is property, but a fiction, without the beneficial use of it? In many cases, indeed, the income or annuity is the property itself. And though general usage may control the principle, it can only be as far as the usage clearly goes. It must not be extended by analogy.
Some of the most approved publicists, admitting the principle, qualify it with regard to the income of lands, which they say may be sequestered “to hinder the remittance of it to the enemy’s country.”
But the same authority affirms that a state of war “does not so much as touch the sums which it owes to the enemy. Everywhere, in case of a war, funds credited to the public, are exempt from confiscation and seizure. “These expressions clearly exclude sequestration as well as confiscation.
The former no less than the latter, would be inconsistent with the declarations that a state of war does not so much as touch the sums which it owes to the enemy, and, that funds credited to the public are exempt from seizure. And, on full inquiry, it is believed that the suggestion, thus understood, is founded in fact.
Usage, then, however it may deviate in other particulars, in respect to public funds, concurs with principle in pronouncing, that they cannot rightfully be sequestered in time of war.
The usages of war, still savor too much of the ferocious maxims of the times, when war was the chief occupation of man. Enlightened reason would never have pronounced that the persons or property of foreigners, found in a country at the breaking out of a war between that country and their own, were liable to any of the rigors which a state of war authorizes against the persons and goods of the enemy. It would have decreed to them, an inviolable sanctuary in the faith of those permissions and those laws, by which themselves and their property had come under the jurisdiction where they were found. It would have rejected the treachery of converting the indulgences, and even rights of a previous state of amity, into snares for innocent individuals.
Happily, however, the practice of later times has left several of those maxims little more than points of obsolete doctrine. They still retain their rank in theory; but usage has introduced so many qualifications, as nearly to destroy their operation.
This appears from the acknowledgement of writers, from the barrenness of modern history in examples of the application of those doctrines, from the opinions known to be generally current in Europe, and from a variety of articles which are constant formulas in treaties of the present century.
The United States are every way interested in the mitigation of the rigor of the ancient maxims of war. They cannot better demonstrate their wisdom, than by their moderation in this respect. Particularly interested in maintaining, in their greatest purity and energy, the principles of credit, they cannot too strictly adhere to all the relaxations of those maxims which favor the rights of creditors. No temporary advantage can compensate for the evils of a different course of conduct.
Credit, public and private, is of the greatest consequence to every country. Of this, it might be emphatically called the invigorating principle. No well-informed man can cast a retrospective eye over the progress of the United States, from their infancy to the present period, without being convinced that they owe, in a great degree, to the fostering influence of credit, their present mature growth. This credit has been of a mixed nature, mercantile and public, foreign and domestic. Credit abroad was the trunk of our mercantile credit, from which issued ramifications that nourished all the parts of domestic labor and industry. The bills of credit emitted, from time to time, by the different local governments, which passed current as money, co-operated with that resource. Their united force, quickening the energies and bringing into action the capacities for improvement of a new country, was highly instrumental in accelerating its growth.
Credit, too, animated and supported by the general zeal, had a great share in accomplishing, without such violent expedients, as, generating universal distress, would have endangered the issue, that Revolution, of which we are so justly proud, and to which we are so greatly indebted.
Credit, likewise, may, no doubt, claim a principal agency in that increase of national and individual welfare since the establishment of the present government, which is so generally felt and acknowledged, though the true causes of it are not as generally understood. It is the constant auxiliary of almost every public operation; has been an indispensable one in those measures by which our frontiers have been defended; and it would not be difficult to demonstrate that, in a recent and delicate instance, it has materially contributed to the safety of the state.
There can be no time, no state of things, in which credit is not essential to a nation, especially as long as nations in general continue to use it as a resource in war. It is impossible for a country to contend, on equal terms, or to be secure against the enterprises of other nations, without being able equally with them to avail itself of this important resource; and to a young country, with moderate pecuniary capital, and not a very various industry, it is still more necessary than to countries more advanced in both. A truth not less weighty for being obvious and frequently noticed.
Public credit has been well defined to be “a faculty to borrow, at pleasure, considerable sums on moderate terms; the art of distributing, over a succession of years, the extraordinary efforts, found indispensable in one; a means of accelerating the prompt employment of all the abilities of a nation, and even of disposing of a part of the overplus of others.”
This just and ingenious definition condenses to a point the principal arguments in favor of public credit, and displays its immense importance.
Let any man consult the actual course of our pecuniary operations, and let him then say whether credit be not eminently useful. Let him imagine the expense of a single campaign in a war with a great European Power; and let him then pronounce whether credit would not be indispensable. Let him decide whether it would be practicable, at all, to raise the necessary sum by taxes within the year, and let him judge what would be the degree of distress and oppression, which the attempt would occasion to the community. He cannot but conclude that war, without credit, would be more than a great calamity—would be ruin.
But credit is not only one of the main pillars of the public safety; it is among the principal engines of useful enterprise and internal improvement. As a substitute for capital, it is a little less useful than gold or silver, in agriculture, in commerce, in the manufacturing and mechanic arts.
The proof of this needs no labored deduction. It is matter of daily experience in the most familiar pursuits. One man wishes to take up and cultivate a piece of land; he purchases upon credit, and, in time, pays the purchase money out of the produce of the soil improved by his labor. Another sets up in trade; in the credit founded upon a fair character, he seeks, and often finds, the means of becoming, at length, a wealthy merchant. A third commences business as manufacturer or mechanic, with skill, but without money. It is by credit that he is enabled to procure the tools, the materials, and even the subsistence of which he stands in need, until his industry has supplied him with capital; and, even then, he derives, from an established and increased credit, the means of extending his undertakings.
Among the circumstances which recommend credit, and indicate its importance in the whole system of internal exertion and amelioration, it is impossible to pass, unnoticed, its unquestionable tendency to moderate the rate of interest—a circumstance of infinite value in all the operations of labor and industry.
If the individual capital of this country has become more adequate to its exigencies than formerly, it is because individuals have found new resources in the public credit—in the funds to which that has given value and activity. Let public credit be prostrated, and the deficiency will be greater than before. Public and private credit are closely allied, if not inseparable. There is, perhaps, no example of the one being in a flourishing, where the other was in a bad state. A shock to public credit would, therefore, not only take away the additional means which it has furnished, but by the derangements, disorders, distrusts, and false principles which it would engender and disseminate, would diminish the antecedent resources of private credit.
The United States possess an immense mass of improvable matter; the development of it, continually making, may be said to enlarge the field of improvement as it progresses; and, though the active capital of the country has, no doubt, considerably increased, it is probable that it does not bear, at present, a much greater proportion to the objects of employment than it has done at any former period. Credit, upon this hypothesis, of every kind, is nearly as necessary to us now, as it ever was. But, at least, it may be affirmed with absolute certainty that, to a country so situated, credit is peculiarly useful and important.
If the United States observe, with delicate caution, the maxims of credit, as well toward foreigners as their own citizens, in connection with the general principles of an upright, stable, and systematic administration, the strong attractions which they present to foreign capital will be likely to insure them the command of as much as they may want, in addition to their own, for every species of internal amelioration.
Can it be doubted that they would derive from this, in a course of time, advantages incomparably greater than any, however tempting, that could partially result from a disregard of those maxims, or from the exercise of a questionable right, which should even appear to derogate from them?
Credit is an entire thing. Every part of it has the nicest sympathy with every other part; wound one limb, and the whole tree shrinks and decays.
The security of each creditor is inseparable from the security of all creditors. The boundary between foreigner and citizen would not be deemed a sufficient barrier against extending the precedent of an invasion of the rights of the former to the latter. The most judicious and cautions would be most apt to reason thus, and would only look for stronger shades of apparent necessity or expediency to govern the extension. And, in affairs of credit, the opinion of the judicious and cautions may be expected to prevail. Hence the government, by sequestering the property of foreign citizens in the public funds at the commencement of a war, would impair, at least, if not destroy, that credit which is the best resource in war.
It is in vain to attempt to disparage credit by objecting to its abuses. What is there not liable to abuse or misuse? The precious metals, those great springs of labor and industry, are also the ministers of extravagance, luxury, and corruption. Commerce, the nurse of agriculture and manufactures, if overdriven, leads to bankruptcy and distress. A fertile soil, the principal source of human comfort, not unfrequently begets indolence and effeminacy. Even liberty itself, degenerating into licentiousness, produces a frightful complication of ills, and works its own destruction.
It is wisdom, in every case, to cherish whatever is useful, and guard against its abuse. It will be the truest policy of the United States to give all possible energy to public credit, by a firm adherence to its strictest maxims; and yet to avoid the ills of an excessive employment of it by true economy and system in the public expenditures; by steadily cultivating peace; and by using sincere, efficient, and persevering endeavors to diminish present debts, prevent the accumulation of new, and secure the discharge, within a reasonable period, of such as it may be at any time matter of necessity to contract. It will be wise to cultivate and foster private credit by an exemplary observance of the principles of public credit, and to guard against the misuse of the former by a speedy and vigorous administration of justice, and by taking away every temptation to run in debt, founded in the hope of evading the just claims of creditors.
As an honorable evidence of this disposition, and with a view to quite the alarms which have been excited, and to silence forever a question which can never be agitated without serious inconvenience, the Secretary of the Treasury, in the last place, respectfully submits:
That there be an express renunciation, by law, of all pretension of right to tax the public funds, or to sequester, at any time, or on any pretext, the property which foreign citizens may hold therein.
This will be particularly essential to the success of the plan for converting the foreign into domestic debt; as the present contracts for the Amsterdam and Antwerp debt contain an equivalent stipulation, and there is no prospect that the creditors would consent to a change, but upon the condition of a like stipulation.
In the commencement of this report, it was the intention to submit some propositions for the improvement of the several branches of the public revenue; but it is deemed advisable to reserve this part of the subject for a future communication.
All which is respectfully submitted.
Secretary of the Treasury.1
[1.]These results are not stated with fractional correctness, because it is not necessary to a satisfactory conclusion, and the minuteness of the calculation would have demanded more time than can conveniently be spared.
It is understood that the Parliament of Great Britain has, within the last four years, formally adopted as a standing rule, the principle of incorporating, with the creation of debt, the means of extinguishment. How much easier must the execution of this important principle be to the United States, than to a nation which, before it began, had so deeply mortgaged its resources. Let the United States never have to regret, hereafter, that they postponed too long so provident a precaution.
This report was Hamilton’s last message to the American people in closing his career as Secretary of the Treasury. It is quite as able as the first report, but less known because the first portion involves so many details. It reviews the whole financial policy in a masterly manner, and the last part, which deals with the taxation of public funds and their sequestration in case of war, is an appeal and an argument in behalf of a high public credit, especially with reference to the United States, which has never been surpassed. The high tone of the views set forth and the eloquence and even fervor of the reasoning make it one of the greatest among Hamilton’s many great State papers.