- Finance ( Continued )
- Vindication of the Funding System
- Payments of Public Debt
- Civis to Mercator
- Fact For the National Gazette
- Public Debt (communicated to the House of Representatives, December 3, 1792.)
- Public Funds Communicated to the Senate, February 14, 1793.
- Loans Communicated to the House of Representatives, February 20, 1793.
- Observer 1
- Hamilton to the Speaker of the House of Representatives
- Loan Communicated to the House of Representatives, February 25, 1794.
- Hamilton to Washington
- Hamilton to a Committee of Congress
- Hamilton to a Committee of Congress
- Washington to Hamilton
- Washington to Hamilton
- Washington to Hamilton
- Hamilton to Washington
- Hamilton to the Speaker of the House of Representatives
- Public Credit Communicated to the Senate, January 16 and 21, 1795.
- Improvement of the Revenue Communicated to the House of Representatives, February 2, 1795.
- Building Tax Plan Sent to Oliver Wolcott, Secretary of the Treasury, June 7, 1797
- National Bank
- Hamilton to Robert Morris, 1780 1
- Hamilton to Robert Morris
- National Bank Communicated to the House of Representatives, December 14, 1790.
- Washington to Hamilton
- Hamilton to Washington
- Hamilton to Washington
hamilton to robert morris, 1780
Sir:—The present conjuncture is by all allowed to be peculiarly critical. Every man of reflection employs his thoughts about the remedies proper to be applied to the national disorders; and every one, from a partiality to his own ideas, wishes to convey them to those who are charged with the management of affairs. The channel of the public papers, commonly made use of for the purpose, appears to me exceptionable on several accounts. It not only restrains a freedom of discussion, from the extreme delicacy of the subject, but the discussion itself increases the evil, by exposing our weak sides to the popular eye, and adding false terrors to those well-founded apprehensions which our situation authorizes.
Instead of pursuing this method, I prefer addressing myself to a member of that body, in whose power alone it is, by well-digested system, to extricate us from our embarrassments. I have pitched upon you, from a personal knowledge of your abilities and zeal. If I offer anything new and useful, I am persuaded you will endeavor to turn it to advantage. If the contrary is the case, I am, at least, doing no harm. I shall only have had the trouble of writing, and you of reading, a few useless pages.
The object of principal concern is the state of our currency. In my opinion, all our speculations on this head have been founded in error. Most people think that the depreciation might have been avoided by provident arrangements in the beginning, without any aid from abroad; and a great many of our sanguine politicians, till very lately, imagined the money might still be restored by expedients within ourselves. Hence the delay in attempting to procure a foreign loan.
This idea proceeded from an ignorance of the real extent of our resources. The war, particularly in the first periods, required exertions beyond our strength, to which neither our population nor riches were equal. We have the fullest proof of this in the constant thinness of our armies, the impossibility, at this time, of recruiting them otherwise than by compulsion, the scarcity of hands in husbandry and other occupations, the decrease of our staple commodities, and the difficulty of every species of supply. I am aware that the badness of the money has its influence; but it was originally an effect, not a cause, though it now partakes of the nature of both. A part of those evils would appear were our finances in a more flourishing condition. We experienced them before the money was materially depreciated; and they contributed to its depreciation. The want of men soon obliged the public to pay extravagant wages for them in every department. Agriculture languished from a defect of hands. The mechanic arts did the same. The price of every kind of labor increased, and the articles of foreign commerce, from the interruption it received, more than kept pace with other things.
The relative value of money being determined by the greater or less portion of labor and commodities which it will purchase; whatever these gained in price, that of course lost in value.
The public expenditures, from the dearness of everything, necessarily became immense; greater in proportion than in other countries; and much beyond any revenues which the best concreted scheme of finance could have extracted from the natural funds of the State. No taxes, which the people were capable of bearing, on that quantity of money which is deemed a proper medium for this country (had it been gold instead of paper), would have been sufficient for the current exigencies of government.
The most opulent states of Europe, in a war of any duration, are commonly obliged to have recourse to foreign loans or subsidies. How, then, could we expect to do without them, and not augment the quantity of our artificial wealth beyond those bounds which were proper to preserve its credit? The idea was chimerical.
The quantity of money formerly in circulation among us is estimated at about thirty millions of dollars. This was barely sufficient for our interior commerce. Our exterior commerce was chiefly carried on by barter. We sent our commodities abroad, and brought back others in return. The balance of the principal branch was against us, and the little specie derived from others was transferred directly to the payment of that balance, without passing into home circulation. It would have been impracticable, by loans and taxes, to bring such a portion of the forementioned sum into the public coffers as would have answered the purposes of the war; nor could it have spared so considerable a part, without obstructing the operations of domestic commerce. Taxes are limited, not only by the quantity of wealth in a state, but by the temper, habits, and genius of the people; all which, in this country, conspired to render them moderate; and as to loans, men will not be prevailed upon to lend money to the public when there is a scarcity, and they can find a more profitable way of employing it otherwise, as was our case.
The ordinary revenues of the United Provinces amount to about twenty-five millions of guilders; or two millions two hundred and fifty thousand pounds sterling per annum. This is, on proportion to its territory and numbers, the richest country in the world; and the country where the people sustain the heaviest load of taxes. Its population is about equal to ours, two millions of souls. The burthens on the subject are so great that it is by some held most impracticable, even on extraordinary emergencies, to enlarge the revenues by new impositions. It is maintained, their dependence, in these cases, must be on the extraordinary contributions of wealthy individuals; with the aid of which, in some of their wars, they have raised four millions sterling a year. In a country possessed of so vast a stock of wealth, where taxes are carried to such a height, and where the means of paying them so infinitely exceed those in our power, if the national revenues only amount to the sum I have stated, how inadequate must have been the product of any taxes we could have levied, to the demands of the service! Loans, for the reason before hinted, would have been out of the question; at least, they would have been so trifling as to be an object of little importance. Suppose we should have been able to raise a million sterling, annually; a sum that probably would have exceeded our ability; how unequal would this have been to our wants! No economy could have made it bear any proportion, especially if we recur to the causes already enumerated, by which the currency depreciated in its first stages.
From these reasonings it results, that it was not in the power of Congress, when their emissions had arrived at the thirty millions of dollars, to put a stop to them. They were obliged, in order to keep up the supplies, to go on creating artificial revenues by new emissions; and as these multiplied, their value declined. The progress of the depreciation might have been retarded, but it could not have been prevented. It was, in a great degree, necessary.
There was but one remedy; a foreign loan. All other expedients should rather have been considered as auxiliary. Could a loan have been obtained, and judiciously applied, assisted by a vigorous system of taxation, we might have avoided that excess of emissions which has ruined the paper. The credit of such a fund would have procured loans from the moneyed and trading men within ourselves; because it might have been so directed, as to have been beneficial to them in their commercial transactions abroad.
The necessity for a foreign loan is now greater than ever. Nothing else will retrieve our affairs.
The wheels of government, without it, cannot much longer be kept in motion. Including loan-office certificates, and State emissions, we have about four hundred millions of dollars in circulation. The real value of these is less than seven millions, which is the true circulating medium of these States: for though the price of specie is and the rate of exchange for sterling bills the nominal value of every commodity is at least sixty to one, on an average. All the reasonings against the possibility of raising the current expenses on the foundation of thirty millions, apply to our present situation in the ratio of thirty to seven; that is, it is as thirty to seven less practicable now than when our emissions amounted to only thirty millions. Could every dollar in circulation be brought annually into the Treasury, which never was effected in any country, and is politically impossible, the revenue would not be equal to the yearly expense.
The hope of appreciating the money, by taxes and domestic loans, is at an end. As fast as it could be received, it must be issued in the daily expenditures. The momentary interval between its being drawn out of circulation and returning into it, would prevent its receiving the least advantage.
These reasonings may appear useless, as the necessity of a foreign loan is now acknowledged, and measures are taking to procure it. But they are intended to establish good principles; the want of which has brought us to the desperate crisis we are arrived at, and may still betray us into fatal mistakes.
How this loan is to be employed is now the question; and its difficulty equal to its importance. Two plans have been proposed: one, to purchase at once, in specie or sterling bills, all superfluous paper; and to endeavor, by taxes, loans, and economy, to hinder its returning into circulation. The remainder, it is supposed, would then recover its value. This, it is said, will reduce our public debt to the sterling cost of the paper.
Suppose two hundred millions were to be purchased, and the rest called in by taxes. At this would require bills to the amount of of dollars. But I doubt whether four times this sum would be sufficient. The moment it was known such purchases were to be made, the avarice of the speculators would begin to operate: the demand would immediately occasion an artificial appreciation; each successive million would cost more than the preceding. But this appreciation would be more relative to the purchasing medium than to the prices of commodities. The raising the value of the paper relative to the former, would depend on the combination of a few artful individuals, and would be easily accomplished. The diminution of prices must be slow, as it implies a change in the sentiments of the body of the people with respect to the money. A sudden revolution in the general rates of all the necessaries of life is not to be expected. The prices of these, as they have reached their present summit by degrees, must, by degrees, revert to their former station. The minds of the people will not readily admit impressions in favor of the currency. All their past experience has given a habit of diffidence; and the epidemical spirit of extortion will maintain a violent struggle with whatever has a tendency to produce a fall of prices. A permanent reduction of the quantity of circulating cash, will alone gradually effect it. But this will not happen on the present plan.
The necessity of continuing the supplies at nearly the same rates now given (which would be the case if my reasonings are true), would have nearly the same effect mentioned with respect to taxes and domestic loans. The money would return into circulation almost as fast as it was drawn out; and at the end of the year we should find our treasury empty, our foreign loan dissipated, and the state of our finances as deplorable as ever. At a moderate calculation, we should have spent ten or twelve millions of real dollars, for the sole purpose of carrying on the war another year. It would be much better, instead of purchasing up the paper currency, to purchase the supplies out of our specie or bills. In the first instance, the public would suffer a direct loss of the artificial appreciation, relative to the purchasing medium; in the last, it would buy at the value of the commodities in specie or bills.
A great source of error in disquisitions of this nature, is the judging of events by abstract calculations; which, though geometrically true, are false as they relate to the concerns of beings governed more by passion and prejudice than by an enlightened sense of their interests. A degree of illusion mixes itself in all the affairs of society. The opinion of objects has more influence than their real nature. The quantity of money in circulation is certainly a chief cause of its decline; but we find it is depreciated more than five times as much as it ought to be by this rule. The excess is derived from opinion; a want of confidence. In like manner we deceive ourselves, when we suppose the value will increase in proportion as the quantity is lessened. Opinion will operate here also; and a thousand circumstances may promote or counteract the principle.
The other plan proposed is to convert the loan into merchandise, and import it on public account. This plan is incomparably better than the former. Instead of losing on the sale of its specie or bills, the public would gain a considerable profit on the commodities imported. The loan would go much further this way, in supplying the expenses of the war; and a large stock of valuable commodities, useful to the army and to the country, would be introduced. This would affect the prices of things in general, and assist the currency. But the arts of monopolizers would prevent its having so extensive and durable an influence as it ought to have.
A great impediment to the success of this, as well as the former scheme, will be the vast sums requisite for the current expenses. The arguments adduced in the former case are applicable here also, though not with equal force. The necessity the public will be under of parting with its stock to defray the daily demands, will give designing men an opportunity, by combinations not to purchase, to oblige it to sell at a rate below the real value of money. This they may the more easily effect, as the demand for foreign commodities is much less than formerly, on account of the general spirit of parsimony which has obtained from necessity, and the manufactures carried on in private families for their own use. The greatest part of the country people now almost entirely clothe themselves.
The public must either sell very cheap, to collect rapidly the superfluous paper in hopes of raising the value of the remainder; or it must sell very slow, to preserve the due proportion between the articles it has for sale and those it wants to buy. By pursuing the first method, it will soon exhaust its stock at a very considerable loss, and only give temporary relief to the currency. According to my principle, though it sells cheap, it must still buy dear; and, consequently, the money collected cannot remain in the treasury long enough to preserve the rise in its appreciated state. If it pursues the second method, the expenditures will be equal to the income; and though the public will make the natural profits on its goods, as it will lay up nothing, it will do nothing towards the appreciation.
The farmers have the game in their own hands, and will make it very difficult to lower the prices of their commodities. For want of laborers, there is no great superfluity of the most essential articles raised. These are things of absolute necessity, and must be purchased, as well by the other classes of society as by the public. The farmers, on the contrary, if they do not like the price, are not obliged to sell; because they have almost every necessary within themselves,—salt, and one or two more, excepted, which bear a small proportion to what is wanted from them, and which they can obtain, by barter, for other articles equally indispensable. Heavy taxes, it may be said, will oblige them to sell; but they can pay, with a small part of what they have, any taxes our Legislatures will venture to impose, or would be able to enforce.
One measure, alone, can counterbalance these advantages of the farmers, and oblige them to contribute their proper quota to the support of government: a tax in kind.
This ought instantly to begin throughout the States. The present quantity of cash, though nominally enormous, would, in reality, be found incompetent to domestic circulation, were it not that a great part of our internal commerce is carried on by barter. For this reason, it is impossible, by pecuniary taxes, to raise a sum proportioned to the wants of the State. The money is no longer a general representative; and when it ceases to be so, the State ought to call for a portion of the thing represented; or, in other words, to tax in kind. This will greatly facilitate whatever plan of finance is adopted; because it will lessen the expenditures in cash, and make it the easier to retain what is drawn in.
I said the demand for foreign goods is less than it formerly was. I mean there is not a demand for so large a quantity, which the reasons already assigned clearly demonstrate; nor are the exorbitant rates now given any objection to this doctrine. There is an absolute scarcity even in comparison of the present consumption; and, of course, a demand for what there is. But should an importation of two millions sterling take place, the market would be glutted; and there would be no way of keeping up the price, but by making very slow sales. A less quantity would stand no chance of calling in the money, and keeping it in long enough to effect anything in favor of its credit.
I say nothing about the risk of importation. I do not believe we could obtain a convoy sufficient to justify our hazarding it without the precaution of insurance. But with this expedient we are safe, and must be satisfied with smaller profits for the sake of security.
This is a plan not altogether to be rejected. With prudent management it might enable us to carry on the war two or three years (which, perhaps, is as long as it may last); but if we should expect more from it, the restoration of the currency, we should be disappointed.
The only plan that can preserve the currency is one that will make it the immediate interest of the moneyed men to co-operate with government in its support. The country is in the same predicament in which France was previous to the famous Mississippi scheme, projected by Mr. Law. Its paper money, like ours, had dwindled to nothing; and no efforts of the government could revive it, because the people had lost all confidence in its ability. Mr. Law, who had much more penetration than integrity, readily perceived that no plan could succeed which did not unite the interest and credit of rich individuals with those of the state; and upon this he framed the idea of his project, which, so far, agreed in principle with the Bank of England. The foundation was good, but the superstructure too vast. The proprietors aimed at unlimited wealth, and the government itself expected too much; which was the cause of the ultimate miscarriage of the scheme, and of all the mischiefs that befell the kingdom in consequence.
It will be our wisdom to select what is good in this plan, and in any others that have gone before us, avoiding their defects and excesses. Something on a similar principle in America will alone accomplish the restoration of paper credit, and establish a permanent fund for the future exigencies of government.
Article I. The plan I would propose is that of an American bank, instituted by authority of Congress for ten years, under the denomination of The Bank of the United States.
II. A foreign loan makes a necessary part of the plan; but this I am persuaded we can obtain, if we pursue the proper measures. I shall suppose it to amount to two millions of pounds sterling. This loan is to be thrown into the bank as a part of its stock.
III. A subscription to be opened for two hundred millions of dollars; and the subscribers erected into a company, to be called The Company of the Bank of the United States.
IV. The government to guarantee this subscription money to the proprietors, at the rate of one for twenty; that is, to engage, at the dissolution of the bank, to make good to them the sum of ten millions of dollars, in lieu of the two hundred millions subscribed, payable in Spanish milled dollars, or a currency bona fide equivalent to them.
V. The taxes raised in money annually, to be thrown into stock.
VI. All the remaining paper to be called in (at the option of the possessor), and bank-notes issued in lieu of them, for so much sterling, payable to the bearer in three months from the date, at two per cent. per annum interest. A pound sterling to be estimated at two hundred and sixty-six and two thirds of the present dollar. The interest to be punctually paid in specie at the end of the three months, when it shall be at the choice of the possessor to have the bank-notes renewed, or to receive the sum deposited in the old paper.
VII. All the money issued from the bank to be of the same denomination, and on the same terms.
VIII. The bank to furnish Congress with an annual loan of two millions sterling, if they have occasion for it, at four per cent. interest.
IX. The whole or such part of the stock as is judged necessary to be employed in commerce, in the manner and on the terms which shall be agreed upon from time to time between the company and a Board of Trade to be appointed by Congress.
X. The bank to issue occasionally, by permission of Congress, such sums as may be thought safe and expedient, in private loans, on good securities, at six per cent. interest.
XI. The government to share half the whole stock and profits of the bank.
XII. The bank to be managed by the trustees of the company, under the inspection of the Board of Trade, who may have recourse to the company’s books whenever they think proper to examine the state of its affairs. The same is done in England and in other countries where banks are established, and is a privilege which the government has a right to demand for its own security. It is the more necessary in this case, from the commercial nature of the bank.
To give an idea of the advantages—
[Here a part of the manuscript is missing.]
which, having all the operation of money, and of a more advantageous kind than that which the lenders have parted with, will have all the efficacy of a payment. It is for this reason they are made to bear interest; and there can be no doubt that every man will prefer a species of money which answers all the purposes of a currency, and even when lying idle, brings in a profit to the possessor. The same consideration will prevent the lenders recalling the old paper at the quarterly payments; because they hold a more valuable property instead of it. The interest is to be paid in specie, as a further temptation, for which a small sum will suffice. The denomination of the money is altered; because it will produce a useful illusion. Mankind are much led by sounds and appearances; and the currency having changed its name will seem to have changed its nature.
The bank will advance bills to the amount of two million of pounds sterling to Congress; and, in addition to its stock, will now have a debt due it of this sum, which is to be considered as so much gained.
[Here a part of the manuscript is missing.]
|Brought over . . . . . . . . . .||£7,075,000|
|To be deducted:|
|Drawn out of circulation, by the sale of goods imported . . .||£4,000,000|
|By governmental taxes, supposed to be . . . . . . . . .||1,000,000—5,000,000|
|Remaining in circulation the fourth year . . . . . . . . . .||£2,075,000|
This will be less than the preceding, which is occasioned by the million supposed to be drawn in by taxes.
The national debt, on this plan, will stand thus, at the end of three years:
|Foreign loan . . . . . . . . . . .||£2,000,000|
|Domestic loan, at two millions per annum .||6,000,000|
|Interest at four per cent . . . . . . .||320,000|
|Half the value of the bank . . . . . .||7,900,000|
|Balance against the United States . . . .||£420,000|
We may, therefore, by means of this establishment, carry on the war three years, and only incur a debt of four hundred and twenty thousand pounds over and above the guaranty of the subscription money; which, however, is not to be paid till the end of ten years.
I have said, in one place, that abstract calculations, in questions of finance, are not to be relied on; and as the complex operations of trade are involved in the present plan, I am, myself, diffident of those flattering results which it presents at every step. I am aware how apt the imagination is to be heated in projects of this nature, and to overlook the fallacies which often lurk in first principles. But when I consider, on the other hand, that the scheme stands on the firm footing of public and private faith; that it links the interest of the State in an intimate connection with those of the rich individuals belonging to it; that it turns the wealth and influence of both into a commercial channel, for mutual benefit, which must afford advantages not to be estimated; that there is a defect of circulating medium, which this plan supplies, by a sort of creative power, converting what is so produced into a real and efficacious instrument of trade;—I say, when I consider these things, and many more that might be added, I cannot forbear feeling a degree of confidence in the plan, and, at least, hoping that it is capable of being improved into something that will give relief to our finances.
I do not believe that the advantages will be so great in fact, as they seem to be in speculation. They will be limited by the means of commerce which the States produce; and these may not be so extensive in the beginning as the plan supposes. Besides this, the profits of the commerce will not be so large, in proportion, after the first or second year, as during those years; neither will it be possible to increase the paper credit in the same degree. But the Bank of England is a striking example, how far this may be carried, when supported by public authority and private influence. On the other hand, a variety of secondary expedients may be invented, to enlarge the advantages of the bank. The whole system of annuities, as practised in England, may be ingrafted upon it, with such differences as are proper to accommodate it to our circumstances. The European loan may also be converted into a European bank, the interest of which, being interwoven with the American bank, may engage rich individuals there in promoting and extending the plan.
Very beneficial contracts may be made between government and the company, for supplying the army, by which money may be saved to the public, the army better furnished, and the profits of the bank extended.
I have confined the bank to the space of ten years, because this will be long enough to judge of its advantages and disadvantages; and the latter may be rectified by giving it a new form. I do not suppose it will ever be discontinued; because it seems to be founded on principles that must always operate well, and make it the interest, both of government and the company, to uphold it. But I suppose the plan capable of improvement, which experience will suggest.
I give one half of the whole property of the bank to the United States; because it is not only just but desirable to both parties. The United States contribute a great part of the stock; their authority is essential to the existence of the bank; their credit is pledged for its support. The plan would ultimately fail, if the terms were too favorable to the company, and too hard upon government. It might be encumbered with a debt which it could never pay, and be obliged to take refuge in bankruptcy. The share which the State has in the profits will induce it to grant more ample privileges, without which the trade of the company might often be under restrictions injurious to its success.
It is not, perhaps, absolutely necessary that the sum subscribed should be so considerable as I have stated it, though the larger the better. It is only necessary it should be considerable enough to engage a sufficient number of the principal moneyed men in the scheme. But Congress must take care to proportion the advantages they give and receive.
It may be objected that this plan will be prejudicial to trade, by making the government a party with a trading company; which may be a temptation to arrogate exclusive privileges, and thereby fetter that spirit of enterprise and competition on which the prosperity of commerce depends. But Congress may satisfy the jealousies on this head, by a solemn resolution not to grant exclusive privileges, which alone can make the objection valid. Large trading companies must be beneficial to the commerce of a nation, when they are not invested with these, because they furnish a capital with which the most extensive enterprises may be undertaken. There is no doubt the establishment proposed would be very serviceable at this juncture, merely in a commercial view; for private adventurers are not a match for the numerous obstacles resulting from the present posture of affairs.
The present plan is the product of some reading on the subjects of commerce and finance, and of occasional reflections on our particular situation; but a want of leisure has prevented its being examined in so many lights, and digested so materially, as its importance requires. If the outlines are thought worthy of attention, and any difficulties occur which demand explanation; or if the plan be approved, and the further thoughts of the writer are desired, a letter directed to James Montague, Esquire, lodged in the post-office at Morristown, will be a safe channel of any communications you may think proper to make; and an immediate answer will be given. Though the writer has reasons which make him unwilling to be known, if a personal conference with him should be thought material, he will endeavor to comply.
You will consider this as a hasty production, and excuse the incorrectnesses with which it abounds.
I am, Sir, very respectfully,
Your most obedient and humble servant.
hamilton to robert morris
April 30, 1781.
I was among the first who were convinced that an administration by single men was essential to the proper management of the affairs of this country. I am persuaded now it is the only resource we have to extricate ourselves from the distresses which threaten the subversion of our cause. It is palpable that the people have lost all confidence in our public councils; and it is a fact, of which I dare say you are as well apprised as myself, that our friends in Europe are in the same disposition. I have been in a situation that has enabled me to obtain a better idea of this than most others; and I venture to assert that the Court of France will never give half the succors to this country, while Congress holds the reins of administration in their own hands, which they would grant, if these were entrusted to individuals of established reputation, and conspicuous for probity, abilities, and fortune.
With respect to ourselves, there is so universal and rooted a diffidence of the government, that, if we could be assured the future measures of Congress would be dictated by the most perfect wisdom and public spirit, there would be still a necessity for a change in the forms of our administration, to give a new spring and current to the passions and hopes of the people.
To me it appears evident that an executive ministry, composed of men with the qualifications I have described, would speedily restore the credit of government abroad and at home—would induce our allies to greater exertions in our behalf—would inspire confidence in moneyed men in Europe, as well as in America, to lend us those sums of which it may be demonstrated we stand in need, from the disproportion of our national wealth to the expenses of the war.
I hope, sir, you will not consider it as a compliment, when I assure you that I heard, with the greatest satisfaction, of your nomination to the department of finance. In a letter of mine last summer to Mr. Duane, urging, among other things, the plan of an executive ministry, I mentioned you as the person who ought to fill that department. I know of no other in America, who unites so many advantages; and of course every impediment to your acceptance is to me a subject of chagrin. I flatter myself Congress will not preclude the public from your services by an obstinate refusal of reasonable conditions; and, as one deeply interested in the event, I am happy in believing you will not easily be discouraged from undertaking an office, by which you may render America, and the world, no less a service than the establishment of American independence! ’T is by introducing order into our finances—by restoring public credit—not by gaining battles, that we are finally to gain our object. ’T is by putting ourselves in a condition to continue the war—not by temporary, violent, and unnatural efforts to bring it to a decisive issue, that we shall, in reality, bring it to a speedy and successful one. In the frankness of truth I believe, sir, you are the man best capable of performing this great work.
In expectation that all difficulties will be removed, and that you will ultimately act on terms you approve, I take the liberty to submit to you some ideas relative to the objects of your department. I pretend not to be an able financier; it is a part of administration which has been least in my way, and, of course, has least occupied my inquiries and reflections. Neither have I had leisure or materials to make accurate calculations. I have been obliged to depend on memory for important facts, for want of the authorities from which they are drawn. With all these disadvantages, my plan must necessarily be crude and defective; but if it may be a basis for something more perfect, or if it contains any hints that may be of use to you, the trouble I have taken myself, or may give you, will not be misapplied. At any rate, the confidence I have in your judgment assures me that you will receive with pleasure communications of this sort: if they contain anything useful, they will promote your views and the public benefit; if not, the only evil is the trouble of reading them; and the best informed will frequently derive lights, even from reveries of projectors and quacks. There is scarcely any plan so bad as not to have something good in it. I trust mine to your candor without further apology; you will at least do justice to my intention.
The first step towards determining what ought to be done in the finances of this country, is to estimate, in the best manner we can, its capacity for revenue; and the proportion between what it is able to afford, and what it stands in need of, for the expenses of its civil and military establishments. There occur to me two ways of doing this: 1st. By examining what proportion the revenues of other countries have borne to their stock of wealth, and applying the rule to ourselves, with proper allowance for the difference of circumstances. 2d. By comparing the result of this rule with the product of taxes in those States which have been the most in earnest in taxation. The reason for having recourse to the first method is, that our own experience of our faculties in this respect has not been sufficiently clear, or uniform, to admit of a certain conclusion: so that it will be more satisfactory to judge of them by a general principle, drawn by the example of other nations, compared with what we have effected ourselves, than to rely entirely upon the latter.
The nations with whose wealth and revenues we are best acquainted, are France, Great Britain, and the United Provinces. The real wealth of a nation, consisting in its labor and commodities, is to be estimated by the sign of that wealth—its circulating cash. There may be times when, from particular accidents, the quantity of this may exceed or fall short of a just representative; but it will turn again to a proper level, and in the general course of things, maintain itself in that state.
The circulation of France is almost wholly carried on in the precious metals; and its current cash is estimated at from fifteen to sixteen hundred millions of livres. The net revenue of the kingdom, the sum which actually passes into the public coffers, is somewhere between three hundred and sixty and four hundred millions, about one fourth of the whole of its currency. An estimate of the wealth of this nation is liable to less fallacy than of that of the other two, as it makes little use of paper credit, which may be artificially increased, and even supported, a long time beyond its natural bounds.
It is supposed that the gross sum extracted from the people by the collectors of the revenue may be one third more than that which goes into the treasury; but as their exactions are excessive, and fall too heavy on particular orders, who are by that means reduced to indigence and misery, it is to be inferred, that, with moderate and reasonable expenses of collection, the present revenue is as great as the kingdom can well afford, from its present quantity of wealth.
The circulating cash of Great Britain, in paper and specie, may be stated at about forty millions of pounds sterling. Mr. Hume supposes it to have been, at the time he wrote his Essay on the Balance of Trade, about thirty millions. Other writers have carried it to fifty, and it is probably in a medium that we shall find the truth. I do not include in this, the whole amount of bank-notes, exchequer bills, India bonds, etc., etc.; but only such part as is really employed in common circulation, and performs the offices of current cash. In ’75, by Dr. Price’s statement, the net revenue of Great Britain was ten millions—that is, about one fourth of its current cash, as in France.
I have never met with any calculation that might be depended upon, of the current cash of the Seven Provinces. Almost the whole of their coin, as well as large quantities of plate and bullion, are shut up in the Bank of Amsterdam. The real wealth of the bank is believed to be about fifteen millions sterling; though, upon the strength of this fund, it has a credit almost unlimited, that answers all the purposes of cash in trade. As the Dutch, by their prudent maxims, have commonly the rate of exchange throughout Europe in their favor, and a considerable balance of trade, the use of paper credit (which, in part, also depends upon the particular nature of their banks) has not the same tendency with them, as in England, to banish the precious metals. We may therefore suppose these to be here, as in France, the true sign of the wealth of the nation. If to the fifteen millions in bank, we add two millions of specie for the retail circulation and various transactions of business, we shall, I imagine, have nearly the true stock of wealth of the United Provinces. Their revenues amount to something more than four millions, and bear the same proportion to the stock from which they are drawn, as those of France and England. I confess, however, the data, in their case, are not sufficiently ascertained to permit us to rely equally on the result. From these three examples we may venture to deduce this general rule,—that the proportion of revenue which a nation is capable of affording, is about one fourth of its circulating cash, so far as this is a just representative of its labor and commodities.
This is only applicable to commercial countries, because, in those which are not so, the circulating cash is not an adequate sign. A great part of domestic commerce is carried on by barter; and the state must receive a part of its dues in the labor and commodities themselves. The proportion, however, of the revenues of such a state to the aggregate of its labor and commodities, ought to be the same as in the case of trading nations to their circulating cash; with this difference, that the difficulty of collection and transportation, the waste and embezzlement inseparable from this mode of revenue, would make the real advantage and ultimate gain to the state infinitely less than when the public dues are paid in cash.
When I say that one fourth part of its stock of wealth is the revenue which a nation is capable of affording to the government, I must be understood in a qualified, not in an absolute, sense. It would be presumptuous to fix a precise boundary to the ingenuity of financiers, or to the patience of the people; but this we may safely say, that taxation is already carried, in the nations we have been speaking of, to an extent which does not admit of a very considerable increase without a proportionable increase of industry. This suffices for a standard to us; and we may proceed to the application.
From a comparison of the several estimates I have seen, of the quantity of current cash in this country previous to the war (specie and paper), I have settled my opinion of the amount at thirty millions of dollars, of which about eight might have been in specie: one fourth of this, by analogy, was at that time the proper revenue of these States; that is, seven and a half millions of dollars.
As taxation, however, has, by slow gradations, been carried to an extreme in those countries which I have chosen as examples, that would not be, but in a course of time, practicable in this, where the people have been so little accustomed to taxes, it may be doubted whether it would be possible to raise the same proportion of revenue here. The object of the war, I imagine, would supply the want of habit, and reconcile the minds of the people to paying to the utmost of their abilities, provided the taxes were judiciously imposed, and the revenues wisely administered. Besides this, there is a circumstance in our favor, which puts it in the power of government to raise an equal proportion of revenue without burthening the lower classes of the people in the same degree as in Europe. This circumstance is the much greater equality of fortunes, by which means men, in this country, may be made to contribute to the public exigencies in a much juster proportion to their property; and this is in fact the case. In France the rich have gained so entire an ascendant, that there is a constant sacrifice of the ease and happiness of the people to their avarice and luxury: their burthens are in no proportion to those of the middle order, and still less to those of the poor. In England and Holland the case, though not altogether, is in a great measure the same. There are also men of very large moneyed capitals, which were either formerly exempt from taxes by being in the public funds; or, having no visible representative for taxation to operate upon, enjoy virtually the same advantages. But if, at the commencement of the war, the ability of these States for revenue may be rated at seven and a half millions of dollars, when the amount of its circulating cash was thirty millions, now that it is reduced more than one half in real value, to what revenue are they to be supposed equal at this time? I should judge about one fifth less, and not more.
The diminution of our circulating cash is principally artificial. It is true, our foreign commerce has declined by the war, but our domestic commerce has increased. I know of no good reason to believe, that the quantity of labor and commodities have been materially diminished. Our exports have lessened, but our internal consumption has augmented. The men employed in the army, and in the departments connected with it, consume and waste three times as much as the same number of men in civil life. A number of husbandmen have been taken from their ploughs into military service; but the progress of our natural population has, in part, supplied their place; and the demands of the war have increased individual industry. The great influx of money at first operated upon the avarice of the people, and, for a long time, served also as a stimulus to industry, which taxation has since kept up on the principle of necessity. Notwithstanding the demands and competitions of two armies for supplies, we see that corn, which is the staple of these Middle States, is cheaper than for some years before the war; a strong argument of plenty.
We may infer from all this, that we stand in need now of nearly the same quantity of medium for our circulation as before the war. The depreciation of the money below the standard is to be attributed to a want of confidence rather than to a decay of resources. We find the people, in some of the States, distressed to pay their taxes for want of money, with ample means otherwise; which is a proof, that our current cash is not a competent representative of the labor and commodities of the country. Another proof of the same nature is, that particular States which have found no small difficulty in collecting their pecuniary taxes, have been successful in raising contributions to a large amount in kind.
This country never having been a country of manufactures, the productions of the soil were, as they still are, the principal source of revenue. The inhabitants have abridged their wants of foreign articles, from the scarcity of them, and have, in part, supplied their place by home manufactures, which, being chiefly conducted by the women, take nothing from the labor appropriated to agriculture, while it enables the farmer to spare a larger portion of his income to the public.
Whatever diminution our means of revenue may have suffered, must be accounted for on the decay of foreign trade, and on the loss of territory. The imposts on trade in Great Britain amounted to about a fourth of its total revenue. The proportion must be less in America. But suppose it to be the same; suppose our external commerce to be reduced one half, which I believe is an ample allowance, then one eighth should be deducted from our revenue on this account; which would bring it down to six millions five hundred and sixty-two thousand five hundred dollars. Allow for the loss of Georgia and South Carolina one eighth of this sum; this would reduce the income of the remaining States to five millions seven hundred and forty-two thousand one hundred and eighty-eight and four eighths dollars. But as the allowance in both cases is large, the diminution I have already supposed, of one fifth of the whole, appears to be nearest the truth; which leaves these States with a net revenue of six millions of dollars.
We will now examine how far this rule agrees with experience, and with what has already been effected in these States. Massachusetts may serve as a criterion. This is one of the States where taxation has been carried furthest. Taxes were so heavy last year, that I am informed there were real marks of distress among some classes of the people. The Legislature, in their late address, tell us that they amounted to six hundred thousand pounds lawful; and they appear to have thought the pressure of them too great, by reducing them at a time when they are obliged to have recourse to a large loan to answer the exigencies of the current year.
The taxes they specify, which seem to belong to those of the present year, with the addition of the bounties for raising men, and the beef supply, may be estimated at near five hundred thousand pounds.
This State is in a different situation from any other. Its position has made it impossible for the enemy to intercept its trade; while that of all the others has been greatly injured or totally obstructed. It has become, in consequence, the mart of the States northward of Pennsylvania; and its commerce has enlarged itself much beyond its former limits. A great part of the money expended for the support of the war has been disbursed there. Congress, in their requisitions for money, have rated the quota of Massachusetts at of the whole; but I believe its ability, at this time, is in the proportion of one fifth. I found this estimation on an impartial comparison of the circumstances of the several States.
Admitting the proportion to be just, and taking the taxes of the present year as a standard, the gross amount of our collective revenues would be two millions five hundred thousand pounds lawful; or eight millions three hundred and thirty-three thousand three hundred and thirty-three and one third dollars. The expense of collection, in England, is about one ninth of the gross amount; and considering that our revenue is to be raised in eleven different governments, each having a complete set of collectors of its own, the expense of collection, with us, will in all probability be not much less than it is in England. Supposing it to be the same, and that the taxes were to prove as productive as their normal amount, our net revenue would then be seven millions four hundred and seven thousand four hundred and eight and one half dollars; which considerably exceeds what it ought to be by my first calculation.
But there are considerations which may induce us to make large deductions from this sum. When the Legislature tells us, that the taxes of last year amounted to six hundred thousand pounds, it also tells us that there was a part of them still to be levied; which, among other things, had occasioned them to postpone the next tax to a future session. Whatever is due on the last year may be considered, in effect, as an anticipation on the taxes of the present; for it takes off so much from the ability of the people to pay them. The chances are, that the additional impositions projected for the current year will not be raised in their full extent. Taxes are seldom or never so productive as their estimated value; and in a case like this, must be expected to be more than commonly deficient.
It is to be observed, also, that the last year was a year of peculiar exertion. There was a general expectation of some attempt, in conjunction with our allies, decisive of the war. This made the people strain their efforts beyond their natural abilities; and yet they did not comply with the demands of the Legislature.
The money for the bounties this year, which I have calculated at sixty thousand pounds, may, in like manner, be regarded as an extraordinary and special contribution, which the people may be willing to submit to, over and above what they could probably afford to pay, to get rid of the insupportable inconvenience of temporary enlistments.
Reasonable deductions on these accounts being made, will bring the two calculations to a pretty exact agreement, and make them confirm each other. But were not this the case, I should be inclined, in preference, to trust the first, as being founded on a basis better known and better ascertained by experience. I believe, however, we may safely conclude, from both, that between six and seven millions of dollars is the proper revenue of these States, after the dismemberment of South Carolina and Georgia.
Having formed an estimate of our ability for revenue, the next thing to be ascertained is the annual expense of our civil and military establishments. With tolerable economy, I should suppose two millions and a half of dollars would amply suffice for the first, including the particular administration of each State. For the second, judiciously managed, eight millions of dollars would be adequate, calculating for an army of twenty thousand men, which are as many as we shall stand in need of, or be able to raise. Eleven millions of dollars will be then the amount of the annual expenses of these States. I speak on a supposition that a system were embraced, well adapted to rescuing our affairs from the chaos in which they are now involved; and which, while it continues, must baffle all calculation.
The difference between our revenues and expenses, on the preceding scale, will be from four to four and a half millions of dollars; which deficiency must of course be supplied by credit, foreign or domestic, or both.
With regard to credit abroad, I think we have little chance of obtaining a sufficiency, nearly to answer our purpose. France, by all the reforms she can make in her interior economy, by all the means she can procure in loans and lotteries, in addition to her revenue, can do little more than satisfy her own wants. The death of the Empress Queen, and the notorious hostility of the Emperor, will add to the number of these. She will, in all probability, be obliged to pay greater attention to her army, which has been neglected, for several years past, to apply all the resources of the kingdom to the improvement of the navy. Though Russia and Prussia, by the last advices, seemed disposed to control the ill-humor of the Emperor, France will hardly think it prudent to leave herself in a defenceless condition, relying on the precarious friendship and momentary interests of other powers. The increase of her army will necessarily increase her expenses, as she cannot, in the present state of things, retrench any thing from the navy; and of course she will have less money to spare to allies. It has been observed, that France has hitherto imposed none of the additional taxes usual in time of war; by doing which, it is imagined she would have it in her power, not only to supply her own wants better, but to contribute largely to ours. To this it has been answered, with great appearance of reason, that the credit of the financier very much depends on his having such a resource in reserve, which, being considered as a means he may command, when necessary, to fulfil his engagements, disposes moneyed men to lend to him with the greater freedom and confidence. The breaking in upon that resource, therefore (it is said), would injure credit, and obstruct loans in a degree that could not be compensated by the direct value of the revenue it would furnish.
Upon the whole, however, from a variety of siftings and inquiries, I should be mistaken if France did not lend this country eight or ten millions of livres annually, during the war; provided its finances were once put upon a reasonable footing: but this is not above a third of our wants.
I find no reason to flatter ourselves that we have much to expect either from the ability or inclination of Spain. Her government is far from being so rich as is vulgarly imagined. The mines of South America, of late years, have been less liberal of their profits; and, for fear of accidents, but a small part of their product, since the war, has been imported into Europe. The extreme indolence of the Spaniards, and their neglect of agriculture, manufactures, and trade, make them tributary to their more industrious neighbors, who drain them of their precious metals as fast as they arrive.
But if they were heartily disposed to do it, they might still afford us some assistance. Their conduct hitherto has manifested no such disposition; it has been as cold and reserved as it could well be. The bills drawn upon them have not been rejected, but they have not been paid. Their permitting the residence of a British emissary among them, and the countenance they give him, unprecedented in a state of war, afford just room for a distrust of their intentions, though it may be nothing more than a stroke of policy, to play him off against our negotiators, and make us bid higher for their friendship. Their method of prosecuting the war is passive to a degree that can scarcely be resolved even into Spanish supineness, but seems to have a more corrupt original. A bigoted prince, governed by a greedy confessor, is a character on which little dependence can be placed.
’T is not on Spain, then, that we are to build our hopes of any considerable succors in money.
The Dutch Government has of long standing mortgaged all its revenues. Taxation has been carried to a length that admits of little extension. ’T is from its credit with its own citizens that it must derive the means of making war. It has every thing to do. Its fleet is to be in a manner created anew and its land forces to be recruited, having been for some time past suffered to decline very much. It will, therefore, stand in need of all its credit for its own uses. Of course, we have nothing to expect from the government of that country.
The individuals will not have confidence enough in our public councils to embark any considerable part of their fortunes with us on the ordinary principles of a loan. Stronger inducements, the prospect of commercial advantages, securities differing from the mere faith of the United States, must be held out to tempt them to engage far with us. The plan I am going to propose endeavors to conciliate these objects.
As to internal loans, on which, after all, we must chiefly depend, there are two things that operate against them to any large amount: the want of a sufficient number of men with sufficient moneyed capitals to lend the sums required, and the want of confidence in those who are able to lend to make them willing to part with their money. It may be added that they can employ it to greater advantage in traffic than by merely lending it on interest.
To surmount these obstacles, and give individuals ability and inclination to lend in any proportion to the wants of government, a plan must be devised which, by incorporating their means together and uniting them with those of the public, will, on the foundation of that incorporation and union, erect a mass of credit that will supply the defect of moneyed capital, and answer all the purposes of cash; a plan which will offer adventurers immediate advantages, analogous to those they receive by employing their money in trade, and eventually greater advantages; a plan which will give them the greatest security the nature of the case will admit for what they lend; and which will not only advance their own interest and secure the independence of their country, but, in its progress, have the most beneficial influence upon its future commerce, and be a source of national strength and wealth.
I mean the institution of a national bank. This I regard, in some shape or other, as an expedient essential to our safety and success; unless, by a happy turn of European affairs, the war should speedily terminate in a manner upon which it would be unwise to reckon. There is no other that can give to government that extensive and systematic credit which the defect of our revenues makes indispensably necessary to its operations.
The longer it is delayed the more difficult it becomes. Our affairs grow every day more relaxed and more involved; public credit hastens to a more irretrievable catastrophe; the means for executing the plan are exhausted in partial and temporary efforts. The loan now making in Massachusetts would have gone a great way in establishing the funds on which the bank must stand.
I am aware of all the objections that have been made to public banks; and that they are not without enlightened and respectable opponents. But all that has been said against them only tends to prove that, like all other good things, they are subject to abuse, and, when abused, become pernicious. The precious metals, by similar arguments, may be proven to be injurious. It is certain that the mines of South America have had great influence in banishing industry from Spain, and sinking it in real wealth and importance. Great power, commerce, and riches, or, in other words, great national prosperity, may, in like manner, be denominated evils; for they lead to insolence, an inordinate ambition, a vicious luxury, licentiousness of morals, and all those vices which corrupt government, enslave the people, and precipitate the ruin of a nation. But no wise statesman will reject the good from an apprehension of the ill. The truth is, in human affairs there is no good, pure and unmixed; every advantage has two sides; and wisdom consists in availing themselves of the good, and guarding as much as possible against the bad.
The tendency of a national bank is to increase public and private credit. The former gives power to the state, for the protection of its rights and interests: and the latter facilitates and extends the operations of commerce among individuals. Industry is increased, commodities are multiplied, agriculture and manufactures flourish: and herein consists the true wealth and prosperity of a state.
Most commercial nations have found it necessary to institute banks; and they have proved to be the happiest engines that ever were invented for advancing trade. Venice, Genoa, Hamburg, Holland, and England are examples of their utility. They owe their riches, commerce, and the figure they have made at different periods, in a great degree to this source. Great Britain is indebted for the immense efforts she has been able to make, in so many illustrious and successful wars, essentially to that vast fabric of credit raised on this foundation. ’T is by this alone she now menaces our independence.
She has, indeed, abused the advantage, and now stands on a precipice. Her example should both persuade and warn us. ’T is in republics where banks are most easily established and supported, and where they are least liable to abuse. Our situation will not expose us to frequent wars; and the public will have no temptation to overstrain its credit.
In my opinion, we ought not to hesitate, because we have no other resource. The long and expensive wars of King William had drained England of its specie; its commerce began to droop for want of a proper medium: its taxes were unproductive, and its revenues declined. The administration wisely had recourse to the institution of a bank; and it relieved the national difficulties. We are in the same, and still greater, want of a sufficient medium. We have little specie; the paper we have is of small value, and rapidly descending to less: we are immersed in a war for our existence as a nation, for our liberty and happiness as a people: we have no revenues and no credit. A bank, if practicable, is the only thing that can give us either the one or the other.
Besides these great and cardinal motives to such an institution, and the advantages we should enjoy from it, in common with other nations, our situation, relatively to Europe and to the West Indies, would give us some peculiar advantages.
Nothing is more common than for men to pass from the abuse of a good thing, to the disuse of it. Some persons, disgusted by the depreciation of the money, are chimerical enough to imagine it would be beneficial to abolish all paper credit, annihilate the whole of what is now in circulation, and depend altogether upon our specie, both for commerce and finance. This scheme is altogether visionary, and in the attempt would be fatal. We have not a competent stock of specie in this country, either to answer the purposes of circulation in trade, or to serve as a basis for revenue. The whole amount of what we have, I am persuaded, does not exceed six millions of dollars, one fifth of the circulating medium before the war. To suppose this would be sufficient for the operations of commerce, would be to suppose that our domestic and foreign commerce were both reduced four fifths: a supposition that carries absurdity on the face of it. It follows that if our paper money were destroyed, a great part of the transactions of traffic must be carried on by barter; a mode inconvenient, partial, confined, destructive both of commerce and industry. With the addition of the paper we now have, this evil exists in too great a degree.
With respect to revenue, could the whole of our specie be drawn into the public treasury annually, we have seen that it would be little more than one half of our annual expense. But this would be impracticable; it has never been effected in any country. Where the numerary of a country is a sufficient representative, there is only a certain proportion of it that can be drawn out of daily circulation; because, without the necessary quantity of cash, a stagnation of business would ensue. How small, then, would be the proportion of the six millions (in itself so unequal a representative) which the public would be able to extract in revenue. It must either have little or no revenue, or it must receive its dues in kind; on the inefficacy and inconveniences of which mode, I have already remarked. The necessity for it, in part, unhappily now has place, for the cause assigned, a deficiency of current cash: but were we to establish it as our principal dependence, it would be impossible to contrive a mode less productive to the public, more contrary to the habits and inclinations of the people, or more baneful to industry.
But waiving the objections on this head, there would still remain a balance of four millions of dollars more than these States can furnish in revenue, which must be provided for the yearly expense of the war. How is this to be procured without a paper credit, to supply the deficiency of specie, and enable the moneyed men to lend? This question, I apprehend, will be of no easy solution.
In the present system of things, the health of a State, particularly a commercial one, depends on a due quantity and regular circulation of cash, as much as the health of an animal body depends upon the due quantity and regular circulation of the blood. There are indisputable indications that we have not a sufficient medium; and what we have is in continual fluctuation. The only cure to our public disorders, is to fix the value of the currency we now have, and increase it to a proper standard, in a species that will have the requisite stability.
The error of those who would explode paper money altogether, originates in not making proper distinctions. Our paper was, in its nature, liable to depreciation, because it had no funds for its support, and was not upheld by private credit. The emissions under the resolution of March, ’80, have partly the former advantage, but are destitute of the latter, which is equally essential. No paper credit can be substantial, or durable, which has no funds, and which does not unite, immediately, the interest and influence of the moneyed men, in its establishment and preservation. A credit begun on this basis, will, in process of time, greatly exceed its funds: but this requires time and a well-settled opinion in its favor. ’T is in a national bank, alone, that we can find the ingredients to constitute a wholesome, solid, and beneficial credit.
I am aware that, in the present temper of men’s minds, it will be no easy task to inspire a relish for a project of this kind: but much will depend on the address and personal credit of the proposer. In your hands I should not despair: and I should have the greater hopes for what I am informed appeared to be the disposition, at the promulgation of the plan for a loan in Massachusetts. The men of property in America are enlightened about their own interest, and would easily be brought to see the advantages of a good plan. They ought not to be discouraged at what has happened heretofore, when they behold the administration of our finances put into a better channel. The violations of public engagements, hitherto, have proceeded more from a necessity produced by ignorance and mismanagement, than from levity or a disregard to the obligations of good faith.
Should the success, in the first instance, not be as complete as the extent of the plan requires, this should not hinder its being undertaken. It is of the nature of a bank, wisely instituted, and wisely administered, to extend itself, and, from small beginnings, grow to a magnitude that could not have been foreseen.
The plan I propose requires a stock of three millions of pounds, lawful money; but if one half the sum could be obtained, I should entertain no doubt of its full success. It now remains to submit my plan, which I rather offer as an outline, than as a finished plan. It contains, however, the general principles. To each article I shall affix an explanatory remark.
Art. I. A bank to be erected with a stock of three millions of pounds, lawful money, at the rate of six shillings to a dollar, divided into thirty thousand shares. This stock to be exempted from all public taxes and impositions whatsoever.
Remark 1. By the second Article, a part of the stock is to be in landed security; by this, the whole is to be exempted from taxes. Here will be a considerable saving to the proprietor, which is to be estimated among the clear profits of the bank. This will indeed be a small reduction of the public revenue; but the loss will be of little consequence, compared with the advantages to be derived from the bank.
Art. II. A subscription to be opened for the amount of the stock. A subscriber of from one share to five, to advance the whole in specie. A subscriber of six shares to fifteen, to advance one half in specie, the other half in good landed security. A subscriber of sixteen shares, and upwards, to advance two sixths in specie, one sixth in bills of securities on good European funds, and three sixths in good landed security. In either case of specie, plate or bullion, at a given value, proportioned to its quality, may be substituted; and in either case of landed security, specie, good bills, or securities on European funds, to be admissible in their stead.
Remark 2. By admitting landed security as a part of the bank stock, while we establish solid funds for the money emitted, we at the same time supply the defect of specie, and we give a strong inducement to moneyed men to advance their money; because, not only the money actually deposited is to be employed for their benefit, but, on the credit of their landed security, by the seventh Article, may be raised an equal amount in cash, to be also employed for their benefit; by which artifice they have the use of their land (exempted, too, from taxes), and the use of the value of it in a representative cash. In this consists a capital advantage of the bank to the proprietors. A, for instance, advances six hundred pounds in specie, and as much more in landed security. By the establishment he may draw bank-notes for the whole of his stock, that is, for twelve hundred pounds, when he only advances half the sum in money. These bank-notes operating as cash, his land (continuing as we observed above, in his own use, with the privilege besides of an exemption from taxes) is converted into cash; which he may employ in loans, in profitable contracts, in beneficial purchases, in discounting bills of exchange, and in the other methods permitted in the subsequent Articles. Besides all this, when the bank-notes have once acquired a fixed credit, he is not obliged to keep his six hundred pounds, deposited in specie, idle; he may lend or otherwise improve, a part of that also. These advantages will not exist in their full extent at first, but they will soon succeed each other.
Art. III. The bank to be erected into a legal corporation; to have all the powers and immunities requisite to its security, to the recovery of its debts, and to the disposal of its property.
Remark 3. This Article needs no illustration.
Art. IV. The stock of the bank not to be liable to any attachment or seizure whatsoever; but, on refusal of payment, the holders of bank-notes, or bonds, may enter suit against any member, or members, of the corporation; and, as far as their respective shares in the bank extend, recover the debt, with cost and damages, out of their private property.
Remark 4. The first part of this regulation is necessary to engage foreigners to trust their property in the bank; the latter part to give an idea of security to the holders of bank-notes.
Art. V. The United States, or any particular States, or foreigners, may become subscribers to the bank, and participate in its profits, for any sums not exceeding the whole half the stock.
Remark 5. This will link the interests of the public more intimately with the bank, and be an easy method of acquiring revenue. It will also facilitate the making up its stock by the loans which Congress may obtain abroad; without which it would be more difficult to raise so large a sum. It is essential the stock should be large, because, in proportion to it, will be the credit of the bank, and of course its ability to lend and enlarge its paper emissions. The admission of foreigners will also assist the completing the stock; and it is probable many may be induced to enter into the plan, especially after it has made some progress among ourselves, and obtained a degree of consistency.
The sum is limited to one half the stock, because it is of primary importance that the moneyed men among ourselves should be deeply interested in the plan.
Art. VI. The United States, collectively and particularly, to become responsible for all the transactions of the bank, conjointly with the private proprietors.
Remark 6. This mode of pledging the public faith makes it as difficult to be infringed as could possibly be devised. In our situation it is expedient to offer every appearance of security. Foreigners are more firmly persuaded of the establishment of our independence than of the continuance of our union; and will, therefore, have more confidence in the States bound separately than collectively. Individuals among ourselves will be influenced by similar considerations.
Art. VII. The bank to issue notes payable at sight in pounds, shillings, and pence, lawful; all of twenty shillings, and under, to bear no interest; all above, to bear an interest not exceeding four per cent. The notes to be of so many denominations as may be judged convenient for circulation, and of two kinds; one payable only in America, the other payable either in America or in any part of Europe where the bank may have funds. The aggregate of these notes never to exceed the bank stock.
Remark 7. The reason of having them payable at sight is to inspire the greater confidence and give them a readier currency; nor do I apprehend there would be any danger from it. In the beginning some may be carried to the bank for payment, but finding they are punctually discharged, the applications will cease. The notes are payable in pounds, shillings, and pence, rather than in dollars, to produce an illusion in the minds of the people favorable to the new paper; or rather to prevent their transferring to that their prejudices against the old. Paper credit depends much on opinion, and opinion is often guided by outside appearances. A circumstance trivial as this may seem, might have no small influence on the popular imagination. And if twenty shillings, and under, are without interest, because such small sums will be diffused in the lesser transactions of daily circulation, there will be less probability of their being carried to the bank for payment.
The interest on the larger notes is calculated to give them a preference to specie, and prevent a run upon the bank. The notes, however, must be introduced by degrees, so as not to inundate the public at once. Those bearing no interest ought not to be multiplied too much at first; but as the interest is an abridgment of the profits of the bank, after the notes have gained an unequivocal credit, it will be advantageous to issue a large proportion of the smaller ones. At first, the interest had best be at four per cent., to operate the more effectually as a motive; afterward, on the new notes, it may be gradually diminished; but it will always be expedient to let them bear an interest not less than two per cent.
The making some of the notes payable in Europe as well as in America, is necessary to enable the bank to avail itself of its funds there; it will also serve to raise the demand for bank-notes, by rendering them useful in foreign commerce, the promoting which is a further inducement.
The limiting the aggregate of the notes to the amount of the stock, is necessary to obviate a suspicion of their being multiplied beyond the means of redemption.
Art. VIII. The bank to lend money to the public, or to individuals, at an interest not exceeding eight per cent.
Remark 8. In the beginning it will be for the advantage of the bank to require high interest, because the money is in great demand, and the bank itself will want the principal part of its cash for the loans stipulated in Article XIII., and for performing the contracts authorized by Article XII.; so that the profits will not, for some time, turn materially on the principle of loans, except that to the public. But when the contracts cease, the bank will find its advantage in lending, at a moderate interest, to secure a preference from borrowers, which will, at the same time, promote commerce; and by a kind of mutual reaction, the bank will assist commerce, and commerce will assist the bank.
Art. IX. The bank to have liberty of borrowing, on the best terms it can, to the amount of one half of its stock.
Remark 9. This is a precaution against a sudden run. It may borrow in proportion to what it pays. It has another advantage: at particular conjunctures the bank may borrow at a low interest, and lend, at others, at a higher.
Art. X. The bank to have liberty of purchasing estates by principal, or by annuities; the power of coining to the amount of half its stock, the quantity of alloy, etc., being determined by Congress; also the power of discounting bills of exchange.
Remark 10. This privilege of purchasing estates will be a very valuable one. By watching favorable opportunities, with so large a capital, vast property may be acquired in this way. There will be a fine opening at the conclusion of the war. Many persons disaffected to our independence, who have rendered themselves odious without becoming obnoxious to the laws, will be disposed to sell their estates here, either for their whole value, or for annuities in Europe. The power of coining is necessary, as plate, or bullion, is admitted instead of specie; and it may be, on particular occasions, expedient to coin them; this will be a small resource to the bank. The power of discounting bills of exchange will be a considerable one. Its advantages will consist in purchasing, or taking up for the honor of the drawer, when the security is good, bills of exchange at so much per cent. discount. A large profit might be now made in this way on the bills drawn on France; and hereafter, in times of peace, when commerce comes to flourish, this practice will promote the transactions of the several States with each other, and with Europe, and will be very profitable to the bank.
Art. XI. The bank to receive from individuals deposits of any sums of money, to be repaid when called for, or passed, by order, to the credit of others; or deposits of plate, paying a certain annual rate for safe-keeping. Whatever is deposited in the bank, to be exempt from taxes.
Remark 11. This is in imitation of the Bank of Amsterdam. If individuals once get into the practice of depositing their money in bank, it will give credit to the bank, and assist trade. In time, a premium may be required at repayment as in Holland. A small profit may be immediately gained on plate, as the States begin to tax this article; and many persons will dispense at this time with the use of their plate, if they can deposit it in a place of safety, and pay less for keeping it than the tax. Whatever serves to increase the apparent wealth of the bank, will enhance its credit! It may even be useful to let the owners of the plate have credit in bank for the value of the plate, estimated on a scale that would make it for the advantage of the bank to purchase.
Art. XII. The bank to have a right to contract with the French Government for the supply of its fleets and armies in America, and to contract with Congress for the supply of their armies.
Remark 12. It will be of great importance to the success of the subscriptions, that a previous assurance of these contracts should take place: the profits of them would be no trifling inducement to adventures; it would have the air of employing the money subscribed in trade. As soon, therefore, as the plan should be resolved upon, negotiations should be begun for the purpose. It is so clearly the interest of the French Government to enter into these contracts, that they must be blind not to do it, especially when it is proposed under the aspect of a method of re-establishing our finances. The present loss on their bills is enormous. The bank may engage to receive them at a moderate discount, and to supply on better terms than they now make. Their business is at this time trusted to a variety of hands, some of which are neither very skilful nor very honest: competitions, frauds, and additional expense, are the consequences.
Congress could not hesitate on their part, as the amount of the contracts would be a part of the loan required in Article XIII.
Art. XIII. The bank to lend Congress one million two hundred thousand pounds, lawful, at eight per cent. interest; for the payment of which, with its interest, a certain unalienable fund of one hundred and ten thousand four hundred pounds per annum, to be established for twenty years. The States, generally and severally, to pledge themselves for this sum, and for the due appropriation of the fund. Congress to have a right, at any intermediate period, to pay off the debt, with the interest to the time of payment. The same rule to govern in all future loans.
Remark 13. This loan will enable Congress to get through the expenses of the year. There may be a small deficiency, but this will be easily supplied. The credit of the bank once established, it may increase its stock, and lend an equal sum every year during the war. This loan may be advanced, partly in a contract for provisions, clothing, etc., and partly in cash, at periodical payments, to avoid a too quick multiplication of bank-notes.
Art. XIV. The bank to become responsible for the redemption of all the paper now emitted; the old, at forty for one in thirty years, the new at par, with gold and silver, according to the terms promised by Congress in their resolution of March, ’80. One third of the first to be redeemed at the end of every ten years; and the whole of the last to be redeemed at the expiration of the six years specified by Congress, with the interest of five per cent. The United States, in compensation for this responsibility, to establish certain funds for an annuity, payable to the bank, equal to the discharge of the whole amount of the paper currency in thirty years, with an interest of two per cent. per annum.
Remark 14. It is of the greatest importance that the old currency should be fixed at a certain value, or there will be danger of its infecting the future paper; besides, we want to raise it to a point that will make it approach nearer to an adequate medium. I have chosen the resolution of March, ’80, as a standard. We ought not, on any account, to raise the value of the old paper higher than forty to one, for this will give it about the degree of value that is most salutary; at the same time that it will avoid a second breach of faith, which would cause a violent death to all future credit. A stable currency is an idea fundamental to all practicable schemes of finance. It is the duty and interest of the public to give stability to that which now exists; and it will be the interest of the bank, which alone can effect it, to co-operate. I have not mentioned the amount of the annuity to be paid by Congress, because I have not materials to judge what quantity of paper money now exists; since it will be necessary to take all the State emissions into the calculation. I suppose (including State emissions) there may be about four hundred millions of dollars of the old standard, and about four millions of the new. This will give us, in specie-value, about fourteen millions of dollars. This is what the bank is to become answerable for, and what the public is to pay, by an annuity of thirty years, with two per cent. interest. This annuity would amount to six hundred and eleven thousand three hundred and thirty-three and one third dollars, for which funds are to be provided.
By a rough calculation, I find that the bank would gain, in the thirty years, about three millions of dollars, on the simple footing of interest; and that it will, at different periods, have more public money in its possession than it will be in advance at others; so that, upon the whole, the sum it will gain in interest will be for the loan of its credit to the public, not of any specific sum of cash. Besides, the interest of the bank may gain a very considerable sum by the purchases it may make of the old paper at its current value, before the influence of this plan has time to bring it back to the point at which it is intended to be fixed. It is the obvious interest of the United States to concur in this plan, because, by paying three millions of dollars in interest to the bank, more than it would have to pay to the money-holders, agreeably to its present engagements, it would avoid a new breach of faith, fix its circulating medium increased in value more than one half, render the taxes more productive, and introduce order into its finances, without which our independence is lost. It will also have only about two thirds of the funds to establish for this plan that are required by the act of March, ’80, to discharge the new bills; it will, of course, reserve a large balance toward the current expenses, which is no insignificant consideration.
Perhaps it may be imagined that the same funds established for the redemption of the money in the same time, without passing through the bank, would have an equal effect upon its credit, and then we should save the interest of two per cent. Experience proves the contrary. We find the new notes depreciating in the States which have provided good funds. The truth is, there is not confidence enough in any funds merely public. The responsibility of the bank would beget a much stronger persuasion of the paper being redeemed, and have incomparably more efficacy in raising and confirming its credit. Besides, the bank might immediately reduce the quantity by purchase, which the public could not do.
It will be observed that of the six millions of dollars which constitute our annual revenue, I require nine hundred and seventy-nine thousand three hundred and thirty-three and one third dollars, in funds, to reimburse the loan for the first year, and pay off the annuity for the redemption of the old paper. It may be asked, where these funds are to be procured in the present impotence of our Federal Government. I answer, there are ample means for them, and they must be had. Congress must deal plainly with their constituents. They must tell them that power without revenue is a bubble; that unless they give them substantial resources of the latter, they will not have enough of the former either to prosecute the war or to maintain the Union in peace; that, in short, they must, in justice to the public and to their own honor, renounce the vain attempt of carrying on the war without either, a perseverance in which, can only deceive the people, and betray their safety. They must demand an instant, positive, and perpetual investiture of an impost on trade; a land tax and a poll tax, to be collected by their own agents. This act to become a part of the Confederation.
It has ever been my opinion that Congress ought to have complete sovereignty in all but the mere municipal law of each State; and I wish to see a convention of all the States, with full power to alter and amend, finally and irrevocably, the present futile and senseless Confederation.
The taxes specified may be made to amount to three millions of dollars; the other three millions to be raised by requisition, as heretofore.
Art. XV. The bank-notes to be received in payment of all public customs and taxes, at an equivalent with gold and silver.
Remark 15. It is essential that all taxes should be raised, throughout the United States, in specie, or bank-notes at par, or the old paper at its current value at the time of payment. This will serve to increase the circulation and credit of the bank-notes; but no person should be obliged to receive them in private dealings. Their credit must depend on opinion; and this opinion would be injured by legislative interposition.
Art. XVI. The bank to dissolve itself whenever it thinks proper, making effectual provision for the payment of its debts; and a proprietor of bank stock to have the privilege of selling out whenever he pleases.
Remark 16. This permission to dissolve or sell at pleasure will encourage men to adventure; and, when once engaged, the profits will make them willing to continue.
Art. XVII. The bank to be established for thirty years by way of experiment.
Remark 17. This is chiefly to prevent some speculative men being alarmed, who, upon the whole, may think a paper credit detrimental and dangerous, though they would be willing, from necessity, to encourage it for a limited time. Experience, too, may show the defects of this plan, and give rise to alterations for the better.
Art. XVIII. No other bank, public or private, to be permitted during that period.
Remark 18. Other banks might excite a competition prejudicial to the interests of this, and multiply and diversify paper credit too much.
Art. XIX. Three banks to be erected in Massachusetts, Pennsylvania, and Virginia, to facilitate the circulation and payment of the bank-notes.
Remark 19. These banks ought to be in the interior of the country, remote from danger, with every precaution for their security in every way. Their distance from the capital trading points will be an advantage, as it will make applications for the payment of bank-notes less convenient.
Art. XX. The affairs of the bank to be managed by twelve general directors, men of reputation and fortune; eight of them to be chosen by the private proprietors, and four by Congress. The Minister of Finance to have the privilege of inspecting all their proceedings.
Remark 20. It is necessary, for reciprocal security of the public, the proprietors, and the people, that the affairs of the bank should be conducted under a joint direction.
These, as has been already observed, are only intended as outlines; the form of administration for the bank, and all other matters, may be easily determined, if the leading principles are once approved. We shall find good models in the different European banks, which we can accommodate to our circumstances. Great care, in particular, should be employed to guard against counterfeits; and I think methods may be devised that would be effectual.
I see nothing to prevent the practicability of a plan of this kind, but a distrust of the final success of the war, which may make men afraid to risk any considerable part of their fortunes in the public funds: but, without being an enthusiast, I will venture to assert, that, with such a resource as is here proposed, the loss of our independence is impossible. All we have to fear is, that the want of money may disband the army, or so perplex and enfeeble our operations as to create in the people a general disgust and alarm, which may make them clamor for peace on any terms. But if a judicious administration of our finances, assisted by a bank, takes place, and the ancient security of property is restored, no convulsion is to be apprehended. Our opposition will soon assume an aspect of system and vigor, that will relieve and encourage the people, and put an end to the hopes of the enemy. ’T is evident that they have it not in their power to subdue us by force of arms. In all these States they have not more than fifteen thousand effective troops, nor is it possible for them much to augment this number. The East and West Indies demand reinforcements. In all the islands, they have not, at this time, above five thousand men; a force not more than equal to the proper garrisoning of Jamaica alone; and which, the moment they lose a maritime superiority in those seas, will leave them much cause to fear for their possessions. They will probably send out fifteen hundred to two thousand men, to recruit their regiments already here; but this is the utmost they can do.
Our allies have five thousand men at Rhode Island, which, in the worst event that can happen, will be recruited to eight, to co-operate with us on a defensive plan. Should our army amount to no more than fifteen thousand men, the combined forces, though not equal to the expulsion of the enemy, will be equal to the expulsion of the enemy, will be equal to the purpose of compelling them to renounce their offensive, and to content themselves with maintaining one or two capital points. This is on the supposition that the public have the means of putting their troops in activity. By stopping the progress of their conquests, and reducing them to an unmeaning and disgraceful defensive, we destroy the national expectation of success, from which the ministry draw their resources. It is not a vague conjecture, but a fact founded on the best information, that, had it not been for the capture of Charleston and the victory of Camden, the ministry would have been in the utmost embarrassment for the supplies of this year. On the credit of those events they procured a loan of five and twenty millions. They are in a situation where a want of splendid success is ruin. They have carried taxation nearly to its extreme boundary; they have mortgaged all their funds; they have a large unfunded debt, besides the enormous mass which is funded. This must necessarily create apprehensions in their most sanguine partisans; and if these are not counteracted by flattering events, from time to time, they cannot much longer continue the delusion. Indeed, in this case, I suppose they must themselves despair.
The game we play is a sure game, if we play it with skill. I have calculated, in the preceding observations, on the most disadvantageous side. Many events may turn up, in the course of the summer, to make even the present campaign decisive.
If we compare the real ability of France, for revenue, with that of Great Britain; the economy and sagacity in the conduct of the finances of the former; the extravagance and dissipation which are overwhelming those of the latter; there will be found every reason to believe that the resources of France will outlast those of her adversary. Her fleet is not much inferior, independent of that of Spain and Holland. Combined with that of Spain, it is greatly superior. If the Dutch enter into the war in earnest, and add their fleet, the superiority will be irresistible. Notwithstanding the injury they may sustain in the first instance, the Dutch will be still formidable: they are rich in credit, and have extensive means for maritime power.
Except the Emperor, who is hostile, and the Dane, who is neutral, all the rest of Europe are either friends to France or to our independence.
Never did a nation unite more circumstances in its favor than we do; we have nothing against us but our own misconduct.
There are two classes of men among us, equally mistaken: one who, in spite of daily experience, of accumulated distress, persist in a narrow line of policy, and, amidst the most threatening dangers, fancy every thing in perfect security. Another, who, judging too much from the outside, alarmed by partial misfortunes and the disordered state of our finances, without estimating the real faculties of the parties, give themselves up to an ignorant and ill-founded despondency. We want to learn to appreciate our true situation and that of the enemy. This would preserve us from a stupid insensibility to danger on the one hand, and inspire us with a reasonable and enlightened confidence on the other.
But let us suppose the worst—that we shall, after all, fail in our independence; our return to Great Britain, whenever it should happen, would be by compact. The war would terminate by a mediation. It cannot be supposed that the mediator would be so devoted to Great Britain, or would have so little consideration for France, as to oblige us to revert to our former subjection by an unconditional surrender. While they might confirm his dominion over us, they would endeavor to save appearances for the honor of France, and stipulate terms as favorable to us as would be compatible with a state of dependence. A general amnesty, and security of private property (of course, the payment of public debts), would be among the most simple and most indispensable. This would comprehend the concerns of the bank; and if, unfortunately for our virtue, such a circumstance could operate as an inducement, it might be added that our enemies would be glad to find and to encourage such an institution among us for their own benefit.
A question may arise concerning the abilities of these States to pay their debts after the establishment of their independence; and though any doubt on this head must originate from gross ignorance, it may be necessary to oppose it with more than general argument, as has been done heretofore. A very summary and obvious calculation will show that there is nothing to be dreaded on this head.
The funds of nine hundred and seventy-nine thousand three hundred and thirty-three and one third dollars, proposed to be established for paying off the loan of the first year and for redeeming the present paper, will in thirty years wipe off all the debts of the States, except those contracted to foreigners, which, I imagine, do not amount to four millions of dollars. Suppose we should be obliged, for two years besides the present, to borrow an equal sum each year from the bank; the fund requisite to discharge these loans, on the same terms as the first, will amount to seven hundred and thirty-six thousand dollars, to be deducted from the five million and twenty thousand six hundred and sixty-six and two thirds dollars remaining on the annual revenue, which will reduce it to four millions two hundred and eighty-four thousand six hundred and sixty-six and two thirds dollars; then the debt unfunded will be:
|To foreigners already contracted by supposition . . . . . . .||$4,000,000|
|Deficiency of revenue to the expense to be obtained on credit, the first year, besides the loan from the bank . .||1,479,333⅓|
|Deficiency of revenue for the second year, deducting the fund for discharging the loan of this year . . . . .||1,847,333⅓|
|Deficiency of revenue for the third year, making the same deduction . .||2,215,333⅓|
Should, then, the war last three years longer, which must probably be the utmost term of its duration, we shall find ourselves with an unfunded debt of nine million five hundred and forty-two thousand dollars, and an unappropriated revenue of four million two hundred and eighty-four thousand six hundred and sixty-six and two thirds dollars.
The surplus of four millions, which is two hundred and eighty-four thousand six hundred and sixty-six and two thirds dollars, and the funds appropriated to the payment of the other debts which will revert to the public at the end of thirty years, will be a sufficient fund for the redemption of this debt in about thirty-five years; so that, according to my plan, at the end of thirty-five years these States have paid off the whole debt contracted on account of the war; and, in the meantime, will have a clear revenue of four millions of dollars for defraying the expenses of their civil and military establishments.
This calculation supposes the ability of these States for revenue to continue the same as they now are, which is a supposition both false and unfavorable. Speaking within moderate bounds, our population will be doubled in thirty years; there will be a confluence of emigrants from all parts of the world, our commerce will have a proportionable progress, and of course our wealth and capacity for revenue. It will be a matter of choice if we are not out of debt in twenty years, without at all encumbering the people.
A national debt, if it is not excessive, will be to us a national blessing. It will be a powerful cement of our Union. It will also create a necessity for keeping up taxation to a degree which, without being oppressive, will be a spur to industry, remote as we are from Europe, and shall be from danger. It were otherwise to be feared our popular maxims would incline us to too great parsimony and indulgence. We labor less now than any civilized nation of Europe; and a habit of labor in the people is as essential to the health and vigor of their minds and bodies, as it is conducive to the welfare of the state. We ought not to suffer our self-love to deceive us in a comparison upon these points.
I have spun out this letter to a much greater length than I intended. To develop the whole connection of my ideas on the subject, and place my plan in the clearest light, I have indulged myself in many observations which might have been omitted. I shall not longer intrude upon your patience than to assure you of the sincere sentiments of esteem with which I have the honor to be,
Sir, your most obedient and humble servant,
Communicated to the House of Representatives, December 14, 1790.
December 13, 1790.
In obedience to the order of the House of Representatives of the ninth day of August last, requiring the Secretary of the Treasury to prepare and report on this day such further provision as may, in his opinion, be necessary for establishing the public credit, the said Secretary further respectfully reports:
That, from a conviction (as suggested in his report herewith presented ) that a national bank is an institution of primary importance to the prosperous administration of the finances, and would be of the greatest utility in the operations connected with the support of the public credit, his attention has been drawn to devising the plan of such an institution, upon a scale which will entitle it to the confidence, and be likely to render it equal to the exigencies, of the public.
Previously to entering upon the detail of this plan, he entreats the indulgence of the House towards some preliminary reflections naturally arising out of the subject, which he hopes will be deemed neither useless nor out of place. Public opinion being the ultimate arbiter of every measure of government, it can scarcely appear improper, in deference to that, to accompany the origination of any new proposition with explanations, which the superior information of those to whom it is immediately addressed would render superfluous.
It is a fact, well understood, that public banks have found admission and patronage among the principal and most enlightened commercial nations. They have successively obtained in Italy, Germany, Holland, England, and France, as well as in the United States. And it is a circumstance which cannot but have considerable weight, in a candid estimate of their tendency, that after an experience of centuries, there exists not a question about their utility in the countries in which they have been so long established. Theorists and men of business unite in the acknowledgment of it.
Trade and industry, wherever they have been tried, have been indebted to them for important aid, and government has been repeatedly under the greatest obligations to them in dangerous and distressing emergencies. That of the United States, as well in some of the most critical conjunctures of the late war, as since the peace, has received assistance from those established among us, with which it could not have dispensed.
With this twofold evidence before us, it might be expected that there would be a perfect union of opinions in their favor. Yet doubts have been entertained; jealousies and prejudices have circulated; and, though experience is every day dissipating them, within the spheres in which effects are best known, yet there are still persons by whom they have not been entirely renounced. To give a full and accurate view of the subject, would be to make a treatise of a report; but there are certain aspects in which it may be cursorily exhibited, which may perhaps conduce to a just impression of its merits. These will involve a comparison of the advantages, with the disadvantages, real or supposed, of such institutions.
The following are among the principal advantages of a bank:
First.—The augmentation of the active or productive capital of a country. Gold and silver, when they are employed merely as the instruments of exchange and alienation, have not been improperly denominated dead stock; but when deposited in banks, to become the basis of a paper circulation, which takes their character and place, as the signs or representatives of value, they then acquire life, or, in other words, an active and productive quality. This idea, which appears rather subtile and abstract in a general form, may be made obvious and palpable, by entering into a few particulars. It is evident, for instance, that the money which a merchant keeps in his chest, waiting for a favorable opportunity to employ it, produces nothing till that opportunity arrives. But if, instead of locking it up in this manner, he either deposits it in a bank, or invests it in the stock of a bank, it yields a profit during the interval, in which he partakes, or not, according to the choice he may have made of being a depositor or a proprietor; and when any advantageous speculation offers, in order to be able to embrace it, he has only to withdraw his money, if a depositor, or, if a proprietor, to obtain a loan from the bank, or to dispose of his stock—an alternative seldom or never attended with difficulty, when the affairs of the institution are in a prosperous train. His money, thus deposited or invested, is a fund upon which himself and others can borrow to a much larger amount. It is a well-established fact, that banks in good credit can circulate a far greater sum than the actual quantum of their capital in gold and silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three to one. This faculty is produced in various ways. 1st. A great proportion of the notes which are issued, and pass current as cash, are indefinitely suspended in circulation, from the confidence which each holder has, that he can, at any moment, turn them into gold and silver. 2dly. Every loan which a bank makes, is, in its first shape, a credit given to the borrower on its books, the amount of which it stands ready to pay, either in its own notes, or in gold or silver, at his option. But, in a great number of cases, no actual payment is made in either. The borrower, frequently, by a check or order, transfers his credit to some other person, to whom he has a payment to make; who, in his turn, is as often content with a similar credit, because he is satisfied that he can, whenever he pleases, either convert it into cash, or pass it to some other hand, as an equivalent for it. And in this manner the credit keeps circulating, performing in every stage the office of money, till it is extinguished by a discount with some person who has a payment to make to the bank, to an equal or greater amount. Thus large sums are lent and paid, frequently through a variety of hands, without the intervention of a single piece of coin. 3dly. There is always a large quantity of gold and silver in the repositories of the bank, besides its own stock, which is placed there, with a view partly to its safe-keeping, and partly to the accommodation of an institution which is itself a sort of general accommodation. These deposits are of immense consequence in the operations of a bank. Though liable to be redrawn at any moment, experience proves, that the money so much oftener changes proprietors than place, and that what is drawn out is generally so speedily replaced, as to authorize the counting upon the sums deposited, as an effective fund, which, concurring with the stock of the bank, enables it to extend its loans, and to answer all the demands for coin, whether in consequence of those loans, or arising from the occasional return of its notes.
These different circumstances explain the manner in which the ability of a bank to circulate a greater sum than its actual capital in coin is acquired. This, however, must be gradual, and must be preceded by a firm establishment of confidence—a confidence which may be bestowed on the most rational grounds, since the excess in question will always be bottomed on good security of one kind or another. This, every well-conducted bank carefully requires, before it will consent to advance either its money or its credit, and where there is an auxiliary capital (as will be the case in the plan hereafter submitted), which, together with the capital in coin, defines the boundary that shall not be exceeded by the engagements of the bank, the security may, consistently with all the maxims of a reasonable circumspection, be regarded as complete.
The same circumstances illustrate the truth of the position, that it is one of the properties of banks to increase the active capital of a country. This, in other words, is the sum of them: the money of one individual, while he is waiting for an opportunity to employ it, by being either deposited in the bank for safe-keeping, or invested in its stock, is in a condition to administer to the wants of others, without being put out of his own reach when occasion presents. This yields an extra profit, arising from what is paid for the use of his money by others, when he could not himself make use of it, and keeps the money itself in a state of incessant activity. In the almost infinite vicissitudes and competitions of mercantile enterprise, there never can be danger of an intermission of demand, or that the money will remain for a moment idle in the vaults of the bank. This additional employment given to money, and the faculty of a bank to lend and circulate a greater sum than the amount of its stock in coin, are, to all purposes of trade and industry, an absolute increase of capital. Purchases and undertakings, in general, can be carried on by any given sum of bank paper or credit, as effectually as by an equal sum of gold and silver. And thus, by contributing to enlarge the mass of industrious and commercial enterprise, banks become nurseries of national wealth—a consequence as satisfactorily verified by experience, as it is clearly deducible in theory.
Secondly.—Greater facility as to the government in obtaining pecuniary aids, especially in sudden emergencies. This is another and an undisputed advantage of public banks—one which, as already remarked, has been realized in signal instances among ourselves. The reason is obvious: the capitals of a great number of individuals are, by this operation, collected to a point, and placed under one direction. The mass formed by this union, is, in a certain sense, magnified by the credit attached to it; and while this mass is always ready, and can at once be put in motion, in aid of the government, the interest of the bank to afford that aid, independent of regard to the public safety and welfare, is a sure pledge for its disposition to go as far in its compliances as can in prudence be desired. There is, in the nature of things, as will be more particularly noticed in another place, an intimate connection of interest between the government and the bank of a nation.
Thirdly.—The facilitating of the payment of taxes. This advantage is produced in two ways. Those who are in a situation to have access to the bank, can have the assistance of loans, to answer, with punctuality, the public calls upon them. This accommodation has been sensibly felt in the payment of the duties heretofore laid by those who reside where establishments of this nature exist. This, however, though an extensive, is not a universal, benefit. The other way in which the effect here contemplated is produced, and in which the benefit is general, is the increasing of the quantity of circulating medium, and the quickening of circulation. The manner in which the first happens has already been traced. The last may require some illustration. When payments are to be made between different places having an intercourse of business with each other, if there happen to be no private bills at market, and there are no bank-notes which have a currency in both, the consequence is, that coin must be remitted. This is attended with trouble, delay, expense, and risk. If, on the contrary, there are bank-notes current in both places, the transmission of these by the post, or any other speedy or convenient conveyance, answers the purpose; and these again, in the alternations of demand, are frequently returned, very soon after, to the place from which they were first sent: whence the transportation and re-transportation of the metals are obviated, and a more convenient and more expeditious medium of payment is substituted. Nor is this all; the metals, instead of being suspended from their usual functions during this process of vibration from place to place, continue in activity, and administer still to the ordinary circulation, which, of course, is prevented from suffering either diminution or stagnation. These circumstances are additional causes of what, in a practical sense, or to the purposes of business, may be called greater plenty of money. And it is evident, that whatever enhances the quantity of circulating money, adds to the ease with which every industrious member of the community may acquire that portion of it of which he stands in need, and enables him the better to pay his taxes, as well as to supply his other wants. Even where the circulation of the bank paper is not general, it must still have the same effect, though in a less degree. For, whatever furnishes additional supplies to the channels of circulation in one quarter, naturally contributes to keep the streams fuller elsewhere. This last view of the subject serves both to illustrate the position that banks tend to facilitate the payment of taxes, and to exemplify their utility to business of every kind in which money is an agent.
It would be to intrude too much on the patience of the House, to prolong the details of the advantages of banks; especially as all those which might still be particularized are readily to be inferred as consequences from those which have been enumerated. Their disadvantages, real or supposed, are now to be reviewed. The most serious of the charges which have been brought against them are:
That they serve to increase usury;
That they tend to prevent other kinds of lending;
That they furnish temptations to overtrading;
That they afford aid to ignorant adventurers, who disturb the natural and beneficial course of trade;
That they give to bankrupt and fraudulent traders a fictitious credit, which enables them to maintain false appearances and to extend their impositions; and, lastly,
That they have a tendency to banish gold and silver from the country.
There is great reason to believe, that, on a close and candid survey, it will be discovered that these charges are either destitute of foundation, or that, as far as the evils they suggest have been found to exist, they have proceeded from other, or partial, or temporary causes, are not inherent in the nature and permanent tendency of such institutions, or are more than counterbalanced by opposite advantages. This survey shall be had in the order in which the charges have been stated. The first of them is—
That banks serve to increase usury.
It is a truth, which ought not to be denied, that the method of conducting business, which is essential to bank operations, has, among us, in particular instances, given occasion to usurious transactions. The punctuality in payment, which they necessarily exact, has sometimes obliged those who have adventured beyond both their capital and their credit, to procure money at any price, and, consequently, to resort to usurers for aid.
But experience and practice gradually bring a cure to this evil. A general habit of punctuality among traders is the natural consequence of the necessity of observing it with the bank—a circumstance which itself more than compensates for any occasional ill which may have sprung from that necessity in the particular under consideration. As far, therefore, as traders depend on each other for pecuniary supplies, they can calculate their expectations with greater certainty; and are in proportionably less danger of disappointments, which might compel them to have recourse to so pernicious an expedient as that of borrowing at usury; the mischiefs of which, after a few examples, naturally inspire great care in all but men of desperate circumstances, to avoid the possibility of being subjected to them. One, and not the least, of these evils incident to the use of that expedient, if the fact be known, or even strongly suspected, is loss of credit with the bank itself.
The directors of a bank, too, though, in order to extend its business and its popularity in the infancy of an institution, they may be tempted to go further in accommodation than the strict rules of prudence will warrant, grow more circumspect, of course, as its affairs become better established, and as evils of too great facility are experimentally demonstrated. They become more attentive to the situation and conduct of those with whom they deal; they observe more narrowly their operations and pursuits; they economize the credit they give to those of suspicious solidity; they refuse it to those whose career is more manifestly hazardous. In a word, in the course of practice, from the very nature of things, the interest will make it the policy of a bank to succor the wary and industrious, to discredit the rash and unthrifty, to discountenance both usurious lenders and usurious borrowers.
There is a leading view, in which the tendency of banks will be seen to be to abridge, rather than to promote, usury. This relates to their property of increasing the quantity and quickening the circulation of money. If it be evident, that usury will prevail or diminish according to the proportion which the demand for borrowing bears to the quantity of money at market to be lent, whatever has the property just mentioned, whether it be in the shape of paper or coin, by contributing to render the supply more equal to the demand, must tend to counteract the progress of usury.
But bank-lending, it is pretended, is an impediment to other kinds of lending; which, by confining the resource of borrowing to a particular class, leaves the rest of the community more destitute, and, therefore, more exposed to the extortions of usurers. As the profits of bank stock exceed the legal rate of interest, the possessors of money, it is urged, prefer investing it in that article to lending it at this rate; to which there are the additional motives of a more prompt command of the capital, and of more frequent and exact returns, without trouble or perplexity in the collection. This constitutes the second charge which has been enumerated.
The fact on which this charge rests is not to be admitted without several qualifications—particularly in reference to the state of things in this country.
First. The great bulk of the stock of a bank will consist of the funds of men in trade, among ourselves, and moneyed foreigners; the former of whom could not spare their capitals out of their reach, to be invested in loans for long periods, on mortgages or personal security; and the latter of whom would not be willing to be subjected to the casualties, delays, and embarrassments of such a disposition of their money in a distant country.
Secondly. There will always be a considerable proportion of those who are properly the money-lenders of a country, who, from that spirit of caution which usually characterizes this description of men, will incline rather to invest their funds in mortgages on real estate, than in the stock of a bank, which they are apt to consider as a more precarious security.
These considerations serve, in a material degree, to narrow the foundation of the objection, as to the point of fact. But there is a more satisfactory answer to it. The effect supposed, as far as it has existence, is temporary. The reverse of it takes place in the general and permanent operation of the thing.
The capital of every public bank will, of course, be restricted within a certain defined limit. It is the province of legislative prudence so to adjust this limit, that, while it will not be too contracted for the demand which the course of business may create, and for the security which the public ought to have for the solidity of the paper which may be issued by the bank, it will still be within the compass of the pecuniary resources of the community; so that there may be an easy practicability of completing the subscriptions to it. When this is once done, the supposed effect, of necessity, ceases. There is then no longer room for the investment of any additional capital. Stock may, indeed, change hands, by one person selling and another buying; but the money which the buyer takes out of the common mass to purchase the stock, the seller receives and restores to it. Hence, the future surpluses which may accumulate must take their natural course, and lending at interest must go on as if there were no such institution.
It must, indeed, flow in a more copious stream. The bank furnishes an extraordinary supply for borrowers, within its immediate sphere. A larger supply consequently remains for borrowers elsewhere. In proportion as the circulation of the bank is extended, there is an augmentation of the aggregate mass of money for answering the aggregate mass of demand. Hence greater facility in obtaining it for every purpose.
It ought not to escape without a remark, that, as far as the citizens of other countries become adventurers in the bank, there is a positive increase of the gold and silver of the country. It is true, that, from this, a half yearly rent is drawn back, accruing from the dividends upon the stock. But as this rent arises from the employment of the capital by our own citizens, it is probable that it is more than replaced by the profits of that employment. It is also likely that a part of it is, in the course of trade, converted into the products of our country; and it may even prove an incentive, in some cases, to emigration to a country in which the character of citizen is as easy to be acquired as it is estimable and important. This view of the subject furnishes an answer to an objection which has been deduced from the circumstance here taken notice of, namely, the income resulting to foreigners from the part of the stock owned by them, which has been represented as tending to drain the country of its specie. In this objection the original investment of the capital, and the constant use of it afterwards, seem both to have been overlooked.
That banks furnish temptations to overtrading, is the third of the enumerated objections. This must mean, that, by affording additional aids to mercantile enterprise, they induce the merchant sometimes to adventure beyond the prudent or salutary point. But the very statement of the thing shows that the subject of the charge is an occasional ill, incident to a general good. Credit of every kind (as a species of which only can bank-lending have the effect supposed) must be, in different degrees, chargeable with the same inconvenience. It is even applicable to gold and silver, when they abound in circulation. But would it be wise, on this account, to decry the precious metals, to root out credit, or to proscribe the means of that enterprise which is the mainspring of trade, and a principal source of national wealth, because it now and then runs into excesses, of which overtrading is one?
If the abuses of a beneficial thing are to determine its condemnation, there is scarcely a source of public prosperity which will not speedily be closed. In every case, the evil is to be compared with the good; and in the present case such a comparison will issue in this, that the new and increased energies derived to commercial enterprise, from the aid of banks, are a source of general profit and advantage, which greatly outweigh the partial ills—the overtrading of a few individuals, at particular times, or of numbers in particular conjunctures.
The fourth and fifth charges may be considered together. These relate to the aid which is sometimes afforded by banks to unskilful adventurers and fraudulent traders. These charges, also, have some degree of foundation, though far less than has been pretended; and they add to the instances of partial ills, connected with more extensive and overbalancing benefits.
The practice of giving fictitious credit to improper persons is one of those evils which experience, guided by interest, speedily corrects. The bank itself is in so much jeopardy of being a sufferer by it, that it has the strongest of all inducements to be on its guard. It may not only be injured immediately by the delinquencies of the persons to whom such credit is given, but eventually by the incapacities of others, whom their impositions or failures may have ruined.
Nor is there much danger of a bank’s being betrayed into this error from want of information. The directors themselves being, for the most part, selected from the class of traders, are to be expected to possess, individually, an accurate knowledge of the characters and situations of those who come within that description. And they have, in addition to this, the course of dealing of the persons themselves with the bank to assist their judgment, which is, in most cases, a good index of the state in which those persons are. The artifices and shifts which those in desperate or declining circumstances are obliged to employ, to keep up the countenance which the rules of the bank require, and the train of their connections, are so many prognostics, not difficult to be interpreted, of the fate which awaits them. Hence, it not unfrequently happens, that banks are the first to discover the unsoundness of such characters, and, by withholding credit, to announce to the public that they are not entitled to it.
If banks, in spite of every precaution, are sometimes betrayed into giving a false credit to the persons described, they more frequently enable honest and industrious men, of small, or, perhaps, of no capital, to undertake and prosecute business with advantage to themselves and to the community; and assist merchants, of both capital and credit, who meet with fortuitous and unforeseen shocks, which might, without such helps, prove fatal to them and to others, to make head against their misfortunes, and finally to retrieve their affairs—circumstances which form no inconsiderable encomium on the utility of banks.
But the last and heaviest charge is still to be examined: this is, that banks tend to banish the gold and silver of the country.
The force of this objection rests upon their being an engine of paper credit, which, by furnishing a substitute for the metals, is supposed to promote their exportation. It is an objection which, if it has any foundation, lies not against banks peculiarly, but against every species of paper credit.
The most common answer given to it is, that the thing supposed is of little or of no consequence; that it is immaterial what serves the purpose of money, whether paper, or gold and silver; that the effect of both upon industry is the same; and that the intrinsic wealth of a nation is to be measured, not by the abundance of the precious metals contained in it, but by the quantity of the productions of its labor and industry.
This answer is not destitute of solidity, though not entirely satisfactory. It is certain that the vivification of industry, by a full circulation, with the aid of a proper and well-regulated paper credit, may more than compensate for the loss of a part of the gold and silver of a nation, if the consequence of avoiding that loss should be a scanty or defective circulation.
But the positive and permanent increase or decrease of the precious metals in the country can hardly ever be a matter of indifference. As the commodity taken in lieu of every other, it is a species of the most effective wealth; and as the money of the world, it is of great concern to the state, that it possess a sufficiency of it to face any demands which the protection of its external interest may create.
The objection seems to admit of another and a more conclusive answer, which controverts the fact itself. A nation that has no mines of its own must derive the precious metals from others; generally speaking, in exchange for the products of its labor and industry. The quantity it will possess will, therefore, in the ordinary course of things, be regulated by the favorable or unfavorable balance of its trade; that is, by the proportion between its abilities to supply foreigners, and its wants of them—between the amount of its exportations and that of its importations. Hence, the state of its agriculture and manufactures, the quantity and quality of its labor and industry, must, in the main, influence and determine the increase or decrease of its gold and silver.
If this be true, the inference seems to be, that well-constituted banks favor the increase of the precious metals. It has been shown that they augment, in different ways, the active capital of a country. This it is which generates employment—which animates and expands labor and industry. Every addition which is made to it, by contributing to put in motion a greater quantity of both, tends to create a greater quantity of the products of both; and, by furnishing more materials for exportation, conduces to a favorable balance of trade, and, consequently, to the introduction and increase of gold and silver.
This conclusion appears to be drawn from solid premises. There are, however, objections to be made to it.
It may be said that, as bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals, as a medium of circulation, which, in the case of a wrong balance, might restrain, in some degree, their exportation; and it may be added that, from the same cause, in the same case, it would retard those economical and parsimonious reforms in the manner of living which the scarcity of money is calculated to produce, and which might be necessary to rectify such wrong balance.
There is, perhaps, some truth in both these observations; but they appear to be of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it. The state of things in which the absolute exigencies of circulation can be supposed to resist, with any effect, the urgent demands for specie which a wrong balance of trade may occasion, presents an extreme case. And a situation in which a too expensive manner of living of a community, compared with its means, can stand in need of a corrective, from distress or necessity, is one which, perhaps, rarely results but from extraordinary and adventitious causes—such, for example, as a national revolution; which unsettles all the established habits of the people, and inflames the appetite for extravagance, by the illusions of an ideal wealth, engendered by the continual multiplication of a depreciating currency, or some similar cause. There is a good reason to believe that, where the laws are wise and well executed, and the inviolability of property and contracts maintained, the economy of a people will, in the general course of things, correspond with its means.
The support of industry is, probably in every case, of more consequence towards correcting a wrong balance of trade, than any practicable retrenchments in the expenses of families or individuals; and the stagnation of it would be likely to have more effect in prolonging, than any such savings in shortening, its continuance. That stagnation is a natural consequence of an inadequate medium, which, without the aid of bank circulation, would, in the cases supposed, be severely felt.
It also deserves notice that, as the circulation is always in a compound ratio to the fund upon which it depends, and to the demand for it, and as that fund is itself affected by the exportation of the metals, there is no danger of its being overstocked, as in the case of paper issued at the pleasure of the government, or of its preventing the consequences of any unfavorable balance from being sufficiently felt to produce the reforms alluded to, as far as circumstances may require and admit.
Nothing can be more fallible than the comparisons which have been made between different countries, to illustrate the truth of the position under consideration. The comparative quantity of gold and silver in different countries depends upon an infinite variety of facts and combinations, all of which ought to be known in order to judge whether the existence or non-existence of paper currencies has any share in the relative proportions they contain. The mass and value of the productions of the labor and industry of each, compared with its wants; the nature of its establishments abroad; the kind of wars in which it is usually engaged, the relations it bears to the countries which are the original possessors of those metals; the privileges it enjoys in their trade;—these, and a number of other circumstances, are all to be taken into the account, and render the investigation too complex to justify any reliance on the vague and general surmises which have hitherto been hazarded on the point.
In the foregoing discussion, the objection has been considered as applying to the permanent expulsion and diminution of the metals. Their temporary exportation, for particular purposes, has not been contemplated. This, it must be confessed, is facilitated by banks, from the faculty they possess of supplying their place. But their utility is in nothing more conspicuous than in these very cases. They enable the government to pay its foreign debts, and to answer any exigencies which the external concerns of the community may have produced. They enable the merchant to support his credit (on which the prosperity of trade depends), when special circumstances prevent remittances in other modes. They enable him also to prosecute enterprises which ultimately tend to an augmentation of the species of wealth in question. It is evident that gold and silver may often be employed in procuring commodities abroad, which, in a circuitous commerce, replace the original fund, with considerable addition. But it is not to be inferred, from this facility given to temporary exportation, that banks, which are so friendly to trade and industry, are, in their general tendency, inimical to the increase of the precious metals.
These several views of the subject appear sufficient to impress a full conviction of the utility of banks, and to demonstrate that they are of great importance, not only in relation to the administration of the finances but in the general system of the political economy.
The judgment of many concerning them has, no doubt, been perplexed by the misinterpretation of appearances which were to be ascribed to other causes. The general devastation of personal property, occasioned by the late war, naturally produced, on the one hand, a great demand for money, and, on the other, a great deficiency of it to answer the demand. Some injudicious laws, which grew out of the public distresses, by impairing confidence, and causing a part of the inadequate sum in the country to be locked up, aggravated the evil. The dissipated habits contracted by many individuals during the war, which, after the peace, plunged them into expenses beyond their incomes; the number of adventurers without capital, and, in many instances, without information, who at that epoch rushed into trade, and were obliged to make any sacrifice to support a transient credit; the employment of considerable sums in speculations upon the public debt, which, from its unsettled state, was incapable of becoming itself a substitute; all these circumstances concurring, necessarily led to usurious borrowing, produced most of the inconveniences, and were the true causes of most of the appearances which, where banks were established, have been by some erroneously placed to their account—a mistake which they might easily have avoided by turning their eyes toward places where there were none, and where, nevertheless, the same evils would have been perceived to exist, even in a greater degree than where those institutions had obtained.
These evils have either ceased or been greatly mitigated. Their more complete extinction may be looked for from that additional security to property which the Constitution of the United States happily gives (a circumstance of prodigious moment in the scale both of public and private prosperity); from the attraction of foreign capital, under the auspices of that security, to be employed upon objects and in enterprises for which the state of this country opens a wide and inviting field; from the consistency and stability which the public debt is fast acquiring, as well in the public opinion at home and abroad, as in fact; from the augmentation of capital which that circumstance and the quarter-yearly payment of interest will afford; and from the more copious circulation which will be likely to be created by a well-constituted national bank.
The establishment of banks in this country seems to be recommended by reasons of a peculiar nature. Previously to the Revolution, circulation was in a great measure carried on by paper emitted by the several local governments. In Pennsylvania alone the quantity of it was near a million and a half of dollars. This auxiliary may be said to be now at an end. And it is generally supposed that there has been, for some time past, a deficiency of circulating medium. How far that deficiency is to be considered as real or imaginary, is not susceptible of demonstration; but there are circumstances and appearances which, in relation to the country at large, countenance the supposition of its reality.
The circumstances are, besides the fact just mentioned respecting paper emissions, the vast tracts of waste land, and the little advanced state of manufactures. The progressive settlement of the former, while it promises ample retribution in the generation of future resources, diminishes or obstructs, in the meantime, the active wealth of the country. It not only draws off a part of the circulating money, and places it in a more passive state, but it diverts into its own channels a portion of that species of labor and industry which would otherwise be employed in furnishing materials for foreign trade, and which, by contributing to a favorable balance, would assist the introduction of specie. In the early periods of new settlements, the settlers not only furnish no surplus for exportation, but they consume a part of that which is produced by the labor of others. The same thing is a cause that manufactures do not advance, or advance slowly. And notwithstanding some hypotheses to the contrary, there are many things to induce a suspicion that the precious metals will not abound in any country which has not mines, or variety of manufactures. They have been sometimes acquired by the sword; but the modern system of war has expelled this resource, and it is one upon which it is to be hoped the United States will never be inclined to rely.
The appearances alluded to are: Greater prevalency of direct barter, in the more interior districts of the country, which, however, has been for some time past gradually lessening; and greater difficulty generally in the advantageous alienation of improved real estate, which also has of late diminished, but is still seriously felt in different parts of the Union. The difficulty of getting money, which has been a general complaint, is not added to the number, because it is the complaint of all times, and one in which imagination must ever have too great scope to permit an appeal to it.
If the supposition of such a deficiency be in any degree well founded, and some aid to circulation be desirable, it remains to inquire what ought to be the nature of that aid.
The emitting of paper money by the authority of the government is wisely prohibited to the individual States by the National Constitution; and the spirit of that prohibition ought not to be disregarded by the Government of the United States. Though paper emissions, under a general authority, might have some advantages not applicable, and be free from some disadvantages which are applicable, to the like emissions by the States, separately, yet they are of a nature so liable to abuse—and, it may even be affirmed, so certain of being abused,—that the wisdom of the government will be shown in never trusting itself with the use of so seducing and dangerous an expedient. In times of tranquillity it might have no ill consequence,—it might even perhaps be managed in a way to be productive of good; but in great and trying emergencies there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier than the laying of taxes, that a government in the practice of paper emissions would rarely fail, in any such emergency, to indulge itself too far in the employment of that resource, to avoid, as much as possible, one less auspicious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree which would occasion an inflated and artificial state of things, incompatible with the regular and prosperous course of the political economy.
Among other material differences between a paper currency, issued by the mere authority of government, and one issued by a bank, payable in coin, is this: That, in the first case, there is no standard to which an appeal can be made, as to the quantity which will only satisfy, or which will surcharge, the circulation; in the last, that standard results from the demand. If more should be issued than is necessary, it will return upon the bank. Its emissions, as elsewhere intimated, must always be in a compound ratio to the fund and the demand: whence it is evident that there is a limitation in the nature of the thing; while the discretion of the government is the only measure of the extent of the emissions, by its own authority.
This consideration further illustrates the danger of emissions of that sort, and the preference which is due to bank paper.
The payment of the interest of the public debt at thirteen different places is a weighty reason, peculiar to our immediate situation, for desiring a bank circulation. Without a paper, in general currency, equivalent to gold and silver, a considerable proportion of the specie of the country must always be suspended from circulation, and left to accumulate, preparatory to each day of payment; and as often as one approaches, there must in several cases be an actual transportation of the metals, at both expense and risk, from their natural and proper reservoirs, to distant places. This necessity will be felt very injuriously to the trade of some of the States, and will embarrass not a little the operations of the treasury in those States. It will also obstruct those negotiations, between different parts of the Union, by the instrumentality of treasury bills, which have already afforded valuable accommodations to trade in general.
Assuming it, then, as a consequence, from what has been said, that a national bank is a desirable institution, two inquiries emerge: Is there no such institution already in being, which has a claim to that character, and which supersedes the propriety or necessity of another? If there be none, what are the principles upon which one ought to be established?
There are at present three banks in the United States: that of North America, established in the city of Philadelphia; that of New York, established in the city of New York; that of Massachusetts, established in the town of Boston. Of these three, the first is the only one which has at any time had a direct relation to the Government of the United States.
The Bank of North America originated in a resolution of Congress of the 26th of May, 1781, founded upon a proposition of the Superintendent of Finance, which was afterwards carried into execution by an ordinance of the 31st of December following, entitled “An ordinance to incorporate the subscribers to the Bank of North America.”
The aid afforded to the United States by this institution, during the remaining period of the war, was of essential consequence; and its conduct towards them since the peace has not weakened its title to their patronage and favor. So far its pretensions to the character in question are respectable, but there are circumstances which militate against them, and considerations which indicate the propriety of an establishment on different principles.
The directors of this bank, on behalf of their constituents, have since accepted, and acted under, a new charter, from the State of Pennsylvania, materially variant from their original one, and which so narrows the foundation of the institution as to render it an incompetent basis for the extensive purposes of a national bank.
The limit assigned by the ordinance of Congress to the stock of the bank is ten millions of dollars. The last charter of Pennsylvania confines it to two millions. Questions naturally arise whether there be not a direct repugnancy between two charters so differently circumstanced; and whether the acceptance of the one is not to be deemed a virtual surrender of the other. But perhaps it is neither advisable nor necessary to attempt a solution of them.
There is nothing in the acts of Congress which imply an exclusive right in the institution to which they relate, except during the term of the war. There is, therefore, nothing, if the public good require it, which prevents the establishment of another. It may, however, be incidentally remarked, that in the general opinion of the citizens of the United States, the Bank of North America has taken the station of a bank of Pennsylvania only. This is a strong argument for a new institution, or for a renovation of the old, to restore it to the situation in which it originally stood in the view of the United States.
But, though the ordinance of Congress contains no grant of exclusive privileges, there may be room to allege that the Government of the United States ought not, in point of candor and equity, to establish any rival or interfering institution, in prejudice of the one already established, especially as this has, from services rendered, well-founded claims to protection and regard.
The justice of such an observation ought, within proper bounds, to be admitted. A new establishment of the sort ought not to be made without cogent and sincere reasons of public good. And, in the manner of doing it, every facility should be given to a consolidation of the old with the new, upon terms not injurious to the parties concerned. But there is no ground to maintain that, in a case in which the government has made no condition restricting its authority, it ought voluntarily to restrict it, through regard to the interests of a particular institution, when those of the State dictate a different course, especially, too, after such circumstances have intervened as characterize the actual situation of the Bank of North America.
The inducements to a new disposition of the thing are now to be considered. The first of them which occurs is, the, at least, ambiguous situation in which the Bank of North America has placed itself by the acceptance of its last charter. If this has rendered it the mere bank of a particular State, liable to dissolution at the expiration of fourteen years, to which term the act of that State has restricted its duration, it would be neither fit nor expedient to accept it as an equivalent for a bank of the United States.
The restriction of its capital, also, which, according to the same supposition cannot be extended beyond two millions of dollars, is a conclusive reason for a different establishment. So small a capital promises neither the requisite aid to government nor the requisite security to the community. It may answer very well the purposes of local accommodation, but it is an inadequate foundation for a circulation coextensive with the United States, embracing the whole of their revenues, and affecting every individual into whose hands the paper may come.
And, inadequate as such a capital would be to the essential ends of a national bank, it is liable to being rendered still more so by that principle of the constitution of the Bank of North America, contained equally in its old and in its new charter, which leaves the increase of the actual capital at any time (now far short of the allowed extent) to the discretion of the directors or stockholders. It is naturally to be expected that the allurements of an advanced price of stock, and of large dividends, may disincline those who are interested to an extension of capital, from which they will be apt to fear a diminution of profits. And for this circumstance the interest and accommodation of the public (as well individually as collectively) are made more subordinate to the interest, real or imagined, of the stockholders, than they ought to be. It is true that, unless the latter be consulted, there can be no bank (in the sense at least in which institutions of this kind, worthy of confidence, can be established in this country). But, it does not follow that this alone is to be consulted, or that it even ought to be paramount. Public utility is more truly the object of public banks than private profit. And it is the business of government to constitute them on such principles that, while the latter will result in a sufficient degree to afford competent motives to engage in them, the former be not made subservient to it. To effect this, a principal object of attention ought to be to give free scope to the creation of an ample capital, and with this view, fixing the bounds which are deemed safe and convenient, to leave no discretion either to stop short of them, or to overpass them. The want of this precaution in the establishment of the Bank of North America is a further and an important reason for desiring one differently constituted.
There may be room at first sight for a supposition that, as the profits of a bank will bear a proportion to the extent of its operations, and as for this reason the interest of the stockholders will not be disadvantageously affected by any necessary augmentations of capital, there is no cause to apprehend that they will be indisposed to such augmentations. But most men, in matters of this nature, prefer the certainties they enjoy, to probabilities depending on untried experiments, especially when these promise rather that they will not be injured, than that they will be benefited.
From the influence of this principle, and a desire of enhancing its profits, the directors of a bank will be more apt to overstrain its faculties, in an attempt to face the additional demands which the course of business may create, than to set on foot new subscriptions, which may hazard a diminution of the profits, and even a temporary reduction of the price of stock.
Banks are among the best expedients for lowering the rate of interest in a country; but, to have this effect, their capitals must be completely equal to all the demands of business, and such as will tend to remove the idea that the accommodations they afford are in any degree favors—an idea very apt to accompany the parsimonious dispensation of contracted funds. In this, as in every other case, the plenty of the commodity ought to beget a moderation of price.
The want of a principle of rotation in the constitution of the Bank of North America is another argument for a variation of the establishment. Scarcely one of the reasons which militate against this principle in the constitution of a country, is applicable to that of a bank; while there are strong reasons in favor of it, in relation to the one, which do not apply to the other. The knowledge to be derived from experience is the only circumstance common to both, which pleads against rotation in the directing officers of a bank.
But the objects of the government of a nation, and those of the government of a bank, are so widely different, as greatly to weaken the force of that consideration in reference to the latter. Almost every important case in legislation requires, toward a right decision, a general and accurate acquaintance with the affairs of the State, and habits of thinking seldom acquired but from a familiarity with public concerns. The administration of a bank, on the contrary, is regulated by a few simple fixed maxims, the application of which is not difficult to any man of judgment, especially if instructed in the principles of trade. It is, in general, a constant succession of the same details.
But, though this be the case, the idea of the advantages of experience is not to be slighted. Room ought to be left for the regular transmission of official information; and for this purpose, the head of the direction ought to be excepted from the principle of rotation. With this exception, and with the aid of the information of the subordinate officers, there can be no danger of any ill effects from want of experience or knowledge; especially as the periodical exclusion ought not to reach the whole of the directors at one time.
The argument in favor of the principle of rotation is this: that by lessening the danger of combinations among the directors, to make the institution sub-servient to party views, or to the accommodation, preferably, of any particular set of men, it will render the public confidence more firm, stable, and unqualified.
When it is considered that the directors of a bank are not elected by the great body of the community, in which a diversity of views will naturally prevail at different conjunctures, but by a small and select class of men, among whom it is far more easy to cultivate a steady adherence to the same persons and objects, and that those directors have it in their power so immediately to conciliate, by obliging the most influential of this class, it is easy to perceive that, without the principle of rotation, changes in that body can rarely happen, but as a concession which they may themselves think it expedient to make to public opinion.
The continual administration of an institution of this kind, by the same persons, will never fail, with or without cause, from their conduct, to excite distrust and discontent. The necessary secrecy of their transactions gives unlimited scope to imagination to infer that something is or may be wrong. And this inevitable mystery is a solid reason for inserting in the constitution of a bank the necessity of a change of men. As neither the mass of the parties interested, nor the public in general, can be permitted to be witnesses of the interior management of the directors, it is reasonable that both should have that check upon their conduct, and that security against the prevalency of a partial or pernicious system, which will be produced by the certainty of periodical changes. Such, too, is the delicacy of the credit of a bank, that every thing which can fortify confidence and repel suspicion, without injuring its operations, ought carefully to be sought after in its formation.
A further consideration in favor of a change is the improper rule by which the right of voting for directors is regulated in the plan upon which the Bank of North America was originally constituted—namely, a vote for each share; and the want of a rule in the last charter,—unless the silence of it, on that point, may signify that every stockholder is to have an equal and a single vote, which would be a rule in a different extreme, not less erroneous. It is of importance that a rule should be established on this head, as it is one of those things which ought not to be left to discretion; and it is, consequently, of equal importance that the rule should be a proper one.
A vote for each share renders a combination between a few principal stockholders, to monopolize the power and benefits of the bank, too easy. An equal vote to each stockholder, however great or small his interest in the institution, allows not that degree of weight to large stockholders which it is reasonable they should have, and which, perhaps, their security and that of the bank require. A prudent mean is to be preferred. A conviction of this has produced a by-law of the corporation of the Bank of North America, which evidently aims at such a mean. But a reflection arises here, that a like majority with that which enacted this law may, at any moment, repeal it.
The last inducement which shall be mentioned is the want of precautions to guard against a foreign influence insinuating itself into the direction of the bank. It seems scarcely reconcilable with due caution to permit that any but citizens should be eligible as directors of a national bank, or that non-resident foreigners should be able to influence the appointment of directors by the votes of their proxies. In the event, however, of an incorporation of the Bank of North America in the plan, it may be necessary to qualify this principle, so as to leave the right of foreigners, who now hold shares of its stock, unimpaired; but without the power of transmitting the privilege in question to foreign alliances.
It is to be considered that such a bank is not a mere matter of private property, but a political machine of the greatest importance to the State.
There are other variations from the constitution of the Bank of North America not of inconsiderable moment, which appear desirable, but which are not of magnitude enough to claim a preliminary discussion. These will be seen in the plan which will be submitted in the sequel.
If the objections which have been stated to the constitution of the Bank of North America are admitted to be well-founded, they will, nevertheless, not derogate from the merit of the main design, or of the services which that bank has rendered, or of the benefits which it has produced. The creation of such an institution, at the time it took place, was a measure dictated by wisdom. Its utility has been amply evinced by its fruits; American independence owes much to it. And it is very conceivable that reasons of the moment may have rendered those features in it inexpedient, which a revision, with a permanent view, suggests as desirable.
The order of the subject leads next to an inquiry into the principles upon which a national bank ought to be organized.
The situation of the United States naturally inspires a wish that the form of the institution could admit of a plurality of branches. But various considerations discourage from pursuing this idea. The complexity of such a plan would be apt to inspire doubts, which might deter from adventuring in it. And the practicability of a safe and orderly administration, though not to be abandoned as desperate, cannot be made so manifest in perspective as to promise the removal of those doubts, or to justify the government in adopting the idea as an original experiment. The most that would seem advisable, on this point, is to insert a provision which may lead to it hereafter, if experience shall more clearly demonstrate its utility, and satisfy those who may have the direction, that it may be adopted with safety. It is certain that it would have some advantages, both peculiar and important. Besides more general accommodation, it would lessen the danger of a run upon the bank.
The argument against it is, that each branch must be under a distinct, though subordinate direction, to which a considerable latitude of discretion must, of necessity, be intrusted. And, as the property of the whole institution would be liable for the engagements of each part, that and its credit would be at stake, upon the prudence of the directors of every part. The mismanagement of either branch might hazard serious disorder in the whole.
Another wish, dictated by the particular situation of the country, is, that the bank could be so constituted as to be made an immediate instrument of loans to the proprietors of land; but this wish also yields to the difficulty of accomplishing it. Land is, alone, an unfit fund for a bank circulation. If the notes issued upon it were not to be payable in coin, on demand, or at a short date, this would amount to nothing more than a repetition of the paper emissions, which are now exploded by the general voice. If the notes are to be payable in coin, the land must first be converted into it by sale, or mortgage. The difficulty of effecting the latter, is the very thing which begets the desire of finding another resource; and the former would not be practicable on a sudden emergency, but with sacrifices which would make the cure worse than the disease. Neither is the idea of constituting the fund partly of coin and partly of land, free from impediments. These two species of property do not, for the most part, unite in the same hands. Will the moneyed man consent to enter into a partnership with the landholder, by which the latter will share in the profits which will be made by the money of the former? The money, it is evident, will be the agent or efficient cause of the profits—the land can only be regarded as an additional security. It is not difficult to foresee, that a union, on such terms, will not readily be formed. If the landholders are to procure the money by sale or mortgage of a part of their lands, this they can as well do when the stock consists wholly of money, as if it were to be compounded of money and land.
To procure for the landholders the assistance of loans, is the great desideratum. Supposing other difficulties surmounted, and a fund created, composed partly of coin and partly of land, yet the benefit contemplated could only then be obtained by the bank’s advancing them its notes for the whole, or part, of the value of the lands they had subscribed to the stock. If this advance was small, the relief aimed at would not be given; if it was large, the quantity of notes issued would be a cause of distrust; and, if received at all, they would be likely to return speedily upon the bank for payment; which, after exhausting its coin, might be under a necessity of turning its lands into money, at any price that could be obtained for them, to the irreparable prejudice of the proprietors.
Considerations of public advantage suggest a further wish, which is—that the bank could be established upon principles that would cause the profits of it to redound to the immediate benefit of the State. This is contemplated by many who speak of a national bank, but the idea seems liable to insuperable objections. To attach full confidence to an institution of this nature, it appears to be an essential ingredient in its structure, that it shall be under a private not a public direction—under the guidance of individual interest, not of public policy; which would be supposed to be, and, in certain emergencies, under a feeble or too sanguine administration, would really be, liable to being too much influenced by public necessity. The suspicion of this would, most probably, be a canker that would continually corrode the vitals of the credit of the bank, and would be most likely to prove fatal in those situations in which the public good would require that they should be most sound and vigorous. It would, indeed, be little less than a miracle, should the credit of the bank be at the disposal of the government, if, in a long series of time, there was not experienced a calamitous abuse of it. It is true, that it would be the real interest of the government not to abuse it; its genuine policy to husband and cherish it with the most guarded circumspection, as an inestimable treasure. But what government ever uniformly consulted its true interests in opposition to the temptations of momentary exigencies? What nation was ever blessed with a constant succession of upright and wise administrators?
The keen, steady, and, as it were, magnetic sense of their own interest as proprietors, in the directors of a bank, pointing invariably to its true pole—the prosperity of the institution,—is the only security that can always be relied upon for a careful and prudent administration. It is, therefore, the only basis on which an enlightened, unqualified, and permanent confidence can be expected to be erected and maintained.
The precedents of the banks established in several cities of Europe, Amsterdam, Hamburgh, and others, may seem to militate against this position. Without a precise knowledge of all the peculiarities of their respective constitutions, it is difficult to pronounce how far this may be the case. That of Amsterdam, however, which we best know, is rather under a municipal than a governmental direction. Particular magistrates of the city, not officers of the republic, have the management of it. It is also a bank of deposit, not of loan, or circulation; consequently, less liable to abuse, as well as less useful. Its general business consists in receiving money for safe-keeping, which, if not called for within a certain time, becomes a part of its stock, and irreclaimable. But a credit is given for it on the books of the bank, which, being transferable, answers all the purposes of money.
The directors being magistrates of the city, and the stockholders in general its most influential citizens, it is evident that the principle of private interest must be prevalent in the management of the bank. And it is equally evident that, from the nature of its operations, that principle is less essential to it than to an institution constituted with a view to the accommodation of the public and individuals, by direct loans and a paper circulation.
As far as may concern the aid of the bank, within the proper limits, a good government has nothing more to wish for than it will always possess, though the management be in the hands of private individuals. As the institution, if rightly constituted, must depend for its renovation, from time to time, on the pleasure of the government, it will not be likely to feel a disposition to render itself, by its conduct, unworthy of public patronage. The government, too, in the administration of its finances, has it in its power to reciprocate benefits to the bank, of not less importance than those which the bank affords to the government, and which, besides, are never unattended with an immediate and adequate compensation. Independent of these more particular considerations, the natural weight and influence of a government will always go far towards procuring a compliance with its desires; and, as the directors will usually be composed of some of the most discreet, respectable, and well-informed citizens, it can hardly ever be difficult to make them sensible of the force of the inducements which ought to stimulate their exertions.
It will not follow, from what has been said, that the state may not be a holder of a part of the stock of a bank, and consequently a sharer in the profits of it. It will only follow that it ought not to desire any participation in the direction of it, and, therefore, ought not to own the whole or a principal part of the stock; for, if the mass of the property should belong to the public, and if the direction of it should be in private hands, this would be to commit the interests of the state to persons not interested, or not enough interested, in their proper management.
There is one thing, however, which the government owes to itself and the community—at least, to all that part of it who are not stockholders—which is, to reserve to itself a right of ascertaining, as often as may be necessary, the state of the bank; excluding, however, all pretension to control. This right forms an article in the primitive constitution of the Bank of North America; and its propriety stands upon the clearest reasons. If the paper of a bank is to be permitted to insinuate itself into all the revenues and receipts of a country, if it is even to be tolerated as the substitute for gold and silver in all the transactions of business, it becomes, in either view, a national concern of the first magnitude. As such, the ordinary rules of prudence require that the government should possess the means of ascertaining, whenever it thinks fit, that so delicate a trust is executed with fidelity and care. A right of this nature is not only desirable, as it respects the government, but it ought to be equally so to all those concerned in the institution, as an additional title to public and private confidence, and as a thing which can only be formidable to practices that imply mismanagement. The presumption must always be, that the characters who would be intrusted with the exercise of this right, on behalf of the government, will not be deficient in the discretion which it may require; at least, the admitting this presumption cannot be deemed too great a return of confidence for that very large portion of it which the government is required to place in the bank.
Abandoning, therefore, ideas which, however agreeable or desirable, are neither practicable nor safe, the following plan, for the constitution of a national bank, is respectfully submitted to the consideration of the House.
1. The capital stook of the bank shall not exceed ten millions of dollars, divided into twenty-five thousand shares, each share being four hundred dollars; to raise which sum, subscriptions shall be opened on the first Monday of April next, and shall continue open until the whole shall be subscribed. Bodies politic as well as individuals may subscribe.
2. The amount of each share shall be payable, one fourth in gold and silver coin, and three fourths in that part of the public debt which, according to the loan proposed by the act making provision for the debt of the United States, shall bear an accruing interest, at the time of payment, of six per centum per annum.
3. The respective sums subscribed shall be payable in four equal parts, as well specie as debt, in succession, and at the distance of six calendar months from each other; the first payment to be made at the time of subscription. If there shall be a failure in any subsequent payment, the party failing shall lose the benefit of any dividend which may have accrued prior to the time for making such payment, and during the delay of the same.
4. The subscribers to the bank, and their successors, shall be incorporated, and shall so continue until the final redemption of that part of its stock which shall consist of the public debt.
5. The capacity of the corporation to hold real and personal estate shall be limited to fifteen millions of dollars, including the amount of its capital, or original stock. The lands and tenements which it shall be permitted to hold shall be only such as shall be requisite for the immediate accommodation of the institution, and such as shall have been bonafide mortgaged to it by way of security, or conveyed to it in satisfaction of debts previously contracted in the usual course of its dealings, or purchased at sales upon judgements which shall have been obtained for such debts.
6. The totality of the debts of the company, whether by bond, bill, or other contract (credits for deposits excepted), shall never exceed the amount of its capital stock. In case of excess, the directors, under whose administration it shall happen, shall be liable for it in their private or separate capacities. Those who may have dissented may excuse themselves from this responsibility, by immediately giving notice of the fact, and their dissent, to the President of the United States, and to the stockholders, at a general meeting, to be called by the president of the bank, at their request.
7. The company may sell or devise its lands and tenements, or may sell the whole or any part of the public debt, whereof its stock shall consist; but shall trade in nothing except bills of exchange, gold and silver bullion, or in the sale of goods pledged for money lent; nor shall take more than at the rate of six per centum per annum, upon its loans or discounts.
8. No loan shall be made by the bank for the use, or on account, of the Government of the United States, or of either of them, to an amount exceeding fifty thousand dollars, or of any foreign prince or state, unless previously authorized by a law of the United States.
9. The stock of the bank shall be transferable, according to such rules as shall be instituted by the company in that behalf.
10. The affairs of the bank shall be under the management of twenty-five directors, one of whom shall be the president; and there shall be, on the first Monday of January, in each year, a choice of directors, by a plurality of suffrages of the stockholders, to serve for a year. The directors, at their first meeting after each election, shall choose one of their number as president.
11. The number of votes to which each stockholder shall be entitled shall be according to the number of shares he shall hold, in the proportions following—that is to say: For one share, and not more than two shares, one vote; for every two shares above two, and not exceeding ten, one vote; for every four shares above ten, and not exceeding thirty, one vote; for every six shares above thirty, and not exceeding sixty, one vote; for every eight shares above sixty, and not exceeding one hundred, one vote; and for every ten shares above one hundred, one vote; but no person, copartnership, or body politic shall be entitled to a greater number than thirty votes. And, after the first election, no share or shares shall confer a right of suffrage, which shall not have been holden three calendar months previous to the day of election. Stockholders actually resident within the United States, and none other, may vote in the elections by proxy.
12. Not more than three fourths of the directors in office, exclusive of the president, shall be eligible for the next succeeding year. But the director who shall be president at the time of an election, may always be re-elected.
13. None but a stockholder, being a citizen of the United States, shall be eligible as a director.
14. Any number of stockholders not less than sixty, who together shall be proprietors of two hundred shares, or upward, shall have power, at any time, to call a general meeting of the stockholders for purposes relative to the institution; giving at least six weeks’ notice, in two public gazettes of the place where the bank is kept, and specifying in such notice the object of the meeting.
15. In case of the death, resignation, absence from the United States, or removal of a director by the stockholders, his place may be filled by a new choice for the remainder of the year.
16. No director shall be entitled to any emolument, unless the same shall have been allowed by the stockholders at a general meeting. The stockholders shall make such compensation to the president, for his extraordinary attendance at the bank, as shall appear to them reasonable.
17. Not less than seven directors shall constitute a board for the transaction of business.
18. Every cashier or treasurer, before he enters on the duties of his office, shall be required to give bond, with two or more sureties, to the satisfaction of the directors, in a sum not less than twenty thousand dollars, with condition for his good behavior.
19. Half-yearly dividends shall be made of so much of the profits of the bank as shall appear to the directors advisable. And, once in every three years, the directors shall lay before the stockholders, at a general meeting, for their information, an exact and particular statement of the debts which shall have remained unpaid, after the expiration of the original credit, for a period of treble the term of that credit, and of the surplus of profit, if any, after deducting losses and dividends.
20. The bills and notes of the bank, originally made payable, or which shall have become payable, on demand, in gold and silver coin, shall be receivable in all payments to the United States.
21. The officer at the head of the Treasury Department of the United States shall be furnished, from time to time, as often as he may require, not exceeding once a week, with statements of the amount of the capital stock of the bank, and of the debts due to the same, of the moneys deposited therein, of the notes in circulation, and of the cash in hand; and shall have a right to inspect such general accounts in the books of the bank as shall relate to the said statements; provided that this shall not be construed to imply a right of inspecting the account of any private individual or individuals with the bank.
22. No similar institution shall be established by any future act of the United States, during the continuance of the one hereby proposed to be established.
23. It shall be lawful for the directors of the bank to establish offices wheresoever they shall think fit, within the United States, for the purposes of discount and deposit only, and upon the same terms, and in the same manner, as shall be practised at the bank, and to commit the management of the said offices, and the making of the said discounts, either to agents specially appointed by them, or to such persons as may be chosen by the stockholders residing at the place where any such office shall be, under such agreements, and subject to such regulations, as they shall deem proper, not being contrary to law, or to the constitution of the bank.
24. And lastly, the President of the United States shall be authorized to cause a subscription to be made to the stock of the said company, on behalf of the United States, to an amount not exceeding two millions of dollars, to be paid out of the moneys which shall be borrowed by virtue of either of the acts, the one entitled “An act making provision for the debt of the United States,” and the other entitled “An act making provision for the reduction of the public debt”; borrowing of the bank an equal sum, to be applied to the purposes for which the said moneys shall have been procured, reimbursable in ten years, by equal annual instalments, or at any time sooner, or in any greater proportions, that the Government may think fit.
The reasons for the several provisions contained in the foregoing plan have been so far anticipated, and will, for the most part, be so readily suggested by the nature of those provisions, that any comments which need further to be made will be both few and concise.
The combination of a portion of the public debt, in the formation of the capital, is the principal thing of which an explanation is requisite. The chief object of this is to enable the creation of a capital sufficiently large to be the basis of an extensive circulation, and an adequate security for it. As has been elsewhere remarked, the original plan of the Bank of North America contemplated a capital of ten millions of dollars, which is certainly not too broad a foundation for the extensive operations to which a national bank is destined. But to collect such a sum in this country, in gold and silver, into one depository, may, without hesitation, be pronounced impracticable. Hence the necessity of an auxiliary, which the public debt at once presents.
This part of the fund will always be ready to come in aid of the specie; it will more and more command a ready sale; and can, therefore, expeditiously be turned into coin, if an exigency of the bank should at any time require it. This quality of prompt convertibility into coin renders it an equivalent for that necessary agent of bank circulation, and distinguishes it from a fund in land, of which the sale would generally be far less compendious, and at great disadvantage. The quarter-yearly receipts of interest will also be an actual addition to the specie fund, during the intervals between them and the half-yearly dividends of profits. The objection to combining land with specie, resulting from their not being generally in possession of the same persons, does not apply to the debt, which will always be found in considerable quantity among the moneyed and trading people.
The debt composing part of the capital, besides its collateral effect in enabling the bank to extend its operations, and consequently to enlarge its profits, will produce a direct annual revenue of six per centum for the government, which will enter into the half-yearly dividends received by the stockholders.
When the present price of the public debt is considered, and the effect which its conversion into bank stock, incorporated with a specie fund, would, in all probability, have to accelerate its rise to the proper point, it will easily be discovered, that the operation presents, in its outset, a very considerable advantage to those who may become subscribers; and from the influence which that rise would have on the general mass of the debt, a proportional benefit to all the public creditors, and, in a sense which has been more than once adverted to, to the community at large.
There is an important fact, which exemplifies the fitness of the public debt for a bank fund, and which may serve to remove doubts in some minds on this point: it is this, that the Bank of England, in its first erection, rested wholly on that foundation. The subscribers to a loan to government of one million two hundred thousand pounds sterling were incorporated as a bank, of which the debt, created by the loan and the interest upon it, were the sole fund. The subsequent augmentations of its capital, which now amounts to between eleven and twelve millions of pounds sterling, have been of the same nature.
The confining of the right of the bank to contract debts to the amount of its capital is an important precaution, which is not to be found in the constitution of the Bank of North America, and which, while the fund consists wholly of coin, would be a restriction attended with inconveniences, but would be free from any, if the composition of it should be such as is now proposed. The restriction exists in the establishment of the Bank of England, and, as a source of security, is worthy of imitation. The consequence of exceeding the limit, there, is, that each stockholder is liable for the excess, in proportion to his interest in the bank. When it is considered that the directors owe their appointments to the choice of the stockholders, a responsibility of this kind, on the part of the latter, does not appear unreasonable; but, on the other hand, it may be deemed a hardship upon those who may have dissented from the choice. And there are many among us, whom it might perhaps discourage from becoming concerned in the institution. These reasons have induced the placing of the responsibility upon the directors by whom the limit prescribed should be transgressed.
The interdiction of loans on account of the United States, or of any particular State, beyond the moderate sum specified, or of any foreign Power, will serve as a barrier to Executive encroachments, and to combinations inauspicious to the safety, or contrary to the policy, of the Union.
The limitation of the rate of interest is dictated by the consideration, that different rates prevail in different parts of the Union; and as the operations of the bank may extend through the whole, some rule seems to be necessary. There is room for a question, whether the limitation ought not rather to be to five than to six per cent., as proposed. It may, with safety, be taken for granted, that the former rate would yield an ample dividend, perhaps as much as the latter, by the extension which it would give to business. The natural effect of low interest is to increase trade and industry; because undertakings of every kind can be prosecuted with greater advantage. This is a truth generally admitted; but it is requisite to have analyzed the subject in all its relations, to be able to form a just conception of the extent of that effect. Such an analysis cannot but satisfy an intelligent mind, that the difference of one per cent. in the rate at which money may be had, is often capable of making an essential change for the better in the situation of any country or place.
Every thing, therefore, which tends to lower the rate of interest, is peculiarly worthy of the cares of legislators. And though laws, which violently sink the legal rate of interest greatly below the market level, are not to be commended, because they are not calculated to answer their aim, yet, whatever has a tendency to effect a reduction, without violence to the natural course of things, ought to be attended to and pursued. Banks are among the means most proper to accomplish this end; and the moderation of the rate at which their discounts are made is a material ingredient towards it; with which their own interest, viewed on an enlarged and permanent scale, does not appear to clash.
But, as the most obvious ideas are apt to have greater force than those which depend on complex and remote combinations, there would be danger that the persons whose funds must constitute the stock of the bank would be diffident of the sufficiency of the profits to be expected, if the rate of loans and discounts were to be placed below the points to which they have been accustomed, and might, on this account, be indisposed to embarking in the plan. There is, it is true, one reflection, which, in regard to men, actively engaged in trade, ought to be a security against this danger; it is this: That the accommodations which they might derive in the way of their business, at a low rate, would more than indemnify them for any difference in the dividend, supposing even that some diminution of it were to be the consequence. But, upon the whole, the hazard of contrary reasoning among the mass of moneyed men is a powerful argument against the experiment. The institutions of the kind already existing add to the difficulty of making it. Mature reflection and a large capital may, of themselves, lead to the desired end.
The last thing which requires any explanatory remark is, the authority proposed to be given to the President, to subscribe the amount of two millions of dollars on account of the public. The main design of this is, to enlarge the specie fund of the bank, and to enable it to give a more early extension to its operations. Though it is proposed to borrow with one hand what is lent with the other, yet the disbursement of what is borrowed will be progressive, and bank-notes may be thrown into circulation, instead of the gold and silver. Besides, there is to be an annual reimbursement of a part of the sum borrowed, which will finally operate as an actual investment of so much specie. In addition to the inducements to this measure, which result from the general interest of the government to enlarge the sphere of the utility of the bank, there is this more particular consideration, to wit: That, as far as the dividend on the stock shall exceed the interest paid on the loan, there is a positive profit.
The Secretary begs leave to conclude with this general observation: That, if the Bank of North America shall come forward with any propositions which have for their objects, the engrafting upon that institution, the characteristics which shall appear to the Legislature necessary to the due extent and safety of a national bank, there are, in his judgment, weighty inducements to giving every reasonable facility to the measure. Not only the pretensions of that institution, from its original relation to the Government of the United States, and from the services it has rendered, are such as to claim a disposition favorable to it, if those who are interested in it are willing, on their part, to place it on a footing satisfactory to the government, and equal to the purposes of a bank of the United States, but its co-operation would materially accelerate the accomplishment of the great object, and the collision, which might otherwise arise, might, in a variety of ways, prove equally disagreeable and injurious. The incorporation or union here contemplated may be effected in different modes, under the auspices of an act of the United States, if it shall be desired by the Bank of North America, upon terms which shall appear expedient to the government.
All which is humbly submitted.
Secretary of the Treasury.
washington to hamilton
February 16, 1791.
An act to incorporate the subscribers to the Bank of the United States is now before me for consideration.
The constitutionality of it is objected to. It therefore becomes more particularly my duty to examine the ground on which the objection is built. As a means of investigation, I have called upon the Attorney-General of the United States, in whose line it seemed more particularly to be, for his official examination and opinion. His report is, that the Constitution does not warrant the act. I then applied to the Secretary of State for his sentiments on this subject. These coincide with the Attorney-General’s; and the reasons for their opinions having been submitted in writing, I now require, in like manner, yours on the validity and propriety of the above-recited act; and, that you may know the points on which the Secretary of State and the Attorney-General dispute the constitutionality of the act, and that I may be fully possessed of the arguments for and against the measure, before I express any opinion of my own, I give you an opportunity of examining and answering the objections contained in the enclosed papers. I require the return of them when your own sentiments are handed to me (which I wish may be as soon as is convenient); and further, that no copies of them be taken, as it is for my own satisfaction they have been called for.
hamilton to washington
The Secretary of the Treasury presents his respects to the President of the United States, to request his indulgence for not having yet furnished his reasons on a certain point. He has been ever since sedulously engaged in it, but finds it will be impossible to complete it before Tuesday evening or Wednesday morning early. He is anxious to give the point a thorough examination.
hamilton to washington
The Secretary of the Treasury presents his respects to the President, and sends him the opinion required, which occupied him the greatest part of last night.
The bill for extending the time of opening subscriptions passed yesterday unanimously to an order for engrossing.
Opinion as to the Constitutionality of the Bank of the United States
February 23, 1791.
The Secretary of the Treasury having perused with attention the papers containing the opinions of the Secretary of State and the Attorney-General, concerning the constitutionality of the bill for establishing a national bank, proceeds, according to the order of the President, to submit the reasons which have induced him to entertain a different opinion.
It will naturally have been anticipated, that in performing this task he would feel uncommon solicitude. Personal considerations alone, arising from the reflection that the measure originated with him, would be sufficient to produce it. The sense which he has manifested of the great importance of such an institution to the successful administration of the department under his particular care, and an expectation of serious ill consequences to result from a failure of the measure, do not permit him to be without anxiety on public accounts. But the chief solicitude arises from a firm persuasion, that principles of construction like those espoused by the Secretary of State and the Attorney-General would be fatal to the just and indispensable authority of the United States.
In entering upon the argument, it ought to be premised that the objections of the Secretary of State and the Attorney-General are founded on a general denial of the authority of the United States to erect corporations. The latter, indeed, expressly admits, that if there be anything in the bill which is not warranted by the Constitution, it is the clause of incorporation.
Now it appears to the Secretary of the Treasury that this general principle is inherent in the very definition of government, and essential to every step of the progress to be made by that of the United States, namely: That every power vested in a government is in its nature sovereign, and includes, by force of the term, a right to employ all the means requisite and fairly applicable to the attainment of the ends of such power, and which are not precluded by restrictions and exceptions specified in the Constitution, or not immoral, or not contrary to the essential ends of political society.
This principle, in its application to government in general, would be admitted as an axiom; and it will be incumbent upon those who may incline to deny it, to prove a distinction, and to show that a rule which, in the general system of things, is essential to the preservation of the social order, is inapplicable to the United States.
The circumstance that the powers of sovereignty are in this country divided between the National and State governments, does not afford the distinction required. It does not follow from this, that each of the portion of powers delegated to the one or to the other, is not sovereign with regard to its proper objects. It will only follow from it, that each has sovereign power as to certain things, and not as to other things. To deny that the Government of the United States has sovereign power, as to its declared purposes and trusts, because its power does not extend to all cases, would be equally to deny that the State governments have sovereign power in any case, because their power does not extend to every case. The tenth section of the first article of the Constitution exhibits a long list of very important things which they may not do. And thus the United States would furnish the singular spectacle of a political society without sovereignty, or of a people governed, without government.
If it would be necessary to bring proof to a proposition so clear, as that which affirms that the powers of the Federal Government, as to its objects, were sovereign, there is a clause of its Constitution which would be decisive. It is that which declares that the Constitution, and the laws of the United States made in pursuance of it, and all treaties made, or which shall be made, under their authority, shall be the supreme law of the land. The power which can create the supreme law of the land in any case, is doubtless sovereign as to such case.
This general and indisputable principle puts at once an end to the abstract question, whether the United States have power to erect a corporation; that is to say, to give a legal or artificial capacity to one or more persons, distinct from the natural. For it is unquestionably incident to sovereign power to erect corporations, and consequently to that of the United States, in relation to the objects intrusted to the management of the government. The difference is this: where the authority of the government is general, it can create corporations in all cases; where it is confined to certain branches of legislation, it can create corporations only in those cases.
Here, then, as far as concerns the reasonings of the Secretary of State and the Attorney-General, the affirmative of the constitutionality of the bill might be permitted to rest. It will occur to the President, that the principle here advanced has been untouched by either of them.
For a more complete elucidation of the point, nevertheless, the arguments which they had used against the power of the government to erect corporations, however foreign they are to the great and fundamental rule which has been stated, shall be particularly examined. And after showing that they do not tend to impair its force, it shall also be shown that the power of incorporation, incident to the government in certain cases, does fairly extend to the particular case which is the object of the bill.
The first of these arguments is, that the foundation of the Constitution is laid on this ground: “That all powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States, or to the people.” Whence it is meant to be inferred, that Congress can in no case exercise any power not included in those enumerated in the Constitution. And it is affirmed, that the power of erecting a corporation is not included in any of the enumerated powers.
The main proposition here laid down, in its true signification, is not to be questioned. It is nothing more than a consequence of this republican maxim, that all government is a delegation of power. But how much is delegated in each case is a question of fact, to be made out by fair reasoning and construction, upon the particular provisions of the Constitution, taking as guides the general principles and general ends of governments.
It is not denied that there are implied, as well as express powers, and that the former are as effectually delegated as the latter. And for the sake of accuracy it shall be mentioned that there is another class of powers, which may be properly denominated resulting powers. It will not be doubted that if the United States should make a conquest of any of the territories of its neighbors, they would possess sovereign jurisdiction over the conquered territory. This would be rather a result from the whole mass of the powers of the government, and from the nature of political society, than a consequence of either of the powers specially enumerated.
But be this as it may, it furnishes a striking illustration of the general doctrine contended for; it shows an extensive case, in which a power of erecting corporations is either implied in, or would result from, some or all of the powers vested in the National Government. The jurisdiction acquired over such conquered country would certainly be competent to any species of legislation.
To return:—It is conceded that implied powers are to be considered as delegated equally with express ones. Then it follows, that as a power of erecting a corporation may as well be implied as any other thing, it may as well be employed as an instrument or means of carrying into execution any of the specified powers, as any other instrument or means whatever. The only question must be in this, as in every other case, whether the means to be employed, or, in this instance, the corporation to be erected, has a natural relation to any of the acknowledged objects or lawful ends of the government. Thus a corporation may not be erected by Congress for superintending the police of the city of Philadelphia, because they are not authorized to regulate the police of that city. But one may be erected in relation to the collection of taxes, or to the trade with foreign countries, or to the trade between the States, or with the Indian tribes; because it is the province of the Federal Government to regulate those objects, and because it is incident to a general sovereign or legislative power to regulate a thing, to employ all the means which relate to its regulation to the best and greatest advantage.
A strange fallacy seems to have crept into the manner of thinking and reasoning upon this subject. Imagination appears to have been unusually busy concerning it. An incorporation seems to have been regarded as some great independent substantive thing; as a political end of peculiar magnitude and moment; whereas it is truly to be considered as a quality, capacity, or means to an end. Thus a mercantile company is formed, with a certain capital, for the purpose of carrying on a particular branch of business. Here the business to be prosecuted is the end. The association in order to form the requisite capital, is the primary mean. Suppose that an incorporation were added to this, it would only be to add a new quality to that association, to give it an artificial capacity, by which it would be enabled to prosecute the business with more safety and convenience.
That the importance of the power of incorporation has been exaggerated, leading to erroneous conclusions, will further appear from tracing it to its origin. The Roman law is the source of it, according to which a voluntary association of individuals, at any time, or for any purpose, was capable of producing it. In England, whence our notions of it are immediately borrowed, it forms part of the executive authority, and the exercise of it has been often delegated by that authority. Whence, therefore, the ground of the supposition that it lies beyond the reach of all those very important portions of sovereign power, legislative as well as executive, which belong to the Government of the United States?
Through this mode of reasoning respecting the right of employing all the means requisite to the execution of the specified powers of the government, it is to be objected, that none but necessary and proper means are to be employed; and the Secretary of State maintains, that no means are to be considered necessary but those without which the grant of the power would be nugatory. Nay, so far does he go in his restrictive interpretation of the word, as even to make the case of necessity which shall warrant the constitutional exercise of the power to depend on casual and temporary circumstances; an idea which alone refutes the construction. The expediency of exercising a particular power, at a particular time, must, indeed, depend on circumstances; but the constitutional right of exercising it must be uniform and invariable, the same to-day as to-morrow.
All the arguments, therefore, against the constitutionality of the bill derived from the accidental existence of certain State banks—institutions which happen to exist to-day, and, for aught that concerns the government of the United States, may disappear to-morrow—must not only be rejected as fallacious, but must be viewed as demonstrative that there is a radical source of error in the reasoning.
It is essential to the being of the national government, that so erroneous a conception of the meaning of the word necessary should be exploded.
It is certain, that neither the grammatical nor popular sense of the term requires that construction. According to both, necessary often means no more than needful, requisite, incidental, useful, or conduciveto. It is a common mode of expression to say, that it is necessary for a government or a person to do this or that thing, when nothing more is intended or understood, than that the interests of the government or person require, or will be promoted by, the doing of this or that thing. The imagination can be at no loss for exemplifications of the use of the word in this sense. And it is the true one in which it is to be understood as used in the Constitution. The whole turn of the clause containing it indicates, that it was the intent of the Convention, by that clause, to give a liberal latitude to the exercise of the specified powers. The expressions have peculiar comprehensiveness. They are, “to make all laws necessary and proper for carrying into execution the foregoing powers, and all other powers vested by the Constitution in the Government of the United States, or in any department or officer thereof.”
To understand the word as the Secretary of State does, would be to depart from its obvious and popular sense, and to give it a restrictive operation, an idea never before entertained. It would be to give it the same force as if the word absolutely or indispensably had been prefixed to it.
Such a construction would beget endless uncertainty and embarrassment. The cases must be palpable and extreme, in which it could be pronounced, with certainty, that a measure was absolutely necessary, or one, without which the exercise of a given power would be nugatory. There are few measures of any government which would stand so severe a test. To insist upon it, would be to make the criterion of the exercise of any implied power, a case of extreme necessity; which is rather a rule to justify the overleaping of the bounds of constitutional authority, than to govern the ordinary exercise of it.
It may be truly said of every government, as well as of that of the United States, that it has only a right to pass such laws as are necessary and proper to accomplish the objects intrusted to it. For no government has a right to do merely what it pleases. Hence, by a process of reasoning similar to that of the Secretary of State, it might be proved that neither of the State governments has the right to incorporate a bank. It might be shown that all the public business of the State could be performed without a bank, and inferring thence that it was unnecessary, it might be argued that it could not be done, because it is against the rule which has been just mentioned. A like mode of reasoning would prove that there was no power to incorporate the inhabitants of a town, with a view to a more perfect police. For it is certain that an incorporation may be dispensed with, though it is better to have one. It is to be remembered that there is no express power in any State constitution to erect corporations.
The degree in which a measure is necessary can never be a test of the legal right to adopt it; that must be a matter of opinion, and can only be a test of expediency. The relation between the measure and the end; between the nature of the means employed towards the execution of a power, and the object of that power, must be the criterion of constitutionality, not the more or less of necessity or utility.
The practice of the government is against the rule of construction advocated by the Secretary of State. Of this, the act concerning light-houses, beacons, buoys, and public piers is a decisive example. This, doubtless, must be referred to the powers of regulating trade, and is fairly relative to it. But it cannot be affirmed that the exercise of that power in this instance was strictly necessary, or that the power itself would be nugatory, without that of regulating establishments of this nature.
This restrictive interpretation of the word necessary is also contrary to this sound maxim of construction; namely, that the powers contained in a constitution of government, especially those which concern the general administration of the affairs of a country, its finances, trade, defence, etc., ought to be construed liberally in advancement of the public good. This rule does not depend on the particular form of a government, or on the particular demarcation of the boundaries of its powers, but on the nature and objects of government itself. The means by which national exigencies are to be provided for, national inconveniences obviated, national prosperity promoted, are of such infinite variety, extent, and complexity, that there must of necessity be great latitude of discretion in the selection and application of those means. Hence, consequently, the necessity and propriety of exercising the authorities intrusted to a government on principles of liberal construction.
The Attorney-General admits the rule, but makes a distinction between a State and the Federal Constitution. The latter, he thinks, ought to be construed with greater strictness, because there is more danger of error in defining partial than general powers. But the reason of the rule forbids such a distinction. This reason is, the variety and extent of public exigencies, a far greater proportion of which, and of a far more critical kind, are objects of National than of State administration. The greater danger of error, as far as it is supposable, may be a prudential reason for caution in practice, but it cannot be a rule of restrictive interpretation.
In regard to the clause of the Constitution immediately under consideration, it is admitted by the Attorney-General, that no restrictive effect can be ascribed to it. He defines the word necessary thus: “To be necessary is to be incidental, and may be denominated the natural means of executing a power.”
But while on the one hand the construction of the Secretary of State is deemed inadmissible, it will not be contended, on the other, that the clause in question gives any new or independent power. But it gives an explicit sanction to the doctrine of implied powers, and is equivalent to an admission of the proposition that the government, as to its specified powers and objects, has plenary and sovereign authority, in some cases paramount to the States; in others, co-ordinate with it. For such is the plain import of the declaration, that it may pass all laws necessary and proper to carry into execution those powers.
It is no valid objection to the doctrine to say, that it is calculated to extend the power of the General Government throughout the entire sphere of State legislation. The same thing has been said, and may be said, with regard to every exercise of power by implication or construction.
The moment the literal meaning is departed from, there is a chance of error and abuse. And yet an adherence to the letter of its powers would at once arrest the motions of government. It is not only agreed, on all hands, that the exercise of constructive powers is indispensable, but every act which has been passed is more or less an exemplification of it. One has been already mentioned—that relating to light-houses, etc.; that which declares the power of the President to remove officers at pleasure, acknowledges the same truth in another and a signal instance.
The truth is, that difficulties on this point are inherent in the nature of the Federal Constitution; they result inevitably from a division of the legislative power. The consequence of this division is, that there will be cases clearly within the power of the National Government; others, clearly without its powers; and a third class, which will leave room for controversy and difference of opinion, and concerning which a reasonable latitude of judgment must be allowed.
But the doctrine which is contended for is not chargeable with the consequences imputed to it. It does not affirm that the National Government is sovereign in all respects, but that it is sovereign to a certain extent—that is, to the extent of the objects of its specified powers.
It leaves, therefore, a criterion of what is constitutional, and of what is not so. This criterion is the end, to which the measure relates as a means. If the end be clearly comprehended within any of the specified powers, and if the measure have an obvious relation to that end, and is not forbidden by any particular provision of the Constitution, it may safely be deemed to come within the compass of the national authority. There is also this further criterion, which may materially assist the decision: Does the proposed measure abridge a pre-existing right of any State or of any individual? If it does not, there is a strong presumption in favor of its constitutionality, and slighter relations to any declared object of the Constitution may be permitted to turn the scale.
The general objections, which are to be inferred from the reasonings of the Secretary of State and the Attorney-General, to the doctrines which have been advanced, have been stated, and it is hoped satisfactorily answered. Those of a more particular nature shall now be examined.
The Secretary of State introduces his opinion with an observation, that the proposed incorporation undertakes to create certain capacities, properties, or attributes, which are against the laws of alienage, descents, escheat, and forfeiture, distribution and monopoly, and to confer a power to make laws paramount to those of the States. And nothing, says he, in another place, but necessity, invincible by other means, can justify such a prostration of laws, which constitute the pillars of our whole system of jurisprudence, and are the foundation laws of the State governments. If these are truly the foundation laws of the several States, then have most of them subverted their own foundations. For there is scarcely one of them which has not, since the establishment of its particular constitution, made material alterations in some of those branches of its jurisprudence, especially the law of descents. But it is not conceived how any thing can be called the fundamental law of a State government, which is not established in its constitution, unalterable by the ordinary Legislature. And with regard to the question of necessity, it has been shown that this can only constitute a question of expediency, not of right.
To erect a corporation, is to substitute a legal or artificial to a natural person, and where a number are concerned, to give them individuality. To that legal or artificial person, once created, the common law of every State, of itself, annexes all those incidents and attributes which are represented as a prostration of the main pillars of their jurisprudence.
It is certainly not accurate to say that the erection of a corporation is against those different heads of the State laws; because it is rather to create a kind of person or entity, to which they are inapplicable, and to which the general rule of those laws assign a different regimen. The laws of alienage cannot apply to an artificial person, because it can have no country; those of descent cannot apply to it, because it can have no heirs; those of escheat are foreign from it, for the same reason; those of forfeiture, because it cannot commit a crime; those of distribution, because, though it may be dissolved, it cannot die.
As truly might it be said, that the exercise of the power of prescribing the rule by which foreigners shall be naturalized is against the law of alienage, while it is, in fact, only to put them in a situation to cease to be the subject of that law. To do a thing which is against a law, is to do something which it forbids, or which is a violation of it.
But if it were even to be admitted that the erection of a corporation is a direct alteration of the stated laws, in the enumerated particulars, it would do nothing toward proving that the measure was unconstitutional. If the Government of the United States can do no act which amounts to an alteration of a State law, all its powers are nugatory; for almost every new law is an alteration, in some way or another, of an old law, either common or statute.
There are laws concerning bankruptcy in some States. Some States have laws regulating the values of foreign coins. Congress are empowered to establish uniform laws concerning bankruptcy throughout the United States, and to regulate the values of foreign coins. The exercise of either of these powers by Congress necessarily involves an alteration of the laws of those States.
Again. Every person, by the common law of each State, may export his property to foreign countries, at pleasure. But Congress in pursuance of the power of regulating trade, may prohibit the exportation of commodities; in doing which, they would alter the common law of each State, in abridgment of individual right.
It can therefore never be good reasoning to say this or that act is unconstitutional, because it alters this or that law of a State. It must be shown that the act which makes the alteration is unconstitutional on other accounts; not because it makes the alteration.
There are two points in the suggestions of the Secretary of State, which have been noted, that are peculiarly incorrect. One is, that the proposed incorporation is against the laws of monopoly, because it stipulates an exclusive right of banking under the national authority; the other, that it gives power to the institution to make laws paramount to those of the States.
But, with regard to the first point: The bill neither prohibits any State from erecting as many banks as they please, nor any number of individuals from associating to carry on the business, and consequently is free from the charge of establishing a monopoly; for monopoly implies a legal impediment to the carrying on of the trade by others than those to whom it is granted.
And with regard to the second point, there is still less foundation. The by-laws of such an institution as a bank can operate only on its own members, can only concern the disposition of its own property, and must essentially resemble the rules of a private mercantile partnership. They are expressly not to be contrary to law; and law must here mean the law of a State, as well as of the United States. There never can be a doubt, that a law of a corporation, if contrary to a law of a State, must be overruled as void, unless the law of the State is contrary to that of the United States, and then the question will not be between the law of the State and that of the corporation, but between the law of the State and that of the United States.
Another argument made use of by the Secretary of State is, the rejection of a proposition by the Convention to empower Congress to make corporations, either generally, or for some special purpose.
What was the precise nature or extent of this proposition, or what the reasons for refusing it, is not ascertained by any authentic document, or even by accurate recollection. As far as any such document exists, it specifies only canals. If this was the amount of it, it would, at most, only prove that it was thought inexpedient to give a power to incorporate for the purpose of opening canals, for which purpose a special power would have been necessary, except with regard to the western territory, there being nothing in any part of the Constitution respecting the regulation of canals. It must be confessed, however, that very different accounts are given of the import of the proposition, and of the motives for rejecting it. Some affirm that it was confined to the opening of canals and obstructions in rivers; others, that it embraced banks; and others, that it extended to the power of incorporating generally. Some, again, allege that it was disagreed to because it was thought improper to vest in Congress a power of erecting corporations. Others, because it was thought unnecessary to specify the power, and inexpedient to furnish an additional topic of objection to the Constitution. In this state of the matter, no inference whatever can be drawn from it.
But whatever may have been the nature of the proposition, or the reasons for rejecting it, it includes nothing in respect to the real merits of the question. The Secretary of State will not deny that, whatever may have been the intention of the framers of a constitution or of a law, that intention is to be sought for in the instrument itself, according to the usual and established rules of construction. Nothing is more common than for laws to express and effect more or less than was intended. If, then, a power to erect a corporation in any case be deducible, by fair inference, from the whole or any part of the numerous provisions of the Constitution of the United States, arguments drawn from extrinsic circumstances, regarding the intention of the Convention, must be rejected.
Most of the arguments of the Secretary of State, which have not been considered in the foregoing remarks, are of a nature rather to apply to the expediency than to the constitutionality of the bill. They will, however, be noticed in the discussions which will be necessary in reference to the particular heads of the powers of the government which are involved in the question.
Those of the Attorney-General will now properly come under view.
His first objection is, that the power of incorporation is not expressly given to Congress. This shall be conceded, but in this sense only, that it is not declared in express terms that Congress may erect a corporation. But this cannot mean, that there are not certain express powers which necessarily include it. For instance, Congress have express power to exercise exclusive legislation, in all cases whatsoever, over such district (not exceeding ten miles square) as may, by cession of particular States and the acceptance of Congress, become the seat of the Government of the United States; and to exercise like authority over all places purchased, by consent of the Legislature of the State in which the same shall be, for the erection of forts, arsenals, dockyards, and other needful buildings. Here, then, is express power to exercise exclusive legislation, in all cases whatsoever, over certain places—that is, to do, in respect to those places, all that any government whatsoever may do. For language does not afford a more complete designation of sovereign power than in those comprehensive terms. It is, in other words, a power to pass all laws whatsoever, and, consequently, to pass laws for erecting corporations, as well as for any other purpose which is the proper object of law in a free government.
Surely it can never be believed that Congress, with exclusive powers of legislation in all cases whatsoever, cannot erect a corporation within the district which shall become the seat of government, for the better regulation of its police. And yet there is an unqualified denial of the power to erect corporations in every case, on the part both of the Secretary of State and of the Attorney-General; the former, indeed, speaks of that power in these emphatical terms: That it is a right remaining exclusively with the States.
As far, then, as there is an express power to do any particular act of legislation, there is an express one to erect a corporation in the case above described. But, accurately speaking, no particular power is more than that implied in a general one. Thus the power to lay a duty on a gallon of rum is only a particular implied in the general power to lay and collect taxes, duties, imposts, and excises. This serves to explain in what sense it may be said that Congress have not an express power to make corporations.
This may not be an improper place to take notice of an argument which was used in debate in the House of Representatives. It was there argued, that if the Constitution intended to confer so important a power as that of erecting corporations, it would have been expressly mentioned. But the case which has been noticed is clearly one in which such a power exists, and yet without any specification or express grant of it, further than as every particular implied in a general power can be said to be so granted.
But the argument itself is founded upon an exaggerated and erroneous conception of the nature of the power. It has been shown that it is not of so transcendent a kind as the reasoning supposes, and that, viewed in a just light, it is a means, which ought to have been left to implication, rather than an end, which ought to have been expressly granted.
Having observed that the power of erecting corporations is not expressly granted to Congress, the Attorney-General proceeds thus:
If it can be exercised by them, it must be—
- 1.Because the nature of the Federal Government implies it.
- 2.Because it is involved in some of the specified powers of legislation.
- 3.Because it is necessary and proper to carry into execution some of the specified powers.
To be implied in the nature of the Federal Government, says he, would beget a doctrine so indefinite as to grasp at every power.
This proposition, it ought to be remarked, is not precisely, or even substantially, that which has been relied upon. The proposition relied upon is, that the specified powers of Congress are in their nature sovereign; that it is incident to sovereign power to erect corporations, and that therefore Congress have a right, within the sphere and in relation to the objects of their power, to erect corporations. It shall, however, be supposed that the Attorney-General would consider the two propositions in the same light, and that the objection made to the one would be made to the other.
To this objection an answer has been already given. It is this: that the doctrine is stated with this express qualification, that the right to erect corporations does only extend to cases and objects within the sphere of the specified powers of the government. A general legislative authority implies a power to erect corporations in all cases. A particular legislative power implies authority to erect corporations in relation to cases arising under that power only. Hence the affirming that, as incident to sovereign power, Congress may erect a corporation in relation to the collection of their taxes, is no more than to affirm that they may do whatever else they please; than the saying that they have a power to regulate trade, would be to affirm that they have a power to regulate religion; or than the maintaining that they have sovereign power as to taxation, would be to maintain that they have sovereign power as to every thing else.
The Attorney-General undertakes in the next place to show, that the power of erecting corporations is not involved in any of the specified powers of legislation confided to the National Government. In order to do this, he has attempted an enumeration of the particulars, which he supposes to be comprehended under the several heads of the powers to lay and collect taxes, etc.; to borrow money on the credit of the United States; to regulate commerce with sovereign nations, between the States, and with the Indian tribes; to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States. The design of which enumeration is to show what is included under those different heads of power, and negatively, that the power of erecting corporations is not included.
The truth of this inference or conclusion must depend on the accuracy of the enumeration. If it can be shown that the enumeration is defective, the influence is destroyed. To do this will be attended with no difficulty.
The heads of the power to lay and collect taxes are stated to be:
1. To stipulate the sum to be lent.
2. An interest or no interest to be paid.
3. The time and manner of repaying, unless the loan be placed on an irredeemable fund.
This enumeration is liable to a variety of objections. It omits, in the first place, the pledging or mortgaging of a fund for the security of the money lent, a usual and in most cases an essential ingredient.
The idea of a stipulation of an interest or on interest is too confined. It should rather have been said, to stipulate the consideration of the loan. Individuals often borrow on considerations other than the payment of interest; so may governments, and so they often find it necessary to do. Every one recollects the lottery tickets and other douceurs often given in Great Britain as collateral inducements to the lending of money to the government. There are also frequently collateral conditions, which the enumeration does not contemplate. Every contract which has been made for moneys borrowed in Holland, induces stipulations that the sum due shall be free from taxes, and from sequestration in time of war, and mortgages all the land and property of the United States for the reimbursements.
It is also known that a lottery is a common expedient for borrowing money, which certainly does not fall under either of the enumerated heads.
The heads of the power to regulate commerce with foreign nations are stated to be:
1. To prohibit them or their commodities from our ports.
2. To impose duties on them, where none existed before, or to increase existing duties on them.
3. To subject them to any species of customhouse regulation.
4. To grant them any exemptions or privileges which policy may suggest.
This enumeration is far more exceptionable than either of the former. It omits every thing that relates to the citizens’ vessels, or commodities of the United States.
The following palpable omissions occur at once:
1. Of the power to prohibit the exportation of commodities, which not only exists at all times, but which in time of war it would be necessary to exercise, particularly with relation to naval and warlike stores.
2. Of the power to prescribe rules concerning the characteristics and privileges of an American bottom; how she shall be navigated, or whether by citizens or foreigners, or by a proportion of each.
3. Of the power of regulating the manner of contracting with seamen the police of ships on their voyages, etc., of which the act for the government and regulation of seamen, in the merchants’ service, is a specimen.
That the three preceding articles are omissions will not be doubted; there is a long list of items in addition, which admit of little if any question, of which a few samples shall be given.
1. The granting of bounties to certain kinds of vessels, and certain species of merchandise; of this nature is the allowance on dried and pickled fish and salted provisions.
2. The prescribing of rules concerning the inspection of commodities to be exported. Though the States individually are competent to this regulation, yet there is no reason, in point of authority at least, why a general system might not be adopted by the United States.
3. The regulation of policies of insurance, of salvage upon goods found at sea, and the disposition of such goods.
4. The regulation of pilots.
5. The regulation of bills of exchange drawn by a merchant of one State upon a merchant of another State. This last rather belongs to the regulation of trade between the States, but is equally omitted in the specification under that head.
The last enumeration relates to the power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the United States.
The heads of this power are said to be:
1. To exert an ownership over the territory of the United States, which may be properly called the property of the United States, as in the western territory, and to institute a government therein, or
2. To exert an ownership over the other property of the United States.
The idea of exerting an ownership over the territory or other property of the United States is particularly indefinite and vague. It does not at all satisfy the conception of what must have been intended by a power to make all needful rules and regulations, nor would there have been any use for a special clause, which authorized nothing more. For the right of exerting an ownership is implied in the very definition of property. It is admitted, that in regard to the western territory something more is intended; even the institution of a government—that is, the creation of a body politic, or corporation of the highest nature; one which, in its maturity, will be able itself to create other corporations. Why, then, does not the same clause authorize the erection of a corporation in respect to the regulation or disposal of any other of the property of the United States?
This idea will be enlarged upon in another place.
Hence it appears, that the enumerations which have been attempted by the Attorney-General, are so imperfect as to authorize no conclusion whatever; they therefore have no tendency to disprove that each and every of the powers to which they relate includes that of erecting corporations, which they certainly do, as the subsequent illustrations will more and more evince.
It is presumed to have been satisfactorily shown in the course of the preceding observations:
1. That the power of the government, as to the objects intrusted to its management, is, in its nature, sovereign.
2. That the right of erecting corporations is one inherent in, and inseparable from, the idea of sovereign power.
3. That the position, that the government of the United States can exercise no power but such as is delegated to it by its Constitution, does not militate against this principle.
4. That the word necessary, in the general clause, can have no restrictive operation derogating from the force of this principle; indeed, that the degree in which a measure is or is not necessary, cannot be a test of constitutional right, but of expediency only.
5. That the power to erect corporations is not to be considered as an independent or substantive power, but as an incidental and auxiliary one, and was therefore more properly left to implication, than expressly granted.
6. That the principle in question does not extend the power of the government beyond the prescribed limits, because it only affirms a power to incorporate for purposes within the sphere of the specified powers.
And lastly, that the right to exercise such a power in certain cases is unequivocally granted in the most positive and comprehensive terms. To all which it only remains to be added, that such a power has actually been exercised in two very eminent instances: namely, in the erection of two governments; one northwest of the river Ohio, and the other southwest—the last independent of any antecedent compact. And these result in a full and complete demonstration, that the Secretary of State and the Attorney-General are mistaken when they deny generally the power of the National Government to erect corporations.
It shall now be endeavored to be shown that there is a power to erect one of the kind proposed by the bill. This will be done by tracing a natural and obvious relation between the institution of a bank and the objects of several of the enumerated powers of the government; and by showing that, politically speaking, it is necessary to the effectual execution of one or more of those powers.
In the course of this investigation, various instances will be stated, by way of illustration of a right to erect corporations under those powers.
Some preliminary observations may be proper.
The proposed bank is to consist of an association of persons, for the purpose of creating a joint capital, to be employed chiefly and essentially in loans. So far the object is not only lawful, but it is the mere exercise of a right which the law allows to every individual. The Bank of New York, which is not incorporated, is an example of such an association. The bill proposes, in addition, that the government shall become a joint proprietor in this undertaking, and that it shall permit the bills of the company, payable on demand, to be receivable in its revenues; and stipulates that it shall not grant privileges, similar to those which are to be allowed to this company, to any others. All this is incontrovertibly within the compass of the discretion of the government. The only question is, whether it has a right to incorporate this company, in order to enable it the more effectually to accomplish ends which are in themselves lawful.
To establish such a right, it remains to show the relation of such an institution to one or more of the specified powers of the government. Accordingly it is affirmed that it has a relation, more or less direct, to the power of collecting taxes, to that of borrowing money, to that of regulating trade between the States, and to those of raising and maintaining fleets and armies. To the two former the relation may be said to be immediate; and in the last place it will be argued, that it is clearly within the provision which authorizes the making of all needful rules and regulations concerning the property of the United States, as the same has been practised upon by the government.
A bank relates to the collection of taxes in two ways—indirectly, by increasing the quantity of circulating medium and quickening circulation, which facilitates the means of paying directly, by creating a convenient species of medium in which they are to be paid.
To designate or appoint the money or thing in which taxes are to be paid, is not only a proper but a necessary exercise of the power of collecting them. Accordingly Congress, in the law concerning the collection of the duties on imposts and tonnage, have provided that they shall be paid in gold and silver. But while it was an indispensable part of the work to say in what they should be paid, the choice of the specific thing was mere matter of discretion. The payment might have been required in the commodities themselves. Taxes in kind, however ill-judged, are not without precedents, even in the United States; or it might have been in the paper money of the several States, or in the bills of the banks of North America, New York, and Massachusetts, all or either of them; or it might have been in bills issued under the authority of the United States.
No part of this can, it is presumed, be disputed. The appointment, then, of the money or thing in which the taxes are to be paid, is an incident to the power of collection. And among the expedients which may be adopted, is that of bills issued under the authority of the United States.
Now the manner of issuing these bills is again matter of discretion. The government might doubtless proceed in the following manner:
It might provide that they should be issued under the direction of certain officers, payable on demand; and, in order to support their credit, and give them a ready circulation, it might, besides giving them a currency in its taxes, set apart, out of any moneys in its treasury, a given sum, and appropriate it, under the direction of those officers, as a fund for answering the bills, as presented for payment.
The constitutionality of all this would not admit of a question, and yet it would amount to the institution of a bank, with a view to the more convenient collection of taxes. For the simplest and most precise idea of a bank is, a deposit of coin, or other property, as a fund for circulating a credit upon it, which is to answer the purpose of money. That such an arrangement would be equivalent to the establishment of a bank, would become obvious, if the place where the fund to be set apart was kept should be made a receptacle of the moneys of all other persons who should incline to deposit them there for safe-keeping; and would become still more so, if the officers charged with the direction of the fund were authorized to make discounts at the usual rate of interest, upon good security. To deny the power of the government to add these ingredients to the plan, would be to refine away all government.
A further process will still more clearly illustrate the point. Suppose, when the species of bank which has been described was about to be instituted, it was to be urged that, in order to secure to it a due degree of confidence, the fund ought not only to be set apart and appropriated generally, but ought to be specifically vested in the officers who were to have the direction of it, and in their successors in office, to the end that it might acquire the character of private property incapable of being resumed without a violation of the sanctions by which the rights of property are protected, and occasioning more serious and general alarm—the apprehension of which might operate as a check upon the government. Such a proposition might be opposed by arguments against the expediency of it, or the solidity of the reason assigned for it, but it is not conceivable what could be urged against its constitutionality; and yet such a disposition of the thing would amount to the erection of a corporation; for the true definition of a corporation seems to be this: It is a legal person, or a person created by act of law, consisting of one or more natural persons authorized to hold property, or a franchise in succession, in a legal, as contra-distinguished from natural, capacity.
Let the illustration proceed a step further. Suppose a bank of the nature which has been described, with or without incorporation, had been instituted, and that experience had evinced, as it probably would, that, being wholly under a public direction, it possessed not the confidence requisite to the credit of the bills. Suppose, also, that, by some of those adverse conjunctures which occasionally attend nations, there had been a very great drain of the specie of the country, so as not only to cause general distress for want of an adequate medium of circulation, but to produce, in consequence of that circumstance, considerable defalcations in the public revenues. Suppose, also, that there was no bank instituted in any State; in such a posture of things, would it not be most manifest, that the incorporation of a bank like that proposed by the bill would be a measure immediately relative to the effectual collection of the taxes, and completely within the province of the sovereign power of providing, by all laws necessary and proper, for that collection? If it be said, that such a state of things would render that necessary, and therefore constitutional, which is not so now, the answer to this, and a solid one it doubtless is, must still be that which has been already stated—circumstances may affect the expediency of the measure, but they can neither add to nor diminish its constitutionality.
A bank has a direct relation to the power of borrowing money, because it is a usual, and in sudden emergencies an essential, instrument in the obtaining of loans to government.
A nation is threatened with war; large sums are wanted on a sudden to make the necessary preparations. Taxes are laid for the purpose, but it requires time to obtain the benefit of them. Anticipation is indispensable. If there be a bank the supply can at once be had. If there be none, loans from individuals must be sought. The progress of these is often too slow for the exigency; in some situations they are not practicable at all. Frequently, when they are, it is of great consequence to be able to anticipate the product of them by advance from a bank.
The essentiality of such an institution as an instrument of loans, is exemplified at this very moment. An Indian expedition is to be prosecuted. The only fund out of which the money can arise, consistently with the public engagements, is a tax, which only begins to be collected in July next. The preparations, however, are instantly to be made. The money must, therefore, be borrowed—and of whom could it be borrowed if there were no public banks?
It happens that there are institutions of this kind, but if there were none, it would be indispensable to create one.
Let it then be supposed that the necessity existed (as but for a casualty would be the case), that proposals were made for obtaining a loan; that a number of individuals came forward and said, we are willing to accommodate the government with the money; with what we have in hand, and the credit we can raise upon it, we doubt not of being able to furnish the sum required, but in order to do this it is indispensable that we should be incorporated as a bank. This is essential towards putting it in our power to do what is desired, and we are obliged on that account to make it the consideration or condition of the loan.
Can it be believed that a compliance with this proposition would be unconstitutional? Does not this alone evince the contrary? It is a necessary part of a power to borrow, to be able to stipulate the consideration or conditions of a loan. It is evident, as has been remarked elsewhere, that this is not confined to the mere stipulation of a franchise. If it may, and it is not perceived why it may not, then the grant of a corporate capacity may be stipulated as a consideration of the loan. There seems to be nothing unfit or foreign from the nature of the thing in giving individuality, or a corporate capacity, to a number of persons, who are willing to lend a sum of money to the government, the better to enable them to do it, and make them an ordinary instrument of loans in future emergencies of the state. But the more general view of the subject is still more satisfactory. The legislative power of borrowing money, and of making all laws necessary and proper for carrying into execution that power, seems obviously competent to the appointment of the organ, through which the abilities and wills of individuals may be most efficaciously exerted for the accommodation of the government by loans.
The Attorney-General opposes to this reasoning the following observation: “Borrowing money presupposes the accumulation of a fund to be lent, and is second to the creation of an ability to lend.” This is plausible in theory, but is not true in fact. In a great number of cases, a previous accumulation of a fund equal to the whole sum required does not exist. And nothing more can be actually presupposed, than that there exist resources, which, put into activity to the greatest advantage by the nature of the operation with the government, will be equal to the effect desired to be produced. All the provisions and operations of the government must be presumed to contemplate as they really are.
The institution of a bank has also a natural relation to the regulation of trade between the States, in so far as it is conducive to the creation of a convenient medium of exchange between them, and to the keeping up a full circulation, by preventing the frequent displacement of the metals in reciprocal remittances. Money is the very hinge on which commerce turns. And this does not merely mean gold and silver; many other things have served the purpose, with different degrees of utility. Paper has been extensively employed.
It cannot, therefore, be admitted, with the Attorney-General, that the regulation of trade between the States, as it concerns the medium of circulation and exchange, ought to be considered as confined to coin. It is even supposable that the whole, or the greatest part, of the coin of the country might be carried out of it.
The Secretary of State objects to the relation here insisted upon, by the following mode of reasoning: To erect a bank, says he, and to regulate commerce, are very different acts. He who creates a bank, creates a subject of commerce; so does he who makes a bushel of wheat, or digs a dollar out of the mines; yet neither of these persons regulates commerce thereby. To make a thing which may be bought and sold, is not to prescribe regulations for buying and selling.
This making the regulation of commerce to consist in prescribing rules for buying and selling—this, indeed, is a species of regulation of trade, but is one which falls more aptly within the province of the local jurisdictions than within that of the general government, whose care must be presumed to have been intended to be directed to those general political arrangements concerning trade on which its aggregate interests depend, rather than to the details of buying and selling. Accordingly, such only are the regulations to be found in the laws of the United States, whose objects are to give encouragement to the enterprise of our own merchants, and to advance our navigation and manufactures. And it is in reference to these general relations of commerce that an establishment which furnishes facilities to circulation, and a convenient medium of exchange and alienation, is to be regarded as a regulation of trade.
The Secretary of State further argues that if this was a regulation of commerce, it would be void, as extending as much to the internal commerce of every State as to its external. But what regulation of commerce does not extend to the internal commerce of every State? What are all the duties upon imported articles, amounting to prohibitions, but so many bounties upon domestic manufactures, affecting the interests of different classes of citizens, in different ways? What are all the provisions in the Coasting Act which relate to the trade between district and district of the same State? In short, what regulation of trade between the States but must affect the internal trade of each State? What can operate upon the whole but must extend to every part?
The relation of a bank to the execution of the powers that concern the common defence has been anticipated. It has been noted that, at this very moment, the aid of such an institution is essential to the measures to be pursued for the protection of our frontiers.
It now remains to show that the incorporation of a bank is within the operation of the provision which authorizes Congress to make all needful rules and regulations concerning the property of the United States. But it is previously necessary to advert to a distinction which has been taken by the Attorney-General.
He admits that the word property may signify personal property, however acquired, and yet asserts that it cannot signify money arising from the sources of revenue pointed out in the Constitution, “because,” says he, “the disposal and regulation of money is the final cause for raising it by taxes.”
But it would be more accurate to say that the object to which money is intended to be applied is the final cause for raising it, than that the disposal and regulation of it is such.
The support of government—the support of troops for the common defence—the payment of the public debt, are the true final causes for raising money. The disposition and regulation of it, when raised, are the steps by which it is applied to the ends for which it was raised, not the ends themselves. Hence, therefore, the money to be raised by taxes, as well as any other personal property, must be supposed to come within the meaning, as they certainly do within the letter, of authority to make all needful rules and regulations concerning the property of the United States.
A case will make this plainer. Suppose the public debt discharged, and the funds now pledged for it liberated. In some instances it would be found expedient to repeal the taxes; in others, the repeal might injure our own industry, our agriculture and manufactures. In these cases they would, of course, be retained. Here, then, would be moneys arising from the authorized sources of revenue, which would not fall within the rule by which the Attorney-General endeavors to except them from other personal property, and from the operation of the clause in question. The moneys being in the coffers of government, what is to hinder such a disposition to be made of them as is contemplated in the bill; or what, an incorporation of the parties concerned, under the clause which has been cited?
It is admitted, that with regard to the western territory they give a power to erect a corporation— that is, to institute a government; and by what rule of construction can it be maintained, that the same words in a constitution of government will not have the same effect when applied to one species of property as to another, as far as the subject is capable of it?—or that a legislative power to make all needful rules and regulations, or to pass all laws necessary and proper, concerning the public property, which is admitted to authorize an incorporation in one case, will not authorize it in another?—will justify the institution of a government over the western territory, and will not justify the incorporation of a bank for the more useful management of the moneys of the United States? If it will do the last, as well as the first, then, under this provision alone, the bill is constitutional, because it contemplates that the United States shall be joint proprietors of the stock of the bank.
There is an observation of the Secretary of State to this effect, which may require notice in this place:—Congress, says he, are not to lay taxes ad libitum, for any purpose they please, but only to pay the debts or provide for the welfare of the Union. Certainly no inference can be drawn from this against the power of applying their money for the institution of a bank. It is true that they cannot without breach of trust lay taxes for any other purpose than the general welfare; but so neither can any other government. The welfare of the community is the only legitimate end for which money can be raised on the community. Congress can be considered as under only one restriction which does not apply to other governments—they cannot rightfully apply the money they raise to any purpose merely or purely local. But, with this exception, they have as large a discretion in relation to the application of money as any Legislature whatever. The constitutional test of a right application must always be, whether it be for a purpose of general or local nature. If the former, there can be no want of constitutional power. The quality of the object, as how far it will really promote or not the welfare of the Union, must be matter of conscientious discretion, and the arguments for or against a measure in this light must be arguments concerning expediency or inexpediency, not constitutional right. Whatever relates to the general order of the finances, to the general interests of trade, etc., being general objects, are constitutional ones for the application of money.
A bank, then, whose bills are to circulate in all the revenues of the country, is evidently a general object, and, for that very reason, a constitutional one, as far as regards the appropriation of money to it. Whether it will really be a beneficial one or not, is worthy of careful examination, but is no more a constitutional point, in the particular referred to, than the question, whether the western lands shall be sold for twenty or thirty cents per acre.
A hope is entertained that it has, by this time, been made to appear, to the satisfaction of the President, that a bank has a natural relation to the power of collecting taxes—to that of regulating trade—to that of providing for the common defence—and that, as the bill under consideration contemplates the government in the light of a joint proprietor of the stock of the bank, it brings the case within the provision of the clause of the Constitution which immediately respects the property of the United States.
Under a conviction that such a relation subsists, the Secretary of the Treasury, with all deference, conceives that it will result as a necessary consequence from the position, that all the specified powers of government are sovereign, as to the proper objects; that the incorporation of a bank is a constitutional measure; and that the objections taken to the bill, in this respect, are ill-founded.
But, from an earnest desire to give the utmost possible satisfaction to the mind of the President, on so delicate and important a subject, the Secretary of the Treasury will ask his indulgence, while he gives some additional illustrations of cases in which a power of erecting corporations may be exercised, under some of those heads of the specified powers of the government, which are alleged to include the right of incorporating a bank.
1. It does not appear susceptible of a doubt, that if Congress had thought proper to provide, in the collection laws, that the bonds to be given for the duties should be given to the collector of the district, A or B, as the case might require, to enure to him and his successors in office, in trust for the United States, that it would have been consistent with the Constitution to make such an arrangement; and yet this, it is conceived, would amount to an incorporation.
2. It is not an unusual expedient of taxation to farm particular branches of revenue—that is, to mortgage or sell the product of them for certain definite sums, leaving the collection to the parties to whom they are mortgaged or sold. There are even examples of this in the United States. Suppose that there was any particular branch of revenue which it was manifestly expedient to place on this footing, and there were a number of persons willing to engage with the government, upon condition that they should be incorporated, and the sums vested in them, as well for their greater safety, as for the more convenient recovery and management of the taxes. Is it supposable that there could be any constitutional obstacle to the measure? It is presumed that there could be none. It is certainly a mode of collection which it would be in the discretion of the government to adopt, though the circumstances must be very extraordinary that would induce the Secretary to think it expedient.
3. Suppose a new and unexplored branch of trade should present itself, with some foreign country. Suppose it was manifest, that to undertake it with advantage required a union of the capitals of a number of individuals, and that those individuals would not be disposed to embark without an incorporation, as well to obviate that consequence of a private partnership which makes every individual liable in his whole estate for the debts of the company, to their utmost extent, as for the more convenient management of the business—what reason can there be to doubt that the National Government would have a constitutional right to institute and incorporate such a company? None. They possess a general authority to regulate trade with foreign countries. This is a means, which has been practised to that end, by all the principal commercial nations, who have trading companies to this day, which have subsisted for centuries. Why may not the United States, constitutionally, employ the means, usual in other countries, for attaining the ends intrusted to them?
A power to make all needful rules and regulations concerning territory, has been construed to mean a power to erect a government. A power to regulate trade, is a power to make all needful rules and regulations concerning trade. Why may it not, then, include that of erecting a trading company, as well as, in other cases, to erect a government?
It is remarkable that the State conventions, who had proposed amendments in relation to this point, have most, if not all, of them expressed themselves nearly thus: Congress shall not grant monopolies, nor erect any company with exclusive advantages of commerce! Thus, at the same time, expressing their sense, that the power to erect trading companies or corporations was inherent in Congress, and objecting to it no further than as to the grant of exclusive privileges.
The Secretary entertains all the doubts which prevail concerning the utility of such companies, but he cannot fashion to his own mind a reason, to induce a doubt, that there is a constitutional authority in the United States to establish them. If such a reason were demanded, none could be given, unless it were this: That Congress cannot erect a corporation. Which would be no better than to say, they cannot do it, because they cannot do it—first presuming an inability, without reason, and then assigning that inability as the cause of itself. Illustrations of this kind might be multiplied without end. They shall, however, be pursued no further.
There is a sort of evidence on this point, arising from an aggregate view of the Constitution, which is of no inconsiderable weight: the very general power of laying and collecting taxes, and appropriating their proceeds—that of borrowing money indefinitely—that of coining money, and regulating foreign coins—that of making all needful rules and regulations respecting the property of the United States. These powers combined, as well as the reason and nature of the thing, speak strongly this language: that it is the manifest design and scope of the Constitution to vest in Congress all the powers requisite to the effectual administration of the finances of the United States. As far as concerns this object, there appears to be no parsimony of power.
To suppose, then, that the government is precluded from the employment of so usual and so important an instrument for the administration of its finances as that of a bank, is to suppose what does not coincide with the general tenor and complexion of the Constitution, and what is not agreeable to impressions that any new spectator would entertain concerning it.
Little less than a prohibitory clause can destroy the strong presumptions which result from the general aspect of the government. Nothing but demonstration should exclude the idea that the power exists.
In all questions of this nature, the practice of mankind ought to have great weight against the theories of individuals.
The fact, for instance, that all the principal commercial nations have made use of trading corporations or companies, for the purpose of external commerce, is a satisfactory proof that the establishment of them is an incident to the regulation of the commerce.
This other fact, that banks are a usual engine in the administration of national finances, and an ordinary and most effectual instrument of loan, and one which, in this country, has been found essential, pleads strongly against the supposition that a government, clothed with most of the most important prerogatives of sovereignty in relation to its revenues, its debts, its credits, its defence, its trade, its intercourse with foreign nations, is forbidden to make use of that instrument as an appendage to its own authority.
It has been stated as an auxiliary test of constitutional authority, to try whether it abridges any preexisting right of any State, or any individual. The proposed investigation will stand the most severe examination on this point. Each State may still erect as many banks as it pleases. Every individual may still carry on the banking business to any extent he pleases.
Another criterion may be this: whether the institution or thing has a more direct relation, as to its uses, to the objects of the reserved powers of the State governments than to those of the powers delegated by the United States. This rule, indeed, is less precise than the former; but it may still serve as some guide. Surely a bank has more reference to the objects intrusted to the National Government than to those left to the care of the State governments. The common defence is decisive in this comparison.
It is presumed that nothing of consequence in the observations of the Secretary of State and the Attorney-General has been left unnoticed.
There are, indeed, a variety of observations of the Secretary of State designed to show that the utilities ascribed to a bank, in relation to the collection of taxes, and to trade, could be obtained without it; to analyze which, would prolong the discussion beyond all bounds. It shall be forborne for two reasons. First, because the report concerning the bank may speak for itself in this respect; and secondly, because all those observations are grounded on the erroneous idea that the quantum of necessity or utility is the test of a constitutional exercise of power.
One or two remarks only shall be made. One is, that he has taken no notice of a very essential advantage to trade in general, which is mentioned in the report, as peculiar to the existence of a bank circulation, equal in the public estimation to gold and silver. It is this that renders it unnecessary to lock up the money of the country, to accumulate for months successively, in order to the periodical payment of interest. The other is this: that his arguments to show that treasury orders and bills of exchange, from the course of trade, will prevent any considerable displacement of the metals, are founded on a particular view of the subject. A case will prove this. The sums collected in a State may be small in comparison with the debt due to it; the balance of its trade, direct and circuitous with the seat of government, may be even, or nearly so; here, then, without bank-bills, which in that State answer the purpose of coin, there must be a displacement of the coin, in proportion to the difference between the sum collected in the State, and that to be paid in it. With bank-bills no such displacement would take place, or as far as it did, it would be gradual and insensible. In many other ways, also, would there be at least a temporary and inconvenient displacement of the coin, even where the course of trade would eventually return it to its proper channels.
The difference of the two situations in point of convenience to the treasury, can only be appreciated by one who experiences the embarrassments of making provision for the payment of the interest on a stock continually changing place in thirteen different places.
One thing which has been omitted just occurs, although it is not very material to the main argument. The Secretary of State affirms that the bill only contemplates a repayment, not a loan, to the government. But here he is certainly mistaken. It is true the government invests in the stock of the bank a sum equal to that which it receives loan. But let it be remembered, that it does not, therefore, cease to be a proprietor of the stock, which would be the case if the money received back were in the nature of a payment. It remains a proprietor still, and will share in the profit or loss of the institution, according as the dividend is more or less than the interest it is to pay on the sum borrowed. Hence that sum is manifestly, and in the strictest sense, a loan.
END OF VOL. III.