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• Miscellaneous Papers
• Cincinnati 1
• Speeches In the New York Assembly, 1787 1
• Speech On Acceding to the Independence of Vermont
• Eulogium On Major-general Greene Delivered Before the Society of the Cincinnati
• Presidential Etiquette: Hamilton to Washington
• Public Lands: Report of a Uniform System For the Disposition of the Lands, the Property of the United States
• Heads of Topics For President’s Speech of December 8, 1790 1
• Apportionment of Representatives
• Indian Affairs
• President’s Speech 1
• Indian Affairs Cabinet Opinion.
• Convening Congress: Hamilton to Washington 1
• Objects to Be Communicated In Speech and Messages
• President’s Speech 1
• President’s Message 1
• Proclamation For a National Thanksgiving 1
• Explanation 1
• Washington’s Speech to Congress 1
• Message For Washington to Congress, In Reply to a Call For Papers Relating to the Treaty With Great Britain 1
• Farewell Address 1
• Washington’s Farewell Address 1
• Part of Washington’s Speech to Congress 3
• Address to the Electors of the State of New York
• Examination of Jefferson’s Message to Congress of December 7, 1801 1
• Lansing Or Burr 1
• Law Briefs
• Carriage Tax 1
• The Law of Libel 1
• Speech In the Case of Harry Croswell 1
• Fragment On the French Revolution 1
• Defence of the Funding System 1

DEFENCE OF THE FUNDING SYSTEM1

The second feature of the plan as stated was to fund the entire debt, foreign and domestic, original and assumed.

The funding of the debt has been unexpectedly the theme of much declamation and invective. A confusion of ideas has been attempted to be produced among the ignorant. The funding with the assumption has been sometimes treated as the creation of the debt; at others the funding has been represented as its perpetuation, and as a direct attempt to fasten the bur-then irrevocably about the necks of the people. A particular ingredient in the plan proposed—the rendering the debt redeemable only in certain proportions—has been pressed to reinforce this argument and to prove the iniquitous tendency of the plan. The circumstance of qualified redeemability will be spoken of hereafter. Remarks here will be confined to the mere funding of the debt.

The Revolution, which gave us independence and secured us liberty, left upon the country as the price of it a considerable debt, partly contracted by the United States in their joint capacity, partly by the individual States in their separate capacities.

What was to be done with the debt? Was it to be wiped off with a sponge or was it to be provided for?

The first idea was the extreme of political profligacy and folly. Governments like individuals have burthens which ought to be deemed sacred, else they become mere engines of violence, oppression, extortion, and misery. Adieu to the security of property, adieu to the security of liberty! Nothing is then safe.

All our favorite notions of natural and constitutional right vanish. Every thing is brought to a question of power. Right is anathematized, excommunicated, and banished.

In the code of moral and political obligations, that of paying debts holds a prominent place. Tried by the test of utility, there is perhaps none of greater force or extent. Without it, no borrowing or lending, no selling or purchasing upon time; no credit, private or public; consequently a more cramped and less prosperous agriculture, fewer and more imperfect mechanic and other industrial arts; less and more embarrassed commerce; an immense contraction of national resource and strength. A most active power in the whole scheme of national happiness would be destroyed. A vast void would be created. Every thing would languish and wither.

No one will be hardy enough directly to dispute these positions or advocate the horrid doctrine of applying the sponge, but it was seen to lurk beneath some very insidious suggestions, often reiterated and urged with earnestness and exaggeration.

The debt had a great deal of alloy in it. A great part of it had been produced for no adequate value. To pay it, therefore, involved injustice and injury to the public.

The real state of the fact which is the basis of this suggestion shall be discussed in another place. Here it shall be taken for granted that it was well founded.

But what were the causes? The bad arrangement and delinquencies of government itself; the infidelity of its own agents; the enhancement of price from the demand and scarcity incident to a long and exhausting war; the embarrassments and risks to individuals from a depreciating currency; the eventual hazards inseparable from a state of revolution. These were the essential causes of the alloy, if any, in the debt.

Was any one or all of them a good plea to the government not to pay? Was it just that the whole debt should be cancelled because a fifteenth, or a tenth, or a fifth of it had been contracted without adequate consideration? Was it equitable that those persons who had yielded their personal services, lent their money, and parted with their property to the government, upon fair and reasonable compensation and values, should lose their rights because others may have extorted or imposed; because the disorders in the public arrangements had prevented proper liquidations of accounts and had let in unfounded claims; because the infidelity of the government’s own agents had produced dilapidations and had emitted evidences of debt without value or for little value? Was it reasonable to object to compensations and allowances predicated upon a state of war, revolution, disorder, and hazard, because they were not agreeable to a standard adjusted to a state of peace, established government credit, and safety? An individual may plead duress and compulsion as an objection to the performance of his engagements; but this is impossible to a government. Individuals cannot exercise over it that species of control which may be demonstrated as compulsion. It may oppress, but it cannot be oppressed. Circumstances which, according to the laws, enable individuals to demand high prices for their property are never arguments of compulsion to vitiate the contract.

Where would an objection of this kind lead? War, insurrection, every great disturbance of the social order is apt to augment price. Is there constantly on the return of peace and order to be a revision and reliquidation or a rejection of the contracts? How long would governments under such a system obtain any success but by exactions and violence in similar emergencies?

It is plain that such an objection ought to be discarded as a contemptible and pernicious subterfuge. It was in the view both of justice and policy indispensable to provide fairly for the debt. ’T is afflicting that there should be a state of public opinion or feeling, however limited, which should encourage a man to dare to expect to give currency to a contrary insinuation, or to throw any degree of unpopularity upon a fair provision for the debt.

Another weapon indirectly used against a provision for the debt was the fact of alienations of it at low values.

But how could this supersede the obligation of the government to pay or provide? The government had received the benefit of the services, loans, or supplies which were the consideration of its contracts. These contracts were in their constitution alienable and assignable. The proprietors had a full right to part with them at any value they pleased, or even to give them away. What was it to the government how they disposed of them? By what rule of reason, law, or right was the government dispensed, by alienations, provident or improvident, of the original proprietors, from paying its debts and performing its engagements?

It is evident that the only colorable question which could be raised was not whether the debt should be provided for, but for whose benefit the provision should accrue—that of the original proprietors or of their alienees—a question which will be examined in another place.

The obligation to provide for the debts of the benefit of those who were best entitled was indisputable. No argument can enforce it; no man who has the least regard for his reputation will hazard a denial of it.

But the anonymous publications have, by insinuations, attempted to raise doubts and prejudices. Not the mode merely of providing has been attacked, but by implication any provision whatever. The debt itself has been sometimes treated as a nuisance, as a morbid excrescence on the body politic, as the creature of a wicked combination to create a monied aristocracy and undermine the republican system. A debt created by that very revolution which gave us the republican system has been artfully presented in these odious colors to the dislikes of a spirit of jealousy and avarice, and those who were disposed to uphold the integrity and credit of the nation have been exhibited as conspirators against democratic principles. It is afflicting that there should be a state of public information, opinion, or feeling which should encourage any man to attempt to traffic for popularity by means so absurd and so base as these. If they could succeed we must renounce those pretensions to intelligence and light as a people which we claim hitherto on such just grounds; we must soon after renounce that republican system of which these men affect to be so fond.

The plainest maxims of common sense and common honesty establish that our government had no option but to make a fair provision for the debt. Justice, true policy, character, credit, interest, all spoke on this head a uniform and unequivocal language. Not to have listened to it would have been to have prostrated every thing respectable among nations. It would have been an act of suicide in the government at the very commencement of its existence. It would not have strangled the serpents which threatened, but it would have strangled itself.

The only possible question was about the nature of the provision. And to this point indeed were confined all the questions formally raised, though indirectly it has been endeavored to excite prejudices in the public mind against the debt itself, and consequently against all provision for it.

But among the questions raised as to the nature of the provision, I neither recollect nor can trace that among the legislative parties, while the subject was under discussion, there was any party against the principle of funding the debt as contradistinguished from other modes of providing.

Indeed, but three options occurred: to pay off the principal and interest at once, which was impossible; to provide annually for the interest and occasionally for reimbursing as much of the principal as the public resources permitted; to fund the debt, or, in other words, to pledge specified and adequate funds for the regular payment of interest till the principal was reimbursed, and, as an auxiliary measure, to constitute and pledge adequate funds for the reimbursement of the principal.

The last was conformable to the sense of America repeatedly and solemnly expressed. Different acts of Congress under the old Confederation embrace and enforce the propriety of this measure, and frequently with unanimity. The States separately had all sanctioned it. The objectors were a few solitary individuals, neither numerous nor significant enough by weight of talents or character to form a party.

In proposing, therefore, to fund the debt, I considered myself not only as pursuing the true principles of credit and the true policy of the case, but the uniform general sense of the Union.

I had heard no lisp from any description of men in the national legislature of an objection to this idea, and accordingly when the plan proposed was under discussion there appeared none in opposition to it.

The clamors therefore which have been subsequently raised on this head and patronized more or less directly by a whole party are not less strong indications of the disingenuousness of party spirit than of an immaturity of ideas on the subject of public credit.

The substance of the argument against the funding systems is that by facilitating credit they encourage to enterprises which produce expense; by furnishing in credit a substitute for revenue, they prevent the raising contemporarily with the causes of expense as much as might be raised to avoid the unpopularity of laying new taxes, and in both ways occasion a tendency to run in debt, consequently a progressive accumulation of debt and its perpetuation—at least till it is crushed beneath the load of its own enormous weight.

An analysis of this argument proves that it turns upon the abuses of a thing intrinsically good.

A prosperous state of agriculture, commerce, and manufactures nourishes and begets opulence, resource, and strength. These, by inspiring a consciousness of power, never fail to beget in the councils of nations, under whatever form of government, pride, ambition, and a sentiment of superiority. These dispositions lead directly to war, and consequently to expense and to all the calamities which march in the train of war. Shall we, therefore, reprobate and reject improvements in agriculture, commerce, and manufactures?

Again the same causes leading to opulence, increasing the means of enjoyment, naturally sharpen the appetite for it, and so promote luxury, extravagance, dissipation, effeminacy, disorders in the moral and political system, convulsions, revolutions, the overthrow of nations and empires. Shall we, therefore, on this account renounce improvements in agriculture, commerce and manufactures?

Again, science, learning, and knowledge promote those momentous discoveries and improvements which accelerate the progress of labor and industry, and with it the accumulation of that opulence which is the parent of so many pleasures and pains, so many blessings and calamities. Shall we, therefore, on this account explode science, learning, and knowledge?

Again, true liberty, by protecting the exertions of talents and industry, and securing to them their justly acquired fruits, tends more powerfully than any other cause to augment the mass of national wealth and to produce the mischiefs of opulence. Shall we, therefore, on this account proscribe liberty also?

What good, in fine, shall we retain? ’T is the portion of man, assigned to him by the eternal allotment of Providence that every good he enjoys shall be alloyed with ills, that every source of his bliss shall be a source of his affliction—except virtue alone, the only unmixed good which is permitted to his temporal condition.

But shall we on this account forego any advantage which we are fitted to enjoy? Shall we put in practice the horrid system of the detestable Robespierre? Shall we make war upon science and its professors? Shall we destroy the arts useful as well as pleasurable? Shall we make knowledge a crime, ignorance a gratification? Shall we lay in ruins our towns and deform the face of our fields? Shall we enchain the human mind and blunt all its energies under the withering influences of privation and the benumbing strokes of terror? Shall we substitute the unmingled misery of a gloomy and destructive despotism to the alternate sunshine and storms of liberty?

The very objection to funding systems makes their panegyric. “They facilitate credit”; they give energy, solidity, and extent to the credit of a nation; they enable it in great and dangerous emergencies to obtain readily and copiously the supplies of money of which it stands in need for its defence, safety, and the preservation or advancement of its interests. They enable it to do this, too, without crushing the people beneath the weight of intolerable taxes; without taking from industry the resources necessary for its vigorous prosecution; without emptying all the property of individuals into the public lap; without subverting the foundation of social order.

Indeed, war, in the modern system of it, offers but two options—credit or the devastation of private property. ’T is impossible merely with that portion of the income of the community which can be spared from the wants, conveniences, and industrious pursuits of individuals to face the expenses of a serious war during its progress.

There must be anticipation by credit, or there must be a violent usurpation of private property. The state must trench upon the capital instead of the revenue of the people, and thus every war would involve a temporary ruin.

’T is the signal merit of a vigorous system of national credit, that it enables a government to support war without violating property, destroying industry, or interfering unreasonably with individual enjoyments. The citizens retain their capital to carry on their several businesses and a due proportion of its produce for obtaining their usual comforts. Agriculture, commerce, and manufactures may receive some check, but they receive no serious wound; their stamina remain, and, on peace returning, they quickly resume their wonted elasticity.

War, by the use of credit, becomes less a scourge and loses a great portion of its sting.

Will it be said that equal credit may be established without funding systems? Then I answer the objection made to those systems will apply to that mode whatever it is by which this equal credit is obtained. ’T is credit which, giving extraordinary resources to government encourages to enterprises that produce expense, and which, furnishing a substitute for revenue, relaxes the efforts of taxation, and prevents the raising for the current expenditure as much as might be raised in this way. However that credit is acquired the same consequences follow—the same evils ensue.

Will it be said that without funding systems not an equal but a competent credit might be secured? I answer by asking what is this competent credit? Is it the power of obtaining by loans all that the state may want for extraordinary exigencies, more than it can conveniently and without oppression or disorder raise on the citizens? If any thing less it is plainly not enough, and if it is this it is as much as funding systems effect. The how much in each case to be obtained in loans beyond what can be conveniently raised in taxes depends on the pressure of the occasion and the opinion of the legislature of the day. And this opinion will be affected by the temper of the times—the degree of popular favor or disfavor towards the object of expense and the genius of the government. A credit is not good which does not extend the power of the government to borrow to the utmost limit of the power of individuals to lend.

Thus it appears that the great objection to funding systems resolves itself into an objection to credit in the abstract, and if listened to drives us to the alternative of a mean surrender of our rights and interests to every enterprising invader, or to the oppression of the citizens and destruction of capital and industry in every war in which we should be engaged, and in the end from the insupportableness of that situation to the same surrender of our rights and interests.

Indeed as far as it is the attribute of funding systems to invigorate credit, it is their tendency in an important particular to diminish debt. This relates to the lower or higher rate of interest at which money is borrowed according to the state of credit. A government which borrows 100 dollars at three per cent. owes in fact a less debt than a government which is obliged to borrow the same sum at five per cent. Interest is always a part of the debt, and it is self-evident that the ultimate discharge of one which bears five per cent. will exhaust more money or income than that of one which only bears three per cent. This principle runs through all the public operations in which credit is concerned, and the difference in the result of the public expenditures, and consequently its debts, from a perfect or an imperfect state of credit, is immense.

Every state ought to aim at rendering its credit—that is, its ability to borrow—commensurate with the utmost extent of the lending faculties of the community and of all others who can have access to its loans. ’T is then that it puts itself in a condition to exercise the greatest portion of strength of which it is capable, and has its destiny most completely in its own hands. ’T is then that it is able to supply all its wants, not only in the most effectual manner, but at the cheapest rate. ’T is then that the various departments of its industry are liable to the least disturbance and proceed with the most steady and vigorous motion. An ignorance which benights the political world and disputes the first principles of administration is requisite to bring this position for a moment into question. The principle on which such a question could be founded would equally combat every institution that promotes the perfection of the social organization; for this perfection in all its shapes, by giving a consciousness of strength and resource and inspiring pride, tends to ambitious pursuits, to war, expense, and debt.

On this question, as on most others, evils are traced to a wrong source. Funding systems, as the engines of credit, are blamed for the wars, expenses, and debts of nations. Do these evils prevail less in countries where either those systems do not exist or where they exist partially and imperfectly? Great Britain is the country where they exist in most energy. Her wars have no doubt been frequent, her expenses great, and her debts are vast. But is not this, with due allowance for difference of circumstances, the description of all the great powers of Europe—France, Spain, Austria, Russia, Prussia? Are they not as frequently at war as Great Britain, and as often of their own choice? Have not their expenses compared with their means and the state of society been as great? Have they not all, except Prussia, heavy debts?

The debt of France brought about her revolution. Financial embarrassments led to those steps which led to the overthrow of the government and to all the terrible scenes which have followed.

Let us then say, as the truth is, not that funding systems produce wars, expenses, and debts, but that the ambition, avarice, revenge, and injustice of man produce them. The seeds of war are sown thickly in the human breast. It is astonishing, after the experience of its having deluged the world with calamities for so many ages, with how great precipitancy and levity nations still rush to arms against each other.

Besides what we see abroad, what have we recently witnessed among ourselves? Never was a thing more manifest than that our true policy lay in cultivating peace with scrupulous care. Never had a nation a stronger interest. Yet how many were there who directly, and indirectly raised and joined in the cry of war. Sympathy with one nation and animosity against another, made it infinitely difficult for the government to steer a course calculated to avoid our being implicated in the volcano, which shook and overwhelmed Europe. Vague speculations about the cause of liberty seconded by angry passions, had like to have plunged this young country, just recovering from the effects of the long and desolating war, which confirmed its revolution, just emerging from a state little short of anarchy; just beginning to establish system and order, to revive credit and confidence, into an abyss of war, confusion, and distress!

After all the experience, which has been had upon the point, shall we still charge upon funding systems evils which are truly chargeable upon the bad and turbulent passions of the human mind?

Peruse the history of Europe from its earliest period, were wars less frequent or pernicious before the system of credit was introduced than they have been since? They were more frequent and more destructive though perhaps not of as long duration at one time.

But they did not equally produce debt. This is true, yet it remains to compare the evils of debt with those which resulted from the antecedent system of war—the devastations and extortions, the oppressions, and derangements of industry in all its branches; and it remains to consider whether expedients may not be devised, which may secure to nations the advantages of credit and avoid essentially its evils. If this shall be practicable, the argument in favor of the system of credit has no counterpoise and becomes altogether conclusive.

Credit may be called a new power in the mechanism of national affairs. It is a great and a very useful one, but the art of regulating it properly, as is the case with every new and great contrivance, has been till lately imperfectly understood. The rule of making contemporary provision for the extinguishment of principal as well as for the payment of interest in the act of contracting new debt, is the desideratum—the true panacea.

But this, like most others, is not an absolute but a relative question. If it were even admitted that the system of anticipation by credit is, in the abstract, a bad one, it will not follow that it can be renounced by any one nation while nations in general continue to use it. It is so immense a power in the affairs of war, that a nation without credit would be in great danger of falling a victim in the first war with a power possessing a vigorous and flourishing credit.

What astonishing efforts has credit enabled Great Britain to make? What astonishing efforts does it enable her at this very moment to continue? What true Englishman, whatever may be his opinion of the merits and wisdom of the contest in which his country is engaged, does not rejoice that she is able to employ so powerful an instrument of warfare? However he may wish for peace, he will reflect that there must be two parties to the pacification, and that it is possible the enemy may either be unwilling to make peace, or only willing to make it on terms too disadvantageous and humiliating.

He must, therefore, cherish the national credit, as an engine by which war, if inevitable can be maintained, and by which, from that very possibility, a better peace can be secured.

It is remarkable too that Great Britain, the only power which has uniformly cultivated an enlightened and exact plan of national credit at a juncture so critical as the present, continues to uphold the various branches of her commerce and industry in great energy and prosperity, and will in the end tax her adversary, in exchange for the products of her industry, with a large proportion of the expenses of the actual war.

The commerce and manufactures of France are so prostrated that this consequence cannot but follow. For some years to come, after peace, she must be customer to Great Britain for vast supplies.

But let us still return to and keep in view this very material point already stated. ’T is credit in general, not funding systems in particular, against which the objections made, as far as they have foundation, lie. However obtained, it leads to exactly the same consequences, which are charged on funding systems, which are no otherwise answerable for those consequences than as they are means of credit.

Any provision, therefore, for our revolution debt, which from its justice and efficiency would have given satisfaction and inspired confidence, would equally have conferred national credit, and would have been equally liable to the evils of an abuse of credit.

The dilemma was either to make and continue a just and adequate provision for the debt, till it was discharged, and thereby establish credit, and incur the chances of the evils incident to its abuse; or not to make a just and adequate provision for the debt, and so commit national injustice, incur national dishonor and disgrace, and, it may be added, shake and weaken the foundation of property and social security.

Thus we may discard from the examination of the subject, the general question whether the system of credit (and as a means of credit, the funding of debts) is a salutary or a pernicious system. It could only with propriety arise with regard to the policy of the government in future cases—that is, how it would or would not in future emergencies resort to anticipation by credit, or find immediate resources in contemporary contributions of the community and in the spoils of war. It could never be properly raised as to a debt previously contracted. The objections to a system of credit could never, with an honest man, justify a moment’s hesitation about the obligation and propriety of a just and efficacious provision for a debt previously incurred, either from a real necessity or from a past neglect of the government to attend duly to the impolicy of employing credit and of contracting debt.

A government which does not rest on the basis of justice rests on that of force. There is no middle ground. Establish that a government may decline a provision for its debts, though able to make it, and you overthrow all public morality, you unhinge all the principles that must preserve the limits of free constitutions, you have anarchy, despotism, or what you please, but you have no just or regular government.

In all questions about the advantages or disadvantages of national credit, or in similar questions which it has been seen may be raised (and it may be added have been raised) with respect to all the sources of social happiness and national prosperity, the difference between the true politician and the political empyric is this: the latter will either attempt to travel out of human nature and introduce institutions and projects for which man is not fitted and which perish in the imbecility of their own conception and structure, or without proposing or attempting any substitute they content themselves with exposing and declaiming against the ill sides of things, and with puzzling and embarrassing every practicable scheme of administration which is adopted. The last indeed is the most usual because the easiest course, and it embraces in its practice all those hunters after popularity who, knowing better, make a traffic of the weak sides of the human understanding and passions.

The true politician, on the contrary, takes human nature (and human society its aggregate) as he finds it, a compound of good and ill qualities, of good and ill tendencies, endued with powers and actuated by passions and propensities which blend enjoyment with suffering and make the causes of welfare the causes of misfortune.

With this view of human nature he will not attempt to warp or disturb its natural direction, he will not attempt to promote its happiness by means to which it is not suited, he will not reject the employment of the means which constitute its bliss because they necessarily involve alloy and danger, but he will seek to promote its action according to the bias of his nature, to lead him to the development of his energies according to the scope of his passions, and erecting the social organization on this basis he will favor all those institutions and plans which tend to make men happy according to their natural bent, which multiply the sources of individual enjoyment and increase national resources and strength, taking care to infuse in each case all the ingredients which can be devised as preventives or correctives of the evil which is the eternal concomitant of temporal blessing.

Thus, observing the immense importance of credit to the strength and security of nations, he will endeavor to obtain it for his own country in its highest perfection, by the most efficient means; yet not overlooking the abuses to which, like all other good things, it is liable, he will seek to guard against them by prompting a spirit of true national economy, by pursuing steadily, especially in a country which has no need of external acquisition, the maxims of justice, moderation, and peace, and by endeavoring to establish, as far as human inconstancy allows, certain fixed principles in the administration of the finances calculated to secure efficaciously the extinguishment of debt as fast at least as the public exigencies of the nation are likely to occasion the contracting of it. These, I can truly say, are the principles which have regulated every part of my conduct in my late office.

And as a first step to this great result, I proposed the funding of the public debt.

This quality of funding appeared to me essential in the plan of providing, for different reasons.

• 1.First it appeared to me advisable that the nature of the provision should be such as to give satisfaction and confidence by inspiring an opinion of security to the creditors. This was important not only as it regarded their advantage, but as it regarded the public interest, the national credit was intimately connected with that satisfaction and confidence. They tended besides to produce another important effect which will be noticed hereafter.
• 2.It was desirable to guard the government and the creditors against the danger of inconstancy in the public councils. The debt being once funded, it would require the concurrence of both branches of the legislature and of the President, or of two thirds of both branches overruling the opposition of the President, to shake the provision. Of this there was a moral impossibility—at least the highest degree of improbability. To make a provision annually would require the like concurrence in its favor; of course, would be continually liable to be defeated by improper views on either of the branches or departments. Whoever has attended to the course of our public councils, and to the dispositions which have been manifested by a powerful party in them, must be sensible that danger in this case was not ideal. There was good ground to apprehend that the accidental result of a single election and the accidental prevalency of ill-humors in parts of the community might violate the justice and prostrate the credit of the nation.It is the part of wisdom in a government, as well as in an individual, to guard against its own infirmities; and, having taken beforehand a comprehensive view of its duty and interest, to tie itself down by every constitutional precaution to the steady pursuit of them.
• 3.It appeared important to give all practicable solidity and stability to the funds or stock which constituted the debt. The funding of the debt was essential to this end. This is but an inference from the preceding remarks. It was to result from obviating the danger of fluctuating councils concerning the debt from the satisfaction and confidence of the creditors arising from an opinion of security, from the constant estimation in which that opinion of security would cause it to be holden, not only by the creditors, but by all other classes of the community, and by foreigners.

One effect of this was to accelerate the period which would terminate an irregular and excessive spirit of speculation in the funds. It is evident that this must have been in proportion to the causes calculated to produce fluctuation in the public opinion with regard to the value of the funds. Insecurity, the chance of the provision being interrupted or deteriorated, occurring at every new period of making it, was a more fruitful source than any other of that fluctuation of opinion. The degree of this being always incalculable would have given the utmost scope to imagination, to the acts and intrigues of stock-jobbers, and must have kept the funds constantly an object of the most gambling speculation.

The moment opinion, regulated by experience, had liquidated the value of the funds, speculation would be confined within the limits necessary to give them due activity and value. The immutability of the provision by furnishing better data of calculation, as well as giving security, would hasten that moment, and once arrived it would continue.

The funds in this State would become as they ought to be an object of ordinary and temperate speculation like any other article, whether of commerce, manufactures, or agriculture. While on the opposite plan they would be as long as they existed a mere game of chance and a subject of the most gambling speculation.

It may be remarked that it is now a considerable time since the public stock has reached the desirable point and put an end to the excessive spirit of speculation. This, for some time past, has been far more active, even to intemperateness in other pursuits, in trading adventures and in lands. And it is curious to observe how little clamor there is against the spirit of speculation in its present direction; though it were not difficult to demonstrate that it is not less extravagant or as pernicious in the shape of land-jobbing than in that of stock-jobbing. But many of the noisy patriots who were not in condition to be stock-jobbers are land-jobbers, and have a becoming tenderness for this species of extravagance. And virtuous, sensible men, lamenting the partialities of all over-driven speculation, know at the same time that they are inseparable from the spirit and freedom of commerce and that the cure must result from the disease.

Another important effect of funding the debt was the quick appreciation of the funds from the same opinion of security. This was calculated to save immense sums to the country. Foreigners else would have become the proprietors of the stock at great undervalues, to the loss of millions to the holders and to the country. The loss to the holders is perceived at once, but the loss to the country, though an obvious consequence, has not been equally palpable to all.

But a little reflection and combination must make it evident to the meanest capacity. If the sale of any article is made at an undervalue by one citizen to another of the same country, what one loses the other gains, and containing within its own bosom the gainer as well as the loser is neither the richer nor the poorer by the operation. It possesses exactly the same property which it had before the bargain between its two citizens. But when the citizen of one country sells to the citizen of another country residing abroad any article at an undervalue, a more valuable thing goes out of the country in exchange for a less valuable thing which is brought into it, and the state whose citizen is the seller loses in exact proportion to the difference of value of the things exchanged, whether commodity for commodity, or commodity for money—that is, the state loses exactly what its citizen loses by the disadvantageous sale.

It has been imagined, however, that if our debt had not been funded, its precariousness would have been a security against transfers to foreigners. But waiving the observation that this precariousness, which it is supposed would deter foreigners, would imply a depreciation and discredit of the funds, and consequently a bad state of national credit, it may be replied that the effect expected from it would not have been realized.

Foreigners who possessed redundant capitals would still have devoted a part of them to play in this precarious stock, to buy and to sell again. And, though permanent transfers of the stock might not have taken place in the same degree, yet it is probable more property of the country in another shape might have been extracted by the force of this gambling capital acting upon the occasional necessities and sporting with the occasional confidences of our citizens.

Another expedient has been mentioned for preventing alienations, and consequently loss by alienations to foreigners. This was to forbid the alienations to foreigners; in other words, to render them incapable of holding the debt.

But this expedient was inadmissible, and would have been ineffectual.

• 1.The original debt was alienable without restriction, and foreigners had actually become the bona-fide proprietors of a considerable sum of it which they had an indisputable title to a provision for, and it was not easy in many cases to distinguish between past and future acquisition, without danger of interfering with rights already acquired.
• 2.The original debt being in its constitution alienable without restriction, which was an ingredient of value to the holder, it could not have been taken away without breach of contract, unless with his consent upon an equivalent, and this would have increased the embarrassment of such a modification of the debt with consent of the creditors as would consist with the contract and with the immediate requisite accommodation of the government.
• 3.It was ineligible, as calculated to diminish the value of the stock. All restraints upon alienation, by fettering the free use and circulation of an article of property, naturally lessen its value. As far as foreign capital could have been excluded from the stock market, the effect would have been sensible upon it. It is evident that the value of an article must depend materially on the quantity of capital employed in its negotiations, and it is known that foreign capital has formed and must have formed a considerable portion of that which was employed in the funds.

But, in fact, this exclusion would not have taken place. Foreigners under the cover of citizens would have continued to speculate in the funds, but they would have given considerably less for them on account of the additional risk from the necessity of that cover. And it might have happened that fewer of those solid and discreet capitalists, who meant to hold, would have engaged in the business, and more of those who meant a temporary profit proportioned to the risk, and, in the end, the probability was the price of stock would have been much lower and less steady, and the foreigners would have had as much of the property either in the shape of stock in trust or in equivalents resulting from the traffic in it as if there was not restriction, and for a less compensation to the country. This has been exemplified in the case of our waste-lands in those States which do not permit foreigners to hold. The only effect, then, of the restriction would have been to depreciate the stock of the country, the thermometer of its credit, without any counterbalancing good.

Indeed, if the exclusion of foreigners could have been effected, cui bono? What harm is there that foreigners should speculate in our funds, if they give full value for them? Will not the money they give for the stock, employed in extending our commerce, agriculture, manufactures, roads, canals, and other ameliorations, more than indemnify the country for the interest which they will receive upon the stock, till the principal is reimbursed? In a country with so much improvable matter in a crude state as ours it cannot be doubted that capital employed in those ways will incomparably more than repay the interest of the money employed.

But to overthrow this important consideration, it is alleged that the money acquired by the sales of stock to foreigners would not be employed on the objects which have been mentioned, but would be dissipated in the enjoyments of luxury and extravagance and sent abroad again to pay for these objects, to the loss pro tanto of the country?

This suggestion was not founded in probability, nor has been warranted by the fact. It was true that a large increase of active capital and augmentation of private fortunes would beget some augmentation of expense among individuals, and that a portion of this expense would be laid out on foreign articles of luxury. But the proportion which this employment of the new capital would bear to the part of it which would be employed on useful and profitable objects, would be and has been inconsiderable. Whoever will impartially look around will see that the great body of the new capital created by the stock has been employed in extending commerce, agriculture, manufactures, and other improvements. Our own real navigation has been much increased, our external commerce is carried on much more upon our own capitals than it was; our marine insurances in a much greater proportion are made by ourselves; our manufactures are increased in number and carried on upon a larger scale. Settlements of our waste-land are progressing with more vigor than at any former period. Our cities and towns are increasing rapidly by the addition of new and better houses. Canals are opening, bridges are building with more spirit and effect than was ever known at a former period. The value of lands has risen everywhere.

These circumstances (though other causes may have co-operated) it cannot be doubted by a well-formed or candid man are imputable in a great degree to the increase of capital in public debt, and they prove that the predictions of the dissipation in luxurious extravagances have not been verified. If a part has gone in that way, this loss has not been considerable enough to impair the force of the argument. The universal vivification of the energies of industry has laid the foundation of benefits far greater than the interests to be paid to foreigners can counterbalance as a disadvantage.

Indeed, it is a question whether there has not been an incidental advantage equivalent to the incidental disadvantage of an increased expense in foreign articles. It is the restoration of stock alienated to the country by the emigration to it of foreign settlers with capitals. It may be said that this advantage is foreign to the operation of the plan—it arises from other causes out of the state of Europe. But it is to be remembered that collateral facilities, when dispositions to a certain event exist, contribute to give them an effect which they would not have without those facilities. The convenient mode of transferring property to this country, through the medium of our stock in the markets of Europe, has materially promoted the emigration of persons possessed of capital. And if our government continues to operate in a manner which will maintain the confidence of foreigners, it is a question whether the possession of large sums in our funds will not bring over most of the proprietors, so as to reinvest the country with the alienated stock, and thus procure it a double compensation on foreign alienations.

A third important effect of giving solidity and stability to the stock by funding the debt, was the rendering it useful as capital. Those who may deny that it has even this tendency in defiance of the most manifest facts, cannot dispute that it must have it, if at all, in proportion to the security of the footing upon which it stands.

The opinion of its being a safe and substantial property is essential to that ready marketable quality which will render it expedient to invest unemployed monies in it till the opportunity of employment occurs, and certain that it can be brought into action when the opporuntity arrives.

To be certain of its operation as active capital it is only necessary to consider that it is property which can almost at any moment be turned into money. All property is capital; that which can quickly and at all times be converted into money is active capital. It is nearly the same thing as if the possessor had an equal sum of money in hand. The profound and ingenious Hume thus describes its effects.

∗ ∗ ∗ ∗ ∗ ∗

Who doubts that a man who has in his desk 10,000 dollars in good bank notes, has that sum of active capital? Who doubts any more, though there be two steps in the process, that a man who has in his hand 10,000 dollars of the notes of merchants of unquestionable solidity and credit, which he can at any moment discount at the banks, has an equal sum, bating the price of discount, of active capital? Who can doubt any more that the possessor of 10,000 dollars of funded stock which he can readily carry into the market and sell for 10,000 dollars of these merchants’ or bank notes, or gold and silver, is equally possessor of so much active capital?

In this country, where the sum of gold and silver, the great organ of alienation and circulation, is comparatively more limited than in Europe, the certainty of an immediate conversion of stock into money is not as great as in some of the great stock markets of Europe; but the difference is not so material as to prevent the effect being substantially the same.

When the stock is unfunded and precarious, its salableness is proportionably fluctuating and uncertain. So much so, that it does not possess the quality of active capital, but inverts the effect by becoming a mere subject of gambling speculation. This was noticed in my first report on the finances in these words. ∗ ∗ ∗

Some theoretical writers on political economy have contested the effect of public funds as capital.

Their objections, and an answer to them are to be found in my report on manufactures. ∗ ∗ ∗

It may be useful to add some further illustrations. Trace the progress of a public debt in a particular case.

The government borrows of an individual one hundred dollars in specie, for which it gives its funded bonds. These hundred dollars are expended on some branch of the public service. It is evident they are not annihilated; they only pass from the individual who lent, to the individual or individuals to whom the government has disbursed them. They continue, in the hands of their new masters, to perform their usual functions, as capital. But besides this, the lender has the bonds of the government for the sum lent. These from their negotiable and easily vendible nature, can at any moment be applied by him to any useful or profitable undertaking which occurs; and thus the credit of the government produces a new and additional capital, equal to one hundred dollars, which, with the equivalent for the interest on that sum, temporarily diverted from other employments while passing into and out of the public coffers, continues its instrumentality as a capital, while it remains not re-imbursed.

When, indeed, the money borrowed by the government is sent abroad to be expended, the effect above described does not happen, unless the expenditure is for a purpose which brings a return. But this is a partial exception to the general rule.

It has been said that from the sum of the debt acting as capital is to be deducted the quantity of money actually employed in the negotiation of the funds. To conceive well of the immense disparity between the capital negotiated and the organ of negotiation, money, it may be useful to advert to the small quantity of specie in certain nations of immense capital in fixed and negotiable property. The specie of Great Britain, for example, is computed as from 15,000,000 to 20,000,000 stg. How small a sum to be the organ of all the alienations of landed property, ships, merchandise, manufactures, public funds, and of insurances and other pecuniary negotiations! The capital value of its land is estimated at ∗ ∗ ∗ The public funds amount to near ∗ ∗ ∗ The objects of foreign and domestic commerce, including manufactures and other casual objects, cannot be estimated at less than ∗ ∗ ∗ Yet the small sum of from 15,000,000 to 20,000,000 of specie is directly and indirectly the instrument of all the alienation of this prodigious mass. This gives us an idea of the vast activity of the power.

A simple, concise, and yet comprehensive view of the effect of the funds as capital is comprised in this exhibition of it. To the mass of active capital resulting from the property and credit of all the individuals of the nation, is added another mass constituted as the joint credit of the whole nation, and existing in the shape of the government stock, which continues till that stock is extinguished by redemption or reimbursement. Is it not evident that this throwing into the common stock of individual operations the credit of the nation, must increase and invigorate the powers of industrious enterprise?

See what a wonderful spectacle Great Britain exhibits. Observe the mature state of her agricultural improvements under the auspices of large capitals employed to that end. Consider the extent of her navigation and external commerce. Note the huge and varied pile of her manufactures. See her factors and agents spread over the four quarters of the globe, doing a great part of the business of other nations by force of capital. View the great extent of her marine insurances attracting to her a considerable portion of the profits of the commerce of most other nations. View her, in fine, the creditor of the world.

Consider withal what her population is, that all the gold and silver she contains probably falls short of 20,000,000 stg., then ask whether there be not a strong presumption that her public funds are a principal pillar of this astonishing edifice, as her own men of business generally believe. But another and a powerful motive to the funding of the debt was that it would serve as one of the equivalents to be offered to induce the public creditors to consent voluntarily to those modifications of their claims which the public accommodation required.

The public debt of this country, as I stated in my first report upon the finances, was fifty-four millions.

There was no obligation to do more than make provision annually for the debt. The funding of it was no part of the original contract.

This, therefore, superadded a material advantage for the creditors to their primitive rights. The additional security was a reasonable ingredient or commutation to be proposed for something to be relinquished.

Among individuals, money lent for a length of time on personal security frequently carries a higher interest than if lent on real security. The change from one to the other would be a fair ground for a stipulation to lower the interest as the consideration. A government need not fear imputations on its honor or loss of credit by regulating itself in its money concerns according to the rules which prevail among fair individuals.

The third feature of my plan was to provide, in the first instance, for the foreign part of the general debt in exact conformity with the contracts concerning it.

The propriety of this has been uncontested and speaks for itself. It would have been highly inexpedient and would have exposed our credit abroad to have perplexed our creditors with any new propositions concerning their debts. Even the measure of endeavoring to transfer the foreign debt to a domestic foundation, which has been subsequently proposed, upon equivalents to be given, would have been premature till confidence had been inspired by an experience of the efficacy of the provision.

The fourth feature was “to take, as the basis of the provision for the domestic part of the general debt, the contracts with the creditors as they stood at the time of the adoption of the new Constitution, according to the then unrevoked acts and resolutions of the former government, except as to such alterations as they might, on legal principles, be pronounced to have undergone by voluntary acts and acquiescences of the creditors themselves; bottoming the provision on this principle, that those contracts were to be fulfilled as far and as fast as was practicable, and were not to be departed from without the free consent of the creditors.”

To a man who thinks justly and feels rightly for the reputation of the country of which he is a citizen, it is a humiliating reflection that it should be at all necessary to insist on the propriety of regulating the provision for the debt by the contracts concerning it.

The obligation to fulfil contracts is so fundamental a principle of private morality and social justice—so essential a basis of national credit, that nothing less than the fact itself could induce a belief that the application of the rule to our public debt could have been controverted by leaders of parties or by any considerable portion of the community. Yet, in truth, it has been controverted, either avowedly or virtually, by a great proportion of all parties, by declarations or propositions disclaiming the application of the principle, or by the rejection of propositions necessary to give it effect.

The general proposition, indeed, which affirms the obligation of fulfilling contracts, on governments as well as individuals, was of a nature which the most profligate politician was not shameless enough to deny.

But it has been contended that the case of our public debt was an extraordinary and peculiar case, justifying, on great principles of national justice and policy, a departure from common rules. The quantity of alloy in its original concoction, the extensive alienations at undervalues, the extreme point of depreciation for a certain period, the confused state of the debt by antecedent violations of contract and by the concession of partial advantages to particular descriptions of it, the impossibility of reinstating the primitive contracts which had been formerly violated, and the inequality of a full provision according to the new,—all these were urged or espoused as reasons for arbitrary provisions for the debt according to certain abstract notions of equity and right. It has been intimated that these heretics were divided into two principal classes: one which advocated a provision for the debt on the ground of a discrimination between original holders and alienees; another which advocated an equal provision for all at some arbitrary rate of interest inferior to the stipulated rates.

The first was apparently at least subdivided into three lesser sects: one which contended for providing in favor of original holders according to the terms of the contract, and in cases of alienation by a kind of composition or compromise between the original holders and alienees, which, in the course of the debate in Congress, took the specific form of giving ten shillings in the pound to one and the same to the other; another which contended for a full premium for original holders who had not alienated, and for an inferior one to alienees, without regarding the original holders who had alienated; a third for a reliquidation of the debt, making a full provision according to that reliquidation for original holders and an inferior one for alienees, with or without regard to the creditors who alienated.

The second general sect had also a diversity of opinions, some willing to allow a higher, some a lower rate of interest; some willing to fix the standard absolutely, without compensations for the reduction; others willing to give some kind of equivalents, but to make the provision absolute and final, leaving no option to the creditors.

The latter, when the subject was under debate, made no direct propositions; but then and since, they discovered their intentions in their conversations, in endeavoring to pare down the provision proposed in my report, and in resisting in subsequent cases a compliance with the contracts as to those creditors who have not accepted the terms held out to them.

The former made a formal and passionate effort to substitute their scheme for that which was contained in the plan reported from the Treasury. It failed, but it has laid the foundation of the great schism which has since prevailed.

There never was a doubt that if the idea of discrimination had obtained it would have resulted in a fraud on alienees without benefit to their alienors. A large proportion of those who supported the principle of discrimination clearly manifested that they meant to leave the difference in the public pocket.

The substance of the argument for a discrimination was this: [The rest is wanting.]

DEFENCE OF THE FUNDING SYSTEM

II

the assumption of the state debts

The operation of these circumstances generated a variety of different sects holding different opinions. The parties in and out of Congress on the subject of a provision for the public debt1 may be thrown into five classes: I. Those who were for providing for the general debt, exclusively of the particular debts, on the basis of the subsisting contracts. II. Those who were for providing separately for the general debt on the principle of a discrimination between original holders and alienees. III. Those who were for providing separately for the general debt without that discrimination at arbitrary rates of interest inferior to the stipulated rates. IV. Those who were for providing for the general debt on the basis of the subsisting contracts, and for assuming the particular debts upon an equal provision. V. Those who were for providing for the general debt at arbitrary rates of interest inferior to the stipulated rates, and for assuming the State debts upon an equal provision.

The classes which embraced the greatest number of real partisans were the second and fifth. The second was subdivided, apparently at least, into those who advocated the taking the rate of interest stipulated in the contract as the standard of provision, giving to the original holders what was withheld from the alienees and those who were for saving to the public what was withheld from the alienees. The last, though not in appearance, was in fact the most numerous. Indeed it may justly be doubted whether any of those who professed to advocate compensation to the original holders were ever sincere in the proposition. But neither of the classes in either house of Congress was itself a majority for the general debt.

Those who favored a provision at lower than the stipulated rates of interest were influenced respectively by different motives: some by a doubt of the ability of the government to make a full provision, especially with the assumption of the particular debts; others by an opinion that from the constitution of the debt and what they called the alloy in it a rate of interest lower than that stipulated was most consistent with justice to the public; others from a spirit of mean and fraudulent parsimony which aimed at savings to the public per fas et nefas. These last were not distinguishable in their principle of action from those who advocated one species of discrimination. Collateral circumstances respecting the course of alienations locally and otherwise gave a different direction to their conduct.

It is easy to perceive that such a heterogeneous mass of opinions, not merely speculative, but actuated by different interests and passions, could not fail to produce much embarrassment to the person who was to devise the plan of a provision for the public debt, if he had been provident enough to sound the ground and probe the state of opinions.

It was proper for him to endeavor to unite two ingredients in his plan: intrinsic goodness and a reasonable probability of success.

It may be thought that the first was his only concern, that he ought to have devised such a plan as appeared to him absolutely the best, leaving its adoption or rejection to the chance of events and to the responsibility of those whose province it was to decide.

But would not this have been to refine too much? If a plan had been offered too remote from the prevailing opinions, incapable of conciliating a sufficient number to constitute a majority, what would have been the consequences? The minister would have been defeated on his first experiment.

Before he had established any reputation for a knowledge of the business of his department, he might be sure that the blame of his ill-success would have fallen on his want of skill, not upon the ignorance or perverseness of those who had rejected his plan.

Placed in a background, he would have lost confidence and influence. A retreat, or the disgrace of remaining in office without weight or credit or an adequate prospect of being useful, would have been his alternative. The public interest might have been still more injured. The public deliberations, left without any rallying point, would have been the more apt to be distracted between jarring, incoherent, and indigested projects, and either to conclude nothing or to conclude on something manifestly contrary to the public interests. That this is a natural inference is proved by the diversity and still more by the crudity of the opinions which have been enumerated, and by the zeal with which considerable men afterwards and since have maintained opinions which would disgrace pupils not yet out of the alphabet of political science.

Had a single session passed, after the subject had been once seriously entered upon, without some adequate provision for the debt, the most injurious consequences were to have been expected.

With but a slight dawning of previous confidence, such a delay arising from the conflict of opinions, after a public display of the very unsound and heretical notions which were entertained by too many, would have excited something very like despair in the creditors, and would have thrown complete discredit on the debt. The value in the market would have sunk to almost nothing, to the great prejudice of those who had lately, through confidence in the new government, purchased at high prices. The fluctuation would have increased the dissatisfaction with the thing itself, and by its influence upon opinion would have multiplied twofold the obstacles to a future provision on proper principles. The contagion of the opposite opinions maintained in the legislature would have spread through the community, fixing, increasing, and embittering the differences of opinion there, which, by reaction, would have strengthened and confirmed the oppositions in the legislature. No mortal could foresee the result. A total failure to provide for the debt was possible. A provision for it on terms destructive of principle, replete with injustice to the creditors, was the least ill result to have been apprehended.

Those who from a horrible sentiment of injustice or the mania of false opinions regard the public debt with detestation as a nuisance and a curse, and every creditor as a culprit; those who would have delighted in the disgrace of a government they had resisted and villified, might have looked forward with malignant pleasure to this wreck of the public debt. But every virtuous enlightened man would foresee, in the complicated mischief of ruined credit, the prostration abroad and at home of the character of the new government, its possible subversion, and with it a severe blow to the general security of property.

In hinting at the possible subversion of the government, it may be proper to explain the foundation of this idea. The public creditors, who consisted of various descriptions of men, a large proportion of them very meritorious and very influential, had had a considerable agency in promoting the adoption of the new Constitution, for this peculiar reason, among the many weighty reasons which were common to them as citizens and proprietors, that it exhibited the prospect of a government able to do justice to their claims. Their disappointment and disgust, quickened by the sensibility of private interest, could not but have been extreme.

There was another class of men, and a very weighty one, who had had great share in the establishment of the Constitution, who, though not personally interested in the debt, considered the maxims of public credit as of the essence of good government, as intimately connected by the analogy and sympathy of principles with the security of property in general, and as forming an inseparable portion of the great system of political order. These men, from sentiment, would have regarded their labors in supporting the Constitution as in a great measure lost; they would have seen the disappointments of their hopes in the unwillingness of the government to do what they esteemed justice, and to pursue what they called an honorable policy; and they would have regarded this failure as an augury of the continuance of the fatal system which had for some time prostrated the national honor, interest, and happiness. The disaffection of a part of these classes of men might have carried a considerable reinforcement to the enemies of the government. The lukewarmness of the residue would have left them a clearer stage to direct their assaults against it. The real failure to do right, which often sinks the governments as well as individuals into merited contempt, alienating many of its ablest friends, while it would diminish its support, would, at the same time, increase in a tenfold ratio the mass of unfavorable opinion towards it. And from the combination of these causes it would have been likely to have degenerated into a despicable impotence, and after a lingering atrophy to have perished.

In pursuing too far the idea of absolute perfection in the plan to be proposed, unaccommodated to circumstances, the chance of an absolutely bad issue was infinitely enhanced, and of the evils connected with it.

Was this the course either of patriotism or true personal policy? It has been remarked that in the rejection of the plan which was proposed it was to be apprehended that public opinion would charge the fault upon the plan, not upon the rejecters of it. But it may be said that time and the experience of ill effects would have done justice and placed the blame at the proper door. Let it be so. Would it not have been blamably selfish to have sought to secure reputation at the hazard of so great evils to the community? Was it not more fit by accommodation to circumstances within due limits to pursue a better chance of public good at the risk of an imputation that complete theoretic perfection had not been adhered to?

Would time have pronounced a favorable sentence upon a different course? Would it not have said that goodness is often not an absolute but a relative term, and that it was culpable refinement to have sacrificed the prospect of accomplishing what was substantially good to the impracticable attainment of what was deemed theoretically perfect?

I grant that the idea of accommodation was not to be carried so far as to sacrifice to it any essential principle. This is never justifiable. But with the restriction of not sacrificing principle, was it not right and advisable so to shape the course as to secure the best prospect of effecting the greatest possible good?

To me this appeared the path of policy and duty, and I acted under the influence of that sentiment.

Thus guided, I resolved to give the following features to my plan:

First. To embrace in the provision, upon equal terms, the particular debts of the individual States as well as the general debt of the United States.

Secondly. To fund the whole by pledging for the payment of the interest certain specified revenues adequate to the object, to continue pledged until the redemption or reimbursement of the principal of the debt.

Thirdly. To provide, in the first instance, for the foreign part of the general debt in exact conformity with the contracts concerning it. To endeavor to effect a new, more manageable, and more convenient modification of the domestic part of the general debt, with consent of the creditors, upon the ground of certain equivalents to be offered to them.

Fourthly. To take as the basis of the provision for the domestic part of the general debt the contracts with the creditors as they stood at the time of the adoption of the new Constitution, according to the unrevoked acts and resolutions of the former government, except as to such alterations as they might on legal principles be pronounced to have undergone by voluntary acts and acquiescences of the creditors themselves; bottoming the provision on this principle, that those contracts were to be fulfilled as far and as fast as was practicable, and were not to be departed from without the free consent of the creditors.

Fifthly. To provide for the arrears of interest which had accumulated, upon the same terms with the principal, constituting them a new capital.

Sixthly. To endeavor to carry these ideas into effect by opening two loans on the terms proposed, one for the domestic part of the general debt, the sums subscribed thereto to be paid in the principal and arrears of interest of the old debt; another for the particular debts of the respective States, the sums subscribed thereto to be paid in the principal and arrears of interest of those debts.

Seventhly. To endeavor to establish it as a rule of administration, that the creation of debt should always be accompanied with a provision for its extinguishment; and to apply the rule as far as it could be applicable to a new provision for an old debt by incorporating with it a fund for sinking the debt.

Eighthly. As an incident to the whole, to provide for the final settlement of accounts between the United and individual States, charging the latter with the sums assumed for them by the subscriptions on State debts, which should be made to the proposed loan.

Let us now review, and under each head, the reasonings which led to this plan and the means and modes of execution:

1. As to the uniting in the provision upon equal terms the particular debts of the several States with the general debt of the United States.

It appeared to me that this measure would be conducive to the greatest degree of justice, and was essential to policy.

I use a qualified and comparative mode of expression in the first case, because from the past course and then existing state of things perfect justice was unattainable. The object consequently was to pursue such a plan as would procure the greatest practicable quantum of justice.

The true rule for conducting the expenses of the Revolution, which established independence, seems to have been this: That, as the benefits to be derived from it would be individually equal to the citizens of every State, so the burthens ought also to be individually equal among the citizens of all the States according to individual property and ability. That for this purpose all the expenses of the war ought to have been defrayed out of a common treasury, supplied by contributions of all the individuals of the United States, levied under the common authority, according to equal rules, by loans either direct by borrowing or indirect and implied by emissions of paper money, operated upon the joint credit of the Union, and by bringing into common stock all auxiliary or adventitious resources, as waste land, confiscated property, etc.

This was the true justice of the case and the true national ground—a ground which perhaps might well have been taken by those full assemblies of the Union, convened by the direct commission of the people, with plenary power to take care of the nation, but which was never but partially taken, and was successfully abandoned in compliance with the unnational demands of State claims—the aristocracy of State pretensions.

But instead of this course, that which was pursued was a compound of incoherent principles. A part of the general expenditure was defrayed on the general credit of the United States immediately by the emission of bills of credit and by loans of individuals, mediately by the contracts of various officers and agents who obtained services and supplies on the credit of the Union and gave certain paper evidences of them. Another part was defrayed in consequence of requisitions upon the States of men, money, provisions, and other articles of supply, according to certain estimated or conjectural quotas to be raised and furnished by the States separately. A third part was defrayed by the spontaneous exertions of the States themselves for local defence, for enterprises independently undertaken to annoy1 the common enemy, divest him of acquisitions,2 or make acquisitions3 upon him. Each State enjoyed the exclusive benefit of its extra resources, waste lands, and confiscated property. Geographical lines thus made a substantial difference in the condition of the citizens of one common country, engaged in a common cause.

It was impossible that such a state of things should not have led to very disproportionate exertions and contributions—should not have produced and left very unequal burthens on the citizens of different States. According to the temporary energy of the councils of each, according to their comparative degree of zeal in the common cause, according to the pressure of circumstances, the remoteness or proximity of danger, according to the peculiar character of the citizens of each State, according to a variety of contingent impulses—were the exertions of the several States, and of course their contributions to the expenses of the general defence.

Very different also was the care and accuracy of the different States in recording and preserving the evidences of their contributions. Some States kept an account of every thing; others only of those things which they had furnished upon regular authorizations of the Union; others kept very loose and imperfect accounts of any thing; and others lost by accidents of the war the records and vouchers which they had taken.

Add to all this the circumstance of the valuable aids which some States were able to derive more than others from auxiliary resources, particularly of waste land and confiscated property, and two obvious consequences will result:

First. That it was impossible that in the course of the war there could have been any proportional equality between the exertions, contributions, and burthens of the citizens of the different States.

Secondly. That it was impossible by any after adjustment to restore the equilibrium and produce retrospective equality.

All then that could be rationally aimed at was to pursue such a course as promised most certainly the greatest degree of justice.

The option lay between three modes of proceeding:

First. To refer the obtaining of ultimate justice to a final settlement of accounts between the United and individual States upon the best and most equitable principles which were practicable, and to provide for the balances which would be established in favor of certain States by that settlement.

Second. To exonerate all the States from debt by the assumption of their still-existing debts, and to abandon a settlement as impracticable on certain and equitable principles.

Third. To exonerate the States from debt by the assumption of their still-existing debts; to charge each with the sums assumed upon its account, and to attempt an ultimate equalization by the settlement of accounts.

The first and second plans were those contrasted by official propositions and deliberations, and will be considered together by way of comparison with each other: first, with regard to justice; and secondly, with regard to policy.

The first plan, which was that vehemently insisted upon by those who opposed the assumption of the State debts, appeared to me liable to some conclusive objections on the score of justice.

• I.It would have left certain States greatly indebted, deprived of the most easy and productive sources of revenue by the occupation of them in a provision for the general debt, to struggle for an indefinite and uncertain period with a heavier load than they were able to bear, depending for relief on the precarious issues of a final settlement of accounts and a provision for the balances.
• II.It was uncertain in the nature of the thing, and so considered by all parties, not only when a settlement could be effected, but whether any settlement would ever be practicable. The peace took place in 1783. In 1790 very little more than the formal measures of settlement had been devised, and scarcely any impression made on the business.
• III.It was altogether a chapter of accidents whether a settlement would bring the expected and the just relief. From the circumstances which have been mentioned, a settlement must have been of necessity an artificial and arbitrary thing. It was impossible for any to be made on truly equitable or satisfactory principles.

The greatest portion of human intellect and justice was unequal to it, because adequate data were wanting. Some States would have credits, when others, from the manner of keeping their accounts, would be without the corresponding credits for similar objects.1 Some States, from the system of management, would have much larger credits for a given quantum of service and supply than others.2 Some States, from the imperfect mode of keeping their accounts, and from the loss of vouchers, would either have too much or too little credit. Either stricter rules of evidence must be pursued, which would exclude too much, or looser rules must be admitted, which would admit too much. These suggest sufficient and yet only a part of the causes which rendered a just settlement impracticable.

In such a posture of things consequently, it might well have happened that an indebted State, well entitled to relief by a balance in its favor, might have been disappointed by the issue of the settlement.

Not to assume the State debts therefore was to have the greatly indebted States totter under a burthen to which they were unequal, in the indefinite expectation of a settlement, and to involve a possibility that they might never obtain relief, either from the total failure of a settlement on account of the difficulties attending it, or from not receiving their just dues by the embarrassment that unavoidably rendered a settlement artificial and arbitrary.

The reference, therefore, to a settlement as the sole rule of justice, without an assumption of the State debts, was not likely to afford either such prompt or such certain justice as might be looked for from the immediate assumption of the State debts.

The objection to this reasoning was that it takes it for granted that the greatly indebted States were not so through want of good management or exertion, and were entitled to eventual relief; but the contrary of this presumption might have been the fact.

There were good grounds for the conclusion that the States most indebted were so from meritorious causes, from their exertion in the common cause, and not from extravagance in the first instance, or want of effort to extricate themselves in the second.

The States most involved in debt, in proportion to their resources, were South Carolina and Georgia to the south, Massachusetts, Connecticut, and Rhode Island to the north.

South Carolina and Georgia, it is well known, next to New York, had been the principal theatres of the war. Though the metropolis of New York was during almost the whole of the war in the hands of the enemy, and there were very few parts of it which at some period were not exposed to his ravages, yet it never was so completely overrun or so entirely a victim as were the States of South Carolina and Georgia. It is known that they were temporarily conquered.

Besides, as the principal military operations in the southern quarter were late in the war, when the declension-of the paper money disabled Congress from affording equal succor, and their remoteness from the States of the greatest pecuniary resources prevented them from deriving equal aid from their neighbors, they were of course left to sustain on their own shoulders a greater part of the weight of the war than had been borne by other States while the seats of it.

Besides exhausting all the means of credit, they were subjected a great part of the time to the military coercion of our own army as well as the depredations of the enemy. What in other cases had been an extraordinary and momentary expedient was there an ordinary resource—the principal means for a considerable time of carrying on the war. They were literally devoured by the war. The whole movable property of the States was taken by the enemy or thrown into the public lap. Besides this, the State governments, from the same circumstance of remoteness, were more ostensible in that quarter. More of the effort was on their immediate account. The consequence was that a less proportion of the supplies drawn from the country were taken to the immediate account of the United States by their officers and agents and upon their acknowledgments or certificates; consequently a greater proportion of the expense assumed the shape of State debt.

The consequence was that the particular debts of South Carolina and Georgia, especially the former, were, comparatively speaking, swelled to an enormous amount.

To face them they had but slender resources. The degree to which they had been exhausted and ravaged by the war left them in a situation to require bounties rather than to struggle with heavy debts. The inability of South Carolina and Georgia to provide for their debts was increased by the considerable debts which their individuals owed to foreigners. The population of either of them was not great. Georgia may be considered as in its infancy. She claims a large tract of waste land, but besides the counter claim of the United States it had not been in her power, from the situation of her frontier with regard to the Indians, to turn them to great account. She had indeed paralyzed a great proportion of her debt by means far from justifiable, but she was unable to provide even for the residue.

South Carolina 1 had no auxiliary resource except what she had derived from confiscated property, which a spirit of liberality that does her honor on the return of peace prevented her turning to much account, and which at best was a very inadequate resource compared with her burthens. It was manifestly impossible for her to face efficaciously the interest upon her debts, much more to make any impression on the principal.

From this sketch and various circumstances of general notoriety, scepticism itself cannot doubt that South Carolina had indisputable claim of relief from the United States. She had contracted her debt most meritoriously, her sufferings had only been equalled by her efforts, she was unable to struggle unassisted with her debt, she was chargeable with no deficiency of effort to face it since the peace, and she was equitably entitled to relief from the United States. But her situation with regard to the regularity of her accounts and the evidence for authenticating her claims, rendered it peculiarly problematical whether she would ever find relief in a general settlement of accounts.

Rhode Island had also contracted her debt meritoriously. A considerable part of her small territory had been for a great part of the war in the possession of the enemy. She kept, for her population, respectable forces in the field throughout the war, and had uniformly manifested a useful and laudable zeal. Her resources were slender. Taxes upon a population of ——— were all she could pretend to. She had no waste land, and none or very little confiscated property.

Her debt was considerable; ‘t is evident that if she was to provide for it, the means must come from the United States. And there was every presumption that she was entitled to this aid. It is true that she had in a great measure encumbered herself by means which will be an indelible stain in her annals. But the individuals who were the victims had not the less claim upon the justice of their country. The assumption has promoted this justice, and has enabled and induced the State to come forward with more equitable arrangements in their favor.

The pretensions of Massachusetts and Connecticut with regard to their debt were of the most meritorious complexion. As a general position each State may justly claim the praise of a laudable spirit of exertion in the defence of their common liberty, but there were certainly marked differences in the degrees. Abstracting the impulse of being the immediate seat of the war, Massachusetts and Connecticut, especially Massachusetts, stood pre-eminent for steady, constant, and efficient exertions, immedidiately conducing to the great object of the war, not to collateral acquisitions and partial advantages. Massachusetts in particular might justly be denominated the Atlas of the Union, uniformly zealous, uniformly vigorous.

The records of the Treasury and War Departments witness by their results the great exertions of these States in men, money, and other supplies.

The situation in which I myself was placed during the war gave me an opportunity of appreciating the efforts of these different States in the results. The impression on my mind was decisive as to the spirit of what I have asserted. In how many critical periods of the war were the forces of those States the sinews and muscles of the war? Let the records before mentioned declare. Let the memoirs of those who, charged with the chief direction of our military affairs, had the best opportunities of observing, pronounce.

No well-informed man then doubted the fact; subsequent examination, the evidence of official records, confirm the truth.

While the efforts of these States during the war are incontestably ascertained, they are chargeable with no want of exertion since to exonerate themselves from debt.

Taxation in Connecticut embraced every object, and was carried as far as it could be done without absolutely oppressing individuals. Instead of a few scattered examples of excise, every article of consumption in Connecticut was excised.

In Massachusetts taxation was carried still further, even to a degree too burdensome for the comfortable condition of the citizens. This may have been partly owing to that unskilfulness which was the common attribute of the State administration of finance, but it was still more owing to the real weight of the taxes. The insurrection was in a great degree the offspring of this pressure.

These States had no material auxiliary resources. The moderation of fortunes had left them without much aid from confiscated property. They had claims to waste land, but that of Connecticut has issued in a very unimportant acquisition. That of Massachusetts has fared better, but her acquisition would have done little towards the extinguishment of her debt. Connecticut, without any seaport of consequence, not only could not derive resources from this circumstance, but had been tributary to her more fortunate neighbors.

There was, therefore, a priori satisfactory evidence that these overburdened States had a just claim of relief from the United States; and, if we may take the settlement of accounts as evidence, the anticipation has been fully justified by the event. For not only the sums assumed for them have been covered, but they have had considerable balances reported in their favor.

It will strengthen the argument for the superior justice of the assumption plan, to remark that the debts of the States represented the great mass of State effort during the war.

Not much had been done by taxation. Credit had been the principal engine.

Another objection on the score of justice, which was strenuously urged against the plan of assuming, was that certain States, by vigorous efforts, had considerably reduced these particular debts, while others had made little impression on them. It was, therefore, unequal to assume the debts in the unequal States.

It has been already shown that this difference, as far as it may be founded in fact, was owing to adventitious advantages, and, therefore, in point of substantial justice, the States which had absorbed less of their debt had not the less equitable title to relief. I recur to the example of New York. This State, by large possessions of waste land, by a great deal of confiscated property, by not providing for payment of interest on the debt, whereby its value was kept low to the great injury of the creditors, was able to absorb a considerable proportion of her debt. Connecticut, without these advantages was able to do much less, though her citizens were burdened with a much more considerable effort in contribution. Was it, therefore, inequitable as between these States, that Connecticut should find relief in an assumption? Surely it was not. Again, if a settlement of account, which was a part of the plan of assumption, was to be relied upon, any inequality created by the assumption would be rectified by the settlement.

Either an equitable settlement of accounts would take place, or it would not. If it did not, the greatly indebted States without an assumption would certainly fail of justice and due relief; if it did, with an assumption, the settlement would remedy any inequality which might have been occasioned by it, and restore equilibrium. An assumption and a settlement on right principles would ensure justice—no assumption and no settlement would ensure injustice. It was to be feared a settlement might not take effect. It was precarious and contingent. An assumption, of course, gave the greatest certainty of justice by an assumption or equalization of the condition of individuals. Pursuing such impressions, this must be deemed of more consequence than any thing which regarded the States in their corporate or collective capacities.

The most simple and satisfactory notion of justice was to secure that individuals of the same nation, who had contended in the same cause for the same object—their common liberty,—should, at the end of the contest, find themselves on an equal footing as to burdens arising from the contest.

Nothing could be more revolting than that the citizens of one State should live at ease free from taxes and the citizens of a neighboring State be overburthened with taxes growing out of a war which had given equal political advantages to the citizens of both States.

This condition of things previous to the assumption was remarkably exemplified between New York and Massachusetts, between New York and Connecticut. The citizens of New York scarcely paid any taxes, those of Massachusetts and Connecticut were heavily burthened. A like comparison though different in degree might be extended to other States.

The relative condition of States depended on many artificial circumstances. These circumstances might forever have stood in the way of that equality of condition among citizens which was infinitely the most important consideration and the most desirable attainment. The measure which went most directly and certainly to this object was to be preferred. The assumption was such a measure. By taking all the debts upon the Union, to be paid out of the common treasury, defrayed by common contribution according to general rules, the citizens of every State were on an equal footing. State provisions produced inequality from the inequality of their debts, from the inequality of adventitious resources, from the inequality of permanent abilities. Justice among individuals was better promoted in another way.

The New Government had given to the United States the exclusive possession of the branch of revenue which for a considerable time to come in this country is likely to be most productive. Had the government of the United States confined itself to a provision for the general debt, the proprietors of the particular debts would in several States have been not only in a very unequal, but in a very bad situation. Thus forms would have superseded substance. Men who had contributed their services and property to the support of the common cause at the instance of a State Government, would have fared worse than those who have done the same thing at the instance of the General Government. Did this comport with any rational and true scheme of justice which preferred natural to artificial consideration?

It would have been the more hard, unjust, and unnatural, because a great proportion of the State debts, had been originally contracted immediately with the United States and afterwards transferred to the particular State.

A still greater part was contracted in virtue of the requisitions of Congress upon the States, in which cases it was more reasonable to consider them as agents than as principals.

To resume.—The superiority of the plan of a joint provision over that of a separate provision in the view of justice consists in this:

That supposing a final equitable settlement of accounts between the States, either plan would produce eventual justice.

But the plan of assumption was most likely to expedite justice by the immediate relief which it gave to the overburthened States.

That setting aside the supposition of a final equitable settlement of accounts, the plan of assumption contained the best chance of success, by giving relief to the overburthened States, which would otherwise have remained without it, though from known circumstances there was a moral certainty of their being entitled to it.

That the assumption in every event better consulted justice by conducing to equalize in the first instance the burthen of citizens of the same country arising from a contest in a common cause, and by securing a simultaneous and equal provision for creditors who otherwise would have fared unequally.

These are the principal considerations that relate to justice. In the view of policy the argument is still more conclusive in favor of assumption.

continued in vol. ix.

[1]This paper and the one which follows are from the Hamilton MSS. in Washington, now printed here for the first time. They were not discovered in season for the volume on Taxation and Finance, where they belong, and are therefore added here to the miscellaneous papers. They are unfinished and incomplete, and the originals have marginal notes of points to be investigated. They are numbered 9 and 10 respectively but I have printed them in an inverse order because it seems to preserve the logical sequence of thought and subject better than the numerical arrangement. These two papers have no date, and there is no trace of any preceding numbers. It is possible that they were intended as part of the unfinished “Vindication of the Funding System” (Vol. iii., p. 1), but they are conceived on a much more elaborate and extensive plan, and while the “Vindication” belongs to the year 1791, these papers are clearly later than 1795, when Hamilton retired from office. Unfinished and unrevised as they are, these essays are to be ranked among the most remarkable of Hamilton’s financial papers. The second one is of especial interest, because it contains an exhaustive defence of the assumption measures—the most contested portion of Hamilton’s financial policy, and upon which his arguments and opinions in all their extent have never before been thoroughly known. The discovery of these papers, in a word, has made an important addition to Hamilton’s writings on finance, the subject in which above all others he was a master.

[1]In speaking of the public debt hereafter, to avoid circumlocution I shall denominate the original debt of the United States the general debt, and the separate debts of the respective States the particular debts. As often as these terms occur they are to be understood in this sense.

[1]Frigates and Carolinas.

[2]Penobscot expedition.

[3]Indian expeditions.

[1]Thus bounties for engaging men were in particular States regularly brought into account and vouched; in others, furnished at the expense of classes, no accounts were ever kept.

[2]Thus purchasers at exorbitant prices procured in some stations what coercion at regulated moderate prices procured in others.

[1]In attempts to provide for the interest, taxation had been carried in South Carolina to a length not short of any State, except Massachusetts and perhaps Connecticut.