Hamilton Answers Objections Respecting the Administration of Government

Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America’s first constitutional lawyers and the first United States Secretary of the Treasury.

Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America’s first constitutional lawyers and the first United States Secretary of the Treasury.

Alexander Hamilton: The Works of Alexander Hamilton, Volume 2

Objections and Answers Respecting the Administration of Government1

Objection 1.—The public debt is greater than we can possibly pay before other causes of adding to it will occur; and this has been artificially created by adding together the whole amount of the debtor and creditor sides of the accounts.

Answer.—The public debt was produced by the late war. It is not the fault of the present government that it exists, unless it can be proved that public morality and policy do not require of a government an honest provision for its debts. Whether it is greater than can be paid before new causes of adding to it will occur, is a problem incapable of being solved, but by experience; and this would be the case if it were not one fourth as much as it is. If the policy of the country be prudent, cautious, and neutral towards foreign nations, there is a rational probability that war may be avoided long enough to wipe off the debt. The Dutch, in a situation not near so favorable for it as that of the United States, have enjoyed intervals of peace longer than with proper exertions would suffice for the purpose. The debt of the United States, compared with its present and growing abilities, is really a very light one. It is little more than 15,000,000 of pounds sterling—about the annual expenditure of Great Britain.

But whether the public debt shall be extinguished or not, within a moderate period, depends on the temper of the people. If they are rendered dissatisfied by misrepresentations of the measures of the government, the government will be deprived of an efficient command of the resources of the community toward extinguishing the debt. And thus those who clamor are likely to be the principal causes of protracting the existence of the debt.

As to its having been artificially increased, this is denied; perhaps, indeed, the true reproach of the system which has been adopted is, that it has artificially diminished the debt, as will be explained by and by.

The assertion that the debt has been increased, by adding together the whole amount of the debtor and creditor sides of the account, not being easy to be understood, is not easy to be answered; but an answer shall be attempted.

The thirteen States, in their joint capacity, owed a certain sum. The same States, in their separate capacities, owed another sum. These two sums constitute the aggregate of the public debt. The public in a political sense, compounded of the governments of the Union and of the several States, was the debtor. The individuals who hold the various evidences of debt were the creditors. It would be nonsense to say, that the combining of the two parts of the public debt is adding together the debtor and creditor sides of the account. So great an absurdity cannot be supposed to be intended by the objection. Another meaning must therefore be sought for.

It may possibly exist in the following misconception. The States, individually, when they liquidated the accounts of individuals for services and supplies toward the common defence, during the late war, and gave certificates for the sums due, would naturally charge them to the United States as contributions to the common cause. The United States, in assuming to pay those certificates, charge themselves with them. And it may be supposed that here is a double charge for the same thing.

But as the amount of the sum assumed for each State is by the system adopted to be charged to such State, it of course goes in extinguishment of so much of the first charge as is equal to the sum assumed, and leaves the United States chargeable only once, as ought to be the case.

Or perhaps the meaning of the objection may be found in the following mode of reasoning. Some States, from having disproportionately contributed during the war, would probably on a settlement of accounts be found debtors, independently of the assumption. The assuming of the debts of such States increases the balances against them; and as these balances will ultimately be remitted, from the impracticability of enforcing their payment, the sum assumed will be an extra charge upon the United States, increasing the mass of the debt.

This objection takes it for granted, that the balances of the debtor States will not be exacted; which, by the way, is no part of the system, and if it should eventually not prove true, the foundation of the reasoning would fail. For it is evident, if the balances are to be collected, (unless there be some undiscovered error in the principle by which the accounts are to be adjusted,) that one side of the account will counterpoise the other, and every thing as to the quantum of debt will remain in statu quo.

But it shall be taken for granted, that the balances will be remitted; and still the consequence alleged does not result. The reverse of it may even take place. In reasoning upon this point, it must be remembered that impracticability would be alike an obstacle to the collection of balances, without, as with the assumption.

This being the case, whether the balances to be remitted will be increased or diminished must depend on the relative proportions of outstanding debts. If a former debtor State owes to individuals a smaller sum, in proportion to its contributive faculty, than a former creditor State, the assumption of the debts of both to be provided for out of a common fund raised upon them proportionally, must necessarily, on the idea of a remission of balances, tend to restore equality between them, and lessen the balance of the debtor State to be remitted.

How the thing may work upon the whole cannot be pronounced without a knowledge of the situation of the account of each State; but all circumstances that are known render it probable that the ultimate effect will be favorable to justice between the States, and that there will be inconsiderable balances either on one side or on the other.

It was observed, that perhaps the true reproach of the system which has been adopted is, that it has artificially decreased the debt. This is explained thus:

In the case of the debt of the United States, interest upon two thirds of the principal only, at six per cent., is immediately paid; interest upon the remaining third was deferred for ten years, and only three per cent. has been allowed upon the arrears of interest, making one third of the whole debt.

In the case of the separate debts of the States, interest upon four ninths only of the entire sum is immediately paid; interest upon two ninths was deferred for ten years, and only three per cent. allowed on three ninths.

The market rate of interest, at the time of adopting the funding system, was six per cent. Computing, according to this rate of interest, the then present value of one hundred dollars of debt, upon an average, principal and interest, was about seventy-three dollars.

At the present actual value, in the market, of one hundred dollars, as the several kinds of stock are sold, is no more than eighty-three dollars and sixty-one cents. This computation is not made on equal sums of the several kinds of stock, according to which the average value of one hundred dollars would be only seventy-eight dollars and seventy-five cents; but it is made on the proportions which constitute the mass of the debt.

At seventy-three to one hundred, the diminution on 60,000,000 is 16,200,000 dollars; at eighty-three dollars and sixty-one cents to one hundred, it is 9,834,000 dollars.

But as the United States, having a right to redeem in certain proportions, need never give more than par for the six per cents., the diminution to them, as purchasers at the present market prices, is 12,168,000 dollars.

If it be said that the United States are engaged to pay the whole sum, at the nominal value, the answer is, that they are always at liberty, if they have the means, to purchase at the market prices; and in all those purchases they gain the difference between the nominal sums and the lesser market rates.

If the whole debt had been provided for at six per cent., the market rate of interest when the funding system passed, the market value throughout would undoubtedly have been one hundred for one hundred. The debt may then rather be said to have been artificially decreased by the nature of the provision.

The conclusion from the whole is that, assuming it as a principle that the public debts of the different descriptions were honestly to be provided for and paid, it is the reverse of true that there has been an artificial increase of them. To argue on a different principle, is to presuppose dishonesty, and make it an objection to doing right.

Objection 2.—This accumulation of debt has taken for ever out of our power those easy resources of revenue which, applied to the ordinary necessities and exigencies of government, would have animated them habitually, and covered us from habitual murmurings against taxes and tax-gatherers;—reserving extraordinary calls for extraordinary occasions, would animate the people to meet them.

Answer.—There having been no accumulation of debt, if what is here pretended to have been the consequence were true, it would only be to be regretted as the unavoidable consequence of an unfortunate state of things. But the supposed consequence does by no means exist. The only sources of taxation which have been touched are imported articles, and the single internal object of distilled spirits; lands, houses, the great mass of personal as well as the whole of real property, remain essentially free.

In short, the chief sources of taxation are free for extraordinary conjunctures, and it is one of the distinguishing merits of the system which has been adopted, that it has rendered this far more the case than it was before. It is only necessary to look into the different States to be convinced of it. In most of them, real estate is wholly exempted. In some, very small burthens rest upon it for the purpose of the internal governments. In all, the burthens of the people have been lightened. It is a mockery of truth to represent the United States as a community burthened and exhausted by taxes.

Objection 3.—That the calls for money have been no greater than we must generally expect, for the same or equivalent exigencies; yet we are already obliged to strain the impost till it produces clamor, and will produce evasion, and war on our citizens to collect it, and even to resort to an excise law, of odious character with the people, partial in its operation, unproductive unless enforced by arbitrary and vexatious means, and committing the authority of the government, in parts where resistance is most probable and coercion least practicable.

Answer.—This is mere painting and exaggeration. With the exception of a very few articles, the duties on imports are still moderate—lower than in any other country of whose regulations we have knowledge, except, perhaps, Holland, where, having few productions or commodities of their own, their export trade depends on the exportation of foreign articles.

It is true that merchants have complained; but so they did of the first impost law, for a time; and so men always will do at an augmentation of taxes which touch the business they carry on, especially in a country where no, or scarcely any, such taxes before existed. The collection, it is not doubted, will be essentially secure. Evasions have existed, in a degree, and will continue to exist. Perhaps they may be somewhat increased, to what extent can only be determined by experience; but there are no symptoms to induce an opinion that they will materially increase. As to the idea of a war upon the citizens to collect the impost duties, it can only be regarded as a figure of rhetoric.

The excise law, no doubt, is a good topic of declamation; but can it be doubted that it is an excellent and a very fit means of revenue?

As to the partiality of its operation, it is no more so than any other tax on a consumable commodity, adjusting itself upon exactly the same principles. The consumer, in the main, pays the tax; and if some parts of the United States consume more domestic spirits, others consume more foreign, and both are taxed. There is, perhaps, upon the whole, no article of more general and equal consumption than distilled spirits.

As to its unproductiveness, unless enforced by arbitrary and vexatious means, facts testify the contrary. Already, under all the obstacles arising from its novelty and the prejudices against it in some States, it has been considerably productive; and it is not enforced by any arbitrary or vexatious means; at least, the precautions in the existing laws for the collection of the tax will not appear in that light but to men who regard all taxes, and all the means of enforcing them, as arbitrary and vexatious.

Here, however, there is abundant room for fancy to operate. The standard is in the mind, and different minds will have different standards.

The observation relating to the commitment of the authority of the government, in parts where resistance is most probable and coercion least practicable, has more weight than any other part of this objection. It must be confessed that a hazard of this nature has been run; but if there were motives sufficiently cogent for it, it was wisely run. It does not follow that a measure is bad because it is attended with a degree of danger.

The general inducements to a provision for the public debt are:

1. To preserve the public faith and integrity, by fulfilling, as far as was practicable, the public engagements.
2. To manifest a due respect for property, by satisfying the public obligations in the hands of the public creditors, and which were as much their property as their houses or their lands, their hats or their coats.
3. To revive and establish public credit, the palladium of public safety.
4. To preserve the government itself, by showing it worthy of the confidence which was placed in it; to procure to the community the blessings which in innumerable ways attend confidence in the government, and to avoid the evils which in as many ways attend the want of confidence in it.

A mind naturally attached to order and system, and capable of appreciating their immense value, unless misled by particular feelings, is struck at once with the prodigious advantages which, in the course of time, must attend such a simplification of the financial affairs of the country as results from placing all the parts of the public debt upon one footing, under one direction, regulated by one provision. The want of this sound policy has been a continual source of disorder and embarrassment in the affairs of the United Netherlands.

The true justice of the case of the public debt consists in that equalization of the condition of the citizens of all the States which must arise from a consolidation of the debt and common contributions towards its extinguishment. Little inequalities as to the past can bear no comparison with the more lasting inequalities which, without the assumption, would have characterized the future condition of the people of the United States, leaving upon those who had done most, or suffered most, a great additional weight of burden.

If the foregoing inducements to a provision for the public debt (including an assumption of the State debts) were sufficiently cogent, then the justification of the excise laws lies within a narrow compass. Some further source of revenue, besides the duties on imports, was indispensable, and none equally productive would have been so little exceptionable to the mass of the people.

Other reasons co-operated in the minds of some able men to render an excise at an early period desirable. They thought it well to lay hold of so valuable a resource of revenue before it was generally preoccupied by the State governments. They supposed it not amiss that the authority of the national government should be visible in some branch of internal revenue, lest a total non-exercise of it should beget an impression that it was never to be exercised, and next, that it ought not to be exercised. It was supposed, too, that a thing of the kind could not be introduced with a greater prospect of easy success than at a period when the government enjoyed the advantage of first impressions, when State factions to resist its authority were not yet matured, when so much aid was to be derived from the popularity and firmness of the actual Chief Magistrate.

Facts hitherto do not indicate the measure to have been rash or ill advised. The law is in operation with perfect acquiescence in all the States north of New York, though they contribute most largely. In New York and New Jersey it is in full operation, with some very partial complainings fast wearing away. In the greater part of Pennsylvania it is in operation, and with increasing good humor towards it. The four western counties continue exceptions. In Delaware it has had some struggle, which, by the last accounts, was surmounted. In Maryland and Virginia it is in operation, and without material conflict. In South Carolina it is now in pretty full operation, though in the interior parts it has had some serious opposition to overcome. In Georgia no material difficulty has been experienced. North Carolina, Kentucky, and the four western counties of Pennsylvania, present the only remaining impediments of any consequence to the full execution of the law. The latest advices from North Carolina and Kentucky were more favorable than the former.

It may be added as a well-established fact, that the effect of the law has been to encourage new enterprises in most of the States in the business of domestic distillation. A proof that it is perceived to operate favorably to the manufacture, and that the measure cannot long remain unpopular anywhere.

Objection 4.—Propositions have been made in Congress, and projects are on foot still to increase the mass of the debt.

Answer.—Propositions have been made, and no doubt will be renewed by the States interested, to complete the assumption of the State debts. This would add in the first instance to the mass of the debt of the United States between three and four millions of dollars, but it would not increase the mass of the public debt at all. It would only transfer from particular States to the Union debts which already exist, and which, if the States indebted are honest, must be provided for. It happens that Massachusetts and South Carolina would be chiefly benefited. And there is a moral certainty that Massachusetts will have a balance in her favor more than equal to her remaining debt, and a probability that South Carolina will have a balance sufficient to cover hers. So that there is not likely to be an eventual increase even of the debt of the United States by the further assumption. The immense exertions of Massachusetts during the late war, and particularly in the late periods of it when too many of the States failed in their federal duty, are known to every well-informed man. It would not be too strong to say, that they were in a great degree the pivot of the Revolution. The exertions, sufferings, sacrifices, and losses of South Carolina need not be insisted upon.

The other States have comparatively none or inconsiderable debts. Can that policy be condemned which aims at putting the burdened States upon an equal footing with the rest? Can that policy be very liberal which resists so equitable an arrangement? It has been said that if they had exerted themselves since the peace, their situation would have been different. But Massachusetts threw her citizens into rebellion by heavier taxes than were paid in any other State, and South Carolina has done as much since the peace as could have been expected, considering the exhausted state in which the war left her.

The only proposition during the last session, or at any antecedent one, which would truly have swelled the debt artificially, was one which Mr. Madison made in the first session, and which was renewed in the last, and generally voted for by those who opposed the system that has prevailed. The object of this proposition was, that all the parts of the State debts which have been paid, or otherwise absorbed by them, should be assumed for the benefit of the States and funded by the United States. This measure, if it had succeeded, would truly have produced an immense artificial increase of the debt, but it has twice failed, and there is no probability that it will ever succeed.

Objection 5.—They say that by borrowing at two thirds of the interest we might have paid off the principal in two thirds of the time, but that from this we are precluded by its being made irredeemable but in small portions and long terms.

Answer.—First. All the foreign loans which were made by the United States prior to the present government, taking into the calculation charges and premiums, cost them more than six per cent. Since the establishment of the present government, they borrowed first at about five and a quarter, including charges, and since, at about four and a quarter, including charges. And it is questionable, in the present state of Europe, whether they can obtain any further loans at so low a rate.

The system which is reprobated is the very cause that we have been able to borrow on so good terms. If one that would have inspired less confidence, certainly if the substitutes which have been proposed, from a certain quarter, had obtained, we could not have procured loans even at six per cent. The Dutch were largely adventurers in our domestic debt before the present government. They did not embark far till they had made inquiries of influential public characters, as to the light in which the debt was and would be considered in the hands of alienees—and had received assurance that assignees would be regarded in the same light as original holders. What would have been the state of our credit with them, if they had been disappointed, or indeed if our conduct had been in any respect inconsistent with the notions entertained in Europe concerning the maxims of public credit?

The inference is, that our being able to borrow on low terms is a consequence of the system which is the object of censure, and that the thing itself, which is made the basis of another system, would not have existed under it.

Secondly. It will not be pretended that we could have borrowed at the proposed low rate of interest in the United States; and all our exertions to borrow in Europe, which have been unremitted, as occasions presented, have not hitherto produced above —— dollars, not even a sufficient sum to change the form of our foreign debt.

Thirdly. If it were possible to borrow the whole sum abroad within a short period, to pay off our debt, it is not easy to imagine a more pernicious operation than this would have been. It would first have transferred to foreigners, by a violent expedient, the whole amount of our debt; and creating a money plethora in the country, a momentary scene of extravagance would have followed, and the excess would quickly have flowed back;—the evils of which situation need not be enlarged upon.

If it be said that the operation might have been gradual, then the end proposed would not have been attained.

Lastly. The plan which has been adopted secures, in the first instance, the identical advantage which in the other plan would have been eventual and contingent. It puts one third of the whole debt at an interest of three per cent. only, and by deferring the payment of interest on a third of the remainder, effectually reduces the interest on that part. It is evident that a suspension of interest is in fact a reduction of interest. The money which would go towards paying interest in the interval of suspension is an accumulating fund, to be applied towards payment of it when it becomes due, reducing the provision then to be made.

In reality, on the principles of the funding system, the United States reduced the interest on their whole debt, upon an average, to about four and a half per cent., nearly the lowest rate they have any chance to borrow at, and lower than they could possibly have borrowed at in an attempt to reduce the interest on the whole capital by borrowing and paying, probably by one per cent. A demand for large loans, by forcing the market, would unavoidably have raised their price upon the borrower. The above average of four and a half per cent. is found by calculation, computing the then present value of the deferred stock at the time of passing the funding acts, and of course three per cent. on the three per cent. stock.

The funding system, then, secured in the very outset the precise advantage which it is alleged would have accrued from having the whole debt redeemable at pleasure. But this is not all. It did more. It left the government still in a condition to enjoy upon five ninths of the entire debt the advantage of extinguishing it, by loans at a low rate of interest, if they are obtainable. The three per cents, which are one third of the whole, may always be purchased in the market below par, till the market rate of interest falls to three per cent. The deferred will be purchasable below par, till near the period of the actual payment of interest. And this further advantage will result: in all those purchases the public will enjoy, not only the advantage of a reduction of interest on the sums borrowed, but the additional advantage of purchasing the debt under par, that is, for less than twenty shillings in the pound.

If it be said that the like advantage might have been enjoyed under another system, the assertion would be without foundation. Unless some equivalent had been given for the reduction of interest in the irredeemable quality annexed to the debt, nothing was left, consistently with the principles of public credit, but to provide for the whole debt at six per cent. This evidently would have kept the whole at par, and no advantage could have been derived by purchases under the nominal value. The reduction of interest, by borrowing at a lower rate, is all that would have been practicable, and this advantage has been secured by the funding system in the very outset, and without any second process.

If no provision for the interest had been made, not only public credit would have been sacrificed, but by means of it the borrowing at a low rate of interest, or at any rate, would have been impracticable.

There is no reproach which has been thrown upon the funding system so unmerited as that which charges it with being a bad bargain for the public, or with a tendency to prolong the extinguishment of the debts. The bargain has, if any thing, been too good on the side of the public; and it is impossible for the debt to be in a more convenient form than it is for a rapid extinguishment.

Some gentlemen seem to forget that the faculties of every country are limited. They talk as if the government could extend its revenue ad libitum to pay off the debt. Whereas every rational calculation of the abilities of the country will prove, that the power of redemption which has been reserved over the debt is quite equal to those abilities, and that a greater power would be useless. If happily the abilities of the country should exceed this estimate, there is nothing to hinder the surplus being employed in purchases. As long as the three per cents and deferred exist, those purchases will be under par. If for the stock bearing an immediate interest of six per cent., more than par is given, the government can afford it from the saving made in the first instance.

Upon the whole, then, it is the merit of the funding system to have conciliated these three important points—the restoration of public credit, a reduction of the rate of interest, and an organization of the debt convenient for speedy extinguishment.

Objection 6.—That this irredeemable quality was given to the debt for the avowed purpose of inviting its transfer to foreign countries.

Answer.—This assertion is a palpable misrepresentation. The avowed purpose of that quality of the debt, as explained in the report of the Secretary of the Treasury, and in the arguments in Congress, was to give an equivalent for the reduction of interest—that is, for deferring the payment of interest on one third of the principal for three years, and for allowing only three per cent. on the arrears of interest.

It was indeed argued, in confirmation of the reality of the equivalent, that foreigners would be willing to give more where a high rate of interest was fixed, than where it was liable to fluctuate with the market. And this has been verified by the fact—for the six per cents could not have risen for a moment above par, if the rate could have been lowered by redeeming the debt at pleasure. But the inviting of the transfer to foreigners was never assigned as a motive to the arrangement.

And what is more, that transfer will be probably slower with the portion of irredeemability which is attached to the debt than without it, because a larger capital would be requisite to purchase one hundred dollars in the former than in the latter case. And the capital of foreigners is limited as well as our own.

It appears to be taken for granted, that if the debt had not been funded in its present shape, foreigners would not have purchased it as they now do; than which nothing can be more ill-founded or more contrary to experience. Under the old Confederation, when there was no provision at all, foreigners had purchased five or six millions of the debt. If any provision had been made, capable of producing confidence, their purchases would have gone on just as they now do; and the only material difference would have been that what they got from us then would have cost them less than what they now get from us does cost them. Whether it is to the disadvantage of the country that they pay more, is submitted.

Even a provision which should not have inspired full confidence would not have prevented foreign purchases. The commodity would have been cheap in proportion to the risks to be run. And full-handed Dutchmen would not have scrupled to amass large sums for trifling considerations, in the hope that time and experience would introduce juster notions into the public councils.

Our debt would still have gone from us, and with it our reputation and credit.

Objection 7.—They predict that this transfer of the principal, when completed, will occasion an exportation of three millions of dollars annually for the interest; a drain of coin, of which, as there has been no example, no calculation can be made of its consequences.

Answer.—The same gloomy forebodings were heard in England in the early periods of its funding system. But they have never been realized. The money invested by foreigners in the purchase of its debt, being employed in its commerce, agriculture, and manufactures, increased the capital and wealth of the nation more than in proportion to the annual drain for the payment of interest, and created the ability to bear it.

The objection seems to forget that the debt is not transferred for nothing; that the capital paid for the debt is always an equivalent for the interest to be paid to the purchaser. If that capital is well employed in a young country like this, it must be considerably increased, so as to yield a greater revenue than the interest of the money. The country therefore will be a gainer by it, and will be able to pay the interest without inconvenience.

But the objectors suppose that all the money which comes in goes out again, in an increased consumption of foreign luxuries. This, however, is taking for granted what never happened in any industrious country, and what appearances among us do not warrant. The expense of living, generally speaking, is not sensibly increased. Large investments are every day making in ship-building, house-building, manufactures, and other improvements, public and private.

The transfer, too, of the whole debt, is a very improbable supposition; a large part of it will continue to be owned by our own citizens. And the interest of that part which is owned by foreigners will not be annually exported, as is supposed. A considerable part will be invested in new speculations—in lands, canals, roads, manufactures, commerce. Facts warrant this supposition. The agents of the Dutch have actually made large investments in a variety of such speculations.

A young country like this is peculiarly attractive. New objects will be continually opening, and the money of foreigners will be made instrumental to their advancement.

Objection 8.—That the banishment of our coin will be completed by the creation of ten millions of paper money, in the form of bank bills, now issuing into circulation.

Answer.—This is a mere hypothesis, in which theorists differ. There are no decisive facts on which to rest the question.

The supposed tendency of bank paper to banish specie is from its capacity of serving as a substitute for it in circulation. But as the quantity circulated is proportioned to the demand for it in circulation, the presumption is that a greater quantity of industry is put in motion by it, so as to call for a proportionally greater quantity of circulating medium and prevent the banishment of the specie. But however this may be, it is agreed among sound theorists, that banks more than compensate for the loss of the specie in other ways. Smith, who was witness to their effects in Scotland, where too a very adverse fortune attended some of them, bears his testimony to their beneficial effects in these strong terms (Wealth of Nations, Vol. I., Book II., Chap. 11, pages 441 to 444).

Objection 9.—They think the ten or twelve per cent. annual profit paid to the lenders of this paper medium are taken out of the pockets of the people, who would have had without interest the coin it is banishing.

Answer.—1. The profits of the bank have not hitherto exceeded the rate of eight per cent. per annum, and perhaps never may. It is questionable whether they can legally make more than ten per cent.

2. These profits can in no just sense be said to be taken out of the pockets of the people. They are compounded of two things: 1st, the interest paid by the government on that part of the public debt which is incorporated in the stock of the bank; 2d, the interest paid by those individuals who borrow money of the bank on the sums they borrow.

As to the first, it is no new grant to the bank. It is the old interest on a part of the old debt of this country, substituted by the proprietors of that debt towards constituting the stock of the bank. It would have been equally payable if the bank had never existed. It is, therefore, nothing new taken out of the pockets of the people.

As to the second, it may with equal propriety be said, when one individual borrows money of another, that the interest which the borrower pays to the lender is taken out of the pockets of the people. The case here is not only parallel, but the same. It is the case of one or more individuals borrowing money of a company of individuals associated to lend. None but the actual borrowers pay in either case; the rest of the community have nothing to do with it.

If a man receives a bank bill for the ox or the bushel of wheat which he sells, he pays no more interest upon it than upon the same sum in gold or silver—that is, he pays none at all.

So that, whether the paper banishes specie or not, it is the same thing to every individual through whose hands it circulates, as to the point of interest. Specie no more than bank paper can be borrowed without paying interest for it; and when either is not borrowed no interest is paid. As far as the government is a sharer in the profits of the bank, which is in the proportion of one fifth, the contrary of what is supposed happens: money is put into the pockets of the people.

All this is so plain and so palpable, that the assertion which is made betrays extreme ignorance or extreme disingenuousness. It is destitute even of color.

Objection 10.—That all the capital employed in paper speculations is barren and useless, producing, like that on a gaming-table, no accession to itself, and is withdrawn from commerce and agriculture, where it would have produced addition to the common mass.

Answer.—This is a copious subject, which has been fully discussed in the report of the Secretary of the Treasury, on the subject of manufactures.2 It is true that the capital—that is, the specie which is employed in paper speculation,—while so employed, is barren and useless, but the paper itself constitutes a new capital, which, being salable and transferable at any moment, enables the proprietor to undertake any piece of business as well as an equal sum in coin; and as the amount of the debt circulated is much greater than the amount of specie which circulates it, the new capital put in motion by it considerably exceeds the old one, which is suspended, and there is more capital to carry on the productive labor of the society. Every thing that has value is capital—an acre of ground, a horse, or a cow, or a public or private obligation, which may, with different degrees of convenience, be applied to industrious enterprise. That which, like public stock, can at any instant be turned into money, is of equal utility with money as capital. Let it be examined, whether at those places where there is most debt afloat, and most money employed in its circulation, there is not at the same time a greater plenty of money for every other purpose. It will be found that there is.

But it is a fact quite immaterial to the government, as far as regards the propriety of its measures.

The debt existed; it was to be provided for. In whatever shape the provision was made, the object of speculation and the speculation would have existed. Nothing but abolishing the debt could have obviated it. It is, therefore, the fault of the Revolution, not of the government, that paper speculation exists. An unsound or precarious provision would have increased this species of speculation in its most odious forms; the defects and casualties of the system would have been as much subjects of speculation as the debt itself.

The difference is, that under a bad system the public stock would have been too uncertain an article to be a substitute for money, and all the money employed in it would have been diverted from useful employment, without any thing to compensate for it. Under a good system, the stock becomes more than a substitute for the money employed in negotiating it.

Objection 11.—Paper Speculation. That it nourishes in our citizens vice and idleness, instead of industry and morality.

Answer.—This proposition, within certain limits, is true. Jobbing in the funds has some bad effects among those engaged in it. It fosters a spirit of gambling, and diverts a certain number of individuals from other pursuits. But if the proposition be true, that stock operates as capital, the effect upon the citizens at large is different. It promotes among them industry, by furnishing a larger field of employment. Though this effect of a funded debt has been called in question in England by some theorists, yet most theorists and all practical men allow its existence. And there is no doubt, as already intimated, that if we look into those scenes among ourselves where the largest portions of the debt are accumulated, we shall perceive that a new spring has been given to industry in various branches.

But, be all this as it may, the observation made under the last head applies here. The debt was the creature of the Revolution. It was to be provided for. Being so, in whatever form, it must have become an object of speculation and jobbing.

Objection 12.—The funding of the debt has furnished effectual means of corrupting such a portion of the Legislature as turns the balance between the honest voters whichever way it is directed.

Answer.—This is one of those assertions which can only be denied, and pronounced to be malignant and false. No facts exist to support it, and being a mere matter of fact, no argument can be brought to repel it.

The assertors beg the question. They assume to themselves, and to those who think with them, infallibility. Take their words for it, they are the only honest men in the community. But compare the tenor of men’s lives, and at least as large a portion of virtuous and independent characters will be found among those whom they malign as among themselves.

A member of the majority of the Legislature would say to these defamers: “In your vocabulary, gentlemen, Creditor and Enemy appear to be synonymous terms; the support of public credit, and corruption, of similar import; an enlarged and liberal construction of the Constitution, for the public good and for the maintenance of the due energy of the national authority, of the same meaning with usurpation and a conspiracy to overturn the republican government of the country; every man of a different opinion from your own, an ambitious despot or a corrupt knave. You bring every thing to the standard of your narrow and depraved ideas, and you condemn without mercy or even decency whatever does not accord with it. Every man who is either too short or too long for your political couch must be stretched or lopped to suit it. But your pretensions must be rejected, your insinuations despised. Your politics originate in immorality, in a disregard of the maxims of good faith and the rights of property, and if they could prevail must end in national disgrace and confusion. Your rules of construction for the authorities, vested in the government of the Union, would arrest all its essential movements, and bring it back in practice to the same state of imbecility which rendered the old Confederation contemptible. Your principles of liberty are principles of licentiousness incompatible with all government. You sacrifice every thing that is venerable and substantial in society to the vain reveries of a false and newfangled philosophy. As to the motives by which I have been influenced, I leave my general conduct in private and public life to speak for them. Go and learn among my fellow-citizens whether I have not uniformly maintained the character of an honest man. As to the love of liberty and country, you have given no stronger proofs of being actuated by it than I have done;—cease, then, to arrogate to yourself and to your party all the patriotism and virtue of the country. Renounce, if you can, the intolerant spirit by which you are governed, and begin to reform yourself, instead of reprobating others, by beginning to doubt of your own infallibility.”

Such is the answer which would naturally be given by a member of the majority of the Legislature to such an objection. And it is the only one that could be given, until some evidence of the supposed corruption should be produced.

As far as I know there is not a member of the Legislature who can properly be called a stock-jobber or a paper-dealer. There are several of them who were proprietors of public debt in various ways; some for money lent and property furnished for the use of the public during the war; others for sums received in payment of debts, and it is supposable enough that some of them had been purchasers of the public debt, with intention to hold it as a valuable and convenient property, considering an honorable provision for it as a matter of course.

It is a strange perversion of ideas, and as novel as it is extraordinary, that men should be deemed corrupt and criminal for becoming proprietors in the funds of their country. Yet I believe the number of members of Congress is very small who have ever been considerable proprietors in the funds. As to improper speculations on measures depending before Congress, I believe never was any body of men freer from them.

There are, indeed, several members of Congress who have become proprietors in the Bank of the United States, and a few of them to a pretty large amount, say fifty or sixty shares. But all operations of this kind were necessarily subsequent to the determination upon the measure; the subscriptions were of course subsequent, and purchases still more so. Can there be any thing really blamable in this? Can it be culpable to invest property in an institution which has been established for the most important national purposes? Can that property be supposed to corrupt the holder? It would indeed tend to render him friendly to the preservation of the bank; but in this, there would be no collision between duty and interest, and it would give him no improper bias on other questions.

To uphold public credit, and to be friendly to the bank, must be presupposed to be corrupt things, before the being a proprietor in the funds, or of bank stock, can be supposed to have a corrupting influence. The being a proprietor, in either case, is a very different thing from being, in a proper sense of the term, a stock-jobber.

On this point of the corruption of the Legislature, one more observation of great weight remains. Those who oppose a funded debt, and mean any provision for it, contemplate an annual one.

Now it is impossible to conceive a more fruitful source of legislative corruption than this. All the members of it who should incline to speculate would have an annual opportunity of speculating upon their influence in the Legislature to promote, or retard, or put off a provision. Every session the question whether the annual provision should be continued, would be an occasion of pernicious caballing and corrupt bargaining. In this very view, when the subject was in deliberation, it was impossible not to wish it decided upon once for all, and out of the way.

Objection 13.—The corrupt squadron deciding the voice of the Legislature have manifested their disposition to get rid of the limitations imposed by the Constitution on the general Legislature; limitations, on the faith of which the States acceded to that instrument.

Answer.—Here again the objectors beg the question. They take it for granted that their constructions of the Constitution are right, and that the opposite ones are wrong; and with great good nature and candor ascribe the effect of a difference of opinion to a disposition to get rid of the limitations on the government.

Those who have advocated the constructions which have obtained, have met their opponents on the ground of fair argument, and they think have refuted them. How shall it be determined which side is right?

There are some things which the general government has clearly a right to do. There are others which it has clearly no right to meddle with; and there is a good deal of middle ground, about which honest and well-disposed men may differ. The most that can be said is, that some of this middle ground may have been occupied by the national Legislature, and this surely is no evidence of a disposition to get rid of the limitations in the Constitution, nor can it be viewed in that light by men of candor.

The truth is, one description of men is disposed to do the essential business of the nation, by a liberal construction of the powers of the government; another, from disaffection, would fritter away those powers; a third, from an overweening jealousy, would do the same thing; a fourth, from party and personal opposition, are torturing the Constitution into objections to every thing they do not like.

The bank is one of the measures which is deemed by some the greatest stretch of power, and yet its constitutionality has been established in the most satisfactory manner.

And the most incorrigible theorist among its opponents would, in one month’s experience, as head of the department of the Treasury, be compelled to acknowledge that it is an absolutely indispensable engine in the management of the finances, and would quickly become a convert to its perfect constitutionality.

Objection 14.—The ultimate object of all this is to prepare the way for a change from the present republican form of government to that of a monarchy, of which the British constitution is to be the model.

Answer.—To this there is no other answer than a flat denial, except this: that the project, from its absurdity, refutes itself.

The idea of introducing a monarchy or aristocracy into this country, by employing the influence and force of a government continually changing hands, toward it, is one of those visionary things that none but madmen could meditate, and that no wise man will believe.

If it could be done at all, which is utterly incredible, it would require a long series of time, certainly beyond the life of any individual, to effect it. Who, then, would enter into such a plot? for what purpose of interest or ambition?

To hope that the people may be cajoled into giving their sanctions to such institutions is still more chimerical. A people so enlightened and so diversified as the people of this country can surely never be brought to it, but from convulsions and disorders, in consequence of the arts of popular demagogues.

The truth unquestionably is, that the only path to a subversion of the republican system of the country is by flattering the prejudices of the people, and exciting their jealousies and apprehensions, to throw affairs into confusion, and bring on civil commotion. Tired at length of anarchy or want of government, they may take shelter in the arms of monarchy for repose and security.

Those, then, who resist a confirmation of public order are the true artificers of monarchy. Not that this is the intention of the generality of them. Yet it would not be difficult to lay the finger upon some of their party who may justly be suspected. When a man, unprincipled in private life, desperate in his fortune, bold in his temper, possessed of considerable talents, having the advantage of military habits, despotic in his ordinary demeanor, known to have scoffed in private at the principles of liberty; when such a man is seen to mount the hobby-horse of popularity, to join in the cry of danger to liberty, to take every opportunity of embarrassing the general government and bringing it under suspicion, to flatter and fall in with all the nonsense of the zealots of the day, it may justly be suspected that his object is to throw things into confusion, that he may “ride the storm and direct the whirlwind.”

It has aptly been observed, that Cato was the Tory, Cæsar the Whig of his day. The former frequently resisted, the latter always flattered, the follies of the people. Yet the former perished with the republic—the latter destroyed it.

No popular government was ever without its Catilines and its Cæsars—these are its true enemies.

As far as I am informed, the anxiety of those who are calumniated is to keep the government in the state in which it is, which they fear will be no easy task, from a natural tendency in the state of things to exalt the local on the ruins of the national government. Some of them appear to wish, in a constitutional way, a change in the judiciary department of the government, from an apprehension that an orderly and effectual administration of justice cannot be obtained without a more intimate connection between the State and National tribunals. But even this is not an object of any set of men as a party. There is a difference of opinion about it, on various grounds, among those who have generally acted together. As to any other change of consequence, I believe nobody dreams of it.

It is curious to observe the anticipations of the different parties. One side appears to believe that there is a serious plot to overturn the State governments, and substitute a monarchy to the present republican system. The other side firmly believes that there is a serious plot to overturn the general government, and elevate the separate power of the States upon its ruins. Both sides may be equally wrong, and their mutual jealousies may be naturally causes of the appearances which mutually disturb them and sharpen them against each other.

Objection 15.—This charge, that this change (i.e., from a republic to a monarchy) was contemplated in the convention, they say is no secret, because its partisans have made none of it—to effect it then was impracticable; but they are still eager after their object, and are predisposing every thing for its ultimate attainment.

Answer.—This is a palpable misrepresentation. No man that I know of contemplated the introducing into this country a monarchy. A very small number (not more than three or four) manifested theoretical opinions favorable in the abstract to a constitution like that of Great Britain; but every one agreed that such a constitution, except as to the general distribution of departments and powers, was out of the question in reference to this country. The member who was most explicit on this point (a member from New York) declared in strong terms that the republican theory ought to be adhered to in this country as long as there was any chance of its success; that the idea of a perfect equality of political rights among the citizens, exclusive of all permanent or hereditary distinctions, was of a nature to engage the good wishes of every good man, whatever might be his theoretic doubts; that it merited his best efforts to give success to it in practice; that hitherto, from an incompetent structure of the government, it had not had a fair trial, and that the endeavor ought then to be to secure to it a better chance of success by a government more capable of energy and order.

There is not a man at present in either branch of the Legislature who, that I recollect, had held language in the convention favorable to monarchy.

The basis, therefore, of this suggestion fails.

Objection 16.—So many of them have got into the Legislature, that, aided by the corrupt squadron of paper dealers, who are at their devotion, they make a majority in both Houses.3

Answer.—This has been answered above. Neither description of character is to be found in the Legislature. In the Senate there are nine or ten who were members of the convention; in the House of Representatives, not more than six or seven.4 Of those who are in the last-mentioned House, none can be considered as influential but Mr. Madison and Mr. Gerry. Are they monarchy men?

As to the 17th, 18th, and 19th heads:

Objection 17.—The republican party who wish to preserve the government in its present form are fewer, even when joined by the two, three, or half a dozen anti-federalists, who, though they dare not avow it, are still opposed to any general government; but, being less so to a republican than a monarchical one, they naturally join those whom they think pursuing the lesser evil.

Objection 18.—Of all the mischiefs objected to the system of measures before mentioned, none, they add, is so afflicting, and fatal to every honest hope, as the corruption of the Legislature; as it was the earliest of these measures, it became the instrument for producing the rest, and will be the instrument for producing in future a king, lords, and commons, or whatever else those who direct it may choose. Withdrawn such a distance from the eye of their constituents, and these so dispersed as to be inaccessible to public information, and particularly to that of the conduct of their own representatives, they will form the worst government upon earth, if the means of their corruption be not prevented.

Objection 19.—The only hope of safety, they say, hangs now on the numerous representation which is to come forward the ensuing year; but should the majority of the new members be still in the same principles with the present—show so much dereliction to republican government, and such a disposition to encroach upon or explain away the limited powers of the Constitution, in order to change it,—it is not easy to conjecture what would be the result, nor what means would be resorted to for correction of the evil. True wisdom, they acknowledge, should direct temperate and peaceable measures, but add, the division of sentiment and interest happens, unfortunately, to be so geographical, that no mortal can say that what is most wise and temperate would prevail against what is more easy and obvious. They declare they can contemplate no evil more incalculable than the breaking of the Union into two or more parts; yet when they view the mass which opposed the original coalescence—when they consider that it lay chiefly in the Southern quarter—that the Legislature have availed themselves of no occasion of allaying it, but, on the contrary, whenever Northern and Southern prejudices have come into conflict, the latter have been sacrificed and the former soothed.5

They are rather inferences from and comments upon what is before suggested, than specific objections. The answer to them must therefore be derived from what is said under other heads.

It is certainly much to be regretted that party discriminations are so far geographical as they have been, and that ideas of a severance of the Union are creeping in both North and South. In the South, it is supposed that more government than is expedient is desired by the North. In the North, it is believed that the prejudices of the South are incompatible with the necessary degree of government, and with the attainment of the essential ends of national union. In both quarters there are respectable men, who talk of separation as a thing dictated by the different geniuses and different prejudices of the parts. But happily their number is not considerable, and the prevailing sentiment of the people is in favor of their true interest, UNION. And it is to be hoped that the efforts of wise men will be able to prevent a schism which would be injurious in different degrees to different portions of the Union, but would seriously wound the prosperity of all.

As to the sacrifice of Southern to Northern prejudices—if the conflict has been between prejudices and prejudices, it is certainly to be wished, for mutual gratification, that there had been mutual concession; but if the conflict has been between great and substantial national objects on the one hand, and theoretical prejudices on the other, it is difficult to desire that the former should in any instance have yielded.

Objection 20.—The owners of the debt are in the Southern, and the holders of it in the Northern, division.

Answer.—If this were literally true, it would be no argument for or against any thing. It would be still politically and morally right for the debtors to pay their creditors.

But it is in no sense true. The owners of the debt are the people of every State, South, Middle, and North. The holders are the individual creditors—citizens of the United Netherlands, Great Britain, France, and of these States, North, Middle, South. Though some men, who constantly substitute hypothesis to fact, imagination to evidence, assert and reassert that the inhabitants of the South contribute more than those of the North, yet there is no pretence that they contribute all; and even the assertion of greater contribution is unsupported by documents, facts, or, it may be added, probabilities. Though the inhabitants of the South manufacture less than those of the North, which is the great argument, yet it does not follow that they consume more of taxable articles. It is a solid answer to this, that whites live better, wear more and better clothes, and consume more luxuries, than blacks, who constitute so considerable a part of the population of the South; that the inhabitants of cities and towns, which abound so much more in the North than in the South, consume more of foreign articles than the inhabitants of the country; that it is a general rule, that communities consume and contribute in proportion to their active or circulating wealth, and that the Northern regions have more active or circulating wealth than the Southern.

If official documents are consulted, though, for obvious reasons, they are not decisive, they contradict rather than confirm the hypothesis of greater proportional contribution in the Southern division.

But, to make the allegation in the objection true, it is necessary not merely that the inhabitants of the South should contribute more, but that they should contribute all.

It must be confessed that a much larger proportion of the debt is owned by inhabitants of the States from Pennsylvania to New Hampshire, inclusively, than in the States south of Pennsylvania.

But as to the primitive debt of the United States, that was the case in its original concoction. This arose from two causes: first, from the war having more constantly been carried on in the Northern quarter, which led to obtaining more men and greater supplies in that quarter, and credit having been for a considerable time the main instrument of the government, a consequent accumulation of debt in that quarter took place; secondly, from the greater ability of the Northern and Middle States to furnish men, money, and other supplies, and from the greater quantities of men, money, and other supplies which they did furnish. The loan-office debt, the army debt, the debt of the five great departments, was contracted in a much larger proportion in the Northern and Middle, than in the Southern, States.

It must be confessed, too, that by the attraction of a superior moneyed capital the disparity has increased, but it was great in the beginning.

As to the assumed debt, the proportion in the South was at the first somewhat larger than in the North, and it must be acknowledged that this has since, from the same superiority of moneyed capital in the North, ceased to be the case.

But if the Northern people who were originally greater creditors than the Southern, have become still more so as purchasers, is it any reason that an honorable provision should not be made for their debt? Or is the government to blame for having made it? Did the Northern people take their property by violence from the Southern, or did they purchase and pay for it?

It may be answered that they obtained considerable part of it by speculation, taking advantage of superior opportunities of information.

But admitting this to be true in all the latitude in which it is commonly stated, is a government to bend the general maxims of policy and to mould its measures according to the accidental course of private speculations? Is it to do this, or omit that, in cases of great national importance, because one set of individuals may gain, another lose, from unequal opportunities of information, from unequal degrees of resource, craft, confidence, or enterprise?

Moreover, there is much exaggeration in stating the manner of the alienation of the debt. The principal speculations in State debts, whatever may be pretended, certainly began after the promulgation of the plan for assuming by the report of the Secretary of the Treasury to the House of Representatives. The resources of individuals in this country are too limited to have admitted of much progress in purchases before the knowledge of that plan was diffused throughout the country. After that, purchasers and sellers were upon equal ground. If the purchasers speculated upon the sellers, in many instances the sellers speculated upon the purchasers. Each made his calculation of chances, and founded upon it an exchange of money for certificates. It has turned out generally that the buyer had the best of the bargain, but the seller got the value of his commodity according to his estimate of it, and probably in a great number of instances more. This shall be explained.

It happened that Mr. Madison and some other distinguished characters of the South started in opposition to the assumption. The high opinion entertained of them made it be taken for granted in that quarter that the opposition would be successful. The securities quickly rose, by means of purchases, beyond their former prices. It was imagined that they would soon return to their old station by a rejection of the proposition for assuming. And the certificate-holders were eager to part with them at their current prices, calculating on a loss to the purchasers from their future fall. This representation is not conjectural; it is founded on information from respectable and intelligent Southern characters, and may be ascertained by inquiry.

Hence it happened that the inhabitants of the Southern States sustained a considerable loss by the opposition to the assumption from Southern gentlemen, and their too great confidence in the efficacy of that opposition.

Further, a great part of the debt which has been purchased by Northern and Southern citizens has been at higher prices—in numerous instances beyond the true value. In the late delirium of speculation large sums were purchased at twenty-five per cent. above par and upward.

The Southern people, upon the whole, have not parted with their property for nothing. They parted with it voluntarily, in most cases, upon fair terms, without surprise or deception—in many cases for more than its value. ’T is their own fault if the purchase money has not been beneficial to them; and the presumption is, it has been so in a material degree.

Let, then, any candid and upright mind, weighing all the circumstances, pronounce whether there be any real hardship in the inhabitants of the South being required to contribute their proportion to a provision for the debt as it now exists? whether, if at liberty, they could honestly dispute the doing of it? or whether they can, even in candor and good faith, complain of being obliged to do it?

If they can, it is time to unlearn all the ancient notions of justice and morality, and to adopt a new system of ethics.

OBJECTION 21.—That the antifederal champions are now strengthened in argument by the fulfilment of their predictions, which has been brought about by the monarchical federalists themselves, who, having been for the new government merely as a stepping-stone to monarchy, have themselves adopted the very constructions of the Constitution, of which, when advocating the acceptance before the tribunal of the people, they declared it insusceptible; whilst the republican federalists, who espoused the same government for its intrinsic merits, are disarmed of their weapons,—that which they denied as prophecy being now become true history. Who, therefore, can be sure, they ask, that these things may not proselyte the small number which was wanting to place the majority on the other side? And this, they add, is the event at which they tremble.

Answer.—All that can be said in answer to this has been already said. It is much to be wished that the true state of the case may not have been, that the antifederal champions have been encouraged in their activity by the countenance which has been given to their principles by certain federalists who, in an envious and ambitious struggle for power, influence, and pre-eminence, have embraced as auxiliaries the numerous party originally disaffected to the government, in the hope that these, united with the factious and feeble-minded federalists whom they can detach will give them the predominancy. This would be nothing more than the old story of personal and party emulation.

The antifederal champions alluded to may be taught to abate their exultation by being told that the great body of the federalists, or rather the great body of the people, are of opinion that none of their predictions have been fulfilled, that the beneficial effects of the government have exceeded expectation, and are witnessed by the general prosperity of the nation.


1 These objections are all repeated from Washington’s letter, which it is, therefore, needless to reprint here.

2 See Vol. IV.

3 This objection is peculiarly Jeffersonian.—[Ed.

4 This computation is from memory.

5 These three objections are inserted here as they stand in Washington’s letter of July 29th.


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