Hamilton: Finance, Civis to Mercator



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 3


Finance: Civis to Mercator


September 5, 1792.

Certain Treasury documents were lately published for the information of the community, without any precise designation of the purpose for which they were published. They were left to speak for themselves, with only a short introduction, denominating them “Authentic documents respecting the progress which has been made by the present Government of the United States towards extinguishing the debts contracted under the former Government.”

A writer in this Gazette1 of Saturday last, under the signature of Mercator, has thought fit to come forward, and, assigning what he conceives to be the object of the publication, endeavors to show that the contrary of what was intended is true.

What right had Mercator to suppose, that any thing more was intended, than simply to inform the public that besides a punctual payment of the interest on the debt, from the period at which measures were matured to begin that payment, a considerable sum of the Capital of the Debt has been extinguished, and that a further sum will be extinguished by a provision already made? leaving them to this very natural inference, which will be drawn by every candid mind, that the Government has been as attentive as circumstances would permit, at so early a period, to the extinguishment of the debt.

But admitting Mercator to be right in his suggestion of the object, it is presumed that a liberal construction of all circumstances will justify the position, that the present Government has reduced the debt of the former Government to the extent expressed in the documents which have been published. This will result, if it shall appear that provision was made for the interest as early as was reasonably practicable. To have paid the interest from that period, and to have sunk so much of the capital in addition, is, in fair construction, to have reduced the debt to the extent of the capital sunk.

When Mercator undertook to suppose an object which was not declared, he ought to have taken care to be better informed and more accurate. When he undertook to state an account with the Treasury Department, he ought not only to have selected just items, to have adverted to dates, times, and possibilities, but he ought to have stated the whole account.

This he has not done; on the contrary he has both misrepresented and suppressed facts. He has shown in the true spirit of a certain junto (who, not content with the large share of power they have in the government, are incessantly laboring to monopolize the whole of its power, and to banish from it every man who is not subservient to their preposterous and all-grasping views), that he has been far more solicitous to arraign than to manifest the truth—to take away, than to afford consolation to the people of the United States.

The following particulars are proofs of his want both of accuracy and candor.

First.—He charges to the Treasury Department arrears of interest which accrued prior to its existence, that is, from the 1st of August, 1789; whereas the department was not instituted till the 2d of September, nor organized till about the 13th, when, I am informed, the Secretary of the Treasury entered upon the duties of his office.

Secondly.—He takes as the standard of his calculation, the whole amount of the annual interest on the whole amount of the public debt, as it exists under the present funding system, including all the arrears of interest made principal, and the $21,500,000 of assumed debt—whereas the arrears which did actually accumulate to the end of the year 1790, were only on the principal of the foreign and domestic debt, and fall short more than a million of dollars of the sum he states.

These simple facts prove the fallacy of his statement.

But the principle upon which he proceeds is not less absurd than his calculations are fallacious.

With as much propriety might an executor be charged with increasing the debts of his testator, by suffering the arrears of interest on his bonds and notes to accumulate, while he was collecting, arranging, and disposing of the estate, as the present Government, or, if the phrase is preferred, the present Treasury Department, may be charged with those arrearages which unavoidably accrued during the preparatory measures for bringing the resources of the public estate into activity. With as much reason might it be charged with the $13,000,000 of interest, which accumulated under the imbecile system, the old Confederation, to which, if not to worse,—a dissolution of the Union!—the designs of the junto evidently point or tend.

When, proceeding upon grounds so loose and unjust, Mercator makes the extraordinary declaration, that the Secretary of the Treasury “has produced an actual addition to the public debt of more than one million and a half of dollars,” is it not palpable, that in the most malignant spirit of party he is endeavoring to destroy the public confidence in that officer, no matter how unfair the means, as one link in the chain of measures by which the domineering aims of his party are to be effected, or the cause of confusion promoted? Is it not clear that, in the language and conceptions of Mercator, to provide for a debt and to “produce” it, amount to the same thing?

To form a still better estimate of the spirit by which he is actuated, let there be a review of some leading facts.

Congress met under the present Government on the 1st of April, 1789. To put it in motion they had a vast and very arduous work before them. This was of course a primary object; a provision for the debt, a secondary one. It was natural then, that the first session should have been exhausted in organizing the Government, and that a systematic provision for the debt should be postponed, as in fact it was, to the second session. A temporary and partial provision of revenue only was accordingly made by very moderate duties of impost, far short of an adequate fund for the support of Government and the payment of the interest on the debt, to take effect on the 1st of August, 1789; which was as early as the law could be promulgated throughout the Union, and the subordinate executive arrangements made for carrying it into execution.

It has been stated that the Treasury Department began to be in activity on the 13th of September. Congress adjourned on the 29th of that month, after having instructed the Secretary of the Treasury to report concerning the debt at the ensuing session. It is to be recollected that without an order of the House that officer can propose nothing.

It is evident that there was no responsibility on the side of that department for the accumulation of interest on the debt until, at earliest, the second session, which began on the 7th of January, 1790.

On Thursday, the 14th of January, the Secretary of the Treasury submitted to the House of Representatives, according to order, the plan of a provision for the public debt, comprehending an additional provision of revenue for the purpose of facing the interest. But it was not till the 4th of August that the principles of a provision for the debt were determined by law, nor till the 10th of the same month that a supplementary fund was established for paying the interest upon it; and from considerations of an obvious nature the commencement of this fund in operation was deferred to the 1st of January following.

Here, again, ’t is manifest that there was no responsibility in the Treasury Department for the accumulation of interest up to the period from which it has been punctually paid—namely, the 1st of January, 1791,—because it was not in the power of that department to have accelerated a provision for it. Nor will any blame justly light upon Congress for the moderate delay which ensued. It was their duty to bestow much deliberation upon the subject. Much difference of opinion—much discussion—a considerable loss of time, were to be expected in relation to a subject so momentous, so perplexing, touching so differently so many chords of passion and interest.

The law providing for the debt having passed, the Secretary of the Treasury immediately seized the opportunity which was afforded by an unappropriated surplus of revenue to the end of the year 1790 to make an impression on the debt. He proposed that it should be applied to purchases of the debt at its market prices, which was agreed to by Congress, and has been carried into execution as far as circumstances have hitherto permitted.

This was certainly the best application that could have been made of the fund. It was equally the interest of the Government and of the public creditors:—of the Government, because it was a clear gain of all the difference between the sum of specie paid and the sum of debt redeemed, which is already $514,-891 69, and will be more when the remaining sum appropriated comes to be applied to further purchases; because it was a clear saving to the nation of all the difference in price which was paid by foreigners in their purchases, in consequence of the competition of the Government in the market as a purchaser. It is well known to every well-informed man that the rapid appreciation of the debt was materially owing to that circumstance, and of course the saving to the nation by it has been very considerable. The measure in question was equally beneficial to the public creditors—because, if the fund applied to purchases had been apportioned among them in payment of interest, it would have been a mere pittance; but applied as it was, it gave a rapid spring to the whole value of the stock.

As it is therefore proved that the Treasury Department is chargeable with no delay with regard to a provision for the debt, occasioning an unnecessary accumulation of interest, in a question of merit respecting that department which Mercator has raised, it will follow that the department, on account of the operations which have been advised by it, has an unbalanced claim of merit with the community—

1st.—For all that has been or shall be saved by purchases of the public debt at the market prices.

2d.—For all that has been saved to the nation, for the more advanced prices given by foreigners in their purchases of the debt.

But there are other items of importance to be placed on the same side of the account.

1st.—The saving resulting from the reduced rate on the new loans for paying off the foreign debt.

2d.—The positive gain of 1,000,000 of dollars, by the institution of the Bank of the United States. The stock of the bank being at an advance of 50 per cent., it is clear that the Government, by having become a proprietor to the extent of 2,000,000 of dollars, has by this single operation made an actual net profit of 1,000,000 of dollars—that is, it can get three millions for what will have cost it only two.

I add nothing for any saving which has accrued from the particular modification of the domestic debt, for two reasons: one, because the subject being more complicated would require more illustration; and the other, because the plan adopted by the Legislature, though having the leading features of that proposed by the Treasury Department, differs from it in some material respects,—a strong refutation of the idea, so industriously inculcated, that the plans of that department are implicitly followed by the Legislature, and a decisive proof that they have had no more weight than they ought to have had—that is to say, than they were entitled to from their intrinsic reasonableness in the unbiassed and independent judgment of majorities in the two Houses of Congress. The result of what has been said is this: that provision was made for paying the interest of the debt as early as could reasonably have been expected; that no negligence having happened, the arrears of interest which have accumulated in the interval are properly a part of the debts of the former Government; and consequently, that the sums which appear to have been absorbed are so much of the debts of the old Government extinguished by the new.

Mercator brings as a proof that the public debt has increased and is increasing, what he terms “the present amount and increasing weight of the duties of impost and excise.” Let facts decide the soundness of this logic. In the last session of Congress, the only excise duty which exists was reduced upon an average fifteen per cent. The only addition which was then made to the imposts was for carrying on the Indian war, and by avoiding recourse to permanent loans for that purpose, to avoid an increase of the debt. How then can that which was done to avoid an increase of debt, be a proof that it has increased?

Civis.
II

Philadelphia,

September 11, 1792.

Little other notice of the futile reply of Mercator to Civis is necessary, than merely to put in a clear light the erroneousness of the standard which he has adopted for calculating the arrears of interest to the end of the year 1790.

He takes for his standard, the present annual interest on the whole amount of the public debt, as provided for under the funding system—that is, 1st. Upon the former principal of the foreign and domestic debt; 2d. Upon the arrears of interest of that principal, which on the 1st of January, 1791, and not before, became principal, by the provisions of the funding law; 3d. Upon the whole amount of the assumed debt—that is, $21,500,000.

Now, the fact is, that the only arrears which can colorably be computed are those on the principal of the foreign and domestic debt, according to the terms of interest which they actually bore up to the 1st January, 1791. 1st. Because, in fact, the arrears of interest on that principal did not bear interest till the 1st of January, 1791; and consequently no interest whatever accrued upon them. And 2d, because the Government of the United States took up the State debts as they stood at the end of the year 1791. If arrears of interest accumulated in the meantime, ’t was the affair of the State governments, which were the debtors and alone responsible for a provision for it, not of the Government of the United States, which only became responsible by virtue of the assumption from the time that it took effect—that is, from the 1st of January, 1792, from which period the interest has been punctually paid. This is the true view of it, unless it can be shown that the Government of the United States is answerable for the neglects and omissions of the State governments. But what arrears may have really accumulated on this part of the debt is unknown, as it is understood there was in some States a provision for the interest.

Calculating then the arrears which did actually accrue—that is, on the principal and interest of the foreign and domestic debt, the former, according to the various rates which were stipulated upon it, and the latter at six per cent., the rate which it then bore, from the 1st of August, 1789, to the 1st of January, 1791, from which period interest has been paid, the amount is $3,003,378 47—that is, $1,032,980 72 less than the amount of the arrears for the same period by Mercator. This statement is not made from any secret sources of information, but from documents long since in the possession of the public. If Mercator has been inattentive to the means of information he ought not to come forth the instructor of his fellow-citizens.

In a mere question of the increase and decrease of the public debt, if the arrears of interest which accrued on the assumed debt, up to the period from which the United States began to pay interest upon it, be placed on one side of the account, the saving or reduction, by the nature of the provision for it, ought to be placed on the other side, and the balance will be in favor of the United States.

Had Mercator stated an account with the Treasury Department on his own principle candidly applied—namely, that of setting off the surplus of revenue to the end of the year 1790 against the amount of the debt redeemed by purchasers and payments, the account would have stood thus:
Debtor Side
To amount of surplus revenue at the end of the year 1790 . . . . $1,338,875 84
Credit Side
By the amount of the sum which appears by the statement of the Register of the Treasury to have been redeemed and paid off . . . . . $1,845,217 42
By sum remaining to be applied . . 397,024 13
$2,242,241 55
Balance . . . . $903,365 71

being the amount of the public debt actually reduced beyond the amount of the funds remaining on hand at the commencement of the operation of the funding system, in virtue of antecedent provision, and exclusive of reductions on the rates of interest.

As to the concluding remarks of Mercator, they depart from the question. ’T is no matter, in reference to that, whether the items which were mentioned are circumstances of temporary expedient or results of the soundest policy. They constitute positive savings and gains to the nation.

But it was not sufficient for Mercator to assert; he ought to have shown what sacrifice of justice or principle was involved in them. Not having done it, it is sufficient to observe that one good effect of the measures of finance which have been adopted by the present Government is at least unequivocal. The public credit has been effectually restored. This may be in the eyes of Mercator of little moment. There are certain theorists who hold both private and public credit to be pernicious. But their disciples are not numerous; at least among sober and enlightened men.

The actual benefits or actual evils of the measures connected with the Treasury Department, present and future, would be cheerfully submitted to the Test of Experience. Happy would it be for the country, honorable for human nature, if the experiment were permitted to be fairly made. But the pains which are taken to misrepresent the tendency of those measures, to influence the public mind, to disturb the operations of the Government, are a decided proof, that those to whom they are attributable dare not trust the appeal to such a Test. Convinced of this, they have combined all their forces, and are making one desperate effort to gain an ascendency in the public councils, by means of the ensuing election, in order to precipitate the laudable work of destroying what has been done.

Civis.

[1]The National Gazette, edited by Philip Freneau. This newspaper and its editor, as is well known, caused the outbreak of the quarrel between Hamilton and Jefferson. Hamilton opened his attacks in response to those of Freneau just before the appearance of this letter. “Civis to Mercator” has hitherto been printed among the essays of the Jefferson controversy, but, as it is simply a defence of the funding system against the attacks of Freneau, it seems to belong more properly here among the writings on finance.

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