Hamilton: Finance: Public Debt



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: public debt(Communicated to the House of Representatives, December 3, 1792.)


Treasury Department,

November 30, 1792.

In obedience to two resolutions of the House of Representatives: one of the 21st instant, directing the Secretary of the Treasury to report a plan for the redemption of so much of the public debt as, by the act entitled “An act making provision for the debt of the United States,” the United States have reserved the right to redeem; the other of the 22d instant, directing him to report the plan of a provision for the reimbursement of a loan, made of the Bank of the United States, pursuant to the eleventh section of the act entitled “An act to incorporate the subscribers to the Bank of the United States,” the said Secretary respectfully submits the following report:

The expediency of taking measures for the regular redemption of the public debt, according to the right which has been reserved to the Government, being wisely predetermined by the resolution of the House of Representatives referring the subject to the Secretary, nothing remains for him but to endeavor to select and submit the most eligible means of providing for the execution of that important object.

With this view the first inquiry which naturally presents itself is, whether the existing revenues are, or are not, adequate to the purpose.

The estimates which accompany the report of the Secretary, of the 14th instant, will show that, during the continuance of the present Indian war, the appropriations for interest, and the demands for the current service, are likely to exhaust the product of the existing revenues; though they afford a valuable surplus beyond the permanent objects of expenditure, which, it is hoped, may erelong be advantageously applied to accelerate the extinguishment of the debt.

In the meantime, however, and until the restoration of peace, the employment of that resource in this way must, of necessity, be suspended, and either the business of redemption must be deferred, or recourse must be had to other expedients.

But did no such temporary necessity for resorting to other expedients exist, the doing of it would still be recommended by weighty considerations. It would appear, in the abstract, advisable to leave the surplus of the present revenues free, to be applied to such casual exigencies as may, from time to time, occur; to occasional purchases of the debt, when not exhausted by such exigencies; to the payment of interest on any balances which may be found due to particular States, upon the general settlement of accounts; and finally to the payment of interest on the deferred part of the debt, when the period for such payment arrives. There is a reasonable prospect that, if not diverted, it will be found adequate to the two last important purposes.

Relinquishing, then, the idea of an immediate application of the present revenues to the object in view, it remains to examine what other modes are in the option of the Legislature.

Loans, from time to time, equal to the sums annually redeemable, and bottomed on the same revenues, which are now appropriated to pay the interest upon those sums, offer themselves as one expedient which may be employed with a degree of advantage. As there is a probability of borrowing at a lower rate of interest, a material saving would result; and even this resource, if none better could be devised, ought not to be neglected.

But it is obvious that to rely upon this resource alone would be to do little towards the final exoneration of the nation. To stop at that point would consequently be neither provident nor satisfactory. The interests as well as the expectations of the Union require something more effectual.

The establishment of additional revenues is the remaining resource. This, if the business is to be undertaken in earnest, is unavoidable. And a full confidence may reasonably be entertained, that the community will see with satisfaction the employment of those means which alone can be effectual for accomplishing an end in itself so important and so much an object of general desire. It cannot fail to be universally felt that, if the end is to be attained, the necessary means must be employed.

It can only be expected that care be taken to choose such as are liable to fewest objections, and that, in the modifications of the business in other respects, due regard be had to the present and progressive circumstances of the country.

Assuming it as the basis of a plan of redemption, that additional revenues are to be provided, the further inquiry divides itself into the following branches:

1. Shall a revenue be immediately constituted, equal to the full sum which may at present be redeemed, according to the terms of the contract?

2. Shall a revenue be constituted from year to year, equal only to the interest of the sum to be redeemed in each year, coupling with this operation an annual loan commensurate with such sum? Or,

3. Shall a revenue be constituted each year, so much exceeding the interest of the sum to be redeemed, as to be sufficient, within a short definite term of time, to discharge the principal itself; coupling with this operation also an annual loan equal to the sum to be annually redeemed, and appropriating the revenue created to its discharge, within the term which shall have been predetermined?

The first plan, besides being completely effectual, would be eventually most economical; but considering to what a magnitude the revenues of the United States have grown in a short period, it is not easy to pronounce how far the faculty of paying might not be strained by any sudden considerable augmentation, wheresoever immediately placed; while the rapid progress of the country in population and resource seems to afford a moral certainty that the necessary augmentation may be made with convenience, by successive steps, within a moderate term of time, and invites to temporary and partial suspensions, as capable of conciliating the reasonable accommodation of the community with the vigorous prosecution of the main design. For these and for other reasons which will readily occur, the course of providing immediately the entire sum to be redeemed is conceived not to be the most eligible.

The second plan, though much more efficacious than that of annual loans, bottomed on the revenues now appropriated for the payment of interest on the sums to be redeemed, does not appear to be sufficiently efficacious. The schedule A will show the effect of it to the 1st of January, 1802, when the deferred debt will become redeemable in the proportions stipulated. Supposing the investment of the interest which is each year liberated, together with that which has been and will be released by purchases pursuant to provisions heretofore made, in the purchase of 6 per cent. stock; a sum of principal, equal to 2,043,837 dollars and 7 cents, would be sunk, and a clear annuity, equal to 459,212 dollars and 82 cents, would be created, towards further redemptions; but the fund then necessary for the future progressive redemption of the debt, according to the right reserved, would be 1,176,616 dollars and 44 cents, exceeding by 667,403 dollars and 62 cents the amount of the redeeming fund. Something more effectual than this is certainly desirable, and appears to be practicable.

The last of the three plans best accords with the most accurate veiw which the Secretary has been able to take of the public interest.

In its application it is of material consequence to endeavor to accomplish these two points: 1st. The complete discharge of the sums annually redeemable within the period prefixed, and the reimbursement, within the same period, of all auxiliary loans which may have been made for that purpose. 2dly. The constituting, by the expiration of that period, a clear annual fund, competent to the future redemption of the debt, to the extent of the right reserved.

The period to which it is conceived the plan ought to refer, is the 1st day of January, 1802; because then the first payment on account of the principal of the deferred debt may rightfully be made.

In conformity to these ideas, the following plan is most respectfully submitted; premising, that the sum redeemable for the first year of the six per cent. stock, bearing a present interest, is computed at 550,000 dollars.

Let an annual fund be constituted, during the present session, equal to 103,199 dollars and 6 cents, to begin to accrue from the 1st of January, 1793. Let the sum of 550,000 dollars be borrowed upon the credit of this annuity, reimbursable within five years—that is, by the 1st of January, 1799. The sum borrowed to be applied, on the 1st of January, 1794, to the first payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1799, and will, thenceforth, be free for any further application.

The sum redeemable the second year—that is, on the 1st of January, 1795, is computed at 583,000 dollars.

Let an annual fund be constituted, during the second session after the present, equal to 109,391 dollars and 60 cents, to begin to accrue from the 1st of January, 1794. Let the sum of 583,000 dollars be borrowed upon the credit of this annuity, reimbursable within five years—that is, by 1st of January, 1800. The sum borrowed to be applied, on the first of January, 1795, to the second payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1800, and will be, thenceforth, free for any further application.

The sum redeemable the third year—that is, on the 1st of January, 1796, is computed at 617,980 dollars.

Let an annual fund be constituted, during the third session after the present, equal to 115,955 dollars and 17 cents, to begin to accrue from the 1st of January, 1795. Let the sum of 617,980 dollars be borrowed upon the credit of this annuity, reimbursable within five years—that is, by the 1st of January, 1801. The sum borrowed to be applied on the 1st of January, 1796, to the third payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1801.

The sum redeemable the fourth year—that is, on the 1st of January, 1797, is computed at 655,058 dollars and 80 cents.

Let an annual fund be constituted, during the fourth session after the present, equal to 122,912 dollars and 48 cents, to begin to accrue from the 1st of January, 1796. Let the sum of 655,058 dollars and 80 cents be borrowed upon the credit of this annuity, reimbursable within five years—that is, by the 1st of January, 1802. The sum borrowed to be applied on the 1st of January, 1797, to the fourth payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1802.

The sum redeemable the fifth year—that is, on the 1st of January, 1798, is computed at 694,362 dollars and 33 cents.

Let an annual fund be constituted, during the fifth session after the present, equal to 152,743 dollars and 12 cents, to begin to accrue from the 1st of January, 1797. Let the sum of 694,362 dollars and 33 cents be borrowed upon the credit of this annuity, reimbursable within four years—that is, by the 1st of January, 1802. The sum borrowed to be applied on the 1st of January, 1798, to the fifth payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1802.

The sum redeemable the sixth year—that is, on the 1st of January, 1799, is computed at 736,024 dollars and 7 cents.

Let an annual fund be constituted, during the sixth session after the present, equal to 197,680 dollars and 20 cents, to begin to accrue from the 1st of January, 1798. Let the sum of 736,024 dollars and 7 cents be borrowed upon the credit of this annuity, reimbursable within three years—that is, by the 1st of January, 1802. The sum borrowed to be applied on the 1st of January, 1799, to the sixth payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, by the 1st of January, 1802.

The sum redeemable the seventh year—that is, on the 1st of January, 1800, is computed at 780,185 dollars and 52 cents.

Let an annual fund be constituted, during the seventh session after the present, equal to 272,848 dollars and 38 cents, to begin to accrue from the 1st of January, 1799. Let the sum of 780,185 dollars and 52 cents be borrowed upon the credit of this annuity, reimbursable within two years—that is, by the 1st of January, 1802. The sum borrowed to be applied on the 1st of January, 1800, to the seventh payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, on the 1st of January, 1802.

The sum redeemable the eighth year—that is, on the 1st of January, 1801, is computed at 826,996 dollars and 65 cents.

Let an annual fund be constituted, during the eighth session after the present, equal to 423,583 dollars and 54 cents, to begin to accrue from the 1st of January, 1800. Let the sum of 826,996 dollars and 65 cents be borrowed upon the credit of this annuity, reimbursable within one year—that is, on the 1st of January, 1802. The sum borrowed to be applied on the 1st of January, 1801, to the eighth payment on account of the principal of the debt.

The proposed annuity will reimburse the sum borrowed, with interest, on the 1st of January, 1802.

The sum redeemable the ninth year—that is, on the 1st of January, 1802, is computed at 1,126,616 dollars and 44 cents.

The then existing means for the discharge of this sum, arising from the operation of the plan, will be:

1st. The amount of the annuity constituted the third year, which will have been liberated by reimbursement of the third loan. 2d. The arrears of interest not previously appropriated, and which are computed at 200,000 dollars.

There will consequently be a deficiency, this year, of 810,661 dollars and 27 cents, which will require to be supplied by a temporary loan, to be reimbursed out of the surplus of the fund which, on the 1st of January, 1802, will exist for future redemptions, and which surplus will be sufficient to reimburse this temporary loan in about thirteen years and a half.

It may be proper to remark, that this deficiency upon one year is suffered to exist, to avoid an unnecessary augmentation of revenue materially beyond the sum permanently requisite. No inconvenience ensues, because this temporary deficiency is made up by the surplus of the permanent fund within the period mentioned. And that fund, from the 1st of January, 1802, is adequate to all future redemptions, in the full proportion permitted by the contract.

The table in the schedule B, will show, in one view, the principles and operation of this plan.

The schedule C will exhibit the means of constituting the several annuities proposed to be established. From it will be seen, that the proposed annuities are to be composed, partly of taxes, to be successively laid at the respective periods of creating them, partly of the surplus dividend to be expected on the stock belonging to the Government in the Bank of the United States, beyond the interest to be paid on account of it, and partly of the funds heretofore pledged for the payment of interest, which will have been liberated upon so much of the debt as will have been extinguished.

The respective amounts of the taxes to be severally laid will be:
In the first year . . . . $43,199 06
In the second year . . . 109,391 60
In the third year . . . 115,955 17
In the fourth year . . . 102,912 48
In the fifth year . . . 102,743 12
In the sixth year . . . 107,680 20
In the seventh year . . . 109,649 32
Making together . . $691,530 95

The sum which will have been redeemed prior to the 1st day of January, 1802, will be $5,443,607 37. The sum redeemable on the 1st of January, 1802, will be $1,126,616 44; and the fund which will, thenceforth, exist for the purpose of future redemption (as is particularly shown by the schedule D), will be $1,210,744 34, exceeding the sum strictly necessary by $84,127 90—a fund which, including the interest, from year to year liberated, will, as already intimated, be completely adequate to the final redemption of the whole amount of the six per cent. stock (as well the deferred as that bearing a present interest), according to the right which has been reserved for that purpose.

In the meantime, a further impression will be made upon the debt, by the investment of the residue of the funds heretofore established, in the purchase of it; and it is hoped, that the restoration of peace with the Indians will enable the application of the surplus of the existing revenues, together with the proceeds of the ceded lands in our Western territory, to the same object. These, whenever they can be brought into action, will be important aids, materially accelerating the ultimate redemption of the entire debt. The employment of these resources, when it can be done, by increasing the interest fund, will proportionably lessen the necessity of using the resource of taxation, for creating the proposed annuities—if the Government shall judge it advisable to avail itself of the substitute which may accrue from that circumstance.

Having now given a general view of the plan which has appeared, upon the whole, the most eligible, it is necessary, in the next place, to present to the consideration of the House the requisite funds for commencing the execution of it. These will embrace a provision for the first annuity only, that alone requiring, by the plan, immediate provision. With regard to a provision for the subsequent annuities, which is proposed to be successive, the Secretary will content himself with this general observation, that he discerns no intrinsic difficulty in making provision for them, as fast as shall be necessary, with due convenience to the people, and consistently with the idea of abstaining from taxing lands and buildings (with the stock and implements of farms), reserving them as a resource for those great emergencies which call for a full exertion of all the contributive faculties of a country.

The following means, for constituting the first annuity, are respectfully submitted, viz.:

Annual surplus of the dividend on the stock of Government in the Bank of the United States, beyond the interest to be paid out of the said dividend, estimated at $60,000.

Tax on horses, kept or used for the purpose of riding, or of drawing any coach, chariot, phæton, chaise, chair, sulky, or other carriage for conveyance of persons, excepting and exempting all horses which are usually and chiefly employed for the purposes of husbandry, or in drawing wagons, wains, drays, carts, or other carriages, for the transportation of produce, goods, merchandise, and commodities, or in carrying burthens in the course of the trade or occupation of the persons to whom they respectively belong, and the horses of persons in the military service of the United States, viz.:

For every horse, not above excepted and exempted, at the rate of one dollar per annum where only one is used or kept by the same person, with an addition of fifty cents per annum per horse, where more than one and not more than two horses are kept or used by the same person; with an addition of one dollar per annum per horse, where more than two and not more than four are kept or used by the same person; and, with an addition of one dollar and a half dollar per horse, per annum, where more than four are kept and used by the same person. Provided, That this addition shall not be made, in respect to horses usually employed in public stages, for the conveyance of passengers.

This progressive increase of rates on the higher numbers has reference to the presumption of greater wealth, which arises from the possession of such higher numbers.

The product of this tax will, probably, be about equal to the residue of the proposed annuity, which is $43,199 06. How near the truth this estimate may prove, experiment alone can, in so untried a case, decide. An aid to this fund may be derived from the surplus dividend on the bank stock, for the half year ending the last of December next, which, it is presumed, will be not less than $20,000. Should a deficiency appear, upon trial, it can be supplied by a future provision.

Proper regulations for the collection of this tax will, it is believed, be found not difficult, if the tax itself shall be deemed eligible. Its simplicity has been a considerable recommendation of it. Qualified as it is, it is not likely to fall on any but such who can afford to pay it. the exemption from the tax, in regard to horses which are appropriated to the purposes of husbandry, or of any trade or occupation, or to the transportation of commodities, seems to obviate all reasonable objection.

If, however, there should appear to the Legislature reasons for preferring a tax on carriages for pleasure, which, it may be observed, will operate on nearly the same description of persons, the sum required may, it is believed, be produced from the following arrangements of rates, viz.: Upon every coach, the annual sum of four dollars. Upon every chariot, the annual sum of three dollars. Upon every other carriage for the conveyance of persons, having four wheels, the annual sum of two dollars; and, upon every chair, sulky, or other carriage for the conveyance of persons, having less than four wheels, the annual sum of one dollar.

The collection of this tax will be as simple and easy, and perhaps more certain, than that which has been primarily submitted.

With regard to the second object referred to the Secretary, namely, the plan of a provision for the reimbursement of the loan made of the Bank of the United States, pursuant to the eleventh section of the act by which it is incorporated, the following is respectfully submitted, to wit: That power be given by law to borrow the sum due to be applied to that reimbursement: and that so much of the dividend on the stock of the Government, in the bank, as may be necessary, be appropriated for paying the interest of the sum to be borrowed.

From this operation it is obvious that a saving to the Government will result, equal to the difference between the interest which will be payable on the new loan, and that which is payable on the sum now due to the bank. If the proposed loan can be effected at the rate of those last made in Holland, the net saving to the Government may be computed at the annual sum of $35,000; which saving, whatever it may be, is contemplated as part of the means for constituting the proposed annuities.

The benefit of this arrangement will be accelerated if provision be made for the application of the proceeds of any loans, heretofore obtained, to the payment suggested on the condition of replacing the sums, which may be so applied, out of the proceeds of the loan or loans which shall be made pursuant to the power above proposed to be given.

It will also conduce to the general end in view if the Legislature shall think proper to authorize the investment of the funds, destined for purchases of the debt, in purchases of six-per-cent. stock, at the market price, though above par. The comparative prices of the several kinds of stock have been, and frequently may be, such as to render it more profitable to make investments in the six per cents, than in any other species of stock.

All which is humbly submitted.

Alexander Hamilton,

Secretary of the Treasury.

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