Hamilton: Finance, To Robert Morris, 1780



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: To Robert Morris, 17801


Sir:—The present conjuncture is by all allowed to be peculiarly critical. Every man of reflection employs his thoughts about the remedies proper to be applied to the national disorders; and every one, from a partiality to his own ideas, wishes to convey them to those who are charged with the management of affairs. The channel of the public papers, commonly made use of for the purpose, appears to me exceptionable on several accounts. It not only restrains a freedom of discussion, from the extreme delicacy of the subject, but the discussion itself increases the evil, by exposing our weak sides to the popular eye, and adding false terrors to those well-founded apprehensions which our situation authorizes.

Instead of pursuing this method, I prefer addressing myself to a member of that body, in whose power alone it is, by well-digested system, to extricate us from our embarrassments. I have pitched upon you, from a personal knowledge of your abilities and zeal. If I offer anything new and useful, I am persuaded you will endeavor to turn it to advantage. If the contrary is the case, I am, at least, doing no harm. I shall only have had the trouble of writing, and you of reading, a few useless pages.

The object of principal concern is the state of our currency. In my opinion, all our speculations on this head have been founded in error. Most people think that the depreciation might have been avoided by provident arrangements in the beginning, without any aid from abroad; and a great many of our sanguine politicians, till very lately, imagined the money might still be restored by expedients within ourselves. Hence the delay in attempting to procure a foreign loan.

This idea proceeded from an ignorance of the real extent of our resources. The war, particularly in the first periods, required exertions beyond our strength, to which neither our population nor riches were equal. We have the fullest proof of this in the constant thinness of our armies, the impossibility, at this time, of recruiting them otherwise than by compulsion, the scarcity of hands in husbandry and other occupations, the decrease of our staple commodities, and the difficulty of every species of supply. I am aware that the badness of the money has its influence; but it was originally an effect, not a cause, though it now partakes of the nature of both. A part of those evils would appear were our finances in a more flourishing condition. We experienced them before the money was materially depreciated; and they contributed to its depreciation. The want of men soon obliged the public to pay extravagant wages for them in every department. Agriculture languished from a defect of hands. The mechanic arts did the same. The price of every kind of labor increased, and the articles of foreign commerce, from the interruption it received, more than kept pace with other things.

The relative value of money being determined by the greater or less portion of labor and commodities which it will purchase; whatever these gained in price, that of course lost in value.

The public expenditures, from the dearness of everything, necessarily became immense; greater in proportion than in other countries; and much beyond any revenues which the best concreted scheme of finance could have extracted from the natural funds of the State. No taxes, which the people were capable of bearing, on that quantity of money which is deemed a proper medium for this country (had it been gold instead of paper), would have been sufficient for the current exigencies of government.

The most opulent states of Europe, in a war of any duration, are commonly obliged to have recourse to foreign loans or subsidies.1 How, then, could we expect to do without them, and not augment the quantity of our artificial wealth beyond those bounds which were proper to preserve its credit? The idea was chimerical.

The quantity of money formerly in circulation among us is estimated at about thirty millions of dollars. This was barely sufficient for our interior commerce. Our exterior commerce was chiefly carried on by barter. We sent our commodities abroad, and brought back others in return. The balance of the principal branch was against us, and the little specie derived from others was transferred directly to the payment of that balance, without passing into home circulation. It would have been impracticable, by loans and taxes, to bring such a portion of the forementioned sum into the public coffers as would have answered the purposes of the war; nor could it have spared so considerable a part, without obstructing the operations of domestic commerce. Taxes are limited, not only by the quantity of wealth in a state, but by the temper, habits, and genius of the people; all which, in this country, conspired to render them moderate; and as to loans, men will not be prevailed upon to lend money to the public when there is a scarcity, and they can find a more profitable way of employing it otherwise, as was our case.

The ordinary revenues of the United Provinces amount to about twenty-five millions of guilders; or two millions two hundred and fifty thousand pounds sterling per annum. This is, on proportion to its territory and numbers, the richest country in the world; and the country where the people sustain the heaviest load of taxes. Its population is about equal to ours, two millions of souls. The burthens on the subject are so great that it is by some held most impracticable, even on extraordinary emergencies, to enlarge the revenues by new impositions. It is maintained, their dependence, in these cases, must be on the extraordinary contributions of wealthy individuals; with the aid of which, in some of their wars, they have raised four millions sterling a year. In a country possessed of so vast a stock of wealth, where taxes are carried to such a height, and where the means of paying them so infinitely exceed those in our power, if the national revenues only amount to the sum I have stated, how inadequate must have been the product of any taxes we could have levied, to the demands of the service! Loans, for the reason before hinted, would have been out of the question; at least, they would have been so trifling as to be an object of little importance. Suppose we should have been able to raise a million sterling, annually; a sum that probably would have exceeded our ability; how unequal would this have been to our wants!1 No economy could have made it bear any proportion, especially if we recur to the causes already enumerated, by which the currency depreciated in its first stages.

From these reasonings it results, that it was not in the power of Congress, when their emissions had arrived at the thirty millions of dollars, to put a stop to them.2 They were obliged, in order to keep up the supplies, to go on creating artificial revenues by new emissions; and as these multiplied, their value declined. The progress of the depreciation might have been retarded, but it could not have been prevented. It was, in a great degree, necessary.

There was but one remedy; a foreign loan. All other expedients should rather have been considered as auxiliary. Could a loan have been obtained, and judiciously applied, assisted by a vigorous system of taxation, we might have avoided that excess of emissions which has ruined the paper. The credit of such a fund would have procured loans from the moneyed and trading men within ourselves; because it might have been so directed, as to have been beneficial to them in their commercial transactions abroad.<sup>1</sup>

The necessity for a foreign loan is now greater than ever. Nothing else will retrieve our affairs.

The wheels of government, without it, cannot much longer be kept in motion. Including loan-office certificates, and State emissions, we have about four hundred millions of dollars in circulation. The real value of these is less than seven millions, which is the true circulating medium of these States: for though the price of specie is and the rate of exchange for sterling bills the nominal value of every commodity is at least sixty to one, on an average. All the reasonings against the possibility of raising the current expenses on the foundation of thirty millions, apply to our present situation in the ratio of thirty to seven; that is, it is as thirty to seven less practicable now than when our emissions amounted to only thirty millions. Could every dollar in circulation be brought annually into the Treasury, which never was effected in any country, and is politically impossible, the revenue would not be equal to the yearly expense.

The hope of appreciating the money, by taxes and domestic loans, is at an end. As fast as it could be received, it must be issued in the daily expenditures. The momentary interval between its being drawn out of circulation and returning into it, would prevent its receiving the least advantage.

These reasonings may appear useless, as the necessity of a foreign loan is now acknowledged, and measures are taking to procure it. But they are intended to establish good principles; the want of which has brought us to the desperate crisis we are arrived at, and may still betray us into fatal mistakes.

How this loan is to be employed is now the question; and its difficulty equal to its importance. Two plans have been proposed: one, to purchase at once, in specie or sterling bills, all superfluous paper; and to endeavor, by taxes, loans, and economy, to hinder its returning into circulation. The remainder, it is supposed, would then recover its value. This, it is said, will reduce our public debt to the sterling cost of the paper.

Suppose two hundred millions were to be purchased, and the rest called in by taxes. At this would require bills to the amount of of dollars. But I doubt whether four times this sum would be sufficient. The moment it was known such purchases were to be made, the avarice of the speculators would begin to operate: the demand would immediately occasion an artificial appreciation; each successive million would cost more than the preceding. But this appreciation would be more relative to the purchasing medium than to the prices of commodities. The raising the value of the paper relative to the former, would depend on the combination of a few artful individuals, and would be easily accomplished. The diminution of prices must be slow, as it implies a change in the sentiments of the body of the people with respect to the money. A sudden revolution in the general rates of all the necessaries of life is not to be expected. The prices of these, as they have reached their present summit by degrees, must, by degrees, revert to their former station. The minds of the people will not readily admit impressions in favor of the currency. All their past experience has given a habit of diffidence; and the epidemical spirit of extortion will maintain a violent struggle with whatever has a tendency to produce a fall of prices. A permanent reduction of the quantity of circulating cash, will alone gradually effect it. But this will not happen on the present plan.

The necessity of continuing the supplies at nearly the same rates now given (which would be the case if my reasonings are true), would have nearly the same effect mentioned with respect to taxes and domestic loans. The money would return into circulation almost as fast as it was drawn out; and at the end of the year we should find our treasury empty, our foreign loan dissipated, and the state of our finances as deplorable as ever. At a moderate calculation, we should have spent ten or twelve millions of real dollars, for the sole purpose of carrying on the war another year. It would be much better, instead of purchasing up the paper currency, to purchase the supplies out of our specie or bills. In the first instance, the public would suffer a direct loss of the artificial appreciation, relative to the purchasing medium; in the last, it would buy at the value of the commodities in specie or bills.

A great source of error in disquisitions of this nature, is the judging of events by abstract calculations; which, though geometrically true, are false as they relate to the concerns of beings governed more by passion and prejudice than by an enlightened sense of their interests. A degree of illusion mixes itself in all the affairs of society. The opinion of objects has more influence than their real nature. The quantity of money in circulation is certainly a chief cause of its decline; but we find it is depreciated more than five times as much as it ought to be by this rule. The excess is derived from opinion; a want of confidence. In like manner we deceive ourselves, when we suppose the value will increase in proportion as the quantity is lessened. Opinion will operate here also; and a thousand circumstances may promote or counteract the principle.

The other plan proposed is to convert the loan into merchandise, and import it on public account. This plan is incomparably better than the former. Instead of losing on the sale of its specie or bills, the public would gain a considerable profit on the commodities imported. The loan would go much further this way, in supplying the expenses of the war; and a large stock of valuable commodities, useful to the army and to the country, would be introduced. This would affect the prices of things in general, and assist the currency. But the arts of monopolizers would prevent its having so extensive and durable an influence as it ought to have.

A great impediment to the success of this, as well as the former scheme, will be the vast sums requisite for the current expenses. The arguments adduced in the former case are applicable here also, though not with equal force. The necessity the public will be under of parting with its stock to defray the daily demands, will give designing men an opportunity, by combinations not to purchase, to oblige it to sell at a rate below the real value of money. This they may the more easily effect, as the demand for foreign commodities is much less than formerly, on account of the general spirit of parsimony which has obtained from necessity, and the manufactures carried on in private families for their own use. The greatest part of the country people now almost entirely clothe themselves.

The public must either sell very cheap, to collect rapidly the superfluous paper in hopes of raising the value of the remainder; or it must sell very slow, to preserve the due proportion between the articles it has for sale and those it wants to buy. By pursuing the first method, it will soon exhaust its stock at a very considerable loss, and only give temporary relief to the currency. According to my principle, though it sells cheap, it must still buy dear; and, consequently, the money collected cannot remain in the treasury long enough to preserve the rise in its appreciated state. If it pursues the second method, the expenditures will be equal to the income; and though the public will make the natural profits on its goods, as it will lay up nothing, it will do nothing towards the appreciation.<sup>1</sup>

The farmers have the game in their own hands, and will make it very difficult to lower the prices of their commodities. For want of laborers, there is no great superfluity of the most essential articles raised. These are things of absolute necessity, and must be purchased, as well by the other classes of society as by the public. The farmers, on the contrary, if they do not like the price, are not obliged to sell; because they have almost every necessary within themselves,—salt, and one or two more, excepted, which bear a small proportion to what is wanted from them, and which they can obtain, by barter, for other articles equally indispensable. Heavy taxes, it may be said, will oblige them to sell; but they can pay, with a small part of what they have, any taxes our Legislatures will venture to impose, or would be able to enforce.

One measure, alone, can counterbalance these advantages of the farmers, and oblige them to contribute their proper quota to the support of government: a tax in kind.

This ought instantly to begin throughout the States. The present quantity of cash, though nominally enormous, would, in reality, be found incompetent to domestic circulation, were it not that a great part of our internal commerce is carried on by barter. For this reason, it is impossible, by pecuniary taxes, to raise a sum proportioned to the wants of the State. The money is no longer a general representative; and when it ceases to be so, the State ought to call for a portion of the thing represented; or, in other words, to tax in kind. This will greatly facilitate whatever plan of finance is adopted; because it will lessen the expenditures in cash, and make it the easier to retain what is drawn in.

I said the demand for foreign goods is less than it formerly was. I mean there is not a demand for so large a quantity, which the reasons already assigned clearly demonstrate; nor are the exorbitant rates now given any objection to this doctrine. There is an absolute scarcity even in comparison of the present consumption; and, of course, a demand for what there is. But should an importation of two millions sterling take place, the market would be glutted; and there would be no way of keeping up the price, but by making very slow sales. A less quantity would stand no chance of calling in the money, and keeping it in long enough to effect anything in favor of its credit.

I say nothing about the risk of importation. I do not believe we could obtain a convoy sufficient to justify our hazarding it without the precaution of insurance. But with this expedient we are safe, and must be satisfied with smaller profits for the sake of security.

This is a plan not altogether to be rejected. With prudent management it might enable us to carry on the war two or three years (which, perhaps, is as long as it may last); but if we should expect more from it, the restoration of the currency, we should be disappointed.

The only plan that can preserve the currency is one that will make it the immediate interest of the moneyed men to co-operate with government in its support. The country is in the same predicament in which France was previous to the famous Mississippi scheme, projected by Mr. Law. Its paper money, like ours, had dwindled to nothing; and no efforts of the government could revive it, because the people had lost all confidence in its ability. Mr. Law, who had much more penetration than integrity, readily perceived that no plan could succeed which did not unite the interest and credit of rich individuals with those of the state; and upon this he framed the idea of his project, which, so far, agreed in principle with the Bank of England. The foundation was good, but the superstructure too vast. The proprietors aimed at unlimited wealth, and the government itself expected too much; which was the cause of the ultimate miscarriage of the scheme, and of all the mischiefs that befell the kingdom in consequence.

It will be our wisdom to select what is good in this plan, and in any others that have gone before us, avoiding their defects and excesses. Something on a similar principle in America will alone accomplish the restoration of paper credit, and establish a permanent fund for the future exigencies of government.

Article I. The plan I would propose is that of an American bank, instituted by authority of Congress for ten years, under the denomination of The Bank of the United States.

II. A foreign loan makes a necessary part of the plan; but this I am persuaded we can obtain, if we pursue the proper measures. I shall suppose it to amount to two millions of pounds sterling. This loan is to be thrown into the bank as a part of its stock.

III. A subscription to be opened for two hundred millions of dollars; and the subscribers erected into a company, to be called The Company of the Bank of the United States.

IV. The government to guarantee this subscription money to the proprietors, at the rate of one for twenty; that is, to engage, at the dissolution of the bank, to make good to them the sum of ten millions of dollars, in lieu of the two hundred millions subscribed, payable in Spanish milled dollars, or a currency bona fide equivalent to them.

V. The taxes raised in money annually, to be thrown into stock.<sup>1</sup>

VI. All the remaining paper to be called in (at the option of the possessor), and bank-notes issued in lieu of them, for so much sterling, payable to the bearer in three months from the date, at two per cent. per annum interest. A pound sterling to be estimated at two hundred and sixty-six and two thirds of the present dollar.<sup>2</sup> The interest to be punctually paid in specie at the end of the three months, when it shall be at the choice of the possessor to have the bank-notes renewed, or to receive the sum deposited in the old paper.

VII. All the money issued from the bank to be of the same denomination, and on the same terms.<sup>3</sup>

VIII. The bank to furnish Congress with an annual loan of two millions sterling, if they have occasion for it, at four per cent. interest.

IX. The whole or such part of the stock as is judged necessary to be employed in commerce, in the manner and on the terms which shall be agreed upon from time to time between the company and a Board of Trade to be appointed by Congress.

X. The bank to issue occasionally, by permission of Congress, such sums as may be thought safe and expedient, in private loans, on good securities, at six per cent. interest.

XI. The government to share half the whole stock and profits of the bank.

XII. The bank to be managed by the trustees of the company, under the inspection of the Board of Trade,<sup>1</sup> who may have recourse to the company’s books whenever they think proper to examine the state of its affairs. The same is done in England and in other countries where banks are established, and is a privilege which the government has a right to demand for its own security. It is the more necessary in this case, from the commercial nature of the bank.

To give an idea of the advantages—

[Here a part of the manuscript is missing.]

which, having all the operation of money, and of a more advantageous kind than that which the lenders have parted with, will have all the efficacy of a payment. It is for this reason they are made to bear interest; and there can be no doubt that every man will prefer a species of money which answers all the purposes of a currency, and even when lying idle, brings in a profit to the possessor. The same consideration will prevent the lenders recalling the old paper at the quarterly payments; because they hold a more valuable property instead of it. The interest is to be paid in specie, as a further temptation, for which a small sum will suffice. The denomination of the money is altered; because it will produce a useful illusion. Mankind are much led by sounds and appearances; and the currency having changed its name will seem to have changed its nature.

The bank will advance bills to the amount of two million of pounds sterling to Congress; and, in addition to its stock, will now have a debt due it of this sum, which is to be considered as so much gained.

[Here a part of the manuscript is missing.]
Brought over . . . . . . . . . . £7,075,000
To be deducted:
Drawn out of circulation, by the sale of goods imported . . . £4,000,000
By governmental taxes, supposed to be . . . . . . . . . 1,000,000—5,000,000
Remaining in circulation the fourth year . . . . . . . . . . £2,075,000

This will be less than the preceding, which is occasioned by the million supposed to be drawn in by taxes.

The national debt, on this plan, will stand thus, at the end of three years:
Foreign loan . . . . . . . . . . . £2,000,000
Domestic loan, at two millions per annum . 6,000,000
Interest at four per cent . . . . . . . 320,000
8,320,000
Half the value of the bank . . . . . . 7,900,000
Balance against the United States . . . . £420,000

We may, therefore, by means of this establishment, carry on the war three years, and only incur a debt of four hundred and twenty thousand pounds over and above the guaranty of the subscription money; which, however, is not to be paid till the end of ten years.

I have said, in one place, that abstract calculations, in questions of finance, are not to be relied on; and as the complex operations of trade are involved in the present plan, I am, myself, diffident of those flattering results which it presents at every step. I am aware how apt the imagination is to be heated in projects of this nature, and to overlook the fallacies which often lurk in first principles. But when I consider, on the other hand, that the scheme stands on the firm footing of public and private faith; that it links the interest of the State in an intimate connection with those of the rich individuals belonging to it; that it turns the wealth and influence of both into a commercial channel, for mutual benefit, which must afford advantages not to be estimated; that there is a defect of circulating medium, which this plan supplies, by a sort of creative power, converting what is so produced into a real and efficacious instrument of trade;—I say, when I consider these things, and many more that might be added, I cannot forbear feeling a degree of confidence in the plan, and, at least, hoping that it is capable of being improved into something that will give relief to our finances.

I do not believe that the advantages will be so great in fact, as they seem to be in speculation. They will be limited by the means of commerce which the States produce; and these may not be so extensive in the beginning as the plan supposes. Besides this, the profits of the commerce will not be so large, in proportion, after the first or second year, as during those years; neither will it be possible to increase the paper credit in the same degree. But the Bank of England is a striking example, how far this may be carried, when supported by public authority and private influence. On the other hand, a variety of secondary expedients may be invented, to enlarge the advantages of the bank. The whole system of annuities, as practised in England, may be ingrafted upon it, with such differences as are proper to accommodate it to our circumstances. The European loan may also be converted into a European bank, the interest of which, being interwoven with the American bank, may engage rich individuals there in promoting and extending the plan.

Very beneficial contracts may be made between government and the company, for supplying the army, by which money may be saved to the public, the army better furnished, and the profits of the bank extended.

I have confined the bank to the space of ten years, because this will be long enough to judge of its advantages and disadvantages; and the latter may be rectified by giving it a new form. I do not suppose it will ever be discontinued; because it seems to be founded on principles that must always operate well, and make it the interest, both of government and the company, to uphold it. But I suppose the plan capable of improvement, which experience will suggest.

I give one half of the whole property of the bank to the United States; because it is not only just but desirable to both parties. The United States contribute a great part of the stock; their authority is essential to the existence of the bank; their credit is pledged for its support. The plan would ultimately fail, if the terms were too favorable to the company, and too hard upon government. It might be encumbered with a debt which it could never pay, and be obliged to take refuge in bankruptcy. The share which the State has in the profits will induce it to grant more ample privileges, without which the trade of the company might often be under restrictions injurious to its success.

It is not, perhaps, absolutely necessary that the sum subscribed should be so considerable as I have stated it, though the larger the better. It is only necessary it should be considerable enough to engage a sufficient number of the principal moneyed men in the scheme. But Congress must take care to proportion the advantages they give and receive.

It may be objected that this plan will be prejudicial to trade, by making the government a party with a trading company; which may be a temptation to arrogate exclusive privileges, and thereby fetter that spirit of enterprise and competition on which the prosperity of commerce depends. But Congress may satisfy the jealousies on this head, by a solemn resolution not to grant exclusive privileges, which alone can make the objection valid. Large trading companies must be beneficial to the commerce of a nation, when they are not invested with these, because they furnish a capital with which the most extensive enterprises may be undertaken. There is no doubt the establishment proposed would be very serviceable at this juncture, merely in a commercial view; for private adventurers are not a match for the numerous obstacles resulting from the present posture of affairs.

The present plan is the product of some reading on the subjects of commerce and finance, and of occasional reflections on our particular situation; but a want of leisure has prevented its being examined in so many lights, and digested so materially, as its importance requires. If the outlines are thought worthy of attention, and any difficulties occur which demand explanation; or if the plan be approved, and the further thoughts of the writer are desired, a letter directed to James Montague, Esquire, lodged in the post-office at Morristown, will be a safe channel of any communications you may think proper to make; and an immediate answer will be given. Though the writer has reasons which make him unwilling to be known, if a personal conference with him should be thought material, he will endeavor to comply.

You will consider this as a hasty production, and excuse the incorrectnesses with which it abounds.

I am, Sir, very respectfully,

Your most obedient and humble servant.

[1]This letter was written while Hamilton was still serving in the Revolutionary army. The struggle for independence was in danger of being wrecked by financial difficulties and Robert Morris had just undertaken those labors which, by his skill and energy, saved the cause of the Colonies. Hamilton, with his mind running on questions of government and finance, and satisfied that civil, political, and financial measures were really more essential than even military campaigns, desired most earnestly to help Morris, whom he greatly liked and respected. This letter was the result; a very extraordinary performance for a young man of twenty-three, whose life had been spent in college and camp. The natural genius of the financier and statesman shine out strongly. This is in fact the first of the arguments which led to the foundation of the national banking system of the United States. The others follow. Nothing has been omitted except a draft of a charter for the Bank of New York, 1786, and one of a charter for the Merchants’ Bank of New York, 1803, which throw no light on Hamilton’s opinions or on the development of the principles which were by his efforts, embodied in legislation.

[1]France owes a debt of near two hundred million of pounds sterling; of which about twenty-eight millions is due to governments and individuals in the United Provinces.

England owes a debt not much short, of which about thirty millions is likewise due to the United Provinces.

The United Provinces, themselves, owe a debt of the generality of fifty millions sterling, besides the particular debts of each province. Russia, Prussia, Denmark, Sweden, all owe money to the United Provinces, notwithstanding the assistance of their mines. These governments, too, are patterns of economy. Sweden receives a constant supply from France. The House of Austria is also to be included in the catalogue. Spain is almost the only considerable European power to be excepted; but this is to be attributed to that inexhaustible fund of treasure which she possesses in the mines of South America.

The King of Prussia is one of those potentates the least in debt notwithstanding he has a long time made a figure in Europe, much above what the comparative strength and resources of his kingdom entitled him to expect. This his superior genius has effected. By a wise administration, he maintains an army of one hundred and fifty thousand men, nearly equal to that of France, with one third of its people, and less than a third of its riches. This he does by judicious arrangements, by a rigid economy, and by a species of commerce, which is carried on, on account of the state. There are several public manufactories, from which the army is supplied, and by the help of which the money paid out with one hand is taken in by the other.

[1]This will appear, by recurring to our expenses in the commencement of the war, before the money was depreciated. In ’75, which was only three fourths of a year, the emissions amounted to seven millions of dollars; in 76, to fourteen millions. The war did not begin, in earnest, till ’76.

[2]This is meant, without employing the assistance of a foreign loan, and of other expedients beside borrowing and taxing.

[1]This will appear from the plan which will be proposed.

[1]To form an idea of the effect of this plan, let it be supposed that the goods imported amount to two millions of pounds sterling, and that these sell at one hundred and fifty pounds in paper, for each pound sterling. The whole proceeds will be eight hundred millions of dollars; to these add two hundred millions, raised in taxes. There will then be in the hands of the public one thousand millions of dollars; which, at sixty to one, gives sixteen millions six hundred and sixty-six thousand six hundred and sixty-six and two thirds of real dollars. Take the year ’76 for a standard, and suppose fourteen millions of dollars to be the proper annual expense of the war, which is only two millions six hundred and sixty-six thousand six hundred and sixty-six and two thirds less than the whole amount of the goods and taxes. At this rate, the plan would do little more than defray the expenses of the war for one year. But this calculation is not exactly true; because the money would certainly appreciate, in some degree, by the reduction of its quantity; yet, as this reduction would not last, at least in the same extent, to preserve the appreciation, and as, in proportion to the appreciation, the price of goods must fall, and bring less money in, it is difficult to say whether it would not ultimately come to the same thing.

[1]The taxes are made to increase every year, for the three years, because the money in circulation increases, and, consequently, the people can afford to pay more.

[2]This is sixty paper dollars to one dollar of four shillings and sixpence sterling, which is the real value of the money. But if it is apprehended that this may meet with opposition, let the valuation of the bank-notes be the same as the price of European bills of exchange. Other operations must be regulated accordingly.

[3]The reason of this is to preserve the idea of a stock, and make it seem that the old paper is still in existence. But there is danger, notwithstanding the reasons to the contrary, that there may be a run upon the bank, from particular causes, which may embarrass it. It is not probable the old paper will be entirely, though nearly, called out of circulation; what remains will appreciate; this may tempt those who have bank-notes to demand payment on the terms of the original deposit, without considering that, by bringing too great a quantity again into circulation, it will again depreciate. The bank may be pushed to a very disagreeable extremity by this means. I do not know whether it may not be advisable to confine the privilege of repayment to the lenders to the bank, and make the bills bear interest, payable every three months, without making the principal demandable. Much may be said for and against. It is well worth consideration.

[1]This board ought immediately to be established at all events. The Royal Council of Commerce, in France, and the subordinate Chambers in each province, form an excellent institution, and may, in many respects, serve as a model. Congress have too long neglected to organize a good scheme of administration, and throw public business into proper executive departments. For commerce I prefer a board, but for most other things, single men. We want a Minister of War, a Minister of Foreign Affairs, a Minister of Finance, and a Minister of Marine. There is always more decision, more dispatch, more secrecy, more responsibility, where single men, than where bodies, are concerned. By a plan of this kind we should blend the advantages of a monarchy and of a republic in a happy and beneficial union. Men will only devote their lives and attentions to the mastering a profession, on which they can build reputation and consequence which they do not share with others.

If this plan should be approved Congress ought immediately to appoint a Minister of Finance under whatsoever title they think proper, and charge him with its execution. He ought to be a man of ability to comprehend it in all its consequences; and of eloquence, to make others comprehend and relish it. He ought, beside, to have some general knowledge of the science. This man ought immediately to address himself to some of the most sensible moneyed men, and endeavor to convince them of the utility of the project. These must engage others, and so on, till a sufficient number is engaged.

Then Congress must establish the bank and set it agoing. I know of no man that has better pretensions than yourself; and I shall be very happy to hear that Congress have said: “Thou art the man.”

I had like to have omitted one remark, which is, that the subscription money may be guaranteed, if necessary, at ten to one, as a greater inducement. This will only be twenty millions of dollars, or five millions of pounds sterling; a cheap bargain to get rid of the perplexities we labor under, and convert the torrent of ideal money into a moderate but sufficient stream to supply the real wants of the State. Congress, no doubt, would be able to borrow enough abroad to pay this debt, if it should not find better means within itself. But I shall be much mistaken if the proprietors will desire to be repaid, and not prefer continuing the loan to government on reasonable terms.


Posting the entire Works of Alexander Hamilton is a project of Steven Montgomery. I’m posting these as a way to read and digest the works of Alexander Hamilton. The reader could profit by following along daily.

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