The confederation too gives the power of the purse too intirely to the state legislatures. It should provide perpetual funds in the disposal of Congress-by a land tax, poll tax, or the like. All imposts upon commerce ought to be laid by Congress and appropriated to their use, for without certain revenues, a government can have no power; that power, which holds the purse strings absolutely, must rule. This seems to be a medium, which without making Congress altogether independent will tend to give reality to its authority.

Another defect in our system is want of method and energy in the administration. This has partly resulted from the other defect, but in a great degree from prejudice and the want of a proper executive. Congress have kept the power too much into their own hands and have meddled too much with details of every sort. Congress is properly a deliberative corps and it forgets itself when it attempts to play the executive. It is impossible such a body, numerous as it is, constantly fluctuating, can ever act with sufficient decision, or with system. Two thirds of the members, one half the time, cannot know what has gone before them or what connection the subject in hand has to what has been transacted on former occasions. The members, who have been more permanent, will only give information, that promotes the side they espouse, in the present case, and will as often mislead as enlighten. The variety of business must distract, and the p.r.o.neness of every a.s.sembly to debate must at all times delay Lately Congress, convinced of these inconveniences, have gone into the measure of appointing boards. But this is in my opinion a bad plan. A single man, in each department of the administration, would be greatly preferable. It would give us a chance of more knowlege, more activity, more responsibility and of course more zeal and attention. Boards partake of a part of the inconveniencies of larger a.s.semblies. Their decisions are slower their energy less their responsibility more diffused. They will not have the same abilities and knowlege as an administration by single men. Men of the first pretensions will not so readily engage them, because they will be less conspicuous, of less importance, have less opportunity of distinguishing themselves. The members of boards will take less pains to inform themselves and arrive to eminence, because they have fewer motives to do it. All these reasons conspire to give a preference to the plan of vesting the great executive departments of the state in the hands of individuals. As these men will be of course at all times under the direction of Congress, we shall blend the advantages of a monarchy and republic in our const.i.tution.

A question has been made, whether single men could be found to undertake these offices. I think they could, because there would be then every thing to excite the ambition of candidates. But in order to this Congress by their manner of appointing them and the line of duty marked out must show that they are in earnest in making these offices, offices of real trust and importance.

I fear a little vanity has stood in the way of these arrangements, as though they would lessen the importance of Congress and leave them nothing to do. But they would have precisely the same rights and powers as heretofore, happily disenc.u.mbered of the detail. They would have to inspect the conduct of their ministers, deliberate upon their plans, originate others for the public good-only observing this rule that they ought to consult their ministers, and get all the information and advice they could from them, before they entered into any new measures or made changes in the old.

A third defect is the fluctuating const.i.tution of our army. This has been a pregnant source of evil; all our military misfortunes, three fourths of our civil embarra.s.sments are to be ascribed to it. The General has so fully enumerated the mischief of it in a late letter of the [20th of August] to Congress that I could only repeat what he has said, and will therefore refer you to that letter.

The imperfect and unequal provision made for the army is a fourth defect which you will find delineated in the same letter. Without a speedy change the army must dissolve; it is now a mob, rather than an army, without cloathing, without pay, without provision, without morals, without discipline. We begin to hate the country for its neglect of us; the country begins to hate us for our oppressions of them. Congress have long been jealous of us; we have now lost all confidence in them, and give the worst construction to all they do. Held together by the slenderest ties we are ripening for a dissolution.

The present mode of supplying the army-by state purchases-is not one of the least considerable defects of our system. It is too precarious a dependence, because the states will never be sufficiently impressed with our necessities. Each will make its own ease a primary object, the supply of the army a secondary one. The variety of channels through which the business is transacted will multiply the number of persons employed and the opportunities of embezzling public money. From the popular spirit on which most of the governments turn, the state agents, will be men of less character and ability, nor will there be so rigid a responsibility among them as there might easily be among those in the employ of the continent, of course not so much diligence care or economy. Very little of the money raised in the several states will go into the Continental treasury, on pretence, that it is all exhausted in providing the quotas of supplies, and the public will be without funds for the other demands of governments. The expence will be ultimately much greater and the advantages much smaller. We actually feel the insufficiency of this plan and have reason to dread under it a ruinous extremity of want.

These are the princ.i.p.al defects in the present system that now occur to me. There are many inferior ones in the organization of particular departments and many errors of administration which might be pointed out; but the task would be troublesome and tedious, and if we had once remedied those I have mentioned the others would not be attended with much difficulty.

I shall now propose the remedies, which appear to me applicable to our circ.u.mstances, and necessary to extricate our affairs from their present deplorable situation.

The first step must be to give Congress powers competent to the public exigencies. This may happen in two ways, one by resuming and exercising the discretionary powers I suppose to have been originally vested in them for the safety of the states and resting their conduct on the candor of their country men and the necessity of the conjuncture: the other by calling immediately a convention of all the states with full authority to conclude finally upon a general confederation, stating to them beforehand explicity the evils arising from a want of power in Congress, and the impossibility of supporting the contest on its present footing, that the delegates may come possessed of proper sentiments as well as proper authority to give to the meeting. Their commission should include a right of vesting Congress with the whole or a proportion of the unoccupied lands, to be employed for the purpose of raising a revenue, reserving the jurisdiction to the states by whom they are granted.

The first plan, I expect will be thought too bold an expedient by the generality of Congress; and indeed their practice hitherto has so rivetted the opinion of their want of power, that the success of this experiment may very well be doubted.

I see no objection to the other mode, that has any weight in compet.i.tion with the reasons for it. The Convention should a.s.semble the 1st of November next, the sooner, the better; our disorders are too violent to admit of a common or lingering remedy. The reasons for which I require them to be vested with plenipotentiary authority are that the business may suffer no delay in the execution, and may in reality come to effect. A convention may agree upon a confederation ; the states individually hardly ever will. We must have one at all events, and a vigorous one if we mean to succeed in the contest and be happy hereafter. As I said before, to engage the states to comply with this mode, Congress ought to confess to them plainly and unanimously the impracticability of supporting our affairs on the present footing and without a solid coercive union. I ask that the Convention should have a power of vesting the whole or a part of the unoccupied land in Congress, because it is necessary that body should have some property as a fund for the arrangements of finance ; and I know of no other kind that can be given them.

The confederation in my opinion should give Congress complete sovereignty; except as to that part of internal police, which relates to the rights of property and life among individuals and to raising money by internal taxes. It is necessary, that every thing, belonging to this, should be regulated by the state legislatures. Congress should have complete sovereignty in all that relates to war, peace, trade, finance, and to the management of foreign affairs, the right of declaring war of raising armies, officering, paying them, directing their motions in every respect, of equipping fleets and doing the same with them, of building fortifications a.r.s.enals magazines &c. &c., of making peace on such conditions as they think proper, of regulating trade, determining with what countries it shall be carried on, granting indulgencies laying prohibitions on all the articles of export or import, imposing duties granting bounties & premiums for raising exporting importing and applying to their own use the product of these duties, only giving credit to the states on whom they are raised in the general account of revenues and expences, inst.i.tuting Admiralty courts &c., of coining money, establishing banks on such terms, and with such privileges as they think proper, appropriating funds and doing whatever else relates to the operations of finance, transacting every thing with foreign nations, making alliances of fensive and defensive, treaties of commerce, &c. &c.

The confederation should provide certain perpetual revenues, productive and easy of collection, a land tax, poll tax or the like, which together with the duties on trade and the unlocated lands would give Congress a substantial existence, and a stable foundation for their schemes of finance. What more supplies were necessary should be occasionally demanded of the states, in the present mode of quotas.

The second step I would recommend is that Congress should instantly appoint the following great officers of state-A secretary for foreign affairs-a President of war-A President of Marine-A Financier-A President of trade; instead of this last a board of Trade may be preferable as the regulations of trade are slow and gradual and require prudence and experience (more than other qualities), for which boards are very well adapted.

Congress should choose for these offices, men of the first abilities, property and character in the continent-and such as have had the best opportunities of being acquainted with the several branches. General Schuyler24 (whom you mentioned) would make an excellent President of War, General McDougall (whom you mentioned) would make an excellent President of War, General McDougall25a very good President of Marine. Mr. Robert Morris would have many things in his favour for the department of finance. He could by his own personal influence give great weight to the measures he should adopt. I dare say men equally capable may be found for the other departments.

I know not, if it would not be a good plan to let the Financier be President of the Board of trade; but he should only have a casting voice in determining questions there. There is a connection between trade and finance, which ought to make the director of one acquainted with the other; but the Financier should not direct the af fairs of trade, because for the sake of acquiring reputation by increasing the revenues, he might adopt measures that would depress trade. In what relates to finance he should be alone.

These offices should have nearly the same powers and functions as those in France a.n.a.logous to them, and each should be chief in his department, with subordinate boards composed of a.s.sistant clerks &c. to execute his orders.

In my opinion a plan of this kind would be of inconceivable utility to our affairs; its benefits would be very speedily felt. It would give new life and energy to the operations of government. Business would be conducted with dispatch method and system. A million of abuses now existing would be corrected, and judicious plans would be formed and executed for the public good.

Another step of immediate necessity is to recruit the army for the war, or at least for three years. This must be done by a mode similar to that which is practiced in Sweeden. There the inhabitants are thrown into cla.s.ses of sixteen, and when the sovereign wants men each of these cla.s.ses must furnish one. They raise a fixed sum of money, and if one of the cla.s.s is willing to become a soldier, he receives the money and offers himself a volunteer; if none is found to do this, a draft is made and he on whom the lot falls receives the money and is obliged to serve. The minds of the people are prepared for a thing of this kind; the heavy bounties they have been obliged to pay for men to serve a few months must have disgusted them with this mode, and made them desirous of another, that will once for all answer the public purposes, and obviate a repet.i.tion of the demand. It ought by all means to be attempted, and Congress should frame a general plan and press the execution upon the states. When the confederation comes to be framed, it ought to provide for this by a fundamental law, and hereafter there would be no doubt of the success. But we cannot now wait for this; we want to replace the men whose times of service will expire the 1st of January, for then, without this, we shall have no army remaining and the enemy may do what they please. The General in his letter already quoted has a.s.signed the most substantial reasons for paying immediate attention to this point.

Congress should endeavour, both upon their credit in Europe, and by every possible exertion in this country, to provide cloathing for their officers, and should abolish the whole system of state supplies. The making good the depreciation of the currency and all other compensations to the army should be immediately taken up by Congress, and not left to the states; if they would have the accounts of depreciation liquidated, and governmental certificates given for what is due in specie or an equivalent to specie, it would give satisfaction; appointing periodical settlements for future depreciation.

The placing the officers upon half pay during life would be a great stroke of policy, and would give Congress a stronger tie upon them, than any thing else they can do. No man, that reflects a moment, but will prefer a permanent provision of this kind to any temporary compensation, nor is it opposed to economy; the difference between this and between what has been already done will be insignificant. The benefit of it to the widows should be confined to those whose husbands die during the war. As to the survivors, not more than one half on the usual calculation of mens lives will exceed the seven years for which the half pay is already established. Besides this whatever may be the visionary speculations of some men at this time, we shall find it indispensable after the war to keep on foot a considerable body of troops; and all the officers retained for this purpose must be deducted out of the half pay list. If any one will take the pains to calculate the expence on these principles, I am persuaded he will find the addition of expence from the establishment proposed, by no means a national object.

The advantages of securing the attachment of the army to Congress, and binding them to the service by substantial ties are immense. We should then have discipline, an army in reality, as well as in name. Congress would then have a solid basis of authority and consequence, for to me it is an axiom that in our const.i.tution an army is essential to the American union.

The providing of supplies is the pivot of every thing else (though a well const.i.tuted army would not in a small degree conduce to this, by giving consistency and weight to government). There are four ways all which must be united-a foreign loan, heavy pecuniary taxes, a tax in kind, a bank founded on public and private credit.

As to a foreign loan I dare say, Congress are doing every thing in their power to obtain it. The most effectual way will be to tell France that without it, we must make terms with great Britain. This must be done with plainness and firmness, but with respect and without petulance, not as a menace, but as a candid declaration of our circ.u.mstances. We need not fear to be deserted by France. Her interest and honor are too deeply involved in our fate; and she can make no possible compromise. She can a.s.sist us, if she is convinced it is absolutely necessary, either by lending us herself or by becoming our surety or by influencing Spain. It has been to me astonishing how any man could have doubted at any period of our affairs of the necessity of a foreign loan. It was self evident, that we had not a fund of wealth in this country, capable of affording revenues equal to the expences. We must then create artificial revenues, or borrow; the first was done, but it ought to have been foreseen, that the expedient could not last; and we should have provided in time for its failure.

Here was an error of Congress. I have good reason to believe, that measures were not taken in earnest early enough, to procure a loan abroad. I give you my honor that from our first outset, I thought as I do now and wished for a foreign loan not only because I foresaw it would be essential but because I considered it as a tie upon the nation from which it was derived and as a means to prop our cause in Europe.

Concerning the necessity of heavy pecuniary taxes I need say nothing, as it is a point in which everybody is agreed; nor is there any danger, that the product of any taxes raised in this way will over burthen the people, or exceed the wants of the public. Indeed if all the paper in circulation were drawn annually into the treasury, it would neither do one, nor the other.

As to a tax in kind, the necessity of it results from this principle-that the money in circulation is not a sufficient representative of the productions of the country, and consequently no revenues raised from it as a medium can be a competent representative of that part of the products of the country, which it is bound to contribute to the support of the public. The public therefore to obtain its due or satisfy its just demands and its wants must call for a part of those products themselves. This is done in all those countries which are not commercial, in Russia, Prussia, Denmark Sweden &c. and is peculiarly necessary in our case.

Congress in calling for specific supplies26 seem to have had this in view; but their intention has not been answered. The states in general have undertaken to furnish the supplies by purchase, a mode as I have observed, attended with every inconvenience and subverting the principle on which the supplies were demanded-the insufficiency of our circulating medium as a representative for the labour and commodities of the Country It is therefore necessary that Congress should be more explicit, should form the outlines of a plan for a tax in kind, and recommend it to the states, as a measure of absolute necessity seem to have had this in view; but their intention has not been answered. The states in general have undertaken to furnish the supplies by purchase, a mode as I have observed, attended with every inconvenience and subverting the principle on which the supplies were demanded-the insufficiency of our circulating medium as a representative for the labour and commodities of the Country It is therefore necessary that Congress should be more explicit, should form the outlines of a plan for a tax in kind, and recommend it to the states, as a measure of absolute necessity The general idea I have of a plan, is that a respectable man should be appointed by the state in each county to collect the taxes and form magazines, that Congress should have in each state an officer to superintend the whole and that the state collectors should be subordinate and responsible to them. This Continental superintendent might be subject to the general direction of the Quarter Master General, or not, as might be deemed best; but if not subject to him, he should be obliged to make monthly returns to the President at War, who should instruct him what proportion to deliver to the Quarter Master General. It may be necessary that the superintendents should sometimes have power to dispose of the articles in their possession on public account; for it would happen that the contributions in places remote from the army could not be transported to the theatre of operations without too great expence, in which case it would be eligible to dispose of them and purchase with the money so raised in the countries near the immediate scene of war.

I know the objections which may be raised to this plan-its tendency to discourage industry and the like; but necessity calls for it; we cannot proceed without [it], and less evils must give place to greater. It is besides practiced with success in other countries, and why not in this? It may be said, the examples cited are from nations under despotic governments and that the same would not be practicable with us; but I contend where the public good is evidently the object more may be effected in governments like ours than in any other. It has been a constant remark that free countries have ever paid the heaviest taxes. The obedience of a free people to general laws however hard they bear is ever more perfect than that of slaves to the arbitrary will of a prince. To this it may be added that Sweden was always a free government, and is so now in a great degree, notwithstanding the late revolution.

How far it may be practicable to erect a bank on the joint credit of the public and of individuals can only be certainly determined by the experiment; but it is of so much importance that the experiment ought to be fully tried. When I saw the subscriptions going on to the bank established for supplying the army, I was in hopes it was only the embryo of a more permanent and extensive establishment. But I have reason to believe I shall be disappointed. It does not seem to be at all conducted on the true principles of a bank. The directors of it are purchasing with their stock instead of bank notes as I expected; in consequence of which it must turn out to be a mere subscription of a particular sum of money for a particular purpose.

Paper credit never was long supported in any country, on a national scale, where it was not founded on the joint basis of public and private credit. An attempt to establish it on public credit alone in France under the auspices of Mr. Law27 had nearly ruined the kingdom; we have seen the effects of it in America, and every successive experiment proves the futility of the attempt. Our new money is depreciating almost as fast as the old, though it has in some states as real funds as paper money ever had. The reason is, that the monied men have not an immediate interest to uphold its credit. They may even in many ways find it their interest to undermine it. The only certain manner to obtain a permanent paper credit is to engage the monied interest immediately in it by making them contribute the whole or part of the stock and giving them the whole or part of the profits. had nearly ruined the kingdom; we have seen the effects of it in America, and every successive experiment proves the futility of the attempt. Our new money is depreciating almost as fast as the old, though it has in some states as real funds as paper money ever had. The reason is, that the monied men have not an immediate interest to uphold its credit. They may even in many ways find it their interest to undermine it. The only certain manner to obtain a permanent paper credit is to engage the monied interest immediately in it by making them contribute the whole or part of the stock and giving them the whole or part of the profits.

The invention of banks on the modern principle originated in Venice. There the public and a company of monied men are mutually concerned. The Bank of England unites public authority and faith with private credit; and hence we see what a vast fabric of paper credit is raised on a visionary basis. Had it not been for this, England would never have found sufficient funds to carry on her wars; but with the help of this she has done, and is doing wonders. The bank of Amsterdam is on a similar foundation.

And why can we not have an American bank? Are our monied men less enlightened to their own interest or less enterprising in the persuit? I believe the fault is in our government which does not exert itself to engage them in such a scheme. It is true, the individuals in America are not very rich, but this would not prevent their inst.i.tuting a bank; it would only prevent its being done with such ample funds as in other countries. Have they not sufficient confidence in the government and in the issue of the cause? Let the Government endeavour to inspire that confidence, by adopting the measures I have recommended or others equivalent to them. Let it exert itself to procure a solid confederation, to establish a good plan of executive administration, to form a permanent military force, to obtain at all events a foreign loan. If these things were in a train of vigorous execution, it would give a new spring to our affairs; government would recover its respectability and individuals would renounce their diffidence.

The object I should propose to myself in the first instance from a bank would be an auxiliary mode of supplies; for which purpose contracts should be made between Government and the bank on terms liberal and advantageous to the latter. Every thing should be done in the first instance to encourage the bank; after it gets well established it will take care of itself and government may make the best terms it can for itself.

The first step to establishing the bank will be to engage a number of monied men of influence to relish the project and make it a business. The subscribers to that lately established are the fittest persons that can be found; and their plan may be interwoven.

The outlines of my plan would be to open subscriptions in all the states for the stock, which we will suppose to be one million of pounds. Real property of every kind, as well as specie should be deemed good stock, but at least a fourth part of the subscription should be in specie or plate. There should be one great company in three divisions in Virginia, Philadelphia, and at Boston or two at Philadelphia and Boston. The bank should have a right to issue bank notes bearing two per Cent interest for the whole of their stock; but not to exceed it. These notes may be payable every three months or oftener, and the faith of government must be pledged for the support of the bank. It must therefore have a right from time to time to inspect its operations, and must appoint inspectors for the purpose.

The advantages of the bank may consist in this, in the profits of the contracts made with government, which should bear interest to be annually paid in specie, in the loan of money at interest say six per Cent, in purchasing lives by annuities as practiced in England &c. The benefit resulting to the company is evident from the consideration, that they may employ in circulation a great deal more money than they have specie in stock, on the credit of the real property which they will have in other use; this money will be employed either in fulfilling their contracts with the public by which also they will gain a profit, or in loans at an advantageous interest or in annuities.

The bank may be allowed to purchase plate and bullion and coin money allowing government a part of the profit. I make the bank notes bear interest to obtain a readie currency and to induce the holders to prefer them to specie to prevent too great a run upon the bank at any time beyond its ability to pay.

If Government can obtain a foreign loan it should lend to the bank on easy terms to extend its influence and facilitate a compliance with its engagements. If government could engage the states to raise a sum of money in specie to be deposited in bank in the same manner, it would be of the greatest consequence. If government could prevail on the enthusiasm of the people to make a contribution in plate for the same purpose it would be a master stroke. Things of this kind sometimes succeed in popular contests; and if undertaken with address; I should not despair of its success; but I should not be sanguine.

The bank may be inst.i.tuted for a term of years by way of trial and the particular privilege of coining money be for a term still shorter. A temporary transfer of it to a particular company can have no inconvenience as the government are in no condition to improve this resource nor could it in our circ.u.mstances be an object to them, though with the industry of a knot of individuals it might be.

A bank of this kind even in its commencement would answer the most valuable purposes to government and to the proprietors; in its progress the advantages will exceed calculation. It will promote commerce by furnishing a more extensive medium which we greatly want in our circ.u.mstances. I mean a more extensive valuable medium. We have an enormous nominal one at this time; but it is only a name.

In the present unsettled state of things in this country, we can hardly draw inferences from what has happened in others, otherwise I should be certain of the success of this scheme; but I think it has enough in its favour to be worthy of trial.

I have only skimmed the surface of the different subjects I have introduced. Should the plans recommended come into contemplation in earnest and you desire my further thoughts, I will endeavour to give them more form and particularity. I am persuaded a solid confederation a permanent army a reasonable prospect of subsisting it would give us treble consideration in Europe and produce a peace this winter.

If a Convention is called the minds of all the states and the people ought to be prepared to receive its determinations by sensible and popular writings, which should conform to the views of Congress. There are epochs in human affairs, when novelty even is useful. If a general opinion prevails that the old way is bad, whether true or false, and this obstructs or relaxes the operation of the public service, a change is necessary if it be but for the sake of change. This is exactly the case now.'Tis an universal sentiment that our present system is a bad one, and that things do not go right on this account. The measure of a Convention would revive the hopes of the people and give a new direction to their pa.s.sions, which may be improved in carrying points of substantial utility. The Eastern states have already pointed out this mode to Congress; they ought to take the hint and antic.i.p.ate the others.

And, in future, My Dear Sir, two things let me recommend, as fundamental rules for the conduct of Congress-to attach the army to them by every motive, to maintain an air of authority (not domineering) in all their measures with the states. The manner in which a thing is done has more influence than is commonly imagined. Men are governed by opinion; this opinion is as much influenced by appearances as by realities; if a Government appears to be confident of its own powers, it is the surest way to inspire the same confidence in others; if it is diffident, it may be certain, there will be a still greater diffidence in others, and that its authority will not only be distrusted, controverted, but contemned.

I wish too Congress would always consider that a kindness consists as much in the manner as in the thing: the best things done hesitatingly and with an ill grace lose their effect, and produce disgust rather than satisfaction or grat.i.tude. In what Congress have at any time done for the army, they have commonly been too late: They have seemed to yield to importunity rather than to sentiments of justice or to a regard to the accomodation of their troops. An attention to this idea is of more importance than it may be thought. I who have seen all the workings and progress of the present discontents, am convinced, that a want of this has not been among the most inconsiderable causes.

You will perceive My Dear Sir this letter is hastily written and with a confidential freedom, not as to a member of Congress, whose feelings may be sore at the prevailing clamours; but as to a friend who is in a situation to remedy public disorders, who wishes for nothing so much as truth, and who is desirous of information, even from those less capable of judging than himself. I have not even time to correct and copy and only enough to add that I am very truly and affectionately D Sir Your most Obed ser A. HAMILTON.

LIBERTY POLE.

SEPT. 3D 1780.

IMPOST AMENDMENT PROPOSED.

BY CONGRESS TO THE STATES.

FEBRUARY 3, 1781.

THE REPORT FROM THE Committee of the Whole, being amended, was agreed to as follows: Resolved, That it be recommended to the several states, as indispensably necessary, that they vest a power in Congress, to levy for the use of the United States, a duty of five per cent. ad valorem, ad valorem, at the time and place of importation, upon all goods, wares and merchandises of foreign growth and manufactures, which may be imported into any of the said states from any foreign port, island or plantation, after the first day of May, 1781; except arms, ammunition, cloathing and other articles imported on account of the United States, or any of them; and except wool-cards and cotton-cards, and wire for making them; and also, except salt, during the war: at the time and place of importation, upon all goods, wares and merchandises of foreign growth and manufactures, which may be imported into any of the said states from any foreign port, island or plantation, after the first day of May, 1781; except arms, ammunition, cloathing and other articles imported on account of the United States, or any of them; and except wool-cards and cotton-cards, and wire for making them; and also, except salt, during the war: Also, a like duty of five per cent. on all prizes and prize goods condemned in the court of admiralty of any of these states as lawful prize: That the monies arising from the said duties be appropriated to the discharge of the princ.i.p.al and interest of the debts already contracted, or which may be contracted, on the faith of the United States, for supporting the present war: That the said duties be continued until the said debts shall be fully and finally discharged.

-Robert Morris- REPORT ON PUBLIC CREDIT.

JULY 29, 1782.

OFFICE OF FINANCE JULY 29TH. 1782.

SIR.

The reference which congress were pleased to make, of a Remonstrance and Pet.i.tion from Blair McClenaghan and others, has induced me to pray their Indulgence while I go somewhat at large into the Subject of that Remonstrance. The Propriety and Utility of public Loans, have been Subjects of much Controversy. Those who find themselves saddled with the Debts of a preceding Generation, naturally exclaim against Loans; and it must be confessed that when such Debts are acc.u.mulated by Negligence, Folly or Profusion, the Complaint is well founded. But it would be equally so against Taxes, when wasted in the same Way. The Difference is, that the Weight of Taxes being more sensible, the Waste occasions greater Clamor, and is therefore more speedily remedied; but it will appear that the eventual Evils which Posterity must Sustain from heavy Taxes, are greater than from Loans. Hence may be deduced this Conclusion, that in Governments liable to a vicious Administration it would be better to raise the current Expence by Taxes, but where an honest and wise Appropriation of Money prevails, it is highly advantageous to take the Benefit of Loans. Taxation to a certain Point is not only proper but useful, because by stimulating the Industry of Individuals, it increases the Wealth of the Community. But when Taxes go so far as to intrench on the Subsistence of the People, they become burthen-some and oppressive. The Expenditure of Money ought in such Case to be (if possible) avoided; and if unavoidable, it will be most wise to have Recourse to Loans.

Loans may be of two Kinds, either domestic or foreign. The relative Advantages and Disadvantages of each, as well as those which are common to both, will deserve Attention. Reasonings of this Kind, (as they depend on Rules of Arithmetic), are best understood by numerical Positions. For the Purposes of Elucidation, therefore, it may be supposed, that the annual Tax of any particular Husbandman were fifteen Pounds, during a ten Year's War, and that his net Revenue were but fifteen Pounds, so that (the whole being regularly consumed in Payment of Taxes) he would be no richer at the End of the War, than he was at the Beginning. It is at the same Time notorious that the Profits made by Husbandmen, on Funds which they borrowed, were very considerable. In many Instances their Plantations, as well as the Cattle and farming Utensils, have been purchased on Credit, and the Bonds given for both have shortly been paid by Sales of Produce. It is therefore no Exageration to state the Profits at twelve per Cent. The enormous Usury which People in Trade have been induced to pay, and which will presently be noticed, demonstrates that the Profits made by other Professions are equal to those of the Husbandman. The Instance therefore taken from that, which is the most numerous Cla.s.s of Citizens, will form no improper Standard for the whole. Let it then be farther supposed in the Case already stated, that the Party should annually borrow the Sum of ten Pounds, to pay Part of his Tax of fifteen Pounds, at six per Cent. On this Sum then he would make a Profit of twenty four Shillings, and have to pay an Interest of twelve shillings. The enclosed Calculation will shew that in ten years he would be indebted one hundred Pounds, but his additional Improvements would be worth: near one hundred and fifty, and his net Revenue be increased near twelve after deducting the Interest of his Debt; whereas if he had not borrowed, his Revenue would have continued the same, as has already been observed. This Mode of Reasoning might be pursued farther, but what has been said is sufficient to shew that he would have made a considerable Advantage from the yearly Loan. If it be supposed that every Person in the Community made such [a] Loan, a similar Advantage would arise to the Community. And lastly if it be supposed that the Government were to make a Loan, and ask so much less in Taxes, the same Advantage would be derived. Hence also may be deduced this Position, that in a Society where the Average Profits of Stock are double to the Interest at which Money can be obtained, every public Loan, for necessary Expenditures, provides a Fund in the Agregate of national Wealth equal to the Discharge of it's own Interest. Were it possible that a Society should exist in which every Member would, of his own accord, industriously pursue the Increase of national Property, without Waste or extravagance, the public Wealth would be impaired by every species of Taxation. But there never was, and unless human Nature should change, there never will be such a Society. In any given Number of men there will always be some who are Idle, and some who are extravagant. In every Society also, there must be some Taxes, because the Necessity of Supporting Government and defending the State always exist. To do these on the cheapest Terms is wise. And when it is considered how much Men are disposed to Indolence and Profusion, It will appear that (even if these Demands did not require the whole of what could be raised) still it would be wise to carry Taxation to a certain Amount, and expend what should remain after providing for the Support of Government and the national Defence, in works of public utility, such as the Opening of Roads and Navigations. For Taxes Operate two Ways towards the increase of national Wealth. First they Stimulate Industry to provide the Means of Payment. Secondly, they encourage Oeconomy so far as to avoid the Purchase of unnecessary Things, and keep Money in Readiness for the Tax Gatherer. Experience Shews that those Exertions of Industry and Oeconomy grow by Degrees into Habit. But in Order that Taxation may have these good Effects, the Sum which every Man is to pay, and the Period of Payment, should be certain and unavoidable.

This Digression opens the way to a comparison between foreign and domestic Loans. If the Loan be domestic, Money must be diverted from those Channels in which it would otherwise have flowed, and therefore, either the Public must give better Terms than Individuals, or there must be Money enough to supply the Wants of both. In the latter Case, if the Public did not borrow, the Quant.i.ty of Money would exceed the Demand, and the Interest would be lowered ; borrowing by the Public, therefore, would keep up the Rate of Interest, which brings the latter Case within the Reason of the former. If the Public outbid Individuals, those Individuals are deprived of the Means of extending their Industry. So that no Case of a domestic Loan can well be supposed, where some public Loss will not arise to counterballance the public Gain; except when the Creditor spares from his Consumption to lend to the Government, which Operates a national Oeconomy. It is however an Advantage peculiar to domestic Loans, that they give Stability to Government, by combining together the Interests of moneyed Men for it's Support; and consequently, in this Country, a domestic Debt would greatly contribute to that Union, which seems not to have been sufficiently attended to, or provided for, in forming the national Compact. Domestic Loans are also useful from the farther Consideration that as Taxes fall heavy on the lower Orders of a Community, the Releif obtained for them by such Loans, more than counterballances the Loss sustained by those who would have borrowed Money to extend their Commerce or Tillage. Neither is it a refinement to observe, that since a Plenty of Money and consequent Ease of obtaining it, induce Men to engage in Speculations which are often unprofitable, the Check which these receive is not injurious, while the Releif obtained for the Poor is highly beneficial.

By making foreign Loans, the Community (as such) receive the same extensive Benefits which one Individual does in borrowing of another. This Country was always in the Practice of making such Loans. The Merchants in Europe trusted those of America. The American Merchants trusted the Country Storekeepers; and they the People at large. This advance of Credit may be Stated at not less than twenty Million of Dollars. And the Want of that Credit is one principle Reason of those Usurious Contracts mentioned above. These have been checked by the Inst.i.tution of the Bank, but the Funds of that Corporation, not permitting those extensive Advances which the Views of different People require, the Price given for particular Accommodations of Money continues to be enormous; and that again Shews, that to make domestic Loans would be difficult if not impracticable. The Merchants not having now that extensive Credit in Europe which they formerly had, the obtaining such Credit by the Government, becomes in some Sort necessary. But there remains an Objection with many against foreign Loans, which (tho it arises from a superficial View of the Subject) has no little Influence. This is, that the Interest will form a Balance of Trade against us, and drain the Country of Specie; which is only saying in other Words, that it would be more convenient to receive Money as a Present, than as a Loan. For the Advantages derived by the Loan exist, notwithstanding the Payment of Interest. To shew this more clearly, a Case may be Stated which in this City is very familiar. An Island in the Delaware overflowed at high Water has, for a given Sum, suppose a thousand Pounds, been banked in, drained and made to produce by the Hay sold from it at Philadelphia a considerable Sum annually, for Instance two hundred Pounds. If the owner of such an Island had borrowed (in Philadelphia) the thousand Pounds to improve it, and given six per Cent Interest, he would have gained a net Revenue of one hundred and forty Pounds. This certainly would not be a Balance of Trade against his Island, nor the draining it of Specie. He would gain considerably, and the City of Philadelphia also would gain, by bringing to Market an increased Quant.i.ty of a necessary Article. In like manner, Money lent by the City of Amsterdam to clear the Forests of America, would be beneficial to both. Draining Marshes and bringing Forests under Culture are beneficial to the whole human Race, but most so to the Proprietor. But at any Rate, in a Country and in a situation like ours, to lighten the Weight of present Burthens (by Loans) must be good Policy. For as the Governments acquire more Stability, and the People more wealth, the former will be able to raise, and the latter to pay much greater Sums than can at present be expected.

What has been said on the general nature and Benefit of public Loans, as well as their particular Utility to this Country, contains more of Detail than is necessary for the United States in Congress, tho perhaps not enough for many of those to whose consideration this Subject must be Submitted. It may seem Superfluous to add that Credit is necessary to the obtaining of Loans. But among the many extraordinary Conceptions which have been produced, during the Present Revolution, it is neither the least prevalent, nor the least pernicious, that Foreigners will trust us with Millions, while our own Citizens will not trust us with a Shilling. Such an opinion must be unfounded and will appear to be false at the first Glance; Yet Men are (on some Occasions) so willing to deceive themselves, that the most flattering Expectations will be formed from the Acknowledgement of American Independance by the States General. But surely no reasonable Hope can be raised on that Circ.u.mstance, unless something more be done by ourselves. The Loans made to us. .h.i.therto, have either been by the Court of France, or on their Credit. The Government of the United Netherlands are so far from being able to lend, that they must borrow for themselves. The most therefore which can be asked from them, is to become Security for America to their own Subjects, but it cannot be expected that they will do this, untill they are a.s.sured, and convinced, that we will punctually pay. This follows necessarily from the Nature of their Government, and must be clearly seen by the Several States, as well as by Congress, if they only consider what Conduct they would pursue on a similar Occasion. Certainly Congress would not put themselves in a situation which might oblige them to call on the several States for Money to pay the Debts of a foreign Power. Since then no Aid is to be looked for from the Dutch Government, without giving them Sufficient Evidence of a Disposition and Ability to pay both the Princ.i.p.al and Interest of what we borrow; and since the same Evidence which would convince the Government, must convince the Individuals who compose it; Asking the Aid of Government must either be unnecessary or ineffectual. Ineffectual before the Measures taken to establish our Credit, and unnecessary afterwards.

We are therefore brought back to the Necessity of establishing public Credit. And this must be done at Home, before it can be extended abroad. The only Question which can remain, is with Respect to the Means. And here it must be remembered that a free Government whose natural offspring is public Credit, cannot have sustained a Loss of that Credit unless from particular Causes; and therefore those Causes must be investigated and removed, before the Effects will cease. When the continental Money was issued, a greater Confidence was shewn by America, than any other People ever exhibited. The general Promise of a Body not formed into, nor claiming to be a Government, was accepted as current coin, and it was not until long after an Excess of quant.i.ty had forced on Depreciation, that the Validity of these Promises was questioned. Even then the public Credit still existed in a Degree, nor was it finally lost untill March 1780, when an Idea was intertained that Government had committed Injustice. It is useless to enter into the Reasons for and against the Resolutions of that Period. They were adopted, and are now to be considered only in Relation to their Effects. These will not be altered by saying that the Resolutions were misunderstood; for in those Things which depend on public Opinion it is no matter (so far as consequences are concerned) how that opinion is influenced. Under present circ.u.mstances therefore, it may be considered as an uncontrovertible Proposition, that all paper Money ought to be absorped by Taxation (or otherwise) and destroyed before we can Expect our public Credit to be fully reestablished. For so long as there be any in Existence, the Holder will view it as a monument of national Perfidy.

But this alone would be taking only a Small Step in the important Business of establishing national Credit. There are a great Number of Individuals in the United States, who trusted the Public in the Hour of Distress, and who are impoverished, and even ruined by the Confidence they reposed. There are others, whose Property has been wrested from them by Force to Support the War, and to whom Certificates have been given in lieu of it which are entirely useless. It needed not Inspiration to shew, that Justice establisheth a Nation, neither are the Principles of Religion necessary to evince, that political Injustice will receive political Chastizement. Religious Men will cherish these Maxims in proportion to the additional Force they derive from divine Revelation. But our own Experience will Shew, that from a Defect of justice this Nation is not established; and that her Want of Honesty is severely punished by the Want of Credit. To this Want of Credit must be attributed the Weight of Taxation for Support of the War, and the Continuance of that Weight by Continuance of the War. It is therefore with the greatest Propriety your Pet.i.tioners already mentioned have stated in their Memorial, that both Policy and Justice require a solid Provision for funding the public Debts. It is with Pleasure Sir that I see this numerous, meritorious and oppressed Body of Men, who are Creditors of the public, begining to exert themselves for the obtaining of Justice. I hope they may succeed, not only because I wish well to a righteous Pursuit, but because this Success will be the great Ground work of a Credit which will carry us safely thro the present just, important and necessary War, which will combine us closely together on the Conclusion of a Peace, which will always give to the Supreme Representative of America a Means of acting for the general Defence on Sudden Emergencies, and which will, of consequence, procure the Third of those great Objects for which we contend, Peace, Liberty, and Safety Liberty, and Safety.

Such Sir are the cogent Principles by which we are called on to provide solid Funds for the national Debt. Already Congress have adopted a Plan for liquidating all past Accounts; and if the States shall make the necessary Grants of Revenue, what remains will be a simple executive Operation which will presently be explained. But however powerful the Reasons in favor of such Grants, over and above those Principles of moral Justice which none, however exalted, can part from with Impunity, still there are Men who (influenced by penurious selfishness) will grumble at the Expence, and who will a.s.sert the impossibility of sustaining it. On this Occasion the Sensations with Respect to borrowing are reversed. All would be content to relieve themselves, by Loan, from the Weight of Taxes, but many are unwilling to take up, as they ought, the Weight of Debt. Yet this must be done, before the other can happen, and it is not so great but that we Should find immediate Releif by a.s.suming it, even if it were a foreign Debt even if it were a foreign Debt. I say if it were a foreign Debt, because I shall attempt to shew, first that being a domestic Debt a domestic Debt, to fund it will cost the Community Nothing and secondly that it will produce (on the Contrary) a considerable Advantage. And as to the first Point, one Observation will Suffice. The Expenditure, has been made, and a Part of the Community have sustained it. If the Debt were to be paid, by a single Effort of Taxation; it could only create a Transfer of Property from one Individual to another, and the agregate Wealth of the Whole Community would be precisely the same. But since Nothing more is attempted than merely to fund the Debt by providing for the Interest (at six per Cent) The Question of Ability is resolved to this single Point, whether it is easier for a Part of the people to pay one hundred Dollars, than for the whole People to pay six Dollars. It is equally clear, tho' not equally evident, that a considerable Advantage would be produced, by funding our Debts, over and above what has been already mentioned, as the Consequence of National Credit. This Advantage is threefold. First, many Persons by being Creditors of the Public, are deprived of those Funds which are necessary to the full Exercise of their Skill and Industry. Consequently the Community are deprived of the Benefits which would result from that Exercise, whereas if these Debts which are in a manner dead, were brought back to existence, monied men would purchase them up (tho perhaps at a considerable Discount) and thereby restore to the Public many useful Members who are now entirely lost; and extend the Operations of many more to considerable Advantage. For altho not one additional Shilling would be, by this Means, brought in; yet by distributing Property into those Hands which could render it most productive, the Revenue would be increased, while the original Stock continued the Same. Secondly, many Foreigners who make Speculations to this Country would, instead of ordering back Remittances, direct much of the Proceeds of their Cargoes to be invested in our public Funds; which, according to Principles already established, would produce a clear Advantage, with this Addition (from peculiar Circ.u.mstances) that it would Supply the Want of Credit to the mercantile Part of Society. The last, but not least, Advantage is, that in restoring Ease, Harmony and Confidence, not only the Government (being more respectable) would be more respected, and consequently better obeyed; but the mutual Dealings among Men, on private Credit, would be facilitated. The Horrors which agitate People's Minds, from an Apprehension of depreciating Paper, would be done away. The secret h.o.a.rds would be unlocked. In the same Moment, the Necessity of Money would be lessened, and the Quant.i.ty increased. By these Means the Collection of Taxes would be facilitated, and thus, instead of being Obliged to give valuable Produce for useless Minerals, that Produce would purchase the Things we stand in need of, and we should obtain a sufficient circulating Medium, by giving the People what they have always a Right to Demand, solid a.s.surance in the Integrity of their Rulers.

The next Consideration which Offers, is the Amount of the public Debt, and every good American must lament that Confusion in public Affairs, which renders an accurate State of it unattainable. But it must continue to be so, until all accounts both at Home and abroad be finally adjusted. The enclosed is an Estimate furnished by the Comptroller of the Treasury, from which it appears that there is already an acknowledged Debt, bearing Interest, to the Amount of more than twelve Million of Dollars. On Part of this also there is a large arrearage of Interest, and there is a very considerable Debt unsetled, the Evidence whereof exists in various Certificates given for Property applied to the public Service. This (including Pay due to the army previous to the present Year) cannot be estimated at less than between seven and eight Millions. Our Debt to his most Christian Majesty is above five Millions. The nearest Guess therefore, which can be made at the Sum total, is from twenty five to twenty seven million of Dollars, and if to this we add what it may be necessary to borrow for the Year 1783 the Amount will be (with Interest) by the Time proper Revenues are obtained, considerably above thirty Millions. Of course the Interest will be between eighteen hundred Thousand and two Million Dollars. And here, previous to the Consideration of proper Revenues for that Amount, it may not be amiss to make a few general Observations. The first of which is, that it would be injurious to the United States to obtain Money on Loan without providing before hand the necessary Funds. For if those who are now so deeply engaged to Support the War, will not grant such Funds to procure immediate Relief, certainly those who come after them will not do it, to pay a former Debt. Remote Objects, dependent on abstract Reasoning, never influence the Mind like immediate Sensibility. It is therefore the Province of Wisdom to direct towards proper Objects that Sensibility which is the only Motive to Action among the Ma.s.s of Mankind. Should we be able to get Money from the Dutch, without first providing Funds, which is more than doubtful; and should the several States neglect, afterwards, making Provision to perform the Engagements of Congress, which is more than probable; the Credit of the United States, abroad, would be ruined for ever. Very Serious Discussions also might be raised among foreign Powers, our Creditors might have Recourse to arms, and we might dishonorably be compelled to do, what dishonestly we had left undone. Secondly, the Idea which many entertain of soliciting Loans abroad to pay the Interest[image]domestic Debts, is a Measure pregnant with it's own Destruction. If the States were to grant Revenues sufficient only to pay the Interest of present Debts, we might perhaps obtain new Credit, upon a general Opinion of our Justice, tho' that is far from certain. But when we omit paying, by Taxes, the Interest of Debts already contracted, and ask to borrow for the Purpose, making the same Promises to obtain the new Loans which had been already made to obtain the Old, we shall surely be disappointed. Thirdly, it will be necessary, not only that Revenues be granted, but that those Revenues be amply sufficient for the Purpose, because (as will presently appear) a Deficiency would be highly pernicious, while an Excess would be not only unprejudicial but very advantageous. To perceive this with all necessary Clearness, it must be remembered that the Revenues asked for on this Occasion must be appropriated to the Purposes for which they are asked, and in like Manner the Sums required for current Expenditure, must be appropriated to the current Service. If then the former be deficient, the latter cannot be brought in to Supply the Deficiencys and, of course, the public Credit would be impaired; but should there be an Excess of Revenue, it could be applied in Payment of a Part of the Debt immediately, and in such Case if the Credits should have depreciated, they would be raised to Par, and if already at Par, the Offer of Payment would induce Creditors to lower the Interest. Thus in either Case, the Means of making new Loans on good Terms would be extended, and the Necessity of asking more Revenues obviated. Lastly, these Revenues ought to be of such a Nature as naturally and necessarily to increase; for Creditors will have a greater Confidence when they have a clear Prospect of being repaid, and the People will always be desirious to see a like Prospect of Releif from the Taxes. Besides which, it will be necessary to incur some considerable Expence after the War in making necessary Establishments for a permanent naval Force, and it will always be least objectionable to borrow, for that Purpose, on Funds already established.

The Requisition of a five per Cent Impost, made on the third Day of February 1781, has not yet been complied with by the State of Rhode Island; but as there is Reason to beleive that their Compliance is not far off, this Revenue may be considered as being already granted. It will however be very inadequate to the Purposes intended. If Goods be imported and Prizes introduced to the Amount of twelve Millions annually, the five per Cent would be six hundred thousand, from which at least one sixth must be deducted, as well for the Cost of Collection, as for the various Defalcations which will necessarily happen, and which it is unnecessary to enumerate. It is not safe therefore to estimate this Revenue at more than half a Million of Dollars, for tho it may produce more, yet probably it will not produce so much. It was in Consequence of this that, on the twenty seventh Day of February last, I took the Liberty to Submit the Propriety of asking the States for a Land Tax of one Dollar for every hundred Acres of Land, a Poll Tax of one Dollar on all freemen, and all male Slaves between sixteen and sixty (excepting such as are in the federal Army, and such as are by Wounds or otherwise rendered unfit for Service) and an Excise of one eighth of [a] Dollar, per Gallon, on all distilled Spirituous Liquors. Each of these may be estimated at half a Million, and should the Product be equal to the estimation, the Sum total of Revenues for funding the public Debts, would be equal to two Millions. What has been the Fate of these Propositions I know not, but I will beg leave, on this Occasion, not only to renew them but also to state some Reasons in their favor, and answer some Objections against them.

And first, as to a Land Tax. The Advantages of it are, that it can be reduced to a Certainty as to the Amount and Time. That no extraordinary Means are necessary to ascertain it. And that Land, being the ultimate Object of human Avarice, and that particular Species of permanent Property which so peculiarly belongs to a Country as neither to be removed nor concealed, it stands foremost for the Object of Taxation; and ought most particularly to be burthened with those Debts which have been incurred by defending the Freedom of its Inhabitants. But besides these general Reasons, there are some which are in a Manner peculiar to this Country. The Land of America may, as to the Proprietors, be divided into two Kinds, that which belongs to the great Landholders and that which is owned and occupied by the industrious Cultivator. This latter Cla.s.s of Citizens is, generally speaking, the most numerous and most valuable part of a Community. The Artisan may, under any Government minister to the Luxuries of the Rich, and the Rich may, under any Government, obtain the Luxuries they covet. But the free Husbandman is the natural Guardian of his Country's Freedom. A Land Tax will probably, at the first mention, startle this Order of Men, but it can only be from the Want of Reflection, or the Delusion must be kept up by the Artifice of others. To him who cultivates from one to five hundred Acres, a Dollar per hundred is a trifling Object; but to him who owns an hundred Thousand it is important. Yet a large Proportion of America is the Property of great Landholders, they monopolize it without Cultivation; they are (for the most Part) at no Expence either of Money or personal Service to defend it; and, keeping the Price higher by Monopoly than otherwise it would be, they impede the Settlement and Culture of the Country. A Land Tax, therefore, would have the salutary Operation of an Agrarian Law, without the Iniquity. It would relieve the Indigent, and aggrandize the State, by bringing Property into the Hands of those who would use it for the Benefit of Society. The Objections against such a Tax are twofold, first that it is unequal, and secondly that it is too high. To obviate the Inequality, some have proposed an Estimate of the Value of different Kinds of Lands. But this would be improper, because first it would be attended with great Delay, Expence a