Part 11

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.[7]

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 any thing 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. This 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 befel 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 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.[8]

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 dollars.[9] 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.[10] 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,[11] who may have recourse to the Company 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

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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 millions 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.

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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 guarantee 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. Beside 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 interests 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 a 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.

[3] France owes a debt of near two hundred millions 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 in 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.

[4] 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.

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

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

[7] 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.

[8] 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.

[9] 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.

[10] 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.

[11] 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.”