Part 21

The Dutch government has of long standing mortgaged all its revenues. Taxation has been carried to a length that admits of little extension. ’Tis from its credit with its own citizens, that it must derive the means of making war. It has every thing to do. Its fleet is to be in a manner created anew; and its land forces to be recruited, having been, for some time past, suffered to decline very much. It will, therefore, stand in need of all its credit for its own uses. Of course we have nothing to expect from the government of that country.

The individuals will not have confidence enough in our public councils, to embark any considerable part of their fortunes with us, on the ordinary principles of a loan. Stronger inducements, the prospect of commercial advantages, securities different from the mere faith of the United States, must be held out, to tempt them to engage far with us. The plan I am going to propose, endeavors to conciliate these objects.

As to internal loans, on which, after all, we must chiefly depend, there are two things that operate against them, to any large amount; the want of a sufficient number of men, with sufficient moneyed capitals to lend the sums required, and the want of confidence in those who are able to lend, to make them willing to part with their money. It may be added, that they can employ it to greater advantage in traffic, than by merely lending it on interest.

To surmount these obstacles, and give individuals ability and inclination to lend, in any proportion to the wants of government, a plan must be devised, which, by incorporating their means together, and uniting them with those of the public, will, on the foundation of that incorporation and union, erect a mass of credit that will supply the defect of moneyed capital, and answer all the purposes of cash; a plan which will offer adventurers immediate advantages, analogous to those they receive by employing their money in trade, and, eventually, greater advantages; a plan which will give them the greatest security the nature of the case will admit for what they lend; and which will not only advance their own interest, and secure the independence of their country, but, in its progress, have the most beneficial influence upon its future commerce, and be a source of national strength and wealth.

I mean the institution of a NATIONAL BANK. This I regard, in some shape or other, as an expedient essential to our safety and success; unless, by a happy turn of European affairs, the war should speedily terminate in a manner upon which it would be unwise to reckon. There is no other that can give to government that extensive and systematic credit, which the defect of our revenues makes indispensably necessary to its operations.

The longer it is delayed, the more difficult it becomes. Our affairs grow every day more relaxed and more involved; public credit hastens to a more irretrievable catastrophe; the means for executing the plan are exhausted in partial and temporary efforts. The loan now making in Massachusetts would have gone a great way in establishing the funds on which the Bank must stand.

I am aware of all the objections that have been made to public Banks; and that they are not without enlightened and respectable opponents. But all that has been said against them, only tends to prove that, like all other good things, they are subject to abuse, and, when abused, become pernicious. The precious metals, by similar arguments, may be proven to be injurious. It is certain that the mines of South America have had great influence in banishing industry from Spain, and sinking it in real wealth and importance. Great power, commerce, and riches, or, in other words, great national prosperity, may, in like manner, be denominated evils; for they lead to insolence, an inordinate ambition, a vicious luxury, licentiousness of morals, and all those vices which corrupt government, enslave the people, and precipitate the ruin of a nation. But no wise statesman will reject the good, from an apprehension of the ill. The truth is, in human affairs there is no good, pure and unmixed: every advantage has two sides: and wisdom consists in availing ourselves of the good, and guarding as much as possible against the bad.

The tendency of a National Bank is to increase public and private credit. The former gives power to the State, for the protection of its rights and interests: and the latter facilitates and extends the operations of commerce among individuals. Industry is increased, commodities are multiplied, agriculture and manufactures flourish: and herein consists the true wealth and prosperity of a State.

Most commercial nations have found it necessary to institute Banks: and they have proved to be the happiest engines that ever were invented for advancing trade. Venice, Genoa, Hamburgh, Holland, and England, are examples of their utility. They owe their riches, commerce, and the figure they have made at different periods, in a great degree to this source. Great Britain is indebted for the immense efforts she has been able to make, in so many illustrious and successful wars, essentially to that vast fabric of credit raised on this foundation. ’Tis by this alone she now menaces our independence.

She has, indeed, abused the advantage, and now stands on a precipice. Her example should both persuade and warn us. ’Tis in republics where Banks are most easily established and supported, and where they are least liable to abuse. Our situation will not expose us to frequent wars; and the public will have no temptation to overstrain its credit. In my opinion, we ought not to hesitate, because we have no other resource. The long and expensive wars of King William, had drained England of its specie: its commerce began to droop for want of a proper medium: its taxes were unproductive, and its revenues declined. The administration wisely had recourse to the institution of a Bank; and it relieved the national difficulties. We are in the same, and still greater, want of a sufficient medium. We have little specie: the paper we have is of small value, and rapidly descending to less: we are immersed in a war for our existence as a nation, for our liberty and happiness as a people: we have no revenues nor no credit. A Bank, if practicable, is the only thing that can give us either the one or the other.

Besides these great and cardinal motives to such an institution, and the advantages we should enjoy from it, in common with other nations, our situation, relatively to Europe and to the West Indies, would give us some peculiar advantages.

Nothing is more common than for men to pass from the abuse of a good thing, to the disuse of it. Some persons, disgusted by the depreciation of the money, are chimerical enough to imagine it would be beneficial to abolish all paper credit, annihilate the whole of what is now in circulation, and depend altogether upon our specie, both for commerce and finance. The scheme is altogether visionary, and in the attempt would be fatal. We have not a competent stock of specie in this country, either to answer the purposes of circulation in trade, or to serve as a basis for revenue. The whole amount of what we have, I am persuaded, does not exceed six millions of dollars, one-fifth of the circulating medium before the war. To suppose this would be sufficient for the operations of commerce, would be to suppose that our domestic and foreign commerce were both reduced four-fifths: a supposition that carries absurdity in the face of it. It follows that if our paper money were destroyed, a great part of the transactions of traffic must be carried on by barter; a mode inconvenient, partial, confined, destructive both of commerce and industry. With the addition of the paper we now have, this evil exists in too great a degree. With respect to revenue, could the whole of our specie be drawn into the public treasury annually, we have seen that it would be little more than one half of our annual expense. But this would be impracticable; it has never been effected in any country. Where the numerary of a country is a sufficient representative, there is only a certain proportion of it that can be drawn out of daily circulation; because, without the necessary quantity of cash, a stagnation of business would ensue. How small, then, would be the proportion of the six millions (in itself so unequal a representative) which the public would be able to extract in revenue. It must either have little or no revenue, or it must receive its dues in kind; on the inefficacy and inconveniences of which mode, I have already remarked. The necessity for it, in part, unhappily now has place, for the cause assigned, a deficiency of current cash: but were we to establish it as our principal dependence, it would be impossible to contrive a mode less productive to the public, more contrary to the habits and inclinations of the people, or more baneful to industry.

But waiving the objections on this head, there would still remain a balance of four millions of dollars more than these States can furnish in revenue, which must be provided for the yearly expense of the war. How is this to be procured without a paper credit, to supply the deficiency of specie, and enable the moneyed men to lend? This question, I apprehend, will be of no easy solution.

In the present system of things, the health of a State, particularly a commercial one, depends on a due quantity and regular circulation of cash, as much as the health of an animal body depends upon the due quantity and regular circulation of the blood. There are indisputable indications that we have not a sufficient medium; and what we have is in continual fluctuation. The only cure to our public disorders, is to fix the value of the currency we now have, and increase it to a proper standard, in a species that will have the requisite stability.

The error of those who would explode paper money altogether, originates in not making proper distinctions. Our paper was, in its nature, liable to depreciation, because it had no funds for its support, and was not upheld by private credit. The emissions under the resolution of March, ’80, have partly the former advantage, but are destitute of the latter, which is equally essential. No paper credit can be substantial, or durable, which has not funds, and which does not unite, immediately, the interest and influence of the moneyed men, in its establishment and preservation. A credit begun on this basis, will, in process of time, greatly exceed its funds: but this requires time, and a well settled opinion in its favor. ’Tis in a National Bank, alone, that we can find the ingredients to constitute a wholesome, solid, and beneficial paper credit.

I am aware that, in the present temper of men’s minds, it will be no easy task to inspire a relish for a project of this kind: but much will depend on the address and personal credit of the proposer. In your hands I should not despair: and I should have the greater hopes for what I am informed appeared to be the disposition, at the promulgation of the plan for a loan in Massachusetts. The men of property in America, are enlightened about their own interest, and would easily be brought to see the advantages of a good plan. They ought not to be discouraged at what has happened heretofore, when they behold the administration of our finances put into a better channel. The violations of public engagements, hitherto, have proceeded more from a necessity produced by ignorance and mismanagement, than from levity or a disregard to the obligations of good faith.

Should the success, in the first instance, not be as complete as the extent of the plan requires, this should not hinder its being undertaken. It is of the nature of a Bank, wisely instituted, and wisely administered, to extend itself, and, from small beginnings, grow to a magnitude that could not have been foreseen.

The plan I propose, requires a stock of three millions of pounds, lawful money; but if one-half the sum could be obtained, I should entertain no doubt of its full success. It now remains to submit my plan, which I rather offer as an outline, than as a finished plan. It contains, however, the general principles. To each article, in an opposite column, I shall affix an explanatory remark.

Art I. A Bank to be Remark 1. By the second Article, erected with a stock of three a part of the stock is to be in landed millions of pounds, lawful security: by this, the whole is to be money, at the rate of six exempted from taxes. Here will be a shillings to a dollar, divided considerable saving to the proprietor, into thirty thousand shares. which is to be estimated among the clear This stock to be exempted profits of the Bank. This will indeed from all public taxes and be a small reduction of the public impositions whatsoever. revenue; but the loss will be of little consequence, compared with the advantages to be derived from the Bank.

Art II. A subscription Remark 2. By admitting landed to be opened for the amount security as a part of the Bank stock, of the stock. A subscriber of while we establish solid funds for the from one share to five, to money emitted, we at the same time advance the whole in specie. supply the defect of specie, and we give A subscriber of six shares to a strong inducement to moneyed men to fifteen to advance one-half in advance their money; because, not only specie, the other half in good the money actually deposited is to be landed security. A subscriber employed for their benefit, but, on the of sixteen shares, and upwards, credit of their landed security, by the to advance two-sixths in seventh Article, may be raised an equal specie, one-sixth in bills or amount in cash, to be also employed for securities on good European their benefit: by which artifice they funds, and three-sixths in good have the use of their land (exempted, landed security. In either case too, from taxes), and the use of the of specie, plate or bullion, value of it in a representative cash. In at a given value, proportioned this consists a capital advantage of the to its quality, may be Bank to the proprietors. A, for instance, substituted; and in either case advances six hundred pounds in specie, of landed security, specie, and as much more in landed security. By good bills, or securities the establishment he may draw bank notes on European funds, to be for the whole of his stock, that is, admissible in their stead.[14] for twelve hundred pounds, when he only advances half the sum in money. These bank notes operating as cash, his land (continuing, as we observed above, in his own use, with the privilege besides of an exemption from taxes) is converted into cash; which he may employ in loans, in profitable contracts, in beneficial purchases, in discounting bills of exchange, and in the other methods permitted in the subsequent Articles. Besides all this, when the bank notes have once acquired a fixed credit, he is not obliged to keep his six hundred pounds, deposited in specie, idle: he may lend, or otherwise improve, a part of that also. These advantages will not exist in their full extent at first, but they will soon succeed each other.

Art. III. The Bank Remark 3. This Article needs no to be erected into a legal illustration. corporation; to have all the powers and immunities requisite to its security, to the recovery of its debts, and to the disposal of its property.

Art. IV. The stock Remark 4. The first part of of the Bank not to be liable this regulation is necessary to engage to any attachment or seizure foreigners to trust their property in the whatsoever; but, on refusal of Bank; the latter part to give an idea of payment, the holders of bank security to the holders of bank notes. notes, or bonds, may enter suit against any member, or members, of the corporation; and, as far as their respective shares in the Bank extend, recover the debt, with cost and damages, out of their private property.

Art. V. The United Remark 5. This will link the States, or any particular interests of the public more intimately States, or foreigners, may with the Bank, and be an easy method become subscribers to the Bank, of acquiring revenue. It will also and participate its profits, facilitate the making up its stock by the for any sums not exceeding the loans which Congress may obtain abroad; whole half the stock. without which it would be more difficult to raise so large a sum. It is essential the stock should be large, because, in proportion to it, will be the credit of the Bank, and of course its ability to lend and enlarge its paper emissions. The admission of foreigners will also assist the completing the stock; and it is probable many may be induced to enter into the plan, especially after it has made some progress among ourselves, and obtained a degree of consistency.

The sum is limited to one half the stock, because it is of primary importance the moneyed men among ourselves should be deeply interested in the plan.

Art. VI. The United Remark 6. This mode of pledging States, collectively and the public faith, makes it as difficult

## particularly, to become to be infringed as could possibly

responsible for all the be devised. In our situation it is transactions of the Bank, expedient to offer every appearance of conjointly with the private security. Foreigners are more firmly proprietors. persuaded of the establishment of our independence than of the continuance of our union; and will therefore have more confidence in the States bound separately than collectively. Individuals among ourselves will be influenced by similar considerations.

Art VII. The Bank to Remark 7. The reason of having issue notes payable at sight, them payable at sight, is to inspire in pounds, shillings, and the greater confidence and give them a pence, lawful: all of twenty readier currency: nor do I apprehend shillings, and under, to bear there would be any danger from it. In no interest: all above, to the beginning some may be carried to the bear an interest not exceeding Bank for payment, but finding they are four per cent. The notes to be punctually discharged, the applications of so many denominations as will cease. The notes are payable in may be judged convenient for pounds, shillings, and pence, rather circulation, and of two kinds; than in dollars, to produce an illusion one payable only in America, in the minds of the people favorable the other payable either in to the new paper; or rather to prevent American or in an part of their transferring to that their Europe where the Bank may have prejudices against the old. Paper credit funds. The aggregate of these depends much on opinion, and opinion is notes never to exceed the Bank often guided by outside appearances. A stock. circumstance trivial as this may seem, might have no small influence on the popular imagination. And if 20s., and under, are without interest, because such small sums will be diffused in the lesser transactions of daily circulation, there will be less probability of their being carried to the Bank for payment.

The interest on the larger notes is calculated to give them a preference to specie, and prevent a run upon the Bank. The notes, however, must be introduced by degrees, so as not to inundate the public at once. Those bearing no interest ought not to be multiplied too much at first; but as the interest is an abridgment of the profits of the Bank, after the notes have gained an unequivocal credit, it will be advantageous to issue a large proportion of the smaller ones. At first, the interest had best be at four per cent., to operate the more effectually as a motive: afterwards, on the new notes, it may be gradually diminished: but it will always be expedient to let them bear an interest not less than two per cent.

The making some of the notes payable in Europe as well as in America, is necessary to enable the Bank to avail itself of its funds there: it will also serve to raise the demand for Bank notes, by rendering them useful in foreign commerce, the promoting which is a further inducement.

The limiting the aggregate of the notes to the amount of the stock, is necessary to obviate a suspicion of their being multiplied beyond the means of redemption.

Art. VIII. The Bank to Remark 8. In the beginning it lend money to the public, or to will be for the advantage of the Bank to individuals, at an interest not require high interest, because money is exceeding eight per cent. in great demand, and the Bank itself will want the principal part of its cash for the loans stipulated in Article XIII, and for performing the contracts authorized by Article XII: so that the profits will not, for some time, turn materially on the principle of loans, except that to the public. But when the contracts cease, the Bank will find its advantage in lending, at a moderate interest, to secure a preference from borrowers, which will, at the same time, promote commerce; and by a kind of mutual reaction, the Bank will assist commerce, and commerce will assist the Bank.

Art. IX. The Bank to Remark 9. This is a precaution have liberty of borrowing, on against a sudden run. It may borrow the best terms it can, to the in proportion to what it pays. It amount of one half of its stock. has another advantage: at particular conjunctures the Bank may borrow at a low interest, and lend, at others, at a higher.

Art. X. The Bank to Remark 10. This privilege have liberty of purchasing of purchasing estates will be a very estates by principal, or by valuable one. By watching favorable annuities; the power of coining opportunities, with so large a capital, to the amount of half its vast property may be acquired in this stock, the quantity of alloy, way. There will be a fine opening at etc., being determined by the conclusion of the war. Many persons Congress; also the power of disaffected to our independence, who discounting bills of exchange. have rendered themselves odious without becoming obnoxious to the laws, will be disposed to sell their estates here, either for their whole value, or for annuities in Europe. The power of coining[15] is necessary, as plate, or bullion, is admitted instead of specie; and it may be, on particular occasions, expedient to coin them; this will be a small resource to the Bank. The power of discounting bills of exchange will be a considerable one. Its advantages will consist in purchasing, or taking up for the honor of the drawer, when the security is good, bills of exchange at so much per cent. discount. A large profit might be now made in this way on the bills drawn on France; and hereafter, in times of peace, when commerce comes to flourish, this practice will promote the transactions of the several States with each other, and with Europe, and will be very profitable to the Bank.