With the
addition
of
the paper we now have, this evil exists in too great a degree.
the paper we now have, this evil exists in too great a degree.
Hamilton - 1834 - Life on Hamilton - v1
The en-
larged views embraced in this resolution were not sanc-
tioned; but another measure of great moment was recom-
mended,-- that the states should confer on congress the
power of levying an impost of five per cent, on imported
articles, to be applied to the discharge of the debts incurred
for supporting the war, and to continue until they were dis-
charged.
* In a letter from Samuel Adams, of the 9th December, 1783, he says,
"Power will follow the possession of money, even -when it is known that it
is not the possessor's property; so fascinating are riches in the eyes of man-
kind. Were our financier, I was going to say, even an angel from heaven, I
hope he will never have so much influence, as to gain the ascendency over
congress, which the first lord of the treasury has long had over the parliament
of Britain, -- long enough to effect the ruin of that nation. These are the fears
which I expressed in congress, when the department was first instituted. I
was told, that the breath of congress could annihilate the financier; but I re-
plied, that the time might come, and if they were not careful, it certainly
would, wlen even congress would not dare to blow that breath: whether
these fears are the mere creatures of the imagination, you will judge. "
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? 350 THE LIFE OF
On the thirtieth of July, 1777, an adjourned convention
of delegates from several states was held at Springfield,
which proposed the abolition of a limitation of prices; the
gradual "drawing in" of the paper money; and its being
funded at an interest of six per cent. , and a system of taxa-
tion as a mean to this object. This subject was resumed by
a convention which assembled at Hartford, in October, 1779,
and which adjourned to meet in Philadelphia in the following
January, when resolutions were adopted, recommending
that Virginia should appoint commissioners to convene at
Hartford in the ensuing autumn. The deliberations of this
convention produced an early attention to this subject in
congress; and in March, 1780, a motion was made by Mr.
Burke, of North Carolina, " that the states be requested to
pass laws, enabling congress to levy an impost of one per
cent, on all exports and imports, as a fund for sinking the
emissions for carrying on the present war; to continue un-
til a sum equal to the whole of the said emissions shall 1)e
. collected," which was lost.
Nine commissioners assembled at Hartford, in pursuance
of their adjournment, among whom were Judge Hobart
and Egbert Benson of New-York. Upon much delibera-
tion, a paper was addressed to congress, which, after touch-
ing upon several military matters, recommends, in the sixth
article of their proceedings, that an estimate be made of all
the interest due on loan office certificates, and on all other
debts incurred by continental purchasing officers; that
taxes should be imposed by congress on certain specific ar-
ticles; or duties on imports, which the states should author-
ize them to levy and collect. This authority only to take
effect with the concurrence of all the states not in posses-
sion of the enemy; the proceeds to be appropriated to the
payment of the interest of the debt. A return of the white
and black inhabitants was also recommended, and a conti-
nental judicature, of three persons, to try offences against
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? HAMILTON. 351
the laws of congress, was suggested. This letter was read
in congress, on the twelfth of December, 1780, and in Feb-
ruary following, Egbert Benson was appointed procurator. *
The important proposal of a national impost, which be-
came the leading subject of controversy during many years,
that on which the whole system of public credit depended,
and which may be considered as the most prominent in
the train of events that led to the adoption of the federal
constitution, was resisted by the jealousy of several of the
commercial states, who imagined, that by entrusting con-
gress with the control of their customs, they were parting
with every essential attribute of sovereignty.
Nothing seemed left to relieve the finances of the coun-
try, but the adoption of some measure by which a new
"mass of credit" could be created, and the depreciated pa-
per replaced by a currency of fixed value, adequately sus-
tained. A recent resolution! of congress, passed with but
one dissenting voice, "to pay all the debts which had been
liquidated in specie value, or which had been, or should be,
made payable in specie or its equivalent, actually in specie
or its equivalent," and a recommendation to the states to
amend their laws, making the bills of credit emitted under
the authority of congress a legal tender, so that they should
not be a tender in any other manner than at their current
value, compared with gold and silver, gave evidence of a
sound state of public opinion.
Encouraged by these indications, Hamilton resumed his
* Among the proposals to invigorate the confederation, was one made on
the sixteenth March, 1781, that under a construction of the thirteenth article
of the confederation, it should be so amended, "that if any state refused to ob-
serve all the articles of the confederation, congress should be empowered to
authorize the land and naval forces of the United States to compel such state
to fulfil its federal engagements, and also to make restraint on its merchan-
dise. "
f March sixteenth, 1781.
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? 352 THE LIFE OF
plan of a national bank, of which the first suggestion was
made by him to Robert Morris.
The Bank of Pennsylvania, which had been established
in June, though partial in its objects, having been a bank
merely of deposit, not of issue, had given congress such
aid as predisposed them to the adoption of a more exten-
sive system.
The character of the individual who had been elected su-
perintendent of finance, encouraged Hamilton to hope for
the attainment of his project; and with this view, on the
thirtieth of April, 1781, he addressed an elaborate letter to
Mr. Robert Morris, the fruits of his leisure, since he had been
relieved from the duties of aid-de-camp, discussing at large
the causes of the depreciation, and indicating the means of
raising the value of the currency, and at the same time en-
closing a charter for a bank to be incorporated by congress.
This plan was prefaced by the following observations:
April 30th, 1781.
I was among the first who were convinced that an ad-
ministration by single men was essential to the proper
management of the affairs of this country. I am persuaded
it is the only resource we have to extricate ourselves from
the distresses which threaten the subversion of our cause.
It is palpable that the people have lost all confidence in our
public councils, and it is a fact, of which I dare say you are
as well apprized as myself, that our friends in Europe are
in the same disposition. I have been in a situation that
has enabled me to obtain a better idea of this than most
others, and I venture to assert, that the court of France
will never give half the succours to this country while con-
gress hold the reins of administration in their own hands,
which they would grant if these were entrusted to indivi-
duals of established reputation, and conspicuous for probity,
abilities, and fortune.
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? HAMILTON. 353
With respect to ourselves, there is so manifest and rooted
a diffidence of the government, that if we could be assured
the future measures of congress would be dictated by the
most perfect wisdom and public spirit, there would be still
a necessity for a change in the forms of our administration,
to give a new spring and current to the passions and hopes
of the people. To me it appears evident, that an executive
ministry, composed of men with the qualifications I have
described, would speedily restore the credit of government
abroad and at home; would induce our allies to great exer-
tions in our behalf; would inspire confidence in moneyed
men in Europe, as well as in America, to lend us those
sums of which it may be demonstrated we stand in need,
from the disproportion of our national wealth to the ex-
penses of the war.
I hope, sir, you will not consider it a compliment, when
I assure you that I heard, with the greatest satisfaction, of
your nomination to the department of finance.
In a letter of mine last summer to Mr. Duane, urging,
among other things, the plan of an executive ministry, I
mentioned you as the person who ought to fill that depart-
ment. I know of no other in America who unites so many
advantages; and, of course, every impediment to your ac-
ceptance is to me a subject of chagrin. I flatter myself,
congress will not preclude the public from your services, by
an obstinate refusal of reasonable conditions; and as one
deeply interested in the event, I am happy in believing you
will not easily be discouraged from undertaking an office,
by which you may render America and the world no less a
service than the establishment of American independence.
'Tis by introducing order into our finances, by restoring
public credit, not by gaining battles, that we are finally to
attain our object. 'Tis by putting ourselves in a condition
to continue the war, not by temporary, violent, and unnatu-
ral efforts to bring it to a decisive issue, that we shall in
vol. i. 45
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? 354 THE LIFE OP
reality bring it to a speedy and successful one. In the
frankness of truth, I believe, sir, you are the man best capa-
ble of performing this great work.
In expectation that all difficulties will be removed, and
that you will ultimately act on terms you approve, I take
the liberty to submit to you some ideas, relative to the ob-
jects of your department. I pretend not to be an able
financier. It is a part of administration which has been
least in my way, and of course has least occupied my inqui-
ries and reflections; neither have I had leisure or materials
to make accurate calculations. I have been obliged to de-
pend on memory for important facts, for want of the au-
thorities from which they are drawn.
With all these disadvantages, my plan must necessarily
be crude and defective; but it may be a basis for something
more perfect, or if it contains any hints that may be of use
to you, the trouble I have taken myself, or may give you,
will not be misapplied. At any rate, the confidence I have
in your judgement, assures me that you will receive with
pleasure communications of this sort. If they contain any
thing useful, they will promote your views, and the public
benefit; if not, the only evil is the trouble of reading them;
and the best informed will frequently derive lights even
from the reveries of projectors and quacks. There is scarcely
any plan so bad as not to have something good in it. I trust
mine to your candour, with this apology, -- you will at least
do justice to my intention.
With these preliminary remarks, he proceeds to the in-
quiry as to "what ought to be done in the finances of the
United States? " First, to estimate its capacity for reve-
nue, and the proportion between its abilities and its wants,
by examining the proportion the revenues other countries
have borne to theirwealth, and applying the rule to Ame-
rica. Second, by comparing the result of that rule with the
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? HAMILTON. 355
product of taxes in those states which have been most ear-
nest in taxation.
The result obtained, by an examination applied to Great
Britain, France, and the United Provinces was, that the re-
venue is one fourth of the circulating cash in commercial
countries, so far as this is a just representative of its labour
and commodities.
He then states the current cash of America, previous to
the war, to have been about thirty millions of dollars, of
which one eighth was specie; and that the proper revenue,
at that time, was seven and a half million of dollars. But
as the system of taxation was carried to an extreme in those
countries, that the rule is inapplicable in its full extent to
the United States; though a much larger amount than might
be expected, could be levied during the war, without bur-
thening the poorer classes, from the greater equality of for-
tunes, and a more equal division of the public burthens. --
Making the necessary qualifications, he arrives at the re-
sult, that the present revenue was one fifth less than it had
been before the war. Having adverted to the causes of the
diminished circulation, which he considers as principally
artificial, he comes to the conclusion, allowing for the dimi-
nution of foreign trade, and the loss of territory, that the
states have a nett revenue of six millions of dollars; a re-
sult which is nearly confirmed by a detailed examination of
the previous product of the taxes, of which Massachusetts
was supposed to have raised one fifth.
Taking this as the amount of revenue, he next proceeds
to ascertain, by general rules, the military capacity of the
country, which although it had at times risen to thirty thou-
sand men, might be estimated at twenty thousand. The
expenses incident to the support of which force, with the
necessary civil expenditures, rendering the amount of the
annual charges of the country less than eleven million of
dollars, left a deficit of four and a half millions to be supplied
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? 350 THE LIFE or
by credit, foreign or domestic. He then examines the pros-
pect from foreign loans, which taking into view the politi-
cal and financial embarrassments of France, he supposes
may justify an expectation of a loan annually of eight or ten
million of livres, which would only meet a third of the na-
tional wants.
From Spain, after remarking on her cold and passive
policy, in pursuance of which the bills drawn on her, though
not rejected, had not been paid, he expects nothing.
"Their method of prosecuting the war, can scarcely be re-
solved into Spanish supineness, but seems to have a more
corrupt original. A bigotted prince, governed by a greedy
confessor, is a character on which little dependence can be
placed. "
Holland, as a government, stands in need of all its credit
for its own uses. But from the Dutch capitalists much
might be expected, though not on the faith of the United
States, by the establishment of a system such as he is about
to propose. The prospects of internal loans to govern-
ment, both from the want of confidence, and the more ad-
vantageous terms of traffic in which individual wealth could
be employed, he rates very low.
"To surmount these obstacles," he observes,"and give
individuals ability and inclination to lend, a plan might be
devised which, by incorporating their means together, and
uniting them with those of the public, will, on the founda-
tion 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 not only ad-
vance the interest of the lenders, secure the independence
of their country, and in its progress have the most benefi-
cial influence upon its future commerce, but be a source of
national strength and wealth. I mean," he says, "the in-
stitution of a national bank. This I regard, in some shape
or other, as an expedient essential to our safety and sue-
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? HAMILTON. 357
cess, 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 exhaust-
ed in partial and temporary efforts. The loan now making
in Massachusetts, would have gone a great way in esta-
blishing 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 per-
nicious. The precious metals, by similar arguments, may
be proved to be injurious. It is certain that the monies
of South America have had great influence in banishing
industry from Spain, and sinking it in real wealth and im-
portance. 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 inordi-
nate ambition, a vicious luxury, licentiousness of morals,
and all those vices which corrupt a government, enslave the
state, 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 wis-
dom consists in availing ourselves of the good, and guard-
ing, 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 fa-
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? 358 THE LIFE OF
cilitates and extends the operations of commerce among in
dividuals.
"Industry is increased, commodities are multiplied, agri-
culture and manufactures nourish, and herein consist the
true wealth and prosperity of a state.
"Most commercial nations have found it necessary to in-
stitute banks; and they have proved to be the happiest en-
gines 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 de-
gree, to this source. Great Britain is indebted for the im-
mense efforts she has been able to make in so many illus-
trious 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 ex-
ample should both persuade and warn us. 'Tis in repub-
lics, 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 admi-
nistration wisely had recourse to the institution of a bank,
and it retrieved 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 declining 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
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? HAMILTON. 359
one or the other. Besides these great and cardinal mo-
tives 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 pa-
per, and annihilate the whole of what is now in circulation,
and depend altogether upon specie, both for commerce and
finance. The scheme is altogether visionary, and in the at-
tempt would be fatal. We have not a competent stock
of specie in this country, either to answer the purpose 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 suffi-
cient 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 on 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; destruc-
tive both of commerce and industry.
With the addition of
the paper we now have, this evil exists in too great a degree. "
Having shown that if all the specie could be drawn into
the treasury annually, the consequence of such a measure,
which never was effected in any country, would be a com-
plete stagnation of business; and that a recourse to taxes
in kind, would prove wholly inefficacious, he proceeds to
observe, --
"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
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? 360 THE LIFE OF
it had no funds for its support, and was not upheld by pri-
vate credit. The emissions under the resolution of March,
1780, 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 favour. 'Tis in a national bank alone that
WE CAN FIND THE INGREDIENTS TO CONSTITUTE A WHOLE-
SOME, SOLID, AND BENEFICIAL PAPER CREDIT. "
The length to which these extracts have extended does
not warrant the publication more at large of this elaborate
document. A mere outline of the plan, consisting of twen-
ty articles, is all that will now be given.
The capital of the bank was to consist of a stock of three
millions of dollars, divided into thirty thousand shares, to
be exempted from all taxes and impositions.
The subscription, according to the respective amounts,
to be in proportionate quantities of specie, personal, and
landed securities; the object being to secure the largest
possible amount of specie. The bank to have all legal
corporate immunities, and the stock to be protected from
attachment, making each member of the incorporation lia-
ble, by suit, to the extent of his stock.
The privilege of subscribing for one half of the capital
stock, to be reserved to the United States, to the particu-
lar states, or to foreigners, and the United States to be-
come conjointly responsible with the private proprietors,
for all the transactions of the bank, which was to be autho-
rized to issue notes, with and without interest, a part only
payable in America, the residue in Europe. The aggregate
of the notes not to exceed the amount of the bank stock;
with a power to lend at an interest not to exceed eight per
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? HAMILTON. 361
cent. , and to borrow to the amount of one half of its stock,--
to purchase estates, by principal or by annuities, -- to have
the privilege of coining, to the amount of one half of its
stock, (the quantity of alloy, &c. to be determined by con-
gress,) and to have, also, the power of discounting foreign
bills of exchange, -- to receive deposits of plate or money,
which deposits were to be exempt from taxation, -- to have
the right of contracting with the French government, for
the supply of its fleets and armies in America, and to con-
tract with congress for the supply of their armies, -- with
a condition to lend the United States, on a certain unaliena-
ble fund of one hundred and ten thousand four hundred
pounds per annum, the sum of twelve hundred thousand
pounds, at an interest of eight per cent. , payable in twenty
years, or sooner, at the option of congress, and a similar
rate to govern all future loans; for which fund the United
States, and the individual states, to be severally pledged.
The bank to become responsible for the redemption of
all the paper; the old, at forty for one, in parts of one third,
at the end of every ten years, with interest at five per
cent. ; the new, as specie, in six years, so as to fulfil the
previous engagements of congress; for which responsibili-
ty, adequate funds, payable to the bank, equal to the dis-
charge of the whole paper currency in thirty years, bear-
ing an interest of two per cent. , were to be established.
The bank notes to be received in payment of all public
custom's and taxes, at an equivalent with gold and silver,
with power to dissolve itself at pleasure, having made
effectual provision for the payment of its debts. Its stock
to be transferable. To be chartered for thirty years, and
no other bank, public or private, to be permitted during
that period. Three offices to be established, one in each
of the states of Massachusetts, Pennsylvania, and Virginia,
to facilitate the circulation and payment of the bank notes;
the whole to be managed by twelve general directors, eight
vol. i. 46
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? 362 THE LIFE OF
to be chosen by the private proprietors, and four by con-
gress; the minister of finance having the privilege of in-
specting all their proceedings.
A full examination of the principles of the proposed in-
stitution would exceed the proper limits of this work, but
a few desultory observations on some of the features of this
plan, may not be misplaced.
The introduction of landed security, as a part of the capi-
tal stock, is the provision which, in a merely commercial
view, might perhaps have been deemed most objectionable.
But it is to be remembered, that commercial convenience
was merely an incidental consideration. The primary ob-
ject was similar to that of the bank of England; after ab-
sorbing the previous issues, to obtain a monopoly of the cir-
culation, and by that means to secure a safe and uniform
currency.
But had the sole purpose of Colonel Hamilton been the
granting facilities to trade, it is by no. means obvious that
his plan would have been less effective.
It is true, that the country would not furnish an adequate
amount of specie, or of equivalent available personal secu-
rities to fill the stock; and that for this reason, the defici-
ency was sought to be supplied by landed security. But
this landed security, though less readily convertible than
the government debt of England, which forms the basis of
its bank, might be pledged for an amount of cash of rela-
tive value, and there would still exist the use of the lands,
and the use of the value of its representative.
That the landed security was not convertible to meet the
immediate wants of the bank, would be less objectionable,
in the minds of those who entertain the opinion, not without
strong reasons, that the capital of a bank should remain a
permanent vested fund, upon which to base a credit, not a
fund to be appropriated to its current uses.
It is possible that this provision might have diminished
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? HAMILTON. 363
the number of merely moneyed subscribers; but as this plan
was to go into operation, at a time when the prevailing dis-
trust of paper securities would dispose individuals, amidst a
choice of evils, to prefer an institution which would furnish
this additional support, to a capital of which the specie com-
ponent was the most alluring ingredient, this disadvantage
would have been more than compensated.
The power of coining money, was introduced merely to
. enable the bank to convert its plate into specie; but it was
a power which, under proper checks, might have been ex-
tended with advantage.
The privilege of contracting with the French govern-
ment, for the supply of its armies, was highly desirable
from this consideration, that the greater part of the specie
was derived from the expenditures of France, and passing
through the bank, would have increased its credit and effi-
ciency, while the great profits to be derived from the con-
tracts, would have offered large inducements to subscri-
bers.
The article which rendered the bank responsible for the
redemption of the existing paper, had in view the import-
ance of relieving the country from a fluctuating medium,
which infected all credit. The amount of the annuity to
be secured by congress to the bank, was not fixed, from
the difficulty of estimating the whole amount of the govern-
ment issues; a difficulty which was increased by this
circumstance, that this plan proposed to embrace all the
State emissions, as essential to every efficient scheme of
finance, -- a fact of high interest, in reference to the great
question of the "Assumption," which threatened an insu-
perable obstacle to the fiscal system of the present govern-
ment.
The permission to the bank to dissolve or sell at plea-
sure, was introduced to encourage men to adventure in it,
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? 364 THE LIFE OF
from a confidence, that when once engaged, the profits
would induce them to continue.
In reply to the inquiry, where funds are to be procured,
in the present impotent state of the federal government,
Colonel Hamilton says, " I answer, there are ample means,
and they must be had. Congress must deal plainly with
their constituents; they must tell them that power without
revenue, is a bubble; that unless they give them substan-
tial resources of the latter, they will not have enough of
the former either to prosecute the war, or to maintain the
union in peace; that in short, they must, in justice to the
public, and to their own honour, renounce the vain at-
tempt of carrying on the war without either, -- a perse-
verance in which can only deceive the people, and betray
their safety. They must demand an instant, positive, and
perpetual investiture of an impost on trade; a land tax
and a poll tax to be collected by their own agents. This
act to become a part of the confederation. It has ever
been my opinion, that congress ought to have complete so-
vereignty in all but the mere municipal law of each state,
and I wish to see a convention of all the states, with
full power to alter and amend, finally and irrevocably, the
present futile and senseless confederation. "
After stating the plan of the bank, "these," he says, " as
has already been observed, are only intended as outlines.
The form of administration for the bank, and all other mat-
ters, may be easily determined. If the leading principles
are once approved, we shall find good models in the differ-
ent European banks, which we can accommodate to our cir-
cumstances. Great care, in particular, should be employed
to guard against counterfeits; and, I think, methods may
be devised that will be effectual.
"I see nothing to prevent the practicability of a plan of
this kind, but a distrust of the final success of the war, which
may make men afraid to risk any considerable part of their
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? HAMILTON. 36S
fortunes in the public funds; but without being an enthu-
siast, I will venture to assert, that with such a resource as
is here proposed, the loss of our independence is impossible.
All we have to fear is, that the want of money may disband
the army, or so perplex and enfeeble our operations, as to
create in the people a general disgust and alarm, which may
make them clamour for peace on any terms. But if a judi-
cious administration of our finances, assisted by a bank,
takes place, and the ancient security of property is restored,
no convulsion is to be apprehended; our opposition will
soon assume an aspect of system and vigour, that will re-
lieve and encourage the people, and put an end to the hopes
of the enemy. 'Tis evident, they have it not in their pow-
er to subdue us by force of arms;-- in all these states they
have not more than fifteen thousand effective troops, nor is
it possible for them much to augment this number. The
East and West Indies demand reinforcements. In all the
islands they have not, at this time, above five thousand men;
a force not more than equal to the proper garrisoning of
Jamaica alone, and which, the moment they lose a maritime
superiority in those seas, will leave them much cause to fear
for their possessions. They will probably send out fifteen
hundred or two thousand men to recruit their regiments
already here, but this is the utmost they can do.
"Our allies have five thousand men at Rhode-Island,
which in the worst event that can happen, will be recruit-
ed to eight, to co-operate with us on a defensive plan. --
Should our army amount to no more than fifteen thousand
men, the combined forces, though not equal to the expulsion
of the enemy, will be equal to the purpose of compelling
them to renounce their offensive, and content themselves
with maintaining one or two capital points. This is on the
supposition, that the public have the means of putting their
troops in activity. By stopping the progress of their con-
quests, and reducing them to an unmeaning and disgrace-
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? 366 THE LIFE OF
ful defensive, we destroy the national expectation of suc-
cess, from which the ministry draw their resources. They
are in a situation, where the want of splendid successes is
ruin. They have carried taxation nearly to its extreme
boundary; they have mortgaged all their funds; they have
a large unfunded debt, besides the enormous mass which is
funded. This must necessarily create apprehensions in
their most sanguine partizans, and if these are not counter-
acted by nattering events, from time to time, they cannot
much longer continue the delusion. Indeed, in that case, I
suppose they must themselves despair. The game we play,
is a sure game, if we play it with skill. I have calculated,
in the preceding observations, on the most disadvantageous
side; many events may turn up in the course of the summer,
to make even the present campaign decisive. "
On the twenty-sixth of May, the following reply was re-
ceived from the Superintendent of Finance.
ROBERT MORRIS TO COLONEL HAMILTON.
SIR,
It is some time since I received your performance, dated
the thirtieth April last. I have read it with that attention
which it greatly deserves, and finding many points of it to
coincide with my own opinions on the subject, it naturally
strengthened that confidence which every man ought to
possess, to a certain degree, in his own judgement. You
will very soon see the plan of a bank published, and sub-
scriptions opened for its establishment, having already met
with the approbation of congress. It only remains for indi-
viduals to do their part, and a foundation will be laid for
the anticipation of taxes and funds, by a paper credit that
cannot depreciate. The capital proposed, falls far short of
your idea, and, indeed, far short of what it ought to be; but
the capital may afterwards be increased to almost anv
amount. To propose a larger sum in the outset, and fail
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? HAMILTON. 367
in the attempt to raise it, might prove fatal; to begin with
what is clearly in our power to accomplish, and on that be-
ginning to establish the credit that will inevitably command
the future increase of capital, seems the most certain road
to success. I have thought much about interweaving a
land security with the capital of this bank, but am apprehen-
sive it would convey to the public mind an idea of paper
being circulated on that credit; and that the bank, of con-
sequence, must fail in its payments in case of any conside-
rable run on it, and we must expect that its ruin will be
attempted by external and internal foes. I have, therefore,
left that point to the future deliberations of the directors of
this bank, to whom, in due time, I shall communicate your
address. I esteem myself much your debtor for this piece,
not merely on account of the personal respect you have
been pleased to express, but also on account of your good
intentions; and for these, and the pains you have taken, I
not only think, but on all proper occasions shall say, the
public are also indebted to you.
My office is new, and I am young in the execution of it.
Communications from men of genius and abilities will always
be acceptable, and yours will ever command the attention of
Sir, your obedient, humble servant,
Robt. Morris.
Col. Alex. Hamilton, of the Artillery.
The plan referred to in the preceding letter was submit-
ted to congress on the seventeenth, adopted on the twenty-
sixth*, and published, with an address from Mr. Morris, on
the twenty-eighth of May, 1781.
* The votes on this question, give an important indication of the views of
congress, at that day, on this " constructive power. " Of the eleven states pre-
sent, eight, viz. New-Hampshire, Rhode-Island, Connecticut, New-Jersey,
Maryland, Virginia, North and South Carolina, and Georgia, were in favour.
Massachusetts was against it, with one vote from Pennsylvania. Of the /our
memben from Virginia, James Madison was alone in the negative.
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? 368 THE LIFE OF
The capital was four hundred thousand dollars, in shares
of four hundred dollars each, payable in gold or silver.
Its notes were made payable on demand, and receivable
for taxes: a power was given to enlarge the capital: the
superintendent of finance was authorized to inspect the
books; and on the last day of the year, an ordinance pass-
ed, incorporating it under the name of the Bank of North
America.
Great as was the merit of Mr. Morris in the suggestion
of this plan, he acquired a still stronger title to applause for
the skill, energy, and judgement, with which it was carried
into execution.
His principal reliance for a supply of coin, was founded
upon an engagement of the Governor General of Havan-
nah to remit to the United States four hundred thousand
dollars in specie, to be repaid by annual shipments of flour,
which were to be guarantied by France, but which en-
gagement was not fulfilled.
It has been stated that the whole specie capital of this
bank, when it commenced its operations, did not exceed
forty thousand dollars; and such was the apprehension of
this small resource being exhausted, that persons were em-
ployed, during the earlier part of its existence, to follow
those who had demanded specie and obtain it from them,
at any price, so as to return it into the coffers of the bank.
This institution, nevertheless, soon obtained extensive
confidence ; ministered largely to the wants of government;
and after its utility had been fully tested in furnishing a me-
dium of exchange throughout the states, as safe and more
convenient than the precious metals; relief in the payment
of the public burthens; increased facilities to the internal
and external commerce of the country; the state of Penn-
sylvania, by which it also had been incorporated, under the
delusion of popular prejudice repealed its charter, on the
extraordinary ground of the dangerous influence of foreign
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? HAMILTON. 360
capital on the free institutions of the country; forgetting,
that without such capital, that freedom, and those institu-
tions, would probably not have been established: but the
returning good sense of the state renewed the charter the
ensuing year.
The project for a convention of the states, which Hamil-
ton first proposed in his letter to Mr. Duane, seems not to
have met with much countenance in congress; but the ex-
position which he had given of the defects of the existing
government, enforced by the embarrassments with which
that body found themselves perpetually clogged, rendered
an enlargement of the powers of the confederation a sub-
ject of frequent and anxious deliberation.
Aware of the impediments which public opinion would
interpose to the successful attainment of this great object,
Hamilton commenced, at this time, a series of numbers,
under the title of " The Continentalist. "
The earlier essays were published in July and August,
1781. They were then suspended until after the surren-
der of York Town, when they were resumed, at intervals,
and continued during a part of the succeeding year. Many
of them are lost, but a sufficient number remain to show
the design of the publication. The first part was devoted to
an examination of the defects of the existing league, and to
an exposure of the groundless jealousy of power to which he
attributed the hostility of the people to an enlargement of the
authority of the federal government. Several of the essays
onthisbranch ofthesubject. cannotbe found. The succeeding
numbers are occupied with a brief enumeration of the pow-
ers with which the government ought to be clothed. Of
these, the principal were, first, the power of regulating
trade; comprehending a right of granting bounties and
premiums, by way of encouragement; of imposing duties
of every kind, as well for revenue as regulation; of ap-
pointing all officers of the customs, and of laying embar-
vol. I. 47
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larged views embraced in this resolution were not sanc-
tioned; but another measure of great moment was recom-
mended,-- that the states should confer on congress the
power of levying an impost of five per cent, on imported
articles, to be applied to the discharge of the debts incurred
for supporting the war, and to continue until they were dis-
charged.
* In a letter from Samuel Adams, of the 9th December, 1783, he says,
"Power will follow the possession of money, even -when it is known that it
is not the possessor's property; so fascinating are riches in the eyes of man-
kind. Were our financier, I was going to say, even an angel from heaven, I
hope he will never have so much influence, as to gain the ascendency over
congress, which the first lord of the treasury has long had over the parliament
of Britain, -- long enough to effect the ruin of that nation. These are the fears
which I expressed in congress, when the department was first instituted. I
was told, that the breath of congress could annihilate the financier; but I re-
plied, that the time might come, and if they were not careful, it certainly
would, wlen even congress would not dare to blow that breath: whether
these fears are the mere creatures of the imagination, you will judge. "
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? 350 THE LIFE OF
On the thirtieth of July, 1777, an adjourned convention
of delegates from several states was held at Springfield,
which proposed the abolition of a limitation of prices; the
gradual "drawing in" of the paper money; and its being
funded at an interest of six per cent. , and a system of taxa-
tion as a mean to this object. This subject was resumed by
a convention which assembled at Hartford, in October, 1779,
and which adjourned to meet in Philadelphia in the following
January, when resolutions were adopted, recommending
that Virginia should appoint commissioners to convene at
Hartford in the ensuing autumn. The deliberations of this
convention produced an early attention to this subject in
congress; and in March, 1780, a motion was made by Mr.
Burke, of North Carolina, " that the states be requested to
pass laws, enabling congress to levy an impost of one per
cent, on all exports and imports, as a fund for sinking the
emissions for carrying on the present war; to continue un-
til a sum equal to the whole of the said emissions shall 1)e
. collected," which was lost.
Nine commissioners assembled at Hartford, in pursuance
of their adjournment, among whom were Judge Hobart
and Egbert Benson of New-York. Upon much delibera-
tion, a paper was addressed to congress, which, after touch-
ing upon several military matters, recommends, in the sixth
article of their proceedings, that an estimate be made of all
the interest due on loan office certificates, and on all other
debts incurred by continental purchasing officers; that
taxes should be imposed by congress on certain specific ar-
ticles; or duties on imports, which the states should author-
ize them to levy and collect. This authority only to take
effect with the concurrence of all the states not in posses-
sion of the enemy; the proceeds to be appropriated to the
payment of the interest of the debt. A return of the white
and black inhabitants was also recommended, and a conti-
nental judicature, of three persons, to try offences against
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? HAMILTON. 351
the laws of congress, was suggested. This letter was read
in congress, on the twelfth of December, 1780, and in Feb-
ruary following, Egbert Benson was appointed procurator. *
The important proposal of a national impost, which be-
came the leading subject of controversy during many years,
that on which the whole system of public credit depended,
and which may be considered as the most prominent in
the train of events that led to the adoption of the federal
constitution, was resisted by the jealousy of several of the
commercial states, who imagined, that by entrusting con-
gress with the control of their customs, they were parting
with every essential attribute of sovereignty.
Nothing seemed left to relieve the finances of the coun-
try, but the adoption of some measure by which a new
"mass of credit" could be created, and the depreciated pa-
per replaced by a currency of fixed value, adequately sus-
tained. A recent resolution! of congress, passed with but
one dissenting voice, "to pay all the debts which had been
liquidated in specie value, or which had been, or should be,
made payable in specie or its equivalent, actually in specie
or its equivalent," and a recommendation to the states to
amend their laws, making the bills of credit emitted under
the authority of congress a legal tender, so that they should
not be a tender in any other manner than at their current
value, compared with gold and silver, gave evidence of a
sound state of public opinion.
Encouraged by these indications, Hamilton resumed his
* Among the proposals to invigorate the confederation, was one made on
the sixteenth March, 1781, that under a construction of the thirteenth article
of the confederation, it should be so amended, "that if any state refused to ob-
serve all the articles of the confederation, congress should be empowered to
authorize the land and naval forces of the United States to compel such state
to fulfil its federal engagements, and also to make restraint on its merchan-
dise. "
f March sixteenth, 1781.
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? 352 THE LIFE OF
plan of a national bank, of which the first suggestion was
made by him to Robert Morris.
The Bank of Pennsylvania, which had been established
in June, though partial in its objects, having been a bank
merely of deposit, not of issue, had given congress such
aid as predisposed them to the adoption of a more exten-
sive system.
The character of the individual who had been elected su-
perintendent of finance, encouraged Hamilton to hope for
the attainment of his project; and with this view, on the
thirtieth of April, 1781, he addressed an elaborate letter to
Mr. Robert Morris, the fruits of his leisure, since he had been
relieved from the duties of aid-de-camp, discussing at large
the causes of the depreciation, and indicating the means of
raising the value of the currency, and at the same time en-
closing a charter for a bank to be incorporated by congress.
This plan was prefaced by the following observations:
April 30th, 1781.
I was among the first who were convinced that an ad-
ministration by single men was essential to the proper
management of the affairs of this country. I am persuaded
it is the only resource we have to extricate ourselves from
the distresses which threaten the subversion of our cause.
It is palpable that the people have lost all confidence in our
public councils, and it is a fact, of which I dare say you are
as well apprized as myself, that our friends in Europe are
in the same disposition. I have been in a situation that
has enabled me to obtain a better idea of this than most
others, and I venture to assert, that the court of France
will never give half the succours to this country while con-
gress hold the reins of administration in their own hands,
which they would grant if these were entrusted to indivi-
duals of established reputation, and conspicuous for probity,
abilities, and fortune.
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? HAMILTON. 353
With respect to ourselves, there is so manifest and rooted
a diffidence of the government, that if we could be assured
the future measures of congress would be dictated by the
most perfect wisdom and public spirit, there would be still
a necessity for a change in the forms of our administration,
to give a new spring and current to the passions and hopes
of the people. To me it appears evident, that an executive
ministry, composed of men with the qualifications I have
described, would speedily restore the credit of government
abroad and at home; would induce our allies to great exer-
tions in our behalf; would inspire confidence in moneyed
men in Europe, as well as in America, to lend us those
sums of which it may be demonstrated we stand in need,
from the disproportion of our national wealth to the ex-
penses of the war.
I hope, sir, you will not consider it a compliment, when
I assure you that I heard, with the greatest satisfaction, of
your nomination to the department of finance.
In a letter of mine last summer to Mr. Duane, urging,
among other things, the plan of an executive ministry, I
mentioned you as the person who ought to fill that depart-
ment. I know of no other in America who unites so many
advantages; and, of course, every impediment to your ac-
ceptance is to me a subject of chagrin. I flatter myself,
congress will not preclude the public from your services, by
an obstinate refusal of reasonable conditions; and as one
deeply interested in the event, I am happy in believing you
will not easily be discouraged from undertaking an office,
by which you may render America and the world no less a
service than the establishment of American independence.
'Tis by introducing order into our finances, by restoring
public credit, not by gaining battles, that we are finally to
attain our object. 'Tis by putting ourselves in a condition
to continue the war, not by temporary, violent, and unnatu-
ral efforts to bring it to a decisive issue, that we shall in
vol. i. 45
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? 354 THE LIFE OP
reality bring it to a speedy and successful one. In the
frankness of truth, I believe, sir, you are the man best capa-
ble of performing this great work.
In expectation that all difficulties will be removed, and
that you will ultimately act on terms you approve, I take
the liberty to submit to you some ideas, relative to the ob-
jects of your department. I pretend not to be an able
financier. It is a part of administration which has been
least in my way, and of course has least occupied my inqui-
ries and reflections; neither have I had leisure or materials
to make accurate calculations. I have been obliged to de-
pend on memory for important facts, for want of the au-
thorities from which they are drawn.
With all these disadvantages, my plan must necessarily
be crude and defective; but it may be a basis for something
more perfect, or if it contains any hints that may be of use
to you, the trouble I have taken myself, or may give you,
will not be misapplied. At any rate, the confidence I have
in your judgement, assures me that you will receive with
pleasure communications of this sort. If they contain any
thing useful, they will promote your views, and the public
benefit; if not, the only evil is the trouble of reading them;
and the best informed will frequently derive lights even
from the reveries of projectors and quacks. There is scarcely
any plan so bad as not to have something good in it. I trust
mine to your candour, with this apology, -- you will at least
do justice to my intention.
With these preliminary remarks, he proceeds to the in-
quiry as to "what ought to be done in the finances of the
United States? " First, to estimate its capacity for reve-
nue, and the proportion between its abilities and its wants,
by examining the proportion the revenues other countries
have borne to theirwealth, and applying the rule to Ame-
rica. Second, by comparing the result of that rule with the
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? HAMILTON. 355
product of taxes in those states which have been most ear-
nest in taxation.
The result obtained, by an examination applied to Great
Britain, France, and the United Provinces was, that the re-
venue is one fourth of the circulating cash in commercial
countries, so far as this is a just representative of its labour
and commodities.
He then states the current cash of America, previous to
the war, to have been about thirty millions of dollars, of
which one eighth was specie; and that the proper revenue,
at that time, was seven and a half million of dollars. But
as the system of taxation was carried to an extreme in those
countries, that the rule is inapplicable in its full extent to
the United States; though a much larger amount than might
be expected, could be levied during the war, without bur-
thening the poorer classes, from the greater equality of for-
tunes, and a more equal division of the public burthens. --
Making the necessary qualifications, he arrives at the re-
sult, that the present revenue was one fifth less than it had
been before the war. Having adverted to the causes of the
diminished circulation, which he considers as principally
artificial, he comes to the conclusion, allowing for the dimi-
nution of foreign trade, and the loss of territory, that the
states have a nett revenue of six millions of dollars; a re-
sult which is nearly confirmed by a detailed examination of
the previous product of the taxes, of which Massachusetts
was supposed to have raised one fifth.
Taking this as the amount of revenue, he next proceeds
to ascertain, by general rules, the military capacity of the
country, which although it had at times risen to thirty thou-
sand men, might be estimated at twenty thousand. The
expenses incident to the support of which force, with the
necessary civil expenditures, rendering the amount of the
annual charges of the country less than eleven million of
dollars, left a deficit of four and a half millions to be supplied
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? 350 THE LIFE or
by credit, foreign or domestic. He then examines the pros-
pect from foreign loans, which taking into view the politi-
cal and financial embarrassments of France, he supposes
may justify an expectation of a loan annually of eight or ten
million of livres, which would only meet a third of the na-
tional wants.
From Spain, after remarking on her cold and passive
policy, in pursuance of which the bills drawn on her, though
not rejected, had not been paid, he expects nothing.
"Their method of prosecuting the war, can scarcely be re-
solved into Spanish supineness, but seems to have a more
corrupt original. A bigotted prince, governed by a greedy
confessor, is a character on which little dependence can be
placed. "
Holland, as a government, stands in need of all its credit
for its own uses. But from the Dutch capitalists much
might be expected, though not on the faith of the United
States, by the establishment of a system such as he is about
to propose. The prospects of internal loans to govern-
ment, both from the want of confidence, and the more ad-
vantageous terms of traffic in which individual wealth could
be employed, he rates very low.
"To surmount these obstacles," he observes,"and give
individuals ability and inclination to lend, a plan might be
devised which, by incorporating their means together, and
uniting them with those of the public, will, on the founda-
tion 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 not only ad-
vance the interest of the lenders, secure the independence
of their country, and in its progress have the most benefi-
cial influence upon its future commerce, but be a source of
national strength and wealth. I mean," he says, "the in-
stitution of a national bank. This I regard, in some shape
or other, as an expedient essential to our safety and sue-
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? HAMILTON. 357
cess, 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 exhaust-
ed in partial and temporary efforts. The loan now making
in Massachusetts, would have gone a great way in esta-
blishing 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 per-
nicious. The precious metals, by similar arguments, may
be proved to be injurious. It is certain that the monies
of South America have had great influence in banishing
industry from Spain, and sinking it in real wealth and im-
portance. 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 inordi-
nate ambition, a vicious luxury, licentiousness of morals,
and all those vices which corrupt a government, enslave the
state, 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 wis-
dom consists in availing ourselves of the good, and guard-
ing, 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 fa-
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? 358 THE LIFE OF
cilitates and extends the operations of commerce among in
dividuals.
"Industry is increased, commodities are multiplied, agri-
culture and manufactures nourish, and herein consist the
true wealth and prosperity of a state.
"Most commercial nations have found it necessary to in-
stitute banks; and they have proved to be the happiest en-
gines 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 de-
gree, to this source. Great Britain is indebted for the im-
mense efforts she has been able to make in so many illus-
trious 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 ex-
ample should both persuade and warn us. 'Tis in repub-
lics, 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 admi-
nistration wisely had recourse to the institution of a bank,
and it retrieved 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 declining 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
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? HAMILTON. 359
one or the other. Besides these great and cardinal mo-
tives 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 pa-
per, and annihilate the whole of what is now in circulation,
and depend altogether upon specie, both for commerce and
finance. The scheme is altogether visionary, and in the at-
tempt would be fatal. We have not a competent stock
of specie in this country, either to answer the purpose 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 suffi-
cient 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 on 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; destruc-
tive both of commerce and industry.
With the addition of
the paper we now have, this evil exists in too great a degree. "
Having shown that if all the specie could be drawn into
the treasury annually, the consequence of such a measure,
which never was effected in any country, would be a com-
plete stagnation of business; and that a recourse to taxes
in kind, would prove wholly inefficacious, he proceeds to
observe, --
"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
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? 360 THE LIFE OF
it had no funds for its support, and was not upheld by pri-
vate credit. The emissions under the resolution of March,
1780, 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 favour. 'Tis in a national bank alone that
WE CAN FIND THE INGREDIENTS TO CONSTITUTE A WHOLE-
SOME, SOLID, AND BENEFICIAL PAPER CREDIT. "
The length to which these extracts have extended does
not warrant the publication more at large of this elaborate
document. A mere outline of the plan, consisting of twen-
ty articles, is all that will now be given.
The capital of the bank was to consist of a stock of three
millions of dollars, divided into thirty thousand shares, to
be exempted from all taxes and impositions.
The subscription, according to the respective amounts,
to be in proportionate quantities of specie, personal, and
landed securities; the object being to secure the largest
possible amount of specie. The bank to have all legal
corporate immunities, and the stock to be protected from
attachment, making each member of the incorporation lia-
ble, by suit, to the extent of his stock.
The privilege of subscribing for one half of the capital
stock, to be reserved to the United States, to the particu-
lar states, or to foreigners, and the United States to be-
come conjointly responsible with the private proprietors,
for all the transactions of the bank, which was to be autho-
rized to issue notes, with and without interest, a part only
payable in America, the residue in Europe. The aggregate
of the notes not to exceed the amount of the bank stock;
with a power to lend at an interest not to exceed eight per
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? HAMILTON. 361
cent. , and to borrow to the amount of one half of its stock,--
to purchase estates, by principal or by annuities, -- to have
the privilege of coining, to the amount of one half of its
stock, (the quantity of alloy, &c. to be determined by con-
gress,) and to have, also, the power of discounting foreign
bills of exchange, -- to receive deposits of plate or money,
which deposits were to be exempt from taxation, -- to have
the right of contracting with the French government, for
the supply of its fleets and armies in America, and to con-
tract with congress for the supply of their armies, -- with
a condition to lend the United States, on a certain unaliena-
ble fund of one hundred and ten thousand four hundred
pounds per annum, the sum of twelve hundred thousand
pounds, at an interest of eight per cent. , payable in twenty
years, or sooner, at the option of congress, and a similar
rate to govern all future loans; for which fund the United
States, and the individual states, to be severally pledged.
The bank to become responsible for the redemption of
all the paper; the old, at forty for one, in parts of one third,
at the end of every ten years, with interest at five per
cent. ; the new, as specie, in six years, so as to fulfil the
previous engagements of congress; for which responsibili-
ty, adequate funds, payable to the bank, equal to the dis-
charge of the whole paper currency in thirty years, bear-
ing an interest of two per cent. , were to be established.
The bank notes to be received in payment of all public
custom's and taxes, at an equivalent with gold and silver,
with power to dissolve itself at pleasure, having made
effectual provision for the payment of its debts. Its stock
to be transferable. To be chartered for thirty years, and
no other bank, public or private, to be permitted during
that period. Three offices to be established, one in each
of the states of Massachusetts, Pennsylvania, and Virginia,
to facilitate the circulation and payment of the bank notes;
the whole to be managed by twelve general directors, eight
vol. i. 46
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? 362 THE LIFE OF
to be chosen by the private proprietors, and four by con-
gress; the minister of finance having the privilege of in-
specting all their proceedings.
A full examination of the principles of the proposed in-
stitution would exceed the proper limits of this work, but
a few desultory observations on some of the features of this
plan, may not be misplaced.
The introduction of landed security, as a part of the capi-
tal stock, is the provision which, in a merely commercial
view, might perhaps have been deemed most objectionable.
But it is to be remembered, that commercial convenience
was merely an incidental consideration. The primary ob-
ject was similar to that of the bank of England; after ab-
sorbing the previous issues, to obtain a monopoly of the cir-
culation, and by that means to secure a safe and uniform
currency.
But had the sole purpose of Colonel Hamilton been the
granting facilities to trade, it is by no. means obvious that
his plan would have been less effective.
It is true, that the country would not furnish an adequate
amount of specie, or of equivalent available personal secu-
rities to fill the stock; and that for this reason, the defici-
ency was sought to be supplied by landed security. But
this landed security, though less readily convertible than
the government debt of England, which forms the basis of
its bank, might be pledged for an amount of cash of rela-
tive value, and there would still exist the use of the lands,
and the use of the value of its representative.
That the landed security was not convertible to meet the
immediate wants of the bank, would be less objectionable,
in the minds of those who entertain the opinion, not without
strong reasons, that the capital of a bank should remain a
permanent vested fund, upon which to base a credit, not a
fund to be appropriated to its current uses.
It is possible that this provision might have diminished
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? HAMILTON. 363
the number of merely moneyed subscribers; but as this plan
was to go into operation, at a time when the prevailing dis-
trust of paper securities would dispose individuals, amidst a
choice of evils, to prefer an institution which would furnish
this additional support, to a capital of which the specie com-
ponent was the most alluring ingredient, this disadvantage
would have been more than compensated.
The power of coining money, was introduced merely to
. enable the bank to convert its plate into specie; but it was
a power which, under proper checks, might have been ex-
tended with advantage.
The privilege of contracting with the French govern-
ment, for the supply of its armies, was highly desirable
from this consideration, that the greater part of the specie
was derived from the expenditures of France, and passing
through the bank, would have increased its credit and effi-
ciency, while the great profits to be derived from the con-
tracts, would have offered large inducements to subscri-
bers.
The article which rendered the bank responsible for the
redemption of the existing paper, had in view the import-
ance of relieving the country from a fluctuating medium,
which infected all credit. The amount of the annuity to
be secured by congress to the bank, was not fixed, from
the difficulty of estimating the whole amount of the govern-
ment issues; a difficulty which was increased by this
circumstance, that this plan proposed to embrace all the
State emissions, as essential to every efficient scheme of
finance, -- a fact of high interest, in reference to the great
question of the "Assumption," which threatened an insu-
perable obstacle to the fiscal system of the present govern-
ment.
The permission to the bank to dissolve or sell at plea-
sure, was introduced to encourage men to adventure in it,
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? 364 THE LIFE OF
from a confidence, that when once engaged, the profits
would induce them to continue.
In reply to the inquiry, where funds are to be procured,
in the present impotent state of the federal government,
Colonel Hamilton says, " I answer, there are ample means,
and they must be had. Congress must deal plainly with
their constituents; they must tell them that power without
revenue, is a bubble; that unless they give them substan-
tial resources of the latter, they will not have enough of
the former either to prosecute the war, or to maintain the
union in peace; that in short, they must, in justice to the
public, and to their own honour, renounce the vain at-
tempt of carrying on the war without either, -- a perse-
verance in which can only deceive the people, and betray
their safety. They must demand an instant, positive, and
perpetual investiture of an impost on trade; a land tax
and a poll tax to be collected by their own agents. This
act to become a part of the confederation. It has ever
been my opinion, that congress ought to have complete so-
vereignty in all but the mere municipal law of each state,
and I wish to see a convention of all the states, with
full power to alter and amend, finally and irrevocably, the
present futile and senseless confederation. "
After stating the plan of the bank, "these," he says, " as
has already been observed, are only intended as outlines.
The form of administration for the bank, and all other mat-
ters, may be easily determined. If the leading principles
are once approved, we shall find good models in the differ-
ent European banks, which we can accommodate to our cir-
cumstances. Great care, in particular, should be employed
to guard against counterfeits; and, I think, methods may
be devised that will be effectual.
"I see nothing to prevent the practicability of a plan of
this kind, but a distrust of the final success of the war, which
may make men afraid to risk any considerable part of their
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? HAMILTON. 36S
fortunes in the public funds; but without being an enthu-
siast, I will venture to assert, that with such a resource as
is here proposed, the loss of our independence is impossible.
All we have to fear is, that the want of money may disband
the army, or so perplex and enfeeble our operations, as to
create in the people a general disgust and alarm, which may
make them clamour for peace on any terms. But if a judi-
cious administration of our finances, assisted by a bank,
takes place, and the ancient security of property is restored,
no convulsion is to be apprehended; our opposition will
soon assume an aspect of system and vigour, that will re-
lieve and encourage the people, and put an end to the hopes
of the enemy. 'Tis evident, they have it not in their pow-
er to subdue us by force of arms;-- in all these states they
have not more than fifteen thousand effective troops, nor is
it possible for them much to augment this number. The
East and West Indies demand reinforcements. In all the
islands they have not, at this time, above five thousand men;
a force not more than equal to the proper garrisoning of
Jamaica alone, and which, the moment they lose a maritime
superiority in those seas, will leave them much cause to fear
for their possessions. They will probably send out fifteen
hundred or two thousand men to recruit their regiments
already here, but this is the utmost they can do.
"Our allies have five thousand men at Rhode-Island,
which in the worst event that can happen, will be recruit-
ed to eight, to co-operate with us on a defensive plan. --
Should our army amount to no more than fifteen thousand
men, the combined forces, though not equal to the expulsion
of the enemy, will be equal to the purpose of compelling
them to renounce their offensive, and content themselves
with maintaining one or two capital points. This is on the
supposition, that the public have the means of putting their
troops in activity. By stopping the progress of their con-
quests, and reducing them to an unmeaning and disgrace-
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? 366 THE LIFE OF
ful defensive, we destroy the national expectation of suc-
cess, from which the ministry draw their resources. They
are in a situation, where the want of splendid successes is
ruin. They have carried taxation nearly to its extreme
boundary; they have mortgaged all their funds; they have
a large unfunded debt, besides the enormous mass which is
funded. This must necessarily create apprehensions in
their most sanguine partizans, and if these are not counter-
acted by nattering events, from time to time, they cannot
much longer continue the delusion. Indeed, in that case, I
suppose they must themselves despair. The game we play,
is a sure game, if we play it with skill. I have calculated,
in the preceding observations, on the most disadvantageous
side; many events may turn up in the course of the summer,
to make even the present campaign decisive. "
On the twenty-sixth of May, the following reply was re-
ceived from the Superintendent of Finance.
ROBERT MORRIS TO COLONEL HAMILTON.
SIR,
It is some time since I received your performance, dated
the thirtieth April last. I have read it with that attention
which it greatly deserves, and finding many points of it to
coincide with my own opinions on the subject, it naturally
strengthened that confidence which every man ought to
possess, to a certain degree, in his own judgement. You
will very soon see the plan of a bank published, and sub-
scriptions opened for its establishment, having already met
with the approbation of congress. It only remains for indi-
viduals to do their part, and a foundation will be laid for
the anticipation of taxes and funds, by a paper credit that
cannot depreciate. The capital proposed, falls far short of
your idea, and, indeed, far short of what it ought to be; but
the capital may afterwards be increased to almost anv
amount. To propose a larger sum in the outset, and fail
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? HAMILTON. 367
in the attempt to raise it, might prove fatal; to begin with
what is clearly in our power to accomplish, and on that be-
ginning to establish the credit that will inevitably command
the future increase of capital, seems the most certain road
to success. I have thought much about interweaving a
land security with the capital of this bank, but am apprehen-
sive it would convey to the public mind an idea of paper
being circulated on that credit; and that the bank, of con-
sequence, must fail in its payments in case of any conside-
rable run on it, and we must expect that its ruin will be
attempted by external and internal foes. I have, therefore,
left that point to the future deliberations of the directors of
this bank, to whom, in due time, I shall communicate your
address. I esteem myself much your debtor for this piece,
not merely on account of the personal respect you have
been pleased to express, but also on account of your good
intentions; and for these, and the pains you have taken, I
not only think, but on all proper occasions shall say, the
public are also indebted to you.
My office is new, and I am young in the execution of it.
Communications from men of genius and abilities will always
be acceptable, and yours will ever command the attention of
Sir, your obedient, humble servant,
Robt. Morris.
Col. Alex. Hamilton, of the Artillery.
The plan referred to in the preceding letter was submit-
ted to congress on the seventeenth, adopted on the twenty-
sixth*, and published, with an address from Mr. Morris, on
the twenty-eighth of May, 1781.
* The votes on this question, give an important indication of the views of
congress, at that day, on this " constructive power. " Of the eleven states pre-
sent, eight, viz. New-Hampshire, Rhode-Island, Connecticut, New-Jersey,
Maryland, Virginia, North and South Carolina, and Georgia, were in favour.
Massachusetts was against it, with one vote from Pennsylvania. Of the /our
memben from Virginia, James Madison was alone in the negative.
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? 368 THE LIFE OF
The capital was four hundred thousand dollars, in shares
of four hundred dollars each, payable in gold or silver.
Its notes were made payable on demand, and receivable
for taxes: a power was given to enlarge the capital: the
superintendent of finance was authorized to inspect the
books; and on the last day of the year, an ordinance pass-
ed, incorporating it under the name of the Bank of North
America.
Great as was the merit of Mr. Morris in the suggestion
of this plan, he acquired a still stronger title to applause for
the skill, energy, and judgement, with which it was carried
into execution.
His principal reliance for a supply of coin, was founded
upon an engagement of the Governor General of Havan-
nah to remit to the United States four hundred thousand
dollars in specie, to be repaid by annual shipments of flour,
which were to be guarantied by France, but which en-
gagement was not fulfilled.
It has been stated that the whole specie capital of this
bank, when it commenced its operations, did not exceed
forty thousand dollars; and such was the apprehension of
this small resource being exhausted, that persons were em-
ployed, during the earlier part of its existence, to follow
those who had demanded specie and obtain it from them,
at any price, so as to return it into the coffers of the bank.
This institution, nevertheless, soon obtained extensive
confidence ; ministered largely to the wants of government;
and after its utility had been fully tested in furnishing a me-
dium of exchange throughout the states, as safe and more
convenient than the precious metals; relief in the payment
of the public burthens; increased facilities to the internal
and external commerce of the country; the state of Penn-
sylvania, by which it also had been incorporated, under the
delusion of popular prejudice repealed its charter, on the
extraordinary ground of the dangerous influence of foreign
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? HAMILTON. 360
capital on the free institutions of the country; forgetting,
that without such capital, that freedom, and those institu-
tions, would probably not have been established: but the
returning good sense of the state renewed the charter the
ensuing year.
The project for a convention of the states, which Hamil-
ton first proposed in his letter to Mr. Duane, seems not to
have met with much countenance in congress; but the ex-
position which he had given of the defects of the existing
government, enforced by the embarrassments with which
that body found themselves perpetually clogged, rendered
an enlargement of the powers of the confederation a sub-
ject of frequent and anxious deliberation.
Aware of the impediments which public opinion would
interpose to the successful attainment of this great object,
Hamilton commenced, at this time, a series of numbers,
under the title of " The Continentalist. "
The earlier essays were published in July and August,
1781. They were then suspended until after the surren-
der of York Town, when they were resumed, at intervals,
and continued during a part of the succeeding year. Many
of them are lost, but a sufficient number remain to show
the design of the publication. The first part was devoted to
an examination of the defects of the existing league, and to
an exposure of the groundless jealousy of power to which he
attributed the hostility of the people to an enlargement of the
authority of the federal government. Several of the essays
onthisbranch ofthesubject. cannotbe found. The succeeding
numbers are occupied with a brief enumeration of the pow-
ers with which the government ought to be clothed. Of
these, the principal were, first, the power of regulating
trade; comprehending a right of granting bounties and
premiums, by way of encouragement; of imposing duties
of every kind, as well for revenue as regulation; of ap-
pointing all officers of the customs, and of laying embar-
vol. I. 47
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