In March, seventeen hundred and eighty, the loan which
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent.
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent.
Hamilton - 1834 - Life on Hamilton - v1
handle.
net/2027/uva.
x000275470 Public Domain, Google-digitized / http://www.
hathitrust.
org/access_use#pd-google
? 234 THE LIFE OF
officered in the best manner we can. The supernumerary
officers may be made use of as far as they will go. If
arms are wanted for their troops, and no better way of
supplying them is to be found, we should endeavour to levy
a contribution of arms upon the militia at large. Extraor-
dinary exigencies demand extraordinary means. I fear
this southern business will become a very grave one.
With the truest respect and esteem, I am, sir,
Your most obedient servant,
Alex. Hamilton.
Head Quarters, March 14, 1779.
His Excellency John Jay, President of Congress.
The following extract of a letter from Laurens to Hamil-
ton, refers to this subject.
LAURENS TO HAMILTON.
Charleston.
Ternant will relate to you how many violent struggles I
have had between duty and inclination -- how much my
heart was with you, while I appeared to be most actively
employed here. But it appears to me that I should be in-
excusable in the light of a citizen, if I did not continue my
utmost efforts for carrying the plan of the black levies into
execution, while there remain the smallest hopes of success.
Our army is reduced to nothing almost, by the departure
of the Virginians. Scott's arrival will scarcely restore us
to our ancient number. If the enemy destine the reinforce-
ments from Great Britain to this quarter, as in policy they
ought to do, that number will be insufficient for the security
of our country. The Governor, among other matters to be
laid before the House of Assembly, intends to propose the
completing our continental battalions by drafts from the mi-
litia. This measure, I am told, is so unpopular that there
is no hope of succeeding in it. Either this must be adopted,
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? HAMILTON. 235
or the black levies, or the state will fall a victim to the im-
providence of its inhabitants.
The House of Representatives have had a longer recess
than usual, occasioned by the number of members in the
field. It will be convened, however, in a few days. I in-
tend to qualify, and make a final effort. Oh, that I were a
Demosthenes! The Athenians never deserved a more bit-
ter exprobation than our countrymen.
General Clinton's movement, and your march in conse-
quence, made me wish to be with you. If any thing im-
portant should be done in your quarter, while I am doing
daily penance here, and making successless harangues, I
shall execrate my stars, and be out of humour with the
world. I entreat you, my dear friend, write me as fre-
quently as circumstances will permit, and enlighten me
upon what is going forward.
Adieu. My love to our colleagues. I am afraid I was
so thoughtless as to omit my remembrances to Gibbes.
Tell him that I am always his sincere well-wisher, and hope
to laugh with him again ere long. Adieu, again.
Yours ever,
John Laurens.
P. S. You know my opinion of Ternant's value. His
health and affairs call him to the North. If you can render
him any services, they will be worthily bestowed. We have
not hitherto availed ourselves of his zeal and talent.
The following letter from Hamilton to Laurens is the
only one which has met our inquiries. From the interest
which this cotemporary correspondence gives to the story
of the Revolution, it is to be regretted that so few re-
mains exist of the extensive communications which he kept
up with the officers of the army; the want of which pre-
vents that individuality being given to the early history of
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? 236 THE LIFE OF
our country, from which, now that the general outlines are
known, increased interest can only be derived.
HAMILTON TO LAURENS.
"Cold in my professions -- warm in my friendships -- I
wish, my dear Laurens, it were in my power, by actions,
rather than words, to convince you that I love you. I shall
only tell you, that till you bid us adieu, I hardly knew the
value you had taught my heart to set upon you. Indeed,
my friend, it was not well done. You . know the opinion I
entertain of mankind; and how much it is my desire to pre-
serve myself free from particular attachments, and to keep
my happiness independent of the caprices of others. You
should not have taken advantage of my sensibility, to steal
into my affections without my consent. But as you have
done it, and as we are generally indulgent to those we love,
I shall not scruple to pardon the fraud you have committed,
on one condition; that for my sake, if not for your own,
you will continue to merit the partiality which you have so
artfully instilled into me.
"I have received your two letters; one from Philadel-
phia, the other from Chester. I am pleased with your
success so far; and I hope the favourable omens that pre-
cede your application to the Assembly, may have as fa-
vourable an issue; provided the situation of affairs should
require it, which I fear will be the case. But, both for
your country's sake, and for my own, I wish the enemy
may be gone from Georgia before you arrive; and that
you may be obliged to return, and share the fortunes of
your old friends. In respect to the commission which you
received from Congress, all the world must think your con-
duct perfectly right. Indeed, your ideas upon this occasion
seem not to have their wonted accuracy; and you have had
scruples, in a great measure, without foundation. By your
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? HAMILTON. 237
appointment as aid-de-camp to the commander-in-chief,
you had as much the rank of lieutenant-colonel as any offi-
cer in the line. Your receiving a commission as lieutenant-
colonel, from the date of that appointment, does not in the
least injure or interfere with one of them; unless by virtue
of it you are introduced into a particular regiment, in vio-
lation of the right of succession, which is not the case at
present, neither is it a necessary consequence. As you
were going to command a battalion, it was proper you
should have a commission; and if this commission had
been dated posterior to your appointment as aid-de-camp,
I should have considered it derogatory to your former rank,
to mine, and to that of the whole corps. The only thing
I see wrong in the affair is this: congress, by their conduct,
both on the former and present occasion, appear to have
intended to confer a privilege, an honour, a mark of dis-
tinction, a something upon you, which they withheld from
other gentlemen of the family. This carries with it an air
of preference, which, though we can all truly say we love
your character and admire your military merit, cannot fail
to give some of us uneasy sensations. But in this, my dear,
I wish you to understand me well. The blame, if there is
any, falls wholly upon congress. I repeat it, your conduct
has been perfectly right, and even laudable ; -- you reject-
ed the offer when you ought to have rejected it, and you
accepted it when you ought to have accepted it; and let
me add, with a degree of over-scrupulous delicacy. It was
necessary to your project. Your project was the public
good; and I should have done the same. In hesitating,
you have refined on the refinements of generosity.
"There is a total stagnation of news here. Gates has
refused the Indian command. Sullivan is come to take it.
The former has lately given a fresh proof of his impudence,
his folly, and his *********. 'Tis no great matter; but a
peculiarity in the case prevents my saying what.
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? 238 THE LIFE OF
"Fleury shall be taken care of. All the family send love.
In this join the General and Mrs. Washington; and what is
oest, it is not in the style of ceremony, but sincerity. "
The departure of D'Estaing leaving little prospect of ac-
tive operations at the south, Laurens again rejoined the
staff of Washington. On his return, he thus writes to his
friend, from Philadelphia, where congress was in session.
LAURENS TO HAMILTON.
December 18,1779.
MY DEAR HAMILTON,
On my arrival in town, I was informed by the President,
that congress had suspended the business of appointing a
secretary to their minister plenipotentiary at Versailles un-
til my return, in hopes that I might still be prevailed upon
to accept the office. I replied, that I thought my letter upon
the subject sufficiently explicit, and assured him of my sin-
cere desire to be excused from serving in that capacity at
the present juncture of our affairs.
He urged the unanimity of the choice with respect to me
-- the difficulty of uniting the suffrages of all parties, in case
of a new nomination, and the advantages of this union. Se-
veral delegates of congress declared to me the embarrass-
ment of congress since I had declined. One, in particular,
suggested to me his apprehension of interest being made for
a late delegate of New-York, who is candidate for the office,
and to whom the world in general allows greater credit for
his abilities than his integrity; and said, "he was determi-
ned to oppose him with all his influence. " When I quitted
town the sixteenth, these matters crowded into my mind.
I fell into a train of serious reflections and self-examination,
-- endeavoured to investigate whether I had acted conso-
nantly to the xaXov xai ayadov, and fulfilled the duties of a
good citizen in the transaction. In fine, I agitated the grand
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? HAMILTON. 239
question, whether a citizen has a right to decline any office
to which his countrymen appoint him; upon what that
right is founded, and whether it existed in my case.
After undergoing the severest conflict I ever experien-
ced, sometimes reproaching, sometimes justifying myself,
pursuing my journey, or turning retrograde, as the argu-
ments on the one side or the other appeared to prevail, I
determined that I had been deficient in the duties of a good
citizen. I returned to Philadelphia, communicated my sen-
timents to the President and two other members; declared
to them that I thought it incumbent on me, in the first place,
to recommend a person equally qualified in point of inte-
grity, and much better in point of ability. That if, unhap-
pily, they could not agree on Colonel Hamilton, and that I
was absolutely necessary to exclude a dangerous person, or
to prevent pernicious delays, I should think it my duty to
obey the orders of congress. The persons now in nomina-
tion, are, Colonel Hamilton, Mr. Lovell, Mr. G. Morris,
Major Stewart. Great stress is laid upon the ability and
integrity of the person to be employed in this commission.
I have given my testimony of you in this and the other
equally essential points.
My love, as usual. Adieu.
John Laurens.
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? CHAPTER XI.
[1780. ]
( The war of the revolution having become a war of
finance, Hamilton, with a mind awakened to every exigency
of the country, now directed his attention to the embar-
rassments of the treasury, and made his first effort in rela-
tion to its finances. \
In connexion with this subject, a brief allusion to the state
of the public credit, will not be deemed inappropriate. But
for abetter understanding of the national necessities, it may
be proper to advert to the prospects of the country at this
time.
We have seen the previous year pass away without any
occurrences of moment, in a military aspect; and the only
feature in the picture which engages the attention, is the
reversed attitude of the belligerents. The Americans, no
longer flying from a triumphant enemy, but seeking every
opportunity to attack them; -- the British, alarmed for their
safety, tenaciously covering themselves under the protec-
tion of their fortifications, and rejoicing at the fluctuating
counsels of the French, to which they were indebted for
their security.
In the states north of the Potomac, the present year pre-
sents a spectacle of little variety. Amidst discomfiture,
disaster, and local dissensions, it had been ascertained, that
upon them no permanent impression could be made.
Hoping that the alliance with France might be dissolved,
encouraged by the distresses which its embarrassed finan-
ces had extended over the country, and which appeared to
threaten an end of its resources, and stimulated by those
feelings to which a proud and gallant nation would natu-
vol. i. 31
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? 242 THE LITE OF
rally be aroused by the interference of a foreign power, in
their domestic broils, the British ministry still maintained
the contest with obstinacy, and determined to subjugate
the southern states, in the vain hope, that as their sufferings
would be greater, their patriotism might be less than that
of their northern brethren.
The result of these attempts was seen in the capture of
Charleston, after a gallant and protracted defence, and in
the defeat of General Gates at Camden; events which sus-
tained the ministry, and enabled it to obtain a vote of credit
for five-and-twenty millions sterling, to continue the war.
These occurrences, the disappointment which had fol-
lowed the highly excited expectations from the co-operation
of France, and the determination which had been manifest-
ed by the British government, to persevere in the conflict,
induced a state of feeling in congress widely different from
the delusive security which palsied their previous measures,
and had led them to turn not only an inattentive, but an
indignant ear to the urgent remonstrances of the command-
er-in-chief and his circle of friends, who still foresaw a long
series of obstacles to be overcome, before their independ-
ence would be achieved.
The difficulty of raising troops, which had so often ex-
posed the army to disgrace and destruction, had so often
been surmounted by the energy of Washington, that, per-
plexing as it had been, it was but a minor evil compared
with the alarming state of the finances, and the great and
rapid depreciation of the currency, upon the issues of which
congress were compelled principally to rely.
The report of the Board of Treasury, in the autumn of
seventeen hundred and seventy-nine, had shown an emission
of bills in circulation amounting to the enormous sum of one
hundred and sixty millions of dollars, together with a pub-
lic debt of near forty millions, in foreign and domestic loans;
while the whole product of the latter, from the commence-
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? HAMILTON. 243
ment of the war, had but little exceeded thirty millions,
and of the taxes three millions.
With the faint hope of sustaining their credit, congress
passed a vote, on the first of September of the same year,
pledging themselves not to issue, in bills of credit, a sum
exceeding two hundred millions; which they proclaimed to
the country, accompanied with an exposition of the extent
of the national resources, and an assurance that full confi-
dence might be placed in the public faith.
The wants of the treasury had been so pressing, that in-
termediate this declaration, and the end of the following
month of November, the balance of this limited sum was
issued, and congress were left destitute even of this appa-
rently last resource.
In this emergency, the committee of Ways and Means
adopted, as the only remaining expedient, the negotiation of
bills on the American envoys in Europe; which, through
the recent advices of Monsieur De la Luzerne, they had
reason to expect would be provided for by the aid of France.
The sale of these bills was directed to be made at the
rate of twenty-five dollars in continental bills of credit, for
four shillings and sixpence sterling, with the condition, that
the purchasers should lend a sum equal to the cost of the
bills, at an interest of six per cent.
In March, seventeen hundred and eighty, the loan which
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent. , to be
issued on the faith of the individual states, in proportion to
their quotas, and a revision of the laws recommended, which
rendered the continental bills a legal tender. *
* There were, at this time, three kinds of paper afloat: -- one bearing an
interest payable in sterling money, one an interest payable in currency, and
the third without interest. The two first were called Loan Office Certificates,
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? 244 THE LIFE OF
These financial embarrassments, had given rise to scenes
of extravagant, and, in many instances, profligate specula-
tion. Going into the market with a currency stamped with
disgrace, not only was government compelled to purchase
below the fixed discount of their paper, and thus increase its
discredit, but individuals, whose resources created confi-
dence, came forward as competitors, and engrossed the
supplies, which they dealt out to the administration on their
own terms. Apprehensions of greater depreciation, indu-
cing the holders of the paper to force it into the market,
with a view to realize something intrinsically valuable,
raised the price of every article; while many capitalists,
unable to loan securely, withheld their funds from circula-
tion.
The excitement produced by these circumstances, can
now be with difficulty imagined. On the one hand, the most
violent denunciations were uttered against "engrossers,
forestallers and monopolizers," on the other, outcries were
raised against the public agents, who frequently abused their
trust; an internal war ensued between debtor and creditor,
threatening the most alarming consequences. *
and, like the bills of credit, were payable to bearer; but though resting on the
same security, were in lower credit. To absorb this paper, it was proposed,
in a series of ingenious essays, signed An American, to create a stock, re-
deemable by instalments after the war; but what circulating medium was to
be substituted, and how the interest on this stock was to be discharged, it is
believed was not shown.
* It is curious to remark the extravagant and crude schemes to which this
state of things gave rise. Among others, it was proposed in Virginia to abo-
lish all private commerce, and establish companies, including a state, or parts
of one, in districts. The commercial operations to be represented by stock:
the prices of every article to be fixed by the companies; and to confer on them
the power of taking private goods into their custody. The project was re-
commended as a scheme for "appreciating the currency, and reducing the
prices of necessaries. " It was soon followed by an embargo on provisions --
July 17, 1780.
An enumeration of the flagrant oppressions which were quietly endured by
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? HAMILTON. 245
These were evils in a great degree necessarily inciden-
tal to the state of the country, with a small capital, and
deprived of foreign commerce; but there were others
wholly attributable to the feeble operation of the confede-
racy.
The administration of government by congress, through
the medium of committees and boards, greatly augmented
the civil expenditure; prevented the possibility of secrecy
or system, and the numerous expedients which exigencies
suggested, had resulted in the creation of various and con-
flicting chambers.
The Board of Treasury, which was established in seven-
teen hundred and seventy-six, had struggled through two
years of confusion and delay; frequently changing its mem-
bers, after which period were added to it the offices of comp-
troller, auditor, and treasurer, and two chambers of ac-
counts. The duties of these were so defined, as to consti-
tute them checks upon each other: there being, however,
in no one, that superintendence which was necessary to a
systematic management of the finances. A twelvemonth
had not elapsed when it was found necessary to change
this arrangement, and a new organization was adopted.
By this scheme, the Board of Treasury was composed of five
commissioners, of whom three were permitted to hold their
seats only six months in continuance, and the offices of
auditor general, treasurer, two chambers of accounts, and
six auditors, were substituted for the previous plan. To
this complicated system it was afterwards deemed expe-
dient to add an extra chamber of accounts. This last body
had just commenced its operations, when the interference
with the Board of Treasury in their respective duties, led
the people, from legislative interference with private rights, tender acts, and
other encroachments, would be not alittle interesting: the results of a govern-
ment not dealing fairly with the people, and too feeble to enforce, or perhaps,
even to respect good faith.
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? 246 THE LIFE OF
to the necessity of declaring that board paramount to all
the other branches of the treasury department.
The delays attendant upon this state of things in settling
the public accounts, added to the inconveniences which the
condition of the currency had produced, and the fluctuating
measures of the treasury, deprived it of all confidence, and
gave sanction to the most crude and absurd schemes of
finance.
The assurances which had been given to the new minis-
ter from France, of bringing into the field an army of five-
and-twenty thousand men, had excited the greatest anxiety
in congress to expedite the requisitions on the states. The
recently proposed change in the currency was based on
their co-operation; and yet the legislatures of many of them
adjourned without having delegated powers to any member
of their governments to meet the propositions of congress;
and the returns of others, indicated a reluctant and tardy
compliance with the urgent demands of the confederation.
As the pressure was more immediately felt at head
quarters, the financial difficulties urged themselves upon
the individuals there with peculiar force. / The situation of
Hamilton, in the family of Washington, tendering him the
confidant of all the secret embarrassments of his chief,
opened to him an enlarged view of the situation of the
country; and enforced upon him more strongly the necessity
of decisive and immediate relief^His intimacy also with
the French officers, enabled him to judge of the extent of
their expectations, and led him to look forward with appre-
hension to a failure in the engagements with France, as an
event which might, with other causes, lead, if not to an
entire abandonment by our ally, to very partial and reluc-
tant succours.
The recent debatesinthe British parliament,had also shown
the strong hopes of the ministry, that the resources of the
United States were nearly exhausted, and their expectation
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? HAMILTON. 247
that a continuance of the war might lead to a dissolution of
the union, which the distempered state of some parts of
the confederacy seemed at a distance to indicate as not
improbable.
Influenced by these considerations, Colonel Hamilton,
soon after the army had entered winter quarters at Mor-
ristown, addressed an anonymous letter to Robert Morris,
then a delegate from Pennsylvania to Congress. In this
letter he states his plan "to be the product of some read-
ing on the subjects of commerce and finance, and of occa-
sional reflections on our particular situation; but that a
want of leisure had prevented its being examined in so many
lights, and digested so maturely, as the importance requires. "
He requests, that if the outlines are thought worthy of atten-
tion, and any difficulties occur which demand explanations,
that a letter should be directed to James Montague, to be
lodged in the post office at Morristown; and that though
the writer has reasons which make him unwilling to be
known, if a personal conference should be thought material,
that he would endeavour to comply, and asks the letter to
be regarded as a hasty production.
In this letter, after giving as his reasons for not address-
ing him through the press, the extreme delicacy of the sub-
ject, and the effect of discussion in increasing the evil "by
exposing our weak sides to the popular eye, and adding
false terrors to well-founded apprehensions," he proceeds
to examine the object of principal concern, -- the state of
the currency, -- as to which he observes, that in his opinion,
all the speculations of the country were founded in error,
-- combats the idea that the depreciation could have been
avoided, and the impression which had been entertained
that the money might be restored by expedients within our
own resources; and to this dangerous and prevalent error
he attributes the delay in attempting a foreign loan.
He shows that the badness of the money was originally
the effect of the condition of the country, and of the exer-
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? 248 THE LIFE OF
tions made beyond its strength, and not the cause, though,
at that time, it partook of the nature of both; -- that as
prices rose, the value of money fell; and that as the public
expenditures became immense, no taxes which the people
could bear on that quantity of money which is deemed a pro-
per medium, would have been sufficient for the current de-
mands of the nation, had it been gold instead of paper; that
the idea was chimerical, that without resorting to foreign
loans, we could do otherwise than augment the quantity
of our artificial wealth beyond those bounds which were pro-
per to preserve its credit.
That the quantity of money in circulation, previous to the
revolution, was about thirty millions of dollars, which was
barely sufficient for our interior commerce, the foreign trade
being carried on by barter; and as the balance of our prin-
cipal trade was against us, and the specie was transferred
to meet that balance, no part of it entered into the home
circulation; and that it would have been impossible, by
loans and taxes, to bring such part of it into the public cof-
fers as would have served the purposes of the war, without
obstructing commercial operations.
He next shows, that the product of the taxes, both from
the peculiar situation of the country, and by reference to
the condition of other countries, would necessarily be ina-
dequate to our wants.
Hence he infers, that congress, when their emissions rose
to thirty millions, were obliged, in order to keep up the sup-
plies, to go on creating artificial revenues by new emissions;
and that the only remedy then was a foreign loan, which
judiciously applied, and assisted by a vigorous taxation,
would have created a credit that might have prevented the
excess of emissions. He contends, on the same principles,
that in proportion to the extent of the depreciation at that
time, was the impossibility of raising the money value by
any other means, and that in the existing situation of the
country, a foreign loan was the only expedient.
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? HAMILTON. 249
He adds, "these reasonings may prove useless, as the ne-
cessity of a loan is admitted, but that his object is to establish
good principles, the want of which has brought us to the
desperate crisis we have arrived at, and may betray us into
fatal mistakes. "
The next inquiry raised is, -- How is the loan to be em-
ployed ? -- Two plans were stated to have been in contem-
plation :--one, that of buying up the paper, which he shows
would have been impracticable, from the rapid artificial
appreciation of it, which would require means far beyond
the compass of the national resources, while this apprecia-
tion would be more relative to the purchasing medium, than
to the prices of commodities, as the value of the paper might
be raised by the combination of individuals, while the re-
duction of prices must necessarily be slow, depending, as it
would, on the sentiments of the great body of the people.
The result of this plan, he states, would be "that the
money would return into circulation almost as fast as it was
drawn out, and at the end of the year the treasury would be
completely empty; -- the foreign loan dissipated, and the
state of the finances as deplorable as ever. It would be
much better, instead of purchasing up the paper currency,
to purchase the supplies-with. the specje^? _biIia^3r. '. 'A--
great source of error," he observes,"u in disquisitions of this
nature, is the judging of events by abstract calculations,
which, though geometrically true, are^alse as they relate
to the concerns of beings governed more by passion and
prejudice, than by an enlightened sense of their interests.
A degree of illusion mixes itself in all the affairs of society.
The opinion of objects . has more influence than their real
nature. The quantity of money in circulation, is certainly
a chief cause of its declining; but we find it is depreciated
more than five times as mu:h as it ought to be: -- the ex-
cess is derived from opinion, -- a want of confidence. In
like manner, we deceive ourselves, when we suppose the
vol. i. 32
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? 250 THI LIFE OF
value will increase in proportion as the quantity is lessened;
opinion will operate here also, and a thousand circumstan-
ces may promote or counteract the principle. "
I The other plan proposed, was to convert the loan into
(merchandise, and import it on public account. This plan,
'though better than the former, he deems also liable to great
objections, but not wholly to be rejected; and after suggest-
ing a tax in kind, he contends, that "the only plan which
can preserve the currency, is one that will make it the im-
mediate interest of the moneyed men to co-operate with go-
vernment in its support. This country is in the same pre-
dicament in which France was previous to the famous Mis-
sissippi scheme, projected by Mr. Law. Its paper money,
like ours, had dwindled to nothing, and no efforts of the
government could revive it, because the people had lost all
confidence in its ability. Mr. Law, who had muchmore pene-
tration than integrity, readily perceived that no plan could
succeed, which did not unite the interest and credit of rich in-
dividuals with those of the state; and upon this he framed
the idea of his project, which so far agreed in principle with
the Bank of England, -- the foundation was good, but the
superstructure too vast. The projectors aimed at unlimit-
ed wealth, and the government itself expected too much,
which was the cause of the ultimate miscarriage of the
scheme, and of all the mischiefs that befel the kingdom in
consequence. It will be our wisdom to select what is good
in this plan, and in any others that have gone before us,
avoiding their defects and excesses. Something on a simi-
lar principle in America, will alone accomplish the resto-
ration of paper credit, and establish a permanent fund for
the future exigencies of government. "
He then states his plan to be an American bank, to be
instituted by congress for ten years, under the denomination
of " The Bank of the United States. "
The basis of this bank was to be a foreign loan of two
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? HAMILTON. 251
millions sterling, to be thrown into the bank as a part of its
stock; a subscription to be opened in the currency of two
hundred millions of dollars, and the subscribers to be incor-
porated; the payment of which to be guarantied by the
government on the dissolution of the bank, by ten millions
of specie, being at the rate of one for twenty, or by a cur-
rency bona fide equivalent, and the annual money taxes to
become part of the stock.
All the remaining paper to be called in, (at the option of
the possessor,) and bank notes to be issued in lieu of it for so
much sterling, payable to the bearer in three months from
the date, at two per cent, per annum interest; a pound
sterling to be estimated at two hundred and sixty-six and
two-thirds of the existing dollars ;* the interest payab'e
punctually in specie at the end of the three months, when
the possessor might have the bank notes renewed, or receive
the sum deposited in the old paper; all the money issued
from the bank to be of the same denomination, and on the
same terms.
An annual loan of two millions sterling to be furnished
to congress by the bank, at four per cent. , and the whole,
or part of the stock, by arrangement between the bank and
a Board of Trade, which he contemplated, to be employed
in commerce. If only a part, the residue to be loaned oc-
casionally, by permission of congress, in such sums as may
be thought expedient, at an interest of six per cent. , on
private securities; the government to hold one half of the
stock, and the bank to be managed by trustees of the stock-
holders, under the inspection of the Board of Trade.
The part of the manuscript which details the effect of the
commercial operations, is mutilated; but the result is sta-
ted to be, that the war might be carried on three years, and
the government incur a debt of only four hundred and
* Sixty dollars for one dollar of four shillings and sixpence sterling.
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? 252 THE LIFE OF
twenty thousand pounds sterling, above the guaranty of
the subscription, which it is probable would not be requi-
red, as the corporation would find it their interest to obtain
a renewal of their charter.
( Having presented his plan, he observes, "that he does
not believe that its advantages will be as great as they ap-
pear in speculation, from a less profitable commerce than
is supposed, and from other causes. I am aware how apt
the imagination is to be heated in projects of this nature,
and to oycffook the fallacies which often lurk in first prin-
ciple^; But when I consider, on the other hand, that this
scheme slands on the firm footing of public and private faith,
that it links the interest of the state in an intimate connex-
ion with those of the rich individuals belonging to it; that
it turns the wealth and influence of both into a commercial
channel for mutual benefit^rhich must afford advantages
not to be estimated; that there is a defect of a circula-
ting medium, which this plan supplies by a sort of creative
power, converting what is so produced, into a real and effi-
cacious instrument of trade; I say, when I consider these
things, and many more that might be added, I cannot for-
bear feeling a degree of confidence in the plan, and at least
hoping that it is capable of being improved into something
that will give relief to our finances. "
To enlarge its advantages, he suggests that a variety of
secondary expedients may be invented, and the whole scheme
of annuities engrafted upon it.
That the European loan might be converted into a Euro-
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial. He then expatiates on the rea-
sons for giving one half of the stock to the government, and
answers the objection that the plan might be prejudicial to
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? HAMILTON. 253
trade, by proposing a guaranty from the government not
to grant any monopolies.
To the scheme, notes are appended, explanatory of the
operation of the project; in one of which he states, "a Board
of Trade ought immediately to be established. The royal
council of France, and the subordinate chambers in each
province, form an excellent institution, and may, in many
respects, prove a model. Congress have too long neglect-
ed to institute a good scheme of administration, and throw
public business into proper executive departments. For
commerce, I prefer a board; but for most other things, sin-
gle men. We want a Minister of War, a Minister of Fo-
reign Affairs, a Minister of Finance, and a Minister of Ma-
rine. There is always more decision, more despatch, more
secrecy, and more responsibility where single men, than
where bodies are concerned. By a plan of this. kind, we
should blend the advantages of a monarchy and of a repub-
lic, in a happy and beneficial union. Men will only devote
their lives and attention to a profession on which they can
build reputation and consequence, which they do not share
with others. If this plan should be approved, congress
ought immediately to appoint a Minister of Finance. He
ought to be a man of ability, to comprehend it in all its con-
sequences, and of eloquence to make others comprehend
and relish it. He ought, besides, to have some general
knowledge of the science, and to address himself to some
of the most suitable moneyed men, to convince them of the
utility of the project. The congress must establish the
bank, and set it agoing. I know of no man that has better
pretensions than yourself, and shall be very happy to hear
that_congress have said,' Thou art the man. '"
(The first essay of an individual, who has been designated
as "the Founder of the public credit of the United States,"
will have interest, (although his project was not adopted in\
all its parts,) as evincing the progressive growth of his mind. y
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? 254 THE LIFE OF
At a time when the intricate science of finance was little
understood in the United States, the statesman will per-
ceive the clear and sound views which are taken of the
condition of the currency; and will remark, with admira-
tion, how far the author of this plan rose above all the crude
opinions of that day; rejecting the whole scheme of legis-
lative expedients, and pointing out, as the only basis of a
permanent system, the combination of public with private
capital. It has been observed, that this project was not
embraced in all its parts; but it had, nevertheless, its influ-
ence on the mind of the eminent financier of the revolution;
for within a short time after, a plan of a bank in Pennsyl-
vania was introduced by him, founded on private contribu-
tions, to the amount of ? 300,000 sterling, by patriotic indi-
viduals, to furnish the army with a temporary supply of pro-
visions, which, though limited in its views, led on to farther
results of moment. The idea of executive departments,
also, from this time, became a topic of discussion in con-
gress; which, as will be seen hereafter, was more earnest-
ly pressed upon the consideration of that body by him, and
was ultimately adopted, almost in the terms proposed by
Hamilton.
A question has been recently raised, as to the merit of
having first suggested an American bank. It would be idle
to allege, that with similar institutions existing in Europe,
it was not a topic frequently adverted to by thinking men
in America; and there is found, within a short time after
the date of Hamilton's communication, a suggestion, in a
gazette of Massachusetts, of the Bank of Amsterdam as a
model for such an institution; but the most careful research-
es show, that Hamilton's first revolutionary plan had more
than a twelvemonth's priority* over that of the Superin-
* This remark refers to the Bank of North America. Hamilton's first plan
was addressed to Robert Morris, in 1779. The Bank of Pennsylvania was
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? 234 THE LIFE OF
officered in the best manner we can. The supernumerary
officers may be made use of as far as they will go. If
arms are wanted for their troops, and no better way of
supplying them is to be found, we should endeavour to levy
a contribution of arms upon the militia at large. Extraor-
dinary exigencies demand extraordinary means. I fear
this southern business will become a very grave one.
With the truest respect and esteem, I am, sir,
Your most obedient servant,
Alex. Hamilton.
Head Quarters, March 14, 1779.
His Excellency John Jay, President of Congress.
The following extract of a letter from Laurens to Hamil-
ton, refers to this subject.
LAURENS TO HAMILTON.
Charleston.
Ternant will relate to you how many violent struggles I
have had between duty and inclination -- how much my
heart was with you, while I appeared to be most actively
employed here. But it appears to me that I should be in-
excusable in the light of a citizen, if I did not continue my
utmost efforts for carrying the plan of the black levies into
execution, while there remain the smallest hopes of success.
Our army is reduced to nothing almost, by the departure
of the Virginians. Scott's arrival will scarcely restore us
to our ancient number. If the enemy destine the reinforce-
ments from Great Britain to this quarter, as in policy they
ought to do, that number will be insufficient for the security
of our country. The Governor, among other matters to be
laid before the House of Assembly, intends to propose the
completing our continental battalions by drafts from the mi-
litia. This measure, I am told, is so unpopular that there
is no hope of succeeding in it. Either this must be adopted,
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? HAMILTON. 235
or the black levies, or the state will fall a victim to the im-
providence of its inhabitants.
The House of Representatives have had a longer recess
than usual, occasioned by the number of members in the
field. It will be convened, however, in a few days. I in-
tend to qualify, and make a final effort. Oh, that I were a
Demosthenes! The Athenians never deserved a more bit-
ter exprobation than our countrymen.
General Clinton's movement, and your march in conse-
quence, made me wish to be with you. If any thing im-
portant should be done in your quarter, while I am doing
daily penance here, and making successless harangues, I
shall execrate my stars, and be out of humour with the
world. I entreat you, my dear friend, write me as fre-
quently as circumstances will permit, and enlighten me
upon what is going forward.
Adieu. My love to our colleagues. I am afraid I was
so thoughtless as to omit my remembrances to Gibbes.
Tell him that I am always his sincere well-wisher, and hope
to laugh with him again ere long. Adieu, again.
Yours ever,
John Laurens.
P. S. You know my opinion of Ternant's value. His
health and affairs call him to the North. If you can render
him any services, they will be worthily bestowed. We have
not hitherto availed ourselves of his zeal and talent.
The following letter from Hamilton to Laurens is the
only one which has met our inquiries. From the interest
which this cotemporary correspondence gives to the story
of the Revolution, it is to be regretted that so few re-
mains exist of the extensive communications which he kept
up with the officers of the army; the want of which pre-
vents that individuality being given to the early history of
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? 236 THE LIFE OF
our country, from which, now that the general outlines are
known, increased interest can only be derived.
HAMILTON TO LAURENS.
"Cold in my professions -- warm in my friendships -- I
wish, my dear Laurens, it were in my power, by actions,
rather than words, to convince you that I love you. I shall
only tell you, that till you bid us adieu, I hardly knew the
value you had taught my heart to set upon you. Indeed,
my friend, it was not well done. You . know the opinion I
entertain of mankind; and how much it is my desire to pre-
serve myself free from particular attachments, and to keep
my happiness independent of the caprices of others. You
should not have taken advantage of my sensibility, to steal
into my affections without my consent. But as you have
done it, and as we are generally indulgent to those we love,
I shall not scruple to pardon the fraud you have committed,
on one condition; that for my sake, if not for your own,
you will continue to merit the partiality which you have so
artfully instilled into me.
"I have received your two letters; one from Philadel-
phia, the other from Chester. I am pleased with your
success so far; and I hope the favourable omens that pre-
cede your application to the Assembly, may have as fa-
vourable an issue; provided the situation of affairs should
require it, which I fear will be the case. But, both for
your country's sake, and for my own, I wish the enemy
may be gone from Georgia before you arrive; and that
you may be obliged to return, and share the fortunes of
your old friends. In respect to the commission which you
received from Congress, all the world must think your con-
duct perfectly right. Indeed, your ideas upon this occasion
seem not to have their wonted accuracy; and you have had
scruples, in a great measure, without foundation. By your
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? HAMILTON. 237
appointment as aid-de-camp to the commander-in-chief,
you had as much the rank of lieutenant-colonel as any offi-
cer in the line. Your receiving a commission as lieutenant-
colonel, from the date of that appointment, does not in the
least injure or interfere with one of them; unless by virtue
of it you are introduced into a particular regiment, in vio-
lation of the right of succession, which is not the case at
present, neither is it a necessary consequence. As you
were going to command a battalion, it was proper you
should have a commission; and if this commission had
been dated posterior to your appointment as aid-de-camp,
I should have considered it derogatory to your former rank,
to mine, and to that of the whole corps. The only thing
I see wrong in the affair is this: congress, by their conduct,
both on the former and present occasion, appear to have
intended to confer a privilege, an honour, a mark of dis-
tinction, a something upon you, which they withheld from
other gentlemen of the family. This carries with it an air
of preference, which, though we can all truly say we love
your character and admire your military merit, cannot fail
to give some of us uneasy sensations. But in this, my dear,
I wish you to understand me well. The blame, if there is
any, falls wholly upon congress. I repeat it, your conduct
has been perfectly right, and even laudable ; -- you reject-
ed the offer when you ought to have rejected it, and you
accepted it when you ought to have accepted it; and let
me add, with a degree of over-scrupulous delicacy. It was
necessary to your project. Your project was the public
good; and I should have done the same. In hesitating,
you have refined on the refinements of generosity.
"There is a total stagnation of news here. Gates has
refused the Indian command. Sullivan is come to take it.
The former has lately given a fresh proof of his impudence,
his folly, and his *********. 'Tis no great matter; but a
peculiarity in the case prevents my saying what.
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? 238 THE LIFE OF
"Fleury shall be taken care of. All the family send love.
In this join the General and Mrs. Washington; and what is
oest, it is not in the style of ceremony, but sincerity. "
The departure of D'Estaing leaving little prospect of ac-
tive operations at the south, Laurens again rejoined the
staff of Washington. On his return, he thus writes to his
friend, from Philadelphia, where congress was in session.
LAURENS TO HAMILTON.
December 18,1779.
MY DEAR HAMILTON,
On my arrival in town, I was informed by the President,
that congress had suspended the business of appointing a
secretary to their minister plenipotentiary at Versailles un-
til my return, in hopes that I might still be prevailed upon
to accept the office. I replied, that I thought my letter upon
the subject sufficiently explicit, and assured him of my sin-
cere desire to be excused from serving in that capacity at
the present juncture of our affairs.
He urged the unanimity of the choice with respect to me
-- the difficulty of uniting the suffrages of all parties, in case
of a new nomination, and the advantages of this union. Se-
veral delegates of congress declared to me the embarrass-
ment of congress since I had declined. One, in particular,
suggested to me his apprehension of interest being made for
a late delegate of New-York, who is candidate for the office,
and to whom the world in general allows greater credit for
his abilities than his integrity; and said, "he was determi-
ned to oppose him with all his influence. " When I quitted
town the sixteenth, these matters crowded into my mind.
I fell into a train of serious reflections and self-examination,
-- endeavoured to investigate whether I had acted conso-
nantly to the xaXov xai ayadov, and fulfilled the duties of a
good citizen in the transaction. In fine, I agitated the grand
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? HAMILTON. 239
question, whether a citizen has a right to decline any office
to which his countrymen appoint him; upon what that
right is founded, and whether it existed in my case.
After undergoing the severest conflict I ever experien-
ced, sometimes reproaching, sometimes justifying myself,
pursuing my journey, or turning retrograde, as the argu-
ments on the one side or the other appeared to prevail, I
determined that I had been deficient in the duties of a good
citizen. I returned to Philadelphia, communicated my sen-
timents to the President and two other members; declared
to them that I thought it incumbent on me, in the first place,
to recommend a person equally qualified in point of inte-
grity, and much better in point of ability. That if, unhap-
pily, they could not agree on Colonel Hamilton, and that I
was absolutely necessary to exclude a dangerous person, or
to prevent pernicious delays, I should think it my duty to
obey the orders of congress. The persons now in nomina-
tion, are, Colonel Hamilton, Mr. Lovell, Mr. G. Morris,
Major Stewart. Great stress is laid upon the ability and
integrity of the person to be employed in this commission.
I have given my testimony of you in this and the other
equally essential points.
My love, as usual. Adieu.
John Laurens.
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? CHAPTER XI.
[1780. ]
( The war of the revolution having become a war of
finance, Hamilton, with a mind awakened to every exigency
of the country, now directed his attention to the embar-
rassments of the treasury, and made his first effort in rela-
tion to its finances. \
In connexion with this subject, a brief allusion to the state
of the public credit, will not be deemed inappropriate. But
for abetter understanding of the national necessities, it may
be proper to advert to the prospects of the country at this
time.
We have seen the previous year pass away without any
occurrences of moment, in a military aspect; and the only
feature in the picture which engages the attention, is the
reversed attitude of the belligerents. The Americans, no
longer flying from a triumphant enemy, but seeking every
opportunity to attack them; -- the British, alarmed for their
safety, tenaciously covering themselves under the protec-
tion of their fortifications, and rejoicing at the fluctuating
counsels of the French, to which they were indebted for
their security.
In the states north of the Potomac, the present year pre-
sents a spectacle of little variety. Amidst discomfiture,
disaster, and local dissensions, it had been ascertained, that
upon them no permanent impression could be made.
Hoping that the alliance with France might be dissolved,
encouraged by the distresses which its embarrassed finan-
ces had extended over the country, and which appeared to
threaten an end of its resources, and stimulated by those
feelings to which a proud and gallant nation would natu-
vol. i. 31
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? 242 THE LITE OF
rally be aroused by the interference of a foreign power, in
their domestic broils, the British ministry still maintained
the contest with obstinacy, and determined to subjugate
the southern states, in the vain hope, that as their sufferings
would be greater, their patriotism might be less than that
of their northern brethren.
The result of these attempts was seen in the capture of
Charleston, after a gallant and protracted defence, and in
the defeat of General Gates at Camden; events which sus-
tained the ministry, and enabled it to obtain a vote of credit
for five-and-twenty millions sterling, to continue the war.
These occurrences, the disappointment which had fol-
lowed the highly excited expectations from the co-operation
of France, and the determination which had been manifest-
ed by the British government, to persevere in the conflict,
induced a state of feeling in congress widely different from
the delusive security which palsied their previous measures,
and had led them to turn not only an inattentive, but an
indignant ear to the urgent remonstrances of the command-
er-in-chief and his circle of friends, who still foresaw a long
series of obstacles to be overcome, before their independ-
ence would be achieved.
The difficulty of raising troops, which had so often ex-
posed the army to disgrace and destruction, had so often
been surmounted by the energy of Washington, that, per-
plexing as it had been, it was but a minor evil compared
with the alarming state of the finances, and the great and
rapid depreciation of the currency, upon the issues of which
congress were compelled principally to rely.
The report of the Board of Treasury, in the autumn of
seventeen hundred and seventy-nine, had shown an emission
of bills in circulation amounting to the enormous sum of one
hundred and sixty millions of dollars, together with a pub-
lic debt of near forty millions, in foreign and domestic loans;
while the whole product of the latter, from the commence-
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? HAMILTON. 243
ment of the war, had but little exceeded thirty millions,
and of the taxes three millions.
With the faint hope of sustaining their credit, congress
passed a vote, on the first of September of the same year,
pledging themselves not to issue, in bills of credit, a sum
exceeding two hundred millions; which they proclaimed to
the country, accompanied with an exposition of the extent
of the national resources, and an assurance that full confi-
dence might be placed in the public faith.
The wants of the treasury had been so pressing, that in-
termediate this declaration, and the end of the following
month of November, the balance of this limited sum was
issued, and congress were left destitute even of this appa-
rently last resource.
In this emergency, the committee of Ways and Means
adopted, as the only remaining expedient, the negotiation of
bills on the American envoys in Europe; which, through
the recent advices of Monsieur De la Luzerne, they had
reason to expect would be provided for by the aid of France.
The sale of these bills was directed to be made at the
rate of twenty-five dollars in continental bills of credit, for
four shillings and sixpence sterling, with the condition, that
the purchasers should lend a sum equal to the cost of the
bills, at an interest of six per cent.
In March, seventeen hundred and eighty, the loan which
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent. , to be
issued on the faith of the individual states, in proportion to
their quotas, and a revision of the laws recommended, which
rendered the continental bills a legal tender. *
* There were, at this time, three kinds of paper afloat: -- one bearing an
interest payable in sterling money, one an interest payable in currency, and
the third without interest. The two first were called Loan Office Certificates,
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? 244 THE LIFE OF
These financial embarrassments, had given rise to scenes
of extravagant, and, in many instances, profligate specula-
tion. Going into the market with a currency stamped with
disgrace, not only was government compelled to purchase
below the fixed discount of their paper, and thus increase its
discredit, but individuals, whose resources created confi-
dence, came forward as competitors, and engrossed the
supplies, which they dealt out to the administration on their
own terms. Apprehensions of greater depreciation, indu-
cing the holders of the paper to force it into the market,
with a view to realize something intrinsically valuable,
raised the price of every article; while many capitalists,
unable to loan securely, withheld their funds from circula-
tion.
The excitement produced by these circumstances, can
now be with difficulty imagined. On the one hand, the most
violent denunciations were uttered against "engrossers,
forestallers and monopolizers," on the other, outcries were
raised against the public agents, who frequently abused their
trust; an internal war ensued between debtor and creditor,
threatening the most alarming consequences. *
and, like the bills of credit, were payable to bearer; but though resting on the
same security, were in lower credit. To absorb this paper, it was proposed,
in a series of ingenious essays, signed An American, to create a stock, re-
deemable by instalments after the war; but what circulating medium was to
be substituted, and how the interest on this stock was to be discharged, it is
believed was not shown.
* It is curious to remark the extravagant and crude schemes to which this
state of things gave rise. Among others, it was proposed in Virginia to abo-
lish all private commerce, and establish companies, including a state, or parts
of one, in districts. The commercial operations to be represented by stock:
the prices of every article to be fixed by the companies; and to confer on them
the power of taking private goods into their custody. The project was re-
commended as a scheme for "appreciating the currency, and reducing the
prices of necessaries. " It was soon followed by an embargo on provisions --
July 17, 1780.
An enumeration of the flagrant oppressions which were quietly endured by
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? HAMILTON. 245
These were evils in a great degree necessarily inciden-
tal to the state of the country, with a small capital, and
deprived of foreign commerce; but there were others
wholly attributable to the feeble operation of the confede-
racy.
The administration of government by congress, through
the medium of committees and boards, greatly augmented
the civil expenditure; prevented the possibility of secrecy
or system, and the numerous expedients which exigencies
suggested, had resulted in the creation of various and con-
flicting chambers.
The Board of Treasury, which was established in seven-
teen hundred and seventy-six, had struggled through two
years of confusion and delay; frequently changing its mem-
bers, after which period were added to it the offices of comp-
troller, auditor, and treasurer, and two chambers of ac-
counts. The duties of these were so defined, as to consti-
tute them checks upon each other: there being, however,
in no one, that superintendence which was necessary to a
systematic management of the finances. A twelvemonth
had not elapsed when it was found necessary to change
this arrangement, and a new organization was adopted.
By this scheme, the Board of Treasury was composed of five
commissioners, of whom three were permitted to hold their
seats only six months in continuance, and the offices of
auditor general, treasurer, two chambers of accounts, and
six auditors, were substituted for the previous plan. To
this complicated system it was afterwards deemed expe-
dient to add an extra chamber of accounts. This last body
had just commenced its operations, when the interference
with the Board of Treasury in their respective duties, led
the people, from legislative interference with private rights, tender acts, and
other encroachments, would be not alittle interesting: the results of a govern-
ment not dealing fairly with the people, and too feeble to enforce, or perhaps,
even to respect good faith.
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? 246 THE LIFE OF
to the necessity of declaring that board paramount to all
the other branches of the treasury department.
The delays attendant upon this state of things in settling
the public accounts, added to the inconveniences which the
condition of the currency had produced, and the fluctuating
measures of the treasury, deprived it of all confidence, and
gave sanction to the most crude and absurd schemes of
finance.
The assurances which had been given to the new minis-
ter from France, of bringing into the field an army of five-
and-twenty thousand men, had excited the greatest anxiety
in congress to expedite the requisitions on the states. The
recently proposed change in the currency was based on
their co-operation; and yet the legislatures of many of them
adjourned without having delegated powers to any member
of their governments to meet the propositions of congress;
and the returns of others, indicated a reluctant and tardy
compliance with the urgent demands of the confederation.
As the pressure was more immediately felt at head
quarters, the financial difficulties urged themselves upon
the individuals there with peculiar force. / The situation of
Hamilton, in the family of Washington, tendering him the
confidant of all the secret embarrassments of his chief,
opened to him an enlarged view of the situation of the
country; and enforced upon him more strongly the necessity
of decisive and immediate relief^His intimacy also with
the French officers, enabled him to judge of the extent of
their expectations, and led him to look forward with appre-
hension to a failure in the engagements with France, as an
event which might, with other causes, lead, if not to an
entire abandonment by our ally, to very partial and reluc-
tant succours.
The recent debatesinthe British parliament,had also shown
the strong hopes of the ministry, that the resources of the
United States were nearly exhausted, and their expectation
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? HAMILTON. 247
that a continuance of the war might lead to a dissolution of
the union, which the distempered state of some parts of
the confederacy seemed at a distance to indicate as not
improbable.
Influenced by these considerations, Colonel Hamilton,
soon after the army had entered winter quarters at Mor-
ristown, addressed an anonymous letter to Robert Morris,
then a delegate from Pennsylvania to Congress. In this
letter he states his plan "to be the product of some read-
ing on the subjects of commerce and finance, and of occa-
sional reflections on our particular situation; but that a
want of leisure had prevented its being examined in so many
lights, and digested so maturely, as the importance requires. "
He requests, that if the outlines are thought worthy of atten-
tion, and any difficulties occur which demand explanations,
that a letter should be directed to James Montague, to be
lodged in the post office at Morristown; and that though
the writer has reasons which make him unwilling to be
known, if a personal conference should be thought material,
that he would endeavour to comply, and asks the letter to
be regarded as a hasty production.
In this letter, after giving as his reasons for not address-
ing him through the press, the extreme delicacy of the sub-
ject, and the effect of discussion in increasing the evil "by
exposing our weak sides to the popular eye, and adding
false terrors to well-founded apprehensions," he proceeds
to examine the object of principal concern, -- the state of
the currency, -- as to which he observes, that in his opinion,
all the speculations of the country were founded in error,
-- combats the idea that the depreciation could have been
avoided, and the impression which had been entertained
that the money might be restored by expedients within our
own resources; and to this dangerous and prevalent error
he attributes the delay in attempting a foreign loan.
He shows that the badness of the money was originally
the effect of the condition of the country, and of the exer-
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? 248 THE LIFE OF
tions made beyond its strength, and not the cause, though,
at that time, it partook of the nature of both; -- that as
prices rose, the value of money fell; and that as the public
expenditures became immense, no taxes which the people
could bear on that quantity of money which is deemed a pro-
per medium, would have been sufficient for the current de-
mands of the nation, had it been gold instead of paper; that
the idea was chimerical, that without resorting to foreign
loans, we could do otherwise than augment the quantity
of our artificial wealth beyond those bounds which were pro-
per to preserve its credit.
That the quantity of money in circulation, previous to the
revolution, was about thirty millions of dollars, which was
barely sufficient for our interior commerce, the foreign trade
being carried on by barter; and as the balance of our prin-
cipal trade was against us, and the specie was transferred
to meet that balance, no part of it entered into the home
circulation; and that it would have been impossible, by
loans and taxes, to bring such part of it into the public cof-
fers as would have served the purposes of the war, without
obstructing commercial operations.
He next shows, that the product of the taxes, both from
the peculiar situation of the country, and by reference to
the condition of other countries, would necessarily be ina-
dequate to our wants.
Hence he infers, that congress, when their emissions rose
to thirty millions, were obliged, in order to keep up the sup-
plies, to go on creating artificial revenues by new emissions;
and that the only remedy then was a foreign loan, which
judiciously applied, and assisted by a vigorous taxation,
would have created a credit that might have prevented the
excess of emissions. He contends, on the same principles,
that in proportion to the extent of the depreciation at that
time, was the impossibility of raising the money value by
any other means, and that in the existing situation of the
country, a foreign loan was the only expedient.
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? HAMILTON. 249
He adds, "these reasonings may prove useless, as the ne-
cessity of a loan is admitted, but that his object is to establish
good principles, the want of which has brought us to the
desperate crisis we have arrived at, and may betray us into
fatal mistakes. "
The next inquiry raised is, -- How is the loan to be em-
ployed ? -- Two plans were stated to have been in contem-
plation :--one, that of buying up the paper, which he shows
would have been impracticable, from the rapid artificial
appreciation of it, which would require means far beyond
the compass of the national resources, while this apprecia-
tion would be more relative to the purchasing medium, than
to the prices of commodities, as the value of the paper might
be raised by the combination of individuals, while the re-
duction of prices must necessarily be slow, depending, as it
would, on the sentiments of the great body of the people.
The result of this plan, he states, would be "that the
money would return into circulation almost as fast as it was
drawn out, and at the end of the year the treasury would be
completely empty; -- the foreign loan dissipated, and the
state of the finances as deplorable as ever. It would be
much better, instead of purchasing up the paper currency,
to purchase the supplies-with. the specje^? _biIia^3r. '. 'A--
great source of error," he observes,"u in disquisitions of this
nature, is the judging of events by abstract calculations,
which, though geometrically true, are^alse as they relate
to the concerns of beings governed more by passion and
prejudice, than by an enlightened sense of their interests.
A degree of illusion mixes itself in all the affairs of society.
The opinion of objects . has more influence than their real
nature. The quantity of money in circulation, is certainly
a chief cause of its declining; but we find it is depreciated
more than five times as mu:h as it ought to be: -- the ex-
cess is derived from opinion, -- a want of confidence. In
like manner, we deceive ourselves, when we suppose the
vol. i. 32
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? 250 THI LIFE OF
value will increase in proportion as the quantity is lessened;
opinion will operate here also, and a thousand circumstan-
ces may promote or counteract the principle. "
I The other plan proposed, was to convert the loan into
(merchandise, and import it on public account. This plan,
'though better than the former, he deems also liable to great
objections, but not wholly to be rejected; and after suggest-
ing a tax in kind, he contends, that "the only plan which
can preserve the currency, is one that will make it the im-
mediate interest of the moneyed men to co-operate with go-
vernment in its support. This country is in the same pre-
dicament in which France was previous to the famous Mis-
sissippi scheme, projected by Mr. Law. Its paper money,
like ours, had dwindled to nothing, and no efforts of the
government could revive it, because the people had lost all
confidence in its ability. Mr. Law, who had muchmore pene-
tration than integrity, readily perceived that no plan could
succeed, which did not unite the interest and credit of rich in-
dividuals with those of the state; and upon this he framed
the idea of his project, which so far agreed in principle with
the Bank of England, -- the foundation was good, but the
superstructure too vast. The projectors aimed at unlimit-
ed wealth, and the government itself expected too much,
which was the cause of the ultimate miscarriage of the
scheme, and of all the mischiefs that befel the kingdom in
consequence. It will be our wisdom to select what is good
in this plan, and in any others that have gone before us,
avoiding their defects and excesses. Something on a simi-
lar principle in America, will alone accomplish the resto-
ration of paper credit, and establish a permanent fund for
the future exigencies of government. "
He then states his plan to be an American bank, to be
instituted by congress for ten years, under the denomination
of " The Bank of the United States. "
The basis of this bank was to be a foreign loan of two
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? HAMILTON. 251
millions sterling, to be thrown into the bank as a part of its
stock; a subscription to be opened in the currency of two
hundred millions of dollars, and the subscribers to be incor-
porated; the payment of which to be guarantied by the
government on the dissolution of the bank, by ten millions
of specie, being at the rate of one for twenty, or by a cur-
rency bona fide equivalent, and the annual money taxes to
become part of the stock.
All the remaining paper to be called in, (at the option of
the possessor,) and bank notes to be issued in lieu of it for so
much sterling, payable to the bearer in three months from
the date, at two per cent, per annum interest; a pound
sterling to be estimated at two hundred and sixty-six and
two-thirds of the existing dollars ;* the interest payab'e
punctually in specie at the end of the three months, when
the possessor might have the bank notes renewed, or receive
the sum deposited in the old paper; all the money issued
from the bank to be of the same denomination, and on the
same terms.
An annual loan of two millions sterling to be furnished
to congress by the bank, at four per cent. , and the whole,
or part of the stock, by arrangement between the bank and
a Board of Trade, which he contemplated, to be employed
in commerce. If only a part, the residue to be loaned oc-
casionally, by permission of congress, in such sums as may
be thought expedient, at an interest of six per cent. , on
private securities; the government to hold one half of the
stock, and the bank to be managed by trustees of the stock-
holders, under the inspection of the Board of Trade.
The part of the manuscript which details the effect of the
commercial operations, is mutilated; but the result is sta-
ted to be, that the war might be carried on three years, and
the government incur a debt of only four hundred and
* Sixty dollars for one dollar of four shillings and sixpence sterling.
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? 252 THE LIFE OF
twenty thousand pounds sterling, above the guaranty of
the subscription, which it is probable would not be requi-
red, as the corporation would find it their interest to obtain
a renewal of their charter.
( Having presented his plan, he observes, "that he does
not believe that its advantages will be as great as they ap-
pear in speculation, from a less profitable commerce than
is supposed, and from other causes. I am aware how apt
the imagination is to be heated in projects of this nature,
and to oycffook the fallacies which often lurk in first prin-
ciple^; But when I consider, on the other hand, that this
scheme slands on the firm footing of public and private faith,
that it links the interest of the state in an intimate connex-
ion with those of the rich individuals belonging to it; that
it turns the wealth and influence of both into a commercial
channel for mutual benefit^rhich must afford advantages
not to be estimated; that there is a defect of a circula-
ting medium, which this plan supplies by a sort of creative
power, converting what is so produced, into a real and effi-
cacious instrument of trade; I say, when I consider these
things, and many more that might be added, I cannot for-
bear feeling a degree of confidence in the plan, and at least
hoping that it is capable of being improved into something
that will give relief to our finances. "
To enlarge its advantages, he suggests that a variety of
secondary expedients may be invented, and the whole scheme
of annuities engrafted upon it.
That the European loan might be converted into a Euro-
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial. He then expatiates on the rea-
sons for giving one half of the stock to the government, and
answers the objection that the plan might be prejudicial to
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? HAMILTON. 253
trade, by proposing a guaranty from the government not
to grant any monopolies.
To the scheme, notes are appended, explanatory of the
operation of the project; in one of which he states, "a Board
of Trade ought immediately to be established. The royal
council of France, and the subordinate chambers in each
province, form an excellent institution, and may, in many
respects, prove a model. Congress have too long neglect-
ed to institute a good scheme of administration, and throw
public business into proper executive departments. For
commerce, I prefer a board; but for most other things, sin-
gle men. We want a Minister of War, a Minister of Fo-
reign Affairs, a Minister of Finance, and a Minister of Ma-
rine. There is always more decision, more despatch, more
secrecy, and more responsibility where single men, than
where bodies are concerned. By a plan of this. kind, we
should blend the advantages of a monarchy and of a repub-
lic, in a happy and beneficial union. Men will only devote
their lives and attention to a profession on which they can
build reputation and consequence, which they do not share
with others. If this plan should be approved, congress
ought immediately to appoint a Minister of Finance. He
ought to be a man of ability, to comprehend it in all its con-
sequences, and of eloquence to make others comprehend
and relish it. He ought, besides, to have some general
knowledge of the science, and to address himself to some
of the most suitable moneyed men, to convince them of the
utility of the project. The congress must establish the
bank, and set it agoing. I know of no man that has better
pretensions than yourself, and shall be very happy to hear
that_congress have said,' Thou art the man. '"
(The first essay of an individual, who has been designated
as "the Founder of the public credit of the United States,"
will have interest, (although his project was not adopted in\
all its parts,) as evincing the progressive growth of his mind. y
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? 254 THE LIFE OF
At a time when the intricate science of finance was little
understood in the United States, the statesman will per-
ceive the clear and sound views which are taken of the
condition of the currency; and will remark, with admira-
tion, how far the author of this plan rose above all the crude
opinions of that day; rejecting the whole scheme of legis-
lative expedients, and pointing out, as the only basis of a
permanent system, the combination of public with private
capital. It has been observed, that this project was not
embraced in all its parts; but it had, nevertheless, its influ-
ence on the mind of the eminent financier of the revolution;
for within a short time after, a plan of a bank in Pennsyl-
vania was introduced by him, founded on private contribu-
tions, to the amount of ? 300,000 sterling, by patriotic indi-
viduals, to furnish the army with a temporary supply of pro-
visions, which, though limited in its views, led on to farther
results of moment. The idea of executive departments,
also, from this time, became a topic of discussion in con-
gress; which, as will be seen hereafter, was more earnest-
ly pressed upon the consideration of that body by him, and
was ultimately adopted, almost in the terms proposed by
Hamilton.
A question has been recently raised, as to the merit of
having first suggested an American bank. It would be idle
to allege, that with similar institutions existing in Europe,
it was not a topic frequently adverted to by thinking men
in America; and there is found, within a short time after
the date of Hamilton's communication, a suggestion, in a
gazette of Massachusetts, of the Bank of Amsterdam as a
model for such an institution; but the most careful research-
es show, that Hamilton's first revolutionary plan had more
than a twelvemonth's priority* over that of the Superin-
* This remark refers to the Bank of North America. Hamilton's first plan
was addressed to Robert Morris, in 1779. The Bank of Pennsylvania was
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