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It-BLISHEB BY JOSEPH

»KUfUI5P..

.\ HI A M U l.'.l'O

OFFICIAL REPORTS

TiAXR,

AND

A MINT.
BY ALEXANDER

PIIILWELPIIM:
I) BY WILLIAM M'KEAN;

PREFACE.
v / F ALEXANDER HAMILTON it may be said,
nothing came from his pen or his lips which should
jiot betmtstircd up with carer. Rut as the publishers had limited the present work "id three volumes, they were solicitous to make the selection
such as should prove most useful. In pursuit of
this object they have been governed by the opinions of gentlemen well qualified to judge; and
they indulge the belief that the public will fully
sanction tliat judgment.
The first volume comprises the most important
OFFICIAL REPORTS of that GREAT MAN,
while Secretary of the Treasury of the United
States.
In these documents are constellated more than
the learning and the wisdom of other days. The
native, the original conceptions of his creative
genius, give life and light to every subject* Every
page bears its own peculiar testimony to the vastness of his mind—the soundness of his judgment
—the clearness of his views—and the integrity
of his heart* The humblest peasant, who loves
his country and participates in her weal and wo,
as well as the statesman and politician whose
feelings and interests are more particularly identified with the subject, will read these Reports with
singled wonder and delight.

PREFACE.

The second and third volumes contain T H E
which was written shortly after the
promulgation of the New Constitution, and addressed to the people of the state of New-York,
with the view of explaining its principles, and enforcing the propriety and necessity of its adoption.
The papers first appeared in the Gazettes of this
city, in the oi^r-OTTvhk*w*fe^^
e d ^ d have since passed throughtwo editions*
It had long been known that the F E D E R A L I S T
was not exclusively from the pen of Mr. Hamilton* Mr. Jay and Mr. Madison shared in the
labour and the honour of these profound disquisitions* But it was not ascertained with any degree of certainty, which, or how many numbers
were written by either of these gentlemen, till
after the lamented death of Hamilton, when a
private memorandum in his own hand-writing
was found, containing the information which enables the publishers to designate with precision
the authors of the several essays: Their names
are accordbgly prefixed to their respective productions in the body of the work. From these
it appears, that five of the numbers were written
by Mr* Jay, fourteen by Mr, Madison, three by
Mr. Madison and Mr. Hamilton jointly, and sixty-four by Mr Hamilton alone.
(t
As all parties seem at length united in professions of regard for the Constitution ; if they are
sincere, this consideration cannot fail to enhance
the value of a work which, by employing in its
favour all the energy of argument, and all the per*

FEDERALIST,

PREFACE.

suasion of eloquence, was eminently useful in
promoting its general ratification.1'
11
Whoever is desirous of being well informed of
the principles and provisions of our Government,
and the manner in which they have been supported and vindicated; of the objections that were
made to the Constitution by its first opposers;
and how they were answered, will find in the Federalist ample and satisfactory instruction. ^The
-study of tiiis work must form an essential part of
the American statesman*. Politicians, indeed,
of ever)' country, will here discover materials in
the science of government well worthy their attention—a science, of all others the most interesting to mankind, as it most deeply concerns human happiness. The Federalist contains principles that may be remembered and studied with
advantage by all classes of men, in other countries
than our own, and in other ages than that in which
we live. The people of America alone have afforded the example of a republic purely representative, In tliis work it will appear, that this form
of government has been well understood, and
* To the honour of our country, the respectable College in Providence, Rhode-Island, lias introduced* the
FEDERALIST into the course of academic studies, as containing the best commentary on the principles of free
government that can be found. It were well had other
seminaries followed this example. The best results might
be expected, if those who are to direct the future destinies of this vast empire, were early made familiar with
political truths, so clear, practical, and demonstrative.

PREFACE.

thoroughly developed; and if, unfortunately,the
experiment which we have made should hereafter
fail, vain will be the attempt to renew similar systems; for no reasonable hope can be entertained,
that more correct notions on this subject will pre•vail than are here exhibited."
" PACIFICUS is from the pen of the same enlightened sf3t pcrna *ywho was +h? f^hiief an*hor of
the Federalist. These essays were written in defence of the first leading step which our government took to preserve the neutrality it continued
to maintain during the late transatlantic conflict,
which seems to have annihilated the minor powers of Europe, and has shaken the civilized
world."
"Now that the storm has passed over, and the
angry and tumultuous passions which at that
time agitated our country, have in some measure
subsided, these papers will be read with pleasure
and profit, by the intelligent man of every party*
Candour will probably wonder, that any one
should have doubted of the fitness of those measures which this writer has so ably advocated, and
which experience has so forcibly proved to have
been the best adapted to the interests of the country. In what condition should we now have
been, had our government given way to the enthusiasm which at that time swelled the bosoms
of our countrymen in favour of the French revolution? If it had been suffered to pursue its
own course, we should have been hurried into a
war which would have added us to die victims of

PREFACE,

VII

folly and perfidy, which have been produced as
well by Gallic alliance, as by Gallic conquest*
Every considerate man will therefore admire the
wisdom which foresaw so dreadful a consequence, and the firmness which guarded us from
it, by arresting at once the mad career of j>opiN
lar delusion."
While Pubfius and Pacificus serve to keep in
just remembrance two very important events in
the history of our country, the " official reports'*
of the first Secretary of the Treasury, will form
a sort of text-book for his successors through
distant ages* Indeed, wherever the principles
of free government are rightly understood, and rational liberty is rationally enjoyed, there will the
memory and the writings of Hamilton be consecrated in the affections of an enlightened and
admiring people. Legislators, Statesmen, and Financiers, will draw wisdom from this fountain;
and posterity, long, long after the pigmy race of
philosophical dreamers and visionary politicians
shall have sunk into oblivion, will rise up and
call him blessed.

CONTENTS
OF VOLUME I.

R E P O R T on Public Crctiit, on a N a t i o n a l B a n k ,
O n t h e Constitutionality of a National BAD!;, H e p o r t OD t h e subject of M a n u f a c t u r e s ,
*
— — on t h e cUnblhUracnt of a M i n t ,
-

voi..

PACE
l
59
- I I I
- 157
277

REPORT
OF THE

SECRETARY OF THE TREASURY
OH

PUBLIC CREDIT,

Treasury Department, Jan. 9,1790.
X HE Secretary of the Treasury, in obedience to
the resolution of the House of Representatives, of
the twenty-first day of September last, has, during
the recess of Congress, applied himself to the consideration of a proper plan for the support of the Public Credit, with all the attention which was due to
the authority of the House, and to the magnitude of
the object.
In the discharge of this duty, he has felt, in no
small degree, the anxieties which naturally flow
from a just estimate of the difficulty of the task, from
a well-founded diffidence of his own qualifications
for executing it with success, and from a deep and
solemn conviction of the momentous nature of the
truth contained in the resolution under which his
investigations have been conducted, " That an adequate provision for the support of the Public Credit
is a matter of high importance to the honour and
prosperity of the United States."
VOL. I .

REPORT ON

With au ardent desire that his well-meant endeavours may be conducive to the real advantage of the
nation ; and with the utmost deference to the superior judgment of the House, he now respectfully
submits the result of his inquiries and reflections, to
their indulgent construction.
In the opinion of the Secretary, the wisdom of the
House, in giving1 their explicit sanction to the proposition which has been stated, cannot but be applauded by all, who will seriously consider, and
trace through their obvious consequences, these
plain and undeniable truths:
That exigencies are to be expected to occur, in
the affairs of nations, in which there will be a necessity for borrowing:
That loans in times of public danger, especially
from foreign war, are found an indispensable resource, even to the wealthiest of them:
And that in a country, which, like this, is possessed of little active wealth, or in other words, little
monied capital, the necessity for that resource must,
in such emergencies, be proportionably urgent.
And as on the one hand, the necessity for borrowing in particular emergencies cannot be doubted,
so on the other, it is equally evident, that to be able to
boiTow upon good terms, it is essential that the credit of a nation should be well established.
For when the credit of a country is in any degree
questionable, it never fails to give an extravagant premium, in one shape or another, upon all the loans it
has occasion to make. Nor does the evil end here;
the same disadvantage must be sustained upon whatever is to be bought on terms of future payment.
From this constant neceesity of borrowing and buy*
ing dear, it is easy to conceive how immensely the

PUBLIC CREDIT.

expenses of a nation, in a course of time, will f>e augmented by an unsound state of the public credit.
To attempt to enumerate the complicated variety
of mischiefs in the whole system of the social economy, which proceed from a neglect of the maxims that
uphold public credit, and justify the solicitude manifested by the House on this point, would be an improper intrusion on their time and patience.
In so strong a light, nevertheless, do they appear
to the Secretary, that on their due observance at the
present critical juncture, materially depends, in his
judgment, the individual and aggregate prosperity
of the citizens of the United States: their relief from
the era1>arrassments they now experience ; their character as a people; the cause of good government.
If the maintenance of public credit, then, be truly
so important, the next inquiry which suggests itself
is, by what means it is to be effected:—The ready
answer to which question is, by good faith, by a
punctual performance of contracts. States, like individuals, who observe their engagements, are respected and trusted : while the reverse is the fate of
those, who pursue an opposite conduct*
Every breach of the public engagements, whether
from choice or necessity, is in different degrees hurtful to public credit. When such a necessity does
truly exist, the evils of it are only to be palliated
by a scrupulous attention on the part of the government, to carry the violation no further than the necessity absolutely requires, and to manifest, if the
nature of the case admit of it, a sincere disposition
to make reparation, whenever circumstances shall
permit. But with every possible mitigation, credit
must suffer, and numerous mischiefs ensue. It is
therefore highly important, when an appearance of

REPORT ON

necessity seems to press upon the public councils,
that they should examine well its reality, and he
perfectly assured, that there is no method of escaping from it, before they yield to its suggestions.
For though it cannot safely be affirmed, that occasions have never existed, or inay not exist, in which
violations of the public faith, in this respect, are inevitable ; yet there is great reason to believe, that
they exist far less frequently than precedents indicate; and are oftenest either pretended through,
levity, or want offirmness,or supposed through want
of knowledge. Expedients might often have been
devised to effect, consistently with good faith, what
has been done in contravention of it. Those who
are most commonly creditors of a nation, are, generally speaking, enlightened men; and there are signal examples to warrant a conclusion, that when a
candid and fair appeal is made to them, they will
understand their true interest too well to refuse
their concurrence in such modifications of their
claims, as any real necessity may demand.
While the observance of that good faith, which
is the basis of public credit, is recommended by the
strongest inducements of political expediency, it is
enforced by considerations of still greater authority*
There are arguments for it, which rest on the immutable principles of moral obligation : And in proportion as the mind is disposed to contemplate, in
the order of Providence, an intimate connexion between public virtue and pubJic happiness, will be its
repugnancy to a violation of those principles.
This reflection derives additional strength from
the nature of the debt of the United States. It was
the price of liberty The faith of America has been
repeatedly pledged for it, and with solemnities, that

PUBLIC CREDIT.

give peculiar force to the obligation* There is indeed reason to regret that it has not hitherto been
kept; thit th<- necessities of the war, conspiring
with inexperience in the subjects of finance, produced direct infractions; and that the su!>sequent period has been a continued scene of negative violation, or non-compliance. But a diminution of this
regret arises from the reflection, that the last seven
years have exhibitarLan -»*rira*-<*n4- uulfunu effort,
on the part of the government of the union, to retrieve the national credit, by doing justice to the
creditors of the nation; and that the embarrassments
of a defective constitution, which defeated this laudable effort, have ceased.
From this evidence of a favourable disposition,
given by the former government, the institution of
a new one, clothed with powers competent to calling
forth the resources of the community, has excited
correspondent expectations. A general belief accordingly prevails, that the credit of the United
States will quickly be established on the firm foundation of an effectual provision for the existing debt*
The influence, which this has had at home, is witnessed by the rapid increase that has taken place in
the market-value of the public securities. From
January to November, they rose tliirty-three and a
third per cent, and from that period to this time,
they have risen fifty per cent, m^re. And the intelligence from abroad announces effects proportionably favourable to our national credit and consequence.
It cannot but merit particular attention, that
among ourselves the most enlightened friends of
good government arc those, whose expectations are
the highest

REPORT ON

To justify and preserve their confidence; to promote the increasing respectability of the American
name; to answer the calls of justice; to restore
landed property to its due value; to furnish new
resources both to agriculture and commerce; to cement more closely the union of the states; to add
to their security against foreign attack; to establish
public order on the basis of an upright and liberal
policy —These are the gicat and invaluable ends to
be secured, by a proper and adequate provision, at
the present period, for the support of public credit.
To this provision we are invited, not only by the
general considerations, which have been noticed, but
by others of a more particular nature- It will procure to every class of the community some important
advantages, and remove some no less important disadvantages.
The advantage to the public creditors from the
increased value of that part of their property which
constitutes the public debt, needs no explanation.
But there is a consequence of this, less obvious*
though not less true, in which every other citizen
is interested. It is a well-known fact, that in countries in which the national debt is properly funded,
and an object of established confidence, it answers
most of the purposes of money. Transfers of stock
or public debt, are there equivalent to payments in
specie; or in other words, stock, in the principal
transactions of business, passes current as specie.—
The same thing would, in all probability, happen
here, under the like circumstances.
The benefits pf this are various and obvious.—
First. Trade is extended by i t ; because there is
a larger capital to carry it on, and the merchant can
at the same time afford to trade for smaller profits;

PUBLIC CREDIT.

as his stock, which when unemployed, brings him
in an interest from the government, serves him also
as money, when he has a call fur it in his commercial operations*
Secondly* Agriculture and manufactures arc also
promoted by it; for the like reason, that more capital can be commanded to be employed in both; and
because the merchant, whose enterprise in foreign
trade gives to them activity and extension, has
greater means for enterprise.
Thirdly. The interest of money will be lowered
hy it; for this is always in a ratio to the quantity
of money, and to the quickness of circulation. This
circumstance will enable both the public and individuals to borrow on easier and cheaper terms.
And from the combination of these effects, additional aids will be furnished to labour, to industry,
and to arts of every kind.
But these good effects of a public debt are only
to be looked for, when, by being well funded, it has
acquired an arkquate and stable value. Till then,
it has rather a contrary tendency. The fluctuation
and insecurity incident to it in an unfunded state,
render it a mere commodity, and a precarious one.
As such, being only an object of occasional and particular speculation, all the money applied to it, is so
much diverted from the more useful channels of
circulation, for which the thing itself affords no substitute: So that, in fact, one serious inconvenience of
an unfunded debt is, that it contributes to the scarcity
of money.
This distinction, which has been little, if at all, attended to, is of the greatest moment. It imohes a
question immediately interesting to every part of
the community; which is no other than tliis—Whe-

REPORT ON

ther the public debt, by a provision for it on true
principles, shall be rendered a substitute for money;
or whether, by being left as it is, or by being provided for in such a manner as will wound those
principles, and destroy confidence, it shall be suffered to continue, as it is, a pernicious drain of our
cash from the channels of productive industry?
The effect which the funding of the public debt,
on ri^ht principles, would have upon landed property, is one of the circumstances attending such an
arrangement, which has been least adverted to,
though it deserves the roo^rpaTOctnaraiienriou..
The present depreciated state of that species of property is a serious calamity. The value of cultivated
lands, in most of the states, has fallen since the revolution from 2*5 to 50 per cent. Tn those furthest south, the
decrease is still more considerable. Indeed, if the
representations, continually received from that quarter, may be credited, lands there will command no
price which may not be deemed an almost total sacrifice.
This decrease in the value of lands, ought, in a
great measure, to be attributed to the scarcity of money.—Consequently, whatever produces an augmentation of the monied capital of the country, must
have a proportional effect in raising that value. The
beneficial tendency of a funded debt, in this respect,
has been manifested by the most decisive experience
in Great-Britain.
The proprietors of lands would not only feel the
benefit of this increase in the value of their property, and of a more prompt and better sale, when they
had occasion to sell; but the necessity of selling
would be itself greatly diminished. As the same
cause would contribute to the facility of loans, there

PUBLIC CREDIT.

is reason to believe that such of them as arc indebted would be able, through that resource, to satisfy
their more urgent creditors*
It ought not however to be expected, that the advantages, described as likely to result from funding
the public debt, would be instantaneous. It might
require some time to bring the value of stock to its
natural level, and to attach to it that fixed confidence, which is necessary to its quality as money.
Yet the late rapid rise of the public securities encourages an expectation, that the progress of stock
to the desirable point, will be much more expeditious than could have been foreseen. And as in the
mean time it will be increasing in value, there is
room to conclude, that it will, from the outset, answer many of the purposes in contemplation. Particularly it seems to be probable, that from creditors,
who are not themselves necessitous, it will early
meet with a ready reception in payment of debts, at
its current price.
Hating now taken a concise view of the inducements to a proper provision for the public debt, the
next inquiry which presents itself is, what ought to
be the nature of such a provision ? This requires
some preliminary discussions.
It is agreed on all hands, that that part of the
debt which has been contracted abroad, and is denominated the foreign debt, ought to be provided
for, according to the precise terms of the contracts
relating to it.
The discussions which can arise,
therefore, will have reference essentially to the domestic part of it, or to that which has been contracted at home. It is to be regretted, that there is not
the same unanimity of sentiment on this* part, as on
the other.
vox, ?•
r

REPORT ON

The Secretary has too much deference for the
opinions of every part of the community, not to have
observed one, which has, more than once, made its
appearance in the public prints, and which is occasionally to be met with in conversation. It involves this question, whether a discrimination ought
not to be made between original holders of the public securities, and present possessors, by purchase?
Those who advocate a discrimination, are for making
a full provision for the securities of the former, at
their nominal value; but contend, that the latter
ought to receive no more than the cost to them, and
the interest: And the idea is sometimes suggested
of making good the difference to the primitive possessor.
In favour of this scheme, it is alleged, that it
would be unreasonable to pay twenty shillings iu
the pound, to one who had not given more for it
than three or four. And it is added, that it would
be hard to aggravate the misfortune of the first
owner, who, probably through necessity, parted with
liis property at so great a loss, by obliging him to
contribute to the profit of the person who had speculated on his distresses.
The Secretary, after the most mature reflection oa
the force of this argument, is induced to reject the
doctrine it contains, as equally unjust and impolitic;
as highly injurious, even to the original holders of
public securities;—as ruinous to public credit.
It is inconsistent with justice, because, in the first
place, it is a breach of contract \ a violation of the
rights of a fair purchaser.
The nature of the contract in its origin, is, that the
public will pay the sum expressed in the security, to
the first holder, or his assignee. The irUent in mals>

PUBLIC CREDIT.
1

irlg the security assignable, is, that the proprietor
may be able to make use of his property, by selling
it for as much as it may be worth in the market^ and
that the buyer may be safe in the purchase.
Every buyer, therefore, stands exactly in the place
of the seller—has the same right with him to the?
identical sum expressed in the security ; and ha\ ing
acquired that right by fair purchase, and in conformity to the original agreement and intention of the
government, his claim cannot be disputed without
manifest injustice.
That he is to be considered as a fair purchaser,
results from this: Whatever necessity the seller
may have been under, was occasioned by the government, in not making a proper provision for its debts.
The buyer had no agency in it, and therefore ought
not to suffer. He is not even chargeable with having taken an undue advantage: He paid what the
commodity was worth in the market, and took the
risks of reimbursement upon himself. He of course
gave a fair equivalent, and ought to reap the benefit of his hazard; a hazard which was far from inconsiderable, and which, perhaps, turned on little
less than a revolution in government.
That the case of those who parted with their securities from necessity, is a hard one, cannot be denied.
But whatever complaint of injury, or claim of redress
they may have, respects the government solely. They
have not only nothing to object to the persons who relieved their necessities by giving them the current
price of their property, but they are even under an
implied condition to contribute to the reimbursement of those persons. They knew, that by the
terms of the contract with themselves, the public
Tvere bound to pay to those to whom they should

REPORT ON

convey theii title, the sums stipulated to be paid to
them; and that, as citizens of the United States,
they were to bear their proportion of the contribution for that purpose. This, by the act of assign*
lnent, they tacitly engage to do; and if they had an
option, they could not, with integrity or good faith,
refuse to do it, without the consent of those to
whom they sold.
But though many of tlie original holders sold from
necessity, it does not follow, that this was the case
with all of them. It may well be supposed, that
some of them did it either through want of confidence
in an eventual provision, or from the allurements o£
some profitable speculation. How shall these different classes be discriminated from each other? How
shall it be ascertained, in any case, that the money,
which the original holder obtained for his security,
was not more beneficial to him, than if he had held it
to the present time, to avail himself of the provision
which shall be made? How shall it be known,
whether, if the purchaser had employed his money
in some other way, he would not be in a better situ*
ation, than by having applied it in the purchase of
securities, though he should now receive their full
amount? And if neither of these things can be
known, how shall it be determined whether a discrimination, independent of the breach of contract,
would not do a real injury to purchasers; and if it
included a compensation to the primitive proprietors,
would not give them an advantage, to which they
had no equitable pretension?
It may well be imagined, also, that there are not
wanting instances, in which individuals, urged by
a present necessity, parted with the securities received by them from the public, and shortly after re*

PUBLIC CREDIT.

placed them with others, as an indemnity for their
first loss* Shall they be deprived of the indemnity
which they hare endeavouied to secure by so provi*
dent an arrangement?
Questions of this sort, on a close inspection, multiply themselves without end, and demonstrate the
injustice of a discrimination, even on the most subtile calculations of equity, abstracted from the obligation of contract*
The difficulties too of regulating the details of a
planibr that purpose, which would have even the
semblance of equity* would be found immense. It
may well be doubted whether they would not be insurmountable, and replete with such absurd, as well
as inequitable consequences, as to disgust even the
proposers of the measure.
As a specimen of its capricious operation, it will
be sufficient to notice the effect it would have upon
two persons, who may be supposed two years ago to
have purchased, each, securities at three shillings in
the pound, and one of them to retain those bought
by him, till the discrimination should take place;
the other to have parted with those bought by him,
within a month past, at nine shillings* The former,
who had had most confidence in the government,
would in this case, only receive at the rate of three
shillings and the interest; while tlie latter, who had
Jbad less confidence, would receive, for what cost him
the same money, at the rate of nine shillings, and his
representative, standing in his place, would be entitled to a like rate.
The impolicy of a discrimination results from two
considerations; one, that it proceeds upon a principle destructive of that quality of the public debt, or

REPORT ON

the stock of the nation, which is essential to its capacity for answering the purposes of money—that is,
the security of transfer; the other* that as well on
this account, as because it includes a breach of faith,
it renders property in the funds less valuable; consequently induces lenders to demand a higher premium for what they lend, and produces every other
inconvenience of a bad state of public credit*
It will be perceived at first sight, that the transferable quality of stock, is essential to its operation
as money; and that this depends on the idea of complete security to the transferee, and a firm persuasion, that no distinction can, in any circumstances,
be made between him and the original proprietor.
The precedent of an invasion of this fundamental
principle, would of course tend to deprive the community of an advantage, with which no temporary
saving could bear the least comparison.
And it will as readily be perceived, that the same
cause would operate a diminution of the value of
stock in the hands of tie first, as well as of every
other holder. The price which any man, who
should incline to purchase, would be willing to give
for it, would be in a compound ratio to the immediate profit it afforded, and the chance of the
continuance of his profit. If there was supposed to
be any hazard of the latter, the risk would be taken
into the calculation, and either there would be no
purchase at all, or it would be at a proportionably
less price.
For this diminution of the value of stock, every
person, who should be about to lend to the government, would demand compensation; and would add
to the actual difference between the nominal and
the market value, an equivalent for the chance of

PUBLIC CREDIT.

greater decrease; which, in a precarious state of
public credit, is always to be taken into the account.
Every compensation of this sort, it is evident,
would lye an absolute loss to the government.
In the preceding discussion of the impolicy of a
discrimination, the injurious tendency of it to those
who continue to be the holders of the securities they
received from the government, has been explained,
Nothiug need be added on this head, except that
this is an additional, and interesting light, in which
the injustice of the measure may \te seen. It would
not only divest present proprietors, by purchase, of
the rights they had acquired under the sanction of
public faith; but it would depreciate thr property of
the remaining original hollers.
It is equally unnecessary to arid any thing to what
has beeu already said, to demonstrate the fatal influence, which the principle of discrimination would
lave on the public credit.
But there is still a point in view in which it will
appear, perhaps, e\en more rxcrptionaUe, than in
cither of the former: It would be rcptipnant to an
express provision of the Constitution of the United
States. This provision is, that «« all debts contracted, and engagements entered into, before the adoption of that Constitution, shall be as valid against
the United States under it, as under the confederation ;" which amounts to a coastitutional ratification
of the contracts respecting the debt, in the state in
which they existed under the confederation. Ard
resorting to that standard, there can be no doubt,
that the Tights of assignees and original holders must
be considered as equal.
In exploding thus fully the principle of discrimination, tte Secretary is .happy ra reflecting, that he

REPORT ON

is only the advoeate of what has been already sanctioned by the formal and express authority of the
government of the Union, in these emphatic terms—
<* The remaining class of creditors, (say Congress, in
their circular address to the states, of the 26th of
April, 1783,) is composed, partly of such of our fellow-citizens as originally lent to the public the use of
their funds, or have since manifested most confidence
in their country, by receiving transfers from the
lenders; and partly of those whose property ha*
l>een either advanced or assumed for the public service. To discriminate the merits of these several
descriptions of creditors, would be a task equally
unnecessary and invidious. If the voice of humanity plead more loudly in favour of some than of
others, the voice of policy, no less than of justice,
pleads in favour of all. A WISE NATION will never
permit those who relieve the wants of their country,
or who rely most on its faith, itsfirmness*and its resources, when either of them is distrusted, to suffer
by the event."
The Secretary, concluding that a discrimination
between the different classes of creditors of the
United States, cannot with propriety be made, proceeds to examine whether a difference ought to be
permitted to remain between them and another description of public creditors—those of the states individually.
The Secretary, after mature reflection on this
point, entertains a full conviction, that an assumption of the debts of the particular states by the
union, and a like provision for them, as for those of
the union, will be a measure of sound policy and
substantial justice.
It would, in the opinion of the Secretary, contri-

PUBLIC CREDIT.

bute, in an eminent degree, to an orderly, stable,
and satisfactory arrangement of the national finances*
Admitting, as ought to be the case, that a provision must be made in some way or other for the entire debt; it will follow, that no greater revenues
will be required, whether that provision be made
wholly by the United States, or partly by them, and
partly by the states separately.
The principal question then must be, whether
such a provision cannot be more conveniently and
effectually made, by one general plan issuing from
one authority, than by different plans originating in
different authorities ?
In the first case there can be no competition for
resources; in the last, there mast be such a competition. The consequences of this, without the
greatest caution, on both sides, might be interfering
regulations, and thence collision and confusion: Particular branches of industry mi^ht also be oppressed
by it* The most productive objects of revenue are
not numerous* Either these must be wholly engrossed by one side, which might lessen the efficacy
of the provisions by the other; or both must have
recourse to the same objects in different modes,
which might occasion an accumulation upon them,
beyond what they could properly bear. If this
should not happen, the caution requisite to avoiding
it, would prevent the revenue's deriving the full
benefit of each object. The danger of interference
and of excess would be apt to impose restraints very
unfriendly to the complete command of those resources, which are the most convenient; and to compel
the having recourse to others, less eligible in themselves, and less agreeable to the community.
vox. i.
n

KEPORT ON

The difficulty of an effectual command of the
public resources, in case of separate provisions for
the debt, may be seen in another and perhaps more
striking light. It would naturally happen that different states, from local considerations, would, itt
so Tie instances, have recourse to different objects; ill
others, to the same objects, in different decrees, fot
procuring the funds of which they stood in need.
It is easy to conceive how this diversity would
affect the aggregate revenue of the country. By
the supposition, articles which yielded a full supply
in some states, would yield nothing, or an insufficient product in others; and hence the public revenue would not derive the full benefit of those articles, from state regulations: neither could the
deficiencies be made good by those of the union. It
is a provision of the national constitution, that " all
duties, imposts, and excises, shall be uniform
throughout the United States." And as the general government would be under a necessity, frdra motives of policy, of paying regard to the duty which
may have been previously imposed upon any article,
though but in a single state; it would be constrained, either to refrain wholly from any further imposition upon such article, where it had -been already
rated as high as was proper; or to confine itself to
the difference between the existing rate, and what
the article would reasonably bear. Thus the preoccupancy of an article by a single state, would tend
to arrest or abridge the impositions of the union on
that article. And as it is supposeable, that a great
variety of articles might be placed in this situation,
by dissimilar arrangements of the particular states,
it is evident, that the aggregate revenue of the

PUBLIC CREDIT.

country would be likely to be very materially contracted by the plan of separate provisions.
If all the public creditors receive their dues from
one source, distributed with an equal hand, their interest will l>e the same. And having the same interests, they will unite in the support of the fiscal
arrangements of the government; as these, too, can
be made with more convenience, where there is no
competition: These circumstances combined, will
ensure to the revenue laws a more ready and more
satisfactory execution.
If, on the contrary, there are distinct provisions,
there will be distinct interests, drawing different
Tfays, That union and concert of views, among the
creditors, which in every government is of greal importance to their security, and to that of public credit, will not only riot exist, but will be likely to
give place to mutual jealousy and opposition: an<J
from this cause, the operation of the systems which
may be adopted, both by the particular states, and
by the union, with relation to their respective debts,
will be in daHger of being counteracted.
There are several reasons which render it probable, that the situation of the state creditors would
be worse than that of the creditors of the union, if
there be not a national assumption of the state debts.
Of these it will be sufficient to mention two; one,
that a principal branch of revenue is exclusively
vested in the union; the other, that a state must always be checked in the imposition of taxes on articles of consumption, from the want of power to extend the same regulation to the other states, and
from the tendency of partial duties to injure its industry and commerce* Should the state creditors
stand upon a less eligible footing than the others,

REPORT ON

it is unnatural to expect they would see with pleasure a provision for them. The influence which
their dissatisfaction mi^ht have, could not but operate injuriously, both for the creditors and the credit
of the United States.
Hence it is even the interest of the creditors of the
union, that those of the individual states should be
comprehended in a general provision : Any attempt
to secure to the former, either exclusive or peculiar
advantages, would materially hazard their interests.
Neither would it be just, that one class of the public creditors should be more favoured than the other.
The objects for which both descriptions of the debt
were contracted, are in the main the same. Indeed,
a great part of the particular debts of the States has
arisen from assumptions by them on account of the
union. And it is most equitable, that there should
be the same measure of retribution for all.
There is an objection, however, to an assumption
of the state debts, which deserves particular notice.
It may be supposed, that it would increase the difficulty of an equitable settlement between them and
the United States.
The principles of that settlement, whenever they
shall be discussed, will require all the moderation
and wisdom of the government. In the opinion of
the Secretary, that discussion, till further lights are
obtained, would be premature.
All, therefore, which he would now think adviseable on the point in question, would be, that the
amount of the debts assumed and provided for,
should be charged to the respective states, to abide
an eventual arrangement. This, the United States,
as assignees to the creditors, would have an indisputable right to do.

PUBLIC CREDIT.

But as it might be a satisfaction to the House to
have before them some plan for the liquidation of
accounts between the union and its members, which,
including the assumption of the state debts, would
consist with equity; the Secretary will submit in
this place such thoughts on the subject, as have occurred to his own mind, or been suggested to him,
most compatible, in his judgment, with the end proposed.
Let each state be charged with all the money advanced to it out of the treasury of the United States,
liquidated according to the specie val uc at the time
of each advance, with interest at six per cent*
Let it also be charged with the amount, in specie
value, of all its securities which shall be assumed, with
the interest upon them, to the time when interest
shall become payable by the United States*
Let it be credited for all monies paid, and articles
furnished to the United States, and for all other expenditures during the war, either towards general or
particular defence, whether authorized or unauthorized by the United States; the whole liquidated to
specie value, and bearing an interest of six per cent*
from the several times at which the several payments,
advances, and expenditures accrued.
And let all sums of continental money now in the
treasuries of the respective states, which shall be paid
into the treasury of the United States, be credited at
specie value.
Upon a statement of the accounts according to
these principles, there can be little doubt, that balances would appear in favour of all the states,
against the United States.
To equalize the contributions of the states, let
each be then charged with its proportion ©f the ag-

REPORT ON

gregate of those balances, according to some equitable ratio, to be devised for that purpose.
If the contributions should be found disproportionate, the result of this adjustment would be, that
some states would be creditors, some debtors, to the
union.
Should this be the case, as it will be attended with
less inconvenience to the United States, to have to
pay balances to, than to receive them from, the particular states,it may perhaps be practicable to effect
the former by a second process, in the nature of a
transfer of the amount of the debts of debtor states,
to the credit of creditor states, observing the ratio
by which the first apportionment shall have been
made. This, whilst it would destroy the balances
due from the former, would increase those due to
the latter. These to be provided for by the United
States, at a reasonable interest, but not to be transferable.
The expediency of this second process must depend on a knowledge of the result of the first. If
the inequalities should be too great, the arrangement
may be impracticable without unduly increasing
Jhe debt of the United States. But it is not likely
that this would be the case. It is also to be remarked, that though this second process might not, upon
the principle of apportionment, bring the thing tp
the point aimed at; yet it may approach so nearly to
it, as to avoid essentially, the embarrassmjent of having considerable balances to collect from any of the
states.
The whole of this arrangement, to be under the
superintendence of commissioners, vested with equitable discretion, and final authority.

PUBLIC CREDIT.

The general principle of it seems to be equitable;
for it appears difficult to conceive a good reason why
the expenses for the particular defence of a part, in a
common war, should not be a common charge, as
well as those incurred professedly for the general
defence* The defence of each part, is that of the
whole; and unless all the expenditures are brought
into a common mass, the tendency must l>ef to add
to the calamities suJfifered by being the most exposed to the ravages of war, an increase of burthens.
This plan seems to be susceptible of no objection
which does not belong to every other, that proceeds
on the idea of a final adjustment of accounts. The
difficulty of settling a ratio, is common to all. This
must, probably, either be sought for in the proportions of the requisitions during the war, or in the
decision of commissioners appointed with plenary
power.
The rule prescribed in the Coast i tut ion,
with regard to representation and direct taxes, would
evidently not be applicable to the situation of parties during the period in question.
The existing debt of the United States is exclude
ed from the computation, as it ought to be, because
it will be provided for out of a general fund.
The only discussion of a preliminary kind which
remains, relates to the distinctions of the debt, into
principal and interest: It is well known, that the
arrears of the latter, bear a large proportion to the
amount of the former. The immediate payment of
these arrears is evidently impracticable, and a question arises, what ought to be done with them?
There is good reason to conclude, that the impressions of many are more favourable to the claim of
the principal, than to that of the interest; at least

REPORT ON

so far as to produce an opinion that an inferior provision might suffice for the latter.
But to the Secretary, this opinion does not appear
to be well founded. His investigations of the subject, have led him to a conclusion, that the arrears of
interest have pretensions at least equal to the principal.
The liquidated debt, traced to its origin, falls under two principal discriminations. One, relating to
loans; the other, to services performed, and articles
supplied.
The part arising from loans, was atfirstmade payable at fixed periods, which have loner since elapsed,
with an early option to lenders, either to receive
back their money at the expiration of those periods,
or to continue it at interest, till the whole amount
of continental bills circulating, should not exceed
the sum in circulation at the time of each loan*
This contingency, in the sense of the contract, nevei
happened; and the presumption is, that the creditors preferred continuing their money indefinitely
at interest, to receiving it in a depreciated, and depreciating state.
The other- parts of it were chiefly for objects
which ouefht to have been paid for at the time; that
is, when the services were performed, or the supplies
furnished; and were not accompanied with any contract for interest.
But by different acts of government and administration, concurred in by the creditors, these parts of
the debt have been converted into a capital, bearing
an interest of six per cent, per annum, but without
any definite period of redemption. A portion of the
loan-office debt has been exchanged for new securities o£ that import; and the whole o£ it seems to

PUBLIC CREDIT.

liave acquired that character, after the expiration of
the periods prefixed for re-payment.
If this view of the subject be a just one, the capital of the debt of the United States may be considered in the light of an annuity at the rate of six
per cent, per annum, redeemable at the pleasure of
the government, by payment of the principal* For it
seems to be a clear position, that when a government
contracts a debt payable with interest, without any
precise time being stipulated or understood for pay*
ment of the capital, that time is a matter of pure
discretion with the government, which is at liberty
to consult its own convenience respecting it, taking
care to pay the interest with punctuality.
Wherefore, as long as the United States should
pay the interest of their debt, as it accrued, their
creditors would hare no right to demand the principal*
But with regard to the arrears of interest, the case
is different. These are now due, and those to whom
they are due, have a right to claim immediate payment* To say, that it would be impracticable to
comply, would not vary the nature of the right*
Nor can this idea of impracticability be honourably
carried further, than to justify the proposition of a
new contract, upon the basis of a commutation of
that right for an equivalent. This equivalent, too,
ought to be a real and fair one. And what other
fair equivalent can be imagined for the detention of
money, but a reasonable interest? Or what can be
the standard of that interest, but the market rate, or
the rate which the government pays in ordinary
cases?
From this view of the matter, which appears to
be the accurate and true one, it will follow, that the
YOL. i.
E

26-

REPORT ON

arrears of interest are entitled to an equal provision
with the principal of the debt.
The result of the foregoing discussions is this—
That there ought to be no discrimination between
the original holders of the debt, and present possessors by purchase—That it is expedient there should
be an assumption of the state debts by the Union,
and that the arrears of interest should be provided
for on an equal f-othig with the principal.
The next inquiry, in order, towards determining
the nature of a proper provision, respects the quantum of the debt, and the present rates of interest.
The debt of the union is distinguishable into foreign and domestic.
The foreign debt amounts to principal 810,070,307
bearing an interest of four, and partly
an interest of five per cent.
Arrears of interest to the last of December, 1789,
1,640,071 62
Making together,
811,710,378 62.
The domestic debt may be subdivided into liquidated and unliquidated; principal and interest.
The principal of the liquidated part amounts
to
827,383,917 74
bearing an interest of six per cent.
The arrears of interest to the end
of 1790, amount to
13,030,168 20
Making together, 8^0414,085 94.
This includes all that has been paid in indents,
(except what has come into the treasury of the
United States,) which, in the opinion of the Secretary, can be considered in no other light than as interest due.

PUBLIC CREDIT.

The unliquidated part of tlie domestic debt, which
consists chiefly of the continental bills of credit, is
not ascertained, but may be estimated at 2,000,000
dollars.
These several suras constitute the whole of the
debt of the United States, amounting together to
54,124,404 dollars, and 56 cents.
That of the individual states is not equally well ascertained. The Secretary, however, presumes, that the
total amount may be safely stated at 25 millions of
dollars, principal and interest. The present rate of
interest of the state debts is, in general, the same
with that of the domestic debt of the union.
On the supposition, that the arrears of interest
ought to be provided for on the same terms with
the principal, the annual amount of the interest,
which, at the existing rates, would be payable on
the entire mass of the public debt, would be,
On the foreign debt, computing the interest on
the principal, as it stands, and allowing four per
cent, on the arrears of interest,
g542,599 66
On the domestic debt, including that
of the states,
4,044,845 15
linking together, 84,587,444 81
The interesting problem now occurs. Is it in the
power of the United States, consistently with those
prudential considerations which ought not to be
overlooked, to make a provision equal to the purpose of funding the whole debt, at the rates of interest which it now bears, in addition to the sum
which will be necessary for the current service of
the government?
The Secretary will not say that such a provision
would exceed the abilities of the country; but he

REPORT ON

is clearly of opinion, that to make it, would require
the extension of taxation to a degree, and to objects,
which the true interest of the public creditors forbids. It is therefore to be hoped, and even to be
expected, that they will cheerfully concur in such
modifications of their claims, on fair and equitable
principles, as will facilitate to the government an
arrangement substantial, durable, and satisfactory
to the community. The importance of the last
characteristic will strike every discerning mind. No
plan, however flattering in appearance, to which itdid not belong, could be truly entitled to confidence.
It will not be forgotten, that exigencies may ere
long arise, which would call for resources greatly beyond what is now deemed sufficient for the current
service; and that, should the faculties of the country be exhausted, or even strained, to provide for the
public debt, there could be less reliance on the sacredness of the provision.
But while the Secretary yields to the force of
these considerations, he does not lose sight of those
fundamental principles of good faith, which dictate,
that every practicable exertion ought to be made,
scrupulously to fulfil the engagements of the government ; that no change in the rights of its creditors
ought to be attempted without their voluntary consent ; and that this consent ought to be voluntary
in fact, as well as in name. Consequently, that
«very proposal of a change ought to be in the shape
of an appeal to their reason and to their interest;
not to their necessities. To this end it is requisite,
that a fair equivalent should be offered for what may
be asked to be given up, and unquestionable security
for the remainder. Without this, an alteration, con-

PUBLIC CREDIT.

sistently with the credit and honour of the nation,
would be impracticable.
It remains to see, what can be proposed in conformity to these views.
It has been remarked, that the capital of the debt
of the union is to be viewed in the light of an annuity at the rate of sis per cent, per annum, redeemable
at the pleasure of the government, by payment of
the principal. And it will not be required, that the
arrears of interest should he considered in a more
favourable light. The same character, in general,
may be applied to the debts of the individual states.
This view of the subject admits, that the United
States would have it in their power to avail themselves of any fall in the market rate of interest, for
reducing that of the debt.
This property of the debt is favourable to the
public; unfavourable1 to the creditor; and may facilitate an arrangement for the reduction of interest,
upon the basis of a fair equivalent.
Probabilities are always a rational ground of contract. The Secretary conceives, that there is good
reason to believe, if effectual measures are taken to
establish public credit, that the government rate of
interest in the United States, will, in a very short
time, fall at least as low as five per cent, and that in
a period not exceeding twenty years, it will sink
still lower, probably to four.
There are two principal causes which will be likely to produce this effect; one, the low rate of interest in Europe; the other, the increase of the moiiied
capital of the nation, by the funding of the public
debt.
From three to four per cent, is deemed good interest in several parts of Europe. Even less is deem-

REPORT ON

ed so, in some places: and it is on the decline;
the increasing plenty of money continually tending
to lower it. It is presumable, that no country will
be able to borrow of foreigners upon better terms
than the United States, because none can, perhaps,
afford so good security. Our situation exposes us less
than that of any other nation, to those casualties
which are the chief causes of expense; our incunibrances, in proportion to our real means, are less,
though these cannot immediately be brought so readily into action ; and our progress in resources from the
early slate of the country, and the immense tracts of
unsettled territory, must necessarily exceed that of any
other. The advantages of this situation have already engaged the attention of the European moneylenders, particularly among the Dutch* And as they
become better understood, they will have the greater influence. Hence as large a proportion of the
cash of Europe as may be wanted, will be, in a certain sense, in our market, for the use of government.
And this will naturally have the effect of a reduction of the rate of interest, not indeed to the level
of the places which send their money to market,
but to something much nearer to it than our present
rate.
The influence, which the funding of the debt is
calculated to have in lowering interest, has been already remarked and explained. It is hardly possible, that it should not be materially affected by such
an increase of the monied capital of the nation, as
would result from the proper funding of seventy
millions of dollars. But the probability of a decrease
in the rate of interest, acquires confirmation from
facts which existed prior to the revolution. It is
well known, that in some of the states, money might

PUBLIC CREDIT.

with facility be borrowed, on good security, at five
per cent, and, not unfrequently, even at less.
The most enlightened of the public creditors will
be most sensible of the justness of this view of the
subject, and of the propriety of the use which will
be made of it*
The Secretary, in pursuance of it, will assume, as
a probability sufficiently great to be a ground of
calculation, both on the part of the government and of
its creditors—That the interest of money in the
United States, will, in five years, fall to five per
cent, and, in twenty, to four. The probability, in
the mind of the Secretary, is rather that the fall may
be more rapid and more considerable; but he prefers a mean, as most likely to engage the assent of
the credi tors, and more equitable in itself; because
it is predicated on probabilities, which may err on
one side, as well as on the other.
Premising these things, the Secretary submits to
the House the expediency of proposing a loan to
the full amount of the debt, as well of the particular states, as of the union, upon the following terms:
First—That for every hundred dollars subscribed,
payable in the debt, (as well interest as principal,)
the subscriber be entitled, at his option, either
To have two-thirds funded at an annuity, or yearly interest of sir per cent, redeemable at the pleasure of the government, by payment of the priucipal; and to receive the other third in lands in the
Western Territory, at the rate of twenty cents per
acre. Or,
To have the whole sum funded at an annuity or
yearly interest of four per cent, irredeemable by any
payment exceeding five dollars per annum on acctuut both of principal and interest; and to receive,

32
HEPORT ON
as a compensation for the redaction of interest, fifieen dollars and eighty cents, payable in lands, as
in the preceding case* Or,
To have sixty-six dollars and two thirds of a dollar funded immediately at an annuity or yearly interest of six per cent, irredeemable by any payment
exceeding four dollars and two-thirds of a dollar per
annum, on account both of principal and interest;
and to have, at the end of ten years, twenty-six dollars and eighty-eight cents, funded at the like interest and rate of redemption. Or,
To have an annuity for the remainder of life, upon
the contingency of living to a given age, not less
distant than ten years, computing interest at four
per cent* Or,
To have an annuity for the remainder of life, upon the contingency of the survivorship of the youngest of two persons, computing interest, in this case
also, at four per cent*
In addition to the foregoing loan, payable wholly
in the debt, the Secretary would propose, that one
should be opened for ten millions of dollars, on the
following plan.
That for every hundred dollars subscribed, payable
one half in specie, and the other half in debt, (as
well principal as interest,) the subscriber be entitled
to an annuity or yearly interest offiveper cent* irredeemable by any payment exceeding six dollars
per annum, on account both of principal and interest.
The principles and operation of these different
plans may now require explanation*
The first is simply a proposition for paying one
third of the debt in land, and funding the other twothirds, a.t the existing rate of interest, and upon the

PUBLIC CREDIT.

same terras of redemption, to which it is at present
subject.
Here is no conjecture, no calculation of probabilities. Tho creditor is offered the advantage of making his interest principal, and he is asked to facilitate to the government an effectual provision for his
demands, by accepting a third part of them in land,
at a fair valuation.
The general price, at which the western lauds
have been heretofore sold, has been a dollar per acre
in public securities; but at the time the principal
purchases were made, these securities were worth, in
the market, less than three shillings in the pound.
The nominal, price, therefore, would not be the proper standard, under present circumstances; nor
would the precise specie value then given» be a just
rule. Because, as the payments were to be made by
instalments, and the securities were, at the times of
the purchases, extremely low, the probability of a
moderate rise must be presumed to have been taken
into the account. Twenty cents, therefore, seems to
bear an equitable proportion to the two considerations of value at the time, and likelihood of increase.
It will be understood, that, upon this plan, the
public retains the advantage of availing itself of any
fall in the market rate of interest, for reducing that
upon the debt; which is perfectly just, as no present
sacrifice, either in the quantum of the principal, or
in the rate of interest, is required from the creditor.
The inducement to the measure is, the payment
of one third of the debt in land.
The second plan is grounded upon the supposition, that interest, in five years, will fall to five per
cent, in fifteen more, to four. As the capital rcVOL. I.

REPORT ON

mains entire, but bearing an interest of four per cent,
only, compensation is to be made to the creditor,
for the interest of two per cent, per annum for
five years, and of one per cent, per annum for fifteen years, to commence at the distance of five
years. The present value of these two sums or annuities, computed according to the terms of the supposition, is, by strict calculation, fifteen dollars and
seven hundred and ninety-two thousandth parts of
a dollar; a fraction less than the sum proposed.
The inducement to the measure here is, the reduction of interest to a rate, more within the compass
of a convenient provision ; and the payment of the
compensation in lands.
The inducements to the individual are—the accommodation afforded to the public—the high probability of a complete equivalent—the chance even
of gain, should the rate of interest fall, either more
speedily or in a greater degree, than the calculation
supposes. Should it fall to five per cent, sooner
than five years; should it fall lower than five before
the additional fifteen were expired ; or should it fall
below four, previous to the payment of the debt,
there would be, in each case, an absolute profit to
the creditor. As his capital will remain entire, the
value of it will increase, with every decrease of the
rate of interest.
The third plan proceeds upon the like supposition
of a successive fall in the rate of interest. And upon that supposition offers an equivalent to the creditor. One hundred dollars, bearing an interest of
six per cent, for five years; of fhe per cent, for fifteen years, and thenceforth of four per cent, (these
being the successive rates of interest in the market,)
is equal to a capital of 122 dollars, 510725 parts,
bearing an interest of four per cent* which, convert-

PUBLIC CREDIT.

ed into a capital, bearing a fixed rate of interest of
six per cent, is equal to 81 dollars, 673816G parts.
The difference between sixty-six dollars and twothirds of a dollar, (the sum to be funded immediately,) and this last sum is 15 dollars, 0172 parts, which
at six per cent, per annum, amounts at the end of
ten years, to 26 dollars, 8755 parts, the sum to be
funded at the expiration of thai period.
It ought, however, to be acknowledged, that this
calculation does not make allowance for the principle of redemption, which the plan itself includes;
upon which principle the equivalent in a capital of
six per cent, would be, by strict calculation, 87 dolls.
50766 parts.
But there are two considerations which induce the
Secretary to thinkthat the one proposed would operate
more equitably than this: One 13, that it may not be
very early in the power of the United States to avail
themselves of the right of redemption reserved in
the plan: The other is, that with regard to the part
to be funded at the end of ten years, the principle
of redemption is suspended during that time, and
the full interest at six per cent, goes on improving
at the same rate; which for the last jive years will
exceed the market rate of interest, according to the
supposition.
The equivalent is regulated in this plan, by the
circumstance of fixing the rale of interest higher
than it is supposed it will continue to be in the market; permitting only a gradual discharge of the
debt, in an established proportion, and consequently
preventing advantage being taken of any decrease
of interest below the stipulated rate.
Thus the true value of eighty-one dollars and sixty-seven cents, the capital proposed, considered as a

36
REPORT ON
perpetuity, and bearing six per cent, interest, when
the market rate of interest was five per cent, would
be a small fraction more than ninety-eight dollars;
when it was four per cent, would be one hundred
and twenty-two dollars andfifty-onecents. But the
proposed capital being* subject to gradual redemption,
it is evident that its value, in each case, would be
somewhat less. Yet from this may be perceived,
the manner in which a less capital at a fixed rate of
interest, becomes an equivalent for a greater capital,
at a rate liable to variation and diminution.
It is presumable that those creditors, who do not
entertain a favourable opinion of property in western
lands, will give a preference to this last mode of
modelling the debt. The Secretary is sincere in
affirming, that in his opinion, it will be likely to
prove, to the full, as beneficial to the creditors, as a
provision for his debt upon its present terms.
It is not intended, in either case, to oblige the government to redeem, in the proportion specified, but
to secure to it the right of doing so, to avoid the
inconvenience of a perpetuity.
The fourth and fifth plans abandon the supposition which is the basis of the two preceding ones,
and offer only four per cent, throughout.
The reason of this is, that the payment being deferred, there will be an accumulation of compound
interest, in the intermediate period against the public, which, without a very provident administration,
would turn to its detriment. And the suspension of
the burthen would be too apt to beget a relaxation
of efforts in the mean time. The measure, therefore, its object being temporary accommodation,
could only be adviseable upon a moderate rate of
interest.

PUBLIC CREDIT.

With regard to individuals, the inducement will be
sufficient at four per cenU There is no disposition
of money, ia private loans, making allowance for
the usual delays and casualties, which would be
equally beneficial as a future provision.
A hundred dollars advanced upon the life of a per*
son of eleven years old, would produce an annuity,
If commencing at twenty-one, of
10
346
If commencing at thirty-one, of
18
803
If commencing at forty-one, of
37
286
If commencing at fifty one, of
78
580
The same sum advanced upon the chance of the
survivorship of the youngest of two lives, one of the
persons being twenty-five, the other thirty years old,
would produce, if the youngest of the two should
survive, an annuity for the remainder of life of 23
dollars, 556 parts.
From these instances may readily be discerned,
the advantages which these deferred annuities afford
for securing a comfortable provision for the evening
of life, or for wives who survive their husbands.
The sixth plan also relinquishes the supposition,
which is the foundation of the second and third,
and offers a higher rato of interest upon similar terms
of redemption, for the consideration of the payment
of one half of the loan in specie. This is a plan
highly advantageous to the creditors, who may be
able to make that payment; while the specie itself
could be applied in purchases of the debt, upon
terms, which would fully indemnify the public for
the increased interest.
It is not improbable, that foreign holders of the
domestic debt, may embrace this as a desirable arrangement.

REPORT ON

As an auxiliary expedient,and by way of experiment, the Secretary would propose a loan upon the
principles of a tontine—
T o consist of six classes, composed respectively of
persons of the following a?es:
First class, of those of 20 years and under.
Second class, of those above 20, and not exceeding 30.
Third class, of those above 30, and not exceeding
40.
Fourth class, of those above 4Q, and not exceeding 50.
Fifth class, of those above 50, and not exceeding
60
Sixth class, of those above GO.
Each share to be two hundred dollars. The number of shares in eacsh class, to be indefinite. Persons
to be at liberty to subscribe on their own lives, or.
on those of others, nominated by them.
The annuity upon a share in thefirstclass to be g 8 40
upon a share in the second
8 65
upon a share in the third
9 •- 0
upon a share in the fourth
9 65
upon a share in the
fifth
10 70
upon a share in the sixth
12 80
The annuities of those who die, to be equally divided among the survivors, until four-fifths shall be
dead, when the principle of survivorship shall cease,
and each annuitant thenceforth enjoy his dividend as
a several annuity during life, upon which it shall
depend.
These annuities are calculated on the best life in
each class, and at a rate of interest of four per cent,
with some deductions in favour of the public. To
the advantages which these circumstances present.

FUHLTC CREDTT.

the cessation of the ri^ht of survivorship on the death
of four-fifths of the annuitants, will be no inconsiderable addition.
The inducements to indiv iduals arc, n competent
interest for their naonoy from the outset, secured for
life, and the prospect of continual increase, and even
of large profit to those whose fortune it is to survive
their associates*
It will have appeared, that in all the proposed loans,
the Secretary has contemplated the putting the int< r-.
est upon the same footing with the principal: That
on the debt of the United Stales, he would have
computed to the last of the present year: That on
the debt of the particular states? to the last of the
year 1791; the reason for which distinction will be
seen hereafter.
In order to keep up a due circulation of money, it
,will be expedient, that the interest of the debt should
be paid quarter-yearly. This regulation will, at the
same time, conduce to the advantage of the public
creditors, giving them, in fact, by the anticipation of
payment, a higher rate of interest; which may, with
propriety, be taken into the estimate of the compensation to be made to them. Six per cunt per annum, paid in this mode, will truly be worth six dollars and one hundred and !hirfy*fhc thousandth
parts of a dollar, computing the market interest at
the same rate.
The Secretary thinks it adviseable, to hold out various propositions, all of them compatible with the
public interest, because if is, in his opinion, of the
greatest consequence that the debt should, with the
consent of the creditors, be remoulded into such a
shape, as will brini; the expenditure of the nation to
a level with its income. Till this shall be accurn-

REPORT ON

plislied, the finances of the United States will never
wear a proper countenance. Arrears of interest, continually accruing, will be as continual a monument,
either of inability or of ill faith; and will not cease
to have an evil influence on public credit. In nothing are appearances of greater moment, than in
whatever regards credit. Opinion is the soul of it,
and this is affected by appearances, as well as realities. By offering an option to the creditors, between
a number of plans, the change meditated will be
more likely to be accomplished. Different tempers
will be governed by different views of the subject.
But while the Secretary would endeavour to effect
a change in the form of the debt, by new loans, in
order to render it more susceptible of an adequate
provision; he would not think it proper to aim at
procuring the concurrence of the creditors by operating upon their necessities.
Hence whatever surplus of revenue might iemainf
after satisfying the interest of the new loans, and the
demand for the current service, ought to be divided
among those creditors, if any, who may not think fit
to subscribe to them. But for this purpose, under
the circumstance of depending propositions, a temporary appropriation will be most adviseable, and
the sum must be limited to four per cent, as the revenues will only be calculated to produce, in that
proportion, to the entire debt.
The Secretary confides for the success of the propositions to be made, on the goodness of the reasons
upon which they rest; on the iairaess of the equivalent to be offered in each case; on the discernment
of the creditors of their true interest; and on thek
disposition to facilitate the arrangements of the

PUBLIC CREDIT*

government, and to render them satisfactory to the
community.
The remaining part of the task to be performed
is, to take a view of the means of providing for the
debt, according to the modification of it, which b
proposed.
On this point the Secretary premises, that, in his
opinion, the funds to be established ought, for the
present, to be confined to the existing debt of the
United States; as well because a progressive augmentation of the revenue will be most convenient,
as because the consent of the state creditors is necessary, to the assumption contemplated; and though
the obtaining of that consent may be inferred with
great assurance, from their obvious interest to give
it; yet till it shall be obtained, an actual provision
for the debt would be premature. Taxes could not
with propriety, be laid for an object, which depended on such a contingency*
AH that ought now to be done respecting it, is#
to put the matter in an effectual train for a future
provision. For which purpose the Secretary will,
in the course of this report, submit such propositions,
as appear to him adviseable.
The Secretary now proceeds to a consideration of
the necessary funds.
It has been stated that the debt of the United
States consists of
The foreign debt, amounting* with
arrears of interest, to
211,710,378 62
And the domestic debt,amounting,
with like arrears, computed to the end
of the year 17U0, to
42,414,035 94
Making together,
VOL.

854,134,464 56
«t

REPORT ON

The interest on the domestic debt is computed
to the end of this year, because the details of carrying any plan into execution, mil exhaust the yean
The annual interest of the foreign
debt has been stated at
8542,599 6G
And the interest on the domestic
debt-, at four per cent, would amount
to
1,696,563 43
Making together,
8^,239,163 09
Thus to pay the interest of the foreign debt, and
to pay four per cent, on the whole of the domestic
debt, principal and interest, forming a new capital,
will require a yearly income of 82*239,163 09The sum which, in the opinion of the Secretary,
ought now to be provided in addition to what the
current service will require.
For, though the rate of interest, proposed by the
third plan, exceeds four per cent, on the whole debt*
and the annuities on the tontine will also exceed four
per cent, on the sums which may be subscribed; yet,
as the actual provision for a part is, in the former
case, suspended; as measures for reducing the debt,
by purchases, may be advantageously pursued, and as
the payment of the deferred annuities will of course
be postponed, four per cent, on the whole, will be
a sufficient provision.
With regard to the instalments of the foreign debt,
these, in the opinion of the Secretary, ought to be
paid by new loans abroad. Could funds be conveniently spared from other exigencies, for paying them,
the United States could illy bear the drain of cash, at
the present juncture, which the measure would be
likely to occasion.
But to the sum which has been stated for pay-

PUBLIC CREDIT-

ment of the interest, must be added a provision for
the current service. This the Secretary estimates at
six hundred thousand dollars; making, with the
amount of the interest, two millions eight hundred
and thirty-nine thousand one hundred and sixtythree dollars, and nine cents.
This sum may, in the opinion of the Secretary, be
obtained from the present duties on imports and tonnage, with the additions, -which, without any possible disadvantage either to trade or agriculture, may
be made on wines, spirits, including those distilled
within the United States, leas and coffee.
The Secretary conceives, that it will be sound policy, to carry the duties upon articles of this kind, as
high as will be consistent with the practicability of a
safe collection. This will lessen the necessity, both
of having recourse to direct taxation, and of accumulating duties where they would be more inconvenient to trade, and upon objects which are more to
be regarded as necessaries of life.
That the articles which have been enumerated will,
better than most others, bear high duties, can hardly
be a question. They are all of them, in reality, luxuries—the greatest part of them foreign luxuries;
some of them, in the excess in which they are used,
pernicious luxuries. Autl there is, perhaps, none of
them, which is not consumed in so great abundance,
as may, justly, denominate it a source of national
extravagance and impoverishment. The consumption of ardent spirits particularly, no doubt very much
on account of their cheapness, is carried to an extreme, which is truly to be regretted, as well in regard to the health and the morals, as to the economy
of the community.
Should the increase of duties tend to a decrease of
the consumption of those articles, the effect would

REPORT ON

be, in every respect desirable. The saving which it
would occasion, would leave individuals more at
their ease, and promote a more favourable balance of
trade* As far as this decrease might be applicable to
distilled spirits, it would encourage the substitution
of cider and malt liquors, benefit agriculture, and
open a new and productive source of revenue*
It is not, however, probable, that this decrease
would be in a degree, which would frustrate the expected benefit to the revenue from raising the duties. Experience has shown, that luxuries of every
Mnd lay the strongest hold on the attachments of
mankind, which, especially when confirmed by habit,
are not easily alienated from them.
The same fact affords a security to the merchant,
that he is not likely to be prejudiced hy considerable duties on such articles. They will usually command a proportional price. The chief things in this
view to be attended to, are, that the terms of payment be so regulated, as not to require inconvenient
advances, and that the mode of collection be secure.
To other reasons, which plead for carrying the
duties upon the articles which have been mentioned,
to as great an extent as they will well bear, may be added these; that they are of a nature, from their extensive consumption, to be very productive, and are
amongst the most difficult objects of illicit introduction.
Invited by so many motives to make the best use
of the resource which these articles afford, the essential inquiry is—in what mode can the duties up*
on them be most effectually collected ?
With regard to such of them as will be brought
from abroad, a duty on importation recommends it-

PUBLIC CREDIT.

self by two leading considerations; one is, that
meeting the object at its first entrance into the country, the collection is drawn to a point, and so far
simplified; the other is, that it avoids the possibility of interference between the regulations of the
United States, and those of the particular states.
But a duty, the precautions for the collection of
which should terminate with the landing of the
goods, as is essentially the case in the existing system, could not, with safety, be carried to the extent
which is contemplated.
In that system, the evasion of the duties depends,
as it were, on a single risk* To land the goods in
defiance of the vigilance of the officers of the customs, is almost the sole difficulty. No future pursuit is materially to he apprehended. And where
the inducement is equivalent to the risk, there will
be found too many who are willing to run it. Consequently, there will be extensive frauds of the revenue, against which the utmost rigour of penal laws
has proved, as often as it has been tried, an ineffectual guard.
The only expedient "which has been discovered,
for conciliating high duties with a safe collection, is,
the establishment of a second or interior scrutiny.
By pursuing the article from its importation into
the hands of the dealers in it, the risk of detection
is so greatly enhanced, that few, in comparison, will
venture to incur it. Indeed every dealer, who is
not himself the fraudulent importer, then becomes,
in some sort, a centinel upon lam.
The introduction of a system, founded on this
principle, in some shape or other, is, in the opinion
of the Secretary, essential to the efficacy of every
attempt to render the revenues of the United States

REPORT ON

equal to their exigencies, their safety, their prosperity, their honour.
Nor is it less essential to the interest of the honest and fair trader. It might even be added, that
every individual citizen, besides his share in the
general weal, has a particular interest in it. The
practice of smuggling never fails to have one of two
effects, and sometimes unites them both. Either the
smuggler undersells the fair trader, as, by saving the
duty^ he can afford to do, and makes it a charge upon him; or he sells at the increased price occasioned by the duty, and defrauds every man, who buys
of him, of his share of what the public ought to receive. For it is evident, that the loss falls ultimately upon the citizens, who must be charged with
other taxes to make good the deficiency, and supply
the wants of the state.
The Secretary will not presume, that the plan,
which he shall submit to the consideration of the
house, is the best that could be devised. But it is
the one which has appeared to him freest from objections of any, that has occurred, of equal efficacy.
He acknowledges, too, that it is susceptible of improvement, by other precautions in favour of the revenue, which he did not think it expedient to add.
The chief outlines of the plan are not original, but
it is no ill recommendation of it, that it has been
tried with success.
The Secretary accordingly proposes,
That the duties heretofore laid upon wines, distilled spirits, teas, and coffee, should, after the last
day of May next, cease; and that instead of them,
the following duties be laid:—
Upon every gallon of Madeira Wine, of the quality of London particular, thirty-five cents.

PUBLIC CREDIT.

Upon every gallon of other Madeira Wine, thirty
cents.
Upon every gallon of Sherry, twenty-five cents.
Upon every gallon of other Wine, twenty cents.
Upon every gallon of distilled Spirits, more than
ten per cent, below proof, according to Dicas's hydrometer, twenty cents.
Upon every gallon of those Spirits, under five, and
not more than ten per cent, below proof, according
to the same hydrometer, twenty-one cents.
Upon every gallon of those Spirits, of proof, and
not more than five per cent, below proof, according
to the same hydrometer, twenty-two cents.
Upon every gallon of those Spirits, above proof,
but not exceeding twenty per cent, according to the
same hydrometer, twenty-five cents.
Upon every gallon of those Spirits, more than
twenty, and not more than forty per cent, above
proof, according to the same hydrometer, thirty
cents.
Upon every gallon of those Spirits, more than forty per cent, above proof, according to the same hydrometer, forty cents.
Upon every pound of Hyson Tea, forty cents.
Upon every pound of other Green Tea, twentyfour cents*
Upon every pound of Souchong and other black
Teas, except Bohea, twenty cents.
Upon every pound of Bohea Tea, twelve cents*
Upon every pound of Coffee, five cents.
That upon Spirits distilled within the United
States, from Molasses, Sugar, or other foreign materials, there be paid—
Upon every gallon of those Spirits, more than ten

REPORT ON

per cent, below proof, according to Dicas's hydrometer, eleven cents.
Upon every gallon of those Spirits, uuder five, and
not more than ten per cent, below proof, according
to the same hydrometer, twelve cents.
Upon every gallon of those Spirits, of proof, and
not more than five per cent, below proof, according
to the same hydrometer, thirteen cents.
Upon every gallon of those Spirits, above proof,
but not exceeding twenty per cent, according to the
same hydrometer, fifteen cents.
Upon every gallon of those Spirits, more than
twenty, and not more than forty per cent, above
proof, according to the same hydrometer, twenty
cents.
Upon every gallon of those Spirits, more than forty per cent, above proof, according to the same hydrometer, thirty cents.
That upon Spirits distilled withiu the United
States, in any city, town, or village, from materials
of the growth or production of the United States,
there be paid—
Upon every gallon of those Spirits, more than ten
per cent below proof, according to Dicas's hydrometer, nine cents.
Upon every gallon of those Spirits, under five, and
not more than ten per cent, below proof, according
to the same hydrometer, ten cents.
Upon every gallon of those Spirits, of proof, and
not more than five per cent, below proof, according
to the same hydrometer, eleven cents.
Upon every gallon of those spirits, above proof,
but not exceeding twenty per cent, according to the
same hydrometer, thirteen cents.
Upon every gallon of those Spirits, more than

PUBLIC CREDIT.

twenty, and not more than forty per cent, above
proof, according to the same hydrometer, seventeen
cents.
Upon every gallon of those Spirits, more thau
forty per cent* above proof, according to the same
hydrometer, twenty-five cents.
That upon all Stills, employed in distilling Spirits
from materials of the growth or production of the
United States, in any other place than a city, town,
or village, there be paid the yearly sum of sixty
cents, for every gallon, English wine measure, of the
capacity of each Still, including its head.
The Secretary does not distribute the duties on
Teas into different classes, as has been done in the
impost act of the last session ; because this distribution depends on considerations of commercial policy,
not of revenue. It is sufficient, therefore, for him
to remark, that the rates, above specified, are pro*
posed with reference to the lowest class.
The Secretary, conceiving that he could not convey .in accurate idea of the plan contemplated by
him, for the collection of these duties, in any mode
so effectual as by the draft of a bill for the purpose,
begs leave respectfully to refer the House to that
which will be found annexed to this report, relatively to the article of distilled Spirits ; and which, for
the better explanation of some of its parts, is accompanied with marginal remarks*.
It would be the intention of the Secretary, that
the duty on wines, should be collected upon precisely the same plan with that on imported spirits.
• The draft of the bill here referred to, irai tofatantially
hy Congress as the ground of the present law on that
VOL. I.

REPORT ON

But with regard to teas and cofltee, the Secretary
is inclined to think, that it will be expedient, till experience shall evince the propriety of going further,
to exclude the ordinary right of the officers to visit
and inspect the places in which those articles may
be kept. The other precautions, without this, will
afford, though not complete, considerable security.
It will not escape the observation of the House,
that ilie Secretary, in the plan submitted, has* taken
the most scrupulous care, that those citizens upon
whom it is immediately to operate, be secured from
every species of injury by the misconduct of the offioers to be employed* There are not only strong guards
against their being guilty of abuses of authority;
they are not ooly punishable, criminally, for any
they may commit, and made answerable in damages,
to individuals, for whatever prejudice these may
sustain by their acts or neglects: but even where
seizures are made with probable cause, if there be an
acquittal of the article seized, a compensation to the
proprietors for the injury their property may suffer,
«nd even for its detention, is to be made out of the
public treasuiy.
So solicitous indeed has the Secretary been, to obviate every appearance of hardship, that he has even
included a compensation to the dealers, for their
agency in aid of the revenue.
With all these precautions to manifest a spirit of
moderation and justice on the part of the government ; and when it is considered, that the object of
the proposed system is thefirmestablishment of public credit; that on this depends the character, security and prospezifcy of the nation; that advantages in
every light important, may be expected to result

PUBLIC CREDIT.

from it; that the immediate operation of it will be
upon an enlightened class of citizens, zealously devoted to good government, and to a liberal and enlaiged policy, and that it is peculiarly the interest
of the virtuous part of them to co-operate in whatever will restrain the spirit of illicit traffic; there
will be perceived to exist the justest ground of con
fidence, that the plan, if eligible in itself, will experience the cheerful and prompt acquiescence of the
community.
The Secretary computes the neat product of the
duties proposed in this report, at about one million seven hundred and three thousand four hundred dollars;
which, if near the truth, will, together with the probable product of the duties on imports aud tonnage,
complete the sum required. But it will readily occur, that in so unexplored a field, there must be a
considerable degree of uncertainty in the data* And
that, on this account, it will be prudent to have an
auxiliary resource for the first year, In which the interest will become payable, that there may be no
possibility of disappointment to the public creditors,
ere there may be an oppoitunity of providing for
any deficiency, which the experiment may discover*
This will accordingly be attended to.
The proper appropriation of the funds provided,
and to be provided, seems next to offer itself to
consideration.
On this head, the Secretary would propose, that
the duties on distilled spirits should be applied, in
the first instance, to the payment of the interest of
the foreign debt.
That reserving out of the residue of those duties
an annual sum of six hundred thousand dollars, for

REPORT ON

the current service of the United States; the surplus,
together with the product of the other duties, be applied to the payment of the interest on the new loan,
by an appropriation, co-extensive with the duration
of the debt.
And that if any part of the debt should remain
unsubscribed, the excess of the revenue be divided
among the creditors of the unsubscribed part, by a
temporary disposition; with a limitation, however,
to four per cent.
It will hardly have been unnoticed, that the Secretary has been thus far silent on the subject of the
post-office. The reason is, that he has had in view
the application of the revenue arising from that
source, to the purposes of a sinking fund. The postmaster-general gives it as his opinion, that the immediate product of it, upon a proper arrangement,
would probably be, not less than one hundred thousand dollars: and from its nature, with good management, it must be a growing, and will be likely to
become a considerable fund- The post-master-general is now engaged in prepariug a plan, which will
be the foundation of a proposition for a new arrange*
ment of the establishment. This, and some other
points relative to the subject referred to the Secretary, he begs leave to reserve for a future report.
Persuaded as the Secretary is, that the proper funding of the present debt will render it a national
blessiiig; yet he is ao far from acceding to the position, in the latitude in which it is sometimes laid
down, that « public debts are public benefits,5* a
position inviting to prodigality, and liable to dangerous abuse, that he ardently wishes to see it incorporated, as a fundamental maxim, in the system of

PUBLIC CREDIT-

public credit of the United States, that the creation
of debt should always be accompanied with the
means of extinguishment. This he regards as the
true secret for rendering public credit immortal.
And he presumes, that it is difficult to conceive a
situation, in which there may not be an adherence
to the maxim. At least he feels*an unfeigned solicitude, that this may be attempted by the United
States, and that they may commence their measures
for the establishment of credit, with the observance
of it.
Under this impression, the Secretary proposes,
that the neat product of the post-office, to a sum not
exceeding one million of dollare, be vested in commissioners, to consist of the Vice-President of the
United States, or President of the Senate, the Speaker of the House of Representatives, the Chief Justice, Secretary of the Treasury, and Attorney-General of the United States, for the time being, in
tnist, to be applied by them, or any three of them,
to the discharge of the existing public debt, either
by purchases of stock in the market, or by payments
on account of the principal, as shall appear to them
most adviseablc, in conformity to public engagements ; to continue so vested, until the whole of the
debt shall be discharged.
As an additional expedient for effecting a reduction of the debt, and for other purposes which will
be mentioned, the Secretary would further propose,
that the same commissioners be authorized, with the
approbation of the President of the United States, to
borrow, on their credit, a sum, not exceeding twelve
millions of dollars, to be applied,

REPORT ON

First. To the payment of the interest and instalments of the foreign debt, to the end of the
present year, which will require 3,491,923 dollars
and 46 cents.
Secondly, To the payment of any deficiency
which may happen in the product of the funds provided for paying the interest of the domestic debt.
Thirdly. To the effecting a change in the form
of such part of the foreign debt, as bears an interest
of five pec cent. It is conceived that for this purpose a new loan, at a lower interest, may be combined with other expedients. The remainder of
this part of the debt, after paying the instalments,
which will accrue in the course of 1790, will be
3,888,888 dolls, and SI cents.
Fourthly. To the purchase of the public debt at
the price it shall bear in the market, while it continues below its true value. This measure, which
would be, in the opinion of the Secretary, highly
dishonourable to the government, if it were to precede a provision for funding the debt, would become altogether unexceptionable, after that had been
made. Its effect would be in favour of the public
creditors, as it would tend to raise the value of stock.
And all the difference between its true value and
the actual price, would be so much clear gain to the
public. The payment of foreign interest on the
capital to be borrowed for this purpose, should that
be a necessary consequence, would not, in the judgment of the Secretary, be a good objection to the
measure. The saving by the operation would be itself a
sufficient indemnity; and the employment of that
capital, in a country situated like this, would much
more than compensate for it. Besides, if the government does not undertake this operation, the same

PUBLIC CREDIT.

inconvenience which the objection in question supposes, would happen in another way, with a circumstance of aggravation. As long, at least, as the debt
shall continue below its proper value, it will be an
object of speculation to foreigners, who will not only
reoeive the interest upon what they purchase, and
remit it abroad, as in the case of the loan, but will reap
the additional profit of the difference in value. By
the government's entering into competition with
them, it will not only reap a part of the profit itself,
but will contract the extent, and lessen the extra
profit of foreign purchases. That competition will
accelerate the rise of stock; and whatever greater
rate this obliges foreigners to pay for what they purchase, is so much clear saving to the nation. In the
opinion of the Secretary, and contrary to an idea
which is not without patrons, it ought to be the policy of the government, to raise the value of stock
to its true standard as fast, as possible- When it arrives to that point, foreign speculations, (which, till
then, must be deemed pernicious, further than as
they serve to bring it to that point,) will become
beneficial* Their money laid out in this country,
upon our agriculture, commerce, and manufactures,
will produce much more to us, than the income they
will receive from it.
The Secretary contemplates the application of
this money, through the medium of a national bank,
for which, with the permission of the House, he will
submit a plan in the course of the session.
The Secretary now proceeds, in the last place,
to oiler to the consideration of the House, his ideas
of the steps which ought, at the present session, to
be taken towards the assumption of the state debts-

REPORT ON

These are, briefly; that concurrent resolutions of
the two Houses, with the approbation of the President, be entered into, declaring in substance,
That the United States do assume, and will at the
fiist session in the year 1791, provide, on the same
terms with the present debt of the United States,
for all such part of the debts of the respective states,
or any of them, as shall, prior to the first day of January in the said year 1791, be subscribed towards a
loan to the United States, upon the principles of
either of the plans which shall have been adopted
by them, for obtaining a re-loan of their present
debt.
Provided, that the provision to be made as aforesaid, shall be suspended, with respect to the debt of
any state, which may have exchanged the securities
of the United States for others issued by itself; until
the whole of the said securities shall either be reexchanged, or surrendered to the United States.
And provided, also, that the interest upon the
debt assumed, be computed to the end of the year
1791; and that the interest to be paid by the United States, commence on the first day of January,
1792.
That the amount of the debt of each state so assumed and provided for, be charged to such state in
account with the United States, upon the same principles upon which it shall be lent to the United
States,
That subscriptions be opened for receiving loans
of the said debts at the same times and places, and
under the like regulations, as shall have been prescribed in relation to the debt of the United States.
The Secretary has now completed the objects
which he proposed to himself to comprise in the

PUBLIC CREDIT.

present report. He has, for the most part, omitted
details, as well to avoid fatiguing the attention of
the House, as because more lime would have been
desirable even to digest the general principles of the
plan. If these should be found right, the particular
modifications will readily suggest themselves in the
progress of the work.
The Secretary, in the views which have directed
his pursuit of the subject, * has been influenced, in
the first place, by the consideration, that his duty,
from the very terms of the resolution of the House,
obliged him to propose what appeared to him an
adequate provision for the support of the public credit, adapted at the same time to the real circumstances of the United States; and in the next, by the
reflection, that measures which will not bear the test
of future unbiassed examination, can neither be productive of individual reputation, nor, (which is of
much greater consequence,) public honour or advantage.
Deeply impressed, as the Secretary is, with a full
and deliberate conviction, that the establishment of
public credit, upon the basis of a satisfactory provision for the public debt, is, under the present circumstances of this country, the true desideratum to*
wards relief from individual and national embarrassments; that without it, these embarrassments will
be likely to press still more severely upou the community—He cannot but indulge an anxious wish,
that an effectual plan for that purpose may, during
the present session, be the result of the united wisdom of the legislature.
He is fully convisced, that it is of the greatest
importance, that no further delay should attend the
making of the requisite provision ; not only because
vor..

REPORT, &c.

it will give a better impression of the good faith of
the country, and will bring earlier relief to the creditors ; both which circumstances are of great moment to public credit; but, because the advantages
to the community from raising stock, as speedily as
possible, to its natural value, will be incomparably
greater than any that can result from its continuance
below that standard.
No profit, which could be
derived from purchases in the market, on account of
the government, to any practicable extent, would be
an equivalent for the loss which would be sustained
by the purchases of foreigners at a low value* Not
to repeat, that governmental purchases, to be honourable, ought to be preceded by a provision. Delay, by
disseminating doubt, would sink the price of stock;
and as the temptation to foreign speculations, from
the lowness of the price, would be too great to be
neglected, millions would probably be lost to the
United States,
All which is humbly submitted.

ALEXANDER HAMILTON,
Secretary of the Treasury.

REPORT
ON A

NATIONAL BANK.
Treasury Department, Dec. 13,1790.
W

obedience to the order of the HOUSE of REPRESEN-

TATIVES, of the ninth day of August fast, requiring
the SECRETARY of the TREASURY to prepare and re-

port, on this day, such further provision as may, in
his opinion, be neccssan/ for establishing the PUBLIC CREDIT—t/tc said Secretary further
RESPECTFULLY

REPORTS,

X HAT from a conviction that a National Bank
is an institution of primary importance to the prosperous administration of the finances, and would be
of the greatest utility in the operations connected
with the support of the Public Credit, his attention
has been drawn to devising the plan of such an institution, upon a scale which will entitle it to the
confidence, and be likely to render it equal to the
exigencies, of the public.
Previously to entering upon the detail of this plan,
he entreats the indulgence of the House, towards
some preliminary reflections naturally arising out of
the subject, which he hopes will be deemed neither

REPORT ON

useless nor out of place. Public opinion being the
ultimate arbiter of every measure of government, it
can scarcely appear improper, in deference to that,
to accompany the origination of any new proposition with explanations, which the superior information, of those to whom it is immediately addressed,
would render superfluous.
It is a fact well understood, that public banks have
found admission and patronage among the principal
and most enlightened commercial nations. They
have successively obtained in Italy, Germany, Holland, England, and France, as well as in the United
States. And it is a circumstance which cannot but
have considerable weight, in a candid estimate of
their tendency, that after an experience of centuries,
there exists not a question about their utility in the
countries in which they have been so long established. Theorists and men of business unite in the acknowledgment of it.
Trade and industry, wherever they have been tried, have been indebted to them for important aid.
And government has been repeatedly under the
greatest obligations to them, in dangerous and distressing emergencies. That of the United States, as
well in some of the most critical conjunctures of the
late war, as since the peace, lias received assistance
from those established among us, with which it could
not have dispensed.
With this two-fold evidence before us, it might
be expected, that there would be a perfect union of
opinions in their favour. Yet doubts have been entertained ; jealousies and prejudices have circulated;
and though the experiment is every day dissipating
them, within the spheres in which effects are best
known; yet there are still persons by whom they

A NATIONAL BANK.

have not been entirely renounced. To give a full
and accurate view of the subject, would be to make
a treatise of a report; but there are certain aspects
in which it may be cursorily exhibited, which may
perhaps conduce to a just impression of its merits.
These will involve a comparison of the advantages
with the disadvantages, real or supposed, of such in*
stitutions.
The following are among the principal advantages
ofa Bank:—
First. The augmentation of the active or productive capital of a country. Gold and silver, where
they are employed merely as the instruments of exchange and alienation, have been not improperly
denominated dead stock; but when deposited in
banks, to become the basis of a paper circulation,
which takes their character and place, as the signs
or representatives of value, they then acquire life,
or, in other words, an active and productive quality.
This idea, which appears rather subtil and abstract,
in a general form, may be made obvious and palpable, by entering into a few particulars. It is evident, for instance, that the money which a merchant
keeps in his chest, waiting for a favourable opportunity to employ it, produces nothing till that opportunity arrives. But if, instead of locking it up in
this manner, he either deposits it in a bank, or invests it in the stock of a bauk, it yields a profit during the interval, in which lie partakes, or not, according to the choice lie may have made of being
a depositor or a proprietor; and when any advantageous speculation offers, in order to be able to embrace it, he has only to withdraw his money, if a depositor, or if a proprietor, to obtain a loan from the

REPORT ON

bank, or to dispose of his stock; an alternative seldom or never attended with difficulty, when the
afiairs of the institution are in a prosperous train.
His money thus deposited or invested, is a fond upon which himself and others can borrow to a much
larger amount. It is a well established fact, that
banks in good credit can circulate a far greater sum
than the actual quantum of their capital in gold and
silver. The extent of the possible excess seems indeterminate ; though it has been conjecturally stated at the proportions of two and three to one. This
faculty is produced in various ways. First—A great
proportion of the notes which are issued and pass
eurrent as cash, are indefinitely suspended in circulation, from the confidence which each holder has,
that he can at any moment turn them into gold and
silver. Secondly—Every loan which a bank makes,
is, in its first shape, a credit given to the borrower on
its books, the amount of which it stands ready to
pay, either in its own notes, or in gold or silver, at
his option. But, in a great number of cases, no actual payment is made in either. The borrower frequently, by a check or order, transfers his credit to
some other person, to whom he has a payment to
make; who, in his turn, is as often content with a
similar credit, because he is satisfied that he can,
whenever he pleases, either convert it into cash, or
pass it to some other hand, as an equivalent for it.
And in this manner the credit keeps circulating, performing, in every stage, the office of money, till it is
extinguished by a discount with some person who has
a payment to make to the bank, to an equal or greater
amount. Thus large sums are lent and paid, frequently through a variety of hands, without the intervention of a single piece of coin. Thirdly—There

A NATIONAL BANK.

is always a large quantity of gold and silver iu the
repositories of the bank, besides its own stock, which
is placed there with a view, partly to its safe keeping, and partly to the accommodation of an institution, which is itself a source of general accommodation* These deposits are of immense consequence
in the operations of a bank. Though liable to be
re drawn at any moment, experience proves, that the
money so much oftener changes proprietors than
place, and that what is drawn out is generally so
speedily replaced, as to authorize the counting upon
the sums deposited, as an effective ftuid; which, concurring with the stock of the bank, enables it to extend its loans, and to answer all the demands for coin,
whether in consequence of those loans, or arising
from the occasional return of its notes.
These different circumstances explain the manner
in which the ability of a bank to circulate a greater
sum than its actual capital in coin, is acquired. This,
however, must be gradual; and must be preceded
by a firm establishment of confidence; a confidence
which may be bestowed on the most rational grounds;
since the excess in question will always be bottomed
on good security of one kind or another. This every
well-conducted bank carefully requires, before it
will consent to advance either its money or its ere*
dit; and where there is an auxiliary capital, (as will
be the case in the plan hereafter submitted,) which,
together with the capital in coin, define the boundary that shall not be exceeded by the engagements of
the bank, the security may, consistently with all the
maxims of a reasonable circumspection, be regarded
as complete.
The same circumstances illustrate the truth of the
position, that it is one of the properties of banks to

REPORT ON

increase the active capital of a country. This, in
other words, is the sum of them—The money of one
individual, while he is waiting for an opportunity to
employ it, by being either deposited in the bank for
safe-keeping, or invested in its stock, is in a condition to administer to the wants of others, without being put out of his own reach, when occasion presents,
This yields an extra profit, arising from what is
paid for the use of his money by others, when he
could not himself make use of it; and keeps the money itself in a state of incessant activity. In the almost infinite vicissitudes and competitions of mercantile enterprise, there never can be danger of an
intermission of demand, or that the money will remain for a moment idle in the vaults of the bank.
This additional employment given to money, and the
faculty of a bank to lend and circulate a greater sum
than the amount of its stock in coin, are to all the
purposes of trade and industry, an absolute increase
of capital. Purchases and undertakings, in general,
can be carried on by any given sum of bank, paper
or credit, as effectually as by an equal sum of gold
and silver. And thus by contributing to enlarge the
mass of industrious and commercial enterprise, banks
become nurseries of national wealth: a consequence,
as satisfactorily verified by experience, as it is clearly deducible in theory.
Secondly, Greater facility to the government in
obtaining pecuniary aids, especially in sudden emergencies. This is another, and an undisputed advantage of public banks: one, which, as already remarked, has been realized in signal instances among
ourselves. The reason is obvious: The capitals of a
great number of individuals are, by this operation,
collected to a point, and placed under one direction.
The mass formed by this union is, in a certain sense,

A NATIONAL BANK-

magnified by the credit attached to it. And while
this mass is always ready, and can at once be put iu
motion, in aid of the government, the interest of the
bank to afford that aid, independent of regard to the
public safety and welfare, is a sure pledge for its disposition to go as far in its compliances, as can in prudence be desired. There is, in the nature of things,
as will be more particularly noticed in another place,
an intimate connexion of interest between the government, and the bank, of a nation.
Thirdly. The facilitating of the payment of taxes.
Tiiis advantage is produced in two ways. Those
who are in a situation to have access to the bank,
can have the assistance of loans to answer witli
punctuality the public calls upon them. This accommodation has been sensibly felt iu the payment
of the duties heretofore Jaid, by those who reside
where establishments of this nature exist.
This,
however, though an extensive, is not an universal,
benefit. The other waj* in which the effect here
contemplated is produced, and in which the benefit
is general, is the increasing of the quantity of circulating medium, and the quickening of circulation.
T h e manner in which the first happens has already
been traced. The last may require some illustration. When payments are to be made between different places, having an intercourse of business with
each other, if there happen to be no private bills at
market, and there are no bank notes which have a
currency in both, the consequence is, that coin must
be remitted. This is attended with trouble, delay,
expense, and risk. If, on the contrary, there are
bank notes current in both places, the transmission of
these by the post, or any other speedy or convenient
conveyance, answers the purpose; and,these a^ain,

REPORT ON

in the alternations of demand, are frequently returned very soon after to the place from whence they
were first sent; whence the transportation and retransportation of the metals are obviated; and a more
convenient, and more expeditious medium of payment is substituted. Nor is this all—The metals,
instead of being suspended from their usual functions, during this process of vibration from place to
place, continue in activity, and administer still to the
ordinary circulation; which of course is prevented
from suffering either diminution or stagnation*
These circumstances are additional causes of what,
in a practical sense, or to the purposes of business,
may be called greater plenty of money. And it is
evident, that whatever enhances the quantity of circulating money, adds to the ease with which every industrious member of the community may acquire
that portion of it, of which he stands in need; and
enables Mm the better to pay his taxes, as well as to
supply his other wants. Even where the circulation of the bank paper is not general, it must stilL
have the same effect, though in a less degree. For
whatever furnishes additional supplies to the channels of circulation, in one quarter, naturally contributes to keep the streams fuller elsewhere. This
last view of the subject, serves both to illustrate the
position, that banks tend to facilitate the payment of
taxes; and to exemplify their utility to business of
every kind, in which money is an agent.
It would be to intrude too much on the patience of
the House, to prolong the details of the advantages
of banks; especially as all those, which might still
bd particularized, are readily to be inferred as consequences from those which have been enumerated*
Their disadvantages, real or supposed, are now to be

A NATIONAL BANK.

reviewed. The most serious of the charges which
have been brought against them, are—
That they serve to increase usury:
That they tqnd to prevent other kinds of lending:
That they furnish temptations to overtrading :
That they afford aid to ignorant adventurers, who
disturb the natural and beneficial course of trade:
That they give to bankrupt and fraudulent traders a fictitious credit, which enables them to maintain false appearances, and to extend their impositions: And lastly,
That they have a tendency to banish gold and silver from the country.
There is great reason to believe, that on a close
and candid survey, it will be discovered, that these
charges are either without foundation, or that as far
as the evils they suggest have been found to exist,
they have proceeded from other, or partial, or temporary causes; are not inherent in the nature, and
permanent tendency, of such institutions; or are
more than counterbalanced by opposite advantages.
This survey shall be had, in the order in which the
charges have been stated. The first of them is—
That banks serve to increase usury.
It is a truth, which ought not to be denied, that
the method of conducting business, which is essential to bank operations, has, among us, in particular
instances, given occasion to usurious transactions.
The punctuality in payments, which they necessarily
exact, has sometimes obliged those who have adventured beyond both their capital and credit, to procure money, at any price, and consequently to resort
to usurers for aid.
But experience and practice gradually bring a cure
to this evil. A general habit of punctuality among

REPORT ON

traders, i& the natural consequence of the necessity
of observing it with the bank; a circumstance which
itself more than compensates for any occasional ill
which may have sprung from that necessity, in the
particular under consideration. As far, therefore, as
traders depend on each other for pecuniary supplies,
they can calculate their expectations with greater
certainty; and are in proportionably less danger of
disappointments, which might compel them to have
recourse to so pernicious an expedient as that of borrowing at usury ; the mischiefs of which, after a few
examples, naturally inspire great care in all but men
of desperate circumstances, to avoid the possibility
of being subjected to them. One, and not the least
of the evils incident to the use of that expedient, if
the fact be known, or even strongly suspected, is loss
of credit with the bank itself.
The directors of a bank too, though in order to extend its business and its popularity, in the infancy of
an institution, they may be tempted to go further in
accommodation, than the strict rules of prudence will
warrant, grow more circumspect of course, as its affairs become better established, and as the evils of
too great facility are experimentally demonstrated: They become more attentive to the situation
and conduct of those with whom they deal; they observe more narrowly their operations and pursuits;
they economize the credit they give to those of suspicious solidity; they refuse it to those whose career
is more manifestly hazardous: In a word, in the
course of practice, from the very nature of things,
the interest^ will make it the policy, of a bank, to succour the wary and industrious; to discredit the rash
and unthrifty; to discountenance both usurious lenders and usurious borrowers.

A NATIONAL BANK.

There is a leading view, in vrhich the tendency of
banks will be seen to be, to abridge rather than to
promote, usury. This relates to their properly of increasing the quantity and quickening the circulation, of money* If it be evident, that usury will prevail or diminish, according to the proportion which
the demand for borrowing, bears to the quantity of
money at market to be lent; whatever has the property just mentioned, whether it be in the shape of
paper or coin, by contributing to render the supply
more equal to the demand, must tend to counteract
the progress of usury*
But bank lending, it is pretended, is an impediment to other kinds of lending; which, by confining
the resource of borrowing to a particular class, leaves
the rest of the community more destitute, and there*
fore more exposed to the extortions of usurers. As
the profits of bank stock exceed the legal rate of interest, the possessors of money, it is argued, prefer
investing it in that article, to lending it at this rate;
to which there are the additional motives of a more
prompt command of the capital, and of more frequent
and exact returns, without trouble or perplexity in
the collection. This constitutes the second charge
which has been enumerated.
The fact on which this charge rests, is not to be
admitted without several qualifications; particularly
in reference to the state of things in this country*
First—The great bulk of the stock of a bank will consist of the funds of men in trade, among ourselves,
and monied foreigners; the former of whom could
not spare their capitals out of their reach, to be invested in loans for long periods, on mortgages, or personal security; and the latter of whom would not
ke willing to be subjected to the casualties, delays

REPORT ON

and embarrassments of such a disposition of their money in a distant country. Secondly—There will always
be a considerable proportion of those who are properly
the money lenders of a country, who, from that spirit
of caution which usually characterizes this description of men, will incline rather to vest their funds
in mortgages on real estate, than in the stock of a
bank, which they are apt to consider as a more precarious security*
These considerations serve in a material degree to
narrow the foundation of the objection, as to the
point of fact. But there is a more satisfactory answer to it. The effect supposed, as far as it has
existence, is temporary. The reverse of it takes
place in the general, and permanent operation of the
thing.
The capital of every public bank will of course be
restricted within a certain defined limit. It is the
province of legislative prudence so to adjust this
limit, that while it will not be too contracted for
the demand, which the course of business may create,
and for the security which the public ought to frave
for the solidity of the paper which may be issued by
the bank, it will still be within the compass of the
pecuniary resources of the community; so that there
may be aa easy practicability of completing the subscriptions to it. When this is once done, the supposed effect of necessity ceases. There is then no
longer room for the investment of any additional
capital. Stock may indeed change hands by one person selling and another buying; but the money
which the buyer takes out of the common mass to
purchase the stock,the seller receivesandrestorestoit
Hence the future surplusses which may accumulate,

A NATIONAL BANK.

must take their natural course, and lending at interest
must go on as if there were no such institution.
It must indeed flow in a more copious stream.
The bank furnishes an extraordinary supply for borrowers, within its immediate sphere. A larger supply consequently remains for borrowers elsewhere*
In proportion as the cuculation of the bank is extended, there is an augmentation of the aggregate
mass of money for answering the aggregate mass of demand. Hence greater facility in obtaining it for every
purpose.
It ought not to escape without a remark, that as
far as the citizens of other countries become adventurers in the bank, there is a positive increase of the
gold and silver of the country. It is true, that from
this a half yearly rent is drawn back, accruing from
the dividends upon the stock. But as this rent arises
from the employment of the capital, by our own citizens, it is probable, that it is more than replaced by
the profits of that employment. It is also likely,
that a part of it is, in the course of trade, converted
into the products of our country: and it may even
prove an incentive, in some cases, to emigration to
a country in which the character of citizen is as
easy to be acquired, as it is estimable and important This view of the subject furnishes an answer to an objection which has been deduced from
the circumstance here taken notice of; namely,
the iocome resulting to foreigners from the part of
the stock owned by them, which has been represented as tending to drain the country of its specie.
In this objection, the original investment of the
capital, and the constant use of it afterwards, seem
both to have been overlooked.
That banks furnish temptations to over-trading,
is the third of the enumerated objections. This

KEPORT ON

must mean, that by affording additional aid to mercantile enterprise, they induce the merchant sometimes to adventure beyond the prudent or salutary
point. But the very statement of the thing shows,
that the subject of the charge is an occasional ill,
incident to a general good. Credit of every kind,
(as a species of which only can bank lending have
the eifect supposed,) must be, in different degrees,
chargeable with the same inconvenience.
It is
even applicable to gold and silver, when they
abound in circulation. But would it be wise on
this account to decry the precious metals, to root
out credit; or to prescribe the means of that enterprise, which is the main spring of trade, and a
principal source of national wealth, because it now
and then runs into excesses, of which over-trading
is one?
If the abuses of a beneficial thing are to determine its condemnation, there is scarcely a source
of public prosperity which will not speedily be
closed. In every case, the evil is to be compared with
the good; and in the present case, such a comparison
will issue in this, that the new and increased energies derived to commercial enterprise, from the aid
of banks, are a source of general profit and advantage ; which greatly outweigh the partial ills of the
over-trading of a few individuals, at particular times,
or of numbers in particular conjunctures.
The fourth and fifth charges may be considered together. These relate to the aid which is sometimes
afforded by banks to unskilful adventurers and fraudulent traders. These charges also have some degree of foundation; though far less than has been
pretended, and they add to the instances of partial
ills, connected with more extensive and overbalancing
benefits.

A NATIONAL BANK.

The practice of giving fictitious credit to improper
persons, is one of those evils which experience, guided
by interest, speedily corrects. The bank itself is
in so much jeopardy of being a sufferer by it, lliat
it has the strongest of all inducements to be on its
guard. It may not only be injured immediately by
the delinquencies of the persons, to whom such credit is given; but eventually, by the incapacities of
others, whom their impositions or failures may have
ruined.
Nor is there much danger of a bank's being betrayed into this error from want of information:
The directors themselves being for the most part
selected from the class of traders, are to be expect*
ed to possess individually, an accurate knowledge of
the characters and situations of those who come
within that description. And they have, in addition
to this, the course of dealing of the persons themselves with the bank, to assist their judgment, which is
in most cases a good index of the state in which those
persons are. The artifices and shifts, which those in
desperate ordecliningcircumstanccs, arc obliged to employ to keep up the countenance which the rules of
the bank require, and the train of their connexions,
are so many prognostics, not difficult to be interpreted, of the fate which awaits them. Hence it not
unfrequently happens, that banks are the first to discover the unsoundness of such characters, and by
withholding credit, to announce to the public that
they are not entitled to i t
If banks, in spite of every precaution, are sometimes betrayed into giving a false credit to the persons described; they more frequently enable honest
and industrious men, of small, or perhaps of no capital,

rot.

KEPOKT ON

to undertake and prosecute business, with advantage
to themselves and to the community; and assist
merchants of both capital and credit, who meet with
fortuitous and unforeseen shocks, which might, without such helps, prove fatal to them and to others, to
make head against their misfortunes, and finally to
retrieve their affairs; circumstances which form no
inconsiderable encomium on the utility of banks.
But the last, and heaviest charge, is still to be examined : This is, that banks tend to banish the gold
and silver out of the country.
The force of this objection rests upon their being
an engine of paper credit, which by furnishing a
substitute for the metals, is supposed to promote
their exportation. It is an objection, which, if it
has any foundation, lies not against banks peculiarly,
but against every species of paper credit.
The most common answer given to it is, that the
thing supposed is of little or no consequence; that
it is immaterial what serves the purpose of money;
whether paper, or gold and silver; that the effect of
both upon industry is the same; and that the intrinsic wealth of a nation is to be measured, not by
the abundance of the precious metals contained in
it, but by the quantity of the productions of its labour and industry.
This answer is not destitute of solidity, though not
entirely satisfactory. It is certain, that the vivificationof industry, by a full circulation, with the aid of
a proper and well regulated paper credit, may more
than compensate for the loss of apart of the gold and
uilver of a nation; if the consequence of avoiding
that loss, should be a scanty or defective circulation.
But the positive and permanent increase or decrease of the precious metals in a country, can hardly

A NATIONAL BANK.

ever be a matter of indifference. As the commodity
taken in lieu of every other, it is a species of the
most effective wealth, and as the money of the
world, it is of great concern to the slate, that it
possess a sufficiency of it to face any demands which
the protection of its external interests may create.
The objection seems to admit of another and a
more conclusive answer, which controverts the fact
itself. A nation, that has no mines of its own, must
derive the precious metals from others; generally
speaking, in exchange for the products of its labour
and industry. The quantity it will possess, will
therefore, in the ordinary course of things, be regulated by the favourable or unfavourable balance of its
trade; that is, by the proportion between its abilities to supply foreigners, and its wants of them; between the amount of its exportalions and that of its
importations. Hence the state of its agriculture and
manufactures, the quantity and quality of its labour
and industry, must, in the main, influence and determine the increase or decrease of its gold and silver.
If this be true, the inference seems to be, that well
constituted banks favour the increase of the precious metals. It has been shown, that they augment
in different ways, the active capital of a country. This
it is which generates employment; which animates
and expands labour and industry. Every addition
which is made to it, by contributing to put in motion
a greater quantity of both, tends to create a greater
quantity of the products of both. And by furnishing
more materials for exportation, conduces to a favourable balance of trade, and consequently to the introduction and increase of gold and silver.

REPORT ON

This conclusion appears to be drawn from solid
premises. There are, however, objections to be
made to it.
It may be said, that as bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals as a medium of circulation, which, in the case of a wrong balance, might
restrain, in some degree, their exportation; and it
may be added, that from the same cause, in the same
case, it would retard those economical and parsimonious reforms in the manner of living, which the
scarcity of money is calculated to produce, and
which might be necessary to rectify such wrong balance.
There is, perhaps, some truth in both these observations ; but they appear to be uf a nature rather
to form exceptions to the generality of the conclusion, than to overthrow it. The state of things, in
which the absolute exigencies of circulation can be
supposed to resist with any effect the urgent demands for specie which a wrong balance of trade
may occasion, presents an extreme case. And a situation in which a too expensive manner of living of a
community, compared with its means, can stand in
need of a corrective, from distress or necessity, is one
which perhaps rarely results, but from extraordinary
and adventitious causes: such, for example, as a national revolution, which unsettles all the established habits of a people, and inflames the appetite for
extravagance, by the illusions of an ideal wealth, engendered by the continual multiplication of a depreciating currency, or some similar cause. There is
good reason to believe, that where the laws are wise
and well executed, and the inviolability of property and contracts maintained, the economy of a peo-

A NATIONAL BANK.

pie will, in the general course of things* correspond
with its means.
The support of industry, is probably in every case*
of more consequence towards correcting a wrong balance of trade, than any practicable retrenchments
in the expenses of families or individuals; and the
stagnation of it, would belikely to have more effect
in prolonging, than any such savings in shortening
its continuance. That stagnation, is a natural consequence of an inadequate medium, which, without
the aid of bank circulation, would, in the cases supposed, be severely felt.
It also deserves notice, that as the circulation of
a bank is always in a compound ratio to the fund
upon which it depends, and to the demand for i t ;
and as that fund is itself affected by the exportation
of the metals, there is no danger of its being overstocked, as in the case of paper issued at the pleasure
of the government; or of its preventing the consequences of any unfavourable balance from being sufficiently felt to produce the reforms alluded to, as
far as circumstances may require and admit*
Nothing can be more fallible than the comparisons
which have been made between different countries,
to illustrate the truth of the position under consideration. The comparative quantity of gold and silver, in different countries, depends upon an infinite
variety of facts and combinations, all of which ought
to be known, in order to judge whether the existence
or non-existence of paper currencies has any share in
the relative proportions they contain. The mass and
value of the productions of the labour and industry
of each, compared with its wants; the nature of its
^stablishments abroad; the kind of wars k» which it

REPORT ON

is usually engaged; the relations it bears to the
countries which are the original possessors of those
metals; the privileges it enjoys in their trade; these,
and a number of other circumstances, are all to be
taken into the account, and render the investigation
too complex to justify any reliance on the vague and
general surmises which have been hitherto hazarded on the point.
In the foregoing discussion, the objection has been
considered as applying to the permanent expulsion
and diminution of the metals. Their temporary exportation, for particular purposes, has not been contemplated. This, it must be confessed, is facilitated
by banks, from the faculty banks possess of supplying
their place. But their utility is in nothing more
conspicuous, than in these very cases. They enable
the government to pay its foreign debts, and to answer any exigencies which the external concerns of
the community may have produced. They enable
the merchant to support his credit, (on which the
prosperity of trade depends,) when special circumstances prevent remittances in other modes. They
enable him also to prosecute enterprises, which ultimately tend to an augmentation of the species of
wealth in question. It is evident, that gold and
silver may often be employed in procuring commodities abroad ; which, in a circuitous commerce, replace the original fund, with considerable addition.
But it is not to be inferred from this facility given to
temporary exportation, that banks, which are so
friendly to trade and industry, are in their general
tendency inimical to the increase of the precious
metals.
These several views of the subject appear sufficient to impress a full conviction of the utility of

A NATIONAL BANK.

banks, and to demonstrate that they are of great importance, not only in relation to the administration
of the finances, but in the general system of the poJitical economy.
The judgment of many concerning them lias, no
doubt, l^een perplexed by the misinterpretation of
appearances, which were to be ascribed to other
causes. The general devastation of personal property, occasioned by the late war, naturally produced
on the one hand, a great demand for money; and on
the other, a great deficiency of it to answer the demand. Some injudicious laws, whicli grew out of
the public distresses, by impairing confidence and
causing a part of the inadequate sum in the country
to be locked up, aggravated the evil: The dissipated
habits, contracted by many individuals during the
war, which after the peace plunged them into expences beyond their incomes; the number of adventurers without capital, and in many instances
without information, who at that epoch rushed into
trade, and were obliged to make any sacrifices to
support a transient credit; the employment of considerable sums in speculations upon the public debt,
which from its unsettled state was incapable of becoming itself a substitute: all these circumstances
concurring, necessarily led to usurious borrowing,
produced most of the inconveniences, and were the
true cause of most of the appearances, which, where
banks were established, have been by some erroneously placed to their account: a mistake which they
might easily have avoided, by turning their eyes
towards places where there were none, and where,
nevertheless, the same evils would have been perceived to esist, even in a greater degree than where
tiose institutions had obtained.

REPORT ON

These evils have either ceased, or been greatly
mitigated. Their more complete extinction may be
looked for from that additional security to property,
which the Constitution of the United States happily gives, (a circumstance of prodigious moment in
the scale both of public and private prosperity,) from
the attraction of foreign capital, under the auspices
of that security, to be employed upon objects, and in
enterprises, for which the state of this country opens
a wide and inviting field, from the consistency and
stability which the public debt is fast acquiring, as
well in the public opinion at home and abroad, as in
fact; from the augmentation of capital, which that
circumstance and the quarter yearly payment of interest will afford; and from the more copious circulation, which will be likely to be created by a wellconstituted national bank.
T h e establishment of banks in this country seems
to be recommended by reasons of a peculiar nature.
Previously to the revolution, circulation was in a
great measure carried on by paper emitted,by the
several local governments. In Pennsylvania alone,
the quantity of it was near a million and a half of
dollars. This auxiliary may be said to be now*at an
end. And it is generally supposed, that there has
been for some time past, a deficiency of circulating
medium. How far that deficiency is to be considered as real or imaginary, is not susceptible of demonstration ; but there are circumstances and appearances, which, in relation to the country at large, countenance the supposition of its reality*
T h e circumstances are, besides the fact just mentioned respecting paper emissions, the vast tracts of
waste land, and the little advanced state of manufactures. The progressive settlement of the former,

A NATIONAL BANK.

while it promises ample retribution, in the generation of future resources, diminishes or obstructs, in
the mean time, the active wealth of the country. It
not only draws off a part of the circulating money,
and places it in a more passive state, but it diverts
into its own channels a portion of that species of labour and industry* which would otherwise be employed in furnishing materials for foreign trade, and
which, by contributing to a favourable balance, would
assist the introduction of specie. In the early periods of new settlements, the settlers not only
furnish no surplus for exportation, but they consume
a part of that which is produced by the labour of
others. The same thing is a cause, that manufactures do not advance, or advance slowly. And notwithstanding some hypotheses to the contrary, there
are many things to induce a suspicion, that the precious metals will not abound in any country winch has
not mines, or variety of manufactures. They have
been sometimes acquired by the sword; but the
modern system of war has expelled this resource 5
and it is one upon which it is to be hoped the United States will never be inclined to rely.
The appearances alluded to, are, greater prevalency of direct barter, in the more interior districts
of the country, which, however, has been for some
time past gradually lessening; and greater difficulty generally in the advantageous alienation of improved real estate, which also has of late diminished,
but is still seriously felt in different parts of the
Union. The difficulty of getting money, which has
been a general complaint, is not added to the number ; because it is the complaint of all times, and
one in which imagination must ever have too great
scope to permit an appeal to it.
TOL, i.
M

REPORT ON

If the supposition of such a deficiency be in any
degree founded, and some aid to circulation be desirable, it remains to inquire what ought to be the
nature of that aid.
The emitting of paper money by the authority of
government, is wisely prohibited to the individual
states, by the national constitution; and the spirit
of that prohibition ought not be disregarded by the
government of the United States. Though paper
emissions, under a general authority, might have
some advantages not applicable, and be free from
some disadvantages which are applicable, to the like
emissions by the states separately; yet they are of a
nature so liable to abuse, and it may even be affirmed, so certain of being abused, that the wisdom of
the government will be shown in never trusting itself with the use of so seducing and dangerous an
expedient. In times of tranquillity, it might have
no ill consequence, it inight even perhaps be managed in a way to be productive of good; but in great
and trying emergencies, there is almost a moral certainty of its becoming- mischievous. The stamping
of paper is an operation so much easier than the laying of taxes, that a government, in the practice of
paper emissions, would rarely fail in any such emergency, to indulge itself too far in the employment
of that resource, to avoid, as much as possible, one
less auspicious to present popularity. If it should
not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree which would occasion an inflated and
artificial state of things, incompatible with the regular and prosperous course of the political economy.
Among other material differences between a paper currency, issued by the mere authority of go-

A NATIONAL BANK.

vernment, and one issued by a bank, payable in coin,
is this: that iu the first case, there is no standard
to which an appeal can he made, as to the quantity which will only satisfy, or which will surcharge
the circulation; in the last, that standard results
from the demand* If more should be issued than is
necessary, it will return upon the bank. Its emissions, as elsewhere intimated, must always be in a
compound ratio to the fund and the demand:—
Whence it is evident, that there is a limitation in
the nature of the thing; while the discretion of the
government is the only measure of the extent of the
emissions, by its own authority.
This consideration further illustrates the danger
of emissions of that sort, and the preference which
is due to bank paper.
The payment of the interest of the public debt, at
thirteen different places, is a weighty reason, peculiar to our immediate situation, for desiring a bank
circulation. Without a paper, in general currency,
equivalent to gold and silver, a considerable proportion of the specie of the country must always be
suspended from circulation, and left to accumulate, preparatorily to each day of payment; and as
often as one approaches, there must in several cases
be an actual transportation of the metals at both expense and risk, from their natural and proper reservoirs, to distant places. This necessity will be felt
very injuriously to the trade of some of the states;
and will embarrass not a little the operations of the
treasury in those states. It will also obstruct those
negotiations, between different parts of the Union, by
the instrumentality of treasury bills, which have
already afforded valuable accommodations to trade
in general.

S4i

KEPORT ON

Assuming it then as a consequence, from what has
been said, that a national bank is a desirable "institution, two inquiries emerge—Is there no such institution, already in being, which has a claim to that
character, and which supersedes the propriety or necessity of another? If there be none, what are the
principles upon which one ought to be established?
There are at present three banks in the United
States: that of North-America, established in the
city of Philadelphia; that of New-York, established
in the city of New-York; that of Massachusetts, established in the town of Boston. Of these three, the
first is the only one which has at any time had a direct
relation to the government of the United States.
T h e bank of North-America originated in a resolution of Congress of the 26th of May, 1781,
founded upon a proposition of the superintendant of
finance, which was afterwards carried into execution
by an ordinance of the 3lst of December following,
entitled, " An ordinance to incorporate the Subscribers to the Bank of North-America*"
T h e aid afforded to the United States by this institution, during the remaining period of the war,
was of essential consequence; and its conduct towards them since the peace, has not weakened its
title to their patronage and favour. So far its pretensions to the character in question are respectable;
but there are circumstances which militate against
t h e m ; and considerations which indicate the propriety of an establishment on different principles.
T h e directors of this bank, on behalf of their constituents, have since accepted and acted under a new
charter from the state of Pennsylvania, materially
variant from their original o n e ; and which so narrows the foundation of the institution, as to render

A NATIONAL BANK.

it an incompetent basis for the extensive purposes of
a national bank.
The limit assigned by the ordinance of Congress
to the stock of the bank, is ten millions of dollars.
The last charter of Pennsylvania confines it to two
millions. Questions naturally arise, whether there
be not a direct repugnancy between two charters so
differently circumstanced; and whether the acceptance of the one, is not to be deemed a virtual surrender of the other. But perhaps it is neither adviseable nor necessary to attempt a solution of them*
There is nothing in the acts of Congress, which imply an exclusive right in the institution to which
they relate, except during the term of the war. There
is therefore nothingj if the public good require it,
which prevents the establishment of another. It
may however be incidentally remarked, that in the
general opinion of the citizens of the United States,
the bank of North-America has taken the station of
a bank of Pennsylvania only. This is a strong argument for a new institution, or for a renovation of
the old, to restore it to the situation in which it originally stood, in the view of the United States.
But though the ordinance of Congress contains no
grant of exclusive privileges, there may be room to
allege, that the government of the United States
ought not, in point of candour and equity, to establish any rival or interfering institution, in prejudice of
the one already established; especially as this has,
from services rendered, well-founded claims to protection and regard.
The justice of such an observation ought, within
proper bounds, to be admitted. A new establishment
of the sort ought not to be made, without cogent
and sincere reasons of public good. And in the

REPORT ON

manner of doing it, every facility should be given
to a consolidation of the old with the new, upon
terms not injurious to the parties concerned. But
there is no ground to maintain, that in a case in
which the government has made no condition restricting its authority, it ought voluntarily to restrict
it, through regard to the interests of a particular institution, when those of the state dictate a different
course; especially too after such circumstances have
intervened, as characterize the actual situation of the
bank _of North-America.
The inducements to a new disposition of the thing
are now to be considered. The first of them which
occurs is, the at least ambiguous situation in which
the bank of North-America has placed itself, by the
acceptance of its last charter. If this has rendered
it the mere bank of a particular state, liable to dissolution at the expiration of fourteen years, to which
term the act of that state has restricted its duration,
it would be neither fit, nor expedient, to accept it as
an equivalent for a bank of the United States.
The restriction of its capital, also, which, according
to the same supposition, cannot be extended beyond
two millions of dollars, is a conclusive reason for a
different establishment. So small a capital promises
neither the requisite aid to government, nor the
requisite security to the community. It may answer
very well the purposes of local accommodation, but
is an inadequate foundation for a circulation co-extensive with the United States; embracing the whole
of their revenues, and affecting every individual
into whose hands the paper may come.
And inadequate as such a capital would be to the
essential ends of a national bank, it is liable to be
rendered still more so, by that principle of the COD-

A NATIONAL BANK.

stitution of the bank of North* America, contained
equally in its old and in its new charter, which lea^, es
the increase of the actual capital at any time, (now
iar short of the allowed extent,) to the dfcscretion of
the directors or stockholders. It is naturally to be
expected, that the allurements of an advanced price
of stock, and of large dividends, may disincline
those who are interested, to an extension of capital;
from which they will be apt to fear a diminution
of profits. And from this circumstance, the interest
and accommodation of the public, (as well individually as collectively,) are made more subordinate
to the interest, real or imagined, of the stockholders,
than they ought to be. It is true, that unless the
latter be consulted, there can be no bank, (in the
sense at least in which institutions of this kind,
worthy of confidence, can be established in this
country.) But it does not follow, that this is alone
to be consulted, or that it even ought to be paramount. Public utility is more truly the object of
public banks, than private profit. And it is the business of government, to constitute them on such
principles, that while the latter will result, in a sufficient degree, to afford competent motives to engage
in them, the former be not made subservient to it.
To effect this, a principal object of attention ought
to be to give free scope to the creation of an ample
capital; and with this view, fixing the bounds,
which are deemed safe and convenient, to leave no
discretion either to stop short of them or to overpass them* The want of this precaution, in the establishment of the bank of North-America, is a further and an important reason, for desiring one differently constituted.
There may be room at first sight, for a supposition

KEPORT ON

that as the profits of a bank will bear a proportion
to the extent of its operatious; and as, for this reason,
the interest of the stockholders will not be disadvantageously affected by any necessary augmentations of capital; there is no cause to apprehend that
they will be indisposed to such augmentations. But
most .men in matters of this nature, prefer the certainties they enjoy, to probabilities depending on
untried experiments; especially when these promise
rather, that they will not be injured, than that they
will be benefitted.
From the influence of this principle, and a desire of enhancing its profits, the directors of a bank
will be more apt to overstrain its faculties, in an attempt to face the additional demands which the
course of business may create, than to set on foot
new subscriptions, which may hazard a diminution
of the profits, and even a temporary reduction of the
price of stock.
Banks are among the best expedients for lowering
the rate of interest in a country; but to have this
effect, their capitals must be completely equal to all
the demands of business, and such as will tend to
remove the idea, that the accommodations they afford, are in any degree favours; an idea very apt to
accompany the parsimonious dispensation of contracted funds. In this, as in every other case, the
plenty of the commodity ought to beget a moderation of the price.
The want of a principle of rotation, in the constitution of the bank of North-America, is another argument for a variation of the establishment. Scarcely
one of the reasons which militate against this principle in the constitution of a country is applicable to
that of a bank; while there are strong reasons in favour
of it, in relation to the one, which do not apply to the

A NATIONAL HANK.

other. The knowledge to be derived from experience,
is the only circumstance common to both, which pleads
against rotation in the directing officers of a bank.
But the objects of the government of a nation, and
those of the government of a bank, are so widely
different, as greatly to weaken the force of that
consideration, in reference to the latter.
Almost
every important case of legislation requires, towards a right decision, a general and accurate acquaintance with the affairs of the state; and habits
of thinking seldom acquired but from a familiarity
with public concerns. The administration of a bank,
on the contrary, is regulated by a few simple fixed
maxims, the application of which is not difficult to
any man of judgment, especially if instructed in the
principles of trade* It is in general a constant succession of the same details.
But though this be the case, the idea of the advantages of experience is not to be slighted. Room
ought to be left for the regular transmission of official information; and for this purpose, the head of
the direction ought to be excepted from the principle of rotation. With this exception, and with
the aid of the information of the subordinate officers,
there can be no danger of any ill effects from want
of experience, or knowledge; especially as the periodical exclusion ought not to reach the whole of
the directors at one time.
The argument in favour of the principle of rotation is this, that by lessening the danger of combinations among the directors, to make the institution
subservient to party views, or to the accommodation,
preferably, of any particular set of men, it will render the public confidence more firm, stable, and unqualified*
TOR. I.

REPORT ON

When it is considered, that the directors of a bank
are not elected by the great body of the community,
in which a diversity of views will naturally prevail,
at different conjunctures, but by a small and select
class of men, among whom it is far more easy to cultivate a steady adherence to the same persons and
objects; and that those directors have it in their
power so immediately to conciliate, by obliging the
most influential of this class, it is easy to perceive,
that without the principle of rotation, changes in
that body can rarely happen, but as a concession
which they may themselves think it expedient to
make to public opinion.
The continual administration of an institution of
this kind, by the same persons, will never fail, with
or without cause, from their conduct, to excite distrust and discontent. The necessary secrecy of their
transactions, gives unlimited scope to imagination to
infer that something is, ov may be, wrong. And this
inevitable mystery is a solid reason for inserting in
the constitution of a bank the necessity of a change
of men. As neither the mass of the parties interested, nor the public in general, can be permitted to
be witnesses of the interior management of the directors, it is reasonable that both should have that
check upon their conduct, and that security against
the prevalency of a partial or pernicious system,
which will be produced by the certainty of periodical changes. Such too is the delicacy of the credit
of a bank, that every thing which can fortify confidence and repel suspicion, without injuring its operations, ought carefully to be sought after in its
formation.
A further consideration in favour of a change, is
the improper rule, by which the right of voting for

A NATIONAL BANK-

directors is regulated in the plan upon which the
bank of North-America was originally constituted;
namely, a vote for each share, and the want of a rule
in the last charter; unless the silence of it on that
point, may signify that every stockholder is to have
an equal and a single vote, which would be a rule
in a different extreme, not less erroneous. It is of
importance that a rule should be established on this
head, as it is one of those things which ought not
to be left to discretion; and it is consequently of
equal importance, that the rule should be a proper
one.
A vote for each share, renders a combination between a few principal stockholders, to monopolize
the power and benefits of the bank, too easy. An
equal vote to each stockholder, however great or
small his interest in the institution, allows not that
degree of weight to large stockholders, which it is
reasonable they should have, and which perhaps
their security, and that of the bank, require. A prudent mean is to be preferred. A conviction of this,
has produced a by-law of the corporation of the
bank of North-America, which evidently aims at
such a mean. But a reflection arises here, that a
like majority with that which enacted this law, may
at any moment repeal it.
The last inducement which shall be mentioned, is
the want of precautions to guard against a foreign
influence insinuating itself into the direction of the
bank. It seems scarcely reconcileable with a due
caution, to permit, that any but citizens should be
eligible, as directors of a national bank, or that nonresident foreigners should be able to influence the
appointment of directors, by the votes of their proxies. In the event, however, of an incorporation of

REPORT ON

the bank of North-America, in the plan, it may be
necessary to qualify this principle, so as to leave
the right of foreigners, who now hold shares of
its stock, unimpaired, but without jthe power of
transmitting the privilege in question, to foreign
alienees.
It is to be considered, that such a bank is not a
mere matter of private pmperty, but a political ma*
chine of the greatest importance to the state.
There are other variations from the constitution
of the bank of North America, not of inconsiderable moment, which appear desirable, but which are
not of magnitude enough to claim a preliminary
discussion. These will be seen in the plan which
will be submitted in the sequel.
If the objections which have been stated, to the
constitution of the bank of North-America, are ad*
mitted to be well founded, they will nevertheless
not derogate from the merit of the main design, or
of the services which that bank has rendered, or of
the benefits which it has produced. The creation
of such an institution, at the time it took place,
was a measure dictated by wisdom. Its utility has
been amply evinced by its fruits—American independence owes much to it.—And it is very conceivable, that reasons of the moment, may have rendered those features in it inexpedient, which a revision
with a permanent view, suggests as desirable.
The order of the subject, leads next to an inquiry into the principles upon which a national bank
ought to be organized.
The situation of the United States naturally inspires a wish, that the form of the institution could
admit of a plurality of branches. But various considerations discourage from pursuing this idea. The

A NATIONAL BANK

complexity of such a plan would be apt to inspire
doubts, which might deter from adventuring in it.
And the practicability of a safe and orderly administration, though not to be abandoned as desperate,
cannot be made so manifest in perspective, as to promise the removal of those doubts, or to justify the
government in adopting the idea as an original experiment. The most that would seem adviseable,
on this point, is to insert a provision, which may lead
to it hereafter; if experience shall more clearly demonstrate its utility, and satisfy those who may have
the direction, that it may be adopted with safety.
It is certain, that it would have some advantages,
both peculiar and important. Besides more general
accommodation, it would lessen the danger of a run
upon the bank*
The argument against it is, that each branch
must be under a distinct, though subordinate direction, to which a considerable latitude of discretion
must of necessity be intrusted. And as the property of the whole institution would be liable for the
engagements of each part; that, and its credit, would
be at stake upon the prudence of the directors of
every part. The mismanagement of either branch
might hazard serious disorder in the whole.
Another wish, dictated by the particular situation
of the country, is, that the bank could be so constituted as to be made an immediate instrument of
loans to the proprietors of land; but this wish also
yields to the difficulty of accomplishing i t Land
is alone an unfit fund for a bank circulation. If the
notes issued upon it were not to be payable in coin,
on demand, or at a short date, this would amount to
nothing more than a repetition of the paper emissions, which are now exploded by the general voice.

94
REPORT ON
If the notes are to be payable in coin, the land must
first be converted into it, by sale or mortgage. The
difficulty of effecting the latter, is the very thing
which begets the desire of finding another resource ;
and the former would not be practicable on a sudden
emergency, but with sacrifices which would make
the cure worse than the disease. Neither is the
idea of constituting the fund partly of coin and
partly of laud, free from impediments. These two
species of property do not, for the most part, unite
in the same hands. Will the monied man consent
to enter into a partnership with the landholder, by
which the latter will share in the profits which will
be made by the money of the former? The money,
it is evident, will be the agent or efficient cause of
the profits—the land can only be regarded as an additional security. It is not difficult to foresee, that
an union, on such terms, will not readily be formed.
If the landholders are to procure the money by sale ot
mortgage of a part of their lands, this they can as
well do, when the stock consists wholly of money,
as if it were to be compounded of money and land.
To procure for the landholders the assistance of
loans, is the great desideratum. Supposing other
difficulties surmounted, and a fund created, composed partly of coin and partly of land, yet the benefit
contemplated could only then be obtained, by the
bank's advancing them its notes for the whole, or
part of the value of the lands they had subscribed
to the stock. If this advance was small, the relief
aimed at would not be given; if it was large, the
quantity of notes issued would be a cause of distrust,
and, if received at all, they would be likely to return speedily upon the bank for payment; which,
after exhausting its coin, might be under the neces*

A NATIONAL BANK.

sity of turning its lauds into money, at any price that
could be obtained for them, to the irreparable prejudice of the proprietors.
Considerations of public advantage suggest a further wish, which is, that the bank could be established upon principles that would cause the proGts
of it to redound to the immediate benefit of the
state. This is contemplated by many who speak of
a national bank, but the idea seems liable to insuperable objections. To attach full confidence to an institution of this nature, it appears to be an essential
ingredient in its structure, that it shall be under a
private, not a public direction, under the guidance of
individual interest, not of public policy ; which would
be supposed to be, and in certain emergencies, under
a feeble or too sanguine administration, would really
be, liable to being too much influenced by public necessity* The suspicion of this would most probably
be a canker that would continually corrode the vitals of the credit of the bank, and would be most
likely to prove fatal in those situations in which the
public good would require that they should be most
sound and vigorous. It would, indeed, be little
less than a miracle, should the credit of the bank be
at the disposal of the government, if in a long series of time, there was not experienced a calamitous
abuse of it. It is true, that it would be the real interest of the government not to abuse i t ; its genuine policy to husband and cherish it with the
most guarded circumspection, as an inestimable treasure. But what government ever uniformly consulted its true interests, in opposition to the temptations of momentary exigencies ? What nation was
ever blessed with a constant succession of upright
and wise administrators ?

KEPORT ON

The keen, steady, and, as it were, magnetic sense
of their own interest as proprietors, in the directors
of a bank, pointing invariable to its true pole, the
prosperity of the institution, is the only secuiity that
can always be relied upon for a careful and prudent
administration. It is, therefore, the only basis on
which an enlightened, unqualified, and permanent
confidence can be expected to be erected and maintained.
The precedents of the banks established in several
cities of Europe; Amsterdam, Hamburgh, and others;
may seem to militate against this position. Without a precise knowledge of all the peculiarities of
their respective constitutions, it is difficult to pronounce how far this may be the case. That of Amsterdam, however, which we best know, is rather under
a municipal than a governmental direction. Particular magistrates of the city, not officers of the republic, have the management of it. It is also a bank of
deposit, not of loan, or circulation; consequently,
less liable to abuse, as well as less useful. Its general business consists in receiving money for safe
keeping, which, if not called for within a certaia
time, becomes a part of its stock, and irreclaimable:
But a credit is given for it on the books of the bank,
which being transferable, answers all the purposes
of money.
The directors being magistrates of the city, and
the stockholders, in general, its most influential citizens> it is evident, that the principle of private interest must be prevalent in the management of the
bank. And it is equally evident, that from the nature of its operations, that principle is less essential
to it, than to an institution constituted with a view

A NATIONAL BANK.

to the accommodation of the public and individuals,
by direct loans and a paper circulation.
As far as may concern the aid oX the bank, within
the proper limits, a good government has nothing
more to wish for, than it will always possess; though
the management be in the hands of private individuals. As the institution, if rightly constituted,
must depend for its renovation from time to time on
the pleasure of the government, it will not be likeJy to feel a disposition to render itself by its conduct
unworthy of public patronage* The government,
too, in the administration of its finances, has it in its
power to reciprocate benefits to the bank, of not less
importance than those which the bank affords to the
government, and which, besides, are never unattended with an immediate and adequate compensation.
Independent of these more particular considerations,
the natural weight and influence of a good government will always go far towards procuring a compliance with its desires; and as the directors will
usually be composed of some of the most discreet,
respectable, and well-informed citizens, it can hardly ever be difficult to make them sensible of the
force of the inducements which ought to stimulate
their exertions*
It will not follow, from what has been said, that
the state may not be the holder of a part of the
stock of a bank, and consequently a sharer in the
profits of it. It will only follow, that it ought not
to desire any participation in the direction of it, and
therefore, ought not to own the whole or a principal
part of the stock; for if the mass of the property
should belong to the public, and if the direction of
it should be in private hands, this would be to comrait the interests of the state to persons not interest-

KEPORT ON

ed\or not enough interested, in their proper management.
There is one thing, however, which the government owes to itself and to the community; at least
to all that part of it, who are not stockholders;
which, is to reserve to itself a right of ascertaining,
as often as may be necessary, the state of the bank,
excluding, however, all pretension to control. This
right forms an article in the primitive constitution of
the bank of North-America; and its propriety
stands upon the clearest reasons. If the paper of a
bank is to be permitted to insinuate itself into all the
revenues and receipts of a country; if it is even to
be tolerated as the substitute for gold and silver in
all the transactions of business, it becomes, in either
view, a national concern of the first magnitude. As
such, the ordinary rules of prudence require, that
the government should possess the means of ascertaining, whenever it thinks fit, that so delicate a
trust is executed with fidelity and care. A right o£
this nature is not only desirable as it respects the
government; but it ought to be equally so to all
those concerned in the institution; as an additional
title to public and private confidence; and as a
thing which can only be formidable to practices
that imply mismanagement* The presumption must
always be, that the characters who would be intrusted with the exercise of this right on behalf of the
government, will not be deficient in the discretion
which it may require; at least the admitting of
this presumption, cannot be deemed too great a return of confidence, for that very large portion of it
which the government is required to place in the
bank.

A NATIONAL BANK.

Abandoning, therefore, ideas which, however
agreeable or desirable, are neither practicable nor
safe; the following plan for the constitution of a National Bank, is respectfully submitted to the consideration of the house.
I. The capital stock of the bank shall not exceed
ten millions of dollars, divided into twenty-five thou*
sand shares, each share being four hundred dollars;
to raise which sum, subscriptions shall be opened on
the first Monday of April next, and shall continue
open until the whole shall be subscribed. Bodies
politic, as well as individuals, may subscribe.
II. The amount of each share shall be payable,
one fourth in gold and silver coin, and three fourths
in that part of the public debt, which, according to
the loan proposed by the act making provision for
the debt of the United States, shall bear an accruing
interest at the time of payment of six per centum
per annum.
III. The respective sums subscribed shall be payable in four equal parts, as well specie as debt, in
succession, and at the distance of six calendar months
from each other; thefiratpayment to be made at the
time of subscription. If there shall be a failure in
any subsequent payment, the party failing shall lose
the benefit of any dividend which may have accrued
prior to the time for making such payment, and during the delay of the same.
IV. The subscribers to the bank and their successors shall be incorporated, and shall so continue,
until the final redemption of that part of its stock
which shall consist of the public debt.
V. The capacity of the corporation to hold real
and personal estate, shall belimited to fifteen millions
of dollars, including the amount of its capital or

100

REPORT ON

original stock. The lands and tenements which it
shall be permitted to hold, shall be only such as
shall be requisite for the immediate accommodatioa
of the institution; and such as shall have been bona
fide mortgaged to it by way of security, or conveyed
to it in satisfaction of debts previously contracted, in
the usual course of its dealings, or purchased at sales
upon judgments which shall have been obtained for
such debts.
VI. The totality of the debts of the company,
whether by bond, bill, note, or other coutract, (credits for deposits excepted,) shall never exceed the
amount of its capital stock. In case of excess, the
directors, under whose administration it shall happen, shall be liable for it in their private or separate
capacities. Those who may have dissented, may excuse themselves from this responsibility, by immediately giving notice of the fact and their dissent, to the
President of the United States, and to the stockholders, at a general meeting to be called by the president of the bank, at their request.
VII. The company may sell or demise its lands and
tenements, or may sell the whole or any part of the
public debt, whereof its stock shall consist; but
shall trade in nothing, except bills of exchange, gold
and silver bullion, or in the sale of goods pledged
for money lent: nor shall take more than at the rate
of six per centum per annum, upon its loans or discounts.
VIII. No loan shall be made by the bank, for
the use or on account of the government of the
United States, or of either of them, to an amount
exceeding fifty thousand dollars, or of any foreign
prince or state; unless previously authorized by a
law of the United States.

A NATIONAL BANK.

101

IX* The stock of the bank shall be transferable
according to such rules as shall be instituted by the
company in that behalf*
X. The affairs of the bank shall be under the
management of twenty-five directors, one of whom
shall be the president. And there shall be on the
first Monday of January, in each year, a choice of
directors, by a plurality of suffrages of the stockholders, to serve for a year. The directors, at their
first meeting after each election, shall choose one
of their number as president.
XI. The number of votes to which each stockholder shall be entitled, shall be according to the
number of shares he shall hold, in the proportions
following:—that is to say, For one share, and not
more than two shares, one vote: For every two
shares, above two, and not exceeding ten, one vote:
For every four shares, above ten, and not exceeding
thirty, one vote: For every six shares, above thirty,
and not exceeding sixty, one vote: For every eight
shares, above sixty, and not exceeding one hundred,
one vote ; and for every ten shares, above one hundred, one vote: But no person, co-partnership, or body politic, shall be entitled to a greater number than
thirty votes. And after the first election, no share
or shares shall confer a right of suffrage, which shall
not have been holden three calendar months previous to the day of election. Stockholders, actually
resident within the United States, and none other,
may vote in elections by proxy.
XII. Not more than three fourths of the directors in office, exclusive of the president, shall be
eligible for the next succeeding year. But the director who shall be president at the time of an election, may always be re-elected.

102

REPORT ON

XIII. None but a stockholder, being a citizen of
the United States, shall be eligible as a director.
XIV. Any number of stockholders not less than
sixty, who together shall be proprietors of two hundred shares, or upwards, shall have power at any
time to call a general meeting of the stockholders,
for purposes relative to the institution; giving at
least six weeks notice in two public gazettes of the
place where the bank is kept, and specifying, in such
notice, the object of the meeting.
XV- In case of the death, resignation, absence
from the United States, or removal of a director by
the stockholders, his place may be filled by a new
choice for the remainder of the year.
XVI. No director shall be entitled to auy emolument, unless the same shall have been allowed by
the stockholders at a general meeting. The stockholders shall make such compensation to the president, for his extraordinary attendance at the bank,
as shall appear to them reasonable.
XVII. Not less than seven directors shall constitute a board for the transaction of business.
XVIII. Every cashier, or treasurer, before he enters
on the duties of his office, shall be required to give
bond, with two or more sureties, to the satisfaction
of the directors, in a sum not less than twenty
thousand dollars, with condition for his good behaviour.
XIX. Half yearly dividends shall be made of so
much of the profits of the bank, as shall appear to
the directors adviseablc. And once in every three
years the directors shall lay before the stockholders,
at a general meeting, for their information, an exact
and particular statement of the debts, which shall
have remained unpaid, after the expiration of the

A NATIONAL BANK.

103

original credit, for a period of treble the term of that
credit, aud of the surplus of profit, if anj*, after deducting losses and dividends.
XX- The bills and notes of the bank original]/
made payable, or which shall have become payable
on demand, in gold and silver coin, shall be receivable in all payments to the United States.
XXL The officer at the head of the treasury department of the United Slates, shall be furnished
from time to time, as often as he may require, not exceeding once a week, with statements of the amount
of the capital stock of the bank, and of the debts
due to the same, of the monies deposited therein, of
the notes in circulation, aud of the cash in hand;
and shall have a right to inspect such general accounts in the books of the bank, as shall relate to
the said statements; provided that this shall not be
construed to imply a right of inspecting the account
of any private individual or individuals, with the
bank.
XXII. No similar institution shall be established
by any future act of the United States, during the
continuance of the one hereby proposed to be established.
XXIII. It shall be lawful for the directors of the
bank to establish offices, wheresoever they shall
think fit, within the United States, for the purposes of
discount and deposit only, and upon the same terms,
and in the same manner, as shall be practised at the
bank, and to commit the management of the said offices, and the making of the said discounts, either to
agents specially appointed by them, or to such persons as may be chosen by the stockholders residing
at the place where any such office shall be, under such
agreements, and subject to such regulations as they

104:

KEPOKT ON

shall deem proper; not being contrary to law, or to
the constitution of the bank,
XXIV. And lastly. The President of the United
States shall be authorized to cause a subscription
to be made to the stock of the said company, on
behalf of the United States, to an amount not exceeding two millions of dollars, to be paid out of
the monies which shall be borrowed by virtue of
either of the acts, the one entitled, " An Act making provision for the debt of the United States," and
the other entitled, «' An Act making provision for
the reduction of the public debt;" borrowing of the
bank an equal sum, to be applied to the purposes
for which the said monies shall have been procured,
reimburseable in ten years by equal annual instalments; or at any time sooner, or in any greater
proportions, that the government may think fit.
The reasons for the several provisions contained
in the foregoing plan, have been so far anticipated,
and will, for the most part, be so readily suggested
by the nature of those provisions, that any comments
which need further be made, will be both few and
concise.
The combination of a portion of the public debt,
in the formation of the capital, is the principal
thing of wliich an explanation is requisite. The
chief object of this is, to enable the creation of a
capital sufficiently large to be the basis of an extensive circulation, and an adequate security for it.
As has been elsewhere remarked, the original plan
of the bank of North-America, contemplated a capital of ten millions of dollars, which is certainly
not too broad a foundation for the extensive operations to which a national bank is destined. But to
collect such a sum in this country in gold and sil*

A NATIONAL BANK.

105

ver, info one depository, may, without hesitation,
be pronounced impracticable.
Hence the necessity of an auxiliary, which the public debt at once
presents.
This part of the fund will be always ready to
come in aid of the specie. It will more and more
command a ready sale; and, can therefore expeditiously be turned into coin if an exigency of the
bank should at any time require it. This quality
of prompt convertibility into coin, renders it an
equivalent for that necessary agent of bank circulation ; and distinguishes it from a fund in land, of
which the sale would generally be far less compendious, and at great disadvantage. The quarter yearly receipts of interest will also be an actual addition
to the specie fund, during the intervals between them
and the half yearly dividends of profits. The ob*
jection to combining land with specie, resulting from
their not being generally in possession of the same
persons, does not apply to the debt, which will always be found in considerable quantity among the
monied and trading people.
The debt composing part of the capital, besides
its collateral effect in enabling the bank to extend
its operations, and consequently to enlarge its profits, will produce a direct annual revenue of six per
centum from the government, which will enter into
the half yearly dividends received by the stockholders.
When the present price of the public debt is considered, and the effect which its conversion into
bank stock, incorporated with a specie fund, would
in all probability have to accelerate its rise to the
proper point, it will easily be discovered, that the
operation presents in its outset a very considerable
VOL. u
p

100

KEPORT ON

advantage to those who may become subscribers;
and from the influence which that rise would have
on the general mass of the debt, a proportional benefit to all the public creditors, and in a sense which
has been more than once adverted to, to the community at large.
There is an important fact, which exemplifies the
fitness of the public debt, for a bank fund, and which
may serve to remove doubts in some minds on this
point. It is this, that the bank of England, in its
first erection, rested wholly on that foundation. The
subscribers to a loan to government of one million
two hundred thousand pounds sterling, were incor*
porated as a bank; of which the debt created by the
loan and the interest upon it, were the sole fund.
The subsequent augmentations of its capital, which
now amounts to between eleven and twelve millions
of pounds sterling, have been of the same nature.
The confining of the right of the bank to contract
debts to the amount of its capital, is an important
precaution, which is not to be found in the constitution of the bank of North-America, and which, while
the fund consists wholly of coin, would be a restriction attended with inconveniences, but would be
free from any, if the composition of it should lie
such as is now proposed. The restriction exists in
the establishment of the bank of England^ and as a
source of security, is worthy of imitation. The
consequence of exceeding the limit there is, that
each stockholder is liable for the excess, in proportion to his interest in the bank* When it is con*
sidered, that the directors owe their appointments
to the choice of the stockholders, a responsibility of
this kind on the part of the latter, does not appear
unreasonable. But on the other hand it may be

A NATIONAL BANK.

107

deemed a hardship upon those who may have dissented from the choice. And there are many among
us, whom it might perhaps discourage from becoming concerned in the institution. These reasons
have induced the placing of the responsibility upon
the directors, by whom the limit prescribed should
be transgressed.
The interdiction of loans on account of the United States, or of any particular state, beyond the moderate sum specified, or of any foreign power, will
serve as a barrier to executive encroachments, and to
combinations inauspicious to the safety, or contrary
to the policy of the Union.
The limitation of the rate of interest is dictated
by the consideration, that different rates prevail in
different parts of the Union; and na the operations
of the bank may extend through the whole, some
rule seems to be necessary. There is room for a
question, whether the limitation ought not rather to
be to five, than to six per cent, as proposed. It may
with safety be taken for granted, that the former rate
would yield an ample dividend; perhaps as much
as the latter, by the extension %vhich it would giv<*
to business. The natural effect of low interest is to
increase trade and industry; because undertakings of
every kind can be prosecuted with greater advantage.
This is a truth generally admitted; but it is requisite to have analyzed the subject in all its relations,
to be able to form a just conception of the extent of
that effect. Such an analysis cannot but satisfy an
intelligent mind, that the difference of one per cent,
in the rate at which money may be had, is often capable of making an essential change for the better in
the situation of any country or place.

108

REPORT ON

Every thing, therefore, which tends to lower the
rate of interest, is peculiarly worthy of the cares of
legislators. And though laws, which violently sink
the legal rate of interest greatly below the market
level, are not to be commended, because they are not
calculated to answer their aim; yet, whatever has a
tendency to effect a reduction, without violence to
the natural course of things, ought to be attended to
and pursued. Banks are among the means most proper to accomplish-this end; and the moderation of
the rate at which their discounts are made, is a material ingredient towards it; with which their own
interest, viewed on an enlarged and permanent scale,
does not appear to clash.
But as the most obvious ideas are apt, to have
greater force than those which depend on complex
and remote combinations, there would be danger,
that the persons, whose funds must constitute the
stock of the bank, would be diffident of the sufficiency of the profits to be expected, if the rate of
loans and discounts were to be placed below the
point to which they have been accustomed; and
might, on this account, be indisposed to embarking
in the plan. There is, it is true, one reflection,
which, in regard to men actually engaged in trade,
ought to be a security against this danger; it is this,
That the accommodations which they might derive
in the way of their business, at a low rate, would
more than indemnify them for any difference in the
dividend; supposing even that some diminution of
it were to be the consequence. But upon the whole,
the hazard of contrary reasoning among the mass of
monied men, is a powerful argument against the ex*
periment. The institutions of the kind already existing, add to the difficulty of making it. Mature

A NATIONAL BANK.

109

reflection, and a large capital, may, of themselves,
lead to the desired end.
The last thing which requires any explanatory remark, is, the authority proposed to be given to the
President to subscribe to the amount of two millions
of dollars, on account of the public. The main design of this is, to enlarge the specie fund of the
bank, and to enable it to give a more early extension
to its operations. Though it is proposed to'borrow
with one hand what is lent with the other; yet the
disbursement of what is borrowed, will be progressive, and bank notes may be thrown into circulation,
instead of the gold and silver. Besides, there is to
be an annual reimbursement of a part of the sum borrowed, which will finally operate as an actual investment of so much specie* In addition to the inducements to this measure, which result from the general interest of the government to enlarge the sphere
of the utility of the bank, there is this more particular consideration, to wit, that as far as the dividend
on the stock shall exceed the interest paid on thfe
loan, there is a positive profit.
The Secretary begs leave to conclude, with this
general observation—That if the bank of NorthAmerica shall come forward with any propositions,
which have for their object the ingrafting upon that
institution, the characteristics which shall appear to
the legislature necessaiy to the due extent and safety of a national bank, there are, in his judgment,
weighty inducements to giving every reasonable facility to the measure. Not only the pretensions of
that institution, from its original relation to the government of the United States, and from the services it has rendered, are such as to claim a disposition favourable to it, if those who are interested in

110

REPORT, &c.

it are willing, on their part, to place it on a footing
satisfactory to the government, and equal to the
purposes of a bank of the United States: but its cooperation would materially accelerate the accomplishment of the great object, and the collision,
which might otherwise arise, might, in a variety of
ways, prove equally disagreeable and injurious. The
incorporation or union here contemplated, may be effected in different modes, under the auspices of an
act of the United States, if it shall be desired by the
bank of North-America, upon terms which shall appear expedient to the government.
All which is humbly submitted.

ALEXANDER HAMILTON,
Secretary of the Treasury,

OX THE

CONSTITUTIONALITY
OF A

NATIONAL BANK.
X HE Secretary of the Treasury, having perused
with attention the papers containing the opinions of
the Secretary of State and Attorney-General, concerning the Constitutionality of the bill for establishing a National Bank, proceeds, according to the
order of the President, to submit the reasons which
have induced him to entertain a different opinion.
It will naturally have been anticipated, that in
performing this task, he would feel uncommon solicitude. Personal considerations alone, arising from
the reflection that the measure originated with him,
would be sufficient to produce it; the sense which
he has manifested of the great importance of such
an institution to the successful administration of the
department under his particular care; and an expectation of serious ill-consequences to result from
a failure of the measure, do not permit him to be
without anxiety on public accounts. But the chief
solicitude arises from a firm persuasion, that principles of construction, like those espoused by the Secretary of State and Attorney-General, would bo fa-

IIS

CONSTITUTIONALITY

tal to the just and indispensable authority of the
United States.
In entering upon the argument, it ought to be premised, that the objections of the Secretary of State
and Attorney-General, are founded on a general denial of the authority of the United States to erect
corporations. The latter, indeed, expressly admits,
that if there be any thing in the bill which is not
warranted by the constitution, it is the clause of incorporation.
Now, it appears to the Secretary of the Treasury,
that this general principle is inherent in the very definition of government, and essential to every step of
the progress to be made by that of the United States;
namely, that every power vested in a government, is
in its nature SOVEREIGN, and includes, by forceoi the
term, a right to employ all the means requisite, and
fairly applicable, to the attainment of the ends of
such power, and which are not precluded by restrictions and exceptions specified ia the constitution;
or not immoral; or not contrary to the essential ends
of political society.
This principle, in its application to government
in general, would be admitted as an axiom; and
it will be incumbent upon those who may incline to
deny it, to prove a distinction, and to show, that a
rule, which, in the general system of things, is essential to the preservation of the social order, is inapplicable to the United States.
The circumstance that the powers of sovereignty,
are, ia this country, divided between the national
and state governments, does not afford the distinction required. It does not follow from this, that
each of the portions of potver, delegated to the bne
or to the other, is not sovereign with regard to Its

OF A NATIONAL BANK.

113

proper objects. It will only follow from it, that
each has sovereign power as to certain things, and not
as toother things. To deny that the government of
the United States has sovereign power as to its declared purposes, and trusts, lxraiusc its power does
not extend to all laws; would be equally to deny,
that the state governments have sovcrrign power in
any case, because their power does not extend to
every case. The tenth section of the first article of
the constitution, exhibits a long list of very important things which they may not do; and thus the United States would furnish the singular spectacle of a
political society without sovereignty; or of a people governed without government.
If it would be necessary to bring proof to a proposition so clear, as that which affirms that the powers
of the federal government, as to its objects, are sovereign, there is a clause of its constitution which
would be decisive: It is that which declares, that
the constitution, and tiie laws of the United States
made in pursuance of it, and all treaties made, or
wluch shall be made, uuder their authority, shall be
the Supreme Law of the land* The power which
can create the supreme law of the land, in any case,
is doubtless sovereign as to such case.
This general and indisputable principle, puts at
once an end to the abstract question, Whether the
United States have power to erect a corporation; that
is to say, to give a legal or artificial capacity to one
or more persons, distinct from the natural ? For it is
unquestionably incident to sovereign power, to erect
corporations; and, consequently, to that of the
United States, in relation to the objects intrusted to
the management of the government.
VOL. i.
q

114

CONSTITUTIONALITY

The difference is this: where the authority of the
government is general, it can create corporations in
all cases; where it is confined to certain branches of
legislature, it can create corporations only io those
cases.
Here, then, as far as concerns the reasonings of
the Secretary of State and Attorney-General, the
affirmative of the constitutionality of the bill might
be permitted to rest It will occur to the President,
that the principle here advanced has been untouched by either of them.
Nevertheless, for a more complete elucidation of
the point, the arguments which they had used against
the power of the government to erect corporations,
however foreign they are to the great fundamental
rule which has been stated, shall be particularly examined. And after showing that they do not tend
to impair its force; it shall also be shown, that the
power of incorporation, incident to the government
in certain cases, does fairly extend to the particular
case which is the object of the bill.
The first of these arguments is, that the foundation of the constitution is laid on this ground, " that
all powers, not delegated to the United States by
the constitution, nor prohibited to it by the states,
are reserved for the states or to the people;" whence
it is meant to be inferred, that Congress can, in no
case, exercise any power not included in those, nor
not enumerated in the constitution. And it is affirmed, that the power of erecting a corporation is
not included in any of the enumerated powers.
The main proposition here laid down in its true
signification, is not to be questioned. It is nothing
more than a consequence of this republican maxim,
that all government is a delegation of power; but

OF A NATIONAL BANK,

115

how much is delegated in each case, is a question of
fact, to be made out by fair reasoning and construction, upon the particular provisions of the constitution—taking as guides, the general principles and
general ends of government.
It is not denied that there are implied, as well as
express powers; and that the former are as effectually delegated as the latter: and for the sake of accuracy, it shall be mentioned, that there is another
class of powers, which may be properly denominated
resulting powers, Jt will not be doubted, that if
the United States, should make a conquest of any
of the territories of its neighbours, they would possess sovereign jurisdiction over the conquered territory : This would rather be a result from the whole
mass of the powers of the government, and from the
nature of political society, than a consequence of
either of the powers specially enumerated.
But be this as it may, it furnishes a striking illustration of the general doctrine contended for. It
shows an extensive case, in which a power of erecting corporations is either implied in, or would result
from, some or all of the powers vested in the national government. The jurisdiction acquired over such
conquered territory, would certainly be competent to
every species of legislation.
To return. It is conceded, that implied powers
are to be considered as delegated, equally with express ones.
Then it follows, that as a power of erecting a corporation may as well be implied as any other thing;
it may as well be employed as an instrument or mean
of carrying into execution any of the specified powers, as any other instrument or mean whatever* The
only question must be, in this, as in every other

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case, whether the mean to be employed, or, in this
instance, the corporation to be erected, has a natural
relation to any of the acknowledged objects or law-*
ful ends of the government? Thus a corporation
may not be erected by Congress for superintending
the police of the city of Philadelphia, because they
are not authorized to regulate the police of that city.
But one may be erected in relation to the collection
of taxes, or to the trade with foreigu countries, or to
the trade between the States, or with the Indian
tribes; because it is the province of the federal government to regulate those objects; and because it
is incident to a general sovereign or legislative power
to regulate a thing, to employ all the means which
relate to its regulation, to the best and greatest advantage.
A strange fallacy seems to have crept into the manner of thinking and reasoning upon the subject.
Imagination appears to have been unusually busy concerning it. An incorporation seems to have been
regarded as some great independent substantive
thing; as a political engine, and- of peculiar magnitude and moment; whereas it is truly to be considered as a quality, capacity, or mean to an end.
Thus a mercantile company is formed with a certain
Capital for the purpose of carrying on a particular
branch of business* Here the business to be prosecuted is the end. The association, in order to form the
requisite capital, is the primary mean. Suppose that an
incorporation were added to this; it would only be to
add a new quality to that association; to give it an artificial capacity, by which it would be enabled to prosecute the business with more safety and convenience.
That the importance of the power of incorporation has been exaggerated, leading to erroneous con-

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elusions, will further appear from tracing it to its
origin. The Roman law is the source of i t ; according to which, a voluntary association of individuals
at any time, or for any purpose, was capable of producing it. In England, whence our notions of it
are immediately borrowed, it seems part of the executivcauthority; and the exercise of it lias been
often delegated by that authority; whence, therefore,
the ground of the supposition, that it lies beyond
the reach of all those very important portions of
sovereign power, legislative as well as executive,
which belong to the government of the United
States.
To this mode of reasoning, respecting the right of
employing all the means requisite to the execution
of the specified powers of the government, it is objected, that none but necessary and proper means are
to be employed ; and the Secretary of State maintains, that no means are to be considered as necessary, but those, without which the grant of the power
would be nugatory. Nay, so far does he go in his
restrictive interpretation of the word, as even to
make the case of necrssify, which shall warrant the
constitutional exercise of the power, to depend on
casual and temporary circumstances; au idea which
alone refutes the construction. The expediency of
exercising a particular power, at a particular time,
must indeed depend on circumstances; but the constitutional right of exercising it must be uniform and
invariable; the same to-day, as to-morrow.
All the arguments, therefore, against the constitutionality of the bill, derived from the accidental existence of certain state banks; institutions which
happen to exist to-day, and, for aught that concerns
the government of the United States, may disappear

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to-morrow, must not only be rejected as fallacious,
but must be viewed as demonstrative that there is a
radical source of error in the reasoning.
It is essential to the being of the national government, that so erroneous a conception of the meaning of the word necessary should be exploded.
It is certain, that neither the grammatical nor
popular sense of the term requires that construction.
According to both, necessary often means no more
than needful^ requisite^ incidental, useful, or conducive to. It is a common mode of expression to say,
that it is necessary for a government or a person to
do this or that thing, when nothing more is intended or understood, than that the interest of the government or person require, or will be promoted by
the doing of this or that thing. The imagination
can be at no loss for exemplification of the use of
the word in this sense.
And it is the true one in which it is to be understood, as used in the constitution. The whole turn
of the clause containing it, indicates that it was the
intent of the convention, by that clause, to give a
liberal latitude to the exercise of the specified powers. The expressions have a peculiar comprehensiveness. They are—To make all laws necessary
and proper for carrying into execution the foregomg
poivers, and all other powers vested by the constitu*
tion in the government of the United States, or in
any department or office thereof. To understand the
word, as the Secretary of State does, would be to depart from its obvious and popular sense, and to give
it a restrictive operation; an idea never before entertained. It would be to give it the same force as if
the word absolutely or indispensably had been prefixed to it.

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Such a construction would beget endless uncertainty and embarrassment. The cases must be palpable and extreme, in which it could be pronounced
with certainty, that a measure was absolutely necessary ; or one, without which the exercise of a
given power would be nugatory* There are few
measures of any government which would stand so
severe a test. To insist upon it, would be to make
the criterion of the exercise of any implied power,
a case of extreme necessity; which is rather a rule to
justify the overleaping of the bounds of constitutional authority, than to govern the ordinary exercise of
it.
It may be truly said of eveiy government, as well
as that of the United States, that it has only a right
to pass such laws as are necessary and proper to accomplish the objects intrusted to it: For no government has a right to do merely icJiat it pleases. Hence,
?>y a process of reasoning similar to that of the Secretary of State, it might be proved that neither of
the state governments has a right to incorporate a
bank. It might be shown, that all the public business of the state could be performed without a bank;
and, inferring thence that it was unnecessary, it
might be argued, that it could not be done, because
it is against the rule which has been just mentioned.
A like mode of reasoning would prove, that there
was no power to incorporate the inhabitants of a
town with a view to a more perfect police : For it
is certain, that an incorporation may be dispensed
with, though it is better to have one. It is to be
remembered, that there is no express power in any
state constitution, to erect corporations.
The degree in which a measure is necessary, can
never be a test of the legal right to adopt it. That

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must be a matter of opinion, and can only be a test
of expediency. The relation between the measure
and the end; between the nature of the mean employed towards the execution of a power, and the object of that power; must be the criterion of constitutionality ; not the more or less of necessity or
utility.
The practice of the government is against the
rule of construction advocated by the Secretary of
State. Of this* the act concerning light-houses, beacons, buoysj and public piers, is a decisive example.
This, doubtless, must be referred to the power of regulating trade, and is fairly relative to it. But it
cannot be affirmed, that the exercise of that power,
in this instance, was strictly necessary; or that the
power itself would be nugatory without that of regulating establishments of this nature.
This restrictive interpretation of the word necessary > is also contrary to this sound maxim of construction ; namely, that the powers contained in a
constitution of government, especially those which
concern the general administration of the affairs of a
country, its finances, trade, defence, &c. ought to be
construed liberally in advancement of the public
good. This rule does not depend on the particular
form of a government, or on the particular demarkation of the boundaries of its powers, but on the nature and objects of government itself. The means
by which national exigencies are to be provided for;
national inconveniences obviated ; national prosperity promoted; are of such infinite variety, extent, and
complexity, that there must of necessity be great
latitude of discretion in the selection and application of those means. Hence, consequently, the necessity and propriety of exercising the authorities

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intrusted to a government, on principles of liberal
construction.
The Attorney-General admits the rule> but takes
a distinction between a state and the federal constitution. The latter, he thinks, ought to be construed with greater strictness, because there is more
danger of error in defining partial, than general
powers*
But the reason of the rule forbids such a distinction. This reason is—The variety and extent of
public exigencies, a far greater proportion of which,
and of a far more critical kind, are objects of national,
than of state administration. The greater danger of
error, as far as it is supposeable, may be a prudential
reason for caution in practice, but it cannot be a rule
of restrictive interpretation.
In regard to the clause of the constitution, immediately under consideration, it is admitted by the
Attorney-General, that no restrictive effect can be
ascribed to it. He defines the word necessary, thus:
" To be necessary, is to be incidental, and may be
denominated the natural means of executing a power/'
But, while, on the one hand, the construction of
the Secretary of State is deemed admissible, it will
not be contended, on the other, that the clause in
question gives any new or independent power. But
it gives an explicit sanction to the doctrine of implied powers, and is equivalent to an admission of
the proposition, that the government, as to its specified powers and objects, has plenary and sovereign authority; in some cases, paramount to that of the
states; in others, co-ordinate with it. For such is
the plain import of the declaration, that it may pass
VOL. T.
*

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all I,AWS necessary and proper to carry into execution those powers.
It is no valid objection to the doctrine, to say,
that it is calculated to extend the powers of the general government throughout the entire sphere of
state legislation. The same thing has been said,
and may be said, with regard to every exercise of
power, by implication or construction. The moment
the literal meaning is departed from, there is a
chance of error and abuse; and yet an adherence to
the letter of its powers would at once arrest the motion of government. It is not only agreed on all
hands, that the exercise of constructive powers is in*
dispensable; but every act which has been passed,
is more or less an exemplification of it. One has already been mentioned; that relating to li^ht-houses,
&c. That which declares the power of the President to remove officers at pleasure, acknowledges
the same truth in another, and a signal instance.
The truth is, that difficulties on this point, are inherent in the nature of the federal constitution.
They result inevitably from a division of legislative
power. The consequence of this division is, that
there will be cases clearly within the power of the
national government, others clearly without its power ; and a third class, which will leave room fur controversy and difference of opinion, and concerning
which a reasonable latitude of judgment must be allowed.
But the doctrine which is contended for, is not
chargeable with the consequences imputed to it. It
does not affirm that the national government is sovereign in all respects, but that it is sovereign to a
certain extent; that is, to the extent of the objects
of its specified powers.

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It leaves, therefore, a criterion of what is constitutional, and of what is not so. This criterion is the
end to which the measure relates as a mean. If the end
be clearly comprehended within any of the specified powers, and if the measure have an obvious relation to that end, and is not forbidden by any par*
ticular provision of the constitution; it may safely
be deemed to come within the compass of the national authority. There is also this further criterion, which may materially assist the decision* Does
the proposed measure abridge a pre-existing right of
any state, or of any individual ? Jf it does not,
there is a strong presumption in favour of its
constitutionality; and slighter relations to any declared object of the constitution, may be permitted
to turn the scale.
The general objections which are to be inferred
from the reasonings of the Secretary of State and At*
torney-General, to the doctrine which has been advanced, have been stated; and it is hoped, satisfactorily answered. Those of a more particular nature,
shall now be examined.
The Secretary of State introduces his opinion with
an observation, that the proposed incorporation undertakes to create certain capacities, properties, or
attributes, which are against the laws of alienage,
descents, escheat and forfeiture, distribution and vw*
nopolrj; and to confer a power to make laws paramount to those of the states. And nothing, says
he, in another place, but a Tiecessitg, invincible by
other means, can justify such a prostration of laws,
which constitute the pillars of our whole systym of jurisprudence, and are the foundation-laws
of the state governments.
Jf these are truly the foundation-laws of the seve-

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ral states, then have most of them subverted their
own foundations. For there is scarcely one of them
which has not, since the establishment of its particular constitution, made material alterations in some of
those branches of its jurisprudence, especially the
law of descents. But it is not conceived, how any
thing can be called the fundamental law of a state
government, which is not established in its constitution, unalterable by the ordinary legislature. And,
with regard to the question of necessity, it has been
shown, that this can only constitute a question of
expediency, not of right.
To erect a corporation, is to substitute a legal or
artificial^ for a natural person; and where a number
are concerned, to give them individuality* To that
lee^al or artificial person, once created, the common
law of every state, of itself annexes all those inci.
dents and attributes which are represented as a prostration of the main pillars of their jurisprudence.
—It is certainly not accurate to say, that the erection of a corporation, is against those different Jwads
of the state laws; because, it is rather to create a
kind of person, or entity, to which they are inapplicable, and to which the general rule of those laws
assigns a different regimen. The laws of alienage
cannot apply to an artificial person, because it can
have no country. Those of descent cannot apply to
it, because it can have no heirs. Those of escheat
are foreign from it, for the same reason. Those
of forfeiture, because it cannot commit a crime*
Those of distribution, because, though it may be
dissolved, it cannot die. As truly might it be said,
that the exercise of the power of prescribing the
rule by which foreigners shall be naturalized, is
against the law of alienage, while it is in fact only

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to put them into a situation to cease to be the subjects of that law. To do a thing which is against
the law, is to do something which it forbids, and
which is a violation of it.
But if it were even to be admitted, that the erection
of a corporation is a direct alteration of the state laws
in the enumerated particulars, it would do nothing
towards proving that the measure was unconstitutional. If the government of the United States
can do no act which amouuts to an alteration of a
state law, all its powers are nugatory: for almost
every new law is an alteration, in someway or other,
of an oldlaio, either common or statute*
There are laws concerning bankruptcy in some
states. Some states have laws regulating the value
of foreign coin* Congress are empowered to establish uniform laws concerning bankruptcy throughout
the United States, and to regulate the value of foreign coins* The exercise of either of these powers,
by Congress, necessarily involves an alteration of the
laws of those states.
Again—Every person, by the common law of each
state, may export Ms property to foreign countries at
pleasure; but Congress, in pursuance of the power
of regulating trade, may prohibit the exportation of
commodities; in doing which, they would alter the
common law of each state, in abridgment of individual right.
It can, therefore, never be good reasoning, to say,
this or that act is unconstitutional, because it alters
this or that law of a state; it must be shown that the
act which makes the alteration, is unconstitutional
on other accounts; not because it makes the alteration;
There are two points in the suggestions of the
Secretary of State which have been noted, that are

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peculiarly incorrect. One is, that the proposed iucorporation is against the laws of monopoly, because
it stipulates an exclusive right of banking under the
national authority: The other, that it gives power
to the institution, to make laws paramount to those
of the states.
ButAvith regard to the first point, the bill neither
prohibits any state from erecting as many banks as
it pleases, nor any number of individuals from associating to carry on the business; and, consequently, is free from the charge of establishing a monopoly : for monopoly implies a legal impediment to the
carrying on the trade by others than those to whom
it is granted.
And, with regard to the second point, there is still
less foundation. The by-laws of such an institution
as a bank, can operate only upon its own members;
can only concern the disposition of its own property ; and must essentially resemble the rules of a private mercantile partnership. They are expressly not
to be contrary to law; and law must here mean the
law of a state, as well as of the United States. There
never can be a doubt, that a law of a corporation, if
contrary to a law of a state, must be overruled as
void, unless the law of the slate is contrary to that
of the United States; and then the question will
not be between the law of the state and that of the
corporation, but between the law of the state and
that of the United States.
Another argument made use of by the Secretary
of State, is, the rejection, by the convention, of a
proposition to empower Congress to make corporations, either generally, or for some special purpose*
What was the precise nature or extent of this proposition, or what the reasons for refusing it, is not

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ascertained by any authentic document, or even by
accurate recollection. As far as any such document
exists, it specifics only canals. If this was the amount
of it, it would at most only prove, that it was
thought inexpedient to give a power to incorporate
for the purpose of opemug canals; for which purpose a special power would have been necessary,
except with regard to the Western Territory; there
being nothing in any part of the constitution respecting the regulation of canals. It must be confessed, however, that very different accounts are
given of the import of the proposition, and of the
motives for rejecting it. Some affirm that it was
confined to the opening of canals and obstructions
in rivers; others, that it embraced banks; and
others, that it extended to the power of incorporating generally. Some again allege, that it was disagreed to, because it was thought improper to vest
in Congress a power of erecting corporations; others,
because it was thought unnecessary to specify the
power, and inexpedient to furnish an additional topic of objection to the constitution. In this state of
the matter, no inference whatever can be drawn
from it.
But whatever may have been the nature of the
proposition, or the reasons for rejecting it, nothing
is included by it, that is, the proposition, in respect
to the real merits of the question* The Secretary of
State will not deny, that whatever may have been
the intentions of the framers of a constitution, or of
a law; that intention is to be sought for in the instrument itself, according to the usual and established rules of construction. Nothing is more common
than for laws to express and effect more or less than
was intended. If, then, a power to erect a corpora-

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tion in any case, be deducible by fair inference from
the whole, or any part, of the numerous provisions of
the constitution of the United States; arguments,
drawn from extrinsic circumstances regarding the intention of the convention, must be rejected.
Most of the arguments of the Secretary of State,
which have not been considered in the foregoing
remarks, are of a nature rather to apply to the expediency, than to the constitutionality of the bill.
They will, however, be noticed in the discussion
which will be necessary in reference to the particular heads of the powers of the government, which
are involved in the question.
Those of the Attorney-General will now properly
come under view.
His first observation is, that the power of incorporation is not expressly given to Congress. This shall
be conceded, but in this sense only—that it is not
declared in express terms, that Congress may erect a
corporation. But this cannot mean that there are
not certain express powers, which necessarily include
it.
For instance, Congress have express power to exercise exclusive legislation in all cases whatsoever,
over such district, (not exceeding ten miles square,)
as may, by cession of particular states, and (he acceptance of Congress, become the seat of the government of the United States; and to exercise like
authority over all places purchased by consent of
the legislature of the state in which the same shall
be, for the erection of forts, arsenals, dock yards, and
other needful buildings.
Here, then, is express power to exercise exclusive
legislation, in all cases whatsoever, over certain places ;
that is, to do, in respect to those places, all that any

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government whatever may do. For language does
not afford a more complete designation of sovereign
power, than in those comprehensive terms. It is, in
other words, a power to pass all laws whatsoever;
and, consequently, to pass all laws for erecting corporations, as well as for any other purpose, which is
the proper object of law in a free government. Surely, it can never be believed, that Congress, with exelusive power of legislation, in all cases whatsoever, cannot erect a corporation within the district which
shall become the seat of government, for the better
regulation of its police; and yet there is an unqualified denial of the power to erect corporations, in
every case, on the part both of the Secretary of State
and of the Attorney-General. The former, indeed,
speaks of that power in these emphatical terms: that
it is a right remaining exclusively with the states.
As far, then, as there is an express power to do any
particular act of legislation, there is an express one to
erect corporations in the case above described. But,
accurately speaking, no particular power, is more than
implied in a general one. Thus the power to lay a
duty on a gallon of rum, is only a particular, implied
in the general power to lay and collect taxes, duties,
imposts, and excises. This serves to explain in what
sense it may be said, that Congress have not an express power to make corporations.
This may not be an improper place to take notice
of an argument which was used in debate in the
House of Kepresentatives. It was there urged, that
if the constitution intended to confer so important
a power as that of erecting corporations, it would
have been expressly mentioned. But the case which
has been noticed, is clearly one in which such power
exists, and yet without any specification or express
vor,. i.
s

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grant of it, further than as every particular, implied
in a general power, can be said to be so granted.
But the argument itself is founded upon an exaggerated and erroneous conception of the nature of
the power. It has been shown, that it is not of so
transcendent a kind as the reasoning supposes; and
that viewed in a just light, it is a mean which ought
to have been left to implication; rather than an end
which ought to have been expressly granted.
Having observed, that the power of erecting corporations is not expressly granted to Congress, thr
Attorney-General proceeds thus:
If it can be exercised by them, it must be,
1. Because the nature of federal government implies it:
2. Because it is involved in some of the specified
powers of legislation:
3. Because it is necessary and proper, to carry into
execution some of the specified powers.
To be implied in the nature of the federal government, says he, would beget a doctrine so indefinite
as to grasp at every power.
This proposition, it ought to be remarked, is not
precisely, or even substantially, that which has been
relied upon. The proposition relied upon is, that
the specifiedpotvers of Congress are in their nature
sovereign; that it is incident to sovereign power to
erect corporations; and that, therefore, Congress
have a right, within ihe*sphere, and in relation to the
objects of their poiver, to erect corporations.
It shall, however, be supposed, that the AttorneyGeueral would consider the two propositions in the
same light, and that the objection made to the one,
would be made to the other.
To this objection an answer has been already given.

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It is this; that the doctrine is stated with this express qualification, that the right to erect corporations does only extend to cam and objects within the
sphere of the specified powers of the government* A
general legislative authority, implies a power to
erect corporations in all cases; a particular legislative power, implies authority to erect corporations in
relation to cases arising under that power only.
Hence the affirming, that, as incident to sovereign
power, Congress may erect a corporation in relation
to the collection of their taxes, is no more to affirm
that they may do whatever else they please, than
the saying they have a power to regulate trade, would
be to affirm, that they have a power to regulate religion ; or than the maintaining, that they have sovereign potver as to taxation, would be to maintain,
that they have sovereign power as to every thing
else.
The Attorney-General undertakes in the next place
to show, that the power of erecting corporations is
not involved in any of the specified powers of legislation confided to the national government.
In order to this, he has attempted an enumeration
of the particulars which he supposes to be comprehended under the several heads of the POWERS to
lay and collect taxes, &c. to borrow money on the
credit of the United States; to regulate commerce
with foreign nations, between the states, and with
the Indian tribes; to dispose of, and make all needful rules and regulations respecting the territory, or
other property belonging to the United States; the
design of which enumeration is to show, what is in*
eluded under those different heads of power; and
negatively, that the power of erecting corporations
is not included.

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The truth of this inference or conclusion must depend on the accuracy of the enumeration. If it can
be shown that the enumeration is defective, the inference is destroyed. To do this will be attended
with no difficulty.
The heads of the power to lay and collect taxes,
he states to be,
1. To ascertain the subjects of taxation, &c.
2. To declare the quantum of taxation, &c.
3. To prescribe the mode of collection.
4. To ordain the manner of accounting for the
taxes, &c.
The defectiveness of this enumeration consists in
the generality of the third division," to prescribe the
mode of collection, which is in itself an immense chapter. It will be shown hereafter, that among a vast
variety of particulars, it comprises the very power in
question, namely, to erect corporations*
The heads of the power to borrow money, are
stated to be—
I, To stipulate the sum to be lent.
II. An interest, or no interest, to be paid.
III. The time and manner of repaying, unless the
loan be placed on an irredeemable fund.
This enumeration is liable to a variety of objections. It omits, in the first place, the pledging or
mortgaging^ of a fund for the security of the money
lent; an usual, and in most cases, an essential ingredient.
The idea of a stipulation of an interest or rio inter'
estj is too confined* It should rather have been said,
to stipulate the consideration of the loan. Individuals often borrow upon considerations other than
the payment of interest. So may government; and
so they often find it necessary to do. Every one

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recollects the lottery tickets, and other douceuis
often given in Great-Britain as collateral inducements to the lending of money to the government*
There are also frequently collateral conditions,
which the enumeration does not contemplate. Every
contract which has been made for monies borrowed
in Holland, includes stipulations that the sum due
shall be free from taxes, and from sequestration in
time of war; and mortgages all the land and property of the United States fur the reimbursement.
It is also known that a lottery is a common expedient for borrowing money, which certainly does not
fall under either of the enumerated heads.
The heads of the power to regulate commerce
with foreign nations, are stated to be,
1. To prohibit them or their commodities from
our ports.
2. To impose duties on them where none existed
before, or to increase existing duties on them,
3. To subject them to any species of Customhouse regulation.
4. To grant them auy exemptions or privileges
which policy may suggest.
This enumeration is far more exceptionable than
either of the former: It omits every thing that relates to the citizens, vessels, or commodities, of the
United States.
The foliowiug palpable omissions occur at once:
1. Of the power to prohibit the exportation of
commodities, which not only exists at all times, but
which in time of war it would be necessary to exercise, particularly with relation to naval and warlike stores.
IL Of the power to prescribe rules concerning the

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characteristics and privileges of an American bottom ; how she shall be navigated; as, whether by
citizens or foreigners, or by a proportion of each.
III. Of the power of regulating the manner of
contracting with seamen, the policies of ships on
their voyages, &c. of which the act for the government and regulation of seamen in the merchant service is a specimen.
That the three preceding articles are omissions,
will not be doubted. There is a long list of items
in addition, which admit of little if any question, of
which a few samples shall be given.
I. The granting of bounties to certain kinds of
vessels and certain species of merchandise; of this
nature is the allowance on dried and pickled fish,
and salted provisions.
II. The prescribing of rules concerning the inspection of commodities to be exported. Though
the states individually are competent to this regulation, yet there is no reason, in point of authority at
least, why a general system might not be adopted
by the United States.
III. The regulation of policies of insurance; of
salvage upon goods found at sea; and the disposition
of such goods.
IV. The regulation of pilots.
V. The regulation of bills of exchange, drawn by
a merchant of one state upon a merchant of another
state. This last rather belongs to the regulation of
tradp between the states, but is equally omitted in
the specification under that head*
The last enumeration relates to the power to dispose of, and make all needful rules and regulations
respecting, the territory or other property belonging
to the United States.

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135

The heads of this power are said to be,
I. To exert an ownership over the territory of the
United States which may be properly called the property of the United States, as in the Western Territory, and tu institute a government therein; or,
II, To exert an ownership over the other property of the United States.
This idea of exerting an ownership over the territory or other property of the United States, is particularly indefinite and vague. It does not at all satisfy the conception of what must have been intended by a power to make all needful rules and regulations; nor would there have been any use for a special clause, which authorized nothing more ; for the
right of exerting an ownership, is implied in the very
definition of property.
It is admitted, that in regard to the Western Territory something more is intended: even the institution of a government; that is, the creation of a body
politic, or corporation of the highest nature; one
which in its maturity will be able itself to create
other corporations. Why, then, does not the same
clause authorize the erection of a corporation in
respect to the regulation or disposal of any other of
the property of the United States ?
This idea will be enlarged upon in another place.
Hence it appears, that the enumerations which
have been attempted by the Attorney-General, are so
imperfect, as to authorize no conclusion whatever.
They, therefore, have no tendency to disprove, that
each and every of the powers to which they relate,
includes that of erecting corporations, which they
certainly do, as the subsequent illustrations will more
and more evince.

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CONSTITUTIONALITY

It is presumed to have been satisfactorily shown,
in the course of the preceding observations,
I. That the power of the government, as to the
objects intrusted to its management, is in its nature
sovereign*
II. That the right of erecting corporations, is
one inherent in, and inseparable from, the idea of
sovereign power.
III. That the position, that the government of
the United States can exercise no power but such aft
is delegated to it by its constitution, does not militate against this principle.
IV. That the word necessary > in the general clause,
can have no restrictive operation, derogating from
the force of this principle; indeed, that the degree
in which a measure is, or is not necessary, cannot be
a test of constitutionalright,but of expediency only.
V, That the power to erect corporations, is not
to be considered as an independent and substantive
power, but as an incidental and auxiliary one; and
was, therefore, more properly left to implication, than
expressly granted.
VI, That the principle in question does not extend the power of the government beyond the prescribed limits, because it only affirms a power to incorporate for purposes within the sphere of the sped*
fied powers.

And lastly, that the right to exercise such a power, in certain cases, is unequivocally granted in the
most positive and comprehensive terms.
To all which it only remains to be added, that
such a power has actually been exercised in two
veiy eminent instances, namely, in the erection of
two governments; one north-west of the river Ohio,

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137

and the other south west; the last independent of
any antecedent compact.
And there results a full and complete demonstration, that the Secretary of State and Attorney-General are mistaken, when they deny generally the
power of the national government to erect corporations.
It shall now be endeavoured to be shown, that
there is a power to erect one of the kind proposed
by the bill. This will be done by tracing a natural
and obvious relation between the institution of a
bank, and the objects of several of the enumerated
powers of the government; and by showing that,
politically speaking, it is necessary to the effectual
execution of one or more of those powers. In the
course of this investigation, various instances will be
stated, by way of illustration, of a right to erect corporations under those powers,
Some preliminary observations may be proper.
The proposed bank is to consist of an association
of persons for the purpose of creating a joint capital
to be employed, chiefly and essentially, in loans. So
far the object is not only lawful, but it is the mere
exercise of a right which the law allows to every
individual. The bank of New-York, which is not
incorporated, is an example of such an association.
The bill proposes, in addition, that the government
shall become a joint proprietor in this undertaking;
and that it shall permit the bills of the company,
payable on demand, to be receivable in its revenues;
and stipulates that it shall not grant privileges, similar to those which are to be allowed to this company, to any others. All this is incontrovertibly within
the compass of the discretion of the government.
The only cjuestion is, whether it has a right to in-

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corporate this company, in order to enable it the
more effectually to accomplish ends, which are in
themselves lawful.
To establish such a right, it remains to show the
relation of such an institution, to one or more of the
specified powers of the government.
Accordingly, it is affirmed, that it has a relation,
more or less direct, to the power of collecting taxes;
to that of borrowing money; to that of regulating
trade between the states; and to those of raising and
maintaining fleets and armies. To the two former,
the relation may be said to be immediate.
And, in the last place, it will be argued, that it is
clearly within the provision, which authorizes the
making of all needful rules and regulations concerning the property of the United States, as the same
has been practised upon by the government
A bank relates to the collection of taxes in two
ways. Indirectly^ by increasing the quantity of circulating medium, and quickening circulation, which
facilitates the means of paying; dircctly,by creating
a convenient species of medium in which they are to
be paid.
To designate or appoint the money or thing in
which taxes are to be paid, is not only a proper, but
a necessary, exercise of the power of collecting them.
Accordingly, Congress, in the law concerning the
collection of the duties on imposts and tonnage, have
provided that they shall be payable in gold and
silver. But while it was an indispensable part of the
work to say in what they should be paid, the choice
of the specific thing was mere matter of discretion.
The payment might have been required in the commodities themselves. Taxes in kind, however ill
judged, are not without precedents even in the

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139

United States; or it might have been in the paper
money of the several states, or in the bills of the
bank of North-America, New-York, and Massachusetts, all or either of them; or it might have been
in bills issued under the authority of the United
States.
N o paxt of this can, it is presumed, be disputed.
The appointment, then, of the money or thing in
which the taxes are to be paid, is an incident to the
power of collection. And among the expedients
which may be adopted, is that of bills issued under
the authority of the United States.
Now the manner of issuing these bills, is again
matter of discretion. The government might, doubtless, proceed in the following manner: It might
provide that they should be issued uuder the direction of certain officers, payable on demand; and in
order'to support their credit, and give them a ready
circulation, it might, besides giving them a currency
in its taxes, set apart, out of any monies in its treasury a given sum, and appropriate it, under the direction of those officers, as a fund for answering the
bills, as presented for payment.
Tlie constitutionality of all this would not admit
of a question, and yet it would amount to the in*
stitution of a bank, with a view to the more convenient collection of taxes.
For the simplest and
most precise idea of a bank, is, a deposit of coin or
other property, as a fund for circulating a credit upon
it, which is to answer the purpose of money. That
such an arrangement would be equivalent to the establishment of a bank> would become obvious, if the
place where the fund to be set apart was kept,
should be made a receptacle of the monies of alJ
other persons who should incline to deposit them

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there for safe keeping; and would become still more
so, if the officers, charged with the direction of the
fund, were authorized to make discounts at the usual
rate of interest, upon good security. To deny the
power of the government to add this ingredient to
the plan, would be to refine away all government.
A further process will still more clearly illustrate
the point. Suppose, when the species of bank which
has been described, was about to be instituted, it
were to be urged, that in order to secure to it a due
degree of confidence, the fund ought not only to be
set apart and appropriated generally, but ought to
be specifically vested in the officers who were to
have the direction of it, and in their successors in
office, to the end that it might acquire the character
of private proper///, incapable of being resumed without a violation of the sanction by which the rights
of property are protected; and occasioning more
serious and general alarm: the apprehension of which
might operate as a check upon the government.
Such a proposition might be opposed by arguments
against the expediency of it, or the solidity of the
reason assigned for it; but it is not conceivable what
could be urged against its constitutionality.
And yet such a disposition of the thing would
amount to the erection of a corporation; for the
true definition of a corporation seems to be this: It
is a legal person, or a person created by act of law ;
consisting of one or more natural persons, authorized
to hold property or a franchise in succession, in a
legal, as contradistinguished from a natural, capacityLet the illustration proceed a step further. Suppose a bank, of the nature which has been described, without or with incorporation, had been instituted, and that experience had evinced, as it probably

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141

would, that being wholly under a public direction,
it possessed not the confidence requisite to the credit
of its bills. Suppose also, that by some of those ad*
verse conjunctures which occasionally attend nations,
there had been a very great drain of the specie of
the country, so as not only to cause general distress
for want of an adequate medium of circulation; but
to produce, in consequence of that circumstance,
considerable defalcations in tlue public revenues.
Suppose, also, that there was no bank instituted in
any state; in such a posture of things would it not
be most manifest, that the incorporation of a bank
like that proposed by the bill, would be a measure
immediately relative to the effectual collection of
the taxes, and completely within the province of a
sovereign power of providing, by all laws uecessary
and proper, for that collection.
If it be said, that such a state of things would
render that necessary, and therefore constitutional,
which is not so now ; the answer to this, (and a solid
qne it doubtless is,) must still be, that which has
been already stated; circumstances may affect the
expediency of the measure, but they can neither add
to, nor diminish its constitutionality.
A bank has a direct relation to the power of borrowing money, because it is an'usual, and in sudden
emergencies, an essential instrument, in the obtaining of loans to government.
A nation is threatened with a war; large sums are
wanted on a sudden to make the requisite preparations ; taxes are laid for the purpose; but it requires
time to obtain the benefit of them; anticipation is
indispensable. If there be a bank, the supply can at
once be had; if there be none, loans from individuals must be sought. The progress of these is often

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too slow for the exigency; in some situations they
are not practicable at all. Frequently when they
are, it is of great consequence to be able to anticipate the product of them by advances from a bank.
The essentiality of such an institution, as an instrument of loans, is exemplified at this very moment* An Indian expedition is to be prosecuted.
The only fund out of wliich the money can arise
consistently with the public engagements, is a tax,
which only begins to be collected in July next. The
preparations, however, are instantly to be made.
The money must therefore be borrowed; and of
whom could it be borrowed, if there were no public
banks?
It happens that there are institutions of this kiud;
but if there were none, it would be indispensable to
create oneLet it then be supposed, that the necessity existed, (as but for a casualty would be the case,) that
proposals were made for obtaining a loan; that a
number of individuals came forward and said, we are
willing to accommodate the government with this
money; with what we have in hand, and the credit
we can raise upon it, we doubt not of being able to
furnish the sum required. But in order to this, it is
indispensable that we should be incorporated as a
bank* This is essential towards putting it in our
power to do what is desired, and we are obliged on
that account to make it the consideration or condition
of the loan*
Can it be believed that a compliance with this
proposition would be unconstitutional? Does not
this alone evince the contrary? It is a necessary
part of a power to borrow, to J>e able to stipulate the
considerations or conditions of a loan* It is evident,

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143

as has been remarked elsewhere, that this is not confined to the mere stipulation of a franchise. If it
may, (and it is not perceived why it may not,) then
the grant of a corporate capacity may be stipulated
as a consideration of the loan. There seems to be
nothing unfit, or foreign from the nature of the
thing, in giving individuality, or a corporate capacity, to a number of persons who are willing to lend a
sura of money to the government, the better to enable them to do it, and make them an ordinary instrument of loans in future emergencies of state.
But the more general view of the subject is still
more satisfactory- The legislative power of borrowing money, and of making all laws necessary and
proper for carrying into execution that power, seems
obviously competent to the appointment of the organ through which the abilities and wills of individuals may be most efficaciously exerted, for the
accommodation of the government by loans.
The Attorney-General opposes to this reasoning the
following observation. Borrowing money, presupposes the accumulation of a fund to be lent; and is
secondary to the creation of an ability to lend. This
is plausible in theory, but it is not true in fact. In
a great number of cases, a previous accumulation of
a fund equal to the whole sum required, does not
exist; and nothing more can be actually presupposed, than that there exists resources, which, pal into
activity to the greatest advantage, by the nature of
the operation with the government, will be equal to
the effect desired to be produced. All the provisions and operations of government, must be presumed to contemplate things as they really are.
The institution of a bank has also a natural relation to the regulation of trade between the states,

CONSTITUTIONALITY

in so far as it is conducive to the creation of a convenient medium of exchange between them, and to
the keeping up a full circulation, by preventing the
frequent displacement of the metals in reciprocal
remittances. Money is the very hinge on which
commerce turns. And this does not mean merely
gold and silver; many other things have served the
purpose with different degrees of utility. Paper has
been extensively employed.
It cannot therefore be admitted with the AttorneyGeneral, that the regulation of trade between the
states, as it concerns the medium of circulation and
exchange, ought to be considered as confined to coin.
It is even supposeable that the whole, or the greatest
part, of the coin of the country, might be carried
out of it.
The Secretary of State objects to the relation
here insisted upon, by the following mode of reasoning : To erect a bank, says he, and to regulate
commerce, are very different acts. He who erects a
bank, creates a subject of commerce. So does he who
raises a bushel of wheat, or digs a dollar out of the
mines; yet neither of these persons regulates commerce thereby. To make a thing which may be
bought and sold, is not to prescribe regulations for
faying and selling. This is making the regulation of
commerce to consist in prescribing rules for buying
and selling.
This indeed is a species of regulation of trade,
but it is one which falls more aptly within the province of the local jurisdictions, than within that of
the general government, whose care they must have
presumed to have been intended to be directed to
those general political arrangements concerning trade,

OF A NATIONAL BANK.
©n which its aggregate interests depend, rather than
to the details of buying and selling.
Accordingly, such only are the regulations to be
found in the laws of the United States ; whose objects are to give encouragement to the enterprise of
our own merchants, and to advance our navigation
and manufactures.
And it is in reference to these general relations of commerce, that an establishment which
furnishes facilities to circulation, and a convenient
medium of exchange and alienation, is to be regarded as a regulation of trade.
The Secretary of State further urges, that if this
was a regulation of commerce, it would be void, as
extending as much to the internal part of every state,
as to its external. But what regulation of commerce
does not extend to the internal commerce of every
state? What are all the duties upon imported articles,
amounting in some cases to prohibitions, but so many
bounties upon domestic manufactures, affecting the
interest of different classes of citizens in different
ways? What are all the provisions in the coasting
act, which relate to the trade between district and
district of the same state? In short, what regulation of trade between the states, but must affect the
internal trade of each state ? what can operate upon
the whole, but must extend to every part ?
The relation of a bank to the execution of the
powers that concern the common defence, has been
anticipated. It has been noted, that at this very
moment, the aid of such an institution is essential
to the measure to be pursued for the protection of
our frontiers.
It now remains to show, that the incorporation of
vor,. i.

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CONSTITUTIONALITY

a bank, is within the operation of the provision,
which authorizes Congress to make all needful rules
and regulations concerning the property of the United States. But it is previously necessary to advert
to a distinction which has been taken up by the Attorney-General.
He admits, that the word property may signify
personal property, however acquired; and yet asserts,
that it cannot signify money arising from the sources
of revenue pointed out in the constitution, « because," says he, " the disposal and regulation of mo*
ney is the final cause for raising it by taxes.*'
But it would be more accurate, to say, that the object to which money is intended to be applied, is
the final cause for raising it, than that the disposal
and regulation of it, is such. The support of a government, the support of troops for the common defence, the payment of the public debt, are the true
final causes for raising money. The disposition and
regulation of it when raised, are the steps by which
it is applied to the encis for which it was raised, nol
the ends themselves. Hence, therefore, the money
to be raised by taxes, as well as any other personal
property, must be supposed to come within the meaning, as they certainly do within the letter, of authority to make all needful rules and regulations
concerning the property of the United States.
A case will make this plainer. Suppose the public debt discharged, and the funds now pledged for
it, liberated. In some instances it would be found
expedient to repeal the taxes; in others, the repeal
might injure our own industry, our agriculture, and
manufactures. In these cases, they would, of course,
be retained. Here, then, would be monies arising
from the authorized sources of revenue, which would

OF A NATIONAL BANK.

not fall within the rule by which the Attorney-General endeavours to except them from other personal
property, and from the operation of the clause in
question.
The monies being in the coffers of government,
what is to hinder such a disposition to be made of
them as is contemplated in the bill; or what an incorporation of the parties concerned, under the
clause which has been cited.
It is admitted, that with regard to the Western
Territory, they give a power to erect a corporation ;
that is, to constitute a government. And by what
rule of construction can it be maintained, that the
same words, in a constitution of government, will
not have the same effect when applied to one species of property as to another, as far as the subject is
capable of it ? Or that a legislative power to make
all needful rules and regulations, or to pass all laws
necessary and proper concerning the public propertyt
which is admitted to authorize an incorporation, in
one case, will not authorize it in another ? will justify the institution of a government over the Western
Territory, and will not justify the incorporation of a
bank for the more useful management of the money
of the nation ? If it will do the last as well as the
first, then, under this provision alone, the bill is constitutional, because it contemplates that the United
States shall be joint proprietora of the stock of the
bank.
There is an observation of the Secretary of State,,
to this effect, which may require notice in this
place.—Congress, says he, are not to lay taxes ad
libitum,/or any purpose they please^ but only to pay
the debts, or provide for the welfare of the union.
Certainly, no inference can be drawn from this,

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against the power of applying their money for the
institution of a bank. It is true, that they cannot,
without breach of trust, lay taxes for any other purpose than the general welfare; but so neither can
any other government. The welfare of the community is the only legitimate end for which money can
be raised on the community. Congress can be considered as only under one restriction, which does not
apply to other governments. They cannot rightfully apply the money they raise to any purpose,
merely or purely local. But with this exception,
they have as large a discretion, in relation to the application of money, as any legislature whatever.
The constitutional test of a right application, must
always be, whether it be for a purpose of general
or local nature. If the former, there can be no want of
constitutional power. The quality of the object,
as how far it will really promote, or not, the welfare
of the Union, must be matter of conscientious discretion ; and the arguments for or against a measure,
in this light, must be arguments concerning expediency or inexpediency, not constitutional right;
whatever relates to the general order of the finances,
to the general interests of trade, &c. being general
objects, are constitutional ones, for the application of
money.

A bank, then, whose bills are to circulate in all
the revenues of the country, is evidently a general
object; and for that vejy reason, a constitutional
one, as far as regards the appropriation of money to
it, whether it will really be a beneficial one or not,
is worthy of careful examination; but is no more a
constitutional point, in the particular referred to,
than the question, whether the western lands shall
be sold for twenty or thirty cents per acre ?

OF A NATIONAL BANK.

149

A hope is entertained, that by this time, it has
been made to appear to the satisfaction of the President, that the bank has a natural relation to the
power of collecting taxes; to that of regulating
trade; to that of providing for the common defence;
and that as the bill under consideration, contemplates the government in the light of a joint proprietor of the stock of the bank, it brings the
case within the provision of the clause of the constitution which immediately respects the property
of the United States.
Under a conviction, that such a relation subsists,
the Secretaiy of the Treasury, with all deference,
conceives, that it will result as a necessary consequence, from the position that all the specified powers of government are sovereign, as to the proper
objects, that the incorporation of a bank is a constitutional measure: and that the objections, taken
to the bill in this respect, arc ill founded.
But, from an earnest desire to give the utmost possible satisfaction to the mind of the President, on so
delicate and important a subject, the Secretary of the
Treasury will ask his indulgence, while he gives
some additional illustrations of cases in which a
power of erecting corporations may be exercised, under some of those heads of the specified powers of
the government which are alleged to include the
right of incorporating a bank,
I. It does not appear susceptible of a doubt, that
if Congress had thought proper to provide in the
collection law, that the bonds to be given for the
duties, should be given to the collector of the district A. or B. as the case might require, to inure to
him and his successors in office, in trust for the
United States; that it would have been consistent

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CONSTITUTIONALITY

with the constitution to make such an arrangement.
And yet this, it is conceived, would amount to an incorporation.
IL It is not an unusual expedient of taxation, to
farm particular branches of revenue; that is, to sell
or mortgage the product of them for certain deGnite
sums, leaving the collection to the parties to whom
they are mortgaged or sold. There are even examples of this in the United States. Suppose that there
was any particular branch of revenue which it was
manifestly expedient to place on this footing, and
there were a number of persons willing to engage
with the government, upon condition that they
should be incorporated, and the funds vested in them
as well for their greater safety, as for the more con
venient recovery and management of the taxes; is
it supposeable that there could be any constitutional obstacle to the measure? It is presumed that
there could be none. It is certainly a mode of collection which it would be in the discretion of the
government to adopt; though the circumstances
must be very extraordinary, that would induce the
Secretary to think it expedient.
III. Suppose a new and unexplored branch of
trade should present itself with some foreign country. Suppose it was manifest, that to undertake it
with advantage, required a union of the capitals of
a number of individuals, and that those individuals
would not be disposed to embark without an incorporation, as well to obviate the consequences of a
private partnership, which makes every individual
liable in his whole estate for the debts of the company to their utmost extent, as for the more convenient management of the business; what reason can
there be to doubt, that the national government

OF A NATIONAL BANK.

151

would have a constitutional right to institute and
incorporate such a company ?—None.
They possess a general authority to regulate trade
with foreign countries. This is a mean which has
been practised to that end by all the principal commercial nations who have trading companies to this
day, which have subsisted for centuries. Why may
not the United "States constitutionally employ the
means usual in other countries for attaining the ends
intrusted to them ?
A power to make all needful rules and regulations
concerning territory, has been construed to mean a
power to erect a government. A power to regulate
trade is a power to make all needful rules and regulations concerning trade. Why may it not, then, include that of erecting a trading company, as well as
in other cases to erect a government?
It is remarkable that the state conventions, who
had proposed amendments in relation to this point,
have most, if not all of them, expressed themselves
nearly thus: Congress shall not grant monopolies,
nor erect any company with exclusive advantages of
commerce! Thus at the same time expressing their
sense, that the power to erect trading companies, or
corporations, was inherent in Congress, and objecting
to it no further, than as to the grant of exclusive privileges.
The Secretary entertains all the doubts which
prevail concerning the utility of such companies;
but he cannot fashion to his own mind a reason
to induce a doubt that there is a constitutional authority in the United States to establish them. If
such a reason were demanded, none could be givenf
unless it were this—that Congress cannot erect a
corporation; which would be no better than to say,

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CONSTITUTIONALITY

they cannot do it, because they cannot do it. First
presuming an inability without reason, and then assigning that inability as the cause of itself.
Illustrations of this kind might be multiplied
without end. They shall, however, be pursued no
further.
There is a sort of evidence on this point, arising
from an aggregate view of the constitution, which is
of no inconsiderable weight.
The very general
power of laying and collecting taxes, and appropriating their proceeds; that of borrowing money indefinitely; that of coining money and regulating
foreign coins; that of making all needful rules and
regulations respecting the property of the United
States: These powers combined, as well as the reason and nature of the thing, speak strongly this language: that it is the manifest design and scope of
the constitution, to vest in Congress all the powers
requisite to the effectual administration of the finances of the United States, As far as concerns this
object, there appears to be no parsimony of power.
To suppose then, that the government is precluded from the employment of so usual and so important an instrument for the administration of its finances as that of a bank, is to suppose what does not
coincide with the general tenour and complexion of
the constitution, and what is not agreeable to impressions that any mere spectator would entertain
concerning it* Little less than a prohibiting clause
can destroy the strong presumptions which result
from the general aspect of the government. Nothing but demonstration should exclude the idea
that the power exists.
To all questions of this nature, the practice of

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153

mankind ought to have great weight against the
theories of individuals.
The fact, for instance, that all the principal commercial nations have made use of trading corporations or companies, for the purpose of external coin*
merce, is a satisfactory proof, that the establishment
of them, is an incident to the regulation of commerce.
This other factA that banks are an usual engine in
the administration of national finances, and an ordinary, and the most effectual, instrument of loans,
and one winch, in this country, has been found esseutial, pleads strongly against the supposition, that
a government clothed with most of the important
prerogatives of sovereignty, in relation to its revenues, its debt, its credit, its defence, its trade, its
intercourse with foreign nations, is forbidden to make
use of that instrument as an appendage to its own
authority.
It has been stated as an auxiliary test of constitutional authority, to try whether it abridges any preexisting right of any state or any individual. The
propostxi measure will stand the most severe examination on this point. Each state may still erect as
many banks as it pleases; every individual may still
carry on the banking business to any extent he
pleases.
Another criterion may be this; whether the institution or thing has a more direct relation as to its
uses—to the objects of the reserved powers of the
state government, than to those of the powers delegated by the United States? This rule, indeed, is less
precise than the former; but it may stiJl serve as
some guide. Surely a bank has more reference to
the objects intrusted to the national government,
than to those left to the care of the state govern*
TOL. I.

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ment. The common defence is decisive in this comparison.
It is presumed, that nothing of consequence in the
observations of the Secretary of State and AttorneyGeneral, has been left unnoticed.
There are, indeed, a variety of observations of the
Secretary of State, designed to show, that the utilities ascribed to a bank, in relation to the collection of taxes and to trade, could be obtained without it. To analyze which would prolong the discussion beyond ail bounds. It shall be forborne for
two reasons: first, because the report concerning the
bank, may speak for itself in this respect; and, secondly, because all those observations are grounded
on the erroneous idea, that the quantum of necessity
or utility, is the test of a constitutional exercise of
power.
One or two remarks only shall be made; one is,
that he has taken no notice of a very essential advantage to trade in general, which is mentioned
in the report as peculiar to the existence of a bankcirculation, equal, in the public estimation, to gold
and silver. It is this that renders it unnecessary to
lock up the money of the country to accumulate for
months successively, in order to the periodical payment of interest. The other is this: that his arguments, to show that treasury-orders and bills of exchange, from the course of trade, will prevent any
considerable displacement of the metals, are founded on a particular view of the subject. A case will
prove this. The sums collected in a state, may be
small in comparison with the debt due to it. The
balance of its trade, direct and circuitous with the
seat of government, may be even, or nearly so* Here,
then, without bank bills, which in that state answer

OF A NATIONAL BANK.

155

the purpose of coin, there must be a displacement
of the coin, in proportion to the difference between
the sum collected in the state, and that to be paid
in it. With bank bills no such displacement would
take place; or, as far as it did, it would be gradual
and insensible. In many other ways, also, would
there be at least a temporary and inconvenient displacement of the coin, even, where the course of
trade would eventually return it to its proper channels.
The difference of the two situations, in point of
convenience to the treasury, can only be appreciated
by one who experiences the embarrassments of making provision for the payment of the interest on a
stock, continually changing place in thirteen different places.
One thing which has been omitted, just occurs, although it is not very material to the main argument:
The Secretary of State affirms, that the bill only
contemplates a ie-payment, not a loan to the government. But here he is certainly mistaken. It is
true, the government invests in the stock of the bank,
a sum equal to that which it receives on loans. But
let it be remembered, that it does not, therefore,
cease to be a proprietor of the stock, which would
be the case, if the money received back were in the
nature of a payment. It remains a proprietor still,
and will share in the profit or loss of the institution,
according as the dividend is more or less than the
interest it is to pay on the sum borrowed. Hence,
that sum is manifestly, and in the strictest sense, a
loan.
ALEXANDER HAMILTON.
Philadelphia, Feb. 23, 1701.

REPORT
ON THE SUBJECT OF

MANUFACTURES.
The

SECRETARY

of the

TREASURY,

in obedience to the

Order of the HOUSE of REPRESENTATIVES, of the

15th Day of January, 17CO, has applied his attention) at as early a period as his other duties tvoutd
permit, to the subject of MANUFACTURES ; and par*
ticularly to the Means of promoting such as will tend
to render the UNITED STATES independent on foreign
nations, for Military and other essential Supplies:
And he thereupon Respectfully submits the following1
REPORT.

T,HE expediency of encouraging manufactures in

the United States, which was not long since deemed
very questionable, appears at this time to be pretty
generally admitted. The embarrassments which
have obstructed the progress of our external trade,
have led to serious reflections on the necessity of
enlarging the sphere of our domestic commerce:
the restrictive regulations, which in foreign markets
abridge the vent of the increasing surplus of our
agricultural produce, serve to beget an earnest desire, that a more extensive demand for that surplus
may be created at home: And the complete success
which has rewarded manufacturing enterprise, in

158

REPORT ON

some valuable branches, conspiring with the promising symptoms which attend some less mature essays
in others, justify a hope, that the obstacles to the
growth of this species of industry, are less formidable than they were apprehended to be ; and that it
is not difficult to find, in its further extension, a
full indemnification for any external disadvantages,
which are or may be experienced, as well as an accession of resources, favourable to national independence and safety.
There still are, nevertheless, respectable patrons of
opinions, unfriendly to the encouragement of manufactures.—The following are, substantially, the arguments by which these opinions are defended:
" In every country, (say those who entertain them,)
agriculture is the most beneficial and productive object of human industry. This position, generally, if
not universally true, applies with peculiar emphasis
to the United States, on account of their immense
tracts of fertile territory, uninhabited and unimproved* Nothing can afford so advantageous an employment for capital and labour, as the conversion of
this extensive wilderness into cultivated farms. Nothing equally with this, can contribute to the population, strength, and real riches of the country."
" To endeavour, by the extraordinary patronage of
government, to accelerate the growth of manufactures, is in fact, to endeavour, by force and art* to
transfer the natural current of industry, from a more
to a less beneficial channel. Whatever has such a
tendency, must necessarily be unwise. Indeed it
can hardly ever be wise in a government, to attempt
to give a direction to the industry of its citizens*
This, under the quick-sighted guidance of private
interest, will, if left to itself, infallibly find its own

MANUFACTURES.

159

way to the most profitable employment; and it is by
such employment, that the public prosperity will be
most effectually promoted. To leave industry to
itself, therefore, is, in almost every case, the soundest as well* as the simplest policy."
** This policy is not only recommended to the
United States, by considerations which affect all nations ; it is, in a manner, dictated to them by the imperious force of a very peculiar situation. The
smallness of their population, compared with their
territory; the constant allurements to emigration from
the settled to the unsettled parts of the country;
the facility with which the less independent condition of an artisan can be exchanged for the more independent condition of a farmer; these, and similar
causes, conspire to produce, and for a length of time
must continue to occasion, a scarcity of hands for
manufacturing occupation, and dearness of labour
generally. To these disadvantages for the prosecu.
tion of manufactures, a deficiency of pecuniary capital being added, the prospect of a successful competition with the manufacturers of Europe, must be
regarded as little less than desperate. Extensive
manufactures can only be the offspring of a redundant, at least of a full, population. Till the latter
shall characterize the situation of this country, it is
rain to hope for the former."
** If, contrary to the natural course of things, an
unseasonable and premature spring can be given to
certain fabrics, by heavy duties, prohibitions, bounties, or by other forced expedients; this will only
be to sacrifice the interests of the community to those
of particular classes. Besides the misdirection of
labour, a virtual monopoly will be given to the persons employed on such fabrics; and an enhance-

160

REPORT ON

meut of price, the inevitable consequence of every
monopoly, must be defrayed at the expense of the
other parts of the society. It is far preferable, that
those persons should be engaged in the cultivation
of the earth, and that we should procure, in exchange for its productions, the commodities, with
which foreigners are able to supply us in greater
perfection, and upon better terms."
This mode of reasoning is founded upon facts and
principles, which have certainly respectable pretensions. If it had governed the conduct of nations,
more generally than it has done, there is room to
suppose, that it might have carried them faster to
prosperity and greatness, than they have attained by
the pursuit of maxims too widely opposite. Most
general theories, however, admit of numerous exceptions ; and there are few, if any, of the political
land, which do not blend a considerable portion of
error 'with the truths they inculcate.
In order to an accurate judgment how far that
which has been just stated, ought to be deemed liable to a similar imputation, it is necessary to advert
carefully to the considerations which plead in favour
of manufactures, and which appear to recommend
the special and positive encouragement of them in
certain cases, and under certain reasonable limitations.
It ought readily to be conceded, that the cultivation of the earth, as the primary and most certain
source of national supply; as the immediate, and
chief source of subsistence to man ; as the principal
source of those materials which constitute the nutriment of other kiuds of labour; as including a state
most favourable to the freedom and independence of
the human mind; one, perhaps,most conducive to

MANUFACTURES.

161

the multiplication of the human species ; has intrinsically a strong claim to pre-eminence over every other
kind of indttstry.

But, that it has a title to an}r thing like an exclusive predilection, in any country, ought to be admitted with great caution. That it is even more productive than every other branch of industry, requires
more evidence than has yet been given in support
of the position. That its real interests, precious and
important as, without the help of exaggeration, they
truly are, will be advanced, rather than injured by
the due encouragement of manufactures, may, it is
believed, be satisfactorily demonstrated. And it is
also believed, that the expediency of such encourage*
ment, in a general view, may be shown to be recommended by the most cogent and persuasive motives
of national policy.
It has been maintained, that agriculture is not only
the mostproductive, but theonly productive species of
industry. ' The reality of this suggestion, in either
respect, has, however, not been verified by any accurate detail of facts and calculations; and the general arguments, which are adduced to prove it, are
rather subtil and paradoxical, than solid or convincing.
Those which maintain its exclusive productiveness
arc to this effect:—
Labour, bestowed upon the cultivation of land,
produces enough, not only to replace all the neces*
saiy expenses incurred in the business, and to maintain the persons who are employed in it; but to afford, together with the ordinary profit on the stock
or capital of the farmer, a neat surplus, or re?U9 for
the landlord or proprietor of the soil. But the labour of artificers does nothing more than replace the
vox,, i.
Y

162

REPORT ON

stock which employs them, (or which furnishes materials, tools, and wages,) and yield the ordinary profit upon that stock. It yields nothing equivalent to
the rent of land. Neither does it add any thing to
the total value of the whole annual produce of the
land and labour of the country. The additional
value given to those parts of the produce of land,
which are wrought into manufactures, is counterbalanced by the value of those other parts of that produce, which are consumed by the manufacturers. It
can, therefore, only be by saving or parsimony% not
by the positive productiveness of their labour, that
the classes of artificers can in any degree augment
the revenue of the society.
To this it has been answered,
1. « That inasmuch as it is acknowledged, that
manufacturing labour re-produces a value equal to
that which is expended or consumed in carrying it
on, and continues in existence the original stock or
capital employed, it ought on that account alone, to
escape being considered as wholly unproductive.
That though it should be admitted, as alleged, that
the consumption of the produce of the soil, by the
classes of artificers or manufacturers, is exactly equal
to the value added by their lalx>ur to the materials
upon which it is exerted ; yet, it would not thence
follow, that it added nothing to the revenue of the
society, or to the aggregate value of the annual produce of its land and labour. If the consumption
for any given period, amounted to a.given sum, and
the increased value of the produce manufactured, in
the same period, to a like stim, the total amount of
the consumption and production, during that period,
would be equal to the two stuns; and, consequently,
double the value of the agricultural produce con-

MANUFACTURES.

163

sumed. And though the increment of value produced by the classes of artificers, should at no time
exceed the value of the produce of the land consumed by them, yet there would be at every moment, in consequence of their labour, a greater va*
lue of goods in the market than would exist independent of it,"
2. " That the position, that artificers can augment
the revenue of a society, only by parsimony, is true
in no other sense, than in one which is equally applicable to husbandmen or cultivators. It may be
alike affirmed of all these classes, that the fund acquired by their labour and destined for their support, is not, in an ordinary way, more than equal to
it. And hence it will follow, that augmentations of
the wealth or capital of the community, (except in
the instances of some extraordinary dexterity or
skill,) can only proceed, with respect to any of them,
from the savings of the more thrifty and parsimonious."
3. " That the annual produce of the land and
labour of a country, can only be increased in two
ways—by some improvement in the productivepoivers
of the useful labour, which actually exists within
it, or by some increase in the quantity of such la
bour: That with regard to the first, the labour of
artificers being capable of greater subdivision and
simplicity of operation, than that of cultivators, it is
susceptible, in a proportionably greater degree, of improvement in its productive powers, whether to be
derived from an accession of skill, or from the application of ingenious machinery; in Avhich particular, therefore, the labour employed in the culture of
land can pretend to no advantage over that engaged
in manufactures: Th.nt with regard to an augments-

REPORT ON
tion of the quantity of useful labour, this, excluding adventitious circumstances, must depend essentially upon an increase of capital, which again must
depend upou the savings made out of the revenues
of those, who furnish or manage that> which is at
any time employed, whether in agriculture, or in
manufactures, or in any other way.'*
But while the exclusive productiveness of agricultural labour has been thus denied and refuted, the
superiority of its productiveness has been conceded
without hesitation. As this concession involves a
point of considerable magnitude, in nlation to maxims of public administration, the grounds on which
it rests are worthy of a distinct and particular examination.
One of the arguments made use of in support of
the idea, may be pronounced both quaint and superficial. It amounts to this—That in the productions
of the soil, nature co-operates with man; and that
the effect of their joint labour must be greater than
that of the labour of man alone.
This, however, is far from being a necessary inference. It is very conceivable, that the labour of man
alone laid out upon a work, requiring great skill and
art to bring it to perfection, may be more productive
in value than the labour of nature and man combined,
when directed towards more simple operations and
objects. And when it is recollected to what an extent the agency of nature, in the application of the
mechanical powers, is made auxiliary to the prosecution of manufactures, the suggestion which has
been noticed, loses even the appearance of plausibility.
It might also be observed, with a contrary view, that
the labour employed in agriculture is in a great raea-

MANUFACTURES.

165

sure periodical and occasional, depending on seasons,
and liable to various and long intermissions ; while
that occupied in many manufactures, is constant and
regular, extending through the year, embracing, in
some instances, night as well as day* It is also probable, that there are among the cultivators of land,
more examples of remissness, than among artificers.
The farmer, from the peculiar fertility of his land,
or some other favourable circumstance, may frequently obtain a livelihood, even with a considerable degree of carelessness in the mode of cultivation ; but the artisan can with difficulty effect the
same object, without exerting himself pretty equally
with all those who are engaged in the same pursuit.
And if it may likewise be assumed as a fact, that
manufactures open a wider field to exertions of ingenuity than agriculture, it would not be a strained
conjecture, that the labour employed in the former,
being at once more constant, more uniform, and more
ingenious, than that which is employed in the latter,
will be found at the same time more productive.
But it is not meant to lay stress on observations of
this nature; they ought only to serve as a counterbalance to those of a similar complexion. Circumstances so vague and general, as well as so abstract,
can afford little instruction in a matter of this kind.
Another, and that whioh seems to be the principal
argument offered for the superior productiveness of
agricultural labour, turns upon the allegation, that
labour employed on manufactures yields nothing
equivalent to the rent of land; or to that neat surplus, as it is called, which accrues to the proprietor
of the soil.
But this distinction, important as it has been deemed, appears rather verbal than substantial*

1G6

REPORT O N

It is easily discernible, that what in the first instance is divided into two parts, under the denominations of the ordinary profit of the stock of the farmer,
and rent to the landlord, is in the second instance
united under the general appellation of the ordinary
profit on the stock of the undertaker; and that this
formal or verbal distribution constitutes the whole
difference in the two cases* It seems to have been
overlooked, that the land is itself a stock or capital,
advanced or lent by its owner to the occupier or
tenant; and that the rent he receives is only the or*
dinary profit of a certain stock in land, not managed
by the proprietor himself, but by another to whom he
lends or lets i t ; and who, on his part, advances a
second capital to stock and improve the land, upon
which he also receives the usual profit. T h e rent of
the landlord, and the profit of the farmer, are therefore nothing more than the ordinary profits of two
Capitals, belonging to two different persons, and united in the cultivation of a farm: As in the other
case, the surplus which arises upon any manufactory,
after replacing the expenses of carrying it on, answers to the ordinary profits of one or niorc capitals engaged in the prosecution of such manufactory. It is
said one or more capitals; because in fact, the same
thing which is contemplated in the case of a farm,
sometimes happens in that of a manufactory. There
is one, who furnishes a part of the capital, or lends apart of the money, by which it is carried on, and
another, who carries it on, with the addition of his
own capital. Out of the surplus which remains,
after defraying expenses, an interest is paid to the
money lender, for the portion of the capital furnished
by him, which exactly agrees with the rent paid to
the landlord; and the residue of that surplus con-

MANUFACTURES.

167

stitutes the profit of the undertaker or manufacturer;
and agrees with what is denominated the ordinary
profits on the stock of the farmer. Both together
make the ordinary profits of two capitals employed in
a manufactory: as in the other case the rent of the
landlord, and the revenue of the farmer, compost
t t e ordinary profits of two capitals, employed in the
cultivation of a farm.
The rent therefore, accruing to the proprietor of
the land, far from being a criterion of exclusive productiveness, as has been argued, is no criterion even
of superior productiveness. The question must still
be* whether the surplus, after defraying expenses of
a given capital, employed in the purchase and improvcment of a piece of land, is greater or less, than
that of a like capital employed in the prosecution of
a manufactory; or whether the whole value produced from a given capital and a given quantity of labour, employed in one way, be greater or less than
the whole value produced from an equal capital and an
equal quantity of labour employed in the other way;
or rather, perhaps, whether the business of agriculture, or that of manufactures, will yield the greatest
product, according to a compound ratio of the quantity of the capital, and the quantity of labour, which
are employed in the one or in the other.
The solution of either of these questions is not
easy; it involves numerous and complicated details,
depending on an accurate knowledge of the objects to
be compared. It is not known that the comparison
has ever yet been made upon sufficient data properly
ascertained and analyzed. To be able to make it on
the present occasion with satisfactory precision, would
demand more previous inquiry and investigation*

168

KEPORT ON

than there has been hitherto either leisure or opportunity to accomplish.
Some essays, however, have been made towards acquiring the requisite information; which have rather served to throw doubt upon, than to confirm,
the hypothesis under examination. But it ought to
be acknowledged, that they have been too little diversified, and are too imperfect to authorize a definitive conclusion either way; leading rather to probable conjecture, than to certain deduction. They
render it probable, that there are various branches
of manufactures, in which a given capital will yield a
greater total product, and a considerably greater neat
product, than an equal capital invested in the purchase and improvement of lands; and that there arc
also some branches, in which both the gross and the
neat produce will exceed that of agricultural industry, according to a compound ratio of capital and
labour. But it is on this last point, that there appears to be the greatest room for doubt. It is far
less difficult to infer generally, that the neat produce
of capital engaged in manufacturing enterprises is
greater than that of capital engaged in agriculture.
The foregoing suggestions are not designed to inculcate an opinion that manufacturing industry is more
productive than that of agriculture. They are in tended
rather to show, that the reverse of this proposition, is
not ascertained ; that the general arguments which
are brought to establish it, are not satisfactory; and
consequently, that a supposition of the superior productiveness of tillage, ought to be no obstacle to
listening to any substantial inducements to the encouragement of manufactures, which may be otherwise perceived to exist, through an apprehension,

MANUFACTURES.

169

that they may have a tendency to divert labour fiom
a more, to a Jess, profitable employment*
It is extremely probable, that on a full and accurate developement of the matter, on the ground of
fact and calculation, it would be discovered, that
there is no material difference between the aggregate productiveness of the one, and of the other
kind of industry; and that the propriety of the encouragements, which may in any case be proposed
to be given to either, ought to be determined upon,
considerations irrelative to any comparison of that
nature.
II. But, without contending for the superior productiveness of manufacturing industry, it may conduce to a better judgment of the policy which ought
to be pursued respecting its encouragement, to contemplate the subject, under some additional aspects,
tending not only to confirm the idea, that this kind
of industry has been improperly represented as unproductive in itself; but to evince, in addition, that
the establishment and diffusion of manufactures have
the effect of renderiug the total mass of useful and
productive labour, in a community, greater than it
would otherwise he. In prosecuting this discussion, it
may be necessary briefly to resume and review some
of the topics which have been already touched.
To affirm that the labour of the manufacturer is
unproductive, because he consumes as much of the
produce of land as he adds value to the raw materials which he manufactures, is not better founded,
than it would be to affirm, that the labour of the
fanner, which furnishes materials to the manufacturer, is unproductive, because he consumes an equal
value of manufactured articles. Each furnishes a cerVOL. i.
z

170

REPOKT ON

tain portion of the produce of hid labour to the
other, and each destroys a correspondent portion of
the produce of the labour of the other. In the mean
time, the maintenance of two citizens, instead of one,
is going on; the state has two members instead of
one; and they together consume twice the value of
what is produced from the land.
If, instead of a farmer and artificer, there were a
farmer only, he would be under the necessity of devoting a part of his labour to the fabrication of
clothing and other articled, which he would procure
of the artificer, in the case of there being such a
person; and, of course, he would be able to devote
less labour to the cultivation of his farm, and would
draw from it a proportionably less product. The
whole quantity of production, in this state of things,
in provisions, raw materials, and manufactures,
would certainly not exceed in value the amount of
what would be produced in provisions and raw materials only, if there were an artificer as well as a
farmer.
Again—If there were both an artificer and a farmer, the latter would be left at liberty to pursue exclusively the cultivation of his faim A greater
quantity of provisions and raw materials would of
course be produced, equal, at least, as has been already observed, to the whole amount of the provisions, raw materials, and manufactures, which would
exist on a contrary supposition. The artificer, at the
same time, would be going on in the production of
manufactured commodities; to an amount sufficient
not only to repay the farmer, in those commodities,
for the provisions and materials which were procured from; him but to furnish the artificer himself with
a supply of similar commodities for his own use.

MANUFACTURES.

171

Thus, then, there would be two quantities or values
in existence instead of one ; and the revenue and
consumption would be double in one case, what it
would be in the other.
If in place of both these suppositions, there were
supposed to be two farmers and no artificer, each of
whom applied a part of his labour to the culture of
land, and another part to the fabrication of manufactures; in this case, the portion of the labour of
both, bestowed upon land, would produce the same
quantity of provisions and raw materials only, as
wpuld be produced by the entire sum of the labour of
one applied in the same manner; and the portion of
the labour of both bestowed upon manufactures, would
produce the same quantity of manufactures only, as
would be produced by the entire sum of the labour
of one applied in the same manner. Hence the produce of the labour, of the two farmers would not be
greater than the produce of the labour of the farmer
and artificer; and hence it results, that the labour of
the artificer is as, positively productive as that of the
farmer, and as positively augments the revenue of
the society.
The labour of the artificer replaces to the farmer
that portion of his labour with which he provides
the materials of exchange with the artificer, and
which he would otherwise have been compelled to
apply to manufactures; and while the artificer thus
enables the farmer to enlarge his stock of agricultut
ral industry, a portion of which he purchases for his
own use, he also supplies himself with the manufactured
articles of which he stands in need. He does still more
—Besides this equivalent which he gives for the
portion of agricultural labour consumed by him, and
this supply of manufactured commodities for his own

172

REPORT ON

consumption, he furnishes still a surplus, which compensates for the use of the capital advanced, either
by himself or some other person, for carrying on the
business* This is the ordinary profit of the stock
employed in the manufactory, and is, in every sense,
as effective an addition to the income of the society,
as the rent of land.
The produce of the labour of the artificer, consequently, may be regarded as composed of three parts;
one, by which the provisions for his subsistence, and
the materials for his work, are purchased of the farmer; one, by which he supplies himself with manufactured necessaries; and a third, which constitutes
the profit on the stock employed. The two last portions seem to have been overlooked, in the system
which represents manufacturing industry as barren
and unproductive.
In the course of the preceding illustrations, tlte products of equal quantities of the labour of the farmer and artificer have been treated as if equal to each
other. But this is not to be understood as intending
to assert any such precise equality. It is merely a
manner of expression adopted for the sake of simplicity and perspicuity* Whether the value of the
produce of the labour of the farmer, be somewhat
more or less than that of the artificer, is not material
to the main scope of the argument; which hitherto
has only aimed at showing, that the one, as well as
the other, occasions a positive augmentation of the
total produce and revenue of the society.
It is now proper to proceed a step further, and to
enumerate the principal circumstances, from which
it may be inferred, that manufacturing establishments, not only occasion a positive augmentation of
the produce and revenue of the society, but that

MANUFACTURES.

173

they contribute essentially to rendering them greater than they could possibly be, without such establishments. These circumstances are,
1. The division of labour.
2. An extension of the use of machinery.
3. Additional employment to classes of the community not ordinarily engaged in the business.
4. The promoting of emigration from foreign
countries.
5. The furnishing greater scope for the diversity
of talents and dispositions which discriminate men
from each other.
6. The affording a more ample and various field
for enterprise.
7. The creating, in some instances, a new, and securing in all, a more certain and steady demand for
the surplus produce of the soil.
Each of these circumstances has a considerable influence upon the total mass of industrious effort in a
community: together, they add to it a degree of
energy and effect, which are not easily conceived.
Some comments upon each of them, in the order .in
which they have been stated, may serve to explain
their importance.
I, As to the division of labour.—
It has justly been observed, that there is scarcely
any thing of greater moment in the economy of a nation, than the proper division of labour. The separation of occupations, causes each to be carried to a
much greater perfection than it could possibly acquire, if they were blended. This arises principally
from three circumstances.
1st. The greater skill and dexterity naturally resulting from a constant and undivided application to

174

REPORT ON

a single object. It is evident, that these properties
must increase* in proportion to the separation and
simplification of objects, and the steadiness of the attension devoted to each; and must be less, in proportion to the complication of objects, and the number among which the attention is distracted.
2d* The economy of time, by avoiding the loss of
it, incident to a frequent transition from one operation to another of a different nature. This depends
on various circumstances; the transition itself, the
orderly disposition of the implements, machines,
and materials employed in the operation to be relinquished ; the preparatory steps to the commencement
of a new one, the interruption of the impulse, which
the mind of the workman acquires, from being engaged in a particular operation; the distractions, hesitations, and reluctances, which attend the passage
from one kind of business to another.
3d. An extension of the use of machinery.—A man
occupied on a single object will have it more ia
his power, and will be more naturally led to exert
his imagination in devising methods to facilitate and
abridge labour, than if he were perplexed by a variety of independent and dissimilar operations. Besides
this, the fabrication of machines, in numerous instances, becoming itself a distinct trade, the artist
who follows it, has all the advantages which have
been enumerated, for improvement in his particular
art; and in both ways, the invention and application
of machinery are extended*
. And from these causes united, the mere separation
of the occupation of the cultivator, from that of the
artificer, has the effect of augmenting the pro*
ductive pmvers of labour, and with them, the total
mass of the produce or revenue of a country* In this

MANUFACTURES.

175

single view of the subject, therefore, the utility
of artificers or manufacturers, towards promoting an
increase of productive industry, is apparent.
II. As to an extension of the use of machineryt a
point which, though partly anticipated^ requires to be
placed in one or two additional lights.
The employment of machinery forms an item of
great importance in the general mass of national
industry. It is an artificial force, brought in aid of
the natural force of man; and, to all the purposes
of labour, is aa increase of hands; an accession of
strength, unincumbered too by the expense of maintaining the labourer. May it not therefore be fairly inferred, that those occupations, which give greatest
scope to the use of this auxiliary, contribute most to
the general stock of industrious effort, and, in consequence, to the general product of industry ?
It shall be taken for granted, and the truth of the
position referred to observation, that manufacturing
pursuits are susceptible in a greater degree of the
application of machineiy, than those of agriculture.
If so, all the difference is lost to a community,
which, instead of manufacturing for itself, procures
the fabrics requisite to its supply from other countries. The substitution of foreign for domestic manufactures,is a transfer to foreign nations of the advantages accruing from the employment of machinery,
in the modes in which it is capable of being employed, with most utility, and to the greatest extent.
The cotton mill invented in England, within the
last twenty years, is a signal illustration of the general proposition, which has been just advanced. In
consequence of it, all the different processes for spinjring cotton, are performed by means of machines,
which are put in motion by water, and attended chief-

17G

KEPOKT ON

Jy by women and children; and by a smaller number of persons, in the whole, than are requisite in the
ordinary mode of spinning. And it is an advantage
of great moment that the operations of this mill continue with convenience, during the night, as well
as through the day. T h e prodigious effect of such
a machine is easily conceived. To this invention is
to be attributed essentially the immense progress,
which has been so suddenly made in Great-Britain,
In the various fabrics of cotton.
III. As to the additional employment of classes of tJie
communityj not originally engaged in the particular business.

This is not among the least valuable of the means,
by which manufacturing institutions contribute to
augment the general stock of industry and production. In places where those institutions prevail, besides the persons regularly engaged in them, they
afford occasional and extra employment to industrious
individuals and families, who are willing to devote
the leisure resulting from the intermissions of their
ordinary pursuits to collateral labours, as a resource
for multiplying their acquisitions or their enjoyments.
The husbandman himself experiences a new source
of profit and support, from the increased industry of
his wife and daughters ; invited and stimulated by
the demands of the neighbouring manufactories.
Beside this advantage of occasional employment to
classes having different occupations, there is another
of a nature allied to it, and of a similar tendency.
This is, the employment of persons who would otherwise be idle, (and in many cases a burthen on the
community,) either from the bias of temper, habit,
infirmity of body, or some other cause, indisposing
or disqualifying them for the toils of the country*

MANUFACTURES.

17 7

It is worthy of particular remark, that, in general,
women and children are rendered more useful, and
the latter more early useful, by manufacturing establishments, than they would otherwise be. Of the
number of persons employed in the cotton maufactories of Great-Britain, it is computed that four*
sevenths nearly are women and children; of whom
the greatest proportion are children, and many of
them of a tender age.
And thus it appears to be one of the attributes of
manufactures, and one of no small consequence, to
give occasion to-the exertion of a greate* quantity of
industry, even by the same number of persons, where
they happen to prevail, than would exist, if there
were no such establishmentsIV. As to the promoting of emigration from foreign
countries.
Men reluctantly quit one course of occupation
and livelihood for another, unless invited to it by
very apparent and proximate advantages. Many, who
would go from one country to another, if they had
a prospect of continuing, with more benefit, the callings to which they have been educated; will often
not be tempted to change their situation by the hope
of doing better in some other way. Manufacturers
who, listening to the powerful invitations of a better
price for their fabrics, or their labour; of greater
eheapness of provisions and raw materials; of an
exemption from the chief part of the taxes, burthens, and restraints, which they endure in the old
world; of greater personal independence and consequence, under the operation of a moife, equal go;
vernment; and of what is far more precious thaij
mere religious toleration, a perfect equaiity of religious privileges; would probably flock from Europe
VOL. i.
2 A

J78

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to the United States to pursue their own trades ox
professions, if they were once made sensible of the
advantages they would enjoy, and were inspired
with an assurance of encouragement and employment—will with difficulty, be induced to transplant
themselves, with a view to becoming cultivators of
land*
If it be true, then, that it is the interest of the
United States to open every possible avenue to emigration from abroad, it affords a weighty argument for
the encouragement of manufactures; which, for the
reasons just assigned, will have the strongest tendency to multiply the inducements to it.
Here is perceived an important resource, not only
for extending the population, and with it the useful
and productive labour of the country; but likewise for the prosecution of manufactures, without
deductiug from the number of hands, which might
otherwise be drawn to tillage; and even for the
indemnification of agriculture for such as might happen to be diverted from it. Many, whom manufacturing views would induce to emigrate, would afterwards yield to the temptations, which the particular situation of this country holds out to agricultu-r
ral pursuits. And wliile agriculture would in other
respects derive many signal and unmingled advantages, from the growth of manufactures, it is a problem whether it would gain or lose, as to the article
of the number of persons employed in carrying it
on*
V. As to t/ie furnishing greater scope for the diversity of talctes and dispositions, which discriminate
men from each other*
This is a much more powerful mean of augmenting the fund of national industry, than may at first

MANUFACTURES.

179

sight appear. It is a just observation, that minds of
the strongest and most active powers for their proper objects, fell below mediocrity, and labour without
effect, if confined to uncongenial pursuits. And it
is thence to be inferred, that tlie results of human
exertion may be immensely increased by diversifying
its objects. When all the different kinds of in*
dustry obtain in a community, each individual can
find his proper element, and can call into activity
the*whole vigour of his nature. And the community is benefited by the services of its respective members, in the manner in which each can serve it with
most effect.
If there be any thing in a remark often to be met
with,namely, that there is, in the genius of the people of this country, a peculiar aptitude for mechanic
improvements, it would operate as a forcible reason
for giving opportunities to the exercise of that species
of talent, by the propagation of manufactures.
VI. As to the affording a more ample and various
field for enterprise.
This also is of greater consequence in the general
scale of national exertion, than might, perhaps, on a
superficial view, be supposed; and has effects not
altogether dissimilar from those of the circumstance
last noticed. To cherish and stimulate the activity
of the human mind, by multiplying the objects
of enterprise, is not among the least considerable
of the expedients, by which the wealth of a nation:
may be promoted. Even things in themselves, not
positively advantageous, sometimes become so, by
their tendency to provoke exertion.
Every new
scene which is opened to the busy nature of man, to
rouse and exert itself, is the addition of a new energy to to the general stock of effort.

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REPORT ON

The spirit of enterprise, useful and prolific as it i$s
must necessarily be contracted or expanded in proportion to the simplicity or variety of the occupations and productions, which are to be found in a
society. It must be less in a nation of mere cultivators, than in a nation of cultivators and merchants; less in a nation of cultivators and merchants,
than in a nation of cultivators, artificers, and merchants.
VII. As to the creating, in some instances, a new,
and securing in all, a more certain and steady demand^
for the surplus produce of the soiL
This is among the most important of the circumstances whic^have been indicated- It is a principal
mean, by which the establishment of manufactures
contributes to an augmentation of the produce or
revenue of a country, and has an immediate and
direct relation to the prosperity of agriculture.
It is evident, that the exertions of the husbandman will be steady or fluctuating, vigorous or feeble,
in proportion to the steadiness or fluctuation, adequateness, or inadequateness, of the markets on which
he must depend for the vent of the surplus which
may be produced by his labour; and that such surplus, in the ordinary course of things, will be greater or less in the same proportion.
For the purpose of this vent, a domestic market
is greatly to be preferred to a foreign one; because
it is, in the nature of things, far more to be relied
upon.
It is a primary object of the policy of nations, to
be able to supply themselves with subsistence from
their own soils; and manufacturing nations, as far
as circumstances permit, endeavour to procure from
the same source, the raw materials necessary for their

MANUFACTURES.

181

own fabrics. This disposition, urged by the spirit
of monopoly, is sometimes even carried to an injudicious extreme* It seems not always to be recollected, that nations, who have neither mines nor
manufactures, can only obtain the manufactured articles of which they stand in need, by an exchange of
the products of their soils; and that, if those who
can best furnish them with such articles, are unwilling
to give a due course to this exchange, they must of
necessity make every possible effort to manufacture
for themselves; the effect of which is, that the manufacturing nations abridge the natural advantages of
their situation, through an unwillingness to permit
the agricultural countries to enjoy the advantages of
theirs; and sacrifice the interests of a mutually beneficial intercourse, to the vain project of selling every
things and buying nothing.
But it is also a consequence of the policy which has
been noted, that the foreign demands for the products of agricultural countries, is in a great degiee,
rather casual and occasional, than certain or constant. To what extent injurious interruptions of the
demand for some of the staple commodities of the
United States may have been experienced, from that
cause, must be referred to the judgment of those
who are engaged in carrying on the commerce of the
country; but it may be safely affirmed, that such interruptions are at times very inconveniently felt,
and that cases not unfrequently occur, in which markets are so confined and restricted, as to render the
demand very unequal to the supply.
Independently,, likewise, of the artificial impediments, which are created by the policy in question,
there are natural causes tending to render the external

182

REPORT ON

demand for the surplus of agricultural nations a precarious reliance. The differences of seasons, in the
countries which are the consumeis, make immense
differences in the produce of their own soils, in
different years; aud consequently in the degrees of
their necessity for foreign supply* Plentiful harvests with them, especially if similar ones occur at
the same time in the countries which are the furnishers, occasion of course a glut in the markets of
the latter.
Considering how fast and how much the progress
of Dew settlements in the United States must increase the surplus produce of the soil; and weighing
seriously the tendency of the system, which prevails
among most of the commercial nations of Europe;
whatever dependence may he placed on the force
of natural circumstances to counteract the effects of
an artificial policy; there appear strong Reasons to
regard the foreign demand for tliat surplus as too uncertain a reliance, and to desire a substitute for it, in
an extensive domestic market.
To secure such a market, there is no other expedient, than to promote manufacturing establishments.
Manufacturers, who constitute the most numerous
class, after the cultivators of land, are for that reason the principal consumers of the surplus of their
labour.
This idea of an extensive domestic market for the
surplus produce of the soil, is of thefirstconsequence.
It is of all things, that which most effectually conduces to a flourishing state of agriculture. If the effect of manufactories should be to detach a portion of
the hands, which would otherwise be engaged in tillage, it might possibly cause a smaller quantity o l
lands to be under cultivation; but by their tendency

MANUFACTURES.

183

to procure a more certain demand for the surplus produce of the soil, they would at the same time, cause
the lands ivhich were in cultivation, to he better improved, and more productive. And while, by their»
influence, the condition of each individual farmer
would be meliorated, the total mass of agricultural
production would probably be increased. For this
must evidently depend as much upon the degree of
improvement, if not more, than upon the number of
acres under culture.
It merits particular observation, that the multiplication of manufactories, not only furnishes a market
for those articles which have been accustomed to be
produced in abundance in a country; but it likewise creates a demand for such as were either unknown, or produced in inconsiderable quantities. The
bowels, as well as the surface of the earth, are ransacked for articles which were before neglected.
Animals, plants, and minerals, acquire an utility and
value which were before unexplored.
The foregoing considerations seem sufficient to es* .
tablish, as general propositions, that it is the interest
of nations to diversify the industrious pursuits of
the individuals who compose them.—That the establishment of manufactures is calculated, not only to
increase the general stock of useful and productive labour; but even to improve the state of agriculture
in particular; certainly to advance the interests of
those who are engaged in it. There are other views,
that will be hereafter taken of the subject, which, it
is conceived, will serve to confirm these inferences.
III. Previously to a further discussion of the objections to the encouragement of manufactures which
have been stated, it will be of use to see what can be
said in reference to the particular situation of the

184

REPORT ON

United States, against the conclusions appearing to
result from what has been already offered.
It may be observed, and the idea is of no inconsiderable weight, that however true it might be, that
a state which, possessing large tracts of vacant and
fertile territory, was at the same time secluded from
foreign commerce, would find its interest and the interest of agriculture, in diverting a part of its population from tillage to manufactures; yet it will not
follow, that the same is true of a state, which,
having such vacant and fertile territory, has at the
same time ample opportunity of procuring from
abroad, on good terms, all the fabrics of which it
stands in need, for the supply of its inhabitants. The
power of doing this, at least, secures the great advantage of a division of labour, leaving the farmer free
to pursue exclusively the culture of his land, and enabling him to procure with its products the manufactured supplies requisite either to his wants or to his
enjoyments. And though it should be true, that
in settled countries, the diversification of industry is
conducive to an increase in the productive powers
of labour, and to an augmentation of revenue and capital ; yet it is scarcely conceivable that there can be
any thing of so solid and permanent advantage to an
uncultivated and unpeopled country, as to convert
its wastes into cultivated and inhabited districts. If
the revenue, in the mean time, should be less, the
capital, in the event, must be greater.
To these observations, the following appears to be
a satisfactory answer—
1. If the system of perfect liberty to industry and
commerce were the prevailing system of nations,
the arguments which dissuade a country in the predicament of the United States, from the zealous pur-

MANUFACTURES.

185

suit of manufactures would, doubtless, have great
force. Tt will not be affirmed, that they might not
be permitted, with few exceptions, to serve as a rule
of national conduct. In such a state of things, each
country would have the full benefit of its peculiar advantages, to compensate for its deficiencies or disadvantages. If one nation were in a
condition to supply manufactured articles on better terms than another, that other might find an
abundant indemnification in a superior capacity to
furnish the produce of the soil. And a free exchange, mutually beueficial, of the commodities
which each was able to supply, on the best terms,
might be carried on between them, supporting in
full vigour the industry of each. And though the
circumstances which have been mentioned, and
others which will be unfolded hereafter, render it
probable, that nations merely agricultural, would not
enjoy the same degree of opulence, in proportion to
their numbers, as these which united manufactures with agriculture; yet the progressive improvement of the lands of the former, might, in the end,
atone for an inferior degree of opulence in the.
mean time; and in a case in which opposite considerations are pretty equally balanced, the option
ought perhaps always to be in favour of leaving
industry to its own direction.
But the system, which has been mentioned, is far
from characterising the general policy of nations.
The prevalent one has been regulated by an opposite spirit. The consequence of it is, that the United
States are, to a certain extent, in the situation of a
country precluded from foreign commerce. They
can indeed, without difficulty, obtain from abroad
the manufactured supplies, of which they are in want;
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2B

186

REPORT ON

but they experience numerous and very injurious
impediments to the emission and vent of their own
commodities* Nor is this the case in reference to ft
single foreign nation only. The regulations of several countries, with which we have the most extensive intercourse, throw serious obstructions in the
way of the principal staples of the United States.
In such a position of tilings, the United States
cannot exchange with Europe on equal terms; and
the want of reciprocity would render them the victim of a system, which should induce them to confine their views to agriculture, and refrain from manufactures. A constant and increasing necessity,
on their part, for the commodities of Europe, and
only a partial and occasional demand for their own,
in return, could not but expose them to a state of
impoverishment, compared with the opulence to
which their political and natural advantages authorize them to aspire.
Remarks of this kind are not made in the spirit of
complaint. It is for the nations, whose regulations
are alluded to, to judge for themselves, whether, by
aiming at too much, they do not lose more than they
gain. It is for the United States to consider by
what means they can remler themselves least dependent, on the combinations, right or wrong, of foreign policy.
It is no small consolation, that already the measures which have embarrassed our tradej have accelerated internal improvements, which upon the whole
have bettered our affairs. To diversify and extend
these improvements, is the surest and safest method
of indemnifying ourselves for any inconveniences,
which those or similar measures have a tendency to
beget. If Europe will not take from us the products

MANUFACTURES.

187

of our soil, upon terms consistent with our interest,
the natural remedy is to contract, as fast as possible,
our wants of her.
2. The conversion of their waste into cultivated
lands, is certainly a point of great moment in the
political calculations of the United States. But the
degree in which this may possibly be retarded by
the encouragement of manufactories, does not appear
to countervail the powerful inducements to affording that encouragement.
An observation made in another place, is of a nature to hare great influence upon this question—If
it cannot be denied, that the interests even of agriculture may be advanced more hy having such of the
lands of a state as are occupied under good cultivation,
than by having a greater quantity ocupied under a
muchinferior{cultivation; andif manufactories,for the
reasons assigned, must be admitted to have a tendency
to promote a more steady and vigorous cultivation of
the lands occupied, than would happen without them,
it will follow, that they are capable of indemnifying
a country for a diminution of the progress of new settlements ; and may serve to increase both the capital value and the income of its lands, even though
they should abridge the number of acres under tillage.
But it does by no means follow, that the progress
of new settlements would be retarded by the extension of manufactures. The desire of being an
independent proprietor of land, is founded on such
strong principles in the human breast, that where
the opportunity of becoming so is as great as it is in
the United States, the proportion will be small of
those, whose situations would otherwise lead to it,
who would be diverted from it towards manufactures-

188

REPORT ON

And it is highly probable, as already intimated, that
the accessions of foreigners, who, originally drawn
over by manufacturing views, would afterwards abandon them for agricultural, would be more than an
equivalent for those of our own citizens, who might
happen to be detached from them.
The remaining objections to a particular encouragement of manufactures in the United States now
require to be examined.
One of these turns on the proposition, that industry, if left to itself, will naturally find its way to the
most useful and profitable employment. Whence
it is Inferred, that manufactures, without the aid of
government, will grow up as soon, and as fast, as the
natural slate of tilings, and the interest of the community, may require.
Against the solidity of this hypothesis, in the full
latitude of the terms, very cogent reasons may be
offered. These have relation to the strong influence
of habit, and the spirit of imitation, the fear of want
of success in untried enterprises, the intrinsic difficulties incident to first essays towards a competition
with those who ha\e previously attained to perfection in the business to be attempted ; the bounties,
premiums, and other artificial encouragements, with
which foreign nations second the exertions of their
own citizens, in the branches in which they are to
be rivalled.
Experience teaches, that men are often so much
governed by what they are accustomed to see and
practise, that the simplest and most obvious improvements, in the most ordinary occupations, are
adopted with hesitation, reluctance, and by slow
gradations. The spontaneous transition to new pursuits, in a community long habituated to different

MANUFACTURES.

189

ones, may be expected to be attended with proportionably greater difficulty. When former occupations ceased to yield a profit adequate to the
subsistence of their followers, or when there was
an absolute deficiency of employment in them,
owing to the superabundance of hands, changes
would ensue; but these changes would be likely to
be more tardy 'than might consist with the interest
either of individuals or of the society, la many
cases they would not happen, while a bare support
could be insured by an adherence to ancient courses;
though a resort to a more profitable employment
might be practicable. To produce the desirable
changes, as early as may be expedient, may therefore require the incitement and patronage of government.
The apprehension of failing in new attempts, is>
perhaps, a more serious impediment. There are dispositions apt to be attracted by the mere novelty of
an undertaking; but these are not always those best
calculated to give it success. To this, it is of importance that the confidence of cautious, sagacious capitalists, both citizens and foreigners, should be excited. And to inspire this description of persons with
confidence, it is essential, that they should be made
to see in any project, which is new, and for that reason alone, if for no other, precarious; the prospect
of such a degree of countenance and support from
government, as may be capable of overcoming the
obstacles, inseparable from first experiments.
The superiority antecedently enjoyed by nations,
who have pre-occupied and perfected a branch of industry, constitutes a more formidable obstacle, than
either of those which have been mentioned, to the
introduction of the same branch into a couutry, in

190

REPORT ON

which it did not before exist. To maintain between
the recent establishments of one country, and the
long matured establishments of another country, a
competition upon equal terms, both as to quality and
price, is in most cases impracticable. The disparity,
in the one, or in the other, or in both, must necessarily be so considerable as to forbid a successful
rivalship, without the extraordinary Aid and protection of government.
But the greatest obstacle of all to the successful
prosecution of a new branch of industry in a country
in which it was before unknown, consists, as far as
the instances apply, in the bounties, premiums, and
other aids, which are granted in a variety of cases, by
the nations in which the establishments to be imitated are previously introduced. It is well known,
(and particular examples in the course of this report will be cited,) that certain nations grant
bounties on the exportation of particular commodities, to enable their own workmen to undersell and
supplant all competitors, in the countries to which
those commodities are scut. Hence the undertakers
of a new manufacture have to contend, not only
with the natural disadvantages of a new undertaking;
but with the gratuities and remunerations which other
governments bestow. To he enabled to contend
with success, it is evident, that the interference and
aid of their own governments are indispensable.
Combinations by those engaged in a particular
branch of business in one country, to frustrate the
first efforts to introduce it into another, by temporary
sacriGces, recompensed perhaps by extraordinary indemnifications of the government of such country;
are believed to have existed, and are not to be regarded as destitute of probability. The existence or

MANUFACTURES.

191

assurance of aid from the government of the country,
in which the business is to be introduced, may be
essential to fortify adventurers against the dread of
such combinations—to defeat their effects, if formed, and to prevent their being formed, by demonstrating that they must in the end prove fruitless.
Whatever room there may be for an expectation
tiiat the industry of a people, under the direction of
private interest, will upon equal terms find out the
most beneficial employment for itself; there is none
for a reliance, that it will struggle against the force
of unequal terms, or will of itself surmount all the
adventitious barriers to a successful competition,
which may have been erected either by the advantages naturally acquired fiom practice and previous
possession of the ground, or by those which may
have sprung from positive regulations, and an artificial policy. This general reflection might alone suffice as an answer to the objection under examination;
exclusively of the weighty considerations which
have been particularly urged.
The objections to the pursuit of manufactures in
the United States, which next present themselves
to discussion, represent an impracticability of success, arising from three causes—scarcity of hands ;
dearness of labour; want of capital.
The twofirstcircumstances are, to a certain extent,
real; and within due limits, ought to be admitted
as obstacles to the success of manufacturing enterprise in the United States. But there are various
considerations, which lessen their force, and tend
to afford an assurance that they are not sufficient to
prevent the advantageous prosecution of many very
useful and extensive manufactories*

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With regard to scarcity of hands, the fact itself
must be applied, with no small qualiBcation to certain parts of the United States. There are large
districts, which may be considered as pretty fully
peopled; and which, notwithstanding a continual
drain for distant settlement, are thickly interspersed
with flourishing and increasing town3. If these districts ha\e not already reached the point, at which
the complaint of scarcity of hands ceases, they are
not remote from it, and are approaching fast towards
it: And having perhaps fewer attractions to agriculture, than some other parts of the union, they exhibit
a proportionably stronger tendency towards other
kinds of industry. In these districts, may be discerned, no inconsiderable maturity for manufacturing
establishments.
But there are circumstances, which have been already noticed with another view, that materially diminish every where the effect of a scarcity of hands.
These circumstances are—the great use which can
be made of women and children; on which point
a very pregnant and instructive fact has been mentioned; the vast extension given by late improvements to the employment of machines, which, substituting the agency of fire and water, has prodigiously
lessened the necessity for manual labour; the employment of persons ordinarily engaged in other occupations, during the seasons, or hours of leisure; which,
besides giving occasion to the exertion of a greater
quantity of labour by the same number of persons,
and thereby increasing the general stock of labour, as
has been elsewhere remarked, may also be taken
into the calculation, as a resource for obviating the
scarcity of hands—lastly, the attraction of foreign
emigrants. Whoever inspects with a careful eye.

MANUFACTURES.

193

the composition of our towns, will be made sensible to what an extent this resource may be relied
upon. This exhibits a large proportion of ingenious
and valuable workmen, in different arts and trades,
who, by expatriating from Europe, have improved their own condition; and added to the industry
and wealth of the United States. It is a natural
inference from the experience we have already had,
that as soon as the United States shall present the
countenance of a serious prosecution of manufactures,
as soon as foreign artists shall be made sensible that
the state of things here affords a moral certainty of
employment and encouragement, competent numbers of European workmen will transplant themselves,
effectually to ensure the success of the design. How
indeed can it otherwise happen, considering the
various and powerful inducements, which the situation of this country offers; addressing themselves to
so many strong passions and feelings, to so many general and particular interests ?
It may be affirmed, therefore, in respect to hands
for carrying on manufactures, that we shall in a
great measure trade upon a foreign stock; reserving
our own for the cultivation of our lands, and the
manning of our ships; as far as character and circumstances shall incline. It is not unworthy of remark,
that the objection to the success of manufactures, deduced from the scarcity of hands, is alike applicable
to trade and navigation, and yet these are perceived
to flourish, without any sensible impediment from
that cause.
As to the dearness of labour, (another of the obstacles alleged,) this has relation principally to two
circumstances; one, that which has been just discussVOL. i.
2c

194

REPORT ON

ed, or the scarcity of hands; the other, the greatness of profits.
As far as it is a consequence of the scarcity of
hands, it is mitigated by all the considerations which
have been adduced as lessening that deficiency. It is
certain, too, that the disparity, in this respect, be*
tween some of the most manufacturing parts of Europe, and a large proportion of the United States, is
not nearly so great as is commonly imagined* It is
also much less in regard to artificers and manufacturers, than in regard to country labourers ; and while
a careful comparison shows, that there is, in this
particular, much exaggeration, it is also evident, that
the effect of the degree of disparity which does
truly exist, is diminished in proportion to the use
which can be made of machinery.
To illustrate this last idea—Let it be supposed*
that the difference of price, in two countries, of a
given quantity of manual labour requisite to the fabrication of a given article, is as ten; and that some
MECHANIC POWER is introduced into both countries,
which, performing half the necessary labour, leaves
only half to be done by hand, it is evident, that the
difference in the cost of the fabrication of the arti*
cle in question, in the two countries, as far as it is
connected with the price of labour, will be reduced
from ten to five, in consequence of the introduction
of that POWER.
This circumstance is worthy of the most particular attention. It diminishes immensely one of the
objections, most strenuously urged, against the success of manufactures in the United States.
To procure all such machines as are known in any
p3rt of Europe, can only require a proper provision
and due pains. The knowledge of several of the

MANUFACTURES.

195

most important of them is already possessed. The
preparation of them here, is in most cases practicable on nearly equal terms. As far as they depend
on water, some superiority of advantages may be
claimed, from the uncommon variety, and greater
cheapness, of situations adapted to mill-seats, with
which different parts of the United States abound.
So far as the dearness of labour fhay be a consequence of the greatness of profits in any branch of
business, it is no obstacle to its success. The undertaker cau afford to pay the price.
There are grounds to conclude that undertakers of
manufactures, in this country, can at this time afford
to pay higher wages to tlie workmen they may employ, than are paid to similar workmen in Europe.
The prices of foreign fabrics, in the markets of the
United States, which will for a long time regulate
the prices of the domestic ones, may be considered
as compounded of the following ingredients: The
first cost of materials, including the taxes, if any,
which are paid upon them where they are made;
the expense of grounds, buildings, machinery, and
tools; the wages of the persons employed in the
manufactory; the profits on the capital or stock employed ; the commissions of agents to purchase them
where they are made; the expense of transportation to the United Stales, including insurance and
other incidental charges; the taxes or duties, if any,
and fees of office which are paid on their exportation ; the taxes, or duties, and fees of office which
are paid on their importation.
As to the first of these items, the cost of materials,
the advantage, upon the whole, is at present on the
side of the United States; and the difference in
their favour, must increase in proportion as a cej>

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tain and extensive domestic demand shall induce
the proprietors of land to devote more of their attention to the production of those materials. It ought
not to escape observation, in a comparison on this
point, that some of the principal manufacturing countries of Europe are much more dependent on foreign
supply for the materials of their manufactures, than
would be the United States, who are capable of supplying themselves with a greater abundauce, as well
as a greater variety, of the requisite materials.
As to the second item, the expense of grounds,
buildings, machinery, and tools, an equality at least
may be assumed; since advantages in some particulars will counterbalance temporary disadvantages in.
others.
As to the third item, or the article of wages, the
comparison certainly turns against the United States;
though, as before observed, not in so great a degree
as is commonly supposed.
The fourth item is alike applicable to the foreign
and to the domestic manufacture. It is indeed more
properly a result, than a particular, to be compared.
But with respect to all the remaining items, they
are alone applicable to the foreign manufacture, and
in the strictest sense, extraonliuaries; constituting
a sum of extra charge on the foreign fabric, which
cannot be estimated at less than from 15 to 30 per
cent, on the cost of it at the manufactory*
This sum of extra charge may confidently be regarded as more than a counterpoise for the real difference in the price of labour; and is a satisfactory
proof that manufactures may prosper in defiance of
it in the United States.
To the general allegation, connected with the
circumstances of scarcity of hands and dearness of

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197

labour, that extensive manufactures can only grow
out of a redundant or full population, it will be sufficient to answer generally, that the fact has been
otherwise: that the situation alleged to be an essential condition of success, has not been that of several nations, at periods when they had already attained to maturity in a variety of manufactures.
The supposed want of capital for the prosecution
of manufactures in the United States, is the most indefinite of the objections which are usually opposed to it.
It is very difficult to pronounce any thing precise
concerning the real extent of the monied capital of
a country, and still more concerning the proportion
which it bears to the objects that invite the employment of capital. It is not less difficult to pronounce how far the effect of any given quantity of
money, as capital, or, in other words, as a medium,
for circulating the industry and property of a nation,
may be increased by the very circumstance of the
additional motion which is given to it by new objects of employment. That effect, like the momentum of descending bodies, may not improperly be
represented, as in a compound ratio, to mass and
velocity. It seems pretty certain, that a given sum
of money, in a situation in which the quick impulses of commercial activity were little felt, would
appear inadequate to the circulation of as great a
quantity of industry and property, as in one in which
their full influence was experienced.
It is not obvious, why the same objection might
not as well be made to external commerce as to manufactures; since it is manifest that our immense
tracts of Jand, occupied and unoccupied, are capable

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of giving employment to more capital than is actually bestowed on them. It is certain, that the United States offer a vast field for the advantageous employment of capital; but it does not follow, that
there will not be found, in one way or another, a
sufficient fund for the successful prosecution of any
species of industry, which is likely to prove truly
beneficial.
The following considerations are of a nature to
remove all inquietude ou the score of want of capital.
The introduction of banks, as has been shown on
another occasion, has a powerful tendency to extend
the active capital of a country. Experience of
the utility of these institutions is multiplying them
in the United States. It is probable that they will
be established wherever they can exist with advantage ; and wherever they can be supported, if administered with prudence, they will add new energies to all pecuniary operations.
The aid of foreign capital may safely, and with
considerable latitude, be taken into calculation. Its
instrumentality has been long experienced in our
external commerce; and it has begun to be felt in
various other modes. Not only our funds, but our
agriculture, and other internal improvement, have
been animated by it. It has already, in a few instances, extended even to our manufactures,
It is a well known fact, that there are parts of Europe, which have more capital, than profitable domestic objects of employment. Hence, among other
proofs, the large loans continually furnished to foreign states. And it is equally certain, that the capital of other parts may find more profitable employment in the United States, than at home. And

MANUFACTURES.
notwithstanding there are weighty inducements to
prefer the employment of capital at home, even at
less profit, to an investment ofit abroad, though with
greater gain, yet these inducements are over-ruled,
either by a deficiency of employment, or by a veiy
material difference in profit. Both these causes operate to produce a transfer of foreign capital to the
United States, It is certain, that various objects in
this country hold out advantages, which are with
difficulty to be equalled elsewhere; and under the
increasingly favourable impressions which are entertained of our government, the attractions will become more and more strong- These impressions will
prove a rich mine of prosperity to the country, if
they are confirmed and strengthened by the progress
of our affairs. And to secure this advantage, little
more is necessary, than to foster industry, and cultivate order and tranquillity at home and abroad,
It is not impossible, that there may be persons disposed to look with a jealous eye on the introduction of foreign capital, as if it were an instrument to
deprive our own citizens of the profits of our own
industry; But perhaps there never could be a more
unreasonable jealousy. Instead of being viewed as a
rival, it ought to be considered as a most valuable
auxiliary; conducing to put in motion a greater
quantity of productive labour, and a greater portion of
useful enterprise, than could exist without it. It is
at least evident, that in a country situated like the
United States, with an infinite fund of resources, yet
to be unfolded, every farthing of foreign capital,
which is laid out in internal meliorations, and in
industrious establishments of a permanent nature, is
a precious acquisition.

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And whatever be the objects which originally attract foreign capital, when once introduced, it may be
directed towards any purpose of beneficial exertion
which is desired. And to detain it among us, there
can be no expedient so effectual as to enlarge the
sphere within which it may be,usefully employed:
though introduced merely with views to speculations
in the funds, it may afterwards be rendered subservient to the interests of agriculture, cemmerce,
and manufactures.
But the attraction of foreign capital, for the direct
purpose of manufactures, ought not to be deemed
a chimerical expectation* There are already exam*
pies of it, as remarked in another place* And the ex*
nmples, if the disposition be cultivated, can hardly
fail to multiply. There are also instances of another kind, which serve to strengthen the expectation ; enterprises for improving the public communications, by cutting canals, opening the obstructions in rivers, and erecting bridges, have received
very material aid from the same source.
When the manufacturing capitalist of Europe shall
advert to the many important advantages, which have
been intimated in the course of this report, he cannot but perceive very powerful inducements to a
transfer of himself and his capital to the United States.
Among the reflections which a most interesting peculiarity of situation is calculated to suggest, it cannot escape his observation, as a circumstance of moment in the calculation, that the progressive population and improvement of the United States, ensure
a continually increasing domestic demand for the
fabrics which he shall produce, not to be affected by
any external casualties or vicissitude*;.

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201

But while there are circumstances sufficiently
strong to authorize a considerable degree of reliance
on the aid of foreign capital, towards the attainment
of the object in view, it is satisfactory to have good
grounds of assurance, that there are domestic resources of themselves adequate to it. It happens that
there is a species of capital actually existing within the United States, which relieves from all inquietude on the score of want of capital—This is the
funded debt.
The effect of a funded debt, as a species of capital,
has been noticed upon a former occasion; but a
more particular elucidation of the point seems to be
required by the stress which is here laid upon it—
This shall accordingly be attempted.
Public funds answer the purpose of capital, from
the estimation in which they are usually held by
monied men; and consequently from the ease and dispatch with which they can be turned into money.
This capacity of prompt convertibility into money,
causes a transfer of stock -to be, in a great number of
cases, eqiuvalent to a payment in coin—And where it
does not happen to suit the party who is to receive,
to accept a transfer of stock, the party who is to pay,
is never at a loss to find elsewhere a purchaser of his
stock; who will furnish him, in lieu of it, with the
coin of which he stands in need.
Hence, in a sound and settled state of the public
funds, a man possessed of a sum in them can embrace
any scheme of business which offers, with as much
confidence as if he were possessed of an equal sum
in coin.
This operation of public funds, as capital, is too
obvious to be denied; but it is objected to the idea
of their operating as an augmentation of the capital of
rot. j .
2 r>

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the community, that they serve to occasion the destruction of some other capital to an equal amount.
The capital which alone they can be supposed to
destroy, must consist of—The annual revenue, which
is applied to the payment of interest on the debt,
and to the gradual redemption of the principal—The
amount of the coin, which is employed in circulating the funds, or, in other words, in effecting the different alienations which they undergo.
But the following appears to be the true and accurate view of this matter—
1st. As to the point of the annual revenue requi*
site for payment of interest and redemption of principal.
As a determinate proportion will tend to perspicuity in the reasoning, let it be supposed, that the
annual revenue to be applied, corresponding with
the modification of the 6 per cent, stock of the
United States, is in the ratio of eight upon the huudred; that is, in the first instance, six on account of
interest, and two on account of principal.
Thus far it is evident, that the capital destroyed,
to the capital created, would bear no greater proportion than 8 to 100. There would be withdrawn
from the total mass of other capitals, a sum of eight
dollars, to be paid to the public creditor; while he
would be possessed of a sum of one hundred dollars,
ready to be applied to any purpose, to be embarked
in any enterprise, which might appear to him eligible—Here, then, the aiigmeitiation of capital, or the
esces3 of that which is produced, beyond that which
is destroyed, is equal to ninety-two dollars.
To this conclusion it may be objected, that the
sum of eight dollars is to be withdrawn annually,
until the whole hundred is extinguished; and it

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203

may be inferred, that, in process of time, a capital will
be destroyed equal to that which is atfirstcreated.
But it is nevertheless true, that during the whole
of the interval, between the creation of the capital
of 100 dollars, and its reduction to a sum not greater
than that of the annual revenue appropriated to its
redemption, there will be a greater active capital in
existence than if no debt had been contracted. The
sum drawn from other capitals in any one year, will
not exceed eight dollars ; but there will be, at every
instant oftime', daring the whole period in question,
a sum corresponding with so much of the principal, as
remains unredeemed, in the hands of some person or
other, employed, or ready to be employed, in some
profitable undertaking. There will, therefore, constantly be more capital, in capacity to be employed,
than capital taken from employment. The excess for
the first year has been stated to be ninety-two dollars ; it will diminish yearly; but there always will
be an excess, until the principal of the debt is brought
to a level with the REDEEMING ANNUITY ; that is, in
the case which has been assumed by way of exam*
pie, to EIGHT DOLLAHS. The reality of this excess
becomes palpable, if it be supposed, as often happens, that the citizen of a foreign country imports
into the United States 100 dollars for the purchase
of an equal sum of public debt—here is an absolute
augmentation of the mass of circulating coin to the
extent of 100 dollars. At the end of a year, the foreigner is presumed to draw back eight dollars on
account of his principal and interest, but he still
leaves, ninety-two of his original deposit in circulation, as he, in like manner, leaves eighty-four at the
end of the second year, drawing back then also the
annuity of eight dollars. And thus the matter pro-

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REPORT ON

ceeds; the capital, left in circulation diminishing
each year, and coming nearer to the level of the annuity drawn back. There are, however, some differences in the ultimate operation of the part of the
debt, which is purchased by foreigners, and that
which remains in the hands of citizens. But the
general effect in each case, though in different degrees, is to add to the active capital of the country.
Hitherto the reasoning has proceeded on a concession of the position, that there is a destruction of
some other capital, to the extent of the annuity appropriated to the payment of the interest, and the redemption of the principal of the debt; but in this,
too much has been conceded. There is at most a
temporary transfer of some other capital, to the
amount of the annuity, from those who pay to the
creditor who receives; which he again restores to
the circulation to resume the offices of a capital.
This he does either immediately, by employing the
money in some branch of industry; or mediately, by
lending it to some other person, who docs so employ
it; or by spending it on his own maintenance. In
either supposition, there is no destruction of capital;
there is nothing more than a suspension of its motion
for a time; that is, while it is passing from the hands
of those who pay into the public coffers, and thence
through the public creditor into some other channel
of circulation. When the payments of interest axe
periodical and quick, and made by the instrumentality of banks, the diversion or suspension of capital may almost be denominated momentary* Hence
the deduction on this account is far less, than it at
first sight appears to be.
There is evidently, as far as regards the annuity,
uo destruction nor transfer of any other capital, than

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205

that poition of the iHCome of each individual, which
goes to make up the annuity. The land which furnishes the farmer with the sum which he is to contribute, remains the same; and the like may be observed of other capitals. Indeed, as far as the tax
which is the object of contribution, (as frequently
happens when it does not oppress by its weight,)
may have been a motive to greater exertion in any
occupation, it may even serve to iucrease the contributory capital. This idea is not without importance in the general view of the subject.
It remains to see, what further deduction ought
to be made from the capital which is created, by the
existence of the debt, on account of the coin which
is employed in its circulation. This is susceptible
of much less precise calculation than the article
which has been just discussed. It is impossible to
say, what proportion of coin is necessary to carry on
the alienations which any species of property usually undergoes. The quantity indeed varies according
to circumstances: But it may still, without hesitation, be pronounced, from the quickness of the rotation, or rather of the transitions, that the medium of
circulation always bears but a small proportion to the
amount of the property circulated. And it is thence
satisfactorily deducible, that the coin employed in
the negociations of the funds, and which serves to
give them activity, as capital, is incomparably less
than the sum of the debt negociated for the purpose
of business.
It ought not, however, to be omitted, that the negociation of the funds becomes itself a distinct business ; which employs, and by employing, diverts a
portion of the circulating coin from other pursuits.

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REPORT ON

But, making due allowance for this circumstance,
there is no reason to conclude, that the effect of
the diversion of coin, in the whole operation, bears
any considerable proportion to the amount of the
capital to which it gives activity. The sum of the
debt in circulation is continually at the command of
any useful enterprise: the coin itself, which circulates it, is never more than momentarily suspended
from its ordinary functions. It experiences an incessant and rapid flux and reflux to and from the
channels of industry, to those of speculations in the
funds.
There are strong circumstances in confirmation of
this theory. The force of monied capital which lias
been displayed in Great-Britain, and the height to
which every species of industry has grown up under
it, defy a solution from the quantity of coin which
that kingdom has ever possessed. Accordingly, it
lias been coeval with its funding system, the prevailing opinion of the men of business, and of the generality of the most sagacious theorists of that country,
that the operation of the public funds, as capital,
has contributed to the effect in question. Among
ourselves, appearances thus far favour the same con*
elusion. Industry in general seems to have been reanimated. There are symptoms indicating nn extension of our commerce.
Our navigation lias
certainly of late had a considerable spring; and
there appears to be, in many parts of the Union, a
command of capital, which, till lately, since the revolution at least, was unknown. But it is at the
same time to be acknowledged, that other circumstances have concurred, (and in a great degree,) in
producing the present state of things; and that tho

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207

appearance's are not yet sufficiently decisive to be
entirely relied upon.
In the question under discussion, it is important to
distinguish between an absolute increase of capital^
or an accession of real wealth, and an artificial increase
of capital^ as an engine of business, or as an instrument of industry and commerce. In the first sense,
a funded debt has no pretensions, to being deemed
an increase of capital; in the last, it has pretensions
which are not easy to be controverted. Of a similar nature is bank credit, and, in an inferior degree,
every species of private credit.
But though a funded debt is not, in the first instance, an absolute increase of capital, or an augmentation of real wealth; yet, by serving as a new potver in the operations of industry, it has, within certain bounds, a tendency to increase the real wealth
of a community ; in like manner as money borrowed by a thrifty farmer, to be laid out in the improvement of his farm, may, in the end, add to his stock
•f real riches.
There are respectable individuals, who, from a just
aversion to an accumulation of public debt, are unwilling to concede to it any kind of utility; who
can discern no good to alleviate the ill with which
they suppose it pregnant; who cannot be persuaded that it ought, in any sense, to be viewed as an increase of capital, lest it should be inferred, that the
more debt, the more capital—the greater the burthens, the greater the blessings of the community*
But it interests the public councils to estimate
every.object as it truly is; to appreciate how far
the good in any measure is compensated by the ill;
or the ill by the good: either of them is seldom unmixed.

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Neither will it follow, that an accumulation of
debt is desirable, because a certain degree of it
operates as capital. There may be a plethora in the
political, as in the natural body; there may be a
state of things in which any such artificial capital is
unnecessary. The debt, too, may be swelled to such a
size, as that the greatest part of it may cease to be
useful as a capital, serving only to pamper the dissipation of idle and dissolute individuals ; as that
the sums required to pay the interest upon it may
become oppressive, and beyond the means which a
government can employ, consistently with its tranquillity, to raise them; as that the resources of taxation, to face the debt, may have been strained too
far to admit of extensions adequate to exigencies
which regard the public safety.
Where this critical point is, cannot be pronounced ; but it is impossible to believe, that there is not
such a point.
And, as the vicissitudes of nations beget a perpetual tendency to the accumulation of debt, there
ought to be in every government a perpetual, anxious, and unceasing effort to reduce that, which at
any time exists, as last as shall be practicable, consistently with integrity and good faith.
Reasonings on a subject comprehending ideas so
abstract and complex, so little reducible to precise
calculation as those which enter into the question
just discussed, are always attended with a danger
of running into fallacies. Due allowance ought,
therefore, to be made for this possibility. But as far
as the nature of the subject admits of it, there appears to be satisfactoiy ground for a belief that the
public fonda operate as a resource of capital to the

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209

citizens of the United States -, and, if they are a resource at all, it is an extensive one.
To all the arguments which are brought to evince
the impracticability of success in manufacturing establishments in the United States, it might have
been a sufficient answer to have referred to the ex*
perience of what has been already done—it is certain
that several important branches have grown up and
flourished with a rapidity which surprises; affording
an encouraging assurance of success in future attempts ; of these it may not be improper to enumerate the most considerable.—
I. Of Skins, Tanned and tawed leather, dressed
skins,shoes, boots, and slippers, harness, and saddlery
of all kinds, portmanteaus, and trunks, leather
breeches, gloves, muflfe and tippets, parchment and
glue.
II. Of Irmu Bar and sheet iron, steel, nail-rods,
and nails, implements of husbandry, stoves, pots, and
other household utensils, the steel and iron work of
carriages, and for ship-building, anchors, scale-beams,
and weights, and various tools of artificers, arms of
different kinds, though the manufacture of these
last has of late diminished for want of demand.
III. Of Wood. Ships, cabinet-wares and turnery,
wool and cotton cards, and other machinery for manufactures and husbandry, mathematical instruments,
coopers' wares of every kind.
IV. Of Flax ami Hemp. Cables, sail-cloth, cordage, twine, and packthread.
V. Bricks, and coarse tiles, and potters' wares.
VI. Ardent spirits, and malt liquors.
VII. Writing and printing paper, sheathing and
wrapping paper, pasteboards, fullers or press papers,
paper hangings*
VOL. i.
2E

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VIII. Hats of fur and wool, and of mixtures of
both, womens* stuff and silk shoes.
IX. Refined sugars.
X. Oils of animals and seeds, soap, spermaceti
and tallow candles.
XI. Copper and brass wares, particularly utensils
for distillers, sugar refiners and brewers, andirons, and
other articles for household use, philosophical apparatus*
XII. Tin wares for most purposes of ordinary use.
XIII. Carriages of all kinds.
XIV. SnufT, chewing and smoaking tobacco.
XV. Starch and hair powder.
XVI. Lampblack, and other painters' colours.
XVII. Gunpowder.
Besides manufactories of these articles, which are
carried on as regular trades, and have attained to a
considerable degree of maturity, there is a vast scene
of household manufacturing, which contributes more
largely to the supply of the community, than could
be imagined, without having made it an object of
particular inquiry. This observation is the pleasing
result of the investigation to which the subject of
this report has led, and is applicable as well to the
southern as to the middle and northern states. Great
quantities of coarse cloths, coatings, serges, and flannels, linsey-woolseys, hosiery of wool, cotton, and
thread, coarse fustians, jeans, and muslins, checked
^nd striped cotton and linen goods, bedticks, coverlets, and counterpanes, tow linens, coarse shirtings,
sheetings, toweling, and table linen, and various mixtures of wool and cotton, and of cotton and flax, are
made in the household way, and, in many instances,
to an extent not only sufficient for the supply of the
families in which they are made, but for sale, and

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211

even in some cases for exportation. It is computed
in a number of districts, that two-thirds, threefourths, and even four-fifths of all the clothing of
the inhabitants, are made by themselves. The importance of so great a progress, as appears to have
heen made in family manufactures, within a few
years, both in a moral and political view, renders the
fact highly interesting.
Neither does the above enumeration comprehend
all the articles that are manufactured as regular
trades. Many others occur, which are equally well
established, but which not being of equal importance, have been omitted. And there are many attempts, still in their infancy, which, though attended
with very favourable appearances, could not have
been properly comprised in an enumeration of manufactories already established. There are other articles, also, of great importance, which, though
strictly speaking, manufactures, are omitted, as being
immediately connected with husbandry; such are
flour, pot and pearl ash, pitch, tar, turpentine, and
the like.
There remains to be noticed, an objection to the
encouragement of manufactures, of a nature different
from those which question the probability of success. This is derived from its supposed tendency to
give a monopoly of advantages to particular classes,
at the expense of the rest of the community, who,
it is affirmed, would be able to procure the requisite
supplies of manufactured articles on better terms
from foreigners, than from our own citizens; and
who, it is alleged, are reduced to a necessity of paying an enhanced price for whatever they want, by
every measure which obstructs the free competition
of foreign commodities.

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It is not an unreasonable supposition, that measuies, which serve to abridge the free competition of
foreign articles, have a tendency to occasion an enhancement of prices; and it is not to be denied that
such is the effect in a number of cases; but the fact
does not uuiformly correspond with the theory. A reduction of prices has, in several instances immediately
succeeded the establishment of a domestic manufacture. Whether it be that foreign manufacturers endeavour to supplant, by underselling our own, or
whatever else be the cause, the effect has been such
as is stated, and the reverse of what might have been
expected.
But though it were true, that the immediate and
certain effect of regulations controlling the competition of foreign with domestic fabrics, was an increase of price, it is universally true, that the contrary is the ultimate effect with every successful manufacture. When a domestic manufacture has attained to perfection, and has engaged in the prosecution of it a competent number of persons, it invariably becomes cheaper. Being free from the heavy
charges which attend the importation of foreign
commodities, it can be afforded, and accordingly
seldom or never fails to be sold cheaper, in process
of time, than was the foreign article for which it is
a substitute. The internal competition, which takes
place, soon does away every thing like monopoly,
and by degrees reduces the price of the article to
the minimum of a reasonable profit on the capital employed. This accords with the reason of the thing,
and with experience.
Whence it follows, that it is the interest of a community, with a view to eventual and permanent
economy, to encourage the growth of manufactures.

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213

In a national view, a temporary enhancement of
price must always be well compensated by a permanent reduction of it.
It is a reflection, which may with propriety be indulged here, that this eventual diminution of the
prices of manufactured articles, which is the result
of internal manufacturing establishments, has a direct and very important tendency to benefit agriculture. It enables the farmer to procure, with a smaller quantity of his labour, the manufactured produce
of which he stands in need, and consequently increases the value of his income and property.
The objections which are commonly made to the
expediency of encouraging, and to the probability of succeeding in manufacturing pursuits in the
United States, having now been discussed, the considerations which have appeared in the course of
the discussion, recommending that species* of industry to the patronage of the government, will be materially strengthened by a few general and some
particular topics, which have been naturally reserved for subsequent notipe.
I. There seems to be a moral certainty, that the
trade of a country which is both manufacturing and
agricultural, will be more lucrative and prosperous,
than that of a country which is merely agricultural.
One reason for this is found in that general effort
of nations, (which has been already mentioned,) to
procure from their own soils the articles of prime necessity requisite to their own consumption and use;
and which serves to render their demand for a foreign supply of such articles, in a great degree occasional and contingent. Hence, while the necessities of nations, exclusively devoted to agriculture",
for the fabrics of manufacturing states, are constant

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and regular; the wants of the latter for the products
of the former, are liable to very considerable fluctuations and interruptions. The great inequalities,
resulting from difference of seasons, have been elsewhere remarked. This uniformity of demand on
one side, and unsteadiness of it on the other, must
necessarily have a tendency to cause the general
course of the exchange of commodities between the
parties, to turn to the disadvantage of the merely
agricultural states. Peculiarity of situation, a climate and soil adapted to the production of peculiar
commodities, may, sometimes, contradict the rule;
but there is every reason to believe that it will
be found, iu the main, a just one.
Another circumstance which gives a superiority of
commercial advantages to states that manufacture
as well as cultivate, consists in the more numerous
attractions which a more diversified market offers to
foreign customers ; and in the greater scope which
it affords to mercantile enterprise- It is a position
of indisputable truth in commerce, depending too
on very obvious reasons, that the greatest resort will
ever lie to those marts, where commodities, while
equally abundant, are most various. Eacli difference
of kind holds out an additional inducement And it
is a position not less clear, that the field of enterprise must be enlarged to the merchants of a country, in proportion to the variety, as well as the abundance of commodities which they find at home for
exportation to foreign markets,
A third circumstance, perhaps not inferior to either
of the other two, conferring the superiority which
has been stated, has relation to the stagnations of
demand for certain commodities, which at some time
or other interfere more or less with the sale of all*

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215

The nation which can bring to market but few articles, is likely to be more quickly and sensibly affected by such stagnations, than one, which is always possessed of a great variety of commodities:
the former frequently finds too great a portion of its
stock of materials, for sale or exchange, lying on
hand, or is obliged to make injurious sacrifices to supply its wants of foreign articles, which are numerous
and urgent, in proportion to the smallness of the
number of its own. The latter commonly finds itself indemnified, by the high prices of some articles,
for the low prices of others; and the prompt and
advantageous sale of those articles which are in demand, enables its merchants the better to wait for a
favourable change, in respect to those which are not.
There is ground to believe, that a difference of situation, in this particular, has immensely different
effects upon the wealth and prosperity of nations.
From these circumstances collectively, two important inferences are to be drawn; one, that there
is always a higher probability of a favourable balance of trade, in regard to countries in which manufactures, founded 6n the basis of a thriving agriculture, flourish, than in regard to those which ate
confined wholly, or almost wholly, to agriculture;
the other, (which is also a consequence of the first,)
that countries of the former description are likely to
possess more pecuniary wealth, or money, than those
of the latter.
Facts appear to correspond with this conclusion.
The importations of manufactured supplies, seem invariably to drain the merely agricultural people of
their wealth. Let the situation of the manufacturing countries of Europe be compared, in this particular, with that of countries which only cultivate,

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and the disparity will be striking-. Other causes, it
is true, help to account for this disparity between
some of them; and among iliese causes, the relative
state of agriculture; but between others of them,
the most prominent circumstance of dissimilitude
arises from the comparative state of manufactures*
In corroboration of the same idea, it ought not to
escape remark, that the West-India islands, the soils
of which are the most fertile, and the nation, which
in the greatest degree supplies the rest of the world
with the precious metals, exchange to a loss with
almost every other country.
As far as experience at hornet may guide, it will
lead to the same conclusion. Previous to the revolution, the quantity of coin possessed by the colonies, which now compose the United States, appeared to be inadequate to their circulation; and their
debt to Great Britain was progressive. Since the revolution, the states, in which manufactures have
most increased, have recovered fastest from the injuries of the late war, and abound most in pecuniary
resources.
It ought to be admitted, however, in this, as in
the preceding case, that causes irrelative to the state
of manufactures, account, in a degree, for the phenomena remarked. The continual progress of new
settlements has a natural tendency to occasion an
unfavourable balance of trade; though it indemnifies for the inconvenience, by that increase of the
national capital which flows from the conversion of
waste into improved lands: and the different degrees
of external commerce, which are carried on by the
different states, may make material differences in the
comparative state of their wealth. The first circumstance has reference to the deficiency of coin, and

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217

the increase of debt previous to the revolution; the
last to the advantages which the most manufacturing
states appear to have enjoyed over the others, since
the termination of the late war.
But the uniform appearance of an abundance of
specie, as the concomitant of a flourishing state of
manufactures, and of the reverse, where they do not
prevail, afford a strong presumption of their favourable operation upon the wealth of a country.
Not only the wealth, but the independence and
security of a country, appear to be materially connected with the prosperity of manufactures. Every
nation, with a view to those great objects, ought to
endeavour to possess within itself all the essentials
of national supply. These comprise the means of
subsistence* habitation, clothing, and defence.

The possession of these is necessary to the perfection of the body politic; to the safety, as well as
to the welfare of the society; the want of either, is
the want of an important organ of political life and
motion; aud, in the various crises which await a
state, it must severely feel the effects of any such deficiency. The extreme embarrassments of the United States during the late war, from an incapacity of
supplying themselves, are still matter of keen recollection. A future war might be expected again to
exemplify the mischiefs and dangers of a situation,
to which that incapacity is still in too great a degree applicable, unless changed by timely and vigorous exertions. To effect this change, as fast as shall
be prudent, merits all the attention and all the zeal
of our public councils; it is the next great work to
be accomplished.
The want of a navy to protect our external commerce, as long as it shall continue, must render it a
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peculiarly precarious reliance for the supply of essential articles, and must serve to strengthen prodigiously the arguments in favour of manufactures.
To these general considerations, are added some
of a more particular nature.
Our distance from Europe, the great fountain of
manufactured supply, subjects us, in the existing
state of tilings, to inconvenience and loss in two
ways.
The bulkiness of those commodities which are the
chief productions of the soil, necessarily imposes
very heavy charges on tlieir transportation to distant
markets. These charges, in the cases in which the
nations to whom our products are sent, maintain a
competition in the supply of their own markets, principally fall upon us, and form material deductions
from the primitive value of the articles furnished.
The charges on manufactured supplies brought from
Europe are greatly enhanced by the same circumstance of distance. These charges, again, in the
cases in which our own industry maintains no competition in our own markets, also principally fall upon
us; and are an additional cause of extraordinary deduction from the primitive value of our own products; these being the materials of exchange for
the foreign fabrics which we consume.
The equality and moderation of individual property, and the growing settlements of new districts,
occasion, in this country, an unusual demand for
coarse manufactures; the charges of which being
greater in proportion to their greater bulk, augment
the disadvantage which has been just described*
As in most countries, domestic supplies maintain
a very considerable competition with such foreign
productions of the soil as are imported for sale, if

MANUFACTURES.
the extensive establishment of manufactories in the
United States does not create a similar competition in
respect to manufactured articles, it appears to be
clearly deducible, from the considerations which
have been mentioned, that they must sustain a double loss in their exchanges with foreign nations;
strongly conducive to an unfavourable balance trade,
and very prejudicial to their interests.
These disadvantages press with no small weight
on the landed interest of the country. In seasons of
peace, they cause a serious deduction from the intrinsic value of the products of the soil. In the
time of a war, which should either involve ourselves,
or another nation, possessing a considerable share of
our carrying trade, the charges on the transportation
of our commodities, bulky as most of them are,
could hardly fail to prove a grievous burthen to the
farmer; while obliged to depend in so great a degree
as he now does, upon foreign markets for the vent
of the surplus of his labour.
As far as the prosperity of the fisheries of the
United States is impeded by the want of an adequate market, there arises another special reason for
desiring the extension of manufactures. Besides the
fish, which in many places would be likely to make
a part of the subsistence of the persons employed;
it is known that the oils, bones, and skins of marine
animals, are of extensive use in various manufactures.
Hence the prospect of an additional demand for the
produce of the fisheries.
One more point of view only remains, in which to
consider the expediency of encouraging manufactures in the United States.
It is not uncommon to meet with an opinion, that
•though the promoting of manufactures may be the

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interest of a part of the union, it is contrary to that
of another part. The northern and southern regions
are sometimes represented as having adverse interests in this respect: Those, are called manufacturing ; these, agricultural states; and a species of op
position is imagined to subsist between the manufacturing and agricultural interests.
This idea of an opposition between those two interests, is the common error of the early periods of
ever>* country; but experience gradually dissipates it*
Indeed, they are perceived so often to succour and to
befriend each other, that they come at length to be
considered as one; a supposition which has been
frequently abused, and is not universally true. Particular encouragements of particular manufactures,
may be of a nature to sacrifice the interests of landholders to those of manufacturers; but it is nevertheless a maxim, well established by experience, and
generally acknowledged where there has been sufficient experience, that the aggregate prosperity of manufactures, and the aggregate prosperity of agriculture,
are intimately connected. In the course of the discussion which has had place, various weighty considerations have been adduced, operating in support
of that maxim. Perhaps the superior steadiness of
the demand of a domestic market, for the surplus
produce of the soil, is alone a convincing argument
of its truthIdeas of a contrariety of interests between the
northern and southern regions of the Union, are, in
the main, as unfounded, as they are mischievous.
The diversity of circumstances on which such contrariety is usually predicated, authorizes a directly
contrary conclusion. Mutual wants constitute one
of the strongest links of political connexion; and the

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221

extent of these bears a natural proportion to the diversity in the means of mutual supply.
Suggestions of an opposite complexion are ever to
be deplored as unfriendly to the steady pursuit of
one great common cause, and to the perfect harmony of all the parts.
In proportion as the mind is accustomed to trace
the intimate connexion of interest which subsists
between all the parts of a society united under the
same government; the infinite variety of channels
which serve to circulate the prosperity of each to
and through the rest, in that proportion will it be
little apt to be disturbed by solicitudes and apprehensions which originate in local discriminations.
It is a truth as important as it is agreeable, and one
to which it is not easy to imagine exceptions, that
every tj »ing tending to establish substantial and permanent order in the affairs of a country; to increase
the total mass of industry and opulence, is ultimately beneficial to every part of it* On the credit of
this great truth, an acquiescence may safely be accorded, from every quarter, to all institutions and arrangements which promise a confirmation of public
order, and an augmentation of national resource.
But there are more particular considerations which
serve to fortify the idea, that tiie encouragement of
manufactures is the interest of all parts of the Union.
If the northern and middle states should be the
principal scenes of such establishments, they would
immediately benefit the more southern, by creating
a demand for productions, some of which they have
in common with the other states, and others of
which are either peculiar to them, or more abundant,
or of better quality than elsewhere. These produc-

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lions principally are, timber, flax, hemp, cotton, wool,
xaw silk, indigo, iron, lead, furs, hides, skins, and
coals. Of these articles, cotton and indigo are peculiar to the southern states ; as are hitherto lead and
coaL Flax and hemp are, or may l>e, raised in greater abundance there, than in the more northern states;
and the wool of Virginia is said to be of better
quality than that of any other state: a circumstance
rendered the more probable by the reflection, that
Virginia embraces the same latitudes with the finest
wool countries of Europe. The climate of the south
is also tetter adapted to the production of silk.
The extensive cultivation of cotton can perhaps
hardly be expected, but from the previous establishment of domestic manufactories of the article; and
the surest encouragement and vent for the others,
would result from similar establishments in respect
to them.
If, then, it satisfactorily appears, that it is the interest of the United States, generally, to encourage
manufactures, it merits particular attention, that there
are circumstances which render the present a critical
moment for entering with zeal upon the important
business. The effort cannot fail to be materially
seconded by a considerable and increasing influx of
money, in consequence of foreign speculations in
the funds, and by the disorders which exist in different parts of Europe.
The first circumstance, not only facilitates the execution of manufacturing enterprises, but it indicates
them as a necessary mean to turn the thing itself to
advantage, and to prevent its being eventually an
evil. If useful employment be not found for the
money of foreigners brought to the country to be invested in purchases of the public debt, it will quick-

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223

ly be re-exported to defray the expense of an extraordinary consumption of foreign luxuries; and distressing drains of our specie, may hereafter be experienced, to pay the interest, and redeem the principal, of the purchased debt.
This useful employment, too, ought to be of a nature to produce solid and permanent improvements.
If the money merely serves to give a temporary
spring to foreign commerce, as it cannot procure new
and lasting outlets for the products of the country,
there will be no real or durable advantage gained.
As far as it shall find its way in agricultural meliorations, in opening canals, and in similar improvements, it will be productive of substantial utility*
But there is reason to doubt, whether in such channels it is likely to find sufficient employment; and
still more whether many of those who possess it,
would be as readily attracted to objects of this nature, as to manufacturing pursuits; which bear
greater analogy to those to which they are accustomed, and to the spirit generated by them.
To open the one field as well as the other, will at
least secure a better prospect of useful employment,
for whatever accession of money there has been or
may be.
There is at the present juncture, a certain fermentation of mind, a certain activity of speculation and
enterprise, which, if properly directed, may be made
subservient to useful purposes; but which, if left
entirely to itself, may be attended with pernicious
effects.
The disturbed state of Europe, inclining its citizens to emigration, the requisite workmen will be
more easily acquired than at another time; and the
effect of multiplying the opportunities of employ-

REPORT ON
raent to those who emigrate, may be an increase of
the number and extent of valuable acquisitions to
the population, arts, and industry of the country.
To find pleasure in the calamities of other nations
would be criminal; but to benefit ourselves by
opening an asylum to those who suiTcr in consequence of them, is as justifiable as it is politic.
A full view having now been taken of the inducements to the promotion of manufactures in the United States, accompanied with an examination of the
principal objections which are commonly urged in
opposition; it is proper, in the next place, to consider
the means by which it may be effected, as introductory to a specification of the objects, which in the
present state of things appear the most fit to be encouraged, and of the particular measures which it
may be adviseable to adopt in respect to each.
In order to a better judgment of the means proper to be resorted to by the United States, it will be
of use to advert to those which have been employed with success in other countries. The principal of
these are—
I- Protecting duties—or duties on those foreign articles which arc the rivals of the domestic ones intend*
ed to be encouraged.
Duties of this nature evidently amount to a virtual bounty on the domestic fabrics, since by enhancing the charges on foreign articles, they enable
the national manufacturers to undersell all their foreign competitors. The propriety of this species
of encouragement need not be dwelt upon, as it is
not only a clear result from the numerous topics
which have been suggested, but is sanctioned by the
laws of the United States, in a variety of instances;
it has the additional recommendation of being a re-

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235

source of revenue. Indeed, all the duties imposed
on imported articles, though with an exclusive view
to revenue, have the effect in contemplation;
and, except where they fall on raw materials, wear
a beneficent aspect towards the manufactures of the
country.
I I . Prohibitions of rival articles^ or ditties equivalent
to-prohibitions*

This is another, and an efficacious, mean of encouraging national manufactures; but in general it is
only fit to be employed when a manufacture has
made such a progress, and is in so many hands, as to
insure a due competition, and an adequate supply on
reasonable terms. Of duties equivalent to prohibitions, there are examples in the laws of the United
States ; and there are other cases to which the principle may be advantageously extended, but they arc
not numerous.
Considering a monopoly of the domestic market to
its own manufacturers, as the reigning policy of manufacturing nations, a similar policy on the part of
the United States, in every proper instance, is dictated, it might almost be said, by the principles of
distributive justice; certainly by the duty of endeavouring to secure to their own citizens a reciprocity of advantages.
III. Prohibitions of the exportation of the materials
of manufactures.

The desire of securing a cheap and plentiful supply for the national workmen; and, where the article is either peculiar to the country, or of peculiar
quality there, the jealousy of enabling foreign workmen to rival those of the nation, with its own materials, are the leading motives to this species of regulation. It ought not to be affirmed, that it.is in no
J.

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instance proper; but it is certainly one Which ought
to be adopted with great circumspection, and only
in very plain cases. It is seen at once, that its immediate operation is to abridge the demand, and
keep down the price of the produce of some other
branch of industry, generally speaking, of agriculture, to the prejudice of those who carry it on ; and
though, if it be really essential to the prosperity of
any very important national manufacture, it may
happen that those who are injured in the first instance, may be eventually indemnified by the superior steadiness of an extensive domestic market, depending on that prosperity. Yet, in a matter in
which there is so much room for nice and difficult
combinations; in which such opposite considerations combat each other, prudence seems to dictate,
that the expedient in question ought to be indulged
with a sparing hand.
IV. Pecuniary bounties*
This has been found one of the most efficacious
means of encouraging manufactures; and it is in some
views the best. Though it has not yet been practised upon by the government of the United States ;
(unless the allowance on the exportation of dried
and pickled fish,and salted meat, could be considered as a bounty,) and though it is less favoured by
public opinion than some other modes. Its advantages are these:—
1. It is a species of encouragement more positive
and direct than any other, and for that very reason,
has a more immediate tendency to stimulate and
uphold new enterprises, increasing the chances of
profit, and diminishing the risks of loss in the first
attempts.

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227

% It avoids the inconvenience of a temporary
augmentation of price, which is incident to some
other modes, or it produces it to a less degree; either
by making no addition to the charges on the rival
foreign article, as in the case of protecting duties, or
hy making a smaller addition. The first happens,
when the fund for the bounty is derived from a different object, (which may or may not increase the
price of some other article, according to the nature of
that object;) the second, when the fund is derived
from the same or a similar object of foreign manufacture. One per cent, duty on the foreign article,
converted into a bounty on the domestic, will have
an equal effect with a duty of two per cent, exclusive of such bounty; and the price of the foreign
commodity is liable to be raised, in the one case, in
the proportion of one per cent.; in the other, in
that of two per cent. Indeed, the bounty when
drawn from another source, is calculated to promote
a reduction of price ; because, without laying any
new charge on the foreign article, it serves to introduce a competition with it, and to increase the total
quantity of the article in the market.
3. Bounties have not, like high protecting duties,
a tendency to produce scarcity. An increase of
price is not always the immediate, though, where the
progress of a domestic manufacture does not counteract a rise, it is commonly the ultimate effect of
an additional duty. In the interval between the
laying of the duty, and a proportional increase of
price, it may discourage importation, by interfering
with the profits to be expected from the sale of the
article,
4. Bounties are sometimes not only the best, but
the only proper expedient for uniting the encourage-

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jnent of a new object of agriculture, with that of a
new object of manufacture. It is the interest of the
fanner to have the production of the raw material
promoted, by counteracting the interference of the
foreign material of the same kind. It is the interest
of the manufacturer to have the material abundant
and cheap. If, prior to the domestic production of
the material, in sufficient quantity to supply the manufacturer on good terms, a duty be laid upon the
importation of it from abroad, with a view to promote the raising of it at home, the interest both of
the farmer and manufacturer will be disserved. By
either destroying the requisite supply, or raising the
price of the article beyond what can be afforded to
be given for it, by the conductor of an infant manufacture, it is abandoned or fails ; and there being no
domestic manufactories to create a demand for the
raw material which is raised by the farmer, it is in
vain, that the competition of the like foreign article,
may have been destroyed.
It cannot escape notice, that a duty upon the importation of an article can no otherwise aid the domestic production of it, than by giving the latter
greater advantages in the home market. It can have
no influence upon the advantageous sale of the article produced in foreign markets; no tendency, therefore, to promote its exportation.
The true way to conciliate these two interests is,
to lay a duty on foreign manufactures of the material,
the growth of which is desired to be encouraged,
and to apply the produce of that duty, by way of
bounty, either upon the production of the material
itself, or upon its manufacture at home; or upon
both. In this disposition of the thing, the manufacturer commences his enterprise under every aclvan-

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229

tage which is attainable, as to quantity or price
of the raw material. And the farmer, if the bounty
be immediately to him, is enabled by it to enter into a successful competition with the foreign material*
If the bounty be to the manufacturer, on so much
of the domestic material as he consumes, the operation is nearly the same; he has a motive of interest
to prefer the domestic commodity, if of equal quality, even at a higher price than the foreign, so long as
the difference of price is any tiling short of the
bounty which is allowed upon the article.
Except the simple and ordinary kinds of household manufacture, or those for which there are very
commanding local advantages, pecuniary bounties are
in most cases indispensable to the introduction of a
new branch. A stimulus and a support, not less
powerful and direct, is, generally speaking, essential
to the overcoming of the obstacles which arise from
the competitions of superior skill and maturity elsewhere. Bounties are especially essential in regard
to articles upon which those foreigners, who have
been accustomed to supply a country, are in the prao
tice of granting them.
The continuance of bounties on manufactures long
established, must almost always be of questionable
policy; because a presumption would arise in every
such case, that there were natural and inherent impediments to success.
But in new undertakings,
they are as justifiable as they are oftentimes necessary.
There is a degree of prejudice against bounties
from an appearance of giving away the public money, without an immediate consideration, and from a
supposition that they serve to enrich particular classes at the expense of the community.

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But neither of these sources of dislike will bear a
serious examination. There is no purpose to which
public money can be more beneficially applied, than
to the acquisition of a new and useful branch of industry ; no consideration more valuable than a permanent addition to the general stock of productive
labour.
As to the second source of objection, it equally lies
against other modes of encouragement, which are
admitted to be eligible. As often as a duty upon a"
foreign article makes an addition to its price, it
causes an extra expense to the community, for the
benefit of the domestic manufacturer, A bounty
does no more* But it is the interest of the society
in each case to submit to a temporary expense,
which is more than compensated by an increase of
industry and wealth, by an augmentation of resources and independence, and by the circumstance
of eventual cheapness, which has been noticed in
another place.
It would deserve attention, however, in the employment of this species of encouragement in the
United States, as a reason for moderating the degree
of it in the instances in which it might be deemed
eligible, that the great distance of this country from
Europe imposes very heavy charges on all the fabrics
which are brought from thence, amounting from 15
to 30 per cent, on their value, according to their
bulk.
A question has been made concerning the constitutional right of the government of theJUnited States
to apply tliis species of encouragement, but there is
certainly no good foundation for such a question.
The National Legislature has express authority "To
lay and collect taxes, duties, imposts, and excises;

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231

to pay the debts, and provide for the common defence
and general welfare" with no other qualifications
than that " all duties, imposts, and excises, shall
be uniform throughout the United States; that no capitation or other direct tax shall be laid unless in
proportion to numbers ascertained by a census, or
enumeration taken on the principles prescribed in
the Constitution," and that " no tax or duty shall
be laid on articles exported from any state.'*
These three qualifications excepted, the power to
raise money is plenary and indefinite; and the objects
to which it may be appropriated are no less comprehensive than the payment of the public debts,
and the providing for the common defence and general welfare. The terms "general welfare" were
doubtless intended to signify more than was expressed or imported in those which preceded; otherwise numerous exigencies incident to the affairs of
a nation would have been left without a provision.
The phrase is as comprehensive as any that could
have been used; because it was not fit that the
constitutional authority of the Union, to appropriate
its revenues, should have been restricted within narrower limits than the " general welfare;" arid because this necessarily embraces a vast variety of particulars, which are susceptible neither of specifics
tion nor of definition.
It is therefore of necessity left to the discretion of
the National Legislature, to pronounce, upon the
objects which concern the general welfare, and for
which, under that description, an appropriation of
money is requisite apd proper. And there seems to
be no room for a doubt that whatever concerns the
general interests of IEAENING, of AGEICUXTUEE, of
, and of coaiMEBCE,are within the sphere

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of the National Councils, asfar as regards an application of money.

The only qualification of the generality of the
phrase in question, which seems to be admissible, is
this—That the object to which an appropriation of
money is to be made, begeneral and not local; its operation extending ki fact, or by possibility, throughout the Union, and not being confined to a particular spot.
No objection ought to arise to this construction,
from a supposition that it would imply a power to
do whatever else should appear to Congress conducive to the general welfare. A power to appropriate
money with this latitude, which is granted too in ex*
press terms, would not carry a power to do any other
thing, net authorized in the constitution, either erpressly, or by fair implication.
V. Premiums.

These are of a nature allied to bounties, though
distinguishable from them in some important features.
Bounties are applicable to the whole quantity of
an article produced, or manufactured, or exported;
and involve a correspondent expense. Premiums
serve to reward some particular excellence or superiority, some extraordinary exertion or skill; and are
dispensed only in a small number of cases. But their
effect is to stimulate general effort—contrived so as
to be both honorary and lucrative, they address
themselves to different passions; touching the
chords as well of emulation as of interest. They
are, accordingly, a very econoo ical mean of exciting the enterprise of a whole community.
There are various societies, in different countries,
whose object is the dispensation of premiums, for the

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233

encouragement of agriculture, arts, manufactures, and
commerce; and though* they are for the most part
voluntary associations, with comparatively slender
funds, their utility has been immense. Much has
been done by this mean in Great-Britain, Scotland,
in particular, owes materially to it a prodigious me*
lioration of condition* From a similar establishment in the United States, supplied and supported
by the government of the Union, vast benefits might
reasonably be expected. Some further ideas on this
head, shall accordingly be submitted in the conclusion of this report,
VI. The exemption of the materials of manufactures
from duty*
The policy of that exemption, as a general rule,
particularly in reference to new establishments, is
obvious. It can hardly ever be adviseable to add
the obstructions of fiscal burthens to the difficulties
which naturally embarrass a new manufacture; and
where it is matured, arjd in condition to become ail
object of revenue, it is, generally speaking, better
that the fabric, than the material, should be the subject of taxation. Ideas of proportion between the
quantum of the tax and the value of the article, can
be more easily adjusted in the former, than in the
latter case. An argument for exemptions of this
kind in the United States, is to be derived from the
practice, as far as their necessities have permitted, of
those nations whom we are to meet as competitors
in our own and in foreign markets.
There are, however, exceptions to it; of which
some examples will be given under the next head.
The laws of the Union afford instances of the obserrance of the policy here recommended, but it will
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probably be found adviseable to extend it to some
other cases. Of a nature, bearing some affinity to
that policy, is the regulation which exempts from
duty, the tools and implements, as well as the books,
clothes, and household furniture of foreign artists,
who come to reside in the United States ; an advantage already secured to them by the laws of the
Union, and which, it is, in every view, proper to
continue.
VII. Drawbacks of the duties which are imposed on
the materials of manufactures.
It has already been observed, as a general rule,
that duties on those materials, ought, with certain
exceptions, to be forebome. Of these exceptions,
three cases occur which may serve as examples.—
One, where the material is itself an object of general
or extensive consumption, and a fit and productive
source of revenue.—Another, where a manufacture
of a simpler kind, the competition of which with a
like domestic article is desired to be restrained, partakes of the nature of a raw material, from being
capable, by a further process, to be converted into a
manufacture of a different kind, the introduction or
growth of which is desired to be encouraged.—A
third, where the material itself is a production of the
country, and in sufficient abundance to furnish a
cheap and plentiful supply to the national manufacturers.
Under thefirstdescription conies the article of molasses. It is not only a fair object of revenue, but
being a sweet, it is just that the consumers of it
should pay a duty as well as the consumers of sugar.
Cottons and linen, in their white state, fall under
the second description. A duty upon such as are
imported, is proper to promote the domestic manu-

MANUFACTURES.

28*

facture of similar articles in the same state—a drawback of that duty is proper to encourage the printing
and staining at home, of those which are brought
from abroad* When the first of these manufactures
has attained sufficient maturity in a country to furnish a full supply for the second, the utility of the
drawback ceases.
The article of hemp, either now does, or may be expected soon to exemplify, the third case in the United States.
Where duties on the materials of manufactures are
not laid for the purpose of preventing a competition
with some domestic production, the same reasons
which recommend, as a general rule, the exemption
of those materials from duties, would recommend, as.
a like general rule, the allowance of drawbacks in
favour of the manufacturer.
Accordingly, such
drawbacks are familiar in countries which systematically pursue the business of manufactures; which
furnishes an argument for the observance of a similar policy in the United States: and the idea has
been adopted by the laws of the Union, in the instances of salt and molasses. It is believed that it
will be found advantageous to extend it to some
other articles.
VIII. The encouragement of new inventions and discoveries, at home, and of the introduction" into tJie
United States of such as may have been made in other
countries; particularly those which relate to machine*
ry

This is among the most useful and unexceptionable
of the aids which can be given to manufactures*
The usual means of that encouragement are pecuniary
rewards, and,for a time, exclusive privileges. Thefiist
must be employed, according to the occasion, and the

236

REPORT ON

utility of the invention, or discovery. For the last,
so far as respect3 ** authors and inventors," provision
has been made by law. But it is desirable in regard
to improvements and secrets of extraordinaiy value,
to be able to extend the same benefit to introducers,
as well as authors and inventors; a policy which lias
been practised with advantage in other countries*
Here, however, as in some other cases, there is cause
to regret, that the competency of the authority of
the National Government to the good, which might
be done, is not without a question. Many aids
might be given to industry; many internal improvements of primary magnitude might be promoted, by
an authority operating throughout the Union, which
cannot be effected, as well, if at all, by an authority
confined withiu the limits of a single state.
But if the Legislature of the Union cannot do all
the good that might be wished, it is at least desirable, that all may be done which is practicable. Means
for promoting the introduction of foreign improve*
ments, though less efficaciously than might be accomplished with more adequate authority, will form
a part of the plan intended to be submitted in the
close of this report.
It is customary with manufacturing nations to prohibit, under severe penalties, the exportation of implements and machines, wliich they have either invented or improved. There are already objects fox
a similar regulation in the United States; and others
may be expected to occur from time to time. The
adoption of it seems to be dictated by the principle
of reciprocity. Greater liberality, in such respects,
might better comport with the general spirit of the
country; but a selfish and exclusive policy in other
quarters, ivill not always permit the free indulgence

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237

of a spirit, which would place us upon an unequal
footing. As far as prohibitions tend to prevent foreign competitors from deriving the benefit of the
improvements made at home, they tend to increase
the advantages of those by whom they may have
been introduced; and operate as an encouragement
to exertion*
IX- Judicious regulations for the inspection ofmamtfactured commodities.
This is not among the least important of the means,
by which the prosperity of manufactures may be promoted. It is indeed in many cases one of the most
essential. Contributing to prevent frauds upon consumers at home, and exporters to foreign countries—
to improve the quality and preserve the character of
the national manufactures, it cannot fail to aid the
expeditious and advantageous sale of them, and to
serve as a guard against successful competition from
other quarters. The reputation of the flour and
lumber of some states, and of the potash of others,
has been established by an attention to this point.
And the like good name might be procured for those
articles, wheresoever produced, by a judicious and
uniform system of inspection, throughout the ports
of the United States. A like system might also be
extended with advantage to other commodities.
X. The facilitating of pecuniary remittances from
place to place—
Is a point of considerable moment to trade in general, and to manufactures in particular; by rendering more easy the purchase of raw materials and provisions, and the payment for manufactured supplies. A general circulation of bank paper, which is
to be expected from the institution lately established,
will be a most valuable mean to this end. But much

238

REPORT ON

good would also accrue from some additional provisions respecting inland bills of exchange. If those
drawn in one state payable in another, were made negociable every where, and interest and damages allowed in case of protest, it would greatly promote ne*
gociations between the citizens of different states, by
rendering them more secure; and with it the convenience and advantage of the merchants and manufacturers of each.
XI. TIw facilitating of the transportation of commodities.
Improvements favouring this object, intimately
concern all the domestic interests of a community;
but they may, without impropriety, be mentioned as
having an important relation to manufactures. There
is perhaps scarcely any thing, which has been better calculated to assist the manufactures of GreatBritain, than the meliorations of the public roads of
that kingdom, and the great progress which has been
of late made in opening canals. Of the former, the
United States stand much in need; for the latter, they
present uncommon facilities.
The symptoms of attention to the improvement of
inland navigation, which have lately appeared in
some quarters, must fill with pleasure every breast
warmed with a true zeal for the prosperity of the
country. These examples, it is to be hoped, will stimulate the exertions of the government and citizens
of every state. There can certainly be no object
more worthy of the cares of the local administrations;
and it were to be wished, that there was no doubt
of the power of the national government to lend its
direct aid, on a coraprehensix^e plan. This is one of
those improvements, which could be prosecuted
with more efficacy by the whole, than by any

MANUFACTURES.

239

part or parts of the Union. There are cases in which
the general interest will be in danger to be sacrificed
to the collision of some supposed local interestsJealousies in matters of this kind, are as apt to exist,
as they are apt to be erroneous.
The following remarks are sufficiently judicious
and pertinent to deserve a literal quotation: " Good
roads, canals, and navigable rivers, by diminishing
the expense of carriage, put the remote parts of a
country more nearly upon a level with those in the
neighbourhood of the town. They are upon that account the greatest of all improvements. They encourage the cultivation of the remote, which must always
be the most extensive circle of the country. They
are advantageous to the town, by breaking down the
monopoly of the country in its neighbourhood. They
are advantageous even to that part of the country.
Though they introduce some rival commodities inta
the old market, they open many new markets to its
produce. Monopoly, besides, is a great enemy to
good management, which can never be universally
established, but in consequence of that free and universal competition, which forces every body to have
recourse to it for the sake of self-defence. It is not
more than fifty years ago that some of the counties in
the neighbourhood of London, petitioned the Parliament
against the extension of the turnpike roads into the remoter counties. Those remoter counties^ they pretended*
from the cheapness oj'labour, would be able to sell their
grass and corn cheaper in tlie London market than
themselves, and they ivould thereby reduce their rents>
and ruin their cultivation.
Their rents, however,

have risen, and their cultivation has been improved,
since that time,"

340

REPORT ON

Specimens of a spirit, similar to that which governed the counties here spoken of, present themselves too frequently to the eye of an impartial ol>server, and render it a wish of patriotism, that the
body in this country, in whose councils a local or
partial spirit is least likely to predominate, were at
liberty to pursue and promote the general interest,
in those instances in which there might be danger
of the interference of such a spirit
The foregoing are the principal of the means, by
which the growth of manufactures is ordinarily pro*
moted. It is, however, not merely necessary that
the measures of government, which have a direct
view to manufactures, should be calculated to assist
and protect them; but that those which only collaterally afFect them, in the general course of the administration, should be guarded from any peculiar
tendency to injure them*
There are certain species of taxes which areapt to be
oppressive to different parts of the community, and,
among other ill effects, have a very unfriendly aspect towards manufactures. All poll or capitation
taxes are of this nature. They either proceed ac*
cording to a fixed rate, which operates unequally
and injuriously to the industrious poor; or they vest
a discretion in certain officers, to make estimates and
assessments, which are necessarily vague, conjectural, and liable to abuse* They ought, therefore, to
be abstained from in all but cases of distressing
emergency.
All such taxes, (including all taxes on occupations,)
which proceed according to the amount of capital
supposed to be employed in a business, or of profits
supposed to be made in it, are unavoidably hurtful to
industry. It is in vain that the evil may be endeti-

MANUFACTURES.

241

vbured to be mitigated by leaving it, in the first instance, in the option of the party to be taxed, to declare the amount of his capital or profits.
Men engaged in any trade or business, have commonly weighty reasons to avoid disclosures which
would expose, with any thing like accuracy, the real
state of their affairs. They most frequently find it
better to risk oppression, than to avail themselves of
so inconvenient a refuge. And the consequence is,
that they often suffer oppression.
When tlie disclosure, too, if made, is not definitive, but controllable by the discretion; or, in other
words, by the passions and prejudices of the revenue
officers, it is not only an ineffectual protection, but
the possibility of its being so, is an additional reason for not resorting to it.
Allowing to the public officers the most equitable
dispositions; yet, where they are to exercise a discretion without certain data, they cannot fail to be
often misled by appearances. The quantity of
business which seems to be going on, is, in a vast
number of cases, a very deceitful criterion of the pro*
fits which are made; yet it is, perhaps, the best they
can have, and it is the one on which they will most
naturally rely. A business, therefore, which may rather require aid from the government, than be in a
capacity to be contributory to it, may find itself
crushed by the mistaken conjectures of the assessors
of taxes.
Arbitrary taxes, under which denomination are
comprised all those that leave the quantum of the tax
to be raised on each person, to the discretion of certain officers, are as contrary to the genius of liberty,
as to the maxims of industry. In this light they
VOL. i.
2 i

242

REPORT ON

have been viewed by the most judicious observers
On government, who have bestowed upon them the
severest epithets of reprobation, as constituting one
of the worst features usually to be met with in the
practice of despotic governments.
It is certain, at least, that such taxes are particularly inimical to the success of manufacturing industry, and ought carefully to be avoided by a government which desires to promote it.
The great copiousness of the subject of this report, has insensibly led to a more lengthy preliminary discussion, than was originally contemplated or
intended. It appeared proper to investigate principles, to consider objections, and to endeavour to establish the utility of the tiling proposed to be encouraged ; previous to a specification of the objects
which might occur, as meriting or requiring encouragement ; and of the measures which might be proper in respect to each. The first purpose having
been fulfilled, it remains to pursue the second*
In the selection of objects, five circumstances
seem entitled to particular attention:—The capacity
of the country to furnish the raw material—the degree in which the nature of the manufacture admits
of a substitute for manual labour in machinery-—1 he
facility of execution—the eitensiveness of the uses
to which the article can be applied—its subserviency
to other interests, particularly the great one of
national defence. There are, however, objects to
which these circumstances are little applicable,
which, for some special reasons, may have a claim to
encouragement.
A designation of the principal raw material, of
which each manufacture is composed, will serve to

MANUFACTURES.

343

introduce the remarks upon it.—As, in the first
place,
IRON.
The manufactures ,of this article are entitled to
pre-eminent rank. None are more essential in their
kinds, nor so extensive in their uses. They constitute, in whole or in part, the implements or the materials, or both, of almost every useful occupation.
Their instrumentality is every where conspicuous.
It is fortunate for the United States, that they
have peculiar advantages for deriving the full benefit of this most valuable material; and they have
every motive to improve it with systematic care. It
is to be found in various parts of the United States
in great abundance, and of almost every quality; and
fuel, the chief instrument in manufacturing it, is
both cheap and plenty. This particularly applies to
charcoal; but there are productive coal mines already in operation, and strong indications that the
material is to be found in abundance in a variety of
other places.
The inquiries to which the subject of this report
has led, have been answered -with proofs, that manufactories of iron, though generally understood to
be extensive, are far more so than is commonly supposed. The kinds in which the greatest progress
has been made, have been mentioned in another
place, and need not be repeated; but there is little
doubt, that every other kind, with due cultivation,
will rapidly succeed. It is worthy of remark, that
several of the particular trades of which it is the basis, are capable of being carried on without the aid
of large capitals.

REPORT ON

Iron works have greatly increased in the United
States, and are prosecuted with much more advantage than formerly. The average price before the
revolution, was about sixty-four dollars per ton; at
present it is about eighty—a rise which is chiefly to
be attributed to the increase of manufactures of tho
material.
The still further extension and multiplication of
such manufactures, will have the double effect of promoting the extraction of the metal itself, and of converting it to a greater number of profitable purposes*
Those manufactures, too, unite in a greater degree
than almost any others, the several requisites which
have been mentioned as proper to be consulted in
the selection of objects.
The only further encouragement of manufactories
of this article, the propriety of which may be coivsidered as unquestionable, seems to he an increase
of the duties on foreign rival commodities.
Steel is a branch which has already made a considerable progress, and it is ascertained that some
new enterprises on a more extensive scale have been
lately set on foot. The facility of carrying it to an
extent which will supply all internal demands, and
furnish a considerable surplus for exportation, cannot be doubted. The duty upon the importation of
this article, which is at present seventy-five cents per
cwt. may, it is conceived, be safely and advantageously extended to 100 cents. It is desirable, by decisive arrangements, to second the efforts which are
making in so very valuable a branch.
The United States already in a great measure supply themselves with nails and spikes. They are
able, and ought certainly to do it entirely. The first
and most laborious operation in this manufacture, is

MANUFACTURES-

245

performed by water-mills; and of the persons afterwards employed, a great proportion are boys, whose
early habits of industry are of importance to the community, to the present support of their families, and
to their own future comfort. It is not less curious
than true, that in certain parts of the country, the
making of nails is an occasional family manufacture.
The expediency of an additional duty on; these
articles is indicated by an important fact. About
1,800,000 pounds of them were imported into the
United States in the course of a year, ending the
30th of September, 1790. A duty of two cents per
pound would, it is presumable, speedily put an end
to so considerable an importation. And it is in every
view proper, that an end should be put to it.
The manufacture of these articles, like that of
some others, suffers from the carelessness and dishonesty of a part of those who carry it on. An inspection, in certain cases, might tend to correct the evil.
It will deserve consideration, whether a regulation
of this sort cannot be applied without inconvenience
to the exportation of the articles, either to foreign
countries, or from one state to another.
The implements of husbandry are made in several
states in great abundance. In many places it is done
by the common blacksmiths. And there is no doubt
that an ample supply for the whole country can with
great ease be procured among ourselves.
Various kinds of edged tools for the use of mechanics are also made; and a considerable quantity
of hollow wares'; though the business of castings
lias not yet attained the jferfection which might be
wished. It is, however, improving, and as there are

REPORT ON
respectable capitals in good hands, embarked in the
prosecution of those branches of iron manufactories,
which are yet in their infancy, they may all be contemplated as objects not difficult to be acquired.
To insure the end, it seems equally safe and prudent to extend the duty ad valorem upon all manufactures of iron, or of which iron is the article of
chief value, to ten per cent.
Fire aims, and other military weapons, may, it is
conceived, be placed without inconvenience in the
class of articles rated at fifteen per cent. There exist already manufactories of these articles, which only require the stimulus of a certain demand to render them adequate to the supply of the United
States.
It would also be a material aid to manufactures of
this nature, as well as a mean of public security, if
provision should be made for an annual purchase of
military weapons of home manufacture, to a certain
determinate extent, in order to the formation of arsenals ; and to replace from time to time, such as
should be withdrawn for use, so as always to have in
store the quantity of each kind which should be
deemed a competent supply.
But it may hereafter deserve legislative considera*
tion, whether manufactories of .nil the necessary weapons of war, ought not to be established on account
of government itself. Such establishments are agreeable to the usual practice of nations, and that practice seems founded on sufficient reason.
There appears to be an improvidence in leaving
these essential instruments of national defence to the
casual speculations of individual adventure; a resource which can less be relied upon in this case,
than in most others: the articles in question not be*

MANUFACTURES.

247

objects of ordinary and indispensable private
consumption or use. As a general rule, manufactories on the immediate account of government are to
be avoided; but this seems to be one of the few exceptions which that rule admits, depending on very
special reasons.
Manufactures of steel generally, or of which steel
is the article of chief value, may with advantage be
placed in the class of goods rated at seven and an
half per cent As manufactures of this kind have
not yet made any considerable progress, it is a reason
for not rating them as high as those of iron; but as
this material is the basis of them, and as their extension is not less practicable than important, it is deairable to promote it by a somewhat higher duty than
the present.
A question arises, how far it might be expedient to
permit the importation of iron in pigs and bars free
from duty? It would certainly be favourable to manufacturers of the article; but the doubt is, whether
it might not interfere with its production.
Two circumstances, however, abate, if they do not
remove, apprehension on this score. One is, the considerable increase of price, which has already been
remarked, and which renders it probable, that the
free admission of foreign iron would not be inconsistent with an adequate profit to the proprietors of
iron works; the other is, the augmentation of demand which would be likely to attend the increase
of manufactures of the article, in consequence of the
additional encouragements proposed to be given. But
caution, nevertheless, in a matter of this kind, is most
adviseable. The measure suggested, ought, perhaps,
rather to be contemplated, subject to the lights of
further experience, than immediately adopted.

348

REPORT ON
COPPER.

The manufactures of which this article is susceptible are also of great extent and utility. Under this
description, those of brass, of which it is the principal ingredient, are intended to be included.
The material is a natural production of the coun*
try. Mines of copper have actually been wrought,
and with profit to the undertakers, though it is not
known that any are now in this condition. And nothing is easier than the introduction of it from
other countries on moderate terms, and in great
plenty.
Coppersmiths and brass-founders, particularly the
former, are numerous in the United States; some
of whom carry on business to a respectable extent*
To multiply and extend manufactories of the materials in question, is worthy of attention and effort.
In order to this, it is desirable to facilitate a plentiful
supply of the materials. And a proper mean to this
end is, to place them in the class of free articles.
Copper in plates and brass are already in this predicament ; but copper in pigs and bars is not; neither
is lapis calaminaris, which, together with copper and
charcoal, constitute the component ingredients of
brass. The exemption from duty, by parity of reason, ought to embrace all such of these articles as
are objects of importation.
An additional duty on brass wares, will tend to the
general end in view. These now stand at five per
cent, while those of tin, pewter, and copper, arc
rated at seven and an half. There appears to be a
propriety, in every view, in placing brass wares upon
the same level with them; and it merits considera-

MANUFACTURES.

249

tion, whether the duty upon all of them, ought not
to be raised to ten per cent.
LEAD*
There are numerous proofs, that this material
abounds in the United States, and requires little to
unfold it to an extent more than equal to every
domestic occasion. A prolific mine of it has long
been open in the south-western parts of Virginia,
and under a public administration, during the late
war, yielded a considerable supply for military use.
This is now in the hands of individuals, who not only carry it on with spirit, but have established manufactories of it at Richmond, in the same state.
The duties already laid upon the importation of
this article, either in its unmanufactured or manufactured state, insure it a decisive advantage in the
home market—which amounts to considerable encouragement. If the duty on pewter wares should
be raised, it would afford a further encouragement.
Nothing else occurs as proper to be added.,
FOSSIL COAL.
This, as an important instrument of manufactures,
may, without impropriety, be mentioned among the
subjects of this report.
A copious supply of it would be of great consequence to the iron branch. As an article of household fuel, also, it is an interesting production; the
utility of which must increase in proportion to the
decrease of wood, by the progress of settlement and
cultivation. And its importance to navigation, as
VOL. i.
2 K

250

11EPOKT ON

an immense article of transportation coast-wise, is
signally exemplified in Great-Britain.
It is known, that there are several coal mines in
Virginia, now worked; and appearances of their existence are familiar in a number of places.
The expediency of a bounty on all this species of
coal of home production, and of premiums on the
opening of new mines, under certain qualifications,
appears to be worthy of particular examination. The
great importance of the article will amply justify a
reasonable expense in this way, if it shall appear to
be necessary to, and shall be thought likely to an*
swer, the end.
WOOD.
Several manufactures of this article flourish in the
United States. Ships are no where built in greater
perfection, and cabinet-wares, generally, are made
little, if at all, inferior to those of Europe. Their
extent is such as to have admitted of considerable
exportation.
An exemption from duty of the several kinds of
wood ordinarily used in these manufactures, seems
to be all that is requisite by way of encouragement.
It is recommended, by the consideration of a similar
policy being pursued in other countries, and by the
expediency of giving equal advantages to our owu
workmen in wood. The abundance of timber proper for shipbuilding in the United States, does not
appear to be any objection to it. The increasing
scarcity, and growing importance of that article in
the European countries, admonish the United Slates
to commence, and systematically to pursue, measures
for the preservation of their stock. Whatever ma\

MANUFACTURES.

251

promote the regular establishment of magazines of
ship timber, is, in various views, desirable.
SKINS.
There are scarcely any manufactories of greater
importance, than of this article. Their direct and
very happy influence upon agriculture, by promoting
the raising of cattle of different kinds, is a very material recommendation.
It is pleasing, too, to observe the extensive progress they have made in their principal branches;
which are so far matured as almost to defy foreign competition. Tanneries, in particular, are not only carried on as a regular business, in numerous instances,
and in various parts of the country, but they constitute, in some places, a valuable item of incidental
family manufactures.
Representations, however, have been made, importing the expediency of further encouragement to
the leather branch, in two ways ; one, by increasing
the duty on the manufactures of it, which are imported ; the other, by prohibiting the exportation of
bark. In support of the latter it is alleged, that
the price of bark, chiefly in consequence of large exportations, has risen, within a few years, from about
three dollars, to four and an half per cord.
These suggestions are submitted rather as intimations which merit considerations, than as matters,
the propriety of which is manifest. It is not clear,
that an increase of duty is necessary; and in regard
to the prohibition desired, there is no evidence of
any considerable exportation hitherto ; and it is most
probable, that whatever augmentation of price may
have taken place, is to be attributed to an extension

262

REPORT ON

of the home demand from the increase of manufactures, and to a decrease of the supply, in consequence of the progress of settlement, rather than to
the quantities which have been exported.
It is mentioned, however, as an additional reason
for the prohibition, that one species of the bark
usually exported, is in seme sort peculiar to the country ; and the material of a very valuable dye, of
great use in some other manufactures in which the
United States have begun a competition.
There may also be this argument iu favour of an
increase of duty. The object is of importance enough
to claim decisive encouragement \ and the progress
which has been made, leaves no room to apprehend
any inconvenience on the score of supply from such
an increase.
It would be of benefit to this branch, if glue,
which is now rated at five per cent, were made the
object of an excluding duty* It is already made in
large quantities at various tanneries; and, like paper, is an entire economy of materials, which, if not
manufactured, would be left to perish. It may be
placed with advantage in the class of articles paying
fifteen per cent.
GRAIN.
Manufactures of the several species of this article,
have a title to peculiar favour; not only because
they are most of them immediately connected with
the subsistence of the citizens, but because they enlarge the demand for the most precious products of
the soil.
Though flour may with propriety be noticed as a
manufacture of grain, it were useless to do it, but

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253

for the purpose of submitting the expediency of a
general system of inspection throughout the ports of
the United Slates; which, if established upon proper principles, would be likely to improve the quality of our flour every where, and to raise its reputation in foreign markets. There, are, however, considerations which stand in the way of such an arrangement.
Ardent spirits and malt liquors are, next to flour,
the two principal manufactures of grain. The first
has made a very extensive, the last a considerable
progress in the United States. In respect to both,
an exclusive possession of the home market ought to
be secured to the domestic manufacturers, as fast as
circumstances will admit. Nothing is more practicable, and nothing more desirable.
The existing laws of the United States have done
much towards attaining this valuable object; but
some additions to the present duties on foreign distilled spirits, and foreign malt liquors, and, perhaps,
an abatement of tiiose on home-made spirits, would
more effectually secure i t ; and there does not occur
any veiy weighty objection to either.
An augmentation of the duties on imported spirits, would favour, as well the distillation of spirits
from molasses, as that from grain. And to secure to
the nation the benefit of a manufacture, even
of foreign materials, is always of great, though
perhaps of secondary importance.
A strong impression prevails in the minds of those
concerned in distilleries, (including, too, the most
candid and enlightened,) that greater differences in
the rates of duty on foreign and domestic spirits, are
necessary completely to secure the successful manu-

254

REPORT ON

facturc of the latter; and there are facts which entitle this impression to attention.
It is known, that the price of molasses, for some
years past, has been successively rising in the WestIndia markets, owing partly to a competition which
did not formerly exist, and partly to an extension of
demand in this country; and it is evident, that the
late disturbances in those Islands, from which we
draw our principal supply, must so far interfere with
the production of the article, as to occasion a material enhancement of price. The destruction and devastation attendant on the insurrection in Ilispaniola
in particular, must not only contribute very much to
that effect, but may be expected to give it some duration. These circumstances, and the duty of three
cents per gallon on molasses, may render it difficult
for the distillers of that material to maintain,
with adequate profit, a competition with the rum
brought from the West-Indies, the quality of which
is so considerably superior.
The consumption of Geneva, or gin, in this country, is extensive. It is not long since distilleries of
it have grown up among m, to any importance.
They are cow becoming of consequence, but being
still in their infancy, they require protection.
It is represented, that the price of some of the ma*
teriaIs is greater here than in Holland, fiom which
place large quantities arc brought—the price of labour considerably greater—the*capitals engaged in
the business there, much larger than those which
are employed here—the rate of profits, at which the
undertakers can afford tocairy it on, much less—the
prejudices in favour of imported gin, strong. These
circumstances axe alleged, to outweigh the charges
which attend the bringing of the article from Europe to

MANUFACTURES.

255

the United States, and the present difference of duty,
so as to obstruct the prosecution of the manufacture
with due advantage.
Experiment could, perhaps, alone decide with certainty the justness of the suggestions which are
made ; but in relation to branches of manufacture
so important, it would seem inexpedient to hazard an
unfavourable issue, and better to err on the side of
too great, than of too small, a difference in the particular in question.
It is, therefore, submitted, that an addition of two
cents per gallon be made to the duty on imported
spirits of the first class of proof, with a proportionable increase on those of higher proof; and that a
deduction of one cent, per gallon be made from
the duty on spirits distilled within the United
States, beginning with the first class of proof, and a
proportionable deduction from the duty on those of
higher proof.
It is ascertained, that by far the greatest part of
the malt liquors consumed in the United States, are
the produce of domestic breweries. It is desirable,
and, in all likelihood, attainable, that the whole
consumption should be supplied by ourselves.
The malt liquors made at home, though inferior
to the best, are equal to a great part of those which
have been usually imported. The progress already
made, is an earnest of what may be accomplished.
The growing competition is an assurance of improvement This will be accelerated by measures tending
to invite a greater capital into this channel of employment.
To render the encouragement of domestic breweries decisive, it may be adviseable to substitute to
the present rates of duty, eight cents per gallon ge-

256

REPORT ON

nerally; and it will deserve to be considered as a
guard against invasions, whether there ought not to
be a prohibition of their importatien, except in casks
of considerable capacity. It is to l>e hoped, that
such a duty would banish from the market foreign
malt liquors of inferior quality ; and that the best
kind only would continue to be imported, till it
should be supplanted by the efforts of equal skill or
care at home.
Till that period, the importation so qualified,
would be an useful stimulus to improvement; and
in the mean time, the payment of the increased price
for the enjoyment of a luxury, in order to the encouragement of a most useful branch of domestic industry, could not reasonably be deemed a hardship.
Asa further aid to manufactures of grain, though
upon a smaller scale, the articles of starch, hair-powder, and wafers, may with great propriety be placed
among those which are rated at fifteen per cent. No
manufactures are more simple, nor more completely
within the reach of a full supply from domestic
sources; and it is a policy, as common as it is obvious, to make them the objects either of prohibitory duties, or of express prohibition.
FLAX AND HEMP.
Manufactures of these articles have so much affinity to each other, and they are so often blended,
that they may with advantage be considered in conjunction. The importance of the linen branch to
agriculture—its piecious effects upon household industry—the ease with which the materials can be
produced at home to any requisite extent—the great
advances which have been already made in the

MANUFACTURES.

257

coarser fabrics of them, especially in the family way,
constitute claims of peculiar force to the patronage
of government.
This patronage may be afforded in various ways;
by promoting the growth of the materials; by increasing the impediments to an advantageous competition of rival foreign articles; by direct bounties or
premiums upon the home manufacture.
Eirst. As to promoting the growth of the materials.
In respect to hemp, something has been already
done by the high duty upon foreign hemp. If the
facilities for domestic production were not unusually
great, the policy of the duty on the foreign raw material, would be highly questionable, as interfering
with the growth of manufactures of it. But making
the proper allowances for those facilities, and with
an eye to the future and natural progress of the
country, the measure does not appear, upon the
whole, exceptionable.
A strong wish naturally suggests itself, that some
method could be devised, of affording a more direct
encouragement to the growth both of flax and hemp;
such as would be effectual, and at the same time not
attended with too great inconveniences. To this end,
bounties and premiums offer themselves to consideration; but no modification of them has yet occurred,
which would not cither hazard too much expense,
or operate unequally in reference to the circumstances of different parts of the Union; and which
would not be attended with very great difficulties in
the execution*
Secondly. As to increasing the impediments to an
advantageous competition of rival foreign articles.
To this purpose, an augmentation of the duties on
importation is the obvious expedient; which, in -re*
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2L

258

REPORT ON

gard to certain articles, appears to be recommended
by sufficient reasons.
The principal of these articles is sail-cloth; one
intimately connected with navigation and defence;
and of which a flourishing manufactory is established at Boston, and very promising ones at several
other places.
It is presumed to be both safe and adviseable to
place this in the class of articles rated at 10 per
cent. A strong reason for it results from the consideration that a bounty of two pence sterling per ell
is allowed in Great-Britain, upon the exportation of
the sail-cloth manufactured in that kingdom*
It would likewise appear to be good policy to raise
the duty to seven and an half per cent, on the following articles.—Drill ings, osnaburgh, ticklenburghs,
dowlas, canvass, brown rolls, bagging, and upon all
other linens, the first cost of which at the place of
exportation does not exceed 35 cents per yard, A
bounty of I2i per cent, upon an average, on Ihe exportation of such or similar linens from Great-Britain, encourages the manufacture of them in that
country, and increases the obstacles to a successful
competition in the countries to which they are
sent.
The quantities of tow and other household linens
manufactured in different parts of the United States,
and the expectations which are derived from some
late experiments, of being able to extend the use of
labour-saving machines in the coarser fabrics of linen, obviate the danger of inconvenience from an increase of the duty upon such articles, and authorize a
hope of speedy and complete success to the endeavours which may be used for procuring an internal
supply.

MANUFACTURES.

259

Thirdly. As to direct bounties or premiums tipon
the manufactured articles.
To afford more effectual encouragement to the manufacture, and at the same time to promote the cheapness of the article for the benefit of navigation, it
will be of great use to allow a bounty of two cents
per yard on all sail-cloth which is made in the United States from materials of their own growth. This
would also assist the culture of those materials. An
encouragement of this kind, if adopted, ought to be
established for a moderate term of years, to invite to
new undertakings, and to an extension of the old.
This is an article of importance enough to warrant
t i e employment of extraordinary means in its fauour.
COTTON.
There is something in the texture of this material
which adapts it in a peculiar degree to the application
of machines. The signal utility of the mill for spinning of cotton, not long1 since invented in England,
has been noticed in another place; but there are other
machines scarcely inferior in utility, which, in the
different manufactories of this article, are employed
either exclusively, or with more than ordinary effect.
This very important circumstance recommends the
fabrics of cotton, in a more particular manner, to a
country in which a defect of hands constitutes the
greatest obstacle to success.
The variety and extent of the uses to which the
manufactures of this article are applicable, is another powerful argument in their favour.
And the faculty of the United States to produce
the raw material in abundance, and of a quality
whidh, though alleged to be inferior to some that is
produced in other quarters, is, nevertheless, capable

260

KEFOKT ON

of being used with advantage in many fabrics, and
is probably susceptible of being carried, by a more
experienced culture, to much greater perfection, suggests an additional and a very cogent inducement
to the vigorous pursuit of the cotton branch, in its
several subdivisions.
How much lias been already done, has been stated in a preceding part of this report.
In addition to this, it may \m announced, that a
society is forming with a capital which is expected
to be extended to at least half a million of dollars;
on behalf of which, measures are already in train
for prosecuting, on a large scale, the making and
printing of cotton goods.
These circumstances conspire to indicate the expediency of removing any obstructions which may
happen to exist to the advantageous prosecution of
the manufactories in question, and of adding such
encouragements as may appear necessary and proper.
The present duty of three cents per pound on the
foreign raw material, is undoubtedly a very serious
impediment !o the progress of those manufactories.
The injurious tendency of similar duties, either
prior to the establishment, or in the infancy of the
domestic manufacture of the article, as it regards
the manufacture; and their worse than inutility, in
relation to the home production of the material itself, have been anticipated, particularly in discussing
the subject of pecuniary bounties*
Cotton has not the same pretensions with hemp to
form an exception to the general rule.
Not being, like hemp, an universal production of
the country, it affords less assurance of an adequate
internal supply; but the chief objection arises from
the doubts which are entertained concerning the

MANUFACTURES.

?61

quality of the national cotton. It is alleged, that
the fibre of it is considerably shorter and weaker
than that of some other places; and it has been observed as a general rule, that the nearer the place of
growth to the equator, the better the quality of the
cotton. That which comes from Cayenne, Surrinam,
and Demarara, is said to be preferable, even at a
material difference of price, to the cotton of the islands.
While a hope may reasonably be indulged, that
with due care and attention, the national cotton may
be made to approach nearer than it now does to that
of regions somewhat more favoured by climate; and
-while,facts authorize an opinion, that very great use
may be made of it, and that it is a resource which
gives greater security to the cotton fabrics of this
country, than can be enjoyed by any which depends
wholly on external supply, it will certainly be wise
in erery view, to let our infant manufactures have
the full benefit of the best materials on the cheapest
terms. It is obvious that the necessity of having
such materials, is proportioned to the unskilfulness
and inexperience of the workmen employed, who, if
inexpert, will not fail to commit great waste, where
the materials they are to work with are of an indifferent kind.
To secure to the national manufacturers so essential an advantage, a repeal of the present duty on
imported cotton is indispensable.
A substitute for this, far more encouraging to domestic production, will be to grant a bounty on the
national cotton, when wrought at a home manufactory ; to which a bounty on the exportation of it may
be added. Either, or both, would do much more
towards promoting the growth of the article, than

262

REPORT ON

the merely nominal encouragement, which it is proposed to abolish. The first would also have a direct influence in encouraging the manufacture.
The bounty which lias l>een mentioned as existing
in Great-Britain upon the exportation of coarse linens
not exceeding a certain value, applies also to certain
descriptions of cotton goods of similar value.
This furnishes an additional argument for allowing to the national manufacturers the species of encouragement just suggested, and indeed for adding
some other aid
One cent per yard, not less than of a given width,
on ail goods of cotton, or of cotton and linen mixed,
which are manufactured in the United States, with
the addition of one cent per pound weight of the
material, if made of national cotton, would amount
to an aid of considerable importance, both to the
production and to the manufacture of that valuable
article* And it is conceived, that the expense
would be well justified by the magnitude of the objecL
The printing and staining of cotton goods, is known
to be a distinct business from the fabrication of them.
It is one easily accomplished, and which, as it adds
materially to the value of the article in its white
state, and prepares it for a variety of new uses, is of
importance to be promoted.
As imported cottons, equally with those which arc
made at home, may be the objects of this manufacture, it will merit consideration, whether the whole,
or a part of the duty, on the white goods, ought
not to be allowed to be drawn back in favour
of those who print or stain them. This measure
would certainly operate as a powerful encouragement to the business; and though it may in a tie-

MANUFACTURES.

263

gree counteract the original fabrication of the articles, it would probably more than compensate for
this disadvantage in the rapid growth of a collateral
branch which is of a nature sooner to attain to maturity. When a sufficient progress shall have been
made, the drawback may be abrogated, and by that
time the domestic supply of the articles to be printed or stained, will have been extended.
If the duty of seven and an half per cent, on certain kinds of cotton goods were extended to all goods
of cotton, or of which it is the principal material, it
would probably more than counterbalance the effect
of the drawback proposed in relation to the fabrication of the article. And no material objection occurs to such an extension. The duty, then, considering all the circumstances which attend goods of this
description, could not be deemed inconveniently
high; and it may be inferred from various causes
that the prices of them would still continue moderate.
Manufactories of cotton goods not long since established at Beverly in Massachusetts, and at Providence, in the state of Rhode-Island, and conducted
with a perseverance corresponding with the patriotic
motives which began them, seem to have overcome
the first obstacles to success; producing corderoys,
velverets, fustians, jeans, and other similar articles,
of a quality which will bear a comparison with the
like articles brought from Manchester. The one at
Providence has the merit of being the first in introducing into the United States the celebrated cotton
mill; which not only furnishes materials for that
manufactory itself, but for the supply of private families for household manufacture.

264

REPORT ON

Other manufactories of the same material, as regular businesses, have also been begun at different places
in the state of Connecticut, but all upon a smaller
scale than those above mentioned. Some essays are
also making in the printing and staining of cotton
goods. There are several small establishments of
this kind already on foot,
WOOL.
In a country, the climate of which partakes of so
considerable a proportion of winter as that of a
great part of the United States, the woollen branch
cannot be regarded as inferior to any which relates
to the clothing of the inhabitants.
Household manufactures of this material are carried on in different parts of the United States to a
very interesting extent; but there is only one
branch which, as a regular business, can be said to
have acquired maturity. This is the making of hats*
Hats of wool, and of wool mixed with fur, are
made in large quantities in different states; and nothing seems wanting but an adequate supply of materials to render the manufacture commensurate with
the demand.
A promising essay towards the fabrication of cloths,
cassimeres, and other woollen goods, is likewise going on at Hartford, in Connecticut. Specimens of
the different kinds which are made, in the possession of the Secretary, evince that these fabrics have
attained a very considerable degree of perfection*
Their quality certaiuly surpasses any thing that
could have been looked for in so short a time, and
under so great disadvantages; and conspires with
the scantiness of the means, which have been at the

MANUFACTURES.

265

command of the directors, to form the eulogium of
that public spirit, perseverance, and judgment, which
have been able to accomplish so much.
To cherish and bring to maturity this precious
embryo, must engage the most ardent wishes, and
proportionable regret, as far as the means of doing it
may appear difficult or uncertain.
Measures which should tend to promote an abundant supply of wool of good quality, would probably afford the most efficacious aid that present circumstances permit.
To encourage the raising and improving the breed
of sjieep at home, would certainly be the most desirable expedient for that purpose; but it may not be
alone sufficient, especially as it is yet a problem,
whether our wool be capable of such a degree of improvement, as to render it fit for the finer fabrics.
Premiums would probably be found the best means
of promoting the domestic, and bounties the foreign
supply. The first may be within the compass of the
institution hereafter to be submitted; the last would
require a specific legislative provision. If any bounties are granted, they ought, of course, to be adjusted with an eye to quality as well as quantity.
A fund for this purpose may be derived from the
addition of two and anjialf per cent, to the present
rate of duty on carpets and carpeting; an increase,
to which the nature of the articles suggests no objection, and which may at the same time furnish a
motive the more to the fabrication of them at home;
towards which some beginnings have been made.
SILK.
The production of this article is attended with
great facility in most parts of the United States.
VOL. i.
2w

2titi

REPORT ON

Some pleasing essays are making in Connecticut, as
well towards that, as towards the manufacture o£
what is produced. Stockings, handkerchiefs, ribbons* and buttons, are made, though as yet but in
small quantities.
A manufactory of lace, upon a scale not very extensive, has been long memorable at Ipswich, in the
state of Massachusetts.
An exemption of the material from the duty which
it now pays on importation, and premiums upon the
production, to be dispensed uudcr the direction of
the institution before alluded to, seem to be the only
species of encouragement adviseable at so early a
stage of the thing.
GLASS.
The materials for making glass are found every
where. In the United States there is no deficiency
of them. The sands and stones called Tarso, which
include flinty and chrystallinc substances generally,
and the salts of various plants, particularly of the
sea-weed kali, or kelp, constitute the essential ingredients. An extraordinary abundance of fuel, is a
particular advantage enjoyed by this country for
such manufactures. They, however, require large
capitals, and involve much manual labour.
Different manufactories of glass are now on foot
in the United States* The present duty of twelve
and an half per cent, on all imported articles of glass,
amount to a considerable encouragement to those
manufactories. If any thing in addition is judged
elijdbk, the most proper would appear to be a direct bounty on window-glass and black bottles.

MANUFACTURES.

267

The first recommends itself as an object of general convenience; the last adds to that character, the
circumstance of being an important item in breweries.
A complaint is made of great deficiency in this respect.
GUN-POWDER.
No small progress has heen of late made in the
manufacture of this very important article. It may,
indeed, be considered as already established; but its
high importance renders its further extension very
desirable*
The encouragements which it already enjoys, are
a duty of ten per cent, on the foreign rival article,
and an exemption of salt-petre, one of the principal
ingredients of which it is composed, from duty. A
lite exemption of sulphur, another chief ingredient,
would appear to be equally proper. No quantity of
this article has yet been produced from internal
sources. The use made of it in finishing the bottoms of ships, is an additional inducement to placing
it in the class of free goods. Regulations for the
careful inspection of the article would, have a favourable tendency.
PAPER.
Manufactories of paper are among those which aie
arrived at the greatest maturity in the United States,
and are most adequate to national supply. That of
paper-hangings is a branch in which respectable progress has been made.
Nothing material seems wanting to the further
success of this valuable branch, which is already

26S

REPORT ON

protected by a competent duty on similar imported
articles*
In the enumeration of the several kinds made
subject to that duty, sheathing and cartridge paper
have been omitted. These being the most simple
manufactures of the sort, and necessary to military
supply, as well as ship-building, recommend themselves, equally with those of other descriptions, to
encouragemeut, and appear to be as fully within the
compass of domestic exertions.
PRINTED BOOKS,
The great number of presses disseminated throughout the Union, seem to afford an assurance, that
there is no need of being indebted to foreign countries for the printing of the books which are used in
the United States. A duty of ten per cent* instead
of five, which is now charged upon the article,
would have a tendency to aid the business internally.
It occurs, as an objection to this, that it may have
an unfavourable aspect towards literature, by raising
the prices of books in universal use in private families, schools, and other seminaries of learning. But
the difference it is conceived would be without effect
As to books which usually fill the libraries of the
wealthier classes, and of professional men, such an
augmentation of prices, as might be occasioned by
an additional duty of five per cent, would be too little felt to be an impediment to the acquisition.
And with regard to books which may be specially
imported for the use of particular seminaries of learning, and of public libraries, a total exemption from

MANUFACTURES.

269

duty would be adviseable, which would go towards
obviating the objection just mentioned. They are
now subject to a duty of five per cent.
As to the books in most general family use, the
constancy and universality of the demand, would ensure exertions to furnish them at home, and the
means are completely adequate* It may also be expected ultimately, in this as in other cases, that the
extension of the domestic manufacture would conduce to the cheapness of the article.
It ought not to pass unremarked, that to encourage
the printing of books, is to encourage the manufacture of paper.
REFINED SUGARS AND CHOCOLATE
Are among the number of extensive and prosperous domestic manufactures.
Drawbacks of the duties upon the materials of
which they are respectively made, in cases of exportation, would have a beneficial influence upon the
manufacture, and would conform to a precedent,
which has been already furnished in the instance of
molasses, on the exportation of distilled spirits.
Cocoa—the raw material now pays a duty of one
cent per pound, while chocolate, which is a prevailing and very simple manufacture, is comprised in the
mass of articles rated at no more than five per cent.
There would appear to be a propriety in encouraging the manufacture, by a somewhat higher duty
on its foreign rival, than is paid on the raw material. Two cents per pound on imported chocolate,
would, it is presumed, be without inconvenience.

270

REPORT ON

THE foregoing: heads comprise the most importaut
of the several kinds of manufactures which have occurred as requiring, and, at the same time, as most
proper for public encouragement; and such measures
for affording it, as have appeared best calculated to
answer the end, have been suggested.
The observations which have accompanied this
delineation of objects, supersede tlie necessity of
many supplementary remarks* One or two, however, may not be altogether superfluous*
Bounties are in various instances proposed as one
species of encouragement.
It is a familiar objection to them, that they are
difficult to be managed, and liable to frauds. But
neither that difficulty nor this danger nccim sufficiently great to countervail the advantages of which
they are productive, when rightly applied. And it is
presumed to have been shown, that they are in some
cases, particularly in the infancy of new enterprises,
indispensable.
It will, however, be necessary to guard with extraordinary circumspection the manner of dispensing
them. The requisite precautions hat c been thought
of; but to enter into the detail would swell this report, already voluminous, to a size too inconvenient.
If the principle shall not l>e deemed inadmissible,
the means of avoiding an abuse of it will not be likely to present insurmountable obstacles. There arc
useful guides from practice in other quarters*
It shall, therefore, only be remarked here, in relation to this point, that any bounty which may be
applied to the manufacture of an article, cannot with
safely extend beyond those manufactories at which
the making of the article is a regular trade* If

MANUFACTURES.

371

would be impossible to annex adequate precautions
to a benefit of that nature, if extended to every
private family in which the manufacture was incidentally carried on; and its being a merely incidental occupation, which engages a portion of time
that would otherwise be lost, it can be advantageously carried on without so special an aid.
The possibility of a diminution of the revenue,
may also present itself, as an objection to the arrangements which have been submitted.
But there is no truth which may be more firmly
relied upon, than that the interests of the revenue
are promoted by whatever promotes an increase of
national industry and wealth.
In proportion to the degree of these, is the capacity of every country to contribute to the public
treasury; and where the capacity to pay is increased, or even is not decreased, the only consequence
of measures which diminish any particular resource,
is a change of the object. If by encouraging the
manufacture of an article at home, the levenue,
which has been wont to accrue from its importation, should be lessened, an indemnification can
easily be found, either out of the manufacture itself, or from some other object which may be deemed more convenient.
The measures, however, which have been submitted, taken aggregately, will, for a long time
to come, rather augment than decrease the public
revenue.
There is little room to hope, that the progress
of manufactures will so equally keep pace with
the progress of population, as to prevent even
a gradual augmentation of the product of the duties
on imported articles.

272

IlEPORT ON

As, nevertheless) an alx)lition in some instauces,
and a reduction in others, of duties which have
been pledged for the public debt is proposed, it
is essential that it should be accompanied with
a competent substitute. In order to this, it is re*
quisite that all the additional duties which shall
be laid, be appropriated, in the first instance, to
replace all defalcations which may proceed from
any such abolition or diminution* It is evident
at first glance, that they will not only be adequate
to this, but will yield a considerable surplus. This
surplus \\ ill serve,
First. To constitute a fuud for paying the bounties which have been decreed.
Secondly. To constitute a fund for the operations of a board, to be established for promoting
arts, agriculture, manufactures, and commerce* Of
this institution, different intimations have been
given in the course of this report. An outline of
a plan for it shall now be submitted.
Let a certain annual sum be set apart, and
placed under the management of commissioners,
not less than three, to consist of certain officers
of the government and their successors in office.
Let these commissioners be empowered to apply the fund confided to them, to defray the expenses of the emigration of artists and manufac
turers, in particular branches of extraordinary importance—to induce the prosecution and introduction of useful discoveries, inventions, and improvements, by proportionate rewards, judiciously held
out and applied—to encourage by premiums, both
honourable and lucrative, the exertions of individuals, and of classes, in relation to the several objects they are charged with promoting—and to af-

MANUFACTURES.

273

lord such other aids to those objects as may be generally designated by law.
The commissioners to render to the legislature
an annual account of their transactions and disbursements ; and. all such sums as shall not have
been applied to the purposes of their trust, at the
end of every three years, to revert to the treasury. It may also be enjoined upon them, not to
draw out the money, but for the purpose of some
specific disbursement.
It may, moreover, be of use to authorize them to
receive voluntary contributions; making it their
duty to apply them to the particular objects for
which they may have been made, if any shall have
been designated by the donors.
There is reason to believe that the progress of
particular manufactures has been much retarded
by the want of skilful workmen; and it often
happens that the capitals employed are not equal
to the purposes of bringing from abroad workmen
of a superior kind.
Here, in cases worthy of it,
the auxiliary agency of government would in all*
probability be useful.
There are also valuable
workmen in every branch, who are prevented from
emigrating solely by the want of means. Occasional aids to such persons, properly administered,
might be a source of valuable acquisitions to the
country.
The propriety of stimulating, by rewards, the invention and introduction of useful improvements,
is admitted without difficulty. But the success of
attempts in this way, must evidently depend much
on the manner of conducting them.
It is probable, that the placing of the dispensation of those
rewards under some proper discretionary direction,
voi« i.
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274

KEPORT, &c.

where they may be accompanied by collateral expedients, will serve to give them the surest efficacy.
It seems impracticable to apportion, by general
rules, specific compensations for discoveries of unknown and disproportionate utility.
The great use which may be made of a fund of
this nature, to procure and import foreign improvements, is particularly obvious. Among these, the
article of machines would form a most important
item.
The operation and utility of premiums have been
adverted to; together with the advantages which
have resulted from their dispensation, under the
direction of certain public and private societies. Of
this, some experience has been had in the instance
of the Pennsylvania Society, for the promotion of
manufactures and useful arts; but the funds of that
association have been too contracted to produce
more than a very small portion of the good to which
the principles of it would have led. It may conEU
dently be affirmed, that there is scarcely any thing
which has been devised, better calculated to excite a
general spirit of improvement than the institutions
of this nature. They are truly invaluable.
In countries where there is great private wealth,
much may be effected by the voluntary contributions
of patriotic individuals; but in a community situated like that of the United States, the public purse
must supply the deficiency of private resource* In
what can it be so useful as in prompting and improving the efforts of industry?
All which is humbly submitted.

ALEXANDER HAMILTON,
Secretary of the Treasury,

REPORT
ON

THE ESTABLISHMENT
OF A

MINT.
The SECRETARY of the TREASURY, having attentively

considered the subject referred to him by the order of
the HOUSE OF REPRESENTATIVES, of the fifteenth day

of April last, relative to the establishment of a MINT,
most respectfully submits the result of his inquiries
and reflections.

PLAN for an establishment of this nature, involves a great variety of considerations, intricate,
nice, and important The general state of debtor
and creditor; all the relations and consequences of
PRICE ; the essential interests of trade and industry;
the value of all property; the whole income, both of
the state and of individuals, are liable to be sensibly
influenced, beneficially, or otherwise, by the judicious, or injudicious regulation of this interesting
object*
It is one, likewise, not more necessary than difficult to be rightly adjusted; one which has frequently occupied the reflections and researches of politicians, without having harmonized their opinions on
some of the most important of the principles which en-

270

REPORT ON THE

term to its discussion. Accordingly, different systems
continue to be advocated, and the systems of different nations, after much investigation, continue to
differ from each other.
But if a right adjustment of the matter be truly
of sucli nicety and difficulty, a question naturally
arises, whether it may not be most adviseable to leave
things, in this respect, in the state in which they are?
Why, might it be asked, since they have so long
proceeded in a train, which has caused no general
sensation of inconvenience, should alterations be attempted, the precise effect of which cannot with certainty be calculated ?
The answer to this question is not perplexing.—
The immense disorder which actually reigns in so
delicate and important a concern, and the still great*
er disorder which is every moment possible, call
loudly for a reform. The dollar, originally contemplated in the money transactions of this country, by
-successive diminutions of its weight and fineness,
has sustained a depreciation of five per cent. And
yet the new dollar has a currency in all payments in
place of the old, with scarcely any attention to the
difference between them. The operation of this, in
depreciating the value of property depending upon
past contracts, and, (as far as inattention to the al t
teration in the coin may be supposed to leave prices
stationary,) of all other property, is apparent. Nor
can it require argument to prove, that a nation ought
not to suffer the value of the property of its citizens
to fluctuate with the fluctuations of a foreign mint,
and to change with the changes in the regulations of
a foreign sovereign. This, nevertheless, is the condition of one, which having no coins of its own,

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277

adopts with implicit confidence those of other countries.
The unequal values allowed in different parts of the
union to coins of the same intrinsic worth; the defective species of them, which embarrass the circulation of some of the states; and the dissimilarity in
their several monies of account, are inconveniences,
which, if not to be ascribed to the want of a national coinage, will at least be most effectually remedied
by the establishment of one; a measure that will at
the same time give additional security against impositions by counterfeit, as well as by base currencies.
It was with great reason, therefore, that the attention of Congress, under the late confederation,
was repeatedly drawn to the establishment of a mint;
and it is with equal reason that the subject has been
resumed; now that the favourable change which
has taken place in the situation of public affairs, admits of its being carried into execution.
But though the difficulty of devising a proper establishment ought not to deter from undertaking so
necessary a work; yet it cannot but inspire diffidence in one, whose duty it is made to propose a
plan for the purpose; and may perhaps be permitted to
be relied upon as some excuse for any errors which
may be chargeable upon it, or for any deviations from
sounder principles, which may have been suggested
by others, or even in part acted upon by the former
government of the United States.
In order to a right judgment of what ought to be
done, the following particulars require to be discussed:
1st. What ought to be the nature of the money
unit of the United States?

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HEPORT ON THE

3d. What the proportion between gold and silver,
if coins of both metals are to be established ?
3d. What the proportion and composition of alloy
in each kind ?
4th. Whether the expense of coinage shall be defrayed by the government, or out of the material itself?
5th. What shall be the number, denominations,
sizes, and devices of the coins ?
Cth. Whether foreign coins shall be permitted to be
current or not? if the former, at what rate, and for
what period?
A pre-requisite to determining with propriety what
ought to lie the money unit of the United States, is to
endeavour to form as accurate an idea as the nature
of the case will admit, of what it actually is. The
pound, though of various value, is the unit in the
money of account of all the States* But it is not
equally easy to pronounce what is to be considered
as the unit in the coins. There being no formal regulation on the point, (die resolutions of Congress of
the 6th of July, 1785, and 8th of August, 1786, having never yet been carried into operation,) it can
only be inferred from usage or practice. The manner of adjusting foreign exchanges, would seem to
indicate the dollar as best entitled to that character.
In these, the old piastre of Spain; or old Seville
piece of eight rials, of the value of four shillings and
six pence sterling, is evidently contemplated. The
computed par between Great-Britain and Pennsylvania, will serve as an example. According to that,
one hundred pounds sterling is equal to one hundred
and sixty-six pounds and two-thirds of a pound
Pennsylvania currency; which corresponds with the
proportion between four shillings and six pence ster*

ESTABLISHMENT OF A MINT.

279

ling, and seven shillings and six pence, the current
value of the dollar in that state, by invariable usage*
And as far as the information of the Secretary goes,
the same comparison holds in the other States.
Eut this circumstance in favour of the dollar,
loses, much of its weight from two considerations.
That species of coin has never had any settled or
standard yalue, according to weight or fineness;
but has been permitted to circulate by tale without
regard to either; very much as a mere money of convenience; while gold has had a fixed price by
weight, and with an eye to its fineness. This great*
er stability of value of the gold coins, is an argument of force for regarding the money unit as having been hitherto virtually attached to gold, rather
than to silver.
Twenty-four grains, and six-eighths of a grain of
fine gold, have corresponded with the nominal value of the dollar in tJie several states; without regard to the successive diminutions of its intrinsic
worth*
But if the dollar should, notwithstanding, he supposed to have the best title to being considered as
the present unit in the coins, it would remain to determine what kind of dollar ought to be understood;
or, in other words, what precise quantity of fine silver.
The old piastre of Spain, which appears to have
regulated our foreign exchanges, weighed 17 dwt.
12 grains, and contained 386 grains and 15 mites of
fine silver* But this piece has been long since out of
circulation. The dollars now in common currency are
of recent date, and much inferior to that both in weight
and fineness. The average weight of them, upon
different trials in large masses, has been found to be
37 dwt. S grains. Their fineness is less precisely

280

REPORT ON THE

ascertained; the results of various assays, made by
different persons, under the direction of the late
superintendant of the finances, and of the Secretary,
being as various as the assays themselves. The
difference between their extremes is not less than 2*
grains in a dollar of the same weight and age;
-which is too much for any probable differences in
the pieces. It is rather to be presumed, that a degree of inaccuracy has been occasioned by the want
of proper apparatus, and, in general, of practice* The
experiment which appears to have the best pretensions to exactness, would make the new dollar to
contain 370 grains and 933 thousandth parts of a
grain of pure silver.
According to an authority, on which the Secretary
places reliance, the standard of Spain for its silver
coin, in the year 1701, was 2G1 parts fine, and 27
parts alloy; at which proportion, a dollar of 17 dwt.
8 grains, would consist of 377 grains of One silver,
and 39 grains of alloy. But there is no question
that this standard has been since altered considerably for the worse: to what precise point, is not as well
ascertained as could be wished; but from a computation of the value of dollars in the markets both of Amsterdam and London, (a criterion which cannot ma^
terially mislead,) the new dollar appears to contain
about 368 grains of fine silver, and that which immediately preceded it, about 374 grains.
In this state of things, there is some difficulty in
defining the dollar, which is to be understood as
constituting the present money unit; on the supposition of its being most applicable to that species
of coin. The old Seville piece of 386 grains and 15
mites fine, comports best with the computations of
foreign exchanges, and with the more ancient con-

ESTABLISHMENT OF A MINT.

2S1

tracts, respecting landed property; but for the greater number of contracts still in operation concerning
that kind of property, and all those of a merely
personal nature, now in force, must be referred to a
dollar of a different kind. The actual dollar at the
time of contracting is the only one which can be
supposed to have been intended •, and it has been
seen, that as long ago as the year 1761, there had
been a material degradation of the standard. And
even in regard to the more ancient contracts, no person, has ever had any idea uf a scruple about receiving the dollar of the day, as a full equivalent for the
nominal sum, which the dollar originally imported,
A recurrence, therefore, to the ancient dollar
would be, in the greatest number of cases, an innovation in fact, and in all, an innovation in respect to
opinion.. The actual dollar, in common circulation,
has evidently a much better claim to be regarded as
the actual money unit.
The mean intrinsic value of the different kinds of
known dollars, has been intimated as affordiug the
proper criterion. But when it is recollected, that
the more ancient and more valuable ones are not
now to be met with at all in circulation; and that
the mass of those generally current, is composed of
the newest and most inferior kinds; it will be perceived, that even an equation of that nature would
be a considerable innovation upon the real present
state of things; which it will certainly be prudent
to approach, as far as may be consistent with the
permanent order designed to be introduced.
An additional reason for considering the prevailing
dollar as the standard of the present money unit, rather than the ancient one, is, that it will not only be
conformable to the true existing proportion between
VOL. i.
So

282

11EP0RT ON THE

the two metals in this country, but will be more conformable to that which obtains in the commercial
world generally.
The difference established by custom in the United States between coined gold and coined silver, has
been stated, upon another occasion, to be nearly as 1
to 15.6. This, if truly the case, would imply that
gold was extremely over*valued in the United States;
for the highest actual proportion in any part of Europe, very little, if at all, exceeds 1 to 15; and the
average proportion throughout Europe is probably
not more than about 1 to 14.8. But tliat statement
has proceeded upon the idea of the ancient dollar.
One penny-weight of gold of 22 carats fine, at 6s,
Sd. and the old Seville piece of 386 grains and 15
mites of pure silver, at 7s. 6d. furnish the exact ratio
of 1 to 15.6262. But this does not coincide with
the real difference between the metals, in our market, or, which is with us the same thing, in our currency. To determine this, the quantity of fine silver
in the general mass of the dollars now in circulation, must afford the rule. Taking the rate of the
late dollar of 374 grains, the proportion would be as
1 to 15.11. Taking the rate of the newest dollar,
the proportion would then be as 1 to 14.87. The
mean of the two would give the proportion of 1 to
15 very nearly; less than the legal proportion in
the coins of Great-Britain, which is as 1 to 15.2; but
somewhat more than the actual or market proportion, which is not quite 1 to 15.
The preceding view of the subject does not indeed afford a precise or certain definition of the present unit in the coins, but it furnishes data, which
will serve as guides in the progress of the investigation. It ascertains, at least, that the sum in the mo*

ESTABLISHMENT OF A MINT.

283

ney of account of each state, corresponding with the
nominal value of the dollar in such stale, corresponds also with 24 grains and six-eighths of a grain of
line gold, and with something between 368 and 374?
grains of fine silver.
The next inquiry towards a right determination of
what ought to be the future money unit of the United States, turns upon these questions—Whether it
ought to be peculiarly attached to either of the metals, in preference to the other, or not; and if to
either, to which of them ?
The suggestions and proceedings hitherto have
had for their object the annexing of it emphatically to
the silver dollar. A resolution of Congress of the 6th of
July, 1785, declares that the money unit of the United States shall be a dollar; and another resolution of
the 8th of August, 1786, fixes that dollar at 375
grains and 64 hundredths of a grain of fine silver.
The same resolution, however, determines, that there
shall also be two gold coins, one of 246 grains and
268 parts of a grain of pure gold, equal to ten dollars; and the other oX half that quantity of pure
gold, equal to five dollars. And it is not explained,
whether either of the two species of coins, of
gold or silver, shall have any greater legality in
payments^ than the other. Yet it would seem, that
a preference in this particular is necessary to execute
the idea of attaching the unit exclusively to one
kind* If each of them be as valid as the other, in
payments to any amount, it is not obvious, in what
effectual sense either of them can be deemed the
money unit, rather than the other.
If the general declaration, that the dollar shall be
the money unit of the United States, could be understood to give it a superior legality in payments ; the

284

REPORT ON THE

institution of coins of gold, and the declaration that
each of them shall be equal to a certain number of
dollars, wouH appear to destroy that inference: And
the circumstance of making the dollar the unit in
the money of account, seems to be rather matter of
form than of substance.
Contrary to the ideas which have heretofore prevailed, in the suggestions concerning a coinage for
the United States, though not without much hesitation, arising from a deference for those ideas, the Secretary is, upon the whole, strongly inclined to the
opinion, that a preference ought to be given to
neither of the metals for the money unit. Perhaps,
if either were to be preferred, it ought to be gold rather than silver.
The reasons are these—
The inducement to such a preference is to render
the unit as little variable as possible; because on
this depends the steady value of all contracts, and,
in a certain sense, of all other property. And it is
truly observed, that if the unit belong indiscriminately to both the metals, it is subject to all the fluctuations that happen in the relative value which they
bear to each other. But the same reason would lead
to annexing it to that particular one which is itself
the least liable to variation ; if there be, in this respect, any discernible difference l>etwecn the two.
Gold may, perhaps, in certain sensed, be said to
have greater stability than silver; As being of superior value, less liberties have been taken with it
in the regulations of different countries. Its standard
has remained more uniform, and it has in other respects undergone fewer changes; as being not so
much an article of merchandize, owing to the use
made of silver in the trade with the East-Indies and

ESTABLISHMENT OF A MINT-

285

China, it is less liable to be influenced by circumstances of commercial demand. And if reasoning by
analogy, it could be affirmed, that there is a physical
probability of greater proportional increase in the
quantity of silver than in that of gold, it would afford an additional reason for calculating on greater
steadiness in the value of the latter.
As long as gold, either from its intrinsic superiority as a metal, from its greater rarity, or from the prejudices of mankind, retains so considerable a pre-eminence in value over silver as it has hitherto had, a
natural consequence of this seems to be, that its condition will be more stationary. The revolutions, therefore, which may take place in the comparative value of
gold and silver, will be changes in the state of the
latter, rather than in that of the former.
If there should be an appearance of too much abstraction in any of these ideas, it may be remarked,
that the first and most simple impressions do not naturally incline to giving a preference to the inferior
OT least valuable of the two metals.
It is sometimes observed, that silver ought to be
encouraged rather than gold, as being more conducive to the extension of bank circulation, from the
greater difficulty and inconvenience which its greater bulk, compared with its value, occasions in the
transportation of it. But bank circulation is desirable rather as an auxiliary to9 than as a substitute for,
that of the precious metals; and ought to be left to its
natural course. Artificial expedients to extend it,
by opposing obstacles to the other, are at least not
recommended by any very obvious advantages. And
in general, it is the safest rule, to regulate every particular institution or object, according to the principles which, in relation to itself, appear the most

28G

.REPORT ON THE

sound* In addition to this, it may be observed, Unit
the inconvenience of transporting either of the metals, is sufficiently great to induce a preference of
bank paper, whenever it can be made to answer the
purpose equally well.
But, upon the whole, it seems to IXJ most advise*
able, as has been observed, not to attach the unit exclusively to cither of the metals; because this
cannot be doue effectually, without destroying
the office and character of one of them as money,
aud reducing it to the situation of a mere merchandize; which, accordingly, at different times has
beeH proposed from different and very respectable
quarters; but which would probably be a greater
evil than occasional variations in the unit, from the
fluctuations in the relative value of the metals; especially it care be taken to regulate the proportion
between them, with an eye to their average commercial value.
To annul the use of either of the metals as money,
is to abridge the quantity of circulating medium;
and is liable to all the objections which arise from a
comparison of the benefits of a full, with the evils of
a scanty circulation.
It is not a satisfactory answer to say, that none but
the favoured metal would, in this case, find its way
into the country, as in that all balances must be
paid* The practicability of this would in some measure depend on the abundance or scarcity of it in the
country paying. Where there was but little, it either
would not l>e procurable at all, or it would cost a
premium to obtain i t ; which, in every case of a competition with others in a branch of trade, would con*
stitute a deduction from the profits of the party re*
ceiving.
Perhaps, too, the embarrassments which

ESTABLISHMENT OF A MINT.

28?

such a circumstance might sometimes create in the
pecuniary liquidation of balances, might lead to additional efforts to find, a substitute in commodities,
and might so far impede1 the introduction of the
metals. Neither could the exclusion of either of
them be deemed, in other respects, favourable to
commerce. It is often in the course of trade as desirable to possess the kind of money, as the Mnd of
cohimodities, best adapted to a foreign marketIt seems, however, most probable, that the chief, if
not the sole effect of such a regulation, would be to
diminish the utility of one of the metals. It could
hardly prove an obstacle to the introduction of that
which was excluded, in the natural course of trade;
because it would always command a ready sale for
the purpose of exportation to foreign markets. But
such an effect, if the only one, is not to be regarded
as a trivial inconvenience.
If, then, the unit ought not to be attached exclusively to either of the metals, the proportion which
ought to subsist between them in the coins, becomes
a preliminary inquiry, in order to its proper adjustment. This proportion appears to be, in several
views, of no inconsiderable moment.
One consequence of overvaluing either metal, in
respect to the other, is the banishment of that which
is undervalued. If two countries are supposed, in
one of which the proportion of gold to silver is as 1
to 16, in the other as 1 to 15, gold being worth more,
silver less, in one than in the other; it is manifest,
that in their reciprocal payments, each will select
that species which it values least, to pay to the other
where it is valued most. Besides this, the dealers
in money will, from the same cause, often find a profitable traffic in an exchange of the metals between

288

REFOKT ON THE

the tiro countries. And hence, it would come to pass,
if other things were equal, that the greatest part of
the gold would be collected in one, and the greatest
part of the silrer in the other. The course of trade
might in some degree counteract the tendency of the
dilTerence in the legal proportions by the market value; but this is so far and so often influenced by the
legal rates, that it does not prevent their producing
the effect which is inferred. Facts, too, verify the
inference. In Spain and England, where gold is
rated higher than in other parts of Europe, there is a
scarcity of silver; while it is found to abound in
Prance and Holland, where it is rated higher in pro*
portion to gold, than in the neighbouring nations.
And it is continually flowing from Europe to China
and the East-Indies, owing to the comparative cheapness of it in the former, and dearness of it in the
latter.
This consequence is deemed by some not very
material; and there are even persons,, who, from a
fanciful predilection to gold, are willing to invite it,
even by a higher price. But general utility will
best be promoted by a due proportion of both metals.
If gold be most convenient in large payments, silver
is best adapted to the more minute and ordinary
circulation.
But it is to be suspected, that there is another consequence more serious than the one which has been
mentioned. This is the diminution of the total quantity of specie which a country would naturally possess.
It is evident, that as often as a country which
over-rates either of the metals, receives a payment in
rttat metal, it gets a less actual quantity than it ought

ESTABLISHMENT OF A MINT.

289

to do, or than it would do, if the rate were a just
one*
It is also equally evident, that there will be a continual effort to make payment to it in that species to which
it has annexed an exaggerated estimation, wherever it
is current at a less proportional value. And it would
seem to be a very natural effect of these two causes,
not only that the mass of the precious metals in the
country in question, would consist chiefly of that
Mud to which it had given an extraordinary value,
but that it would be absolutely less, than if they had
been duly proportioned to each other.
A conclusion of this sort, however, is to be drawn
with great caution. In such matters, there are always some local, and, many other particular circumstances, which qualify and vary the operation of
general principles, even where they are just; and
there are endless combinations very difficult to be
analyzed, which often render principles, that have
the most plausible pretensions, unsound and delusive.
There ought, for instance, according to those
which have been stated, to have been formerly a
greater quantity of gold in proportion to silver in the
United States, than there has been; because the actual value of gold in this country, compared with
silver, was perhaps higher than in any other. But
our situation in regard to the West-India islands, into some of which there is a large influx of silver directly from the mines of South-America, occasions
an extraordinary supply of that metal, and, consequently, a greater proportion of it in our circulation,
than might have been expected from its relative
value.
VOL. i»
2p

200

UEFOKT ON THE

What influence the proportion under consideration
may have upon the state of prices, and how far this
may counteract its teudency to increase or lessen the
quantity of the metals, arc points not easy to be developed: and yet they are very necessary to an accurate judgment of the true operation of the thing.
But however impossible it may be to pronounce
with certainty, that the possession of a less quantity
of specie is a consequence of overvaluing cither of
the metals, there is enough of probability in the considerations which seem to indicate it, to form an argument of weight against such over-valuation.
A third ill consequence resulting from it is, a greater and more frequent dbturbance of the state of the
money unit, by a greater and more frequent diversity between the legal and market proportions of the
metals. This has not hitherto been experienced in
the United States, but it has l>een experienced elsewhere: and from its not having been felt by us
hitherto, it does not follow that this will not be the
case hereafter, when our commerce shall have attained a maturity, which will place it under the influence of more fixed principles.
In establishing a proportion between the metals,
there seems to be an option of one of two things—
To approach, as nearly as it can be ascertained,,
t]ie mean or a\crage proportion, in what may be
called the commercial world; or,
To retain that which now exists in the United
States. As far as these happen to coincide, they will
render the course to be pursued more plain and more
certain.
To ascertain the first with precision, would require
bettor materials than arc possessed, or than could be
obtained, without an inconvenient dclav.

ESTABLISHMENT OF A MINT.

291

Sir Isaac Newton, in a representation to the treasury of Great-Britain, in the year 1717, after stating
the particular proportions in the different countries
of Europe, concludes thus: " By the course of trade
and exchange between nation and nation in all Europe,finegold is to fine silver as 14£ or 15 to J."
But however accurate and decisive this authority
may be deemed, in relation to tlie period to which it
applies, it cannot be taken, at the distance of more
than seventy years, as a rule for determining the ex*
isting proportion. Alterations have been since made
in the regulations of their coins by several nations;
which, as well as the course of trade, have an influence upon the market values. Nevertheless,
there is reason to believe, that the state of the matter, as represented by Sir Isaac Newton, is not very
remote from its actual state.
In Holland, the greatest money market of Europe,
gold was to silver, in December, 1789, as 1 to 14.88;
and in that of London, it has been for some time past
but little different, approaching perhaps something
nearer 1 to 15.
It has been seen, that the existing proportion between the two metals in this country, is about as 1 to
15.
It is fortunate, in this respect, that the innovations
of the Spanish mint have imperceptibly introduced
a proportion so analogous as this is, to that which
prevails amorig the principal commercial nations; as
it greatly facilitates a proper regulation of the matter.
This proportion of 1 to 15 is recommended by the
particular situation of our trade, as being very nearly
that which obtains in the market of Great-Britain,
to which nation OUT specie is principally exported.

292

REPORT ON THE

A lower rate for either of the metals in our market
than in hers, might not only afford a motive the more,
incettain cases, to remit in specie, rather than in commodities; but it might, in some others, cause us to
pay a greater quantity of it for a given sura, than we
should otherwise do. If the effect should rather be
to occasion a premium to he given for the xnotal
which was under-rated, this would obviate those
disadvantages; but it would involve another,a cus*
toman- difference between the market and legal proportions, which would amount to a species of disorder in the uational coinage.
Looking forward to the payments of interest hereafter to be made to Holland, the same proportion
does not appear ineligible. The present legal pro*
portion in the coins of Holland, is stated at one to
fourteen and nine-tenths. That of the market, varies somewhat at different times, but seldom very
widely from this point.
There can hardly be a better rule, in any country,
for the legal, than the market proportion; if this
can be supposed to have been produced by the free
and steady course of commercial principles. The
presumpiiV.n, in such ease, is, that each metal finds
its true icv^I, according to its intrinsic utility in the
general system of money opera lions.
But it must be admitted, that this argument in favour of continuing the existing proportion, is not
applicable to the state of the coins with us. There
have been too many artificial and heterogeneous ingredients; too much want of order, in the pecuniary
transactions of this country, to authorize the attributing the effects which have appeared to the regular
operations of commerce. A proof of this is to be
drawn from the alterations which have happened in

ESTABLISHMENT OF A MINT.

293

the proportion between the metals merely by the
successive degradations of the dollar, in consequence
of the mutability of a foreign mint. The value of
gold to silver appears to have declined wholly from
this cause, from fifteen and six-tenths, to about fifteen
to one.* Yet as this last proportion, however produced, coincides so nearly with what may be deemed
the commercial average, it may be supposed to furnish as good a rule as can be pursued.
The only question seems to be, whether the value
of gold ought not to be a little lowered, to bring it to
a more exact level with the two markets which have
been mentioned. But as the ratio of 1 to 15 is so
nearly conformable to the state of those markets, and
best agrees with that of our own, it will probably
be found the most eligible. If the market of Spaia
continues to give a higher value to gold, (as it has
done in time past,) than that which is recommended,
there may be some advantage in a middle station.
A further preliminary to the adjustment of the future money unit, is, to determine >vhat shall ho the
proportion and composition of alloy in each species
of the coins.
The first, by the resolution of the 8th of August,
1786, before referred to, is regulated at one twelfth ;
or, in other words, at 1 part alloy to 11 parts fine,
whether gold or silver; which appears to be a convenient rule, unless there should be some collateral
consideration which may dictate a departure from it.
Its correspondency, in regard to both metals, is a recommendation of it; because a difference could answer no purpose of pecuniary or commercial utility,
and uniformity is favourable to order.
This ratio, as it regards gold, coincides with the
proportion, real or professed, in the coins of Portu-

294

REPORT ON THE

gal, England, France, and Spain. In those of the
two former, it is real; in those of the two latter, there
is a deduction for what is called remedy of weight
awl allot/, which is in the nature of an allowance to
the master of llie mint for errors and imperfections
in the process; rendering the coin either lighter or
baser than it ought to he. The same thing is known
in the theory of the English mint, where one-sixth
of a carat is allowed* But the difference seems to
be, that therc% it is merely an occasional indemnity
within a curtain limit, for real and unavoidable errors
and imperfections; whereas in the practice of the
mints of France and Spain, it appears to amount to a
stated and regular deviation from the nominal stand*
ard. Accordingly, the real standards of France and
Spain are something worse than 22 carats, or 11 parts
in 12 fine.
The principal gold coins in Germany, Holland,
Sweden, Denmark, Poland, and Italy, arc finer than
those of England and Portugal in differ en t degrees,
from 1 carat and a quarter, to 1 carat and seveneighths, which last is within one-eighth of a carat
of pure gold.
There are similar diversities in the standards of the
silver coins of the different countries of Europe.
That of Great-Britaiu is 222 parts fine to 18 alloy:—
those of the other European nations vary from that
of Great-Britain, as widely as from about 17 of the
same parts better, to 75 worse.
The principal reasons assigned for the use of alloy,
are the saving of expense in the refining of the metals, (whicli in their natural state are usually mixed
with a portion of the coarser kinds,) and the rendering of them harder, as a security against too great
waste by friction or wearing. The first reason drawn

ESTABLISHMENT OF A MINT.

395

from the original composition of the metals, is
strengthened at present by the practice of alloying
their coins, which has obtained among so many nations. The reality of the effect to which the last reason is applicable, has been denied, and experience has
been appealed to, as proving that the more alloyed
coins wear faster than the purer. The true state of
this matter may be worthy of future investigation,
though first appearances are in favour of alloy. In
the mean time, the saving of trouble and expense, are
sufficient inducements to following those examples
which suppose its expediency. And the same considerations lead to taking as our models those nations
with whom we have most intercourse, and whose
coins are most prevalent in our circulation. These
are Spain, Portugal, England, and France. The relation which the proposed proportion bears to their
gold coins, has been explained. In respect to theii?
silver coins, it will not be very remote from the mean
of their several standards.
The component ingredients of the alloy in eacli
metal, will also require to be regulated* In silver,
copper is the only kind in use, and it is doubtless the
only proper one. In gold, there is a mixture of silver and copper; in the English coins, consisting of
equal parts, in the coins of some other countries, valying from one-third to two-thirds silver.
The reason of this union of silver with copper is
this,—The silver counteracts the tendency of the
copper to injure the colour or beauty of the coin, by
giving it too much redness, or rather a coppery hue,
which a small quantity will produce; and the copper prevents the too great whiteness, which silver
alone would confer. It is apprehended, that there
are considerations which may render it prudent to

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establish by law, that the proportion of silver to
copper in the gold coins of the United States, shall
not be more than one half, nor less than one-third;
vesting a discretion in some proper place, to regulate
the matter within those limits, as experience in the
execution may recommend.
A third point remains to be discussed, as a prerequisite to the determination of the money unit,
which is, whether the expense of coining" shall be
defrayed by the public, or out of the material itself;
or, as it is sometimes stated, whether coinage shall
be free, or shall be subject to a duty or imposition?
This forms, perhaps, one of the nicest questions in
the doctrine of money.
The practice of different nations is dissimilar in this
particular. In England, coinage is said to be entirely free; the mint price of the metals in bullion, being the same with the value of them in coin. In
France, there is a duty which has been, if it is not
now, eight per cent. In Holland, there is a differ*
ence between the mint-price, and the value in the
coins, which lias been computed at .%, or something
less than one per cent, upon gold , at 1.48, or something less than one and an half per cent, upon silver. The resolution of the 8th of August, 1786,
proceeds upon the idea of a deduction of half per
cent, from gold, and of two per cent, from silver* as
an indemnification for the expense of coining. This
is inferred from a report of the late board of treasury,
upon which that resolution appears to have been
founded.
Upon the supposition that the expense of coinage
ought to be defrayed out of the metals, there are two
ways in which it may be effected; one by a reduotion of the quantity of fine gold and silver in the

ESTABLISHMENT OF A MINT.

297

coins; the other by establishing a difference between the value of those metals in the coins, and
the mint-price of them in bullion.
The first method appears to the Secretary inadmissible. He is unable to distinguish an operation of
this sort, from that of raising the denomination of the
coin; a measure which has been disapproved by the
wisest men of the nations in which it has been practised, and condemned by the rest of the world. To
declare, that a less weight of gold or silver shall pass
for the same sum, which before represented a greater
weight, or to ordain that the same weight shall pass
for a greater sum, are things substantially of one nature. The consequence of either of them, if the
change can be realized, is to degrade the money unit;
obliging creditors to receive less than their just dues,
and depreciating property of every kind. For it is
manifest, that every thing would in this case be represented by a less quantity of gold and silver than
before.
It is sometimes observed on this head, that though
any article of property might in fact be represented
by a less actual quantity of pure metal, it would,
nevertheless, be represented by something of the
same intrinsic value. Every fabric, it is remarked,
is worth, intrinsically, the price of the raw material
and the expense of fabrication: a truth not less applicable to a piece of coin, than to a yard of cloth.
This position, well founded in itself, is here misapplied. It supposes, that the coins now in circulation, are to be considered as bullion; or, in other
words, as a raw material. But the fact is, that the
adoption of them as money, has caused them to become the fabric.—It has invested them with the
character and office of coins, and has given them a
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sanction aurl efficacy equivalent to that of the stamp
of the sovereign. The prices of all our commodities, at home and abroad, and of all foreign commodities in our markets, have found their level, in conformity to tins principle. The foreign coins may be
divested of the privilege they have hitherto been
permitted to enjoy, and may of course be left to find
their value in the market as a raw material. But
the quantity of gold and silver in the national coins,
corresponding with a given sura, cannot be made
less than heretofore, without disturbing the balance
of intrinsic value, and making every acre of land, ns
well as every bushel of wheat, of less actual worth
than in time past. If the United States were isolated and cut off from all intercourse with the rost of
mankind, this reasoning would not be equally con*
elusive. But it appears decisive, when considered
with a view to the relations which commerce has
created between us and other countries.
It is however not improbable, that the effect meditated would be defeated, by a rise of prices proportioned to the diminution of the intrinsic value of the
coins* This might be looked for in every enlightened commercial country ; but perhaps in none with
greater certainty than in this; because, in none are
men less liable to be the dupes of sounds—in none
has authority so little resource for sutatituling names
for things.
A general revolution in prices, though only nominally, and in appearance, could not fail to distract
the ideas of the community, and would be npt to
breed discontents, as well among all those who live
on the income of their money, as among the poorer
classes of the people, to whom the necessaries of life
would seem to have become dearer. In the confu-

ESTABLISHMENT OF A MINT.

299

aion of such a state of things, ideas of value would
not improbably adhere to the old coins; which, from
that circumstance, instead of feeling the effect of the
loss of their privilege as money, would perhaps bear
a price in the market relatively to the new ones, in
exact proportion to weight. The frequency of the
demand for the metals to pay foreign balances would
contribute to this effect.
Among the evils, attendant on such an operation,
are these—Creditors both of the public and of indi*
viduals would lose a part of their property—public
and private credit would receive a wound—the effective revenues of the government would be diminished* There is scarcely any point, in the economy
of national affairs, of greater moment than the uniform preservation of the intrinsic value of the money
unit. On this the security and steady value of property essentially depend.
The second method, therefore, of defraying the
expense of the coinage out of the metals, is greatly
to be preferred to the other. This is to let the same
sum of money continue to represent in the new coins
exactly the same quantity of gold and silver, as it
does in those now current—to allow at the mint
such a price only for those metals, as will admit of profit just sufficient to satisfy the expense of coinage—
to abolish the legal currency of the foreign coins, both
in public and. private payments—and of course to
leave the superior utility of the national coins, for
domestic purposes, to operate the difference of market
value, which is necessary to induce the bringing of
bullion to the mint. In this case, all property and
labour will still be represented by the same quantity
of gold and silver as formerly; and the only change
which will be wrought, will consist in annexing the

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office of money exclusively to the national corns;
consequently, withdrawing it from those of foreign
countries, and suffering them to become, as they
ought to he, mere articles of merchandize.
The arguments in favour of a regulation of this
kind are—First, That the want of it is a cause of extra expense: there being then no motive of individual
interest to distinguish between the national coins
and bullion, they are, it is alleged, indiscriminately
melted down for domestic manufactures, and exported for the purposes of foreign trade; and it is
added, that when the coins become light by wearing,
the same quantity of fine gold or silver bears a higher
price in bullion than in the coins; in which state of
things, the melting down of the coins to be sold as
bullion is attended with profit; and from both causes
the expense of the mint, or in other words, the cxpen3eof maintaining the specie capital of the nation,
is materially augmented.
Secondly—That the existence of such a regula*
tion promotes a favourable course of exchange, and
benefits trade, not only by that circumstance, but
by obliging foreigners, in ceitain cases, to pay dearer for domestic commodities, and to sell their owa
cheaper.
As far as relates to the tendency of a free coinage
to produce an increase of expense, in the different
^rays that have been stated, the argument must be
allowed to have foundation, both in reason and in
experience. It describes what has been exemplified
in Great-Britain.
The effect of giving an artificial value to bullion, is
not at first sight obvious; but it actually happened at
the period immediately preceding the late reformation in the gold coin of the country just named.

ESTABLISHMENT OF A MINT.

301

A pound troy in gold bullion of standard fineness,
was then from 19s. 6d. to 25s. sterling dearer than an
equal weight of guineas, as delivered at the mint. The
phenomenon is thus accounted for—The old guineas
were more than two per cent, lighter than their
standard weight. This weighty therefore, in bullion,
was truly worth two per cent, more, than those guineas. It consequently had, in respect to them, a
correspondent rise in the market.
And as guineas were then current by tale, the new
ones, as they issued from the mint, were confounded
in circulation with the old ones ; and by the association were depreciated below the intrinsic value in
comparison with bullion. It became, of course, a
profitable traffic to sell bullion for coin, to select the
light pieces and re-issue them in currency, and to
melt down the heavy ones and sell them again as
bullion. This practice, besides other inconveniences,
cost the government large sums in the renewal of
the coins.
But the remainder of the argument stands upon
ground far more questionable. It depends upon very
numerous and very complex combinations ; in which
there is infinite latitude for fallacy and error.
The most plausible part of it is that which relates
to the course of exchange. Experience, in France,
has shown, that the market price of bullion has been
influenced by the mint difference between that and
coin; sometimes to the full extent of the difference;
and it would seem to be a clear inference, that whenever that difference materially exceeded the charges
of remitting bullion from the country where it existed to another, in which coinage was free, exchange
would be in favour of the former.
Ify for instance, the balance of trade between

302

REPORT ON THE

France and England were at any time equal, their
merchants would naturally have reciprocal payments
to make to an equal amount; which as usual would
be liquidated by means of bills of exchange. If, in
this situation, the difference between coin and bullion should be in the market, as at the mint of
France, eight per cent.; if, also, the charges of
transporting money from France to England should
not be above two per cent.; and if exchange should
be at par, it is evident, that a profit of six per cent*
might be made, by sending bullion from France to
England, and drawing bills for the amount. One
hundred louis d'ors in coin would purchase the
weight of 103 in bullion; one hundred of which remitted to England would suffice to pay a debt of
an equal amount: and two being paid for the charges
of insurance and transportation, there would remain
six for the benefit of the peison who should manage
the negociation. But as so large a profit could not
fail to produce competition, the hills in consequence
of this would decrease in price, till the profit was Teduced to the minimum of an adequate recompense for
the trouble and risk. And as the amount of 100 louia
d'ors in England, might be afforded for 96in France,
with a profit of more than one and an half per cent,
bills upon England might fall in France to 4 percent,
below par; one per cent, being a sufficient profit to
the exchanger or broker, for the management of the
business.
But it id admitted, that this advantage is lost when
the balance of trade is against the nation which imposes the fluty in question; because, by increasing
the demand for bullion, it brings this to a par with
the coins: and it is to be suspected^ that where commercial principles have their free scope, and are well

ESTABLISHMENT OF A MINT.

303

understood, the market difference between the metals in coin and bullion, will seldom approximate to
that of the mint, if the latter be considerable. It must
be not a little difficult to keep the money of the
world, which can be employed to an equal purpose
in the commerce of the world, in a state of degradation in comparison with the money of a particular
country.
This alone would seem sufficient to prevent it:
whenever the price of coin to bullion in the market
materially exceeded the par of the metals, it would
become an object to send the bullion abroad; if not
to pay a foreign balance, to be invested in some other
way in foreign countries, where it bore a superior
value: an operation, by which immense fortunes
might be amassed, if it were not that the exportation
of the bullion would of itself restore the intrinsic par.
But as it would naturally have this effect, the advantage supposed, would contain in itself the principle
of its own destruction. As long, however, as the exportation of bullion could be made with profit,
which is as long as exchange could remain below par,
there would be a drain of the gold and silver of the
country.
If any thing can maintain, for a length of time, a
material difference between the value of the metals
in coin and in bullion, it must be a constant and
considerable balance of trade in favour of the country in which it is maintained. In one situated like
the United States, it would, in all probability, be a
hopeless attempt. The frequent demand for gold
and silver to pay balances to foreigners, would tend
powerfully to preserve the equilibrium of intrinsic
value.

304

REPORT ON THE

The prospect is, that it would occasion foreign
coins to circulate by common consent, nearly at par
with the national*
To say, that as far as the effect of lowering ex*
change is produced, though it be only occasional and
momentary, there is a benefit the more thrown into
the scale of public prosperity, is not satisfactory. It
has been seen, that it may he productive of one evil,
the investment of a part of the national capital in foreign countries; which can hardly be beneficial, but
in a situation like that of the United Netherlands,
where an immense capital, and a decrease of internal
demand, Tender it necessary to find employment for
money in the wants of other nations; and, perhaps,
on a close examination, other evils may be descried*
One allied to that which has been mentioned, is
this—Taking France, for the sake of more concise
illustration, an the scene. Whenever it happens that
French louis d*ors are sent abroad, from whatever
cause, if there be a considerable difference between
coin and bullion in the market of France, it will constitute an advantageous traffic to send back these
louis d'ors, and bring away bullion in lieu of them;
upon all of which exchanges, France must sustain
an actual loss of a part of its gold and silver.
Again, such a difference between coin and bullion
may tend to counteract a favourable balance of trade,
Wheuever a foreign merchant is the carrier of his
own commodities to France for sale, he has a strong
inducement to bring back specie instead of French
commodities; because a return in the latter may afford no profit; may even be attended with loss : in
the former, it will afford a certain profit. The same
princip** rmts* be supposed to operate in the general
course of remittances from France to other countries.

ESTABLISHMENT OF A MINT.

305

The principal question with a merchant naturally is,
In what manner can I realize a given sum with
most advantage, where I wish to place it? And, in
cases in which other commodities are not likely to
produce equal profit with bullion, it maybe expected
that this will be preferred; to which the greater
certainty attending the operation, must be an additional incitement. There can liardly be imagined a
circumstance less friendly to trade, than the existence
of an extra inducement arising from the possibility
of a profitable speculation upon the articles themselves, to export from a country its gold and silver,
rather than the products of its land and labour.
The other advantages supposed, of obliging foreigners to pay dearer for domestic commodities, and
to sell their own cheaper, are applied to a situation
which includes a favourable balance of trade. It is
understood in this sense-^The prices of domestic
commodities, (such at least as are peculiar to the country,) remain attached to the denominations of the
coins. When a favourable balance of trade realizes
in the market the mint difference between coin and
bullion; foreigners, who must pay in the latter, are
obliged to give more of it for such commodities, than
they otherwise would do. Again, the bullion which
is now obtained at a cheaper rate in the home market, will procure the same quantity of goods in the
foreign market as before; which is said to render
foreign commodities cheaper. In this reasoning,
much fallacy is to be suspected. If it be true, that
foreigners pay more for domestic commodities, it
must be equally true, that they get more for their
own, when they bring them themselves to market.
If peculiar, or other domestic commodities, adhere
to the denominations of the coins, no reason occurs
vox,, T.
2R

30C

RETORT ON THE

why foreign com modi tits of a like character should
not do the same thing. And in this case, the foreigner, though lie receive only the same value in coin
for his merchandize as formerly, can convert it into
a greater quantity of bullion. Whence the nation
is liable to lose more of iLs gold and silver, than if
their intrinsic value, in relation to the coins, were
preserved. And whether the gain or the loss will
on the whole preponderate, would appear to depend
on the comparative proportion of active commerce of
the one country with the other.
It is evident, also, that the nation must pay as
much gold and silver as before, for the commodities
which it procures abroad; and whether it obtains this
gold and silver cheaper, or not, turns upon the solution of the question just intimated, respecting the relative proportion of active commerce between the
two countries*
Besides these considerations, it is admitted in the
reasoning, that the advantages supposed, which depend on a favourable balance of trade, have a tendency to affect that balance disadvantageous^. Foreigners, it is allowed, will, in this case, seek sonic
other vent for their commodities, nnd some other mar*
kct whore; they enn supply thoir wants at an easier
rate. A tendency of this kind, if real, would be a
sufficient objection to the regulation. Nothing which
contributes to change a beneficial current of trade,
can well compensate, by particular advantages, for so
injurious an effect. It* is far more easy to transfer
trade from a less to a more favourable channel, than
when once transferred, to bring it back toiisoldone.
Every source of artificial interruption to an advantageous current is, therefore, cautiously to be avoided.

ESTABLISHMENT OF A MINT.

307

It merits attention, that the able minister, who lately and so long presided dver the finances of France,
does not attribute to the duty of coinage, in that
country, any particular advantages, in relation to exchange and trade. Though he rather appears an advocate for it, it is on the sole ground of the revenue
it affords, which he represents as in the nature of a
very moderate duty on the general mass of exportation.
And it is not improbable, that io the singular felicity of situation of that kingdom, is to be attributed
its not having been sensible of the evils which
seem incident to the regulation. There is, perhaps,
no part of Europe, which has so little need of other
countries, as France. Comprehending a variety of
soils and climates, an immense population, its agriculture in a state of mature improvement, it possesses
within its own bosom, most, if not all, the productions
of the earth, which any of its most favoured neighbours can boast. The variety, abundance, and excellence of its wines, constitute a peculiar advantage iu its
favour. Arts and manufactures are there also in a
very advanced state—some of them of considerable
importance, in higher perfection than elsewhere. Its
contiguity to Spain; the intimate nature of its connexion with that country; a country with few fabrics
of its own, consequently numerous wants, and the
principal receptacle of the treasures of the new world.
These circumstances concur, in securing to France
so uniform, and so considerable a balance of trade,
as in a great measure to counteract the natural tendency of any errors, which may exist in the system
of her mint; and to render inferences from the
operation of that system there, in reference to this
country, more liable to mislead, than to instruct,

30S

KEFORT ON THE

Nor ought it to pass unnoticed, that with all these
advantages, ihe government of France has found it
necessary, on some occasions, to employ very violent methods to compel the bringing of bullion to
the mint; a circumstance which affords a strong
presumption of the inexpediency of the regulation,
and of the impracticability of executing it in the
United States.
This point has been the longer dwelt upon, not
only because there is a diversity of opinion among
speculative men concerning it, and a diversity in
the practice of the most considerable commercial nations ; but because the acts of our own government,
under the confederation, have not only admitted the
expediency of defraying the expense of coinage out
of the metals themselves; but upon this idea have
both made a deduction from the weight of the coins,
and established a difference between their regulated
ralue and the mint price of bullion, greater than
would result from that deduction. This double
operation in favour of a principle so questionable in
itself, has made a more particular investigation of it
a duty.
The intention, however, of the preceding remarks,
is rather to show, that the expectation of commercial
advantages ought not to decide in favour of a duty
of coinage, and that if it should be adopted, it ought
not to be in the form of a deduction from the intrinsic value of the coins—than absolutely to exclude the idea of any difference, whatever, between
the value of the metals in coin and in bullion. It
is not clearly discerned, that a small difference between the mint price of bullion, and the regulated
value of the coins, would be pernicious, or tliat it
might not even beadvi5eable,inthe first instance, by

ESTABLISHMENT OF A MINT.

309

way of experiment, merely as a preventive to the
melting down and exportation of the coins. This
will now be somewhat more particularly considered.
The arguments for a coinage entirely free, are,
that it preserves the intrinsic value of the metals;
that it makes the expense of fabrication a general, instead of a partial, tax; and that it tends to promote
the abundance of gold and silver, which it is alleged
will flow to that place, where they find the best
price; and from that place, where they are in any degree undervalued.
The first consideration has not much weight, as an
objection to a plan, which, without diminishing the
quantity of metals, in the coins, merely allows a less
price for them in bullion at the national factory or
mint. No rule of intrinsic value is violated, by considering the raw material as worth less than the fabric,
in proportion to the expense of fabrication. And by
divesting foreign coins of the privilege of circulating
as money, they become the raw material.
The second consideration has perhaps greater
weight. But it may not amount to an objection, if
it be the best method of preventing disorders in the
coins, which it is, in a particular manner, the interest
of those on whom the tax would fall, to prevent.
The practice of taking gold by weight, which has of
late years obtained in Great-Britain, has been found,
in some degree, a remedy ; but this is inconvenient,
and may on that account fall into disuse. Another
circumstance has had a remedial operation: this is,
the delays of the mint. It appears to be the practice
there, not to make payment for the bullion which
is brought to be exchanged for coin, till it either
has in fact, or is pretended to have undergone, the
process of recoining*

310

REPORT ON THE

The necessity of fulfilling prior engagements, is a
cause or pretext for postponing the deliver}* of the
coin in lieu of the bullion. And this delay creates
a difference in the market price of the two things.
Accordingly, for some years past, an ounce of standard gold, which is worth in coiu, /.3 17 10J sterling,
lias been in the market of London, in bullion, only
/. 3 17 6, which is within a small fraction of one
half per cent. less. Whether this be management in
the mint to accommodate the bank in the purchase
of bullion, or to effect indirectly something equivalent to a formal difference of price; or whether it be
the natural course of the business, is open to conjecture.
It, at the same time, indicates, that if the mint
were to make prompt payment, at about half percent.
less than it docs at present, the state of bullion, in
respect to coin, would be precisely the same as it now
is. And it would be then certain, that the government would save expense in the coinage of gold;
since it is not probable, that the time actually lost in
the course of the year in converting bullion into
coin, can be an equivalent to half per cent, on the
advance; and there will generally be at the command
of the treasury, a considerable sum of money, waiting
for some periodical disbursement, which, without
hazard, might be applied to that advance.
In what sense a free coinage can be said to promote the abundance of gold and silver, may be inferred from the instances, which have been given of the
tendency of a contrary system to promote their exportation. It is, however, not probable, that a very
small difference of value between coin and bullion
can have any effect, which ought to enter into calculation. There can be no inducement of positive pro-

ESTABLISHMENT OF A MINT.

311

fit, to export the bullion, as long as the difference of
price is exceeded by the expense of transportation.
And the prospect of smaller loss upon the metals,
than upon commodities, when the difference is very
minute, will be frequently over-balanced by the possibility of doing better with the latter, from a rise of
markets. It is at any rate certain, that it can be of
no consequence, in this view, whether the superiority
of coin to bullion in the market, be produced, as in
England, by the delay of tlie mint, or by a formal
discrimination in the regulated values.
Under an impression that a small difference between the value of the coin, and the mint price of
bullion, is the least exceptionable expedient for restraining the melting down, or exportation of the
former, and not perceiving, that if it be a very moderate one, it can be hurtful in other respects—the Secretary is inclined to an experiment of one half per
cent, on each of the metals. The fact, which has been
mentioned, with regard to the price of gold bullion
in the English market, seems to demonstrate that
such a difference may safely be made. In this case
there must be immediate payment for the gold and
silver offered to the mint. How far one half per
cent, will go towards defraying the expense of the
coinage, cannot be determined beforehand with accuracy. It is presumed, that on an economical plan, it
will suffice in relation to gold. But it is not expected, that the same rate on silver, will be sufficient to
defray the expense attending that metal. Some additional provision may therefore be found necessary,
if this limit be adopted.
It does not seem to be adviseable, to make any greater difference in regard to silver than to gold : because
it is desirable, that the proportion between the two

312

REPORT ON THE

metals, in the market, should correspond with that in
the coins; which would not be the case, if the mint
price of one was comparatively lower than that of
the other; and because also silver, being proposed to
be rated in respect to gold, somewhat below its general commercial value, if there should be a disparity, to
its disadvantage, in the mint prices of the two metals, it would obstruct too much the bringing of it to
Jbe coined, and would add an inducement to export
i t Nor does it appear to the Secretary safe, to make
a greater difference, between the value of coin and
bullion than has been mentioned. It will be better
to have to increase it hereafter, if this shall be found
expedient, than to have to recede from too considerable a difference in consequence of evils which
shall have been experienced*
It is sometimes mentioned as an expedient, which,
consistently %vith a free coinage, may serve to prevent
the evils desired to be avoided—to incorporate in
the coins a greater proportion of alloy than is usual;
regulating their value, nevertheless, according to the
quantity of pure metal they contain* This, it is
supposed, by adding to the difficulty of refining them,
would cause bullion to be preferred, both for manufacture and exportation.
But strong objections lie against this scheme;—An
augmentation of expense;—an actual depreciation of
the COIH ;—a danger of still greater depreciation in
the public opinion;—the facilitating of counterfeits:
while it is questionable, whether it would have the
effect expected from it*
The alloy being esteemed of no value, an increase
of it is evidently an increase of expense. This, in relation to the gold coins particularly, is a matter of
moment. It has been noted, that the alloy in them

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313

consists partly of silver* If to avoid expense, the addition should be of copper only, this would spoil the
appearance of the coin, and give it a base countenance. Its beauty would indeed be injured, though
in a less degree, even if the usual proportions of silver and copper should be maintained in the increased quantity of alloy.
And however inconsiderable an additional expenditure of copper in the coinage of a year may be deemed, in a series of years it would become of consequence. In regulations which contemplate the
lapse and operation of ages, a very small item of expense acquires importance.
The actual depreciation of the coin, by an increase
of alloy, results from the very circumstance which
is the motive to it—the greater difficulty of refining.
In England, it is customary for those concerned in
manufactures of gold, to make a deduction in the
price, of four pence sterling per ounce, of fine gold,
for every carat which the mass containing it is below
the legal standard. Taking this as a rule, an inferiority of a single carat, or one twenty-fourth part, in
the gold coins of the United States, compared with
the English standard, would cause the same quantity
of pure gold in them to be worth nearly four-tenths
per cent, less than in the coins- of Great-Britain.
This circumstance would be likely, in process of
time, to be felt in the market of the United States.
A still greater depreciation, in the public opinion,
would be to be apprehended from the apparent debasement of the coin. The effects of imagination
and prejudice cannot safely be disregarded, in any
thing that relates to money.—If the beauty of the
coin be impaired, it may be found difficult to satisfy
VOL. i.
2s

3J4

REPORT ON THE

the generality of the community, that what appears
worse is not really less valuable; and it is not altogether certain, that an impression of its being so,
may not occasion an unnatural augmentation of
prices*
Greater danger of imposition by counterfeits, isalso
to be apprehended from the injuiy which will be
done to the appearance of the coin* It is a just observation, that "the perfection of the coins is a great
safe-guard against counterfeits," And it is evident,
that the colour, as well as the excellence of the work*
manship, is an ingredient in tliat perfection. The
intermixture of too much alloy, particularly of copper, in the gold coins at least, must materially lessen
the facility of distinguishing by the eye, the purer
from the baser kind; the genuine from the counterfeit.
The inefficacy of the arrangement to the purpose
intended to be answered by it, is rendered probable
by different considerations. If the standard of plate
in the United States should be regulated according
to that of the national coins, it is to be expected,
that the goldsmith would prefer these to the foreign
coins; because he would find them prepared to his
hand, in the state which he desires; whereas he
would have to expend an additional quantity of alloy
to bring the foreign coins to that state* If the standard of plate, by law or usage, should be superior to
that of the national coins, there would be a possibility of the foreign coins bearing a higher price in the
market; and this would not only obstruct their heing
brought to the mint, but might occasion the expor
tation of the national coin in preference. It is not
understood, that the practice of makiug an abatement of price for the inferiority of standard, is appli-

ESTABLISHMENT OF A MINT.

315

cable to the English mint; and if i t be not, this
would also contribute to frustrating the expected effect from the increase of alloy. For, in this case, a
given quantity of pure metal, in our standard, would
be worth as much there as in bullion of the English,
or any other standard.
Considering, therefore, the uncertainty of the success of the expedient, and the inconveniences which
seem incident to it, it would appear preferable to
submit to those of a free coinage. It is observable,
that additional expense, which is one of the principal of these, is also applicable to the proposed re*jnedy.
It is now proper to resume and finish the answer
to the first question; in order to which the three
succeeding ones have necessarily been anticipated*
The conclusion to be drawn from the observations
which have been made on the subject, is this—That
the unit, in the coins of the United States, ought to
correspond with 24* grains and three-fourths of a
grain of pure gold, and with 371 grains and onefourth of a grain of pure silver, each answering to a
dollar in the money of account. The former is exactly agreeable to the present value of gold, and the
latter is within a small fraction of the mean of the
two last emissions of dollars; the only ones which are
now found in common circulation, and of which the
newest is in the greatest abundance. The alloy in
each case to be one-twelfth of the total weight,
which will make the unit 27 grains of standard gold,
and 405 grains of standard silver.
Each of these, it has been remarked, will answer
to a dollar in the money of account. It is conceived,
that nothing better can be done, in relation to this,
than to pursue the track marked out by the resolution

31G

liEPORT ON THE

of the 8th of august, 1786. This has been approved abroad, as well as at home, and it is certain, that
nothing can be more simple or convenient, than the
decimal subdivisions. There is every reason to expect that the method will sjieedily grow into gene*
ral use, when it shall be seconded by corresponding
coins. On this plan, the unit in the money of account will continue to be, as established by that resolution, a dollar; and its multiples, dimes, cents,
and milles ; or tenths, hundreths, and thousandths.
With regard to the number of different pieces
which shall compose the coins of the United States,
two things are to be consulted—convenience of circulation, and cheapness of the coinage. The first
ought not to be sacrificed to the last; but as far as
they can be reconciled to each other, it is desirable
to do it. Numerous and small, (if not too minute,)
subdivisions assist circulation; but the multiplication of the smaller kinds increases expense; the
same process being necessary to a small, as to a large
piece.
As it is easy to add, it will be most adviseable to
begin with a small number, till experience shall decide whether any other kinds are necessary. The
following, it is conceived, will be sufficient in the
commencemen t.
One gold piece, equal in weight and value to ten
units, or dollars.
One gold piece, equal to a tenth part of the former, and which shall be a uuit, or dollar.
One silver piece, which shall also be a unit, ordol*
lar.
One silver piece, which shall be iu weight and
value a tenth part of the silver unit, or dollat.

ESTABLISHMENT OF A MINT.

317

One copper piece, which shall be of the value of
a hundredth part of a dollar.
One other copper piece, which shall be half the
value of the former.
It is not proposed that the lightest of the two gold
coins should be numerous; as in large payments, the
larger the pieces, the shorter the process of counting,
the less the risk of mistake, and consequently the
greater the safety and the convenience: and in small
payments, it is not perceived, that any inconvenience can accrue from an entire dependence on the
silver and copper coins. The chief inducement to
the establishment of the small gold piece, is to have
a sensible object in that metal, as well as in silver,
to express the unit. Fifty thousand at a time in circulation, may suffice for this purpose.
The tenth part of a dollar is but a small piece, and
with the aid of the copper coins, will probably suffice for all the more minute uses of circulation* It is
less than the least of the silver coins now in general
currency in England*
The largest copper piece will nearly answer to the
half-penny sterling, and the smallest, of course, to
the farthing. Pieces of very small value are a great
accommodation, and the means of a beneficial economy to the poor; by enabling them to purchase in
small portions, and at a more reasonable rate, the
necessaries of which they stand in need. If there are
only cents, the lowest price for any portion of a ven*
dible commodity, however inconsiderable in quantity, will be a cent; if there are half-cents, it will be
a half-cent; and, in a great number of cases, exactly
the same things will be sold for a half-cent, which
if there were none, would cost a cent. But a half-

318

REPORT ON THE

cent is low enough for the minimum of price. Execssire minuteness would defeat its object* To enable
the poorer classes to procure necessaries cheap, is to
enable them, with more comfort to themselves, to
labour for less; the advantages of which need no
comment.
The denominations of the silver coins contained in
the resolution of the 8th of August, 178G, arc conceived to be significant and proper. The dollar is recommended by its correspondency with the present coin
of that name, for which it is designed to be a sub*
stitute; which will facilitate its xeady adoption as
such in the minds of the citizens. The dlsmc or
tenth, the cent or hundreth, the mille or thousandth
are proper, because they express the proportions
which they arc intended to designate* It is only to
be regretted, that the meaning of these terms will
not be familiar to those who are not acquainted
with the language from which they arc borrowed.
It were to be wished, that the length, and, in some
degree, the clumsiness of some of the corresponding
terms in English, did not discourage from preferring
them. It is useful to have names which signify the
things to which they belong; and, in respect to objects of general use, in a manner intelligible to all.
Perhaps it might be an improvement to let the dollar have the appellation cither of dollar or unit,
(which last will be the most significant,) and to sub*
stitute" tenth" for disme. In time, the unit may
succeed to the dollar. The word cent being in use
in various transactions and instruments, will, without much difficulty, be understood as the hundredth,
and the half-cent, of course, as the two hundredth
part.

ESTABLISHMENT OF A MINT.

319

The eagle is not a very expressive or apt appellation for the largest gold piece, but nothing better
occurs. The smallest of the two gold coins may be
called the dollar or unit, in common with the silver
piece with which it coincides.
The volume or size of each piece is a matter of
more consequence than its denomination. It is evident, that the more superficies or surface, the more
the piece will be liable to be injured by friction; or,
in other words, the faster it will wear. For this reason, it is desirable to render the thickness as great,in
proportion to the breadth, as may consist with neatness
and good appearance. Hence the form of the double
guinea or double louis d'or is preferable to that of
the half Johannes, for the large gold piece. The
small one cannot well be of any other size than the
Portuguese piece of eight of the same metal.
As it is of consequence to fortify the idea of the
identity of the dollar, it may be best to let the form
and size of the new one, as far as the quantity of
matter, (the alloy being less,) permits, agree with
the form and size of the present. The diameter may
be the same.
The tenths may be in a mean between the Spanish
one-eighth and one-sixteenth of a dollar.
The copper coins may be formed merely with a
view to good appearance, as any difference in the
wearing that can result from difference of form, can
be of little consequence in reference to that metal.
It is conceived, that the weight of the cent may
be eleven penny-weight; which will about correspond
with the value of the copper and the expense of
coinage. This will be to conform to the rule of intrinsic value, as far as regard to the convenient size
of the coins will permit; and the deduction of the

220

REPORT ON THE

expense of coinage in this case will be the more proper, as the copper coins, which have been current
hitherto, have passed till lately for much more thau
their intrinsic value* Taking the weight, as has
been suggested, the sbe of the cent may be nearly
that of the piece herewith transmitted, which weighs
JOdwt. llgrs. iOm. Two thirds of the diameter of
the cent, will suffice for the diameter of the half
cent.
It may, perhaps, be thought expedient, according
to general practice, to make the copper coinage on
object of pro6t; but where this is done to any considerable extent, it is hardly possible to have effectual security against counterfeits. This consideration, concurring with the soundness of the principle of preserving the intrinsic value of the money
of a country, seems to outweigh the consideration of
profit*
The foregoing suggestions, respecting the sizes of
the several coins, are made on the supposition, that
the legislature may think fit to regulate this matter*
Perhaps, however, it may be judged not unadviscable
to leave it to executive discretion.
With regard to the proposed size of the cent, it is
to be confessed, that it is rather greater than might
Im wished, if it could with propriety and safety be
made less. And should the value of copper continue
to decline as it has done for some time past, it is very
questionable, whether it will long remain alone a
fit metal for money. This has led to a consideration
of the expediency of uniting a small proportion of
silver with the copper, in order to be able to lessen
the bulk of the inferior coins. For this there are
precedents in several parts of Europe* In France,
the composition which is called billion, l m consisted

ESTABLISHMENT OF A BUNT.

321

of one part silver and four parts copper; according
to which proportion, a cent might contain seventeen
grains; defraying out of the material the expense of
coinage. The conveniency of size is a recommendation of such a species of coin; but the Secretary is
deterred from proposing it by the apprehension of
counterfeits. The effect of so small a quantity of
silver, in comparatively so large a quantity of copper,
could easily be imitated by a mixture of other metals of little value, and the temptation to doing it
would not be inconsiderable.
The devices of the coins are far from being matters
of indifference, as they may be made the vehicles of
useful impressions. They ought, therefore, to be emblematical, but without losing sight of simplicity.
The fewer sharp points and angles there are, the less
will be the loss by wearing. The Secretary thinks it
best, on this head, to confine himself to these concise and general remarks.
The last point to be discussed, respects the currency of foreign coins.
The abolition of this, in proper season, is a necessary part of the system contemplated for the national
coinage. But this it will be expedient to defer till
some considerable progress has been made in preparing substitutes for them. A gradation may therefore be found most convenient.
The foreign coins may be suffered to circulate precisely upon their present footing for one year after
the mint shall have commenced its operations. The
privilege may then be continued for another year to
the gold coins of Portugal, England, and France,
and to the silver coins of Spain. And these may still
be permitted to be current for one year more, at the
rates allowed to be given for them at the mint; afVOL.

2 T

322

REPORT ON THE

ter the expiration of which the circulation of all foreign coins to cease.
The monies which will be paid into the treasury
during the first year being rccoined before they arc
issued anew, will afford a partial substitute before
any interruption is £iven to the pre-existing supplies
of circulation. The revenues of the succeeding year,
and the coins which will be brought to the mint,
in consequence of the discontinuance of their currency, will materially extend the substitute in the course
of that year, and its extension will be *o for increased during the third year, by the facility of procuring
the remaining 5pecte-r fo^bo^f^coined, which will
arise from the diminution of their current values, as
probably to enable the dispensing wholly with the
circulation of the foreign coins, after that period.
The progress which the currency of bank bills will
be likely to have made during the same time, will
also afford a substitute of another kind*
This arrangement, besides avoiding a sudden stagnation of circulation, will cause a considerable proportion of whatever loss may lie incident to the establishment, in the first instance, to fall, as it ought
to do, upon the government, and will probably tend
to distribute the remainder of it more equally among
the community.
It may, nevertheless, be adviscable, in addition to
the precautions here suggested, to repose a discretionary authority in the President of the United
States, to continue the currency of the Spanish dollar at a value corresponding with the quantity of fine
silrer contained in it, beyond the period above mentioned for the cessation of the circuiation of the foreign coins. It is possible that an exception in favour of this particular species of coin may be found

ESTABLISHMENT OF A MINT.

323

expedient: and it may tend to obviate inconveniences, if there be a power to make the exception in a
capacity to be exerted when the period shall arrive*
The Secretary for the department of State, in his report to the House of Representatives on the subject
of establishing a uniformity in the weights, measures, and coins of the United States, has proposed
that the weight of the dollar should correspond with
the unit of weight. This was done on the supposition that it would require but a very small addition
to the quantity of metal which the dollar, independently of the object he had in view, ought to contain; in which he was guided by the resolution of
the 8th of August, 1780—fixing the .dollar at 375
grains and 64 hundredths of a grain.
Taking this as the proper standard of the dollar, a
small alteration, for the sake of incorporating so systematic an idea, would appear desirable. But if the
principles which have been reasoned from in this report are just, the execution of that idea becomes
more difficult. It would certainly not be adviseable
to make, on that account, so considerable a change
in the money unit, as would be produced by the addition of five grains of silver to the proper weight
of the dollar, without a proportiouai augmentation of
its relative value: and to make such an augmentation
would be to abandon the advantage of preserving
the identity of the dollar; or, to speak more accurately, of having the proposed one received and considered as a mere substitute for the present,
The end may, however, be obtained without either
of those inconveniences, by increasing the proportion of alloy in the silver coins. But this would destroy the uniformity, in that respect, between the
gold and silver coins. It remains, therefore, to elect

REPORT ON THE

which of the two systematic ideas shall be pursued
or relinquished. And it may be remarked, that it
will be more easy to convert the present silver coins
into the proposal ones, if these last have the same or
nearly the same, proportion of alloy, than if they
have less*
The organization of the mint yet remains to be
considered.
This relates to the persons to be employed, and to
the services which they are respectively to perform*
It is conceived that there ought to be,
A Director of the Mint, to have the general superintendence of the business;—
An Assnr-Master or Assayer, to receive the metals
brought to the mint, ascertain their fineness, and dc
liver them to be coined.
A Master Coiner, to conduct the making of the
coins.
A Cashier, to receive and pay them out.
An Auditor, to keep and adjust the accounts of the
mint.
Clerks, as many as the directors of the mint shall
deem necessary, to assist the different officers.
"Workmen, as many as may be found requisite.
A Porter.
In several of the liuropean mints, there are various
other officers, but tlte foregoing are those only, who
appear to be indispensable* Persons in the capacity
of clerks will suffice instead of the others, with the
advantage of greater economy.
The number of workmen is left indefinite, because
at certain times it is requisite to have more thau at
others. They will, however, never be numerous*
The expense of the establishment, in an ordinary

ESTABLISHMENT OF A MINT.

325

year, will probably be from fifteen to twenty thousand
dollars.
The remedy for errors in the weight and alloy of
the coins must necessarily form a part in the system
of a mint; and the manner of applying it will require to be regulated. The following account is
given of the practice in England in this particular.
A certain number of pieces are taken promiscuously out of every fifteen pounds of gold coined at the
mint, which are deposited for safe keeping in a strong
box called the pix. This box, from time to time, is
opened in the presence of the lord chancellor, the
officers of the treasury, and others ; and portions are
selected from the pieces of each coinage, which are
melted together, and the mass assayed by a jury of
the company of goldsmiths. If the imperfection and
deficiency, both in fineness and weight, fall short of
a sixth of a carat or 40 grains of pure gold upon a
pound of standard, the master of the mint is held excusable ; because it is supposed that no workman can
reasonably be answerable for greater exactness. The
expediency of some similar regulation seems to be
manifest.
All which is humbly submitted.
ALEXANDER HAMILTON,
Secretary of the Treasury.

vox. i*

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