The works of Alexander Hamilton (vol. 1 of 7)

by Alexander Hamilton

With respect to revenue, could the whole of our specie be drawn into the public treasury annually, we have seen that it would be little more than one half of our annual expense. But this would be impracticable; it has never been effected in any country. Where the numerary of a country is a sufficient representative, there is only a certain proportion of it that can be drawn out of daily circulation; because, without the necessary quantity of cash, a stagnation of business would ensue. How small, then, would be the proportion of the six millions (in itself so unequal a representative) which the public would be able to extract in revenue. It must either have little or no revenue, or it must receive its dues in kind; on the inefficacy and inconveniences of which mode, I have already remarked. The necessity for it, in part, unhappily now has place, for the cause assigned, a deficiency of current cash: but were we to establish it as our principal dependence, it would be impossible to contrive a mode less productive to the public, more contrary to the habits and inclinations of the people, or more baneful to industry.

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

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

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

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

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

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

Art I.A Bank to be erected with a stock of three millions of pounds, lawful money,at the rate of six shillings to a dollar, divided into thirty thousand shares.This stock to be exempted from all public taxes and impositions whatsoever.	Remark 1.By the second Article, a part of the stock is to be in landed security:by this, the whole is to be exempted from taxes.Here will be a considerable saving to the proprietor,which is to be estimated among the clear profits of the Bank.This will indeed be a small reduction of the public revenue;but the loss will be of little consequence,compared with the advantages to be derived from the Bank.
Art II.A subscription to be opened for the amount of the stock.A subscriber of from one share to five, to advance the whole in specie.A subscriber of six shares to fifteen to advance one-half in specie,the other half in good landed security.A subscriber of sixteen shares, and upwards,to advance two-sixths in specie,one-sixth in bills or securities on good European funds,and three-sixths in good landed security.In either case of specie, plate or bullion, at a given value,proportioned to its quality, may be substituted; and in either case of landed security, specie, good bills, or securities on European funds,to be admissible in their stead.[14]	Remark 2.By admitting landed security as a part of the Bank stock,while we establish solid funds for the money emitted, we at the same time supply the defect of specie,and we give a strong inducement to moneyed men to advance their money;because, not only the money actually deposited is to be employed for their benefit, but, on the credit of their landed security, by the seventh Article,may be raised an equal amount in cash, to be also employed for their benefit:by which artifice they have the use of their land (exempted, too, from taxes),and the use of the value of it in a representative cash.In this consists a capital advantage of the Bank to the proprietors.A, for instance, advances six hundred pounds in specie, and as much more in landed security.By the establishment he may draw bank notes for the whole of his stock, that is,for twelve hundred pounds, when he only advances half the sum in money.These bank notes operating as cash, his land (continuing, as we observed above,in his own use, with the privilege besides of an exemption from taxes) is converted into cash;which he may employ in loans, in profitable contracts,in beneficial purchases, in discounting bills of exchange,and in the other methods permitted in the subsequent Articles.Besides all this, when the bank notes have once acquired a fixed credit,he is not obliged to keep his six hundred pounds, deposited in specie, idle:he may lend, or otherwise improve, a part of that also.These advantages will not exist in their full extent at first,but they will soon succeed each other.
Art. III.The Bank to be erected into a legal corporation;to have all the powers and immunities requisite to its security,to the recovery of its debts,and to the disposal of its property.	Remark 3.This Article needs no illustration.
Art. IV.The stock of the Bank not to be liable to any attachment or seizure whatsoever;but, on refusal of payment,the holders of bank notes, or bonds, may enter suit against any member,or members, of the corporation;and, as far as their respective shares in the Bank extend, recover the debt,with cost and damages, out of their private property.	Remark 4.The first part of this regulation is necessary to engage foreigners to trust their property in the Bank;the latter part to give an idea of security to the holders of bank notes.
Art. V.The United States, or any particular States, or foreigners,may become subscribers to the Bank, and participate its profits,for any sums not exceeding the whole half the stock.	Remark 5.This will link the interests of the public more intimately with the Bank,and be an easy method of acquiring revenue.It will also facilitate the making up its stock by the loans which Congress may obtain abroad;without which it would be more difficult to raise so large a sum.It is essential the stock should be large, because, in proportion to it,will be the credit of the Bank, and of course its ability to lend and enlarge its paper emissions.The admission of foreigners will also assist the completing the stock;and it is probable many may be induced to enter into the plan,especially after it has made some progress among ourselves,and obtained a degree of consistency.
	The sum is limited to one half the stock,because it is of primary importance the moneyed men among ourselves should be deeply interested in the plan.
Art. VI.The United States, collectively and particularly,to become responsible for all the transactions of the Bank,conjointly with the private proprietors.	Remark 6.This mode of pledging the public faith,makes it as difficult to be infringed as could possibly be devised.In our situation it is expedient to offer every appearance of security.Foreigners are more firmly persuaded of the establishment of our independence than of the continuance of our union;and will therefore have more confidence in the States bound separately than collectively.Individuals among ourselves will be influenced by similar considerations.
Art VII.The Bank to issue notes payable at sight, in pounds, shillings, and pence, lawful:all of twenty shillings, and under, to bear no interest:all above, to bear an interest not exceeding four per cent.The notes to be of so many denominations as may be judged convenient for circulation, and of two kinds;one payable only in America,the other payable either in American or in an part of Europe where the Bank may have funds.The aggregate of these notes never to exceed the Bank stock.	Remark 7.The reason of having them payable at sight,is to inspire the greater confidence and give them a readier currency:nor do I apprehend there would be any danger from it.In the beginning some may be carried to the Bank for payment,but finding they are punctually discharged,the applications will cease.The notes are payable in pounds, shillings, and pence, rather than in dollars,to produce an illusion in the minds of the people favorable to the new paper;or rather to prevent their transferring to that their prejudices against the old.Paper credit depends much on opinion, and opinion is often guided by outside appearances.A circumstance trivial as this may seem, might have no small influence on the popular imagination.And if 20s., and under, are without interest,because such small sums will be diffused in the lesser transactions of daily circulation,there will be less probability of their being carried to the Bank for payment.
	The interest on the larger notes is calculated to give them a preference to specie,and prevent a run upon the Bank.The notes, however, must be introduced by degrees, so as not to inundate the public at once.Those bearing no interest ought not to be multiplied too much at first;but as the interest is an abridgment of the profits of the Bank,after the notes have gained an unequivocal credit,it will be advantageous to issue a large proportion of the smaller ones.At first, the interest had best be at four per cent., to operate the more effectually as a motive:afterwards, on the new notes, it may be gradually diminished:but it will always be expedient to let them bear an interest not less than two per cent.
	The making some of the notes payable in Europe as well as in America,is necessary to enable the Bank to avail itself of its funds there:it will also serve to raise the demand for Bank notes, by rendering them useful in foreign commerce,the promoting which is a further inducement.
	The limiting the aggregate of the notes to the amount of the stock,is necessary to obviate a suspicion of their being multiplied beyond the means of redemption.
Art. VIII.The Bank to lend money to the public, or to individuals, at an interest not exceeding eight per cent.	Remark 8.In the beginning it will be for the advantage of the Bank to require high interest,because money is in great demand,and the Bank itself will want the principal part of its cash for the loans stipulated in Article XIII,and for performing the contracts authorized by Article XII:so that the profits will not, for some time, turn materially on the principle of loans,except that to the public.But when the contracts cease, the Bank will find its advantage in lending, at a moderate interest,to secure a preference from borrowers, which will, at the same time, promote commerce;and by a kind of mutual reaction, the Bank will assist commerce,and commerce will assist the Bank.
Art. IX.The Bank to have liberty of borrowing, on the best terms it can,to the amount of one half of its stock.	Remark 9.This is a precaution against a sudden run. It may borrow in proportion to what it pays.It has another advantage: at particular conjunctures the Bank may borrow at a low interest,and lend, at others, at a higher.
Art. X.The Bank to have liberty of purchasing estates by principal, or by annuities;the power of coining to the amount of half its stock, the quantity of alloy, etc.,being determined by Congress; also the power of discounting bills of exchange.	Remark 10.This privilege of purchasing estates will be a very valuable one.By watching favorable opportunities, with so large a capital,vast property may be acquired in this way.There will be a fine opening at the conclusion of the war.Many persons disaffected to our independence,who have rendered themselves odious without becoming obnoxious to the laws,will be disposed to sell their estates here,either for their whole value, or for annuities in Europe.The power of coining[15] is necessary,as plate, or bullion, is admitted instead of specie;and it may be, on particular occasions, expedient to coin them;this will be a small resource to the Bank.The power of discounting bills of exchange will be a considerable one.Its advantages will consist in purchasing,or taking up for the honor of the drawer,when the security is good,bills of exchange at so much per cent. discount.A large profit might be now made in this way on the bills drawn on France;and hereafter, in times of peace, when commerce comes to flourish,this practice will promote the transactions of the several States with each other,and with Europe, and will be very profitable to the Bank.
Art. XI.The Bank to receive from individuals, deposits of any sums of money,to be repaid when called for, or passed, by order,to the credit of others; or deposits of plate,paying a certain annual rate for safe keeping.Whatever is deposited in the Bank, to be exempt from taxes.	Remark 11.This is in imitation of the Bank of Amsterdam.If individuals once get into the practice of depositing their money in Bank,it will give credit to the Bank, and assist trade.In time, a premium may be required at repayment as in Holland.A small profit may be immediately gained on plate, as the States begin to tax this article;and many persons will dispense at this time with the use of their plate,if they can deposit it in a place of safety, and pay less for keeping it than the tax.Whatever serves to increase the apparent wealth of the Bank, will enhance its credit!It may even be useful to let the owners of the plate have credit in Bank for the value of the plate,estimated on a scale that would make it for the advantage of the Bank to purchase.
Art. XII.The Bank to have a right to contract with the French government for the supply of its fleets and armies in America,and to contract with Congress for the supply of their armies.	Remark 12.It will be of great importance to the success of the subscriptions,that a previous assurance of these contracts should take place:the profits of them would be no trifling inducement to adventurers;it would have the air of employing the money subscribed in trade.As soon, therefore, as the plan should be resolved upon, negotiations should be begun for the purpose.It is so clearly the interest of the French government to enter into these contracts,that they must be blind not to do it,especially when it is proposed under the aspect of a method of re-establishing our finances.The present loss on their bills is enormous.The Bank may engage to receive them at a moderate discount,and to supply on better terms than they now make.Their business is at this time trusted to a variety of hands,some of which are neither very skilful nor very honest:competitions, frauds, and additional expense, are the consequences.
	Congress could not hesitate on their parts,as the amount of the contracts would be a part of the loan required in Article XIII.
Art. XIII.The Bank to lend Congress one million, two hundred thousand pounds, lawful, at eight per cent. interest; for the payment of which, with its interest,a certain unalienable fund of one hundred and ten thousand, four hundred pounds per annum,to be established for twenty years.The States, generally and severally, to pledge themselves for this sum,and for the due appropriation of the fund.Congress to have a right, at any intermediate period, to pay off the debt,with the interest to the time of payment.The same rule to govern in all future loans.	Remark 13.This loan will enable Congress to get through the expenses of the year.There may be a small deficiency, but this will be easily supplied.The credit of the Bank once established, it may increase its stock,and lend an equal sum every year during the war.This loan may be advanced, partly in a contract for provisions, clothing, etc.,and partly in cash, at periodical payments,to avoid a too quick multiplication of Bank notes.
Art. XIV.The Bank to become responsible for the redemption of all the paper now emitted;the old, at forty for one in thirty years, the new at par, with gold and silver,according to the terms promised by Congress in their resolution of March, ’80.One-third of the first to be redeemed at the end of every ten years;and the whole of the last to be redeemed at the expiration of the six years specified by Congress,with the interest of five per cent.The United States, in compensation for this responsibility, to establish certain funds for an annuity,payable to the Bank, equal to the discharge of the whole amount of the paper currency in thirty years,with an interest of two per cent. per annum.	Remark 14.It is of the greatest importance that the old currency should be fixed at a certain value,or there will be danger of its infecting the future paper:besides, we want to raise it to a point that will make it approach nearer to an adequate medium.I have chosen the resolution of March, ’80, as a standard.We ought not, on any account,to raise the value of the old paper higher than forty to one,for this will give it about the degree of value that is most salutary;at the same time that it will avoid a second breach of faith,which would cause a violent death to all future credit.A stable currency is an idea fundamental to all practicable schemes of finance.It is the duty and interest of the public to give stability to that which now exists;and it will be the interest of the Bank,which alone can effect it, to co-operate.I have not mentioned the amount of the annuity to be paid by Congress,because I have not materials to judge what quantity of paper money now exists;since it will be necessary to take all the State emissions into the calculation.I suppose (including State emissions) there may be about four hundred millions of dollars of the old standard,and about four millions of the new.[16] This will give us,in specie-value, about fourteen millions of dollars.This is what the Bank is to become answerable for, and what the public is to pay, by an annuity of thirty years, with two per cent. interest.This annuity would amount to six hundred and eleven thousand,three hundred and thirty-three, and one-third, dollars, for which funds are to be provided.
	By a rough calculation, I find that the Bank would gain, in the thirty years, about three millions of dollars, on the simple footing of interest;and that it will, at different periods, have more public money in its possession, than it will be in advance at others: so that,upon the whole, the sum it will gain in interest,will be for the loan of its credit to the public, not of any specific sum of cash.Besides, the interest of the Bank may gain a very considerable sum by the purchases it may make of the old paper at its current value,before the influence of this plan has time to bring it back to the point at which it is intended to be fixed.[17]It is the obvious interest of the United States to concur in this plan, because, by paying three millions of dollars in interest to the Bank,more than it would have to pay to the money-holders, agreeably to its present engagements,it would avoid a new breach of faith, fix its circulating medium increased in value more than one-half, render the taxes more productive,and introduce order into its finances, without which our independence is lost.It will also have only about two-thirds of the funds to establish for this plan that are required by the Act of March, ’80,to discharge the new bills:it will, of course, reserve a large balance towards the current expenses,which is no insignificant consideration.
	Perhaps it may be imagined, that the same funds established for the redemption of the money in the same time,without passing through the Bank, would have an equal effect upon its credit, and then we should save the interest of two per cent.Experience proves the contrary. We find the new notes depreciating in the States which have provided good funds.The truth is, there is not confidence enough in any funds merely public.The responsibility of the Bank would beget a much stronger persuasion of the paper being redeemed,and have incomparably more efficacy in raising and confirming its credit.Besides, the Bank might immediately reduce the quantity by purchase, which the public could not do.
	It will be observed, that of the six millions of dollars which constitute our annual revenue,I require nine hundred and seventy-nine thousand,three hundred and thirty-three, and one-third, dollars,in funds, to reimburse the loan for the first year,and pay off the annuity for the redemption of the old paper.It may be asked, where these funds are to be procured in the present impotence of our federal government.I answer, there are ample means for them, and they must be had.Congress must deal plainly with their constituents. They must tell them,that power without revenue is a bubble; that unless they give them substantial resources of the latter,they will not have enough of the former, either to prosecute the war,or to maintain the Union in peace;that, in short, they must, in justice to the public and to their own honor,renounce the vain attempt of carrying on the war without either;a perseverance in which, can only deceive the people, and betray their safety.They must demand an instant, positive, and perpetual investiture of an impost on trade;a land tax, and a poll tax, to be collected by their own agents.This Act to become a part of the Confederation.
	It has ever been my opinion that Congress ought to have complete sovereignty in all but the mere municipal law of each State;and I wish to see a convention of all the States, with full power to alter and amend,finally and irrevocably, the present futile and senseless Confederation.
	The taxes specified, may be made to amount to three millions of dollars;the other three millions to be raised by requisition, as heretofore.
Art. XV.The Bank notes to be received in payment of all public customs and taxes,at an equivalent with gold and silver.	Remark 15.It is essential that all taxes should be raised, throughout the United States,in specie, or Bank notes at par, or the old paper at its current value at the time of payment.This will serve to increase the circulation and credit of the Bank notes;but no person should be obliged to receive them in private dealings.Their credit must depend on opinion;and this opinion would be injured by legislative interposition.
Art. XVI.The Bank to dissolve itself whenever it thinks proper,making effectual provision for the payment of its debts;and a proprietor of Bank stock to have the privilege of selling out whenever he pleases.	Remark 16.This permission to dissolve or sell at pleasure, will encourage men to adventure;and, when once engaged, the profits will make them willing to continue.
Art. XVII.The Bank to be established for thirty years by way of experiment.	Remark 17.This is chiefly to prevent some speculative men being alarmed, who, upon the whole,may think a paper credit detrimental and dangerous,though they would be willing, from necessity, to encourage it for a limited time.Experience, too, may show the defects of this plan, and give rise to alterations for the better.
Art. XVIII.No other Bank, public or private, to be permitted during that period.	Remark 18.Other Banks might excite a competition prejudicial to the interests of this,and multiply and diversify paper credit too much.
Art. XIX.Three Banks to be erected in Massachusetts, Pennsylvania, and Virginia,to facilitate the circulation and payment of the Bank notes.	Remark 19.These Banks ought to be in the interior of the country, remote from danger,with every precaution for their security in every way.Their distance from the capital trading points, will be an advantage,as it will make applications for the payment of Bank notes less convenient.
Art. XX.The affairs of the Bank to be managed by twelve general Directors, men of reputation and fortune;eight of them to be chosen by the private proprietors, and four by Congress.The Minister of Finance to have the privilege of inspecting all their proceedings.	Remark 20.It is necessary, for reciprocal security of the public, the proprietors, and the people,that the affairs of the Bank should be conducted under a joint direction.

These, as has been already observed, are only intended as outlines; the form of administration for the Bank, and all other matters, may be easily determined, if the leading principles are once approved. We shall find good models in the different European Banks, which we can accommodate to our circumstances. Great care, in particular, should be employed to guard against counterfeits; and I think methods may be devised that would be effectual.

I see nothing to prevent the practicability of a plan of this kind, but a distrust of the final success of the war, which may make men afraid to risk any considerable part of their fortunes in the public funds; but, without being an enthusiast, I will venture to assert, that, with such a resource as is here proposed, the loss of our independence is impossible. All we have to fear is, that the want of money may disband the army, or so perplex and enfeeble our operations, as to create in the people a general disgust and alarm, which may make them clamor for peace on any terms. But if a judicious administration of our finances, assisted by a Bank, takes place, and the ancient security of property is restored, no convulsion is to be apprehended. Our opposition will soon assume an aspect of system and vigor, that will relieve and encourage the people, and put an end to the hopes of the enemy. ’Tis evident they have it not in their power to subdue us by force of arms. In all these States they have not more than fifteen thousand effective troops, nor is it possible for them much to augment this number. The East and West Indies demand reinforcements. In all the Islands, they have not, at this time, above five thousand men; a force not more than equal to the proper garrisoning of Jamaica alone; and which, the moment they lose a maritime superiority in those seas, will leave them much cause to fear for their possessions. They will probably send out fifteen hundred or two thousand men, to recruit their regiments already here; but this is the utmost they can do.