Inquiry Into the Origin and Course of Political Parties in the United States

by Martin Van Buren

The measures which Hamilton deemed indispensable to the success of the new government, in addition to those authorized by the Constitution, consisted of

First. A funding system upon the English plan, with authority to assume the separate debts of the States;

Second. A national bank; and,

Third. An unrestricted exercise by Congress of the power to raise money, and the employment of the national revenue in patronizing individual, class, and corporate interests, according to the plan described in his report, nominally on manufactures, but embracing an infinite variety of other concerns.

The funding system, as presented to Congress by him, as well as the bank were not only on the English plan, but as far as that could consistently be effected were copies of the originals, and substantially the same reasons for their establishment here were assigned in his report as had been given for their first creation in England. The third measure, or rather the third in his system of measures, as set forth in the Secretary's report, partook largely of the general character of some of those alluded to above as sources of ministerial power in England, and, in connection with the means of securing legitimate influence allowed by our Constitution, would have clothed the administration here with equal power, even without authority to grant titles of nobility, ecclesiastical preferments and dignities, and other like privileges.

The advantages Hamilton anticipated from these measures consisted of the effect which the fact of their establishment would have upon every question of constitutional power, the popularity and political influence which the administration would acquire in and through their organization, and greater than all, of their inevitable influence upon the future character of the institutions of the country. He might well think that he would not thereafter have any serious difficulty in regard to constitutional power to do what he desired, if he could obtain the passage of acts, according to the forms of the Constitution, authorizing Congress to lend money to the States under a provision in that instrument giving it power to borrow money; to establish a national bank, when a possible ground for pretense to such a power had been expressly excluded from the Constitution, and when every body knew that both the Convention that made it and a vast majority of the States and people by whom it was adopted were at the time opposed to such an institution; and not only to raise money upon the principle of an unlimited power to do so, but also to expend it according to the pleasure of the Government, subject to no other limitation than that it should regard the purpose as conducive to the common defense and general welfare,—a principle he distinctly avowed in his report on manufactures. If he had succeeded in these points and secured his advances, he would have been fully warranted in regarding the enumeration of the powers of Congress contained in the Constitution as a sham, and the brief clause he proposed to the Convention, giving to the national legislature power to pass all laws which it should judge necessary to the common defense and general welfare of the Union, as inserted in its place. The increased power and influence derived by the administration in the course of the organization of some of these measures will be seen as we proceed, and my own views in respect to their combined effects upon our institutions and upon the character of the government, will be given hereafter.

In England the bank was first established, but Hamilton gave precedence here to the funding system and made it the first great measure of his administration of the Treasury Department, contenting himself in the first instance with a declaration, in his report in favor of the funding system, of his intention to connect a bank with it. The Secretary's annunciation of the principles upon which he proposed to found that system, and their resemblance to those by which the English system was regulated, were received with unmistakable signs of dissatisfaction by large portions of the people in all parts of the country. The Legislature of Virginia passed by decided majorities resolutions denouncing the Secretary's plan with great severity. These, with similar demonstrations in other States, show the depth of the excitement of the public mind upon the subject.

The public debt of England had its origin in an early practice of her government to anticipate her resources through loans effected upon pledges of portions of her revenues, to be re-imbursed, principal and interest, at specific periods. These were made to correspond with the time of the probable collection of the taxes out of which the loans were to be paid; and such, it may safely be assumed, was also the origin of public debt in all countries. For a time these anticipations were limited in their amounts to the actual value of the fund upon the credit of which they were obtained, the loans were discharged according to their terms, and the operation proved to be a great convenience to the government without prejudice to any interest. It was not long, however, before a practice, originally no other than a fair business transaction, was perverted to screen men in power from the odium of enforcing taxation to repay the principal sum borrowed. The disproportion between the revenues to be received and the anticipations successively charged upon them soon became too great to leave the government able to pay both principal and interest on the loans which its necessities required. Some device was therefore desirable by which it would be enabled to replenish the public coffers without a too great increase of taxation, which, for obvious reasons, is always the peculiar aversion of those intrusted with the management of public affairs. The plan adopted, in lieu of anticipations of the revenue of the character I have described, was to make loans upon the credit of the nation, re-imbursable at the pleasure of the government, with special and adequate provisions for the payment of the interest only, or to borrow money upon perpetual annuity equivalent to the interest of the sum borrowed, government being at liberty to redeem such annuity at any time by paying back the principal sum, with authority also to borrow on annuities for terms of years and for lives. These became thenceforth leading features in the English funding system.

These facilities proved amply sufficient for every exigency. The public debt increased with unheard of rapidity under the influence and the expenses of the wars in which England was successively engaged. In 1706, when its foundation was laid, it amounted to but little more than five millions sterling, and in 1777 it had increased to one hundred and thirty-six millions sterling. Near the latter period the subjects of public debt, the principles of the English funding system, and their effects in all countries where they had been adopted, were brought to a searching scrutiny by Adam Smith in his "Wealth of Nations," who demonstrated from reason and experience that they had invariably enfeebled every nation which had embraced them. He insisted that there was scarcely an instance in which a public debt contracted and established upon those principles had been fully paid, and that the revenues of the countries subject to such incumbrances had been relieved from the destructive effects of an irredeemable public debt, if relieved at all, either by avowed bankruptcy or by pretended payments through such artifices as adulterations of the coin, or raising its denomination, or by reductions of the rate of interest.

In 1786, four years before the introduction of Hamilton's funding system, the public debt of England had already increased to £276,000,000; and so rapid has been its subsequent growth that the strictures and predictions of Adam Smith are at this day receiving their confirmation in the existence of a national debt of more than £800,000,000. By no people were these facts and circumstances, so far as they had then transpired, better understood than by ours. They had watched the condition of England, in regard to her increasing debt, through the Revolutionary contest in the hope that she would be compelled by the very extent of her indebtedness to stay the hand she had uplifted to enslave them. It ought not therefore to have been a matter of surprise to Hamilton and his associates, and cannot be to us viewing these matters retrospectively, that his recommendation of a funding system, upon the English plan, with a national bank as its adjunct, as the first great measures of the new government, were received by large portions, probably a majority, of the people, with so much dissatisfaction and distrust of the motives in which the recommendation had its origin—a distrust naturally produced by the precipitate resort to the system of a nation against which the hostile feelings of the war had not yet subsided, and which under that system, in the estimation of many sober minded and sagacious men, was rapidly sinking into the gulf of hopeless indebtedness.