on Public Credit
Department, January 9, 1790.
[Communicated on January 14, 1790]
the Speaker of the House of Representatives]
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.
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 honor and prosperity of the United States."
the opinion of the Secretary, the wisdom of the House, in giving
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
exigencies are to be expected to occur, in the affairs of nations, in
which there will be a necessity for borrowing.
loans in times of public danger, especially from foreign war, are
found an indispensable resource, even to the wealthiest of them.
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.
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 borrow upon good terms, it
is essential that the credit of a nation should be well established.
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.
this constant necessity of borrowing and buying
dear, it is easy to conceive how immensely the expenses of a
nation, in a course of time, will be augmented by an unsound state of
the public credit.
attempt to enumerate the complicated variety of mischiefs in the
whole system of the social œconomy, 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.
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
embarrassments they now experience; their character as a People; the
cause of good government.
the maintenance of public credit, then, be truly so important, the
next enquiry 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.
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
connection between public virtue and public happiness, will be its
repugnancy to a violation of those principles.
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 give
peculiar force to the obligation. There is indeed reason to regret
that it has not hitherto been kept; that the necessities of the war,
conspiring with inexperience in the subjects of finance, produced
direct infractions: and that the subsequent 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 exhibited an earnest and uniform 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.
cannot but merit particular attention, that among ourselves the most
enlightened friends of good government are those, whose expectations
are the highest.
justify and preserve their confidence; to promote the encreasing
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 great and invaluable ends to be secured, by a proper
and adequate provision, at the present period, for the support of
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
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
benefits of this are various and obvious.
Trade is extended by it; because there is a larger capital to carry
it on, and the merchant can at the same time, afford to trade for
smaller profits; as his stock, which, when unemployed, brings him in
an interest from the government, serves him also as money, when he
has a call for it in his commercial operations.
Agriculture and manufactures are also promoted by it: For the like
reason, that more capital can be commanded to be employed in both;
and because the merchant, whose enterprize in foreign trade, gives to
them activity and extension, has greater means for enterprize.
The interest of money will be lowered by 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.
from the combination of these effects, additional aids will be
furnished to labour, to industry, and to arts of every kind.
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.
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.
favor of this scheme, it is alledged, that it would be unreasonable
to pay twenty shillings in 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 his property at so great a loss, by obliging
him to contribute to the profit of the person, who had speculated on
Secretary, after the most mature reflection on 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.
is inconsistent with justice, because in the first place, it is a
breach of contract; in violation of the rights of a fair purchaser.
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 intent, in making 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
impolicy of a discrimination results from two considerations; one,
that it proceeds upon a principle destructive of that quality of
the public debt, or 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
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 transferree, and a firm
persuasion, that no distinction can in any circumstances be made
between him and the original proprietor.
there is still a point in view in which it will appear perhaps even
more exceptionable, than in either of the former. It would be
repugnant 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 constitutional ratification
of the contracts respecting the debt, in the state in which they
existed under the confederation. And resorting to that standard,
there can be no doubt, that the rights of assignees and original
holders, must be considered as equal.
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 remainbetween them, and another description of public
creditors—Those of the states individually.
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.
would, in the opinion of the Secretary, contribute, 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.
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
Secretary now proceeds to a consideration of the necessary funds.
has been stated that the debt of the United States consists of
foreign debt, amounting,
with arrears of interest, to
the domestic debt amounting,
with like arrears,
to the end of the year 1790, to
interest on the domestic debt is computed to the end of this year,
because the details of carrying any plan into execution, will exhaust
annual interest of
the foreign debt has been stated at
the interest on the
domestic debt at four per cent
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
require a yearly
sum which, in the opinion of the Secretary, ought now to be provided
in addition to what the current service will require.
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 ill bear the drain of cash, at the present
juncture, which the measure would be likely to occasion.
to the sum which has been stated for payment 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 sixty-three dollars, and nine cents.
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, teas and coffee.
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
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. And 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
œconomy of the community.
the increase of duties tend to a decrease of the consumption of those
articles, the effect would 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 cyder and malt liquors, benefit agriculture, and
open a new and productive source of revenue.
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 shewn, that luxuries of every
kind, lay the strongest hold on the attachments of mankind, which,
especially when confirmed by habit, are not easily alienated from
same fact affords a security to the merchant, that he is not likely
to be prejudiced by 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
as the Secretary is, that the proper funding of the present debt,
will render it a national blessing: Yet he is so far from acceding to
the position, in the latitude in which it is sometimes laid down,
that "public debts are public benefits," 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 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.