Sir:
The present conjuncture is by all allowed to be peculiarly critical.
Every man of reflection employs his thoughts about the remedies
proper to be applied to the national disorders; and every one,
from a partiality to his own ideas, wishes to convey them to those
who are charged with the management of affairs. The channel of the
public papers, commonly made use of for the purpose, appears to me
exceptionable on several accounts. It not only restrains a freedom
of discussion, from the extreme delicacy of the subject; but the
discussion itself increases the evil, by exposing our weak sides
to the popular eye, and adding false terrors to those well-founded
apprehensions which our situation authorizes.
Instead of pursuing this method, I prefer addressing myself to a member
of that body, in whose power alone it is, by well-digested system, to
extricate us from our embarrassments. I have pitched upon you, from a
personal knowledge of your abilities and zeal. If I offer any thing new
and useful, I am persuaded you will endeavor to turn it to advantage.
If the contrary is the case, I am, at least, doing no harm. I shall
only have had the trouble of writing, and you of reading, a few useless
pages.
The object of principal concern is the state of our currency. In
my opinion, all our speculations on this head have been founded in
error. Most people think, that the depreciation might have been
avoided, by provident arrangements in the beginning, without any aid
from abroad: and a great many of our sanguine politicians, till very
lately, imagined the money might still be restored by expedients within
ourselves. Hence the delay in attempting to procure a foreign loan.
This idea proceeded from an ignorance of the real extent of our
resources. The war, particularly in the first periods, required
exertions beyond our strength, to which neither our population nor
riches were equal. We have the fullest proof of this, in the constant
thinness of our armies; the impossibility, at this time, of recruiting
them otherwise than by compulsion; the scarcity of hands in husbandry,
and other occupations; the decrease of our staple commodities; and the
difficulty of every species of supply. I am aware that the badness of
the money has its influence; but it was originally an effect, not a
cause, though it now partakes of the nature of both. A part of those
evils would appear, were our finances in a more flourishing condition.
We experienced them before the money was materially depreciated; and
they contributed to its depreciation. The want of men soon obliged
the public to pay extravagant wages for them in every department.
Agriculture languished from a defect of hands. The mechanic arts did
the same. The price of every kind of labor increased: and the articles
of foreign commerce, from the interruption it received, more than kept
pace with other things.
The relative value of money being determined by the greater or less
portion of labor and commodities which it will purchase; whatever these
gained in price, that of course lost in value.
The public expenditures, from the dearness of every thing, necessarily
became immense; greater in proportion than in other countries; and much
beyond any revenues which the best concerted scheme of finance could
have extracted from the natural funds of the State. No taxes, which
the people were capable of bearing, on that quantity of money which
is deemed a proper medium for this country (had it been gold instead
of paper), would have been sufficient for the current exigencies of
Government.
The most opulent States of Europe, in a war of any duration, are
commonly obliged to have recourse to foreign loans or subsidies.[3]
How, then, could we expect to do without them, and not augment the
quantity of our artificial wealth beyond those bounds which were proper
to preserve its credit? The idea was chimerical.
The quantity of money formerly in circulation among us, is estimated
at about thirty millions of dollars. This was barely sufficient for
our interior commerce. Our exterior commerce was chiefly carried on
by barter. We sent our commodities abroad, and brought back others
in return. The balance of the principal branch was against us; and
the little _specie_ derived from others, was transferred directly to
the payment of that balance, without passing into home circulation.
It would have been impracticable, by loans and taxes, to bring such
a portion of the forementioned sum into the public coffers as would
have answered the purposes of the war: nor could it have spared so
considerable a part, without obstructing the operations of domestic
commerce. Taxes are limited, not only by the quantity of wealth in a
State, but by the temper, habits, and genius of the people; all which,
in this country, conspired to render them moderate: and as to loans,
men will not be prevailed upon to lend money to the public when there
is a scarcity, and they can find a more profitable way of employing it
otherwise, as was our case.
The ordinary revenues of the United Provinces amount to about
twenty-five millions of guilders; or two millions two hundred and
fifty thousand pounds sterling per annum. This is, in proportion to
its territory and numbers, the richest country in the world; and
the country where the people sustain the heaviest load of taxes.
Its population is about equal to ours, two millions of souls. The
burthens on the subject are so great, that it is by some held almost
impracticable, even on extraordinary emergencies, to enlarge the
revenues by new impositions. It is maintained, their dependence, in
these cases, must be on the extraordinary contributions of wealthy
individuals; with the aid of which, in some of their wars, they have
raised four millions sterling a year. In a country possessed of so
vast a stock of wealth, where taxes are carried to such a height;
and where the means of paying them so infinitely exceed those in our
power; if the national revenues only amount to the sum I have stated,
how inadequate must have been the product of any taxes we could have
levied, to the demands of the service! Loans, for the reason before
hinted, would have been out of the question; at least, they would have
been so trifling as to be an object of little importance. Suppose we
should have been able to raise a million sterling, annually; a sum
that probably would have exceeded our ability; how unequal would this
have been to our wants![4] No economy could have made it bear any
proportion, especially if we recur to the causes already enumerated, by
which the currency depreciated in its first stages.
From these reasonings it results, that it was not in the power of
Congress, when their emissions had arrived at the thirty millions of
dollars, to put a stop to them.[5] They were obliged, in order to
keep up the supplies, to go on creating artificial revenues by new
emissions; and as these multiplied, their value declined. The progress
of the depreciation might have been retarded, but it could not have
been prevented. It was, in a great degree, necessary.
There was but one remedy; a foreign loan. All other expedients should
rather have been considered as auxiliary. Could a loan have been
obtained, and judiciously applied, assisted by a vigorous system of
taxation, we might have avoided that excess of emissions which has
ruined the paper. The credit of such a fund would have procured loans
from the moneyed and trading men within ourselves; because it might
have been so directed, as to have been beneficial to them in their
commercial transactions abroad.[6]
The necessity for a foreign loan is now greater than ever. Nothing else
will retrieve our affairs.
The wheels of Government, without it, cannot much longer be kept in
motion. Including Loan-office certificates, and State emissions,
we have about four hundred millions of dollars in circulation. The
real value of these, is less than seven millions, which is the true
circulating medium of these States: for though the price of specie is
and the rate of exchange for sterling bills the nominal value
of every commodity is at least sixty to one, on an average. All the
reasonings against the possibility of raising the current expenses
on the foundation of thirty millions, apply to our present situation
in the ratio of thirty to seven; that is, it is as thirty to seven
less practicable now than when our emissions amounted to only thirty
millions. Could every dollar in circulation be brought annually
into the treasury, which never was effected in any country, and is
politically impossible, the revenue would not be equal to the yearly
expense.
The hope of appreciating the money, by taxes and domestic loans, is
at an end. As fast as it could be received, it must be issued in the
daily expenditures. The momentary interval between its being drawn out
of circulation and returning into it, would prevent its receiving the
least advantage.
These reasonings may appear useless, as the necessity of a foreign
loan is now acknowledged, and measures are taking to procure it. But
they are intended to establish good principles; the want of which has
brought us to the desperate crisis we are arrived at, and may still
betray us into fatal mistakes.
How this loan is to be employed, is now the question; and its
difficulty equal to its importance! Two plans have been proposed: one,
to purchase up at once, in specie, or sterling bills, all superfluous
paper; and to endeavor, by taxes, loans, and economy, to hinder its
returning into circulation. The remainder, it is supposed, would then
recover its value. This, it is said, will reduce our public debt to the
sterling cost of the paper.
Suppose two hundred millions were to be purchased, and the rest called
in by taxes. At this would require bills to the amount
of of dollars. But I doubt whether four times this sum would be
sufficient. The moment it was known such purchases were to be made,
the avarice of the speculators would begin to operate: the demand
would immediately occasion an artificial appreciation; each successive
million would cost more than the preceding. But this appreciation
would be more relative to the purchasing medium than to the prices
of commodities. The raising the value of the paper relative to the
former, would depend on the combination of a few artful individuals,
and would be easily accomplished. The diminution of prices must be
slow, as it implies a change in the sentiments of the body of the
people with respect to the money. A sudden revolution in the general
rates of all the necessaries of life is not to be expected. The prices
of these, as they have reached their present summit by degrees, must,
by degrees, revert to their former station. The minds of the people
will not readily admit impressions in favor of the currency. All their
past experience has given a habit of diffidence; and the epidemical
spirit of extortion will maintain a violent struggle with whatever has
a tendency to produce a fall of prices. A permanent reduction of the
quantity of circulating cash, will alone gradually effect it. But this
will not happen on the present plan.
The necessity of continuing the supplies at nearly the same rates now
given (which would be the case if my reasonings are true), would have
nearly the same effect mentioned with respect to taxes and domestic
loans. The money would return into circulation almost as fast as it
was drawn out: and at the end of the year we should find our treasury
empty; our foreign loan dissipated; and the state of our finances
as deplorable as ever. At a moderate calculation, we should have
spent ten or twelve millions of real dollars, for the sole purpose of
carrying on the war another year. It would be much better, instead
of purchasing up the paper currency, to purchase the supplies out of
our specie or bills. In the first instance, the public would suffer a
direct loss of the artificial appreciation, relative to the purchasing
medium: in the last, it would buy at the value of the commodities in
specie or bills.
A great source of error in disquisitions of this nature, is the judging
of events by abstract calculations; which, though geometrically true,
are false as they relate to the concerns of beings governed more by
passion and prejudice, than by an enlightened sense of their interests.
A degree of illusion mixes itself in all the affairs of society. The
opinion of objects has more influence than their real nature. The
quantity of money in circulation is certainly a chief cause of its
decline: but we find it is depreciated more than five times as much as
it ought to be by this rule. The excess is derived from opinion; a want
of confidence. In like manner we deceive ourselves, when we suppose the
value will increase in proportion as the quantity is lessened. Opinion
will operate here also; and a thousand circumstances may promote or
counteract the principle.
The other plan proposed, is to convert the loan into merchandise, and
import it on public account. This plan is incomparably better than
the former. Instead of losing on the sale of its specie or bills, the
public would gain a considerable profit on the commodities imported.
The loan would go much further this way, in supplying the expenses
of the war; and a large stock of valuable commodities, useful to the
army and to the country, would be introduced. This would affect the
prices of things in general, and assist the currency. But the arts
of monopolizers would prevent its having so extensive and durable an
influence as it ought to have.
A great impediment to the success of this, as well as the former
scheme, will be the vast sums requisite for the current expenses. The
arguments adduced in the former case are applicable here also, though
not with equal force. The necessity the public will be under of
parting with its stock to defray the daily demands, will give designing
men an opportunity, by combinations not to purchase, to oblige it to
sell at a rate below the real value of money. This they may the more
easily effect, as the demand for foreign commodities is much less than
formerly, on account of the general spirit of parsimony which has
obtained from necessity, and the manufactures carried on in private
families for their own use. The greatest part of the country people now
almost entirely clothe themselves.
The public must either sell very cheap, to collect rapidly the
superfluous paper in hopes of raising the value of the remainder; or
it must sell very slow, to preserve the due proportion between the
articles it has for sale and those it wants to buy. By pursuing the
first method, it will soon exhaust its stock at a very considerable
loss, and only give temporary relief to the currency. According to
my principle, though it sells cheap, it must still buy dear; and,
consequently, the money collected cannot remain in the treasury long
enough to preserve the rise in its appreciated state. If it pursues the
second method, the expenditures will be equal to the income; and though
the public will make the natural profits on its goods, as it will lay
up nothing, it will do nothing towards the appreciation.[7]
The farmers have the game in their own hands, and will make it very
difficult to lower the prices of their commodities. For want of
laborers, there is no great superfluity of the most essential articles
raised. These are things of absolute necessity, and must be purchased,
as well by the other classes of society as by the public. The farmers,
on the contrary, if they do not like the price, are not obliged to
sell; because they have almost every necessary within themselves; salt,
and one or two more, excepted; which bear a small proportion to what
is wanted from them; and which they can obtain, by barter, for other
articles equally indispensable. Heavy taxes, it may be said, will
oblige them to sell; but they can pay, with a small part of what they
have, any taxes our legislatures will venture to impose, or would be
able to enforce.
One measure, alone, can counterbalance these advantages of the farmers,
and oblige them to contribute their proper quota to the support of
Government: a tax in kind.
This ought instantly to begin throughout the States. The present
quantity of cash, though nominally enormous, would, in reality, be
found incompetent to domestic circulation, were it not that a great
part of our internal commerce is carried on by barter. For this reason,
it is impossible, by pecuniary taxes, to raise a sum proportioned
to the wants of the State. The money is no longer a general
representative; and when it ceases to be so, the State ought to call
for a portion of the thing represented; or, in other words, to tax in
kind. This will greatly facilitate whatever plan of finance is adopted;
because it will lessen the expenditures in cash, and make it the easier
to retain what is drawn in.
I said the demand for foreign goods is less than it formerly was. I
mean there is not a demand for so large a quantity, which the reasons
already assigned clearly demonstrate; nor are the exorbitant rates now
given any objection to this doctrine. There is an absolute scarcity
even in comparison of the present consumption; and, of course, a demand
for what there is. But should an importation of two millions sterling
take place, the market would be glutted; and there would be no way of
keeping up the price, but by making very slow sales. A less quantity
would stand no chance of calling in the money, and keeping it in long
enough to effect any thing in favor of its credit.
I say nothing about the risk of importation. I do not believe we could
obtain a convoy sufficient to justify our hazarding it without the
precaution of insurance. But with this expedient we are safe; and must
be satisfied with smaller profits for the sake of security.
This is a plan not altogether to be rejected. With prudent management
it might enable us to carry on the war two or three years (which,
perhaps, is as long as it may last); but if we should expect more from
it, the restoration of the currency, we should be disappointed.
The only plan that can preserve the currency, is one that will make
it the _immediate_ interest of the moneyed men to co-operate with
Government in its support. This country is in the same predicament in
which France was previous to the famous Mississippi scheme, projected
by Mr. Law. Its paper money, like ours, had dwindled to nothing; and no
efforts of the Government could revive it, because the people had lost
all confidence in its ability. Mr. Law, who had much more penetration
than integrity, readily perceived, that no plan could succeed which
did not unite the interest and credit of rich individuals with those
of the State; and upon this, he framed the idea of his project, which,
so far, agreed in principle with the Bank of England. The foundation
was good, but the superstructure too vast. The proprietors aimed at
unlimited wealth, and the Government itself expected too much; which
was the cause of the ultimate miscarriage of the scheme, and of all the
mischiefs that befel the kingdom in consequence.
It will be our wisdom to select what is good in this plan, and in any
others that have gone before us; avoiding their defects and excesses.
Something on a similar principle in America, will alone accomplish the
restoration of paper credit, and establish a permanent fund for the
future exigencies of Government.
Article I. The plan I would propose, is that of an American Bank,
instituted by authority of Congress for ten years, under the
denomination of The Bank of the United States. II. A foreign loan
makes a necessary part of the plan; but this I am persuaded we can
obtain, if we pursue the proper measures. I shall suppose it to amount
to two millions of pounds sterling. This loan to be thrown into the
Bank as a part of its stock.
III. A subscription to be opened for two hundred millions of dollars;
and the subscribers erected into a Company, to be called The
Company of the Bank of the United States.
IV. The Government to guarantee this subscription money to the
proprietors, at the rate of one for twenty; that is, to engage, at the
dissolution of the Bank, to make good to them the sum of ten millions
of dollars, in lieu of the two hundred millions subscribed, payable in
Spanish milled dollars, or a currency bona fide equivalent to them.