Copyright ©2003 – 2021, Alexander Hamilton's reports on credit and manufactures comprised a series of three proposals he delivered to Congress as the first Secretary of Treasury, from 1789 to 1795. Author Richard Sylla traces the development of Hamilton’s financial thinking, policies, and actions through a selection of his writings. He rejected the suggestions from the states that the federal government simply repudiate all … [77], One of the effects of "assumption" would be to distribute the collective debt burden among all the states, the more solvent members paying a share of the more indebted ones. It involves this question, whether a discrimination ought not to be made between original holders of the public securities and present possessors by purchase. It did not seem plausible to him that a nation of farmers could compete against the industrial might of Europe. 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. [10] To convince investors to purchase US securities, a system was needed for the reliable payment of interest. Governments at all levels had taken on so much debt during the Revolution. In Alexander Hamilton: Hamilton’s financial program In the first two, Reports on the Public Credit, which he submitted on January 14, 1790, and December 13, 1790, he urged the funding of the national debt at full value, the assumption in full by the federal government of debts incurred by the states during the Revolution, and… It can mostly be found in his Report on Public Credit, which he toiled over for months upon becoming the first Secretary of the Treasury. To discriminate the merits of these several descriptions of creditors would be a task equally unnecessary and invidious. Hamilton's Report on a National Bank was a projection from the first Report on the Public Credit. How shall it be known whether, if the purchaser had employed his money in some other way, he would not be in a better situation than by having applied it in the purchase of securities, though he should now receive their full amount? [15][16], The US national debt, according to the Report, included $40 million in domestic debt and $12 million in foreign debt, both of which were inherited from the Continental Congress. A wise nation will never permit those who relieve the wants of their country, or who rely most on its faith, its firmness, and its resources, when either of them is distrusted, to suffer by the event.”. 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 insure to the revenue laws a more ready and more satisfactory execution. [109], The adoption of Hamilton's report had the immediate effect of converting what had been virtually-worthless federal and state certificates of indebtedness to $60 million of funded government securities. 1 (Pamphlet), 1796: George Washington’s “Farewell Address” (Speech), 1798-1992: US Bill of Rights Amendments (XI-XXVII), 1798: Counter-resolutions of Other States, 1798: Kentucky Resolutions (Jefferson’s Draft), 1799: Report of the Virginia House of Delegates, 1802: Jefferson, Letter to the Danbury Baptist Association (Letter), Pocket Guide to Political and Civic Rights. 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. This would be a way to collect and amass the various taxes collected. [38], Hamilton's First Report on the Public Credit was delivered to Congress on January 9, 1790. [112] The national debt reached $80 million and required nearly 80% of annual government expenditures. The commitment to pay them back was not taken very seriously. [14], With ratification of the US Constitution in 1787,[15] Congress could impose import duties and levy taxes for the raising of revenue to honor those financial obligations. "[65], Congress rejected Madison's "discrimination" in favor of Hamilton's "redemption" by 36 to 13 in the House of Representatives,[30] which preserved the sanctity of contracts as the cornerstone establishing confidence in public credit. In Alexander Hamilton: Hamilton’s financial program. Controversial because the constitution did not explicitly allow for the United States to charter a bank. It ought not however to be expected that the advantages described as likely to result from funding the public debt would be instantaneous. Collectively, Hamilton's financial programs succeeded in restoring public credit and stimulating economic development. (National Archives Identifier 532836) … 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. His model was the British financial system, which absolutely required fidelity to creditors. The First Report on Public Credit by Alexander Hamilton (1789) Alexander Hamilton (1755–1804) plunged into revolutionary action soon after his arrival in New York from the West Indies in 1773. [19][20], A consensus arose in Congress for the primary source of revenue to be tariff and tonnage duties,[21][22] which would serve to cover operating expenses for the central government and to pay interest and principal on foreign and domestic debt. "[10], A significant portion of the nation's $40 million domestic debt [20] was owed to Patriots who had supported the War of Independence by loans or personal service. 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. 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 most productive objects of revenue are not numerous. The buyer had no agency in it, and therefore ought not to suffer. The combined payments would, however, exceed the denomination of the original certificate. Thirdly. His motive was as much political as economic. Hamilton propose… [29] Some advocates wanted to scale back the debt to ease tax burdens abruptly to retire the debt quickly. Hamilton’s Report on the Subject of Manufactures, 1791 | When George Washington became president in 1789, he appointed Alexander Hamilton as his secretary of the Treasury. American finances were in good order: by this time, the United State had the highest credit … [51] Madison's "discrimination" promised to correct those abuses in the names of financial rectitude and natural justice. This circumstance will enable both the public and individuals to borrow on easier and cheaper terms. It can mostly be found in his Report on Public Credit, which he toiled over for months upon becoming the first Secretary of the Treasury. Hamilton, a Federalist, wanted the Federal Government to hold the bulk of the political and economic power; Madison and Jefferson, Republicans, wanted that power to remain with the states. 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. It is a remarkable work. [87][89] A number of government officials and state delegations gathered in clandestine meetings and political dinners[90] to resolve the stalled "assumption" bill by linking the "residency" debate to passage of Hamilton's financial program. The First Report on the Public Credit was one of four major reports on fiscal and economic policy submitted by Founding Father and first US Treasury Secretary Alexander Hamilton on the request of Congress. He knew the importance of making the United States financially reliable, secure, and strong, and his plan provided a blueprint to achieve that goal. [36][80] Requiring solvent states to contribute to states suspected of mismanaging their fiscal affairs was deemed unjust. Miller, 1960, p. 36-37, Malone, 1957, p. 259, Brock, 1957, p. 41, Burstein, 2010, p. 214, Malone, 1957, p. 259, Miller, 1960, p. 39, Staloff, 2005, p. 92-93, Brock, 1957, p. 39, Ellis, 2000, p. 56, Brock, 1957, p. 42, Miller, 1960, p. 44, Malone, 1960, p. 260, Staloff, 2005, p. 92, Burstein, 2010, p. 214, Brock, 1957, p. 42, Miller, 1960, p. 42, Ellis, 2000, p. 56, Miller, 1960, p. 41, Brock, 1957, p. 43, Ellis, 2000, p. 61, Miller, 1960, p. 41, Staloff, 2005, p. 95, Brock, 1957, p. 52, Ellis, 2000, p. 61, p. 63, Staloff, 2005, p. 85, p. 86, Ellis, 2000, p. 61, Brock, 1957, p. 39 p. 41-42, Malone, 1960, p. 260, Staloff, 2005, p. 96, Miller, 1960, p. 43, Ellis, 2000, p. 55, Staloff, 2005, p. 92, p. 96, Brock, 1957, p. 42, Miller, 1960, Staloff, 2005, p. 96, Brock, 1957, p. 42, Ellis, 2000, p. 57, Burstein & Isenberg, 2010, p. 216, Ellis, 2000, p. 58, Miller, 1960, p. 46-47, Brock, 1957, p. 42, Ellis, 2000, p. 58, Burstein & Isenberg, 2010, p. 214-215, Staloff, 2005, p. 312, Miller, 1960, p. 47, Staloff, 2005, p. 96, p. 313, Ellis, 2000, p. 73-74, Malone, 1960, p. 260, Brock, 1957, p. 45, Staloff, 2005, p. 313, American Experience, hour 2American Experience, Staloff, 2005, p. 91, Miller, 1960, p. 63, permanent US capital on the Potomac River, Report on a Plan for the Further Support of Public Credit. This requires some preliminary discussions. It cannot but merit particular attention that among ourselves the most enlightened friends of good government are those whose expectations are the highest. This was … Hamilton argued that to be required for the creation of a favorable climate for investment in government securities and for the transformation of the public debt to a source of capital. This he regards as the true secret for rendering public credit immortal. The government outlay would match the face value of the original certificate. This distinction, which has been little if at all attended to, is of the greatest moment. They knew that by the terms of the contract with themselves, the public were bound to pay to those to whom they should convey their 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. That union and concert of views among the creditors, which in every government is of great importance to their security and to that of public credit, will not only not exist, but will be likely to give place to mutual jealousy and opposition. [17][18] In addition, the 13 states altogether owed $25 million from debts incurred during the American Revolution. off through time with interest. 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. What were two major aspects in Hamilton's "Report on Public Credit?" Questions of this sort, on a close inspection, multiply themselves without end, and demonstrate the injustice of a discrimination even on the most subtle calculations of equity, abstracted from the obligation of contract. [45] Concerns arose since many certificates, almost three quarters of them,[46] had been exchanged for well below par during periods of inflation,[34] some as low as 10 cents on the dollar,[47] but they sold at 20-25% while the Report was debated. [57], As Hamilton's plan would greatly simplify and streamline finances, he found Madison's concern over the question of honoring both original and present holders of government securities naïve and counterproductive. [26], With sources of revenue legislated, Congress proceeded to address the pressing issue of public credit. He proposed a powerful private institution, in which the government was the major stockholder. Particular branches of industry might also be oppressed by it. 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. It called for payment in full on all government debts as the foundation for establishing government credit. ), 1682: Charter of the Liberties and Frame of Government of Pennsylvania, 1683: Charter of Liberties and Privileges (New York), 1692: Shower, Reasons for a New Bill of Rights (Pamphlet), 1736: Brief Narrative of the Trial of Peter Zenger, 1744: Williams, Rights and Liberties of Protestants (Sermon), 1763: Otis, Rights of British Colonies Asserted (Pamphlet), 1765: Resolutions of the Stamp Act Congress, 1774: Declaration and Resolves of the 1st Continental Congress, 1776: Declaration of Independence (various drafts), 1776: Hutchinson, Strictures upon the Declaration of Independence, 1776: Witherspoon, Dominion of Providence over the Passions of Men (Sermon), 1785: Madison, Memorial and Remonstrance against Religious Assessments, 1786: Jefferson, Virginia Bill Establishing Religious Freedom, 1787: Jay, Address to the People of N.Y. (Pamphlet), 1787: Letters from the Federal Famer, Letter No. Credit, private or public, is of greatest consequence to every country. This reflection derives additional strength from the nature of the debt of the United States. It is to be regretted that there is not the same unanimity of sentiment on this part as on the other. The Report on Manufactures was one of the most penetrating statements of the protectionist philosophy ever made. Founding Brothers: The Revolutionary Generation. There is an objection, however, to an assumption of the state debts which deserves particular notice. 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. [96][98] Hamilton's support was superfluous, as the Potomac location had already been secured. This, the United States, as assignees to the creditors, would have an indisputable right to do… . [62] The Federalists, yoking their political fortunes to the financial elites,[63] failed to cultivate their natural political base: "small businessmen and conservative farmers. [9][10] After the American Revolutionary War, the Continental currency, called "Continentals," would be deemed worthless. [1] The report analyzed the financial standing of the United States and made recommendations to reorganize the national debt and to establish the public credit. In his "Report on the Public Credit," Hamilton stated that public. Neither would it be just that one class of the public creditors should be more favoured than the other. This page was last edited on 18 December 2020, at 10:57. Funding and Assumption. [12] Much of the state and national fiscal disorder, exacerbated by an economic crisis in urban commercial centers,[13] had remained unresolved when the Report was issued. The 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. 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. 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. Devalued certificates were relinquished by holders at low rates even after the news had been received, which reflected the widely-held conviction in the South that the credit and assumption measures would be defeated in Congress. But there is a consequence of this, less obvious, though not less true, in which every other citizen is interested. The benefits of this are various and obvious. 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. to "fund" the entire nation debt "at par" and to assume completely the. 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. It may well be supposed that some of them did it either through want of confidence in an eventual provision or from the allurements of some profitable speculation. Hamilton's main goals were to achieve the financial stability necessary to fight another war should one arise with the foreign threats of Britain and Spain, and to dull assertions of state power that might diminish national power. Name and describe the two major points of Hamilton's Report on Public Credit. One of the most contentious issues in the report was Hamilton’s recommendation that the Federal Government assume the states’ substantial Revolutionary War debts. takeover of all state debts In 1791 Hamilton released a third report, the Report on Manufactures, which encouraged the growth and protection of manufacturing. The Reports on Public Credit II The Second Report on the Further Provision Necessary for Establishing Public Credit (Submitted to Congress on December 13, 1790) In this report, Hamilton argued the necessity of a national bank, and raised yet another host of issues. Hamilton's "assumption" promised to obviate those conflicts. [110], Hamilton submitted a schedule of excise taxes on December 13, 1790 [111] to augment revenue necessary to service debts assumed from the states. 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. Through payment by the central … First. "[108], The Residence Bill passed in the House by a vote of 32 to 29 on July 9, 1790, and the Assumption Bill cleared by a vote of 34 to 28 on July 26, 1790. [30] In his version, current certificate holders would be reimbursed at their purchase price for the devalued certificate, and the balance would be handed to the original holder. The advantage to the public creditors from the increased value of that part of their property which constitutes the public debt needs no explanation. Secondly. HAMILTON’S ECONOMIC PLAN First Report on Public Credit Arguments in Support Arguments in Opposition Payment of Debt: Assumption of State Debt: OUTCOME/SIGNIFICANCE: National Bank Arguments in Support Arguments in Opposition OUTCOME/SIGNIFICANCE: First Report on Public Credit Arguments in Support Arguments in Opposition Excise Taxes: OUTCOME/SIGNIFICANCE: Report on … funding: dealing out bonds to take care of debt assumption: the national gov. The “Report on Manufactures” cannot be divorced from Hamilton’s view of public credit and banking, but an equally close relation exists between this Report and his attitude toward foreign policy. Controversial because the constitution did not explicitly allow for the United States to charter a bank. The book showcases Hamilton’s thoughts on the nation's founding, the need for a strong central government, confronting problems such as a depreciating paper currency and weak public credit, and the architecture of the financial system. But these good effects of a public debt are only to be looked for when, by being well funded, it has acquired an adequate and stable value. In addition, the newly-issued bonds provided a circulating currency and stimulated business investment. [99] The revision of Virginia 's debt, coupled with Potomac residence, ultimately netted it over $13 million. and with a Preface by Lance Banning (Indianapolis: Liberty Fund, 2004). The present depreciated state of that species of property is a serious calamity. 1790: Hamilton, First Report on Public Credit. Any attempt to secure to the former either exclusive or peculiar advantages would materially hazard their interests. Hamilton urged the expanded use of protective tariffs as a means to protect the nation's infant industries. The principles of that settlement, whenever they shall be discussed, will require all the moderation and wisdom of the government. Many of them were combat veterans who, during demobilization in 1783,[13] had been paid in IOUs, "certificates of indebtedness"[33] or "securities" (not to be confused with the worthless Continental currency or bills of credit)[3] and redeemable when the government's fiscal order had been restored. [40] Regular payments of the public debt would allow Congress to increase federal money supply safely, which would stimulate capital investments in agriculture and manufacturing. Already thinking far beyond the reestablishment of public credit, Hamilton took pains in the report to counter alternative suggestions that were already circulating in the country. the support of the public credit is a matter of high importance to the honor and prosperity of the United States.” With an ardent desire that his well-meant endeavors may be conducive to the real advantage of [228] the nation, and with the utmost deference to the superior judgment of The exhaustive, meticulously detailed reports outlined the financial footing on which he wanted to place the United States. Shall they be deprived of the indemnity which they have endeavoured to secure by so provident an arrangement? Alexander Hamilton, The First Report on Public Credit 14 January 1790 Already thinking far beyond the reestablishment of public credit, Hamilton took pains in the report to counter alternative suggestions that were already circulating in the country. [9][10] As an expedient, the revolutionary government resorted to printing money and bills of credit,[3] but that currency rapidly underwent depreciation. 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 his distresses. [107] Those forces, one with Republican commitments, the other with Democratic convictions, united in common cause against Hamilton's reforms and "laid the basis for a national party. Should the state creditors stand upon a less eligible footing than the others, it is unnatural to expect they would see with pleasure a provision for them. The interest alone on the national debt consumed 40% of the national revenue between 1790 and 1800. [53] His principled opposition to "redemption" was consistent with his view of a federal government designed to shield the less powerful from a majority interest, in this case his agrarian constituency, from Federalist-sponsored economic nationalism. [82], In surrendering their debt into the hands of the Treasury Department, the states would sanction the principle of collective decision-making at the national level on state matters and "enormously strengthen" the influence of the federal government. "[64] Hamilton confessed years later that "the Federalists have... erred in relying so much on the rectitude and utility of their measures, as to have neglected the cultivation of popular favor, by fair and justifiable expedients. [35], US Representative James Madison of Virginia offered his own variation of "discrimination" that would preserved the federal obligation of face value debt repayment. [9] When the state legislatures failed to meet quotas for war material by local taxation, Patriot armies turned to confiscating supplies from farmers and tradesmen, compensating them with IOUs of uncertain value. Setting the highest possible standard, he has been called "one of the greatest administrators of all time. He wrote its 40,000 words (the length of a short novel) in three months. [10], Various plans had been considered to pay down the domestic debt under the new federal government. It is inconsistent with justice, because in the first place, it is a breach of contract; in violation of the rights of a fair purchaser. 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… . [114] Hamilton immediately followed up his success with the Second Report on Public Credit, which contained his plan for the Bank of the United States, a national privately-operated bank endowed with public funds that became the forerunner of the Federal Reserve System. [72], Politically, Hamilton sought to "tie the creditors to the new [central] government"[73] by linking their financial fortunes to the success of his economic nationalism.
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