American History

Alexander Hamilton, Report on Public Credit

January 9, 1790

In the opinion of the Secretary, the wisdom of the House, in giving their explicit sanction to the

proposition which has been stated, ["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."] cannot

but be applauded by all, who will seriously consider, and trace through their obvious

consequences, these plain and undeniable truths.

That exigencies are to be expected to occur, in the affairs of nations, in which there will be a

necessity for borrowing.

That loans in times of public danger, especially from foreign war, are found an indispensable

resource, even to the wealthiest of them.

And 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.

And 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.

For 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.

From this constant necessity of borrowing and buying dear, it is easy to conceive how

immensely the expences of a nation, in a course of time, will be augmented by an unsound state

of the public credit.

To attempt to enumerate the complicated variety of mischiefs in the whole system of the social

oeconomy, 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.

In 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.

If 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.

Every breach of the public engagements, whether from choice or necessity, is in different

degrees hurtful to public credit. When such a necessity does truly exist, the evils of it are only to

be palliated by a scrupulous attention, on the part of the government, to carry the violation no

farther than the necessity absolutely requires, and to manifest, if the nature of the case admits of

it, a sincere disposition to make reparation, whenever circumstances shall permit. But with every

possible mitigation, credit must suffer, and numerous mischiefs ensue. It is therefore highly

important, when an appearance of necessity seems to press upon the public councils, that they

should examine well its reality, and be perfectly assured, that there is no method of escaping

from it, before they yield to its suggestions. For though it cannot safely be affirmed, that

occasions have never existed, or may not exist, in which violations of the public faith, in this

respect, are inevitable; yet there is great reason to believe, that they exist far less frequently than

precedents indicate; and are oftenest either pretended through levity, or want of firmness, or

supposed through want of knowledge. Expedients might often have been devised to effect,

consistently with good faith, what has been done in contravention of it. Those who are most

commonly creditors of a nation, are, generally speaking, enlightened men; and there are signal

examples to warrant a conclusion, that when a candid and fair appeal is made to them, they will

understand their true interest too well to refuse their concurrence in such modifications of their

claims, as any real necessity may demand.

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. 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.

This 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.

From this evidence of a favorable disposition, given by the former government, the institution of

a new one, cloathed with powers competent to calling forth the resources of the community, has

excited correspondent expectations. A general belief, accordingly, prevails, that the credit of the

United States will quickly be established on the firm foundation of an effectual provision for the

existing debt. The influence, which this has had at home, is witnessed by the rapid increase, that

has taken place in the market value of the public securities. From January to November, they

rose thirty-three and a third per cent, and from that period to this time, they have risen fifty per

cent more. And the intelligence from abroad announces effects proportionably favourable to our

national credit and consequence.

It cannot but merit particular attention, that among ourselves the most enlightened friends of

good government are those, whose expectations are the highest.

To 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 public credit.

To 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 disadvantages.

The 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 circumstances.

The benefits of this are various and obvious.

First. 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.

Secondly. 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.

Thirdly. 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.

And from the combination of these effects, additional aids will be furnished to labour, to

industry, and to arts of every kind.

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. Till then, it has rather a contrary tendency. The

fluctuation and insecurity incident to it in an unfunded state, render it a mere commodity, and a

precarious one. As such, being only an object of occasional and particular speculation, all the

money applied to it is so much diverted from the more useful channels of circulation, for which

the thing itself affords no substitute: So that, in fact, one serious inconvenience of an unfunded

debt is, that it contributes to the scarcity of money.

This distinction which has been little if at all attended to, is of the greatest moment. It involves a

question immediately interesting to every part of the community; which is no other than this--

Whether the public debt, by a provision for it on true principles, shall be rendered a substitute for

money; or whether, by being left as it is, or by being provided for in such a manner as will

wound those principles, and destroy confidence, it shall be suffered to continue, as it is, a

pernicious drain of our cash from the channels of productive industry.

The effect, which the funding of the public debt, on right principles, would have upon landed

property, is one of the circumstances attending such an arrangement, which has been least

adverted to, though it deserves the most particular attention. The present depreciated state of that

species of property is a serious calamity. The value of cultivated lands, in most of the states, has

fallen since the revolution from 25 to 50 per cent. In those farthest south, the decrease is still

more considerable. Indeed, if the representations, continually received from that quarter, may be

credited, lands there will command no price, which may not be deemed an almost total sacrifice.

This decrease, in the value of lands, ought, in a great measure, to be attributed to the scarcity of

money. Consequently whatever produces an augmentation of the monied capital of the country,

must have a proportional effect in raising that value. The beneficial tendency of a funded debt, in

this respect, has been manifested by the most decisive experience in Great-Britain.

The proprietors of lands would not only feel the benefit of this increase in the value of their

property, and of a more prompt and better sale, when they had occasion to sell; but the necessity

of selling would be, itself, greatly diminished. As the same cause would contribute to the facility

of loans, there is reason to believe, that such of them as are indebted, would be able through that

resource, to satisfy their more urgent creditors.

It ought not however to be expected, that the advantages, described as likely to result from

funding the public debt, would be instantaneous. It might require some time to bring the value of

stock to its natural level, and to attach to it that fixed confidence, which is necessary to its quality

as money. Yet the late rapid rise of the public securities encourages an expectation, that the

progress of stock to the desireable point, will be much more expeditious than could have been

foreseen. And as in the mean time it will be increasing in value, there is room to conclude, that it

will, from the outset, answer many of the purposes in contemplation. Particularly it seems to be

probable, that from creditors, who are not themselves necessitous, it will early meet with a ready

reception in payment of debts, at its current price.