Hamilton's Reports and Opinion on the Bank

Summary

This anthology gathers three state papers that Alexander Hamilton wrote during his first two years as Secretary of the Treasury. On 21 September 1789 the House of Representatives asked him for a plan to support the public credit. His First Report on the Public Credit, dated 9 January and communicated to the House on 14 January 1790, starts from the premise that every nation must sometimes borrow and can borrow on good terms only when its credit is firmly established. Calling the Revolutionary debt the price of liberty, he proposed to fund it in full: about 54 million dollars of foreign and domestic federal debt, together with state debts he estimated at 25 million dollars, which the Union would assume. He rejected any discrimination between original holders, many of them soldiers and farmers who had sold their certificates cheaply, and the later purchasers, holding that it would break the public contract and ruin credit; James Madison urged such a discrimination in the House, and it was voted down. Hamilton offered creditors a choice of new securities, including land, annuities and a tontine, pledged duties on wines, spirits, tea and coffee, and proposed a sinking fund drawn from post office revenue and managed by senior officers of the government. Funding and assumption passed in the summer of 1790 after the Compromise of 1790, which linked assumption to placing the permanent capital on the Potomac. The library text lists but omits the report's schedules. The second document is Hamilton's opinion of 23 February 1791 for President Washington. Secretary of State Thomas Jefferson and Attorney General Edmund Randolph had advised that the bill chartering a Bank of the United States was unconstitutional because the Constitution gives no power to create corporations. Hamilton replied that every power vested in a government is sovereign in its sphere and carries the right to use the means fairly applicable to its ends; that the word necessary in the necessary and proper clause commonly means useful or conducive to, not indispensable; and that a bank relates directly to the express powers to collect taxes, borrow money, regulate trade and support armies. Washington signed the bill on 25 February. Chief Justice John Marshall's reasoning in McCulloch v. Maryland (1819) follows the same line. The third paper, the Report on Manufactures of 5 December 1791, answers the doctrine that agriculture alone is truly productive. Hamilton lists seven advantages of manufacturing, from the division of labour and the extension of machinery to immigration, scope for varied talents and enterprise, and a steadier home market for the farmer's surplus. He then reviews the means of encouragement, including protecting duties, prohibitions, bounties, premiums, drawbacks and rewards for inventions, and surveys particular articles such as iron, copper, coal, cotton, wool, glass, gunpowder and paper. Congress adopted some of its tariff proposals in 1792 but not the program as a whole.

Top Lessons

• Credit as a matter of good faith

  The First Report treats public credit less as a technical device than as a reputation earned by keeping promises. Hamilton argues that a nation which pays its debts honestly borrows cheaply in emergencies, and that the Revolutionary debt carried a special obligation because it bought independence.

• Justice to holders and purchasers

  Hamilton refused to pay original holders, often veterans who had sold their certificates in hard times, more than the speculators who had bought them. He argued that the purchaser had made a fair contract and that the government could not fairly sort out every case. Madison saw an injustice to the soldiers; Hamilton saw an injustice to the contract.

• Reading a constitution

  The Opinion on the Bank is an argument about interpretation. Jefferson read necessary strictly to keep federal power within narrow bounds; Hamilton read it in its ordinary sense of useful or conducive to, so that the government could choose suitable means. The dispute shaped American constitutional debate and resurfaced in McCulloch v. Maryland.

• Industry and the variety of talents

  The Report on Manufactures argues that a country of farms alone leaves many abilities unused. Hamilton values manufactures for multiplying the objects of enterprise, giving each kind of talent a fitting work, and creating a home market that helps the farmer, and he proposes public encouragement to overcome the advantages of established foreign industries.

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Medical Lens

These are financial and constitutional papers; they discuss revenue, debt, banking, tariffs and industry, and have no medical content beyond passing references to the health of trade and credit.