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THE PLAN OF ASSUMPTION.

instalment of the foreign debt, or a sufficient money to pay the whole, if possible, within fifteen years, was authorized. A new loan of the whole of the domestic debt was proposed on the following terms: two-thirds of the principal was to draw interest at the rate of 6 per cent. after January 1, 1791, and the other third was to draw the same amount of interest after 1800, while the arrears of interest were to draw 3 per cent. after January 1, 1791.* The debt drawing 6 per cent. interest was to be redeemable by payments not exceeding in one year 8 per cent on account of both principal and interest; and the 3 per cent. were made redeemable at the pleasure of the government. According to the funding act of August 4, 1790, the State debts were apportioned among the various States as follows: New Hampshire, $300,000; Massachusetts, $4,000,000; Rhode Island, $200,000; Connecticut, $1,600,000; New York, $1,200,000; New Jersey, $800,000; Pennsylvania, $2,200,000; Delaware, $200,000; Maryland, $800,000; Virginia, $3,500,000; North Carolina, $2,400,000; South Carolina, $4,000,000; Georgia, $300,000.† The sum thus assumed was to be loaned to the United States by individuals holding certain evidences of State debts, but on somewhat different terms from

*Act of August 4, 1790, chap. 34. See also Bolles, Financial History, p. 25; Dewey, Financial History, pp. 94–95.

Annals of Congress, 1st Congress, 2d Session, vol. i., pp. 1000-1008; Schouler, United States, vol. i., p. 155.

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those holding evidences of domestic debt. Four-ninths was to bear interest at the rate of 6 per cent., commencing on January 1, 1792; two-ninths was to draw 6 per cent. after 1800; and the remaining three-ninths was to bear 3 per cent. interest from January, 1792.* The amount of the debt of each State assumed was to be a charge against such State in the account of the United States. A board of three commissioners was established to complete the settlement, and they were empowered to decide according to the principles of general equity. They were to debit each State with whatever advances had been made by the United States, with the interest thereon to December 31, 1789, and to credit each State for advances or disbursements made, with interest up to the same time; † and after a balance had been struck, the aggregate of all balances was to be found and apportioned among the States by the same rule as was prescribed in the Constitution for apportioning representatives and direct taxes, on the basis of the first enumeration that should be made. The balances then found due to the States were to be founded on the same terms as the rest of the domestic debt, but were not to be transferable.‡

* Bolles, Financial History, pp. 26-28; Dewey, Financial History, p. 95.

† Pitkin (vol. ii., p. 538) gives an abstract of the accounts of the respective States, for expenses incurred during the Revolution, as allowed by the commissioners, who completed the settlement of the said accounts in 1793.

‡ Bolles, Financial History, pp. 29-30. Accord

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HAMILTON'S REPORT ON PUBLIC CREDIT.

The effect of these measures for sustaining the public credit was most salutary, and it soon became evident that prosperity was fairly within reach of the industrious citizens of the United States. "Politically considered, however," says Mr. Sparks, "the funding system had an unhappy influence. It widened the breach of parties, produced irritations, and excited animosities. Nor was it to be expected that the adversaries of the plan, and these a large minority, would really change their opinion, after the strenuous opposition they had shown, or cease from their hostility. The President expressed no sentiments on the subject while it was under debate in Congress, but he approved the act for funding the public debt, and was undoubtedly, from conviction, a decided friend to the

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ing to Dewey (Financial History, p. 93), the total amount assumed was $18,271,786, divided as follows: New Hampshire, $282,596; Massachusetts, $3,981,733; Rhode Island, $200,000; Connecticut, $1,600,000; New York, $1,183,717; New Jersey, $695,203; Pennsylvania, $777,983; Delaware, $59,162; Maryland, $517,49; Virginia, $2,934,416; North Carolina, $1,793,804; South Carolina, $3,999,651; Georgia, $246,030.

* Life of Washington, p. 428.

expenses; and at the end of the year there was a deficit of $825,000. On August 9, three days before Congress adjourned, the House had passed a resolution directing the Secretary of the Treasury to report on the second Monday of December "such further provisions as may, in his opinion, be necessary for establishing the public credit." This resulted in Hamilton's second Report on Public Credit dated December 13, 1790.* Hamilton recommended that Congress pass two bills: one providing an additional impost on foreign distilled spirits, with an excise on excise on spirits distilled in the United States; and the other establishing a bank.† An excise bill was then drafted according to his ideas and on December 30, 1790, was introduced in the House. For some time thereafter a sharp and even fiery debate took place, the Southern and Western members being particularly warm in their opposition, with Jackson, of Georgia, leading the attack. In lieu of the system proposed by Hamilton, the opponents of the bill suggested an increase in the duties on imported articles; a specific direct tax; duty on molasses; a a stamp tax; a duty on newspapers; and a tax on salaries, pen

The text will be found in American State Papers, Finance, vol. i., pp. 64-67; MacDonald, Select Documents, pp. 61-66; Annals of Congress, 1st Congress, vol. ii., pp. 2024-2030; Hamilton's ed. of Hamilton's Works, vol. iii., p. 95 et seq. See also Appendix II. at the end of the present chapter.

McMaster, vol. ii., pp. 25-28.

THE BANK BILL INTRODUCED,

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sions and lawyers.* Nevertheless, that the Bank should have a capital despite all opposition, the bill was stock of $10,000,000, divided into passed in the House January 27, by 25,000 shares of $400 each. Of this a vote of 35 to 21. It was then capital $2,000,000 was to be subamended in the Senate, but the House scribed for the benefit of the United disagreed to the amendments and a States, though not payable immediconference committee put the bill in ately, and $8,000,000 by individuals. its final form. On March 3, the act One-fourth of the latter subscriptions was approved by the President. This were to be paid in gold and silver, law was substantially that which had and three-fourths in government sebeen rejected the previous year. It was curities. The Bank was to have the concerned with distilled spirits only. privilege of discounting as well as of On imported spirits a duty graduated receiving deposits, and such bills as according to proof, ranging from 20 were payable in gold and silver on to 40 cents per gallon, was laid; and demand were made receivable for the an excise ranging from 9 to 20 cents payment of all debts due the United per gallon was laid on spirits distilled States. The principal office of the in the United States.]] Bank was to be at Philadelphia, and the directors were empowered to establish offices of discount and deposit only in the several States. Of the capital $5,730,000 was reserved for the main branch, the remaining $4,300,000 to be divided among eight branches to be established in the principal cities of the Union. The charter was to continue in force until March 4, 1811; and the government agreed that during this period no other bank should be established by the authority of Congress. It was agreed also that no loan should be made to the United States of more than $100,000, or to any particular State of more than $50,000, or to any foreign prince or principality, unless

Meanwhile a bill to incorporate the Bank of the United States had been passed by the Senate, with scarcely a dissenting voice, and was sent to the House, where it was soon ordered to a third reading.§ This bill provided

* Annals of Congress, 1st Congress, 3d session, vol. ii., pp. 1842-1853, 1857-1861, 1869-1884; Benton, Abridgment of Debates, vol. i., pp. 262268, 270-272.

For Washington's attitude, see Lodge, George Washington, vol. ii., pp. 120–121.

The text of the act is in United States Statutes-at-Large, vol. i., pp. 219-221; Annals of Congress, 1st Congress, 1st session, vol. ii., pp. 23202340. For Hamilton's report on the difficulties of enforcing the act, March 5, 1792, see American State Papers, Finance, vol. i., pp. 151-158. See also Bolles, Financial History, p. 103 et seq.

Stanwood, Tariff Controversies, vol. i., p. 76; Bishop, History of Manufactures, vol. ii., pp. 2930.

§ Hamilton's report on a National Bank will be found in American State Papers, Finance, vol. i., pp. 67-76; Annals of Congress, vol. ii., pp. 20322159; MacDonald, Select Documents, pp. 67-76;

Ilamilton's ed. of Hamilton's Works, vol. iii., p. 156 et seq.

*Sumner, Life of Alexander Hamilton, p. 163. Bolles, Financial History, pp. 128-129.

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expressly authorized by a law of the United States.* The choice of directors was confined to citizens of the United States, and discount rates. were not to be over 6 per cent.

Hardly had the motion of the passage been made when a strong and determined opposition sprang up under the leadership of Smith, of South Carolina, Jackson, of Georgia, Madison, Giles, Stone and others; while Ames, Boudinot, Gerry and Vining were among its most ardent advocates. The bill was quickly recommitted and the debates that ensued the following week were most spirited.†

The anticipated advantages of Hamilton's proposed bank were that it would increase the active capital of the country, would afford the government greater facilities for exchanging, collecting and borrowing for its necessities, and furnish the whole country with a circulating medium. But in the last respect the Bank did not seem to be necessary, since the mint about to begin operations would supply a Federal coinage; and even if a paper currency were desirable, it by no means followed that the government would call in private enterprise to obtain it. Furthermore, the secret political machinations of a vast moneyed power such as the Bank were

* McMaster, vol. ii., p. 28. For a general discussion of Hamilton's plans, see Lodge, Alexander Hamilton, p. 99 et seq.

|| See Benton, Abridgment of Debates, vol. i., pp. 272-308. See also Annals of Congress, 1st Congress, 3d session, vol. ii., pp. 1891-1960.

greatly to be feared. The equitable distributions of sound banks all believed to be wise and useful, but not all saw the necessity of chartering an enormous institution to swallow up the smaller ones. But, as Hamilton commanded a respectable working majority in both branches of Congress, he determined to carry his point with a rush, overcoming all opposition. The minority asked time for the consideration of so important a measure, saying that it was needless to rush such an important bill through in the last short month of an expiring Congress. But as the New England and New York members supported Hamilton, he was obdurate. There was no time to devise a substitute better adapted to our Federal institutions and therefore, being pushed to the wall, the anti-bank men fought to prevent the adoption of Hamilton's scheme. The arguments advanced by the opposition were of two kinds. Some made the amazing objection that the Bank would be of no use, but the chief argument was that Congress did not possess the constitutional authority to pass such an act. The antiFederalists, who declared the Bank unnecessary, took as examples the

* Schouler, United States, vol. i., pp. 174-175; Dewey, Financial History, p. 99. It is worthy of mention that both Jackson and Madison called attention to the geographical separation of parties. Jackson closed his argument with the words: "Not a gentleman scarcely to the eastward of a certain line is opposed to the bank, and where is the gentleman to the southward that is for it?"- Benton, Abridgment of Debates, vol. i., p. 287.

DEBATE ON THE BANK.

four towns of Boston, New York, Philadelphia and Baltimore,* where they said half the people had nothing to put in the banks. If, therefore, a man in a pinch desired a loan upon proper security, instead of as formerly going to a merchant who would discount his notes or loan him money at a low rate of interest, he would be compelled to go to the Bank which would grind him down by extortionate discounts. They claimed that the New York and Philadelphia banks were aristocratic moneyed monopolies which encouraged usury, took coin out of circulation, and upset the regular safeguards of trade. It was now proposed, they contended, that the government set up a national monopoly on a still grander scale, whereas it was the duty of good government not to foster but to destroy monopolies.

The Bank advocates pointed out, however, that the proposed institution could do none of these objectionable things; could not hold an acre of ground save such as might be needed for its own use, or such lands. as reverted to it in the form of a judgment or to satisfy a mortgage; could not own merchandise except as security for loans; could not buy a

* The four banks at these places had a capital of $1,950,000. The first bank was the Bank of

North America, chartered December 31, 1781, followed by the Massachusetts Bank, February 7, 1784, the Bank of New York, which commenced operations June 9, 1784, and the Maryland Bank, which was chartered in November of 1790 and started in 1791.

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United States bond; and far from taking money out of circulation, would increase the amount actually in circulation, as $7,500,000 in certificates would become exchangeable for bills. Then the Anti-Federalists seized upon the argument that under the Constitution Congress had no power to create this or any other corporation. This the Federalists refuted by saying that the establishment of a bank, though the power to do so was not specifically granted by the Constitution, had been contemplated in that instrument when Congress was given authority to make all laws necessary and proper for carrying into effect the powers expressly granted to it.* The Federalists said, furthermore, that the establishment of the bank was necessary and proper, for such institutions were required in all well-regulated communities to manage finances and to attain the great ends of civil government. To the Anti-Federalists' denial that the Bank was either useful or necessary, or to those who believed the construction of the Constitution on the part of the Federalists was too broad and too dangerous to be admitted, the Federalists replied that Congress was doing numerous things every day for which no direct authority was to be found in the Constitution such as buying up the National debt in the

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