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state his opinions upon the questions therein treated, after having
given his best consideration to the subject, after the aid derived
from some eminent writers, ** and after the valuable experience
which a few late years, abounding in facts, have yielded to the
present generation." Nevertheless, in the treatise which follows,
facts are rarely cited in proof or otherwise ; and even the illustra-
tions are imagined cases put by the writer.

This characteristic of Ricardo's treatise is best explained by
recalling the circumstances under which the book was written and
published. It is now before the world as the author's formal
exposition of his system ; and, as an exposition, it confessedly
leaves much to be desired. But it is to be remembered that it is at
least doubtful whether the author originally wrote for publication.
McCulloch's statement, probably made upon the best information,
is express, that Ricardo hesitated to publish, and was unwilling
thus to risk a high reputation. " Ultimately, however, he was
prevailed upon, by the entreaties of his friends, to allow his work
to be sent to the press." ^ That James Mill was one of these
persuasive friends, we have upon the authority of John Stuart

1 Quarterly Journal of Economics, ']\x\'^, 1887.

2 See also Annual Biography, 1824, p. 374.



Mill, who speaks in his "Autobiography " of Ricardo's work as " a
book which never would have been published or written but for
the entreaty and strong encouragement of my father ; for Ricardo,
the most modest of men, though firmly convinced of the truth of
his doctrines, deemed himself so little capable of doing them justice
in exposition and expression that he shrank from the idea of pub-

It appears from these notices not unlikely that Ricardo's book
was written, not for the public eye, but as a statement of opinions
made for his own purposes, and that its publication was an after-
thought of his friends. And this view of the case is confirmed by
the structure of the book itself, which is a series of monographs
scattered over the field of political economy, such as a thoughtful
man might commit to writing when clarifying his own ideas on the
subject, but is by no means a systematic exposition, even such as
a writer of so little rhetorical pretension as Ricardo might be
expected to produce. This appearance of being a fragmentary
collection of essays is even more strongly marked in the original
edition than in the later ones, to which the author was induced to
make some important additions.

Writing, probably, with little reference to any large circle of
readers, Ricardo contents himself in these irregularly connected
chapters with a simple statement of the operation of causes. He
may here and there refer to an historical case in which a cause
discerned by him operated ; but such reference is not necessary
for his present purpose, and is made by exception, and not upon
system. If he wishes to illustrate, he finds it easier to frame a
case, as men will do in discussion nine times out of ten, by saying,
"Suppose a commodity of 1000/. value rises to 1200/., or falls to
800/.," and so on. " My object," he says, " was to elucidate princi-
ples ; and, to do this, I imagined strong cases, that I might show
the operation of these principles." ^

But, in his pamphlets, Ricardo was generally writing for a dif-
ferent purpose, and with distinct reference to the reading public.
The occasion required a different method of treatment, and thus
a certain sidelight, as it were, is thrown upon his mental processes
and his equipment for discussion. The range of subjects covered
by his pamphlets is limited to the currency and to free trade in

^ See Ricardo's letter in the Edinburgh Review, January, 1837, cited by Bonar.


corn, these being the questions which pressed the hardest upon
English economists in the fourteen years of his activity; but the
method pursued is significant. In his principal work, his discus-
sion of money and the allied topics, and of all that bears on the
effects of free corn, is of the same cast as his discussion of other
subjects. We have the same severely logical statement of abstract
principles and the same use of imagined cases for illustration, with
nothing whatever to show any special study of facts or acquaint-
ance with practical affairs. In the various pamphlets on the cur-
rency, however, and in that on protection to agriculture, which is
the practical sequel of an earlier theoretical essay on the effects
of a low price of corn, he shows that behind the abstract discus-
sions of his book lay a great reserve of facts and observations, ready
to be drawn upon whenever the task in hand seemed to require.
The same thing is true of his many speeches in Parliament, as
reported in Hansard from 1819 to 1823. The subjects of the
speeches are chiefly connected with the currency, the national
debt, taxation, and agricultural distress. But the discussion
throughout rests upon the knowledge of a keen-sighted and
experienced observer, skilled in the scientific interpretation of
phenomena. So far is he in these speeches from neglecting fact
for theory, that it would be easy to cite important cases in which
he went beyond the opinion of the House, by sacrificing the close
application of theory in deference to the unusual conditions then
affecting important questions.

With regard, then, to questions which Ricardo had occasion to
treat before an audience or for a considerable circle of readers, we
find that he was thoroughly equipped, and that he made ample use
of facts for illustration, verification, or the premises for argument,
although, in his chief work, the same questions are treated w^th a
singular exclusion of all reference to the actual world around him.
It is fair to assume, then, that under like circumstances he would
have treated other questions also in the same practical way ; and
that what appears in his treatise as a complete separation of theory
and fact does not indicate the mental habit of the author or the
limit of his resources, but is only the peculiar cast given to the
treatise by the special circumstances of its composition.



The system of finance established under Alexander Hamilton's
administration of the Treasury of the United States has been
represented as a slavish imitation of the English system or as an
astonishing piece of original invention, according to the political
leanings of the critic. In the following pages the present writer
proposes to consider the apparent origin of some parts of Hamil-
ton's work, and incidentally to observe the light which is thus
thrown upon these conflicting allegations of imitation and

It is worth while to remark at the start that, under the early
practice of our government, the Secretary of the Treasury occu-
pied a position more nearly like that of an English Chancellor of
the Exchequer than the present spirit of Congress would allow.
The arrangements for securing his responsibility^ were defective;
but the responsibility itself, not only for administration, but for
guiding the course of legislation, was recognized. The early com-
munications of the Secretary to Congress often presented some-
thing like a budget, with a statement of the measures necessary
for its working, and any new proposition became a government
measure. The method began almost from the first to show its
incompatibility with the thorough separation of legislative and
executive functions aimed at in many of our arrangements ; but,
nevertheless, it made the financial system with which the govern-
ment set out substantially Hamilton's system, as Congress expected
and intended.

1 Quarterly Jotirnal of Econojfiics, Octohtr, 1 888.

2 Madison stated the nature of the responsibility as follows : " There will be responsi-
bility in point of reputation, at least a responsibility to the public opinion with respect
to his abilities ; and supposing there is no personal responsibility, yet we know that
men of talents and ability take as much care for the preservation of their reputation as
any other species of property of which they are possessed." Annals of Congress, June
25, 17S9.



The purpose of Congress to throw upon the Secretary the
burden of shaping the financial course of the government appears
in the first steps taken on the subject of public credit. The act
establishing the Treasury Department became a law on the 2d
of September, 1789; and the nomination of Hamilton as Secretary
went to the Senate on the iith.^ The demand for action "for
the revival of public credit and the advancement of the national
honor" had already been brought before the House by the peti-
tion of public creditors living in Pennsylvania ; ^ and their petition,
on the day when the Treasury bill became a law, was referred to
a committee, consisting of Madison, Vining, and Boudinot. This
committee contented itself with recommending a mere declaratory
resolution that provision for the national creditors was necessary,
and that the subject should be considered at the next session.
When this report came before the House, however, on the 21st
of September, a resolution was added and adopted, directing the
Secretary of the Treasury to prepare a plan and report it to the
House "at its next meeting." That this addition was made as
the result of some consultation and settled pohcy is made probable
by the adoption at the same time of a new resolution, directing
the Secretary to apply to the executives of the several states for
statements of their public debts and the amount of securities of
the United States held by them, and to report the information to
the House at the next session, plainly contemplating the possible
assumption of state debts as a part of the plan of finance to be
prepared. Without entering upon this vexed subject, however,
it is enough now to point out the specific demand thus made
upon Hamilton for a comprehensive scheme, just ten days after
his appointment as Secretary. This was the contemporaneous
interpretation of the clause in the Treasury act, which declares it
to be " the duty of the Secretary of the Treasury to digest and
prepare plans for the improvement and management of the
revenue and for the support of the public credit."

1 As early as May 27, Madison thought that, when the department should be estab-
lished, the Secretary would be Jay or Hamilton, and that "the latter is, perhaps, best
qualified for that species of business"; and June 30 he wrote that "Hamilton is most
talked of." " Letters and Writings of Madison," i. 472, 484.

* See Anttals of Congress, August 28, 1789. The majority of these petitioners joined
the next year in a remonstrance against the funding act. " American State Papers,
Finance, " i. 76.


When Hamilton, in accordance with this resolution, took up
the problem of creating public credit, with all that such creation
implied, he was barely thirty-two years old. He cannot be said
to have had any special training for finance. He had been a
reader on economic and financial subjects, had been an interested
observer of financial measures, had taken some share in financial
discussion, and had undergone the rapid educational process to
which practical politics always subject the statesman. In his
case, with his marked natural capacity and his good equipment
of learning, this process had no doubt carried him far ; but his
experience had never reached the actual management of affairs
on a large scale, as scales were measured in those days, nor the
shaping of important financial legislation. He took up his prob-
lem, then, as a public man often must, relying upon his general
training, observation, and judgment to lead him to a safe conclu-
sion. It appears certain that he relied upon no adviser better
versed than himself in practical affairs. He appears to have
made a few inquiries of a general kind, not suggestive of his own
purposes ; ^ but there is a strong probability that his own mind
was made up early as to some leading features of his scheme, and
that the friends finally taken into his confidence were not invited
to share the responsibility of devising and deciding.^

It is a strong proof of the sobriety of Hamilton's judgment
that, in determining his course under these circumstances, he
sought for the most part to adapt to his purpose methods and
agencies which had been tested by experience ; for that is the
great characteristic of his " Reports on Public Credit and on a
National Bank." There is little of the effort to invent or to work
out theories leading to some novel expedient, by which an ambi-
tious man so often seeks to exhibit his originality of device and
improve his chance for fame. On the contrary, Hamilton sel-
dom shows a disposition to go beyond the range of already tried

1 For example, see his letter to Madison, October 12, 17S9, in Hamilton's " Life of
Alexander Hamilton," iv. 60.

2 It is to be noticed that Wolcott, although in the Treasury, writes to his father
November 3, 1789, " What arrangements are in contemplation with respect to the public
debt, I have not been able to learn ; " and as late as January 10, 1790, when Hamilton's
plan was waiting to be presented to the House, Wolcott seems not to have been well in-
formed as to the rate of interest to be proposed. Gibbs, "Administrations of Washing-
ton and Adams," i. 23, 35.



expedients, except when required to do so by the conditions of his
task. His fondness for disquisition, perhaps, in a measure justi-
fies Mr. Adams's reference to his published documents as " essays
which, under the name of reports, instilled much sound knowl-
edge, besides some that was not so sound, into the minds of
legislature and people."^ He had, moreover, great fertility in
ingenious intricacies and fondness for them, as was shown in
several of his later and subordinate financial propositionr But,
in laying down his general plan for a financial system, he appears
to have held his natural tendency in check for the most part, and
to have acted with a consciousness that the matter in hand was
too grave and its relations too comprehensive to allow him to
travel freely beyond the line of tried and known expedients.

And this explains his steady reliance upon the results of
English experience. At that day, the statesman who looked for
example to guide him in finance could hardly find it anywhere
except in English or Dutch methods. France, after a long course
of folly, had declared her bankruptcy in the year in which Hamil-
ton's administration began. Spain could give no lessons except
in the squandering of great opportunities and resources. Russia
and Austria were both struggling with inconvertible paper and
financial discredit and distress. The smaller states of Germany
and Italy neither had important results to show nor were much
known. And, of the two most familiar and most instructive cases,
there can be no doubt that the experience of Holland was in most
respects less likely to be applicable to the conditions of the
United States than that of England. Unless, then, the financial
organizer were resolved to disregard the lessons to be learned
from foreign finance, he must of necessity draw those lessons
chiefly from English practice. What Hamilton's favorite study
would have been if France had been financially as fortunate as
England, we need not inquire. France had not been thus fortu-
nate, and even an Anglophobist could have looked in but one
direction under the circumstances.

The features of Hamilton's scheme which we may advan-
tageously compare therefore with the EngHsh precedents are his
scheme for funding the debt in order to determine and moderate
its immediate burden, his plan for a sinking fund, and the charter

1 Henry Adams, "Life of Albert Gallatin," p. 268.


of the first Bank of the United States. These measures stand
together, as those by which the pubHc obhgations were to be
defined and met, and national and private interests were to be
united for mutual support. The assumption of the state debts
and the settlement of accounts with the several states also held
an important place in the system, but the considerations involved
were so special that these measures do not fall within the range
of our inquiry. The system of credit also rested upon the hope
of a sufficient provision of revenue; but this Hamilton sought
wherever he could find it, and under such limitations in the
choice of his measures as made their origin a matter of little

Taking up first in order the plan for funding the domestic debt,
proposed by Hamilton in the " Report on PubHc Credit " of Janu-
ary 9, 1790, we have the measure which was declared to be de-
vised for the purpose of mystifying the public and estabUshing a
perpetual debt in imitation of what was understood to be the
English policy. Premising that the Secretary assumed as probable
that the interest of money in the United States " will, in five years,
fall to five per cent, and in twenty to four," he proposed to fund
the heterogeneous mass of securities and claims, which made up
the domestic debt, as follows : —

First. — That for every hundred dollars subscribed, payable in the debt (as
well interest as principal), the subscriber be entitled, at his option, either

[i] To have two-thirds funded at an annuity or yearly interest of six per
cent, redeemable at the pleasure of the government by payment of the principal,
and to receive the other third in lands in the Western Territory, at the rate of
twenty cents per acre ; or,

[2] To have the whole sum funded at an annuity or yearly interest of four per
cent, irredeemable by any payment exceeding five dollars per annum, on account
both of principal and interest, and to receive, as a compensation for the reduction
of interest, fifteen dollars and eighty cents, payable in lands, as in the preceding
case ; or,

[3] To have sixty-six dollars and two-thirds of a dollar funded immediately
at an annuity or yearly interest of six per cent, irredeemable by any payment ex-
ceeding four dollars and two-thirds of a dollar per annum, on account both of
principal and interest, and to have, at the end of ten years, twenty-six dollars and
eighty-eight cents funded at the like interest and rate of redemption ; or,

[4] To have an annuity, for the remainder of life, upon the contingency of
living to a given age, not less distant than ten years, computing interest at four
per cent ; or.


[5] To have an annuity for the remainder of life, upon the contingency of
the survivorship of the younger of two persons, computing interest in this case
also at four per cent.

In addition to the foregoing loan, payable wholly in the debt, the Secretary
would propose that one should be opened for ten millions of dollars on the follow-
ing plan :

[6] That, for every hundred dollars subscribed, payable one-half in specie
and the other half in debt (as well principal as interest), the subscriber be en-
titled to an annuity or yearly interest of five per cent, irredeemable by any pay-
ment exceeding six dollars per annum, on account both of principal and interest.^

No doubt the appearance of great complication is given to this
scheme by the ingenious arrangement for leaving to the creditor
his choice between several methods of funding, equivalent in value,
but having different attractions for the investor. With a domestic
money market as yet untried and with public credit still to be
created, it may well have appeared dangerous to Hamilton at the
end of 1789 to stake his success upon the possible popularity of
any single form of investment. Still there can be no doubt that
Congress judged wisely in rejecting this part of his scheme and in
adopting a method of funding based on his third proposition.^ The
bolder course of proposing uniform terms of exchange to all the
creditors proved to be free from the risk which Hamilton sought
to avoid, the form of securities adopted proved to be satisfactory
to investors, and the number of classes of new securities to be
created was somewhat reduced. The proposition as given above
remains a striking instance of Hamilton's chief foible as a finan-
cier — his fondness for ingenious and nicely calculated expedients,
sometimes admirable as mathematical tours de force, but elaborated
beyond the real needs of the occasion.

Taking the first three of Hamilton's propositions, there is little
in them to remind us strongly of the English precedents, except
the use which is made of variety in the terms of redemption. The
English legislation had already made the three per cent consols
and the reduced three per cents redeemable at par upon a year's
notice. The four per cents had been irredeemable for ten years, and
the fives for thirty. As a refinement upon this variation in time,
Hamilton fixed a limit to the rate of redemption, guaranteeing
the creditor against payment except by small instalments, instead
of securing him against payment for a definite time. This limit

^ "American State Papers, Finance," i. 20, ^ Senate Journal, July 16, 1790.


upon redemption Hamilton used to increase the weight of his offers,
as English financiers had used the limit of years ; and Congress
adopted it for the first and last time in the Funding Act of 1790,^
when they gave the creditor (i) for his principal two-thirds in six
per cents bearing present interest, and one-third in sixes not bearing
interest until 1801, neither series being redeemable except by pay-
ments limited to eight per cent for principal and interest in any
one year, and (2) for his interest three per cents redeemable at

Whether Hamilton adopted from any quarter, or indeed main-
tained at all, a policy of permanent public debt, is a question which
it is convenient to postpone for the present. So far as the terms
of redemption proposed by him bear upon this point, however, it
may be said here that his first proposition was for a security per-
petual in the sense in which the larger part of the English funded
debt was perpetual, having no fixed time for maturity, but redeem-
able whenever the government might find redemption convenient,
— temporary or perpetual therefore according to the financial
strength of the debtor. Of the securities redeemable at a limited
rate, described in his second and third propositions, his four per
cents had the longest life secured to them ; and these, if redeemed
by a series of annual payments of five per cent for principal and
interest, would last for forty-one years from the beginning of the
series, calculating the interest at four per cent for the whole

When we come, however, to Hamilton's fourth and fifth propo-
sitions, we have plainly an expedient drawn from the Hfe annuity
system, which the English government had used as a method of
borrowing at intervals from the time of WiUiam HI., and which
the Dutch government had practised still earlier. Here, again,
Congress acted wisely in avoiding a plan better adapted to the
habits and wants of an old community than to those cf a country
just emerging from colonial and frontier life ; and the proposition
stands as an additional proof of the tentative character of Hamil-
ton's early propositions and the difficulty which he found in fixing
his judgment as to the nature and demands of the coming money
market, on which the fate of his effort to establish public credit
must depend.

1 Act of August 4, 1790, "Statutes at Large," i. 138.


The least creditable of Hamilton's propositions is that in which,
" as an auxiliary expedient," he proposed a loan on the plan of a
tontine, with the right of survivorship among those entitled to the
annual payments : —

To consist of six classes, composed respectively of persons of the following
ages : —

First class, of those of 20 years and under.

Second class, of those above 20, and not exceeding 30.

Third class, of those above 30, and not exceeding 40.

Fourth class, of those above 40, and not exceeding 50.

Fifth class, of those above 50, and not exceeding 60.

Sixth class, of those above 60.

Each share to be two hundred dollars ; the number of shares in each class to
be indefinite. Persons to be at liberty to subscribe on their own lives, or on
those of others nominated by them.

The annuity upon a share in the first class, to be $8.40

Online LibraryCharles Franklin DunbarEconomic essays → online text (page 9 of 40)