D:5 Yale University Library
<Pennsylvania Coffee House, London, December 12, 1777: I have recently seen a paper supposedly written to facilitate American borrowing.6 It would do credit to any author; its case for the inevitable growth of America will convince every intelligent reader. Great Britain has achieved pre-eminence during the past eighty years for two reasons, the growth of her colonies and the establishment of public credit. The first, by increasing her commerce, has given her wealth and a great navy; the second has made that wealth accessible to the state. British credit, however, is now stretched to the limit; revenue barely meets the interest on the debt, and cannot do so much longer. The colonies provide us revenue, and the debt is soaring.
The essence of credit is the prompt payment of interest. Foreigners and citizens will lend to the state only on two conditions: that the interest rate is as high as or higher than they can obtain elsewhere, and that the security is as good or better. If a government is to establish faith in its public debt, it must guarantee the punctual payment of interest. Philip II failed to do so during his war against the Netherlands, and Spain dwindled into insignificance. The duc d’Orléans failed to do so when regent for Louis XV, and the result was a disaster.7 The French seem to have concluded that paper money is unreliable because it lacks, not proper security, but public confidence. This conclusion proves that they do not understand credit. They think that paper currency is sound as long as it is secured by specie, whereas in fact the state must guarantee the interest on such currency before it is issued. Montesquieu implies that an absolute monarchy is incompatible with public credit. What matters, however, is not the form of government but whether the government fulfils its obligation to its creditors.
I had thought to enclose a plan for floating loans and for a national bank, but that must wait. The time will in all likelihood come when foreigners, even Englishmen, prefer lending to the United States rather than to any other power, just as foreigners in the past have preferred Britain.>
5. It is a fifteen-page letter, which lacks the usual opening and complimentary close; the handwriting we cannot identify. BF took the letter seriously enough to send it to La Rochefoucauld, who in turn seems to have consulted Turgot. See the Duke’s note and BF’s reply below, Feb. 12.
6. BF’s “Comparison of Great Britain and America as to Credit.” The writer had doubtless seen it, untitled, in The Remembrancer or as a pamphlet; both bore the attribution to BF. Above, XXIV, 508 n.
7. At this point the author gives a long and detailed account of John Law’s fiscal experiments during the regency.