Alexander Hamilton Papers

First Draft: First Report on the Further Provision Necessary for Establishing Public Credit, [13 December 1790]

First Draft

Respectfully reports

That the object which appears to be more most immediately essentialnecessary essential to the further support of public Credit, in pursuance of the principles of the plan adopted during the last session of Congress is the establishment of proper and sufficient funds for of such additional funds as shall be planned competent both to as well to the payment of paying the interest which will shortly begin to accrue, will become payable after the year 1791 on the assumed amount of the debts of the particular several1 states; having regard, at the same time, to any the probable or estimated computed deficiency in those heretofore already established; appropriated to as they respect, the primitive or original debt of the United States.

In order to this, it is necessary requisite in the first place to take a view of advert to the sums requisite for those purposes.

The amount, which has been assumed, of the State-Debts is Dolls. 21 500 000    
Upon the The annual sum of annual interest upon that for which amount, which according to the terms of the proposed loan which will begin to accrue after the year 1791,2 is Dolls 788.333 & 33
The estimated deficiency in the funds already established,
as they respect the original debt of the United States is
Making which make Making together Drs. 826 624.73  

For procuring which this sum, the most mature and reiterated reflections of the Secretary of the Treasury have suggested nothing so eligible and unexceptionable, in his judgment, as a further duty on foreign distilled spirits, and a duty on spirits distilled within the United States; to be collected in the mode delineated in the plan of a bill, which forms a part of his Report to the House of Representatives, of the 9th day of January last.3

And under this Under which this impression, he begs leave, with all deference, to propose to submit for consideration to the consid propose to the consideration of the House—

That the following additions be made to the duties, on distilled spirits imported from foreign Countries, abroad, which are specified in the Act making further provision for the payment of the debts of the United States, namely—

on those of the first class of proof therein mentioned … … … ⅌ Gallon 8 Cents
on those of the second class of proof … … … ditto GallonCents
on those of the third class … … … do Gallon 9 Cents
on those of the fourth class … … … ditto Gallon 10 Cents
on those of the 5th Class … … … do gallon 10 Cents
on those of the 6th Class … … … do gallon 15 Cents

And that the following duties be laid on spirits distilled within the United States per gallon namely—

If from molasses sugar or other foreign Materials; and

of the said first Class of proof ⅌ Gall ⅌ Gall 11 Cents

of the said second class of proof ⅌ Gall ⅌ Gall 12 Cents

of the said third class of proof ⅌ Gall 13 Cents

of the said 4th Class of proof ⅌ Gall 15 Cents

of the said 5 Class of proof ⅌ Gall 20 Cents

of the said 6 Class of proof ⅌ Gall 30 Cents

If from Materials of the growth or production of the U. States distilled within any City Town or Village; and

of the said first class of proof, ⅌ Gallon 9 Cents

of the said second Class of proof ⅌ Gall 10 Cents

of the said third Class of proof ⅌ Gall 11 Cents

of the said 4 Class of proof ⅌ Gall 13 Cents

of the said 5 Class of proof ⅌ Gall 16 Cents

of the said 6 Class of proof ⅌ Gall 25 Cents

And, if in lieu of those rates upon each still employed in distilling spirits from the like Materials distilled in any other place than a City, town or Village the that in lieu of the above rates per Gallon there be laid upon all stills each actually employed in distilling spirits in lieu of the rates abovementioned the yearly duty sum of sixty Cents, for every gallon English Wine measure of the capacity of such still including its head; exempting nevertheless all such stills, within a certain defined dimension, as are used essentially for domestic purposes of their respective proprietors.

Which several These rates correspond with these proposed in the Report above referred to of the 9th of January last.

The product of these several duties (which correspond in their rates with those proposed in the Report above referred to, of the 9th of January last) may, upon as good grounds as the nature of the case will permit, admit,can afford prior to an experiment, be computed at 975 000 Dollars the particulars of which computation estimate may are contained in the schedule hereunto annexed marked A. The diff ——— The different Their respective rates correspond with those proposed in the report above referred to of the 9th of January last4

This computed product exceeds the sum which has been stated as necessary to be provided, by 148.375.27— 5: an excess, which if it should be happily realized by the actual product, of the duties may be very beneficially applied towards encreasing constituting a the sinking fund6

The Secretary has been encouraged to renew the proposition of these duties, in the same form in which they were it was they were before submitted form a persuasion, from a belief founded in circumstances which appeared in the different discussions of the subject, which was produced by which has resulted from the circumstances of the transaction as they appeared to him at the time, that collateral considerations (which have been since were afterwards obviated) rather than objections to the measure itself prevented the its adoption of the plan during the last session; that from an the impracticability which he conceives to exist7 inability on his part to devise of devising8 any substitute equally conducive to the ease and interest of the community; and from an opinion that the extention of the plan of collection, which it contemplates, is, in reference to the duties already imposed on Wines and distilled spirits, is necessary to a well grounded reliance and on their efficacy and productiveness.

The expediency of improving the resource of distilled spirits, as an article object of revenue, to the greatest practicable extent, has been noticed upon another occasion. Many Various considerations might be added to those then adduced suggested to evince it. But they are too obvious to justify the detail. There is scarcely an attitude or light in which it which it the object can present itself, which does will not invite the legislative ure arm by all the inducements of sound policy and public good, effective effectual to take a strong and decisive hold of it.9

The manner of doing it, or in other words, the mode of collection, appears to be the only point, about which a difficulty or question can arise. If that suggested be liable to just objections, the united information & wisdom of the legislative body ensure the substitution of a more perfect plan.

The Secretary however begs leave to remark that there appear to him are two leading principles, one or the other of which must necessarily characterise whatever plan may be adopted devised. One of them makes the security of the revenue to depend chiefly on the vigilance of the public officers; the other rests it essentially on the integrity of the interested interested individuals, interested to avoid the payment of it.10

The former first is the basis of the plan submitted by the Secretary; the latter last has pervaded most, if not all the systems, which have been hitherto practiced upon, in different parts of the United States.

The oaths of the dealers have been almost the only security for criterion evidence of what they were bound by the laws to pay measures, of their compliance with the laws.11

It cannot be too much lamented, that these have been found an insufficient inadequate dependence security. But experience, has has too frequently on every trial, has manifested pronounced them to be such the case. Duties Taxes or duties relying in many instances resting for their collection on that security wholly or almost wholly merely depending on that test for the collection are uniformly unproductive: And they cannot fail to be unequal as long as men continue to be discriminated distinguished by unequal portions of rectitude, they must also of necessity prove unequal, therefore and consequently consequently of course oppressive: The most conscientious scrupulous will pay most; and the least conscientious scrupulous least.12

The impulse of interest, in too many minds, not a few is, under such circumstances in not a few minds, an overmatch for, the sense of obligation.duty13 And the evasions, which are perceived or suspected to be chargeable in practiced by some prompt others to imitation, by the powerful motive of self defence.14 They infer that they must follow the example, or be unable to maintain an advantageous competition in the business; an alternative with very perplexing trying to all but men nicest strict of exact probity;15 who are thereby thus rendered in a great measure the victims to a principle of legislation, which does not sufficiently accord with consult the interested byass of human nature.16 And thus the laws become instruments sources of discouragement and loss to virtuous honest instruments industry and sources of profit and advantage to perf perjury and fraud.

It can is a truth which that cannot be kept too often recollected constantly in view, that all Revenue laws which are so constructed as to involve produce a lax and defective execution are instruments sources of oppression to the most meritorious part of those, on whom they immediately operate, and of additional burthens on the community at large.17

The last effect is produced in two different ways. The deficiencies in the funds (which in the main only afford only partial exemptions) must be supplied from other taxes: And the charges of collection, which in most cases are nearly the same, whether any particular a tax or duty yield produce much or little, occasion an accumulation of the ultimate expence of furnishing a given sum to the Treasury.18

A farther Another and a very serious evil, chargeable on the system opposite system to that proposed, is that it leads to frequent and familiar violations of oaths; which by loosening one of the strongest bands of society, and weakening one of the principal securities to life and property, offends not less against the maxims, of good government, and sound policy than against those of religion and morality.19

It may not be improper further to remark, in addition, that the two great objections to the class of duties, denominated excises, are inapplicable to the plan suggested. These objections are— First The summary jurisdiction of confided to the Officers of Excise; in derogation from the course of the common law and the right of trial by jury. And secondly the general power vested in the same officers of visiting and searching indiscriminately the houses, stores and other buildings of the dealers in excised articles. But by that the plan proposed the officers to be employed are to be cloathed with no such summary jurisdiction, and their discretionary power of visiting and searching20 is to be restricted to those places, which the Dealers themselves shall designate by public insignia or marks as the depositories of the articles on which the duties are to be laid. Hence it is one of the recommendations of the plan that it steers clear of it is not liable to those objections.

Duties of the kind here proposed as has been before intimated are not novel in the United States; as has been intimated in another place. They have obtained under existed to a considerable extent, under several of the state governments, particularly in Massachusettes Connecticut and Pensylvania. In Connecticut, a state exemplary for its attachment to popular principles, not only all ardent spirits but foreign articles of consumption generally have been the subjects of an excise, or inland duty.

If the supposition that duties of this kind are attended are attended with greater expence in the collection, than taxes on land, should seem an argument for preferring the latter, it may be observed that the fact ought not too readily to be taken for granted. The state of things in England is sometimes referred to as an example on this point. But there the smallness of the expence in the collection of the land tax is to be ascribed to the peculiar modification of it; which proceeding without new assessments according to a fixed standard not long since adjusted, totally disregards the comparitive value of lands and the variations in their value.21 The consequence of this is an inequality, so palpable and extreme, as would be likely to be ill relished by the land holders of the United States. If in pursuit of greater equality, accurate22 periodical valuations and or assessments are to afford a rule, it may be well be doubted whether the expence of a land tax will not always exceed that of the kind of duties proposed.

The ingenious but fallacious hypothesis that all taxes on consumption fall finally with accumulated weight on land is now too generally and too satisfactorily exploded, & too solidly exploded, in theory, as well as in practice to require to be combatted here. It has become an agreed truth, that in the operation of those taxes every species of capital and industry contribute their proportion to the revenue; and consequently that as far as they can be made substitutes for taxes on lands they serve to exempt it them from an undue share of the public burthen.

Among other substantial reasons, which recommend, as a provision for the public debt, duties upon articles of consumption, in preference to taxes on houses and lands, is this—It is very desireable. if practicable, to reserve the latter fund for objects, and occasions, which which will more immediately interest the sensibility feelings of the whole community, and more directly affect the public safety. It will be a consolatory reflection, that so capital a resource remains untouched by that provision;23 which, while it will have a very sensible influence in favour of public Credit, will be materially conducive to the tranquillity of the Public mind, in respect to external danger, and will truly really operate as a powerful guarantee of peace. In proportion as the estimation of our resources is exalted in the eyes of foreign Nations, the respect for us must increase; which will and this must beget a proportionable caution neither to insult nor injure us with levity. The While on the contrary the appearance of exhausted resources, to satisfy obligations contracted for the past (which would be very apt likely to be produced by perhaps be a consequence of mortgaging the revenue of to be derived from land for the interest of the public debt) would might tend to invite both insult and injury, but by inspiring an opinion, that our efforts to resent or repel them were little to be dreaded.

It may not be unworthy of a reflection, that while the idea of residuary resources in so striking a particular & so certain in their nature24 cannot fail to have many importantly beneficial consequences; the suspension of taxes on real estate can as little fail to be pleasing to the mass of the community; and it may reasonably be presumed that so provident a forbearance on the part of the Government will ensure a more chearful acquiescence on that that of the class on the part of those more immediately concerned; whenever experience, and the evidence of facts and the exigency of conjunctures shall dictate a resort to impositions of that nature that species of revenue.25

But in order to be at liberty to pursue this salutary policy course, it is indispensable that an efficacious use should be made of those articles of consumption, which are the most proper and the most productive; of this to which class distilled spirits very most evidently are belong: And a prudent energy will be requisite as well in the mode of collection as in the quantum of the duty.

It need scarcely be observed that the duties on the great mass of imported articles have reached a point at which it would be in not be expedient to exceed. To attempt to extract wholly from that source the intire sum necessary to a complete provision for the public debt would probably be both deceptive and pernicious; incompatible with the interests not less of revenue than of Commerce.26 Inland duties of one Resources of a different kind must of necessity be explored; sought found and the selection of the most fit objects appears to be the only Inquiry thing which can occupy Inquiry.

Besides the establishment of supplementary funds, it is requisite to the support of the Public Credit that those already instituted established should stand upon a footing which will give all reasonable security to assurance of their effectual Collection.

Among the articles enumerated in the Act making further provision &c,27 there are two, wines and teas, in regard to which some further provision other regulations, than have been yet adopted, seem necessary for the security of the revenue and desireable for the accomodation for the Merchant.

With these views, it is submitted, that the term for the payment of the duties on wines be enlarged, as it respects Madeira Wines, to Eighteen Months, and as it respects other Wines, to nine Months; and that they be collected on a plan similar to that proposed in relation to imported distilled spirits.

And that a third option (they have (two being allowed them by the present law) be given to the importers of Teas; which shall be, to give bond without surety for the amount of the duty in each case, payable in two years, upon the following terms.

The teas to be deposited at the expence and risk of the Importers in the in ware Store28 houses or stores to be agreed upon between them him and the Inspector proper officer of the Revenue; each Ware house or storehouse having two locks the key of one of which to be in the keeping custody of th an Inspector officer, and the key of the other of which to be in the custody of the particular importer or his Agent, and the key of the other of which to be in the custody of an Officer, whose duty it shall be made to attend at all reasonable times for the purpose of deliveries.

That These deliveries whether for home sale or for exportation to a foreign Country to be warranted by permits from the Chief Officer of Inspection of the place.

If for home sale, the permits to be granted after the duties shall have been paid or secured to paid.

When the amount of the duties shall not exceed one hundred Dollars, four months to be allowed for payment. When it shall exceed one hundred and not exceed five hundred Dollars the term of payment to be Eight months and twelve months whenever the amount shall exceed five hundred dollars; provided that the Credit shall in no case extend beyond the period of four months over and above two years originally allowed for the intire sum. If all the teas shall not have been delivered the duties of on the whole quantity deposited shall not have been paid or secured to be paid before the expiration of that time,29 it shall be lawful for the proper officer to cause a sale to be made of so much as shall be sufficient to satisfy discharge what shall remain unsatisfafied. In every case, it shall be at the option of the party applying for the permit, either to pay the amount of the duties on the quantity to be delivered or to give bond for it, with one or more sureties to the satisfaction of the officer whose province it shall be to grant the permits.30

If the deliveries are to be made for exportation abroad, the permits to may be granted upon the proper usual bonds being entered into to secure and ascertain the exportation. for the due exportation teas being duly exported. There will This consequently be This may require some formal alterations of form, in the manner of proceeding, relatively to the exportation of this article.

All teas to be landed under the care of the Inspectors of the Revenue; the chests and other packages containing them to be marked and certificates which shall accompany them, to be granted, as in the case of distilled Spirits. There is at least satisfactory evidence, that they cannot be extended further without contravening the sense of the body of the Merchants; and though it is not to cannot be admitted as a general rule that this circumstance ought to conclude against the expediency of a public measure; yet when a due regard to is had to when the disposition which that enlightened class of citizens has manifested towards the National government, to the alacrity chearfulness with which they have hitherto seconded its operations, and it to the accommodating temper spirt of acquiescence with which they look forward to those additional impositions on the objects of Trade which are to commence with the ensuing year, & to the greatness of the innovation which in this particular has already taken place in the former state of things, there will be perceived to exist the most solid reasons against lightly passing the bounds, which coincide with their impressions of reasonableness what is reasonable and eligible. proper It would be in every view inauspicious to give occasion for a supposition that Trade alone is destined to feel the immediate weight of the immediate hand of government in every new emergency exigency of the Treasury.

However true as a general position that the Consumer pays the duty; yet to make the advances it will not follow that Trade may not be essentially distressed and injured by carrying duties on importation to a height which is disproportioned to the Mercantile Capital of the a Country. It may not only be the cause of diverting too large a large share of it from the exigencies of business; but the requisite advances which they require will be requisite to satisfy the duties will in many if not in most cases precede the receipts from the product sale of the articles subject to duty on which they are laid imposed and the consequence will often either be a pos often be sacrifices which cannot be afforded the Merchant cannot afford to make.. The inconveniences of them exceeding the salutary proper limit in this respect, & which will be felt every where will be peculiarly grievous in particularly will fall with particular severity on those places which have not the advantage of public banks & which abound least less in pecuniary resources. Appearances do not justify such an estimate of the extent of the Mercantile capital of the United States as to encourage to material accumulations on the already considerable rates of the duties, on the mass of foreign importations.

Another motive for caution, on this point arises results, from the reflection, that that the effect of an important augmentation, made by a law of the last session, is hitherto a mere matter of speculative calculation, and has not yet even begun to be tried.

It is presumeable too that a still further augmentation would have an influence the reverse of favourable to the public Credit. The operation would be apt to be regarded as artificial, as destitute of solidity as presenting a numerical increase, but involving an actual diminution of Revenue. The distrust of the efficacy of the present provision might also be accompanied with a doubt of a better substitute being founded hereafter. The inference would not be unnatural that a defect of other means resources or an inability to command them could alone have given birth to so unpromising an effort to draw all from one source.

A diversification of the nature of the funds is desireable on other accounts. It is clear, certain that less dependence can be placed on one species of funds and that too liable to the vicissitudes of the continuance and or interruptions of foreign intercourse Communication than upon a variety of different funds formed by a combination the union of internal with external resources objects.

The inference from these important and various and important considerations is that31  

To these more direct expedients for the support of public Credit, the institution of a National Bank presents itself as an indispensable a necessary auxiliary. This the Secretary regards an an essential indispensable engine in the Administration of the finances. To present this important object in a more distinct and comprehensive light, he has concluded to make it the subject of a separate Report, which he begs leave herewith to submit No. II.

All which &c

ADf, Hamilton Papers, Library of Congress.

1This word is not in H’s handwriting.

2In the margin opposite this date, written in an unidentified handwriting and then crossed out, are the words “Qu: untill the year 1802.”

3In the margin opposite this paragraph, written in an unidentified handwriting and then crossed out, are the words “qu: nearly” and “(1790).”

4Written in the margin opposite this paragraph in an unidentified handwriting and then crossed out are the words “qu: afford pro admit.”

5Space left blank in MS.

6In the margin opposite this paragraph, written in an unidentified handwriting, are the words “qu: encreasing the.”

7This insertion is not in H’s handwriting.

8In the margin opposite this word, written in an unidentified handwriting and then crossed out, are the words “of devising.”

9In the margin opposite this paragraph, written in an unidentified handwriting and then crossed out, are the words “Qu: require.”

10At this point the words “interested to avoid the payment of it” are also written in the margin in an unidentified handwriting and then crossed out.

11In the margin opposite this paragraph, written in an unidentified handwriting and then crossed out, are the words “Qu: security for.” Beside these words, in H’s handwriting, is the abbreviation “Qr.”

12In the margin opposite the last two lines of this paragraph, written in an unidentified handwriting, are the words, “qu: conscienscious” and “qu: & those of an opposite character.” The second query is crossed out.

13In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “bears down.”

14In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “Qu: similar conduct.”

15Written in an unidentified handwriting and then crossed out in the margin opposite this sentence are the words “qu: strict.”

16In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “qu contemplate & govern the great ⟨– –⟩.”

17In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “Q. source.”

18This paragraph was bracketed. Opposite it in the margin, written in an unidentified handwriting and then crossed out, is the abbreviation “qu.”

19Opposite this paragraph in the margin, written in unidentified handwriting and then crossed out, are the words “qu: is not less destructive of &ca transpor~.”

20H inserted an asterisk after “searching” and wrote in the margin “unless by warrants from Magistrates founded upon information or oath” which he crossed out.

21In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “without frequent expense & new assessments.”

22In the margin opposite this word, written in an unidentified handwriting and then crossed out, are the words “accurate just correct.” Below these words the abbreviation “Q.” is written in an unidentified handwriting.

23In the margin opposite this paragraph, written in an unidentified handwriting and then crossed out, is the sentence “The reflexion will inspire both consolation and confidence.”

24This insertion is written in an unidentified handwriting.

25In the margin opposite the end of this sentence, written in an unidentified handwriting and then crossed out, are the words “qu: revenues.”

26In the margin opposite this sentence, written in an unidentified handwriting and then crossed out, are the words “wholly & entire.”

27In a marginal notation H wrote “The whole title to be taken in.” For the act see “An Act making further provision for the payment of the debt of the United States” (1 Stat. description begins The Public Statutes at Large of the United States of America (Boston, 1845). description ends 180–82 [August 10, 1790]).

28This word is in an unidentified handwriting.

29In the margin opposite this clause H wrote and then crossed out the word “off.”

30In the margin opposite the last two lines of this sentence, written in an unidentified handwriting and then crossed out, are the words “collector of the district.”

31The following space was left blank by H. In the final version he added several pages of detail for which no draft has been found.

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