Alexander Hamilton Issues Orders to Implement the First Public Loan Taken By the Treasury of the United States, Part of his Efforts Toward a National Banking System

This document was for generations with the heirs of the recipient

 

An important document in American political and financial history; Hamilton had been Treasury Secretary just 3 weeks

During the Revolutionary War, it was a widely understood defect in the Articles of Confederation that the Federal government was virtually powerless to raise money. A main goal of the new U.S. Constitution was the correction of that defect, and with the support of advocates like Alexander Hamilton and James Madison, it established a means to fund the country by authorizing Congress to collect taxes to raise revenue.  This revenue would come principally from tariffs and tonnage duties on goods coming into the U.S., which would be collected at customs houses at the ports of entry. On July 4, 1789, an act was passed formalizing this procedure by allowing for the collection of import duties. The Collectors of these customs houses were appointed by President Washington, and were men of substance who could be relied on (for example, Signer of the Declaration of Independence William Ellery was the first Collector in Newport, R.I.). In September of 1789, in one of the first substantial Acts of Congress passed and signed by President Washington, the U.S. Treasury was formed. That same month, Alexander Hamilton became the first U.S. Treasury Secretary. This put in place an agency to handle the nation’s finances.

On assuming the position of Secretary of the Treasury, Hamilton found himself entirely without funds to meet the expenses of the government except by borrowing until such time as the revenues from duties on imports and tonnage began to come into the Treasury. Under these circumstances he made arrangements with the Bank of New York and the Bank of North America for temporary loans, and it was the money received from these banks that paid the first installment of salary due President Washington, senators, representatives, and officers of Congress during the first session under the Constitution.

The United States Department of Treasury lists this loan in its publication, “The National Loans of the United States,” as the first ever taken by the government under the Constitution.  It goes on to describe the negotiations undertaken in September and October 1789 for these loans.  On September 13, Hamilton wrote to the head of the Bank of North America, referencing his appointment as Secretary of the Treasury, and adding, “A sum of Eighty thousand Dollars is immediately wanted. The Bank of New York have lately advanced Twenty thousand for another purpose; and have agreed to advance a further sum of Thirty thousand. There remains Fifty to be provided…”  This loan was granted.

This was also his attempt to create a system whereby the notes of an acknowledged bank were accepted, as the local state banks were not sufficiently regulated that their discounts were known and value of notes worthy. By instructing his collectors, as he would here, to accept these notes, he was giving the weight and trust of the federal government to particular notes, akin to a national banking system.

The Collectors, his men on the ground who collected the revenue for the new nation, had an important part to play in implementing these loans. Writing to them on September 22, Hamilton stated: “In consequence of arrangements lately taken with the Bank of North America, and the Bank of New York, for the accommodation of the Government, I am to inform you that it is my desire, that the Notes of those Banks, payable either on demand, or at no longer period than thirty days after their respective dates; should be received in payment …as equivalent to Gold and Silver, and they will be received from you as such, by the Treasurer of the United States.”  This culminated on October 14, 1789, with a letter from Hamilton conveying to the Collectors the means to accept these notes from the Banks, and issuing detailed instructions on how to treat them and for sending them to the Treasury Department.  This is that letter.

Letter signed as Treasury Secretary, 3 pages, Treasury Department letterhead, October 14th. 1789, to Stephen Smith, Collector of the great Port of Machias, the 2nd northern-most in the United States. “Sir, Enclosed I send you agreeable to an Intimation in a former letter [September 22 above] the signatures of the President and Cashier of the Banks of North-America and New York; together with a general description of those notes, which will enable you to guard against Impositions and Counterfeits. Where the notes are payable to any particular person and not to bearer, you will take care that there is an indorsement of that person; and if you should not know his hand-writing, you will require an indorsement by the person, who presents the note in payment.

“The mode in which the Bank-notes are to be transmitted is this: each note is to be divided into two equal parts, from top to bottom, one part containing the name of the President and Sum, the other the name of the Cashier and Sum. Your own name in your own hand-writing is to be written on the back of each half, together with the number and sum of the note. In the case of the notes payable to particular persons, and not to bearer, you will previously fill up the Indorsement to Samuel Meredith Treasurer.

“Having used these precautions, you will remit all the notes in hand weekly by the post to Samuel Meredith that is to say, one half of each note by one post, and the other half by the next, accompanied in both cases with a list of the notes, which list shall specify, of what Bank they are, the numbers, the dates, the sums, and periods of payment, that is, whether on demand, or so much after date.

“For your own Security, in case of accident, you will take a receipt from the Post-Master, on a copy of the list, which you retain; and which will be your Voucher, purporting the delivery of a letter addressed to Samuel Meredith, containing the moieties of the notes specified in the list, amounting to such a sum, which sum must be written at large. Should any Post-master refuse such a receipt, (which however I do not expect will happen) till the matter can be otherwise regulated; you will get one of your clerks or some other indifferent Person of fair reputation to witness the delivery of your letter and the notes to the Post-office, which person must be acquainted with the Contents, and particulars, so as to be able afterwards to verify on oath, that such specific notes were sent; and instead of the receipt of the Post-master must give a Certificate on the copy of the list you retain, of like import with the receipt proposed to be given by the post-master.

“In mine of the 22nd. Septr last, I directed you to receive in payment of the duties, the notes of the Banks of North-america and New York. I now add that you are to exchange any Specie which may at any time be in your hands for them, with this restriction, that you shall not exchange any of the specie which in your weekly return of receipts and payments you state to be in hand; but only the Specie you may receive between one return and another. The reason for this restriction will better explain to you my meaning. I propose that the Treasurer shall draw orders on you from time to time, for the specie which you shall return as remaining in your hands, of course it is necessary, to prevent disappointment to the holders of the orders, that you should retain that sum in Specie to answer them, as bank-notes might not in every case be equally suitable. But the sums you receive in Specie between one return and another may be safely exchanged for Bank-notes, as the balance only will appear in your returns, and will be drawn for.

“The Bank-notes specified in your weekly returns must be forwarded weekly by the same post which brings the return, without waiting any special order, directed to the Treasurer of the United States, and this package so directed must be enclosed in another addressed to me as Secretary of the Treasury. Besides the descriptive return, which you are to transmit to the Treasury, you will at the same time enclose a copy of it directed to myself.”