Philadelphia, December 5, 1791
To the Speaker of the House of Representatives:
The Secretary of the Treasury in obedience to the order of þe House of Representatives, of the 15th day of January 1790,125 has applied his attention, at as early a period as his other duties would permit, to the subject of Manufactures; and particularly to the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies. And he thereupon respectfully submits the following Report.
The expediency of encouraging manufactures in the United States, which was not long since deemed very questionable, appears at this time to be pretty generally admitted…. [R]estrictive regulations, which in foreign markets abrige the vent of the increasing surplus of our Agricultural produce, serve to beget an earnest desire, that a more extensive demand for that surplus may be created at home: And the complete success… in some valuable branches… justify a hope, that the obstacles to the growth of this species of industry are less formidable than they were apprehended to be.…
The remaining objections to a particular encouragement of manufactures in the United States now require to be examined. One of these turns on the proposition, that Industry, if left to itself, will naturally find its way to the most useful and profitable employment: whence it is inferred, that manufactures without the aid of government will grow up as soon and as fast, as the natural state of things and the interest of the community may require. Against the solidity of this hypothesis… very cogent reasons may be offered… strong influence of habit… fear of want of success in untried enterprises… intrinsic difficulties incident to first essays… bounties, premiums, and other artificial encouragements with which foreign nations second the exertions of their own Citizens….
But the greatest obstacle of all to the successful prosecution of a new branch of industry in a country, in which it was before unknown, consists, as far as the instances apply, in the bounties premiums and other aids which are granted, in a variety of cases, by the nations, in which the establishments to be imitated are previously introduced…. Whatever room there may be for an expectation that the industry of a people, under the direction of private interest, will upon equal terms find out the most beneficial employment for itself, there is none for a reliance, that it will struggle against the force of unequal terms, or will of itself surmount all the adventitious barriers to a successful competition, which may have been erected either by the advantages naturally acquired from practice and previous possession of the ground, or by those which may have sprung from positive regulations and an artificial policy….
The objections to the pursuit of manufactures in the United States, which next present themselves to discussion, represent an impracticability of success, arising from three causes--scarcity of hands—dearness of labour—want of capital. The two first circumstances are to a certain extent real, and, within due limits, ought to be admitted as obstacles….
The supposed want of Capital for the prosecution of manufactures in the United States is the most indefinite of the objections which are usually opposed to it…. The following considerations are of a nature to remove all inquietude on the score of want of Capital.
The introduction of Banks, as has been shewn on another occasion has a powerful tendency to extend the active Capital of a Country. Experience of the Utility of these Institutions is multiplying them in the United States…. The aid of foreign Capital may safely, and, with considerable latitude be taken into calculation…. But while there are Circumstances sufficiently strong to authorise a considerable degree of reliance on the aid of foreign Capital towards the attainment of the object in view, it is satisfactory to have good grounds of assurance, that there are domestic resources of themselves adequate to it. It happens, that there is a species of Capital actually existing within the United States, which relieves from all inquietude on the score of want of Capital--This is the funded Debt.
The effect of a funded debt, as a species of Capital, has been Noticed upon a former Occasion; but a more particular elucidation of the point seems to be required by the stress which is here laid upon it. This shall accordingly be attempted. Public Funds answer the purpose of Capital, from the estimation in which they are usually held by Monied men; and consequently from the Ease and dispatch with which they can be turned into money… in a sound and settled state of the public funds, a man possessed of a sum in them can embrace any scheme of business, which offers, with as much confidence as if he were possessed of an equal sum in Coin….
There are strong circumstances in confirmation of this Theory. The force of Monied Capital which has been displayed in Great Britain, and the height to which every species of industry has grown up under it, defy a solution from the quantity of coin which that kingdom has ever possessed. Accordingly it has been Coeval with its funding system, the prevailing opinion of the men of business, and of the generality of the most sagacious theorists of that country, that the operation of the public funds as capital has contributed to the effect in question. Among ourselves appearances thus far favour the same Conclusion….
There are respectable individuals, who from a just aversion to an accumulation of Public debt, are unwilling to concede to it any kind of utility…. But it interests the public Councils to estimate every object as it truly is…. The debt… may be swelled to such a size, as that the greatest part of it may cease to be useful as a Capital, serving only to pamper the dissipation of idle and dissolute individuals: as that the sums required to pay the Interest upon it may become oppressive, and beyond the means, which a government can employ, consistently with its tranquility, to raise them; as that the resources of taxation, to face the debt, may have been strained too far to admit of extensions adequate to exigencies, which regard the public safety.
Where this critical point is, cannot be pronounced, but it is impossible to believe, that there is not such a point.
And as the vicissitudes of Nations beget a perpetual tendency to the accumulation of debt, there ought to be in every government a perpetual, anxious and unceasing effort to reduce that, which at any time exists, as fast as shall be practicable consistently with integrity and good faith.
Reasonings on a subject comprehending ideas so abstract and complex, so little reducible to precise calculation as those which enter into the question just discussed, are always attended with a danger of runing into fallacies. Due allowance ought therefore to be made for this possibility. But as far as the Nature of the subject admits of it, there appears to be satisfactory ground for a belief, that the public funds operate as a resource of capital to the Citizens of the United States, and, if they are a resource at all, it is an extensive one.