From “Amicus”
D: Yale University Library
<Pennsylvania Coffee House, London, December 12, 1777: I
have recently seen a paper supposedly written to facilitate
American borrowing. 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.
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.>
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