At the commencement of the war, it was obvious that the permanent revenues and resources of Great Britain must eventually overballance the sudden and impetuous sallies of men contending for freedom on the spur of the occasion without regular discipline, determinate plan or permanent means of subsistence.
America having never been much taxed nor for a continued length of time, being without fixed government and contending against what once was the lawful authority, had no funds to support the war notwithstanding her riches and fertility. And the contest being upon the very question of taxation the laying of imposts unless from the last necessity would have been madness.
To borrow from individuals without any visible means of repaying them and while the loss was certain from any ill success was visionary.
A measure therefore which had been early adopted and thence become familiar to the people was pursued. This was the issuing of paper notes representing specie for the redemption of which the public faith was pledged.
As these were to circulate from hand to hand there was no great individual risque unless from holding them too long, and no man refused to receive them for one commodity while they would purchase every other.
This general credit however did not last long. It menaced so deeply the views of our enemies who had built their hopes upon the defect of our resources that they and their partizans used every effort to impeach its value. Their success in one instance of this kind always made room for another, because he who could not relieve his wants with our paper, would not part with his property to procure it.
To remedy this evil the States as soon as formed into any shape of legislation enacted laws to make the continental paper a lawful tender and indeed to determine its value fixing it by penalties at the sum of specie expressed on the face of it. These laws produced monopoly throughout.
The monopoly of commodities, the interruption of commerce rendering them more scarce, and the successes of the enemy produced a depreciation of the paper. And that once begun, became in itself a source of further depreciation. The laws devised to remedy this evil either increased, or were followed by an increase of it.
This demanded more plentiful emissions, thereby increasing the circulating medium to such a degree as not only to exclude all other, but from its superabundant quantity again to increase the depreciation.
The several States instead of laying taxes to defray their own private expences followed the example of Congress, and also issued notes of different denominations and forms. Hence to counterfeit became much easier, and the enemy did not neglect to avail themselves of this great tho base advantage. And hence arose a farther depreciation.
Calling the husbandman frequently to arms who had indeed lost the incitements to industry from the cheapness of the necessaries of life in the begining compared with other articles which took a more rapid rise soon reduced that abundance which preceeded the war. This added to the greater consumption together with the ravages and subsistance of the enemy at length pointed the depreciation to the means of subsistence.
The issues from this moment became enormous and consequently increased the disease from which they arose, and which must soon have become fatal, had not the successes of America and the alliance with France kept it from sinking entirely. The certainty of its redemption being now evident, we only suffer from the quantity.
This however not only impairs the value simply in itself, but as it calls for continued large emissions, so the certainty that every thing will be dearer than it is, renders every thing dearer than it otherwise would be. And vice versa could we possibly absorp a part of the inundation which overwhelms Us, every thing would be cheaper from the certainty that it would become cheaper.
The money can be absorbed but three ways.
The first is by taxation, which cannot reach the evil while the war continues. Because the emissions must continue to supply what is necessary over and above even the nominal produce of taxes. And the taxes cannot be very productive by reason of the possession of part and the ravagement of other parts of the country by the enemy and also from the weakness of governments yet in their infancy, and not arrived to that power, method and firmness which are the portion of elder States.
The second method is by borrowing, and is not efficient, because no interest can tempt men to lend paper now which paid together with that interest in paper a year hence will not probably be worth half as much as the principal sum is at present. And whenever the case shall alter, then in proportion to the appreciation will be the loss of the public on what they borrow, to say nothing of the enormous burthens for which they must pay interest in specie or what is equal to it if so much of what hath been emitted could be borrowed as to render the remainder equally valuable with silver.
The last method is, by very considerable loans or subsidies in Europe, and is the only mode at once equal to the effect desired and freed from the foregoing exceptions. For if such a sum is drawn for at the advanced exchange as by taking up the greater part of our paper to reduce the exchange to par, The paper then remaining will be fully appreciated, and the sum due will not nominally (and therefore in the event really) exceed its real value.
But to this mode there are objections.
1st. Subsidies by any means equal to our necessities can hardly be expected while our allies being engaged in war, will want all the money they can procure. And
2dly. Loans cannot probably be obtained without good guarantee, or other security which America may not perhaps be able to procure or give.
But until our finances can be placed in a better situation, the war cannot possibly be prosecuted with vigor and the efforts made feeble as they must be, will be attended with an oppressive weight of expence rendering still more weak the confederated States.
This will appear from the foregoing observations and also from this that the present and in all probability the future seat of the war also, that is the middle States are so exhausted that unless by the most strenuous voluntary exertions of all the inhabitants no great number of men can possibly be subsisted. And such exertions cannot be expected without the temptation of money more valued than ours is at present.