THE ALTERNATIVE OF DEBT OR TAXATION.

BEFORE We can decide on the merits of a doctor's prescription, we must ascertain the malady for which he prescribes. This rule is applicable to the recent letter of Albert Gallatin and others, which has just been presented to our State Legislature in reference to our State debts. The signers are gentlemen of high character and great experi ence as bankers, and the writer of the present article finds. in their communication but little to gainsay. Their communication relates substantially to their inability to grant the State further loans, and their anxiety to be relieved from those already granted, and which amounted on the 1st of January last, to $742,840 66.

Such being the disease, the remedy which the gentlemen propose sufficiently comports with their financial celebrity. No doubt a cessation of all further issues of State stock, combined with a State tax to precipitate the payment of existing stock, will cause State stock to advance in price, and benefit holders who have purchased the stock at a low price, or injudiciously procured it while it was high.

But the question which the Legislature must decide is broader than the above. So long as the State duly pays the interest on its stock, the State performs all that it is bound to perform, both legally and morally, till the principal of the stock is payable; and stock whose payment is dependent on the discretion of the Commissioners of the Canal Fund, after any given date, (as say the year 1845,) is not payable till such discretion shall direct its payment. The fall in price which makes the holders of stock anxious that the State should waive its said discretion, is no good

Published in 1842.

reason for the waiver. With the floating market price of stock, the State has properly no connection. It is an incident which those assume who purchase stock.

The true question, therefore, for the State to decide, in the levying of a tax and the suspension of public works, is not whether those measures will enhance the price of stocks, and thus benefit stockholders; but, whether the tax and suspension of works will promote the interests of the whole people?

The four New-York financiers admit that the present price (February 28, 1842,) of 5 per cent. stock is 77 per cent. To thus obtain loans is to pay about six and a half per cent. interest on the money borrowed. Any private borrower would deem such a rate moderate, and it seems to present no unreasonable obstacle to the further prosecution of our public works; much less to the creation of new stock for the discharge of existing pecuniary engagements, in preference to their discharge by a State tax-to pay which, the people will have to borrow money at seven per cent. interest. Shall the State compel the citizens to borrow at seven per cent., to shield itself against borrowing at six and a half?

The only justifiable occasion for a State tax in the pros. ecution of public works is, when the State cannot borrow on as good terms as the people, or when the income of the State shall be insufficient to pay the interest on its debts. Such a contingency exists not at present, though it may occur if the State shall proceed manfully in the prosecution of its great works; and when the contingency shall occur, the people possess patriotism enough, and sense enough, to bear the burden. The constituency of our country have ever been wiser than their legislature imagines. They are now, and for a long course of time have been, far in ad

vance of their representatives, both in patriotism and spirit. They are now, and for a long time have been, unable to obtain representatives who will carry forward their wishes, or second their love of enterprise. How long this is to continue seems beyond the reach of conjecture, for our elections, State and National, afford us no alternative but to select representatives from conflicting partisans; who, when elected, and of whatever creed, are still the representatives of a party, with all its petty interests, rather than the representatives of a great people, whose public interests are one and indivisible.

THE ALTERNATIVE OF A SUSPENSION OF IMPROVEMENTS OR AN INCREASE OF DEBT.*

At present, when no alternative is presented to the people but an increase of our State debt or a cessation of our internal improvements, ought we not to inquire soberly into the nature of the alternative?

Five per cent. stock will now sell at about eighty dollars for a hundred dollars of stock, and till the price shall fall below seventy-one dollars, forty-three cents, the State will not be paying more than seven per cent. the year interest for the money it borrows;-because, though the State calls the stock a hundred dollars which it sells for eighty, yet the twenty dollars apparent loss the State need never pay un. less it please. Such are the terms on which the stock is purchased. The State agrees that it will not pay before twenty years, and that it will not pay till such time after twenty years as it shall please. The bond of John Jacob

* Published in 1842.

Astor for a thousand dollars, payable a hundred years hence, secured by a mortgage on the Astor House, would be worth now only one dollar, fifteen cents, because a dollar, fifteen cents, placed at compound seven per cent. interest for a hundred years, will amount to a thousand dollars. We may judge, therefore, how small the true value is of the twenty dollars which the State need not pay till it shall please. But even this view of the case is less beneficial to the State than the facts that exist; for when the State shall wish to diminish its debt, the State need not pay the hundred dollars for the stock, but purchase it in market for what the price may happen to be. If the price shall fall, as some persons apprehend, the easier will be the terms on which the State debt can be paid.

While the State can sell, as at present, a hundred dollars of five per cent. stock for eighty, the operation is, therefore, far from being so ruinous as some persons apprehend. Should the State take the eighty dollars thus obtained, and loan it to a farmer on mortgage at seven per cent. interest, as it loaned the United States deposit money, the farmer would pay therefor five dollars and sixty cents the year, interest. This would yield the State sixty cents the year, interest, more than the State will pay the holder of the hundred dollar five per cent. stock. Now sixty cents the year, thus received, for twenty years, together with seven per cent. interest thereon, duly compounded, will, at the end of twenty years, amount to twenty-six dollars, eighty-seven cents, four mills; being six dollars, eightyseven cents, four mills, more than the apparent twenty dollars loss to the State, should the State choose to redeem its stock at par at the end of twenty years. And should the State prefer to let the stock remain unpaid for thirty-seven years, the accumulation of the sixty cents gain of each year

ALTERNATIVE OF CONTINUING OUR STATE DEBT, ETC. 253

and the annual interest thereon duly compounded, will then amount to a hundred and three dollars, thirty-four cents, four mills, with which the State can pay its stock, and thus gain by the process the whole of the eighty dollars that was originally received for the stock, and in addition, three dollars, thirty-four cents, four mills.

And

Instead of wondering, therefore, with some persons, at the high price which our State pays for the money that it borrows, we may rather be glad of the opportunity to obtain it on terms so favorable as the present rates. though accidental circumstances caused our stocks, some years back, to sell at high prices, the same circumstances enhanced the price of labor and provisions; so that we may well doubt whether the eighty dollars which the State now obtains for a hundred dollars of stock, will not make as much canal and railroad as the larger sum made some years back.

THE ALTERNATIVE OF CONTINUING OUR STATE DEBT OR LIQUIDATING IT BY TAXATION.*

So far as income is a test of the amount of business which a canal facilitates, it is important; but whether any such income shall be collected or not, is a question of national policy, the benefits of abandoning an income being, in some cases, greater than the income. The debt, also, which our State has contracted in the construction of its canals will not injure posterity, should we not pay it, provided we transmit the canals with the debt; just as a parent will not injure his heir by entailing on him the purchasemoney of a lucrative landed estate, which he transmits to the heir with the debt. Should we create a canal and

* Consolidated from two articles published in 1834 and 1842.