Secretary of the Treasury Alexander Hamilton States That Federal Law Should Take Precedence Over Those of the States in Collecting Revenue

"I regard this Strictness, as eventually most convenient to Individuals, as well as necessary to the Public."

During the Revolutionary War, it was a widely understood defect in the Articles of Confederation that the Federal government was virtually powerless to raise monies. 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 mainly 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, allowing for the collection of import duties. The Collectors of these customs houses were appointed by President George 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.

Hamilton felt that the chief problem facing the nation in 1789 was its war debt. He believed that to create confidence in the new government, and establish its credit, it would have to assume responsibility for all of the debt contracted by both the Continental Congress and state governments during the Revolution, and pay it at full face value.  It also became imperative to put into place a specific, uniform system nationwide to both collect the revenues and to assure their delivery to the U.S. Government.

Hamilton turned to creating just such a system, one that would stand the test of time.  The customs houses scattered in the many port towns throughout the states were the front lines, assessing and measuring cargo, determining value, and collecting the taxes.  Hamilton wanted to bring those scattered establishments under the full control of the U.S. Treasury, and create one system that would emanate out from the Treasury, and not have the local tails wagging the national dog.

In his biography of his father, John Church Hamilton describes the genesis of this letter, quoting it.  "It was necessary," Church Hamilton writes, "to establish a uniform system."  Payment from the Collectors of Customs was to be made in gold and silver to exclude the use of state currencies. That was relaxed to allow the use of bank notes of the Banks of North America and New York as equivalent to these metals, which "would facilitate remittances from the Several States, without drawing away their specie."  Hamilton wanted the funding of the federal government but did not want to impoverish the states in the process.

Another relaxation was the acceptance of bonds, or, as Church Hamilton put it, "A credit of various periods was given for the Duties – a necessary and an important facility to an impoverished people – for which endorsed Bonds were taken." However, a system of regulation and enforcement had to be created.  While the impoverishment of the states was not a desired outcome, the strength and authority of the federal government's finances was paramount.  When states failed to pay their Bonds in a timely fashion, what would the government do?  In the past, States had allowed such lateness to come and go and extensions were granted.   Here, in this letter quoted by his son, Alexander Hamilton, puts the federal interests above the laws and practices of the states.

Letter Signed, as Secretary of the Treasury, a circular to the Collectors of Customs, Treasury Department, December 18, 1789.  "As one of the periods for the payment of Bonds taken for Duties is arrived, it is proper that the respective Collectors should be apprised of my expectation with regard to the conduct to be observed by them. It is, that if the Bonds are not paid, as they fall due they be immediately put in Suit. On this point, the most exact punctuality will be considered as indispensable. And accordingly it will be expected that every bond, which shall appear in a Monthly return, after the period at which it was payable, be accompanied with a note at foot of the Return, signifying that it is in suit & expressing time of the commencement of the Suit. I am not unaware that the relaxations in this respect, which obtained in many instances under the State Laws, may give an Air of rigor to this Instruction; but I consider its strict observance as essential, not only to the order of the finances, but even to the propriety of the indulgence, which the Law allows of procrastinated terms of payment of the Duties, and hence I regard this Strictness, as eventually most convenient to Individuals, as well as necessary to the Public."