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 Solutions

CHAPTER 9

 1 
 1− 
(1.10)6
9-1 NPV =−90,000 + 20,000   =−90,000 + 20,000(4.35526) =−2,894.79
 0.10 
 
 

Calculator solution: CF0 = -90,000, CF1 – CF6 = 20,000, I = 10; compute NPV = -2,894.79

IRR =

Calculator solution: CF0 = -90,000, CF1 – CF6 = 20,000; compute IRR = 8.89%

Alternative calculator solution using TVM keys: N = 6, PV = -90,000, PMT = 20,000, FV = 0;

compute I/Y = 8.89% = IRR

The investment is not acceptable.

 1 
 1− 
(1 + IRR)5
9-2 45,000 =15,047  
 IRR 
 
 

Calculator solution: CF0 = -45,000, CF1 – CF5 = 15,047; compute IRR = 20.0%

9-3 IRR solution:

 1 
 1− 
(1 + IRR)7
320,000 = 67,910  
 IRR 
 
 

Calculator solution: CF0 = -320,000, CF1 – CF7 = 67,910; compute IRR = 11.0%

Alternative calculator solution: N = 7, PV = -320,000, PMT = 67,910, FV = 0; compute I = 11.0%

Because IRR = 11% < r = 12%, the project is not acceptable.

NPV solution:

 1 
 1− 
(1.12)7 
NPV =−320,000 + 67,910  =−320,000 + 67,910(4.56376) =−10,075.29
 0.12 
 
 
Calculator solution: CF0 = -320,000, CF1 – CF7 = 67,910, I = 12; compute NPV = -10,075.29

Because NPV < 0, the project is not acceptable.

1
Solutions

9-4 Year Cash Flow Cumulative CF

0 $(450,000) $(450,000)
1 120,000 (330,000)
2 120,000 (210,000)
3 120,000 ( 90,000)
3 < PB < 4
4 120,000 30,000
5 120,000 150,000

90,000 450,000
PB = 3 + = 3.75years ; alternative calculation: PB = = 3.75years
120,000 120,000

Year Cash Flow PV of CF @ 11% Cumulative CF

0 ($450,000) ($450,000) ($450,000)
1 120,000 108,108 (341,892)
2 120,000 97,395 (244,497)
3 120,000 87,743 (156,754)
4 120,000 79,048 (77,707)
5 120,000 71,214 (6,492)

DPB > 5 years, which means that the project is not acceptable. At r = 11%, NPV = ($6,492)
and IRR = 10.42%.

9-5 a. PB = $52,125/$12,000 = 4.34, so the payback is about 4 years.

b. Project L’s discounted payback period is calculated as follows:

Annual Discounted @12%

Period Cash Flows Cash Flows Cumulative
0 ($52,125) ($52,125.00) ($52,125.00)
1 12,000 10,714.29 ( 41,410.71)
2 12,000 9,566.33 ( 31,844.38)
3 12,000 8,541.36 ( 23,303.02)
4 12,000 7,626.22 ( 15,676.80)
5 12,000 6,809.12 ( 8,867.68)
6 12,000 6,079.57 ( 2,788.11)
7 12,000 5,428.19 2,640.08
8 12,000 4,846.60 7,486.68

Discounted = 6 + $2,788.11 = 6.51 years

Payback $5,428.19

c. Numerical solution:
 1− 1 8 
NPV =−$52,125 + $12,000  
(1.12)
 0.12 
 
=−$52,125 + $12,000(4.96764) = $7,486.68

Financial calculator Solution: Input the appropriate cash flows into the cash flow
register, input I = 12, and then solve for NPV = $7,486.68.

2
 Solutions

Spreadsheet Solution: Be careful when using the NPV function that is available with
Excel, because this function computes the present value of a series of nonconstant
future cash flows only. If you highlight a series of cash flows, the NPV function assumes
the first cash flow is CF1, not CF0. As a result, you should use the NPV function to
compute the present value of the future cash flows and then subtract the cash flow in
the current period, which is the net investment. For the current problem, you can use the
PV function to compute the present value of the $12,000 annuity and then subtract the
$52,125 cost.

d. Let NPV = 0. Therefore,

 1− 1 8 
NPV =−$52,125 + $12,000   =0
(1+IRR)
 IRR 
 

 1− 1 8 
$52,125 = $12,000  
(1+IRR)
 IRR 
 

Numerical Solution: Without a financial calculator, you must use a trial-and-error

process—plug in values for IRR until the right side of the computation equals $52,125.

Financial calculator: Input the appropriate cash flows into the cash flow register and
then solve for IRR = 16%.

Spreadsheet solution: Because this is an annuity, you can use the RATE function that is
available on the spreadsheet. PMT = $12,000 and PV = -$52,125.

9-6 Using a financial calculator, enter I = 14% and the following cash flows:

Project P: CF0 = -15,000, CF1 – CF5 = 4,500

Project Q: CF0 = -37,500, CF1 – CF5 = 11,100

Solve for NPV and IRR.

a. NPVP = $448.86 NPVQ = $607.20

b. IRRP = 15.24% IRRQ = 14.67%

c. Modified internal rate of return (MIRR):

 (1.14)5 −1
4,500  
CostP =
TV
=15,000 =  0.14  = 29,745.47
(1+ MIRRP )n (1+ MIRRP )5
1
 29,745.47  5
MIRRP =   −1.0 = 0.147 =14.7%
 15,000 

3
Solutions

 (1.14)5 −1
11,100  
Cost Q =
TV
= 37,500 =  0.14  = 73,372.16
(1+ MIRRP )n (1+ MIRRQ )5
1
 73,372.16  5
MIRRQ =   −1.0 = 0.144 =14.4%
 37,500 

If the projects are independent, both are acceptable—both NPVP and NPVQ are positive. If the
projects are mutually exclusive, Project Q should be chosen because NPV Q > NPVP.

9-7 a. Calculator solution: CF0 = -75,000, CF1 = 50,000, CF2 = 40,000, I = 15; compute
NPV = --1,275.99

50,000 40,000
NPV =−75,000 + +
(1.15)1 (1.15)2
=−75,000 + 50,000(0.86957) + 40,000(0.756144) =−1,275.74

b. IRR = 13.61%

c. MIRR:
TV 50,000(1.15)1 + 40,000(1.15)0
Cost = = 75,000 =
(1+ MIRR)n (1+ MIRR)2
97,500
75,000 =
(1+ MIRR)2

Calculator solution: N = 2, PV = -75,000, PMT = 0, FV = 97,500; compute I/Y = 14.02%

= MIRR

he investment is not acceptable.

9-8 Year Project G Project J Project K

0 $(180,000) $(240,000) $(200,000)
1 80,100 0 (100,000)
2 80,100 0 205,000
3 80,100 375,000 205,000

Project G:
 1 
1 − 
(1 + IRR G ) 3
180,000 = 80,100  
 IRR G 
 
 

4
 Solutions

Calculator solution: CF0 = -180,000, CF1 – CF3 = 80,100; compute IRRG = 15.96%

Alternative calculator solution: N = 4, PV = -180,000, PMT = 80,100, FV = 0; compute

I = 15.96%

TV 80,100(1.14) 2 + 80,100(1.14)1 + 80,100(1.14) 0

Cost = = 180,000 =
(1 + MIRR) n (1 + MIRR) 3

275,511.96
180,000 =
(1 + MIRR) 3

1
 275,511.96  3
MIRR =   − 1.0 = 0.1525 = 15.25%
 180,000 

Calculator solution: N = 3, PV = -180,000, PMT = 0, FV = 275,511.96; compute I = 15.25% =

MIRR

Project J:

368,500
240,000 =
(1+ IRRJ )3

368,500
(1+ IRRJ )3 = =1.53542
240,000
1
IRRJ = (1.53542) 3 −1.0 = 0.11537 =15.37%

Calculator solution: CF0 = -240,000, CF1 – CF2 = 0, CF3 = 368,500; compute IRRJ = 15.37%

Alternative calculator solution: N = 3, PV = -240,000, PMT = 0, FV = 368,500; compute I =

15.37%.

TV 368,500
Cost = = 240,000 =
(1+ MIRR) n
(1+ MIRR)3
1
 368,500  3
MIRR =   −1.0 = 0.1537 =15.37%
 240,000 

Calculator solution: CF0 = -240,000, CF1 – CF2 = 0, CF3 = 368,500; compute MIRRJ = 15.37%

Alternative calculator solution: N = 3, PV = -240,000, PMT = 0, FV = 368,500; compute I =

15.37% = MIRRJ

Project K:

−100,000 205,000 205,000

200,000 = + +
(1 + IRR K ) 1
(1 + IRR K ) 2
(1 + IRR K ) 3

5
Solutions

Calculator solution: CF0 = -200,000, CF1 = –100,000 CF2 - CF3 = 205,000; compute IRRK =
15.53%

Project G has the highest IRR.

PV of cash outflows = PV of TV at MIRR

100,000 205,000(1.14)1 + 205,000(1.14) 0
200,000 + =
(1.14)1 (1 + MIRR) 3
438,700
287,719.30 =
(1 + MIRR) 3
1
 438,700  3
MIRR =   − 1.0 = 0.1510 = 15.10%
 287,719.30 

Summary of computations:

Project IRR MIRR

G 15.96% 15.25%
J 15.37 15.37
K 15.53 15.10

If the projects are mutually exclusive, Project J should be purchased. The NPVs for the three
projects are: NPVG = $5,963, NPVJ = $13,114, NPVK = $8,391.

If the projects are independent, all should be purchased, because r = 14%.

9-9 a. Project J should be purchased, because its NPV is higher than Project K’s NPV.

b. The firm’s required rate of return must be lower than 16.9 percent. Because both
projects have positive NPVs, we know that IRRJ > r and IRRK > r. As a result, R must be
lower than both IRRJ = 16.9% and IRRK = 18.9%.

9-10 Compute the NPVs for both projects.

20,500 10,000 6,500 7,800

NPVD = −32,500 + + + +
(1.16)1 (1.16)2 (1.16)3 (1.16)4
= −32,500 +17,672.41+ 7,431.63 + 4,164.27 + 4,307.87 =1,076.18

Calculator solution: Enter into your calculator CF 0 = -32,500, CF1 = 20,500, CF2 = 10,000,
CF3 = 6,500, CF4 = 7,800, and I = 16; NPV = ? = 1,076.19 (rounding difference)

4,000 9,000 16,000 19,500

NPVQ =−29,800 + 1
+ 2
+ +
(1.16) (1.16) (1.16)3 (1.16)4
=−29,800 + 3,448.28 + 6,688.47 +10,250.52 +10,769.68 =1,356.95

Calculator solution: Enter into your calculator CF 0 = -29,800, CF1 = 4,000, CF2 = 9,000,
CF3 = 16,000, CF4 = 19,500, and I = 16; NPV = ? = 1,356.94 (rounding difference)

6
 Solutions

Because NPVQ > NPVD, Project Q is preferred. Only one project can be purchased because
the projects are mutually exclusive.

The set up to compute IRRQ is:

4,000 9,000 16,000 19,500

0 =−29,800 + + + +
(1+IRR) 1
(1+IRR) 2
(1+IRR) 3
(1+IRR)4

Using a financial calculator, enter CF0 = -29,800, CF1 = 4,000, CF2 = 9,000, CF3 = 16,000, CF4
= 19,500, and I = 16; IRR = ? = 17.79%

9-11 Project T:

Following is a table that can be used to compute the discounted payback period and NPV:

Year Cash Flow PV of CFs @ 9% Σ of PV(CF)

0 ($8,000) ($8,000.00) ($8,000.00)
1 2,000 1,834.86 ( 6,165.14)
2 1000 841.68 ( 5,323.46)
3 7000 5,405.28 81.83
NPV = $ 81.82

5,323.46
DPBT = 3 + = 3.98 years
5,405.28

2,000 1,000 7,000

NPVT =−8,000 + 1
+ 2
+ =−8,000 +1,834.86 + 841.68 + 5,405.28 = 81.82
(1.09) (1.09) (1.09)3

Calculator solution: Enter into the cash flow register CF0 = -8,000, CF1 = 2,000, CF2 = 1,000,
CF3 = 7,000, and I = 9; compute NPVT = 81.83 (rounding difference)

IRRT: enter cash flows into your calculator as shown here and solve for IRR T = 9.46%

The set up for MIRRT is:

2,000(1.09)2 +1,000(1.09)1 + 7,000(1.09)0 10,466.20

8,000 = =
(1+ MIRRT ) 3
(1+ MIRRT )3

To solve for MIRRT, input into the TVM registers of your calculator N = 3, PV = -8,000,
PMT = 0, and FV = 10,466.20; solve for I/Y = MIRRT = 9.37%

Project U:

Following is a table that can be used to compute the discounted payback period and NPV:

7
Solutions

Year Cash Flow PV of CFs @ 9% Σ of PV(CF)

0 ($10,000) ($10,000.000 ($10,000.00)
1 9,000 8,256.88 ( 1,743.12)
2 5,000 4,208.40 2,465.28
3 (3,100) ( 2,393.77) 71.51
NPV = $ 71.51

1,743.12
DPBU =1+ =1.41 years
4,208.40

9,000 5,000 −3,100

NPVU =−10,000 + 1
+ 2
+ =−10,000 + 8,256.88 + 4,208.40 + (2,393.77) = 71.51
(1.09) (1.09) (1.09)3

Calculator solution: Enter into the cash flow register CF 0 = -10,000, CF1 = 9,000, CF2 = 5,000,
CF3 = -3,100, and I = 9; compute NPVU = 71.51

IRRU: enter cash flows into your calculator as shown here and solve for IRR U = 9.83%

The set up for MIRRU is:

3,100 9,000(1.09)2 + 5,000(1.09)1

10,000 + =
(1.09)3 (1+ MIRRU )3

16,142.90
12,393.77 =
(1+ MIRRU )3

To solve for MIRRT, input into the TVM registers of your calculator N = 3, PV = -12,393.77,
PMT = 0, and FV = 16,142.90; solve for I/Y = MIRRU = 9.21%

Both projects should be purchased, because both have positive NPVs.

8
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A nobler counsel breathes from the charter of our independence; a
happier province belongs to our republic. Peace we would extend,
but by persuasion and example,—the moral force, by which alone it
can prevail among the nations. Wars we may encounter, but it is in
the sacred character of the injured and the wronged; to raise the
trampled rights of humanity from the dust; to rescue the mild form
of liberty from her abode among the prisons and the scaffolds of the
elder world, and to seat her in the chair of state among her adoring
children; to give her beauty for ashes; a healthful action for her cruel
agony; to put at last a period to her warfare on earth; to tear her star-
spangled banner from the perilous ridges of battle, and plant it on
the rock of ages. There be it fixed for ever,—the power of a free
people slumbering in its folds, their peace reposing in its shade!
 Close of the Speech of Daniel Webster

On the Greek question, in the House of Representatives of the United

States, January, 1824.
The house had gone into committee of the whole, Mr. Taylor in the chair, on the
resolution offered by Mr. Webster, which is in the words following:
“Resolved, That provision ought to be made by law for defraying the expense
incident to the appointment of an agent, or commissioner, to Greece, whenever the
President shall deem it expedient to make such appointment.”
Mr. Chairman,—It may be asked, will this resolution do the
Greeks any good? Yes, it will do them much good. It will give them
courage and spirit, which is better than money. It will assure them of
the public sympathy, and will inspire them with fresh constancy. It
will teach them that they are not forgotten by the civilized world, and
to hope one day to occupy, in that world, an honorable station.
A farther question remains. Is this measure pacific? It has no other
character. It simply proposes to make a pecuniary provision for a
mission, when the president shall deem such mission expedient. It is
a mere reciprocation to the sentiments of his message; it imposes
upon him no new duty; it gives him no new power; it does not hasten
or urge him forward; it simply provides, in an open and avowed
manner, the means of doing, what would else be done out of the
contingent fund. It leaves him at the most perfect liberty, and it
reposes the whole matter in his sole discretion. He might do it
without this resolution, as he did in the case of South America,—but
it merely answers the query, whether on so great and interesting a
question as the condition of the Greeks, this house holds no opinion
which is worth expressing? But, suppose a commissioner is sent, the
measure is pacific still. Where is the breach of neutrality? Where a
just cause of offence? And besides, Mr. Chairman, is all the danger in
this matter on one side? may we not inquire, whose fleets cover the
Archipelago? may we not ask, what would be the result to our trade
should Smyrna be blockaded? A commissioner could at least procure
for us what we do not now possess—that is, authentic information of
the true state of things. The document on your table exhibits a
meagre appearance on this point—what does it contain? Letters of
Mr. Luriottis and paragraphs from a French paper. My personal
opinion is, that an agent ought immediately to be sent; but the
resolution I have offered by no means goes so far.
Do gentlemen fear the result of this resolution in embroiling us
with the Porte? Why, sir, how much is it ahead of the whole nation,
or rather let me ask how much is the nation ahead of it? Is not this
whole people already in a state of open and avowed excitement on
this subject? Does not the land ring from side to side with one
common sentiment of sympathy for Greece, and indignation toward
her oppressors? nay, more, sir—are we not giving money to this
cause? More still, sir—is not the secretary of state in open
correspondence with the president of the Greek committee in
London? The nation has gone as far as it can go, short of an official
act of hostility. This resolution adds nothing beyond what is already
done—nor can any of the European governments take offence at such
a measure. But if they would, should we be withheld from an honest
expression of liberal feelings in the cause of freedom, for fear of
giving umbrage to some member of the holy alliance? We are not,
surely, yet prepared to purchase their smiles by a sacrifice of every
manly principle. Dare any Christian prince even ask us not to
sympathize with a Christian nation struggling against Tartar
tyranny? We do not interfere—we break no engagements—we violate
no treaties; with the Porte we have none.
Mr. Chairman, there are some things which, to be well done, must
be promptly done. If we even determine to do the thing that is now
proposed, we may do it too late. Sir, I am not of those who are for
withholding aid when it is most urgently needed, and when the stress
is past, and the aid no longer necessary, overwhelming the sufferers
with caresses. I will not stand by and see my fellow man drowning
without stretching out a hand to help him, till he has by his own
efforts and presence of mind reached the shore in safety, and then
encumber him with aid. With suffering Greece now is the crisis of her
fate,—her great, it may be, her last struggle. Sir, while we sit here
deliberating, her destiny may be decided. The Greeks, contending
with ruthless oppressors, turn their eyes to us, and invoke us by their
ancestors, slaughtered wives and children, by their own blood,
poured out like water, by the hecatombs of dead they have heaped up
as it were to heaven, they invoke, they implore us for some cheering
sound, some look of sympathy, some token of compassionate regard.
They look to us as the great republic of the earth—and they ask us by
our common faith, whether we can forget that they are struggling, as
we once struggled, for what we now so happily enjoy? I cannot say,
sir, that they will succeed; that rests with heaven. But for myself, sir,
if I should to-morrow hear that they have failed—that their last
phalanx had sunk beneath the Turkish cimeter, that the flames of
their last city had sunk in its ashes, and that naught remained but the
wide melancholy waste where Greece once was, I should still reflect,
with the most heartfelt satisfaction, that I have asked you in the
name of seven millions of freemen, that you would give them at least
the cheering of one friendly voice.
 John Randolph on the other side of Same
Question.

Mr. Chairman,—It is with serious concern and alarm, that I have

heard doctrines broached in this debate, fraught with consequences
more disastrous to the best interests of this people than any that I
have ever heard advanced during the five-and-twenty years that I
have been honored with a seat on this floor. They imply, to my
apprehension, a total and fundamental change of the policy pursued
by this government, ab urbe condita—from the foundation of the
republic, to the present day. Are we, sir, to go on a crusade, in
another hemisphere, for the propagation of two objects—objects as
dear and delightful to my heart as to that of any gentleman in this, or
in any other assembly—liberty and religion—and, in the name of
these holy words—by this powerful spell, is this nation to be conjured
and persuaded out of the highway of heaven—out of its present
comparatively happy state, into all the disastrous conflicts arising
from the policy of European powers, with all the consequences which
flow from them?
Liberty and religion, sir! I believe that nothing similar to this
proposition is to be found in modern history, unless in the famous
decree of the French national assembly, which brought combined
Europe against them, with its united strength, and, after repeated
struggles, finally effected the downfall of the French power. Sir, I am
wrong—there is another example of like doctrine; and you find it
among that strange and peculiar people—in that mysterious book,
which is of the highest authority with them, (for it is at once their
gospel and their law,) the Koran, which enjoins it to be the duty of all
good Moslems to propagate its doctrines at the point of the sword—
by the edge of the cimeter. The character of that people is a peculiar
one: they differ from every other race. It has been said, here, that it is
four hundred years since they encamped in Europe. Sir, they were
encamped, on the spot where we now find them, before this country
was discovered, and their title to the country which they occupy is at
least as good as ours. They hold their possessions there by the same
title by which all other countries are held—possession, obtained at
first by a successful employment of force, confirmed by time, usage,
prescription—the best of all possible titles. Their policy has been not
tortuous, like that of other states of Europe, but straightforward:
they had invariably appealed to the sword, and they held by the
sword. The Russ had, indeed, made great encroachments on their
empire, but the ground had been contested inch by inch; and the
acquisitions of Russia on the side of Christian Europe—Livonia,
Ingria, Courland—Finland, to the Gulf of Bothnia—Poland!—had
been greater than that of the Mahometans. And, in consequence of
this straightforward policy to which I before referred, this peculiar
people could boast of being the only one of the continental Europe,
whose capital had never been insulted by the presence of a foreign
military force. It was a curious fact, well worthy of attention, that
Constantinople was the only capital in continental Europe—for
Moscow was the true capital of Russia—that had never been in
possession of an enemy. It is, indeed, true, that the Empress
Catharine did inscribe over the gate of one of the cities that she had
won in the Krimea, (Cherson, I think,) “the road to Byzantium;” but,
sir, it has proved—perhaps too low a word for the subject—but a
stumpy road for Russia. Who, at that day, would have been believed,
had he foretold to that august (for so she was) and illustrious woman
that her Cossacks of the Ukraine, and of the Don, would have
encamped in Paris before they reached Constantinople? Who would
have been believed, if he had foretold that a French invading force—
such as the world never saw before, and, I trust, will never again see
—would lay Moscow itself in ashes? These are considerations worthy
of attention, before we embark in the project proposed by this
resolution, the consequences of which no human eye can divine.
I would respectfully ask the gentleman from Massachusetts,
whether in his very able and masterly argument—and he has said all
that could be said upon the subject, and more than I supposed could
be said by any man in favor of his resolution—whether he himself has
not furnished an answer to his speech—I had not the happiness
myself to hear his speech, but a friend has read it to me. In one of the
arguments in that speech, toward the conclusion, I think, of his
speech, the gentleman lays down, from Puffendorf, in reference to
the honeyed words and pious professions of the holy alliance, that
these are all surplusage, because nations are always supposed to be
ready to do what justice and national law require. Well, sir, if this be
so, why may not the Greeks presume—why are they not, on this
principle, bound to presume, that this government is disposed to do
all, in reference to them, that they ought to do, without any formal
resolutions to that effect? I ask the gentleman from Massachusetts,
whether the doctrine of Puffendorf does not apply as strongly to the
resolution as to the declaration of the allies—that is, if the resolution
of the gentleman be indeed that almost nothing he would have us
suppose, if there be not something behind this nothing which divides
this house (not horizontally, as the gentleman has ludicrously said—
but vertically) into two unequal parties, one the advocate of a
splendid system of crusades, the other the friends of peace and
harmony; the advocates of a fireside policy—for, as had been truly
said, as long as all is right at the fireside, there cannot be much
wrong elsewhere—whether, I repeat, does not the doctrine of
Puffendorf apply as well to the words of the resolution as to the
words of the holy alliance?
But, sir, we have already done more than this. The president of the
United States, the only organ of communication which the people
have seen fit to establish between us and foreign powers, has already
expressed all, in reference to Greece, that the resolution goes to
express actum est—it is done—it is finished—there is an end. Not,
that I would have the house to infer, that I mean to express any
opinion as to the policy of such a declaration—the practice of
responding to presidential addresses and messages had gone out for,
now, these two or three-and-twenty years.
 Extract from Mr. Hayne’s Speech against the
Tariff Bill, in Congress,

January, 1832.
Mr. President,—The plain and seemingly obvious truth, that in a
fair and equal exchange of commodities all parties gained, is a noble
discovery of modern times. The contrary principle naturally led to
commercial rivalries, wars, and abuses of all sorts. The benefits of
commerce being regarded as a stake to be won, or an advantage to be
wrested from others by fraud or by force, governments naturally
strove to secure them to their own subjects; and when they once set
out in this wrong direction, it was quite natural that they should not
stop short till they ended in binding, in the bonds of restriction, not
only the whole country, but all of its parts. Thus we are told that
England first protected by her restrictive policy, her whole empire
against all the world, then Great Britain against the colonies, then
the British islands against each other, and ended by vainly
attempting to protect all the great interests and employment of the
state by balancing them against each other. Sir, such a system,
carried fully out, is not confined to rival nations, but protects one
town against another, considers villages, and even families as rivals;
and cannot stop short of “Robinson Crusoe in his goat skins.” It takes
but one step further to make every man his own lawyer, doctor,
farmer, and shoemaker—and, if I may be allowed an Irishism, his
own seamstress and washerwoman. The doctrine of free trade, on the
contrary, is founded on the true social system. It looks on all
mankind as children of a common parent—and the great family of
nations as linked together by mutual interests. Sir, as there is a
religion, so I believe there is a politics of nature. Cast your eyes over
this various earth—see its surface diversified by hills and valleys,
rocks, and fertile fields. Notice its different productions—its infinite
varieties of soil and climate. See the mighty rivers winding their way
to the very mountain’s base, and thence guiding man to the vast
ocean, dividing, yet connecting nations. Can any man who considers
these things with the eye of a philosopher, not read the design of the
great Creator (written legibly in his works) that his children should
be drawn together in a free commercial intercourse, and mutual
exchanges of the various gifts with which a bountiful Providence has
blessed them. Commerce, sir, restricted even as she has been, has
been the great source of civilization and refinement all over the
world. Next to the Christian religion, I consider free trade in its
largest sense as the greatest blessing that can be conferred upon any
people. Hear, sir, what Patrick Henry, the great orator of Virginia,
whose soul was the very temple of freedom, says on this subject:—
“Why should we fetter commerce? If a man is in chains, he droops and bows to
the earth, because his spirits are broken, but let him twist the fetters from his legs,
and he will stand erect. Fetter not commerce! Let her be as free as the air. She will
range the whole creation, and return on the four winds of heaven to bless the land
with plenty.”
But, it has been said, that free trade would do very well, if all
nations would adopt it; but as it is, every nation must protect itself
from the effect of restrictions by countervailing measures. I am
persuaded, sir, that this is a great, a most fatal error. If retaliation is
resorted to for the honest purpose of producing a redress of the
grievance, and while adhered to no longer than there is a hope of
success, it may, like war itself, be sometimes just and necessary. But
if it have no such object, “it is the unprofitable combat of seeing
which can do the other the most harm.” The case can hardly be
conceived in which permanent restrictions, as a measure of
retaliation, could be profitable. In every possible situation, a trade,
whether more or less restricted, is profitable, or it is not. This can
only be decided by experience, and if the trade be left to regulate
itself, water would not more naturally seek its level, than the
intercourse adjust itself to the true interest of the parties. Sir, as to
this idea of the regulation by government of the pursuits of men, I
consider it as a remnant of barbarism disgraceful to an enlightened
age, and inconsistent with the first principles of rational liberty. I
hold government to be utterly incapable, from its position, of
exercising such a power wisely, prudently, or justly. Are the rulers of
the world the depositories of its collected wisdom? Sir, can we forget
the advice of a great statesman to his son—“Go, see the world, my
son, that you may learn with how little wisdom mankind is
governed.” And is our own government an exception to this rule, or
do we not find here, as every where else, that
“Man, proud man,
Robed in a little brief authority,
Plays such fantastic tricks before high heaven,
As make the angels weep?”

The gentleman has appealed to the example of other nations. Sir,

they are all against him. They have had restrictions enough, to be
sure; but they are getting heartily sick of them, and in England,
particularly, would willingly get rid of them if they could. We have
been assured, by the declaration of a minister of the crown, from his
place in parliament, “that there is a growing conviction, among all
men of sense and reflection in that country, that the true policy of all
nations is to be found in unrestricted industry.” Sir, in England they
are now retracing their steps, and endeavoring to relieve themselves
of the system as fast as they can. Within a few years past, upwards of
three hundred statutes, imposing restrictions in that country, have
been repealed; and a case has recently occurred there, which seems
to leave no doubt that, if Great Britain has grown great, it is, as Mr.
Huskisson has declared, “not in consequence of, but in spite of their
restrictions.” The silk manufacture, protected by enormous bounties,
was found to be in such a declining condition, that the government
was obliged to do something to save it from total ruin. And what did
they do? They considerably reduced the duty on foreign silks, both
on the raw material and the manufactured article. The consequence
was the immediate revival of the silk manufacture, which has since
been nearly doubled.
Sir, the experience of France is equally decisive. Bonaparte’s effort
to introduce cotton and sugar has cost that country millions; and, but
the other day, a foolish attempt to protect the iron mines spread
devastation through half of France, and nearly ruined the wine trade,
on which one-fifth of her citizens depend for subsistence. As to
Spain, unhappy Spain, “fenced round with restrictions,” her
experience, one would suppose, would convince us, if anything could,
that the protecting system in politics, like bigotry in religion, was
utterly at war with sound principles and a liberal and enlightened
policy. Sir, I say, in the words of the philosophical statesman of
England, “leave a generous nation free to seek their own road to
perfection.” Thank God, the night is passing away, and we have lived
to see the dawn of a glorious day. The cause of free trade must and
will prosper, and finally triumph. The political economist is abroad;
light has come into the world; and, in this instance at least, men will
not “prefer darkness rather than light.” Sir, let it not be said, in after
times, that the statesmen of America were behind the age in which
they lived—that they initiated this young and vigorous country into
the enervating and corrupting practices of European nations—and
that, at the moment when the whole world were looking to us for an
example, we arrayed ourselves in the castoff follies and exploded
errors of the old world, and, by the introduction of a vile system of
artificial stimulants and political gambling, impaired the healthful
vigor of the body politic, and brought on a decrepitude and
premature dissolution.
 Mr. Clay’s Speech on his Public Lands Bill.

Mr. President,—Although I find myself borne down by the

severest affliction with which Providence has ever been pleased to
visit me, I have thought that my private griefs ought not longer to
prevent me from attempting, ill as I feel qualified, to discharge my
public duties. And I now rise, in pursuance of the notice which has
been given, to ask leave to introduce a bill to appropriate, for a
limited time, the proceeds of the sales of the public lands of the
United States, and for granting land to certain states.
I feel it incumbent on me to make a brief explanation of the highly
important measure which I have now the honor to propose. The bill
which I desire to introduce, provides for the distribution of the
proceeds of the public lands in the years 1833, 1834, 1835, 1836 and
1837, among the twenty-four states of the union, and conforms
substantially to that which passed in 1833. It is therefore of a
temporary character; but if it shall be found to have salutary
operation, it will be in the power of a future congress to give it an
indefinite continuance; and if otherwise, it will expire by its own
terms. In the event of war unfortunately breaking out with any
foreign power, the bill is to cease, and the fund which it distributes is
to be applied to the prosecution of the war. The bill directs that ten
per cent. of the net proceeds of the public lands sold within the limits
of the seven new states, shall be first set apart for them, in addition
to the five per cent. reserved by their several compacts with the
United States; and that the residue of the proceeds, whether from
sales made in the states or territories, shall be divided among the
twenty-four states in proportion to their respective federal
population. In this respect the bill conforms to that which was
introduced in 1832. For one, I should have been willing to have
allowed the new states twelve and a half instead of ten per cent.; but
as that was objected to by the president, in his veto message, and has
been opposed in other quarters, I thought it best to restrict the
allowance to the more moderate sum. The bill also contains large and
liberal grants of land to several of the new states, to place them upon
an equality with others to which the bounty of congress has been
heretofore extended, and provides that, when other new states shall
be admitted into the union, they shall receive their share of the
common fund.

Mr. President, I have ever regarded, with feelings of the

profoundest regret, the decision which the president of the United
States felt himself induced to make on the bill of 1833. If the bill had
passed, about twenty millions of dollars would have been, during the
last three years, in the hands of the several states, applicable by them
to the beneficent purposes of internal improvement, education or
colonization. What immense benefits might not have been diffused
throughout the land by the active employment of that large sum?
What new channels of commerce and communication might not have
been opened? What industry stimulated, what labor rewarded? How
many youthful minds might have received the blessings of education
and knowledge, and been rescued from ignorance, vice, and ruin?
How many descendants of Africa might have been transported from
a country where they never can enjoy political or social equality, to
the native land of their fathers, where no impediment exists to their
attainment of the highest degree of elevation, intellectual, social and
political! where they might have been successful instruments, in the
hands of God, to spread the religion of His Son, and to lay the
foundation of civil liberty.
But, although we have lost three precious years, the secretary of
the treasury tells us that the principal of this vast sum is yet safe; and
much good may still be achieved with it. The spirit of improvement
pervades the land in every variety of form, active, vigorous and
enterprising, wanting pecuniary aid as well as intelligent direction.
The states are strengthening the union by various lines of
communication thrown across and through the mountains. New
York has completed one great chain. Pennsylvania another, bolder in
conception and more arduous in the execution. Virginia has a similar
work in progress, worthy of all her enterprise and energy. A fourth,
further south, where the parts of the union are too loosely connected,
has been projected, and it can certainly be executed with the supplies
which this bill affords, and perhaps not without them.
This bill passed, and these and other similar undertakings
completed, we may indulge the patriotic hope that our union will be
bound by ties and interests that render it indissoluble. As the general
government withholds all direct agency from these truly national
works, and from all new objects of internal improvement, ought it
not to yield to the states, what is their own, the amount received
from the public lands? It would thus but execute faithfully a trust
expressly created by the original deeds of cession, or resulting from
the treaties of acquisition. With this ample resource, every desirable
object of improvement, in every part of our extensive country, may in
due time be accomplished.—Placing this exhaustless fund in the
hands of the several members of the confederacy, their common
federal head may address them in the glowing language of the British
bard, and,
Bid harbors open, public ways extend,
Bid temples worthier of the God ascend.
Bid the broad arch the dangerous flood contain,
The mole projecting break the roaring main.
Back to his bounds their subject sea command,
And roll obedient rivers through the land.

I confess I feel anxious for the fate of this measure, less on account
of any agency I have had in proposing it, as I hope and believe, than
from a firm, sincere and thorough conviction, that no one measure
ever presented to the councils of the nation, was fraught with so
much unmixed good, and could exert such powerful and enduring
influence in the preservation of the union itself and upon some of its
highest interests. If I can be instrumental, in any degree, in the
adoption of it, I shall enjoy, in that retirement into which I hope
shortly to enter, a heart-feeling satisfaction and a lasting consolation.
I shall carry there no regrets, no complaints, no reproaches on my
own account. When I look back upon my humble origin, left an
orphan too young to have been conscious of a father’s smiles and
caresses; with a widowed mother, surrounded by a numerous
offspring, in the midst of pecuniary embarrassments; without a
regular education, without fortune, without friends, without patrons,
I have reason to be satisfied with my public career. I ought to be
thankful for the high places and honors to which I have been called
by the favor and partiality of my countrymen, and I am thankful and
grateful. And I shall take with me the pleasing consciousness that in
whatever station I have been placed, I have earnestly and honestly
labored to justify their confidence by a faithful, fearless, and zealous
discharge of my public duties. Pardon these personal allusions.
 Speech of John C. Calhoun,

Against the Public Lands Bill, January 23, 1841.

“Whether the government can constitutionally distribute the
revenue from the public lands among the states must depend on the
fact whether they belong to them in their united federal character, or
individually and separately. If in the former, it is manifest that the
government, as their common agent or trustee, can have no right to
distribute among them, for their individual, separate use, a fund
derived from property held in their united and federal character,
without a special power for that purpose which is not pretended. A
position so clear of itself and resting on the established principles of
law, when applied to individuals holding property in like manner,
needs no illustration. If, on the contrary, they belong to the states in
their individual and separate character, then the government would
not only have the right but would be bound to apply the revenue to
the separate use of the states. So far is incontrovertible, which
presents the question: In which of the two characters are the lands
held by the state?
“To give a satisfactory answer to this question, it will be necessary
to distinguish between the lands that have been ceded by the states,
and those that have been purchased by the government out of the
common funds of the Union.
“The principal cessions were made by Virginia and Georgia. The
former of all the tract of country between the Ohio, the Mississippi,
and the lakes, including the states of Ohio, Indiana, Illinois, and
Michigan, and the territory of Wisconsin; and the latter, of the tract
included in Alabama and Mississippi. I shall begin with the cession
of Virginia, as it is on that the advocates for the distribution mainly
rely to establish the right.
“I hold in my hand an extract of all that portion of the Virginia
deed of cession which has any bearing on the point at issue, taken
from the volume lying on the table before me, with the place marked,
and to which any one desirous of examining the deed may refer. The
cession is ‘to the United States in Congress assembled, for the benefit
of said states.’ Every word implies the states in their united federal
character. That is the meaning of the phrase United States. It stands
in contradistinction to the states taken separately and individually;
and if there could be, by possibility, any doubt on that point, it would
be removed by the expression ‘in Congress assembled’—an
assemblage which constituted the very knot that united them. I
regard the execution of such a deed to the United States, so
assembled, so conclusive that the cession was to them in their united
and aggregate character, in contradistinction to their individual and
separate character, and, by necessary consequence, that the lands so
ceded belonged to them in their former and not in their latter
character, that I am at a loss for words to make it clearer. To deny it,
would be to deny that there is any truth in language.
“But strong as this is, it is not all. The deed proceeds and says, that
all the lands so ceded ‘shall be considered a common fund for the use
and benefit of such of the United States as have become, or shall
become, members of the confederation or federal alliance of said
states, Virginia inclusive,’ and concludes by saying, ‘and shall be
faithfully and bona fide disposed of for that purpose, and for no
other use or purpose whatever.’ If it were possible to raise a doubt
before, those full, clear, and explicit terms would dispel it. It is
impossible for language to be clearer. To be ‘considered a common
fund’ is an expression directly in contradistinction to separate or
individual, and is, by necessary implication, as clear a negative of the
latter as if it had been positively expressed. This common fund to ‘be
for the use and benefit of such of the United States as have become,
or shall become, members of the confederation or federal alliance.’
That is as clear as language can express it, for their common use in
their united federal character, Virginia being included as the grantor,
out of abundant caution.”
“The Senator from Kentucky (Mr. Clay), and, as I now understand,
the Senator from Massachusetts (Mr. Webster), agree, that the
revenue from taxes can be applied only to the objects specifically
enumerated in the Constitution. Thus repudiating the general
welfare principle, as applied to the money power, so far as the
revenue may be derived from that source. To this extent they profess
to be good State Rights Jeffersonian Republicans. Now, sir, I would
be happy to be informed by either of the able senators, by what
political alchemy the revenue from taxes, by being vested in land, or
other property, can, when again turned into revenue by sales, be
entirely freed from all the constitutional restrictions to which they
were liable before the investment, according to their own
confessions. A satisfactory explanation of so curious and apparently
incomprehensible a process would be a treat.
“When I look, Mr. President, to what induced the states, and
especially Virginia, to make this magnificent cession to the Union,
and the high and patriotic motives urged by the old Congress to
induce them to do it, and turn to what is now proposed, I am struck
with the contrast and the great mutation to which human affairs are
subject. The great and patriotic men of former times regarded it as
essential to the consummation of the Union and the preservation of
the public faith that the lands should be ceded as a common fund;
but now, men distinguished for their ability and influence are
striving with all their might to undo their holy work. Yes, sir;
distribution and cession are the very reverse, in character and effect;
the tendency of one is to union, and the other to disunion. The wisest
of modern statesmen, and who had the keenest and deepest glance
into futurity (Edmund Burke), truly said that the revenue is the state;
to which I add, that to distribute the revenue, in a confederated
community, amongst its members, is to dissolve the community—
that is, with us, the Union—as time will prove, if ever this fatal
measure should be adopted.”
 Speech of Hon. Robt. Y. Hayne

Senator from South Carolina, delivered in the Senate Chamber

January 21, 1830, on Mr. Foot’s resolution relating to the sales of
the public lands.
Mr. Hayne said, when he took occasion, two days ago, to throw out
some ideas with respect to the policy of the government, in relation
to the public lands, nothing certainly could have been further from
his thoughts, than that he should have been compelled again to
throw himself upon the indulgence of the Senate. Little did I expect,
said Mr. H., to be called upon to meet such an argument as was
yesterday urged by the gentleman from Massachusetts (Mr.
Webster.) Sir, I questioned no man’s opinions; I impeached no man’s
motives; I charged no party, or state, or section of country with
hostility to any other, but ventured, as I thought, in a becoming spirit
to put forth my own sentiments in relation to a great national
question of public policy. Such was my course. The gentleman from
Missouri, (Mr. Benton,) it is true, had charged upon the Eastern
States an early and continued hostility towards the west, and
referred to a number of historical facts and documents in support of
that charge. Now, sir, how have these different arguments been met?
The honorable gentleman from Massachusetts, after deliberating a
whole night upon his course, comes into this chamber to vindicate
New England; and instead of making up his issue with the gentleman
from Missouri, on the charges which he had preferred, chooses to
consider me as the author of those charges, and losing sight entirely
of that gentleman, selects me as his adversary, and pours out all the
vials of his mighty wrath upon my devoted head. Nor is he willing to
stop there. He goes on to assail the institutions and policy of the
south, and calls in question the principles and conduct of the state
which I have the honor to represent. When I find a gentleman of
mature age and experience, of acknowledged talents and profound
sagacity, pursuing a course like this, declining the contest offered
from the west, and making war upon the unoffending south, I must
believe, I am bound to believe, he has some object in view which he
has not ventured to disclose. Mr. President, why is this? Has the
gentleman discovered in former controversies with the gentleman
from Missouri, that he is overmatched by that senator? And does he
hope for an easy victory over a more feeble adversary? Has the
gentleman’s distempered fancy been disturbed by gloomy
forebodings of “new alliances to be formed,” at which he hinted? Has
the ghost of the murdered Coalition come back, like the ghost of
Banquo, to “sear the eyeballs of the gentleman,” and will it not down
at his bidding? Are dark visions of broken hopes, and honors lost
forever, still floating before his heated imagination? Sir, if it be his
object to thrust me between the gentleman from Missouri and
himself, in order to rescue the east from the contest it has provoked
with the west, he shall not be gratified. Sir, I will not be dragged into
the defence of my friend from Missouri. The south shall not be forced
into a conflict not its own. The gentleman from Missouri is able to
fight his own battles. The gallant west needs no aid from the south to
repel any attack which may be made on them from any quarter. Let
the gentleman from Massachusetts controvert the facts and
arguments of the gentleman from Missouri, if he can—and if he win
the victory, let him wear the honors; I shall not deprive him of his
laurels.
The gentleman from Massachusetts, in reply to my remarks on the
injurious operations of our land system on the prosperity of the west,
pronounced an extravagant eulogium on the paternal care which the
government had extended towards the west, to which he attributed
all that was great and excellent in the present condition of the new
states. The language of the gentleman on this topic fell upon my ears
like the almost forgotten tones of the tory leaders of the British
Parliament, at the commencement of the American revolution. They,
too, discovered that the colonies had grown great under the fostering
care of the mother country; and I must confess, while listening to the
gentleman, I thought the appropriate reply to his argument was to be
found in the remark of a celebrated orator, made on that occasion:
“They have grown great in spite of your protection.”