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CHAPTER

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Another important question was, What should be considered the state of the business left unfinished at the 1790. close of the late session? The consideration of this subject by a joint committee resulted in a joint rule, that every thing might be taken up where it had been left off at the adjournment, except bills which, after having passed one house, had stopped in the other. These were to be considered as lost, and were not to be revived except by taking up the subject anew.

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A third question, having an important bearing on the practical transaction of business, grew out of an intimation from the Secretary of the Treasury that he was ready to make that report on the national debt and the support of the public credit required of him by a resolution of the last session. Should that report be made orally, or in writing? It was insisted by those who favored an oral report, that, to the full comprehension of so complicated a subject, verbal explanations would be absolutely necessary. Those of the opposite opinion insisted with equal eagerness on the superiority of written explanations. This latter view prevailed, and the precedent thus established has ever since been followed, according to which official intercourse between the two houses of Congress and the heads of departments takes place only in writing.

Hamilton's report estimated the foreign debt, due to the court of France and to private lenders in Holland, with a small sum to Spain, at $11,710,378. This included the arrears of interest, to the amount of upward of a million and a half, which had accumulated on the French and Spanish loans since 1786, and also several installments of the French loan, already over-due.

The domestic debt, registered and unregistered, including interest to the end of the current year, and an

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allowance of two millions for unliquidated claims, prin- CHAPTER cipally the outstanding Continental money, was reckoned at $42,414,085, of which nearly a third part was ar- 1790. rears of interest. Notwithstanding the attempts of the Continental Congress to keep down the interest by calling on the states for an annual contribution in indents or interest certificates, those calls had been but very imperfectly met. Out of a total interest accumulating on the domestic debt since its first contraction to the amount of eighteen millions of dollars, less than five millions had been paid in any shape, thus leaving an undischarged balance of more than thirteen millions.

With respect to the debt due abroad, there was no difference of opinion; all agreed that it must be met in the precise terms of the contract. With respect to the domestic debt, very different notions prevailed. A large proportion of the certificates of that debt had passed out of the hands of the original holders, and to a considerable extent had accumulated in the possession of a comparatively few, who had purchased them on speculation at very low rates, or had received them at like rates in payment of debts or in lieu of money. The idea had, therefore, been suggested, and had found many advocates, of applying to these certificates the principle of a scale of depreciation, as had been done in the case of the paper money, paying them, that is, at the rates at which they had been purchased by the holders; and this idea was especially urged as to the arrears of interest, accumulated to an amount equal to nearly half the principal.

Against both these projects, that of "scaling down the principal," as it was called, and of a discrimination as to the interest, the report of the Secretary of the Treasury took decided ground. Without overlooking the moral obligation to pay, the satisfaction of the public creditors,

CHAPTER to the full extent of their claims, was treated mainly as II. a matter of policy. Public credit was essential to the 1790. new federal government. There was no other way of

meeting those sudden emergencies to which, in the vicissitudes of affairs, all nations are alike exposed, and for which, according to the modern expensive method of conducting military operations, the resources of immediate taxation must always prove insufficient. But public credit could only be established by the faithful payment of public debts, according to the terms of the contract. The original contract was to pay so much money to the holders of the certificates, or to their assignees. The assignees stood, therefore, precisely in the place of the original holders, and, so far as payment was concerned, must be regarded as original holders. These assignees had exhibited their faith in the nation, had preserved the public credit from total extinction, and had relieved the pressing wants of the holders by giving ready money in exchange for a doubtful and uncertain claim. If the sums thus paid had been far less in amount than the claims purchased, that had been a natural and inevitable consequence of the financial position of the United States, making it a matter of great uncertainty when the certificates would be paid, or, indeed, if they would ever be paid at all. The equality of the claim of the assignee with that of the original holder was a most important element in the value of public securities, and any attack upon that equality would be a departure from that policy of establishing the public credit, which formed the great political motive for paying the debt at all. If any compensation was to be made to the unfortunate persons who had sold at a loss, it ought not to come out of the pockets of the assignees, but should be made up by the government, through whose fault the loss had occurred.

The case of the over-due interest was put with equal CHAPTER* That interest ought to have been paid at the

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force. time. It stood, therefore, on even stronger ground than 1790. the principal, which the creditor had no right to demand so long as the interest was paid; whereas the accumulated unpaid interest was already due, and now demandable. If to make instant payment of the whole were impracticable, the creditor ought at least to receive a fair and substantial equivalent by having his over-due interest converted into a principal debt.

In addition to the sums due from the federal government, somewhat exceeding fifty-four millions of dollars, there were also large state debts, estimated by the secretary to amount, in the whole, over-due interest included, to about twenty-five millions of dollars. The assumption of these debts by the federal government was strongly recommended. They had been incurred in the common cause; no more money would be required to pay them as federal than as state debts; that money might be much more conveniently raised by the federal government than by the states; and, what was a matter of much importance, all clashing and jealousy between state and federal debtors would thus be prevented,

If the state debts were assumed, the whole amount to be provided for would fall not much short of eighty millions of dollars, the annual interest exceeding four millions and a half. This was, perhaps, a greater sum than could be raised without the risk of dangerous discontents, such as would put the whole system at hazard; and hence it became the interest of the public creditors to consent to any arrangement which, in yielding them a fair equivalent, tended also to reduce the amount to be annually paid. The domestic debt bore, at present, an annual interest of six per cent.; but as it was re

CHAPTER deemable at the pleasure of the government, whenever II. the credit of the United States became sufficiently es1790. tablished to enable them to borrow money at five per cent. or less, the public creditors might be obliged to accept that diminished rate of interest, or, if they declined, might be paid off by means of new loans contracted at that rate. The secretary assumed, as the basis of his calculations, the probability that, in five years, the United States might be able to borrow at five per cent., and in fifteen years at four per cent. To assure the public creditors a permanent rate of six per cent. for a certain fixed period might therefore constitute an equivalent for a reduction of the principal, or for a postponement of interest as to a part of it, thereby reducing the immediate burden. Thus reduced, the interest might be met, as the secretary thought, by certain additions to the duties on wines, spirits, tea, and coffee, with an excise tax on spirits distilled at home.

For the purpose of carrying out this arrangement, it was proposed to open new loans, subscriptions to be received in certificates of the old stock of the domestic debt, principal and interest to stand on the same footing. To meet the various views of creditors, different offers were suggested, all founded, however, on the above assumption as to the probable future ability of the United States to borrow at a reduced interest. Thus the public creditor might receive two thirds of his subscription in a six per cent. stock redeemable at the pleasure of the government, and the balance in land, at the rate of twenty cents the acre; or, instead of the land, stock to the amount of $26 88 on every hundred, to begin to bear interest at six per cent. at the end of ten years, both stocks, in that case, to be irredeemable by any payment exceeding eight dollars annually on the hundred for prin

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