CHAPTER deemable at the pleasure of the government, whenever H. 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

cipal and interest.

Another proposed alternative was to CHAPTER allow a four per cent. stock, redeemable only at the rate

II.

of five dollars annually for principal and interest, to the 1790, amount of the whole subscription, with a bonus of $15 80 on every hundred, payable in land. A third proposal was payment of the subscriptions in a deferred annuity for life, or an immediate annuity on the survivorship of two lives, to be calculated on a rate of interest at four per cent. these annuities, by their expiration, to discharge the principal-the only scheme, in fact, upon which public debts ought ever to be contracted.

Upon the economical as well as the political benefits to be expected from this funding of the public debt, with a regular provision for paying the interest, the secretary dwelt with a good deal of animation. The stock thus created might and would serve, to a great extent, in the place of money, and would thus furnish a capital to the holders almost equivalent to cash. Such a creation of capital would give a new impulse to industry, and, by increasing the means of purchase, would tend to raise the price of cultivated lands, which, in consequence of the immense amounts thrown upon the market to pay the debts of the owners, and the facility of obtaining new lands on the frontiers, had fallen, in most of the old settlements, to less than half the price which the same lands would have brought before the Revolution.

But while he regarded as certain the benefits of a judicious funding system, the doctrine that a national debt is a national blessing was esteemed, by the secretary, to be sound only within very narrow limits. He suggested, therefore, the appropriation of the surplus proceeds of the post-office as a sinking fund for the gradual extinction of the debt.

There was one other reason not dwelt upon in this

CHAPTER report, but which had great weight with Hamilton and II. many others, in favor of a liberal provision for the public 1790. creditors, including the assumption of the state debts.

It would be a politic means, of strengthening the new government, by attaching to it, by the powerful ties of pecuniary interest, a large body of influential men, and of re-enforcing, in that way, national feeling as a counterbalance to the preponderating power of the states.

For several years prior to the organization of the new government, and, indeed, almost ever since their first issue, the certificates of the federal debt had changed hands. at rates not generally exceeding fifteen cents on the dollar. The current value of the state debts had been somewhat various, but in most of the states had exceeded that of the federal debt. Some rise in the value of the federal certificates had taken place since the passage of the revenue bill. Upon the publication of the secretary's report, it went up to fifty cents on the dollar. Large speculations were immediately set on foot; and a great handle was afterward made of a swift-sailing pilot-boat, said to have been dispatched to Georgia and the Carolinas with orders to buy up, in anticipation of the news, all the certificates which could be had an operation in which Smith of South Carolina was alleged to have been interested..

By the holders of the public securities and their friends, including the great body of the moneyed men into whose hands, in the necessary course of trade, the greater part of the certificates had passed, the secretary's proposal was hailed as a great act of public justice, gloriously realizing the fond hopes of those who had struggled to obtain, and were now struggling to support, the Federal Constitution.. But there were others by whom the proposed funding of the public debt was regarded in a very different light. They saw in the present holders of the

II.

certificates not those who had shed their blood and ex- CHAPTER pended their substance in the public cause, but a body. of shrewd and hard speculators, who had taken eager 1790. advantage of the sufferings and poverty of the original holders, and who were now to be suddenly enriched out of the pockets of the people. Envy at wealth to be so easy acquired; indignation at the advantage taken, or supposed to have been taken, of suffering patriotism; above all, a strong disinclination to pay taxes, completely closed the eyes of many to the political and economical reasons which Hamilton had so ably urged. The very circumstance that injustice had been done already, that the inability of the government had obliged many of the original creditors to part with their claims at a great discount, seemed to these persons to be a reason for subjecting the present creditors to a similar process; one piece of injustice, as usually happens, being thus made the excuse for another, in order that all might stand on the same level.

Why should not the principle adopted with respect to the Continental paper money be applied also to the present certificates? In that case a nominal debt to the amount of two hundred millions of dollars, and from which the government had actually realized some seventy millions, in consequence of a depreciation of the bills in the hands of the holders, similar to that which the existing certificates had undergone, had been reduced by a resolution of Congress to five millions of dollars, being at the rate of forty for one. Nobody proposed to rip up that work; indeed, it was part of the present scheme to provide at that rate of depreciation for some seventy-eight millions of the Continental paper yet outstanding, and constituting the bulk of the unliquidated debt.

:

CHAPTER

II.

It would, indeed, have been a short answer to say that one repudiation could not justify another; but this an1790. swer would not have come with a very good grace from those who, at the same time that they talked about the inviolability of contracts, proposed to act upon and to carry out the repudiation of the old paper money. It was attempted to draw a distinction between the two cases on the ground that for a large part of the paper money the government had received an equivalent greatly below the nominal amount of the bills, the depreciation of the paper being exactly measured by the rise in prices, whereas the certificates had been given in all cases for liquidated specie values. But this distinction did not reach the case of the earlier issues of paper, which had been paid out and received at par; nor was there the slightest ground to pretend that the Continental Congress had not received a far greater consideration for the paper than the amount to which it was finally reduced. other distinction, more to the purpose, seems to have been entirely overlooked, or to have been only obscurely hinted at; the circumstance, namely, that the bills of credit had a forced circulation, that every body was obliged to receive them as cash, and that the loss arising from the depreciation was thus distributed by authority of the government, and in the nature of a tax, among all those through whose hands they had passed, that is to say, among the whole community, in proportion to the extent of their moneyed transactions. The certificates having had no such forced circulation, the present holders could not be regarded in the light of persons who, in being paid at the current value of the bills, were subjected only to their share of a common loss, imposed upon all alike by the exigencies of the war and the law of the land. On the other hand, the refusal to pay them the face of their

An