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Alexander Hamilton: The Works of Alexander Hamilton, Volume 1, 1774
Finance: Report To Congress Regarding Loans Subscribed To By The United States as of February, 7, 1792.
Communicated to the House of Representatives, February 7, 1792.
Treasury Department, January 23, 1792.
Pursuant to the order of the House of Representatives of the first of November, 1791, directing the Secretary of the Treasury “to report to the House the amount of the subscriptions to the loans proposed by the act making provision for the public debt, as well in the debts of the respective States, as in the domestic debt of the United States, and of the parts which remain unsubscribed, together with such measures as are, in his opinion, expedient to be taken on the subject,” the said Secretary respectfully submits the following report:
The whole amount of the domestic debt of the United States, principal and interest, which has been subscribed to the loan proposed concerning that debt, by the act entitled “An act making provision for the debt of the United States,” according to the statement herewith transmitted, marked A, and subject to the observations accompanying that statement, is . . . . . . $31,797,481.22
Which, pursuant to the terms of that act, has been converted into stock bearing an immediate interest of six per cent. per annum . . . . $14,177,450.43
Stock bearing the like interest from the first of January, 1801 . . . 7,088,727.79
Stock bearing an immediate interest of three per cent. per annum . . 10,531,303.00
Making, together . . $31,797,481.22
Of which there stands to the credit of the trustees of the sinking fund, in consequence of purchases of the public debt made under their direction, the sum of . . . . . . $1,131,364.76
The unsubscribed residue of the said debt, according to the statements herewith transmitted, marked B and C, and subject to the observations accompanying the statement C, appears to amount to . . . . . $10,616,604.65
Consisting of registered debt, principal and interest . . . . . $6,795,815.26
Unsubscribed stock on the books of the commissioners of loans for New Jersey, Pennsylvania, and Maryland, principal and interest . . . 15,674.62
Credits on the books of the treasury, for which no certificates have been issued, principal and interest . . 107,648.63
Outstanding or floating evidences of debt, estimated, per statement C, at . 3,697,466.14
Making, together . . $10,616,604.65
Concerning which some further arrangement is necessary.
The greatest part of the registered debt, hitherto unsubscribed, is owned by citizens of foreign countries, most if not all of whom appear now disposed to embrace the terms held out by the act above mentioned; extensive orders having been received from those creditors to subscribe to the loan, after the time for receiving subscriptions had elapsed.
A considerable part of the outstanding or floating debt consists of loan-office certificates, issued between the first of September, 1777, and the first of March, 1778, bearing interest on the nominal sum. Many of the holders of this species of debt have come in upon the terms of this act, but others have hitherto declined it; alleging that the special nature of their contract gives a peculiarity to their case, and renders the commutation proposed not so fair an equivalent to them as in other instances. They also complain that the act has had, toward them, a compulsory aspect, by refusing the temporary payment of interest, unless they should exchange their old for new certificates, essentially varying the nature of their contract.
A resolution of Congress of the tenth of September, 1777, stipulates, in favor of this class of creditors, interest upon the nominal instead of the real principal of their debt, until that principal be discharged. This certainly renders their contract of a nature more beneficial than that of other creditors; but they are, at the same time, liable to be divested of the extra benefit it gives them by a payment of their specie dues; and it may be observed, that they have actually enjoyed, and by accepting the terms offered to them, were enabled to realize, advantages superior to other creditors. They have been paid interest by bills on France from the tenth of September, 1777, to the first of March, 1782, while other creditors received their interest in depreciated bills of the old emissions; and the terms of the loan proposed put it in their power to realize the benefit of interest, on the nominal amount of their respective debts, at rates from 6 20/100 nearly to 10 47/100 per cent. on their real or specie capital down to the last of December, 1790.
It does not, therefore, appear to have been an unreasonable expectation, that they, as readily as any other description of public creditors, would have acquiesced in a measure calculated for the accommodation of the Government, under circumstances in respect to which it has been demonstrated by subsequent events that the accommodation desired, was consistent with the best interest of the public creditors. A large proportion of the parties interested have, indeed, viewed the matter in this light, and have embraced the proposition. It is probable that the progress of things will satisfy the remainder that it is equally their interest to concur, if a further opportunity be afforded. But it is, nevertheless, for themselves only to judge, how far the equivalent proposed is, in their case, a reasonable and fair one; how far any circumstances in their claim may suggest reasons for moderation on their part; or how far any other motives, public or private, ought to induce an acceptance. And the principles of good faith require that their election should be free.
On this ground, the complaint which regards the withholding of a temporary payment of interest, except on the condition of surrender of the old certificates for new ones, importing a contract substantially different, appears, to the Secretary, not destitute of foundation. He presumes that the operation of that provision, in the particular case, was not adverted to; or, that an exception would have been introduced as most consonant with the general spirit and design of the act. Accordingly, the further measures which will be submitted, will contemplate a method of obviating the objection in question.
From the consideration, that an extension of the time for receiving subscriptions, upon the terms of the act making provision for the debt of the United States, is desired by a large proportion of the non-subscribing creditors; and from the further consideration, that sufficient experience has not yet been had of the productiveness of a considerable branch of the revenues which have been established, to afford the light necessary to a final arrangement, it is, in the judgment of the Secretary, advisable to renew the proposition for a loan in the domestic debt, on the same terms with the one which has been closed, and to allow time for receiving subscriptions to it until the last day of September next, inclusively; making provision for a temporary payment of interest to such who may not think fit to subscribe for the year 1792, of the like nature with that which was made in the same case for the year 1791, except as to the holders of loan-office certificates issued between the first of September, 1777, and the first of March, 1778; in respect to whom it is submitted as proper to dispense with the obligation of exchanging their old certificates for new, as the condition of their receiving interest in capacity of non-subscribers; and to allow them, without such exchange, to receive the same interest both for the year 1791 and 1792, as if they had subscribed to the first loan. It will not be materially difficult so to regulate the operation at the treasury as to avoid, in the particular case, that danger of imposition by counterfeits, which was the motive to the general provision for an exchange of certificates.
The amount of the subscriptions in the debt of the respective States, within the limits of the sum assumed in each, appears, by the statement marked D, to be $17,072,334.39, subject to the observations accompanying that statement. Consequently, the difference between the aggregate of the sums subscribed and the aggregate of the sums assumed is $4,427,665.61. This difference is to be attributed to several causes—the principal of which are the following: First, that the sums assumed, in respect to certain States, exceeded the actual amount of their existing debts. Second, that, in various instances, a part of the existing debt was in a form which excluded it from being received, without contravening particular provisions of the law, as in the case of certificates issued after the first day of January, 1790, in lieu of certificates which had been issued prior to that period, which was reported upon by the Secretary on the twenty-fifth day of February last. Third, ignorance of, or inattention to, the limitation of time for receiving subscriptions. It appears that a number of persons lost the opportunity of subscribing from the one or the other of these causes.
A strong desire that a further opportunity may be afforded for subscriptions in the debts of the States has been manifested by the individuals interested. And the States of Rhode Island and New Hampshire have, by the public acts referred to by the Secretary, indicated a similar desire. The affording of such further opportunity may either be restricted within the limit as to amount, which is contemplated by the act itself, or may receive an extension which will embrace the residuary debts of the States.
The first may be considered as nothing more than giving full effect to a measure already adopted.
The last appears to have in its favor all the leading inducements to what has been already done. The embarrassments which might arise from conflicting systems of finance are not entirely obviated. The efficacious command of the national resources for national exigencies is not unequivocally secured. The equalizing of the condition of the citizens of every State, and exonerating those of the States most indebted, from partial burthens which would press upon them, in consequence of exertions in a common cause, is not completely fulfilled until the entire debt of every State, contracted in relation to the war, is embraced in one general and comprehensive plan. The inconvenience to the United States of disburthening the States which are still encumbered with considerable debts, would bear no proportion to the inconvenience which they would feel, if left to struggle with those debts, unaided.
More general contentment, therefore, in the public mind, may be expected to attend such an exoneration, than the reverse; in proportion as the experience of actual inconvenience would be greater, though only applicable to parts, in the one, than in the other case.
With regard to States, parts only of the debts of which have been assumed, and in proportions short of those which have prevailed, in favor of other States, and short, also, of what would have resulted from a due apportionment of the entire sum assumed; the claim to a further assumption is founded on considerations of equal justice, as relative to the measure itself, considered in a separate and independent light.
But there is a further reason of material weight for an immediate general assumption. Moneyed men, as well foreigners as citizens, through the expectation of an eventual assumption, or that, in some shape or other, a substantial provision will be made for the unassumed residue of the State debts, will be induced to speculate in the purchase of them. In proportion as the event is unsettled, or uncertain, the price of the article will be low, and the present proprietors will be under disadvantage in the sale. The loss to them in favor of the purchasers is to be regarded as an evil; and as far as it is connected with a transfer to foreigners, at an undervalue, it will be a national evil. By whatsoever authority an ultimate provision may be made, there will be an absolute loss to the community, equal to the total amount of such undervalue.
It may appear an objection to the measure, that it will require an establishment of additional funds by the Government of the United States. But this does not seem to be a necessary consequence. The probability is, that, without a supplementary assumption, an equal or very nearly equal augmentation of funds will be requisite to provide for greater balances in favor of certain States; which would be proportionably diminished by such assumption. The destination, not the quantum of the fund, will, therefore, be the chief distinction between the two cases.
It may also appear an objection to a total assumption, that the magnitude of the object is not ascertained with precision. It is not certainly known, what is the sum due in each State; nor has it been possible to acquire the information, owing to different causes. But, though precise data are deficient, there are materials which will serve as guides. From the returns received at the treasury, assisted by information in other ways, it may be stated, without danger of material error, that the remaining debts of the States, over and above the sums already subscribed, will not exceed the amounts specified in statement D, accompanying this report. And that, including sums already subscribed, the total amount to be ultimately provided for, in the event of a general assumption, will not exceed 25,403,362 71/100 dollars, which would constitute an addition of 3,903,362 71/100 dollars to the sum of 21,500,000 dollars already assumed.
Should a total assumption be deemed eligible, it may still be advisable to assign a determinate sum for each State, that the utmost limit of the operation may be pre-established; and it is necessary, in order to the certainty of a due provision, in proper time, that interest should not begin to be payable, on the additional sums assumed, till after the year 1792.
It will occur, that provision has been made for paying to each State, in trust for its non-subscribing creditors, an interest upon the difference between the sum assumed for each State, and that actually subscribed, equal to what would have been payable, if it had been subscribed.
In the event of a further assumption, either within the limits already established, or commensurate with the remaining debts of the States, it is conceived that it will not be incompatible with the provision just mentioned, to retain, at the end of each quarter, during the progress of the further subscription, out of the money directed to be paid to each State, a sum corresponding with the interest upon so much of its debts as shall have been subscribed to that period, paying the over-plus, if any, to the State. An absolute suspension of that payment does not appear consistent with the nature of the stipulation included in that provision; for, though the money to be paid to a State be expressly a trust for the non-subscribing creditors, yet, as it cannot be certain beforehand, that they will elect to change their condition, the possibility of it will not justify a suspension of payment to the State, which might operate as suspension of payment to the creditors themselves.
A further objection to such a suspension results from the idea, that the provision in question appears to have a secondary object, namely, as a pledge for securing a provision for whatever balance may be found due to a State, on the general settlement of accounts. The payment directed to be made to a State is “to continue until there shall be a settlement of accounts between the United States and the individual States, and, in case a balance should then appear in favor of a State, until provision shall be made for the said balance.”
The secondary operation as a pledge or security (consistently with the intent of the funding act) can only be superseded in favor of the primary object, a provision for the creditors, and as far as may be necessary to admit them to an effectual participation in it. But as whatever money may be paid to a State, is to be paid over to its creditors, proportional deductions may, with propriety, be made from the debts of those creditors who may hereafter subscribe, so that the United States may not have to pay twice for the same purpose.
If it shall be judged expedient either to open again, or to extend the assumption, it will be necessary to vary the description of the debts which may be subscribed, so as to comprehend all those which have relation to services or supplies during the war, under such restrictions as are requisite to guard against abuse.
In the original proposition for an assumption of the State debts, and in the suggestions now made on the same subject, the Secretary has contemplated, and still contemplates, as a material part of the plan, an effectual provision for the sale of the vacant lands of the United States. He has considered this resource as an important means of sinking a part of the debt, and facilitating ultimate arrangements concerning the residue. If supplementary funds shall be rendered necessary, by an additional assumption, the provision will most conveniently be made at the next session of Congress, when the productiveness of the existing revenues, and the extent of the sum to be provided for, will be better ascertained.
There is a part of the public debt of the United States which is a cause of some perplexity to the Treasury. It is not comprehended within the existing provision for the foreign debt, which is confined to loans made abroad; and it is questionable whether it is to be regarded as a portion of the domestic debt. It is not only due to foreigners, but the interest upon it is payable, by express stipulation, in a foreign country; whence it becomes a matter of doubt, whether it be at all contemplated by the act making provision for the debt of the United States. The part alluded to is that which is due to certain foreign officers, who served the United States during the late war. In consequence of a resolution of Congress, directing their interest to be paid to them in France, the certificates which were issued to them specify that, “in pursuance of and compliance with a certain resolution of Congress, of the third day of February, 1784, the said interest is to be paid, annually, at the house of Mons. Le Grand, banker in Paris.” Interest has accordingly been paid to them at Paris, down to the 31st of December, 1788, by virtue of a special resolution of Congress, of the 20th of August in that year; since which period no payment has been made.
It has been heretofore suggested, as the opinion of the Secretary, that it would be expedient to cause the whole of this description of debt to be paid off; among other reasons, because it bears an interest at six per centum per annum, payable abroad, and can be discharged with a saving. The other reasons alluded to are of a nature both weighty and delicate, and too obvious, it is presumed, to need a specification. Some recent circumstances have served to strengthen the inducements to the measure. But if it should, finally, be deemed unadvisable, it is necessary, at least, that provision should be made for the interest, which is now suspended, under the doubt that has been stated, and from the want of authority to remit it pursuant to the contract.
The amount of this debt, with the arrears of interest to the end of the year 1791, is $220,646.81.
The act making provision for the debt of the United States has appropriated the proceeds of the western lands, as a fund for the discharge of the public debt. And the act making provision for the reduction of the public debt has appropriated all the surplus of the duties on imports and tonnage, to the end of the year 1790, to the purpose of purchasing the debt at the market price, and has authorized the President to borrow the further sum of two millions of dollars for the same object.
These measures serve to indicate the intention of the Legislature, as early and as fast as possible, to provide for the extinguishment of the existing debt.
In pursuance of that intention, it appears advisable that a systematic plan should be begun for the creation and establishment of a sinking fund.
An obvious basis of this establishment, which may be immediately contemplated, is the amount of the interest on as much of the debt as has been, or shall be, from time to time, purchased, or paid off, or received in discharge of any debt or demand of the United States, made payable in public securities, over and above the interest of any new debt, which may be created, in order to such purchase or payment.
The purchases of the debt, already made, have left a sum of interest in the treasury, which will be increased by future purchases; certain sums payable to the United States, in their own securities, will, when received, have a similar effect. And there is ground to calculate on a saving upon the operations, which are in execution with regard to the foreign debt. The sale of the western lands, when provision shall be made for it, may be expected to produce a material addition to such a fund.
It is therefore submitted, that it be adopted as a principle, that all interest which shall have ceased to be payable by any of the means above specified, shall be set apart and appropriated in the most firm and inviolable manner as a fund for sinking the public debt, by purchase or payment; and that the said fund be placed under the direction of the officers named in the second section of the act making provision for the reduction of the public debt, to be by them applied toward the purchase of the said debt, until the annual produce of the said fund shall amount to two per cent. of the entire portion of the debt which bears a present interest of six per centum, and thenceforth to be applied towards the redemption of that portion of the debt, according to the right which has been reserved to the Government. It will deserve the consideration of the Legislature, whether this fund ought not to be so vested, as to acquire the nature and quality of a proprietary trust, incapable of being diverted without a violation of the principles and sanctions of property.
A rapid accumulation of this fund would arise from its own operation; but it is not doubted, that the progressive development of the resources of the country, and a reduction of the rate of interest, by the progress of public credit, already exemplified in a considerable degree, will speedily enable the Government to make important additions to it in various ways. With due attention to preserve order and cultivate peace, a strong expectation may be indulged that a reduction of the debt of the country will keep pace with the reasonable hopes of its citizens.
All of which is humbly submitted.
Secretary of the Treasury.
[Schedules A, B, C, D, State Papers, Finance, vol. i., pp. 149, 150, 151.]
Self-Educated American recommends you supplement this read with Alexander Hamilton, James Madison, and John Jay’s constitutional classic: The Federalist: The Famous Papers on the Principles of American Government
The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. The copyright for the original of this document is held in the Public Domain. Font, formatting, spelling modernizations, typo/transcription corrections, and explanatory footnotes for this version of ”The Works of Alexander Hamilton” Copyright © 2011 Steve Farrell and Self-Educated American.