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a position to force other nations to come to terms and seek our friendship. The opposition maintained, however, that this affront to Great Britain would irritate without injuring her, and that we could not afford to provoke such a powerful nation. Nevertheless the House passed the measure, with the discriminating clause incorporated, and sent it to the Senate. The latter eliminated this clause and returned the bill; as conference committees failed to reach an agreement, the bill was finally passed, with the assurance that the Senate would take up the tonnage discrimination separately. In this expectation Washington signed the bill July 20. But the Senate failed to act, and when in the next session Madison again brought up the subject, the Senate refused to sanction the measure.t

The tariff act of July 4, 1789, was an experimental measure and was soon found to need revision. In January of 1790, during the second session of the First Congress, Hamilton estimated the expenses of the government at $600,000 and said that $2,239,163 would be required to pay the interest on the domestic and foreign debts. He thought the existing duties would suffice if the rates on wines, spirits,

*For his speech of May 4, see Annals of Congress, vol. i., pp. 236-240; for an abstract, see Hunt, Life of Madison, pp. 172-174.

Schouler, United States, vol. i., pp. 101-102. See also Madison's letters regarding this, in Madison's Works (Congress ed.), vol. i., pp. 470, 472, 474, 480 et seq., 485-486.

tea and coffee were increased and an excise placed on domestic spirits. Accordingly on April 27, 1790, the House in Committee of the Whole adopted resolutions favoring duties on foreign spirits, ranging from 20 to 40 cents per gallon, according to proof, and an excise on domestic spirits ranging from 9 to 25 cents per gallon. The excise feature excited a warm debate, and, on May 11, after two ineffectual attempts to strike out the excise provision, a vote was cast which practically amounted

to a rejection of the bill. As some means of raising revenue had to be found, a committee was appointed June 21, with Fitzsimons as chairman and Madison as second member. Of this committee three members favored the excise and two opposed it. Its report was made June 29. On July 2, in Committee of the Whole, the House passed resolutions favoring a general increase of 50 per cent. in the duties on specified articles and a still larger increase in the duties on tea, coffee, wines, spirits and spices. On July 13 a bill was reported in accordance with the committee's findings, was briefly debated and, on July 19, passed. With a few amendments, the Senate passed the bill August 5. The House accepted the amendments, and on August 10, 1790, the bill became a law.* By this act the duty on hemp was reduced from 60 to 54 cents per hundredweight, that on

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tarred cordage was increased from 75 cents to $1, on untarred cordage from 90 cents to $1.50, and on steel from 56 to 75 cents per hundredweight. Many articles were taken out of the unenumerated class at 5 per cent., and placed under a duty of 72 or 10 per cent., the higher duty being placed on manufactured articles. It was further declared that the duties thus levied should be continued until the public debt and the purposes for which they were appropriated had been satisfied, though the right was reserved to substitute other duties or taxes of equal value. Thus the time limitation contained in the act of 1789 was repealed.*

Shortly after the second session of the First Congress convened, January 4, 1790, Secretary of the Treasury Hamilton asked permission to submit a plan for the support of public credit which he had drawn up pursuant to previous instructions from Congress. According to the report submitted January 9, the national debt, which had originated principally during the Revolution, was of two kinds-foreign and domestic. According to Hamilton's estimate, the total amount was $54,124,464.56. Of this sum the foreign debt, due chiefly to France and Holland, amounted to $11,710,378.62, including the interest of $1,640,071.62. The domestic debt reached $42,414,085.94, including a large amount of in

terest and a sum estimated at $2,000,000 of unliquidated domestic obligations consisting chiefly of Continental bills of credit. In addition to the national debt, the various States had contracted individual debts during the war for the purpose of supporting the military service and for erecting works of defence, furnishing provisions and clothing, and for advancing pay and bounties, etc. These State debts, principal and interest, were estimated at about $25,000,000.* Hamilton's report was able, perspicuous and comprehensive. In a few curt sentences he states the object to be attained:

"To justify and preserve the confidence [of the most enlightened friends of good government]; to promote the increasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to cement more closely the union of the States; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy;- these are the great and invaluable ends to be procured by a proper and adequate provision, at the present period, for the support of public credit." †

No one pretended to deny that the foreign debt should be paid according to the terms under which it had been

*American State Papers, Finance, vol. i., p. 22; Bolles, Financial History, p. 30; Dewey, Financial History, pp. 89-90. See also Sparks, Life of Washington, pp. 424-425; Schouler, United States, vol. i., p. 145. The text of Hamilton's report will be found in American State Papers, Finance, vol. i., pp. 15-37; MacDonald, Select Documents, pp. 47-58; Annals of Congress, vol. ii., pp. 19922022; Hamilton's ed. of Hamilton's Works, vol. iii., p. 1 et seq. See also Appendix I. at the end of the present chapter.

Lodge, Alexander Hamilton, pp. 89-90; Hamilton's ed. of Hamilton's Works, vol. iii., p. 5.

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contracted, but with respect to the domestic debt opinions differed. Hamilton urged that the faith and honor of the nation demanded the payment of debts due to citizens holding the public pledges for such payment and that it was equally unjust and impolitic, highly injurious even to the original holders of public securities. and ruinous to public credit" to discriminate between those who originally held public securities and those to whom they had been transferred, either by purchase or otherwise. He declared himself in favor of assuming the State debts and opposed differentiating between the National creditors and State creditors. As both debts were contracted for the same purpose and were in the main the same, equity demanded for them the same measure of redemption. He proposed to float a loan for the full amount of the debt, both of the States. and of the Union, but as he doubted whether the government possessed power to make effectual provision for paying the interest on so large a sum on the terms of the original contracts, he submitted several plans to the House by which the domestic debt might be paid; and that the Treasury might meet the increased demand that would thus be made upon it, he recommended that the duties be increased on imported wines, teas, etc., and that a duty be laid on home-made spirits.*

*Irving, Life of Washington, vol. v., pp. 58-60; McMaster, United States, vel. i., pp. 568-569; Lodge, Alexander Hamilton, pp. 96-97.

The subject was taken up in the House on January 28, 1790, but was postponed and was not resumed again until February 8.* At this time Fitzsimons moved that the principles of the report be affirmed. Without a dissenting voice, the House agreed to provide for meeting the foreign debt, but an animated debate arose over the resolution for appropriating funds to pay the interest on the domestic debt and for gradually extinguishing the principal.

Speculation had become rife because, owing to the disordered condition of the National finances, the certificates issued by the old Congress had been used as a basis for numerous mercantile transactions of a wildly hazardous nature. These certificates had depreciated until they were worth only from 20 to 25 cents on the dollar. If Hamilton's plan of funding at par should be adopted, these certificates and evidences of State indebtedness would greatly enhance in value. As a result, there was a wild rush on the part of speculators to purchase certificates held by those at a distance from New York who might be ignorant of their increased value.† The price was thus raised 40 or 45 per cent. These speculators never had been popular with the average thrifty citizens, much

* Benton, Abridgment of Debates, vol. i., pp. 182-184, 190-201; Annals of Congress, vol. i., pp. 1093-1103, 1130 et seq.

Schouler, United States, vol. i., p. 146.

Dewey (Financial History, p. 91) says that upon the publication of Hamilton's report the certificates went up to 50 cents on the dollar.