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 cer tificates 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.

II.

The case of the over-due interest was put with equal CHAPTER force. That interest ought to have been paid at the 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 demand. able. 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-duo 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

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 is. sue, 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 pro posed funding of the public debt was regarded in a very different light. They saw in the present holders of the