Life and Times of Washington, Volume 2 / Revised, Enlarged, and Enriched

by John Frederick Schroeder; Benson John Lossing

That a free judgment might be exercised by the holders of public securities in accepting or rejecting the terms offered by the government, provision was made in the report for paying to nonsubscribing creditors a dividend of the surplus which should remain in the treasury after paying the interest of the proposed loans; but, as the funds immediately to be provided were calculated to produce only four per cent. on the entire debt, the dividend, for the present, was not to exceed that rate of interest.

To enable the treasury to support this increased demand upon it, an augmentation of the duties on imported wines, spirits, tea, and coffee was proposed and a duty on homemade spirits was also recommended.

This celebrated report, which has been alike the fruitful theme of extravagant praise and bitter censure, merits the more attention, because the first regular and systematic opposition to the principles on which the affairs of the Union were administered, originated in the measures which were founded on it.

On the 28th of January (1790), says Marshall, this subject was taken up, and, after some animadversions on the speculations in the public debt to which the report, it was said, had already given birth, the business was postponed until the 8th of February, when it was again brought forward.

Several resolutions affirmative of the principles contained in the report, were moved by Mr. Fitzsimmons. To the first, which respected a provision for the foreign debt, the House agreed without a dissenting voice. The second, in favor of appropriating permanent funds for payment of the interest on the domestic debt and for the gradual redemption of the principal, gave rise to a very animated debate. {1}

Mr. Jackson declared his hostility to funding systems generally. To prove their pernicious influence, he appealed to the histories of Florence, Genoa, and Great Britain, and contending that the subject ought to be deferred until North Carolina should be represented, moved that the committee should rise. This question being decided in the negative, Mr. Scott declared the opinion that the United States were not bound to pay the domestic creditors the sums specified in the certificates of debts in their possession. He supported this opinion by urging, not that the public had received less value than was expressed on the face of the paper which had been issued, but that those to whom it had been delivered by parting with it at two shillings and sixpence in the pound, had themselves fixed the value of their claims, and had manifested their willingness to add to their other sacrifices this deduction from their demand upon the nation. He therefore moved to amend the resolution before the committee so as to require a resettlement of the debt.

The amendment was opposed by Mr. Boudinot, Mr. Lawrence, Mr. Ames, Mr. Sherman, Mr. Hartley, and Mr. Goodhue. They stated at large the terms on which the debt had been contracted, and urged the confidence which the creditors had a right to place in the government for its discharge according to settlements already made, and acknowledgments already given. The idea that the legislative body could diminish an ascertained debt was reprobated with great force, as being at the same time unjust, impolitic, and subversive of every principle on which public contracts are founded. The evidences of debt possessed by the creditors of the United States were considered as public bonds, for the redemption of which the property and the labor of the people were pledged.

After the debate had been protracted to some length, the question was taken on Mr. Scott's amendment, and it passed in the negative.

Mr. Madison then rose, and, in an eloquent speech, replete with argument, proposed an amendment to the resolution, the effect of which was to discriminate between the public creditors, so as to pay the present holder of assignable paper the highest price it had borne in the market, and give the residue to the person with whom the debt was originally contracted. Where the original creditor had never parted with his claim, he was to receive the whole sum acknowledged to be due on the face of the certificate.

This motion was supported by Mr. Jackson, Mr. White, Mr. Moore, Mr. Page, Mr. Stone, Mr. Scott, and Mr. Seney.