Inquiry Into the Origin and Course of Political Parties in the United States

by Martin Van Buren

No necessity can now be perceived for the adoption at that moment of a scheme of such magnitude as that which Hamilton proposed—one so well calculated to excite jealousy, and against which the warning voice of experience had become so audible. The existing debt, sacred as the price of liberty and entitled to all solicitude for its satisfactory discharge, was not, in view of the increased resources of the Government, either very large or, in any other event than a failure in the payment of interest, ineligibly situated, or in any great danger of soon becoming impracticable or oppressive. The foreign debt then stood at eleven millions, the principal payable by moderate instalments, the last of which, not due till 1808, was never, save a small portion of the French debt, actually funded, and was paid off during the administration of Mr. Madison. The domestic debt of the United States amounted to forty millions, which Secretary Hamilton thought might fairly be regarded as payable at the pleasure of the Government. The interest and instalments as they fell due were therefore the principal subjects to be dealt with.

The change which had at last been effected in the Constitution, securing to the Federal head full power to levy and collect all necessary revenue, and the prospects of an improving trade and increasing prosperity in every branch of business gave of themselves to the Government a good right to anticipate an improvement in the public credit sufficient to enable it to make direct loans abroad upon fair terms, payable at specific and reasonable periods, as had been before done without these advantages. On the avails of these, with the surplus of an increasing revenue over and above the six hundred thousand dollars, which was all that was asked for the support of Government in other respects than the payment of debts, the Secretary might, it would seem, have safely relied to meet accruing demands on account of the public debt. It is well known that such favorable effects resulted from the change which had taken place in the Government and our credit abroad was so greatly improved that loans which had before been obtained with difficulty and in a considerable degree through favor, and in part by means of specific guaranties, were now sought after and taken with avidity in Amsterdam and Antwerp. The friends of the Secretary, and those who favored his policy, naturally claimed that this favorable change was due to his report, and to the acts that were passed in pursuance of his recommendation. A portion of the effects produced may have been attributable to this cause, but it was rendered quite clear that the improvement could not be thus explained as to Holland, where a large part of our foreign debt was held and to which country the whole was soon transferred, by the facts that her bankers not only continued to lend freely to our Government in the old way, upon direct loans, payable at specific periods,—principal and interest,—but expressly declined, as did also our creditors in Antwerp, to accept our proposal for converting the debts due upon loans of that character into a funded domestic stock.

The whole of our foreign debt in Holland, that which was due at the time of the passage of the act establishing the funding system as well as that which was subsequently contracted there and at Antwerp, and the principal part of that held elsewhere, was paid to the entire satisfaction of the creditors by the means I have described, and without being funded. The domestic debt, the least difficult or delicate to deal with, would doubtless have been seasonably and satisfactorily discharged in the same way, if General Hamilton had not, at an early age, imbibed an opinion, which he never changed, that a permanent national debt was an advantage to any country, and likely to be particularly useful in a confederacy like ours. That such was his sincere opinion there cannot be the slightest doubt, and that he contemplated a public debt here of a character as permanent as that was likely to be which then existed in England is fairly to be inferred from his acts.

Hamilton's mind was from a very early period turned to politics, and of political subjects that of finance was from the beginning the favorite theme of his meditations, among the most prominent results of which was a conviction that of the agencies necessary to good government, whatever might be its form, there were none more useful than a well funded public debt and a judiciously constructed national bank. At the early age of twenty-three, whilst filling a post of subordinate rank in the army, he addressed an anonymous communication (as I have before mentioned) to Robert Morris, whose mind was inclined in the same direction, and who was extensively employed in the management of fiscal affairs, enforcing with much ability his favorite ideas. Some of the contents of this communication are given in the "Life of Hamilton" by his son. In a subsequent letter to the same gentleman, he argues in support of kindred positions. In his report upon public credit he advances the same favorable opinion, and in substantially the same language, of the effects of the particular debt he proposed to fund upon terms which promised perpetuity. He did, it is true, accompany the latter declaration with a protest against the latitude, inviting to prodigality, which was sometimes given to the idea of the utility of a public debt, and with a recommendation in favor of the establishment of a sinking fund, and other reservations and qualifications, couched in the guarded terms usually employed by able men in state papers upon controverted public questions. But the report contained nothing inconsistent with the idea of keeping on foot a national debt as long as it did not become "too large,"—a condition that could scarcely fail to give way to the supposed exigencies of the moment,—and the farther condition of an indispensable necessity for its continuance never found a place in his reports or weight in his opinions. On the contrary, the advantages of a national debt in preparing the people for those periods of oppressive assessment to which all nations are occasionally exposed, by constantly levying a reasonable tax to discharge interest, a principal reason in favor of a public debt assigned in his letter to Morris; the utility and convenience of having always at hand a band whose special interest in the stability of the government would promptly rally them to its support,—an idea never long absent from Hamilton's mind; the benefits which the agricultural, manufacturing, and commercial interests would derive from the funding of seventy millions of debt in the form and upon the principles he proposed, giving to it the capacity of being "substituted for money" and increasing by that amount the floating capital, and to a great extent the circulating medium of the country; the beneficial influence of a funded debt in raising the value of land, in proof of which the experience of England is cited, besides supplying those important classes with means to improve and enlarge their respective pursuits, and increasing those facilities by reducing the rate of interest, constituted the arguments and persuasions set forth in glowing and captivating terms in his reports, and though not necessarily confined to a permanent national debt, indicate very clearly, to my mind at least, that it was such a debt that he had in view.

The uses to which the sinking fund had been applied in England and its inefficiency in the reduction of the national debt were well understood by the Secretary. The explanations of its greater efficacy here in after times will be given in another place. They had no connection with the views that were prevalent in the councils of the nation at the moment of which we are speaking. Every act of the Secretary was in keeping with the inference I have stated. In addition to the principle he proposed as the basis of his system, which, if not perpetual funding in express terms, postponed redemption to so remote and indefinite a period as to render it next to certain that it would never occur, there were other circumstances scarcely less confirmatory of the assumption that such was his intention.

The stand taken by Hamilton in the provision he proposed and which was adopted for a portion of the domestic debt had a great influence in creating the impression that his funding system had other than fiscal objects in view. His opponents not thinking either that system or the bank necessary for the public service—an opinion vindicated and sustained by subsequent experience—readily attributed the strong desire manifested for their establishment to political designs on the part of their author. Jefferson denounced the financial scheme as a "puzzle to exclude popular understanding and inquiry, and a machine for the corruption of the Legislature." In aid of the latter charge, besides going at least some length to sustain the imputation of Hamilton's desire for an unnecessary increase of the public debt, came these facts: A large proportion of the domestic debt consisted of certificates of indebtedness given by the United States to the soldiers who fought our battles, and to the farmers, manufacturers, and merchants who furnished supplies for their support. These had been given because the Government had no money, but under promises of speedy payment. The holders were frequently driven by their necessities, and by misrepresentations in respect to the chances of payment, to part with them for trifling amounts. Had the matter stopped there, however much regretted and condemned, it might not have attracted the notice which was taken of it. But when Hamilton proposed to put the original holders and the fraudulent purchasers of these certificates upon the same footing, and when it became known to the members of Congress, which sat with closed doors, that the bill would pass in that shape, every part of the country was overrun by speculators, sped by horse and packet expresses, buying up large portions of the certificates still held by those to whom they were originally given at the rate of five shillings and, in some instances, of two shillings and sixpence in the pound. It was never doubted that members of Congress and their particular friends participated in these speculations, and realized large sums by the certificates being funded at their nominal amounts. When the bill came up, several gentlemen, who afterwards became prominent members of the Republican party, earnestly supported a proposition to make a composition between the original holders and the assignees of these papers, allowing to the latter the highest prices they had ever brought in the market, and settling with the former for the residue. Such an arrangement might have been effected without embarrassment to the treasury by satisfactory grants of public lands, and the amount of debts might have been thus materially reduced. Mr. Madison in a sensible speech supported the justice of some such composition; but the friends of the Secretary in Congress, some of them interested in the result, carried the measure which had been elaborately argued in advance by Hamilton, in his report, and by which the whole was awarded to the speculators. The entire transaction caused deep disgust in the minds of many who felt solicitous for the purity of the Government, and not a few believed that the scramble which ensued was foreseen and counted upon as a source of influence to enlist Congress on the side of the administration. Their hostility to a system susceptible, as they thought, of such practices, was of course greatly inflamed.

The construction thus placed upon the Secretary's course received its strongest confirmation from his proposal and untiring efforts for the assumption of the State debts. The first object of a prudent financier would seem to be to keep the debt he has to deal with at the lowest practicable point. Hamilton, on the contrary, whilst struggling with embarrassments in respect to the debts for which the United States were legally bound, upon the largest portion of which many years of interest had been suffered to accumulate, proposed to increase the liability twenty-five millions by the voluntary assumption of debts which the Federal Government was under no obligations to pay; an assumption not only unsolicited on the part of the indebted States, but to which there was the best reason for believing that several among them would be opposed. The special representatives of the latter in the Senate, where the proposition originated, so earnestly contested it that the clause of the bill to carry it into effect could only be passed by a majority of two, was in the first instance rejected in the House of Representatives against the united influences of the administration, and could only be reconsidered and barely carried by means of a discreditable intrigue to which the Secretary and Mr. Jefferson, as the latter has acknowledged with shame and contrition, were parties.

The reasons assigned by Hamilton for this forced assumption of a debt which had never been audited, and the amount of which they were obliged to guess at, though framed with his usual ability, cannot, I should think, he now regarded as sufficient to justify the step. The weight which they might by any be supposed to possess was overbalanced by the obvious unconstitutionality of the measure. It adopted as well the debts of the States which, upon the final settlement between them and the United States, were found in debt to the latter, as of those which proved to have balances in their favor, and was therefore a loan by the Federal Government to the former class of States, made under the power in the Constitution authorizing Congress to borrow money.

This measure, like that which preceded it, was well calculated to strengthen the suspicion with which the minds of his opponents became thoroughly imbued, that Hamilton in all his measures had in view the advancement of partisan objects, from its peculiar adaptation to the promotion of a leading point in his whole policy,—that of weakening State authority and strengthening that of the General Government at their expense. The distinctness and strength of expression with which this policy was avowed by him, in papers published by his son, have already been seen. Among the means suggested was the adoption of measures by which the attention of the people might be diverted from the State governments, upon which it was thought to be too intensely fixed, and turned towards the Federal head, and by which their passions might be excited and turned in the same channel. What single measure could exert greater influence in giving effect to this policy or show more strikingly the hand of a master than that by which the intense and constant solicitude of the holders of twenty-five millions of debts, scattered, in comparatively small sums, through the different States, and embracing, it is fair to presume, the most active of their citizens, was turned from the local authorities to the Federal Government, first for the settlement of the amount, and next for the payment of their demands,—by which the States themselves became liable for the amounts so paid to a Government which, certainly in some of its departments, regarded them as rival not to say dangerous powers, and by which also the disreputable scramble for those debts, commenced in the case of the certificates of the United States, would be revived.

The conflicting views entertained upon these subjects by Hamilton and Jefferson soon assumed the form of a distinct and well defined issue between the friends and political followers of each,—the former composing the Federal party, and the latter constituting elements of which the Republican party, then in embryo, was formed. Hamilton's doctrine, and for a season the avowed creed of his party, was that there were advantages in the existence of a national debt which more than counter-balanced any evils that might arise from its unnecessary continuance, and this faith shaped the whole course of their action upon the subject. Its subjection to the operations of a sinking fund, and the qualification that the amount of the debt should be kept within proper limits, were of course features in their platform. Estimating the results of the former here by its efficiency in England, and instructed by the experience of all nations that restraints upon the accumulation of debt, however solemnly imposed, are of no account with applicants for grants from the public treasury, and unhappily little more respected by men in power when the importunities of friends and supporters are brought in competition with the interests of posterity, it was not difficult to foresee the futility of these conditions. Mr. Jefferson, on the contrary, from the beginning regarded a public debt as a "mortal canker" from which it was the duty of the Government to relieve the country at the earliest practicable moment, and in this spirit he and his friends acted throughout.