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

by Martin Van Buren

This was all that could be done, and it was not to be doubted that the accomplishment of this through the interference of Washington, with a return to the old mode of raising money, would go far to allay honest apprehensions, and to remove prejudices against his administration without disadvantage to the public service certainly, and, I may add, without the slightest departure from the course which it became him to pursue. He determined to pursue it. That the resolution in regard to the policy finally adopted upon this point originated with Washington alone, without consultation with, or advice from, Hamilton, is rendered certain to my mind from contemporaneous circumstances, some of which will be referred to. He, of course, communicated his intention to Hamilton, who proposed to take charge of all the preliminary steps that could be adopted during the short period of his remaining in office to prepare the way for the contemplated change. This was proper in itself and assented to by the President, who thus, as was his way on most occasions, enabled Hamilton to give to the whole affair the shape he thought best. The funding system was emphatically his measure, and if it was to be discontinued, it was proper that he should be permitted to make its exit as graceful as was practicable.

The intended movement was preceded by the President's speech to Congress in November, 1794, from which I extract this passage: "The time which has elapsed since the commencement of our fiscal measures has developed our pecuniary resources so as to open a way for a definitive plan for the redemption of the public debt. It is believed that the result is such as to encourage Congress to consummate this work without delay. Nothing can more promote the permanent welfare of the nation, and nothing would be more grateful to our constituents. Indeed, whatsoever is unfinished of our system of public credit cannot be benefited by procrastination; and, as far as may be practicable, we ought to place that credit on grounds which cannot be disturbed, and to prevent that progressive accumulation of debt which must ultimately endanger all governments."

This was substantially the only part of the speech which related to any other matter than the Pennsylvanian insurrection, and no one familiar with Hamilton's writings can doubt that the entire paragraph was prepared by him,—a proceeding common and in this instance particularly proper. It presented in general terms a gratifying assurance of the improvement in the revenues of the Government, and the promised advantages to the national finances. No reference is made to the character of the measures by which those advantages were to be secured; these might be provisions for the immediate reduction of the debt, or at the least for an earlier reduction than that which was authorized by law.

On the 25th of January, eleven days before he left the department, Hamilton tendered to the Senate an elaborate "plan for the further support of public credit on the basis of the actual revenue." It was not his annual report, nor had it been called for by the Senate, but had been prepared, he said, as a part of his duties, according to the Act by which they were prescribed, and in conformity with the suggestions of the President. It fills twenty-seven pages, small print, in the large folio edition of the American State Papers, and, being his last, was of course prepared with great care and, as much of course, with great ability. Jefferson thought, at times, that Hamilton did not himself understand his own complicated and elaborate reports on the finances, but in this I am persuaded he was entirely mistaken. Hamilton evidently held the thousand threads which traversed these voluminous works with a firm and instructed hand, and perfectly understood their several and manifold connections with the body of the documents and the results to which the whole and every part tended. That he meant that others should understand them as well as he did is perhaps not so certain.

His plan did not even look to a present reduction of the debt, which would seem to be the natural consequence of a revenue so prosperous as that he had described in the speech; that would have been an impossibility. At the date of his report the debt had increased four millions from what it was when the funding system was established, independent of the assumption of those of the States, and at the end of Mr. Adams's administration, the increase stood at eight millions. I have not examined the result for each year, but am confident that I hazard little in affirming that there was not a single year, from the first period to the last, during which the public debt was not increased. Mr. Jefferson, in a letter to Mr. Madison, written in 1796, expressed the opinion that, from the commencement of the new government till the time when he ceased to attend to it, the debt had augmented a million a year. The preceding statement shows the correctness of his calculation.

Neither did Hamilton propose any measures by which the payment of the debt might be accelerated, but the reverse. The whole debt then stood as follows: foreign debt, between thirteen and fourteen millions; domestic debt funded, including those of the States, between sixty and sixty-one millions, and domestic debt unsubscribed, between one and two millions. The foreign debt was payable by installments, ending at the expiration of fifteen years. His plan was to offer the foreign creditors one half of one per cent. interest, annually, more than it then drew, if they would consent to make it a domestic debt, and postpone the redemption of the principal till 1818, which would defer it between eight and nine years; or, if they refused that, it might remain redeemable at any time they proposed, so that the redemption of the principal was not accelerated by making it less than the fifteen years. A law authorizing such a change was passed, the offer made and declined. The debt was suffered to stand as it did, and the last payment was made during the administration of Mr. Madison. In respect to the funded debt, all that the report proposed (and that proposition was carried into effect by law shortly after Hamilton retired) was to add materially to the existing provisions for the payment of the public debt, and to provide effectually that the funds set apart for that should be regularly and inviolably applied, first, to the payment of as much of the funded debt as the Government had a right to pay annually, which was two per cent. of the principal besides the interest, and after that to the then existing public debt generally; that is to say, in regard to the funded debt, it changed the option of the Government to pay the two per cent. into a positive obligation, and provided adequate funds for that purpose. It was calculated that these provisions would redeem the funded debt bearing an immediate interest in 1818, and the deferred funded debt in 1824; they did so, and thus the funded debt was extinguished. All succeeding loans, as well under the administrations of Washington and Adams as subsequently, were made redeemable at or after a certain period, save in rare and very limited instances controlled by special circumstances and not constituting modifications of the general rule of the Government.

By this step Congress carried into effect an object for which the Republicans had striven since soon after the establishment of the funding system, and upon the resolution to accomplish which Hamilton had interposed a temporary obstruction by his report in December, 1792. The funded debt was changed into a simple debt payable by regular though small installments, at stated and certain periods. Its ultimate redemption was made certain, and the further practice of funding successfully discountenanced. That was done which Washington desired to have done; not indeed in the plain, straightforward way in which he would have done it, for that would have shown that the Government, in deference to public sentiment, had, to borrow a common phrase, taken the back track; an exhibition which Hamilton's course was designed to avoid. What the latter undertook to do he did effectually and in good faith, but a careful perusal of his last exposé will show how little the whole proceeding was in harmony with his individual feelings.

The following are extracts from that extraordinary paper:—

"To extinguish a debt which exists and to avoid the contracting more are always ideas favored by public feeling; but to pay taxes for the one or the other purpose, which are the only means of preventing the evil, is always more or less unpopular. These contradictions are in human nature; and happy indeed would be the country that should ever want men to turn them to the account of their own popularity or to some other sinister account.

"Hence it is no uncommon spectacle to see the same men clamoring for occasions of expense when they happen to be in unison with the present humor of the community, whether well or ill directed, declaiming against a public debt and for the reduction of it as an abstract thesis, yet vehement against every plan of taxation which is proposed to discharge old debts or to avoid new by the defraying of exigencies as they emerge. These unhandsome acts throw artificial embarrassments in the way of the administration of a government."