American politics (non-partisan) from the beginning to date

by Thomas V. Cooper; Hector T. Fenton

Resolved, That this House consider an adequate provision for the support of the public credit as a matter of high importance to the national honor and prosperity.

Resolved, That the Secretary of the Treasury be directed to prepare a plan for that purpose, and to report the same to this House at its next meeting.

“In reply thereto Hamilton submitted his report on the 9th of January, 1790, in which he gave many reasons for assuming the debts of the old Government, and of the several States, and furnished a plan for supporting the public credit. His recommendations were adopted, and embodied in the act making provision for the payment of the debt of the United States, approved August 4, 1790.

This act authorized a loan of $12,000,000, to be applied to the payment of the foreign debt, principal and interest; a loan equal to the full amount of the domestic debt, payable in certificates issued for its amount according to their specie value, and computing the interest to December 31, 1791, upon such as bore interest; and a further loan of $21,500,000, payable in the principal and interest of the certificates or notes which, prior to January 1, 1790, were issued by the respective States as evidences of indebtedness incurred by them for the expenses of the late war. ‘In the case of the debt of the United States, interest upon two-thirds of the principal only, at 6 per cent., was immediately paid; interest upon the remaining third was deferred for ten years, and only three per cent. was allowed upon the arrears of interest, making one-third of the whole debt. In the case of the separate debts of the States, interest upon four-ninths only of the entire sum was immediately paid; interest upon two-ninths was deferred for ten years, and only 3 per cent. allowed on three-ninths.’ Under this authority 6 per cent. stock was issued to the amount of $30,060,511, and deferred 6 per cent. stock, bearing interest from January 1, 1800, amounting to $14,635,386. This stock was made subject to redemption by payments not exceeding, in one year, on account both of principal and interest, the proportion of eight dollars upon a hundred of the sum mentioned in the certificates; $19,719,237 was issued in 3 per cent. stock, subject to redemption whenever provision should be made by law for that purpose.

“The money needed for the payment of the principal and interest of the foreign debt was procured by new loans negotiated in Holland and Antwerp to the amount of $9,400,000, and the issue of new stock for the balance of $2,024,900 due on the French debt, this stock bearing a rate of interest one-half of one per cent. in advance of the rate previously paid, and redeemable at the pleasure of the Government. Subsequent legislation provided for the establishment of a sinking fund, under the management of a board of commissioners, consisting of the President of the Senate, Chief Justice of the Supreme Court, Secretary of State, Secretary of the Treasury, and Attorney-General, for the time being, who, or any three of whom, were authorized, under the direction of the President of the United States, to make purchases of stock, and otherwise provide for the gradual liquidation of the entire debt, from funds set apart for this purpose. On assuming the position of Secretary of the Treasury, Hamilton found himself entirely without funds to meet the ordinary expenses of the Government, except by borrowing, until such time as the revenues from duties on imports and tonnage began to come into the Treasury. Under these circumstances, he was forced to make arrangements with the Bank of New York and the Bank of North America for temporary loans, and it was from the moneys received from these banks that he paid the first installment of salary due President Washington, Senators, Representatives and officers of Congress, during the first session under the Constitution, which began at the city of New York, March 4, 1789.

“The first ‘Bank of the United States’ appears to have been proposed by Alexander Hamilton in December, 1790, and it was incorporated by an act of Congress, approved February 25, 1791, with a capital stock of $10,000,000 divided into 25,000 shares at $400 each. The government subscription of $2,000,000, under authority of the act, was paid by giving to the bank bills of exchange on Holland equivalent to gold, and borrowing from the bank a like sum for ten years at 6 per cent. interest. The bank went into operation very soon after its charter was obtained, and declared its first dividend in July, 1792. It was evidently well managed, and was of great benefit to the Government and the people at large, assisting the Government by loans in cases of emergency, and forcing the ‘wildcat’ banks of the country to keep their issues ‘somewhere within reasonable bounds.’ More than $100,000,000 of Government money was received and disbursed by it without the loss of a single dollar. It made semi-annual dividends, averaging about 8½ per cent., and its stock rose to a high price. The stock belonging to the United States was sold out at different times at a profit, 2,220 shares sold in 1802 bringing an advance of 45 per cent. The government subscription, with ten years’ interest amounted to $3,200,600, while there was received in dividends and for stock sold $3,773,580, a profit of nearly 28.7 per cent. In 1796 the credit of the Government was very low, as shown by its utter failure to negotiate a loan for the purpose of paying a debt to the Bank of the United States for moneys borrowed and used, partly to pay the expenses of suppressing the whisky insurrection in Pennsylvania and to buy a treaty with the pirates of Algiers. On a loan authorized for $5,000,000, only $80,000 could be obtained, and this at a discount of 12½ per cent.; and, there being no other immediate resource, United States Bank stock to the amount of $1,304,260 was sold at a premium of 25 per cent.

“Under an act approved June 30, 1798, the President was authorized to accept such vessels as were suitable to be armed for the public service, not exceeding twelve in number, and to issue certificates, or other evidences of the public debt of the United States, in payment. The ships George Washington, Merrimack, Maryland and Patapsco, brig Richmond, and frigates Boston, Philadelphia, John Adams, Essex and New York, were purchased, and 6 per cent. stock, redeemable at the pleasure of Congress, was issued in payment to the amount of $711,700.

“The idea of creating a navy by the purchase of vessels built by private parties and issuing stock in payment therefor, seems to have originated with Hamilton.

“In the years 1797 and 1798 the United States, though nominally at peace with all the world, was actually at war with France—a war not formally declared, but carried on upon the ocean with very great virulence. John Marshall, Elbridge Gerry and Charles C. Pinckney were appointed envoys extraordinary to the French Republic, with power for terminating all differences and restoring harmony, good understanding and commercial and friendly intercourse between the two nations; but their efforts were in vain, and extensive preparations were made to resist a French invasion. It was evident that the ordinary revenues of the country would be inadequate for the increased expenditure, and a loan of $5,000,000 was authorized by an act approved July 16, 1798, redeemable at pleasure after fifteen years. The rate of interest was not specified in the act, and the market rate at the time being 8 per cent. this rate was paid, and it was thought by a committee of Congress that the loan was negotiated ‘upon the best terms that could be procured, and with a laudable eye to the public interest.’ A loan of $3,500,000 was authorized by an act approved May 7, 1800, for the purpose of meeting a large deficit in the revenues of the preceding year, caused by increased expenditures rendered necessary on account of the difficulties with France, and stock bearing 8 per cent. interest, reimbursable after fifteen years, was issued to the amount of $1,481,700, on which a premium was realized of nearly 5¾ per cent. These are the only two instances in which the Government has paid 8 per cent. interest on its bonds.

“The province of Louisiana was ceded to the United States by a treaty with France, April 30, 1803, in payment for which 6 per cent. bonds, payable in fifteen years, were issued to the amount of $11,250,000, and the balance which the Government agreed to pay for the province, amounting to $3,750,000, was devoted to reimbursing American citizens for French depredations on their commerce. These claims were paid in money, and the stock redeemed by purchases made under the direction of the Commissioners of the Sinking Fund within twelve years. Under an act approved February 11, 1807, a portion of the ‘old 6 per cent.’ and ‘deferred stocks’ was refunded into new stock, bearing the same rate of interest, but redeemable at the pleasure of the United States. This was done for the purpose of placing it within the power of the Government to reimburse the amount refunded within a short time, as under the old laws these stocks could only be redeemed at the rate of 2 per cent. annually. Stock was issued amounting to $6,294,051, nearly all of which was redeemed within four years. Under the same act old ‘3 per cent. stock’ to the amount of $2,861,309 was converted into 6 per cents., at sixty-five cents on the dollar, but this was not reimbursable without the assent of the holder until after the whole of certain other stocks named in the act was redeemed. The stock issued under this authority amounted to $1,859,871. It would appear that the great majority of the holders of the “old stock” preferred it to the new. A loan equal to the amount of the principal of the public debt reimbursable during the current year was authorized by an act approved May 1, 1810, and $2,750,000 was borrowed at 6 per cent. interest from the Bank of the United States, for the purpose of meeting any deficiency arising from increased expenditures on account of the military and naval establishments. This was merely a temporary loan, which was repaid the following year.