Abridgment of the Debates of Congress, from 1789 to 1856, Vol. 1 (of 16)

by United States. Congress

It is doubtful with me whether a permanent funded debt is beneficial or not to any country; some of the first writers in the world, and who are most admired on account of the clearness of their perceptions, have thought otherwise, and declared that wherever funding systems have been adopted in a Government, they tend more to injure posterity than they would injure the inhabitants to pay the whole debt at the time it was contracted. The principle, I apprehend, is demonstrated by experience; the first system of the kind that we have any account of originated in the State of Florence in the year 1634; that Government then owed about £60,000 sterling, and being unable to pay it, formed the principal into a funded debt, transferable with interest at five per cent. What is the situation of Florence in consequence of this event? Her ancient importance is annihilated. Look at Genoa and Venice; they adopted a similar policy, and are the only two of the Italian Republics who can pretend to an independent existence, but their splendor is obscured; they have never been able since the period at which a funding system was introduced to raise themselves to that formidable state to which they were before. Spain seems to have learned the practice from the Italian Republics, and she, by the anticipation of her immense revenue, has sunk her consequence beneath that level which her natural situation might have maintained. France is considerably enfeebled, and languishes under a heavy load of debt. England is a melancholy instance of the ruin attending such engagements. In the reign of King William, 1706, the policy of the English Parliament laid the foundation of what is called their national debt; but the sum was inconsiderable; it little exceeded £5,000,000 sterling; the example then set has been closely followed. In 1711, it amounted to £9,177,769 sterling, during the wars in the reign of Queen Anne; since that, the capital of the debt of Great Britain amounted, in 1777, to about £136,000,000 sterling; and to such a pitch has the spirit of funding and borrowing been carried in that country, that in 1786, their national debt had increased to £230,000,000 sterling; a burthen which the most sanguine mind can never contemplate they will ever be relieved from. If future difficulties should involve that nation still further, what must be the consequence? The same effect must be produced that has taken place in other nations; it must either bring on a national bankruptcy, or annihilate her existence as an independent empire. Hence I contend that a funding system in this country will be highly dangerous to the welfare of the Republic; it may, for a moment, raise our credit, and increase our circulation by multiplying a new species of currency; but it must hereafter settle upon our posterity a burthen which they can neither bear nor relieve themselves from. It will establish a precedent in America that may, and in all probability will be pursued by the sovereign authority, until it brings upon us that ruin which it has never failed to bring, or is inevitably bringing, upon all the nations of the earth who have had the temerity to make the experiment. Let us take warning by the errors of Europe, and guard against the introduction of a system followed by calamities so universal. Though our present debt be but a few millions, in the course of a single century it may be multiplied to an extent we dare not think of; for my part, I would rather have direct taxes imposed at once, which, in the course of a few years, would annihilate the principal of our debt. A few years' exertion in this way will save our posterity from a load of annual interest, amounting to the fifth, or perhaps the half of the sum we are now under engagements to pay.

But why, Mr. Chairman, should we hasten on this business of funding? Are our debts ascertained? The report of the Secretary of the Treasury proposes that we should not only fund the debts that are ascertained, but the unliquidated and unsettled debts due from the Continent; nor does the plan stop here, it proposes that we should assume the payment of the State debts—debts to us totally unknown. Many of the States, sir, have not yet ascertained what they owe; and if we do not know the amount of what we owe, or are to be indebted, shall we establish funds? Shall we put our hands into the pockets of our constituents, and appropriate moneys for uses we are undetermined of? But more especially shall we do this, when, in doing it, it is indisputably certain, that the encumbrance will more than exceed all the benefits and conveniences? Gentlemen may come forward, perhaps, and tell me, that funding the public debt will increase the circulating medium of the country, by means of its transferable quality; but this is denied by the best informed men. The funding of the debt will occasion enormous taxes for the payment of the interest. These taxes will bear heavily both on agriculture and commerce. It will be charging the active and industrious citizen, who pays his share of the taxes, to pay the indolent and idle creditor who receives them, to be spent and wasted in the course of the year, without any hope of a future reproduction; for the new capital which they acquire must have existed in the country before, and must have been employed, as all capitals are, in maintaining productive labor. Thus the honest, hard-working part of the community will promote the ease and luxury of men of wealth; such a system may benefit large cities, like Philadelphia and New York, but the remote parts of the continent will not feel the invigorating warmth of the American treasury; in the proportion that it benefits one, it will depress another.

Mr. Smith, (of South Carolina.)—The report of the Secretary of the Treasury contains a proposition for the establishment of a sinking fund. I wish the gentleman who brought forward the resolutions under consideration, had included that part of the system in his propositions, as it might have had a tendency to ease the mind of the honorable gentleman from Georgia, and to have shown him that the public debt is not intended to acquire the permanency which he dreads. If our present debt cannot be paid off at once, all that can be done is to provide such funds for its gradual extinction as will morally ensure the object.

The gentleman has contended, that public funding is a public injury. I agree with him that funding a debt to a very great amount may be very injurious; yet funding a small debt is beneficial. But whether this is, or is not a fact, is not the object of our present inquiry; we are not in a situation to determine whether we will or will not have a public debt. We have it already, and it appears to me to be a matter of necessity that we should appropriate some funds for the payment of the interest upon it. When we consider the nature of the contract, for what it is we owe the money, and our ability to comply, it follows, of consequence, that we must pay; it follows as close as the shadow follows its substance; or as close as the night follows the day. The only question that can come before us is, the mode of doing it.

With respect to that part of our debt which is yet unascertained, I would just beg leave to observe, that it is not our fault that it remains in an unsettled state; neither is it the fault of those who have brought in their accounts and had them liquidated. Hence, it appears to me extremely hard that we should refuse to provide for the payment of those to whom we acknowledge ourselves to be indebted, because there are others whose claims against us are not yet adjusted. The argument, therefore, which relates to this point, as well as that which relates to the Western Territory, will apply ten years hence as well as now, and form an eternal pretext for deferring the business.

Mr. Fitzsimons said, that the circumstances of the foreign debt were such as left no choice in our power, according to the plan proposed by the Secretary of the Treasury; but we have it in our power, and are recommended to make a different arrangement with respect to the domestic debt. I stated, when I introduced the resolutions, that they were intended to bring the Secretary's plan fairly before the committee. This resolution is differently worded on that account; but it may be observed, that the foreign creditors are not here to make a contract with the people of the United States, but the domestic creditors are; and we may hold out a modification to them for their acceptance. With respect to the means by which we shall be enabled to pay the interest and principal of our debt, this resolution has nothing to do, it leaves it to the consideration of the committee; and every gentleman will be perfectly at liberty to propose and support such as he supposes to be most suitable to our abilities.

Mr. Livermore.—I do not clearly understand the import of the resolution before the committee. It seems worded rather in a doubtful manner. If it means, that funds ought to be appropriated for the payment of the interest and principal of the domestic debt, as the amount appears on the face of the certificates, I shall be totally against it; whether it pointedly carries that meaning or not, I cannot say.

For my part, I consider the foreign and domestic debt to carry with them very material distinctions. The one is not like a debt, while the other has all the true qualities of one. However gentlemen may think on this subject, there is a great difference between the merits of that debt which was lent the United States in real coin, by disinterested persons, not concerned or benefited by the revolution, and at a low rate of interest, and those debts which have been accumulating upon the United States, at the rate of six per cent. interest, and which were not incurred for efficient money lent, but for depreciated paper, or services done at exorbitant rates, or for goods or provisions supplied at more than their real worth, by those who received all the benefits arising from our change of condition. It is within the knowledge of every gentleman, that a very considerable part of our domestic loan-office debt arose in this manner. It is well known that loan-office certificates were issued as a kind of circulating medium, when the United States were in such straits for cash, that they could not raise the necessary supplies in any other way. And it is very well known, that those who sold goods or provisions for this circulating medium, raised their prices from six to ten shillings at least.

There is another observation I would beg leave to make. The prices at which our supplies were procured were such, even in hard money, that it might be said specie had depreciated, or, what amounted to the same thing, the commodities were sold for more than their current price; in many cases, half the price would now purchase the same thing. If so, there is as much reason that we should now consider these public securities in a depreciated state, as every holder of them has considered them from that time to this. There was a period at which they were considered of no greater value than three or four shillings in the pound; at this day they are not at more than eight or ten. If this, then, is the case, why should Congress put it upon the same footing as the foreign debt, for which they received a hard dollar for every dollar they engaged to pay? Could any possible wrong be done to those who hold the domestic debt, by estimating it at its current value? I do not speak of those only who have speculated in certificates. With respect to them, I do not see how a difference can be made. By the resolutions of Congress, and from the face of the papers, it appears that they were transferable.

It may be said, that there was some part of the domestic debt incurred by loans of hard money. There might be a small part lent in this way, but it was very small indeed, compared with the whole of the domestic debt. It is in the memory of every gentleman, that, before the beginning of the revolution, every State issued paper-money; it answered the exigencies of Government in a considerable degree. The United States issued a currency of the same nature, which answered their purposes, except in some particular cases, and these were effected by loans of certain sums of hard money. If any distinctions are to be made among the domestic creditors, they ought to be made in favor of such only, and that in consequence of the origin of the debt; while the great mass given for the depreciated paper, or provisions sold at double prices, ought to be liquidated at its real value. I cannot think it injustice to reduce the interests on those debts. I should therefore be against passing this resolution, if it carries in it the idea of paying the principal and interest, according to the face of the paper. It is well known, that a large proportion of this domestic debt was incurred for paper-money lent. To be sure Congress acknowledged its value equal to its name; but this was done on a principle of policy, in order to prevent the rapid depreciation which was taking place. But money lent in this depreciated and depreciating state, can hardly be said to be lent from a spirit of patriotism; it was a mere speculation in public securities. They hoped, by putting their money in the loan-office, though in a depreciated state, to receive hard money for it by and by. I flatter myself this prediction will never be effected.