After expressing his confidence in their attention to many improvements essential to the prosperity of the interior, the President added: "Nor am I less persuaded that you will agree with me in opinion that there is nothing which can better deserve your patronage than the promotion of science and literature. Knowledge is in every country the surest basis of public happiness. In one, in which the measures of government receive their impression so immediately from the sense of the community as in ours, it is proportionally essential. To the security of a free const.i.tution it contributes in various ways, by convincing those who are entrusted with the public administration that every valuable end of government is best answered by the enlightened confidence of the people, and by teaching the people themselves to know and to value their own rights; to discern and provide against invasions of them; to distinguish between oppression and the necessary exercise of lawful authority--between burdens proceeding from a disregard to their convenience, and those resulting from the inevitable exigencies of society; to discriminate the spirit of liberty from that of licentiousness, cherishing the first, avoiding the last, and uniting a speedy but temperate vigilance against encroachments, with an inviolable respect to the laws.
"Whether this desirable object will be best promoted by affording aids to seminaries of learning already established by the inst.i.tution of a national university or by any other expedients, will be well worthy of a place in the deliberations of the Legislature."
Addressing himself then particularly to the representatives, he said: "I saw with peculiar pleasure, at the close of the last session, the resolution entered into by you, expressive of your opinion that an adequate provision for the support of the public credit is a matter of high importance to the national honor and prosperity. In this sentiment I entirely concur, and to a perfect confidence in your best endeavors to devise such a provision as will be truly consistent with the end, I add an equal reliance on the cheerful cooperation of the other branch of the Legislature. It would be superfluous to specify inducements to a measure in which the character and permanent interests of the United States are so obviously and so deeply concerned, and which has received so explicit a sanction from your declaration."
Addressing himself again to both houses he observed that the estimates and papers respecting the objects particularly recommended to their attention would be laid before them, and concluded with saying: "The welfare of our country is the great object to which our cares and efforts ought to be directed, and I shall derive great satisfaction from a cooperation with you in the pleasing though arduous task of insuring to our fellow-citizens the blessings which they have a right to expect from a free, efficient, and equal government."
The answers of both houses were indicative of the harmony which subsisted between the executive and legislative departments.
Congress had been so occupied during its first session with those bills which were necessary to bring the new system into full operation and to create an immediate revenue, that some measures which possessed great and pressing claims to immediate attention had been unavoidably deferred. The neglect under which the creditors of the public had been permitted to languish could not fail to cast an imputation on the American republic, and had been sincerely lamented by the wisest among those who administered the former government. The power to comply substantially with the engagements of the United States being at length conferred on those who were bound by them, it was confidently expected by the friends of the const.i.tution that their country would retrieve its reputation, and that its fame would no longer be tarnished with the blots which stain a faithless people.
On the 9th of January (1790), a letter from Mr. Hamilton, the Secretary of the Treasury, to the Speaker of the House of Representatives, was read, stating that, in obedience to the resolution of the 21st of September (1789), he had prepared a plan for the support of public credit, which he was ready to report when the House should be pleased to receive it, and, after a short debate in which the personal attendance of the secretary, for the purpose of making explanations, was urged by some and opposed by others, it was resolved that the report should be received in writing on the succeeding Thursday.
Availing himself of the lat.i.tude afforded by the terms of the resolution under which he acted, the secretary had introduced into his report an able and comprehensive argument elucidating and supporting the principles it contained. After displaying, with strength and perspicuity, the justice and the policy of an adequate provision for the public debt, he proceeded to discuss the principles on which it should be made.
"It was agreed," he said, "by all, that the foreign debt should be provided for according to the precise terms of the contract. It was to be regretted that, with respect to the domestic debt, the same unanimity of sentiment did not prevail."
The first point on which the public appeared to be divided, involved the question, "whether a discrimination ought not to be made between original holders of the public securities and present possessors by purchase." After reviewing the arguments generally urged in its support, the secretary declared himself against this discrimination. He deemed it "equally unjust and impolitic, highly injurious even to the original holders of public securities, and ruinous to public credit." To the arguments with which he enforced these opinions, he added the authority of the government of the Union. From the circular address of Congress to the States of the 26th of April, 1783, accompanying their revenue system of the 18th of the same month, pa.s.sages were selected indicating, unequivocally, that in the view of that body the original creditors, and those who had become so by a.s.signment, had equal claims upon the nation.
After reasoning at great length against a discrimination between the different creditors of the Union, the secretary proceeded to examine whether a difference ought to be permitted to remain between them and the creditors of individual States.
Both descriptions of debt were contracted for the same objects and were in the main the same. Indeed, a great part of the particular debts of the States had arisen from a.s.sumptions by them on account of the Union, and it was most equitable that there should be the same measure of retribution for all. There were many reasons, some of which were stated, for believing this would not be the case, unless the State debts should be a.s.sumed by the nation.
In addition to the injustice of favoring one cla.s.s of creditors more than another which was equally meritorious, many arguments were urged in support of the policy of distributing to all with an equal hand from the same source.
After an elaborate discussion of these and some other points connected with the subject, the secretary proposed that a loan should be opened to the full amount of the debt, as well of the particular States as of the Union.
The terms to be offered were--
First. That for every $100 subscribed payable in the debt, as well interest as princ.i.p.al, the subscriber should be ent.i.tled to have two-thirds funded on a yearly interest of six per cent, (the capital redeemable at the pleasure of government by the payment of the princ.i.p.al), and to receive the other third in lands of the western territory at their then actual value. Or,
Secondly. To have the whole sum funded at a yearly interest of four per cent., irredeemable by any payment exceeding five dollars per annum both on account of princ.i.p.al and interest, and to receive as a compensation for the reduction of interest, fifteen dollars and eighty cents, payable in lands as in the preceding case. Or,
Thirdly. To have sixty-six and two-thirds of a dollar funded at a yearly interest of six per cent., irredeemable also by any payment exceeding four dollars and two-thirds of a dollar per annum on account both of princ.i.p.al and interest, and to have at the end of ten years twenty-six dollars and eighty-eight cents funded at the like interest and rate of redemption.
In addition to these propositions, the creditors were to have an option of vesting their money in annuities on different plans, and it was also recommended to open a loan at five per cent, for ten millions of dollars, payable one-half in specie and the other half in the debt, irredeemable by any payment exceeding six dollars per annum both of princ.i.p.al and interest.
By way of experiment, a tontine, on principles stated in the report, was also suggested.
The secretary was restrained from proposing to fund the whole debt immediately at the current rate of interest, by the opinion, "that although such a provision might not exceed the abilities of the country, it would require the extension of taxation to a degree and to objects which the true interests of the creditors themselves would forbid. It was therefore to be hoped and expected that they would cheerfully concur in such modifications of their claims, on fair and equitable principles as would facilitate to the government an arrangement substantial, durable, and satisfactory to the community. Exigencies might ere long arise which would call for resources greatly beyond what was now deemed sufficient for the current service, and should the faculties of the country be exhausted or even strained to provide for the public debt, there could be less reliance on the sacredness of the provision.
"But while he yielded to the force of these considerations, he did not lose sight of those fundamental principles of good faith which dictate that every practicable exertion ought to be made, scrupulously to fulfill the engagements of government; that no change in the rights of its creditors ought to be attempted without their voluntary consent, and that this consent ought to be voluntary in fact, as well as in name.
Consequently, that every proposal of a change ought to be in the shape of an appeal to their reason and to their interest, not to their necessities. To this end, it was requisite that a fair equivalent should be offered for what might be asked to be given up and unquestionable security for the remainder." This fair equivalent for the proposed reduction of interest was, he thought, offered in the relinquishment of the power to redeem the whole debt at pleasure.
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 princ.i.p.al, 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 pa.s.sed 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 a.s.signable 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.
It was opposed with great earnestness and strength of argument by Mr.
Sedgewic, Mr. Lawrence, Mr. Smith, of South Carolina, Mr. Ames, Mr.
Gerry, Mr. Boudinot, Mr. Wadsworth, Mr. Goodhue, Mr. Hartley, Mr. Bland, Mr. Benson, Mr. Burke, and Mr. Livermore.
The argument was ably supported on both sides, was long, animated, and interesting. At length the question was put and the amendment was rejected by a great majority.
This discussion deeply engaged the public attention. The proposition was new and interesting. That the debt ought to be diminished for the public advantage, was an opinion which had frequently been advanced, and was maintained by many. But a reduction from the claims of its present holders for the benefit of those who had sold their rights, was a measure which saved nothing to the public purse, and was therefore recommended only by considerations, the operation of which can never be very extensive. Against it were arrayed all who had made purchases, and a great majority of those who conceived that sound policy and honest dealing require a literal observance of public contracts.
Although the decision of Congress against a discrimination in favor of the original creditor produced no considerable sensation, the determination on that part of the secretary"s report which was the succeeding subject of deliberation, affecting political interests and powers which are never to be approached without danger, seemed to unchain all those fierce pa.s.sions which a high respect for the government, and for those who administered it, had in a great measure restrained.
The manner in which the several States entered into and conducted the war of the Revolution, is well known. Acting in some respects separately, and in others conjointly, for the attainment of a common object, their resources were exerted, sometimes under the authority of Congress, sometimes under the authority of the local government, to repel the enemy wherever he appeared. The debt incurred in support of the war was, therefore, in the first instance, contracted partly by Congress and partly by the States. When the system of requisitions was adopted, the transactions of the Union were carried on almost entirely through the agency of the States, and, when the measure of compensating the army for the depreciation of their pay became necessary, this burden, under the recommendation of Congress, was a.s.sumed by the respective States. Some had funded this debt, and paid the interest upon it. Others had made no provision for the interest; but all, by taxes, paper money, or purchase, had in some measure reduced the princ.i.p.al. In their exertions some degree of inequality had obtained, and they looked anxiously to a settlement of accounts, for the ascertainment of claims which each supposed itself to have upon the Union. Measures to effect this object had been taken by the former government, but they were slow in their progress, and intrinsic difficulties were found in the thing itself, not easily to be overcome.
Hamilton proposed to a.s.sume these debts and to fund them in common with that which continued to be the proper debt of the Union.
The resolution which comprehended this principle of the report was vigorously opposed.
It was contended that the general government would acquire an undue influence, and that the State governments would be annihilated by the measure. Not only would all the influence of the public creditors be thrown into the scale of the former, but it would absorb all the powers of taxation, and leave to the latter only the shadow of a government.
This would probably terminate in rendering the State governments useless, and would destroy the system so recently established. The Union, it was said, had been compared to a rope of sand, but gentlemen were cautioned not to push things to the opposite extreme. The attempt to strengthen it might be unsuccessful, and the cord might be strained until it should break.
The const.i.tutional authority of the Federal government to a.s.sume the debts of the States was questioned. Its powers, it was said, were specified, and this was not among them.
The policy of the measure, as it affected merely the government of the Union, was controverted, and its justice was arraigned.
On the ground of policy, it was objected that the a.s.sumption would impose on the United States a burden, the weight of which was unascertained, and which would require an extension of taxation beyond the limits which prudence would prescribe. An attempt to raise the impost would be dangerous, and the excise added to it would not produce funds adequate to the object. A tax on real estate must be resorted to, objections to which had been made in every part of the Union. It would be more advisable to leave this source of revenue untouched in the hands of the State governments, who could apply to it with more facility, with a better understanding of the subject, and with less dissatisfaction to individuals, than could possibly be done by the government of the United States.
There existed no necessity for taking up this burden. The State creditors had not required it. There was no pet.i.tion from them upon the subject. There was not only no application from the States, but there was reason to believe that they were seriously opposed to the measure.
Many of them would certainly view it with a jealous--a jaundiced eye.
The convention of North Carolina which adopted the const.i.tution had proposed, as an amendment to it, to deprive Congress of the power of interfering between the respective States and their creditors, and there could be no obligation to a.s.sume more than the balances which on a final settlement would be found due to creditor States.
That the debt by being thus acc.u.mulated would be perpetuated, was also an evil of real magnitude. Many of the States had already made considerable progress in extinguishing their debts, and the process might certainly be carried on more rapidly by them than by the Union. A public debt seemed to be considered by some as a public blessing, but to this doctrine they were not converts. If, as they believed, a public debt was a public evil, it would be enormously increased by adding those of the States to that of the Union.
The measure was unwise, too, as it would affect public credit. Such an augmentation of the debt must inevitably depreciate its value, since it was the character of paper, whatever denomination it might a.s.sume, to diminish in value in proportion to the quant.i.ty in circulation.