I

f

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2

will be a great blessing to me. Hy Oler twu gi&uuJBITICI སདང their mother in Virginia.”

New York, December 26th, 1789.

XVII.

1789.

Foreign and

domestic

nearly twelve millions of dollars, and was due to France, CHAPTER the Hollanders, and a very small part to Spain. The domestic debt, due to individuals in the United States for loans to the government and supplies furnished to the army, was about forty-two millions. These debts had debts. been contracted by Congress, and were acknowledged to be a national charge. There was another description of debts, amounting by estimate to about twenty-five millions of dollars, which rested on a different footing. The States individually had constructed works of defence within their respective limits, advanced pay and bounties to Continental troops and militia, and supplied provisions, clothing, and munitions of war. The secretary proposed, that all the domestic debts, including those of the particular States, should be funded, and that the nation should become responsible for their payment to the full amount.

plan for

domestic

The report was able, perspicuous, and comprehensive, Hamilton's embracing a complete view of the subject, and containing funding the arguments of great cogency in support of the plan sug- debt. gested. As to the foreign debt, there was no question in the mind of any one, that it ought to be discharged according to the strict letter of the contracts, but in regard to the domestic debts a difference of opinion prevailed. The secretary endeavored to prove, that no distinction should be admitted, that the expenditures had all been made for national objects, and that in equity the public faith was solemnly pledged for their reimbursement. The obligation was increased by their being "the price of liberty," without which the nation itself could never have attained an independent existence. He argued that the policy of the measure was not less obvious than its justice, that public credit was essential to the support of government under any form, and that this could be maintained only by good faith in all transactions, and by honorably fulfilling engagements. Who would confide in a government, that had refused to pay its debts, or respect a nation that had shown a disregard to the prin

54

CHAPTER ciples, which constitute the cement of every well ordered community?

XVII.

1790.

tem oppos

ed.

When the report was considered in Congress, it gave Funding sys- rise to warm and protracted debates. The opponents of the secretary's plan were not without plausible reasons. As to the debt contracted by Congress, it was said that the usual maxims could not properly be applied. The evidences of this debt consisted in a paper currency and certificates, which, as there was no gold or silver, the creditors were from the necessity of the case obliged to take. This paper had in most cases passed through many hands, and was immensely depreciated below its nominal value. The original creditors, therefore, and the subsequent holders, had lost in proportion to the scale of depreciation. Hence the proposal to assume the whole debt, as it stood on the face of the paper, and pay it to the present holders, was said to be inequitable, inasmuch as these had purchased it at the depreciated value, and had no claim to be remunerated for the losses of the previous holders.

Madison's plan.

Mr. Madison proposed a discrimination, by which the purchasers should be paid a certain portion, and the original holders the remainder. This was objected to as unjust and impracticable. By the form and tenor of the certificates, the debt was made payable to the original creditor or bearer. On these terms they had been sold, and the sellers had relinquished all their claims to the purchasers for what was deemed an equivalent. When the transfers were made, it was understood by both parties to be on this principle, and the purchaser took the risk of eventual payment. It was clear, also, that it would be impossible to make the discrimination, except to a limited extent and in a partial manner, since the numerous transfers of the original creditors could not be ascertained and examined; and even at best no provision was offered for the losses of the intermediate holders by the gradual depreciation. After a long debate in the House of Representatives this scheme was rejected.