CHAPTER VIII.

1781-1783.

FINANCIAL DIFFICULTIES OF THE CONFEDERATION.-REVOLUTIONARY DEBT.-REVENUE SYSTEM OF 1783.

It is not easy to ascertain the amount of the public debt of the United States at the time when the Confederation went into operation. But on the 1st of January, 1783, it amounted to about forty-two millions of dollars. About eight millions were due on loans obtained in France and Holland, and the residue was due to citizens of the United States. The annual interest of the debt was a little more than two million four hundred thousand dollars.1

1 The debt due to the crown of France was ascertained in 1782 to be eighteen millions of livres; and by the contract entered into by the United States with the King of France, on the 16th of July, 1782, the principal of this debt was to be paid in twelve annual instalments of one million five hundred thousand livres each, in twelve years, to commence from the third year after a peace, at the royal treasury in Paris. The interest was payable annually, at the time and place stipulated for the payment of the instalments of the principal, at five per cent. The king generously remitted the arrears of interest due at the date of the contract. There was also due to the King of France ten millions of livres, borrowed by him of the States-General of the Netherlands for the use of the United States, and the payment of which he had guaranteed. This sum was to be paid in Paris, in ten annual instalments of one million of livres each, commencing on the 5th of November, 1787. The interest on this loan was payable in Paris immediately, and the first payment of interest became due on the 5th of November, 1782. There was also due to the Farmers-General of France one million of livres, and to the king six millions of livres, on a loan for the year 1783; making in the whole thirty-eight millions of livres, or $7,037,037, due in France. There was also due to money-lenders in Holland $671,000; for money borrowed by Mr. Jay in Spain, $150,000; and a year's interest on the Dutch loan of ten millions of livres, amounting to $26,848;-making the whole foreign debt $7,885,085. The domestic debt amounted to $34,115,290. Five millions of this were due to the army, under the commutation resolves of March, 1783. The residue was held by other citizens, or consisted of arrears of interest. The whole

The Confederation had no sooner gone into operation than it was perceived, by many of the principal statesmen of the country, that its financial powers were so entirely defective that Congress would never be able, under them, to pay even the interest on the public debt. Indeed, before the Confederation was finally ratified, so as to become obligatory upon all the states, on the 3d of February, 1781, Congress passed a resolve, recommending to the several states, as indispensably necessary, to vest a power in Congress to levy for the use of the United States a duty of five per cent. ad valorem, at the time and place of importation, upon all foreign goods and merchandise imported into any of the states; and that the money arising from such duties should be appropriated to the discharge of the principal and interest of the debts already then contracted, or which might be contracted, on the faith of the United States, for the support of the war; the duties to be continued until the debt should be fully and finally discharged. It was at this time that the office of Superintendent of the Finances was established, and Robert Morris was unanimously elected by Congress to fill it. He was an eminent merchant of Philadelphia, of known financial skill, devoted to the cause of the country, and possessed of very considerable private resources, which he more than once sacrificed to the public service. Under his administration it is highly probable that, if the states had complied with the requisitions of Congress, the war would have been brought to a close at an earlier period. But there was scarcely any compliance with those requisitions, and, contemporaneously with this neglect, the proposal to vest in Congress the power to levy duties met with serious opposition. On the 30th of October, 1781, Congress made a requisition upon the states for eight millions of dollars, to meet the service of the ensuing year. In January, 1783, one year and three months from the date of this requisition, less than half a million of this sum had been received into the treasury of the United States. After a delay of nearly two years, one state entirely refused its concurrence with the plan of vesting in Congress a power to levy duties, another withdrew the assent it had once given, and a third had returned no answer.

debt of the United States was estimated at $42,000,375, and the annual interest of this sum was $2,415,956.

The state which refused to grant this power to Congress was Rhode Island. On the 6th of December, 1782, Congress determined to send a deputation to that state, to endeavor to procure its assent to this constitutional change. The increasing discontents of the army, the loud clamors of the public creditors, the extreme disproportion between the current means and the demands of the public service, and the impossibility of obtaining further loans in Europe unless some security could be held out to lenders, made it necessary for Congress to be especially urgent with the legislature of Rhode Island. But, at the moment when the deputation was about to depart on this mission, the intelligence was received that Virginia had repealed the act by which she had previously granted to Congress the power of laying duties, and the proposal was therefore abandoned for a time.' But the leading persons then in Congress-who saw the ruin impending over the country; who were aware that the whole amount of money which Congress had received, to carry on the public business for the year then just expiring, was less than two millions of dollars,' while the three branches of feeding, clothing, and paying the army exceeded five millions of dollars per annum, exclusive of all other departments of the public service; and who were equally aware that no means whatever existed of paying the interest on the public debts-resolved still to persevere in their endeavors to procure the establishment of revenues equal to the purpose of funding all the debts of the United States.

Among these persons Hamilton and Madison were the most active; and the part which they took, at this period, in the measures for sustaining the sinking credit of the country, and the efforts which they made, are among the less conspicuous, but not less important services, which those great men performed for their country. Another plan was devised, after the failure of that of 1781,

1 Mr. Madison (under the date of December 24, 1782) says that, on the receipt of this intelligence, "the most intelligent members were deeply affected, and prognosticated a failure of the impost scheme, and the most pernicious effects to the character, the duration, and the interests of the Confederacy. It was at length, notwithstanding, determined to persist in the attempt for permanent revenue, and a committee was appointed to report the steps proper to be taken." Debates in the Congress of the Confederation, Elliot, I. 17.

2 * $1,545,81838 was the whole amount.

for investing Congress with a power to derive a revenue from duties, and, in April, 1783, its promoters procured for it the almost unanimous consent of Congress. This plan recommended the states to vest in Congress the power of levying certain duties upon goods imported into the country, partly specific and partly ad valorem; the proceeds of such duties to be applied to the discharge of the interest or principal of the debts incurred by the United States for supporting the war. The duties were to be collected by collectors appointed by the states, but accountable to Congress. It also recommended to the states to establish, for a term of twentyfive years, substantial and effectual revenues, exclusive of the duties to be levied by Congress for supplying their proportions of fifteen millions of dollars annually, for the same purpose; and that, when this plan had been acceded to by all the states, it should be considered as forming a mutual compact, irrevocable by one or more of them without the consent of the whole. It was also proposed that the rule of proportion fixed by the Confederation should be changed from the basis of real estate to the basis of population.

This plan was sent out to the states, accompanied by an address, prepared by Mr. Madison, in which the necessity of the measure was urged with much ability and force. Annexed to this paper were various documents, exhibiting the nature and origin of the public debts, and the meritorious characters of the various public creditors; the whole of the Newburgh Addresses, and the proceedings of the officers; the contracts made with the King of France, and a very able answer by Hamilton to the objections of Rhode Island. No stronger and more direct appeal was ever made to the sense of right of any people. Never was the cause of national honor, public faith, and public safety more powerfully and eloquently set forth.'

'On the final question, as to the revenue system, Hamilton voted against it. His reasons were given in a letter to the Governor of New York, under date of April 14, 1783. They were, "First, that it does not designate the funds (except the impost) on which the whole interest is to arise; and by which (selecting the capital articles of visible property) the collection would have been easy, the funds productive, and necessarily increasing with the increase of the country. Secondly, that the duration of the funds is not coextensive with the debt, but limited to twenty-five years, though there is a moral certainty that in that period the principal will not, by the present provision, be fairly extinguished. Thirdly,

And when we consider the various classes of the public creditors, at the close of the war, and remember that the debts of the country had been contracted for the great purpose of establishing its independence, and that there was scarcely a creditor who had not some claim to the gratitude of the country, we cannot but be astonished that such an appeal as was then made should have fallen, as it did, unheeded upon the legislatures and people of many of the states. In the first place, the debts were due to an ally, the King of France, who had loaned to the American people his armies and his treasures; who had added to his loans liberal donations; and whose very contracts for repayment contained proof of his magnanimity. In the next place, they were due to that noble band of officers and soldiers who had fought the battles of their country, and who now asked only such a portion of their dues as would enable them to retire, with the means of daily bread, from the field of victory and glory into the bosom of peace and privacy, and such effectual security for the residue of their claims as their country was unquestionably able to provide. In the last place, they were due partly to those citizens of the country who had lent their funds to the public, or manifested their confidence in the government by receiving transfers of public se

that the nomination and appointment of the collectors of the revenue are to reside in each state, instead of, at least, the nomination being in the United States; the consequence of which will be, that those states which have little interest in the funds, by having a small share of the public debt due to their own citizens, will take care to appoint such persons as are the least likely to collect the revenue." Still, he urged the adoption of the plan by his own state, "because it is her interest, at all events, to promote the payment of the public debt in continental funds, independent of the general considerations of union and propriety. I am much mistaken if the debts due from the United States to the citizens of the state of New York do not considerably exceed its proportion of the necessary funds; of course, it has an immediate interest that there should be a continental provision for them. But there are superior motives that ought to operate in every state-the obligations of national faith, honor, and reputation. Individuals have been too long already sacrificed to the public convenience. It will be shocking, and, indeed, an eternal reproach to this country, if we begin the peaceable enjoyment of our independence by a violation of all the principles of honesty and true policy. It is worthy of remark, that at least four fifths of the domestic debt are due to the citizens of the states from Pennsylvania, inclusively, northward." Life of Hamilton, II. 185, 186.