CHAPTER XI.

NATIONAL FINANCES.

SLAVERY.

HAMILTON'S famous report to the First Congress, as Secretary of the Treasury, was made at the second session in January, 1790. Near the close of the previous session a petition asking for some settlement of the public debt was received and referred to a committee of which Madison was chairman. The committee reported in favor of the petition, and the House accordingly called upon the Secretary to prepare a plan "for the support of the public credit."

So far as Hamilton's funding scheme provided for that portion of the debt due to foreigners it was accepted without demur. There could be no doubt that there the ostensible creditor was the real creditor, who should be paid in full. The report assumed that this was equally true of the domestic debt. A citizen holding a certificate of the indebtedness of the government, no matter how he came by it, nor at what price, was entitled to payment at its face value. But here the question was raised, Was this ostensible creditor the sole creditor? Was he, whose necessities had

compelled him to part with the government's note of hand at a large discount when full payment was impossible, to receive nothing now when at last government was able to pay in full? Was it equity to let all the loss fall upon the original creditor, and all the gain go to him who had lost nothing originally, and had only assumed at small cost the risk of a profitable speculation? Moreover it was charged, and not denied, that in some of these speculations there had been no risk whatever; and that so soon as the tenor of the report was known fast-sailing vessels were dispatched from New York to the Carolinas and Georgia to buy up public securities held by persons ignorant of their recent rapid rise in value. As hitherto they had been worth only about fifteen cents on the dollar; as upon the publication of the Secretary's report they had risen to fifty cents on the dollar; and as, if the Secretary's advice should be taken, they would rise to a hundred cents on the dollar; it would be securing, what in the slang of the modern stock-exchange is called "a good thing," to send agents into the rural districts in advance of the news to buy up government paper. "My soul rises indignant," exclaimed a member, "at the avaricious and moral turpitude which so vile a conduct displays." Nor on that point did anybody venture then to disagree with him openly.

But besides the question as to who were in real

ity the public creditors, a doubt was also raised whether the debt ought to be paid in full to anybody. Every dollar of the foreign debt was for an actual dollar borrowed. But the domestic debt was not incurred to any large amount for money borrowed, but in payment for services, or for provisions and goods purchased, for which double, or more than double, prices had been exacted by those who exchanged them for government paper. If the exigencies of war had compelled the government to promise to pay for fifty bushels of wheat the price of a hundred bushels, the creditor, now that the government was in a condition to redeem its promise, was not entitled in equity to receive more than the actual value of the fifty bushels at the time of the purchase. Moreover, it was contended, there was no injustice in such a settlement of the debt, for the war had been carried on and brought to a successful end, for the benefit of the creditor as well as of everybody else. The argument was analogous in a measure to that used by a certain class of politicians in our time, who maintained that the bonds of the United States, bought at a discount for "greenbacks,” during the late rebellion, should not be redeemed in gold when the war was over.

The na

The answer to all this was obvious. tion must first be just by paying its debts to those who could present the evidence that they were its creditors. If, when that was done, it could afford

to be generous, it might, if so disposed, reimburse those who had lost by parting with the certificates of debt at a discount. The government could not in honor go behind its own contracts. The Constitution provided that "all debts and engagements, entered into before the adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation." Here was a debt which the Confederation had contracted, and the Federal Government had no more right "to impair the obligation of contracts" for its own benefit, than the separate States had; and that they were expressly forbidden by the Constitution to do.

Madison listened quietly day after day to the long and earnest debates upon the subject, and then advanced an entirely new proposition. He agreed with one party in maintaining the inviolability of contracts. The Confederacy had incurred a debt to its own citizens, which the new government had agreed to assume. But he also agreed with the other party that there was a question as to whom that debt was due. Were those who now held the certificates entitled to the payment of their face value, dollar for dollar, although the cost to them was only somewhere from fifteen to fifty cents on the dollar? It was true that the original contract was transferable, and these present creditors held the evidence of the transfer. But did that transfer entitle the holder to

the full value without regard to the price paid for it? Was there not in equity a reserved right in the original holder, who, having given a full equivalent for the debt, had only parted with the evidences of it, under the compulsion of his own poverty, and the inability of the government at that time to meet its obligations? Was not this specially true in the case of the soldiers of the late war, to whose devotion and sacrifices the nation owed its existence?

Mr. Madison thought that an affirmative reply to the last two queries would present the true view of the case, and he proposed, therefore, to pay both classes of creditors those who now held the evidence of indebtedness, acquired by purchase at no matter what price; and those who had parted with that evidence without receiving the amount which the government had promised to pay for services rendered. It was not, however, to be expected that the entire debt should be paid in full to both classes. That was beyond the ability of the government. But it would be an equitable settlement, he contended, to pay the present holders the highest price the certificates had ever reached, and to award the remainder to those who were the original creditors.

This proposition received only thirteen votes out of forty-nine. Many of those opposed to it were quite ready to grant that it was hard upon the veterans of the war that they, who had received so