§ 6. The debt of the United States may be considered as that part of the price of our independence which was paid for in money. The congress that declared the independence of the then British colonies, and voted an army and navy for its support, were totally devoid of funds, and were not vested, even by the articles of confederation, which were adopted in 1781, with coercive powers to raise money. Before that period, they were supported merely by public opinion, without authority to enforce any measure. They could merely recommend; and yet this body, without authority, and held together by no other tie than common danger, boldly proclaimed independence, levied armies, borrowed monies, and finally carried the country through every difficulty.

The expences of the revolutionary war were defrayed partly by loans obtained from France, and partly by advances made by the several states on the requisitions of congress, but principally by paper money issued by that body. The whole debt of the United States, foreign and domestic, on the first of January, 1784, amounted to about forty-two millions of dollars, including both principal and interest.

The foreign debt, almost wholly due to France, amounted to about six millions and a half of dollars.

The domestic debt consisted of the debt due to the army for arrearages of pay, and for five years pay given to the officers in commutation of half-pay for life; of the debt due for supplies of different species purchased on credit; of loans (chiefly in paper money) obtained in America; and of the remnant of paper money yet in circulation. It amounted to about thirty-five millions and a half of dollars.

During the period between the conslusion of the war and the adoption of the federal constitution, the debt was increased upwards of $10,000,000, by the accumulation of interest, and by a loan of $3,600,000 obtained in Holland. For a part of the interest on the domestic debt, certificates had been issued, which were called "indents of interest." The debts of the union, on the first of January, 1790, including the arrears of interest, amounted to $52,813,673 93, of which the foreign debt amounted to $ 11,908,158 2*.

§ 7. The first session of congress under the federal constitution was principally occupied in organizing the government, by providing for the establishment of the executive departments and of the federal courts; in providing a revenue; and in establishing the salaries of the officers of government. But one of the first objects which occupied their attention in the the next ses

Gallatin on the Finances.

sion was a plan for the support of the public credit, which was laid before congress, agreeably to law, by Mr. Hamilton, the secretary of the treasury.

This plan was substantially adopted, but not without considerable opposition, which was principally grounded on the vast depreciation of the value of the domestic debt, and on the plea that it was acting unjustly by the original holders, in favour of a tribe of speculators, who had taken advantage of the necessities of the soldiers to purchase the certificates at an eighth of their value. Two propositions were accordingly submitted by the opposition, one of which, by directing a new settlement of accounts, aimed to annihilate the greater part of the domestic debt; the other went on the ground of paying to the purchasers only the real value they had given, and to the original holders the difference between that and the nominal value of the debt. Both of those propositions, however, were thrown aside in favour of the plan of Mr. Hamilton, slightly modified.

It is proper to observe here, that the opposition was exclusively confined to the plan for funding the domestic debt, there existing no difference of opinion with regard to the payment of the foreign debt according to the original contracts.

The plan finally adopted by congress was as follows:

To enable government to fulfil its engagements with respect to the foreign debt, a new loan of twelve millions of dollars was authorized, and the duties on imports and tonnage, reserving $ 600,000 per annum for the support of government, were pledged for the payment of the principal and interest both of this new loan, and of the future instalments of loans heretofore made in foreign countries.

The domestic debt was also provided for by a loan, in the following manner:

Books for receiving subscriptions to the full amount of the debt were opened at the treasury, and by a commissioner in each state, the sums subscribed to be payable by certificates of the domestic debt, according to their specie value*, and by bills of credit at the rate of 100 to one, and computing the interest on such as bore interest to the last day of December, 1790.

For any sum subscribed in the principal of the domestic debt the subscriber received a certificate for two-thirds the amount,

The specie value was computed by a certain scale of depreciation which had been adopted.-By this arrangement no one could suffer injustice except those who received certificates in payment for contracts previously entered into. In purchasing supplies it is evident the certificates would bring no more than their worth, and the difference was made up to the army at the time of payment according to this scale. The domestic loans were likewise mostly paid in paper, the value of which had been fixed by the scale of depreciation.

bearing interest at 6 per cent. per annum, from the first of January, 1791, and another certificate for the remaining third, bearing an interest of six per cent. per annum, from the first of January, 1801. These species of stock are commonly called, the former the old, and the latter the deferred six per cents.

For any sum subscribed in the interest, or in the "indents of interest," ," of the domestic debt, the subscriber received a certificate bearing an interest of three per cent. per annum. This species of stock is called the three per cent., and is redeemable at the pleasure of the United States; the two former were not to be redeemed by payments exceeding eight per cent. in one year, on account both of principal and interest, this redemption being at the option of government.

The term for receiving on loan the domestic debt of the United States was first fixed at one year, and afterwards extended from time to time to December 31, 1797, and in the mean time the same rate of interest was allowed to the non-subscribing as to the subscribing creditors. But on the 12th of June, 1798, an act was passed ordering the whole of the principal of the unfunded debt to be reimbursed, and directing public notice to be given of the reimbursement, and that interest thereon should cease at the expiration of six months from the date of the notification. The creditors were also authorized to receive certificates of three per cent stock equal to the arrearages of interest due them prior to January 1st, 1791.

In addition to the foreign and domestic debts of the union, a subscription was opened, at the same times and places as for the domestic loan, for a loan of twenty-one million and a half of the state debts, in certain limited sums for each state. The terms of this subscription were somewhat different from those of the domestic debt of the union. First, instead of funding the arrears of interest at three per cent., and the principal at six per cent., one third of the whole of both the principal and arrears of interest to January 1, 1792, was funded in the three per cent.; two-thirds of the remaining two-thirds in the six per cents, and the other third of the said two-thirds in the deferred six per cent. stocks. Secondly, the interest for the year 1791 was not paid, as on the domestic debt, but funded; and the interest on the three and six per cent. stocks consequently commenced in 1792, that is to say, a year later than on the domestic debt.

8. The public debt being thus funded, it became important to raise its price to its nominal value. For this purpose, as well as for affecting a reduction in its amount, a board of commissioners was established for the management of a fund, which was entitled "the sinking fund." This board consists of the

president of the senate, the chief justice, the secretary of state, the secretary of the treasury, and the attorney-general, any three of whom form a quorum for the transaction of business.

On the first establishment of this fund, by an act passed on the 12th of August, 1790, there was appropriated towards it the whole of the surplus revenue of 1790, and part of some monies arising from foreign loans made during that year. A permanent appropriation was also made of the interest payable on every species of stock which should be purchased by the commissioners, or be received by the United States in payment for lands, or discharged in any other manner. The powers of the commissioners were at first confined to the purchase of stock, but were extended by the act of March 3, 1795, to all reimbursements of principal which should in future be made, and for that purpose various other funds were vested in them, and they were likewise authorized to borrow, with the approbation of the president, such sums as should be necessary, not exceeding a million of dollars in any one year, in anticipation of the revenue. The funds at present vested in the commissioners amount to eight millions of dollars per annum, and are as follow: 1. The proceeds of the sales of the public lands. 2. The interest of the debt redeemed by the commissioners. 3. Whatever balance

may be necessary to complete the sum of eight millions.-The two last items are taken from the proceeds of the duties on imports and tonnage, after deducting therefrom the sum of $600,000, which is annually reserved for the expenses of government out of those duties.

9. Since the establishment of the constitution, a number of loans have been received by government, both at home and abroad, the interest upon which has varied from four to eight per cent. A stock of eleven millions and a quarter has also been created, as payment in part of the fifteen millions stipulated to be paid to France for Louisiana. The following statement exhibits a view of the debt of the United States, on the first of January, 1813, including that part of it redeemed by the operation of the sinking fund, as well as that part still in the hands of the public creditors. The exchanged and converted six per cent. stocks mentioned below are stocks which were created by subscriptions of old six per cent. and deferred stocks; or, in other words, by an exchange, by consent of the creditors, of the last-named stocks for stocks reimbursable at terms more convenient for the United States. The nature of the other species of stock has already been sufficiently explained.

The remaining sum of $3,750,000 was appropriated for the payment of American claims on France for illegal captures, &c,

VOL. III.

G

65,114,613 75

7,977,700

Nominal amount of debt on the 1st of Jan., 1813
Deduct reimbursement of the six per cent. and deferred stocks to

Unredeemed amount on the 1st January, 1813