From William Short
Amsterdam, Dec. 18, 1790.
I had the honor of writing to you from this place on the 26th ulto. & the 2d inst. The first by the way of England; the last by an American vessel going from hence immediately to Boston. In this I gave you a very full account of such circumstances as had come to my knowlege since my arrival here; & of the steps which had been taken in the business on which I came. A duplicate of it will accompany the present.
Nothing has been since done: but every day gives me new confidence that the measures adopted will meet your approbation, as it gives me new proofs that they are proper as to time of commencement, & advantageous as to terms both of interest & commission. As to interest, no other power attempts to make a new loan here at a lower rate; which together with the price of stock in this market, shews that it would be useless for America to attempt it. It is true that the form of government, present situation & future prospects of the United States would seem to entitle them to better terms than those granted to any other power who makes loans here. But a short acquaintance with the money lenders and the mode of borrowing here suffices to shew that these considerations are counterbalanced by others.
The money lenders in general are a class of heavy dull men, the sum of whose ideas consists in a few constant habits. Obstinate & incapable of being influenced so long as they are within that narrow circle, when out of it they become mere automates in the hands of their directors. Their extreme ignorance which renders them fearful of every change, would prevent their ever transgressing it, if they were not tempted by their excessive avarice to enter sometimes into new combinations in the hopes of greater gain. It is this conflict between their ignorance & their avarice which puts them under the direction of another class of men called undertakers.
These are people who from their personal acquaintance with the money lenders, & their superior knowlege, have acquired their confidence to such a degree as to be able to exercise the lucrative profession of insurers of loans, which is their real bu[si]ness. They calculate how great a sum they can induce the money lenders to place in any new loan, & insure its being placed by a given time for a given premium. They take always a much longer time than is necessary, and stipulate the privilege of delivering the money sooner if they should think proper; the time they ask is proportioned to the difficulty they foresee in placing the money, & is in general from three to six months: the money however is often all placed in less than two. The premium they receive is also dependant on the circumstances of the loan & the agents employed in it. Their business merely as insurers is at an end as soon as they have received the money from the lenders & delivered it to the agents of the borrowers, with the deduction of their premium. They are not further concerned in the solidity of the borrowers or the profits of the lender, & of course high premiums with them are the first motive. But as the exercise of their profession depends entirely on the confidence of the money lenders, how far they would risk the loss of it by recommending a loan where they were persuaded of danger becomes a matter of calculation, in which immediate gains & future prospects would be weighed.
The insurers are necessarily rich, & of course frequently lenders themselves. This is an additional motive to them to be well acquainted with every thing relative to the loan; & they therefore consult with an order still more in the habit of business & better informed. These are the brokers, who are useful to the agents of the loan as their organ, & frequently necessary to them on account of their influence with the insurers.
The principal agents of the loan, who are next in order, & those alone with whom the borrower has any thing to do, have an influence on its success by the idea that there is of their more extensive information, their solidity, & their scrupulous regard to reputation which would prevent them from having any business done at their house, where they were not sure that the most rigid punctuality would be observed; by their producing the loan also at a favorable moment so as to be able to keep off any idea of the want being pressing, & by their address in hastening such a moment when necessary, which is frequently done by a judicious employment of money to raise the stock of the borrowing power already in the market.
This account of the character & disposition of the money lenders, & of the intermediate classes employed in making loans here, is necessary to explain several circumstances which take place on the exchange of Amsterdam, & which are otherwise unintelligible. Such as their keeping a part of their money in some funds at 3 p. cent, whilst they place another part in other funds at 5; such as one nation, presenting appropriated & tried resources, being obliged to pay as high a rate of interest & sometimes making loans with less facility than another that has no security but a bare governmental promise to make; such as the promise of a despotic government being considered equal to that of a mixed one in many instances; such, in fine, as a country that presents not only tried resources (but those appropriated by laws passed under a constitution which, by its checks, removes all danger of a violation) being obliged to pay as high a rate of interest as the same country without such an appropriation of funds, & even without funds or constitution. The American loans made here at various periods are examples of this latter position, & of course known to you. The other cases are exemplified by the loans made here for the Emperor, Russia, Denmark & Sweden. They all stand on the same footing as to the rate of interest, except Denmark (who would be obliged to pay the same also on a new loan) although there is an acknowleged difference in their resources & the security they present. And although the Emperor’s funds are considered as the most solid & best secured yet Russia has made much more considerable loans for some time past. This is for the most part attributed to the different conduct observed by the agents they have employed here, & is quoted often to shew the influence of proper management & seizing favorable opportunities.
Goll1 had a rival at Rotterdam, who was employed to make loans there for the Emperor; being desirous to get rid of him, he pushed the loans here in hopes of carrying them to such an extent as to recommend himself to the court, & render the services of his rival useless. It produced quite the contrary effect; in proportion as he pressed, the undertakers became more difficult, so that his loans were few & filled slowly. Hope,2 on the contrary, having no rival to fear, as he procured his place on terms which had enabled him to supplant his predecessor, & which no other could venture to give, by granting an unlimited credit on his house to the court banker in his private name, pursued a different conduct; he raised the price of the stock always before bringing a new loan on the market, so that it was desired & sought after, & by this means was enabled to make them more frequently & with more facility. Russia has borrowed here since February 88, twenty seven millions of which eleven have been in the course of a year past. The Emperor has loaned seven millions only in the last twelve months.
It must be observed also that Russia during the late peace made considerable reimbursements here without new loans, which shew that her resources are more than adequate to her wants in times of peace.
In comparing the United States with the several European powers who borrow here, & contrasting their governments, their situation as to frequency of wars, the increasing population & resources of the United States, the economy of their administration, & the actual appropriation of much more than sufficient funds for the payment of the interest of their loans, I have found that some of these arguments had their proper weight, but that others derived from the difference of government had less than might be expected. They say that it has become so absolutely indispensable to sovereigns of all descriptions to preserve their credit with money-lenders, that these count more on faith being kept from the interest than from the form of the government; & that although the latter is an additional security yet the former is considered as sufficient. The declaration which the present Emperor made immediately on coming to the throne for the confirmation of all contracts made by his predecessor adds weight to this opinion; & they have no doubt that the successor of the Empress of Russia would do the same, & for the same reason.Those who reflect most, however, & are best informed are at the same time those who pay most attention to the form of government of the borrowing power. The others, more under the influence of habit, found their calculation of receiving their interest & reimbursements regularly in future from any power, on their having hitherto received them regularly from the same power.
It is to this disposition that must be attributed the readiness with which they continue their loans at a low rate of interest when offered the alternative of reimbursement. It is the same disposition also in the lenders which enables a borrowing power much more easily to reduce the interest of an old loan, by presenting the alternative of reimbursement or reduction, than to make a new loan at the same reduced rate. The original loan is for these reasons justly considered here as the most difficult: in every future operation on the same loan you have enlisted on your side a powerful auxiliary in their attachment to routine.
These observations are such as I supposed you might desire to have respecting the business of loans at this place. As to Italy, of which you wish to have some information,3 I have not as yet been able to learn any thing satisfactory. I take it for granted however that Genoa is the only part of that country which can present any probability of furnishing loans. I have made enquiry respecting it, but without being able to form a probable conjecture. I expect further lights on this subject & will communicate them to you. You will see by what I mention below that an attempt has been made by some persons, of whom I am told a part are Genoese, to transfer monies due them by France to the United States.
It was suggested to me at Paris, that loans might probably be made at Brussels or Antwerp. I supposed then & have had no reason to change that opinion since, that the money lenders of that country, having so frequent communication with this place, would as readily place their capitals in loans opened here as there; and indeed very considerable sums are known to be placed in that way. Besides, under the imperial domination no foreign loans are permitted.
I mentioned in my last the opinion of the agents of the U. S. as to the effect which their being engaged in war would have on their loans; this was the result of an indifferent conversation between us. I have seen nothing since which has given me fuller information on the subject, & perhaps it is impossible to acquire exact information on it. It is however a general truth, that nations borrow money with more difficulty when at war than at peace; and I suppose it true also that there would at present be a greater relative difference between the credit of the U.S. in war or peace than that of any other power; first, because their fiscal resources in time of war are less tried and less known to the persons interested in loans here than those of any other power; &, secondly, because their great distance and trans-atlantic position render communication with them more slow and more precarious in time of war, when frequent, sure & early information is most essential. Another reason also, which would certainly have weight, is that so considerable a branch of the revenue of the U.S. consists, & must necessarily for a long time to come consist, in the impost, which would unavoidably be more affected by war than the revenue of any other country. Notwithstanding all this, however, I am disposed to believe that in the case of the United States being engaged in a war where there was probability of success & of commercial advantages being gained by it; or in one into which they were necessarily drawn, so as to give no foundation for an opinion that they were fond of war or disposed to make it a part of their policy, they would be able to make loans here for the first year to nearly as great an amount as under present circumstances, with the sacrifice however of additional interest, probably as in their lottery loan.4 After the first year, loans would depend much on the success of their arms & the eventual duration of the war. I found this opinion on having observed that there is a certain quantity of money floating in here, annually, & which must be placed in some war or other; the owners desire so much to vary those with whom they place it, & are so averse to keeping it idle, that the part which is destined to be vested in the funds of the U.S., in the ordinary course of things, would not, as it seems to me, be diverted from their destination abruptly by such a war as I have supposed above.
It is estimated that this country receives annually sixty millions of florins from foreigners on account of loans made them, a greatpart of which they seek immediate opportunites of revesting. The late general war in the North has rendered this easy, but the partial pacification which has taken place will necessarily diminish the want of money, & should war cease between Russia & the Porte, it is thought money will soon become here very abundant; and this not only because less would be borrowed by the Empress, but because constant observation has shewn that at the end of such a war there is always a great reflux of coin from those countries. The general opinion here is, that that event cannot be long deferred, as they suppose that England & Prussia will interfere with activity in the spring to effect it. This is so well ascertained, that it is not improbable Russia will endeavour to make use of her late successes in order to induce the Porte during the winter to accept of a peace, independent of the mediation of these powers. In one way or other, I think a peace will be effected in the course of next year, which will give additional facility to the loans the United States desire to make here.
A powerful reason for wishing to press them & render them as extensive as possible is the great benefit to be derived from paying off the French debt with the present advantageous exchange; which is such that the 1½ millions of guilders you ordered to be paid produced 3,600,000 livres in Paris. The part paid to the French bankers here by the desire of M. du Fresne,5 in order to enable them to reimburse a part of the loan made here by France for the U.S.6 was settled with the present rate of exchange; and I am glad to find that no objection has been made to it, although an expression in M. du Fresne’s letter seemed to indicate that he expected to avoid the loss of exchange.
I have informed you of the several attempts which have been made to speculate on the debt due by the U.S.7 They were averted by different means, but particularly by the governments acquiring full information of the value of that debt. At the time of my leaving Paris the ministry were fully determined as far as dependedon them to listen to no negotiation of that sort. This put an end to the schemes of those who placed their profits in the sacrifices to be made by France. Since then another company8 has presented itself for the same object with a scheme by which the U.S. are to make sacrifices on which they count for their profits. As this was envelopped in such a manner as not to strike the Comptroller general,9 he espoused it with much warmth & recommended [it] to M. de Montmorin.10 That minister wrote me a letter on the subject of which I have the honor to enclose you a copy, No. 1.11 No. 212 is a copy of the offers therein alluded to. You will see that the minister has misstated a little my conversation with him, though it is of no consequence. As I had no power to act I thought it best to rest my answer on that footing, but as I feared the company meant to submit their offers to the assembly where a discussion of them could not have failed to have been inconvenient at least, perhaps injurious, I wished to stop it if possible in the hands of the minister, & therefore added the observations contained in my answer, No. 3.13 The object of this company is as you will see to pay livres tournois in their present depreciated state, & to receive from the U.S. florins at the usual exchange—by this means France would receive from them as much as she is entitled to receive from us—but we should be obliged to pay the company much more than we are obliged to pay France. It is in this that their gain is to consist & would be immense, since it would be the whole benefit of exchange, which at present is the profit of the U.S.
As soon as the company were informed of my not adhering to their propositions they sent me an express with long details in favor of it & an additional offer Nos. 4 & 5.14 Mr. Swan15 of Boston whowas concerned with this company had written to me several times respecting them & pressing the acceptation of their offers. I wrote to him that I had not power & asked him if he had any influence with the company to put a stop if he could to their negotiations. In consequence of that letter they carried him to the minister as you will see (No. 6.)16 in order to discuss the matter before him. Mr. Swan wrote me, perhaps to induce me to accept the new propositions, that the Comptroller general said if they were refused it could only be with an intention to take advantage of the future depreciation of the assignats, in order to pay off the debt with only a small part of its value. In order to shew that the U.S. did not refuse absolutely every kind of negotiation, & that there was a real insufficiency of power I wrote to M. de Montmorin No. 7.17 as the company informed me they had given him a copy of their new propositions to me. I thought it probable this would put an end to the prosecution of this business without the U.S. being placed in an unfavorable light in the assembly in case of the matter being carried there. It is particularly important that we should be well regarded there at present as the discussion of the objects of our commerce in France is now open. My answer to the company is No. 8.18 I did not think it proper to enter in⟨to⟩ explanations ⟨with them⟩ in the present circumstances—the loan which they propose, as you will observe, is to be made in livres, by which means they will ⟨receive the⟩ advantage of the present exchange both in paying & receiving.
Had I had power I should not have thought myself justified to have opened such a negotiation where there was all loss & no prospect of advantage to the U.S. I enclose you the propositions merely that nothing may be wanting to put you fully in possession of every thing that passes relative to the interests of the U.S. on this side of the Atlantic. I must add also that the house which makes these propositions is entirely unknown here, & that I never heard even their names at Paris, which proves that it must be an inconsiderable one.
I need not add any thing to shew you that if our debt was to get into the hands of people from whom the money lenders would expect under some circumstance or other a forced sale or a loan on them, that they would prefer keeping up the money destined for the American funds to be eventually vested in that manner.
I have been informed that the Genoese are in some degree interested in this speculation. You observe it is stated as if they were wholly interested. Should they be induced to change their interests in the French funds for the American debt, & in order to effect this change submit to the loss of exchange, viz. pay France the number of livres, & receive the American new obligations here in florins of the value of those livres at the present rate of exchange, this which would be perfectly just would at the same time be advantageous to the U.S. It is true these ⟨do take⟩ the same risk of this number of obligations in private hands & of course in ⟨circulation⟩, depreciating them & thereby rendering it more difficult to make new loans here; but on the other hand the wants of America would cease as far as relate to the loans to be made for the liquidation of the debt due to France. Should it be thought proper to set on foot the conditional negotiation mentioned in my letter to M. de Montmorin it will be then seen whether such a scheme would be acceptable to the Genoese & that without its coming from the U.S. Until they become still more alarmed ⟨— —⟩ with respect to French funds, I think they will prefer continuing the risk than with drawing their stock at the present loss.
The vessel with the letter of 2. still at Texel—this will go by an American vessel expected to sail soon.
ALS, letterpress copy, William Short Papers, Library of Congress; incomplete copy, New-York Historical Society, New York City; copy (incomplete), Duke University Library.
1. Johann Goll van Frankenstein, an Amsterdam broker who negotiated loans for Leopold II, Holy Roman Emperor.
2. Henry Hope of the House of Hope.
5. Bertrand Dufresne, a French financier, was at this time director of the public treasury and a councilor of state
6. This is a reference to the French loan of ten million livres of 1782. For a description of this loan, see Willink, Van Staphorst, and Hubbard to H, January 25, 1790, note 3.
8. The Paris banking firm of Jean Gaspar Schweizer, and François Jeanneret and Company.
9. Charles Guillaume Lambert.
13. Short to James Swan, December 9, 1790 (ALS, letterpress copy, William Short Papers, Library of Congress). This letter is undecipherable.
15. Swan, a Boston merchant and speculator, had been a member of the Massachusetts legislature during the American Revolution. In 1787, having run deeply into debt, he went to France to recoup his wealth. He participated in efforts to speculate in the American debt, to obtain a tobacco contract, and to supply the French Naval Ministry.
17. Presumably this is the letter to Montmorin which Short dated December 19, 1790. See enclosure.
18. See enclosure, Short to Schweizer, Jeanneret and Company, December 17, 1790.