To William Short
September 2. 1791
Since my last to you of the first of August I have received your several letters of the 3d. 5. 10 & 19th of June.
Most of the points mentioned in those letters will find sufficient answers in my several communications of the 9th & 24th of May, June 25 & 30th & the 1st of August, all of which having gone, by duplicates at least, and some by triplicates, I take it for granted have gotten or will get safe to hand.
Previous to saying any thing further, by way of answer, it is proper to inform you of a circumstance which has recently taken place here. Mr. Ternant, shortly after his arrival,1 made a representation against the payment of the monies due to France in its depreciated paper or assignats. You will readily conclude that the answer to such a representation could only be, that was not the intention of the United States to take advantage of the circumstance of depreciation, and that an equitable allowance would be made for that circumstance in the final adjustment of the payments which shall have been made.2
It therefore becomes important to distinguish mere depreciation from rate of exchange. To illustrate my meaning, I observe, that you state in your letter of the 3d of June the exchange between Amsterdam and Paris as upwards of twenty Ct (say 20) in favor of the former. You also state the rate of the depreciation of Assignats at Paris, or in other words, the difference between equal sums in specie & Assignats, at 10 Ct. Here then the rate of exchange, exclusive of depreciation, was 10 Ct above par, in favour of Amsterdam.
Two modes of adjusting this matter occur—one, to note at each period of payment the rate of exchange and the rate of depreciation and to pay the money, if desired, in Holland at a rate of exchange corresponding with the difference; the other, to sell bills on Amsterdam for specie, and pay the proceeds into the French Treasury.
As it may hereafter be questioned whether the rate of depreciation can be distinguished from the rate of exchange, it will be well to endeavour to put this point out of doubt. If circumstances permit the sale of bills at Paris, in specie, at a rate of exchange, which is nearly a mean between the nominal or declared rate of exchange and the actual rate of depreciation, (which on the data noticed above ought to be 10 Ct) this would afford an incontestable criterion. For Paris being the stipulated place of payment there could be no colorable claim upon us to make payments at Amsterdam, when we could make them in gold or silver at Paris, at 10 or any other rate per Cent (which might correspond with the above mentioned mean) less.
The management of this point will require delicacy. It is probable that the French Ministry will not choose to mark formally a rate of depreciation. And it is not wished to create any embarrassment on the point. It is hoped that you will be able so to conduct the thing as to conciliate a due regard to equity with the interest of the United States, and the scruples which the conjuncture may impose on the French Ministry.
If the sale of bills for specie will afford the equitable line of demarkation, it would seem the simplest operation for the French Administration to purchase your bills on our Bankers at Amsterdam3 at the market specie rate of exchange; in case, as I understand to be the fact, they wish to remit to Holland.
I observe the expectation of our bankers of a reduction of the rate of interest on the loans of this Country, and your reasons for doubting that their expectation will be realized. Those reasons have great weight. Yet the accounts from this Quarter, of the progressive rise of our Stock, and the rapid filling of the national bank must, ere this, have given a strong impulse to whatever causes might exist favorable to a reduction of interest. And without expecting sanguinely, I do not despair of the event having happened, or speedily happening.
An increased premium, though not desirable, ought not, as you intimate, to be an obstacle; if within limits that, on calculation, shew that more is gained in the reduction of interest than lost in the increase of premium. And it is probable enough that an augmentation of benefit to the Undertakers may induce them to exert efficaciously their influence to persuade the money lenders to be content with a rate of interest which will considerably overbalance to the United States the additional compensation given to them. The observations in my first instructions, which have relation to this point, had an eye chiefly to the sacrifices which in the loan of two millions of florins at 4 Ct were made to a mere appearance of low interest; and which, if I remember right, in fact gave to the lenders about 7 Ct.4 A small additional premium, which would be an object to Agents or Undertakers, would be easily overbalanced by a slight diminution of the rate of interest.
The course marked out in my letter of the 24th of May will obviate, in future, any injurious delay in the employment of the sums borrowed—if, as I have no doubt will be the case, I am accurately advised of the time of commencing each loan and the prospects concerning it; in order that I may regulate the drafts for the parts, which are intended to be applied here.
The probability of an extension of loans abroad for the purchase of public debt beyond the limit of 2 000 000 of Dollars depends on that of a fall of interest. When I inform you that I expect in future to be able to borrow in the United States at 5 Ct, you will perceive, that it cannot long be their interest to give 5 in Europe.
As you have now a latitude of discretion coextensive with the whole amount of our foreign debt, and indications of my opinions on various points, I forbear to multiply details which perhaps would only serve to perplex. I shall therefore content myself with barely adding, that, in regard to places of payment for monies borrowed my speculations on the probable course of exchange, resulting from the future relations of commerce, would lead me to prefer, on equal terms, first Paris & next Amsterdam. Neither any of the Italian States, nor the Austrian Netherlands, nor London appears to me equally eligible. But too much stress ought not be laid on such a preference, the grounds of it being far from certain.
The affair of Shweizer Jeanneret & Co5 is more & more out of the Question. Mr Ternant discountenances instead of promoting it. And the President has sanctioned the dasapprobation of the measure.
The Postcript to my letter of the 2d of August6 is to be construed with a reference to what is said in this letter concerning the adjustment of the payments to France.
A ratification of the contract for the loan by the President has been sent to Messrs Willinks & Van Staphorsts7 by a direct opportunity which has been deemed safer than a circuitous one through you.
LS, William Short Papers, Library of Congress.
1. Jean Baptiste de Ternant, newly appointed French Minister Plenipotentiary to the United States, had arrived in Philadelphia on August 10, 1791.
3. Willink, Van Staphorst, and Hubbard.
5. Short had written H frequently concerning Schweizer, Jeanneret, and Company’s proposals to buy the French debt. The last letter Short had written to H on this subject which H had at this time received was Short’s letter of June 3, 1791.
6. H’s letter to Short is dated August 1, 1791; the postscript to the letter is dated August 2.
7. The ratification referred to was either for the Holland loan of August, 1790, for three million florins or for the loan of March, 1791, for two and one-half million florins. Both ratifications, dated September 1, 1791, may be found in the George Washington Papers, Library of Congress. For an account of the 1790 loan, see H to Willink, Van Staphorst, and Hubbard, November 29, 1790, note 1. The loan of March, 1791, is described in Short to H, February 17, 1791.