Proposals for Funding the Foreign Debt
The documents here presented are a part of the neglected story of Jefferson’s insistent appeals made from 1786 on to the secretary for foreign affairs, to the commissioners of the treasury, to members of Congress, and to leading public figures in America in the hope of buttressing national credit abroad by consolidating and funding the foreign debt (see TJ to Jay, 26 Sep. and 12 Nov. 1786, 1 Feb. 1787, and 4 May 1788; TJ to Dumas, 25 Dec. 1786 and 9 Feb. 1787; TJ to Adams, 1 and 17 July 1787; Brissot de Warville to TJ, 3 Jan. 1787, note; Clavière to TJ, 9 July 1788, note; TJ to Commissioners of the Treasury, 29 Mch. 1788; TJ to Madison, 3 May 1788; TJ to Washington, 2 May 1788). In all of these communications he kept steadily in view the object of achieving economy in funding operations, of passing on to the public whatever benefits were to be derived from prudent management of the debt, of neutralizing the dangers to government finance likely to result from private speculation in public funds, and—always in the forefront of his policy—of removing every real and potential cause of ill will between France and the United States.
As to the last, nothing was so upsetting to Jefferson as the complaints of the highly-placed French officers whose connections with the court gave them an opportunity to create unfavorable dispositions toward the United States out of all proportion to the sums due them. Interest on their claims was but a fraction of the annual charge for servicing the foreign debt, yet, while the Dutch bankers regularly received their annual interest payments (even though by virtue of additional loans negotiated with them), the French officers had not been paid since 1785. By the beginning of 1788 they were threatening to hold meetings and to take public steps, a move which Jefferson was able to postpone only by voicing a confidence in the promptitude and attentiveness to business on the part of the commissioners of the treasury that experience could scarcely justify. His urgent appeals on the need for consolidating the debt and paying interest to the officers went unheeded at home. Even Washington, though impressed by Jefferson’s arguments on the need for supporting the national credit, was unmoved by those concerning the claims of the French officers, replying somewhat irrelevantly that they had had less reason to complain, and had been more complaining, than American officers. Those in Congress—and John Jay as well—whose dispositions led them to distrust France and to hope for reestablishment of cordial relations with England were not only cool to the major premise of Jefferson’s ideas on the debt, but also happened to be, in general, identified with or closely related to a group that were in opposition to his proposals on other grounds—that is, the speculators in public funds, whose operations began to boom in 1787 even before the results of the Federal Convention were known.
Speculators in America and their connections in Paris and Amsterdam displayed their faith in the future of American funds by the zeal and extent of their operations, but they were scarcely made unhappy by the discontent of the French officers when this offered them a considerable leverage for their own objects. For the louder became the discontent, the more urgent the American need for funds arising from loans, a fact which increased the bargaining power of the close-knit group of Amsterdam bankers, brokers, and money-lenders who had to be reckoned with in any financial arrangements made by the United States. To this was added the considerable stimulus provided by the commissioners of the treasury, who informed the house of W. & J. Willink & N. & J. van Staphorst late in 1787 that no further payments of interest could be made from America until the new government was set in operation and that completion of the last loan could be the only hope for supplying that need. The resultant strategy of the bankers was unfolded to Jefferson’s view early in 1788. The bankers had themselves been speculating in domestic securities of the United States. These sold at much greater discount than the bonds of the foreign loans and also bore a higher rate of interest. Jefferson was therefore informed, in a specific proposal, that lagging subscriptions to the loan might be speeded up provided only that interest on a large amount of securities held by Stadnitski, one of the lenders, could be met and paid in Amsterdam (see Willink & Van Staphorst to TJ, 31 Jan. 1788 and enclosure; TJ to Adams, 6 Feb. 1788). John Adams, a veteran of long experience in dealing with the Amsterdam bankers and their closely-allied American speculators, placed the chief blame for “this Plott” on Daniel Parker, “the great Speculator in American Paper, who, though I love him very well, is too ingenious for me.” Adams declared that Willink & Van Staphorst had also “been purchasing immense Quantities of American Papers, and they now want to have it acknowledged and paid in Europe” (though law required it to be redeemed at the treasury in the United States). He said that the interest of the “Brokers, Undertakers, and Money Lenders,” who were also bound by honor to fill up the loan, would induce them to prevent a failure of American credit. Hence only firmness was needed. In an affectionate farewell, Adams urged Jefferson to summon his philosophy in the face of this dilemma, and added: “But be not discouraged, I have been constantly vexed with such terrible Complaints and frightened with such long Faces these ten years. Depend upon it, the Amsterdammers love Money too well, to execute their Threats. They expect to gain too much by American Credit to destroy it” (Adams to TJ, 12 Feb. 1788). Under Adams’ guidance, and aided also by the illuminating conversations that he had with the Dutch bankers in the spring of 1788, Jefferson’s education in the realities of European public finance proceeded steadily. The result was noticeable in his subsequent views and actions.
Jefferson returned to Paris somewhat overconfident that the additional loan just negotiated on his suggestion would be quickly subscribed, for the bankers had given him assurance that the adoption of the Federal Constitution would make this an easy task. But his confidence all but disappeared in the ensuing months when it became obvious that the loan was filling up only sufficiently to take care of the interest due to the bankers themselves. Jefferson’s first action on returning was to renew his urgent appeal for the consolidation of the foreign debt in Amsterdam. This he did in his letters to Washington and Madison of 2 and 3 May 1788. In both communications he outlined the broad policy that he thought necessary for the establishment of firm credit in Europe. The Amsterdam bankers, he had learned, considered the United States as “the most certain nation on earth” so far as the capital of the debt was concerned, but American funds sold at a discount there because interest payments were neither certain nor prompt. But it was in the letter to Madison that Jefferson provided the detailed outline for what he hoped would be the “first act of the new government.” That outline was essentially the same as the tabulated plan here presented (Document ii). “Digest the whole of the European debts,” he urged Madison, “… into a table, shewing the sum of interest due every year, and the portions of principal paiable the same years. Take the most certain branch of revenue, and one which shall suffice to pay the interest and leave such a surplus as may accomplish all the paiments of the capital at terms somewhat short of those at which they will become due.” These surpluses, he suggested, could be used to buy up securities at Amsterdam, thus keeping the paper at par, and the United States would thereby be enabled “to command in four and twenty hours at any time on the exchange of Amsterdam as many millions as that capital can produce.” Honest, annual publication of interest payments would inspire confidence, while “silence would conceal nothing from those interested to know.” In addition, Jefferson urged Madison to press upon the commissioners of the treasury the claims of the French officers, who were now with difficulty being restrained from taking embarrassing measures.
Ironically, this letter (as well as that to Washington) was carried to America by Brissot de Warville who was bound on a secret speculative venture in American funds that originated almost under Jefferson’s eyes but was carefully concealed from him. That venture began with Etiènne Clavière and Brissot, but also included Parker, who oscillated between London and Paris and sometimes Amsterdam in the furtherance of his many enterprises. In America its ramifications included Andrew Craigie, William Duer, and Samuel Osgood, the last two being connected with the treasury. Though Jefferson knew nothing of the primary object of Brissot’s mission, he suspected, correctly, that Brissot was “agent of a company on some speculation of lands” (an object that also embraced a typical vision of the Age of Enlightenment of some utopian republic of philosophers to be founded on a suitable tract of wilderness land). Jefferson suggested that Madison and Monroe might be able to induce Brissot to form a connection with them in their own land speculations. This part of the letter received Madison’s prompt attention, and, being strongly infected at this time by the prevailing fever for speculative investment in lands, he gave a dinner for Brissot on his arrival in New York. But it is a remarkable fact that in the ensuing months Madison made no comment on Jefferson’s urgent recommendations on financial policy and the means of implementing it. Jefferson may have noticed this silence. That, together with the renewed evidence of disinclination on the part of the bankers to fill up the latest loan, may have provided the stimulus for Jefferson to do himself what he had urged Madison to do—that is, to digest the whole of the foreign debt and tabulate it according to a reasonable plan of amortization. This he did in the document here presented.
Nor did Madison make any response to this further appeal in the winter and spring of 1789. What is even more remarkable, he seems to have divulged the essential information in Jefferson’s letter of 3 May 1788 to Brissot or to someone who made it available to the group that Brissot represented. For, almost at the moment that Jefferson was engaged in compiling the present proposal, Duer and Craigie were made aware of his earlier communication on the subject. This evidently came to Duer through Gouverneur Morris, who, with Robert Morris, was “turning his attention to the domestic and foreign Debt and… forming connections with a view to Speculating very extensively in them,” and who was bound for Europe “with the best recommendations from this country” (among them a letter from Washington to TJ, 27 Nov. 1788). Duer at once passed the information on to his associates and “related what had passed between him and M[orris] by which it appears probable that J[e]ff[erso]n may have written to M[a]d[iso]n of Virginia and communicated some plan respecting a transfer of the foreign Debt by a fair negotiation of which great advantages may be made: and that M[a]d[iso]n and M[orri]s may be associated with Gou[verneu]r M[orri]s and one or two others for the purpose of the Speculation” (quoted in J. S. Davis, Essays in the Earlier History of American Corporations, Cambridge, 1917, I, 167). News of this interesting possibility was immediately sent in a letter from Andrew Craigie to Daniel Parker, one of the originators of the Brissot enterprise (Craigie to Parker, 29 Oct. 1788; same). Thus the machinery that TJ had tried to set in motion for “a fair negotiation” and that he had had so much at heart since 1786 came fruitlessly back to Paris—not full circle, but deflected from its aim of public benefit into the closed, secretive channels of those for whom “advantage” had a different connotation. Jefferson knew ultimately that his effort had been useless, but he probably never learned that, through Madison, he had been unwittingly responsible for informing Parker of his own plans while Parker had successfully kept him in the dark about his own. Possibly Madison himself did not know the full extent of the anticipations that, perhaps unknowingly, he had aroused.
Jefferson’s persistent efforts for a realistic approach to the foreign debt were frustrated. One reason conventionally assigned for inattention to the appeals he made was the impotence of the Congress under the Confederation and the emptiness of the treasury. John Adams, whose experience in such matters was matched by his candor, thought otherwise: “The French Debt,” he wrote to Jefferson, “and all the Domestic Debt of the United States might be transferred to Holland, if it were judged necessary or profitable, and the Congress or Convention would take two or three preparatory Steps. All the Perplexities, Confusions and Distresses in America arise not from defects in their Constitution or Confederation, not from a want of Honour or Virtue, So much as from downright Ignorance of the Nature of Coin, Credit and Circulation.—While an annual Interest of twenty, thirty, and even fifty Per Cent, can be made, and a hope of augmenting Capitals in a Proportion of five hundred Per Cent is opened by Speculations in the Stocks, Commerce will not thrive. Such a State of Things would annihilate the Commerce, and overturn the Government too in any nation in Europe” (Adams to TJ, 25 Aug. 1787). Had the commissioners of the treasury been as zealous to promote the national character as some of them were to advance private interest, Adams’ estimate of the situation would have had a better chance to be proved sound.
Jefferson’s insistent effort at this time to redeem the national credit has also received from history almost as scant a notice as from contemporaries. One reason for this evidently is grounded on the assumption that the element of idealism in his thought precluded the practicalities and realities of fiscal planning. Another is that Alexander Hamilton, in a deliberate act that was neither astute nor honorable, distorted Jefferson’s intention by selecting and misrepresenting one of his proposals (see notes to Clavière to TJ, 9 July 1788, and its enclosures; also TJ to Washington, 17 Oct. 1792). Another, more important, is that Hamilton’s own funding measures, benefiting from the new powers available to the federal government and from the sense of a fresh beginning for the nation, came under such a strong spotlight of attention as to throw into obscurity the fact that other men, lacking such governmental powers, had labored long and valiantly to promote the same cause. Indeed, Jefferson’s own endeavors to sustain the national credit went back to 1784 and to his suggestions for utilization of the national domain as a resource for doing so.
But another reason for this neglect, perhaps the most justifiable of all, is that the records for presenting the full picture of Jefferson’s effort have not been available. Neither of the two proposals here presented has been published heretofore, and it is quite understandable why Jefferson’s (Document ii) has not been. For it evolved from a series of calculations set down on the blank space of an address-leaf to the perfected form here presented, and the laborious calculations that Jefferson made at that time have been scattered through his own and Short’s papers and misdated, erroneously classified, and placed in disordered arrangement. No less than eight of his separate, detailed calculations in rough form showing the proposed operation of the debt under different schemes of amortization are to be found scattered under such varying dates as 1788, 1790, 1793, 1803, and 1805. This diffuseness of the record presented an impossible task for the historian, particularly since there was little incentive for penetrating the maze save the opportunity to record a persistent but frustrated effort.
The author of the first proposal here presented as Document I—the “gentleman” versed in financial matters to whom Jefferson referred in the covering letter to Madison—cannot be identified with certainty, but the evidence points to Jacob van Staphorst. The handwriting seems to resemble his. The calculations are entirely in florins, whereas Jefferson in his plan converted livres and florins to dollars. The style suggests such a source: e.g., the use of “sink of Capital” indicates an author not at home with English, and the form “U. States” or “Ud. States” is one used fairly consistently by the Van Staphorsts. In substance, too, the document seems to argue a Dutch origin, particularly in its statement about increasing the value of the old loans and thus securing the success of the new—a topic of continued discussion between Jefferson and the Dutch bankers in the years 1788–1789. Jefferson was on terms of familiarity with Jacob van Staphorst, who was exiled in Paris because of his activities with the patriot party of Holland. He was not actually present in Paris at the time Jefferson drew up his own calculations on the debt (see Nicolas van Staphorst to TJ, 8 Oct. 1788), but the document itself presents evidence that may indicate it was written somewhat earlier, perhaps as early as the winter of 1786–1787 when Jefferson first endeavored to persuade Congress to consolidate the debt and place it in the hands of Dutch bankers. For the figure that it presents for interest on the French debt down to January 1792–6,850,000 livres—determines the earlier terminal date as 1787. There is no way of fixing the date more narrowly than is provided by this evidence of its falling somewhere in the two year period before 18 Nov. 1788. For it was in 1786 that the United States defaulted on the interest of a loan that fell due then, when payment of it was assumed by France down to 1790.
The dating and the evolution of Jefferson’s own proposal may be established with far more precision. In DLC: TJ Papers, 108: 18553 there is an address leaf bearing his calculations for an early state of the proposal. On its verso are three plans for the amortization of the French debt, with yearly calculations of the operation for each. The first assumed “a loan of 2,874,712 D. to face the arrears of 1791,2,3,4 and 12 annual paiments of 750,000 D.” The second assumed a “loan of 2,763,625 D. and 12 annual paiments of 800,000 D.” And the third assumed a “loan of 2,773,625 D. and 12 annual paiments of 790,000 D.” The calculations of interest and amortization payments from 1791 to 1802 Jefferson set down in tabular form and found that the first, at the terminal date, left “887,147 D. unpaid”; that the second gave “a surplus of 96,678 D.”; and that the third left “280,265 D. unpaid at the end of the Loan.” After these experiments, Jefferson arrived at the solution set forth here, and in doing so recurred to Madison’s calculations made in 1783 on the anticipated revenue from the proposed impost of 5%. His rough calculations for this solution are to be found in DLC: TJ Papers, 108: 18554; it supposed “13. annual paiments of 777,773 Dollars” and assumed that “a loan will then be necessary, of 2,796,559.Doll…. This pays the French debt by the year 1802 and what remains unpaid of the loan in 1803, and leaves of balance 310,434 towards the expence of collection i.e. about 3 pr cent. on 777,773 x 13.” In DLC: Short Papers there is a draft in Jefferson’s hand of the equation for converting florins and ecus into the “Spanish Piastre of exchange,” by which he arrived at the exact equivalent of the livre in dollars as .18416. This fragment, being on the verso of an undated but datable note to Grand of 10 Oct. 1788, establishes Jefferson’s proposals as having been drawn up between that date and 18 November when he forwarded them to Madison. But, since almost the whole of this period in November was taken up with the “squall of work” that descended upon him because of the problem of the whale fisheries, the calculations must have been drawn up during the last two weeks in October—that is, precisely at the time he received Willink & Van Staphorst’s letter of the 16th explaining why, despite the ratification of the Constitution and despite the promises that the bankers had made to him earlier in the year, it was still most difficult to find subscribers for the loan.
In 1793, when the matter of reduction of the public debt was again under discussion, Jefferson said that calculations as to the number of years required to pay principal and interest of a given debt could be “easily performed in 5 minutes.” But there is no doubt that he required a much longer time when he addressed himself to the problem in 1788. In DLC: TJ Papers, 234: 41912 there is a calculation which seems to have been one of the earliest of his attempts at that time. It assumed that there would be “5,000,000 Dollars borrowed of A. at 5 pr Cent”; that 26 annual payments of $350,000 would discharge principal and interest, leaving a balance of $111,345.377; that in this manner only $9,100,000 would be paid in the whole, resulting in a saving to the government of $2,400,000 over the cost of carrying the principal for 25 years at 5% interest. In DLC: TJ Papers, 155: 27127–34 there are also various sheets filled with calculations for amortizing the debt beginning in 1791; these assume various annual receipts amounting respectively to 217,777, 280,000, 290,000, 295,000, 305,000, 320,000, and 330,000 dollars. In DLC: TJ Papers, 50: 10199 there is a tabulation on a single sheet, entirely in Jefferson’s hand, comprising nine columns of figures, of which the first five columns are identical with those in the corresponding columns of Document II. The remaining four columns tabulate the interest, balances, and amortization payments under the supposition stated by Jefferson at the head: “French Debt. Supposing the European impost of 777,773 Dollars annually appropriated to it’s discharge. Then 2,796,559 Dollars must be borrowed, in aid of that impost, to make good the paiments of 1791.1792. in which there will be Deficits: which loan with it’s interest will be sunk by the same impost from 1793 to 1803, during which it will yeild surplusses equal to that object, as may be seen by the following statement…. Thus we see that 777,773 Dollars annually paid from 1791. to 1803. inclusive will pay off the French debt, principal and interest, as they become due, and will sink also the loan of 2,796,559 Dollars, principal and Int. and leave 310,434 D = 2 per cent on 777,773 x 13. towards the expence of collection.” A copy of this, in Short’s hand, is in DLC: Short Papers, accompanied by a “Statement of the Dutch loans” corresponding to the table for this in Document II and having at foot of the table: “NB. Suppose 314,000 dollars to be applied annually towards sinking this debt, it will be found that in some years it will be more and in others less than sufficient to discharge the payments as they become due, but at the term of 1807 it will have paid the principal and interest of the whole debt, and there will remain a surplus of 1,280 dollars.” In DLC: Short papers there is also, in Jefferson’s hand, a corresponding “Statement of the Dutch loans” in tabular form, but lacking the note at foot; it is, however, accompanied by another table in Jefferson’s hand showing the “Effect of annual paiment of 314,000 Dollars towards sinking the Dutch loans,” presenting in five columns the dates, “Total Dollars paiable each year,” deficits, surpluses, and balances. These various plans for amortization are not printed here because they are both repetitive and experimental preparations for the plan to which Jefferson gave final form as set forth in Document ii.