Discrimination between Present and
Original Holders of the Public Debt
[11 February 1790]
On 8 February the Committee of the Whole took up Secretary Hamilton’s report on public credit. FitzSimons submitted eight resolutions which served as a framework for the debate. The first declared “that adequate provision ought to be made for fulfilling the engagements of the United States, in respect to their foreign debt.” This passed unanimously. The second resolution called for “the payment of interest on, and the gradual discharge of the domestic debt of the United States.” Scott moved to add the words “as soon as the same is ascertained and duly liquidated.” This motion provoked a lengthy debate during which a question arose over discrimination between the original and present holders of the public debt. After Scott’s amendment was defeated “by a great majority” (Gazette of the U.S., 13 Feb. 1790), Burke then moved to add: “provided a discrimination be made between the original holders and their assignees, and that a scale of depreciation be prepared accordingly.” Declaring that he had made this proposition only as a favor to a colleague, and did not mean to support it, Burke withdrew his motion moments before JM rose to speak.
Mr. Madison. No gentleman, Mr. Chairman, has expressed more strongly, than I feel, the importance and difficulty of the subject before us. Although I have endeavored to view it under all its aspects, and analize it in all its principles; yet have I kept my mind open, and been anxious to aid my own reflections, by the reflected light to be expected from gentlemen on this floor who enter into the discussion. For this purpose, I chused hitherto, rather to be a hearer than a speaker on the subject, and should even at this moment have continued in my seat, but that the turn which the business has taken, renders it requisite for me now, if at all, to trouble the committee with my reflections, and the opinion in which they have terminated.
It has been said, by some gentlemen, that the debt itself does not exist in the extent, and form which is generally supposed. I confess, sir, I differ altogether from the gentleman who takes that ground. Let us consider, first, by whom the debt was contracted, and then let us consider, sir, to whom it is due. The debt was contracted by the United States, who, with respect to that particular transaction, were in a national capacity. The government was nothing more than the agent, or organ, by which the whole body of the people acted: The change in the government which has taken place, has enlarged its national capacity, but it has not varied the national obligation, with respect to the engagements entered into by that transaction: For, in like manner, the present government is nothing more than the organ, or agent, of the public. The obligation which they are under, is precisely the same with that under which the debt was contracted; although the government has been changed, the nation remains the same. There is no change in our political duty, nor in the moral or political obligation. The language I now use, sir, is the language of the constitution itself; it declares, that all debts shall have the same validity against the United States, under the new, as under their old form of government. The obligation remains the same, though I hope experience will prove that the ability has been favorably varied.
The next question is, to what amount the public are at present engaged? I conceive the question may be answered in a few words. The United States owe the value they received, which they acknowledge, and which they have promised to pay: What is that value? It is a certain sum in principal, bearing an interest of six per cent. No logic, no magic, in my opinion, can diminish the force of the obligation.
The only point on which we can deliberate is, to whom the payment is really due; for this purpose, it will be proper to take notice of the several descriptions of people who are creditors of the union, and lay down some principles respecting them, which may lead us to a just and equitable decision. As there is a small part of the debt yet unliquidated, it may be well to pass it by, and come to the great mass of the liquidated debt. It may here be proper to notice four classes into which they may be divided.
First. Original creditors, who have never alienated their securities.
Second. Original creditors, who have alienated.
Third. Present holders of alienated securities.
Fourth. Intermediate holders, through whose hands securities have circulated.
The only principles that can govern the decision on their respective pretensions, I take to be, 1. Public justice; 2. public faith; 3. public credit; 4. public opinion.
With respect to the first class, there can be no difficulty. Justice is in their favor, for they have advanced the value which they claim; public faith is in their favor, for the written promise is in their hands; respect for public credit is in their favor, for if claims so sacred are violated, all confidence must be at an end; public opinion is in their favor, for every honest citizen cannot but be their advocate.
With respect to the last class, the intermediate holders, their pretensions, if they have any, will lead us into a labyrinth, for which it is impossible to find a clue. This will be the less complained of, because this class were perfectly free, both in becoming, and ceasing to be creditors; and because, in general, they must have gained by their speculations.
The only rival pretensions, then, are those of the original creditors, who have assigned, and of the present holders of the assignments.
The former may appeal to justice, because the value of the money, the service, or the property advanced by them, has never been really paid to them.
They may appeal to good faith, because the value stipulated and expected is not satisfied by the steps taken by the government. The certificates put into the hands of the creditors, on closing their settlements with the public, were of less real value than was acknowledged to be due; they may be considered as having been forced, in fact, on the receivers. They cannot, therefore, be fairly adjudged an extinguishment of the debt. They may appeal to the motives for establishing public credit, for which justice and faith form the natural foundation. They may appeal to the precedent furnished by the compensation allowed to the army during the late war, for the depreciation of bills, which nominally discharged the debts. They may appeal to humanity, for the sufferings of the military part of the creditors can never be forgotten, while sympathy is an American virtue. To say nothing of the singular hardship, in so many mouths, of requiring those who have lost four-fifths or seven-eighths of their due, to contribute the remainder in favor of those who have gained in the contrary proportion.
On the other hand, the holders by assignment, have claims, which I by no means wish to depreciate. They will say, that whatever pretensions others may have against the public, these cannot affect the validity of theirs: That if they gain by the risk taken upon themselves, it is but the just reward of that risk: That as they hold the public promise, they have an undeniable demand on the public faith: That the best foundation of public credit, is that adherence to literal engagements on which it has been erected by the most flourishing nations: That if the new government should swerve from so essential a principle, it will be regarded by all the world as inheriting the infirmities of the old. Such being the interfering claims on the public, one of three things must be done; either pay both, reject wholly one or the other,1 or make a composition between them on some principle of equity. To pay both, is perhaps beyond the public faculties; and as it would far exceed the value received by the public, it will not be expected by the world, nor even by the creditors themselves; to reject wholly the claims of either, is equally inadmissible; such a sacrifice of those who possess the written engagements, would be fatal to the proposed establishment of public credit; it would moreover punish those who had put their trust in the public promises and resources. To make the other class the sole victims was an idea at which human nature recoiled.
A composition, then, is the only expedient that remains; let it be a liberal one, in favor of the present holders; let them have the highest price which has prevailed in the market; and let the residue belong to the original sufferers. This will not do perfect justice; but it will do more real justice, and perform more of the public faith, than any other expedient proposed. The present holders, where they have purchased at the lowest price of the securities, will have a profit that cannot reasonably be complained of; where they have purchased at a higher price, the profit will be considerable; and even the few who have purchased at the highest price cannot well be losers, with a well funded interest of 6 per cent. The original sufferers will not be fully idemnified; but they will receive, from their country, a tribute due to their merits, which, if it does not entirely heal their wounds, will assuage the pain of them. I am aware, that many plausible objections will lie against what I have suggested, some of which, I foresee, will be taken some notice of. It will be said, that the plan is impracticable; should this be demonstrated, I am ready to renounce it; but it does not appear to me in that light. I acknowledge that such a scale, as has often been a subject of conversation, is impracticable.
The discrimination proposed by me, requires nothing more than a knowledge of the present holders, which will be shown by the certificates; and of the original holders, which the office documents will shew. It may be objected, that if the government is to go beyond the literal, into the equitable claims against the United States, it ought to go back to every case where injustice has been done. To this the answer is obvious: The case in question, is not only different from others in point of magnitude and of practicability, but forces itself on the attention of the committee, as necessarily involved in the business before them. It may be objected, that public credit will suffer, especially abroad: I think this danger will be effectually obviated by the honesty and disinterestedness of the government displayed in the measure, by a continuance of the punctual discharge of foreign interest, by the full provision to be made for the whole foreign debt, and the equal punctuality I hope to see in the future payments on the domestic debts. I trust also, that all future loans will be founded on a previous establishment of adequate funds; and that a situation, like the present, will be thereby rendered impossible.
I cannot but regard the present case as so extraordinary, in many respects, that the ordinary maxims are not strictly applicable to it. The fluctuations of stock in Europe, so often referred to, have no comparison with those in the United States. The former never exceeded 50, 60, or 70 per cent: Can it be said, that because a government thought this evil insufficient to justify an interference, it would view in the same light a fluctuation amounting to seven or 800 per cent?
I am of opinion, that were Great-Britain, Holland, or any other country, to fund its debts precisely in the same situation as the American debt, some equitable interference of the government would take place. The South-Sea scheme, in which a change, amounting to 1000 per cent. happened in the value of stock, is well known to have produced an interference, and without any injury whatever to the subsequent credit of the nation. It is true, that, in many respects, the case differed from that of the United States; but, in other respects, there is a degree of similitude, which warrants the conjecture. It may be objected, that such a provision as I propose, will exceed the public ability: I do not think the public unable to discharge honorably all its engagements, or that it will be unwilling, if the appropriations shall be satisfactory. I regret, as much as any member, the unavoidable weight and duration of the burdens to be imposed; having never been a proselyte to the doctrine, that public debts are public benefits. I consider them, on the contrary, as evils which ought to be removed as fast as honor and justice will permit, and shall heartily join in the means necessary for that purpose. I conclude with declaring, as my opinion, that if any case were to happen among individuals, bearing an analogy to that of the public, a court of equity would interpose its redress; or that if a tribunal existed on earth, by which nations could be compelled to do right, the United States would be compelled to do something not dissimilar in its principles to what I have contended for.2
Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , III, 321–26 (first reported in N.Y. Daily Gazette, 15 Feb. 1790, which Gazette of the U.S., 17 Feb. 1790, follows). Although Lloyd’s notes for the 11 Feb. debate survive, there are none for JM’s speech. Lloyd probably copied the speech from the Daily Gazette, changing it from the third to the first person.
1. The word “be” follows in Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , but not elsewhere.
2. After his speech, JM formally moved to amend the second resolution so as to read: “Resolved, that adequate funds ought to be provided for paying the interest and principal of the domestic debt, as the same shall be liquidated; and that, in such liquidation, the present holders of public securities, which have been alienated, shall be settled with according to the highest market rate of such securities; and that the balance of the sums due from the public, be paid in such proportion to the original holder of such securities.”