James Madison Papers

To James Madison from Albert Gallatin, 28 February 1803

From Albert Gallatin

Treasury Department 28th Feby. 1803


I have, in conformity with your request, considered the several modes in which the Ministers of the United States might avail themselves of the two millions of dollars appropriated for the purposes of foreign intercourse by the last law of Congress.1

If, by the terms of the proposed convention, it can be agreed on to make the intended payment at the treasury of the United States to an authorized agent of the French republic, that mode should, by all means, be embraced. It will not only be less expensive and more convenient to us; but I apprehend that although the treasury may be drained by the payment, the nation will not be much the poorer if that shall be the manner of paying; for, under the present relations, of the United States and of the French West India islands, the greater part of the funds, which may be at the disposal of the French government in America, will, whatever may be their immediate application, revert to the citizens of the United States. It appears, therefore, to me that if a negotiation can at all be effected on those terms, our ministers should absolutely adhere to that mode of payment.

It is, however, very probable that the only inducement which will prevail on the French Government to assent to a sale, if, indeed, a purchase is practicable on any terms, will be their want of credit and economy and some sudden & urging want of money at home. If that shall be the case, our ministers must raise the money in Europe, and that they can do only in three ways, 1st by obtaining a loan for a number of years 2dly by drawing bills upon the treasury; & 3dly by obtaining from some bankers in England, Holland or France a temporary advance to be repaid immediately by the Treasury of the United States in Europe.

The first mode I disapprove altogether: if we shal⟨l⟩ be obliged to borrow for a number of years, it is far more eligible to do it here than in Europe; a permanent loan if we shall succeed in the negotiation may probably be altogether avoided, as our situation will be perfectly safe, and our land & import revenue probably rendered more productive; our six per cent stock is now 5 per cent higher in America than in England, & the interest of money still continues high in Holland, for which reasons it is not probable that loans for a number of years could be effected in either country without paying for the whole time a rate of interest proportionate to the existing market price of stocks there; finally, if such species of loans is practicable, a temporary advance will be obtained with still greater facility, and we shall not have to pay in that case an extraordinary rate of interest or other charg⟨e⟩ for a longer time than that for which the advance shall have been obtained.

The second mode, that of drawing bills on the treasury, is, however more eligible than either a loan for a number of years or a temporary advance to be repaid in Europe: for, by adopting it, we shall enjoy the great convenience of paying in America; the sum we Shall have to pay will be made certain by the rate of exchange which shall be fixed; and we shall avoid the risks of remittance, as well as commissions, charges, prolonged interest &a. I wish, therefore, that that mode should be adopted in preference to any other; (that of a payment in dollars to an agent of the foreign Government and at the treasury of the United States only excepted;) The bills ought in that case to be drawn at no shorter period than Sixty days after sight; and they may be drawn either in dollars which is the most eligible mode, or in Pounds sterling or current guilders of Holland payable in the United States at the existing rate of exchange when they shall become due; this last mode is less eligible on account of the uncertainty of the amount which we shall have to pay in that case; and the bills ought not to be drawn in livres tournois, unless the rate of exchange shall be fixed on the face of the bills, (which is the same thing as if they were drawn in dollars,) because there is hardly ever any current rate of exchange between this country and France. For that reason, it is proper here generally to observe that in any agreement which may be made with France to pay a sum of money Expres⟨sed⟩ in livres tournois, but payable in another country than France, the rate of exchange, to avoid any difficulties, ought to be fixed. The value of the new French francs I do not perfectly know; but as a crown of six livres tournois has been proved by repeated assays made here to be worth one dollar & ten cents, the true par of exchange is eighteen cents and one third for one livre tournois.

The possibility of selling bills on the treasury of the United States must, however, depend on the demand for them; and if there shall not exist, at the time, a want in Europe of funds in the United States our ministers will not be able to dispose of bills in this country to any considerable amount. In that very probable case, they must recur to the third mod⟨e,⟩ inconvenient as it is, of obtaining money from some Bankers in Europe on promise of its being repaid within as short time as practicable by remittances from the Treasury of the United States. If that mode shall be adopted, the obligation of re-payment must be confined to London, it being the only place on which we are always sure of obtaining bills to a large amount within a short time; and the period of re-payment must be twelve months from the time when the money shall have been advanced in Europe: I say twelve months; for we must calculate on five months for the time employed in transmitting the information from Europe to the Treasury and that of transmitting the remittances, after they shall have been purchased here, from the United States to Europe; the bills purchased here will be at sixty days sight; which will leave us only five months here to raise the money & purchase bills to that amount. As, however, the Treasury would begin its purchases from the moment when an account should have been received of the negotiation, and as the remittances would be transmitted as they were purchased, the first repayment would be effected in London within seven months, and the completion of the whole repayment only would require a twelve month; for which reason, our ministers, in making an agreement with Bankers should allow them, besides the commission which might be agreed on and which might vary from ½ to 2 per cent, interest only to the time of repayment.

From that view of the subject it results

1st. that the Ministers should try to obtain such terms as will permit a payment in the United States in dollars & to an agent of the French republic

2dly. that the most eligible way of raising money in Europe will be by drawing bills on the treasury

3dly. that, if bills cannot be sold, they must obtain from some bankers an advance, on as moderate terms as can be obtained, to be repaid within a twelve month in London, with interest from the date of the advance to that of repayment.

To this must be added generally that if the rate of exchange can be fixed on reasonable terms it ought to be done, and that at all events and under any modification, the arrangements made in Europe must be such that the whole payment in America, including commissions, interest, & rate of exchange, shall not exceed the two millions of dollars appropriated by law.

For the purpose of enabling the ministers of the United States to raise the money in Europe, either by drawing bills or obtaining a credit, it is proposed that two exemplifications of the law be made under the seal of your office, to each of which shall be annexed the authorization & directions of the President to the Secretary of the Treasury to place eventually the two millions at the disposal of our ministers in Europe, and the authorization of the Secretary to these to draw bills or otherwise raise the money on the credit of the United States, pledging the faith of the U. States to discharge the bills on temporary advance: one to remain in the treasury, and the other to be delivered to the Secretary of State for the purpose of being transmitted to our ministers, whose warrant it will be, & who will employ it only in case it shall be wanted.2

Although this mode seems preferable to that of writing letters to certain bankers, because it will be applicable & may be considered as directed to any monied men who may be disposed to lend their assistance, I may recommend an application in the first instance to the houses of Baring in London, Willink & Van Staphorst in Amsterdam, De Wolfe in Antwerp, & De Lessert in Paris; all of whom have either acted as Bankers of the United States or been connected with them in monied transactions. I have the honor to be with great respect Sir Your most obedt. Servt.

Albert Gallatin

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