Public Debt, [31 March] 1792
Public Debt
[31 March 1792]
On 1 November 1791 the House requested that the secretary of the treasury prepare a report on the public debt, specifying how many of the federal and state securities created by the Funding Act of 1790 had been subscribed and recommending “such measures as he may think expedient to be adopted to complete the object of the law.” Hamilton’s report, sent to the House on 7 February 1792, included a recommendation for further assumption of state debts. On 22 March the Committee of the Whole began to consider it (, 2d Cong., 1st sess., 150, 390–91, 479; , X, 541–47). FitzSimons moved to extend the Funding Act terms of exchanging old for new public securities. On 28 March Mercer offered an amendment to change those terms by reducing the interest on government stock received for old securities from 6 percent to 5 percent on the principal but maintaining 3 percent interest on the indents (interest certificates). JM offered an alternative amendment providing, instead of the terms of the Funding Act, that “the subscribers shall receive certificates for the joint amount of the principal and arrears of interest subscribed; which certificates shall bear an interest equivalent to the terms contained in the said act” (Gazette of the U.S., 31 Mar. 1792). The committee adjourned without voting on JM’s amendment, and Mercer withdrew his amendment the following day (Dunlap’s Am. Daily Advertiser, 31 Mar. 1792). The Committee of the Whole continued to consider Hamilton’s report on the public debt and a memorial from the Massachusetts legislature proposing that the federal government assume that state’s debt.
Mr. Madison observed, that a great deal had been said to prove that the general government is under obligation to provide for the debts of the individual States: The gentlemen who maintain this opinion said he, have not shewn that the creditors themselves ever entertained an idea that they should look to the United States for payment of those debts; it is not pretended that the new constitution varies the situation of the creditors—they stand precisely on the same ground they did under the old confederation. Mr. Madison denied that in the former assumption the creditors of the individual States were considered in the same point of light as the creditors of the continent, and for the truth of this he appealed to the law itself “making provision for the public debt.”
The proposition now before the committee he considered as unjust as it would place some of the States which had made no exertions to discharge its debts, in a more eligible situation than those which had made the greatest exertions to effect that object. He denied that the first assumption had been generally approved, or had been acquiesced in—and adverted to the proceedings and resolutions of the State of Virginia on the subject;1 papers said he, are on the table to shew the truth of what is now asserted; he added that he was sorry to find that no more attention had been paid to those papers. Mr. Madison then noticed the state of imports and exports from the several States, to shew the unequal operation of the assumption as it affects those States, particularly Virginia, which pays so great an overproportion of the interest on the debts of some of the States.2
Gazette of the U.S., 19 May 1792.
1. The Virginia General Assembly passed resolutions at its October 1790 session condemning the assumption of state debts as “repugnant to the constitution of the United States, as it goes to the exercise of a power not granted to the general government,” and denouncing portions of the Funding Act which “will in its operation be highly injurious to those states, which have by persevering and strenuous exertions, redeemed a considerable portion of the debts incurred by them during the late war” (, XIII, 234).
2. The committee rejected the proposition on assumption of the Massachusetts debt and on 2 Apr. considered eight resolutions reported by a select committee headed by FitzSimons. The eighth resolution would establish a sinking fund for the redemption of the 3 percents and the deferred debt (see JM to Jefferson, 8 Aug. 1791, n. 2). JM successfully moved for an amendment which extended the application of the sinking fund to the entire public debt (Gazette of the U.S., 4 Apr. 1792). The House rejected Giles’s amendment to the first resolution which would have abolished the provision in the Funding Act limiting annual debt redemption to 8 percent of the total principal and interest of any security (, 2d Cong., 1st sess., 533). On 3 Apr. Sheredine moved to amend the fourth resolution by providing for the assumption of liquidated as well as unpaid state debts. This was reminiscent of JM’s amendment of 24 Feb. 1790 to the assumption resolutions in the First Congress (, XIII, 60–63). JM amended Sheredine’s motion, adding the words “since the peace” (Gazette of the U.S., 6 June 1792). He voted with the minority when the House rejected it. The House passed six of the eight resolutions and on 4 Apr. directed FitzSimons’s committee to draw up a bill supplementary to the act making provision for the public debt (, 2d Cong., 1st sess., 534–35). During deliberations on the bill in Committee of the Whole on 3 May, JM sought an amendment requiring that the remaining public debt be funded at the lowest market price, which was approved by the committee the following day (in a 24–23 vote) but rejected by the House (Gazette of the U.S., 5 May 1792). The eighth section of the bill as passed, however, achieved an effect similar to that intended by JM’s amendment. Hamilton considered that amendment proof of JM’s personal hostility toward himself (Hamilton to Edward Carrington, 26 May 1792, , XI, 434). On 5 May JM voted with the majority when the House rejected an amendment to assume further state debts (, 2d Cong., 1st sess., 594, 597). The House and Senate passed the bill on 7 May. The president signed it the following day.