Repayment of Bank Loan, [26 December] 1792
Repayment of Bank Loan
[26 December 1792]
By the Bank Act of 1791, the federal government paid $2 million, from funds previously borrowed at 6 percent interest and appropriated for debt reduction, for its shares in the Bank of the United States. The bank in turn lent the government $2 million to be applied toward the reduction of debt as previously appropriated and to be paid off in $200,000 annual installments over the next ten years (, I, 196). On 24 Dec. 1792 the Committee of the Whole took up “the bill to provide for a reimbursement of a Loan made of the Bank of the United States.” JM “offered several observations to shew the propriety of postponing the bill for a few days, in order to the members having time to revolve in their minds several propositions which have been suggested in relation to this business: Whether, by an appropriation of the sum, which, it is said, now lays dormant in the Treasury—Whether by a sale of the shares in the bank, or by a loan, to provide for the object.” FitzSimons objected that JM’s “idea goes to an immediate interference with an appropriation already made, and leaves to a contingency a provision to supply its place.” JM replied that FitzSimons “offered as good a reason as he could have suggested in favour of applying the money in the treasury to the object now in question” (Gazette of the U.S., 26 Dec. 1792). The committee reported the bill, and on 26 Dec. Steele moved that the House strike out the bill’s first section, which authorized another loan, at 5 percent interest, to pay off the 6 percent loan from the bank.
Mr. Madison was desirous to hear the reasons that could be given by the friends of the bill, for requiring so much greater a loan than the sum demandable by the bank. He observe⟨d⟩ that there was a large balance of money lying in the treasury, unappropriated, at least to his knowledge; if, however, this balance was appropriated by the executive, he wished to know it. He did not suppose but that if it was, it must have been done with propriety; and he would be one of the last men in the house to injure any existing appropriation.
Dunlap’s Am. Daily Advertiser, 1 Jan. 1793 (also reported in General Advertiser, 28 Dec. 1792, Gazette of the U.S., 29 Dec. 1792, and Federal Gazette, 1 Jan. 1793).
[26 December 1792]
Sedgwick objected that “the subject involved a degree of delicacy at present which perhaps it would be better not to express.” This veiled hint must have been related to unused treasury funds that were owed to foreign creditors, but JM was unwilling to drop the matter.
Mr. Madison said, that, either the public money lying d⟨ormant⟩ in the treasury, is, or is not, appropriated. ⟨If it⟩ is appropriated for carrying on the Indian war, he was of opinion it could not be touched by a diversion in favour of the bank, upon the uncertainty of having it replaced by a fresh loan to answer the original specific appropriation. Perhaps, said Mr. Madison, I am ignorant of my situation, if so, I hope gentlemen will relieve me, by explaining candidly the real state of the business.
Dunlap’s Am. Daily Advertiser, 1 Jan. 1793 (also reported in General Advertiser, 28 Dec. 1792, Gazette of the U.S., 29 Dec. 1792, and Federal Gazette, 1 Jan. 1793).
[26 December 1792]
Williamson opposed “selling the Bank stock belonging to the United States.… It would have an effect something like an ex post facto law.”
Mr. Madison expressed extreme surprise at the arguments of the gentleman last up, because they were absolutely, in direct contradiction to that gentleman’s opinion, and the opinion of the legislature, and the reports of the Secretary of the Treasury in all former occasions, for it has hitherto been held up as a valuable and secure resource in case of emergency, to have that stock to dispose of, and why shall it not be of the same quality with the stock of the other subscriber—transferrable? It is the first time, said Mr. Madison, I ever heard the thing denied, that the United States should dispose of their stock, when ever it became the interest of the country to do it, with equal facility, as other stockholders do—I believe, however, the gentleman (Mr. Williamson) may have been right in his intentions, but he is certainly wrong in the application of his arguments. Mr. Madison again expressed a desire that some candid explanation might be given respecting the appropriation of the money lying dormant in the treasury, whether it was demanded abroad by the country to which it was due and for which it had been borrowed. There was not any necessity for hurrying a decision on one part of the question, respecting the propriety of borrowing at 5 per cent. to pay off a debt at 6, that could be deliberated upon without precipitation—the other part of the question involved a very different subject, that of diverting a sum already appropriated for a particular purpose, and applying it to another purpose, they paying the bank installment &c. and this on no better foundation than the uncertainty of a new loan to replace the original appropriation. He declared, that he could not see how gentlemen would be able to answer to their constituents for such conduct, especially if it was originally intended to satisfy the debt of installments due to France—a debt of justice and of gratitude; if it was intended to pay a debt, to support a glorious cause, the cause of liberty. He wished it could be sent there if possible on the Wings of the Wind! It may be argued, that the whole of this debt is not yet demandable; yet as an appropriation has been made to pay it, it is presumable, that it would be particularly acceptable, from the situation of France at this time.1 He concluded by declaring his dissent from any diversion of the appropriation unless further lights could be thrown on the subject, than had yet appeared.
Dunlap’s Am. Daily Advertiser, 1 Jan. 1793 (also reported in General Advertiser, 28 Dec. 1792, Gazette of the U.S., 29 Dec. 1792, and Federal Gazette, 1 Jan. 1793).
1. JM was giving vent to the suspicion that Hamilton was withholding money earmarked for repayment of the French loan in order to use the funds “to aid the Bank to which he was partial” (Fleet, “Madison’s ‘Detatched Memoranda,’” , 3d ser., III [1946], 546). Hamilton’s official stance was that affairs in France were so unsettled by the revolution that “further payments on account of the United States to the government of that country” ought to be suspended (Hamilton to William Short, 5 Nov. 1792, , XIII, 19).
[26 December 1792]
Williamson objected that JM “had misunderstood him, and that he was equally anxious with him, both as to the honor of the country and the propriety of its measures.”
Mr. Madison rose again, to explain in regard to the misconception of his arguments by Mr. Williamson. He was willing to admit of any reason for a diversion of the appropriation of the former loan in order to pay part of our debt to France, except one; he would admit of any reason from the executive, but one, and that was, what he had heard alledged, not in, but out of Congress—”that there would ever exist a possibility of paying the debt over again.” This reason he could never admit; because although it might be vainly presumed, that the present government of France had not yet arrived at a proper stage of maturity, yet it must be evident to all the rational part of mankind, that it was sufficiently established to insure it against all possibility of a retrograde motion.1
Dunlap’s Am. Daily Advertiser, 1 Jan. 1793 (also reported in General Advertiser, 28 Dec. 1792, Gazette of the U.S., 29 Dec. 1792, and Federal Gazette, 1 Jan. 1793).
1. JM voted with the minority when the House defeated Steele’s motion. He “then moved to strike out 2,000,000 and insert 200,000. The object of this motion was to provide only for the payment of interest on the loan and the first instalment, which becomes due on the first of January” (Federal Gazette, 1 Jan. 1793). A 27–26 majority favored JM’s motion, but Speaker Jonathan Trumbull’s casting vote defeated it. On 27 Dec. Sedgwick urged the House to take up the bill, as the loan “is so near being due,… and 200,000 dollars to be raised immediately.” JM responded: “If this be the only reason for dispatch, then limit the proposed loan to that amount, and we will consent to its being instantly referred to a committee of the whole” (Dunlap’s Am. Daily Advertiser, 1 Jan. 1793). On 27 Feb. 1793 the motion to strike out the bill’s first section was revived in the Committee of the Whole. JM “was in favour of striking out the section—setting aside the consideration that the United States are not under obligation to discharge the whole sum of two millions at the present time; he very much doubted the policy of making loans at that amount, when the question, Whether any saving could be made thereby, is problematical, considering the rate of interest in Europe. He thought it probable, that before the time came round, when the United States might be obliged to discharge the whole of this debt, money may be obtained on more advantageous terms than at present, if it should be found necessary to borrow” (Gazette of the U.S., 2 Mar. 1793). The committee approved the motion. On 28 Feb. the House passed the bill, amended to provide only for payment of the first installment, and the president signed it on 2 Mar. (, 2d Cong., 2d sess., 898; , I, 338).