The next most important articles of enquiry, involved in the resolutions of the House of Representatives of the 23d of January last,4 and in the observations, which have been [made] respecting the conduct of this department, relates to the loans which have been negociated under the Acts of the fourth and twelfth of August, one thousand seven hundred and ninety.5

The papers, which have been transmitted to the House, by order of the President, disclose the following particulars.

1st. That the immediate superintendance of the business of the loans was confided to the department of the Treasury, being naturally connected with it. This trust, besides the original instructions for regulating the execution of it, which have been communicated,6 was, of course, subject to such directions, from time to time, as the President should think fit to give, or as occasions should require. A considerable latitude of discretion, nevertheless, from the very nature of the case, attended it; so as justly to leave on the head of this department, a complete responsibility in all instances, where special exceptions do not appear.

2d. That the first loan, which was obtained,7 was undertaken and completed by the agency of Wilhem and Jan Willink, and Nicholaas and Jacob Van Staphorst and Hubbard, who, both under the former and present government, have been, and are the Bankers of the United States at Amsterdam.

3d. That with the single exception of the first loan, William Short, Esquire, then Charge des Affairs at the Court of France, now resident Minister at the Hague, was constituted the sole Agent of this department, for carrying into effect, the powers confided to it, with this qualification only, that if any negociation with a Prince of State, to whom any part of the debt to be discharged by the loans was due, shoud be requisite—the same was to be carried on through the person, who in capacity of Minister, Charge des affairs, or otherwise, then was, or thereafter might be charged with transacting the affairs of the United States, with such Prince or State.

4th. That all payments, which have been made out of the proceeds of the loans, have been made by the immediate and special order of Mr. Short, except those, upon the Bills of the Treasurer for the monies drawn to this country, and those to the money lenders in Holland; which were made in course by our bankers, at the periods they respectively became due. This consequently embraces all the payments to France: the very last of which, though agreed for by Mr. Morris, in consequence of his having been employed for a special purpose by Mr. Short, was not and could not be completed, but by the same immediate and special direction of Mr. Short.8

It moreover appears, from the same papers, and more fully from the correspondence at large, now before the Senate,9 that except in the particular instance, which has been just stated, with regard to Mr. Morris, there has been no other agency in the whole business, than that of Mr. Short, and of the Bankers at Antwerp and Amsterdam, whom he necessarily employed, as instruments in the negociations with the money lenders, and in the receipt and disbursement of the monies borrowed. These, as already mentioned, were at Amsterdam, the two Houses of Wilhem and Jan Willink, and of Nicholaas and Jacob Van Staphorst and Hubbard; at Antwerp, a Mr. G: De Wolf10 was the Banker.

It may not be without its uses, to add, that the monies proceeding from the loans have constantly remained in the hands of the respective Bankers, till they have been paid over to the creditors; namely, the French treasury, or their bankers, the money-lenders or their representatives, the holders of the bills drawn from this country by the Treasurer. Neither Mr. Short, nor Mr. Morris has ever had possession of a single guilder. The latter indeed has never even had power over one, excepting merely a sum of 105.000 guilders, by letters of mine, dated the 13th September last, placed at his disposal for paying it at Paris, according to stipulation, the interest on the debt due to foreign Officers. The fact is, and it is so demonstrated by the correspondence already referred to, that I never wrote a line to Mr. Morris, on the subject of the loans or their proceeds, but in reference to the case just mentioned, of the interest payable to foreign officers; in respect to which, local situation governed.

One more circumstance only is necessary to be noticed in this place, with a view to the elucidation intended: It is this—that the last payment, though originating prior to the change in the political position of France, of the 10th of August last, not having been consummated till the 6th of September following, fell, of course, under the disposition of those then in possession of the power of the nation.

It could not but have been unexpected to me, that exception should be taken to the report lately made by me on the subject of foreign loans,11 for the omission of details, which I did not, at the time, and do not yet conceive to have been called for, by the terms of the resolutions, upon which it was founded. The request, addressed to the President by those resolutions, was, that he would cause to be laid before the House, a particular account of the sums borrowed under his authority by the United States, the terms, on which each loan was obtained, the applications, which had been made of the monies, agreeably to appropriations, the balances, if any, which remained unapplied, specifying also, at what times interest commenced, on the several sums obtained, and at what times, it was stopped by the several payments made. It was not natural to imagine that these expressions were designed to comprehend a specification of the precise authorities under which the loans were negociated, of the names of the persons, by whom they were negociated, of the particular place or places, where the balance unexpended, of the sums that had been drawn for to the United States, were deposited. Still less natural was it for me to anticipate surmises, which could give to such particulars, the shadow of importance. But, as animadversions have attended the omission of those details, I ought to regard it as an admonition to me, to be more full and precise in my present communication; a motive, which co-operates with my desire, to throw all possible light upon the subject.12

The first general circumstance, which requires to be noticed and explained, after the particulars, that have been communicated, is this—That all the loans, which have been hitherto obtained, have been made under the authority of both Acts, without particular reference to either.

The idea originally entertained, was to conduct them on a different plan, founding each loan upon one, or other of the Acts; as will be seen by my letter of the 28th of August 1790, to our Bankers at Amsterdam;13 at the same time, that it will appear, from the same letter, that the separation did not appear to me a matter of consequence, and that I anticipated the possibility of a difficulty in adhering to it, in the particular case. That difficulty proved, in the opinion of the Bankers, to be of sufficient moment, to render the arrangement contemplated, under the circumstances of the case, unadvisable; as they inform me in their answer to the above mentioned letter.14

But prior to the receipt of that answer, further enquiry and reflection had determined me to abandon my original idea as likely to produce embarrassment and inconvenience, both in the negociation of the loans, and in the application of their proceeds. It was accordingly concluded to let the loans proceed indiscriminately, upon both Acts.

These loans were to have reference to two purposes—first, the reimbursement of the foreign debt, second, the purchase of the domestic debt, at its market price.

There were weighty reasons for carrying on both these operations concurrently. The arrears to France had been a considerable time accumulating. It was, in every sense, proper, that a reimbursement of them should begin without delay, and desirable, for obvious reasons, that it should go on, without any very considerable chasms or intermissions. This manner of proceeding could not but have the fairest chance of being the most satisfactory and convenient to France; unless, indeed, the business were to have proceeded upon the principle of an entire postponement of the domestic object, to that of the reimbursement.

But very cogent reasons rendered this course not the most eligible. The early commencement of purchases of the debt was a matter of real and great importance.

It was important in two relations; as it regarded the advantages of the government, from redeeming a portion of the debt at low prices; and still more, as it regarded the savings to the country, from raising the price of stock on foreign purchasers; the beneficial influence upon the credit of the nation, abroad and at home, to be expected from a quick appreciation of the public obligations; the benefit to the public creditors in general, and to the most meritorious classes of them, in particular, which would result from the same cause; all which objects were suggested from the treasury, as motives to the provision respecting purchases, and are evidently contemplated in the preamble of the Act, which makes that provision.

Exclusive of the other advantages, which have been cited, and which are of a nature truly precious and important, that of preventing foreigners from acquiring the property of our citizens at a great under-value, is too obvious, not to be estimated, as it ought to be, at first sight. It cannot require argument, to shew how great an evil it was, that foreigners should be able to acquire, with nine or ten, that, for which the country would ultimately have to pay them twenty, with full interest, in the interval; nor how much it merited the attention of the government to prevent or lessen so serious an evil.

But the influence, which the purchases by the government may have had upon this event, may not be equally obvious. Price naturally keeps pace with competition and demand; whatever encreases the latter, necessarily tends to an augmentation of the former. Merely, then, as another purchaser, by adding to the competition and demand, the purchases of the government were calculated to influence a rise of price. But they had an effect, more than proportioned to their real extent. Imagination has much to do in all such questions, and in scarcely any thing, so much, as in what relates to public funds. Experience proves, that it is here exerted with uncommon effort. The appearance of the government, as a purchaser, has not failed to excite the expectation of a greater demand than was real, because the extent of the resources to be employed might be very great, and was unknown; which, by stimulating the zeal of those, who wanted to buy, lest the price should rise suddenly and considerably upon them, and, by encouraging those, who wanted to sell, under the hope of a better price, to hold back the commodity, has, in both ways, generally contributed to give a spring to the market. Prices once raised, when founded on intrinsic value, tend to maintain themselves; because those, who have given them, are, for the most part, interested in keeping them up. And every new impulse, which they receive, serves to carry them rapidly to their just level.

Those, who have been most attentive to the operation of the public purchases, will have the least doubt, that they had a material agency in accelerating the appreciation of the public stock.

An enquiry naturally arises here. Were the monies, which were drawn from Europe on account of the foreign loans, the instruments of the purchases, to which these beneficial effects are ascribed?

I answer, that these purchases are to be attributed to the instrumentality of that fund—that, had it not been for this resource, they could not have been made at the early periods, when most of them were made. The course of the transaction will be fully, and with more propriety, explained in another place.15

An attention to both objects—to the reimbursement to France, and to the purchase of the debt, rendered expedient, even, a subdivision of the first loan. Considerations of the moment seconded those of a general nature, to induce an immediate payment to that country. The loan had been undertaken, without previous authority from hence, with a view to such payment. This was known, and a correspondent expectation excited. The immediate situation of the French finances rendered a payment, at the particular juncture, more than ordinarily interesting. In such a state of things, there could be no hesitation, about applying a large part of the loan to that object. Another part of it was, of necessity, applied to the payment of the sums, that were falling due on the Dutch loans. And, it is presumed, that the reasons, which have been assigned, will appear to have been sufficiently powerful, to have dictated the drawing of a part of it to the United States.

Accordingly, a million and a half of the three millions borrowed were appropriated to France, something more than 800.000 guilders, were drawn for here, and the remainder of the loan was left to be disbursed in Holland.16

It shall not be concealed, though I am aware that the acknowledgement may be a subject of criticism, that the conduct, which was pursued, both with regard to this and to the succeeding loan, was, in some degree, influenced by a collateral consideration. The government had but just adopted a plan for the restoration of public credit. The periodical payment of interest was to commence on the 1st of April 1791.17 A considerable part of the revenue, out of which the monies were to arise, was only to begin to accrue on the first of January preceding.18 This revenue was liable to credit of four, six, and twelve months.19

How far its eventual product would answer expectation—how far the punctuality of payments could be relied upon, were points unascertained, and which required, to their ascertainment, much more experience, than had been obtained. In such a situation, it was not only natural, but necessary for an Administrator of the finances, to doubt—and, doubting, it was his duty to call, to the aid of the public credit, every auxiliary, which it was in his power to command. He was bound to reflect, that a failure in any stipulated payment would be fatal to the dawning credit of the country—to the reputation of the government just beginning to rise. That a wound inflicted upon either, at so early a stage, under all the circumstances of opposition to the Constitution, which had existed in the community, would have been deeply felt, and might have either not have admitted of a cure at all, or not till after a length of time, and a series of mischiefs—that it could not but be an important service rendered to the country, to ward off so great a misfortune, by the temporary use of any extraordinary resource, which might be at hand, till time was given for more effectual provision.

If, in the course of such reflections, a doubt had occurred, about the strict regularity of what was contemplated, as a possible resort, a mind sufficiently alive to the public interest, and sufficiently firm in the pursuit of it, would have dismissed that doubt, as an obstacle, suggested by a pusillanimous caution, to the exercise of those higher motives, which ought ever to govern a man, invested with a great public trust. It would have occurred, that there was a reasonable ground to rely, that the necessity of the case, and the magnitude of the occasion, would insure a justification, and that if the contrary should happen, there remained still the consolation of having sacrificed personal interest and tranquility, no matter to what extent, to an important public interest, and of having avoided the humiliation, which would have been justly due to an opposite, and to a feeble conduct.

The disposition, which was resolved upon, with regard to the first loan, involved necessarily a decision of the point, that the loans might be placed on the joint foundation of both Acts. That loan having been undertaken, as already mentioned, without previous authority, and consequently without a particular eye to either act, it was probable that it would be found too late, to make an apportionment of one part of the sum borrowed, to one Act, of another part to the other Act. In that case, the distributive application of the fund to the different objects was to be relinquished, or the possibility was to be admitted, of the loan being left to stand upon the authority of both Acts. The same disposition of the first loan will also illustrate the convenience and expediency of the plan, which was finally adopted, that is, of placing the loans on the basis of both Acts.

The idea of a concurrent execution of both the objects, to which the loans were destined, could not conveniently have been pursued, upon the plan of a separation of the loans; which, to be effectual, would include the strict application of the proceeds of each, to the purposes of the particular Act, upon which it was founded.

Amsterdam was naturally looked to, as the great scene of the intended loans. There, as every where else, there is but a certain quantity of money floating in the market, from time to time, beyond the necessary demands of trade and industry, seeking for employment in loans. This quantity, of course, varies at different periods, from a variety of causes. Of the quantity at any time afloat, but a certain proportion can be commanded by any one borrowing power; owing to the competition of other borrowers, who have, each, their connections through their bankers, with different sets of undertakers and money-lenders. Nor is it always, that considerable loans can be had at any rate. There are certain seasons only, when they are practicable.

To have brought two loans upon the market, at one time, as an opportunity of borrowing offered, which must have been the case, in order to make provision for both the objects in question, if the principle of a separation of the loans had been adopted, would have been to exhibit to the money-lenders a very unusual appearance. With men, known to be much influenced by prejudice and habit, such an appearance could not have failed to prove a source of speculation and conjecture; and might have led to a confused idea, that the wants of the United States were excessive; a supposition, by no means calculated to promote their credit. It would, moreover, have been a departure from that simplicity of procedure, which, where numbers are concerned, is always of moment to a right conception of the business to be accomplished, and ought not to be abandoned, but for reasons of real utility and weight.

To have instituted the loans successively, founding each upon one or the other of the Acts, would have had a tendency to occasion longer intervals between the payments to France, than was desirable. The intervention of a loan for the purpose of purchases, would have created, of course, a very considerable chasm. It may be objected, that such chasms did happen, on the plan which was pursued. This is true in two instances; but the most material of the two proceeded from casualties foreign to the plan itself; which are detailed in the correspondence more than once alluded to.20

It is possible too, that a separation of the loans might have rendered it less easy to take advantage of a state of the market, favorable to their extension at a particular juncture. The loan to be brought on the market might relate to the purchase of the debt. The moment might be favorable to a more considerable loan, than was within the limits prescribed for that object, and the opportunity might slip before a second could be instituted. In this business, moments are often of importance, and are to be embraced with promptitude and dexterity.

Thus it appears, that in different ways, the negociation of the loans might have been embarrassed by their separation.

But the most obvious, if not the most serious of the inconveniencies, which would have attended it, respects the application of the sums borrowed. This could not then have been moulded, as the interest or policy of the government might dictate. A loan for the purchase of the debt might have been made under prospects, promising a ready and beneficial investment of it; but before the investment was made, a change of the market might render it ineligible—involving the alternative, either of a disadvantageous investment, or of leaving perhaps a large sum of money a long time unemployed. Such a state of things might have produced to the Banks an advantage, and to the government a loss, of magnitude sufficient to give color to a surmise, that the public interest had been sacrificed to the profit of those institutions. The contrary course has essentially avoided that evil; which in this and in other instances, would have been incident, in a far greater degree, to the modes of proceeding, contrasted with those that have been pursued, than has in reality attended them.

Or political considerations might have rendered it advisable to transfer the application of the fund from one object to the other.

Of this, the case of St. Domingo presents an example. It might have happened on the plan of separate loans, that there was no fund in hand but for the purchase of the debt. Then, on the principle of that plan, there would have been no fund in the disposition of the Executive, applicable to the other object, which would have embarrassed the performance of a duty towards a friendly power, and in a way, which included the positive advantage to the country of paying directly a part of its foreign debt, in its own productions.21

Such were the embarrassments avoided, and such the conveniences secured, by the plan of making the loans indiscriminately upon the authority of both Acts.

In the opposite plan, I can discern no counterbalancing advantage nor convenience.

Consequently, if both are equally legal, there can be no doubt, which of them ought to have been preferred.

If there be any want of legality in the plan, which has been pursued, I was not, at the time, and am not yet sensible of it.

I know of no rule, which renders it illegal in an agent, having from the same principal two authorities to borrow money, whether for one or different purposes, to unite the loans he may make, upon the foundation of both authorities: Provided the terms of them be consonant with both or either of his commissions. If the purposes are different, it will be incumbent upon him, to take care that the application of the monies borrowed makes the proper separation, and doing this he will have fulfilled his trust. To test this position, it seems only necessary to ask, whether the principal in such case would not be fully bound to the lenders?

In reflecting originally upon the regularity of the proceeding meditated, there was but one source of hestitation; the difference in the funds, upon which the loans were to rest. But the following reasoning satisfied the scruple: The pledging of particular funds is for the security of the lenders. If they are willing to wave the special security, by lending on the general credit of the government, or to dispense with the preference of one fund to another, where two are pledged, by lending indiscriminately on the credit of both, the one or the other circumstance must be alike indifferent to the government. The authority will have been well executed, to the extent necessary for public purposes, and if any thing remains unexecuted, it will be in enlargement, not in abridgement of the public rights. It is, however, presumed, that the practical construction in the present case will be, that the two funds pledged will constitute an aggregate, for the joint security of the monies borrowed upon both Acts.

The second general circumstance respecting the foreign loans, negociated under the Acts of the 4th and 12th of August, which requires attention, relates to the terms, on which they have been obtained. These, it appears, have been represented, as neither honorable nor advantageous.

The following facts, witnessed by the correspondence before the Senate, more than once referred to, and well known to all who have had opportunities of information, demonstrate, that the terms of those loans have been both honorable and advantageous.

1st. There is not one of them, which originated under the Acts, that was not effected upon conditions equally favorable with those attending the loans of the cotemporary borrowing powers of the most tried resources and best established credit, and more favorable than were obtained by some powers of great respectability.

2nd. The United States took a lead in the market, with regard to the subsequent reductions of interest; having had, either earlier, or more complete success, than any other borrowing power.

3d. From a rate of five per cent interest, and four and a half per cent charges, which marked the level of market, when they begun their loans, they, in the course of a single year, brought down the terms to four per cent interest, and five per cent charges; that is, from an interest on the nett sum received (including an indemnification for charges) of 5.5012, something more than five and a half per cent, to an interest on the like sum of 4.4951, something less than four and a half per cent.

When this state of things is applied to a government, only in the third year of its existence, and to a country, which had so recently emerged from a total derangement of its finances, it would seem impossible to deny, that the issue is not only honorable, but flattering; unless indeed, it can be denied, that a sound and vigorous state of credit is honorable to a nation.

I forbear a comparison between the loans of the present and of the former government of this country, because an immense disparity of circumstances would render it an improper one—further than to take notice of a very great error, which has been, upon some occasions, advanced. It has been alleged, to disparage the management under the present, that the loans of the former government, in a situation comparatively disadvantageous, have been effected upon equal terms; and, in proof of this, an appeal has been made to the loan of 2.000.000. of guilders, at four per cent, which is of the 9th of March 1784.22

Nothing can manifest, more clearly than this, the very precipitate and superficial views, with which, suggestions on important public subjects are sometimes made. The last four per cent loan, obtained under the existing laws, including charges, is a real four and a half per cent loan, or, more exactly, a 4.4951 per cent loan.23 The four per cent loan of March 1784 is a real 6.6468 per cent loan. The difference, which exceeds two per cent, arises principally from extra-premiums and gratifications, which were allowed upon this loan, and which are unknown to the other.

Much praise, no doubt, is due to the exertions, which effected the loans under the former government. A superiority of merit shall readily be conceded to them, from the circumstances, under which they were made, and their signal utility in the revolution. But it is not necessary to their eulogium, to affirm, that they were made upon equal terms, with those of the loans lately obtained, or to deny the goodness of the terms of the latter. Truth will not justify the one or the other.

The facts, which have been stated, prove, that the terms of the loans are advantageous, as well as honorable. They are comparatively advantageous, because they are as moderate as other powers, in the best credit, have allowed; and they are absolutely advantageous, because the highest real, not nominal rate of interest, which has been given, does not exceed 5.5012, a fraction more than 5½ per cent, while the lowest real rate is 4.4951, a fraction less than 4½ per cent.

If the question, whether advantageous or not, be tested by the purposes, for which the loans have been made, the conclusion is equally in their favor. The payments on account of the foreign debt were an indispensible obligation. Unless it can be shewn, that they might have derived from another, and more advantageous source, it will follow, that it was the interest of the government, to avail itself of the resource which has been employed, because it was its duty to discharge its obligations.

It is sometimes urged, that foreign loans, for whatever purpose are pernicious, because they serve to drain the country of its specie for the payment of interest, and for the final reimbursement of the principal—that it would be preferable, for that reason, to procure loans at home, even at a higher rate of interest.

To this, several answers may be given, some of a special, others of a general nature.

In reference to the reimbursement of the foreign debt, it may be observed, that as a debt had already been incurred abroad, upon which, interest was payable, the contracting of new loans there for the reimbursement of that debt, would leave us, as to the demand for the exportation of our specie, just where we originally stood.

Moreover, if the money could have been borrowed at home, for that reimbursement, the remittance of it would have been ruinous to the country. The mere necessity of remitting could not alone have encreased the foreign demand for our commodities; so as to deduce from an extra-exportation of them, the requisite means of payment, and if our specie was to perform the office, the country would speedily have been exhausted, to a degree inconsistent with the support of its commerce and industry. The quantity of coin in the United States has never been considerable enough for such an operation.

But this very state of things would have rendered the procuring of the money from domestic resources impracticable. These, it may be safely affirmed, are to limited for extensive loans, of any considerable degree of permanency.

In the last place, The expedient of domestic loans would not prevent the evil, which is desired to be prevented. Foreigners would either, in the first instance, bring their monies to subscribe them to the loans, or they would afterwards purchase the stock arising from them; and in either case, they would equally draw away the money of the country, on account of their interest and principal. The only consequence of giving a disproportionate rate of interest for domestic loans would be, that our specie would be carried away so much the faster.

Experience having shewn, that nations sometimes pay more regard to their external than to their internal credit, this consideration cooperates, with reasons of convenience to induce monied men abroad, to be content with a lower rate of interest, stipulated to be paid in their own country, than if the place of payment be in another country; making even a greater difference, than is an equivalent for the expense and risk of obtaining remittances.

The clear inference from these observations is, that with regard to the reimbursement of the foreign debt, no other expedient than that of foreign loans, was practicable or eligible.

The utility of that part of the loans, which has reference to the purchase of the debt, has already been explained in certain views. So far as their agency has been hitherto concerned in that operation, it is a sufficient demonstration of the advantage of the measure, to state, that the sum invested in purchases up to the period of the last report to Congress,24 has redeemed what is equal to an annuity of 6.15 per cent, including also the advantage of sinking a capital more than 50 per cent greater than the sum expended.

A valuable profit will arise from the investment of the sums on hand, either in a payment to the Bank, or in the purchase of Stock. The liberation of an annuity of six per cent can be secured—while upon a great part of the fund, which is to effect it, no more than 4½ per cent is payable, and less than 5½ upon the other part. The mean of these rates being 5 per cent, an annual saving of one per cent may be effect[ed], which, upon 2.000.000 of dollars, interest at 5 per cent, is equal to a capital or gross sum of 400.000 dollars; an item certainly of no inconsiderable consequence.

Against the advantages, which are claimed in favor of the loans, it is natural to place the loss of interest incident to the delays, which have attended their application to the purposes, for which they were obtained. This leads to an examination of the cases of delay, their causes, the circumstances, if any, which counterbalance them.

There are three instances of delay—one respecting the first loan,25 another, the second loan,26 and a third, a part of the two last loans.27

The first loan, it will be seen, was not applied, till a considerable time after its commencement. It has been already intimated, that it was undertaken without previous authority from this country. The motives to the measure are detailed in a letter from our Bankers, of the 25th. of January 1790, a copy of which accompanies the communications herewith made by order of the President.28 A regard to those motives led to an acceptance of the loan. Nor could it have been deemed an unfortunate circumstance, that such an auxiliary to the operations of the Treasury had been previously prepared.

The laws, authorising the loans, passed the 4th and 12th of August. As early as the 28th of that Month, the acceptance above mentioned was communicated, and the application of 1.500.000 flori[n]s, in a payment to France, directed. So far, no time was lost, more than could not have been avoided.

But the bills for the sum to be brought here were not drawn till some months after. This proceeded from an unwillingness to risk the public credit, by drawing before there was a certainty of funds to answer the drafts. It was not impossible, that the great delay, which had attended the passing the law for borrowing, might have led the Bankers to come to some arrangement with the money-lenders, for surrendering the monies paid in, and terminating the loan. Independent of this source of apprehension, they had expressed themselves, in their letter, communicating the step they had taken, to this effect. “To spare the United States all possible advance of interest, while the money shall remain unappropriated, we shall issue the recipisses, at the option of the buyers to take them so late as they please, on the expectation the three millions would be placed in a few months.” This, though it announced an expectation that the monies would be paid in, in a few months, did not render the event certain. And as the Bankers appeared, from that precaution, to have adverted to the idea of saving the United States an advance of interest, it was supposable that they might have found means still further to procrastinate the payments, or a considerable part of them, till they had received a confirmation of the loan. This policy would have been the more natural, as they risked the loss of interest themselves, if the transaction should not have been finally ratified.

Under such circumstances, I thought it most prudent to defer the drafts till advice was received of the actual progress of the loans. There was no room to hesitate between the loss of a small sum in interest, and the danger of committing the public credit by a premature operation.

The second case of delay relates to the second loan. It was occasioned by a determination to suspend the orders for its application, till information was received of its having been contracted for.

One motive to this determination has been already intimated; namely, the yet untried and immature state of our fiscal arrangements. The general reasoning on this head was strengthened by an occurrence altogether unlooked for, which disclosed itself on the 23d of August 1790, eleven days after the rising of Congress; an occurrence, which they had not contemplated, in their pecuniary dispositions. I allude to the commencement of an Indian war, which was announced in a letter from Governor St. Clair, dated on the above mentioned day;29 the progressive extent, and consequences of which, would of course not be foreseen. Under such circumstances, I judged it for the public interest and safety, to hold the resource, which the prospect of a loan presented, under the power of the Treasury, till advice should be received of the actual institution of the loan; with intention, then to dispose of it, as should appear advisable, under a better matured view of our pecuniary situation and prospects.

Hence, the delay, which attended the application of the second loan; the first in fact, that originated subsequent to the laws for borrowing. But after advice had been received of its having been set on foot, no time was lost in converting it, with due dispatch, to its proper uses: There was only, not an anticipation of its application. As early as May 24th 1791, I wrote a letter to Mr. Short, (a copy of which is in possession of the House)30 empowering him to apply the proceeds of all future loans, as they should accrue, in payments to France; except as to such sums, as therein were, or afterwards should be previously and specially reserved. This arrangement was calculated to obviate the inconvenience of leaving the proceeds of the loans, for any considerable time, unemployed. At the period of making it, and not sooner, the public prospects appeared to me sufficiently unfolded, to render a general and permanent disposition free from hazard. This instruction proceeded, in due season, all the loans subsequent to that of March 1791.

Whatever delay, therefore, may have attended succeeding investments for paying the French debt, is not attributable to this department: And, I think, it will not appear, that any has been incurred, in respect to the sums, which were destined for the public service here. In judging of this point, it will be proper to observe, that a latitude of six months for making their payments has been reserved to the money-lenders, though with liberty to make them earlier. It was, however, necessary for the Treasury, to regulate its bills, according to the possible delay, lest they should not meet adequate funds. The general policy adopted was to let them fall upon the rear of each loan; this giving a freer course for early payments to France, and best conciliating a certainty of funds for answering the bills, with as little double interest as possible.

It will appear, that notwithstanding the arrangement, which was made, a considerable time intervened between the two last payments to France, while there were funds in hand waiting for employment. It may be expected, that the causes of this procrastination, though, as I have said, not imputable to this department, should be unfolded to the House. Particular circumstances, however, induce me to confine myself to stating generally, that the delay proceeded in the first place, from an expectation to Mr. Short, and kept up, from time to time, by the French Minister of Marine, that a plan would be adopted, to which a decree of the National Assembly was requisite, for converting a large sum into supplies for St. Domingo, which Mr. Short concluded, must justly come out of the foreign fund, and consequently suspended its application in Europe. In the second place, from a desire to settle, previously to further payments, a definitive rule, by which the monies paid, should be liquidated and credited to the United States.31

Both the one and the other appears to have been procrastinated, from period to period, by the disordered state of French affairs, and to have finally issued contrary to expectation. It would be an unnecessary commitment of my opinion to declare, how far the delay appears to me to have [been] justified by the causes. But being led by the occasion to take notice of it, I think it improper to send it abroad, liable perhaps to misconstruction, without observing, that the inducements appear to me to have been weighty—that the delays naturally grew out of the circumstances, and that I am entirely persuaded of the goodness of the motives which governed. The correspondence before the Senate, contains the particulars of the transaction.32

Having pointed out the instances of material delay, which happened, and the causes of them, it remains to state what circumstances there are to counterbalance the loss on that account.

These circumstances are of two kinds.

1st.  Gain by exchange in the sale of the Bills drawn by the Treasury, and upon the higher rate of interest on the credits which were given for those bills, than was payable upon the fund, upon which they were drawn.

2nd.  Gain by exchange in the payments to France.

According to my calculation, founded on the best information extant, the real par of the metals between the United States and Amsterdam, makes a current guilder equal to 35 89/106 ninetieths of a dollar. The lowest rate, which has been obtained for the bills, has been 36 4/11 ninetieths, with an allowance of sixty days credit, without interest. Making a deduction for the interest, the bills were still sold above the true par. In some instances they have been sold as high as 40 cents and 7 mills per guilder, with interest for the whole term of the credit given.

The rate of interest for the credits allowed upon the bills was 6 per cent, the mean interest paid upon the fund 5 per cent, producing consequently a gain of one per cent.

With regard to the payments to France, if the current rate of exchange between Paris and Amsterdam, at the moment of each remittance or payment, were to govern, a large profit would result to the United States. But certain equitable considerations will produce deductions, which will greatly lessen this advantage; yet, making a liberal allowance for them, there is ground to calculate, that a saving may be made in this particular, more than sufficient to indemnify for the loss of interest.33

Hence, any positive advantage, which will have been otherwise gained, will probably be undiminished by that circumstance.

I proceed, in the next place, to state the views, which prevailed, respecting the sums, that have been, from time to time, drawn for; the purposes they have hitherto answered, and the further advantages to be expected from the measure.

The direct object of all the sums drawn for, prior to July 1792, was the purchase of the debt. A collateral consideration, which operated in the first stages of the drawing, has also been mentioned. It has likewise been stated, that the early purchases of the debt are to be ascribed to the instrumentality of the fund derived from the loans. This idea shall now be explained.

Two mistakes appear to have influenced the impressions, which have been entertained, in relation, directly or indirectly, to this subject. First, it seems to have been all along forgotten, that a considerable part of the duties is always outstanding on account of the credits which are given, whence the assertion, that the sinking fund has continually overflowed from domestic resources. Second, it seems to have been taken for granted, that the proceeds of the loans have remained apart, distinct from the mass of the money in the treasury; while in truth, the course of the business has been to turn them over to the Treasurer by warrants, as they have been received, so as to form a part of the aggregate, from time to time, appearing in his hands, and in his accounts. The Banks have been the agents employed for selling these bills. Sometimes warrants on account have issued upon them, for the sums accruing from the sales, at other times, the warrants have been deferred, till the whole proceeds of any parcel have been received, and the accounts of the Banks settled at the treasury; as the state of the treasury has happened to render the one or the other most convenient.

The Banks of North America and New York were the agents for the sale of all the Bills, which were sold, prior to April 1792, amounting to 1.006.526 dollars and 36 cents. Of this sum, 361.391 dollars and 34 cents were passed over to the Treasury in 1791—327.126 dollars and 22 cents, in March 1792, and 140.000 dollars in June following—the residue having remained, as heretofore stated, in deposit with the Bank of North America, upon a special consideration.34 This is exclusive of certain bills, furnished for the use of the department of State, amounting to 78.766 dollars and 67 cents.

The remainder of the bills which have been sold, beginning in April 1792, were sold by the Bank of the United States, and its branches at New-York and Baltimore. The accounts of the sales had been just made out for settlement, when the present enquiry began, but warrants had not yet issued for placing the proceeds in the Treasury. It will be remarked, that from the terms of credit allowed, they only began to be receivable in October last; the 26th day of which month, the first return made by the Bank shews a sum of 127.225 dollars and 53 cents received; and that the collection had not been completed, when the accounts of sales were rendered.

There are different views of the subject, which will enable the House to perceive, that the possession of the fund in question was necessary to enable the Treasury to furnish the means of making all the purchases, which were made prior to July 1792.

It is true, that there was a surplus of revenue to the end of the year 1790, equal to 1.374.656 dollars and 40 cents, which was appropriated to purchases of the debt, and from the credits then given upon the duties, this surplus would naturally come into the Treasury, in the course of the year 1791.

But the legislature foreseeing that the revenue of 1791, from the same cause, could not actually be in the Treasury, within that year, to face the appropriations upon it (which, it is to be observed, were nearly commensurate with the fund) inserted a clause in the law appropriating the surplus of 1790, to the purchase of the debt, which authorised a reservation of so much of that surplus, as might be necessary to make the payments of interest during 1791, in case of a deficiency in the receipts into the Treasury, on account of the current revenue of the year.35

It will appear to the House, upon a recurrence to the Treasurer’s quarterly account ending the 30th of September 1791, that the balance of Cash then on hand was 662,233 dollars and 99 cents.36

At that time, there had been paid into the Treasury, upon warrants, from the proceeds of the bills drawn upon the foreign fund, 361.391 dollars and 34 cents. Consequently, the balance of cash, had it not been for that auxiliary, would have been only 300.842 dollars and 65 cents; considering the whole balance in the treasury, as representing an equal sum of the proceeds of the Bills.

Even in a time of complete peace, in a country, where a small extent of monied capital forbids a reliance upon large pecuniary aids to be suddenly obtained, a prudent administrator of the finances could not feel entirely at ease, with a less sum at all times in the command of the treasury, than 500.000 dollars, for meeting current demands and extra-exigencies, which, in the affairs of a nation, are every moment to be expected. But, with a war actually on hand, and a possibility of its extension to a more serious length, he would be inexcusable in leaving himself with a less sum at command; unless from an impracticability of doing otherwise. It would be always his duty to combine two considerations—the chance of extra-calls for money, and a possibility of some failure in the receipts which were expected. Derangements of various kinds may happen in the commercial circle, capable of interrupting, for a time, the punctual course of payments to the Treasury. It is necessary, to a certain extent, to be prepared for such casualties.

But during the year 1791, there was a circumstance, which operated as an additional reason for keeping a respectable sum always on hand. The loans of the domestic debt were going on, till the last of September of that year, while, at the same time, the interest was in a course of payment. It was, therefore, always uncertain, what sum would be payable, at the end of a quarter; this depending on the eagerness or backwardness of the public creditors in bringing forward their subscriptions, or their claims as non-subscribers. The omissions, at the end of a preceding quarter, might be expected to fall upon a subsequent one—and it was necessary to be prepared for that possibility; of course, to keep in hand a larger fund for contingent demands. This necessity extended to the termination of the period for receiving subscriptions; because the treasury was to be prepared, on a supposition, that the whole of the domestic debt would then be in a state to receive interest, either as subscribed or unsubscribed. But this did not, in fact, happen. A part of the sums, which were presented, were crowded into the last days of the quarter, and were too late for a dividend. A considerable sum remained ultimately in a form, which, according to the terms of the provision, did not entitle it to interest, either as subscribed or as unsubscribed debt.

Hence, the cash in the treasury, on the 1st of October 1791, was, by a considerable sum, greater than was to have been counted upon, or that might have happened.

The conclusion, which results from the foregoing observations, is this—that the purchases, which preceded the first of October 1791, and which amounted to 699.984 dollars, and 23 cents in specie, could not have been hazarded, but for the aid of the sums, which had actually accrued, from the proceeds of the bills, and the expectation of those which were to accrue from the yet uncollected proceeds of others.

Had it not been for this aid, the Treasury would have been left more bare, than was consistent with the security of public credit, and the certain execution of the public service.

There is, however, a later period in the state of the treasury, which will more completely illustrate the idea intended to be established. This is the 2nd of July 1792.

On that day, the balance of cash in the treasury, comprehending the deposits in all the banks, and including a sum of 200.000 dollars, received on loan of the Bank of the United States, together with a sum of 220.900 dollars, in bills drawn upon domestic funds, the proceeds of which had not been received, was 625.133 dollars and 61 cents.

Prior to this period, a further sum of 545.902 dollars and 89 cents, arising from the sales of foreign bills, had been placed in the treasury, by warrants, making, with the former sum placed there from the same source, 907.294 dollars, and 23 cents.

Had it not been for this auxiliary, and that of the loan from the Bank, the treasury would then have been in arrear, 484.160 dollars and 62 cents. It, therefore, necessarily follows, that for the purchases to that period, which amounted in specie, to 942.672 dollars and 54 cents, at least 484.160 dollars and 62 cents, must have come from the foreign fund.

But when it is considered, for the reasons which have been stated, and which will hereafter be fortified by others, tending, as I conceive, to give them conclusive force, that the sum in the treasury at the period in question, was barely what ought to have been there, for safety, and for a due supply to current demands—it will follow, that the whole, or nearly the whole of the purchases, which were made, previous to July 1792, were made by the means or instrumentality of the foreign fund.

A similar view, extended to the subsequent quarter, will exhibit this point in a still stronger light. The balance then in the treasury including a further loan from the Bank of 100.000 dollars, was only 420.914 dollars and 51 cents.

What then, it may be asked, became of the surplus of revenue to the end of 1790? What was the Office performed by that fund, during the period in question?

The answer is, that it served exactly the purpose, which was anticipated by the legislature. It came in aid of the current receipt, for satisfying the current expenditure of 1791, with particular reference to the interest of the debt. This will be easily comprehended, when it is recollected, that the appropriations, made during 1791, upon the revenues of that year, and some small surplusses of antecedent appropriations, amounted to three million six hundred and thirty seven thousand and fifty eight dollars and thirty four cents; that the revenues themselves amounted to no more than three million five hundred and fifty three thousand one hundred and ninety five dollars and eighteen cents; and that, at the end of 1791, there were outstanding in bonds for the duties on imports, besides the chief proceeds of the duties on spirits distilled within the United States, then also uncollected, 1.828.269 dollars and 28 cents.

On this point likewise, of the surplus of revenue to the end of 1790, it is presumable, a misapprehension has been entertained. It seems to have been supposed, that that surplus, as well as the proceeds of the foreign fund, have been kept separate and distinct from the common mass of the monies appearing, from time to time, to be in the treasury. It has been already observed, that this was not the case with regard to the foreign. It is now proper to add, that it has not been the case, either, with regard to the surplus in question. That surplus, as received by the Collectors of the Customs, has regularly passed into the treasury, and appears in the quarterly accounts of the Treasurer, for the periods, to which they relate.

It is the course of the treasury, resulting from the constitution of the department, for all monies, from whatever source, to be brought into it, to constitute an aggregate; subject to the dispositions prescribed by law. The monies to be employed in the sinking fund have, consequently, only been separated, as they have been called for, for actual investment. The only exception to this relates to that part of the sinking fund, which is created by the interest of the debt purchased. This has been included in the quarterly dividends, and covered by the warrants in favor of the Cashiers of the Banks, for paying those dividends, after which, they have passed into a distinct account, in the books of the Bank, opened with Samuel Meredith, as agent to the Commissioners of the sinking fund.

To the foregoing representation, it may seem an objection, that the purchases, to the end of 1791, appear to have been carried to the account of the surplus at the end of 1790.

The ultimate form, which, it has been judged convenient to give to the transaction, in the accounts of the treasury, cannot change what was truly the course of facts. The proceeds of the above mentioned surplus and of the foreign loans, formed together the fund for purchases. In the accounts of the treasury, the thing was susceptible of various modifications at pleasure. The two parts of the fund might have been united in one account, or divided into distinct accounts. Being separated, monies issued for purchases might have been legally carried to either of them.

It was judged most advisable, in the forms of the treasury, to place the purchases to the end of 1791, to the account of the domestic fund, because it was calculated to give greater latitude and energy to the sinking fund. Had not this course been pursued, the business would have taken the following shape—the foreign fund, to the extent of the purchases, would have been exhausted—the whole, or the greater part of the surplus of 1790, would have continued wrapt up in the expenditure of 1791, not liable to be liberated, till the receipts into the treasury should yield a correspondent surplus beyond the actual disbursements—which could not have been the case, while the war with the Indians continues to call for extraordinary expenditures.

From the form, into which the thing has been thrown, the foreign fund has been set free to be applied to further purchases; and a necessity produced of anticipiting the outstanding duties, by temporary loans for the current service.

I trust, there can be no doubt, that the course pursued was regular and within the discretion of the department. I hope also, that it will appear to the House to have been the most eligible. The expediency of giving the earliest, and greatest possible extent and activity to whatever concerns the sinking fund, will, it is presumed, unite all opinions.

What has been said hitherto respecting the employment of the foreign fund, is applicable only to that part of it, which was drawn for prior to April 1792; the residue standing in a different situation, and requiring a separate examination.

From the statement, which has been given, it may be perceived, that the fund in question has neither been idle nor useless. A confirmation of this will be found in the following details.37

The whole sum successively received on account of Amsterdam bills, from August 17th 1791, to March 1st 1792, was 408.722 dollars and 69 cents. The amount of the monies invested in purchases between those periods, was 349.984 dollars, and 23 cents, chiefly in the month of September, and by anticipation of those receipts.

The whole sum successively received on account of Amsterdam bills, subsequent to the 1st of March, and prior to July 1792, was 235.412 dollars and 33 cents. The amount of the monies invested in purchases, between those periods, was 242.688 dollars and 31 cents.

It was stated in my last letter, that 177.998 dollars and 80 cents, of the proceeds of the foreign bills, were left in deposit with the Bank of North America; and in a note upon Statement B, accompanying that letter,38 the occasion of it was shewn to be an advance without interest, made by that Bank, for the use of the department of War, which could not yet be covered, in consequence of a doubt still remaining, whether the fund, appropriated for satisfying the object, was adequate to it, the sufficiency of that fund depending, in part, on certain unexpended residues of antecedent appropriations, which, it was expected, would not be finally necessary for satisfying the purposes of those appropriations.

It is to be remarked, that the delay of the employment of this part of the proceeds of the foreign fund has been compensated by a saving of interest on the sum advanced on the Bank, which otherwise must have been procured upon a loan with an allowance of interest, probably at the time of the advance, at a rate of 6 per cent; so that even in this particular, the fund, though temporarily suspended from its destination, has not been idle or unproductive. I reserve, for another place, some additional observations and statements, which will be calculated to shew, that opportunities of investing the monies, at any time on hand, applicable to purchases of the debt, were not suffered to pass unimproved, and that as much, in this respect was done, as the state of the treasury and the state of the market would permit.39

It has been said, that a distinct examination would be proper, with regard to the bills, which have been drawn upon the foreign fund, subsequent to March 1792. I proceed now to this examination.

The expediency of what has been, in this respect, done, seems to have been called in question, under a suggestion, that an application of the fund to the purchases had ceased to be advantageous.

The drawing of these bills has been, at different periods, influenced by various considerations. A leading motive was always a purchase of the debt. And a correct view of the subject will, I doubt not, satisfy the House, that the measure was recommended by an adequate prospect of advantage.

It is to be observed, that all these drafts were predicated upon the two four per cent loans;40 being, as already stated, real 4½ per cent loans.

There was good ground to presume, that opportunities would be found of investing the monies drawn for in purchases, which would yield, at least, 5 per cent, with a possibility of doing still better. The difference of ½ per cent was alone an object of importance; but it would be coupled with the further benefit of reducing a principal sum materially exceeding the sum invested. When the three per cents are purchased at 12/ in the pound, there is not only a redemption of an annuity of 5 per cent, but a sinking of a capital of 20/ for 12. And though this might not be material, if the market rate of interest should never fall below 5, because, in that case, the 3 per cents might always be purchased at the same rate, yet if it should, at any time happen, that interest fell below 5, it would be a gain to the government to have purchased at 5, in exact proportion to the difference between 5, and the then market rate. Add to this, that the 3 per cents have generally a value in the market, more than proportioned to the income they produce, which arises from the capacity of the capital to appreciate, even to par. These observations are also, for the most part, applicable to the deferred, with this circumstance in addition, that when interest begins to be payable on that species of Stock, the money invested, and which, in the mean time, would have produced five, would then begin to produce to the government 6 per cent, with the advantage of having anticipated the redemption of a species of stock, of right only gradually redeemable. Combining these considerations, it appears to be clearly and even eminently for the interest of the government, to purchase within the limit suggested, with a fund which does not cost more than 4½ per cent.

That this was the view of the subject, which governed, is deducible, not only from the circumstances of the fact, but from my letter of the 2d of April 1792, to Mr. Short, announcing my intention to draw, in which I assign, as the ground of that intention, “that I considered it for the interest of the United States, to prosecute purchases of the public debt, with monies borrowed on the terms of the last loan,” meaning the loan of the first of January 1792 at 4 per cent.41

If the event be taken as a criterion, the anticipation will be more than justified, the present juncture offering an opportunity for purchases peculiarly advantageous.

But without insisting on a state of things, occasioned by extraordinary circumstances, it was morally certain, that the common course of events would render the operation a beneficial one. And it would not argue peculiar foresight, if a calculation was even made on the effect, which the situation and probable progress of affairs in Europe might produce upon our market. A pretty general war there, by extending the demand for money, would naturally divert from our stocks, a portion of what might otherwise be employed upon them, and affect injuriously their prices. It is also a familiar fact, that during the winter in this country, there is always a scarcity of money in the towns; a circumstance calculated to damp the prices of stock.

A consideration, which collaterally influenced the drawing of the latter bills, was the situation of the French colony of St: Domingo.

This not only produced an early application for a considerable advance, which was promised; but it was to be foreseen that still further aids would be indispensible.

Indeed sundry letters from Mr. Short, the first dated at Paris, the 28th December 1791, announced the daily probability of an arrangement, requiring an advance here of 800.000 dollars, for the use of that colony. A sum of 4.000.000 of livres has, in fact, been successively stipulated for that object, the greatest part of which has been actually furnished.42

It is known, that these supplies could proceed from no other source, than the foreign fund.

The payment to the foreign officers of near 200.000 dollars, by which an interest of 6 per cent would be released, was another object, for which, provision was to be made out of the same fund.43

These several purposes conspired with the object of purchasing the debt, to induce the latitude of drawing, which took place.

But there was still a further inducement, which came in aid of the others. The time for reimbursing the first instalment of the two millions of dollars due to the Bank was approaching when, by positive stipulation, the government would have to pay two hundred thousand dollars,44 for which there was no domestic fund, that could be spared from the current exigencies. I thought it incumbent upon this department, to have an eye to placing within the reach of the legislature, the means of fulfilling this engagement; the object of which bore a strict analogy to that, for which, the two millions, authorized by the Act making provision for the reduction of the public debt, were to be borrowed.

I did not even scruple to take into the calculation, that if from the extent of the draughts upon the foreign fund, there should happen to be found on hand a larger sum, than was necessary for, or could be advantageously employed towards the several purposes, which were the immediate and direct objects of the operation, the surplus would facilitate to the government a measure manifestly and unequivocally beneficial—an additional payment to the Bank, on account of a debt, upon which an annual interest of 6 per cent was payable; a measure by which a certain saving of one per cent, to the extent of the payment, that might be made, would be accomplished.

The possibility of this application of the fund afforded a perfect assurance, that the public interest could, in no event, fail to be promoted.

I felt myself the more at liberty to do it, because it did not interfere with a complete fulfilment of the public engagements in regard to the foreign debt. It could not be done, consistently with a full reimbursement of all arrears and instalments, which had accrued on account of that debt.

The detail, which has been given, comprehends a full exposition of the views and motives, that have regulated the conduct of this department; in relation to those parts of the proceeds of the foreign loans, which have been transferred to the United States, except as to the last sum of one million two hundred and thirty seven thousand five hundred florins, directed to be drawn for on the 30th of November last; in regard to which, circumstances of a special nature cooperated, as is explained in a note upon the copy of my letter of the 26th of that month, to Mr Short, forming a part of the communication herewith made by order of the President of the United States.45

The House will perceive, that the variety of matter comprised in this letter has not been collected and digested into its present form, without much labor, and an unavoidable expense of time. I trust, they will be sensible, that no delay has been unnecessarily incurred. It is certain, that I have made every exertion in my power, at the hazard of my health to comply with the requisitions of the House, as early as possible. And it has even been done with more expedition, than was desirable to secure the perfect accuracy of the communication.

Yet I have still to regret, that some part of the subject must remain to be presented in a subsequent letter.46 To lessen, however, the inconvenience of this further delay, I shall transmit, with the present letter, the statements required by the first and second of the resolutions of the 23d. of January, which will be found in the Schedules herewith marked No. I to V; those required by the last of the resolutions,47 having been already forwarded.

There remain, however, some particulars, to complete the information contemplated by those resolutions, that must be reserved for another communication. This, I may venture to assure the House, will not be deferred beyond the present, or at least the first day of the ensuing week.48

With perfect respect, I have the honor to be,   Sir,   Your most obedient and most humble servant