The Debt to France: The Proposals of Schweitzer, Jeanneret & Cie.
Editorial Note

The question of liquidating the loans made by France to the United States not only affected the relations of the two countries: it also added another element to the domestic partisan conflicts which increasingly made the alliance an uneasy one. Throughout his years as minister to France, Jefferson had been deeply concerned about the accumulating arrearages of interest and the delinquent payments on the principal of the debt. Even before the adoption of the Constitution, he urgently pressed Washington, Madison, and Jay to have the new government emulate the British in levying taxes to amortize any loan negotiated and in never failing to be punctual in payment of interest. This, he assured Washington, would not only establish American credit but also remove “those causes of bickering and irritation which should not be permitted to subsist with a nation with which it is so much our interest to be on cordial terms as with France.”1

A year earlier Lambert, Comptroller General of Finances, was shocked to find the United States so far behind in its obligations. He urged Montmorin to press the matter and instructions were given to Moustier, who had just been appointed minister to the United States.2 Moustier, regarding the debt much as he did the weakness of the United States under the Confederation, made the representation as required, but urged his government to be patient. In his view the loans constituted a powerful leverage to be retained for use in some unforeseen contingency, such as a rapprochement between England and the new republic. “We are linked to the United States,” he argued, “neither by commerce, nor by habits, nor by feelings, nor even by those sentiments of gratitude which they should feel; the loan of His Majesty is the sole link which still binds the two powers.”3 Such an argument, in face of the worsening financial plight of France, was not convincing to Lambert, Necker, or other financial officers of the King. Montmorin was obliged to transmit their views to Moustier, though then and always he held that the United States should not be urged to the point of distress or inconvenience.4 The debt was by no means the only bond between the two nations, as Moustier professed to believe, but it was a persistent source of irritation.

The political consequences of the French loans to the United States were magnified because they presented a glowing promise of profit to speculators. The adoption of the Constitution and the rapid recovery of the United States helped give stability to its credit, while the revolutionary movement in France brought on increasing depreciation of the livre in relation to the florin. In these circumstances, as the loans were payable in livres, it is not surprising that speculators on both sides of the Atlantic brought forth various schemes for purchase of the American debt. Since their success depended upon approval by both governments, it followed of course that there had to be dealings with elective and appointed officials in France and in the United States, some of whom were not averse to speculation on their own account.

Nor is it surprising that on this, as on all other major questions of policy, the councils of the American government were divided. The President might direct the Secretary of the Treasury to consult and concert his plans with the Secretary of State, who was required to cooperate. But even his explicit command did not always produce compliance.

I

Two days after Alexander Hamilton was appointed Secretary of the Treasury, he called upon the French minister to the United States and informed him of his plans to ask Congress to authorize loans in Holland to liquidate all American debts, foreign and domestic. He was confident that this would be done, that customs and other revenues would sustain the expenses of government, and that the Dutch loans would enable the United States to discharge the French debt according to the terms of the contracts. Then, almost as an afterthought, Hamilton asked Moustier whether he knew of a company formed in France to buy the debt. The minister cautiously replied that he had heard rumors to this effect both in Europe and in America but that his instructions contained nothing about such a plan.

In reporting the conversation to Montmorin, Moustier revealed more than he had disclosed to Hamilton. He said that he knew several French capitalists had already raised a fund of a million piastres to buy the debt; that this was the principal object of Brissot de Warville’s journey to America in the latter part of 1788; and that, in promoting the scheme, he had become closely linked with the Assistant Secretary of the Treasury, William Duer, whom Moustier regarded as the greatest agioteur in the United States. From this and other circumstances he believed that the Secretary of the Treasury himself, because of his relations with well-known speculators, would not be sorry to see such a speculation succeed.5 The suspicion, so far as the record reveals, is without foundation. But the connections were indisputable. Aside from William Duer, there were other friends or supporters of Hamilton’s policies who aspired to profit from the debt to France—among them, Gouverneur Morris, Robert Morris, William Constable, Andrew Craigie, and Daniel Parker. One of the most persistent promoters of such schemes was the Boston merchant James Swan, who had made a fortune during the war, had lost it, and had gone to France in an ultimately successful effort to get rid of his own accumulated debts by various speculations. Swan was unacquainted with Hamilton, but he was a friend of Henry Knox and tried to persuade him to use his influence with the President and the Secretary of the Treasury to gain their approval of one plan to buy the American debt to France.6

There is no evidence that Knox, who was then deeply immersed in his own speculations in Maine lands, responded to these overtures. In fact, no member of the administration ever gave official sanction to the speculators’ schemes, however much the aims of friends and supporters may have been privately condoned. After Moustier’s recall some Senators did speak privately and urgently to the French chargé because, so Otto thought, they considered the debt as a bond attaching America to France while others wished to fund it through Holland loans and thus indirectly strengthen the ties with England.7 In France, official sponsorship and even connection with plans of various groups to speculate in the American debt appeared more open, resulting in one instance in the bestowal of ministerial approval. Moustier himself, inadvertently or not, may have contributed to this result.

Late in 1788, perhaps because of his hostility to plans of European and American capitalists whom Brissot represented, Moustier had urged his government to make no arrangements with any group or company which sought to acquire the debt. Instead, in a memoir based on his assumption that this was a bond to be preserved, he proposed that the ministry should acquire masts, ship timber, naval supplies, and other American produce to meet the needs of its marine. These products would be purchased by bills of exchange drawn on the Treasury of the United States in the amount of the annual interest due. This, Moustier argued, would achieve the double object of preserving the debt for political manipulation in some future contingency and of increasing commercial relations between the two countries.8 Hamilton’s private talk with the departing minister, followed by a confidential communication, encouraged Moustier to hope that his proposal would be adopted. His confidential letter has not been found, but its purpose is clear, both because Moustier commented upon it and because Hamilton gave similar promptings to the Marquis de Lafayette and to William Short. One of his first objects, he declared to the former, would be the debt due to France. He was not in a position to communicate officially since Congress had taken no action on the subject, but he contemplated a speedy payment of arrearages of interest and adequate provision for that to become due in future. He therefore ventured to say to Lafayette as a friend that it would be a valuable accommodation to the United States if installments on the principal could be suspended for a few years. He thought it best on every account that the offer of such an arrangement “should come unsolicited as a fresh mark of good will” on the part of the French government.9 Postponement of installments on the principal not only accorded with the views of Moustier: it also happened to coincide with those of Gouverneur Morris, Daniel Parker, and others of Hamilton’s supporters who sought to buy the whole American debt if France would give them title to the arrearages of interest. If this were done, so Short reported to Hamilton, they would agree to the condition of postponing payment on the principal for five or six years, which he thought would “square perfectly” with Hamilton’s wishes.10

Moustier, bearing Hamilton’s letters to Lafayette and Short, arrived in Paris shortly after Necker, Director General of Finances, had recommended to the National Assembly that the American debt be used as security for a loan to be negotiated in Holland. Necker had also listened to proposals from a group of Amsterdam bankers to buy the entire debt. Their plan was so persuasive to him that even the American agents in Holland—Wilhem & Jan Willink, Nicholas & Jacob Van Staphorst, and Nicholas Hubbard-had joined the group for fear their plan would succeed without them. Upon Moustier’s arrival, however, they withdrew. The recalled minister, so it was reported, had been “‘instructed by Congress to oppose any negotiation of that kind.’”11 The claim, which must have originated with Moustier in an exaggerated interpretation of Hamilton’s confidential communication, was of course without foundation. But it had the effect of causing Willink, Van Staphorst, & Hubbard to indicate that they might support the proposals of Morris, Parker, and their French and American associates.

In the complicated intrigues and negotiations which followed in the next two months, Gouverneur Morris seemed to be the commanding figure. Equally at home in the salons as in the official and financial circles of Paris, he pressed forward with characteristic boldness and self-confidence. He thought Necker honest and disinterested but a poor financier, and in the very home of the minister did not hesitate to ridicule his insistence upon obtaining security for the performance of a contract involving so large a sum as 40 million livres. When the Amsterdam bankers of the United States demanded three-fourths of the shares, Morris told them that this was not at all admissible, that half should be reserved for the American houses he represented, and that he could carry the proposition through without their assistance. To such threats and intimidations he added native gifts of charm wholly devoid of obsequiousness. Both Short and Lafayette, so he claimed, thought his plan an excellent means of protecting American interests and providing timely assistance to France in a moment of need. Morris also won over Montmorin, who approved the proposal and promised to urge its adoption by Necker. Ternant, soon to be named minister to the United States, did not wholly approve but thought the distressed state of French finances required some relief of the sort. Moustier, perhaps because of the proposal he himself had made long since, did what he could to defeat Morris’ hopes.

The American bankers in Amsterdam were so apprehensive that they dispatched their partner Hubbard to Paris to advance their own proposal for the purchase of 6 million livres of the debt. By mid-January Short was able to report that this plan had been rejected by Necker as being too small to bring before the National Assembly. Morris, believing that he had convinced Hubbard, hoped that he would persuade his houses of the wisdom of uniting with himself, Parker, and their associates. Jacob Van Staphorst, who represented them in Paris, had already been persuaded. But as January wore on he received only excuses from his partners in Amsterdam for their delayed decision. On Saturday the 30th of January, with his plan still being looked upon favorably by Necker and Montmorin, Morris’ confidence waned and he confided to his diary: “I have for some Days past had disagreeable forebodings about the Affair negotiating in Holland.”12

The devastating blow fell the very next day. Jacob Van Staphorst brought the news that his partners had not only refused to be connected with Morris’ plan either as associates or on commission, but had opened a loan for 3 million florins on behalf of the United States. They had also informed Hamilton and Necker of this and urged them not to accede to Morris’ proposal. Morris regarded this as betrayal of a solemn promise. Necker, so he reported, was vexed and disappointed. Short, who had just concluded a letter to Hamilton stating that it was certain Necker had decided to accept the proposal, added a postscript expressing his astonishment at the action of the Amsterdam bankers, at the reasons given in justification for it, and at their misrepresentation of his own position. Morris, about to depart on his mission to London, informed Necker that he might be employed by the United States and in that case motives of delicacy would prevent him from negotiating further about the debt, but that he would do all in his power to see that the minister’s wishes were met.

On the day the blow fell, Morris gave Hamilton a succinct account of the affair, ridiculing the justifying reasons given by the bankers in their letter to the Secretary of the Treasury. Proving that he knew of Hamilton’s plans—perhaps from Moustier, Lafayette, or Short—he declared that the proposal advanced by him in behalf of a “Society of Friends to America” would have obtained for the United States “the needful Time required for their Accomodation without a farthing of Expence and without the Pain of Soliciting it from this Court.”13 His report to Robert Morris also showed that he still entertained hopes for the proposal. But William Short accurately predicted that the unauthorized loan—made by the bankers, as Morris realized, out of self-interest and in order to defeat his plan—would prevent anything further being done by the ministry until the wishes of the United States became known. In fact, the bankers’ action had been anticipated even before Moustier’s arrival when, in order to defeat other speculations in the debt to France, they urged Jefferson with the least possible delay to obtain power to negotiate loans at Amsterdam in order to provide for a considerable part of the debt due France—an object which they correctly believed he had very much at heart.14

II

One consequence of the unauthorized loan was to make Necker even more impatient to receive payments on the American debt. To William Short he complained at length that the bankers had taken this precipitate step “to prevent his completing the negotiation … begun for the transfer of the American debt in a manner which would have been honorable and advantageous” for the United States and France as well as for the promoters. He thought the American government could not refuse to discharge a part of its debt now that it was in possession of 3 million livres and he asked Short to give him an order on Willink, Van Staphorst & Hubbard in that amount. Short of course declined, having no power to do so and not knowing whether the loan would be approved. He duly reported this to Hamilton and asked for instructions. Four months later, during which time the financial situation of France deteriorated and Necker’s impatience increased, he repeated his appeal.15

Hamilton, who evidently did not respond to Gouverneur Morris’ letter, assured the bankers that he was pleased with their action because it had put a stop to negotiations whose success would have been “an unwelcome circumstance.”16 He did not think the loan would create an unfortunate precedent, was confident it would be approved, and, despite Short’s support of the proposal of Morris and others, commended him for his “very prudent and judicious” conduct.17 To Washington he characterized the loan as “without previous authority, and in that view exceptionable.” He thought sanctioning it would create a precedent inconsistent with the national dignity and interest, but that acceptance might be accompanied by prohibition against anything of the sort in future.18 Washington approved and Hamilton, attributing to the bankers a sense of the delicacy of their action, felt he need not press upon them “the inadmissibility of any thing of a like nature in future; however cogent the motives to it.”19

Another result of the loan was to create embarrassment for Washington. With the passage of the Acts of 4 and 12 August 1790 authorizing the President to borrow up to $14 million to provide for the foreign and domestic debt of the United States—legislation which gave the stamp of approval to policies Hamilton had disclosed to Moustier a year earlier—the President was faced with the problem of announcing to Congress a loan made prior to these enactments. Hamilton had prudently refrained from informing Washington of the unauthorized transaction until after Congress had acted. But as the time approached for the second Congress, he included in his notes for the President’s address an item announcing the loan. Washington struggled with his own draft, which opened with the statement that the loan had been made in accordance with authority granted at the previous session. Then, recognizing that this was not justified by the facts and that everyone would realize the patent impossibility of negotiating a loan in Amsterdam in the short interval between sessions, he sent a private note to Hamilton confessing that he was at a loss how to frame the announcement properly and asking that he be supplied with a new draft—by that afternoon if convenient.20 Hamilton must have complied, but his version has not been found. The result as embodied in the message to Congress was a compromise which, while retaining the assurance that the loan was made under authority of Congress, covered this inaccuracy with the statement that “some provisional measures had previously taken place” respecting it.21 This ambiguity concealed the fact that the initiative had been taken by the bankers, not by the administration.

Robert Morris and any other members of Congress interested in the “Society of Friends to America” whose plans had been frustrated by the bankers would of course have known the facts. But another significant change in Washington’s draft seemed designed to obviate, at least for the time being, closer scrutiny by Congress. As originally phrased by Washington, the concluding sentence of his draft read: “The terms of it, with the disposition as far as made, the Secretary of the Treasury is directed to communicate.” This was a variant of the wording Hamilton himself had suggested.22 But as revised and incorporated in the message, the passage read: “The Secretary of the Treasury has my directions to communicate such further particulars as may be requisite for more precise information.”23 The Acts of Congress of course required an accounting of the disposition of funds borrowed, but neither the President nor the Secretary of the Treasury could at that time have provided such information. The less specific language, which eliminated all reference to disposition of the funds borrowed, points directly to the influence of the Secretary of State on this part of the message.

Late in August, in accordance with his instructions, Hamilton had conferred with Jefferson, had informed him of Washington’s preference of William Short as the agent to negotiate the loans, and Jefferson had agreed to the appointment.24 That the two heads of department thus acted in concert, at least in the beginning, is also shown in the fact that Hamilton referred Short to the Secretary of State for instructions as to the timing of payment on the debt to France.25 It was probably Hamilton’s decision to limit the amount of the payment to half of the 3 million florins the Amsterdam bankers had made available. Jefferson knew of the limitation and evidently did not object to it, even though it had long been his desire to liquidate the debt as speedily as possible. Nevertheless, his own instructions to Short called for at least a temporary delay. He hoped that a judicious timing of the payment might help procure concessions favorable to American commerce with the French West Indies. Jefferson left the timing of the payment up to Short, being confident he could forward this “great object” by assuring Montmorin measures had been taken by the United States to pay very shortly all arrearages of principal and interest. He assumed as a matter of course that Short could find excuses for delay until the propitious moment arrived.26

Under these circumstances, it is understandable that Jefferson would not have wished the President to give Congress any reason, at that time, to request information about the disposition of the funds. The evasive language employed in the revised passage of the annual message, departing as it did from the specific terms of the drafts of both Hamilton and Washington, suggests that Jefferson had persuaded the President to concur in his strategy of delayed payment, even though Washington had directed Hamilton to make payments of arrearages of interest and instalments on principal of the debt “with all convenient dispatch.”27 If so, the revised paragraph must have come from the pen of the Secretary of State.28

On other points, however, it seems clear that the Secretary of the Treasury did not concert matters with the Secretary of State as Washington had directed. One such involved advantages to be gained in making payments on the debt. While France had borrowed florins in Holland in order to make the loans to the United States, payments on the debt in depreciated livres held out inducements as obvious to the Secretary of the Treasury as to private speculators. “You will no doubt avail the United States of all proper advantages,” Hamilton instructed Short, “in making the negotiation … which the course of Exchange between Paris and Amsterdam will admit. It is probable, that your bills will command a premium that will more than indemnify our Treasury for the charges of the Loan, so far as the amount of this payment to France” of 1.5 million livres.29 The assumption was well-founded. Later Hamilton was able to report to Washington that the exchange between France and Holland afforded a benefit of more than 10% on the payment of this sum—that is, more than the interest and commission charges for that part of the loan.30 This was a policy on which Short needed no instructions. On the eve of his departure for Amsterdam, he was called into consultation by Montmorin and Dufresne, Director of the Royal Treasury, to have the payments made by bills of exchange drawn on the American bankers in florins. Short agreed, but on arriving in Holland he discovered that upwards of 2 million livres had already been remitted, this being so highly advantageous that 1.25 million florins purchased about 3.6 million livres. Even a letter from Dufresne asking that payment be made in Amsterdam so as to avoid enormous losses because of depreciation did not prevent him from making arrangements which gave the benefit to the United States. Recognizing that “what was loss for France was gain for us,” Short even took gratification in reporting these transactions to the Secretary of State.31 Jefferson obviously had not been consulted about the policy on which Hamilton and Short had such united views.

It is equally certain Hamilton did not inform Jefferson that, while opposing certain private speculations in the debt to France, he had left the door open for others which might be considered more solidly grounded. In his instructions to Short, he had referred to the “late negotiations” by Gouverneur Morris and others to purchase the debt to France and added: “Whether any arrangement of this nature will be a desireable accommodation to France; whether persons of real capital, who would not in the execution be obliged to use means prejudicial to the Credit of the United States, would be willing to embark in such a plan; whether it would not prove an obstacle to other loans which we may have occasion to make for other purposes are circumstances essential in determining its elegibility which cannot be known to me, and can only be accurately judged of by one, on the spot.” He warned Short, however, that propositions of such a nature should not come from the United States; that the government should only be put in the position of sanctioning what other parties desired of it; and that in no event should such an arrangement injure the national reputation “or place us in the light of a people desirous of making hard bargains at the expence of friends.”32

Hard bargains might be inadmissible when speculators sought to gain the same benefit for themselves that Hamilton and Short were pleased to take advantage of on behalf of the government. But Jefferson, making no comment to Short either on his failure to delay payments to achieve commercial concessions or on his gratification at being able to have the United States profit from the depreciated livre, felt otherwise. Proof of this—and of the failure of the Secretary of the Treasury to act in concert with the Secretary of State on this matter as Washington had required—is to be found in their attitudes toward the only speculative proposal to gain the approval and recommendation of the French ministry, that of Schweitzer, Jeanneret & Cie.

III

News of passage of legislation authorizing the President to borrow $14 million to liquidate foreign and domestic debts had an immediate impact in Europe. When Short succeeded in negotiating the 2.5 million florin loan on extremely favorable terms and had it taken up within two hours—an unprecedented tribute to the rising credit of the United States—he was embarrassed more than ever by bankers, speculators, and French officials. For months he had been without instructions as to the disposition of the funds and pled with Hamilton for guidance, both to avoid double interest on money borrowed but idle and to enable him to “meet questions … which certainly will be asked.”33 The prediction was accurate. When Short learned in late May that Hamilton intended 1.5 million florins to be paid to France, he bluntly told the Secretary of the Treasury that the delay in employing money borrowed had not only added to the cost, but had created suspicions among French officials who could not understand why, with funds available, payments on the American debt could not be made. He found it impossible to convince them that the delay was not deliberately calculated in order to profit from the rapid depreciation of assignats. He was embarrassed by the ministry’s probing on this point but regretted more that the American debt had attracted the attention of speculators—among them six new members of the Treasury—who had sought the intercession of Lafayette and Condorcet. His embarrassment was made worse by Hamilton’s unexplained instructions to withhold half a million of the funds to be paid to France. He could not understand the reasons for this, did not know when he would be given directions, and said that he would avoid questions as much as possible. “It is tautology to add,” he reminded Hamilton, “that as this sum is already in the hands of the bankers the U. S. will be paying an unnecessary interest until it is employed.”34

Speculators in and out of office made Short’s predicament worse, especially when Jean Gaspard Schweitzer and François Jeanneret sought ministerial support for their proposals to buy the American debt. These Paris bankers, claiming they represented Genoese capitalists who had more than 54 million livres available for the purpose, were unknown in Amsterdam and Short suspected they were mere adventurers without character or reputation who were put forward as a screen to conceal the real promoters in and out of office. He was convinced that their proposals would never have received the attention of Montmorin if Lambert and some members of the Treasury and Committee of Finance had not interested themselves in the matter.35 The suspicions seem justified, the more so because Schweitzer, Jeanneret & Cie.—or their hidden supporters—saw fit to make use of James Swan to influence American officials.

Swan was an obvious choice for the purpose. He had already negotiated a contract with the Minister of Marine to furnish naval supplies and was advancing proposals to supply American salt provisions, to be paid for in orders on the Treasury of the United States in settlement of the debt to France at the rate of 6 million livres annually. This plan had been blocked by the American bankers in Amsterdam on the ground that the government was greatly averse to the transfer of any part of the debt to individuals—an attitude which they knew to be that of the Secretary of State. Swan thereupon appealed to Jefferson because of his known interest in promoting commercial ties with France and urged him to persuade the President and Secretary of the Treasury to support the plan. He added that those concerned in the venture were Le Couteulx and “two bankers” whom they might choose, besides Daniel Parker, Gouverneur Morris, Robert Morris, and himself.36 He did not bother to inform Jefferson that on the same day he had offered an interest in the operation to the Secretary of War. In the letter to Knox—in which Swan enclosed the letter to Jefferson to be read and then sealed before delivery—he gave the same names of the interested persons that he had given to Jefferson and informed him that there was a blank share for those in America who might take part. “If you for yourself and friends would take that share, should the business go on,” he added, “name the persons in whose names it should be entered and it shall be done without your being known in the matter.”37 So far as the record shows, neither Knox nor Jefferson responded to this or any other appeals made by Swan concerning the contract, though the discrepancy between his letters to the two heads of department silently testifies to his knowledge of the man.

The plan of Swan and Le Couteulx soon gave way to that of Schweitzer, Jeanneret & Cie., who were probably the unnamed “two bankers” to whom Swan referred in his letters to Jefferson and Knox. One reason for the successor scheme, which eliminated Swan’s proposal for payment in produce, was that Jacob Van Staphorst had disclosed to Swan that arrangements had been made to pay 1.5 million florins on the American debt. Le Couteulx had immediately revealed this to the Committee of Finance with whom they had been negotiating. Within two weeks after the disclosure, Schweitzer, Jeanneret & Cie. laid their proposal before Lambert, Comptroller General of Finances, in a covering letter which revealed their knowledge that the United States could only pay the amount that had been authorized by Hamilton. Claiming to represent several rich capitalists, they proposed as a benefit both to France and the United States to purchase the entire sum of the debt, which they estimated at 36,710,000 livres. So urgent were they that they pressed Lambert immediately to recommend to Montmorin that he send copies of their proposal in duplicate to Short in Amsterdam. They stressed the importance of completing the transaction at once: all could be done if Short would simply sign his acceptance on one of the duplicates. But if, contrary to their understanding, Short should claim he had no power to do this, they and their friends would do all they could to remove any obstacles. In that case, they would ask Montmorin to state what sort of plan would be acceptable to him.38 Lambert, already prepared, transmitted the duplicate copies of the plan to Montmorin, strongly urging its adoption and requesting that if Short felt it did not meet the intentions of the United States, he should be asked to submit a plan which he would accept.39 Montmorin promptly complied by sending the two duplicates to Short and asking for his decision at the earliest moment possible. For further information he referred Short to Antoine Bernard Caillard, French chargé at The Hague.40

Before leaving Paris for Amsterdam, Short had informed Montmorin of the legislation authorizing funds to be borrowed for payment on the debt. This, he thought, had determined the French government not to listen to any speculators’ schemes for buying the American debt. Thus he was ill prepared for Montmorin’s letter and its enclosures: the scheme, as he saw at once, was to receive florins from the United States and to pay in depreciated livres. This hope of immense gain was one he and the American bankers shared in order to secure the profit for the government. His response to Montmorin was emphatic. Returning both copies of the proposals with the comment that he had no power to make such an engagement, Short could not refrain from saying how distressing it would be for the United States if France thought her interest lay in arrangements which could compromise the credit of her ally. He also thought it essential to point out that the purpose of the authorizing legislation concerning the debt seemed to be entirely unknown to the French government and that it would augur ill for the United States if the fate of its credit should be placed in hands which entered into engagements so lightly.41 This was an indirect if blunt commentary on Lambert, but Short was determined if possible to persuade Montmorin to keep the matter from being debated in the National Assembly.

Schweitzer, Jeanneret & Cie. and their associates in and out of office were not so easily blocked. They brought forth a new proposal to lend the United States 10 million livres on terms as favorable as those offered by the Amsterdam bankers. They also had James Swan appeal to Short to try to gain his acceptance. Again Short said that he had no power to enter into such an engagement and urged Swan to use any influence he might have with the company to put a stop to the negotiations.42 Swan claimed that he had tried but in the same breath urged Short to accept the new proposal because of its “neatness and honesty.”43 Swan transmitted the letter to the company. Schweitzer, accompanied by Swan, called on Montmorin and informed him of Short’s declination and of their new proposal. Then by special courier to Amsterdam, they informed Short of what they had done and asked him to state what difficulties if any remained so that they might bring the matter to a conclusion. Short reiterated that he had no power to act and that the only motive he could have for examining their proposal at all was that it seemed to be acceptable to Montmorin. He added that he would immediately transmit this or any other plan meeting with the minister’s approval to the President, who alone had the power to accept. This he duly reported to Montmorin, but warned that, if he should think the interest of France required the sale of the American debt, the persons designated should be known and of irreproachable repute and that the negotiation should be made public only after having been communicated to the President. These conditions were necessary, he reminded Montmorin, in order not to block the operations already begun for the discharge of the debt. “I have every reason to believe,” he added, “that the loan will be perfectly fulfilled and that the United States will be able presently to liquidate all of their debts. I am persuaded that I have no need of repeating to you, Monsieur, that they regard their debt to France as the most sacred and whose complete discharge they hold most at heart.”44 In reporting these developments to Hamilton, Short suggested that if the Genoese capitalists interested in the plan could be induced to accept the conditions stated in his letter to Montmorin and would pay France in livres while accepting American obligations in florins so as to give the United States the benefit, it might be arranged to have them initiate the proposal. In any event, he thought his letter to Montmorin would probably put an end to the negotiations of Schweitzer, Jeanneret & Cie.45

What that letter did instead was to cause the company to turn its attention to the United States. This took the form of an assignment to James Swan to try to gain acceptance in America not of the revised proposal that had failed to win Short’s approval but of the original offer to lend the United States about 40 million livres to discharge the debt to France. In making the assignment, the company pointed out what Swan already knew—that that plan had been given the approval of Lambert and Montmorin but had not been accepted by Short because of his lack of authority. “In this situation,” they wrote, “we have need of a friend of the President who would be able to expedite acceptance of our proposal and to remove any obstacles that might arise. The advantageous reports we have had of your talents and rectitude, have induced us to have full confidence in you and to beg you to have the goodness to take charge of our interests and to pursue them yourself or through your friends.”46 Swan, who very probably suggested this step, accepted the company’s offer of 7,000 livres sterling for the agency. On the same day and in a private communication to Henry Knox, Swan urged him to use his influence with the President, the Secretary of the Treasury, and any others to have it approved. To aid in accomplishing this, he made a sacred promise to turn over to Knox the fee—and a greater sum if necessary. “It is a great point gained having it accepted already by the Ministry here,” he added, “and I do not see how it can be refused on your side of the water… . Would Duer be of some service in this? You know who will do best. He might work H[amilton].” In a postscript added three days later, Swan added: “Pray sound Mr. Jefferson on this, or get someone to do it. I am afraid of him, merely because Mr. Short may have misled him. For God’s sake, get it effected. It is all America can wish, and all that France desires: and is what is necessary to make the concern’d here perfectly satisfied.”47 He evidently felt so certain of obtaining support that he endorsed the bankers’ letter to him giving Knox full right to the fee. There is no evidence that Knox responded to the crass effort to purchase his influence. The company, however, were more successful in their efforts to gain the support of French officials.

IV

On the same day that Swan made his urgent appeal to Knox, Schweitzer, Jeanneret & Cie. informed Short that they would accept the offer made in his letter of the 14th. Transmitting to him all of the documents pertaining to the subject which Short already possessed and had made available to Hamilton, they asked that he present their proposal to the President.48 Early in January they reported this action to Montmorin and urged that the documents be communicated to the French minister in America, together with the most pressing instructions to solicit a prompt decision.49 Montmorin, under pressure from the Treasury and the Committee of Finance, complied, but couched his instructions to Otto in terms far from pressing:50

You will have the goodness to meet with Mr. Jefferson on the proposition… . We naturally desire, considering the situation of our finances, that this may coincide with the views of General Washington and that he will decide to accept it: but you will observe that we subordinate our convenience to that of the United States and that if the proposed operation is contrary to it, our intention is not to insist upon it. Whenever efforts have been made to engage us to transfer our credit to foreigners, we have refused for fear that it would be disagreeable to Congress. The present case is not the same, since it is simply a question of filling up a loan which that body has itself authorized. I recommend this affair to your zeal and prudence.

In transmitting a copy of this dispatch to Short, Montmorin said that it gave him less difficulty to agree to the company’s request because he had made acceptance entirely dependent upon the convenience of the United States. At the same time, he left it up to Short to decide whether he had sufficient authority to make a conditional arrangement with Schweitzer, Jeanneret & Cie. Short did not mention this when he transmitted a copy of the dispatch to Hamilton, but he felt certain that the Secretary of the Treasury would be perfectly satisfied because all had been left to the President to decide. He thought Montmorin himself did not expect the proposal to be accepted.51 Short did not send Montmorin’s letter or his dispatch to Hamilton, assuming that these would have been made available by Otto before his letter arrived. He may also have been content merely to describe their contents because of the hint Montmorin had given him about the possibility of concluding a provisional arrangement. But a few weeks later he sent copies of both, perhaps because in the meantime he said he had learned what he formerly suspected—that Schweitzer and Jeanneret were “entirely without credit or capital and … of a character which shews it would be unsafe to treat with them. Their offers being supported by the minister is the only circumstance which entitles them to any kind of attention.”52

James Swan, with the optimism of an inveterate speculator, thought otherwise. He forwarded Montmorin’s dispatch to London to go by the February packet and at the same time informed Henry Knox of its contents. He also told him that Short’s refusal to act in the matter had been freely criticized in the Committee of Finance, whose members felt that the United States could not rightfully or honestly refuse the offer. “This step,” he said of Montmorin’s action, “can’t but make the Affair go now, as America can form no reasonable objections to borrow money of these men on the same terms as they can in Holland; nor to replace their debt to France by this occasion, especially when she stands so much in need of it… . I trust still for your exertions in this affair, and be assured of my truest gratitude.”53

Short had assumed that his dispatches to the Secretary of the Treasury about the speculation and to the Secretary of State about general political and commercial affairs would be shared by each other. This was far from being the case. While his communications to Hamilton had been held up for weeks by wind-bound vessels at Texel, Swan’s urgent appeals to Knox enclosing all of the documents on the case went by way of London and the English packets. That the essential facts were known first to Hamilton and that he did not reveal what he knew to Jefferson is clear.

For late in March Théophile Cazenove, reporting on a conversation he had just had with the Secretary of the Treasury, informed the Amsterdam houses he represented for investments in America that a company of French and Genevans had offered to buy from the French government its claim on the United States and that he had been promised a copy of the proposals. He was erroneously led to believe that these had been sent by Short to Jefferson. Cazenove evidently pressed Hamilton for further information, for two weeks later he reported to his principals that the proposals had been sent to someone not in the Treasury department and that his informants had made a great mystery of it. In this second conversation Hamilton revealed to Cazenove that he had just received from Short a letter of the 2d of December referring him for further details to a previous letter not then received; that from the little he wrote, it appeared Short had not consented to the plan, although it had been agreed to by Montmorin; that it had originated with the house of De Lessart, Comptroller of Finance; and that its execution would not require raising funds in Holland. On the basis of statements made to him by Hamilton, Cazenove was able to assure his principals that Short had no authority to conclude such an arrangement and that the Secretary of the Treasury would not favor one which put it in the power of a single company to control such a mass of claims and to manipulate it in such a way as to interfere with his general financial plans.54

The information given by Hamilton to Cazenove could only have come from Henry Knox, who clearly was the unidentified person not in the Treasury department to whom Cazenove alluded. Short’s dispatch of the 2d of December had not even mentioned the speculation. That of the 18th of December enclosing the pertinent documents was not received by Hamilton until four days after the last of these conversations with Cazenove.55 Short did not and could not have reported Montmorin’s acceptance of the scheme until after the 24th of January. Nor did he mention the involvement of De Lessart or convey the impression that he would report on the matter to the Secretary of State. But Swan’s urgent appeals to Knox, particularly that of the 27th of December which enclosed copies of the proposal and of the relevant correspondence, provided all of the details Hamilton was able to give to Cazenove, including the erroneous statement that the ministry had approved the plan at that date. Thus Hamilton, through his colleague in the Cabinet, was able to inform Cazenove of the essential facts of the case and to state his own views of the speculation before he received the same information from the Secretary of State.

It is understandable that Hamilton should not have wanted Cazenove to know that this information had come privately and through an inappropriate channel. It is also understandable that he should have thus made a confidant of a foreign individual instead of communicating what he knew to Jefferson, despite Washington’s instruction that he consult with him on matters concerning foreign loans and the debt to France. For in these conversations with Cazenove Hamilton had other objects in mind. In the first one he revealed his intention to create the Society for Establishing Useful Manufactures (SUM), an enterprise for which he sought and procured investments from the houses Cazenove represented. Among these were the Van Staphorsts, one of the banking firms which represented the United States in Amsterdam. Hamilton at the same time revealed to Cazenove his plans for the deferred annuities—useful information for the Holland capitalists who were already profiting from investments in American securities. The agent naturally asked his principals to hold this in confidence. Knowing that the American bankers would learn of it through the Van Staphorsts, Hamilton also assured the agent that Short’s letter of the 2d of December had gratified him in its tribute to their zeal, talents, and credit, thus bringing to bear all that the United States could desire in respect to the loans being negotiated. Cazenove duly transmitted to his superiors this flattering but obvious misrepresentation of what Short had actually said in his cogent analysis of various Amsterdam banking houses and their practices.56

V

On the 4th of April Otto received Montmorin’s instructions and all pertinent documents concerning the proposal of Schweitzer, Jeanneret & Cie. He immediately called upon the Secretary of State, who confessed that he was entirely ignorant of the matter despite dispatches recently received from Short. Thus, without making a formal representation, Otto had given Jefferson the essential facts some days before he presented his written communication with the relevant documents. At this initial interview Jefferson gave Otto his views of what the attitude of the government would be. He assured the chargé that Short had no power to conclude so important a transaction, being authorized only to make a loan very inferior to the one proposed; that the Holland financiers knew he could not open a new loan until the first had been approved; that it was the intention of the President to have the entire debt to France liquidated by payments made to the Royal Treasury in specie; that he feared no ill would result from the proposal because of the solicitous interest Montmorin himself had taken to prevent it; but that it would be necessary to await Washington’s decision on his return from his southern tour.57 Thus, speaking provisionally for the government, Jefferson gave his own views and a message of compliment to Montmorin a week before he submitted Otto’s formal note and its accompanying documents to Hamilton and asked what substantive answer should be given.58 This conversation with Otto took place on the day that Jefferson received Short’s communication of the 24th of January which did not mention the company’s proposal but which enclosed the one of the 18th of December to Hamilton in which its nature was fully documented. But one important difference between Hamilton’s conversation with Cazenove and that of Jefferson with Otto is that the Secretary of the Treasury disclosed useful information to a private individual with other objects in mind, while the Secretary of State gave a tentative response to a communication from the accredited representative of a foreign power. Five days after his conversation with Otto, Jefferson happened to learn from John Adams that Hamilton, in accordance with authorization given by Washington before his departure, had called a meeting of the heads of department for the ostensible purpose of giving more latitude to Short in the negotiation of loans.59 Having thus learned from the Vice President that the stated purpose of the meeting concerned the loans being negotiated by Short—a subject to which the proposals of Schweitzer, Jeanneret & Cie. were obviously related-it seems clear that on the next day, which happened to be a Sunday, Jefferson prompted Otto to transmit to him the relevant documents. These he immediately dispatched to Hamilton, undoubtedly for the purpose of having the related subjects discussed at the meeting called for the next day. It is not likely that, with Knox present and in full possession of the facts through letters received from Swan, Hamilton would have desired such a discussion by the full Cabinet. His written opinion was not given until the day after the meeting.60

Another and more important difference between what the Secretary of the Treasury said privately to Cazenove and what the Secretary of State said officially to Otto was the assurance given by Jefferson that the entire debt to France would be paid in specie. He had long since learned of Short’s gratification that the first payment was one in which 1.5 million florins commanded 3.6 million livres. If he had not already known that the Secretary of the Treasury shared this view, he was made aware of it when he received Hamilton’s first communication declaring the company’s proposal was inadmissible because, among other reasons, it would entail the loss of the benefit of exchange. This factor was given even more emphasis when Hamilton sent him a carefully excised version of Short’s letter of the 18th of December.61 Being thus made aware of their differing views about the value and mode of payment, Jefferson may have hoped to bring the issue before the President by placing Hamilton on record. In his reply to Otto, however, he merely summarized the argument given by Hamilton, minimized the factor of exchange by referring only to “the change of the place of payment,” avoided repeating his own assurance that the debt would be paid in specie, and said nothing about having to await a final decision from the President.62 Otto found the reasons given by Jefferson “peu satisfaisantes.” In the meantime the chargé had several conversations with the Secretary of the Treasury, who emphasized his apprehensions about entrusting such a large mass of American obligations in the hands of individuals. Hamilton also gave him the erroneous impression that, in negotiating the last loan, Short had promised to accord the American bankers the preference for those to be negotiated later. Otto, accepting Hamilton’s objection to the proposal of Schweitzer, Jeanneret & Cie. as conclusive, considered the matter closed and reported to Montmorin that it would be useless to press it further.63

The absence of full communication on the subject between Hamilton and Jefferson is also reflected in the manner in which each reported to Short the result of the exchange with Otto. Hamilton thought the sole advantage of the company’s proposal lay in its prolonging the period of reimbursement and one of the main reasons for rejecting it was that it would subject “the United States … to the loss arising from a less favourable course of exchange.” He also held out the hope that other and better offers to buy the debt would be made on terms that Short would be able to accept.64 Jefferson held quite different views and expressed them in the form of positive instructions. Reminding Short how strongly the United States desired to pay off the debt and what good prospects there were for borrowing the whole sum, he added: “Under these dispositions and prospects it would grieve us extremely to see our debt pass into the hands of speculators, and be subjected ourselves to the chicaneries and vexations of private avarice. We desire you therefore to dissuade the government as far as you can prudently from listening to any overtures of that kind, whether native or foreign, to inform them without reserve that our government condemns their projects, and reserves to itself the right of paying no where but into the Treasury of France, according to their contract.”65 Nothing could have been more explicit as a statement of the government’s policy, nor more at odds with Hamilton’s view of what the policy should be.

Even as these conflicting instructions were being dispatched, the continuing depreciation of the livre brought renewed activity on the part of French officials and speculators. Dufresne, Director of the Royal Treasury, concerted with Montmorin to prevail upon Short to prevent further loss by the declining rate of exchange.66 Caught between the American bankers in Amsterdam and these official pressures, an embarrassed Short referred the problem to Hamilton.67 The same circumstances produced a new appeal by Schweitzer, Jeanneret & Cie. and their official supporters. Short declined to treat with them and referred them to Ternant, who was about to depart as minister to the United States. He told him, however, that if the ministry approved, if Ternant could be fully satisfied about their capital resources, and if the terms were fair, he would recommend that Hamilton accept their offer. In reporting this to Hamilton, Short said that if Ternant undertook to act on the proposal he would be authorized to give more advantageous terms than those submitted by the company. But he added: “The exchange between Paris and Amsterdam is now more than 20. p. cent in favor of the latter. This is the real standard by which you should be guided.”68

James Swan, transmitting to Henry Knox the new proposal of the company, argued otherwise. He pointed out that the Committee of Finance had requested Dufresne to write to Short that as the money derived from the recent loan “was to pay the very sum borrowed by Congress, it was expected that it would be paid Ecu, contre Ecu, without the benefit of exchange.” Since this had fallen so low as 20%, he thought the United States could not honorably take advantage of the misfortunes of her ally. To do this, he told Knox, “would appear as an Agiotage which the Government would not suffer, since they would claim the hard Crowns, as advanced to Congress.”69 In brief, what the government could not itself do, it could authorize a company of speculators to do for their own private benefit.

Gouverneur Morris added his voice to the conflicting counsels. He addressed himself not to the Secretary of the Treasury as he had done early in 1790 or to the Secretary of State, but to the President. In giving Washington a brief history of the affair, he referred to his letter to Hamilton of 31 January 1790, in which he had “hinted at the means of turning to useful Account a very precipitate step of the public agents in Holland.” In his lengthy communication Morris left Washington with the erroneous impression that he had withdrawn from any concern with the debt on being sent on the public mission to England. He argued that since the United States was not in a position to pay the debt, a bargain by which the period of payment could be prolonged without loss to either party would be desirable. Nor could the nation “take Advantage of those Necessities [of France] which the Succor afforded to America … occasioned.” He added that in a conversation with one who was engaged in the affair, he had been given proof that “People of the first Fortune” were concerned in it. He did not mention Schweitzer, Jeanneret & Cie. and he did not in precise terms recommend approval of their proposals. But he pointed out that the bargain desired could only be made with the French government or with individuals. This begged the question as to the purpose of the Holland loans and the effect such bargaining would have upon them. But, warning that any requests by the United States for further delays in payment would have to be given the consent of the National Assembly and the debates there would not be pleasant, Morris left no doubt as to which course he would recommend: “A Bargain with Individuals has the Advantage of bringing in the Aid of private Interest to the Support of our Credit, and what is of very great Consequence it would leave us at Liberty to make Use of that Credit for the Arrangement of our domestic Affairs.”70 The phrasing was more elegant, but in essence this was the same argument Swan had urged in his communication with Knox: the United States could not honorably profit from the necessities of France, but it could permit private speculators to do this.

Montmorin declined the company’s request for instructions to Ternant to press their proposals officially, referring them instead to Short. Ternant arrived early in August to take up his duties. Far from recommending adoption of the proposal of Schweitzer, Jeanneret & Cie., he made a representation against the advantage that had been taken of France by way of payments in depreciated currency. Jefferson drafted a response which reflected his own consistent views of the subject but which he knew was not in accord with those of Hamilton and Short as reflected in their words and actions. In submitting the draft to Hamilton for his suggestions, he reminded him that the response to Ternant would have to meet the approval of the President. Hamilton, perhaps not knowing whether Jefferson had already consulted Washington, offered a rephrasing of the final sentence which eliminated the assurance that payments would be made in their just value and also deferred settlement of the question of depreciation and the rate of exchange to the time of final liquidation of the debt. But what remained was unequivocal. Speaking for the President, Jefferson gave the pledge of the government that it would entertain “no idea of paying their debt in a depreciated medium.”71 Hamilton duly reported the decision to Short.72

This was by no means an insignificant victory for the Secretary of State in his defense of a settlement of the debt that would be just and honorable. But it was far from ending the irritations and partisan conflicts which clustered about the American obligation as long as it existed.