Spain’s Finances and the Bills Drawn on John Jay Editorial Note
Spain’s Finances and the Bills Drawn on John Jay
Although Jay continued to hope that Spain would be able to loan him the funds needed to cover the bills Congress had drawn on him, Spain’s ability to raise funds to cover its own needs had been frustrated by its lenders’ refusal to accept repayment in vales reales.1 During the resulting crisis, full-blown by the end of August 1780, Floridablanca had ignored Jay’s requests for a meeting and, on 15 September, instructed Gardoqui to inform him that instead of a loan, Spain would now offer a loan guarantee. Well aware that he could not compete for funds in the same markets that Spain was soliciting, Jay nevertheless sent out inquiries to see whether he could find lenders willing to provide funds backed by the king’s guarantee.2
On 15 October, Carmichael informed the Committee for Foreign Affairs that if Spain’s efforts to raise money were successful, Jay would be furnished with a part, if not the whole, of the amount needed to cover the bills. He was not optimistic, however. On 28 November, he reported that Spain’s finances were “critically circumstanced,” that the “ways and means” for the year to come were “not devised yet,” that Spain’s expenses for 1780 were far greater than the revenues it had collected, that its arrearages to its public creditors were “considerable,” and that the total sum of 9 million pesos had not yet been raised. Alarmed that bills were falling due before Spain could raise funds to assist him, Jay wrote Floridablanca on 11 December warning that the looming damage to American credit might “relax” American military operations against their common enemy “in the very neighborhood” of the king’s dominions. Mindful of Floridablanca’s earlier comment that payments in America were then more convenient, Jay proposed a Spanish loan payable in Havana or Puerto Rico. Although this specific plan was not adopted, several projects to tap Spain’s American wealth were among the various expedients employed to sustain the joint war effort.3
Cabarrús completed the sale of the first emission of vales on 23 December, three months behind schedule. Despite Carmichael’s gloomy prognosis, Jay reported, without providing any details, that he had had a conference with Floridablanca on that day, in the course of which he had been “expressly promised” a loan of 3 million reales de vellón ($150,000).4 Carmichael reported the good news to the Committee for Foreign Affairs on 24 December. The Spanish minister had, he said, “in the most express terms” assured Jay that “he might depend on receiving three millions of reals to pay such bills as he had already accepted.” The funds would be made available in the amounts required to cover the bills of exchange presented for payment each month. “This sum,” he continued, “with near eighteen thousand dollars received already, and twenty-five thousand promised by the court of France, will fully answer this purpose.” It would not, however, cover the bills still to be presented and slowly coming to hand. Carmichael then remarked that Floridablanca “seemed exceedingly well disposed to render the States every service in his power,” although he “spoke with much chagrin of the adherence of the Congress to points which, in his opinion, rendered a treaty impracticable for the present.”5
Jay began 1781 on a relatively bright note. He had the promise of $150,000 from Spain, and Congress agreed that he should not relinquish the right to navigate the Mississippi “by any Stipulations.”6 On 3 January, Carmichael sent Jay three parcels of bills for acceptance and noted that Gardoqui had promised to deliver the paper to answer them and other drafts due the next month. He hoped funds could be found to pay the additional bills “drawn and sold” before Congress had received Jay’s letter asking it to draw no more. On 29 January, Carmichael reported that Spain expected some treasure from America, that it hoped to raise $8 million on loan,7 and that its revenues from taxation had increased. He supposed that Jay would receive the full amount ($150,000) that Floridablanca had promised but was uncertain whether the bills that continued to arrive could be covered. He noted that he had with “pain” recently entered bills amounting to between $30,000 and $40,000 at three months’ sight. These bills led Jay to question whether any copies of his letter telling Congress to draw no more had reached the United States.8
On 7 February, Jay informed Floridablanca that he needed $16,533 to cover bills due for payment in February. Two weeks later, he obtained an order for $32,000 to pay for clothing then being shipped to the United States and to discharge the bills. Carmichael again mentioned that Floridablanca had promised to furnish the full amount of the loan promised on 23 December and to “contribute to our further relief as far as the exigencies of the state will permit him.” He noted, however, that the exigencies were “urgent and great,” and income from taxes and loans continued to come in slowly and was appropriated before it was received.9
Spain’s current economic difficulties were, in fact, acute and required a second emission of paper money in March 1781.10 On 15 March, five days before the cédula (royal decree) authorizing the emission was issued, Jay sent Floridablanca a list of the bills due in April. The minister did not reply. A week later, Jay wrote again to say that he was in a “delicate and painful” situation with regard to the bills. Three days passed before he heard from Gardoqui that the balance of the cost of clothing Floridablanca had agreed to supply the previous September would be paid and deducted from the amount of the loan, but that it was absolutely impossible at present for Spain to cover bills, so Jay should “arrange that matter by other ways.” Assurances were given that the balance of the $150,000 would be paid “six months hence,” but this left Jay desperate to find means to ward off the immediate threat to American public credit.11
Montmorin came to the rescue. Although it took several meetings, on 31 March, he persuaded Floridablanca to promise to pay the amount of the bills due in April in six equal payments beginning in May. Then, using his personal credit and Jay’s pledge to dedicate the six payments to cover this amount, Montmorin persuaded the marquis d’Yranda to advance the $89,083 needed to cover the April bills. Bills accepted and falling due between May and September, then amounting to $142,220, however, still had to be provided for. Again at Montmorin’s request, d’Yranda agreed to furnish this sum on condition that Ferdinand Grand, the Americans’ banker in Paris, would accept his drafts to reimburse that amount. On 1 April, Jay sent an express to Franklin with an urgent appeal to use any means possible to prevent a protest. Although pressed to cover the cost of military supplies to be shipped to the American army, Franklin agreed to deduct this sum from a loan he had recently received from France, but he advised Jay that it would be hardly possible for him to assist further.12
These commitments provided temporary relief from anxiety about the bills, but the respite was not long-lasting. Jay drew on Grand to cover the bills due in May. The president of Congress informed Jay on 28 May 1781 that no further bills had been drawn on him after December 1780, and that on 27 April the sale of bills previously drawn on him but not yet sold had been countermanded. Congress was, however, still destitute of funds. Pressed by John Ross for payment of a considerable sum owed him for supplies purchased on its account in Europe, Congress gave him some of the unsold bills it had drawn on its ministers abroad in 1779.13
Bills drawn on Jay dated as late as March 1781 continued to arrive. By mid-August they amounted to approximately $30,000, and by the end of September, to $80,000. Spain, Jay hoped, would provide at least a part of that sum, but perhaps not as soon as needed, and perhaps not all of it.14 Franklin had informed Jay that Vergennes had explicitly refused to cover any bills drawn after 1 April 1781. On 1 September, Jay told Robert Morris that bills drawn on him exceeded funds to pay them, making it likely that protests would “end this game of hazard.” Despite Franklin’s strictures, on 10 September, Jay appealed to him for help in covering bills due to be paid in October ($12,567) and November ($3,600). Franklin was able to rescue him once again.15
On 16 November, Jay appealed to Floridablanca for funds to cover the bills due in December—$31,809. He was met with “profound” silence. Despite the arrival of specie from Havana in October, Spain’s financial situation remained in crisis. Disregarding Franklin’s insistence that France would offer nothing more, Jay sent off yet another appeal on 21 November. “Thirty thousand pounds Stirling” ($133,200), he said, would end this “unhappy Business.” The “Evils” the United States and France would experience if the bills were protested, he argued, would cost France a “vast Deal more.” Franklin applied to Vergennes for a million livres tournois ($185,200) beyond what he had already been granted, to be applied to cover bills drawn on Adams, Laurens, and Jay. In his response of 21 December, Vergennes made it plain that this sum would be supplied only if there were funds available to cover it from the Dutch loan, most of the proceeds of which, he believed, were already assigned to other purposes.16 A year that had begun optimistically drew to an end on a darker note.17
1. See “John Jay’s Conference with Floridablanca” (editorial note) on pp. 98–99. Cabarrús had committed himself to raise the funds to cover the vales by 30 Sept. but had realized only about two-thirds of the amount by that date. See 536; and Tedde, “Política financiera y política comercial en el reinado de Carlos III,” in Actas del Congreso Internacional sobre “Carlos III y la Ilustración,” vol. 2, Economía y sociedad, 178–79.
3. See , 4: 99, 164–65; JJ to Floridablanca, 11 Dec. 1780, below; and notes 7, 10, and 14, below.
4. See JJ to BF, 21 Feb. and 28 Mar., and to the President of Congress, 28 Jan. and 25 Apr. 1781 (all below), which provide no details about the conference; and , 41. French commercial firms with establishments in Cádiz contributed heavily to Cabarrús’s success.
5. See Carmichael to the Committee for Foreign Affairs, 24 Dec. 1781 [1780], ALS, DNA: PCC, item 88, 187–94; Tr, DNA: PCC, item 108, 158–63; misdated 1781 and misaddressed to RRL in , 5: 68–69.
6. Congress soon substantially modified its position on navigation of the Mississippi. It instructed Jay to “recede” from its previous instructions to “insist” on free navigation of the river below the 31st degree of north latitude, and on a free port below that marker, if Spain would not otherwise agree to an alliance with the United States. See Instructions from Congress to John Jay, 4 Oct. 1780, above; and “Congress Changes Course on Navigating the Mississippi” (editorial note) on pp. 386–90.
7. The only Spanish convoy to leave Havana with public and private silver after Spain entered the war departed in midsummer 1781 and arrived sometime prior to 18 Oct. See Lewis, “Las Damas de la Havana,” Americas 37, no. 1 (July 1980): 95; JJ to the President of Congress, 18 Oct. 1781, below; and , 4: 771.
Cabarrús had made several proposals to meet the treasury’s urgent need for funds: to import 5 million pesos fuertes (dollars) in government silver from Mexico to France on French vessels, for which Cabarrús would advance 100 million reales ($5 million) over a six-month period to the treasury in Madrid in exchange for duty-free trade privileges; to authorize a new emission of vales (see note 10, below); and to remint gold from Portugal, on which the Crown was expected to realize a profit. He informed Carmichael on 10 Jan. that his plan had “in part been adopted” and indicated that he would try to appropriate the first payments made on the loan, yet to be authorized, to America’s “use.” See Carmichael to JJ, 10 Jan. 1781, ALS, NNC (EJ: 7558).
8. See JJ to the President of Congress, 16 Sept. 1780, above, and 28 Jan. 1781, below; and Carmichael to JJ, 3 and 4 Jan. 1781, ALS, NNC (EJ: 7556, 7557); and to the Committee for Foreign Affairs, 29 Jan., and to BF, 6 Feb. 1781, , 4: 228, 243–44, 251. The bills at three months’ or 90 days’ sight were those issued under a congressional resolution of 2 Oct. 1780 to William Bingham and to Tracey and Company in payment of debts due them. See , 18: 890; and Bingham to JJ, 22 Oct. 1780, ALS, NNC (EJ: 7490), and 26 Dec. 1781, ALS, NNC (EJ: 7496).
9. See JJ to Floridablanca, 7 Feb. 1781, AL, with Spanish translation, SpMaAHN: Estado, leg. 3884, exp. 4, doc. 143 (EJ: 12166, 12157); and Carmichael to BF, 6 Feb., and to the Committee for Foreign Affairs, 22 Feb. 1781, , 4: 251, 265.
10. On 20 Mar. 1781, the Crown authorized a second issue of vales (of 300 pesos rather than 600 pesos each) designed to raise 5 million pesos de vellón ($3,765,000) to finance the siege of Gibraltar and an expedition to recover Minorca and to compensate for the decline in customs revenues because trade with Spanish America had been interrupted. Because Cabarrús spent most of the first six months of 1781 in Paris making arrangements for the French to transport Mexican specie to Europe, the vales emission was managed by the firms of Cabarrús and Étienne Drouilhet. It was scheduled to become effective on 1 Apr. Floridablanca’s plans to redeem the emission were rejected by a commission of treasury officials, and the vales, already selling under par, depreciated sharply. 539–42; , 43–47; Tedde, “Política financiera y política comercial en el reinado de Carlos III,” in Actas del Congreso Internacional sobre “Carlos III y la Ilustración,” vol. 2, Economía y sociedad, 186; Stanley J. Stein and Barbara H. Stein, Apogee of Empire: Spain and New Spain in the Age of Charles III, 1759–1789 (Baltimore and London, 2003), 176–77; and , 279–83.
JJ did not mention Spain’s financial problems when he discussed the March 1781 crisis in his letters to the President of Congress of 25 Apr. and 3 Oct. 1781, below. He described Floridablanca’s promises and conduct as inconstant and complained that he had not been told in advance that funds might not be available. Montmorin, he said, had suggested to him that Floridablanca had withheld the funds because he expected JJ would offer some concessions with regard to the Mississippi. This would suggest that Floridablanca had quickly learned about Congress’s 15 Feb. decision to revise JJ’s instructions with regard to the Mississippi. On Spain’s economic problems, see the sources cited above and Hamilton, “The Foundation of the Bank of Spain,” Journal of Political Economy 53, no. 2 (June 1945): 99, and “Plans for a National Bank in Spain,” Journal of Political Economy 57, no. 4 (August 1949): 333.
In his letter to Vergennes of 12 Mar., Montmorin described the utter lack of progress in negotiations for an alliance between JJ and the Spanish. They had not, he said, moved one step forward since JJ’s arrival. Floridablanca, he reported, listened coldly when JJ brought up the subject and appeared so little disposed to negotiate seriously that any illusion the Americans had had on their arrival about Spain’s disposition toward them appeared to have been entirely dissipated, and they had become convinced that Spain would conclude no arrangement with them until after a general peace. See Montmorin to Vergennes, 12 Mar. 1781, FrPMAE: CP-E, 603: 310r–v.
11. See JJ to Floridablanca, 15 Mar. 1781 (and enclosed list) and 22 Mar. 1781, ALS, SpMaAHN: Estado, leg. 3884, exp. 4, docs. 104 (EJ: 12091) and 107 (EJ: 12161); and Gardoqui to JJ, 25 Mar. 1781, below. On 30 Mar., Carmichael reported that Spain had paid out $49,880 (997,760 reales de vellón), or approximately one-third of the loan funds, to cover the bills drawn on JJ, and that JJ had accepted $264,258 in bills at three and six months’ sight and $15,600 in bills at two months’ sight (, 34: 498–500). JJ gave a different account of the sums received and needed. He told BF and the president of Congress that he had received only $34,880 on the loan to date and that he had to cover acceptances amounting to $231,303. See JJ to BF, 1 Apr., and to the President of Congress, 25 Apr., below. On the clothing, see Notes on John Jay’s Conference with Floridablanca, 23 Sept. 1780, above. JJ had been led to believe that the clothing was a donation.
12. Carmichael reported that when JJ was told that Spain could not meet its commitment to cover the remainder of the loan of $150,000 at that time, his first instinct was to ask BF for assistance. Montmorin, however, obtained a promise from Floridablanca to supply the sum needed to cover the April bills in a few months if anyone could be found to advance it immediately. Cabarrús’s associates had offered to do so if the Spanish finance minister (Miguel de Múzquiz, conde de Gausa) would consider the amount part of the specie the firm had contracted to supply to the court, but apparently Múzquiz was not willing to do so. Montmorin then approached d’Yranda, who agreed to supply the necessary funds. See JJ to BF, 28 Mar. and 1 Apr.; JJ to the President of Congress, 25 Apr.; and BF to JJ, 12 Apr. 1781, all below.
In a letter to BF of 31 May 1781, below, JJ noted that bills drawn in March had recently arrived. Carmichael reported that there were many of them and that funds to cover them had not been provided, and he hoped “we have not much to fear for their payment.” At the end of June, he informed BF that JJ would soon have to draw on him for the remainder of the $25,000. After being informed by d’Yranda that Grand had specified that he would receive no more bills drawn by JJ on BF without explicit orders, JJ inquired whether this applied to the balance of the $25,000 allotted to the payment of the bills drawn on two months’ sight. See JJ to BF, 31 May, 13 July, and 10 Sept.; JJ to Robert Morris, 1 Sept.; JJ to the President of Congress, 20 Sept. and 3 Oct.; and BF to JJ, 20 Aug. and 4 and 29 Sept. 1781, all below; and Carmichael to the Committee for Foreign Affairs, 25 May and 16 Aug., and to BF, 26 June 1781, , 4: 437, 520, 635.
13. On the bills given to Ross, see Morris to JJ, 29 June, and JJ to BF, 10 Sept. 1781, below.
14. JJ’s hope may have been based on the expectation that Cabarrús’s project to import specie (mentioned in note 10, above) was about to be implemented. The first contract to draw on government silver in Mexico to meet Spain’s financial needs was issued on 29 Aug. 1781. See 541. On related plans to repay loans from France to Spain through specie payments in America usable by French forces there, see “John Jay’s Conference with Floridablanca” (editorial note) on pp. 103–4, note 14.
Concurrently, Robert Morris, newly installed as superintendent of finance, also sought to tap Spanish specie in America. It was at this time that Morris sent David Salisbury Franks to Spain with important dispatches, including his letter to JJ of 4 July 1781, below, in which he asked Spain to supply money to the United States at Havana. Franks arrived on 31 Aug. 1781.
In launching this initiative, Morris was undoubtedly aware that Floridablanca had told JJ that it would have been easier for Spain to provide funds to the United States in America than in Europe. In addition to what he learned through American, French, and Spanish diplomatic channels, Morris had other possible sources of information on French and Spanish financial affairs. He had commercial connections in Havana and with both the Paris and Cádiz branches of Le Couteulx and Company, with which Cabarrús worked closely; Morris’s French business partner, John Holker, acted as Le Couteulx’s agent for investing funds in America. The Cádiz branch of Le Couteulx and Company had also been active in American affairs in Spain through its role in supplying the needs of American sailors arriving in Spain after release from captivity.
With support from both La Luzerne and Francisco Rendón, Morris attempted to raise capital for the recently established Bank of North America by negotiating in Havana unsold bills drawn on JJ that Congress had ordered to be turned over to him. This attempt failed when, on 8 Aug. 1781, the Trumbull, carrying a cargo of flour and bills to be sold in Havana, was captured by the British. Carmichael later reported (on 17 Nov.) that Cabarrús had offered to procure $500,000 for the United States, payable at Havana.
See JJ to Jacques, Louis, and Laurent Le Couteulx and Company, 15 Oct. 1780, above; Morris to JJ, 4 and 13 July and 15 Aug.; JJ to Morris, 1 Sept. and 3 Oct.; and the Secretary for Foreign Affairs to JJ, 1 Nov. 1781, all below; , 4: 843; and , 1: 124, 270–75, 311–15; 2: 60–61.
15. See JJ to Robert Morris, 1 Sept., and to BF, 10 Sept.; and BF to JJ, 29 Sept. 1781, all below.
16. For the continuing financial difficulties, see JJ to Floridablanca, 16 Nov., and to BF, 21 Nov. and 31 Dec. 1781, below; BF to Vergennes, 10 Dec., and Vergennes to BF, 21 Dec. 1781, , 36: 281; and Vergennes to BF, 31 Dec., printed as the enclosure to BF to JJ, 15 Jan. 1782, below.
In a letter to the Committee for Foreign Affairs of 17 Nov., Carmichael noted that, “So far from Mr. Jay’s having been yet able to obtain further succors” from Spain, Montmorin had not been able to obtain payment for the funds advanced by d’Yranda and that Montmorin had personally guaranteed that he would cover the bills due in April. The Spanish court was “distressed,” Carmichael said, and had difficulty answering its own engagements. A month later, he reported that the court was attempting another loan and, if it failed, might have to resort to another emission of vales. See Carmichael to the Committee for Foreign Affairs, 17 Nov., and to RRL, 20 Dec. 1781, , 4: 842; 5: 63.
17. See “The Final Crisis” (editorial note) on pp. 742–47; and JJ to the Secretary for Foreign Affairs, 28 Apr. 1782, below.