From James Jarvis1
New York February 10th. 1790.
The ideas which I proposed to submit to your consideration some days ago, a variety of interruptions have prevented my comitting to paper, in an orderly manner until this day. They are now presented and claim, an exertion of indulgence and patience in the perusal, that I could hope for from no man but yourself in the station you fill.
In your report of the 9th. January2 last there appear two great and predominant principles, namely the preservation of Public faith, inviolate, and the creation, to the community of the United States of America, of a powerful and active representation of their Agriculture commerce and manufactures, the most solid and desireable evidences of the industry, wealth, and power of nations!
Permit me to say, that in general, your plan, is so happily adapted to the genius of our country-men, and to the real interests of America as, in my opinion, leaves little to apprehend, with respect to its success, so far as is dependent on that deliberate wisdom, which has from the commencement of the rupture with Britain, to the present hour, so strongly characterized the people of these States. Indeed! I will venture to predict, that notwithstanding the delays which may rise, from the opposition of ignorant and designing men, that the good sense of our legislature, will eventually triumph; and prove to the world, by the general adoption of your plan, that justice is as well practised, as understood, in America.
After having clearly proved it both just and politic to fund the debts of the General and State governments of America, you proceed to offer to the consideration of the legislature, such propositions as will not only prove honorable and safe for the Public, but sufficiently tempting to induce a general acceptation by the creditors especially that portion to be denominated the enlightened & discriminating.
Tho’ the success of this part of the plan, will most probably, in the event, be as compleat, as of that which depends on the decision of the legislature; yet the progress of it may be so slow, as in a great measure to defeat one of the most desireable objects in view, namely, to prevent as much as possible, foreign speculators entering the markett, but at a fair and just price, relatively to the interests of this country.
It must be granted by every reasonable and considerate mind, that each dollar in the hundred which the American funds sell for to foreigners, less than their nominal value, is that proportion of loss to this country; and therefore it will follow as the true policy of the United States that every effort be made, to excite the price up to that standard; and in order to produce this effect, in the most speedy and certain manner, it will be prudent that preparation be made by government, to enter the market, as a purchaser, with vigorous and active means. That this is a measure you contemplate as an important one, is evident from your proposals for the combined loan of ten millions of dollars, specie and debt; and that for twelve millions of specie, the possession of which, from the success of either, will furnish to government the opportunity of raising the credit of America to a level at least, with that of any nations of Europe.
The immediate want of that active engine, money, is the only impediment to the rapid appreciation of our funds; and this want must long be felt, from the natural and slow progress of any funding plan in a government so entirely republican as ours; and where each member of the legislature, is either authorized, or imagines himself qualified, not only to discuss the subject, but to offer measures, better adapted to the ability and honor of the country, than any which can possibly originate from others.
To remedy this evil of delay, as much as possible it would be well perhaps if proposals were ready the moment the system should be established, or as soon after as practicable, offering, to the Commissioners3 or other authorized persons on the part of the United States, loans of specific sums in specie, and in specie and domestic debt combined, on certain terms and within the authority vested by the United States. In such case foreign speculators would be, in a manner, precluded the market, until it became good policy to admit them; which must be at the time of the market and nominal price being nearly equal; and which, necessarily would happen, at the discretion of government, they entering the market full-handed before foreigners could act, by having prepared to operate on given principles, at the moment of legislative decision.
Should it be admitted, that a plan of the sort suggested would be eligible, it now remains to point out the means of effecting it; and which will be found to be exhibited in paper No. 1 annexed hereto.4
The reasons why it is proposed that the limited sum of ten millions of dollars, should be extended, vested in Commissioners, and the interest made payable either in Europe or America at the discretion of the Commissioners, as may be found most advantageous to the interest of Ama. to form the engagements, are as follows.
First—If the sum is extended beyond the ten millions it will hold up an idea, and very justly, to the Citizens of America, that foreigners will seize the opportunity to become stock-holders, for the whole amount, and therefore that an increased demand will ensue. Of course the price will enhance from the temporary with-holding, which must follow; or from a prudential conduct in the new lenders to become possessed as soon & as certainly as possible, of the sums they may have engaged to deliver. But on the other hand if no more than ten millions of dollars, is the sum proposed, it will be understood to embrace about the amount already in the hands of foreigners, and of course that any new purchases by the Europeans, will be at limited prices, and merely on speculation, as they can be under no necessity to buy in order to fulfil engagements made with the United-States.
Second—If the power of making the negotiation is vested in commissioners, the treaty will be short, the sums agreed for, most probably large, and the supply of the money to the United States, certain and speedy. On the part of the United States, there can be no objection to this measure, because the power vested by them, will be a limited discretion. If I may so term it—limited as to what they may have right to do, and discretionary as to what may be proposed by the lenders within that power.
Third—If the interest is made payable, or a power granted to agree to pay it, in Europe, it will more immediately meet the views of European lenders who are unaccustomed to look abroad for their annual interest. For if engagements are not made with them, to pay interest at their doors, still it is virtually the same thing, as long as they can, by the facility of exchange, calculate with certainty to receive their interest at stated periods, without the contingencies of winds & waves, and farther negotiation.
To this measure, there is an equal inducement to the lender and the borrower. The latter receives as an equivalent for paying interest in Europe 11¹⁄₉ Ct. difference between the 5 Ct. payable in Ama. and 4½ Ct. proposed to be paid in Europe. The former by having the interest paid at his door, has the power of selling his stock, or share of the loan, as readily as an action on any European loan, the security between that and the American loan, with other inducements, being equal.
At the expiration of the time, for which a loan may be made, it may become inconvenient either for the borrower to pay off, or the lender to reloan—and as the money lenders of Europe, will never agree to have their money, re-imbursed or not, at given periods; or that annual instalments be paid, or not, at the option of the borrowers; but on the contrary will demand explicit engagements, so therefore the optional instalments of 1 Ct., held up in the proposal for borrowing ten millions of dollars, half specie and half debt, may appear exceptionable. In order to obviate this difficulty as well as to induce the United States to the measure, an annual instalment of 1½ Ct. is proposed to be paid by positive stipulation; which with 4½ Ct. interest will not require a larger annual sum, than is proposed by the ten million plan; provided the one Ct. ann: instalment, thereby proposed should be paid; and which in all events must be calculated for, in forming an adequate revenue system.
The inducement to the United States is that 6 Ct. annually from their treasury, regularly appropriated, will extinguish the amount borrowed, in about thirty two years.
If I mistake not, the most stubborn obstacles to your plan, will be found to be, in general, the idea of perpetual burthen on the country and that no positive engagements are proposed, for the final extinction of the debts; except in the self-extinguishing plans, of the life annuities and tontine, both which, however, should they prove acceptable to that certain class of stock holders to which they are peculiarly applicable can afford but very feeble assistance to the great and leading objects in view.
It is with reluctance, that I submit to doctrines teeming with mischief to the executive branch of our government; but there is no other mode of combating their most destructive effects, but by being willing to provide for that, which never will, most probably, and perhaps never ought to happen namely, total payment of our Public-debt, the great cement of interest between the Public and the individuals which compose it.
If the question is deliberately considered it will be found that powerful and vigorous executives are less dangerous to the liberties of the people in limited governments, than those of a tone more feeble; because, the line being drawn where the jealousy of the people begins to be excited, that vigilant principle will ever prove the best safeguard against encroachments. On the other hand, where perfect security is imagined, and nothing to be apprehended, the fairest opportunity of surprize and advantage presents.
If this reasoning is just, it becomes good policy to strengthen the executive arm; and which cannot be effected by any means so certain, and gently diffusive, as that of collecting efficient revenue. Hence the impolicy of paying the principal of national debts, beyond that certain point, which not burthensome, becomes a stimulant to industry and commerce, and a gentle compulsion to the Citizens of a country, to pay that homage and respect to government, which is really necessary to its existence!
In a country so extensive as ours border’d by hostile tribes of Indians on the one side; and by Jealous and ambitious powers at each extreme it will most probably be found impracticable to avoid Public debt. As we encrease in population and revenue, new sources of expenditure will arise in equal proportion; as well from the necessary encouragement to Agriculture, commerce, and the Arts as from many other national and important causes; so that what in sound policy may be termed the evil of being out of debt, cannot be apprehended by America.
An additional inducement to the plan now submitted to you, will be the actual acquisition to these States of a large capital in specie, which will not only prevent the loss and expence of negotiating bills of exchange, if found even at any rate practicable but will restore in a great measure that equilibrium between current money, and the articles it represents in this country, which has so long ceased to exist; & the want of which has been so injurious to the great community of America. It will be an immediate means in the hands of government of establishing a national coinage, and which may be so calculated as to prevent in future the evil which arises from exporting specie.
And here it may not be improper to observe that thro’ the operation of a National bank, the capital sum obtained by the proposed loan, will give currency to three times its amount, in bank notes, and which, as they will in effect, be the payment from foreigners for the domestic debt they purchase of us, must prove a valuable consideration, the amount being larger, and the property more active and negotiable.
The value or rate at which the gold and silver is proposed to be received into the treasury of the United-States, may be varied and determined by some just standard, between their current prices in Europe and America; but at present it is necessary to form some data, in order to find aggregate sums, which is the reason why specific rates have been set down.
In conformity to your plan for borrowing twelve millions of dollars, in order to pay off such parts of the foreign loans as bear an interest of 5 Ct. as well as the instalments and interest that will be due at the end of the year 1790; and to co-operate with other means for the establishment of a National bank; It is proposed that what is termed the Royal French loan, consisting of twenty four millions of livres may be considered as so much specie subscription to the new loan; the priviledge of doing which will most probably induce an equal amount in actual money in addition.
The United States will derive the benefit of hlf Cent. Ann., remission of interest, and the immediate relief from a heavy sum due on demand and for the payment of which they are momently liable to be called on.
The whole amount of the new loan, now proposed, is thirty four millions of Dollars at 4½ Ct. interest and one & one hlf Cent. annual instalment; which for thirty two years would require annually two millions and forty thousand Dollars. This Sum together with the residuary parts of the Foreign and domestic debt, stating them at ten millions of dollars at 4 Ct. interest, and the annual current services, would demand annually three millions and forty thousand dollars.
The difference between this sum and the provision to be made by your estimate is 200.837(Dolls).81(cents)—a sum in itself trifling, and when compared to the object in view, namely the extinction of so large a portion of the debts of the United-States, not worthy the objection of any sensible man, or real friend to his country.
In paper No. 2.5 is exhibited a statement of the aggregate debt, as your report, and the situation in which it will be when changed to what the proposed operation, will give the power of doing.
There are sufficient inducements connected with a good management of the french debt and in the purchase of the domestic debt, to incite the first houses in Europe to undertake the whole of the proposed amount, or at least so much of it, as would excite rivalship in the present European holders, of the American debt; and tend to alarm them into a compliance with your views of reloaning what they possess, combining an equal amount in specie.
There now remains an objection to combat, which will present itself with some plea of reason, namely, that by converting so large a part of the domestic debt into foreign, as is proposed, it will constitute the necessity of larger annual remittances to Europe than America can endure. But in answer, as the saving proposed is 11¹⁄₉ Ct on the amount of annual interest, any rise in bills of exchange, within that amount, is provided for and when it is taken into consideration that as well from the migrations from Europe, as from the probable increase of commercial advantages in consequence of the immense increase of capital, the balance of trade in favour of this country must grow in proportion, the substance of the objection must in a great measure vanish.
Another consideration should be, that, as by this creation of wealth to America, its inhabitants will become enriched, so in any future exigence, there will be no necessity to demand on Europe for supplies of money on loan.
If what I have said should appear connected with an intention to invade your plan; or with the presumption to offer one of my own; I pray you to be assured, that no ideas of the sort, have ever suggested themselves to me; and that on the contrary, were my sentiments of your report, to be expressed corresponding with the impression it has made on my mind, you would conclude me weak enough to attempt your good opinion thro’ the path of flattery!
Desiring most ardently! the happiness & aggrandizement of my country, I confess myself ambitious enough, to wish some Agency, in the promotion and accomplishment of these objects; but at the same time, if not blinded by self-love I would not accept of any situation, or pursue any measures, that did not combine those objects, however advantageous to myself!
I will now conclude by observing, if it should not appear to you incompatible with the interest and dignity of America, to adopt ideas similar to what are submitted, and to employ a person to procure consonant, or more advantageous, proposals that I should consider myself very fortunate in the appointment, whether official or from your private capacity. I am so confident of being able to succeed that if it is requested, I will go to Europe on the business by the March packett, at my own expence, and engage to return, if my life and health should continue, with[in] six months, at farthest, from this time, calculating common passages; or if it should be deemed proper for me to remain, will within that period, transmit the issue of my mission; & which I doubt not will be successful and satisfactory!
If I express myself, at any time, in too bold and aspiring a manner, I pray you to ascribe it to a desire of becoming serviceable to my country under your patronage; and to be assured, that in no event, I can feel myself other than,
Sir! Your very Respectful! & Obedient Servant.
ALS, Hamilton Papers, Library of Congress.
1. Jarvis, a New York speculator, was frequently involved in business ventures with such other well-known speculators as William Duer, Andrew Craigie, Daniel Parker, and Royal Flint. His most notorious financial transaction was the abortive contract made with the Board of Treasury in 1787 to supply the United States with copper coin.
3. Presumably the Amsterdam banking houses of Willink, Van Staphorst, and Hubbard.
4. “Paper Number 1,” Jarvis’s plan for a European loan, is in the Hamilton Papers, Library of Congress. The crux of his plan is given in the following extract from that paper:
“It is proposed that A. B. shall be authorized by the secretary of the treasury (He may receive instructions to that effect, from the legislature or the President of the United States; or he may do it in his private capacity) to go to Europe, and there agreeably to the best of his judgement, and compatible with directions given him, endeavour to obtain proposals for loans to the United States of specie, and of specie and domestic debt combined.
“It is suggested that the terms within or not exceeding, which proposals should be received may be as follows, namely—
“1st. That a sum or sums in specie, not exceeding seventeen millions of dollars, at an annual interest payable in Europe, of 4½ Cent, be proposed.
“2nd. In addition to the annual interest, an instalment of 1½ C. shall be paid annually, for the gradual reduction, and final extinction of the capital sum borrowed.
“3rd. The lenders as an inducement shall have the priviledge of subscribing in the domestic debt of the United States, an equal amount with the sum loaned or subscribed in specie; and which sum so subscribed shall bear an equal interest, annually payable in Europe with the sum loan’d in specie; and be finally extinguished by the same annual instalments.
“4th. The lenders on their part, to pay their subscriptions at the treasury of the United States, free of all expence and charge to the United States, except five Ct. on that moiety or part which shall be agreed to be in specie, and which said five Ct. shall be allowed in lieu of freight, insurance, commissions, and all other charges and in consideration of the amount being paid in actual gold or silver, at the treasury as aforesaid.
“5th. The payments to be made in gold or silver.…”
5. Jarvis’s “Paper No. 2” is in the Hamilton Papers, Library of Congress. It contains the calculations which enabled Jarvis to arrive at the $200,837.81 that he mentions in the preceding paragraph.