John Jay to the Commissioners of the Sinking Fund1
[New York, March 31, 1792]
The Chief Justice of the United States, presents his compliments to the Attorney General, and requests the favor of him to lay before the Board of trustees, the opinion herewith enclosed, on the question stated in their act of the 26th instant; a copy of which the Chief Justice yesterday received, enclosed in the letter which the Attorney General did him the honor to write on the 29th instant.2
New-York, March 31, 1792.
Question. 1. Do the words “if not exceeding the par or true value thereof,” in the act making provision for the reduction of the public debt, restrain the purchase of any part of the debt of the United States (whether subscribed, and bearing an immediate interest of six per cent. or an immediate interest of three per cent. or a future interest of six per cent. or unsubscribed) so long as the market price of the same shall not exceed 20 shillings in the pound?
Question 2. If these words do restrain the purchase of any species of the public debt, within limits narrower than 20 shillings in the pound, what rate of interest shall be adopted, as the rule for computing the value of each kind of stock at this day?
The meaning of the word par is well ascertained. When cash, equal in amount to the sum specified in a bill of exchange, is paid for it, that bill is said to have been bought and sold at par.
When stock is bought and sold for more or less than what the public have engaged to pay, that stock is said to have been bought and sold above and below par. Bank notes usually pass, in the vicinity of the bank, for the sums they promise, that is, at par.
The true value of stock considered as merchandise, is the market price. The true value of stock, considered as evidence of money due from debtor to creditor, is regarded, by the law, as being precisely so much cash as was contracted to be paid. Hence, it seems, that the value of stock is of two kinds—the one, commercial, and fluctuating; the other, legal, and fixed. The act adverts to and recognises both; the former in restraining the trustees from giving more than the market price, though below par, the latter in restraining them from purchasing at prices above par.
Is there not a kind of value distinct from either? I think there is; and that it is the one alluded to in the second question above stated. It is the result of comparison, combination, and calculation, and governed by some principle assumed as a standard. It differs, therefore, from the legal value, which always is the exact sum promised to be paid; and it differs from the market price, which has no standard, but depends on momentary and fluctuating circumstances.
Is the true value, mentioned in the act, of this latter, or third kind? I think not.
As this is not the ordinary sense of the word value, and as a standard to ascertain it is neither indicated by the act, nor very easy to find; it seems singular that the Congress, if they really contemplated that kind of value, should omit not only to declare this meaning, particularly and expressly, but also to fix the standard whereby the trustees should be regulated.
As the act distinguishes the market value from the legal value, so, also, the value, in question, if intended, would probably have been distinguished from both, and not confounded, as it now is, with the legal value, by so connecting the words the par, with the words true value, by the particle or, as naturally and grammatically to exclude the idea in contemplation: for the particle or, placed as it is, appears, to me, to be precisely equivalent to—that is to say; in other words, to wit:
No other than the legal value can, accurately, be called the true value in general terms. The laws of morality, and of the land, oblige the debtor to pay the sum promised, and they entitle and direct the creditor to receive it. Debtors and creditors are the only persons strictly interested in the value of debts. Whatever is the true value between them, must be seen as being so by others, as well as by them; and, therefore, when laws, or persons, and especially laws, speak of the true value of a debt, they are, in my opinion, always to be understood as intending the sum due, or legal value, unless they use additional expressions to particularise their meaning.
For these reasons I am of opinion that the words “if not exceeding the par or true value thereof,” do not restrain the purchases of any part of the debt of the United States, so long as the market price of the same shall not exceed the sum actually due from, and payable by, the United States, in discharge of those debts.
ASP description begins American State Papers, Documents, Legislative and Executive, of the Congress of the United States (Washington, 1832–1861). description ends , Finance, I, 236; copy, in the handwriting of Thomas Jefferson, Thomas Jefferson Papers, Library of Congress.
1. For background to this letter, see H to John Adams, March 20, 1792; H for Adams to Jay, March 21, 1792; Jay to H, March 23, 1792; “Meeting of the Commissioners of the Sinking Fund,” March 26, 1792.
2. Edmund Randolph to Jay, March 29, 1792 (ALS, Columbia University Libraries). See H for Adams to Jay, March 21, 1792, note 2, and “Meeting of the Commissioners of the Sinking Fund,” March 26, 1792, note 6.
The copy in the Thomas Jefferson Papers does not include this letter of transmittal.