Jefferson’s Opinion on Fiscal Policy
On consideration of the letter of our bankers of Jan. 25. 1790. the Secretary of the Treasury’s answer to it, and the draught of powers and instructions to him, I am of opinion, as I always have been, that the purchase of our debt to France by private speculators would have been an operation extremely injurious to our credit; and that the consequence foreseen by our bankers, that the purchasers would have been obliged, in order to make good their paiments, to deluge the market of Amsterdam with American paper of all sorts and to sell it at any price, was a probable one, and the more so as we know that the particular individuals who were engaged in that speculation, possess no means of their own adequate to the paiment they would have had to make. While we must not doubt that these motives, together with a proper regard for the credit of the U.S. had real and full weight with our bankers, towards inducing them to counterwork these private speculations, yet to ascribe their industry in this business wholly to these motives, might lead to a too great and dangerous confidence in them. It was obviously their interest to defeat all such speculations because they tended to take out of their hands, or at least to divide with them, the profits of the great operation of transferring the French debt to Amsterdam, an object of first rate magnitude to them and on the undivided enjoiment of which they might count, if the private speculators could be baffled. It has been a contest of dexterity and cunning, in which our champions have obtained the victory. The manoeuvre of opening a loan of three millions of florins has on the whole been useful1 to the U.S. and, tho unauthorized, I think should be confirmed. The measure proposed by the Secretary of the Treasury, of sending a superintendant of their future operations, will effectually prevent their doing the like again, and the funding laws leave no danger that such an expedient might at any future time be useful to us.
The report of the Secretary of the treasury, and the draught of instructions present this plan to view. 1. To borrow, on the best terms we can, not exceeding those limited by the law, such a sum as may answer all demands for principal or interest of the foreign debt, due, or to become due before the end of 1791. (This I think he supposed will be about 3 ½ millions of dollars.) 2. To consider two of the three millions of florins already borrowed by our bankers as, so far, an execution of this operation; consequently that there will remain but about 2 ½ million of dollars to be borrowed on the old terms. 3. To borrow no more as yet, towards completing the transfer of the French debt to Amsterdam, unless we can do it on more advantageous terms. 4. To consider the 3d. million of florins already borrowed by our bankers, as, so far, an execution of the powers given the President to borrow 2. millions of dollars, by the act of the 12th. of August. The whole of this appears to me to be wise. If the 3d. million be employed in buying up our foreign paper on the exchange of Amsterdam, by creating a demand for that species of paper, it will excite a cupidity in the monied men to obtain more of it by new loans, and consequently enable us to borrow more and on lower terms. The savings of interest too of the sum so to be bought, may be applied in buying up more principal, and thereby keep this salutary operation going.
I would only take the liberty of suggesting the insertion of some such clause as the following into the instruction. “The agent to be employed shall never open a loan for more than one million of dollars at a time, nor open a new loan till the preceding one has been filled, and expressly approved by the President of the U.S.’ A new man, alighting on the exchange of Amsterdam, with powers to borrow 12. millions of dollars, will be immediately beset with bankers and brokers, who will pour into his ear, from the most unsuspected quarters, such informations and suspicions as may lead him exactly into their snares. So wonderfully dexterous are they in wrapping up and complicating their propositions, they will make it evident, even to a clear-headed man (not in the habit of this business) that two and two make five. The agent therefore should be guarded, even against himself, by putting it out of his power to extend the effect of any erroneous calculation beyond one million of dollars. Were he able, under a delusive calculation, to commit such a sum as 12. millions of dollars, what would be said of the government? Our bankers told me themselves that they would not chuse, in the conduct of this great loan, to open for more than two or three millions of florins at a time, and certainly never for more than five. By contracting for only one million of dollars at a time, the agent will have frequent occasions of trying to better the terms. I dare say that this caution, tho not expressed in the instructions, is intended by the Secretary of the Treasury to be carried into their execution. But perhaps it will be desirable for the President that his sense of it also should be expressed in writing.
Aug. 26. 1790.
MS (DNA: RG 59, MLR); entirely in TJ’s hand; endorsed by Lear: “The Secretary of State respecting the Loan made by the Agents of the U.S. in Holland.” PrC (DLC). FC (DNA: RG 59, SDC). Entry in SJPL reads: “Opn. Th: J. on borrowing money in Holland.”
It is clear that this report was drafted on the same day that Washington asked for TJ’s opinion about the ratification and acceptance of the loan of 3,000,000 florins that had been opened on 1 Feb. 1790 by W. & J. Willink, N. & J. Van Staphorst, & N. Hubbard in a desperate maneuver by that firm to forestall efforts of speculators to purchase the American debt to France. For the Holland bankers’ lengthy explanation of their reasons for that unauthorized action in their letter of 25 Jan. 1790 to the Secretary of the Treasury and Hamilton’s brief and necessarily noncommittal response of 7 May 1790, both of which TJ had before him while drafting the above opinion, were only transmitted by Hamilton to Washington in his letter of 26 Aug. 1790 recommending that the President give his sanction to the loan and that authority for this be subsumed under both Acts of Congress of 4 and 12 Aug. 1790, the former authorizing a loan of $12,000,000 and the latter a loan of $2,000,000 (U.S. Statutes at Large, i, 138–44, 186–7; texts of the letters are in Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vi, 210–18, 409–10, 568–70). Washington’s powers and instructions to Hamilton exist in two copies and bear the date 28 Aug. 1790, being therefore presumably later versions than those read by TJ. The former authorized Hamilton under the two Acts to borrow a sum not to exceed $14,000,000 and the latter directed him to limit the loans to the amount needed for principal and interest due on the foreign debt to the end of 1791, unless this could be done for the residue of the debt on terms more advantageous than those existing. The instructions also included the following: “Except where otherwise specially directed by me you shall employ in the negotiation of any Loan or Loans which may be made in any foreign country “—a blank later filled by the name of William Short (Tr in DLC: Washington Papers; Short’s copy has his name in the text, DLC: Short Papers; texts of Washington’s letter of authorization and his letter of instructions are in Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vi, 578–80). Some months earlier when Necker, angered by the Amsterdam bankers’ move, had pointedly solicited the application of the whole 3,000,000 florins to the debt of the United States to France, Short himself had written Hamilton: “I suppose it useless to repeat here the advantage which might be derived from Congress having some representative in Europe authorized to control their finances at Amsterdam” (Short to Hamilton, 4 Apr. 1790, Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vi, 350; see also, Short to TJ, 7 July 1790). About the same time Gouverneur Morris, acting on TJ’s suggestion, appraised the standing of the American banking agents in Holland, concluded that it would not be prudent or right to place fiscal affairs in other hands, and added: “but I am fully convinced of the Propriety of your Idea that the person who may be sent to manage our Affairs there should have full Power to dismiss them if needful” (Morris to TJ, 10 Apr. 1790). TJ took care immediately to place these observations before the President (TJ to Washington, 15 June 1790). Knowing and respecting Morris’ ability as a financier, he may have done so in the hope that Morris would be given such a responsibility—a strategy that would have had the double advantage of placing that charge in capable hands and possibly of lessening the claim Morris had to be named minister to Paris in consequence of his agency in England (see documents on the war crisis, Editorial Note).
By this time Washington, Hamilton, and TJ were all aware of the state of Morris’ negotiations in London and the Secretary of the Treasury was far less confident of Morris as an agent than he had been when he recommended him the previous year. Some difficulty over the choice of a fiscal agent must have caused a delay, for the instructions were submitted on the 26th but the blank was not filled with Short’s name until the 31st, the day after Washington left New York. On that day Hamilton informed the Secretary of State that the President had expressed to him “a preference of Mr. Shorts being employed, if he could be spared the requisite time from France, without injury to the affairs depending there.” He stated to TJ that it would be necessary for Short to proceed at once to Amsterdam and remain there perhaps three months, with occasional journeys thereafter. TJ was of opinion that “Mr. Short might be spared from France without injury to the public service,” a judgment which Hamilton accepted as conclusive and, as he reported to Washington, “it only remained for me to fulfil your intention and I accordingly requested him to make proper communication on his part to Mr. Short, and have since transmitted instructions to that Gentleman in conformity to the general tenor of those which I received from you” (Hamilton to Washington, 3 Sep. 1790, Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vii, 22–3). Washington approved both the appointment and the instructions (Washington to Hamilton, 18 Sep. 1790, same, vii, 59). Both letters are ambiguous in phraseology and leave room for doubt as to whether Hamilton or Washington proposed Short, though Hamilton’s use of the word “preference” suggests that Short’s name was not the only one considered. Short was dismayed at the “sudden and unexpected change which took place between the 25th. and 31st. of August” and it may be presumed that TJ, though doing what he could to advance Short’s wishes, was quite convinced that it was to his best interest to return to America (Short to TJ, 25 Oct. 1790; TJ to Short, 24 Jan. 1791).
It is very clear, however, that the limitation on amounts of the new loans that TJ suggested and the extensive powers of the fiscal agent that he recommended were adopted. The authorization given by Hamilton to the Amsterdam bankers concerning the loan already opened recited the purpose of the two Acts giving the President power to borrow $14,000,000 in the United States or abroad, declared that the execution of this power had been committed to the Secretary of the Treasury, and concluded: “after due consideration I have concluded to accept and ratify it.” This limited the loan to 3,000,000 florins and the covering letter announced the determination to apply half of the sum to the debt to France on instructions from Short. The letter to Short explained these arrangements and directed him to consult “the Secretary of State for instructions with regard to the timing of the intended payment” (Hamilton to the bankers, 28 Aug. 1790, with enclosed powers; Hamilton to Short, 29 Aug. 1790, Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vi, 580–6; TJ to Short, 31 Aug. 1790). The choice of Short to negotiate the new loans had not at this time been settled. Three days later, after Washington had named Short as his preference, Hamilton gave the latter full instructions, stating as a primary and principal object of his attention the acquisition of exact knowledge of the state of the money market in Holland, of “the principal houses and brokers concerned in the negotiations of foreign loans; their characters, comparative solidity and influence with the money lenders; the terms upon which their agency is afforded to their employers,” and so on, this information to be partly for the use of the Treasury and partly to enable Short to determine whether to continue the former fiscal agents or, if continued, to induce them to meliorate their terms. Hamilton admonished Short to use circumspection, for the agents had risked themselves and their fortunes on American affairs “when the doing it was not without serious hazard.” As far as known, he declared, “they deserve well of us. My object is, in entering upon a new stage of our affairs, to have the ground over which we have passed well examined, that we may better judge whether to continue or alter our course.” The commission authorized Short to borrow a sum not exceeding $14,000,000 “on behalf of the United States in any part of Europe.” The covering letter stipulated that no loan should be opened for more than a million dollars and that no new loan should be undertaken until the previous one had been reported to the President and had received his sanction (Hamilton to Short, 1 Sep. 1790, enclosing commission, Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vii, 6–15). These limitations were in accord with a separate instruction from Washington to Hamilton on 26 Aug. 1790, written after he had received TJ’s above opinion recommending them. Thus, as is evident from this chronology, Hamilton transmitted his draft of powers and instructions for himself from the President, Washington submitted this draft to the Secretary of State, TJ drew up the above opinion, and Washington gave his sanction to Hamilton’s draft, subject to the additional stipulations suggested by TJ—all on the same day, 26 Aug. 1790, a fact which incidentally adds significance to the unusual delay in giving the commission to Short. The separate instruction was transmitted by Tobias Lear to Hamilton and was made necessary, he explained, “for reasons which he [the President] will assign to you” (Lear to Hamilton, 26 Aug. 1790, same, vi, 566; it is this letter which proves that Hamilton had prepared and submitted to Washington the draft of his own powers and instructions).
But it is extremely doubtful that Washington ever informed Hamilton of the fact that TJ was in effect author of the additional instruction, whatever reasons he may have assigned for making it. This assumption is based upon Washington’s administrative method and upon events of 1793 involving this opinion. In his Report on Foreign Loans of 13 Feb. 1793, Hamilton attached a copy of Washington’s powers and instructions of 28 Aug. 1790 (Syrett, Hamilton description begins The Papers of Alexander Hamilton, ed. Harold C. Syrett and others, New York, 1961—, 7 vols. description ends , vi, 578, 580, notes). Soon afterward he asked for TJ’s opinion as to the object to which the loan of 3,000,000 florins had been intended. TJ told Madison that Hamilton had asked for a statement “perhaps to shew it to some friends whom he wished to satisfy as to the original destination of the 3. mill. of florins, and that he meant to revive this subject” (TJ to Madison, 31 Mch. 1793). The reply to Hamilton that he drafted is the famous letter of 27 Mch. 1793 which exists in two states but has only been published in one, with no indication of the important differences in the texts. This has helped confuse attempts to prove TJ’s hypocrisy and use of deception (Schachner, Hamilton, p. 314) and also attempts at defense (Malone, Jefferson, iii, 527–8), both of which have missed the central point through failure to note the significant variations between the two drafts of TJ’s letter to Hamilton.
In the first draft (rather, a fair copy) of the letter of 27 Mch. 1793, TJ said that he could answer Hamilton’s request with more certainty because he happened “to possess a paper” whereon he had “committed to writing some thoughts on the subject at the time, that is to say, on the 26th. of Aug. 1790” (PrC in DLC, with this phrase at head of text in TJ’s hand: “not sent”). TJ then took the intended recipient’s copy of this text, made extensive alterations in it, and sent it to Madison as the “rough draught” of a letter that he supposed would not answer Hamilton’s purpose (MS in DLC: Madison Papers; PrC from the [missing] RC or fair transcript in DLC; this is the text that is printed in previous editions: L & B description begins Andrew A. Lipscomb and Albert E. Bergh, eds., The Writings of Thomas Jefferson, Washington, 1903–1904, 20 vols. description ends , ix, 57–9; Ford, description begins Paul Leicester Ford, ed., The Writings of Thomas Jefferson, Letterpress Edition, N.Y., 1892–1899, 10 vols. description ends vi, 208–9). In this revised text which he dispatched to Hamilton, TJ made a number of alterations and two of these are significant: (1) the “paper” of 26 Aug. 1790 that enabled him to reply with a degree of certainty became “an official paper” and (2) a paragraph was added at the close not in the previous text: “I have thus, Sir, stated to you the view I had of this subject in 1790. and I have done it because you desired it. I did not take it up then as a Volunteer, nor should now have taken the trouble of recurring to it, but at your request, as it is one in which I am not particularly concerned, which I never had either the time or inclination to investigate, and on which my opinion is of no importance.” The depreciatory comment at the end obscures the emphatic meaning of the change in the text. The official paper of 26 Aug. 1790 written not as “a Volunteer” could mean only one thing: TJ was informing Hamilton of a fact he surmised the President had never informed him, otherwise he would have known what TJ’s opinion in 1790 had been. He was telling him, in brief, that the President had asked for his opinion of Hamilton’s draft of instructions and that he gave this to him, as the letter itself stated, two days before Washington issued the powers and instructions to the Secretary of the Treasury on 28 Aug. 1790. As that letter also shows, what TJ had before him as he drafted it so carefully was not a “memorandum” made at the time (Malone, Jefferson, iii, 527). It was, in fact, the above official opinion, the order and the phraseology of which TJ copied with precision in the letter that Hamilton could not use for his purpose.
For the significant fact, which TJ made quite clear in the 1793 letter, lies in TJ’s inference drawn from Washington’s final instructions of 1790 to Hamilton, dated but not written two days after the President had received both Hamilton’s draft and the above opinion: “I observed that he had therein neither confirmed your sentiment of employing a part of the money here, nor mine of doing it there, in purchases of the public debt; but had directed the application of the whole to the foreign debt: and I inferred that he had done this of design, and on full and just deliberation, well knowing he would have time enough to weigh the merits of the two opinions, before the million of dollars would be exhausted here, or the loans for the foreign debt over-run their legal measure there. But in this inference I might be mistaken. I cannot be however in the fact that these instructions give a sanction to neither opinion” (TJ to Hamilton, 27 Mch. 1793, PrC of final text). What TJ was really telling Hamilton was that documentary proof supporting his own and the President’s view existed in the form of the above official opinion. Further, as he knew to be the case from having had before him Hamilton’s own draft of his powers and instructions when that official opinion was drawn up, he was informing him that he was aware Hamilton could not produce equally valid evidence to substantiate his position. He seemed indeed to be offering the Secretary of the Treasury a challenge to ask the President for such a statement as Hamilton had asked of him, knowing full well that this could no more be done than that Hamilton could find satisfaction in his own response.
On TJ’s views concerning the desirability of transferring the American debt from France to Amsterdam, see Vol. 14: 190–209 and the sources cited in Editorial Note; see also W. & J. Willink, N. & J. Van Staphorst, & N. Hubbard to TJ, 24 Sep. 1789.
1. This word interlined in substitution for “advantageous,” deleted.