Observations on the French Debt
[ca. 17 Oct. 1792]
An exact copy from the original letter.
‘Paris. Sep. 26. 1786.’
‘It being known that M. de Calonne the Minister of finance for this country is at his wit’s end how to raise supplies for the ensuing year, a proposition has been made by a Dutch company to purchase the debt of the U.S. to this country for 20. millions of livres in hand. His necessities dispose him to accede to the proposition, but a hesitation is produced by the apprehension that it might lessen our credit in Europe, and perhaps be disagreeable to Congress. I have been consulted hereon by the Agent for that company. I informed him that I could not judge what effect it might have on our credit, and was not authorised either to approve or disapprove of the transaction. I have since reflected on this subject. If there be a danger that our payments may not be punctual it might be better that the discontents which would thence arise should be transferred from a court of whose good will we have so much need to the breasts of a private company. But it has occurred to me that we might find occasion to do what would be grateful to this court and establish with them a confidence in our honour. I am informed that our credit in Holland is sound. Might it not be possible then to borrow there the four and twenty millions due to this country, and thus pay them their whole debt at once. This would save them from any loss on our account; nor is it liable to the objection of impropriety in creating new debts before we have more certain means of paying them: it is only transferring a debt from one creditor to another, and removing the causes of discontent to persons with whom they would do us less injury. Thinking that this matter is worthy the attention of Congress, I will endeavor that the negociation shall be retarded till it may be possible for me to know their decision, which therefore I will take the liberty of praying immediately.’ To Mr. Jay.
Th:J. mentions only to Congress the proposition of a Dutch company to buy at a discount their debt, (which was already in arrears in part, and would be becoming due by large portions soon) and that it might perhaps be better, if the payments should not be punctual, to have a weak enemy rather than a strong one; and he believes that no man’s morality or politics would oppose this making that choice between two adversaries. But instead of supporting this proposition, he passes it by and makes another, to go to Holland and borrow at once our whole debt and pay it, without discount, to our friends, who had saved us by their loans: which would retain the same advantage of giving us a weak instead of a strong enemy in the event of a want of punctuality: and would evidently give us other advantages, which it was not necessary for him to develope, because known to Congress: to wit, in making the new loan in Holland the lenders themselves would always insist that no part of it should be repaid under 10. or 15. years, and then by instalments. This would give time for us to get our government into a way of collecting money. There was also a possibility of a lower interest. But this writer suppresses the real proposition which Th:J. made, interpolates into that of the Dutch company the words ‘I submit whether’ so as to make Th:J. propose the very thing he rejects.1 His proposition necessarily involved the obtaining longer time for payment; the one he is made to submit to Congress was to leave our friends under the loss of four millions of livres; and ourselves under the pressure of immediate payments, or dishonour. His whole correspondence would shew that he was constantly urging Congress, by new loans, to obtain further time, till the government could become able to levy money. This single letter has been selected, detached from the general correspondence, it’s real proposition suppressed, and the one to which it gives the go-by, is interpolated so as to make him propose an acceptance of the Dutch company’s offer.
MS (DLC: Washington Papers); undated; entirely in TJ’s hand. PrC (DLC: James Monroe Papers); consists only of “Observation.” FC (DLC); in TJ’s hand; at foot of text: “copy of a paper inclosed to the President. Oct. 1792”; consists only of extracts from “Catullus” and TJ to John Jay, 26 Sep. 1786. Recorded in SJPL between entries of 15 and 18 Oct. 1792: “Hamilton under the name of Catullus interpolates a lre of mine.”
TJ’s letter to John Jay, then president of the Confederation Congress, on the proposed transfer of the French debt to a private Dutch company was a reflection of growing fiscal problems on both sides of the Atlantic. By 1786 Congress was unable to make further payments on the debt to France, and the French government was in the throes of a severe financial crisis that ultimately led to the collapse of the ancien régime. Despite these factors militating in favor of a reassignment of the debt, Congress preferred to sacrifice its credit in France in order to maintain its ability to borrow in the Netherlands, a more likely source of future loans. Consequently, it reacted negatively to TJ’s letter by approving a report of the Board of Treasury which criticized both the direct transfer of the debt to Dutch investors and the negotiation of a new loan in Holland to pay off the whole debt at once. The Board maintained that transferring the debt to private Dutch investors would be “unjust” because of Congress’s inability to make payments on it and “impolitic” because default would destroy America’s high credit rating in the Netherlands. It also warned that a transfer of the debt under these conditions would be regarded as a stain on American national honor by France. The Board’s report, which included a brief extract from TJ’s letter to Jay, was submitted to Congress in February 1787 but not acted on until the following October. See JCC description begins Worthington C. Ford and others, eds., Journals of the Continental Congress, 1774–1789, Washington, D.C., 1904–37, 34 vols. description ends , xxxii, 65, xxxiii, 589–93; Ferguson, Power of the Purse, description begins E. James Ferguson, The Power of the Purse: A History of American Public Finance, 1776–1790, Chapel Hill, 1961 description ends 234–8; and Pieter J. van Winter, American Finance and Dutch Investment, 1780–1805: With an Epilogue to 1840, rev. and trans. with the assistance of James C. Riley, 2 vols. (New York, 1977), i, 248–50.
1. At this point TJ deleted what appears to be “And, as it should seem, with no other views.”