James Madison Papers

Discrimination between Present and Original Holders of the Public Debt, [18 February] 1790

Discrimination between Present and
Original Holders of the Public Debt

[18 February 1790]

On 15 February the Committee of the Whole resumed consideration of JM’s amendment. JM listened silently for the next three days as numerous speakers attacked his proposal.

Mr. Madison next rose and observed that the opponents of his proposition had imposed on its friends not only a heavy task, by the number of their objections, but a delicate one by the nature of some of them. It had been arraigned as embarrassing measures which ought to be facilitated, and producing discussions which might end in disagreeable consequences. However painful it might be to contradict the wishes of gentlemen whom he respected, he could promise nothing more, in the present case, than his endeavours to disappoint their apprehensions. When his judgment could not yield to the propositions of others, the right to make and support his own was a right which he could never suffer to be contested. In exercising it, he had studied to maintain that moderation and liberality which were due to the greatness of the subject before the committee. He felt pleasure in acknowledging, that the like spirit had in general directed the arguments on the other side. Free discussions, thus conducted, were not only favourable to a right decision, but to a cheerful acquiescence of the mistaken opponents of it. They might have the further advantage of recommending the result to the public, by fully explaining the grounds of it. If the pretensions of a numerous and meritorious class of citizens be not well founded, or cannot be complied with, let them see that this is the case; and be soothed, under their disappointment, with the proof that they have not been overlooked by the country.

He proceeded to review the grounds on which the proposition had been combated; which, he said, he should do without either following those who had wandered from the field of fair argument, or avoiding those who had kept within its limits.

It could not have escaped the committee, that the gentlemen to whom he was opposed had reasoned on this momentous question as on an ordinary case in a court of law; that they had equally strained all the maxims that could favor the purchasing, or be adverse to the original holder; and that they had dwelt with equal pleasure on every circumstance which could brighten the pretensions of the former, or discredit those of the latter. He had not himself attempted, nor did he mean to undervalue the pretensions of the actual holders: in stating them he had even used as strong terms as they themselves could have dictated; but beyond a certain point he could not go. He must renounce every sentiment which he had hitherto cherished, before his complaisance could admit that America ought to erect the monuments of her gratitude, not to those who saved her liberties, but to those who had enriched themselves in her funds.

All that he wished was, that the claims of the original holders, not less than those of the actual holders, should be fairly examined and justly decided. They had been invalidated by nothing yet urged. A debt was fairly contracted: according to justice and good faith, it ought to have been paid in gold or silver: a piece of paper only was substituted. Was this paper equal in value to gold or silver? No: it was worth in the market, which the argument for the purchasing holders makes the criterion, no more than one-eighth or one-seventh of that value. Was this depreciated paper freely accepted? No: the government offered that or nothing. The relation of the individual to the government, and circumstances of the offer, rendered the acceptance a forced, not a free one. The same degree of constraint would viciate a transaction between man and man, before any court of equity on the face of the earth. There are even cases where consent cannot be pretended; where the property of the planter or farmer has been taken at the point of the bayonet, and a certificate presented in the same manner. But why did the creditors part with their acknowledgment of the debt? In some instances from necessity; in others, from a well-founded distrust of the public. Whether from the one or the other, they had been injured: they had suffered loss through the default of the debtor, and the debtor cannot, in justice or honor, take advantage of the default.

Here then was a debt acknowledged to have been once due, and which was never discharged, because the payment was forced and defective. The balance consequently is still due, and is of as sacred a nature as the claims of the purchasing holder can be; and if both are not to be paid in the whole, is equally entitled to payment in part.

He begged gentlemen would not yield too readily to the artificial niceties of forensic reasoning; that they would consider not the form, but the substance—not the letter, but the equity—not the bark, but the pith of the business. It was a great and an extraordinary case. It ought to be decided on the great and fundamental principles of justice. He had been animadverted upon, for appealing to the heart as well as the head: he would be bold, nevertheless, to repeat, that, in great and unusual questions of morality, the heart is the best casuist.

It had been said, by a member from Massachusetts, that the proposition was founded on a new principle in Congress. If the present Congress be meant, that is not strange, for Congress itself is new: if the former Congress be meant, it is not true, for the principle is found in an act which had been already cited. After the pay of the army had, during the war, been nominally and legally discharged in depreciated paper, the loss was made up to the sufferers.1

It had been said, by a member from New-York, that the case was not parallel, there being no third party like the present holder of certificates. This objection could not be valid. The government paid ten dollars, worth in fact but one, to a soldier: the soldier was then the original holder. The soldier assigned it to a citizen; the citizen then became the actual holder. What was the event? The loss of the original holder was repaired, after the actual holder had been settled with according to the highest market value of his paper.

He did not mean, however, to decide on the whole merits of this last transaction; or to contend for a similitude, in all respects, between the two kinds of paper. One material difference was, that the bills of credit, by more frequent transfers, and by dividing the change of value among a greater number of hands, rendered the effect of less consequence to individuals, and less sensible to the public mind. But this difference, whatever force it might give to the claims of the purchasing holder of certificates, could diminish nothing from the claims of the original holders who had assigned them.

It had been said by another member, from Massachusetts, that the old government did every thing in its power. It made requisitions, used exhortations, and in every respect discharged its duty; but it was to be remembered, that the debt was not due from the government, but the United States. An attorney with full powers to form, without the means to fulfil engagements, could never by his ineffectual, though honest efforts, exonerate his principal.

He had been repeatedly reminded of the address of Congress in 1783, which rejected a discrimination between original and purchasing holders.2 At that period, the certificates to the army, and citizens at large, had not been issued. The transfers were confined to loan-office certificates, were not numerous, and had been in great part made with little loss to the original creditor. At present the transfers extend to a vast proportion of the whole debt, and the loss to the original holders has been immense. The injustice which has taken place has been enormous and flagrant, and makes redress a great national object. This change of circumstances destroys the argument from the act of Congress referred to; but if implicit regard is to be paid to the doctrines of that act, any modification of the interest of the debt will be as inadmissible as a modification of the principal.

It had been said, that if the losses of the original creditors are entitled to reparation, Congress ought to repair those suffered from paper money, from the ravages of the war, and from the act barring claims not produced within a limited time.3 As to the paper money, either the case is applicable or it is not: if not applicable, the argument falls; if applicable, either the depreciated certificates ought to be liquidated by a like scale, as was applied to the depreciated money, or the money, even if the whole mass of it was still in circulation, ought now to be literally redeemed like the certificates. Leaving the gentleman to make his own choice out of these dilemmas, he would only add, himself, that if there were no other difference between the cases, the manifest impossibility of redressing the one, and the practicability of redressing the other, was a sufficient answer to the objection. With respect to the towns burnt, and other devastations of war, it was taught by the writers on the law of nations, that they were to be numbered among the inevitable calamities of mankind. Still, however, a government owed them every alleviation which it could conveniently afford; but no authority could be found that puts on the same footing with those calamities, such as proceed from a failure to fulfil the direct and express obligations of the public. The just claims barred by the act of limitation were, in his opinion, clearly entitled to redress. That act was highly objectionable. The public which was interested in shortening the term, undertook to decide that no claim, however just, should be admitted, if not presented within nine months. The act made none of the exceptions usual in such acts, nor even in favor of the most distant parts of the union. In many instances it had been absolutely impossible for the persons injured to know of the regulation. Some of these instances were within his own knowledge. To limit the duration of a law to a period within which it could not possibly be promulged, and then taking advantage of the impossibility, would be imitating the Roman tyrant, who posted up his edicts so high that they could not be read, and then punished the people for not obeying them.4

It had been said, that if the purchased certificates were funded at the rate proposed, they would fall in the market, and the holders be injured. It was pretty certain that the greater part, at least, would be gainers. He believed that the highest market rate, especially with the arrears of interest incorporated, well funded at 6 per cent. would prevent every loss that could justify complaint.

But foreigners had become purchasers, and ought to be particularly respected. Foreigners, he remarked, had themselves made a difference between the value of the foreign and domestic debt; they would therefore the less complain of a difference made by the government here. It was his opinion that the terms stated in the proposition, would yield a greater profit to the foreign purchasers than they could have got for their money advanced by them in any of the funds of Europe.

The proposition had been charged with robbing one set of men to pay another. If there were robbery in the case, it had been committed on the original creditors. But, to speak more accurately, as well as more moderately, the proposition would do no more than withhold a part from each of two creditors, where both were not to be paid the whole.

A member from New-York had asked whether an original creditor, who had assigned his certificate, could in conscience accept a reimbursement in the manner proposed? He would not deny that assignments might have been made with such explanations, or under such circumstances, as would have that effect. But in general the assignments had been made with reference merely to the market value, and the uncertainty of the steps that might be taken by the government. The bulk of the creditors had assigned under circumstances from which no scruple could arise. In all cases where a scruple existed, the benefit of the provision might be renounced. He would in turn ask the gentleman, whether there was not more room to apprehend that the present holder, who had got his certificate of a distressed and meritorious fellow-citizen, for one-eighth or one-tenth of its ultimate value, might not feel some remorse in retaining so unconscionable an advantage?

Similar propositions, it was said, had been made and rejected in the state legislatures. This was not fact. The propositions made in the state legislatures were not intended to do justice to the injured, but to seize a profit to the public.

But no petitions for redress had come from the sufferers. Was merit then to be the less regarded, because it was modest? Perhaps, however, another explanation ought to be given. Many of the sufferers were poor and uninformed. Those of another description were so dispersed, that their interests and efforts could not be brought together. The case of the purchasing holders was very different.

The constitutionality of the proposition had been drawn into question. He asked whether words could be devised that would place the new government more precisely in the same relation to the real creditors with the old? The power was the same; the obligation5 was the same: the means only were varied.

An objection had been drawn from the article prohibiting ex post facto laws. But ex post facto laws relate to criminal, not civil cases. The constitution itself requires this definition, by adding to a like restriction on the states, an express one against retrospective laws of a civil nature.

It had been said that foreigners had been led to purchase, by their faith in the article of the constitution relating to the public debts. He would answer this objection by a single fact: foreigners had shewn by the market price in Europe, that they trusted the nature of the foreign debt more under the old government, than the nature of the domestic debt under the new government.

Objections to the measure had been drawn from its supposed tendency to impede public credit. He thought it, on the contrary, perfectly consistent with the establishment of public credit. It was in vain to say that government ought never to revise measures once decided. Great caution on this head ought, no doubt, to be observed: but there were situations in which, without some legislative interposition, the first principles of justice, and the very ends of civil society, would be frustrated. The gentlemen themselves had been compelled to make exceptions to the general doctrine: They would probably make more before the business was at an end.

It had been urged that if government should interpose in the present case, as interposition would be authorised in any case whatever, where the stock might fluctuate; the principle would apply as well to a fall of 60 or 70 per cent. as to a fall of 600 or 700 per cent. He could not admit this inference. A distinction was essential between an extreme case and a case short of it. The line was difficult to be drawn; but it was no more incumbent on him, than on his opponents, to draw it. They themselves could not deny that a certain extremity of the evil would have justified the interposition. Suppose that the distress of the alienating creditors had been ten times as great as it was; that instead of 2, 3 or 4s. in the pound, they had received a farthing only in the pound; and that the certificates lay now in the hands of the purchasers in that state, or even at a less value: was there a member who would rise up and say, that the purchasers ought to be paid the entire nominal sum, and the original sufferer be entitled to no indemnification whatever?

Gentlemen had triumphed in the want of a precedent to the measure. No government, it was said, had interposed to redress fluctuations in its public paper. But where was the government that had funded its debts under the circumstances of the American debt? If no government had done so, there could be no precedent either for or against the measure, because the occasion itself was unprecedented. And if no similar occasion had before existed in any country, the precedent to be set would at least be harmless, because no similar occasion would be likely to happen in this.

If gentlemen persisted, however, in demanding precedents, he was happy in being able to gratify them with two, which, though not exactly parallel, were on that account of the greater force, since the interpositions of government had taken place where the emergency could less require them.

The first was the case of the Canada bills. During the war, which ended in 1763, and which was attended with a revolution in the government in Canada, the supplies obtained for the French army in that province were paid for in bills of exchange and certificates. This paper depreciated, and was bought up chiefly by British merchants. The sum and the depreciation were so considerable, as to become a subject of negociation between France and Great Britain at the peace. The negociations produced a particular article, by which it was agreed by France that the paper ought to be redeemed, and admitted by Great-Britain that it should be redeemed at a liquidated value. In the year 1766 this article was accordingly carried into effect by ministers from the two courts, who reduced the paper in the hands of the British holders, in some instances, as much as 75 per cent. below its nominal value. It was stated, indeed, by the reporter of the case, that the holders of the paper had themselves concurred in the liquidation; but it was not probable that the concurrence was voluntary. If it was voluntary, it shews that they themselves were sensible of the equity of the sacrifice.6

The other case was of still greater weight, as it had no relation to war or to treaty, and took place in the nation which has been held up as a model with respect to public credit. In the year 1713, the civil list of Great-Britain had fallen into arrears to the amount of [£]500,000. The creditors who had furnished supplies to the government had, instead of money, received debentures only from the respective offices. These had depreciated. In that state, they were assigned in some instances; in others, covenanted to be assigned. When the parliament appropriated funds for satisfying these arrears, they inserted an express provision in the act, that the creditors who had been obliged by the default of government to dispose of their paper at a loss, might redeem it from the assignees, by repaying the actual price with an interest of six per cent. and that all agreements and covenants to assign should be absolutely void.7 Here then was an interposition on the very principle, that a government ought to redress the wrongs sustained by its default, and on an occasion trivial when compared with that under consideration; yet it does not appear that the public credit of the nation was injured by it.

The best source of confidence in a government was the apparent honesty of its views. The proposition on the table could not possibly be ascribed to any other motive than this, because the public was not to gain a farthing by it. The next source was an experienced punctuality in the payments due from the government. For this support to public credit, he relied on what had been experienced by a part of the foreign creditors; on the provision to be made for the residue; and on the punctuality which he flattered himself would be observed in all future payments of the domestic creditors. He was more apprehensive of injury to public credit from such modifications of the interest of the public debt, as some gentlemen seemed to have in view. In these the public would be the gainer, and the plea of inability the more alarming; because it was so easy to be set up, so difficult to be disproved, and consequently for which the temptations would be so alluring.

The impracticability of the measure was the remaining ground on which it had been attacked. He did not deny that it would be attended with difficulties, and that perfect justice would not be done: but these were not the questions. It was sufficient that a grievous injustice would be lessened, and that the difficulties might be surmounted. What he had in view was that, for the conveniency of claimants, some authority should be provided and properly distributed thro’ the union, in order to investigate and ascertain the claims; and that for the security of the public the burden of proof should be thrown on the claimants. A scrutiny on this plan, aided by original settlements in the books of the army department, and the state commissioners, and other office-documents, would be a remedy at once for all the difficulties started with regard to fictitious names, certificates issued as money by commissaries and quarter-masters, due-bills, &c.

For some particular cases special provisions might be requisite. The case of loan-office certificates, alienated at early periods, before they were much depreciated, fell under this description. Legacies might be another. He should have no objection to some special regulation, as to the payments of debts in certificates to persons within the British lines, said to have been authorised by the laws of New-York; though he presumed few such payments had been made, and that of these few the greater part had by this time passed from the creditors into other hands. There might be a few other cases equally entitled to some particular attention in the details of the provision. As to the merchants who had compounded for their debts in certificates, or persons who had exchanged bonds for them, it could not be doubted that the transactions had reference to the market value of the paper, and therefore had nothing peculiar in them.

The expence incident to such a plan of investigation ought to form no difficulty. It bears no proportion to the expence already incurred by commissioners, &c. for effecting a less proportion of justice. Rather than justice should not be done, the expence might be taken out of the portion to the original sufferers.

The danger of frauds and perjuries had been worked up into a formidable objection. If these had always been equally alarming, no provision could have ever been made for the settlement or discharge of public debts. He reminded the committee of the frauds and perjuries for which a door had been opened by the final settlements, &c. of the frauds and perjuries inseparable from the collection of imposts and excises: yet these were all submitted to as necessary evils, because justice could not be done without them. The frauds and perjuries incident to this supplementary provision for justice, must be very inconsiderable in number; and still more so, when compared either with the object to be attained, or with the like evils already encountered in pursuit of a like object.

Great ingenuity and information had been exerted, by gentlemen on the other side, in raising difficulties: he was sure that, after an adoption of the proposition, the same exertion would be used in removing them, and with such aid the idea of impracticability would vanish.

N.Y. Daily Gazette, 23 and 24 Feb. 1790 (reprinted in Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , III, 412–21, and Gazette of the U.S., 3 Mar. 1790).

1JM referred to the resolve of Congress of 10 Apr. 1780 relating to the depreciation of pay (JCC description begins Worthington C. Ford et al., eds., Journals of the Continental Congress, 1774–1789 (34 vols.; Washington, 1904–37). description ends , XVI, 344–45).

2This address, drafted by JM, declared that to discriminate between original and present holders “would be a task equally unnecessary & invidious. If the voice of humanity plead more loudly in favor of some than of others; the voice of policy, no less than of justice pleads in favor of all” (PJM description begins William T. Hutchinson et al., eds., The Papers of James Madison (vols. 1–10, Chicago, 1962–77; vols. 11—, Charlottesville, Va., 1977—). description ends , VI, 493).

3See the resolutions of 2 Nov. 1785 and 23 July 1787 (JCC description begins Worthington C. Ford et al., eds., Journals of the Continental Congress, 1774–1789 (34 vols.; Washington, 1904–37). description ends , XXIX, 866; XXXIII, 392).

4Probably Emperor Gaius Caligula, of whom Suetonius wrote: “When taxes of this kind had been proclaimed, but not published in writing, inasmuch as many offences were committed through ignorance of the letter of the law, he at last, on the urgent demand of the people, had the law posted up, but in a very narrow place and in excessively small letters, to prevent the making of a copy” (Suetonius, Loeb Classical Library [1913–14; 2 vols.; Cambridge, Mass., 1970 reprint], I, 469).

5This word taken from the text of Annals of Congress description begins Debates and Proceedings in the Congress of the United States, 1789–1824 (42 vols.; Washington, 1834–56). description ends (N.Y. Daily Gazette and Gazette of the U.S. have “objection”; Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends has “object”).

6A declaration concerning the so-called Canada bills was appended to the Treaty of Paris of 1763. A “Convention for the Liquidation of the Canada Paper Money” was signed on 29 Mar. 1766 by Henry Seymour Conway and Count de Guerchy. JM may have obtained his information from John Almon, comp., A Collection of All the Treaties … between Great-Britain and Other Powers, from … 1688, to the Present Time (2 vols.; London, 1772), II, 291–92, 296–308.

7For the 1713 act, see 12 Ann., chap. II (Statutes at Large [1769 ed.], IV, 604–9). JM referred to the thirty-fourth section of that act.

[18 February 1790]

Benson posed this question to JM: “Suppose I had purchased a certificate of 100 dollars of him, which, when I go to fund, I find but the half allowed me, the other 50 dollars are retained in the treasury for him: Now, I ask, whether, if I was to state to him the fact, he would take advantage of the law against me, and refuse to give me authority to take it up in his name?” (Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , III, 422).

Mr. Madison. I thought I had answered this question, in some degree, when I was up before: I said it should depend on the circumstances of the transaction between the two individuals. If by the contract it was agreed, or the idea particularly understood, was, that the assignee should be entitled to all advantages whatsoever, which the discretion of the government should afterwards grant, then I believe the individual transferring, would be restrained by a necessary scruple; but if the certificate had passed from hand to hand, both parties knowing the uncertainty, as to what steps the government would pursue, I do not see that the most tender conscience need be restrained from taking the benefit of what the government should afterwards determine. But it was to be remembered, that a greater part of the transfers had been made, under circumstances that left us room to suppose, that original creditors were restrained from accepting an equitable compensation of their cases.

How would the observation apply to the case of the old depreciated money paid to the army? Suppose a soldier had paid away the money received by him, or assigned his arrears of pay, would the assignee be in equity entitled to the benefit of the act, for making up the depreciation? Or was it ever understood that the soldier was bound in conscience to renounce the benefit in favor of the assignee?

I would beg leave now, in turn, to ask the gentleman a question: Suppose he had been one of those who resorted to our army at the time it was disbanded, and had found a soldier, one of that band, who had established the liberties of his country, and had heard the declaration of his beloved commander, “That his country would finally do him ample justice,”1 turned loose, not with the payment in gold or silver solemnly stipulated, but with a piece of paper, such as was subsisted? And suppose that the gentleman had obtained, from the necessities of the soldier, the evidence of his claim, at a tenth of its value; and had either received from the interposition of his state, the payment of 60 per cent. on his advance, or was now to have that interest with the principal, or even half the principal funded. I ask whether the delicacy of the gentleman would not be shocked at the reflection that this exhorbitant accumulation of gain was made at the expence of the most meritorious part of the community, and whether his conscience could refuse a participation of it to the sufferer?2

Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , III, 422–23 (also reported in N.Y. Daily Gazette, 24 Feb. 1790).

1The quotation paraphrases a passage from Washington’s Circular to the States, June 1783 (Fitzpatrick, Writings of Washington description begins John C. Fitzpatrick, ed., The Writings of George Washington, from the Original Sources, 1745–1799 (39 vols.; Washington, 1931–44). description ends , XXVI, 491).

2Laurance disputed JM’s precedents for a discrimination, as did Ames, who said that “placing the proposition on the ground of precedent appears to be an abandonment of the principle of right.” JM reminded his opponents that they had repeatedly called for precedents, “especially from Great-Britain, which nation was held up to us as a model” (Cong. Register description begins Thomas Lloyd, comp., The Congressional Register; or, History of the Proceedings and Debates of the First House of Representatives … (4 vols.; New York, 1789–90; Evans 22203–4, 22973–4). description ends , III, 449).

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