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1790.]

FEDERAL TAXES.

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Fourth and lastly. The creditors were further to have an option of vesting their money in annuities on different plans.

It was also recommended to open a loan for ten millions of dollars, at five per cent. interest, payable one-half in specie, and the other half in the public debt, irredeemable by any payment exceeding six dollars per annum, principal and interest.

A Tontine lottery was also proposed.

While all assented to the proposal to make adequate provision for the foreign debt, as has been mentioned, the plan of funding the domestic debt gave rise to much opposition and debate.

The western lands thus offered to the public creditors were estimated at the price of twenty cents per acre. Their ordinary price had been one dollar an acre, payable in the public securities, when they sold at a very reduced price.

To provide an adequate revenue, the Secretary recommended specific duties on wines, distilled spirits, tea, and coffee, and an excise on all spirits distilled within the United States. He also proposed that the revenue from the post-office, then estimated at one hundred thousand dollars a year, should be set apart as a sinking fund, to an amount not exceeding one million of dollars a year, as he wished to see it incorporated as a maxim in the system of public credit of the United States, that the creation of a debt should always be accompanied with the means of its extinguishment.

The public securities, as the evidences of debt were called, had always been the subjects of speculation and traffic; but this had greatly increased from the time there had been a prospect of a government clothed with the powers of raising revenue; and a very large propor

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FUNDING THE PUBLIC DEBT.

[CHAP. V. tion of the public debt, both that due from the General government, and that due from the several States, had probably passed into the hands of speculators and moneyed men before the meeting of the first Congress under the new Constitution. The report of the Secretary of the Treasury had been looked for with great solicitude by this class of men, and finding it favorable in all respects to the present holders of the public debt, they were loud and vehement in their encomiums on his ability as a financier, as well as on his sound and elevated principles of national faith. The public securities of every description immediately took a great rise in the market, in all parts of the country, and continued to rise while the subject was under discussion in Congress, until the law passed for funding the debt; when claims on the public treasury, which had sold as low as from ten to fifteen cents on the dollar, were, for a short time, above par.

The subject of this report having been called up on the twenty-eighth of January, it was, after some debate, postponed to the eighth of February, by which time it was expected the members from North Carolina would be in attendance.

There seemed to be no serious opposition to the Secretary's report, except on the discrimination between the original holders of the public securities and the present possessors, and on the assumption of the State debts, on both of which there was a lively feeling excited, in Congress and out of it.

On the eighth of February, the debate was opened by Mr. Smith, of South Carolina, who offered five resolutions proposing to fund the public debt in conformity with the Secretary's views.

Mr. Smith's resolutions were supported by Mr. Boudinot, of New Jersey, and enforced by a long and animated

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FUNDING THE PUBLIC DEBT.

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speech, in which he gave a history of the public debt from 1776 to 1789, and of the various solemn pledges given by Congress to redeem it. He cited at length the eloquent appeal made in 1789 by that body to the American people; and concluded that they were bound, by every principle of honor, justice, and policy, to fund the debt.

Mr. Fitzsimmons followed on the same side; and he submitted another series of resolutions, more in detail, and in stricter conformity than Mr. Smith's with the Secretary's report.

In the desultory debate which followed, Mr. Jackson, of Georgia, was alone opposed to funding the debt, a practice which he maintained had always been injurious, and he was for further postponing the subject, though he disclaimed being opposed to the payment of the debt.

To the resolution, that provision be made for the payment of the domestic debt, Mr. Scott, of Pennsylvania, moved an amendment, by adding "as soon as the same is ascertained and duly liquidated." He distinguished between the domestic and the foreign debt. The latter they were bound to pay, according to contract; but as to the former, they were bound not only to provide the means of payment, but to decide on its justice. "One part of the community," he remarked, "applies to us to recover of the other what is due to it; the other says, the debt as claimed is too large, it is more than is justly due; you must try and determine between us, and say what part is just and what is not.”

This amendment, which gave rise to a discussion that continued through this and the following day, was supported by the mover, by Messrs. Livermore, Jackson, and Tucker, and was opposed by Messrs. Boudinot, Ames, Sherman, Goodhue, Hartley, Stone, Sedgwick, and Gerry. The amendment being lost, Mr. Burke moved an VOL. I. 27

418

DISCRIMINATION AMONG CREDITORS.

[CHAP. V. amendment to the original resolution, that "a discrimination be made between the original holders and their assignees, and that a scale of depreciation be prepared accordingly." But he the next day disclaimed all intention of voting for it, and withdrew it.

Mr. Madison then rose, and after adverting to the silence he had hitherto maintained on the subject, that he might keep his mind open to the light shed on it by others, he presented his views in favor of discriminating between the original creditors and the present holders of alienated securities.

He differed from those who considered that the obligations of the United States were affected by the late change of government. The debt was due from the people; and the government, both then and now, is their agent, leaving their engagements unaltered. Of the four classes of public creditors, the claims of those who had never alienated, admitted of no dispute; and the pretensions of intermediate holders were also to be disregarded, as they would lead the Legislature into a labyrinth for which no clew could be found. The rival pretensions, then, of the other two classes-the original creditors who have parted with their securities, and the present holders of those securities-were alone to be considered.

The claims of the original creditors rest on justice, as the value acknowledged to be due to them has never been paid. They may appeal to the precedent in the compensation allowed to the army for depreciation; as well as to the public sympathy for what they have suffered.

The present holders also have their claims, which he did not wish to depreciate. As to meet both of these fully was beyond the resources of the country, and what no one expected, he proposed a composition; and the terms which he proposed were, that the present holders

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should be paid the highest price that the securities have borne, by which no one could lose, and most would make a large profit; and that the residue be paid to the original holders, which, though it would not do this class complete justice, would come nearer to it than any other expedient proposed.

He urged that ordinary maxims did not strictly apply to the present case, since the fluctuations of stock in Europe, which had been referred to, never exceeded fifty to seventy per cent., and this evil did not justify the interposition of government; but that the same forbearance could not be expected where the fluctuation had been seven or eight hundred per cent. In support of these views, he referred to what Great Britain had done in the South Sea scheme; and concluded with moving an amendment for the discrimination he had recommended.

A

He was replied to by Messrs. Boudinot, Sedgwick, Lawrence, Smith of South Carolina, Ames, Benson, Hartley, Wadsworth, Goodhue, Gerry, and Livermore, who maintained, with great ability and zeal, that for the government, after having made the written evidences of this debt assignable, and promising to regard the assignee the same as the original creditor, to make the proposed discrimination, would not only violate the public faith, but be injurious to the public interests in all future engagements of the government: that the proposed plan was, moreover, on several accounts impracticable, especially from the fact that the books and papers of the government did not always show who was the real creditor: that the measure would also be unjust, not only from the general principles of law, but because, in the case of loan-office certificates, the creditor received the very paper he chose to purchase; and in the case of the sol

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