Leap in the Dark by Ferling John;

Author:Ferling, John;
Language: eng
Format: epub
Publisher: Oxford University Press
Published: 2003-04-13T04:00:00+00:00

10

1790–1793

“Prosperous at Home, Respectable Abroad”

Treasury Secretary Alexander Hamilton, who had just turned thirty-two, worked tirelessly each day in the autumn of 1789 to complete his Report on Public Credit by the January deadline set by Congress. The First Congress thought its principal objective was to solve the national debt problems. It had lavished money on the Treasury Department, providing Hamilton with funds to hire a comptroller and an assistant secretary, as well as thirty clerks, eight times the number that either the State or War Department employed. The Treasury clerks conducted research for their boss, but Hamilton alone shaped his recommendations, often working deep into the chilly fall nights in his tiny, sparsely furnished office, seated at a plain pine table covered with a green cloth.1

The data unearthed by the clerks revealed that the United States had accumulated a foreign debt of $11,600,000, the result of wartime loans by France, Holland, and Spain, and the subsequent arrears in interest. A national debt also existed. Congress had tried to pay for the war by issuing unsecured paper money, loan office certificates—which were essentially bonds—and promissory notes. Although it seldom had the money to adequately provide for its soldiers, Congress nevertheless had rung up a staggering debt. Continental debts, including accumulating interest, were about four times greater than the foreign indebtedness, and that was only a portion of the domestic indebtedness. Prodigious state debts also existed. The states had attempted to meet their financial responsibilities between 1775 and 1783 through taxation, confiscation, and expropriation. None of these expedients raised sufficient revenue, especially in the last inflation-plagued years of hostilities. At war’s end every state was in debt, although in the years since 1783 some provinces had made considerable strides toward reducing their indebtedness. Nevertheless, by 1789 the combined state indebtedness stood at approximately $25,000,000. Therefore, according to Treasury’s data, the total war debt—foreign, national, and state—exceeded $76,000,000. As Hamilton hunched over his paperwork that fall, he discovered that the annual interest on these debts approached $5,000,000.

Every nationalist agreed—had agreed for nearly a decade, in fact—that the foreign and national debt must be dealt with. By 1789 most nationalists also had come around to the view that the new United States government should assume the state debts as well. Given Congress’s revenue-raising capabilities, they believed that the national government, and it alone, would possess the resources for coping with the multilayered problems of indebtedness. That said, numerous alternatives existed for coping with the problem. Devaluation and redemption of interest-bearing certificates had been tried previously, but could be given another go. Revenue could also be had through an impost, the sale of western lands, or federal taxes. In addition, Madison’s penchant (and, for that matter, Jefferson’s and John Adams’s hope) was for commercial coercion, which if it succeeded in prying open British ports to American ships, held the promise of ample sources of revenue and a windfall prosperity. Indeed, it was conceivable that any one of these expedients might have produced the returns with which to retire the debt, so long as the federal budget remained tiny.

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