Chapter II

1781-1783.

FINANCIAL DIFFICULTIES OF THE CONFEDERATION.--REVOLUTIONARY DEBT.--REVENUE SYSTEM OF 1783.

It is not easy to ascertain the amount of the public debt of the United States, at the time when the Confederation went into operation. But on the 1st of January, 1783, it amounted to about forty-two millions of dollars. About eight millions were due on loans obtained in France and Holland, and the residue was due to citizens of the United States. The annual interest of the debt was a little more than two million four hundred thousand dollars.[177]

The Confederation had no sooner gone into operation, than it was perceived by many of the principal statesmen of the country, that its financial powers were so entirely defective, that Congress would never be able, under them, to pay even the interest on the public debt. Indeed, before the Confederation was finally ratified, so as to become obligatory upon all the States, on the 3d of February, 1781, Congress passed a resolve, recommending to the several States, as indispensably necessary, to vest a power in Congress to levy for the use of the United States a duty of five per cent. _ad valorem_, at the time and place of importation, upon all foreign goods and merchandise imported into any of the States; and that the money arising from such duties should be appropriated to the discharge of the principal and interest of the debts already then contracted, or which might be contracted, on the faith of the United States, for the support of the war; the duties to be continued until the debts should be fully and finally discharged.

It was at this time that the office of Superintendent of the Finances was established, and Robert Morris was unanimously elected by Congress to fill it. He was an eminent merchant of Philadelphia, of known financial skill, devoted to the cause of the country, and possessed of very considerable private resources, which he more than once sacrificed to the public service. Under his administration, it is more than probable that, if the States had complied with the requisitions of Congress, the war would have been brought to a close at an earlier period. But there was scarcely any compliance with those requisitions, and, contemporaneously with this neglect, the proposal to vest in Congress the power to levy duties met with serious opposition. On the 30th of October, 1781, Congress made a requisition upon the States for eight millions of dollars, to meet the service of the ensuing year. In January, 1783, one year and three months from the date of this requisition, less than half a million of this sum had been received into the treasury of the United States. After a delay of nearly two years, one State entirely refused its concurrence with the plan of vesting in Congress a power to levy duties, another withdrew the assent it had once given, and a third had returned no answer.

The State which refused to grant this power to Congress was Rhode Island. On the 6th of December, 1782, Congress determined to send a deputation to that State, to endeavor to procure its assent to this constitutional change. The increasing discontents of the army, the loud clamors of the public creditors, the extreme disproportion between the current means and the demands of the public service, and the impossibility of obtaining further loans in Europe unless some security could be held out to lenders, made it necessary for Congress to be especially urgent with the legislature of Rhode Island. But, at the moment when the deputation was about to depart on this mission, the intelligence was received that Virginia had repealed the act by which she had previously granted to Congress the power of laying duties, and the proposal was therefore abandoned for a time.[178] But the leading persons then in Congress--who saw the ruin impending over the country; who were aware that the whole amount of money which Congress had received, to carry on the public business for the year then just expiring, was less than two millions of dollars,[179] while the three branches of feeding, clothing, and paying the army exceeded five millions of dollars per annum, exclusive of all other departments of the public service; and who were equally aware that no means whatever existed of paying the interest on the public debts--resolved still to persevere in their endeavors to procure the establishment of revenues equal to the purpose of funding all the debts of the United States.

Among these persons, Hamilton and Madison were the most active; and the part which they took, at this period, in the measures for sustaining the sinking credit of the country, and the efforts which they made, are among the less conspicuous, but not less important services, which those great men performed for their country. Another plan was devised, after the failure of that of 1781, for investing Congress with a power to derive a revenue from duties, and, in April, 1783, its promoters procured for it the almost unanimous consent of Congress. This plan recommended the States to vest in Congress the power of levying certain duties upon goods imported into the country, partly specific and partly _ad valorem_; the proceeds of such duties to be applied to the discharge of the interest or principal of the debts incurred by the United States for supporting the war. The duties were to be collected by collectors appointed by the States, but accountable to Congress. It also recommended to the States to establish, for a term of twenty-five years, substantial and effectual revenues, exclusive of the duties to be levied by Congress for supplying their proportions of fifteen millions of dollars annually, for the same purpose; and that, when this plan had been acceded to by all the States, it should be considered as forming a mutual compact, irrevocable by one or more of them without the consent of the whole. It was also proposed that the rule of proportion fixed by the Confederation should be changed from the basis of real estate to the basis of population.

This plan was sent out to the States, accompanied by an address, prepared by Mr. Madison, in which the necessity of the measure was urged with much ability and force. Annexed to this paper were various documents, exhibiting the nature and origin of the public debts, and the meritorious characters of the various public creditors; the whole of the Newburgh Addresses, and the proceedings of the officers; the contracts made with the king of France; and a very able answer by Hamilton to the objections of Rhode Island. No stronger and more direct appeal was ever made to the sense of right of any people. Never was the cause of national honor, public faith, and public safety more powerfully and eloquently set forth.[180]

And when we consider the various classes of the public creditors, at the close of the war, and remember that the debts of the country had been contracted for the great purpose of establishing its independence, and that there was scarcely a creditor who had not some claim to the gratitude of the country, we cannot but be astonished that such an appeal as was then made should have fallen, as it did, unheeded upon the legislatures and people of many of the States. In the first place, the debts were due to an ally, the generous king of France, who had loaned to the American people his armies and his treasures; who had added to his loans liberal donations; and whose very contracts for repayment contained proof of his magnanimity. In the next place, they were due to that noble band of officers and soldiers, who had fought the battles of their country, and who now asked only such a portion of their dues as would enable them to retire, with the means of daily bread, from the field of victory and glory into the bosom of peace and privacy, and such effectual security for the residue of their claims, as their country was unquestionably able to provide. In the last place, they were due partly to those citizens of the country who had lent their funds to the public, or manifested their confidence in the government by receiving transfers of public securities from those who had so lent, and partly to those whose property had been taken for the public service.[181]

The United States had achieved their independence. They were about to take rank among the nations of the world. As they should meet this crisis, their character would be determined. The rights for which they had contended were the rights of human nature. These rights had triumphed, and now formed the basis of the civil polity of thirteen independent States. The forms of republican government were therefore called upon to justify themselves by their fruits. The higher qualities of national character--justice, good faith, honor, gratitude--were called upon to display an example, that would save the cause of republican liberty from reproach and disgrace.[182]

But, unhappily, the establishment of peace tended to weaken the slender bond which held the Union together, by turning the attention of men to the internal affairs of their own States. The advantage and the necessity of giving the regulation of foreign commerce to the general government, if perceived at all, was perceived only by a few leading statesmen. The commercial States fancied that they profited by a condition of things which enabled them as importers to levy contribution on their neighbors. The people did not as yet perceive, that, without some central authority to regulate the whole trade alike, the clashing regulations of rival States would sooner or later destroy the Confederacy. Nor were they willing to be taxed for the payment of the public debts. The people of the United States had not yet begun to feel, that such a burden is to be borne as one of the first of public and social duties. That part of the financial plan of 1783, which required from the States a pledge of internal revenues for twenty-five years, met with so much opposition, that Congress was obliged to abandon it, and to confine its efforts to that part of the scheme which related to the duties on imports. In 1786, all the States, except New York, had complied with the latter part of the plan; but the refusal of that State rendered the whole of it inoperative, and no resource remained to Congress, after the close of the war, but the old method of making requisitions on the States, under the rule of the Confederation.[183]

At the return of peace, therefore, the Confederation had had a trial of two years and six months, as a government for purposes of war. It was for these purposes, mainly, that it was established; being in fact, as it was in name, a league of friendship between sovereign States, for their common defence, the security of their liberties, and their mutual and general welfare; the parties to which had bound themselves by it to assist each other against all external attacks. Doubtless the framers of the Confederation contemplated its duration beyond the period of the war; for, besides the perpetual character of the Union, which it sought and professed to establish, it had certain functions which were manifestly to be exercised in peace as well as in war. These functions, however, were few. The government was framed during a revolutionary war, for the purposes of that war, and it went into operation while the war was still waged; taking the place and superseding the powers of the Revolutionary Congress, under which the war had been commenced and prosecuted.

A written constitution, with a precise and well-defined mode of operation, had thus succeeded to the vague and indefinite, but ample, powers of the earlier government. But in the very modes of its operation, there was a monstrous defect, which distorted the whole system from the true proportions and character of a government. It gave to the Confederation the power of contracting debts, and at the same time withheld from it the power of paying them. It created a corporate body, formed by the Union and known as the United States, and gave to it the faculty of borrowing money and incurring other obligations. It provided the mode in which its treasury should be supplied for the reimbursement of the public creditor. But over the sources of that supply, it gave the government contracting the debts no power whatever. Thirteen independent legislatures granted or withheld the means which were to enable the general government to pay the debts which the general constitution had enabled it to contract, according to their own convenience or their own views and feelings as to the purposes for which those debts had been incurred. Yet the debts were wholly national in their character, and by the nation they were to be discharged. But, by the operation of the system under which the nation had undertaken to discharge its obligations, the duty of performance was parcelled out among the various subordinate corporations of States, and the country was thus placed in the position of an empire whose power was at the mercy of its provinces, and was sure to be controlled by provincial objects and ideas.

A government thus situated, engaged in the prosecution of a war, perpetually borrowing, but never paying, and scarce likely ever to pay, was in a position to prosecute that war with far less than the real energies and resources of the nation: and it stands the recorded opinion of him who conducted his country through the whole struggle, and without whom it could not, under this defective system, have achieved its independence, that the war would have terminated sooner, and would have cost vastly less both of blood and treasure, if the government of the Union had possessed the power of direct or indirect taxation.[184] But the government of the Confederation was one that trusted too much to the patriotism and sense of honor of the different populations of the different States. The moral feelings of a people will prompt to high and heroic deeds; will impel them with irresistible force and energy to the accomplishment of the great objects of liberty and happiness; and will develop in individuals the highest capacity for endurance that human nature can display. They did so in the American Revolution. The annals of no people, struggling for liberty, exhibit more of the virtues of fortitude, self-denial, and an ardent love of freedom, than ours exhibit, especially in the earlier stages of the contest. But any _feelings_ are an unsafe and uncertain reliance for the regular and punctual operations of civil government. The fiscal concerns of a nation, left to depend principally upon the prevailing sentiments of justice, honor, and gratitude,--upon the connection between these sentiments and that passion for liberty which animated the earlier struggles for national independence,--are exposed to great hazards. If an appeal to the feelings of a people constitutes the principal ground of security for the public creditor, other feelings may intervene, which will lead to a denial of the justice of the claim; for it is the very nature of such an appeal to submit the whole question of obligation and duty to popular determination. That government alone is likely to discharge the just obligations of any people, which possesses both the power to declare what those obligations are, and the power to levy the means of payment, without a reference of either point to popular sentiment.

The history of the Confederation contains abundant proofs of the soundness of this position. At the close of the war, a debt of more than forty millions of dollars was due from the United States to various classes of creditors, and the whole of it had been contracted either by the government of the Confederation, or by its predecessors, for whose contracts the Confederation was expressly bound, by the Articles, to provide. This debt could not be discharged without a grant of internal revenues from the States, and without a grant of the power to collect other revenues from the external trade of the country. The appeal that was made by the government in order to obtain these grants was addressed almost wholly to the moral sentiments of the people of the different States; the time had scarcely arrived, although rapidly approaching, for an appeal to those interests which were involved in the surrender to the general government of the power of regulating foreign commerce;[185] and consequently the arguments addressed to the sense of justice and the feeling of gratitude were answered by discussions of the propriety, justice, and reasonableness of some of the claims, for which the States were thus called upon to provide, as existing debts of the country, not without the hope, entertained in some quarters, of involving the whole in confusion and final rejection.[186]

The design of the framers of the revenue system of 1783 was twofold; first, to do justice to the creditors of the country, by procuring adequate power to fund the public debts; and second, to strengthen and consolidate the national government, by means of those debts and of the various interests which would be combined in the great object of their liquidation. They foresaw, on the approach of peace, that to leave these debts to be provided for by the States individually would lead to a separation of interests fatal to the continuance of the Union; but that to make the United States responsible for the whole of them would be to create a bond of union, that would be effectual and operative, after the external pressure of war, which had hitherto held the States together, should have been removed. For this purpose, they undoubtedly availed themselves of the discontents of the army, a class of the public creditors the justice of whose claims there was immediate danger in denying. There is no reason to suppose that these discontents were promoted by any one concerned in giving direction to the action of Congress. But before the crisis had been reached in the "Newburgh Addresses," it was perceived to be extremely important to prevent the army from turning away from the general government, as their debtor, to look to their respective States; and, after the imminent hazard of that moment had passed, the claims of the army were used, and used most rightfully, to impress upon the States the necessity of yielding to Congress the powers necessary to do justice.[187]

In the proposal of this scheme of finance, involving, as it did, a material change in the operation of the existing constitution of the country, there was great wisdom; and it was eminently fortunate that it went forth before the advent of peace, to be considered and acted upon by the States. The system of the Confederation had utterly failed to supply the means of sustaining the public credit of the Union, and the consciousness of that failure tended to produce a resolution of the Union into its component elements, the States. Men had begun to abandon the hope of paying the debts of the country; or, if they were to be paid at all, they had begun to look to the States, in their individual capacities, as the ultimate debtors, to whom at least a part of the claims was to be referred. Had the country been permitted to pass from a state of war to a state of peace, without the suggestion and proposal of a definite system for funding these debts on continental securities, the Union would at once have been exhausted of all vitality. The Confederation, left to discharge the functions which belonged to it in peace, without the power of relieving the burdens which it had entailed upon the country during the war, would have been everywhere regarded as a useless machine, the purposes of which--poorly answered in the period of its greatest activity--had entirely ceased to exist. Congress would have been attended by delegates from few of the States, if attended at all;[188] and the rapid decay of the Union would have been marked by the feeble, spasmodic, and unsuccessful efforts of some of them to discharge so much of the general burdens as could have been assigned to them in severalty; the open repudiation of others; and the final confusion and loss of the whole mass of the debts, in universal bankruptcy, poverty, and disgrace.

But the comprehensive scheme of 1783, although never adopted, saved the imperfect Union that then existed from the destruction to which it was hastening. It saved it for a prolonged, though feeble existence, through a period of desperate exhaustion. It saved it, by ascertaining the debts of the country, fixing their national character, and proposing a national system for their discharge. It directed the attention of the States to the advantage and the necessity of giving up to the Union some part of the imposts that might be levied on foreign commodities, and thus led the way to that grand idea of uniformity of regulation, which was afterwards developed as the true interest of communities, which, from their geographical and moral relations, constitute in fact but one country.

It is not intended, however, in assigning this influence to the revenue system proposed in 1783, to suggest that it contained the germ of the present Constitution. It was an essentially different system. It proposed the enlargement of the powers of Congress, as they existed under the Confederation, only by the grant to the United States of the right to collect certain duties on foreign importations, for the limited period of twenty-five years, to be applied to the discharge of the debts contracted for the purposes of the war, but to be collected by officers appointed by the States, although amenable to Congress; and the levy and collection by the States of certain internal taxes, during the same limited term, for the purpose of raising certain proportionate sums, to be paid over to the United States, for the same object. So far, therefore, as this system suggested any new powers, there is a wide difference between its features and principles and those of an entire and irrevocable surrender to the Union of the whole subject of taxing and regulating foreign commerce. But the influence of this proposal upon the country, during the four years which followed, is to be measured by the evident necessities which it revealed, and by the means to which it pointed for their relief;--means which, though never applied, and, if applied, would have proved inadequate, still showed, through the period of increasing weakness in the Union, the high obligations which rested upon the country, and which could be discharged only by the preservation of the Union.

* * * * *

NOTE TO PAGE 185.

ON THE HALF-PAY FOR THE OFFICERS OF THE REVOLUTION.

In Connecticut, the opposition to the plan of enabling
Congress to fund the public debts arose from the jealousy
with which the provision of half-pay for the officers of the
army had always been regarded in that State. In October,
1783, Governor Trumbull, in an address to the Assembly
declining a reëlection, had spoken of the necessity of
enlarging the powers of Congress, and of strengthening the
arm of the government. A committee reported an answer to this
address, which contained a paragraph approving of the
principles which the Governor had inculcated, but it was
stricken out in the lower house. Jonathan Trumbull, Jr., who
had been one of Washington's aids, thus wrote to him
concerning the rejection of this paragraph: "It was rejected,
lest, by adopting it, they should seem to convey to the
people an idea of their concurring with the political
sentiments contained in the address; so exceedingly jealous
is the spirit of this State at present respecting the powers
and the engagements of Congress, arising principally from
their aversion to the half-pay and commutation granted to the
army; principally, I say, arising from this cause. It is but
too true, that some few are wicked enough to hope, that, by
means of this clamor, they may be able to rid themselves of
the whole public debt, by introducing so much confusion into
public measures as shall eventually produce a general
abolition of the whole." (Writings of Washington, IX. 5,
note.) It appears from the Journals of Congress, that in
November, 1783, the House of Representatives of Connecticut
sent some remonstrance to Congress respecting the resolution
which had granted half-pay for life to the officers, which
was referred to a committee, to be answered. In the report of
this committee it was said, that "the resolution of Congress
referred to appears by the yeas and nays to have been passed
according to the then established rules of that body in
transacting the business of the United States; the resolution
itself had public notoriety, and does not appear to have been
formally objected against by the legislature of any State
till after the Confederation was completely adopted, _nor
till after the close of the war_." These words were stricken
out from the report by a vote of six States against one, two
States declining to vote. The journal gives no further
account of the matter. (Journals, IX. 79. March 12, 1784.)

In Massachusetts, the half-pay had always been equally
unpopular. The legislature of that State, on the 11th of
July, 1783, addressed a letter to Congress, to assign, as a
reason for not agreeing to the impost duty, the grant of
half-pay to the officers. The tone of this letter does little
credit to the State.

"_Commonwealth of Massachusetts._

"Boston, July 11. 1783.

"Sir:--

"The Address of the United States in Congress assembled has
been received by the legislature of the Commonwealth of
Massachusetts; and, while they consider themselves as bound
in duty to give Congress the highest assurance that no
measures consistent with their circumstances, and the
constitution of this government and the Federal Union, shall
remain unattempted by them to furnish those supplies which
justice demands, and which are necessary to support the
credit and honor of the United States, they find themselves
under a necessity of addressing Congress in regard to the
subject of the half-pay of the officers of the army, and the
proposed commutation thereof; with some other matters of a
similar nature, which produce among the people of this
Commonwealth the greatest concern and uneasiness, and involve
the legislature thereof in no small embarrassments. The
legislature have not been unacquainted with the sufferings,
nor are they forgetful of the virtue and bravery, of their
fellow-citizens in the army; and while they are sensible that
justice requires they should be fully compensated for their
services and sufferings, at the same time it is most
sincerely wished that they may return to the bosom of their
country, under such circumstances as may place them in the
most agreeable light with their fellow-citizens. Congress, in
the year 1780, resolved, that the officers of the army, who
should continue therein during the war, should be entitled to
half-pay for life; and at the same time resolved, that all
such as should retire therefrom, in consequence of the new
arrangement which was then ordered to take place, should be
entitled to the same benefit; a commutation of which half-pay
has since been proposed. The General Court are sensible that
the United States in Congress assembled are, by the
Confederation, vested with a discretionary power to make
provision for the support and payment of the army, and such
civil officers as may be necessary for managing the general
affairs of the United States; but in making such provision,
due regard ever ought to be had to the welfare and happiness
of the people, the rules of equity, and the spirit and
general design of the Confederation. We cannot, on this
occasion, avoid saying, that, with due respect, we are of
opinion those principles were not duly attended to, in the
grant of half-pay to the officers of the army; that being, in
our opinion, a grant of more than an adequate reward for
their services, and inconsistent with that equality which
ought to subsist among citizens of free and republican
States. Such a measure appears to be calculated to raise and
exalt some citizens in wealth and grandeur, to the injury and
oppression of others, even if the inequality which will
happen among the officers of the army, who have performed
from one to eight years' service, should not be taken into
consideration. The observations which have been made with
regard to the officers of the army will in general apply to
the civil officers appointed by Congress, who, in our
opinion, have been allowed much larger salaries than are
consistent with the state of our finances, the rules of
equity, and a proper regard to the public good. And, indeed,
if the United States were in the most wealthy and prosperous
circumstances, it is conceived that economy and moderation,
with respect to grants and allowances, in opposition to the
measures which have been adopted by monarchical and luxurious
courts, would most highly conduce to our reputation, even in
the eyes of foreigners, and would cause a people, who have
been contending with so much ardor and expense for republican
constitutions and freedom, which cannot be supported without
frugality and virtue, to appear with dignity and consistency;
and at the same time would, in the best manner, conduce to
the public happiness. It is thought to be essentially
necessary, especially at the present time, that Congress
should be expressly informed, that such measures as are
complained of are extremely opposite and irritating to the
principles and feelings which the people of some Eastern
States, and of this in particular, inherit from their
ancestry. The legislature cannot without horror entertain the
most distant idea of the dissolution of the Union which
subsists between the United States, and the ruin which would
inevitably ensue thereon; but with great pain they must
observe, that the extraordinary grants and allowances which
Congress have thought proper to make to their civil and
military officers have produced such effects in this
Commonwealth as are of a threatening aspect. From these
sources, and particularly from the grant of half-pay to the
officers of the army, and the proposed commutation thereof,
it has arisen, that the General Court has not been able
hitherto to agree in granting to the United States an impost
duty, agreeable to the recommendation of Congress; while the
General Assembly at the same time have been deeply impressed
with a sense of the necessity of speedily adopting some
effectual measures for supplying the continental treasury,
for the restoration of the public credit, and the salvation
of the country;--and propose, as the present session is near
terminating, again to take the subject of the impost duty
into consideration early in the next. From these
observations, you may easily learn the difficult and critical
situation the legislature is in, and they rely on the wisdom
of Congress to adopt and propose some measure for relief in
this extremity.

"In the name and by order of the General Court,

"We are your Excellency's most obedient humble servants,

"SAMUEL ADAMS,
_President of the Senate_.

"TRISTRAM DALTON,
_Speaker of the House of Representatives_.

"HIS EXCELLENCY THE PRESIDENT OF CONGRESS."

This letter was thought worthy an answer, and accordingly a
report upon it was brought in by Mr. Madison, and adopted in
Congress, containing among other things the following:--

"Your committee consider the measure of Congress as the
result of a deliberate judgment, framed on a general view of
the interests of the Union at large. They consider it to be a
truth, that no State in this Confederacy can claim (more
equitably than an individual in a society) to derive
advantages from a Union, without conforming to the judgment
of a constitutional majority of those who compose it; still,
however, they conceive it will be found no less true, that,
if a State every way so important as Massachusetts should
withhold her solid support to constitutional measures of the
Confederacy, the result must be a dissolution of the
Union;--and then she must hold herself as alone responsible
for the anarchy and domestic confusion that may succeed, and
for exposing all these confederated States (who at the
commencement of the late war leagued to defend her violated
rights) an easy prey to the machinations of their enemies,
and the sport of European politics; and therefore they are of
opinion, that Congress should still confide that a free,
enlightened, and generous people will never hazard
consequences so perilous and alarming, and in all
circumstances rely on the wisdom, temper, and virtue of their
constituents, which (guided by an all-wise Providence) have
ever interposed to avert impending evils and misfortunes.
Your committee beg leave further to observe, that, from an
earnest desire to give satisfaction to such of the States as
expressed a dislike to the half-pay establishment, a sum in
gross was proposed by Congress, and accepted by the officers,
as an equivalent for their half-pay. That your committee are
informed, that such equivalent was ascertained on established
principles which are acknowledged to be just, and adopted in
similar cases; but that if the objections against the
commutation were ever so valid, yet, as it is not now under
the arbitration of Congress, but an act finally adopted, and
the national faith pledged to carry it into effect, they
could not be taken into consideration. With regard to the
salaries of civil officers, it may be observed, that the
necessaries of life have been very high during the war: hence
it has happened that even the salaries complained of have not
been found sufficient to induce persons properly qualified to
accept of many important offices, and the public business is
left undone." (Journals of Congress, VIII. 379--385.
September 25, 1783.)

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NOTE TO PAGE 186.

ON THE NEWBURGH ADDRESSES.

There was a period in this business, when the officers would
have accepted from Congress a recommendation to their several
States for the payment of their dues. Their committee,
consisting of General McDougall, Colonel Brooks of
Massachusetts, and Colonel Ogden of New Jersey, arrived in
Philadelphia about the 1st of January. In their memorial to
Congress, they abstained from designating the funds from
which they desired satisfaction of their demands, because
their great object was to get a settlement of their accounts
and an equivalent for the half-pay established. But they
were, in fact, at one time, impressed with the belief that
their best, and indeed their only security, was to be sought
for in funds to be provided by the States, under the
recommendation of Congress. This plan would have involved a
division of the army into thirteen different parts, leaving
the claims of each part to be satisfied by its own State: a
course that would unquestionably have led to the rejection of
their demands in some States, and probably in many. To
prevent this, there is little doubt that the influence of
those members of Congress who wished to promote their
interests, and to identify them with the interests of the
other public creditors, was used; and by the middle of
February the committee of the officers became satisfied, that
the army must unitedly pursue a common object, insisting on
the grant of revenues to the general government, adequate to
the liquidation of all the public debts. (Letter of
Gouverneur Morris to General Greene, February 15, 1783. Life,
by Sparks, I. 250.) The point, however, which they continued
to urge, was the commutation; and upon this they encountered
great obstacles. The committee of Congress to whom their
memorial was referred went into a critical examination of the
principles of annuities, in order to determine on an
equivalent for the half-pay for life, promised by the resolve
of 1780. The result was a report, declaring that six years'
full pay was the proper equivalent. This report was followed
by a declaratory resolve, which was passed, "that the troops
of the United States, in common with all the creditors of the
same, have an undoubted right to expect security; and that
Congress will make every effort to obtain, from the
respective States, substantial funds, adequate to the object
of funding the whole debt of the United States, and will
enter upon an immediate and full consideration of the nature
of such funds, and the most likely mode of obtaining them."
The remainder of the report, however, was referred to a new
committee of five, the number of years being considered too
many. The second committee reported five years' whole pay as
an equivalent, after another calculation of annuities; but
the approval of nine States could not be obtained. A desire
was then expressed by some of the members, who were opposed
both to the commutation and the half-pay, to have more time
for consideration, and this was granted.

This was the position of the matter on the 8th of February,
when the committee of the officers wrote to General Knox on
the part of the army. They stated that "Massachusetts, New
York, Pennsylvania, Virginia, North and South Carolina were
for the equivalent; New Hampshire, Rhode Island, Connecticut,
and Jersey against it. There is some prospect of getting one
more of these States to vote for the commutation. If this is
accomplished, with Maryland and Delaware, the question will
be carried; whenever it is, as the report now stands, it will
be at the election of the line, as such, to accept of the
commutation or retain their claim to the half-pay, Congress
being determined, that no alteration shall take place in the
emolument held out to the army but by their consent. This
rendered it unnecessary for us to consult the army on the
equivalent for half-pay. The zeal of a great number of
members of Congress to get continental funds, while a few
wished to have us referred to the States, induced us to
conceal what funds we wished or expected, lest our
declaration for one or the other might retard a settlement of
our accounts, or a determination on the equivalent for
half-pay. Indeed, some of our best friends in Congress
declared, however desirous they were to have our accounts
settled, and the commutation fixed, as well as to get funds,
yet they would oppose referring us to the States for a
settlement and security, till all prospect of obtaining
continental funds was at an end. Whether this is near or not,
as commutation for the half-pay was one of the principal
objects of the address, the obtaining of that is necessary,
previous to our particularizing what fund will be most
agreeable to us: this must be determined by circumstances. If
Congress get funds, we shall be secured. If not, the
equivalent settled, a principle will be established, which
will be more acceptable to the Eastern States than half-pay,
if application must be made to them. As it is not likely that
Congress will be able to determine soon on the commutation,
(for the reasons above mentioned,) it is judged necessary
that Colonel Brooks return to the army, to give them a more
particular detail of our prospects than can be done in the
compass of a letter." (Writings of Washington, VIII. 553,
554.)

Two classes of persons existed at this time in Congress, of
very different views; the one attached to State, the other to
continental politics; the one strenuous advocates for funding
the public debts upon solid securities, the other opposed to
this plan, and finally yielding to it only in consequence of
the clamors of the army and the other public creditors. The
advocates for continental funds, convinced that nothing could
be done for the public credit by any other measures,
determined to blend the interests of the army and those of
the other creditors in their scheme, in order to combine all
the motives that could operate upon different descriptions of
men in the different States. Washington, who naturally
regarded the interests of the army as the first object in
point of importance, and who had not given his attention so
much to the general financial affairs of the country, seems
to have thought it unadvisable to bring the claims of the
army before the States, in connection with the other public
debts. On the 4th of March, he wrote to Hamilton (then in
Congress), that "the just claims of the army ought, and it is
to be hoped will, have their weight with every sensible
legislature in the United States, if Congress point to their
demands, and show, if the case is so, the reasonableness of
them, and the impracticability of complying with them without
their aid. In any other point of view, it would in my opinion
be impolitic to introduce the army on the tapis, lest it
should excite jealousy and bring on its concomitants. The
States surely cannot be so devoid of common sense, common
honesty, and common policy, as to refuse their aid on a full,
clear, and candid representation of facts from Congress; more
especially if these should be enforced by members of their
own body, who might demonstrate what the inevitable
consequences of failure will lead to." (Writings, VIII. 390.)

But while the advocates of the continental system were
maturing their plans, new difficulties arose, in consequence
of the proceedings of the officers at Newburgh, and of the
jealousies which the army began to entertain. Among the
resolutions adopted by the officers was one, which expressed
their unshaken confidence in the justice of Congress and the
country, and their conviction that Congress would not
disband them, until their accounts had been liquidated, and
adequate funds established for their payment. But Congress
had no constitutional power, under the Confederation, to
demand funds of the States; and to determine that the army
should be continued in service until the States granted the
funds, which it was intended to recommend, would be to
determine that it should remain a standing army in time of
peace, until the States should comply with the
recommendation. On the other hand, Congress had no present
means of paying the army, if they were to disband them. This
dilemma rendered it necessary to evade for a short time any
explicit declaration of the purposes of Congress as to
disbanding the army; and hence arose a jealousy, on the part
of the army, that they were to be used as mere puppets to
operate upon the country, in favor of a general revenue
system. Washington himself communicated the existence of
these suspicions to Hamilton, on the 4th of April, advising
that the army should be disbanded as soon as possible,
consulting its wishes as to the mode. He also intimated that
the Superintendent of the Finances, Robert Morris, was
suspected to be at the bottom of the scheme of keeping the
army together, for the purpose of aiding the adoption of the
revenue system.

Hamilton's reply explains the position of the whole matter,
and the motives and purposes of those with whom he acted.
"But the question was not merely how to do justice to the
creditors, but how to restore public credit. Taxation in this
country, it was found, could not supply a sixth part of the
public necessities. The loans in Europe were far short of the
balance, and the prospect every day diminishing; the court of
France telling us, in plain terms, she could not even do as
much as she had done; individuals in Holland, and everywhere
else, refusing to part with their money on the precarious
tenure of the mere faith of this country, without any pledge
for the payment either of principal or interest. In this
situation, what was to be done? It was essential to our cause
that vigorous efforts should be made to restore public
credit; it was necessary to combine all the motives to this
end, that could operate upon different descriptions of
persons in the different States. The necessity and
discontents of the army presented themselves as a powerful
engine. But, sir, these gentlemen would be puzzled to support
their insinuations by a single fact. It was indeed proposed
to appropriate the intended impost on trade to the army debt,
and, what was extraordinary, by gentlemen who had expressed
their dislike to the principle of the fund. I acknowledge I
was one that opposed this, for the reasons already assigned,
and for these additional ones: _that_ was the fund on which
we most counted to obtain further loans in Europe; it was
necessary we should have a fund sufficient to pay the
interest of what had been borrowed and what was to be
borrowed. The truth was, these people in this instance wanted
to play off the army against the funding system. As to Mr.
Morris, I will give your Excellency a true explanation of his
conduct. He had been for some time pressing Congress to
endeavor to obtain funds, and had found a great backwardness
in the business. He found the taxes unproductive in the
different States; he found the loans in Europe making a very
slow progress; he found himself pressed on all hands for
supplies; he found himself, in short, reduced to this
alternative,--either of making engagements which he could not
fulfil, or declaring his resignation in case funds were not
established by a given time. Had he followed the first
course, the bubble must soon have burst; he must have
sacrificed his credit and his character, and _public_ credit,
already in a ruined condition, would have lost its last
support. He wisely judged it better to resign; this might
increase the embarrassments of the moment, but the necessity
of the case, it was to be hoped, would produce the proper
measures, and he might then resume the direction of the
machine with advantage and success. He also had some hope
that his resignation would prove a stimulus to Congress. He
was, however, ill-advised in the publication of his letters
of resignation. This was an imprudent step, and has given a
handle to his personal enemies, who, by playing upon the
passions of others, have drawn some well-meaning men into the
cry against him. But Mr. Morris certainly deserves a great
deal from his country. I believe no man in this country but
himself could have kept the money machine going during the
period he has been in office. From every thing that appears,
his administration has been upright as well as able. The
truth is, the old leaven of Deane and Lee is at this day
working against Mr. Morris. He happened in that dispute to
have been on the side of Deane, and certain men can never
forgive him.... The matter, with respect to the army, which
has occasioned most altercation in Congress, and most
dissatisfaction in the army, has been the half-pay. The
opinions on this head have been two: one party was for
referring the several lines to their States, to make such
commutation as they should think proper; the other, for
making the commutation by Congress, and funding it on
continental security. I was of this last opinion, and so were
all those who will be represented as having made use of the
army as our puppets. Our principal reasons were:--First, by
referring the lines to their respective States, those which
were opposed to the half-pay would have taken advantage of
the officers' necessities to make the commutation short of an
equivalent. Secondly, the inequality which would have arisen
in the different States when the officers came to compare,
(as has happened in other cases,) would have been a new
source of discontent. Thirdly, such a reference was a
continuance of the old, wretched State system, by which the
ties between Congress and the army have been nearly
dissolved,--by which the resources of the States have been
diverted from the common treasury and wasted: a system which
your Excellency has often justly reprobated. I have gone into
these details to give you a just idea of the parties in
Congress. I assure you, upon my honor, sir, I have given you
a candid statement of facts, to the best of my judgment. The
men against whom the suspicions you mention must be directed,
are in general the most sensible, the most liberal, the most
independent, and the most respectable characters in our body,
as well as the most unequivocal friends to the army; in a
word, they are the men who think continentally." (Life of
Hamilton, II. 162-164.)

FOOTNOTES:

[177] The debt due to the crown of France was ascertained in 1782 to be eighteen millions of livres; and by the contract entered into by the Unites States with the king of France, on the 16th of July, 1782, the principal of this debt was to be paid in twelve annual instalments of one million five hundred thousand livres each, in twelve years, to commence from the third year after a peace, at the royal treasury in Paris. The interest was payable annually, at the time and place stipulated for the payment of the instalments of the principal, at five per cent. The king generously remitted the arrears of interest due at the date of the contract. There was also due to the King of France ten millions of livres, borrowed by him of the States-General of the Netherlands for the use of the United States, and the payment of which he had guaranteed. This sum was to be paid in Paris in ten annual instalments of one million of livres each, commencing on the 5th of November, 1787. The interest on this loan was payable in Paris immediately, and the first payment of interest became due on the 5th of November, 1782. There was also due to the Farmers-General of France one million of livres, and to the king six millions of livres, on a loan for the year 1783; making in the whole thirty-eight millions of livres, or $7,037,037, due in France. There was also due to money-lenders in Holland $671,000; for money borrowed by Mr. Jay in Spain, $150,000; and a year's interest on the Dutch loan of ten millions of livres, amounting to $26,848;--making the whole foreign debt $7,885,085. The domestic debt amounted to $34,115,290. Five millions of this were due to the army, _under the commutation_ resolves of March, 1783. The residue was held by other citizens, or consisted of arrears of interest. The whole debt of the United States was estimated at $42,000,375, and the annual interest of this sum was $2,415,956.

[178] Mr. Madison (under the date of December 24, 1782) says, that, on the receipt of this intelligence, "the most intelligent members were deeply affected, and prognosticated a failure of the impost scheme, and the most pernicious effects to the character, the duration, and the interests of the Confederacy. It was at length, notwithstanding, determined to persist in the attempt for permanent revenue, and a committee was appointed to report the steps proper to be taken." Debates in the Congress of the Confederation, Elliot, I. 17.

[179] $1,545,818 and 30/90 was the whole amount.

[180] On the final question, as to the revenue system, Hamilton voted against it. His reasons were given in a letter to the Governor of New York, under date of April 14, 1783. They were, "First, that it does not designate the funds (except the impost) on which the whole interest is to arise; and by which (selecting the capital articles of visible property) the collection would have been easy, the funds productive, and necessarily increasing with the increase of the country. Secondly, that the duration of the funds is not coextensive with the debt, but limited to twenty-five years, though there is a moral certainty that in that period the principal will not, by the present provision, be fairly extinguished. Thirdly, that the nomination and appointment of the collectors of the revenue are to reside in each State, instead of, at least, the nomination being in the United States; the consequence of which will be, that those States which have little interest in the funds, by having a small share of the public debt due to their own citizens, will take care to appoint such persons as are the least likely to collect the revenue." Still, he urged the adoption of the plan by his own State, "because it is her interest, at all events, to promote the payment of the public debt in continental funds, independent of the general considerations of union and propriety. I am much mistaken, if the debts due from the United States to the citizens of the State of New York do not considerably exceed its proportion of the necessary funds; of course, it has an immediate interest that there should be a continental provision for them. But there are superior motives that ought to operate in every State,--the obligations of national faith, honor, and reputation. Individuals have been too long already sacrificed to the public convenience. It will be shocking, and, indeed, an eternal reproach to this country, if we begin the peaceable enjoyment of our independence by a violation of all the principles of honesty and true policy. It is worthy of remark, that at least four fifths of the domestic debt are due to the citizens of the States from Pennsylvania, inclusively, northward." Life of Hamilton, II. 185, 186.

[181] Address.

[182] Ibid.

[183] With what success this was attended may be seen from the fact, that, from the year 1782 to the year 1786, Congress made requisitions on the States for the purpose of paying the interest on the public debts, of more than six millions of dollars, and on the 31st of March, 1787, about one million only of this sum had been received. The interest of the debt due to domestic creditors remained wholly unpaid; money was borrowed in Europe to pay the interest on the foreign loans; and the domestic debt sunk to so low a value, that it was often sold for one tenth of its nominal amount.

[184] General Washington's letter to Hamilton, March 31, 1783. Writings, VIII. 409, 410. Circular Letter to the Governors of the States, on disbanding the army. Ibid. 439, 451.

[185] None of the documents, connected with the Address to the People of the United States, issued by Congress in 1783, discussed the question as one of direct interest and advantage, except Hamilton's answer to the objections of Rhode Island. The Address itself appealed entirely to considerations of honor, justice, and good faith. Hamilton's paper, however, showed with great perspicacity, that the proposed impost would not be unfavorable to commerce, but the contrary; that it would not diminish the profits of the merchant, being too moderate in amount to discourage the consumption of imported goods, and therefore that it would not diminish the extent of importations; but that, even if it had this tendency, it was a tendency in the right direction, because it would lessen the proportion of imports to exports, and incline the balance in favor of the country. But the great question of yielding the control of foreign commerce to the Union, _for the sake of uniformity of regulation_, was not touched in any of these papers. The time for it had not arrived.

[186] See note at the end of this chapter.

[187] See note on page 194.

[188] As it was, the approach of peace had reduced the attendance upon Congress below the constitutional number of States necessary to ratify the treaty, when it was received. On the 23d of December, 1783, a resolve was passed, "That letters be immediately despatched to the executives of New Hampshire, Connecticut, New York, New Jersey, South Carolina, and Georgia, informing them that the safety, honor, and good faith of the United States require the immediate attendance of their delegates in Congress; that there have not been during the sitting of Congress at this place [Annapolis] more than seven States represented, namely, Massachusetts, Rhode Island, Pennsylvania, Delaware, Maryland, Virginia, and North Carolina, and most of those by only two delegates; and that the ratification of the definitive treaty, and several other matters, of great national concern, are now pending before Congress, which require the utmost despatch, and to which the assent of at least nine States is necessary." (Journals, IX. 12.)