CHAPTER 17: THE PRICE OF LIBERTY
The day after George Washington delivered the State of the Union Address, Alexander Hamilton informed the House of Representatives that the “Report on Public Credit” was ready for their consideration.
Debate followed on how the report should be presented. A number of Congressmen were opposed to Hamilton making the presentation. Some feared it would blur the separation of power’s doctrine, while others feared Hamilton’s renowned powers of persuasion would somehow unfairly influence the outcome.
Two days later--on Monday, January 11--Hamilton celebrated his thirty-third birthday. That same day Congress made a decision: a clerk would read Hamilton’s report to the House. Like a mere interested citizen, the Treasury Secretary would listen from the gallery.
On Thursday, January 14, a clerk seated himself before the House and read aloud Hamilton's 40,000-word report: it took 90 minutes. The report included eleven appendices consisting mainly of numbers and an itemized draft of a proposed tax revision, which were not read. There was little discussion afterwards. It was a lot of information to take in, and most Congressmen didn’t know what to make of it. Someone made a motion to have the hand-written report printed so everyone would have a copy to study. The motion carried. That afternoon, the document was sent by courier to a printer in Hanover Square. Three-hundred copies were ordered.
Six days later, on January 20--the day Madison returned from Virginia--copies of Hamilton’s report were distributed in the House. Within a few weeks the report was printed or summarized in newspapers around the country. Debate was not scheduled to begin until February 8, time enough for the opposition to make its case against the report. In the interim, the House resumed debate of the controversial Residency Bill.
Political storms were gathering.
REPORT SUMMARY
“The Price of Liberty.” That’s what Hamilton called the public debt, because it financed the successful completion of the War of Independence. The total debt was $76 million, or 40 percent of the nation’s GDP (Gross Domestic Product). As a point of comparison, the last time the public debt was 40 percent of GDP (in 1983), the public debt was $1.4 trillion.
The debt fell into three broad categories: Foreign (French and Dutch loans), Domestic (continental securities comprised of bonds, loan office certificates, army pay certificates, indents, etc.) and State (bonds and IOUs).
The amounts outstanding were:
Foreign Debt: $11.7 million (10 million plus 1.7 million in unpaid interest);
Domestic Debt: $40.4 million (27 million plus 13 million in unpaid interest);
State Debt: $25 million (Hamilton's estimate of principle and unpaid interest).
Congress was in favor of paying the foreign debt in full. The question was what to do with the rest? Should the domestic debt be paid in full too, or be partially repudiated based on the current market value of continental securities (50 cents on the dollar, or $13.5 million), or be repudiated altogether? Or should the domestic debt be paid off as quickly as feasible (estimates ranged from five to ten years), or, as Hamilton proposed, be funded? And what about states’ debt? Should it be assumed by the federal government or be the states’ responsibility? And what about unpaid interest? Pay or repudiate?
In Hamilton’s mind, the entire amount, while large, was not so large that it could not be properly managed and actually benefit the nation. He wanted to fund everything: foreign debt, domestic debt, state debt, and unpaid interest; to lump it all together, monetize it, and thereby increase the nation’s money supply.
Hamilton’s “Report on Public Credit” reads like an attorney’s summation to a jury. The Treasury Secretary had mastery of the facts, had a plan of action, and now he was going to steer Congress on a course that was best for the nation’s prosperity and economic growth. It’s no accident that he buried most of the numbers in the attachments. The report was not an accountant’s summary of outstanding debts; it was a sales pitch on what should be done. The wording is friendly, easy to follow, the telling of a story of which there can be but one outcome.
“Hamilton explained his policies in well-written, logically constructed arguments that remain a pleasure to read, even two-hundred years later,” was how past Federal Reserve Chairman Alan Greenspan described the Report in 1996.
Hamilton began with an issue on which everyone could agree--the importance of maintaining good public credit. Then, one-by-one, he discussed the principle issues: funding, discrimination, assumption, a sinking fund, and a new tax proposal. Each of these issues would be debated in Congress over the next six months.
PUBLIC CREDIT: Essential to national security. “Loans in times of public danger,” wrote Hamilton, “especially from foreign war, are found an indispensable resource, even to the wealthiest (of nations).” Under such circumstances, “to be able to borrow upon good terms, it is essential that the credit of a nation should be well established.”
Hamilton compared the financial habits of a nation with those of a responsible businessman. “By good faith, by a punctual performance of contracts, States, like individuals, who observe their engagements, are respected and trusted: while the reverse is the fate of those, who pursue an opposite conduct.” Hamilton provided a laundry list of benefits including, “to restore landed property to its due value; to furnish new resources both to agriculture and commerce; to cement more closely the union to the states; (and) to add to their security against foreign attack.”
FUNDING: Not quite the alchemist’s dream of converting lead into gold, but close. “. . . in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are equivalent to payments in specie; or in other words, stock, in the principal transactions of business, passes current as specie.” (note: it would be only after the Civil War that the word “stock” would come to mean a share of ownership, while “bond” would mean debt; in Hamilton’s day the words were largely interchangeable.)
The debt would be funded with a new issue of U.S. treasury bonds. Interest on treasury bonds would be guaranteed by revenue drawn from a new tax. Treasury bonds would then be accepted with bank notes as another form of money, thus increasing the nation’s money supply. The benefits would be many. With money in greater supply loans would be easier to get, interests rates would fall, and everyone would benefit: merchants, planters, handicraft manufacturers, laborers, and farmers. In contrast, with much of the nation’s money supply tied up in unfunded debt, money becomes scarce making loans costly and difficult to obtain. Hamilton attributed the decrease in land value--as much as fifty percent in the Deep South, twenty-five percent everywhere else--to the scarcity of money. Hamilton also made the case that interest rates would lower as a result of funding.
DISCRIMINATION: An emotional (and political) issue because it dealt with army veterans who were paid with continental securities, and who for a variety of reasons sold their securities for pennies on the dollar. Should they be compensated for their loss? And, with the price of securities on the rise, should speculators who purchased these devalued securities be allowed to profit? Discrimination was a means of redress, an effort of determining what was paid, when, and to whom, of compensating soldiers for their loss, and of paying speculators only what they paid for the stock plus accrued interest.
Hamilton agreed what had happened was unfortunate but countered with the argument that a deal was a deal; no one had forced the original bearers to sell their securities. Speculators had “paid what the commodity was worth in the market, and took the risk of reimbursement upon (themselves).” Discrimination, while well-meaning, would only make the matter worse. Discrimination, said Hamilton, “is inconsistent with justice, because in the first place, it is a breach of contract; in violation of the rights of a fair purchaser. The nature of the contract in its origin, is, that the public will pay the sum expressed in the security, to the first holder, or his assignee.” Discrimination would not only be a bureaucratic nightmare that could very well create more problems than it solved, it likely would increase the public debt manifold and in the future make the purchase of government securities anything but desirable.
ASSUMPTION: Hamilton proposed that the federal government assume all state debts and, as with the domestic and foreign debt, fund them with a new issue of U.S. securities. The War was national; the debt, whether domestic or state, was therefore national and should be treated as such. Assumption would assure uniform regulation and guarantee the War debt in all its forms would be fairly paid. Some states had made provision for paying their debt already, such as Virginia, while others had not because they were in deep financial trouble, such as Massachusetts. Hamilton wanted no state to suffer or be penalized on account of their individual debt. He wanted all War debts to be paid by the federal government so that going forward the states would be on equal financial footing, at least as far as the public debt was concerned. Hamilton also promised equality among the states when state debts were audited, so that the states that had paid their debt would be compensated equally with those states that had not.
While not stated in the report, Hamilton’s goal was for all creditors--both those who owned continental securities and those who owned state securities--to be beholden only to the federal government for payment. It was one more way of further strengthening the national government.
SINKING FUND: while interest payments on U.S. Securities would be paid from tax collections, Hamilton proposed paying the principle from a sinking fund, over a prescribed period of twenty years. Revenue for the sinking fund would be drawn from post office receipts. Hamilton had another undisclosed purpose for the sinking fund and that was to cover a bank run on Hamilton’s planned federal bank, should a financial panic occur.
TAXATION: Hamilton proposed an excise tax on liquor, salt, sugar, coffee and tea, that would assure that the new government had both adequate spending power and the necessary funds to make quarterly interest payments on the debt.
Hamilton concluded: “. . . the proper funding of the present debt, will render it a national blessing.”
Hamilton’s idea of “a national blessing” (bonds, banking, commerce, manufacturing) was not everyone’s idea of “a national blessing” and therein lay a very large road block to getting his financial plan through Congress.
JEFFERSON KEEPS THE PRESIDENT WAITING
There were two other matters pending action in early 1790: one was the appointment of Thomas Jefferson as Secretary of State; the other was the Supreme Court that was scheduled to sit for the first time on February1.
George Washington had not heard a word from Thomas Jefferson since writing and asking him to head up the State Department. That was in November. It was now the middle of January and the President was becoming concerned. Acting Secretary of State John Jay was soon to be sworn in as the first Chief Justice of the Supreme Court and Washington couldn't very well ask him to wear both hats while waiting for Jefferson to make up his mind.
What was Jefferson doing that was so important he couldn't pick up a pen and write the President of the United States? At the very least, he could tell him that he was undecided, that his daughter was getting married and that he intended to be at the wedding to give her way.
James Madison recommended Jefferson for the job. No doubt, when Madison arrived in New York in January the first thing Washington asked him was what was Jefferson's decision? Had he accepted or not? If he had, when could he be expected to take office? Madison confessed he didn't know. Yes, he had spoken with Jefferson at length about filling the position, and no, Jefferson had not yet made up his mind. In the weeks that followed, Washington, Madison and Jay each wrote Jefferson urging him to accept.
In the meantime, Washington concerned himself with moving family and staff into an even larger executive mansion. He received word from the Comte de Moutiers that he was making preparations for his return to France and that the home he was renting, the Macomb House at 39 Broadway, would soon be vacant. Washington wanted this house. It was relatively new, large and spacious, and it had a commanding view of the Hudson not unlike his view from Mount Vernon of the Potomac. There was much work to be done, however. New stables needed to be built. Rooms needed to be repainted, new wallpaper put up, new carpet put down; some rooms refitted as offices, some decorated for meetings and social occasions, and myriad of little things the progress of which kept Washington occupied for several weeks--and his mind off Thomas Jefferson.
THE COURT IS NOW SITTING
Monday, February 1. A carriage waited outside the second most impressive house in New York (after the Macomb House), at 10 Broadway. The owner, John Jay emerged and stepped briskly inside the carriage. A footman dutifully shut the door and the carriage was off.
Jay didn't have far to go. It was a two-block ride from Lower Broadway to the old Royal Exchange Building at the intersection of Broad and Water Streets. It was there he would preside as chief justice of the Supreme Court.
A faint smell of animal dung greeted Jay and the other justices as they arrived and entered the first-floor arcade and proceeded upstairs. The Exchange Building was a commodities marketplace where grain and livestock were sold. Today, however, the area was clear of livestock and all sign of commercial activity. The second floor was converted into a makeshift courtroom.
The justices were not sure how they should dress for the occasion. The white judicial wig was out: it was much too British as Justice William Cushing discovered a few days earlier when he arrived in New York wearing one. His appearance on the street caused such a stir that he returned immediately to his lodging, sent for a peruke maker, and purchased a more appropriate covering for his head. Jay and his fellow justices wore flowing black robes as they took their places on the bench. Unfortunately, only three justices of the six Washington had appointed were present on the first day. Without a quorum, the first meeting of the United States Supreme Court adjourned after but a few minutes.
The following day, a fourth justice arrived to make a quorum. The Court crier opened the proceeding with a ritual invocation that has remained unchanged for more than two centuries: "Oyez! Oyez! Oyez! All persons having business before the honorable, the Supreme Court of the United States are admonished to draw near and give their attention, for the Court is now sitting. God save the United States and this Honorable Court."
The courtroom was crowded with attorneys and the curious, but none approached the bench to argue a case. In fact, the Court docket was empty. It would be some time before cases proceeded through the lower federal court system and by appeal come to the attention of the Supreme Court. In the meantime, the four justices occupied their time with the adoption of procedural rules and the admission of lawyers to the Court's bar. Having no cases to consider, at the end of the first week the Supreme Court concluded its first session. It would meet again in August, in quite a different location, in Philadelphia.
In the meantime, the justices would ride circuit. This would be the undoing of John Jay. In writing the Judiciary Act, Congress had created a separate federal circuit court for each state. There was no separate staff for these courts so each of them was formed by two Supreme Court justices and one local district judge. Since each circuit had to meet twice a year, at dates and places fixed by Congress, the six justices were required to "ride circuit" twice a year. Given the distances and the condition of the roads in 1790 America, it was not possible to return home between court sessions, so a justice would be away from home several weeks or months at a time. At this point in his life, Jay had no desire to be away from home for extended periods. He hated the hardship of travel, and he didn't find the local cases particularly stimulating. He’d been expecting the Supreme Court to be so much more than it was in the 1790s. After two years, he would resign.
CHAPTER 18: STOCKS, SPECULATORS, AND SLAVERY
The mood inside the House of Representatives was not pretty. A number of congressmen were outraged that investors, a.k.a. “speculators,” “stock-jobbers,” and “bloodsuckers,” were making a financial killing at the expense of army veterans.
It was Monday, February 8, the first day of debate on Hamilton’s plan to revive public credit. In the gallery above the floor, it was standing room only. People who came to see a show would not be disappointed. Somewhere in the gallery was the Treasury Secretary, who surely looked on with alarm at what was happening on the floor below.
The first issue on the docket was discrimination: whether or not to compensate veterans and suppliers who for a variety of reasons had sold their government bonds and IOUs at deep discount.
Debate was getting underway when the representative from Georgia took the floor. A great bear of a man with a booming voice, James Jackson was a frontier politician known to pack a pair of dueling pistols. He fought bravely in the Revolutionary War, afterwards becoming rich practicing law, and owned a large plantation. Because he was from the Deep South and a known hothead, he was an easy target for Northerners to mock, particularly by those seated in the gallery. Jackson, however, did not like being trifled with. On one memorable occasion he removed his pistols, pointed them up at the gallery, and said, “Begone with you, or I’ll shoot you dead, sirs, dead.”
On this particular day, Jackson hitched up his pants, cast a threatening eye at the gallery, and declared: "Since (Hamilton’s) Report has been read in this House, a spirit of havoc, speculation, and ruin, has arisen, and been cherished by people who had access to the information the report contained . . . Three vessels, sir, have sailed within a fortnight from this port, freighted for speculation; they are intended to purchase up the State and other securities in the hands of the uninformed, though honest citizens of North Carolina, South Carolina, and Georgia. My soul rises indignant at the avaricious and immoral turpitude which so vile a conduct displays."
What he was saying was essentially true. Speculators were headed into the nation’s hinterlands to buy public securities from ex-soldiers and war suppliers with the hope of making a sizable profit. While a number of Representatives expressed outrage at the practice, it was hardly news. Speculators were as much a part of New York City as accountants and longshoremen, dating back to the days of Dutch rule. Speculators usually dealt in commodities and conducted their business in the same coffee houses that were frequented by Congressmen. Now several of these Congressmen were expressing outrage at the practice, as if they’d never known about it. In the immortal words of Claude Rains in Casablanca, they were “shocked, shocked to see speculating going on. . . .” And like Claude Rains, a number of them were profiting from it, including the man with the pistols, James Jackson.
Speculating in public securities had been taking place since the early 1780s. Merchants and large landowners--anybody with money to invest--began buying them up expecting to make a nice profit--if and when the national government got around to paying the war debt. It was a gamble especially in light of the Confederation government’s lack of revenue and general impotence, and for several years the price of public securities remained low. As soon as the U.S. Constitution was ratified, however, demand picked up and the price of securities began to climb on the open market. Even investors in Amsterdam and in London, working through a New York brokerage firm, began buying them. It was a sign of investor confidence in the Constitutional mandate to pay the public debt in full, something Hamilton had alluded to in his “Report on Public Credit”:
"A general belief prevails that the credit of the United States will quickly be established on the firm foundation of an effectual provision for the existing debt . . . From January to November (1789), they rose thirty-three and a third percent, and from that period to this time (January 1790) they have risen fifty percent more."
As encouraging as these increases were, continental securities had a long way to go before reaching par, and therein lay the problem. If Hamilton’s financial plan was to work, public securities needed to be trading at par. From 10 cents on the dollar, by January 1790 when Congress reconvened, securities were trading at 50 cents on the dollar, which was good but far short of where they needed to be. The rest was up to Congress. Passage of Hamilton’s Funding and Assumption Bill, coupled with passage of Hamilton’s excise tax from which interest payments would be drawn, would likely do the trick.
INVESTOR CONFIDENCE
The key was investor confidence. Investors could put their money anywhere; Hamilton wanted them to invest in public securities. Call them what you will--“speculators,” “stock-jobbers,” and “blood suckers”--to Hamilton they were investors who were betting on the success of the federal government. If investors had good reason to believe in the financial integrity of the government, public securities would hold their value on the open market. If they didn’t, public securities would fluctuate and Hamilton’s plan of converting the debt into liquid capital would not work. In order to monetize the public debt it had to be stable.
Hamilton’s plan called for the federal government to redeem all continental and state securities at face value. However, securities would not be redeemable in gold or silver coin but with a new issue of U.S. securities. The advantage of the new securities over the old was that the federal government would begin making regular interest payments on the new issue. In fact, Hamilton viewed public securities as more of an annuity than a stock or bond. He saw them as a financial instrument that guaranteed interest to the holder for however long he held the bond. Public securities would trade on the open market, could be used in business transactions as a form of money (like bank notes), only the government would not redeem them for hard cash. The government didn’t have the cash anyway, but that wasn’t important. What was important was that investors believed the government stood behind its obligations.
In order for U.S. securities to be as good as gold, the government could never default. For many of the larger investors, living in New York, Philadelphia, London, Paris and Amsterdam, that was what mattered most. Whether or not they were ever paid in specie wasn’t important, as long as their stocks held their value, could be traded on the open market, and paid quarterly interest.
To be sure, speculators were buying low--as low as five cents on the dollar in some cases. By January of 1790, the going rate for continental securities was 50-cents on the dollar. Speculators were paying in specie. The originals holders didn’t have to sell. Many had been sitting on their government bonds and IOUs for several years with nothing to show for it. Speculators were offering payment in gold and silver coins. Why not take it? A piece of the pie was better than none at all.
Speculators ran the risk of the government defaulting or of repudiating the debt in part or in full, depending on what Congress decided. Hamilton’s proposal looked promising, but politics played a part; there was no guarantee Congress would pass the measure. Speculating in government securities was just that--speculating.
Jackson was just getting started with his accusations. He and others opposed to assumption charged that Hamilton’s supporters in Congress stood to profit greatly, a charge that eventually would be blown up to an accusation that the whole scheme was a plot to enrich speculators. It was true that several of Hamilton’s staunchest supporters in both houses were security holders. Yet the two most ardent champions of assumption, Fisher Ames and Theodore Sedgwick of Massachusetts, held no state securities at all, and five opponents of assumption--opponents, mind you--held more than $1,000 apiece in state securities. In the Senate, seven members who championed Hamilton’s proposal held large amounts of securities, ranging from $6,000 to $60,000.
In sum, there is little doubt that a number of congressmen who supported Hamilton were motivated at least in part by personal interests, but not to the extent Jackson imagined--probably eight or nine of the sixty-five members of the House and four of the 24 senators.
While professing indignation, Jackson too was motivated by personal interests. He was speculating in land--buying public land in western Georgia with state securities purchased at ten cents on the dollar, and being credited with full-face value at the time of purchase. He was against assumption because it meant competition in his state’s bond market was driving up the price of state securities.
Jackson was not alone. Several representatives from Jackson’s home state were in on it, plus representatives from the back country of South Carolina, North Carolina, Pennsylvania, and northern New Hampshire. These frontier politicians were out to make a fortune through the purchase of state-owned lands with depreciated public securities. In turn, they planned to sell the land in 100-acre parcels at great profit. Hamilton’s proposed assumption of state securities threatened to spoil their get-rich-quick scheme.
THE MAN IN THE MIDDLE
There was a larger issue troubling southern congressmen and it had nothing to do with speculators. It was the fear that Hamilton’s plan would upset the established order. It would enrich the north at the expense of the south. At the same time, it would strengthen the federal government which, by the way, was located in a northern city. Under such a scenario, the balance of power would be altered significantly in favor of the north. With the exception of South Carolina, which was in bad financial straights and favored assumption, the battle over assumption was shaping up as a sectional issue: North versus South.
Once again, the man in the middle was James Madison. He alone had the power to deliver the votes either way, as Hamilton well knew. In the “Report on Public Credit” Hamilton very cleverly quoted the congressional resolution of April 26, 1783--a resolution written by Madison himself--which explicitly pledged there would be no discrimination between original and later holders. That was then. Now Madison favored discrimination. Only the issue wasn’t really about discrimination at all; it was about assumption. The debate over discrimination was merely a pretext, a trial balloon, to determine the mood of the House. If the House voted for discrimination, it would be a clear indicator that assumption was dead.
Why had Madison changed his tune? Because he was feeling political heat from back home and was under a lot of pressure to act on behalf of his state. His constituency was angry with funding and assumption and what it represented, but especially with assumption. Virginia was one of the few states to have actually paid off its state's war debt. If assumption passed, Virginians would be taxed for a debt they had already paid. In effect, they would be paying twice. Hamilton met with Madison privately to assure him that Virginia would be compensated--and be compensated well--when state debts were audited. But it wasn’t enough. Virginia wanted more--more power, more money, more gravitas. As John Adams put it so well: in Virginia all geese are swans. Hamilton was soon to find this out.
There was yet another reason why Virginia was against Hamilton’s plan. Early frosts had wiped out half of that year’s tobacco crop, and the bizarre money market prevented tobacco prices from rising enough to make up more than a fraction of their losses. It reminded Virginia planters yet again of why they hated the British and their financial system, with its unscrupulous moneymen, symbolic money, bankers, and institutionalized debt. What was Hamilton’s plan but an imitation of the very system they despised?
Such was Madison’s dilemma. The stakes were high. To break with Hamilton now was to risk losing influence with the president. Not to do so meant certain defeat in the next election.
After James Jackson’s lengthy speech, several congressmen spoke, followed by yet another long speech by Jackson. Elias Boudinot of New Jersey then took the floor. He spoke for many when he said: "I should be sorry if, on this occasion, the House should decide that speculation in the funds are violations of either moral or political law. A government hardly exists in which such speculation is disallowed; . . . (I agree) that the spirit of speculation had now risen to an alarming height; but the only way to prevent its future effect, is to give the public funds a degree of stability as soon as possible."
Debate consumed all of Monday, Tuesday, and Wednesday. On Thursday, February 11, Madison took the floor for the first time. On this day he made his position quite clear: he was for discrimination. Seated not 30 feet away up in the gallery, the implication was not lost on Hamilton. With Madison in opposition, the fight over funding and assumption would be bitter and drawn out with success far from assured.
The last thing Madison wanted was to inflame emotions as Jackson had done. Madison’s presentation was low key, his arguments cool and logical, designed to control the debate, and therefore to control the outcome. He spoke at length, building a case for discrimination carefully, point-by-point. Throughout the morning, all went well. Not so in the afternoon. In the afternoon, his determination to control events was challenged by a new issue he had not foreseen, an issue sure to ignite the passions--slavery.
It came without warning. In the afternoon, an ominous sign was a gathering of Quakers in the gallery, then Thomas Fitzsimons of Pennsylvania asked to have the floor, followed by John Lawrence of New York who asked to have the floor. Speaking on behalf of the Quakers in their states, Fitzsimons and Lawrence presented petitions calling for the immediate abolishment of the slave trade.
Reaction was immediate as representatives from the Deep South took the floor to protest vehemently. James Jackson of Georgia spoke first with words that boomed like a canon. He glared up at the Quakers. Who were these people? he asked rhetorically. What right did they have to petition Congress? They did not fight in the Revolutionary War. Their “precious conscience” would not allow it. What standing did they have among veterans, who "at the risk of their lives and fortunes, secured to the community their liberty and property?"
William Loughton Smith of South Carolina, took a quieter and more legalistic approach. He pointed out that the Constitution prohibited Congress from passing a law that abolished the slave trade until 1808. The Quakers' petition, therefore, did not have standing. Put another way, they were asking for something that the Constitution had declared off limits.
Jackson would not let go, however. He detected a sinister plot behind the Quaker petition. "I apprehend, if through the interference of the general governments, the slave-trade was abolished, it would evince to the people a general disposition toward a total emancipation." Translation: the Quaker petition was a mere pretense to achieving their real aim of abolishing slavery altogether. He was right.
The following day, Friday, February 12, another petition was presented, this one from the Pennsylvania Abolition Society. It urged Congress to "take such measures in their wisdom, as the powers with which they are invested will authorize, for promoting the abolition of slavery, and discouraging every species of traffic in slaves." The petition made two additional points sure to excite the fears of southern slaveholders. First, it claimed that both slavery and the slave trade were incompatible with the values for which the Revolution was fought. Second, it challenged the claim that the Constitution prohibited any legislation by the federal government against the slave trade for 20 years, suggesting instead that the "general welfare" clause of the Constitution empowered the Congress to take whatever action it deemed "necessary and proper" to eliminate the stigma of trafficking in human beings and to "Countenance the Restoration of Liberty for all Negroes."
The petition was signed by one of the most esteemed and respected of American patriots: Benjamin Franklin.
THE TRUMPET OF CIVIL WAR
Upstairs in the Senate, meanwhile, William Maclay of Pennsylvania heard a rumor there was "warmth in the House of Representatives on the Quaker memorial," in other words, the House looked on the petitions favorably. Boy, was he wrong. He went to gallery to have a look. What he saw was 60 well-dressed men in a state of near-brawl. "The House have certainly debased their dignity," he later wrote in his journal. "Using base invective indecorous language 3 or 4 up at a time. manifest signs of passion. the most disorderly Wanderings, in their Speeches, telling Stories, private anecdotes &ca &ca. I know not What may come of it. but there seems a General discontent among the Members, and many of them do not Hesitate to declare, that the Union Must fall to pieces at the rate we go on."
One of the angriest protestors was Aedanus Burke of South Carolina (he of the whipped syllabub metaphor). The petitioners were "blowing the trumpet of sedition," he declared. Not to be outdone, James Jackson of Georgia said he could hear the "trumpet of civil war." And so it went until someone called for the question. Over strong southern opposition, a vote was taken and the green light was given to debate the slavery question at once.
Jackson then held up a Bible. Slavery was God's will. Everyone knew that. “Ask any Georgia minister,” he said. What’s more, the southern economy depended on slave labor for its very survival. "Rice cannot be brought to market without these people," he said.
William Smith of South Carolina concurred. "Such is the state of agriculture in that country, no white man would perform the tasks required to drain the swamps and clear the land, so that without slaves it must be depopulated." Smith pointed out that one of the biggest conflicts among the framers of the Constitution was between those states which depended on slave labor and those that did not. As a result, a sectional agreement had been worked out between northern states and southern states that the newly created federal government would not interfere with southern slavery. The southern states had ratified the Constitution with that understanding as a precondition. "Unless that part was granted they would not have come into the union," Smith said. He added: “We took each other, with our mutual bad habits and respective evils, for better, for worse, the Northern States adopted us with our slaves, and we adopted them with their Quakers.”
John Laurance of New York took the floor next. He wanted to know how any Christian could read the Sermon on the Mount and believe slavery was compatible with the Bible. As far as the Constitution, Laurance said slavery was an anomaly that would be tolerated only for a given period of time because there was a clear perception that it was wrong and that eventually it would be abolished. He then pointed to the northern states as a clear example. Half of them had abolished slavery since the signing of the Declaration of Independence. It was time the south got on board and began the process.
And so it went. As with assumption, the battle fell along sectional lines, North versus South, with the future of the American republic hanging in the balance. The Senate, meanwhile, turned a deaf ear by closing their windows to mute the shouting matches taking place in the lower house.
Madison elected to stay out of it. Like George Washington, he was a Virginian who had spent a number of years living in the north, first as a student at Princeton College in New Jersey and later as a Congressional delegate in Philadelphia and in New York. He was familiar with the growing abolitionist sentiments of the north. Despite being a slave owner, Madison believed “the peculiar institution” was morally wrong and a national embarrassment. And, he felt certain, it was dying out. So why risk unity--why risk the republic--over an issue that would die off on its own?
The republic had faced the slavery question twice before: in 1776 while debating independence, and again in 1787 while drafting the U.S. Constitution. In the interest of national unity, the slavery question was side-stepped both times. Now, thanks to the petitions presented by the Quakers and by Ben Franklin, the question was up for debate yet again, and threatening national unity once again.
Late in the afternoon Madison reasserted his control. He moved to have the debate taken up by committee, thereby moving it from the public eye and allowing Congress to continue the debate over discrimination. The motion carried. With that, a very long week of debate ended.
On Monday, February 15, Madison resumed his case for discrimination. The public debt should be paid in full, he said. The government would pay what it owed, of course, but to whom did it owe it? The original holders of government securities had a rightful claim, and so did current holders. "To pay both is perhaps beyond the public ability,” he said. “And as it would far exceed the value received by the public, it will not be expected by the world, nor even by the creditors themselves. To reject wholly the claims of each is equally inadmissible . . . .” The honorable thing, he said, was to compromise: to pay the current holders the present market value and to pay the original holders the difference between market value and face value.
It seemed logical enough and the fair thing to do. As the week wore on and counter arguments were made, however, it became clear that Madison’s proposal presented more problems than it solved. Identifying the original holders would be a bureaucratic nightmare, and in many cases impossible. Record keeping was scant at best. As one representative pointed out, the work of tracing the original creditors would fill the land "with discontent, corruption, suits, and perjury."
Another objection was that of simple justice. If an original holder sold his bonds to another, "are we to disown the act of the party himself?" asked Elias Boudinot. "Are we to say, we will not be bound by your transfer, we will not treat with your representative but insist on resettlement with you alone?"
In essence, Madison was saying contract law did not apply to the transfer of bonds. Should anyone be unhappy with the amount he was paid at the time of sale, he had merely to turn to the government for redress, and the government would intervene and make it right. Put another way, the owners of public securities were not responsible legally or otherwise for their action. Such a scheme would make a few people happy but it would frighten away the vast majority of serious investors both nationally and abroad.
Monday, February 22 was Washington’s birthday. That same day, in the House, a call for the question was made. A vote was taken and the outcome was not even close--the discrimination bill was defeated by 23 votes--13 for, 36 against. In effect, the government decided it would stand behind the transferability of bonds.
Hamilton was relieved, not only because it bode well for the upcoming funding and assumption debate, but because it insured the desirability of owning public securities. It meant the influx of new money entering the market would stay--money from major investors in Europe and at home--money that was driving up the price of pubic securities, helping the nation recover from financial collapse, and insuring the future welfare of the nation.
After a string of successes, it was Madison’s first defeat in the House, and a stinging defeat at that. The soft-spoken Virginian did not accept defeat gracefully. When it became obvious his motion was going to fail, he became argumentative and angry. One of Madison’s supporters in the Senate, William Maclay, wrote angrily in his journal: "The obstinacy of this man has ruined the opposition (to Hamilton)."
Madison wasn’t giving up. He had devised a new and clever strategy for defeating assumption.
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