Hamilton's famous report to the First Congress, as secretary of the treasury, was made at the second session in January, 1790. Near the close of the previous session a petition asking for some settlement of the public debt was received and referred to a committee of which Madison was chairman. The committee reported in favor of the petition, and the House accordingly called upon the secretary to prepare a plan "for the support of the public credit."

So far as Hamilton's funding scheme provided for that portion of the debt due to foreigners, it was accepted without demur. There could be no doubt that there the ostensible creditor was the real creditor, who should be paid in full. The report assumed that this was equally true of the domestic debt. A citizen holding a certificate of the indebtedness of the government, no matter how he came by it, nor at what price, was entitled to payment at its face value. But here the question was raised, Was this ostensible creditor the sole creditor? Was he, whose necessities had compelled him to part with the government's note of hand at a large dis[145]count when full payment was impossible, to receive nothing now when at last government was able to pay in full? Was it equity to let all the loss fall upon the original creditor, and all the gain go to him who had lost nothing originally, and had only assumed at small cost the risk of a profitable speculation? Moreover it was charged, and not denied, that in some of these speculations there had been no risk whatever; and that, so soon as the tenor of the report was known, fast-sailing vessels were dispatched from New York to the Carolinas and Georgia to buy up public securities held by persons ignorant of their recent rapid rise in value. As hitherto they had been worth only about fifteen cents on the dollar; as upon the publication of the secretary's report they had risen to fifty cents on the dollar; and as, if the secretary's advice should be taken, they would rise to a hundred cents on the dollar,—it would be securing what in the slang of the modern stock exchange is called "a good thing" to send agents into the rural districts in advance of the news to buy up government paper. "My soul rises indignant," exclaimed a member, "at the avaricious and moral turpitude which so vile a conduct displays." Nor on that point did anybody venture then to disagree with him openly.

But, besides the question as to who were in reality the public creditors, a doubt was also raised whether the debt ought to be paid in full to anybody. Every dollar of the foreign debt was for an actual dollar borrowed. But the domestic debt[146] was not incurred to any large amount for money borrowed, but in payment for services, or for provisions and goods purchased, for which double, or more than double, prices had been exacted by those who exchanged them for government paper. If the exigencies of war had compelled the government to promise to pay for fifty bushels of wheat the price of a hundred bushels, the creditor, now that the government was in a condition to redeem its promise, was not entitled in equity to receive more than the actual value of the fifty bushels at the time of the purchase. Moreover, it was contended, there was no injustice in such a settlement of the debt, for the war had been carried on and brought to a successful end, for the benefit of the creditor as well as of everybody else. The argument was analogous in a measure to that used by a certain class of politicians in our time, who maintained that the bonds of the United States, bought at a discount for "greenbacks" during the late rebellion, should not be redeemed in gold when the war was over.

The answer to all this was obvious. The nation must first be just by paying its debts to those who could present the evidence that they were its creditors. If, when that was done, it could afford to be generous, it might, if so disposed, reimburse those who had lost by parting with the certificates of debt at a discount. The government could not in honor go behind its own contracts. The Constitution provided that "all debts and engagements,[147] entered into before the adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation." Here was a debt which the Confederation had contracted, and the federal government had no more right "to impair the obligation of contracts" for its own benefit than the separate States had; and that they were expressly forbidden by the Constitution to do.

Madison listened quietly day after day to the long and earnest debates upon the subject, and then advanced an entirely new proposition. He agreed with one party in maintaining the inviolability of contracts. The Confederacy had incurred a debt to its own citizens which the new government had agreed to assume. But he also agreed with the other party that there was a question as to whom that debt was due. Were those who now held the certificates entitled to the payment of their face value, dollar for dollar, although the cost to them was only somewhere from fifteen to fifty cents on the dollar? It was true that the original contract was transferable, and these present creditors held the evidence of the transfer. But did that transfer entitle the holder to the full value without regard to the price paid for it? Was there not in equity a reserved right in the original holder, who, having given a full equivalent for the debt, had only parted with the evidence of it, under the compulsion of his own poverty, and the inability of the government at that time to meet[148] its obligations? Was not this specially true in the case of the soldiers of the late war, to whose devotion and sacrifices the nation owed its existence?

Mr. Madison thought that an affirmative reply to the last two queries would present the true view of the case, and he proposed, therefore, to pay both classes of creditors,—those who now held the evidence of indebtedness, acquired by purchase at no matter what price; and those who had parted with that evidence without receiving the amount which the government had promised to pay for services rendered. It was not, however, to be expected that the entire debt should be paid in full to both classes. That was beyond the ability of the government. But it would be an equitable settlement, he contended, to pay the present holders the highest price the certificates had ever reached, and to award the remainder to those who were the original creditors.

This proposition received only thirteen votes out of forty-nine. Many of those opposed to it were quite ready to grant that it was hard upon the veterans of the war that they, who had received so little and who had borne so much, should not now be recognized as creditors when at last the government was able to pay its debts. But the House could not indulge in sentimental legislation. That would be to launch the ship of state upon another sea of bankruptcy. There were in the hands of the people tens of millions of paper money not[149] worth at the current rate a cent on the dollar. If everybody who had lost was to be paid, the point would soon be reached where nobody would be paid at all. A limit must be fixed somewhere; let it be at these certificates of debt which were the evidence of a contract made between the government and its creditors. These could be paid, and they should be paid, to those who were in lawful possession of them. The law, if not the equity, of the case was clearly against Madison. That the government should be absolutely just to everybody who had ever trusted to it, and lost by it, was impossible. It was a bankrupt compelled to name its preferred creditors, and it named those whom it was in honor and law bound to take care of, and over whose claims there was, on the whole, the least shadow of doubt. That the loss should remain chiefly with the soldiers of the Revolution, and the gain fall chiefly to those who were shrewd enough, or had the means to speculate in the public funds, was a lamentable fact; but to discriminate between them was not within the right of the government. That he would have had it discriminate was creditable to Madison's heart; it was rather less creditable to his head.

Of course, underneath all this debate there lay other considerations than those merely of debtor and creditor, of moral and legal obligation, of pity for the soldiers, and of strict regard for the letter of a contract. Mr. Hamilton and his friends, it was said, were anxious to establish the public[150] credit, not so much because they wished to keep faith with creditors as because they wished to strengthen the government and build up their own party. The reply to these accusations was, that the other side, under pretense of consideration for the soldiers and others on whom the burden of the war had borne most heavily, concealed hostility to the Constitution and a consolidated government. These were not reflections to be spoken of in debate, but they were not the less cherished, and gave to it piquancy and spirit. There was truth on both sides without doubt.

Though defeated in this measure, Madison was not less determined in his opposition to the assumption of the debts of the States. Of these debts some States had discharged more than others; and he complained, not without reason, of the injustice of compelling those which had borne their own burdens unaided to share in the obligations which others had neglected. He was unfortunate, however, in assuming a superiority for Virginia over some of the Eastern States, and especially over Massachusetts, in services rendered in the struggle for independence. The comparison provoked a call for official inquiry; and that proved that Massachusetts alone had sent more men into the field during the war than all the Southern States together. It was not much to be wondered at, when this fact was considered, that the debt of Massachusetts should be larger than that of Virginia by $800,000. The difference[151] between Virginia and South Carolina was the same, the truth being that the war had cost Massachusetts more money to pay her soldiers for the general service, and South Carolina more to repel the enemy upon her own soil, than it had cost Virginia for either purpose. Massachusetts and South Carolina were again found acting together, simply because each of them had a debt—$4,000,000—larger than that of any other State. The total debt of all the States was about $21,000,000; and as that of North Carolina, Pennsylvania, or Connecticut, when added to the $8,000,000 of Massachusetts and South Carolina, amounted to half, or more, of the whole sum, there was no difficulty in forming a strong combination in favor of assumption. No combination, however, was strong enough to carry the measure on its own merits, notwithstanding its advocates attempted to defeat the funding of the domestic debt of the Federal union unless the debts of the several States were assumed at the same time.

The domestic debt, however, was at length provided for, and the assumption of the debts of the States was rejected till that bargain, referred to in the preceding chapter, which gave to the Southern States the permanent seat of government, was concluded. It would not have been difficult, probably, to defeat that piece of political jobbery by a public exposure of its terms. Why Madison did not resort to it, if, as seems certain, he knew that such a bargain had been privately made, can[152] only be conjectured. Perhaps he saw that Hamilton, who was applauded by his friends and denounced by his enemies for his clever management, had, after all, only made a temporary gain; and that Jefferson, whose defense was that Hamilton had taken advantage of his ignorance and innocence, would not, had he not been short-sighted, have made any defense at all. For the assumption of the state debts by the general government was only a distribution of a single local burden; and this was a small price for Virginia and the other Southern States to pay for the permanent possession of the federal capital.

While these questions were pending, another was thrown into the House which was not disposed of for nearly two months. The debates upon it, Madison said in one of his letters, "were shamefully indecent," though he thought the introduction of the subject into Congress injudicious. The Yearly Meeting of Friends in New York and in Pennsylvania sent a memorial against the continued toleration of the slave trade; and this was followed the next day by a petition from the Pennsylvania Society for the Promotion of the Abolition of Slavery, signed by Benjamin Franklin as president, asking for a more radical measure.

"They earnestly entreat," they said, "your serious attention to the subject of slavery; that you will be pleased to countenance the restoration of liberty to these unhappy men, who alone in this land of freedom are degraded into perpetual bondage, and who, amidst[153] the general joy of surrounding freemen, are groaning in servile subjection; that you will devise means for removing this inconsistency from the character of the American people; that you will promote mercy and justice towards this distressed race; and that you will step to the very verge of the power vested in you for discouraging every species of traffic in the persons of our fellow-men."

The words were probably Franklin's own, and, as he died a few weeks after they were written, they may be considered as his dying words to his countrymen,—counsel wise and merciful as his always was.

A memorable debate followed the presentation of these memorials. Even in the imperfect report of it that has come down to us, the "shameful indecency" of which Madison speaks is visible enough. Franklin, venerable in years, exalted in character, and eminent above almost all the men of the time for services to his country, was sneered at for senility and denounced as disregarding the obligations of the Constitution. But the wrath of the pro-slavery extremists was specially aroused against the Society of Friends, and was unrestrained by any considerations of either decency or truth. In this respect the debate was the precursor of every contest in Congress upon the subject that was to follow for the coming seventy years. The Quakers were the representative abolitionists of that day, and the m............