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Foreign Interest Remittances by the United States, 1785–1787: A Story of Malfeasance
Published online by Cambridge University Press: 11 June 2012
Abstract
In servicing the foreign-held debt of the United States during 1785–1787, public policy delegated a considerable portion of the process to private businessmen. The results certainly question the efficacy of the private conduct of public affairs in the financing of the new American nation.
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- Copyright © The President and Fellows of Harvard College 1967
References
1 Fritz Redlich has argued that, in the late eighteenth century, mercantile bills of exchange were a more common medium of effecting international payments between states than was specie. It often became necessary, asserted Redlich, “to transform indebtedness between states into indebtedness of private individuals to states.” His examples were drawn primarily from European wartime experiences where the payees were states. Redlich, Fritz, “Payments between Nations in the Eighteenth and Early Nineteenth Centuries,” Quarterly Journal of Economics, L (August, 1936), 694–705CrossRefGoogle Scholar.
Some of the same factors may also have been at work in the American context of the 1780's leading to the use of businessmen to facilitate international payments between state payers and private payees.
2 The Receivers could accept taxes in kind (usually tobacco); in specie, a highly un-likely medium; or in a number of paper issues. The commodities collected as taxes were often shipped to Europe for sale. In this way, taxes collected at home were converted into credits in Europe.
3 William Constable letterbook, 1782–1790, Constable to A. Ellice, May 23, 1789, (Manuscript Division of the New York Public Library). This source hereafter cited as NYPL, WC Ltr Bk 82–90.
4 Constable's career began in the fur trade at Schenectady and Detroit in 1769. He went to London in 1774 for Phyn and Ellice, returning to New York in 1777, only to move on to Philadelphia when the British took that city. Constable was involved with Benedict Arnold in the latter's commercial dealings at Philadelphia. He later served as aide-de-camp to Generals Lafayette and Muhlenberg after taking the Oath of Allegiance to Pennsylvania. His business partner in Philadelphia was James Seagrove, with whom he severed in fall 1783, moving to New York to enter business with the Morrises. Little is known about John Rucker, the fourth partner in Constable, Rucker & Co.
5 Buffalo Historical Society, John Porteous Papers, p. 1335. Constable to John Porteous, May 5, 1785, February 17, 1786. This source hereafter cited as BHS, JP Pprs.
6 Shannon, F. A., America's Economic Growth (New York, 1951), 106–110Google Scholar.
7 R. Morris had been instrumental in establishing the Bank of North America at Philadelphia in 1782. Its specie reserve was provided by a loan from France. The Bank of New York and the Bank of Massachusetts were founded in 1784.
8 NYPL, WC Ltr Bk 82–90, Constable to Cummings and McCarty [in France] Dec. 17, 1782, which reads, “Herewith you have Morris on Grand at 30 days which place to our Cr P 10,000.”
9 NYPL, Constable-Pierrepont Papers (hereafter cited as C-P Pprs), letters and accounts, 1784–1793, Bd. of Treas. to CR & Co., May 16, 1785.
10 NYPL, C-P Pprs, Bd. of Treas. Pprs, 1785–86, notes signed May 19, 1785. The notes, amounting to $65,000 are numbered serially. Several of the notes are missing. The total of the notes then probably amounted to $100,000.
11 NYPL, C-P Pprs, CR & Co. Ltrs. & Accts., 1783–94. Contract dated Aug. 31, 1785.
12 Edgar was an old fur-trading friend of Constable's from upstate New York. He had amassed considerable wealth and had loaned Constable a sum of money as his share of CR & Co's capital.
13 NYPL, CR & Co., Ltrs. & Accts., 1784–93, Bd. of Treas. to CR & Co., Aug. 30, 1785.
14 ” NYPL, C-P Pprs, CR & Co. Ltrs. & Accts., Articles of Agreement between the Board of Treasury and CR & Co., Dec. 7, 1785.
15 The Dictionary of American Biography has Duer's appointment begin in March 1786. Letters in the Constable-Pierrepont collection, NYPL, from the Board of Treasury and written in the hand of Duer, indicate beyond doubt that Duer's service with the Treasury began at least as early as August 1785. This public-private contract negotiation of Duer's is not the first instance in which he sought to use public office for private advantage. Davis, J. S., in his Essays in the Earlier History of American Corporations (2 vols., Cambridge, Mass., 1917)Google Scholar, recounts a manipulation between Duer and James Jarvis in connection with a contract to provide copper coin for the government. Duer was to use his influence to secure a contract for Jarvis, and if successful, to share in the advantages. See Davis, I, 127–30.
16 NYPL, C-P Pprs., W. C. Misc. Pprs., n.d. Internal evidence places Duer's draft in November 1785.
17 Duer's correspondence frequently shows slips of the pen on dates and numbers.
18 A rough copy of the letter, in Duer's hand, remains among Constable's papers, dated November 23, 1785. NYPL, C-P Pprs., CR & Co. Ltrs. & Accts., 1784–93. A second copy in Constable's hand is dated Nov. 28, 1785; a marginal note reveals that a fair copy was sent to the Treasury.
The proposal sent to the Treasury was as follows: Constable, Rucker and Co. would pay 81,000 livres in France by November 1, 1786; 37,000 current florins in Holland by February 1, 1787; and another 37,000 florins by June 1, 1787. At 5 livres 8 sols per dollar, the rate of exchange stipulated in the letter, the dollar equivalent of the sum due France was $15,000. At 2½ florins per dollar, the amount to be paid to Holland amounted to $30,000.
In order to make these payments for the Treasury, the letter proposed that Constable should receive 37,500 florins ($15,000) and $30,000 in “Paper Money of the last year's Emission of the State of Pennsylvania.”
19 NYPL, C-P Pprs., CR & Co. Ltrs. & Accts. 1784–93, CR & Co. to Bd. of Treas., Nov. 28, 1785.
20 All correspondence in NYPL, C-P Pprs., CR & Co. Ltrs. & Accts., 1784–93.
The Board replied to Constable on November 30, in the hand of Duer. The Board's response, signed by Walter Livingston and Samuel Osgood, expanded on Duer's original suggestion in one significant way. The sums to be negotiated were increased.
The first draft of a reply to the Treasury's enlarged plan, dated December 2, 1785, is in Constable's hand. Corrections and several minor modifications appear on this draft in the hand of the artful and ubiquitous Duer, adding another $2,100 to the sums negotiated.
The Board concluded the contract on terms developed in the correspondence to this point. The following day, December 3, a brief reply returned from the Treasury over the signatures of Osgood and Livingston. “… We shall give the orders for making out the Necessary Papers that the Business may be completed with as little delay as possible.”
21 NYPL, C-P Pprs., CR & Co. Ltrs. & Accts. Articles of Agreement between Bd. of Treas. and CR & Co., Dec. 7, 1785.
The “New Emission” of New York had been issued as interest-bearing notes. With interest accumulating for four years, the New York currency called for in the contract was computed as worth 25,200 Spanish milled dollars.
22 NYPL, C-P Pprs., Cr. & Co., Ltrs. & Accts. Addendum attached to agreement between Bd. of Treas. and CR & Co., dated Dec. 7, 1785.
23 NYPL, C-P Pprs., WC Ltrs. 1774–91, Constable to Duer, draft n.d.
24 NYPL, C-P Pprs., WC Ltrs., 1774–91, Constable to Duer, draft, n.d.
25 BHS, JP Pprs., p. 1340, WC to JP, Aug. 5, 1784.
26 Lib. of Congress, Jefferson Pprs., vol. 21, p. 3623, Copy of contract between Le Normand and R. Morris, Apr. 10, 1785.
27 For Rucker's nonacceptance see: Papers of Continental Congress, No. 138, 1, [Report of Bd. of Treas. to Congress, signed by S. Osgood and Arthur Lee, July 25, 1787] p. 5–12.
28 BHS, JP Pprs., Wm. Constable to JP, Feb. 17, 1786.
29 Library of Congress, Pprs. of R. Morris, 21 Ltrs. to CR & Co., RM to Wm. Constable, July 27, 1786.
30 BHS, JP Pprs., WC to JP, Sept. 18, 1787.
31 Pprs. of Continental Congress, No. 138, 1, [Bd. of Treas. Report signed by Osgood and Lee, 25 July, 1787] 5–12 notes that the loan of one million florins was necessary because Commissioners of the Loan had to make disbursements on account of the Barbary Treaties, because of the disappointment attending the remittances of CR & Co., and because Jefferson and Adams were drawing drafts on the Loan Commissioners, hence the latter had insufficient funds to pay the interest.
32 Bolles, A. S., The Financial History of the U.S. from 1774 to 1789 (2nd ed., New York, 1884), 352–53Google Scholar claims the interest rate was 8 per cent.
33 NYPL, C-P Pprs., CR & Co. Ltrs. & Accts., 1783–94, Agreement between CR & Co. and Wm. Duer, Dec. 13, 1785.
34 The 50,000 florins due by that date equals $20,000 at 2½ florins per dollar.
35 At this time, there were many continental and state securities which had vastly depreciated since their issue. Soldier's pay, evidences of interest due, commissary receipts, and State bonds, all had dropped to a fraction of their face value. There was little expectation on the part of the public that these scraps of paper issued during the Revolution would ever be honored by the governments involved and paid in specie at their face value. Consequently, most holders were happy to take for them whatever they could get. Mercantile and monied interests, of course, put steady pressure on the government to honor this debt. It was the hope that ultimately these issues would be redeemed that triggered off a flurry of speculative buying. Given the fiscal weakness of the Articles of Confederation, little could be done about the matter. When the Constitution was adopted, Hamilton's Report on Public Credit argued for (1) federal assumption of state debts; (2) payment of all debts plus accumulated interest thereon; and (3) no distinction between original and present holders of the debt. Much to the satisfaction of the speculators, and some others, Congress adopted Hamilton's proposals. When Hamilton's office superceded the Board of Treasury, Duer stayed on briefly as his assistant.
36 NYPL, C-P Pprs., WC Ltrs. 1774–91, Furman to WC, Jan. 2, 1786.
37 NYPL, C-P Pprs., WC Ltrs. 1774–91, WC to James Phyn, Dec. 8, 1787.
38 Robert Morris had put up 50 per cent of the capital for the first Empress voyage. The firm of Daniel Parker & Co. (William Duer being the other partner) was also interested in this first voyage but lost its share of the vessel when the partnership went bankrupt in 1784 or 1785. At the time the Empress left port for her first voyage (Feb. 1784), Morris was still Superintendent of Finance. She had on board specie and genseng. See Thos. Randall to A. Hamilton, Aug. 14, 1791. Reproduced in Cole, A. H. (ed.), The Commercial and Industrial Correspondence of A. Hamilton (Chicago, 1928), 129–46Google Scholar.
39 Lib. of Cong., Pprs. of R. Morris, 21 Letters to Constable, Rucker and Co.
40 Assume, for example, an American merchant having to discharge a 100 florin obligation in Holland in three months, the current rate between florins and dollars being 2½ to one. Our merchant will need $40 to discharge his obligation. Suppose now that he lays out the $40 for American goods to be shipped and sold. He may or may not receive 100 florins net of necessary costs such as shipping, insurance, etcetera. Again, likelihood of cost equalization seems remote. To remit by goods the merchant may have needed either more or less than $40.
41 Mitchell, Broadus, in Alexander Hamilton: Vol. II, The National Adventure 1788–1804 (New York, 1962), 155Google Scholarpassim, asserts that Duer, while Assistant Secretary of the Treasury (1789–90), was “guilty of the gravest malfeasance,” being “up to his eyes in speculation in the public debt,” and that Hamilton “thought it the best course” when Duer resigned.