Gouverneur Morris letter to Alexander Hamilton, 31 January 1790

Paris January 31st, 1790.

Dear Hamilton,

I did expect that in congratulating you, which I do most sincerely, upon your appointment, I should have communicated a matter which would have administered much ease and convenience to the affairs of your department. I learn this morning that these expectations are frustrated from a quarter, and in a manner, which would excite my surprise, had I not long since acquired the habit of wondering at nothing. I will tell you a plain story.

M. Necker, pressed for money, had listened to overtures for selling the debt of the United States, and mentioned the matter to some members of the National Assembly, by which means it became known to the principal Americans, and friends of America here. I own that upon the first mention of the matter, it appeared to me a thing of indifference, and so I expressed myself. Our duty is to pay to such creditors as may possess the demand. But further information placed the affair in a different point of light. It appeared that the offer was for a small part, at a great discount ; and that the terms of the bargain were to be debated in the National Assembly, and consequently our reputation sported with. Mr Short did everything in his power, but having no pointed instructions, could only express the result of his own judgment and feelings. But the minister was pressed for money, and he had the offer of money. Under these circumstances, in connexion with a society of friends to America, I made M. Necker an offer, such as in my conception was honorable to France, to America, and to the parties. This proposition, (after stating the amount of the principal and interest which would be due on the first of January 1790, and considering that as a new capital on which the interest was to run,) contains the following terms. On propose de P acquerir du gouvernementj et a cet effet de I 9 - acquitter en entier par des rents perpetuelles de la France moniantes a la meme somme. This payment was to be made in the year 1790 and 1791 ; consequently, so far as France is concerned, the offer went to a full, complete, and entire payment, and that at a much earlier period than is stipulated by the terms of the loans themselves. To this was added a further offer, in case the situation of affairs in this kingdom should require it, in the following terms ; On se chargera de solder en argent la moitie de la dite rente au prix courant des effets royaux. This part of the offer has no other merit than to secure to the minister the sale of the French effects, if he thought proper, and is therefore a matter rather of convenience than advantage. I communicated this plan, beforehand, to Mr Short, and to the Marquis de Lafayette, who both considered it as an excellent means of saving at the same time the honor and interest of America, while it furnished a useful resource to France. I showed it also to Monsieur de Montmorin, who, having well weighed and considered it, assured me that he most heartily approved it, and would do everything in his power to secure the success. In the supposition that this plan were adopted here, application was to be made through you to the United States to pay the amount of this debt in obligations for current guilders, calculating the exchange at par ; those obligations to bear five per cent interest, and to be paid in instalments, the first of which to commence five years hence. Consequently, as the society was to bear all the charges of negotiation, &c. &c. it follows clearly, that the United States would have obtained the needful time required for their accommodation without a farthing of expense, and without the pain of soliciting it from this Court. It was therefore equally honorable and useful for them. It was honorable also to the parties. First, because they became eminently useful to the societies of which they are respectively members; and secondly, because the advantage, if any, which they were to derive would result merely from a careful and industrious attention to the variations of the exchange and fluctuations in the effects, and from the use of their funds and credit to make investments at the proper times and seasons, which, as far as the sum of forty millions of livres and up wards can go, must necessarily have sustained the value of the stocks here. And you will observe that this was clearly stated and understood.

The proposition was delivered to M. Necker on the fifth of December. You will observe, that in framing it we counted upon the aid of money-lenders in Holland ; and, in preference to others, upon the commissioners of the United States. We learned, however, that these gentlemen had, notwithstanding the remonstrances of Mr Jacob Van Staphorst, who has a real and warm regard for America, joined with those who made the offer to M. Necker. Through the channel that brought us this information, an interview was brought about between Monsieur de la Chaise and Mr Van Staphorst, charged with the final pro position to M. Necker and me. I told those gentlemen, that I was convinced their offer could not be accepted, (by the bye, M. Necker had told me that the sum offered was not sufficient,) and that, if accepted by the minister, it could not be adopted by the Assembly, and that they risked doing great injury to America, without any advantage to themselves ; that I would communicate to them an offer I had made } and which I had great reason to believe would be adopted ; that I would offer them an interest in it, or a commission, at their option ; that if they should not approve of holding a concern, I would then lie still, and let them make the most of their plans without opposi tion, but asked the assurance on the part of themselves and of their principals, (those whom they represented) that if they found their own Scheme impracticable, and did not choose to adventure with me, they should only not oppose. This being solemnly promised, I stated the matter to them at large, and they came so fully into my views, as to withhold the pro position they were directed to make, and send an express on the subject to Amsterdam.

The interview was on the eleventh of December, in the evening. Some further discussions were needful, which we had the next day. I avoided going to M. Necker s, because I was to do nothing which would defeat their plan. On the twenty-sixth, Mr Hubbard, partner of the house of Staphorst, arrived charged to make their offer, with a budget of reasons in support of it. This offer was to purchase the 6,000,000 at a discount of about eleven per cent. It was made immediately ; and on the morning of the 28th he called on me, in company with Mr Van Staphorst. I had heen repeatedly assured from different quarters that M. Necker was ready to treat with me, but I had not put myself in his way. The conversation with Mr Hubbard was not very long. I heard what he had to say, and replied with great precision, but so as to change entirely his opinion. You will not wonder at this, when I tell you the purport of the objections he had brought forward ; first, that it was too profitable to the parties ; secondly, too burdensome to France ; and thirdly, might injure the credit of America by selling the obligations too low. To the first, I replied by a smile, and the assurance, that I never expected such an objection from Holland. This disconcerted him. To the second I answered, that M. Necker understood his own business, and might safely be trusted in making a bargain ; but I showed him further that the bargain was a good one. To the last I made the answer, which I am sure you have already made in your own mind, viz. that if the commissioners of the United States could safely be trusted in making negotiations, where the loss was to be borne by their employers, a fortiori might they be trusted where the loss was to be borne by them selves.

As all this was merely ostensible, I pressed him hard for the real reasons, but could get nothing more than assurances that there were no other than those above mentioned. As these were clearly refuted, of course he acknowledged himself converted ; but Hudibras has very well observed that,

Who's convinced against his will, Is of the same opinion still. A more effectual change was wrought by M. Necker, who, on the second of this month, refused their offer. On the morning of the third, Mr Hubbard called and informed me of this, and in the afternoon of the fifth he set off for Amsterdam, apparently desirous of bringing all his friends into my views. The business went on but slowly in Amsterdam ; and Mr Jacob Van Staphorst was amused from time to time, and amused me with the expectation that each succeeding post would bring their definitive answer ; but this morning he tells me, with very sincere regret, what has been done. The letter to you on this subject I have read, and will make a few remarks upon it, but shall not be very precise, perhaps, as it is only from memory of what it contained that I write.

The idea of an enormous profit, admitting for a moment that such were to accrue, would hardly have been with them what Candid calls the sufficient reason for refusal, although per haps it might have been for acceptance. But you can judge of the extent of that profit, and you will with me smile at the absurdity of connecting with such profit a sacrifice in the price of American obligations, on the vending of which at or near par, the profit must certainly depend. There is something else which perhaps is more ridiculous still, viz. that the United States, whose obligations belonging to numerous individuals are daily sold on the change of Amsterdam, should apprehend an injury to their credit from trusting a farther negotiation to persons, whose immediate interest in supporting that credit would be so great. They state as a great difficulty the borrowing of twelve millions within the term, when on the same pledge they can borrow twenty. Their statement of sums is not, I believe, very accurate, or perhaps my memory is not accurate. However, I am sure the idea is, that the greater sum can be borrowed more easily than the less. There is also the farther very extraordinary idea, that it is for the interest of the United States to pay between four and five per cent upon a negotiation, rather than get it done for nothing. I shall not notice many expressions which are injurious, but make to their affectation of disinterestedness, the answer which Jacob Van Staphorst made to me. It is very strange that they should say all this, when they must remember that in M. Calonne's time, they offered him only fourteen millions of livers for one half of the thirty-two, and arrearages of interest, but would not take the whole, even at that rate, which is the reason why the bargain was broken off. I should make but a poor excuse for so long a story, if I stopped here ; but I will now proceed to give you what T conceive to be the key of the riddle.

These gentlemen are engaged, as I suppose you know, in very extensive speculations upon the funded debt of America. They have lately worked this matter to a most astonishing benefit. Above three millions of that debt, which cost them five shillings in the pound, has been made the basis of a loan on which they receive sixty per cent, and are bound to repay it by instalments from the interest receivable in America. The Dutch, however, prefer lending at five per cent to the Congress direct. It is, therefore, essential to the success of their schemes, that they should be able to suspend the one loan al ways till they have completed the other ; and thus our nation al interests are rendered subservient to their particular negotiations. You will easily see that one such operation, in which there is no risk, is better worth pursuing than the very great profit they complain of. With this hint you will understand the matter thoroughly. I must come to a conclusion.

I did not see M. Necker as I expected this afternoon, be cause he was gone to council ; however I must suspend, at least, the matter with him ; but you may rely on it that if the Minister at this court, or any other agent, be authorised fully to deal in the business, and, if the court will not readily agree to a new arrangement respecting the debt, to contract with individuals, that the matter can be yet managed in the manner above mentioned, provided it be not too long delayed. As to the loan which the commissioners have undertaken of their own heads, you may, I think, derive great advantage from it ; for, in the first place, your Minister or Agent can make terms with them to that amount at pleasure, for the benefit of the United States ; and you may, in the next place, convert the money to very useful purpose by sinking three or four times as much of the domestic debt, and raising the price at the same time to wards par, which will prevent the success of speculations by foreigners, which are a loss to America. I am very truly, &c.

Gouverneur Morris.