The states of North Carolina and Rhode Island having refused to adopt the constitution, were not a part of the union, and of course, not subject to its laws. In their intercourse with the United States, therefore, they were considered in some respects as foreign states. By the law for the collection of duties, all goods imported from these states, except those of their own growth or manufacture, were subject to foreign duties. Towards the close of the session, however, on the application of individuals belonging to these states, their vessels were placed on the same footing with those of the United States, until the 15th of January,

1790.

The various offices created during this session, were filled by the executive, and men of the first talents and respectability, in different parts of the union, were called to take a share in the administration of the new government; and in these appointments, president Washington did not forget those, who had participated with him, in the toils and dangers of achieving the independence of their country.

Mr. Jefferson was placed at the head of the department of foreign affairs, Mr. Hamilton at the head of the treasury, and Mr. Knox was made secretary of the war department. John Jay was appointed chief justice, John Rutledge, James Wilson, William Cushing, Robert H. Harrison, and John Blair, associate judges of the supreme court, and Edmund Randolph, attorney general. Nicholas Eveleigh was appointed comptroller; Oliver Wolcott, auditor; and Joseph Nourse, register. Congress did not lose sight of the principal object in view, in forming the new government, the support of public credit. Just before they rose, a resolution passed the house of representatives, directing the secretary of the treasury to prepare a plan for this purpose, and report the same to the next session.

Nor were they unmindful, that the people of the United States owed the blessings they now enjoyed to that Supreme Being, who guides and directs the affairs of men and nations; and that it was their duty publicly to acknowledge from whence those blessings flowed. The president, therefore, by a resolution of

both houses, was requested to recommend to the people of the United States, a day of public thanksgiving and prayer, to be observed, “by acknowledging with grateful hearts, the many and signal favors of Almighty God, especially by affording them, an opportunity peaceably to establish a constitution of government, for their safety and happiness." Having fixed the first Monday of January, 1790, for their next meeting, congress adjourned the 29th of September. Before the time of their next meeting, the state of North Carolina ratified the constitution.

The proceedings of the first congress were generally approved, and the benefits of the new system began to be felt and realized.

At the opening of the next session, the president congratulated congress, on the favorable prospect of public affairs; and among other things, recommended to their attention, the important subject of providing for the common defense, by the establishment of a good militia system, and the promotion of such manufactures as would render America independent on others for essentials, particularly military supplies. He, also, recommended the adoption of all proper means, for the advancement of agriculture, commerce, and manufactures, and the promotion of science and literature, and above all, that provision be made for the support of public credit.

The last subject referred to by the president, received early attention. The report of the secretary of the treasury respecting public credit, was submitted to the house, on the 15th of January. The public debt of the United States, was estimated by the secretary, at more than fifty-four millions of dollars. Of this sum the foreign debt, principally due to France and the Hollanders, constituted eleven millions and three quarters, including more than a million and a half of interest; and the domestic liquidated debt, including about thirteen millions of arrears of interest, more than forty millions; and the unliquidated debt, two millions. The secretary recommended the assumption of the debts of the several states, to be paid equally with those of the union, as "a measure of sound policy and substantial justice." These were estimated at twenty-five VOL. II.

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millions of dollars. Doubts were expressed by the secretary, whether, in addition to all other expenses, it was in the power of the United States, to make a secure and effectual provision for the payment of the interest of so large a sum, on the terms of the original contracts. He, therefore, submitted to the house, several plans for the modification, security, and payment of the domestic debt.

One proposition was, to lower the rate of interest on the whole debt, another, to postpone the payment of the interest, on a portion of the principal to a distant day. No new modification, however, was to be made, without the assent of the creditors. This important subject was under the consideration of congress, until the 4th of August, 1790, when a law, making provision for the debt of the United States, was passed.

By this act, a new loan of the whole of the domestic debt, was proposed on the following terms-two thirds of the principal, to draw an interest of six per cent., after the first of January, 1791, and the other third, to draw the same interest, after the year 1800; the arrears of interest to draw three per cent., after January, 1791. The debt drawing six per cent., to be redeemable by payments, not exceeding in one year, eight per cent., on account both of principal and interest; and the three per cents. were made redeemable, at the pleasure of the government.

By the same act, congress assumed twenty one millions and a half of the state debts; and this sum was apportioned among the states, having regard to the amount of the debts of each.* The sum thus assumed, was also to be loaned to the United States, by individuals holding certain evidences of state debts, but on terms

* The following is the apportionment among the states:

somewhat different from those of the domestic debt. Four ninths was to bear an interest of six per cent. commencing on the first of January, 1792, two ninths to draw the same interest after the year 1800, and the other three ninths an interest of three per cent. from January, 1792.

The national legislature were much divided as to the mode and manner of providing for the security and payment of so large a debt, deemed of little value, under the old federal government; and particularly on the question of assuming the payment of the state debts. The public creditors, as well as the community at large, had waited with no small degree of solicitude, for the first financial report from the head of the treasury department, and this solicitude was not diminished by the proceedings of congress on the subject. Unfortunately, the public debt again became an object of extensive speculation.

That some provision would be made for the payment of this debt, under the new government, was the general expectation; and the propriety of making a discrimination between the original holders and the purchasers, had been suggested in private circles, as well as in the public newspapers. The idea of making such a discrimination, was opposed by the secratary, as unjust, impolitic and ruinous to public credit.

In an early stage of the proceedings on his report, this question was submitted to the house of representatives. Mr. Madison proposed that the purchasers should receive the highest average price at which the debt had been sold, and the original holders the residue, both to have interest at six per cent. The government was to have no advantage from this arrangement.

In favor of the proposition, it was, among other things, urged, that the case was in many respects so extraordinary, the usual maxims were not strictly applicable. The debt originally contracted, it was said, was to be paid in gold and silver; but instead of this, paper had been substituted, and which the creditors were compelled to take. That they had no alternative. This paper they had parted with, either from necessity or a well grounded distrust of the public. In either case, they

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had been injured, and suffered loss from the default of the debtor; and in justice, the debtor ought not to take advantage of this default. The original debt had never been discharged, because the paper had been forced upon the creditors. composition, therefore, between the purchasers and the original holders, by allowing the former an average price at which the debt had been sold, and paying the latter the residue, would do equal justice to both. In opposition to the measure, it was said in the first place, that the discrimination proposed was a violation of the original contract, on the part of the public. That by the terms of the certificates given to the original creditors, the debt was made payable to assignees or to bearer; and of course the contract was made with the purchaser as well as with the original holder. That it was impossible for government to examine into the private transactions between the original creditor and his assignee. The debt had been purchased at the market price, and the creditor had parted with his security for what he deemed an equivalent; and however unfortunate might be the situation of some, who from necessity had been obliged to part with their securities, redress could not be afforded them in the manner contemplated. In most instances, the purchaser had placed greater confidence in the government, than the original holder, and had run the risk of eventual payment, and which, but for a change in the federal government, would perhaps never have been made.

The impolicy of the measure was also strongly urged, as tending greatly to impair, if not totally destroy, public credit hereafter.

The interest of individuals, as well as the community, required that a public debt should be transferable; and its value in market would depend on a variety of circumstances. If government should thus interfere, in case of transfers, all confidence in public engagements would be destroyed. It was likewise said, that great injustice would be done in carrying the plan into effect in the manner proposed. That many of the original certificates were issued to persons who in fact had no interest in them, being for the benefit of others, to whom, for various considerations,