754 



REFUNDING THE NATIONAL DEBT. 



held in Holland ; but for that held in France 

 a new loan was issued as follows : five and a 

 half per cent, stock, $1,848,900 ; four and a half 

 per cent, stock, $176,000; in all, $2,024,900. 

 The issue of this stock closed the account of 

 the French deht, which by these transactions 

 became merged in the domestic debt of the 

 United States. Redemptions of the remainder 

 of the foreign debt began in the year 1807, and 

 were completed in 1815. 



The next refunding operation of the Govern- 

 ment was in 1807. 



On January 1, 1806, there remained out- 

 standing of the old six per cent, and deferred 

 stocks about $31,800,000, and of the three per 

 cents (nominal value) about $19,050,000 ; total, 

 $50,850,000. Of these stocks the six per cent, 

 and deferred were redeemable at the annual rate 

 of eight dollars per hundred of principal and in- 

 erest, as before stated. Under this arrangement 

 these stocks sold in England, where a very large 

 proportion of them was held, at about 95 per 

 cent, on the unredeemed amount of each cer- 

 tificate, while the three per cents, which were 

 redeemable at the pleasure of the Government, 

 had a market value of about 60 per cent, of 

 their nominal value. Secretary Gallatin in 

 1807 proposed that in exchange for all these 

 stocka a common six per cent, stock should be 

 offered to the public creditors ; the old six per 

 cent, and deferred stocks to be received at the 

 par value of the unredeemed amount, and the 

 three per cents at about 60 per cent. He 

 thought the exchange would be advantageous to 

 creditors, because, instead of receiving as they 

 did quarter-yearly a small reimbursement of 

 their capital, which was in effect a long annuity, 

 they would by the exchange receive the whole 

 amount within a much shorter tune ; and be- 

 cause an annuity for a term of years was al- 

 ways worth less in market than its intrinsic 

 value, as exemplified by the market-rate of 

 every lease or estate less than an absolute fee. 

 He thought the exchange would also be ad- 

 vantageous to the United States, because the 

 Government would thereby be enabled to re- 

 imburse the whole in less than nine years, 

 instead of eighteen ; and also because, if cir- 

 cumstances should render a resort to new loans 

 necessary, the terms on which these could be 

 obtained would in a considerable degree depend 

 on the price of existing stocks. It was there- 

 fore desirable that that species the price of 

 which had a tendency to regulate that of all 

 others should be as high as circumstances would 

 admit, and, as has been stated, the six per cent, 

 and deferred stocks sold at less than their in- 

 trinsic value. A conversion of the three per 

 cent, stocks, however, could not be so easily 

 effected, they being worth more in market 

 than a six per cent, stock producing the same 

 annual amount; and it would therefore be 

 necessary for the United States in converting 

 this stock to make some sacrifices. 



A law for the purpose mentioned was ap- 

 proved February 13, 1807. It provided that a 



subscription should be opened in the United 

 States and at London and Amsterdam, to the 

 full amount of the old six per cent, deferred 

 and three per cent, stocks. For subscriptions 

 in the old sixes or deferred stocks, a new six 

 per cent, stock was to be issued for the par 

 value of the unredeemed amount of each cer- 

 tificate. The interest on the new stock was 

 to be payable quarterly, and the stock was to be 

 subject to redemption at the pleasure of the 

 United States. No partial reimbursement was 

 to be made on any certificate, and six months' 

 public notice was to be given of any intend- 

 ed reimbursement. For subscriptions in three 

 per cent, stock, certificates equal to 65 per 

 cent, of its principal were to be issued, bearing 

 an interest of 6 per cent, payable quarterly, and 

 reimbursable only with the assent of the holder, 

 and after all the eight and four and a half per 

 cent, stocks, as well as the stock to be issued 

 by virtue of the act in exchange for the old 

 six per cent, and deferred stocks, had been 

 redeemed. It will be observed that the act 

 created two kinds of stocks, one reimbursable 

 at the pleasure of the United States, the other 

 only after a certain period and with the assent 

 of the holder. To distinguish these stocks, 

 the first were called "exchanged," the other 

 " converted " six per cents. There was issued 

 of the "exchanged" sixes, $6,294,051.12; of 

 the "converted," $1,859,850.70; total, $8,153,- 

 901.82. It would appear that the great major- 

 ity of the holders of the old stocks preferred 

 them to the new, and the plan to refund was 

 a partial failure. 



The next refunding took place in 1812. 



It seems that by an act approved March 14, 

 1812, Congress had authorized the issue of a 

 loan of $11,000,000 at not less than par, the 

 certificates therefor to bear interest at 6 per 

 cent., and the proceeds to be applied to defray- 

 ing current expenses. On June 24, 1812, Sec- 

 retary Gallatin reported that of this loan but 

 $6,460,000 had then been subscribed, including 

 $200,000 offered on special contract, but not up 

 to that time accepted. He said that the result 

 of the loan was more than doubtful. " The old 

 six per cent, and deferred stocks," he said, " are 

 two or three per cent, under par, and any de- 

 pression in the public funds would seriously 

 affect the sales of the residue of the new loan. 

 Nor does it appear eligible without an absolute 

 necessity to give a premium or additional in- 

 terest in order to obtain subscriptions for that 

 residue. For, as it would be just in that case 

 to place the first subscribers on the same foot- 

 ing, the charge to the public would be more 

 than double the premium actually wanted to 

 obtain the four and a half millions which are 

 not yet subscribed." He therefore suggested 

 a conversion of the old six per cent, and de- 

 ferred stocks into a new six per cent, stock 

 not materially different from that created by 

 virtue of the act authorizing the loan of eleven 

 millions. This he thought would have a favor- 

 able effect on the price of those stocks, and 



