How America Paid Back Debts Incurred in Revolutionary War

choi

In 2000s, I started wondering whether United States repaid France after American revolution. France was in turmoil, thanks to French Revolution. Did American use that as an excuse not to payback?

Years later, I found a US Department of Treasury's (short) Web page, saying it did. So I wondered how: as US government had no national income tax but relied on customs duty only, I thought  duty must be the source. Today I learn it was not the case.

(1) US Debt and Foreign Loans, 1775–1795. Office of Historian, US Department of State, undated (under the heading: 'Milestones: 1784-1800')
https://history.state.gov/milestones/1784-1800/loans
("Hamilton therefore sought additional loans on Dutch capital markets * * * These private loans from Dutch bankers also helped pay off loans owed to the Spanish Government [not just those owed to France]")

(2) Richard Sylla, Chapter 2: Financial Foundations; Public credit, the national bank, and securities markets. In Douglas Irwin and Richard Sylla (eds), Founding Choices: American Economic Policy in the 1790s. Univesity of Chicago Press, 2010   
https://www.nber.org/system/files/chapters/c11737/c11737.pdf

Quote:

"The financial foundations of the United States and its federal government were created in three years, 1790 to 1792. Before 1790, the government was effectively bankrupt." page 59.

"The United States was one of the first nations to modernize its finances. Only two nations did so earlier—the Dutch Republic (the modern Netherlands) about two centuries before the United States, and Great Britain starting perhaps a century earlier. Neither modernized as completely as the United States did by 1800, and neither did it within three years, or even three decades (Rousseau and Sylla 2003, 2005; Sylla 2009)." p 60.

"An additional $12 million of foreign debt raised the total national debt to approximately $75 million as of 1790. Most of the foreign debt was owed to France, for French loans during the War of Independence and arrears of interest on those loans."  p 60, n 1.

"Ten days after becoming secretary of the treasury in 1789, Hamilton was directed by the House of Representatives * * * He [Hamilton] delivered his report in January 1790. On the basis of fairly solid information, Hamilton estimated the debts of the United States, including arrears of interest, at $54.1 million, of which $11.7 million was owed to foreign governments and investors, and $42.1 was owed [by federal government] to domestic creditors. In addition, he estimated from less solid information that state debts [held/owed by state government] incurred mostly during the War of Independence, including arrears of interest, were $25 million. Because they had been incurred in the common cause, Hamilton argued that the state debts ought to be assumed by the federal government. The grand total of the national debt estimated by Hamilton amounted to $79.1 million (Syrett 1961– 1987 VI, 87– 88), about 40 percent of the estimated gross domestic product (GDP) in 1790 (Johnston and Williamson 2009)." pp 66-67.

"The US foreign debt, owed mostly to France, would be discharged by new foreign loans, arranged primarily through Dutch bankers. This rollover of the foreign debt was completed by 1795." p 68.

"Recall that the federal government needed to finance at least $4 million of spending by 1792; that is, $3.2 million of interest payments on its debt and at least $0.8 million in operating expenses [to maintain federal government]." p 71.

"About the only one who did not succumb to the illusion of fiscal soundness [projected by Hamilton] in the early 1790s was Riley, who noted that in 1792, 'interest payments on the American debt amounted to $3.2 million, a figure equivalent to 87 percent of tax revenues totaling $3.67 million. Debt charges including redemptions equaled no less than $7.26 million, or 198 percent of tax revenues * * *' (Riley 1980, 188– 91)." p 71, n 7.

Note: The third quotation from the bottom did not say it, but (3) below stated that interest rates from Dutch merchants were lower than those of France.


(3) Jesús Fernández-Villaverde (professor of economics), Hamilton's Debt Program. School of Arts & Sciences (SAS), University of Pennsylvania, June 9, 2021 (yes, just two weeks ago)
https://www.sas.upenn.edu/~jesus ... ns_Debt_Program.pdf