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During the American Revolution, a cash-strapped Continental Congress accepted loans from France. Paying off these and other debts incurred during the Revolution proved one of the major challenges of the post-independence period. The new U.S. Government attempted to pay off these debts in a timely manner, but the debts were at times a source of diplomatic tension.
The Continental Congress
In order to pay for its significant expenditures during the Revolution, Congress had two options: print more money or obtain loans to meet the budget deficit. In practice it did both, but relied more on the printing of money, which led to hyperinflation. At that time, Congress lacked the authority to levy taxes, and to do so would have risked alienating an American public that had gone to war with the British over the issue of unjust taxation.
The French Government began to secretly ship war materiel to the American revolutionaries in late 1775. This was accomplished by establishing dummy corporations to receive French funds and military supplies. It was unclear whether this aid was a loan or a gift, and disputes over the status of this early assistance caused strong disagreement between American diplomats in Europe. Arthur Lee, one of the American commissioners in France, accused another, Silas Deane, of financial misdealings, while the third member of the commission, Benjamin Franklin, remained aloof. Lee eventually succeeded in convincing Congress to recall Deane. The early French aid would later resurface as one of the disputes behind the 1797 XYZ Affair that led to the Quasi-War with France.
During the Revolution, the French Government also provided the Americans with loans, eventually totaling over two million dollars, most of which were negotiated by Benjamin Franklin. John Adams also secured a loan from Dutch bankers in 1782. After fighting between the Americans and the British ended in 1783, the new U.S. Government established under the Articles of Confederation needed to pay off its debt, but lacked sufficient tax authority to secure any revenue. The government struggled to pay off the loans, stopping payments of interest to France in 1785 and defaulting on further installments that were due in 1787. The United States also owed money to the Spanish Government and private Dutch investors, but focused on paying off the Dutch because Amsterdam remained the most likely source of future loans, which the United States successfully obtained in 1787 and 1788, despite its precarious financial state.
Under the U.S. Constitution of 1789, the new federal government enjoyed increased authority to manage U.S. finances and to raise revenues through taxation. Responsibility for managing debts fell to Secretary of the Treasury Alexander Hamilton. Hamilton placed U.S. finances on firmer ground, allowing for the U.S. Government to negotiate new loans at lower interest rates. In addition, the United States began to make regular payments on in its French debts starting in 1790, and also provided an emergency advance to assist the French in addressing the 1791 slave revolt that began the Haitian Revolution.
Although the federal government was able to resume debt payments, total federal expenditures exceeded revenues during many years in the 1790s. Hamilton therefore sought additional loans on Dutch capital markets, although the improved U.S. financial situation made these loans easier to obtain. These private loans from Dutch bankers also helped pay off loans owed to the Spanish Government, back pay owed to foreign officers, and U.S. diplomatic expenses in Europe.
In 1795, the United States was finally able to settle its debts with the French Government with the help of James Swan, an American banker who privately assumed French debts at a slightly higher interest rate. Swan then resold these debts at a profit on domestic U.S. markets. The United States no longer owed money to foreign governments, although it continued to owe money to private investors both in the United States and in Europe.
Although U.S. finances had been shaky under the Articles of Confederation, the United States was able to place itself on a sound financial footing during the 1790s. This enabled it to preempt diplomatic embarrassment and dependence on foreign powers during that period, and also improved U.S. credit on European capital markets, which enabled the U.S. Government to obtain low-interest loans for the Louisiana Purchase in 1803.
FAQs
The Continental Congress ratified the Treaty of Paris on January 14, 1784, officially establishing the United States as an independent and sovereign nation. The Continental Congress approved preliminary articles of peace on April 15, 1783.
Did America pay back France? ›
In 1795, the United States was finally able to settle its debts with the French Government with the help of James Swan, an American banker who privately assumed French debts at a slightly higher interest rate. Swan then resold these debts at a profit on domestic U.S. markets.
Why are the 1780's referred to by historians as the critical period? ›
Annotation: Historians once characterized the 1780s as the "critical period" in American history, when the new nation, saddled with an inadequate system of government, suffered crippling economic, political, and foreign policy problems that threatened its independence.
How did the Constitution of 1787 attempt to resolve the weaknesses of the Articles of Confederation? ›
One of the most significant changes between the Articles of Confederation and Constitution was the creation of the three branches of government: the executive, legislative, and judicial. This separation of powers ensured that power would not be concentrated in one particular branch.
Why was 1784 important? ›
Pitt's India Act 1784 or the East India Company Act 1784 was passed in the British Parliament to rectify the defects of the Regulating Act 1773. It resulted in dual control or joint government in India by Crown in Great Britain and the British East India Company, with crown having ultimate authority.
What happened in 1800? ›
The U.S. Library of Congress is founded on April 24, 1800. The United States and North African Berber Muslims fight the First Barbary War from 1801 to 1805 in an effort to halt Barbary pirates' attacks upon American merchant shipping.
How much does France owe America? ›
France. France is another nation that borrows money from the US. As of January, France owes $183.9 billion to the US. This makes it another top nation that owes the US money.
Who does the U.S. owe money to? ›
Nearly half of all US foreign-owned debt comes from five countries.
| Country/territory | US foreign-owned debt (January 2023) |
|---|
| Japan | $1,104,400,000,000 |
| China | $859,400,000,000 |
| United Kingdom | $668,300,000,000 |
| Belgium | $331,100,000,000 |
6 more rowsChina owes the United States $1.3 trillion, which is the most debt out of all the countries that are its debtors. Japan was the primary debt holder until 2008, but now comes in second place, with $1.2 trillion. Other countries with outstanding U.S. debt include Russia, India and South Korea.
Did Shay's Rebellion end slavery? ›
TTIlE TIME OF the Shays' Rebellion some five thousand African-Ameri- cans lived in Massachusetts. Slavery in the Commonwealth had come to an end a few years after the Revolution.
Between 1776 and 1789 a variety of efforts were made to realize the nation's republican ideals. New state governments were established in most states, expanding voting and officeholding rights. Lawmakers let citizens decide which churches to support with their tax monies.
What happened in 1789 in American history? ›
George Washington was elected the first president in 1789. On his own initiative, Washington created three departments, State (led by Thomas Jefferson), Treasury (led by Alexander Hamilton), and War (led at first by Henry Knox). The secretaries, along with a new Attorney General, became the cabinet.
Who is the Father of the Constitution? ›
James Madison, America's fourth President (1809-1817), made a major contribution to the ratification of the Constitution by writing The Federalist Papers, along with Alexander Hamilton and John Jay. In later years, he was referred to as the “Father of the Constitution.”
What is the three-fifths compromise? ›
The Three-Fifths Compromise was reached among state delegates during the 1787 Constitutional Convention. It determined that three out of every five slaves were counted when determining a state's total population for legislative representation and taxation.
How democratic was the 1787 Constitution? ›
The Constitution established a Federal democratic republic. It is the system of the Federal Government; it is democratic because the people govern themselves; and it is a republic because the Government's power is derived from its people.
What was discovered in 1784? ›
L'Abbé René Just Haüy states the geometrical law of crystallization. Antoine Lavoisier pioneers stoichiometry. Citric acid is first isolated by Carl Wilhelm Scheele, who crystallizes it from lemon juice. Cholesterol is isolated.
What did James Madison do in 1784? ›
James Madison returns to Montpelier, studies law, and ventures into land speculation without much success in either. Tours New York State with Marquis de Lafayette. Again serves in Virginia House of Delegates from 1784 to 1786.
Why was the period from 1784 1787 so critical? ›
Why was the period from 1784–1787 so critical? It was the time of the Revolutionary War in which Americans fought for their independence from Great Britain. It was the years-long period the founding fathers took to write the Constitution, during which time America was lawless.
What did John Adams do in 1784? ›
From 1784 to 1785, he served on a diplomatic mission whose goal was to arrange treaties of commerce with several European nations. In 1785, he became the first United States minister to England. During 1784, he had been joined by his wife, whom he had not seen for five years.
