rary borrowings from the Bank of the
United States was $4,500,000; by 1796 it
was $6,200,000. In indebting itself heav-
ily to the Bank of the United States, the
Federal Government was obviously mis-
using its privileges and seriously endan-
gering the Bank's stability. In 1796 and
1797, the government sold part of its
Bank stock holdings, floated a long-term
loan, and used the funds obtained to
reduce its debt to the Bank below
$4,000,000.

LONG-TERM DEBT. The first, and for
several years the only, long-term debt
issues of the Federal Government were
the six per cent stock, the three per cent
stock, and the "deferred" stock issued to
fund the old public debt. By 1796, when
the major part of the debt funding oper-
ations was completed, $41,700,000 of the
six per cent stock, $18,900,000 of the three
per cents, and $14,650,000 of the deferred
stock, was outstanding.

Hamilton was desperately anxious that
this federal stock should maintain its
value on the market. The Purchase Fund,
already described, was part of his plan
for maintaining the price of the stock. Its
operations were not ineffective. During
the first quarter of 1791, the six per cent
stock had sold off to 82. The three per
cents and the deferred issues were sell-
ing at 42. A year later the six per cents
had risen to 125 and the others to 75. By
December 1795 the Fund had expended
$1,600,000 to purchase $2,300,000 par
value of the outstanding stock.

In 1795, to provide for the consistent
retirement of the long-term debt, the
Purchase Fund was developed into the
Sinking Fund. At first the revenues dedi-
cated to it were insufficient to buy up the
prescribed annual quota of the outstand-
ing debt, and part of the federal bor-
rowings from the Bank of the United
States were applied to the Sinking Fund.
During the second half of the decade,
the Fund had sufficient revenue to fulfill
its purpose -- the annual reduction of the
principal of the six per cent debt by one-
fiftieth of its original total. This pitifully
slow rate of retirement was insufficient
to maintain the market for any of the
government issues, however, and they
fell off badly.

In 1795 the government made the first
increase in its domestic debt. As subse-
quently described, it issued and turned
over to the French Government $1,850,000
in 51/2 per cent stock and $176,000 in 41/2
per cent stock, as final settlement of the
American Revolutionary debt to France.
A year later the government attempted
to sell a six per cent $5,000,000 issue for
the purpose of clearing its indebtedness
to the Bank of the United States. But
the market was saturated with the old
issues, which, since the Purchase Fund
had ceased its forceful operations, had
fallen to sharp discounts. To the offer of
the new issue there was no response, and
after several months only $80,000, at one-
eighth discount, had been subscribed.

Three domestic loans were floated in
1798, this time with more success. The
first of these loans, a 6 per cent issue,
was to provide the navy needed to com-
bat the Barbary pirates who were prey-
ing on American shipping in the Medi-
terranean. Subscriptions at par totaled
slightly over $700,000. Later in the year,
when war with France seemed imminent,
the government decided to build up a
treasury reserve adequate for emergen-
cies, and a $5,000,000, 8 per cent, fifteen-
year loan was floated. The interest
offered was above the market rate, the
credit of the government by this time
was considered sound, and the entire
issue was readily marketed at par. An-

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