The committee on Finance, to whom was referred a contract for a loan of one million of dollars, made the 30th day of October, A.D. 1839, between Richard M. Young and John Reynolds, Agents on behalf of the State of Illinois, of the one part, and John Wright, on behalf of himself and his copartners, under the firm of Wright & Co., Bankers, Henrietta street, Covent Garden, London, beg leave to report:

That they have given to this subject the careful consideration which its importance demands, and now respectfully present to the House the result of their examination.

The chief stipulations of the contracts are as follows:

1. Mr. Young has delivered to Messrs. Wright & Co., bonds to the amount of one million of dollars: the principal of which is payable in London, in the year 1870, and the interest thereon is payable annually, also in London, at the rate of six per cent. per annum.

2. Messrs. Young and Reynolds agree to procure or endeavour to procure, the State of Illinois, to issue, in lieu of the bonds already deposited with Messrs. Wright & Co., one million of State Bonds, to be substituted for the old bonds by Messrs. Wright & Co., “if and when they shall think proper so to do:” upon which new Bonds, the interest shall be payable semi-annually, on the first days of January and July in each year, at the banking house of Messrs. Wright & Co., London.

3. Messrs. Wright & Co. are authorized to sell or negotiate the said Bonds, already deposited with them, at a rate not less than ninety-one dollars, payable in London, for every hundred dollars of Bonds:—if more than 91 per cent. can be obtained for the bonds, the surplus, to the extend of 4 per cent. is to be retained by Messrs. Wright & Co., as a commission on the sale; and, if more than 95 per cent. can be had for the Bonds, the excess is to be equally divided between the State of Illinois and Messrs. Wright & Co.

4. The interest upon said bonds is to be remitted so as to be received by Messrs. Wright & Co., at least fifteen days before the day or days when said interest becomes due; and Messrs. Wright & Co. are to retain one per cent. as a commission, upon all the interest to be received and paid over by them.

The act of the General Assembly, under which the said agents proceeded, authorized them to negotiate a loan for a sum not exceeding four millions of dollars, and for a term not exceeding fifty years, and at a rate of interest, not exceeding six per cent. per annum, payable yearly; the payment of interest and re-imbursement of principal to be made at such time within or without the United States, and in such currency as might be agreed on. And it was further declared by the said act, that no bonds should be sold for less than their par value.

The principal point to which the attention of the committee was directed is, whether the contract is in accordance with that provision of the law, requiring the Bonds to be sold “for not less than their par value.”

A difficulty sometimes occurs in questions of this sort, from not ascertaining with precision the meaning of the term “par:” Mr. Gallatin, in that part of his essay on the currency and banking system of the United States, which treats of exchange, has the following passage:

“Being obliged to refer to the rate of exchange, it must be recollected, that what is universally meant by par, is the promise to pay in another place a quantity of pure silver or gold, equal in weight to the quantity of pure silver or gold, contained in the coins, with which the drawer of the bill of exchange is paid.”

This definition is correct in the case to which Mr. Gallatin has applied it, to-wit: where a bill of exchange, drawn upon and payable in one place, is sold in another. But perhaps, a more complete and full explanation of the term “par,” is presented in the following propositions:

1. Where a security is sold in the same place where it is made payable,

---

or in other words, where the money is to be received and repaid, at the same place and in the same currency—there no exchange enters into the calculatiou[calculation], but the nominal par is the true par. One hundred dollars must be received for every hundred dollars to be repaid, in order to constitute a par sale.

2. Where a security is sold and the money received for it in one place and the security is made payable in a different place, where the money received, either by a difference of currency, or by the price of exchange, is worth more or less than it is worth at the place where received—here the nominal par is not the true par: and the true par will either exceed or fall short of the nominal par, according to the comparative value of the currency in the two places, or the rate of exchange between them.

The case of the contract, referred to your committee, falls within the first of these propositions. The bonds are made payable, principal and interest, in London; they are authorized to be sold in London: and, according to the rule laid down above, in order to make a sale of these bonds at par, one hundred dollars should be paid in London, for every hundred dollars of the bonds sold, which are made payable in that place. And, inasmuch as only ninety-one dollars are to be received, in case of the action of Messrs. Wright & Co., under the contract, for every one hundred dollars of bonds, it follows that the sale is nine per cent. below par.

Another view of the case may be taken: It was, obviously, the intention of the Legislature, as it is the fair construction of the law, to authorize the borrowing of a sum not exceeding four millions of dollars: to bind the State for the re-payment of the amount borrowed, dollar for dollar; and to bind the State for the payment of six per cent. interest, annually, upon the actual amount of money borrowed.

Now, the State is made to borrow and receive in London ninety-one dollars—she is bound, in 1870, to re-pay in London, not ninety-one dollars, but one hundred—and, in the meantime, she is bound to pay six per cent. interest, not upon ninety-one dollars, but upon one hundred. She is bound therefore, to pay, upon a final settlement, nine dollars in every hundred, more than she receives, of the principal sum: and, in the interval, she pays six per cent. interest, annually, upon nine dollars in every hundred, which she never received.

Your committee herewith submit, as part of their report, marked exhibit A, a calculation of the amount that will be lost by a sale under this contract: from which it appears, that the excess of principal to be paid over and above what is received, by the State—the interest upon that excess—the commission of one per cent. to Messrs. Wright & Co., for receiving and paying over the interest—and the exchange upon these sums—taken together, will result in a total loss to the State of $294,300, over and above the principal and interest, which the State will receive, and have the use of under this contract.

It may be argued, that ninety-one per cent. received in London upon the State Bonds, by the addition of the exchange between that place and New York, will realize to the State, in New York, the par value of the bonds. This circumstance has not escaped the notice of your committee, and they answer.

1. That the addition of the exchange, as proposed, will not bring the sale up to par: Nine per cent. the present rate of exchange, upon ninety-

---

one dollars, is only eight dollars, nineteen cents: and this added to ninety-one dollars, amounts only to $99,19 in New York, for $100, payable in London; leaving the sale more than 4-5 of one per cent. below par.

2. But the apparent gain by exchange is fallacious. It must be always remembered, that the money is to be repaid in London: that if the exchange be in our favor when we bring the funds from New York to London: and that whatever is made by exchange on receiving the loan, will be lost on its re-payment. This answer will also apply to any similar gain in exchange, between New York and Illinois.

Again, it may be urged, that the rate of exchange may not continue as it now is; for it is the opinion of some, that by the year 1870, exchange will be in favor of the United States, and against London. To this no other reply is necessary, than to say, that the question whether a sale under the present contract be at par or not, is a question of fact, dependent upon circumstances, actually existing, known and ascertained: that the sale will be either at par, above, or below, according to these circumstances: and that the question cannot be affected by a contingency which may or may not happen hereafter. Such a contingency will have an influence on the future loss or profit of the transaction; but it has no bearing upon the question now under consideration, which must be decided solely with reference to the present known and certain condition of things.

Lastly, some may suggest, that Messrs. Wright & Co. may probably sell the bonds at a higher rate than ninety-one per cent., perhaps even at the nominal, and true par in London. This cannot alter the question. The law forbids a sale to be made for less than par: the contract authorizes Messrs. Wright & Co. to sell at 9 per cent. below par, or at any better price to be had: the contract is therefore in violation of the law; and whether Messrs. Wright & Co. sell at 91, or 100, or 109, the authority given him by the contract, to sell at 91, exceeds that conferred by the law upon the agents themselves.

Your committee omit to notice the unusual powers conferred upon Messrs. Wright & Co., and the extensive discretion allowed them by this contract. They conclude with the expression of their opinion, made up from a deliberate review of all the features of the case, that the contract in question does authorize a sale to be made of the State Bonds at less than their par value: and that therein it exceeds the powers granted to the agents, who entered into said contract on the part of this State, and violates the law under which they acted.

Therefore, be it resolved by the House of Representatives, the Senate concurring herein, That the said contract is unauthorized by law, and void, and that we will not ratify the same.

Resolved further, That his Excellency, the Governor, be requested to revoke the appointments of the Honorable Richard Martin Young and John Reynolds as agents to negotiate loans for Canal purposes, and that he forthwith notify Messrs. Wright & Co., of the refusal of the State to agree to said contract, and that he forbear altogether to sell any of the State Bonds deposited with him by said agents in pursuance of said contracts.

By the last act of Congress, establishing the value of foreign gold coins, the legal value of a British sovereign (which is a pound sterling,) of full weight, is fixed at $4,87 7-100: but, none of the sovereigns are of full weight, and their average value has been found to be, under the above law, within a very small fraction of $4,85.

Our imaginary value of pound sterling has heretofore been $4,44 44-10C, or at the rate of $40 to nine pounds sterling. Nine per cent. on this imaginary value of the pound, produces $4,84 44-100, which is very near the legal value, in the United States, of a British sovereign, as above. Considering British gold coins, therefore, as the standard of value, nine per cent. on the imaginary value of $4,44 to a pound sterling may be assumed as sufficiently near the true par of exchange between the United States and England, for all practical purposes.

Suppose then one million of dollars in Illinois sterling bonds, or pounds sterling 225,000, sold in London, at 91 per cent. interest, payable yearly in London, at 6 per cent. with a commission of 1 per cent. for the payment of the interest, and the principal payable in London at the end of thirty years. Suppose the true par of exchange to be as above, and let us see the results.

We will first consider the effects, supposing it borrowed, lent out, and repaid in London; and looking to America only for any deficit that may require to be made upon the re-payment of the loan.

Let us now consider the effect of the loan, supposing the money to be borrowed in London, brought to New York, exchanged for American funds, there loaned out, and at the end of 30 years, re-converted into English funds, carried back to London, and there repaid, the interest being paid of course, annually, in London, with the one per cent. commission thereon.

It will be perceived in the foregoing calculation, that no allowance is made for the loss of time, in transmitting the interest from the United States to London: nor for any of the attendant expenses, except only the commission to John Wright & Co., for paying over the interest, to-wit: one per cent. The committee have not thought it necessary to pursue their calculations with any greater minuteness: as their object is merely to ascertain, whether the contract were made in conformity with the law, requiring sales of the bonds to be made for not less than their par value.