The controversy over the settlement of the debt of the Republic of Texas which was inherited by the State of Texas is one of the most spectacular features in the whole financial history of Texas. The attempt was made to have the United States assume this debt as one of the conditions of the annexation of Texas.1 But the joint resolution of the United States Congress under which annexation took place provided that Texas should retain her public domain to be applied to the payment of the debt of the republic. In this resolution the United States specifically disclaimed any responsibility for the debt.2

An estimate of the debt of the Republic of Texas at the beginning of statehood was $9,949,007.3 Until 1852 the settlement of the debt was the paramount legislative question, but thereafter it shared with internal improvements the public and legislative interest.

As contemplated in the annexation resolution the public domain was looked to as the source of payment; but how it could be made available was the pressing problem. The plan presented by the first two governors, Henderson and Wood, and lengthily considered by the legislature, was to sell the unappropriated lands to the United States.4 What the advantages of this arrangement would be to Texas were obvious.

1 Texas Diplomatic Correspondence, vol. 2, pp. 278, 328.

2 House Misc. Doc. No. 17, 33rd Cong., 2nd Sess., p. 28.

3 Statement of the comptroller, March 20, 1846; House Journal, 1st Leg., p. 317. A statement by the comptroller on December 3, 1847, estimated the amount at $10,050,201; House Journal, 2nd Leg., p. 55.

4 Message of Governor Henderson, February 24, 1846; Senate Journal, 1st Leg., appendix, p. 8. Report of Senate Committee on the Sale of the Public Domain; Senate Journal, 1st Leg., p. 114. Report of the House Committee on the Sale of the Public Domain; House Journal, 1st Leg., p. 302. Message of Governor Wood, December 29, 1847; House Journal, 2nd Leg., p. 167. Also message of November 6, 1849; House Journal, 3rd Leg., p. 17.

It would avoid the cost in time and money of the survey of the lands and would provide immediately proceeds which otherwise would be slowly forthcoming from the sale of the lands. The reasons presented for the United States acquiring them were that they could be profitably sold, that they would enable the United States to acquire control over the Indian tribes, and that acquisition was necessary in order for the United States to fulfill "its high mission to the human race, by preventing savage war and bloodshed, by subduing and fertilizing the wilderness, by anticipating ages, and extending the empire of American civilization and laws."1 The alternative to this plan of sale was that payment of the debt should be made in land.2 A third plan was that of refunding the debt in state bonds.3

The First Legislature came to no conclusion as to which plan should be adopted, and the net result of its deliberations was that the debt should first be ascertained and classified.4 Accordingly the Second Legislature passed the act of March 20, 1848, which provided that the auditor and comptroller of the state should ascertain the debt, reducing it to the "actual par value which may have been realized by the Republic."5 The report of these officials was submitted on January 1, 1850.6 It gave as the amount of debt filed for auditing, $7,213,477.43; as the estimated amount not filed, $3,842,217.28. The total of these was $11,055,694.70. This total scaled according to the principle of value received at the time of issue amounted to $5,600,696.7

That the debt should be scaled was an accepted idea from the beginning of the discussion over payment. Sam Houston wrote in 1844: "The assumption of our debts by the United States is a very trifling item, and as the liabilities were mostly incurred on the principle, of equivalents, the whole debt will not amount to five millions. All our 10% bonds, as well as I am advised, were issued 6 for 1. I think the principle of equivalents was established in the early part of 1839, and the-depreciation was pretty rapid until the close of Lamar's administration, when Red Backs were issued at 8 for 1. Thus you will perceive that the United States will not in equity be bound to redeem the liabilities of Texas at a higher rate than what they were issued."1 Governor Wood declared in 1849 that ' neither good faith nor the most fastidious conception of morality,, required the state to pay more than the equivalent value that the republic received.2 To the advocates of scaling, the all-sufficient reasons for it were that the liabilities had been issued at varying rates of discount and were largely held outside the-state and by others than the original owners.3

1 Report of House Committee; House Journal, 1st Leg., p. 302.

2 Report of House Committee; House Journal, 1st Leg., p. 304. Message of Governor Wood, November 6, 1849; House Journal, 3rd Leg., p. 18.

3 Report of the Comptroller, December 3, 1847; House Journal, 2nd Leg., p. 53.

4 Report of Senate Committee, April 19, 1846; Senate Journal, 1st Leg., p. 219.

5 Laws of 1848, p. 208.

6 House Journal, 3rd Leg., pp. 210-223.

7 For statement of items and ratings see supra, p. 126.

The advocates of paying the debt at its face value were few; they had no place on the legislative committee considering the debt, - at least they left no evidence of their membership by minority reports or protests; and their motives were impugned as having origin "if not in individual gain, at least in a desire for moral fame which leaps over the boundaries prescribed by the ethics of this utilitarian age."4

With the ascertainment and scaling of the debt accomplished, provision was made by the act of February 11, 1850, for payment in land at the rate of fifty cents an acre.1 It was provided also that interest should cease on all liabilities after July 1, 1850, the purpose of this provision being to force creditors to accept payment in land immediately.

1 Houston to Van Zandt and Henderson, May 10,1848; Texas Diplomatic Correspondence, vol. 2, p. 278. See also ibid., p. 328.

2 House Journal, 3rd Leg., p. 343.

3 Report of Committee on Sale of Public Domain; Senate Journal, 1st Leg., p. 114. Report of Committee on Public Lands; ibid., p. 219. Report of Committee on Sale of Public Domain; House Journal, 1st Leg., p. 307. Report of Special Committee on the Debt; House Journal 2nd Leg., p. 408. Message of Governor Wood, 1847; House Journal, 2nd Leg., p. 147. Message of Governor Bell, 1849; House Journal, 3rd Leg., p. 343. Report of the Auditor and Comptroller, December 27, 1849. See also Gouge, op. cit, pp. 146, 153, and the Texas State Gazette, May 31, June 28, August 2, September 20, October 4, and November 15, 1851.

4 Message of Governor Bell, December 26, 1849; House Journal, 3rd Leg., p. 343. The Galveston Weekly News favored payment at full value. See issues of May 6 and July 15, 1851.