Washington and the American Republic, Vol. 3.

by Benson John Lossing

In his report, Hamilton took strong grounds against this idea, as being unjust, dishonest, and impolitic. In the latter point of view, he justly argued that public credit was essential to the new federal government, and without it sudden emergencies, to which all governments as well as individuals are exposed, could not be met promptly and efficiently. Public credit, he said, could only be established by the faithful discharge of public debts in strict conformity to the terms of contract. In the case in question the contract was to pay so much money to the holders of the certificates, or to their assignees. This was plain, and nothing but a full and faithful discharge of the nominal value of the debt could satisfy the contract. Thus he argued concerning the principal, and he applied the same logic to the accumulated overdue interest. It ought to have been paid when due, according to contract, and was as much an honest debt as the principal.

Hamilton went further. He strongly recommended the assumption of the state debts by the federal government, amounting in the aggregate, overdue interest included, to about twenty-five millions of dollars. Both descriptions of debts, he argued, were contracted for the same objects, and were in the main the same. Indeed, a great part of the particular debts of the states had arisen from assumptions by them on account of the Union, and it was most equitable that there should be the same measure of retribution for all. The secretary considered such assumption “a measure of sound policy and substantial justice.” The entire debt, federal and state, foreign and domestic, for the payment of which he recommended measures of provision, was almost eighty millions of dollars.

The secretary, after giving the whole subject a thorough investigation and discussion, proposed that a loan should be opened to the full amount of the debt, federal and state, upon the following terms:—

First. That for every one hundred dollars subscribed payable in the debt, as well interest as principal, the subscriber should be entitled to have two thirds founded on a yearly interest of six per cent. (the capital redeemable at the pleasure of the government by the payment of the principal), and to receive the other third in lands of the western territory at their then actual value. Or,

Secondly. To have the whole sum funded at a yearly interest of four per cent., irredeemable by any payment exceeding five dollars upon the hundred, per annum, both on account of principal and interest, and to receive as a compensation for the reduction of interest fifteen dollars and eighty cents, payable in lands as in the preceding case. Or,

Thirdly. To have sixty-six and two thirds of a dollar funded at a yearly interest of six per cent., irredeemable also by any payment exceeding four dollars and two thirds of a dollar upon the hundred, per annum, on account both of principal and interest; and to have at the end of ten years twenty-six dollars and eighty-eight cents, funded at the like interest and rate of redemption.

In addition to these propositions, the creditors were to have an option of vesting their money in annuities on different plans; and it was also recommended to open a loan at five per cent. for ten millions of dollars, payable one half in specie and the other half in the debt, irredeemable by any payment exceeding six dollars upon the hundred, per annum, both of principal and interest.

The secretary also proposed an augmentation of the duties on imported wines, spirits, tea, and coffee, to enable the treasury to meet the increased demand that would be made upon it; and a duty on domestic spirits was also recommended. Serious trouble grew out of the latter measure when adopted and put in force.

Hamilton's report, sent to Congress on the fourteenth of January, was taken up for consideration in the house of representatives on the twenty-eighth; but action was postponed until the eighth of February. Its propositions, especially the one relating to the assumption of the state debts, were vehemently opposed, chiefly because of their tendency to a centralization of power, as giving an undue influence to the general government, and as being of doubtful constitutionality. Many in different parts of the Union thought they saw great political evil in this financial union of the states; and Virginia, above all others, most earnestly opposed the scheme. It was believed that the funding of the state debts would materially benefit the northern states, in which was almost the entire capital of the country, while the southern states could see no benefit for themselves.

Finally, on the ninth of March, a bill predicated upon the secretary's report passed in committee of the whole by a small majority, and went to the house for discussion. This continued from time to time until August, when, on the fourth, an act was passed embodying essentially the several propositions in Hamilton's report. It authorized the president to borrow twelve millions of dollars, if so much were found necessary, for discharging the arrears of interest and the overdue installments of the foreign debt, and for the paying off the whole of that debt, could it be effected on advantageous terms, the money thus borrowed to be reimbursed within fifteen years. It also authorized the opening of a new loan, payable in certificates of the domestic debt at par value, and in continental bills of credit at the rate of one hundred for one. Certificates were to be issued for subscriptions in the interest of the domestic debt to the full amount, redeemable at the pleasure of the government, and bearing interest at the rate of three per cent., the interest to be paid quarterly, and to commence with the first day of January, 1791; all interest becoming due on continental certificates, up to that time, to be funded as above. Subscriptions in the principal of the domestic debt were to bear interest at six per cent.; but upon one third of the amount, entitled “deferred stock,” the interest was not to commence till the year 1800. This interest was not to be redeemable at a faster rate than eight dollars upon the hundred, annually, including the yearly interest, and it was left to the option of the public creditors to subscribe, or not, to this new loan.