"The general principle of it seems to be equitable, for it appears difficult to conceive a good reason why the expenses for the particular defense of a part, in a common war, should not be a common charge, as well as those incurred professedly for the general defense. The defense of each part is that of the whole, and unless all the expenditures are brought into a common mass, the tendency must be to add to the calamities suffered by being the most exposed to the ravages of war, an increase of burthens."
Hamilton found the public debt of the Union to be $54,124,464.56. This would not be a formidable debt to-day, even with full allowance for the difference in population, but it was formidable for that time because of the comparative poverty of the country, and the scanty resources for paying it. The great increase in the productive power of man in our time, by means of machinery, improved means of communication, and other devices for saving labor and increasing its efficiency, makes it easy for prosperous nations to bear taxation without feeling the burden which would have paralyzed industry and arrested national progress a century ago. The United States in 1790 were not far beyond the primitive condition in which the entire sum of production is required for the necessaries of existence, and little is left for the luxuries of life and of state enterprise.
The total of the debt, as computed by Hamilton, was made up by adding the foreign debt, $10,070,307, with arrears of interest amounting to $1,640,071.62, to the principal of the domestic debt, $27,383,917.74, with arrears of interest amounting to $13,030,168.20, and estimating the unliquidated debt at $2,000,000. The amount of the state debts he was not able to ascertain with precision, but estimated at about $25,000,000. This made the total debt to be dealt with something more than $75,000,000. The annual interest required at the rates provided in the contract would amount to $542,599.66 on the foreign debt, and $4,044,845.15 on the domestic debt, including that of the states, making a total of $4,587,444.81. While urging the most conscientious fulfillment of obligations, Hamilton admitted that this demand would require the extension of taxation to a degree and to objects which the true interests of the public creditors themselves forbade. "It is therefore to be hoped," he said, "and even to be expected, that they will cheerfully concur in such modifications of their claims, on fair and equitable principles, as will facilitate to the government an arrangement substantial, durable, and satisfactory to the community."
This arrangement he did not propose to reach by repudiating any portion of the debt. He proposed to reduce the rate of interest, in course of time, in accordance with the decline in the rate for the rental of capital abroad, but to those holders of the debt who desired settlement in full at the old rates of interest, he made liberal offers. A number of optional plans for accepting funds at different rates of interest for different terms were presented, which it is not necessary to set forth in detail. The statement of the first two will give an idea of their general character:—
"First, That, for every hundred dollars subscribed, payable in the debt, (as well interest as principal,) the subscriber be entitled, at his option, either to have two-thirds funded at an annuity or yearly interest of six per cent., redeemable at the pleasure of the government, by payment of the principal, and to receive the other third in lands in the western territory, at the rate of twenty cents per acre. Or, to have the whole sum funded at an annuity or yearly interest of four per cent, irredeemable by any payment exceeding five dollars per annum, on account both 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."
Hamilton thus reserved the right to redeem the debt at the pleasure of the government, when new securities could be floated at reduced rates. This was in accordance with the enlightened policy of governments before and since in availing themselves of the increase of capital and the improved condition of the public credit. The holder of the public funds could find no fault if he received back his principal, while an attractive investment at current rates of return upon capital would be offered to new investors in the form of funds at a reduced rate of interest, if such new funds were not acceptable to the old holders of the debt.
The proposal for using the public lands in part settlement of the debt was a happy device for employing a resource of immense value to the country, and promoting early settlement of the great areas of uncultivated land which became the property of the Union. It was in pursuance of this comprehensive policy that Connecticut, Virginia, and other states had ceded to Congress, even before the adoption of the Constitution, their indefinite claims to the great stretches of country between the Allegheny Mountains and the Mississippi.