The subject of national finance had long interested Hamilton. His ideas had been matured by a diligent and minute study of English precedents, and now that his opportunity had come he was ready to grasp it. Soon after he took office, the House resolved that “an adequate provision for the support of the public credit” should be made, and it directed the Secretary of the Treasury “to prepare a plan for that purpose and to report the same to the House at its next meeting.” This was, in effect, a postponement until the second session of the First Congress, which began in January, 1790. In his opening address to Congress, Washington pointedly referred to the public credit resolution which he had noted “with peculiar pleasure.” On the next day a letter from Hamilton was read in the House stating that he had prepared his plan and was ready to report the same to the House when they should be pleased to receive it.

This announcement brought up anew the question in what manner the Secretary should make his report. Gerry was on his feet at once with a motion that it should be made in writing. Boudinot “hoped that the Secretary of the Treasury might be permitted to make his report in person in order to answer such inquiries as the members might be disposed to make, for it was a justifiable surmise that gentlemen would not be able clearly to comprehend so intricate a subject without oral illustration.” The allusion to the intricacy of the subject had the effect of turning against the plan of oral communication some who had favored giving the Secretary the same direct access to Congress that the Superintendent of Finance had formerly enjoyed. Ames, for instance, now desired that the Secretary’s communications should be in writing since “in this shape they would obtain a degree of permanency favorable to the responsibility of the officer, while, at the same time, they would be less liable to be misunderstood.” Benson suggested that since the resolution of Congress had directed the Secretary to make a report, it was left to his discretion to “make it in the manner for which he is prepared.” Gerry adroitly countered by saying that the resolution provided for a report. That done, it would be time enough “to give him the right to lay before them his explanations, if he thinks explanations necessary.” The debate was brief and one-sided; the motion for receiving the report in writing was adopted without a division. Five days later the written report was laid before the House, but the Secretary was never accorded an opportunity to offer any personal explanations.

This masterly report, which is justly regarded as the corner-stone of American public credit, excites the admiration of the reader by the clearness of its analysis, the cogency of its argument, and the broad range of its vision. The principles of action that it embodied, however, were few and simple, chief among them being exact and punctual fulfillment of contract. “States, like individuals, who observe their engagements, are respected and trusted; while the reverse is the fate of those who pursue an opposite conduct.” To discharge the principal of the public debt was of course impracticable; nor was it desirable, as the creditors would be well pleased to leave it at interest. Incidentally the funding of the debt would provide securities that would serve trade as a species of currency, and would set in motion a long train of benefits that would extend throughout the community. In the funding operation the debts contracted by the States should be included. As to this Hamilton remarked: “The general principle of it seems to be equitable, for it seems 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 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 and increase of burthens.”

Hamilton computed the amount of the foreign debt, principal and arrears, at $11,710,378.62; the domestic debt, including that of the States, at $42,414,085.94, a total of over fifty-four millions with an annual interest charge at existing rates amounting to $4,587,444.81, a staggering total for a nation whose revenue was then insufficient to meet its current expenses. Nevertheless Hamilton refused to admit that “such a provision would exceed the abilities of the country,” but he was “clearly of the opinion that to make it would require the extension of taxation to a degree and to objects which the true interest of the public creditor forbids.” He therefore favored a composition, in arranging which there would be strict adherence to the principle “that no change in the rights of creditors ought to be attempted without their voluntary consent; and that this consent ought to be voluntary in fact as well as in name.” It followed that “every proposal of a change ought to be in the shape of an appeal to their interests; but not to their necessities.” Hamilton then went into details of a funding loan, in which various options were offered to the creditors, including land grants in part payment, and conversion in whole or in part into annuities, several sorts of which were offered. He submitted estimates of how the various plans would work out in practice, and he concluded that the annual revenue which would be required to enable the government to meet its obligations under the scheme and also to maintain its current service would amount to $2,239,163.09, a sum that could be readily provided.

There could not have been a more striking contrast than there was between the humiliating conditions which actually existed and the grand results which Hamilton designed and confidently expected. The ardent and hopeful tone of his plan, conceived in apparently desperate circumstances, is very marked. He declared: “It cannot but merit particular attention that among ourselves the most enlightened friends of good government are those whose expectations are the highest. To justify and preserve their confidence; to promote the increasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources both to agriculture and commerce; to cement more closely the union of the States; to add to their security against foreign attack; to establish public order on the basis of a liberal and upright policy these are the great and invaluable ends to be secured by a proper and adequate provision at the present period for the support of public credit.”

All these great objects were indeed attained, but Hamilton’s anticipation of them was at the time regarded as either a pretext made to cajole Congress or else merely an ebullition from his own sanguine nature not to be taken too seriously by sensible people. Senator Maclay of Pennsylvania regarded Hamilton’s plans as wildly extravagant in their conception and iniquitous in their practical effect. In his opinion, Hamilton had “a very boyish, giddy manner, and Scotch-Irish people could well call him a ‘skite.’” Jackson of Georgia exposed to the House the folly of Hamilton’s proposals by pointing out that a funded debt meant national decay. He mentioned England as “a melancholy instance of the ruin attending such engagements.” To such a pitch had the “spirit of funding and borrowing been carried in that country” that its national debt was now “a burthen which the most sanguine mind can never contemplate they will ever be relieved from.” France also was “considerably enfeebled and languishes under a heavy load of debt.” He argued that by funding the debt in America “the same effect must be produced that has taken place in other nations; it must either bring on national bankruptcy, or annihilate her existence as an independent empire.”

Such dismal prognostications on the very eve of the Napoleonic era, with its tremendous revelations of national power, were quite common at that time. The long rambling debate that took place in the House when Hamilton’s report was taken up for consideration abounds with similar instances of shortsightedness. Many members did not scruple to advise repudiation, in whole or in part. Livermore of New Hampshire admitted that the foreign debt should be provided for, since it was “lent to the United States in real coin, by disinterested persons, not concerned or benefited by the revolution,” but that the domestic debt was “for depreciated paper, or services done at exorbitant rates, or for goods or provisions supplied at more than their real worth, by those who received all the benefits arising from our change of condition.” True, Congress had pledged its faith to the redemption of issues at their face value, “but this was done on a principle of policy, in order to prevent the rapid depreciation which was taking place.” He argued that “money lent in this depreciated and depreciating state can hardly be said to be lent from a spirit of patriotism; it was a mere speculation in public securities.”

The distinction between the foreign debt and the domestic was seized by many members as providing a just basis for discrimination. Page of Virginia observed that “our citizens were deeply interested, and, I believe, if they were never to get a farthing for what is owing to them for their services, they would be well paid; they have gained what they aimed at; they have secured their liberties and their laws; they will be satisfied that this House has pledged itself to pay foreigners the generous loans they advanced to us in the day of distress.” In the course of the debate the power to do was so often mentioned as implying the right to do that Ames was moved to remark: “I have heard that in the East Indies the stock of the labor and the property of the empire is the property of the Prince; that it is held at his will and pleasure; but this is a slavish doctrine, which I hope we are not prepared to adopt here.” As a matter of fact, there had already been extensive scaling of the debt, and the note emissions had been pretty nearly wiped out. To save the public credit from complete collapse, the Continental Congress had entered into definite contracts under the most solemn pledges, and it was upon this select class of securities that it was now proposed to start anew the process of repudiation. But public opinion displayed itself so hostile to such perfidy that the party of repudiation in Congress soon dwindled to insignificance and the struggle finally settled upon two issues, discrimination and assumption.

Weeks of debate ensued, and the deepest impression made by a careful perusal of the record is the inability of members to appreciate the importance of the issues. Much of the tedious and pointless character of their speeches may be ascribed to the lack of the personal presence of the Secretary. There being nothing to focus the debate and exclude the fictitious and irrelevant, it rambled in any direction a speaker’s fancy might suggest. Moreover, its quality was impaired because any consideration of motive was of the nature of talking about a man behind his back and this, everyone knows, is very different from saying things to his face. Assertions and innuendos which would hardly have been hazarded had Hamilton been present, or which, had they been made, would have been forthwith met and refuted, were indulged in without restraint. Although one of the reasons given for requiring a written report was that the House would be the better informed, the debate does not indicate that the arguments by which Hamilton had vindicated his proposals had really been apprehended.

The question whether or not any discrimination could be made between original holders of the public securities and those who had acquired them by purchase was considered at length by Hamilton in his report. The public securities had been at such a heavy discount that now, if they were to be met at face value, speculators would reap large profits. Hamilton put the case of the opposition as strongly as possible. It might be urged that it was unreasonable “to pay twenty shillings in the pound to one who had not given more for it than three or four; and it is added that it would be hard to aggravate the misfortune of the first owner, who, probably through necessity, parted with, his property at so great a loss, by obliging him to contribute to the profit of the person who had speculated on his distresses.” Nevertheless, Hamilton submitted considerations showing that discrimination would be “equally unjust and impolitic, as highly injurious even to the original holders of public securities, as ruinous to public credit.” It is unnecessary to repeat the lucid argument by which Hamilton demonstrated the soundness of his position, for security of transfer is now well understood to be an essential element of public credit; but the special point of interest is that the debate simply ignored Hamilton’s argument and rambled along over the superficial aspects of the case, dwelling upon the sorrows of those who had parted with their holdings, and exhibiting their situation as the most important matter to be considered.

Madison was most active in making that branch of the case the leading issue, and in a series of elaborate speeches which cannot now be read without regret, he urged that the present holders should be allowed only the highest market price previously recorded, and that the residue should go to the original holders. Boudinot at once pointed out that there was nothing on record to show who might be an original bona fide holder. Great quantities of the certificates of indebtedness had, as a mere matter of convenience, been issued to government clerks who afterwards distributed them among those who furnished supplies to the government or who performed services entitling them to pay. He mentioned that he himself appeared on the record as original holder in cases wherein he had really acted in behalf of his neighbors to relieve them of the trouble of personal appearance. Madison’s proposition would therefore invest him with a legal title to property which really belonged to others. But this and other evidence of the real effect of Madison’s proposal failed to move him, further than to cause him to declare that “all that he wished was that the claims of the original holders, not less than those of the actual holders, should be fairly examined and justly decided,” Finally Benson of New York gave him a shrewd home thrust that plainly embarrassed him. He put the question whether, if he had purchased a certificate from Madison, and the Treasury withheld part of the amount for Madison as the original holder, Madison would keep the money? “I ask,” said Benson, “whether he would take advantage of the law against me, and refuse to give me authority to take it up in his name?” Madison evaded the query by saying that everything would depend upon the circumstances of any particular case, and that circumstances were conceivable in which the most tender conscience need not refrain from taking the benefit of what the government had determined.

The debate on Madison’s discrimination amendment lasted from the eleventh to the twenty-second day of February Washington’s birthday. The House did honor to the day when it rejected Madison’s motion by the crushing vote of 36 to 13. With that, his pretensions to the leadership of the House quite disappeared.

The assumption of state debts was the subject of a debate in committee of the whole which lasted from the twenty-third of February to the second of March. New factional lines now revealed a supposed diversity of interest of the several States. The false notions of finance then current were illustrated by an argument that was in continual use, either on the floor or in the lobby. Members would figure how much their States would have to pay as their share of the debt that would be assumed, and on that basis would reach conclusions as to how their States stood to win or lose by the transaction. By this reckoning, of course, the great gainer would appear to be the State upon whom the chances of war had piled the largest debt. This calculation made Burke of South Carolina, usually an opponent of anything coming from Hamilton, a strong advocate of assumption. He told the House that “if the present question was lost, he was almost certain it would end in her bankruptcy, for she [South Carolina] was no more able to grapple with her enormous debt than a boy of twelve years of age is able to grapple with a giant.” Livermore, representing a State never within the actual field of military operations, at once replied: “I conceive that the debt of South Carolina, or Massachusetts, or of an individual, has nothing to do with our deliberations. If they have involved themselves in debt, it is their misfortune, and they must extricate themselves as well as they can.” On a later occasion Stone of Maryland, another State that lay outside the track of war, gave the leading war-debt States an admonition of the kind that adds insult to injury, saying “however inconvenient it may be to Massachusetts or South Carolina to make a bold exertion, and nobly bear the burthens of their present debt, I believe in the end it would be found to conduce greatly to their advantage.” Burke made a crushing rejoinder. “Was Maryland like South Carolina constantly grappling with the enemy during the whole war? There is not a road in the State but has witnessed the ravages of war; plantations were destroyed, and the skeletons of houses, to this day, point out to the traveler the route of the British army; her citizens were exposed to every violence, their capital taken, and their country almost overrun by the enemy; men, women, and children murdered by the Indians and Tories; all the personal property consumed, and now is it to be wondered at that she is not able to make exertions equal with other States, who have been generally in an undisturbed condition?”

The argument pressed by the advocates of assumption was that the state debts contracted during the Revolutionary War were for the common defense, and that, unless these were assumed by the general government, the adoption of the new Constitution would do injury by withdrawing revenue resources which the States had formerly possessed. This position at the present day seems reasonable enough, but it is certain that at that time people worked themselves into a genuine rage over the matter and were able to persuade themselves into a sincere belief that it was outrageous the unfortunate States should expect the others to bear their troubles, and that Hamilton was a great rogue for proposing such a scheme. Writing in his private diary, Maclay characterized the plan as “a monument of political absurdity,” and he was in the habit of referring to Hamilton’s supporters as his “gladiators” and as a “corrupt squadron.”

On the whole the records make painful reading. The prevailing tone of public life was one of dull and narrow provincialism, at times thickening into stupidity, at times sharpening into spite, although ordinarily made respectable by a serious attitude to life and by a stolid fortitude in facing whatever the distracted times might present. It was the influence of a few great men that made America a nation. If one is not subject to the spirit of ancestor worship that has long ruled American history, one is bound to say that apart from some forceful pamphleteering of transient purpose the voluminous political literature of the formative period displays much pedantic erudition but has little that goes really deep. The Federalist, the artillery of a hard fought battle, is a striking exception. So, too, is the series of reports by Hamilton. But his plans could not prevail by force of reason against the general spirit of selfish particularism. Although on March 2 a motion adverse to assumption in committee of the whole was defeated by a vote of 28 to 22, it was then known that a majority could not be procured for enactment, and on April 12 the assumption bill was defeated outright in the House, 31 to 29. Maclay, who went over to the House from the Senate to witness the event, gloated over the defeat in his diary:

“Sedgwick, from Boston, pronounced a funeral oration over it. He was called to order; some confusion ensued; he took his hat and went out. When he returned, his visage bore the visible marks of weeping. Fitzsimmons reddened like scarlet; his eyes were brimful. Clymer’s color, always pale, now merged to a deadly white; his lips quivered, and his nether jaw shook with convulsive motions; his head, neck, and breast contracted with gesticulations resembling those of a turkey or goose nearly strangled in the act of deglutition. Benson bungled like a shoemaker who has lost his end.... Wadsworth hid his grief under the rim of a round hat. Boudinot’s wrinkles rose in ridges and the angles of his mouth were depressed and assumed a curve resembling a horse’s shoe.” The defeat did not discourage Hamilton. He had successfully handled a more difficult situation in getting New York to ratify the Constitution, and, resorting now to the same means he had then employed, he used pressure of interest to move those who could not be stirred by reason. The intense concern felt by members in the choice of the site of the national capital supplied him with the leverage which he brought to bear on the situation. Most of the members were more stirred by that question than by any other before Congress. It was a prominent topic in Madison’s correspondence from the time the Constitution was adopted. Maclay’s diary abounds with references to the subject. Some of his bitterest sentences are penned about the conduct of those who preferred some other site to that on the Susquehanna River which he knew to be the best because he lived there himself. Bargaining among the members as to the selection had been going on almost from the first. As early as April 26, 1789, before Washington had been installed in his office, Maclay mentions a meeting “to concert some measures for the removal of Congress.” Thereafter notices of pending deals appear frequently in his diary. After the defeat of the assumption bill, the diary notes the activity of Hamilton in this matter. An entry of June 14, 1790, ascribes to Robert Morris the statement that “Hamilton said he wanted one vote in the Senate and five in the House of Representatives; that he was willing and would agree to place the permanent residence of Congress at Germantown or Falls of the Delaware (Trenton), if he would procure him those votes.” Although definite knowledge is unattainable, one gets the impression, in following the devious course of these intrigues, that had Pennsylvania interests been united they could have decided the site of the national capital; but the delegation was divided over the relative merits of the Delaware and the Susquehanna as well as on the question of assumption. Hamilton’s efforts in this quarter were ineffectual, and the winning combination was finally arranged elsewhere and otherwise by the aid of Jefferson.

Thomas Jefferson was at this time forty-seven years old, and owing both to seniority and to the distinguished positions he had held, he ranked as the most illustrious member of the Administration. His correspondence at this period shows that he was fully aware of the importance of the crisis, and he did not overrate it when he wrote to James Monroe, June 20, 1790, that, unless the measures of the Administration were successful, “our credit will burst and vanish, and the States separate to take care everyone of itself.” In this letter Jefferson outlined the compromise that was actually adopted by Congress. The strongest opposition to the assumption bill had come from Virginia, although Maryland, Georgia, and New Hampshire also opposed it, and the Middle States were divided. Jefferson was able to get enough Southern votes to carry assumption in return for enough votes from Hamilton’s adherents to carry the Potomac site. An agreement was reached at a dinner given by Jefferson to which he invited Hamilton and Madison. According to this arrangement, the capital was to remain in Philadelphia for ten years and after that to be on the Potomac River in a district ten miles square to be selected by the President. The residence act was approved July 16, 1790; the funding and assumption measures, now combined in one bill, became law on August 4.

After Jefferson turned against the Administration, his participation in the passage of the assumption bill was such an awkward circumstance that he discredited his own intelligence by professing that he “was most ignorantly and innocently made to hold the candle” to Hamilton’s “game.” In reality the public service Jefferson then performed was the most useful in all his long and fruitful career. But for this action, the Declaration of Independence, to the drafting of which he owes his greatest fame, might now be figuring among the historical documents of lost causes, like similar elaborate statements of principle made during the Commonwealth period in England. Had the national forces failed at the critical period of financial organization, and the States, bankrupt by the revolutionary struggle, been left in the lurch, the republic would have followed the usual course of disintegration displayed by federations from the time of the Greek amphictyonies down to that of the Holy Roman Empire.

The charge was made soon after Hamilton’s victory that it was largely due to the influence of speculators. The advance in the market value of securities produced by Hamilton’s measures certainly gave an opportunity to speculators of which they availed themselves with the unscrupulous activity characteristic of the sordid tribe. Jefferson has left an account of “the base scramble.” “Couriers and relay horses by land, and swift sailing pilot boats by sea, were flying in all directions. Active partners and agents were associated and employed in every state, town, and country neighborhood, and this paper was bought up at five shillings, and even as low as two shillings in the pound, before the holder knew that Congress had already provided for its assumption at par. Immense sums were thus filched from the poor and ignorant, and fortunes accumulated by those who had themselves been poor enough before.”

This account is highly colored. The struggle was too close, and the issue was long too doubtful, to admit of speculative preparations extending to every town and country neighborhood. If speculation took place on such a large scale, it must have been also taking risks on a large scale, for assumption was not assured until Jefferson himself put his shoulder to the wheel. The lack of means for prompt diffusion of intelligence naturally provided large opportunity for speculation by those in a position to keep well-informed, and undoubtedly large profits were made; but the circumstances were such that it seems most probable that profits were less than market opportunities would have allowed had not the issue been so long in doubt. Nevertheless there was much speculative activity, and the charge was soon made that it extended into Congress.

The passage of assumption was the turning point. Other important measures followed, but none of them met with difficulties which the Administration could not overcome by ordinary methods of persuasion and appeal. A national bank was authorized by an act approved on February 25, 1791. Hamilton’s famous report on manufactures, a masterly analysis of the sources of national wealth and of the means of improving them, was sent to Congress on December 5, 1791. Upon his recommendation Congress established the mint, the only point which excited controversy being Hamilton’s proposal that the coins should be stamped with the head of the President in whose administration they were issued. This suggestion was rejected on the ground that it smacked too much of the practice of monarchies. The queer totemistic designs of American coinage are a consequence of this decision.

The formation of national government by voluntary agreement is a unique event. The explanation of this peculiar result in the case of America is the unifying influence of Hamilton’s measures. They interested in the support of the government economic forces strong enough to counteract the separatist tendencies that had always before broken up states unless they were held together by sheer might of power in their rulers. The means employed have been cited as evidence in support of the economic interpretation of history now in fashion. Government, it is true, like every other form of life, must meet the fundamental needs of subsistence and defense, but this truism supplies no explanation of the particular mode of doing so that may be adopted. Those needs account for motion but not for direction. Human will, discernment, and purpose enter and complicate the situation in a way that makes theories of determinism appear absurd. No one has ever contended that Hamilton was prompted by an economic motive in giving up his law practice to accept public office. He did so against the remonstrances of his friends, whose predictions that what he would get out of it for himself would be calumny, persecution, and loss of fortune, were all fully verified; but he possessed a nature which found its happiness in bringing high ideals to grand fulfillment, and in applying his powers to that object he let everything else go. Hamilton’s career is one of the greatest of those facts that baffle attempts to reduce history to an exhibition of the play of economic forces.