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"So immense a power in the affairs of war": Alexander Hamilton and the Restoration of Public Credit
Max M. Edling
| AS its second session drew to a close, the first Congress passed one of its most controversial acts of legislation. Debate on the funding act had taken up most of the session. It had caused the authors of The Federalist to fall out and had resuscitated sectional feelings. To the secretary of the Treasury, the very existence of the Union seemed to hang in the balance. In the greater drama of American history, the funding and assumption of the revolutionary debt was the moment that set the stage for the party struggles of the 1790s. Disagreement over the management of the public debt led to the rivalry between Alexander Hamilton and Thomas Jefferson, who became not only leaders of clashing parties but also symbols of two radically different visions of the destiny of the American Republic. Their conflict has dominated interpretations of Hamilton's financial program to the extent that the original rationale behind funding and assumption has become obscured. The origins of Hamilton's program lay in the United States' situation as a relatively weak power in a world of hostile empires and nation-states. Regardless of any other intentions Hamilton may have harbored, the funding act aimed to equip the fledgling Republic with a crucial institution of the modern state: a well-managed public debt. Though few historians have altogether missed this dimension of the Federalist program, they have accorded it no more than fleeting interest. And they have paid much less attention than Hamilton himself did to the importance of public credit to a state's ability to act decisively in international affairs. Yet uncovering the history of government policies and institutions requires more than just interpreting the heated political rhetoric they could provoke. Because the funding act is crucial to the history of the early Republic, scholars need a better understanding of why it was propsed and how it worked.1 |
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The impetus for of the funding act came right after Hamilton's appointment as secretary of the Treasury in September 1789, when the House of Representatives asked him to prepare a plan "for the support of the public credit, as a matter of high importance to the national honor and prosperity." Hamilton responded with his "Report Relative to a Provision for the Support of Public Credit," better known as the "Report on Public Credit," in mid-January of the next year. With some important changes, the report formed the basis of the act adopted by Congress on August 4, 1790. The funding act reformed the enormous debt that the new government had inherited from the American War of Independence. It stipulated that outstanding securities would be exchanged for a new emission that was funded, meaning that the government pledged to pay interest on the debt from earmarked, or mortgaged, tax incomes. The new securities had no fixed maturation date and the government's right of redemption was restricted. Neither the "Report on Public Credit" nor the funding act offered more than limited means to pay off the principal of the debt. Failure to ensure repayment led contemporary critics to charge that Hamilton wished to prolong or even perpetuate the debt, a charge that has sometimes been repeated by modern historians. With the funding act, the federal government also assumed responsibility for the main share of the state debts run up during the American War of Independence. In the end the federal government assumed $18 million owed by the states, thereby nationalizing almost the entire revolutionary debt.2 |
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