Debts, Revolutionary War

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DEBTS, REVOLUTIONARY WAR. The arcane details of the assumption and funding programs engineered by Treasury Secretary Alexander Hamilton in 1790 do not detract from their paramount importance in establishing the supremacy of national power over states' rights. These early initiatives under the new U.S. Constitution also sent a signal to elite American businessmen that the new government recognized the supreme importance of their support of the Federalist Party now in power. Assumption and funding also made it clear that the Federalist-dominated government legitimized the principles of laissez-faire capitalism and entrepreneurial endeavor in the new nation.

The assumption of state debts via the congressional legislation of 1790 seemed justified by the new constitutionally mandated federal powers to tax and regulate commerce, authority that had belonged exclusively to the states under the Confederation. Small states had accumulated the majority of the approximately $21 million of state debt (a vast amount in 1790), largely because they lacked ports capable of extracting tariffs on overseas trade, the chief source of revenue for large states with major port cities.

Companion funding legislation in 1790 was complicated by the myriad sources of the approximately $54 million national debt. That obligation had accumulated mostly during the Revolutionary War, as the strapped Continental Congress borrowed heavily from individuals. The latter were often Americans of middling wealth who fervently supported independence: they bought into U.S. wartime bond issues, for example, and accepted chits handed to individual farmers for livestock, timber, and grain requisitioned by the American military. The Confederation government could not pay any part of these debts, which had one thing in common: as they went un-paid year after year, they shrank in value, often to as little as ten cents on the dollar.

As Hamilton contemplated funding and assumption, he let his Federalist allies in the business community know of his plans, and these speculators bought up most of the debt at bargain rates, knowing sub rosa the debts would be paid by the federal government at par (one hundred cents on the dollar). It was a graphic lesson to capitalists and entrepreneurs that the Federalist government would be friendly to elite merchants and investors. Thus it strengthened the hand of the majority party that Hamilton dominated.

Most important, by establishing the federal government as supreme in fiscal matters, Congress knowingly acquiesced in a policy that conceded federal supremacy over states' rights in other general political and economic areas, a key Hamiltonian goal. It began the virtually permanent tilt away from state sovereignty and toward federal supremacy.

Representatives in the House did not concur quietly with a principle many Federalist opponents considered dangerous to the precarious republic. They recognized the necessity of assumption and funding to signal the new nation's fiscal integrity and establish credit at home and abroad, but opposition members extracted from Hamilton in exchange a promise to establish the new federal capital on the Potomac River. In a horse trade engineered by Thomas Jefferson, Washington, D.C., rather than New York or Philadelphia, would be the center of the nation's political world. Jefferson and his allies believed that removing the political base geographically from the greed, power, and entrenched economic interests of the middle states would make American national politics pure and free of the greed of moneyed men and the marketplace. Little did they know.


Elkins, Stanley, and Eric McKitrick. The Age of Federalism. New York: Oxford University Press, 1993.

Mitchell, Broadus. Alexander Hamilton: A Concise Biography. New York: Oxford University Press, 1976.

Carl E.Prince

See alsoConfederation ; Federalist Party ; Treasury, Department of the .