Hamilton's Report on Public Credit

On January 9, 1790, Secretary of the Treasury Alexander Hamilton submitted his Report on Public Credit to the First Congress in New York City. Hamilton proposed that the federal government fund the national debt at face value and assume roughly $25 million in state wartime debts. He argued that durable public credit would bind creditors to the success of the new federal government and secure the survival of the republic.

Hamilton's report intensified a constitutional and political conflict over whether the new government would merely honor debts or use finance to consolidate national power. James Madison opposed assumption in Congress because Virginia and other states that had already reduced their debts would effectively subsidize states that had not. The dispute therefore became a contest over federal authority, sectional fairness, and the economic meaning of the Constitution in its first year of operation.

The deadlock broke in the Compromise of 1790, arranged at a dinner hosted by Thomas Jefferson, where Hamilton accepted a capital on the Potomac and Madison accepted assumption. Congress then passed the Funding Act of 1790 in August, and Hamilton followed this first major report with the Report on a National Bank in December 1790 and the Report on Manufactures in December 1791.