Alexander Hamilton and the National Debt

Alexander Hamilton's reports on credit and manufactures comprised a series of three proposals he delivered to Congress as the first Secretary of Treasury, from 1789 to 1795. The exhaustive, meticulously detailed reports outlined the financial footing on which he wanted to place the United States.

In 1790, Hamilton presented Congress with his first Report on the Public Credit, which included a plan for addressing the nation's staggering $40 million debt. Hamilton recommended paying only the interest on the debt and deferring principal payment until far into the future. An aspect that sparked particular controversy was the intention to incorporate the wartime debt of individual states into the federal debt. Hamilton, like his predecessor in the Confederation government, Robert Morris, held a dim view of the efficiency of state taxation efforts and supported the creation of a unified national debt. The assumption of state debt would increase the size of the national credit market Hamilton hoped to create. The market would also help establish America's international credit rating and hinder individual states from becoming too powerful in the new nation.

Hamilton's plan was highly criticized, most notably by Thomas Jefferson, who wrote to Washington in 1792 complaining about Hamilton's ideology, "I would wish the debt paid tomorrow; he wishes it never to be paid, but always to be a thing where with to corrupt & manage the legislature." Southern congressmen also opposed the proposal, which they viewed as an attempt to secure Northern financial interests. The House of Representatives voted to approve Hamilton's plan, but the Southern interests blocked the assumption of state debts at 100 percent of their value. A compromise was eventually reached and the funding plan approved. Hamilton presented two additional reports: one calling for the creation of a national bank and one urging the imposition of tariffs to protect American trade from foreign competition.