Funding the Revolutionary Debt
THE public debt of the United States had its origin in the indebtedness incurred in the prosecution of the Revolu- tionary War. When in 1789 Alexander Hamilton became the first Secretary of the Treasury of the United States, he found that the new government had inherited from the Confedera- tion an indebtedness of about eighty million dollars. This was divided into three parts, namely, the indebtedness held abroad, the domestic debt of the Confederation and the debts of the individual States, which had been incurred for the common benefit. These debts included a large amount of accrued interest, payment of which, on account of the com- plete disorganization of the finances of the States and of the Confederation, had fallen into arrears for several years.
In his great report on the public credit, Hamilton recom- mended that the debt due abroad should be immediately put on an active basis by the payment of the principal and interest which was in arrears and the making of arrangements by which the remainder of the debt would be liquidated at an early date. There was no other opinion held in regard to the treatment of the foreign debt.
There was, however, a wide difference of opinion as to what should be done about the domestic debt of the Con- federation because of the fact that the market value of the different securities which had been issued was so low that it