According to Hamilton's calculations,
his funding and assumption policy would
impose a debt burden of over $77,000,000
upon the new Federal Government. The
prospect held no element of dismay for
him. Governmental debt, he held, be-
came a sort of circulating capital for the
people. In his report to Congress he
explained:

It is a well-known fact, that in countries
in which the national debt is properly funded,
and an object of established confidence, it
answers most of the purposes of money.
Transfers of stock, or public debt, are there
equivalent to payments in specie; or, in other
words, stock, in the principal transactions of
business, passes current as specie. The same
thing would, in all probability, happen here,
under the like circumstances.

Funding of the existing scattered public
debt under federal auspices, Hamilton
argued, would serve three purposes: it
would consolidate popular support of
the Federal Government; it would estab-
lish a sound basis for the future credit of
the government; and it would solve, at
least for large-scale business transactions,
the problem of currency shortage. He
anticipated no difficulty in raising federal
revenues sufficient to pay off this debt
gradually and regularly.

Neither Congress nor the nation ob-
jected to Hamilton's proposal for the
assumption of the outstanding foreign
debt. Also, it was generally agreed that
the Continental and Confederation
domestic debt should be assumed and
funded, although the terms of the as-
sumption provoked considerable dispute.
But the taking over of the state Revolu-
tionary indebtedness was bitterly con-
tested.

FUNDING OF THE DOMESTIC DEBT. Few,
in or out of Congress, seriously objected
to federal assumption of the principal of
Continental and Confederation debt. But
was it necessary to pay interest as well
as principal? Long arrearages had cumu-
lated the interest until it totaled almost
half as much as the principal. Mere pay-
ment of the principal would be a wind-
fall to the many holders of the old Conti-
nental and Confederation obligations
who had long since surrendered all but a
bare speculative hope of ever being paid.
Why pile an additional $13,000,000 of
interest arrearages on the enormous total
of federal debt already in prospect?
Hamilton's position on this issue was
clear and curt. During the next few
years, the United States would be a
heavy borrower. Its credit must be above
reproach. It dare not awaken the sus-
picion that it would ever trade on its
weakness to countenance gratuitous
loans. An overwhelming majority of
Congress agreed with the Secretary's
view.

A second and more bitterly contested
issue intruded upon the general question
of federal funding of the old domestic
debt. In many if not most cases, the
original recipients of Continental and
Confederation certificates of indebted-
ness and bills of credit had disposed of
their holdings at greatly depreciated
prices. From 1787 on, there was a grow-
ing speculative buying and selling of
these instruments, on the prospect that
they might be redeemed by the new Fed-
eral Government. Speculation reached
its climax while the Redemption Act was
under debate. To redeem this debt in
1790 at its full specie value would pre-
sent a rich bonus to the speculators. It
would not benefit the original creditors
of the Continental and Confederation
Governments who had sold out. Why not,
proposed some members of Congress,
pay one-half the value of Continental
and Confederation certificates of indebt-

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