edness to the original recipients of these
instruments, as shown by the record
books still in existence, and one-half to
the present holders?

To Hamilton, this problem was a Gor-
dian knot, incapable of untanglement,
that could be severed only by a clean,
direct cut. The half-and-half solution
would at best work only a fractional
justice. There was no guarantee that it
represented a fair division between orig-
inal and ultimate holders. It took no cog-
nizance of the rights of intermediate
holders. It could not be applied in the
case of bills of credit and other items of
the public debt for which there were no
records of original issue. Furthermore,
and most important in Hamilton's eyes,
it conflicted with his policy of establish-
ing the federal debt as a homogeneous,
negotiable body of intangible wealth. As
he told Congress:

The impolicy of a discrimination results
from two considerations. One, that it pro-
ceeds upon a principle destructive of that
quality of the public debt . . . which is essen-
tial to its capacity for answering the purposes
of money -- that is, the security of transfer;
the other that, as well on this account, as
because it includes a breach of faith, it
renders property in the funds less valuable;
consequently, induces lenders to demand a
higher premium for what they lend, and pro-
duces every other inconvenience of a bad
state of public credit.

Partly won over by Hamilton's logic,
partly in deference to Washington's ap-
proval, partly influenced in their individ-
ual votes by the circumstance that many
were speculative holders of the old debt,
the members of the House and the Sen-
ate sustained Hamilton's policy. Current
holders of the public debt were to be
paid in full.

The Funding Act of 1790, provided for
the issue of federal bonds sufficient to
cover all exchanges of the old Conti-
nental and Confederation domestic debt.
Three types of securities were author-
ized. Two-thirds of the value of each ex-
change was to be made in bonds bearing
six per cent interest from their incep-
tion; the remaining third was to be made
in bonds on which interest was deferred
for ten years. Indents and other evi-
dences of accrued interest were to be
funded by three per cent bonds.

ASSUMPTION OF THE STATE DEBT.
Hamilton's desire for federal assumption
of state Revolutionary debts was dic-
tated by two considerations -- one politi-
cal, the other financial. He wanted to use
the strength of federal credit to wean the
loyalties of the people from the state
governments to the new Federal Govern-
ment. In his report to Congress he
argued:

If all the public creditors receive their dues
from one source, distributed with an equal
hand, their interest will be the same; and
having the same interest, they will unite in
the support of the fiscal arrangements of the
Government.

Moreover, he was heartily willing to see
an additional $25,000,000 of federal se-
curities issued, feeling as he did that
every dollar of federal debt represented
circulating wealth available for the pro-
motion of trade and industry. Behind
these practical arguments lay the general
thought that the state debts had been
incurred in the struggle for liberty, and
that the Federal Government was mor-
ally responsible for all the costs of that
struggle.

A strong group in Congress opposed
federal assumption of the state Revolu-
tionary debt, both in its general principle
and in its detailed provisions. Repre-

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