sentatives of the southern states argued
that since their states had relatively small
debts, federal assumption would work
unjustly. Gallatin, then in the House of
Representatives, further argued that a
careful checking of accounts, and a writ-
ing off of amounts owed, for one reason
or another, by the states to the Conti-
nental and Confederation Governments,
would reduce the total of state debt to
be assumed to $11,600,000.

Hamilton as usual had his way, but
only by negotiating a trade with the rep-
resentatives of the southern states. In
exchange for their votes on this feature
of the Funding Act, the national capitol
would be located in a "federal district" in
territory set aside by Virginia and Mary-
land. The measure finally passed pro-
vided for a $21,500,000 federal bond
issue to fund the state debts. ¹ In most
cases, the bonds were to be exchanged
against outstanding items of state debt
-- paper currency issues calculated at
specie value, certificates of indebtedness,
warrants of all kinds, pay notes, various
evidences of claims. The state govern-
ments themselves received bonds for
such part of their debt as they had re-
tired and for balances due them on their
financial transactions with the Conti-
nental and Confederation Governments.
No set-off was made for balances owed
by the states.

These federal funding bonds were di-
vided into three classes. Each creditor
received four-ninths of his payment in
bonds bearing six per cent interest, pay-
able from the date of issue. Another two-
ninths of each payment was made in
bonds that were interest-free for ten
years, then paid six per cent. The bonds
of the final one-third payment bore three
per cent interest, payable from the date
of issue.

PROVISIONS FOR DEBT SERVICE. The key-
stone of Hamilton's public debt policy
was unqualified maintenance of the na-
tional credit. Never again should the
government's ability to fulfill its foreign
domestic debt obligations be questioned.
Interest payments must be met regularly
and fully, and there must be assurance
from the very beginning that they would
be so met. If possible, the bonds of the
national debt should be sustained at a
premium; under no circumstances should
they be allowed to stay at a serious dis-
count for any period of time. The Fund-
ing Act of 1790 and several subsequent
measures provided the machinery for
effecting Hamilton's intent.

With respect to their redemption, the
bonds issued under the Act of 1790 were
of novel character. In any year the gov-
ernment might pay part of the principal
of all outstanding bonds. Such repay-
ment in any one year might not exceed
$8.00 on $100.

To assure holders of the new federal
debt issues that interest payments on
their holdings would continue, the Act
of 1790 earmarked certain items of fed-
eral revenue to this purpose. The govern-
ment was to be allowed $600,000 from
the annual customs and tonnage receipts
for its current expenses; the balance
would be set aside for interest payment
on the foreign debt. Later, during the
first session of Congress, a special rev-
enue measure was passed levying addi-
tional taxes, the receipts of which were
earmarked to interest payments on the
new domestic debt.

Finally, the Act of 1790 provided that
at the end of each fiscal year any surplus
standing to the credit of the Federal Gov-
ernment should be paid into a special

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