Alexander Hamilton’s Plan for Settling America’s Debt


By Allen Guelzo, Ph.D.Gettysburg College

Once Congress assembled on January 4, 1790, Alexander Hamilton, the Secretary of the Treasury, came up with a Report Relative to a Provision for the Support of Public Credit regarding settling America’s debts. He proposed in the report to look at the debt, not as a problem but as an asset. What were his other recommendations? How did the Congress react to this report?

Portrait of Alexander Hamilton by John Trumbull in 1806
Unlike everybody else, Alexander Hamilton didn’t view debt as a disease that had to be cured. (Image: John Trumbull/Public domain)

On June 24 the “Department of Foreign Affairs,” got a yes vote, followed by another yes vote on “the War Department” on June 27, and a “Treasury Department” with a single finance officer on July 2. This finance officer happened to be Hamilton.

Hamilton suggested that rather than treat the debt as an illness to be cured, treat it as a plant to be cultivated “by being well-funded.” Borrowing, after all, is what makes possible “trade, agriculture, and manufactures,” and, he added, it’s what promotes “labor, industry, and arts of every kind.” 

This is a transcript from the video series America’s Founding FathersWatch it now, on Wondrium.

Alexander Hamilton’s Views on Funding the Debt

Hamilton suggested that the federal government should pledge, through its tax revenues, to fund the debt on a gradual but dependable schedule, with regular interest payments coming from specifically dedicated tax resources. Moreover, Hamilton recommended, let the United States government take over, or assume, the indebtedness of the states as “a measure of sound policy and substantial justice.” And, he might have added, to keep the states from rocking the nation’s fiscal boat with credit policies of their own. 

Of course, funding the debt would require new revenue, even if it was not in the quantities that a complete pay down would require. And Hamilton proposed to find that new revenue in western land sales and “taxes on luxuries” such as wines and spirits, including those distilled within the United States and “upon all stills employed in distilling spirits from materials of the growth or production of the United States.”

Learn more about the challenges of the new republic.

The Stormy Debates in the Congress

An Image of Congress Hall in Philadelphia, Pennsylvania.
Some members of Congress were not happy with Hamilton’s proposals. (Image: Beyond My Ken/Public domain)

The fury, which Hamilton’s report let loose, exceeded all but the most acrimonious debates in the Constitutional Convention. James Jackson of Georgia was on his feet to denounce any measure that made no discrimination between “speculators” and the original holders of warrants, bonds, or promissory notes. “Look at the gallant veteran,” raged Jackson:

See him deprived of those limbs, which he sacrificed in your service! And behold his virtuous and tender wife sustaining him and his children in a wilderness, lonely, exposed to the arms of savages, where he and his family have been driven by this useful class of citizens, these speculators, who have drained from him the pittance which a grateful country had afforded him, in reward for his bravery and toils, and a long catalog of merits. Nor is their insatiable avarice yet satisfied, while there remains a single class of citizens who retain the evidence of their demands upon the public; the State debts are to become an object for them to prey upon until other citizens are driven into scenes of equal distress. Is it not the duty of the House to check this spirit of devastation? It most assuredly is.

Aedanus Burke of South Carolina also objected to the excise tax on distilled spirits—on whiskey—as “universally odious” to farmers in the backcountry who converted grain into whiskey to trade for hard coin.

Learn more about the lack of hard coin in the new United States.

Hamilton’s Supporters

Fisher Ames just as vigorously defended Hamilton’s report:

The science of finance is new in America and perhaps the report’s critics don’t understand quite what they are asking for. What, let me inquire, will be the pernicious consequences of not funding the debt as Hamilton recommended? 

Will it not be subversive of every principle in which public contracts are founded? No individual would be found willing to trust the Government if he supposed the Government had the inclination and power, by virtue of a mere major vote, to set aside the terms of the engagement.

The photo shows a close up of vintage coins.
The science of finance was new in America at the time. (Image: Virrage Images/Shutterstock)

What was surprising though was Madison’s contribution to the debate. Madison suggested that the current owners of notes and warrants be issued new ones based on the highest price the original securities had fetched on the open market. This was not Madison’s brightest moment. The truth is that any effort to re-rig the price of redeeming these securities would have driven foreign investment out of America in a stampede, and the proposal went down to a large defeat on February 22. 

The back and forth raged with few intermissions in the House of Representatives until June, when at long last, the House passed a funding bill incorporating Hamilton’s recommendations. It took another month for the Senate to agree. But the effects of Hamilton’s Report on Public Credit were immediate. The government securities tripled in value, now that there was some assurance that they would be funded—thus handing Americans $30 million in capitalization, which had not existed before.

Common Questions about Alexander Hamilton’s Plan for Settling America’s Debt

Q: How did Alexander Hamilton propose that the debt should be viewed?

Alexander Hamilton suggested that Congress should view settling America’s debt as a plant that should be treated instead of being a disease that had to be cured. He said that because loaning money is one of the mechanisms economies run on, which in turn funds “labor, industries, and arts of every kind”.

Q: What did Alexander Hamilton suggest the Congress should do?

Among many suggestions for settling America’s debt, Alexander Hamilton proposed that the government should agree to fund the debt from specific resources, which would also stop states from getting into their own financial squabbles. Taxing luxuries such as wine and also selling land were other suggestions he made for sources of revenue.

Q: What were some of the reasons Congress didn’t like Alexander Hamilton’s suggestions?

For settling America’s debt, Alexander Hamilton had suggested to raise taxes on luxuries such as wine. This was seen as a problem since farmers would have suffered economic consequences.

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