Assumption and Funding of State Debts.-Hamilton then turned to the obligations incurred by the several states in support of the Revolution.These debts he proposed to add to the national debt.They were to be "assumed"by the United States government and placed on the same secure foundation as the continental debt.This measure he defended not merely on grounds of national honor.It would,as he foresaw,give strength to the new national government by making all public creditors,men of substance in their several communities,look to the federal,rather than the state government,for the satisfaction of their claims.
Funding at Face Value.-On the question of the terms of consolidation,as-sumption,and funding,Hamilton had a firm conviction.That millions of dol-lars'worth of the continental and state bonds had passed out of the hands of those who had originally subscribed their funds to the support of the govern-ment or had sold supplies for the Revolutionary army was well known.It was also a matter of common knowledge that a very large part of these bonds had been bought by speculators at ruinous figures-ten,twenty,and thirty cents on the dollar.Accordingly,it had been suggested,even in very respectable quar-ters,that a discrimination should be made between original holders and specu-lative purchasers.Some who held this opinion urged that the speculators who had paid nominal sums for their bonds should be reimbursed for their outlays and the original holders paid the difference;others said that the government should "scale the debt"by redeeming,not at full value but at a figure reasonably above the market price.Against the proposition Hamilton set his face like flint.He maintained that the government was honestly bound to redeem every bond at its face value,although the difficulty of securing revenue made necessary a lower rate of interest on a part of the bonds and the deferring of interest on an-other part.
Funding and Assumption Carried.-There was little difficulty in securing the approval of both houses of Congress for the funding of the national debt at full value.The bill for the assumption of state debts,however,brought the sharpest division of opinions.To the Southern members of Congress assump-tion was a gross violation of states'rights,without any warrant in the Consti-tution and devised in the interest of Northern speculators who,anticipatingFirst United States Bank at Philadelphiaassumption and fund-ing,had bought up at low prices the South-ern bonds and other promises to pay.New England,on the other hand,was strongly in favor of assumption;sev er a l r epr esen ta -tives from that section were rash enough to threaten a dissolution of the union if the bill was defeated.To thisdispute was added an equally bitter quarrel over the location of the national capital,then temporarily at New York City.
A deadlock,accompanied by the most surly feelings on both sides,threatened the very existence of the young government.Washington and Hamilton were thoroughly alarmed.Hearing of the extremity to which the contest had been carried and acting on the appeal from the Secretary of the Treasury,Jefferson intervened at this point.By skillful management at a good dinner he brought the opposing leaders together;and thus once more,as on many other occasions,peace was purchased and the union saved by compromise.The bargain this time consisted of an exchange of votes for assumption in return for votes for the capital.Enough Southern members voted for assumption to pass the bill,and a majority was mustered in favor of building the capital on the banks of the Potomac,after locating it for a ten-year period at Philadelphia to satisfy Pennsylvania members.
The United States Bank.-Encouraged by the success of his funding and as-sumption measures,Hamilton laid before Congress a project for a great United States Bank.He proposed that a private corporation be chartered by Congress,authorized to raise a capital stock of $10,000,000（three-fourths in new six per cent federal bonds and one-fourth in specie）and empowered to issue paper currency under proper safeguards.Many advantages,Hamilton contended,would accrue to the government from this institution.The price of the govern-ment bonds would be increased,thus enhancing public credit.A national cur-rency would be created of uniform value from one end of the land to the other.The branches of the bank in various cities would make easy the exchange of funds so vital to commercial transactions on a national scale.Finally,throughthe issue of bank notes,the money capital available for agriculture and industry would be increased,thus stimulating business enterprise.Jefferson hotly at-tacked the bank on the ground that Congress had no power whatever under the Constitution to charter such a private corporation.Hamilton defended it with great cogency.Washington,after weighing all opinions,decided in favor of the proposal.In 1791the bill establishing the first United States Bank for a period of twenty years became a law.