Gotham_ A History of New York City to 1898 - Edwin G. Burrows [242]
No one in Congress opposed paying the national debt. At issue was who owed how much to whom, and where the money would come from. Hamilton’s recommendation followed what he, Robert Morris, and other conservative nationalists had been advocating for a decade or more. First, Congress should consolidate the various foreign and domestic debts incurred by both the confederation and federal governments since 1776 and “assume” (i.e., take responsibility for) unpaid state Revolutionary debts, with accumulated interest. Second, it should “fund” the whole amount “at par” (i.e., face value), meaning that it would provide sufficient revenue to pay the interest and part of the principal every year. As to the mechanics of the process, Hamilton gave Congress a choice of six different plans. The one eventually chosen called for state and federal creditors to exchange their old notes for new 6 percent federal “stock.” Accumulated interest, if any, would be paid in 3 percent stock.
Without funding and assumption, Hamilton reasoned, the United States could never achieve the stability, prosperity, and strength it needed to survive. As in Britain a century earlier, the creation of a funded national debt would restore the government’s credit among those persons, at home and abroad, who possessed “active wealth, or in other words . . . monied capital.” The assumption of state debts, Hamilton continued, would bind every public creditor to the new federal system by powerful “ligaments of interest.” If it succeeded, they would profit; if it failed, they would lose. Politically, in other words, funding and assumption together would cement the union by enhancing the authority and reputation of the central government vis-a-vis the states. Economically, too, funding and assumption would do wonders for the country. Public confidence in government stock would enable it to function like money, thereby increasing the money supply, driving down interest rates, and stimulating the development of agriculture, commerce, and industry.
No sooner had Hamilton’s report become public knowledge, Chancellor Livingston reported sourly, than a mania for speculation in public securities immediately “invaded all ranks of people.” New York went wild. Even prominent Antifederalists like George Clinton and Melancton Smith took the plunge. Big investors became celebrities. Stories circulated of their high-stakes derring-do, richly embroidered with talk of secret couriers and chests full of cash.
Prince of the New York speculators was none other than William Duer. After less than six months on the job, Duer abruptly resigned from the treasury—“I have left to do better,” he explained—and promptly threw himself into daring and complex schemes. Through his wide network of connections in the United States and Europe, he arranged for or encouraged the influx of millions of dollars from investors in Boston, Philadelphia, Amsterdam, Paris, London, and elsewhere. Suddenly one of the richest men in the country, he lived like an Eastern potentate in the former Philipse mansion, attended by a regiment of servants and fawned over by important visitors. Jefferson called him “the king of the alley.” The Rev. Manasseh Cutler, who attended one of the chic dinner parties given by Duer and his wife, the former Kitty Alexander, had never seen anything like it. “I presume he had not less than fifteen different sorts of wine at dinner, and after the cloth was removed, besides most excellent bottled cider, porter, and several other kinds of strong beer.”
THE COMPROMISE OF 1790
Outside New York, and to no small degree because of the financial delirium there, Hamilton’s proposals roused fiery resentment. Funding at par, by allowing creditors to swap depreciated obligations for new interest-bearing paper at face value, was legalized