Washington [425]
On January 14, 1790, Hamilton delivered the Report on Public Credit that Congress had requested in the fall. With his nimble mind and encyclopedic store of knowledge, Hamilton served up a magnum opus that eclipsed anything the legislators had envisioned. No evidence exists that Hamilton consulted Washington before he completed it. Since the president was not well schooled in the arcana of public finance, Jefferson thought he had been hoodwinked: “Unversed in financial projects and calculations and budgets, his approbation of them was bottomed on confidence in the man [Hamilton].”4 Jefferson’s insinuation that Washington was a helpless dupe of Hamilton is highly misleading. Dating back to their wartime frustrations with Congress, Washington and Hamilton had shared a common worldview and an expansive faith in executive power. They had seen firsthand how Britain’s well-funded public debt had enabled it to prosecute the war with seemingly limitless resources. Late in the war Washington had blasted the fanciful notion that “the war can be carried on without money, or that money can be borrowed without permanent funds to pay the interest of it.”5
The federal government had fallen woefully in arrears in paying off the enormous debt—$54 million in national and $25 million in state obligations—amassed to fight the Revolutionary War. It would have been tempting for the young nation to repudiate this burden, but as a matter of policy and morality, Washington and Hamilton thought nations should honor their debts if they aspired to full membership in the community of nations. “With respect to the payment of British debts,” Washington had written before becoming president, “I would fain hope . . . that the good sense of this country will never suffer a violation of a public treaty, nor pass acts of injustice to individuals. Honesty in states, as well as in individuals, will ever be found the soundest policy.”6 If Washington gave Hamilton something close to carte blanche on fiscal matters, it was because they essentially agreed on the steps needed to tame America’s staggering debt. But he had also set up a policy-making apparatus in which major decisions had to cross his desk for approval, so he was confident that he could control the sometimes-brash Hamilton.
Hamilton’s audacious report argued that, to restore fiscal sanity, the government did not have to retire the debt at once. All it had to do was devise a mechanism to convince people that, by setting aside revenues at predictable intervals, it would faithfully retire it in future years. Such a well-funded debt, Hamilton argued, would be a “national blessing” inasmuch as it would provide investment capital and an elastic national currency.7 The report foresaw a medley of taxes, from import duties to excise taxes on distilled spirits, to pay off existing debt and to service a new foreign loan. With its new taxes and its funded debt, Hamilton’s program was bound to dredge up unwelcome memories of the British ministry.
In his report, Hamilton championed several controversial measures. Some original holders of the wartime promissory notes, including many Continental Army veterans, had sold them after the war at a tiny fraction of their face value, believing that they would never be repaid in full. Hamilton planned to redeem them at face value and wanted current holders of the paper, even if they were speculators, to reap the rewards of the steep price appreciation that would follow enactment of his program. Only by doing this, he thought, could he establish the principle that owners of securities were entitled to all future profits and losses. Without such a policy, the United States could never establish thriving securities markets. Hamilton was also persuaded that, since the debt had been raised