This report is among the more significant and neglected1 of Hamilton’s state papers. Its significance arises from at least two factors. As James Madison stated, it was Hamilton’s “Valedictory Rept.,”2 and as such it contains both a summary of where the Treasury Department had been under his direction and his views on where it should go after he had left the Government. More important, although it was written by the man who was—and still is—identified with introducing and implementing a program for increasing and perpetuating the Federal debt, its major emphasis is on plans for extinguishing the current debt with existing sources of revenue.

Hamilton divided this report into three separate, but related, sections. The first, a history of the fiscal system of the United States while he was Secretary of the Treasury, still stands as one of the most lucid and comprehensive accounts of this subject that has ever been written. The second section contains ten “propositions, which appear necessary … to complete our system of public credit” along with extensive “remarks” on each proposition. It was these propositions that Hamilton hoped Congress would translate into legislation after he had left office. The final section, while ostensibly a discussion of the reasons why the Government should not have the right to tax its own funds or to sequester funds in time of war, is in effect an essay on the nature of public credit. The report is followed by a series of statistical tables designed to illustrate, illuminate, and document the points made by Hamilton.

On January 16, 1795, Hamilton wrote to the Speaker of the House of Representatives3 and to the Vice President4 informing them that he had completed a report on public credit which he wished to submit to each branch of the legislature. On January 19 the House received the report, which was “read, and ordered to lie on the table.”5 On the same day the Senate ordered that Hamilton be informed that it was “ready to receive the plan for the further support of public credit.”6 The initial reaction to Hamilton’s proposals was, not unexpectedly, partisan. In a letter to Thomas Jefferson on January 26, 1795, Madison wrote that Hamilton’s report “is not yet printed & I have not read it. It is said to contain a number of improper things. He got it in [the House], by informing the Speaker, he had one ready predicated on the actual revenues, for the House whenever they shd. please to receive [it].”7 Even after he had read the report Madison experienced no difficulty in finding objections to it, and on February 8, 1795, he wrote: “… It is proposed to prolong the taxes laid last year and appropriate them with other surpluses to the purpose. But without new taxes, 30 years at least will be required for the operation, a period which may be expected to generate as much new debt as will be discharged of old. If we are ever therefore to be out of debt, additional taxes direct or indirect will be necessary.”8 Fisher Ames, a leading Federalist spokesman, was understandably pleased at the predicament in which Hamilton’s report had presumably placed the Republicans, who “have trained their men to bawl for a reduction of the debt; and now it is proposed and urged, they are grovelled, for still they would oppose.”9

Hamilton’s report appeared at an opportune time for congressional Federalists who during the preceding month had been advocating a variety of measures for reducing the debt. On November 19, 1794, George Washington in his sixth annual message had called for a “definitive plan for the redemption of the public debt.”10 Two days later the House of Representatives “Resolved, That … further provision ought to be made by law for the redemption of the public debt” and “Ordered, That a committee be appointed to prepare and report a plan pursuant to … [this] resolution.”11 The chairman of the committee was William L. Smith of South Carolina, a friend of Hamilton and a leading supporter of the Treasury Department’s policies in the House.12 On December 15, 1794, the Smith committee submitted a report, which reads: “That … it appears that the surplus of the existing revenues beyond the probable expenditures for the year 1795 and to the succeeding years, will enable the Legislature to commence, during the year 1795, and to continue, thereafter, the payment of that portion of the public debt which the Government has, by law,13 reserved the right to redeem.

“The Committee, therefore, submit the following resolution:

“Resolved, That there be appropriated, out of the revenues of the year 1795, a sum not exceeding six hundred thousand dollars, to be applied to the payment of two dollars on every hundred dollars of the amount of that part of the public debt which bears an actual interest of six per cent., the said payment to be made on the _____ day of _____ next.

“The Committee further report, that it would, in their opinion, be expedient to appropriate, until the year 1801, all the revenues arising from the duties and taxes on manufactured sugar and snuff, on licenses for retailing wines and spirituous liquors, on sales at auction, and on carriages, to the payment of so much of the public debt as the Government shall annually have a right to redeem, and for that purpose to prolong the duration of the said duties and taxes to the year 1801. They, therefore, recommend the following resolution:

“Resolved, That the several clauses of limitation in the acts for laying duties and taxes on manufactured sugar and snuff,14 on licences for retailing wines and spirituous liquors,15 on sales at auction,16 and on carriages,17 be repealed; that the said several acts be continued in force until the year 1801, and that the moneys arising therefrom be appropriated to the discharge of that portion of the public debt which is redeemable by law; subject, however, to a substitution of other duties or taxes of equal value, to all or any of the said duties and taxes.

“The following resolutions, as connected with this subject, are also submitted by the Committee:

“Resolved, That the eighth section of the act of last session, laying additional duties on goods, wares, and merchandise,18 be repealed; and that the duration of the said act be made commensurate with the act for laying such duties, passed 10th of August, 1790, entitled ‘An Act making further provision for the debt of the United States.’19

“Resolved, That the surplus of revenue which may hereafter exist, after satisfying all legal appropriations, ought to be annually appropriated to the purchase of the public debt.

“The prospect of an approaching peace with the Indian tribes having suggested to the Committee the propriety of resorting to the Western lands, as an auxiliary resource for the discharge of the public debt, they recommend the following resolution:

“Resolved, That provision be made for the sale of the public lands in the Western territory.”20

In the ensuing debates Smith, Ames, and Theodore Sedgwick of Massachusetts were the leading supporters of the committee’s resolutions, while William Findley of Pennsylvania and John Nicholas of Virginia spoke on more than one occasion in opposition.21 Speakers on both sides of the question devoted most of their attention to the second resolution calling for the extension of various duties and taxes to 1801.22 As a result of this emphasis the debates more often than not became arguments for and against specific revenue measures rather than a discussion of an integrated plan for the redemption of the debt. The concentration on specific revenue aspects of the problem enabled the Republicans to maintain that they continued to favor debt reduction while opposing the Federalist methods for achieving such a desirable objective. The Federalists replied by pointing out the apparent inconsistency of their opponents. Sedgwick, for example, said: “Strange to behold! We see the men who have been represented as the friends of aristocracy, the men who had erected a Dept as the means, who rendered it irredeemable, that it might be perpetuated as the instrument of power and influence; these men we see striving, with all their might, and straining every nerve, for the adoption of an efficient system, for the gradual reduction and ultimate destruction of this monster of iniquity; while, on the other hand, not less unexpected, we perceive the friends of the people, as they have called themselves, the men who had fairly discovered that every political evil was stalking in the back ground of the frightful picture, which they had made of the Funding System; these men we behold, formed in solid columns, to defend this hateful spectre against the assaults of the knights of the Funding System.”23

Although Hamilton incorporated in somewhat different form most of the substance of the Smith committee’s resolutions in his report, the two documents had little else in common. While the Smith committee employed a piecemeal approach that called for some legislative tinkering that would furnish additional revenues to reduce the debt, Hamilton proposed a grand design for extinguishing the entire debt. Smith and his colleagues quite understandably approached the problem as one that could be solved with some statutory patchwork on the existing body of law; Hamilton, while recognizing the necessity for additional legislation, proposed a variety of diverse, but related, solutions that added up to a comprehensive fiscal policy for the United States. In the language of some modern administrators, the Smith committee saw the debt as a problem, and Hamilton viewed it as a challenge.

On February 11, 1795, the House adopted fourteen resolutions which in general paralleled Hamilton’s ten propositions24 and which read:

“1. Resolved, That provision be made by law for the payment of interest on the principal of the unsubscribed Debt of the United States,25 (except Loan Office certificates, bearing interest on their nominal value,)26 at the rate of six per cent. per annum, for one year, ending the thirty-first day of December, one thousand seven hundred and ninety five.

“2. Resolved, That the arrears of interest on the unsubscribed Debt aforesaid, be calculated to the end of the year one thousand seven hundred and ninety-five, and that the possessors thereof be entitled to subscribe the same, on loan, to the United States, at an interest of three per cent. per annum. That those who shall not so subscribe, shall receive, on the first day of January, one thousand seven hundred and ninety-six, one-tenth part of the said arrears to them respectively due.

“3. Resolved, That the holders of Loan Office certificates, which bear interest on their nominal value, be entitled to receive the specie value, together with the interest thereon, at the Treasury of the United States, on demand; but that no interest shall accrue on such certificates after the _____ day of _____.

“4. Resolved, That a Loan be opened at the Treasury of the United States to the amount of the whole of the foreign Debt;27 and, that for every one hundred dollars of the said Debt subscribed thereto, the subscribers shall be entitled to an addition of one-half of a per centum to the rate of interest to which such stock is now entitled, or to a sum equivalent in capital, bearing an interest of five per cent. per annum. And that the permanent revenues of the United States be pledged for the payment of the interest quarter yearly, at the Treasury of the United States, till the reimbursement of the principal.

“5. Resolved, That the Commissioners of the Sinking Fund be empowered,28 with the approbation of the President of the United States, to provide, by new loans, or by the sale of certificates of stock, bearing an interest of six per centum, for the reimbursement of any instalment or part of the present foreign Debt of the United States: Provided, That the principal and interest of such loan and certificates shall be payable at the Treasury of the United States, and the principal thereof redeemable at the Treasury of the United States; and that such conversion of foreign into domestic Debt, shall not charge the United States with an interest of more than half a per cent. in addition to that payable on the Debt so converted. That the interest of the sum redeemed and paid thereof, and the permanent revenue of the United States, be pledged for the payment of the interest on the loans to be made on the stock to be created in virtue of the said powers.

“6. Resolved, That, in addition to the provisions heretofore made for reimbursing and redeeming the Debt of the United States, so much of the fourth section of the act, entitled ‘An act making provision for the reduction of the Public Debt,’29 as makes a reservation out of the interest on the Debt purchased, be repealed; and, that in lieu thereof a sufficient sum of the duties on impost and tonnage be appropriated for that purpose.

“7. Resolved, That so much of the revenue arising from the duties on imports and tonnage, as, together with the other moneys now constituting the Sinking Fund, that shall accrue to it by virtue of the foregoing provisions, and the interest redeemed, as shall be sufficient, be appropriated towards the payment of the sum which may of right be annually paid on account of the principal of such funded stock as, on the first day of January, one thousand seven hundred and ninety-six, shall bear an interest of six per cent. per annum, excluding that to the credit of the Commissioners of the Sinking Fund, and that which shall stand to the credit of particular States. And that the same shall continue so appropriated until the whole of the said stock shall be redeemed; and, thenceforth, until the whole of the Debt of the United States, funded and unfunded, shall be discharged.

“8. Resolved, That the dividends in the stock (the property of the United States) in the Bank of the United States be appropriated to the same fund, reserving thereout, from time to time, so much as shall be necessary to discharge the interest on what shall remain unpaid of the Loan made of the said Bank, pursuant to the eleventh section of the act of incorporation,30 with so much of the duties on imports and tonnage as together with those dividends, (after deducting what may be necessary to pay the interest,) shall be sufficient to pay off the instalments of the said Loan, as they shall hereafter, from year to year, become due; and as (the said instalments being first paid,) together with any other moneys which, on the first day of January, one thousand eight hundred and two may belong to the said fund, and not otherwise appropriated, shall be sufficient, from year to year, with the interest redeemed, to pay the sum, which may of right be annually paid, on account of the principal of such funded stock as at the end of the year one thousand eight hundred, shall begin to bear an interest of six per cent., excluding that which may stand to the credit of the Commissioners of the Sinking Fund, and that to the credit of individual States; and continue so appropriated until the said last-mentioned stock, and the instalments of the Loan aforesaid, shall be redeemed and discharged, and the interest of the stock which shall be redeemed by virtue of the foregoing provisions continue to be appropriated to the said fund after the full redemption in such case is completed, until the whole of the present Debt of the United States be redeemed by reimbursement, purchase, or otherwise.

“9. Resolved, That the moneys arising from the sales of the lands of the United States, and such as shall be received for the debts due to the United States antecedent to the present Government, together with the surplus of all current revenues which shall remain unappropriated at the end of any year, be carried to the credit of the same fund.

“10. Resolved, That after the last day of December next, all reimbursements of the capital of the Debt of the United States, (foreign or domestic,) and of the reimbursement of the Loan had of the Bank of the United States, be made under the superintendence of the Commissioners of the Sinking Fund; and that they be empowered, with the approbation of the President of the United States, as the instalments of principal become due, to borrow the sums necessary to pay such instalment: Provided, That every such Loan shall be redeemed at the pleasure of the United States, and the rate of interest shall not exceed six per centum per annum, and be chargeable—

“First. Upon the interest of the instalment which shall be reimbursed;

“Secondly. Upon the revenue of impost and tonnage, for making good any deficiency.

“But the interest on the six per cent. stock redeemed shall not be included.

“11. Resolved, That the Commissioners of the Sinking Fund be authorized, with the approbation of the President, to borrow, from time to time, such sums, in anticipation of the revenue appropriated, as may be necessary for the payment of the interest on the Public Debt, not exceeding one million in any year, and reimbursable within a year from the time of each Loan; and that the interest on such Loan be defrayed out of the permanent revenue, and shall not exceed six per centum annum.

“12. Resolved, That all sums remaining unexpended, after the year one thousand seven hundred and ninety-five, upon any appropriation for more than two years, after the end of the year for which such appropriation may be made, shall be carried to a separate account, to be kept at the Treasury; and that a statement of all appropriations shall be reported to the Legislature within thirty days after their first meeting in every year.

“13. Resolved, That all priorities established by appropriations for the Funded Debt shall, after the last day of December, one thousand seven hundred and ninety-six, cease with respect to all the creditors of the United States, who shall not, before the said last day of December, one thousand seven hundred and ninety-six, signify their dissent thereto to the Comptroller of the Treasury; and that, after that period, the revenue charged with such appropriations shall constitute a common fund, chargeable with the same debts indiscriminately, excepting only as it may respect such of the creditors as may signify their dissent thereto, in manner aforesaid.

“14. Resolved, That all Loan Office certificates, final settlements, or indents of interest,31 now in the hands of any person or persons, shall, on or before the _____ day of _____, be exhibited at the Treasury, where the holders or possessors shall be entitled to receive other certificates of equivalent tenor, in lieu thereof; and if any person shall neglect to exhibit such Loan Office certificates, final settlements, or indents of interest, and to get the same exchanged, he or they shall be forever barred from any payment or acknowledgment for such Loan Office certificate, final settlement, or indent of interest.”32

The House resolutions were referred to a committee again headed by William L. Smith which was instructed to prepare “a bill or bills … pursuant to the said resolutions.”33 On February 14, 1795, the committee “presented a bill making further provision for the support of Public Credit, and for the reduction of the Public Debt; which was read twice and committed.”34 In the debates in the House on this measure the existing records indicate little or no opposition to the plans for the redemption of the debt.35 What criticism there was centered on the proposals in Hamilton’s first proposition and the committee’s first three resolutions for paying non-subscribers, including the holders of a certain class of loan office certificates. And to Hamilton’s chagrin36 those who voiced such criticism in the House were Federalists. James Hillhouse of Connecticut, Benjamin Goodhue of Massachusetts, and Thomas FitzSimons of Pennsylvania, all of whom were Federalists, spoke in opposition, and on February 18 the House adopted a motion, which was made by Hillhouse and seconded by Goodhue, to strike out “the provision contemplated in this bill for non-subscribing creditors.”37 In supporting his motion, Hillhouse maintained that eliminating the proposals for the unsubscribed debt would in no way interfere with or weaken “a permanent and systematic plan for the reduction of the Public Debt.”38 Although he insisted “that no member … had a higher opinion of or greater respect for the talents and integrity of the late Secretary of the Treasury … than himself,” he added that in this particular instance Hamilton’s “reasoning … is too nice, and proves too much, and cannot be carried into execution.”39 In opposing Hillhouse’s motion, Sedgwick stated that “there was no alternative but to make the proposed provision [for paying the non-subscribers], or to violate, not by implication, but expressly, the solemn and pledged faith of the Government.”40 Hamilton also viewed the payment of the non-subscribers as a question of national honor, and on the same day that Hillhouse’s motion was adopted he wrote to Sedgwick: “I am tortured by the idea that the Country shall be so completely and so unnecessarily dishonored.”41

In its final form “An Act making further provision for the support of Public Credit, and for the redemption of the Public Debt,” which became law on March 3, 1795,42 was similar to the measure passed by the House, for the Senate rejected a series of amendments offered by Aaron Burr and the House refused to accept those amendments which the Senate did adopt.43 Hamilton had obtained most, but not all, of what he had wanted, but even he conceded that “’tis better that it should pass as it is than not at all.”44 As was so often the case, Ames agreed. While admitting that the “triumph is clouded,” he still thought the bill “the finale, the crown of federal measures.”45