This essay discusses Alexander Hamilton’s financial plan called Assumption. Congress, led by James Madison, was causing obstacles for its passage. Hamilton desperately needed this bill to be approved. Even though Thomas Jefferson disagreed with Hamilton’s plan, he proposed a dinner party at his house as a way for him and Madison to reconcile their differences. This event, known as the compromise of 1790, would have significant implications in American history.
The initial federal government of the United States encountered a significant issue concerning the financial crisis resulting from the Revolutionary War. The problem originated from the states owing a total of twenty-five million, while the federal government had a debt of fifty-four million (referred to as Alexander Hamilton’s financial problem). To resolve this, a financial plan called Assumption was devised. It involved the federal government assuming responsibility for paying off both the states and the national debt resulting from the war. This approach aimed to enhance the government’s credibility and legitimacy.
The government can establish credibility globally by selling security bonds to pay off its debt. These bonds are appealing due to their potential future value, which motivates investors to support the federal government’s achievements. By increasing their investments in the country, these investors play a crucial role in fostering commerce and become unacknowledged heroes.
Alexander Hamilton, one of the United States’ founding fathers, fought in the American Revolutionary War and had a significant role in drafting the constitution. He was also responsible for creating and designing the American financial system (Alexander Hamilton). In his two credit reports, he discussed the concept of assumption openly. According to Shi et al., Hamilton was heavily influenced by Adam Smith’s book Wealth of The Nations, which coincidentally was published in 1776 – the same year America declared independence.
This book explained the characteristics and benefits of a modern capitalist economy in great detail. Hamilton adopted these principles and advocated for a diverse capitalist economy driven by competition, leading to prosperity” (200). Like others, Hamilton saw America as a land rich in resources and potential and believed that these resources should be properly utilized. He stressed the importance of effective management and strategic coordination on a national level to achieve this. He recognized the need to establish favorable conditions for economic development and closely monitor its progress. Hamilton believed that combining political and economic factors would create a powerful force for growth, which could be achieved through assumption.
Thomas Jefferson, who was the main writer of The Declaration of Independence and one of the founding fathers of the United States, played a vital part in negotiating the political agreement between Madison and Hamilton. While serving as an ambassador in France for five years, during which the continental congress discussions were ongoing, Madison would keep him updated on events in the country. During this period, Jefferson’s stance on federal power was uncertain. He objected to assumption but acknowledged its necessity as a means to preserve national harmony.
Congress experienced legislative paralysis at this time, but the narrator recognized the significance of good credit for the United States. This awareness originated from his five-year experience as a minister in France, where he observed that other countries considered the United States a joke until they paid off their foreign debts and restored credit with Dutch bankers. Because of his limited understanding of government affairs, he consistently depended on Madison’s viewpoint on various matters.
James Madison, also known as the father of the Constitution, collaborated with Hamilton to author The Federalist Papers. These papers comprise eighty-five essays supporting the US Constitution and the creation of a robust central government (The Federalist Papers). Initially, Madison shared Hamilton’s perspective and both advocated for a strong federal government. At the constitutional convention, they reached a consensus on their financial goals, aligning with Madison’s vision for the country.
However, his views eventually changed regarding Assumption. While Madison did not doubt that state debts should be paid off, he faced a problem with the southern states as they had already settled most of their debts. Madison believed that it would only be fair for a settlement to come before Assumption. This settlement would involve negotiations on the amount the southern states would contribute in taxes. The states would determine specific amounts based on what each state owned, as they considered it unfair that the north had contributed so little while the south would suffer the consequences.
Under assumption without a settlement, the government would take three million of Virginia’s debt but then tax them five million. Madison saw this assumption as a guise of taking states’ debts and the government assuming economic authority over all the states. In comparing Hamilton’s vision to Madison’s and Jefferson’s, Hamilton wanted to take care of foreign and domestic debt quickly and efficiently. Assumption would establish a clear discernable reimbursement policy that would help the United States to start developing faster. Madison challenged this for several reasons, such as the first situation dealing with Securities.
A security is a bond that the government sold to Revolutionary war veterans with a promise to pay them back. These veterans sold them for a cheaper price than when they bought it due to the fear of not getting their money back. As an example, if a veteran had purchased a one-dollar security, they would end up selling it for ten cents. Speculators bought many of these securities and made significant profits. Madison viewed this as unjust because veterans were being exploited, and they deserved to receive the full value of their security bond if the federal government was to fulfill its debt repayment.
According to Hamilton, the act of selling bonds had advantages as it was a voluntary decision. Instead of distributing the money equally, concentrating it among a particular group would be advantageous. Hamilton believed that these individuals would utilize the funds to enhance the community and promote economic growth.
Madison believed that the former and current holders of securities should both receive payment. Hamilton, however, disagreed and deemed the idea impractical and counterproductive to his plan of establishing a conducive economic structure. He argued that attempting to pay off all security holders would cause administrative chaos and add to the existing confusion.
Hamilton supported the creation of a National Bank, which would have regulated commerce and powerful financial figures. On the other hand, Madison and Jefferson saw politics and economics joining forces as corrupting. They believed in strictly interpreting the constitution and contended that it did not grant the government authority to establish a national bank.
Madison and Jefferson disagreed with the establishment of the government and held a distinct perspective on economic policy. In their view, the government should refrain from interference and instead allow natural laws, economic growth, and recovery to unfold. They believed that land, not money, was the true indicator of wealth. Additionally, they regarded investment bankers and speculators as unproductive individuals within society.
All they did was move paper and adjust numbers. This clash of ideals became agrarian vs commercial. Virginia was heavily indebted to British and Scottish creditors who were increasing interest rates for Virginia faster than the profit margins of tobacco and wheat could keep up. Hamilton and the elite were perceived as doing the same, bleeding them of money.
The dispute was resolved with the compromise of seventeen ninety. During this time, Congress was also working on passing the residency bill to determine the location of the new capital. Madison persuaded southern congressmen to support Assumption in exchange for Hamilton’s support in moving the capital to the Potomac River between Maryland and Virginia. Although the passage of Assumption would increase the federal government’s power, Hamilton’s program proved to be a great economic success story.
