The ability of states or nations to borrow and be credit worthy has long been important to their success. The new nation of the United States of America found itself hugely in debt both at a state and federal level. To fight the war for independence the Continental Congress had racked up large debts and these were passed on to the United States when it was officially formed. Each of the 13 states had also borrowed heavily to finance independence and so, in September 1789, Congress commissioned Alexander Hamilton to report on public credit. What emerged from the snappily-entitled Report of the Secretary of the Treasury to the House of Representatives, Relative to a Provision for the Support of the Public Credit of the United States was increased debate over what type of country the United States was going to be: agrarian or mercantile, centralized or decentralized, eastward- or westward-looking.

This letter from Nathaniel Gorham to Henry Knox discusses some of the politics involved in the passage of what became known as the Assumption Bill. The bill provided for the debt of the 13 state governments to be consolidated onto the federal government, a move that was designed to help the United States centralize its financial system, prove its creditworthiness and so borrow more effectively. The trouble with this was that many of the states, particularly in the south, had made good headway in reducing their debt so were wary of then having to pay into the federal government to deal with other states’ debts. It’s not dissimilar to going for a meal with four people, only having a cheap salad and then splitting the bill [check] four ways, so you effectively subsidize your friends’ expensive steak eating. In this letter, Gorham writes to Knox that the “antis” have “very generally circulated the idea that the People will be subjected to a very heavy and perpetual Land tax” in order to service this centralized debt. Gorham fears that this “most Powerful Engine” will mean defeat for the measure so suggests to Knox that the plan be rethought in order to allay this fear.

The passage of this bill represented a wider debate in American politics about what the future of the nation was to be. For some it was a set of more loosely connected states whereas for others, in particular Alexander Hamilton and those who came to be known as Federalists, a strong central government was crucial to the nation’s survival and prosperity. Assumption of debt by the national government was a step towards this centralisation and would ultimately give it more financial power to shape its economic direction. A central state with the ability to borrow would mean a mercantile, manufacturing and capitalist future. Opponents saw America’s future as one of self sufficiency, unbeholden to lenders and foreign capital: noble farmers and land owners as opposed to the corruption of speculators and citizens reliant on the workbench and the vicissitudes of wage-labor. Hamilton saw America’s future as trading with Europe and the Caribbean whereas others saw a self-contained continental future in the vast westward interior.

An agreement between the opposing sides was eventually done with the “Dinner-Table Bargain”. In a post-prandial deal, Thomas Jefferson and James Madison agreed to help Hamilton pass the Assumption Bill in return for the positioning of the United States’ capital in the south; what eventually became Washington D.C. As Gorham, Knox and Hamilton desired, the central government took on the state debt and the United States’ ideological future was partly settled. This letter gives us an insight into one of America’s great compromises.

View more documents relating to the assumption of state debt

View more documents relating to Revolutionary War Generals

View more documents relating to government and civics

View more documents relating to debt

View more documents relating to economics

View more documents relating to Federalists

View more documents relating to taxes or taxation

View more documents relating to politics

View more documents relating to Alexander Hamilton (ca. 1757-1804)

View more documents relating to Nathaniel Gorham (1738-1796)