If only assuming more debt would work for the US this time around...

Because he had bought a lot of state debt at big discounts, so would make a fortune if the federal government paid off?

Charles. It is amazing that Hamilton did NOT buy state debt. Of course today it would go without saying that the top government officials would enrich themselves in this fashion. Not Hamilton.

Sheesh, Professor. An America *that* owed.

I'll play...

The answer I remember was that Hamilton believed that the Federal gov't assuming the debt would give those merchants a stake in that gov't. At the time, it wasn't especially clear whether one should be more loyal to his state gov't or the fed. gov't. Hamilton, noted Federalist that he was, believed it should be the latter.

Was Hamilton out to make merchants rich? I mean, it's very clear he supported the federalization of state debt, and it's equally clear that he supported the notion that government debt should be repaid in a nondiscriminatory manner--ie, if you held the bond, you got paid regardless of whether you were a revolutionary war vet who "deserved" the bond or a merchant who didn't.

I think the fundamental question Hamilton was asking himself wasn't political (ie, who do I have to bribe to get their support for this new country) as much as it was policy (ie, what kinds of laws and institutions do we have to set up to make this new country work as an economic entity)

To me, what Hamilton did for America's economic development was akin to what the framers did in the constitution for its political development--set up a system of clear rules which every side could see working to their advantage, so everyone signed on. Obviously, the man wasn't a neophyte; he saw the political interest group advantages and factored them into his design. But I mean, if all he wanted was to make merchants rich, he could have given them a tax cut.

As a matter of policy, Hamilton was out to nationalize the economy and to set up rules for how the government responds to people who have economic claims on it. Making merchants rich was a consequence of this policy, but wasn't its aim.

Not an economist, but this cliche might answer the question:

"When you owe the bank thousands, you have a problem. When you owe the bank millions, the bank has a problem."

Federal debt meant the interests of the government and its creditors were somewhat intertwined.

Per Ron Chernow's biography, Hamilton indeed did not trade in govt debt, but that others close to him did, and he seemed to have a tin ear for the problems thus created.

Wasn't Hamilton trying to serve a lot of ends with the same pot of money? States get a break, at the expense of obvious subordination to the federal government. Merchants are assured of being paid what is owed them - by the sovereign. Some of those merchants are foreign, and learn that the new US government is their kind of international partner. And a precedent for meeting obligations is set, by assuming the States' obligations and then meeting them. All for one price - that's the beauty of it.

Hamilton believed that the more people who had a direct financial interest in the survival of the government of the United States, the stronger the system would be. Future revolutions were less likely if their success would mean the loss of income to a wide range of citizens who held government debt.

This answer may be overly simple and I don't know anything about Hamilton's personal motives. However, wouldn't he, in order to ensure future credit for the country, want to assume the debt so that the states didn't default?

I mean, if the states all start defaulting, then what does this say about the fiscal responsibility of the new nation? Perhaps Hamilton saw the importance of foreign investment.

Just read other posts... I guess I'm in the "policy" camp.

Paying off debts leads to increased ability to borrow on good terms leads to increased capital investment and productive capacity leads to increased societal wealth leads to political stability leads to increased capital investment....

theorajones
The northern states bought more state government debt to finance the revolutionary armies. The northern states owed more money because they had bigger revolutionary armies. The northern states didn't want to join the southern states unless those bonds were paid off by tariffs that the southern states would also pay.
Hamilton couldn't cut the tax rates for rich people because the government taxes everybody at the same amount as an import tax. You bought the same imported pair of pants, you paid the same tax, rich or poor. Not the same rate of tax, the same amount of tax.
If Hamilton had wanted to cut the rich people's taxes, he would have had to charge higher import taxes depending on whether the purchaser was rich or poor, and it could not have been made to work.

The nation that pays together, stays together.

I thought that the trade off Hamilton got for assuming the debt was the federal govt got all the unsettled land in the west. So over the next century the govt could sell off the land to repay the debt.

Am I wrong in believing that selling western lands was a major source of federal revenues in the 1800s?

The 'policy' folks are correct.

a) Assuming the state debts and funding the now national debt established national credit.

b) Assuming said debts also created a reason for the national government to establish its own sources of tax revenue. Hamilton was deeply distrustful of revenue streams that were dependent on the states, having learned the hard way while acting as a Federal tax agent in NY.

c) Repaying the debt at face value not only established the national credit, but also automatically deepened the credit markets, with salutary effects outside of the national sphere.

d) Assuming the state debts also created a centripetal political force, helping to tie what were otherwise small, independent nations in their own right together. Hamilton was fairly realistic about this, having previously urged Clinton to take actions such as offering land grants in NY to demobilized Continental officers in order to strengthen New York's military position were centrifugal forces to get the upper hand.

Out of the same misplaced belief in "the long memories of capital markets" and "the need to maintain a credit rating" that has continued to do so much damage in subsequent centuries and emerging economies.

Centralization (against the anti-federal tendency), commercialization (against the Jeffersonian tendency), deepening of the nation's credit pool and financial resources (against foreign dependency). As one born in the West Indies Hamilton knew well the advantages of a well integrated, truly national economy with advanced credit mechanisms and diverse revenue sources for a centralized government.