EARLY REPUBLIC

 

Question:
What did it mean for the federal government to “assume” state debts? Why did Secretary of the Treasury
Alexander Hamilton want to “assume” state debts? After all, “assumption” significantly increased the size of the
national debt that Hamilton, as Secretary of the Treasury, was struggling to manage! How does this make any
sense? Why, on the other hand, did Hamilton’s republican antagonists oppose assumption?

Sample Solution

EARLY REPUBLIC

During George Washington’s` presidency, political trouble was already brewing. Washington`s cabinet choices reflected continuing tension between politicians who wanted and who feared a powerful national government. The vice president was John Adams, and Washington chose Alexander Hamilton to be his secretary of the treasury. Alexander proposed to fund the debt through a gradual schedule of dependable tax resources, assume state debts as a measure of good policy, and generate new revenue through western land sales and taxes on luxuries, notably, booze. He proposed that the federal Treasury take over and pay off all the debt that states had incurred to pay for the American Revolution. The Treasury would issue bonds that rich people would buy, thereby giving the rich a tangible stake in the success of the national government.

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