In his report, Hamilton took strong grounds against this idea, as being unjust, dishonest, and impolitic. In the latter point of view, he justly argued that public credit was essential to the new federal government, and without it sudden emergencies, to which all governments as well as individuals are exposed, could not be met promptly and efficiently. Public credit, he said, could only be established by the faithful discharge of public debts in strict conformity to the terms of contract. In the case in question the contract was to pay so much money to the holders of the certificates, or to their assignees. This was plain, and nothing but a full and faithful discharge of the nominal value of the debt could satisfy the contract. Thus he argued concerning the principal, and he applied the same logic to the accumulated overdue interest. It ought to have been paid when due, according to contract, and was as much an honest debt as the principal.
Hamilton went further. He strongly recommended the assumption of the state debts by the federal government, amounting in the aggregate, overdue interest included, to about twenty-five millions of dollars. Both descriptions of debts, he argued, were contracted for the same objects, and were in the main the same. Indeed, a great part of the particular debts of the states had arisen from assumptions by them on account of the Union, and it was most equitable that there should be the same measure of retribution for all. The secretary considered such assumption "a measure of sound policy and substantial justice." The entire debt, federal and state, foreign and domestic, for the payment of which he recommended measures of provision, was almost eighty millions of dollars.
The secretary, after giving the whole subject a thorough investigation and discussion, proposed that a loan should be opened to the full amount of the debt, federal and state, upon the following terms:--
"_First._ That for every one hundred dollars subscribed payable in the debt, as well interest as principal, the subscriber should be entitled to have two thirds founded on a yearly interest of six per cent. (the capital redeemable at the pleasure of the government by the payment of the principal), and to receive the other third in lands of the western territory at their then actual value. Or,